Keeping The Statistics Straight

Another bothersome day in the struggle to gauge the real estate market. This morning's real estate "headlines" contained 2 separate stories. One about "home sales up" and another about "mortgage applications down". And both covering some of the same time period.

There are a couple of problems here. Home sales being "up" is only if compared to one year ago. Mortgage applications being "down" means that fewer people are applying for financing. That is not a reflection of how many (or how few) were turned down for a mortgage. The statistic is based on the number of applications and not the results. Hence, some will be turned down and the number of closings will be even lower.

This constant comparison of real estate sales statistics compared with one year ago or five years ago is not doing anyone any good. Well, except for those few who get paid to research these comparisons, since it keeps them employed. I have yet to learn of anyone who has attempted to purchase a home or a property based on what the market was like a year ago.

Now it appears that mortgage rates are headed back up, even though these are still rates much lower than they were a couple of years ago. Some people will panic over this, as if it spells doom. However, it reflects times of years ago when mortgage rates were at least 2% higher, yet more proerties were selling.

Meanwhile, I have been hearing the "It's becoming a sellers' market" crap coming from more and more realty agents within the past month. This is hard to swallow. If homeowners start to believe that, we'll have a flood of people looking to list their homes at much higher prices than they should be. And some agents who will go along with them in order to get the listing. If it doesn't sell, they (listing agent) don't lose out. Practically every home owner would sell if they got an outrageous enough offer.

What that does is harm the truly motivated sellers out there, already competing against the foreclosures and distressed properties dominating the market.

And what that does is keep things as stagnant as they have been for the past two years.

So help me, I had an agent in the Phoenix area tell me that the current inventory of available homes there "has dropped to 15,000" and how it signals a "sellers market" their. I have no idea how this could be, considering that if I were looking to buy in that area, there would likely be hundreds of homes to choose from in the price range I'd be looking at. Before the rest of the neighborhood decides to list their homes too. Frankly, there would need to be at least one less zero in that amount for me to even think of that being a "sellers market". I wonder how many different states one would have to research before finding 15,000 serious and qualified buyers for a home.

After all, if there were that many potential buyers in Phoenix, there wouldn't be time, or the need, for all of the meaningless statistics about home sales. Unfortunately, this isn't anybody's market at the moment.

Bank of America Plaza Goes To Foreclosure

It certainly seems as though the reporters are overlooking the irony of this story. It seems that Atlanta's "Bank of America Plaza" is up for foreclosure, and it is the tallest building in the city.

This would be newsworthy even it not named after a large bank. However, the fact that it IS named after this Bank is what makes this story so interesting:

http://www.ajc.com/business/bank-of-america-plaza-1299819.html

There are several questions not being answered in this as well as other articles I have read about this, sense of humor aside. If B of A has naming rights and is a prime tenant there, how and why is this building in this position?

Shouldn't this be B of A's responsibility to bail it out? After all, the government chose to give B of A a lot of money when it tried to bail out the banks (instead of repaying certain loans, but that's another story) a couple years ago. So how do we justify B of A not taking the lead on this one?

There are numerous tenants in that building without financial difficulties that will likely be forced to relocate at their own expense because of still another bank having financial difficulty.

Here's hoping that an investment group with deep pockets gets this building at a bargain price, and becomes B of A's landlord. Time for a significant rent increase!

Home Sales vs. Home Prices

The negative statistics about the current state of real estate continue day after day. Instead of any positive ones. Yet, over the past few days, I have been seeing more and more stories about the drops in home sales prices be presented in a positive light.

As much as I have been preaching the need for positive stories dealing with real estate, I also preach that these should be legit stories. Yes, home prices are generally dropping even further in much of the country. However, that doesn't mean it is a positive.

The point is being made that more recent drops in average home prices are not as much due to foreclosures and short sales as they have been over the past couple of years. This is being treated as a positive. I'm not certain that's the case.

That fewer homes seem to be getting foreclosed upon is certainly a positive. But that is not enough to group this fact with others relative to home sales.

Home prices being much lower than 5 years ago is not a positive for a large group of home owners around the country, perhaps the majority.

Even though foreclosures are down now, there are still a ton of homes around the country for sale at foreclosure or short sale prices. Those are in addition to distressed properties practically abandoned by builders and developers. The mere availability of this many properties at lower prices serves only to bring down the value of the homes surrounding it. And that is not a positive for more people than the number who can buy under current market conditions.

Too many home owners are right now stuck paying more than the property is now considered to be worth, and are under water with their mortgage. They cannot sell "for less". If they take a loss and have to write an additional check at the time of sale, there is no money for a down payment and to finance a new purchase. So there is no choice but to wait until or unless the local market returns to the point where they could get a price high enough to justify selling it.

Meanwhile, many who would like to take advantage of the buyers' market out there cannot. The availability of mortgages has gone full spectrum, from having been too easy several years ago to being way too difficult now. And that's for those who can even afford a sufficient down payment.

The same banks which contributed to this crisis are now cutting back instead of getting in there and actually (gulp) helping their customer bases. They are loaning on fewer properties, cutting back or eliminating options such as reverse mortgages, and sitting on defaulted properties they technically own due to foreclosures.

As a result, the banks are really a big factor in keeping home prices down, just as they are in keeping home sales down from where they could be. With no end in sight.

If only the news media would keep all of this in mind when reporting the "positive" news about the current status of real estate.

Would Outside Incentives Help The Purchase Market?

Some realty firms and builders have stepped up efforts with offers of an incentive, often worth thousands of dollars, to buyers upon closing. The trend seems to be leaning toward the incentive being something not specific to the property.

Offering or giving an incentive to a buyer is nothing new. In the past, it might be new furniture, a big screen TV, or some sort of a services discount or gift (i.e. free maid service for 3 months).

One big difference with incentives now is that many more are offered to buyers, whereas in the past it was often incentives to realty agents who brought the successful buyer. Even though it was about 20 years ago, I still remember a time I was doing a marketing presentation at a realty association meeting in the Los Angeles area. While waiting, several agents were pitching new listings they had to the other agents in order to draw attention in a then hot market.

The owner of a realty office with about 12 agents got up, pitched one of his listings, and then promised "an additional $5,000 in commission on a sale from any of you who get me an offer by 5:00 PM today". Now that was "creative selling" at its best!

Of course, at that time, his purpose was to attract attention to his listing and make other agents remember it ahead of hundreds currently available within the same area. And attract attention he did. Yet, the eventual buyer of that home had no clue. The "incentive" was used effectively where it needed to be.

Recently, I have seen sellers, realty companies, and builders offering some interesting incentives to the actual buyer. These range from a pick-up truck to installing hardwood floors. Some are specific to the property, others are geared toward the buyers.

A realty company in Birmingham AL offered a 4-year tuition to the University of Alabama Birmingham Medical School (over $22,000) with the purchase of a unit in an upscale development. The Birmingham News reported there were no takers. (On a separate note, that incentive was stopped. That was dumb to stop it. They should have continued it since not many other incentives are valued at more than $20,000, and if they got a "taker" the local and national publicity it would have generated would be worth far more than the amounts paid out!)

I also saw a news story about a seller who allowed the asking price to be reduced by $2,500 per week for several weeks.

In an active real estate market, such methods make sense when the idea is to make "your" property stand out. Agents and builders want buyers to consider their property ahead of others they are looking at. Of course, this assumes there are plenty of active buyers out there.

That's the difference. Right now, thousands of dollars worth of incentives don't matter nearly as much when people who want to buy can't get a mortgage and/or can't sell their current property to guarantee a move. Unless they are the right incentives.

For many, the "right" incentive would be a buyer for their current property so that it can lead to the next sale, or being able to get better financing for a first-time buyer.

Somehow, there has to be a way for "regular" sellers to compete against the foreclosures and short sales. But first, we need for buyers to compete. Period. The fact that there continues to be so many foreclosures and short sales on the market tells me that there people are not buying, even at lower prices.

Until people and investors can start buying a serious number of properties, a big screen TV or a pick-up truck won't make a difference.

What happens in California stays in California

What happens in California sometimes stays in California, and sometimes it doesn't. It is way too soon to tell with regard to The California Foreclosure Prevention Act that took effect last week.
The intent is to require mortgage lenders to prove they worked with the homeowner to make a loan modification before they can begin foreclosure procedures.

This is with all the best of intentions. Yet, already there are 2 schools of thought on this.
One is that it could provide enough options to make a difference and prevent some people from losing their home and somewhat reduce the number of foreclosures. This in turn helps to keep property values higher when an area has fewer foreclosures to pull down the average home price.

The other thought is that not everybody facing foreclosure can be helped enough to make a difference and that is only delays the inevidible while costing the owner facing foreclosure more time and money.

Similar measures have already been attempted in California over the years and, obviously, were not completely successful. This time around, people from other states will also be monitoring to see if there is any (or enough) positive impact on the marketplace over the next few months. If there is, look for other states to look into this.

Meanwhile, I have seen several stories and heard from a few different sources which are not endorsing many of the "loan modification" programs now being made available. It appears some are being started by people looking to make a fast buck at the expense of home owners too stressed out to take a serious look at the potential long term impact of a loan modification.

Whatever your feeling, it is important to note that consumers do not pay for a legitimate loan modification program if and when it really does make sense. There are some web sites and advertisements out there looking to confuse consumers into thinking they need to pay an up front fee to get a certain loan modification program. Not true.

Legitimate entities, such as some banks, offer a loan modification program with no up front cost since they understand that those in need to not have the funds needed to preserve their current mortgage. Keep that in mind.

You may have noticed that some lenders are now offering a 40-year mortgage in addition to the conventional 30-year. They make it look appealing for the short term by showing monthly savings sometimes as much as $200 per month above the 30-year. However, some 40-year mortgages require an upfront payment to implement. When factored out, it reduces the monthly savings. For example, a $2,000 fee to save $200 per month comes out to $167 per month for the first year. Do the math with those figures and it amounts to a $33 per month savings for the first year. Without knowing what mortgage rates will be like in 1 year.

If you respond by saying "but in 1 year I could refinance", you would be right, but you would also be faced with still another fee to refi. That assures you would have spent to save a bit more than $1 per day.

Note that this is only for the short term with a 40-year mortgage. For the long term, needing 10 more years to pay also serves to increase the amount of interest you would be paying on the property.

Put this all together and it shows why financially challenged home owners should explore other options besides a loan modification to prevent foreclosure and to hopefully maintain (or not decrease) their credit status.

It becomes time to not be concerned about a profit and to be concerned with getting the loan balance paid off. If the house is valued at $300,000, but there is $200,000 left on the loan, the distressed owner would be out of his/her/their obligation with a sale for $200,000. A potential buyer, and it only takes one, would be more apt to "steal" the home for $200,000 than to wait until the $300,000 asking price comes down to $250,000 in 3 months.

The seller frees up the obligation, and could then rent or live within their means for as long as needed.

With single family home auctions now available through which the seller has a right to refuse the "winning" bid, situations such as this are now possible.

Simply put, it does not need to cost any more to avoid foreclosure.

Bank on this one............

Some banks and S & L's, including large ones, have been closed and/or taken over as a result of faulty and defaulted real estate loans.

In an ironic twist, there is a story making news about a Florida market having to deal with buildings which once housed a prominent local bank going unused, and stuck with tax assessments and other funds owed.

http://www.bradenton.com/business/story/1154871.html

This story has a scary element to it, as well as a funny one.

Personally, I see this as a management issue. Before this particular bank went belly up, maybe the matter of the buildings they owned, taxes, and the real estate obligations of the bank itself should have been dealt with. Now, this has become a blow to the local economy.

There are those who believe, as I do, that the best solution to the real estate crisis would have been for the government to specifically pay off each of the defaulted loans directly, rather than in the form of a bailout.

If local government can't handle the effects of losing a once prominent local bank, then chances are the money handed out via the "bailout" plan will be just as mismanaged by our collective elected officials.

The homeowners or loan owners that defaulted have already suffered the consequences. But if the government has "bought" those loans and owned the properties, the banks that loaned on them would have survived - and undergone immediate policy changes so this wouldn't happen again. And specific people would be responsible for wisely maintaining the continuing existence of these banks and lenders.

Ah, what might have been...........

good news or bad news???

Now that mortgage rates have dropped at least once a week for the 11th consecutive week, I am finally seeing reports from around the country of home sales being on the rise. That's a good thing.

Yet, now the media slant is such that they are often pointing out the reasons as being due to foreclosures and that many of the sales are at lower prices than in recent years.

As I have been harping about for months, some of the realty associations continue with the "problem" slant instead of reaching for every positive they can. The approach should be that now that home buying is becoming more affordable to more people and mortgage rates are reduced to near record low levels, this is the best buyer's market in several years. (!!!)

This story from Lansing is typical of what I'm seeing lately, with the "but" home prices are down. Funny, but when they report on Wal-Mart's quarterly profits, I don't see stories about how "the price of the TV sets they sold are less than the 2007 prices" as a concern.

http://www.lansingstatejournal.com/article/20090114/NEWS03/901140352/1004/NEWS03

Detroit, going from "motor city" to "foreclosure capital of the world" offers this story as if the news is a mixed bag:

http://www.freep.com/article/20090114/BUSINESS07/901140347/1002/rss02

My approach would be that even in down times for the automotive industry, houses are being bought up in the Detroit area at a faster pace than the year before.

You see, a few word changes can do a lot for the public's perception. Those of you who are realty and mortgage professionals need to keep that in mind. Those of you who are investors or looking for a home should be doing your research right now in search of the best value out there within your desired parameters.