Real Estate

Can Obtaining A Home Loan Be Made Easier?

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panicAs I look back over the last year, one of the experiences that I will not recall with fondness was the arduous process I experienced obtaining a home loan. Quick background..my wife and I have excellent credit and cash flow was not an issue. Yet, there was a certain point where I almost decided this process was far too difficult and gave up. How does anyone in America get financed these days?

The truth is that they manage to figure it out. Within that truth is also a theory. Home sales would improve if the process of obtaining financing had not become so painful. For the record, what I am advocating does NOT involve lowering credit standards. I am suggesting some potential buyers walk away from the process because it is too burdensome and time-consuming. Read the rest of this entry »

The Real Estate Sales Model

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Here is some great economic news for you.  If you have always thought that Realtors (licensed real estate agents who are members of the National Association of Realtors) rake in the dough (just look at that Caddy!) then lets talk about what exciting news came out last week.  Realtors can expect to take home a 13 percent higher income in 2012 as compared to 2011!  Well, before you start licking your chops that you aren’t getting that type of pay increase…lets get behind the numbers a little.

The first thing that I found interesting that these stats told me is an assumption is made that no new Realtors join the industry.  Well, Katy bar the door because all most people will read in the headlines is a 13% pay increase!  So right away this projection is screwed.   Then the NAR projections don’t take into account that real estate is a 80/20 (maybe 90/10) business.  In other words, 80 percent of all the business is done by 20 percent of the members.   Here is how this plays out.  The median income for a Realtor (according to a NAR survey) in 2011 was $34,900.  Mind you this is non-guaranteed commission income!   Now, here is the good news for those who have much optimism.  Seventeen percent of all members grossed $100,000 or more.

It takes years and years to join the 17%.  Years of focus.  Acceptance that the average is more likely than the above average.  Yet..that is how life works also.  The interesting news to me is that if people start flocking to real estate as a career, the average income growth may actually decline!   Only so many sales to spread out among the whole.  And the sales that are occurring are not as numerous as they once were.

Chances are when you meet a Realtor they are financially struggling.  The economics of the business are screwy.  There have been many people through the years who have tried to find a better model.   Nothing has stuck because real estate attracts people who all believe they can be in the 17%.  The question I ask myself every time I read one of these studies is how is the public best served?

More in a future post, but let me ask this…do you think the 83% have the resources to provide the kind of support to assist the public with the largest transaction of most of their lives?  Why does the public not latch onto different models involving buying and selling a home?

Statistical source: http://economistsoutlook.blogs.realtor.org/2012/07/02/realtor%C2%AE-income-forecast/

More Protection Please

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The ongoing search light continues to focus brightly on all parties associated with residential real estate for blame of the five year economic malise.  It only makes sense that thoughtful entreprenuers will come up with new ways to protect the parties involved in residential sales transactions.  This week we received news that a new insurance product is being offered to protect lenders and investors from losses when “a valuation inaccuracy is discovered.”  So, now we have appraisal protection, title insurance and mortgage insurance.  Having valuation insurance sure sounds like a good idea to help add a few more costs to each transaction.   Just think, if such insurance is available, why do we really need full appraisals?  What would happen if the market just did its job and residential real estate values were determined in a real market based system…closer to an auction than an arbitrary list price?

Since we are now on the path of providing purchasers with all kinds of protection, most likely at the seller’s expense, I have a few new ideas that I would propose should become part of all transactions.

Mortgage Qalification Insurance- if you learn that a lender allowed you to borrow more than you can handle, and now you are cash strapped and having difficulty making payments, put in a claim against your lender.  They are the 1%..right?  Let them pay your mortgage since they loaned you too much!

Home Inspection Insurance- That home inspection did not catch the gfi circuit breaker that is not tripping and you are concerned that it is a hazard?  No problem!  File a claim on the Inspection policy and get the funds to make those repairs!

Poor Decision Insurance- this is a nice way to say that your Realtor led you to a home that you fell in love with, and now feel is a mistake.  Call it buyers remorse, just don’t lose any sleep over it!  You are with the good hands who are just going to pay you for the home since you have a Poor Decision policy.  What a great way to buy a home, knowing you are protected if the home is a lemon, or just not enough room at the holidays!  Hey, those Realtors have lots of money.  Why shouldn’t they offer this protection so you want to use their services?

There are so many parts of life I would like to insure.  How about the risk that your kids make bad decisions that cost you several thousands of dollars?  Call it Parental Protection Insurance.  Or how about your spouse who no longer excites you.  Middle Age Crisis Insurance can help fund your new sports car and more!

Maybe I need to change careers.  I could really create some great insurance coverages.  Too bad I did not take out a Wild Card Policy for all of my ideas…

Monday Morning-Do You Know Where The Recovery Is?

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A morning of interesting news that in a matter of just a few minutes says it all about the fact that no matter how you spin it, the economy is not getting stronger.  The interesting part is that it all reflects on housing.  Eight of the last nine recessions were fixed only when housing improved.  Housing is such a huge part of the economy, there is little to accelerate the engine if it is fighting  sludge.  Yet, we continue to go down the  path that if we punish all the mortgage lenders (because they are to blame for the entire Great Recession) they will never lead our country off the cliff again.  If you believe this, then I ask you to reconsider for the good of all of us.

First, I do not see Wall Street firms being set out as the villain when they were the ones who marketed and sold the mortgage backed securities that created a bubble in the 2002-2006 period.   The government is all about punishing the mortgage servicers (who are often just an affiliate of a mortgage origination operation-you know the folks that make mortgage loans).

Type into your favorite search engine the term “shadow inventory” and see what the fear of regulators is doing to housing.  Every neighborhood has vacant homes now..overgrown and left to decay.  We use to get these properties title’s back to the bank and start maintenance and marketing as quickly as the law allows.  Today, they sit for many reasons that I could only speculate.  Go ahead and read all the speculation about the huge number of deserted homes and consider the affect on home values.  Is it really better to let the homes rot away than to sell them as a foreclosure?

Now, just to make my point as to where the energy is misplaced today, consider these two articles from the weekend news:

Principal Write-Downs Bad for Housing– the debate that never ends.   Lets somehow help the poor unemployed homeowners stay in their homes by forgiving part of their mortgage balance.  What about the people who make their payments?  They are still maintaining their homes and paying their taxes and homeowner association dues?   I have said it for years, principal reductions will help a very narrow part of the economy..those who borrowed up to the hilt during the bubble years on values that were not real..often not as part of their purchase money for a primary residence but for a refinance and cash out.  I feel for these folks, but these proposed write-downs only help a small number of people who likely have other assets or funds.

Second Chance for Owners Who Lost Homes– I guess if we throttle the mortgage servicers and make them give their defaulted borrowers more money (after these folks lived housing payment free for 18 months on average and received several thousand dollars in “cash for keys” assistance) this will teach them to never make these mistakes again.  Maybe they also won’t try anymore to make many loans to people who are not golden credit risks.  Oh wait, that is happening now. 

And then we find out that while demand for housing is down, rates are going up!  If you have a home you need to sell, here is a recommended strategy, drop the list price to 10% under market.   If you can figure out what the market price really is!

There you have the news you need to know as you consider whether getting those evil mortgage guys is really the best thing to eliminate the stress this country has economically been experiencing for the last four years.  What do you think?

Indiana Realtors Monthly Study-Housing No Better Than May 2009!

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Are foreclosures the elephant in the room?

While spending most of their analysis of the numbers on explaining that the May 2011 numbers are not really comparable to May 2010 (due to the effect of the federal government’s tax credit) the monthly analysis from the Indiana Association of Realtors, seems to want to make us all feel better about strengths in the housing market because May 2011, and the first 5 months of 2011, are performing favorably compared to May 2009.

Page 10 of the report is what I find troubling.  The facts are that, artificial tax credit effect or not, we are still in a state (and frankly Indiana is in the upper half of states) where there is almost a year of housing inventory available!   I remember the distress when the numbers were 8 months of inventory.  Now we try to feel better that it is 11.3 months versus 11.6!

The trends are headed back in the wrong direction.  While this report does not break out the amount of distressed properties on the market, most studies of this figure have it now at 25-30% of the market.  The distressed/vacant housing stock continues to plague the market and affect all measures of performance.  As long as policy makers continue to pursue a slow, controlled, release of troubled housing stock, the market’s performance will be influenced more by foreclosure policy, than by an artificial tax credit stimulus in 2010.  

Important correlation?  You bet!  Housing has been a leading indicator of recovery in 8 of the last 9 recessions.  It seems fairly obvious that the real market demand from healthy buyers and sellers will continue to stay caged up until there is not such an apparent elephant running around the room, knocking over all the furniture and ruining all the carpets!