It's the jobs, Stupid!

Houses on the Southwest Coast of Florida are getting more affordable.  I think that it’s worth looking at "what's affordable" in light of the current conditions.  The National Association of Realtors keep a ton of data on sales and determine what regions of the country have homes which are the most affordable.

They determine “affordability” by using a bunch of formulas and a little black magic, but essentially they try to determine what the average pay is in a given area—let’s say in a county like Sarasota or Charlotte.  And from that average, they would determine if the average wage earner could afford the average home.  So if the average home was offered for sale at no more than three times the annual income, that county would be deemed affordable.  That’s a function of minimum lending guidelines, which seem to draw a line at lending more than 3x a borrower’s annual income.

This takes into consideration the types of income on a county-by-county basis, vs. the types of homes and their prices.  It may also take into consideration the “bubbles” that occur in areas where jobs pay particularly well—like Hollywood and Washington, DC. and where homes are particularly expensive. (But may still be considered—by the NAR—affordable.)

Ours is a region of two economies—our local economy and our tourism economy.  Unlike so many regions, our tourists are not just buying bathing suits and sun tan oil; they are also buying homes, even if their jobs are in London or Berlin or Rome.  This tends to skew the numbers a bit, driving some prices up and causing some very expensive homes to sell right away while other more moderately priced homes sit on the shelf, just waiting patiently for a buyer to come along.

Although we are seeing a “blip” in the sales of homes for maybe last month, there is no telling just where we are going at this moment. 

Many economists see the single biggest problem in the stalling economy as the continuing depression in the housing market, I would suggest that getting America working again will solve the housing issue.  How many people want to move, either up or down—but can’t sell the house they are in.  Most don’t have the luxury to buy their next house without selling the one they are in.  So I say jobs and the ability to borrow money is the cork in the housing bottle.

With about one-fourth of all houses in the United States in foreclosure or still underwater -- with mortgages exceeding their market price -- millions of Americans face such severe financial problems that they cannot begin to resume their normal roles as consumers, move to new jobs or finance their small businesses.  No matter how hard they wish—even pray, the market is pretty well stalled.

Many have little prospect of regaining their lost financial security. The housing bust wiped out more than half the $13.5 trillion that homeowners had in equity in early 2006, according to Federal Reserve data.

In addition, the near-halt to construction of new housing has left several million once-well-paid workers -- many of them with advanced skills and years of experience -- either unemployed or just getting by with lower-wage part-time work.

Like the troubled homeowners, most of these workers face long odds against recovering their old middle-class lives unless the industry revives.

As for financial institutions, billions of dollars in bad mortgages have become an albatross that undermines lenders' basic soundness and discourages new lending for almost any purpose. Weighed down by steep losses in its home-lending unit, Bank of America is preparing to cut 40,000 or more jobs nationwide.

The direct and indirect ties between housing and businesses of almost all kinds are a big reason for the overall lack of economic growth and high unemployment. For makers of building materials, producers of furniture and kitchen appliances and even for grass seed suppliers, the ongoing devastation of the housing market means they also have little reason to invest in expanding operations or hiring new workers.

The health of the housing market is a key element in determining the confidence and spending of consumers, more so than stock prices, because homes are more broadly held by the public.  So it came as a bit of a surprise to many that President Obama, in unveiling his jobs-creation package, said little more on the housing issue than that he would help "responsible homeowners" refinance their mortgages.

Seen any of that yet?  Me either. So far, Washington's record of dealing with troubled mortgages is not encouraging. The government's main refinancing program has helped far fewer homeowners than expected given the estimated 4 million homeowners who are still eligible.  Its loan-modification program for distressed borrowers has proved even more disappointing.

As for the private sector, the legal and economic mechanisms that are supposed to force a solution -- such as foreclosures and renegotiated deals -- also have been largely ineffective.

Dane Hahn is a real estate professional practicing in Englewood, Florida.  He can be reached at 941-681-0312 or by email at dane.hahn@gmail.com.  See him on the web at www.danesellsflorida.com.

Marketing You Home in Pictures

The data we see everyday from the National Association of Realtors always stresses that buyers start their real estate hunt on line. And with that in mind it’s critical that our listings have EXCELLENT photos.  Because—as they say—you only get one chance to make a good first impression.

The thinking is, a photo is worth a thousand words and really good photos can add to the price and value of a home because images sell.  And good photos sell better and faster.

The advertising that we are bombarded with every hour of every day is created by highly paid marketing agencies (ad agencies) and these ads are designed to tempt users of the product or service with the feel, look, and benefit of the advertised product. When it comes to selling a home, however, some sellers aren't as concerned with how their home is pictured.  They don’t realize that bad photos and weak marketing can cause their home to stay on the market longer and actually generate little or no interest.

Because there are plenty of homes for sale, one more home coming on the market can lose it’s identity unless there is something special about it that catches the eye.  With all these homes vying for attention from buyers, it only makes sense to make the marketing scream, "I am a must-see home. I 'm so pretty, I won't last long in this market."  Sell the home in pictures, I say.

Too often, professional quality pictures aren't taken. Instead, a point-and-shoot camera is quickly grabbed and put to work, or worse an assistant with a phone-based camera shoots the pictures so there are photos for the multiple listing.  Just thumb through the listings and you’ll see what I mean.  It’s true some of the quick and easy photos can be nice images, but professionals use pro cameras, lights, and editing tools for a reason. This is about making your home look its best.

As you no doubt know, photos can be deceiving.  That being said, I almost never run a photo that has not been enhanced a little.  Better lighting, adjusted color and cropping all help present the home in it’s best “light”.  But in fact, if your photographs are too heavily touched-up, you might find that potential buyers are turned off or even angry about what they see when they arrive at your home.  A talented photo editor can make the worst flaws in a home just go away, but that kind of editing is almost always misleading to a buyer.

Marketing the home by using photographs that display the strengths and how each room can come to life can help a prospective buyer see himself in the home. Think about model home flyers.  You never see a cluttered kitchen counter in a catalogue, you never see a fridge full of magnets with dozens of photos plastered on the doors, you never see a dirty hand towel hanging from a hook.  The photos that sell best are almost always of depersonalized spaces—ones that buyers can see as their own.  To make these photos, homes need a thorough cleaning and sometimes even a moving of furniture for the photos (we call that staging) to show size and flow.

Non-professional photographers often make the mistake of using harsh bright lighting.  Just turning on the flash is not always the best bet.  Bright flash photography can cause a photo to be “blown out” and doesn't give the home a warm, inviting appeal.  A good photo-editing program will add shadows or brightness as needed—and waiting for an overcast day to take shots will limit the deep shadows and bright highlights on the exterior too.

Most Realtors I know have decent digital cameras. But not everyone knows how to take great photos. If you’re thinking of selling, you can make the photos of your home, and if you are using a Realtor, just supply the photos to him or her to use in the marketing.  But remember, take plenty of photos and pick only the best ones.  And save a set of them for yourself too, once your house is sold these may be the best pictures you’ll have to remember the home.

Dane Hahn is a real estate professional practicing in Englewood, Florida and Stratham, NH.  You can reach him at 941-681-0312 or 603-566-5460 or by email at: dane.hahn@gmail.com.  

What 2012 Will Bring, Real Estate-wize

I can say with certainty that my crystal ball is still a little cloudy, but:

  

I’m pretty sure that nationally there will be an uptick in the rate of home repossessions in 2012.  The good news here is that Florida is pretty well drained of this stock, and as the vacant inventory begins to dry up, we should be in a better than average position for new sales and the return of very modest inflation in the prices of used homes.

There are many reasons for the massive backlog in the foreclosure pipeline, banks are taking months, maybe even years, to actually foreclose on mortgages in default. The administration is focusing on the backlog of homes out there and are making some wild and crazy proposals that may or may not work.  But the fact that real estate remains a hot topic is helpful to those who homes are in limbo and to buyers and investors who would purchase a home—but had been stymied with the red tape and delays. It’s pretty clear that in 2012 and beyond, the banks will work through those backlogs, which will increase the actual foreclosure rate, but should get new families in the vacant homes over the next few months.

According to the folks at Coldwell Banker here in Englewood, short sales represent more than 40% of their business.  In the coming year, distressed home sales will continue to represent an increasing share of homes on the market.  Buyers will shift from considering whether to buy a short sale to understanding that they must be educated and prepared to do a deal with a seller, a bank or both to access the full selection of homes on the market.

To make smart decisions about what to offer and what to expect on any listing they like, buyers will need this information and be willing to negotiate in good faith with patience as well as to set smart priorities and make realistic comparisons between listings based on their own personal priorities around timing, certainty and seller flexibility.

We’ve all been “dope-slapped” by the dips in home values.  In Sarasota, I have shown condos which in earlier times would have sold for over a million dollars—but today the asking price is in the $400’s.  In Englewood, waterfront homes once in the $500,000 range are selling for under $250,000.  Still, the “affordability index” often discussed by the economists at the National Association of Realtors and the Florida Association of Realtors, is showing that buying a home has never been cheaper.

The cost of borrowing money is at an almost all-time low, the cost of purchasing fine housing is also very low today.  Meaning that as the job numbers finally correct themselves, the cost of housing will likely increase disproportionately over the next 12 to 18 months.  I can’t speak for the other areas of the country which had the same “bubble” we had, and the same “burst” of their bubble—like Las Vegas--but I can speak for Florida, which I see as ready to return to a real estate driven economy.

For years, buyers and sellers have been waiting for that singular event to occur that would cause a quick market recovery.  Well, it ain’t gonna happen.  Americans love instant gratification.  We love to have our cake and eat it too.  But the days of getting rich quick (legally) are over.  Hard work, sacrifice and good realistic ideas equal getting rich slowly, and that’s the best we can hope for now.

You don’t make money in the real estate business when you sell your property.  You make money when you buy.  You can’t sell a property for more than it’s worth, so smart investors buy right, maybe 30% off the going rate, and then either wait for the market to grow, or make repairs and cosmetics to drive up the likely resale price.

Today the investors will look to acquire rentals that will return 150% of their monthly costs, and hold these homes as investments.  Flipping is so yesterday.  Ordinary citizens should relook at a refi or remodel and be content where they are for the long haul, or decide their homes no longer fit their lifestyles and their finances, divest of them and move on.

But the good news is, people will make these decisions based on what is or is not sustainable for their lives and their finances, and not based on inflated hopes about what the market will or will not do.

Dane Hahn is a real estate professional in Englewood, you can contact him at 941-681-0312 or by email at dane.hahn@gmail.com. Or see him on the web at www.danesellsflorida.com.

She Asked, "How Do I Get My Deposit Back?"

When the phone rang this week and caller ID said New York, I wondered who might be calling.  Turns out it was a gal from Long Island who had entered into a contract to have a house built near the (Donald) Trump Towers over near Miami. She explained that they had contracted to have the house built in a pre-construction deal, and put down $100,000 in escrow as the down payment.

Here her story was a little sketchy, but in a nut-shell, here was her question:  The contract was entered into and the delay to build the house was supposed to be about a year. Apparently the builder completed the home in time as scheduled.  Something happened when the house was finished and ready which caused them not to close.  Although she had answers to most of my questions, she did not seem to know why the builder had not returned her deposit.  And, obviously, she wanted to know how to go about getting the funds released from the builder’s escrow company.

Perhaps I should tell you that she and her husband did not use a Realtor.  They had met with the builder’s representative on site and concluded their negotiations there.  So in truth, they have no advocate, and really nobody helping them.  The builder had his representative and his lawyer—and maybe his escrow company.  The escrow company is normally a law firm.

The Florida Real Estate Commission, and for that matter the licensing bodies in every state have serious regulations when it comes to handling other people’s money.  I would say that there are many gray areas in real estate, but when it comes to handling funds, it’s all black and white.  You can’t co-mingle funds, meaning mixing together client’s funds with your own; you must account for every penny you have received; and you may be required to even pay a modest amount of interest on money you are holding. (This is an effort to curtail real estate companies from keeping any interest they may earn while they are holding your money.)

So my caller, went on to say that she had repeatedly asked for her money back.  The reply she got was that the builder didn’t want to return it, but offered instead to give her credit toward another unit.  Her answer: she just didn’t want to buy in Florida anymore. 

I asked her if she had ever signed a “Release and Cancellation of Contract”.  This is a form that triggers the return of deposit by the escrow company.  It’s a simple form that asks both parties to sign off on the release of funds.  If the seller won't sign off then the third party holding the escrow has no choice but to continue holding the money until there is a determination, maybe a judgement as to who gets it.

So to get a judgement, you can go to a judge and explain the situation—she was not willing to do that.  Too costly to sue a builder in Florida if you live in New York, she said.  There is a court expressly for real estate disputes, called Interpleader, but when I discribed that, it was also going to be too onerous for her.

It all sounded so one-sided and seemed so unfair while she was explaining it to me.  But then, after we hung up, I began to have my suspicions that all may not be exactly as reported.

Now I think my caller was probably asked to close on the home at about the time the Miami market had pretty well dumped.  I suspect they took a hard look at this brand new home they contracted for, and realized that it was now worth maybe hundreds of thousands of dollars less than they agreed to pay.  They realized it would be cheaper to walk on the $100,000 deposit, than to buy a house worth maybe half of the contract price.  (And if their $100,000 in escrow was 20% down, this would have been a $500,000 house, now worth maybe $245,000). 

So I now think my caller waited until the builder had sold the property to another, (so could not force them to buy it) and then decided that since the deposit was still in a third party’s hands, that she might make a claim for it, and might be able to make a case to get it back.

In any case, whether I’m right or wrong, the money in an escrow account stays there safely until all parties agree to release the funds and determine the disbursement (meaning all the funds go to one or the other parties, or is split some way, or goes to a new third party--), and that once disbursed, all parties hold the other harmless from any claims or actions.

So the money is safe, but it may not be hers any longer, that will be up to the judge.

Dane Hahn is a real estate professional in Englewood, Florida.  He can be reached at 941-681-0312 or at dane.hahn@gmail.com. See him on the web at http://www.danesellsflorida.com/

Zestimate Bullshestimate

Just the other day—at our company Christmas Party--some of the conversation turned to Zillow. That's the on line automated real estate site that estimates the value of nearly every house in America. Right or wrong, millions of consumers are clamoring for their data since they provide a no-obligation idea of what your house—and those of your neighbor's up and down the street—might sell for. In a housing market that's been mostly a cause for gloom, so-called home-valuation technology has become one of the few sources of excitement.

The question that we debated, over a couple of beers with carols playing on the CD, was how accurate are these estimates? After years of us real estate pros holding all the informational cards in the home-sale game, Web-driven companies like Zillow, Homes.com and Realtor.com all want to be consulted when you are trying to determine the likely selling price of a home. Probably your home.

For most of real estate history, of course, determining a home's value has been the appraiser's job. Appraisals involve gathering data on recently sold homes in a given area and comparing them with the "subject property" on matters like size, bedrooms, bathrooms, garage, general condition and other characteristics, before coming up with an estimate of the home's worth. If the property has, say, a 4th bedroom, but most of the recently sold homes don't, the appraiser might add a premium to the sale value. This exercise involves as much art as science, as anyone who has done a few will attest..

The more unique or luxurious a property, the harder it is to accurately value. Subject properties may be so unique that no comparable properties can be found. You only have to tune into HGTV's unique homes shows to see what I mean. Where will you find another home that rotates to use as a comp? Or another one made out of old airplane parts that might have recently sold?

Buyers use the web site estimates to get a feel for what's on the market and, later on, to figure out whether their offer will entice a seller to play ball. Sellers might check their home's value to help decide whether it's worth the hassle of selling or just refinancing, even some Realtors use them to gauge if their listings are priced right for the market. As a practicing real estate agent, I'm increasingly resigned to spending time with potential sellers answering questions about the estimates.

Realtors know the estimates are wildly inaccurate. Valuations that are 20, 30 or even 50 percent higher or lower than a property's eventual sale price are not uncommon. The estimates frequently change, too, for reasons that aren't always easy for homeowners to discern. According to the web companies themselves, some quotes have swung by hundreds of thousands of dollars in as little as a month as new data gets plugged into the algorithms the sites rely on.

And the sites acknowledge that people like you and me can enter information that might push estimates higher. The sites invite you to add photos, and make corrections.  But what I'm trying to say here is a Trulia or Zillow estimate is just that -- an estimate.  Zillow even publishes precise numbers about how imprecise its estimates can be.

Every major site urges home-price hunters to always consult with a real estate agent or house appraisal specialist. And yet, consumers and pros alike say many homesurfers put their faith in the estimates to sway the way they shop and sell.

Since 2006 Zillow has been providing it's “Zestimates” to the masses. The company runs data on more than 100 million homes through its own algorithms that recognize relationships between property characteristics, tax assessments and recent transactions. Indeed, in a market where listing prices often reflect more hope than reality, some agents say that online tools are a useful tool—if only to open discussions with sellers.

Their iffy accuracy notwithstanding, critics say the sites' business models may pose a bigger problem for consumers than their algorithms. These online firms earn significant revenues from their advertising, and the more traffic they get, the greater that ad revenue is. Their advertisers are the likes of home-supply store Lowe's, realty franchisor Century 21 and builder KB Home. Meaning on the one hand they provide a free service to shoppers, and on the other they sell a service to the real estate industry—but think for a moment, who's their daddy?

Dane Hahn is a real estate professional in Englewood Florida. He can be reached at dane.hahn@gmail.com or through his site, http://www.danesellsflorida.com/.

Should Banks Pay it Forward?

Secret Santas are cropping up around the country. These are people—who mostly anonymously—give money as a Christmas gift where it was least expected. A little old lady toddles into a Walmart and pays off a dozen or so lay-away accounts, so the folks who were buying a TV or some toys on time, all of a sudden find their final payments have been made, and the goods are theirs. Wow, it's Christmas.

Some find a way to slip a gold coin or a big check into a Salvation Army bucket, and quietly, more good is done.

Today I watched a down and out fellow get a $100 bill from a complete stranger. The benefactor was visiting soup kitchens and generously gifting money. Yes, he's giving money, but really he's giving more than money to the folks who were doing all they could to cope. He was offering a belief in their ability to be good, providing them chance to evaluate their life and maybe make a change. As he said, “I'm not judgmental. If my effort can help make a change in a couple of lives, then I'm a success too.”

These efforts at Christmas kind of make you want to see that old film, “Pay it Forward.”

To a large degree, what our real estate based economy needs right about now is a Secret Santa.

Naturally, Secret Santas can't be fair. To be fair they'd have to give everyone a surprise gift—and all of a similar value. No, a real estate Secret Santa would have to reach into the morass of tangled loans and foreclosures and somehow catch-up the loans of some of the neediest borrowers. They would just zero out the deficiency, and give the borrower a new start.

Of course that couldn't happen. There are too many people, too far behind to be able to help them all—but what if, just a few, maybe there is a way. What if all banks who had made loans to home buyers looked over their outstanding loans, and zeroed out the bottom 2%. Not pay off the house, but “catch up” the borrower, so that the loan would be “up to date”, with nothing overdue. Next month's payment would still be due, but the slate would be clean. How about that?

I would submit that maybe even the bottom 10% of a given bank's mortgagors are going to lose the house anyway. So what's the risk to the bank? The chances of the bank actually receiving any of the past due amounts are slender given our flacid economy, but if a fresh start could keep the folks in the house, then both the bank and the family would be better off; if a fresh start could result in some percentage of the residents picking up and turning the mortgage into a “performing” loan, then like the Secret Santa, the bank would be a success in the community too. Could it happen?  Probably not, but then it is Christmas...

On another topic, the “flood insurance” topic reappears for the third time this year. Congress seems not to be able to vote for a simple bill that would allow the continuation of Federal Flood Insurance. The problem with flood insurance lapsing (over and over) is that homes which are sold and about to close but which are in flood zones, can't close without the insurance and so not until Congress reinstates flood insurance. Why is this such a hard topic for all those lawyers in Washington? I write to my senators and reps, but with no results.

But I forgot, they're the ones who determined that our traditional incandescent light bulbs could no longer be sold, in favor of florescent bulbs, and then this week, changed their minds. I would love to see the cost of this “double” legislation. The cost of passing the first bill, the cost to retailers to adjust their inventory, the cost to manufacturers to accommodate the newly perceived demands, the cost to consumers to switch over at least some of the bulbs (the 3-ways are just awful) and the cost to change their minds back to again and allow the bulbs. Maybe it's not in the Trillions, but you can be sure it was expensive and is just another of Washington's leadership boondoggles. November 2012 can't come soon enough.

Dane Hahn is a real estate professional practicing in Englewood, Florida. He can be reached at dane.hahn@gmail.com or at http://www.danesellsflorida.com/.

Even the Newspapers Are Suffering

This week I had the pleasure to attend a breakfast presentation by Diane McFarlin, who is the Publisher of the Sarasota Herald Tribune. I think it's worth taking a few minutes to discuss how it is that the Herald Tribune (a New York Times owned daily newspaper) is weathering the downturn in the economy.

From my perspective, the world revolves around real estate. In the newspaper business, the world revolves around advertising and to a lesser degree, subscriptions. Interestingly over the last three or four years, the Herald has lost more than half their advertising base, albeit their readership is holding pretty well. The loss of their advertising has been to the internet, some of it to other fragmenting media, and some of it to the general  slow-down and loss of business. They have lost most of their real estate advertising and a meaningful amount of their national advertising. The likes of Craig's List and eBay have heavily impacted their classifieds in all categories.

They are countering these changes by adding new websites and serving their readers with other electronic and print products, and of course by continuing their effort to cut expenses. They have sold 60% of their bureaus throughout the three counties they serve, they have halved their personnel and are considering additional changes to the newspaper to save on their financial outgo. These are severe cuts that were difficult decisions, but have resulted in their staying in business, even though more cuts may be necessary.

But these hard decisions should result in future health. And hard decisions are the very thing we are asking our Senators and Congressmen to make before--unlike the newspaper--we are blindsided by our unwillingness to get our head out of the sand. The paper realized that times had changed, and that only well managed and tightly run businesses would survive. Now we—you and I-- have to be sure our lawmakers at every level do the same.

So what's up with real estate? Well things are looking up a little. Home buyers scooped up more previously owned homes last month slowly putting a dent in the huge inventory on the market. Sales of existing homes rose 1.4% last month to an annual rate of 4.97 million homes, the National Association of Realtors reported.
Foreclosures and short sales dropped to 28% of sales in October, down from 30% in September. Even as the stockpile of homes on the market eases, housing prices are continuing to dip. The median price for an existing home was 4.7% lower than a year ago. That means it's still a great buying opportunity for house hunters.

But one of the problems preventing the housing market from making a full recovery is that many of the home buyers attempting to buy houses are seeing their mortgage applications rejected. Contract failures, which include declined mortgage applications or failures in loan underwriting because of problems including appraised values coming in below the negotiated price, jumped to 33% in October, up from 18% in September.

Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales, such as job creation, rising rents and high affordability conditions.

New-home sales edged slightly higher last month, as more Americans hunted for bargains in the struggling housing market. The Census Bureau reported an annual sales rate of 307,000 new homes last month, up 1.3% from a downwardly revised rate of 303,000 homes in September.

Compared to new home sales a year ago, there were about 162,000 new homes on the market by the end of October. That represented a 6.3-month supply at the current rate of sale. The median sale price was $212,300.

Last week, a separate report showed that more house-hunters are also eyeballing previously owned homes. Inexplicably, an increasing number of home builders are planning to build houses and are breaking ground on new construction, with building permits and housing starts climbing.

Dane Hahn is a real estate professional practicing in Englewood Florida and New Hampshire. He can be reached at 941-681-0312 or 603-566-5460  or try http://www.danesellsflorida.com/