Archive for the 'Market Trends' Category
For months, we’ve been expecting the next wave of foreclosures to hit the market. With a record number of homeowners defaulting on their mortgage payments, it’s bound to happen sooner or later. According to yesterday’s headlines from Housing Watch, we’ve got a “shadow inventory” of almost 1.8 million homes that are on the brink of foreclosure. Of the 1.6 trillion in existing mortgages packaged into mortgage backed securities by Wall Street, approximately $425 billion worth are “extremely late” on their payments.
Despite the best intentions at assisting distressed homeowners, bad mortgage debt continues to rise with little hope of reigning it in. The tough job market and high unemployment rates serve to add fuel to the economic firestorm. After all, it’s difficult to pay the mortgage without any income.
The current shadow inventory estimate is about half of the entire market of homes for sale, according to Housing Watch. Additionally, there are many other homeowners who have hesitated putting their home on the market due to market uncertainty. In essence, this only clouds the housing market’s supply and demand picture. Our local Fredericksburg, Virginia area isn’t any different than the rest of the nation. We’ve got plenty of foreclosures on the market, and many others waiting for the market to turn.
Current estimates indicate that existing foreclosures , and the additional shadow inventory, will take nearly three years to sell at normal market absorption rates. Can you imagine what will happen to home prices once the shadow inventory, and other would be sellers put their homes on the market? Normally, I’m not an advocate of predicting the future. But, in this case, with an overabundance of homes, and current economic conditions, something has to give.
When that time comes, do you think the sound we’ll hear is the shattering of the price floor for homes? If so, let’s hope we’re not caught unawares. We’ve certainly had plenty of warnings.
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Successfully selling homes isn’t rocket science. Or, is it?
Does a home sell itself, or is smart marketing the key? Or, is it a little of both?
While most of us realize that targeted marketing is a sound sales strategy, it is tough to sell a lemon in any market. But most would agree, rarely is a buyer willing to pay more than an item is worth, unless of course, there’s more to the item than meets the eye. But, that is seldom, if ever the case. Wouldn’t you agree?
Attempting to accurately price homes requires consideration of various factors including:
1. Home Inventory
2. Current Market Conditions
3. Recent Comparable Property Sales
4. Condition of the Property
As many who provide valuations of property will tell you, any good Comparative Market Analysis (CMA) will provide a property owner with an accurate price window for his/her property. If we’re comparing like properties, it is hard to go wrong with a CMA. But, if you’re expecting an apple to be the same as an orange, you could be in trouble! So, where do those inflated listing prices come from? The owner? Yes, at times. But, unfortunately, often, the blame lies with the Realtor.
An article in a recent Business Week reviewed William Poundstone’s new book, Priceless: The Myth of Fair Value (and How to Take Advantage of It). In it, Poundstone examines both the psychology of buyers and sellers, and the logic used when placing a value on a product or service. The author argues that pricing is anything but an exact science. In his words, ”In the new psychology of price, values are slippery and contingent….” According to the article, many “clueless” consumers are vulnerable to the marketing or sales practice of anchoring. Anchoring, in its purest form, is the act of using of a high priced item that may never sell, in order to make a lesser priced similar item much more attractive. Often, the same manufacturer may sell two like products, one tagged with a designer name and price, the other, a “great deal” at almost half price. The “cheap” one sells like gangbusters!
Since it’s hard to ask twice as much for a similar home, overpricing occurs far too frequently. The good news is, that high price tag makes all the rest of the homes look lots better! The bad news is, the anchor model is probably going nowhere.
While pricing or valuing a home isn’t quite as easy as 1-2-3, accuracy is a result of using the proper comparable properties when determining the listing price of a home. But, if instead, you believe your property to be priceless, and list it accordingly, don’t be disappointed if you find the price you’re offered is only what the educated buyer thinks it is worth.
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Recently, I came across an article on AOL’s Real Estate page highlighting an article in the blog DailyKos. For those not familiar with the ‘Kos, it is devoted mainly to political and social commentary, along liberal lines. In the article AOL cited, the ‘Kos urged those homeowners struggling with their mortgage to, walk away from their unpaid mortgages. In their words:
“The real risk to the banks and investors is that the people in those homes might just decide to walk away. And that’s what we must do. Doesn’t have to be everybody, of course; but anyone who finds themselves seriously underwater with no hope of ever recouping their investment….just walk away Renee. Morality has nothing to do with it. You are a cog in the wheel of a machine that is killing this country and if you remain a cog you enable it. Remove your cog and the machine will not keep running. Remove millions of cogs and the machine gets replaced.”
In other words, the Kos is advocating mortgage debt anarchy; a revolution of sorts. It then cites Realtors from across the U.S. who seemingly justify the action. Why? In the words of one agent, since the economic and housing recovery is projected to take perhaps as long as a decade, “Isn’t it better to just cut the losses up front”?
According to a recent report by First American CoreLogic, nearly one in four are underwater or upside down with their home mortgage. In other words, they owe more for the property than it is worth. According to the N.Y. Times, the housing collapse left 10.7 million families owing more than their homes are worth. Is that a problem? Of course it is. Will walking away from a mortgage solve that problem? Not hardly. Have the Administration’s loan modification measures worked as fast or as well as hoped? No, they haven’t. Nonetheless, the programs were enacted for the affected homeowners to use. I have yet to hear of a homeowner not being able to remain in their home as they attempt to modify their payments.
How about you? If you know of a friend, relative, or client that has been forced out of their property despite the fact they’ve continued to make a payment, or partial payment, please let me know.
Is walking away from a mortgage debt justified? While its track record isn’t perfect, the short sale is getting its act together. Perhaps, for both the lender and the those upside down, it is a better alternative than burning the mortgage.
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In September of last year, the U.S. Department of Housing & Urban Development (HUD) announced a change to FHA appraisal validity periods. The announcement was met with unanimous approval from all sectors; lenders, home owners & buyers, and yes, even appraisers.
The change to appraisal periods involved decreasing the validity time for FHA appraisals from six to four months for both existing homes and those under construction. Since the first of this calendar year, 2010, the new standard has been in effect. Why does the change matter?
For those of us that have faced selling properties, only to encounter difficulties with the appraisal, this reduced turn around time, or reduction of validity time, couldn’t have come sooner. Because, no matter the soundness of an agent’s estimation of a property’s value, it is the appraiser’s that matters most.
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“Incompetents invariably make trouble for people other than themselves.”
Did you see the news? Yesterday’s New York Times carried an article detailing the results of recent federal mandated licensing exams for loan officers around the country. The results thus far are anything but encouraging. According the Times article, ”31 percent of the roughly 10,000 people who took the national test from July 30 to Nov 30 failed it, and about 27 percent did not pass the state-specific component.”
While there are those (you can trust that the dissenters aren’t those depending on the expertise of their lender) who question the industry’s testing, many others appreciate the attempt at accountability. Is it odd to expect those who provide you a service, especially one you pay for, to know what they’re doing? One would hope not.
In the effort to clean up the mortgage industry and answer critics’ claims of of its ”poorly qualified” loans officers, the testing mandate includes both a federal and state national exam that covers federal laws, general mortgage knowledge, the loan-origination process and ethics. While I have to applaud the “after the fact” efforts to ”fix” a disfunctional mortgage loan process, why did it take a crisis to prompt such measures?
The question that leadership in any industry or profession needs to ask itself, is, what are the minimal acceptable standards required by those licensed to perform or practice? Would I want them (the practitioner) to provide that service for me? What if had to pay them for their service? Would I trust them to provide me, or a relative or friend, advice? As we’ve all heard, “many people will only do what’s required.” Let’s hope, when it comes to your trusted advisor, you’re getting at least what you’ve paid for. And, if not, who will pay for their neglect?
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As I was skimming this morning’s New York Times headlines, when a piece on “Mega Content” sites caught my eye. The article’s emphasis centered on the the quality, or lack thereof, of ”Content Sites” like Answers.com The bottom line is, that while these sites are rich with content, and are quickly attracting viewers, maybe we need to consider what the quality of the material found there is? In other words, there’s mounds of information, but is it any good? Is it worthwhile? Is it TRUE?
During the past year or so, I’ve had the opportunity to teach a reoccurring Real Estate Technology class. The class briefly reviews the shift we’ve seen in the methods, tools and practices in our profession during the past few years, and examines how Realtors, by leveraging these recent tools, and social media platforms, can improve productivity and their business. One point of emphasis we touch on during the class is the use of Real Estate blogs as a means of learning the business. Blogs, and their collaborative structure, are a free classroom. And an interactive one at that. And there are loads of them. Whether it’s foreclosures, luxury homes, mortgage issues, best ways to showcase a property, or just about any other subject related to the business of real estate, or homes, there’s a blog for it. Best of all, as I say again and again during class, they are FREE. Classes we used to pay for are now on the web, and at our fingertips, for FREE. So, we really have no excuse for being uninformed, right? But, having said that, what about the content? How much substance is there in the information we’re taking in. What credibility does the particular author, and real estate subject “expert” have?
When absorbing information, it’s a good idea to check your sources, don’t you think? Have you ever wondered why the Federal Drug Administration (FDA) requires certain labels or notices on food and drug containers? Do you think it’s important to know a drug is poisonous BEFORE you take it? Have you ever looked on the label to see what’s in that jar of jelly you’re about to open? Well, what about Real Estate information you’re consuming? Is that article on Short Sales written by a practitioner who is a qualified expert in that transaction? Does that individual teaching you Ethics actually have any background in the practice, or is their “expertise” a matter of having been convicted in court of lying or something worse? Who knew?
One the painful truths of growing up is that most of us have to learn from our own mistakes since we fail to learn from the mistakes of others. Another is that, the older we get, the smarter our parents seem to be. I don’t know about you, but my parents tugged on my ear a few times in my youth telling me not to believe everything I hear. And, you know what, they were right. With today’s abundance of online information, let’s try and be as discriminating with what we read, as well.
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