Will 2008 Be Named The Year of Fear?

Okay, so this year is winding down and may be known in the history books as the “year of fear.” We have all had alot to feel anxious about regarding the economy, jobs, housing–you know the list. However, I believe we should really celebrate the upcoming year since it looks more hopeful and certain in many respects. In the real estate market in this metro west of Boston area buyers are still buying and sellers are listing their homes despite what the national news would imply. Of course we know that every region is different just as towns within a state vary greatly as well. I attended a seminar a month ago in which several city Realtors (Boston) said they were so busy with calls that there were not enough hours in the day to get work done! Now although I cannot make that claim where I am located 45 minutes west, I can safely say that it is not time to throw in the towel.
A business owner-friend and past customer of mine recently said that they are keeping ahead of the slump with “extra service and an extra cocktail.” These are great words and although as a professional I cannot offer my buyers or sellers a martini straight-up, I can certainly and do strive to offer service beyond their expectations.
We all can stick with the basics, relax and do our best to ease into this hopeful new year. Benjamin Franklin’s words are as true today as then: “Be at war with your vices, at peace with your neighbors, and let every new year find you a better man.”

Is It Time to Think About Buying?

Here is an excellent article that I came across which sums up the general real estate market scenario that my buyers and sellers are experiencing in the metro west of
Boston area…
By RON LIEBER
Published: December 5, 2008
Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas — and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable. A. C. Panella, who teaches communications at Pasadena City College in California, waited until she had a tenure-track job before buying a home in the Highland Park section of Los Angeles with her partner, Amy Goldman, a lawyer for a nonprofit organization. “We could afford the mortgage payment on one salary, were something to come up,” Ms. Panella, 31, said. “It’s really about being able to stay within our means.”

For many first-time home buyers, that philosophy stretches to the down payment, too. Ms. Panella and her partner put down 20 percent when they bought their home in September, as did the Promans when they bought their home in the Lowry Hill neighborhood of Minneapolis.

Alison Nowak, 29, put just 3 percent down on a Federal Housing Administration-backed loan last month when she and her partner, Lacey Mamak, bought a $149,900, 800-square-foot home several miles south of where the Promans live. “Anything that is an opportunity also has a bit of risk,” she said. Her house was in foreclosure before a plumber bought it and fixed it up. “One way we mitigated it was that we bought a really tiny house in a very good neighborhood.”

One other strategy might be to buy new instead of used. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, says he believes that a steep drop-off in inventory of new homes is coming soon, thanks to a rapid decrease in home builder activity.

Since prices generally soften in the winter, it may make sense to start looking seriously once the mercury bottoms out. “If you look at new developments next spring, you may not have the choice you thought you would have or be in the bargaining position you thought you would be,” Mr. Shepherdson said. Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.

Finally, allow yourself to consider how it would feel if you bought and then prices dropped another 10 or 15 percent. It might not bother you if you plan to stick around. Plenty of people seem to be making a longer commitment to their homes. According to a survey that the National Association of Realtors released last month, typical first-time buyers plan to stay in their home 10 years, up from 7 last year.

Perhaps people are more aware that they will not be able to build equity as rapidly as others did in the real estate boom. Or they simply have more confidence in hard, hometown assets now than in other markets.

“We wouldn’t let another decline bother us,” said Michael Proman. “You can never time a bottom. This is a long-term investment for us, and it truly is the best investment we have in our portfolio right now.”

Why There is Hope

This is a great, encouraging perspective from J. Lennox Scott for anyone thinking of buying, selling real estate in the next few months…

RISMEDIA, Nov. 12, 2008-With the volatility of the stock market of late, there’s understandably some uncertainty about how all of this will impact the real estate market. I’ve had the opportunity to listen to several economists recently, including Lawrence Yun from the National Association of Realtors®, and believe it or not, I feel good about what I’m hearing.

Here’s why:

• The bottom line is that the situation is manageable and things will improve.
• The most recent decline is due to the psychological impact of the stock market.
• People are still buying and selling homes, just not at the same levels.
• The recent passage of the bailout bill is a step in the right direction, but it will take time to see the results work their way into the economy.
• The volatility of the financial markets is causing many homebuyers to pause, but the truth of the matter is that market conditions are ideal for first time buyers, move up buyers, and investors.
• Recent actions by the Federal government are starting to thaw the credit freeze.
• We’re starting to see some stabilization in the more affordable markets and markets that are close to major job centers.
• There’s currently a great opportunity to both buy and sell at current market price.
• Interest rates are at historic lows for conforming and FHA loans and there are a variety of great mortgage options available, despite perceptions to the contrary.
• Consumer confidence will take time to rebuild, but in the meantime, it’s important to understand that advantageous market conditions currently exist for those who are motivated to buy.
• With the end of election season, consumers should be less distracted by political campaigning.
Despite the uncertainty of the financial markets, homeownership continues to be one of the most solid investments an individual or family can make.

J. Lennox Scott is Chairman and CEO of John L. Scott Real Estate.

For more information, visit http://www.johnlscott.com/.

Bailout Success Rides on Housing Price Stabilization

The latest AP article by Stevenson Jacobs mentions that this bailout plan can only begin to succeed if home prices stabilize. Jacobs states that experts indicate “home prices must stop falling…sending a signal to banks that the worst has passed and it is safe to start doling out money again.

Franklin, Massachusetts has definitely seen prices drop over the last year or two but fortunately this metro west of Boston area has not taken a huge hit from these economic times. The Warren Group of Banker & Tradesman released its June 2007 to June 2008 sales review which shows Franklin sales are down by 13.75% from a year ago. This is based on sales of 53 homes this year versus 59 sales from 2007–June median home price was $349,000 against last year’s median of $415,900.

So although these are not the greatest statistics, buyers have still been buying well-priced homes and this region has weathered seemingly the worst of the storm. Ask me again in 4 months as we watch and hope for better economic times…

Analysis Paralysis

I feel compelled to comment on today’s Boston Sunday Globe article entitled “Wrestling with buyer’s anxiety”. As a metrowest of Boston Realtor as well as a lover of bargain-shopping, I can totally understand and empathize with a buyer who is hesitant to purchase when the media is bombarding us with doom and gloom about the financial crisis and declining housing market. What a prospective buyer needs to remember is that negative news/sensationalism sells and the media is digging for doom to report everywhere we look. Another point worth noting is that there is a significant inventory of affordable homes, and interest rates are relatively low so a buyer with good credit and 5-10% down can have many homes to choose from. There are very few buyers overall who have both good credit and deposit money so buyers in this greater Boston area are not competing with many other buyers for the same home, therefore the odds are a reasonable offer on a home may just be accepted by the seller. During a busy market, the competition is fierce which leaves many buyers dealing with multiple offers and bidding wars which only create stress and frustration for all those involved.
I wholeheartedly agree that in order to break through this overanalysis of the market thus paralysis, a buyer needs to consider whether the home is affordable and if they will intend to stay awhile. Most buyers will likely stay in their home at least 5-7 years so the home will certainly appreciate rather than depreciate by then. Simply becoming a homeowner rather than a renter has many obvious perks including tax write-offs, etc. Another question to ask, according to the article, is whether the home price is as good as it will get. This is probably one of the most important points since the chances of home prices coming down much more than another $10,000 or $20,000 is slim in the overall scheme of things particularly if a buyer will stay in the home for 5-7 years–the difference in home price will not matter much unless you move out in only 1-2 years.
It is understandable to feel apprehensive about making a large purchase on a home now but the well-qualified buyer will profit with low home prices and low interest rates. In 7 years they will have had the benefits of tax write-offs and home appreciation while their nervous friends are still sitting–watching, waiting and analyzing on the sidelines without a home.

Why This Autumn Is a Great Time to Buy

This fall could be a particularly great time for first-time or buyers long out of the market to jump in, say a variety of real estate professionals.

Here are the reasons why:

Prices are probably as low as they are going to go as the market stabilizes, thanks to the government takeover of Freddie Mac and Fannie Mae.
Interest rates are likely to decline as Freddie and Fannie get government help.
The Federal Housing Administration recently boosted its loan limits to $729,750 in expensive areas. It’s going to take some of that back come Jan. 1, when the loan limit will shrink to $625,500.

The FHA allows down payments of as little as 3 percent, but that will rise to 3.5 percent as of Oct. 1. People scraping dollars together for a down payment should try to set their closing for the end of this month.

The tax credit will shave $7,500 off a first-time buyer’s federal tax bill due April 15. Buyers who don’t owe tax, will get the money as a refund.

The government’s definition of a first-time buyer is anyone who hasn’t owned a home in the last three years.

Source: The Washington Post, Elizabeth Razzi (09/07/08)

Boston Home Prices Looking Up

From this morning’s Boston Globe:

This is not a misprint. House prices in the Boston area increased not for one, but for two straight months this spring, according to the widely tracked S&P/Case-Shiller home price index. In May, prices increased 1 percent from the previous month, following a 0.1 percent gain in April. These were the metropolitan area’s first monthly price increases since July 2007.

Metro Boston was one of just five US metropolitan areas with rising house prices during that period. Other cities posting at least two months of rising prices were Charlotte, N.C., Dallas, Denver, and Portland, Ore.

David Blitzer, chairman of Standard & Poor’s index committee, said Boston would recover from the housing slump sooner because home prices peaked and then began declining here much earlier than in other parts of the country.

“Boston may not be the first city to recover, but it’s certainly going to be among the first cities to recover,” Blitzer said. “If I’m hunting for good news, I have a better chance of finding it in Boston than in Miami.”

House prices peaked in the Boston area in September 2005 and have dropped 11.9 percent since then, he said. In contrast, Las Vegas prices have plunged 31.4 percent since peaking in August 2006, nearly a year after Boston’s. And Washington, D.C., prices have fallen 20.6 percent since their peak in May 2006.

The S&P/Case-Shiller index is watched closely by economists, who consider it among the most accurate gauges of housing prices. The complex index is considered highly reliable because it tracks actual prices of repeat sales of the same house. Each house’s sale price is compared with its sale prices in prior transactions.

Other housing reports, such as the most recent monthly results released by Warren Group and the Massachusetts Association of Realtors on Monday, calculate the median price – or midpoint – of sales during the month. They then compare them with the median prices of a basket of homes sold in a prior period, even though the types of homes sold during that time could be very different.

Reports from local real estate groups out this week show home prices in the Boston area rising in June compared with May.

Over the past year, according to the Case-Shiller index, Boston-area home prices have dropped 6.2 percent, which puts housing values back to where they were in early 2004. Nationally, the results are much worse: The 15.8 percent decline is the steepest one-year decline in the 21 years of the index.

Housing economists said yesterday the Boston area would have to post several more months of rising prices to show a turnaround in the housing market.

Also, sales often pick up during the spring, the busiest time of the year even in a slow market, and analysts noted that the index showed Boston’s prices rising last spring, too.

Michael Lynch, an economist for Global Insight, a Waltham economic consulting firm, said he would not change his forecast based on Case-Shiller’s results. He predicted Boston’s house prices will not start to turn up until the middle of 2009.

“We have prices falling into 2009, with your turning point coming next year,” he said.

Kimberly Blanton can be reached at blanton@globe.com.

© Copyright 2008 Globe Newspaper Company.

Why Should I Own a Home Anyway?

Paul Krugman, of the New York Times, writes that our general American outlook is against renting and actually views renters as “unpatriotic” regardless of political party affiliations. It is an interesting concept and I am well aware of all the reasons that Realtors and Mortgage Brokers remind people of the benefits of homeownership (I can hear you thinking so I will add that this is hopefully separate from our own financial incentives). He adds that “because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing. On top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — provide cheap financing for home buyers; investors who want to provide rental housing are on their own.”

Krugman raises some valid points that home ownership is not for everyone especially given the financial risks involved. This is a very big reason not to own since someone who has trouble paying their bills, either due to lack of money coming in or excess money going out, is not going to prove to be a good candidate for the financial resposibilities of home ownership. I do agree that the government could have some incentives for renters and not only favor homeowners.

There are clearly benefits, tax and other, to owning a home but it is and always will be not for everyone.

Waiting for the Market to Change

When a seller tells a Realtor that they are waiting to sell their home until the market changes what they have difficulty realizing is that those prices will rise for all homes in that area. The couple who have no mortgage and want to wait a year or 5 years for a market correction will potentially get more for their home sale but they will also pay more for the home they will need to purchase.
Eric Berman, of the Massachusetts Association of Realtors, reminds us that if a buyer is prepared then the time is fantastic to purchase a home this summer. Obtaining a credit report, getting a pre-approval with the ability to put at least 5% down as well as calculating the costs of homeownership (taxes, insurance, utility bills, maintenance,etc.), understanding the home buying process and working with a Realtor will enable a buyer to make an informed and educated purchase of their largest investment.
In the local Franklin, Massachusetts area the general public would be surprised to learn that some homes are getting multiple offers just like in the “hot market” times of 2004-2005. The homes that are priced right and show well are getting scooped up within a few days on the market while the other 90% of homes will languish for 6-9 months until the price is right.

Local Restaurant Scores Big

King St. Cafe & Deli in Franklin, Massachusetts is one of those places that only the locals know about. The atmosphere is simple, rather minimalist but perfect for a lunch with a friend, or a breakfast work meeting. The menu is extensive and very reasonably priced. The best thing is the food (I have tried most of it) is very, very good and I am a very fussy diner! The breakfasts are not greasy at all and the portions are generous without being overbearing. For lunch, I just had the Spinach Pecan Salad with goat cheese and it was fantastic. I want everyone to know about this great “unknown” Franklin eating spot as long as they don’t take my parking place!