Have We Reached Bottom?

There has been much debate as to whether the housing market has finally hit bottom. According to USA Today, the homeownership rate is at 66%, down from 69% in 2004, as well as home prices down 3.7%, below 2010 levels.  Whenever we think we hit bottom, the market surprises us with new lows in home prices and higher delinquency rates among homeowners.  No one can predict when we will officially hit bottom. however from the looks of things, there is still room for home prices to fall.

Despite market woes, home prices have become attractive to buyers that were unable to afford a home during the boom years.  Through supply and demand, more buyers can enter the market and purchase homes, reducing inventory levels causing prices to gradually increase. But with record high employment and millions of homeowners underwater, it may take years before home prices starting rising nationally.

As a Real Estate agent, it’s difficult to put a smiley face on the current market. Certainly there are great buying opportunities considering home prices are just ripe for the picking.  Sadly, many buyers are unable to purchase a home because they simply can’t afford it.  Buying or selling a home is one of the most important financial decisions you will ever make. If you decide to buy, capital is the name of game.  Purchasing a home in cash or leaving a large enough down payment to pay off your mortgage in a few years can give you a huge financial advantage in a housing market that still has plenty of room before it hits bottom.

 

 

Real Estate And The 2012 Election

As we enter the new year, we face the likely hood that it will be business as usual in the Real Estate market. According to Time Magazine, the new Case-Shiller housing numbers show that home prices dropped 3.7 percent from the year before.  The Case Shiller report also shows that home prices have dropped in 19 of the 20 cities tracked, making it clear that we’re still feeling the side effects of the Real Estate bubble that has made foreclosures and short sales the new normal in Real Estate. If you haven’t noticed, this year is an election year where Republican candidates Mitt Romney, Newt Gingrich, Rick Santorum, and Ron Paul are trying to win the Republican nomination and challenge President Obama in this years Presidential Election.

All of the candidates have addressed a number of pressing issues regarding the economy, more specifically, the Real Estate industry. Most if not all the candidates blame the government in one way or the other for the housing crisis. Mitt Romney has scrutinized Fannie Mae and Freddie Mac as the main reason why the housing crisis occurred. Newt Gingrich has also been critical, advocating the the mortgage giants be broken into smaller pieces and eventually phased out.

Both Gingrich and Romney have tried to connect one another to the mortgage giants, Gingrich through his advising service to Freddie Mac where he earned a nearly 2 million dollar pay day, and Mitt Romney, through his personal investments. Rick Santorum has also shown his displeasure with Fannie and Freddie, but it is Ron Paul who has been the most vocal and consistent with not just Fannie and Freddie, but about the Federal Reserve, who he believes created moral hazard throughout the financial system due to record low interest rates that ultimately created the housing  bubble. Ron Paul has had a history of warning the American people about the coming crisis, which has helped him gain considerable traction with staunch fiscal conservatives.

President Obama recently announced new legislation called the “Homeowners Bill of Rights” that allows homeowners to refinance their mortgages even if they are underwater, giving them the chance to lower their payments and pay off their mortgage faster.  However, similar programs like the Home Affordable Modification Plan did little to ease the burden on homeowners. According to the Huffiington Post, over 80% of borrowers could not even qualify for the plan, questioning if Obama’s new mortgage modification plan will even benefit most homeowners.  This election will determine the direction of the U.S economy, making the 2012 President Election the most pivotal election in recent memory.

 

 

Foreclosures Are Bad For Your Health

When looking at the Real Estate market, we view it from the prism of the overall economy and its relation to the financial crisis. What many of us don’t look at is the psychological impact foreclosures and falling home prices have on homeowners.

A study conducted by the American Journal of Public Health show that of the 2,500 homeowners studied, 22% of them were showing depression symptoms while 28% reported food insecurities, according to the Wall Street Journal.  The financial crisis has taken a heavy toll on the middle class.

The stress of losing your home can have a profound negative effect on a homeowners mental state leading to depression, anxiety, and other forms of mental illness. Another study by Princeton University show a correlation of high foreclosure rates with the increase in emergency room visits in distressed markets in California, Nevada, and Florida.

When people begin to lose everything, there sense of clarity and reality becomes blurred, where they no longer have confidence in themselves to work and provide for their family. Buyers may the advantage in this market, but sellers are the one of the many victims in this financial crisis.

The Dilemma Of Brokers

For sometime now, Real Estate agents have been getting a bad rap. Realtors are lumped into the same group as used car salesman, which is not very flattering considering that buying or selling a home is one of the most important financial decisions a person can make.

Working in Real Estate, I have come across a number of agents who frankly should not be in the business. Between lying about signed addendum’s to forged signatures, I’ve seen it all. It is no wonder why Real Estate is the epicenter of the financial crisis.

In today’s world of short sales and REOs, many Realtors do not have the skills to handle these complicated transactions. Properties aren’t appraising, short sales are taking longer, and banks are becoming increasingly difficult to deal with. If an agent doesn’t have the experience or expertise to deal with these transaction, there is a good chance they won’t close, leaving buyers and sellers out in the wind.

The reason agents don’t have the skills to handle these kind of transactions is because brokerages do a poor job in training their agents. They’ll train them for a few weeks, give them some books with outdated information, and send them to the wolves. Brokers have not justified their fees. Most brokers offer little to no support in terms of training and leads.

Unless you join a team, starting your Real Estate career on your own is almost an impossible task.  If this industry is going to improve, it needs to start with how brokers train their agents. An agent with the right skill set can survive this market, while providing quality customer service to his/her client. It may take more pain in this economic crisis before brokers wake up and see the light.

It’s Ok To Say No

One of the toughest things that a Realtor must go through is deciding whether or not they should work with a client.  What do I mean by this? Let me use an example.

You have a client who contacts you because he’s interested in purchasing a home. Great! Further down the conversation after you ask him some questions you find out he’s pre-qualified for only $80,000. You learn that he is retired and has to rely on his social security  as income to purchase the property. Do you work with this guy?

That depends if you feel it is worth the work. Granted he is pre-qualified, pre-qualification letters don’t have much weight however it does show that the bank has at least looked at his finances.  The other problem is that the $100,000 and under price range is very competitive. Using financing can be the kiss of death that can get your offer killed by a cash buyer.

On the flip side the client is motivated and can possibly purchase property giving you a decent payday.  Choosing who to work with is not an easy task. Sometimes as Rmasse would say, you just have to take risks.  Unfortunately you will never know 100% if a particular client can purchase a home. That does not mean you should just work with anyone.

If there are enough red flags that go up and your gut is telling you not to work with client Johnny Smith, than your gut is probably right. Sometimes it’s ok to just say no.  You have to be the judge to determine if a lead is worth pursuing or if it’s better to just walk away.

Real Estate and the S&P Downgrade

Last Friday S&P downgraded the U.S’s credit rating from AAA to AA+  for the first time in history. Following the decision financial markets have been in turmoil as investors engage in a massive sell off that drove down the Dow Jones Industrial Average by as much as 600 points in just one trading day.

Americans are more worried than ever about the U.S. economy. With high unemployment and a debt situation that is getting worse every day, Americans are preparing for another financial crisis. As far as Real Estate is concerned, it is more of the same as distressed markets like Florida and California are still dealing with the aftermath of the Real Estate bubble.

The downgrade will have adverse consequences on the U.S. economy.  It’s likely that Real Estate will be one of the industries hit hardest by the current financial crisis.

Purchasing a home has become a liability for many Americans who wanted to take advantage of the American Dream. They over-leveraged themselves to the point of financial ruin. America is addicted to debt.  We borrowed too much money and now we are paying the price.   We must go back to the days of saving and building capital if we are going to see any sort of recovery. Purchasing a home with cash is the best option in this market environment. There are very few investment vehicles available that can protect your money in today’s economy.

Gold and Silver have made huge gains as investors look to assets that have real value. Purchasing a home can be a good investment if you look at it from the use you get out of it.  If it’s something you enjoy and provides a roof over your head, than it’s a worthwhile purchase. If on the other hand you use a mortgage and expect to sell the home in a few years, you might join the millions of Americans who got burned by the hysteria that was the Real Estate bubble.

Realtors Versus Aliens

One of my hobbies is writing screenplays. I hope to turn this hobby into a career one day but for now it will just be something I keep myself busy with on weeknights. Anyway, I thought a great idea for a movie would be about Realtors combating an alien invasion. Yes I know there is already a movie called Cowboys Versus Aliens, but that is with cowboys! This time Realtors will save earth from Alien invaders. I can see it now. An alien spacecraft is coming in to fire it’s laser at an unsuspecting Realtor. He pulls out his yellow Century 21 jacket to deflect the laser. The laser ricochets off his jacket striking the alien spacecraft forcing it to crash on the desert floor. There’s a Realtor confronted by an Alien. The Alien is ready to attack. The Realtor blankly stares at the alien similar to how a Realtor stares at clients when asked a question regarding a short sale. His eyes gloss over like as if he’s not paying attention. The alien explodes. Guts and body parts fly everywhere.  The mother ship calls the Realtor in charge of the resistance.  The Realtor doesn’t answer. The mother ship keeps calling. No answer. The mother ship explodes like the death star out of pure frustration. Presto, looks like we got ourselves a movie. If you have any more ideas for scenes, let me know.

Should I Be A Realtor?

That’s an important question to ask yourself if you’re looking to get into the business. “Should I be a Realtor?” The Real Estate profession has certainly changed the past few years. We transitioned from a boom market to a distressed market that is forcing Realtors to either leave the business or try to do things differently in order to stay afloat. Being a Realtor is not an easy job, especially in this market.

Deciding to do Real Estate in this environment means that you’re either crazy or you think you have what it takes.  Realtors are independent contractors. So you can label Realtors as small business owners. Many small businesses are struggling due to the weak economy. Realtors are no exception.

The advantage of being a Realtor is that there is very little overhead. With the exception of MLS, association, and other fees, Realtors don’t have as many expenses as your regular brick and mortar business. The challenge of course is acquiring business in a distressed market as this one.  To be profitable, you need to utilize social media i.e. Facebook, Twitter, YouTube, etc to market yourself and get clients.

Most of these tools are free and are a great way to promote yourself. If you think plastering your face on a bus stop bench is going to get you clients, you’re in for a rude awakening. Real Estate can be a very lucrative profession, but the failure rate is high. If you plan on becoming a Realtor, don’t expect to make money right away. Even if you do things right, it can take up to a year before you see your first sale. So if you’re up for a challenge, Real Estate may be for you.

Zillow Going Public

Real Estate website Zillow is set to have its initial public offering(IPO) in the not so distant future. Zillow has already filed with the SEC and has set its IPO price at about $14 per share. Zillow, founded in 2006, has been an extremely popular tool for prospective buyers and sellers looking to do research in their respective markets.  Zillow has received over $32 million in venture capital and will likely be infused with more cash as we approach Zillows’ IPO. Is Zillow a worthy investment when it becomes publicly traded?  Zillow certainly can be useful if you want to look up some general Real Estate information about your market.

However many of my clients who have used Zillow have found the information on the site to be inaccurate or not up to date. A perfect example is with listings. I’ve had clients who’ve contacted me telling me about a particular listing they found on Zillow or on a similar site. When I check the listing on the MLS it’s either expired or pending. This is a very common occurrence when clients use third-party sites. The problem with Zillow and similar sites is they don’t do a very good job updating listings and other info from the multiple listing service.  So you cannot rely just on Zillow when doing research. The most up to date and accurate information is what the Realtor provides you from the MLS. This is a big flaw that can hurt Zillow down the road.  Overall Zillow isn’t a bad site.It’s one of the many tools you can use when it comes to your Real Estate search. As an investment however, that remains to be seen.

Cash Buyers Can Lead To Recovery

As I have mentioned in my previous blog, over 30% of Real Estate transactions nationwide are cash buyers. This percentage can increase if home values continue to fall.  If there is to be a recovery in the housing market, the recovery will be led by cash buyers. Cash buyers are a sign of a new economy. No longer can Americans afford to over-leverage themselves getting stuck with 15 or 30 year mortgages.

Since home prices have reached record lows, buyers and investors are taking advantage of cheap prices by paying in cash. It this trend continues, housing inventories can be reduced allowing home prices to appreciate. This is different from the housing bubble of a few years ago when Americans took out ARMS with little to money down and shady credit to purchase properties they could not afford.  Cash buyers can lead a legitimate recovery in the Real Estate market.

Of course this will take time considering the amount of inventory that’s still out there. Plus with a shaky U.S economy, it can take some time before we see normalcy in Real Estate. One thing is for sure, paying cash is the safest and best way to purchase Real Estate during these economic times.