Flight to Quality

Yet again Inman News has posted a really interesting article.  It is a Q&A with a Seattle-based Agent, Kirsten Mohan, who has some great insights into where the market is going and how it will get there.  

I particularly like this part of her answer to "how do you think the real estate market will be different when we recover from the current downturn?"

"... we'll see a return to quality after years of mediocrity. This will happen primarily because a more educated consumer base will demand better service from...real estate agents in particular...for many years, a part of the real estate agent's perceived value was the possession and dissemination of raw data to the consumer. That same consumer now has the opportunity to find an abundance of information online before ever contacting an agent..."

The whole interview is here...

This is a very, very astute observation.   Kirsten is absolutely correct that the agent's role is no longer just as a diseminator of information.  That information that was once closely guarded is now, thank to the internet, very free and available.  

Most agents will take that statement as a threat, but I view it as an opportunity, and I think that Kirsten does too.  It is an opportunity because it creates a marketplace where only agents that bring real value to their relationships with clients will succeed.  They no longer can rely on the intrinsic value of their proprietary information.  

Now, agents will present value by being the expert in negotiating for their clients, being able to help them navigate through the complex buying/selling process, and also will create value by leveraging their networks.  Not only networks of other professionals that clients will need to utilize, but also networks of contacts that present the potential buyer (or seller) that their client is looking for.  

That will be the value, going forward, that each person engaging a real estate agent should be looking for in thier business partners.  

Interesting Thoughts on the Real Estate Market

In talking to a colleague the other day he made some observations about the real estate market cycles that I thought were astute and also heartening as well.  

First off, looking back historically down markets usually last 12-18 months and the worst market downturns in the past 35 years was 24 months.  That is heartening in that we have been on a downturn now for 18 moths...so even if we are probably in store for a 24 month downturn we only have six months more of bad market to get through.  

The second observation that he made...that of course we've all heard before, but I thought it was good to repeat was: in looking at real estate versus the stock market...the tangible nature of real estate means that no matter how bad the market gets it is never going to zero.  However, in the stock market, even for the bluest of blue chip companies DO have the potential (no matter how remote) to go to zero, thus making real estate a safer bet in all markets.  

Just two quick observations.  Nothing earth-shattering or relatively new...but worth remembering.  

Buy now, sell later? Think contingency

A nice, informative piece on buying with a contingency for both buyers and sellers to consider before making a deal with a contingency... 

Sellers more likely to consider such an offer in slow market

BY DIAN HYMER, MONDAY, DECEMBER 15, 2008.

Inman News

Most homeowners who sell one home to buy another want to secure the replacement home before they sell. But many of these buy-first sellers may find it difficult, if not impossible, to do this due to recent tightening of mortgage lender requirements.

Before the credit crunch, sellers who bought a new home before selling the old one were allowed to claim rental income for the home they were selling if it didn't sell. This boosted the income needed to qualify for owning two properties. Today, most lenders no longer consider rental income for the unsold property. This makes it harder for many to qualify to buy before selling.

There are a few options available for homeowners who want to move to a home that better suits their needs but who can't afford to buy first. One is to buy contingent upon the sale of their current home. In some markets -- typically those still overloaded with unsold inventory -- this approach might work.

Most sellers who are willing to entertain an offer made contingent on another property sale want the purchase agreement to include a release clause. This allows the sellers to continue to offer their property for sale. If they receive another offer, they can accept it in backup position, subject to the collapse of the primary offer.

The sellers then notify the buyers in primary position that they must remove the contingency for the sale of their property within a certain time frame, and provide proof that they have the financial wherewithal to close the transaction. Otherwise, they must withdraw from the contract and the property goes to the backup buyers.

In markets that haven't been hit hard by the housing downturn, buyers making contingent sale offers can't compete for the best listings. This is particularly the case in the most desirable locations where there are few homes listed for sale.

In many markets, if a listing is priced right, well-located and in good condition, it sells. However, sellers aren't keen on contingent sale offers because of the risk factor. What if the buyers don't price their current home competitively? How long will it take for it to sell? Will they negotiate reasonably when an offer comes in?

Sellers need to consider which house is more salable given current market conditions. If the sellers' home is in a higher price range and it isn't moving, it might be worth the gamble to accept a contingent sale offer from buyers who will be selling a cute starter home in a great neighborhood that's in high demand.

Some sellers who won't accept a contingent sale offer if the buyers' property is not yet on the market are receptive to offers made from buyers who already have a buyer for their home and all contingencies have been removed from the contract.

Buyers who need to sell in order to complete the purchase and who are unsuccessful making contingent sale offers need to consider selling their current home first. When the house sells, the contract could include a provision for the sellers to rent back their current home for a time after closing. This provides more time to find a replacement home. The worst-case scenario is that the right home can't be found in time and the sellers have to move to an interim rental.

THE CLOSING: A big benefit of selling before buying is the sellers know exactly how much money will result from the sale. For some, this financial peace of mind offsets the anxiety of not having a replacement home lined up, or having to move twice.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

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Housing Market Bail Out Takedown

A new takedown of the Federal bail out of the housing market my Matthew Ferrara that is spot on!

News Flash: Federal Reserve Unveils Plan to Push Housing Market Lower!

Posted: 05 Dec 2008 11:00 AM CST
Fantasy Island - (US) - The Federal Reserve today unveiled yet another plan to distort the housing industry and stave off a rebound in the marketplace by using Fannie Mae and Freddie Mac to encourage banks to offer mortgages as low as 4.5% - nearly a full point lower than what ‘unencouraged’ banks have currently priced the risk of mortgage lending in the free market. Undaunted by the volume of empirical data indicating that this very policy of offering below market rates to sub-prime credit borrowers originally caused the over-extension of consumer credit and sharp inflation in housing prices in the last decade, Treasury officials said today (with a straight face) that lowering the cost of lending would halt the slide in housing by enabling consumers to borrow larger sums of money. When asked why this “preferential” policy would only extend to those “purchasing” a home and not homeowners who wished to refinance their debt, Tresurers stared blankly into the cameras. Apparently the idea of letting existing mortgage holders lower their monthly payments, thereby freeing up capital to spend on other consumer goods and savings, had not occurred to the Idiot Savants running the largest public-debt-backed Bank in the world.

One positive feature of the Federal Reserve’s “save some, damn some” lending policy is that “document their income and afford their monthly mortgage payments, steering the government away from backing loans considered risky,” according to a report from the Wall Street Journal today. Funding for such low rates is expected to be created from thin air, or in Treasury terms, the issuance of government debt that would be repaid by taxpayers in the unforeseen future. In essence, the United States government would be acting as a guaranteed buyer of the mortgage, while letting banks snap up application and processing fees for issuing the so-called mortgage. No answer was provided to the question of “which” taxpayers would, in fact, be likely to be repaying this debt, although it is widely expected to fall on the “rich” who can “afford” to pay their fair share of everyone else’s housing needs.

Treasury Secretary Hank Paulson, caught with his pants down, told the press that, “The most important thing we can do to mitigate foreclosures and progress through the housing correction is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages.” Apparently nobody told the Treasurer that the Federal Reserve did not intend to offer the rates for refinancing; or, as is more likely, nobody really knows what they are doing and therefore any statement made by government officials is both true and false at all times.

Some skeptics expressed concern over the plan, which was widely supported by lobby groups such as the National Association of REALTORS. Critics worried over the fact that neither the NAR nor the Fed seem to have answered the question of how to reconcile the increasing unemployment figures with the need for buyers to “still qualify” to repay these loans. NAR’s spokesman responded with a muttered, “Plan good… specifics later,” when asked to comment on how unemployed buyers were supposed to absorb the excess housing supply, while foreclosures continued to rise.

In an irony only possible on Capitol Hill, one of the major architects of the current government-sponsored meltdown, Massachusetts Representative Barney “Roll the Dice a Little More” Frank, accused Treasury Secretary Paulson of not spending the taxpayer’s money fast enough. Reading from the original bailout bill passed by Congress this Fall, Frank reminded Mr Paulson that he had been authorized to spend the $700 billlion appropriations more freely, quoting “the bill which says, ‘Write it down, give them assistance,’” adding later that “We have a very large pot that was intended to be part of that effort that is going untapped.” Congressional staffers were momentarily surprised by these comments, whispering amongst themselves, wondering just where Mr Frank had stashed that pot, and whether he intended to smoke it with them afterwards.

Home prices of the future

Home prices of the future
Real estate brief
BY INMAN NEWS, THURSDAY, DECEMBER 4, 2008.

While some economists believe home prices won't hit bottom until the second half of 2009 and possibly not until 2011 or 2012, most agree that when they do start to rise the gains will be modest compared to the run-up seen during the last 10 years, according to an article in the Wall Street Journal this week.

Wellesley College economics professor Karl Case, of S&P Case-Shiller home-price index fame, said that over the long term home prices will likely "increase on average at an inflation-adjusted rate of 2.5 percent to 3 percent a year, about the same as per capita income."

Others such as Massachusetts Institute of Technology economics professor William Wheaton see home prices increasing at a rate "roughly one percentage point higher than inflation" in the long run, while Economy.com's director of housing economics, Celia Chen, expects house prices to rise an average of approximately "4 percent a year over the next couple of decades."

While factors that determine whether real estate prices will rise over the long term -- such as incomes, household size, birth rates and immigration -- are difficult to predict, researchers expect metro areas such as Washington, D.C.; Raleigh and Charlotte, N.C.; Atlanta; Dallas; Houston; Phoenix; Las Vegas; Albuquerque, N.M.; Boise, Idaho; Salt Lake City; Seattle; Portland, Ore.; Denver and Colorado Springs, Colo., and parts of Florida, Tennessee, Virginia and interior California to see the strongest prospects for growth over the long term.

William Frey, a demographer at the Brookings Institution, a Washington think tank, believes that upstate New York, western Pennsylvania, Michigan, Ohio, the Dakotas and Iowa are likely to see "low growth and falling populations" in the future.

Fall checklist for a safer, warmer home

10 tasks that improve energy efficiency, save lives

By Paul Bianchina, Inman News

High energy prices are taking their toll on just about everyone this year, so it's important to do whatever you can to create and maintain an energy-efficient home. Fall is the ideal time for weatherization projects, so this year's fall checklist is centered around what you can do to create a warmer home that has less impact on your wallet.

___Check all insulation levels: Improving insulation levels can be a highly effective way of increasing your home's comfort and energy efficiency, so make it a point this fall to check the amount and condition of all visible insulation. This includes the attic, underfloor, kneewalls, skylight shafts and ductwork. A call to your local utility company will tell you what levels are considered optimum for your area, and if repairs are needed and you don't want to undertake them yourself, they can also recommend qualified insulation and weatherization contractors.

___Check and seal heating ducts: Crawling around in the attic or crawlspace isn't anyone's idea of a fun afternoon, but it's the only way to examine and repair your heating ducts. Check for gaps between ducts and fittings, and seal them with a quality metallic tape -- not regular duct tape, which doesn't last. Also, check to be sure that all of the ducts are up off the ground and adequately supported.

___Check weatherstripping: Gaps around doors and windows -- no matter how small or seemingly insignificant -- allow cold outside air to enter your home. The result is uncomfortable drafts and wasted energy. Closely examine each exterior door and window to see that the weatherstripping is doing its job. There should be no visible gaps, the weatherstripping should be clean and undamaged, and windows and doors should operate smoothly and close completely. If any repairs are necessary, you can find everything you need at your local hardware store or home center, or contact a qualified weatherization contractor or handyman.

___Seal exterior penetrations: Weatherstripping is not the only culprit when it comes to air leaks. Spend a day working your way around the outside of the house with a caulking gun and a couple of tubes of high-quality, flexible caulking, and seal any gaps around window and door trim, plumbing and electrical penetrations, flashings and other openings.

___Add outlet gaskets: Shut the power, remove switch and outlet plates, and add precut foam outlet gaskets, which are available from home centers, hardware stores and other retailers. Do the interior walls as well as the exterior walls, and don't forget exterior outlets as well. It's a small thing, but small things definitely add up.

___Change furnace filters: Fall is always the perfect time to put in new furnace filters. It's another one of those simple and inexpensive tasks that can add to your home's efficiency and your family's comfort.

___Upgrade your thermostat: An older thermostat that's a couple of degrees off can result in a lot of wasted energy, and so can forgetting to set the thermostat down at night. You can take care of both of those problems with an upgrade to a programmable thermostat. Programmable thermostats are digital and typically very accurate, and they allow for easy, set-and-forget programming of temperatures for different times of the day, including energy-saving nighttime and workday setbacks.

___Clean and service fireplaces and woodstoves: Make sure that your gas, wood, and pellet-burning fireplaces and stoves are clean and operating correctly. Check door gaskets, blower operation, flues and flue caps, thermostats and all other aspects of these important appliances. If you're not sure what to look for or how to do any cleaning or repairs, check with a qualified, licensed fireplace shop or chimney sweep.

___Install a carbon monoxide detector: If you have any gas appliances in your home, there is always the possibility of carbon monoxide poisoning should any of them ever malfunction. This is a very real danger, especially as we close our homes up for the winter, so make it a point this fall to install a carbon monoxide detector. These lifesavers are inexpensive, easy to install, and available from most home centers and hardware stores.

___Check smoke detectors: Same warning every fall -- check to see that your smoke detectors are operating correctly, and install fresh batteries. If you have an older home with a limited number of detectors, install additional ones outside each bedroom, and make sure that you have at least one on each floor of the house.