Archive for the ‘Real Estate Business’ Category
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Mar
15
Posted by James Lupori
The Real Estate Gods Seem Calm This March 15th
Vicenzo Camuccini 1798
March is moving right along so I thought it would be fun to add a little history to my mid-month home sales post. Why not? Camuccini’s wonderfully stylised depiction of Julius Caesar’s murder (above) has nothing to do with real estate in Kenmore, WA but it sure is an artistic reminder that his assassination took place on March 15th, 44 BC. So what has happened with the market so far this month?
Active Listings
Pending Sales
March Sold Homes as of Today
So far this month there is nothing out of the ordinary with the housing market in Kenmore. Active listings have been hovering around 120 for months. The number of pending listings has dropped since last month (some of the pendings have sold) but if we don’t see this number rise by the end of March, April sales may be sluggish.
Just remember that you only need to beware the “ides of March” if you’re Caesar!!!!
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Mar
14
Posted by James Lupori
An Inability of the Media to Ask the Tough Questions
It has been hard for me to sit down and write on KenmoreUndressed this week. The main reason is that almost all the news coming out of the Media has been especially negative and of incredibly poor quality. I don’t know about you, but it is becoming perfectly obvious that the loss of over 40,000 professional journalists this last two years has created a knowledge vacuum. Today, the news has taken on an “Entertainment Tonight” quality that truly sucks.
Worse yet is this nagging sense I have that NO ONE knows how to tell the truth these days. Doubly worse is the fact that there are no longer journalists to call the liars out. It’s almost as if reporters are too “afraid” to do the homework and then ask the tough questions. But alas, this evening good old 60 Minutes managed to redeem, at least a little, my faith that there are some journalists paying attention to important stories.
The Story of the Subprime Mortgage House of Cards
Click this picture to view "Inside The Collapse"
Tonight 60 Minutes broadcast an interview with one of the most knowledgeable writers about the corrupt gambling house we know as Wall Street: Michael Lewis.
After you watch this video your perspective of the “free market,” executive compensation and the flaws in human nature will never be the same. Frankly, Lewis eviscerates the all-too-common idea that Wall Street (with all it’s elitist propaganda) is governed by some “universal truths” about the sacred “free market.” On the contrary, you’re going to learn just how deeply the “fix is in.” I sincerely hope that you all come away from this story with a more grounded and realistic perspective of how the uber-wealthy Wall Street fat cats aggrandise themselves, ruin economies and walk away unscathed. It’s a tragedy that has affected everyone in some profoundly negative ways.
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Feb
28
Posted by James Lupori
Is Walking Away from Your Mortgage Just a “Business Decision?”
Over 11 Million Families are "underwater" in their mortgages!
A quick disclaimer: The discussion below regarding “strategic defaults”(walking away from your mortgage) is a serious matter. This post is not to be considered legal advice in any way. Nor am I encouraging anyone to walk away from a mortgage. It is intended to help readers understand a disturbing and, I fear, growing trend in the housing market. If you or anyone you know is considering walking away from a mortgage CONSULT BOTH A CPA AND ATTORNEY FOR FINANCIAL AND LEGAL ADVICE.
Last year over 1 million home owners walked away from their mortgages. This is 4 times the number who did so in 2008 and experts believe the number of “strategic defaults” will rise as more and more families find themselves “under water” in their mortgages. According to an article entitled Underwater Mortgages Continue to Rise in The Bulletin (a Philadelphia area paper):
First American CoreLogic reported today that more than 11.3 million, or 24 percent, of all residential properties with mortgages were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009. An additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.
Over the last several months I have been reading quite a bit about home owners walking away from their mortgages. It’s a subject that is both disturbing and compelling given the tough times many home owners are experiencing today. And truly, if you find yourself out-of-work, paying a mortgage on a home that is “upside down” (worth less than the mortgage) what should you do?
There are a lot of strong opinions regarding this. They stretch across a continuum of beliefs from the notion that it’s “unethical” to not pay one’s debts on the one hand to “hey, it’s just a “business decision” on the other hand. And believe me, if you read through the commentary in on-line discussions, you’ll encounter a huge amount of speculation, misinformation and many writers “practising law without a license.” One fact stands out: most people believe it’s just plain wrong to walk away from one’s debts, especially a mortgage.
Most People Agree Walking Away is Un-ethical!
But…….and it’s a big but
BUT, there’s also a growing number of economists who feel that attempting to do the right thing by paying back a mortgage (for decades) on a depreciating home is, simply put, a bad business decision not in one’s own self interest. One of the most controversial writers on this subject is Professor Brent White at the University of Arizona whose recent paper entitled ““Underwater and Not Walking Away: Fear Shame and the Social Management of the Housing Crisis,” has been creating quite a debate about the “business decision” angle of home ownership. If you click on this picture you can read it:
Click on this picture to read this paper
Dr. White is not giving advice in this academic paper but he is sending a clear message that individuals sometimes need to make hard-core decisions about paying for a home with little hope of ever making up for lost equity. Sometimes, it’s in the borrower’s best interest to put aside the morality of walking away from a mortgage and focus on one’s long-term financial interests. He suggests that taking the hit on your credit score and several years of higher interest rates may be a small price to pay compared to paying back hundreds of thousands of dollars on a depreciating home. If you want to hear an interesting interview with Dr. White go to: http://www.npr.org/templates/story/story.php?storyId=121911468 which was broadcast on NPR on December 25, 2009.
Some Consequences of “Walking Away”
I’ve had some heated “debates” with a number of writers who are quick to point out that “Wall Street” doesn’t play by the same rules that it expects of the public. Indeed, recently there were several huge corporate entities (Morgan Stanley and Tishman and Speyer Properties) that basically walked away from their multi-billion dollar mortgages. Sure, these corporations aren’t setting the best example; however, when it comes to your financial world I’d like to point out some things you must consider before walking away from a mortgage:
- First and foremost, seek the professional advice of your CPA and Attorney. There are a lot of legal and tax consequences involved in walking away
- Know that your credit score may drop close to 200 points by walking away from your mortgage. This is going to result in you paying higher interest rates for loans and may disqualify you from obtaining unsecured credit. Purchasing a car may become problematic
- If your home is in a “recourse” state, the lien holder can (and most likely will) sue you for the deficiency between what you home is worth and your mortgage. They can put a judgement on your credit report and possibly seek a garnishment of your wages and other punitive actions
- Many employers disqualify job seekers based on their credit history Worse yet, many employers terminate current employees if they file bankruptcy, experience a foreclosure or walk away from financial obligations
I hope this post has helped you understand some of the issues connected with “strategic default.” If you’re interested in learning more, here are other articles that are informative:
The Wall Street Journal – When It’s OK to Walk Away from Your Home
The Wall Street Journal – Debtor’s Dilemma: Pay the Mortgage or Walk Away
The Huffington Post – Don’t Look Back: Major Players Continue to Walk Away from Poor Mortgages
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Feb
26
Posted by James Lupori
$1,000,000 + Absorption Rates in Puget Sound
One sector of the residential real estate market that has been pummelled by current economic times is the sale of homes that are listed for over $1 million dollars. I thought it would be interesting to show you a 5-year trend of the “absorption rates” of this special set of real estate.
The graph above shows the gap between the number of listed $Million dollar homes and those that went under contract each month since December 2005 to January of 2010. If you click on the graph you can see a larger view of these numbers. Needless to say, even in good years the inventory of expensive homes (over $1M) doesn’t turn over very quickly.
Click on this graph for a larger view
Basically, the absorption rate for this particular price-point has been hovering around 5%-6% of the inventory. So, if you are the owner of a $million dollar home and you’re thinking about selling, it behoves you to think carefully about your motivations and to select a real estate agent with experience in this calibre of home sales.
Data courtesy of Alan Pope and Assoicates.
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Feb
23
Posted by James Lupori
The Internet Has Transformed the Real Estate Business
How much is your house worth today?
In the last 5 years the Internet has literally transformed the very landscape of many industries. Some industries such as Print Media have been turned inside out due to the sheer mass of information in cyberspace.
The once powerful (and some would say evil) cartel of the real estate industry has seen its exclusive grip on property information evaporate. There was a time when the average consumer was forced to consult with a real estate professional or hire an appraiser in order to get a sense of one’s property value. Many home owners resented having to deal with agents and, frankly, it was a valid concern. For over 50 years the NAR and its members held an almost exclusive monopoly on property information.
Then, in February of 2006 a revolutionary company by the name of Zillow.com hit the Internet. Zillow allows anyone to find home value information to about 90% of the homes in the U.S.. Since that time, Zillow has expanded in it’s market penetration and has captured a huge following in the industry. I remember well the utter fear and anger many real estate expressed when they realized that the public had access to what was once “the sacred data.”
Zillow, Cyberhomes and Eppraisal
In this post I would like to introduce you to three of the top “Home Value” websites so you can take them for a spin. I encourage you to look up your own home. Today I checked-out the value of my home and the values of my neighbours which was rather interesting. Also, these three are not the only sites. For a larger list of other sites free and for-profit check out “10 Home Value Websites to Look Up the Value of Your Home.”
So here are three of the best sites. Just click on the pictures to visit the sites:
Zillow.com
Click on this picture to visit Zillow.com
Cyberhomes.com
Click on this picture to visit Cyberhomes.com
Eppraisal.com
Click on this picture to visit Eppraisal.com
As a Realtor® What Do I Think About These Sites?
I believe these home value sites have a legitimate place in the real estate industry. Some professionals feel that they are not “accurate” enough or that they compete directly against real estate agents. The fact is, many of these sites encourage agents to post their listings on the site. There’s a lot of paid advertising that hawks real estate services. Let’s face it, this is how they stay in business.
But are these sites accurate? Well, Zillow.com posts statistics regarding the accuracy of its “Zestimates” and, generally speaking in most markets the value provided by Zillow can be 10% to 23% in error. That’s not to say that these sites are bad. Frankly, I’ve found them to be relatively accurate in neighborhoods where there are similar homes (suburban neighborhoods tend to have consistent home values) or where there have been a lot of sales. On the other hand, it’s no surprise that more rural areas have higher error percentages. Just keep in mind that these sites provide “estimated market values.” They are not appraisals. I do think that consumers can learn a lot by doing some preliminary research on the Internet.
Now I get to do my pitch: I highly recommend that if you intend to sell your home you should contact a real estate professional or Realtor® to give you his/her professional opinion about your property value. In many cases I have found my comparative market analyses to be more accurate and realistic than those on Zillow.com. There’s something about being at ground zero and having years of experience in a particular area that gives agents a deeper perspective of home values. Nevertheless, I think that if you’re curious about the housing market, use these sites. They’re interesting and informative.
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Feb
01
Posted by James Lupori
Warm Weather Brought a Warmer Real Estate Market to Kenmore
Last night I attended our neighborhood annual Home Owner’s Association Meeting and there was a lot of concern about property values and questions about how the real estate market was going to perform in 2010. There is no reason to believe that 2010 will bring much change to this tough market. Lending continues to be tight and I have a sense that the job market will have more of a negative impact on the market than does price or inventory. Even so, last month buyers were obviously taking advantage of tax credits and low interest rates. So let’s take a quick look at January which turned out to be a good month for home sales in Kenmore:
ACTIVE LISTINGS
We saw a 31% decrease in inventory compared to last January (148). I believe a lot of homeowners have finally realized that unless they absolutely MUST move, they are staying put. One interesting factor this last month was the number of new construction homes that were offered and sold. Currently, 27% of the active listing are new construction and many of these homes (DH Horton homes) are smaller 1500-2000 square foot houses at the low $300,ooo price point. It was a smart move to build smaller. The builder is also offering some attractive buyer’s incentives. 39% of the inventory has dropped in price and many of these price reductions are significant.
PENDING SALES
Pending sales are encouraging as they represent homes that are in the sales process. Last January there were only 19 pending sales. It’s also a positive sign that the days-on-market are fairly low at 64 days. Something to keep in mind is that 43% of the pending sales are new construction. Only 16% were “distressed” properties.
SOLD HOMES
Last January there were a whopping 8 homes that sold! We did much better this year. Of course, this time last year we were still recovering from the most severe winter in many years and that certainly made things tough; however, it’s nice to see that we had some good activity. I would like to point out that fully 58% of the homes that sold last month were new construction, most of which were the lower priced properties. As the new homes are sold out, it will be interesting to see how the remaining inventory will sell. I can tell you that selling a home that’s over $450,000 is challenging.
So the 2010 real estate market started out much better than last year. Let’s hope that the momentum continues. If you have any questions regarding the Kenmore housing market or have questions about the value of your home, please give me a call at 206.713.2102 or email me at jlupori@gmail.com.
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Jan
13
Posted by James Lupori
A Tumultuous End to the Decade 1999-2009
Click on the chart for a larger view!
Puget Sound Absorption Rates 1/1999 – 10/2008
The chart above is an “absorption rate” market trend chart compiled by Alan Pope and Associates which is one of my favorite long-term illustrations of Puget Sound real estate activity. This chart tracks the ratio between active residential listings and net pending sales from January 1999 to October 2009. The absorption rate that Alan Pope uses is the number of active listings divided by net pending sales. In short, the absorption rate tells us how many homes are being “absorbed” each month given the inventory.
When you take a close look at this chart you will note that from January 1999 through 2003 absorption rates averaged 25% – 33%. During those years the inventory of available homes was running between 22,000 – 32,000 units.
Then, in 2005 there began a sharp decrease in inventory and the absorption rate rose closer to 40%. Not bad if you were a seller in 2004. 2005 and 2006 preceded the huge bubble that popped in 2007. If you look at the chart, the ratio between inventory and net pending sales narrowed, the market went crazy and absorption rates went as high as 52%.
But, alas, the days of bidding wars, escalation clauses and uber-arrogant sellers came crashing down in late in 2006. You can see the HUGE rise in inventories starting in January of 2006 until May of 2008 (51,817 active listings) and a corresponding drop in net pending sales. If you look at the chart, the lines part like the Red Sea and remain distant for three years.
In September 2008 when it seemed that the whole financial world was crashing down, the housing market responded in kind. Absorption rates dropped to an average of 12.5% for the majority of 2008 and rose to slightly over 17% per month in 2009.
King County Absorption Rates 1/1999 – 12/2009
Click on the chart for a larger view!
The King County chart looks similar to the Puget Sound trends. From September 2008 to February 2009 the absorption rates hovered around 16% and then, starting in June the inventory stabilized and then fell dramatically from September until December. Absorption rates averaged around 22% in 2009.
Thoughts About Real Estate Sales in 2010 and Beyond
The American economy was badly damaged in 2007 and it’s going to take a while before things return to “normal.” I do believe that the “new normal” will create an inventory that’s priced more realistically (meaning sellers finally understand that their homes aren’t worth as much as they’d like). This will be good for buyers as prices will be more attractive. Unfortunately, the other side of the equation, the buyers, are going to face draconian scrutiny by the lenders. And if the last couple of years are any indication, the lenders will continue to be stingy, greedy and downright grumpy.
The “New Normal” will mean a local real estate market that’s going to hum along much like 2009: Inventories will stabilize and absorption rates will stay in the 20%-25% range for the next year or two.
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Jan
10
Posted by James Lupori
Buying a Home for the Right Reasons
I am writing this post as a follow-up to my comments back in November of 2008 (Readjusting or Priorities: What’s a House For?) in which I explored the importance of having the proper perspective when buying or owning a home. At that time my neighbors were coming to me concerned about the drop in real estate values. I recall the distinct feeling that instead of speaking with me as a neighborhood Realtor®, they were questioning me as if I was a stock broker!
I’ve been a Realtor® going on 9 years and many people are shocked when I tell them that A HOME IS NOT AN INVESTMENT°. Quite the contrary. In the current market a huge number of homes homes have losing value since 2007 and the most current reports show that almost 25% of home mortgages are “underwater” which is a nice way of saying that the owners owe more than the mortgage is worth. Not exactly what I’d call a good “investment” and I’m not even a stock broker. So for those of you who are planning to buy a home this year, I’d like you to repeat the following:
My 2010 Resolution: I will not buy a home as an investment!
Here’s why: In a recent Wall Street Journal article by Karen Pence, Chief Federal Reserve Economist in charge of the Household and Real Estate Finance Section, summarizes why homes are a lousy investment:
- It is an indivisible asset. If you own stocks and bonds and suddenly need a little cash, you can sell some of your stocks or bonds but not all. With a home, on the other hand, “you can’t just slice off your bathroom and sell it on the market.”
- It is undiversified. You can buy stocks or bonds in industries or countries all over the world. A home is a bet on one single neighborhood.
- Transaction costs are very high when you buy or sell a home because of real estate agent fees, mortgage fees and moving costs.
- It is asymmetrically liquid, meaning it’s easy to get money out when home prices are going up. (You just take out a bigger mortgage.) But it’s hard to take money out when prices are going down because refinancing becomes more difficult. Put another way, the leverage that you have in your house with a large mortgage means your investment does well in good times but could be lousy in bad times.
- It is highly correlated to the job market, meaning that home prices in a neighborhood tend to rise when the job market is improving in the area and fall when the job market is worsening. This means that your main financial asset provides the smallest cushion to you when you might need it most.
So Why Buy a House?
Please allow me to revisit an important idea expressed by Steve Kerch, the award winning real estate journalist of Market Watch. This persistent drop in home values should remind us that houses aren’t really “investments.” In his article, entitled Core Values, Mr. Kerch asks us to consider the following:
“At its core, a house is a shelter. Unless the roof caves in, there is always some economic value in that. But most people when they dream about a house or start looking for a house or actually buy one think about value in a whole different way: they think about the fireplace they can gather around with their families, the kitchen where they can show off their culinary skills, the bathroom that they won’t have to share, the schools they will be able to send their kids to, the neighbors they will be able to entertain in the backyard, the parks they can bike and hike and the community events they will be able to attend.”
I believe most people hope that their homes will gain value over a number of years. We all want to believe that it’s “worth it” to buy a house. I also believe that we are connected to our homes by values and emotions that transcend monetary gain. For all of you “bean counters” this may be too foofy a concept so you would do better to continue renting or living with your mother. Just remember that when you’re ready to march out and buy a home, do it for the right reasons. Oh, and get a good Real Estate Professional to help you.
°A home is technically an “investment” when it is revenue positive; that is, one is actually making a profit at the end of the month. This basically means it’s a rental property.
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Jan
08
Posted by James Lupori
68,000 Jobs Lost in the Seattle Area
One of the “universal laws” of real estate is: A good job market equals a good housing market. Of course, the “other universal law” of real estate is: When people lose their jobs, they lose their houses AND THEN, for some, it’s still a good real estate market because there are short-sales and foreclosures to buy, right? I believe the employment statistics from 2009 may help us understand what 2010 will bring in terms of the housing market.
Employment Statistics from 2009
According to Puget Sound Business Journal (January 6, 2010), the Seattle area shed 68,000 jobs in 2009 which is a 3.9% loss in employment. The Journal also reported on January 4, 2010, that, state wide, 33,100 jobs were lost in the Construction Industry which is an 18% drop in employment.
Even though the local “real estate gurus and economists” are putting a positive spin on last year’s improvement in home sales, (see my post “Real Estate Headlines – Do They Make Sense?“), I believe 2010 will continue to be a tough year for the local market. Here are several reasons why:
- Even though the inventory of foreclosures, short-sales and other “distressed” properties will rise, most of these transactions do not close.
- Regular transactions have become difficult in terms of appraisals, loan approval, etc..
- The tax incentives, as well-intentioned as they are, won’t significantly increase the number of buyers, especially in those price ranges related to 2nd-time buyers hoping to “move up” to a more expensive home.
- Finally, the job figures point directly at a systemic problem with our local market: With fewer jobs there are simply fewer people in the buyer’s pool. Also, I think that when workers perceive that a job market is tight, they are less likely to change their current situation and “hold the course” until better times come along.
Please understand my thinking here: I’m not pessimistic about the real estate market here in the Seattle Area. We are far better off than a number of other areas in the U.S.. I do believe it’s important to acknowledge that there is a NEW NORMAL in the housing market which does not look like the boom years of 2004-2007. For those of you who will enter the real estate market this year as buyers or sellers, it’s imperative that you set REALISTIC expectations and work with a real estate professional who has a good grasp of your local market.
As a Realtor® here in Kenmore, WA I have years of experience in the residential real estate market. If you have any questions about the market, please contact me. I’d love to hear from you.
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Jan
05
Posted by James Lupori
Don’t believe everything you read!
At about this same time every month, the Media and the Real Estate Industry publish the sales statistics from the previous month and attempt to interpret the past, present and future. I found this month’s crop of press releases and reports to be the usual “cheer leading” chatter about how sales will get better as the year progresses and what a great month it was for sales. Never mind that actual sales numbers are still at a decade’s low and the inventory of homes is still huge compared to the decade’s average. I thought you might enjoy reading through several articles:
If you’re interested in selling or buying a home, I think it’s important that you take a look at these publications each month. They are interesting and can give one some insight into the market; however, as a Realtor® here in Kenmore, I have some advice if you’re planning to buy or sell a home in this difficult market:
First, understand that ALL real estate is local. The Seattle Times can crow all it wants to about how great sales are in Seattle or King County; however, home sales can vary greatly from city to city and even neighborhood to neighborhood.
Second, no matter how well you think you understand “the numbers,” when it comes time to buy or sell, locate a real estate professional who specializes in the town or neighborhood you’re interested in. You will discover that there’s more to a real estate transaction besides filling out the paperwork and bickering over price.
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