The Mirror Effect

Do you ever wonder how to deal with someone else’s opinion of you – especially if it’s negative?  Not how to handle a negative or even rude opinion; early on you should have learned that politeness is how we handle almost any situation.  No, I’m asking if you have a mechanism or coping skill for those times when you discover what someone else thinks about you and it’s painful in some way?  This is not an uncommon experience and might be especially common for real estate agents!  (I’ll leave you to find your own context on that one.)  Personally, I’ve heard a number of answers to this question and they are usually similar to the one found in The Four Agreements by Don Miguel Ruiz.  While not completely representative of everyone’s answer, it’s close enough. This solution seems to lie in finding ways to ignore, become indifferent to, or otherwise devalue the offending expression.  (Mr. Ruiz, for example, points out that when someone says something about us, we should remember they are limited by their own view of the world – their own prism – and realize what they say, says a lot more about them, than us.)  This is both obvious and oblivious.  May I suggest something a little different?

The Mirror Effect
Of course other people see things through their own prism; so what?  Their opinions can not – and do not – hurt me in the least. How could they?  They are only words and, depending on your philosophical bent, the person saying them may or may not even exist!  If I feel hurt or pain (or happiness for that matter), you can be sure I am the sole cause.  I hear the words, I interpret them (through my own prism Mr. Ruiz) and I create feelings in reaction to my interpretation.  I create…  That’s where the wonderful opportunity lies.  The negative or painful (or happy) feelings are created from within.  That’s not just a difference regarding who is in control (per Mr. Ruiz and the rest, I am to develop some ability that will counter the hurt caused by the words or expressions of others – thus giving them the control and me the dependent action).  It’s more than that.  It is how we evolve and become happier and more peaceful; how we become more succesful possibly, and more free definitely.

Suppose someone says to me: “Sean, you are not much of an athlete.”  I would not be stirred by this.  I know my athletic accomplishments.  I know my athletic abilities.  I am comfortable with who I am as an athlete.  I may believe this person to be mistaken or misinformed or ignorant, but I do not take their expression personally – I am not hurt by it. They could have also said: “You are not as good an athlete as Michael Jordan.”  Again, I would not be stirred by this.  Just as I know who I am as an athlete, I know who I am not and my self worth is not dimished by this comparison.  If, however, ten minutes later this exact same person said to me: “Sean, you are a bad father,” I may indeed walk away in pain.  I am divorced and a single dad; I have doubts about whether or not I am being everything my boys deserve.  So when I hear this I may feel angry or hurt; maybe I’ll want to argue and “convince” this person how wrong he is.  Why is that?  Why didn’t I want to convince him of how wrong he was ten minutes ago when he brought up my athleticism?   This is the same person after all, yet what he thought of me as an athlete had no affect and what he thought of me as a father did.  What changed?  Obviously, what changed was my interpretation; my reaction; my feelings on the subject at hand.  The problem does not lie with other people’s opinions, otherwise I would have been hurt both times.  No, the diffence in those two scenarios is… me.

When confronted by an opinion I knew to be false (or at least believed to be false), I was not bothered.  My vision of myself, athletically speaking, was in alignment with my day-to-day experience.  But that last opinion, the one about my being a bad father, that bothered me a great deal.  Why?  Because there is a truth to it – or at the very least I fear there is a truth to it – that I do not wish to face.  This is, in effect, a mirror held up to me – and I don’t like what I see.  That’s why we can’t cultivate an indifference; the indifference would be to ourselves.  That’s why Mr. Ruiz’s answer is so off track too: how do I devalue the prism when it is my own?  I cannot.  Even if I could… what an opportunity I would miss.  What a blessing upon myself I would be throwing away.

The Opportunity!
The next time someone lets you know what they think about you and it hurts, don’t argue with them or run away from the pain or try to devalue what was said.  What’s needed isn’t a coping method.  Instead, thank them!  Thank them and mean it.  (After all, they were merely the person holding the mirror and nothing more.   Besides, this has the added benefit of messing with their heads.)  Then walk away and realize you’ve just been blessed with an intimate look at yourself.  A look we don’t like, no question; we’re face to face with how badly our internal vision of ourselves does not match our external expression of ourselves.  But if we’re honest about it, that look is also a revelation – and a roadmap to greater happiness and success.

Live a Life that POPs

Filed under: BUYERS, INVESTORS, LENDERS, LIFE THAT POPs, REALTORS, SELLERS

A Scary Thought on the (Non-Existent?) Shadow Inventory

The shadow inventory has been a topic of interest with almost every agent I talk to lately.  Most believe it is large and few understand why it isn’t in the marketplace rather than held by the banks.  Russell Shaw recently wrote about the shadow inventory being gibberish.   It is an interesting article and one I recommend reading.

I rarely disagree with Mr. Shaw, and rather than do so now I’ll simply suggest that we are talking past one another.  As I read it, he is suggesting that this inventory doesn’t exist because it is, for the most part, out there already; just not listed as REO.  He makes it quite clear, however, that he is not talking about foreclosures still to come. (Apologies to Russell for over-simplifying.)  This is where we begin to part ways.  I submit that the shadow inventory must necessarily include not only actual REOs (or REOs not listed as REOs), but the entire picture.

More to the point, if we look at all the homes that have been foreclosed on, are in foreclosure and should be in foreclosure, we are left scratching our heads and find ourselves back to the same question: why aren’t the banks taking these homes in, putting them on the market, and selling them?   (I’m talking here especially about those homes where people have stopped making their payments and continue to live for 6, 12, even more months.)

MORTGAGES IN DEFAULT
Here’s a graph courtesy of the New York Times:

Sources: Federal Reserve Board and Mortgage Bankers Association, via Haver Analytics

That is an awful lot of mortgages in foreclosure; but add to that that lower line – of mortgages in default and not yet in foreclosure – and the numbers are staggering (again, think of people staying on a year after they’ve stopped making payments).  So no matter what we call it, the question remains: What are the banks doing? Why aren’t these mortgages foreclosed?  Why isn’t this inventory on the market?

I know all real estate is local and there are plenty of areas around this country where the last thing agents want to see is more inventory.  But here in San Diego this question of  Shadow Inventory is burning a hole in people’s brains.  We are down to less than two months inventory and the effective inventory (discounting homes that are not financeable due to cracked slabs, missing kitchens, etc.) is closer to one month.  The average buyer is writing over fifteen offers before buying a home or simply walking away in frustration.  We are clamoring for this inventory; why isn’t it out there?

A THEORY
Here’s a theory I’ve been sharing over the past two months with the agents I talk to: the banks have a financial incentive NOT to sell these homes for the same reason they have a financial incentive NOT to lend money.  Let me ask you: if you could borrow money right now from the Fed at roughly 0%, and through carry trades create a very low risk return of 3%, would you do it?  Of course you would; that would certainly be more prudent than putting the money out there in relatively risky mortgages?  More important to our discussion of Shadow Inventory:  you can borrow that money at 0% so long as your balance sheet and reserves are in order. When you have a non-performing asset (like a mortgage not being paid) you can carry that for quite a while.  But, if you sell that home in foreclosure you book the loss.  I don’t know about you, but if I were a bank I would happily carry a non-performing asset and continue to borrow money at 0%.

CONCLUSION
When the Fed begins to raise rates -expected to be late 2nd quarter or early 3rd – the banks will thank them for the ride and begin clearing their books of these non-performing assets in a hurry.  If we follow this theory to its inevitable conclusion, we are looking at a scenario wherein inventory is going up (and home prices are dropping) while at the same time rates are rising.  Falling home prices and rising interest rates. Not the summer I want… and I hope to hell I am as wrong as I have ever been.

Filed under: BUYERS, INVESTORS, LENDERS, REALTORS, SELLERS

Real Estate Investing: The Infinite Investment Strategy

In the Introduction to Investing in San Diego real estate, I mentioned the idea of an Infinite Investment Strategy.  The ideal investment is one which costs no money, takes no effort and provides a never-ending, safe return.  If you find such an investment, please let me know.  In the mean time, investing in distressed real estate can get you pretty close.  Done correctly, your left with only frictional costs, the money value of your time and somerisk.  Sound too good to be true?  It’s not.  It’s simply built on the #1 requirement for all successful investing: have better knowledge, quicker timing or more money than the competition.  In other words: Know the Arbitrage.

So, how does it work?  In a simplified manner, once repairs are finished and a cash out loan has been secured based on a 75% Loan-To-Value, it would look like this

It looks nice on paper, but there is a glaring roadblock ahead: the First and Second Laws of Thermodynamics.  The first law says you can’t get something for nothing and the second law says that in every exchange there is a loss.  It looks like we’ve created a perpetual motion machine with no losses - in direct contradiction of the first and second laws of thermodynamics.  Quick, someone notify MIT!

All kidding aside, those two laws apply in real estate the same as they do in every other aspect of the universe.  You cannot create something from nothing.  In this case, you’ve created something from the value of your knowledge, time, and or financial ability to improve the investment property.  Even with that, there are losses we haven’t calculated: real estate commissions, lending costs, lost use of funds and so on.  The point here is not a complete course on accounting (nor even a course on quantum mechanics) but rather to open your eyes to the idea that you can buy investment properties in such a way that, when all is said and done, you have no money at risk.

These investments are not lying around waiting for the average investor to be sure; but they are out there.  I have done them.  It is the ultimate real estate arbitrage.  The parameters are easy to search.  You are looking for a neighborhood where the fundamental values are roughly 75% of the utilitarian values.  Within that neighborhood, you’re looking for a distressed property whose repair costs, when added to the purchase price, will be equal to or less than the fundamental value.  Voila!  You have an investment paying for itself with none of your money at risk.  The cost to you has been time, knowledge, market risk and whatever frictional costs you incurred.

The concept of frictional costs is an important one.  Commissions are not cheap in real estate; this is one of the points argued most pointedly by those who stand by the stock market as a better investment than real estate.  No argument from me – the costs in real estate can be a great deal higher.  But, you can acquire a real estate license for relatively little cost and effort as the laws are currently structured.  Which means you will be paying yourselfthe commissions and effectively removing them from the ledger.  (You are still spending your time though.  Just because it doesn’t cost you money doesn’t mean you can ignore it altogether.  But for purposes of this model, your frictional costs were reduced.)

As good as the Infinite Investment Strategy sounds on paper, there are a couple of final issues I want to mention.  First, don’t belittle the market risk as one of the costs I mentioned.  The example I gave above can be done.  But, you only have to be wrong once to put a real dent in your ability to keep going.  As a matter of fact, the more of these deals you find the more likely you are to form a little contempt for the market risk: this greatlyincreases your likelihood of being wrong on the next one.  Treat every investment you review the way you treated your first one: cautiously and with a whole lot of respect.  Otherwise, you may drop your entire investment nest egg in a property and be unable to get it back out.  That’s the end of the Infinite Investment Strategy.  Speaking of “drop,” that is the subject of the next article.  Given a specific amount of money to begin with, there is a Drop Amount you should know and understand.  This will give you the freedom to modify the Infinite Investment Strategy into the much more common Limited Investment Strategy.

Filed under: BUYERS, INVESTORS, LENDERS, REALTORS

A Poke (in the eye) From Facebook

You know, they say it isn’t wise – when you visit the Wizard of Oz – to look too closely behind the curtain.  Might not like what you see.  In Australia we were recently treated to a quick look behind Facebook’s curtain and I have to tell you: the king ain’t wearing any clothes!

Seems a nice young couple had bought a house, got upside down, stopped paying their mortgage and were doing everything they could to avoid the process servers and foreclosure coming their way.  Not altogether different from the unfortunate antics of a great many folks over in our neck of the woods.  I doubt many of us condone their behavior, but I find it difficult to root for the mortgage company either.  Sort of like watching a tether ball game between your ex-wife and her attorney: I don’t really care who wins just so long as both sides take one or two in the kisser.  Aaaaanyway, the mortgage company finally won the game.  Want to know how?  They looked this couple up and served them legal documents on Facebook!  (Read the full story here.)

Better yet, the local Supreme Court in Australia ruled that this was an acceptable use of the social networking platform.  Are you surprised?  Shocked?  Maybe even a little outraged?  I should say so.  I’ll bet Facebook was none too happy either.  Imagine the chilling affect this development may have on their social network site.  Let’s listen in:

Facebook spokesman Barry Schnitt praised the ruling.

“We’re pleased to see the Australian court validate Facebook as a reliable, secure and private medium for communication,” he said.

“The ruling is also an interesting indication of the increasing role that Facebook is playing in people’s lives,” Schnitt added.  The company said it believed this was the first time it has been used to serve a foreclosure notice.

I can only guess at the pride they’ll feel when the first paternity suit is served.  Are you kidding me?  I read this and the first thing I did was look up hubris in the dictionary, just to make sure I was using that word correctly in my initial reaction.  Turns out my problem was redundancy.  Webster’s used to define hubris as: “excessive pride or self-confidence.”  Now it simply says: “see Facebook.”  Did he say “… an interesting indication of the increasing role that Facebook is playing in people’s lives?”  Is that anything like reveling in the expanded role the stock market is currently playing in people’s lives?

Sydney University of Technology law professor Michael Fraser:

“It does change the rules of the game because people thought of these as social sites; now they can be used to serve official court documents and it may change the way people establish a presence on the social networks and the way they use them.”

Do you think?  We are told by Rory Ryan, a Baylor Law School associate professor, that U.S. users do not have to worry about being served though the program yet.  Yet?  Oh really?  Have you ever seen the 9th Circuit Court of Appeals in action?  I am here to tell you I have as many problems as the next guy – maybe more.  But do I want my dirty linens cleaned on Facebook?  Do you?

Filed under: BUYERS, INVESTORS, LENDERS, REALTORS, SELLERS, WORLD OF 2.0, Facebook, Social Media Marketing

If Mortgage Rates are Not Going Below 5%, Where Are They Going?

There was an interesting post yesterday asking Why Won’t Mortgage Rates Drop Below 5%?.  Brian Brady answered the question with a supply and demand analysis and as usual, I cannot disagree with that reliable old tool (the supply and demand analysis… not Brian ).  But I wonder, is there more at work here than supply and demand?  Reading his post reminded me of something I have been telling my clients lately and meaning to share with everyone else:  Belief runs the show.  I suggest that Belief & Fear have supplanted Supply & Demand as our modus operandi.

The markets of late are moving as much on belief as they are on fundamentals.  Don’t get me wrong; I’m not complaining.  At least fundamentals is a player again.  For the last couple of years the markets based their valuations on leverage, blind optimism and a smug sense of higher intellect – all the while recording profits in the sand.  It is kind of nice to see some fundamental analysis come back into vogue.  But we do not relinquish old habits easily.  If I believe that ABC Company will (or should) profit ten cents per share, I will pay a price based on that belief – almost as if the profits were already announced.  This, of course, is what leads us into the strange world of Wall Street where a company’s shares can get whacked even after they announce record earnings IF their earnings turn out to be less than I thought they should be.

What does all this have to do with mortgage rates?  The fed has hinted at buying down mortgage rates using various tools at their disposal.  The market has now partially priced this belief into the mortgage backs.  Rates are down, at least to some degree, because the market believes they will drop even lower.  Once again, we equate assumptions with knowledge.  I don’t mind it up to a point; and here’s the point: lately I have had more than one client elect to wait on their purchase (or at least their purchase mortgage) because they want a piece of that sweet, 4.5% pie we all know is coming.  But what if we are wrong?  What if the fed wakes up tomorrow and says “Hmmm, after reviewing the utter failure of every stimulus idea we’ve tried to date; we decided that buying down mortgage rate is no longer on our Brilliant Things To Do list.”  What might that do to rates?  I suggest a nice increase would be in order.  Wouldn’t that be a kick in the pants?  Everyone is holding out for a pie that was never in the oven in the first place AND burns their fingers on the stove while waiting for it.

In the world of marketing, nothing tops a perfect pair.  That’s what I call it when you have something of value to share AND it comes with a time pressure to act.  The Perfect Pair.  When you talk to your clients over the weekend, remind them that the low rates we have now are a product of belief in even lower rates to come.  Then ask them how confident they are lately in the government following through on the various trial balloons it sends up.  Then ask them why they aren’t pouncing on the artificially low rates we have right now!  Because they haven’t found the right house yet?  Good answer.  That means the ball’s back in your court.

Filed under: BUYERS, INVESTORS, LENDERS, MARKETING, Rates

Tiger the Caddie?

Last Monday Tiger Woods returned to Torrey Pines in beautiful San Diego, but not to golf. Instead he caddied for John Abel, winner of the “Tee Off With Tiger” online sweepstakes sponsored by Buick. This is such a great picture that I can’t help but fill in some dialogue. Mine is below. What do you hear them saying?

Abel: “This looks like a tough one Tiger. What would you do here?”

Tiger: “Well, I would push this putt along a path eleven inches left of the true line, with just enough touch to clear the fringe but still allow the natural slope of the green to pull the ball back and down, dropping into the hole dead center… I have no idea what you are going to do.”

AP Photo/Lenny Ignelzi

(This post was first published here.)

Filed under: BUYERS, LENDERS, REALTORS, SELLERS, TAO OF SPORT, Fun, Tiger Woods

Point / Counter-Point

Michael Cook wrote a thought provoking post earlier entitled What Happens to the Early Worm.  So thought provoking that I found my comments drifting to post length.  So how about a little point/counter-point?

Michael, a very detailed and thoughtful post. I would not disagree with you that cautiousness is a safe strategy (although not always a profitable one) and I certainly do not disagree with your assessment of the people here on BHB.  But I do have some other questions:

The income / price equation did not get out of whack overnight, so buyers and sellers should not expect it to correct itself overnight either.

All real estate is local and that is never more true than now. In some areas we have seen real estate go through the support level of fundamental value (that value which would allow an investor to purchase a property and cash flow). This is no different than the Dow last week. It was oversold and many companies could be purchased below their fundamental value. So are you suggesting that rents are going to decrease in these areas?  Otherwise, the correction has already occurred in some areas.

You are looking at some of the best real estate agents in the business here. So when they write that their business has not dropped off, it might lead the casual reader to believe that the real estate market is not in a tailspin or even that real estate is close to a bottom. Do not be lulled into a false sense of optimism. This group is adaptable, smart and most of all well above average.

Michael, to whom are are you writing this post?  If it is agents then I suggest the new market has caused an industry-wide house cleaning.  Those that do not belong have seen business disappear and those that do have been rewarded; but this does not necessarily reflect a worsening real estate market.  If, on the other hand, you are writing to consumers then I suggest they read you closely when you say that the top agents have found “their business has not dropped off.”  It has not dropped off for a reason and would behoove those buyers and sellers to search out the agents that remain busy; again, because the market does not seem to be as bad for them.

Consumer spending is down – Much of it fear-based
Manufacturing is down and declining – As the credit crunch alleviates, this should soften
Jobless claims are up and rising – DEFINITELY A STAT TO WATCH
Housing remains weak – This begs the question
Housing inventory remains well above average – But dropping in many areas.  Plus, programs like Hope for Homeowners may put a significant dent in the rate of increase of REOs
Dow Jones has dropped nearly 40% over the past six months – This is significant, as you said. But may be good for real estate. The markets can go to zero but a house is still a place to live

…decline in the stock market. This represents a decline in confidence in the global economy. This level says that investors believe business could be in for sustained economic distress

There are a couple of great articles addressing this over on Coyote Blog.  Don’t Panic discusses what stock pricing represents and how it does not always address company value (especially in the comments). There is also a great graph in Good News, Really along with this summary: “(i)n fact, the current level of the stock market is screaming normalcy.”

housing still has room to decline because the historical ratio of median housing prices to median income is still too high

Past is not always prologue.  I find problems with the affordability index and have discussed them here.

In the end I agree that people should not try to “catch the knife” (I was wondering if you would make use of that colorful term from the equities market).  But neither should people try to time the market.  I have asked this before but I will ask it here:

What do you fear more: buying now at $350,000 and seeing in six months that you could have paid $325,000 OR waiting six months for the price to reach $325,000 and finding interest rates have moved up two points and you can’t afford any home?

Interest rates negatively affect affordability much more than pricing.  If you are making a long term investment (which is what real estate should generally be) then buying now makes great sense in the areas that are fundamentally sound.  Just make sure to work with someone as “adaptable, smart and … above average” as the agents found here.

(This post was first pubished here.)

Filed under: BUYERS, POLITICAL & ECONOMIC FOLLY, REALTORS, SELLERS, Economy, government, Rates, unemployment

You Don’t Always Get What You Want, But If You Try Sometime, You Might Find, You Get What You Need

If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government’s landmark $700 billion bailout package has an important message for you: stop making your mortgage payments.

So says Peter Schiff, president of Euro Pacific Captital and author of “The Little Book of Bull Moves in Bear Markets” in his op/ed piece entitled, Just Stop Paying Your Mortgage.  You may or may not read it with tongue in cheek, but read it you should.

When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.

The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away.

The law of unintended consequences is never so manifest, or insidious, as when politicians correct the free market with legislation.  (Except, perhaps, when they do so because they are …from the government and … here to help.)

(This post was first published here.)

Filed under: BUYERS, INVESTORS, LENDERS, POLITICAL & ECONOMIC FOLLY, REALTORS, SELLERS, bailout, government, law of unintended consequences

Federal Bailouts, World Crisis… What About Little Ol’ Me?

Lots of talking heads.  Lots of outrage.  Even a little fear.  Keeping up with economic developments lately is taxing and I mean taxing in its most negative “IRS and April 15th” connotation.  Last night Brian Brady and I were interviewing Matt Padilla for Bloodhound Radio.  It was a great discussion and got me to thinking about what is (or rather should be) important.  I mean, the whole thing can be overwhelming: how did we get here, who’s to blame, what are the macro ramifications of this massive federal bail-out… makes one feel small and even a little lonely in the midst of this big economic world gone ’round the bend.

So I stopped on the way home for a big shot of wheat grass (substitute whatever manly libation you prefer here), calmed down and eventually found myself a little less interested in what it all means and a little more interested in what it all means to the real estate agent on the street.  In other words: What is the next step?

Last week I suggested that Wall Street’s Meltdown may actually help the housing industry.  Consumer debt will dry up in the credit crunch and this bail-out will not have much impact in that arena.  The financial industry is going to come out limping and take some time to lick its wounds.  Consumer debt has always been a risk and will end up on the back burner for a while, but the need for profits is always there; where will it come from?  Where is the supply of money going to be greatest?  Thanks to Uncle Sam it is going to be mortgage money that flows freely.  But flowing freely is not the same as distributed evenly and this is where the real potential lies for homeowners as well as real estate agents.

By the end of the year conforming loan limits are going to drop.  Here in San Diego they should end up around $625,000.  Under that limit there is going to be a large supply of federally backed (and encouraged) cheap money.  Over that limit, however, it is going to be a ghost town in a dust bowl surrounded by desert.  Over $1 million and it opens up a bit because you are generally talking about buyers with large sums of cash.  But between $625,000 and $1 million the ability to finance a purchase is going to tighten up and so too must demand.  As you may recall from Econ 101, when demand drops so does pricing.  On the other hand, back below the magic limit, the supply of money will create demand and here’s the really interesting part: that demand will bump up against a supply limit.  The supply of homes within that range is finite and the demand for homes below $625,000 will remain targeted; it is artificially capped.  What happens when increasing demand (due to cheap money) meets a finite supply?  Appreciation.

We can expect to see demand driven appreciation knockdown the oversupply of inventory in many parts of the nation over the next year (maybe two).  This will drive home prices up to, but not over, the conforming limit.  At the same time it will depreciate homes that are over the limit, possibly even push some below the magic line.  What does this mean to the agent on the street:

• If you are an agent working with move-up buyers within the temporary loan limits – but over the upcoming conforming limit – their window of opportunity is slamming shut.  Get them off the fence quickly and stop taking on new clients in that price range.
• Buyers below the new conforming range will see upward demand on appreciation in direct correlation to their distance from the conforming limit.  In other words, the closer in value your purchase is to the loan limit, the less appreciation you will see.
• Sellers below the conforming range will see greater demand and more price appreciation in direct correlation to their distance from the conforming limit as well.  In other words, the supply near the conforming limit will grow and appreciation slow (or stop) while the supply at the lower ends will decrease and appreciation grow.  If you already have a listing near the conforming limit, time is not your friend.
• As an agent, your marketing should be divided: for listings, your area of focus is the lower end homes where demand is going to increase and market time decrease.  For buyers, you can expect the best deals to be nearer the conforming limit where supply will grow and pricing will stagnate.

For the next couple of years you can envision real estate as a great freeway with virtually no tolls and cheap gas.  But the speed limit is absolutely enforced.  Cars starting out will see rapid acceleration, but as you near the speed limit there will be congestion and a corresponding drop in enjoyment.  Eventually the speed limit will be relaxed; in the mean time… enjoy the ride.

(This post was first published here.)

Filed under: BUYERS, INVESTORS, LENDERS, POLITICAL & ECONOMIC FOLLY, REALTORS, SELLERS, bailout, REALTORS, Wall Street

How Wall Street’s Meltdown Helps Main Street’s Housing

Just for fun, let’s imagine a possible silver lining to the complete melt down on Wall Street.  In this scenario, the next big shoe to drop will be access to consumer debt.  No one is going to extend car loans, credit card debt, retail debt and so on.  But this may not be all bad for our industry.

Imagine John & Mary Homeowner talking about their day.  John says gas prices are up and his long commute is killing them.  They need to buy a different car.  “But no one is lending money for new cars,” Mary replies.  John decides that if he can not have a better ride, he will have a better destination.  “Let’s add on a nice deck for me to enjoy after my long commute.”  Mary smiles pleasantly and reminds John that no one will extend an equity line for home improvement.  Exasperated, John suggests they just buy a jacuzzi and settle for some easy relaxation.  But Mary points out that no store is offering credit, so large purchases are largely impossible.

What do you suppose John and Mary do?  What about next Sunday, out for a drive, when they see a nicer home, closer to work, with more square footage – and they realize they can own it for the same payments they are making now.  What happens when the only money available is purchase money? Thanks to Fannie & Freddie (and FHA, VA) home loans will be plentiful while every other kind of debt will disappear for a while.

Supply and demand… the meltdown might be just what we needed.

(This post was first published here.)

Filed under: BUYERS, INVESTORS, LENDERS, POLITICAL & ECONOMIC FOLLY, REALTORS, SELLERS, bailout, Real Estate Future, REALTORS, Wall Street