Real Estate News

The panic and fear that have been shaking Wall Street aren’t translating into negative numbers for real estate — in fact, it’s been the reverse.

While the Dow Jones index recently declined a record fourteen hundred points in a matter of days, the latest pending home sales index was moving in the opposite direction — up strongly to its highest level in more than a year.

Pending sales jumped by 7.4 percent in the latest month, according to the National Association of Realtors. Unit sales in SE Michigan have experienced similar results, according to the Realcomp II MLS.

New loan applications also defied the negative spiral in the stock market: Applications for home purchases to be financed with conventional mortgages jumped by three percent last week, and new FHA applications were up by nearly 10 percent, according to the Mortgage Bankers Association’s national survey.

Furthermore, interest rates on 30 and 15 year fixed rate loans have dropped. In sharp contrast to the lack of available credit on Wall Street, mortgage money is quite plentiful due to the federal backing of FHA, Fannie and Freddie.

Why the sharp divergence in performance between residential real estate and Wall Street? One key reason is that real estate — which helped trigger the financial crisis — has been undergoing its own correction on pricing and underwriting practices for the past two and a half years. Even longer in our local markets. It’s already taken its lumps, and has now reached a point where prices in former boom markets are so affordable that smart buyers are swooping in.

The only time home prices have declined to bargain levels during the past 40 years was during the early 1980’s when credit was tight and interest rates hovered in the high teens. At that time the Home Affordability Index was very unfavorable even with low housing prices. We now see just the opposite – low prices and low interest rates. This market is a buyer’s dream.

While new technology has provided relief to many Realtors by increasing their efficiency, we must be careful not to allow certain tech tools to replace personal, hands-on business practices. Clients look for the highest quality, most competent personal customer service and trusted advice available. Below are some areas where relying solely upon technology may not lead to providing the best customer service and, in fact, may hurt client relationships.

Touring Properties – At Weir Manuel Realtors (WMR) agents are encouraged to personally tour all available inventory on a weekly basis. We believe this practice assures competent market knowledge that is superior to the competition. Simply relying on MLS data and online descriptions do not provide knowledge that is as rich as an onsite inspection.

MLS Automated Prospecting – Though a helpful tool assuring real time notice of newly listed properties to your clients, WMR agents are also encouraged to make themselves aware of new listings via multiple daily reviews of all incoming inventory. Often, the right property slips through the cracks of an automated update due to strict search criteria. For example, if you have a buyer looking between $700,000 and $900,000 in a particular neighborhood and a new listing comes to market aggressively priced at $675,000, the client would not be made aware of it without personal agent intervention.

Showing Feedback – Many agents rely solely on automated agent feedback requests and provide showing feedback only via email. Though this method may be more convenient, it does not provide the best environment for agent-to-agent communication. We have learned from experience that a personal conversation may provide more useful feedback for sellers. Moreover, good agents communicating in this way have been known to create transactions that would not have otherwise occurred. Personal communication also allows agents to build relationships with each other, which is key to successful future dealings.

In summary, the right technology tools can lead to tremendous time savings and increased efficiency. They should not be used out of blind convenience, however. When considering the use of a new technology, consider its full impact on your relationships with your clients, your fellow Realtors and your own ability to improve your skill and market knowledge.

All calm was lost last week on Wall Street and in the world financial markets. One would do well to revisit traditional wisdom in these panic stricken times. Such traditional wisdoms include the following:

• Paper gains and losses mean nothing unless and until one sells.
• Don’t sell when the market is down unless you absolutely need the money.
• Remember: investing in financial instruments requires long range thinking.
• Markets fluctuate. When they go down, they always go back up.
• Calmness and patience are critical attributes when investing.
• In the midst of apparent adversity comes opportunity.

It is also timely to point out that while financial investments have no tangible value other than as a wealth building tool, real estate has very tangible value. Bad financial investments can be relegated to the status of wall paper. While real estate values can and do fluctuate as well, they never go to zero. Underneath everything is the land and it never goes away.

Those who focus on the negatives of the current situation and allow themselves to become caught up in the fear will most likely make bad decisions and create bad experiences for themselves. Those who follow the above traditional wisdoms and act on the opportunities in both the financial markets and the real estate markets will do well.

The demographic and economic beliefs that have driven the housing demand for the past decade have now come into serious question:
• The demographics-as-destiny argument. The expanding U.S. population — immigration — would fuel real estate demand well into the next decade.
• Low mortgage rates. Cheap credit would keep home loans affordable.
• Boomer wealth. Prosperity and the rolling over of assets from the Depression generation to the spending generation would continue to ignite home purchases.
• Low unemployment. Gainfully employed people buy houses.
• Unlimited market liquidity. Access to capital was unrestrained as Fannie, Freddie and the mortgage-backed securities market were flush with funds.
While Michigan has been plagued with high unemployment for the past seven years, thus eliminating one of the key fundamentals listed above, the rest of the country has prospered under these dynamics until more recently.
As the national housing bubble began to burst in 2006 and 2007, it has become clear that underlying market drivers listed above were not sustainable on a national basis. Demographic demand is changing. Mortgage rates remain low but so is liquidity. Frivolous lending practices are a thing of the past. Boomer wealth has been diminished.
Demand for housing now depends on more basic considerations. This represents a return to an old set of fundamentals. Homeownership offers more control and freedom compared to renting. The government subsidizes homeowners, not tenants. And over the long term, owning a home is a disciplined way to build savings as owners pay off their loans and keep their housing costs predictable, assuming they get traditional fixed-rate mortgages.
Homeownership has become much more affordable because wild swings in value even out as easy money is not pushing too many buyers into the market. Home ownership is favored over renting, but it will not be as easy as it has been for everyone to buy. Home ownership will again be a desired goal that all may not be able to achieve.

National City Mortgage advises that they are funding mortgages as usual despite the negative news regarding the banking liquidity crisis. The federal takeover of Freddie Mac and Fannie Mae several weeks ago has worked as planned. We have also heard that there may be some good news on the horizon regarding the availability of jumbo products. Please consult one of our National City reps for more details.

All calm was lost last week on Wall Street and in the world financial markets. One would do well to revisit traditional wisdom in these panic stricken times. Such traditional wisdoms include the following:
• Paper gains and losses mean nothing unless and until one sells
• Don’t sell when the market is down unless you absolutely need the money
• Remember: investing in financial instruments requires long range thinking
• Markets fluctuate. When they go down, they always go back up
• Calmness and patience are critical attributes when investing
• In the midst of apparent adversity comes opportunity
It is also timely to point out that while financial investments have no tangible value other than as a wealth building tool, real estate has very tangible value. Bad financial investments can be relegated to the status of wall paper. While real estate values can and do fluctuate as well, they never go to zero. Underneath everything is the land and it never goes away.
Those who focus on the negatives of the current situation and allow themselves to become caught up in the fear will most likely make bad decisions and create bad experiences for themselves. Those who follow the above traditional wisdoms and act on the opportunities in both the financial markets and the real estate markets will do well.

Amidst the tremendous amount of debate last week regarding the proposed “Wall Street bailout”, two things happened. First, Congress passed the Emergency Economic Stabilization Act of 2008. Second, almost everyone began asking, “Will it be good or bad for me?”

It matters little now whether you were in favor of or opposed to the plan. The deed is done and Congress has spoken. And, quite frankly, it would be quite speculative, to say the least, to pronounce that the plan will be good or bad for most individuals or businesses in the long run. We may all have our opinions on that, but only time will unveil all the ramifications of this legislation.

Spending much time ruminating about who will benefit and who will not is spending time on the wrong question. One thing that is known for sure is that non-performing assets will be cut loose from many lender/investor portfolios and they will come to the market at bargain prices. Mortgage money will be more readily available. The combination of those two elements means more opportunity for buyers.

It will also mean more short term price compression for sellers until these homes become absorbed into the marketplace.

One can hope that this plan will help distressed homeowners remain in their homes. If the plan is successful in slowing the rate of foreclosures, then ultimately inventories will drop and prices will stabilize. It is unclear just how long that might take.

In summary, our message to buyers and sellers remains consistent. There are tremendous buying opportunities right now and they should remain for the foreseeable future. Sellers must continue to price their homes below market value to get them sold quickly, thus preserving as much equity as possible.