Friday, February 14, 2014

Today is a great time to List your home in Houston

I recently listed a house near Houston. The owners had paid in the mid $200s and had owned the house only a short time and were justifiably correct in listing the house above $350,000 - a $100,000 price appreciation! It sold in a couple days.

I am not picking on anyone because even last year homes in Montrose which had been purchased for a mere $300,000 with practically nothing down had more than doubled in price from $300,000 to $650,000 - that's not a bad payment for living in a house three years.

Lots (5000 SF) in Montrose can not now be purchased for anything less than $500,000 and can go for substantially more when it is a really super nice location.

Prices have gone up record levels making potential sellers hesitant to list their homes fearing they will get less than they could have by waiting. Even if they sell, they face a daunting task of finding a new home either to buy, build or rent. Rents are out of sight.

The condo I lived in 4 years ago rented for $850 a month. It was a steal I admit it but it isn't now. Today after installing laminate floors, Stainless Steel Appliances, crown molding, new carpet and new front doors, it lists for $1,850. Renting isn't as nice as it used to be. Look at all the huge and ugly prison like structures covering entire city blocks going up all over Montrose and Midtown! Who is going to want to pay $2,000 + a month to live there? Evidently there are thousands.

The shocking part of it is just three years ago I listed a mansion in Montrose for sale. It was a real gem with a huge lot and 4 car garage. The buyers purchased the property for $300,000 FHA 3.5% down. I doubt today after leveling the foundation, replacing the plumbing and making a few interior modifications that house would sell for less than Two million dollars in today's market.

The proof that sellers are holding back on listing their homes for sale can be found in the months of inventory report for Houston. Last December months of inventory on the Houston MLS reached it's all time low at just 2.6% (Houston Realtor Magazine, February 2014 "Houston Real Estate Market Zooms into Record Territory in 2013" p.9) as opposed to just 3 years ago when we had more than 9 months inventory.

It is said that prices of Houston Real Estate only increased 10% last year but my experience is prices are increasing quite a bit more as I pointed out above.

People who are holding off on selling should think. You will never know in advance that you are at the top of the market or for that matter at the low point. You will certainly know afterwards but that doesn't help you decide when the time is right to sell. I guess the answer is don't sell just because the market is high. On the other hand you shouldn't be trying to time the market either.

The best times to buy an asset are when everyone is scared off and don't want to buy for fear the price will fall lower - we met so many in 2010! Those were dark days when I could have 24 listings and handle them easily because things moved so much slower. The best time to sell is when everyone thinks the market is going to go up forever. We used to say in the stock market everyone is a genius in an up market.

Now the world we live in has completely changed. Today we inhabit a world of huge real estate price increases and multiple competing offers within days if not hours of a listing being listed on MLS.

So what is the takeaway? It is a good time to sell your real estate in Houston. Everyone is absolutely confident it's going to go up further! I.e., times like right now.

Finally information I took from the Houston Realtor is certainly believed to be true by me, but you need to independently verify everything said here. I make no guarantees as to the accuracy of those facts furthermore.

Sunday, January 19, 2014

On the importance of Photographs in listing real estate

A man recently called me to list his home in Meyerland.

I love Meyerland and love selling homes there so I was so excited when I talked with him.

He asked for a CMA which I sent him but I was sure to tell him that a CMA did not represent my price opinion on his home. I told him that unless I actually saw his home I would not want to put a price on it.

He had listed his home with another agent for a couple months unsuccessfully, but since the house did not sell in 60 days he had decided to terminate the listing. His agent had failed he said. "Nobody came by", he said.

I was curious as to why the listing had failed. After all homes in his area are snapped up in a very short time since the buying frenzy set in in earnest a year or so ago.  Why I asked myself weren't there any appointments to see this desirable home? I let him continue

Then he told me that he really wasn't trying to make the most out of his house. He just wanted a reasonable price. Now that really made me curious because shouldn't everyone want to maximize what they get out of their home sale? What kind of person isn't interested in maximizing his return?

I think everyone needs to maximize what they get out of their home since it really is their biggest investment.

Then he asked me what services I performed.

I told him that I did everything well but I didn't take photographs. I said that the first thing people see are the photographs of his home on HAR. If the photographs of the house are beautiful and look like something out of a magazine, of course, many people will be interested in seeing the house. If, however, the photographs are dark, if there is clutter around or if the photographs are amateur, people are less inclined to want to see the house. Often they will not look at it all. The Internet is definitely about images. People love beautiful images. Ugly amateurish images not so much...

Despite what I said he told me that my photographs would be OK with him.

Today over 90% of home buyers begin their search online and they are not looking for second class. They are looking for the best they can afford. They will be more impressed by nice photographs and they are cheap in addition.

I use Rockbait which generally charges about $150 for a set of Architectural Digest quality photographs. - He said as long as people come to visit my home I am satisfied. Once they get here they will decide.

I didn't hear from him for a month or so but when he called me again and asked me to do another CMA. I answered that the market had not changed in the past 30 days, but once I had seen the house I would follow up with a CMA of what I thought the price should be.

He said bring your contract along and also your camera.

After we spent a couple hours photographing his house, he said, "And we don't want a sign in our yard. We don't want the neighbors to know we have our house up for sale.

I told him that a sign was a good idea since the best salesmen for your home are your neighbors themselves. They may have friends who have expressed an interest in moving into the neighborhood and would love to buy your home, but if they don't know your home is for sale they cannot be expected to call their friends and tell that the home is for sale. Additionally many people drive through the neighborhood they want to live in and they are just looking for "For Sale" signs. If there is no sign there they will never know your home is for sale.

It seemed clear to me that the other agent was just following this seller's orders. Maybe that was why "nobody showed up."

Fact is only 30% of For Sale by Owners sell their house even in a robust market. (google it) - That's not to say that with a little help they will wouldn't be 100% successful i.e., with the help and business knowledge as a full-time discount Realtor® with over 10 years full time experience. That said, I welcome all the seller participation I can get, I am interested in your out of the box thinking.

If you are a person who truly wants the best sales experience at the cheapest price, by all means call me. I would love to hear from you, and you can bet I will deliver on my promises. I give you my unconditional guarantee that I will deliver. - And I am always open to new and even crazy ideas, but I will tell you this if your photographs are ugly, amateurish, dark and badly balanced, you will spend a lot more time on the market waiting for someone to make an appointment to see your home.

Photographs that WOW sell. You can't make a silk purse out of a sow's ear and that goes for your photographs. Good photographs are inexpensive. I can't believe someone would want list without professional photographs just because it costs $150 when the photographs are the very thing people want to see first before they make an appointment to see a listing.

The information contained in this blog is believed to be true by this agent and was taken from reliable sources but no guarantee is made as to its accuracy. Readers are invited to verify on their own.

Tuesday, January 7, 2014

Crystal Ball Gazing for 2014

A client who is listing with me recently received a letter from a well known broker in Houston mentioning that he had "prospects" who were interested in his home and asking if my client to give him a call to discuss it.

There is no doubt that the broker who wrote the letter to my client knew that I had the listing and that it is unethical to contact another agent's client in an attempt to get them to fire their broker and list with them.

Aside from the ethics of the letter I believe the letter brings to light some things about the present state of the Real Estate market in Houston and indeed around the country.

#1 The listing pie is shrinking causing agents to resort to more desperate efforts to obtain listings.

Active listings have declined steadily since the Fed Stimulus began in 2010 when the Fed started to  artificially lower interest rates by open market operations. Basically, the Fed purchases Mortgage backed securities in the open market and by doing so lowers the rate of interest. Lower interest rates lower the cost of home ownership.

The Fed Stimulus predictably has caused a decline in the supply of homes on the market as people rushed to purchase homes at the lower rates.

It used to be that a 6 month supply of homes on the market was normal, but since the buying frenzy, listings of homes on MLS have steadily declined to just 2.9 months inventory in November of 2013. (In November of 2013 active listings in Houston declined to just 30,341.)

Last year homes sold so fast in the hottest neighborhoods of Houston the average time on the market began to decline precipitously. Whereas before homes on the market for 3 months were kind of standard, last year my listings often were on the market for less than 3 weeks before we had a full price offer.

It does not come as a surprise that people are anxious to see their homes sell quickly in Houston and some agents like the one above are catering to that impatience.

#2 Coupled with the fast market in Houston real estate sales, is the fact that the above listing had listed late in the year and 45 days of the listing had come during the Holiday period when traditionally people are not so interested in looking for homes. The holiday season of 2013 was more in line with the traditional holiday slow down seen in more normal times.

I can tell you that as of January 2 things resumed their frantic pace in Houston Real Estate. In the first week of January 2014 I have already received offers on 3 of my listings!

#3 The Fed is slowing it's open market purchases of Mortgage Backed Securities and interest rates are rising forcing some buyers to have to recalculate the amount of home they are able to purchase. The recalculation is most evident in the $150,000-$500,000 price range of homes.

#4 The pace of home buying slowed in November. November sales of single family homes totaled just 5,108 the lowest rate of sales since February of 2013. Active listings declined 17%. 

#5 I believe sellers have also discovered that you don't always get what you pay for at 6% commission rates. Callvolley.com can do as good a job or better than it's  much more expensive big agency rivals and I believe people have become conscious of the fact.

Many people who are listing their homes today have sold more than one home and have a good idea of what agents do and do not do. They make commission comparisons and some of the smart ones are choosing my brokerage plan to sell their homes because they can save a lot of money on the listing commission without any loss in service or time on the market. I.e., market for homes is the same wherever you list.

#6 The competition for listings will only heat up as the year 2014 wears on. There are so many new agents who want to cash in on the new bull market in real estate. There are also many older more seasoned agents who know the ropes well.  They will sharpen their focus on listings. The listing war will definitely heat up.

In essence, everyone in 2014 will be competing for a piece of the ever smaller pie of listings in the Houston Real Estate area.

One thing is for sure as Callvolley goes into it's 8th year of operation, I have proved that I can compete. I have proved that I can sell homes at all levels in price or location and in all market conditions. And that is exactly what I will continue to do in 2014. I will offer the best of service at the lowest possible cost and I will get the job done!

The trouble in my opinion isn't the supply of listings. Competition is the way capitalism works! Competition brings out the best in everyone.

BTW I just received an offer on the above mentioned listing.

I look forward to a challenging and successful 2014!

I obtained the statistics from reading from many different sources and from my own first hand experience. I believe the statistics to be true but I would invite all to verify the statistics on their own. I make no representation as to their accuracy .

Tuesday, November 5, 2013

How I can help buyers

I recently was asked if I would consider discounting my buyer commissions and I had to tell the person that I do not discount buyer commissions. Here is my reason why:

I have always considered people who list with me to be personally involved with me. They do their share of the work in the listing for this they are going to save a lot of money and they are generally grateful and we part always friends.

The listings don't pay the bills because the commission is so low, what pays the bills are the buyers I pick up as a broker/agent in Houston.

Buyers require a lot of attention. I feel if they want me to dedicate my time to their project, they should have seriously considered their desire to buy a home. They should have planned by saving some money and keeping their debts in check. In today's market financing is the make or break in any home purchase.

It can take months to find the right house for a buyer. If I am to dedicate my time and effort to them, I need to know if they have a pre-approval letter from their bank which tells them how much the bank would consider lending to them.

Buyers should not expect the agent on the basis of the what they say or think to be true will invest many hours of work and wasted time driving all over the place if they in fact do not qualify for a loan. Too many times I have learned the client really did not qualify for the loan they thought they did.

So all my clients must have a pre-approval letter.

Even with a pre-approval there are many things that can fall through on a loan. but it is fundamental to know everything you can before you waste precious time and money.

I need to know my customers so I can help them. Knowing a person's wants and needs often will require the agent to assist the client in coming to a realistic view of what the market consists of in the real world. Often people expect a real estate purchase to be just a repeat of their last real estate purchase, but the only thing constant in this world is change. You should never expect your buying experience to just be a repeat of your last one. You bought at a different time, in a different area and under different circumstance.

A lot of time can be wasted bringing a buyer up to date on the current Houston Real Estate Market and the neighborhood they are looking at in particular. Doing away with market misconceptions can waste a lot of time. Example: You can no longer find sleepers in the Heights. There are no foreclosures in Montrose. Low ball offers never win in a seller's market. If you met someone with these preconceptions, granted they would be back in the stone age, you would have to disabuse them of the idea. It takes time.

Even professionals are being burned in the foreclosure market since it has turned into an online auction and prices have soared above current profit projections because a lot of people have entered the flipping game. Prices are often too high to justify purchasing a rundown home and refurbishing it for sale.

If you want to play, you have to pay in this market.

So in a sense I also have to have a rapport with my buyer clients.  It helps if you are on the same page with someone because you may have to spend a long time showing this buyer what is the true market by which time as she learns, she may have moved on to another interest or worse missed valuable opportunities to buy a good home and wasted time in the process.

Everybody needs an education in Houston's fast paced, modern real estate market. I respect most of my buyers and they have always been an education to work with, but I do not accept every buyer even though I try because they may have preconceptions that are not realistic.

Finally, there is the question "What are the kinds of people who would expect you to work like that in their best interests while they take a couple thousands of dollars of commission money out of your pocket - and I say your pocket because the buyer does not pay any commissions. The seller is paying the commission so a buyer who wanted part of the 3% commission would truly be reaching into his agent's pocket.

Such Buyers seem to miss the point, If someone is treated fairly, they deserve good compensation.  It takes a lot of work to help buyers. Agents deserve their pay.

That said, I find there a good number of good buyer clients around who have enjoyed working with me. The characteristics of these buyers are that they appreciated the work I did for them and they also wanted to help me as well as themselves by providing me with my whole commission. They knew they could expect more from an experienced broker who was making a full commission than they could out of an agent just doing the job for less money.

As proof of their intelligence and good will in their transaction they were happy I was making full commission because I earned it. Period

Friday, September 13, 2013

Real Estate and Human Nature

Back in the 1970s there was a gentleman who wrote an investment newsletter that made a lot of people a lot of money for some time - until the writer of the news letter became so enamored with one of his ideas ( I believe investing in precious metals) that all his followers lost their shirts.

He was always preaching the idea that people behaved like Lemmings. First a word about Lemmings for those of you who do not know what a Lemming is -

It was once thought that Lemmings, a rodent usually found in the artic would drown themselves en mass when the population of Lemmings grew unsustainable. Films were made and papers published on the phenomenon, which at the time was misunderstood. We have since found that the mass migrations do occur when the Lemmings detect the population is getting unsustainable, and sometimes the Lemmings attempt to ford a body of water to get to the greener pastures but are not able to get across the water and drown. But we know now that they aren't drowning themselves just because the crowd decides to make a dash for the water though it appears as if they are.

Anyway the metaphor was a good one when used to describe how modern people purchase or don't purchase houses. People tend to follow the crowd. People don't like to go against the crowd. It makes them feel uneasy to go against the crowd. They will follow the crowd because they feel secure in doing what everyone else is doing. Then when the market psychology changes they all rush Lemming like into the sea selling for what ever they can get and often losing all their shirt. The stock market is a good place to observe Lemming like behavior but in recent decades real estate behaviors have mimicked every other investment category.

You can always tell when you are at market bottoms because pessimism is universal and nobody sees any reason to purchase. You can always tell market tops when everyone is screaming to get the government off their backs and everyone says they are doing very well thank you without any regulation like we are seeing now in the real estate industry and mortgage loan industry (even though the present boom in real estate owes everything to Quantitative Easing by the FED which has kept interest rates low and the flow of money going. - If you don't like government you should at least appreciate what it has done for real estate.) People will always prefer to attribute their success entirely to themselves.

The real estate market is still fresh in your mind hopefully and you will remember when everyone was saying real estate could never go down in price. - Remember 2006? And who can forget as recently as two yeas ago when real estate was 30% off the levels it was in 2007 when very few - outside of the hedge funds were interested in purchasing a home. I am talking about group behavior not the behavior of individuals like George Soros or Warren Buffet who always buy when prices are down.

My point here is it seems as though everyone has decided now is the time to buy a home. It also seems as though many people are holding off listing their homes in anticipation of further price increases. Just look at the supply of listings - less than 3.3 months supply in Houston last month. (A normal figure would be 6 months). Prices began a steep rise at the beginning of 2013 and haven't looked back.

Even shabby worn out homes are being purchased at ridiculously high prices by rehabbers anxious to cash in. - They are often only on the market a day or so until there are multiple offers driving the price up.

 In my opinion the market for real estate has a ways to go before the next crisis. It is nice to have lots of business again! It is also instructive to hear certain loud mouths making videos screaming about how the government isn't needed, how this upturn is going on forever. The more we hear from that type, you can bet your bottom dollar the closer we are to a fall because even if Lemmings don't commit mass suicide as was once thought, human nature NEVER changes!

Saturday, June 8, 2013

Break out your old Abba Records we're going back to 1980s

Interest rates are important to housing because they effect the amount of monthly payment people pay to purchase a home.

Most people aren't so interested in the price of the home. What they are interested in is the monthly payment. When the monthly payment is lower, they can purchase more home for their money. When the monthly payment is higher they have to purchase less home.

Recently in an attempt to make homes more affordable the FED has been artificially lowering interest rates (the cost of buying a home) by buying bonds driving the prices up and interest rates down.

To understand the current interest rate market we need to go back to the beginning of the bull market in bonds in 1980 when the prime rate in the United States hit an all time high of 21.5%. Inflation stood at somewhere around 15 - 18%. That summer the fed in a surprise move caused interest rates to dramatically fall. That was the beginning of the bull market in bonds because ever since then the prime rate has been on a downward slope.

The FED influences interest rates in what is called Open Market Operations.

There is an inverse relationship between a bond's yield and its price. That means if interest rates go down when the FED purchases bonds (and bonds appreciate in value) and if it wants interest rates to rise it will sell bonds (decreasing the value of bonds).

Here is how it works.

Assume a bond with a 10% coupon at its $1000 par value, the yield is 10%  which equals a $100 pay out (100/1000 = 10%). But if the interest rate on similar bonds declines to 9%, the price of the $1000 will rise because people will prefer a good bond yielding 10% over a good bond yielding 9%. In fact they will bid up the value of the 10% bond until the yield the current yield of new bonds which is 9%.

If Current yield = 9% and the payout of a previously issued bond worth $1000 is $100, the bond would have to appreciate $111 to make its $100 payout equal 9%.

The formula is: Annual Interest Payment ($100)/Clean price ($1111) = 9% In this case the bond would appreciate to $1111 (100/1111 = 9%)giving the bond owner a nice increase in value when she sells. A bond would then sell at a premium to par value.

The take away is that since 1980 interest rates have been declining and holders of bonds have been enjoying a bull market.

The downside is when interest rates begin to rise the inverse relationship also holds and bond owners lose money when they have to sell.

Assume a bond selling at par ($1000) and pays 5% ($50). Just for illustration assume interest rates rose to 10%. Now the 5% bonds would have to be discounted until the $50 payout = 10% .

$50 = 10% of X

The bond would have to be discounted to $500 for the $50 interest rate to equal 10% for a net loss of $500 since bonds at par sold for $1000.

The example is extreme but using round figures makes it easy to see the principal that when interest rates begin to rise, bond holders will have to sell their bonds for less should they need to sell before maturity.

When demand increases for bonds (i.e., when the FED purchases $40 billion in bonds a month as it has since December and before to a somewhat lesser extent) it bids the price of bonds up thus lowering the interest rates people get on their bonds. Since the interest rate people pay on mortgages is tied to the interest rate, people can purchase more home for the same amount of money when interest rates decline.

Fed open market purchases of bonds led to record low mortgage rates (as low as 3.18% before May of 2013).

Using round figures a $100000 home with a mortgage of 10% (unheard of in recent years, but for example) would cost the home owner $10,000 a year in interest, but if the mortgage interest rate declines to 5% the same house would become $5,000 a year cheaper to own allowing the homeowner to purchase more house for the same amount of money since the monthly payment would be lower.

The FED has been keeping interest rates low in order to assist the Real Estate market by making the purchase of a home more affordable.

Since the financial crisis, the private market for mortgages simply has not existed.  Only the government controlled Federal National Mortgage Association provides the backing for mortgages in this country.

May 2013 will mark the end of the bull market. In that month United States Treasuries lost an average of 6.8% with the loss in principal wiping out years of interest payments. ALL bonds are declining in value causing real interest rates to rise along with the decline.

So the 33 year bull market in bonds has ended because interest rates have now begun to rise despite all the government is doing to prevent it.

Annaly Capital Management a real estate investment trust that invests in mortgages fell 8.7% in the month of May and some mortgage exchange-traded funds lost in excess of 10% (www.nytimes.com/2013/6/8/business/bearish-times-for-bonds.html?hp

The indications for real estate aren't so good. Without inflation when interest rates are rising, it is entirely possible that price increases in home values will either stall or even decline to accommodate the increase cost of owning (higher interest rates).

So here we are. We have gone from boom to bust to recovery since 2006. What is next?

Thursday, April 18, 2013

The Perfect Time to List Your Home

Today many people are conflicted about listing their homes because prices are rising and they want to get the maximum out of their house.

The fear of selling too cheap has now replaced the fear of paying more than you would have to if you could buy at the bottom (like we had for the past 5 years).

Low ball offers have given way to price wars and multiple offers and I believe some pretty astronomical price rises in desirable areas to live.

Bankers and appraisers have changed the rules. I observe that we are once again granting appraisals for the amount of the loan even when there aren't comps to back it up.

I mentioned in a previous blog a house that was sold way above the market and I wondered if it would appraise. It did! Just a couple years ago I tried to sell a very nice, totally updated house and the appraiser refused to appraise the house at the level we listed it for and for which there were many buyers because the comps in the neighborhood did not support it.

So why is it a Perfect time to sell your home when no one knows how far prices will rise? Because I have learned in my life that market timers always miss their target. Nobody buys at the absolute bottom or sells at the absolute top.

If you are holding your home off the market because you want to time your sale to get the most out of your house, think twice. How long will this boom last? What if you miss your chance to sell your for a very acceptable price to you in a shorter period of time

Since the market is being supported by tens of billions of dollars in FED purchases of Real Estate loans keeping the interest rates on mortgages low, and bank regulations and qualifications appear to be slackening on mortgages - you should get a good price for your home. I cannot promise you that you will get every last dime, but you will get a good price and you will sell in a shorter time than 6 months. How long will the government continue to stimulate the market?

Inventories are down to 13 year lows. There is pent up demand from those who didn't buy at the bottom and are now trying to move into the perfect home.

It all adds up to be the perfect seller's market.