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My $0.02 Category

Do You Remember Your First Home?

Our first homeI was speaking with a client yesterday about a home purchase and somehow the topic got around to their first home purchase.  They were positively gushing about how much they loved their home. They remembered every last detail about why they bought it.  Unfortunately, they’ve outgrown it and now are looking at moving up.

The conversation got me thinking about all of the homes I’ve lived in throughout the years. Interestingly enough, the home that stands out as most memorable to me is not the first home I purchased, but rather the first home my mom purchased as a struggling single parent back in the early 70’s.

Read the rest of this entry »

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Are Disposable Relationships Ruining your Chance at Happiness

Man in trashcanSomehow, I’m on an email list for eHarmony, and I get occasional articles in my inbox.  I usually just delete them and go about my day.  However, this particular headline caught my attention, not just because I’m single, but because this same headline could just as easily apply to Real Estate.

eHarmony for Real Estate?

In reading the article (click HERE to read it), I realized that there are many similarities between dating and real estate. Just scan through the article headers on their site and replace the word Date (or relationship) with Realtor. You could use the two words interchangeably except for maybe the sex articles. Read the rest of this entry »

What does Gene Amdahl have to do with Real Estate?

News headlineBack in the early days of computing, Gene Amdahl was a computer scientist at IBM who later started his own mainframe company. At the time, IBM was the undisputed King of the Hill, but Amdahl had a solid product that was a direct competitor to them. IBM’s marketing, PR and sales force used tactics that Gene Amdahl coined FUD in order to crush the competition. Read the rest of this entry »

Woodinville Home Back on the Auction Block

Woodinville homeJust yesterday, I was touting about how to buy a home for pennies on the dollar (click HERE to read that post). In that post, I mentioned a home in Woodinville, WA that sold for $490,000 at a recent auction I attended. What happened afterward is a complete surprise to me… Read the rest of this entry »

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Is it important that my Realitor can spell?

In this age of easy access to computers and spell check programs, why is it that grammar and spelling have declined? Are we just too busy to take the time to proofread? Or, are we just too lazy?

Bad Grammar = No Business Or Does It?

Many of my co-workers and friends think I’m a bit crazy when I post photos on Facebook of typos that I come across in my daily life. I get a kick out of them.

But the bigger question to ask yourself is “does it change your perception of the company or individual in a negative way”?

Put another way, would you continue to do business with an individual or company if their correspondence was riddled with bad grammar or typos?

For me, it would depend. Read the rest of this entry »

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How to solve the housing finance market in 2 easy steps.

A recent report authored by The American Enterprise Institute for Public Policy Research revealed  that the US government should not be in the business of guaranteeing loans.

It supports the elimination of Fannie Mae and Freddie Mac as GSE (Government-Sponsored Enterprises) and suggested that over time, they be privatized. To the extent that government is involved in the financial market, they also concluded that their focus be on ensuring mortgage credit quality, not guaranteeing the quality of mortgages or MBS to potential investors.

Those against the removal of government intervention and guarantees argued that by doing so, investor confidence in the financial securities market would be further eroded, and that the housing recovery would be near impossible.

It reminded me of a funny discussion I overheard recently that went like this:

Broker: “Who has some good news they’d like to share?”
Agent: “I do. I just wrote an offer for some clients on a home I showed them.”
Broker: “That’s great news!”
Agent: “What’s even better is that they qualified for a loan, and neither of them have a job!”

Wait a minute! Isn’t this what got us into the problem in the first place? What happened to all of the mortgage reform policies that lenders were going to put in place? Seems like Deja Vu all over again.
You can download the report here.

What are your thoughts? Should the government continue to guarantee bad loans?

Buy Now!

In my last post about strategic defaults, I promised to explain why now is a good time to buy a home. If you watch the news, you’ll find conflicting reports everywhere. Some reports claim that the market is still in a downward spiral, and isn’t expected to recover for another few years. Other reports claim that the market has indeed rebounded and is now slowly on its way back up.

I’m not going to delve into deep statistical explanations but rather offer a few meaningful stats and some anecdotal evidence of my claim.

In a press release from the NWMLS (Northwest Multiple Listing Service) dated today, some stats were disclosed. In a nutshell, the numbers showed that while the market is down slightly from last year in terms of Pending sales of homes in January, the figures were within 5% of 2010’s figures. If you believe that President Obama’s housing tax incentives propped up last year’s numbers, then the actual number of REAL sales based on buyers’ optimism has increased over last year’s numbers.

The number of CLOSED sales increased modestly by 2.7%, but the prices were down 6.7%. This means that buyers got better deals on their homes (can you say BUYERS MARKET?). Prices remain at pre-2005 levels due to the influx of short sale and REOs (Bank Owned Homes) that are slowly being released into the market. This “Shadow Inventory” will lengthen the delay of recovery in the housing market, but create further opportunity for qualified buyers. (I’ll talk more about how this shadow inventory affects the overall market in my next post).

Interest rates remain low and while it may be a bit more difficult to obtain financing (You’ll need to do more than just fog a mirror), qualified buyers are finding some good bargains out there. Rates are hovering around 4.5-5% which is pretty darn good!

I’ve been working with an investor couple who understand this opportunity. In their words, this is the “Perfect Storm” in real estate. Of course, they are thinking long term (10+ years holding time). For example, we looked at a cosmetic fixer which is listed at $209,000 (4bdrm, 2bath rambler on 1/3 acre). This is NOT a home they would live in, but as a rental, it pencils out pretty good if they can pick it up for the specific price they have in mind.

As a Realtor, I’ve seen some great opportunities out there. Many are diamonds in the rough, while some are just the rough… Yes, you’ll need to have vision (and some handyman skills), but for those savvy buyers, things are looking pretty good right now…

Strategic Defaults continued…

I can’t stop thinking about the whole strategic default premise. Is it guilt that prevents us from doing what large corporations do without nary a second thought? Do we really care what our neighbors, friends and family think?

I think its more than that. I think fear plays a larger role than guilt. When a corporate entity defaults on their loan, they still have individual homes to go to at the end of the day. The credit of the individual employees aren’t damaged. They can still go out and charge a dinner at a local restaurant, or buy clothes at their local department store.

If I were to default on my mortgage, my credit would get screwed up. I probably wouldn’t qualify for a credit card. Where would I live after they took my home from me? So many things in our daily life depend on good credit scores. Auto insurance is one of them. My rates would probably increase at my next renewal period. Would I be able to rent somewhere else? As a landlord, I always run a credit check on potential renters. It would take several years before I could buy another home. I think fear is what prevents us from taking that big step.

But I guess that’s where the strategy comes into play. I’m supposed to find alternative housing BEFORE I default on my loan…

But wait! I’m a REALTOR! I’m not supposed to talk about these things. It’s real estate Blasphemy! That’s right, the housing market is strong. The market will rebound. The market will rebound. It’s a great time to buy! It’s a great time to buy!

Really! It is a great time to buy! I’ll tell you why in my next post…

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Strategic Mortgage Defaults… For or against?

There has been quite a bit of controversy lately on the topic of strategic mortgage defaults. If this phrase is unfamiliar to you, it can be summed up like this:

A strategic mortgage default is when you have sufficient funds to continue making mortgage payments on your residence, but choose NOT to make them because your home value is less than your mortgage balance.

It is happening all over the country by homeowners like yourself. Large corporations have done it too! What is ironic about this, is that while the banks frown upon homeowners who default on their mortgage, the Mortgage Bankers Association (MBA) strategically defaulted on a building they owned!

In a study by Brent White at the University of Arizona (where the housing market has been hit worse than other areas), he posited that strategically defaulting on a mortgage is not immoral, nor is it necessarily wrong. In fact, he believes that it should be based purely on sound financial logic, something that large corporations have done for years. Think of it this way: Why should you continue paying money towards a home that has little or no chance of regaining value in the foreseeable future? Wouldn’t it make more sense financially to just rent instead?

I’m not sure where I stand on this topic. As someone who was raised to be a good citizen, taught to obey the rules, pay my bills, etc, my conscience tells me that it is wrong! However, the left side of my brain tells me that it makes absolute financial sense in certain situations. Additionally, as someone who makes a living selling real estate, how can I support such an idea when my financial livelihood relies upon a strong housing market?

I read a story a few years ago where homes in a particular neighborhood saw their values drop by 50% or more. The story chronicled one particular homeowner who purchased a home a few doors down that was identical to his for half the price he paid. He then defaulted on his original home. The bottom line was that he reduced his mortgage by half for the same home! He said in the interview that he tried to work with his bank to reduce his mortgage payment, but they wouldn’t even talk to him unless he was in arrears by several months.

Fast forward to 2011 in Lynnwood WA. There is a condo complex that I’ve been showing to potential investors. There are 19 units for sale in this complex (out of nearly 200 units). ALL are either Short Sales or Bank Owned (REO), and all are selling for about 50-70% of their original sale prices. I also happen to have a friend who owns a unit here. I explained the concept of Strategic Defaults to her and she mentioned that she would feel too guilty to try it. The Seattle Times recapped Mr. White’s article just this weekend. Here is a link to it.

And that, is what the book that Mr. White wrote, focused on. He wrote that we shouldn’t feel guilty about defaulting if the numbers don’t pencil out. Do you think that the Mortgage Bankers Association felt guilty when they defaulted on their building loan? How about Morgan Stanley when they defaulted on a $2 Billion loan in 2009?

His position on the subject is that a loan is just a business contract. You pay your mortgage off, and you get to keep the house. If you don’t the bank gets to take it back.  If you’re willing to give the house back to the bank, why should you feel guilty? You’ve lived up to the agreement stated in the contract, didn’t you?

What are your thoughts on the matter? I’ve got additional thoughts that I’ll save for tomorrow…

Sell, Sell… No, Buy, Buy!

In general, I tend to be a contrarian where investing is concerned, but I really like this post from Hedge Fund Manager, John Paulson. I think it earns credibility for the real estate market, because it is coming from an financial guy, not some real estate analyst. I’m sitting here waiting for your call…