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The New York Times featured an op-ed yesterday (September 1) from Karl E. “Chip” Case, professor emeritus of economics at Wellesley and co-creator of Standard & Poor’s Case-Shiller housing index. The article, entitled A Dream House After All, concludes – even after (and perhaps because of) all the negative sales hype the past two or three years – that “housing has perhaps never been a better bargain” and that “the American dream is not dead — it’s just taking a well-deserved rest.”

He notes that what has happened in the housing markets since 2005 is undoubtedly a catastrophe. Apparently some thought “the American dream is owning property that appreciates by 30 percent a year, making a house into a vehicle for paying bills . . . those kinds of dreams have become nightmares.” But for most people, he believes, “it means having a solid and fairly safe long-term investment that is coupled with the satisfaction of owning the house they live in. That dream is still alive.”

In fact, “for people with a more realistic version of the American dream, buying a house now can make a lot of sense:”

Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms.

Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.

The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.

Consider a few other bonuses of buying a home today. You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 percent on average from the peak. The mortgage-interest deduction and the tax-free income from housing cost the government at least $200 billion a year.

Do the math. Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000.

He goes on to discuss projections from  the Census Bureau and other demographers suggesting that the number of  households will increase by 1 – 1.5 million annually, so with little new construction, we should be experiencing a tightening market – but instead of falling, vacancy rates remain high. While demographic numbers might be off, he attributes the continued downturn to the “steady drip of bad news” impacting confidence.

Real estate sales are unlike other financial transactions. You can place a rough inherent value on a stock or bond by looking at fundamentals: a company’s profits, price-to-earnings ratios, quality of its products and management, and so forth. But a house is worth what someone is willing to pay for it. That’s a very personal, emotional decision.

In a given year, the number of completed sales is about 4 percent to 5 percent of the housing stock. Thus it doesn’t take a change in mood of a large number of buyers to change the overall direction of the market.

He concludes that the “sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again.”

Glad to hear it. I’ll bet you are, too.

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Further to the speculation on what’s happening with the Springfield Town Center, Vornado’s loan servicers are threatening to foreclose because negotiations have so far produced no agreement. Vornado seems to be fine with that. They’ve pushed out enough tenants and allowed the mall’s reputation to continue to degrade to the point where they could probably buy it back for pennies on the dollar.

Update 8/27 – Here’s an article in the Wall Street Journal discussing a number of these non-recourse commercial project “Jingle Mail” deals, where the borrower decides to let the lender foreclose based on declining value of the asset. Basically, they’re being rewarded by the market.

Oh, joy.

Instead, they’ll use their money to build a tower at 15 Penn Plaza in New York. Or so they claim now. Let’s see what happens with those promises 5 years down the road.

Update 9/2 – And here’s an article in BusinessWire announcing that Vornado, apparently awash in cash, is buying back $382,000,000 of it’s outstanding debt at a premium price.

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Aboard RMS Queen Mary, docked in Long Beach, CA – We’re in town for the wedding of our young friends Nick Saldivar and Carson Whitehead. Our son Chris is Nick’s Best Man (if he’s the “best” man, why isn’t the bride marrying him? Shouldn’t it be the Groom and a Pretty Good Man? – Jerry Seinfeld).

Anyway, while I am on a streak of plagiarizing blog posts and throwing them atcha from sunny locales, allow me to toss out a big chunk of this one from John and Sherry Petersik’s YoungHouseLove blog regarding research into remodeling costs:

Fixr.com have created a handy average budget breakdown of many house-related projects to help homeowners figure out what these projects might possibly cost.

Go to this link and scroll down the page to see a ton of links to some  guesstimates for just about any remodeling project you might have in mind. Location and the economy can affect these estimates but it’s nice to have some ballpark figures.

Check out John and Sherry’s blog for some truly cool remodeling and cost-saving advice. Tell them I sent you and they’ll say, “Who?”

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I’m sitting in a Starbucks on Colorado Boulevard in Pasadena, CA stealing better writers’ blog posts with reckless abandon and glorying in the humidity-free sunshine while my wife shops. We are here for my older son’s West Coast wedding reception and my younger son’s best friend’s wedding. Also inhabiting the land of In-N-Out Burger and Roscoe’s House of Chicken and Waffles is one of my favorite RE bloggers, Kris Berg in San Diego, and since she gave me permission, this one’s (mostly) from her. I stole the pencil pic elsewhere.

No one wants to be #2.

I had to scratch my head on this one for a minute. Who needs a liquid pencil?

Then, the more I thought about it, the more sense it made. I recalled the time, a couple of months ago, when I was assembling some of my daughters’ old school treasures for scanning and preservation only to find that the pencil writings and drawings had faded into the land of undecipherable over time. A temporarily erasable yet ultimately permanent pencil would have avoided this domestic crisis of enormous proportions. And, suddenly I found myself looking for an excuse to visit the office supply store.

This is what you call latent demand. I didn’t think I needed a liquid pencil – didn’t know I would ever want one, in fact, until the opportunity was presented to me.

In my old traffic engineering days, we spoke of latent demand in the context of building new thoroughfares. You take the same freeway to work every day, and it works. Suddenly a new road is available and wham! All the little cars redistribute. You take the new road, which frees up room on the old route; now that less-congested route is suddenly more attractive to others who in turn change their paths.

I like this definition from Business.com best: “(Latent demand is the) Desire or preference which a consumer is unable to satisfy due to lack of information about the product’s availability.”

Latent demand is an important factor in the real estate market as well. Every time a home hits the market, in fact, it is this demand that the seller should primarily be out to satisfy, because it is the folks in this category that represent the biggest segment of the buyer pool. They exist today; repel them, and you will likely not enjoy do-over. Instead, you will now find your home in the category of the “known” versus “previously unknown.” After a couple of weeks, your home is no longer a new must-have, but the well-traveled road, that same old ball point pen we’ve seen a thousand times before.

The whole latent demand concept is the single biggest reason why the first days and weeks of marketing your home for sale are critical.  And the two biggest mistakes we see are improper pricing and ineffective or essentially non-existent advertising.

Price

You’ve heard it before. This is a favorite subject for real estate agents to beat to death. Allow me to grab my stick.

If your home is priced close to or within a reasonably expected range of market value, you will have the best chance of attracting a buyer willing to pay what it is worth. If you are priced too high at your coming out party, you will find yourself, weeks or months down the road, in a defensive negotiating position.

This is because the shine will be off the rose. The initial crowd you drew will rarely come back for a second look; they are off to the next new thing. Meanwhile, for the new buyers in the market, gone will be the sense of urgency to grab it while supplies last. Instead, they are in full-contact negotiating mode now. Consequently, the seller’s bottom line almost always suffers.

Advertising

This is the one, pardon the pretty visual, that really makes my face turn red and the veins in my neck stand out. If you agree you have one shot at the majority of the buyers, the ones in the present, the ones who are going to be most inclined to come to the negotiating table with money guns blazing, then why would you hit the market with any less fervor than you (and your agent) can muster?

Bad photos or no photos, no brochures or grainy third-generation gems pulled from the home office copy machine, and not even a feigned attempt at sprucing things up around the home front for the incoming herd: How are these things going to help you appeal to the buyers? How does this differentiate you from the competition? As for the latter, you will differentiate, all right, but not in the way you had hoped.

The same argument for level of attention and detail to quantity and quality advertising applies to the online space.  Consider the birth of a listing. In the old days, your agent would order a yard sign, add your vitals to the MLS, and voila! All of the other agents would be put on notice so that they might tell their clients about your home.

Today, things start out the same, but that’s where the similarities end.  The MLS is no longer just for agents. When the active status toggle is flipped, all form fields (save the showing instructions and offer of compensation) are magically transported to countless destinations throughout cyber-space.

In some cases, your listing is shuttled off to points beyond through no action on the part of your agent. This happens because of IDX, or Internet Data Exchange, agreements between various sites and our MLS. In other cases, your agent has to actually do something proactive – “feed” their listings to the various sites to ensure maximum exposure (and you should be sure that they are doing just that). Either way, when that switch is flipped, if you haven’t donned your fancy shoes in order to put your best foot forward — if you don’t have a lot of stellar photos or if your agent forgot to run their spell check — it’s too late, at least if you want to appeal to the latent demand.

In short, gone are the days when homes just sold themselves. (For the record, that was 2005). No longer can you just list it and know they will come. Well, they may, but striking a chord with the first waive – the latent demand – is critical to maximizing sale price. They’re a fickle crowd. You get one chance. Do it right. You can be a liquid pencil, an exciting new opportunity, or you can be the same old #2.

Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including [San Diego] homes for sale, market trends, floor plans and more. Kris’s hobbies include fencing and spot welding. She likes kittens.

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Delightful View and METRO Too!

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$180,000 Condominium For Sale Main Features 2 Bedrooms 1 Bathroom Interior: 1069 sqft Location 2622 Fort Farnsworth Rd #218 Alexandria, VA 22303 To get updates on open home dates and other property events, please click the “Like” button below:

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Kim Hannemann Samson Properties (703) 861-9234 Kim.Hannemann@gmail.com http://www.KimHannemann.com Listed by: Samson Properties

Our recent listings Delightful View and METRO Too! Elegance in the Woods! Subscribe to our listing feed

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Update – FHA decided to change implementation from September 7 to October 4.

The Federal Housing Administration (FHA) announced yesterday that the monthly premium for it’s mortgage guarantee program will increase from 0.55% of the loan amount per year to 0.90% per year for loans with down payments under 5% and to 0.85% for loans with higher down payments. At the same time, the FHA “upfront premium” – paid at the time of closing the home purchase – will be reduced from the current 2.25% of the loan amount to 1.00%. The upfront premium is often “rolled into” the loan amount to reduce its impact on the amount of cash needed to purchase the home.

These changes have been expected but were awaiting Congressional approval, received yesterday. The FHA had increased the upfront premium from 1.75% to 2.25% as a temporary measure to bolster its reserves to required levels. The changes will take effect with loans originated (FHA case numbers issued) on or after OCTOBER 4, 2010. Existing and already pending FHA-guaranteed loans are not affected.

The effect of the change to a monthly payment is about an additional $29.17 per $100,000 borrowed, but a reduction of $1,250 in the upfront payment. If you were to finance the upfront payment, as most borrowers do, the net increase to your monthly payment resulting from the change would be about $22.46 instead of $29.17 per $100,000, assuming a 5% interest rate on your mortgage.

The takeaway – if you are on the fence, better to buy/refinance before OCTOBER 4!

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There was a Dilbert cartoon a few days ago that was so good I decided to grab the punchline panel and write a post around it. So here it is.

Contracts can be dangerous things. Now, most people don’t deal with contracts on a regular basis, and for those who do – like lawyers – it’s usually their employer’s or client’s money on the line, and it’s their business. In my business, I have to work with contracts for residential real estate every day, but go beyond that and I’m stretching my legal abilities. Not to mention the matter of practicing law without a license, which the state allows me to do in a very, very limited way.

Often one of the greatest challenges even the best Realtors face is managing the transaction once a contract is achieved. Most buyers and sellers have no idea how much work is involved in getting from there to an actual closing. It is difficult to juggle the demands of gathering the necessary documents, maintaining communication with your client and managing the other parties. The 10-page DC area contract is just the beginning. There’s a 6-page addendum for Virginia, plus multiple disclosures and optional addenda on top of that. This creates an unbelievable amount of paperwork to maintain, deadlines to track and requirements to be met. Additionally, licensing requirements make it way too easy for the less-than-professional person to be an agent, further increasing the challenges.

I tell people that every time something goes awry with a contract in Northern Virginia, we get another form, or at least another paragraph in an existing form. Most of my contracts are at least 25 pages of stultifying fine print, a lot of which simply serves as CYA material. Occasionally, however, there occurs a situation proving the importance of knowing exactly what’s in there.

Case in point: I have been working with some very nice people who want to buy a home, but need to sell their own home. According to their lender, they could qualify to carry both mortgages – to which they say, “Sure, but we like to have food with our meals.” They contracted to buy a new home, but because the owners wouldn’t agree to it, they did not include a contingency requiring that they sell their own home. They did, however, include home inspection, appraisal, and financing contingencies, and the state of Virginia requires a contingency for reviewing homeowner association (HOA) rules and finances (that’s important, as it turns out).

They quickly put their home on the market and we (they, me, and the other agent) thought it was so nice we would surely get an offer right away. Two weeks went by with a total of 5 visitors. My clients are getting more nervous by the day, and our contingencies are running out – home inspection’s done, the financing is not a problem, and the appraisal is not within our control. But wait – the HOA packet has not appeared!

The seller’s agent (of 30 years’ experience) was going to drop off the packet on June 16, but for some reason she was delayed or forgot. We received it on June 24 instead, thus giving us until 9 PM on June 27 to back out. On June 25 we received a too-low offer and tried to counter it, but the prospective buyers refused to respond within 48 hours to the counter. The sellers refuse to give my buyers a home sale contingency at this point – perhaps they thought we were bluffing? So, given the constraints, my clients had to use the HOA contingency, inadvertently extended by their seller’s agent, to back out of a contract for a home they dearly wanted. I’d warned the other agent about it, and gave her two days’ notice that we were looking for alternatives, but she still claimed to be “shocked” that we used the HOA contingency to back out when there was nothing wrong with the HOA. Her sellers were upset too, of course – but after the warning we gave them and the opportunity they had to hang on to the contract, I couldn’t be very sympathetic. They had to put their home back on the market, with a month less to sell before they move, not to mention all the negotiations and inspections they would have to put up with all over again.

Fortunately for all concerned, my sellers did get a contract they could work with, and they did come to agreement on a new contract with their sellers (at the same terms), so we made it through that mess unscathed except for deep psychological scars. But it was a very near thing.

In contracts there are some things we can’t control, but we must pay attention to those things we can.

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It s All Done – Just Unpack!

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$465,000 Single Family Home For Sale Main Features 5 Bedrooms 3 Bathrooms Interior: 2904 sqft Lot: 15,047 sqft Location 7016 Galgate Drive Springfield, VA 22152 To get updates on open home dates and other property events, please click the “Like” button below:

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Kim Hannemann Samson Properties (703) 861-9234 Kim.Hannemann@gmail.com http://www.KimHannemann.com Listed by: Samson Properties

Our recent listings It’s All Done – Just Unpack! Home Sweet Home! Subscribe to our listing feed

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Buyers should take this seriously – once you have applied for a mortgage and received preapproval, don’t open new credit cards or buy anything substantial using credit until after your settlement!