Housing and the Federal TARP money

People all want to refinance or take out a new mortgage at the bottom of the market. Well, I wasn't sure before, but, based on what I've learned about the government's stimulus program, the time to get a mortgage is NOW. It turns out that the TARP money being given to banks isn't free. In the same way that the first-time homebuyer's tax credit sounds as though you don't have to pay it back, the TARP money has been characterized as a bailout, leading us to think that the banks are being granted the funds. But we were wrong--they have to pay it back, with 5% interest for the first number of years, and 7% interest after that.

So, while I previously thought that interest rates would just keep being forced down until people bought real estate, I now think we're at--or even past--the rate bottom. If a bank has to use money that it's paying 5% for, how many loans can it make for less than that, or even for the same amount, without incurring losses? In our WP mortgage joint venture with Webster Bank, we've seen rates, which had been at 5% with no points for a 30-year fixed mortgage, start to creep up. That now makes sense to me, and it's a call to action.

As I've said before, what you pay as a mortgage rate will matter more on the margin than what you pay for the property, so, if you have the money to buy a new home, buy it now! By the time you realize that rates are heading up, they will be higher yet.

OK, President Obama--Let's Get Moving!

I've been reading a lot about the TARP program (giving capital to banks so that they'll lend it out). One commentator today in the Times was saying that the banks aren't using the money to lend any extra; they're just holding onto it in case they have losses and need to boost their capital ratio. As Homer Simpson would say, "Doh!". If you give me some money to buy a present for myself, and, at the same time, warn me that I may have unexpected expenses over the next year, would you be surprised if I didn't spend it?

I think it's time to bring back the "bad bank" concept, used successfully in the late 80s and early 90s with the Resolution Trust Company, and even used in the Great Depression, as the Homeowners' Assistance Corporation. If the government took the rest of the TARP money and "bought", for some number of cents on the dollar, bad assets of the banks, then investors wouldn't be so skittish about investing in banks, stock prices and confidence would go up, and credit might start to flow a little faster. If you remember, those entities came out fine in the end; it just took some number of years to dispose of the troubled assets. We may not even be talking about a permanent loss, just a fix for the peace of mind of bankers and stockholders.

While we're waiting for something to happen, why not see some theater? We saw the world premiere of Athol Fugard's new play at Long Wharf Theatre this week. Coming Home is a beautifully acted, beautifully directed production. Although it's sad, it tugs at the heartstrings in unexpected ways. This makes two stellar premieres in a row for LWT, following the unforgettable Civil War Christmas, by Paula Vogel. I may not be objective on LWT, but I certainly am in the majority on these two shows. Treat yourself--see something warm on a cold night!

Back to the Cold

Today is my first day back from vacation. I just finished going through my 600 emails and dozen papers, and tomorrow I will start writing articles that I've promised to people. Like a lot of people, I hope that the new President and his administration will bring a new beginning for our industry and others. The government is certainly pumping money into the economy--it just has to find its way down to the real estate market. And, in the Northeast, the weather isn't helping! Every day seems to bring snow, ice, or freezing temperatures. We know from other years that people don't look at property under those conditions. We also know that it can lead to a nice pop as the spring market blooms (pun intended), and never before have we needed that so much.

Vacation post

Just a quick update from Scottsdale. It feels mean to say that it's 77 degrees and sunny here every day, when there is so much cold and snow in Connecticut! But everybody needs a break, and this is mine. I run a lot, read a lot, and just generally chill out. We've played golf, shopped, and fiddled around.

Phoenix has been very badly hit by the economic downturn, and it shows how lucky we are in our region not to have the tremendous overbuilding that exists here. There are shopping centers and restaurants on every corner; it's hard to imagine where all the business can come from to keep them afloat. They've had phenomenal job growth here as well, but now they're just ahead of Detroit in new job growth, so the party's over. Our education and health care-based economy looks pretty good in comparison.

Hello from Sunny Arizona

We arrived last night in Scottsdale, where it's almost 70 degrees and very sunny. I wanted grapefruit for breakfast, so I went out and picked a couple. I went running for a long time (with a few stops at new retail areas) without worrying about snow and ice. There are lots of real estate signs here--it's pretty much ground zero, along with Nevada and Florida, for the distressed real estate market. Inside my father's gated community, there are signs for the first time, and today there were multiple open houses. The median sales price in Arizona was $232,000 at the end of 2007, and $150,000 at the end of 2008. That makes Connecticut look pretty good!

We had our company holiday party at our house the night before we left--100 people for dinner. It was festive and fun, and spirits were high-enough so that those not in real estate were surprised. I'm not really, because people who come to parties tend to be a self-selected group of those who are going to have a good time under all circumstances, plus real estate agents in general tend to be resilient and optimistic. As Winston Churchill said, "I am an optimist. It does not seem to be of too much use to be anything else." Amen.

sale leasebacks

Yesterday we spent some time brainstorming about sale leasebacks, and wondering how to get more companies to think about doing them, to free up cash. We have investors who are interested in buying properties that have long-term tenants in place, and we know that there are companies out there who could profit from such a move, but it's a challenge to reach them. We're hoping that, by getting the word out to lawyers and CPAs, that we will be able to connect the dots.

Summing up 2008

As the new year begins, we're taking stock of how we ended last year. The news is not quite as bleak at H. Pearce as one might have thought. We're down a little over 15% in commissions earned from the year before. Since that takes into account that prices fell, reducing commissions due, plus that numbers of sales fell, we did very well compared to the market as a whole. One of the agents brought in a check on December 31st and told me that 2008 was her best year ever. More agents than I would have thought could say the same thing. In fact, a couple of months ago I checked an earnings report, and noted that 52% of our agents were ahead at that point of their earnings from 2007. That may have changed somewhat by the end of the year, but probably not by that much. It shows that, in this difficult market, whom you choose to sell your property matters. Good agents are more valuable than ever.

We're still waiting to see whether we made a profit as a company in 2008. It's close enough that we can't tell yet. That's good news in this economy! We look forward to making money in 2009, in part by concentrating on the things that will increase: relocation; rentals; appraisals; refinancings; and short sales, in addition to our regular business.

On another note, the running season began with a very cold and snowy Frostbite 5K in Guilford on Thursday morning. The sun was bright, but the snow wasn't all melted and the winds were whipping across the Guilford fairgrounds and the town dock, so all the times were slow. Well over 300 people braved the elements, though. Joel Galvin represented H. Pearce with his wife, Nan, as they helped to man the Guilford Rotary benefit race.