Although the temperature still says winter, it seems to be spring in Connecticut at last! The phones are ringing, people are listing their homes for sale, and buyers are out in force. It's still very hard to keep transactions together, particularly through the inspection and financing stages, but at least we are seeing contracts being written. It's more likely to see them coming in on properties that have recently come onto the market, however, and less likely to see them on properties that have been listed for months or years. Yes, it's still a buyer's market for the most part, even though there are a few neighborhoods where the supply is limited.
We are seeing mortgage requirements steadily rising. It now takes a FICO score of 720 to get a jumbo mortgage, for example, and PMI is sometimes not available unless the buyer is putting down at least 10%. These factors make me think that buyers should feel a little more urgency; after all, it's the financing costs that drive most purchase limits.
This post will be brief, because even my phone is ringing much more, and I have lots to do!
Thursday, March 26, 2009
Friday, March 20, 2009
New Careers
The backbone of the real estate industry has always been people who are entering a second career, and this current economic crisis will surely produce folks who are looking for them. There are several factors that make mid-life entrants successful in real estate: maturity; life experience, including often significant personal real estate and relocation experience; savings, pensions, or other financial cushions; contacts; and transferable sales skills. Our history has shown that people who enter real estate in a down period tend to do better over time, probably because they are forced to learn skills and strategies that those entering in boom times don't always acquire. Also, those starting in the profession now will be training and getting licenses now, and will be ready to take advantage of the recovery just down the road.
It may also be possible for those retooling from other jobs to receive economic stimulus money for the interim period. I am looking into this with local job center officials. Both residential and commercial fields are always eager for new blood and new backgrounds, but it takes time to get up and running, and will probably take longer in this economy for new agents to earn a living selling real estate (In case there are readers who do not know this, real estate agents are 1099 independent contractors, who are paid entirely on commission). However, there are many wonderful things about being an independent contractor, and we like to point out that it is one of the original "equal pay for equal work" industries. You eat what you kill, as we also say. Good agents do well in every kind of market, and this one is no exception.
So, if you are reading this during your job search, you might want to consider real estate, where your relationships and prior skills can help you launch a new career today!
It may also be possible for those retooling from other jobs to receive economic stimulus money for the interim period. I am looking into this with local job center officials. Both residential and commercial fields are always eager for new blood and new backgrounds, but it takes time to get up and running, and will probably take longer in this economy for new agents to earn a living selling real estate (In case there are readers who do not know this, real estate agents are 1099 independent contractors, who are paid entirely on commission). However, there are many wonderful things about being an independent contractor, and we like to point out that it is one of the original "equal pay for equal work" industries. You eat what you kill, as we also say. Good agents do well in every kind of market, and this one is no exception.
So, if you are reading this during your job search, you might want to consider real estate, where your relationships and prior skills can help you launch a new career today!
Monday, March 16, 2009
The Mark-to-Market Rule
You may have been reading about the mark-to-market rule in connection with the travails of the banking world. It applies to real estate in a very unfortunate way, which helps to explain why appraisals are so problematic these days.
Very simply, mark-to-market means that the value of an asset should be governed by what other similar assets are worth. Since most homes are only valued when they are sold, or refinanced, most people would expect to be unaffected by changes in valuation when they are not in the process of selling. However, the current focus on "stress testing" banks, and the influx of the TARP money, has caused regulators to take a new look at the revaluation of assets already on the books of those banks, and revalue them based on the basis of recent transactions or valuations at other banks.
Let's assume that there's a house on your street that went into foreclosure, or even just got sold to a relocation company when the owner moved. Since either of those scenarios would favor a quick sale, it might well have changed hands at what you would consider a rock bottom price. The mark-to-market rule, however, would then dictate that your home is now worth what the relo company sold your neighbor's home for, at least insofar as they are comparable properties.
You can easily see how things can spiral downward from there. If you then had problems with your mortgage, your bank would be carrying the value of your home at the "new" value, making your home further underwater. If every other bank then writes down the homes they have financed on your street, pretty soon everyone is underwater on their mortgages, and the banks have way more in the way of "troubled assets". All this is true even though perhaps only one or two homes changed hands at the lower value, and maybe not even in an arm's length transaction. The next thing you know, another bank is below recommended capital requirements, and is on the endangered list. At that rate, every bank may end up on the list, when the only thing that happened is that one home in a neighborhood got sold at a bargain price. Scary, right?
Very simply, mark-to-market means that the value of an asset should be governed by what other similar assets are worth. Since most homes are only valued when they are sold, or refinanced, most people would expect to be unaffected by changes in valuation when they are not in the process of selling. However, the current focus on "stress testing" banks, and the influx of the TARP money, has caused regulators to take a new look at the revaluation of assets already on the books of those banks, and revalue them based on the basis of recent transactions or valuations at other banks.
Let's assume that there's a house on your street that went into foreclosure, or even just got sold to a relocation company when the owner moved. Since either of those scenarios would favor a quick sale, it might well have changed hands at what you would consider a rock bottom price. The mark-to-market rule, however, would then dictate that your home is now worth what the relo company sold your neighbor's home for, at least insofar as they are comparable properties.
You can easily see how things can spiral downward from there. If you then had problems with your mortgage, your bank would be carrying the value of your home at the "new" value, making your home further underwater. If every other bank then writes down the homes they have financed on your street, pretty soon everyone is underwater on their mortgages, and the banks have way more in the way of "troubled assets". All this is true even though perhaps only one or two homes changed hands at the lower value, and maybe not even in an arm's length transaction. The next thing you know, another bank is below recommended capital requirements, and is on the endangered list. At that rate, every bank may end up on the list, when the only thing that happened is that one home in a neighborhood got sold at a bargain price. Scary, right?
Wednesday, March 11, 2009
Declining Markets
We recently received a list of "declining markets", as defined by AIG (some irony there, huh?) for appraisal purposes. Some states--Arizona, California, Florida, Michigan, and Nevada--are considered Severely Declining in their entireties. Our county has a list of declining markets, defined by zip codes, which appears to cover almost every town in our region. Hartford's noted zip codes are listed as Moderately Declining.
What this means is that, when you go to get a mortgage in an area marked as Declining, you are subject to certain restrictions or rate adjustments, in order to protect the lender. Therefore, since a town like Guilford is on this list, everything in Guilford will be subject to a higher rate for the same LTV (loan-to-value) ratio than a property listed in, say, Cambridge, Massachusetts.
I chose Cambridge for several reasons: it's like New Haven in some obvious ways; it's still in the Northeast, where real estate sales are broadly down; and, finally, I knew the zip code. In case you thought New Haven might be spared, 06511 through 06515 are all there as well.
This may make it easier to understand why so many sales are falling apart after the contracts are signed, since people may not be aware of these rules before they actually sign a sales agreement on a particular house. They may have been counting on getting a higher LTV, or a lower rate, both of which may have been advertised, but then are not applicable in the zip code in which they are buying.
It's hard to know how to fix this problem, but it needs to be addressed if we are going to break the cycle of lagging real estate transactions. This rule is not only arbitrary, since there are submarkets within these areas which are selling well and where prices are not declining, but lags in time as well, being based on prior sales. In addition, it punishes those who most need to sell, but throwing another roadblock in the way of their attempts to find buyers.
What this means is that, when you go to get a mortgage in an area marked as Declining, you are subject to certain restrictions or rate adjustments, in order to protect the lender. Therefore, since a town like Guilford is on this list, everything in Guilford will be subject to a higher rate for the same LTV (loan-to-value) ratio than a property listed in, say, Cambridge, Massachusetts.
I chose Cambridge for several reasons: it's like New Haven in some obvious ways; it's still in the Northeast, where real estate sales are broadly down; and, finally, I knew the zip code. In case you thought New Haven might be spared, 06511 through 06515 are all there as well.
This may make it easier to understand why so many sales are falling apart after the contracts are signed, since people may not be aware of these rules before they actually sign a sales agreement on a particular house. They may have been counting on getting a higher LTV, or a lower rate, both of which may have been advertised, but then are not applicable in the zip code in which they are buying.
It's hard to know how to fix this problem, but it needs to be addressed if we are going to break the cycle of lagging real estate transactions. This rule is not only arbitrary, since there are submarkets within these areas which are selling well and where prices are not declining, but lags in time as well, being based on prior sales. In addition, it punishes those who most need to sell, but throwing another roadblock in the way of their attempts to find buyers.
Wednesday, March 4, 2009
Needed: New Listings
Despite the recent blizzard, the spring market is popping. We just have one little problem--not enough to sell! Inventories in most parts of our markets are very low. We're not counting things that are overpriced and have been on the market for a long time, just well-priced and well-maintained homes. If we could list things for first-time homebuyers to move into, those people could move into other houses, allowing those people to move, and well, you get the idea...
We continue to see good listings going to contract within a few days, particularly in the East Rock and Spring Glen neighborhoods. The best ones are going for well over the asking prices, indicating that there is strong pent-up demand in certain price ranges.
It may be hard to believe, but I'm going to end this while it is a wholly positive post!
We continue to see good listings going to contract within a few days, particularly in the East Rock and Spring Glen neighborhoods. The best ones are going for well over the asking prices, indicating that there is strong pent-up demand in certain price ranges.
It may be hard to believe, but I'm going to end this while it is a wholly positive post!
Sunday, March 1, 2009
Optimism
Well, I felt a little ashamed as I read the front page article in today's New Haven Register Business section. I guess I'm more pessimistic than others about the Obama recovery plan, and let's hope I'm wrong. After all, the whole point is to make people WANT to buy; it doesn't even really matter whether or not the incentives even make sense. I also read in the New York Times today that most who listened to the President's speech last Tuesday were left with a positive impression of the government's current handling of the economy. That's good news.
I suppose I should be forgiven for being more down than most, since real estate would be at the bottom of anyone's list of thriving industries right now. However, in the end it doesn't matter what I think--it only matters whether others are spurred to action by the program. I have been saying that I think first-time homebuyers are the ones who least need incentives, since they have no history with which to compare today's conditions. In addition, they don't have houses to sell before they can buy. One could look at it another way, though: If those at the beginning of the chain go out and buy property, everyone further along can then sell and buy another property themselves.
As many have said, much of the current crisis comes from a lack of consumer confidence, which is now at its lowest rate since measurement began in 1967. Every recovery scenario depends upon getting that number up, since economics turns out to be more related to what people think in many cases than to what the graphs say. Most of us realize that a great deal hinges on jobs, since almost no one will buy what they don't need if they think they might not have a job in the near future. Convincing people that jobs will be preserved and created is key, and, unfortunately, can't be done in one location or in one sector of the economy.
The next few weeks, which take us into the traditional spring buying and selling season, will be critical for any hope of a real estate recovery this year. I'm keeping my fingers crossed, but you shouldn't bother doing that--just go out and buy some property!
I suppose I should be forgiven for being more down than most, since real estate would be at the bottom of anyone's list of thriving industries right now. However, in the end it doesn't matter what I think--it only matters whether others are spurred to action by the program. I have been saying that I think first-time homebuyers are the ones who least need incentives, since they have no history with which to compare today's conditions. In addition, they don't have houses to sell before they can buy. One could look at it another way, though: If those at the beginning of the chain go out and buy property, everyone further along can then sell and buy another property themselves.
As many have said, much of the current crisis comes from a lack of consumer confidence, which is now at its lowest rate since measurement began in 1967. Every recovery scenario depends upon getting that number up, since economics turns out to be more related to what people think in many cases than to what the graphs say. Most of us realize that a great deal hinges on jobs, since almost no one will buy what they don't need if they think they might not have a job in the near future. Convincing people that jobs will be preserved and created is key, and, unfortunately, can't be done in one location or in one sector of the economy.
The next few weeks, which take us into the traditional spring buying and selling season, will be critical for any hope of a real estate recovery this year. I'm keeping my fingers crossed, but you shouldn't bother doing that--just go out and buy some property!
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