Buy Now, Sell Later

These last few weeks have offered a ton of contradictory real estate news. Sales are up, sales are down. It all depends on which story you are reading or which TV station you are watching. I say time out, the reports of how the market is doing are a function of so many things, and the reporting is sloppy at best. If you want to know how well or poorly the market has recently done, don't look at how things were on one day or one week or as the government seems to prefer, even one month. Remember the real estate cycle: a buyer decides to buy, a buyer shops for a house (new or used), a buyer applies for a mortgage, a buyer decides on a house to buy and makes an offer, the offer is negotiated, a contract is signed, then if the house is existing, it only takes 4 more weeks before the house is sold, if it's new and to be built, add 40 weeks. This process may take 3-4 months, assuming the buyer does not have to sell a house to make the whole thing happen. So how can you have any confidence in a report that sales were off last month? Last month was July, a dead month in the north, and certainly dead in Florida. So as they say in the Realtor ads, “every market is different”—and that's the one piece of truth you can take to the bank. So let's take a “longer view” of the market. Economic growth continues to gain momentum in the second half of the year, as expected, despite the slow start at the beginning of 2013. The housing recovery continues, and manufacturing and business investment are rebounding, helping to boost growth. Furthermore, consumer spending and the employment sector appear to be growing sustainably, which may help to offset downside risks from the expected tapering of the Federal Reserve’s securities purchases. “Our macroeconomic and housing forecast shows very little change from July, and the steady pickup during the past few months validates our expectations for the second half of the year,” said Fannie Mae Chief Economist Doug Duncan. “The biggest risk to this forecast is the expected reduction in the Federal Reserve’s asset purchases, which would likely put additional upward pressure on interest rates and lead to some volatility in capital markets. The housing recovery appears to have weathered the fiscal uncertainty, although immediate growth is expected to be modest rather than robust while the market awaits an easing of credit conditions in the presence of rising interest rates. The rise in mortgage rates has led to a drop-off in refinance activity but does not appear to have had much impact on home purchase activity to this point. Even though home prices are expected to continue to climb, the pace is predicted to slow from the dramatic levels seen during the past 12 months. But again, all markets are different, and the market that is important to you and me is the one in which we operate. So as long as there are buyers snooping around, and homes for sale, there will be some sales. I expect that August will represent generally slow sales, and that market sales will increase in September and level off for October through December before revving up for January. If I were planning to buy, I would buy now. If I were planning to sell, I would offer my home for sale in February, after the inventory of cheaper homes has been sold off during January. February is the month the Canadians, Germans, English and American buyers realize that—just like in musical chairs, when the music stops they need to be seated--so if they are looking for a home, then they need to find a place before they are all sold. Dane Hahn is a real estate professional serving Sarasota and Charlotte County, you can reach him at 941-681-0312 or by email at dane.hahn@gmail.com. See him on the web at www.danesellsflorida.com

Minnenials Love that City Life

I can’t tell you how many times I have had a potential real estate buyer come sit with me in my office and tell me what she wanted in a new (or different) home. Normally buyers are not exactly sure what they want, I have sent many of them home with a pad and pencils, and the assignment to have a glass of wine and write down what they want in their next home. But mostly there are only two kinds of buyers, ones who already live in the area and are moving up or down; and buyers from out of town who now need to be in the area due to retirement or a job change. These buyers may also be moving up or down, but they generally don’t know the area, home prices and tax rates, (or even the local amenities, golf courses, marinas and quality of the schools), so they need information and almost always, hand holding. What brings this topic to mind is an article in the current Fortune magazine which takes the position that the demand for a home in the suburbs is dying: The End of the Suburbs. The article goes on to say that the suburbs were “ground-zero” for foreclosures and short sales and that the urge to own a large home on a large lot has waned. More and more buyers are choosing to move back into the cities. The story cites homeowners distaste for long commutes, the growth of suburban crime (and conversely less urban crime), the social aspect of having many nearby neighbors of all heritages, and the ability to walk to services and restaurants. Since WWII the United States population shift has been from the cities out to the suburbs, but now according to the author, that tide seems to be reversing. Even though the American dream of home ownership--meaning a cute house with a picket fence and enough lawn to toss a football or room for an outdoor play set, is still in the majority--there are families who are turning their backs on that lifestyle and are opting for a city based condo or apartment, or perhaps more of a planned unit development. Those who practice conspicuous consumption and live in a McMansion, or have a fancy waterfront home, or maybe an honest-to-goodness mansion--if they really want to flaunt their wealth--probably will never change their minds and join the smaller-is-better group. But there may be a trend here and it's worth watching. As I look at this trend, I assume that the shift here is really a generational shift, and not a “hey I have an idea, let’s sell the 4-bedroom home and buy a little apartment,” kind of a shift. I am a proponent of the old theory that “You Are Now What You Were Then”. This theory states that what ever was going on while you were in your teen years will affect you your entire life. Look at the years you were in your teens and see if this isn't right. I could see this in my parents who were in their teen years during the depression, and the days leading up to WWII. They knew what being poor was like--they saw their families lose almost everything. So they were careful with money their whole lives. And they feared war and were very vocal about national politics--because they had seen the results of world politics, League of Nations, et. al. leading up to the “big” one. Looking at the people in their 70's, who were in their teens in the 1950’s, these are the ones who saw their folks recently home from the war, strive to buy a little house, then a bigger one. They saw their folks being able--in some cases--to buy 2 cars, and take vacations. And today, these folks are restoring 1954 Chevy's and are retiring to warmer climates. They don’t mind taking risks, because in their teens and the years after, they saw many years of a good economy. And they have been the ones buying larger homes. Those who were teenagers in the 1960’s and are now in their 60's were affected by Viet Nam, the marijuana scene, psychedelic music and "peace and love". These folks are from the age of Aquarius, they are former hippies and the earth mothers and tree huggers. They have led the EPA and OSHA, and are behind the movement to remove the Glen Canyon Dam and save the Snail Darters and Scrub Jays. I believe these 60-somethings are the group that has moved back into the commune concept of city life--even if it is modified to become “The Villages”. Those who were teenagers in the 1970’s and 1980's , are the ones who are now evaluating “village vs. suburbs”. They are the helicopter moms and dads who hover over their kids, who arrange play dates and won’t let their kids walk to the school bus. You see them parked at the bus stop, which to me misses the point of having a publicly supported school bus system. If you’re going to get up, get dressed, and get in the car, you may as well drive the children to school, and save the tax-payers the cost of the bus. The first buyer I ever met who wanted to live in a “commune-concept” was a Canadian who was being transferred to New England, as I recall he was with Bauer Skates. These people wanted neighbors so close that they could shout to them if they needed help or were in some kind of trouble. It’s not that this didn’t make sense, but this is a foreign concept in New England. Everyone I was used to working with wanted PRIVACY. Large lots. Views (not of other homes), and well, privacy. Remember Robert Frost's poem, "Good Fences Make Good Neighbors"--that's the New England viewpoint. Oddly there was a brand new smallish subdivision under construction that offered homes on 1/5 acre lots that was exactly what this customer wanted--and bought. But specifically New Hampshire--home drinking water mostly comes from a private well and home sewage goes into your own septic tank and leach field. This is because most of the towns don't (or didn't) offer municipal services. This means that your water and sewage may require 1.5 acres so they can be far enough apart--just so you are not drinking your sewage. The smallish sub division I refer to was the first to be built on the new sewer system and in that part of town which already had “public” water--it was the first in which the zoning was adjusted to handle smaller lots. So will the trend of new buyers wanting to make the move back to the city get “legs”? Time will tell, but there seem to be no shortage of homes in the Englewood area that appeal to both those who need big, and those who prefer small clusters, so I think we're in pretty good shape for now. Dane Hahn is a real estate professional serving Sarasota and Charlotte Counties. You can reach him at 941-681-0312 or at Dane.Hahn@gmail.com. See him on the web at www.danesellsflorida.com

Florida HOA & Mortgage payoff question

Q: I am dealing with a HOA situation and am looking for some advice. I live florida and the home I live in is about to be foreclosed on. I have a feeling that the HOA association might come back and go after me for the back assessments. Knowing that you are on the HOA board how often due you go after people in these situations and, if so, what percentage of the back hoa fees have you settled it for ? I appreciate your help. Dane's Answer--I won't kid you, I'm no lawyer. I am on an HOA board and I am a Realtor. But the state of Florida frowns on Realtors practicing law, and so be aware: advice--as they say--is only as valuable as what you paid for it--and in this case my advice is free. I am not clear on whether or not you had declared bankruptcy, your email indicated that you might have done this in 2009, so assuming you did, most of your debts will have either been settled for something less than they were originally, or they will have been written off all together by your creditors. I will assume you did have a personal bankruptcy, and because the house was your principle residence, it was excluded. Now you are having trouble with the mortgage and are about to lose the home to the bank. The bankruptcy would have cleared any HOA fees that had accrued up until that time (2009) but not any HOA fees due and payable since then. On a brighter side for you, banks rattle their swords for a number of months before they strike. Meaning that you can probably live in the house for maybe many months even after they start foreclosure proceedings. At some point there will be an auction, and generally the bank will buy the property back at that time. Legally right now the deed is in your name, but the mortgage and note allow the bank to take back your deed for cause, (and that includes lack of payment) and sell the deed--ownership of the property--to the highest bidder. At auction there are usually nosey neighbors, investors, some hopeful buyers and a representative of the bank. Unless the auctioneer is able to get the bids up into the current tax assessed value range, and therefore sell the property to a member of the public, the bank will normally buy the property. If a sale is made to a member of the public, you will be moving out ASAP. Sometimes within 24 hours, so be aware that a quick move may be required. But usually the bank becomes the owner, and then it's pretty much business as usual around the house. The bank will likely be in touch and give you some options, (they may demand you to vacate, they may offer to rent the place to you, or they may send over the sheriff and change the locks) at this point get some legal advice, you should be able to afford a lawyer since you have not paid a mortgage or any rent for some time. But once the bank owns the property, the HOA indebtedness will switch over to them. And the HOA will place a lien on the bank and get paid when the property is sold the next time. But all HOA's act differently. Some HOAs are actual professional companies run by lawyers who know their stuff, others are run by an elected board of residents, who are most likely retirees. Just to give you a sense of the varying quality of these boards, Florida has a new law that says board members are required to sign a document saying that they have read the bylaws and covenants. Doesn't that give you a warm fuzzy? Q: I am on a fixed income, and get monthly disability. A financial planner has reviewed my accounts and suggests I pay off my mortgage to become essentially debt free, but this will use up about half of my savings. Is this a good idea? Dane's Answer--Here's my wishy-washy answer: yes and no. It's a great idea to be debt free, but given that you are not being pressured to clear out the mortgage by your lender, why would you want to be without half of your savings? So years ago my father-in-law wanted to buy a condo for his second retirement--after the home on Cape Cod (his first retirement home) became too much for him and his wife, and the Hyannis hospital was almost an hour away. So he found a nice condo in New Hampshire, near the kids and the local hospital, and then was faced with a way to pay for the property. He was surprised that at 85 he qualified for a 30 year loan. But he went ahead with that concept and moved to NH. When the house on the Cape sold, he paid off the mortgage. But getting back to your question, you will need a few sheets of paper and a sharp pencil to make your decision. Of late, very low mortgage rates have been available, most of them were advertised, and you may have seen them in the high 2%s. My suggestion is to refinance into a low rate mortgage, maybe even a 10 year term, and forget paying off the existing mortgage now. But do the math. What does it cost you now, and what will it cost you if you refinance? Any money you save will be additional income for you. But cutting your savings in half to pay off a loan that is not in trouble will put you in a bind if you need the cash at a future time. Once you've closed the note, the only way to get emergency cash back back would be to remortgage the home, so if you can comfortably afford it, make the adjustments available to you in refinancing now, and stay the course. Dane Hahn is a real estate professional serving Sarasota and Charlotte counties. You can reach him at 941-681-0312 or at dane.hahn@gmail.com. See him on the web at www.danesellsflorida.com

Detroit Blight Authority to tear down 30,000 Buildings

<!--[if !vml]--><!--[endif]--> <!--[if !vml]--><!--[endif]--> <!--[if !vml]--><!--[endif]--> Detroit has agreed to aggressively tear down abandoned homes and buildings through a pilot project dubbed the Detroit Blight Authority, (an unofficial name designation), that recently cleared out 10 blocks of property near Detroit’s Eastern Market. The U.S. Treasury Department has made $100 million available to Michigan for this effort.

There are still another 30,000 empty buildings in Detroit that qualify for razing.

The DBA  project is a partnership between the city and Bill Pulte, grandson of the founder of Pulte Homes. In just a matter of weeks, this partnership has removed dozens of abandoned structures and cleared brush and debris from 10 square blocks. Let’s say, it's a start...but there are still 29,980 buildings to go.

And Detroit has just discovered there’s a considerable cost related to owning vacant buildings. Because the impending bankruptcy has forced a review on where all the money has been going, it was just discovered the lights in many of these vacant buildings were still on and the city is still paying for the electricity, and the water and sewage are also still on, and so is the gas. Just turning off the utilities at these vacant buildings will save thousands of dollars, razing them will remove the “attractive nuisance” that a vacant building offers and will prepare the land for reuse.  Naturally the city hopes to receive a bailout, or at least federal funding for the project.

Bill Pulte emphasized that neither he nor the Pulte company has an interest in the land cleared so far or the plans to redevelop it. The Detroit Blight Authority (DBA) together with the Detroit Future City project want to right-size the city’s resources to reflect its much smaller population, now down over 65%  from the glory days of the 1960's.

Since the city filed for bankruptcy, the world's financial community has been watching their every move.  Once city managers determine that it's OK for a city to file for bankruptcy, it's assumed others will follow suit. Cities file under Chapter 9, and once they see just how the financial community handles Detroit, some say dozens of other cities across the country--including several in California will follow suit. Meanwhile, Detroit continues to be a tale of two cities. As Charles Dickens wrote of London, it was the best of times, it was the worst of times, the same can be said of Detroit. The business community keeps on doing what has to be done to run its businesses, whether the business is local, national or international. The dysfunctional city government's public bankruptcy has little to do with private business. The two have been functioning side by side for decades, so it's just more business as usual. The city's unions and retirees are screaming and shouting and filing lawsuits, all to no avail because the government will be run by a federal judge who has done this before, and he or she will have the ultimate say. The union leaders can scream and shout all they want, but it's only for the benefit of their membership. Once upon a time they could have negotiated, but they passed up the opportunity. That decision might have been political suicide. The city services will continue. In fact, the citizens might even see some improvement over the next few months as the solvency of the city improves. But the unions will have to beg for whatever is left, they will plead their cases, but it's the judge who will decide. It's too bad that it will be the retirees and bondholders who will be paying for the sins and actions of the city's free spending six decades. For many who have been enjoying the fruits of ill-conceived programs, their income streams will be abruptly coming to an end. It's a pity that Detroit came to see too late they simply can't continue with 60 years of political baggage and croneyism.  But the future city and her future generations will be far better off if their leaders learn the lessons this bankruptcy can teach.  Dane Hahn is a real estate professional serving Sarasota and Charlotte Counties. Reach him at 941-681-0312 or at dane.hahn@gmail.com. See him on the web at: www.danesellsflorida.com.