Two wrongs do not make it right...

I’ve been losing a lot of listing opportunities lately because I won’t play the overpricing game. I work hard to explain the current market to potential sellers, to analyze and position their home in that market and provide plenty of market data to justify my pricing advice. I also alert them to the dangers of finding someone who goes along with their fantasy pricing, just to get the listing; however, the lure of a good lie seems to win the day all too often.

I feel better about being honest and not going along with an ego-inflated starting price, just to get the listing; however, way too many desperate agents in my area seen to be willing to list homes at whatever price the seller wants, just to get the signage exposure. I’m sure that they have plans for talking the seller down on price over time; however, by then the market will have by-passed the house and they will be continually playing catch-up. Have they really served the best interests of the seller by doing that?

I know that the response to this post will be that it’s often better to wait and be the second or third listing agent for sellers like this. By then they have worn themselves down and are usually more realistic about price. Unfortunately, they may also be deep into default by then and headed for a short sale or foreclosure. In the realm of shady practices, I suppose this ethical lapse is relatively minor, compared to some of the other things going on in real estate right now. Still it is that first “little white lie” that puts one on the slippery slope of ethical failure that leads ultimately to the types of real estate fraud that we see in real estate horror stories.

So, I’ll stick to my guns on pricing to the real market and not agree to list at some imaginary market price that the seller might come up with. After all, when they are wrong on price; if I agree with them, that is just another wrong and we still don’t have it right. If we can’t start the relationship on an honest note of mutual agreement and trust, then it’s probably not a relationship worth having. I may lose a few listings, but I sleep well at night.

How much adjustment is too much adjustment?

I see lots of articles about the home price adjustments that have com about in the current recession. Some parts of the country have experienced little in the way of adjustments because of the recession; while other parts of the country have gone through depression-like price slides. Looking into it a bit, it would appear that certain parts of the country just didn’t engage in the kinds of mass self-delusion about real estate values during the so-called “housing bubble.” Having not run the prices up rapidly, they really didn’t have any false value to lose when the bubble burst.

There are many theories as to why certain parts of the country didn’t get themselves into the trouble that the rest of us are going through. One explaination that I think might make sense is that those states may not have been influenced by the big, reckless banks/lenders that led the inflationary charge – lenders like WaMu and BOA and CountryWide. Perhaps the banking laws in those states were different and worked to discourage those cowboys of the lending world from taking over the lending business there. Perhaps there were some basic value differences within the citizenry (as they might claim) that made them more conservative; however, I believe it is more likely that the citizens were somehow protected by state banking laws from the lure of the cheap and easy money that was flowing during those heady years. The big money went to where state laws made it the easiest to lure the suckers into the game.

But, now we are in the adjustment period, where artificially inflated values have fallen back to earth and in many cases well beyond. That begs the question of how much adjustment is too much. There are creditable sources who put the inflationary run-up at about 40% over the course of the bubble build-up. If that is true, or even close to true, then we have certainly reached the equilibrium point locally and gone beyond. Home values in this area have dropped between 30-40% since the 2005/6 peak and are still dropping, albeit now at a slower pace. One wonders, just how far will the local market fall below what would have been the expected normal value, at a historically adjusted appreciation rate?

This is likely an overshoot on the down side and some adjustment will need to be made to get things back to where they should have been. Some areas locally have already greatly overshot the mark, falling 50% or more in places like Detroit, Pontiac and Ypsilanti. I mean, once you get down to the point where houses are selling for under $5,000, how much further can you go? It is certainly possible right now in many of those areas to buy houses for less than the assessed value of a vacant lot.

Some of the continuing drop is due to the unemployment situation in those areas, where unemployment rates approach 50%. After a while the combination of falling home prices and stubborn unemployment tends to become a vicious cycle that feeds upon itself. So, how much is too much? I think we are there already in this area.

Hopefully, we can reach the inflection point needed to start back soon. In the economy in general, the Fed tried to use what is effectively a zero interest on money to help restart the economy. In housing in many areas locally we are approaching a zero cost point. That has attracted a flurry of investor buying and we are rapidly turning our cities into rental property zones. Maybe that is our fate locally – a retreat from home ownership, back to the old days of the row tenements of rental apartments and houses. A pity perhaps; but, maybe inevitable.

The unthinkable has happened...

When one is as digitally dependent as I am for my businesses and my communications it is almost unthinkable that my main portal to that digital world could crash; but that's what has happened. Yesterday the disk drive in my laptop bought the farm. I had a hard windows stop and then nothing. The thing just wouldn't boot again. I suspected the disk drive right away, but hoped against hope that it might be something else or (foolishly) that somehow the disk drive (or the data thereon) might be able to be rescued. It was not to be.

The repair shop tried everything they know, but the disk is toast. They did say that they know a company that can take the disk apart and try to reconnect pieces to other components in order to get the data off - but for a hefty price. I won't go that for to save myself the work necessary to rebuild my digital world.

Fortunately I do have backup software; but, like most I don't use it in as disciplined a fashion as I should. As luck would have it, I did do what I hope was a good image backup just 10 days before the crash. I use Macrium backup software, which is supposed to pull a full image backup of my C drive. That would save my bacon, if I can now get it to restore. I've been a naively trusting soul up to this point, so we shall see.

Like the panicky miscreant swearing to God that he'll lead a Godly life if he is just rescued from whatever mess he is in; I've been swearing to myself that I will be more diligent about making at least weekly backups, if only this backup image works when I try to restore it. The other thing that something like this gives one pause to ponder is how much of the stuff that is in that backup I really need? As I took stock of the things that would be a major pain to have to manually recreate, I realized that there is much more stuff that I have been backing up that I really don't need and should probably discard.

I'll keep you posted on how the restore process goes. The shop that is repairing the laptop is putting is a bigger disk (they no longer make the smaller type that was in mine before the crash) and reloading the OS and basic apps. That means I still have a bunch of apps to reload, which for many will mean having to find the registration codes for them and then updating them again from the base level that is on the disk or in the original downloaded install files. That will be the major time consumer. It's going to be a looooong week.

Expanded real estate statistics available...

If you live within the market areas that I cover and report upon there are now new statistics posted on my Web sites - www.movetomilford.com and www.themilfordteam.com

I have expanded my weekly coverage of the homes that have sold in the area to now cover nine local markets - Milford (Village and Township), Highland, White Lake, Commerce (including the Villages of Walled Lake and Wolverine Lake), South Lyon and Lyon township, Brighton (City and Township), and now West Bloomfield Township, Green Oak Township and Hartland (Village and Township).

You will be able to find weekly updates on what has sold in those markets, along with a running Year-To-Date total for each. There is also historical data going back three years for some of those markets.

I report the listed (at the time of the sale) and sold prices and calculate the percentage of listed price that the sold price represents. I also report the State Equalized Value (SEV) for each property, which represents 1/2 of the assessed value. I calculate the sold price as a multiple of the SEV to see how close to 2.00 it really comes. In addition, I show the days on market (DOM) for the house, as well as the square footage of the house and then show listed price per square foot and the sold price per square foot.

I think these statistics are of value to both sellers and buyers. Sellers can get a realistic and current look at the market in their area to help them with pricing of their own house for the market. Buyers can also get a feel for the local market before deciding upon a offer price.

So, visit either of the sites shown above and click on the Real Estate Statistics choice or the What's sold locally choice to view the latest reports. The, if you are a potential seller, give me a call and let's discuss how these statistics relate to your house and the price that you might get. If you're a buyer just starting on your quest for a new home, use these statistics to show you where the best deals might be, then call me and I'll set up a an automated search for you in those areas and show you the homes that you think you'd like to see.

Intrinsic value – no such thing for houses…

Recently I blogged here about appraisals and the negative impact of low appraisals. That begs the more fundamental question about the value of houses, which may be explored by trying (as we all do) to answer the question, “What’s my house worth?”

The correct response to that question should be another question back to the homeowner – “Worth to whom or for what purpose?” In reality most homes have little or no intrinsic value. There is value in the land that the house sits upon and if one reduced the physical structure to piles of the wood, metal, glass and other content that make up a house, there would probably be some salvage or scrap value to those materials.

There are many different ways of looking at or determining the value of a home, depending upon who is asking and for what purpose. There is what we realtors try to determine and hope to achieve, which is the so-called market value – what is someone else willing to pay for the property. Then, as was discussed in the blog about appraisals, there is the loan value of the house – what will some lender loan against the property. That seems to be some factored variation on the market price. Then there is the assessed value – what the local tax assessor says the property is worth for tax purposes. There is also an insured value – what your insurance company says it would cost to rebuild the house if it was totally destroyed.

Which of these “values” is correct? They all are. They are values that are established for different reasons and to serve different purposes. Realtors certainly hope that the market value that they come up with and list the property for sale at is close enough to the appraised value of the buyer to be able to get whatever mortgage that they need. Homeowners are conflicted. They would like the assessed value for tax purposes to be as low as possible, but they want the appraised and market values to be as high as possible when it comes time to sell. The homeowner might also wish that the replacement value, which drives the insurance bill, was a little lower.

Some homeowners might be surprised that the efforts that they made to lower their tax bills, by fighting with the local township or city over the assessed value could come back to haunt them. After all, Realtors have access to the Public Records Database (PRD) and the homeowner than was successful in convincing the tax assessor that his property is only worth $200,000 can very well turn around and claim that it is really worth $400,000 when it comes time to sell. Well, he can; but his listing agent will have some explaining to do to potential buyers and their agents.

The insurance thing is a bit more complex. I’ve had owners tell me that they won’t sell for less than the place is insured for – the replacement cost. That’s not a very realistic view of things. A home built for $100,000 in the late 80’s might have a market value of $200,000 today, but is could also have a replacement cost of $300,000, just due to the impact of inflation and current building costs today. Insurance values are based on things like square footage and finish quality and the current cost per square foot to build a place of similar size and quality. In some cases, replacement would really be impossible. I live in a historic home that was built in 1885. If it is destroyed no amount of rebuild money will ever really replace it.

So what is the value of my home? I bought it in 1999 for $305,000. It went way up in “value” during the boom (at one point nearing $400,000 at market prices) and then way down in the bust (now hovering around $275,000 at what I estimate its market value to be). My insurance company has it insured for $425,000 to rebuild, but the tax man says it is only worth about $260,000. I don’t know what an appraiser might put it at, and I suspect that I don’t want to know right now. Which of these number represents what my house is worth? All of them, depending upon who is asking and for what purpose. So, what’s your house worth?

Appraisals killing deals…

In essence that’s what a page 1 story headline said this morning in the Oakland Press here is Southeastern Michigan. The story, which had several accounts from would-be first-time buyers basically was focused upon the role of appraisers and the HVCC guidelines in several real estate deals that went south after accepted offers. One appraiser was quoted as saying. “It’s not my job to keep your real estate deal together;” apparently in response to complaints by a Realtor of a low appraisal.

I’m sure that appraisers hate these types of stories because they end up with explanations that are way too simplistic for a very complex situation. The story had the usual complaints that the HVCC system resulted in appraisers who were not familiar with an area being assigned by appraisal management firms to do appraisal work there. That argument makes the assumption that the appraiser is somehow not competent enough to do the homework for the area that he/she needs to compensate for a lack of intimate local knowledge. That’s not an argument that really holds water, especially for appraisers with lots of years in the business. Just like a Realtor can do the homework in order to competently show houses in an area that they may not usually work in, appraisers, I’m sure, can and do put in enough time on-line and perhaps in the area to gain a sense of confidence about the appraisals that they render.

Another line of reasoning in the article is probably more valid and that has to do with appraisers being a lot more conservative these days with appraisals. The article sited the wild, pre-bust days of appraisals somehow always getting to the number that was needed to do the deal for contrast. I suspect that it is true that appraisers are receiving assignments from banks who do want them to bake in some level of risk of further price erosion, due to the continuing decline of the market. One can call that being conservative, but it is really just being risk-averse, which is the stance of most lenders these days. It’s really just the inverse of the boom days, when Realtors, lenders and appraisers baked in continued high levels of appreciation into the analysis for every loan.

So, is there any real evidence that the appraisers themselves are contributing to a continued and self-fulfilling downward home value spiral? I suppose that like the overshoot on the up-side, when homes were appreciating at double digit rates, there will be some overshoot on the downside, too. But that is not the fault of a single set of practitioners within the real estate process chain?

At the base of the problem are the lenders themselves who have overreacted to the beat down that they’ve taken form prior bad loan decisions. Then the Realtors involved have perhaps contributed by allowing (maybe even encouraging) low-balling by clients on almost every deal. That can’t help but drive values down for everybody. Perhaps some of the appraisers themselves have made mistakes or used bad comps or ended up caving in to guidance to be conservative in the appraisals, but I suspect that HVCC allowed most of them the freedom to at least think that they no longer had to be beholding to any of the parties involved.

Most appraisers that I’ve met or worked with really do believe that they are rendering honest and supportable valuations for the homes that they appraise. I may not like it, but I have no particular reason to doubt it. None of us are happy with where values are right now and where they are still headed. In my own research, it looks like the appraisers are doing a much better job that the local assessors in keep up with the market prices.

The article pointed out that HVCC will be replaced this year by new rules that have come out of the financial reform law that was passed last year. Apparently the new law will retain the arms-length relationship barrier between the lenders and the appraisers, but encourage more communications with others (read that as Realtors) involved in the sale. Many Realtors had already found ways to at least get valid comps to the appraisers and this may allow more information about a specific area to be exchanged. Unfortunately it appears that the much hated middleman - the appraisal management companies – will still be in the loop. These companies are disliked by both the appraisers (because they effectively control the pay for the services and have cut what an appraiser can make) and the Realtor involved (because they are the one supposedly responsible for making “out of area” assignments).

We shall see if the new law makes any difference. I suspect that thinks aren’t going to change much until we get more stability in the market, which means that we need to get through the next round of foreclosures and short sales and get to a point where those sales are no longer dictating market pricing (no matter who says they don’t use them). Until the banks feel better about the market and the appraisers feel better about the direction of the market, we will continue to have this conflict between how we, as Realtors, want things and how the market dictates they will be.

Getting prepared...studying the numbers...

How many times have I heard, “My house is worth what?”, when I delivered the bad news about the current value of someone’s home? Some of these were homes that I helped the owners buy back in the early 2000’s. Even with all of the press and TV news coverage locally, many people just cannot deal with the 30-40% loss in what they thought was the value of their homes or at least what it was when they bought.

I’m doing some research this weekend, in preparation for publishing yet another post on the impact of the recession locally and to use in listing meetings I’ve decided to look at three typical sub-markets within the market that makes up the little Village where I live. I will take a look at some typical starter homes, some typical mid-market move-up homes and then some of our luxury homes. I’m fortunate to have 3-4 examples of fairly homogeneous starter home neighborhoods, 2-3 mid-market developments and a couple of luxury neighborhoods. I might also look at the historic home segment, since they make up the core of the Village housing stock.

What I want to analyze are a few different cuts at these markets. I want to use sold data to find the averages and medians for each market among homes that have sold over the last year or two. Then I want to strip out the homes in that sold group that were bank owned or short sales and see what the numbers are for non-distressed homes. I know that the distressed sales had an impact, but when you take their artificially low sold prices out of the CMA numbers one should get a better idea of what a typical, non-distressed seller might expect.

Next I want to look at these neighborhoods fro the taxman’s perspective – the assessed values – and see how they have declined in value for tax purposes and how close that matches the market decline. A cursory view of that gap in the past has indicated that the assessors are lagging far behind the downward market price drift, maybe as much as 1/3 to ½ of the decline behind. The local assessors made big cuts last year, but assessed values are still well above market values. I hope to determine by how much.

Why go to all of that trouble? Well, we are looked at by the general public as being the experts on all things about real estate with current home value perhaps being one of the biggest areas of expected expertise. I think it is important to have data about the local market available, not just a few comps; and to know what that data indicates about value trends in that market.

If I’m going to look a potential seller in the eye and tell him that the house that he bought in 2006 for $400,000 is worth $275,000 on today’s market, I’d better have proof. Further, if I’m going to ask for a 1 year listing because the average DOM for that price band in running 12-15 months, I better be able to back that up. At least that’s the way that I feel about it. The data is all there in the databases that are run by the local MLS’s. It’s really a matter of taking the time to find it and analyze it. I’ll let you know how my little study comes out.

Are we becoming a nation of twits?

Are we on our way to becoming a nation of twits? I would submit that there is growing evidence of a dumbing down of society in general to the A.D.D. level of Twitter. Not much holds readers’ attention beyond a sentence or two. We are used to sound bites on the evening news and short snippets of news delivered in staccato fashion by various news headline sources. On-line so-called social networks all seem to be focused upon short interchanges between members and our phones have become vehicles for short texting exchanges in a bazaar shorthand that further shortens the time required to communicate.

Still, there are hold outs, islands of more leisurely and complete communications between people. Starbucks comes to mind. I have written here before that Starbucks shops seem to be the snail equivalent to all of this electronic haste (like the postal service which offers snail mail; Starbucks offers a place to sit and talk directly to others, sort of snail texting or snail email).

When Twitter first came out I signed up and tweeted away, normally several times a day. After a few months I noted that most of my tweets were really pointers to longer dissertations somewhere else – a blog post or a pointer to a full article on some Web site. The content limitations of a tweet were just too great for my style. I’m still on Twitter, but now all of my tweets are really just notifications of blog post here and elsewhere. The same is basically true on my Facebook page.

The sad proof of what is happening to us as a society can be seen in the failures of many large and once proud newspapers and the troubles being suffered by the major bookstore chains. Too few have the inclination (they would say the time) to sit and read, much less to actually formulate and write a few complete sentences to express a thought or opinion. Rather they spend time ROFLing or LOLing or whatever some of those other texting shorthand things are supposed to mean.

Don’t get me wrong. I love what you can do and find on the Internet. After all the Internet is the vehicle responsible for the invention of blogging. Before that one could keep a journal or maybe write a letter to someone (or to an editor) or self-publish a book; however, there was no good way to engage in a communication of self expression that was not directed to a specific other person or group. However, the Internet has also spawned Twitter and IM ( which led to texting) and other forms of communicating that have dumbed-down the process.

I find it ironic that much of this technology is grouped under the heading of “Social Networking.” I t seems to me that almost nothing could be less social than sitting by yourself in front of a computer screen, typing away about yourself. Why not go out and actually talk to someone face-to-face. Maybe instead of Facebook we could call that FaceMe. Just a thought.

That's Enough Already (my own little TEA party movement)...

As reported in Inman News yesterday Source: “Short-Sale Incentives Revamped Again,” Inman News (Jan. 10, 2011) and reprinted by Realtor.com comes this story of changes to the HAFA rules.

Loan servicers will have 30 days to send a borrower a short-sale agreement that includes the list price or acceptable sales proceeds under recent changes made to the Home Affordable Foreclosure Alternatives Program, aimed at distressed borrowers who don't qualify for other government loan modification programs.

Once a sales contract has been initiated, loan servicers then have 30 days to approve or reject the transaction. The stricter timelines are believed to help speed up the short sale process, which has faced numerous complaints for how long it takes lenders to review and approve short sales often causing buyers to walk away.

The stricter timelines were apart of several revisions the Treasury Department recently announced to its HAFA program — the second major revision to the program since its launch in 2009.

Another big change: Loan servicers will no longer be restricted on paying second-lien holders, allowing them more freedom particularly when dealing with second-lien holders when borrowers owe less than $100,000.

Loan servicers used to be restricted to paying second-lien holders no more than 6 percent of outstanding loan balance (with an overall limit of $6,000) in exchange for releasing subordinate liens. Second-lien holders have been another big obstacle to completing short sale transactions.

HAFA’s new directives also now forbid loan servicers from deducting vendor expenses from commissions paid to real estate brokers.

The rules are effective Feb. 1. It does not apply to mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency such as the Federal Housing Administration (FHA).

One cannot help but ask when reading releases like this, “Is this good news? Will it really help?” There is still nothing in these new rules that give he loan servicers what they really want – relief from the losses that they are taking. The grains of salt that one must take with each new announcement have become enough to choke the proverbial horse. Still, maybe bits and pieces of these new guidelines might help, especially the part dealing with second loans.

It is apparent that people in the current administration want to help resolve the current housing meltdown and that they have good intentions. What is also apparent is that they don’t have the means (or political will and capital) to really do much that is meaningful. The current mess is just too deep and too wide for easy fixes or fixes that don’t cost too much. That is true if the goal is to try to keep everybody whole. In fact, that cannot be done. Somebody’s going to lose and lose big-time here. It can either be the fat-cats on Wall Street who made this mess or Joe Taxpayer who is an innocent bystander to much of this crisis. Who do you think will end up getting the Ziggy on this? After all, has anyone ever written articles that Joe Taxpayer is too big to fail?

So, hitch up the wagon mama; eventually, we’re gong for a ride to pay for all of this. The Bandaids and bubblegum that have been holding this whole thing together are starting to get stretched a bit too far. At some point soon, there is coming a day of reckoning for Fannie and Freddie and BOA and Wells Fargo and a few other biggies that will provide the final bang of this housing bubble burst. Make no mistake, this Trillion dollar turkey is headed to our taxpayer plates.

Personally, Id rather have it happen soon and get it out of the way in one humongous admission of the failures of the past; so that we can get on with the future. I’m tired of the endless trickle of bad news, foreclosures and short sales and the continued slow erosion of home values. I’m fed up with foreclosures and short sales making up 50-60% of the sales in my market. I’m sick of showing 30-40 homes worth $30-40,000 to buyers who still want to low-ball their offers.

That’s enough, already. I’m too old for this stuff. Let’s get this over with and get back to something that resembles a sane and balanced market. Take your HAMP and HAFA and HEMP (not yet a Federal program, but one with more promise that those that are currently in place) and shove them. Let’s have a WTO program (no, not World Trade Organization, this would be Write Them Off) and get on with life. I don’t suppose that this will happen, but it feels good every now and then to just say it out loud.

Finding hope a little bit at a time…

I read all of the articles about this Federal agency or that making predictions about how things are getting better (or at least that they hope that they will soon). I also get the NAR cheerleading news – “really the dust on the horizon is the cavalry and not more Indians.” But what I really look for are local signs that things are changing for the better.

I’m starting to see a few local indications that things might be better in 2011. We had 11 local new-build developments in my home township going into the recession, some very small and a few fairly ambitious. All 11 developments stalled out during the recession. In some cases the developers and builders went bankrupt and exited the business. People in those projects are in a form of real estate and legal limbo, since most are site condo projects with not enough finished development to form a HOA to take over from the developer.

It will also be interesting to see how the courts resolve some of the issues that were created in Michigan by the use of site condo rules for developments. When those went bust, some were eventually sold off parcel by parcel by the banks that took over from the developer. One has to wonder what happened (or will happen) with the condo association responsibilities that the original developer assumed had for the development. Who owes (or will owe) what for the maintenance and insurance of the common areas, which in most of these developments includes the roads? We’ll see how that plays out in the coming years.

Recently, however, I’ve noted that at least two of these developments are building new units/homes again. Two out of the eleven might not sound very impressive, but these developments have all been stalled for at least three to four years; so, any activity is a very positive sign. The developments that have restarted appear to be run by developer/builders who were smart enough to shut things down quickly as the economy tanked and positioned well enough financially to ride out the worst of the downturn. They are local people who turned to home improvement project business to tide them over during the long drought of new building.

I haven’t visited any of the newly started homes yet to see if any are being built on spec or whether they are all bespoken homes. It will also be interesting to see the size and content of these homes, which are what would be classified as “move-up” homes, not starter homes. There has been much written about builders moving a bit downscale to accommodate the reduced buying power of their potential clients. I would not be surprised to se a little less square footage and less upscale content.

Still, it is good to see anyone building anything these days. I would assume that there is also pent up demand for smaller start-up or retirement homes that will result in new developments for those, too. We have to have a place for all of the Boomers to downsize into soon; and we’ll need places soon for all of those people who were displaced by foreclosure on their McMansions.

For now, it’s time to find hope and some joy in the re-emergence of a few local builder/ developers and the few new-build starts that are popping up locally.

Why conventionsl wisdom may be wrong...

A recent blog post on Active Rain (click here for the full post) provided some good insights into why a sellers thought that the second mortgage holder should be glad to get whatever is offered to them may not be correct –

- Unbeknownst to the homeowner, his second lien holder bought insurance against his default. They will now collect on that insurance. Depending on the terms, that may not have been possible if they agreed to a short sale.

- The homeowner's loan with them was full recourse, and they now intend to hound him mercilessly for the deficiency and/or sell that right to a collection agency

- The bank in question has a loss sharing arrangement with the FDIC that will allow them to collect substantially more than the pittance offered by the first under the short sale scenario.

The point of the post was a “not so fast” warning that homeowners who base their decision to short sell on the assumption that the second mortgager that they have will be happy to get pennies on the dollar, may be dead wrong.

In most short sale scenarios that I’ve been involved with lately that had a second or even a HELOC in place, it is the second mortgage holder that is objecting to things. That is often caused by the fact that the primary mortgage holder assumes the lead in negotiations and often offers the second mortgager a pittance. The norm in this area is $3,000 to the second mortgage holder. That may work with a HELOPC at a $5-10K range debt range; however, it doesn’t sit well with a company holding second mortgage notes worth $20-30K.

I’m five months into a short sale right now (on the buyer side) where the second note holder wouldn’t budge and required the seller to find a way to pay off the note. Now that it has cleared, we are hopeful that the primary mortgage holder will agree to the terms of the short sale (which will include some back tax issues).
That’s a whole ‘nother issue – back taxes and back utility bills. More and more short sales are taking on familiar aspects of walk-away foreclosure properties. Many short sellers are in the mode of “I ain’t got no money to pay for nothin’ mode.” I’m involved with one of those, too, right now.

So the moral of this story is that a seller must negotiate with all lien holders, if there are two or more, to make sure that everyone is on board and agreeable to a short sale. You can’t just assume that the second (or third) mortgage holder will be happy with pennies on the dollar, just because you think they’ll get nothing otherwise. It turns out that you may be the one to get nothing (or worse).

Seeing the real estate market future…

What are the experts saying about the real estate market in 2011?

From the Home Buying Institute Web site comes this summary -

Current consensus: Home-buying activity will rise slightly in 2011. Home prices in most areas could decline another 6 – 9 percent in 2011. Mortgage rates will gradually increase between now and the end of next year, reaching or exceeding 5 percent. Unemployment will continue to be the biggest drag on the housing market. Foreclosure moratoriums or “freezes” will also delay housing recovery.

The Home Buying Institute has apparently been collecting the learned predictions of as many so-called experts as they can find. There is a nice long list of entries from various experts at the site. Based upon the collective knowledge and predictions of all of these experts the HBI compiled the consensus statement that is shown above.

I guess this does not come as any big surprise. It’s fairly consistent with what I’ve been telling my clients. In my little market area unemployment (or fear of becoming unemployed) is still the biggest single factor that is holding back the so-called “pent up demand” that so many optimists point to as the rationale for their rosy predictions.

The pace of value decline has slowed dramatically in this area and the 6-9% decline forecast that the HBI sees in their outlook seems to be consistent with what we are seeing. That is down from double-digit rates over the past few years.

We are still experiencing distressed sales as a large portion of our overall sales. We closed out 2010 with distressed sales still representing above 50% of our sales locally, as opposed t about 35% nationally. We also are seeing a high percentage of leases – about 25-30% of all “sales” are actually closings on leases.

I see stories in the local papers quoting economists from Zillow or Trulia or other representatives of large, national companies. Most local Realtors poo-poo those stories and tell their clients that those national level guys don’t understand the local markets. Many local Realtors especially take exception to the Case-Schiller reports. Those reports are based on data reported from local boards and MLS’s across the county or from data gleaned from Public Record Databases, so they really do reflect what’s going on locally.

The thing to remember is that these big national companies aggregate all of that data, so the little local market statistics get subsumed into the bigger picture. It may well be that a particular little sub-market – a town, a subdivision, even a county – may be a point off the curve that the overall data shows. That’s where your local agent can add his/her value to the home buyers and sellers. In order to do that, the local agent has to keep up with what’s going on in the local market.

I do on a weekly basis to research and record the sales data from my little 6 township market, but some effort is required and that means committing time each week to do the work. I track all of the sales of homes above $20,000 in my market area on a weekly basis. I chose the $20K lower limit as a means to exclude leases and sales of tear-downs from my data. There are places nearby where home values have actually fallen so far that one can buy a viable house for prices between $10-20K, but generally not in my market area. I may need to revisit that cutoff price for 2011, since local home values continue to fall. I have yet to record the first week of sales for 2011, so I can still make changes.


I also keep the old monthly sales data on-line at my Web site and now have over three years of back data available for most of the townships (I added a couple this past year, so only one year’s worth of data is there for them). I’ve been tracking things like listed vs. sold prices, sold prices vs. taxable value (what the local assessor says the place is worth) and derived data like listed price per square foot and sold price per square foot. Having that data available when I prepare for listing calls or when I’m negotiating on behalf of buyers has proven to be very valuable.

So, I can look at the market reports that are based upon the national databases from Zillow or Trulia or NAR or Case-Schiller or whoever and make my own case, based upon my own data for what that means (or doesn’t mean) in our local market. The value that might be gleaned out of those national reports has more to do with the overall view that they get of the economy than any conclusions that they express about the local real estate market – that’s my turf and I have my own data for that. To see the market reports that I update weekly, go to my Web site - www.movetomilford.com and choose the Real Estate Statistics choice or the What's Sold Locally choice.

The Restaurants of Milford Michigan

One of the things to love about the Village of Milford, Michigan is the variety of good places to eat (or get something to eat) in town, some 31 in all. The town fathers (or whoever makes these decisions) decided some time ago to preserve the downtown area (called Main St, of course) and keep the fast food chains out on the periphery. So one can still find the McDonald’s and Taco Bells, if one is so inclined; however, the places to eat downtown are all sit-down restaurants. I say all; however, there are a few pizza places in the downtown area where one can either take out a pizza or sit at small tables and eat-in. For pizza we have Village Pizza, Jets, Benito’s, and Little Caesar’s in town and several other pizza chains that will deliver to Milford. There is also The Burger Joint, a locally owned and operated place right down town for custom-made burgers and fries.

Milford also has its share of family dining eateries and Coney Islands, which generally serve good comfort food, but which have no liquor/beer or wine service. There is Klancy’s, a long-time family dining favorite in Milford and our Coney’s – Dimitris Coney Island in the Prospect Hill mall, Americus Coney & Grill and The Villa Coney Restaurant (formerly the Big Boy) out on the south end. At the north end of the Village in the Mill Valley Center is Ruggles, which is currently a deli-style restaurant, but which is planning for a liquor license later this year. There is also a Thai restaurant – Bangkok City Thai Cuisine – which has both sit-down and carry-out service.

Then there are the places to dine in Milford, where dining means being able to sit at a table with proper linen and/or place settings, ordering a drink before diner and then having a relaxing diner served to you, with a good menu selection and good food. Within walking distance from the center of the downtown there are eight sit-down restaurants, three of which are described by some as “destination restaurants” – restaurants that people from surrounding communities drive to Milford to visit – The Milford House Bar & Grill, Coratti’s on Main (formerly Appetiser) and Cinco Lago (Formerly Five Lakes Grill). Those restaurants all have received good write-ups in local papers and attract crowds from surrounding communities on weekend nights. The Milford House is one of the few downtown restaurants that are open on Sunday’s – the other is Coratti’s on Main. The Milford House is also Milford’s premier carry out and catering place and has an ice cream storefront on Main St.

The other sit-down restaurants downtown are Gravity, Main Street Bar and Grill and Lei Ting, which features a sushi bar and Chinese food. Two others might also be walked to from the center of the Village – The Bar on the south side of the Huron River and Hector & Jimmy’s on the north side of the Village. Also on the north side is the Red Dog Saloon, which has good bar food and features bar entertainment including karaoke nights. Just a bit further south of The Bar on the south side is the Village Pizza & BBQ (formerly a Papa John’s Pizza), which features pizza, ribs, salads and subs and has a nice outdoor eating area in the summer months. In the summer months many locals walk to the restaurants from the surrounding residential areas. Milford is one of he most “walk-able” towns in the area.

Of the full-service restaurants, Cinco Lagos features a Mexican menu and Caratti’s on Main is Italian. The Milford House, Main Street Grill, Gravity, Forza and Hector and Jimmy’s might be called American Grill menus, while Lei Ting is Chinese. The Bar features what it calls a modern bar menu with several unexpected entries; whereas, The Red Dog Saloon has classic bar burgers and food. A few of the restaurants have nice bars that may feature specialty drinks, such as a variety of martinis (Gravity) or other house specialties or unusual beer &wine selections (The Bar and Coratti’s on Main).

If you drive out to the South side of the Village you will also find Forza Sports Bar & Grill (formerly The Rack Room and before that called Lou & Carl’s) and Oh Tokyo, a Japanese sushi eatery. It’s out in that area that the Americus Coney & Grill and the Milford Family Coney are located, along with McDonalds, Taco Bell, Subway, Tim Horten’s & Wendy’s, and Rio Wraps. If you keep going south from the Village you’ll find Baker’s, which most local’s just think of as a Milford restaurant and which has banquet facilities.

One nice touch during the summer is that most of the downtown restaurants (and a few of the outlying ones) feature outdoor dining on the sidewalks or in little patio areas. Some of the restaurants (The Milford House, Hector and Jimmy’s and Baker’s) feature live weekend entertainment during summer months, too.

I won’t try to rate or review these restaurants, although I have eaten at all of them (or had carry-out from them). Everyone has different tastes and I would go to different ones depending upon whether it is for breakfast, lunch or diner. For diner, my wife and I prefer a nice sit-down place where we can get a glass of wine and one which has a fairly wide menu. If it’s a Friday night we would likely choose a place with good sandwiches or lighter fare; however, for Saturday nights we prefer a full menu from which to choose (along with the requisite glass of wine). The Coney Island/Deli restaurants provide great places to go for breakfasts and perhaps lunches. The point is that you have lots of choices and some very good places to eat in and around downtown Milford, so come and enjoy.

Steady progress ahead, but little excitement…

There are lots of stories and anecdotes that could be cited to support the wisdom of a “slow but steady” approach to things. As I look back over the real estate market data that I’ve collected for the past few years and especially at the 2010 data, I can see that we seem to have reached the bottom of this recession-driven market and are at long last headed in a better direction. The turn-around certainly isn’t very dramatic, just a slow easing of the downward spiral and an ever-so-slight upturn over the last few months of 2010. It is, as a well worn and perhaps overused analogy states, like turning a huge oil tanker – a slow process.

In my market here in Michigan, we still have a fairly hefty overhang of distressed properties – either already foreclosed or in some state of delinquency and headed in that direction. Short sales and foreclosures averaged above 50% of overall real estate sales for all of 2010, with no end yet in sight. We also continue to have one of the higher unemployment rates in the country – officially at 12.7%, but estimated to be as high as 25% if the people who have given up are counted, too. Yet there are people out buying. I’m hitting a lot of investors right now, who are out bottom-feeding on the great foreclosure deals that are there right now. They are providing a service by buying, fixing up and renting out these places. Otherwise many displaced people would have nowhere to go. Leases make up about 25% of our local real estate transactions right now.

I read all of the press about things getting better, some of it wishful thinking or self-serving cheerleading from various real estate sources. I see those articles in our local papers, too; but they almost always come with some local grain of salt thrown in about our market, especially the Detroit Metro market. We certainly have market pockets in our state where things never got all that bad – the western side did better that we did in southeastern Michigan and our college towns fared better than others. We also have pockets that have been hit even worse than has been widely reported – Detroit, Pontiac, Flint and Ypsilanti come to mind.. In those areas one can find thousands of houses for under $10,000, which is less than the land values should be.

I’m convinced, however, that we have turned the corner and that the worst is behind us. I’m trying to help my clients understand that this does not mean an immediate return of the lost value in their homes. As I’ve opined here before, that value is gone and will never return. Prices will eventually recover somewhat, maybe even completely; but that won’t mean that lost value has magically returned. Even on the price front, I’m advising that it will take at least a decade to get back to 2005-2006 price levels, if ever. We are not yet seeing real appreciation in most of my markets, just a slowing of value loss – a leveling out of the market. Real appreciation in property prices will perhaps occur later this year, but then so will inflation, the net of which may wipe out any true value gains.

So, like the turtle in the race with the rabbit, we will likely see a slow and steady improvement of things in the real estate market. In any one month we may even slip back a bit, as banks dump more foreclosed inventory onto the market; however, overall I expect that we’ll start to see more and more move-up buyers return to the market (that’s where the so-called “pent-up demand really is) as the economy improves and people get a little better feeling for the future. It appears that we’ll be in for a prolonged drama in Washington and perhaps a few scary moments as the new Tea-party Republicans flex their muscles. Fortunately, Washington is so dysfunctional that they probably won’t even get the disruption that they have in mind right. Still it might provide amusing fodder for the nightly newscasts.

All-in-all let’s hope that 2011 is the year of the unexciting turn around in our real estate markets. It will pay to keep an eye out for whatever the sleazy scam artists come up with to make a fast buck in that type of market. They moved on from providing questionable loans to packaging up questionable investments based upon those loans to providing fake loan modification services and now will have to come up with another way to scam the public and investors on real estate. Perhaps they are the ones posting those “Cheap Bankruptcy” signs along the roadways.

It would somehow be ironically appropriate if the idiot who took out a no-doc mortgage without having a job and was foreclosed upon by the investor owners of the pool who bought the loan, now had to declare bankruptcy because the company that he pre-paid for a loan modification went under and is now offering bankruptcy assistance for a slight up-front fee.

Happy New Year!

Reflection on my market...

2010 was a tough year for me in real estate. I closed about as many sides as in past years, but made much less from the efforts involved. Looking back, I only had two deals that were not either foreclosures, short sales or leases; two deals that I might classify as “normal” real estate deals. The rest were struggles with banks on short sales or with sellers and banks on short sales or just leases, which now make up almost 20% of our local market volume. Distressed sales – foreclosures and short sales – make up 60% of my little real estate patch.

I cover and report on six local markets, which are made up of six townships and the various villages and cities contained within them – Milford, Highland, Commerce, White Lake, Lyon and Brighton. That market spills over two counties – Oakland and Livingston – in which I do literally all of my real estate business. I list and sell houses outside the six markets that I track, but they are the ones that I focus upon with marketing efforts for listings and buyers.

The real estate statistics categories that I track on a weekly basis for these markets include the listed and sold prices of every home above $20,000 that sold during the year. Admittedly that is an arbitrary price cut-off; but I wanted to eliminate the leases and the sold as a tear-down homes. I calculate the percentage of sold vs. list price.

I record for each sale the State Equalized Value (SEV) listed in the public records. That is a number that is unique to Michigan and is supposed to represent ½ of the assessed value of the house (it is used for taxing purposes, although there is yet another Michigan-unique number for each property called the Taxable Value). I also calculate the sold price vs. SEV to see how close it really comes to being ½ the market value.

I record the Days-On-Market (DOM); although that is a mostly meaningless number these days what with all of the agent shenanigans going on with re-listing homes every month or so, to keep them “fresh” on the MLS. Finally, I record the Square Footage of the home and the list price cost per Sq Ft and the Sold price Cost per Sq Ft. There is enough data in these weekly reports to get a really good feel for these markets. In addition, I keep these reports by the month and have three years of data on line, month-by-month.

This year I also started a running Y-T-D report for each market; so now I’ll have yearly data on line, starting with this year. I’m trying to decide whether it makes sense to keep that annual data separated out by month next year. It probably does, so that one can see the differences in the market month by month. Below are some summary statistics from these reports.

In the Milford market, which includes Milford Township and the Village of Milford, the average sale list price was for $204K but the sales averaged $195K or 96% of asking price – not bad really and probably an indication that sellers are pricing more realistically lately. Home sale prices averaged 1.5844 times the listed SEV values. That means that the assessors are still lagging the market in terms of adjusting home values down enough to reflect the current market prices. Homes in the Milford market listed for an average of $92/Sq Ft and sold for an average of $88/Sq Ft.

Our neighbors to the north in the Highland and White Lake markets did not fare as well this year. Homes in Highland had an average list price of $156K and a sold price of $148K. Sold prices averaged 1.4072 times SEV and they sold for $75/Sq Ft vs. and asking price of $79/Sq Ft. In the White Lake market homes sold for an average of $76/Sq Ft, after being listed for an average of $80/Sq Ft.

The Commerce and Lyon markets did a bit better; however, the Brighton market was about the same as the Highland and White Lake markets. You can see all of this data at my Web site www.movetomilford.com by clicking on the “What has sold in the Milford area” choice.

I will continue to produce my weekly reports in 2011 and make more use of them as marketing tools with potential clients. They have certainly helped me make the case in listing appointments that I know and understand the local market. They also help with homeowners in price setting negotiations.

How low can we go?

I joke about Detroit being number one of so many bad lists and I’ve reported the tremendous loss of value that we’ve experienced locally; however, the latest Case-Shiller Market Report even surprised me. I had no idea we were so bad that the next worst city in the report isn’t even in view from our position. I remember once in high school when the track coach made me run in the mile run event. I’m not a distance runner…never have been and never will be. I was probably lucky that the leaders didn’t lap me out on the track. I was so slow that they were actually lining up for the next race by the time I got to the finish line. That’s sort of what the latest C-S numbers say about Detroit.

The C-S report shows how home values in various big U.S. markets compare to where they were in the year 2000. We all know that prices got wildly inflated in the mid-2000’s and then the bubble burst and they’ve been falling ever since in many places. Apparently some places have recovered better than others and clearly everyplace else has fared better than Detroit. Some places, like Los Angeles (174.05), New York (171.50) and Washington D.C.(186.67) are over 70% above their 2000 levels, which means that homes have appreciated in those areas by 74, 71 and 86% respectively.

Even cities like Las Vegas (100.97), Cleveland (102.20) and Atlanta (103.30), which took pretty good hits during the recession are back above their 2000 C-S value levels. And then there’s Detroit. According to this report, Detroit home values are at 69% of their 2000 levels. We’re back in the 1990’s somewhere, in terms of home prices. I’ve heard local assessors and appraisers place us back to about 1996 levels. That’s just depressing. Keep in mind that these numbers reflect values against 2000 as the ruler. They are still way below the market highs, which occurred in 2005-6. If current values were measured against that high-water mark Detroit home values would likely be down in the range of 40%.

About the only thing good that can be said about this report is that our bargain home prices are attracting more buyers to the area. I guess that’s understandable. Where else but Detroit can you find 1,350 homes for sale for under $10,000? It's not that bad out inteh burbs, but you can probably find over 1,000 homes for under $50K.

10,000 new customers a day

I read in my local paper this morning that, starting in January, 10,000 baby boomers a day will turn 65 and that this will happen every day for the next 19 years. Wow! That’s like getting 10,000 new customers a day for the next 19 years. The same article pointed out that the boomer generation, while it was quite innovative in many ways and changed our society in many ways, has not proven to be very good retirement savers. I’ll bet that many of them are also setting in McMansions that are currently worth much less than when they bought. However, a good number are probably still in that 1970’s or 80’s home that they bought and, even though it is worth less than a few years ago, they can afford to sell it and move on to a retirement home.

We’ve all been waiting for this tide of new potential clients to come in and it starts next year. Our work is cut out for us to help these new retirees understand the market dynamics of taking the paper loss on their current homes in order to get a good deal on a new, retirement home. Hopefully out of the 10,000 a day number there will also be a few that really did save properly for this time and can now act on their plans for retirement. I suspect that more than a few will just heave a heavy sigh and continue working, once they see that they don’t have enough saved to retire and once they find out what their home nest egg is worth on today’s market.

This is a potential market that I can get my arms around. I didn’t get into the foreclosure side of our business and haven’t really done many short sales, but helping retirees figure out what to do and what they can do with what they have I think I can help with. For one thing, I’m a little older than them and I’ve been “retired”, so to speak, for a couple of years now (even thought I work at two jobs pretty much full time). At least I can relate to the age group, to the things that we’ve been through and hopefully to the things we are looking ahead to doing.

So, I’ve got to run now, because I have 10,000 new clients to get ready for in January. Whew! I’m going to be busy.

New Year’s Predictions - again

I’ve been publishing and distributing a paper-based newsletter to my SOI for the last seven years. As I prepared the Jan/Feb 2011 Edition (in better times it was a monthly newsletter) I started writing my annual real estate market prediction article and got to thinking about how many times I’ve offered the same “things will be better this year” advice (or maybe that was hope). As I rummaged through my achieves it was a little depressing to see that I’ve been writing about this terrible market for at least 5 years now. I’ve always found a way to sound upbeat and optimistic about the coming year and yet each January I’ve had to report that the year just passed was another tough year in real estate for homeowners, for sellers and for agents.

Again this year, I’ve found hope to write about in some of the data on improved home sales and an improvement in new home starts; however, I’ve also had to report that foreclosures and short sales make up more than half of our local sales and there is no end to that in sight yet, here in Michigan. I was able to put a positive spin on the fact that home values are not dropping nearly as rapidly as they have in the past; however, they are still dropping. There is also the ever popular “pent up demand” theory that various economists and real estate article writers drag out for want of any real proof that things will change. We are to imagine this pool of beet-red faced buyers who have been holding their breath for the last 3-4 years, awaiting the time to buy. Somehow they will supposedly make a collective decision that now is the time and rush to the market. It is unclear what magic sign they’ve been awaiting or when it will appear to them. Hopefully it’s the for sale sign that I put on someone’s yard.

It’s still a great time to buy a home in my market and still a challenging time to sell one, because you have to compete with pricing and appraisals that are driven by the distressed home sales. Homeowners in my area are coming to grips with the 30-40% loss in values that has occurred over the last few years. They don’t like it, but they are starting to accept that is happened and that the value is not coming back anytime soon. We’re sort of in that “life goes on” stage of acceptance of the situation that we find ourselves in today. Many underwater Baby Boomer homeowners have put off the inevitable for as long as they can and are now taking their losses to get on with retirement plans or other moves. Some are selling because they’ve exhausted their savings trying to keep up a lifestyle that they can no longer afford and now must get out before the house drags them under with it.

As for the agents in the business; many made the transition to working with banks and REO companies on distressed sales, but many did not. In the last few years the average sale price of sales that are made has dropped dramatically and a high percentage of transactions in my market are now under $100,000 per sale. The average transaction values have dropped from the mid $200K’s to the mid $100K’s locally. Leases have risen from a niche in the market to represent 20-30% of all transactions. All of that has made it difficult for many in the business to survive and many (including me) have had to seek “day jobs” to make ends meet.

So, again this year, I have published my optimistic missive of hope for the year ahead. When I looked back I found one article that I wrote about the market in 2008 in which I predicted that the real estate market would not turn around until 2011/2012 . I certainly hope I was right about that. We are currently breaking out the Champaign to celebrate that our unemployment in Michigan is down to only 12.7%. Maybe some of that euphoria will spill over into the real estate market. One can only hope, and hope, and hope…

Turn the lights out when you leave...

Source: Forbes, Jenna Goudreau (12/08/2010) - Using data from Moody’s Economy.com, Forbes identified the top-10 states where more residents are leaving than arriving.

The factors that encourage outbound migration from these states are mostly economic — high employment and high cost of living — although both Louisiana and Mississippi have been affected by natural disasters.

The 10 states that have said goodbye to the most residents are:

1. New York
2. Illinois
3. Ohio
4. Nebraska
5. Kansas
6. Iowa
7. Louisiana
8. North Dakota
9. South Dakota
10. Mississippi

I’m amazed that Michigan is not on this list, with all of economic turmoil that we’ve had and with unemployment still running above 12%. An article in the Sunday paper (12/19 Detroit Free Press) stated that local demographers expect that Michigan will end up right below 10 Million people when the 2010 census data is all counted. That will keep the state in the Top-10 for population, but just barely above Georgia and North Carolina.

As one would expect, except for Mississippi and Louisiana, which both suffered in the aftermath of Hurricane Katrina, all of the population losing states are in colder climates or places with cold, snowy winters.

I wonder what this loss of population does to the local housing markets? In the distant past whole towns used to turn into ghost towns (The ghost town of Bodie California is pictured from WikiPedia) when the mines played out or whatever other local employment dried up. That doesn’t really happen any more, since people are more mobile and able to drive to jobs that would have been impractical in the horse and buggy days. Still, there have to be towns dotting the countryside that are mere shadows of their former glory days, before the big employer left town. That would make an interesting story for someone to research a dreport upon.

Value vanished, into thin air…

A recent post on another blogging site – ActiveRain (a site primarily for people in the real estate business) – made the rather blunt point that the home value lost in this recession is NEVER, EVER coming back. The author explained that it has vanished into thin air and will never be recovered. He opined that, although prices will eventually start rising again; they are likely to rise at the historic rate of 3% a year, or about the rate of normal inflation. If that is true, then the increased price rise does not represent a true recovery of lost value, since one must adjust for inflation.

Many people commented on that post and most just didn’t seem to get it. For many, if the price goes up a bit then the value also went up and that means that lost value was recovered. That just isn’t true. Look at it this way. If a stock that I own drops in value 30% (a similar drop to home values in this area), that represents real loss of value. To make the example simple; if the stock was at $1 a share and I own 100 shares, then it was worth $100 just prior to the drop. Had I sold it before the drop, I could have bought goods worth $100 – let’s say 20 pounds of coffee at $5/pound. After the drop my holding in that stock is worth $70. With that, I could only buy 14 pounds of coffee.

Now if I hold on to it for 10 years and it finally makes its way slowly back to the price it was at when the drop occurred, my 100 shares would again be worth $100. But what happened to the price of the goods that I could have bought 10 years ago. At an inflation rate of only 3% in the price of coffee over that time coffee would cost $6.62/pound and I could only buy 14.88 pounds, or about what I could buy today for my $70. So the price is back to the pre-bust level, but the value has hardly improved at all. The same thing applies to home values.

The “value” that was lost from homes in the real estate bust was a paper loss for most but a very real loss for those who actually bought during the run-up prior to the bust. People who bought prior to 2000 are likely about at break even, that is their homes have a current value that is about the same as when they bought. They haven’t made the big appreciation that they hoped for (and once had, on paper); but, they are under water on their mortgages either (unless, of course, they got greedy and took equity out of the house during the boom).

And where did all of that value go? A good deal of the actual money that changed hands went to the developers and builders who were cranking out new homes as fast as they could, many of whom subsequently went bankrupt during the bust because they got greedy and overextended themselves to build even more homes. Some of it went into the well lined pockets of the cat-fat bankers and mortgage lenders and wall street operators who were busily packaging and selling off pools of mortgages and who scored outrageous bonuses prior to the meltdown, none of which will ever be recovered. Some went to the investors and layers of administration that are behind the mortgage lending process.

Much of the “value” that was lost was never real to begin with. That value was mainly in the inflated “market prices” of existing home stock and was the figment of some assessor’s imagination or the fantasy of some well greased appraiser. Both of those groups ran prices and “values” up as quickly as the market wanted, with little restraint. Asking where all that value went is like asking where your shadow goes at night.

So, what does this all mean? It means that we all need to let go of the past, give up the thoughts, hopes or dreams that we can wait this out and that the lost value will come back and everything will be as it was before the crash. That’s not going to happen. Get over it. Live with it. Get on with life..

Listen for the angels...

“If you are seeking creative ideas, go out walking. Angels whisper to you when you go for a walk.” (Raymond Inmon) from the Jack’s Winning Words blog.

I’m not sure whether it is angels whispering or just that a good walk can serve to clear ones mind and allow focus, but I do get some great ideas on the walks that I take with my dog. I don’t multi-task when I walk. No iPod or ear buds for me. I take the time to look around and see what’s happening in the neighborhood and maybe say hello to a neighbor or stop to talk.

Sometimes I’ll get so deep in thought about something that I’ll walk along, as if in a daze, and suddenly realize that I’m back home, having completed the walk and not remember how. Maybe the angels were whispering real loud on those days.

So, get out and take a walk. Let go of the iPhones and iPods and iWhatevers that tend to dominate life these days and just stroll along and enjoy nature and just being alive. You may be surprised at what wonderful ideas or thoughts pop into your head. Maybe it’s your angel whispering.

Using the numbers to understand the markets

Unless a large number of very expensive homes sell in the next 3 weeks, (which is highly unlikely) one can look at the numbers that I’ve been collecting and reporting all year long to get a better understanding of the local market. I collect and report weekly sold data for homes in six markets – Milford (Township and Village), Highland Twp, White Lake Twp, Commerce Twp (excludes Wolverine Lake Village and Walled Lake Village), The LyonTwp/.South Lyon market and the Brighton Twp and City markets (shown as just Brighton in the reports.

I decided early in the year to only look at sales of houses above $20,000, which probably leaves out a few really bad foreclosed and short sale houses, but also serves to remove any leases from the data. I report the last asked price and the sold price and calculate a percentage for the sold price vs. asked. I also report the SEV of the house at the time of the sale and calculate the SEV multiplier of the sold price vs. SEV. I report the Days on market, the square footage, the cost per Sq Ft asked and the cost per Sq Ft sold..

What good is all of this? Well it depends upon whether you are a buyer or seller. If you are a buyer, you can look at the data for the area that you are interested in and understand
What people have been paying for homes thereon a cost per Sq Ft basis and as a percentage of asking price. That is valuable information for negotiating a deal. If you are a seller or potential seller, you can see what a reasonable expectation might be for your home and maybe set a better market price for it that will help it sell faster.

For instance, in my home market area of Milford, sellers have been asking about $93/Sq Ft and getting about $89/Sq Ft. Those are just about the same for both the Average and the Median for those statistics. Buyers are paying about 97% of asking price, which means that homes seem to be fairly priced. Homes are also selling for about 87% of asking price in White Lake Township; however, the homes are priced at about $79/Sq Ft and are sold for about $76/Sq Ft. To see all of the data on all six areas, go to my Web site – http://www.movetomilford.com/sold_homes.html

You can also get a feel for how far behind the assessors are in getting home assessed values down to reflect the market by looking at the derived number that shows the sold price as a multiplier of the State Equalized Value (SEV). In theory this quaint Michigan reflection of a homes value is supposed to be ½ of the homes assessed value, which should reflect the market value. If it is accurate the multiplier should be 2.0000, which would mean that one could multiply the sold value times 2.000 and get the market value.

In practice, because assessment adjustments in the downward direction have badly lagged the market, the numbers for most of the markets that I track are somewhere in the 1.5000 to 1.6000 range, with the Lyon/South Lyon market being the only one to average over 1.6000. Both the Highland and White Lake Markets are even worse in the 1.3000’s. That basically means that homeowners in those markets are being heavily overtaxed, since their taxes are based upon SEV values that are way above the market prices that are being paid.
Finally, you can also see how big the influence is of foreclosed homes and short sales – distressed properties. Nationally those types of sales make up about 30-35% of the sales that take place. In my six markets they have consistently run above 50% and for quite a while got as high as 70%. So far, in December they are running at 65% of the sales that have taken place.

What doesn’t show up in these numbers is the unknown number of would-be sellers who just can’t bring themselves to sell their hoes for what the market would currently bear. We’ll never know what that number is; nor will we be able to “see” the number of would be buyers who just can’t meet the current higher standards for a mortgage. There is believed to be a huge “pent-up demand” for both selling and buying just waiting out there for things to get better. There is also a reported “shadow inventory” of a large number of foreclosed homes that are being held back by the banks in hopes of a market turn around. Perhaps none of those would-be sales will ever occur; but, then we’ll never know, will we?

Recurring themes – renewed hope…

I had occasion to go back over the last three years of postings to this blog recently and what jumped out at me was the recurring theme at this time of year for the last three years running – the bottom is near and things are about to get better.

It was actually hard to believe that I’ve been writing about this recession and its impact on the housing market for that long. Post after post was about the foreclosure mess and the mess that it has caused in the housing industry. I did see a few post back in the 08 and 09 that foresaw the current “new reality” situation that we are experiencing right now. I called it a fundamental reset of the American way of life in those posts. Perhaps that was a bit over dramatic but the basic premise – that things had changed permanently and that we would never return to the “the good ole days” turned out to be true (at least here in Michigan).

There were a few other themes that seem to have been consistent over the three years –

The ineptitude of government at the state and federal levels to deal with the issues at hand; with a running litany of alphabet soup programs HAFA, HAMP, HA-Whatever.
The ability of the scammers and sleazy operators in the banking and mortgage business to stay ahead of the regulators and to find new ways to rip people off during hard time.
The dramatic changes in the real estate industry as home values fell and as more and more practitioners turned to focusing on the distressed home market.
The failure of homeowners to accept and deal with the sudden loss in values of their major investment.
The unfortunate education of a whole new class of lowball buyers who are out trying to steal houses from the unfortunate foreclosed homeowners.
A recurring headline (used at least 5 times) of “Are we there yet?” as we all searched for the elusive bottom of this dreadful market.

Of course there were also lots of posts that encouraged hope and finding a positive attitude amidst all of the carnage. One cannot be forever the pessimist, after all.

Although I have been proven wrong for three years in a row, I am convinced that we are there now – bumping along the bottom and about to start climbing back. There are lots of positive indicators, from increases in housing starts and sales increases (albeit inconsistent, yet), to stories about the economy in general being back on track. In Michigan we were the first into the tank and many predict will be the last one out; however, even here we have some indication that the worst is over. Two of our local three automakers have been through their catharsis events (bankruptcy) and have returned to the living. The resulting ripples through our supplier companies are settling down and life is settling back into what will be the “new normal”. I’m even starting to see a trickle of move-up buyers cautiously re-entering the market – something that has been largely missing for almost two years now.

So, as we head into the Holiday season and I get to write my annual “looking back” and “looking ahead” posts, I’ll be dragging out the old theses about how it seems that the worst is over and the year ahead is going to be better. Hopefully I won’t look back o that someday and wonder, “What was I thinking?”

Who's running the show?

I read today that Fannie and Freddie are saying it’s OK to go ahead with sales involving foreclosed houses. That’s probably a good thing, since sales of those homes have been stalled by the legal actions in several states against shoddy bank foreclosure practices. Of course, not to be thought of as Scrooges, they also said that they would not evict anyone until the Holidays are over. How nice of them.

I also read that the Comptroller of Currency has ordered banks not to continue foreclosure proceeding against people with whom they have entered into the loan modification process. That makes sense, since they have on the one hand decided to see if this person can save the house if his loan is modified. To turn around and on the other hand (and most would probably say behind their backs) keep processing the foreclosure, perhaps even speeding it up because of delinquencies that are a part of the loan modification process, doesn’t seem fair or make any sense. Either give the guy a break with a loan mod or take the hose, but don’t give false hope of a loan modification, while during the process continuing the foreclosure procedure. That’s just wrong.

In other news from the asylum we call Washington, the Congress seems ready to add to the deficit by passing the extension of the Bush Tax cuts for all while also adding “sweeteners” for both the rich and poor. This all comes just after the President’s Deficit Reduction Panel released it’s finding that massive spending cuts and tax increases will be needed to get rid of the deficit mess. Only in Washington could the report of a patient dying from loss of blood be “cured” by suggesting that we attach more leeches to the poor devil.

Elsewhere in the news there was consternation about the suggestion from the debit reduction panel to eliminate the tax free sale status for real estate transaction over $500,000. That is among the sacred cows threatened by the need to reduce Federal spending or raise revenues by eliminating tax breaks. Tax breaks are like sacred cows in India or sacred monkeys in Thailand. No one wants to touch them, no matter what havoc they may cause. They have become like entitlements in America and are often mistaken for rights.

It is hard t see much pattern or logic in much of what passes for government in Washington these days. It has devolved into an show akin to the glory days of the WWF Saturday night Smackdowns. The stars from both political parties seem more interested in carefully orchestrated showdowns and posturing for the media than in actually trying to govern. It might all be amusing to watch, if the consequences on us all weren’t so profound. As it is, it’s just scary to watch.

Foreclosure sales dragging all real estate down...

The Associated Press reported in a story on December 2 the 10 states with the highest percentage of foreclosure sales:

· Nevada, 54 percent
· Arizona 47 percent
· California 40 percent
· Florida 37 percent
· Massachusetts, 35 percent
· Michigan 32 percent
· Georgia, 29 percent
· Oregon, 27 percent
· Idaho 25, percent
· Illinois 25, percent

They also reported that about 25% of all residential sales in Q3 were foreclosures. They didn’t report how many short sales were in the mix of residential sales, but if it tracks anywhere near our local market trends that would take the overall “distressed” portion of the market up considerably – perhaps as high as 35-40%. The market was also reported to be down both quarter to quarter for 2010 (Q12 to Q3 down 25%) and quarter vs. quarter against 2009 (31%).

There are no real surprises in this story; although, I’m pleasantly surprised to see that Michigan has dropped out of the top 5 foreclosure states. I’m a little surprised by the 32% that foreclosures make up of the market for Michigan overall, since the numbers in my little six-township market area have been consistently higher than that – averaging above 50% for the last 18 months – proof again that all real estate is local.

I haven’t done the math, so I can’t tell how much downward influence foreclosures are having on non-distressed homes; however, the howls coming from other agents about low appraisals killing deals is proof that the influence is considerable. I guess you can’t blame the appraisers for that. They are given instructions in their assignments about what to take into consideration when establishing values in communities and it’s pretty hard to ignore the 3-4 empty and/or foreclosed houses that seem to be in each neighborhood. Assessors are having a tough time too, since they are serving a master to whom they must continue to give bad news – home values, and with them tax receipts, continue to drop.

It’s interesting to me that every time I make a post like this I get feedback in the form of responses that things aren’t as bad here or there, usually from agents in states not on the list above. I have yet to hear from a Nevada or California agent telling me how much worse off I am than them. I actually have some difficulty imagining their situations, given the market that I’m facing. Now, I must quickly add that there are some markets in Michigan that are doing relatively well - Ann Arbor and Birmingham on this side of the state and much of the western side of the state seem to be in better shape.

I suspect that much of the problem that we are seeing locally is a manifestation of the old real estate saw – location, location, location. Some of our most depressed areas are in the farthest out suburbs – places where people seemed to be willing to drive to in better times, just to gain that little extra bit of “country” atmosphere. Now those places are “too far out” on the feedback forms as people focus more on getting to and from work. The locations out along major highway arteries are still doing OK, but if the location is 20-30 minutes off the main highway, “forget about it.” Or, so it seems.

So, where is the economic recovery that I hear about in nightly newscasts? I suspect that it’s on its way and has probably already arrived in some locations. It might take a while to reach us in this area. We still have a big pool of unemployed ex-workers from the automotive industry and a pretty big inventory overhang of foreclosed or distressed houses in the area. When the 2010 Census results are released, I would be surprised if Michigan hasn’t experienced a significant population reduction. That may mean that we have lots more housing stock that we need. I guess we’ll wait and see.

Small is beautiful…

I saw an article about tiny homes in this weekend’s local newspaper. That is a topic that I have written about before, but not for some time. The houses in these stories are really tiny – some less than 100 Sq Ft. You can read more about tiny homes at several Web sites - http://www.tinyhomes.com/ is one. Most of the companies in this end of the business offer plans for the DIY builder or will prefabricate the home for you. Some even mount the tiny homes on wheels (see http://www.tumbleweedhouses.com/ ).

I’ve also opined here about the general downsizing of just about everything that has come as a result of the current recession. I characterized it as a “reset” of the American way of life. Some have found that to be a relatively drastic view (or term). So, call it whatever you feel comfortable with; just as long as you acknowledge that some fundamental changes seem to have occurred.

The folks who might find this all to be a bit déjà vu are the grandparents or maybe great grandparents out there who lived through all or part of the great depression. Really anyone who grew up in the 30’s, 40’s and 50’s remembers when houses weren’t all that big. Just about any older town or city has whole neighborhoods full of little brick bungalows that are 800-900 Sq Ft. Most had 2-3 bedrooms a living/dining room and a kitchen. Many likely did not have garages; although many had basements. Your grandmother may still tell stories about raising her family in one of these small houses - and a happy family it was, I’m sure that she’ll add. Many of those old home still exist, although most have had additions added and perhaps garages built by now.

I can remember back to my childhood and living until I was in third grade in a 400-500 Sq Ft , one-bedroom house that had a lean-to addition that served as the bedroom for my sister and me. The whole house was heated by a single coal-fired pot belly stove in the winter. I slept on an old Army cot and my sister had the bottom of an old sofa as a bed. When you’re young living like that can seem like a grand adventure. We moved to a “grand” 1,000 Sq Ft three bedroom ranch on a slab and I grew up through high school in that house. I never felt like I needed more. Later I raised my children in a 1,400 Sq Ft quad level home with 1.5 bathrooms, which we all seem to have survived fairly well.

By the 2000’s the master bedrooms of most new homes were bigger than the first house that I remember and the great rooms on most McMansions probably had more room than that house that I really grew up in. “Bigger is better” was the mantra for the 80’s 90’s and early 2000’s. Perhaps, that is no more the case. People have come to realize the waste and cost of those huge homes and much of the earning power that supported that excess has largely evaporated, at least in the so-called middle class, especially the blue-collar middle class.

Maybe this is really a good thing. Maybe the latest generation, who are learning to be happy with less, will turn out to be happier than the generations that were defined by excess and self-centered spending, but which never seemed to be happy with what they had. I don’t think we’ll end up seeing the market going back to tiny houses, or even new-build houses under1.000 Sq Ft.; but we will see smaller new-build homes with much more practical use of space and probably much better energy utilization, too. I for one think that’s a good thing.

Faith hope and optimism

Yesterday I posted an entry about hope. I got to thinking afterwards about my earlier (a coupe of weeks ago) post about the three horsemen of the current financial apocalypse – Fear, Uncertainty and Doubt (FUD). Perhaps hope is part of the best triumvirate on the positive side – faith, hope and optimism.

I mentioned faith a couple of times yesterday, but didn’t dwell upon it. I failed to mention optimism at all yesterday. I really think that the current adverse environment has been both a test of out faith or perhaps has served to develop a latent faith in many. There is a point that one gets to after experiencing hopelessness that can only be explained by faith – a faith that grows out of giving up on trying to figure out how to solve your problems and putting them in bigger hands. Once you come to the point where you finally say – not my will but Thy will be done – then hope and optimism can also enter your life and things begin to change for the better.

So, perhaps the acceptance of reality that I wrote about yesterday was really acceptance of something else altogether. There are things that we can change and there are things that we just have to accept and move on. Accepting those things and making the best of the situation is so much easier when one has faith, hope and optimism going for them. The alternative is living a life ruled by fear uncertainty and doubt and leading towards the dark realms of despondency and despair. I do not choose to go there.

So, rather than cowering in fear, fretting about the uncertainty of things and having doubts about the future; you can chose to have faith in a higher power, have hope for a better tomorrow and be optimistic that things will get better. In fact, if you embrace that approach to life you may be surprised that you can be happy with what you have and not spend a lot of time focused upon what you don’t have. You may find that living happily in the moment is much more satisfying than worrying about the future.

Reality-based hope for the future.

There are lots of stories, articles, blogs and other communications that based on the concept of hope. Having hope is a uniquely human trait. Hope combined with faith gives even the most downtrodden of people a reason to go on living. But, hope must also be based in reality. It is all well and good to say I hope I win the lotto; but the reality, which almost every player of the lotto begins with, is some cursory understanding of the odds against that happening. So, that hope is really a wish or a dream more than a real hope.

We are faced with much the same scenario in our lives and in real estate these days. People may say, “I hope things get back to normal soon”; where the “normal’ that they are referring to is the state that things were in 3-4 years ago – before the big recession. Well, that’s not any more real than hoping that you win the lotto. You can wish that things would go back to how they where or you may dream about how things were a few years ago; but none of that is likely to happen. In fact it can’t happen.

The current recession has caused such a fundamental realignment and adjustment of things that a return to the state of affairs of the earlier 2000’s is impossible. Many jobs are just gone. They will never return. Many homes are just gone. You’ll never get them back. Many savings accounts, and retirement accounts and college funds are just gone – they will never come back. The automotive companies in this new reality now hire new workers at $14/hour, not $24/hour and there is no going back.

For would be home buyers, new lending rules require that you prove that you can actually can afford the house that you want to buy and that you have some down payment funds and closing cost funds. There’s no going back to the good ole days of no-doc loans. Lenders, once burned by their own greed and stupidity, now demand more assurance (and more insurance) of the buyers ability to pay; even as they find new ways to package and monetize new portfolios of mortgages.

So where is the HOPE in all of this? I think the new hope is found in the young Millennial couple out looking for a first home in the range of $50-80K with 800-900 Sq Ft; rather than a $150K 1,500 Sq Ft first home. There is hope to be seen in the retiring couple who have taken the loss on their McMansion and downsized into a comfortable small ranch home. Hope might be expressed by the couple who were planning to move up to a bigger house, but who now are adding on to their current home instead. Hope that is based upon accepting the new reality is truly hope for a better future, not necessarily based upon material things, but a better life with the important things that we have – family, health and faith.

For many letting go of dreams of the past and accepting that this is where we are and this is were we must base our hope from is tough. Denial is a strong adversary to overcome, almost as strong as despair (which all too many people in denial slip into when they are finally overwhelmed by reality). The good news is that hope combined with faith can work miracles no matter where you start from. So, are things going to get better soon? I certainly have hope.