I've been Meme'd again

OK, I've been meme'd once again by Missy Caulk, my nearby neighbor in Ann Arbor, MI, over the weekend.    

If you don't know what a meme is, think of "tag, you're it".  Meme rhymes with dream.

The rules are that I am to share 8 things you might not know about me:

1..  Who is my favorite musical artist?

Of all time:  Pink Floyd.  Very influential in the development of my musical tastes, which run the gamut.  "The Wall" is my top album of all time.  I think I've worn the digital info off a couple of CDs of "The Wall".  An incredible tribute to one of the band's founders - Syd Barrett.

Recent:  Sum 41.  Their lyrics have always caught me, and coupled with the creativity of the musical accompaniment, I'm hooked.  Here's my choice from YouTube.

2.  Who is my favorite artist?

As a kid, MC Escher captivated me.  Here's one of my MANY favorite Escher works:

(Escher)

3.  Who is my favorite blogger?

With over 50 daily RSS feeds on my reader, how can I choose?  What I look for in an RSS feed is that the blogger resonates at my harmonic frequency on a regular basis.  There are at least a dozen who qualify by that definition.  The best way to choose?  Watch where I comment the most frequently.

4.  Who would I like to meet?

I know that I'll be meeting Jesus one day (let's not rush things there, my friend), as he has already gone ahead to prepare a room in his mansion for me.  Just think - real estate for eternity!

George Washington is such an enigmatic figure in our history.  I'd ask him about his surveying work across the Appalachians during the formation of the revolutionary ideas of the era.  When you think about it, this nation was blessed to have many, many brilliant and passionate people come together at one time, with one mind - independence.  We're coming up on the celebration of that independent spirit in about a month.  Be sure to say thanks to our founding fathers on July 4.

5.  What did I want to be when I grew up?

A race car driver.  It's still in my blood.  My driving motto:  I go fast when I can, and slow when I have to.

6.  What is the most important trivia that I know?

There are 272 words in Lincoln's Gettysburg address.  Having just read one (of many) biographies of Lincoln, I've learned how much influence he had on our nation, even today.  Being an attorney, he valued the importance of words, and chose them for maximum impact. 

Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.  

7.  If I could live in any point of history, when would I want to live, and why?

The post-depression era in Europe.  I'd like to find out how the evil of Hitler was perceived by those who let such evil continue unabated until WW II.  Then I'd bring that info forward into the present era to ask our political leaders "What is there about pure evil in this world that you either don't recognize, or won't do anything about?"

8.  My most interesting job?

As a teenager, I worked in the golf shop of a local country club.  I learned a lot about people - how they held themselves, how they interact with others, how they value money.  From that experience, I developed the love of "people watching".  I can go anywhere and be fascinated by watching people.  It's also where I honed my golf skills, which I still practice today.  Note, I said "practice".

As I value both my own time, and the time of others, I'm going to refrain from saying "tag, you're it!" to 8 other bloggers.  So, for now, this meme path ends with me.

Saline Market conditions for May 2008

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As you all know, I review our market statistics around the middle of each month.  What I'd like to focus on this month is the overall strength of the market in, and around, Saline.

The first chart I'd like to review is shown below. I've tracked real estate activity for the Saline real estate market since 1996. There is a definite seasonality to the market - strength in the summer, weakness in the winter. A reading above 25% is a "seller's" market, while a reading below 20% is a "buyer's" market.

It's no surprise to learn that we have been in a "buyer's" market in Saline since the end of 2004 - more than three years, now.

What we see here in the middle of May, 2008, is a continued strengthening in the overall real estate market, going back to last October.  The jump in strength from April to May is very encouraging, as we have reached a level unseen since the summer of 2005.  So, the question to ask is "What could be the cause of this?"

This second chart (above) shows 2 lines. The top line shows the number of homes available for sale (listings) in the Saline area. The lower line shows the number of homes sold each month.

In answer to my question posed above (What could be the cause of this?), the strengthening of the Saline market since October is a direct result of fewer homes listed for sale. Each month, there are fewer and fewer homes for sale in the Saline market.  How could this make the market stronger? Well, with fewer homes competing for the available buyers, it's more likely that any of the homes listed for sale will actually sell during the month. That's what we mean by a strengthening of the market!

Another interesting observation from the chart is that the number of sales in the Saline area has been rather consistent since 2005! In a previous post, we learned about the three "P's" that you control when you sell. The homes that are selling now, have been selling since 2005, are those that have consistency between the three "P's". Go back and check that post for a reminder.

The final piece of the analysis of the strength of the Saline real estate market is the months of supply of homes presently on the market.

This table shows the "raw data" that makes up the charts shown above. On the far right hand side of this table shows the "Months Supply" in each price range. Rather than focus on any particular price range, it's more helpful to understand the overall level of inventory of homes for sale.

As of mid-May, at the present pace of sales of homes in Saline, there are enough homes on the market to supply about 10 months of demand. This is down significantly since February, when there was nearly a 20 months' supply of homes for sale. In the past few years, it's been typical to have about 6 months' supply of homes for sale, so our market continues to improve toward our average.

If you're looking to sell in this market, take heart! Call me!

Auction your Saline real estate

The traditional method for selling your Saline real estate is to list it with a Broker.  By "traditional", I mean only that most sellers choose this method.  You ask your friends and relatives for the name(s) of reputable Realtors®.  You contact each of them, making note of the ease of reaching them, and your comfort level in speaking with them (after all, you'll be speaking with them a lot during the selling process).  You choose one and begin the listing process.

In today's market for Saline real estate, we have an 11-month supply of homes available for sale.  What that means is that it could take many months to get your home sold.  (Let me emphasize that it could take that long, depending upon your asking price).

But what if you can't wait that long to get your property sold?

There's always (gasp!) an AUCTION (HUGE GASP!)

Why would you choose an auction?

With a real estate auction, you have the likelihood of a certain date for the sale of your property.  I must emphasize that it's only a likelihood - which you'll understand more below.

There are two primary forms of auction.

•1.       An ABSOLUTE auction.  This is where the property sells, no matter the hammered price.  It is via an absolute auction that you get the most interest from the buying public, as they know that THEY could be the one to scoop up your property at THEIR price.

At an absolute auction, you also know the exact date that your property will likely sell.  (I say "likely", because until the buyer actually hands over the certified check to the auction house, it still isn't sold).

•2.       A RESERVE auction.  This is where the property sells, but only if the hammered price is above your minimum price.  At a reserve auction, you'll generally see fewer buyers than you will at an absolute auction.  Bidders at a reserve auction will not know your minimum price.  My guess is that a bidder's thought process will be something like this - "I'll bet they set a reserve because they ‘have' to get a certain price, so I won't bid as high, and hope only that I'm above the minimum."  Contrast this attitude with one from an absolute auction, where the bidders will continue to bid until they either win, or reach their maximum bid level.

At a reserve auction, if the reserve price isn't met, you still won't have a certain date that your property will sell.  You may have to list it for sale again with a Realtor®, or try another auction.  But understand, once an auction fails, the likelihood of a bidder increasing a bid amount is totally diminished.  This ties into one of my fundamental truisms of real estate - the first offer is USUALLY the best offer.

I have been the listing agent for sellers at auction in the past.  It is a gut-wrenching process to go through - not for those with a weak stomach.  It's not like eBay where you don't see the seller or the other participants.  Think about this.  You have to know with absolute certainty what price you will accept, and stick to it.  No wavering.

In one particular case, I recall watching a seller writhe in agony as the hammered bid amount was just slightly below the reserve price.  I advised the seller to accept the bid, even though it was below the reserve level.  While the seller deliberated, the buyer tapped his foot, waiting, and about two minutes later, walked away.   The seller lost the sale, and eventually lost their house to foreclosure.  Rather than accept a little less than they "wanted", they lost their entire equity and their ability to borrow for years to come.  All for a couple thousand dollars.  Ouch.

If you're wondering about an auction of your Saline real estate, ask an experienced Realtor® first. 

Beanstalks Play Cafe of Saline

I'm not much of a coffee drinker (Pepsi is my choice for COLD caffeine).  That said, many of my friends and clients (especially those with younger children) have lately spoken of a new spot for coffee (and more) in Saline.

 Beanstalks Play Café is located in the old Calico Cat building (which is a former church built in 1899) at 117 S. Ann Arbor St.  The building is located within the central business district in downtown Saline.  Beanstalks Play Café joins the growing trend of businesses geared toward family-oriented play and recreation.

The space has a giant play structure, toddler area, small gift shop, coffee bar and snack area on the main floor.  The lower floor has a video game room and space for birthday parties, and the top floor has an office.

Admission to the play cafe for a day is $6 for children ages 1 to 15.  A three-month pass is available for $55 for one child, $90 for two children and $125 for a family of three or more children. Adults and children under 1 are free.

The proprietor, April Scarlett, considered a franchise (like Jungle Java), but wanted the freedom to bring her own expertise to the center without corporate interference.  She previously owned a children's party-planning business for five years.

So when you're considering Saline Real Estate, (especially for the schools!), you'll know that there is a local place for your kids to work out some of their energy.  This is especially important in the era of $4 per gallon gas!

For more information on Beanstalks, call (734) 944-7979 or visit www.beanstalksofsaline.com.

The Importance of Pricing

In good times and bad, in buyer's markets or seller's markets, the number one influence on the sale of your Saline real estate is Price, Price, Price.  Oh, sure, the three most important issues to most buyers (and sellers) are Location, Location, and Location.  But unless you have a mobile home, there's not much you can do to move the location of your home.

Having lived in Saline since 1985, I've seen the changes in price of most Saline real estate over the years.  In fact, since 1996, I've kept records of the pace of sales activity in the Saline area.  It's what I call my Total Market Overview, or TMO for short.

Using the TMO, I can show you how, since 1996, we have moved from a moderate seller's market, to a strong seller's market, to a neutral market, to now - a strong buyer's market.  If you'd like to see the graphical TMO, I usually post it around the middle of each month.

Today's market conditions - a strong buyer's market - means the following:

There are many more homes for sale than there are buyers looking for a home.  In economic terms, we have too much supply chasing too few buyers.  Price has to come down until the extra supply is finally sold off.

So, getting the price of the house right is the number one influence on getting your Saline Real Estate sold today, and getting on with your life.

See also:

What $4 gas means to Saline Real Estate

Curb Appeal

It's the Big Sale!

I'm Tired of Stairs!

Just another quick article to let you know how I recently helped a client with their real estate needs.

Bob and Zoe had grown tired of climbing stairs in their 2-story home.  It was time for them to move to a home on a single level.

Geographic proximity to their children and grand-children defined the limits of our search for a ranch-style home or condo.  We screened dozens of choices to find a few developments which offered the various amenities important to Bob and Zoe, which meant that we had only to visit a few properties to find the right one.

And now, Bob and Zoe are enjoying their new home, all on one floor!

Meanwhile, they are able to lease out their former home, earning income for their future needs.

So, who do you know that is tired of climbing stairs?  Please pass this article along to them.

What are you waiting for?

What $4 gas means to Saline real estate

When the gas pump turns off automatically at $50 while filling your tank, you know that gas prices are REALLY high.  But, what does that mean for Saline Real Estate?

Most of the articles about the price of gas are based upon an implicit assumption:  that the price of gas is only temporarily as high as it is.  This is not the case.  Gas isn't going to get significantly cheaper than today.  As a matter of fact, it's a better bet that the price ten years from now will be much higher.  It's a matter of supply and demand.  Two billion people in China and India are joining the consumer society, and they want our standard of living.  There was a recent article in the AP headlined Gas guzzlers a hit in China, where car sales are booming.

But while sport utility vehicle sales in the U.S. are tumbling, automakers are finding that for China's newly prosperous car buyers, bigger is still better.  So General Motors Corp. has made the Escalade a star of its Chinese auto-show display, and is eager to get it on the market there.  "If you look at the fastest-growing market segments in China, there are two - SUVs and luxury cars," said Joseph Y.H. Liu, GM China's vice president for sales and marketing.

It isn't a matter of price gouging by the oil companies, or even by OPEC.  The real bottleneck is in refining capacity.  Oh, there's only a finite supply of oil and eventually it will all be gone.  But right now, the things limiting supply are how fast we can get it out of the ground, and how fast it can be refined to a usable form.  It doesn't matter how much water is in the lake if you need more supply faster than the pipes can carry it.

Suburban and rural real estate (like around Saline) grew on cheap gas.  Five years ago, gas was $1.40 per gallon.  A car that gets 20 mph can go 70 miles on $5 worth of $1.40 gas.  With gas in Saline now over $3.60 per gallon, things aren't nearly so rosy.  Instead of 70 miles, that $5 will only barely take you marathon distance (26.3 miles), and it's going to get worse.  At $5 per gallon, the consumer with a job in downtown Detroit who lives in Saline (40 miles) has gone from spending roughly $1400 per year on gas for their commute (five years ago) to $3600 per year on gas now, to possibly $5000 per year (when gas hits $5 per gallon).  That difference of $3600 is $300 per month right out of the family budget.  In most cases, two spouses are driving separately, which means that difference goes to $600 per month, or more than $7200 per year right out of their after tax income.  It's only a matter of time before already-stingy mortgage lenders figure out a way to account for a borrower's reduced ability to re-pay a mortgage.  When mortage-ability is an issue, you know that home prices will be negatively affected.

Saline isn't the furthest of Detroit's bedroom communities, by any means.  I know people who commute from Tecumseh to Southfield each day.  Many commutes are over 100 miles, plus all the people from even further afield (for instance, Saline to Lansing).  Despite greatly augmented gas mileage, hybrids aren't going to offset this increase and even if they were, people would be adding the cost of at least one new car in order to do so.  I don't know if you've looked recently, but hybrids aren't economy-car priced.

With this effectively raising the cost of living further from the job, one of two things will need to happen: Either the places where the jobs are will have to relocate to the suburbs (where their workers can afford to live), or people will have to start finding places to live closer to their jobs.  The older communities closer in have long been less attractive than new developments further out (like, in Saline), but raise the price of making that trip enough, and the macroeconomic reality will force people to start thinking more in terms of shortening the commute, even if it means they have to settle for a 1200 square foot house built in 1950 instead of a new 2600 square foot one way out in Saline.  People are willing to make sacrifices when it's mostly time out of their day, but when it's a continuing drain on the wallet that means little Billy can have an 8x8 bedroom and food, clothes, and a college fund, or a 15x12 bedroom and none of the others, you can expect more people to start choosing the former.

What this means is that suburban bedroom communities (like Saline) become less valuable, while older communities closer in to the job centers become more valuable.  For those who may not realize what I'm saying, the closer it is to places where people work, the more valuable it will become.  This factor has always been present, and the cost to commute has always been part of the cost of the property, no matter how many people pretended it wasn't.  It will become a more important component as time goes by and gas prices rise further.  The further people have to drive to work every day, the less a given area will be worth.  The people who work there won't have these costs, of course, but most of the skilled trades that get substantial paychecks have to work in the main job centers, and there aren't as many of those in Saline or Manchester as there are in the central areas of Detroit and Ann Arbor.  Corporate facilities are where they are, and if you can't afford to commute, you're either not going to work there or not going to live here.  

Buy or Rent that home?

Not everyone wants to be a real estate investor.  For that matter, not everyone wants to own a home of any kind. And that is okay.  Some people just don't want to be "tied down" or have to deal with a leaking water heater or have to take the chance on replacing a roof.  

But for those of you who are still wavering between buying and renting and are wondering how the current Saline Real Estate market plays into that decision and whether or not it is worth it and...

Let's just lay it all out there for you so you can make up your own mind.

Here is our scenario:  A house in Saline that costs about $150,000 will rent for about $1200 in most of the Saline area.  The house is a 3 bedroom, 1 and ½ bath brick ranch, in good condition, with (maybe) a 1 car garage.  Let's project that you will either rent there for 8 years or own there for 8 years.  That's about the average length of time a home owner stays put.  Renters will move more often, but will usually move into another rental house before finally buying a home. So those are the rules.

RENT

We'll start with the renter because the numbers are more simple.  Starting rent will be $1200/mo.  We'll raise the rents approximately 5% every other year.  Years 3-4 will be $1250/mo.  Years 5-6 will be $1310/mo and years 6-8 will be $1375/mo.  Sound reasonable?

At the end of the 8 years you will have paid to your landlord $123,240.  And the good news is you didn't have to shell out any other expenses for repair type items.

OWN

Taking the $150,000 house, we are going to say that you are going to get a 100% loan.  Don't think your'e alone!  If you have little or no money to put down, you can still purchase a home in Saline.  In fact, now is the perfect time to purchase a home.  Historically low purchase prices, coupled with low 30 year fixed rates, are just two reasons to purchase Saline Real Estate now.

FHA IS THE WAY.  There are many benefits that an FHA mortgage can provide to buyers.  The most significant benefit is enabling the seller to cover a 3.0% down payment and pay all closing costs.  There are no income restrictions.  Whether you are a first time buyer, or a seasoned buyer, this is the most flexible program available in the mortgage industry today.

Based on a purchase price of $150,000 with the seller paying costs and down payment with a loan amount of $147,268, Principal and Interest (P&I) is $882.95 based on a 30 year fixed rate of 6.0% + PMI (Private Mortgage Insurance, required on FHA loans) of $60.63 + $275.00 estimated taxes and insurance.  Your total monthly payment will be $1,218.58.

THE RESULTS

Over that same 8 year period you will pay PITI (Principal, Interest, Taxes and Insurance) of $116,984. 

That is $6256 less than if you rented.

Now we have additional factors we have to take into account.  Over that 8 year period you will have paid in interest alone $66,755.  Home mortgage interest is deductible on Schedule A of your Income Tax return.  If you are at the 28% tax bracket, you will have seen a tax savings of $18691 over those 8 years.

Now the difference is even more in OWN's favor, by $24,947 over the 8 years.

Another thing to think about is the reduction in the principal balance of your mortgage.  Over those 8 years, each month you paid your mortgage, some of that money (at first a very small amount) went towards reducing the amount of money you owe.  Over the 8 years, that amounts to $18,008.

The difference is now in OWN's favor by $42,955 over the 8 years.  Do I have your attention now?

Still one more factor to take into account:  Appreciation.  It seems that we always talk about appreciation of home values.  Lately, though, the talk is about lack of appreciation.  Here in Saline, we have seen a loss in value of about 25% in the past three years.

Historically, the Saline housing market has appreciated at 5% a year.  But for our purposes, we are going to use a yearly average appreciation of 3%.  8 years at 3% per year appreciation (on average) will make that $150,000 home sell for about $190,000.  That is a $40,000 gain.

Now OWN's favor is by $82,955.

It is fair to say that after 8 years there will be deferred maintenance that will have to be caught up.  So subtract from OWN $5000 for carpeting, $2,000 for appliances, $5,000 for painting and $5,000 for miscellaneous.

You are still left with an advantage to OWN by about $65,955.

There are, obviously, multiple variable and unknowns.  The market could continue to go south like some gloom-and-doomers would have you believe.  It wouldn't surprise me at all if we stay flat in 2008 and 2009.

There are those who would have us believe the stock market run-up of the '90's, and the real estate boom of the 2000's wouldn't end.  They did.  Now we are led to believe that the Saline Real Estate market will never rebound.  It will.  People will still need a home to live in.  Banks will still exist, with a business model to make money by loaning money (for home purchases).  You can count on that.

Another factor is lifestyle.  Perhaps you just don't want to own.  I understand that.  I've sold duplexes where the tenants have been there more than 10 years.  They liked where they lived, and didn't see any reason to do anything different.

The bottom line?  Talk with an experienced Realtor®.  They can guide you through the numbers of your specific situation, so you can make an informed decision.

Duplex? Do what?

One of the biggest decisions most people will ever make with their finances and their lifestyle is to buy (or sell) a home.  Getting the best bargain in the purchase, or making the most profit on the sale, give buyers and sellers so much to think about that many may never stop to consider keeping that old house - or buying another - as an income-generating property.  But the rewards, in savings, profits and problem-solving, can be high.

One option for buyers who otherwise might consider home prices beyond their reach is the property that pays for itself: a house you live in part of and rent out the rest (the simplest form is a duplex).  This offers not only an obvious balance of cost and income, but perhaps lesser-known benefits in taxes and mortgage.

The rental unit(s) can be depreciated over time; considered to offset the rental income, this can lower your taxes on that income.  At the same time, the addition of the rent to your finances helps you qualify for a larger mortgage, and investors who occupy their rental properties can, under certain conditions, get interest rates lower than those who do not.  Of course you'll want to decide if the demands of being a live-in landlord are for you.

One of my early clients as a Realtor® is a prime example of what you can accomplish with an income-generating property.

Rob was in his late 20s, had a great job in the area, and earned a nice income.  He could qualify for a mortgage for a "trophy" home, if he chose.  Instead, Rob followed a game plan which I would have loved to have followed at his age.

Rob bought his first duplex with me in my first year of business.  It needed some minor work (sweat equity) on the owner-occupied side, while the rental unit was nicely updated.  Rob fixed up his side in the two years he lived there.  On the two-year anniversary of the purchase of his duplex, Rob called to ask about the available duplexes on the market.  He bought his second duplex a month later.  He moved into the new duplex, taking the "worst" side for himself, and renting out both sides of his first duplex.

Over the next two years, Rob fixed up the unit he lived in, building more sweat equity.  As Rob and I were regularly in contact, I knew to send him the list of available duplexes at his purchase anniversary date.  Rob bought his third duplex almost four years after his first duplex.

Why always two years between purchases?  Tax purposes only.  Not being a tax-law expert, I'm not qualified to explain exactly why Rob always waited two years between purchases, except to say that he always explained it as being for "tax purposes".  Ok.

To make a long story short, Rob now owns five duplexes.  The first three are fully paid for.  The income from those three are used to pay down the fourth duplex.  By the time that Rob is in his mid-40's, he will have all five duplexes fully paid for.  He can retire, if he wishes, and live off the passive income for the rest of his life.  But knowing Rob, he'll keep building his empire.

Owning an income-generating property is not for everyone, but - from younger buyers offsetting their purchase costs, to seniors easing the expenses of their retirement years - it can be for all kinds of people.

Who know?  You could be the next "Rob" that I'll be writing about?

Junk Mail

With no fear of heights, I'm not worried about climbing up on a soapbox for a good rant.  Here goes:

I've written previously about the struggles of my aging parents.  If we're fortunate to have our parents around for much of our adult lives, it's something that we all have to go through.  Think of it as an educational opportunity to prepare for our own aging - should that actually occur.

One of the tasks which my parents have asked that I assist with is to go through their mail, which I've been doing for a couple of months now.  And what I have to rant about today stems from that mail-opening experience.

It is absolutely abominable what some so-called "marketers" will do to trick the gullible (in my parents' case, elderly)!  Using envelopes with borders similar to the IRS' official mail.  Using business names (in the return address area) which closely imitate an official government entity.  Using stationery which closely approximates what you would expect from a government entity.  These are all very common, and frequent, occurrences I've experienced in going through my parents' mail.  Much to the chagrin of the mail marketers (they didn't expect that some educated 40-something would actually read their material), I just chuck it all in the trash, cursing their businesses all the while.  So far, I haven't resorted to a common mail-marketer revenge tactic - to mail all their junk back to them in their postage-paid envelopes - but that's coming!

No, I didn't take photos of examples of these offending mail pieces - I didn't want to run afoul of the law.  No doubt, though, that those b*****ds know full well who they are!  And if you're in the "appropriate" demographic for their marketing efforts, you've seen their proffering already.  Again, I say, B*****DS!!!

No Realtor® worth their MLS would ever disdain the use of mail in their own marketing efforts.  It's one of the many effective marketing efforts that we use in our daily business.  But stoop to the level of those mail marketers who prey on the elderly and gullible with their shameless approach?  Never!

Let this be a lesson to all Realtors®.  Use the mails, but use them with respect for yourcustomer, your profession, and yourself.

OK, I'll step off the soapbox now.