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Will you Survive the Coming Storm??

For over a year now my office has been preparing for the coming storm. Some of you are already beginning to see the rip currents but still havent' experienced the tsunami. DOOM GLOOM...Nope..not if you're prepared.

What is the storm? The sarcastic side of me raises my eyebrow that you'd believe the media for one moment that the worst is over! Oh, but you say..I'm already doing great this year. Yup you will. So what's ahead. Now I'm no lender, market analyst or any such learn-ed creature. I'll tell you what I've been told and see if you agree that we better get the lifeboats and jackets ready and make sure there are flares.

THE STORM

1. Rip currents- Jan 1 next year will be the first of the "baby boomers" retiring and beginning to draw their promised "pension" of SSI/Medicaid/Medicare, a system which is already bankrupt and borrowing money from us and our children.

2. THE BIG WAVE- The 5 Year ARMS adjust next year. If you think last year was rough, geez peeps, that was just the 2-3 year arms. A paltry amount considering the nearly triple amount of jumbos still to go through the adjustment and/or forclosures. Speaking of:

3. Shadow inventory- Let me explain. The banks got their lovely bailout funds, didn't lend them, forclosed on homes and have NOT released a goodly portion of them back on the markets. WHY NOT? you ask. Well that would further devalue our markets right? And in a time of economic struggle and joblessness the people have to believe they have something of value still. Besides let's get real. The banks are holding them cuz it pads their portfolios so more "investors" will invest in their company. Makes em look like Brad Pitt in Fight Club if ya know what I mean.

Doom Gloom Doom Gloom.....nope... a smaller nope, but nope.

So what do we have to do to weather the storm

1. Your lifeboat and My personal ARCH NEMESIS-Embrace Tech. Ugg. See I have a generic post without frills, just words on a page. I think the pics and fun fonts are for the magazines. I'm here to learn. And I'm not old. I just have priorities and my family comes before learning IDX feeds and hyperlinks. Can anyone explain Wolfnet..never mind. Get hyper social network crazy. Yep got that one down. But I will overcome and my Tech Lifeboat will be readied whether I like it or not.

2. Prepare your Flares-Your sellers. If they cannot sell at the market value now, what happens when they are competing with 7-10 million MORE REO properties to be released like a feature film, at a later date! Christmas Eve perhaps. Happy Ho Ho. Are they really going to want to compete with those and lose every bit of equity or bring countless dollars to closing. Heck they're doing that now, what do think will happen next year?

3. Get your emergency kit ready- Really fellow Realtors. Save your money. Gone are the days of getting a great close, going out and spending on vacation, shopping or that new toy. The new toy needs to be named "no debt", a paid for home, 6 months reserves in the bank or more. Save Save. We're done with the culture of spend. Our government is doing plenty of that 4 us! Heck they think they're at the KMART blue light special with our tax dollars and the Martha Stewart linens are flying off the shelves. RUN Blue Lighters! SAVE YOUR MONEY! Do what your grama did..get a piggy bank.

Attention Passengers..following these key steps could save your a... I mean career. Get ready folks. The next tsunami is coming. Will you ride the wave in your lifeboat or be stupid and do as you've always done and coasted along just like the daredevil surfer taking on the big one. Problem is..he always ends up dead. Will you be a Realtor in the next coming wave?

Posted by Holly Lynch on 03/12/2010 06:18 AM

Comments (30)

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30 Comments on Will you Survive the Coming Storm??

MAR

2010

Holly:

As with anything in our market, it is all very regional and I don't think we can put a large blanket over the entire nation and scream doom and gloom from the roof tops. In Northern Michigan, we have had a slight decline in our market but all in all, we have had a wonderful year so far and our office is busier that it has been in quite some time. I will choose to move forward through the remaidner of this year with the same optomistic outlook that I always have.

A timely post. Not very encouraging, but unfortunately probably true. Thanks for sharing.

Holly.....you are soooo right about how to survive.....no debt will do it....do not count on closings because there will be few.....two years ago, I sold my big house and now live mortgage free in a smaller home....no debt and ready to take the punches!!!

We all need to cut expenses drastically and DEMAND from these bankrupt, criminal politicians the same. They have spent us into oblivion, the abyss, with their freewheeling expense accounts, pet projects, bailing out the corrupt banks, and outrageous pensions they give to one another and on and on.

Each person needs to go and review all fixed expenses in their households, shop their insurance premiums, cable, cell phone bills, automobile payments, everything.....and reduce consumption dollars. We each need to balance our own budgets and then have government do the same. If they won't, vote them OUT.

Fiscal responsibility starts at home. Your point #3 could not ring more true!

Scott Miller, Realty Associates, Boca Raton, FL

I have to agree with Christine that real estate markets are local. While our market decined from 4Q 2008 until 3Q 2009 it did not decline for the same reasons markets have declined in other parts of the country. New York is not California, Florida or Las Vegas. We are 400 years old and we have never been a market for speculators.

Our market started picking up the last quarter of 2009. Buyers were out buying homes during the holidays. So far this year our market is on fire. We have low inventory, we're seeing bidding wars and 70 people or more are showing up at open houses. I'm optimistic. Our market survived 9/11 we can certainly survive 5 year arms adjusting.

MAR

2010

Definitely a wise post. Saving your pennies and getting out of debt is a smart thing.

As for the Medicare / Social Security, I know quite a few baby boomers that decided to simply retire at age 62 and get their money early instead of waiting until age 66. That just puts further strain on the system.

One thing I continue to wonder is that effect it will have on the market when this $8000 tax credit expires on April 30 ?

We have a long way to go before this recession is over.

Yes Holly, we do need to button down the hatches, have been doing so for quite a while.

Gosh, I appreciate your post. Hiding our heads in the sand isn't going to solve any problems. Our market here in Lexington hasn't had a hard time "yet". But, what happens everywhere the news crews show up has an effect on us and this market. There is something called, "Mass Conciousness" that can stomp us all. Controlling our own little world by going debt free and staying there will ease its impact on all of us.

You bet there's a storm coming.

What a GREAT Post, Holly. I find it refreshing to see a post that reflects how things are and where they are going in a realistic way other than how they wish they were. We get too much Kool-aid shoved at us about how to do what, to sell to whom, for how much, but truth being told, if and when the market tanks even more, homes are worth even less, buyers are qualified even less, banks work with you even less, and these government programs are just "smoke and mirrors" to get you to think they are doing something for you.

THEY ARE NOT and NEVER WILL!

Just like you said so well, we, as heads of our own households need to prepare for what allows our families to survive, regardless of whether we want to do what it takes or not. "Business as usual" (at least as it was at the top of the curve) is no more, and "Business as Usual" by todays standards, I want nothing to do with it. I have a Plan B that I'm working on that has eliminated much of the stress I used to have for my future. You (and everyone) need to take a look at what I'm doing.

You give some good advice, but I have two questions. The first one, I've asked about ten times and gotten no answer. Where is the idea of this 'shadow inventory' coming from? 'Everyone's' talking about it, but no one can provide any proof. Second, you imply that all five-year arms were taken out in one year. But no, 5-year arms were being taken out longer than five years ago - and have been re-setting already. I know, because I took one out on a rental property. It re-set earlier this year - and my payment dropped $175 per month.

Holly, you make very valid points in your post ~ and your points are ageless!! Advice like this isn't just for the situation we're in now, it was prudent in the 30's, 40's, 80's, too! Never will we be in a "perfect" era. But as you say, just steady your boat and get ready for "come what may..."

Holly and Christine and Mitchell are all correct as we being economic indicators need to forecast optimism with a dash of pessimism. Agents have a profound emotional effect on customers which motivates investment decisions. Some markets show a steady improvement but larger markets show potential disaster. Negative markets like Detroit, Manhattan, Miami, Phoenix are a drag on optimistic markets like Cleveland, Lafayette, Arlington, Austin. 2010 is better than 2008 with more markets showing signs of recovery. and growth. Unresolved economic questions loom and the question should be "Can up markets resist down market drag". Mortgage Loans can be originated my local banks and Credit Unions but mainly large banks like BOA and CHASE issue most mortgage notes. Large banks feel the balanced or unbalanced economic forces on their business books for the entire country not to mention the world. "Let us not forget how we got here" is my business plan and it permeates my entire property transfer process. Sincere thanks to Holly and Christine and Mitchell for taking a stand. But I appreciate the humorous soberism Holly's Blog emitted as it is inclusive of a general market tempera-mint.

by Carlos Villanueva

The shadow inventory is easy to determine for a local area. The number of foreclosures - the number of new REO listings.

Holly, great post as it touches on points relevant to many markets across the country (not all). In Southern California the "perfect storm" is staring us in the face and many agents won't see it coming.

For the last 18 months we have been in a market where the buyers outnumbered the houses available. As a result, we experienced multiple offers on every listing and prices (according to some data) actually increasing a little.

Here's some figures for Joetta. Bof A has 600,000 homes on which they have already foreclosed but haven't put on the market. 35% of those are in SoCal. They have another 1.2 million loans that are seriously delinquent (90 days or more). BofA is going to have to do something eventually, either modify, approve a short sale, or foreclose and take to market.

If they do either of the last two, the whole dynamic of our market will change. Listings will outnumber buyers, prices will decline further, and listing agents will have to become "master marketers" to get their properties seen and heard through all the noise.

In our bi-weekly "social media support group" we talk about no such thing as good or bad news. There's only news and how you react makes it good or bad.

I don't know if I "buy" the shadow inventory thing. I spent a couple of months in Orange County tracking the homes that were foreclosed after trying a short sale, and sure enough...they showed up either as REOs or sold at auction and then many of those showed up as flippers. So...not sure. We'll see.

Hi Holly! I enjoyed your post! and you have laid down some very valid points! Thanks for sharing!

I would have to agree with Christine, Mitchell, and Joetta. Too much gloom and doom and a lot of unsubstantiated fear. Five years ago when my lender tried to convince me to take out the money from my equity because I wanted a pool, I said "no". The pool was a "want" and not a "need" and I told them that half or more of that equity was going to vanish in the next 2 or 3 years. They looked at me as if I had been dropped on my head. Home values hadn't fallen nationwide since the great depression. So I passed on the pool but I am not upside down. I still like to remind my banker of that and the look they gave me at the time.

Yes there are problems and they will persist but we are largely past the worst. There is no tidal wave of properties about to be dumped on the market. I have been hearing it for the past 2 1/2 years, and it is always "next year." How about never? And I am in one of the worst hit states in the country. In many ways the market has over corrected we have gone from a bubble to a crater.

History and human nature are not so difficult and are better predictors. We don't go from extreme exuberance to normal, we over react in the opposite direction an become extremely cautious. Hence the crater that I see in my market. No one has suspended the laws of supply and demand. Excess supply brings down prices the same as a drop in demand. The opposite is also true. We behaved on a macro level in the 1920's much like we did between 1995 and 2006. And our industry is experiencing issues much like it did during the depression.

Gloom and Doom is no more helpful than Pollyanna and we have been at both points in the past 10 years. I like a line from Billy Joel...the good ole days weren't all that good, and tomorrow's not as bad as it seems."

Hi Holly,

From a personal standpoint, as a newer agent, I have to say I don't buy all the sturm und drang. I had 3.5 miserable years trying to get established in what everyone else was describing as the boom of the century. Yet in 2009 - during the "crisis" my income tripled from the previous years. Somehow, I started "sticking." It could be that the panic caused established agents to pull a lot of their marketing - allowing mine to stand out. It could be because my blogs started getting more readers and traction. It could also be that the print media that I use to support my blogs stood out because everyone else stopped doing it. I do see other agents foundering - and I certainly need more business than I'm getting - but I also see myself headed in the right direction.

Yes, there are serious issues in this market and parts of my market may have another leg down to go. But affordability is much better than it was - and I don't see that improving - so buyers should be off the fence. We are starting to see signs that employment is slowly picking in up in our area . Yes, the banks have behaved dispicably, but that is nothing new. The primary issue that I see impacting our market is the effect of rising interest rates. The tax credit may have pushed a few entry level buyers off the fence - but in our area with prices being what they are - it was a nice perk - not a decision maker. The shadow inventory is a question mark. I don't know how many homes will come on the market that are from the areas I cover. Westchester has had its pockets for foreclosures concentrated in a few areas - that may expand somewhat and I have listings where money will need to be brought to the table.

From the agent's standpoint - a moving market is what is needed. It doesn't necessarily have to be an appreciating market. Some areas will stagnate - other areas willl have activity as people who didn't want to move either have to or see it as a better financial move. It was the stand-off of late 2008-2009 that was so deadly for many.

Debt Debt Debt

Even here in Canada consumers have taken on too much debt (see Bank of Canada homepage) http://www.bank-banque-canada.ca/en/index.html .

An article I read on the above indicated that this is the first time in Canada that consumer debt has risen

significantly during a recession and that they would take corrective action to limit said debt levels .

I believe there is a sizable element out there who will become cannon fodder in the name of a managed economy if debt continue and interest rates go up .plus as mentioned above what happens when the baby boomers downsize and stop spending or at least stop buying real estate as investments and homes?

Unfortunately our governments best answer is more immagration and reliance on oil revenus .

Thanks for the figures Greg, but I'd still like to know where they come from. Sorry - I've just known too many people believe too many things that were complete fabrications, that got picked up and passed around by 'reliable sources, until 'everyone' believed them.

Regarding Shadow Inventory: I think that could mean many things, but for my own market (Atlanta), there are homes & homes & homes...sitting boarded up, vacant, foreclosed on over 24 months ago, have never been listed & allowed to fall into dis-repair. Those homes will come into to play eventually.

Figures, I don't need figures, I HAVE EYES! I can see hundreds of homes in this condition driving down Interstate 75 through the city of Atlanta.

It will get worse before it gets better. Long term I believe this country will come out of things better than ever.

Thank you Obama!!!!

South Carolina has had a lot of positive economic news lately; espcially down here in Charleston. It will take time, but the positive swing in the Lowcountry will spread to the rest of the state. Unfortunately, those ARMs are coming quick and will cause some problems.

MAR

2010

Interesting post, Holly.

Boulder City Steve

Wow, Holly, finally a REALISTIC REALTOR! I think many of us are seeing better days right now; however, I think it's just the calm before the storm. The shadow inventory is what has me battening down the hatches to get ready for the next wave!

PS. To see the Shadow Inventory that some of you do not believe in, just go on RealtyTrac and see all the REOs that you can't access for your interested clients.

I actually did a post on this on my real estate blog about this very thing. I hope people in this industry are aware that the next wave is coming and its far worse for foreclosures than the first wave. The beginning is actually in 2010 and its bad through 2012.

Like with everything, we'll all find a way to get through!

MAR

2010

On top of all of this is "the Magical Jobless Recovery " !!!!!!!!!!! Where are the new middle class jobs($14-$30 per hr. !!!)

Nice job Holly ... it does all sound like doom and gloom, but very true. About 5-6yrs ago, the 2/1 and 3/1 ARMs were the hot product. Now, those are almost gone (3yr is still here, but low demand), and the 5/1 has become the new standard in the ARM category. There will be a lot of those coming to a reset in next 2-3yrs and that will potentially hurt many people, as we all know rates are going up.

Shadow inventory? Sure, I believe it ... although I don't think it's being intentionally withheld. Banks were unprepared for the volume and it takes time to process them for resale, etc.

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Holly Lynch

Travelers Rest, SC

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