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$8,000 FIRST-TIME HOME BUYER
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Jun 25, 2009
Sell a house with no equity – FAST!
Can it be done? No problem!
There’s a current paradigm in real estate: If you have a reasonably nice house that’s not in perfect shape, and you have no equity, you’re in trouble; you’re between a rock and a very hard place if you MUST sell. It also says that if you’re upside down on your loan, don’t try to sell it, you might as well throw your hands up and let the bank have the house.
While many would conclude that this paradigm is, in fact, pretty much inscribed in a marble tablet, there is another fork in the road that does not lead to the loss of property and credit record for the home seller; that other path is the non-traditional component of the home-buying and home-selling process. It involves dis-involving the normal troupe of folks reaching for a cut of the proverbial real estate sales pie: Title companies, attorneys, appraisers, couriers, lenders with their entourage of underwriters and processors, and (gasp!) even real estate agents and brokers to a certain extent.
Travel back a few centuries; perhaps just travel down to a good number of Latin American countries and you’ll find that if you wanted to sell property, that you traded something of value for said property; often that something of value was “real” money: Gold and Silver. Now, of course, we use paper printed by the carload by the folks at the Fed. Where there’s a loan involved in most places south of the border, there’s no FHA to allow the buyer the privilege of putting down a tiny fraction of the purchase price and borrowing most of the rest from a lender who will quickly pass it off to a secondary buyer who might ultimately eat the house through foreclosure and then sell it back to HUD for it’s foolish sale of mortgage insurance to someone who had little to lose by defaulting on the mortgage payments.
We can emulate our ancestors and the folks south of the border and sell houses without the complicated process of allowing the banks and everyone mentioned above to control the transfer of property from a willing seller to a willing buyer. I’ve been involved in selling property outside the mainstream real estate system for over a quarter of a century. It was very hard to accomplish during the inflation of the real estate bubble the past several years; but times have changed, and we’re back to a favorable climate for the buying and selling methods I perfected during all those years.
Sellers have to understand that it is a complete paradigm shift; you cannot put a property on the market and expect to find a buyer in shining armor who will pay cash for a house with no equity; too many foreclosed properties are available at sixty cents on the dollar to cash buyers.
I’m getting a large number of calls from buyers with damaged credit who are desperate to buy a house; they can’t get a loan; they can’t buy. Many of these buyers fit the following example: Joe and Mary make a combined take-home income of $6,000 per month. Their monthly payments were as follows: House loan of $1,500, two car loans totaling $1,000, credit card payments totaling $1,000, bad splurging habits of $500, utilities, kids’ braces, insurance, food, etcetera and etcetera, totaling another $2,500.
Oooooops! Looks like Uncle Sam’s finances; the budget was running on a deficit; but unlike Uncle Sam, the credit cards got maxed out, the house ATM refinances ended, and if they print money they will be prosecuted for counterfeiting. Not being big banks, car companies, or large insurance companies with connections to the highest in the land, they cannot tap into any of the bailout money being passed out by the good folks in D.C. Alas, Joe and Mary file for a Chapter 7 bankruptcy; and if they’re forced into a Chapter 13 by the new bank-certified bankruptcy laws, they soon discover that they’ll never get out of that mess and just quit paying the trustee, the mortgage, the cars, and the credit cards.
Joe and Mary rent a house better than the one they were indebted on for $1,000 per month; they borrow a couple of thousand dollars from their parents and buy two sturdy vehicles that are not concert halls, but turn out to be fine transportation; they get rid of their bad splurging habits but must continue with the $2,500 etcetera and etcetera expenses. Total monthly expenses are now $3,500, and there is a tidy sum of $2,500 left over that they wisely decide to sock away. Six month pass and they have $15,000 in the kitty; said kitty perhaps now being the underside of a mattress as they’re thoroughly disgusted with banks.
Voila! Joe and Mary are excellent home buyers even though most of the real estate community will avoid them like lepers. Here’s the key. To sell a house, you need buyers with a decent down payment, the ability to pay, and the desire to own a house that’s in relatively good shape. Can you see that these buyers can now pay at least as much on a mortgage as they did originally? Is it possible that they’re not extremely concerned about getting a steal on their next house purchase? Of course not, they just want their own home again, and now they are probably better money managers and a better credit risk than they were during their “great extravaganza” days. The banks don’t want them; but you, as a seller, most definitely do.
By the way, I am not talking about selling a house under a contract for deed, a lease purchase or lease option agreement; they’re called executory contracts, are highly regulated by the folks in Austin, and as one of my attorneys told me when I mentioned that we still had a number of those contracts under management from the 1990s, “Maurice, you don’t even want touch one of those things now.”
If you’re a seller wanting to sell, or “dispose” of a property that has no equity, or you have real equity and don’t want to lose all or most of it to the declining market and the modern house selling process, call me. There’s a very strong chance that you’ll be quite pleasantly surprised. And even if you’re completely upside down, I’ll show you how to make lemonade out of the lemon that’s dragging you down the path to economic ruin. Call anytime: (972) 814-7391. - ☺md
Jun 22, 2009
The housing market has hit bottom
Truth or another media fib?
The DFW sale statistics from the Texas Real Estate Information System (our big, very effective Multiple Listing Service—MLS) for May is about as gloomy for sellers and happy for buyers as it has been during the past few months. There were 5,971 single family and 367 condo/townhome sales during the month. We were down 24% from the same month last year; dollar volume was down 28% and average price down 5%.
The folks in the media are parroting the government lies about a real estate bubble that is re-inflating (“We’ve hit bottom.” Or, “The end of the housing bust.”). I’ll buy a hat and eat it if we see that happen during the next 10 years; however, I don’t own a crystal ball, so there’s a 10% chance that I could be wrong (you’ll notice my “weatherman’s technique” of using a simple percentage-back-door to exit a prediction that has a slim possibility of making a liar out of me).
I’m not saying that we might not have a huge increase in prices; after all, a rise in sale prices is simply a drop in the value of the medium of exchange: the once almighty dollar. I think increasing prices, at some point, is one of those baked-in-the-cake certainties; however, an extreme rise in sales volume is not baked into anything (you’ll notice the use of the word “probably” to give me another out in case my lack of a crystal ball proves me completely wrong on my volume prediction).
Anyone with a smattering of common sense—and if you’re reading this you obviously have a LOT of common sense—will understand that a government that lives beyond its means (multi trillion dollar deficits for the foreseeable future) is asking for an eventual demise of its currency; that spells inflation; and inflation spells higher prices of almost anything. So if you have extra cash parked in the bank right now please don’t leave it there for the government to inflate it into oblivion; it would be wise to move some of it where it will hold its value; that something is real estate. Yes, gold, silver and oil are also good, but they don’t pay dividends like a nice rental house can; or like a home of your own, instead of renting an apartment, can make life nicer and keep rents from increasing year after year.
We’ll be happy to help you find the best deal in this best of all buyer’s market. If you’re in the north part of the DFW Metroplex, call Carol at (469) 774-9074; on the south part call Maurice at (972) 814-7391, or Barbara at (972) 814-7462. - ☺md
May 15, 2009
Home sellers are getting killed
How to stop the bleeding
For over two decades I’ve helped buyers beat up sellers; I’ve done so because in modern real estate we have to choose sides: We either work for the benefit of sellers by listing their houses, or we work for buyers to get them the best deal. Yes, there is such a thing as an intermediary, who tries to make the process of buying and selling as simple and smooth as possible for buyers who have already connected with sellers; however, most buyers need help in finding the right house, so buyers’ agents have to put much time and effort in search of the right property.
Currently there are two types of sellers: Home owners and “banks” (to include HUD and VA who end up buying banks’ foreclosures because of their guarantees on loans). For the most part banks are the ones getting killed. Home owners who don’t understand this market are also getting killed, or they’re walking away if there’s no equity in their houses and letting the banks deal with the property. Very few banks are marketing their houses correctly; HUD probably does the best job, but even they are taking a solid beating.
How do the banks do such a bad job of selling? Here’s an example: A recent purchase from a bank by one of my savvy clients. He bought a modern brick home, about 8 years old, with 4 bedrooms, 2.5 baths and a 2 car garage; it has over 3300 square feet of living space. The bank made a loan of more than $152,000 on the house in 2003; it foreclosed on the lien in June, 2008. The house went on the market in August, 2008 and my client closed in April, 2009 (much too long on the market for the seller’s good); he bought the house for slightly more than $80,000 (the bank got killed). The house was rough and it did not smell like a bouquet of flowers. There; a lesson in how NOT to sell a house.
Here are some additional ideas from banks on how NOT to sell a house:
- Hire a listing agent whose office is 30 miles away and offer a puny commission. You get what you pay for; an agent in Southlake lists a bank house in Seagoville for a 1% commission; the agent runs to the house, takes one picture of the outside and puts the listing in the MLS; the listing is full of mistakes or lacks details; it’s obvious the agent never went inside the house.
- Do a trash-out and leave the graffiti on the walls. Kids break into some houses and leave large, nasty graffiti on the walls; homeowners getting foreclosed sometimes do so as well. Even if the house is not in bad shape, most buyers become suspicious of the neighborhood when they see grafitti on the walls of a house.
- Don’t bother doing minimal fixing on houses in the $271,050 and under range so they can’t qualify for an FHA loan. FHA loans require the least down payment. FHA won’t allow some items to be missing or in disrepair; a minor amount of rotted wood on the outside will disqualify the house.
- Lower the commission paid to the buyer’s agent. HUD pays the buyers’ agents up to 5% commission; HUD is the most successful at selling its houses for top dollar (considering condition); some agents only work the HUD program. Many banks pay a 3% commission to buyers’ agents; however, a few banks are offering 2.5% and even 2.25% commission. That’s an interesting concept: Offer buyers’ agents less money to sell foul-smelling properties in poor condition.
You get the point; some don’ts are so obvious. Here’s what smart sellers are doing to move their property and not get killed:
- Remove everything in the house that makes it look cluttered; clean out the garage; remove all pictures from walls.
- Touch up all walls and trim.
- Clean up the yard; trim all trees and bushes.
- Remove pets from the house.
- Clean the carpets; clean the whole house and keep it clean.
Okay, these five items are pretty obvious. Now here are ideas for those who want to sell their property fast at maximum price:
- Move out of the house.
- Have the house inspected by a professional inspector.
- Fix everything that’s a problem on the professional inspection.
- Paint all walls and trim a light, neutral color, including garage walls; varnish all stained woodwork; paint exterior woodwork as needed.
- Replace the carpets with a light neutral color.
- Clean the yard; trim all trees and bushes; plant some nice flowers and shrubs in front if the yard is bare.
- Clean the house till it shines; keep the house and yard clean and neat while the house is on the market.
- Find an EXPERIENCED Realtor; have her/him do a thorough market analysis; price the house according to what the market says, not what you need or want to get for the property; list the property. It does not matter if the Realtor works for an independent office or an office that has bought a franchise name; the right price, perfect condition, and listing in the Multiple Listing Service (MLS) will sell your house.
- Request an open house ONLY if you want your carpets trampled by the few people who show up who WON’T buy your house. I’ll repeat, the MLS will sell your house; your experienced Realtor will know how to market it correctly to the thousands of agents in the MLS system.
Voila! Happy seller (that’s you); minimal bleeding (even in this market); and most interestingly, happy buyer (who didn’t get a steal, but got a nice home).
Want to know more? Call me: (972) 814-7391. - ☺md
Apr 1, 2009
Increasing the population
To re-inflate house prices
A March 17 article in the Wall Street Journal by Richard LeFrak and Gary Shilling proposes “seriously considering granting resident status to foreigners who buy surplus houses in this country. They “estimate that 2.4 million houses over and above normal working inventories are left over from the 1996-2005 housing bubble. That's a lot, considering the long-term average annual construction of 1.5 million single- and multi-family units.”
They continue, “Excess inventory is the mortal enemy of house prices, which have already fallen 27% since the peak in early 2006. We predict another 14% drop through the end of 2010 if nothing is done to eliminate the surplus.”
They go on to give a number of reasons why it would be good for the country to allow well-off and well-educated individuals permanent entry as long as they buy (for cash) houses of minimal value (not shacks). I’ve seen several writers take up the banner for this proposal, but it’s interesting to note that Mr. LeFrak is chairman and CEO of LeFrak Organization, a real estate builder and developer, and Mr. Shilling is an economic consultant and investment adviser and president of A. Gary Shilling & Co.; there’s just a slight chance that a re-inflation of the housing bubble could be good for their business.
There are many flaws with this idea, which we no doubt could see more people, including some in government, find appealing; a major flaw is the re-inflation of the housing bubble, which caused much of the current bank troubles. But the biggest flaw is to look at housing only from a seller’s perspective, and many a seller today is a bank that loaned money to individuals with an extremely suspect ability to service the loan.
Typical market conditions in this country during the past several decades, partly as a result of a corrupt fiat money system, caused house prices to increase when mortgage interest rates declined, and pushed prices lower when interest rates increased. During the better part of this decade the Fed has pushed interest rates down in a successful effort to inflate a housing bubble; having succeeded and then found that a huge hole appeared in the bubble through malinvestment caused by the bubble itself, the Fed, the Federal Government, Keynesian economists, and various writers want to patch the bubble because for the first time in eons, both house prices and interest rates are simply too affordable for buyers, to the detriment of sellers, especially sellers who do a lousy job of presenting their product to buyers (such as banks, HUD and VA).
But it seems that few at the Fed, in government and economics or in the mainstream press take up the banner for buyers. The talk on TV, the articles in magazines and newspapers, come down to, “Housing has crashed,” or “The house market is terrible!”
But if you’re a buyer, I can only say, “Rejoice!” It’s a great time to buy; it’s the best time to buy. Housing prices have crashed and the market is great! If you’re a first time home buyer, the government (through it’s miraculous creation of money out of thin air) will send you up to $8,000 for buying this year. A good thing for you, as a buyer, is that lots of builders have been forced to hang up their hammers and the supply of houses is not increasing at the crazy pace of past years; at some point supply will no longer exceed demand, and prices will begin to move up. Of course, the government’s creation of trillions of dollars will cause massive inflation, which could put house prices on a moon shot, and you’ll get to pay off your mortgage with cheap dollars, and sell at gargantuan prices (though the gain in buying power of your sale proceeds won’t be as gargantuan).
If you’re a seller, don’t despair; those who sell right are not faring so poorly. I’ll have more to say about that another day. Meanwhile, for lots of experience behind your buying endeavors, give me a call and I’ll be glad to help: (972) 814-7391. - ☺md
Mar 12, 2009
Beautiful house at 66 cents on the dollar
$4,000 invested, a fabulous home, and an $8,000 check from the government
If you’re waiting to get the very best deal on a home, you might find it tomorrow, or the next day; but it’s hard to see how it can get much better than right now for buyers. A young couple we just closed are first time buyers. They bought a wonderful home, and a great bargain. It’s in a neighborhood of newer homes. The house was built in 2006; it has 4 bedrooms, 2 baths, a 3 car garage, 2 living areas and 2 dining areas, with almost 2200 square feet of living space; it is an upscale home among other upscale homes, and is in great condition. It was a foreclosed property; the seller is a bank. It was bought in December, 2006 by the previous owners; they got an original loan that was over $193,500. Our clients just bought the home for $128,000; about 66 cents on the dollar.
Our buyers had a total move-in cost of under $4,000; and to add icing to an already icing-laden cake, the government is sending them a check (because they’re first time home buyers) for $8,000 for their effort; also, their loan has a fixed rate just over 5% (way less than the REAL rate of inflation). Could it get much better than that? Well, James Bond would say, “Never say never.” But if you knew the house, and the neighborhood, you might be tempted to say never; on the other hand, YOU might find a better deal, or at least as good a deal, if you pick up your phone and call me so that I can walk you through the steps necessary to find your dream home; at a bargain price.
And it’s sooooo easy—because I’ve perfected a method over more than a quarter century of selling foreclosed properties—that places a massive advantage on the buyer’s side. Couple that with the desperate need that banks, HUD and VA have of unloading their REOs, and you can see that getting a great home at a remarkable discount is tantamount to taking candy from a baby.
How are great deals possible? The Dallas/Fort Worth MLS statistics tell the story. In February, sales of single family homes were down 28% from a year ago; condos were down 31%. Single family average prices declined 4%, and condos declined 12%. I don’t know if it’s a trend, but single family home listings were down 12% and condos 2%; if that trend continues we could see prices firming as we get into summer. So now is as good a time as any to go find your deal.
If you’re not quite ready to buy, don’t despair. I don’t see the light at the end of the “bad news for sellers” tunnel yet; it could take years to appear.
And if you’re a seller, you can take affirmative steps to make sure you don’t get your teeth kicked in by this buyers’ market. Believe it or not, some sellers are getting top price for their homes relative to what others are getting. Whether you’re a buyer or a seller, call me with questions about your specific situation; the advice is free and it could be worth thousands to you: (972) 814-7391. - ☺md
Feb 13, 2009
Great news for Home Buyers
A full glass of wine
A half glass of wine can be half full, or half empty, depending on which side of the table you view it from. Buyers are looking at it with a bright light and calling it half full; many sellers, on the other hand, are looking at it in a dim light after being blindsided by the force of the decline in sales: they see a glass that’s half empty. But from a buyer’s standpoint, the glass is really full at the moment: interest rates are radically low, and prices are very affordable.
The statistics from the DFW multiple listing service (North Texas Real Estate Information System, our MLS) confirmed that January was a very tough month for anyone trying to sell a house; only 3,399 single family houses sold, and a mere 162 condos and town homes changed hands. That was a 27% decline for single family and a 46% decline for attached house sales compared to January of 2008. There were 5,350 single family houses sold in Jan 07, and 4,670 in Jan 08; January is typically the lowest month in sales. Compare that to 9,163 sales in Jun 07 and you can see what I see: tremendous opportunities for home buyers. Median price has gone from $139,940 in Jan 07 to $137,500 in Jan 08, to $129,000 in Jan 09.
What’s most interesting are the Sold to List Price figures. In Jan 07 houses sold for 97% of listed price; in Jan 08 it was 96%, and last month it was again 96%. That means that sellers are accepting the decline in prices and setting their sale price according to market conditions.
As a buyer you might be wondering where the deals are; without question, the answer is in foreclosed properties. Banks and secondary lenders (Fanny and Freddie, etc.) place their properties directly with brokers and list them in the MLS system. The Department of Housing and Urban Development (HUD) buys houses from banks that have foreclosed on FHA loans; they then place them with a management company which, with the help of regional brokers, places the properties in the MLS where they are offered on a very well run electronic bidding system. The Department of Veterans Affairs buys houses from banks that have foreclosed on VA loans; they hand their houses to Ocwen Bank which in turn lists the houses with brokers; the houses are sold on a rather limp bidding system.
All of these properties come to market as a result of a foreclosure; they are put on the market by sellers that will sell them marked-to-market. Most of the properties are simply cleaned up and put in the MLS; they are a handyman’s delight. Often just some paint touch up and a few repairs will make a property very habitable; some properties require new paint and carpet along with some minor repairs to bring them to almost new condition. The payoff is a house that is very affordable, and at a 20%-40% discount to a “perfect” house, even in this market.
Many people think that the Federal Reserve controls mortgage rates, but it only influences them, and their influence will at some point wane to oblivion when the huge piles of money created in D.C. for the many programs and pork finally hits the streets and interest rates skyrocket as a result of inflationary pressures. This means that we have a window of opportunity right now: low house prices coupled with artificially low interest rates. What a gift to buyers. If you’re looking to buy a home or an investment property, give me a call. I’ve bought a few hundred investment properties myself in over four decades in the business, and I’ve helped thousands find their dream home or rental property. Here’s my direct line: (972-814-7391). - ☺md
Jan 26, 2009
Picking the very best time to buy a home
Could it be now?
In housing, prices and interest rates generally work in opposite directions; when rates come down, prices rise, and when rates rise, prices come down. Back in the early 80s, when interest rates shot up as a result of Paul Volker's raising of interest rates to strengthen the dollar and lower inflation, builders got hammered; they could not sell their homes. I remember U S Home built a good number of modest homes without garages in an effort to cut selling price and keep payments somewhat affordable with rates at 16%.
Things had completely turned around by 2006 when rates were low from Greenspan's loose money policy; prices in some areas of the country were going up at double digit rates as a result. In 2008 the housing bubble popped and the economy came tumbling down; that caused sales to go off a cliff; prices stayed low because home demand crashed. So in an effort to re-inflate the real estate bubble (and other bubbles), the new Fed chairman cut rates to almost zero. Now home buyers have the wonderful condition of low home prices, coupled with an abundant inventory, and extremely low mortgage rates.
Here's an example of today's really good deals: A house that sold new in 2005 for about $200,000 is on the market by the bank that foreclosed in the low $130s; our buyers will get a fixed rate loan at 4.75% interest to buy it; the house is in excellent condition. Is this everybody's idea of a good deal? Pretty close to it, if not right on the money. The principal and interest payment on that loan (let's assume there's no down payment for the sake of simplicity) will be $688.57 per month. Compare that to where we should be: A $200,000 loan at 9% for a principal and interest payment of $1,609.25 per month. That's not all; our buyers won't be paying full asking price; plus, they can go to the appraisal district and get their property taxes lowered.
You’re probably wondering, is it that simple? It is...almost. There are a few banana peels that can slip up the buyer on the path to a great deal. When you’re ready to buy, call me and I’ll be happy to walk you through the best path for your individual needs and particular areas of interest. - ☺md
Dec 24, 2008
More of the same in 2009...
Or a shift in paradigm?
2008 has proved what a lot of us feared: That government creation of money and credit can generate bubbles that eventually blow up with unwanted consequences; the current housing bubble pop has reverberated around the world. In the DFW world of real estate the bubble has popped more quietly than in some markets, but it has caused serious damage to sellers, lenders, and homeowners struggling to stay out of foreclosure; in fact, it is starting to cause damage to the real estate industry. Last week I spoke with two agents who had moved to a different office because their former office (a national franchise) had closed down; of the 40 agents in the office, only about 15 stayed in the business, the rest quit real estate.
The November statistics from the North Texas Real Estate Information Systems (our local MLS) are shocking; only 4,146 single family homes were sold. Sales were down 33% from November of 2007, dollar volume was down 37%, and the average price was down 7%. Pending sales were down 36%, and the average price of single family homes pending is down 14%; new listings were down 20%; I imagine sellers are staying out of the market to avoid getting beat up. On the other hand, rentals were up 20%, which makes perfect sense.
Another interesting bit of news is that HUD’s management contractor just announced that starting January 1, 2009, new listings will be added to their listing servers on Fridays and Tuesdays and re-listings will be added on Wednesdays and Sundays; that’s twice as often as in the past. My thinking is that a lot more FHA loans are going bad, and HUD needs to get more properties on the market in a more manageable stream of listings.
The question is, will 2009 continue on the same path as 2008, or will we see a housing rebound in 2009? The January 2009 issue of REALTOR (the official magazine of the National Association of Realtors) has a headline that states, “Driving Housing Toward Recovery.” I see my job as telling it like it is to both buyers and sellers; the way I see it, housing will NOT rebound in 2009; if it does, I’ll buy a hat and eat it.
So why would I disagree with NAR? The answer is that we are looking at a complete paradigm shift. There’s probably not one person alive today who bought and sold real estate before the Federal Reserve was created in 1913 (it didn’t begin work till 1914), so the paradigm all of us in housing live in is a fiat money market that is controlled by government and a private bank that have the ability to create money and credit, and thus meddle in private business; housing has been on a government agency (HUD, Freddie, Fannie, Ginnie, VA) and paper money leash for almost a century.
The leash is breaking, and I think it means more hurt for sellers and a lot of opportunity for buyers; it means housing will revert to the mean; housing will become more affordable, and that’s not such a bad thing. Sellers will suffer, but many of today’s sellers are banks and government agencies that helped create the bubble; buyers, on the other hand, are private individuals wanting to own their home and say goodbye to their landlord. That’s a good thing; it means the housing glass is half full, and not half empty. Yes, some buyers are investors who will be landlords; but is it a bad thing for someone who has saved thirty thousand bucks to buy a house that previously sold for eighty thousand and get a great investment from a foolish bank who made a bad loan?
The astonishing money creation that’s taking place right now in an effort to save the current paradigm, and the even more astonishing money creation that will take place in the coming months, will at some point completely debase the dollar so that the government will have to move to the Amero, or even gold and silver for money (as was the case before the Fed creation), and those whose savings are in dollars will be hurt; those whose savings are in paid off real estate, gold, and silver will reap the benefits; we will be in a new paradigm based on real wealth and real money.
If you’re thinking of buying real estate, 2009 should present some wonderful opportunities. If you’d like expert help, call me; meanwhile, we hope 2009 is your best year ever. - ☺md
Nov 26, 2008
Repeat after me 500 times
Auctions have no deals for investors; few for owner occupants
Addison Wiggin & Ian Mathias, writing in the 5 Min. Forecast, state that “The Case-Shiller swan dive continues....From their peak, all Case-Shiller home price indexes are down at least 20%. Phoenix, Las Vegas, San Francisco and Miami are falling the fastest. Dallas and Charlotte are still the ‘outliers,’ having fallen only 2-3% over the past year.
“All three aggregate indexes,” reports David Blitzer, chairman of the index, “and 13 of the 20 metro areas are reporting new record rates of decline. Looking at the returns of the U.S. National Index, prices are back to where they were in early 2004.”
The Dallas/Fort Worth area, while sustaining considerable damage from the housing bust, has not taken a direct hit like some of the above cities; however, banks are taking a beating, even in our area. Wiggin and Mathias continue, “And now we’re seeing default rates among ‘prime’ borrowers soaring. 3.07% of prime mortgages were in foreclosure or at least 60 days late on payments in the second quarter, says the Mortgage Bankers Association. The previous record of 1.9% was set back in 1985. ‘Jumbo prime’ mortgages are getting it the worst. Those super-sized loans, so big even Fannie Mae and Freddie Mac wouldn’t securitize them, are defaulting at a rate of 7.5%. That’s three times larger than during the same period in 2007.”
To understand the plight of the banks, here’s an example of their losses, and this is on a very modest property: 3446 Silverhill Dr in Dallas sold as a foreclosure by Chase in August for $18,175 (less holding, selling, and closing expenses); a mortgage loan was taken on the house by the previous owner in November of 2005 in the amount of $53,600; that’s a probable total loss of $40,000, or about 75% of the original mortgage amount. Ouch!
Although it would appear that bankers in the past few years have not been the brightest stars in the firmament, they’re catching on to the fact that if they list a foreclosure in a sea of foreclosures they will get pounded down to selling at ridiculous prices (mostly to investors); they can turn the tables in their favor by selling the houses at auction.
In a foreclosure forum on the web earlier this year a fellow named Tom, who had attended some of the auctions, wrote, “The typical REO auction will have 5-6 registered bidders. Some a few more, some a few less. Usually at most only two or three will bid. It usually boils down to two quickly. If the lender's lucky, they'll bid aggressively. That's when the bidders blow their profits.” Tom had been told by a seasoned real estate investor, “Repeat after me 500 times: There will never be any bargains for you at any auction at any time, Tom. You may as well stay home.”
If you’re a buyer, it would be wise to print the last paragraph and read it to yourself a few times the next time you’re tempted to attend a real estate auction for anything other than to amuse yourself at the slick trick of turning a buyers’ market into a sellers’ market. - ☺md
Nov 10, 2008
Sales and listings slam down in DFW
Have we hit bottom yet?
The October statistics for the MLS system in Dallas/Fort Worth were a bit on the dismal side. Sales of single family homes were down 17%, condos were down 24%; the real blow was in pending sales, which tanked by 37% for single family and 50% for condos. Even though sales figures were down, prices inched up 1% for single family and 2% for condos; all is not lost for sellers.
The number of listings were down 16% for single family and 10% for condos, for a total at the end of October of 44,176 properties; it appears that sellers are staying away from an overloaded market. Of more significance is that the figure for new listings of single family homes was down 25%, and 18% for condos.
Very few rentals go through the MLS system (only 1,815 for October), but rentals were up 28%.
It’s hard to tell if any of this means that we’re at or near the bottom of this housing slump; I wouldn’t bet on it. One thing is almost sure: Those who trade their hard, green paper (dollars) for real estate stand an extremely good chance of coming out ahead in the long run; they just have to be patient in the short term. At this time we have deflation; government will make sure we end up with a huge bout of inflation in the next two to five years (hopefully not hyper inflation); when that happens, those with real estate, gold, silver, and oil should do very well. - ☺md
Oct 24, 2008
Buying with bad credit, no job verification and little cash
This is not sub-prime
Up until the early part of this year, a person could go to a sub-prime lender and get a loan as long as he or she could fog a mirror; in other words, the lender and borrower would have a conversation that went something like this:
Lender: Your credit score is 550; I see you didn’t pay some of your loans; can you tell me why?
Borrower: I got sick, but I’m fine now.
Lender: Okay, that’s a good explanation. Now for your home loan, you need to be making about $100,000 per year to qualify; how much do you make?
Borrower: About $110,000.
Lender: That’s good; we’ll take your word for it. How much money do you have in the bank?
Borrower: About $10,000.
Lender: That’s good; we’ll take your word for it. Here, breathe on this mirror.
Borrower: [Breathes on mirror]
Lender: Wonderful! You fogged it! Okay, since you want to borrow $500,000 with zero down, and need low payments, we’ll get you an Adjustable Rate Mortgage, called an ARM, that starts at 2% interest, with negative amortization; your payments will be $800 per month; when they adjust up you should be making a lot more money, or you can flip the house for $800,000 and make a juicy profit.
Unfortunately, sub-prime loans have gone the way of the Dodo Bird, and my guess is that they’ll only come back when, or if a real live Dodo Bird is ever found again. But there’s something better than sub-prime loans; after all, even though they were easy to get, borrowers still had to promise to pay them back, needed some type of credit score, it took time to apply for them, many came with lousy terms, and default affected the borrower’s credit.
There is something a whole lot better than sub-prime; I’ve used it for nearly 30 years, and it involves using other people’s money and other people’s credit. It has NOTHING to do with lease-purchase or lease-option; it has everything to do with taking title to a property as well as complete control of the property’s existing underlying loan or loans. It also has nothing to do with taking on lousy loans or bad properties.
The best part is that right now is a perfect time to use that wonderful strategy. I call it the Terra Master System™. If you’d like to buy your own home, but can’t qualify for a loan, this is the perfect strategy for you. Not only will I be teaching the Terra Master System™, but I will personally guide you through the successful steps of acquiring a home. I’ll have more details shortly; stay tuned. - ☺md
Oct 6, 2008
Saving big on home energy costs…
The cheap and easy way
Green is sprouting out all over; I Googled “going green” and got over 24 million hits. It’s wonderful to save the planet, but most people probably think of saving their budget before they start to work on the planet.
You can perform a host of upgrades to your home in an effort to save energy; most will give you anywhere from a small to a large amount of savings. As you add upgrades, the savings return on investment becomes less and less. For example, you can stuff your attic with an additional six inches of insulation; you’ll discover a noticeable gain. If you add another six inches, you might notice a slight gain. If you glue a one inch layer of polyurethane insulation to the parts of your house that have siding, and then cover it with vinyl siding, you’ll notice some additional savings. You might add storm windows and doors over your existing ones; again you’ll notice some savings, maybe large savings if you have old windows and doors that leak air.
Once you’ve done a serious job of wrapping your house to keep out the elements, the next step would be to install solar panels or a serious windmill for power generation. You might notice here that I’ve gone from the most practical and least expensive, to the less practical and more expensive. When you get to the windmill, you could be looking at a $50,000 investment to completely get off the electric grid; in the long run, it would pay off, but it’s a large chunk of change except for those whose homes are on acreage lots and whose property and bank accounts have values with a multitude of digits.
Out of the above items, putting an extra six inches of insulation in the attic is the least expensive and the most practical, unless you already have eight to twelve inches up there and the existing insulation is relatively new.
But there are ways to save money without spending money for upgrades. You do that by changing your lifestyle; by that I mean immediately cutting back on energy use. Radical cutbacks would mean you quit using the cooling system in the summer, and only use enough heat to keep pipes from freezing in the house in winter; that’s radical, and most people don’t want to be that frugal or that green. So the practical path is a serious cut—without complete elimination—in energy use on the largest energy use in your home: Heating and cooling.
We've all grown accustomed to air conditioning, so much so that not many houses in the warm parts of the U.S. are built without it, or are even designed to have a minimal amount of comfort without it. In the Dallas/Fort Worth area all houses have heating, and the majority of houses have some type of cooling: Some have window units; the majority of them have central systems.
If you have a two story home with a master bedroom downstairs, and the upstairs only gets used when you have guests, you can close the air vents in the rooms upstairs; close the doors so you are not heating and cooling unused rooms from downstairs heating and cooling; and if you have separate heating/cooling for the upstairs, you can simply turn that unit off when not needed. Even on a single story house, if you have bedrooms that are not used, close the vents and the doors to them to conserve energy.
In order to do a more serious cut in energy use, you must raise the thermostat in summer, and lower it in winter. If you understand thermal comfort, you can do so without a great amount of discomfort. Winter temperature comfort range is somewhere between 69 and 73 degrees Fahrenheit; in summer the comfort range is somewhat higher, somewhere between 73 and 78. Thermal comfort is not only established by temperature; it also involves humidity and air movement. High humidity can cause summer temperatures to feel much warmer than actual thermometer readings; add to that a lack of air movement, and a 90 degree day can feel over 100. Earlier this year in late May I was in Lake Havasu City, Arizona for a few days. At three o’clock one afternoon I was standing on a great expanse of asphalt, the sun was shining straight down, it was 93 degrees, and there was a slight breeze. In Dallas under those conditions I would have been soaked in sweat because of the heat and humidity, but the humidity was an unbelievably low seven percent. I walked around for half an hour and never broke a sweat.
The greatest aid to comfort with air conditioning is a reduction in humidity. If you can use your system to lower the humidity inside the home while dropping the temperature even into the high 80s you could be comfortable if you have the right type of air movement; unfortunately, most homes don’t have the right type of air movement. Home owners and builders install ceiling fans that provide vertical air flow. When is the last time you were outside and felt a wonderful breeze blowing from above? Probably never; cooling breezes come to us horizontally. You must emulate nature; ceiling fans only bring down the hot air that has risen in a room, and unless you’re standing underneath the ceiling fan, you won’t feel much of a breeze; so you must provide a horizontal breeze, and you can do so with relatively inexpensive upright fans that can oscillate and circulate a gentle breeze throughout a room (50 feet per minute is ideal). Raising the temperature 10 to 15 degrees above your current comfort temperature with the right air movement could drop your electric bill by a large percentage.
While on the subject of cooling, you could save additional money by installing window air conditioning units—yes I know, they’re not the epitome of elegant décor—the next time your central unit dies. A new four ton condensing unit will set you back somewhere between $2,500 and $4,000, maybe even more, depending on the salesman’s skill in upgrading you to a unit that has more bells, whistles, and warranty than a standard unit. Instead of the new central condensing unit, you could at this very moment go down to Wal-Mart or Home Depot and buy eight half ton (6,000 BTUs) window units with electronic controls for less than $1,200 including tax; and, for just a little over $200 you could buy eight 18” pedestal 3-speed oscillating fans. Not only would you save a small fortune, but you would never have to call a repairman again; when a unit goes out, you recycle it and buy another one; best of all, your house would remain cool until you get the new unit as the other seven units continue working. You might wonder why window units are more efficient. It’s because the central systems almost always have the ducts running in the attic; no matter how well the ducts are insulated, they are always losing cool air in the hot attic; always. Also, window units allow you to close and completely turn off the cooling to rooms that are not being used; closing the vents to a room on a central system still means that cool air will be pushed onto the ducts leading to the closed room, causing the loss of cool air in the attic.
Savings on heating is easier to manage. In our area, not all days in the winter are cold; and at night you can load your bed with warm blankets and sleep comfortably under almost any temperature. We did some experiments last winter. We started by shutting the heat off at night, except on nights when some of the pipes might have frozen. We used additional lightweight but very warm blankets, and a cap over our heads; we slept with complete comfort. If you have the right thermostat, you can have the heat come on just before you get up in the morning; or you can jump out of bed, turn it up, and jump back in bed till things warm up. We also tried keeping the house in the mid to high 50s and dressing much warmer; the high 50s was better than the mid 50s. Since the 50s was a bit uncomfortable for some tasks, such as just sitting and reading, we bought some $30 electric space heaters and put one in each room. If a room felt too cool, we’d turn on the space heater; problem solved.
I’m not suggesting that you make an extreme sacrifice in comfort, but the reality is that we’re going to run out of oil, gas and coal; eventually. We heat and cool mostly with oil, gas and coal. For the foreseeable future we’ll have those commodities, but the prices of electricity for cooling and heating, and of gas for heating are not likely to remain at their current levels; they’re likely to continue up due to diminishing supplies, and increasing inflation due to the federal government’s inability to curtail spending and money creation. We might as well get used to living a bit more frugal, and saving money is always a welcome benefit. - ☺md
Sep 3, 2008
Buying foreclosures
Getting a bargain and not a maintenance trap
There is no such thing as a perfect house. Even a brand new home is likely to have some items that need to be addressed by the builder. A house that has been lived in for a number of years since it was built will have numerous faults unless the owners were absolutely fastidious in their maintenance of the property. I've had houses on contract that seemed to be in perfect condition only to be shocked to see a miriad of sins turn up on a professional inspector's report; some of the problems were so numerous and substantial that the sellers couldn't afford to fix them prior to closing and the buyers walked away from the deal.
Buying a foreclosure (whether straight from the foreclosing bank or from HUD or VA after they have acquired it from the bank) often presents additional repair challenges to buyers. Banks rarely inspect the properties they acquire through foreclosure; they typically clean out any trash (referred to as a trashout by lenders) and put them on the market with the caveat to buyers that the properties are “sold as is with no repairs by the seller.” HUD has every one of its properties inspected by a professional inspector; however, according to HUD's managing company, the inspectors are generally not licensed (which does not mean the inspections are necessarily flawed), and the inspections are almost always done with the utilities turned off, which is fine if the inspector has a generator to check the electrical systems and a compressor to check the water pipes, but there's no way to inspect the drains or the gas appliances.
Homeowners who were not able to make payments on their mortgages are often strapped for cash enough that they could not afford to make necessary repairs to their properties; and even if they could afford it, most are not going to do so for the benefit of the lender who is about to take their house in foreclosure. For that reason, it's wise to expect more than minor repair items when purchasing a house that was foreclosed.
When we help buyers purchase a home we insist that they have it inspected by a licensed professional. On foreclosed properties, we suggest that they go one step further: That they buy it for many thousands of dollars less than what would be a good purchase price for the same house being sold by a homeowner; additionally, we suggest that they plan on spending more for repairs. There's only one catch to buying at extreme discounts from lenders and government agencies, and that catch is that they don't normally accept offers much below the asking price.
So how can you get a good deal on a foreclosure? The answer is to make lots of offers. Now you might be thinking that making many offers can take an inordinate amount of time and effort. How true! But there's a very simple solution to making the process effortless and quick; but, that solution is complicated and takes a bit of explaining; I'll be happy to share it with you when you are ready to purchase your next home. Give me a call: (972) 814-7391. - ☺md
Jul 29, 2008
House prices are increasing!
Values are declining. Where’s the connection?
In an article from the current issue of Tierra Grande, the Journal of the Real Estate Center at Texas A&M University, James P. Gaines gives an excellent table showing Texas home appreciation as an annual percent increase from the first quarter of 2007 to the first quarter of 2008. Dallas had an increase of 3.76%; Fort Worth was up 2.59%; Houston was up 4.38%; Austin increased 7.73%; the highest increase was Odessa at a blistering 13.04%. Looking at these figures one would wonder how it’s possible that in this tough market for sellers, prices are actually increasing in Texas.
A little skull scratching and thinking outside the box will tell you that prices are increasing, yes…
but…
VALUES are decreasing!
Everybody’s talking inflation today. The Bureau of Labor Statistics (BLS) calculates inflation; on July 16, 2008 they stated that, “On a seasonally adjusted basis the Consumer Price Index for All Urban Consumers (CPI-U) rose 1.1 percent in June after increasing 0.6 percent in May. The index for all items less food and energy increased 0.3 percent, following an increase of 0.2 percent in May.”
If we take the June increase and multiply it by 12 we get 13.2%, and if we take the May increase and multiply it by 12 we get 7.2%; it was noticeably higher in June, which is proof that once inflation gets rolling, it tends to accelerate. The fact that the BLS would even consider giving us the numbers minus energy and food is an indication that it would very much like us to forget the horrible 13.2% annual June increase in prices. Unless you live under a bridge downtown, and scrounge for half-eaten burgers at the nearby dumpster, food and energy costs MUST be figured into price increases.
Back to housing: if a house that is worth $100,000 in the Dallas area in June, 2007 increases in price by 3.76%, then in June, 2008, the new price of the house is $103,760; the owners could feel a bit richer; however, if the buying power of the dollar dropped by 13.2% in that year, the actual VALUE of the house (the buying power of the dollars when the house is sold) is closer to $90,063.68. In effect, prices have dropped considerably in our area.
Here’s another tidbit. The Journal’s numbers of 3.76% for Dallas and 2.59% for Fort Worth are averages; many parts of Fort Worth and Dallas, and Arlington, Grand Prairie, and the southern and eastern Dallas suburbs have had substantial price and value decreases. There are countless great deals for buyers in many nice places of the Metroplex. Will this scenario last? It could; and it might not. If inflation kicks up faster, values might move up and the deals won’t be such great deals anymore.
Call us for ideas on finding a great deal. - ☺md
Jul 14, 2008
More happy times for buyers
Continuing stress for sellers
The Dallas/Fort Worth MLS system continued to favor buyers in June; by a wide margin. Sales for single family homes were down 20% from a year ago; pending sales were down 33%. I understand that this is tough on sellers; but buyers should be ecstatic.
In the past I've explained about the steps sellers should take to get maximum sale price in this market (email or call me if you need details about your particular situation). I'd like to caution buyers to not allow the euphoria of lower prices draw them into unfavorable purchases. A lot of caution must be taken in a market of declining prices. One of the offers we made to purchase a bank REO recently is a case in point. The house is a 3-2-2 brick; about 1,600 square feet of living area. We made our offer and were advised by the listing agent that there were multiple offers; he requested our highest and best offer. The house is completely boarded up; hard to see the inside even with a good flashlight; however, it is in relatively good condition in a good neighborhood. Our offer was less than the bank's asking price (a very realistic, low price), about 30% of what the house sold for two years ago.
It was tempting to raise our offer by a few thousand dollars; but we didn't yield to that temptation and held our original offer. The listing agent advised us that another offer was accepted. A week later we were advised that the original contract had failed and asked if we wanted to submit another offer; there were still multiple offers for the property. We held our ground with the original offer amount. A few days ago we were advised that the second contract had failed and were asked if we again wanted to submit another offer since there are still multiple offers for the property. We submitted our same original purchase price. It appeared that the first two buyers might have had second thoughts about their purchase price.
A bidding war in a declining price market on a distressed property is good for the seller; not good for the buyers. There are still over 49,000 residential properties for sale in the MLS system; it's a buyers' market. When several buyers start bidding on one single property, that one property enters into its own little sellers' market and the tables get turned around on the buyers.
If you'd like to get 43 years experience on your side in this buyers' market, give me a call. - ☺md
Jun 24, 2008
D/FW multiple listing sales down again
That means great deals for buyers
Residential sales for May were down 12% for single family and 27% for condos and townhomes; average prices were down 13% and 25% respectively; unfortunate for sellers (mainly banks and government entities with REOs and acquired properties); very fortunate for buyers.
As to pending sales, the figures were down even deeper: Down 28% for single family and down 40% for condos and townhomes. The system was just shy of 49,000 residential listings at the end of the month.
It’s interesting to hear and read reports lamenting the housing bad news. If you’re a buyer—if you’re an informed, patient buyer—this is GREAT news.
We have a large supply of foreclosed and government acquired homes (HUD and VA), as well as short sale properties (pre-foreclosures); that supply isn’t going to go away soon; it might increase in the short term. John Burns Real Estate Consulting, Inc. reports that in Sacramento, California last month, 65% of the sales volume was a foreclosure or short sale; I’m not sure our figures are that high, but many of our sales are foreclosures, HUDs, VAs and short sales.
Those who have been in the business for some time realize that real estate runs in cycles. A couple of years ago you would not have imagined some of today’s prices; it was a sellers’ market. We now have a buyers’ market. Some buyers are waiting for prices to drop further; they might; but they might not.
The median home price in the Dallas area is $161,300; the cost to income ratio is 25%. For the Fort Worth area, the median price is $112,600; the cost to income ratio is 18%.
Building permits for single family construction are down considerably throughout the Metroplex, and people are still moving here in droves. There will be a push for higher prices at some point, so it’s a great time to pick a good deal.
Compare our figures to San Francisco, California. Their building permits for single family were only 888 in the past 12 months (less than 4% of our permits, which are down considerably); their median price is $785,000; the cost to income ratio is 90%. Can you say, “D/FW is great?” Absolutely!
Call us to help you find a good deal. - ☺md
May 14, 2008
Buying a real estate bargain
Why many bargains are not as good as they seem
Having bought several hundred homes for our own companies in the past three decades, I can attest to the fact that in real estate, hindsight is often better than foresight; that what appeared to be a bargain at the time of purchase turns out to be no great deal; sometimes, the deal turns out to be a real dud. Even though I’ve been dudless for a good length of time now, I understand that I must continue to knock on wood and be ever attentive for the many duds lurking around every corner of the real estate market.
Nassim Nicholas Taleb talked about Gerontocracy in his excellent book, Fooled by Randomness. In talking about investing (Wall Street traders in this instance) he says, “A preference for distilled thinking implies favoring old investors and traders, that is, investors who have been exposed to markets the longest, a matter that is counter to the common Wall Street practice of preferring those that have been the most profitable, and preferring the youngest whenever possible.... Survival of the fittest does not seem to be properly understood...it will be unclear who is actually the fittest, and those who will survive are not necessarily those who appear to be the fittest. Curiously, it will be the oldest, simply because older people have been exposed longer to the rare event and can be, convincingly, more resistant to it.”
A recent article by Dan Whitcomb from Reuters perfectly proved Taleb’s point. Whitcomb says, “A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market.” The article shows a picture of the young investor holding a dog, his wife stands next to him holding their baby; they are both smiling pleasantly. Whitcomb continues by saying that the young investor, “...invested in his first property in North Las Vegas in 2004. He snapped up eight other homes in hot markets like Phoenix and Palm Springs, Calif., over the next two years before he realized that the housing market was softening.”
When everybody was exalting real estate investors who were the most profitable — actually speculators and not investors; most of them were young and inexperienced — during the inflation of the currently deflating housing bubble, many of us who had been kicked in the face by previous duds were afraid of jumping into deals that would leave us holding another dud when the music stopped; and the music has stopped.
This brings us back to our main theme: why many bargains are not as good as they seem. I make offers on many houses during the course of each month; most are intended to be kept as rentals in this market, and some will work as “flippers” (houses that will be rehabbed and sold, hopefully, at a profit); because of my strong dislike for getting kicked in the face by another dud, few of my offers are accepted by sellers (mostly banks and government agencies). I like to track each house on which we make an offer, to stay sharply in tune with the market. I’m amazed at what some people are paying for houses; generally a whole lot more than I had offered. This is a buyers’ market, but buyers still need to follow the old adage, “Let the buyer beware.”
There seems to be no thought given to the fact that houses wear out and become functionally obsolete as do cars and other personal items. I will admit that some people are getting extremely good deals, but many buyers with limited buying experience are paying too much for houses that are well past their prime. Location, of course, is of prime importance; blow the location stage of the buying process, and the rest is unimportant. Beyond location, age comes next in importance. Unless an old house has been COMPLETELY rehabbed — taken down to the bare studs and rebuilt as if it were a new house — there is no way a typical tract house built in 1940 will not have serious flaws today; even well built custom homes from back then will be nearly as bad.
I’m not just talking about inexpensive houses. I toured a relatively new custom home foreclosure that had almost 4,000 square feet with a client recently; it was on a rainy day. Water was pouring into one of the living areas. There was a lot of sheetrock damage; there were major problems with structural and cosmetic items in other parts of the house (the house was only about six years old), and the floor plan had been designed for flair rather than functionality; there was lots of wasted space. The seller (a lender) had it priced in the $300,000 range, the appraisal district had it assessed in the $400,000 range; it was overpriced at anything above $150,000. Just because it’s a buyers’ market you can’t assume what appears to be a good deal is actually a good deal.
In this market, a wise investment (typically free to buyers) is the use of an experienced Realtor when buying any property, new or used. Call us for help in finding the best deal. - ☺md
Apr 22, 2008
The many anachronisms of house design
FHA and the two foot door
Since its inception, the Federal Housing Administration (FHA) has had a great influence on medium to modest priced housing on a number of fronts; for example, most people are not aware that FHA set many design standards for modest priced housing. When I was in college I studied the FHA minimum property standards (MPS) manual as a monk would study his Bible.
The MPS manual set minimums for things such as room sizes and the width of doors. A hallway could be no less than three feet wide. A room to be considered a bedroom had to be at least eight feet wide and ten feet long. If a builder constructed a three bedroom house and one of the bedrooms was seven feet by eleven feet he could not sell it as a three bedroom house to someone buying the house with an FHA loan; it would be appraised and valued as a two bedroom house; the seven by eleven bedroom would be considered a generous closet.
The MPS guidelines for doors gave minimum dimensions for width and height into different parts of the house. The front door had to be at least three feet wide, while the back door could be no less than two feet and eight inches wide. A bedroom door had to be at least two feet and six inches wide, and a bathroom door could be no less than two feet wide.
Well into this century a large number of modest houses were built for buyers who use easy qualifying FHA loans (FHA loans are today becoming more and more popular on modest and relatively upscale houses). In an effort to build competitively, and still have their houses meet MPS guidelines, most builders constructed to minimum sizes: bedrooms had doors that were two feet and six inches wide, and bathrooms had doors that were exactly two feet wide.
Many of those builders were also constructing upscale housing. A few of them would increase the width of a bedroom door by two inches; there is a discernible difference between two feet and six inches and two feet and eight inches. As a rule, the front and back doors remained three feet and two feet eight inches respectively, and bathroom doors almost always remained exactly two feet wide even on the upscale housing. To this day, many houses designed to sell even into the hundreds of thousands of dollars continue receiving rear entry doors which are too narrow at two feet eight inches (they should be three feet like the front door), and the biggest design flaw: bathroom doors that are only two feet wide.
Since we visit many builder model homes and spec houses each year, we get to compare the less expensive to those considerably more so. We have been to houses pushing the million dollar price range (in the Dallas area and other modest-priced areas, mind you, not in over-priced parts of California) that had bathrooms whose entrance doors are only two feet wide; that’s a serious sin by any design standard.
Measure the doors in your home's bathrooms; there's a very good chance they barely meet FHA's MPS standards. Try moving swiftly into a bathroom with a door that’s two feet wide without smacking your elbows against the door jamb unless you tuck in your arms or turn sideways as you enter.
The last house I designed had all doors three feet wide, and the front and rear doors were six inches wider; rarely did I have to increase the size of a room or a hallway to accommodate a wider door on that design. And the cost of a wide door is a miniscule part of the entire cost of today's houses. If you visit model homes, take along a tape measure. If a builder of upscale housing uses a door that's two feet for ANY room or closet, you might wonder how many other design shortcuts he took on the rest of the house.
Narrow door widths (on any size home) are a design anachronism; a nuisance for the home owner and a very minor money saver for the builder. But you might wonder about the biggest anachronism in home building: wood houses (Would any highway engineer in his right mind design a freeway bridge out of wood? Would Ford design a wood car?). Most modern houses in this country are built as they were built two hundred years ago: basically wood boxes wrapped in brick or wrapped in a modern plastic or composite siding. They can easily burn to the ground; thousands of people die each year in house fires. A large number of folks are lost when a strong wind blows them away along with their houses, or are crushed when the wind slams the house down on top of them. And finally, countless thousands of people poison the ground under their houses so bugs won't eat the wood structure.
Wood houses are economical to build, but concrete houses, although somewhat more expensive, last for many generations while providing extreme safety and energy efficiency for their owners. If you’re in the market for a new home, you might want to look into Monolithic Domes. - ☺md
Apr 10, 2008
Bad news for sellers: DFW real estate sales dive in March
Single family home sale closings in the Dallas/Fort Worth MLS system took a steep dive in March; they were down 25%, and condo sales were down 40% compared to a year ago. The median price of single family homes was UP 2% (try that trick in California, where prices have been diving along with sales); however, the days on market increased by 13%.
Pending sales (sales that will take place in the next few weeks) were bleaker: they were down 30% for single family and 37% for condos; new listings were down 23% and 20% respectively. The MLS system had a total of 48,828 residential properties for sale at the end of March. Since there were 6,563 residential sales in March, it means that we have over 7 months supply of residential properties for sale; that isn’t too bad as a bare statistic, but home builders still have a lot of inventory that is not in the system, they’re still starting more houses, and it’s hard to guess how many bank REO, HUD, and VA properties are in inventory that have not been placed in the system yet.
What can sellers do to keep from getting beat up in this market? Condition is absolutely essential; houses in truly mint condition are bringing the best prices; unfortunately, best in this market would be mediocre in a sellers’ market. On the other hand, sellers offering properties in poor condition are getting hammered. It’s important to understand that mint condition means at least new interior and exterior paint, and new carpet; it also means everything else looking and working extremely well. If sellers slap new paint and carpet on a house with a mildly shifting foundation, with beat up door knobs and kitchen cabinets, with a twenty year old range and a condensing unit from the late 1970s, they’ll still get beat up.
Before sellers undertake major renovations on their houses, the market around them must be studied carefully. Even some nearly-new houses are selling at great discounts because their neighborhood is loaded with foreclosed properties for sale. Selling an almost new house in competition with the builder — who’s about to go bankrupt and is unloading properties below cost — is a sure way to get beat up on the sale.
For sellers this is a time to get with a very experienced agent or broker to carefully consider their entire economic position, and their true selling motivation in order to come up with the best property disposition strategy. Call us if you have questions about selling your house. - ☺md
Mar 29, 2008
How to get a good deal in real estate
Not all houses for sale are priced correctly considering their location, condition, and the state of their local market. I’ve sometimes complained out loud when I see an overpriced listing. My son, John, is fond of saying, “The price is only a number.” That’s perfectly true: The asking price is rarely the selling price, especially in this market. Also, the price at which a home sells is not determined by the seller, the Realtor, an appraiser, the county appraisal district, or even a lender. It is set by the market; more specifically, real, honest to goodness value is set by individual buyers willing to pay cash. A more illusive value comes from buyers paying with a loan. And a bogus value often comes from buyers paying with easy-money, zero down financing. The latter is a type of loan quickly heading for extinction (except for VA loans).
Housing oversupply has made pricing a tricky process lately. I won’t go into great detail, but the current housing oversupply was caused by financing that made home buying too easy for people who could not afford current payments unless their economic condition was as stated on their loan application, or unless their economic life never missed a beat. Sadly, too many fraudulent loan applications were accepted by lenders during the last few years, and a declining economy has left many home owners without a job and a means to pay their loans. We’re not out of the water yet; we’re seeing only the tip of the iceberg in foreclosures and in distressed ownership sales. This housing downturn has two or three years to go before we see an upturn.
That said, not all markets will collapse or reinvigorate at the same time or at the same magnitude. Dallas-Fort Worth added more than 162,000 residents between July 2006 and July 2007, more than any other metro area according to Census Bureau estimates. These estimates appear accurate because even though we had a huge inventory of new and existing homes, a lot of houses sold during that time. I believe the DFW area is still at or near the top of the mountain in population inflow; so our market might not sink as deeply, and might come out sooner than those that had a speculative heyday.
With the difficult process of setting values, how do you get a good deal? How do you get a REALLY good deal? There are three keys to this end: Patience, market knowledge, and time. Let’s look at each key.
Patience
Most people buy emotionally. That doesn’t happen only to home owners; most relatively new investors fall into that trap. It’s difficult to get a good deal when emotions rule the deal. Buyers will fall in love with a house and overpay. The best deals are in distressed properties. The patient buyer will study a property carefully using a spreadsheet to figure out the exact cost of the house after all expenses are considered, and base the offer on the sum of those costs. Savvy buyers will make an intelligent offer on a property, and then they’ll go to the next property to make an offer on that one. They’ll continue making offers, realizing that some offers will be completely at odds with what the sellers expect; that’s okay; buyers set price. Patience means it will take time to get a good deal; perhaps it will take a few months of making offers (sometimes on the same properties as sellers realize they’re priced too high and drop price or look at lower offers). At some point an offer is accepted by the sellers.
Market knowledge
If the buyers, and especially if the buyers’ agent don’t have complete knowledge of the market, there’s a strong chance there won’t be a really good deal. Also, if the search is in a very specific, very limited-size location that is desirable to many buyers, there might not be a good deal available there any time in the next twenty years. Those wanting a good deal might need to expand the size of their search area.
Time
Time will tell if today’s deal was good or great. I know today that the houses we bought in the Avenues in south Fort Worth twenty years ago for less than $2,000 each were really good deals; so were some of the houses we picked up a decade ago in the Katy area of Houston. And I also know that some of my great deals from the past were not so great; one or two bombed. Experience allows me have a feel for how a deal will be judged in the future; however, the exact results are never known till we get there in time.
Looking to buy a good deal? We’ll do our best to help you find one. Call us. - ☺md
Mar 11, 2008
Blood runs in the streets
It’s 1988 all over again
I pulled up a list of houses that could be good investment properties from the MLS system this weekend; out of about 250 single family homes, at least 200 were bank foreclosures. Barbara and I previewed a dozen of the bank foreclosures on Sunday. Wow! Every one was a flash back to 1988 and the affirmation of two truths: One, that history repeats; and Two, that the best deals come when a market is overloaded with product. Twenty years ago the DFW real estate market was overloaded with product.
Two of the houses were completely boarded up; no way to get inside. What a fabulous way to buy property for pennies on the dollar. There is no way that those sellers will receive any realistic offer for their Real Estate Owned (REOs); great for the buyer, bad for the seller.
Another house had a real estate broker’s sign as well as a large yellow “Auction” sign, advertising the property auction which happened to be that same day. We entered the property and here’s what we found. There wasn’t one piece of sheetrock that didn’t have a hole in it; and it wasn’t vandalism; someone had taken every piece of copper wire out of the walls and ceilings. The kitchen was gone. The boards covering the back patio door were loose, so the house was accessible to anyone. As we were leaving, the neighbor was coming home in her car; she complained to us that the owner ignored her pleas to clean up and secure its property so thieves and undesirables couldn’t get in it. I had a strong hunch that the house would not sell that day at auction; it didn’t. I have another hunch: that someone will get a real steal on that property; and it comes with at least one very nice neighbor.
One house was an absolute disaster; ceilings were caving in from leaks in the roof; there was sheetrock and insulation all over the floor; the foundation appeared to be mostly gone, the floor boards under the carpet felt as if they were undulating with the dirt on which they rested. The house had been on the market about four months, and the price had not been taken down aggressively enough over that time; at some point, the price will be dropped low enough so that the seller’s asset manager accepts an offer that cuts the price down considerably lower than asking price.
Nathan Rothchild’s famous maxim, “The time to buy is when blood is running in the streets,” was repeated by John D. Rockefeller as, “The way to make money is to buy when blood is running in the streets.” This idea was the basis for three great books by James Dale Davidson and William Rees-Mogg: Blood in the Streets, The Great Reckoning, and The Sovereign Individual. Do yourself a favor; get them and read them; you’ll understand why there are such great deals in real estate right now. When you look at houses that are being sold by ignorant and desperate sellers (banks) in the best condition (abominable) for receiving the lowest offers, you’ll realize that now is the time to buy a home or investment property.
So how’s our market? Here is information from the local MLS system at the end of February. Single family sales are down 10% from a year ago; condo sales down 23%. Rentals are UP 28%; yes, that’s up. The average price of single family houses was down 1% (take that California and Florida which are down in the double digits). Pending sales for single family homes are down 24% and condos are down 41%. Pending rentals are UP 20%. There were 47,497 residential properties for sale in the MLS at the end of February. You can add about 8-10,000 new homes for sale to that figure. There are a few thousand homes that have been foreclosed (we have some) that are not yet on the market, and there are thousands of houses with delinquent loans that will be on the market after foreclosure in the next few months. What does all of this spell? OPPORTUNITY.
If you’re a serious buyer, here are a couple of thoughts. First, the asking price is only a figure; second, call me for help in finding a fabulous deal. - ☺md
Feb 25, 2008
$40,000 off, 4.99% fixed interest rate.
No payments for 4 months, and no closing costs!
I receive home builder email offers on a daily basis; they want us to help sell their homes; we often do because the offers are good for the buyers and for us. The offer above is from a large national builder; their prices range from just under $100,000 to just over $400,000 in the Dallas/Fort Worth area. During a very limited time they’re offering various discounts, up to $40,000 on some of their completed homes; they’re also offering a fixed rate that’s about one percent below the normal fixed rate terms (a 17% discount on the interest rate cost to the borrower); they’re paying the first four months of the buyers’ payments; and they’re paying for the buyers’ closing costs; in addition, there are incentives and bonuses for the selling real estate agent. Why would they do that? My guess is that it could be the third time up for air before they drown.
As I pen this, another email, this one from a large local builder, hit my inbox: A completed house previously priced at $141,000 is reduced by $10,000; also included are $3,000 for the buyers’ closing costs, and an additional $3,000 bonus for the selling agent. Oh my, what’s this? Another email just hit my inbox, from another large local builder: Highly discounted houses, with great buyer incentives, in most of their subdivisions, with incentives to selling agents of up to $15,000 bonus over and above the commission they normally pay.
John Caulfield, in an article he wrote last week for Builder Magazine, said that “Kimball Hill Homes is working toward presenting a plan to restructure its debt and its business to lenders by the end of this month. The Illinois-based builder, which continues to leak money, also stated last week that it is considering several options that include petitioning a U.S. bankruptcy court for protection from its creditors.” Kimball Hill ranked number twenty-two in closings nationally in 2006, so it was not a lightweight. Some other heavyweights are struggling; some lightweights have already gone down and drowned; plenty more will follow. I would further guess that more—and perhaps even larger—heavyweights will go down permanently after their third time up for air.
I’ll get back to houses in a moment, but you’ll better understand the importance of failing homebuilders when you look at silver. About four years ago, when silver was selling in the $6 per ounce range, silver analyst and writer Ted Butler was begging his readers to buy silver. He said something like, “This is the greatest buying opportunity of our lifetime.” He wasn’t just talking about a great buying opportunity in silver; he was talking about THE great opportunity of our lifetime—in silver or anything else. Silver crossed $18 per ounce last week; it looks like Ted is right on track. His theory is based on supply and demand; there’s a whole lot more demand for silver than there is supply. Ted’s research shows that there’s more above-ground silver than there is gold. His long term position is that silver will be priced at least in the hundreds of dollars, if not more. Supply and demand, and the sinking value of a hard piece of printed paper called a dollar, are pushing the price of silver (a commodity with real intrinsic value) up at an accelerating pace.
Let’s get back to real estate, which is another commodity with real intrinsic value. Great real estate buying opportunities in the DFW market are available now and should be with us during the next couple of years; some could be THE great real estate buying opportunities of YOUR lifetime. Drowning homebuilders might be the key to a decrease in the local supply of houses. Our market continues to draw people from near and far. A larger population creates increasing demand. The cards don’t look good for many builders who overbuilt here and everywhere else. To get rid of their inventory in houses and lots—which bleeds away money in taxes, maintenance, utilities, and interest—they are selling many houses at a loss; and they are spending huge amounts in selling expenses to sell at a loss. How many pints of economic blood can a builder give, no matter how large it is, before it expires? Kimball Hill appears to be on its last few drops. There will be a point when enough large national and local builders drown that production of new houses in our market will fall enough so that there is a turnaround in the DFW housing supply/demand equation. There is no way that small, custom builders will be able to take up the slack in production that large builders have brought here; national builders had billions of dollars available to them from Wall Street and the large banks tied directly to the Fed; they used those billions to develop lots and build with little thought to overbuilding.
Naturally, there will also have to be a turnaround in the foreclosure situation; but it will all come to pass. When listings in the MLS system begin to decline month after month for several months in a row, prices will stop declining and start their way up, following silver’s climb as a result of our misguided fiat money policies that produce too many pieces of paper and blips on computer screens that chase too few commodities; it’s called inflation. Inflation will be VERY GOOD to those who buy real estate in the DFW area, leveraged with cheap interest rates, during these cheap times.
There are EXTREMELY good deals right now, not just with distressed seller situations (foreclosed REO properties, HUD and VA acquired homes, short sale properties) but with new builder houses. If you’re in the market for a house, whether for investment or a homestead, DO NOT do it without expert help; don’t visit a builder’s model home or a Realtor’s open house without an expert real estate agent or broker—one with lots of experience—by your side. You need your own Buyer’s Agent. He or she will work in your best interest; and best of all, they are free to you. Call us for ideas, information, and help in finding your own great real estate buying opportunity. - ☺md
Feb 12, 2008
Traffic jams, overcrowded roads, hours idling, and your home’s location...
2.9 billion gallons of fuel wasted
According to the Texas Transportation Institute, traffic jams cost the U.S. economy $78 billion annually; they eat away 4.2 billion hours in travel delays and waste 2.9 billion gallons of fuel each year. Buyers must take extreme care when choosing their home’s location.
To understand the connection between waste and location, buyers should understand what’s happened to the country’s road system and the growth of highway demand. Between 1982 and 2006 there has been a 6.6% increase in the number of road miles. In that same period population has increased 28.4%, the number of drivers has increased 36.2%, the number of vehicles has increased 52.4%, the number of vehicle miles has increased 94.5%, and the hours of delay have increased by 171.4%. The average American spends 40 hours per year stuck in gridlock. It’s no wonder some people get so angry and frustrated they take pot shots at other drivers.
At present the amount of money invested in roads is not enough to offset the beating they take. The U.S. Department of Transportation (DOT) estimates that over 160,000 miles of federal highway has pavement deemed “unacceptable;” over 153,000 bridges are structurally deficient or functionally obsolete; this might bring to mind the fatal bridge collapse in Minnesota. The need for additional miles of highway will double in the next 30 years; meanwhile, the U.S. will probably add another 100 million people. If we add capacity at a rate no faster than what we've done in the past, the average American could spend up to 160 hours each year in traffic. That’s about four workweeks!
Not everyone has a long highway commute to work; but too many people do. When looking for a home, it’s important to keep this information in mind in order to keep from joining the mad crowd idling on a freeway “parking lot,” and helping waste vast amounts of gasoline. It’s easy for buyers to convince themselves that their dream home is “only” fifteen miles from work. For those who might work 48 weeks per year the math would indicate 7,200 total miles driven. That’s a lot of miles! Even if they could drive them at 60 mph, the time spent driving would be 7,200 minutes, or 120 hours; that’s a total of 5 entire 24-hour days spent driving. There is no way these home owners could manage the entire route at 60 mph unless they live and work next to freeway entrance ramps, so there’s a strong chance that a lot more idling, waste, and frustration will be in their future.
Another way to look at commutes is to figure the value of a home owner’s time: Time wasted multiplied by the amount of money the commuter earns per hour is the amount of money wasted commuting. In the above example, 120 hours multiplied times $30 per hour is $3,600 worth of time wasted; add to that the cost of car repairs, tire replacements, gas consumed, and the commute waste starts to add up to serious change. In addition to cost and waste of time, the danger of an accident has to be added to the equation; there are a number of commuters each year who do not make it to their next birthday because of a serious accident; some make their next birthday with minor or major disabilities.
A home owner in Mesquite called me last year and said that his job had moved from Mesquite to Fort Worth; the commute was taking a serious toll on him. He wanted to know if it was wise to sell his home in this buyers market and buy or rent near his new job location. I suggested that he put the cost of the commute on a spread sheet, come up with an exact cost in time and money wasted, and to call me when he had the figures. He called back the next day with shocking figures. The real cost was so high that he could afford to let his house sit idle while he rented an apartment close to work. But he did better than that; he rented his house in Mesquite to excellent tenants and rented an apartment for himself in Fort Worth; one very close to work. He’ll buy a house in the coming months taking great care to keep the commute distance at a minimum.
Location, location, location is not just about great schools, wonderful atmosphere, the fresh country air, and great property price appreciation in the future. It’s about reducing time on the roads not just to work, but to schools, church, soccer practice and piano lessons. The moral here is to take great care when buying a home. - ☺md
Feb 7, 2008
Buy when everybody else is selling
Only sell when everybody else is buying
The MLS statistics for the Dallas/Fort Worth area for January are almost as dismal as they were for December... for many sellers, that is. For some sellers things are not all that bad; for buyers however, the statistics indicate a great opportunity. If there’s one lesson that’s been hammered into my brain during 43 years in housing is that the best buying deals are found when everybody else is selling; when people read all the bad news and can’t see the end of the bad news tunnel. Pay close attention, buyers: the good news has arrived. There are great buying opportunities in our local market; you can buy houses today for considerably less than reproduction cost.
Here’s a snapshot of the January statistics:
- Single family sales were down 16% from January of last year;
- Condo sales were down 22%;
- Farms and ranches were down 21%;
- Lots and vacant land was down 16%;
- Commercial was down 28%;
- Rentals were UP 20%.
What’s this? Rentals were up? Is that a great anomaly? Not in this market. When there’s a rise in foreclosures lots of owners become tenants; they can’t buy with damaged credit, tightened lender qualifying requirements, and the demise of the sub prime market.
This is a great time to become an investor. You can buy low, rent in a rising market, and wait for your property to increase in value when the market changes. You might ask, what’s the best way to become an investor? The best way is to rent your modest home at a profit and move to a more upscale home (I said upscale, not McMansion) that can become another rental property in the future.
Here’s an example: John and Mary Doe (name changed to protect the successful) bought a home 15 years ago (a brick 3-2-2 with 1,400 square feet of living area). They currently owe $42,000, and their payment is $580 per month; the house is worth $100,000 in a normal market, though it would only sell for $90,000 in this market. They rent their house to GREAT tenants (call me for ideas on how to get great tenants) for $980 per month (rents in their neighborhood for like houses are going for over $1,000 per month; hint: modest rent is one reason they end up with GREAT tenants). Their gross cash flow is $400 per month.
John and Mary call us and we find them a GREAT deal on a more upscale house (address withheld to protect the successful). At the ridiculously low interest rate they receive in this market (well below 6%) their new house payment is right at $1,000 per month. That’s nifty: their tenants make their new house payment, they continue to make their old house payment; of course, John and Mary get to occupy the new house.
Life is rough for those who see the glass as half empty; it’s good for those who see the glass as half full; it’s best for those who realize the glass is actually filled all the way to the brim.
For more ideas; for answers to your questions; give us a call. - ☺md
Jan 29, 2008
National housing data show a steep decline in sales
The Commerce Department reported that sales of new homes fell 4.7% to a seasonally adjusted annual 604,000 in December, far below the 645,000 projected by economists; the lowest pace since February, 1995. December's sales pace was down 40.7% year over year; a lot worse countrywide than we saw in the DFW area.
Those sales figures probably overstate the health of the homebuilding sector, according to analysts, since they don't include cancellations, which have soared in the past year. One new home salesman for a nationwide builder I’ve worked with told me in confidence that their cancellation rate was about 40%.
As to the market as a whole (combined sales of new and existing homes), sales fell 24.6% in December compared with a year earlier, the biggest year-over-year decline since 1982.
The median sales price tumbled a record 10.9% compared with November and was down 10.4% compared with a year earlier. That was the biggest year-over-year drop in the median sales price since 1970. Have we hit bottom yet? I’d bet we’re not close to bottom; however, the Dallas/Fort Worth area, where we had relatively mild increases in prices during this housing bubble, shouldn’t experience anywhere near the plunge that we’ll see in places that had 30% yearly price increases.
How is that affecting buyers in our area? Those home owners selling “perfect” houses - houses that are in near new condition - are doing quite well considering our glut of houses for sale; houses that have even a few sins are selling at moderate to strong discounts; houses in rough shape are beginning to sell at real bargain-basement prices. If you’re a seller, call us to learn how to maximize the price you can get for your property. - ☺md
Jan 22, 2008
What lower Fed interest rates mean to housing
The Fed dropped interest rates by 3/4% today; down to 3.5%. Does that have any impact on housing?
In the short term, it could help lower house mortgage rates for folks with good credit. For the long term, it will weaken the dollar and help push rates higher. The short term strategy is to take this opportunity to buy a house at a strong discount with a low fixed-rate. One of the loan officers we work with told me this morning that a loan he was working on at 6% had dipped to 5.875%. While that tiny dip might seem insignificant, it amounts to a savings of $5,768.81 over the term of a 30 year $200,000 loan.
An added bonus will be that in order to keep the current recession from turning into a depression, the Fed will print more and more money; that will weaken the dollar (inflation); eventually that $200,000 loan will be paid off with much cheaper dollars. Those who look at the big picture and act wisely will reap huge rewards in a few years when the real estate market gets strong again.
Since the DFW area consistently attracts new residents, we will always need more housing; however, we don’t need the over production we’ve had the last few years when every national and regional builder moved into town. I predict we’ll see the demise of more than one large builder in the next year or two (KB Home lost $772.6 million just in the last quarter of 2007; D.R. Horton lost $712.5 million for the year; Centex lost $983 million just in the second quarter last year); at the very least, we’ll see most builders scale back considerably as they take down their lot and land inventory. Since we still have some of the most affordable housing in the nation, we could see prices firm up in the next few months.
What does all this mean? It’s a good time to buy. Call us. We’ll work hard to get you the best deal possible. - ☺md
Jan 10, 2008
Local MLS home sales take a dive in December. Listen up! Is it a good time to buy?
The statistics are out for the Dallas/Fort Worth MLS for December, 2007: It was the worst trending month of the year; actually, one of the worst I’ve seen since the crashing real estate times of the late 80s and early 90s. Single family home sales were down 25% compared to December, 2006.
National Association of Realtors (NAR) economists stated that the pace of U.S. home sales will pick up significantly in the second half of 2008. They are calling for a .7% increase in home sales in 2008; they’ve already given a figure for the number of homes that will sell in 2009 (5.91 million). Can anyone look that clearly into the future? Common sense would doubt it.
Other economists are talking recession (maybe worse?), inflation and deflation, loss of jobs to overseas competitors, bloated government spending, unchecked credit creation, CDOs and thousands of derivatives based on millions of bad loans not just in real estate but those now showing up in commercial and credit card loans that are bad for banking and lending. Is this doom and gloom information? No, this is actually great news for buyers.
Real estate can take a decade or more to wind and unwind; we’ve barely begun to unwind; this downturn only started in earnest in 2006. A big unknown is the worldwide fiat money experiment that has such an unclear future. For an insight into how one of the first great fiat money experiments ended you can read the excellent, short book Fiat Money Inflation in France by Andrew Dickson White (1832-1918). You’ll find more than one reference to the value placed on real estate even way back then. Value will continue to be placed on well-selected, bargain-bought real estate in the future.
In real estate, if there’s good news for sellers it’s usually bad news for buyers; if there’s good news for buyers it’s usually bad news for sellers. The real estate market is really not much different than the stock market. For a good while TV commentators have praised rising stock prices; rising prices are great for sellers. Commentators don’t mention the cost to buyers who must pay more to buy stocks. If the Dow were to drop 50% tomorrow there would be much wailing on Wall Street, perhaps even a few jumps from high places without parachutes. But there would be a good number of buyers licking their chops and actively picking up stock bargains. So it is on the real estate front; this is a great time for bargains.
What about sellers? They’re getting beat up. Those sellers who think it through carefully, accept the market’s values, and prepare and price their properties correctly are escaping major damage. Those who don’t? They’re getting beat up.
Buyers may be thinking that if there are great deals now that it might be better to wait and buy later when prices are even better. Perhaps. But what if NAR economists are right? Or what if just the right property comes on the market tomorrow at the right price? If you miss it maybe there will be others cheaper, but there might not be that one great deal that’s available today; that perfect house just for you. For the non-investor especially, this is truly a time to take advantage of the great selection available at really down to earth prices. For the investor, this will be a tricky period. Those who don’t study the past and fail to run serious scenarios on a spreadsheet might find yesterday’s bargain rental or flipper tomorrow’s overpriced property.
If you’re a seller or a buyer, please call us with any of your real estate questions. Better yet, let us help you buy or sell; we’ve bought and sold hundreds of our own properties. Our experience will guide you in making intelligent decisions. - ☺md
Jan 2, 2008
Government helps short sale sellers by modifying the tax laws
H.R. 3648 was passed and signed into law to help people avoid nasty tax consequences after selling their houses through a short sale process. Most lenders were issuing a 1099C form to home owners who lost their house in a foreclosure or a short sale; that meant the distressed owners had to claim as income the amount of the loan that was forgiven by the lender (the lender’s loss amount). It was like giving sellers one last kick after unfortunate circumstances had kicked them economically.
For some home owners this is a real boon; in a sense, it gives them tax free income. For example, a couple who bought a house for $100,000 ten years ago. They refinanced a year ago and borrowed $200,000, giving them almost $100,000 in cash (after closing expenses). They subsequently get in trouble and fail to make their payments. They sell the home in a short sale; the lender receives $100,000 after all selling expenses are paid. There is real income here; however, the new law, called the Mortgage Forgiveness Debt Relief Act of 2007 eliminates the taxable gain. Most home owners who are unable to make their payments are in real economic pain and this law certainly makes sense. Even for those who might have gained some free cash, over the long run they will lose more than they gain because of credit and higher payment consequences.
This law applies to owner occupied properties; it appears that investors are left holding the bag. Consulting a tax advisor might be a good idea for those who find themselves with a high-value 1099C. - ☺md
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