Category Archives: Real Estate

Anecdotal Real Estate

Leave a reply

From local blogs and newspapers comes anecdotal evidence of real estate misery:

I was reading the Wall Street Journal article about all the ghost-developments around the country and I thought of the higher-end subdivision across the street from our humble abode.  Lots of the houses were finished early last year and people moved in, but suddenly construction halted on a bunch and cleared lots stayed that way.  Kind of depressing to see.

Comparative Real Estate

Leave a reply

Front page lead article in the Wed. April 16 San Diego Tribune had this headline: "Median Price Keeps Falling; Home value below $400,000 for first time since late 2003"

It shows how long I’ve been living in the Piedmont Triad that I find that number gulp-inducing. If I still lived in DC I probably wouldn’t be phased bt it, but since the median home prices in the Triad are probably closer to $200,000 the San Diego numbers kind of give me the willies. 

When I get home from California I’m going to look up the median for Northern Virginia to see what’s happened to the values since we moved in ’04.  Probably still high but below their peak a couple of years ago.

Sent from my Verizon Wireless BlackBerry

Self-Help Founder’s View on the Subprime Mess

1 Reply

Patrick Eakes, a blogger in Greensboro whom I greatly respect, points to an interview with Martin Eakes, co-founder of Self-Help, in which he discusses the subprime mortgage conflagration.  It’s a Q&A that offers the clearest reasoning I’ve yet read about why some subprime borrowers truly are victims:

Q. Why should anybody, other than those who got the loans, care about subprime lending?

A.
The real damage from a foreclosure is not just to a family that loses
its home, but also to a neighborhood where the family is located.
Nobody wants to live near a boarded-up vacant house. … You have this
spillover effect from foreclosures. That spillover effect is really
quite deadly and causes a spiral that we have to concerned about.

Q. What about personal responsibility? Don’t those who took subprime loans bear some burden?

A.
The mortgage loan process is so complicated today. There is not a
person in America who can honestly say they read every legal form at a
home loan closing. Every borrower, if they’re honest, will tell you
they had to trust some adviser, whether an attorney, broker or lender
to guide them through the mortgage process. … They trusted the wrong
person and got a loan unsuitable for any human being that breathes.

I’m
in no way defending borrowers who lie or cheat or engage in fraud. …
But it really makes me angry when I see people blame the victim. That’s
just not the truth of what’s going on.

Oh, and one more thing: he thinks that the worst is yet to come in the subprime market.

FYI, here’s some info about Self-Help from their website:

Our Mission

Creating and protecting ownership and economic opportunity for
people of color, women, rural residents and low-wealth families and
communities.

The nonprofit Center for Community Self-Help
and its financing affiliates Self-Help Credit Union and Self-Help
Ventures Fund provide financing, technical support and advocacy for
those left out of the economic mainstream. Since its founding in 1980,
Self-Help has reached out to female, rural and minority borrowers
across North Carolina, in Washington, D.C., California, and many other
states.

  • We help borrowers nationwide to build wealth through ownership of a home or business.
  • We strengthen underserved communities by financing nonprofits,
    childcare centers, community health facilities, public charter schools
    and residential and commercial real estate projects.
  • We operate a secondary market program that enables private lenders to make more loans in low-wealth communities.

Over time we have learned, and demonstrated, that low-income
borrowers pose no greater credit risk than others. Our borrowers have
proven their determination to repay their loans, build their
businesses, improve their communities, and build wealth through home
equity.

 

Something’s Gotta Give

Leave a reply

Last night we rolled back into town after spending a week at the beach in Corolla, North Carolina.  Corolla is part of the northernmost developed stretch of the Outer Banks (OBX) and is very popular with folks from Washington, DC and points north.  Most of this area has been developed only in the last 20 years and judging from the traffic on Rt. 12 it doesn’t look like the area can handle much more, but that may not be an issue at least for the short term.

Now that the real estate market in the US is cooling down it will be interesting to see what happens to places like Corolla because I can’t imagine that the current situation can be sustained for much longer.  We saw one 1/2 acre empty beachfront lot next to the beach access we were using that was selling for over $2 million.  That’s just for land.  Across the street from that lot was another that was selling for $800,000.  The houses in that area are built so that multiple families can share the space which means they usually have enough sleeping capacity for 30 people and you aren’t going to build a house that size for much less than $500,000. If you’re spending $1 million for land and another $500,000 or more to build a house then you’re looking at $1.5 million minimum to get into that market.  We (our friends and ourselves) were speculating that over the last 10 years people in the northeast have been leveraging the skyrocketing value of their primary residences in places like the DC metro area to finance their beachside McMansions in OBX.  With those markets now hitting the skids there will probably be a corresponding slow down in places like OBX.

As I’ve written before I’m no economist, thus it’s dangerous for me to write about things like this, but I just can’t see how the current situation in OBX can be sustained.  I guess I’ll just have to sit back and wait for folks like my brother and David Boyd to come embarass me with obvious arguments for how it can.

Ironic Realtors

Leave a reply

This morning Ed Cone posted about a site hosted by the North Carolina Association of Realtors that is dedicated to defeating a proposed tax on home sellers’ equity. Ed got a comment on that post he considered golden enough to justify it’s own post.   Hopefully Ed won’t mind if I share it here:

"It’s appalling to think that somebody can require payment of a fixed
percentage of the price just because you are able to sell your home.
Fixed, non-negotiable percentage skim-offs are no doubt a huge drag on
the marketability of real estate. ®ealtors are so right to lead the
struggle against fixed, non-negotiable and onerous percentage charges
to home sellers!"

As I’ve written about before, I’m not a big fan of the realtor business as it’s currently structured (note I didn’t say realtors themselves).  Want some interesting reading?  Check out this recommendation on the DOJ site dated Nov. 2005.  Here’s the introductory paragraphs:

1.1 million real estate agents in America(1)
average only six home sales
per year.(2)
  Each works about forty hours per sale,(3)
which amounts
to 12% of the work year,(4)
or five hours per week.  Most of the
balance of hours is devoted to getting new business.(5)
  Brokers
receive a median $52,800 income yearly.(6)

The average couple selling the average home will need to work five
weeks each — ten weeks total — to pay the commission of the agent
who will work only one week on that transaction.(7)

Oh, and for the record I’m against the proposed tax.  I already pay property tax every year, and I don’t see why I should pay a tax if I happen to realize a gain on the sale.  Also, if I have a house I buy for $200,000 and during the time I own it I put in $40,000 to improve it and then turn around and sell it for $230,000 because that’s all the market will bear and then pay a 1% tax on my "gain" I don’t think that’s quite fair.  I’ll have to check on this but I don’t think I get a tax break on improvements I make to my property over the years, which means I’d really be getting hosed on the deal.

* *Update** Got an email from my mom who points out that when you sell your house you can deduct the improvements you’ve made from any gain you have in the house.  That’s a good point.  Also, upon further reading (see this article) it looks like the proposed tax would be up to 1% on the value (i.e. sales price) of the house, regardless of gain or loss.  That’s a royal hose job if you ask me, because you’ve been paying property taxes all along so to pay an "exit fee" when you sell your house seems like a nice case of double taxation. 
 

So I agree with the realtors but I have to say that their position is somewhat ironic.

Chinese Eminent Domain

Leave a reply

Chinesemoat I used to think that the annexation rules we have here in North Carolina were crazy, but now that I’ve seen this story about what developers are doing to a guy in China who’s refused to sell to them I’m thinking we have it pretty good. They literally dug a huge moat around the guy’s house and he won’t budge on his rather high price.  I hope he has a tall ladder.

DC Real Estate Going Kaboom?

2 Replies

P1010212
When Celeste and I sold our last house in Northern Virginia (that’s it on the left) in July, 2004 and relocated to North Carolina a big part of our thinking was that the real estate in NoVA had to be peaking and we knew that the market in Winston-Salem was hitting a near low.  While this wasn’t the only factor we considered in the move it definitely prodded us to move quickly.

Well, the NoVA market continued to skyrocket after we left but I think we got out close enough to the peak and close enough to Winston-Salem’s bottoming out that we can have no complaints.  Now I’m starting to see items like this about the DC market and I worry for anyone who bought at the peak, made themselves "house poor" and used adjustable rate financing. 

I don’t think we have any friends or family who are in that boat, but if they are I hope they’re able to get out of it relatively unscathed.  And for anyone who’s looking for real estate as an investment I’d say they should hold on another year or two and then start buying up all the foreclosed or panic sale properties in Fairfax, Prince William, Loudon and Stafford counties.  Forget Arlington and Alexandria; due to their location and infrastructure they typically don’t get hurt as much in downturns as do the outer counties.

BTW, my personal barometer of how out of whack the NoVA market became is this: we bought our first single family home in ’96 for about $137,990 and sold it in ’01 for $185,000.  The people that bought it from us in ’01 sold it this year for $405,000.  That’s $405,000 for three bedrooms, two baths,  1,750 square feet of finished living space if you include the finished part of the basement, and a location 30 miles from DC along the I-95 corridor which happens to have some of the worst traffic you’ll ever find.  That’s just nuts.

Of course my hat’s off to the folks that bought the house from us.  Nothing like a 120% gain in a little under five years. 

Winston-Salem Government’s Use of Eminent Domain is Stupid and Immoral

2 Replies

Winston-Salem, NC wants to seize some property for redevelopment using eminent domain despite the fact that they have not exhausted their other options.  You can read the entire story here in the Winston-Salem Journal, but here are the highlights:

  • The city is trying to redevelop a strip of land on Liberty Street between the Smith Reynolds airport and downtown. They’ve set aside $500,000 to acquire all the lots.
  • One landowner, Charles Baldwin, has a competing offer for the land from Firetree Ltd., a company that wants to build a halfway house there.
  • The city is offering $145,000 for the land and Firetree is offering $172,500.  The property is appraised by the city at $172,000, which means they are taxing Mr. Baldwin based on that number but offering to buy it for $27,000 less.  The city claims that the difference is because of environmental issues with the property, but since the city acknowledges those issues exist doesn’t that mean their tax assessment should reflect the lower value?  That’s the immoral part of this whole thing.
  • The city is suing to seize the property using eminent domain, but one component of eminent domain law is that the landowner be compensated fairly.  In what universe does an offer that is more than 15% less than an existing offer OR assessed valued by the city constitute fair compensation?  And what genius figured that suing would cost the city less than $28,000 which is really all they’d have to offer to get the land?  That’s the stupid part of this whole deal.

I truly hope that the city gets slapped around on this deal.  Whether or not you support eminent domain in concept I think any reasonable person would find it unconscionable that the city would tax a landowner at a higher assessed value than they are willing to pay for the land themselves.  Simply put that is total bull excrement.

Real Estate Business is A-Changin’

Leave a reply

Over the last five or so years Celeste and I have been fortunate to be able to sell the houses we were moving out of ourselves and save lots of money in the process.  I suspect that many of our friends and family members thought that we were slightly loony for any/all of the following reasons:

  1. Selling a house is a pain in the butt.  Why would you do that yourself?
  2. Selling a house is risky and why wouldn’t you engage the services of a professional?
  3. You need the marketing muscle of a real estate agent and a listing on the MLS in particular to sell your house.

On point number one I agree that it is a pain in the butt to sell a house, BUT if someone told you you could save anywhere from $10,000 to $20,000 by doing it yourself wouldn’t you think it was worth the effort?

As for point number two you can use a professional to protect yourself and it doesn’t have to cost you a commission.  The professional is a lawyer and you can get one to write or review a contract for you and it shouldn’t cost you much more than $1,000 which is significantly less than the commissions you pay a realtor.

Point number three was a lot more valid 10 years ago, but now with the internet and the burgeoning “For Sale By Owner” community you don’t really need to hire an agent to get the word out that you’re selling.  Add to that the regulatory trouble that the real estate brokers are getting (see this Freakonomics piece for details about the actions against the real estate “cartel”) and what you have is a disappearing advantage for realtors.  And to be honest I think most homeowners can be as effective marketing their homes as the agents they end up overpaying to do it for them.

As I’ve written before, I think realtors can and do provide a valuable service but their real advantage in the future is going to be helping buyers, not sellers and they should be prepared to start charging fixed-fees because the days of 3-6% commissions are fast disappearing.

The Mass-Affluent

Leave a reply

I learned alot from a three-paragraph blog post on BusinessWeek’s Hot Property blog.  For instance:

  • The Mass-Affluent: 33 million households that have investable assets between $100,000 and $1 million
  • The Mass-Affluent’s assets: 37% of their total assets tied up in real estate (23% in principal residences, 14% in investment real estate)
  • The wealthier’s assets: 21% (13% principal residence, 8% investment real estate) for those with investable assets of $1 million or more

And then there’s this scary quote:

No doubt, some of those mass affluent are the ones who were sold the
interest-only mortgages. That’s why their financial squeeze is only
just beginning as interest rates rise.