What Boom?

9/22/20065:03:24 PM Link |  | Add comment

Buyers, Home Buying, Home Selling, Local Real Estate Information, Market Statistics, National Real Estate, Opinion, Real Estate, Sellers

Six years ago, in the summer of 2000, I sat in my car outside a home in Jester Estates waiting to meet a client.  It was a Friday morning, about 8:50AM.  The instructions posted in the MLS said the home would not be shown until Friday at 9AM.  When I pulled up to the home I thought I might as well be going to a party because of the amount of cars sitting outside the home.  Outside my windshield I saw no less than 6 other Realtors and their clients waiting in a scattershot, makeshift line in front of the house.  The listing agent might as well have put a number dispenser at the front of the house and a little “Now Serving Number” digital board over the front door.  As I got out of my car I thought to myself, “Well, this is no good”.

Demand.  I saw a lot of the ‘Demand’ side of supply and demand that summer.  I’ve mentioned it before, but I had 7 different buyers that lost out on a home in best and final situations in July of 2000 alone.  Being in a market with multiple offers, many significantly over asking and actual market value, is not the boon to real estate (and for that matter, Realtors) that many people believe it to be.  Buyers are frequently are disappointed or frustrated and many end up overpaying for the home in that market scenario.  (I, personally, tried to be diligent and make sure the prices my clients paid were supported by comparable sales.) 

While many were caught in the euphoria of the thought of never ending price escalation, I was stuck with the feeling that the Austin boom was about to come to an end.  The words of Dr. Stephen Pyhrr’s article “ Austin ’s Persistent Real Estate Cycle” were resonating.  He wrote that Austin has historically experienced ‘up’ cycles of 8-10 years and ‘down’ periods of 3-5 years.  In 2000, the last ‘bottom’ of the cycle, the beginning of that cycle’s ‘up', had begun in 1991.  We were well into our 9^th year of the ‘up’ and it was becoming evident that cycle had run its course.  The real question was starting to look like, how bad would be the down cycle?

At that same time, in California the market was just beginning to really heat up.

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Six years later it’s hard not to see all the stories and articles about how the boom is over.  It has become one of the bigger business stories of the year and I would wager that most of the major media outlets have at least run one ‘Boom is Over’ in the past month or so.  Yesterday I ran across this article prominently featured on the MSN home page.  It is an article from Forbes magazine titled ‘How Low Will Real Estate Go?’ (Lacey Rose).  The first sentences in the article read, “Get used to it – the seller’s market is closing up shop.  The days of fat, fast home value increases are gone.  Pack away those flipping fantasies.  “The boom is definitely over, there’s no debate about that,” said Mark Zandi, chief economist of West Chester, PA – based research firm Moody’s Economy.com.  “Now the question is more how hard is it going to land, if it lands at all.” ”

So the boom is over, huh?  What boom?  Where have I been?  Last I check Austin went through its down cycle from the Fall 2000 to the Fall of 2004.  Here in Austin , we experienced zero growth, for the most part, between 2000 and 2004.  Since the Fall of 2004 we have seen steady growth, commensurate with that of a market in the beginning cycle of growth.  Growth, based on past history, that should continue through to 2012, maybe even 2014.

Even within the article there is a link title “How Low Real Estate Will Go In 15 Metro Areas” there are examples of markets that look like they will fair just fine during this ‘bust’.  The link graphs out the projected growth for the next 10 years in 15 different markets.  Seattle, Dallas and Houston all are projected to fair just fine during this terrible, terrible time (tongue firmly planted in cheek).  Boston, Los Angeles, Miami, New York, Phoenix and Washington are the only cities they show that appear to actually have a retreat in pricing at some point over the next 10 years.  For those keeping score, that’s 6 out of the 15 cities cited, and yet the article/link is “How Low Will Real Estate Go…”. 

I don’t think it is a big jump in logic to say that the stories we read and see, written for national consumption, are heavily influenced by the east and west coast in this country.  Is it too much to ask that broad brushes not be used when writing the stories though?  Of the 6 cities that actually appear to have price decreases on the way, only Phoenix does not fit the mold as a major east or west coast market.  It definitely appears that this is coloring the news and, in spite of evidence to the contrary in plenty of markets, is causing the writers and reporters of these stories to make such grand sweeping statements as “the seller’s market is closing up shop”. 

I’ve said it before and I’ll say it again: all real estate markets are local.  When a market is down in your town, I’ll find you a market that is up in another.  Point me to a seller’s market in one city and I’ll point you to a buyer’s market in another.  There is no ‘national’ real estate story when it comes to a national real estate market.  Yes, certain factors influence all markets.  A spike in interest rates will have some influence over all real estate markets, but the impact will be different depending on the local factors. 

In Austin we are influenced by technology and the state government, among many other factors.  When the tech options vaporized and the stock market fell in late 2000 and 2001, the Austin real estate market followed.  The record highs of the real estate market in Los Angeles and Miami over the next few years had absolutely no influence as to what was happening in Austin .  Of course it didn’t, why would it?  Yet we heard story after story about how the national real estate market was booming, just as now we are treated to the doom and gloom.  During the last few years, Austinites would ask, ‘What Boom?’ and now, just as easily, they can ask, ‘What Bust?’ 

So as you read and see these stories just remember some simple rules:

Real estate is local.  There are always some points of wisdom to be gleaned from the stories and they are a good way to know what’s going on in different parts of the country but, in the end, what happens with the real estate in New York City has little influence as to what is going on in Austin. 

Real estate cycles are just that – cycles.  They go up and they go down but over the long-term the growth trend line is up.  Nationally, the 50 year growth trend line is up 4.8% per year on average.  Over the past 30 years in Austin the growth trend line is up about 6.7% per year.  Real estate remains one of the best ways to leverage your money over the long term, regardless of the cycle at that moment.

 

Don’t buy into the hype and hyperbole that the reporters use in their stories and articles.  In the end, much of their job is to sell papers, magazines or whatever their medium might be.  The headline, ‘How Low Will Real Estate Go’ will certainly grab one’s attention a lot more than something more pedestrian.

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Six years ago, as I got out of my car outside a home in Jester Estates and got ‘in line’ with my clients I thought to myself what a wild scene it was and how it certainly could not be a good sign for where the market was headed.  My clients actually got the house that day.  There were multiple offers but we stayed within the comparables sales and, after an afternoon of ‘sweating it out’, we got the phone call that their offer had been accepted.  Just a few months later the word came out that Dell would be laying off employees and so began the past downturn in the Austin market. 

Six years later we are still here.  Jester actually did fairly well over the past few years and is a high demand area.  Austin made it through the down cycle and came back out and now we are at the beginning of our growth period.   And, at least for the next few years, the boom starts here.

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Here is an interesting report on the subject of market performance from First American if you would like to read more on real estate cycles of different market.

3 Mortgage Monday

9/18/200611:25:44 PM Link |  | Add comment

Lending, Mortgage, Real Estate

Here are three articles on mortgages for you on a Monday.  The terms you are able to lock in on a mortgage can be equivalent of over $10,000 in sales price so it's good to take a look at your options when buying a home.

1.  More and more seniors are getting reverse mortgages to use the equity in their home.  A reverse mortgage lets someone 62 or older use the equity in their home to secure a loan.  Every month they receive a check and the loan is not due until they sell their home or die.  Another advantage is that the IRS considers it a loan so the money is not taxable.  It definitely seems like an idea that is picking up steam as nationally there were nearly 400% more of these loans originated in 2005 as there were just five years prior in 2000.  Although Austin is thought of as a relatively 'young' city, this is still an idea that many residents could use if it makes financial sense.

2.  Energy efficient mortgages are an idea that has been around for a while but sound more appealing than ever.  The gist behind it is that if the monthly amount of energy you save from a repair you make with the loan is equivalent to the monthly payment for that repair then the loan is approved (obviously all the other loan conditions must be met as well).  This is a great way to get new windows, insulation, heating and/or air for your home and also take a step toward reducing the amount of energy you consume.  I will look into whether this can be combined with the City of Austin energy rebates and incentives, which would make it an even better home investment.

3. Saved the most universal topic for last - Mortgage Insurance.  Eck.  Just the words make me think of money flying out the window.  Simply put, mortgage insurance is put into place to mitigate the lender's risks/costs if the buyer were to default on the loan.  Private mortgage insurance (PMI) is basically required for anyone putting less than 20% down on the home.  The buyer/homeowner pays for it and the lender gets the benefit.  One way we in the real estate industry helped our clients around PMI was to suggest a second lien of anywhere between 5-15% depending on how much the buyer was putting down.  Most commonly you hear these referred to as 80/10/10s or some such.  The first number, in this case 80, is the first lien of 80% of the sales price.  The second number is the second lien and the third number is the buyer's downpayment.  By taking out a second lien the first lien meets the 80% criteria (helping to mitigate the lender's risk) and the buyer is able to avoid having to pay mortgage insurance.  Typically over the past few years it has made financial sense for buyers to do this as, with interest rates low, the interest being paid on the second lien was less than the mortgage insurance.  Changes in the packaging and terms of mortgage insurance as well as increases in the interest rate have caused this not to always be the sure-fire way.  Given these changes, make sure you examine carefully which of the two options (second lien vs. mortgage insurance) makes the most sense when buying your new Austin area home. 

If you have any questions about this or any other item related to Austin area homes and real estate, please don't hesitate to call me or email me.  I would be happy to help you determine whether mortgage insurance or a second lien makes the most financial sense for your new home purchase.

Grace - In Memory of 9/11

9/15/20061:13:52 PM Link |  | Add comment

Music

I wrote this song 5 years ago after 9/11.  I just recently was able to record a home demo version of it with some equipment we purchased as blue sky hush.  It was the first thing I did from an artistic point of view, although I wrote a couple more songs regarding the events as well.  I missed actually putting it up on 9/11, but I felt like I should share it anyway, in case it touches anyone.  It was written for the police and firefighters who put their lives on the line on that day.

Grace
©2001 Brinkman

I saw the fear
As you came running down the stairs
I knew that something wasn't right
The flash.  The cries.
Silver cinders in the sky
Our lives changed like we never thought they could

Hey, hey we're the lucky ones
Pray for your daughters and your sons
'Cause they might not be coming home
Coming home

Grace, will lead us from here
Grace, will take us home
Grace, will lead us from here
Grace, will carry you home

I braved the flame
Called out your name
I watched the world fall before my feet.
In the twilight's last gleam
A sobering scene
My eyes weren't up to the task

Hey, hey we're the lucky ones
Pray for your daughters and your sons
'Cause they might not be coming home
Coming home

Grace, will lead us from here
Grace, will take us home
Grace, will lead us from here
Grace, will carry you home

In the end
We'll begin again
They cannot keep us down

Grace, will lead us from here
Grace, will take us home

Let Grace go before you always
Let Grace go before you always
Let Grace
Let Grace
Go before you always



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What's Your Story? - The Art of Buyer Merchandising

9/13/200610:33:43 PM Link |  | Add comment

Buyers, Home Buying, Real Estate

I get about 5-8 real estate magazines a month due to the various designations I have so keeping up with it all can be quite the task.  I was doing a little catch-up reading on Sunday, trying to move some of these magazines from my home office to the recycle bin, and ran across a little paragraph/text box in a December 2004 of Realtor magazine that brought out some thoughts I would share.

One of the issues you might face when you go to buy a home is the prospect of multiple offers.  Initially I was surprised at how often I even ran across this during the 'down' years in town.  The key fact , though, is that no matter what cycle a market may be in, a well priced (or even low-priced) property that just knocks your socks off has the potential to garner multiple offers.  If you are looking at the property in the first few days on market and you are 'wow'ed by it, there is a good chance that somebody else has been 'wow'ed, or will be 'wow'ed if you don't act fast enough.  (This is, of course, where knowing the neighborhood you want to buy really pays off because you can spot it as a great value for the area almost instantaneously and you can act without hesitation or remorse)

Sometimes a multiple offer situation becomes unavoidable if you really want to put an offer on a home.  In July of 2000, when the Austin market was last at its most frenzied, I actually had 7 different clients who made offers that month and were in a multiple offer situation.  None of them actually got the property.  That might not sound so great at first, but I just cannot, in good conscience, recommend that anyone overpay for a home just because of a market's irrational exuberance.  The fact was that the prices being paid for many of the homes at the time were not supported by any comparable sales.  Much of what was able to close at the time was due to loose lending requirements and large amounts of cash which minimize lender's risk.  I've always been of the opinion that it is my job to protect my clients and minimize their risk and the last thing I want is to receive a call from a past client a couple years after they've bought a home, saying they need to sell and then I find out they are upside down. 

But I digress! Ha!

Back to the point...

Sometimes a multiple offer situation is unavoidable.  However, sometimes the answer isn't just throwing more money at a situation.  Sometimes the way to move forward is by actually 'merchandising' you, the buyer. 

How can we do that?  These are all tactics I have used in the past:

• Tell your story - Think about it.  A contract is cold.  Negotiations can easily go hard-line.  However, when you write a letter about the seller's home and about you then the seller gets a greater understanding of who you are and becomes 'warmer' to you.  You could tell the seller what you really liked about their home.  You could tell the seller about how you can picture your family in the home or your own background.  It's no secret that most people would rather work with people they like, and the selling a home can be a very personal experience for a seller.  Knowing that the home is going to someone who will really appreciate the home can go a long way.
• Offer more earnest money - Instantly you are telling the seller, 'You can feel confident in me'.  The seller will feel better knowing that you have not only put in a strong offer, but that you weren't afraid to back it up with a large amount of earnest money.  This helps the seller feel you are a whole lot less likely to back out of the contract and, even if you did, the seller will stand to benefit from it.
• Offer something that is not monetary.  Do you have a service or skill that you could offer the seller that will only cost you your time, rather than money?  I actually have a great example of this.  Back in 2000 I had some clients that were involved in a multiple offer situation.  We really didn't want to go higher on our offer, but we suspected (and were right) that another offer was higher than ours.  One of the buyers was a relatively well know landscaper/gardening personality so he actually offered his landscape design service for the sellers at their new house.  The sellers took our offer.

There are other ways to strengthen any offer, regardless of whether it is a multiple offer situation or not.  These migth include:

• Limiting the Option Period (which is when most buyers in Texas have their inspections)
• Have your pre-approval in place so that you don't have any financing contingencies
• Reducing any other contingencies, such as the sale of an existing home
• Don't get stuck on any of the 'soft' terms, such as certain fixtures that may or may not convey

These thoughts might really begin to come in handy again here as the market slowly turns from a buyer's market back to a seller's market and we start seeing more and more multiple offer situations.    The more you can humanize and personalize a real estate offer and negotiations, the better it will work out.