Many people believe that foreclosures equal good deals and that good deals can be had by searching a market only for foreclosures. Nothing could be more wrong in our experience, especially in and around Houston, where most foreclosures are some of the worst deals on the market.
We have found that foreclosures, while they may look okay in photos or on the outside, most often a) need more work than an occupant can take on, b) require expertise and cash beyond what a homestead buyer normally has, and c) are often anything BUT good deals in the end.
The most effective way to find a good deal is simply to look in good neighborhoods for low prices and then figure out why the price may be low. An elderly person may be moving to elder care, it could be an estate sale, someone may just need to move quickly, perhaps a house needs updating that most will not want to do but you don't mind doing in time, etc.
Foreclosures per se are not good deals.
And don't rely on foreclosure "specialists" or workshops or special public auctions or lists you have to pay for. Remember also that almost any property can look good in a photo (think "online dating"). Nobody gets all good listings and nobody corners a market, so using the Multiple Listing Service in an area is still the best and most comprehensive way to search for prospective properties.
Some firms like mine only do foreclosures with investors. That way, we know the investor knows what they're getting into (foreclosures are riskier deals than traditional resale/new) and typically will not encounter underwriting issues and can accommodate the bureaucracy involved -- another huge disincentive for homestead buyers -- the timing can vary wildly from expectations on foreclosures and there's really nothing you can do.
Why are foreclosures often rotten deals? Well that's a trip down the rabbit hole we'll save for another time. Just know foreclosures often equal "beasts." Finding good deals takes standard old fashioned knowledgeable research and professional advice.
Showing posts with label housing market. Show all posts
Showing posts with label housing market. Show all posts
Tuesday, March 31, 2009
Friday, March 27, 2009
Seller Financing: Seller's Advantage
It used to be that financing was so easy, seller financing as a concept fell to extremely distressed properties and the shadows of usury. But no more.
Nowadays, the slightest credit blip could prevent someone from receiving an affordable, reasonable loan by a bank or other mortgage lender. In this case buyers and sellers may turn to some type of seller financing in order to buy a home. While this post is in the context of homestead purchases, seller financing is a well-known concept in entrepreneurial finance, and its distant cousins are all over typical large corporate finance.
Anyway, in a home seller financing arrangement, the seller would agree to sell her or his property to a buyer of the seller's choosing, but not accept payment at closing. Instead, the seller issues a debt instrument in the amount of the sale to the buyer / "borrower." Done correctly, this can create a first lien position for the seller just like any other mortgage lender, with the sole right to foreclose on the property as collateral.
The debt instrument is actually a mortgage issued by the seller to the borrower, or wherein the buyer is the mortgagor and the seller is the mortgagee. The seller in most every case will not be able to pass on or sell that mortgage to third parties easily, but it can be an important source of income if the seller does not need the lump sum at closing - similar to an annuity.
The seller-financed mortgage will contain all the terms of a regular mortgage as the parties agree, and it should be drafted by an attorney in the state of the transaction. Terms can include required down payment, interest rate, payment schedule, amortization schedule, term (15, 20, 30 years, etc.), and perhaps most importantly, the default terms and foreclosure procedures in line with state law. In "Deed of Trust" states like Florida and Texas, the seller will hold the Deed of Trust, which gives the seller the right to foreclose on a loan in default. In such a case where the seller believes the buyer to be in default, the seller most likely would hire a foreclosure attorney to handle the foreclosure.
But here's where things get very interesting: in the event of a foreclosure in most DT states including Texas, the foreclosing lien-holder (in this case, the seller) gets to reclaim the property and re-sell it while keeping past payments including the down payment of the defaulting borrower. Whereas foreclosures are mostly a quagmire for large financial institutions, the opportunity to charge an attractive interest rate to someone who can't or doesn't want to get a private loan along with the opportunity to reclaim the property to re-sell it in the event of default - it can create a substantial financial advantage for the seller and a fair opportunity for a buyer.
Sellers can do short-term loans to help a buyer through a rough credit patch - the 30 year mortgage is not the only arrangement. A seller could offer a buyer 2 to 5 year financing with a 30-year amortization schedule (payments based on a 30-year loan) but requiring a balloon payment of the balance in 2 to 5 years or 7 or 10 or whatever. Most buyers will not have the cash for a balloon payment at that time, but the implication is that the buyer will have to refinance in order to pay off the balance to the seller. Notice, if the buyer does not successfully refinance, then they may trigger default / foreclosure terms and lose all their past payments and equity to the seller/lender.
Sellers with an existing mortgage most always cannot do this because traditional mortgages usually have terms that do not allow it. But even for sellers who do not have their property paid in full, they may be able to tap other funds to pay off their mortgage so they can take advantage of a seller-financing opportunity.
This post is meant merely as a framework for an idea and is not financial or legal advice or legal opinion. Any seller considering this opportunity in today's market should consult real estate brokers, financial advisers, accountants, and most importantly, a trusted real estate attorney.
Frankly I am surprised we don't see more seller financing in this market.
Nowadays, the slightest credit blip could prevent someone from receiving an affordable, reasonable loan by a bank or other mortgage lender. In this case buyers and sellers may turn to some type of seller financing in order to buy a home. While this post is in the context of homestead purchases, seller financing is a well-known concept in entrepreneurial finance, and its distant cousins are all over typical large corporate finance.
Anyway, in a home seller financing arrangement, the seller would agree to sell her or his property to a buyer of the seller's choosing, but not accept payment at closing. Instead, the seller issues a debt instrument in the amount of the sale to the buyer / "borrower." Done correctly, this can create a first lien position for the seller just like any other mortgage lender, with the sole right to foreclose on the property as collateral.
The debt instrument is actually a mortgage issued by the seller to the borrower, or wherein the buyer is the mortgagor and the seller is the mortgagee. The seller in most every case will not be able to pass on or sell that mortgage to third parties easily, but it can be an important source of income if the seller does not need the lump sum at closing - similar to an annuity.
The seller-financed mortgage will contain all the terms of a regular mortgage as the parties agree, and it should be drafted by an attorney in the state of the transaction. Terms can include required down payment, interest rate, payment schedule, amortization schedule, term (15, 20, 30 years, etc.), and perhaps most importantly, the default terms and foreclosure procedures in line with state law. In "Deed of Trust" states like Florida and Texas, the seller will hold the Deed of Trust, which gives the seller the right to foreclose on a loan in default. In such a case where the seller believes the buyer to be in default, the seller most likely would hire a foreclosure attorney to handle the foreclosure.
But here's where things get very interesting: in the event of a foreclosure in most DT states including Texas, the foreclosing lien-holder (in this case, the seller) gets to reclaim the property and re-sell it while keeping past payments including the down payment of the defaulting borrower. Whereas foreclosures are mostly a quagmire for large financial institutions, the opportunity to charge an attractive interest rate to someone who can't or doesn't want to get a private loan along with the opportunity to reclaim the property to re-sell it in the event of default - it can create a substantial financial advantage for the seller and a fair opportunity for a buyer.
Sellers can do short-term loans to help a buyer through a rough credit patch - the 30 year mortgage is not the only arrangement. A seller could offer a buyer 2 to 5 year financing with a 30-year amortization schedule (payments based on a 30-year loan) but requiring a balloon payment of the balance in 2 to 5 years or 7 or 10 or whatever. Most buyers will not have the cash for a balloon payment at that time, but the implication is that the buyer will have to refinance in order to pay off the balance to the seller. Notice, if the buyer does not successfully refinance, then they may trigger default / foreclosure terms and lose all their past payments and equity to the seller/lender.
Sellers with an existing mortgage most always cannot do this because traditional mortgages usually have terms that do not allow it. But even for sellers who do not have their property paid in full, they may be able to tap other funds to pay off their mortgage so they can take advantage of a seller-financing opportunity.
This post is meant merely as a framework for an idea and is not financial or legal advice or legal opinion. Any seller considering this opportunity in today's market should consult real estate brokers, financial advisers, accountants, and most importantly, a trusted real estate attorney.
Frankly I am surprised we don't see more seller financing in this market.
Wednesday, March 18, 2009
Houston House Prices: Still Pretty Good
From the new Houston Association of Realtors press release on recent home sale data:
But really, this chart contained in the release is all you need to see to get a simple read of the situation in Houston:
Look at the trend lines. Both the average price (skewed higher by expensive homes) and the median price (half of all sales are priced higher, half lower) -- both average and median trend lines show something very important that you can clearly see just by eyeballing it:
In case anyone missed it, 2007 was a pretty darn good year for housing in Houston.
Single-Family Homes UpdateNow I can tell you we are not seeing those kinds of declines in value on the far north side of Houston in quality neighborhoods and with quality homes. The decline there, if any, is hardly noticeable.
At $182,316, the average sales price for single-family homes dropped 10.5 percent from February 2008, when it was $203,797. However, the figure is up $18,000 from January of this year. The median price of single-family homes in February was $138,970, off 8.0 percent from one year earlier, but up about $10,000 from January. The national single-family median price reported by NAR is $169,900, illustrating the continued higher value and lower cost of living that prevail in the Houston market.
But really, this chart contained in the release is all you need to see to get a simple read of the situation in Houston:
Look at the trend lines. Both the average price (skewed higher by expensive homes) and the median price (half of all sales are priced higher, half lower) -- both average and median trend lines show something very important that you can clearly see just by eyeballing it:
Prices in the Houston area are at mid-2007 levels right now.
In case anyone missed it, 2007 was a pretty darn good year for housing in Houston.
Tuesday, March 17, 2009
Housing Starts: Only 1% Single Family
This just in. NBC analyst Diana Olick notes that inside this morning's numbers, well over 80% of the overall 22% increase in new housing starts are multi-family units; in other words, apartments.
So the number for single-family housing starts of the overall 22% increase is just 1% says Olick.
This is more in line with what we would expect in this economy. Ring around the rosy, we all fall down.
So people who moved out of apartments into new entry-level homes and are now moving out of those homes, they are looking for new apartments and they have already been relocated geographically within any metro area from where their old apartments were to the new production residential areas. This then, according to my analysis, leads to an increase in demand for new apartment complexes in areas that do not have them because those areas heretofore were developed only for single-family entry-level production homes.
Also, many other people who might otherwise be buying entry level homes just cannot afford to do so right now, but still want to be in good areas with good schools, and this too would create additional multi-family demand.
Also, many apartments are owned by very large investment groups that specialize in this class and often own hundreds and hundreds of units in communities across the nation. The successful ones are able to access development funds to meet the new demand.
Also, divorcees account for many multi-family unit occupants. Today a couple's net worth, particularly for younger couples, is not what it was two years ago (or a year ago). With less then to split and start over, many divorcees must turn to apartments but do not want to move far from their existing neighborhoods, jobs, and schools.
Also............ in recent years buyers did not have to put any money down on a new home. In fact, many buyers could finance up to 106% of a home's value and actually walk away from closing with cash in their pocket. This of course was part of the market insanity of that time. However now many people are having to delay a house purchase while they dial back their spending and their debt to save for a down payment - not necessarily a bad thing.
So this makes sense on multiple levels. It is still worth noting however that development of new multi-family units is still creating new construction and new jobs. And for many people, moving into an apartment for a while in order to recharge one's finances before buying a house with a conventional loan is a very good idea. It's what I did, and I'm glad I did it.
So the number for single-family housing starts of the overall 22% increase is just 1% says Olick.
This is more in line with what we would expect in this economy. Ring around the rosy, we all fall down.
So people who moved out of apartments into new entry-level homes and are now moving out of those homes, they are looking for new apartments and they have already been relocated geographically within any metro area from where their old apartments were to the new production residential areas. This then, according to my analysis, leads to an increase in demand for new apartment complexes in areas that do not have them because those areas heretofore were developed only for single-family entry-level production homes.
Also, many other people who might otherwise be buying entry level homes just cannot afford to do so right now, but still want to be in good areas with good schools, and this too would create additional multi-family demand.
Also, many apartments are owned by very large investment groups that specialize in this class and often own hundreds and hundreds of units in communities across the nation. The successful ones are able to access development funds to meet the new demand.
Also, divorcees account for many multi-family unit occupants. Today a couple's net worth, particularly for younger couples, is not what it was two years ago (or a year ago). With less then to split and start over, many divorcees must turn to apartments but do not want to move far from their existing neighborhoods, jobs, and schools.
Also............ in recent years buyers did not have to put any money down on a new home. In fact, many buyers could finance up to 106% of a home's value and actually walk away from closing with cash in their pocket. This of course was part of the market insanity of that time. However now many people are having to delay a house purchase while they dial back their spending and their debt to save for a down payment - not necessarily a bad thing.
So this makes sense on multiple levels. It is still worth noting however that development of new multi-family units is still creating new construction and new jobs. And for many people, moving into an apartment for a while in order to recharge one's finances before buying a house with a conventional loan is a very good idea. It's what I did, and I'm glad I did it.
Uptick or Upstart? New Home Starts: UP
Just out, The Commerce Department reports this morning that:
Rest assured we are watching very very closely.
On a separate but related note, producer prices were announced at .1% rise, below market expectations. However the markets watch the "core" number, which excludes the traditionally more volatile energy and food costs. Those prices were slightly higher than expected. All said, this is very good news this morning. But with so much debt-financed stimulus, we have to keep an eye on inflationary dynamics. This isn't enough to be concerned this morning.
The Commerce Department said the jump in housing starts to a seasonally adjusted annual rate of 583,000 units was the biggest percentage rise since January 1990.And the kicker? This is not what "the markets" had expected. Market analysts were expecting a smaller number.
That was also the first increase since April last year, when they advanced by 1.6 percent.
Analysts polled by Reuters had expected an annual rate of 450,000 units for February.The question now might be: with so many months of sinking new start numbers, is this just a natural uptick quirk within the larger trend, or is this a new inflection point that will reverse the trend?
Rest assured we are watching very very closely.
On a separate but related note, producer prices were announced at .1% rise, below market expectations. However the markets watch the "core" number, which excludes the traditionally more volatile energy and food costs. Those prices were slightly higher than expected. All said, this is very good news this morning. But with so much debt-financed stimulus, we have to keep an eye on inflationary dynamics. This isn't enough to be concerned this morning.
U.S. producer prices rose by less than expected in February as the pace of energy price increases slowed, government data on Tuesday showed, but prices excluding food and energy came in a bit above forecast.
Sunday, March 15, 2009
Houston #1 Corporate Growth In The United States
From the Houston Business Journal, a report about Houston at "the No. 1 spot for the first time on Site Selection magazine’s list of Top Metro rankings for corporate location and expansion activity."
Eat that, Chicago (#3)!!
And coming in at #2 behind Houston? Our little sister to the north, Dallas.
Eat that, Chicago (#3)!!
And coming in at #2 behind Houston? Our little sister to the north, Dallas.
Site Selection said Houston clinched the top spot after scoring 179 corporate real estate deals in 2008, unseating three-year incumbent Chicago-Naperville-Joliet.There is no place in The United States that I would rather own real estate right now than in and around the Houston metro area and definitely in the rightfully proud great State of Texas. (That's why I do, of course.)
Dallas-Fort Worth-Arlington finished No. 2 with 156 projects, and Chicago came in third with 138.
Last year, Houston was No. 4 behind Cincinnati and St. Louis for cities with more than 1 million in population.
“Site Selection ’s award adds to the long and growing list of distinctions the Houston area is earning for our business recruitment, business retention, job creation and economic growth efforts,” Jeff Moseley, president and chief executive officer of the Greater Houston Partnership, said in a statement. “We will continue to show that the Houston region is the most attractive place to locate or expand your business in the United States.”
Thursday, March 05, 2009
Hell Hath No Fury Like Jon Stewart Scorned
Okay. Let's set aside "truthiness" for a moment and look at what a snubbed talk show host and staff can put together in service of the truth. For anyone who watches CNBC for financial news - following is a potentially life savings saving recap:
And there's more...
What Really Happened
And here's where you find out what really happened at AIG and what brought down Wall Street...
There is a reason Jon Stewart is a cultural phenom and has been doing this show for ten years. There's a reason he's probably the leading news provider for young voters. It's as though the financial media and its guest executives think the public has a memory span of 30 seconds. But then, that's what Jon Stewart is for.
And there's more...
What Really Happened
And here's where you find out what really happened at AIG and what brought down Wall Street...
There is a reason Jon Stewart is a cultural phenom and has been doing this show for ten years. There's a reason he's probably the leading news provider for young voters. It's as though the financial media and its guest executives think the public has a memory span of 30 seconds. But then, that's what Jon Stewart is for.
Sunday, March 01, 2009
Early Indicator: Interest Rates to Rise
I received the following from a lender at Network Funding LP, but I can't figure out who owns the copyright. At any rate, very interesting headline and information.
These are dynamics long discussed on this blog. Like day follows from night, so will inflation follow from the massive stimulus required to unfreeze credit and consumer markets where "scared money doesn't spend." Not to mention the very very real massive losses the banking sector faces from their catastrophic past lending practices, which further reduces available private money into the demand side of the economy.
These factors necessitate the enormous spending from the last credit-worthy entity capable of replacing all the lost demand (through debt-financed spending), namely the federal government.
Unstated in the quote however is the notion that investors/lenders require higher returns when loaning money even to the United States government because at some point, the investors/lenders begin to worry a little bit more about the government's ability to raise enough tax revenue from the economy's future production in order to pay for the national debt load (remember we're starting already over $10 TRILLION in the hole, with an actual doubling of the national debt in the last 8 years with nothing to show for it).
An important caveat: The United States will never default on its loans, that's the market assumption. But it may, if necessary, only avoid doing so essentially by printing money to pay down the debt, which only ends up causing inflation as new cash enters the system without being backed by any real production or assets. This raises prices of everything, yes, but it also reduces the real value of debt as "printed money" pays down the loan balances. Everyone loses.
To illustrate, imagine if you could pay off your mortgage not by keeping a job and making payments with the fruits of your labor or even by inheriting enough existing money to pay it off -- but rather you could just print your own money to pay it off, or successfully pay it off with a "valid" hot check. See? The only "winner" is the one printing the money, but then the printer will never get an affordable loan again either.
That's kinda the dynamic that gets figured in here, the risk level of that scenario above actually happening, as foreign and domestic investors consider issuing loans to the federal government. As the lenders' or "investors'" concerns rise, then so does the pay they demand in return for their loan -- the interest rate.
And all interest rates are related in some fashion. So when the federal government has to pay a higher interest rate for its debt, so too do individuals borrowing with mortgages, as no person or entity is seen as "more" credit-worthy than the United States government.
(In finance, the 10-year Treasury bond rate is often referred to as the "risk-free" rate.)
No, this will not be on the exam.
Supply Concerns Boost Mortgage Rates
... [M]ortgage rates rose slightly during the week. The reason is that concerns about the enormous supply of debt that the government will need to issue outweighed the other factors. [emphasis added]
...This week, the Obama administration proposed a $3.6 trillion budget plan, with an estimated deficit of $1.75 trillion, which is enormous by historical standards. The Treasury will need to issue debt to borrow money to fund all of this. As the government issues more debt, the interest rate offered generally must rise to attract additional investors. Interest rates on similar investments such as MBS then move higher as well to compete for funds from investors.
Reflecting their concerns about an increase in supply, investors required higher interest rates at the large Treasury auctions during the week. The auction results showed that demand from foreign investors remained strong, which was very good news. If foreign investors should ever reduce their purchases of US bonds, then interest rates in the US would be likely to rise. [all emphasis added]
These are dynamics long discussed on this blog. Like day follows from night, so will inflation follow from the massive stimulus required to unfreeze credit and consumer markets where "scared money doesn't spend." Not to mention the very very real massive losses the banking sector faces from their catastrophic past lending practices, which further reduces available private money into the demand side of the economy.
These factors necessitate the enormous spending from the last credit-worthy entity capable of replacing all the lost demand (through debt-financed spending), namely the federal government.
Unstated in the quote however is the notion that investors/lenders require higher returns when loaning money even to the United States government because at some point, the investors/lenders begin to worry a little bit more about the government's ability to raise enough tax revenue from the economy's future production in order to pay for the national debt load (remember we're starting already over $10 TRILLION in the hole, with an actual doubling of the national debt in the last 8 years with nothing to show for it).
An important caveat: The United States will never default on its loans, that's the market assumption. But it may, if necessary, only avoid doing so essentially by printing money to pay down the debt, which only ends up causing inflation as new cash enters the system without being backed by any real production or assets. This raises prices of everything, yes, but it also reduces the real value of debt as "printed money" pays down the loan balances. Everyone loses.
To illustrate, imagine if you could pay off your mortgage not by keeping a job and making payments with the fruits of your labor or even by inheriting enough existing money to pay it off -- but rather you could just print your own money to pay it off, or successfully pay it off with a "valid" hot check. See? The only "winner" is the one printing the money, but then the printer will never get an affordable loan again either.
That's kinda the dynamic that gets figured in here, the risk level of that scenario above actually happening, as foreign and domestic investors consider issuing loans to the federal government. As the lenders' or "investors'" concerns rise, then so does the pay they demand in return for their loan -- the interest rate.
And all interest rates are related in some fashion. So when the federal government has to pay a higher interest rate for its debt, so too do individuals borrowing with mortgages, as no person or entity is seen as "more" credit-worthy than the United States government.
(In finance, the 10-year Treasury bond rate is often referred to as the "risk-free" rate.)
No, this will not be on the exam.
Saturday, February 21, 2009
Ask Not What Your Country Is Doing To You...
I had the displeasure this morning to attend a commercial real estate seminar for which the opening speaker was a real estate economist who profoundly misunderstood the bounds of his expertise.
After stating that he didn't care who was president, and that he wasn't a Democrat or Republican, but a "registered cynic," he proceeded to rant without statistics, studies, or citations about the frustrations of the current situation the nation faces, a la Rick Santelli's now infamous rant on CNBC this week on the floor of the CME. Cynic, indeed.
It has always been easy to be a cynic about politics. Too easy. Cynicism is a coward's way out. Sometimes I want to yell at people, "Ask not what your country is doing to you, ask what you are doing to your country." We are where we are. Who in America could not go on an hour-long tirade about how frustrated we are as Americans right now, about how profoundly messed up the country is right now, and about how much and how many ways we have failed as a collective in recent years? Who couldn't do that?
I don't have time for people who can only state the obvious in the middle of a crisis and cannot offer or assess credible potential solutions.
A client of mine is not a professional economist. But he cares about politics, and though our politics is different, he asked a provocative question a few days ago. He said, why doesn't the government let responsible individuals (presumably including those who were steered into usury loans) refinance their loans to current market value with a balloon payment for the remainder of the balance due in 30 years? It's really a provocative idea. I can tick off a handful of problems with it, but not enough to declare it DOA. Really I'd like to look into his idea more. Like I said, he and I probably wouldn't agree on much politically (at least at first, perhaps), but he commanded my respect by offering an idea and being able to articulate it, an indicator of earnest reflection.
But ranting from these others? C'mon. It's defeatist. It's unimaginative. It's unhelpful and probably destructive. So what are these otherwise smart people thinking when they launch into these toddler tirades on the platforms given them by their professions as they step outside the boundaries thereof? I am embarrassed for them.
So I wonder... I suggested a while back of the Chair of the House Banking Committee Barney Frank, it must hurt to be that smart. But these high profile rants by otherwise smart professionals make me wonder in those moments: Does it hurt to be that dumb? I hope so.
Well for the record, I'm frustrated too. Consider this post my rant.
In case you missed it, Santelli:
After stating that he didn't care who was president, and that he wasn't a Democrat or Republican, but a "registered cynic," he proceeded to rant without statistics, studies, or citations about the frustrations of the current situation the nation faces, a la Rick Santelli's now infamous rant on CNBC this week on the floor of the CME. Cynic, indeed.
It has always been easy to be a cynic about politics. Too easy. Cynicism is a coward's way out. Sometimes I want to yell at people, "Ask not what your country is doing to you, ask what you are doing to your country." We are where we are. Who in America could not go on an hour-long tirade about how frustrated we are as Americans right now, about how profoundly messed up the country is right now, and about how much and how many ways we have failed as a collective in recent years? Who couldn't do that?
I don't have time for people who can only state the obvious in the middle of a crisis and cannot offer or assess credible potential solutions.
A client of mine is not a professional economist. But he cares about politics, and though our politics is different, he asked a provocative question a few days ago. He said, why doesn't the government let responsible individuals (presumably including those who were steered into usury loans) refinance their loans to current market value with a balloon payment for the remainder of the balance due in 30 years? It's really a provocative idea. I can tick off a handful of problems with it, but not enough to declare it DOA. Really I'd like to look into his idea more. Like I said, he and I probably wouldn't agree on much politically (at least at first, perhaps), but he commanded my respect by offering an idea and being able to articulate it, an indicator of earnest reflection.
But ranting from these others? C'mon. It's defeatist. It's unimaginative. It's unhelpful and probably destructive. So what are these otherwise smart people thinking when they launch into these toddler tirades on the platforms given them by their professions as they step outside the boundaries thereof? I am embarrassed for them.
So I wonder... I suggested a while back of the Chair of the House Banking Committee Barney Frank, it must hurt to be that smart. But these high profile rants by otherwise smart professionals make me wonder in those moments: Does it hurt to be that dumb? I hope so.
Well for the record, I'm frustrated too. Consider this post my rant.
In case you missed it, Santelli:
Friday, February 06, 2009
Not All Tax Cuts Are Bad
While "tax cuts" in the abstract are proven (yes, proven) to be less effective than "spending" for turning around an economy with cratering demand (more on that later), it is worth noting that not all tax cuts such as those included in the Senate and House versions of the stimulus bill are bad...
It's worth noting that many middle class earners who would get tripped by the AMT are not expecting to pay the AMT because they have not had to pay it in the past. So if the AMT were not eliminated, it would result in several million earners to have withheld too little in taxes and therefore come up short, or would have to withhold more in taxes from paychecks, thereby reducing disposable income.
So delaying the AMT is good policy. Tax cuts that produce immediate spending that otherwise would not have happened is still spending, and it's still good policy.
Tax cuts however that simply benefit the rich and would simply result in additional money cut from the government and staying protected in fat bank accounts would continue the economic crisis.
Another great good policy example: $15,000 refundable tax credit for (qualified) home buyers to get people buying new homes now and not waiting until it's too late.
Another great example: a multi-thousand dollar tax credit for anyone who gets a new air-conditioner (which will have a higher SEER rating, more efficient) or replaces single-pane windows, etc. This will cause middle and lower-class owners to consider replacing old A/C units for example that are at the end of their useful life and they will see a huge spike in efficiency in their bills and energy use -- not to mention getting a great break on a system that will need replacing regardless and creating jobs/saving jobs for the manufacturers and installers, etc. Not all tax cuts are bad. Not all public spending is good. Blah blah blah.
Homeowners and Landlords would do well to study the final bill (when it gets done) and take advantage of all provisions that give incentives for pulling forward spending that otherwise would be put off. This could include replacing old A/C units, replacing single-pane windows, replacing an old car (with a more efficient car at a low interest rate), and yes even buying a new house at a potentially lower-than-future market price and historically low fixed interest rate.
Not everyone has the ability to spend right now, and that's fine. But this nation desperately needs those who can spend to spend... without delay. Anything that causes spending right now, including pulling forward public spending for infrastructure, as well as private spending, etc., is going to help turn things around.
Right now (not in the long term): if we're spendin', we're survivin'.
Just sayin'...
It's worth noting that many middle class earners who would get tripped by the AMT are not expecting to pay the AMT because they have not had to pay it in the past. So if the AMT were not eliminated, it would result in several million earners to have withheld too little in taxes and therefore come up short, or would have to withhold more in taxes from paychecks, thereby reducing disposable income.
So delaying the AMT is good policy. Tax cuts that produce immediate spending that otherwise would not have happened is still spending, and it's still good policy.
Tax cuts however that simply benefit the rich and would simply result in additional money cut from the government and staying protected in fat bank accounts would continue the economic crisis.
Another great good policy example: $15,000 refundable tax credit for (qualified) home buyers to get people buying new homes now and not waiting until it's too late.
Another great example: a multi-thousand dollar tax credit for anyone who gets a new air-conditioner (which will have a higher SEER rating, more efficient) or replaces single-pane windows, etc. This will cause middle and lower-class owners to consider replacing old A/C units for example that are at the end of their useful life and they will see a huge spike in efficiency in their bills and energy use -- not to mention getting a great break on a system that will need replacing regardless and creating jobs/saving jobs for the manufacturers and installers, etc. Not all tax cuts are bad. Not all public spending is good. Blah blah blah.
Homeowners and Landlords would do well to study the final bill (when it gets done) and take advantage of all provisions that give incentives for pulling forward spending that otherwise would be put off. This could include replacing old A/C units, replacing single-pane windows, replacing an old car (with a more efficient car at a low interest rate), and yes even buying a new house at a potentially lower-than-future market price and historically low fixed interest rate.
Not everyone has the ability to spend right now, and that's fine. But this nation desperately needs those who can spend to spend... without delay. Anything that causes spending right now, including pulling forward public spending for infrastructure, as well as private spending, etc., is going to help turn things around.
Right now (not in the long term): if we're spendin', we're survivin'.
Just sayin'...
Wednesday, February 04, 2009
Bingo! $15,000 Home Buying Credit in Bill
Not all lobbying is bad. The National Association of Realtors, among others, have been pushing to expand the current $7500 refundable tax credit for first-time home buyers (no purchase in the past 3 years) enacted last fall to a full $15,000 home-buying credit for all home buyers. Now that is stimulative policy.
The new credit has been approved by the Senate and included in their version of the stimulative package. If the Senate approves the bill, then the Senate version must be reconciled in a joint committee with the House stimulative package passed last week - then the reconciled version would be voted on separately by each house of Congress - the House of Representatives and the Senate - before finally going to the President's desk for signing. So we've still got a ways to go, but this new provision should survive the process.
From The New York Times this evening:
Apparently the Senate bill also provides incentives for new car purchases:
One thing is beyond debate: the solution to stimulation is effective spending. Period. Whether the private sector uses incentives to spend when it otherwise would not, or whether the government uses its massive broad powers to spend and create and save jobs, stimulation depends on effective spending that creates jobs. That's how the virtuous cycle begins, if it is to begin at all. The risk is not going big enough or not being effective enough. So far I think both bill versions are shaping up to be reasonable all together, and President Obama was correct to say today that we must not let the perfect be the enemy of the necessary.
More on the housing credit:
While many potential home buyers still will not qualify for newly restrictive loan standards, such a credit should give incentive to those who do have qualified credit and want to take advantage of a good buying opportunity. While this market is not a buyer's market (mostly due to broad credit and economic troubles), there are good values to be had for able buyers.
And right now, we need every capable buyer to be in the market.
The new credit has been approved by the Senate and included in their version of the stimulative package. If the Senate approves the bill, then the Senate version must be reconciled in a joint committee with the House stimulative package passed last week - then the reconciled version would be voted on separately by each house of Congress - the House of Representatives and the Senate - before finally going to the President's desk for signing. So we've still got a ways to go, but this new provision should survive the process.
From The New York Times this evening:
Aides to the majority leader, Senator Harry Reid of Nevada, suggested that a final vote on the stimulus plan could come as early as Thursday. If the Senate approves the stimulus, the final legislation must still be reconciled with the $820 billion measure approved last week by the House.
The tax break for homebuyers, which the Senate approved by voice vote without opposition, was the second amendment in two days aimed at encouraging consumers to make major purchases.
Apparently the Senate bill also provides incentives for new car purchases:
On Tuesday, the Senate approved a tax incentive for car buyers, sponsored by Senator Barbara Mikulski, Democrat of Maryland, that would allow the deduction of sales tax and loan interest on purchases made this year.
One thing is beyond debate: the solution to stimulation is effective spending. Period. Whether the private sector uses incentives to spend when it otherwise would not, or whether the government uses its massive broad powers to spend and create and save jobs, stimulation depends on effective spending that creates jobs. That's how the virtuous cycle begins, if it is to begin at all. The risk is not going big enough or not being effective enough. So far I think both bill versions are shaping up to be reasonable all together, and President Obama was correct to say today that we must not let the perfect be the enemy of the necessary.
More on the housing credit:
The measure would give buyers a tax credit of 10 percent of the price of a primary residence purchased within the year, up to $15,000, and is designed to stabilize plummeting home prices that caused a wave of foreclosures and led to the near collapse of the financial system as Wall Street firms wrote down billions in losses on mortgage-backed assets.
While many potential home buyers still will not qualify for newly restrictive loan standards, such a credit should give incentive to those who do have qualified credit and want to take advantage of a good buying opportunity. While this market is not a buyer's market (mostly due to broad credit and economic troubles), there are good values to be had for able buyers.
And right now, we need every capable buyer to be in the market.
Sunday, January 25, 2009
Why Buyers Need Smart, Full-Time Professional Real Estate Brokers
Today's New York Times has a story about the new financial regulations under development in the new administration.
While there is a ton of badly needed regulatory reform that will address many of the problems already laid out on this blog to be included in the package, I will focus in this post on the impact of these wide-ranging changes on the real estate buyer. But first, an example of the broader much-needed reforms:
Therefore real estate brokers and agents of residential or commercial orientation, in order to fulfill their "market making" roles, will have to become far more involved in an ever-increasingly complex mortgage and finance environment to help buyers make their way through the complexity. We brokers can no longer just refer a buyer to certain lenders and leave them on their own. Doing so in this environment is a profound disservice.
As new regulations get rolled out, real estate brokers must stay at the leading edge to comprehend not just the rules, but their implications in any specific market. We must also help clients with their due diligence efforts when finding qualified lenders to help ensure clients find competent, informed, and ethical lenders with solid reputations. Bad financing is by far the most common reason a deal fails. This is a larger and far more complex obstacle than ever before.
The proposals that will come to pass in specific form are aimed, according to officials, at core regulatory problems and gaps:
Bottom line: Brokers and their agents can no longer blindly refer buyer clients to a cadre of lenders they've used in the past. A higher standard for due diligence is required in this market, and while that responsibility falls principally on buyers, everyone assisting the buyer must support that effort. Those who don't understand the critical times and adaptation they require will not only be doing their clients a profound disservice, they will impede the progress and recovery of real estate markets for everyone.
While there is a ton of badly needed regulatory reform that will address many of the problems already laid out on this blog to be included in the package, I will focus in this post on the impact of these wide-ranging changes on the real estate buyer. But first, an example of the broader much-needed reforms:
The administration is also preparing to require that derivatives like credit default swaps, a type of insurance against loan defaults that were at the center of the financial meltdown last year, be traded through a central clearinghouse and possibly on one or more exchanges. That would make it significantly easier for regulators to supervise their use.Now to return specifically to real estate buyers. First and foremost, buyers will have to navigate a very new landscape of mortgage financing without necessarily understanding the recent history and context of the changes, which could lead to frustration and confusion. To wit:
Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.Now more than ever before, financing is a huge complex piece of any real estate transaction. While it always should have been the starting point for buyers, in recent years when money was flowing freely, few people in the industry ever had to be concerned about a client getting financing for a deal, so long as the client had a pulse. Of course, things have changed dramatically, and directly as a result of that free-flowing period.
Therefore real estate brokers and agents of residential or commercial orientation, in order to fulfill their "market making" roles, will have to become far more involved in an ever-increasingly complex mortgage and finance environment to help buyers make their way through the complexity. We brokers can no longer just refer a buyer to certain lenders and leave them on their own. Doing so in this environment is a profound disservice.
As new regulations get rolled out, real estate brokers must stay at the leading edge to comprehend not just the rules, but their implications in any specific market. We must also help clients with their due diligence efforts when finding qualified lenders to help ensure clients find competent, informed, and ethical lenders with solid reputations. Bad financing is by far the most common reason a deal fails. This is a larger and far more complex obstacle than ever before.
The proposals that will come to pass in specific form are aimed, according to officials, at core regulatory problems and gaps:
They include lax government oversight of financial institutions and lenders, poor risk management efforts by banks and other financial companies, the creation of exotic financial instruments that were not adequately supported by their issuing companies, and risky and ill-considered borrowing habits of many homeowners whose homes are now worth significantly less than their mortgages.Even high level regulations that affect lending way upstream will have to be understood by real estate brokers, not just mortgage brokers, as we move forward to manage fully the implications for buyers on the ground.
The new trading procedures for derivatives could also enable regulators to impose capital and collateral requirements on companies that issue credit default swaps that would make them safer investments. American International Group, one of the largest issuer of such swaps, never had to post collateral and nearly collapsed as a result of issuing a huge volume of such instruments that it was unable to support.Going forward, real estate brokers and their agents who cannot understand the implications of such complex reforms for their clients in their specific market, and who cannot fully explain those implications to their clients if necessary, those brokers and agents will surely lead their buyer clients to failure, and that will undermine the market for everyone.
Bottom line: Brokers and their agents can no longer blindly refer buyer clients to a cadre of lenders they've used in the past. A higher standard for due diligence is required in this market, and while that responsibility falls principally on buyers, everyone assisting the buyer must support that effort. Those who don't understand the critical times and adaptation they require will not only be doing their clients a profound disservice, they will impede the progress and recovery of real estate markets for everyone.
Sunday, January 11, 2009
Peter Schiff is a Fool or a Traitor
See the following video of a Russian TV English interview with Peter Schiff, an investment manager in Connecticut. When someone starts talking like this, run don't walk away. Or change the subject. There is no hope of talking any sense on the subject.
If you can't see the embedded video: Click Here
This is an egomaniacal idiot who's dead wrong and severely misguided in his judgment. Many many people could see the current housing crisis coming; Schiff is no sage. Nobody wanted to hear a party-pooper though, as Krugman said. And too many people were getting rich playing the game to stop. It was a gambling addiction, pure and simple.
So it wasn't the housing bubble that needed foretelling. Who couldn't see it? Nobody knew when it was going to end exactly, and that was the problem. So what exactly really needed foresight that was nowhere to be found?
It was the $50 TRILLION DERIVATIVES MARKET.
We could solve the housing problem in no time if that's all it was.
The real economic threat was the shadow side-bets-with-no-bookie market of derivatives enabled by former Sen. Phil Gramm, a Republican congress with Democratic enablers, and a Democratic and then Republican administration. See the Commodities Futures Modernization Act of 2000, earlier discussed on this site.
Moreover Schiff thinks the U.S. is in isolated economic dynamics and pays no heed to the fact that the rest of the world is DEPENDENT on a U.S. RECOVERY, and so yes, the world will lend us whatever we ask for... for now.
You can bet this guy's firm is shorting the dollar and so he benefits by talking it down. In other words, if America loses, he wins.
He is only stating the obvious about the nature of the crisis without making any progress into what legitimate options we have to work our way through it.
That's always a fool's position. What we can't tell is whether he's really a fool or simply a traitor.
If you can't see the embedded video: Click Here
This is an egomaniacal idiot who's dead wrong and severely misguided in his judgment. Many many people could see the current housing crisis coming; Schiff is no sage. Nobody wanted to hear a party-pooper though, as Krugman said. And too many people were getting rich playing the game to stop. It was a gambling addiction, pure and simple.
So it wasn't the housing bubble that needed foretelling. Who couldn't see it? Nobody knew when it was going to end exactly, and that was the problem. So what exactly really needed foresight that was nowhere to be found?
It was the $50 TRILLION DERIVATIVES MARKET.
We could solve the housing problem in no time if that's all it was.
The real economic threat was the shadow side-bets-with-no-bookie market of derivatives enabled by former Sen. Phil Gramm, a Republican congress with Democratic enablers, and a Democratic and then Republican administration. See the Commodities Futures Modernization Act of 2000, earlier discussed on this site.
Moreover Schiff thinks the U.S. is in isolated economic dynamics and pays no heed to the fact that the rest of the world is DEPENDENT on a U.S. RECOVERY, and so yes, the world will lend us whatever we ask for... for now.
You can bet this guy's firm is shorting the dollar and so he benefits by talking it down. In other words, if America loses, he wins.
He is only stating the obvious about the nature of the crisis without making any progress into what legitimate options we have to work our way through it.
That's always a fool's position. What we can't tell is whether he's really a fool or simply a traitor.
Wednesday, January 07, 2009
New Rule: Sell Low, Buy Low
Recently at a good friend's holiday party I met a very nice woman who wants to leave her house of 20+ years where she raised her children to move into a single story, smaller house. She has a very common problem: she no longer can climb the stairs to and from her master bedroom and bathroom every day without difficulty.
For many young families, floor plans with all bedrooms up offer a very good value -- they get a functional layout downstairs for family activities and 4 bedrooms or so upstairs including the master, which also usually keeps the footprint of the house small so that it fits well onto a small but affordable lot. Using upstairs space for livable square footage is also a good value because upstairs square footage is much less expensive to produce, since a house only has one foundation, one roof, one set of plumbing stacks, etc. On a per-square-foot basis, single stories are often priced higher than comparable two-story homes for this reason (and a few others).
Some young parents also feel reassured sleeping close to their young children.
[An often overlooked advantage to having a master suite upstairs is that it typically allows for a much larger master suite.]
But in a few decades, those young parents become empty nesters and their many years of hard-work may leave their bodies a little less forgiving with the stair climbing up and down all day every day.
So the lady at the party with whom I was speaking felt like now is not a good time to sell in the market, particularly because she paid at the high end of the market cycle in the early 80's and it's difficult to face a lousy investment return on a house, even though the house has served as the main family stage for those many years. Memories aside, the simple numbers are disappointing. I get it.
So I asked her if she wanted to stay in the same area, and she said yes because her adult children still live in the general area.
"No problem, " I said. "You may sell your house for less than you might have a few years ago, but you're also going to pay less for your next house."
This is the new rule for taking advantage of the current housing market: sell low, buy low.
So for many people who might want to downsize or even buy a bigger house, if the goal is to stay within the same general market area, then it would hold that however much the market may be depressed, it's depressed on both the selling and the buying side. So yeah, you might not get to sell for as much as you would like (nobody ever does in Houston), but you will get to buy for less in the same market!
Not to mention the historically low interest rates right now for qualified buyers. (Well qualified buyers have no excuse not to be in the housing market right now. Move up, refinance, whatever, but now is your time.)
Think of the California market circa 2005, for example. What use would it serve for a couple to sell their 1200 SF home for $1.5 million if all they could do was buy another comparable 1200 SF home for $1.5 million?!? This is why Texas saw so many people relocate from California and other areas, because cashing out was only possible by selling in the high market and moving to buy in a market that wasn't so wildly out of control (ie, Houston).
It occurs to me that the reverse is now true in most housing markets. Sure prices may be a little down year-over-year, which makes the thought of selling daunting if one doesn't have to sell. However the market also has good buying opportunities coupled with historically, ridiculously low 30-year fixed interest rates.
In conclusion, it is not a buyer's market. It is not a seller's market. The forces affecting each side are relatively balanced when you think about it. So it's not a bad time to sell if what you want to do is turn around and buy. So don't give up, the opportunity to get what you need or want is still very much available in this market.
For many young families, floor plans with all bedrooms up offer a very good value -- they get a functional layout downstairs for family activities and 4 bedrooms or so upstairs including the master, which also usually keeps the footprint of the house small so that it fits well onto a small but affordable lot. Using upstairs space for livable square footage is also a good value because upstairs square footage is much less expensive to produce, since a house only has one foundation, one roof, one set of plumbing stacks, etc. On a per-square-foot basis, single stories are often priced higher than comparable two-story homes for this reason (and a few others).
Some young parents also feel reassured sleeping close to their young children.
[An often overlooked advantage to having a master suite upstairs is that it typically allows for a much larger master suite.]
But in a few decades, those young parents become empty nesters and their many years of hard-work may leave their bodies a little less forgiving with the stair climbing up and down all day every day.
So the lady at the party with whom I was speaking felt like now is not a good time to sell in the market, particularly because she paid at the high end of the market cycle in the early 80's and it's difficult to face a lousy investment return on a house, even though the house has served as the main family stage for those many years. Memories aside, the simple numbers are disappointing. I get it.
So I asked her if she wanted to stay in the same area, and she said yes because her adult children still live in the general area.
"No problem, " I said. "You may sell your house for less than you might have a few years ago, but you're also going to pay less for your next house."
This is the new rule for taking advantage of the current housing market: sell low, buy low.
So for many people who might want to downsize or even buy a bigger house, if the goal is to stay within the same general market area, then it would hold that however much the market may be depressed, it's depressed on both the selling and the buying side. So yeah, you might not get to sell for as much as you would like (nobody ever does in Houston), but you will get to buy for less in the same market!
Not to mention the historically low interest rates right now for qualified buyers. (Well qualified buyers have no excuse not to be in the housing market right now. Move up, refinance, whatever, but now is your time.)
Think of the California market circa 2005, for example. What use would it serve for a couple to sell their 1200 SF home for $1.5 million if all they could do was buy another comparable 1200 SF home for $1.5 million?!? This is why Texas saw so many people relocate from California and other areas, because cashing out was only possible by selling in the high market and moving to buy in a market that wasn't so wildly out of control (ie, Houston).
It occurs to me that the reverse is now true in most housing markets. Sure prices may be a little down year-over-year, which makes the thought of selling daunting if one doesn't have to sell. However the market also has good buying opportunities coupled with historically, ridiculously low 30-year fixed interest rates.
In conclusion, it is not a buyer's market. It is not a seller's market. The forces affecting each side are relatively balanced when you think about it. So it's not a bad time to sell if what you want to do is turn around and buy. So don't give up, the opportunity to get what you need or want is still very much available in this market.
Wednesday, December 31, 2008
May We Live In Interesting Times
A fellow alum friend of mine who works for a custom builder on the east coast presented a very interesting idea in a recent email exchange.
And then I sighed. Interesting times indeed.
what I don't understand is why the talk of a $1T stimulus package doesn't get evenly divided by the 305M Americans to send a tax-free check for $3k to every man, woman and child? then a typical family of 4 gets $12kNow that's interesting. And creative. So I replied with what you've read about here, to see how he might fit it all together:
then tell the banks they can't foreclose in Jan/Feb so people have time to get current on their mortgage and debts, but in March the banks have 30 days to get it done
we will quickly find out who really wants to stay in their homes and who doesn't and all the uncertainty is resolved in 90 days to know what debt is good or bad and all the middle-men get taken out of the process so the funds go directly to those who need it
maybe I'm too cynical, but I doubt Congress will come up with any plan half as good, simple or effective
Honestly I think it's because housing is no longer the biggest problem, but rather the $45 TRILLION derivatives market in unregulated legal "betting" in a shadow market of CDS's -- like $45 trillion in bets with no bookie -- and mostly on the balance sheets of major financial institutions. Honestly I think that's why, because you're right, the housing problem alone would be solvable.So his reply? Fitting, insightful, pithy.
And bear in mind that the Alt-A's have yet to ramp up in resets, which will rise in '09 and '10 and could rival the subprime mess. With declining tax revenue & credit downgrades, muni's could be in trouble as well, then watch out all over again........
But with all the side bets representing multiple payouts on the same debt including houses, muni bonds, corporate bonds, etc...... well that's a much bigger problem and one that's very hard to explain to the public, much less congress and even CEOs wrapped up in it.
Add to that the liquidity trap and a growing deflationary environment and it gets really messy really fast.
All I know is that I think that deflationary pressures require inflationary responses. But that could trigger a currency war with China and petrocurrency. At least, however, we know how to kill inflation I think. Ain't nothin gonna be easy for a while.................... [Omitting gratuitous dig at Larry Summers]
at least we're living in interesting times, right?And then I laughed out loud.
here's to a better 09
And then I sighed. Interesting times indeed.
Tuesday, December 30, 2008
New Home Buyers Beware & Be Aware
Often when we brokers get the chance to work with new home buyers who buy a house to be built for them by a production builder, we see a standard set of issues arise. The most important mistake we see in the market, over and over again, is that buyers do not realize that if they do not use a licensed agent or broker to represent their sole interests, they are on their own essentially because everyone on the builder side, sales counselors included (who are not licensed in the state of Texas), they all work for the builder and in the builder's interest.
That is not to say that buyers cannot have a wonderful and satisfying experience with home builders, however the process is fraught with complexities and potential problems that an experienced agent or broker can help avoid.
Sometimes potential buyers who do their homework may find complaints about a builder somewhere online. While this is important information, it should not be conclusive.
I like to take a look at the buyer complaints on record and analyze them. It doesn't entirely surprise me to find online complaints about any major builder because one of two things might be happening, or both, particularly with production builders who cater to first-time or inexperienced buyers:
i) the builder may be a bum builder and perhaps takes advantage of its mostly first-time buyers, and/or
ii) I've found that many first-time buyers are not accustomed to the process, and if they are not properly advised by an independent agent or broker representing the buyer's sole interests, then buyers can be disillusioned by basically standard operating procedures by builders. Most new buyers do not use an agent to represent them, only because they don't know to do so, and the sales counselors work exclusively for the builders. So any conflicts are generally settled in favor of the builder, much to the frustration of the buyers.
New buyers therefore can easily be misled. A common example is during the build process, the buyers may make a request of the sales counselor, such as to change their carpet choice for instance, and the sales counselor will tell them "no problem." The clients think there's no charge but then later come to find out that there could be a "change fee" or a charge for removing existing carpet and/or an upgrade charge.
This is standard procedure in general, but the mismatched expectations and poor communication on the part of the sales counselor / superintendent can leave many people raw. Sometimes weather delays also incense people.
Structural problems however are always inexcusable, such as faulty workmanship, plumbing problems, etc. But most of those things are covered under the standard builder warranty, headaches though they are. (An independent inspection prior to closing can help alleviate any major problems - something else a buyer agent/broker can facilitate.)
Another important part of buyer due diligence is to drive the new neighborhood and see how many homes are already being lived in by former buyers. The more there are, and the longer the neighborhood has been under development, the better the indications are.
Also, it's always advisable for potential buyers to stop and talk with residents in any neighborhood they're considering while being careful not to put too much importance on any particular resident with whom they speak.
But bottom line: a) buyers should not do anything that makes them uncomfortable, but b) remember that an experienced agent or broker can represent buyer interests exclusively and will be the buyer representative with the builder, and that agent or broker, if experienced and reliable, should be able to interfere with most potential problems when building a new home.
That is not to say that buyers cannot have a wonderful and satisfying experience with home builders, however the process is fraught with complexities and potential problems that an experienced agent or broker can help avoid.
Sometimes potential buyers who do their homework may find complaints about a builder somewhere online. While this is important information, it should not be conclusive.
I like to take a look at the buyer complaints on record and analyze them. It doesn't entirely surprise me to find online complaints about any major builder because one of two things might be happening, or both, particularly with production builders who cater to first-time or inexperienced buyers:
i) the builder may be a bum builder and perhaps takes advantage of its mostly first-time buyers, and/or
ii) I've found that many first-time buyers are not accustomed to the process, and if they are not properly advised by an independent agent or broker representing the buyer's sole interests, then buyers can be disillusioned by basically standard operating procedures by builders. Most new buyers do not use an agent to represent them, only because they don't know to do so, and the sales counselors work exclusively for the builders. So any conflicts are generally settled in favor of the builder, much to the frustration of the buyers.
New buyers therefore can easily be misled. A common example is during the build process, the buyers may make a request of the sales counselor, such as to change their carpet choice for instance, and the sales counselor will tell them "no problem." The clients think there's no charge but then later come to find out that there could be a "change fee" or a charge for removing existing carpet and/or an upgrade charge.
This is standard procedure in general, but the mismatched expectations and poor communication on the part of the sales counselor / superintendent can leave many people raw. Sometimes weather delays also incense people.
Structural problems however are always inexcusable, such as faulty workmanship, plumbing problems, etc. But most of those things are covered under the standard builder warranty, headaches though they are. (An independent inspection prior to closing can help alleviate any major problems - something else a buyer agent/broker can facilitate.)
Another important part of buyer due diligence is to drive the new neighborhood and see how many homes are already being lived in by former buyers. The more there are, and the longer the neighborhood has been under development, the better the indications are.
Also, it's always advisable for potential buyers to stop and talk with residents in any neighborhood they're considering while being careful not to put too much importance on any particular resident with whom they speak.
But bottom line: a) buyers should not do anything that makes them uncomfortable, but b) remember that an experienced agent or broker can represent buyer interests exclusively and will be the buyer representative with the builder, and that agent or broker, if experienced and reliable, should be able to interfere with most potential problems when building a new home.
Sunday, December 21, 2008
Everyone Thinks Real Estate Agents Are Stupid
Even other real estate agents.
Sometimes I don't know whether to laugh or cry at the crooked stuff we see in the market. The lowest of the low operate completely under the radar... until you're unfortunate enough to find yourself or your clients up against them (luckily we're well prepared to deal with them).
But others just like to spam email and prey on amateur, part-time, ill-informed, or just plain "dim" agents across the nation, many of whom really need a break right now.
One example from our Spam Box (75% of our email volume is spam), from recessionproofwebinars@gmail.com entitled "Big Costly Realtor Mistake" (I can already smell the money):
It's sad, but I bet these guys make a small fortune off people down on their luck before they get forced out of the industry. Is it any wonder how real estate got so out of control with freaks like this still out looking for prey?
Merry Christmas!
Sometimes I don't know whether to laugh or cry at the crooked stuff we see in the market. The lowest of the low operate completely under the radar... until you're unfortunate enough to find yourself or your clients up against them (luckily we're well prepared to deal with them).
But others just like to spam email and prey on amateur, part-time, ill-informed, or just plain "dim" agents across the nation, many of whom really need a break right now.
One example from our Spam Box (75% of our email volume is spam), from recessionproofwebinars@gmail.com entitled "Big Costly Realtor Mistake" (I can already smell the money):
Hi Nicholas,And here's the great part. If you click the register link, you get this message (I know, I know, I clicked, but I was curious and cautious):
This drives me crazy. And I see it all the time.
And if you do this, it's costing you a freakin'
fortune in opportunities that's slipped through
your fingers.
You can cut to the chase and click here to hear me out:
https://www2.gotomeeting...
But, if not, here's what I'm so frustrated with:
People get a dent or two in their credit ... maybe
even a big one ... and they start to believe they
can't run with the pack.
Or they run out of money. And believe that they can't
do a thing as a Realtor or a real estate investor
without a decent bankroll.
I've heard it enough times to make me sick at heart:
"I can't do anything without enough for marketing,
or at least a small down payment. And my credit's
shot!"
So they take themselves out of the game. They get
in a downer. Especially if they get one or two
doors closed in their face.
They feel that they can't compete with other Realtors
and Investors who are finding a flipping pre-foreclosures
for big time money.
Pardon me while I blast through that pile of crap.
Here's the facts:
*You don't need to do ANY marketing if you do what
we've been doing. And it works. We get enough business
to turn it away or refer it out ... without a dime
in advertising
*Bankers, etc. almost EXPECT credit issues today. If
anything, they are realistic. And they've lowered
their demands considerably in this climate.
*That said, there are still a few overly conservative
money people with a board up their butt. (If you've got
a door slammed in your face, you've met one.) But for
every one of those, there are two more who will welcome
you in, IF you know the "secret code."
And that's one of the things we've been showing in our
fr'ee wildly popular webinar held this Saturday at 2 PM:
https://www2.gotomeeting...
Look, it don't mean Jack if your credit score is 300,
your car's being repo'd, your house is being auctioned,
and you're moving back home with mom and dad.
We've had students beyond count who've gotten moving,
without a nickle to their name, and credit that would
embarrass a 3rd world refugee.
You need to know this - they've used our secrets to start
generating an income fast.
And if you think you can't do that, like they are somehow
"special," then you sure as heck didn't meet them
when we did ;-)
It's actually kind of funny ... every time we see another
one start cranking out the sales, they become more than
students. They actually become fans.
My biggest job then becomes to make sure they know that
all it took was the right knowledge, and the ability for
THEM to decide to take action.
Decide to take action now, and see what they learned ...
it won't cost you a cent this Saturday at 2 PM EST:
https://www2.gotomeeting...
Sincerely,
Chris
P.S.: Have you seen the latest ShortSalesRiches fan? Check
it out after you register for the webinar!
http://www.youtube...
Chris McLaughlin, the 6th largest broker in Florida, and Nathan Jurewicz, a street savvy real estate investor, will discuss how you can make more money now than ever before ... in this economy! And we'll show you why a recession is actually GOOD for real estate investors!Really! Recessions are GOOD for real estate! [/snark]
It's sad, but I bet these guys make a small fortune off people down on their luck before they get forced out of the industry. Is it any wonder how real estate got so out of control with freaks like this still out looking for prey?
Merry Christmas!
Sunday, December 14, 2008
More on Why Your Home Equity is Cratered: The Culture of Corruption
Some on the conservative right don't appreciate Frank Rich's heavy well-deserved criticism of the Bush Administration over the years, however this morning he is showcasing his equal-opportunity criticism, which we should see more and more as we transition into a new administration.
Parts of this morning's column is a helpful read for any lay person trying to understand why their home equity has cratered. First and foremost, I blame the new American culture of corruption. And until it is stopped, and I don't know how yet, or turned around, we won't be seeing the economic turn-around that America needs. And so we turn perhaps to America's leading cultural critic:
If you want to understand why your home equity is taking a hit, you can't fully understand without also understanding the crisis that is the modern American culture of corruption. And that culture has omni-partisan enablers at its roots.
Parts of this morning's column is a helpful read for any lay person trying to understand why their home equity has cratered. First and foremost, I blame the new American culture of corruption. And until it is stopped, and I don't know how yet, or turned around, we won't be seeing the economic turn-around that America needs. And so we turn perhaps to America's leading cultural critic:
Warren Buffett’s warning in 2003 that derivatives were “financial weapons of mass destruction” was politely ignored. Much larger companies than Enron figured out how to place even bigger and more impenetrable gambles on derivatives, all the while piling up unseen debt. They built castles of air on a far grander scale than Kenny Boy could have imagined, doing so with sheer stupidity and cavalier, greed-fueled carelessness rather than fraud."[C]arelessness rather than fraud." Interesting because so many would immediately point to fraud as a major driver of our economic morass. But Rich is pointing to "greed-fueled carelessness." That's striking because it's worse than fraud. It implies a systemic lack of basic human empathy, and that is sociopathic. Has our culture of corruption fallen that far? Scary.
The most stupendous example as measured in dollars is Citigroup, now the recipient of potentially the biggest taxpayer bailout to date. The price tag could be some $300 billion — 20 times the proposed first installment of the scuttled Detroit bailout. Citigroup’s toxic derivatives, often tied to subprime mortgages, metastasized without appearing on the balance sheet. Both the company’s former chief executive, Charles O. Prince III, and his senior adviser, Robert Rubin, the former Clinton Treasury secretary, have said they didn’t know the size of the worthless holdings until they’d spiraled into the tens of billions of dollars.Notice the denial of any responsibility whatsoever on the part of these top executives. (Earlier in the column Rich makes the same observation of Bush.) It seems now the standard MO for America's executives to deny all personal responsibility for failure. How American is that? If you say "very," then you're talking recent history and not the American ideal.
Once again, regulators slept. Once again, credit-rating agencies, typified this time by Moody’s, kept giving a thumbs-up to worthless paper until it was too late. There was just so much easy money to be made, and no one wanted to be left out. As Michael Lewis concludes in his brilliant account of “the end” of Wall Street in Portfolio magazine: “Something for nothing. It never loses its charm.”We have discussed the 2000 Commodities Futures Modernization Act, which legalized gambling on Wall Street, but we've said less about the equally destructive 1999 repeal of the depression-era "Glass-Steagal" act called the "Gramm-Leach-Bliley" act, which was enacted with Democratic support, championed by Gramm, and like the CFMA in 2000, was signed into law by a Democratic president.
But if all bubbles and panics are alike, this one, the worst since the Great Depression, also carried the DNA of our own time. Enron had been a Citigroup client. In a now-forgotten footnote to that scandal, Rubin was discovered to have made a phone call to a former colleague in the Treasury Department to float the idea of asking credit-rating agencies to delay downgrading Enron’s debt. This inappropriate lobbying never went anywhere, but Rubin neither apologized nor learned any lessons. “I can see why that call might be questioned,” he wrote in his 2003 memoir, “but I would make it again.” He would say the same this year about his performance at Citigroup during its collapse.
The Republican side of the same tarnished coin is Phil Gramm, the former senator from Texas. Like Rubin, he helped push through banking deregulation when in government in the 1990s, then cashed in on the relaxed rules by joining the banking industry once he left Washington. Gramm is at UBS, which also binged on credit-default swaps and is now receiving a $60 billion bailout from the Swiss government.
It’s a sad snapshot of our century’s establishment that Rubin has been an economic adviser to Barack Obama and Gramm to John McCain. And that both captains of finance remain unapologetic, unaccountable and still at their banks, which have each lost more than 70 percent of their shareholders’ value this year and have collectively announced more than 90,000 layoffs so far.We can't just say that now is not the time for accountability. There has never been a more important time. The excesses that led to the tech bubble repeated themselves in the real estate bubble, and the corruption began in the 1990's continued unabated to today, even accelerating under the protection and encouragement of a corrupt and ignorant congress.
The Times calls its chilling investigative series on the financial failures “The Reckoning,” but the reckoning is largely for the rest of us — taxpayers, shareholders, the countless laid-off employees — not the corporate and political leaders who led us into the quagmire. It’s a replay of the Iraq equation...
If you want to understand why your home equity is taking a hit, you can't fully understand without also understanding the crisis that is the modern American culture of corruption. And that culture has omni-partisan enablers at its roots.
Monday, December 08, 2008
"If Your Income Goes Up, Will You Watch TV in the Bathroom?"
Author of the popular book Freakonomics Daniel Hamermesh writes a regular column for The New York Times online featuring his witty log of counterintuitive economic observations.
In his book, for instance, he tells of a daycare center that, when faced with parents habitually late for picking up their kids, implemented a "punishment" fee policy to keep parents on time. Instead, however, parent pick-up tardiness actually increased, and the authors speculate that the "fee" actually served as an incentive for parents to be late because a) it ridded them of any guilt they felt for being late (since they were paying the fee), and b) the fee wasn't high enough, evidently.
Well this weekend Hamermesh recounted a recent trip to a nice hotel where he was stunned to find television screens in front of the urinals in the bathroom. I'm frankly stunned that he was stunned. Anyway, he mused in his column that perhaps as personal income goes up, so does a person's likelihood of installing media in their bathroom.
Color me unimpressed. I don't think it has to do with incomes rising so much as it has to do with technology prices falling. It's just not expensive anymore to put a television or any media anywhere one wants. The city of Shenendoah outside The Woodlands north of Houston has free Wi-Fi for all its residents. Soon they won't be exceptional for that at all.
Home builders now wire homes for surround sound -- basic homes -- because it costs them next to nothing. Production builders in recent years have been building niches for televisions in master bathrooms regularly, complete with cable hook-ups. A client recently told me of a friend in an older home who installed a television screen behind their master bathroom mirror (it shows through when the TV is on).
This isn't because people are getting rich. It's because technology is becoming ever more affordable. Cell phones used to be exotic, the idea of PC's on every desk used to be outrageous, and now we're entering an age where the desktop itself may go extinct and all software will be hosted and operated on the Internet. Check out live.com or google.com -- it's already started.
The idea is that technology is not an amenity like a swimming pool or wine cellar to be found in exclusive or more expensive homes. Instead, technology is like an amenity that starts out exclusive but then becomes a standard in short order. When my 2001 car was brand new, its navigation system was pioneering. I'm still grateful to have it, but nowadays it's far behind navigation systems that one can get inexpensively in a cell phone.
So rich or not, the day is fast coming when we'll all be watching television and surfing the Internet in our bathrooms -- and frankly anywhere else we can catch a signal. It's not a sign of wealth. It's a sign of the times.
In his book, for instance, he tells of a daycare center that, when faced with parents habitually late for picking up their kids, implemented a "punishment" fee policy to keep parents on time. Instead, however, parent pick-up tardiness actually increased, and the authors speculate that the "fee" actually served as an incentive for parents to be late because a) it ridded them of any guilt they felt for being late (since they were paying the fee), and b) the fee wasn't high enough, evidently.
Well this weekend Hamermesh recounted a recent trip to a nice hotel where he was stunned to find television screens in front of the urinals in the bathroom. I'm frankly stunned that he was stunned. Anyway, he mused in his column that perhaps as personal income goes up, so does a person's likelihood of installing media in their bathroom.
Color me unimpressed. I don't think it has to do with incomes rising so much as it has to do with technology prices falling. It's just not expensive anymore to put a television or any media anywhere one wants. The city of Shenendoah outside The Woodlands north of Houston has free Wi-Fi for all its residents. Soon they won't be exceptional for that at all.
Home builders now wire homes for surround sound -- basic homes -- because it costs them next to nothing. Production builders in recent years have been building niches for televisions in master bathrooms regularly, complete with cable hook-ups. A client recently told me of a friend in an older home who installed a television screen behind their master bathroom mirror (it shows through when the TV is on).
This isn't because people are getting rich. It's because technology is becoming ever more affordable. Cell phones used to be exotic, the idea of PC's on every desk used to be outrageous, and now we're entering an age where the desktop itself may go extinct and all software will be hosted and operated on the Internet. Check out live.com or google.com -- it's already started.
The idea is that technology is not an amenity like a swimming pool or wine cellar to be found in exclusive or more expensive homes. Instead, technology is like an amenity that starts out exclusive but then becomes a standard in short order. When my 2001 car was brand new, its navigation system was pioneering. I'm still grateful to have it, but nowadays it's far behind navigation systems that one can get inexpensively in a cell phone.
So rich or not, the day is fast coming when we'll all be watching television and surfing the Internet in our bathrooms -- and frankly anywhere else we can catch a signal. It's not a sign of wealth. It's a sign of the times.
Another Bottom? Not In Housing & Not Without Housing.
Oh my. Just Friday night the financial media started schooling Wall St on its trading day lunacy. A few items the markets seemed to ignore or discard without reason:
File this under "YHGTBSM":
Late mortgage payments and foreclosures hit record
Okay. But there has to be a pony in there somewhere...
So who really thinks that Wall St knows something that the general public doesn't? No, we can be assured by now that it's truly the other way around. Now how's this to build certainty and confidence, from the same article:On Thursday, the U.S. Labor Department is likely to say first-time claims for unemployment benefits held above the 500,000 level for a fourth straight week. Then on Friday, the Commerce Department is expected to report that retail sales fell in November for the fifth month in a row, the longest streak of monthly declines since the government started tracking the data in 1992.
"I keep hearing conference call after conference call -- we can't provide any more forecasts," Kuby said. "You're going to hear more of them say it's worse than we thought or we can't stick by our guidance anymore."Fun. But that doesn't stop the die-hard bulls from declaring yet another "bottom" in sight. Why? Because the news is so so very bad. By their logic, when the news gets unbelievably bad, then there must be a turnaround near. After all, things always turn around after things go as low as they're going to go, right? It's like a good friend recently told me, "Funny how you always find your keys in the last place you look."
File this under "YHGTBSM":
No. Just no. There will be no bottom if there is no bottom in housing, and there is no bottom in housing. The following article was posted about an hour before the market closed in a froth on Friday:Few expect the results to be heartening, although after Wall Street shrugged off Friday's dismal employment report, some are starting to sense that the market is beginning to etch out a bottom.
"The market has this horrible news this morning, it didn't collapse," Kuby said.
Late mortgage payments and foreclosures hit record
Moreover, the number of foreclosures would have been higher if several states and others had not implemented moratoriums on foreclosures... which will expire in coming months. Does this sound like a bottom? Not likely.Late mortgage payments and the rate of home loans in foreclosure rose to record highs in the third quarter, threatening to escalate as the recession erases jobs and further strains homeowners, the Mortgage Bankers Association said on Friday.
The number of loans entering the foreclosure process would have been even higher without various programs halting them in favor of loan modifications.And of course at the heart of all this? As we've discussed before: J-O-B-S. So please keep shoveling and tell me if you can find the pony, er... bottom, in here:
A spiking unemployment rate in the midst of what many economists fear to be a deep recession, however, points to rising mortgage delinquency and foreclosure rates next year, the trade group said.
"We haven't gone into past recessions with a housing market in as bad of a shape," Jay Brinkmann, chief economist and senior vice president for research and economics, told Reuters in an interview.
Okay. But there has to be a pony in there somewhere...
"The bigger issue is going to be the underlying economy," Brinkmann said. "As much as any of the overbuilding issues, poor lending or speculative issues, as these job losses spread to some of the rest of the economy ... That certainly doesn't speak to a foreclosure rate coming down."Um. Okay, maybe not. I think we're back to living in a world where up is up again, and unfortunately, down is down.
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