Bipartisan Support for "Housing Relief"

Housing Relief is pronounced quite differently than it sounds: "your taxes pay for other people's mistakes." Or, depending on your dialect, it might sound something like this: "your taxes pay for big mortgage lenders' failed subprime bet." And, last but not least, if you live in Illinois, you probably pronounce it this way: "you give your tax money to the state government to hand out to its friends who want to buy properties with state funds."

Any which way you wish to pronounce it, you're right, and it looks like it might just become law. As Investor's Business Daily puts it, the bill that passed the senate in an 83-9 vote, is a pure promotion of dependence for the fiscally irresponsible upon the backs of the fiscally responsible. The bill would flood states with funds to purchase distressed properties, creating a dreadfully hazardous situation wherein states such as Illinois would be ripe for corrupt actions (maybe an opportunity for a fresh start for Tony Rezko, once he emerges from prison).

Finally, this is a bill that has been heavily lobbied for by Political Action Committee's from Home Builders, Lenders, and Realtors (yes, us too), in an effort to bring back the realty market at a dire time. What it fails to do, however, is settle the U.S. housing market into its level of equilibrium. We've come so far, albeit painfully, to cutting back inventories, bringing prices back to reality, and weeding out the lecherous practitioners in our business (lenders, too).

It has been interesting to see this bill develop over the past month, from when it was first introduced by Rep. Barney Frank. Would I like to see the marketplace flooded with buyers, and return to listing homes at prices reminiscent of spring, 2006? Of course. But sometimes you should be careful what you wish for.

CNN says housing at or near bottom?

I don't put much faith in any of the real estate "outlooks" put out by the main stream media, or highly accredited economists, press releases, or, my favorite, real estate talk radio hosts. It is only after prefacing, therefore, that I want to point out an interesting article from CNNMoney.com, entitled "On the Path to a Housing Rebound."

I don't know whether this article is a good or bad signal as to the health of the industry. With the relentless onslaught real estate has endured from the press, I think it can only be a good thing. The data they point out in the article is precisely the type of data that guides a cyclical market from highs to lows, to highs again. I only hope that this is not some cruel counter psychology from the MSM to throw us off their track of doom-and-gloom.

To let you know where I'm coming from, anyone who noticed this intellectual heavy-weight piece from the AP will know where I'm coming from: "EVERYTHING SEEMINGLY IS SPINNING OUT OF CONTROL." That's some hard hitting journalism, with the last paragraphs including a shameless promise that voting democrat will undo all of our problems, and return life to its harmony with nature. If that will magically improve real estate, then I'm OK with it.

Interest Rate Hikes, Local Inventory Levels, and Subprime Fraud Lip Service

Yes, the picture to the left is as accurate a depiction of how us real estate folks feel after the week we just endured.

Let's see what I can isolate as the 3 biggest issues that have come onto my radar screen for this second week of June...

Mortgage interest rates. UP, UP, and AWAY!!!

UP to 6.5 percent for conforming mortgages this week, even as high as 6.75% at one point. Good luck getting that quote to stick for more than a couple of hours.

UP again, for Jumbo Mortgages (over $417,000 of loan amount), reaching as high as 8.675 or higher. Jumbo's affect the luxury housing market in Chicago's far western suburbs, the Tri-Cities of St. Charles, Geneva and Batavia, certainly. They also affect modest dwellings in the nearer suburbs, like Oak Park or Arlington Heights (to stab blindly), where prices are substantially higher. The crowd of buyers that can afford a half-million dollar mortgage at close to 9% interest is an understandably small one, and they expect a lot more for their money nowadays.

Rates have been attributed to tough talk about inflation from the U.S. Federal Reserve. As I look at overall economic news, I start to wonder if housing isn't a small problem in the macro-picture. It seems that Ben and friends thought the same thing, and it caused a small ripple in the mortgage bond market, as concerns that bond values would drop in the face of higher rates (impacted by rate hikes at the Fed) over the next few months.

And AWAY! Away with mortgage perps'. Good to see that they've nabbed every last mortgage fraud'ster. 400 of our "finest" real estate practitioners were hauled off to jail for inflating stated incomes, misleading values or uses for properties, and other fraudulent tactics used to secure for loans. As the AP line depicts, the real victims in the subprime mess is "consumers" and "lenders." Consumers are the everyday folks who never fibbed on their stated incomes, source of funds (gifts depicted as savings, etc.), or never really heard or understood that their loans were adjustible. Lenders, we are told, were blissfully unaware of the sources of their record crushing revenues. The next step is arresting oil company executives, and then our ever-benevolent government will likely give us free gasoline out of the goodness of their hearts.

Looking at the data for housing inventory levels, locally, I am not yet inspired to announce the end of the housing downturn. Taking a closer look at our months' supply of inventory in the Tri-City area, you'll note that we are well above last year's inventory level, caused by fewer sales and more homes listed for sale. Foreclosures, of limited importance last spring and summer, are taking a heavier toll on the local market, along with short sales. Failed rehabs and new construction gluts, however, are far less prevalent this time around.

One, Two, maybe Three Items for Your Review...

When I first started clicking off rather incidental messages on Twitter.com I didn't see how it would really apply to a Realtor. A mortgage lender, sure, or a high school student, TOTALLY, but what is there for me to offer that would really seem relevent to the public? It took me a little while, but I think I know what it is. HOTSHEETS. The number of homes that have come onto the market, reduced price, gone under contract, cancelled/expired from the MLS, or closed, is actually a very base way to tell the direction of the market. For me, it's actually helpful to spit that kind of data out more often, and for the reader, I think it's in the same ballpark as the graphs that I try to showcase here on a weekly basis. If you live in the Tri-City or Fox Valley area, you might find that this is something worth watching.

NEXT. Interested in moving to Morrocco? As a Baird & Warner agent who has had many properties featured in the Luxury Portfolio Fine Property Collection, this caught my eye this week. It's not my listing, fyi.

LASTLY. Do you use Realtor.com for your casual property searches? Well, I happened upon a very fresh podcast from NAR's CEO, Dale Stinton (my childhood best-buddy's dad, as odd as that sounds. That's a true fact.). Go here to see a sneak peak at The New Realtor.com.

Property Taxes: Fight the Power

If you live in Illinois, but not in Cook County, then if you don't have your property taxes, by now, then you must either:

1. Escrow your taxes and insurance through your mortgage lender
   
   OR
   


2. Be a Lessee

If you aren't a member of the latter group, then you are probably interested in paying as little taxes as possible. Unfortunately, the revulsion that we feel when we receive our tax bill is not very useful: This is NOT the time to appeal your taxes. Even so, some facts about how property taxes are determined surprise many-a-taxpayer.

For instance, as the Beacon News pointed out in their piece "Property Tax Bills Causing Concern," the present market value has very little to do with the "Assessed Market Value" of your home. In fact, the county utilizes an average over the past 3 years to determine your tax amount.

I have noted for years, however, that tax bills were terribly outpaced by appreciation during the boom years. They were guaranteed to go up because they were typically 5-10% lower than market values. Now that property values have slid downwards, they are now looking as much as 5% too high.

The moral of the story, however, is that most townships finish their assessments right around the holiday season. So the next time you start getting out Halloween decorations, instead of looking forward to Thanksgiving and Christmas, start thinking about what your property taxes will eventually be. And FIGHT THEM. If you're unsuccessful, it will at least make for more realistic holiday shopping!

The Federal Reserve Bank of New York offers us a handy tool with which to view the state of the nation in terms of mortgage delinquencies, and precursors thereof. Check it out. You can ZOOM IN ON YOUR ZIP CODE, and compare the foreclosure rates, loan to value ratios, number of ARMs adjusting, percent of no-doc loans, and so forth.

The BIG Picture

National Home Values

Over this past week I've read two outstanding articles about the depths of housing woes. Two economists arguing fervently, and with impressive supporting evidence, to two completely different ends: On the one hand, we are at the absolute bottom in housing, but prices will not rebound for another 15 years (The Housing Crisis is Over, WSJ.com). And on the other hand, another 10-15% decline in values can be expected to come over the next year and a half, with a recovery to follow (Map of Misery, TheEconomist.com).

That's quite a difference in opinions! I believe I also recall reading something from the National Association of Realtors that said we already hit the bottom in the market. And that was in the spring of 2007, so I don't know what everyone is still whining about.

The problem with telling the future of the real estate cycle is not a failure in interpretting the implications of data, nor a matter of data quality, but a matter of accepting that building theory around such data is subject to your lense: optimistic, pessimistic, or just apathetic. Any economic market has data sets that support those holding half full and half empty glasses to their respective outlooks.

The Map of Misery identifies the data each group is utilizing to support gloomy or rosey outlooks for housing. One method, which utilizes the balance between housing prices and rental prices, purports that the crisis is nearing correction, with rents reaching their trough during the boom, and requiring another 10-15% of home price declines for them to reach equillibrium. This however, assumes that it is home prices that must decline, and that rents will remain stable in what has been a "landlord's market" (read: opposite of a renter's market).

The National Association of Realtors utilizes the most optimistic measure, not surprisingly, which indicates that housing costs (mortgage payments, not home prices) have returned to historic balance with household incomes. These neglect to mention the tightening of lending standards, which are preventing countless buyers from entering the market. Other measures compare home prices to incomes, which have not yet been reigned in (another 10-20% decline needed...).

Taking a look at these two graphs, you can tell the story of the market's coming doom, or its overdue recovery. Perhaps you'll better understand my viewpoint today:

Vehiament cases exist for both arguments, and with legislation being pushed forth by politicians for a fresh new band-aid (thank you P.A.C.'s and polls), all bets are about to be affected greatly as our tax dollars are put to the task. A little bit of helpful Q & A might guide someone who is a layman at the subject, or perhaps just someone as confused as the rest of us.

Do you think the market is due for a recovery this year, next year, or in 2020? Think that Chicago is subject to a different timeline altogether? I'm interested to hear your opinions!

Showing Activity as Leading Indicator for Sales?

Before a home sells, it must be shown. I dare you to try and dispute that fact.

As real estate brokerages arrange appointments for buyers agents to show listed homes to their clients, they create data. ShowingTime.com, known to agents as "ShowingDesk," is the premier online service provider for setting appointments. It is used by my broker, Baird & Warner, along with 40 other brokerages - from the big national brokerages to the independent regional ones. The data recorded for each appointment is logically one of the best indicators of market sales activity, as the more a property is shown, the more likely a buyer will write an offer, and the more likely that agreeable terms can be found, leading to a visit to a closing table.

I track my office's showing activity (above), in addition to online views of each individual property's webpage. In comparing this with a given property's number of showings, I can gauge how well a property is doing, relative to other indicators. ShowingTime.com offers us a snapshot of the nation-wide sales picture, by comparing the percent increase or decrease of showings, and the published record of closed sales. Or, at least, in theory.

If we are to believe the suggestion of ShowingTime.com's graph, then the upsurge of showing activity in March should have yielded a very positive April for home sales. While there was a definite increase (see graphs below), there is another trend represented in ShowingTime's graph: More showings per buyer. This is a definite trend in the marketplace, as buyers take more time to decide the right home for themselves. A buyer can see more houses, and have less worry over their "favorite" getting sold out from under their noses.

The data above, taken from Kane County, IL, includes April's sales number for Under Contract and Closed properties (both detached and attached residential housing). It does reflect an increase in the number of properties sold, but those numbers reflect a decrease as compared with last year's seasonal figures. April 2007 sales in Kane County amounted to 552 Closed properties, while April 2008 yielded 339. The number of properties that have gone under contract in April (606 in '07, 506 in '08), will inevitably revise downwards as transactions under contract fail to result in a closing (due to home inspection, mortgage financing, or other problems encountered).

It seems as though ShowingTime's March report reflects the dispositions of buyers towards a more thorough and deliberative home search, and not a surge indicating housing's recovery by summer time. An uptick, yes, but comparing year-over-year data gives us the whole story. There may not be any dispute to this post's leading statement, but plenty is left to argue for ShowingIndex's direct correlation to sales activity.

Innovation Amidst Housing Recession - Change Your Mortgage!

Everyone is talking about the housing market downturn, and the impending doom for all of the world's people. Foreclosures will surely swallow us all, regardless of how responsible your own financial picture may be. There is one thing that economists rarely remember to take into account - The resilience and creativity of individuals in the marketplace. Case and point, the present real estate downturn:

Investors -- including big fish like former Countrywide Financial Corp.
President Stanford Kurland as well as smaller fry like Gentry -- are buying
loans on the cheap from lenders who want them off their books. By paying
less than face value for the mortgages, the new holders can modify loan
terms, including shrinking the amount owed, and still make money.

As numerous homeowners struggle to make higher adjusted mortgage payments, or face personal circumstances (divorce, health problems,job loss) that prevent them from keeping up with their obligations, there seemed to be no other way out. Many cannot get out of their loans by selling their homes, since they purchased properties utilizing 100% mortages, or refinanced at a similar loan-to-value ratio. Further, banks across the nation have been facing a struggle of defaulting subprime mortgage portfolios - bets that made sense two and three years ago. With everything stacked against these parties, and the fallout of their misfortunes seeming quite vast, the prospect of savvy investors saving the day sounds like an enormous blessing - and a profitable one for them. Read on:

With some economists projecting 2 million foreclosures this year, legislators
and regulators are hoping to encourage wide use of this model. They want lenders
and investors in mortgage bonds to mark down what borrowers owe and then provide
them with lower-cost loans. It's a tricky business: No one wants to be seen as
bailing out speculative buyers or imprudent lenders, but they also don't want
mass foreclosures to devastate neighborhoods and the economy.

The greatest enemy of this program, however, appears to be the victims, themselves. Fewer than 50% of homeowners who are delinquent on their subprime mortgages are willing to return phone calls regarding lender work-out plans (mortgage lenders attempting to renogotiate loan terms in order to keep a homeowner in their home, and paying agreeable loan terms). Many homeowners worry that lies told regarding stated income, or other fraudulent information given to lenders, will come back to haunt them. Given the widespread existance of such fraud, on behalf of homeowners and lenders, investors buying subprime mortgage notes are not making fact-verification of old mortgage applications a matter of importance.

The headline here reads of an innovation that may save the real estate market, and the broader economy. It may as well read:

Homeowners Facing Foreclosure: Call Back Your Lender!

Source:
Investors move in to save broken mortgages
Los Angeles Times, E. Scott Reckard
http://www.latimes.com/business/la-fi-loanbuyer-2008may01,0,3521729.story

In Defense of: The Home Ownership Ideology

Dean Baker, author of "The Conservative Nanny States," has written an article featured on RealClearMarkets.com entitled "The Homeownership Ideology." Baker's article, after blowing past the alleged causes of the housing bubble and subsequent deflation, proceeds to level blame against the belief in home ownership as a "virtue" - in and of itself. He points out that during the height of the market's fervor, it was not good policy by economic and political talking heads to promote buying a home. Especially, Dean articulates, when it comes to lower income households. These families and individuals opted, quite tragically, to buy properties at prices 20 to 30 times the annual rental cost in their given communities.


I agree with Dean's premise - pitching homeownership to the poor and those who cannot afford it doesn't make sense. In fact, I think the whole reason mortgage products like Option-ARMs, 100% Interest Only's, or 40-Year-ARM's ever saw widespread use was because individuals that did not have the discipline or wherewithal to purchase a home had been convinced they needed a home - and at any cost. Those people are now realizing the cost, as are the businesses that swarmed around them for their one-time business. Now we all feel the repercussions of those actions.

I do have some mixed feelings about a website sponsored by Illinois Governor Rod Blagojevich and The Illinois Housing Development Authority (ihda.org). While some of the money offered drastically improves one's ability to purchase a home, some of the conditions make it painfully clear that those best qualified are those with the least qualifications. Certainly we should not be encouraging EVERYONE to become a homeowner. This is somewhat akin to suggesting an alcoholic try to keep a houseplant alive before trying to date, or own a pet. Perhaps individuals should be coached along the line of financial discipline, and income stability, prior to purchasing homes on 30 year mortgages. I am sure Blago is not troubled by the website- I believe he has enough other things worrying him.


What I differ with Mr. Baker on is primarily a matter of timing. While I believe that baiting poor or lower-middle-income Americans into buying homes is not a positive thing for Americans, I do not think that de-legislating the allure of owning your home is an idea that should be batted around in our halls of government. But especially NOT NOW.


If there has ever been a time when individuals should be encouraged, or browbeaten, as to the virtues of homeownership, it is now. When rent prices are trying to skip right alongside with inflation, buying a home at a still-historically-low interest rate seems to be a sound plan. The market also provides them the time to educate themselves, and exercise patience - finding the correct property, at a price that truly suites their budget.

Imagine, however, if congressmen and women began discussing reversal of the tax deductibility of mortgage interest payments. The legislative carrots that guide individuals into homeownership ought not be scrapped just because markets are subjected to a business cycle that can be destructive at times. The ideology of homeownership's virtues should not be traded in just because of the financial downturn of the moment - perspective is needed to look into the face of the next boom, and sort out what can be done differently to ensure fewer are preyed upon, and fewer succeed in defrauding the system. Instead of railing against homeownership, articulating the true benefits of home ownership might be a more productive endeavor.

Being a Landlord isn't for Everyone . . .

You have to read this article from the San Fransisco Chronicle to believe it. I was speechless.

S.F. Landlords charged with tenant terror

A couple from Nevada (the wife, a real estate agent) have literally lost their minds in managing a 3 story building in San Fransisco, and frightening hilarity ensues. Read on...