Wednesday, April 18, 2012

Willard "Mitt" Romney: A Pig in a Poke, Redux

The issues from outside the box
by Jim Johnson

Willard Romney, the likely Republican nominee for the Presidency, has sought to position himself as the one candidate, through his understanding of the economy, with the wherewithal to pull our nation out of the recession. While offering no evidence of his self aggrandizing claims, he similarly declares that President Obama lacks the real-life experience in the real world of business to understand job creation. But Willard demonstrates to those who understand economic principle that he should have spent more classroom hours learning how an economy functions than in his business administration classes—learning only how to make money for himself. Economics is a purely academic study that has as little to do with business administration as business administration—and decades of real world experience in the business sector—has to do with shaping economic policy, and every indication is that his policy will prove to be a disastrous failure .

Those who are as yet unfamiliar with what a pig in a poke Willard has demonstrated his economic plans to be should familiarize themselves with that before they buy into it, but need only know the latest revelations about his agenda to know just how little he knows about economic principle—and the real world ramifications of his policy—and just what he meant when he said he was not concerned about the poor. He has now let it slip that he wants to eliminate the Department of Housing and Urban Development (HUD). But more tellingly, it demonstrates how little he understands about the economics of the real world, and how devastating an impact his agenda would have on the economic recovery and especially on the middle class.

The housing industry has long been recognized as the key to the creation of wealth, and to the recovery. The role HUD plays through the Federal Housing Administration (FHA) has been instrumental in pulling the US economy up since the FHA was founded in 1934, and played a key role in the growth in home ownership that fueled the post WW II housing boom and economic expansion of the 1950s and 1960s. The introduction of the FHA low down payment, thirty year mortgage loan has made home ownership possible for over 34 million home owners, and fostered financial security in a way that no other investment available to the middle class could offer.

The majority of retirees who enjoy financial security today owe that security to the equity they have taken out of their home, or which they still retain in the homes they have bought and sold. The principal reason for this unique fact is that the financing available, and especially the low down payment loans available through the FHA, are a leveraged investment. Since current FHA loan limits vary based on area median home price, and fall within the range of $271,050 and $625,500, HUD's benefits accrue in a big way to anyone earning up to $200,000.

Since buying a home usually entails a lower monthly payment than rent, you can realistically discount as relevant any monthly mortgage payment as a cost of an investment in a home. Everyone has to live somewhere. The value to the home owner lies in the fact that the appreciation in value for a $3,500 investment in a $100,000 home will accrue not against the principal (the down payment), but against the value of the property. Before the crash, it was not unusual for appreciation rates to be at least 2 percent to 3 percent per year. Thus, a homeowner's $3,500 initial investment would have earned $2,000 to $3,000 in a year. Without even considering the lower cost of living that ownership may have provided over renting, and the home mortgage interest deduction at tax time (which Willard also wants to eliminate), this is an incredible investment opportunity!

Not only does ongoing Republican hegemony threaten this benefit from HUD to the middle class, but the societal costs of what it threatens for the poor are all but unimaginable. HUD also sets standards for, and through the FHA, financing for private investors and public housing, in addition to housing vouchers, without which millions of low income families could not afford rent. In addition to potentially thrusting the number of homeless people to stratospherically high numbers, the ramifications for people at every income level are little short of devastating.

Investors in multifamily apartments that cooperate with HUD's voucher program would either need to put most of its tenants out on the street—and endure the significant costs of evictions in addition to foregone revenue from the rentals—or simply endure their losses or reduced revenues to keep the development open. This later makes no business sense, and the potential for the ensuing glut of rentals would tend to lower rents to an unprofitable level no matter what they did. A more likely scenario would be that they would be abandoned to foreclosure as real estate investment trust after trust went into bankruptcy.

The net effect would reduce the economy of the United States to something more closely resembling the still struggling economies of our South American neighbors. Economies do not operate within the make-money parameters of business and business finance, but rise and fall based on governmental policy that fosters economic development. This is a basic truth as alien to Willard Romney and the rest of the reactionary Republican cabal as love is to a stone. While they are fond of saying that you cannot spend your way to prosperity, there is evidence that you can—and no evidence that you can cut your way to prosperity outside the limited considerations of an individual business enterprise. Truly, buying into anything they offer as a solution to our nations economic recovery that will take us into economic prosperity is like buying a pig in a poke.

Thursday, August 18, 2011

What the Single Family Home Sales Trend Since 2005 Actually Means

More than ever, home owners need an agent whose understanding of marketing can position their home and differentiate it from the competition if they hope to sell at the highest net in the shortest time. The underlying reason for this is not always in full perspective, not even for professionals. The reason for this is that the National Association of REALTORS® (NAR) data on existing home sales falls short of providing meaningful long term data.
The monthly trend reports from NAR may serve to show how today's market stacks up against market activity in the short term, but even the three year trend reports hardly reflect the state of affairs five years into the economic downturn. Just saying that inventories are at a given level hardly improves the perspective, especially when no standard is given by which they can be compared. Nor does the data on the decline in housing values provide meaningful context for how difficult it is to sell homes in the current market.

A somewhat clearer picture emerges from other news sources, but even they focus on short term trends. The most notable fact relevant to those selling their home is that a sharp uptick in investor activity, 18% of sales in July 2011, is what is what has been driving the nominal increases in sales since January 2011.

The following data was taken from the San Antonio MLS, 2010 census reports and other sources. It does not reflect the actual state of the market in other locations. It does however paint a shockingly gloomy look into a market in a location that was not as badly affected as most other large cities.
  • There is an eight month inventory of homes on the market, nearly double the inventory in 2005.
  • Only about 16,500 homes will have sold by the end of 2011—down from a high of 24,300 in 2006.
  • If the figures are adjusted for population growth over the same period, home sales will have dropped 36% since 2006.
  • Despite the First-time Buyer Tax Credit, there were about 800 fewer sales in 2009 than 2008, and 400 fewer sales in 2010 than 2009.
  • Only about 42% of the funds earmarked for the tax credit were ever claimed.
Single Family Home Sales Trend Since 2005 (San Antonio MLS)

Year Units Sold* Annual Decline Decline Since 2006 Sales as of 08/15 Sold after 08/15

2005 21947

Basis Date: 2006 24307 110.75% 1.11 15566 35.96%

2007 22339 91.90% 0.92 14593 34.67%

2008 18127 81.15% 0.75 12049 33.53%

2009 17417 96.08% 0.72 10519 39.60%

2010 17063 97.97% 0.70 11108 34.90%
As of: 08/16 2011 10877

Average** → 35.73%
Projected: 2011 16968 99.45% 0.70

15595 91.40% 0.64

* San Antonio MLS

** Average used for projected sales through 2011
*** Metro SA population grew an estimated 8.8% from 2005 to 2010

In addition to bone crunching personal debt and economic misfortune that has sent credit ratings into a downward spiral, consumer confidence is at an all time low. A new paradigm in personal finances is also emerging. People are paying off old debt in lieu of acquiring new debt.
Additionally, lenders have raised FICO scores for most buyers 60 points from the 2005 level to 740, and 780 for Jumbo loans.
A striking difference divides sales data for the high and low end of the market as well. While 8:10 homes priced below $300,000 sell at an average of 97% or more of their final list price in the initial listing period, only 2:3 homes priced above $350,000 sell within the same parameters. On the average, the remainder of the high-end homes remain on the market nearly a year, and sell at 93.2% of their final list price—after being discounted more than 10% below the initial list price

It is almost a mantra in the business that reducing the price will result in a quicker sale, and this all too typical article of faith among even the most experienced agents has resulted in an overall decline in luxury home values of 16% to 18%. Yet the bottom line is that there are fewer buyers in the market, and bargain basement prices on homes and historically low interest rates are not bringing them into the market. The competition for the individual buyer has never been more fierce, and success in attracting a buyer will require a remarkably comprehensive marketing plan that far exceeds the experience or understanding of even many of the most successful agents in the business.

Friday, August 12, 2011

FSBO Dot Com Founder Uses Agent to Sell Home

This is a total hoot!

It raises the question of whether the leader is the greater fool, or those who follow.

Follow the link to the whole story on

Wednesday, July 27, 2011

Follow the Fizzber Saga on YouTube

Despite the advent of FSBO dot coms, owners still face a daunting ordeal when selling a home by owner. The Fizzber Saga will track Fizzber through his experience. Will Fizzber succeed? Follow him and his friend, REALTOR Suzie, through the unpredictable events that are part and parcel of the real estate business.

 To keep up with all the episodes, go to my YouTube Channel, and subscribe to stay in the loop.

Thursday, July 21, 2011

How To Buy A Home For Sale By Owner

This topic has already been addressed in "How To Buy A Home For Sale By Owner" on There are however a few interesting stats that beg an update.

The most current Profile of Home Buyers and Sellers from the National Association of Realtors® found that fewer than 1:5 buyers search the FSBO dot com Web sites. Additionally, only 9% of the homes offered for sale in 2010 were FSBOs, and 88% of the homes that sold were Agent-assisted sales, 5% were sold to someone the seller knew and the remainder were sold to others.
Anecdotally, it's worth noting that FSBOs seem to reach the desperation phase somewhere between two and three months, and represent a virtually untapped resource for buyers. They are not easy prey though, at least not for most buyers. Reading the original article should help, but will not be a 1:1 substitute for a seasoned professional buyer's agent.

Wednesday, April 27, 2011

What Do You Save By Not Having A Buyer's Agent?

This ties nicely with each of the last three posts to this BLOG. It was a post to the Berkley Parents Network forum, and begs the question of why people begrudge the commission earned by real estate agents, when they know so little about even the most basic aspects of the business.

We could save $45,000 by not having an agent

May 2010 

My husband and I own a home in Oakland and we are moving to Lamorinda soon. We are looking at homes priced around $1.5m. My husband recently read an article on buying a home without an agent and is now very interested to do so (we would hire an attorney to represent our legal interests in this case). With commissions to the buying agent at 3%, we could potentially save $45,000 by not having an agent. 

We don't need many of the services that an agent can offer as we can find our own home, we can attend our own open houses, we don't need handholding, etc. Paying someone $45,000 simply to present our offer and negotiate the deal/paperwork seems ridiculous. Has anyone gone this route and how did it work out? Alternatively, are there any agents who work on a flat fee or who work for, say, a 1% commission (that's still $15,000 in our scenario)? We're open to paying an agent or attorney a reasonable fee, but would like to get away from the traditional compensation model. Any tips and advice would be greatly appreciated! Thank you! 

Just as an aside, we are planning to use an agent to sell our home in Oakland. I can see the benefit of using an agent on the sell side of the transaction more than the other way around. East Bay Mom 

The next question is how much more can East Bay Mom's (EBM) husband (H) be earning than he deserves if he is so unaware as to believe he will save money just to negotiate a sales price and shuffle a few papers.

First, the seller pays the commission. EBM & H would therefore have to look only at FSBOs to deny an agent the commission. How then would EBM & H know whether the asking price was in line with the property's value? It's not uncommon for FSBOs to price property 30% or more above their value. Then too, they would be limiting their search to 11% of the available properties on the market.

What if EBM & H do look at agency listed properties? The agent they contact will represent the seller, and get the whole $90,000 commission without doing more than making sure the seller gets the best end of the bargain and shuffling the paperwork—and without even holding her hand. Is that "fair?"

In the decade (plus) that I have been in the business, I have encountered numerous professionals with decades of experience who seem not to know what they are doing. Nonetheless, EBM & H would do well to follow the advice the respondents posted to her post, and find a buyer's agent—and find one who has earned the ABR® designation.

Tuesday, April 26, 2011

How To Sell Your Home Without a REALTOR®!

Our times, as Dickens put it, "was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness. . . ." Even in the best of times, it was difficult to fault a home owner for wanting to sell their home without a REALTOR®. Today, many home owners find it necessary to do so just to cut their losses. Few know what is in store for them though, and fewer still will succeed.

The reasons so few owners successfully sell their home are manifold. The reasons begin with owners not realizing that they are in the business of selling real estate, and that it is as competitive a business as any they can imagine. The next reason is that they go into business without a workable plan, which is to say that they plan to fail. There are also at least 15 pitfalls that they fall into, and even the difference between success and failure is not cut and dried. Even the 20% of sellers who succeed in selling their home by owner very often net less than they would had they used and agent.

Many believe that the Internet is the ultimate source for information, and place their faith in being able to learn how to sell their homes by owner by searching for information online. They will certainly find a lot of free information. As good as the advice they find may be, none of it will help, because none of it includes a marketing plan.

The available advice comes primarily from three sources, real estate professionals who hope to ingratiate sellers who will list with them when they fail, out-of-their-element journalists who seem to get their advice from the agents, and the FSBO dot coms—which have a laundry list of ulterior motives for wanting sellers to believe that their Web site is the silver bullet that will slay the werewolf of failure.

If you are interested in selling your home without a REALTOR®, does it make sense to go into the real estate business without a well thought out plan? Today's market is the most competitive in history, and especially so for the luxury home market.

Selling Your Home By Owner is a proven marketing plan that could well reverse the stats for owners who want to sell a home without a REALTOR®. This eBooklet provides everything you need to know about selling your home by owner, and the tools you need to do it:
  • Marketing advice to help you maximize exposure of your home to the market.
  • A marketing plan that can help overcome the odds against success.
  • A marketing strategy to help you maximize your net proceeds.
  • In-depth tips for successful selling.
  • Industry insight to the FSBO dot com marketplace.
  • A title Insurance rate chart.
  • The required legal disclosure forms.
  • Spreadsheets for calculating seller net proceeds and buyer closing costs.
Go for it—and good luck!