I’ve held a real estate agent’s license since 1980 and I’ve remodeled and flipped a handful of homes over the past couple of decades. As a result I’ve had plenty of opportunity to view dozens of foreclosed properties over the the years. I’ve always been puzzled as to why the property managers charged with the responsibility for marketing these foreclosed properties never seem to follow any of the etablished rules for marketing real estate.
A majority of foreclosed properties are inadequately maintained and in disrepair when they are taken into the possession of the property managers employed by the government or the mortgage servicer charged with liquidating these bank owned properties.
Even though the government, mortgage servicers, and banks have deep pockets, they all seems to adhere to the policy that repairing or otherwise spending money on these properties for the purpose of preparing them for sale is throwing good money after bad.
Successful real estate brokers understand that staging a residential property prior to listing it is the most important element of marketing a property. Statistics show that sellers that “stage” properties prior to listing them for sale achieve significantly higher prices for homes compared to those that are inadequately prepared.
Do you understand the President’s new housing plan? It’s supposed to help prevent foreclosures. Even after the plan “details” were released on March 4th, there are still lots of unanswered questions. And for now there have been no official releases that answer these questions. The few details that have been released should create some concern. Who thinks these things up anyway?
To understand what’s going on here, let’s lay the groundwork. The bulk of loans in the United States are underwritten (the process of deciding whether a borrower is financially qualified for a loan) according to Fannie Mae and Freddie Mac udnerwriting guidelines. One of the factors used in determining whether applicants are creditworthy is the evaluation of their debt in relation to income. Simply stated, borrowers who have high debt in relation to their income are less creditworthy than those with lower debts or higher income.
In evaluating this relationship lenders rely on two variations of debt ratios. One is referred to as the “top-end” ratio. It’s the ratio that an applicant’s housing expense bears to his or her gross monthly income. The “housing expense” includes all mortgage payments secured by the property together with the monthly amount of taxes and hazard insurance associated with the property. The definition of housing expense has recently been amended to also include association dues owed in connection with ownership of the property. The housing expense is often referred to under the acronym “PITIA” (representing “principal”, “interest”, “taxes”, “insurance” and “association dues”).
I’ve held a real estate agent’s license since 1980 and I’ve remodeled and flipped a handful of homes over the past couple of decades. As a result I’ve had plenty of opportunity to view dozens of foreclosed properties over the the years. I’ve always been puzzled as to why the property managers charged with the responsibility for marketing these foreclosed properties never seem to follow any of the etablished rules for marketing real estate.
A majority of foreclosed properties are inadequately maintained and in disrepair when they are taken into the possession of the property managers employed by the government or the mortgage servicer charged with liquidating these bank owned properties.
Even though the government, mortgage servicers, and banks have deep pockets, they all seems to adhere to the policy that repairing or otherwise spending money on these properties for the purpose of preparing them for sale is throwing good money after bad.
Successful real estate brokers understand that staging a residential property prior to listing it is the most important element of marketing a property. Statistics show that sellers that “stage” properties prior to listing them for sale achieve significantly higher prices for homes compared to those that are inadequately prepared.
Homeowners, especially those in Arizona, California and Florida, have seen a significant decline in the value of their homes during the past two years. But the plite of most of these homeowners is not as bad as it might appear at first glance. Based on analysis of real estate appreciation over the past two and half decades, any government plan that would subsidize a homeowner’s mortgage payment or require a principal reduction based on the declining value of the home securing the mortgage would be inappropriate and would, in fact, enable some homeowners to receive a windfall from the current economic situation.
This conclusion is based on an analysis of the historical data for the median home sales price in the San Diego metroplitan area for each year from 1982 through 2008.
The blue line in the graph shows the actual median sales price each year during the period from 1997 through 2008.
The purple and green lines show what those prices would have been based on historical trends during the preceding twenty five years. (Click here to see the methodology used for establishing the purple and green trend lines.)
On March 4th the Obama administration will roll out it’s Housing Affordability and Stablity Plan, the President’s plan for the mortgage industry revamp. The plan is a group of three separate policies designed to target three separate (but possibly overlapping) housing problems. The first section of the plan targets the perceived problem that the values of properties securing home loans have declined below the outstanding balances on those loans, thereby prohibiting the ability of the owners to refinance to a lower rate and payment. (For a complete rundown on the contents of the plan see this Article in the Business section of NYTimes.com.)
My first concern about the first section of the plan is that the premise on which it is based is misstated. The plan concludes that “…under current rules, most families who owe more than 80% of the value of their homes have a difficult time refinancing.” This is a grossly inaccurate statement. The vast majority of homeowners who fall into the group affected by declining property values have mortgages underwritten according to Fannie Mae and Freddie Mac eligibility requirements. Fannie Mae and Freddie Mac guidelines allow homeowners to refinance up to 95% of the value of their primary residence. The fact that the plan misstates the symptom for the which the remedy is designed should create some degree of skepticism when evaluating the efficacy of the plan.
I’ve been reading a lot about economic stimulus. Mostly partisan rhetoric in posts and comments on blogs, pertaining to whether Roosevelt’s spending spree got us out of the depression or whether it was the spending on WWII that got the job done. Quite frankly, it’s a moot point. Keynesian economics (the premises for FDR’s “New Deal”) was formulated during an epoch when the U.S. economy was based primarily on the production of widgets in factories across this great land.
The world’s changed a lot since then. Most of the widgets are made in China. The U.S. economy is now based on the “sale” (not so much the “production”) of iPODs, automobiles, gasoline, and real estate and on providing SERVICES … LOTS of services. Whether it’s computer programming, nursing, or advertising and selling a Big Mac, this is what today’s economy is all about. And it’s this major difference in today’s world, compared to Roosevelt’s and Keynes’s world, that makes LOTS OF SPENDING on “projects” a little less effective than it used to be for pulling a stagnant economy up off the ground and to its feet.
Matthew Yglesias, in his blog post, In Defense of Stimulus Waste, is right about one thing, “The efficacy of stimulus as stimulus just has to do with how quickly the funds cycle into private hands and then out into the wider economy … “ And this is where the 2009 stimulus package horribly falls short of its intended purpose.
President Obama has characterized his $800 billion plus stimulus bill as being critical to the recovery of the failing economy. The President gets no argument from me about the fact that the government has to do something to reverse the downward spiral. But it’s the manner in which this huge amount of money is being spent that concerns me and should concern every American. Perhaps if my objections were illustrated in an example that even the most uniformed political observer could comprehend. Consider the following.
Mr. Oglethorpe’s Dilemma
Let’s suppose there’s a man named John Oglethorpe. Mr. Oglethorpe has a son, Jimmy, and a daughter Elaine. His wife, Jane, is a homemaker. John Oglethorpe is an insurance agent.
Due to a drop-off in new policies last year, related to the recent drop in home sales, John’s income is down about 25% in 2007 and things are getting pretty tight. He’s got limited available credit … only about $2,000 available on his three bank cards with balances currently totaling over $18,000. He has next to nothing in the bank.
By changing the location of his office, he could save $300 each month in rent. But to do it he’ll have to spend about $1,500 up front to move the office.
Mr. Oglethorpe’s house needs a coat of paint (that will cost $500), the daughter wants to join the drill team (but she will need to buy a uniform costing $400), and the son, Jimmy, has been pleading for a new drum set (that would cost about $600).
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