Can't Decide About that Shiny New Condo?
Take it for a Test Drive
In a trend noted in The Wall Street Journal a few weeks ago, some creative Sellers and their realtors are resorting to "sleepovers" to entice fence-sitting Buyers. The idea is that once they really to get know the property, they'll be so impressed by the view/ambience/amenities, they'll step up with an offer. See, "More Home Buyers Seek Sleepover 'Test Drive'" (The Wall Street Journal; July 15, 2008).
Now, that idea is being tried locally by at least one property: a new condo tower on the southeast corner of downtown Minneapolis.
The strategy would seem to work best when the building in question has some hidden or easily overlooked feature -- like a spectacular view -- that one can only really appreciate by living there (however briefly).
However, "Test Drives" would also seem to have the potential to backfire: there's no better way to find out about a building's warts than sharing an elevator ride with disgruntled current owners.
Will it catch on? Maybe, but probably only until the market improves, at which point prospective Buyers can expect a lot less coddling (not to mention fewer price reductions, Seller-paid points, etc.). One would also expect "test drives" to be limited to vacant properties, either because the owner has already moved out, or, never moved in (new construction).
In the meantime, don't expect a free weekend's lodging in a swanky new building under the guise of doing a "test drive": owners are carefully qualifying prospects, and often requiring a hefty security deposit.
P.S.: the pendulum sure has swung the opposite direction from the days of multiple offers: back then, Buyers had hours (or less) after first viewing a home to make up their minds! Let's hear it for a happy medium . . .
Thursday, July 31, 2008
Sunday, July 27, 2008
"Context, Context, Context"
Top Three Home-Buying Tips Now
Mark Twain famously said that the reason land was such a good investment is that "they're not making any more of it." In the Midwest, that's never really been true: there's always another cornfield, just beyond the last one, that can be leveled and developed.
Even before gas prices exploded, that's one reason why the exurbs were dubious, long-term investments.
That leads directly to home-buying Rule #1: Look for Scarcity -- ideally, the natural kind. In the U.S., places like Manhattan and SF are destined to always be expensive because land there truly is finite.
The next best kind of scarcity is the man-made, legal kind. Boulder, Colorado and Lake Tahoe sport sky-high real estate prices not just because of their gorgeous settings, but because the local citizenry long ago enacted strict limits on development. Voila! Artificial Scarcity. People may argue whether such policies are elitist, anti-growth, etc., but there's no denying how expensive housing is in these places.
So how do you make scarcity work for you in the Twin Cities? Start with the Chain of Lakes and the surrounding urban park system -- clearly the crown jewel of the Twin Cities' metro area.
The many neighborhoods adjacent to the City Lakes -- Linden Hills, Kenwood, Lowry Hill, East Isles, Nokomis, Sunset Gables -- have proven to be especially strong, long-term performers. Ditto for homes along or near Lake Minnetonka, the Mississippi River, the St. Croix, and White Bear Lake.
Less than 15 miles from Downtown Minneapolis, Lake Minnetonka forms a natural barrier that serves to limit growth to the West: it's an awfully big jump from Deephaven, Wayzata, and (the city of) Minnetonka on the east side of the Lake, to Mound and Minnetrista on the west. That bodes well for the former group's long-term prospects.
Context > Location
Rule #2: Context, Context, Context. There's no bigger cliche in real estate than "location, location, location." But that's not exactly true anymore. In a housing market filled with hidden land mines, still-growing foreclosures, and financial uncertainty, it would be more accurate to say "context, context, context."
In just the last month, the local Board of Realtors added a field to the MLS database for foreclosures. Make sure your agent uses it. There are plenty of reasons to buy a home in a neighborhood with foreclosures -- starting with price -- but at the very least you'll want to dig further.
How many foreclosures are there? Are they "stealth" foreclosures (well-maintained, inconspicuous, etc.) or obvious eye sores? Have the foreclosures that have sold been cleaned up and inhabited, or left to deteriorate?
Of course, "context" has positive connotations, too. Proximity to things like infrastructure (light-rail, the airport); jobs (Downtown, the University); good schools; and culture and entertainment (restaurants, the new Walker and Twins Stadium) underpin high values in many neighborhoods.
Rule #3: Buy Quality. Automakers like Toyota and Honda have learned to justify premium prices by emphasizing the "total cost of ownership." That includes not just the cost (and inconvenience) of repairs, but the likely resale value several years later.
If that approach makes sense for buying a car -- an asset with perhaps a 10 year life -- how much more relevant is it for a house, which (hopefully) has a lifespan measured in decades (if not longer)?
Floating . . . Homes?
So how can you tell if a home is well-built? Just like car buffs talk about "fit and finish," contractors and inspectors talk about a home's "pedigree." They'll look for high-end construction materials (brick and stucco exteriors; quality millwork, etc.); evidence of skilled craftsmanship (plumb lines); and features such as crown moldings and built-in's that show attention to detail and quality.
Obviously, construction materials and techniques have evolved with the passage of time. So just because a home's walls are made out of sheetrock instead of lath-and-plaster doesn't mean a home is poorly built (to pick an offsetting example, modern windows -- double pane, low E, argon-filled -- represent a huge advance over old-timers). However, well-built homes, like Tolstoy's "happy families," just seem to have a common feel to them, regardless of the era.
There's a saying in the stock market that "a high tide raises all ships." That's also true with respect to homes. However, I'd suggest an important corollary: "only if they're floating."
Mark Twain famously said that the reason land was such a good investment is that "they're not making any more of it." In the Midwest, that's never really been true: there's always another cornfield, just beyond the last one, that can be leveled and developed.
Even before gas prices exploded, that's one reason why the exurbs were dubious, long-term investments.
That leads directly to home-buying Rule #1: Look for Scarcity -- ideally, the natural kind. In the U.S., places like Manhattan and SF are destined to always be expensive because land there truly is finite.
The next best kind of scarcity is the man-made, legal kind. Boulder, Colorado and Lake Tahoe sport sky-high real estate prices not just because of their gorgeous settings, but because the local citizenry long ago enacted strict limits on development. Voila! Artificial Scarcity. People may argue whether such policies are elitist, anti-growth, etc., but there's no denying how expensive housing is in these places.
So how do you make scarcity work for you in the Twin Cities? Start with the Chain of Lakes and the surrounding urban park system -- clearly the crown jewel of the Twin Cities' metro area.
The many neighborhoods adjacent to the City Lakes -- Linden Hills, Kenwood, Lowry Hill, East Isles, Nokomis, Sunset Gables -- have proven to be especially strong, long-term performers. Ditto for homes along or near Lake Minnetonka, the Mississippi River, the St. Croix, and White Bear Lake.
Less than 15 miles from Downtown Minneapolis, Lake Minnetonka forms a natural barrier that serves to limit growth to the West: it's an awfully big jump from Deephaven, Wayzata, and (the city of) Minnetonka on the east side of the Lake, to Mound and Minnetrista on the west. That bodes well for the former group's long-term prospects.
Context > Location
Rule #2: Context, Context, Context. There's no bigger cliche in real estate than "location, location, location." But that's not exactly true anymore. In a housing market filled with hidden land mines, still-growing foreclosures, and financial uncertainty, it would be more accurate to say "context, context, context."
In just the last month, the local Board of Realtors added a field to the MLS database for foreclosures. Make sure your agent uses it. There are plenty of reasons to buy a home in a neighborhood with foreclosures -- starting with price -- but at the very least you'll want to dig further.
How many foreclosures are there? Are they "stealth" foreclosures (well-maintained, inconspicuous, etc.) or obvious eye sores? Have the foreclosures that have sold been cleaned up and inhabited, or left to deteriorate?
Of course, "context" has positive connotations, too. Proximity to things like infrastructure (light-rail, the airport); jobs (Downtown, the University); good schools; and culture and entertainment (restaurants, the new Walker and Twins Stadium) underpin high values in many neighborhoods.
Rule #3: Buy Quality. Automakers like Toyota and Honda have learned to justify premium prices by emphasizing the "total cost of ownership." That includes not just the cost (and inconvenience) of repairs, but the likely resale value several years later.
If that approach makes sense for buying a car -- an asset with perhaps a 10 year life -- how much more relevant is it for a house, which (hopefully) has a lifespan measured in decades (if not longer)?
Floating . . . Homes?
So how can you tell if a home is well-built? Just like car buffs talk about "fit and finish," contractors and inspectors talk about a home's "pedigree." They'll look for high-end construction materials (brick and stucco exteriors; quality millwork, etc.); evidence of skilled craftsmanship (plumb lines); and features such as crown moldings and built-in's that show attention to detail and quality.
Obviously, construction materials and techniques have evolved with the passage of time. So just because a home's walls are made out of sheetrock instead of lath-and-plaster doesn't mean a home is poorly built (to pick an offsetting example, modern windows -- double pane, low E, argon-filled -- represent a huge advance over old-timers). However, well-built homes, like Tolstoy's "happy families," just seem to have a common feel to them, regardless of the era.
There's a saying in the stock market that "a high tide raises all ships." That's also true with respect to homes. However, I'd suggest an important corollary: "only if they're floating."
Saturday, July 26, 2008
Too Good To Be True
4,000 FSF by Cedar Lake for $380k? Not So Fast
Even if the house were a fixer or in foreclosure, the price would be attention-getting. However, according to the listing agent's remarks on MLS, the "home shows beautifully . . . nooks, crannies, wdwk, charm, fully updated decor & mechanicals. Dreamy cottage exterior welcomes you home to spacious floor plan."
With clients interested in the neighborhood, I raced over to take a look. The catch? I'd estimate the FSF at closer to 2,100 FSF -- little more than half what the agent claimed.
So what's going on? Without knowing the agent, it's hard to tell. It could be an honest mistake by a newbie realtor. Or, it's always possible that the agent, eager to generate traffic, knowingly told a whopper.
If that's the case, they're almost certainly doing their client a disservice, for two reasons.
First, homes have the best chance of selling when they pack lots of (positive) surprises, exceeding Buyers' expectations. Conversely, homes that overpromise invariably leave prospective Buyers feeling disappointed (if not misled), and eager to move on.
Second, Buyers are naturally reluctant to buy homes from Sellers they don't trust. Grossly exaggerating the square footage creates an equally big credibility problem. Square feet* is easy to verify, but what about less obvious home features? Is the basement really dry? The roof leaky? The foundation intact?
Minnesota law requires Sellers (and their realtors) to disclose what they know about their home. And every scrupulous Buyer will likely do their own inspection. But the truth is, no one knows a home better than the Seller living in it. Unfortunately, if they withhold something crucial, the Buyer may not know until after they own it.
In a Buyer's market with lots of inventory, most sensible shoppers will simply move on rather than take that chance.
*Can a Seller who overstates their home's square footage be sued? Probably not. The reason is that the Buyer would have to prove not just the misrepresentation, but that they relied on it. That argument becomes increasingly tenuous once the Buyer has viewed the home several times, then spent several more hours inspecting it. However, if you find yourself in this situation . . . talk to a practicing attorney (I'm not anymore).
Even if the house were a fixer or in foreclosure, the price would be attention-getting. However, according to the listing agent's remarks on MLS, the "home shows beautifully . . . nooks, crannies, wdwk, charm, fully updated decor & mechanicals. Dreamy cottage exterior welcomes you home to spacious floor plan."
With clients interested in the neighborhood, I raced over to take a look. The catch? I'd estimate the FSF at closer to 2,100 FSF -- little more than half what the agent claimed.
So what's going on? Without knowing the agent, it's hard to tell. It could be an honest mistake by a newbie realtor. Or, it's always possible that the agent, eager to generate traffic, knowingly told a whopper.
If that's the case, they're almost certainly doing their client a disservice, for two reasons.
First, homes have the best chance of selling when they pack lots of (positive) surprises, exceeding Buyers' expectations. Conversely, homes that overpromise invariably leave prospective Buyers feeling disappointed (if not misled), and eager to move on.
Second, Buyers are naturally reluctant to buy homes from Sellers they don't trust. Grossly exaggerating the square footage creates an equally big credibility problem. Square feet* is easy to verify, but what about less obvious home features? Is the basement really dry? The roof leaky? The foundation intact?
Minnesota law requires Sellers (and their realtors) to disclose what they know about their home. And every scrupulous Buyer will likely do their own inspection. But the truth is, no one knows a home better than the Seller living in it. Unfortunately, if they withhold something crucial, the Buyer may not know until after they own it.
In a Buyer's market with lots of inventory, most sensible shoppers will simply move on rather than take that chance.
*Can a Seller who overstates their home's square footage be sued? Probably not. The reason is that the Buyer would have to prove not just the misrepresentation, but that they relied on it. That argument becomes increasingly tenuous once the Buyer has viewed the home several times, then spent several more hours inspecting it. However, if you find yourself in this situation . . . talk to a practicing attorney (I'm not anymore).
Friday, July 25, 2008
Feedback Loops
The Housing Market - Wall Street
"Two-Step"
The dynamic now playing out between the housing market and Wall Street reminds me of one of those classic, Muhammad Ali-Joe Frazier title fights.
For those too young to remember, the fights were the ultimate, knock-down, drag-out affairs. By the late rounds, the two combatants, barely able to stand (let alone defend themselves), simply took turns pummelling each other with what little energy they had left.
Substitute "the credit markets" and "residential housing," and you have a pretty good idea of what's been happening to real estate in many markets nationally.
As discussed in my July 8 post ("Vicious Cycle"), falling home prices drive down the value of mortgages -- plus all the various side bets on mortgages. That impairs credit-creation via Wall Street and the banking system, which makes mortgages harder to get and more expensive . . . which further crimps demand for real estate, driving prices down some more. Rinse and repeat.
Call that the "macro" vicious cycle.
The "micro" vicious cycle operates wholly within the housing market.
Here's how it goes: Real estate drops, which drives nervous Buyer and Sellers to the sidelines -- Buyers because they don't want to catch the proverbial "falling knife," Sellers because they don't want to accept another price cut (or can't, if they're "upside down" on their mortgage and can't bring a check to closing). That causes real estate to drop some more, which causes more people decide to wait, which causes another go 'round.
For many people, uncertainty is worse than unmitigated -- but definite -- bad news. At least you know what to do with bad news. But what do you do with uncertainty? Wait for it to lift, usually.
Recovery Scenario
That dynamic explains why so many commentators and people in the industry are so laser-focused on calling the bottom (never mind that "a watched pot never boils").
Calling the bottom is crucial, because that's when the various negative feedback loops operating in so many markets begin to weaken, and, eventually, reverse.
So what do you look for? Interestingly, not what everyone seems to be focused on: changes in inventory levels; the level of pending and closed sales (and trends therein); and, of course, prices. My guess is that those are actually all lagging indicators -- they merely serve to confirm that the market has already bottomed (employment levels play the same role in the life cycle of recessions).
Rather, the first sign of a bottom -- the twig indicating dry land to Noah -- is likely to manifest as a (subjective) firming of the market, first picked up on by -- you guessed it -- the most plugged-in realtors.
A nice house in Linden Hills, with great character and a surprising amount of space, is priced aggressively at $399k -- and gets it right away. An architect-designed contemporary in Fern Hill, with over 3,000 FSF, hits the market priced conservatively at $650k -- and quickly gets that, too.*
Six or eight more deals like these around town, in quick succession, and suddenly a soggy real estate market has better tone. That fires up commission-hungry realtors to do more deals, which lures more would-be buyers and sellers back into the market, which firms up the market even more.
Animal spirits, indeed.
Sexy . . . Prices
At the low end of the market, the pace also picks up, if only because the banks are finally getting religion about clearing their balance sheets, and have dropped the prices of their foreclosed homes accordingly.
Not every house can look sexy, but every house can sport a sexy price. Eventually, even a distressed home in a tough(er) part of town is cheap enough to allow someone to make a profit -- if only the builder buying the property for the land if/when the condition of the home slips too far. In many neighborhoods, in many communities . . . that point has already arrived.
Only after these positive loops gain some traction -- and the old, negative ones start to fade -- do the statistics everyone's watching turn positive.
*Actual sales the week of July 14-18.
"Two-Step"
The dynamic now playing out between the housing market and Wall Street reminds me of one of those classic, Muhammad Ali-Joe Frazier title fights.
For those too young to remember, the fights were the ultimate, knock-down, drag-out affairs. By the late rounds, the two combatants, barely able to stand (let alone defend themselves), simply took turns pummelling each other with what little energy they had left.
Substitute "the credit markets" and "residential housing," and you have a pretty good idea of what's been happening to real estate in many markets nationally.
As discussed in my July 8 post ("Vicious Cycle"), falling home prices drive down the value of mortgages -- plus all the various side bets on mortgages. That impairs credit-creation via Wall Street and the banking system, which makes mortgages harder to get and more expensive . . . which further crimps demand for real estate, driving prices down some more. Rinse and repeat.
Call that the "macro" vicious cycle.
The "micro" vicious cycle operates wholly within the housing market.
Here's how it goes: Real estate drops, which drives nervous Buyer and Sellers to the sidelines -- Buyers because they don't want to catch the proverbial "falling knife," Sellers because they don't want to accept another price cut (or can't, if they're "upside down" on their mortgage and can't bring a check to closing). That causes real estate to drop some more, which causes more people decide to wait, which causes another go 'round.
For many people, uncertainty is worse than unmitigated -- but definite -- bad news. At least you know what to do with bad news. But what do you do with uncertainty? Wait for it to lift, usually.
Recovery Scenario
That dynamic explains why so many commentators and people in the industry are so laser-focused on calling the bottom (never mind that "a watched pot never boils").
Calling the bottom is crucial, because that's when the various negative feedback loops operating in so many markets begin to weaken, and, eventually, reverse.
So what do you look for? Interestingly, not what everyone seems to be focused on: changes in inventory levels; the level of pending and closed sales (and trends therein); and, of course, prices. My guess is that those are actually all lagging indicators -- they merely serve to confirm that the market has already bottomed (employment levels play the same role in the life cycle of recessions).
Rather, the first sign of a bottom -- the twig indicating dry land to Noah -- is likely to manifest as a (subjective) firming of the market, first picked up on by -- you guessed it -- the most plugged-in realtors.
A nice house in Linden Hills, with great character and a surprising amount of space, is priced aggressively at $399k -- and gets it right away. An architect-designed contemporary in Fern Hill, with over 3,000 FSF, hits the market priced conservatively at $650k -- and quickly gets that, too.*
Six or eight more deals like these around town, in quick succession, and suddenly a soggy real estate market has better tone. That fires up commission-hungry realtors to do more deals, which lures more would-be buyers and sellers back into the market, which firms up the market even more.
Animal spirits, indeed.
Sexy . . . Prices
At the low end of the market, the pace also picks up, if only because the banks are finally getting religion about clearing their balance sheets, and have dropped the prices of their foreclosed homes accordingly.
Not every house can look sexy, but every house can sport a sexy price. Eventually, even a distressed home in a tough(er) part of town is cheap enough to allow someone to make a profit -- if only the builder buying the property for the land if/when the condition of the home slips too far. In many neighborhoods, in many communities . . . that point has already arrived.
Only after these positive loops gain some traction -- and the old, negative ones start to fade -- do the statistics everyone's watching turn positive.
*Actual sales the week of July 14-18.
Wednesday, July 16, 2008
Credit Crunch Fallout
Earnest Money Tug-of-War?
When is it really a "done deal?" I tell my Sellers, "at closing, once you have the cashier's check in hand."*
And when is the Buyer's loan really good-to-go, in a national real estate market characterized by shrinking credit, tightening loan standards, and, in many places, steadily falling prices? My answer is, "when it's wired to the Seller's closing company."
I am hearing and seeing increasing anecdotal evidence that, up until then, the Buyer's money is not a sure thing. That's significant not just because blown financing causes blown deals, but because who's at fault determines who gets to keep the earnest money. Depending on the size and terms of the deal, that can be anywhere from $2k to $25k or more.
As things stand now in Minnesota, once the Buyer's lender signals that the appraisal is complete and that no major conditions remain, the Seller gets to keep the earnest money if the Buyer doesn't close.
However, what happens if a nervous lender subsequently "moves the goal posts?" That can mean requiring more money down, reducing the amount they are willing to lend, requiring additional documentation -- or some combination thereof.
Except for all the other involved parties, this would seem to be a private, contractual matter between the Buyer/would-be borrower and their bank. However, residential real estate deals are often like domino's, and one busted (or even delayed) deal can affect numerous others, with multiple financial consequences.
Hopefully, this potential headache can be headed off by timely changes in the Financing Addendum, the document that governs all these issues. After all, it would certainly be ashame if the only people making money in a down real estate market were . . . the lawyers.
*And the cashier's check is not drawn on IndyMac Bank!
When is it really a "done deal?" I tell my Sellers, "at closing, once you have the cashier's check in hand."*
And when is the Buyer's loan really good-to-go, in a national real estate market characterized by shrinking credit, tightening loan standards, and, in many places, steadily falling prices? My answer is, "when it's wired to the Seller's closing company."
I am hearing and seeing increasing anecdotal evidence that, up until then, the Buyer's money is not a sure thing. That's significant not just because blown financing causes blown deals, but because who's at fault determines who gets to keep the earnest money. Depending on the size and terms of the deal, that can be anywhere from $2k to $25k or more.
As things stand now in Minnesota, once the Buyer's lender signals that the appraisal is complete and that no major conditions remain, the Seller gets to keep the earnest money if the Buyer doesn't close.
However, what happens if a nervous lender subsequently "moves the goal posts?" That can mean requiring more money down, reducing the amount they are willing to lend, requiring additional documentation -- or some combination thereof.
Except for all the other involved parties, this would seem to be a private, contractual matter between the Buyer/would-be borrower and their bank. However, residential real estate deals are often like domino's, and one busted (or even delayed) deal can affect numerous others, with multiple financial consequences.
Hopefully, this potential headache can be headed off by timely changes in the Financing Addendum, the document that governs all these issues. After all, it would certainly be ashame if the only people making money in a down real estate market were . . . the lawyers.
*And the cashier's check is not drawn on IndyMac Bank!
Monday, July 14, 2008
Barron's Rebuttal
Competing Housing Market Predictions (Surprise!)
Well, that didn't take long. No sooner did Barron's jump into the housing market debate with a bullish call over the weekend, then another pundit weighed in with this rebuttal: "Why Barron's Housing Cover is So Terribly Wrong," on a blog called "The Big Picture." Here's the link:
http://bigpicture.typepad.com/comments/2008/07/barrons-cover-g.html
The author, Barry Ritholz, attempts to take apart the Barron's piece (by Jonathan Laing) in a point-by-point rebuttal, many well-taken. However, perhaps his most damning argument is a recitation of Laing's recent track record -- in a word, terrible. Almost every one of Laing's recent stocks picks -- AIG, GM, MBIA, Sears -- has been a disappointment if not a disaster.
That doesn't necessarily mean that Laing's wrong now. In fact, Ritholz never really addresses Laing's main point(s): that the rot in the credit and housing markets is both relatively recent and superficial; most of it's already been removed; and once that process is complete, things will rebound surprisingly quickly.
Presumably, at least they agree on one thing: the number to watch is the trend in delinquencies.
Well, that didn't take long. No sooner did Barron's jump into the housing market debate with a bullish call over the weekend, then another pundit weighed in with this rebuttal: "Why Barron's Housing Cover is So Terribly Wrong," on a blog called "The Big Picture." Here's the link:
http://bigpicture.typepad.com/comments/2008/07/barrons-cover-g.html
The author, Barry Ritholz, attempts to take apart the Barron's piece (by Jonathan Laing) in a point-by-point rebuttal, many well-taken. However, perhaps his most damning argument is a recitation of Laing's recent track record -- in a word, terrible. Almost every one of Laing's recent stocks picks -- AIG, GM, MBIA, Sears -- has been a disappointment if not a disaster.
That doesn't necessarily mean that Laing's wrong now. In fact, Ritholz never really addresses Laing's main point(s): that the rot in the credit and housing markets is both relatively recent and superficial; most of it's already been removed; and once that process is complete, things will rebound surprisingly quickly.
Presumably, at least they agree on one thing: the number to watch is the trend in delinquencies.
Sunday, July 13, 2008
"Pig in the Python"
Bullish Call on Housing Market
The lead story in the current issue of Barron's offers a provocative -- and surprisingly bullish -- take on what's ahead for the U.S. housing market ("Bottom's Up: This Real Estate Rout May be Short-Lived"; Barron's, July 14, 2008). According to the author, Jonathan Laing, the key statistic is "the ebbing tide of new delinquencies, [which] strongly hints that the worst may soon be over for the housing market . . . the pig, in other words, is well along the python's alimentary canal."
The article has two central premises: 1) that the truly frothy period of the erstwhile housing boom, when mere greed became fraud and lending practices were the most promiscuous, was confined to the last 18 months or so -- basically 2005-2006; and 2) that the foreclosures to date have already burned off much of the flotsam and jetsam of that period.
Brush Fire?
According to Laing, lending practices prior to then were much stronger. Fewer home borrowers had poor credit, put little or nothing down, and got aggressive mortgages laden with gimmicks and booby traps (teaser rates, re-setting payments, negative amortization). Of course, pre-2005 home buyers also had a much better entry point, price-wise, and therefore are presumably much further from the edge in a downturn, equity-wise.
To pick a different metaphor (mine), Laing basically argues that the housing and credit crisis is like a very hot and fast-moving brush fire. Now that it's consumed all the tinder -- the late stage, marginal buyers (and lenders) that fueled it -- it's about to burn itself out.
Let's hope he's right. It will depend on how combustible the rest of the landscape is (Fannie Mae? Freddie Mac?); how capable the firefighters are (Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, et al); and whether the "weather" (broader economic conditions) fans the flames or helps put them out -- in other words, luck.
P.S.: Want yet another metaphor? In the words of Warren Buffett, Berkshire Hathaway's chairman (and Edina Realty's majority owner), "you don't know who's been swimming naked until the tide goes out."
The lead story in the current issue of Barron's offers a provocative -- and surprisingly bullish -- take on what's ahead for the U.S. housing market ("Bottom's Up: This Real Estate Rout May be Short-Lived"; Barron's, July 14, 2008). According to the author, Jonathan Laing, the key statistic is "the ebbing tide of new delinquencies, [which] strongly hints that the worst may soon be over for the housing market . . . the pig, in other words, is well along the python's alimentary canal."
The article has two central premises: 1) that the truly frothy period of the erstwhile housing boom, when mere greed became fraud and lending practices were the most promiscuous, was confined to the last 18 months or so -- basically 2005-2006; and 2) that the foreclosures to date have already burned off much of the flotsam and jetsam of that period.
Brush Fire?
According to Laing, lending practices prior to then were much stronger. Fewer home borrowers had poor credit, put little or nothing down, and got aggressive mortgages laden with gimmicks and booby traps (teaser rates, re-setting payments, negative amortization). Of course, pre-2005 home buyers also had a much better entry point, price-wise, and therefore are presumably much further from the edge in a downturn, equity-wise.
To pick a different metaphor (mine), Laing basically argues that the housing and credit crisis is like a very hot and fast-moving brush fire. Now that it's consumed all the tinder -- the late stage, marginal buyers (and lenders) that fueled it -- it's about to burn itself out.
Let's hope he's right. It will depend on how combustible the rest of the landscape is (Fannie Mae? Freddie Mac?); how capable the firefighters are (Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, et al); and whether the "weather" (broader economic conditions) fans the flames or helps put them out -- in other words, luck.
P.S.: Want yet another metaphor? In the words of Warren Buffett, Berkshire Hathaway's chairman (and Edina Realty's majority owner), "you don't know who's been swimming naked until the tide goes out."
Saturday, July 12, 2008
"Size 16, Triple E"
Latest (and Biggest) Shoe Drops
in Housing, Credit Market Mess
The good news is, there don't appear to be any more shoes to drop in the seemingly never-ending housing downturn/credit crisis (at least for now). The bad news is, the one that just did -- Fannie Mae and Freddie Mac's stock market collapse this past week -- is a size 16, Triple EEE.
To re-cap, the crisis began in earnest last Summer when all the subprime lenders seemed to simultaneously lose their short-term funding from Wall Street. That set in motion a domino effect that crippled or bankrupted the subprime lenders, and culminated with the collapse of Bear Stearns last March.
Along the way, Wall Street and big banks have collectively written off almost $400 billion in losses.
After Bear Stearns, the crisis seemed to abate for two months, only to return with a vengeance in May when Lehman Brothers' downward spiral started to accelerate. Now, the credit crisis suddenly appears poised to claim by far its two biggest victims yet: Fannie Mae and Freddie Mac
In a year, the two stocks have each dropped more than 70%. A big chunk of that drop came just last week. Shareholders have seen more than $100 billion in market value go "poof."
The significance of these two entities to the housing industry and broader economy can hardly be overstated. Together they own or guaranty more than $5 trillion in mortgages -- half of all outstanding U.S. mortgages. According to one analyst, Fannie Mae and Freddie Mac are "wholesalers supplying a retail store: the retail store is a bank selling money." (See, "How Fallout Could Affect Main Street; The New York Times, 7/12/08). Here's the link:
http://www.nytimes.com/2008/07/12/business/smallbusiness/12money.html?ref=business
If the wholesalers' shelves go bare -- as seems possible if Fannie Mae and Freddie Mac lose access to the credit markets -- one might expect that the retailers' shelves may thin out, too.
Will the Government put Fannie Mae and Freddie Mac into receivership? Will the Fed open up its discount window and lend directly to them? Will Fannie Mae and Freddie Mac recover on their own? In the words of the old TV series, "Tune in next week -- same Bat-time, same Bat-channel" (er, blog).
P.S.: looking for something upbeat to offset the gloom? The lead story in the current Barron's Magazine -- ever the contrarian -- is "Bottom's Up: This Real-Estate Rout May Be Short-Lived." Click here for the article:
http://online.barrons.com/article/SB121581623724947273.html?mod=9_0031_b_this_weeks_magazine_main.
See my next posting to find out if Barron's is right. Short-term, the main consequence of all the market turmoil is heightened uncertainty. Until the dust settles, expect a lot of people to stay on the (increasingly crowded) sidelines.
in Housing, Credit Market Mess
The good news is, there don't appear to be any more shoes to drop in the seemingly never-ending housing downturn/credit crisis (at least for now). The bad news is, the one that just did -- Fannie Mae and Freddie Mac's stock market collapse this past week -- is a size 16, Triple EEE.
To re-cap, the crisis began in earnest last Summer when all the subprime lenders seemed to simultaneously lose their short-term funding from Wall Street. That set in motion a domino effect that crippled or bankrupted the subprime lenders, and culminated with the collapse of Bear Stearns last March.
Along the way, Wall Street and big banks have collectively written off almost $400 billion in losses.
After Bear Stearns, the crisis seemed to abate for two months, only to return with a vengeance in May when Lehman Brothers' downward spiral started to accelerate. Now, the credit crisis suddenly appears poised to claim by far its two biggest victims yet: Fannie Mae and Freddie Mac
In a year, the two stocks have each dropped more than 70%. A big chunk of that drop came just last week. Shareholders have seen more than $100 billion in market value go "poof."
The significance of these two entities to the housing industry and broader economy can hardly be overstated. Together they own or guaranty more than $5 trillion in mortgages -- half of all outstanding U.S. mortgages. According to one analyst, Fannie Mae and Freddie Mac are "wholesalers supplying a retail store: the retail store is a bank selling money." (See, "How Fallout Could Affect Main Street; The New York Times, 7/12/08). Here's the link:
http://www.nytimes.com/2008/07/12/business/smallbusiness/12money.html?ref=business
If the wholesalers' shelves go bare -- as seems possible if Fannie Mae and Freddie Mac lose access to the credit markets -- one might expect that the retailers' shelves may thin out, too.
Will the Government put Fannie Mae and Freddie Mac into receivership? Will the Fed open up its discount window and lend directly to them? Will Fannie Mae and Freddie Mac recover on their own? In the words of the old TV series, "Tune in next week -- same Bat-time, same Bat-channel" (er, blog).
P.S.: looking for something upbeat to offset the gloom? The lead story in the current Barron's Magazine -- ever the contrarian -- is "Bottom's Up: This Real-Estate Rout May Be Short-Lived." Click here for the article:
http://online.barrons.com/article/SB121581623724947273.html?mod=9_0031_b_this_weeks_magazine_main.
See my next posting to find out if Barron's is right. Short-term, the main consequence of all the market turmoil is heightened uncertainty. Until the dust settles, expect a lot of people to stay on the (increasingly crowded) sidelines.
Tuesday, July 8, 2008
Mpls - St. Paul Magazine
Local Magazine Housing Guide:
Useful Insights, Stale Data?
If you're in the market for a Twin Cities home -- or just want to see how your neighborhood stacks up -- the current issue of Mpls.-St. Paul Magazine is a must-read. But before you rely on the article to buy or sell, you may want to check with your realtor first: the magazine's housing statistics don't accurately reflect the current market (at least based on my unscientific sampling).
The feature article* in the current issue (July '08) of Mpls.-St. Paul Magazine is an exhaustive survey of the local housing market titled "Best Places to Live" (you'll have to pop for $4.50 to buy the magazine just like I did-- the article's not online). The highlight of the piece consists of thumbnail sketches of the "Twin Cities' twenty best neighborhoods."
According to the authors, the picks are based on historical and recent sales figures; crime statistics; school quality ratings, and "the subjective insights of real estate industry professionals." The profiled neighborhoods are conveniently organized by "First-Time Buyers," "Moving Up," and "Empty Nesters."
While I wouldn't necessarily pick the same 20 neighborhoods -- I probably wouldn't pick the same movies or restaurants, either -- the choices are certainly intelligent, defensible, etc. There's also a nice sidebar explaining MLS district vs. neighborhood names: Longfellow, which happens to be both, can be especially confusing.
However, the article's Achilles Heel -- and it's a big one -- is misleading market data (too rosy, it pains me to say).
Wishful Thinking?
In particular, each neighborhood profile is accompanied by one statistic: the annual change in sales volume from April '07 to April '08. While that number is important to economists, lenders, contractors, and realtors(!), in my experience the public only really cares about one thing: prices.
So readers seeing that Jordan was "+13.3%" would most likely think, incorrectly, that prices had climbed that much the previous 12 months. Wrong. According to the magazine, that's how much sales had increased.
Even that number seems off. Using a different but arguably more targeted snapshot -- sales closed the last 90 days (basically April, May, and June) vs. the same time period in '07 -- yields an entirely different picture.
Instead of finding a 13% increase in single family home sales, a little digging into the Multiple Listing Service ("MLS") database shows that Jordan experienced an almost 32% drop in sales volume -- from 22 homes sold last Spring to 15 this Spring. Worse, the average sales price plummeted from $303,713 then to $237,273 now -- a 22% drop!
So what does the magazine have to say about Jordan?
"Small-town Scott County requires a tough commute to Twin Cities business centers, but for now that's OK for residents here. House prices in thoroughly planned Jordan cover a wide range and are holding their values much better than in other exurbs."
I'd hate to see how the other exurbs are doing.
The same disparities popped up in the two other neighborhoods that I spot-checked.
The number "-3.2%" appears next to "Minneapolis -- Isles/Kenwood/Cedar Lake," one of the article's eleven "move-up neighborhoods." However, comparing single family home sales the last 90 days vs. the same period a year ago, I come up with a drop of 22% (65 homes sold then vs. 51 this year). The average price had fallen from $711,316 to $547,719, or 23%.
Similarly, the magazine says that Plymouth is "+4%." My statistics, using the same criteria as before: volume down 20%, prices down 6%.
Certainly, different numbers can be teased out of the same database. Techniques include tweaking the time frame (to be more meaningful, as I did); switching between "averages" and "median's"; making the search area bigger or smaller (Jordan, the MLS district (#646), is distinct from Jordan, the municipality); including condo's and townhouses in addition to single-family homes (I focused on just the latter); and omitting foreclosures and short sales (I didn't).
Stale Data?
However, the article's chosen statistics still seem to paint a picture at odds with the current market. That perception is only reinforced by the table included at the end of the article, which provides data for 88 Twin Cities neighborhoods. Unfortunately, the table -- culled from Mpls. Board of Realtors statistics -- focuses on 2006-2007.
Last December . . . hmm, that's when Hillary Clinton was the presumptive Democratic nominee, oil was under $100 a barrel, and Bear Stearns (and Wall Street) still appeared to be solvent.
To be fair, dated or misleading market data may not matter to the magazine's readers as much the article's (genuinely helpful) insight into the various neighborhoods it profiles. After all, at any given time, most people aren't actively buying or selling. Hopefully, the ones who are have realtors to help them crunch the numbers.
*Note: While Mpls-St. Paul Magazine doesn't quote me or the City Lakes Real Estate blog by name, this blog is clearly the source for the following paragraph on page 96: "In Mid-May, Edina Realty cited the 'pull of central areas -- downtown, uptown, closer-in suburbs" as the "single biggest trend of the spring season."
Contrast that with this excerpt from my April 28 post: "Perhaps the single biggest trend afoot is the "centripetal" pull of the core neighborhoods -- downtown, uptown, and the close-in suburbs."
What's the link? Edina Realty issued a May press release quoting an Edina Realty branch manager, paraphrasing this blog, that apparently found its way to the Mpls.-St. Paul Magazine journalists. As they say, "Oh, well . . ."
Useful Insights, Stale Data?
If you're in the market for a Twin Cities home -- or just want to see how your neighborhood stacks up -- the current issue of Mpls.-St. Paul Magazine is a must-read. But before you rely on the article to buy or sell, you may want to check with your realtor first: the magazine's housing statistics don't accurately reflect the current market (at least based on my unscientific sampling).
The feature article* in the current issue (July '08) of Mpls.-St. Paul Magazine is an exhaustive survey of the local housing market titled "Best Places to Live" (you'll have to pop for $4.50 to buy the magazine just like I did-- the article's not online). The highlight of the piece consists of thumbnail sketches of the "Twin Cities' twenty best neighborhoods."
According to the authors, the picks are based on historical and recent sales figures; crime statistics; school quality ratings, and "the subjective insights of real estate industry professionals." The profiled neighborhoods are conveniently organized by "First-Time Buyers," "Moving Up," and "Empty Nesters."
While I wouldn't necessarily pick the same 20 neighborhoods -- I probably wouldn't pick the same movies or restaurants, either -- the choices are certainly intelligent, defensible, etc. There's also a nice sidebar explaining MLS district vs. neighborhood names: Longfellow, which happens to be both, can be especially confusing.
However, the article's Achilles Heel -- and it's a big one -- is misleading market data (too rosy, it pains me to say).
Wishful Thinking?
In particular, each neighborhood profile is accompanied by one statistic: the annual change in sales volume from April '07 to April '08. While that number is important to economists, lenders, contractors, and realtors(!), in my experience the public only really cares about one thing: prices.
So readers seeing that Jordan was "+13.3%" would most likely think, incorrectly, that prices had climbed that much the previous 12 months. Wrong. According to the magazine, that's how much sales had increased.
Even that number seems off. Using a different but arguably more targeted snapshot -- sales closed the last 90 days (basically April, May, and June) vs. the same time period in '07 -- yields an entirely different picture.
Instead of finding a 13% increase in single family home sales, a little digging into the Multiple Listing Service ("MLS") database shows that Jordan experienced an almost 32% drop in sales volume -- from 22 homes sold last Spring to 15 this Spring. Worse, the average sales price plummeted from $303,713 then to $237,273 now -- a 22% drop!
So what does the magazine have to say about Jordan?
"Small-town Scott County requires a tough commute to Twin Cities business centers, but for now that's OK for residents here. House prices in thoroughly planned Jordan cover a wide range and are holding their values much better than in other exurbs."
I'd hate to see how the other exurbs are doing.
The same disparities popped up in the two other neighborhoods that I spot-checked.
The number "-3.2%" appears next to "Minneapolis -- Isles/Kenwood/Cedar Lake," one of the article's eleven "move-up neighborhoods." However, comparing single family home sales the last 90 days vs. the same period a year ago, I come up with a drop of 22% (65 homes sold then vs. 51 this year). The average price had fallen from $711,316 to $547,719, or 23%.
Similarly, the magazine says that Plymouth is "+4%." My statistics, using the same criteria as before: volume down 20%, prices down 6%.
Certainly, different numbers can be teased out of the same database. Techniques include tweaking the time frame (to be more meaningful, as I did); switching between "averages" and "median's"; making the search area bigger or smaller (Jordan, the MLS district (#646), is distinct from Jordan, the municipality); including condo's and townhouses in addition to single-family homes (I focused on just the latter); and omitting foreclosures and short sales (I didn't).
Stale Data?
However, the article's chosen statistics still seem to paint a picture at odds with the current market. That perception is only reinforced by the table included at the end of the article, which provides data for 88 Twin Cities neighborhoods. Unfortunately, the table -- culled from Mpls. Board of Realtors statistics -- focuses on 2006-2007.
Last December . . . hmm, that's when Hillary Clinton was the presumptive Democratic nominee, oil was under $100 a barrel, and Bear Stearns (and Wall Street) still appeared to be solvent.
To be fair, dated or misleading market data may not matter to the magazine's readers as much the article's (genuinely helpful) insight into the various neighborhoods it profiles. After all, at any given time, most people aren't actively buying or selling. Hopefully, the ones who are have realtors to help them crunch the numbers.
*Note: While Mpls-St. Paul Magazine doesn't quote me or the City Lakes Real Estate blog by name, this blog is clearly the source for the following paragraph on page 96: "In Mid-May, Edina Realty cited the 'pull of central areas -- downtown, uptown, closer-in suburbs" as the "single biggest trend of the spring season."
Contrast that with this excerpt from my April 28 post: "Perhaps the single biggest trend afoot is the "centripetal" pull of the core neighborhoods -- downtown, uptown, and the close-in suburbs."
What's the link? Edina Realty issued a May press release quoting an Edina Realty branch manager, paraphrasing this blog, that apparently found its way to the Mpls.-St. Paul Magazine journalists. As they say, "Oh, well . . ."
Vicious Cycle
Time of Reckoning For
Fannie Mae, Freddie Mac
Center stage on Wall Street this week: the plight (fate?) of Fannie Mae and Freddie Mac.
Both entities took big plunges yesterday, and are now fetching prices not seen since the early '90's. Why should home buyers and sellers care? Just as the Federal Reserve is the lender of last resort, Freddie Mac and Fannie Mae are the home mortgage buyers (and insurers) of last resort.
The problems facing these two quasi-government loan giants illustrate the dynamic gripping the increasingly intertwined housing and credit markets: the fall in housing prices cripples lenders' balance sheets, which curtails their ability to originate (as well as purchase, insure, trade, and securitize) mortgage loans. In turn, tighter, more limited credit crimps demand for housing . . which causes housing prices to fall further.
Until the Fed, the President, or someone (Warren Buffett? the Tooth Fairy?) figures out how to interrupt this vicious cycle, the problems facing the housing market -- and the broader economy -- aren't over.
Fannie Mae, Freddie Mac
Center stage on Wall Street this week: the plight (fate?) of Fannie Mae and Freddie Mac.
Both entities took big plunges yesterday, and are now fetching prices not seen since the early '90's. Why should home buyers and sellers care? Just as the Federal Reserve is the lender of last resort, Freddie Mac and Fannie Mae are the home mortgage buyers (and insurers) of last resort.
The problems facing these two quasi-government loan giants illustrate the dynamic gripping the increasingly intertwined housing and credit markets: the fall in housing prices cripples lenders' balance sheets, which curtails their ability to originate (as well as purchase, insure, trade, and securitize) mortgage loans. In turn, tighter, more limited credit crimps demand for housing . . which causes housing prices to fall further.
Until the Fed, the President, or someone (Warren Buffett? the Tooth Fairy?) figures out how to interrupt this vicious cycle, the problems facing the housing market -- and the broader economy -- aren't over.
Saturday, July 5, 2008
Hail Damage Aftermath
Roof Repairs - Cont.
I just finished driving around the West suburbs for the first time in about 10 days (I'd been traveling), and noticed that roofing company signs had sprouted like dandelions. Almost every block had at least one, and many had several signs up (the politicians are going to be hard-pressed to find empty lawns for their signs!).
It could be that each and every one of these companies is an outstanding corporate citizen, whose customers are never less than 100% satisfied. However . .. common sense would suggest otherwise.
Given that lawn signs are easier to produce than skilled roofing crews, one obvious question to ponder is, exactly how soon is everyone expecting their roof to be replaced? If the expectation is sooner rather than later, it might be a good idea to have that in writing.
A second question one might ask: if there's a problem with my roof in six months, where can I find you?
P.S.: for the record, the roofer I've known the longest is a straight-up guy who does excellent work, and stands by it (and yes, he's working 80 hour weeks now).
I just finished driving around the West suburbs for the first time in about 10 days (I'd been traveling), and noticed that roofing company signs had sprouted like dandelions. Almost every block had at least one, and many had several signs up (the politicians are going to be hard-pressed to find empty lawns for their signs!).
It could be that each and every one of these companies is an outstanding corporate citizen, whose customers are never less than 100% satisfied. However . .. common sense would suggest otherwise.
Given that lawn signs are easier to produce than skilled roofing crews, one obvious question to ponder is, exactly how soon is everyone expecting their roof to be replaced? If the expectation is sooner rather than later, it might be a good idea to have that in writing.
A second question one might ask: if there's a problem with my roof in six months, where can I find you?
P.S.: for the record, the roofer I've known the longest is a straight-up guy who does excellent work, and stands by it (and yes, he's working 80 hour weeks now).
Thursday, July 3, 2008
Vetting Contractors
Hail Damage "Heads Up"
In the wake of a major hail storm at the end of May, many area homeowners have been inundated with roofing contractors offering their services. Some times the overture is as direct as a knock on the door; in other cases the sales pitch arrives in the mail box in the form of a professionally done, glossy postcard.
Regardless, homeowners would be well-advised to do their normal due diligence before committing to any work.
Even if your insurance company is picking up most (or all) of the tab, if the work performed is shoddy, it's likely to be your headache. That's especially the case if your insurance company simply cuts a check to you personally in resolution of your claim (along with the check there is typically legal language releasing the insurance company from further liability). Given that the cost of a new roof can be $15k or more for a bigger home with a steeply pitched roof, the dollars at stake can be considerable.
So what should you ask?
For starters, where the roofing company is from. The series of hail storms in late May/early June was extensive enough that many out-of-state contractors headed here for a piece of the action. It's not exactly a secret that new home construction is slow, so the number of contractors looking for work is disproportionately high.
Just because the contractor isn't local isn't necessarily a red flag. However, that does make getting information about them more difficult. A reputable contractor will help prospective customers learn about them, offering such information as their state license number, proof of insurance, and referrals.
If the contractor is based in Minnesota, the vetting process is easier. Besides obtaining multiple references, other suggested steps include: checking third-party referral services such as Angie's List and Consumer's Checkbook; asking your insurance company for any information they have on the contractor; and checking whether the contractor's license is active and in good standing at the Minnesota Secretary of State and Department of Labor and Industry (formerly the Commerce Department) Web sites.
Here's the link for the latter: https://secure.doli.state.mn.us/licensing/licensing.aspx
There is also the Better Business Bureau. Unfortunately, in my experience simply being a "member in good standing" does not necessarily mean a contractor is reliable. The reason is that by the time a contractor's status has been flagged, there is likely a pattern of bad behavior.
Similarly, while the Department of Labor and Industry has a section titled "enforcement actions," not showing up there is not the same as a bill of good health. The reason is that an enforcement action only indicates that the contractor has run afoul of the state. If instead a customer has sued a contractor and they've settled privately (complete with a confidentiality clause), by definition there's no public record.
In the wake of a major hail storm at the end of May, many area homeowners have been inundated with roofing contractors offering their services. Some times the overture is as direct as a knock on the door; in other cases the sales pitch arrives in the mail box in the form of a professionally done, glossy postcard.
Regardless, homeowners would be well-advised to do their normal due diligence before committing to any work.
Even if your insurance company is picking up most (or all) of the tab, if the work performed is shoddy, it's likely to be your headache. That's especially the case if your insurance company simply cuts a check to you personally in resolution of your claim (along with the check there is typically legal language releasing the insurance company from further liability). Given that the cost of a new roof can be $15k or more for a bigger home with a steeply pitched roof, the dollars at stake can be considerable.
So what should you ask?
For starters, where the roofing company is from. The series of hail storms in late May/early June was extensive enough that many out-of-state contractors headed here for a piece of the action. It's not exactly a secret that new home construction is slow, so the number of contractors looking for work is disproportionately high.
Just because the contractor isn't local isn't necessarily a red flag. However, that does make getting information about them more difficult. A reputable contractor will help prospective customers learn about them, offering such information as their state license number, proof of insurance, and referrals.
If the contractor is based in Minnesota, the vetting process is easier. Besides obtaining multiple references, other suggested steps include: checking third-party referral services such as Angie's List and Consumer's Checkbook; asking your insurance company for any information they have on the contractor; and checking whether the contractor's license is active and in good standing at the Minnesota Secretary of State and Department of Labor and Industry (formerly the Commerce Department) Web sites.
Here's the link for the latter: https://secure.doli.state.mn.us/licensing/licensing.aspx
There is also the Better Business Bureau. Unfortunately, in my experience simply being a "member in good standing" does not necessarily mean a contractor is reliable. The reason is that by the time a contractor's status has been flagged, there is likely a pattern of bad behavior.
Similarly, while the Department of Labor and Industry has a section titled "enforcement actions," not showing up there is not the same as a bill of good health. The reason is that an enforcement action only indicates that the contractor has run afoul of the state. If instead a customer has sued a contractor and they've settled privately (complete with a confidentiality clause), by definition there's no public record.
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