Entries from October 2007 ↓

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Linda Stein, affectionately known as the Realtor to the Stars, was found dead in her 5^th Avenue apartment in New York City this morning.

According to the AP, the medical examiner says an autopsy found that she died from fatal blows to the head and neck. Stein was the original “broker to the stars,” helping turn the sale of fancy real estate in the city into the gossipy, publicity-driven soap opera that it has become today, where we all know, or think we know, which boldfaced name lives where, and how much they paid. A tempestuous, bawdy, funny woman who, through her marriage in to Sire Records founder Seymour Stein (the man who discovered and nurtured Madonna as well as the Talking Heads), transformed herself from a fifth-grade teacher in the Bronx to Ramones manager and international party girl (best friends with Elton John and Studio 54 regular). And then, after she and Stein divorced, she transformed herself again. Like many a divorcée, she got her real-estate license. But she had something else going for her. “I saw that there was money to be made,” she told New York Magazine when we profiled her back in 1991. “My clients are my friends.” They included Bruce Willis, Billy Joel, Sting, Andrew Lloyd Webber, Calvin Klein, Joan Rivers, Sylvester Stallone, Jann Wenner and Rupert Everett. via  New York Magazine’s

Linda lived an adverturous life but died a gruesome death. God rest her soul.

Hope you all have a fun Halloween. I just got back from the Halloween Parade at my youngest son’s elementary school. Things like this do add to the quality of life…

My guy is the Ninja to the far right in the hood…

Here is an interesting stat that came from the Federal Reserve Bank of Atlanta. Homeownership rose from 64% in 1994 to 69% in 2004. Since 2004 the rate of homeownership has declined nearly a point to 68.2%.

The combination of upward mobility and easier credit opened many doors to owning ones own home. However, back in 2004 the focus was on greater opportunity for new homebuyers, now with tighter credit many are caught in  a crunch.

Many analysts have pointed to easy lending as a contributor to the housing boom, but the Atlanta Fed paper may be the first to quantify its effect in a rigorous way. Using math-heavy macroeconomic analysis, the authors conclude that the availability of new mortgage options accounted for 56% to 70% of the decade-long increase in the U.S. homeownership rate, while demographic changes accounted for only 16% to 31%. Although the paper cites lowered downpayment requirements as the biggest factor in raising ownership, co-author Carlos Garriga of the St. Louis Fed says a forthcoming paper will attribute more of the effect to “teaser” loans with low introductory payments that appeal to young and lower-income buyers. via Business Week

The homeowners on the bottom end of the rung, those that comprise the homeowners in the 64% to 68% range, are obviously the ones that have the greatest risk in homeownership. What will be interesting to see is since loose credit was a primary reason for them to become homeowners and now we are facing tighter credit again, what will the downside be to the national housing market?

And with fewer potential buyers and the speculators gone, what will the larger market use to find the bottom since there is pressure with both high inventory and more foreclosures on the horizon?

The Drudge Report, not a place where the headlines are tepid, has a link to a story Man Commits Suicide over Foreclosure… . Since foreclosures are on of the hot topic stories this would make sense, but reading the story you find out that the foreclosure was the tipping point, not the reason for the man’s actions. The man, James Hahn, had much greater problems according to the Houston Chronicle.

It would appear that Hahn had prepared for the standoff. He had nailed plywood over windows and doors and stuffed insulation into cracks. A cache of weapons and explosive devices were found in the home, along with a gas mask, chemical suit similar to those worn by Haz-Mat crew members.

Williams said it explained why Hahn didn’t vacate the house after police shot tear gas into the residence on three separate occasions in the hopes of bringing the standoff to an end. Williams said Hahn was recently divorced, depressed and struggled with financial problems and drug addiction. via the Houston Chronicle

For real estate agents and mortgage brokers this is the sort of story you have to watch out for in the world of public opinion. Instead of the press reporting that a man with a drug addiction who was recently divorced and depressed got into a battle with police as it would have been reported last year, we now have a man foreclosed upon refusing to give up his home.

That is the problem with the media these days, they find an angle and every story should fit into that mold. This story is also illustrating a new trend for foreclosure stories. Be prepared for every story that has something to do with foreclosures to have this angle highlighted.

As the reporter Lindsay Wise breathlessly ends the story:

But none imagined that Hahn would take his life rather than leave a home that no longer belonged to him.

She will get accolades in the newsroom because of her link from Drudge. However her dishonest reporting earns a sneer from me. This was a man whose life had turned into a country song and wanted to go out in a blaze of glory. He just used the foreclosure as the trigger.

If I were to sell my home tomorrow I think I know how to do so. Instead of going on the cheap on the commission with a discount broker trying to save some of the difference in housing prices from the peak, I would go the other direction and prey on human nature. I would offer a higher commission to the buyers agent.

Now there are some nay sayers that will say, “Tom, you are such a homer for the real estate agents, of course you will say raise the commissions.” And you would be completely off base.

When the real estate market was rocking I was calling for lower commissions. Selling a home was like shooting fish in a barrel and thus commissions should be lower. But the real estate world is not rocking, it is hurting. Hurting bad as they say in the south. There are real estate agents waiting tables like actors it is hurting so  bad.

So sellers should prey on human nature. If a real estate agent is having a bad year but has a buyer, don’t you think their is the slightest chance they may look in the MLS and sort homes for sale by buyers commission? And if your home has an extra incentive in it for them that they may just happen to show your house even if it is not the perfect fit in a down market? I have never seen a home sell without a buyer, have you?

I am not glorifying the real estate agents with this post, but I am recognizing they are human. And if it takes a little motivation to get your home shown in a down market, then good for you. Here is an example of this from an article in the St. Petersburg Times.

With home sales less than half of what they were during the 2005 peak, you would think commissions would shrink. Underemployed agents are chasing a dwindling number of sales. But just because you can bargain hard on commissions doesn’t mean you always should. Think of it this way: A commission is prize money. All things being equal, a buyer’s agent will show a home paying a 6.5 percent commission to one paying 4 percent.
That’s why I sweetened the pot by offering an extra 0.5 percent for the buyer’s agent. Compared with other homes for sale in my neighborhood, my commission was the highest. Less than two weeks after my agent and I signed the contract for 6.5 percent, we had a deal on my house. An acquaintance living nearby who offered 4 percent hasn’t sold his house in a year.via SF Gate

Now for a little math to help you decide this may be the right way to go. Let’s say you are selling a $250,000 dollar home. The commission at 6 percent is $15,000. If you added a 1% bonus to the buyers agent the commission would be $17,500, a difference of $2,500. But it would also put you at the top of the chart on buyers commission paid in your community and odds are you house would be shown a great deal more than others in your price range.

If you sold the home a month quicker you would be very close to breaking even at a 6.35 percent mortgage and typical utility and tax costs added in. And you would have a home sold in a down market which in itself is no mean feat.

So my advice to motivated sellers. Sweeten the buyers agent commission. Prey on the greed of the real estate agents. You are not being taken by the real estate cartel by offering a better commission. Instead you will be putting yourself ahead of the other homesellers and may have a better chance in selling your home in a down market.

When housing prices were running up, present homeowners started counting their chickens and planning their retirement. But what is forgotten once the bloom is off the rose as it is now, that these high housing costs also have their costs.

When looking around Long Island as a young man in my early 20’s the though of moving out was enticing, but the reality was grim. The dearth of rental properties meant that an illegal basement apartment was my only choice besides staying with Mom and Dad. This situation was replicated for many of my peers and the result was a mass exodus across the country and a generation lost.

Now after the present run up in housing costs, their is a new generation that could be lost from the New York suburbs. With the terrific education that is offered and the expectations of success, the cost of living in the tri-state area is burdensome compared to lesser cost cities where the paychecks are fairly comparable.

Long Island’s Newsday ran an editorial on the failure to have reasonable housing available for the next generation of Long Island’s youth.

Towns and villages that have not yet done their fair share of next-generation housing have to get off their duffs. The major institutions pushing for change, such as the Long Island Association, Suffolk County government, and the Long Island Regional Planning Board, must harmonize their strategies and avoid working at cross-purposes.

The people who need this housing most, young workers, have to become more informed and more active in pushing for solutions. They should emulate the spirit of the young families of 60 years ago, who showed up in droves at 1947 hearings leading to a change in a Hempstead town ordinance. That made possible the postwar generation’s affordable housing triumph: Levittown.

We have to get past the deeply held fear that more dense patterns of development will urbanize all of Long Island. That fear is rooted too often in racism and fertilized too eagerly by politicians. But increased density, especially in our downtowns, is the economic incentive we need to get developers to build affordable homes and rental units. via Newsday

The same issue was raised in New Jersey in an editorial. The youth of the communities are leaving in droves.

The most common reasons cited for the mass exodus are our state’s highest-in-the-nation property taxes and the crisis of affordable housing — two issues Gov. Corzine and our state legislative leaders promised to tackle in 2007. They promised to address taxes through property tax reform and an overhaul of our unfair school funding system. They promised to address the housing crisis by creating more affordable units and reforming our fair housing rules, including confronting the shameful practice of regional contribution agreements (RCAs), the loophole that allows wealthy towns to pay poor communities to take more than their fair share of affordable housing. via APP.COM

This issue is close to my heart. I still remember the conversations close friends and I had about how the choices seemed to be on Long Island in the mid eighties that you could buy a house or have a child with the newly wed couples. Now these same friends live all across the country, very few staying on Long Island. My fear is that another generation will be in the same predicament.

One of my biggest fears is that politicians are going to try to soften the blows to the housing market over the next election year. I have preached about the law of unintended consequences and I truly believe that almost any action out of Washington will create more heartache rather than less.

Writer John Baden is able to put it into terms much more eloquently than I can, but the general thoughts are still there. Essentially, stupid people made stupid loans to stupid people. Undoing this mess is going to be painful, but like pulling a bandage off, faster is usually better. A long drawn out affair softened by government intervention will just extend and compound the pain the housing market will feel.

A society’s economic success is increased if it has sure and quick ways to accomplish this separation, however painful to those who suffer losses. While there will be political pressures to buffer folks from the consequences of economic folly or bad luck, it is socially dangerous to do so. Reality checks should have force, so that those who fail to prudently manage resources will not keep control over them.

My banker friend and FREE board member Leon Royer recently wrote: “Too many people (borrowers, bankers, investors and investment bankers) have done too many dumb things for this situation to be resolved without substantial pain disbursed over many folks. No optimistic happy talk will change the curing time; it’s likely measured in years.”

Economist Peter Linneman nailed it more harshly in “Making Sense of the Current Capital Markets Disarray.” He observed: “As for the idiots who lent (often without down payments or documents) to the idiots who bought speculative homes, they deserve to lose. People must understand this simple fact.”

Our pressing danger is not that many folks will go broke, but rather that opportunistic politicians will bail them out and insulate them from past and future folly. We need to find and support those who instead recognize the ecological question: “If correction is not swift, then what will follow?” The longer we wait for a correction, the more massive and painful their suffering — and ours — ultimately must be. That’s the way the world works. via TCS Daily

The cost of heating your home has a great deal of variables. Obviously heating ones home in Atlanta, Georgia is less expensive than in Buffalo, New York. But did you know the cost of heating your home varies greatly in the northern cities as well. Due to government taxes and distribution costs, natural gas can vary in price drastically depending on which state you live in. The same is true for heating oil.

Then their is the age of construction that homeowners have to deal with. Older homes that are more drafty and use heating oil will cost more than a new construction with natural gas. So Washington DC in a more temperate climate will cost more to heat a home than New York City because most of DC is heated with electric heat, while New York is using the less expensive heating oil.

Top 10 Most Expensive Cities To Heat Your Home - Winter 2007 - 2008

1. Boston, $1,635.94
2. Buffalo, N.Y., $1,618.27
3. Minneapolis, $1,475.11
4. Washington, D.C., $1,461.11
5. Philadelphia, $1,370.12
6. New York, $1,269.14
7. Cleveland, $1,154.77
8. Detroit, $1,149.12
9. St. Louis, $1,058.72
10. Denver, $1,053.91

via Forbes

The fortunes of the national housing market and Wall Street have had an inverse relationship over the past decade. When the tech boom was occurring at the end of the 1990’s, investment in housing was stagnant. Then the combination of 9/11, the ending of the internet boom and subsequent stock market created the recent surge in housing that lasted through 2005.

Sales of existing homes plunged 8 percent in September to the slowest annual pace in nearly a decade. The report did not bode well for the overall economy, and at first stocks dropped on the news.
But the data also bolstered hopes that the Federal Reserve would cut interest rates again when it meets next week, making it easier to borrow money. Just the possibility of a cut was enough to erase the morning’s declines and send the Dow Jones industrials to a flat close.
It is still far from certain what actions the Fed will take at its meeting on Tuesday and Wednesday. A resilient job market, a narrowing trade deficit and strong retail sales all point to an economy that is weathering the subprime mortgage crisis and may not need federal intervention.  via New York Times.

The stock market broke out of it’s slump in 2004 and has been tracking upward since, just as investors we running from the housing market and interest rates started to climb. Now Wall Street has been seeing historic highs as the housing market is in the depths of depression. Where will the investors go?

My bet, they will stay in the stock market till housing hits it’s bottom. Then, as interest rates and housing prices have declined, they will return to the housing market and stabilize the inventory. You have to remember that the overhang of inventory in the housing market was built for the investor class to trade, not for the demand in housing units to be lived in.

The investor class in the United States has grown tremendously over the past few decades. Instead of a small part of the population able to make investment bets, a large part of the population now has cash and assets that can be invested in their 401k’s and other saving plans. This money moves quickly and is not reliant on a few fat cats making big moves.

So when the trend is to get out of the stock market and into housing as everyone was saying in 2001, the masses did. Then conventional wisdom said to get out of real estate and back into stocks. The housing market slumped as Wall Street roared.

One of these days the word will go out, Wall Street is dangerous and housing is where the deals are. Then the tide will turn and the new investor class will buy up all the REO properties, pricing will go up pulling those on the edge in bad loans out of their troubles, and every real estate agent will be proclaiming their genius as homes will be selling like hotcakes.

Real estate is not just for living in now, it is part of the economic market for the American investor. That means we will see greater swings in valuation for both the homeowner and investor. We are just living in a new paradigm and yet to recognize it.

Nuemann Homes, one of the largest homebuilders in the Midwest and Denver has declared bankruptcy. The company has been building in some of the worst markets in the country including Detroit and Denver so this can not be big surprise to anyone.

In fact, Nuemann probably gets what it deserved. They acquired Tadian Homes in 2005 at the peak of the housing boom. Normally this could be excused, but Tadian builds in Detroit which was (and is) mired in a housing collapse of epic proportions. And whomever sold the idea, “Hey, the auto industry is laying off hundreds of thousands, lets go grab a bunch of market share in Detroit” should both be shot and hired at the same time. Shot because their business sense is so wrong, but hired because they must be a heck of a salesman.

Add to that being a major player in Denver which is another city hard hit by the housing slowdown you have the recipe for disaster.

Neumann said it will file for Chapter 11 bankruptcy and that its lenders have agreed to provide limited additional funding so that its assets can be evaluated and sold. It also said the earnest money of customers whose new homes haven’t started construction is safe in escrow. Neumann said it will ask a bankruptcy judge to approve refunds from those accounts…
“The market downturn in the Chicago and Denver housing markets [is] now in excess of 50 percent, with home prices dropping from 10 percent to 25 percent in some sub-markets,” Kenneth Neumann commented in the fax. “Even after the significant help we have received from our lenders this year, the company can no longer weather this storm.” via CHICAGO SUN-TIMES