Year End

It's been awhile and, with year end around the corner, I have a few thoughts I wanted to share in '07:

This highly touted plan to save homeowners with adjustable rate motgages through work-out programs to convert ARMs into fixed mortgages is optional. In other words, the entities with control over these mortgages have no obligation to enter into or abide by the criteria as laid out in this plan. Moreover, borrowers are being placed in 3 catagories and only one category is eligible. Without getting into the details, to my knowlege there is not yet a formula for these classifications. All that said, it is still worth looking into if a person feels they may qualify.

For those of you who have pre-approvals, do not make the mistake of relying on the same. The mortgage industry is in turmoil so stay in close contact with your lender/broker, if you are seriously shopping for a home.

Sellers who must sell need to price their homes properly and stage them to perfection in order to sell given the time of year and state of the market. However, the buyers who are shopping now are serious. The tire kickers wait for the spring and fall. The point being, if you follow the above advice, it is quite possible to sell your home at this point and time.

In short, I still believe that the market may start to turn in the seller's favor, in late spring/early summer of '08. However, that is optimistic and a mere starting point. More likely, we are looking at the fall of '08.

Merry Christmas and happy holidays to all!

Winter = Buy

Talk about a perfect storm...wow!

It's getting cold outside. I have counted snow twice. Thanksgiving has passed. Look what's around the corner...

More cold weather...Christmas...New Year's Eve...school vacations...basic lethargy relating to the time of year.

Sellers:

If you have the luxury, wait for spring! That said, if you must sell now, price your property correctly and stage the property with an eye toward your target market. For a more in-depth explanation of that last statement, feel free to give me a call any time.

Buyers:

Buy...buy...buy!

In conjunction with the cyclical issues mentioned above, interest rates remain at historic lows and, as the stock market continues to devalue, there is more and more likelihood that the FED will lower rates by a quarter to half a point in mid-December.

Bottom line (read my prior entry for supporting statements by experts), this market should swing back in favor of sellers perhaps as early as this spring. With that in mind, take advantage of this market while you have this opportunity. If you continue to wait in hopes of timing the absolute bottom of the market, you may just miss out completely.

James Owens

Caterpillar's CEO, James Owens, was interviewed today on CNBC and was relatively upbeat, predicting a soft landing for the U.S. economy as a whole. (Source: CNBC)

As some of you are aware, Owens' negative comments last week - and the journalistic interpretations thereafter - were largely responsible for a drastic decline in the stock market. However, today, Owens backed off some of his recessionary comments and more narrowly defined the scope of the same to deal specifically with real estate and related markets. Most importantly, Owens stated that the real estate market is unlikely to turn around until the middle of next year. The converse suggests that he believes the real estate turnaround will begin sometime in the middle of next year. (Source: CNBC)

Why were these comments significant? As the CEO of Caterpillar, and given the nature of the company's various business interests, Owens is intimately familiar with the real estate market. I find the middle of next year as a possible entry point for a real estate recovery to be encouraging given the more pessimistic expectations of many "experts." Moreover, given the fact that job and wages reports show recent improvement, I reiterate that residential investment properties are attractive at this point and time. Keep in mind that in conjunction with the above, Countrywide Financial Services estimates that 86% of the subprime loans they approved in 2006 would be denied under their current underwriting requirements. (Source: CNBC, WSJ)

Hmmm...residential real estate prices are lower than they have been in recent years and people are employed and receiving higher wages, yet many cannot qualify for loans. That sounds to me like a recipe for rental profitability, which should only increase as foreclosures continue in the immediate future. As always, the advisability of investing in rental property is predicated on a person having the risk tolerance to be a landlord in tenant-friendly Massachusetts.

With respect to my previous blog entry, although it is true that Countrywide Financial Services is reworking adjustable rate mortgages as stated, there are indications that they are using delinquency as a prerequisite for altering these loans. That being said, this remains an opportunity to be explored by those of you who are behind, or are in jeopardy of falling behind, in your adjustable rate mortgage payments. (Source: WSJ)

Opportunity Knocks

For purposes of brevity, I won't get into statistics with respect to inventory, pricing and/or financing. It suffices to say that this week, there was conflicting data with respect to all three. That being said, the most encouraging news related to those of you who have adjustable rate mortgages.

This week, Countrywide Financial announced that it was going to reach out to its customers who entered into adjustable rate mortgages to the tune of $16 billion. What that apparently means is that Countrywide is willing to refinance $16 billion of adjustable rate mortgages in the form of fixed rate mortgages. This is unprecedented. For those of you who have an adjustable rate mortgage, irrespective of whether it's funded by Countrywide or another lender, it is incumbent upon you to contact your lender with respect to this rare opportunity. It is my strong belief that other lenders will have no choice but to follow Countrywide's lead and refinance their ARMs into fixed rate mortgages.

As an aside, I predict the Red Sox in 5.

Looking Up!

Bad news sells, so, as usual, it has been the primary focus of late.

At the beginning of the week, the buzz consisted of the fact that foreclosures in September were up significantly year over year. However, foreclosures were actually down in September when compared to August. (Source: CNBC and Fox News)

Now, while normally it is appropriate to compare months or quarters from year to year, given the data and current market conditions, I believe the August to September analysis is more telling. The question is whether this is merely a blip, or a trend toward a housing recovery. Although inventories remain at unhealthy levels in this area, I believe that the future is not as bleak as the media would have us believe.

On a micro level, I am seeing buyers finally stepping up to the plate to take advantage of the low prices and interest rates. In fact, a few buyers are heeding my advice and exploring the purchase of rental properties.

For you buyers out there, remember, it is virtually impossible to time the bottom of the market. Do you want to risk a rise in interest rates in the hopes that prices may dip slightly in the next year or so?

Food for thought...

New Data/Predictions

Data is just out (at 10am this morning) on new home sales for August and they are down 8.3% (source: CNBC and the National Association of Realtors).

A financial analyst at CNBC, Jim Cramer, says he has been speaking with officials at Toll Brothers and KB Homes who are not optimistic about the market for new homes for at least a year or so. I do not think that is anything we have not heard before.

More importantly, what are we seeing locally? A friend of mine who works for a developer/builder in the area posted anonymously with respect to a prior entry and said their high-end homes are moving. I noticed the upbeat comments were based on a lengthy period of time (the last year or so). How about recently? Say, the past few months? This question is not just for the person who posted the comment. What are you seeing, given your knowledge of the market?

How about you lenders/brokers - is the money supply coming back after the reductions in the discount window rate and the target rate? What about the $2 billion Bank of America - combined with the additional $12 billion thereafter from multiple sources - invested in Countrywide? Has that helped with liquidity?

I maintain the following:

* It is a buyer's market, and I wouldn't try to time the bottom. I think we are close to the bottom, if in fact we have not already hit the bottom. If you find the deal you are looking for, jump in - the water's nice.

* Along those same lines, if you are planning to sell anytime soon, I don't foresee any significant increases in values in the near future, so you may as well pull the trigger.

and

* The floor for jumbo loans will be raised in the next year, possibly in the next 6 months.

The bottom line is that buyers' and sellers' expectations are starting to align - a necessary adjustment for a healthy real estate market!

Green Saves Green

For those of you who intend to be eco-friendly with your purchases of real estate and/or repairs to your property, make inquiries directed toward your lender as to whether there are economic benefits for such choices.

Citigroup, Bank of America and J.P. Morgan, to name a few, offer closing credits for energy efficient properties under certain programs. Many of these programs predicate the benefits on meeting criteria set by the governments Energy Star program. Further, these programs often allow a borrower more lending power as projected savings are added into the loan amount through a variety of formulas. (source: WSJ 09/12/07, pg D1)

Pending Sales

The pending sales for the Northeast region of the country were down 12.2 % from June-July. (Source: National Association of Realtors) Keep in mind that this time frame reflects the very beginning of the liquidity crunch in the mortgage market. That being said, I expect the numbers to worsen for July-August, when the money supply really dried up and lenders froze the availability of many risky loan programs.

On the bright side, the restriction on loan availability seems to be leveling off and there are mixed predictions as to what is in store for us at the next Fed meeting scheduled for September 18th. If the Fed reduces rates in conjunction with other efforts to ease the crisis, we should see a turnaround with respect to affordability and accessibility of financing.

Once again, I predict a great buying opportunity for the coming winter.

Market Saturation

From a national perspective, existing home sales decreased in July while new home sales increased during the same time frame. More important, however, is the fact that the inventory of homes on the market is at a 9.6 month supply nationally. A 6 month supply is considered appropriate during a healthy real estate market (source: Wall Street Journal 8/28/07, pg A2 and related articles).

On a local level, prices of homes on the market increased by approximately $30,000 on average from Q1 to Q2 (as of 6/30/07) in Essex County while the inventory of available homes ballooned on a level reflective of the national market as described above (source: National Association of Realtors in conjunction with MLS Property Information Network, Inc.).

The foregoing is indicative of contrasting perspectives. Builders appear to be ahead of (or at least in line with) the curve with respect to the market correction. To the extent that new homes are selling, it is because many builders are in triage mode and trying to stop the bleeding. The converse is true with respect to most homeowners who refuse to acknowledge the correction, thus contributing to the increase in inventory. The increase in average days on market due to aggressive pricing only causes confusion for buyers who lose track of inventory and have too many options to make an informed decision.

Fall-out:

If you are selling your home, paying attention to staging and distinguishing your property is more important now than at any point in the last few years. Buyer statements such as "I already saw this property" are commonplace. Placing a property on the market prematurely - or without making necessary repairs or upgrades - will likely have devastating consequences in relation to the selling price.

With the above in mind, if you are a buyer, look for properties that do not present well, but meet your general requirements as to lay out, square footage, etc. Given the glut of inventory, these homes will languish on the market. With a little elbow grease, you could end up with a steal in the months to come.

Time to buy rental property?

At present the only readily available loans for residential borrowers are grade-A loans and, to a certain extent, jumbo loans (at a premium, however). Although just yesterday Bank of America invested 2 billion dollars in Countywide and four banks (including Bank of America) borrowed 1/2 million dollars each from the discount window, no experts I have heard speak on the matter predict a quick turnaround in this liquidity crunch. In fact, the Chairman and CEO of Countrywide in an interview this morning on CNBC stated in pertinent part (and I paraphrase) that in the last 5 years high risk loans were authorized which never should have been given out. It stands to reason that no lenders are eager to repeat the mistakes of recent history. Meanwhile, foreclosures are increasing in local inner cities and this will eventually bleed over into other markets.

If sub-prime and alt-A loans will no longer be available and you are able to identify an area with no major condominium developments under construction (possible apartment buildings and potential competition), is it not an opportune time to explore purchasing rental properties?

This November-March may present quite a buying opportunity for rental properties with the ensuing months' foreclosures and loan denials creating an eager rental population.

Potential pitfalls, to name a few, are ongoing construction projects with sunk costs making abandonment cost prohibitive and/or mortgage lenders who return to the status quo of recent years.

Introduction

This is an exciting new phase of the ongoing development of JW Real Estate, LLC. Unfortunately, many real estate companies and professionals allow technological advancement to overwhelm them, thus becoming dinosaurs in the industry. My primary goal, outside of earning the trust of my clients, is to make sure I do not fall into the above-mentioned trap. Creating a blog seemed like the next logical step in my attempt to remain relevant and to best service my clients. Moreover, I envision this blog as becoming important to my clients, associates, family and friends when planning for their economic futures.

I enjoy the privilege of being associated with people from all walks of life and, thus, encourage all of you to bring your unique experiences and perspectives to this on-line forum in order to maximize our knowledge of the world around us on a micro level. Most economic and real estate information is provided on a macro level and, thus, quite often does not reflect the true landscape for my area of concentration which is from Boston, Massachusetts to Southern New Hampshire.

My closest contacts are real estate professionals, attorneys, construction company owners and workers, financial planners, computer programmers, software developers and health care professionals. All of you are valuable in defining our market and helping each other to make wise fiscal decisions. I encourage you to use this as a forum to share your thoughts and as a future resource.

As an aside, we had our first annual Lowell Spinners outing on Saturday and from all accounts, it was a rousing success! My only negative thought is that we need to be firmer with RSVP deadlines next year so as to maximize attendance. For the 90+ of you who participated, my wife Kristen and I thank you for for making the event so successful and we look forward to seeing you next year.