real/diaBlog - tomorrow's real estate trends discussed today

Home Ownership is a Privilege, Not a Right

Many years ago it was determined that the goal that most Americans should have is home ownership.  This message was loud and clear after WWII.  And for year after year, that message was delivered to the American people by the government, lending institutions and REALTORS.  And for many years the rate of homeownership in America held steady between 63% and 66%.  In fact, for 33 years, between 1965 and 1997, that was where the rate of home ownership stayed. (Chart courtesy of Calculated Risk)

But in the late 1990's, something changed and home ownership went on a tear that took it to higher and higher levels every year for the next 8 years.  And during this eight year bull market, the ability to buy a house became easier and easier as everyone pushed the message of living the American Dream of Home Ownership. 

And now we are experiencing the hangover of this home ownership soiree.  Record foreclosures, mortgage meltdowns, bankrupt lending institutions, bankrupt banks, etc.

And the message should be perfectly clear.  Home ownership is not for everyone.  In fact, home ownership over a certain percentage (66%) is unhealthy.  And the new message we should be sending to the American people is that home ownership should be regarded as a priviledge, not a right. 

If you cannot save money for a down payment or closing costs, perhaps you should rent.  If you can't pay your other bills, maybe you shouldn't get a mortgage.  If you can't hold a job for more than a couple months, maybe renting is a better option for you.  This should be the new message sent to the American people by the associations representing lenders and REALTORS, not this, or this. 

Will We Ever Learn Our Lesson?

If you found out that one of the current Presidential Candidates was being investigated for mortgage fraud or was found to have received questionable loans from a now defunct mortgage company, how would you feel about that?  What would that say about our current state of politics?  What would that tell hard working Americans that play by the rules and get nowhere?  What would that say about the level of corruption in American?

A story on Inman about favoritism being shown to Senators and other political figures by Angelo Mozilo, former CEO of Countrywide reminded me of a similar situation that occured during the last financial crisis in the banking industry.

During the Savings and Loan Crisis of the late 80's and early 90's, there was an investigation into five US Senators who had met with Charles Keating.  Keating owned an S&L in California and was trying to prevent it from being seized by the government.  After meeting with the senators, Keating's S&L was allowed to operate for 2 more years, went belly up and cost taxpayers $2.6 Billion.  The five senators were investigated by the Senate Ethics Committee and were known as the Keating Five.  One of these senators was none other than Sen. John McCain, current Republican nominee for President. 

The Ethics committee somehow determined that the campaign contributions and other perks given to McCain by Mr. Keating were no big deal.  They said that all Sen McCain was guilty of was poor judgement.  Sounds like a great prospect for President of the United States.  Problem is the voters picked him. 

It shows that not only do we not learn from our mistakes, we continue to repeat them over and over again.  And the current system is designed to perpetuate these mistakes, over and over again, at the expense of the taxpayers.  But the taxpayers are the voters, so we have nobody to blame but ourselves.

I can just see a senator that received a special loan from Indymac or Washington Mutual or Countrywide being elected President in 2020, during the next mortgage crisis.

Is Washington Mutual Next?

Three of the biggest lenders in the subprime marketplace were Countrywide, Indymac and Washington Mutual.  In a post written 11 months ago, we reported that all three institutions had cut back dramatically on these types of loans as well as on 2nd mortgages and other more risky loans. 

Within the last 2 weeks, 2 of these institutions are no longer around as stand alone companies.  Countrywide was spared the disgrace of going under by being acquired by Bank of America in a deal that was completed on July 1st.  Bank of America immediately transfered the assets to its parent company and moved the debt to a subsidiary, leaving open the possibility it will not back any of the former Countrywide debt obligations.

On Friday, Indymac became illiquid and was taken over by the government.  A run on the banks deposits made the company unable to meet financial obligations.

And in an article written by Jane Wells at CNBC, she points to several banks that are set to fail.  And not surprisingly Washington Mutual is the biggest name in the bunch. 

Fannie Mae and Freddie Mac Crisis Potential Disaster for Real Estate

By far the biggest story this year regarding real estate is the potential implosion of Freddie Mac and Fannie Mae and/or the potential government takeover of these two companies. 

It is the biggest story because if something bad happens to either or both of these Government Sponsored Enterprises the impact on real estate would be devastating.  These two GSEs provide so much liquidity and foundation to the nations mortgage industry that lending would come to a virtual stop if they could no longer provide that liquidity.  And without liquidity the price of loans would rise dramatically and return to rates seen many, many years ago.  10% and 12% 30 year-fixed mortgage would be the average. 

And with higher interest rates comes lower demand.  And with lower demand comes lower prices,etc. etc.  You get the picture and it is not pretty.

Both Freddie and Fannie need to survive in order for the real estate market to keep from getting even worse in the next year or so.

Let me Ask 9 Questions About Real Estate

Seth Godin's most recent blog post got me thinking about real estate and things that either don't make much sense or are potential problems in the making.  Let me ask....

1. Why do some listing agents require their broker to hold the earnest money deposit?  Don't they trust my broker to follow the rules set by VREB?
2. What would stop more agents from withdrawing a listing that goes under contract and then resubmitting whenever they feel so they can avoid the fines imposed by MRIS for missing timelines?  It is done now in small amounts but the ridiculous fines could make it more commonplace.  $100 fines for inputting settlement info one day late is ludicrous.
3. Why does NAR continue to spend millions on a sales campaign that makes us look like salespeople only worried about selling a house?  Are they paying any attention to what the public perception is of REALTORS and how this campaign reinforces that perception?
4. Will agents that drive big gas guzzling cars or SUVs be perceived as wasteful and out of touch by home buyers from Gen Y?
5. Will banks and their management teams ever be held responsible for their actions?  The S&L crisis didn't teach us a lesson the last time.  Why would the latest sub-prime crisis teach us a lesson this time?
6. Has our government's efforts to help homeowners stay in their properties really helped or has it just put off the inevitable and strung the foreclosures out over a longer period of time?
7. If an unethical person becomes a REALTOR, does that make him ethical?
8. Dual Agency is such a complicated and potential dangerous situation, shouldn't there be a special designation for agents to earn before they could ever handle such a transaction?
9. If you need a state license to operate in a state, shouldn't it follow that an agent should live within in certain distance of a property in order to represent a seller or buyer?  It makes no sense that I could sell a house in Virginia Beach, even though I live in Northern Virginia.

What's HOT and What's NOT

Here is a list of what's HOT and what is NOT in the world of real estate, based on my observations and experiences the last couple of months.  Please feel free to make submissions and I will add them to the list.                                        

                                    NOT

Online Advertising                   Print Advertising

Inman Connect                        NAR Annual Conference

Virtual Offices                         Brick and Mortar Offices

Blogs                                        Static Websites

RSS Feeds                                Email Blasts

Microblogging                          Phone calls

Boutique Brokerages               Big Brokerages

Videos                                     Virtual Tours

Organic Search Results            Google Adwords

Generation Y                           Baby Boomers

PDF Contracts                          Faxed Contracts

Driving a Prius                         Driving a Cadillac

Banks Still Choosing to Foreclose Instead of Sell Short

I submitted an offer on a home that is "For Sale" for a client of mine.  It turns out, the house isn't for sale.  Here is the response from the agent:

Tony,
     The lender just called me and they are not taking your offer or any offers because they rather go through the foreclosure process.

Seems that some banks aren't willing to work with owners.  All the press and all the government programs still don't help.  Banks suck.

9 Biggest Enemies of Real Estate Professionals

1.  Dual Agency - The potential (and existence) of a conflict of interest is so overwhelming that there could never be a good argument for dual agency.  If it was appropriate, attorneys would do it.

2 .  Commission Structure - The unwillingness to separate the commission and allow the consumer to negotiate each side individually says to the consumer that we are perpetrating a scam and deteriorates our standing with them.

3.  NAR Website and Advertising Campaigns - Just try and find anything on this website.  It is beyond horrible.  And the advertising campaigns make us look like total idiots.  Our hard earned dues are continually flushed down a toilet by the management of the Association.  Check out Narwisdom.com for more blunders and gaffes.

4.  Ethics and Regulatory Enforcement - No one gets thrown out of the NAR for violating the Code of Ethics.  And very few if any real estate agents lose their licenses to practice.  The states and the associations make their money by having more members, therefore it is counterproductive to toss out any potential dues paying agents.

5.  Banks - Banks are the reason for almost all of the market problems.  Their lax monetary policies created a hyperinflated market that has caused all of the current foreclosure and short sale problems of today.  They don't care about people, their policies and procedures are ridiculously antiquated, they answer to no one and they create this same indifference in the agents that are working with them.  The management teams at banks are the worst executives in America. 

6.  Licensing Requirements - The barrier to entry is a pulse and a check.  No need to speak English or have any reading comprehension.

7.  Brokerage Business Model - Hire anybody with a license, charge them as much as you can and hope someone sells a home to their aunt, cousin, brother or sister.  Collect your cut.  Repeat.  No need for training or minimum sales requirements.  In fact, lets create a multi-level marketing company (pyramid scheme) where you don't even need to sell homes.  Be sure to bring your cards to church this Sunday.

8.  MLS Companies - A worse run organization can only be found running Realtor.com.  Build higher walls around the data, fine agents for giving you the data, waste millions on unneccesary programs and sit in your ivory towers collecting my money. 

9.  Ourselves - We need to stand up and demand that changes be made.  We need to stop accepting the status quo as the only way to do business.  In some areas, we need to rebel against that which is destroying this industry, be it our own association, our own brokers or our own complacency.

Did I miss anything?  Let me know.

Part Time Real Estate No Longer Possible?!

I wrote a post over at VARBuzz about the impossibility of part-time agents to keep up with the changes going on in today's market: foreclosures, short sales, internet marketing, etc. etc.  Some good comments to read.

Negative Press about Real Estate a Worldwide Problem

I just ran across this article about the real estate industry in New Zealand.  It seems that the industry is upset over negative articles being written by Big Media. 

Supposedly, they are threatening to pull advertising if newspapers don't cooperate.  And the Government is not happy with the tactics.  Sound familiar?

Tony Arko - Real Estate Consultant

I designed this widget last night using sprout.com.  Not really sure what to do with it as of yet but I am experimenting with a couple of ideas.  I put it on my other site, www.loudounstats.com in the sidebar as a true widget.  Let me know if you have any other ideas as to what to do with it.  I got the site from Joel over at FOREM.

$10/Gallon Gas Good for Real Estate Industry

As I watch the price of gas at the pump continue to climb - yesterday I paid $4.19 per gallon for premium here in Loudoun County, Virginia - I secretly pray that it continues to go up.  I know this might sound crazy but if you think about the implications of extremely expensive gas on the real estate industry, it is actually not a bad thing at all.  In fact, many of the problems the industry either can't or won't correct would be solved by a gas crisis here in the United States.