This from my Arizona Republic real estate column (permanent link):

So we started with a $7,500 tax deduction for first-time home-buyers.

But that didn’t juice the real estate market enough, so we bumped the number up to $8,000 and made it a full-blown tax credit. If you owe $8,000 in taxes next April, your slate is wiped clean.

But even that didn’t juice the the real estate market enough, so this week Republicans — the alleged party of fiscal responsibility — proposed bumping the tax credit up to $15,000 and making it available to everyone — including billionaires.

How cool is that? You buy a $150,000 house, you get 10% back when you file your taxes. And you can file an early return to get the money now. And you can even finance the tax credit now and pay it back when you file your return.

You can’t — quite — use the tax credit as your down payment, but that “reform” can’t be more than inches and hours away. And a $15,000 down payment on an FHA loan buys you a $428,500 house.

Unfortunately, that’s more than the FHA limit for metropolitan Phoenix, so that limit will need to be “reformed” as well.

Paying people to buy houses would be insane if we actually had the money to back up our promises. But, since we don’t, these “reforms” are the mark of true statesmanship.

I’m helping an ambitious young couple buy their first home right now. We’re late to close, a common enough situation.

They just had their second child, an event mere bureaucracy cannot delay. Their baby boy — his name is James — is sweet and beautiful, healthy and smart, a perfect specimen of incipient humanity.

They’re taking the $8,000 tax credit, of course, as they should. The government doesn’t become less insane if you shoot yourself in the foot.

But it is sweet little Baby James who will pay for that tax credit, and for millions of others, and possibly for millions more at $15,000 a pop. Our economy runs on theft — and we’re running out of people to steal from.

This from my Arizona Republic real estate column (permanent link):

Are you looking for a bargain in the Phoenix real estate market? Everybody wants to save a buck, but here’s a different way of looking at things: Instead of shopping for a bargain, shop for value.

What’s the difference? A bargain comes about when you get a great price by buying something nobody else wants.

Like this: A grocer puts out a pyramid of apples, selling them at fifty cents each. About half sell at that price, and the grocer marks the others down to twenty-five cents. All but the last six sell, and the grocer accepts your offer of five cents each for the remainder.

That’s a bargain. You got six apples for thirty cents, when they would have cost you three dollars earlier in the day.

The only problem is, your apples are bruised and shopped-over. But that’s why you got them at the bargain price — because no one else wanted them. Tomorrow’s price for fresh, appetizing apples will be the same as today’s price, and you’ll only get the bargain price by bidding low on the shopped-over remainders.

If you’re making a pie, that’s fine. But if you’re having guests over, you’ll pay the higher price.

Apples are not houses, of course. For one thing, every house is unique. If other people are also interested in a home, you cannot expect to pay much less than the asking price.

Even so, when you’re shopping for value in real estate, the purchase price is only one factor in the calculation. What purpose do you have in mind for the property? What are your future financial objectives?

A rental home in a community with no tenants is no bargain no matter how little you pay for it. A residence in a neighborhood where the long term price trend is downward is no bargain no matter how low the purchase price.

Shopping for value means paying as little as you can get away with for a property that actually fulfills your objectives and offers a prospect for future appreciation. Anything less than that is no bargain.

This from my Arizona Republic real estate column (permanent link):

I work a lot with investors, and I’ve written in the past about the factors I think are important when buying a rental home in the Phoenix real estate market.

I want for the homes I choose to be in built-out neighborhoods in built-out communities with ready access to schools, churches, entertainment, shopping and transportation. More than anything else, I want for there to be plenty of good-paying jobs nearby.

But even taking account of all that, tenants seem to be getting thin on the ground. Is there a shortage of tenants? To the contrary. Folks who have just lost their homes to foreclosure need to rent for a couple of years to get back on their feet.

There’s no shortage of tenants, but we’re seeing a sudden surplus of landlords. Out of state investors are snapping up Valley tract homes at bargain prices and posting their “For Rent” signs in the front yard.

Are these homes necessarily good rental candidates? Probably not. Will they rent? At a low-enough price they will. And landlords are feeling price pressure for the first time in years, all across the Valley.

What is missing, as is so often the case in real estate, is intelligent marketing. There is a huge supply of tenants in Metropolitan Phoenix who would love to live in suburban single-family rental homes. Where are they? In apartments.

Any why are they in apartments? Because apartment communities market very intelligently to tenants. Can an ordinary landlord compete against a $99 move-in special? Probably not. But here is an offer for appealing to apartment renters that makes sense to me.

Instead of a 12-month lease at $900 a month, offer 24-months at $950 — with two months rent-free. You might go for the second and twenty-fourth months, but I think making both Decembers rent-free could be a killer proposition.

The tenant pays more per month, but less over the 24 months. The landlord gives up $700, but nets a faster lease-up on a longer lease. Everybody wins — and that’s the power of marketing applied to real estate.

This from my Arizona Republic real estate column (permanent link):

There was a time, just a few years ago, when the residential real estate industry in Phoenix worked like a well-oiled machine.

We were all using the same court-tested paperwork — all the same way and all according to the same standards of care. Realtors knew what to expect of each other, and our arbitration systems made sure we could trust each other.

No more. We’re back to the days of wild west real estate, where every critical detail is negotiated verbally and where every promise is as sound as a three dollar coin.

It’s not the banks who are at fault, at least not directly. Every purchase contract for a bank-owned home will be rewritten by the bank, but lenders are keeping their promises, even their verbal promises, on foreclosed homes.

Short sales are another matter entirely. Many agents handling short sales are scrupulously honest, letting buyers know exactly where they stand and keeping everyone up to speed.

But there are agents who treat short sale listings as an undisclosed silent auction, submitting every offer to the lender and not informing buyers they are being pitted against each other.

So you wait six weeks to six months for a response from the bank, only to learn that the property will be sold to someone else. The upshot is that short sales are not a viable option for anyone who needs to move by a specific date.

That’s a worst case scenario, but in this little mini-boom we’re going through, we are once again seeing some of the worst practices from the boom years.

For example, the bidding wars you’ve read about are carried out by means of the Multiple Counter Offer form. Each buyer is invited to make a better offer, without knowing what the other offers are, without knowing how many there are, and without knowing if the other buyers are even still in the game.

I can’t imagine a situation less fair to buyers. This is the kind of opacity we can expect efficient market systems (read: the internet) to fix going forward.

This from my Arizona Republic real estate column (permanent link):

The $8,000 first-time home-buyers tax credit just keeps getting sweeter and sweeter.

First, it’s a true tax credit, not a deduction. In other words, if you would have gotten a $3,000 tax refund next April, with the tax credit you’ll get $11,000.

Even better, a first-time home-buyer is someone who has not owned a home in the past three years.

To get the full $8,000, the purchase price of your home must be at least $80,000. But it turns out that $80,000 is a sweet spot in the Phoenix real estate market right now. In many West Valley communities, $80,000 will buy you a very nice house.

But here’s the icing on the cake: As of this week, The Federal Housing Authority may allow borrowers to use the $8,000 for their down payment.

The lender would offer that money through a second note, and you’ll pay it back when you get your tax refund.

Take a moment to reflect on the implications. That’s right, after nearly five long months of stern fiscal responsibility, we’re right back to doing nothing-down home loans.

The tax credit can be no more than ten percent of the purchase price, but an FHA loan requires only 3.5% down payment. How much house can you buy with $8,000 down? How about $228,500?

The sellers will throw in the closing costs — gleefully — so you could buy a great big Phoenix homestead for no money out-of-pocket.

Make your payments on time and you’ll be living the American Dream — in a home that might have sold for $500,000 in December of 2005.

But don’t dawdle. The $8,000 tax credit ends on November 30th — which means your loan must be completely closed by then. Allowing 45 days for underwriting and another 30 days to find the home of your dreams, you should start your home search no later than mid-September. If you want for the kids to be in their new schools in August, you should probably start looking now.

This from my Arizona Republic real estate column (permanent link):

We publish a national real estate industry weblog called BloodhoundBlog.com. There are 42 contributors from all over the country, each one an expert in his or her own right. Together we talk about real estate marketing and technology, lending and investment. If you want to know what Realtors and lenders really think, BloodhoundBlog is your keyhole into the industry.

The blog is all about the wired world of real estate, how the participatory internet is changing age-old paradigms of real property and mortgage marketing. When we started three years ago, the Web 2.0 idea of online interaction was still very new. By now, it’s hard to remember a time when these technologies were not ubiquitous.

BloodhoundBlog’s mission is to help Realtors and lenders keep pace with internet tools. In service of that objective, we produce an annual conference called BloodhoundBlog Unchained. Real estate professionals come from all over the country to learn how to market their services in what amounts to a post-marketing marketplace.

This year’s conference ran last week from Tuesday to Friday. We encamped in a hotel near Skyharbor Airport and worked all but continuously for 72 hours. Our world is changing so fast that we felt we had to work that hard, just to learn everything we need to know.

What’s all this to you? BloodhoundBlog is all about promoting excellence in every conceivable way. We do everything we can think of to train Realtors and lenders to provide a better-quality experience by every means attainable.

My objective, expressed baldly, is to chase the bums out of our business. Licensing purports to do this, but it has not. Trade organizations like the National Association of Realtors should do this, but they don’t. But if we can educate consumers to demand better service, better information, better representation, then the bums and the crooks will go get jobs. That’s the way free markets work, when they’re working properly.

Meanwhile, real estate professionals are just catching on to the idea that consumers can see everything we do. Drop in on BloodhoundBlog and keep an eye on us.

Last Tuesday, while racing around doing real estate work and preparing for BloodhoundBlog Unchained, I was interviewed by the New York Times about the Phoenix real estate market.

I’ve been interviewed a zillion times before, and it’s cool and fun and it means absolutely nothing. I got picked because of this article, from my column in the Arizona Republic. I spoke to the reporter for 45 minutes on the phone, and about twelve of my words made it into the newspaper.

Okayfine. That’s the way it works. I’m just waxed fruit in these tableaux and I know it.

But here’s the cool part: Yesterday I got a call from a potential client about the article. Never happened before. Real estate investor from Canada looking to balance his risk by picking up some lender-owned homes in Phoenix.

As a marketing strategy, talking to reporters is probably less productive than handing out business cards in the supermarket parking lot, but serendipity is where you find it.

This from my Arizona Republic real estate column (permanent link):

If there’s one thing we can say we’ve learned from the housing bust, it’s this: The worst conceivable stewards of financial assets are bankers.

At every step of the real estate market’s retrenchment, the bankers have been right there, on the spot, ready to make precisely the wrong decision — days, weeks or even months late.

Can’t make your payments? Put the home up for sale. Will the bank honor an offer short of the amount owed? Maybe. Maybe in six weeks, maybe in six months. Will the buyer still be there when the bank finally responds? With prices declining by thousands of dollars a month?

So the bank has to foreclose on the home — at an imputed value far lower than it could have had from the short sale. And then it must list that home for sale at a still lower price.

But don’t waste your time looking for evidence of prudence or even simple greed in a lender-owned listing. The home will be filthy, with fixtures and smoke alarms missing. The kitchen range will have been stolen, thus to assure that the home is not accidentally sold to an FHA or VA buyer.

If the bank inadvertently approves a purchase contract for the home, it will do everything it can to avoid recouping even a tiny fraction of its losses. First the bank will attempt to savage the deal by completely rewriting the contract. And everyone involved in the process will be insanely overworked, so that even the simplest question will occasion a two- to five-day delay.

Absolutely nothing will be done to address even deal-killing defects. But because the decision chain is so convoluted, negotiations over problems will drag on for weeks or even months. That way, when the deal falls apart, as many do, the bank will be able to relist the house at an even lower price.

I wish I were making this up. I want to deride bankers as being clowns, but that’s unfair to the clowns. They produce wealth, rather than destroying it — and they dress better for work, too.

This from my Arizona Republic real estate column (permanent link):

Do you feel an insatiable urge to rush right out and buy a house?

There’s a reason for that: You’re being conned into thinking there is a shortage of available housing, when the exact opposite is actually the case.

Maybe conned is too strong a word. Are you begin misled? Are experts and pundits themselves misled? Are we all of us suffering under a mass delusion, an amplified species of wishful thinking?

Here’s what’s really going on: Last fall FannieMae and FreddieMac, along with some of the bigger private mortgage banks, declared a moratorium on new foreclosures.

So for four months, homes that would have been foreclosed on sat on the sidelines of the real estate market.

And for those same four months, inventories of already-foreclosed homes declined. In March of 2009, for example, a total of 7,621 listed homes were sold in the Phoenix area, of which 5,066 — two thirds! — were lender-owned homes.

That sounds good doesn’t it? Even better, as I write this, only 7,607 lender-owned homes are listed as being Active in the MLS database. That’s just a month-and-a-half’s supply. Happy days are here again!

Not quite. That Fannie/Freddie moratorium on new foreclosures ended on April 1st. In the first three weeks of April, there were 2,460 new lender-owned listings. And there are still two years of foreclosures in the pipeline.

What we’re seeing is a Fool’s Gold Rush. The perceived shortage of housing is an illusion, an artifact of a normal number of buyers competing for an inventory that seems to be declining rapidly. It isn’t. Instead, even now the inventory of lender-owned homes is surging.

If you need to move, you need to move, and interest rates are amazingly low. If you want to bite the bullet and move up, now might be a good time.

But even if we see a month or two of stable or even rising prices, there is an echo-bust in our future as buyers catch on to the artificial nature of our illusory housing shortage.

Here are three hard-boiled facts of life for real estate investors in Metropolitan Phoenix:

1. Despite the ridiculous hoopla in the newspapers, there is no shortage of foreclosed homes. FannieMae and FreddieMac imposed a four-month moratorium on new foreclosures, which resulted in the false perception of a shortage. The moratorium ended on April 1, and inventories are surging.

2. Hence, there is no sane reason for an investor to get mixed up in a bidding war for a particular property. If you can’t buy what you want right now, you’ll be able to get something better for less money a month from now. You don’t need to — and shouldn’t — buy the cheapest rental property out there, but there is no need to overpay for anything right now.

3. There is no viable tenant base in Queen Creek, Maricopa or Buckeye. Investors fixate on those towns because the homes are so cheap. They’re cheap for three reasons: They’re half vacant, they’re more than half lender-owned and — most importantly — there are no jobs to speak of in those towns. No jobs means no reason for tenants to live there, which means no rents for landlords.

Those three towns — Queen Creek, Maricopa and Buckeye — are the poster children of the real estate bust. Out-of-state investors got suckered into buying rental homes there in 2004 and 2005, which homes comprised much of the first wave of foreclosures in the Valley. Now a second wave of suckers are snapping up super-cheap homes in those remote locales, even though there must already be at least a dozen vacant rental homes for every marginally-qualified tenant.

Here’s the hard, cold truth, and it’s a lesson every landlord has to learn: Residences without residents have no value. The price you pay on the way in matters, yes. The price you collect on the way out matters, too. But what matters most is whether your rental home covers its own costs — ideally throwing off positive cash flow — while you own it.

Emphasize that: It doesn’t matter how cheaply you bought it, and it doesn’t matter what the theoretical Gross Rent Multiplier might be — if the home sits vacant for months on end.

So who is at fault when a Realtor helps an out-of-state investor buy the wrong rental property in the wrong town? Is it the Realtor, who should have put his foot down? Or is it the investor, who insisted upon buying the cheapest possible property, even though the cheapest homes have no commercial value right now?

My answer is that I don’t care. I don’t work with investors who can’t figure out which side of the bread has the butter on it. I sell rental homes in towns with a strong jobs base, abundant retail and entertainment, decent, nearby schools and adequate transportation services. In other words, I work in towns — and in specific neighborhoods — where tenants actually want to live, where rental homes stay rented, and where they sell for premium prices to owner-occupants on the way out.

Here’s the kick in the teeth: Even in these premium neighborhoods, lender-owned houses are still amazingly cheap. The homes I sell are cash-flow positive from the first tenant, and acquiring that first tenant is normally quick and painless.

Owning rental housing is a business — and not an easy business. The objective is to make money. If you want to find out more about how to make money on buying lender-owned homes and converting them to rental properties, assert yourself.

This from my Arizona Republic real estate column (permanent link):

Here’s a horrifying thought. It’s late at night and you’re at home in bed in Manhattan or Manhattan Beach when you get an emergency phone call from Thunderbird Hospital. Your widowed mother has passed away unexpectedly.

And now you must take on the burdens of the grieving. In addition to making the funeral arrangements, you have inherited your parents’ estate. You’ll need to talk to their estate planner, and possibly also to their accountant. But the financial professional who could have the greatest impact — positive or negative — on the legacy your parents have left is the one with whom they very probably forgot to forge a relationship.

That would be a Realtor, of course. For many retired people, the most valuable investment they have will be their home. Many will own the home free and clear, a six-figure asset. But how the heirs manage the sale of their parents’ home can make a huge difference in how much the property sells for.

Here’s one way of looking at things: Your folks have died, may they rest in peace, and everything they left behind is free money. Sell it cheap, sell it fast and move on.

But your parents worked hard all their lives, in part to leave you a significant legacy, and with just a little bit of planning and husbandry, you can realize thousands more on the sale of their property — perhaps to pass along to their grandchildren.

You’ll need to have an estate sale, first. Cluttered houses sell slowly and for less money. Then you’ll probably have to arrange for repairs, painting and cleaning. You can sell the home as-is, but then you’re competing with all the low-priced foreclosed homes out there.

What you’ll need more than anything is a Realtor who is accustomed to handling estates in your absence. To sell for top-dollar, the home will need a thoroughgoing marketing effort — staging and decorating, open houses, internet promotion.

Your parents are gone and nothing will bring them back. But a little bit of forethought will go a long way toward preserving their legacy.

The other shoe drops:

The number of homeowners facing foreclosure surged in March as lenders lifted temporary moratoriums and resumed legal actions against delinquent mortgage payers.

Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 341,180 properties in March, 46% more than a year ago and 17% above February’s total, RealtyTrac reports today.

One in 159 U.S. housing units received at least one foreclosure notice in the first quarter, for a total of 803,459, according to RealtyTrac, which lists foreclosed properties around the country.

The sharp increase in foreclosures comes as the Obama administration is launching an effort to help as many as 9 million borrowers avoid foreclosure by modifying their loans or refinancing mortgages. Many lenders put a temporary freeze on foreclosures late last year while the administration prepared its program.

Much of March’s activity was in new foreclosure actions — bank repossessions fell 3% from February. With most of the moratoriums now lifted, bank repossessions are likely to start rising again.

This is not the end of the world, but reports of the real estate market’s immediate resurrection may have been exaggerated.

Put another way: This does not mean the Phoenix real estate market is not going to find a bottom, but it does seem to imply that, once it does, it’s going to stay there for a while.

Buying a residence with plans to stay put for five years? It’s hard to argue with today’s interest rates.

Buying a rental home for cash-flow now, putting off any hopes for appreciation for the next few years? You’re probably okay.

Buying to fix and flip? Guard your upside and get it sold fast.

Buying to fix and hold, either as a residence or a rental? This may be the best bet of all right now.

Selling a home? Don’t play games. Price it to the market and get it sold. If your home is not showing, the price is too high. If it’s showing but not selling, unearth the deal-killing defect and correct it. Every month you waste is costing you money.

We have two years, at least, of bad loans still to work through. If demand rises to meet the inflow of foreclosure inventory, prices will rise despite everything. But don’t hold your breath on that outcome. Long-term risk is probably pretty safe. Short-term risk is foolhardy, for now.

This from my Arizona Republic real estate column (permanent link):

I was in a new-home sales office last weekend, and the sales rep was raving about how the real estate market has turned. It was hard to argue with her. That subdivision had a lot of traffic, and, besides, the newspapers have carried story after story bearing good real estate news. And who wants to rain on the parade?

There is good news out there, after all. We track bread-and-butter tract homes month-by-month, and, in some respects, March was a great month. Volume of sales was up 62% over February, for example, and this past month was the best March since 2005.

But both August and September of 2008 were better months. Still worse news, sales prices were down another 5.2% for the month. That’s 35.22% year-over-year and 54.13% from the peak in December 2005.

So, yes, people are buying homes. And, yes, for now inventories are declining. But FannieMae and FreddieMac had declared a moratorium on new foreclosures late last year. This was quietly ended on April Fool’s Day. There are 10,000 new foreclosures happening right now, half of which will hit the market as lender-owned homes in the next 60-90 days.

So what? Boom? Bust? Both?

If purchases exceed new listings, prices should stabilize or even go up. But if that’s a temporary phenomenon — a temporary “shortage” of newly-foreclosed homes — we could see an echo-bust: Stability for now followed by more price declines later.

And heads matter more than beds. If investors buy homes for which they can’t find tenants, this will depress prices, too.

On the other hand, interest rates are at unprecedented lows. Is it possible that you could save more by paying a higher purchase price now, at a lower interest rate? Or are you better off waiting for better prices, even if you end up paying a higher interest rate?

Here’s an easier question to answer: Is it time to put the champagne on ice, thus to celebrate the bottom of the real estate market? Possibly. Just don’t pop the cork yet.

This from my Arizona Republic real estate column (permanent link):

I’m working with a lot of investors right now, which is fun for me. There are a great many challenged houses in the Valley, and it’s the investors, for the most part, who are digging in and restoring value to those homes.

There is another class of investors I don’t work with at all, and I’d like to highlight some of their bad habits, in the hope of convincing you to adopt better practices.

The number one bad habit of unsuccessful real estate investors is buying homes where there are no tenants. Yes, the houses are cheap in Buckeye, but that’s because there are no jobs in Buckeye. In ten years, the Valley’s western outpost will be a thriving rental community. Not now.

The number two bad habit? Buying way too much house. This 1,400 square foot house is selling for $75 a square foot. But we can get this 2,600 square foot house for only $30 a square foot! Even though the price seems very low, the house is too big for tenants, and too costly to maintain and keep cool.

Bad habit number three is buying the worst property available. No one wants to be treated like a second-class citizen. Bad homes send premium tenants to better homes.

The number four bad habit is over-charging for rent. If the market rent for a turn-key unit is $1,000, a bad landlord will offer his home dirty and unpainted — and then charge $1,100 a month. If he delivered the best-quality home at $950 a month, he would have the pick of the premium tenants. Instead, he’ll end up settling for the tenants no one else wants.

And that leads us to the fifth and most costly bad habit: Our investor chose the worst available model of a too-big house in a town without a tenant pool. The house is dirty and grungy, and he’s charging too much for it. Therefore, he will have no choice but to rent to tenants with bad credit, bad work records and bad real estate references.

Making money in the metropolitan Phoenix residential rental market is easier than it’s been in years. But losing money is easy, too, if you make the right mistakes.