Ricardo Bueno and Daniel Martin are Two Mortgage Professionals Delivering Value Through Blogging
May 31, 2008 | 2 Comments
There are A LOT of real estate blogs. I don’t know how many, but it is a pretty big number. There are a lot LESS mortgage professionals out there blogging. Why is this? I have no idea. I do know, however, that I have been very impressed with two mortgage bloggers that I met recently.
Ricardo Bueno and the Industry Report
The first is Ricardo Bueno. Ricardo is out in Los Angeles blogging his brains out about the mortgage industry. This is good stuff, so check it out. Ricardo was also kind enough to join into the conversation on a recent episode of ZebraTalk about REBarcamp ‘08. A few weeks ago, Ricardo compiled the talents and thoughts of some folks around the industry and put together a free e-book entitled, “How to Build a Community Around Your Blog.” Ricardo asked me to contribute, and I was happy to do so. You may want to check the book out. More importantly, I suggest that you print it, email it, share the link with anyone you know in the industry who you think could benefit from the information. I think your colleagues would appreciate it, and so would Ricardo.
Daniel Martin Lives in a Mad Mortgage World
Daniel Martin is a mortgage professional in the mile-high city. Daniel is working on a very cool web resource for the mortgage industry, MadMortgageWorld.com. It is a comprehensive free resource for mortgage professionals that is designed to help them in this Web 2.0 world. He has compiled some great podcasts, and a series of conference calls, one of which he did with yours truly. It was a lot of fun, so check it out, and take a look at all the other great content that is on the site as well. Like I said before, make sure you share the links, share the podcasts, and share the love with anyone you know who might be able to benefit from the information he has gathered and shared.
Good To Know Guys Like Ricardo and Daniel
Lord knows I have had my share of trials and tribulations with the mortgage industry during my time in the profession. It is good to know that their are good folks like Ricardo and Daniel who are willing to take the lead and help improve their profession. My advice would be to take advantage of the information and insight that they offer, and if you get the opportunity, you might want to take advantage of their services as well. 
Oh, I almost forgot, you can also follow both of them on Twitter (@RicardoBueno, and @MadMartin)
Dr. Lawrence Yun Is A Zebra
April 3, 2008 | 11 Comments
Last week, I had the opportunity to have lunch with Dr. Lawrence Yun, Chief Economist of the National Association of REALTORS. Of course, it wasn’t just me and him, the group was made up of myself and fellow bloggers Jim Duncan, Matthew Rathbun, Danilo Bogdanovic, Scott Rogers, Ben Martin and the CEO of the Virginia Association of REALTORS, R. Scott Brunner.
Sitting down for lunch with Dr. Yun was a unique opportunity. Sitting down for conversation with a group of insightful and intelligent REALTORS made the opportunity all the more valuable. We will be sharing our experiences today. Make sure to read all of the posts, since you are sure to get very different perspectives from everyone. Here’s mine. . .
Looking at Lawrence Yun Through a Zebra’s Eyes
When I have meetings like this, ones in which I am meeting someone for the very first time, and especially someone who has a popular perception that precedes him, I always rely on my experiences and training as a referee.
Why do I do this? Simple– as a referee, I am constantly interacting with coaches on a professional level in highly charged, emotional and potentially confrontational situations. When I meet coaches for the first time, I have a very short period of time (sometimes, literally a handshake) to establish credibility and try to discern from them how a game will go. I have to be very observant, learn as quickly as I can what makes them tick, how they react in certain situations, what will set them off, what will calm them down, etc.
I approached the lunch with Dr. Yun the same way. I approached him as I would a coach. Sure, I’ve heard all of the criticism of Dr. Yun, but I wanted to meet the man for myself. I wanted to find out what makes him tick and how he really feels about certain issues. These are the things beyond his title as Chief Economist of NAR. These are important things.
Dr. Yun Doesn’t Shrink from Criticism
All of us at the lunch knew that this wasn’t an interrogation. It wasn’t even an interview, really. It was a discussion. Of course, we all came prepared with our questions, and he was very ready to answer them. In I guess what you could call an attempt to address the elephant in the room the very first issue addressed was the vehement criticism of Dr. Yun from the blogosphere. We wanted to know if he reads the criticism, and what he thinks about it.
He didn’t flinch. His response was that he doesn’t seek out the criticism, but that his colleagues occasionally make him aware of it. He knows that criticism is an important part of a free society. What impressed me about his response was that he actually appreciates the criticism, when it brings up valid points and arguments. He wants to know when people have a problem with the forecasts and analysis of the NAR research group. His answer had no hint of hubris, or conceit. He didn’t brush the criticism aside, even if he doesn’t always agree with it.
The Data is Sacred
Going into this lunch, I was very interested in the process that goes into NAR economic forecasts and analysis. My contention has always been that since economists are scientists, you can say whatever you want about them personally, but the thing that really matters is the method behind what they do. You might night like the personality of an economist, but if his method is sound, then you can’t call him a hack, or accuse him of any malevolence.
The thing that Dr. Yun mentioned more than once when we talked about the forecasting process is that, “the data is sacred.” He has a deep understanding and appreciation for the fact that great care must be taken to ensure that the data upon which forecasts are based must be the best data available, and that it must be trustworthy. Without that, the whole process fails. This is one reason why he doesn’t personally compile the data. He has a staff of economists that independently gather the data and then share it with him. He merely applies his forecasting models to the collected data. This data is gathered from various sources, some through NAR research, and some through the research of various government agencies.
When talking about the forecasting and research process, it was very apparent that Dr. Yun has a very high regard for the method used. There was no equivocation, no wavering, no disclaimers, “the data is sacred.” It was important to hear him say that.
When it Rolls Down Hill, Guess Who Stands at the Bottom?
While we were talking about the processes behind what comes out of NAR, Dr. Yun mentioned that he is involved in the NAR meetings about national messaging. You know, these are the meetings that are partially responsible for all those TV and radio ads that we just love.
Knowing this prompted me to ask him a very pointed question, “since you are involved in the messaging meetings, are the other executives at NAR involved in the forecasting process?” To me, this is important. Dr. Yun’s answer was simple:
“No. The buck stops with me.”
When it comes to releasing the forecasting and research reports, Dr. Yun lives on an island. He alone is responsible for the releases. He alone is responsible for making the tough calls. There is no one adding input, no one telling him what to say. He gets all the glory (when there is any to be had), and he definitely bears the brunt of all the criticism.
What surprised me was that I had no idea how dependent upon NAR data our entire economy is. We discovered that Dr. Yun is in constant contact with government agencies and economic powers. Whenever the government needs housing market data, guess who they call? When foreign governments and financial institutions have questions about the American housing market, guess who they call?
This revelation gave me an interesting perspective on housing market questions. Having a client stop me in the grocery store and ask me, “how’s the market?” is quite a bit different than receiving the same question from the Department of Commerce.
Lawrence Yun Is a Zebra
Now having met Dr. Yun in person, sitting next to him, breaking bread with him, listening to him, observing him, digesting his answers, it became apparent to me that Dr. Yun would probably make one heck of a basketball referee. Here’s why:
He can take criticism (he surely gets plenty of it). This is one of the most basic things that a basketball referee needs to learn. People are going to scream and yell at you, people are going to hate you sometimes. The trick is knowing which voices are valid, and which ones are just yelling. Sometimes it’s about ignoring the way in which someone criticizes in order to figure out if their criticism is valid.
He respects the fundamentals of his work. For referees, it all starts with the rules. If you don’t know the rules, you can’t possibly do a good job. Mistakes in judgement will be made, rules mistakes are unacceptable. For Dr. Yun, it all starts with the data and preserving the integrity of the data and the process by which it is gathered and interpreted.
He embraces the finality of his responsibility. When the whistle blows, everyone stops and looks at you. Basketball referees live and die by every call. Every referee knows this and doesn’t shy away from the tough calls that must be made. Dr. Yun knows that the nature of his position is such that he leads with his chin. In the end, he knows he can’t pass off his responsibilities to some one else. The forecast models are his, the reports are his, and he can’t point the finger at someone else. He is not only aware of this fact, but seems to embrace it.
What I Learned
Coming into this lunch, I didn’t really have any expectations. I just wanted to try and gain a better understanding of Dr. Yun and try to see his job through his eyes. Plenty of other people have offered their opinion as to what he does, so it was interesting to me to hear how he interprets his work and his responsibilities.
One of the things that was quite refreshing was the candidness of Dr. Yun. He didn’t dodge any of the questions. That’s not to say his answers weren’t diplomatic, but he didn’t dismiss any of them. He also is very open to interaction with the membership. It seems to me that he genuinely cares not only about his job, but about the job that REALTORS do on a daily basis. There was much discussion about how his department could help REALTORS on the ground in their daily interactions with the public. I almost got the sense that he wishes he could have more interaction, but that he understands the line that must exist. He never specifically said that, but that was just my impression. To his credit, the research department seems more available and willing to engage now than ever before.
This lunch was a very valuable experience. It gave me a new way of looking at some of the criticism that is sure to come when the next market forecast is released. I got to see things from another perspective, and a very important one, at that. More than anything, I got to shake the man’s hand, look into his eyes, and make a determination for myself how I felt about him. The verdict–
somebody give that guy a whistle and some stripes
UPDATE:
Here are the links to the posts of the other attendees:
Danilo Bogdanovic
Jim Duncan
Scott Rogers @ VARBuzz
Matthew Rathbun @ AgentGenius
Ben Martin, blogger and VAR Staff/Social Media guru
Lunch With NAR’s Chief Economist, Lawrence Yun
March 18, 2008 | 3 Comments
It might not be lunch with the Queen, but I am nonetheless excited. The Virginia Association of REALTORS has provided myself and some fellow Virginia real estate bloggers an opportunity to have lunch with NAR’s Chief economist, Lawrence Yun.
Yun was recently named one of America’s Top 10 Economic Forecasters by USAToday. There has been some discussion over on VARBuzz about what questions you would ask Mr. Yun, given the chance.
So I’m curious, what would you like to know from NAR’s Chief Economist?
Bail-Outs, Personal Accountability, and Getting Booed
September 20, 2007 | 3 Comments
Last week, I told you what I thought about government bail-outs for the real estate industry. Yesterday, the Fed stepped up and took action. What the Fed did was more of a band-aid than a bail-out.
Not to be upstaged, and since politicians are generally moved by their insatiable need to do something, the House of Representatives passed bail-out legislation for homeowners. I expected the House to wait at least a day so that the legislators would get more publicity from the move, but maybe their intention was to be more stealthy with it. Whatever their motivation, I still don’t like it.
All of these federal actions provide and interesting backdrop for a discussion that has been going on at the BloodhoundBlog about the viability of the National Association of REALTORS. Greg wrote an excellent post last night about committees and why they usually fall short of our misplaced expectations. Kris Berg responded with an excellent post describing her own take on the issue. The debate is interesting because it parallels the national goings-on in some ways. While we debate whether or not the NAR is truly an organization that offers any benefit to its members; and while we debate the actions of the NAR, which governs the actions of its members, the Federal Government (an organization to which we all belong, one way or another, like it or not), is busy takings its own highly debatable actions that effect the real estate industry. The beauty is that it is all up for discussion and debate. Allow me to add my own perspective on the issues at hand. . .
Do You Want Learn About Personal Accountability and Bail-Outs? Become a Referee.
A person’s perspective on any given issue is largely the result of that personals personal experiences. Sprinkle in a little bit of the second-hand experiences of others, and, voila! An opinion is born. In this case, my experiences as a basketball referee most certainly color my opinion on the matter. You see, in my job as a basketball referee, I get to experience a very real demonstration of personal accountability every time I blow the whistle (or don’t). Example:
Two years ago, I was officiating a high-school girls’ Varsity game. The game in question was at a school well known for its raucous crowds. Unfortunately, their team wasn’t playing very well that season, barely winning any games. This game, however, they were winning. With 2 minutes left in the game, the home team was bringing the ball up the court when went a pass went out of bounds. My partner blew the whistle and indicated the ball belonged to the visiting team. At this point, I made a MONUMENTAL mistake (two actually). First, I was 100% sure that the visitors had touched the ball before it went out of bounds (mistake 1– I was 100% wrong). As such, I gave this information to my partner. We decided to change the call. I then proceeded to point in the wrong direction (towards the visitors goal–mistake 2). I then had to change the call AGAIN, and point in the other direction. The whole thing looked very ugly. To make matters worse, everyone on the sideline knew the call I made was wrong, including the visitor’s bench (who was also behind by 20 points at this time). I didn’t find out how wrong I was until after the game, but I knew something was up just by the reaction I was getting.
As can sometimes happen with officiating, that one call, one simple out-of-bounds call, destroyed our entire game. The play looked terrible, which hurt the credibility of the crew. The visiting coach went ballistic (understandably) and my partner had to give her a technical foul. This riled up the players. . .it just went on and on. The last two minutes of that game were the longest two minutes of my officiating career. It was horrible. It was the worst moment in my officiating career (so far). I had to suffer through the whole thing. There was no-one to help, no one to turn to, no one to bail me (or my partners) out of the mess I had created.
More importantly, it is a moment I will never forget. You can bet your bottom dollar that I learned a lot from that experience. I have applied those lessons in my other games so that I can avoid having another similar screw-up.
. . .Back to the Real Estate Industry
What does this have to do with the real estate industry? It’s simple– sometimes, we need to screw up. We need to make mistakes, we need to be hurt. Suffering real, direct consequences is one the fastest ways to learn something important. When I am on the basketball court, the consequences of my actions are immediate, and they sometimes aren’t pretty. I’ve been roundly booed, I’ve been screamed at, I’ve had very not nice things said about me. Sometimes those consequences were warranted, sometimes they weren’t, but experiencing them has helped make me a better basketball official.
If the federal government simply relieves foreclosures by offering assistance, what lesson is learned? How are people going to know when they have done something wrong if we turn around and make everything right again? I fully understand the desire to step-in and help people who are suffering, but going through a foreclosure isn’t going to kill anyone. It certainly will not be pleasant, but everyone will survive. There are times when the best thing you can do to help someone is to do nothing at all.
I also don’t blame the Federal government for getting us into this mess. Getting here was a collective effort. It took a little bit of greed, over-exuberance, and mistakes by a lot of people to put us into this situation. Now, we are charged with learning from those mistakes, avoiding greed, and working to avoid a similar situation in the future. As a student of the economy, and the causes of the Great Depression, you can rest assured that Dr. Ben Bernanke is working hard to learn from the mistakes that were made in the past and avoid anything remotely similar in the future.
So what are you going to do?
[tags] real estate, realtor, charlottesville, virginia, house of representatives, federal reserve, bernanke, FHA, basketball, officiating, referee [/tags]
The Fed Takes Action; and Why it Probaly Won’t Affect Your Real Estate Transaction
September 19, 2007 | 2 Comments
Remember my post from yesterday about Ben Bernanke and Judo Economics? Today, we got to see the plan in action as the Fed announced a 1/2-point reduction in the federal funds rate. Wall Street rejoiced. You can read the announcement from the Fed here. For additional coverage, check out USAToday and my personal favorite, Financial Times.
While the cut in short-term interest rates is significant, historic relative to recent Fed actions, what does it mean for the real estate market? Not much. Sure, there is a psychological effect on the market, but the real effect on the real estate market will probably be negligible, if at all. Consider what Financial Times wrote about the cut:
To the extent that they are able to reduce the recession risk, their actions should help stabilise financial markets, in particular the market for mortgage-backed securities.
Some of the most senior officials favoured a 50bp [basis point] move to create a positive psychological effect on the markets.
Notice that the quote mentions stabilization in “financial markets” and “mortgage-backed securities” in particular. For those of you who are thinking, “that’s good. That means mortgage rates will be lower.” Not necessarily the case. What the Financial Times article is talking about is the secondary mortgage market, and reducing volatility for investors who are seeking to invest in mortgages, not changing things for people applying for mortgages.
For further evidence, look to the USAToday article:
A cut from the Fed should “help alleviate some of the tensions in financial markets and provide a boost to consumers and homeowners currently feeling the pressure of relatively tight lending conditions,” Ruesch International said in a note to clients Tuesday morning. What it means:
• Banks were expected to immediately cut the prime rate, base rate for many business and consumer loans, such as home equity lines of credit and credit cards, from 8.25% to 7.75%.
• Rates on adjustable-rate mortgages may fall, although many are based on other interest rates. The Fed has even less control over fixed mortgage rates, which are tied to 10-year Treasury yields. Those have fallen in recent weeks as investors flocked to the safer investments. Bond yields fall as prices rise.
The average rate for a 30-year, fixed-rate mortgage was 6.31% last week, down from 6.46% the previous week and 6.43% a year ago, according to Freddie Mac.
Notice that mortgage rates are not directly tied to the Fed funds rate. The 1/2-point reduction may have a trickle-down effect on mortgages, but there probably won’t be significant jump in mortgage applications just because the funds rate dropped. Mortagage rates are already quite low, lower even than the same time a year ago. Expecting them to go significantly lower is unreasonable.
If your home is on the market right now, and you were hoping that the Fed was going to do something to change the real estate market, your hope was misplaced. Buyers aren’t going to come flooding into the market now that short-term rates have dropped; and prices aren’t suddenly going to go up in areas where they have been receding. But then again, the Fed knows this. As I said yesterday, Ben Bernanke’s job is not to correct the real estate market, it is to monitor the entire economy. The Fed said just that in its press release today:
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
The only mention of the real estate market is a possible intensification in the “housing correction.” Notice, however, that there is no mention of the real estate market when talking about the intended effect of the rate reduction, only mention of the “broader economy.” If you were waiting for Bernanke and the Fed to help sell your house, you are going to be waiting a long time.
There is no magic potion that will cure what ails the real estate market in most areas of the country. The market fundamentals are pretty screwed up in a lot of places. Until prices come down to the point where they meet demand, homes will continue languish on the market. No action that the Fed will take can remedy that situation.
[tags] real estate, realtor, charlottesville, virginia, federal reserve, interest rates, bernanke, wall street [/tags]
Does the Real Estate Industry Deserve a Bail-Out?
September 10, 2007 | 9 Comments
Over the weekend, I saw a post in my RSS reader from the Inman Blog that really got to me. It concerns the current state of the real estate industry, and how it has affected the residential construction industry specifically. The main story here is that the National Association of Home Builders sent out a desperate plea for help from the government and private investors to help them out of their current financial doldrums. From the NAHB:
“In light of the significant decline in employment reported today, NAHB and its 2,800 board members call on the Administration, Congress and federal regulators – along with stakeholders in the private sector − to work in concert to prevent further deterioration in the housing market and erosion of growth in the nation’s economy. Today’s job report jolted Wall Street, demonstrating the paramount importance of restoring consumer and investor confidence in the U.S. economy and housing market.”
This makes me sick. Here’s why–
First and foremost, this is America. One of the most beautiful things about America is that people are free to succeed to any level they are able to attain. One reason why this is possible is because people are also free to fail miserably. One of the things that drives success is, in fact, failure. Without the ability to fail, it becomes much harder to succeed. Removing failure from the equation will make people instantly complacent, and potentially lazy. Not much good can come from such an environment.
Secondly, business involves risk. The NAHB is essentially asking the government to step in and alleviate the risk that its members knew beforehand was inherent in the market. The fact that many of them ignored the risk and continued to operate as if the milk and honey would never stop flowing is their fault, not the fault of the government or private investors. As painful as it is to have to lay off employees and issue negative earnings reports, actions must have consequences. Suffering such consequences should serve to remind people of what can happen so that they don’t make the same decisions in the future. Noticeably absent from the NAHB is any mention of what its members are going to do to help. In order to change things, they must be willing to accept some of the responsibility. Especially when they were direct participants in the first place.
Third, the NAHB has the audacity to ask for help from “stakeholders in the private sector.” When builders fail, or have to take losses instead of profits, who do you think is losing the money? Those stakeholders are. Correct me if I’m wrong, but I don’t recall the NAHB telling investors to be more cautious when investors were pouring money into their members’ corporations, sending stock prices soaring. Now that times are tough, and builders are over-extended and losing money, they want those same investors to bail them out? Gimme a break. If I had money invested in these companies and they came to me with their, “brother, have you got a dime?” speech, the reply would be, “I gave you a dime, you squandered it, remember?”
Of course, investors share some responsibility here also. There were plenty of investors who suffered a severe case of over-exuberance and consequently ignored the risk and put too much money into the construction sector. Those investors are being duly punished for their transgressions as we speak. Losing money is never fun. That is the way the market is designed to work– you make good investments, you make more money; make bad investments, and you could lose it all.
I am well aware that there is collateral damage here that no one is happy about. There are tens of thousands of people who are out of work because of the down-turn in the real estate market and mortgage industry (there are about to be 12,000 more). Hopefully, the losses have been significant enough that those who helped cause them will act more responsibly in the future. For those who have lost jobs, it sucks, to be sure. Hopefully they will be able to find new employment sooner, rather than later.
The reality of the situation is while the real estate and mortgage industries are receiving all of the attention right now, they are not the most significant portions of our national economy. While the current downturn will have some negative effect on the overall economy for a period of time, we won’t be entering any Great Depression. Other industries have suffered similar downturns throughout history, some even more significant, and guess what? We’re all still here. It’s funny how that works out.
So to answer my original question, does the real estate industry deserve a bail-out? Heck no.
And the #1 reason why is entirely selfish– I know that if I go out of business tomorrow, it is through no fault of the government or the private sector; and neither the government nor a single private investor is going to care. That’s exactly how it should be.
[tags] real estate, realtor, charlottesville, virginia, nahb, bail-out, real estate bubble [/tags]
Is the Mortgage Industry Sting Still on the Horizon in Charlottesville?
August 22, 2007 | 1 Comment
Just in case you have been in a coma for the last few weeks, the mortgage industry is reeling. Foreclosures are increasing, some lenders are unable to fund loans, lenders are closing mortgage units and laying off employees, and loans are getting harder and harder to find. If you watch the news too closely, you might think the apocalypse is just around the corner.
In the Charlottesville area, however, things seem to be doing a bit better. I haven’t noticed a sharp rise in foreclosures, and none of my clients have had trouble with their loans.
Could this change?
Last week, I attended a closing with some clients of mine. I always attend the closing with my buyer clients, just in case something comes up. In this case, their loan officer attended the closing as well. As my clients were deeply engrossed in placing their initials and signatures on the mountains of required paperwork, I struck up a conversation about the mortgage market with their loan officer. The conversation was quite interesting.
It seems that new lending and underwriting restrictions are soon to make their effects felt in the area. The loan officer indicated that she had more than one customer in the past few weeks who had the rug pulled out from under them when they had their loan pre-qualification revoked. The lending restrictions and loan programs are changing and disappearing so quickly that it is making it difficult to promise anything to borrowers. Some of the hardest hit borrowers are those who are self-employed or own a commission-based income. For those borrowers, loan programs are drying up faster than a snowball in the desert. 100% financing programs are becoming few and far between, as well.
While this isn’t the best news in the world for people looking to buy a home, the people that could be hurt the most are those looking to refinance. There are plenty of people out there who, during the real estate boom, purchased their homes with loans that had adjustable rates. Many of these loans, known as ARMs, are due to have their rates adjust soon. Those borrowers who are smart and proactive know that the rate will adjust, and are preparing to refinance the loan to a fixed rate. This difficulty is that with tightening lending restrictions, it may be very difficult for some people to find fixed rate loan programs to refinance into. This leaves people faced with the prospect of having to live with the adjusted rate and subsequently higher monthly payment. Not fun. There will likely be some portion of those people who will not be able to afford the new payment and will either be forced to sell or face foreclosure. Also not fun.
My point is that we will have to watch the Charlottesville market very closely over the next few months, and especially the first few months of 2008 to find out if new lending restrictions will have a significant effect on the market. If restrictions continue and people are unable to refinance their loans, there is the possibility that inventories could be pushed even higher and foreclosures could rise as well. All of this is speculation, since a lot of things could change over the next few weeks, and will change over the next few months. It is, however, a situation that demands close attention.
[tags] real estate, realtor, viriginia, charlottesville, mortgage, lending, loans, restrictions, foreclsoure [/tags]
Could the Charlottesville Market be Hurt by Weak ARMs?
May 4, 2007 | 2 Comments
The C-Ville Weekly interviewed me recently about adjustable-rate mortgages (ARMs) and the effect they may have on foreclosure rates in the Charlottesville area and the area market overall. The article ran in this week’s edition. Read the C-Ville article and let me know what you think.
As with most journalistic endeavors, they asked a lot of questions but only have the space to print some of the answers. I thought the article was good, but let me expand on my thoughts a little bit for you. . .
Foreclosure rates have been rising in many areas of the country. In some areas, the rise in foreclosures has been staggering. There is little doubt that failed ARMs are contributing to this increase. To say that failed ARMs are solely responsible isn’t quite so easy, however. The problem is not ARMs themselves, but high-risk ARMs obtained by high-risk borrowers.
The rise, and current fall, of the sub-prime mortgage industry has been well-documented as of late. Sub-prime borrowers are people who have less than average credit histories, or show some other signs of being high-risk borrowers. ARMs are by their very nature, risky loans. At the very least, they carry more risk for the borrower than the “traditional” fixed-rate loan. When you combine high-risk borrowers with high-risk loans, the potential for failure goes way up. This exact scenario is being realized all over the country. Banks are getting burned by giving high-risk loans to high-risk borrowers. The result is an increase in the foreclosure rates.
It is difficult to track exactly how many of the foreclosures are the result of failed ARMs. It is also difficult to track exactly how many of the foreclosures are on sub-prime loans. To think that the rise in sub-prime lending has nothing to do with the rise in foreclosures is coincidental is wishful thinking, at best. My guess is that when all the dust settles a few years from now, lenders will look back on the last few years and wish they had not engaged in so many high-risk loans to high-risk borrowers. The only question that remains is what effect the foreclosures will have on real estate markets. Of course, real estate is local, so some areas will be hit harder than others.
As far as the Charlottesville area market is concerned, I don’t think that the impact is going to be tremendous. We may see a slight trend upward in foreclosures, but I don’t think it will be drastic if it does occur. Our area is very economically stable, so the risk of foreclosures due to job losses is minimal. As far as I can tell from talking to area lenders, we did not experience as big an increase in sub-prime lending as other, larger markets. It is obviously hard to predict, but I don’t think that the Charlottesville market is going to collapse due to foreclosed ARMs.
If you are one of the people who does have an ARM, read the article, and you might do well to take my advice as well. Be prepared. Know what you are getting into, and know how you can get out if you need to. ARMs aren’t inherently dangerous or bad, but they do require a bit more planning and attention from borrowers. In fact, when handled correctly, ARMs can be of tremendous benefit to borrowers.
[tags] real estate, realtor, charlottesville, virginia, foreclosure rates, ARM, adjustable rate mortgage [/tags]
Don’t Buy a Home From Gordon Gekko
August 28, 2006 | Leave a Comment
In 1987, Oliver Stone co-wrote and directed a very good film entitled, "Wall Street", if you haven’t seen it, I would recommend renting it. One of the main characters in the film is played by Michael Douglas. His name is Gordon Gekko. Gekko is pretty much your average slimy corporate raider who loves to pillage, plunder and make money any way he can, legal or otherwise.
One of the most famous lines in the film comes from Gekko, who stands before a group of corporate shareholders at an annual meeting and declares,
"greed, for lack of a better word, is good. Greed is right, greed works.
Greed clarifies, cuts through, and captures the essence of the
evolutionary spirit."
The fact that Gekko ignores in the film is that greed has a dark side. Greed can be both a positive and negative motivation. I believe that it is greed that is holding back many real estate markets in the country, the Charlottesville area included.
Anyone who has been paying any attention at all knows that the real estate market in most areas has cooled off. There are those out there that talked of the bursting of the real estate bubble, likening the current real estate market to the ".com" stock debacle of the 90’s. The difference between the real estate market of today, and the .com’s of yesterday, is that the real estate market is much more of a true free market. When it comes to publicly traded companies, there are a lot of interests at play. Capital investors, boards of directors, shareholders, customers, etc. When it comes to real estate, it really boils down to only two parties, the seller and the buyer. There is little or no interference from outside parties when it comes to price. The seller chooses a price, and the buyer decides if that price is acceptable or not. The two parties then must come to an agreement. It is free-market economics in its most basic form. That is why I love it.
What does this system have to do with greed and the market slowdown? It is quite simple. The market will continue to be slow, and prices will continue to fall, for as long as sellers choose to be greedy. In many areas, there is no shortage of buyers. I know this to be true in the Charlottesville area. I am working with numerous buyers right now. The issue in many of these markets is that the sellers have tried to set the prices too high. Greed– pure and simple.
Buyers are either unwilling or unable to pay those prices. Prices will continue to fall until they reach a point that buyers are willing to accept. It is just that simple. I have actually spoken with people who, when told what the market value of their home is, reply with, "I don’t want to give the house away." The way that sounds to me is, "I need to sell, but I am a greedy SOB, and my profit won’t be as much as I want." The bottom line is sellers aren’t giving homes away, homes are going to sell for their market value. Whether or not they agree with that value doesn’t matter. Like I said before, the free market is cold. The market doesn’t care what you think.
The longer that sellers try to hold on to the prices of last year and the year before, the longer the homes will sit. Buyers have made it very apparent that they are either unwilling or unable to pay those prices. Sellers must adjust their expectations, or be willing to suffer the consequences of not selling their homes. The red-hot market of 2004-2005 is GONE. The sooner that sellers are able to accept this fact, the faster the prices will stabilize. Granted, sellers may not like the level at which the prices stabilize, but stabilization is better for everyone.
REALTORS have some responsibility in this whole affair as well. As I have pointed out in previous posts, REALTORS must be willing to tell sellers the difficult truth about home values and the situation of our current market. REALTORS must also be willing to turn down the listings of those sellers who refuse to acknowledge reality. The only way to stabilize the market is to have properties on the market that are accurately priced. I know this is true because I watch the MLS and see that there are some homes out there that sell in days or weeks, not months. These homes sell in a shorter time frame because they are accurately priced for the market. While I firmly believe that the demand is sufficient, it doesn’t look this way because the supply is artificially high.
It is in the nature of free markets to find an equilibrium between supply and demand. The real estate market is no different. In fact, it is probably better at doing so than most other market sectors of the economy. The rub lies in the price. As long as the Gordon Gekkos of the world are setting the prices, the path to that equilibrium will be needlessly long and arduous.
Charlottesville Area Real Estate Stock Index
August 7, 2006 | Leave a Comment
I read an interesting article from MSN Money that looked at the housing market from a stock perspective. Obviously, there is more than one publicly-traded company on the New York Stock Exchange that is part of the real estate industry. The part of the article I found particularly interesting was the following:
The onetime conglomerate Cendant has split into four companies, three of which started trading publicly on Aug. 1. (The fourth, which owns some of Cendant’s travel businesses, is being sold to a private-equity outfit.) The one that matters here is Realogy (H, news, msgs), which is by far the nation’s biggest real estate agency and franchisor, owning the Century 21, ERA and Coldwell Banker brands. Its relationships reach 25% of U.S. existing home sales that use a broker — a share so big that its New York Stock Exchange ticker symbol is just "H," as in housing.
Realogy shares rose 81 cents to $26.10 at its debut on Aug. 1, but have headed south to around $23.50 as of Aug. 3.
The interesting thing about Realogy is it can serve as a proxy or neo-index for the housing market. If you think housing’s decline will be manageable followed by an eventual resumption of a long-term secular trend, Realogy is a good place to be. (emphasis added)
So I thought to myself, "What about creating a real estate stock index?" Well, that is exactly what I have attempted to do with the stock-ticker on the left-hand side of the page. The ticker is provided by Yahoo! Finance. I chose 5 stocks that I feel are relavent not only nationally, but locally as well. allow me to explain my reasoning for my choices:
Realogy, H: Realogy is the company mentioned in the above quote. As the article says, the creation of Realogy is a big deal in terms of having a publicly-traded real estate brokerage franchisor, especially one with a market share as large as Realogy’s. Of course, our area is home to many Realogy franchisees.
Countrywide, CFC: Countrywide is one of the nation’s largest mortgage banks. They are a diversified financial services company, but more than half their earnings comes from mortgage banking. Locally, Countrywide has a very active presence in the mortgage market.
Freddie Mac, FRE: Freddie Mac is the government-chartered mortgage company. It is definitely a benchmark company in the mortgage industry. Forget locally, Freddie Mac reaches EVERYWHERE.
NVR, Inc., NVR: NVR, Inc. is the umbrella company of Ryan Homes, one of the nation’s largest homebuilders. Locally, Ryan has made major inroads in our area. NVR is traded on the American Stock Exchange.
Hovnanian Enterprises, HOV: K. Hovnanian is another of the nation’s largest homebuilders. Locally, they have appeared in Greene County, developing Four Seasons of Charlottesville, an active-adult community.
I figure that these 5 companies will give you a basic idea of how the stock market is affected by the housing market, and how that may trickle-down to the Charlottesville Area real estate market.
So keep your eye on that stock-ticker and watch those little green and red triangles!
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Disclaimer
My name is Daniel Rothamel. I am a licensed real estate agent in the Commonwealth of Virginia and a member of the National Association of REALTORS. As such, I adhere to a strict code of ethics and all laws with regard to equal housing, which is reflected in the content of this blog. My broker is Strong Team REALTORS, 86 Joshua Lane, Palmyra, VA 22963; (434) 589-5800. My VA Real Estate License number is 0225 077325. All of the opinions in this blog are mine, unless otherwise noted.
