Housing Outlook, 2nd Half of 2012

Richard Nixon used to say, “Let me be perfectly clear about this…” And so I wonder about the clarity in a release that came across my desk this week: Recent data indicate a slowdown in economic activity for the remainder of 2012, yet modest growth is still expected, according to Fannie Mae’s Economic & Strategic Research Group.  What?

Consumer spending has weakened in recent months as the consumer confidence index fell to the lowest level since January. Contributing to the downturn is an uncertain job market. The June employment report showed significantly fewer hires compared to the first quarter monthly average, and ongoing concern regarding the European debt crisis and domestic financial markets may suppress a meaningful increase in private payrolls before the end of the year. In light of these trends, the group has revised down the 2012 gross domestic product (GDP) growth projection from 2.2 percent to 2.0 percent.

“The data from the past month collectively point to decelerating economic growth, but growth nonetheless,” says Fannie Mae Chief Economist Doug Duncan. “It’s now clear that our concerns have materialized, pushing down our already modest growth projections.”

Pending home sales declined in June from May, The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, slipped 1.4 percent to 99.3 in June from a downwardly revised 100.7 in May – but it’s 9.5 percent higher than June 2011 when it was 90.7. The data reflect contracts but not closings.

Foreclosure activity in the first half of 2012 increased from the previous six months in 125 of the nation’s 212 metropolitan areas with a population of 200,000 or more.

Florida accounted for four of the top 20 metro foreclosure rates. Florida cities in the top 20 include Orlando (No.12), Miami (No. 13), Cape Coral (No. 17) and Lakeland (No. 18). In gauging change between the last half of 2011 and the first half of 2012, the Tampa-St. Petersburg-Clearwater area had the highest foreclosure increase at 47 percent.

Buyer interest remains strong, but fewer home listings mean fewer contract signing opportunities. National Association of Realtors indicated that we’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”

Residential investment is expected to increase this year but from a very low base, and is expected to contribute to economic growth for the first time since 2005. According to Fannie Mae’s June 2012 National Housing Survey, homeowners are showing greater confidence in one-year-ahead home price expectations, and their broad attitudes regarding the housing market continue to improve.

The share of polled consumers who say they would buy a home if they were going to move increased by 6 percentage points to the highest level seen in the survey’s two-year history. This is likely due in part to low interest rates and the assumption that home prices have hit bottom.

So the one hand, things are not all that good, but then on the other, things are getting better, albeit slowly. I would add that in this situation, if you can; now is a good time to buy a house.  Is that perfectly clear?

Dane Hahn is a real estate professional.  You can reach him at 941-681-0312, or by email at dane.hahn@gmail.com.

Pricing Cures All Ills

Question:  Our home has been for sale for too long. When we listed the house, our agent suggested we price the house $90K below the assessed value, stating that the assessment value is used for property tax purposes but that it’s not related to the market value of our home.

We have since completed our move to South Carolina, where our bank representative told us we should never have listed for less than the appraised value. What should we do? Based on the banker’s opinion, we want to increase the price by $90K to the assessed value. We thought we could trust this agent because she was referred to us by a friend. Are we right in seeking the most profit?

In the handful of showings we have had, almost all of them tell us the house is in need of too many updates for the current price. No one is making an offer. We did get a verbal offer of $30,000 less stating that lots of work needs to be done. Some of the updates include flooring (we have vinyl and older carpets) wood repair to doors, windows, since the current windows are original and the house is 30 years old.

Answer:  First of all, all real estate sales are local. Your banker in North Carolina probably has little knowledge of our market and the competition you face.  And in today’s real estate market, the assessment value of your house may not provide a true picture of your property evaluation in relation to market value in real estate sales. There are many reasons our market is different than North Carolina. Property values have fallen drastically as you well know—a function of the slumping economy.

When you selected your agent you depended on your friend to refer you to an agent you could trust and work with. But now you’re not so sure…some of the questions you can ask yourselves and your agent include:

How about the Market Analysis? If you got one, read it.  This analysis includes properties that have sold in your area in the past several months. Generally, there is a price range within which your home will probably fit and you can expect that buyers are also reading this data and their offers will be within this range.

Reread the Market Analysis; see if the included properties were similar to yours. Comparable properties used in the Market Analysis must be as close to yours as possible. (If you have a ranch with a pool, if you have a garage or a large lot, the comparables should too.)

Not all agents compute or discuss an Absorption Rate Analysis.  This analysis depicts how many homes are currently on the market in your zip code and at today’s sales rate, how long it would take them all to sell.  If your house is average and priced as such, you can see how many months to expect before your house sells. Because the homes that are priced right sell faster, this data will help you decide how to price your property.

Have you asked your agent to help you understand the results of the showings? The fact that you have had a number of showings, with no offers, and some feedback regarding work needing to be done indicates to me that your price may need an adjustment: (not an upwards adjustment but a downwards adjustment.)

One way to find the proper asking price is to pay a bank appraiser to come appraise the property. This will give you a price that buyers will understand.  And it will tell you what the bank would be willing to lend a buyer for the purchase. If a bank appraiser comes in with a value of $200,000 and you currently have your property on the market for $250,000 then you will understand that all savvy buyers would know the house was overpriced.  But even a dumb but willing buyer would have to bring $50,000 as a down payment since the bank wouldn’t lend over the $200K.

Buyers want the best price. Sellers want the most they can get. Realtors don’t get paid if the house doesn’t sell.  We all understand this and want to price the property with you so it will sell quickly and with the least upset to you, at a price the market will bear.

Dane Hahn is a real estate professional practicing in Florida and NH. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the web at http://www.danesellsflorida.com/

Changes in the Flood Insurance Laws

Last Friday President Obama signed H.R. 4348, extending the rewritten National Flood Insurance Program (NFIP) for five years to 2017. Since 2008, the flood insurance program has been extended for a few months 18 times and allowed to lapse twice, sometimes forcing homebuyers in flood zones to postpone a closing.
Failure to renew the program would have been another blow to the fragile housing market because potential homeowners in flood-susceptible areas would be unable to close on mortgages or refinance loans. A two-month lapse in the program in 2010 resulted in some 1,400 home sales a day being cancelled.

The new version of the program attempts to put the program on better financial footing by giving the government greater flexibility to raise rates. It also ends federal coverage for some properties, including vacation homes. It further streamlines FEMA efforts to raise or move homes that are sources of repetitive claims to the insurance fund. And it requires a lender to end flood insurance it “force placed” on a homeowner and issue a refund.
Congress created the flood insurance program in 1968 because very few private insurers cover flood damage, leaving the government to cover the costs of disasters. Many of those covered by the program live in flood-prone areas where flood insurance is mandatory for those with mortgages from federally regulated lenders.

According to the Florida Division of Emergency Management, Florida had over 2 million flood insurance policies as of Sept. 23, 2011, or roughly 37 percent all NFIP policies, and 97 percent of Florida communities participate in the program.

The new part of the bill finally deals with subsidies for certain properties (second home, business, severe repetitive loss or substantially improved/damaged) built before 1975. These properties will be charged full actuarial rates for flood insurance, but the increase will be phased in over four years at 25 percent per year. These are the homes that get whacked every year, and your tax dollars continually allow owners to rebuild, only to get flooded again.  Finally this “loophole” is being plugged.

It offers some new regulations (of course) insurers can use following a major storm to determine if property damage should be attributed to rising water (NFIP coverage) or the effects of wind (private coverage).

It eliminates subsidies for property not currently insured by NFIP. This includes property that had flood insurance in the past but allowed it to lapse. And it allows any of its flood insurance premiums to increase by 20 percent annually; it used to be the annual cap was 10 percent. But to make the increase easier to swallow, it allows property owners to pay for flood insurance in installments.

Accuracy of flood plain maps will also be refined. In the past, each time the maps were redrawn, homes along certain flood plains either now needed or were exempted from flood insurance.  It’s appropriate that new accurate maps are created. A technical council of experts will study an expansion of the flood insurance program to cover other natural disasters beyond flooding. That could lead to disaster insurance that includes other events, such as hurricanes and earthquakes.

Dane Hahn is a real estate professional practicing in Florida and New Hampshire.  You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the web at http://www.danesellsflorida.com/

A Trillion Dollars in Student Loans

Recently I discussed student loans, and especially as they can present a problem to folks trying to buy a home. Because these loans always show up on credit reports they lower the amount that can be borrowed--and they are a debt that must be paid. Many banks make paying off a student loan a condition of the loan--before granting a mortgage. And the government has decreed even personal bankruptcy will not erase this debt. (Student Loans are treated like an IRS lien).

You might think that folks with student loans are mostly kids and the total of all student loans doesn't add up to very much. Well look again, student loans have been growing eight to ten percent a year for at least two decades, and now add up to one trillion dollars of debt outstanding—roughly $25,000 each for the 40,000,000 former students who owe this debt.

And these former students are no longer kids, approximately 40 percent of the debt is owed by people 40 years of age or older. So when politicians talk about maintaining low interest loans to "help kids go to college", more often than not their help is going to middle-aged individuals long gone from the halls of academia, and whose interest today lies anywhere but their ancient student loans.

With this as an introduction, I just received a memo written by Richard Vedder—the author of Going Broke by Degree: Why College Costs Too Much. Let me share some of his thoughts regarding federal student grant and loan programs.

(1) Since student loan interest rates are always set by Congress at below-market rates, often too much money is borrowed for college. Currently the key rate is 3.4 percent—which, after adjusting for inflation, is approximately zero. Here is a perfect example of the fundamental problem facing our nation today: politicians pushing programs whose benefits are visible and immediate; while their long term costs are put off on future taxpayers. (Some call it kicking the can down the road).

(2) Colleges are responsible for allowing loan commitments to occur, but they face no penalties or negative consequences when defaults occur, (this is an obvious conflict of interest which imposes the costs  and penalties on taxpayers). And consider this: a top student at M.I.T. pays the same interest rate as a below average student at a state university. College graduates who get good jobs are what the programs were designed for, whereas students who fail to graduate fail the system as well as themselves. 

(3) The cheap money from the grant and loan programs has contributed to the tuition price explosion. Students are not nearly as sensitive to college costs that they can finance. Colleges and universities take advantage of that and raise their prices to capture the funds earmarked to help students. This is what happened in health care, and is what is currently happening in higher education.

(4) College Enrollments have increased due to the federal loan programs. But in today's job market the number of new college graduates far exceeds the number of new jobs—positions that college graduates have traditionally taken. 54 percent of recent college graduates are underemployed or unemployed. It's estimated there are 107,000 janitors and 16,000 parking lot attendants with bachelor’s degrees. And many of these folks are still struggling to pay off student loan obligations.

(5) The federal government underwrites student loans by borrowing 30 to 40 percent of the money it currently lends, much of that from overseas. Thus Americans are incurring long-term obligations to foreigners to finance loans so largely middle class students can go to college.

(6) A growing percentage of those going to college simply should not be there. These are students who cannot or do not master much of what college students are expected to learn. As a result, many students change majors over and over and either do not graduate or fail to graduate on time. Approximately 40 percent of Pell Grant recipients take six years to graduate, and many others simply do not finish. Today's students spend on average less than 30 hours per week on academic work—less than they spend on recreation.

(7) In a recent North Carolina student loan fraud case the judge wrote: With funds so readily available there is a temptation and opportunity for persons to acquire low interest student loans--with the intention of dropping out of school--and use the proceeds for other purposes. (In North Carolina, the case he refers to was former students who started up a t-shirt business using student loan money.)

With the federal government continuing to spend more and more taxpayer money on higher education at an unsustainable long-term pace, a re-thinking of trillion dollar federal student financial aid policies is a good place to start in meeting America’s economic crisis.

Dane Hahn is a real estate professional practicing in New Hampshire and Florida. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312. See him on the web at www.danesellsflorida.com

Higher Education, Or Just Bogus Coursework...

Back in February 2012 the National Association of Home Builders Housing Market Index had doubled from September 2011 to February 2012 in builder confidence in the construction of new single-family homes nationwide.  Lots of real estate professionals - developers, builders, contractors, lenders, suppliers, you get the idea - were happy about this and keeping their fingers crossed.

This month The Sarasota Herald Tribune checked with Anchor Builders, whose head honcho confirmed that things are better now than they were last year.

The Tampa Bay Business Journal checked with the division-marketing manager of Taylor Morrison, who confirmed that Florida appears to be in the early stages of recovery.

Business Week Magazine checked with Gainesville builder Barry Rutenberg, who confirmed that the NAHB report is showing the reality of a gradual improvement in the housing market—but expect this from Rutenberg, since he’s also chairman of the National Association of Home Builders. And Rutenberg went on to say that as soon as the housing business is back on it’s feet, he expects to see the economy and jobs market recover.

What?  That’s not how it works.  The jobs have to come back to make the economy correct, and then—and only then—will the new home business get back on it’s feet.  Here in Florida, we’ve been hit harder than almost any other part of the country in this housing crisis and it’s not going to be a fast recovery no matter how much we would all like to see that happen.  But jobs have to come first.

But let’s take a minute to look between the headlines—what will it take to get the jobs back?  Rutenberg suggests more college education will be needed to fill the jobs that will keep America strong.  On the one hand, it’s great to hear some leaders, at least, are anxious to keep America in the forefront of worldwide business.  On the other hand, the diploma business (formerly called higher education) has become another of our outdated and over-rated business, populated with over-paid administration and under motivated instructors, teaching required courses that have almost no application to real world use.

There was a time when a willing employee first took on an apprenticeship and learned a business from the ground up.  Granted this probably has more application to manufacturing than to high technology, but the apprenticeship made sure the employee knew the ropes (as they used to say on tall ships).  Today an apprenticeship can be found in military service, or perhaps in a Jr. college with internships.  But generally, when a newly minted graduate accepts a job, he or she is really not ready to contribute, and must still undergo some kind of additional company training.

So much for all the student loans, expensive text books, courses of study that lead nowhere, crappy apartments and beer drinking contests.  After four years of what college has become, it’s no wonder that we get the Occupy Wall Street types who are now certain they should get free education forever, and law graduates who sue their law college for misleading them that they would get a good job upon graduation.

Come on people, there’s no free lunch.  Take a long look at college presidents and bloated administrators who make huge salaries every year running institutions that turn out over-educated disgruntled 20-somethings.  It’s time to forget the 4-year programs that don’t prepare students for real jobs and get back to teaching what’s needed for the student to become personally successful and will make that graduate aware of what’s needed in the American work force. Make it a one or two—or even a three year diploma, but make it count for something.

Advances in robotics and software, are already bringing blue-collar manufacturing back to America.  Consumers want to “Buy American”. Web-enabled cell phones, notebooks and tablets are creating vast new possibilities and today bring high-quality, low-cost education not just to every community college and public school but also to every home.  And with that, plain old Americans can afford to acquire the skills to learn 21^st-century jobs. Cloud computing is giving anyone with a creative spark cheap, powerful tools to start a company with very little money.

Dane Hahn is a real estate professional practicing in Florida and New Hampshire.  You can reach him by email at dane.hahn@gmail.com or on the web at www.danesellsflorida.com.