Were Home Prices the Next "Bubble"? We have a second chance to make a difference.

Real estate leaders  waiving reports claiming home prices are stable to rising might want to pause and read the  December 2004 report titled Are Home Prices The Next "Bubble"?. Authored by Jonathan McCarthy and Richard W. Peach, a VP of the Federal Reserve Bank of New York, this report took apart the warnings of analysts who saw a problem and tried to raise attention to it. McCarthy and Peach used their  credible analytical skills and resources to produce a 17 page document published in the December 2004 edition of the Economic Policy Review which concluded, "Our analysis indicates that a home price bubble does not exist." Nice work fellas.

Unfortunately for America their paper provided the talking points for politicians and real estate leaders.  Here's Barney Frank who in the Spring of 2005 said there was no bubble because the housing business didn't look like the dotcom bubble business. The Chief Economist of the National Association of Realtors gave us this quote in 2005,  "There is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors." When everyone is reading from the same script and the voices of reason are being drowned out by the marching band of brothers in banking, real estate, and government, we might want to proceed with caution.

Maybe we should turn the volume down and take a look at what it took for the real estate prices to run up to their peak,  and see if it's more probable that prices could be moving sideways or even down for a while longer.  Without complex formulas we can see the volume of buyers can not equal what existed in the first decade of the 21st century because (a) the real estate consuming  population has changed from massive Baby Boomers to much smaller Generation X andY, and (b) the lending rules have changed shrinking the pool of eligible people who might qualify for loans.

In Dane County, the consumer demand has changed. Condominiums, built to absorb the people who we assumed wanted apartment kind of living with the apparent advantage of real estate ownership, are being converted to rental units. And instead of building new condominiums, developers are constructing apartments.  The apartments are  being filled faster than they can be built. The "condominium buyer" has turned their backs on ownership and will remain renters indefinitely. Quality farm land was developed into low quality housing. This housing stock built in 2001-08 and sold at 100%+ financing has already been undermined by the houses built by the same developers who unloaded their land by selling new construction houses at a loss.

Housing prices will recover some of the loss in some areas of our market regardless of what mantras are are touted. But broader progress will be made when we let go of  short term profit strategies and spend our energy collecting resources to create solutions to upside down mortgages, foreclosures, empty homes, and unsustainable property tax rates.  The real estate industry, bankers, politicians, lawyers, economists have the talent pool to do whatever we value most. We can lead, or we can follow the past.

Keeping Memories and Selling the House

The school bus stop was at our corner on Shadows Ct. Kids would begin to congregate in our yard at least ten minutes before the bus churned up the hill. Patrick always had his place in line held by his backpack so he could mess around with the other boys. Middle School-Aaron was rarely out the front door before the bus door was opened. Our boy's places were taken over by younger boys over the years... but the routine and chatter never changed. The bus stop is a memory of home with the boys that I'd like to keep long after the house has been turned over to another family. But keeping the house to hold the memories was not an option.

Entering a new era of our lives, unlike our parent's generation, we are leaving the homes where we brought our new-born children home, raised them, and from where we sent them off to pursue their lives. A few years ago the shakeup of our economy disrupted our best laid plans and a vast majority of the 50+ age group went into a holding pattern with respect to house selling and buying. The early expectation of a "months not years" recovery has given way to a reasonable understanding of the complexity of economic recovery. With understanding has come an adjustment in plans and new directions for homeowners who's homes have outgrown them. In 2011, more people got on with the business of living instead of waiting for things outside of their control to get better. Letting go of houses that were homes and taking advantage of low prices and lower interest rates may be a trend on its way to becoming a wave over the next 24 months.

With exceptions, the value of your home is going to be less today than six or seven years ago. In fact, the value of your property may be less in the spring of 2012 than what you could have received in 2009. Unprecedented interest rates have gobbled up buyers as the 8% mortgages have refinanced into rates below 5%. Those people may be comfortable for a long time in their 4% interest rate mortgage, even if their home is not just right.  As real estate sellers, even a threat of another buyer is helpful to shift the imbalance of power. Without a threat of competing demand, people who submit offers to purchase are negotiating in a position of strength. In some cases, another buyer coming forward any time soon is so remote that the buyer with an offer on the table may be in a position of super strength. These buyers have no fear of loss, no reason to flinch, no reason to concede on anything of real value.

If we paid attention this year and believe what we have seen, the way to sell a house is simple, but not without pain. While the work we need to do to get the house ready for sale is physical, the real pain is usually in the net. Repairs, upgrades, paint, landscape work, etc., all of that is necessary and, (sit down now) none of those items will move your home beyond its market value. The days of poorly maintained homes selling for the market value of well maintained homes (which were selling for over-value) are over. Your home must be priced right AND well maintained to get an offer. Then, and only then can you negotiate. If you have no leverage, (competition, don't need the money...) you will be negotiating on items of insignificant value and conceding significantly on price.

If there is any chance you might sell one of the properties you own in 2012, use this time to get the place in tip-top condition. Preparing your house for sale takes time. December might be a great time to plan the work, January and February are perfect for getting work done. March is ideal for letting family and friends know, sharing memories, and boxing up what doesn't need to be displayed. It's also the right time to determine a selling price and moving strategy. Once the house is sold, finding your next home is a pleasure. Where you live in the interim, if there is an interim, is part of the fun. Have a deadline in mind. It helps to stay focused, in control, and keeps you from wavering.

National Association of Realtors--A profile of home buyers and sellers

DID YOU KNOW?

According to the 2011 National Association of REALTORS (NAR) Profile of Home Buyers and Seller which surveyed 5,708 home buyers and sellers this summer, the average American home buyer has changed in the last year.

 

A shift in the age of buyers

The largest share of home buyers is aged 25 to 32 (27 percent), but this share of buyers is down 9 percent in the last year, a considerable drop for a group that continues to dominate the buyer pool. The median age of home buyers has jumped from 39 years old to 45 years old as first time home buyers have dropped to a third of all buyers, down from half of all buyers. (Predictable: Attribute much of this decline to the end of the tax stimulus for first time buyers)

 

A shift in buyers' incomes

The median household income of buyers in America is now $80,900, an increase in income after the previous two years' decline. (Predictable: A smaller percentage of the market going to first time buyers would cause the average income result to be higher)

 

A shift in married couple buyers

For ten years, single people were accounting for an increasing share of buyers, as married person's purchases dropped by 10 percent in that time. In 2011, NAR reports a drop in single home buyers. Married persons accounted for 64 percent of the 2011 sales, the highest number since 2001. 

 

This is worth noting: The trend of single women buyers making a mark in the market has slowed. Eighteen percent of home buyers were single women, the smallest share in six years.

 

The takeway

According to the 2011 NAR Profile of Home Buyers and Sellers, the average American buyer is now older, has a higher income, and is likely married. Single and lower income buyers are sitting on the sidelines as unemployment continues to concern the nation.  Home buyers are now "staying well within their means". Imagine that!

 

Why the drop in first-time home buyers? NAR 2011 President Ron Phipps notes that first time buyers had more challenging financial obstacles to overcome. Phipps said, "First-time home buyers fell from a record high of 50% in 2010 (Tax Credit induced)  to 37 percent market share in the past year. That's just about right where first-time buyer activity should be for the market to be in line with typical years. 

 

For more information, and to read 33 facts every Realtor should know about the NAR 2011 Profile of Home Buyers and Sellers,  click here.

Your Assessment as a Factor in Negotiations

Is your assessed value equal to the price you could reasonably expect to get on the market today? Good question. The table below shows recent sales of Madison west side, single family homes, with sale prices from $250,000 to $350,000, sold in the third quarter this year. Looks like on average owners priced around 106% of assessed value, typically reduced to a price closer to assessment, and accepted offers just slightly above assessment. 

For what it's worth, and maybe this is too small of a sample, maybe the slim gap between sale price and assessment is another indicator that the pressure is on pushing or holding price down. Buyers are using assessment as an argument in their favor. Competition for the property will trump opinion on assessment--if you have more than one buyer, you have competition; scratch that if both buyers are working from the same playbook. 

Real Estate Might Be Your Second Career for POPs

In 1992 I attended a real estate franchise conference in Las Vegas. I was 33 years old and in my fourth year as a Realtor. At 8:30 AM I exited the elevator at the lobby where I waded into a sea of thousands of my peers. Their excitement for the company and industry hoopla was scary intense. It was early and Las Vegas. I wasn't ready for this.  The crowd started moving toward the main hall for the welcome and keynote address. I was swept along in the heavily perfumed, blue haired, business suited, gold and diamond laden, wave of ladies with high heels, and higher pitched voices.... all speaking at once. Like a  10 year old boy in a church full of nuns, I looked for a way out. If there were  men, young or otherwise,  in the group, I didn't see them.  I grabbed the first elevator back to my room. Any one of those Realtors were probably more productive in sales than me. Their talent wasn't what I fled from. I didn't fit in their group.

Twenty years later, I'm a 52 or 53 year old gray haired broker, in an industry where the median age of brokers is 57 according to the NAR 2011 member profile. In the last few years 22% of the Realtors have left the National Association of Realtors (source) . The doors are wide open for new Realtors and I think we will see business skilled, well connected, savvy people who are at home with technology, take the place of those recently departed.

 Flexibility, support, professional associations, potential for a better than modest income are all available to the person who is willing to apply their skills to this field. Smart people, leaving careers and coming into real estate might look to the established agents and find ways to form Process Oriented Partnerships. (POPs). These are not Teams in the sense that we know them in the real estate business. A POP is a formal business agreement, prepared by an attorney with the input of the partners, to combine the different talents of the partners to achieve outcome goals. Goals can be financial, flexibility, travel opportunities, education, leadership, ... A POP allows the parties to combine their spheres of influence, apply  their systems to the process of real estate service, and by accountability standards, each party puts the effort of their talents and skills into accomplishing the goals.

In challenging times, merging agents into POPs makes sense. New agents have plenty to offer, even if the most they can offer is a wider sphere of influence. Some business to work on is better than no business. Some income is better than no income. That's true for the new agent and the seasoned professional.

Your Assessment. Be part of the discussion of what is fair and equitable

Cross Plains Town Hall was a busy place last week when they held Open Book following their recent property value reassessment. The question on everyone's mind for the hired assessor was, "How do you increase my assessment when the real estate prices are going down?" I heard pieces of the answer. It was delivered with the confidence of a person who has evidence on his side. What made me chuckle was his evidence was actually a lack of evidence. One home owner said, "There are no homes near mine that have sold." The assessor responded that he has comparable sales in the township from 2006. "That was the height of the market", the home owner countered. Disregarding the fact that the sale was 5 years old, the assessor said  the top of the market was 2008, and he agreed the recent sales pool is shallow. I wouldn't want his job.

Certainly assessors, appraisers, and realtors use relevant, but not necessarily comparable, properties to determine a reasonable market value. Appraiser's hands are tied by the lack of recent sales because of underwriting rules which demand new sales in the appraiser's calculations. An assessor, however, may be free to use various data to calculate square foot costs, give land a value by the foot, and when finished, his figure is your assessment number...Provided the method was fair and equitable.

A host of factors trigger new assessments. In Madison, when values were going up, a sale caused the property to get a new assessment... at the new sales price. That's not the same in smaller communities. Townships and Villages for example, go for years without changing assessments. A home with an assessment of $225,000,  could sell for $275,000 and two years later, sell again at $290,000, and still be assessed at $225,000.  I may not be able to convince you, but assessments are not a reliable representation of value for determining a real estate sales value. Of course it's possible to show average sale prices to assessments, but averages mean nothing when we look at one property at a time.

When it comes to real estate sales, assessments are no more than a convenient tool for a buyer or owner to argue their position on their price/value opinion. I noticed this spring that buyers were coming into open houses armed with data showing the sales prices compared to assessments for homes. Even though 20% of the homes in their data were distressed sale properties, the number no the facts carried the most weight for those folks.


Here are a few other observations about assessments:

• People who question their assessment have a reasonable chance of having an assessment lowered
• Sales prices are the best indicator of value
• Homes owned by the same person for decades seem to have higher assessed values than neighboring properties
• In modest priced neighborhoods, the atypical, high value homes are sometimes assessed at a lower percentage of their sales market value than the typical property for the neighborhood
• Elderly home owners could benefit from a family member or friend assisting them with reviewing their assessment

We are in different economic times. If you are interested in being part of the discussion regarding your assessment, take a close look at a guide prepared by the Wisconsin Department of Revenue: Property Assessment Appeal Guide For Wisconsin Real Property Owners   
November through January  is a good time to get ready for next year's assessment. Or, if you were recently reassessed, get in touch with your local assessor.  If the link above doesn't work, copy and paste this: http://www.revenue.wi.gov/pubs/slf/pb055.pdf

If you are interested in comparable sales in your neighborhood to get a handle on your property value, you can select: SEARCH SOLD LISTINGS on  my web site: www.TomMeyer.com, or just send an email to me and I'll do the search for you.

Wishing you well,

Market Muscle in the $300,000 to $400,000 Core Through September

Like a well trained athlete, the Madison real estate market has strength in its core. From data available this morning on the Realtor Association of South Central Wisconsin, MLS, we see 11.5% of the sales through September 30th are in the $300,000 to $400,000 price range. Another 13% of the sales occurred in the $250,000 to $300,000 range. That 24.5% muscle is important  because in this price range, people who sell are likely to be buying, and the buyers more often than not could be expected to have sold something. The exponential impact to the real estate market might look like this: 1 Buyer was 1 Seller and 1 other Seller becomes 1 more Buyer.  We could say the $250,000 to $400,000 sale has a real estate market impact of 4. (1+1+1+1=4). Of course, I could be wrong if the sellers are moving to an apartment or a homeless shelter.


In 2006 the $250,000 to $400,000 price point represented 27.5% percent of the sales. To be certain, a significant number of those sales were builder spec home properties. While the economic impact was surely powerful for a builder owned home sale, (jobs, retail sales, tax revenue...) the real estate impact in that price range might not have been as significant as a sale today since there was no home occupant of the spec home who moved out and bought another property.

Today's version of the spec home as far as real estate impact is concerned are the REO sales, and in Madison we have a bunch under $150,000. In fact, of the 274 homes sold under $150,000, there were 71 homes under $100,000 so far this year! The MLS comments have distressed sale written all over these entries. The real estate impact is negligible, and the economic impact is only slightly better than zero as the banks takes their money and store it in the mattress of the Federal Reserve. For proof that the world has changed compare 2011 sales to the same time in 2006 when only 8 homes sold under $100,000.  On a side note, a quick scan of the roster of sales under $100,000 shows the sales prices average 55% of their assessed values. (There's a story in itself.)

We expect the under $250,000 seller to be the buyer of the $250,000 to $400,000 homes. So far, they've made their presence known and as a reward for participating, they've acquired properties from 10% to even 20% below their highest market values while cashing in on low interest rate mortgage loans. There are 1368 single family, non-condo, homes on the market in the areas that make up the east and west Madison market, including Middleton, Shorewood Hills, Maple Bluff, Fitchburg. 24.5% of the homes for sale are in the core group price points--$250,000 to $400,000.

Notice that the 24.5% homes for sale number is exactly the same as the 24.5% number of homes sold in that $250,000 to $400,000 price range. There's some balance, although the seller's are losing money at closing, at least they have buyers to sell to. I suppose too much of the market activity is in the lowest prices and that's been trending there for a long time. Maybe when we see the a trend of the upper lower price points dominating the market we will be on our way to a more robust economy.

2011 August Home Sales Report - Wisconsin REALTORS® Association

2011 August Home Sales Report - Wisconsin REALTORS® Association

Spring, Summer, and the Fall. Price Drop.

If hope springs eternal in April, does September bring surrender? Between September 1 and today, the Realtor Association of South Central WI MLS reports there were 1142 properties where the listing expired, and 1129 with prices changed. There are 10,723 single family homes on the market on this MLS. I don't have the numbers from 2005-06, but my sense is that we never saw this volume of price changes and expired listings.

Middleton school district recorded 22 sales above $299,000 from July 1 through August 31. Nothing surprising here, the average sale price to last asking price was 95% and compared to the originial asking price, the average was 93%. Seven percent by itseld seems tolerable, but that translates into an average sale price to original asking price of a dip of $32,552. It's that thirty thousand dollars that's so hard to surrender in the beginning of the marketing period.

DeForest residents are coming to terms with reality. Fourteen owners sold for 97% of thier final asking price and 92% of the original. I see that as an indicator of people accepting they need to make their price concessions substantial.

Fitchburg, Verona Schools registered 15 sales in the July-August period and the owners sold in an average of 103 days. Three months is tolerable and the average original asking price was $312,000. With an average minor adjustment of $2,000.00, the owners sold for a respectable $297,000.

McFarland, a move to and stay to Village, is getting along fine. Looks like expectations were a little high with original asking price of the 8 sales averaging $316,000, but a drop in price to an average below $300,000 grossed owners an average price of $285,625. That's a 10% drop from the first asking price and the fact that the time on the market averaged 131 days shows owners were reluctant to concede $30,000 in McFarland...just like anywhere else.

Other than condition and location, price and concessions are all that's left for owners to give. It's reasonable to expect that the few buyers who come into the market in September will not boost the competition for average houses to even the levels of previous falls. If buyers are reaching out to make offers, it's possible we will see owners reaching down with their prices to extend a hand to the buyers who could be pulled in.

Uniform Appraisal Dataset. Give 'em what they want.

Uniform Appraisal Dataset (UAD) is what Fannie Mae/Freddie Mac use to standardize appraisal data. Effective six days ago, some not so minor changes were added to the UAD.  A cynical thought comes to mind, but I'll supress it for now because, there might be some help for the process with some of the changes. Let's look at the new rules:

1. Information that is required but not available on the local MLS will have to be gotten from Realtors and lenders who are not involved in the transaction. For example: for compiling comparable property data, the View Factor and Financial Assistance are not on the MLS. Same for Quality of Construction.  Expect this to slow the turn around time.
2. Finished rooms below grade: This could be favorable. On the new appraisal form, the appraiser will include  BEDROOMs. On the previous form, a room in the lower level used as a bedroom was not counted as a bedroom, but as a room.
3. Condition of the property will now be rated. A big help for homes that are in significantly great condition compared to the house thats similar in size, amenities, area, but in a sorry state. Of course that sword cuts both ways.
4. Quality ratings are new and serve a purpose. Let's face it, some homes in subdivisions built in the the last 10 years are of incredible quality compared to others of greater size. Also, we all know great quality when we see it, but we can't always see it. Just because the brand of sink is well known, doesn't mean the windows don't leak, and the house doesn't suck energy. I'll be interested to see the disputes over this rating.

In bold letters the memo attached to Standardized Exhibits reads: The underwriter is still responsible to determine that there is an acceptable appraisal with value support.

My first impression is that we Realtors are going to want to attach documents to address these UAD changes. The better the information the appraiser has to put into the report, the better information the underwriter has to make their opinion decision. In the past a furnace was just a furnace, and a shower was just a shower. Now they may be the difference between making the value and not.

Wexford Village--A Balanced Market

A balanced market on Madison's West Side is Wexford Village. The neighborhood developed almost 40 years ago and expanded about 20 years ago is showing its ability to remain a highly attractive destination. Sale prices range from $250,000 to $328,000 with out of the ordinary sales on both ends--one at $205,000 and another at $375,000. 

The average last asking price for homes sold in Wexford is $302,150. The average sale price of the 8 sold homes is $290,000.  The 8 folks who are still looking for buyers are averaging an asking price of $322,048 and that includes two homes at $385,000.

The eight sold this year and eight for sale with homes priced from low $200's to upper $300's looks like a healthy mix of home opportunities.

Lake Mendota Drive to 1845 Baker---- 66 feet on Lake Mendota

When we open this modest home to the public on Friday I think we will find there are people who will be interested in considering making an offer. There is nothing that has to be done, but plenty of opportunity to remodel from the minor to the extensive renovation. I'm not seeing this as a "tear down", but more likely a renovation opportunity. The 1800 sq ft foot print is well suited for open space facing the lake, privacy, and spacious bedrooms. A two car garage is already in place.

We arrived at the reasonable price of $575,000 by concluding the cost of getting a lot on Lake Mendota is about $400,000. Our 66 ft wide lot is definitely more appealing than the narrower lots on Middleton Beach Road, and far superior to any lot on Spring Harbor. We estimate the land value to be about $450,000. We gave the house a value of $125,000.

I'll have a summary of the work the owners contracted for to prepare the house for showings. Let me know if you want to be one of the first to visit. We can set up a showing for Friday, Saturday, or Sunday. Open house is Sunday from 1:00 to 3:00.

Tom 332-8331

2666 Norwich St 1, Fitchburg

2666 Norwich St 1, Fitchburg: "$25,000 in improvements since 2010: Renewal by Andersen Doors & Windows. New furnace. New A/C. Tile, vanities, kitchen counters & flooring. Zero Condo fees! Spacious main bedroom with extra closets. Recreation room in lower level has a full bath. Dining Room opens to a deck & fabulous yard with room for garden and play. All appliances, even front loading wash machine & dryer & butcher's block kitchen island included. Quick closing possible."

Staying in the Verona and Fitchburg School District is affordable and easy by owning this Townhouse. Quiet location and close to the Elementary and Middle School Campus.

Middleton Schools Homes With Acres Selling This Year

A home in the country is well within the reach of Dane County home buyers again. Six years ago developer land grabs pushed the cost of dirt sky high and builder prices were at a premium. The new economy has forced developers to release their grip on land, builders have left the industry, material prices have come down, and building contract prices have adjusted to demand. On top of that, the existing homes built in the last dozen years are coming on the market and their prices are favorable.

Seven homes, priced between $599,900 and a million dollars, in rural Dane County NW,  have closed in the Middleton High School district according to the RASCW MLS. Every neighborhood I look at shows just about the same results: Owners are accepting offers in about 50 days after getting the price close to where buyer's appear to be waiting. The patience of the owners is also about the same everywhere. Six, seven, eight months pass before owners make that last necessary price change. Are owners letting go, or just losing their grip?

Maybe the reasons owners start at a price that doesn't get the attention of the buyers are diverse, but the results are consistent: When you count time on the market in terms of months, statistics are showing you may be likely to end up accepting an offer below 90% of your initial asking price. The seven homes closed this year sold at 82% of their initial asking price. 94% of their last price means the owners are down an average of over a $100,000 from their initial price.

OK, these are averages and some locations are just better than others. It's not accurate to say "You home is worth X% of this price because it has been on the market X months." Of course that's silly. Here's my suggestion as to what might make sense: If you started the process of selling 60 days ago, with a price which was supported by recent sales at that time, and you are still on the market, a price change could be in order. How much? It depends. Look at the recent sales...don't hung up on the differences in your home. Agree that the homes are different and try to focus on what people are getting in the price range. If you thought your home was worth $650,000 and other homes between $550,000 and $750,000 are selling for an average of $25,000 less than the last asking price, but $75,000 less than the first, you probably will have more activity by t moving aggressively toward that $75,000 number than you will by creeping nearer the $25,000 drop.

 My point is this: The best we can do is price according to sales at a given time. Then the buyers who are out there look at homes and judge them based on their criteria. While we are on the market, other homes are selling. If the new sales are lower than the old sales, and we are not getting an offer, it is reasonable to expect that we will not get an offer at the price we are at and we should move accordingly. The model of pricing I believe in works this way: If we are targeting the right buyer and the right buyer is not making an offer, we have to change the price to appeal to the buyer. If we are targeting the wrong, buyer we can change the marketing. Does that make sense? If not, we should talk. If yes, we should definitely talk.

If I Knew Then What I Know Now...

"If I could turn back time...You walked out that door I swore that I didn't care
But I lost everything darling then and there..."  Well like Cher, you can't turn back the hands of time, but you haven't really lost everything. Equity is only money, and if you think about it, equity isn't money either; more like ink in the shape of numbers on paper. Oh, sure we had clung to those numbers. Like a King in his counting house we counted out our money. "Saving" was easy. Just wait a few months and change the numbers on the spread sheet by a few percentage points.

Since 1989 I've talked to people who say this about real estate: "If I knew then what I know now...." Some years they'd be buyers, some years they'd be sellers, and some years were right to be a renter. We probably did know more than we admit, we just didn't believe what we were seeing and hearing. Today we have a chance to redeem ourselves using a new found trust in the evidence. Before you enter the real estate market as a home seller, know this: HOMES SELL IN LESS THAN 60 DAYS WHEN  PROPERLY PRICED.

I'm telling you today what you need to know to avoid the implications of taking an action without being aware of what's happening. You can look in any neighborhood in Dane County and find the evidence to support this statement: Price according to sales in the last six months and you will negotiate an offer in 60 days or less. Price according to what you wish for and you will stay on the market until you adjust to the price supported by recent sales. Plan on this: a home properly priced will sell for 95-97% of the asking price in less than 60 days. Miss the price and you may take more than six months to get 89-94% of your first price...after a long time trying.

Give or take a few days and percents, I will bet you a Krispy Kreme glazed doughnut that the numbers for January through June will be consistent in any market area in Dane County.

McFarland over $299,900:

• Avg First Price: $386,117
• Avg Last Price: $378,783
• Avg Sold Price: $362,083
• Sale price as Percent of last asking Price: 96%.  Sale price as percent of first price: 94%
• Cumulative days on the market on average: 163 Days.
• Average Days on the market after last price change: 53

Blackhawk Neighborhood, Middleton Schools:

• Avg First Price: $724,900
• Avg Last Price: $609,780
• Avg Sold Price: $584,374
• Sale price as Percent of last asking Price: 95%.  Sale price as percent of first price: 87%
• Cumulative days on the market on average: 289 Days.
• Average Days on the market after last price change: 50

Apparently the people in Blackhawk and McFarland who negotiate accepted offers have one difference--Blackhawk owners are more patient; they held on for nearly eight months and the McFarland owners got down to their proper price in half that time.

If you follow this concept of pricing where the evidence supports and not at what you hope for, you will get where you want to be with a lot less time invested. In fact, you will also be able to say "I'm glad I knew what I knew when I needed to know what I know now." You don't have to hire me to use this strategy, but I do like my Krispy Kreme HOT NOW.

Best wishes--no luck involved, this is just math.

By Necessity We're All Learning to Rebuild a Better Real Estate Community

"Necessity is the mother of invention." Maybe Plato said it first, but we're living it today. Difficult situations have inspired us to apply solutions which are sometimes smart, sometimes ingenious, at times unique and creative.  Usually these solutions are not all together new, and sometimes they are neither smart nor effective. But, we are living and learning and moving forward regardless of the results of the lever pulling behind the curtain of Oz.

A new consumer of real estate and real estate services is emerging. Ambiguity is flushed out by inquisitive consumers, service providers, and underwriters. Owners are demanding better evidence of a buyer's ability to consummate a purchase and buyers are taking more time to consider the implications of a contract before committing. That's wise, because the lenders and sellers are holding buyers accountable right up to closing.

The service is changing too. As Realtors and mortgage lenders who can't make a profit in their business leave the industry, they make room for enthusiastic business minded people who come in with their expectations in check. Real estate firms have adjusted their training/coaching to develop talented people to be effective Realtors in the new economy. These new licensees know no other market. They aren't burdened by the "old ideas" and start fresh learning the basic principles of highly effective business models.  Maybe by the end of this year we will see that 20+% of the licensees terminate their membership in the National Association of Realtors in the last 24 months. That's good for the consumer. No industry is capable of providing exceptional service with people who are one foot out the door.... or further. The mortgage lenders who didn't give up their day jobs are out and the skilled, responsible people are again dominating our market. These are not times for order takers. Smart people who solve challenges, without creating them, are in charge.

Everyone in the process, buyers, sellers, lenders, Realtors, title companies,.. everyone, has learned and trimmed of the fat of recklessness; and the process is healthy. Back to what it was? Definitely not. Will it get back to what it once was? Hopefully not. Those of us who have been in real estate for 15, 20 and 30 years owe it to the community to rebuild a better real estate community before we leave. 

Healthy Real Estate Markets and a Passion for Peace

When I am most at peace with the business of real estate, my approach to the circumstances of the day is guided by writings of people such as Thomas Merton and less by the ways of business gurus. For a few years I've kept my eyes open for Merton's Passion for Peace, Reflections on War and Nonviolence, copyright 1995.  Last week the book finally found me. It was out of place on a shelf (probably discarded by a person when something more intriguing found them) and I scooped it up. Compiled from Cold War year writings by Merton, the peace reflections are relevant to me for processing the conflicts of today in government, politics, my business, and my daily interactions. 

Memorial Day weekend is an appropriate time to dedicate myself to practicing principals of peace and looking for areas in my business where I will be aware to apply healthy actions. I can see that some of the changes are well underway in my life and I know those changes have made me a more useful person to the consumers who trust me. Areas I am paying attention to:

• Results: Sales by the numbers are detractors. To determine anything to be Good or Bad by the volume of business I do would be an indicator that my thinking is stinking. Fixation on results by the numbers leads to coercion.
• Coercion: Affordability Indexes are tools of coercion when applied to home ownership for me. I am not licensed to sell investments and when I reduce a home ownership idea as a financially viable alternative I have crossed into an area out of my expertise. A tool in the hands of an unqualified person may be a damaging weapon.
• Calculations: Plans and schemes to anticipate a person's reaction are tools to put me in charge of manipulating situations to my benefit. 
• Patience: Allowing people to make decisions on their own time, based on their own values, and accepting the decision keeps me at peace and puts peace into the lives of other people. 

I know I do not have a monopoly on peaceful business practices so when I say I consider this real estate economy to be healthy, it's not just from my perspective. The level of activity is allowing people room to think, time to rest, and opportunities to consider other's points of view. A frantic pace is not either just good or just bad, but a pace of patience and understanding is peaceful. 

Wishing you a peaceful Memorial Day, with gratitude to all who gave their lives so that I may live another day.

Blackhawk---Looking as Strong as it Once Was

There was a time when it seemed any home in Blackhawk had a buyer as soon as the house hit the market. For us Realtors who provided relocation services to Madison area employers, getting a home for your client was a race to the finish. All that seemed to change a few years ago when the prices peaked at the same time buyers vanished. In 2009-10 we were helping people rent Blackhawk homes. We saw the activity begin to pick up late last year and decisions to buy are turning into commitments this spring.

Fifteen homes will close between the middle of December and the end of July it appears. There have been six closings already and another nine homes have offers pending. That's a big load of the higher end inventory in Middleton and good news for people who have yet to put their home on the market. I don't think all of the buyers have made commitments by any means. (But be cautious--some of the buyers are committed to tremendous value and they aren't about to buy above the bottom price---).

The only thing stopping home owners from selling is--well, the home owner themselves. On average, owners are selling for 10% less than their initial asking price and they are patient. About 180 days (5 months) go by before the owners get their price in line with the expectations of the buyers. After that, the owners are negotitating acceptable offers in less than 50 days. Sales prices are 96% of last asking prices and that's pretty fine even in the sizzling market of 2005.

If you're moving from Blackhawk, be aware your buyer can not be fooled. They see everything from Fitchburg to Verona, to SW Madison, to west Dane, to Waunakee. They know the prices, the values, and they are inspired to get a price they can write home about. Buyers, are wise to know that owners in Blackhawk know what you know too--there is only one Blackhawk. Price of admission is still going to be a little more than you might have expected.

April Accepted Offer Numbers Will Be Up

April showers didn't stop home buyers from getting out and making offers. The activity was as brisk as the temperatures. I expect in July we will see that May and June were aggressive closing months. What happened in April has everything to do with people grasping reality instead of straws.

First time home buyers are reaping the benefits of resisting the 2010 tax temptation...I mean break. Instead of competing with other government subsidized consumers for over priced homes, those who waited have accepted offers on homes priced up to 40% below what they would have paid last spring. Owners are conceding to the facts of the market and letting go of hope for prices that can't be substantiated. Foreclosed homes are trickling on to the market in ones and twos at unusually low prices and the banks are creating competition which otherwise wouldn't exist with a strategy worth noting. In one neighborhood of homes built in 2004 and '05, one home came on the market at $183,000 and sold to the best offer at $200,000; a great price for a 4 bedroom 6 year old home. As soon as that one closed, the bank released another that had sold new for $220,000. The asking price of $174,000 drew at least six offers. I'm guessing that one will close around $195,000--I'll be curious to see.

In the higher price points owners are seeing plenty of qualified buyers coming to town. If we didn't know better we'd think the relocating buyers meet at the Dane County Airport and plan their strategy. Even multiple offers aren't driving prices to the upper limits and owners are placing value on such novel ideas as cash and terms and closing dates.

A healthy market means the local buyer isn't at a big disadvantage to the transferee and they have a chance to negotiate an offer without promising to take a bridge loan until their home sells. Offers subject to sale aren't as taboo today; in fact if you look at in a fishing analogy, an offer on your house subject to sale of another house is like having two lines in the water--if you get a fish on either line you have a chance to catch the one more you need for a limit.

Last spring the activity was 60% below $250,000. This year we'll see the market represented in a more healthy way with sales from top to bottom. April sales might still pale, but nothing is ever either just good or bad. How about we look at things as healthy or unhealthy? The health of the consumer continues to grow as everyone gains insight---knowledge of what is reality.

FHA Owns Bigger Share of Housing Debt, Now Charging Bigger Chunk of Mortgage Payment

Dan Green writes The Daily Mortgage Report and his post is of interest to me because FHA insured mortgages are the fuel for mortgage financing today. To increase their mandated reserves, beginning today the annual cost of a $200,000 mortgage is going up about $500.00. With the FHA the major game in town for mortgage financing, an increase in the cost of the mortgage is downward pressure on offers. Everytime I hear a real estate expert spin an isolated incident into a story about real estate prices rising, I wonder about two things: one, the author's motivation, and two, the author's awareness to reality.

As long as competition for mortgage business is restricted for the many, the opportunity for competition to move prices north will not happen. As long as the buyers are walking in and out of homes priced at huge discounts to unload bank owned property, the buyer will not be agreeing to higher prices/values of non-distressed properties----even if the buyer prefers the non-distressed property, the perception of value based on what they are seeing, is driving decision about price to offer.

Karen Rivedal writes Property Trax for Madison.com and Karen understands the importance of looking deeper and questioning the spin doctors. Karen's a follower of What's Happening in My Neighborhood??? blog, an offering on real estate results at a  hyper-local level, and this is she had to say last week: "And the data is arguably more practical, focused on things an average would-be buyer or seller in those areas would like to know...". There are some Buyer markets in Dane County, but there are some Seller markets too. Just as the spring market is getting a full head of steam, it is certain that the bigger economic picture is going to play a role in the real estate market velocity.

I believe this to be true: The first time buyer in 2011 is planning for this home to be home for longer than 3-5 years. They are inclined to be conservative in deciding on a price to pay. They are willing to have less space and determined to have a safe mortgage payment. Higher mortgage costs will take away from the aount they are willing to finance.

The evidence for prices to go north instead of south may exist, but I think it exist mostly in the imagination or the wishes of some people.

Reasonable Expectations Trump Magical Thinking; Change is Happening

Things don't change, we change. So wrote Henry David Thoreau in the mid 1800's. Apply that concept to Madison, WI 2011: "The real estate markets don't change, we change."  First to go is faith in Magical Thinking. "I want it to be, I will think it to be, and if I can see it in my mind, it will be for me."  OK, right.

The USA's history of victory always includes honest assessments of our positions and changing our sentiments. For example: Women's Suffrage, Civil Rights, the 1960's. Without exception, all challenges include an oppositional force of power influencing the population to put their hope in magical thinking. "If wishes were horses, the poor man would ride," my Dad said to me  more than enough times. Reasonable expectations will move us to higher and firmer ground in our real estate markets, and I see reasonable expectations taking hold across Dane County.

All over Dane County, home owners are starting the selling process with expectations of value unsupported by the evidence of recent sales. More than 160 days, over 5 months time, is spent holding on to  lofty expecations. It seems the mindset is something like this: "I know the real estate market is down all over the country and in Madison. My neighbor can't sell his house. But that's them, not me." The first quarter sales in Dane County, show the trend of reasonable expectations is taking over where magical thinking has failed to spur a wide recovery. Over and over again, the owners who adjust their expecations (price) to meet the demands of the buyer (value or tremendous value) are closing on the sale of their real estate and gettin on with their lives. After five months, the average seller is getting an accpetable offer in about 60 days or less. It's always either time or money.

McFarland home owners are getting 98% of their last asking price in 140 days, but they take 100 days before they let go of expectations or old information.
Rural NW and SW Dane homes over $299,000 recorded  14 sales in the first quarter. With sales prices showing 83% of initial asking price, should we conclude anything but missed expectations? These are patient people as they ride the market for six and a half months before conceding price. In the end they are getting 94% of their last asking price and those offers are accepted in about 2 1/2 months. The first asking price is an average of $552,000 and the selling price averages a $100,000 less. These sales are not distressed sales, however, we can conclude the owners may be a bit stressed by the end of the process.

People change and the more we let go of what once was, the sooner we enjoy what is.

Window of Opportunity for Turkeys and Real Estate

In a week the spring turkey hunting season begins in Wisconsin. Big flocks of turkeys are still grouped up in fields all over Dane County--but they're not all of the fields. Spring has sprung and the Toms are busy with being Toms, and the first time turkeys, the Jakes, are exploring their options. The excitement will peak in the next few weeks, the run its course by the end of May. Amazing how that bird-animal behavior is mirrored in us humans with respect to real estate. Spring is the window of opportunity, and the window closes when the urgency runs its course.

Like the strutting Tom, time is not on our side if we want to attract the most enthusiastic buyers. The strongest natural elements that drive a person to want to own a home run their course by the end of May and surely by the end of June. Summer in Wisconsin is the four-five weeks of July and running around chasing the sun and fun takes precedence over shelter in our summers.

To get done what we have to do with respect to selling our homes, today is the day we have to take the first step and it might be wise to get going. And, where are we going? There are as many ways to go about the selling process and it makes sense to me that I pick a direction and a method of traveling, and commit to it. Anything else is trial and error, and I'd like to think I've done enough of both to be comfortable with a plan.

Followers of this blog know that I believe:

Price is critical. All homes have a right price and a lot of wrong prices. We are instinctual animals. We know what's right and maybe it's our ability to rationalize that leads us down the trial and error path.

Stage the house. If we prepare our homes for our parent's or friend's visits, we prepare to impress them about ourselves. Staging prepares the house to have the home, not the occupant, appeal to and impress a consumer. Big difference  and very important.

Update and Repair. Buyer's aren't going to go for homes that need updating and repairs--regardless how small. You aren't getting your investment back either. Look at it this way. If you had replaced the green and blue toilet and sinks and carpet when the style changed your home would be up to date, and you would have had the pleasure of being in style to impress the Grandparents. You only missed that opportunity--you still have the expense. Leave it up to the buyer and you won't have a buyer. If you don't believe me, I wish you the best and hope you prove me wrong. But, I'll be here with the same opinion later---the buyers will be gone and your value will be much lower in August, and the work will still need to be done.

Range Price. You can wait for the one buyer who is smart enough to have the income and savings to qualify for the mortgage necessary to buy your home, but not smart enough to know the market or care about the implications of recent sales in your neighborhood. I have met only a few of those people since 1989---none recently. Range pricing won't inspire anyone to be illogical, but it will bring more people to the door and create some competition where none exists. Competition from qualified buyers will push offers to their best terms.

Know What's Happening in Your Neighborhood. Real estate markets are hyper-local. I care what's happening in Timbuktu, but your neighborhood can rise or fall below the Wisconsin trend, and surely differ from the national statistics.

The turkey animals and human animals are going to move and commit this spring. Today is the day to know where they are going and be there ready to impress. Hen and hunter know the key to success has everything to do with going with what works.

Gen X'ers Want Large Lots and Green---Baby Boomers Get the Walkables

RisMedia reports the real estate recovery will be spurred by the Generation X (30-45 year olds) who say they will spend more for Green-Built homes and they prefer large lot subdivisions over "Walkable Neighborhoods". That's good news for us Baby Boomers who are leaving the big lots for sidewalks, bike paths, and neighborhood shops. We've got the houses to sell and won't mind less competition when we buy our next home.

Madison may be an exception to the national report. Our population is noted for being eco-minded and bike/pedestrian friendly. That didn't happen so much by design as it did by demand. Today we see strong demand inside the beltline and interest outside with the interest resulting in sales happening as much as 14% below the price the owners initially expected. Eight sales of large lot homes west of the Beltline this year averaged $428,938 for a sales price. The initial asking price averaged $507,925.

Keep an eye on Westmorland, Sunset Village, Midvale Heights, Middleton Hills, and Dudgeon Monroe to see if demand is steady for walkable neighborhoods at What's Happening in My Neighborhood???

Fitchburg: Seminole Forest

We had a request for a summary of Fitchburg and while I've grouped DeForest sales and McFarland sales, Fitchburg is too big and the market is broad. Fitchburg has to be viewed by neighborhoods. Looking at the 25 sales since January, Seminole Forest had a good group of four so that's the neighborhood I'll cover.

An average first asking price of $400,000 dropped to $389,900 and attracted buyers for average sale price of $378,000. It looks like Seminole Forest owners are ahead of the curve in surrendering to their first price. Their cumulative average time on the market is only a bit over four months. After they make their last price change they have an acceptable offer in about 50 days.

I believe Seminole Forest has long had a better than average attraction. It's one of the few areas that was a wooded area and not a crop field before development. The winding streets and rolling topography, is unique for our market. The proximity to schools and the community pool and tennis courts doesn't hurt. On top of that, the housing stock was built as the country moved out of a hyper-inflation and high interest rate economy. The demand for new construction and quality built homes was high. A variety of builders put their mark on Seminole Forest and the diversity of styles has given the Forest a character that is appealing today. These homes may need some updating, but the location is great so spending some money on the interior is smart.

Let's keep an eye on Seminole Forest. I think it will be a good value this year and demand will be better than average.

McFarland and DeForest---One's Hot

Twelve homes sold in January and February in these two Villages with a combined population of about 16,600. Each had one distressed sale out of their six homes sales. Relatively equal in population and proximity to East Side Madison (DeForest is NE and McFarland is SE), the real estate equality ends there.

In 1990 I was preparing to buy or build our second home. One son was 4 and the other was about to be born. I was a young realtor and to me the communities were a toss up, except the house I could afford in DeForest was on a wooded half acre and almost new. In McFarland, the lot choice to build was marginal--but walking distance to everything. We went with the DeForest School District---because the house was more house and the lot was incredible. (We were actually in the Town of Windsor).

Today, DeForest is considered a hotbed of distressed sales and the number of available properties at tremendous values due to higher supply than demand is causing non-distressed owners to settle for much less than they expected to be fair market value. Owners are closing at 82% of the first asking price and time on the market is a full half of a year. Even when they get the price down close enough to entice an offer, it still takes a solid 2 months and then they close at 95% of asking price.

 In McFarland, owners are getting 91% of their initial asking price and selling in about 71 days. Once they get  the price right they are done in 31---for an average of 99% of the asking price. The demand for well priced homes in McFarland is far greater than in DeForest.

The average sale price in DeForest this year is $175,200... and in McFarland: $212,431.

The research did not include rural townships feeding into the respective school districts.

I like this blog for a quick look at distressed sales around the area.

Rural Dane County Being Visited By Buyers

"They're Baaack" and this time we are all a little more humble. Maybe the fear has subsided and caution is embedded in the minds of home buyers and sellers. Rural Dane County West has at least eight Multiple Listing Recorded recorded sales in the first 60 days of 2011. Possibly enough to show a trend which will influence the heart of our real estate season: the spring.

I looked at the sales of homes priced above $299,900 on at least 1/2 acre. As expected, owners made short work of the selling process once they adjusted their price to a price close enough to reach the holding tight buyers. An average first asking price of $507,925 dropped to $461,038 and then the buyers moved in, closing at an average sale price of $428,938. The 86% sale price to asking price is the big story and the question is "Why are we missing the value price by so far?" Expectations, denial of the relevance of the facts, wishful thinking, misreading the trends? I suppose the answer to why is complicated.

Wherever we look across the Dane County the story is the same, when the price is right, the buyer's bite...(OK, it feels like fishing season today) they, move in and are ready, willing, and able. The right price is probably a tremendous value to the consumer, or at least a value. The velocity of the process is terrific when the price is right. From 236 days on the market to 62 days between last price change and offer, it would feel like 2005 all over again if we could get the price right on day one. Buyers are able, as soon as the Sellers are willing and this year it looks like there is acceptance...so far.

January and February Home Sales in Dane County

Trends may take longer than 60 days to prove they are trends and not aberations. With that being said, if the trend continues, we should see homes that come on the market in March and April priced in line with buyer expectations. I say that because the homes that sold in January and February will set the price points for appraisers who use recent sales as comparables.

Regardless of the neighborhood, research completed by a group of realtors with Restaino & Associates, shows home owners are adjusting prices down after months on the market and closing on offers that are satisfactorily close to their final asking price. The offers they accept come in within weeks, instead of months, when they get to  the right price.

Later this week I will post some charts showing what might be trends. I think this information will be helpful for home owners who look to put their homes on the market in June and July---after the spring rush.

Myths About Interest Rates and One Assumption

The Washington Post has this article on Five Myths about interest rates. I believe there is a sixth myth, but I don't have facts to prove it, so let's call it an assumption. Here it is:

Low interest rates drive demand for home purchases higher. I doubt it. Low rates drive refinance and a person with a refinanced mortgage would be less likely to sell and buy at a relatively low, but higher rate than they have, if rate is the deciding factor. Decling rates also influence consumers to sit on the sidelines and wait. When the low point is missed and the enthusiasm cools, some people step out of the buying line and move to the sidelines again.

If the evidence exists to prove my assumption right or wrong, send it to me and I will post what you have.

What's Happening in Your Neighborhood?

When someone says "How you doin'?" they don't want to know if my neck aches; they're just saying "Hi". However, when I meet a person who says "How's the real estate market?" they probably want to know How's the real estate market. In fact, they specifically want to know What's Happening in MY Neighborhood?? That's what matters most and last I heard from the us Realtors, markets are local.

They certainly are local. In Madison we have Lake Mendota, which has shoreline extending to more than a few communities and 21.6 miles, according to Wikipedia. If I'm sitting on the pier at Memorial Union and a friend calls me from his home in Middleton and asks "How's the water?" and I answer "warm", because the north side of the lake heated up that day, and he jumps in and finds the water frigid, he might wonder about my sense of reality. But, If before answering, I ask ,"What water?" or "What part of the lake?" I can give an answer more relevant to my friend. Same goes for real estate.

For 2011, I will follow the neighborhoods where I have homes for sale, and  report on the statistics and trends on this blog. The beginning of the year looks cautiously optimistic at first glance at a few areas. Here's what's happening in your neighborhood according to our MLS, and all data is too small to draw any projection conclusions. Unless otherwise noted, the areas are by High School districts.

• Middleton: 9 closings in January. Average first asking price to sale price is 83% and 190 days on the market.
• DeForest: 7 closings in January. Average first asking price to sale price is 89% and 218 days on the market.
• McFarland: 6 Closings. 95% and 55 days
• Mount Horeb: 3 Closings. 93% and 32 days.
• North of the Beltline, near Fish Hatchery Road: 2 Closings 93.7% and 288 days on the market.
• ** Elvehjem School District: 3 closings (two others were new construction) 85% sale price to first asking price and a cumulative average of 520 days on the market. However, each of the 3 homes attracted an acceptable offer in less than a 100 days from their last price change. In fact, the two that took over a year to sell were got an offer ins 37 and 16 days after the last price change.
• ***Burke, Bristol, Town of Sun Prairie: 8 Closings, 85% sale price to first asking price. 169 days on the market, HOWEVER, it took only an average of 46 days from last price change until the owner accepted an offer. Three of the sales appear to be distressed sales out of the 8. This area is a distressed sale hotbed.

Distressed sales (REO and Short Sales) do not appear to be significant yet. I found 3, and there were also 3  new construction homes which were not included in this data. Our MLS can be manipulated to show fewer than actual cumulative days on the market. For the big picture it probably doesn't matter as much as when you try to get a clear image of the hyper local market. My sense today is that PRICE is key and more key is that the price is perceived as a "Tremendous Value". I think Tremendous Value is replacing Location, location, location in the priority of real estate lexicon.

If your neighborhood isn't mentioned, just let me know and I will include it---FREE. I'll keep adding areas as the year goes and we can drill down to get the most important insight. If I do this right, I should be able to tell you where the water is warm or cold before you jump in.

** a reader asked for Elvehjem information.
Another reader asked for condo sales to be broken out. Because not all neighborhoods have condos, I am not tracking Condos. However, I will provide that information in you give me specific condo associations you are interested in.
***On 2/24 a reader asked for Burke, Bristol, and Town of Sun Prairie.

Reforming America's Housing Finance Market, a Reasonable Perspective

Uncertainty in any aspect of the real estate transaction process causes a shift in an attitude of security for consumers, and all parties to the process.  Safety is always a prudent position.

Realtors prove their adaptability in tough times. We adjusted to the appraisal and underwriting changes to help our clients make it through until the process regained its footing.  We learned how to help people navigate the short sale process as a favorable option to the embarrassment of being forced from their homes in foreclosure. Today the distressed sale is better understood and people who were frozen by fear are now moving forward with confidence because or our determination to raise our level of expertise.

The next wave of uncertainty is starting in Washington D.C. and moving quickly inland. The President’s report to Reform America’s Housing Finance Market was released on Thursday and the media was roiling with reports of implications of doom for homeownership in America on Friday. The political and social consequences of doing away with Fannie Mae and Freddie Mac will be debated and politicized beyond our control.  Changes are needed. Drastic changes are required but to do no further harm, these changes  are best planned, designed, and implemented over time. 

I am confident the landscape of mortgage finance will be different and more effective in critical areas such as:

·         A mortgage system that allows future generations to enjoy the same advantages of predictable payments from a 30 year fixed mortgage

·         A continued government participation in ensuring a flow of mortgage capital in all economic conditions

·         Ensuring mortgage options for limited down payments for qualified, credit worthy buyers in all price ranges

·         Fair price premiums for lending fees and mortgage insurance

·         An improved mortgage servicing and foreclosure process

·         Further empowerment of consumers to avoid unfair practices

The National Association of Realtors has written their analysis of the President’s report.  My comments are just a summary of some of the points. The worst case scenarios will make headlines and may impact the attitude of the consumer this year.

We can not change the debate.  We can participate in the discussion with an attitude of acceptance of the need for change, trust in our ability to rise to the challenge, and confidence in the democratic system. My responsibility is to come up with smart solutions for my clients and be careful with my assessments of the situation. Patience is helpful.

Obama Administration Plan Provides Path Forward for Reforming America’s Housing Finance Market, Winding down Fannie Mae and Freddie Mac

Obama Administration Plan Provides Path Forward for Reforming America’s Housing Finance Market, Winding down Fannie Mae and Freddie Mac

Re-Post of Geithner's Plan to Wind Down Fannie and Freddie

Click here to read ABC News Story on Wind Down of Fannie and Freddie by Tahman Bradley

A multi level story made simple: The 30 year mortgage was made possible by the existence of Fannie and Freddie. Without these massive buyer's of home mortgages, home purchase power will decline for a substantial segment of the American poplulation. A smaller buyer pool will eliminate competition and home values will adjust. Foreclosures will rise as people who have to sell can not sell for what they owe.

Phasing out is not an effective option because the period of uncertainty will effectively halt today's buyers from making commitments. This is the next phase in adjusting the real estate economy in the United States.

Adjustable rate mortgages and 10 year mortgages make wise economic sense. In the short term there will be pain. In the long term, the shift is reasonable.

Packer NFC Championship Games Move the Dane County Real Estate Market

Those were the days my friend, we thought they'd never end...ahh the Glory Days. God loved the Green Bay Packers on Sunday and every other day ending in "Y". Everyone was happy and it showed in the economic indicators. We were buying more & bigger houses, traveling to Super Bowls, and spending big  money on fat cigars, and SUV's. From 1995 through January 1998, the Packers played in 3 straight NFC Championship games, at Dallas in January '95, winning at home against Carolina, and on the road against San Francisco. We were young, money grew on trees, and neighborhoods replaced corn as a cash crop so farmers turned into developers.

We felt good about everything and everything began with  the Green Bay Packers. The economy boomed. Is there a correlation between a Packer NFC Championship game and a boost in housing sales in Dane County?

• 1995 had 3656 Dane County Home sales (non-condos) 1996 after losing to Dallas in the Championship game, Dane County Posted 4142 sales.  That's a plus 486.
• 1996 was bested in 1997 with 4267 sales after the Packers beat Carolina and went on to win Super Bowl XXXI. It looked like every little thing was gonna be alright. That's a plus 125.
• 1997 was then trounced in 1998 after the Packers beat San Francisco for the right to go to Super Bowl XXXII and be the sacrificial lambs to the rise of John Elway's legendary status. Even with a Super Bowl sized depression, Dane County recorded 4868 sales. The 601 more home sales took some of the agony out of defeat. Buying and selling was therapeutic.

Yes, it appears the Packers in the NFC Championship Game is good for Dane County home sales. If my math is right, the average bump for appearing in the NFC Championship Game is about 6%. The total number of sales increased by the enthusiasm for being a party to the excitement was 1212 sales. (12 is the number of Aaron Rodgers. Just an observation)

It's always possible that there are other factors contributing to the activity in our housing market so I looked to recent history. The 90's were long over, and the Packers were on their third "Mike" head coach. Following the 2007 season, when 6744 homes were sold in Dane County, the Packers hosted the New York Giants in January 2008 in the NFC Championship Game. Having never lost a championship game in Green Bay, and led by a grizzled quarterback,  the Packers were heavy favorites to beat the Giants. All good things must come to an end; the Packers lost when the Old Gunslinger froze up in overtime.

It was probably a sign of things to come when part way through the spring market the perennial waffler lost his direction. He didn't know if he was coming or going.  In or out, up or down, the precipitous slide of Brett and the Dane County housing market was underway. We might have been able to pull it together economically and then the Old Textslinger let it be known he wanted to wear purple and instead the Packer brass railroaded him to The Big Apple.  A pall spread over Wisconsin--and American.

We could still smile, but we were no longer young. Every grandmother's favorite son had left home. Somber days were upon us.   In Dane County only 5336 homes sold in 2008, down from 6744 in '07.  The 1408 home sale decline wiped out all of the upward mobility generated by the Packer's '90's NFC Championship Games.

When I ciphered the numbers 1212 and a negative 1408 I saw the net loss was 196 sales. There's a   message in that bottle; the numbers 1+9+ 6 total 16, and 1 + 6 equals 7.  Now it gets complicated, so listen carefully. This is good news for us. Don "Majic Man" Majkowski wore number 7. Seven is a lucky number. And luckily for the Packers, Majic got hurt and Favre took over in '92. Three years later the Packers started playing in championship games and home sales took off. Aaron Rodgers has been in charge for 3 years now...Got it?

What does all of this tell us? Let's see---Expect the number of real estate sales to increase some, or decrease a lot this year. And while we don't know if the Packers will be playing in the Super Bowl, we can be confident the Bears won't. Let the good times roll! Happy days are here again. The evidence is in the numbers.

Should I Buy a House? Maybe. It Depends...

Up, down, sideways...which way is the real estate market going? A reasonable answer could be simply: "Yes". I think we can find every which way: up, down, and sidways markets in neighborhoods all across Dane County. However, the direction of the market is only one consideration for buying or selling real estate, and it's not the most critical. More important is your personal situation.

Today I had a refreshing conversation with a mortgage banker who gets it. Bill Quigley, of Network Funding LP, Residential Mortgage Bank visited to share his approach to being part of the solution in a challenging economy. Bill is the host of a mortgage and real estate radio show on 1670 WTDY. For years Bill has been the Madison area go-to guy for FHA mortgages. Because Bill is a considerate guy as well as a smart broker, he has attracted a lot of business by improving loan applications for people who didn't get the higher level of service from banks and credit unions. Bill told me this past year was big business for banks doing easy refinances and first-time buyer purchases. Makes sense to me that the loan processing departments were busy with easy enough loans that taking time to improve applications was not a high priority for some institutions. People like Bill Quigley do more than take orders and process loans. Bill is a true consultant. He problem solves for clients of Realtors. Bill's approach is one of a professional who enhances the process by structuring an application and a mortgage in a way that works long term for his client---the home buyer. I like that. Working with Bill today, a home buying client of mine is not going to be buying more home than they can afford, and their loan is going to work for them.

Buying real estate could be the right move. I don't know. It depends.  What I  do know is this: Bill Quigley, a mortgage broker, is a smart guy to look to for deciding if buying is smart for people who want to be safe. Call Bill and tell him you found him through MadisonHomes.blogspot.com.

Wisconsin Real Estate Magazine - September 2010 Issue - Seller Financing and the SAFE Act

Seller financing can be the difference between a family owning a house they can afford but for which the financing is unavailable due to lender and Fannie Mae restrictions.
Wisconsin Real Estate Magazine - September 2010 Issue - Seller Financing and the SAFE Act

Wisconsin Real Estate Magazine - January 2011 Issue - 2011 Economic Outlook

Wisconsin Real Estate Magazine - January 2011 Issue - 2011 Economic Outlook

Foreclosures and What They Cost: From the Capital Times 1/5/11

A distressed sale, (Foreclosure or Short Sale), is one where the equity (balance after deducting money owed against the property) is insufficient to satisfy all of the debts. Foreclosure is a legal process where the borrower and owner of the mortgage have defined rights and responsibilities to allow the opportunity for both to protect their interest. A Short Sale is simply a term to define a real estate transaction where the borrower, a potential buyer, and the owner of the mortgage (bank, investors, loan servicer) negotiate to satisfy the debt for less than owed.

Distressed sales are being mapped to help communities secure federal funds to address social and economic consequences in high density foreclosure areas. Follow the link to read Pat Schneider's  Capital Times story.
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It's worth noting that while the appraiser must not include foreclosures in their mortgage appraisal, home buyers do consider all sales data when calculated their opinion of fair market value. Web sites such as Zillow.com do not discount foreclosures in their market trend and Zestimated Market Values. With that information in hand, the consumer is predisposed to stay away from homes that are priced comparable to relevant recent sales of non-distressed properties. The result is loss of competition. With no competition buyers negotiate in a vacuum and owners who have to sell have no options but to take what is offered. The cost of foreclosures is the burden of people who happen to live in areas of rising foreclosures.