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Monday, October 31, 2011

New feature - follow by email

I've received many requests for an easy way to follow this blog, so I added a "Follow by Email" gadget at the top of the blog. As I understand it, once you click on that you'll be asked for an email address and you should start receiving emails whenever I post a new blog entry. I hope this helps those who want to follow along my life's journey in real estate (and other things in my life).

Now, I'll have to come up with some more intersting topics to write about. Today I also received notice of a new Blog by the Capital Title folks which I've signed up for at -
This should be a good source of information about real estate title issues and the changing face of real estate from that perspective.

By the way, I'll be posting the sales statistics for October for the 9 township markets that I track on my MoveToMilford Web site tomorrow. I actual already have it updated through Sunday, but with today being the last day of the month, I expect that there will be a flurry of closing activity today, which I'll add in tomorrow.

Here's a little bit that I wrote for my paper-based newsletter -

We appear to be experiencing what someone has dubbed to be a “Catfish Recovery” in the local housing market. We are bouncing along the bottom—up one week and down the next—however the general trend is in the upward direction.

A recent market study of the Village of Milford market for starter homes, done by local appraiser Glen Betts of 1st In Michigan Real Estate Appraisal Services— looked at the sales data for starter homes in the Village over the last five years. What Glen’s research showed is a market that has had almost monthly ups and downs, but which has been on an upward trajectory since January of 2009.

You may recall that January of 2009 is the month that the First Time Buyer Tax Credit expired. It is also the month in which the bottom dropped out of the market for the last time in this recession. It was the low point, at least for the Village of Milford starter home market. Since that time the market has bumped up and down but always following a fairly traditional overall appreciation curve.
Thanks to Glen for his research on this and his study report. You can see his study at my web site, under the Local Real Estate Statistics choice. His study confirms what we’ve been seeing in the market—ups and downs in the local townships markets, but generally trending in an upward direction. It may be an ugly recovery, but it’s a start back.

Thursday, October 27, 2011

Investing in Detroit

The city of Detroit is ripe with opportunity. A current and momentary lack of liquidity in the mortgage market has created unprecedented market conditions. Investors are dictating acquisition prices while rent levels stay constant. The result of these factors is above average rental yields with the potential for long term capital appreciation. One can acquire a fully renovated property in this market for 25% of what it once traded for. A well informed investor will understand the phenomenal opportunity in this market because of a unified and strategic effort of revitalization of key neighborhoods by the city, state, and federal governments.

In Detroit's heyday it was second only to New York in terms of population growth, wealth, etc. Its infrastructure was built for a population at that time of 2MM people. There are only 800,000 people living in Detroit at this time. The population has slowly gravitated towards more stable neighborhood "pockets" however there are still many people who are living in areas where homes are boarded up, burnt out, or falling down. These are homes that were thrown up because of the city's significant growth in a short period of time due to an economy fueled by the automotive and manufacturing sectors creating a boom period in the areas like Detroit. Many of these "shotgun" homes were stick built; frame styled and only built to last 50 years or so. They are not viable anymore. These are the homes that you can find on an internet auction for $1k. Not worth buying though.

Many banks and institutional organizations who have been forced to become property owners do not see the differences in stable areas and not so stable areas. They see an address on a balance sheet and “write-off” great homes because of negative perceptions based on zip codes. By taking advantage of what you could say is a glitch in the banking world's accounting and strategically acquiring in the best neighborhoods, you are in essence insuring future capital appreciation because as the city's infrastructure shrinks around certain core neighborhoods, the values in the areas will only appreciate.

One company that is taking the lead in this area of investing in Detroit is Precise - Properties of Detroit. Visit their web site for more information about their investment programs for Detroit real estate.

Wednesday, October 26, 2011

MIchigan Treasurer says Fannie and Freddie must pay...

In Michigan , as I’m sure may be the case in many other states, the GSE’s Fannie Mae and Freddie Mac were exempt from paying some of the local taxes imposed by counties on the transfer of real estate properties. The GSE’s claimed the exemption under the widely held theory that Federal Governmental bodies cannot be subjected to local taxes.
In a recent ruling, the Michigan Department of Treasury was asked by certain registers of deeds whether particular entities, such as Fannie Mae, were subject to the county and state real estate transfer tax. On October 4, 2011, the Treasury advised the Emmet County Register of Deeds that the answer was yes – Fannie Mae and Freddie Mac, as sellers of real estate in Michigan, must pay county and state transfer tax.

Apparently, Fannie Mae and Freddie Mac had previously avoided paying both county and state transfer tax relying on an exemption in both those statutes for “written instruments which this state is prohibited from taxing under the constitution or statutes of the United States.” In its letter, Treasury indicated that federal law generally prohibits the taxation of these entities by state and local governments. However, Treasury has concluded that the real estate transfer tax is not a tax on real property, but instead is an excise tax on the instrument that is being recorded. Thus, the Treasury concludes that government sponsored entities, such as Fannie Mae and Freddie Mac are not exempt from real estate transfer tax.

The law provides that a seller is responsible for payment of county and state transfer taxes. However, a seller can contractually agree to have a buyer assume that obligation. Generally, Fannie Mae and Freddie Mac use addendums which impose all liability for transfer tax on buyers. Thus, in pending purchases for Fannie Mae and Freddie Mac, buyers most likely will now need to deal with a new obligation, i.e., payment of county and state transfer tax as reflected on the HUD-1.

This ruling does not apply to HUD, so sales of HUD-owned hoes will still be exempt from paying the transfer taxes.

Thursday, October 20, 2011

Does every deal have to be a struggle?

I was so happy 45 days ago to finally get a “regular sale”, a sale that I even thought would be an easy sale. I have a buyer who has a great credit score and who is putting about ½ down on the property and I still am have headaches getting this sale through the ubiquitous and mysterious “underwriters.” I’m not even sure that we’ll close next week as planned.

What has happened to make this process so hard that even good buyers on good sales of good properties is a major pain in the behind? I know it drives the loan officers mad too and they end up tearing out their hair trying to meet all of the requirements of the dreaded underwriters. Underwriters must belong to the same secret society as the oft sited “investor” that sits behind the scenes in short sales and foreclosures.

I keep getting the story that all of the banks have dramatically increased the documentation requirements and have instituted multiple layers of review for everything. They have turned a process that a couple of years back could have been accomplished in 15-30 days into a 45-60 day nightmare. OK, so maybe mistakes made during the 15-30 day era also led to the home value meltdown debacle; however, that is no reason to clamp down so tight that would-be borrowers are strangled out of the market.

I suspect that part of the problem is educational – both for real estate reps and home buyers. Neither group has received much information about the new rules and requirements, so both are still operating under old assumptions about the process and the timetables involved. However, a bigger issue may be that the process has shifted from being customer service oriented (towards the borrower) to being protect-the-investor-at-all-costs oriented. Underlying all of that is an unspoken “buyer be damned” attitude. Apparently all buyers are now viewed as untrustworthy by the underwriters. If they have cash for a down payment they have to prove that it’s not from some money laundering scheme or, heaven forbid, a gift from mom or dad.

The new reality is apparently that 60 days is the new 30 days for non-distressed sales. For distressed sales – foreclosures and short sales – we all pretty much know that there are no rules – it could be 90 days, it could be 9 months. Patience beyond that required for Sainthood is the norm for them.

Like any system that is still seeking a new equilibrium, the mortgage process has now overshot on the over cautious side and needs to come back towards some middle ground. That may not require abandoning any of the new documentation requirements, those are probably a good thing; however, the review and approval and move the paperwork along parts of the process need some attention, as does the lack of transparency in the entire process. It seems to me that he underwriters also need to be refocused upon customer service to the borrowers and not just concern for the interests of the investor.
 We need a process for regular sales that is more transparent, easier to understand and explain and closer to the old 30 days to close model. Otherwise, the underwriters are going to evolve to be the undertakers of our business.

Sunday, October 16, 2011

Old institutions and ideas in our lives dying out...

It seems that all around us things that we (or at least I) grew up with and thought would last are withering away, losing influence or in some cases disappearing altogether. This includes institutions like the U.S. Postal Service and the original Big-3s of our youth – GM, Ford and Chrysler in the automotive world and CBS, NBC and ABC – the original Big-3 networks – in the entertainment world. Certainly Borders bookstores come to mind around here, as does the Summit Place Mall in Pontiac and home delivery of newspapers seven days a week.

Some would say that this is just progress – a natural progression of things in life – as new technologies and new lifestyles lead people to different products and different ways of spending their time. I guess that is true. Still one can miss some of the things that are gone or no longer hold sway in our lives. Do I miss the personal interaction with the teller inside the bank to stop using the drive-up or the ATM? I guess not and I seldom think about it any more.

One quaint idea from our past that I miss somewhat is the concept of retirement. I grew up in the era where you worked hard for 30-40-50 years and then you got to retire. They gave you the ceremonial gold watch, had a retirement party for you and off you went into your so-called Golden Years with your pension in hand; your comfort and security guaranteed by the company retirement plan.

Well that sure didn’t work out the way I thought it might. The companies that I worked for most of my career shifted everyone to a lump sum payout retirement plan and then ended up laying most off anyway when they were bought out by other companies that had no retirement plans either. So, now it appears that I’m in a fairly large group of somewhat older Americans for whom the concept of ever retiring is, as Ernie Harwell might have put it, “Long Gone.”

That’s a shame for several reasons, not the lease of which is that older workers having to hang on to their jobs longer means less opportunity for younger workers who are just starting out. It has also impacted the housing industry, with fewer people making the shift to retirement homes and the travel industry as fewer older people have the money to travel as they thought they might when they retired.

I suppose that the good news in all of this is that many older workers didn’t want to retire in the first place. It turned out to be really boring for many and they often returned to the workforce in some capacity after having burned themselves out on endless rounds of golf or on trips to places that didn’t turn out to all that great. I have often heard from really old people who are being interviewed about the secret to their long lives that continuing to work every day was what kept them going. I’ll have to admit that I’d be bored silly if I didn’t have the jobs that keep me occupied right now.

So, I guess I’ll just roll with the punches, jump on as many of the new technology bandwagons as I can and shift my focus from the old media to the new while I continue to get up and go to work everyday. The alternative, it seems to me, is much worse. I guess as life goes on one might be best served by remembering a recent popular motto attributed to the Navy Seals - Deal With It.

Wednesday, October 12, 2011

In the middle is good…

I get lots of real estate news feeds. There always seems to be stories about the Top 10 this or that. There’s usually at least one a week about the 10 worst real estate markets and maybe one about the Top-10 real estate recovery markets.

For the longest time the Detroit area market seemed to make every story about dismal markets. Then places in Nevada and California and Florida took over those positions. We haven’t consistently made the Top-10 good markets stories yet; but it feels good to be mired somewhere in the middle and not making as much news anymore.

Like many places, Michigan is seeing an inconsistent market right now. We have townships that are doing well right next to townships that are still seeing far too many short sales and foreclosure sales. Those sales are driving business volume and many companies like the one I work for are reporting strong year-over-year unit volume, albeit with lower dollar volumes in most cases.

Our inventory level is down and still dropping, which is an indicator that too many people are still underwater on their mortgages and don’t feel like they can afford to sell. The low-end category – under $100K – is still the best selling housing category; although the luxury end has held its own, too. Apparently the “trickle-down” economic theories don’t apply to real estate; because our mid-market is virtually frozen.

Still, it’s good to be in the middle and not being the subject of articles and press releases. We actually got some good press in the last Case-Schiller Report, with positive home value growth showing up for the Detroit-area market for first time in years.

Now if we can just get something good going on the jobs front (hint, hint Congress), we seem to be poised for a housing recovery locally. We appear to be in what someone dubbed a “catfish recovery” – bouncing along the bottom of this recession and bottom feeding on distressed home sales. We need to get the fish jumping out of the water again. Until then, being in the middle of the pack is good.

Sunday, October 9, 2011

The two faces of a schizophrenic housing industry…

Four stories in last Friday’s Realtor Magazine Online news feed provided a somewhat schizophrenic view of the housing industry. The first reported that The national Association of Home Builders says that 23 major markets across the US showed improvements improvement in housing permits, employment, and housing prices over the last six months. Great News!

The second story reported that fixed, 30-year mortgage rates are now below 4% - the lowest that they’ve been in years. More good news for housing, right?

Story three however reported that fully 30% of all mortgage apps are being turned down these days. The last story reported (to no one’s surprise) that homeownership is sinking fast and is on a downward pace not seen since the great depression.

Of course, when one reads the stories one finds that housing improvements are taking place in some areas that have had near-death experiences. And even though the rates are low, mortgages are being rejected for reasons such as bad credit or no job – reasons that were not sufficient to reject mortgages just a short while ago. And as for home ownership, the story reports that young unemployed people are the least likely to own a home – well duh!

Home ownership hit its peak at about 70% during the Clinton and Bush years when home ownership programs by both of those Presidents encouraged the lending behavior that eventually led to the housing bubble and the bust. It is now down to 65.1% and falling fast, according to the latest census information.

The biggest issue right now seems to be the falling and/or low inventory in many areas, due in large part to so many current home mortgages being underwater. We are a long way from a balanced market, but not just due to tighter credit. The same would-be sellers who can’t afford to put their homes on the market used to be our move-up buyers or they are the boomers that we expected to be selling, so they could downsize in retirement.

Now those would-be sellers are stuck and even those with real stories of hardship are finding the road to short sales blocked by incompetent and understaffed lenders who are incapable of making simple selling decisions. Adding to the confusion is the back-end mess created by the pooling and selling of mortgages to investors, which could take decades to clear up or get off the books.

So are things good bad or just ugly right now. I’d vote for ugly. It’s a great time to buy a house, if you have a down payment and can get a mortgage and if there is something on the market that you might like. Those are big ifs right now. It’s actually also a good time to sell a house (due to the low inventory) if you aren’t underwater on it. Don’t even think about waiting until next year to see if the lost value will magically come back – it ain’t gonna happen. AS Dr. Phil might say to would be sellers, “It’s time to get real.”

And what about Realtors® in this market? I listen to them at social gatherings telling prospective clients that things are great, that they’ve never been busier. That’s true. Most Realtors in this area are working their tails off, many selling more homes than they’ve ever sold… and making less money at it that they ever made. It’s a schizophrenic business to be in and we’re all lovin’ it and hating it or both.

Thursday, October 6, 2011

Thinking beyond the headlines and reading between the lines…

Today’s Realtor Magazine news feed had four headlines (among others) that caught my attention. On the surface they seem to be innocuous little articles, but when you read the stories and think about what is being said or suggested they bring some further thoughts to mind.

1. Housing Can Be 'Key Engine of Job Growth' – This story is basically about the National Association of Home Builders lamenting the fact that credit has tightened up so much that they aren’t build houses. They are claiming, as one might expect that if the current credit crunch were eased the housing industry might be able to lead the country out of its economic doldrums.

I’m not sure that this isn’t one of those chicken or egg conundrums and is certainly is a view that is way to simplistic. Even if there was credit available to build and maybe even to buy there is still a fear factor hovering over potential buyers that is driven more by job concerns.

It’s prophetic that the story that this Realtor Magazine article is based upon is titled “Do not harm…” and makes the argument that many of the Federal housing and homeowner bailout programs so far have not followed that caution. They have, in fact caused more problems (harm) than they have helped.

2. Bill May Help Home Owners Tap Retirement Accounts – This story really has some really bad possible future consequences that are not pointed out. On the surface it sounds initially like the right thing to do to let people use their retirement savings without a withdrawal penalty, which is its big benefit) to fund their current mortgage obligations. Sounds reasonable initially, but, you don’t have to think about it for long to see that allowing (even encouraging) them to strip retirement accounts now just means that they will be standing there a few years from now, hat in hand, asking what we’re going to do to help them out in retirement. It seems to me that it might be better to encourage distressed homeowners to bite the bullet now and downsize into a situation that they can afford, without decimating what little savings they have.

3. Lawsuit Accuses Banks of Cheating Veterans – This story is about practices that are so wrong on so many levels that these banks ought to have the book thrown at them. It is no surprise that the biggest three mentioned in the story were Bank of America, Chase and Wells Fargo. These are the same big-3 that are front and center in most of the other current cases and law suits over wrong doing and possible fraud.

Perhaps this time they’ve finally dug a hole that they can buy their way out of with political contributions. All 30 of the banks referenced in this investigation need to be punished big-time if these allegations are proven. No wrist slapping this time, get out the big paddle and head for the outhouse.

If there’s one thing that I don’t want to see it’s yet another Senate or Congressional committee hearing were the CEOs of the big banks are dragged in for a public flogging and then walk away whole. That is just political theater designed to give each political hack their 5-10 minutes of TV exposure. It would be appropriate if those hearings are held to just use cardboard cut-outs of the big bank CEOs sitting at the table.

4. More Kids Turn to Parents for Mortgage Help – This bank of mom and dad story would fall into the cute category if it weren’t for the same issue as the Retirement Accounts story above. In this case it’s the kids who are asking mom and dad to strip their savings (many times their retirement savings) so that they can get a house before they can really afford one. Obviously the same issues will eventually come up, except in this case at least mom and dad should be able to move into the nice home that they helped junior or princess buy with their retirement money. Just make sure they get that extra bedroom or in-laws suite.

This is something that retirement planners and financial advisors all usually advise against (unless mom and dad have lots and lots of money). It’s also something that, while well meaning, can add so much tension to the family situation that family breakups might result.

I’ve put the links below to the source stories upon which Realtor Magazine based their articles.

1. Based upon Do no harm…

2. Based upon an article at Housingwire…

3. Based upon a Washington Post article…

4. Based upon an article in USA Today…

Saturday, October 1, 2011

OMG another dumb real estate euphemism…

In the land of euphemisms the new real estate term “Reverse Staging” may rank up there close to the top of the rankings of obfuscous language.
What is reverse staging and how does one do it? Well, it is a polite euphemism for destroying your own house to decrease its value. It basically means that some people de-content their own homes and possibly even cause physical damage to them in an attempt to lower the appraised value for purposes of supporting a short sale.

The reason why people do this is obvious to all, including the banks involved; so it is viewed (correctly) as a form of fraud. The reason why someone in the real estate business decided to come up with this term to somehow make what is happening sound less sinister is less obvious. It’s just people destroying their own homes, just like vandals would. Why call it anything else?
I suppose that one could legally reverse stage one’s own house by substituting lower value light fixtures or making other changes to try to lower the perceived value, without causing damage; however, good appraisers, or good BPO writers, will be able to see past those weak efforts.

So, add yet another obscure term to the real estate lexicon. I guess we need terms like reverse staging to impress the general public that we somehow know and understand things that are going on in real estate better than they do.