JW Real Estate, LLC

Civility

2012-01-07T18:45:00.000-05:00

I continue to be impressed with the value and power of social networking. I don't think I'm that old, but I remember my dad putting aluminum foil on the rabbit ears of the television so we could better see the Hagler/Duran/Leonard fights. Time might be passing me by, but in many societies, age is revered. With age supposedly comes wisdom. This is my long-winded way of saying that we over-40s have seen a few things and may be able to add some perspective to the social media era...

This country is predicated on freedom, including freedom of speech. With that said, freedom of speech is not a mandate to share every thought one has. When you share on Facebook, Twitter, etc., you may as well place an ad on a national network. It may seem like no big deal and some may feel like they finally have a forum. True and so be it, but as often stated, with great power, comes great responsibility.

In short, don't disparage people online unless you have thought it through. Think about a bad review before you post it. Think about an endorsement before you put your name behind it.

Never has it been this easy to reach so many people and have such an immediate impact.

"Should I Take My Home Off the Market for the Winter?"

2011-11-29T13:22:00.001-05:00

A common question posed to me at this time of the year is whether sellers should pull their homes off the market for the winter. I also get asked whether potential sellers should hold off listing their homes until spring. The simple answer is that it is subjective and depends on many factors.

There is no question that in the Northeast, activity decreases around Thanksgiving and increases again when the winter begins to wind down. Many sellers see no benefit to marketing a home during a period of relatively low activity. Moreover, winter is a difficult time of year to keep a home in good showing condition and is inconvenient given the weather, holidays, etc. These are valid considerations, but many people fail to see the upside.

Those buyers and sellers that are in the market during the dead of winter are serious and motivated. You seldom see a family taking a Sunday drive to random open houses in 20-degree weather and snow on the ground. As a general rule, sellers do not test the market at this time of year. Therefore, with serious, motivated parties on both sides, there is more of a chance of getting a deal done. Even better for sellers is the fact that not only are the buyers motivated, but there are fewer homes from which to chose.

Were I looking to sell my home at this time of year, I would weigh the various factors as discussed above along with the conditions specific to my local market and personal factors. What I would never do is make the decision based solely on the fact that there is generally less activity in the winter than in the spring.

As an aside, there was a time when the market history in the multi-listing service was easily manipulated. Taking a property off the market for a bit - or changing listing agencies - gave the appearance of less overall time on the market. (There is a bit of a stigma against homes that sit on the market for a long time). However, at least in the system used in my area, you can now see the full property history and, therefore, this "benefit" has been substantially diminished.

As always, your thoughts and questions are welcome (john@jw-realestate.com or comment here).

The Time to Buy is NOW!

2011-10-19T14:53:00.000-04:00

I challenge everyone reading this entry to remember a time in your life when purchasing a home was more attractive. Forget the articles about foreclosures, negative equity, etc. - I am talking about this static point and time and how you will be affected moving forward.

Last I heard, prices were at 2003 levels, on average. Prices in most local real estate markets are 15%-30% lower than their highs of 2006. As the tax code now stands, there is a significant tax advantage to owning a home as opposed to renting.

A few years back, when rates hit approximately 5%-5.5%, they were at a 30-year low and it was the opinion of most experts that rates could not go much lower. Since that time, however, the housing crisis has continued to spiral out of control and has done so for far longer than most had imagined possible. As a result, the government has done everything possible to depress interest rates as one means of spurring a housing recovery. To its dismay, this policy has not had its desired effect and housing prices have declined slightly further or, at best, leveled off in most local markets.

Sounds awful, but that was then and this is now...

Assuming you can find a 30-year fixed loan for which you qualify, the rate should be approximately 4% today! If you lock into this rate, you are doing better than your parents and likely their parents before them, and really, what could be the downside? Rates could go slightly lower and if they get to a point where it makes sense, you simply refinance at the lower rate. However, once these interest rates begin to increase, it will be the result of a policy shift, or the fact that the government is out of tools with which to depress rates. Either way, they will only continue to increase for the foreseeable future, and you will have missed the boat.

While the government is keeping interest rates low, it is simultaneously trying to stabilize prices so as to save any equity current homeowners may have and to spur an economic recovery. That makes the likelihood of further significant price declines unlikely. Also keep in mind that the longer you intend to own the home, the less important price is in relation to the interest rate.

Finally, buying a home and locking into a fixed rate gives you price stability over time, as well as flexibility. Many markets are seeing increases in rents given the difficulty of qualifying for loans and the general misconception that owning a home is a bad idea at this time. If you look at historic inflation rates and tie them to rent increases assuming 30 years of renting versus ownership, then it is a no-brainer to own a home. Roughly speaking, given a rent of $1,800 - $2,000 per month today, you would pay roughly twice as much in rent over 30 years as you would if you owned a home and were paying on a thirty-year fixed mortgage of the same amount. (These numbers are approximate. Speak with a tax lawyer, accountant, or mortgage lender to fully vet the savings.)

One more thing to think about. Assume the market bottoms, and interest rates (or prices and interest rates) begin to rise and you do not yet own a home. Maybe we even go into a period of inflation where interest rates rise unexpectedly and drastically as mentioned above. Without home ownership, you may be priced out of the market indefinitely. In the alternative, if you own a home under any of these circumstances, you at least have options.

If prices increase, you gain instant equity. You can sell your current home and use that equity to put down on a new home. Depending on interest rates and rents, you may alternatively want to keep your current home as a rental to offset some of the cost associated with a new purchase at a higher rate. Worst case scenario: if we do hit a period of rapid inflation, can you imagine how expensive it would become to rent a property or to buy a home? Just as no one predicted interest rates of 4% five years ago, no one predicted rates 0f 15-20% in the early 80's - until it happened, that is.

Just a few things to think about as you read all the negative articles bashing home ownership.

That Day

2011-09-11T17:44:00.000-04:00

My career was in flux. I was closing my law practice on Revere Beach Parkway in Everett and leaning toward a real estate business full time. I thought this was the most important thing there could be and, in retrospect, was extremely self-absorbed.

I was walking out of the Gold's Gym across from my office and saw people staring at the TV's. A plane had hit a building. I had headphones on so I couldn't hear the commentary. I saw a replay, but noticed the building was already on fire? That didn't make sense. I took off my headphones and was told it wasn't a replay, it was a second plane hitting the World Trade Center in New York. I said, "Oh shit." I left and headed for Seabrook, New Hampshire where I was starting a new real estate endeavor. I was listening to Howard Stern which was riveting as they were there and giving a front-line, second-by-second report.

I called my wife, who was working in a high-rise in Boston and told her to get out immediately as it wasn't safe. She said she would not leave until everyone else was leaving. I told her that would happen within the hour. We hung up. She called me back 5 minutes later and told me that they were being evacuated and she was concerned for me.

In the interim, I was hearing the second tower was coming down (Tower 1 had already collapsed), there had been an explosion at the Pentagon, and more planes were unaccounted for. Howard Stern was yelling that we knew it was Bin Laden and that we should flatten most of the Middle East (I'm paraphrasing). Some New Yorkers were already heading down to volunteer, while others were walking over the bridges, briefcases in hand, covered in ash.

As Flight 93 was going down due to the bravery of its passengers, the Pentagon was in flames, firemen and volunteers were running toward the carnage in New York, and my phone rang. My wife now was leaving Boston on foot and wanted to know I was in a safe place. I told her I was on Route 286 in Seabrook and that I was as safe as I could be. I hung up, looked to my left, and was staring at the nuclear power plant less than a mile away. I stopped my truck in the middle of the road. I thought about where was safe and realized safety had become a fiction. I went to my destination and carried on with my life.

Ten years later, the question remains...where is safe? This is my answer.

The United States remains the greatest, strongest, most philanthropic - and yes, safest - country in the world. Where are we safe? Where we see our military, police, firemen and generally brave brothers and sisters such as those on Flight 93. Where are the terrorists not safe? Where they don't see our special forces and government operatives.

As Ronald Reagan said in his farewell address, "God bless you, and God bless the United States of America."

Housing Fix or Folly?

2011-08-12T07:54:00.000-04:00

You may have heard that the Obama administration has reached out to experts in the field of real estate regarding foreclosures for their opinion on reviving the market. His idea is twofold. First, bundle thousands of Fannie Mae and Freddie Mac owned properties and sell them to investors provided they agree to rent the units as opposed to selling them. The second idea is to have investors partner with Fannie and Freddie to manage the properties as rentals and share in the profits. I normally reserve my opinion on this blog, but occasionally deviate from that norm. So here goes...

Bundling the properties and selling them as a package may be the quickest way to take the pain (a/k/a ripping off the band-aid). This, I have no problem with, on a macro level.

The government is, or should be, in the business of taking care of society's basic needs and the private sector is in the business of making money which leads to innovation and prosperity. When the government dictates the use of resources, the resources are not used to their full potential, unless blind luck intervenes. The term that personifies productivity as it relates to real estate is "highest and best use."

In simple terms, sell the properties individually or by the thousands, but let the buyers dictate the use (environmental issues as the caveat). The properties will then garner the highest price which is best for taxpayers currently on the hook for the losses of these agencies. Moreover, the highest and best usage of the properties will not artificially affect the rental market. There are unintended consequences to any government intervention. (The people owning rental properties will be unduly burdened financially by this plan.)

Put another way, if I know I can generate a greater return on the purchase of a property by renovating and selling, yet the government tells me that if I buy it, I must rent it at a lower return, am I going to pay the same price as if I could sell it? Is the government going to obtain an optimal return on the debt owed by these quasi-governmental agencies? The answer is axiomatic. I welcome your comments on this important issue.

Irresistible Force vs. Immovable Object

2011-07-20T16:28:00.000-04:00

Remember the following paradox no doubt posed to you at one time or another:

What happens when an irresistible force meets an immovable object?

One of the answers proffered by many philosophers and scientists is that there is no answer as the two concepts cannot coexist.

I pose a similar question to you with respect to the current real estate market:

What happens when a seller brings a property to market based subjectively on desired return and buyers believe any price is too high as this is, after all, a "buyer's market"?

The answer is simple: the two cannot coexist.

My point is that while it is unfortunate for sellers that we are in one of the most depressed real estate markets on record, a property must be priced objectively based on current market conditions. Of course, there comes a point where a party simply cannot afford to sell a property. However, more often than not, the selling party simply desires a greater return (or, in a worse scenario, desires less of a loss) than the market will bear. The irony is that, in overpricing a property, you reduce the likelihood of a maximum selling price. The most activity a property will see - either on the internet, or in person - will occur in the first few weeks it is on the market. After those first few weeks, the traffic falls off dramatically. While price reductions will help, many potential buyers will no longer have the property on their radar and/or will become skeptical as to its value. Buyers start to ask, "Why has no one bought this property? It must be overpriced or have serious issues." This will almost always result in a lower selling price than if the property was priced reasonably from the beginning.

With the above said, be wary of real estate professionals who agree to list your property at the price you suggest (or even higher) unless they support your price with objective analysis. This objective analysis should be contained in a comparative market analysis (CMA) and will include similar properties to the one being sold.

Conversely, while it is a "buyer's market", some properties are actually priced reasonably from the start and, in any event, there is always a price at which a property is a good deal. You cannot assume that an asking price is too high and that there is a dollar amount reduction, or percentage off the asking price, at which you are going to purchase the subject property. As is true for the seller, a buyer should rely on comparable properties to base an opinion of value. With that said, a property may be slightly out of your price range, or may only be worth a certain amount to you, at which point there is no harm in making a low offer. However, if you truly want the property and it is worth the price, you should make a reasonable offer. If you play the game too long, you may give the seller the impression you are not a serious buyer, or you may lose the property to another buyer. (I have actually seen some properties sell at or above asking price in recent weeks!)

In short, sellers want to sell and buyers want to buy. More often than not, there is a middle ground at which the two can strike a reasonable bargain.

New Obstacle for Home Sales

2011-06-08T10:03:00.000-04:00

When dealing with older homes and/or homes needing rehab, there are many issues to consider. One issue that is becoming more prevalent is appraisal requirements.

For those of you who have dealt with FHA loans over the last few years, you may be aware that appraisers on these transactions are being asked to act as a hybrid between appraiser and home inspector. What you may not know - and what everyone needs to be aware of - is that this inspection aspect of appraisals is now becoming a requirement for many lenders on many types of loans.

Traditional appraisers were asked to value properties, period! Defects in the condition of the property were taken into consideration merely to the extent that they affected value. Today however, more and more lenders are requiring appraisers to make note of hazardous and/or dangerous conditions for various loan products. Two prime examples of hazardous conditions are flaking paint in older homes (due to the possibility of lead) and broken windows. The reason for this requirement is somewhat technical and has to do with the reselling of the loans to investors, but the practical effect is that these homes won't qualify for many loans unless the issues are rectified.

What does this mean for you?

If you are a seller and want the broadest possible market, fix the problems prior to marketing the home. Remember, these appraisers aren't contractors or inspectors, so they are only noting obvious defects. However, if you can see it, so can they.

For buyers, question your mortgage lender or broker as to what they know about the particular loan product you are using, so that you don't waste a great deal of time vetting properties that cannot be financed through that product.

Unfortunately, due to ever-changing regulations, real estate transactions continue to become more complex. Going forward, it will be even more important that you select the most qualified real estate professionals to help you through the process.

Identifying "The Recovery"

2011-04-27T20:04:00.000-04:00

February housing numbers for the Boston area as promulgated by the S&P/Case Shiller Index show a year over year decline of 1% and a 1.5% decline from January to February. What stock should we put in these numbers when gauging the health of the real estate market and a potential recovery? In short, virtually none.

The year over year difference is slight and remains 2.3% higher than the bottom reached in April of 2009. Moreover, both year over year and month over month numbers, if they could somehow be adjusted for the severe weather we experienced in February, would likely show an improvement in both categories. Also, keep in mind that these numbers look backward and we are concerned with the future.

In predicting the future of the real estate market, I am most intrigued by the historically high number of homes being bought for cash; particularly considering that at the height of the market, the vast majority of buyers had no (or virtually no) skin in the game. I am seeing percentages of cash buyers ranging from 25%-40%, depending on the method of calculation and geographic location. What this means depends largely on who is buying these homes. Based on my personal experience and all that I have heard and read, it is largely investors. More specifically, investors who are buying distressed and bank-owned homes in order to "flip" them. The speed of a recovery depends largely on the success of these investors. (Obviously, job creation, inflation and consumer sentiment factor into any housing recovery as well.) If these investors see a high enough return and a healthy pool of buyers, they will continue the process and the recovery will be self-sustaining, irrespective of additional government stimulus. If a market for these rehabilitated homes does not materialize, I see the real estate market remaining stagnant for quite some time. The good news is that the amount of money coming in from the sidelines and investors' willingness to risk the same is a very positive sign.

In addition, keep in mind that whatever happens, the market will need to absorb the shadow inventory (see prior entries for definition). Here again, investors flipping property is a crucial component.

As always, I welcome your thoughts.

Managing Expectations

2011-03-09T12:28:00.000-05:00

While there is a subjective component to buying any property (particularly one purchased for personal use), it is incumbent upon buyers to consider the objective component as well. More and more, I am hearing that buyers' expectations are out of control. In fact, there was an article in Sunday's Boston Herald that was basically a forum for buyers' agents to vent their frustrations.

The bottom line is that the term "buyer's market" is one of the most overused and least understood terms I have heard over the last year or so. What is a "buyer's market"? I know what it is not. It is not a magic phrase which allows buyers to suspend logic and objectivity in order to dictate unrealistic purchasing terms. I suppose a buyer's market is one in which prices are depressed and interest rates are favorable. If this is your definition of a buyer's market, then we couldn't be in a better buyer's market. However, in order to take advantage of a buyer's market, a buyer must be willing to take action when a relatively good deal comes along.

To take advantage of today's favorable conditions as a buyer, do your subjective analysis (where do you want to buy, what amenities are of particular import, etc.). But once you have concluded your subjective analysis, leave your emotions at the door, and rely on the raw data that is available. What is the property worth, and are you willing to pay that amount? If you are unwilling to pay what a property is worth, then you shouldn't be seriously looking, as you will only be disappointed. (A qualified buyer's agent can usually provide you with a list of comparable properties and what they are selling for per square foot, which generally provides a solid starting point for valuation.)

While there are certainly some good deals out there, it is important to be realistic. When making an offer, base your decision on the above and you will maximize your likelihood of success. For those people who say things like, "No one pays asking price in a buyer's market!" without any objective analysis, it could be a very long spring...

Rising Rates

2011-02-11T11:48:00.000-05:00

Interest rates are on the rise, which made the front page of today's (2/11/11) Wall Street Journal. For the first time in months, the interest rate on 30-year fixed mortgages has climbed over 5% to 5.05%, according to a survey conducted by Freddie Mac. Compare this rate to the historic low of 4.17% approximately three months ago. I found the article to be particularly helpful as it puts what seem to be abstract numbers into context:

In general terms, an increase of 1% in the interest rate raises home purchase expenses by roughly 10% for the average buyer. Assuming a 10% down payment, an annual household income of $84,000 at a rate of 4.5% will qualify a buyer for a 30-year fixed mortgage of approximately $400,000. If the rate increases to 5.5%, the buyer's income will need to increase to $92,000 in order to service that same debt.

In my experience, buyers tend to place less significance on interest rates than on prices. While both are important, keep in mind that the longer you intend to own a home, the more important the interest rate becomes in relation to price. With that said, rates are still at historic lows and the convergence of low home prices and low interest rates is unusual. Generally speaking, when rates are low, prices are high. Normally, when rates increase, prices decrease; however, I do not see much room for prices to decrease from current levels. Further, there is a saying that trying to time the bottom in any market is like trying to catch a falling knife! Put another way, the time to buy is now.

Anecdotally, as I am writing this, I have CNBC on in the background. They just posted today's poll question. The question is whether 6% interest rates will keep you from purchasing your dream home...

Happy New Year

2011-01-05T13:04:00.000-05:00

As a real estate professional I say "good riddance" to 2010. Here's to a better year in 2011.

As I often mention, the real estate market does not operate in a vacuum, but is part of the overall economy. That being said, here are my predictions for the upcoming year.

The economy, in general, will continue its recovery. Although the jobless rate will remain a major concern, it will likely improve at a rate better than most expect. Unfortunately, it will take improvement in unemployment prior to any significant recovery in the real estate market. I expect values to stay relatively flat over the next year. This will be due in large part to the "shadow" inventory lenders will gradually funnel into the market over the next 1-2 years so as not to flood the market with bank-owned homes. Additionally, I see mortgage rates increasing on a gradual basis. So long as it is gradual, this may actually be a good thing (see prior blog entry). However, at some point, an increase in interest rates would be a major setback for the housing market.

The good news is that, as always, an economy in a state of flux can be extremely beneficial for savvy real estate sellers, buyers and/or investors. Not only is real estate local, it is segmented. If you do your homework and seek guidance from those who are experienced in real estate, tremendous opportunity awaits in 2011.

Pressure on Interest Rates

2010-12-09T12:48:00.000-05:00

According to Freddie Mac, interest rates on 30-year fixed mortgages are currently averaging 4.61% as opposed to this time last week when rates were 4.46%. Moreover, while I am by no means an expert on mortgages and what drives rates, all I have heard in the last day or so is that current economic conditions dictate that rates will likely rise in the short term. In addition, historically, these rates are unprecedented, so it is naive to think we won't average higher rates over the long term.

What all this means is, for those of you who are timing a home purchase based on interest rates, now appears to be as good a time as any to purchase. This assumes that you are buying a property you intend to hold for at least a few years (minimum of 3-5 years, depending on the particulars). Historically, with transactional costs, it never made sense to buy a home that you were not going to occupy for at least 3 years in the first place.

As a side note, don't necessarily assume a slight rise in interest rates will hurt housing prices and further stagnate real estate transactions. In my opinion, the converse is more likely. The housing crisis has been ongoing for approximately 4 years. As a result of that fact alone, there is pent up demand. One major factor keeping buyers on the sidelines during the crisis has been the assumption that rates would further decline, or at minimum, would remain at these historic lows. Slightly higher rates may create a sense of urgency that has been lacking and be just the catalyst we need.

The Home Depot Effect

2010-11-17T17:18:00.001-05:00

While it is important to look at housing numbers such as new home sales, existing home sales, mortgage applications, building permits, etc., when trying to predict the future of the real estate market, many ancillary factors are also strong indicators of market trends.

Home Depot, which just reported third quarter results, is a prime example. The following is an excerpt from a Marketwatch article dated 11/16/10:

Home Depot Chief Executive Frank Blake said more than 80% of the company's top 40 markets in the U.S. posted positive comparable sales...
"From an overall perspective, we see a stabilizing business," Blake said on a conference call with analysts.
Still, like Lowe's, the company said there's still "continued pressure" in the market. Average transaction size is down as customers continued to spend on smaller ticket items and basic maintenance and repair projects. Sales of items under $50, about one-fifth of Home Depot's business, were up 2.7%. Those above $900, also 20% of the total, fell 3.4%, with building materials and non-essential spending such as kitchen areas remaining weak.

What this means for you in your local market is open for your interpretation. My thought is that the above is indicative of what I have witnessed over the last few months.

People are doing what they can in order to keep their homes functional, but remain averse to making large expenditures given the tenuous state of the economy. This suggests that foreclosures may abate slightly. (People spend virtually no money on homes they intend to walk away from.) However, most homes require moderate to significant improvements prior to sale in order to maximize return. The net effect is that, until stores like Home Depot see average sale prices increasing dramatically, home prices will remain at current levels. The good news for buyers is that, for those of you looking to create value though sweat equity, opportunities abound.

As an aside, Warren Buffet recently reported that, in the third quarter of this year, he sold all of Berkshire Hathaway's shares in Home Depot...

Safety First

2010-10-08T13:10:00.000-04:00

This topic is often covered and for good reason. It is important! Since I don't believe I have ever covered this topic, this post is long overdue. When selling your home, whether on your own or with the assistance of a real estate agent, there are many safety issues you need to consider.

Always keep doors and windows locked. Regardless of your prior habits and how safe you perceive your neighborhood to be, this is a whole new ballgame. Criminals now know that your home is for sale and people will be coming and going frequently, including strangers. Check your doors and windows often, especially after showings and open houses. Intruders sometimes unlock a door or a window, only to come back later and use it as a means of access.

When showing your home, keep a means of egress between you and the potential buyer. Along the same line, pull your car into the street prior to showings so that no one can block it in the driveway. It is also a good idea to have someone with you when showing your home to someone you don't know. At minimum, set up a code word or phrase with a friend who you can call when feeling unsafe. Whenever possible, let that friend know when you are conducting showings, so as to ensure he or she will be available to answer your call.

Most people know enough to lock up and/or remove valuables, but you also need to secure prescription drugs. Drug addicts and/or dealers have been known to steal prescription drugs during showings.

This is by no means an exhaustive list of safety issues. These are just a few tips to help keep you safe during the home-selling process.

As always, contact me at 978-423-9309 (cell) or via email to john@jw-realestate.com with questions, comments, or for help with your real estate needs.

Recession's Silver Lining

2010-08-11T14:55:00.001-04:00

While there are few silver linings to the ongoing chaos that is the U.S. economy, investment in residential real estate for income purposes appears to be one of them.

In the Greater Boston area, residential real estate vacancies are at an 18-month low and we are seeing a stabilization (and perhaps slight improvement) in rents. (Source: The Boston Globe 8/10/10)

Unfortunately for many, foreclosures continue at historic levels and the jobless rate remains alarmingly high. Thus, it stands to reason that rental units are in demand. Of course, with a dwindling supply comes added value in the form of higher rents. Not only are apartments easier to rent and in higher demand, but foreclosures are, for the time being, creating bargains for investors. This is a win/win for those of you who intend to purchase rental properties at this point and time. The lag time between the increase in rents and a future increase in per unit purchase cost is what creates this window of opportunity. With that said, I caution those of you with minimal experience in rental real estate to do your due diligence prior to diving into this area of investing.

Regardless of your experience with owning rental properties, keep in mind that the landscape has changed. It is common practice to vet a potential tenant in many ways, including verifying credit scores. Although there is certainly merit to considering credit scores, given the current economic conditions, you may want to place more emphasis on less objective standards, such as conversations with prospective tenants and verification of references. Remember, the opportunity being discussed is predicated on foreclosures - which destroy people's credit - and unemployment which almost always leads to similar credit issues. In order to take advantage of the opportunities in today's rental real estate market, in all likelihood, you will need to take chances on people you may not have considered credit-worthy in the past.

As always, for any issues regarding real estate, feel free to contact me at 978-423-9309 (cell) or john@jw-realestate.com.

View My Crystal Ball

2010-07-23T16:44:00.001-04:00

Here is my prediction for the real estate market, politics and the economy as a whole for the next year or so.

There will be another real estate tax credit implemented within the next 6 months. I am not sure of the depth or breadth of the credit, but the housing numbers on a national level have been atrocious, and one would be hard-pressed not to draw a correlation between housing numbers and the expiration of the credit. (Yes, the credit was extended for parties already under contract, but that is irrelevant to new contracts, building permits, etc.) Moreover, I have been hearing increased debate on the merits of a new credit over the last few weeks. As the government recoups a portion of the funds expended on stimulus (selling of Citigroup stock at a profit being one example) it will mysteriously come up with the money for a new stimulus which will likely be implemented before the upcoming elections. (The Democrat Congress will want it passed before the elections in order to avoid Republican opposition.) This will spur activity in low-priced and mid-priced home markets.

Speaking of the elections, Republicans will gain many seats in November and there will be a balance of power - which is normally good for the stock market. As such, we will see a bull market, at least for a few months, which should improve public sentiment. This will benefit all price ranges and should stimulate home sales.

The Bush tax cuts will be extended. The extent to which they are extended will dictate the impact on housing, but this will no doubt benefit higher-end home sales.

All of the above is trivial without a decrease in unemployment. The only way for unemployment to subside is for the costs associated with hiring to become more defined. In essence, business owners need to know what costs are associated with health care and new regulations imposed by the government before they will be willing to hire employees. These costs should gradually become more transparent over the next year and I think at that point, unemployment will begin to subside. Unfortunately, getting back to a healthy unemployment rate will take years, not months.

This is just one man's opinion...

Generation Y Housing Trends

2010-07-12T16:18:00.001-04:00

My wife forwarded me an article she thought would make an interesting basis for a blog entry. The article, written by Mary Umberger and appearing on Boston.com on July 6, identified housing trends for Generation Y members, which it defined as persons born from approximately 1977 through 1989.

Here are the highlights:

This generation will tend to purchase their first homes later than prior generations. They tend to travel and/or go to graduate school. In addition, they are dealing with the adverse economic issues of the last few years. While I agree with the general premise, the article's estimate of age 35 for most first-time Generation Y buyers seems high. I believe the age will be closer to 30.

As far as their desires, Generation Y buyers seem to prefer locations closer to cities and public transportation than did their predecessors. They are willing to work with smaller homes, but require open concepts. A little land and a garage are important, whereas a formal dining area is not. I disagree with the article's premise that media and game rooms are not important to these buyers. Most of my clients in this age range are very focussed on an adult playroom, as well as where they are going to hang a large-screen television.

With the above said, sadly for me, I am not a member of Generation Y, so I would be interested in hearing the thoughts of those of you who are. Regardless of your age, feel free to let me know what is important to you in a home in order to keep me apprised of market trends.

As always, contact me via cell (978-423-9309) or email (john@jw-realestate.com) with any comments or questions. Clients, be sure to contact me soon to reserve your tickets to our annual company outing - the Saturday, July 31 (5pm) Lowell Spinners game!

Friday Musings

2010-06-18T16:04:00.001-04:00

As I search the MLS to fill the needs of my various clients, I find my mind drifting to the housing market. I am trying to digest the most recent data on housing and figure out where we go from here.

All of the numbers I have seen on a national level over the last week or so have shown a dip in activity of 15%-25% since the end of the tax credit. Now I am no economist - nor am I a fan of wealth redistribution - but if the government is going to give away money, what better cause is there than home ownership? Homeowners take better care of properties than do renters, which is good for neighborhoods and house values in general. (It's similar to business owners caring more than employees about profitability: when you have skin in the game, you care more.) Moreover, economic recovery is much easier with a robust housing market. Without a rebound in housing (and jobs), we will limp along listlessly for quite some time. The FED simply cannot force interest rates down any further, so what are we left with? Answer: housing and jobs.

I urge everyone who reads this to e-mail your Members of Congress and request a renewal of the homeowner tax credit, and not just for first-time buyers. Even if you are not planning to buy or sell, it can only improve the value of your home and the economy as a whole.

On a more positive note, the Boston area numbers have been significantly better than the ones mentioned above.

As an aside and as I write this, the headlines on CNBC relate to the negative sentiment of home builders and the likelihood of a double dip in housing.

No Credit, No House

2010-05-21T07:08:00.000-04:00

Most everyone knows that credit makes the world go 'round. It is that knowledge that makes people hesitant to do anything which may adversely affect their credit. They pay cash for everything and are quite proud that they haven't missed payments on credit purchases, which would thus damage their credit. However, there is a fatal flaw in this logic: no credit is actually bad credit!

If you are a young person just starting out, you may be afraid to open lines of credit (usually credit cards in your case), as you don't trust that you will be disciplined enough to use your credit cards responsibly. If this is you, pat yourself on the back. The people most likely to run up debt that they cannot pay back do not have this fear.

If you ever want to purchase a home, you will need credit, which takes time to build. (Right now, many loans require a credit score of, at minimum, 620.) Therefore, take the risk and begin the process of building credit at your earliest opportunity. It is a simple, yet lengthy process.

Look at your budget and what you spend on a monthly basis. Next, obtain one credit card. Charge a few things a month that you would normally buy (gas, groceries, etc.) and pay the balance promptly at the end of each monthly billing cycle. As you get comfortable and learn that you can be responsible, obtain one or two more cards and use the same process.

A car loan is also a great way to build credit. If you qualify and the rates are reasonable, take a car loan as opposed to paying cash. If you cannot qualify for a car loan, save the money and see if your bank will then give you a loan against the funds you have so long as you pledge the funds as collateral.

Remember, the worst that can happen is that your fears will be confirmed and you end up damaging your credit. This will set you back, but it is a lesson learned and, either way, you will likely never be in the position to buy a home without taking the chance.

For those of you advising young adults on credit issues, the knee-jerk reaction is to say, "If you can't afford it, don't buy it." With that said, keep the above in mind. If a young person starting out is seeking your counsel, that person is already fairly responsible regarding credit, and, again, what exactly are they protecting when they have no credit to begin with?

As always, feel free to contact me at john@jw-realestate.com or 978-423-9309 with any questions.

Tax Credit/Written Contract

2010-04-21T22:14:00.001-04:00

As almost everyone to whom it matters knows, parties desiring to take advantage of the tax credit (see prior entries for details) must have a written agreement in place prior to May 1, 2010 and must close prior to July 1, 2010. Seems simple, right?

Given my background and need to parse words, I started thinking about what constitutes a written agreement for purposes of the credit, particularly given the custom in Massachusetts. There is little doubt that a binding purchase and sale agreement will satisfy the criteria. However, any legal document is defined by its content and not its captions. The issue comes down to intent of the parties and/or intent to be bound.

In Massachusetts, the precursor to the purchase and sale agreement is generally a contract to purchase, commonly referred to as an "offer" which is misleading. Most "offer" forms are in fact contracts and are binding, hence satisfying the criteria for the tax credit timeline. However, many people representing buyers attempt to water down the binding nature of the contract to purchase through language stating that the contract to purchase is contingent upon the execution of a binding purchase and sale agreement. This language may make the contract to purchase insufficient for purposes of the tax credit.

In the event that you are counting on the tax credit, but will not have closed prior to May 1, proceed with caution. Although the above may seem to be semantics, this is uncharted territory, and slight variation in the drafting of documents could prove costly.

As always, contact me at 978-423-9309 or john@jw-realestate.com with any questions or comments.

March Pending Homes Data

2010-04-15T20:41:00.000-04:00

The number of single family homes in Massachusetts that were placed under agreement* in March increased 27% year over year while condominiums placed under agreement increased 38% over March 2009. This follows a trend of increases for both single family homes and condominiums which has held true for 9 consecutive months. (Source: MAR 4/6/10)

While this is encouraging news for sellers, the tax credit ($8K for first-time home buyers and $6.5K for those buying and selling a primary residence) requires that a property be under agreement by the end of April. Therefore, I expect the trend of pending* home sales to continue for the month of April and to then dip - perhaps significantly - at least until the end of July. This would be an aberration from historic cyclical trends, as May and June are typically strong months for real estate activity.

Bottom line: if you have a residential property for sale, use your best efforts to place that property under agreement prior to May 1. The one caveat is that there is the possibility that the tax credit could be extended in some form, which would allow the current trend to continue into at least the summer vacation season (usually the second or third week in June through July). However, I have heard no substantive discussion to that effect.

* The terms "under agreement" and "pending" are synonymous and simply mean that there is a contract signed with respect to the sale of a property, but ownership of that property has not yet transferred.

Obama Mortgage Plan

2010-03-27T13:39:00.001-04:00

The Obama administration is rolling out new efforts to keep borrowers in their homes. Although this plan will likely take a few months to be fully implemented, it may help those of you who have previously been left out in the cold.

Unlike many other refinancing plans, this plan rewards payment and high credit scores. People availing themselves of this plan will need to be current on their loans and have credit scores of over 500. You will also need to owe more on your home than it is currently worth. The plan is to write down the principal of the loan by at least 10%. (Source: WSJ pg. A5 3/27/10)

Homeowners who do not qualify but are staying in their homes should see a benefit once they decide to sell their homes. The intended effect is to stave off foreclosures. Foreclosures decimate values of comparable homes by reducing appraised values and comparative market analyses (CMAs). If appraisers and real estate agents remain with their current formulas, principal write-downs should have no impact on neighboring homes, as both appraisals and CMAs are based largely on sold comparables. (A foreclosure would be included, yet there is no sale with a principal write-down, so these homes would be excluded entirely.)

My suggestion is that anyone who thinks they may qualify for this program should contact their lenders, accountants, financial planners and/or attorneys to further vet the details and timing of this plan.

Open House Preparation

2010-03-01T15:43:00.001-05:00

As discussed in my last entry, your first course of action when marketing a property is to determine who your target market will be and to make the property most appealing to that audience. Regardless of whether you are selling a fixer-upper, a pristine property, or something in the middle, open house preparation is not to be overlooked. There are dual objectives when preparing for an open house: maximizing the attractiveness of the property while minimizing safety concerns.

The exterior grounds should be well maintained. Remove any snow and debris from walkways and driveways. Spread sand and/or salt where appropriate. Make sure the lawn is well manicured.

As for the interior, you want to keep paths of traffic free of any clutter. Clean thoroughly, including: dishes, sinks, counters, tubs, showers, mirrors, walls, floors and fixtures. These steps will make the property more attractive, while minimizing the likelihood of injury to invitees.

Equally as important as aesthetics is aroma. To the extent possible, pet and smoke odors should be eliminated. If you like to bake, do so just prior to the open house to make the home smell inviting. In the alternative (or in conjunction), air fresheners and candles make a property smell fresher and create a nice ambiance. (Lit candles should be kept high and out of the reach of children.)

Remember, even the most qualified real estate professional needs a fighting chance when trying to sell your property. Anything that draws attention away from the selling features of the home does you and your agent a disservice.

While open houses can be an effective marketing tool, they, like anything else, have their downside:

Theft can be an issue, so remove valuables, or store them in secure locations. In addition, check to make sure that doors and windows are secure after an open house. Although I have never had a related issue arise (knock on wood), we have all heard stories of items being stolen and/or doors and windows being unlocked for later access. At a successful open house, there will be numerous parties walking through the property at any time and an agent cannot possibly keep an eye on every person throughout the event.

Finally, remember that all marketing is most effective at the inception of the listing. This is when your property will garner most interest, so be sure to take advantage of that window by presenting your property in the best light possible.

As always, for further discussion on this or any other real estate matters, contact me at 978-423-9309 (cell) or via email to john@jw-realestate.com.

Preparing Properties for Sale

2010-02-17T13:45:00.001-05:00

As of this date, the tax credit for home purchases (see prior entries) has not been extended and a property must be under agreement in writing no later than April 30, 2010 to take advantage of the credit. This means many of you should be preparing to market your homes. With that said, “fixer uppers” and pristine properties are currently in demand. If you have a property in dire need of repair, make a decision. Either leave the property as is (with minor cosmetic improvements), or invest the time, effort and/or money necessary to transform the property into “move in” condition.

As much as the term is over-used, enhancing “curb appeal” is generally the most effective use of funds:

Landscaping and outside painting are the most cost-effective upgrades you can make to a property. Landscaping must take into account your target market. For smaller/less expensive homes, focus on ease of upkeep (mulch, stone, perennials, etc.). Higher-end properties (where landscapers will likely be employed) may benefit from more ornate landscaping.
Driveways should be in good repair, while taking into consideration materials used for driveways of surrounding homes.
Exterior painting must be clean, neat and in conformity with the neighborhood.
The roof must be weather-tight and aesthetically pleasing.

Once the exterior features of your property have been maximized, only then should you begin interior upgrades:

Interior painting adds more value per dollar spent than any other interior improvement. Remember, painting is 90% preparation. What that means is caulking, puttying, patching and sanding are of the utmost importance. (If you do not know how to do these things, hire a professional; it is money well spent.) When it comes to the actual painting, use a semi-gloss on the trim and a satin finish on the walls (these terms may vary, depending on the brand of paint you use. The store clerk should know what you need.)
If your floors are wood and covered with carpet, expose them. Wood floors should be restored. It is relatively inexpensive. If there are stains or other imperfections, and they can be covered with area rugs or furniture, it’s fine to do so, but make potential buyers aware of the defects. There is a difference between presenting a property in the best light and intentionally hiding flaws.
For properties that are not marketed as fixer-uppers, the kitchens and bathrooms must be pristine. For higher-end properties, the counters should be composed of a solid surface (many people refer to this as Corian, which is actually a brand name) or granite and the floors are generally expected to be tile or wood.
Thin out cabinets and closets, leaving only matching settings if possible. This presents well and gives the appearance that there is ample cabinet space. The same goes for closets. Remove 60% of your clothes, and buyers will come away with the sense that there is ample closet space.

Feel free to contact me any time (john@jw-realestate.com or 978-423-9309) for more ideas or for a no-obligation market analysis of your Massachusetts or New Hampshire property.

Anticipating the Market

2010-02-10T20:21:00.003-05:00

Economic indicators, and signs of the real estate market in particular, are everywhere. All you need to do is look closely and then extrapolate on what you see.

Are people spending money and, if so, on what? (Consumer staples, luxury products, travel, etc.) Where are they spending? (Home Depot, Marshalls, Tiffany, etc.) What about business spending? (Infrastructure, employees, office equipment, etc.) Where are interest rates? What interest rates are being discussed? Are we going into a period of inflation, deflation or stagflation? Which political party has the momentum and on what platform?

Today's focus: new home construction and government subsidies as they relate to you as a prospective seller.

Many of the national home builders are gearing up for a flurry of activity in the next few months. In fact, even after being caught with excessive inventory at the end of the last real estate boom in 2007, these companies are starting to build spec houses again in anticipation of an early spring market. (Source: WSJ page B1, 2/10/10)

The rush, of course, is predicated on the need for buyers to have a signed contract in place as of April 30, 2010, in order to take advantage of the tax credit. Now let's extrapolate.

If these developers - who follow real estatet market trends and are experts on market cycles - are confident enough in the tax credit's effect to start building without buyers in place, shouldn't you, as a seller, take this into account? After all, many of the large developers teetered on the verge of bankruptcy as the bubble burst and have been extremely cautious since.

What I take from the above is that developers are both excited about the early spring market and concerned by the dearth of activity that will likely follow the expiration of the tax credit. (By the way, I see no indication that the credit will be extended.) With that said, if you need to sell a property any time soon, strongly consider following the lead of the professionals. Do your best to have your property on the market in time to take advantage of the credit. The lower the price point of the property you are trying to sell, the greater effect the credit will likely have.

As always, feel free to contact me any time via e-mail (john@jw-realestate.com) or cell phone (978-423-9309) with any questions regarding your real estate needs.

Bank Owned Properties

2010-01-06T13:48:00.001-05:00

As mentioned in prior entries, REO (Real Estate Owned), bank owned and lender owned are all interchangeable terms which simply mean that the bank/lender owns the real estate. These properties present a tremendous opportunity for buyers, but are also fraught with uncertainty.

As opposed to short sales and auctions, lender owned properties' prices are certain, as they have been set by the lender. Therefore, although a property may sell above asking price, you can be fairly certain that, so long as no one is bidding against you, the lender will accept a full price offer with reasonable terms. Moreover, lenders generally price properties reasonably from the start, and periodically reduce prices as time goes on.

Remember that the lender is not emotionally involved and has no interest in being in the business of selling homes. Also keep in mind that the lender is looking for a quick closing, so the sooner the closing date, the better in any offer. (In some instances, lenders will offer incentives if you finance through them.) Although the opportunity to close quickly on these distressed homes at a bargain price is appealing, there are issues to consider with the process, due diligence and disclosure.

Each lender instructs the listing broker on how to proceed in selling the proprty. The lender will generally demand that the parties follow their procedure and that no changes be made to their documents. Therefore, contingencies are limited. Although you are generally allowed a home inspection, these homes are often in disrepair and/or winterized, so the inspection may be of limited value. As the lenders know very little about these properties, they will be sold "as is" with no warranties and/or representations.

In short, as a general rule, lender owned properties are "fixer uppers" and best suited for savvy investors, or home buyers with some construction background, intending to build "sweat equity." Most lender owned properties have been foreclosed on. That being said, a disgruntled (and financially troubled) homeowner has lost this property to the lender. The homeowner often destroys the home and strips it of fixtures and materials prior to being evicted, so be sure you know what you are getting into prior to buying a bank owned property. With that said, if you are the right type of buyer and conduct your due diligence, lender owned properties can be extremely rewarding investments.

As always, feel free to contact me via email to john@jw-realestate.com or via cell (978-423-9309).

Foreclosure Auctions

2009-12-21T11:46:00.003-05:00

The short sale process (see prior entry) is meant to stave off a foreclosure by the lender in first position (generally the "first mortgage"). With that said, if the short sale process fails, at some point and time that lender will go forward with the foreclosure. In order to clear title and eliminate any liens of lower priority (second mortgages, equity lines, etc.), the lender must cause an auction to be held - commonly known as a "foreclosure auction."

In my opinion, the foreclosure auction is a riskier proposition than the short sale process, or buying a property which is bank owned. In many cases, bidders not allowed entrance to the propety. The interior could be in any condition, but odds are the property has been destroyed. Owners who lose their properties at auction are not happy and quite often destroy the home and/or remove everything from faucets to flooring. In addition, the information provided by the auctioneer is not guaranteed and cannot be relied upon to be accurate. The onus is on the bidder to do his/her due diligence to verify the title, easements, right of ways and what liens will stay with the property (generally government liens and, in some states, back condo fees). This lack of knowledge, combined with the kinetic pace at which these auctions are conducted, often causes the unsophisticated bidder to grossly overpay for properties.

Notwithstanding the above, if a bidder does his/her due diligence, foreclosure auctions present an opportunity to create instant equity. My advice is to go to the auction with a maximum bid in mind, so as not to get caught up in the frenzy that the auction process creates. Real estate professionals are useful in detemining property value and a reasonable maximum bid price. They can also point you in the right direction as to researching the title and potential liens that run with the property.

As an aside, keep in mind that the lender will normally set a minimum price and send an agent to bid on the property until that minimum price is met. If no buyer outbids the lender, the lender will then take title and eventually sell the property as bank owned.

Please feel free to contact me with any questions or comments via cell at 978-423-9309, or e-mail at john@jw-realestate.com.

Short Sales

2009-12-16T13:46:00.001-05:00

From a procedural perspective, when examining distressed properties, or what many refer to as "foreclosures", the first opportunity to arise is the short sale. A short sale is when a seller cannot expect to sell at a reasonable price without being left with a deficit once all costs associated with the sale are paid. Thus, the property is marketed with the intent to negotiate down the debt once an offer has beeen accepted. This means a sale will be "subject to third party approval". In my opinion, this is the most flawed process of the three opportunities (short sales, foreclosure auctions and bank owned) presented by distressed properties. However, there is upside with respect to due diligence.

(For purposes of this discussion, I will assume only one third party exists, but keep in mind there can be several and all must agree to release their security interests and accept less than the amount to which they are entitled.)

In the vast majority of instances, the third party has given no indication as to the amount they are prepared to accept for payment. Moreover, offers are accepted contingent upon third party approval. With that said, a buyer can offer over the asking price and have the offer accepted, only to be informed at a later date that the third party is unwilling to consent to the sale. From a timing perspective, most third parties take, at minimum, 60 to 90 days to respond, during which time a prospective buyer is left in limbo.

The benefit of a third party sale - as opposed to auctions and bank owned sales - is that a buyer generally has the same due diligence opportunities as a buyer would have in a traditional sale. By due diligence, I mean thorough walk-throughs (including inspections), as well as gathering of the seller's first-hand knowledge relating to the property through conversations with the seller and/or the seller's agent. Written seller's disclosures may also be available which inform a buyer as to what the seller knows about the property condition (roof, heating, electric, foundation, etc.).

To summarize, the short sale process presents a great value purchasing opportunity with minimal risk. It is most suited for investors, or home buyers with no time constraints. Any buyer who is purchasing a home to live in and needs to meet a definitive timeline should avoid short sales at all costs.

Significant Distinctions

2009-12-09T19:22:00.001-05:00

Over the last week or so, I have been seeing many articles and receiving inquiries which blur the distinctions between types of sales and/or ownership interests. Here are certain distinctions which may eliminate some confusion.

An auction is a way to facilitate a sale and has no bearing on who owns the property. Any party who owns a property, or a lien holder (usually the holder of a mortgage, or a government entity) may cause a property to be auctioned. Most auctions garnering attention today are being caused by holders of liens through the foreclosure process.

A short sale is subject to third party approval and involves a process wherein a homeowner tries to negotiate with the lender(s) to take accept less than what is owed on the loan(s). Thus, any sale needs to be approved by one or more third parties (lenders and/or lien holders).

REO (Real Estate Owned), bank owned and lender owned are synonymous terms which mean that a bank and/or lender owns the property. This almost always results from a mortgage default and a foreclosure auction wherein the lender has bought back the property at auction, thus clearing title and eliminating any loans in second position (of lower priority). In some instances, a lender will take ownership in lieu of a foreclosure at the request of the property owner.

(It is my understanding that many people are using the term "foreclosures" as a catch-all and this is where some of the confusion lies. By way of example, "I want to buy a foreclosure" or "My friend is making a ton of money in foreclosed homes.")

Both short sales and REO's are most often handled by real estate brokers such as myself and the process is similar to the purchase of any other home listed for sale with a broker. Auctions may or may not involve real estate brokers and, depending on the circumstance, you could have the option of being represented by a broker without adding costs to the transaction.

All of the above ownership interests and/or sales procedures present opportunities and pitfalls for potential buyers too numerous and detailed to delve into here. However, if in the interim you have any questions, do not hesitate to contact me (john@jw-realestate.com or 978-423-9309).

Happy Thanksgiving!

2009-11-25T14:04:00.000-05:00

Here is something to chew on besides that drumstick...

As you are probably aware, the upcoming few months pose the greatest obstacle to sellers from a purely cyclical perspective. Think of the process from a common-sense approach. Who wants to travel from town to town and house to house in the middle of winter? The question is rhetorical, but the answer is: nobody! It is miserable outside...snow...cold. People are out straight...holidays...school vacation...

That is why only motivated sellers and serious buyers are normally out there in the market during the tail end of November, December and January. However, this season may deviate from the norm, as the extension and expansion of the tax credit (see prior post) should create a sense of urgency for many buyers.

My thought is that those of you who are thinking of waiting for the spring market to put your properties up for sale - while normally the prudent course of action - will be making a mistake given the time constraints of the tax credit. Moreover, as confident as I was that this extension would be enacted (see prior posts), I am equally confident that the credit will not be extended further. If it is extended, it will be limited in scope as compared to its current form so as to be phased out over time.

For those of you interested in statistical data for Massachusetts (Source: Massachusetts Association of Realtors 10/24/09), read on.

October sales numbers, year over year:

Single family home and condominium sales were both up 17-18%
Single family home selling prices decreased 2.4%
Condominium selling prices decreased 4%

Inventory on market, October 31, 2009 as compared to October 31, 2008:

Both single family home and condomium inventory decreased to just over 7 months from slightly over 10 months.

As always, feel free to contact me at your convenience with regard to any real estate needs.

Chance of a Lifetime!

2009-11-07T10:21:00.001-05:00

For those of you who do not know me personally, I am not one to overstate the importance of things. With that said, the fact that a new homebuyer tax credit was enacted Friday is a tremendous win for anyone looking to buy or sell a home.

For buyers who qualify, it cannot possibly get any better than this: a significant tax credit to buy a home at a time when interest rates and home prices are at historic lows.

For sellers, buyers should be coming out of the woodwork to take advatage of this opportunity. The fact that the credit - although at a slightly reduced rate - now applies to current homeowners should open the market considerably for new purchases.

If you are even considering buying and/or selling a home, I urge you to click here for a detailed breakdown of the new credit promulgated by the Massachusetts Association of REALTORS. As always, for any real estate needs, please contact me at 978-423-9309 (cell) or john@jw-realestate.com.

Tax Credit Status

2009-11-02T16:30:00.001-05:00

As you may have seen, a tremendous amount of information (and misinformation) has been circulated since the middle of last week regarding an extension of the $8,000 first-time homebuyer tax credit. Here is my understanding of where things stand.

Last week, Senators agreed in principle on an extension of the $8,000 credit for first-time buyers, as well as an expansion of the same to include a $6,500 tax credit for homeowners who are selling a primary residence that they have owned and occupied for at least five years. For either credit, buyers would need to close on their new homes by the end of June 2010 and have a signed "purchase agreement" by the end of April 2010. (Source: USA Today 10/29/09)

Please keep in mind that the above is a work in progress and no extension has been enacted. As is standard operating procedure, Senators are negotiating the details and what pet projects will be included in order to secure the necessary votes to pass the legislation. Assuming legislation passes, I will provide the relevant information once I am confident in my understanding of the particulars.

As an aside, be very cautious as to timing issues. For example, buying a home in Massachusetts is generally a 2-step process with respect to the contracts. Would a "Contract to Purchase" executed by the end of April suffice, or would a "Purchase and Sale Agreement" need to be executed? Further, the $6,500 credit will no doubt include parameters for the purchase of another primary residence. It will be crucial to understand the timing and/or trigger mechanisms necessary to qualify for the credit. With that said, if you are considering buying and/or selling property in Massachusetts or New Hampshire, I am always happy to assist you through the process.

$8,000 Tax Credit

2009-10-23T13:55:00.001-04:00

Although, in my opinion, it is still more likely than not that the tax credit will be extended past the November 30, 2009 deadline (and perhaps expanded to include all primary home purchases), there is a disturbing article on page A3 of today's Wall Street Journal.

$139 million was paid out on fraudulent claims regarding the credit to, at minimum, 19,000 people. The most common scam was for people who did not qualify because their income exceeded the cap to use their children's names and social security numbers to file. Although there are simple remedies to ensure this will not continue - such as requiring a copy of the HUD settlement statement - no such measures are currently in place. With that said, many of the proposals to expand the credit include such safeguards. (Source: WSJ)

Let's hope that the negative press attributable to the fraud as referenced above is insufficient to derail any possible extensions of the credit.

Important Mortgage Information

2009-10-09T12:53:00.000-04:00

Bank of America, Wells Fargo, Citigroup and J.P. Morgan are all significant players in an experimental government-backed loan modification program. In most cases, in order to qualify for the program, a buyer must be at least 60 days delinquent on the loan. If you think you may qualify, or are heading in that direction, I encourage you to contact your lender. Also, as of now, or in the very near future, standard forms to apply for this program will be available on the govenment website entitled Making Home Affordable (http://makinghomeaffordable.gov). (Source: WSJ 10/9/9).

Also of note in the article referenced above is the following quote. "[S]everal senior House lawmakers expressed support for extending an $8,000 tax credit for first-time home buyers."

Better Late Than Never

2009-10-07T14:28:00.001-04:00

I meant to comment on an article in The Wall Street Journal last week, the thrust of which was that holders of distressed mortgages are more inclined to write down principal than they have been in the recent past. While it is more likely for a lender to negotiate an interest rate adjustment, in certain instances they are now willing to reduce principal as a last-ditch effort to avoid foreclosing on homes.

Regardless of one's political inclinations, this is good news for home values. By way of example, assume you have a neighbor who is under water on his mortgage payments. He cannot afford to sell, because of his home value in relation to what he owes on the property. If renegotiating his interest rate is inadequate to alllow him to make his payments, traditionally there are only two likely results. He would either negotiate a short sale, or let the home go to foreclosure and thus the home would ultimately be sold by the lender. The result would be disasterous regarding your home value. Assuming your neighbor's home is similar to yours, that home (which was sold under distressed cirumstance) would now be used as a comparable home in any appraisal or comparative market analysis of your property.

Now assume in that same instance, the lender writes down the principal of your neighbor's home to such an extent that the mortgage now become affordable. The result is no impact on the value of your home. Your neighbor keeps his home and the bank loses less money than it would going through the foreclosure process. Moreover, the principal write-down should not affect an appraisal or comparative market analysis on your property, as there is no mechanism for this information to come to light when these reports are promulgated.

On a lighter note, I recently heard an amusing interview on CNBC with a woman who follows anecdotal evidence relating to the economy. At the inception of an economic recovery, the rate at which men purchase denim products, pink ties and underwear increases. Take that for what it is worth.

In the Media, Glass is Now Half Full

2009-09-02T13:06:00.011-04:00

The headline in today's The Wall Street Journal, page 1, upper right in bold and in the second largest font on the page (just smaller than the name of the publication itself):

"Global Economy Gains Steam"

The subtitle of the same article in roughly half the font size:

"Jobs Still a Worry, but Factory Output Rises in U.S., China, France; Markets Falter"

The first two paragraphs were entirely positive except for the second paragraph's last sentence which placed a positive spin on a negative stating, in pertinent part, the "pace of contraction...slowed markedly."

I take the time to break this down in order to fully illustrate my thesis from my prior entry and to hopefully emphasize the correlation between presentation of information in the media and consumer sentiment. As a practical matter, the more articles written with this slant, the better for a real estate recovery.

Anecdotal Evidence

2009-08-30T18:39:00.005-04:00

I reiterate as aforementioned: I hate statistics. They are always backward looking. We are currently analyzing June and July numbers to predict where the real estate market is at this point and time.

So as I was lamenting this flawed system, I recently listened to Ron Insana. A stalwart of empirical data, Insana said, "The economy is getting better. I can feel it. I was just at Disney and it was very busy. Everywhere I go, I see the economy bustling." (I am paraphrasing.) Moreover, at the beginning of last week, positive housing numbers came out across the board. (Mid-week, all positive articles regarding real estate, from The Boston Globe to The Wall Street Journal.)

My thought is this: read three newspapers next week. Look for any articles discussing the economy and/or real estate. If two out of three articles do not articulate any negative economic sentiment until the third paragraph, the recovery has begun. Perception is reality. ("When the legend becomes fact, print the legend." - John Wayne, The Man Who Shot Liberty Valance)

Battle of the Subsidies

2009-08-21T13:30:00.003-04:00

Riddle me this...Why should we not have pumped the "Cash For Clunkers" money into the first-time homebuyer tax credit by expanding it to all buyers, or increasing the amount?

From what I understand (under the car program), when a car is turned in, the engine has to be destroyed. Destroying an engine which could have been re-sold for use in other cars appears meritless and will ultimately be an economic burden on people of lower income brackets who generally drive older cars. Supply and demand dictates that scarcity will drive up the price of used engines. Moreover, there is the unintended consequence of the lost revenue of automotive repair centers.

It is universally agreed that the crux of the recession is the housing market and that we cannot have an economic turnaround without a real estate recovery. Further, no tangible asset need be destroyed in order for the tax credit to have its intended effect. Thus, it seems far more efficient and beneficial to invest our limited resources in a housing recovery. That being said, both programs are nearing their demise, so the point is moot, but I thought it was at least worth visiting.

Speaking of the tax credit which is due to expire at the end of November, keep in mind that you must CLOSE by the end of November. This means that as a practical matter, you would need to identify the property and have it under agreement by mid-September. On a positive note, there are more and more rumblings of the credit being extended. (Various drafts of a new tax credit are currently circulating in Washington.) However, if I were a betting man (and I am), I would take the credit now! My instinct tells me the likelihood of an extension is 50/50, but the likelihood of better terms in any new credit is de minimis at best.

As always, I welcome your thoughts and urge you to contact me for any real estate related needs.

Naysayers

2009-07-31T13:25:00.003-04:00

For those who refuse to believe that the housing market in the majority of areas and/or price ranges in Massachusetts has bottomed and is beginning to improve, here are some statistics recently released by the Massachusetts Association of Realtors:

The median single family home price for June 2009 was $306,000. This is the first time the median home price has been over $300,000 since August 2008. Moreover, the June 2009 median price is up 21% from its low of $252,000 in February of this year. With that said, this is still a decrease of 8.6% year over year (June 2009 compared to June 2008). As a frame of reference, consider today's prices to be in line with those of 2003. (Source:MAR)

In my opinion, the more important - and thus more impressive - turnaround has been in residential home inventory. (Home inventory is based on a fiction wherein we assume no more homes will become available for sale. In that instance, at the then current rate of sales, how long would it take to sell all the homes on the market at that point and time? The answer represents the "home inventory".) A decrease of 16% in inventory from June 30, 2008 as compared to June 30, 2009 should markedly improve real estate sales conditions. As of June 30 of this year, inventory was at 7.2 months. This is actually considered to be at the low end of the spectrum for inventory levels in a healthy market. (Source: MAR)

In short - and I am not a fan of statistical data - one cannot deny that these numbers show an improvement in the housing market. If you prefer to rely on perception/consumer sentiment as do I (statistics are, by definition, backward looking), pick up a newspaper or turn on the news. Fewer and fewer of the real estate related stories are solely negative. This could not be said three months ago. In fact, as I write this, the story on CNBC relates to the drastic rebound in stock values of home builders.

Tax Credit - Added Benefit

2009-07-15T14:08:00.004-04:00

Yet another incenitive has been put forth to entice potential first-time buyers to take advantage of the current real estate market, not that potential buyers should need further enticing given the current climate. With that said, here is the latest carrot to be dangled...

The federal tax credit of up to $8,000 for first-time home buyers is now eligible to be used toward closing costs and/or a down payment in Massachusetts. (Source: MAR)

In order to take advantage of this program, a borrower will need to apply through his or her lender for an $8,000 loan via MassHousing. This loan is now available for homes purchased by December 1, 2009. The borrower must then claim the tax credit on his or her 2010 federal tax return. So long as the loan is repaid by June 1, 2010, the loan is interest fee. In the event the loan is not repaid by June 1, 2010, the loan will be amortized over 10 years at the rate of the first mortgage. (Source: MAR)

Similar programs are currently being developed and implemented by other states. (Source: MAR)

A caveat to the above is that borrowers must first determine whether they qualify for the credit in whole or in part. For an overview of the credit paramaters, refer to my prior entries regarding the same. As always, I recommend consultation with a tax specialist (CPA or tax attorney) prior to making any real estate decisions predicated on tax strategies.

Refinancing Change

2009-07-01T12:58:00.003-04:00

The Treasury Department just announced that, as part of its home rescue package, Fannie Mae and Freddie Mac are expanding their efforts to refinance people who are upside down (have negative equity) on their mortgages. Specifically, Fannie and Freddie will now allow refinancing on homes with up to 125% loan to value ratio. Until this announcement, the cap was a 105% loan to value ratio. (Source: CNBC)

Whether this is good or bad news is dependent largely on your priorities (moral hazard, compassion for upside down homeowners, investment opportunity, etc.). However, at least in the short term, this should slow the pace of foreclosures and short sales. This in turn should help to stabilize house prices. The elephant in the room is whether this is merely a stop gap. Will these additional refinances lead to higher losses on bad loans and future increases in foreclosures, or will it buy these borrowers the time to allow house values to return to such a level so as to make it cost-effective to eventually sell these homes? We shall see...

Cramer Calls Bottom

2009-06-17T14:25:00.002-04:00

Yesterday, Jim Cramer of CNBC's Mad Money called a "bottom" to the housing market. He relied on certain economic indicators released that day including, but not limited to, increases in building permits and housing starts nationally. Cramer reasoned that the large home builders, as well as the banks financing their projects, are some of the most well-versed institutions regarding the real estate market. Their expertise, coupled with the risk aversion under which they have recently been operating, makes it extremely unlikely that they would risk incurring additional losses resulting from excess inventory. These institutions are simply not interested in compounding their exposure to a declining market. (Source: CNBC)

While Cramer's argument is cogent, I fear that many pockets of the real estate market (including the area in which my company operates) currently have excess inventory and cannot afford additional new home construction. At this point and time, many local markets have between 8 and 11 months of inventory available. My opinion (and that of many experts) is that 6 months of inventory would represent a healthy market. With that said, I am partial to Cramer's position, as a bottom is obviously necessary prior to any rebound in real estate.

A few odds and ends:

If you are preapproved for a mortgage and have not checked in with your lender/broker in the last two weeks, you should do so. Rates on 30-year fixed mortgages increased from roughly 5.0% to 5.8% last week. A swing of that magnitude is significant. You should keep yourself apprised of mortgage rates, as they directly affect your buying power.

If you are a first-time buyer who is depending on the $8,000 first-time buyer tax credit, keep in mind that it is due to expire at the end of November. Also, note that there is a phase-out depending on income level, which may affect your eligibility for the credit.

As always, feel free to contact me at any time with respect to the real estate market and your particular needs.

Economic Indicators

2009-05-19T13:12:00.006-04:00

Just a few odds & ends I thought were worth reporting:

Both Lowes and Home Depot had better than expected quarters. This is a positive sign for the construction industry, as is the fact that builder sentiment was up for the second straight month according to the National Association of Home Builders, which attributed the gain in part to the $8,000 tax credit for many first-time buyers. (Source: WSJ, CNBC)

Although the above is favorable news and indicates a stabilization of the housing market in the near future (stabilization, not rebound), there are still a few shoes to drop, such as impending defaults on commercial real estate loans and the effect of those defaults on small to mid-sized banks. A Wall Street Journal study predicated on similar criteria as those used by the federal government for the large bank stress tests shows potential losses of $100 billion for 900 small to mid-size banks relating to commercial real estate loans. These losses would dwarf the losses from residential loans, anticipated to be approximately $49 billion for these same banks. (Source: WSJ)

In Jamie Dimon's conference call for JP Morgan today, he had harsh words for the TARP program relating to the lack of clarity as to the means by which the government will allow repayment. He also noted that it is possible we are seeing a bottom in the economic downturn. (Source: CNBC)

In short, a mixed bag...

Misconception

2009-02-27T12:04:00.004-05:00

Regarding the most recent stimulus package which is now in effect, the $8,000 tax credit for first-time home buyers is in fact a true credit. As a practical matter, it replaces the $7,500 "tax credit" which preceded it and which was actually a loan. The only caveat is that a homeowner must retain ownership of the property for three years, or the $8,000 will be recaptured. (I believe the entire $8,000 out of the proceeds of the sale will be recaptured. However, I am not certain if the amount recaptured is predicated on the amount of the capital gain on the home. In other words, is the amount recaptured capped by the gain if the gain is less than $8,000?) In addition, this credit is gradually reduced for individuals whose income is over $200,000 per year and couples whose income is over $250,000 per year. (Sources: MAR, WSJ)

As an aside, President Obama's budget calls for a reduction in the Mortgage Interest Deduction on a graduated basis for individuals whose income is over $200,000 per year and couples whose income is over $250,000 per year. (Sources: MAR, WSJ, CNBC)

Without getting too political, people should look long and hard at the economic philosophy underlying the graduated phasing out of benefits as referenced above based on income ratios. Does this comport with your economic school of thought, along with your goals and aspirations?

$15,000 Credit Update

2009-02-12T11:39:00.008-05:00

According to Fox Business, part of the compromise regarding the stimulus package was the watering down of the $15,000 tax credit for the purchase of a primary residence. Originally, the credit was to cover the purchase of any primary residence, regardless of the number of homes one had owned in the past. However, it now appears that the credit will be applicable only to first-time buyers.

This is obviously a blow to real estate professionals including, but not necessarily limited to, real estate agents & brokers, mortgage lenders & brokers, and home builders. Weren't these stimulus packages, TARP, etc. designed to stabilize the housing market? After all, it is the general consensus that the crux of the economic distress rests with the real estate meltdown. Hmmm...

$15,000 Tax Credit

2009-02-05T11:00:00.006-05:00

As of yesterday, February 4, Republicans were making great strides toward inserting a powerful real estate stimulus into President Obama's proposed stimulus package. According to the Associated Press, Republicans appear to have been successful in negotiating a $15,000 tax credit into the package. Specifically, the tax credit is for 10% of the value of the home, with a cap of $15,000. (The current credit is for $7,500.) Purportedly, the breadth of the credit will also be expanded to include all home buyers, as opposed to only first-time buyers. (Source: Associated Press)

In the event that this credit comes to fruition, the positive ramifications for the market should not be discounted or underestimated. I envision this credit being a tipping point for the countless people who want to sell their current homes and then purchase new homes. Many people are not selling because they fear they will not be able to afford to buy another home. For many, this tax credit could be the answer. This credit will offset a large portion of the costs associated with buying and selling. Similarly, first-time buyers who are on the fence as to whether to pull the trigger will have another reason to dive into this buyer's market.

As an aside, here are some statistics for the local housing market (15 towns from Boxford through Littleton, MA) covering trends for December as compared year over year (December '08 as compared to December '07): Single-family home sales increased 7%, but the most dramatic shift was an increase of 158.1% in sales of multi-families. In contrast, condominium sales slid by 39.4%. The drastic increase in multi-family sales is explained in large part by the steep decline in the median price, which fell by 36.2%. Prices for single-family homes and condominiums fell by 10.5% and 15%, respectively. All three types of properties described herein are still sitting on the market for an average of 4 to 5 months. (Source: Northeast Association of REALTORS).

Mortgage Developments

2009-01-09T12:31:00.003-05:00

The Senate reached an agreement in principle with Citigroup wherein Citigroup is giving its blessing to legislation allowing for bankruptcy judges to cram-down mortgages. The cram-downs will allow judges to reduce the principal and/or interest on troubled mortgages so long as the homeowner shows that they attempted to negotiate with the lender prior to filing bankruptcy. Further, the mortgage at issue would need to predate the legislation. The proposed legislation, in its current form, would only apply to Chapter 13 bankruptcies. (Source: WSJ)

Whether the above will be a positive or a negative is anyone's guess. Will this stabilize the real estate market, or just increase Chapter 13 bankruptcies, prolonging inevitable sales with another layer of red tape? Moreover, will this move chill the already frigid environment for mortgages, further restricting the flow of credit?

On a more decidedly positive note, Fannie Mae, in conjunction with Bank of America (through its subsidiary, Countywide Financial Corp.) has implemented a pilot program regarding short sales, the bane of many Realtors' existence. This program is not yet available locally, but calls for the lender to preapprove the price on a short sale, thus enabling Realtors, sellers and buyers to have a much clearer view of the playing field and increasing the likelihood of a completed transaction. (Source: WSJ)

If anyone sees a downside to preapproved short sales, please enlighten me at your earliest convenience. It appears to me that this approach is long overdue.

FED Rate Slashed

2008-12-16T15:03:00.005-05:00

The FED just cut the target rate to between .25% and 0% and said it will do all things necessary to keep mortgage rates and the cost of money low. It will likely keep the target rate at this level for quite some time. The FED will also be aggressively buying mortgage-backed securities and does not appear to be concerned with inflation. (Source: CNBC)

My simple advice with regard to real estate: Buy! Buy! Buy! Upsize! Do not sell and/or downsize for the next few months. From a cyclical perspective and in light of the posturing of the FED, the market from a seller's perspective may look better in 3 or 4 months as mortgage rates are likely to decline, thus helping to stabilize prices. Again, I must stress - as I have in the past - that I am not overly optimistic with respect to a quick turnaround. I am looking for a bottom and then a very gradual uptick in prices and sales volumes.

Second Bailout Package

2008-10-20T10:10:00.004-04:00

FED Chairman Ben Bernanke is currently testifying on Capitol Hill and giving his blessing to a second stimulus package should Congress deem it appropriate to pass such a measure. He is stressing that any package should focus on freeing up the credit market. In addition, Mr. Bernanke is encouraging Congress to ensure that any package be fashioned in such a way so as to not unduly burden the budget deficit. (Source: CNBC)

My understanding is that the first package (somewhere between $700 billion and $850 billion) was inclusive of the $250 billion that the government is in the process of funneling into the banks. Roughly half of that money will go to nine major banks with the other half being distributed to smaller banks. This action and the remainder of the first package was also intended to free up the money supply and/or credit.

My questions are as follows:

Where is the remainder of the money from the first package going and/or what are the remaining details of the first package? (There is talk of writedowns of principal on mortgages, restructuring of mortgages to certain homeowners and the purchase of certain debt on the open market.)

Should we not allow the first package to be fully implemented prior to passing a second package, or, at minimum, have a clear explanation as to why the first package will be insufficient?

How are we going to pay for these packages, particularly if the government buys bad debt at above market prices? Are we simply delaying the inevitable with regard to the cyclical nature of the economy, and thus causing a larger financial crisis in the not-so-distant future?

How long does the government intend to be an owner/investor in major financial institutions which have previously been the province of the private sector (excluding Fannie Mae and Freddie Mac)?

In my opinion, most importantly:

With respect to any writedowns of principal on mortgages, is this going to be done uniformly for all homeowners and, if not, what will protect the equity for homeowners who are excluded from the writedowns? Will the excluded homeowners not immediately lose equity as a result of writedowns on principal of similarly valued comparable properties?

In the event that these proposed writedowns are not uniform and certain homeowners are excluded, this will be tantamount to a vast redistribution of wealth. Whether one agrees with such actions by the government is not my concern for purposes of this blog, but let's be clear on what the intended and unintended consequences of these action will be on the economy as a whole, certain classes of people and you, the reader of this blog.

The Little Guy / Small Businessman

2008-09-15T15:36:00.009-04:00

Here's what no one seems to be talking about...(those who are, aren't speaking loud enough, or aren't being heard!)

As the federal government picks and chooses which financial institutions will be saved and people debate "moral hazard", the issue remains liquidity. In the housing market, that means loans for builders and mortgages for consumers. From my perspective and for my benefit, I am in no rush to see more homes built with the supply as it is, so my concern is with access to mortgages.

As we all know, or should know, mortgages were being given out too liberally. This debt was ultimately packaged and sold on the open market through complex vehicles that no one understood. When borrowers started to default on mortgages and the end investors figured out that what they had bought was backed by no-documentation/no-verification loans, the money supply dried up. (simplistic, but basically accurate)

Here's the problem now...

As is often the case, the pendulum has swung way too far in one direction. There is/was a valid need for the loans discussed above. The small businessperson who uses legitimate tax planning tools is unable to justify his/her ability to pay back a loan and right now it is almost impossible for him/her to qualify for a mortgage.

I sincerely hope that the mortgage industry is able to create a mechanism by which these people can qualify for mortgages. In the alternative, the government must restructure the tax code so as to make it practical for small businesses to make a profit on paper. After all, small businesses employ roughly 70% of the workforce. Owning a small business has many drawbacks. Do we really need to create another by blocking access to home ownership for the people taking most of the risk and who act as the engine for our economy?

Fannie/Freddie

2008-09-06T12:44:00.003-04:00

As many of you may have heard, Fannie Mae and Freddie Mac, which own, or guarantee, roughly $5 trillion in U.S. mortgages are on the verge of being taken over by the federal government by way of conservatorship. (Source: WSJ)

This raises many issues:

Is this merely semantics? It is my understanding that both agencies are usually classified as quasi-goverment agencies. I suspect the stockholders may suffer, but what effect will this have on the average consumer applying for a mortgage? There will likely be a shakeup in the corporate hierarchy, but, again, what will the practical consequences be in the functionality and viability of these agencies?

I suspect that there will be a stabilizing effect on the mortgage industry and that rates will improve slightly over the short term. Of course, the converse could also hold true. The need for a government takeover could affect the psyche of the general public and institutional investors in such a way as to have a negative impact on the economy as a whole, including the availability and affordability of mortgages.

The practical implementation of this takeover in conjunction with the changes that follow should be closely scrutinized by anyone who has an interest in the subjects covered in this blog. This may be a non-event or could reverberate through the housing/mortgage industry for the next few years.

MASS June Housing Stats

2008-08-03T10:56:00.004-04:00

The trend in Massachusetts housing continues as numbers on both sales volume and price for June improved month over month, but are worse with respect to a comparison with June of 2007. (Source: MAR)

Sales of single-family homes decreased by 14.9% (June '07 compared to June '08), but were up 21% when compared to May of this year. The median selling price of $334,900 was the highest since October of '07, but was off 8% when compared with June of '07. (Source: MAR)

Condominium sales decreased by 2o.3% in June '07 compared to June '08, but were up 14.4% when compared to May of this year. The median selling price of $296,000 was the highest since July of '07 and was off less than 1% when compared to June of '07. (Source: MAR)

Inventory of residential homes for sale is at the lowest level in a year at 8.3 months. Although at the high end of the spectrum, this is considered a healthy supply of inventory and shows marked improvement over May when inventory was at 9.8 months of supply. (Source: MAR)

Days on market for properties selling in June was 129 days and 140 days for single family homes and condominiums, respectively. (Source: MAR)

Finally, to those of you who braved last night's weather and joined my family and me for our annual Lowell Spinners outing, thank you for making it a great time!

Mixed Bag

2008-07-17T16:14:00.002-04:00

As most of you are probably aware, last week was a tough week for banks. Indy Mac failed. There was the beginning of a run on Indy Mac as a result of depositors 'concerns and fear escalated as Freddie Mac and Fannie Mae were also in serious trouble. In addition, the confidence indicator for builders was at an all-time low. (Source: WSJ, CNBC)

This week, the stock market continued its downward spiral and then bounced back with, of all things, the banks leading a 2-day rally. Fannie and Freddie seem to be out of the woods for the time-being as the government has indicated that those institutions are, in fact, too big to be allowed to fail. This morning, JP Morgan reported better than expected results and Bank of America is showing signs of life notwithstanding the purchase of Countrywide. (Source: WSJ, CNBC)

In conjunction with the above, and just as important to the real estate market, is the fact that June housing starts were up 11.1%. Moreover, building permits for June were up 9.1%. (Source: CNBC)

As an aside, oil prices have come down a bit, and reserves for natural gas came in higher than expected. (Source: WSJ, CNBC)

What does all this mean? I am not sure if anyone knows. Stay tuned...

Dry But Promising

2008-06-27T13:30:00.002-04:00

In the last week, some hopeful signs have developed with respect to Massachusetts real estate:

The best news by far was that home sales (overall volume) from April to May of this year had their greatest month to month percentage gain in the last 10 years! (Source: MAR, NEAR)

Although May sales on a year over year basis saw a decrease of 10.1% for single family homes and a decrease of 24.5% for condominiums, these decreases were still a vast improvement over the recent past. Meanwhile, single family home sales and condominium sales increased 24.5% and 27.5% respectively from April to May. (Source: MAR, NEAR)

A similar trend as to that which is referenced above occurred regarding prices. While single family and condominium sale prices were down 9.2% and 2.6% respectively year over year for May, April to May of this year saw sale price increases of 2.4% for single family homes and 2.7% for condominiums. (Source: MAR, NEAR)

Regarding the time it takes to sell a home, in May of this year, the average time on the market for single family homes was 143 days, as opposed to 139 days in May of 2007. The time on market for condominiums remained virtually unchanged, moving from 134 days in May of 2007 to 135 days in May of 2008. (Source: MAR, NEAR)

Although the statistical analysis may be mind-numbing, what is important is the future of the real estate market and what we might glean from these numbers. Simply put, the year over year slides in sales volume and prices were less drastic than in recent months. Both facts bode well for a gradual market stabilization. Moreover, the month to month positive gains in sales and prices strengthen this hypothesis.

However, so as not to cause irrational optimism, keep in mind that the condition of the local real estate market is far from healthy from the seller's perspective. We will not see properties flying off the market at the speed at which they did at the market's peak a few years ago for quite some time. After all, there is a difference between a bottom and a recovery. (The interchangeable manner in which these terms are used by the media and analysts alike is disconcerting.) I am seeking the former for the time being.

Finally, keep in mind a few simple rules when contemplating your particular situation. All real estate is local. Each sale depends on marketing and pricing, not necessarily in that order. Pricing must be based on market conditions and in consideration of comparable properties. Pricing has nothing to do with (or should not have anything to do with) what a seller owes, or what a seller needs to net in order to purchase another property. The market is what the market will bear.

Interest Rates & Bank-Owned Properties

2008-06-04T09:38:00.006-04:00

Interest Rates

FED Chairman Bernanke gave a speech yesterday wherein he made an abrupt change from his former policy of not commenting on the dollar as, per his prior position, it is not within the province of the FED. By raising his concern over the weak dollar, as well as the lagging economy, he seemed to be posturing for future interest rate increases, or at minimum a freeze of the rate (2%) for the immediate future. (Source: MSNBC, WSJ)

Keeping the above in mind, for anyone contemplating a refinance, now may be your best opprtunity.

Bank-Owned Properties

On another note, I am seeing a bottom in multi-unit investment property prices, albeit artificially determined. It appears the banks are looking at individual properties and determining a floor price at which they are willing to sell each property. If a property does not sell at that price, they will then auction the property with the predetermined floor price being the minimum they will accept at auction. I am told that, if a bank does not obtain its floor price at the auction, it will then bundle the property with similar properties and sell the bundle to a large (institutional) investor.

What are the ramifications of the above? They are twofold:

First, this should stop the bleeding for those of you who own multi-unit properties in that the bank-owned properties will not remain on the market as a continuous drag on values. In theory, your property value will be determined by this floor price per unit in conjunction with the relative condition of your property. Without this process in place, your property would continue to decrease in value until such time as the floor was determined on the open market. This would naturally be lower than the floor price set by the banks.

Second, for those of you investing in these properties, keep an eye out for the unit price at which these properties are taken off the market in your area and compare the different prices/properties against one another. If the per unit price is fairly consistent taking into acount condition of the respective properties, you have a pretty accutate indication of the bottom and what you should expect to pay per unit.

Self-Employed

2008-05-01T14:21:00.005-04:00

Yesterday's Wall Street Journal had a front-page article about Countrywide Financial Corp. and its loan delinquencies that got me thinking. The beginning of the article quoted all the problems with sub-prime loans and the delinquency rates. (Old news...but bad news sells papers.) However, buried in the article was the fact that "fast and easy" loans (no income verification/no documentation loans) through Countrywide currently have a lower percentage of delinquencies than do traditional full-documentation loans. This was attributed to the fact that, in order to qualify for "fast and easy" loans, borrowers need higher credit scores than they would for full-documentation loans. (Source: WSJ)

This leads me to my query: Assuming that the above is indicative of the industry as a whole, why are "fast and easy loans" disappearing along with sub-prime loans, thus penalizing small business owners who try to minimize their income through legitimate tax planning means?

Sounds to me like throwing the baby out with the bath water.

Home Market

2008-03-25T10:10:00.002-04:00

Nationally, existing home sales rose 2.9% in February (month to month) and, according to today's CCI report, the number of people who intend to purchase homes in the next 6 months has increased. However the CCI number as a whole was dreadful. The CCI measures consumers' confidence in the economy. (Source: WSJ, CNBC)

As a whole, I take the above to indicate that, although consumer sentiment with respect to the state of the economy as a whole is not favorable, consumers are realizing that the prices in this market present too good of an opprtunity to pass up.

Glass 1/2 Full or 1/2 Empty?

2008-03-06T13:14:00.004-05:00

The pending home sales index, which measures homes under contract (but which have not yet closed), remained steady from December to January, which is a sign of market stabilization. This latest piece of data supports the notion that the market may see the beginning of a gradual recovery as early as the middle of this year. However, limiting the amount of foreclosures dragging down home prices is a key component to a recovery. (Source: WSJ, NAR, MSNBC)

Federal Reserve Chairman Ben Bernanke had a simplistic, bold and somewhat innovative suggestion a few days ago when he advised that institutions holding mortgages should consider lowering the principle of such loans. (Source: WSJ, MSNBC)

While at first glance this seems to be an insane suggestion, it may actually make sense. People are more apt to make their mortgage payments if they have equity in their homes. Conversely, no matter how low mortgage rates go, many people will default if they owe more on their homes than their homes are actually worth. Depending on the amount of any reduction in principle, this option is likely more profitable than the foreclosure process. Moreover, foreclosures will ultimately feed the current cycle of home devaluation. Devaluation of collateral is an investor's worst nightmare!

A caveat to the above is that any such program needs to be administered on an equitable and voluntary basis so as to maintain stability and foster faith in the real estate/mortgage market. Speaking of which, how much faith will investors have if bankruptcy courts are given the power to unilaterally rewrite mortgage terms, as some are suggesting, as a solution to the current mortgage problem? (Source: WSJ)

As an aside and in keeping with my recent entries, if you are in a position to buy, do so now. Most often analogized to the stock market and apropos to the housing market, predicting the absolute bottom is like trying to catch a falling knife. Further, the cuts in the prime rate made by the FED recently have not had the desired effect on fixed mortgage rates over the last few weeks. In fact, mortgage rates are on the rise. With that said, I am hopeful that the FED will drop prime another 1/2 point at its next meeting in approximately two weeks. Perhaps such a drop will convince lenders to be a little more free with their money in the not so distant future.

Opportunities-Pitfalls/Subprime/Jumbo Loans

2008-02-11T10:08:00.001-05:00

I've seen a tremendous drop in per unit costs for multi-unit residential properties in the last 12-18 months. My experience is that per unit costs in the Merrimack Valley seem to have dropped 20-25% on lower end 2-4 unit properties. That said, a word of caution before anyone considers taking advantage of these "buys".

By way of example, say an investor finds a 3 unit property listed at $170,000 in Methuen which, believe it or not, actually exists. A savvy (or not so savvy) investor thinks he/she can purchase this property for $150,000 and get the steal of the century.

Maybe...maybe not.

These properties often have many hidden costs associated with them. Some common issues are lead paint and mold, to name just a few. It would not be unusual for a neglected property to have renovation costs of $30,000 per unit. Investors, especially novice investors, may be better off paying $225,000 for a similar property with de-lead certificates and in move-in condition. It is all a risk vs. reward analysis. The $225,000 property may yield a similar return to the property listed at $170,000 (with minimal risk) once renovation costs are factored into the investment. Renovation costs are always an unknown and even the most experienced investors sometimes underestimate these projects. Remember that "sweat equity" involves opportunity costs.

In short, my point is that you need to do your homework and know what you are getting into so that you reap the rewards of your investment. With that said, I am a firm believer in investing in real estate and am always available to assist investors through this process.

As an aside, Countrywide Financial Corporation appears to be expanding its efforts to mitigate the fallout from the subprime mortgage mess. Do not hesitate to contact your mortgage company in this regard, irrespective of whether or not it happens to be Countrywide, as other mortgage companies are sure to follow suit. (Source: WSJ)

Finally, it appears that President Bush on Wednesday will raise the limits on jumbo loans from approximately $417,000 to as much as $725,000. Given the market in my geographic sphere of influence, this is very good news! Anyone who needs to sell, or wants to buy, a home in the $550,000-$800,000 range will be in a much better position if this adjustment is indeed signed into law. (Source: NAR, CNBC)

Bernanke/Countywide/Mortgage rates

2008-01-11T13:07:00.000-05:00

Yesterday, Ben Bernanke gave every indication that the FED will lower rates at its next meeting. Most experts expect a 1/2 point reduction and as much as 1 1/2 points in total reductions by the end of March. Moreover, Mr. Bernanke alluded to the fact that the FED will not hesitate to intervene in between meetings if more negative economic indications develop. He was particularly focused on declining home values, ongoing liquidity issues and the jobless rate. Along with future rate cuts, Mr. Bernanke announced that the FED will auction an additional 60 billion dollars in 28 day loans over the next month to financial institutions. (Source: CNBC, WSJ)

Bank of America has acknowledged its intent to buy Countrywide Financial Services. (Source: WSJ)

On average, mortgage rates dropped from 6.07% to 5.85% over the last week. (Source: WSJ)

For qualified buyers, it just keeps getting better, but low rates and low home prices do not usually coexist for lengthy periods of time.

Year End

2007-12-21T13:10:00.000-05:00

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

2007-11-26T10:51:00.000-05:00

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

2007-11-06T14:03:00.000-05:00

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

2007-10-27T16:45:00.000-04:00

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!

2007-10-18T12:55:00.000-04:00

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

2007-09-27T10:20:00.000-04:00

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

2007-09-12T13:12:00.000-04:00

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

2007-09-05T10:03:00.000-04:00

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

2007-08-28T10:50:00.000-04:00

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?

2007-08-23T12:32:00.000-04:00

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

2007-08-20T11:20:00.000-04:00

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.