Sushi Money

Lots of ways to look at the challenges out there. If you’re curious how the tax rebate plan will affect you, the WSJ provides The Skinny on the Stimulus Plan. Also an interesting look at the most bubbly real estate markets across the U.S.

Lenders are also taking a new look at how to work with consumers.
But even with all the challenges, Anya has it right with how a down market brings both reality and opportunity to the table.

    Among our many personal finance challenges, selling a home can be a daunting task even in the best of times.  And now isn’t the best of times for most of the nation.  Okay, an understatement to be sure- the housing “slump” has gone on for more than a year and most experts are not predicting a turn-around any time soon.  But depending on where you live, real estate may not be too bad, with some economists even seeing a turnaround in progress in places such as Denver, Colorado for example.  Many metropolitan niche markets across the nation are also doing fine… but most of us don’t live in those places.  So lets not get ahead of ourselves- in 2007 housing construction fell by the largest amount in almost three decades in an unprecedented national downturn.  And foreclosures may continue to rise over the first half of 2008 before finally stablizing later this year.

 ”Mark Zandi, chief economist at Moody’s Economy.com, is forecasting that median sales prices for existing homes will fall by 2.5 percent for all of 2007, which would be the first annual price decline on records that go back four decades.”

Yet even with the pessimism, there is reason to hope.  The National Association of Realtors (NAR) forecasts existing home sales for 2008 to stablize and gradually increase.  And for many people, it’s time to buy or sell a home regardless of what the market is doing.   For others the rental market looks pretty good right now as well.

Our lives are so often a tangle of priorities.  If you are selling a home because of a job change or family situation change, then your proverbial plate is pretty darn full.   And if you’re selling because home ownership (and mortgage debt) is not something you can or want to handle anymore, then you may feel a lot of stress based on finances and a need for change.  Heck- selling a home is never easy no matter what your situation.  But if you’ve got some time on your side it can make the process a lot easier.

On that note there is a wealth of information available, and it bears repeating a few key themes.  Bankrate.com has written about 8 Tips for Pricing Your Home.   Solid information that boils down to knowing your market, seeking professional help and working hard to understand valuation and price strategies.  But I think we can do a lot more.  We looked at some of those strategies in Get Ready to Sell That House.    Selling by owner is also a challenge, so think hard about the FSBO approach.  And if you’re facing financial challenge and struggling with mortgage payments, we examined what you can do to avoid foreclosure.

Among all the negative news and gloom out there I try not to give into the hype.  The day is a lot brighter when I simply focus on our personal goals and priorities while turning down the volume of pessimistic commentary from the media.  I won’t tune it out completely because it’s important to stay informed.  But as with so many things, finding a balance in life is important.  A few years from now our memories will fade as we face the challenges of a new day.  I prefer to envision a positive future… setting  intentions for what we plan to achieve over time.  We can create a new future…  I wish you well!

      No matter what we read about the real estate market, there are still people who want to buy homes to live in.   There are always buyers and sellers, even in down markets.  Naturally this is a challenging time to be selling a home, but it’s a wonderful opportunity for a potential buyer.  I think it’s worth remembering that… there are buyers out there! The Street.com talks about opportunity for buyers in How to Get an Even Better Deal on a Home.   Their main idea?  Buying a FSBO, or For Sale By Owner house.  It’s an idea that works, both for the seller and buyer.  But it’s not always easy… especially for the seller!  I’ve bought and sold by owner, and would consider it again.  But as a buyer, I would definitely use a real estate agent as a “buyer’s agent” during the process.  And you really need to make sure “why” you’re buying the house.  Hopefully by now, most potential homebuyers are under no illusions about their home as a potential investment.  It may very well be a good investment many years from now…  but don’t be surprised if it’s value doesn’t go anywhere for a long, long time.  I’ve written about my experience with that process before!  But what a great opportunity buyers have if they do know what they’re looking for right now.

      If you’re selling your home, know that going the FSBO route takes enormous patience and dedication, but can also be very satisfying if you’re a “do-it-yourself” type… and you succeed.  While your waiting, showing and being patient, it isn’t very satisfying at all!  Unless of course you have plenty of time and don’t mind keeping your home “show-ready” for months on end. But it can save a lot of money if all goes as planned. In the current market climate however, I’m not sure I would go the FSBO route unless very confident about the process and the home I was trying to sell, especially as compared to the “competition” around the local area.   

      If you do decide on the FSBO approach, the article above alludes to several strategies and helpful interent companies such as ForSaleByOwner.com.  I’ve used them successfully, but I think the single most important factor was being able to get the house listed in the MLS (Multiple Listing Service).  So even though I managed and sold the home as a FSBO, it was listed on the MLS for agents to see. 

  Three Northwestern University professors who wrote an August study about the FSBO market say that MLS-listed homes do not necessarily deliver a higher price, but do offer a higher probability of a quick sale, within 60 or 90 days. In addition, roughly 20% of FSBO listings end up relisting in the MLS, which translates into a longer time on the market. Thus, one of the advantages of MLS is a shorter time to sale, which translates into savings (on mortgage, taxes and insurance).

      Of course some people would do almost anything to sell their home right now.   That’s where buyers have the real advantage today, and the single greatest factor, as always, is price.  I’ve talked before about the things you can do as a seller to present your home.  It’s absolutely essential right now.

Well, not everyone appreciates the government’s effort to try and help homeowners facing mortgage challenges. I can understand both sides of the issue, I just think that doing something is a lot better than nothing in the current economic climate. A recent USA Today editorial makes a similar case, and says “Freeze those teasers.” But others take a more hard line view such as Mr. John Berlau at the Center for Entrepreneurship at the Competitive Enterprise Institute. Interesting viewpoint, but I just don’t think it’s really that significant over the long term. Reform is necessary in the mortgage lending industry, and I suspect legitimate mortgage lenders will work a little harder to ensure clients understand the terms of mortgage loan contracts in the years ahead. Is it Congress’ turn now? We may see additional legislation to try and help people facing ARM resets and foreclosure. How do you feel about it?

President Bush announced a deal with the mortgage industry that may help a lot of people across the country. I’m no fan of bailouts, but I see this as a good thing. When I look at the balance between the mortgage industry, mortgage brokers and banks, and the real estate market- I think there are plenty of responsible homeowners who were sold products that were simply not appropriate. Should they have known better? Probably. Should the mortgage industry and brokers be blamed? Probably. But should we let potential foreclosures and the worst real estate market in generations affect the national economy? No… I don’t think so.

“We should not bail out lenders, real estate speculators or those made the reckless decision to buy a home they knew they could never afford,” Bush said after meeting with industry leaders at the White House. “But there are some responsible homeowners who could avoid foreclosure with some assistance.”

For those who do need help, and meet the criteria established, maybe this is a good thing for the nation as a whole. It really only affects people who still live in their homes, took out mortgages between 2005 and this past summer, and who have paid their loans on time, but are about to be “reset” for much higher rates. Doesn’t help everybody, but then again it’s not designed to do that.

“There is no perfect solution,” President Bush said Thursday as he announced an agreement hammered out with the mortgage industry. “The homeowners deserve our help. The steps I’ve outlined today are a sensible response to a serious challenge.”

You know what I find amazing? This was a deal hammered out between the government leadership and private industry- without the involvement of Congress. There was no legislation or bill sent from Congress to the President to make this happen. I think that’s remarkable personally. I hope it works, and gets help to those who need it. Here’s the hotline number if you may need assistance: 1-888-995-HOPE

When I read columns by people weighing the pros and cons of actions such as buying real estate, I see opportunity and confusion. Anya Kamenetz writes To Buy or Not To Buy in her Generation Debt column, and talks about the real estate market today. It’s an honest appraisal of the fear of buying into a market that is struggling. She reviews the ups and downs, and comes away with some good advice for estimating a down payment and the reality of home ownership costs. But I think many people are confused by the difference between home ownership and owning a real estate investment property. The real estate boom that peaked in 2005 basically taught people that there wasn’t any difference. But there is.

If you’re a potential home buyer today, what is your real fear? That you will lose your shirt over a few years for how much you spent on a home? Okay, fair enough. If that’s true, then I agree- you’ve probably got no business being a homeowner. Buying, and living in, your own home is primarily a lifestyle, family and geographic choice more than an investment choice. Actually I don’t believe it is an investment choice. Its really meant for long-term ownership, and any investment benefits come way down the road as a reward for disciplined mortgage payments and long-term market appreciation. But it’s expensive, and there are no guarantees. From what I’ve read, the long-term return on real esate (30 + years) has typically averaged around 6 %. You can do a lot better in the stock market for that length of time.

So if someone anticpates moving in a few years, then why buy a home in the first place? The risk is that you tie up your money in a piece of property that isn’t going to sell, and may be worth less when you do sell it. Admittedly, many people buy that home and don’t anticipate that they’ll need to move in a few years. People get transferred, divorced, decide to move, etc. But that used to be the exception before we became such a mobile society.

I’ve been there… I bought a home and was suprised to be transferred less than two years later. Did I sell it? Nope. The market was stagnant and I had to sit with that home for a long time. I didn’t want to lose money, so I rented it. For a long time… like 13 years. Some of those years were pretty tough, especially with mortgage rates, maintenance costs, management costs (I was an out-of-town landlord), insurance and taxes. When I finally did sell, it worked out okay- and we used the money from that home to help purchase a primary home where we settled down for good. But I will tell you that there were many long years of renting that house with negative cash flow that were a challenge for me. And we didn’t have the income to purchase another home until much later. When we moved around during that timeframe, we usually rented. That was okay- we had no intention of staying in most of those places. I still carried that other home “on the books” for many years.

But you know what? That home that I was stuck with, that I couldn’t sell, that was such a hassle dealing with for many years also turned out to be a decent investment and tax shelter. The rental income losses offset my income, and all the time I continued to pay down the mortgage year after year. Well three mortgages/refinanced loans later anyway. By the time it sold I figure my annualized gain was about 9-10 %, not including the tax advantages and the equity in the home from paying the mortgage. That’s why I see such a stark difference in home ownership and owning real estate as an investment. It may not have started out that way, but that home was a rental real estate investment, plain and simple. Can the home you live in be a good investment? Absolutely… in some markets people have become wealthy by owning real estate the lived in. But it may take a very long time with few guarantees beyond a nice place to live. It helps if you’ve got a mortgage you can live with as well.

My reasons for owning, and living in, a home come down to making a place for our family to grow. In some ways it’s still a new experience. I really haven’t lived in any one home or location for more than three years for my entire life. Yet now we hope to stay in the same home for 15-20 years or more! Personally that’s a pretty good feeling… I don’t need to pay attention to the real estate market per se. In other words, I don’t spend time thinking or worrying about it becuase it’s not relevant right now. Ask me again in 10-15 years and I’ll probably have a different answer. The same for the stock market, retirement funds and investing… if I’m saving and investing for the long-term, then why worry so much right now? As I approach retirement one day, I’ll be a lot more interested in what the market is doing to my retirement assets.

So instead of fear and confusion, I see a lot of opportunity today for potential home buyers, especially those who know where they want to live, how long they want to be there, and how much they are willing to spend. The real estate market will probably struggle for a couple more years at least, and there will be many buying opportunities along the way. But if you’re set on becoming a homeowner, then find a place you really like at a fair market price, and plan to stay there a long time (5-10 years +). If you’re not planning to live in that home very long, then you proabably are better off renting.

And by the way, that home that became rental property for so many years? It didn’t start increasing in value until after the 8 year mark! If I had sold any time during the first 8 years, at best I would have broken even. For many people, breaking even on a home they live in is just fine… they’ve had the pleasure of living there all that time. But if it’s a rental property? That’s a tough place to be. Make sure it’s what you want to do with your time and money!

  So the FDIC Chairman is advocating freezing ARM rates for mortgage borrowers who are in trouble?  Wow…  I have to say I have very mixed feelings about this proposition.  Especially since the percentage of mortgage borrowers in trouble is very small compared to the mortgage spectrum across the nation.  What signal are we sending to lenders and borrowers if we travel down this road?

“Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it,” Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor’s conference.

   In many ways that does not seem fair at all to millions of homeowners and mortgage holders that prudently shopped for their loan and took out more appropriate loan terms, most likely with higher interest rates.  For example, let’s say borrower #1 found a really big house for $450,000 (that they shouldn’t have been purchasing), and took out an ARM with a low teaser rate for 1-3 years.  Now they’re in trouble making payments.  Borrower #2 bought a house at the same time, but realized they couldn’t afford such a large mortgage, and didn’t want to take the risk of an ARM with potentially higher rates in the future.  They would have loved that $450,000 house… but they could only afford a $300,000 house with a higher fixed rate loan.  They continue to make their payments at the higher fixed rate, and are somewhat mystified that those who got low rate teaser ARM loans might now be rewarded and get their loans converted to fixed rate loans, maybe even at lower rates?   So what kind of incentive is that for people to make prudent decisions in the future?  What does that say to future potential homeowners and mortgage borrowers?   I think it says to do whatever the heck you want and you don’t have to worry about the financial consequences.  Which is absolutely wrong of course.

    I think people who have made prudent decisions have a right to wonder about this.  Some of the least appropriate lending decisions and home buying decisions have been made by people who misrepresented both income and their ability to repay a loan.  Perhaps unintentionally for many people as well.  But now that real estate has dropped in value for many homeowners, why is it in the nation’s best interest to reward those who put themselves in this situation?   I’m really kind of curious as to what most people think.  Am I off base?  Someone please explain it to me…