Project Pink... or Green... whatever

In response to janeAnne's post about What would you do if money were no object to build a dream green home, I had to expand to a full post.

Here is what I originally responded with in the comments of her post:

If money were no object... but taste was:

• Active Solar water heating, and power generation.
• Passive solar heating and cooling.
• Xeriscaping.
  
• Intelligent house systems to reduce energy usage.
• Landscape design to reduce heating a cooling loads.

I know that there are more expensive technologies, but these could be incorporated into many current houses.

I followed up, answering questions with this comment:

janeAnne - I'm not a huge windmill in the neighborhood fan. I don't want to live under one, and I know that they will have a heavy NIMBY effect (Not In My BackYard).

On the other hand, active solar can be hidden in a house, no matter the style. I have heard of some roofing materials now that incorporate solar photo-voltaic cells and are almost indistinguishable from standard roofing.

Passive solar is an entire design philosophy, but things like sun-rooms and courtyards can be used to distribute air and light around the house. Overhangs can block heat during the summer, but allow solar heating in the winter.

Xeriscaping to save water... and make for a lower maintenance level... obvious choice. But, by using native plants, it can still be quite attractive. The overall landscaping can use little things like trees that block solar heat gain in the yard during the summer, but allow it during the winter. Blocking prevailing winds to allow the house to have a heat island is another option.

And, since I am a tool guy, what could be better than tools and technology turning things off and on, as well as optimizing everything to run more efficiently.

I had another response in the comments, but I'll refrain. So, without further ado, here is the expanded and explained list.

• Active Solar water heating and power generation
  

It should probably say active solar power generation and water heating, but... I didn't write that. However, in the summer, the greatest power use is on days with the most sun. So, having solar cells to create electricity to power A/C would just make sense. During the winter, the clear days are also usually the coldest, but instead of electric heat, why not use solar heat gain to heat water, and then circulate the water for radiant heat? The hot water could also be used to preheat the hot water for the house. A boiler running on natural gas could heat the water in place of or in addition to the solar heating.

• Passive solar heating and cooling

Unlike the first suggestion, this would require incorporation into the design of the home. Passive solar is a great way to heat a property in the winter in sunny areas. The basics are mass and glass. The sun shining into the area is used to heat mass. After the sun goes down, the mass continues to radiate the heat back into the house. Stone, brick, water and other materials with a lot of mass help to smooth the temperatures out. Think of a house with a two story greenhouse on the south side. In the greenhouse, the mass is situated to allow solar heating during the day. As the sun sets, additional insulating material covers the windows to reduce heat loss. The warmth from the sun-room is moved around the house.

During the summer, the light is blocked during the day, and the area is allowed to cool at night. The cool mass will help to lower the temperature in the house during the day. Appropriate overhangs can block the summer sun, but let the winter sun shine in as well.

• Xeriscaping
  

Simply put, this is landscaping to reduce additional water needs. Often through the use of native plants, less maintenance and water is used.

• Intelligent house systems to reduce energy usage

Most of us know that in a two story house, altering the HVAC vents from summer to winter will allow better distribution of air. Window treatments can be used as additional insulators. Operating heating, cooling and water heating systems only during times that they are being utilized also saves resources.

While none of these things are terribly difficult to accomplish, most of us don't fully utilize them because we don't think about it, or it isn't convenient. And, further efficiencies can be obtained from intelligent automation.

• Landscape design to reduce heating a cooling loads
  

This has nothing to do with xeriscaping. Through using deciduous tress (with leaves that drop during the winter) the summer sun can be partially blocked from heating the home and yard, but during the winter, the rays of the sun will heat the home and yard. Shrubs and evergreens can be used to block winter winds that cool part of the exterior of the house. In warmer climates, using the right vegetation can reduce the heat island effect of driveways and sidewalks.

None of these things are huge, and all are possible right now for reasonable cost. I know that I didn't have to work with a budget, but oddly, I think that the biggest part of the benefits are available with simpler technologies. The exotic technologies may produce additional savings, but I don't think they are cost efficient... and in some cases I don't think they are attractive or practical.

Is a clear sky blue?

Sitting down this morning getting my Fox News fix, I noticed a release by the NAR that has me re-thinking a position I have taken...

Here is the link to the NAR news release. To summarize, the position the NAR takes is that housing will start to pick up in 2008. Existing home sales will rebound, although new homes will lag for another year.

Well, I've been saying this for a few months (go back and look at my Gwinnett Market Reports if you don't believe me). And so, when the NAR says the same think, I need to re-assess my position.

Why, you ask?

Because the NAR started calling the bottom of the market and the rebound before the decline was in full swing. And that really ticks me off. I don't have a problem with putting a good spin on things. We all do it, and sometimes we just need to in order to remind people about the other side of the coin. Whether it is a Buyer's Market or a Seller's Market, it is a crappy market for half of the people in a transaction...

But, it's one thing to put your best foot forward, and quite another to say that everything is always perfect. I run numbers for my market... and I make predictions based on those numbers. When I am wrong, I acknowledge it, and when the news just sucks, I say it. I don't try to speak out of both sides of my mouth just to make sure that I'm covered.

Right now, if the NAR announced that skies were blue, I'd run outside to check.

Keep in mind that I am not only a member of my association in order to have access to the MLS (we don't have to be), but rather, I am currently active in the association (until tomorrow's meeting, I am the chairman of the RPAC committee). No, I'm not being deposed... my tenure is coming to a scheduled end.

So, what do we do about it?

Of the 33.548 real estate agents on A/R... as of a moment ago... I'd bet that the vast majority are members of the NAR. I know that the majority are ticked at the NAR over one thing or another. But, I would bet there are about 50 that are actually active in their local association. I bet half don't even know who is President of their local association, much less the state association.

So, get involved. Make your voice heard [I have NO idea this post was going this way].

And, when the NAR issues these reports, grab some salt, and run your own numbers.

Thoughts on the Foreclosure Bailout

Everyone has weighed in with their opinions about the proposed government bailout of some of the 1.2 million people facing foreclosure... I guess I'll toss out my nickel (side thought... if everyone that has offered an opinion actually gave up the nickel, WE could bail out the people facing foreclosure...)

I don't like government bailouts.

I'm a libertarian (I haven't joined the party, so I'm not a Libertarian). I don't believe that government has a role in every part of our lives. I think that the US Constitution is the guideline for the structure of our laws... and the role the government is supposed to play.

Even after looking at the Constitution twice, I can't find where it says that people that make bad decisions... mistakes even... should be bailed out by the government. And, that is what we are dealing with here. Banks lowered their standards for giving away money (and that is what they were doing, largely, giving away money). And consumers took out loans that they really didn't have a plan to repay.

So, who are the real victims here?

Is it the banks that are getting stuck with absolutely crappy loan portfolios? No. They got exactly what they deserved when some of them were driven right out of business.

Is it the borrowers that bought $500,000 homes and thought that their payments would remain at $1600/mo. forever? Or maybe the people that refinanced and bought bass boats and Suburbans with their "equity? Maybe it's the investors that bought property with 125% loans and then tried to put in minimal effort for maximum return with a flip? No, nope, and nuh-uh. Again, they ignored the risks so that they could do what they wanted to do. Being able to get someone to finance them only served as justification that their desires were not out of line.

Is it the mortgage backed security buyers? It wasn't, until the government decided to change the terms of the securities they bought.

But what about the fraud and predatory lenders?

Even running rampantly, fraud only accounts for a small percentage of total loan volume. So, it isn't much different than the teacher making everyone put their heads down on the desk because one kid in the class shot a spitball. And, many of the "predatory lenders" aren't that predatory. Sure, it is fun to talk about greed (a term that is vaporous to define anyway) and taking advantage of people in precarious situations, but we need to also keep in mind that the risk/reward equation means that these borrowers presented a higher risk. As some states have found out, when they "clamp down on predatory lenders" and cap rates or otherwise try to control market forces, they end up limiting choices for the very people they are try to protect.

So, instead of writing sweeping legislation, it would be much more effective to enforce current laws against fraud.

So, where does that leave us?

It leaves us with the only real victims being the one group that isn't being protected. And those that made irresponsible decisions being rewarded for those decisions. Instead of finding the 60,000 loans that might actually involve fraud, and prosecuting the people responsible, the government is looking at "fixing" 1,200,000 loans. And, while "fixing" those loans, nullifying agreed upon contracts.

It is a bad precedent.

Market Update for Gwinnett County, October/November 2007

As I announced back in the middle of November, there is going to be a format change beginning this month. I will be including Absorbtion Rates in the market reports now. This will give a clearer picture of the direction of the market, as well as help bring a bit of focus to the rest of the numbers. I’m also going to be stressing the listed/solds percentage to help give a better picture of the market conditions.

I also have corrected number for both September and October. The preliminary numbers are in for November, but they don’t look right yet, so while I will mention them, I would like to remind you that they aren’t solid numbers.

Let’s start with some of the classic information that I have been including on these reports.

The New listings data shows that new listings for both October and November were up about 2% vs. last year, while September was down about 5%. I’d really like to see the listings vs. last year drop to the negative numbers, because there is simply too much inventory for the level of buyer activity I see. However, because the final numbers aren’t in for November, I expect to see a rise in listings… exactly the opposite of what I want to see.

Solds for September were down 43%!!! Those numbers are holding up to the corrections. I hope that it isn’t right, but I have to assume now that it is close. However, the October number rebounded significantly. Closings were down 18% vs. last year. That is the best showing (vs. the same month the previous year) since April. To moderate, though, October 2006 was a particularly crappy month. November is down by 65%, but I know that those numbers will change in the coming weeks, so we will be revisiting that. With the exception of the August to September number*, it is easy to see the correlation between pendings and solds from month to month. If the pattern holds, I expect to see the closed transactions down around 20% for November when all is said and done.

While the preliminary numbers came in for November, both October and September average prices were changed. Those numbers are (with change from last year): September, $229,428 (-0.8%) October, $226,820 (+1.5%) November, $238,548 (+2.3%). I expect to see the November average drop to be more inline with the other numbers… but I can’t begin to guess where it will fall.

Now, let’s talk about the new numbers.

The uglier number is the percentage of solds vs. new listings. Let me start by saying that I have been tracking this number since January, 2005. The highest percentage since then was 85% in December of 2005. For the last few months, that number has been hanging around the mid 30% range. This means that one house sells for every three that come on the market. August through November show the percentage of solds vs. new listings to be 37%, 32%, 32%, and 19%. The November number is ugly, but I think I will need to revise that to be inline with the other numbers when I see something that is more final.

The Absorption Rate is how long, given the current market conditions, it would take to sell the current market inventory… assuming that there were no more listings added. This number is used by all types of businesses to gauge market activity vs. inventory levels. I’m not going to go into the formulas, because I don’t want to tell me competitors everything… I calculate the numbers for the 12 month average, six month average and three month average. Comparing the numbers gives an indication of the market heating or cooling. A balanced market usually has about a six month supply. Because these numbers are based upon November information, I expect all of them to drop slightly, with the most visible drop to be the three month average.

The 12 month average is 11.3 months of supply. The six month average slows to a 12.2 month supply of homes, while the three month average shows a 17.3 month supply. Of course, the three month average is the most volatile, and I expect to see it dropping to around 14 months after the rest of the numbers are in. That still isn’t good, but it is a bit better.

What that tells me is that the market is still cooling a bit, but it is close to flattening. It isn’t plummeting. I don’t have as much depth with these numbers as I do with the other numbers I’ve collected. My MLS doesn’t offer the historical statistics that I need for this calculation like they do for the other calculations.

I am still looking to see the market turn around in the spring. Of course, we won’t know it has turned until it has started back up. The best deals will be had before the turn. After the turn, investors and other buyers will have already started to bid up properties.

*The August to September pending to closed sale anomaly was a direct result of the Sub-prime Mortgage Meltdown. Many buyers found themselves unable to close after being approved for loans. After that time, the numbers went back to a more normal percentage of pending sales that followed through to closing.

Thanks, and look forward to my next report during the first week of January. Happy Holidays.

I'd almost consider running to answer this question...

So, it's like this...

First, the video is only 27 seconds long, so feel free to watch.

Now, let me tackle the answer.

Jamie, there isn't a quick and easy answer to the question, but it looks like you think there should be from your video. But, let's look at the causes, and let's see if we can find some possible solutions.

Causes:

• The fed, trying to keep the economy rolling after the terror attacks of 9/11 kept rates low. Those low rates made a lot of people think about taking advantage of them to buy homes... lower rate, better payments.
  
• Consumers decided to take advantage of that opportunity to not only buy houses, but to tap the equity in their homes while refinancing, since they could cash out, and keep the same payment.
  
• Many of those consumers got greedy and wanted to get more than they really should have. Instead of getting another 30 year fixed when they refi'd, they chose to go after something wilder and instead of 5.25% for 30 years, they got an interest only ARM for 2.5%... and then bought a bass boat and a new Tahoe.
  
• Buyers got the same kind of greedy. About the same time they figured out that they could get a $400,000 house with a real loan, they found out they could get a $600,000 home with a mortgage that they had no business being in. But, they wanted it and didn't care.
  
• Other buyers also got greedy, but in a different way. They found out that they could get out of their apartment, and into a house without spending any money. They could buy a house with 100% financing. They didn't care about the terms... it was less than their rent.
  
• Some mortgage brokers got greedy, too. They put people into whatever worked for the moment without regard to the future ability to repay. As soon as the loan closed, it was sold... so who cares.
• Some agents got greedy as well. They actually suggested that buyers get something wild just to get a bigger commission.
  
• Back to the fed... They raised rates in order to cool inflationary issues. Those "exotic mortgages" started to get pretty exotic...

Solutions:

• Personal responsibility.
  

Do you really think that any of the above things should be fixed by the government? I mean really.

• The fed was doing the right thing to respond to the financial needs of the country. Technicians may argue about whether it was too much, too little, too early or too late... but it was the right strategy.
  
• Nothing wrong with refinancing for a better rate. Nothing wrong with taking out a little cash to make the house better.
  
• When people start paying off credit cards things get a little gray. As we move into Tahoes, bass boats, and vacations, we are leaving gray and heading towards dark. Doing with an exotic mortgage product is just plain stupid.
  
• Buying too much house because you just want to... and can find a mortgage product that will let you... just plain stupid.
  
• As much as I like first time buyers, and want EVERYONE to own a home, some people just aren't ready. Not understanding what you are committing yourself to is... not responsible. (I won't say stupid, because first time buyers NEED a break, and they need the guidance of responsible professionals).
• I think that loan originators that don't care about the future of those that they pawn off crappy, unsuitable products upon are crossing an ethical line. it isn't going from bad to good, either.
  
• Agents... same thing.
  
• Again, the fed did what they needed to do for the situation. Same arguments as the first point.
  

So, there is the answer to your question.

Now, on to your point that you didn't ask a question about...

Why has your neighbor's home been on the market for six months?

The price is wrong for the market, marketing, or condition. It isn't the same real estate climate as two years ago. The house needs to be priced where it belongs, not where they buyer hopes it will be. Perhaps they can't afford to sell it at the price it should be at. If so, maybe it is because they were covered above.

The short answer is that as President, I won't do much to "fix" this problem. I will, however, tell people that the government is not their Mommy, and they need to be responsible for their own actions. If there is a surgical way to make the actions of greedy mortgage originators and real estate agents illegal, I'll pursue it. But, as is often the case, broad legislation usually hurts more people than it helps.

Is that my whole minute?

House values UP!?!

What? Is this guy crazy? Take a look...

S&P Index Reveals Price Changes in 20 Markets
Prices of single-family homes in the third quarter fell 4.5 percent nationwide compared with a year ago.

It was the largest drop since the Standard & Poor’s/Case-Shiller National Home Price Index was begun in 1988.

“We are fast approaching the rate of price decline seen at the end of the 1990-1991 recession,” Joshua Shapiro, chief United States economist at MFR, wrote in a research note. “The odds strongly favor blowing past this mark in coming months.”

Robert J. Shiller, chief economist at MacroMarkets and the founder of the index, says: “Most of the metro areas continue to show declining or decelerating returns on both an annual and monthly basis. All 20 metro areas were in decline in September over August. Even the five metro areas that still have positive annual growth rates – Atlanta, Charlotte, Dallas, Portland, and Seattle – show continued deceleration in returns."

Here is the one-year change in the 20 metro areas included in the index:

• Atlanta: 0.4 percent
• Boston: -3.2 percent
• Charlotte: 4.7 percent
• Chicago: -2.5 percent
• Cleveland: -4.0 percent
• Dallas: 0.2 percent
• Denver: -0.9 percent
• Detroit: -9.6 percent
• Las Vegas: -9 percent
• Los Angeles: -7 percent
• Miami: -10 percent
• Minneapolis: -4.5 percent
• New York: -3.6 percent
• Phoenix: -8.8 percent
• Portland: 2.2 percent
• San Diego: -9.6 percent
• San Francisco: -4.6 percent
• Seattle: 4.7 percent
• Tampa: -11.1 percent
• Washington: -6.6 percent

Source: Standard & Poor’s (11/27/07)

Ok, the numbers aren't stellar. But, Please note that Atlanta is up 0.4% annually. I have been showing Gwinnett County to be even better than that. Obviously, real estate isn't crashing here, but as mentioned in the article, appreciation is slowing. I don't think it is going to slow much more on a year over year basis, but we always see a slowdown this time of the year.

It's still nice to know that we came in fifth of the twenty largest metro areas. It just goes to show that even in a weak market there are pockets of strength. Please feel free to contact me with any questions. Also, look for my Gwinnett County Market report early next week.

But it's a tradition...

Thanksgiving is a time that we look back over the year and think of all of the wonderful things that we have to be thankful for. It is also a time for us to enjoy being with our families. And, being with family always gets the wayback machine firing on all cylinders...

So, while I was talking with my Mother about Thanksgiving meals, a few interesting things came up... not the first time.

I have spent my adult life being less than traditional. My ex-wife and I used to host our "Orphan Thanksgiving" feast every year. We had all of our friends... and their friends... that didn't have other family in town over for the Thanksgiving meal. We had some pretty big crowds. In order to satisfy the numbers, we often had other things with the turkey... like hamburgers, hot dogs, and lasagna. We would have a lot of the traditional foods, but there were always some "bonus foods."

After we divorced, I kept that little tradition alive for a while. I had friends over, but we skipped the turkey altogether. Pizza was the most prevalent dish served. Of course, the grill was fired up on occasion as well. Nothing says Thanksgiving like a grilled hamburger or hot dog.

Fast forward to this Thanksgiving...

The rest of the extended family was out of town. So, my lovely wife, beautiful child and I sat down for a Thanksgiving meal of... breakfast burritos. Not even turkey sausage in the burritos.

Of course, once again, my Mother was convinced I had committed a sacrilege. But, this is the same woman that used to make 20 courses for Thanksgiving... half of which NOBODY would eat. All in the name or tradition. Nobody wanted the mincemeat pie... but she made it for decades. (She goes out to eat with my step-father now).

"So, Lane, does this have ANYTHING to do with real estate?"

Since you asked... yes, yes it does.

There are a lot of things that real estate agents do because they are traditional. I do some of them occasionally, too. We hold open houses, place newspaper ads, fax things to people, and talk about being number one in customer service in our ads.

But, those aren't always productive. Open houses don't sell houses. Newspaper ads are shown to be a weak draw for a property (at best). I am working to be paperless, since all of the faxes make more paperwaste than anyone outside of this business can imagine. And, "1 is NOT the loneliest number" anymore... every agent in the country is number 1.

But, that is the way many agents have always done business.

According to the NAR, about 4% of us blog. Despite attending the convention last week where EVERYONE was talking about blogging, I don't think more than 10% ever will. And that will take a decade.

Customer focused websites? Client focused marketing? Rare at best. As an industry, we have gotten in to the habit of putting ourselves at the center of our universe.

It's a tradition.

If you are looking for a non-traditional agent, one that isn't afraid to turn things upside-down for better results, let me know.

GarageHomesUSA.

Get 10% off at Lowe's!

If so, I have a deal for you.

Sign up for my email list, and I'll send you a 10% discount coupon for Lowe's.

It's that easy. Seriously. Ok, it does mean that you have to give me your address, and your real email address, but here is what I can promise in return...

• I will NOT sell your information.
  
• I will NOT give away your information (except to Lowe's for the discount coupon).
• I will NOT trade your information.
  

This is what I plan to do once you give me your information:

• I will send the discount coupon.
• I will send occasional emails (I promise that I won't send anything more than a couple times a month... normally just once a month)
• I will give you updates on big things happening on my website.
• I will send you an occasional postcard or other piece of mail (again, once per month maximum).

Here is why I want to do this:

• I want your business.
• I want to keep my name in front of you, so that when you buy and/or sell a home in this area, you will think of me to assist you.
• I want you to think of me for a referral if you know someone buying and/or selling a property in another area.
• I want you to think of me if you know of someone else that is buying or selling a property here.

Here is what I ask:

• Please be thinking of buying or selling a property in Gwinnett or the surrounding area in the next six months or so.
• Consider me to be the real estate agent to help you with the transaction(s). This doesn't mean you are required to, it just means that you will give me a shot.
• Please don't be represented by another agent.

And, if you think that is all I want to offer, please think again...

• Client Gateway (for Buyers and Sellers)
• New Methods
• Performance history
• Real Pricing (Absorption Rate Pricing Analysis - for Buyer and Sellers)
  
• Appropriate Promotion (not just MLS and pray - for Sellers)
  
• Access to the right Presentation (We'll get you staged and ready to sell - for Sellers)

I look forward to hearing from you. I'd love to give away a bunch of these certificates.

Gwinnett County Schools looking at a major redistricting

I'm a little late to the party on this, but I would bet that there are a lot of people that were even further out of the loop than me...

The Gwinnett County (GA) Schools are looking at a major redistricting. I have put them in the list based on the High School Cluster. Some of the schools affected are elementary, some are middle schools, others are high schools. The clusters that look to be affected are:

• Grayson
• Mill Creek
• Lanier
• North Gwinnett
• Central Gwinnett
• Dacula
• Grayson
• Archer
• Mountain View
• Collins Hill

Here is a link to the information on the Gwinnett County School System website.

It looks like there are a few Elementary Schools that will be affected in 2008, and then the bulk of the plan will be taking effect in 2009. In all, there will be 12 new schools added, and 3 replacement schools.

The Board of Education held public comment meetings on November 13th and 15th. They will be issuing their decision on December 13th.

While wandering a little deeper in the school system's website, I came across their future projections. On this page, I see that the school system projects (conservatively) that they will need 35 new schools before 2012. By my math, it looks like the recently proposed changes only cover 1/3 of that need, so I would expect more of the same.

So, he's hit the "But that's the way I want it to be" stage...

Many of you might know that I have a three (and a half) year old son. He has graced a variety of my posts, and is one of the primary inspirations for me being in real estate... but I digress... Often.

So, while it isn't the first time, I wanted to relay a little story involving the "Boy Wonder."

Upon my return from the NAR Convention, my wife promptly left town... to do a little scrap-booking with her mother. She left Mini-Me in my care for the weekend. During one of our dinners, he became impatient. It went something like this...

"Daddy, is dinner ready yet?"

"No buddy, I just started it... give me a few minutes."

"But, Daddy, I'm hungry nooowwwww."

"Well, a few minutes ago when I asked if you were getting hungry, you said that you weren't."

"Is it ready yet?"

"No."

"Yes it is!"

"No, it isn't... no matter how much you want to change it... it won't be ready until it is ready."

Seems simple enough, right?

So, Lane... why are you writing this on a real estate blog?

Simple. He isn't the only one that is prone to statements like that. I've been seeing a lot more of them in the last few months. Sometimes it is from those that lobby on our behalf. Other times it is from those inside the industry.

"Real estate sales are off by 15%"

"That isn't bad."

"The trends aren't pointing to a recovery yet. It could happen, but we can't know."

"Yes they are! Everything is hunky-dory. We are already seeing the recovery."

"No, it isn't... no matter how much you want to change it... it won't be ready until it is ready."

Let me make this clear. I believe that real estate will see a large scale recovery in the next year or so... but it might not. Then again, it could be sooner. Where I have the problem is when we are faced with a difficult market, some in the NAR, and many agents simply say that everything is great. One might almost think that they feel if they say it enough, it will be so. But, just as with the media talking of values "tumbling" when they drop a few percent, saying that there is "nothing to see here" when there clearly is... doesn't help make us look honest and transparent.

There are incredible opportunities. But, as investors know, there have to be risks. Those that get in BEFORE the recovery is piling away at full steam will get the best returns... and, as in the last cycle change, the last ones to the party just get to clean up and don't get to play in the fun.

New pricing model

I'm still out here at the National Association of REALTORS(R) Convention in Las Vegas. So far, it has been a pretty cool experience. Sorry I don't have any pictures, I actually have carried my digital camera with me everywhere... but I haven't even seen the strip.

So, what interesting stuff is here for consumers? Just about nothing. But, as a REALTOR(R) there have been quite a few interesting revelations. One thing I can say for sure is that I have found a new pricing model that has amazing potential. CMAs (Comparative Market Analysis) look to be a thing of the past for me. I attended a seminar yesterday on "Right Price Analysis", or Absorption Rate Pricing models.

I don't think it could sound any drier... Oddly, the session was the most entertaining one I've been to. The material was extremely interesting, and the presentation was excellent.

"So, what are you going to do about it, Lane?"

Look for a new method for me to deliver my market reports. I will be using absorption rates in my market reports. Basically, this will cover how much inventory is on the market in different segments, and what percentage of listings are actually selling. It will be a much more accurate picture of the market, and can be scaled up or down. I will literally be able to give a reasonably accurate picture of the market activity in a subdivision, as well as its direction.

I isn't the most exciting thing to hear about, but I hope that the results will be more helpful to people getting in to the market as buyers and/or sellers. If you want to be ahead of the curve, call me or send me an email, and we can do a RPA for your home that you are looking to sell. (please keep in mind that if you are currently listed with another agent, I cannot talk to you about your property, or I could lose my license).

I have a few more classes today, and I hope to run across some more exciting information.

Market Update for Gwinnett County, September 2007

Below are the numbers for September 07. Before getting into the numbers, I would just like to mention again that I will now be working to post numbers right at the beginning of each month for the month that ended 30-35 day prior. I would love to be able to post up the October numbers at the beginning of November, but what I am seeing is changes are happening through-out the following month.

At this time I will be updating the September report.

September prices are pointing down for the first time since February when compared to the same month a year ago. September looks to be down 3% from September 06 (For comparison, Feb 07 was down 0.2% from Feb 06). I have been saying that I think we need to see a drop in prices to spur buyers into action. I still feel we need to see this price drop for a couple of months before buyers start to get excited. Let’s see what October, November and December hold. Currently we are up 2.6% vs. last year as a twelve month average. Last month, we were up 2.9% for the same period. This might also be partly a function of some of the new home sales on the higher end of the market. I would really like to see this flatten a little, as I think it would spur a little more buying.

Time on the market is also still trending up vs. last year. We are up to 90 days in September. That is 3 weeks (21 days) more than this time last year. Last month was 88 days on market, but that was also 18 days more than August 2006. May sales were the lowest this year at 76 days on the market. In fact, May was the lowest since last October (2006) when the DoM was 72 days. May and June of 2006 were in the mid sixties.

The one "bright spot" that I see is a 6% reduction in new listings compared to last year. Of course, to offset that, there is a 61% decrease in closed sales and a 34% decrease in pending sales (homes under contract). I really need to see another month to sort that out.

I think we are in the midst of two serious phenomena. First is the Sub-prime Mortgage Meltdown. I’ve been talking about it for a few months, but I think that in September, we saw the full effects for the first time. Buyers that were marginal even six months ago are out of the market now. Buyers that are solid are still solid. If anything, those buyers are in a stronger position. Since there are fewer buyers, they have increased strength with sellers. Furthermore, I’m starting to see lenders trying to court those strong buyers. Face it, mortgage lenders make money by loaning money. They can only stop writing for so long before they need to look at making money again. Obviously the marginal buyers aren’t popular with the secondary market, so getting “A paper” mortgages back into the stream will become more of an imperative… and so I still expect to see rates slide a little for the best buyers. I am also seeing creative options creeping back in to the market. If Washington can keep its grubby fingers out of the market, and not try to “fix” it, we should be seeing a balance and recovery in that segment next spring. The second issue we are facing is the seasonal slowdown we see each fall. I will step out on a limb and say that there is an amplification this year because of the overall market health… or lack thereof.

I think it is getting to be time to say that smart investors need to get back in the market. Buy & Hold strategies will be heavily rewarded in the long run. Prices are good, rates are kicking for those with good credit. There might be a slight easing of prices in the coming months, but I wouldn’t count on it, and we won’t know that we’ve hit bottom until we are off of it.

Finally, remember that we can only get an accurate look in the rear-view mirror. We will only KNOW there has been a change in the market when we see it has already changed. We’ll know that change has taken place when we see all of the best deals are already gone. Currently, I can’t get an accurate picture of overall market activity for at least 30 days after the end of the month. That means that the market could be well into a turn before the numbers will bear it out. And, while I don’t know that we should expect increasing values terribly soon, I don’t think prices will drop much either.

When the market turns, I believe it will turn with force. I am basing this on the fact that we are seeing rising rents and a lot of hold-out buyers. That means that when we hit the tipping point, there will be a ready source of buyers. They won’t trickle in as much as rush back in to the market. The bigger question is when we have a market turn, once the pent-up demand is released, how long will the strength last. I think that the market will be more balanced after the initial surge.

Wandering through the DoJ website

What is it going to take to make them happy? Did someone at the DoJ have an unsatisfactory experience with a real estate agent? Or is it simply that they know our approval ratings are down there with our Democrat led Congress (which would love to have even the dismal ratings of George W. Bush), so we are an easy target?

There is an interesting report called "Competition in the Real Estate Brokerage Industry" that is a pretty interesting read... ok, not that interesting as a read, but interesting to look through because of the way things are presented. I'm going to give my personal impressions after spending the morning looking through it online.

• They really don't like full service brokerage. At every opportunity the report bashes full service brokers.
  
• The data that they use often contradicts what they are trying to point out. Some examples of this would be that there isn't sufficient competition in the industry either at the brokerage level or at the sales agent level. But, the report begins by stating that there are no significant barriers to entry to the sales agent level, and few barriers to entry for the brokerage level. It also states that there is a lot of fluidity in the industry. Finally, it states that competition is fierce... but apparently not fierce enough, because it says that competition is needed to bring prices down for consumers.
  
• More and more consumers are choosing to utilize full service brokerage models... even though there are more brokerages offering other than full service options.
  
• There are very few mentions of limited service brokerages offering fewer services for consumers... but plenty of mentions of consumers saving money by utilizing flat-fee or limited service brokerages.
  
• Commission rates have been going down, but not fast enough for the DoJ. Because home prices were rising, average commissions were still increasing. But, because of the low barriers to entry, the increased competition led to the pie being split more ways. One has to wonder if the DoJ wouldlike to see more agents (more competition) or fewer agents (less competition, but perhaps ?more reason to cut commissions?).
• The DoJ asserts that the MLS is imperative to consumers, but decries the fact that it is owned privately.
  

I was really disappointed. There are so many contradictions, yet in EVERY case, the DoJ asserts that the real estate industry is flawed. The price that is agreed, even though there is fierce competition from many players, must not actually be fair... and is a result of a restraint of competition. The restraint of competition is because there are too mazny competitors...

It goes on...

I think there is someone at the DoJ that dealt with a crappy agent and has decided to go after the entire industry.

Does advertising need to be "good" to be effective?

Since I am in the process of getting my new website together, I have been on the track of marketing and advertising. I know that good SEO will bring some folks in, but I also know that if I don't market and advertise the site, it won't get the traffic it needs.

So, that brings me to this...

I was sitting in McDonalds today, having lunch with my son, and a commercial came on for Head On. If you haven't seen one of these, then you are living under a rock. These may be the worst commercials EVER made. Attack of the Killer Tomatos is a cinematic masterpiece compared to these commercials. Plan 9 from Outer Space has a complex plot, as well as high production value compared to these ads.

"Head On, apply directly to the forehead" is repeated around 300 times in 30 seconds.

Terrible commercial. But, not only is this goop coming off the shelf as fast as they can make it, but they have spun off several other products. And... this is very important... I'm talking about it. Viral marketing. And it is the WORST kind of virus.

Stupid ad, and stoopid effective (for those not up on the latest groovy culture, "stoopid" is good).

So, I ask the question, does advertising need to be good to be effective?

What is a better investment?

I was up late, and caught a little bit of the Nightline episode where they featured a "bubble blogger" in California. One of the statements he made was that housing was not a good investment compared to the stock market over the last 30 years. That line was screaming at me.

I went to Google to try and find national average home appreciation rates for the last 30 years. I wasn't able to. I was able to find the annualized appreciation for the last 10 years though. According to S&P (warning, pdf file), average annualized returns for homes were 10.93%, while the stock market was 7.63% for the same period.

So, my next stop was to open up an excel spreadsheet and start making some calculations. I based the interest rate at 8%. I ran the calculation based on 5% down, 10% and 20% as well. I also calculated the return on stock purchases either with cash or on margin (50% down). I thought the numbers would be pretty tough on the stock market, but I didn't think it would come out this lopsided. I based this on a $200,000 investment.

(***Warning, these are not annualized numbers, but overall returns for a 10 year period)

• For a buyer putting down $10,000 (5%), they would have a 10 year return of 2215%
• For a buyer putting down $20,000 (10%), they would have a 10 year return of 1145%
• For a buyer putting down $40,000 (20%), they would have a 10 year return of 610%
• For a buyer paying cash, they would have a 10 year return of 182%
• For a stock investor buying $200,000 in the S&P 500, they would have a 10 year return of 109%
• For a stock investor buying $200,000 in the S&P500 on margin ($100,000 investment, 8% APR), they would have a 10 year return of 137%

Like I said, I was sure that real estate would come out better because of the power of leverage. However, I didn't expect it to be that lopsided.

I'm sure that there are mistakes in my methodology that can be found. I spent a few minutes putting this together, however, there are also a lot of other items that would go in favor of real estate. among the items that I didn't account for that would increase the real world rate of return for real estate are these:

• Home Mortgage Interest Deduction
• Value of rent (you can live in the house, but not in the stock)
• Lack of volatility (S&P rated homes at 2.07% v. stocks at 15.28% volatility)

Of course, there are a few items that would offset these:

• Home maintenance
• Utilities
  
• Repairs

But, I would still argue that home ownership is CLEARLY the first step towards a solid financial future.

Market Update for Gwinnett County, August 2007 (updated 10-17-07)

I need to change the format on these numbers just a bit. I have been trying to put out the market report around the 15^th of the month for the previous month (10/15 for Sept., for example). However, the numbers have been changing so dramatically that I am seeing changes for the previous month (seeing changes to August when I do the 10/15 report) and the changes are dramatic. So, in response, I need to back up the reports just a little. I will try to get future reports out in the first week of the month, but they will be lagging a little over 30 days. This means that around the first week of November I will post a September report.

At this time I will be updating the August report.

August prices are pointing up, but preliminary numbers for September are pointing the other way. I think we need to see a drop in prices to spur buyers into action. I don’t expect that to be much, but a modest decrease of maybe 2%. Currently we are up 4% vs. last year. June was up 5%, and July up 2%. This might also be partly a function of some of the new home sales on the higher end of the market. I would really like to see this flatten a little, as I think it would spur a little more buying.

Time on the market is also trending up vs. last year. We are up to 88 days. That is almost 3 weeks (18 days) more than this time last year. Last month was 80 days on market, but that was also 10 days more than July 2006. May sales were the lowest this year at 76 days on the market. In fact, May was the lowest since last October (2006) when the DoM was 72 days.

By now, I think anyone in the housing market has heard of the Sub-prime Mortgage Meltdown. It is still a big player on the market. Buyers that were marginal even six months ago are out of the market now. Buyers that are solid are still solid. If anything, those buyers are in a stronger position. Since there are fewer buyers, they have increased strength with sellers. Furthermore, I’m starting to see lenders trying to court those strong buyers. Face it, mortgage lenders make money by loaning money. They can only stop writing for so long before they need to look at making money again. Obviously the marginal buyers aren’t popular with the secondary market, so getting “A paper” mortgages back into the stream will become more of an imperative… and so I expect to see rates slide a little for the best buyers.

The current mortgage climate is tough. For buyers with weak credit history, the market is almost closed. Alt A loans (stated income, no documentation) will be away from the market for the foreseeable future, except for the rarest of good credit buyers. And expect that 0% down and even 3% down loans will be reserved for those with better credit.

I think it is getting to be time to say that smart investors need to get back in the market. Buy & Hold strategies will be heavily rewarded in the long run. Prices are good, rates are kicking for those with good credit. There might be a slight easing of prices in the coming months, but I wouldn’t count on it, and we won’t know that we’ve hit bottom until we are off of it.

Finally, remember that we can only get an accurate look in the rear-view mirror. We will only KNOW there has been a change in the market when we see it has already changed. We’ll know that change has taken place when we see all of the best deals are already gone. Currently, I can’t get an accurate picture of overall market activity for at least 30 days after the end of the month. That means that the market could be well into a turn before the numbers will bear it out. And, while I don’t know that we should expect increasing values terribly soon, I don’t think prices will drop much either.

It's about the garage!

I just had the opportunity to wander through the October issue of REALTOR(R) magazine. Cars and Cable caught my eye (pg. 14). As I had previously mentioned in a blog post in July, oversized garages made a pretty good showing. Second place.

Now, before you go gloating about second place, keep in mind that first place was central air conditioning... which is pretty tough to beat, and almost everything on the market is already equipped. Also notable is that garages moved up from 5th place in the last survey (2004). And it is a HUGE jump. A full 56% of buyers said they were ready to spend premium money for an oversized garage this year, vs. only 6% in 2004.

Sure, SUVs have contributed to the desire to have a larger garage, but we have a car-centric culture. Americans LOVE their cars. And we love having a lot of them. And... we want to park them inside.

I'm not surprised... I'm just ahead of the curve.

When you are ready to step up to a big garage in Gwinnett County, I am the REALTOR(R) that knows garages AND houses.

Imputed income

Familiar?

Let me give you a quick idea of what it is. Keep in mind that I am not a tax professional, or a lawyer... just a real estate agent.

I guess the easiest way to say it is that it is phantom income. For our current purposes, let's look at a short sale. Let's say that the seller owes $300,000 on their home. In the short sale, the property sells for $225,000. Obviously the difference is $75,000. When the bank takes the loss, they report the write-off as income to the "recipient", the seller. So, that year they get a huge income boost. And they owe taxes. Nice, huh?

Congress is working on altering the tax laws so that people aren't stung by this in many cases. We'll see what happens.

But, that's not all...

A few years ago, a plan was floated to Congress to actually expand imputed income. Some lobbyists felt that there were people that were "unfairly" gaming the current system, and taking advantage of others. How were they doing this, you ask? They bought homes to live in.

You see, these people weren't paying increasing rents. Instead, their fixed rate loans had largely the same payment for years. So, while renters were facing increased rents over time, homeowners had the same payment until they moved or {gasp} paid off their homes. That isn't fair, is it? (trust me, I am shaking my head...)

What to do? Well, figure out what the market rent would be for a homeowners property, and then charge them the difference as imputed income. So, our villain (Biff the homeowner) pays $2000/mo. for his house payment. If he were to rent a similar house, the cost would be $3000/mo. So, obviously our villain is getting over. He is saving $12,000/year compared to the less fortunate (those would be the renters...). So, maybe he should have to pay tax on the extra income.

Luckily, some of our congress critters figured out that they would be committing suicide at the ballot box if they actually tried to implement something like that. Not to mention that every extra penny collected would be swallowed up by the new agency that would have to figure out the rental value of every owned home in the US.

ggrrrr..

Nothing, nothing, nothing... Jet blast!

I used to have a favorite writer named Satch Carlson. He wrote for Autoweek Magazine back in the late 1980s and early 1990s. He had a statement that I have found to be prophetically true...

He was talking about the heater controls in an old truck. The fans speeds were "nothing, nothing, nothing and jet blast." How true is that?

I'm not talking about blower motors in old trucks right now, but rather life. Have you noticed that things never move along at an even pace? It seems like things sit for a while and then...

BANG.

But, I kind of like it... I like the slow times. I get to play with my son, and work on the Jeep. I like the frantic times too. I like rushing around, looking for the most efficient path. And then it is back to the slower pace. I can look back at the insanity and see how I can do better next time.

I guess if I just sat around waiting, I'd go crazy. Of course, if it weren't for the lulls... I'd go crazy, too.

My wife thinks I have a little cabin deep in crazy. She thinks she can already send me mail there...

Enjoy things for what they are.

Tuscany condo in Mid-town

Soon to hit the MLS, you saw it here first...

This is a great 1 bedroom/1 bathroom condo that also features a den/office. With 966 square feet (tax records) of interior room, and a 103 square foot patio (builder's plan), there is more space than in other 1bd/1ba floorplans.

This is a great top-floor unit with a view out to mid-town, overlooking Juniper Street. It features a lovely double sided fireplace between the living room and the den, halogen track lighting, and a huge walk-through closet in the master bedroom. It also features beautiful wood floors throughout, and luxurious solid surface countertops in the kitchen and bath.

All kitchen appliances will remain, as will the washer and dryer in the laundry room off of the kitchen. there is also a covered parking space included with the unit.

Walk to Piedmont Park, or to one of the many restaurants in the area. Located between 10th Street and 8th Street, just one block off of Peachtree, Tuscany is incredibly convenient. While others are still fighting the traffic on I-75, I-85 or GA400, you can be home and relaxing in front of the TV, working out in the complex gym, or floating in the pool.

Welcome home. This rare floorplan is offered at $209,900. The seller is motivated, and will consider a lease purchase as well.

Here is a link to the property on my site...