I have been reading different blogs and articles regarding the importance of education. I have also read various opinions on the value of experience. When you are evaluating the capabilities of an individual, both can be used as a yardstick. If you come across someone that has both, you may discover the best of both worlds.
Education is fundamental in learning the basic framework of a profession. Experience is the result of actually performing the tasks of a profession and learning how the knowledge gained through education is practically applied.
You can usually decide your educational pursuits; experience is often garnered by chance. In a perfect world, you acquire the education and then step into the professional role. In that professional role, you apply your knowledge while experiencing the events that occur in the course of you performing your job.
There are times, when life throws you experiences before you have had the time to acquire the education necessary to deal with them. In those times, you have to call on prior experience and the cumulative knowledge you have garnered in life. There will be times when you make the correct decision and there will be times when you make the incorrect decision. The event will become another learning experience.
Is there a difference? When I was a younger man, I believed that you could study and read and acquire the knowledge necessary to do just about anything. I have learned that belief was flawed. Reading a textbook, taking part in a classroom exercise, watching film or listening to a lecture never replicates real life experience.
Soldiers tested in the field of battle have a much greater understanding of the perils of war than those that have read “The Red Badge of Courage”. There is something distinctly deeper about knowledge gained through practice.
Lessons learned in classroom settings usually occur in controlled environments. An individual may learn how to perform all aspects of their profession. Lessons learned in real life situations are filled with ancillary activity that is going on at the same time. You may read how to perform each function. Experience will teach you how to perform many functions simultaneously. Lessons are learned in a sequential order. Experience occurs in a multifaceted fashion which requires you to handle several functions at one time. Classroom experience is generally one sided whereas experience occurs with the interaction of others.
When weighing education and experience during the evaluation of potential real estate agents, it would behoove the public to consider what may be needed to accomplish the task at hand. If your need can be met by one that has more knowledge than experience, that is the route you should take. If your need requires the skills acquired through years of experience, that is the individual you should hire.
How do you know which type of agent you need? The question is not easily answered. If you were to ask the agent that is educated but lacking in transaction experience, they will surely attempt to sway you with the value of education. If you ask the agent that has been working for several years, they will surely point out the advantage of “real life” experience garnered through many transactions. The truth is probably somewhere in between the two and it will depend on the market at that point in time.
If housing is active, there are advantages to both sets of individuals. If the market is slow, you may be better advised to seek out an agent that has dealt with a slow market. You see you can read about the slow markets of years past. Agents can study how others dealt with those markets. Agents that have been through those markets will be in a better position to guide you through a transaction without needing to check a guidebook.
Glib statements like “interest rates remain at an all time low” carry a great deal more impact coming from an agent that was involved in transactions in the 80’s when rates were 14%.
The final thought on the difference of the two types…..education or experience involves the one thing that separates those that are successful. Focus. I truly believe that the ability to focus is the strongest asset in any professional’s bag of tricks. Focus can only be fine tuned through the understanding that comes from day to day experiences. Although, it is in a different venue, I look at the difference between Tiger Woods and the hundreds of golfers that come through the PGA schools. He is a champion, because of his ability to focus on the task at hand. His focus is fine tuned from the experiences he has experienced. There are several components to a fine round of golf. It is necessary to understand which component has the highest priority at various stages of the round. (It does not good to focus on the though process needed to make a long putt when you are getting ready to hit a shot from the fairway.)
So there you have it. Education or experience? I am an old guy now, so I will have to fall on the experience side of the equation. As a side note, to you young folks coming out of the universities, I can remember walking 10 miles, up hill, both ways in snow that was knee deep …………
Wednesday, October 31, 2007
Thursday, October 25, 2007
Hold that line ......
I suppose this will irritate some agents in this area. The market has slowed to a crawl. We do have more houses, townhomes and condos for sale that at anytime most of us can remember. Prices have to come down.
I know those of you that bought in 2003, 2004 and 2005 faced a rediculous market. Many of you are living in a home that was actually your second, third, fourth or maybe more choice. Homes went on the market and if you placed an offer, many times it would be one of many offers on that property. You sat nervously by the phone hoping you would get the call "you've got the house." Only one person could receive the call, the rest of you returned to the market, hoping to get lucky. Prices were going up. If you got caught up in the groundswell, your target price began to creep up as well.
In those days, financing began to change. You could finance 100% percent of the purchase (in some cases, you could finance more than 100% and cover your closing costs too!). Interest rates bottomed out at around 4.5%. It was possible to get a lower rate on the enticing loan products being offered.
How could you lose? Prices were going up, but that meant you would move in and your home would be more valuble than when you placed the offer on it. It had to be true, your lender had the home appraised before you settled and amazingly enough...........it appraised for just a bit more than your loan amount. Fancy that.
Everyone heard rumors of bubbles and froth from the then Chairman Greenspan, but things kept moving at the same frantic pace. Dozens of people at every open house and contracts being written on the hood of cars seemed to be the norm.
Then it stopped.
In the fall of 2005 pace of consumption ran smack dab into actual affordability. Prices had reached a point that put homes out of reach. All of the sudden, it did not matter what sort of fancy loan product was being offered. It cost too much to buy a home and the market came screeching to a halt.
The NAR used whatever manipulation of statistics was necessary to deny there had been any change. Major real estate firms across the country began preaching "everything is ok, it is a wonderful market". They too denied that there was a fundamental shift in consumer behavior. After several years of riding the runaway train of unwarranted price increases, everyone got off at the same stop. It was easy to miss the mass exodus. It occured about the same time that we as a nation watched the victims of Katrina and their suffering on t.v.. We were becoming more entrenched in the war in Iraq and the media was focused on Valerie Plame and Jack Abramoff.
Very quietly, a nation of buyers stopped reading the classifieds. A nation of buyers stopped visiting open houses. A nation of buyers stopped seeking the counsel of a real estate agent. A nation of buyers sent in their ballots by staying home and refusing to pay the higher prices. Our industry looked in every corner to find the culprit behind lagging sales.
The NAR pointed to the fact that things may be slow, but the average sale price was going up. They failed to elaborate and reveal that the average price going up in a market that is slowing down only indicates that the homes that are selling are higher priced and the lower priced homes are sitting on the market. If the lower priced homes are not selling, that should have been the first big clue that there was a problem. First time homebuyers buy the lower priced homes and they are necessary for the entire system to work.
Then came the sub-prime loan fiasco. When the industry was bustling, many people took advantage of the opportunity to make money. Money was a commodity and it was cheap and with the frenzy of buyers, people could start up mortgage companies and make a lot of money quickly. The system was overwhelmed. Loans were made, sold, bundled, sold and so on. Some of the sub-prime loans went bad. Sub-prime lenders began to go belly up and many people in the industry began to point at these failures as a reason that the market was slower. No one mentioned that sub-prime loans were nothing new. They failed to point out that anyone with a average credit score could still qualify for a conforming loan and buy a property in the mid to lower price range.
Prices were still too high and homes continued to sit on the market.
We have now seen prices in this area drop as much as 10% and the activity is still non-existent. Prices are still too high. Interest rates are around 6% and they will not go much lower regardless of any action by the Fed. The buyers are doing the math. Home prices remain above what they can afford to pay.
It is not about sub-prime loans. It is not about bad media. It is not about interest rates.
There are buyers out there. There are people that have to move. There are people that have to sell. The components of a normal market are in place. The prices are too high. If someone asks me "Is this a good time to buy?", how can I tell them yes? If you have to buy, you have to buy. If you are asking "should I buy now or wait?", I would have to say - wait. Prices have not bottomed out yet. All of the indications I see are that home prices will continue to fall.....maybe as much as 5% more.
Now there are those that will say - If you plan on living in the home for more than 5 years, you will be able to absorb the "on paper loss" and over that period of time the value of the home should increase. There may or may not be truth in that statement. Historically it seems to hold up, but, if you wait until spring, you can ease the "on paper loss" by quite possibly paying less for the home. The danger? If you find a home you love and decide to wait.........someone else may buy your dream house. Right now, dreams are more expensive than they will be next spring.
If you are in the process of selling or you think you have to sell, knock 10-20% off what you think your home is worth before you put the first sign in the yard. If you ask for an opinion of your homes worth, make sure that you are given two years of data to analyze. Look at the trends and understand that the last sale is probably more than you can expect right now.
There is a key word to paste on the refrigerator door - PATIENCE.
Do not be swayed by stories placing the blame on lenders or types of borrowers or the Fed. Prices went up faster than incomes could accomodate. They will have to return to substainable levels before the "for sale" signs begin disappearing from every third or fourth house in your neighborhood.
As always, I welcome your questions and/or comments. Feel free to write me an email if you have specific issues that you would like me to address.
I know those of you that bought in 2003, 2004 and 2005 faced a rediculous market. Many of you are living in a home that was actually your second, third, fourth or maybe more choice. Homes went on the market and if you placed an offer, many times it would be one of many offers on that property. You sat nervously by the phone hoping you would get the call "you've got the house." Only one person could receive the call, the rest of you returned to the market, hoping to get lucky. Prices were going up. If you got caught up in the groundswell, your target price began to creep up as well.
In those days, financing began to change. You could finance 100% percent of the purchase (in some cases, you could finance more than 100% and cover your closing costs too!). Interest rates bottomed out at around 4.5%. It was possible to get a lower rate on the enticing loan products being offered.
How could you lose? Prices were going up, but that meant you would move in and your home would be more valuble than when you placed the offer on it. It had to be true, your lender had the home appraised before you settled and amazingly enough...........it appraised for just a bit more than your loan amount. Fancy that.
Everyone heard rumors of bubbles and froth from the then Chairman Greenspan, but things kept moving at the same frantic pace. Dozens of people at every open house and contracts being written on the hood of cars seemed to be the norm.
Then it stopped.
In the fall of 2005 pace of consumption ran smack dab into actual affordability. Prices had reached a point that put homes out of reach. All of the sudden, it did not matter what sort of fancy loan product was being offered. It cost too much to buy a home and the market came screeching to a halt.
The NAR used whatever manipulation of statistics was necessary to deny there had been any change. Major real estate firms across the country began preaching "everything is ok, it is a wonderful market". They too denied that there was a fundamental shift in consumer behavior. After several years of riding the runaway train of unwarranted price increases, everyone got off at the same stop. It was easy to miss the mass exodus. It occured about the same time that we as a nation watched the victims of Katrina and their suffering on t.v.. We were becoming more entrenched in the war in Iraq and the media was focused on Valerie Plame and Jack Abramoff.
Very quietly, a nation of buyers stopped reading the classifieds. A nation of buyers stopped visiting open houses. A nation of buyers stopped seeking the counsel of a real estate agent. A nation of buyers sent in their ballots by staying home and refusing to pay the higher prices. Our industry looked in every corner to find the culprit behind lagging sales.
The NAR pointed to the fact that things may be slow, but the average sale price was going up. They failed to elaborate and reveal that the average price going up in a market that is slowing down only indicates that the homes that are selling are higher priced and the lower priced homes are sitting on the market. If the lower priced homes are not selling, that should have been the first big clue that there was a problem. First time homebuyers buy the lower priced homes and they are necessary for the entire system to work.
Then came the sub-prime loan fiasco. When the industry was bustling, many people took advantage of the opportunity to make money. Money was a commodity and it was cheap and with the frenzy of buyers, people could start up mortgage companies and make a lot of money quickly. The system was overwhelmed. Loans were made, sold, bundled, sold and so on. Some of the sub-prime loans went bad. Sub-prime lenders began to go belly up and many people in the industry began to point at these failures as a reason that the market was slower. No one mentioned that sub-prime loans were nothing new. They failed to point out that anyone with a average credit score could still qualify for a conforming loan and buy a property in the mid to lower price range.
Prices were still too high and homes continued to sit on the market.
We have now seen prices in this area drop as much as 10% and the activity is still non-existent. Prices are still too high. Interest rates are around 6% and they will not go much lower regardless of any action by the Fed. The buyers are doing the math. Home prices remain above what they can afford to pay.
It is not about sub-prime loans. It is not about bad media. It is not about interest rates.
There are buyers out there. There are people that have to move. There are people that have to sell. The components of a normal market are in place. The prices are too high. If someone asks me "Is this a good time to buy?", how can I tell them yes? If you have to buy, you have to buy. If you are asking "should I buy now or wait?", I would have to say - wait. Prices have not bottomed out yet. All of the indications I see are that home prices will continue to fall.....maybe as much as 5% more.
Now there are those that will say - If you plan on living in the home for more than 5 years, you will be able to absorb the "on paper loss" and over that period of time the value of the home should increase. There may or may not be truth in that statement. Historically it seems to hold up, but, if you wait until spring, you can ease the "on paper loss" by quite possibly paying less for the home. The danger? If you find a home you love and decide to wait.........someone else may buy your dream house. Right now, dreams are more expensive than they will be next spring.
If you are in the process of selling or you think you have to sell, knock 10-20% off what you think your home is worth before you put the first sign in the yard. If you ask for an opinion of your homes worth, make sure that you are given two years of data to analyze. Look at the trends and understand that the last sale is probably more than you can expect right now.
There is a key word to paste on the refrigerator door - PATIENCE.
Do not be swayed by stories placing the blame on lenders or types of borrowers or the Fed. Prices went up faster than incomes could accomodate. They will have to return to substainable levels before the "for sale" signs begin disappearing from every third or fourth house in your neighborhood.
As always, I welcome your questions and/or comments. Feel free to write me an email if you have specific issues that you would like me to address.
Tuesday, October 16, 2007
Artificial sweetener? Sugar cane please!
It would be nice, if lenders realized that they have been a large player in our current housing market. Sounds rather simple, one would imagine that they are aware of their position. Maybe I should phrase that; it would be nice if lenders accepted responsibility for their role in our current housing situation and actually offered some solutions. If you merely circle the wagons until the dust settles, you will have made no progress. You will be going in circles and never reaching a destination.
There are several factors at work today.
There are some bad loans that will have to be dealt with. Lenders can either reconstruct loans for credit worthy consumers or they can foreclose on property. At some point, someone in power will have to admit - those holding bad mortgages are not going to get all the money back. It is not going to happen. You are going to lose money. In the interest of everyone involved, will someone please understand the magnitude of your losses and act to minimize them.
Reconstructing loans for credit worthy consumers seems on the surface to make practical sense. If the loans are in danger of going into default, debt reconstruction should take place. It does no one, not the borrower, not the lender, not the community and surely not the economy any good to wait until someone is three or four months past due before addressing the problem. Lenders waiting for the final shoe to fall in hopes of garnering a few extra dollars are risking losing thousands. Does the phrase "pennywise and pound foolish" ring any bells? Some lenders are actively seeking to re-finance some loans. Some is not enough. A comprehensive review of all new loans made in the past five years should take place. If lenders are pro-active it may put to rest the mud slinging that is occurring regarding predatory lending. Most people understand that there were some cases of bad loan officers but their number is dwarfed by the large number of honest professional lenders all across America.
It is high time that our elected officials addressed each problem facing the housing industry separately. There is a crisis created by the implosion of sub-prime loans. There is also a crisis created by the 100% financing. There is also the issue of competition within the real estate industry.
The sub-prime loan crisis is the result of many people involved in transactions seeking to garner their personal piece of the transaction pie. This chain of folks begins with those that sought the loans, travels through real estate agents, those taking loan applications, those appraising houses, those underwriting loans, those packaging loans for sale and those purchasing investments that included the loans. Everyone had a hand out. The majority of them were following the rules that existed at that time. Yes, there were cases of loan fraud. There have always been cases of loan fraud. The issue here is greed, not fraud.
In my humble opinion, it is not the responsibility of the government to bale out those that made bad investments. The chance for great reward in investments usually includes the risk of great loss. We have seen the losses. We have seen companies fold. None of it (beyond the investigation of any loan fraud) requires the intervention of our government.
People, whether at the beginning of the chain or at the end of the chain, should be allowed to live with the results of their decisions. Those that have chosen more prudent behavior should not be indirectly compelled to pay the price to offset others losses. The role of the government should be focused on controlling inflation and reducing the risk of a deeper recession.
It has been shared in many places that the National Association of Realtors has lost their way. In the course of growing into the large lobbying organization it has become, it has lost the support of the rank and file members. Realtors across the country are members only because it is required to be a member to have access to the multiple listing service and it is also required if one is to refer to themselves as a Realtor. Access to listings (which could be blown up if anyone comes up with a national plan that includes all listings) and the use of a trademark are the main reasons they can claim 1,000,000 and growing. Their inaccurate remarks and press releases have created a situation where agents everywhere are left trying to explain what they have shared. The bottom line, each member has the responsibility to become more active and attempt to correct the course this ship has taken before it joins the Titanic at the bottom of the sea.
The news industry has changed. There will be no in depth analysis of any industry because in depth analysis is boring. Sensationalism draws listeners, viewers and readers. If a full explanation of the housing market is going to be shared, it will have to be printed on the backside of O.J.'s next confession. The best source of information about the market continues to be the agents that work in it every day. If you have a conversation with an agent and everything they share is in direct conflict with what you perceive around you, find another agent to speak with on the subject.
In a nutshell ......
It is not a time for despair. The market will adjust. Those selling will have to accept the new market value of their home. As housing costs recede, their will be a positive impact on the cost of living in any area. As housing becomes more affordable, the path to the "American Dream" will re-open. There is a better tomorrow....we have just to wait and accept tomorrow will not happen today. That is not an artificially sweet statement.
Tomorrow will be better and that is as sweet as the purest sugar cane growing in Cuba.
There are several factors at work today.
There are some bad loans that will have to be dealt with. Lenders can either reconstruct loans for credit worthy consumers or they can foreclose on property. At some point, someone in power will have to admit - those holding bad mortgages are not going to get all the money back. It is not going to happen. You are going to lose money. In the interest of everyone involved, will someone please understand the magnitude of your losses and act to minimize them.
Reconstructing loans for credit worthy consumers seems on the surface to make practical sense. If the loans are in danger of going into default, debt reconstruction should take place. It does no one, not the borrower, not the lender, not the community and surely not the economy any good to wait until someone is three or four months past due before addressing the problem. Lenders waiting for the final shoe to fall in hopes of garnering a few extra dollars are risking losing thousands. Does the phrase "pennywise and pound foolish" ring any bells? Some lenders are actively seeking to re-finance some loans. Some is not enough. A comprehensive review of all new loans made in the past five years should take place. If lenders are pro-active it may put to rest the mud slinging that is occurring regarding predatory lending. Most people understand that there were some cases of bad loan officers but their number is dwarfed by the large number of honest professional lenders all across America.
It is high time that our elected officials addressed each problem facing the housing industry separately. There is a crisis created by the implosion of sub-prime loans. There is also a crisis created by the 100% financing. There is also the issue of competition within the real estate industry.
The sub-prime loan crisis is the result of many people involved in transactions seeking to garner their personal piece of the transaction pie. This chain of folks begins with those that sought the loans, travels through real estate agents, those taking loan applications, those appraising houses, those underwriting loans, those packaging loans for sale and those purchasing investments that included the loans. Everyone had a hand out. The majority of them were following the rules that existed at that time. Yes, there were cases of loan fraud. There have always been cases of loan fraud. The issue here is greed, not fraud.
In my humble opinion, it is not the responsibility of the government to bale out those that made bad investments. The chance for great reward in investments usually includes the risk of great loss. We have seen the losses. We have seen companies fold. None of it (beyond the investigation of any loan fraud) requires the intervention of our government.
People, whether at the beginning of the chain or at the end of the chain, should be allowed to live with the results of their decisions. Those that have chosen more prudent behavior should not be indirectly compelled to pay the price to offset others losses. The role of the government should be focused on controlling inflation and reducing the risk of a deeper recession.
It has been shared in many places that the National Association of Realtors has lost their way. In the course of growing into the large lobbying organization it has become, it has lost the support of the rank and file members. Realtors across the country are members only because it is required to be a member to have access to the multiple listing service and it is also required if one is to refer to themselves as a Realtor. Access to listings (which could be blown up if anyone comes up with a national plan that includes all listings) and the use of a trademark are the main reasons they can claim 1,000,000 and growing. Their inaccurate remarks and press releases have created a situation where agents everywhere are left trying to explain what they have shared. The bottom line, each member has the responsibility to become more active and attempt to correct the course this ship has taken before it joins the Titanic at the bottom of the sea.
The news industry has changed. There will be no in depth analysis of any industry because in depth analysis is boring. Sensationalism draws listeners, viewers and readers. If a full explanation of the housing market is going to be shared, it will have to be printed on the backside of O.J.'s next confession. The best source of information about the market continues to be the agents that work in it every day. If you have a conversation with an agent and everything they share is in direct conflict with what you perceive around you, find another agent to speak with on the subject.
In a nutshell ......
It is not a time for despair. The market will adjust. Those selling will have to accept the new market value of their home. As housing costs recede, their will be a positive impact on the cost of living in any area. As housing becomes more affordable, the path to the "American Dream" will re-open. There is a better tomorrow....we have just to wait and accept tomorrow will not happen today. That is not an artificially sweet statement.
Tomorrow will be better and that is as sweet as the purest sugar cane growing in Cuba.
Reality is like a beignet without the powdered sugar
The current housing market is being described in extreme measures. The media seizes every word shared in a press conference and attempts to put the most dramatic spin on what was spoken. The lenders are scrambling to cover current losses and mitigate future losses. They advise us that the situation is returning to normal. Of course, they do not point out that over 100 lenders have ceased operating. Interest rates are historically very low and lending guidelines have been shored up to prevent future abuses.
(note: The fox is advising the hen’s that it is safe to return to the henhouse.)
The House and Senate are wringing their collective hands over the situation. They are having the members of their staff develop legislation language that will read well and offer dramatic sound bites in the upcoming elections. Any potential bills are being vetted to assure that the special interests groups will be protected by any new laws. Statements are being shared indicating that the housing crisis is serious and it will be dealt with quickly.
(note: The pied piper is playing his song and the lemmings are headed for the cliff.)
The National Association of Realtors is convinced that this is a wonderful time to buy. They have spent a great deal of money advertising the importance of using a Realtor in a real estate transaction. Their spokesperson has managed to skew every report regarding the housing market and blindly step before cameras proclaiming that the “market is fine”. When challenged by the stock market entertainer, Jim Cramer, that if you buy a home today, you will lose money – the President elect of the NAR retorted that the housing market in Indiana was just fine.
(note: Alice through the looking glass had a more accurate picture of the world around her.)
It is no wonder that the housing market has stalled. The media proclaims that housing prices are going down. The local Realtors offer statistics that sold prices are actually going up in some markets. You have a better chance at finding the pea in the thimble game on the streets of New York than you do of making sense of the statistics used to convince you the market is up or the market is down.
The Federal Government offers that we are in danger of a recession but we also have to guard against inflation. The existence of one does not preclude the existence of the other. We do face both and housing is a large factor in both.
In a nutshell ……
Housing prices have risen to levels that are out of proportion to the salaries in any given area. This occurred, mainly, because the instruments used to finance homes were expanded to reduce the out of pocket money necessary to purchase a home. The easy availability of mortgage money allowed all borrowers the opportunity to buy. This easy access also supported the “eBay” mentality that led to multiple offers on homes and increased demand for a limited supply at that time.
As homes sold, others saw opportunity for large gains and they also placed their home on the market. The money sources were hit by losses on loans that went into default. These defaults did not begin occurring in large numbers until recently. The mortgage products used to “give away” the easy money were unique in that the payments would not go up for a few years. Those years have passed the payments are beginning to increase.
Qualifying for a loan has become a bit more difficult. The bigger change is that the programs that allowed borrowers to make purchases with no money out of pocket have been significantly modified. It is much harder today to get the creative financing of yesterday.
Therein lays the root of the problem.
It does not matter what the media says. It does not matter what bills are passed. It does not matter which dream world the NAR is operating. If first time buyers can not enter the system in sufficient numbers, the rest of the market will remain stagnant.
It appears that we have shot ourselves in the foot. There was a time when people saved money so they would have at least 5% cash to put down on a home. We wiped out that entire population with the no money down needed loans. They spent the money. Those that followed, stopped saving….you did not have to save anymore! Programs were created and homes were sold and prices kept going up.
The 100%+ financing changed the landscape. There is no money in savings accounts. If we are to understand the impact, we must understand that the market can not recover until those that want to buy a home have the opportunity to save the 3-5% cash needed. That will take time. That may take longer than the pundits are sharing. That most likely will not occur in the spring of 2008. It may not occur until the spring of 2009 or later.
The government is right. Inflation is a problem. A recession does appear to be in its early stages. Neither of those events makes it easy to save money.
Prices are coming down. Prices will continue to come down until they reach a level which is more closely related to the income of the area in which homes are located. It would not surprise me if homes that went from $200,000 to $400,000 over the last few years to find their value return to much closer to the $200,000 level. We will not see a 20% decline; we may see a 50% decline before the market becomes relatively active again.
Those that purchased in the last 3-5 years will find that they will have to stay in the home 10-15 years before they realize equity gains that were thought to be commonplace just a few years ago. The days of purchasing and moving up and making money in a few years are gone!
The only people that should be selling their home are people that need to sell their home. Just as investors have sought the greener pastures of the stock market roller coaster, those that purchased real estate hoping to cash in on the frenzy need to re-evaluate their business plan. The glut of homes on the market only indicates that all prices are too high and breaking even on recent investments may be impossible.
We all see the “for sale” signs in our neighborhoods. Many streets have three, four or more within a few blocks. The signs may have gone up last spring. The houses may be vacant. They remain for sale and no one is looking. The signs and homes are sitting there gathering dust.
No one is making offers on homes for sale. Nothing can happen until an offer is made. It doesn’t matter the price point, there can be no negotiation until someone says something. If the price is too high, a buyer can make an offer. That used to happen. It is not happening now. It is not happening on inexpensive condos, it is not happening on mid-priced town homes, it is not happening on single family homes. It is not happening.
It does not seem to matter what the price is for homes now. There is no activity among first time buyers and without that upward pressure, no one else is in a position to move.
The dust you see being blown off the for sale signs is really just the sugar on a powdered beignet. All that is left is a rather bland dough ball and that is just not happening.
(note: The fox is advising the hen’s that it is safe to return to the henhouse.)
The House and Senate are wringing their collective hands over the situation. They are having the members of their staff develop legislation language that will read well and offer dramatic sound bites in the upcoming elections. Any potential bills are being vetted to assure that the special interests groups will be protected by any new laws. Statements are being shared indicating that the housing crisis is serious and it will be dealt with quickly.
(note: The pied piper is playing his song and the lemmings are headed for the cliff.)
The National Association of Realtors is convinced that this is a wonderful time to buy. They have spent a great deal of money advertising the importance of using a Realtor in a real estate transaction. Their spokesperson has managed to skew every report regarding the housing market and blindly step before cameras proclaiming that the “market is fine”. When challenged by the stock market entertainer, Jim Cramer, that if you buy a home today, you will lose money – the President elect of the NAR retorted that the housing market in Indiana was just fine.
(note: Alice through the looking glass had a more accurate picture of the world around her.)
It is no wonder that the housing market has stalled. The media proclaims that housing prices are going down. The local Realtors offer statistics that sold prices are actually going up in some markets. You have a better chance at finding the pea in the thimble game on the streets of New York than you do of making sense of the statistics used to convince you the market is up or the market is down.
The Federal Government offers that we are in danger of a recession but we also have to guard against inflation. The existence of one does not preclude the existence of the other. We do face both and housing is a large factor in both.
In a nutshell ……
Housing prices have risen to levels that are out of proportion to the salaries in any given area. This occurred, mainly, because the instruments used to finance homes were expanded to reduce the out of pocket money necessary to purchase a home. The easy availability of mortgage money allowed all borrowers the opportunity to buy. This easy access also supported the “eBay” mentality that led to multiple offers on homes and increased demand for a limited supply at that time.
As homes sold, others saw opportunity for large gains and they also placed their home on the market. The money sources were hit by losses on loans that went into default. These defaults did not begin occurring in large numbers until recently. The mortgage products used to “give away” the easy money were unique in that the payments would not go up for a few years. Those years have passed the payments are beginning to increase.
Qualifying for a loan has become a bit more difficult. The bigger change is that the programs that allowed borrowers to make purchases with no money out of pocket have been significantly modified. It is much harder today to get the creative financing of yesterday.
Therein lays the root of the problem.
It does not matter what the media says. It does not matter what bills are passed. It does not matter which dream world the NAR is operating. If first time buyers can not enter the system in sufficient numbers, the rest of the market will remain stagnant.
It appears that we have shot ourselves in the foot. There was a time when people saved money so they would have at least 5% cash to put down on a home. We wiped out that entire population with the no money down needed loans. They spent the money. Those that followed, stopped saving….you did not have to save anymore! Programs were created and homes were sold and prices kept going up.
The 100%+ financing changed the landscape. There is no money in savings accounts. If we are to understand the impact, we must understand that the market can not recover until those that want to buy a home have the opportunity to save the 3-5% cash needed. That will take time. That may take longer than the pundits are sharing. That most likely will not occur in the spring of 2008. It may not occur until the spring of 2009 or later.
The government is right. Inflation is a problem. A recession does appear to be in its early stages. Neither of those events makes it easy to save money.
Prices are coming down. Prices will continue to come down until they reach a level which is more closely related to the income of the area in which homes are located. It would not surprise me if homes that went from $200,000 to $400,000 over the last few years to find their value return to much closer to the $200,000 level. We will not see a 20% decline; we may see a 50% decline before the market becomes relatively active again.
Those that purchased in the last 3-5 years will find that they will have to stay in the home 10-15 years before they realize equity gains that were thought to be commonplace just a few years ago. The days of purchasing and moving up and making money in a few years are gone!
The only people that should be selling their home are people that need to sell their home. Just as investors have sought the greener pastures of the stock market roller coaster, those that purchased real estate hoping to cash in on the frenzy need to re-evaluate their business plan. The glut of homes on the market only indicates that all prices are too high and breaking even on recent investments may be impossible.
We all see the “for sale” signs in our neighborhoods. Many streets have three, four or more within a few blocks. The signs may have gone up last spring. The houses may be vacant. They remain for sale and no one is looking. The signs and homes are sitting there gathering dust.
No one is making offers on homes for sale. Nothing can happen until an offer is made. It doesn’t matter the price point, there can be no negotiation until someone says something. If the price is too high, a buyer can make an offer. That used to happen. It is not happening now. It is not happening on inexpensive condos, it is not happening on mid-priced town homes, it is not happening on single family homes. It is not happening.
It does not seem to matter what the price is for homes now. There is no activity among first time buyers and without that upward pressure, no one else is in a position to move.
The dust you see being blown off the for sale signs is really just the sugar on a powdered beignet. All that is left is a rather bland dough ball and that is just not happening.
Monday, October 15, 2007
A note to my competitors (?)
I know and you know that you drop in here every now and again. This is to you in hopes that you will...........Give the public a BREAK!!!!!
I just got my mail. Just like every few days there were postcards from real estate agents telling me of home values in my area, telling me they were number one, telling me this is the ideal time to put my house on the market(?), telling me of the homes they have sold recently (? - a quick check of the mls indicates none of the homes has sold in the last 6 months), and advising me that they are the "neighborhood expert". I have been getting these cards for years. The names and faces change, but the mailbox overload continues.
At some point, somebody has to spread the word. This sort of marketing has a minimal return on investment. Do the real estate guru's really believe that if you inundate a market with these sort of cards, you will land that listing? Of course, they will tell stories of agents that have had success. The majority of the agents that have invested money in these programs are not agents anymore. They went broke marketing. They took their toll on the tree population, they kept printers in business and they are now selling cars at CarMax.
New agents need to take a long look at how they have treated "junk" mail in their personal lives. Most people will respond to coupons that offer buy one and get one free meals. Real estate agents don't offer to sell your home for half price if you get the neighbor to list at full price. Brokers across the nation extoll the virtue of farming with postcards. Some firms will even offset your expense with credit for the postage. You still pay the bulk of the bill.
You can show your family and friends the wonderful card. You can sit back and know that 500 people saw your picture. You can enjoy your 15 seconds of fame as your card is glanced at and dropped into the trash.
Of course, if the mail arrives just as a homeowner has decided to sell and the homeowner does not know an agent and the homeowner doesn't have any friends he can get a referral from and the homeowner has no co-workers he can get a referral from...........he may call the number on the next card he receives. You just have to hope that yours is the one that hits at that moment under those conditions.
Last night, my wife and I were eating dinner when we were interupted by the phone. I am not on the do no call list. It was an agent with a local firm that very politely told me that his company had a listing in the neighborhood and they had a great deal of interest at the open house and was wondering if I was thinking of selling or if I knew of any of my neighbors that might be interested in selling. Sounded good, but the agent works in my office and the home they were referring to was my listing and I sat in the open house they were referring to and there were no visitors. Bad luck for the agent.
The lie bothered me, but I knew they were reading from a script, so I let that go. I was more annoyed that they had chosen to "cold call" a neighborhood at the dinner hour. Of course calling at that time will catch more people at home. Common sense would indicate that interupting a meal will not endear you to anyone. The fact that some of us have not chosen to be on the "do not call" list does not automatically indicate that we are hoping to hear from telemarketers. The list came into existence to stop annoying calls.
Rather than take the hint that this method of marketing is neanderthalish, brokers and trainers alike have encouraged "boiler room calling" mentality. They all promise that it is a numbers game and if you call enough folks you will get an appointment and if you go on enough appointments you will get a listing. The public at large is hoping that you stop making the vast majority that just say no your stepping stone to possible success. The general public, whether they are on a list or not, really does have the feeling "don't call me, I will call you."
This brings up the last but not the least annoying marketing that I and others have to suffer. Walking the neighborhood may bring your face some prominance. You may get to know a few people. You will also be intruding on a very precious commodity - the free time at home your neighbors cherish. The demands on our lifestyle as we move through the 2000's are tenuous. Americans cherish the free time they have. Many of them truly don't want their weekend interrupted by a stranger at the door with a printout of recent market activity or packet of flower seeds. They want peace and quiet and privacy.
There are ways to market yourself effectively. You won't need to invade homes via the mail, phone or personal appearance. You won't have to spend yourself out of a career. You won't have to attend seminars and leave with an annual coaching contract. You won't have to buy every gimmick thrust on you at weekly sales meetings.
You can do it being yourself, working with your sphere of influence and focusing on being a real estate agent. If you don't believe it can happen, take the time to read posts on Active Rain by folks like Jennifer Allan. You can be yourself and allow the public a long deserved break. You can do it now. You can do it if you are a new agent. You can do it if you have been an agent for years.
A strong dose of common sense will carry you farther than all the cheerleading and direction of those that earn a sizeable chunk of the revenue you create. It is your decision how to practice your craft. I only ask...give the public a break.
I just got my mail. Just like every few days there were postcards from real estate agents telling me of home values in my area, telling me they were number one, telling me this is the ideal time to put my house on the market(?), telling me of the homes they have sold recently (? - a quick check of the mls indicates none of the homes has sold in the last 6 months), and advising me that they are the "neighborhood expert". I have been getting these cards for years. The names and faces change, but the mailbox overload continues.
At some point, somebody has to spread the word. This sort of marketing has a minimal return on investment. Do the real estate guru's really believe that if you inundate a market with these sort of cards, you will land that listing? Of course, they will tell stories of agents that have had success. The majority of the agents that have invested money in these programs are not agents anymore. They went broke marketing. They took their toll on the tree population, they kept printers in business and they are now selling cars at CarMax.
New agents need to take a long look at how they have treated "junk" mail in their personal lives. Most people will respond to coupons that offer buy one and get one free meals. Real estate agents don't offer to sell your home for half price if you get the neighbor to list at full price. Brokers across the nation extoll the virtue of farming with postcards. Some firms will even offset your expense with credit for the postage. You still pay the bulk of the bill.
You can show your family and friends the wonderful card. You can sit back and know that 500 people saw your picture. You can enjoy your 15 seconds of fame as your card is glanced at and dropped into the trash.
Of course, if the mail arrives just as a homeowner has decided to sell and the homeowner does not know an agent and the homeowner doesn't have any friends he can get a referral from and the homeowner has no co-workers he can get a referral from...........he may call the number on the next card he receives. You just have to hope that yours is the one that hits at that moment under those conditions.
Last night, my wife and I were eating dinner when we were interupted by the phone. I am not on the do no call list. It was an agent with a local firm that very politely told me that his company had a listing in the neighborhood and they had a great deal of interest at the open house and was wondering if I was thinking of selling or if I knew of any of my neighbors that might be interested in selling. Sounded good, but the agent works in my office and the home they were referring to was my listing and I sat in the open house they were referring to and there were no visitors. Bad luck for the agent.
The lie bothered me, but I knew they were reading from a script, so I let that go. I was more annoyed that they had chosen to "cold call" a neighborhood at the dinner hour. Of course calling at that time will catch more people at home. Common sense would indicate that interupting a meal will not endear you to anyone. The fact that some of us have not chosen to be on the "do not call" list does not automatically indicate that we are hoping to hear from telemarketers. The list came into existence to stop annoying calls.
Rather than take the hint that this method of marketing is neanderthalish, brokers and trainers alike have encouraged "boiler room calling" mentality. They all promise that it is a numbers game and if you call enough folks you will get an appointment and if you go on enough appointments you will get a listing. The public at large is hoping that you stop making the vast majority that just say no your stepping stone to possible success. The general public, whether they are on a list or not, really does have the feeling "don't call me, I will call you."
This brings up the last but not the least annoying marketing that I and others have to suffer. Walking the neighborhood may bring your face some prominance. You may get to know a few people. You will also be intruding on a very precious commodity - the free time at home your neighbors cherish. The demands on our lifestyle as we move through the 2000's are tenuous. Americans cherish the free time they have. Many of them truly don't want their weekend interrupted by a stranger at the door with a printout of recent market activity or packet of flower seeds. They want peace and quiet and privacy.
There are ways to market yourself effectively. You won't need to invade homes via the mail, phone or personal appearance. You won't have to spend yourself out of a career. You won't have to attend seminars and leave with an annual coaching contract. You won't have to buy every gimmick thrust on you at weekly sales meetings.
You can do it being yourself, working with your sphere of influence and focusing on being a real estate agent. If you don't believe it can happen, take the time to read posts on Active Rain by folks like Jennifer Allan. You can be yourself and allow the public a long deserved break. You can do it now. You can do it if you are a new agent. You can do it if you have been an agent for years.
A strong dose of common sense will carry you farther than all the cheerleading and direction of those that earn a sizeable chunk of the revenue you create. It is your decision how to practice your craft. I only ask...give the public a break.
Tuesday, October 09, 2007
Move over Willie Sutton...you've got company
Many years ago, there was a chap that robbed banks. He would commit the crime, get caught, and do the time. Upon release, he would wait a bit and then plan and rob another bank. He would be caught again and the cycle would continue. The gentleman was Willie Sutton. He was interviewed at one point and the reporter asked, "Why do you keep robbing banks?"
His answer was short and sweet and quite revealing. "That's where the money was."
Philosophically, Willie Sutton has lots of company today.
If you live anywhere in or close to Montgomery County, you must have noticed that there are homes for sale. There are homes for sale on the main roads, side roads, back roads and dirt roads. There are homes for sale in condo buildings (pick a floor and you will find a unit for sale in one of the buildings). There are homes for sale by every type of agent ( big names, little names and boutique companies). There are homes for sale by owner and homes for sale by banks.
You get the picture...........there are homes for sale.
There are more homes for sale now, than at anytime most people can remember. Did I mention there is pre-construction, new construction and re-sale homes in this mix. The amount of new homes for sale dwarfs the number of potential buyers that are looking for a new home.
Just like every industry that discovers a long running slowdown is occuring, the real estate industry has started using a new term - "the absorbtion rate". It sure sounds pretty impressive but it really only means - how long will it take to sell all these houses? Any agent worth his or her salt has been aware of this figure for a long time. We used to just say "how many months inventory is on the market". I guess that was too simple and as others have done, agents have determined that if we change the spin, maybe no one will notice how bad it has become.
"If you buy a house today, you will lose money!" was Jim Cramers most recent pontification. It was heard on the Today Show and has been heatedly debated in many quarters. (For the record, he was right and he was wrong. It depends on the total picture. For investment purposes, he is dead on...for awhile. For those that need a home ... he has missed the boat.)
Everyone has an opinion on what in the world happened. Fingers are being pointed at lenders and real estate agents. People are convinced that there is a relationship with illegal immigrants. Others think it must be "those" people that used sub-prime loans.
There were some bad lenders that failed to make sure that their customers understood the loan they were accepting. There were some really bad apples that did not care how accurate the application was as long as they could get the loan made. There were cases of loan fraud.
There were some real estate agents that were not concerned with their clients ability to pay for the home that they were seeking. There were agents that affiliated with lenders that would "get the loan done" and home inspectors "that would not pooch the deal." There were cases of failed fiduciary.
The immigration status of anyone that bought a home has no relationship to any default. You do not have to be a legal resident of the United States to purchase property in the United States.
Sub-prime loans were available and remain available for some borrowers. The product is not at fault. The problems created by sub-prime loans did not occur with the majority of people that borrowed money using that product.
All these fingers being pointed, and there is a "gorilla in our midst" that few will acknowledge, that is probably statistically the biggest offender. There is a group being overlooked in the equation and few fingers are pointed their way.
Homebuyers and home owners, this finger is for you. You were the consumer and most of you had every opportunity to make a better decision. You signed disclosure after disclosure. You knew what you could consistently afford to pay. You allowed the possibility of financial gain or the desire for things you really could not afford to cloud your vision. Yes, in most cases, you created the quagmire that you are attempting to escape.
The consumers, that purchased homes that they could not afford, will ultimately have to accept responsibility for their actions. The consumer that used one or more cash out refi's to increase their buying power will ultimately have to accept responsibility for their actions.
Not only accept responsibility but they will have to live with the consequences of their actions.
Before you get angry and stop reading.... play along with me here. Let's do a short version
of.......IF THE SHOE FITS......
- Did you ask your lender for a loan that would give you the smallest monthly payment?
- Did you ignore the fact that the payment might increase because you were sure that prices were going up and you could refinance before the rate went up?
- Did you succumb to the desire to own a home you could not afford because creative financing allowed you to get in the door?
- Did you tell your real estate agent the total amount of money you wanted to spend on a home?
- Did you think, in the back of your mind, well if I can't afford it, I can sell it for more than I am paying today?
- Did you think that the multiple disclosures that you signed, agreeing that you understood every aspect of the purchase, were just meaningless window dressing?
For a short period, people were buying and selling homes like cheap jewelry on E-Bay. The market was very hot. People got caught up in the rush. There was money to be made in the kitchen, the extra bathroom, the finished basement, etc.
People began viewing their home as a liquid asset. They dipped into their equity and bought cars, vacations, paid off credit cards and many things like that. They did not change their lifestyle. Now the car is old, they need a vacation and the credit cards are maxed out again.
The milk cow has run dry.
People can not afford to stay and they can not afford to go. Homes are on the market and no one is willing to pay the asking price. Buyers are not willing to subsidize the largess of the homeowners. The once perceived value does not exist anymore. Sellers will either reduce their price to an acceptable level or they will have to remain in the home. If they cannot afford to repay the money they have knowingly borrowed, they will have to accept foreclosure. In this area, short sales remain terribly overpriced. The stalemate has continued.
Sellers have been asked, "why would you mortgage yourself to the hilt?"
They all have the same type of reply...."That's where the money was."
Saturday, October 06, 2007
Cramer vs. Cramer........in a war of words NAR sent an unarmed man
I would hope by now you have had the opportunity to either hear or read Jim Cramer's statements about the condition of the real estate market. He was on the Today show the other morning. (NBC is pimping Cramer and his Mad Money, so get used to his visage during morning coffee.)
In his appearance earlier in the week, Cramer told Meridith Viera - and I paraphrase - "Do NOT buy a house now, you will lose money!" I have to admit, I listen to Cramer sometimes and he speaks from experience. His experience is in a world that I don't have much expertise. He deals in money matters. There are a lot of people that listen to him. His statement went unchallenged by Meridith "what in the world are you thinking" Viera.
Apparently, someone at the NAR was flipping channels that same morning. Their search for the cartoon network was interrrupted by Cramer's Crash Cramming Course in the housing market. I can only imagine that they sent Lawerence Yun (sic) a memo and asked him to research what Cramer said and craft a response. They sent NBC a note saying that it was not fair that no one was there to rebut what Cramer shared.
If you think Cramer was piling on.....you will hate what happened next.
The Today Show, (really pimping their new program pick up - Mad Money) invited Jimbo back and offered a point-counter point spot to the NAR. In their typical wisdom, the NAR had the president elect for 2008, Charles McMillan get out of bed and appear opposite Cramer.
What the hell were they thinking?
I was available. There must have been other agents available. I accept that maybe some verbose, quick thinking people must not have been available......but Charles "do I have to get up that early after key noting the Indianapolis state convention" McMillan. (And you wonder why the effectiveness of the NAR is in a faster free fall than housing prices?)
Cramer made his statement again. Your turn McMillan "that's not true, real estate is local. It is different everywhere." Cramer " Only three zip codes in the country are a value, Seattle, mumbled numbers and maybe Montgomery County, MD. That's it" Over to you McMillan - I must have misheard, I think he stammered something about the mid-west and included Indiana. It was hard to tell because although his image was stationary, our president elect (duck out of water already) was back pedalling quickly.
Cramer 'Indiana???? Indiana is one of the worst!!!!" Our man on the spot McMillan "That isn't true. I was just the key note speaker at their convention and they are positive about their market"
Memo to Charlie......you just got through blowing hurricane force smoke up their rear end. you are the president elect of their national group. you only chatted with groupies that were hoping for a photo op and other leaders that over time have learned to say when asked "hows the market"..........respond "incredible".
To McMillan's credit....I have to say something nice (I don't want my supra key cut off). He did try to mention that people live in houses. It may just be me. I actually expect the head of my association to be able to speak about the market we work and live in. I do not expect a "deer in head light" vacouous stare and nothing of substance offered to refute Cramer.
In his appearance earlier in the week, Cramer told Meridith Viera - and I paraphrase - "Do NOT buy a house now, you will lose money!" I have to admit, I listen to Cramer sometimes and he speaks from experience. His experience is in a world that I don't have much expertise. He deals in money matters. There are a lot of people that listen to him. His statement went unchallenged by Meridith "what in the world are you thinking" Viera.
Apparently, someone at the NAR was flipping channels that same morning. Their search for the cartoon network was interrrupted by Cramer's Crash Cramming Course in the housing market. I can only imagine that they sent Lawerence Yun (sic) a memo and asked him to research what Cramer said and craft a response. They sent NBC a note saying that it was not fair that no one was there to rebut what Cramer shared.
If you think Cramer was piling on.....you will hate what happened next.
The Today Show, (really pimping their new program pick up - Mad Money) invited Jimbo back and offered a point-counter point spot to the NAR. In their typical wisdom, the NAR had the president elect for 2008, Charles McMillan get out of bed and appear opposite Cramer.
What the hell were they thinking?
I was available. There must have been other agents available. I accept that maybe some verbose, quick thinking people must not have been available......but Charles "do I have to get up that early after key noting the Indianapolis state convention" McMillan. (And you wonder why the effectiveness of the NAR is in a faster free fall than housing prices?)
Cramer made his statement again. Your turn McMillan "that's not true, real estate is local. It is different everywhere." Cramer " Only three zip codes in the country are a value, Seattle, mumbled numbers and maybe Montgomery County, MD. That's it" Over to you McMillan - I must have misheard, I think he stammered something about the mid-west and included Indiana. It was hard to tell because although his image was stationary, our president elect (duck out of water already) was back pedalling quickly.
Cramer 'Indiana???? Indiana is one of the worst!!!!" Our man on the spot McMillan "That isn't true. I was just the key note speaker at their convention and they are positive about their market"
Memo to Charlie......you just got through blowing hurricane force smoke up their rear end. you are the president elect of their national group. you only chatted with groupies that were hoping for a photo op and other leaders that over time have learned to say when asked "hows the market"..........respond "incredible".
To McMillan's credit....I have to say something nice (I don't want my supra key cut off). He did try to mention that people live in houses. It may just be me. I actually expect the head of my association to be able to speak about the market we work and live in. I do not expect a "deer in head light" vacouous stare and nothing of substance offered to refute Cramer.
It would have been nice to hear -
- People that buy homes as a residence and plan to live in them for 3-5 years have rarely lost money.
- The only investment that people can purchase and use for housing is a co-op.
- There is not one stock that receives the favorable capital gains treatment that home ownership is afforded.
- You can not directly finance the purchase of stock and write off the interest related to that financing.
- Shelter is one of the basic needs (according to Maslov), no investment is on the scale.
I didn't hear it. I just watched McMillan fumble through his side. There was nothing offered that would refute Cramer's statement - If you buy a house today, you will lose money. Well, I can promise you that if you watch a replay of the point-counter point late this afternoon.....you will lose your lunch.
Why are Realtors paying dues to the NAR?????
Required disclosure and disclaimer: I am only parapharsing this event after but one cup of coffee. Even though I only have Cafe Dumond coffee in the house, The chickory does not provide me with photographic memory. The view expressed here are mine and I reserve the right to change my mind if questioned by anyone from Homeland Security that asks to speak with me privately.
Subscribe to:
Posts (Atom)
