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In short, yes.
It effectively ends on April 30. That means a contract must be signed by all parties by Friday at Midnight.
That can be pretty tough considering it can take a few days for some sellers to respond to offers. Sometimes negotiations take weeks, though usually just up to 4 days.
That doesn’t mean you need to panic, and I’m referring to both buyers and sellers here.
To the sellers worried this will make the market drop off, don’t worry. According to the National Association of Realtors, those buyers last year that were significantly influenced by the tax credit in 2009 only amounted to 20% of the buyers. So, 80% of the buyers last year would have bought anyway. That was not a very objective survey, so it might have even been higher than 80%.
For buyers, this is still one of the best markets to find a home in. The Macon area has stable home prices, and we didn’t see a significant decline in home prices like you hear about in California and Florida. Since there are a lot of foreclosures, house prices have declined, leaving you great opportunity to find your dream home.
So, yes, the credit is ending. But, I don’t think this will be the end of real estate.
It’s interesting that many people blame Wall Street executives as a whole for causing our financial crisis. Now, politicians claim they can come in and do a better job than business people.
Really? When has the public ever trusted a politician to do the right thing? This has gone for both sides of the isle. Sure there are those who can be trusted…but do you really know for sure?
So, why are we letting them now run mega-companies? Why are we letting them run GM, Fannie and Freddie, and force specific decisions at many banks?
Do we trust them more than a business owner? An owner and an investor will make decisions that keep a company profitable. Politicians could care less. They make decisions on what will get them elected, keep special interests happy, and lobbyists buying them luxuries. To politicians, the public treasury is limitless, even when the bank account reads zero (time to print or borrow money).
Beyond reasonable, protective regulation, I do not want a politician with his/her hands on my real estate transactions. Do you?
It’s time for a break up. Fannie and Freddie have been in the White House too long.
I have some bold thoughts on this matter. Many people actually share my belief, though most of them are not real estate agents.
Simply put, it’s time for the government to break up Fannie Mae and Freddie Mac into at least a dozen or so smaller enterprises that are sold off to private investors. Think of AT&T. Due to anti-trust rules (and probably a good bit of politics), AT&T was broken up into several smaller regional phone companies.
This could be even more effective with Fannie and Freddie. Because of their bulk, they hold well over half of the mortgage-backed securities in the country. Since they control so much, they can easily manipulate the entire mortgage market (they lowered standards for mortgages in the early 2000’s that heavily contributed to our current crisis).
If they would break up the company into, for example, 20 smaller companies, each of those companies could be much nimbler in responding to changes in the market place. The smaller companies could specialize in different areas, and therefore be better informed and responsive to the needs of each market sector. Investors could target the ones that make the most profits, or meet certain social objectives. Government regulators would only be there to make sure that regulations are met.
There will be a set of these 20 that don’t do well. They will invest poorly. They will sell bad mortgages that aren’t profitable. And, they’ll fail. During bankruptcy, the company will sell off its mortgages to other companies and they get a bargain investment. Only the investors in these companies lose. Not tax payers. Finally, with more competitors, new companies can form with much lower barriers to entry.
There would need to be three rules:
- They can’t merge. It would be pointless to do this if they just keep getting bigger and bigger again. (they would also be broken up if they grab a large enough market share)
- They won’t see a bail out. Ever.
- The government can’t force them to sell mortgages to any particular segment (like happens with low-income mortgages).
Selling each portion off would be easy, if done over time. Just shave off 15% of each big parent’s assets and administrative functions each year. There will be plenty of entrepreneurs wanting to invest.
Some economists are predicting a double dip recession in 2010 (article here)…basically, as we move out of the current recession, we’ll see another decline in out economy sometime next year.
This is rare, according to the US Chamber of Commerce’s chief economist, where 95% of the time we only see growth until the next unrelated recession.
My humble opinion is that we’re not going to notice. Some people are going to lose their jobs as the economy pushes out many poorly performing businesses. They’ll notice for sure. But, over all we’re not going to see much improvement in the economy before it dips again.
The important thing is to keep going about our daily lives. It may never happen, and it’s not worth worrying about. Instead, we can help ourselves, our families, and our communities by continuing to improve our own finances and continue to pursue our dreams. Many great companies and careers were started in the middle of recessions, and those of us already in our careers and businesses should look forward to how we can make our own little world a better place. Worrying about what might happen only slows us down. Being aware of it warns us to plan a little extra cushion in our finances, and to expect our cousin Bert–living in the spare bedroom because he lost his job–to stick around a little longer.
From a real estate perspective, my opinion is that we’re not going to see drastic improvements any time soon. It will be mixed reports at best…new home sales up one month while existing home sales go down, and then vice versa the next month. The statistics will also be meaningless without seasonal adjustments, which I’m sure some members of the media will avoid if it means a more drastic story headline.
So, it’s time we simply carry on with our daily lives. Don’t expect our homes to increase in value much, and instead if you need to sell to rely on a REALTOR to show you how to make the best of an average home marketplace.
In short: not really. Maybe a little. Who knows?
The National Association a Realtors (I am a member) has said for the past two years that a housing recovery is just a few months away. Just about every three months they announced this prediction. So far it’s been wrong.
That’s no big deal, but it’s an example of the times we’re living in. It seems we’re living in an age of security. We want to know that it’s going to be okay.
I think there’s a major problem with our expectations about housing. I know I fell for the modern way of purchasing a house. I bought a house with 100% financing. Why? I didn’t have a down payment, but I wanted to buy.
When you’re “all in” this way, even though you haven’t put a dime in, you NEED the house to appreciate in value. If any thing happens (Murphy’s Law), you need to be able to sell the house quickly and at least break even. You could get transferred. You could lose your job entirely. You might become disabled and lose income for a while.
At lot can happen. A lot.
That’s why so many people are in over their heads right now, and they want relief, security. They need to feel like they’re fighting a down hill battle. It’ll be easy, and soon over. However, they’re not. Prices appear to still be stagnant or declining slightly. They aren’t “getting better” We aren’t in a “recovery.” We’re more likely at a plateau.
Let me throw out a thought for everyone: we needed this down turn. Price growth in housing is unsustainable. A house can’t appreciate like the stock market, otherwise no one would be able to afford it after a while, and everyone needs housing. Not everyone needs to own a stock.
Think about it: most people buy a house with a mortgage, right? Ignore the down payment for now. You have a monthly payment to make. You have to make that payment out of what pay you bring home each month, so you can’t spend more than you make. But, is your income rising 10-20% per year? No, it isn’t. The national average is somewhere around 2-3% per year. It’s roughly inflation or slightly above inflation each year.
That all means that the cost for a house can’t appreciate at 20% for more than a few years, because the monthly mortgage payment for the person who buys your house would have to match that increase in value.
I wish I had an article in front of me while writing this. I found it in I believe it was Business 2.0 or some such business magazine detailing a researcher who uncovered that housing in America historically appreciated at the inflation rate. He went all the way back to the Civil War. Over a period of 120 years, until the 1990’s, housing appreciation was at inflation. That’s an appreciation rate of 3%.
Then in the ’90’s, things changed. It may be largely because of the drop in mortgage rates down to the 6% range from highs of 18%, as that reduces the monthly payments. When it was combined with zero down payment loans (people could buy earlier in life), we saw large increases in the cost of housing.
But, it was simply unsustainable. Now, we’re in a time where the market is correcting itself. Housing prices are adjusting back to levels that people can afford. People that were more cautious about taking on a big mortgage are now seeing prices at a level that makes ownership affordable.
I’m leery of the government attempts at stimulating the housing market. It’s propping up artificially high housing rates. Both political parties are pushing this stimulus.
And, ultimately it’s because we want security. We want to know that when we buy a house it will never go down in value.
I have to encourage every reader to look at your own house as an expense, not an investment. My thoughts are too long for a single blog post about this. Suffice it to say for now, that we will always need a place to live, whether renting or buying a home. Both renting and buying have their pros and cons, and both will require money to continue to live in them. If you look at both options as an expense, then you will not worry as much when the housing market moves downward.
We must shift our expectations back to just enjoying our houses as our own home. It is our own. It’s the place where you can live your life as you see fit. In many ways, it is the essence of Freedom.
So this weekend I did a little dreaming. I took the ideas my wife and I have for our “Dream Home” and drafted what I thought it would look like. I noticed a plan on the Toll Brothers website that made me think of what my ideal Master Bedroom and Bath would look like.
I would love to have a large bath and a large closet. We both want a closet “island” that you can spread clothes out on and have drawer storage underneath. I also would like a bedroom den that is a seating area off the bedroom. I often wake up before my wife, and it would be nice to be able to read or check email while she’s still sleeping nearby.
So, taking these ideas I drew out what I thought we would like. That just got me rolling. After filling out the first blank page with the bedroom draft, I then drew the entire first floor, then the second floor and the basement game room.
Don’t think of me as some technical draftsman. This is just a rough outline, no windows or doors, and I didn’t even design the kitchen, just wrote in “kitchen” where I thought it would go. I think an etch-a-sketch drawing would look better than my draft.
The important exercise was dreaming, followed by a little planning. Dreaming and a little planning together make a goal. Sometimes its rough, sometimes its really ugly, but it gets you started. Sometimes that’s all someone needs…just getting started.
What have you dreamed about today that you would love to do? What steps would get you started living that dream?
KB Homes is running an experiement in Houston. They believe Americans in tough times want smaller homes. How small? How about just shy of 900 square feet? Packing just two bedrooms and only one full bath and a second half bath, it is the bare bones home. Check out the articles here and the original here.
The question I have is will these sell? I think some will. But, I think they went a little too far, or should experiment with a range of small sizes. Do you think McDonald’s is no longer selling its Super-Sized Fries? I doubt it.
I just don’t have a good feeling about this. They’re building three neighborhoods of these homes in a single city. I can’t put my hands on the stats, but I believe Houston’s housing market isn’t in as much of a slump as some of the more news-worthy markets in Florida and California.
Many areas of the country are seeing very little construction since the number of homes available has shot through the roof. Adding more small homes will do little for anyone. My experience has been that if someone makes 40,000 or more, they’ll buy a home between 1,200-1,600 square feet. I don’t think people will suddenly shift to cutting that by nearly half.
That said, I can see lower income earners, and particularly single parents, opting for a smaller space. However, these categories often rent because of credit issues. (Note: Many low-income people could qualify for homes, but do not know how to clean up one or two credit issues to make the loan work. My gut says loan officers would rather deal with higher priced loans.)
How about an alternative: instead of new neighborhoods, why not invest in older neighborhoods? Two things could be done: These builders could work with a city to convert several city blocks into new construction, tearing down older homes and replacing them with new construction. Or, they could simply update existing homes in a single area.
It’s important to select several adjacent city blocks and conduct the work all in the same location. Several development groups did this in Macon with the Bealle’s Hill project. It can completely change a neighborhood and bring pride back into a community. The Macon Housing Authority Director in a speech to Realtors last year mentioned studies have shown that housing project communties can be converted to single family, owner-occupied homes, and it wll lower crime rates. This can happen even with the same people living there and still on government assistance through Section-8 funds.
We simply do not need more homes in this country, especially when there are alternatives that help communities redevelop and prosper.
I’m trying to stay positive about the way things are going in the real estate world. Information and public opinion are hard to counter, though.
Let me just focus on the positive for now: Homes are still selling! Yes, the truth hurts. And, yes, it does take a while. But, good homes are selling, and buyers are out there. In our market the numbers show a continued decline in both the purchase prices and units sold.
The thing that keeps me positive is that people always need housing!
But, also, we must think of the other word that is often used for a recession and in the stock market for a decline in stock indexes: “Correction”. Correction simply means that something was wrong, and it’s being changed for the better.
In Real Estate, we heard this week that we’re hitting pricing levels of 2002. That means that housing prices should have been at 2002 levels. Since I’m writing this while away from the office, I can’t look up a source’s name, but there is a researcher who studied real estate going back as far as 120 years ago (roughly). He found prices have increased at the rate of inflation for over 100 years. Then, in 1980 or so (again, from memory), the rate started increasing faster than inflation.
Any idea why this happened? I believe any answer is merely speculation, but my thoughts lie with the drop in interest rates in the early 80’s from 18% down to the 5% we have had for about 5 years. It also coincides with significant prosperity during the 80’s and 90’s.
It probably is also linked to the rise in mortgages. Again, no data to back this up, but from different sources I’ve read over the years, I’ve learned that back in the 20’s and 30’s, very few homes were mortgaged. Now, well over half are mortgaged.
In the past 30 years, McMansions have appeared, lots of suburbs have been created, and even urban areas have been revitalized.
Ultimately, we could also say we’re running out of land! Ouch! Can you imagine the day when there isn’t any more free land to build a house on?
But, I’m positive that we’re in a correction that’s going to see a lot of people hurt, but a lot more people will be smarter. We’ve let the easy access to credit encourage us to spend money we didn’t have, and now that’s biting us.
I’m positive that with smarter people, we’ll see smarter use of money. People who can’t afford homes are finding it tougher to qualify for one. People will be more likely to save more, and they can’t have as much credit debt in order to qualify. I bet in 2009, the savings rate will go back up after staying basically at zero for the past year or so.
It will be tough over the next couple of years. Probably, things won’t return to where they were for at least five.
Holdne Lewis of Bankrate.com made a great comment on his mortgage updates page. He got wind of a push in the industry urging the Fed and Treasury to both buy enough mortgages to force mortgage interest rates down to 4.5%.
While that’s a great idea on the surface, you get into a huge problem with it for a number of reasons. That’s not what I’m writing about here, though.
I wanted to post my disapproval with the National Association of Realtors (NAR). Yes, I am a Realtor. I’m proud to be a member. However, the association is ignoring long term affects on the housing sector in order to boost housing in the short term.
I have been opposed to government intervention in housing from the start. Some moves have been necessary, such as the take-over of Fannie Mae and Freddie Mac. But, the reasons why that take over was even necessary date back to years of government meddling in the housing markets.
Long story short, I’m disappointed that NAR has continued to support initiatives to prop up housing in the short term. While they often cite housing prices as the reasons for their lobbying positions, we can often trace it back to the fact they want to keep Realtors in the business of selling homes.
A long standing problem with our industry is that there are too many Realtors. I do worry that their positions are based on an unconcious need to keep NAR filled with dues paying members. During the last decade, the number of Realtors doubled as many new Realtors got in the business to get a piece of the Real Estate Bubble. Check this stat out: last year, 7 million homes sold. 1.3 million Realtors. That’s 5-6 homes per Realtor. That means, they only closed, on average, a home every two months. Throw in the fact that there are even more real estate agents that aren’t Realtors, and that gets worse.
So, is NAR trying to keep dues paying members on the books, trying to get more business for existing Realtors, or trying to help out home prices and owners? That’s a good question. I can’t seem to see the real answer to that.
Either way, the government needs to step back as Americans move away from a credit based economy to a more traditional economy that’s more healthy. In truth, we need to see a little more pain right now to provide a great, vibrant economy for our children. If we don’t, we’ll be doing another bailout in another 10 years and won’t have paid off this one.
I keep hearing fear about the mortgage marketplace. It’s almost a dear in the headlights feeling and look on people’s face.
Let me encourage you. Media outlets of all types are doing two things: reporting the news and selling ads. In order to sell the ads, they need ratings. If there is more fear about certain topics, they know they’ll get people to keep watching day after day, so they report news in a way to create a little fear.
I’m not saying things aren’t bad. Picking through the news, you uncover little snippets of truth, and it appears that things are tough. However, there are still mortgage loans available, and plenty of money to support them. As of this morning, the average interest rates according to bankrate.com are just barely above 6%. These are still near the historically low levels of the past decade.
In addition, banks want to lend money to people with good credit. If your credit is bad, then you’ll have more of a challenge. However, people with jobs can typically bring their credit back to a “good” level and qualify for a mortgage in six months or less. A credit counselor can help with this. Another tough situation for loans is when you have two homes due to a move (you moved to a new town and are still trying to sell your previous home). If this is a situation you may be in, I’d recommend renting a small apartment, put your belongings in storage and wait out selling your house.
For the majority of people, though, getting a loan is easy. Some fees have gone up, but there is plenty of competition to keep the fees reasonable. You’ll just need to make sure to have some downpayment money (or a second loan through a government assistance program, which I help people to utilize), and have a good deal on a house to keep the purchase price under the appraised value.
So, in short, you can find a loan! With housing prices down, there’s never been a better time to buy!
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