Although this is a real estate blog, I feel compelled to comment and vent my anger at the Bailout Mania that is sweeping through our government. It seems that our "leaders", and I use that word very loosely, have completely lost their minds and can't move fast enough to bail out everyone, whether it be companies, individuals or governments who now find themselves between a rock and a hard place.
The more I listen to the "experts", the more I am convinced that nobody in a position of authority has a clue on how to get us out of the mess we are in. You need to look no further than our Treasury Secretary, who less than two months ago said the world would end if we didn't agree to buy toxic assets from troubled banks, now says we don't need to buy them at all! Think about this for a minute. Our habit of borrowing from tomorrow to pay for today has, in large measure, brought us to the point we are at. What is our government's plan to rescue us? Borrow even more money from tomorrow to pay for today! This is nuts!
You would think that once it is clear that nobody has the answers, caution would be the order of the day. But no, instead we throw caution to wind and race to spend money we don't have to bail out people who can't be rescued. We are bailing out banks, insurance companies, probably auto companies, those unfortunate individuals who are in trouble with their mortgages, and probably city and state governments as well. We are at the point where we are no longer talking tens or hundreds of billion of dollars, but are now talking in the trillions. And these trillions of dollars are dollars we don't actually have. This can't possibly end well.
But not everyone is in trouble. There are people in the country who have made it a habit to live within their means. IS THERE ANYONE IN OUR GOVERNMENT LOOKING OUT FOR THOSE OF US WHO HAVE USED OUR HOMES AS ATM MACHINES, WHO HAVE NOT MADE IT A LIFESTYLE TO BORROW FROM TOMORROW TO PAY FOR TODAY? It would appear not. Isn't anyone willing to stand up and be the voice of us that don't have massive credit card debt, that have gone without at times because we didn't have the money to pay for it, that have made a habit of saving some of what we earn because it is the right thing to do?
This whole economic situation is not only sad, it is downright maddening. What is most frustrating is that those of us that have lived our lives in an economically responsible way are going to get stuck with the tab for the disaster that our government seems intent on bringing upon us!
Tuesday, November 18, 2008
Wednesday, November 12, 2008
Mortgage Bailout Plan Is The Government Version of Predatory Lending
The mortgage bailout plan unveiled yesterday, designed to "help" homeowners in financial difficulty stay in their homes, is a perfect example why we should board up the windows and barricade the doors whenever the government attempts to come to our rescue.
What has been proposed is little more than a government version of predatory lending. Here are the basics as I understand them. Homeowners who are delinquent on the mortgages and have no equity in their homes can get a loan modification whereby the rate would be adjusted to 3% and the total housing payment for the homeowner would not be more than 38% of the monthly income. All this is based on a 40 year amortization schedule. So good so far.
Now here is the bad (predatory) part. Nothing is being done to change the mortgage balance. Let's say you bought the house for $300,000 and the mortgage was $280,000 and now the house is worth $200,000. That means your have negative equity in the home of $80,000. Let's also assume that the rate adjustment with the payment limit would equate to a $180,000 mortgage. If you stayed in the home for forty years, which is unlikely but possible, you would still owe the lender $100,000 at the end of the mortgage.
If you sold the house, which is more likely, you would have to pay off the full mortgage amount of $280,000. Since the average family moves every 7 years, what are the chances that the prices will stop falling and then appreciate enough to get the value back to around $300,000 before you move? Not likely.
The government thinks this workable based on the notion that housing prices inevitably go up. Isn't this the same assumption that got us into this mess in the first place? This program will do little more than postpone the day of reckoning that troubled homeowners are currently facing. It is very unlikely to solve their problems. Isn't it ironic that we listen to our elected officials to rail against the predatory mortgage companies, yet feel it is OK to offer the same kind of garbage in the name of "assistance"?
As a real estate broker, I want to see the market improve ASAP. I wish this sounded like a solution, but it doesn't. It sounds like another reason why government intrusion into the private sector is likely to make a bad situation even worse.
What has been proposed is little more than a government version of predatory lending. Here are the basics as I understand them. Homeowners who are delinquent on the mortgages and have no equity in their homes can get a loan modification whereby the rate would be adjusted to 3% and the total housing payment for the homeowner would not be more than 38% of the monthly income. All this is based on a 40 year amortization schedule. So good so far.
Now here is the bad (predatory) part. Nothing is being done to change the mortgage balance. Let's say you bought the house for $300,000 and the mortgage was $280,000 and now the house is worth $200,000. That means your have negative equity in the home of $80,000. Let's also assume that the rate adjustment with the payment limit would equate to a $180,000 mortgage. If you stayed in the home for forty years, which is unlikely but possible, you would still owe the lender $100,000 at the end of the mortgage.
If you sold the house, which is more likely, you would have to pay off the full mortgage amount of $280,000. Since the average family moves every 7 years, what are the chances that the prices will stop falling and then appreciate enough to get the value back to around $300,000 before you move? Not likely.
The government thinks this workable based on the notion that housing prices inevitably go up. Isn't this the same assumption that got us into this mess in the first place? This program will do little more than postpone the day of reckoning that troubled homeowners are currently facing. It is very unlikely to solve their problems. Isn't it ironic that we listen to our elected officials to rail against the predatory mortgage companies, yet feel it is OK to offer the same kind of garbage in the name of "assistance"?
As a real estate broker, I want to see the market improve ASAP. I wish this sounded like a solution, but it doesn't. It sounds like another reason why government intrusion into the private sector is likely to make a bad situation even worse.
Wednesday, November 5, 2008
How to Hire the Right Agent if You Are Selling Your Home
If you are selling your home, hiring the right agent has never been more important. With prices declining, you are in a race against time. The longer it takes for you to sell your home, the less money you are likely to get. Over my 30 years of experience, it has become apparent that most homeowners really DON'T know what to look for or know what questions to ask when interviewing agents to represent them. So here is my attempt to give you some perspective as to what look for before hiring an agent to sell your home.
1. Look for an agent with experience. That has never been more important than now. If you can find one, get an agent who has worked through Buyers' Markets in the past. That won't be easy, the last one was back in the early 1990's and few agents have been in business that long. If you can find one, they often have a perspective on how to be successful in this market that agents who haven't been through it just don't have.
2. Look for an agent with a proven track record of production. Sounds pretty obvious, but the truth is that roughly 50% of the agents in our local Board of Realtors have gone the entire year with zero business transacted. If you get one of those, guess what, the chances of selling your house are remote. When you talk to any agent they will tell you they are productive, but make them prove it. Have them show you copies of the MLS sheets for every transaction they have been involved with over, lets say, the last three years and have it be a copy that shows that they were either the listing or selling agent.
3. Look for an agent who has success with sellers. We deal with buyers and sellers as real estate agents, and although the priorities are often similar, they are seldom the same. Many agents who are productive in a general sense, are not successful with sellers. In fact, it has been my experience that most agents prefer working with buyers, especially in a Buyer's Market. Make sure the agent you hire is at least as successful with sellers as with buyers.
4. Look for an agent who does business in your area. Knowledge of the local market is critical. Make sure the business an agent does is in your market. It is not critical that the agent has sold a house on your street in the last year or so, but is important that the agent is doing business in your area. I have encountered owners that think because an agent sold a house on their street in the last year, that somehow that makes them more qualified than one who hasn't. What if that sale was the agent's only sale in the last two years, or their only sale in the local market or has never successfully marketed a listing before? Clearly that agent is probably not the most qualified to handle your home.
5. Look for an agent you feel you can trust. If you don't feel you can trust a person, you shouldn't do business with them, simple as that. A good agent wants the client to get the most money they can for their house and will make recommendations to help the client reach that end. Sometimes those recommendations are not music to the client's ears. If you don't trust your agent, you are less likely to follow those recommendations. The truth is, there isn't much point to hiring a top flight agent if you are going to disregard their advice.
6. Look for an agent you can communicate with. Without the ability to communicate with one another things are not likely to go well, regardless of your motivation or the agent's track record. Be sure that the agent listens to your point of view and that you can understand the information and points the agent is trying to convey to you.
Did you notice what is not on the list of things to look for? How about the agent's opinion of the value of your home. The truth is, what the agent thinks your home is worth is not the most important criteria but is often the one that homeowners rely on most heavily. My experience has been that owners will very often hire the agent whose opinion of value is most close to the owners opinion of the value of their home. Guess what? Most owners have an inflated view of the value of their homes. If you hire an agent based on their opinion of value, you will likely overprice your home and it either won't sell or it will take longer to sell and you will get less money. It is quite likely that the best agent will have one of the more conservative estimates, if not the most conservative estimate, of your home's value.
There you have it. If you follow these guidelines you will have a much better chance of getting the right agent to market you home and will likely get the best price the market will bring you. If you don't follow these guidelines and get the wrong agent, you have only yourself to blame.
1. Look for an agent with experience. That has never been more important than now. If you can find one, get an agent who has worked through Buyers' Markets in the past. That won't be easy, the last one was back in the early 1990's and few agents have been in business that long. If you can find one, they often have a perspective on how to be successful in this market that agents who haven't been through it just don't have.
2. Look for an agent with a proven track record of production. Sounds pretty obvious, but the truth is that roughly 50% of the agents in our local Board of Realtors have gone the entire year with zero business transacted. If you get one of those, guess what, the chances of selling your house are remote. When you talk to any agent they will tell you they are productive, but make them prove it. Have them show you copies of the MLS sheets for every transaction they have been involved with over, lets say, the last three years and have it be a copy that shows that they were either the listing or selling agent.
3. Look for an agent who has success with sellers. We deal with buyers and sellers as real estate agents, and although the priorities are often similar, they are seldom the same. Many agents who are productive in a general sense, are not successful with sellers. In fact, it has been my experience that most agents prefer working with buyers, especially in a Buyer's Market. Make sure the agent you hire is at least as successful with sellers as with buyers.
4. Look for an agent who does business in your area. Knowledge of the local market is critical. Make sure the business an agent does is in your market. It is not critical that the agent has sold a house on your street in the last year or so, but is important that the agent is doing business in your area. I have encountered owners that think because an agent sold a house on their street in the last year, that somehow that makes them more qualified than one who hasn't. What if that sale was the agent's only sale in the last two years, or their only sale in the local market or has never successfully marketed a listing before? Clearly that agent is probably not the most qualified to handle your home.
5. Look for an agent you feel you can trust. If you don't feel you can trust a person, you shouldn't do business with them, simple as that. A good agent wants the client to get the most money they can for their house and will make recommendations to help the client reach that end. Sometimes those recommendations are not music to the client's ears. If you don't trust your agent, you are less likely to follow those recommendations. The truth is, there isn't much point to hiring a top flight agent if you are going to disregard their advice.
6. Look for an agent you can communicate with. Without the ability to communicate with one another things are not likely to go well, regardless of your motivation or the agent's track record. Be sure that the agent listens to your point of view and that you can understand the information and points the agent is trying to convey to you.
Did you notice what is not on the list of things to look for? How about the agent's opinion of the value of your home. The truth is, what the agent thinks your home is worth is not the most important criteria but is often the one that homeowners rely on most heavily. My experience has been that owners will very often hire the agent whose opinion of value is most close to the owners opinion of the value of their home. Guess what? Most owners have an inflated view of the value of their homes. If you hire an agent based on their opinion of value, you will likely overprice your home and it either won't sell or it will take longer to sell and you will get less money. It is quite likely that the best agent will have one of the more conservative estimates, if not the most conservative estimate, of your home's value.
There you have it. If you follow these guidelines you will have a much better chance of getting the right agent to market you home and will likely get the best price the market will bring you. If you don't follow these guidelines and get the wrong agent, you have only yourself to blame.
Monday, November 3, 2008
The Financial Crisis of October Seems to Have Had an Impact on Real Estate
And the impact hasn't been good. Needless to say the real estate market was in the doldrums before the you know what hit the fan in October. Now the question that is being asked is "What effect is the crisis having?"
It's too early to measure the impact on prices, but there seems to have been a measurable impact on new contracts. For the year, closed sales of single family homes in Monmouth County have been running about 22% below the levels of last year and the October closings seem in line with that figure.
The new contracts are another thing. The single family homes reported under contract around the county this October is about 32% below the number reported in October 2007. There will be some contracts that will be reported in early November that will be counted for October, so that figure will come down some, but most likley it will change the number by only a couple of percentage points.
Why are new contracts important? New contracts are the best indicators of current activity in the real estate market. The closed sales reflect the sales activity that occured 45-90 days ago. So as we go forward, the new contracts for October will be reflected in the closing numbers for November, December and January.
What does all this mean? The Buyers' Market we find ourselves coping with is likely to continue well into next year, at least. It is hard to come up with a scenario, regardless of who wins the election, that the excess inventory will dry up and prices will firm up within the next 6 months.
If you are a seller, it's a race against time. You aren't going to like today's prices but you will probably like them a lot better than next year's prices. If you are a buyer, more and more good buys are popping up on the market. Yes, everyone wants to buy at the bottom, but only hindsight will tell you where that was. For anyone with a 5-10 year time horizon, now is a great time to buy.
It's too early to measure the impact on prices, but there seems to have been a measurable impact on new contracts. For the year, closed sales of single family homes in Monmouth County have been running about 22% below the levels of last year and the October closings seem in line with that figure.
The new contracts are another thing. The single family homes reported under contract around the county this October is about 32% below the number reported in October 2007. There will be some contracts that will be reported in early November that will be counted for October, so that figure will come down some, but most likley it will change the number by only a couple of percentage points.
Why are new contracts important? New contracts are the best indicators of current activity in the real estate market. The closed sales reflect the sales activity that occured 45-90 days ago. So as we go forward, the new contracts for October will be reflected in the closing numbers for November, December and January.
What does all this mean? The Buyers' Market we find ourselves coping with is likely to continue well into next year, at least. It is hard to come up with a scenario, regardless of who wins the election, that the excess inventory will dry up and prices will firm up within the next 6 months.
If you are a seller, it's a race against time. You aren't going to like today's prices but you will probably like them a lot better than next year's prices. If you are a buyer, more and more good buys are popping up on the market. Yes, everyone wants to buy at the bottom, but only hindsight will tell you where that was. For anyone with a 5-10 year time horizon, now is a great time to buy.
Thursday, October 16, 2008
Whatever Our Problems, Socialism is not the Answer
It's hard to believe that Americans will stand idly by and let a Socialist wave wash over America. There is not doubt we have problems in our country but Socialism is not the remedy. For those that doubt that Mr. Obama has a Socialist agenda, all you need to do is listen to his exchange with "Joe the Plumber".
Mr. Obama told Joe, "My attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody. I think when you spread the wealth around, it's good for everybody." Spreading the wealth around will not move our economy forward, nor will it strengthen the soft real estate market.
What Mr. Obama proposes is akin to taking money out of one pocket to put it in another pocket. That's a zero sum game and doesn't result in more money. Oh it might help someone make a credit card payment, but it certainly isn't a long term solution to the problem of creating good paying jobs for American families. He proposes a band aid, not a solution.
We don't need to spread the wealth, we need to create and spread opportunity. By creating a climate where American business can flourish right here in the United States we can create opportunity which we can spread around.
There is no denying we all want change, but Socialism is not the answer. Socialism does not make countries stronger, it makes them weaker. If you doubt that, go check out Cuba.
Mr. Obama told Joe, "My attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody. I think when you spread the wealth around, it's good for everybody." Spreading the wealth around will not move our economy forward, nor will it strengthen the soft real estate market.
What Mr. Obama proposes is akin to taking money out of one pocket to put it in another pocket. That's a zero sum game and doesn't result in more money. Oh it might help someone make a credit card payment, but it certainly isn't a long term solution to the problem of creating good paying jobs for American families. He proposes a band aid, not a solution.
We don't need to spread the wealth, we need to create and spread opportunity. By creating a climate where American business can flourish right here in the United States we can create opportunity which we can spread around.
There is no denying we all want change, but Socialism is not the answer. Socialism does not make countries stronger, it makes them weaker. If you doubt that, go check out Cuba.
Tuesday, October 7, 2008
Our Problem is a Demand, Not a Supply Problem
There has been a lot of discussion lately about what it will take to firm up the real estate market and put a bottom under the prices. Most of the discussion has been centered on the supply side of the market, with the talk centered on how to help people who are behind on their mortgages stay in their homes so those homes don't add to the supply in the market.
No doubt such an approach would take some homes off the market and prevent others from going on the market. However, foreclosed properties and those in pre-forclosure make up a relatively small precentage of all the homes currently for sale.
We do have too many homes for sale relative to the demand, but the fact remains that the number of single family homes listed for sale in Momouth County this year is about 10% less than last year for the same time period. In spite of this, the inventory levels are higher than last year.
Why is this the case? The number of homes being bought is declining at an even faster rate. Although the number of new listings has declined, the number of new sales has declined even more, resulting in an even greater oversupply in 2008.
What can we do to firm up the market? One is to let the market cycle run it's course. Ultimately prices will decline enough that "experts" who have the ability to influence large numbers of people will send out a "buy" signal which will bring people into the market. That approach will take care of things but will probably take a lot longer than most people wouldl like.
The other is to try to interrupt the normal business cycle. Helping people stay in their homes is an attempt to do that. So far, the results have been minimal. A better approach would be to stimulate demand. Right now, people are hesitant to purchase real estate because they see more risk than return. To stimulate demand, we would have to change that equation by creating an upside to purchasing where people don't currently see one.
How might that be done? The only thing that government can to stimulate demand is through incentives. What might they be? The only thing I can come up with are tax incentives for purchasing real estate. If the tax incentives were great enough, people would see enough upside to purchasing that the risk would be worth it. With sufficient incentives, demand would go up and the excess inventory would soon dry up and prices would find a floor. That is what everyone is says we need.
No doubt such an approach would take some homes off the market and prevent others from going on the market. However, foreclosed properties and those in pre-forclosure make up a relatively small precentage of all the homes currently for sale.
We do have too many homes for sale relative to the demand, but the fact remains that the number of single family homes listed for sale in Momouth County this year is about 10% less than last year for the same time period. In spite of this, the inventory levels are higher than last year.
Why is this the case? The number of homes being bought is declining at an even faster rate. Although the number of new listings has declined, the number of new sales has declined even more, resulting in an even greater oversupply in 2008.
What can we do to firm up the market? One is to let the market cycle run it's course. Ultimately prices will decline enough that "experts" who have the ability to influence large numbers of people will send out a "buy" signal which will bring people into the market. That approach will take care of things but will probably take a lot longer than most people wouldl like.
The other is to try to interrupt the normal business cycle. Helping people stay in their homes is an attempt to do that. So far, the results have been minimal. A better approach would be to stimulate demand. Right now, people are hesitant to purchase real estate because they see more risk than return. To stimulate demand, we would have to change that equation by creating an upside to purchasing where people don't currently see one.
How might that be done? The only thing that government can to stimulate demand is through incentives. What might they be? The only thing I can come up with are tax incentives for purchasing real estate. If the tax incentives were great enough, people would see enough upside to purchasing that the risk would be worth it. With sufficient incentives, demand would go up and the excess inventory would soon dry up and prices would find a floor. That is what everyone is says we need.
Monday, October 6, 2008
Will The Government Bailout Help the Real Estate Market?
After all the hoopla of last week, the government passed a record Wall Street bailout package with the hope of easing the credit crisis. Now the question that is being asked is "Will the government bailout help the real estate market?"
From what I know of it, I can't figure out how it will. Much of the talk of the bailout seemed to center on unlocking the credit markets which experts had said were "frozen". That all seems odd, because mortgage financing wasn't frozen. During the entire crisis, there was abundant mortgage money available to qualified buyers. In the current financing climate, a qualified buyer is one who has money for a 10 to 20% downpayment (depending how how they plan to use the property), a good credit profile and can verify both employment and income. Since mortgage money wasn't frozen, I don't see how the bailout can help us there.
Another theme that was voiced was the need to help people who are behind on their mortgages so that they can stay in their homes and avoid foreclosure. I guess the idea there is that with fewer foreclosures on the market the oversupply of housing will be less. In our area, there are foreclosed homes on the market but they represent a very small percentage of the total inventory. There are homes on the market where owners are behind on their mortgages and face foreclosure, but those too are a relatively small percentage of the homes currently for sale. To what extent the bailout will help these people I don't know. But even if it does, it will impact a small percentage of the total inventory.
So when it is all said and done, it's hard to see where the bailout will help firm up the real estate maket in any meaninful way. It looks like we can expect prices to decline further which means we will have more of the problem that led to the bailout in the first place. Does that mean we can look forward to another bailout? Only time will tell.
From what I know of it, I can't figure out how it will. Much of the talk of the bailout seemed to center on unlocking the credit markets which experts had said were "frozen". That all seems odd, because mortgage financing wasn't frozen. During the entire crisis, there was abundant mortgage money available to qualified buyers. In the current financing climate, a qualified buyer is one who has money for a 10 to 20% downpayment (depending how how they plan to use the property), a good credit profile and can verify both employment and income. Since mortgage money wasn't frozen, I don't see how the bailout can help us there.
Another theme that was voiced was the need to help people who are behind on their mortgages so that they can stay in their homes and avoid foreclosure. I guess the idea there is that with fewer foreclosures on the market the oversupply of housing will be less. In our area, there are foreclosed homes on the market but they represent a very small percentage of the total inventory. There are homes on the market where owners are behind on their mortgages and face foreclosure, but those too are a relatively small percentage of the homes currently for sale. To what extent the bailout will help these people I don't know. But even if it does, it will impact a small percentage of the total inventory.
So when it is all said and done, it's hard to see where the bailout will help firm up the real estate maket in any meaninful way. It looks like we can expect prices to decline further which means we will have more of the problem that led to the bailout in the first place. Does that mean we can look forward to another bailout? Only time will tell.
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