Sexy Sadie

Let us all have a moment of silence for the passing of the Maharishi Mahesh Yogi.

For those uninitiated, he was the "guru" of The Beatles in 1968. Because of their trip to India and their sojourn into transendental meditation, made popular and Westernized by the Maharishi, The Beatles had a time of R and R that was much needed. Also, because of the cleansing of their bodies and minds and the opening of the mind, they wrote prolifically during that period and released an almost unprecidented double album know as "The White Album". The album cover itself was shocking in its absolute stark whiteness, except for the embossed words "The Beatles" along with a serial number. The white cover was a reaction to the complete and total image overload of the previous album "Sgt Pepper's Lonely Hearts Club Band."

At the time of the recording, their producer, George Martin, tried to talk them into gleaning only the "best songs" and shelving the rest. But by then, the lads were feeling their oats and insisted upon the whole enchilada. When asked decades later about that decision, Ringo said, "I always thought it should have been released as two albums, The White Album and The Whiter Album." We love Ringo.

Which brings me to the topic of improving. Can you really have too much of a good thing. If a little is good, isn't more better? Maybe when it comes to the Beatles, but not when it comes to improving a home.

There is a movement in these days of foreclosures whereas the people who buy investment properties are having a field day. Especially if you are a handy person and like to fix things yourself. Now if you are slum lord and are just looking to flip a house or move in some unfortunate soul, then you can change the channel now. However, if you are a fixer-upper kind of person please try to restrain yourself. Here's why:

Say you find a bargain for $35,000. It is run down to the max but has good bones and a good foundation. You want to make this home a showplace; clean, neat and so sweet. New siding, new windows, new porch, refinished floors, updated plumbing and wiring, new kitchen, added bath, fresh drywall and insulation in the attic. Now you are the proud owner of a fabulous house. But, and this is a big but, the other homes in the neighborhood are only worth $80K. Ooops! All that work, time, money and pride of workmanship and you are stuck with a white elephant. Would you pay $125K to live in a $80K neighborhood? Doubt it.

The other scenario deals with the seller who is extremely house proud. They built the house themselves, sometimes even with their own hands. They have a gourmet kitchen with stainless steel appliances, wood floors, jacuzzis, custom woodwork, hand built cabinets (sweated over for months in their own woodworking shop) personalized touches everywhere. A year later, they realize that they need to retire to the sunny climes of Florida. They have put their blood, sweat and tears into the house and they know it is the finest home around. And they are right. And here's that big BUT again, a comparable stock home typical of the area goes for waaaayyyy less. But these homeowners are ssoooo proud that they can't imagine why someone wouldn't want to pay for all of their good taste.

So yes Virginia, you can overimprove. Which is not to say that you shouldn't do all of the above. Just remember that if you do, do it for your own enjoyment and not with the idea of raking in loads of mula when you sell.

Rule of thumb; white elephants don't turn into White Albums.

All I've Got to Do

I hate to go on and on about the slump in the housing market, but I will anyway. The economic news has stated that housing starts were at an unprecedented low last year. So what does that mean? It means that builders aren't building because buyers aren't buying. "Housing starts" is not the only way you can tell that the market is down but it is one of those "economic indicators" that economists must use because they can't call all of the real estate companies in the country and say, "Hey! How's business!"

Housing starts is like the unemployment rate, the cost of living, the stock market, the rate of inflation, the gross national product, the national debt, ad nauseum. The bean counters have to count something so they make little charts then count the little dots. I'm not saying that these indicators are not useful, they are. But they can be a bit misleading because they are averages for the country. Every region, state and community are different. Look at Detroit. Car manufacturing has been slipping for decades and the place is drying up and blowing away.

One of Wilmington's economic indicators that I have noticed is a new little subdivision that used to be the hottest thing since sliced bread, canned beer and indoor plumbing. Three years ago, those houses were going up almost overnight and selling just as quickly. They were priced for the upper middle class family and for the upwardly mobile. I drive through that area now and it looks like a ghost town. There is an unfinished street, empty lots full of tall weeds, piles of construction debris, new construction that has never sold and empty homes whose first inhabitants have moved on only to abandon the house to the vagaries of the real estate market.

Gee, I sound like some armageddonist. But if you are going to sell real estate these days, you have to get real (no pun intended) then don't take anything for granted. When things are slow, you don't just sit back and prop your feet up. You must work even harder.

For the first time in my real estate career, I have invested in marketing books. I have always eschewed the inspirational writers and speakers because they sounded so slick and evangelical to me. So one of the books I purchased has true funny stories of sales people's blunders then an analysis of what went wrong. The other book has business letter templates for marketing, prospecting and follow-ups. And...I have actually been using them, not just trying to learn by osmosis.

So far, no good. But if you keep doing what you've always done but expect different results, you are clinically insane. You may be right, I may be crazy. But it just might be a lunatic someone is looking for. And when that time comes, I can proudly stand up and say, "I'm a lunatic! Let me sell your house!"

I think I have internalized the sales blunders. Ooops!

You Really Got a Hold on Me

The housing market, once again, is making headlines. Well, if you don't count the State of the Union Address, which I don't. Here are some recent news blurbs concerning the State of the Housing Market, which will continue to effect us all. Much more than some lame duck.

"Make housing part of stimulus, NAR Says...The federal economic stimulus package under discussion by President Bush and Congress should loosen constraints on Fannie Mae and Freddie Mac to help make homeownership more widely available to households, NAR says. "Any stimulus package must address housing issues and increase the conforming loan limits for these two government-sponsored enterprises," says NAR President Dick Gaylord. NAR has been calling on Congress and the administration to increase the loan limits for Fannie Mae and Freddie Mac from the ceiling of $417,000 to $625,000. Doing so would reduce the supply of homes on the market by more than a month, strengthen home prices by 2-3 percentage points, and increase economic activity by $42 billion, NAR estimates. Foreclosures could also be reduced by 140,000 to 210,000 and result in an additional 348,000 home sales. )"- The Ohio Association of Realtors.

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080129&id=8105059

Above is a link to the news about CountryWide, the well known controversial mortgage lender. As you may know, it was purchased by Bank of America. For good or evil? You decide.

'“It looks to me as though maybe we haven't reached the complete bottom yet, but we're in the bottoming phase right now,” he said.
But the latest data don’t help forecasters much. Since July, the median price of existing homes has trended lower, but it ticked up slightly in December. And while sales volume began perking up in late 2006, a 0.8 percent drop in last month has some analysts rethinking the notion that the market had bottomed out.
“I still think there's further downside risk,” said Richard Berner, chief U.S. economist at Morgan Stanley. “And the reason is that it has become a buyer’s market with the imbalance between supply and demand both for new and existing homes out there.”
The supply of unsold homes — which soared to more than seven months worth of inventory for single-family homes from four months at the start of 2005 — has come down a bit. But it’s not clear whether the market is getting back on its feet or sellers have decided to pull their homes off the market and try again when the market improves.'- By John W. Schoen Senior Producer MSNBC updated 6:34 p.m. ET, Thurs., Jan. 25, 2007.

More gloom and doom? Well, we need to be realistic. The single largest contributing factor in the housing slump is the simple principle of supply and demand. Of course, why there is more supply than demand is a bit more complicated. Foreclosures and the threat of foreclosure, due to greedy lenders and a false sense of security amongst them, has contributed greatly to the glut on the market.

The Fed recently lowered interest rates by 3/4% and it is rumored that there may soon be another 1/2% decrease. What does that mean to mortgage rates? Diddly. That lowered rate affects what one bank lends to another, sometimes to increase their on-hand reserves which is mandated by the Fed. Sound like a game of round robin. Yep.

So, if you have bad credit or no money to spend, the interest rate means nothing to you.

But hang in there, folks. If you are in trouble with your credit card company, you can call them and negotiate a different interest rate or payment. The same goes for your mortgage lender. Call them. I can't reiterate that enough. If this whole mess is going to turn around, we have to take advantage of all resources. Every little bit helps. Don't wait for the ones with all the power and money to come knocking on your door to help you. They are only worried about themselves. YOU have to take charge, be brave and take charge.

Knowledge is power. Al Gore invented the internet for a reason.

Fixing a Hole

The real estate world can be a cold and lonely place. Okay, not so lonely, but our fellow realtors can be cold.

Unfortunately, my latest deal with Dumpster has ended up there, in the dumpster. Our back-up offer was tossed away like so much waste paper. I found out by accident that the first offer had closed already. I hate having to tell people bad news. I try to mitigate it with something a little positive, in this case with the hopes of looking at something else to invest in. Hopefully, (there's another word you'll be seeing often), I can find something else in the "crappy" category for my client. It's becoming more of a fixer-upper world out there and competition for pieces of crap is getting tough.

Speaking of which, the glut of fixer-uppers and foreclosures out there are bringing the sharks in, circling like blood sniffing flesh-eaters.

How do you keep from being devoured and plug the hole that is your sinking ship?

The mortgage industry is being persuaded (by a rather large stick) to throw a life preserver to homeowners that are going down for the last time. Part of that big stick is made up by the mortgage industry themselves because they do not and I repeat do not want to foreclose on a home. The other part of that big stick is the National Association of Realtors. Realtors have a lot of sway in their states through lobbyists (okay, that can be a dirty word) and by the fact that there is a realtor on every corner; we are a prolific lot.

Realtors are also taught, advised and asked to take a working interest in their communities for the betterment of us all. Some do it better than others (obviously), but the good ones not only want to see you get into a good home but they want to see you keep it. (Really!)

Even in better market times, the bank will work with you when you get behind on payments. The worst thing you can do is nothing. The more you ignore the threatening letters, the madder the bank will get.

Another thing to remember is that the bank does NOT want your house. Believe it or not, that is the last thing they want. In order to foreclose on your house, they have to pay lawyers to do a lot of research and draw up a lot of papers. They have to pay someone to go to the foreclosed upon house and weatherize it, winter or summer, so pipes don't burst or a leak doesn't develope. They have to pay someone to cut the grass. They have to pay a real estate agent to sell the house. At every turn, it takes money out of the banks pocket to own a house.

For that reason, it is in the bank's best interest to help to keep you in your home.

The first thing to do when you get behind is call the mortgage company or bank. If at all possible, talk to your old loan officer. They are nice people (most of them are anyway) and very knowledgeable about how banks work and what services they offer. If you can't talk to that person, ask for someone that has information on how to help you get back on a payment schedule.

At this time, there are several programs available through banks that are designed to either help you set up a payment schedule to get back on track or, in some cases if you qualify, actually funds on hand to pay your shortfall.

Hard times can fall on anyone at anytime. Most households in this country are one paycheck away from disaster and once you get behind on your bills, it is hard to get caught up. But you would be surprised at how many companies, from the utility company to your credit card company to your mortgage company, are willing to help if you just call at the first sign of trouble.

So, grab hold of that life preserver, put an arm through the hole and hold on. There may be a hole in the ship but it doesn't mean you have to go down.

She's Leaving Home

There should be no problems. Sounds like a line from "Westworld", remember the 70's sci fi movie where the promo said "Where nothing can go wrong"?

Well if something sounds too good to be true, it usually is. In our little scenario where Mr and Mrs Jones wants to buy a house, there was really nothing wrong with each response they received - "no problems". But the cumulative effect can be devastating.

First of all, the bank is willing to make a sub-prime loan. Sub-prime means that it doesn't meet the minimum requirements set so that a loan may be federally insured. In theory, there is nothing wrong with that. But what is happening now is the high default rate because the whole economy is slowing and people's living expenses are going up or they are losing their jobs so they can't make their mortgage payment because the bank had to charge a huge interest rate in order to insure that they make some money incase someone defaults so the bank forecloses but they have lent more than what the home is worth because the price is inflated due to the added closing costs and the previously hot market so the bank can't sell the house and get their money back so the bank loses money so they tighten their lending practices so the little guy can no longer get a loan and the big guy is trying to get out from under their big balloon payment which is a large sum of money due all at once but no one is buying a McMansion because they cost too much to heat because fuel prices have gone up and the baby boomers are downsizing because they are empty nesters and want smaller homes so the big houses are sitting so the people that are trying to sell them are having to take a loss because of the glut on the market of large homes and the new mid-priced homes are sitting because of all the new subdivisions that popped up due to farmers not being able to make a living so they sell off road frontage or whole farms and investors sucked them up because the land was so cheap then they have to make a profit so they sell lots to builders and the builders build until there are too many new houses so the builders stop building and their construction crews get laid off and everyone is selling and no one is buying so there is a glut on the market so a buyer has an advantage because if one person won't come down on their price someone else will so prices start to drop what with the law of supply and demand and with all the empty foreclosed homes on the market seasoned investors and first time investors are looking for a bargain to fix up to sell or rent then everyone thinks that houses are out there for the taking and they don't want to pay anything close to what a home is worth but people still have to sell so they end up owing more than what they can sell the house for which results in negative equity also known as being upside down so the seller actually has to bring money to closing which amounts to almost paying someone to take your house and with fewer sales the title companies don't have closings so they end up closing their doors and the mortgage broker has no mortgages to broker so he goes out of business and realtors can't sell houses because of the afforementioned conditions and you wonder why the housing bubble burst?

But now the banks are getting real and have started putting programs together to help people stay in their homes because it is expensive to foreclose..........

HELP! is really on the way, I promise.

Because

Whose idea was it to call August "the dog days of summer." Obviously this dog is doing quite well, thank you.

The transaction that I am putting together for Dumpster, which involves the commercial property, has taken a leap forward. It appears as though the buyer who had a back up offer and got first offer when we couldn't obtain financing in time may also be having problems with financing because it hasn't closed yet. I had advised my people to continue pursuing their financing and by Jove they got it. So we may yet be able to bump the usurper off the top of the heap, darn him (or her)! Sometimes it is a dog eat dog world (there's that "dog" comparison again) and the one with the milk bone shorts gets the short end of the stick. (I can't seem to get away from all these cliches so I think I'll move on........)

So, the firey dragon of foreclosure is breathing down your neck. How did you get here and how can you get out? Well, if the bank is after you I would place odds that you bought your home sometime within the last 4-5 years. Money was cheap, plentiful and easy to get. And even though previously I stated that the housing "boom" was not the same as inflation, it bears a keen resemblance. Lots of flowing money causes prices to go up.

Here's an example: Because you want to buy a home, you go to the bank of your choosing. While you are sitting there, they pull your credit. Because you had an illness a couple years back and hadn't adequate insurance, you have some outstanding bills. Also, during that illness, because you got behind on your credit card payments, you incurred several late fees. Mr. Banker, "I see you have some credit issues, but if you write down the reasons for me I will submit them with your application. There should be no problems."

"Great!" you say. "Where do I sign!"

"Well, there is something else......."

"You mean I can't get a loan?" you ask.

"Oh, but of course," answers Mr. Banker. "But we have to charge you 8.5% interest instead of the regular 5.85% and the seller will have to give you some money towards closing costs, but I'm sure there should be no problems."

And because you and your wife and baby so desperately need to get out of that tiny apartment, you sign on the dotted line.

So, you walk into the neighborhood real estate office.

"Hello, may I help you?"

"Hello. We would like to buy a new home."

With dollar signs shining in Ms Realtor's eyes, she says, "Please have a seat. Now, Mr. and Mrs. Jones, are you pre-approved for a loan?"

"Why yes!" you both answer in unison, beaming. "Here is our letter right here!"

Ms Realtor glances over it. Everything looks in order but the seller will have to put some money towards closing costs. Mr and Mrs Jones obviously don't have any savings account. And because Ms Realtor needs to pay her own bills, she smiles and says, "There should be no problems. Let's get started!"

And the big day arrives! Mr. and Mrs. Jones close on their new home. They paid $150,000 for it but because the seller had to pay some of the closing costs that would normally be the responsibility of the buyer, they had to add $5000 to the purchase price now making it $155,000. And the high interest rate makes the payment, $1200, a stretch.

Stay tuned.......

Help!

Unless you are living in a hole, you are aware that there are a record number of foreclosures across the country. If you are living in a hole, it might be because you have been foreclosed upon. And if your head is stuck in a hole in the sand, you might very well end up in foreclosure.

The state of Ohio has the dubious distinction of being number one in the nation in foreclosures. There are many factors; stating that the housing bubble has burst is putting it much too simply. What caused the bubble to burst.

Banks, realtors, bankers, home buyers, home sellers, bankers, mortgage companies, government regulations, lack of government regulation. Oh, did I mention bankers and mortgage companies?

In other words, we all had a small part in it if you have been involved with buying or selling a home in the last 3 years.

Realtors:
Hindsight is 20/20. If someone walked into our offices and wanted to buy a house, we didn't care how or why the mortgage company lent them money, we just sold them a house. I have been guilty of this and have even gone so far as to tell young couples that money was so easy to come by that their dog could get a loan. Half in jest, full in earnest.

Banks, bankers, mortgage companies:
Come on guys! Did you really think that someone making $40,000 a year could afford a $300,000 house?! During the last 3 years, banks seldom looked at ratios (your income in relation to your debts). All they wanted to see was your credit score also knows as your FICA. [Credit scores are based on your ability to pay back money, ie make monthly payments on time. So theoretically, if you owed a million dollars, the bank didn't care as long as you made your payments on time.]

Also, the banking industry came up with all kinds of "creative financing" designed to get you into just about any house your little heart desired. Interest only, balloon, adjustable rate, no payment for an extended amount of time (then they hit you big). More on all of these terms later......

Buyers and sellers:
Okay, so its natural for everyone to want a place to call their own. It is also natural that if someone is willing to give you money, you will take it. So if a buyer can give a seller money, the seller will stand there with their hand open. And the more money to spend, the more was charged. (Do NOT confuse this with inflation.) This phenomenon caused a little condition known as "getting upside down." Sound uncomfortable? It is, especially if it involves your pants pockets being open whilst you are being hoisted into the air by your ankles. More on this condition later.......

Bank regulators vs de-regulators:
Think about the Savings and Loans scandals of 20 years ago and make up your own mind. If you are less than 2o years old, ask a grown up.

So, if the foreclosure dragon is breathing down your neck, HELP! is on the way.........