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October 16, 2008

Point / Counter-Point

by

Real Estate Renaissance Man

Author website

Michael Cook wrote a thought provoking post earlier entitled What Happens to the Early Worm.  So thought provoking that I found my comments drifting to post length.  So how about a little point/counter-point?

Michael, a very detailed and thoughtful post. I would not disagree with you that cautiousness is a safe strategy (although not always a profitable one) and I certainly do not disagree with your assessment of the people here on BHB.  But I do have some other questions:

The income / price equation did not get out of whack overnight, so buyers and sellers should not expect it to correct itself overnight either.

All real estate is local and that is never more true than now. In some areas we have seen real estate go through the support level of fundamental value (that value which would allow an investor to purchase a property and cash flow). This is no different than the Dow last week. It was oversold and many companies could be purchased below their fundamental value. So are you suggesting that rents are going to decrease in these areas?  Otherwise, the correction has already occurred in some areas.

You are looking at some of the best real estate agents in the business here. So when they write that their business has not dropped off, it might lead the casual reader to believe that the real estate market is not in a tailspin or even that real estate is close to a bottom. Do not be lulled into a false sense of optimism. This group is adaptable, smart and most of all well above average.

Michael, to whom are are you writing this post?  If it is agents then I suggest the new market has caused an industry-wide house cleaning.  Those that do not belong have seen business disappear and those that do have been rewarded; but this does not necessarily reflect a worsening real estate market.  If, on the other hand, you are writing to consumers then I suggest they read you closely when you say that the top agents have found “their business has not dropped off.”  It has not dropped Read more

October 16, 2008

What Happens to the Early Worm?

by

Real Estate Investor

Author website

Quite a while back I asked a question, if the early bird gets the worm, what is the early worms reward for being early? In this tumultuous market we have already seem many early worms. Several months ago a lot of people began jumping back into real estate only to be crushed by the weight of numerous new market developments. But surely the worst is behind us? Think again early worms…

Real Estate is as slow as the stock market is fast. It takes time for sellers to get desperate enough to lower their price and it takes time for buyers’ incomes to rise to the level where they can afford housing prices. The income / price equation did not get out of whack overnight, so buyers and sellers should not expect it to correct itself overnight either.

The Bloodhound Blog is a very deceptive place. You are looking at some of the best real estate agents in the business here. So when they write that their business has not dropped off, it might lead the casual reader to believe that the real estate market is not in a tailspin or even that real estate is close to a bottom. Do not be lulled into a false sense of optimism. This group is adaptable, smart and most of all well above average.

Consider these national facts about the economy and then let’s draw some conclusions about the future of real estate (taken from the latest release of the Biege Book and other financial sources):

-Consumer spending is down
-Manufacturing is down and declining
-Jobless claims are up and rising
-Housing remains weak
-Housing inventory remains well above average
-Dow Jones has dropped nearly 40% over the past six months

The most significant thing on the list above has to be the decline in the stock market. This represents a decline in confidence in the global economy. This level of decline says that investors believe businesses could be in for sustained economic distress. It stands to reason that businesses in distress tighten their belts by laying off workers and Read more

October 16, 2008

Peter Schiff: “Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets”

by

Suburban Phoenix Real Estate Broker

Author website

Peter Schiff in the Washington Post:

Amid the chaos of recent days, as the federal government has taken gargantuan steps to stabilize the financial markets, realigning the U.S. economic system in the process, comes a nearly universal consensus: This crisis resulted from government reluctance to regulate the unbridled greed of Wall Street. Many economists and market participants who were formerly averse to government interference agree that a more robust regulatory framework must be constructed to cage the destructive forces of capitalism.

For the political left, which has long championed the need for such limits, this crisis is the opportunity of a lifetime.

Absent from such conclusions is the central role the government played in creating the crisis. Yes, many Wall Street leaders were irresponsible, and they should pay. But they were playing the distorted hand dealt them by government policies. Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets.

Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.

But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow — until it could grow no more.

Prominent among these wrongheaded advantages are the mortgage interest tax deduction and the exemption of real estate capital gains from taxable income. These policies create unnatural demand for home purchases and a (tax-free) incentive to speculate in real estate.

Similarly, the FHA, Fannie and Freddie were created Read more

October 16, 2008

And That’s Why Commission is Better

by

Real Estate Renaissance Man

Author website

There are a great many rewards to being a commission-based, self-employed entrepreneur.  Freedom has to be number one.  Even in the limited form it takes within our system of centralized decision making, pointless licensing laws and oppressive, regressive taxation, there is still freedom.  Another, decidedly less esoteric benefit, is the inherent unlimited income opportunity.  To what degree we utilize that opportunity is entirely up to us.  I mention this in light of all the discussion lately about Socialist policies and redistribution of wealth.  It seems an opportune time to point out how the system self-corrects when left to itself (albeit painfully at times).

It wasn’t more than a year, year and a half ago that social engineers were up in arms over the outrageous pay CEO’s received.  They would graph the income of the president of a large company as a factor of the average employee’s income within the same company.  “This is wrong!” they would yell.  “A moral outrage” they would opine on the talking head shows.  “Another example of the evil capitalist system rewarding the rich at the expense of the poor.”  We all heard it and quite frankly, I had a hard time myself not gagging over some of the pay structures I saw.  I would be the first to stand up and agree that paying a CEO tens (never mind hundreds) of millions of dollars is nearly impossible to justify from an economic standpoint.  But the difference in argument should be painfully obvious.  The enraged egalitarians may have disagreed with the economic soundness of executive level pay but they decried the morality of it.  Few things as scary as a large crowd informing me what morality is.

Those angry groups of ivory tower thinkers and blue collar unifiers do not believe the system corrects.  They believe the best option is their option and invariably it involves income redistribution.  Pointing to graphs relating a CEO’s pay to that of an average employee on the assembly line is meaningless.  Their is no logical nor economic reasoning to justify some type of mathematical relationship.  The issue, of course, is whether a company Read more

October 15, 2008

The soul of wit: Boiling Obama down to his essence

by

Suburban Phoenix Real Estate Broker

Author website

This is Melanie Phillips in the Spectator:

You have to pinch yourself – a Marxisant radical who all his life has been mentored by, sat at the feet of, worshipped with, befriended, endorsed the philosophy of, funded and been in turn funded, politically promoted and supported by a nexus comprising black power anti-white racists, Jew-haters, revolutionary Marxists, unrepentant former terrorists and Chicago mobsters, is on the verge of becoming President of the United States. And apparently it’s considered impolite to say so.

Now that’s good writing, just blistering concision. It’s 76 words, and I’ll bet she could recite it with passion in less than 30 seconds. It would be sweet if a 529 group were to televise this message nationwide.

John McCain is cold oatmeal, and I can’t imagine that anyone except his wife wants him to be president of the United States. But everything in Obama’s background comprises a sound reason to fear what he will do as president, particularly in the company of Nancy Pelosi and Harry Reid. At a minimum, we’re about to fail to learn yet again what made the Great Depression so lengthy and so painful. But the thug tactics Obama and his minions deploy give us good reason to fear a Hugo Chavez, Norte-Americano-style.

I’m not picking a fight. Both of these goons are national socialists, lacking all conviction but full of passionate intensity. McCain is nothing to be preferred. But Obama strikes me as a cipher very much to be shunned. The worst of it is, we won’t know the worst about Obama until after it’s too late. The blood-dimmed tide is loosed. May god spare us the oceans of blood that swept over us the last time we elected a socialist in a recession.

October 15, 2008

Bloodhound Blog Radio: Fundamentals Trumping “Headline” Risk

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Sean “Rocky” Purcell and I discussed his big prediction of the stock market bounce and I repented for my recommendation to stay “unlocked” in hopes of lower mortgage rates.

Download and enjoy this light-hearted 17 minute show

We felt the near-term future for stock and bond markets would depend on the numbers not events.  We’re looking closely at Retail Sales (which were weak) and CPI, specifically Core CPI, this week.

Download and enjoy this light-hearted 17 minute show

October 14, 2008

Videoplay: My idea of a halfway decent real estate video

by

Suburban Phoenix Real Estate Broker

Author website

I haven’t talked about video for a while because we haven’t been doing very much with it.

That’s not completely true. We use the Flip digital video camera to share notes with clients fairly frequently.

But as I have discussed at length in the past, I have no use whatever for the typical Lurch-takes-a-home-tour style of real estate video. I see it as being anti-marketing, worse than doing nothing at all.

For video to work, there has to be a story, and I can only think of two stories that make sense in the context of listing a home.

The first is simply an interview with the sellers, and we have done this on other homes. The second is the documentary, an illustrated narrative about some aspect of the home or the neighborhood. An example of this would be a slow drive-by of the structures in the neighborhood with a voice-over narrative telling the tale, whatever it is.

Arguably, you could impose a fictional or farcical story on the home, but this strikes me as being simultaneously too familiar and too stoopid by half.

The population of pundits who don’t actually sell real estate is rife with people who swear that video is the wave of the future. But, even with a plausible and endurable story, video has other drawbacks. It can be a real bear to edit, both labor- and computer-intensive. The down-sampling necessary to make it work on web sites robs images of their detail. Moreover, real estate photography wants very wide-angle lenses — which make people look fat and exaggerate foreground-to-background distances.

The solution I’ve arrived it, for now, is to superimpose still images over the video. Talking heads are boring, but we can use stills to illustrate what they are talking about, lending visual interest to the total package.

Here’s an example, as processed through YouTube:

You can see a better example of that video on the video page for 56 West Willetta Street.

The video scene was shot with the Flip camera. The native AVI file was converted to NTSC video, which is native food for Apple’s Final Cut. The photos were just dragged and dropped Read more

October 14, 2008

Why the Bailouts Don’t Work and Why Wall Street Loves Them

by

Real Estate Renaissance Man

Author website

The stock market came back with a vengeance yesterday.  On Friday’s episode of BloodhoundBlog Radio we noted that the market was vastly oversold from a fundamental perspective and suggested a rebound after the weekend.  This was prescient enough that the Mortgage Cicerone made note of it, which is high regard indeed.  So why am I not celebrating?  Because yesterday’s reaction was as irrational as the sell-off.  One thousand points?!  Sure the correction was in there, but so was the exuberance of a seemingly ceaseless font of federal gifts.  The markets like the latest ideas out of Washington and why shouldn’t they?  Wall Street has done a good job creating an aura of representation – most people now believe that was is good for Wall Street is good for America.  How else do you explain the frantic efforts our fearless leaders make each time the market drops?  The rally cry lately seems to be: “If we make the Dow go up, we must be on to something.”  This is nothing new.  For years now the markets have taken a preeminent position in economics beyond their reach or relevance.  One need look no further than earnings reports.  You might report record earnings for your company, yet your stock is pummeled because the reported earnings did not equal what the market had already priced in to the stock.  “You didn’t do as well as we thought you would do based on our self-serving judgment of what is best for you.” (Which is shareholder profits, of course.)

If you believe what you hear from the talking heads (and by virtue of the fact you are reading BHB, I doubt you do) the source problem for the economy is the toxic mortgage derivatives and their tentacle like reach.  Everyone bought these things, even when they didn’t know they were buying them.  Now (as the story goes) our problem is this: no one knows what this stuff is worth.  Everyone is marking down their portfolios, no one wants to risk lending money and the initial bailout (bailout 1.0) didn’t phase anyone; all because we don’t know the real Read more

October 14, 2008

How To Get Better, The Easy Way (Never Make The Same Mistake Twice)

by

Instigator, anthill kicker.

Author website

I’ve never been a lifer in the real estate business.   That doesn’t mean I don’t have a lot to give, it doesn’t mean I don’t love it, and it doesn’t mean that I can’t kick ass.  I say this: there is no finer, safer way to learn how to be in business than being a successful real estate or mortgage guy.  And I say that you learn more, faster in the 100% commission lifestle than you’d learn anywhere else.   It’s the perfect microcosm of business: you get a litle marketing, accounting, customer service and sales.  You get to work with people that gave the middle finger to being kept citizens, and you get to have control over your own income.

What a great job we have.

One of the things that ground me up in the latter part of 2006 was the number of crazy stips that underwriters started to send.   On every deal, starting in about August, the canary in the coal mine died, so everyone I worked with, from Lehman Brothers to First Franklin, and even Interfirst…was stipping files.  (The inside joke among appraisers was always: is this an Interfirst deal or a ‘real’ deal).  These companies begun to underwrite files instead of rubber stamping them.  The audacity!

And in my office, loan officers bitched and moaned about this.  “The underwriter is stupid to not take this deal,” one of my colleagues said.  That particular deal, i followed it for a while.  It is now in foreclosure.  Eevery colleague and every deal was hard.   Even good loan officers didn’t react (see OODA) fast enough.  I decided to be different.   I didn’t belive underwriters were merely capricious, and since it was every lender, I figured it was gonna get worse.   So, in order to keep up with my payments to the IRS, I had to close a lot of loans.  And to close a lot of loans, I couldn’t be sending the same file up 4 or 5 times.

So I made a checklist in Word, all the things in reasonable categories.  I used stip sheets as a starting point. (The same checklist Read more

October 13, 2008

Opt-Out of the Recession

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I won’t be participating in the recession.  I’ve opted out.

The whole thing started when Chris Johnson slapped everyone for whining.  That was an important message.  Essentially, Chris has been saying, “I know it’s tough and it’s gonna be work but that’s why they call it WORK”.  If you’re a loan originator facing extinction, buy Chris’ Loan Officer Survival Guide, do the homework, and start implementing.  It costs about fifty bucks.

Folks who attended BloodhoundBlog Unchained Phoenix heard me talk about how to hunt for prospects using social media.  I discussed how to “find a herd” through social media and “building a fence around that herd” through the system outlined in the Millionaire Real Estate Agent.  If you’re in “my herd” you’ll recognize my e-mails, radio shows, blog posts, and postcards as the various slats of the fence I’m trying to build around you.

I recognized that transactions per agent were going to drop, about a year ago. I used to count on real estate agents for 3 loan referrals annually.  Today, I budget for one per year.  How then, can I close 100 loans annually with only one loan from each agent?  Increase the agent count, or size of the herd. It’s really that simple if you understand fourth grade math.

My refinance business has all but dried up.  When Hope For Homeowners was announced, I pounced.  While the particulars of the programs are still unclear, I figured that stressed out homeowners would be happy to have SOMEBODY who tried to help them.   These borrowers are a starving crowd.  While I don’t have steak to serve them, a few might get by on the rice I do have to offer them.  Commenters on Zillow’s Mortgages Undressed criticized me for outhustling them but I decided that serving needy homeowners was more important than being popular with a bunch of originators.

Jenna Jameson, actress and entrepreneur, defines courage as never letting anyone define you.  Don’t let the criticism of the competitors you’re crushing ruin your career.

Do you have the courage to change your business?   I suggested that the old saw “listers last” would be usurped by Read more

October 13, 2008

Trulia hires (Lobbyists?) while others contract and layoff…hmmm

by

The Real Estate Group, Virginia Beach and Chesapeake VA

Author website

I have been pondering something all weekend and now Greg’s post about Redfin’s layoff has changed my focus even further. Please allow me to explain:

Saturday morning: I get an email from a blogger and friend telling me to check my email. In it comes a link to this post. The post indicates that Trulia just hired some pretty heavy hitting folks to help them “connect” with MLSs and NAR. Liasons we will call them. Ah, hell…let’s just use the REAL word-grin. Lobbyists. I even posted my own editorial on the subject of the dangers of Lobbyists on my E & O page on my own real estate blog.

After muttering to myself for a couple of minutes, conversing with my blogger friend, and thinking through it, I came to TWO opinions:

1) They don’t hire a TEAM of new folks to connect with people without expecting to get a SOLID return on that investment. Especially not whilst everyone else is shrinking and laying off.

2) What is the ONLY thing that they would want to get from MLS’s and NAR, pray tell? My opinion?Listings.All of them. Texas tea to wildcatter third party types with limited funds to keep drilling prospecting wells. It is Trump for Chumps. Without it, they are just Joe Home Depots. (grin-still savoring that post, Geno) Listings are the black gold that generates traffic that generates ads that generates revenue that generates more investment as burn rates eat at bank accounts.

Am I waiting with baited breath for the flatline beeeeep of a failed bot? Nope, but I have been stewing on it a bit…and given the difficulties that Redfin (and real estate in general ) is undergoing, can the bots be far behind? Methinks not. They will bleed slower with their advertising revenue model, but they may well bleed out. Is the only reason that they are not laying off because they were the most recent VC funded startups in the real estate space to get funded, so they still have coin (for now) in the account?

I have no way of answering that, but I can predict one thing from Read more

October 13, 2008

Citing market downturn, Redfin.com cuts headcount by twenty heads

by

Suburban Phoenix Real Estate Broker

Author website

Via intrepid startup blogger John Cook from his new weblog Where are John and Todd?:

Redfin today said it is cutting 20 percent of its staff as the Seattle online real estate broker prepares for what Chief Executive Glenn Kelman described as a “big dip.”

About 20 employees were let go, bringing total staff at the company to about 75 people.

Kelman said it was a difficult decision, but the right move given how the economic slow down is impacting the residential real estate market.

“Redfin’s whole business will struggle and fight and may yet fail,” Kelman wrote in a message to employees. “But the only way it is possible for us to succeed – and, even today, I believe we will – is if we adapt.”

In an interview, Kelman said that the company had been performing well up until about three weeks ago. Last month, he said executives even felt strong enough about the business to raise revenue projections for next year.

But once the economic meltdown hit Wall Street, Kelman said “deals started to fall apart.” And while October and November may still prove to be solid months at Redfin, Kelman said beyond that the outlook is dismal.

“As the stock market wiped out prospective down-payments, tours and offers dropped 30 percent,” said Kelman in his message to employees. “Transactions that were done came undone.”

More from CEO Glenn Kelman at Redfin’s weblog:

Today Redfin laid off roughly 20% of our employees.

Unlike other startups, our industry’s recession started a year ago, when home prices first plunged.

Since then, we’ve fought like starving animals, and with some success: while industry-wide transaction volumes dropped 33%, we grew revenues by nearly 50%. Traffic grew more than 300%.

Even a month ago, we were raising 2009 revenue projections. All our markets, now including Chicago, contributed profits.

But the past few weeks have seen a major reversal. As the stock market wiped out prospective down-payments, tours and offers dropped 30%. Transactions that were done came undone. October will still be pretty good, then we’re headed for a big dip.

Hence the layoff. Layoffs are painful for any company, but especially for a startup and especially, I Read more

October 13, 2008

Obama ups the stakes in his contest with McCain over who can do more enduring damage to the crippled economy

by

Suburban Phoenix Real Estate Broker

Author website

Witness:

Democrat Barack Obama is calling for a 90-day moratorium on foreclosures and a two-year tax break for businesses that create jobs as part of a plan to heal the nation’s ailing economy.

The presidential candidate says banks that participate in the federal bailout should temporarily postpone foreclosures for families making good-faith efforts to pay their mortgage.

He also called for a $3,000 tax credit for each additional full-time job a business creates. The tax break would end after 2010.

Obama also is proposing letting people withdraw up to $10,000 from their retirement accounts without any penalty this year and next.

The Obama campaign emphasizes that these ideas can be done quickly, either through executive order or legislation.

Here’s a question that no presidential candidate, apparently, can answer: Where does investment capital come from?

A ninety-day moratorium to “temporarily postpone foreclosures for families making good-faith efforts to pay their mortgage” is stupid. A loan is either performing or it isn’t. The lender is never going to foreclose on a performing loan, although the threat or foreclosure may not be withdrawn for quite a while.

The corollary? If you want out of your mortgage, you have to stop making payments.

The tax credit is also pretty dumb. If $3,000 is the margin of profitability for a new hire, a few people might get hired.

But “letting people withdraw up to $10,000 from their retirement accounts without any penalty this year and next” will bleed the economy of lendable capital just when the economy is already bled white of lendable capital.

I can’t even think of all the ways this is perilously damaging. It encourages a run on retirement accounts, which will probably drive securities values lower over time. Individuals probably shouldn’t reduce their retirement investment stake just when it has suffered a terrible hit. Freeing up that money encourages still more spending on consumer goods — depreciating assets — where it is now invested in future growth.

But here is the worst feature of this insane proposal: Not only won’t that money be committed to future economic growth, but the people whose job it is to invest that money productively will have to think Read more

October 13, 2008

You Don’t Always Get What You Want, But If You Try Sometime, You Might Find, You Get What You Need

by

Real Estate Renaissance Man

Author website

If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government’s landmark $700 billion bailout package has an important message for you: stop making your mortgage payments.

So says Peter Schiff, president of Euro Pacific Captital and author of “The Little Book of Bull Moves in Bear Markets” in his op/ed piece entitled, Just Stop Paying Your Mortgage.  You may or may not read it with tongue in cheek, but read it you should.

When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.

The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away.

The law of unintended consequences is never so manifest, or insidious, as when politicians correct the free market with legislation.  (Except, perhaps, when they do so because they are …from the government and … here to help.)

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