Monday, October 11, 2010

Oliver Stone missed a great opportunity

I saw Wall Street: Money Never Sleeps over the weekend, and while I admit to being confused about Oliver Stone's message (I found it garbled, disjointed, and at times, off point), the movie did hit a cord and caused me to pause and reflect.

On the very day Lehman Brothers filed for bankruptcy (September 2008) I listed a home in Magnolia. The news of this event hit my clients like a ton of bricks. You see Allen and Sunny both work in the financial industry and they knew what this meant. They understood that this humbling move marked the next chapter in a tumultuous year in which once-proud financial institutions were brought to their knees as a result of hundreds of billions of dollars in losses because of bad mortgage finance and real estate investments.
Allen and Sunny's home in Magnolia - SOLD 261 days on market Fall/Winter 2008
This wasn't my first conversation with a client about the housing "bubble*". In the Spring of 2008 Steve and Ashley hired me to sell their home. Steve worked in Mergers and Acquisitions and saw the writing on the wall. And while I, and every other agent, spent time gathering data to support the contrary, we couldn't change the inevitable.

* United States housing market correction is a market correction or "bubble bursting" of a United States housing bubble; the most recent began following a national home price peak first identified in July 2006. A housing bubble is characterized by rapid increases in the valuations of real property such as housing until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This in turn is followed by a market correction in which decreases in home prices can result in many owners holding negative equity, a mortgage debt higher than the value of the property. 

Steve and Ashley's home in Montlake - SOLD 43 days on market Spring 2008
Looking back, I realized it was a full year earlier that I had my first conversation about the housing market and how the bubble couldn't be sustained (and the impact the subprime market would have on the demise of the market as we know it). This was in the Summer of 2007. Natalie and Terry were relocating back to NYC and hired me to sell their home in Madrona. Terry was, and still is, a very smart financial analyst and understood all too well the subprime* market and the effect it would have on the housing market.

* The subprime mortgage crisis is an ongoing real estate crisis and financial crisis triggered by a dramatic rise in mortgage delinquencies, foreclosures, overheating of real estate and debt markets, with major adverse consequences for banks and financial markets around the globe. Approximately 80% of U.S. mortgages issued in recent years to subprime borrowers were adjustable-rate mortgages (as opposed to amortized loans). After U.S. house prices peaked in mid-2006 and began to reset at higher rates, mortgage delinquencies soared. Securities backed with subprime mortgages, widely held by financial firms, lost most of their value. The result has been a large decline in the capital of many banks and U.S. government sponsored enterprises, tightening credit around the world. 

Terry and Natalie's home in Madrona - SOLD 98 days on market Summer 2007
I remember each of these conversations with my clients like it was yesterday. I remember taking the Pollyanna approach, as I so often do, and reassuring my clients, "I will get it sold". I had done everything right - pricing, the photos, the sketch, staging, marketing, advertising; it had to sell - everything sold!

What I have realized, and watching Stone's movie caused me to think about, is a lot has changed since I was licensed in 2001.

For most of the last decade, Americans treated their homes as sources of ready cash and as brick-and-mortar retirement plans. Most homeowners were overleveraged at purchase with no down payment, no documentation and negative-amortized mortgages, and to add to it, homeowners mined equity with home-equity loans and lines of credit. I know I did! Merrill Lynch ran a very successful program to tap into home equity (they fell victim along with Lehman Brothers in September 2008 with a buyout from BofA).

As we stand here today, 23% of single-family homes with mortgages are "under water", with owners owing more on their homes than they are worth. And analysts expect that share to rise as the housing market bottoms out.

But good has come out of all this, as painful as it has been. Many Americans have had to accept that they will be living in their current place for a long while, even if they had planned to flip or trade up. And while this was not the plan, the good news is that home owners are putting more money into their home in the form of on-going home maintenance, quality upgrades, and thoughtful renovations. This benefits everyone - a well cared for home not only increases the value of the home, but the neighbors' as well.

I am seeing other good come out of this tumultuous market. This bust is giving plenty of first-time buyers, including police officers, nurses and teachers who were priced out of our city, their first chance in years to own a home in the city they work in.

As for myself and my colleagues, we are better agents. I believe in Herbert Spencer's concept, "survival of the fittest"....and markets like this prove just that. The agents who have been able to navigate this market are better informed.

Allen and Sunny, Steve and Ashley, Natalie and Terry are smart, savvy homeowners and knew how to price and when to sell. I am lucky to have them as clients.

What I have learned over the past three years is this...none of us make the market, we just provide the best advice possible for the market we are in. So now, in lieu of "staging" courses, I engage in conversations with financial analysts, bankers, lenders, and accountants. I analyze population, employment, absorption rate, land sale, appreciation, commercial activity and use, days on market, new construction, land prices and land sale, recreation profiling, price per square foot, city and county profiles, and what the market is buying.

So what's my advice....see a house as your home, not an investment. Move-in, unpack and lay down roots. If you have babies, let them share a room; if you need extra money, rent out the basement; if you get a big promotion and need a place to entertain, find a good restaurant. If circumstances do require you to move before your home becomes a good investment (usually 7-8 years for a home valued at $750,000) then weigh your options. Look at home-ownership as a long-term financial commitment, a sturdy shelter and a place to hang your hat!

Now you might find this odd advice for a real estate agent who makes money only when a property is bought or sold, but like I said, I have learned a lot in the past ten years! Until next week,

la chasse au bonheur!

In all my postings, my goal is to provide inspiration and insight into home ownership, real estate, and to provide valuable resources.

I am working on a new website that will provide links to these, and other sites so that you too can stay informed on our ever changing market. I will provide the URL in a future blog.

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