Gary's Word

The latest market information was released this week by the Realtor groups, and it was hailed as great news.  Sales up, foreclosures down, stability returning to the housing market. 

On top of this was news that the 30-year rate for fixed rate mortgage hit an all time low of 3.83%.  Taking such a mortgage is basically stealing money, because it provides a hedge against inflation, and makes it possible to borrow at a low rate while prices are still abnormally low.  3497 contracts were written last month in Central Florida and only 8642 units remain active and awaiting buyers.  That means there is only a 2.47 month supply of homes throughout the area.  And in some desirable areas, there are only a handful of homes from which to choose.  We are now at the lowest level of inventory since the boom in 2005.  And there does not seem to be any indication that the alleged flood of foreclosures will hit the market any time soon.  Many of our agents are engaged in the kind of bidding wars that were last seen back in 2005 at the peak of the housing shortage.  Back in mid January, a Seminole County judge reported he had 300 foreclosures to dispose of in a 3 day period.  That would seem to indicate the end of the “foreclosure moratorium” that had been in effect last year after all the robosigning and government efforts to stop foreclosures.  While the number of foreclosure sales has increased slightly, it has not flooded the market, and in fact, the active buyers are crying out for some home choices.  Part of the reason is that the banks have gone “all in” on trying to avoid foreclosures by offering ridiculous terms to unload via short sales.  I received this message this week from the largest holder of bad loans on the planet…Bank of America:

“That’s why Bank of America is excited to announce that for a limited time, we are offering enhanced relocation assistance payments in which qualified homeowners who initiate a short sale without an offer could be eligible to receive $2,500 – $30,000* in relocation assistance and owe no more on their mortgage with the sale of their property.” 

$30,000 and a waiver of any further responsibility in exchange for getting out?  Seriously?  This is for people who in some cases have not made a mortgage payment in two years?  Sounds like a pretty good deal.  But here’s the catch:  banks and governments have been so caught up in the political gamesmanship and public opinion of “avoiding foreclosures” that they are spending ridiculous amounts to allow short sales.  But here in this area, and I am pretty sure elsewhere around the country in judicial states where foreclosures take 3, 4, even 5 years or more to happen (places like Florida where banks have to go through the courts to foreclose) a lot of homeowners face this scenario:  They bought in the 2003-2006 timeframe when prices were rising faster than at any time in recorded history.  But they fell like a rock between 2006-2011.  That means owners are $50,000-$300,000 “under water.”  They owe that much more than the value of the property.  So, they have a choice.  They can pay their payments, wait a generation for prices to return to what they were when they bought, or request a short sale, receive some cash back, but then have to go find a rental (and ever increasing rental prices).  Many are taking the third option– they can stop making payments, wait in some cases five years for the bank to foreclose, and in the meantime, sock away hundreds of thousands of dollars.  This will allow them to purchase a home with cash and never require the good graces of a bank ever again!  Ruins their credit, but other than that, a more positive alternative than paying for rent or mortgage in a home not increasing in value.  Opting out of making legitimate payments, even without a hardship.  Two years ago no one would have even thought about taking such a choice.  People were largely embarrassed to stop making payments, and did not want anyone to know.  But those days are gone, as more and more people are bragging to their friends and neighbors about not making payments and all the money they are saving.  Such a story even made the front page of the Orlando Sentinel this year. 

The banks have taken the usual route—payoffs to delinquent payers.  The government has taken the usual route—let’s legislate against foreclosure so these folks can stay in their homes.  But the real losers in this deal are you and me. Through our taxes, fees to banks, and general willingness to make our loan payments, we get nothing but government debt.  While our homes are worth less than any time in the past 10 years.  Responsibility is still a virtue, and I thank God the overwhelming number of homeowners choose to pay their debt.  The more people “opt out,” the longer it will take to crawl out the hole that the banks and the government continue to dig deeper.  There is a simple solution that would raise prices and bring true free market system back into play and a free economic system again able to build the country:

Make all states non judicial recourse states.  This means you, Florida lawmakers!  In Texas, it takes about 3-6 months to foreclose instead of the 3-5 years here.  If people who had hardships were allowed short sales, and everyone else would know they would be out in a short period, they would not opt out of payments.  And in about 6 months, you would see a return of the free market economy which built our state and nation into a powerhouse.  Anything less is simply pandering and unworthy of re-election.  Readers, you do have a choice.  Let me know your thoughts and comments.

This is an unprecedented age in real estate.  Never before have so many conflicting factors combined to make reading the tea leaves of the market more difficult and challenging.  On the one hand, the number of buyers in Florida is reaching a very high level.  Unemployment and underemployment remains high, and more than 40% of all homeowners are “under water,” owing more on their mortgage than the home valuation.  During such periods in the past, the drive to buy has been lackluster at best.  But a variety of factors have spurred investors and first time buyers to the real estate arena:

1. Low prices.  In some neighborhoods, we are looking at prices similar to what you could buy in the late 1990’s.  And that was a time when interest rates were far higher and the relative valuation adjusted for inflation far exceeded the cost in today’s marketplace.
2. Low interest rates.  4% for owner occupants and 5% for investors are extraordinarily low rates.  The average new buyer has well in excess of 200% of the income needed to qualify for the median priced starter home.  Investors are receiving 10-25% return on investment across the board.
3. High rental prices.  The demand for rental units is huge, which have driven up the cost to the tenant, and put a record amount of income into investor wallets.

Despite all of the above, the one thing that has not fallen into place is what you would expect…higher prices for single family homes.  When you have a 2.2 month supply (and in some neighborhoods, it is more like a one month supply) the old supply/demand curve would be expected to drive up prices fairly dramatically.  But it has not happened.  Not that the prices have not edged up, but the price increases are so negligible that they have hardly been noticed.  The main reason is said to be the huge “shadow inventory” of homes about to be foreclosed that hover over the market and depress current prices.  However, to compare, let’s take a look at the retail market.  Say factories were starting to make more shirts and were about to deliver them to stores where avid buyers were ready to purchase.  Until there was a huge supply, and demand started to wane, prices for the shirts would be higher.  Not so with homes now.

Part of the difficulty is that appraisers are continuing to undervalue homes across the board.  Banks do not want to lend too much money and wind up with the same situation we have now—massive home inventory with mortgages higher than prices.  But in the past, supply and demand drove market pricing.  Right now, everything is in place to drive up the prices.  It has not happened.  The naysayers are out there, saying prices will continue to plummet once the huge inventory of about to be foreclosed homes is actually foreclosed by the banks.  But the banks have gone “all in” on short sales.  Following the massive foreclosure logjam and robosigning scandals, they are not so much interested in foreclosing, which costs in some cases twice as much as doing a quick short sale.  That is why the big banks are offering $10-20,000 and waiver of deficiency judgments to owners who simply clear out their belongings and short sell.  That is quite the premium but it is still more cost effective for the banks than waiting another year or two and foreclosing, with the attendant torn up home, needed repairs to make it livable, court costs, process serving, and potential hazards of boarded up homes that become nearly uninsurable. 

So, how is the market?  You have to be careful, but there is still plenty of value out there.  Those who do nothing will look back in 2018 and say “I wish I had bought in 2012…why didn’t anyone tell me to buy?” 

Folks, I am telling you to buy now…and if you have questions, ask me now, and we can employ a winning strategy to higher profitability.  I welcome your comments.

As a long time real estate broker, I can tell you this is the most popularly asked question in my corner of the world.  My friend and mentor Tom Ferry recommends that we in the business answer the question with a question—“It depends…are you interested in buying, selling, investing or renting?”  And then we can tailor the specific response to what is interesting to them.  Makes sense.  So let me give you a breakdown of all 4 categories in short order for end of March, 2012 in Central Florida.

Sellers.  It has been a tough 7 years since the peak in 2005.  Prices dropped about 50-55% in most neighborhoods.  But those prices are coming back.  So, if you still have equity in your home, you might be in pretty good shape if you need or want to sell.  Especially if you live in a subdivision where few if any homes are available on the market.  Because it all gets down to supply and demand.  Supply is low—about a three month supply based on current sales figures…demand is pretty high, with more than 3000 buyers per month writing contracts.  Prices have not rocketed, but they are edging up.

Buyers.  There has never been a better time to buy a home inOrlando and the suburbs.  EVER.  Interest rates at 4%, prices low, and the opportunity to ride the appreciation wave again combines to make the Oracle of Omaha Warren Buffett say buying now is a way of shorting the dollar.  Because you are borrowing money at abnormally low rates, and locking in the term for 30 years, so your principal and interest payment on a $200,000 loan is $954.83.  Pretty affordable considering you would have to pay as much as $2000 to rent that same home!

Investors.  Buffett followed the above statement by saying recently that if he could buy about 200,000 single family homes, he would.  He didn’t really mean he couldn’t do it, because using a $160,000 average sale price x 25% down payment for an investor x 200,000 homes = $8 billion.  Warren Buffett has $8 billion to invest.  His only problem, he said, was being able to manage that many single family homes, not apartment complexes with staffing.  But the point is this—if you have your money in stocks, 401(k), bonds, insurance, bank account, etc., you are typically making 5-6% if you are doing well.  Less if you are not.  But if you buy almost any good rental investment home, you will make at least 12 and as much as 20 or 25% return on your investment dollar not including appreciation advantages.  That would be more!

Renters.  Some are stuck renting, because they do not have the down payment saved, or their credit is bad, or they are only planning to live in the area for a year or two at the most.  But for those who are just “scared of the market” it is time to overcome the fear and jump into buying.  Rents are continuing to escalate, it is hard for renters with pets, and you will lose out on all the advantages above—low interest rate locked long term, tax advantages of homeownership, and being able to finally take some returns on your money. 

What will magnify the above results are the following statistics:

A)    2009 marked the fewest homes built nationwide than at any time in the history of homebuilding.  For a nation of 330 million people to build 318,000 homes this year (that is the adjusted rate published today) after having built well in excess of one million homes a year for a long time means that we are under building, and there will be a need for more construction in the near future.

B)     There are 80 million Baby Boomers who at some point are going to decide their present living situation is not the long term answer.  They are already searching for smaller quarters, easier to maintain and keep.

C)    There is a new rise in household formations as Generation Y is nearly the size of the Boomer generation, and spurred by a rise in the number of single women and men buying for themselves, as well as marriages and new babies–the need for more homes.

D)    Investors are flocking from all over the world to Central Florida because of the ease of purchase and the value they perceive in having a vacation home, retirement home, or simply rental investment (see above).  Led by the Canadians who did not go through the same “tell me what you earn and here’s your bag full of money” period that Americans did during the boom of 2004-06, they now have greater home equity, stable prices, stable incomes, and plenty of money to invest in the low prices throughout this area.

So, the bottom line is…the market is pretty darn good for a lot of people.  And as always, if you want to take advantage, or have your own comments, just post them here on the blog.  Thanks for your time!

I am certainly not the first person who has gone on record in favor of scrapping the arcane, outdated and ridiculous way we tax ourselves as a nation.  But I will supply you with some facts and then you can respond and tell me your own personal interactions with the IRS and their unique manner of ticking off  millions of folks.

According to the federal government’s own records, those paying between $75,000 and $100,000 are the fastest growing members of the “we pay no tax” society.  In 2009, 1470 individuals making more than $1 million paid no federal taxes.  More than 200,000 making in excess of $250,000 paid nothing.  That same year, 4.8 million folks making $30-40,000 a year also pay no taxes because of deductions, tax credits, etc.  I realize that is not a huge amount of money, but my thought is this–to pay NOTHING toward national defense, justice system, education, and other needed services just does not seem right.  The answer?  I believe we should do away with deductions, tax credits, and basically scrap the tax law as we know it and replace with a low, graduated tax starting at 5%, working up to no higher than 15%, which by the way happens to be the federal capital gains rate that folks like Mitt Romney are enjoying to keep their rate of taxation abnormally low.  Tax Mitt and his fellow millionaires at 15% and I do not believe they would suffer much.  Businesses would grow exponentially almost overnight if people realized they would be taking home more dough every week, month and year.  For example, the couple making $75,000 that actually pays tax should pay almost $20,000 into the system, depending on their deduction schedule.  If they only paid $7500, what do you suppose they would do with the extra take home pay of $12,500 a year or more than a thousand a month?  Spend it?  Invest it?  Save it?  Give more to charity?  All of which would spur the economy, as more people would be spending and investing, paying down debt and making the lives of themselves and their children richer!  I have sent this message to my local Congressman Sandy Adams, and she said she actually not only agrees with me, but has co sponsored legislation to that effect.  Unfortunately, the political quagmire keeps us focused on the style rather than the substance in Washington.  As a result, we as Americans suffer.  Less money, more unemployment and underemployment, and lack of confidence in the future.  Money does not solve everything, but in the state we are now, it would sure help put a boost in our condition and a bounce in our step.  As always, I welcome your comments, so send them to me.

2011 was an interesting year.  OK, largely depressing year.  Casey Anthony’s acquittal dominated headlines here in Central Florida, and although the trial outcome was unsatisfying for most observers, at least for a time it shone light on the most tragic kind of child abuse.

Just as the Penn State football sexual abuse upcoming trial and stories have brought to the forefront of public awareness this disgraceful and unfortunately all-too-common abuse.  Add in huge unemployment numbers (only now “dipping” to 10% in Florida) and the story of homelessness in Seminole County (my home, and one of the wealthiest in the state per capita) which translates into an estimated 1 of every 6 children living in poverty and parents needing food stamps to provide even a subsistence living for their kids, well, it was depressing in so many ways. 

Having said that, I would like to turn the page and offer each of my readers a new opportunity to do the same.  It does not mean we should forget about child abuse, hunger, homelessness and poverty once the news media spotlight no longer shines on it.  Nor does it mean escaping into the sordid world of Kardashians for sport.  What it means is to make something more of our own lives and in doing so, make more of those around us.  It starts with a theme.  Many of us will draw up New Year’s resolutions.  If you are in the habit of doing so, and then keeping them, then good for you. Because you are one of the 8% of Americans who keep them!  That’s right, they have surveys on this type of thing, and 92% of everyone does not keep their resolutions.  80% fail by January 20^th!  The reasons are as plentiful as individuals who make and break them.  Part of it is that our personalities are who we are, and if you have been eating the same basic diet for 20 years, turning it healthy just because it is a NYR does not actually work.  Check with any gym manager and ask about the population of people who join the gym in January to see how many are still doing regular workouts in July…or even on January 20th! 

But before saying, “oh, well, that’s how I roll,” consider this: Our essence and will to improve our lives has a lot to do with focus. The popular movie City Slickers had Billy Crystal looking for the “one key thing” that made life worth living.   He also realized that everyone has to find that for him or herself.  He discovers it was his family.  Others find God.  There are certain fundamentals that drive us to be who we are, and also encourage us to be better.  My daughter encouraged me to have a Word of the Year, inspired by her boss in Dallas, who discovered the word was Focus.  A word that summed up what life is about and how we deal with it each day.  Words of the Day disappear tomorrow…too many of them to make any single word special.  So does a Thought of the Day, even Prayer of the Day.  They just keep passing.  Some wind up being more special than others.  But how we live our lives should not be changing so frequently. Each day should be a new opportunity and a new challenge, but we cannot keep blowing with the wind and putting out fires because it makes us so temporary and fleeting. 

My word of the year is Persistence.  Thomas Edison once said “Many of life’s failures are people who did not realize how close they were to success when they gave up.”    America’s first millionaire was Ben Franklin.  We remember him for the kite experiment, being the inventor of bi-focals, who talked sense into the Founding Fathers. He also wrote Poor Richard’s Almanac and had about as much street smarts as he did book learning.  He summed it up with “Energy and persistence solve all things.”  Simple, yet meaningful—that was the essence of Franklin.

Our jobs may not be any easier this year…but they might.  Our families might still have overwhelming struggles…but they might not.  Businesses will rise and fall, as will fortunes, as will political candidates.  But under all is this-we will persevere if we will not accept failure as anything but a temporary roadblock on the way to success.  Edison did not quit trying to find a way the light bulb would work.  Newton did not just think, “That’s a nice tasting apple” or “Ouch, that hurt!” after it fell on his head.  Mother Teresa didn’t just think—“I guess service to God is best done in the quiet of this simple convent.”  No, she went out and changed the world for the better…one life-giving hand after another.  Persistence is what separates giving up from making better.  I am going to employ it as my word.  I will keep you posted on how it is working.  Now it is time for you to figure your own word.  Don’t take mine, even though I believe it could work for many of you.  You should find your own word because only through self examination and commitment do any of us find meaning.  What makes you fulfilled?  How would one concept turn around your world for the better?  What creates joy in your life?  Once you find that you will find the word.  But make sure it is your word…not someone else’s.  Because we can purchase clothes that look good on someone else and try to make it work for us.  But your personality is unique…created by God for a purpose. Maybe you have not found that purpose yet.  That is OK.  It is never too late.  Let me tell you a story about Anna Mary Robertson.  She was born in 1860, and she has relevance today.  She lived in New York, got married in 1887 and had a rather plain existence.  She developed arthritis in her 70’s and decided to take up painting.  She liked to paint landscapes and rural life.  An art collector noticed her work in a little shop’s store window and distributed several.  Anna became known to the world in her 80’s as Grandma Moses.  At 88, President Truman presented her with the National Press Club Award for outstanding accomplishment in art.  She went on Edward R. Murrow’s show at age 90 to show off her work (think 60 Minutes for those of you who were not around 60 years ago).  She died at 101, having lived a full life, and much fuller when she tried something new long after most people have retired and given up on all new projects. 

Find the word, make it your own, and enjoy the New Year with the knowledge that it will be better because we have a focus and the enthusiasm to make our own life and those around us a better place.  I’m going to be persistent this year.  What about you?  Happy New Year!

As we near Christmas, we are reminded of the joy of the season.  Of the gifts we have, of the thanks we need to give for the blessings God grants us daily.  Today, I am honored to post a story that might  make you cry.  But sometimes we need to remember that our hardship is often just temporary.  And that children, their eyes clear, hearts open,  and their minds absorbing everything, serve as guides for us all.

The author of this story is from Texas and is unknown.  But the message should resonate for all of us.  Merry Christmas!

It is the holiday season, a time of cheer and best wishes, which I do for all of you.  But later on that.  I had to mention another brush with customer service…the ugliest of all places during this or any season.  Today was at Top Producer, the online company I use to keep track of my business.  Whenever I tried any function this morning, it kept giving me an error message saying if I continue to have this problem, please contact customer support.  As you probably know, turning off the computer and rebooting often solves such tech glitches.  But that didn’t work, so I re-entered the info, and the same thing happened. So, much to my chagrin, it was time to actually contact customer service. 

The gentleman I reached asked my name before he told me his, which is always a turnoff in such situations.  The proper procedure is to tell you who the customer is talking to, and it allows more freedom to believe that they actually, I don’t know, care about what was it?  Oh, yeah, customer service!

Well, he introduced himself and after I told him the problem, he asked me to wait (I had already waited 6 minutes, less than the 10 minute “Expected wait time” the recorded message had warned me about) and about two minutes later, he came back to say that the problem was on his end.  Pause.  Wait for it.  So, if I tried to use the system later this morning, they should have it up and running.  “About how long?” I asked patiently.  “Give it about 30 minutes.”  OK, based on past experience, I will give it at least an hour to resume my working day.  Thanks, anyway, I said.  Then he asked the question that all customer service practitioners are trained to say “Is there anything else I can help you with?” 

You mean in addition to the only thing that is preventing me from doing my job into the foreseeable future which you clearly have not solved yet?  No, that will be all today, unless you can deliver a nice brunch to my office from your call center in Portland. 

Really, it is not this company’s fault.  Stuff breaks down.  And the problem is that because everything has gone online, we have become so reliant not only on the power staying on, but also our computers and the software, the phone lines, data transmission lines, URLs, and web sources at the other end, and clearly, if everything is not working in synch, we are screwed. 

So, Santa, in case you are looking for a last minute idea for me and the millions of workers out there…give wisdom to all “customer service departments” to fix our systems so that we have a chance to do our work. I don’t need any more stuff.  I do not know if “the cloud” will be the answer, but I think we will still need other systems to function so we can get to the cloud!  Oh, well, I still kept a yellow pad and a pen…so hi ho, hi ho, it’s back to work I go!  Maybe the folks at Top Producer have fixed their glitch by now…