Mid-year review...

Some comments on the market from our President of Brokerage, Dan Elsea.

For the first six months of the year, the number of homes sold is a mixed bag with lower value markets gaining over last year with Northwest Michigan showing the steepest decline. However, in all markets home values are still declining and we can expect that trend to continue through the end of next year as well. On average the rate of value decline is running around 1% per month.

The Northwest Michigan/Traverse City market is showing a steeper sale unit decline which should begin to narrow next year. Because of a stronger base economy their recovery will be faster so the entire state should wind up at the same spot by the end of 2009. It is interesting to note that although the market is slowing in Northern Michigan, so far home values there have shown the most stability.

How will the auto changes and specifically the GM change our market? With over 60,000 homes currently available for sale in Southeast Michigan, the 2,400 or so reductions will not have a major impact except in markets with high GM employment. In the short run the buyer pool may contract until the employees of GM and their suppliers know who is going and staying. What this means to Seller’s is they may need to be more aggressive in pricing if they want to generate a sale by the end of the year.

What is the best overall advice for Sellers for the balance of the year? It is the same as the first half. Focus on being one of the top 5 best priced homes in your competitive range. We will not be moving out of a buyer’s market for at least 24 months so price aggressively enough to more than match the market value declines. Distressed sales are your value benchmark (you don’t have to match the value of the poor conditioned foreclosure down the street, but you do need to move toward it). On average the spread between the foreclosure and non-foreclosure sales prices are running about 20%, but that does vary quite a bit depending of the condition of the homes.

For Buyers, move now! Every indicator says interest rates are going to rise over the next 12 months. Any gain by waiting for the price to drop will be lost in higher interest rates.

So, basically the market is still declining in our area. Here. like other hard hit parts of the country, there is some evidence that the rate of decline has slowed and we may be nearing the bottom (or maybe that's just wishful (wistful) thinking). Maybe, if we can get past the GM, Ford and Chrysler are all going to go bankrupt messages, we'll see some improvement locally. I have certainly seen more people out looking lately, because I've been with many of them. And. I've seen more houses sell lately (I had a couple in July), so things are at least picking up in my little corner of the market.

And finally, on the front page of this mornings Oakland Press was the headline "Home Sales May Rise", a story based upon pending home sales for June being up 23% over last year. Of course the same article did mention that actual sales in June were down in Livingston County by 14.4 percent. down 2.7% in Oakland Count and 2.4% in Macomb County. Detroit had a sales increase of 54.9% and Wayne County an increase of 31.4%, with investors snapping up foreclosed houses for pennies on the dollar. But, hope springs eternal and the article focused upon pending sales, which were up in Macomb County (10.8%) and Livingston County (10.8%), too.

We have one more strong quarter to go before we head towards the holiday season and them into the winter months. I certainly hope that things continue to improve, which is the message of this campaign season , isn't it? Many folks are counting on things getting better as soon as we have a new President. That's just about guaranteed, no matter who wins.

Fed Issues New Lending Rules

From a recent Associated Press story, comes this news. The Federal Reserve on Monday of this week adopted rules designed to protect home buyers from the kind of loans that drove many into foreclosure.

The new rules apply to all lenders and not just to banks supervised by the Fed. Most are expected to take effect Oct.1, 2009. Escrow requirements won’t go into effect until April 1, 2010.

Here are the new requirements:

- Prevent loans made without documenting borrower’s income.

- Require lenders to escrow money to pay taxes and insurance for risky borrowers.

- Limit and in some cases ban prepayment penalties.

- Prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value.

- Require mortgage advertising to contain information about rates, monthly payments and other features of the loan.

- Insist lenders credit a mortgage payment to a home owner’s account on the day it is received.

- Brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.

Granted, about half of these new Fed rules fall under the "Well, DUH!" rule (a rule made up by the same people who authored the “5 second rule” for dropped food). I have long suspected that requiring that the borrower had a job or some visible means of support is a good thing.

Hopefully new rules like these, combined with the spanking that the financial institutions took over the last two years will be enough to discourage future bad lending practices. Now, if they could just come up with something to encourage the banks to make more good loans that might help get things rolling again.

"Change we must". (Yoda)

“I cannot say whether things will get better if we change; what I can say is that they must change if they are to get better.” (Georg Lichtenberg). Those words from the Jack’s Winning Words blog certainly apply to the real estate world. We have seen some small changes already – more people out looking and a slight up-tick in the number of houses selling.

We are still experiencing a heavier than normal foreclosure rate, but the market seems to be absorbing them fairly well.

Sellers have come to grips with what has happened to prices and are now more realistic when putting houses on the market.

Buyers are aware that this great housing market, accompanied by relatively low mortgage rates, can’t last forever; so they are getting out and finding bargains right now.

We are still going through wrenching changes in our local auto industry. Perhaps we’ve become a bit punch-drunk from taking so many layoffs and plant closings and other bad news; but, it seems like the next story of bad news out of the industry is being announced with a little less stridency than would have been the case a year ago. It’s become – another day, another release of bad news from the little three (they’re actually being called the local three in the local press, now; although I can’t imagine why including Daimler-Benz as a local company makes sense to anyone).

Change is inevitable, so let’s hope it’s for the better and soon!

Tough Love...

Sometimes tough love is better than no love at all. Washington is still buzzing over Treasury Secretary Henry Paulson's blunt, tough-love comments about the home foreclosure crisis and the real estate market last week. His core message: Foreclosures are a fact of life in the mortgage world. They happen in large numbers even when the economy is booming. They're especially high now because a lot of people messed up - home buyers as well as lenders. In the wake of those messes, the federal government's clean-up role can only be a limited one.

"There is little (that) public policy makers can, or should, do to compensate for untenable financial decisions" by home buyers looking for quick profits and willing to take on unreasonable debts, said Paulson.

The Treasury secretary's comments at an FDIC housing conference came on the eve of Senate action on a housing-relief bill that would provide refinancing opportunities to a fraction of financially-distressed homeowners now stuck with bad mortgages. Everybody else will be left to either work out loan modification terms with lenders or end up in foreclosure.

Paulson also used his speech to punch holes in the widely-accepted perception -- fostered by media coverage -- that the housing market is in deep trouble nationwide. "We need to recognize that there is not a national housing market," he said, "but a collection of regional," highly-localized sub-markets down to the neighborhood level that often perform starkly different than the national headlines might suggest.

Though news about high foreclosure rates on a national basis may be scary-sounding, the fact is that the housing bust is highly concentrated geographically. For example, said Paulson, just four states: California, Florida, Arizona and Nevada -- accounted for one quarter of all mortgages nationwide, but 42 percent of foreclosure filings last quarter. Adding in Michigan, Indiana and Ohio, these seven states -- all by themselves -- have accounted for over half of all foreclosure filings this year. Well, OK, by-golly, we’re the Magnificent Seven!

So, here we are in the midst of our little regional blow-up in Michigan, waiting for any help that we can get to get our economy back in balance and our housing market out of its tailspin. I don’t disagree with Secretary Paulson, but I sometimes wish we were hearing from Pat Paulson instead of Henry Paulson. At least, maybe we’d get a laugh out of his take on things. I used to love his dead-pan delivery.

In search of a problem...

I recall a simpler time in life, when we were all blissfully ignorant about the various personal hygiene or health issues that now drive about half of the TV commercials that we see every day. Now, of course, we are told incessantly why we can’t go on without this product or that product, which will fix those problems that we didn’t know we had. Going too often or not going at all – we have a solution for that. We’re pretty much covered from our heads (dandruff shampoos) to our toes (athlete’s foot and toenail medicines for those).

This new phenomena in our society is the embodiment of solutions in search of problems, or in search of people who believe that they may have a problem. Every day the TV blares out “ask your doctor today if this drug is right for you.” I wonder how many times the doctors have to explain that the drug is not right for someone, because they don’t have the problems that the drug was designed to treat?

From a recent real estate news feed comes the story that there's growing evidence duct cleaning may be a solution in search of a problem rather than cure for what ails the air in your home. Consumer Checkbook (a subscribers only) research released this year says the dust you see in your ventilation ducts pretty much stays where it is. It likely won't become airborne unless disturbed -- say by duct cleaning. Under most circumstances duct dust is inert and harmless.

The latest U.S. Environmental Protection Agency information on the subject also says succinctly, "Duct cleaning has never been shown to actually prevent health problems. Neither do studies conclusively demonstrate that particle (e.g. dust) levels in homes increase because of dirty air ducts. This is because much of the dirt in air ducts adheres to duct surfaces and does not necessarily enter the living space."

The EPA does recommend servicing for fuel burning furnaces, stoves or fireplaces before each heating season to protect against carbon monoxide poisoning. And you should regularly have fireplace and wood burning appliance fire boxes and flues cleared of potentially flammable sooty deposits and creosote, the by-products of incomplete combustion.

But, the EPA only recommends duct cleaning if:

Ducts are infested with vermin (including rodents or insects), in which case you may also need a licensed pest control operator.

Ducts are clogged with excessive amounts of dust and debris and/or particles that are actually released into the home.

There is substantial visible mold growth inside hard surface (sheet metal) ducts or on other components of your heating and cooling system. A positive determination of mold's existence can be made only by a certified microbiology expert and that may require laboratory analysis for final confirmation.

The EPA recommends that you consider hiring National Air Duct Cleaners Association (NADCA) members who are locally regulated, licensed or certified. Talk to at least three different service providers, get written estimates and only then decide if you want your ducts cleaned. When the service providers arrive have them show you the contamination that would justify having your ducts cleaned. Just the fact that there is a National Air Duct Cleaners Association is proof of how far, as a society, we’ve progressed into the ridiculous on issues like these.

Maybe I can come up with some new service to offer homeowners to solve a problem that they weren’t aware that they had. Then I could start my own “National Association of Whatever” and make myself its President. Maybe I could offer to remove and air out and vacuum the feathers from natural down pillows for homeowners; so that they avoid exposure to any potential duck or goose-feather related allergies. Then I could be President of the National Association of Down Aerators or NADA. Stay tuned for TV commercials about pillow-borne down allergies and diseases that you could avoid. Don't let your down pillow embarrass you in public ever again. Shown on the right is a test vacuum of a pile of feathers. Don't try this at home, as it takes years of practice to vacuum a pile of feathers without sucking the feathers into the vacuum. You should only use a NADA pro for this delicate task.

Obstacle Illusions

“Life is full of obstacle illusions": (Grant Frazier). That wonderful line that I took from a recent Jack’s Winning Words Blog, might have come from the comic strip’s Malaprop Man. It certainly makes a great point that many, if not most, obstacles that we believe we hit in life are, in fact illusions. As Malaprop Man might put it – “They are pigments of our imagination.”

These obstacle illusions often lead to fear, which leads to hesitation, which ultimately leads to paralysis. I know that I face that in my life and my job. I hate cold calling, so I create obstacle illusions to give myself a way to rationalize not doing it. There’s the no-call list, of course; but that can be dealt with using an simple on-line search before calling. I have created a whole list of obstacle illusions that I allow to get in my way to put off cold calling; yet, I know that I have to do a certain amount of cold calling in order to continue generating enough business to make a living. So, that is one of my obstacle illusions.

In today’s market, sellers have erected a whole barricade of obstacle illusions to convince themselves that now is not the time to sell. There is certainly a great deal of reality about price erosion and the glut of homes on the market; however, homes are selling everyday, so it is possible to sell now. That’s where real estate professionals come in. There has never been a time when it is more important to have the help of a real estate professional than now. Getting professional help to price your home for the market and to properly prepare it for showings are keys to selling quickly.

The most pathetic thing to see is some small “For Sale By Owner” sign sitting forlornly on someone’s front lawn. You just know that this would-be seller has created an obstacle illusion out of the fees that a Realtor would charge to get the house sold. Never mind that study after study has shown that FSBO sellers actually end up making less on a sale than if it were listed with a Realtor and that the sale takes considerably longer to make (if it ever happens). I’ve had many, many buyers tell me that they won’t even consider going to see one of those homes, because they know that the owner has probably priced it too high and is unlikely to be willing to negotiate. I could go on about the lack of exposure for the house, but you get the point. Trying to FSBO in this market is a losing proposition.

Buyers, too, have become conditioned to erect the “not so fast, let’s look at a few more houses” obstacle illusion for themselves. The “shop ‘til you drop” mentality has taken hold in real estate, because buyers have become convinced that the perfect home at the fire-sale price is just around the corner. Now, I have no problem with buyers who have a good grip on exactly what they want in a house taking their time (and mine) to find it. I’ve gone as long as a year or more looking at houses with buyers, before finding just the right one. What is a bit frustrating is working with buyers who really can’t describe what they’re looking for in a home and how much they are prepared to pay. Often I’ll get an answer like “I’ll know it when I see it.” That runs a big red flag up that these may be shoppers, instead of buyers, especially if it’s accompanied by “I’m in no hurry.” That means that there is really no motivation to do anything.

So whether you’re interested in selling or buying, don’t make it harder on yourself by interjecting obstacle illusions into the process. Let me help you with either task. A part of my job is dealing with those things to make the real estate process easier and more satisfying for you.

Jobs and houses…

The Labor Department reported increased unemployment claims for May of this year last Thursday, which would make May the seventh consecutive month for job losses. Out of 369 metropolitan areas, 328 reported higher unemployment rates, or lower employment, if you will. The housing industry watches jobs reports closely, because that's the best indicator of economic health to come.

According to the Conference Board, leading indicators of employment suggest more trouble in the job market in the months ahead resulting in one of the most turbulent, hard-to-read markets ever. As an example, Dallas-Fort Worth added the most jobs this year (+66,100) while Detroit lost the most jobs (-47,400.) Employment went up 2.2 percent in Dallas, while it dove 3.3 percent in Detroit. Well, that’s just another category that we didn’t need to be number 1 in, isn’t it?

The National Association of Realtors expects job losses to be temporary, as companies clean house. The unemployment rate should average 5.4 percent this year and rise to 5.8 percent in 2009, but that's still well under the seven percent unemployment we had as recently as 2003. Actually, I believe that we are above 7% in the Detroit area already.

This might mean that a mass migration is about to start as people who are out of work seek employment in greener pastures. That's good news for cities that are adding jobs that perhaps missed the housing bubble like Dallas. And it's good news for buyers in more challenged areas, too. In Detroit, the people who still have jobs are buying homes. Realcomp, the Realtor's MLS for the Detroit metro, says home sales are up for the sixth month in a row in June year-over-year, (+13 percent.) Pending sales are also up by a whopping 32 percent. A part of that “whopping” sound is the result of the sellers getting hit “up side the head” by the low prices that they are getting. In places like Detroit, Pontiac and Ypsilanti, there are many home sales taking place for under $10,000, which is essentially under the cost of the land itself.

One reason is that homes are competing with foreclosures, and the average price for a home has plummeted. The median sales price for a home in Detroit is $137,000, and median foreclosed homes are selling for about $40,000. Compare that to the median national sales price of $205,300, expected by year's end. Whenever housing is affordable, sales tend to go up, so as the national median falls more than six percent in 2008, that could tip an increase in sales prices of as much as 4.3 percent in 2009. And those areas that are adding jobs are going to push sales back up even more. That means location has never been more important, says the NAR.

The old real estate mantra – Location, Location, Location – is still true; but, in today’s market I would put it this way – LOCATION, Price, Price. Price is second only to location and is really the most important factor, when you can’t do anything about location anyway. For many, there is no option, or maybe no desire, to move out of Michigan, even if jobs are scarce here. And, if you have to stay in Michigan, now is a great time to buy a house. Call me and I’ll help you with the location part, too.

Selling a house fast is still possible...

The fastest sale that I’ve ever personally made was a house that was only on the market for 7 days. Some houses sell in as little as one or two days, even in today’s market. Why is that?

In the down market that we find ourselves in these days, price is king and trumps everything but location and location doesn’t win by that much, assuming that the house wasn’t built under and overpass on a busy interstate highway I’ve actually seen a few houses that somehow got trapped between the east and west lanes of a busy Interstate and a north-south interchange. Imagine trying to sell them. What where those people thinking when they turned down the offer to buy them out so the highway could be built?

Anyway, if a house is priced right for the market AND it has some appeal to a specific buyer group - whether it is a lakefront property , or a horse property or a log cabin property or some other unique property – it can sell quickly. You have to have a little luck. There has to be someone in the unique groups of buyers who appreciate the property who is looking at the time that you put it on the market. Bring those circumstances together and you can get a quick sale.

So, why don’t more homes sell quickly? Well, let me give you this scenario. I get a call from someone who says that they want to sell their house. I make an appointment and go over and look at the house, mainly to access it’s current condition. Based upon my visit and the market data that I can research from the MLS on recent sales of similar houses, I go back and recommend a listing price of between $250-275,000 and I give them my marketing plan for the house. Great plan they say and we’d like to list with you. We’d like to start at $350,000 for the house, because our uncle George knows a guy who has a house like ours and he sold it for $350,000 2 years ago. Sounds ridiculous? It happens all the time.

For a while, I, like most other Realtors, was whoring myself by agreeing to list the place for the ridiculous price that the owner wanted; because, I thought, “Well, I can talk them down to a reasonable price later.” It just doesn’t play out that way. What really happens is that you end up chasing the market down, always behind the market, always a bit too high, always the bridesmaid and never the bride. I’ve stopped doing that. If a potential seller won’t get at least close to what I recommend as a reasonable market price, I won’t take the listing. It’s just doesn’t make sense in this market.

So, yes, your house can still sell fast – in a month or less – but not at the price that you may want or have in mind. Take your Realtor’s advice and price to the market. If your house has no specific features that would make it stand out; then, make it stand out by being the best (condition, clutter and cleanliness) house that buyers will see at that price. Believe me; it does make an impression and a difference.

Lots of people are out buying houses right now. If they aren’t visiting your house; or, they visit, but don’t make any offers, you are likely priced too high. You can protest all that you want that you are priced as low as you can go. Quite honestly the market just doesn’t care. Buyers don’t hear your boo-hooing. They don’t care what you owe. They don’t care that you might have to bring money to the table to close. All they care about is what homes that are similar to yours have sold for recently. They will make you a “market offer” for your house. Take it or leave it; but at least believe it. That’s what the current market says your house is worth.

So you can sell it fast or you can sell it last. It’s really up to you.

The vultures have arrived

From a CNN Money news story comes this item: Rock-bottom home prices have finally begun to lure vulture real estate investors into the fray.

Sharon Restrepo, a broker in South Florida, where home prices have dropped nearly 27% over the past 12 months, recently bought a three-family home in Cape Coral from a very motivated seller for a mere $65,000. It listed for $195,000. She can rent the three apartments out for about $1,500 and turn a profit, while she holds on to the property until the market recovers. "The savvy investors here," she said, "are buying up everything they can."

Even in the Seattle area, where prices are down just 5% year-over-year, small investors like Liberty Capital, a three-man operation, are snapping up cheap properties. Liberty's portfolio manager Davis Hsu has purchased four homes this year, including a "very clean" 2,700 square foot four bedroom in suburban Federal Way, for about $330,000. He estimated that he bought it at 70 cents on the dollar. He quickly flipped it for a modest profit. He bought another house for only $80,000, a 55% discount from the market, he figured, and made $60,000 profit when it sold. The other two properties he plans to hold onto for a while, renting them out until the market rebounds. "You can get good deals on distressed properties," Hsu said, "if you're willing to wait two or three years before you sell them."

Peter Zalewski, founder of Florida-based Condo Vultures, LLC, which specializes in bulk purchases of condo properties, is finding very deep discounts for his clients. In one deal he recently negotiated in Tampa, a developer's lender agreed to sell 149 units for $12 million - a 43% discount to the outstanding $21 million loan.

Prices are even cheaper in the Midwest. There, buyers like Jeff Ball, president of Austin, Texas-based Econohomes, purchase packages of bank-owned homes from lenders and resell them after little if any rehab. He buys five to 50 houses at a time, sight unseen. Often, the homes come with encumbrances, like back taxes, water bills or other liens that can add up to tens of thousands. Still, he comes out ahead. Econohomes has purchased about 500 of these homes - located primarily in Ohio and Michigan - over the past two years, at an average price of less than $5,000. Ball said he's bought homes in Cleveland and Detroit for as little as $3,000. They sell for an average of $25,000.

His business has been criticized; usually city officials would prefer the homes be renovated before they're resold. But Ball said the money spent doing that would make the business unprofitable; nobody would buy at the prices he would have to charge. They would sit vacant and become havens for squatters, looters and drug dealers. "The most significant thing is to stabilize the situation," Ball said. "Get people back in the house." The new owners move in and start taking care of the properties, according to Ball. If that starts to happen in large numbers, these communities may spring back to life.

In nature vultures and other opportunistic creatures perform a valuable service by cleaning up the remains of dead animals that would otherwise litter the landscape and pose a health hazard. I guess in real estate these vulture investors perform a similar service; although I’d agree with the local governmental bodies that wish they would invest a bit in them. I suppose they would have to make obvious repairs in order to rent them or even to flip them. In any event, the faster they can get the glut of foreclosed houses off he market the better.

Wars and foreclosures

From a recent news feed...Families of our nation's fighting forces are struggling much more against the scourge of foreclosures. The rate of foreclosures in towns where soldiers and sailors live is increasing at nearly four times the pace of the national average. That's more than during the Vietnam War, the Korean War and World War II, according to data from Realtytrac.com.

Realtytrac.com says foreclosure filings in 10 towns and cities within 10 miles of military facilities, rose by an average 217 percent from January through April this year, compared to last year. Nationwide, the overall rate during the same period was only 59 percent.

The biggest surge was in Columbia, South Carolina, home to Fort Jackson, where the Army trains recruits for combat in Afghanistan and Iraq. In Columbia, properties in some stage of foreclosure rose a whopping 492 percent from a year earlier. The second-biggest strike against homeownership was a 414 percent increase in foreclosures in Woodbridge, Virginia, next to the historic Marine Corps Base Quantico.

Foreclosure filings were up 300 percent in the cities around the Norfolk, Virginia Naval Base and the Camp Pendleton Marine Corps Base near Oceanside, California, RealtyTrac said. Foreclosures have more than doubled in Havelock, North Carolina, site of Marine Corps Air Station Cherry Point. Other military base cities experiencing foreclosure rates above 100 percent include Carlsbad and Barstow, California and Columbus, Georgia.

The Servicemembers' Civil Relief Act protects soldiers and sailors from losing homes for nonpayment of mortgages only while on active duty and for 90 days after they return home.
However, military families were frequently targeted as subprime mortgage customers during the housing boom because of their frequent moves, frequent calls to duty, and low military pay, making them more likely to have weak credit application credentials.

I'm not sure if the RealtyTrac people capture the full extent of the damage that being at war has caused int he housing market, because a good number of the men and women serving in the two war zones are now being drawn from the Reserves and National Guard. There are certainly many stories about what happens when a National Guardsman gets called up to serve in Iraq and has to leave his job and family behind. Some companies (but very few) make up the difference between the service pay and the pay that the employee would normally get, while they are on active duty. Otherwise, it's tough for the family that's left behind to cope sometimes and many Guardsmen and reservist may return to pre-foreclosure situations, with maxed out credit cards and delayed or non-payments on the house.

We live in risky times...

From a recent real estate news feed comes this story - PMI Mortgage Insurance Co., the primary U.S. subsidiary of The PMI Group, Inc. (NYSE: PMI), today (7-1-2008) released its Summer 2008 U.S. Market Risk Index(SM), which ranks the nation's 50 largest metropolitan statistical areas (MSAs) according to the likelihood that home prices will be lower in two years. The U.S. Market Risk Index shows risk further diverged along two distinctly different paths during the first quarter of 2008, continuing a trend that began in the fourth quarter of 2007. In general, risk continued to intensify in many of the MSAs where home price growth had significantly exceeded historical norms during the housing boom, but continued to decline in many other areas across the country.

A complete copy of the Summer 2008 PMI ERET report and an appendix that provides data for all 381 U.S. MSAs is available at: http://www.pmi-us.com/eret. I have shown only the top 25 MSA below, which includes Detroit at number 24.

The highest risk of future price declines remains in Riverside-San Bernardino-Ontario, CA (95.5), followed by Fort Lauderdale-Pompano Beach-Deerfield Beach, FL (92.2), and West Palm Beach-Boca Raton-Boynton Beach, FL (91.9). The areas with the lowest risk of price declines are in Fort Worth-Arlington, TX, Dallas-Plano-Irving, TX, and Pittsburgh, PA, each at less than a 1 percent chance.

The risk of lower prices in two years declined in 35 of the nation's 50 largest MSAs, and among all 381 MSAs, 326 experienced a decline in risk. Among the top 50 MSAs, 16 ranked in the two highest risk categories, and among those, 15 were in California, Florida, Nevada, and Arizona. Risk of lower prices in two years is greater than 50 percent in all of these MSAs.

Risk scores translate directly into an estimated percentage risk that home prices will be lower in two years. The Summer 2008 Risk Index is based on first-quarter Office of Federal Housing Enterprise Oversight (OFHEO) data.


PMI Summer 2008 PMI U.S. Market Risk Index

Risk-O-Meter Rank (My term) - Score

1 - Riverside-San Bernardino-Ontario; CA - 95.5
2 - Fort Lauderdale-Pompano Beach-Deerfield Beach; FL - 92.2
3 - West Palm Beach-Boca Raton-Boynton Beach; FL - 91.9
4 - Orlando-Kissimmee; FL - 91.1
5 - Las Vegas-Paradise; NV - 88.1
6 - Tampa-St. Petersburg-Clearwater; FL - 86.6
7 - Santa Ana-Anaheim-Irvine; CA - 85.8
8 - Los Angeles-Long Beach-Glendale; CA - 85.7
9 - Miami-Miami Beach-Kendall; FL - 84.8
10- Sacramento-Arden-Arcade-Roseville; CA - 82.2
11- Portland-Vancouver-Beaverton; OR-WA - 79.7
12- Phoenix-Mesa-Scottsdale; AZ - 79.6
13- San Diego-Carlsbad-San Marcos; CA - 78.0
14- Jacksonville; FL - 73.2
15- Oakland-Fremont-Hayward; CA - 72.8
16- San Jose-Sunnyvale-Santa Clara; CA - 51.3
17- Providence-New Bedford-Fall River; RI-MA - 43.4
18- San Francisco-San Mateo-Redwood City; CA - 35.7
19- Washington-Arlington-Alexandria; DC-VA-MD-WV - 21.4
20- Nassau-Suffolk; NY - 21.2
21- Edison-New Brunswick; NJ - 16.2
22- Virginia Beach-Norfolk-Newport News; VA-NC - 13.8
23- Boston-Quincy; MA - 11.8
24- Detroit-Livonia-Dearborn; MI - 11.1
25- Minneapolis-St. Paul-Bloomington; MN-WI - 8.2

The PMI Economic and Real Estate Trends (ERET) containing the US Market Risk Index is published quarterly by PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE: PMI). The Risk Index is a proprietary statistical model that measures geographic house price risk by predicting the probability that home prices in the nation's 381 largest metropolitan statistical areas (MSAs) and metropolitan statistical area divisions (MSADs) (as measured by the House Price Index from the Office of Federal Housing Enterprise Oversight (OFHEO)) will be lower in two years. The PMI U.S. Market Risk Index is based on data including the OFHEO House Price Index, labor market statistics from the Bureau of Labor Statistics, and the PMI Affordability Index, which uses local per capita household income, home price appreciation, and a blended mortgage rate to calculate the local share of mortgage payment to income relative to its baseline year of 1995. The PMI U.S. Market Risk Index scale ranges from one to 100 and translates to a percentage. For example, a score of 50 indicates a 50 percent chance that home prices will be lower in two years.

So, what does this all mean? Well for one, we are still in an area of declining values, with (in our case) an 11.1% probability of further declines in home values. While that’s not good, it’s better than living in Riverside/ San Bernardino/Ontario, CA; where the probability of further declines in value is 95+%. We certainly are not out of the woods at this point, but maybe we can avoid going too much further into the hole. I guess studies like this justify the continued use of the "declining market" designation and accompanying penalties by the banks.

Take good news where you find it.

Switching from yesterday's post to today's almost makes me feel like I have bi-polar disease; but, that's the nature of this market. We should all be ready to take any good news whenever and wherever we can find it. Take the latest (May) National Association of Realtors home resale report: Sales were up by 2 percent nationally in May, and up 5.5 in the Midwest and 4.6 percent in the Northeast. Condo sales also jumped 5.5 percent nationwide.

Sales of existing homes were up even in some of the hardest hit local markets -- Sarasota on the Gulf Coast of Florida, for example, and Sacramento California and Battle Creek Michigan. A lot of that activity is attributable to severely depressed home prices, short sales, and banks dumping foreclosures. No question that's true. But the down cycle has to stop somewhere, and in the toughest local markets and that means deeply-discounted and distressed properties coming out of foreclosure now look like excellent deals to bargain hunters. Locally, there are still foreclosure bargains to be had; but, much of the resale market activity for the last month has been in non-foreclosed houses, and that’s a good sign, too.

So, houses with slashed prices are selling fast and pushing up sales numbers. That's the way cycles work. The cyclical rebound gets rolling on the wreckage left over from the boom. There are other signs of possible relief in the housing market as well: The federal government agency that tracks home price movements -- based on multiple sales of houses financed by Fannie Mae and Freddie Mac -- found home values actually increased in two major regions in the U.S. last month. Prices continue to rise in Texas, Louisiana, Arkansas, Oklahoma, Kentucky, Tennessee and Mississippi. Dozens of metropolitan markets in the mid section of the country never participated in the boom, and they are showing steady increases in prices.

Still another plus: Mortgage rates took a surprise dip last week -- reversing the previous week's sharp increases. Thirty year fixed rate loans are back down to 6.4 percent and fifteen year rates are under six percent again. And here's one more positive sign to add to the mix: Personal consumption -- an important indicator of the economy's underlying rate of expansion -- rose by four tenths of a percent in May. That's the largest gain since December of 2006. Of course we still need to watch how the Fed reacts to rising inflation. If the Fed clamps down on credit to stop inflation, that could cause this delicate recovery to stall out again. Let’s keep our fingers crossed that they don’t do that.

For now, heading into the long Fourth of July weekend, things are looking up a bit. Local activity is relatively high. People are buying and selling houses, and not just foreclosed houses. It’s too early to declare that a turn-around has taken place, but it sure feels like we’re not headed on down the slope at nearly the same pace as we have been.

Business Week and the Housing Abyss

This week’s Business Week features a front page story on what they are calling the Housing Abyss. Citing various sources they document the rather precipitous decline in home values in several key markets. Like most national publications, they tend to focus upon the coasts and a few big markets in the southwest – Las Vegas, Denver, Phoenix. The Midwest does get a mention (is that good or bad?) for the declines in Ohio and Michigan.

What they have apparently just discovered is that this whole declining value thing has turned into a self-fulfilling prophesy and has now started to feed upon itself to make things worse. The trend was started by the increase in foreclosures, which were mainly due to bad loan decisions in the early stages. That trend snowballed when the economy started reacting by also going down and taking many honest, hard working people down with it. It was exacerbated by the reset of ARM loans that pushed many people over the edge on their ability to keep up. Then the banks started making it harder to get loans and started imposing a “declining market” penalty to appraisals, such that most houses that were financed or re-financed over the last few years are now under water (the owners owe more that the house is worth). The banks made sure that their view of the market as declining came true.

Add to all of that the rise in energy prices and all of the increases which that caused and the fall in stock prices and one ends up in the perfect storm, according to Business Week. They couldn’t find anything good to say in the whole article. Even the parts about the work that the government is doing to pass legislation they considered to be too little, too late. About the only point that they made that could be taken as good news was the portion about it being a good time to be a buyer, if you have the wherewithal to put 20% down on a house.

OK, so we’re staring into the abyss. What is one to do, if you had hoped to sell your home? You could assume fetal position and whimper loudly; or, you could take to the bomb shelter and not come out for several years. Neither is a very appealing strategy. I’d suggest that you take Dr Phil’s advice and GET REAL, DEAL WITH IT. You can’t hope the current crisis away, nor can you deny that it affects you and your home – it does.

So, get a good Realtor to help you understand what your house is worth in the current market and then use that Realtor to make sure that you get at least that much, and as quickly as possible. You likely don’t have enough time to wait out the current market downturn and wait for the value to get back to where you thought it was. It is likely to take 5-8 years to get back the value that has already been lost.

Sit down and figure out what you owe on the house and what it costs you a month to keep it. Anything that you can get above what you owe is all good and the sooner that you sell the fewer times you’re going to have that cash outflow on this house. Remember to use "the magic number" - .925 - as a quick guide to help you with pricing. If you come up with what you need to just break even, divide that amount by .925 to find the purchase price at which you would break even. Once you are on the market, multiply any offer price by .925 to get a quick feel for what you would have, after the cost of the sale is removed, to pay off your mortgage(s) and put in your pocket. Sometimes it may make sense to take less that you owe (bring money to the table), just to get out from under the monthly obligation, especially if you are in a situation where you are slowly chipping away at your savings, just to keep up with this house.

The important thing to try to do is to price to the market (that’s where that good Realtor mentioned above can help the most) and not to what you “need” to get. The market is cruelly efficient and just doesn’t care what you need or want for the place. The market only cares what houses that are similar to yours are selling for now. You may get a slight premium over the market average, if yours is in the best condition among all similar houses, but it won’t be 10-15% more.

The good news is that houses are selling. Buyers are out right now, trying to get into a new home before school restarts. You can avoid being sucked into the abyss. Sell it now!

Top Places to Buy an Old House

This Old House magazine is always searching for great places to buy old houses. In the July issue, the magazine identifies 12 neighborhoods nationwide that it considers the best old-house neighborhoods in the United States.

The winners were chosen because of their architectural diversity, the preservation momentum in the area, and neighborhood amenities, including walkability, services, and the level of community. The magazine also identifies dozens of other good neighborhoods.

Here are the magazine's top 12:

Centre Park Historic District, Reading, Pa.: five-bedroom townhouse can be purchased for about $60,000, a large Queen Anne for $135,000, and a mansion for less than $600,000.

Hampton Heights Historic District, Spartanburg, S.C.: homes range from $50,000 for a 1930s Arts and Crafts fixer-upper to $250,000 for a restored Queen Anne.

Galena, Illinois: a Greek Revival or Second Empire home can be bought for as little as $130,000.

Kempton's Corners, New Bedford, Mass.: prices run the range in this area, starting at $180,000 and then running as high as $800,000 for a Victorian.

Old Louisville, Ky.: a rehabbed manse might cost about $275,000, with prices topping out at $800,000.

Pleasant Ridge, Mich.: prices range from the low $100,000s for a modest bungalow to more than a million for a big Colonial Revival or Tudor.

Victorian Flatbush, Brooklyn, N.Y.: fixer-uppers are available for $600,000 to $900,000; a restored home will run you upward to a million or more.

Albany, Ore.: home prices in Albany's national historic districts range from $90,000 for a run-down Italianate to $400,000 for a fully restored one.

Georgetown, Texas: price tags on fixer-upper bungalows can be purchased for as little as $90,000; grander homes can run in the millions.

Centralia, Wash.: homes in the Edison District range from $250,000 for an 1,800-square-foot Craftsman to $600,000 for a massive Queen Anne.

New Castle, Del.: a brick Federal in good shape will run you $385,000, while large historic homes with river views cost close to a million.
Washington, Ga.: Antebellum mansions run as low as $350,000, while a 2,000-square-foot Victorian cottage might go for $130,000.

Long-time readers might know that I live in an old house (1885) in Milford, MI, which I consider to be one for the best places for old houses in our area. Our old houses run from $110,000 for a basket case that needs lots more than a little TLC, up to $400-500,000 for our biggest mansions that have been thoroughly updated. Our village's walkability score is great, with a quaint downtown and great restaurants.

Other good places to look for old houses locally are Birmingham and Northville (a bit pricey), downtown Farmington Hills (also pricey), Holly (many homes need a lot, but the stock is good), Howell (same comment as for Holly), and Brighton (same comment as for Holly). A bit further out, Fenton and Linden have some nice old homes, along with many dumpster queens.

In my travels, one place that I thought had great old houses is Savannah, GA. The problem is that they are almost all well over a million dollars now. I suspect the same is true in Charleston, SC, too.

I've got some good information about buying old houses on my Web site - http://www.themilfordteam.com/ - as well as links to lots of sites with helpful old house information. Send me an email or give me a call if you're interested in an old house in this area.

The appraisal blues...

Even though Fannie Mae and Freddie Mac have supposedly removed the "declining markets" penalty in our area for their purchase of loans, they may not have sufficiently gotten the word out to the local appraisers community. I've had three deals go south lately because of low appraisals. Admittedly pricing homes in this market is tough, but the fact that appraisers use sold homes only (pending if they can get a projected sale price) adds to the issue, since sold homes represent a historic view and do not reflect what is happening currently in the market. The appraisers will likely lag an upturn by 2-4 months, before enough new sold data works its way into the system. People who sell during that lag would face appraisals that are based upon old, bad data (bad in the sense that it won't reflect the current market).

The other issue is that the appraisers have to work from a data comparison point of view. They usually go see the subject home and they may have seen one or two of the comparable homes, but in many cases they are just using MLS data about the comparable homes to do the appraisals. They means that condition largely gets left out of the equation. That also means that foreclosed homes may work their way into the equation, because they may represent a significant portion of the "local market" that the appraiser has to use.

So, what does this do to real estate sales? Well, it sinks a lot of them. For now, the appraisers are just doing what the banks tell them to do, i.e. appraise conservatively vs. being optimistic about the future appreciation of the home. So, even if the buyers and sellers have arrived at a price that makes both sides happy; if the house appraises lower than the sale price and the deal can't get bank approval, it won't fly. Even if the appraiser asks for the help of the Realtors involved to identify local comparable sales, it may be that the house being appraised is the top dollar house in its category, so finding other examples could be impossible, even for the Realtors.

The options open to the buyers and sellers if the appraisal comes in low are few and painful for both sides. Of course, the sellers can just accept the appraisal and concede the difference to reach the appraised value. Or, the buyer could be adamant about buying the house, not matter what (I've only had that happen once) and make up the difference out of his/her pocket. Or, both sides can kick-in on the deal to make it work - the sellers can reduce the price that they will accept and the buyers can put more money into the deal to reduce the loan exposure of the bank. That's how we resolved one of the deals that I had. The other option is that everybody walks away, which unfortunately happens more often.

If the deal falls through, the seller is left in an awkward position. He/she now knows what the place appraises for, which is not likely to vary by all that much on the next appraisal (if it is fairly soon). Leaving the price up at a level significantly above the appraised value makes little sense, unless a cash buyer can be found who doesn't want an appraisal (highly unlikely). The seller may consider taking the place off the market or at least pricing it so that reasonable offers would come in at or near the appraised value. Taking the place off the market is not an option for most sellers these days. At least the seller will know how badly he/she may be under water, if that is the case for them.

For now and the foreseeable future, the appraisal is as scary a part of the sales process as the home inspection - both can turn up issues that sink the deal. That has always been the case with the inspection and just recently with appraisals. Both involve lots of unknowns that are out of the control of the parties involved in the deal. We won't get back to more "normal" times with appraisals until the market settles and starts back up in values. Then both pricing for the market and appraising should be easier and more consistent.

Pets can kill sales

Don’t let your pets kill the sale of your home. As much as many of us love our pets – dogs, cats, birds, whatever – they can cause problems when it comes time to sell the house. One of the main reasons has to do with how convenient it is for buyers to see your home. There can be issues caused by the pets that make seeing your home more difficult than viewing other properties. For instance, if sellers have to be called first before their home can be shown this can make it less appealing to buyers and agents.

More than once, while out showing houses, I’ve stumbled upon a house that my buyers wanted to see. When I called the listing company they told me that I couldn’t show it because the owners required notice (a few hours to a day, in some cases) in order to deal with pets (most often dogs) in the house. Needless to say, I did not show those houses. In the market that we are in, making your house less convenient to show is a definite killer. Agents don’t have time to deal with homes that require all sorts of special advanced notice.

It's not just access to viewing the property that causes the problem. Sometimes, regardless of how friendly the pet is, potential buyers can be reluctant to enter the home. Hearing a barking dog, while trying to get the lock box open, is a definite turn off; especially, if the dog sounds like it is just inside the door. More than once I’ve cracked open the door and been growled at by a dog. I did not go into those homes. Even if the dog is crated, sometimes they can make such a racket barking that it makes the buyers uncomfortable and often shortens the visit. Sometimes owners will lock a dog in a laundry room or the garage and put a note on the door. That puts those rooms off-limits and compromises the visit, too. It’s better to either remove the pet (use a pet day care service if needed) or put them somewhere on the property that won’t be visited.

Even if the pet is caged or friendly or maybe not even there, if the house smells anything like a pet, it is a definite problem because non-pet owners are not sure that they can ever get that smell out of the home. Some buyers are also allergic to pet dander or hair, even if the pet isn’t there and the place has been cleaned. I’ve had clients who could tell me almost immediately if a cat had EVER lived in the house.

I’ll admit that, as a dog owner, I’ve probably gotten used to the dog smells that are in my house, so I don’t even notice them when I visit other homes with pets. I can usually smell a cat litter box if it needs attention. I’ve had houses listed where the owners did such a good job of cleaning and deodorizing that you couldn’t tell that a pet lived there. I’ve had others that I had to apologize ahead of time for what the lookers were about to experience.

The other aspect of pets hurting your chances to sell has to do with the damage that they can cause. The most obvious are the spots all of a carpet that indicate that Fido isn’t house broken. The seller might as well just offer to replace the carpeting up front, because the buyers will demand it. Dos or cats that scratch up woodwork around doors or along the floor also hurt your chances to sell. Replace any scratched up woodwork. Dogs also damage wood floors with their claws when they run around and you may have to have the floors refinished. Cats often ruin drapes and curtains and may damage blinds (as will dogs).

Pet owners will tell you that they love the little rascals and wouldn’t live without them; however, they may end up living with them for a long time in a house that they want to sell unless they can get control over the situation and take Fido or Tabby out of the sales equation. Don’t let your pet kill the deal on your house. About the only pet that I can see adding some value to a visit would be to have a horse or two around, if the property is horse-oriented. Horse people like to see horses standing around in the pasture and they expect the smells that go with that.

NAR Market Forecast

Reading, and making sense of, the latest Real Estate Market Forecast from National Association of Realtors Chief Economist Lawrence Yun is more difficult than keeping track of the plot twists in a daytime soap opera - it's up, it's down, this is good but that is bad. When you're through reading it you don't know whether to be happy or concerned. Economists are good at that sort of language. Do you remember the speeches that ex-FED Chairman Alan Greenspan used to give?

Anyway, what Yun said was that pending sales were up in May, which sounded good. Then he went on to say that sales that are pending are actually closing at a much lower rate these days, and that is bad. The there was the bad news that the inventory level rose again to record levels, with 4.55 Million homes on the market - an 11.2 months supply, according to Yun. But the good news was that part of that was due to seasonal factors (warmer weather), which was expected. Of course the bad news was that the increase was larger than expected. But the good news is that home sellers are pricing the homes more realistically now, which is caused by the bad news that home prices continue to fall. You get the picture. Yun continues to see prices dropping for the remainder of this year.

More good news was the removal of the "declining market policy" by Fannie Mae and Freddie Mac. Fannie and Freddie had imposed the "declining market policy" which required a higher down payment and higher credit scores in lending regions where prices had been falling (that would include our market) and the policy become a self-fulfilling prophesy and further reduced housing demand. DUH! Finally, someone pointed out that Fannie and Freddie were created with the mission of providing credit in times of crisis, so they decided to do away with the restrictive policy in June. Since these same policies drove appraisals down (appraisers were told to take an extra 4-5% off the value due to the “declining market” designation), it further exacerbated the bad situation. The other good news concerning Fannie and Freddie that is impacting the market is the increase in their jumbo mortgage limits, which allows them to make bigger “conforming” loans, without having to charge a jumbo loan premium.

Yun also pointed out that higher FHA limits have helped too and that more borrowers who might have taken out sub-prime loans a year or so back are now using the FHA programs. He noted also that we are likely to see more bills make it to the Presidents desk to help give strapped homeowners a break or at least some relief against being foreclosed. One part of the expected bill would give home buyers a tax credit to encourage fence-sitters to get off the fence and buy a house.

The bottom line for Yun is that he thinks the second half of this year will show improved sales, although he’s less sanguine about prices. In other words things will get better…unless they don’t. Economists – you gotta’ love ‘em. I suspect that every PhD Economist had to minor in double-talk in order to graduate. Maybe Yun and other economists should resort to paraphrasing that great philosopher Yogi Barra - Things will get better, when they're better.

Get in the game...

From a recent real estate news feed that I get come these tid-bits about why it’s a good time to buy -

While pundits have been calling for a bottom for months, the fundamentals suggest we're close, because the bad news taken as a whole is worse than it seems.

Wholesale and retail prices are up on oil speculation. Seventy percent of futures traders in oil are speculators. What goes up will come down again.

Home prices have receded in 260 markets, but only 4.6 percent from April 07 to April 08, says the Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and Freddie Mac. That's a far cry from Case-Shiller's findings for 20 U.S. metros.

During Black Monday of 1987, the Dow lost 22 percent of its value, so we have a ways to go to match that.

During the recession of the early 90s, unemployment was two percent higher than it is now, so this housing slump is not job-driven, but speculation-driven.

Buyers who have good credit have access to the widest selection in homes since the '90s. They have interest rates three points below the average.

According to the housing reports, housing is still declining, but the pace of declines is slowing, which suggest we're near the bottom.

And here's the good news. Harvard's Joint Center For Housing Studies says that although recessions exacerbate housing downturns, there's usually a quick recovery.

It’s hard to tell sometimes from these stories whether the authors are reporting things as they are, or wishing for how they’d like things to be. I suppose the numbers that they report from various sources are accurate; it’s their interpretation of what those numbers mean that can reach different conclusions. Locally, I’ve been reporting that things have picked up in the market (even if the pick-up has somehow missed the Village of Milford).

I do believe that it’s a good time to buy. There are some great deals out in the market right now – on both foreclosures and regular sales. There is a very good inventory to choose from; and, even though money is tighter than in the past, if you have good credit the rates are still attractive. The new, higher FHA limits have put much of the market within reach with an FHA loan, which only requires a 3% down payment and has lower rates than conventional loans.

Now is also the time to get a new home and be into it and settled, before the new school year starts. So give me a call and let’s get out there and start looking! You've got to get into the game, if you hope to win.

What's happening with my little Village

Yesterday I reported the good news that sales in the area that I track are up and that the number of regular homes selling (not foreclosures) is the highest that it's been in quite some time. All good.

Then I noticed that there has only been one sale in the Village of Milford for all of June and not that many in the Township either. I looked back over the last few months and that has been a consistent trend. I track four Townships - Milford, Highland, White Lake and Commerce - and the Village of Milford. Highland, White lake and Commerce Townships have all had fairly good sales - 15-25 per month almost since I started tracking them; however, Milford seems to be stuck at sales of less than 10 for both the Village and Township combined. There are 79 homes for sale in the Village alone, so you would think that more than one would sell in the month, by now.

I suspect that some of the cause can be laid at the doorstep of the higher taxes in Milford, certainly in the Village at least. In these economic times I get ask all the time about taxes and why they are so high in Milford Village. I explain the higher costs of maintaining a public water and sewer system and of the library and police and the other things that help make Milford a great place to live, but many people are just interested in lower cost, no matter how little they get for their tax dollars.

Milford is a quaint little place to live, but not a cheap place. I suppose it's all relative. Many people come to Milford from much more expensive neighborhoods in Southeastern Michigan and some come in from other states where the cost of living is even higher. But, people coming to Milford from rural counties in Michigan will be in for sticker shock.

So, the Village of Milford will likely suffer for a while and with it the homeowners who are currently trying to sell. Village residents have been reluctant to lower prices in line with what's happening in the market overall. Indeed Milford Village homes have always enjoyed some price premium, mainly due to the walkability of the Village and the attactiveness of the downtown; however, like local lakefront homeowners, even Village owners will have to get in line with the market or suffer prolonged sales periods.

Good News in the Numbers

Those of you who have followed this blog for any length of time know that I collect and share a number of statistics about my little corner of the market here in the Milford area. For the last year or so; every week, when I looked at the numbers, foreclosures have been running between 40-60 percent of the sales that took place in the previous week. One week, a while back, I even reported that foreclosure sales made up 100% of the sales for the week. It was somewhat depressing, but it was just a reflection of the market and the times.

This week I can report GOOD NEWS! There were only 5 sales out of the 24 that took place last week that involved foreclosed homes - just 21%. That' fantastic and I hope it is an indication of the market turning and of things to come. You can go to my Web site http://www.themilfordteam.com/
for all of the statistics for last week and to get a Y-T-D summery of the market. There are lots of other states there too.

Why this is important is two-fold - 1. the number of foreclosed houses may be dropping locally and 2. it means that lots of regular houses at more normal prices are selling. The later is reflected in the higher Median sold price for last week. In either case it is good news and means that the market may be moving back towards more balance. While it was good for buyers to have so many foreclosed houses on the market, it was pure hell for sellers to have to compete against the low prices that the banks were dumping those houses at. Many buyers discovered that many of those houses weren't all that great of a bargain, when they assessed the shape that many are in.

One week does not a trend make; however, any flicker of hope for a return to a more sane market is worth celebrating. Yea!

Busy, busy, busy...

I've been busy lately, and that's a good thing. The real estate market locally has picked up considerably. I sold a couple of houses in the last 10 days, which is a very good thing. And, I have several sets of buyers with whom I am looking. I have 3-4 potential sellers mulling over getting into the market, too.

What has spurred all of this activity? Well, I'd like to think that it's my magnetic personality and the success of my great marketing campaign; however, a good deal of this increase is due to the fact that the market has heated up for the summer AND sellers have become much more understanding and accepting of the market that they face today. I still hit a few potential sellers who just can't deal yet with the losses that the market has inflicted over the last 2-3 years. Like most Realtors today, I'm choosing to pass on those "opportunities", rather than waste a lot of time and money listing yet another overpriced house.

Still, a portion of what has made me so busy lately is, in fact, the result of my marketing efforts, especially those on the Internet. I've had one that one buyer find me lately after they had "Googled" a search for "Milford Michigan". when you do that, my http://www.movetomilford.com/ comes up on the initial results page - pretty cool. If you Google Milford Realty or Milford Realtor, my http://www.themilfordteam.com/ site comes up - also very cool. So I'm getting buyer traffic off the Web, which was certainly a goal of having put the time and effort into those sites. My http://www.mihomebuyer.com/ site for first-time home buyers has yet to generate much traffic, but it will eventually.

So, I can accurately report that things are picking up locally in real estate. The summer months are always our best months, but I believe that some of the increase is just due to pent up demand matching up with the great deals that are out in the market right now. It's a great time to be a buyer. And, if you're selling or need to, now it's the best time in the last 12-15 months to get on the market. You want to be listed while the buyers are out looking. And. please, call me; I'll never be too busy to answer your call and see how I can help you sell a house or find a new home. And, if you have relatives, friends or neighbors in my little corner of southeastern Michigan who need real estate help; please refer them to me - both you and they will be glad that you did.

Stats and forecasts

It's that time of the year - the mid-point - when all of the forecasters do an update and mid-year forecast correction for the rest of 2008. The article below came from the news feed that I get from the National Association of Realtors.

A modest gain in the level of home sales is possible over the next couple months, and an improvement is forecast for the second half of this year as more buyers are able to access affordable mortgages, according to the latest forecast by the National Association of Realtors®. The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in April, rose 6.3 percent to 88.2 from a reading of 83.0 in March. It’s the highest index since last October, but remains 13.1 percent lower than April 2007 when it stood at 101.5. The PHSI in the West rose 8.3 percent to 98.8 in April and is 4.0 percent higher than April 2007. In the Midwest, the index jumped 13.0 percent to 83.7 in April but remains 13.1 percent below a year ago. The index in the South increased 4.6 percent to 88.8 but is 22.5 percent below April 2007. In the Northeast, the index declined 1.9 percent in April to 79.3 and is 12.2 percent below a year ago.

Lawrence Yun, NAR chief economist, said pending sales contracts have picked up notably in areas undergoing significant price drops. “Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants,” he said. “Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts.”

“Although mortgage interest rates will remain historically favorable, they will start to steadily inch up,” Yun said. The 30-year fixed-rate mortgage should rise gradually to 6.3 percent by the end of this year, and then hold at that level for most of 2009. Yun said the underlying fundamentals point to a pent-up demand. “Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” he said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely. On the other hand, it’s unclear what role consumer confidence will play in the coming months.”

Existing-home sales should increase from an annual pace of 5.05 million in the second quarter to 5.83 million in the fourth quarter. For all of this year, existing-home sales are expected to total 5.40 million, and then rise 6.3 percent to 5.74 million in 2009. “Sales gains will be greatest in areas that underwent sharp price declines,” Yun said. New-home sales will probably fall 31.7 percent to 529,000 in 2008 before rising 12.5 percent to 595,000 next year. Housing starts, including multifamily units, are projected to drop 27.2 percent to 987,000 this year, and then slip 0.6 percent to 980,000 in 2009. “Rising construction costs will provide less room for price cuts on new homes,” Yun said. The median new-home price is forecast to decline 3.1 percent to $239,500 in 2008, and then rise 5.4 percent next year to $252,400.

So, there's hope on the horizon for a sustained turnaround in the housing market and perhaps the economy overall. Let's all hope so, since the current market is getting really tiresome. I'm seeing a greatly increased level of activity locally on both the buy and sell sides. There are lots of buyers out right now, trying to scoop up bargains before the market turns. And, sellers have now been inundated with enough news and information about the market that all but the most stubborn are ready to price their homes to sell in the current market.

Situational ethics?

From one of my real estate news feeds comes a story about a new and troubling phenomenon in the real estate market.

Some borrowers who are struggling to pay their mortgage and are dealing with big drops in property values are avoiding their problems by committing what some call fraud – and others call smart.

These owners are using their good credit rating to buy a second home at a lower price, assuring the lender they’ll rent out the first. But what they really end up doing is walking away from the first home, leaving the lender holding the bag.

Lenders call the phenomena “buy and bail.”

In some cases, real-estate practitioners and brokers who see nothing wrong with it coach home owners through the buy-and-bail process. Some blame the phenomenon in part on lenders' unwillingness to cut deals or restructure loans made when home prices were inflated.

"It's just a business decision," says Linda Caoili, a Sacramento real-estate practitioner. "If you're upside-down $250,000, why would you keep it? It just doesn't make sense."

The trend may be short-lived. Under revised Fannie Mae guidelines, which could take effect next week, loan applicants who claim they will rent out their first home will have to produce supporting evidence, including an executed lease agreement. Borrowers also will have to prove that they can pay the mortgage, property taxes, and insurance for both residences. The guidelines will make an exception only for borrowers who have at least 30 percent equity in their current home. Of course, some individuals still can qualify for that second loan because of a strong credit and cash position.

The position taken by Ms. Caoili seems to point towards a larger issue of the mores and norms of our society starting to break down. There was a time (and I guess I came from that era) where one stuck out tough situations and worked your way through them, even if it involved hardship and/or personal sacrifice. Now days it seems all too easy to just throw things away – appliance or kitchen gadget having problems, just toss it and buy a new one; got problems in your marriage, just get a divorce and find a new spouse; having trouble making your house payments, just walk away and buy a new house. Nobody wants to work ate fixing things or making them right anymore. I suppose it’s all a part of our “me-generation”, instant gratification, and throw-away culture; but, that doesn’t make it right. This buy and bail phenomenon is just what it has been labeled by some – a form of fraud.

I do feel a lot of sympathy for those who, through no fault of their own really, have gotten swept up in the tide of foreclosures and falling home values. I have heard more stories of innocent, albeit a bit naïve, people getting caught by the toxic ARM problem. Perhaps they should have been more prudent with credit, but many of these people have been hit by the double whammy of rising rates and falling values, in addition to things like rising energy and health costs and lower wages or loss of overtime. It doesn’t take much in each area when all of those factors come together in the perfect storm to work against a struggling homeowner.

I suspect that, if they would just look, the banks would find that most of these people are honest, hardworking folks who would become model borrowers, if they were allowed to work out a plan that they could afford. These people don’t want to lose their homes. They don’t want to buy and bail. They just want to catch an honest break and get back on their feet. Let’s hope that some of the banks start to realize that and push harder on programs to help, rather than to foreclose.

Foreclosures Become Maintenance Burden

From one of my real estate news feeds come the story below on one of the issues that surround foreclosed homes – who does the upkeep? This is certainly an issue inthis area, with so many foreclosed homes.

In neighborhoods all over the country, homeowners' associations, neighbors, and political officials are taking over maintenance on foreclosed homes. One reason is that figuring out who actually has responsibility for maintaining the property is difficult. Massachusetts is attempting to help local governments in the commonwealth with a statewide database of foreclosed properties that includes contact information for the lender and the party that has been hired to manage the property, says Daniel Crane, Massachusetts undersecretary for consumer affairs.The neighborhood do-it-yourself approach may not work because being a good neighbor and mowing the lawn is, legally, trespassing, says Donald Isken, a real estate lawyer in Wilmington, Del. "I always tell people, if you can avoid the self-help remedy, then you can reduce your exposure to personal liability for property damage," Isken says. In some cases, homeowners' associations have the authority to do the remedial work necessary, Isken says, but the process to allow the association on the property takes time, "so the neighbors have to live with an eyesore.”

We have this issue on my block in Milford, with neighbors pitching in to at least keep the yard mowed on an abandoned property that is in foreclosure. Bigger issues can arisewhen storms cause damage or when vandals break in to empty foreclosed homes. More than once I’ve had irate neighbors approach me as I was showing a foreclosed home to ask if I was the listing agent. They were up[set at the state of the yard and needed to vent on someone.
Even the listing agent isn’t the right person to complain to most of the time. The banks usually hire a Real Estate Owned (REO) management company to manage those things and to winterize the houses during the winter. That’s who you need to get to, if you have acomplaint about a foreclosed home in your neighborhood. The listing agent should at least be able to give you contact information about that company.

Statistics looking up

In May, the local multi-list service that I belong to - Realcomp - released the stats for April of 2008. Once again, for the fourth straight month, the sales figures for April, 2008, were up when compared with April of 2007. For the first four months overall, the MLS recorded an increase of 10.84% over the same period for 2007.

Specifics for April included:

Area/........April 2008.....April 2007......% Change
County..........Sales..........Sales

All MLS.........4,671...........4,064........14.9% up

Detroit...........932.............544........71.9% up

Livingston........161.............165.........2.4% dn

Macomb............861.............751........31.6% up

Oakland.........1,102...........1,003.........9,9% up

St Clair Area.....102.............118........13.6% dn

Wayne...........1,774...........1,418........25.1% up

The Realcomp people sited the fact that more homes are being priced to sell in the current market, that interest rates remain at historically low levels and that the good spring weather has finally brought out the buyers. On the negative side they sited the continuing credit crunch and tightened bank lending. All-in-all, at least in Macomb Oakland And Wayne Counties things are looking up.

This is a ray of sunshine in and otherwise dreary real estate landscape, so let's hope that it indicates a real trend and that things are turning around locally.m We're no longer number one in many of the bad categories like foreclosures. Let's hope we can be number one in the rebound and recovery category.

Foreclosures still high

In today's Oakland Press, Charles Crumm reported that foreclosures were higher again last month than the same month a year before - up 35.4% to 792 in May, 2008, as compared to only (a relative term don't you think?) 585 last May. According to Crumm, we are on apace to set a new record of 10,000 foreclosures for the year in Oakland County. Whoopee!

We are averaging 823 foreclosures a month, so far this year, according to Crumm. The good news (if there is any in all of this) is that the May total was lower than the April high for the year (so far) of 958 foreclosures.

All of this of course keeps pressure on prices in the area. For buyers that's good new, I guess; since it keeps all prices artificially low. For sellers it's just another thing that they have to deal with - competing with foreclosed homes.

At a national level, the Mortgage Bankers Association reported that 447,723 homes fell into foreclosure during the first three months of the year. As we reported here yesterday, this is all part of the larger national economic news. I've seen reports that state that housing is the reason for the current recession and others that say that the current recession is the reason for the housing crisis (as a part of the overall credit crunch).

Whichever view of things is more correct, the fact remains that our local real estate market will continue to be driven by the impact of foreclosures. I have yet to see any forecasters saying that we've definitely bottomed out and are headed back to a more "normal" market. Still, home are selling - I sold two this week (or at least I wrote accepted offers - we'll wait and see if they actually "sell") and neither one was a foreclosure.

Most of my buyers are still asking to look first at foreclosures; but, when they see some of them and the condition that many are in, they go back to looking at regular homes that don't need as much work. That's one edge that regular sellers can have in the market - condition.

So, it is what it is and we must all go on with life and trying to make a living. call me. I'll show you foreclosures all day long, or we can go look at houses that you can move right into.

Recession or not?

What's happening in the local housing market is greatly impacted by what's happening in the general economy and in the local economy. Below a recent report from one of the real estate news sources that I get takes a look at the issue of recession and whether we are in one or not and what that means.

Recession or no recession? That's a key question for real estate because any sort of deep or prolonged recession would choke off all hopes of a housing recovery anytime soon. But last week's big economic number -- positive growth in the national gross domestic product for the second straight quarter -- is the latest sign that this economy still has some fight left in it.

Economists define a recession as two straight quarters of negative GDP... so we're definitely not seeing that. No question though: The GDP growth rate is anemic -- just under one percent for the first quarter. But remember that doomsayers last Fall had projected us to be well into a recession by now. Instead, the economy keeps defying the worst predictions: Exports are booming, job growth remains positive, unemployment is at 5 percent. And the National Association of Business Economists is forecasting a much healthier 2.2 percent growth rate by the third quarter.

Even new home sales have bounced back for the first time in half a year -- up by 3.3 percent last month, according to the Commerce Department. Mortgage interest rates continue to be highly favorable for home shoppers. The Mortgage Bankers' latest weekly survey found 30-year fixed rates remain just below six percent on average, and fifteen year rates are around five and a half percent. Home sales are still far below year-earlier levels in many local markets, but economists agree that the recent changes by Fannie Mae and Freddie Mac to ease down payments and other underwriting restrictions have the potential to stimulate sales in the next several months.

Already, there are scattered reports of unexpected sales increases in some markets that had been almost moribund for months. Dr. Lawrence Yun, chief economist for the National Association of Realtors, pointed to San Diego, California and Fort Myers, Florida as two local markets that had been in the sales doldrums, but now with lower prices, are racking up sales gains. "Lower pricing and low interest rates," said Dr. Yun in a recent commentary, "are starting to generate results." That's the equation that could move us past the down cycle … very possibly starting sometime in the second half of this year.

So, there's reason to be optimistic that the worst is over, or at least that we've bottomed out and may be ready to start back towards a more normal market. In my little corner of the world the five markets that I track on a weekly basis - Milford, Highland Commerce, White Lake and West Bloomfield Townships - also seem to be picking up a bit. I've noticed that the number of houses that are for sale is up in most of those market (which is normal for the summer selling season), but the Days-On-Market to sell is going down a bit. That means that homes are selling quicker. Some of that is obviously driven by foreclosures, which still make up 40-50% of the sales every week, but I've also noticed that quite s few of the more expensive homes (above $300,000) have sold recently. I have several active buyers, with whom I'm working to look for new homes; and, I'm getting increased activity on my listings. Both are good signs that things are picking up in real estate. I certainly hope that this trend is sustainable and not just a "summer bounce."

Now if we could only get some good news from the local auto companies…

The lease market

The lease market has certainly picked up steam in this trying market. Fully 20-30% of our business locally is now in leases. Many of these properties are somewhat distressed - near foreclosure - so the owners have decided to lease, rather than lose the place to foreclosure. The ironic thing is that many of the people seeking to do a lease have just recently lost a house to foreclosure.

The lease process has as much, if not more, paperwork involved than a purchase, when you include all of the preliminary application forms and background checks and pre- and post-occupancy checklists and explanation documents. There is a whole raft of laws protecting the rights of tenants, so would-be landlords need to be extra careful on the front-end. Once a tenant is in, it can take 4-6 months to get them evicted, if they turn out to be deadbeats. So, a great deal of due diligence is required up front. The lease document itself can be quite complex and tries to cover all of the things that can come up between a landlord and tenant. All-in-all is is much more complex than the Purchase Agreement document that may govern a sale, since events that occur after the sale are seldom of concern; while one must be concerned about things that might happen throughout the term of a lease.

Because a lease situation can be fairly complex, it is a good idea to have a good Realtor or a good lawyer involved - sometimes both. You will also need the services of a company that can do background and credit checks. Your realtor really can't do those for you. You should be aware of the applicants background, especially if a foreclosure or bankruptcy was involved; however, it is the applicants current condition that needs to be evaluated. Many people went through some rough times, because of a variety of things, from layoffs to divorces to loss of overtime, which caused them to default of their own home mortgage. If they have stabilized their lives and can now show a steady income stream and a responsible attitude towards their debts, they may be good candidates for your lease. There may even be a complete innocent and logical explanation for the person's desire to lease. They may be on a short term assignment in the area or they may be new to the area and what to get familiar with it before buying. You have to ask.You need to do a good face-to-face interview and size up the applicant.

If you are a homeowner who has tired (or maybe is close to a problem) of the selling routine. leasing can be a way to at least recoup some of your monthly costs. Don't try to get it all or yo may be overpriced, even for a lease. If you are recovering from hard times and need to lease while you repair your credit, be prepared to show that you are now in a position to meet your obligations and would make a good tenant.

Happy to be back

After a couple of days in Internet limbo, my sites finally got up and going again yesterday afternoon. It was more than just disconcerting that that were down. A portion of my real estate business is driven by people being able to find me through my Web sites. If you Google Milford Michigan, for instance, my MoveToMilford.com site comes up on the first results page. So people who are moving into the area from out of state or from elsewhere in Michigan would find me through that site. If you Google either "Realtor Milford Michigan" or "Realty Milford Michigan", my MilfordTeam.com site comes up on the first result page, so people find me that way. If you Google "Michigan Home Buyer", my MIHomeBuyer.com site comes up on the first page of results, so people find me that way. So, having my sites up and available for people to go to is important to my business.

I also maintain the web site for the Milford Historical Society - http://www.milfordhistory.org/ - and that is certainly important to many local people and serves as a good source of information about Milford and its history. Finally, I do the church web site for Holy Spirit Lutheran Church of West Bloomfield - http://www.spiritdrivenchurch.com/ - and that is important to the people in the congregation in order to keep up with what's going on in the church. The outage occurred just as I was trying to do the May to June update for the church site, so I missed the first weekend of the month. Fortunately, most people made it to church anyway. I guess God doesn't need to Google anybody.

So, I'm back on the air, so to speak. Doing this blog is sort of a fun thing for me. The Web sites are fun to, but do involve a bit more work to maintain, especially the weekly real estate statistics that I track for my market area. I invite one and all to visit my sites and let me know what you think of them and what I might add or change to make them even more useful.

I see old (obviously, now obsolete) political signs for Ron Paul that state - "Go ahead, Google him". Well I guess you can go ahead and Google me too, or at least my sites. If you Google me, use "Norm Werner", since that's how I show up on most sites.

Crashing and burning on the Internet

I've effectively been off the Internet for three days now - at least my Web sites have been. My Web hosting company - lowesthosting.com - apparently suffered a catastrophic event at the building where the host servers are located. Reportedly, a fire somewhere in the building or vicinity took out several large transformers, thus plunging lowesthosting and several other companies in that data center into the dark and throwing an estimated 7,500 Web sites from over 5,000 companies off the air.

This whole ordeal was made worse by the total lack of communications from the company and by the inability to get any messages through to them. I first noticed it while I was trying to update one of my sites. Then I discovered that I couldn't see any of my sites. Not only that, but emails to the support staff were bounced. A bad situation. I rummaged around on the web for a while, trying to find anything out about what might be going on. Was LowestHosting out of business? Were they under some sort of Denial of Service attack? what was happening. Finally I hit a web hosting forum site and signed on. There I read the string that was posted about the fire and the resulting chaos at lowesthosting and other companies that used the impacted data center.

At least I know now what happened and is still happening - three days and still waiting. I began to fell like I should look into a more professional company for my web hosting - one that has a plan for back up and recovery should something like this happen again. One would be hard pressed to find a cheaper deal on web hosting, but cheap isn't cheap if it isn't working. The postings on the web hosting forum stated that things should be up and running again today. Let's hope. Then i can focus up finding a more reliable hosting site.

All I say to loyal users of my various web site is stick with me, I hope we'll be back up soon.