A New President May Not Solve Our Problems

Wasilla Alaska

Today is Tuesday, Nov. 4, Election Day, and I am writing this from Wasilla, Alaska, just a few miles

from Sarah Palin’s home. I’m here because a good friend of mine, who happens to be a very good friend of Sarah Palin, invited my wife and I and several other couples from around the country to an election party.

Traveling 4,000 miles for a party may be hard to rationalize, but so is flying to the opposite coast to

root for your team during an important away game. The trip seems worth it after a victory, but it feels

twice as long when you return home, minus the “w.” I will soon know how long my return trip will feel.

For a small town, there is plenty of excitement, hope and anticipation in air cold enough to make a

Green Bay Packer fan think twice about going outside. In spite of that, residents line the streets to

support the hometown gal who is making it big. I’m sure the same was going on in three other towns

across the country.

Important decisions will be made today, but the most important decision for our country and its

citizens will be made after the polls close. Who we elect to run our country is not as important as who

we choose to run our lives. Each of us, regardless of political affiliation, should acknowledge and

embrace something that is quickly disappearing from our society, and that is the art of taking

personal responsibility for our lives.

Government doesn’t have enough teats to suckle everyone. If you think I’m siding with a particular

party, you’re wrong. I don’t care if the party is painted blue or red or if the leader is black or white. If

they advocate that government’s purpose is a combination of surrogate parent, financial advisor,

ATM and safety net for everyone from cradle to grave, that’s where they lose my vote.

If we believe government can solve all our problems, then we have a problem, one that cannot be

solved. Our national defense will protect us from an enemy outside our borders, but it won’t protect

us from the national dependence that is the enemy within.

Pre-election promises aren’t new, and this year was no exception. What’s surprising is the growing

number of people who believe that there is such a thing as getting something for nothing. Pick a

crisis, any crisis, and you will be able to trace the root cause of it to someone’s selfish interests,

greed, dishonesty or other character flaw.

For centuries, governments have tried unsuccessfully to legislate away the vices that we were born with.

As we painfully know, leaders struggle with the same temptations, so, our form of government, the best

the world has known, still boils down to imperfect people governing imperfect people. Therefore, should we really be surprised when we read about scandals in Washington, corruption on Wall Street or improprieties at Fannie Mae? Who’s to blame for these problems? Politicians like to point fingers at greedy CEOs, dishonest investment brokers or even the opposing political party. All of the above may carry some blame, but they always fail to place some of the blame where it belongs — at the voters’ feet. In other words, all of us are to blame.

A billion words were uttered throughout the campaign, and I’d bet less than 100 of them addressed our

biggest problem, which is the need to take responsibility for our lives. Government can hand out $2,000

debit cards until the attorneys are finished challenging the election, but that will not solve our problems

if we continue living beyond our limits. Likewise, the $700 billion bailout may be a shot in the arm, but it

won’t cure what ails us. The only cure for our market and economy is a good old fashioned dose of

individual honesty — a medicine government is fresh out of.

History has proven that people are sometimes given the leader they deserve, rather than the leader

they need. By the time you read this, the election results will be known. Some will celebrate, others will

not. However, who won is not as important as which leader we selected. Let’s pray we selected the

leader we need, one that is willing to be honest with us by telling us what we need to hear, not what we

want to hear.

Keep the faith.

Denny Grimes is president of Denny Grimes & Company. He can be reached at 239-689-7600 or denny@dennygrimes.com.

Realogy Proposes Short-TERM GOVERNMENT BUY-DOWN IN Mortgage RateS TO Stimulate HOUSING MARKET and Accelerate BROADER ECONOMic Recovery

Realogy calls for rates of 4.5% or lower on 30-year fixed rate mortgages

PARSIPPANY, N.J. (Oct. 29, 2008) – Realogy Corporation, a global provider of real estate and relocation services, today announced that the Company has approached the U.S. Department of Treasury with a practical solution to help stimulate the housing market and lead to a broader economic recovery. The Company also conducted separate national surveys with its real estate franchisees and U.S. homeowners, the results of which underscore the rationale behind its proposal.

“There are millions of credit-worthy people ready to jump back into the housing market, but they need to be motivated,” said Realogy President and CEO Richard A. Smith. “In our view, the incentive of substantially lower mortgage rates would directly stimulate the housing market — both in sales volume and price — and thus accelerate the overall U.S. economic recovery.”

Realogy’s proposal calls for a short-term government buy-down of mortgage rates to at least 4.5%, or lower, for a 30-year fixed rate mortgage (down from current rates of approximately 6.04%[1]). This homebuyer incentive would apply to the purchase of all new and/or existing homes sold up to $1 million in price. There are a number of ways in which the government ultimately could decide to structure and fund this program, which could be addressed as part of the stimulus packages currently being discussed in Washington. Realogy is working with a number of other organizations to carry this message forward and encourage greater dialogue around solutions aimed at boosting the economy through a direct stimulus to the housing market.

With approximately 16,000 franchised or company-owned real estate brokerage offices around the world, Realogy has a unique perspective on home buyer behavior. The Company has seen a recurring theme in virtually all 50 states –- namely, there are substantial numbers of credit-worthy buyers waiting for lower rates and stability in home prices.

“We think the pent-up consumer demand for housing, if encouraged, is more than sufficient to stabilize housing,” continued Smith. “In our view, substantially lower mortgage rates will stimulate both existing and new home sales, reduce home inventory levels, stabilize home prices and, ultimately, help the overall economy. When home sales increase, housing-related consumer purchasing follows, and we would expect this to help lead our economy to a recovery. We feel strongly mortgage rates must be lowered to stimulate a recovery.”

Residential Broker Survey — Mortgage Rate Drop to 4.5% Would Stimulate Sales:

As recently as October 15^th, Realogy conducted a national survey about mortgage rates with responses from approximately 1,500 broker/owners representing 2,300 independently owned and operated residential brokerage companies affiliated with the CENTURY 21^®, Coldwell Banker^®, ERA^®, Sotheby’s International Realty^® brands.

Here are the key findings from the Realogy broker survey:

• 95% of brokers said they would expect an increase in home sales if 30-year conforming fixed-rate mortgages were available at 4.5% rates today.
• Most notably, 54% of all responding brokers said the impact of a 4.5% mortgage rate would significantly increase home sales in their markets.
• Of the brokers who answered that rates would increase, nearly half (46%) indicated that they would anticipate unit sales levels to increase between 10% to 25% if 4.5% mortgage rates were available today.  

The majority of brokers also agreed that substantially lower mortgage rates would have a strong stabilizing impact on average home sales prices.

• 51% of brokers felt home prices would increase somewhat and 38% felt home prices would stay the same.
• Of the brokers who felt prices would increase or significantly increase due to 4.5% mortgage rates, 22% felt the home price increases would be in the 3% to 5% range and 13% felt it would be in the 5% to 7.5% range.

“Our franchisees are small- to mid-sized business owners who have a strong understanding of what actions would help home sales and prices in their communities, and it’s clear to them that dropping mortgage rates to 4.5%, or lower, would have an immediate impact in helping to stabilize the housing markets throughout this country,” said Smith.

Consumer Survey — Americans still place a high value on homeownership; But the state of the U.S. economy has potential home buyers on the sidelines:

During the week of Oct. 24, Realogy used Ipsos Public Affairs, a global survey-based market research company, to conduct a national homeownership survey resulting in responses from more than 1,000 current homeowners[2]. The key findings from this consumer survey are as follows:

• Even in today’s challenging economic environment, nine out of 10 survey respondents (91%) believe that owning a home is still the best long-term investment they can make with their money.
• At the same time, 27% of U.S. homeowners surveyed said the current U.S. economic environment was causing them to put their plans on hold for the purchase of a new or existing home. This response level was consistent across the four U.S. geographic regions.
  
  

  ---

October 26, 2008

 BUYERS’ DISAPPOINTMENT

CAN BE SELF-INFLICTED

 Everyone at some point has been disappointed as a result of an unrealistic expectation. Some experiences can be looked back on and laughed at, while others will never become a laughing matter. Let me give you a personal example of the former. Thirty years ago, when my wife and I had just started dating, I was faced with the challenge of buying her a Christmas gift. It was our first Christmas together, so I wanted to find that extra special present. She had just turned 16 and had bought, with the help of her parents, a Formula Trans Am, just like the one in Smokey and the Bandit, only yellow. The car was hot, but the floor mats looked like bargain-basement knockoffs. So, I thought a new set of Certified General Motors, standard issue, logoed floor mats would surprise her. They did, and I never heard the end of it. I soon learned that she expected something that came in a much smaller box, was shiny and was hard enough to cut glass. She eventually got her bobble, but the floor mats in her car have never looked as good.

It’s a fact of life that unfettered expectations have a way of consistently outrunning what reality can deliver. As expectations take the victory lap, disappointment may become your closest companion. Today’s home sellers know all too well what it feels like to have disappointment as a pal. However, an increasing number of buyers are making the same friend.

Homebuyers over the past three years have been conditioned to believe that, there is no limit on what they should expect. These buyers are making a fundamental mistake by assuming that the term “buyers’ market” applies to all segments of our local market. It does not. This is evident in how buyers reacted to a recent bankowned property we listed. This three-bedroom, twobath home originally sold for $400,000 in 2006. Before the bank foreclosed, the owners tried the short sale option earlier this year at an asking price of $200,000. Recently, the lender took control of the home, and last week we listed it at $86,900. Within hours of the home hitting the Multiple Listing Service, agents began calling for showing appointments. We have had more than 25 showings in five days, and to date we have 10 written offers, all from different buyers.

Homebuyers missing great deals because of unrealistic expectations

The insane level of buyer interest isn’t the point of this article, because listing agents who have well-priced, bank owned properties are having the same success. What I found shocking was the disparity of buyers’ expectations as to what they thought the home was worth or what they felt the seller would accept. As you can see in the accompanying graph, the buyers offered between 44 percent of asking price to as much as 132 percent of asking price. This is what I call an expectation gap. Sometimes, there are questions that just have to be asked. For example, what compels someone to drive 20 miles an hour under the speed limit, or why would someone think that wearing a Speedo with knee socks and Florsheim dress shoes is attractive? Likewise, why would a buyer consider offering a penny less than asking price on a home that is averaging about an offer every 12 hours? A good follow up question to the agent would be, why would you take the time to write an offer that was so ridiculous that there is a better chance that it would be accepted if it were submitted to Ripley’s Believe It Or Not, instead of the seller? I don’t know what the buyers were thinking, but I had to call the listing agent and ask them what part of the home they were making an offer on? Their standard answer was “well that’s what the buyer wanted to offer, so I had to do it.” I have a one-word answer for that: bull.

Today’s buyers have good reason to be cautious. Most serious buyers look for guidance from their agent and once educated on the nuances of a particular market, will act accordingly. If a seller was going to give his home away free, a small percentage of buyers would still want to make an offer. Those are the buyers you refer to other agents, the ones you like the least. Very few sellers are laughing now because their unrealistic expectations have cost them thousands of dollars in this falling market. Buyers, don’t make the same mistake. Forget about how you used to buy a home up north, what you read in House Buying For Dummies or how much below the asking price you ended up buying the home for. There are segments of our market that have homes for sale at prices that literally make them a steal and there is an old adage in real estate that says, “If you’re going to steal, don’t do it in slow motion.”

Keep the Faith

Denny Grimes is a local real estate agent and is president of Denny Grimes & Company. He can be reached at 239-689-7600 or denny@dennygrimes.com

Mortgage Bonds are soaring higher on this weekend’s announcement that Fannie Mae and Freddie Mac will come under control of the government.

The government’s move to create a line of $200 billion to back all Fannie Mae and Freddie Mac loans at all costs is great news for homeowners. First, it ensures the continued liquidity of conforming loans nationwide and, second, it ensures that buyers of this type of Bond have a safe investment going forward. There’s no doubt that this will help the US housing market move through the current crunch that we’re in.

So far this morning, the news has lead to a nice rally in pricing. When combined with the break above the 200-Day Moving Average, this has triggered one of the biggest one day drops in interest rates in history (30-year fixed conforming rate dropped today to 5.50%)!

Why

Buy

Now?

Purchasing a home in the next six

months might be the smartest thing

you’ve done all year

By Seth Weissman

Bottoms of real estate markets never announce themselves

with fanfare. Economists generally only determine the

exact bottom long after the market has sharply rebounded.

My prediction is that when the dust finally settles, the

experts will look back on the time period between now

and the presidential election as the best time to have purchased a home.

Why is this the case? There are several interrelated reasons. The first

is that the housing market in the metropolitan Atlanta area is far

healthier than most housing markets in the United States. We’ve seen

some price reductions in housing but nothing comparable to other parts

of the country. With our region’s population increasing by 150,000 people

per year, prices can only go so low because demand is constant. It’s

a nice cushion to have.

Second, for the moment, the Federal Reserve (Fed) is more concerned

about encouraging growth than controlling inflation. Don’t expect this

to last. If inflation remains high, look for the Fed to start raising rates

right after the presidential election. This, along with the turmoil in the

secondary mortgage market, is likely to drive up mortgage interest

rates. This will make the effective cost of housing much higher than it

is now even if prices continue to fall somewhat or remain flat. Let’s look

at the following example to understand why this is the case.

Let’s say that a buyer gets a good deal on a property at $320,000

with a 30-year mortgage for 90 percent of the purchase price at an

interest rate of 6.25 percent. The buyer’s monthly mortgage payment

will be $1,773.27. Now, let’s say that the buyer gets a great deal on the

same house at $300,000 but interest rates on the same 90-percent

loan are now 7.25 percent. Even though the buyer is borrowing less,

the monthly mortgage payment is $1,841.88. In other words, the

buyer who waited for the great price actually ended up paying more

for the property than the buyer who paid a little more but got a better

mortgage interest rate.

Rising mortgage interest rates could drive housing prices even

lower. My bet, based on the above example, is that the effective

increase in housing costs resulting from rising mortgage interest rates

will not be offset by further decreases in property values.

What does this all mean? The answer is that there is likely a

short-term window of opportunity to get the best deal in this down

cycle of the housing market.

Where are the best deals? Well, remember that the entire housing

market is on sale right now. The houses that are most deeply

discounted are foreclosed homes presently owned by various lending

institutions. These are sometimes referred to as “REO” properties

or real estate owned. It’s not a bad place to start your search for a

home. However, there is one major caveat to this suggestion: There

is a big difference between price and value. The house that is the

most deeply discounted from a price perspective is not always the

best long-term housing value. If a house is functionally obsolete, in

a less than ideal location and/or in a mediocre school district, the

long-term value of the house may not be as good as a higher priced

home where these things are not an issue. For buyers interested in

value, focus on the following four factors:

1. Location

Buyers want to be close to work, shopping centers, healthcare and

recreation. This is even more true with the rising cost of gas.

2. School district

Quality public schools always have been a huge factor for most

buyers.

3. Quality

Buyers want a well-built house.

4. Design and functionality

Many houses become functionally obsolete because of a lack of

closets, size of bathrooms, layout of kitchens, height of ceilings or

architectural design.

If the house is being bought for investment purposes, the price

point of the house is far more important than when the house is

being purchased to live in. Look for lower priced homes that will

appeal to a broad rental market.

If you have been sitting on the fence, it is finally time to move! _

Seth Weissman is a senior partner in the real estate and litigation

law firm of Weissman, Nowack, Curry & Wilco, P.C. He can be

reached at seth@wncwlaw.com.

* Rate lower due to a higher PMI requirements

Not all sellers understand that their asking price is the ultimate determination of whether they will sell their property or not. Not only does the asking price affect if you’ll sell, but when and for how much. The longer it takes you to get to the correct fair market value asking price, the greater your Days On Market are and the more of a negative stigma buyers will have of your property. This can translate into lower offers and ultimately, a lower selling price.

Sure, how well your agent markets the property matters. But even the best agent in the world can’t fool today’s buyer and a good buyer’s agent. Today’s buyer has access to way too much information and data to overpay for a property. And a good buyer’s agent will provide comps and their personal expertise to even the most uniformed buyer so that they don’t make a bad decision and overpay for a property.

If you’re wondering how much of an effect getting the asking price right has on if and when your property sells, consider this…

No matter how well known your agent is, how good your marketing plan is or how many open houses you hold, it comes down to price.

It takes a good and gutsy agent to be honest and share with you your property’s real and accurate market value - no matter how much lower it is than you thought. It’s then up to you to listen to them, review the comps and data (aka CMA) and be objective with yourself and the situation. Once you do that and then list your property at a price that reflects today’s fair market value and market conditions, you will actually sell it.

The Housing Crisis Is Over

By CYRIL MOULLE-BERTEAUX
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.