Why the real estate market will not recover soon

Below are the reasons why the real estate market will not recover soon.  The real estate market is slow to non-existent in most of the county.  There are good reasons why this has occurred and why it will not change soon.  The reasons are simple and clear.

 

  1. The market in general is over priced.  For five years the institutions we rely on to protect us broke down and were corrupted by greed.  The Fed kept the interest rates too low, banks and mortgage companies made bad loans (called liar loans), dishonest buyers bought homes they could not afford to own, flippers filled homes and this pumped the prices above where most middle class buyers can afford to buy.  The average price of a home has come down some, with the average price of a single family home lower in most areas.  The prices are still too high for most buyers and the price must come down another 25% to 40% at the low end before the market will begin to regain momentum.  Even then the market will be slow until the huge inventory of homes on the market burn off.  Currently most areas have a 9 to 12 month supply of homes listed for sale.
  2. Consumers have been hit with increasing prices for necessities.  The price of gas, food, clothing and anything having gas in the supply line are going up and will continue to go up.  This takes away a major part of the middle class disposal income.  The price of gas in 2000, the year Bush took office was $2.06 per gallon and it is now $3.60 per gallon.  This an increase of $1.54 per gallon and it will certainly go to $4 pr gallon this year.  Under Bush the price of gas will have doubled providing huge and obscene profits to big oil companies.  These profits take hundred of billions in spending power out of our economy and they will stop people from buying homes.
  3. The costs of buying and selling a home have soured to over 10% of the purchase price and represent as much as 50% of the actual cash to the seller when they sell.  The costs of real estate fees have grown to represent a huge burden on buyers and sellers.  Real estate commission to real estate brokers of 6% and loan fees, some hidden on the backend where borrowers never see them of as much as 8%, are drag on all real estate transactions.  Add to these the price of title insurance and selling or buying a home costs too much.
  4. The flippers, investors and quick money boys have driven prices up in some areas and now have made owning a home for many low end families an impossible dream.  This will not stop as long as lenders support this activity.  Many of these flippers and investors lie about living in the home when they know they are going to rent or resell.  Lenders don’t enforce the rules about buying and selling your own home.  Down payments for investor property are stated at 25% down, but lenders allow investors to lie and to put down only 5% to 10%.   This distorts the prices in a market for single family homes.
  5. Stagnate wages for the middle class due to the movement of good paying jobs to China and India has made keeping up with inflation almost impossible for the vast majority of the middle class even with both the husband and wife working.  This trend will continue and accelerate as corporate executives look for bigger and bigger pay checks based on bottom line profits.  Rather than look for ways to increase revenues it is much easier to continue to reduce labor costs by moving to China where labor is 35 cents per hour, with no workers protections, no environmental protections and no product safety rules.
  6. The coming foreclosures under estimated at between $300 and $600 billion, probably closer to $1 trillion will take three to five years to clear the market.  These homes will continue to flood the market of homes for sale.  This will drive down all homes prices.
  7. Total lack of leadership on the part of our elected officials.  Keep in mind they were all bought and paid for by big business like banks, mortgage companies and investment house like Bear Stearns, and they can not or will not see the reality faced by the middle class.  Government could and should do something but they will not.    

 

Since a large part of the economy is based on the real estate market this trend will have a very negative affect on us all.  If you want to look for blame it is everywhere, but mostly it is on Bush and his band of non-regulator regulators.  The Fed, SEC and the other agencies looked the other way while the banks, mortgage companies and investment community took us for a ride.  The profits to a few were huge, hundreds of billions and now we all have to pay for this illegal, immoral and unethical period.      

                     

May 1, 2008 at 3:11 pm Leave a comment

The myths about taxes – revised

I am an old guy who has heard the myths about taxes for over 50 years.  I remember a discussion in college economics about these myths.  Every American President in my lifetime has said he would cut taxes and keep the programs we need.  The myths are:

 

1.      We can lower everyone’s taxes and keep the programs we like and we need.  Simple math and common sense should tell us this isn’t true.  If we want the program we have to pay for the program.  The real underlying problem is we all want something for nothing.  We want the other taxpayers to pay for our programs and we don’t want to pay for their programs.  In fact most of us want to pay no taxes at all.      

 

2.      There is a lot of waste and fraud in our government programs and if we just cut all the waste and fraud we can cut taxes.  This problem has been studied and restudied over the years and the waste and fraud found is less than 2% in any given government program, with the exception of the military programs and there it is 5%.  Of course when we hear there is $25 billion in waste in the Military budget of $548 billion, but we don’t demand cuts in these military contracts.  Having spent 35 years in corporate America I can attest to the fact all programs have some waste and even some fraud.  You can never eliminate all waste and fraud, because these programs are run by imperfect human beings, like you and me, who make mistakes and errors in judgment.

 

3.      Americans are over taxed as a society.  This is the biggest myth.  If we look at the industrial countries in the world including Europe, Canada and Japan it is clear Americans are the least taxed.  Americans pay 26% of GNP in taxes.  The other industrial countries pay an average of 36%, with Sweden paying 51% of GNP and Canada paying 33%.  Many of these countries have a higher standard of living, far fewer poor people, almost no poverty, far fewer really rich people and most have universal health care.  No one wants to pay 51% or even the 36% average, but can we afford to continue to borrow to pay for programs we all want?

 

4.      All Americans pay their fair share in taxes.  This is not so.  Every tax year over 5,000 Americans have income over $1 million and pay no taxes.  Warren Buffett, the second richest man in America, with net worth over $40 billion brags he paid a tax rate of 17% while those working for him paid 34%.  Buffett said in an interview in the New York Times in 2006,”There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”  We need to fix the tax system and the rich must pay taxes.         

 

5.      We can cut taxes by eliminating government programs.  This is just plain false.  How about no federal funding for education?  If we cut the entire program it would save us $32 billion out of a total budget of over $2 trillion, a drop in the bucket.  Teachers all over America would lose their jobs and children who are already at risk would suffer.  Most Americans want this program and in fact want all the government programs we now have.

 

6.      We can avoid taxes by borrowing to pay for our government programs.  This is the Bush policy and that of the Republicans in Congress.  They added $2 trillion dollars to our national debt in the 7 plus years we have suffered with this highly dishonest group.  The national debt is currently $9.4 trillion, $31,094 for each and every citizen, man, women and child.  It increases by $1.6 billion each day, because we aren’t honest enough to pay for our spending.  We can’t continue to run up our national debt and expect our economy not to suffer.     

 

 

The Bush administration cut taxes, mostly for the richest Americans me included, and then borrowed $2 trillion to cover his spending.  This is dishonest.  He tells the American people he cut taxes and then borrows $2 trillion and pays interest on the money he borrowed.  It costs us $243 billion a year just to pay the interest on the national debt and we are still borrowing at the rate of $1.6 billion per day.  Our children and grandchildren will have to pay for our irresponsible and dishonest behavior.  

 

The truth is we can’t cut taxes and our taxes are not too high.  We need to start being honest about our financial situation and either start funding the programs we all want through taxes, or start eliminating them.  Our national debt will soon begin to harm us all.     

 

Next time you hear one of the myths about American taxes remember this; Americans are the lowest taxed people in the industrial world, many rich people pay no taxes and the middle class in some cases pays a higher tax rate than the 400 American billionaires.  We are also the biggest borrowers and the most dishonest about how we fund our government.

 

April 27, 2008 at 4:35 pm Leave a comment

Debt – Is a huge problem for America and Americans

American has become addicted to debt and borrowing.  We have trained ourselves to ignore this problem and it has now become a pending disaster.

The facts do not lie in this regard.  The national debt is now at $9 trillion and we add another $1.6 billion each day and we borrow the money from the Chinese and the Saudis among others we should fear.  China and Saudis Arabia are both dictatorships. While the two countries are not alike in many regards they share the realities of no freedom of speech, press, political action, religion and they are not democratic.  Each and every American, man, women and child now owes $31,000 of the national debt.  This costs us $250 billion per year for the interest alone.  If we didn’t owe the debt that money could be spent on schools or health care for the 10 million American children with no health insurance.   

 

America has been transformed in my lifetime from a country that made things and sold them to the world into a country that buys things from China on credit.  The things we buy are mostly made in third world countries and more and more in China.  I tried to find a pair of shoes to buy last week that were not made in China and I found it is impossible.  I like Clarks and they too are made in China.  Even expensive shoes like ECCO are made in China. 

 

The consumer debt in America has now reached $2.5 trillion and each and every man, women and child now owes $8,200.  If you are a family of four your family consumer debt on average is $33,000 and you share of the national debt is $120,000.   The consumer debt is 133% of disposable income.  Americans are spending 33% more than their disposable income.  None of this borrowing, by our federal government and by individuals can go on forever.  In fact we are reaching a point where our entire economy is at risk.  The other side of the ledger is income and we all know income is not growing to accommodate the bad borrowing habits we have become addicted to.

 

This is an area we can all address.  We can’t do much about the Iraq War, the price of gas at the pump or government waste, but we can stop borrowing money.  Ben Franklin said, “A penny saved is a penny earned”, and he was correct.  We need to start asking some basic questions about our spending.  We can start by asking is this an item I need or just something that would be nice to have?  If we don’t need it, don’t buy it.  We need to teach our children to save and not to spend on items they can’t afford and they do not need.  I have a friend who buys shirts when ever he is under stress.  He likes shirts and he now has so many he can’t wear them all.  He has some he hasn’t taken the tags off and still in the Nordstrom bags.  My advice to him is to take up running, walking or tennis.  Stop buying to alleviate your stress.

 

Our American culture is about things and getting more things.  We need to rethink this idea of an economy based on consumer spending.  The economy is now 70% consumer spending and we as a nation spend little or no money on investment in infrastructure.  Our roads, bridges, trains and buses and other infrastructure are old and failing.  Jobs to fix the infrastructure actually pay a living wage as opposed to the jobs in retail where 70% of our money goes.  My friend with all the shirts just came back from Europe and he was amazed at their roads, mass transit, buses and trains and their internet.  The internet speeds are 5 times faster than anything in America and it is free and everywhere.  The EU is investing in infrastructure and they are not burdened with the national debt or high consumer debt we have in America.  They have less disposable income but they have good roads and social services unknown in this country.  I know this is heresy.  No American dare say anything good about the Europeans.  My friend is a right wing Republican and he doesn’t understand how the Europeans can have such great services and America does have the same things.

 

American needs to demand that our elected officials (the President and the US Congress) pay as we go for our federal budget.  No more deficit financing and no more borrowing from the Chinese and the Saudis.  This means we need to raise taxes or cut spending or both.  You heard me right, raise taxes or cut spending down so there is no deficit spending.  This will not eliminate the $9 trillion we already owe but it will stop the bleeding.  Borrowing $1.6 billion per day and pretending there is no problem is insanity.  Step one is admitting we have a problem.  We need to act responsibility ourselves and stop our credit card borrowing.  We need to start paying off our balance each month and not running a balance at 29% interest.

 

Ben Franklin also said, “Neither a borrower nor lender be.”  We all need to start reading more Ben Franklin.

 

                            

 

April 25, 2008 at 6:30 pm Leave a comment

Avoid misunderstandings, part one – sellers …

The first misunderstanding that can arise is what the agent actually does and what they do not do.  In talking with potential customers it is clear that the vast majority of people do not understand what a real estate agent does or how they get paid.  This can many times lead to misunderstandings and even disputes.  When I became a Broker and started my own business I decided to try and make some of the issues clear to my customers and at the same time provide some legal protection for my new company.

 

Sellers:

 

The issues are a little less confusing for sellers simply because they sign a listing agreement and the fee is in that agreement.  The problem is most sellers do not read the entire agreement.  Most listing agents provide a Competitive Market Analysis (CMA) and many times the listing agent’s services are listed in this document that contains the CMA.  Sometimes the list includes things the agent really doesn’t do for one reason or another.  Many times the list is boilerplate from the broker and each agent can do these things or not.  In some cases the verbiage is confusing or misleading to the customer.  For example I have seen things like the following in these documents:

 

  • Hold open houses
  • Advertise in the local newspaper
  • Advertise on the internet
  • Report to the seller and keep them up-dated on all activities
  • Etc,

 

What the above actually mean is somewhat subject to interpretation.  The key here is no specific information like how often or when is provided.  If you set the customers expectations that you are entirely focused on them and you are working 40 hours a week to get their property sold they may feel you are doing these activities each and everyday.               

 

The other issue is some agents tend to overstate how much influence they have on getting the property sold.  In fact all agents have some impact on this factor, but in general the price and the real estate market in the area are the two biggest factors.  Beautiful flyers, daily ads and other marketing activities by the listing agent will not overcome a listing price that is too high if the market is flooded with property for sale.

 

There is an old saying that goes, “Under promise and over deliver.”  I don’t totally agree with this but many agents tend to over promise what they or their company can actually deliver.  This is one reason many people think of real estate agents the same way they think of used car salesmen. 

 

My listing presentation includes market factors and a description of Market Ratios.  Market Rations are a simple way of providing information about what kind of real estate market exists in you area; is it a buyers market, a sellers market or neither.  The impact of the market is a major factor in selling any property and in how much the seller can expect to get.   This is an important factor and it helps the seller understand the market their home is facing; what their property has to compete with the why list price is critical to getting the property sold.

 

The issue of how and when the commission is paid is an important issue that many times is not discussed.  I think this is a mistake.  I include a one page explanation of how real estate agents get paid and where the commission goes.

 

I’ve seen graphics that show two brokers and two agents and the split commission between these four people 50%, 50% and 50%.  But even here this may not be the case with a desk fee office or some other commission agreement.  I explain that the commission is split between the listing and the selling office.  Each office has an agreement with their agents on how the agent gets paid.  I also say,” Most real estate companies (Brokers) do not hire agents and the agents are not employees, the agents are independent contractors.  Each Broker determines how to compensate their independent contractor agents.”     

 

A sample of my services page is as follows:

 

  • Provide a CMA and assist the seller in establishing a list price
  • Place the listing in the MLS, with 12 color pictures, a map and a description of the property so 25,000 agents (MLS members) and thousands of potential buyers can view the property on-line from their PC on my Webpage and others
  • Have a FOR SALE sign installed on the property with color flyers
  • Install a lock box on the property so agents can show the home when the sellers are gone
  • Advertise the property at least twice a week on Craig’s List, Seattle Back Page and other online sites where buyers look for homes
  • Run an ad once a month in the local newspaper (optional)
  • Hold one open house per month for agents and the public (optional)
  • Email the flyer to local agents to make them aware of the property
  • Mail to 200 homeowners in the neighborhood to inform them the property is For Sale – they may know friends who want to move into this area
  • Respond to all inquiries from the For Sale sign, web ads and other sources and answer all questions
  • Respond to all inquires from other agents and answer all questions
  • Provide a weekly report on the number of times the property has been shown and the number of inquiries from all sources (provided by email only if the seller provides an email address)
  • Meet with the seller after 30 days to discuss the activity and the market to re-evaluate the market conditions and the list price  
  • Receive all offers, confirm the potential buyer is pre-qualified for financing by calling the lender and confirming the letter included with the offer (final authority for making the loan is not the responsibility of either agent)
  • Present all written offers and help the seller decide the response, accept, make a counter offer or reject the offer
  • Assist the seller in negotiations, once the inspection report and form 35R is presented by the agent for the buyer, if there are items to be repaired or replaced
  • Assist with all paperwork including reviewing the escrow closing statement and attending the escrow closing alone with the seller
  • Be diligent in trying to get he property sold

 

The optional items above are at the agent’s discretion.  The agent will determine when and if these things will be done.  The National Association of Realtors has statistics that show the listing in the MLS and the FOR SALE sign, along with the list price are the factors most responsible for getting a property sold.

 

Frankly in the Seattle area over 80% of buyers look on the internet for homes.  I have run ads in the local newspapers and in the real estate magazines and had little or no response.  This may vary by location so I don’t make any blanket recommendations, but spending money just to convince the seller you are trying to sell the property is a worthless activity in my opinion.  In some areas open house is a joke because they draw no visitors.  It is the agent’s responsibility to educate the seller about their market.

 

In today’s real estate market the sellers more than ever need an agent who will educate them as to the market conditions.  In the Seattle area prices have not come down much but the inventory has grown and the activity level has fallen drastically.  Sellers must understand they must list their property at the right price or it will not sell regardless of what the agent does.  The list price is the single biggest factor in getting a property sold.

 

More on how to avoid misunderstandings for buyers later…  

 

    

 

 

 

 

 

 

 

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April 12, 2008 at 9:32 pm Leave a comment

Press Release –

Real Estate Buyers in the Seattle area get Thousands in Cash Rebates

 

MWM Realty pays buyers Thousands in Cash Rebates. MWM provides full service and pays buyers up 50% of their commission in cash through escrow. Rebates to $15,000 in cash and more, depending on the purchase price.

Source: MWM Realty
Mar 04, 2008 18:02:09

http://www.PRLOG.Org

FOR IMMEDIATE RELEASE

PRLog (Press Release)Mar 04, 2008 – MWM Realty pays buyers Thousands in Cash Rebates. MWM provides full real estate service and pays buyers up 50% of their commission in cash through escrow.  Rebates to $15,000 in cash and more, depending on the purchase price.

Sellers can benefit too by getting full seller real estate services while listing their property at 4%, not the 6% most brokers charge. Service includes listing in the MLS, for sale sign, with color flyer, 10 color pictures on-line where thousands of agents and potential buyers can view them on their PC. Internet ads weekly, and full seller representation in all negotiations and assistance with all paperwork.

MWM Realty is a member of the Realtors Association, Multiple Listing Service and provides full service to all clients.

# # #

 

April 9, 2008 at 11:41 pm Leave a comment

Sellers – Wrong time to sell

If you are considering selling your home you should ask yourself a few questions and then put off selling if at all possible.  Why would a real estate broker advise anyone not to sell?  All the indicators are negative for sellers at this time.  The number of homes available to buyers is running 10 to 15 homes per qualified buyer and the days on market before a home sells increases everyday.  Most listing services have an inventory to 8 months to one year.  Many homes have been on the market for over 6 months and they will be on the market for another 6 months if they don’t lower the asking price by 10% to 20%.

 

Most qualified buyers are not buying because they feel housing prices will fall further.  I am working with two buyers who will not even make a low offer on a home because they are afraid they may suffer a major loss if the real estate market crashes.  They don’t want to buy a home for $400,000 and find out it is worth $350,000 a year later.  They maybe right.  They are looking for a steal or they will not make an offer.  The credit crisis has eliminated many potential buyers with more restrictive qualifications and there is no 100% financing that makes any sense.  Appraisers after over appraising thousands of homes are now playing by the rules and with homes over priced the deals may die because they just won’t appraise at the selling price.

 

Homes in the King and Snohomish County area are still too expensive and sellers are not being realistic about what their home is worth in this market.  Until all these factors force the prices down sellers will have a very difficult time selling their homes. 

 

The traditional reasons for selling are loss of job, divorce, death in the family, relocation, a major reduction in income, need a larger home and need a smaller home.  There are certainly other reasons, but these are at the top of the list.

 

If there is anyway to stay in your home for another year or so you should consider doing this.  If you can’t you should consider renting your home and waiting to sell.  Renting is something many can’t afford, but if your mortgage payments are low enough to allow you to rent and cover the mortgage payments with a little left over for miscellaneous expenses you should consider this.  Even if there is a negative cash flow you may want to consider this if you can afford to carry the payments for a year or so. 

 

I just met with an older man who can no longer afford his monthly mortgage payments and he wants to sell.  His home is not in good shape and needs up-dating and repair.  He would not be able to get much for the home if he sells now.    We discussed his options and he has a friend who could move into his lower floor and pay rent.  He is also asking his fellow workers if they know anyone who wants to rent a bedroom and full bath with their own small family room; they would have to share his kitchen.  He would be far better off if he can make this work and wait for the market to turn around.

 

For those who have run out of room and need more space because they have children, you may want to consider adding a room or two to your existing home if possible.  Builders are looking for this kind of work and they may make you a great deal on an addition?  This happened to me 20 years ago when my second son was born.  Adding two rooms turned out great because when we sold we got all our money back and then some for the addition.  The real estate market was better then, but when we looked at selling and buying a bigger home or expanding our existing home, the cost was actually less to add two rooms when we figured the cost of selling and moving. 

 

If you do decide to sell be realistic about pricing.  Ask several agents to give you a market analysis of your homes value.  Take a long hard look at the list of competing homes, those currently for sale.  Look at them using the local MLS on your PC and compare them to yours objectively.  If the competing homes have been remodeled and your home hasn’t, you need to be priced much lower.  If they are larger, you need to be priced much lower, etc.  All agents are honest and hard working, but some agents are afraid of offending people with a low market valuation.  If you have friends ask them to look at the competing homes on line and then compare your home with these homes and give you their opinion as to the comparative value of your home.  In this market your price is the single biggest factor in determining if your home will sell.

 

Finally, look at all your costs of sale.  Included in these are real estate fees (4% to 6%), excise taxes, pro-rations and title insurance and escrow fees.  You can get a discount if you use the same company for both title and escrow.  You may want to use a broker who charges less in real estate fees.  In this market you should ask for a discount even if you are using a friend as your agent.  There are many options here.  The average cost to sell is about 10% of the purchase price when you include excise taxes, pro-rations, real estate fees and title and escrow.  If you can reduce these costs by 2% to 3% of the purchase price (that is 20% to 30% of your selling costs) it represents a major cash savings.  If you don’t understand any of this, drop me an email and I’ll send you a quick overview of sellers closing costs and a short list of companies that offer discounts. 

 

Knowledge is power – sellers take the time to get knowledgeable and look at all your options before you decide to sell in this market.   If you can wait don’t sell now.

April 8, 2008 at 3:27 pm Leave a comment

Buyers – an approach you may find valuable

The approach is called a least with an option to purchase agreement.  This can be used to the buyer’s advantage if the purchase price is low enough and/or flexible and based on some objective index and a major part of the monthly payment is applied to the purchase price when the purchase option is exercised. . 

The lessor is the party who owns the property and is leasing the property and selling the property under a lease with an option to buy.  The lessee is the person leasing and potentially buying the property.   

 

The lease with an option to buy has in the past mostly benefited the seller.  Sellers have set a purchase price higher than market value and sold the option to buy as a benefit to the lessee and prospective buyer.  Part of the lease payment is applied to the purchase if the lessee exercises the purchase option. 

 

The current market has now shifted the advantage to potential buyers who may want to lease the home first and then buy.  If the seller wants to resolve the problem of having their home on the market they may consider a lease/purchase agreement.

 

Your agent must pre-qualify the seller before you make a lease/purchase offer.  This must be done carefully because you are looking for both a home you would like to buy and a good deal.  The home has been on the market for a long time because it is overpriced.  The seller needs to be willing to take a lower price and allow the buyer to lease the property.  With 10 to 15 homes available for sale for each qualified buyer the lease/purchase option can becomes a rescue net for some sellers.   

 

This approach can work well for people with an adequate income and no money for a down payment.  If the buyer can pay a higher than normal rent they may be able to negotiate a great contract to lease with an option to buy.  The devil is in the details on this approach.  The potential buyer needs to make sure they are not over paying either for the rent or the purchase of the property. 

 

Another key is finding a seller who is willing to look at this option.  The agent for the buyer should look for homes that have been on the market for a long time, probably over 90 days and where the seller has already reduced the list price at least once.  If the home is vacant and the seller is paying a mortgage payment this is to the benefit of the buyer also.  At this point the seller may consider a lease with an option to buy agreement to cover their mortgage costs.  It is also in the interest of the listing agent to at least present this kind of offer.  The agents will get a small commission on the lease, but they will also get a commission if the purchase option is exercised and the sale closes.

 

The actual structure of the agreement should provide a large part of the monthly payment go toward the purchase price.  For example if the home would normally rent for $2,000 per month and the buyer can afford to pay a slightly higher amount, say $2,500 per month,  this benefits the seller if the option to purchase isn’t exercised.  The seller/lessor will keep the higher amount.       

 

For this consideration the lessee/buyer should ask that half or more of the monthly payment amount go toward the purchase price.  I wouldn’t be afraid to ask that all the monthly lease payment go toward the purchase if the option is exercised.  In this case that would be $30,000.   

Buyers who want to explore this option should find a patient and knowledgeable agent willing to do the up-front work to find the right home and seller and pre-qualify the seller.  The team should also include a real estate attorney.          

 

       

 

 

 

April 7, 2008 at 4:39 pm Leave a comment

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