Editorials -- November 2009 -- the [HOLT] group, RE/MAX Sonoran Hills AZ Real Estate

We became real estate agents because we love interacting with people and have always had affection for the American dream. Owning a home… and then a bigger home. We always loved the excitement of finding the perfect home for a family or an investment with a great return. Real estate was always a happy business. Sellers left the closing table with a check and moved on; buyers enjoyed the happiness of finding a new place to create their future.

What a difference a few years can make. A failing economy and deflating real estate bubble has changed not only the market, but also all of our lives. It is hard to remember a few years ago when the cocktail chatter was about who had the biggest TV, and who owned the most homes. Hummers lined the driveways of our communities. Today bank owned homes and short sales line our streets. Unemployment is climbing and underemployment is even higher.

While times are tough at least we are learning from them. It is easy to blame others, politicians, and predatory lenders for how we landed here. The truth of the matter is everyone had a hand in it. People bought into it. Everyone from HDTV to the Today show told us how to live and, in general, we bought it hook line and sinker. For many, it was all about being better than your neighbor.

A stark comparison to today, many of our neighbors once so eager to impress are gone. They have lost their American dream to foreclosure or a short sale. Keeping up with the Jones’s at today’s cocktail party means short selling your house. While interest only and no money down loans were the norm, the people who played by the rules are often hurt the most. It is a sad irony that 20% down and a fixed rate mortgage resulted in the loss of a life’s savings.

We hope the lessons of the past will refocus our future. Savings rates are up, people are focusing on the things that are truly important, our family, friends and community. After years in the business and perhaps the craziest market cycle ever seen, our motivations and priorities as real estate agents have changed as well.

While we all work for a paycheck, our job duties have changed. We have become more of a counselor than a real estate agent. We used to negotiate the best deal and now we negotiate with a bank. It has become much more rewarding. We don’t just sell homes, we help people. Sellers no longer leave the table with a check… but with relief. This slow down won’t last forever but hopefully we will never forget the lessons we have learned.

Wednesday, 11.11 2009

“Real Estate for Real People”

Surprise! Surprise! More taxpayer money going down the toilet

As many of you now know, the brain trust we have in congress and in the White House, have extended the First Time Home Buyer Tax Credit and expanded it to include all those that have owned a home for 5 years or more. I know as I Realtor I should be jumping with joy, but I am actually hopping mad, as this is just one more in a long line of missteps made by our elected officials. This stimulus measure is the one that I thought Congress would have had the good sense to back away. However, that would mean that someone in Washington would have to have a spine. It is painfully clear that prior to entering office as an elected official one must have his/her spine removed and for men there is another set of parts removed as well. If you don’t believe me just watch these clowns at work. Amazing and Sad!

So, I know you are asking yourself why would I not be more supportive of what on the surface looks to be a good tactic to spur more home buying? Well, like most everything this congress does to fix the mortgage/housing/economic crises, this extension/expansion will only make things worse in the end and it does nothing to address the real issues.

First of all, I will acknowledge that the first time homeowner incentive has stimulated some added buying. However, from my vantage point much of that buying will only lead to the next wave of foreclosures. As outlined in a previous piece, FHA, which only requires a 3.5% down payment and allows the seller to pay for closing costs resulting in little money from the borrower. (Sound familiar - 100% loans). Anyway, many if not most, of these loans go to first time homebuyers, many that have less than stellar credit. Four years ago, there were hardly any FHA loans being written, today FHA accounts for 30% of all loans. However, over 14% of these written in the last 12 months are already in default. Why? Well because many of these well-meaning buyers should not be buying a home because they do not have the means to do so. Many of these people are only buying to get the tax credit. This is not to say that they planned to bail on the home, but it does point to their motivation.

Second, cost for this stimulus is not 8k per home sold, but closer to 42k per home. Again, the government does not pay this amount – you and I do! Furthermore, as a believer in capitalism it is apparent that the when prices get to certain levels, people buy. My belief is that most of the transactions over the last year would have happened without the stimulus, due largely to low prices and low mortgage rates.

Third, since there was so much made about the ending of the First Time Buyer program resulting in a push to get homes closed, I wonder how much bang is left. Like the cash for clunkers, the months ahead may be void of buying regardless of the extension.

Fourth, I am no mathematician, but how does the expansion of this program to those that have owned a home for 5 years or more help reduce inventory? Since the $6,500 credit has to go towards a primary home, most people will have to sell the one they are in to “move up.” My math leaves us at zero inventory reduction. The only thing I see this encouraging is a new round of buy and bail. If you bought or re-fied anytime between 2001 and now, you are under water – it is just a mater of by how much. Five years ago was 2004-2005 and if you managed to keep that home, you are so far under water that $6,500 will do nothing to bring you above the water line. To add salt to the wound, keep in mind that the estimated cost of this new expansion is 17 billion. I guess billion is the new million, but wow what a difference.

Fifth, and the most important aspect of all of this, is that this extension/expansion does nothing for the folks that are in the most trouble (those that bought or re-fied within the last 5 years). Exactly who do the clowns in Washington think they are fooling? (I covered that in a minute) Are these new buyers going to step up to pay what these homeowners owe on their homes? I don’t think the $8k much less the $6500 is even 10% of the deficiency most people have in their homes.

As I write this, the unemployment number of 10.2, (real number 17.2) was just released (worst in 26 years) and five more banks were taken over by the FDIC bringing the total to 120 for the year. Meanwhile, we have politicians patting themselves on the back, the National Association of REALTORS® touting how wonderful it is for the market that the “handouts” have been extended and the talking heads, who have no clue, exclaim that this might really help. Ha, Ha! This helps no one that it should. It does nothing for the family in the 2400 sq ft home in Anthem that paid 400k in 2005, but is now worth 185k. The same family that was told by everyone – “real estate never goes down” and/or “don’t worry you’ll refi it or sell it no problem.” The fact is it helps no one, not even the buyers getting money to buy the dirt-cheap homes because in the end, when the party is over, we all will pay. We tend to forget that there is no government paying for these outlandish bailouts and handouts, it is “we the people.” --Robert Holt & Phil Mills w/ RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623-748-9583 to tell us your thoughts…

Wednesday, 11.18 2009

“Real Estate for Real People”

Who’s to blame?

Being heavily involved in real estate, we speak to hundreds of homeowners on a weekly basis about how best to protect themselves from the devastating affects of this market. During these conversations one of the most often asked questions is “how did this happen”. Perhaps one of the most memorable of these questions came from one of our clients with a heavy Chinese accent who dramatically asked “How’d America get so !@#$ up. This was never supposed to happen here.”

Well, the question is a good one and like all questions, the answers are much easier in retrospect when our vision is 20/20. Despite the fact that we are still in the middle of this debacle we can now more clearly dissect what happened to put us at the brink of collapse. By looking back at the cause, we stand a better chance of learning from the mistakes with the hope that we do not repeat them. For those that read this editorial weekly you already know we do not hold much faith that those in power in both Washington and Wall Street will make the necessary changes. However, “we the people” can learn from the blunders of the past and change our actions accordingly.

As for placing blame, there is plenty to go around and the list is long. There are a few groups that obviously cannot be held responsible, but that list is short. At the top of the list are of course those that did not buy or refi in the last 6-7 years or those that did so responsibly such as the homeowner who put 20% down and provided all necessary loan docs. These people did things the right way and bought their home with confidence that the system would not fail. Sadly, the system has failed and those that played by the rules are now the most penalized.

Now that we have determined who is not to blame lets shift to who is responsible. Those named in the first group all share equal blame for the role they played in the making of the housing boom and eventual bust that lead to the near collapse of our financial system. The groups of people in the first category while motivated by greed had (in my opinion) no idea the role they were playing in the largest Ponzi scheme ever devised. Simply put, most of these people were misguided and only trying to chase down the American dream. Unfortunately for everyone they made the mistake of believing the information they were being told. Of course, being misguided does not make the actions any less dangerous, but it does suggest that the intent was not calculated. These people were culpable, but more out of ignorance than malice.

So who are these misguided souls? Well, it is anyone who bought a home or influenced someone to buy a home based on the theory that homes prices never go down, or because it is a sure thing that homeowners be able will sell it and make a fortune or refi it to a better rate. Now that covers a lot of people including real estate professionals, mortgage brokers and the “expert” on CNBC. This also includes the homeowner who bought into the hype and bought too much house(s). RULE 1 - Never Believe the Hype.

While every one of these people played a role, none of them had any idea of the devastating effects of their collective actions. Of course, there were vicious people who could careless who got hurt as long they made a buck, but I believe most of the individuals in this first group were simply misguided and naive. Heck the experts believed the experts, just ask the people who ran Lehman, Merrill, Countrywide and the rest now bankrupt companies.

The second group of individuals who are much more culpable and whom I have no empathy is the elected officials who are suppose to write laws that protect people from the bad guys. This group dropped the ball! They not only aloud it to happen they encouraged it. However, how can we ever expect there to be oversight and regulation with any teeth when we have elected officials who take millions of dollars from bank lobbyist. To make matters worse we have a Fed that holds interest rates below momentary guidelines creating bubbles at every turn. Can anyone deny that the greed that is so pervasive on Wall Street is any less so in Washington?

So, all of the above players played a major role in the drama that is unfolding, but the real star / villain was the banks themselves. Yes the same banks that are continuing to get bailed out while doing next to nothing to help those that are buried in the (Barney) rubble. That’s right the Mega banks – the too big to fail banks are where the greatest degree of blame must fall.

These mega banks through lending practices that were nothing short of criminal created a house of cards that fell and fell hard. Banks lent money to anyone with a pulse and did so because they knew that they would immediately sell the loan and wash their hands of the stink of a decaying loan. The people in charge knew the loan products at both the subprime and prime markets were insane and would eventually end badly. I for one feel that the people in charge of the same banks that we are now bailing out should be tired for treason since what they allowed to happen has damaged this country for many years to come – maybe forever.

To add to the problem rating agencies (such as Moody’s and S&P) grossly underestimated the amount of risk associated with mortgage-backed securities. Because these rating agencies rated these highly volatile investments vehicle as AAA (safest grade) Wall Street bought them non-stop creating a fever for more loans. It was the ultimate Pyramid scheme and sadly thanks to our government’s commitment to bail out the “too big to fail guys” all the rest of us become too small to save.

Without question, this is a complex problem and impossible to cover in a short editorial. However, I am convinced it was the massive greed of the banks combined with the lack of oversight from Washington that caused what might yet turn out to be the destruction of the American Dream.

As a last thought, since it is clear that Washington will not take the corrective action necessary to dismantle these too big to fail companies maybe we should do it for them (and for ourselves). We could start by pulling all our money out of the B of A, Wells Fargo, Chase and Citi’s of the world and put it into credit unions and local banks. The same banks that played by the rules and who did not get nor need a dime of bailout money. After all, they are the little guys and us little guys should stick together.

In the end, it is clear the culprit and the cause of the undoing was GREED. Greed at all levels. Sure, we all should have known better, but the little guy wanted to desperately to believe the fairy-tale – we all wanted the American Dream to be alive and well. Maybe one of these days we will recognize that the true enemy, which of course is greed cannot be regulated by anyone other than ourselves. Perhaps that is the true lesson of this experience.