Main Street and Wall Street - Fact, Fiction, and Exaggerations

Hi friends! I read this article and had to post it for you to read. I can't tell you how many people I run into who think that it is not possible to get a home loan. Since we just closed 5 escrows, and have 5 more buyers or sellers in escrow, that is just not true. This article is more the reality of life to us as realtors. Enjoy!


By Marylyn B. Schwartz
RISMEDIA, Oct. 13, 2008-Eric Tyson has every right to be opinionated about the media’s treatment of the current market conditions both on Main and Wall Streets. Tyson is a former management consultant to Fortune 500 financial service firms and has successfully invested in real estate for more than two decades. He earned his Bachelor’s degree in economics from Yale and his MBA at Stanford Graduate School of Business.

He might be more recognizable to the real estate community through his authorship and co-authorships of the very successful Real Estate Investing for Dummies, Home Buying for Dummies, Taxes for Dummies and Personal Finance for Dummies. With his insight and candor relative to what we should, and perhaps should never, be doing, we had quite a lively conversation.

Marylyn B. Schwartz: Eric, it’s tough to turn on the TV or pick up a newspaper without feeling like we are all lemmings ready to plunge into the abyss. To hearken to the pundits, this Wall Street mess is going to be the undoing of America as we know it.

Eric Tyson: I could not agree more. Listening to all the hype would lead people to believe that it was nearly impossible to get a home loan. It is harder to get a loan, but hardly impossible. There is a great deal of misinformation. The fact is, real estate is ‘on sale’ now as is stock. While I have no crystal ball about whether we have hit bottom, we are close. It is my contention that this is an excellent time to invest. We all know that buying low and waiting for things to return to more ‘normal’ circumstances is an excellent way to make money. Consumers with good credit will have little trouble finding lenders to write a mortgage. It is a fact that the volume of foreclosures and short-sales are slowing things down, and the fear of the credit crunch has added to the malaise. What we are seeing is a market correction, plain and simple. After the orgy of irresponsible lending by Fannie Mae and Freddie Mac, this was inevitable.

MBS: People are scared that their investments are at risk. When house values have declined significantly in many markets and nest eggs, if small, have all but disappeared, how can we assure people that they need to hang in, not panic and not act without careful guidance and counseling?

ET: We all need to avoid hasty decisions. We cannot afford a 9/11 type mentality. That is, experiencing a crisis and reacting in the short term rather than sitting tight and letting the dust settle. After the tragedy of 9/11, we had economic woes that lasted many years. However, people who invested in real estate then made back their initial investments many times over. Selling a depressed investment is never wise. Fifteen years from now, we will be looking at this time and shaking our heads. However, this economy is a great deal tougher if you are close to retirement. You need to be sure that you are not invested in high-risk markets. One way to measure your portfolio for its level of risk is to take 110 and deduct your age. The result is the percentage of your portfolio that should be in long-term growth assets …stocks, real estate, bonds, etc. These may or may not fit the cautious-investment criteria dependent upon the history of their performance.

MBS: What do you think the biggest misconception is relative to the spin the media places on the financial mess?

ET: This is not the Great Depression. We have to stop comparing the two times in our history. If facts are compared, it is not difficult to determine that where we are today is not where we were in 1929. The stock market decline of 700 points was a result of people listening to the media, panicking and selling off assets or liabilities as they saw them. The next day, the market rebounded significantly, and these same people are wondering if what they did was right or wrong. During the great depression, we had 50% foreclosures as compared with 2.5% or so today. We are suffering with 6% unemployment, yet back eighty years ago unemployment hit 25%. The bailout bill was grossly misrepresented by the media. They failed to liken present-day challenges to other times in recent history when we were in economic crisis. The Resolution Trust Corporation (RTC) that was formed by the US Government in 1989 to liquidate primarily real estate-related assets (including mortgage loans) belonging to savings and loan associations. These assets were declared insolvent by the Office of Thrift Supervision as a consequence of the savings and loan crisis of the 1980s. Between 1989 and mid-1995, the RTC closed or otherwise resolved 747 thrifts with total assets of $394 billion. Many who invested wisely in the consolidation and distribution of these assets realized profits down the road. Instead of it costing the taxpayer 450 billion as initially proffered, it ultimately cost closer to 75 billion. The key point is that we successfully weathered a seemingly insurmountable crisis with far less pain than the media would have had us believe.

MBS: Tough logic to swallow for people who are now having trouble buying food and providing shelter. While in the long run things will right themselves, it is the dark span between crises and leveling that scares most of us. We’re uncertain that we will come out the other end remotely whole…

ET: I understand that. It is in the ‘trenches’ where the pain is most palatable. However, as an economist, it is incumbent upon me to look at every aspect of our economy and determine where, and if, there are reasons to be optimistic. We do have a few strong economic indicators. Exports are up. The weakening of the US dollar aided that segment of our economy. As a result, our GDP grew. We are a resilient economy. We were entering a recession in 2001, and then we saw economic growth bolstered by the strong real estate market. Now we are seeing an adjustment for reasons mentioned earlier. I liken these adjustments to sausage making. While it is an ugly process to watch, the end product is quite palatable. There is far too much ‘daily noise’ that we have no control over. Research shows that the more negativity a person exposes himself/herself to, the more upset and out of control he/she feels. We must do our homework, balance the hyperbole with the facts and hunker down. There is simply no effective way to speed up the pains of an overdue economic correction.

MBS: There are many who are watching this correction with a high level of anxiety. There is ‘skin in the game’ all the way around, and no one wants another misstep no matter how slight. The American public is already reeling from the magnitude of this correction. Let’s hope that the bright spots you have identified continue to grow into a new day.

Marylyn B. Schwartz, CSP, is an expert in real estate and corporate sales training/management and team development. She is president of Teamweavers and a trainer for Leader’s Choice.
For more information, visit [1] http://www.marylynbschwartz.com/, or e-mail [2] teamweaver@aol.com.
RISMedia welcomes your questions and comments. Send your e-mail to: [3] realestatemagazinefeedback@rismedia.com.

Taking Advantage of SHORT SALES

Short sales. We hear alot about them these days, but what are they again? It is something you need to know because short sale opportunities are on the rise. If you or someone you know is fearing forecloseure, encourage them to talk to their lender. Many lenders are realizing that they'll save money the sooner they can get a property off the books. So, when they fear a homeowner may be headed for floreclosure, they may fix a sales price lower than the mortgage balance and put the property on the market for a quick sale. That is what a "short sale" is: a property on the market that has a sales price lower than the mortgage balance.

I know you know someone who is losing their home. We all do. And we probably all know someone who has just "walked away." Two thirds of homeowners in default (so late on their payments and property taxes that the property is flagged for foreclosure) never even contact their lender!

What is in it for the homeowner? Well, if the lender does agree to a short sale, the homeowner avoids foreclosure, the lender avoids the carrying costs, and the neighborhood avoids another abandoned property on the block. We have done some successful short sales and had a few that the lender decided to let foreclose. In our success stories, our clients have appreciated the service we provided by doing all of the leg work with their lender(s).

This market is going to be with us for awhile and we have learned how to handle these sales and handle them professionally. Several of our buyers have put offers in on short sales, and they are in demand because of their attractive pricing. Multiple offers are the norm when the property is priced right and in good repair.

Please do not hesitate to call me with any questions about whether or not you or someone you know would benefit by selling short. It is just one more way that I enjoy being Your Personal Realtor!

(My thanks to Dave Liniger, RE/MAX, for the idea and some of the content of this post!)

Senate Bail-Out Bill - What the New York Times Says About It

As housing bill evolves, crisis grows deeper

Most media loves really bad news. It's always sold papers and always will! Here is their current doomsday message about the Housing Bill:

"The mortgage rescue plan currently before Congress, which was designed to help only about 400,000 of the 2.6 million homeowners needing assistance at the time it was created, may fall far short of bailing out the thousands of additional Americans each month who join the ranks of mortgage borrowers in need thanks to an increasingly troubled economy, analysts say."

Let's try to make some sense out of this for us every-day folks:

• The Senate is expected to consider a bailout bill after the July 4 recess. That bill would allow banks and borrowers to refinance troubled adjustable-rate mortgages into 30-year fixed-rate loans backed by the government. Lenders would lower each loan amount to 85 percent of its current value while borrowers would pay a 1.5 percent annual mortgage insurance premium, and any gain in value would be shared when a home is sold.
• An estimated nine million homeowners currently owe more than the market value of their home. To qualify, borrowers would have to demonstrate that they can’t afford their current mortgage payment but have the financial wherewithal to make payments on a new loan with new terms.
• Critics of the proposal suggest that the real estate market will correct itself without Congressional intervention, and that a weak economy, rising unemployment and higher mortgage interest rates could derail the usefulness of the program, which would be managed by the Federal Housing Administration and funded by the mortgage insurance fees, a 3 percent lender fee, and a tax on Fannie Mae and Freddie Mac.

To read the full story, please click here:http://www.nytimes.com/2008/06/29/washington/29housing.html?_r=1&th=&adxnnl=1&emc=th&adxnnlx=1214794471-1wPUSlKP4CUyMb8ECvTjAg&oref=slogin

Historically the United States has had its good economic times and its not so good economic times. This too will pass, and many of us will be stronger for it, though not wealthier! Most of our great-grandparents would roll over in their graves to see the spending habits of our generation, and this current real estate climate is a giant wake-up call for many who have thought of home equity as an ATM machine.

Panic and fear will drive the economy down fast. It is important to realize that this, too, will pass. It is time to revert to thrifty economizing as our grandparents and even our parents did. We will all get through this!

Housing Affordability Best in Four Years!!*

Some brave financial analysts are coming out of the gloom closet. The chief economist for the Cleveland-based bank National City Corp (NCC, Fortune 500), Richard DeKaser, said that "housing valuations are almost back to long-term norms." 'Valuation' is defined as the difference between what a home should cost and its actual price. He said that current affordability is *"the best in the past four years." Three hundred and thirty housing markets were surveyed and showed price declines and improved affordability during the last three months of 2007.

DeKaser did caution that home prices could fall even further. Remember. this is nationwide, so price declines and hitting bottom will differ widely. As in all market fluctuations, more desirable areas will bottom out before the less desirable areas. In our San Diego market, it is even possible that we will see the bottom of the lower-priced market hit before the luxury market, which took longer to respond to the pricing adjustments.

Local agents are currently scrambling to field the multiple offers on the attractively priced and better-maintained short-sale and bank-owned properties. It is anybody's guess how long it will take to inch up to the properly priced, non-foreclosed homes in higher price ranges.

DeKaser points out that the biggest gains in affordability occurred in our own state of California (as well as Michigan and Florida). These areas have also been some of the hardest hit by foreclosures. The best bargains currently, according to the survey, are in Louisiana and Texas, where homes are undervalued by approximately 30%!

If you or anyone you know would like to look for investment property in these areas, we can connect you with a REALTOR you can trust who will know that market inside and out.

Columnist Confronts Data, 'Zillow Bogeyman'

We've all heard of Zillow. As real estate agents, we find it interesting to see what "value" they put on the homes we have listed. It is rare that we find their estimation line up with what we see from the actual comparisons we make using sold criteria from the MLS. I thought these articles summed up their misinformation wonderfully.

Zillow is in business to make money, which isn't a bad thing - we are all in business to make money. The Multiple Listing Service, though it does indeed make money, is supported by real estate agent's yearly fees, which are substantial! The use of Zillow by consumers and by real estate agents is free, unless you choose to advertise your business. Zillow makes it's money with advertising dollars, so it is important for them to keep their name in the forefront. The MLS makes it's money from agents, who input specific data to get specific answers on a specific home at a specific time period, etc. Our comparisons don't lie.

Zillow is good at what it does - draw consumers to check on the value of their home. But please do not take their values as gospel. Call us and let us use the same criteria your lender will use and the buyers who are looking for homes will be using! That is why we pay the MLS the big bucks! Read this link!

http://web03.echomail.com/remax/l.asp?t=H30&e=zvxrjvyzref~lnubb.pbz&c=8521a3db6892b7166

April Sales Highest In Eight Months!

What happened? While we were all reading and listening to the bad news, someone has been buying homes! Dataquick reported that Southern California homes sales in April are at the highest levels since August of 2007. The bulk of the sales have mainly been in homes under $500,000 as those looking for great deals took advantage of the price slump and foreclosures. Thirty-seven percent of the homes sold last month were foreclosures.

In San Diego County, Chula Vista is among the highest areas of sales activity in Southern California. We have been searching for property for a client around the $350,000 range in Chula Vista, and we are finding multiple offers being made on multiple properties of interest to our buyers. It is not only Chula Vista where we are experiencing the phenomenon of multiple offers, we are also encountering it in other areas of the county in properties under $400K. It very much feels like San Diego has decided to buy while the bargains are hot.

"Quite a few more buyers stepped off the sidelines last month to snap up homes at substantial discounts relative to the market's short-lived peak," said Marshall Prentice, DataQuick president. "It's no surprise, given the magnitude of the price declines in inland areas and the fact sales have been so amazingly low for so long. We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast. If the higher conforming loan limits are making a difference in those areas it's certainly not a large one, at least not as of the end of April."

According to DataQuick, indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, and, understandably financing with adjustable-rate mortgages is way down. However, down payment sizes and flipping rates are stable, and, interestingly, non-owner occupied buying activity is increasing.

All we know is that we are happy to see our first-time buyer clients finally being able to shop for a HOME!

San Diegans: CONSIDER YOURSELF WARNED!

Who Knew? Getting the FLU in the Merry Month of May!? I certainly didn't expect this. I was completely blindsided with it this morning. Not that anyone is ever really ready to get the flu, but some inkling that it's going around town would have been nice. I would have washed my hands more often.

So you won't be caught unaware, I'll let you know what to expect if the dreaded virus finds you. You'll wake up with a bit of a headache, and all of your muscles will ache like you did too much stretching at Pilates' class (at least that is what I thought). In a couple of hours, you will begin to feel like you have been run over by a truck. Every joint in your body will be screaming at you. You will have no choice but to lie down after taking as many pain relievers as you deem safe. The headache! You won't know what hurts worse: your head or your bones. Did I mention the chills? That's what will clue you in that this is serious business and you cannot (and should not) go about your normal day. It can be 80 degrees outside and you will be shivering and feel the need to burrow under a blanket.

After several hours of shivering and moaning, and probably too many pain relievers for your liver to handle, your fever will break. The best part is that your head will no longer feel that it is ready to split (where the term "splitting headache" came from, I'd guess). You'll begin to perspire and will need to grab a glass of ice water. Apparently this means the fever has "broke." I do hope that that is a good thing and that it won't glue itself back together and strike again once all those pain relievers wear off.

Then, you will pray. You will pray that this is the "24-hour flu" and not some tortuous Asian variety that we read about during flu season that keeps its victims in bed for a week. By the way, when exactly does flu season end? For all of your sakes, I hope it ends with me.