The Cycle

California: Budget Vetoes, Foreclosure Gluts, and Home Sales Surge?

2008-09-19T10:12:00.003-05:00

Yes, folks, it appears that there is a glimmer of hope in what has become the steepest decline in home values, and home sales, in many decades: "California home sales surge as prices plummet" is the headline, out of Brietbart.com, and it does appear that low prices are beginning to gain traction there, as "smart buyers" come out to bargain shop.

As they say in the investment world, the trend is your friend, and we'll see if this one spreads to the center of the country. The real challenge is no longer rates and prices, however, it is qualifying. Those who can qualify for properties have been bullying sellers all year long, and their game is only getting more lopsided. Sellers cry to their agents about how low rates are, why the buyers aren't crawling out of the woodwork, and why everyone is sitting on the fence. I used to think the buyers were just scared of buying depreciating assets - that is not the problem!

Prices are not going to appreciate terribly soon, but sales, that is, the total number of homes sold, is a far more important factor at this time. If prices fall into a range where more qualified buyers want to enter the market, we'll see that trend as our friend here in the Midwest. The market's greatest enemy is not plunging values, it is mortgage guidelines, and rate volatility. No one knows, and few purport to know, what the fallout will be from the financial market turbulence, and the Fannie/Freddie bailout. If things remain stable, prices will drop further, but sales will begin to rally.

Flooding... AGAIN?

2008-09-13T21:55:00.004-05:00

It seems like just a few months ago when we endured what August 24th, 2007 brought for some lucky property owners. If you don't remember, '07's flood burst the banks of the DesPlaines, the Fox, and the Kishwaukee. I dealt with tremendous flood damage at a property in DeKalb, which I've only recently finished resolving. I've heard literally dozens of stories about that flood - vacant homes flooded, recently finished basements ruined, closings derailed amidst damages, the list goes on...

I take flood watches far more seriously now, and I'd like to share a worry-reducing website I've come across - it's earned a prestigious "bookmark" in my blackberry: The Advanced Hydrological Prediction Service, as been the answer to my prayers when it comes to natural calamaties that make property ownership less, um, "convenient." Your community is probably not depicted on the map of Chicagoland - don't despair! Just figure out who is downstream, or upstream from your river-town, and there is flood-stage information about when to spring into action. This springs' momentous flooding that resulted in historic water levels in Cedar Rapids, Wisconsin, and even the Fox River, yet had no effect on my Kishwaukee property - that river remained at cyclically low levels. Had I not discovered this site I would have been driving to and from DeKalb to look at the river in absolute paranoia.

The Prediction Service offers information on the rate of water flow in the river, the height at which certain events occur (e.g. - when a certain bridge becomes impassable, when an embankment overflows, or even when a particularly noteworthy building gets flooded). Today I prepped my riverfront property for the worst case scenario, even though we should only get within 2 feet of the requisite flood level, and only within 4 feet of last year's high. I'm not taking any chances this year.

For those of you who just need to keep an eye on your sump pumps, I envy you. For those of us who have riverfront properties, lets do what we can to keep things dry!

Gas Prices to Spur Suburban Sales?

2008-07-09T17:05:00.002-05:00

An interesting idea was posed to me recently, regarding gas prices and the present real estate market in far Western Chicagoland. Here’s the theory:

a. Gas/energy prices are rising, and are likely to continue rising for the near term future.

b. Suburbanites often face a commute of 30 minutes to 1 hour in length.

.: Homeowners in the far suburban areas may sell their homes to move closer to work

AND

.: This will create a mini-boom in real estate sales (transactions).

I'm interested to hear what others think of this conclusion. I tend to think that gasoline will continue to occupy a manageable, if still painful, portion of these homeowners' budgets. More likely, I believe, homeowners will react to the cost by tele-commuting (working from home via phone and PC), trimming excessive and unneccessary expenses (eating out, entertainment, spa treatments, doodads), and saving and investing less. I believe that until this present real estate contraction is finished running its course, the number of transactions will continue to decline.

What would have to happen for the conclusion to be true?

The implausibility is a matter of liquidity, in my eyes. The challenge of selling in a downward market - particularly individuals who are leveraged (often 80% or higher) in an existing house - is sufficient enough a deterrent to such transient, knee-jerk behavior for homeowners. Furthermore, lending standards have tightened to an extent where most homeowners are required to sell their existing homes in order to qualify for another mortgage. Needing to sell in a far-suburban area, in order to buy in an area close to a business center, has terrible financial implications. Especially if others are following suit, en mass. Here's why: You need to sell a home in a market with a worsening price trend, and you need to buy a more expensive home (merely by virtue of location) in a market with an increasing price trend. You lose on both transactions, and you're swimming "financially upstream." If we weren’t dealing with 2 years of value declines in real estate this might not be as much of a problem, but it would seem to be an insurmountable one at this time.

Gas prices may be upsetting, and they may continue to worsen, but it seems that moving closer to work might have more obstacles than existing homeowners will ever desire to overcome.

Bipartisan Support for "Housing Relief"

2008-06-25T21:07:00.005-05:00

Housing Relief is pronounced quite differently than it sounds: "your taxes pay for other people's mistakes." Or, depending on your dialect, it might sound something like this: "your taxes pay for big mortgage lenders' failed subprime bet." And, last but not least, if you live in Illinois, you probably pronounce it this way: "you give your tax money to the state government to hand out to its friends who want to buy properties with state funds."

Any which way you wish to pronounce it, you're right, and it looks like it might just become law. As Investor's Business Daily puts it, the bill that passed the senate in an 83-9 vote, is a pure promotion of dependence for the fiscally irresponsible upon the backs of the fiscally responsible. The bill would flood states with funds to purchase distressed properties, creating a dreadfully hazardous situation wherein states such as Illinois would be ripe for corrupt actions (maybe an opportunity for a fresh start for Tony Rezko, once he emerges from prison).

Finally, this is a bill that has been heavily lobbied for by Political Action Committee's from Home Builders, Lenders, and Realtors (yes, us too), in an effort to bring back the realty market at a dire time. What it fails to do, however, is settle the U.S. housing market into its level of equilibrium. We've come so far, albeit painfully, to cutting back inventories, bringing prices back to reality, and weeding out the lecherous practitioners in our business (lenders, too).

It has been interesting to see this bill develop over the past month, from when it was first introduced by Rep. Barney Frank. Would I like to see the marketplace flooded with buyers, and return to listing homes at prices reminiscent of spring, 2006? Of course. But sometimes you should be careful what you wish for.

CNN says housing at or near bottom?

2008-06-24T21:42:00.003-05:00

I don't put much faith in any of the real estate "outlooks" put out by the main stream media, or highly accredited economists, press releases, or, my favorite, real estate talk radio hosts. It is only after prefacing, therefore, that I want to point out an interesting article from CNNMoney.com, entitled "On the Path to a Housing Rebound."

I don't know whether this article is a good or bad signal as to the health of the industry. With the relentless onslaught real estate has endured from the press, I think it can only be a good thing. The data they point out in the article is precisely the type of data that guides a cyclical market from highs to lows, to highs again. I only hope that this is not some cruel counter psychology from the MSM to throw us off their track of doom-and-gloom.

To let you know where I'm coming from, anyone who noticed this intellectual heavy-weight piece from the AP will know where I'm coming from: "EVERYTHING SEEMINGLY IS SPINNING OUT OF CONTROL." That's some hard hitting journalism, with the last paragraphs including a shameless promise that voting democrat will undo all of our problems, and return life to its harmony with nature. If that will magically improve real estate, then I'm OK with it.

Interest Rate Hikes, Local Inventory Levels, and Subprime Fraud Lip Service

2008-06-20T20:23:00.007-05:00

Yes, the picture to the left is as accurate a depiction of how us real estate folks feel after the week we just endured.

Let's see what I can isolate as the 3 biggest issues that have come onto my radar screen for this second week of June...

Mortgage interest rates. UP, UP, and AWAY!!!

UP to 6.5 percent for conforming mortgages this week, even as high as 6.75% at one point. Good luck getting that quote to stick for more than a couple of hours.

UP again, for Jumbo Mortgages (over $417,000 of loan amount), reaching as high as 8.675 or higher. Jumbo's affect the luxury housing market in Chicago's far western suburbs, the Tri-Cities of St. Charles, Geneva and Batavia, certainly. They also affect modest dwellings in the nearer suburbs, like Oak Park or Arlington Heights (to stab blindly), where prices are substantially higher. The crowd of buyers that can afford a half-million dollar mortgage at close to 9% interest is an understandably small one, and they expect a lot more for their money nowadays.

Rates have been attributed to tough talk about inflation from the U.S. Federal Reserve. As I look at overall economic news, I start to wonder if housing isn't a small problem in the macro-picture. It seems that Ben and friends thought the same thing, and it caused a small ripple in the mortgage bond market, as concerns that bond values would drop in the face of higher rates (impacted by rate hikes at the Fed) over the next few months.

And AWAY! Away with mortgage perps'. Good to see that they've nabbed every last mortgage fraud'ster. 400 of our "finest" real estate practitioners were hauled off to jail for inflating stated incomes, misleading values or uses for properties, and other fraudulent tactics used to secure for loans. As the AP line depicts, the real victims in the subprime mess is "consumers" and "lenders." Consumers are the everyday folks who never fibbed on their stated incomes, source of funds (gifts depicted as savings, etc.), or never really heard or understood that their loans were adjustible. Lenders, we are told, were blissfully unaware of the sources of their record crushing revenues. The next step is arresting oil company executives, and then our ever-benevolent government will likely give us free gasoline out of the goodness of their hearts.

Looking at the data for housing inventory levels, locally, I am not yet inspired to announce the end of the housing downturn. Taking a closer look at our months' supply of inventory in the Tri-City area, you'll note that we are well above last year's inventory level, caused by fewer sales and more homes listed for sale. Foreclosures, of limited importance last spring and summer, are taking a heavier toll on the local market, along with short sales. Failed rehabs and new construction gluts, however, are far less prevalent this time around.

80% Down on Condo's May Spell B-A-R-G-A-I-N for Buyers

2008-06-19T19:22:00.004-05:00

Looking for a steal on a condo or townhome in Chicagoland? You might find that the prices are good, but not nearly as exciting as the slashed values asked for detached homes. In fact, many areas in Chicagoland have relatively "normal" inventory levels for condo's and townhouses. Surprising, I know. And by "normal," I mean that 6 months or less of available inventory is on the market - 6 months or more typically indicating a buyers market, and common levels for detached homes hovering between 10 and 18 months.

The arrival of new lending rules may begin to change that trend, and bring similar woes that have struck the detached home market to the attached segment. Because of the effect foreclosures have had on associations (in states like Florida or California), Condominium values are particularly subject to volatility in value. When a buyer's cost for a property includes a downpayment, mortgage payment, property tax (or monthly escrow), and monthly association dues, that lattermost aspect is integral to deciding how much one can afford. If an owner in foreclosure is skipping out on association dues, the difference needs to be ether a.) picked up by other dues payers (that cost is distributed amongst the others), or b.) ammentities need to be eliminated, and the overall "attractiveness" of that condo declines. Knowing this, and wanting to avoid the mistakes made in places like Miami, lenders see 80% loan-to-value ratios (20% downpayments) as the solution.

I know, I know, this is BAD news for sellers. But FHA mortgages are an exception. If your condo can be approved as an FHA property, and pass FHA inspection, then buyers can mortgage up to 97% of the value (ok, someone might be able to do 100% for you, you never know). This does not change the effect that the new rules have on values. The less buyers can afford, the less you can sell for.

For buyers, however, they will soon be seeing this "play out" in the form of falling condo prices. While we're all brainwashed into believing that prices are lower across the board, condos have not made the same kind of adjustment in the Chicagoland area as have detached homes, and that may be changing shortly...

Appraisals & Underwriting

2008-06-13T17:13:00.003-05:00

A full 12-16 months ago, the process of appraising and underwriting, in the course of properly vetting a home loan, was pretty cut and dry. An appraiser's work needed to conform to his or her industry's standards, and closed comparables could be no older than 12 months prior to the sale date. An appraiser's report is then reviewed by an underwriter. Underwriters are the gods of mortgage lending, as they get the final say on whether a loan is approved or disapproved, and they have typically been appraisers or loan officers for many years before getting the nod.

"Underwriting has one more contingency they need to clear..." or "My underwriter wants to see [insert unexpected document]..." These are the sorts of things that lenders tell us, and their clients, in the final hours of putting together, or declining, a loan. Today, the things they ask for have changed.

Appraisers are now allowed only 3 months or newer closed comparables to a property. Where they were previously required 3 closed comparables, they often must produce 5, 6, even 7 comps. Underwriters may not want the best comps, but they want to push liability for botched loans onto someone other than the note-holder. In a market where fewer homes are selling, finding more comps within a shorter time frame is often a beguiling task. Read on about declining values and the havoc they've wrought upon the numerous deals they affect. As you can see, by following the link, the Realtor PAC is working hard to strike back at declining value lending policies, with some early success.

"2010" is the New "Spring of 2008" Market

2008-06-03T14:52:00.002-05:00

Last year was a rediculous year in residential real estate. I knocked heads with a couple of former clients over the fact that the market was declining. They insisted that their neighbors who had undercut their asking price by $25,000 or $50,000 were selling below market value, and that they wanted to continue pricing their homes at market value. Besides, they insisted, SPRING OF 2008 will revitalize the real estate market, the glut of homes for sale will be scooped up by hungry home buyers, and rates are still at historic market lows. Now do you see why I think 2007 was a rediculous year? With historically significant bad news in the residential market, I had the very same conversation with 10 or 15 sellers in denial. I had to preface everything that "I hope you're right, BUT", and provided the statistics I've been watching develop over the past few years, and that Spring of 2008 was unlikely to pull a rabbit out of a hat.

2010 is the new Spring of 2008, and I think I might be ok with that. It depends, of course, on what 2010 will be bringing. Will it be the end of declining values? Will it be the reversal of declining number of sales? Will sales increase over 2009 numbers? Will prices start to appreciate again? Or will prices magically return to 2005 values?

Seller Negotiating in Today's Marketplace

2008-05-28T22:39:00.004-05:00

The typical seller of yesterday (prior to mid-2006) had the ability to haggle on virtually every aspect of the real estate transaction - from numerous price counteroffers, personal property inclusions and exclusions (does the 'fridge stay?), home inspection repair items, to closing date, time and location changes (to make moving o-so-convenient). Today, the sellers who are lucky enough to entertain rude offers, after countless fruitless showings, have the very same opportunity. There is one major difference:

BUYERS DON'T CARE. If you want to haggle on price - rebuffing their lowball offer with a stubborn, "I'm not desperate" counteroffer - Then buyers will move on to someone who negotiates clearly and decisively. You don't have to give your absolute lowest price, but think long and hard about just how low you'll go. They don't want to anguish over 20 counteroffers - they want 1 or 2 at most. That is, of course, unless you want to give them their offering price after you pout for a couple of weeks. This is the relationship version of calling an ex-girlfriend and begging for forgiveness. NOT A GOOD POSITION TO BE IN. If you think their home inspector is a goofball, and you don't think you need to install GFCI outlets, you may want to compare the cost of GFCI outlets with your mortgage payment (or your tax bill). Closing date, time and location? It needs to work for the people who are paying you hundreds of thousands of dollars - not the other way around.

Some might think that this short-list is a bit tough on sellers - this might seem like the "lay-down and walk all over me" approach to selling real estate. Think so? Think about how easy it really is to back out of a residential real estate sales contract in 2008, and think about how lucky you are that someone might choose your unique house out of all the others. The task is no longer trying to win at every juncture, but keeping buyers buying your house. That's the real win in an absolute buyer's market.

One, Two, maybe Three Items for Your Review...

2008-05-22T21:37:00.002-05:00

When I first started clicking off rather incidental messages on Twitter.com I didn't see how it would really apply to a Realtor. A mortgage lender, sure, or a high school student, TOTALLY, but what is there for me to offer that would really seem relevent to the public? It took me a little while, but I think I know what it is. HOTSHEETS. The number of homes that have come onto the market, reduced price, gone under contract, cancelled/expired from the MLS, or closed, is actually a very base way to tell the direction of the market. For me, it's actually helpful to spit that kind of data out more often, and for the reader, I think it's in the same ballpark as the graphs that I try to showcase here on a weekly basis. If you live in the Tri-City or Fox Valley area, you might find that this is something worth watching.

NEXT. Interested in moving to Morrocco? As a Baird & Warner agent who has had many properties featured in the Luxury Portfolio Fine Property Collection, this caught my eye this week. It's not my listing, fyi.

LASTLY. Do you use Realtor.com for your casual property searches? Well, I happened upon a very fresh podcast from NAR's CEO, Dale Stinton (my childhood best-buddy's dad, as odd as that sounds. That's a true fact.). Go here to see a sneak peak at The New Realtor.com.

Should I be using Payphones or Twitter?

2008-05-21T13:38:00.005-05:00

I'm conflicted on whether utilizing Twitter.com is a good thing-getting further tied into the hectic online world. From now on, you'll be able to "Follow Me" on http://twitter.com/Alex_Goldie if you so please.

I am contemplating following Jack Lemon's lead, from Glengarry Glen Ross, and just go back to using payphones. I could finance this practical endeavor by increasing prices on coin laundry equipment at rental properties (or by begging).

Decisions, decisions. For now we're going with twitter, unless I find some more payphones.

St. Charles, Geneva, Batavia 4 Bedroom Homes - What Gives?

2008-05-21T09:50:00.004-05:00

Pricing analysis of a particular area can tell me what the median price range is for a given type of home for sale. 4 bedroom, 2-to-3 bathroom detached homes is an interesting market segment because of the large swath of homes that it affects. Particularly in the Tri-Cities (St. Charles, Geneva, Batavia), this includes modest single family homes, and 4,500+ square foot, newly built luxury homes. That's one big swath.

Here's the data... ...and PLEASE, refrain from your knee-jerk accusations that I've manipulated data just because I'm a longtime St. Charlesite (or St. Charlean, depending on how you want to say it).

St. Charles 4 Bedrooms, 2-3 Bathrooms

Geneva 4 Bedrooms, 2-3 Bathrooms

Batavia 4 Bedrooms, 2-3 Bathrooms

As usual, I feel utterly compelled to throw my spin on this. Why is St. Charles so much higher? Is St. Charles just OVERALL a more expensive, upscale suburb, or is there more to it than that?

I think so. In fact, I think the answer lies partially in the existing new construction for sale. While over a half-dozen neighborhoods in St. Charles consist of new construction luxury, custom-built homes, Geneva's Mill Creek (Shodeen) and Sunset Prairie (Joe Keim), and Batavia's Barkei Farms (various custom builders, including John Henry Homes), are the only new construction neighborhoods in Geneva and Batavia. Between the two cities, that amounts to a grand total of 20 new construction homes for sale. St. Charles has 66 as of today, and prices top out at 4.8 Million. Newer homes have been built to satisfy the top end of the market, and strangely distort the typical "bell-curve" shape that we would expect from our data. St. Charles developed more land during the boom, and is still working off a lot of that inventory.

And, of course, this has nothing to do with our present point on the real estate cycle...

Property Taxes: Fight the Power

2008-05-19T22:06:00.003-05:00

If you live in Illinois, but not in Cook County, then if you don't have your property taxes, by now, then you must either:

Escrow your taxes and insurance through your mortgage lender

OR

Be a Lessee

If you aren't a member of the latter group, then you are probably interested in paying as little taxes as possible. Unfortunately, the revulsion that we feel when we receive our tax bill is not very useful: This is NOT the time to appeal your taxes. Even so, some facts about how property taxes are determined surprise many-a-taxpayer.

For instance, as the Beacon News pointed out in their piece "Property Tax Bills Causing Concern," the present market value has very little to do with the "Assessed Market Value" of your home. In fact, the county utilizes an average over the past 3 years to determine your tax amount.

I have noted for years, however, that tax bills were terribly outpaced by appreciation during the boom years. They were guaranteed to go up because they were typically 5-10% lower than market values. Now that property values have slid downwards, they are now looking as much as 5% too high.

The moral of the story, however, is that most townships finish their assessments right around the holiday season. So the next time you start getting out Halloween decorations, instead of looking forward to Thanksgiving and Christmas, start thinking about what your property taxes will eventually be. And FIGHT THEM. If you're unsuccessful, it will at least make for more realistic holiday shopping!

Comparing the Counties - Northwest & Southwest Suburban Areas

2008-05-15T15:56:00.003-05:00

Our data from other collar counties indicates much of what we have seen from Tuesday's "Comparing the Counties" glance at market inventories across Northeast Illinois. From December's inventory-to-sales ratio spike, spring market activity absorbed fully half of that "months' supply of inventory." Months' supply is still higher than last year's seasonal low, April '07. It seems clearly noteworthy that these results have been fairly consistent, across the board.

That tells me that the "delayed" effect of market ebbing and flowing, with Cook County acting as an "epicenter," may be a flatly false theory. The flaw would indicate that property markets are responding to prevailing national mortgage interest rates, and not to fluctuating values or regional economic drivers.

The data . . .

Lake County

McHenry County

Will County

Kendall County

2008-05-14T13:21:00.003-05:00

The Federal Reserve Bank of New York offers us a handy tool with which to view the state of the nation in terms of mortgage delinquencies, and precursors thereof. Check it out. You can ZOOM IN ON YOUR ZIP CODE, and compare the foreclosure rates, loan to value ratios, number of ARMs adjusting, percent of no-doc loans, and so forth.

Comparing the Counties

2008-05-13T21:13:00.004-05:00

Last month we compared areas from the interior and collar counties as to the level of housing inventory. This month, we'll generalize to gather as broad a trend as possible (and avoid comparing cities that are the exception to their area's "rule"). Additionally, we are removing New Construction homes from the equation. Not because new construction home sales are in any way not significant, but because builders often enter vacant land as built homes for sale - they are casting as wide a net as possible right now. We refer to some of these listings as "phantom listings," as they are not really properties "on the market." The vacant homes for sale are an important factor in this market, but the distortion is greater than you would ever expect.

Cook County

DuPage County

Kane County

DeKalb County

Starting in Cook County, we have gathered information along the Union Pacific West Metra Line, or going West, with DuPage, Kane, and DeKalb Counties. Tomorrow we'll contrast this data with the Northwest and Southwest suburban areas.

What's interesting about this data, is that ACROSS THE BOARD these counties have halved the total inventory level highs from this past December. These levels, however, have not receded to last year's lows, which were in March and April. It should definitely be noted, with this snapshot of the market's health, that by broadening the scope of examination, we are also amalgamating such areas as the Gold Coast with the east side of Elgin, or Northwest Aurora with downtown Geneva.

Stay tuned for tomorrow's data.

The BIG Picture

2008-05-09T13:02:00.010-05:00

National Home Values

Over this past week I've read two outstanding articles about the depths of housing woes. Two economists arguing fervently, and with impressive supporting evidence, to two completely different ends: On the one hand, we are at the absolute bottom in housing, but prices will not rebound for another 15 years (The Housing Crisis is Over, WSJ.com). And on the other hand, another 10-15% decline in values can be expected to come over the next year and a half, with a recovery to follow (Map of Misery, TheEconomist.com).

That's quite a difference in opinions! I believe I also recall reading something from the National Association of Realtors that said we already hit the bottom in the market. And that was in the spring of 2007, so I don't know what everyone is still whining about.

The problem with telling the future of the real estate cycle is not a failure in interpretting the implications of data, nor a matter of data quality, but a matter of accepting that building theory around such data is subject to your lense: optimistic, pessimistic, or just apathetic. Any economic market has data sets that support those holding half full and half empty glasses to their respective outlooks.

The Map of Misery identifies the data each group is utilizing to support gloomy or rosey outlooks for housing. One method, which utilizes the balance between housing prices and rental prices, purports that the crisis is nearing correction, with rents reaching their trough during the boom, and requiring another 10-15% of home price declines for them to reach equillibrium. This however, assumes that it is home prices that must decline, and that rents will remain stable in what has been a "landlord's market" (read: opposite of a renter's market).

The National Association of Realtors utilizes the most optimistic measure, not surprisingly, which indicates that housing costs (mortgage payments, not home prices) have returned to historic balance with household incomes. These neglect to mention the tightening of lending standards, which are preventing countless buyers from entering the market. Other measures compare home prices to incomes, which have not yet been reigned in (another 10-20% decline needed...).

Taking a look at these two graphs, you can tell the story of the market's coming doom, or its overdue recovery. Perhaps you'll better understand my viewpoint today:

Vehiament cases exist for both arguments, and with legislation being pushed forth by politicians for a fresh new band-aid (thank you P.A.C.'s and polls), all bets are about to be affected greatly as our tax dollars are put to the task. A little bit of helpful Q & A might guide someone who is a layman at the subject, or perhaps just someone as confused as the rest of us.

Do you think the market is due for a recovery this year, next year, or in 2020? Think that Chicago is subject to a different timeline altogether? I'm interested to hear your opinions!

Showing Activity as Leading Indicator for Sales?

2008-05-08T11:52:00.009-05:00

Before a home sells, it must be shown. I dare you to try and dispute that fact.

As real estate brokerages arrange appointments for buyers agents to show listed homes to their clients, they create data. ShowingTime.com, known to agents as "ShowingDesk," is the premier online service provider for setting appointments. It is used by my broker, Baird & Warner, along with 40 other brokerages - from the big national brokerages to the independent regional ones. The data recorded for each appointment is logically one of the best indicators of market sales activity, as the more a property is shown, the more likely a buyer will write an offer, and the more likely that agreeable terms can be found, leading to a visit to a closing table.

I track my office's showing activity (above), in addition to online views of each individual property's webpage. In comparing this with a given property's number of showings, I can gauge how well a property is doing, relative to other indicators. ShowingTime.com offers us a snapshot of the nation-wide sales picture, by comparing the percent increase or decrease of showings, and the published record of closed sales. Or, at least, in theory.

If we are to believe the suggestion of ShowingTime.com's graph, then the upsurge of showing activity in March should have yielded a very positive April for home sales. While there was a definite increase (see graphs below), there is another trend represented in ShowingTime's graph: More showings per buyer. This is a definite trend in the marketplace, as buyers take more time to decide the right home for themselves. A buyer can see more houses, and have less worry over their "favorite" getting sold out from under their noses.

The data above, taken from Kane County, IL, includes April's sales number for Under Contract and Closed properties (both detached and attached residential housing). It does reflect an increase in the number of properties sold, but those numbers reflect a decrease as compared with last year's seasonal figures. April 2007 sales in Kane County amounted to 552 Closed properties, while April 2008 yielded 339. The number of properties that have gone under contract in April (606 in '07, 506 in '08), will inevitably revise downwards as transactions under contract fail to result in a closing (due to home inspection, mortgage financing, or other problems encountered).

It seems as though ShowingTime's March report reflects the dispositions of buyers towards a more thorough and deliberative home search, and not a surge indicating housing's recovery by summer time. An uptick, yes, but comparing year-over-year data gives us the whole story. There may not be any dispute to this post's leading statement, but plenty is left to argue for ShowingIndex's direct correlation to sales activity.

Are 1st Floor Master Bedrooms Any HOTTER than the Rest of the Market?

2008-05-07T13:28:00.011-05:00

The real estate market has benefitted from the Baby Boomer generation since their births caused the great housing boom after World War Two. As they've grown up and had families, they've been the largest economic catalyst in the modern era, with their luxury home, vacation home, and investment property purchases spurring the most recent boom. Experts have been predicting since well before the boom that the housing market would begin to pick up a trend of ranch homes, and first floor master bedroom homes, townhomes, and condos. With the first "official" baby boomers reaching the "senior" age range (62) this year, the purchase preferences of these buyers is more forward looking than ever. Empty nesters are often looking to move on from their 2 story home to downsize into something that gives them everything they want in terms of upgrades and ammentities, but with more lifestyle flexibility.

Now that the boom of housing has moved to what everyone hopes is the trench of it's decline, let's take a look at what many expect will be the economic engine of real estate's recovery: The 1st Floor Master Bedroom Home and Townhome [FFMH & FFMT]. By comparing the inventory level of these properties, with those of non-1st floor master properties [NFFH & NFFT], we'll be able to see if the trend is emerging, or if the experts' predictions are wrong. For the purpose of this analysis, we'll be examining the Tri-City area: St. Charles, Geneva, and Batavia, Illinois.

Looking at Figure 1, below, inventory levels and sale levels for NFFT's, with FFMT's below them. We can clearly see that at the present moment, the experts' predictions are not yet materialized. Townhomes are seen as more a promising housing sector for baby boomers, with the appeal of reduced maintenance, and lower expense during retirement years. Here, however, the number of homes on the market exceeds the prior six months of sales and contract activity by almost 5 to 1 for 1st Floor Master Bedroom Townhouses. Meanwhile, the general marketplace for townhomes over $300,000 is only a 4 to 1 balance between supply and demand. 1st Floor Master Bedroom Townhomes are presently demanded less than conventional townhomes that have 2 stories, with a master bedroom up at least 1 flight of stairs. We have seen townhomes inventory overall in check, but the over-$300,000 price range is clearly still in a strong buyers market.

Figure 1

On the other side of the coin, in Detached Homes, the entire market has been far from in-check during the market's decline. As seen below, in Figure 2, the FFMH and NFFH markets are at 4 to 1 and 3 to 1 ratios of inventory to demand. With a gross 798 actively for-sale homes of the NFFH variety, and 166 with first floor masters, buyers are in the drivers seat of the entire detached home marketplace.

Figure 2

Why is this the case? Are the experts wrong? I believe it is less to do with the preferences of baby boomers, as it is the effect that the housing market has had on their ability to execute purchases of homes that meet their evolving needs. Given the challenge they face in selling their existing homes, this trend is going to continue to lay in waiting for the boomer buying boom to come.

The West: Are Chicagoland's Far, Far 'Burbs, Far, Far from Bottom?

2008-05-05T17:02:00.007-05:00

During 2005 and 2006 I worked with many homebuyers looking for bigger houses to go along with higher market mortgage rates. Despite the weakening of the housing market in the collar counties of Chicago, this left many buyers looking westward. These were especially good times for sellers in DeKalb, Boone, Kendall and McHenry County. After more than 10% of price decline in most of the Western Suburbs, these areas are experiencing a delay of the market correction felt in the collar counties. Accustomed to buyers who were bringing their commute west, they are now finding that buyers are drawing the line at a shorter commute, and are getting the values they want from sellers in Kane or even DuPage Counties.

Sycamore, a growing city in DeKalb County, is a textbook example of this phenomenon. Looking at Sycamore's latest data for days on the market, we see a steady increase since mid-2006. Not dissimilar to many areas, Sycamore is finding itself at the very edge of Chicago's pricing trends, meaning they are downstream of price movements in Cook, DuPage and Kane counties. Days on market is at its highest point - higher than 2007's winter, which points to a long summer, and an even colder winter in 2008. Days on market is only part of the story.

Looking at the "# of Units Sold" data shows exactly how difficult the "thinning" of inventory is going to be for Sycamore. A glut of unsold properties in the North side of town, and competition from neighboring areas like Cortland and DeKalb is proving problematic for Sycamore sellers. Add on to that a newly implemented Buyer's Transfer Stamp (tax) of .5% and you find out why Sycamore's number of units sold have not experienced a spring market pick-me-up (buyers pay $5 for every $1,000 of purchase price, increasing their closing costs). The "# of Units Sold" graphic also includes "Days On the Market" numbers above each month's bar, in blue text.

To the South of Sycamore is its twin city, DeKalb, where Northern Illinois University (NIU)resides. With Chicago's suburban sprawl beginning to have an effect on this "college town," the economic engine of higher education has a complementary force of market growth. DeKalb is also levying increased taxes for its population, reaching in many directions to keep an operating budget intact. These taxes have not been in place to be able to measure their effect, but the timing is as perilous as Sycamore's Transfer Stamp Act. Examining DeKalb's "# of Units Sold"we see that the spring market's uptick in sales has not made a substantive dent at their inventory, as Days on Market continue to grow longer.

The Wild Wild West, it seems, came to the party late. A market recover there may not be as rapid as some closer-suburban areas. Tax policies that penalize homeowners and investors may be contributing factors as we look to the future.

Innovation Amidst Housing Recession - Change Your Mortgage!

2008-05-01T14:38:00.009-05:00

Everyone is talking about the housing market downturn, and the impending doom for all of the world's people. Foreclosures will surely swallow us all, regardless of how responsible your own financial picture may be. There is one thing that economists rarely remember to take into account - The resilience and creativity of individuals in the marketplace. Case and point, the present real estate downturn:

Investors -- including big fish like former Countrywide Financial Corp.
President Stanford Kurland as well as smaller fry like Gentry -- are buying
loans on the cheap from lenders who want them off their books. By paying
less than face value for the mortgages, the new holders can modify loan
terms, including shrinking the amount owed, and still make money.

As numerous homeowners struggle to make higher adjusted mortgage payments, or face personal circumstances (divorce, health problems,job loss) that prevent them from keeping up with their obligations, there seemed to be no other way out. Many cannot get out of their loans by selling their homes, since they purchased properties utilizing 100% mortages, or refinanced at a similar loan-to-value ratio. Further, banks across the nation have been facing a struggle of defaulting subprime mortgage portfolios - bets that made sense two and three years ago. With everything stacked against these parties, and the fallout of their misfortunes seeming quite vast, the prospect of savvy investors saving the day sounds like an enormous blessing - and a profitable one for them. Read on:

With some economists projecting 2 million foreclosures this year, legislators
and regulators are hoping to encourage wide use of this model. They want lenders
and investors in mortgage bonds to mark down what borrowers owe and then provide
them with lower-cost loans. It's a tricky business: No one wants to be seen as
bailing out speculative buyers or imprudent lenders, but they also don't want
mass foreclosures to devastate neighborhoods and the economy.

The greatest enemy of this program, however, appears to be the victims, themselves. Fewer than 50% of homeowners who are delinquent on their subprime mortgages are willing to return phone calls regarding lender work-out plans (mortgage lenders attempting to renogotiate loan terms in order to keep a homeowner in their home, and paying agreeable loan terms). Many homeowners worry that lies told regarding stated income, or other fraudulent information given to lenders, will come back to haunt them. Given the widespread existance of such fraud, on behalf of homeowners and lenders, investors buying subprime mortgage notes are not making fact-verification of old mortgage applications a matter of importance.

The headline here reads of an innovation that may save the real estate market, and the broader economy. It may as well read:

Homeowners Facing Foreclosure: Call Back Your Lender!

Source:
Investors move in to save broken mortgages
Los Angeles Times, E. Scott Reckard
http://www.latimes.com/business/la-fi-loanbuyer-2008may01,0,3521729.story

Condo's/Townhomes Vs. Detached Homes

2008-04-30T10:50:00.005-05:00

As some readers may have noted, a trend has been playing out through this real estate cycle that deserves mention: Townhouses & condominiums are not in the same trough of this cycle as detached single family homes are.

St. Charles Detached Homes

St. Charles Attached Homes

In fact, attached houses are actually in territory that indicates they are neutral as to being a buyers/sellers market. This sample was taken of strictly St. Charles, Illinois, but I am seeing this play out through much of the suburban area. Looking at the market time statistics, below, one can see that attached properties are selling in less than 180 days, on average.

St. Charles Attached Market Times

Why is this happening? Three factors are at play- lower prices for attached properties put them within the reach of cautious first time homebuyers; todays buyer is looking for a more "move-in ready" home - less tolerance for major renovations that often come with older single family detached homes; and buyers often do not have time to do the yardwork and maintenance that goes along with a detached home. Today's buyer is changing, which has affected families and individuals selling their homes. With the challenges of being a "move-up" buyer in this market, first time buyers are a major driving force, despite the drastic reduction in their ranks due to the extinction of many high risk loan instruments that brought more first timers into the buying process than ever before.

[note: Market time statistics are problematic because of real estate agents cancelling or expiring property listings, and then re-listing them the same day. This is done in order to reintroduce a property to the "hotsheet." This is part of the reason that I utilize absorption statistics to indicate realistic expected market times.]

In Defense of: The Home Ownership Ideology

2008-04-24T22:28:00.002-05:00

Dean Baker, author of "The Conservative Nanny States," has written an article featured on RealClearMarkets.com entitled "The Homeownership Ideology." Baker's article, after blowing past the alleged causes of the housing bubble and subsequent deflation, proceeds to level blame against the belief in home ownership as a "virtue" - in and of itself. He points out that during the height of the market's fervor, it was not good policy by economic and political talking heads to promote buying a home. Especially, Dean articulates, when it comes to lower income households. These families and individuals opted, quite tragically, to buy properties at prices 20 to 30 times the annual rental cost in their given communities.

I agree with Dean's premise - pitching homeownership to the poor and those who cannot afford it doesn't make sense. In fact, I think the whole reason mortgage products like Option-ARMs, 100% Interest Only's, or 40-Year-ARM's ever saw widespread use was because individuals that did not have the discipline or wherewithal to purchase a home had been convinced they needed a home - and at any cost. Those people are now realizing the cost, as are the businesses that swarmed around them for their one-time business. Now we all feel the repercussions of those actions.

I do have some mixed feelings about a website sponsored by Illinois Governor Rod Blagojevich and The Illinois Housing Development Authority (ihda.org). While some of the money offered drastically improves one's ability to purchase a home, some of the conditions make it painfully clear that those best qualified are those with the least qualifications. Certainly we should not be encouraging EVERYONE to become a homeowner. This is somewhat akin to suggesting an alcoholic try to keep a houseplant alive before trying to date, or own a pet. Perhaps individuals should be coached along the line of financial discipline, and income stability, prior to purchasing homes on 30 year mortgages. I am sure Blago is not troubled by the website- I believe he has enough other things worrying him.

What I differ with Mr. Baker on is primarily a matter of timing. While I believe that baiting poor or lower-middle-income Americans into buying homes is not a positive thing for Americans, I do not think that de-legislating the allure of owning your home is an idea that should be batted around in our halls of government. But especially NOT NOW.

If there has ever been a time when individuals should be encouraged, or browbeaten, as to the virtues of homeownership, it is now. When rent prices are trying to skip right alongside with inflation, buying a home at a still-historically-low interest rate seems to be a sound plan. The market also provides them the time to educate themselves, and exercise patience - finding the correct property, at a price that truly suites their budget.

Imagine, however, if congressmen and women began discussing reversal of the tax deductibility of mortgage interest payments. The legislative carrots that guide individuals into homeownership ought not be scrapped just because markets are subjected to a business cycle that can be destructive at times. The ideology of homeownership's virtues should not be traded in just because of the financial downturn of the moment - perspective is needed to look into the face of the next boom, and sort out what can be done differently to ensure fewer are preyed upon, and fewer succeed in defrauding the system. Instead of railing against homeownership, articulating the true benefits of home ownership might be a more productive endeavor.

Being a Landlord isn't for Everyone . . .

2008-04-24T21:55:00.006-05:00

You have to read this article from the San Fransisco Chronicle to believe it. I was speechless.

S.F. Landlords charged with tenant terror

A couple from Nevada (the wife, a real estate agent) have literally lost their minds in managing a 3 story building in San Fransisco, and frightening hilarity ensues. Read on...