Archive for January, 2008

Selling your home in a declining market? The race is to the swift

This is my column for this week from the Arizona Republic (permanent link):

Selling your home in a declining market? The race is to the swift

If you’re chasing the market down, chances are you’ll never catch it. The trick to pricing a home for sale is to race the market down.

How’s that again? We’re in a declining market, that’s understood. It won’t be this way forever, but prices could continue their slow leak for quite a while longer.

What that means is that, whatever price you might get for your home today, you will probably get still less a month from now or three months from now.

Hence, you need to make a difficult decision.

If you don’t actually need to sell right now, you might do better putting your move off for two or three years.

But suppose instead that you do need to sell your house right now. You have a job offer out of town. You have a big deposit on a new home. You’re expecting triplets. What now?

Even in the best of markets, sellers can have an inflated idea of the value of their homes. This has certainly been the case in the two years since the market turned. We’ve had a glut of inventory, but much of that has been overpriced inventory.

Typically, the seller starts out with the price too high, then tries to chase the market down with a series of price reductions — usually too little and too late.

If your house is not showing, it cannot sell. But if it isn’t showing, this almost always means it is overpriced. The trick to getting it sold now is to price it under the competitive listings.

The natural impetus, in the face of advice like this, is to say, “I don’t want to give my house away!”

Who can blame you for feeling that way? But the important question is, “Would you rather hang onto it for a few more months, and then sell it for even less — if you are able to sell it at all?”

Racing the market down can be a painful decision. But the pain is likely to be a lot worse if you continue to try to chase the market down instead.

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Whatever you do, don’t dance: Pinal county restaurant fined $700 a day for encouraging its patrons to dance outdoors

We’re in Phoenix, which is a megalopolis. You can drive in a straight line in the Phoenix metropolitan area for two solid hours and never run out of metropolitan area.

But much of Arizona is not just rural but virtually devoid of people. Scrub desert, dry as dust, where a very few hard-scrabble folks try to scratch out a hard-scrabble living.

You can be on a lonely old road at night and not see a car in either direction. There are no street lights, since someone would have to build, pay for and maintain them. There are no lights at all, and you will never know what it feels like to be shipwrecked or stranded alone on the moon until you look in vain in every direction for any sign of the works of man.

And then, far off in the distance, there’s a light. Just a glint at first, but it seems to grow brighter as you draw nearer. You can drive toward a light like that for half an hour, so thick is the darkness. And then you’re upon it. And then, just like that, you’re past it.

What was it? An electric sign. For what? A lonely little cowboy roadhouse. And what did the sign say? “Dancing, Saturday Nights.”

That’s real life in the real desert.

Here’s a Reason.TV story about authorities in Pinal County trying to shut down a little desert road house — for the crime of allowing its patrons to dance outdoors.

There’s a bit of speculation in the video that calls to mind the Lincoln County War — but that’s a different desert in a different state…

Hat tip: Thomas Johnson.

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Net-borne buyers create new burdens for listing agents

This is my column for this week from the Arizona Republic (permanent link):

Net-borne buyers create new burdens for listing agents

“Eighty percent of buyers start their home search on the internet.”

You don’t have to dig too deeply in the real estate world to unearth that statistic. There are two problems that I can see with the claim.

First, it’s based on an outrageously unreliable mail survey of recent home-buyers. Fewer than five percent of recipients returned the survey. How did the other 95% manage their home search? We don’t know.

Moreover, while the long-term trend, surely, is that more people are using the internet to shop for homes, what matters is not how they started their search, but, rather, how did they finish?

There’s more to think about, though, because it seems reasonable to me that people who are starting their home search without professional representation — without a Realtor — are continuing their search unrepresented as well.

What’s the implication? Like it or not, the listing Realtor’s responsibilities are increasing.

Realtors like to say — to each other — “If you list, you last.” What that means is that a listing, at least in a normal market, is a pretty secure paycheck, where working with buyers can be a lot riskier. This is the reason that the buyer’s Realtor often gets 60% or even 75% of the gross commission. The listing Realtor presumes that the buyer’s Realtor is going to be doing most of the heavy lifting.

But this is not as much the case in the age of the internet. If an unrepresented buyer clicks through to the listing Realtor from an on-line — or if that buyer simply makes a sign call — the listing Realtor is obliged to show the home, even if the original intent was to have buyer’s Realtors doing all the work. Moreover, the open house, long derided by Realtors, is suddenly much more important.

All of this creates new opportunities for dual agency, whereby the listing Realtor gets paid more — and incurs huge risks — while giving the buyer almost nothing in the way of representation. It’s hard to argue that this is an improvement, but it seems to be the way things are trending.

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Seller financing can give you an edge over your competition in the Phoenix real estate market

This is my column for this week from the Arizona Republic (permanent link):

Seller financing can give you an edge over your competition in the Phoenix real estate market

If you have significant equity in your home, you have a potent weapon at your disposal on resale.

The big news this year is likely to be more and more stories of people with little or no equity trying to get their homes sold. Values for an average suburban Phoenix home were down 14.66% year-over-year. That doesn’t sound too bad, but prices were down almost six percent just in December. We’re down 24% from the peak in December of 2005, on average.

But here’s the silver lining: If you bought that average home in December of 2003, and if you resisted the impulse to refinance your loan, you’re still up over 40% from your purchase price.

That equity gives you a source of leverage on resale that you might not have considered.

First, as always, for your home to sell it must be priced right, prepared right and presented right to the marketplace. You can’t do any kind of elaborate negotiations if buyers don’t even see your house.

But because you have equity in the home, you have the ability to help a willing buyer navigate the suddenly-more-perilous shoals of the lending process.

Suppose your buyer has five percent for a down payment, but the lender is willing to make a much more attractive deal for ten percent down. If the lender is willing to accept the arrangement, you can offer to carry back a note for the extra five percent, using part of your equity as seller financing.

You’ll be taking a second or third position in the line of creditors, should the buyer default — and it’s always possible that you will lose every cent you are lending. But given the direction of the market, you could be a lot better off risking five percent now, rather than accepting ten percent less a few months from now.

As with everything, read the fine print, ideally in the company of your accountant. But seller financing is one more weapon you can deploy to set your home apart from the competition in this very competitive market.

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Will Super Bowl visitors buy Phoenix real estate?

It’s an age-old strategy: Just get ’em down here. They’ll love the place. It could be how you came to buy a home in Metroplitan Phoenix.

Channel 15 News offers this:

The Phoenix Association of Realtors is hoping the Super Bowl will draw prospective homebuyers.  

President Nate Martinez says with plenty of homes on the market and low mortgage rates, Phoenix is a buyers market that could be enticing to out of town visitors. 

The hope is the tens of thousands of people who come to the Valley for the big game will love the weather and what Arizona has to offer.

They then might decide to invest in a home.

If you’re coming to Phoenix for the Super Bowl, or if you have friends coming to the Valley of the Sun for the game, it’s definitely a buyer’s market. There are plenty of homes to choose from, and sellers are negotiable.

The Super Bowl won’t be in Phoenix every year, but the weather’s always like this…

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Your real estate improvement goals for 2008 will be more financial than physical

This is my column for this week from the Arizona Republic (permanent link):

Your real estate improvement goals for 2008 will be more financial than physical

Do you want to set some workable real estate goals for 2008? If so, sharpen your pencil.

Does the house need a new roof? Does the kitchen need an update? Should the pool be resurfaced? Doing regular maintenance is usually not profitable on resale, but deferring those repairs and upgrades can be very costly.

But the most important real estate work you will do this year will be financial, not physical.

If you’ve been prudent enough to buy a home — and 70% of Americans have — you’ve done well for yourself. You have a roof over your head and an asset to fall back on if times get tough. But refinancing your home or getting a home equity line of credit is not as easy as it used to be.

If you’re a first-time buyer, you have an even steeper hill to climb. Most homeowners have at least some equity to borrow against, but many first-timers have little more to bank on than a willing heart and an eager smile. Two years ago, that was enough. Lately, not so much.

The problem is that loan underwriting guidelines are a lot tougher than they have been in the past few years. Verifiable income matters. Debt-to-income ratios matter. For most home loans, a down payment is no longer optional.

What’s changed? For one thing, lenders have lost a ton of money on nothing-down and limited-documentation loans. For now, at least, they would rather write fewer but more promising mortgages. But the real estate market has changed, too. Lenders were free and easy until lately because they assumed the appreciation of the home would make up for lax underwriting procedures.

So what should you be doing to prepare for these changed circumstances? Boost your income if you can. Cut your debt ratios any way you can. If you will be buying a home for the first time, start saving for that down payment. If you plan to sell and move-up or downsize, maintain your equity in your current home — and watch your credit rating like a hawk.

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The Phoenix finds its way back to the sky: We’re finally going vertical, but is it too little, too late — and too widely dispersed?

Hi-rise condos are selling — kindasorta. If you put your ear to the ground, you’ll hear all kinds of doom and gloom about luxury condos, but in the long run all of these new units will sell. The problem is that construction costs push sales prices to $300 per square foot and above, so there probably will never be hi-rise living in Phoenix, Scottsdale or Tempe for the less-than-affluent.

But: Hope springs eternal in North Phoenix. CityNorth is lo-rise residential with a paired retail district. This is one worth watching, if only because it will tell us if people are willing to pursue a facsimile of urban living in what is, for now at least, a fairly remote location. The dirt on that branch of the SR-101 Freeway is hugely underdeveloped, so it will also be interesting to see if CityNorth can induce a more-vertical Phoenix up north. The big question might be: Why open a sales office now, with the real estate market in the doldrums? The answer is that the developer is betting that the market will have turned by the time it gets up to speed.

Don’t snicker, but Avondale also has vertical ambitions. This is not as silly as it might seem at first glance. The confluence of the I-10 and the SR-101 Freeways is rich with people, and neither Phoenix nor Tolleson seems to be taking advantage of that opportunity. Avondale is close to being built out in its current footprint, and Goodyear has sucked all the oxygen out of the annexation possibilities. As with Tempe, that leaves Avondale with one direction for growth: Up.

The Phoenix Metropolitan area has zoning — which disperses development — but it lacks any sort of regional vision to concentrate big-budget building all in one or two places. Downtown Phoenix may eventually suck up enough tax-money and government takings and giveaways to come to life, a costly proof of the Frankenstein principle. Uptown Scottsdale has the money to do whatever it wants. The only real, organic urban vertical development is in Tempe, and Tempe is still my bet for the most-downtownlike undowntown in the Phoenix area. But scattering our vertical development in the same way that we scattered our suburban development may not be the best strategy for getting the Phoenix Thunderbird back to the sky.

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For real estate in Metropolitan Phoenix, the pain of currency inflation may be enduring

This is my column for this week from the Arizona Republic (permanent link). It’s important to understand that the long-run prognosis for the Phoenix area is good. We’re the fastest-growing major metropolitan market in the United States, adding 200,000 new residents a year. The short-run is not great, however, and the help the Federal government is proposing to provide will probably do more harm than good. Next week, I’ll be talking about some financial goals you can adopt to put yourself on a sound footing for the current real estate market.

For real estate in Metropolitan Phoenix, the pain of currency inflation may be enduring

The universal punch-line, the killer finish to an infinite number of jokes, might just be, “Sure, but it feels so good when you stop!”

If you had been banging your head against the wall, it might be true. For most things in life, though, no matter how painful they might be, the real pain doesn’t even start until you stop.

Want proof? Quit smoking. Smoking is a dirty, costly habit, we all know this. If you don’t quit, there’s a good chance it will kill you. But if you do, you’re looking at three truly agonizing days, followed by three pretty awful weeks, followed by three grim months. It might be three years before you’re complete rid of cigarettes.

The same goes for other physical addictions. The addiction can have painful consequences, but the sharpest pain comes when you go cold turkey.

This is exactly what happens to the economy when the Federal Reserve Bank stops inflating the currency. Practically speaking, we’ve spent much of the last ten years “high” on funny money. In consequence, we made “investments” that had nothing to do with anticipated returns, first with stocks and then with residential real estate.

Here’s the worst part, though: We’re not going cold turkey. A recession occurs when we wake up and stop despoiling the currency. The immediate effect is that the bad investments we made while we were drunk on free money lose their artificially-inflated value. This is very painful, but it only lasts about three years — eighteen months peak to trough, eighteen months trough to peak.

But instead, the Fed is attempting to keep the economy going with maintenance doses of funny money — sort of like the methadone treatment for heroin addiction.

Will it work? Maybe. The economy is out-performing currency inflation in many market categories. But real estate is not one of them. We’re already two years into our market correction, with no signs of a reversal in direction. So will the whole thing be over by this time next year? I wish I could say yes, but I don’t believe it.

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