The Real Estate Broker's Corner

Hello all. It has been a long cold winter, and spring is was sort of slow to get here, but seems to have arrived. Will this bring a thaw to the chilly real estate market? It may be too soon to tell, but there are some signs that is will.

First sign; A home on Highridge Road, Westport, MA. Nice subdivision, completely built out with some great properties. This particular property went on the market at 520k. Last sale was 650k three years ago (I feel your pain!), so this looks intriguing. I call some buying clients that it might be a good value. Turns out it was. House went under agreement in 11 days, and the listing broker didn't see any point in taking backups, the deal was solid.

Second Sign; Working with the same buying customer, placed an offer on a new construction property, a spec/model that had been on the market for over 9 months. Buyer made what was essentially an 80% offer. Developer (who I have a ton of respect for, but who shall remain un-named) let the offer pass without counter or comment.

Now, as I have said many times, the market is made of Buyers and Sellers, and where they meet is the market equilibrium. We have buyers finding properties that are priced north of 500k, feel they are good buys, and pulling the trigger. We have sellers who are holding price above the 500k mark, feeling optimistic enough about their prospects that they will let a buying prospect walk without a counter offer. 

Of course, this is very anecdotal, but the broad market is just the sum of everyones' anecdotes. And it seems to me that two things are clear.

First, developers in Westport and Dartmouth are not waiving the white flag and having a firesale, like they are in Tampa or Vegas. All markets are local. Second, we are starting to find a price bottom for good properties.  

Lets hope that we can find some more good signs in the days ahead.

Have a great May!

Mike Powers

It has been too long, my friends. Forgive my absence. Let us get to the matter at hand.

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LOCAL CONDITIONS: Per the MLSPIN, I put this little table together.

Westport	UNITS	LIST	SALE	DAYS	LOW P	HIGH P
2007	12	459825	425655	216	190000	745000
2008	10	429020	399850	131	240000	800000
%Change	-17%	-7%	-6%	-39%	26%	7%
Dartmouth	UNITS	LIST	SALE	DAYS	LOW P	HIGH P
2007	21	393324	369205	180	160000	749000
2008	25	382668	354344	265	121000	817400
%change	19%	-3%	-4%	47%	-24%	9%

So what does this tell us? The sales units are pretty close. The list price confirms what everybody knows anecdotally, that the prices are coming down. Also, the discounting seems to be stable. Days on market are tightening a bit in Westport. Dartmouth still has a way to go. The range of pricing in Westport is also tighter. I would say this reflects the reality that Westport is a smaller town, with a more homogenous housing market. Dartmouth is bigger, and has a more diverse housing market, so they are experiencing more foreclosures and activity at the lower end.

The real signal for all of us to watch for is in the discounting. When the list / sales prices tighten, then I think we will have our best indicator that we are at a bottom. Until then, the decrease in pricing is likely to continue.

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You have probably heard someone say, "Mortgage brokers, that who caused all this! Hang the bastards!", or maybe something worse than hanging. Maybe it was Realtors or Bankers or stockbrokers instead of mortgage brokers. The point is, there is a lot of anger out there about the state of the economy.

Tell me if any of this sounds familiar.

"We got the house! We can't believe we did, but we got it for the asking price. Yeah, 1 million is a lot of money, but it will be worth twice that in 5 years, and if we have to get out, no big deal. We are taking a pay option arm from Washington Mutual, so you know we can make a minimum payment if things get tight. We are going to take all the money we would be paying on the mortgage, and throw it into the stock market. Between the home appreciation and the killing we are going to make in the market, we should be in great shape, just pay off the house with the market gains."

That is a real conversation I had with a fairly sophisticated businessman in 2004.

"Your stuck in the old way of doing things. No one worries about paying a mortgage, the average homeowner moves after three years. Why pay more into the mortgage if you are going to sell in 3 years? The person today wants to pay the minimum, you know, use the leverage that is available. That is how people can get ahead."

That is a real conversation I had with a mortgage broker in 2004.

There is a common thread, between the buyer and broker. Neither contemplated a down market. They both looked at a house as some type of investment instead of a place to live. They forgot the primary activity that one does at home, which is to sleep.

When we go to sleep, we are at rest. The first function of a home is to have a safe, warm place where you can rest, and eat, and do those mundane things that you need to do every day. A home is where you can fall asleep in front of the TV, watch your kids grow up, build the traditions and memories that are priceless. A home will always have some worth, because you will always need one.

An investment can never be priceless. It can become worthless, but never priceless. It exist only to be sold some day. An investment can never be a home.

So I pound this with buyers. Look at the house as a place to live, a place to eat and sleep. Not as a 401k. Trust me, you will sleep easier that way.

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I have a friend who is in terrible shape, upside down on the house, ready for bankruptcy. I ask him what he is waiting for.

"I'm not ready to quit yet."

I am amazed. I think I would have quit a long time ago, If I were in his shoes. But I am not, and probably never would have done the things that he did to get there.

Nonetheless, it shows one of great truths about Man, found in Hemingway's Old Man and the Sea, "Man is not made for defeat".

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I will be updating more regularly. Visit our listing section, and if you need a buyer's agent, call me. If you need someone to list your home, call me. If I think I can help you, I will, and if I can't, I'll let you know it.

Hello all. Hope the summer is good for you. We have been moderately busy, and that is a good thing. The market prices have begun to settle down and are starting to make sense, and that is a good thing. Of course, you know I can't just write about the good things, right?

The big issue the real estate market is facing now is appraising, and there are really two facets of this problem; how it affects current specific transactions and how it will affect the future market generally. First, the current transactions.

If you have a home under agreement, you are largely hostage to the appraisal process, and this is where your agent should be able to give you some valuable advise. Let's say you have two offers on your home ( a rare thing these days, but play along), a property you bought 4 years ago for $519,000. The first offer is $500,000 with 10% down, and the buyer is financing through ABC Mortgage, a mortgage broker. The next offer is for $497,900 with 10% down, and they have a preapproval from Bank of America. Pretty clearly, you want the most money, and you say, we accept the high offer, right? I might say not so fast.

The buyer going through the mortgage broker will have an appraisal done, usually by an appraiser selected by the mortgage broker. Since the mortgage broker is not going to service that loan, the servicing bank's underwriters are going to scrutinize that appraisal. (Banks are not exactly in love with mortgage brokers, you see. They blame mortgage brokers for a big part of the subprime crisis). At minimum, the appraisal will be office reviewed by the bank, and it is not all that uncommon today for the appraisal to be rejected and redone by the bank.

The second offer, while a bit shorter, is from someone dealing with the bank directly. The banks generally don't second guess their own appraisers. So the is a fundamentally better chance that the house gets a passing appraisal from the bank originated loan than the mortgage broker originated loan.

That is information the seller would do well to consider. As a broker, I do not want to put my customers in a situation where an appraisal review compromises a transaction. I want one, clean appraisal. What do you think would happen if the bank reviewed the mortgage broker's appraisal, came back with a lesser number, and declined financing? Is the seller happy? Not likely, with an appraisal on record that indicates a lesser value. At best, it turns into a longer process. At worst, the deal blows up. 

There is actually more to this business than hanging a "for sale" sign, you know.

On a macro basis, many properties do not appraise for sale value. The effect of all the foreclosures and short sales is to depress the "comps" that appraisers use to derive value, thus depressing value of appraisal. In addition, many appraisers are running scared. They don't want to be the guy answering the question, "Why did you think this house is worth $500,000?" at a mortgage fraud investigation. Anecdotally, a banker I spoke with last week told me that appraisers he knew were knocking 5% off of what they thought was a good number. the appraisers' new found conservatism is likely to be a drag on the broad housing market turning around. As buyers come into the market and start to actually bid up the values, appraisers will be looking in the rearview mirror. Old sales don't help the appraisal process in a bull housing market, so it will take about 6 months to a year for the appraisers to get up to speed. That is one of the reasons why it is important to work with an agent who has his pulse on the market. The real deals will be had by people who buy before the public recognizes the turn around.

Anyway, have a great day, and give us a call if you are ready to sell your Southcoast Home!     

I like "validation" of my opinions. I like to bounce my opinions about pricing against something that can temper them, set a ceiling or a floor. One of those validation tools used to be assessments. I used to be able to say with a great degree of confidence that a house in Westport, would sell for somewhere between 1.3-1.45 times assessed value. That was in 2004, 2005. In 2006, that factor came down to about 1.15-1.25. I could say, I think that house is worth 500k,  and because it is assessed at 435k, I figured I wasn't that far off.

Now, the factor is shaky. The injection of large numbers of foreclosures, and the absence of buyers, has really made the assessment less relevant as a predictive statistic. To what effect? Now, I have to feel around on pricing a little more to find a something that works. What is "pricing that works"? That is the price where the phone rings, where people want to see the house. I had to make 4 price changes on a listing in the first 30 days recently. I used to not even consider price for 45 days.

I am not alone looking for good metrics. Banks like to look a scores, FICO scores in particular, when making loan decisions. Recently, we are hearing horror stories about people who have really good credit scores walking away from their mortgages. To what effect? Well, if the banks can't rely on credit data scores as a reliable indicator of risk, they will either go back to the old days of lengthy committee meetings, and lengthen transaction time accordingly, or they will just stop making loans. Neither is a particulary great scenario for the markets today.

Anyway, let's all hope for a great summer.   

Well, Spring is here. The Realtor associations are trying to talk up the market, as they should. The question is on all buyers and sellers minds, is this the bottom?

Well, if I was right more than 50% of the time, I would retire to Vegas, but I'll give this answer. Probably not. And here is why.

The true bottom of the market will be found when we get the inventory down to about 8 months. This is historically the level that is close to Market Equilibrium, the point where supply meets demand. Currently, we are at 9.5 months nationwide, and in Westport, there are 139 single family homes or condos on the market. We have averaged 6 sales a month over the last 90 days, so by my math, we have a twenty month supply. Yikes! I also firmly believe that there is shadow inventory.This is where some folks are waiting to enter the market, waiting for conditions to improve. So every time the market looks like it will make a move, additional inventory comes in, bringing it back down. No one knows how much shadow inventory there is.

What is the cure? The only sure cure would be to let the market correct. Like curing a hangover, you have to sleep it off. It takes time. It also takes the will to allow the market to correct naturally. All of these homeowner bailout plans will just prolong the misery.

This is why it is so important to look at a house as an expense, strictly. Forget resale, forget investment, this is a house your buying. The only question is, are you going to be happy paying $2500 a month for this house for the next 30 years. Will you be comfortable. Do you like living in that space. These are the questions buyers need to answer before making a purchase.

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Many thanks to Lisa for her kind comment on my previous post. I couldn't agree more about the lack of professionalism that some of our fellow real estate licensees display. If you're going to be in this business, be there for your customers. If you can't, then find something else to do. This is not the market for amateurs.  

Much of the trouble in the real estate market today is directly linked to the following question; What are things worth?

The big mortgage lenders usually bundled mortgages as security for bonds. This is how the sold their product and got new money for new loans. These are referred to as CDO's (Collateralized debt obligations) or CBMS  (Commercial Mortgage Backed Securities), or tranches of the same. The underlying collateral was the mortgages, and of course, the collateral for those mortgages was the real estate they were issued for.

Declining home prices caused the "market" to question the value of the collateral. This in turn caused the lenders to be unable to sell the CDO / CMBS, and froze the input of new capital. Today, the thrifts and GSO's are ready to lend money on mortgages, and few other people. As the Fed drops interest rates, people will take a second look at these type of securities, but that is a long way off. We all have to come to grips with the following fact; the circumstances that allowed the housing market to peak will likely never happen again.

Were that the end of the story, the market would correct, there would be some pain, and in 5 years, we might see some light at the end of the tunnel.

But that is not the end of the story.

Imagine for a moment that the mortgage you have has a call option, where the bank can say your home isn't worth as much as we lent you, so give us some more cash, or we foreclose. It doesn't matter if your payment is current, it doesn't matter if your home is or isn't for sale, you have to come up with the dough. Not a lot of folks would want to be in that situation.

But that is exactly the situation that many of the big mortgage companies, (COUNTRYWIDE)  and many hedge funds, and even big banks (CITI) have found themselves in, courtesy of auditors and the FASB (Financial Accounting Standards Board), specifically rule 157, which is how companies determine "Fair Value" of an asset. This rule is the cause of "Mark to Market", and basically says that an asset must be valued at what you can sell it for, not what cash flows it produces.

So if you are Bank Mikey, and have 30 billion dollars of commercial mortgages on your balance sheet, which pay 8% net after delinquency, and there is no one in line to buy the mortgages, well, they just aren't worth 30 Billion. They aren't worth 2 Billion. Because nobody knows what they would sell for, they are essentially worthless, according to the rule.

Bank Mike is OK with that, because Bank Mikey likes getting the 8%, and that is far better than what treasuries yield. But Bank Mikey's creditors, and the Bank Regulators, aren't satisfied. They say that Bank Mikey needs to pony up 20 Billion Dollars to meet balance sheet requirements, all because the 30 billion in mortgages are now worth zero! Bank Mikey can't get 20 Billion. Bank Mikey then goes Bank Rupt. All of Bank Mikey's employees lose jobs, and all of its assets get gobbled up by some other bank.

That is about what happened to Bear Stearns, and it will happen again. As the recent movie title exclaimed, "There will be blood". To be sure, Bear gambled on a ton of the most risky of CDOs, and made a lot of bad loans, and is paying the ultimate price. They are not guiltless. But much of the pain in the housing and financial markets today is because the auditors and accountants cannot figure out how to value mortgage backed securities. Where I went to school (Stonehill College), an asset was valued based on the cash flows it produced. I guess that is out the window.

I need to learn the new math.

I came to the office Monday, got a call from a videographer that was waiting me at a listing. It turns out that I had an appointment to film a 2 minute advertising shot, and I hadn't scheduled it on my OUTLOOK.

No problem, I say, I'll be there in a minute. Take the electric razor, brush of my jacket, and go to the property. We shoot the thing with no prep, and the video guy says, "You look fine".

Yesterday, I get the video, and I think there is a great shot that I could get on the funniest home video show! My collar is uneven, my voice sound like a Boston cartoon character, and mysteriously, I look fat!

Then I thought about it, and couple of things came to mind;

    1) I do talk that way, never met an "R" that I liked enough to pronounce,

and

    2) I am a bit overweight, (but the video does ad at least 20 lbs)

Ah well, no TV in my future. You will soon be able to view this great production on our site, the property was 14 Winterberry Lane, and if you can get past laughing at me, you will see a pretty nice property for $589000.

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The market remains challenging, but we are hoping for a great spring. We have opened up with 3 great listings, and have additional properties in the pipeline.  Take a look at the previously mentioned Winterberry Lane, the 10 Watson Way in Little Compton, and the 422 Pine Hill Road in Westport.

    All of these properties are "priced right". 2 years ago, the all would have been on the market for 70-100k more than right now.

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Been a while, and it hasn't been because we've had a closing everyday. Property management and year end admin is time consuming these days. But I am glad to take a minute to post.

The real estate market remains challenging, and the underlying cause of the challenge remains the painfully slow pace that the financial markets are on to workout the subprime mess. The economic relief package that President Bush is expected to sign does provide for an increase in FHA and Freddie Mac Limits, but we have to wait a bit and see how this fuels the market. Are people going to rush out of the woodwork now for housing in the 500-700k price range? The mortgage still has to be paid. We will see.

I think I can make a good argument for a buyer to step up and buy the absolute best quality house that he can afford. The discounting in the market now looks like an opportunity to me that hasn't been there for 10 years.

I had a chance to talk with an architect, Dennis Swart, about the changes in the building codes for 2008 and the impact they will have on design and construction. There will be a tangible impact in component costs (especially windows) and labor (for additional requirements). There will likely be many project delays, (and perhaps rework problems), from the requirement that any plans used be reviewed and stamped by a MA. structural engineer. 

You're cruising the net, see some house plans for sale, and buy them. You go to town hall, and say "here are my plans, I would like a permit, please". They take your 5 copies of plans, one for Board of Health, one for Conservation, one for building, one for planning, and an extra. Your plans muddle through these boards, and at the very end, the building inspector, who usually reviews last, says "Sorry, no engineering stamp." You say "but they are plans from ABC engineering , in Houston!", and the building department reminds you that these plans need to be reviewed and stamped by a MASSACHUSETTS licensed structural engineer. You get to start over.

That will happen, but won't be as big a problem as lower end contractors, who don't stay up to speed on the code changes, having to rework major parts of a project. The way everything needs to be done has changed a bit. Make sure that your contractor knows the code. The higher end guys will probably not have to change very much, because a lot of the requirements are either things they were already doing (i.e. hurricane clips on every rafter-plate connection) or things they will make part of their routine.

Have more questions about this and how an architect can help make your project something special? Give Dennis Swart a call. He can explain the cost and benefit of architectural design, and is a generally good guy. Dennis can be reached at 508-697-8200, or by email; dennis@djsa.com    

Local conditions remain tough, but spring is around the corner, and hope springs eternal, as they say. 

I have decided to give some "Rock Solid" advise pointers in every blog. This is a point that I am sure, that I am "Rock Solid" about, for a buyer or seller of real estate. So the Inaugural "Rock Solid" advise for today is this;

    If you are in the market for a condominium, never, ever , ever, consider buying into a condominium that has less than 10 units. This is a bare minimum. Condominiums with less than 10 units are generally not FHA approved, and that restricts your ability to get reasonable financing. There is a reason that they are not FHA approved, and that is they generally don't work. The efficiencies of operation are not there, and the result is the worst of both worlds; all the responsibility of home ownership, all of the bureaucracy of a condominium. We will never advocate buying a unit in a converted multifamily that has less than 10 units.   

LOCAL CONDITION;

    There are 368 Single family homes and condominiums on the market in Dartmouth and Westport. There have been 13 Sales this last month. That translates into a 28 month supply, a very scary number. Broaden the window to the last three months, and we had 58 sales, which translates to an 18 month supply, still pretty scary. We like about 8-10 month supply in a seller's market.

Focusing just on Westport, the numbers are 129, with 5 sold the last month, and 21 the last three months, pretty much right in line with the aggregate number.

Multifamily housing in Fall River remains stronger than in New Bedford, but both markets are weak and getting weaker, to the point of making better sense as investments...

The last three weeks have been extremely volatile in both the financial and housing markets. The CEO of Wells Fargo Bank says this is the worst housing market since the great depression, echoing what the CEO of Countrywide Lending (America's #1 Mortgage lender) said a few months before. There are quality buys out there, there is just no buying public for the non -conforming market. I think it is likely to get harder for buyers and sellers alike.

Bank of America closed its wholesale mortgage operation. That means if you want a Bank of America mortgage, you go to the branch. The Attorney General of Massachusetts wants to make it illegal for a mortgage broker to charge a fee based on "rate spread". In other words, the MA AG has decided she wants to put mortgage brokers out of business. In her view, banks and credit unions are the right (and soon to be only) source for a mortgage.

Is this good for the consumer? Any time we try to protect consumers from themselves, we usually disturb the supply & demand equilibrium. Generally, that is not good for the market. The high quality borrower won't be affected, but thousands of marginal borrowers who might have had a mortgage broker shop around for them will now face limited choices. That may put some of them out of the picture. The ongoing impact of all this on the housing market is this; there will be less buyers for more property.

Also notable, the quality of the property on the market is still poor. Poor quality property generally requires reduction for sale, and this "comps down" the market. I viewed a single family foreclosure the other day that I felt was truly worthless in this market. I wouldn't have taken ownership for free. Teardown costs would have been significant, and I would have been left with a substandard lot. Easier to buy a quality lot without the teardown.

Many deficit condominiums are in the same boat. Three bedroom condos in a ratty neighborhood in Fall River selling for 75k? Why buy when you can rent? (with none of the liabilities of ownership)!

I have a house right now that is available for lease. The time isn't right to sell it, I would never get my price, but its a property that is worth holding. It's a great location, nice house, and the rent I am asking is $2500 a month. I thought I might have a problem renting it, because $2500 is "a lot of balloons". I put it on the market a week ago. I am showing it to two applicants this weekend. They both said there just aren't that many good properties for rent. Three years ago, these people would have been buyers for the property via one of many Alt-A or subprime mortgages. Today they are renters.

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Saw an eighty (80) acre parcel go under agreement on Division Road, list price was 875k, and I imagine the sale will be for something less than that. A little different from the 60 Acre parcel that was on the market for 3 million 18 months ago.

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There are still some surprises out there price wise, and by that I mean "You really got that much for THAT HOUSE?", and some people will hang their hat on to that one sale as justification for overpricing. It is why I like to use the replacement costs analysis to temper the high end of a price range.

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The building codes are going through some major changes, to be effective 1/1/08. I am talking with a builder to try to get specifics, but the quick version is this; new wind engineering requirements will reduce the size of most new construction, and make the two story entry a thing of the past. More on this as I get it.

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Do you know anybody who's business is booming, going gangbusters? Are your neighbors telling you how great things are? Is everyone flush with cash, and getting ready to buy a new benz? If you do, then we clearly live in different neighborhoods. I see some (very few) people doing well who have a wealth structure that makes them impervious to the economic conditions, but for the most part, most people are working harder to stay in the same place, and they have little confidence for the future.

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A money market fund had its share value go below 1.00 yesterday. That is one of those asset classes that the guys at Fidelity say is "Risk Free". When you see this happen, you know that the unwinding of our subprime debt picture is not over yet.

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If people have to pay $100 for a tank of gas to get to work, will they be able to pay the mortgage?_________________________________________________________________

A mortgage underwriter I know said he had a million dollar mortgage go into default, but the lender wouldn't foreclose. They would rather add the late fees and wait out the market to a point when they might recover more at a sale. You think they are in a rush to make anymore jumbo loans?________________________________________________________________

I will post local conditions after Thanksgiving. Speaking of Thanksgiving, I hope you all have a happy one. I also hope that you will remember our service men and women who are away in distant lands. Be thankful for them.

On Thanksgiving Day in 1986, when I was in the Army, I walked into a bar in Seaside, California. I didn't have any money to go home on leave, and everyone else did, so I was alone. The place was empty, except for the bartender, who was not high in the outward charisma department. Soldiers are not always looked upon kindly at the clubs around a military base. I didn't expect much from her in the way of service or conversation. 

When I sat down and ordered a beer, she smiled and said "I thought I was going to have my dinner alone." She served up my beer, and then said" You want some Thanksgiving dinner?" The dinner turned out to be a Stouffer's frozen turkey dinner, (did she plan on eating two?). I ate the dinner, watched some football, drank a few beers, and went back to the base. She was nice. She didn't have to be. There was nothing romantic, just an act of sharing, what my folks would call a "Christian Act".

The kindness of strangers always moves me. It is a bright and unexpected light in what can be a dark, unkind world. The kids in uniform are in the darkest of places. So if you get a chance to be nice to one of them, do it.

I can promise you, it will be remembered.