The Liberal Order

To Whom Should You Listen About Real Estate In Wake County, NC?

David Bracken of the News & Observer reports that now is a great time to buy. (Notice how Bracken quoted only real estate agents in his story. I regard articles printed in the Real Estate section of newspapers as nothing more than paid advertisements of the real estate lobby.)

Damon Darlin refers to advice such as that provided by the real estate agents quoted in Bracken's article as "famous last words." 

“IT’S a great time to buy a home.”

Real estate agents were saying that in 2001, as home prices were rising. They also said it when home prices peaked in 2005 — in fact, David Lereah, former chief economist of the National Association of Realtors, published a book that year titled “Are You Missing the Real Estate Boom?”

And many real estate agents said it was time to buy as prices began to drop — and continued to say it over the past several years as prices fell by an average of 33 percent in America’s 20 largest cities.

Mr. Lereah would acknowledge that he had gotten it wrong. But from the perspective of many real estate agents, it is always a good time to buy.

“What they are really saying is that it is a good time to be involved in a transaction that generates a commission,” says Barry Ritholtz, C.E.O. and director of equity research at FusionIQ, a quantitative research firm. He’s also author of “The Big Picture,” an irreverent blog on markets.

I've made where I stand on this issue pretty clear. (And here. And here. And with regards to the perverse incentives of real estate agents and home buyers, this here.)

Mortgage Recoveries On the Rise

Even for those who walked away from their mortgage obligations via a short sale with the bank accepting a payout less than the loan balance, the debtor is not disavowed from his or her obligation for the loan, as well as any other costs (i.e., taxes, homeowner's association fees, etc.) incurred by the bank before and after the sale.

"In a couple of years down the road, you will see a lot more of the collections on these debts," Greiner said.

According to the Federal Deposit Insurance Corp., mortgage recoveries rose 85%, to $1.5 billion last year, compared with 2008. Recoveries are up 187% from 2006.

Haven't We Already Been Down This Road?

I'm looking at an REO sale (i.e., foreclosure) of a Fannie Mae-owned property. The home is eligible for financing through HomePath.com. Here is the fact sheet for mortgages originating through HomePath.com.

• Low down payment and flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only)
• You may qualify even if your credit is less than perfect
• Available to both owner occupiers and investors
• Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer
• No mortgage insurance
• No appraisal fees
• Also eligible for HomePath Renovation Mortgage
• HomePath Mortgage financing is available from a variety of lenders - both local and national.

I wonder if this has anything to do with this latest news?

More Gloom for the Housing Market

More bad news for the housing market. This of course is more bad news for the financial sector, which is now struggling with commercial real estate problems as well, and is likely to stall further economic recovery.

The housing market is having a winter of major discontent. Millions of homeowners owe more on their mortgage than their home is worth on the current market, a real problem for those who want to sell. New-home sales are at a record low, in large part because so many homeowners who might buy new homes don't want to venture into this market to sell their existing house.

Do Real Estate Agents Create Value for Buyers?

After moving to the Raleigh area in January of 2007, I spent some time looking for a home to buy for when my family would eventually join me. By the fall of 2007, and only after simply observing development after development of brand new homes priced at $500k, $600k, $800k and higher, and this in just one part of the county, I concluded then that there was a large oversupply of at least expensive homes, and likely more moderately priced homes as well, in the Wake County area.

This is why this response to my op-ed on the Wake County housing market floors me.

The year 2009 was a wake-up call for real estate practitioners within our market.

The author, Stacey Peter Anfindsen, is the Treasurer for the Raleigh Regional Association of Realtors, as well as the author of the TARR Report. When I would discuss this oversupply with agents in this area, my observation was always dismissed with statements such as that even though the market was soft, it was coming back. Some referenced the TARR Report as the source for their overly optimistic projection.

So how could "real estate practitioners" have needed a "wake-up call" about this oversupply when the evidence was apparent through casual observation at least as far back as 2007?  

Why?

This Washington Post article discusses the year-long wait and frustrations of a couple who sought a license to lease a condo in Washington, DC.

To Marina and Mark Marich, the task seemed simple, just one item on their long to-do list: get a license from the District to rent out their Capitol Hill condo. They thought it would take a month.

Instead, it took a year.

In February, March and April, their phone messages to schedule an inspection went unanswered. In June, the inspector was a no-show, after he called the wrong number. In July, when Mark called to complain that the inspector had failed to show for a second time, a city worker answering the phone hung up, telling him, "Call the mayor."

And in December, after Marina's call was bounced to four people, she turned to her neighbors.

"I am in desperate need of help," Marina wrote in an e-mail to her Shepherd Park neighborhood Yahoo group that included a timeline with the names, phone numbers and dates of her interactions with D.C.'s Department of Consumer and Regulatory Affairs. "It is beyond frustrating."

For Linda Argo, who runs the department, it was worse than that.

"It's inexcusable. How can you defend it?" said Argo, pretending to pull out her short blond hair. Especially when Argo has worked for the past three years, with some success, to eliminate such headaches for residents and to shake the sprawling agency's reputation for unresponsive bureaucrats and long lines.

The complete article discusses these frustrations and the work by DC politicians and bureaucrats to correct the problems, but nowhere does the author ask the simple question, "Why are DC residents required to obtain a license to lease their property to begin with?"

Here is all the inspector who, after more than a year of waiting, found:

The apartment failed inspection; it needed upgrades to the kitchen and bathroom outlets, and a new smoke detector.

And I'd be willing to bet a week's salary that there was actually nothing wrong with either the outlets or the smoke detector. As two cops have told me, they can pull over any car and find something that violates some law or code. So much for the rule of law.

The Raleigh Housing Market

Where is the housing market headed in Raleigh, NC (Wake County)?

Latest Survey of Home Buyer Preferences

Home buyer preferences have been changing a lot recently, especially with regards to the size of the home - smaller is now preferred over gargantuan. In other words, the McMansions are out and more modest size homes filled with "green" amenities are in.

Here a list of home buyer preferences recently compiled by AVID Ratings Co.

1. Large kitchens with an island
2. Energy-efficient appliances, high-efficiency insulation and high window efficiency
3. Home office/study
4. Main-floor office suite
5. Outdoor living room (i.e., a patio with a fireplace or wood burning stove)
6. Ceiling fans
7. Master suite soaking tubs
8. Stone and brick exteriors
9. Community landscaping, with walking paths and playgrounds
10. Two-car garages

I agree with 1, 3, 6, 9 and 10.

We just had an offer on a home rejected; we came in well below the seller's asking price. Not only are there too many homes on the market, this home had a small kitchen that was poorly organized and looked to be an afterthought of the builder rather than a focus of the home. We would have redone the kitchen.

I also don't understand #7. Nobody I know uses these except for bathing their young children. They seem more of a status symbol for the home - they are never used but you have to have one in order for it to sell. One agent told me that large luxury showers are becoming a preferred alternative to the Jacuzzi tub.

How Powerful Is the Real Estate Lobby?

Powerful enough to have the following included in recently passed regulations pertaining to short sales.

Agents are also guaranteed the standard 3% listing and 3% buyer's commission. The other often-cited complaint by real estate agents is that lenders typically low-ball the agents for their sales commissions.

Wow! And here we want to complain about how politically powerful the banks are. The real estate lobby bests the banks, though it may be such a small part of their business that it's a nuisance for the bank but a boon to realtors. Anyway . . .

First, what is meant by "standard"? Is it "required"? Or "minimum"? Agents' fees are negotiable just like most other prices or wages. Why are real estate agents provided the guarantee of a specified fee? This is nothing more than a regulated monopoly price support, much like airlines prior to 1978.

More importantly, this will serve to have banks simply reject more short sales given the difference in what they require in order to sell the property at a loss and what a prospective buyer is willing to pay. Let's say that a homeowner with a $350k mortgage lists it as a short sale and his best offer is $310k. If the bank is willing to accept on net $295k or better rather than moving the home into foreclosure, then the realtors would have to agree to a little less than 5% total (2.5% each for the buyer's and seller's agents) to accept the short sale offer. A commission that exceeds that brings the value to the bank below $295k.

Real estate agents can walk away from any short sale they wish, including sales that involve banks unwilling to pay the 6% commission. Force banks to do so and they are less willing to agree to a short sale and more homes will move into foreclosure.

Second, becoming too painfully aware from experience of the frustrations involved with buying a short sale, a bank may have little to do with the delay. It may be a mortgage insurance company delaying the potential sale. This is not to say that banks are blameless, but delays may be caused by other third parties, including insurance companies seeking to protect their interests, subordinate debt holders, or even an unethical and immoral mortgagee shielding his or her assets to avoid contributing to the loss. 

HT: Carol for the link on the regulations.

Getting Them to Leave Peacefully

One of the problems with foreclosing on a home is that the owner and/or tenant removes appliances, fixtures, built-ins, etc., which lowers the value and creates more uncertainty for potential buyers. This leads to banks receiving lower offers for these properties.

It's been happening for years, but banks paying delinquent homeowners and/or their tenants to vacate a home being repossessed in its existing condition creates the incentive to vacate the premises without destroying the property.

Depending on the home and the circumstances of the foreclosure, banks are reportedly offering $500 to $5,000. As part of the deal, you must leave all fixtures intact, remove all of your personal property and trash, and leave the home damage free and in “broom clean” condition.