A real life question for August 2010: Should I refinance or should I move?

30 year conventional mortgage rates are now in low 4 percent range. That really requires repeating: 30 year conventional mortgage rates are now in the low 4 percent range. When I first started in real estate full time in 1980 conventional 30 year mortgage rates were at 18.5% or HIGHER. No that was not the credit card rate it was the interest rate for mortgages. What was amazing is that people actually purchased homes and took out mortgages. It is also true that they refinanced to lower the rate and the month payment. (Generally when they refinanced they did not take any additional equity.

While we are engaged in a debate about renting versus owning, that debate is really in response to people who purchased homes who cannot afford them. People who should not have been approved for mortgages. People who could not afford to stay in the homes. People purchased on one of three assumptions: prices would go up, the property could be easily flipped, or that payments would go down. Notice that none of the assumptions assumed that they would keep the property long term. Now we are back to the world of conservative lending and common sense. In real estate jargon: we are in a market of 'sustainable ownership.' Very simply, people should purchase what they can afford to maintain over time. It is the prudent approach to home ownership. It is great advice.

For many people that raises a really good question. If you currently own a home that has an interest rate in the 5 or 6% range it probably makes sense to refinance. There are lots of important factors to consider: Is your employment situation strong? Do you plan to be in the area longer term? What is my equity situation? Do I owe more that the property is worth? What is my overall financial health like?

What is encouraging is that lower cost mortgage money is available even if you are in a negative equity situation. There are programs available that will allow you to refinance up to 125% of your homes equity. One critical note, you will need to pay back the mortgage.

Many people have real equity in their home, but have seen that amount reduced. The market has corrected so they have less equity than when they paid for the house. For some people this fact causes them to ignore a great question: Should I buy another home rather than refinance? The answer to question is family specific, that is what is 'right' for your family? If your housing needs have changed, you need a larger house, you need a smaller house, you want a lower mortgage payment, you want more land, you want a newer home, you want a townhouse, etc; then you should engage in the conversation. It may make sense, with interest rates at the lowest level in the past 50 years to make the change.

Some of my clients are concluding that the lower prices of homes, the large number of choices and the interest rates are compelling. They are making the decision to sell and purchase another home. In some instances, they are doing that although they are coming up with cash to pay off their existing mortgages. What they are doing is looking at their financial situation and the family shelter needs and making a measured, strategic decision. Yes they are selling their existing home and yes they are getting financial advice and real estate advice. They looking at the big picture and making prudent decisions.

If you are in the same place, do not hesitate to call your neighborhood Realtor for some real estate advice. I am available at 401 640 7097.

Real Estate Summer 2010: The New Normal

It has been a bizarre summer in real estate. We have seen very good activity as we complete the sales of the early summer. The median price in Rhode Island has moved up to $220,000. Closed sales are in fact also up, but there is a new normal. It is much more difficult to obtain mortgage money. The lenders have over reacted to the experience of the time of 'easy money.' The new reality is that virtually all of the commitment letters being issued to buyers are to extremely well qualified people. In an absolute way this is appropriate. The real estate market and the country need a housing market of 'sustainable home ownership.' Sustainable home ownership is a concept in which people are qualified and purchase properties that they can afford to own for the long term. We used to call this 'common sense.' It is the way it should be: People should only purchase what they can afford to own.
The challenge is in the details. The lenders have increased the standards from rigorous to highly rigorous. Some of the requirements are over the top. It is fair that the 'chain of flow' of the deposit should be documented. Where is the money for the down payment coming from? A friend of mine in Maine shared with me a story about that concept applied to the ridiculous. A young couple, with whom she was working, had received $8000 in wedding gifts from about 80 quests. The originator wanted gift letters from each of the guests indicating how much they had given. To my Realtor friend's credit, she had the young couple give the money to each of their parents and then provide two gift letters and two checks, each in the amount of $4000. When I share this story with other Realtors....no one is surprised.

This is the new normal.

When I started working in real estate 30 years ago, once a sales agreement was signed, it was likely to close in 99% of the time. Now we are seeing between 10 and 15% falling apart because of inspection issues, appraisal issues, or underwriting issues. It means that sellers are waiting until contingencies are satisfied before making other commitments. This is appropriate. As we are having 'issues' at all price points.

This is the new normal.

One of the hardest things to get used to in the market now is in negotiation. Historically a buyer would make an offer expecting a counter. It would be normal to have a couple of 'back and forth.' In this market the buyer will make an initial offer. If the counter is not compelling, and sometimes even if it is they step away. Negotiations are over, and buyer moves to another house. This can be extremely frustrating for sellers. How do you negotiate strategically in this market? Knowing as much as you can about the buyer and how she, he or they think is important. Having an advocate, a Realtor, is becoming more important not less.

This is the new normal.

Finally, the reduction in the number or real estate licensees in amazing. Every two years. holders of real estate licenses, salespersons and brokers, must complete 24 hours of continuing education to obtain 'the state authority' to sell real estate. This year the number of sales person dropped from just over 7000 to approximately 3500. It is a drop of half. Brokers licenses dropped as well, but not as much. Most sales people work on a contingent fee. It is a difficult way to make a living in a soft real estate market. It also means that lots of new Realtors have moved into other fields. This is unfortunate. What is true is that this will pass . A different market will find us.

This is the new normal.

The Realtor Future: Authors or Objects

In early June I traveled for the Leadership Team out West, first to California’s Legislative meetings and then to the Resort and Second Homes Meeting at Lake Tahoe, Nevada. It was a special trip and very inspiring.

In each of my public presentations, one message was central: The future will be written, and we REALTORS® have a choice: We can be authors of our future, or the object of the future. In other words, we can engage and write our future or we can be spectators.

For the past several years, we have “involved” ourselves by providing solutions to the housing crisis. However, now, there is a new approach REALTORS® across the country are embracing: action and engagement.

Maybe it was wishful thinking (or blind optimism) that led us to believe that the market would self correct and mortgage money would be available to credit worthy consumers. After the bailout of the “Too Big to Fail” banks, REALTORS® assumed that these companies would step up and begin to provide the life blood to our market – mortgage money. We also assumed that the government would step in and solve the problems. I’m not sure why we believed that everyone else would step up and make it right, but we did. And, to be fair, steps were taken, but it has not been enough and it is not right.

The change for us to be more active is a good one. We are relying upon ourselves – our hands and our ingenuity – to figure out the solution AND take control, rather than allowing some else to resolve the problems.

Your NAR leadership team is working within this new understanding and focus. We are no longer stepping. We are marching and running.

Specifically, we are working to create channels of communication between REALTORS® and the big banks. Right now the five largest banks are responsible for 73 percent of all of the mortgages written in the United States. While that fact may be disturbing, particularly considering that 30 years ago the top five banks were responsible for 25 percent of mortgage lending, it does have value. We only need to communicate with those five to resolve many issues in the market.

We have decided we need to be authors of our relationship with these banks. It is easy to blame, but creative problem solving requires focus and discipline. These are skills, traits that REALTORS® know well. We are working to write and define the “new normal.”

Some people suggest that leadership should not tell you what we are attempting to do, but rather tell you after the success has happened. I disagree. By sharing our agenda, we make sure that we are representing you. It is also a way to make leadership accountable. Most importantly, sharing gives you the responsibility and the opportunity to work together to come up with effective solutions.

After all, who has a better vantage point than you, the neighborhood REALTOR®? So, please, share your thoughts and ideas with us.

This initiative is a reach. We are looking to redefine the flow and availability of mortgage money. But our industry cannot operate without it. We need to ensure that the global financial system has a steady, competitive, reliable, and available source of mortgage money.

The American Dream, when realized, is a great thing for American families. While re-thinking what people can afford is appropriate, re-thinking cannot be allowed to eliminate homeownership entirely from the national consciousness.

As authors of our future, we must insure that the American dream is the right size, but still very much a real part of the American experience.

For Whom the Bell Tolls: The Tax Credit

The Federal Government extended and expanded the first time home buyer tax credit last fall. The National Association of Realtors was very aggressive in its effort to forward tax credit. The main reason was that the credit is one of the few ‘stimulus programs that directly benefits the average American Family. One of the intended consequences is that the tax credit has helped to stabilize markets, meaning average price, as we work through a huge inventory. For the average American, most of his or her wealth is ‘stored’ within the value of their home. The market correction has seen a significant reduction in that value. It is true that the value is only really ‘set or calibrated’ when one sells or refinances. Otherwise the value is a rough metric. It is also helpful to remember that the metric ebbs and flows just life the tide. It may be worth less today than yesterday, but will probably be worth more next year, etc.
The tax credit has been most effective and many new buyers have entered the market. In the first phase of the program, last year approximately 350,000 ADDITIONAL buyers made purchases. The second phase has produced similar numbers so far.
The second phase of the tax credit has a much broader reach. First time home buyers who are in sales agreements by 30 April 2010 and close by 30 June 2010 can receive a credit of $8000 for the purchase of a primary residence. There are family income limits; $125000 for individuals and $225,000 for married couples. The tax credit also has a repeat buyer provision which allow people who have owned a primary residence for three of the past five years to qualify for a $6500 credit. The income limits are the same and both credits have reduced benefits for individuals up to $145,000 and families to $245,000 of annual income.
Condominiums and single family both qualify, but second homes and non owner occupied investment properties typically do not. There is also a maximum purchase price of $800,000.
The important message now is that we have a month and a half to complete the search. That is you must find, negotiate, and have signed sales agreements by 30 April 2010 to qualify. You do have until 30 June to close, so you can move you family at the end of the school year if that is optimum for you and your family. It is very rare that the federal government gives its citizens money or land. This may be the first time since the land grants out West in the 19th century that the government is ‘giving away’ such value. Incidentally, granting land for compensation in lieu of cash is not new. In 1735, the King of England ‘paid’ many of colonial soldiers with land grants in East Greenwich. Do you notice a pattern, every hundred years, or so, there is a real gift from the government. This gift is significant, but the hour glass is almost out of time. Do not let the bell toll for thee or thee’s tax credit!

Make It So: Star Date 16 March 2010

Here is my NAR Officers Blog entry:


Growing up Star Trek was one of my favorite television shows. Although I never caught the Trekee virus, the story line and the characters were imprinted in my mind and most of 1960’s America. If you watched television as a kid, you watched Star Trek. Each program had a message: courage, team work, trust, the need of the whole versus the individual, and more.

Among the lines that developed in later Star Trek episodes, was the line from Captain Jean Luc Picard: “Make it so.” It is such a direct phrase that carried so much weight. It is a simple, clear command.

As of this Star Date, I am almost half way through the thirty-six month leadership cycle. Specifically, this is month seventeen. It is actually helpful that you have two years of internship, to prepare to be president of the association, because the National Association of REALTORS® is a large, multi-faceted, complicated organization. There is much to learn and understand. To be honest, it is overwhelming at times.

What is clear for me today is the mission of the organization: Serve the member.

For many organizations the customer is the focus. What truly distinguishes NAR is that the REALTOR® is not simply a customer, rather he or she is the ‘purpose’ of the organization. As decisions are made, the leadership team, and our professional staff, led by CEO Dale Stinton, consistently ask one question: “What is in it for the member?”

The Second Century Initiatives are a bold direct answer to that question: It is all about the member. From Right Tools Right Now to REALTORS® Property Resource, from Game Changers to House Logic, from the REALTOR® Federal Credit Union to the next series of programs to be introduced, one universal truth is present: it is for the member. Think about the fact that 800,000 of our members used ‘tools’ from the Right Tools Right Now initiative. Think about the fact that RPR is going to have 147 million records and analysis for REALTORS® to better serve customers and clients, at NO cost. Being about the member actually is more than just member focused. It is about providing the members with resources and tools to make more money. It is about business.

When Dale Stinton talks about competencies of NAR, he identifies a pyramid of skills: scale, leadership, and brand. NAR is ‘large’ enough to be effective, which is the scale side of the pyramid. NAR is courageous, industrious, disciplined, creative, forward thinking, outcome driven and bold. This answers the leadership side. The third side of the triangle is the REALTOR® brand. It is recognized, understood, and respected. Our association has mastered these competencies.

Now it’s our turn to do so in our own businesses.

What NAR does is make it possible for us to reach to the stars. It makes it possible for us to dream, think and realize BIG things. It makes it possible for us to say “Make it so,” and know that we will. – Posted by Ron Phipps, 2010 NAR President-Elect

Cold Winter, But Hints of Spring!

Cold Winter Winds, but hints of a Warm Spring

The swamp Yankees among us do not put much faith in predictions unless they are in farmer’s almanac, and even then they are suspicious. Truth be told, there is wisdom in their cynicism. It is a product of generations of experience in dealing with harsh elements of New England weather. (Good preparation for the Patriots implosion on January 10th). So with that appropriate ‘disclaimer, it is appropriate that we talk about the real estate market in Rhode Island.

“Average price showed an increase in December 2009, the first increase since mid 2006.
That has been three and half years since the average increased in a single month. Over 40 months of reduction has finally ended. Secondly, the number of sales increased by 17% in December 2009 over December 2008. It is true that it was helped by extension/ expansion of the tax credit. Low interest rates and good housing choices are other enabling factors. But there was one macro economic fact: housing prices, or rather housing values, reach equilibrium. In other words, housing prices become so competitive, that they became compelling. To quote. Business Week, if you do not buy a house now,” You are either broke or stupid.”

Much has been made about the importance of the high Rhode Island unemployment rate and the significant number of short sales and foreclosures. But we are seeing real estate fundaments more clearly: Prices and supply are coming into a balance.

So what does this mean for the up coming spring market. It is encouraging.

The goal of the extension of the $8000 tax credit and its $6500 expansion for repeat buyers is to prime the spring market and stabilize values. The important note is that the credit ends with sales agreements signed after 30 April. You have until 30 June to close the transaction and qualify, but you must have the agreement signed, valid prior to 30 April 2010. So as a buyer it is important to start searching soon to benefit from the credit. For sellers it makes sense to put your house on BEFORE the spring market. We are recommending you do it now. There are fewer houses on the market so competition among houses is less intense. Furthermore, the buyers who are out looking now tend to be very serious. That means that you will not necessarily have a lot of showings, but those that you will have, will tend to be serious.

Additionally, buyers are the most researched and informed that we have ever seen.
They know the comparables, market conditions, and the ‘nuances’ of the market.
They are, generally looking for homes in superior condition, at below market prices.
As sellers, there is no patience within the market for poorly priced houses. It you are priced over the market, you are wasting your time. This market is all about price. (Sound familiar). What is making the price issue even more important is the difficulty with appraisals. Anyone who is getting a mortgage will need an appraisal as part of the approval process. If the appraiser values the house at less than sales price, which has happened a lot this year, then the transaction can fall apart. In order to keep the transaction together, the seller may have to adjust their price. It is a real challenge.

One other observation, we are moving back to a normal market. That is prices are now compelling and seller and buyers, particularly in the market below 350k, are in what most Realtors would describe as normal. Neither really has the advantage.

Finally, pre qualification of buyers is critical for buyers and sellers. Most sellers will not negotiate unless they ‘KNOW’ the buyer is qualified. Buyers should be qualified for financing BEFORE they start to look at housing. There is little value is looking at houses that you cannot afford.

Let us know if we can help you sell your property or purchase a new one.

It's Not Kansas Anymore!

We are not Kansas anymore! Or better yet maybe it is back to the future. Two weeks ago, just over 20,000 Realtors met in San Diego at the 2009 National Convention. It had all of the elements of a regular convention: a trade show, governance meetings, entertainment, and recognitions. It is the event for the orderly transfer of leadership. The 2009 President, Charles McMillan to 2010 President, Vicki Cox Golder. Among the highlights of the meeting was the General Session: It is the main event. All of the State Realtors of the Year, including Rhode Island’s Alice Kleczek, were honored. Additionally, five Realtors who do great charity work receive awards. Every year, their stories bring tears to my eyes.

This meeting was unique as it marked a new beginning. Real Estate is changing in a revolutionary way, and November 2009 is the turning point. It is not just a change of date, of time or a place. It is a change of understanding and essence. In many ways it was a commencement. The implosion of real estate over the past several years was a catalyst for the change. As an industry, we have been forced to look at ourselves objectively and critically. That self analysis led to major changes in the real estate business and our association. You can see the industry changes: More reliance on the web, less reliance on print media; consolation and streamlining; additionally, strategic alliances and surrender.

The Realtor Association responded in bold ways. We rolled out the ‘right tools right now’ program to provide our members with ‘tools’ to make them more productive and profitable. We delivered over 11 million dollars of product to our members at limited or no cost. We worked legislatively to get the first time home buyer credit expanded and extended. We worked to get banks out or real estate permanently. We were able to get the higher loan limits extended for another year, ending December 2010.

But where the real revolution is occurring is in the web/technology area. We rolled out www.houselogic.com. It is a consumer resource website. It will not be selling the consumer; rather it will be informing and educating the consumer. Topics include everything from home improvement values, to neighborhood crime watches, to property right issues. It is just starting, but the content is amazing. We are building an online community for these country’s 75 million home owning families.

The second major announcement was RPR: Realtor Property Resource. The Association is setting us an online data base for all 147 million parcels of real estate in the United States. Access will be limited to Realtors, but it will be revolutionary tool that will enable Realtors to provide phenomenal information to their customers and clients. It will have property histories as well as price trends. Its information will include zoning, utilities, title, ownership, mapping, legal disputes, etc. It will ultimately have psycho graphics, the new marketing term for the behavior profiles of the residents. In short, it will be an amazing tool. Incidentally it will have privacy policies.

These are part of the revolution occurring in the Real Estate Industry. Their impact will be similar to that of the founding of Multiple Listing Services 100 years ago. MLS’s purpose, to provide for the cooperation and compensation among brokers, was a radical, revolutionary concept. One hundred years later, we are opening our second century, with equally important news. Your Realtor has brought great value to you in the past; you will be amazed what they will be able to do for you in the immediate future.