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Thursday, December 31, 2009

That's it for 2009!

Just to go out on a high note, here are a couple of the 2009 developments that I think are huge positives (some already remarked on, some not):

--Improved racial comity in the U.S. (the biggest development of the year -- if not decade);
--Spread of Instant Run-off Voting (also known as "Ranked Choice Voting"). In my (and many others') opinion, IRV holds the key to opening up our sclerotic, corrupt political oligopoly (a mouthful, I know)
--Crest of the SUV/McMansion trends. Good riddance. Maybe 2010 will mark the arrival of the electric car??
--The "locavore" movement (grow, consume, live locally)
--On a personal note: my three kids --ages 10, 7, and 5 -- all bigger, brighter and more and more engaged in the world! This was also the year my 7 year-old conquered his dyslexia and became a reader!
--Social media and the blogosphere (you're reading this, aren't you?) Yeah, the "signal to noise" problem is still there, but leave it to technology to solve that one, too.
--Smart phones and ever-more sophisticated networking (remember the long wait for a "killer app?" It turned out to be the smart phone platform).
--No more icons. Yeah, it's a bummer to find out that erstwhile heroes --financial and otherwise (Alan Greenspan, Tiger Woods, etc.) -- turned out to have feet of clay. But putting one's faith in icons fosters complacency, and complacency begets, well, you know.

Which is not to say that contemporary society doesn't have any "wise men" (and women) left.

That's always the lament whenever there's a major crisis.

So, let's hear it for pillars of rectitude and common sense like Paul Volcker, and John Bogle, and Elizabeth Warren, and Jeremy Grantham, and Simon Johnson, and Joseph Stiglitz, and . . .

See you in 2010!

"Financial Innovation" Winners & Losers

I'm a huge fan of Nobel laureate (economics) Joseph Stiglitz. This paragraph is an example of why:

Financial engineering did not create products that would help ordinary citizens manage the simple risk of home ownership - with the consequence that millions have lost their homes, and millions more are likely to do so. Instead, innovation was directed at perfecting the exploitation of those who are less educated, and at circumventing the regulations and accounting standards that were designed to make markets more efficient and stable.

--Joseph Stiglitz, "Harsh lessons we may need to learn again" (China Daily, 12/31/09).

Former Fed Chairman Paul Volcker puts it in even starker terms: in his view, the last significant financial innovation was . . . the ATM.

To name something is to own it.

So, instead of framing the issue as being "pro" or "anti" financial innovation, how about characterizing it as being for or against prudent financial "speed limits."

After the biggest financial crack-up since The Great Depression, you'd think there be little opposition to lowering the prevailing speed limit from, oh, say 200 mph, to maybe 50 mph.

But you'd be wrong . . .

Real Estate . . . on the Road

Is Everyone in Wisconsin Fat?

If we can reduce the number of people deferring medical care -- or postponing it indefinitely -- while at the same time managing to not go broke, this time next year we can look back at 2010 with pride.

This post is from on the road, in the heart of "The Heartland."

In fact, it doesn't get more "heartland" than Janesville, WI, about 30 minutes Southeast of Madison and two hours short of Chicago. Hence, its appeal (or more specifically, the roadside Hampton Inn about 9 p.m. last night).

Southeast -- or Southeat?

This observation is not going to win me any local fans -- but hey, I'm licensed to sell real estate in Minnesota, not Wisconsin.

As best I can tell, everyone in Wisconsin is fat.

Or at least everyone eating at the McDonalds' where we stopped for dinner (parents, kids, grandparents -- you name it), everyone working at the McDonald's where we stopped for dinner, everyone getting gas and windshield wiper fluid at the gas station where we stopped, etc.

And no, no one's looking in any mirrors.

In all seriousness, I'd say it's progressed from something that's become a minor national embarrassment to something that's truly alarming.

When millions are obese, the solution isn't for everyone to enroll at Weight Watchers; it's for a change in the national culture, led from on-high (and dare I say by at least some of the corporations whose ox would be gored by a healthier America. I won't name names, but they rhyme with Schmepsi and Schmairy Queen, to cite a few).

If you're looking for a fundamental way to divide Americans these days, it's not White or Black, Blue or Red, Main Street or Wall Street, or even fat and thin (although that's my runner-up).

I submit, it's between people who are deferring some needed medical treatment, and those who aren't.

Put me in the latter category: on Monday, I'm upgrading glass prescriptions that I've now had 3 years.

Why the wait?

We maxed out our medical spending account in November, and it re-sets, full, on Jan. 1

Sacrifices, Minor (and Not)

As sacrifices and inconveniences go, that's trivial.

My wife, a physical therapist, routinely has patients go long intervals without seeing her.

And it's not because their cancer went away, or they miraculously recovered from that broken hip.

It's because they can't afford the co-pay. Or the babysitter. Or sometimes, even the parking in front of the hospital..

If we can prospectively manage to make the group deferring medical care -- or postponing it indefinitely -- a little smaller while at the same time managing to not go broke, this time next year we can look back at 2010 with pride.

Throw in punishing Wall Street (actually, I propose short-circuiting, or "routing around" it, in Internet parlance) and overhauling the U.S. financial system, and 2010 has the makings of a great year!

1 for 298!

Housing "Ahab" Finally Finds Her Moby Dick

Bay Area real estate has always demanded patience on the part of buyers. Many spend months scouring listings in hopes of finding "the one." Then there is Lidia Pringle. Over two-and-a-half years, Ms. Pringle personally inspected 298 homes in Marin County.

--"A Picky Home Buyer Pursues An Epic Hunt for 'the One'"; The Wall Street Journal (12/29/09)

My Realtor's take on Ms. Pringle's quest isn't surprise that she actually went through 298 homes.

The surprise is that she actually bought one.

In my experience, viewing that many homes -- in fact, a fraction of that number -- invariably takes one out of the "serious Buyer" category and into an altogether different one: "open house hobbyist," perhaps, or maybe "too-much-time-on-your-hands architecture buff."

Given that the upper bracket properties Ms. Pringle was checking out typically don't open their homes to the public, the likelihood is that she viewed most of those homes through Realtor-arranged private showings.

Poor Realtor(s).

Apparently, Ms. Pringle ditched the Realtor who'd arranged most of those showings and bought through one who showed her exactly one home, the one she bought.

Ahh . . . the agony (and the ecstasy) of working on commission!

P.S.: one of the things Realtors quickly realize is that sometimes, the harder you work for a client, the less they appreciate it. Realization #2: so-called tire kickers never kick the tires on the housing equivalent of Chevettes and Pinto's (remember those?); it's always Porches and BMW's.

Wednesday, December 30, 2009

Plodding Pace of Year-End Deals

Hurry Up and Wait

If you're a prospective home Buyer who initiates a deal just before Christmas -- especially if it's a bank-owned property -- you're likely to get everything wrapped up a week into the New Year (if you're lucky -- I've got one in progress now).

If you're a Buyer who initiates a deal after the 1st, you're likely to get everything wrapped up . . . about a week into the New Year (if you're lucky).

Which is a pretty good case for just waiting until after the 1st.

That's especially true for first-time Buyers, who typically have the hardest time waiting to find out if their offer has been accepted, rejected, countered, etc.

Tuesday, December 29, 2009

"True Minnesotan," defined

"Cold Enough For 'Ya?"

I'm sure that other people have their own preferred definitions of what constitutes a "true Minnesotan" (growing up knowing how to sheetrock? Ice skating before you could walk?), but here's mine:

A true Minnesotan is someone who heads north, not south whenever they have vacation time.

I have at least 3 acquaintances who, when I asked if they had travel plans over the holidays, shared that they were heading north to their cabins -- or their friends.'

So, I suppose when you ask these folks if it's cold enough for them, they reply, "Nope!"

Monday, December 28, 2009

Slowest Week of the Year

Christmas Vacation -- for the Housing Market, Too

It's official: last Monday thru Sunday (Dec. 21 - 27) was the slowest week of the year.

Just as it was last year, and the year before.

My office -- Edina Realty City Lakes -- recorded 44 showings for that period.

By contrast, the peak period in early August had 332 showings.

That eclipsed the busiest week in Spring, which usually marks the peak.

The difference this year?

Buyers expected the first-time credit to expire at the end of November, and were hustling to get going in August and September.

Not More Square Feet -- More Per Square Foot

Home Trends 2010: 'Don't Call it a Basement'

First, some background:

The big trends in housing at the moment are being driven by technology, demographics, and economics (primarily, the Recession, and secondarily, energy costs).

Demographics: lots of upper bracket Baby Boomers -- ages 50-65 and on the verge of becoming "empty nesters" -- are suddenly finding themselves with too much house. Not only don't they need 5,000 square foot-plus monster homes, but they don't want the upkeep and property taxes that go with (see, preceding post).

The "Gen X" and "Gen Y" homeowners following immediately behind them are taking the hint, and opting for relatively smaller homes -- say, around 3,500 square feet -- that they won't automatically have to downsize from.

More efficiently used space. The keys to getting by with a smaller house are making it feel bigger, and using all the space efficiently.

Towards that end, here's what I'm seeing in upper bracket homes (with bits and pieces popping up in more modest homes):

--Higher ceilings. The beauty of a 3,500 square foot home with 10 foot ceilings (vs. 8' or lower) is that it really is bigger -- but the property taxes are the same, because the home's "footprint" is unchanged.

--"Don't call it a basement." No, it's not a basement -- it's a "(well) finished lower level." Higher ceilings are showing up there, too, and make a huge difference in how the space looks and feels.

So do lower level heated floors; oversized, flat-panel TV's (now de rigueur for high-end lower levels); lots of recessed lighting; and egress windows (I recently saw a lower level Bedroom with not one but two egress windows; the effect was stunning).

In fact, the only thing you won't find in these deluxe lower levels is the laundry: that's moved upstairs, to the first floor (or even the 2nd).

--More and bigger windows. Beside higher ceilings, the other way to make a smaller home feel bigger are more windows. The higher end, new construction I've seen the last year or so seem to have large, custom windows everywhere (energy efficient, double-pane, low-e -- of course).

--"The Great Kitchen": as I've posted previously, the pendulum is swinging back from completely opened-up "Great Rooms" to a hybrid I like to call "the Great Kitchen": basically, a combination Kitchen - Family Room.

The (formal) Living Room and Dining Room are still there, just smaller.

Same Footprint, More Square Feet -- part 2.

Of course, the other way to squeeze more finished square feet under the same roof is to tackle the space . . . under the roof.

A homeowner in my neighborhood just added dormers to their third level, presumably adding another 1,000 square feet-plus of finished space (I haven't seen the inside).

Besides the extra space, the dormers give the home another great amenity: views of Cedar Lake!

Estimating Home Upkeep

"Lumpy" Home Repairs

How much should you earmark for annual home upkeep?

According to one LA-based Realtor:

Homeowners should have 1% of the purchase price of their home in savings for improvements and surprise expenses. That is the absolute minimum. It's better to have 2% to 3% socked away somewhere.

--"Home Costs Keep Going Up"; The Wall Street Journal (12/28/09)

Before parsing this advice, however, first an aside: notwithstanding the article's headline, it gave no examples of how home costs are rising at the moment.

In fact, big ticket items like property taxes, as well as capital repairs like roofs and exterior painting -- not to mention major appliances -- are now getting less expensive, thanks to the recession.

Back to upkeep . . .

Yes, I agree with the 1% rule, but with a major caveat: home repairs are likely to be "lumpy." In other words, most years, homeowners will likely spend well below 1%; however, intermittently, they'll likely overshoot that quite a bit.

That's because things like roofs, exterior paint, and furnaces can last a decade or longer, but when they go . . . they go.

In the meantime, I'm a big fan of home warranty plans, which for a fairly reasonable monthly premium cover homeowners against major, unexpected outlays.

In fact, my standard advice to my Buyer clients is to get coverage for a calendar year, until they know their home, what reliably works -- and what doesn't. After that, they can re-assess as appropriate.

P.S.: Is The Wall Street Journal getting sloppy with its headlines? Consider this one, also from today's paper: 'Adjusted for Inflation, Dow's Gains Are Puny.' The article then goes on to note that the Dow, currently at 10,500 and basically unchanged from a decade ago, is only 8,140 when adjusted for inflation.

Since when does a 2,000 point drop qualify as a "puny gain"??

Sunday, December 27, 2009

Is Shiller Right About Trills, GDP?

The Search for New Currencies

Although G.D.P. numbers still aren’t perfect — they are subject to periodic revisions, for example — the basic problem has been largely solved.

--Robert Shiller, "A Way to Share in a Nation's Growth"; The New York Times (12/26/2009)

In a piece in today's New York Times, Robert Shiller -- that Robert Shiller, of "the Case-Shiller index," "Irrational Exuberance," etc. -- calls for a new security, "the trill," that's pegged to U.S. Gross Domestic Product ("GDP").

He argues that a such a derivative instrument would satisfy demand for stable, new currencies -- and be a good deal for investors, to boot.

(Mis)measuring GDP

What jumps out at me is Shiller's comment about GDP measurement being a problem that has "largely been solved."

Oh, really?

The same way that Ptolemy "solved" the problem of the earth seeming to rotate around the sun, perhaps? (He came up with increasingly tortured models that placed the earth at the center of the solar system).

Just consider how GDP now accounts for a horrific environmental tragedy like the Exxon Valdez spill in Alaska's Prince William Sound.

The untold billions in environmental damage aren't counted, because "natural capital" is assigned no value in today's economic world.

Meanwhile, the $1 billion that Exxon spent on remediation efforts shows up as a spike in the "value" of services that go into calculating GDP.

Bottom line?

Society's putative wealth actually increased as a result of the spill.


"Tattoo GDP"

Or consider how GDP currently accounts for tattoo's -- both creating and removing them.

At one end of a shopping center I know, a tattoo parlor puts them on for $100 apiece.

At the other end, a tattoo "removal specialist" gets rid of them for $100.

"Tattoo GDP" thus comes to $200.

But how is society $200 richer as a result?

Accountants have a saying that people "count what matters, and what matters is counted."

Indeed, Mr. Shiller.

Times Square . . on Your Computer Screen!

Flashing, Blinking, Scrolling Images --
Plus Ads!

I've seen the future of online news . . . and it looks a lot like Times Square: one big, blinking, scrolling, flashing mass (mess?) of images and text.

Unlike the newspaper, which is organized much more "vertically," the newspaper-less can only present one, "horizontal" screen at a time.

To see what's behind (under? below?) the home page, you have to proactively look for it, by clicking on links, navigating multiple tables of contents, and "drilling" down ever deeper into the site.

Perhaps that's why online news is trying to become increasingly dynamic: so that you, the Reader, can be more passive.

Now, when you land on the home page of The New York Times, Star Trib, etc, you encounter a series of captioned photos attached to articles, ranked by their "newsworthiness" (at least according to the editor). Just like on the photo-sharing sites, the home page automatically scrolls through them.

Call it "faux verticality."


Along with that dynamism are more interstitial ads -- the kind that interpose themselves in between screen captures, and hold you hostage for three seconds (or was that five?).

Whereas you used to be able to click on a "close" or "skip this ad" button to remove them, the button is getting progressively smaller (no doubt on its way to disappearing altogether).

So, the ads now intrude mid-article, either obscuring part of the text (the ads move!) or interrupting it completely.


With all those blinking, scrolling images competing for your attention, interrupted by "targeted" ads . . . it makes you just want to pick up an "obsolete" newspaper.

Static never felt so good!

P.S.: one of my favorite comic strips about technology is from "Family Circus." It shows one of the kids excitedly yelling from the grandparents' guest bathroom: 'Mommie! Daddy! It's a toothbrush you don't have to plug in!'

Saturday, December 26, 2009

Separation of Business & State: the 28th Amendment

Needed: a 'Third' Separation of Power

Tyranny is never finally extinguished, it just keeps coming back in other guises -- more menacing and formidable each time.

At least, that would seem to be the lesson of the last millennium or so.

History Lesson

Once upon a time -- the Middle Ages, to be specific -- people were under the thumb of the King.

The Magna Carta, issued in 1215, circumscribed royal power and transferred sovereignty to the King's subjects (or at least some of them -- a select group of barons, initially).

Call it "Separation of King and State."

Almost six centuries later, the Bill of Rights -- and specifically, the First Amendment -- established the separation of Church and State, curtailing religion's influence over government (at least in the U.S.).

Now, in the wake of the Crash of '08, caused by many of the same abuses that preceded The Great Depression, another, third "separation" is urgently needed: an Amendment to the U.S. Constitution enshrining the separation of (Big) Business and State.

Three Strikes & You're Out

Passing what would be the 28th Amendment is really nothing more than a (belated) recognition that concentrated business power, given enough time, will inevitably slip whatever chains (regulations) government seeks to impose on it.

That's what happened in the wake of the great anti-trust movement at the turn of the 20th century.

It's what happened in the Roaring '20's, which set the stage for The Great Depression and the decade of misery it ushered in (more, if you count World War II).

And concentrated, ascendant financial power is what lies at the heart of the Crash of '08: a noxious (if familiar) stew of corporate greed, co-opted government, and fleeced and impoverished citizens.

A Worthy Legacy

Einstein famously said that doing the same thing over and over again, and expecting different results, is the definition of insanity.

Attempting to tame Wall Street, using the same strategies and mindset applied by previous generations of reformers and regulators, is no different.

The economic stewards of The Great Depression, led by FDR, put in place a financial system that served this country well for more than half a century.

This generation's economic stewards should try to leave behind a system that lasts even longer.

Divining Sellers' Motivation

Home for Sale -- Batteries (& Owner) Not Included

Prospective home Buyers seem to attach a lot of significance to Sellers' motivation (financial distress? Job transfer? Divorce? etc.).

Realtors, not so much.

For one thing, the three pieces of information a good Realtor is never going to tell you -- at least not without authorization -- are the Seller's price (bottom line, not asking), terms, and motivation.

For another, if a home is on the market . . it's for sale.

Period. End of story.

Realtors know that what ultimately matters isn't the Seller's mindset or circumstances, but the home's location, price and condition -- all of which stand on their own.

Put it this way: I've seen chandeliers and flat-screen TV's come included with a home . . . but never the previous owner.

As far as financial motivation goes, the local MLS now has fields asking whether the home is bank-owned, in foreclosure, or a potential short sale. A field left blank invariably means . . . it is.

What is Relevant

So when is speculating about the Seller (motivation, identity, etc.) relevant?

I can think of two situations, one common and the other rare (at least in the Twin Cities).

One. Notorious Homes (or Sellers).

At one extreme, homes linked to famous people can command a premium. Mount Vernon, George Washington's estate, isn't for sale (it's now government property), but you can bet that if it were, it would command a hefty premium.

Ditto for celebrity homes in Manhattan and LA -- assuming, at least, that the celebrity is known for good taste (Madonna's garish LA home sold at a steep discount years ago).

By national standards, at least, the Twin Cities doesn't have many celebrities. Ergo, you don't see that come up much here.

At the other extreme, homes that are supposedly haunted or were the site of a violent crime (murder, suicide) can be tougher to sell.

In Minnesota, disclosure laws keep changing on this, but the general rule is that if a typical Buyer would find something relevant . . the Seller has an obligation to tell them.

Two. Thankfully, the other relevant attribute about a home's status is much more straightforward: is it vacant or occupied?

Homes combine a benefit -- shelter -- and a cost (mortgage payments, taxes, upkeep, etc.)

Take away occupancy, and all the home represents is a cost.

Even if the home is an estate sale and long paid-off, there are still property taxes and upkeep.

There's also something called "opportunity cost": what the owner(s) could otherwise be doing with the money if it weren't tied up in the vacant home.

So, yeah, I think it's reasonable to assume that owners of vacant homes hear a little bit louder "ticking clock" than other owners.

Everything else being equal, such homes logically should sell faster, for better prices.

P.S.: But not always. I've seen plenty of estate sale situations where none of the beneficiaries seem to especially need the money (lucky them!), and are content to wait however long it takes to get "their price" (however they arrived at it).

Friday, December 25, 2009

Fannie & Freddie, Uncapped

Best Time to Bury a Story? X-Mas Eve

The U.S. Treasury said it would provide capital as needed to Fannie Mae and Freddie Mac over the next three years, effectively opening its checkbook to the government-controlled companies in a bid to reassure investors in their debt.

Treasury announced the moves in a Christmas Eve press release, a week before its authority to change the terms of its agreements with the companies was set to expire. After Dec. 31, Treasury would need the consent of Congress to make such changes.

--"U.S. Uncaps Support for Fannie, Freddie"; The Wall Street Journal (12/24/09)

What's the significance of the foregoing?

Fannie Mae and Freddie Mac are the major suppliers of capital to the housing market at the moment.

The Treasury's move indicates that it doesn't plan to "cut off" either anytime soon, even after shoveling more than $100 billion into the firms since putting them into "conservatorship" in August, 2008.

The only thing surprising about the Treasury's announcement is the Christmas Eve timing: apparently, no one's working there at midnight tonight (an even better time to bury the news).

(Very) White Christmas

It was the night before Christmas
When all through the house
Not a creature was stirring
Not even a . . . snowplow

OK, so that's not how it goes.

However, it appears that snow emergency-free Minneapolis has decided to let the (continuing) storm unfold, rather than call in workers on Christmas Day at (double? triple?) overtime to go after the (very) messy streets.

My kingdom for . . . an SUV??

P.S.: And yes, for any non-Minnesotans reading this blog, the natives are very obliging about pushing out one another's stuck cars.

Thursday, December 24, 2009

Christmas Eve Sales

Stocking Stuffer

Where: 48xx Portland Ave. South, in South Minneapolis
When: went pending today (Christmas Eve)
What: 5 BR/3 Bath stucco bungalow with over 2,200 square feet
How (much): asking price - $209,900
Who: listed by Roman Dziuba, Minnesota Realty

Every year, clients contemplating listing their homes around Holiday time ask about the wisdom of going ahead now vs. waiting till the market accelerates a bit (typically, early February).

My stock answer is that, in a big, metropolitan area like the Twin Cities (13 counties; total population 2.5 million), homes sell every day of the year -- including Christmas Eve!

I never actually bothered to check that statement; rather, I always simply assumed that it was true.

Well, it is.

I just ran a metro-wide MLS search for homes that went "Pending" today, and found 14 such transactions (including the home pictured above).

Happy Holidays!

Goldman Sachs: 'It's Not My Dog'

Goldman Sachs: Preying on its Clients
(& Taxpayers, too)

[Note to Readers: No, this hasn't become the "anti-Goldman Sachs rant" blog. It's just that: a) the firm's conduct is/was so outrageous; b) the economic harm it caused so far-reaching; and c) authorities' response to the firm's conduct so feeble (if you can call it that).

Perhaps most significantly, there are a number of new stories -- like the one below -- documenting many previously unknown details about the firm's behavior. Back to "regularly scheduled" real estate posts soon . . . promise!]

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

--"Banks Bundled Debt, Bet Against It and Won"; The New York Times (12/23/09)

So . . . the accusation is that Goldman Sachs screwed its customers, big-time.

Specifically, Goldman Sachs made billions selling its customers garbage.

Then, it made even more billions betting against ("shorting") the garbage.

"It's Not My Dog"

What does Goldman Sachs say in its defense?

A. It told its customers that they were buying garbage, i.e., it disclosed all the risks.

B. It told its customers that it was betting against them (again, via disclosures).

C. Other Wall Street firms sold their customers garbage and bet against it/them, too.

D. Goldman Sachs' customers were big, institutional investors ("big boys") capable of assessing the risks for themselves. (Legal translation: Goldman's clients didn't -- or shouldn't have -- relied on Goldman's representations.)

E. It sold its customers garbage because . . . its customers asked them to! (it was only responding to demand; if Goldman Sachs hadn't sold the garbage securities . . . their competitors would have).

F. Even though Goldman Sachs made tens of billions overall betting against the garbage, some of its bets lost money, too.

G. Goldman Sachs didn't really bet against the garbage, because those bets were merely designed to offset other bets the firm made (contradicted by "F.").

Answer: all of the above.

Lawyer Jokes

Connoisseurs of lawyer jokes will recognize the above as a variant of the "it's not my dog" defense.

When the lawyer's neighbor charges that the lawyer's dog viciously attacked him, the lawyer gives the following, layered defense:

First, he denies that there even was an attack.

When neighbors step forward to say they witnessed the attack, the lawyer says the victim wasn't really hurt.

When the victim presents the lawyer with graphic photos and a copy of the hospital bill, the lawyer argues that his dog attacked in self defense.

When the neighbor produces affidavits from witnesses testifying that the attack was unprovoked, the lawyer asserts that . . . it's not his dog!

"No Comment"

If Goldman Sachs' official spokesman is trotting out the "it's not my dog" defense, what do the actual principals -- current and former employees -- have to say for themselves? How about other Wall Street firms alleged to have done the same thing?

According to the NY Times article:

--Michael DuVally, a Goldman Sachs spokesman, declined to make [trader] Jonathan Egol available for comment.

--Henry Paulson declined to comment (Paulson runs a hedge fund that made more than $15 billion betting against the housing market).

--[Goldman trader] Tetsuya Ishikawa, who now works for another financial firm in London, declined to comment on his work at Goldman.

--Deutsche Bank . . . declined to comment (on a smaller scale, Deutsche Bank is alleged to have done the same thing to its customers that Goldman Sachs did).

--Michael Barnes, the co-head of Tricadia . . . declined to comment.

--Lewis Sachs, Mariner’s vice chairman . . . declined to comment.

Detect a theme here??

I know a way to make people talk (that doesn't involve Mafioso tactics): give a handful of these guys limited immunity, so they can't invoke their 5th Amendment right against self-incrimination, then compel them under oath to rat out their colleagues.

As distasteful as it is to let a few of these rats off the hook to get at the rest . . . it's a lot less distasteful than giving Wall Street trillions in taxpayer loans, guaranties, and free money (courtesy of the Federal Reserve)!

Wednesday, December 23, 2009

Strong Wind Blowing

Winds, Metaphorical and Otherwise

There's a strong wind blowing through the Twin Cities today.

No, not the metaphorical kind.

The literal kind.

From the east (very unusual), at about 15 miles per hour.

As the locals have now been warned the last 24 hours or so, we're supposed to get a foot-plus of snow the next three days.

Goldman Sachs, Briber Par Excellence

A Cut for Everyone But the Taxpayer

"Bribe" (verb): to induce or influence by or as if by bribery.

"Bribe" (noun): money or favor given or promised in order to influence the judgment or conduct of a person in a position of trust.

--Webster's Dictionary

Of course, the whole thing is that "no laws were broken." And there's the rub.

But what else do you call showering money on legislators, credit rating agencies, and your own employees (past, present, and -- in the case of many government officials -- future), all toward the end of crafting a financial system to your liking?

Just consider all the ways that Goldman Sachs' lucre and ingenuity have rotted out the foundations of the American system of governance:

Rating Agencies. No, Wall Street couldn't have sold trillions in mortgage-backed securities all by itself -- it needed the credit rating agencies' seal of approval.

Which was simple enough: Wall Street was the client!

Moody's & Standard & Poor's didn't just rake in billions for giving Triple A ratings to dreck.

Thanks to the magic of the stock market, which values companies based on P/E ratio's, every incremental dollar the credit raters earned from Wall Street created as much as a 20x jump in their market cap's.

Financial Alchemy

What's the significance of that?

It translated into tens and sometimes hundreds of millions(!) in extra compensation for company exec's, whose pay included huge slugs of stock.

Politicians. President Obama's biggest corporate campaign contributor? Goldman Sachs. Ditto for practically every senior Democratic member of Congress (and many junior ones).

The really sad part is how cheaply Congress can be bought: a couple hundred million in campaign contributions, tops.

The return?

If the upside includes your company's stock market capitalization (see, above), tens of billions in annual compensation, and double that in profit . . . trillions.

Return on investment?

I don't know -- infinite??


Once upon a time, the Securities and Exchange Commission, conceived during the last financial upheaval during The Great Depression, protected investors' interests.

Now, it does those same investors a double disservice: 1) by not doing its job (see, Madoff, Bernie and many, many other examples); and 2) by giving at least some investors the mistaken notion that their interests are being protected, thereby creating a false sense of security.

What might explain regulators who don't regulate?

A lot of these folks aspire to "graduate" from Washington to Wall Street. An aggressive stance towards your future employer is not a good career move.

Diagnosis & Prescription

If you're keeping track, that's two out of three branches of government thoroughly compromised by Wall Street money (call it 3-for-3 -- a hat trick! -- if you consider Congress' role selecting and confirming judges).

Which suggests the solution.

Take the money away from them.

Step #1: break up Goldman Sachs.

2010: Year of the Short Sale?

Short Sales: Hurdles and Consequences

Short sales continue to be a huge factor in the Twin Cities housing market.

How do I know?

I've been showing a new client who's a first-time Buyer properties within 5 miles of South St. Paul the last few weeks, literally from Maplewood to Cottage Grove. Out of perhaps 100 homes I've screened online that met the client's criteria (price, square feet, number of bedrooms and baths, etc.), I'd estimate that more than two-thirds were "potential short sales."

In fact, the percentage is likely even higher, because invariably when the MLS field asking for short sale status is left blank . . . the home is a potential short sale.

Even taking into account the lower bracket price range (under $200k), those numbers are staggering.

New MNAR Form

Another sign that short sales loom large is a new form that the MN Association of Realtors has rushed out to help Realtors and their clients deal with potential short sales.

The forms lists the following seven "risks and ramifications":

1. Failure to obtain approval from all lender(s)/creditor(s) with a mortgage/lien against the property may prevent the sale from closing.
2. Short sale approvals from all lender(s)/creditor(s) are time consuming, may delay closing, and may not be accomplished within expected timelines.
3. Creditors will likely require disclosure of personal assets and financial records, including copies of tax returns, to determine approval of a short sale.
4. A short sale may require seller to pay off some or all of the amounts owed after closing.
5. Seller's credit will be impacted as a result of a short sale transaction.
6. Seller may incur tax consequences as a result of a short sale.
7. The approval of a short sale is never guaranteed.

Got all that?

Neither do most Sellers.

In fact, the form goes on to recommend that the prospective short seller consult with appropriate "tax, financial, and legal advisors" to determine if a short sale is appropriate.

My guess is that someone too financially strapped to pay their mortgage either doesn't have an attorney or accountant -- or doesn't have the money to pay them.

No wonder something like 75% of all short sales progress to foreclosure.

Tuesday, December 22, 2009

Chinese Drywall in Minnesota?

New Bank Disclaimer

Chinese drywall may not have made its way to Minnesota yet -- but Chinese dry wall disclosures have.

I'm currently representing a Buyer interested in a bank-owned property where, in addition to the usual "As Is" disclaimers, there's a separate disclaimer addressing Chinese drywall.

If you didn't know, tainted Chinese drywall has popped up as a major issue in other markets, notably Florida and Southern California.

Which may explain why the bank in this case is requiring the drywall disclosure: it's based in Southern California, where it has undoubtedly run into the issue.

Just like Target -- once upon a time -- stocked its Southern California stores with the same gloves and antifreeze that it sold in Minnesota, many national banks have a "one size fits all" policy regarding the legal forms they use to dispose of their foreclosures.

"New Rules": Sales Ads

Holiday "Sales" That Aren't

Comedian and talk show host Bill Maher has a segment called "New Rules" where he rails at hypocrisy and stupidity -- especially when practiced by large organizations. Maher's "New Rules" substitutes his own, more sensible standard.

In that spirit, I've got a "New Rule" for stores that advertise sales, holiday or otherwise:

New Rule -- stores can't advertise that an item that's normally $25 is "on sale" because it's marked down to $24.89 (or a grocery store item that's normally $3.89 is "on sale" for $3.79). If you want to scream "sale" to Holiday-weary shoppers, the "sale item" must be marked down at least 5%.

In fact, Edina Realty has long had an internal policy designed to cut down on the number of agent "blast" e-mail's heralding price reductions on their listings.

To be forwarded to agents company-wide, the price cut must be at least 5%.

P.S.: Don't know if this is an "urban myth," but I just heard a plausible explanation for why air fares seem to magically increase the closer you come to booking your tickets (while on an airline site recently, I had a quoted airfare increase in between the time (30 seconds?) when I selected the flight, and input my credit card for payment!)

The explanation?

Software on your computer, called, "cookies," lets the airlines track you, so they can guess -- or literally know -- when you're about to buy. Call it high tech "bait-and-switch" (advertise one fare, substitute another when you're ready to pull the trigger). Assuming, of course, that it's true.

Monday, December 21, 2009

Holiday Travel and "B.Y.O.B."

Coffee Snobs -- or Caffeine Addicts?

I first started noticing it two years ago: my in-laws would set out their preferred brand of dried coffee when they stayed with us (we took a hint, and now have it waiting for them).

Then, over Thanksgiving, my sister and brother-in-law made a grocery run and brought back a packet of their preferred ground coffee.

My variation of the foregoing when I'm a house guest is casing the local neighborhood for the nearest caffeine fix.

The trend?

B.Y.O.B. (as in "Bring-Your-Own-Beans")

Not sure if that means my family and relatives are all coffee snobs -- or just caffeine addicts.

In my in-laws' case, probably the latter: 3 feet away from the (crappy) instant coffee they prefer so much are my fancy, $12 a pound French Roast beans.

Client Capture & "Realtor Windows"

Why Realtors Are Never Too Busy for More Business

One of the reasons I think Detroit has such an uphill battle regaining (or even just maintaining) market share is that drivers' relationship with their auto company tends to be "sticky."

Put it this way: after disappointing experiences with a variety of brands (ask me about my "Saab story"), my wife and I switched to Honda's and Toyota's more than a decade ago. (Full disclosure: I drive the "starter LEXUS" -- leased -- which I consider to be a glorified Camry.)

(More than) satisfied customers, we've never looked back.

Call us "captured clients."

"Realtor Window"

Real estate is similar.

The average American buys or sells a home once every seven years (a little less frequently than they switch cars).

Ergo, if you're a Realtor, that means the window for capturing someone's real estate business opens . . . once every seven years.

In fact, if the would-be client goes with another Realtor who does everything they should (a good job, good communication, great follow-up, etc.) and isn't close to retirement age, it's safe to assume that their (need a) "Realtor window" will only be open once.

Even that potentially understates things: it's not unheard of for Realtors to have multi-generation relationships with clients, like the teacher who taught the parent . . . then teaches the parent's kids.

So, passing on a deal conceivably means passing on all that person's future deals -- and perhaps even their kids' deals.

So, no, I'm never too busy for new clients . . .

Bragging Rights, circa 2010

"Steve," Economic Bellwether

Want to know the latest economic and business trends?

You could read widely (The NY Times, Wall St. Journal, etc.), conduct lots of surveys, or have keen powers of perception.

Or, you could just observe a long-time friend of mine (I'll call him "Steve" for purposes of this post).

A decade ago, Steve was bragging about the latest Internet IPO he'd bought into .

Five years ago, he was bragging about how much his home had appreciated.


We caught a bite to eat, and Steve was bragging about all the discounts he got on the new printer he just bought.

Zeitgeist Barometer

After totaling up all the in-store rebates, mail-in coupons, etc., apparently he paid $30 for an HP printer that retails for almost $200 (tantalizingly close to the bargain hunters' promised land: having them pay you to buy something).

There you have it: Steve, a one man economic bellwether.

Hmmm . . . I wonder if he knows why I keep treating him to lunch every six months or so.

P.S.: the one thing I remember from my one college statistics class is the coefficient of correlation. Two things that are perfectly correlated are a +1.0; inversely correlated, -1.0. Two things that are absolutely unrelated have a coefficient of correlation of "0."

What difference does any of that make?

When it comes to investments, most people look for experts whose coefficient of correlation predicting winners is quite high (ideally 1.0). However, as my professor pointed out, always wrong is just as valuable as always right -- you just do the opposite! (Seinfeld devotees will recognize this as the principle underlying "Opposite George.")

In fact, that's how I pick the movies I want to see: I just ask my sister what she's seen lately that she really, really hated.

Sunday, December 20, 2009

Remodeling Do's & Don'ts

The Six Month Rule

Sometimes, the timing of home improvement projects is obvious: the best time to tackle updating a 50 year-old Kitchen, refinishing hardwood floors, putting in a new bathroom, etc. is definitely before you move in (think, dust, fumes, noise, intrusions, etc.)

By contrast, there are other, functional home upgrades that are more discretionary.

If you have the luxury (or economic necessity) of waiting, it can be a good a idea to live in your new home awhile before making any big remodeling decisions.

That way, your sense of the house has a chance to settle, and you won't have to un-do anything later.

A good example of that is . . . me.

I have pretty intensive home office needs, which typically means retrofitting an extra bedroom with some extra electrical, storage, and lighting.

When we first moved in, those upgrades would have gone into an upstairs bedroom.

Six months later, it was apparent that the lower level Bedroom made for a better office.

By holding off and allowing for some new home "trial and error" . . . I only had to spend the money once.

U.S. Dollar Rally

Consider the (Currency) Alternatives

Democracy is the worst form of government -- except for all the others.

--Winston Churchill

Substitute "U.S. dollar" for "democracy," and "currency" for "form of government," and you have a succinct explanation for the major rally in the dollar the last two weeks or so.

Actually, it's really not true that all other currencies are worse.

What is true is that the currencies that are stronger -- for example, Australia's and Canada's -- simply don't have the circulation and scale to substitute for the dollar.

Think of it like the stock market: it's a lot easier to buy or sell 10,000 shares of ExxonMobil than a little, over-the-counter stock.

Outrage Over Banker Bonuses: Define 'Benefit'

Banker Arrogance, Exhibit #137

Pop quiz: who said the following, in what context?

"We all benefited from the financial system. All of us."

A. President Obama, justifying using trillions in taxpayer money to fortify the nation's too-big-to-fail banks.
B. An anonymous retiree, rationalizing the .25% (as in 4 x .25% = 1%!) annual interest -- before tax! -- that he's now collecting on his savings.
C. Fed Chairman Ben Bernanke, explaining his actions to rescue Wall Street.
D. A latter-day Tiny Tim, expressing gratitude ("God Bless Us, Every One!")
E. One of the millions of U.S. homeowners who lost their home to foreclosure last year -- or are in jeopardy now.
F. Robert Diamond, the President of Barclays Capital, one of Britain's biggest banks, and the recipient, personally, of more than $90 million in bonuses and salary the last 4 years, justifying his paycheck. (Source: 'Executive at Barclays Defends Pay'; The New York Times, 12/19/09)

Answer: F.

And no, Mr. Diamond, it's patently false that "all of us benefited from the financial system" (at the very least, it would seem that some of us "benefited" quite a bit more than others).

P.S.: why does every institution and individual responsible for the financial melt-down have to have a financially tinged surname? Examples: Goldman Sachs, Alan Greenspan, Robert Diamond, etc. Maybe it's easier to identify the culprits that way.

Selling -- or Buying -- Without a Realtor

Profile of a FSBO

Are real estate brokers — like travel agents and other middlemen coping with the increasingly digital culture — in danger of becoming expensive anachronisms? After all, it is only logical that as people feel more empowered based on their access to information and their ability to connect without help, they are at least questioning the wisdom of the conventional way of buying and selling a home.

--"Agent or No Agent?"; The New York Times (12/17/09)

I tripped across the article above, ironically enough, in between doing some year-end housekeeping (file and email clean-up, desk de-cluttering, etc.).

Without getting into the merits of the article -- I've addressed FSBO's, or "For Sale by Owners" in numerous others posts -- suffice to say that the files I accumulate for each client can be extensive.

In the course of representing a typical Buyer or Seller, it's not unusual for me to accumulate literally dozens of emails, and log even more phone calls, spanning half a year or longer (hopefully, not too much longer).

Much Ado about . . . Something

Admittedly, sometimes my clients are also friends, and I'm not always "all business" in every communication.

But if Realtors are really as obsolete as travel agents and elevator operators, what's all the back-and-forth about?

Depending on whether the client is a Buyer or Seller, and what stage of the process they're at, the conversations are about . . . staging ideas, competing homes for sale, market developments, showing feedback, explaining contractual fine points, applicable Comp's for "finalist" homes, relaying documents for review and signing, getting reaction to marketing materials, arranging title work, lender referrals, clarifying showing instructions, discussing timing and magnitude of price reductions (if applicable), recommendations for home inspectors, direction about municipal point-of-sale requirements, arranging walk-thru's prior to closing, formulating a counter-offer, resolving inspection issues, progress (or lack thereof) obtaining a mortgage -- and many, many other subjects.

If you think you can navigate all of the foregoing topics on your own -- and have the time and inclination . . . . Congratulations!

You just may have what it takes to sell your own home.

P.S.: all those email's mentioned above are just between me and my clients. I omitted -- happily, I'm sure you'll agree -- all the communication with third parties (other Realtors, stagers, photographers, etc.).

Saturday, December 19, 2009

Brown, Black, or White? No, Just Unemployed

Year in Review: Top Stories

Regular readers of this blog are already familiar with all the ways I believe this country has been weakened, especially financially, by Wall Street greed and recklessness (again).

But there's one way -- surprisingly un(der)remarked -- in which I think this country is immeasurably stronger than it was 20 years ago -- or 100.

That's in the realm of race relations.

The election of Barack Obama, the nation's first African American President, would seem to mark the beginning of the end of a centuries-long rift between Whites and Blacks in this country -- the healing of what many call "America's original sin."

Instead of "white America" and "black America," it feels like there's now just one America (at least when it comes to race).

Post-Racial America

As a 50 year-old, middle class white male, I don't presume to speak for African-Americans, and whether or not they experience less racial prejudice today.

And there's no denying that African Americans as a group are (still) less well off than their white counterparts, according to virtually every measurable gauge there is (employment, income, life expectancy, educational achievement, etc.).

And still . . . somehow the tone in race relations seems different: the grievances less intense, the hopes a little brighter.

New Divide?

There's a new status quo, I submit, only when everyone takes it for granted.

So, it's reassuring that nowhere in the opprobrium heaped on Tiger Woods the last few weeks is there a whiff of racial invective (at least I haven't detected it). And no, I don't think it's because Tiger is also part-Asian.

The biggest risk to this country now, as I see it, just as it is finally healing a centuries-old fissure between White and Black, is the prospect of a new divide -- equally deep and profound -- threatening to split it into two again.

No, it's not "Red States" vs. "Blue States," or North vs. South.

Rather, it's the divide between all the financially struggling Americans -- White, Black, and Other -- and the financial elite on Wall Street who effectively run the country (or at least its finances).

So, maybe we owe Wall Street a debt of gratitude (on top of the very real trillions we owe because of it): it's united everyone against it.

Friday, December 18, 2009

New Name for "Highest and Best"

Realtor-Speak for "Cut to the Chase"

Once upon a time, "highest and best offer" meant that everyone interested in a particular property -- often a foreclosure -- had to "cut to the chase" and (re)submit their highest offer, combined with their best terms (closing date, financing terms, inspection contingency, etc.).

Then, the Seller would pick one.

The idea was that that was the most efficient way for the Seller to sort through a flurry of offers, and put the kibosh on multiple rounds (and the incentives for skulduggery that can go with, like sharing some bidders' terms with other, favored bidders).

In practice, however, that's not how "highest and best" worked, at least as practiced by many bank-Sellers.

Instead, after getting everyone to up their bid to their supposed maximum, they would once again invite everyone (or perhaps just the "semi-finalists") to submit their "highest and best" offer.

Call it "highest and best, round 2" (sometimes followed by round 3 and 4).

Thanks, but no thanks.

In what I have to assume is a nod to such unsavory scenarios, I just saw the listing agent for a foreclosure I showed earlier this week put out an email asking for . . . 'last and best offers.'

Baseball Metaphors & the Housing Market

Willie Keeler & The "Asterisk '90's"

Surveying the real estate market from a Realtor's perspective the last year -- and the prospects for next year -- conjures up some parallels with baseball.

Namely, it's the era of the "singles" hitter.

Just as some periods in baseball seem to be dominated by sluggers (think, Mark McGuire and Sammy Sosa in the late, "asterisk" '90's) -- others seem to favor singles hitters like Pete Rose and Rod Carew.

This would be the latter era for Realtors.

Selling What's Selling

Instead of hitting "home runs" -- upper bracket homes fetching north of $1M -- by far the most active part of the housing market is the lower rungs (call it under $200k) where first-time Buyers predominate, and the government's tax incentives loom largest.

It's also the part of the market that can have the biggest deals: dramatically written-down bank foreclosures (often times in a condition to go with).

Think of it as the opposite of Willie Keeler's explanation for his hitting prowess: 'I hit 'em where they ain't.'

In today's housing market, the trick is to sell what people are buying . . .

Thursday, December 17, 2009

The Trouble with Tuck Under's

Tougher Sell in (MN) Winter?

The problem with tuck under garages is what's "over" the "under": I've now shown three homes in the last two weeks where one of my (Buyer) clients' main objections was that the bedroom floors directly above the garage were cold.

Of course, the other problem with tuck under garages is that they tend to be single stall.

Usually, single stall, tuck under garages go with a couple other things as well: older (but solid!) construction; one hall bath (i.e., no private master bath); and smaller, dated Kitchens.

"Please Leave Shoes On??"

The Realtor term for the foregoing is "functionally obsolete" (it still works, but it's dated).

On the plus side, the neighborhoods where these kinds of homes predominate are typically closer in -- and can be a very good value.

P.S.: Maybe Sellers of homes with tuck under garages should reconsider asking prospective Buyers to take their shoes off: I doubt the cold floors would have been so noticeable if my clients and I hadn't been walking around in our stocking feet!

Wednesday, December 16, 2009

Consumer Decadence: Exhibit A

Love-Hate Relationship with Modern Culture
(The "Cupholder Culture?")

How can you not a love a country where, just as you're trying to find a place to put your coffee cup while you're pushing your grocery cart through the aisles, you look down and see a built-in cupholder in the cart? (Has that always been there??)

Where else can consumers nurse their lattes as they ogle aisle after food-stuffed aisle laden with delicacies literally from all over the world?

And that's in a Rainbow, for God's sakes.

Consumerist "Feet of Clay"

So what's the "hate" part about?

The same geniuses who have made cupholders *ubiquitous can't figure out how to make a decent grocery bag.

As I was unloading the groceries from the grocery cart to my back seat, two (out of three) grocery bag handles ripped, dumping my groceries all over the parking lot.

*Go see Pixar's movie, "Wall-E," if you want to see where all this leads . . .

Firing Offenses & Cardinal Sins

Realtors & Clients Parting Ways

You can't take it anymore.

Close to the edge for quite awhile, they finally did something that crossed the line.

So, you fire them.

Clients axing their Realtor?

Try, Realtors firing their clients.

Irreconcilable Differences

No, I don't believe it happens that much, because most clients' expectations and conduct are reasonable, they appreciate their Realtors' hard work -- and their Realtors do a good job (at least that's what all my clients think of me!).

Call it the "Garrison Keillor-esque" view of how real estate works.

But Realtors do in fact fire clients -- or decline to work for them at all.

In my almost-nine years in the business, I've "fired" clients twice; both times, it was after they did something that risked getting themselves -- and me -- sued.


I'm allergic to lawsuits -- and clients who risk them.

Client Cardinal Sins

As a former attorney, I know that lawsuits typically produce losers all around, draining everyone's time, energy, and money (especially, money).

As a Realtor, I know that it's one thing to walk away from a deal empty-handed; it's quite another to be entangled with someone who jeopardizes your reputation.

Sometimes, it's not the money you make . . . it's the money (and time) you don't lose.

In contrast to firing a client, the one instance where I'll decline to work with a Seller at the outset is when they insist on an asking price that far exceeds what my research and experience tells me is fair market value for their home.

Yes, they can always reduce their asking price later, but by then your marketing efforts (and budget) have been squandered, and re-attracting prospective Buyers is twice as hard.

Real estate's a tough enough business already . . . .

Monday, December 14, 2009

Measuring Bubbles: 'the Kaplan Scale'

Riding Out a "K5" Bubble

Let's see . . . earthquakes have the Richter Scale, and tornadoes have the Fujita Scale, but what do financial bubbles have?

How about the "Kaplan Scale?"

I'm not a fan of logarithmic numbers, so I'll stick with the Fujita Scale's F1 - F5 ranking system (of course, substituting "K" for "F").

Herewith is a quick description of each level's size, intensity, and duration, with illustrative examples:

K1: Limited to a single commodity, market sector, or (smaller) national economy. Damage: under $100 billion. Examples: crude oil bubble -- 2007-2008 (peaked at $150 a barrel); Iceland's economy -- 2003-2008.

K2: Damage between $100 and $500 billion. Limited to one major economy, or several emerging ones. Example: the S&L Crisis and related commercial real estate bubble in the U.S. -- late 1980's.

K3: Regional in scope, damage between $500 billion and $1 trillion. Example: the 1997 Asian Financial Crisis, which began in Thailand and quickly spread to Indonesia. South Korea, and Hong Kong.

K4: Damage exceeds $1 trillion, spanning multiple markets globally; multi-year duration. Fallout capable of putting multiple, developed economies into recession -- or a single, major economy into Depression.

Examples: the late '90's tech stock bubble; Japanese stock and real estate bubble -- 1980's.

K5: Damage exceeds $5 trillion. Build-up and subsequent unwinding can span decades.

Capable of throwing many if not most global economies into recession -- and some into depression. Example: The Great Depression.

So where does the Crash of '08 rate?

So far, I'd put it between K4 and K5.

Refinancing "Ostriches": Pain Avoidance?

Top 4 Obstacles

Water, water everywhere, but nary a drop to drink.

--Samuel Taylor Coleridge, "The Rime of the Ancient Mariner"

Substitute "money" for "water" and you have a good sum-up of today's lending environment.

With mortgage rates at record lows -- around 4.75% for a 30 year mortgage -- you'd figure that anyone paying, oh, say, 6% or higher would refinance.

But that's not what I'm hearing from the lenders I talk to.

Anecdotally, here are the top 4 reasons -- at least according to the lenders -- why many refinancing candidates . . . don't. (To get the real scoop, I suppose you'd have to survey the non-refinancers.)

One. Paperwork/Inertia.

Refinancing a mortgage requires pretty much the same rigamarole as getting a purchase-money mortgage: applications, W-2's, income tax returns, etc. Some people never get around to it -- or peter out halfway through.

Two. Pain avoidance.

Of course, the big piece in any refinancing is the appraisal. Which means facing how much your home may have dropped in value since you purchased it.

Just like no one wanted to open their monthly brokerage statements a year ago, lots of homeowners now apparently don't want to confront current housing prices.

Which leads to . . .

Three. Sense of Futility.

In fact, a tighter lending environment makes it objectively harder to refinance ("Interest Rates Are Low, but Banks Balk at Refinancing" -- The New York Times; 12/12/09).

Who's shut out?

Homeowners who put little down and whose home values have been whacked -- and therefore lack the collateral banks require (see appraisal, per above); anyone who's lost their job; and anyone whose credit scores have been beaten up during the recession (south of mid-600's is a big problem).

Four. Fees.

There are rational reasons for not refinancing, too.

If you're going to move in a few years, you probably won't recoup the 3% or so it can cost to refinance.

"Scheduled Surprises" -- & Other Oxymorons

Last week, it was "limited surge."

Now this: 'Sarah Palin is scheduled to make a surprise walk-on appearance with Conan O'Brien on NBC's "Tonight Show.'

Are oxymorons contagious??

Sunday, December 13, 2009

Bigger Isn't Better

The Rehab "White Elephant"

When isn't bigger better? (Try saying that 3 times!).

When it's a major rehab.

The dividing line seems to be about 3,000 finished square feet.

Below that, and "bringing up" a house with the proverbial good bones can be done for as "little" as $150k or so, spent strategically (Kitchen: $40k; painting, wall and floor coverings: $30k; windows, roof(?), and mechanicals: $50k; bathrooms: $25k; landscaping: $10k

However, the budget for tackling a very dated, 4,500 square foot-plus house might be easily go north of $500k.

That's a lot to pop for, at the moment. Especially if you have to pay for it out-of-pocket (vs. financing at today's cheap mortgage rates).

And it adds inventory to what is already the weakest part of the housing market locally (nationally, too).

Real Estate Euphemisms

Homes with "Great Personalities" -- & Other White Lies

Every sales-related profession has them: euphemisms intended to put a positive face on what most people would agree is a negative.

In that spirit, here is a "conversion key" to some of the most popular real estate terms today:

What the listing says: 'quick closing possible.'
What the agent means: the home's vacant.

What the listing says: 'meticulously cared for"
What the agent means: long-time owner, home needs major updating.

What the listing says: 'needs cosmetics'
What the agent means: needs . . . everything.

What the listing says: 'just needs your decorating touches'
What the agent means: needs a general contractor, lots of sub's -- and a healthy rehab budget

What the listing says: 'cozy'
What the agent means: small -- if not claustrophobic

What the listing says: 'priced to sell'
What the agent means: nothing -- what home on the market says it isn't "priced to sell?" (ditto for any phrase with the word "opportunity" in it).

What the listing says: 'not a foreclosure, not a short sale.'
What the agent means: the home's (too) close to many that are (actually, given the headaches associated with short sales especially, this is a "heads' up" that's actually helpful).

What the listing says: 'experienced short sale agent'
What the agent means: I've got way too much experience already . . . trying to sell this one.

Any other Realtors reading this blog care to contribute their own favorites??

Paralysis by (Financial) Analysis

Instant Amnesia -- Or Something Worse?

If it exists, it's possible.


Believe me, it's not what it is.

--caption, New Yorker cartoon (what husband caught in bed with another woman says to his wife, standing in the doorway).

Let's see: as every investor, saver, employed person and sentient being knows, the U.S. financial system -- indeed, the global financial system -- effectively crashed in mid-September, 2008.

The proximate cause was the failure of Lehman Brothers, which set off a horrific series of financial dominoes that threatened virtually every major global financial institution.

To stem the panic, sovereign governments around the world, led by the U.S., intervened with an unprecedented series of financial injections, guarantees, bailouts, etc.

Those actions appear to have stabilized the (economic) patient, but the prognosis -- not to mention the staggering costs of said intervention(s) -- have yet to be sorted out.

So, what are the defenders of the status quo, opposed to breaking up so-called "Too Big to Fail" financial institutions, calling for?

More study (just like global warming skeptics).

Consider this op-ed, from Friday's Wall Street Journal:

Congress, as part of its reform legislation, should mandate the creation of a new expert commission designed to fully investigate the extent and consequences of interconnectedness before any new regulation of systemically important institutions is actually adopted.

--Hal Scott, "Do We Really Need a Systemic Risk Regulator?"; The Wall Street Journal (12/11/09)

Do we really need a "new expert commission" to tell us, years from now in mind-numbing jargon, what we just collectively witnessed?

Does this guy live in the real world??

Actually, he doesn't: he's a Harvard Law School Professor.

$235.50 Per Showing (or Thereabouts)

How Much Does a Showing Cost?

Showing a home doesn't cost money, does it?

It does if you're a Realtor.

My cost accounting expertise -- such as it was -- is long gone, but that doesn't mean I don't have a rough sense of how much each showing costs me.

Whereas listing agents -- representing Sellers -- typically spend more out-of-pocket (for things like staging, photography, ads, etc.), Buyer's agents mostly invest time.

I don't know about other Realtors . . . but my time is pretty valuable.

Here's how I break down what goes into an individual showing:

A. Time

--Actual showing: 1 hour
--Travel time, to and from: 20 minutes
--Time to screen active listings, run by client (or screen client suggestions): 15 minutes
--Time to set up showing; prep for client, i.e., photocopies of MLS listing, run Mapquest for directions (if applicable); give feedback afterwards: 30 minutes

Total time: approximately 2 hours

B. Out-of-Pocket

--Gas: $5 (1/8 of tank); Photocopies: $.5

C. Overhead

--% of my annual state license; monthly Edina Realty fee (for my Web site, ProKit, desk fee); annual Realtor fee and continuing education; car expenses (lease payment, depreciation, etc.); monthly Realtor access key payment; etc.

Call it $30.

Not all Realtors put a dollar amount on their time, but I do: $100 per hour (and a bargain at that: as an attorney/CPA, I billed out at $175 an hour -- almost 20 years ago!).

Grand total for all the above: well over $200 per showing.

No wonder Realtors try to be efficient establishing their clients' wants and needs, zeroing in on the listings that are the closest match.

Saturday, December 12, 2009

"Report any Dead Bodies"

Foreclosure Showing Instructions

Most showing instructions -- what Realtors need to know to open up and then lock a home they're showing to clients -- are pretty banal: turn off lights, leave card, remove shoes, etc.

Occasionally, you'll get a twist like "don't let Fluffy (invariably, a 120 lb. Rottweiler) out, or directions on how to disarm a security system (note to Sellers: if you want to encourage showings . . . turn off your security alarms -- at least during business hours!).

However, the showing instructions for foreclosures can give you pause.

Here are the instructions for a foreclosure I'm showing this afternoon: 'report any major property damage, broken windows, etc. to the Listing Agent.'

I'll certainly take a minute to relay any problems I find, but I don't consider myself to be in the (unpaid) property management business.

If a foreclosure I want to show appears to be seriously tampered with, my advice to clients is to skip it (I usually don't get much argument).

P.S.: As I've previously posted, the reason listing agents representing foreclosures often have no clue about the condition of the properties they're selling is that at least a few are simultaneously listing hundreds of them.

Friday, December 11, 2009

"Must Qualify with XYZ Lender"

Financing Games

If you've been hunting for a home lately, you've likely encountered it: the tantalizing new listing that requires prospective buyers to "qualify with XYZ Lender."

Which of the following choices is the best explanation for that:

A. The Seller wants to make sure that prospective Buyers can afford the home;
B. XYZ Lender offers the best terms on mortgages;
C. The listing agent is trying to drum up business for XYZ lender.

Answer: C.

In my experience, a pre-approval letter from a name lender, combined with a quick, agent-to-agent phone call ("do you really want to sell the home?") usually takes care of this financing "requirement."

The Scourge of Cash-Out Refinancings

Thirty Years in a Home -- And No Equity

It used to be that people who had owned homes for a longer time were less leveraged than recent purchasers, but the refinancing boom changed that. “A coordinated increase in leverage among homeowners during good times will lead to sharply higher correlations in defaults among those same homeowners in bad times,” two authors of a new academic paper wrote.

--Floyd Norris, "Confronting High Risk & Banks"; The New York Times (12/10/2009)

I first noticed it about two years ago selling condo's perfect for downsizers.

The 50 and 60-somethings coming through my open houses would "ooh and ah" -- but that was usually it. Or, they would say how much they loved the condo, and would then ask if the owner was open to a contingent offer (older and struggling with health issues, fixed timetables, etc. they usually weren't).

It turns out many of these would-be Buyers, despite owning their current home for decades, had little or no equity.

I suppose these people could all have borrowed against their homes to buy toys and go on vacations.

But this is Minnesota, after all.

Wall Street's "Unretirement Plan"

My vibe was that the proceeds of all those cash-out refinancings (basically, pulling the equity out of your home) went for things like medical, helping out kids, paying down other debt, and the like.

It sure didn't go for fancy new cars or clothes -- I saw very little evidence of that.

Guess who takes care of retirees who've exhausted all their savings? (It's not Wall Street).

P.S.: In the same vein, I've lost count of how many foreclosures I've now seen where, when you look up the tax assessed value and what the foreclosed owner paid, you can't find anything for the latter value. That usually means the owner who lost the home owned it at least since 1991, which is when MLS generally started tracking that.

Imagine: 20 years-plus in a home, and no equity!

Thursday, December 10, 2009

Real Estate "Insider Trading"**

Best Time to Sell? When No One Else is

Where: 27xx Raleigh Ave. South, in Fern Hill's St. Louis Park neighborhood
What: Mint 1947 rambler with 3 BR/2BA and 1,800 square feet
How (much): $445,500 list price
When: on market Monday (12/7)
Who: listing agent - Josh Kaplan; broker - Edina Realty

If everyone's taking their home off the market for the slow holiday season, what should a savvy Realtor who wants to sell their own home do?

Put their home on the market.

That's exactly what's going on at 27xx Raleigh, in Fern Hill's St. Louis Park neighborhood. The home hit the market on Monday.

The owner-agent, who works in my office, requested that I mention that the home is in "fabulous" condition, and a great value.

There you go, Joseph!

No, a Realtor selling their own home isn't really "insider trading."

Rather, I'm referring to the phenomenon of doing what the supposed "insiders" are doing.

In the stock market, that means buying when the pro's -- corporate insiders -- are buying, and selling when they're selling.

It's no different in real estate.

The strategy recalls one of my favorite Warren Buffett lines, i.e., you should be cautious when everyone's bold, and bold when everyone's cautious (my paraphrase).

For-Profit Firemen, Police -- & Doctors

How to Increase Fires, Crime -- & Illness

There's a reason society doesn't have "for-profit" firemen or police.

Put it this way: imagine if we did.

Purveyors of "fire extinguishing services" would have an incentive to do things that actually increased the number of fires.

Like commit arson.

Or object to things that lowered the risk of fire -- like install fire alarms, develop non-flammable clothes, use fire-retardant building materials, enact modern building codes, etc.

Of course, for-profit fire stations would not be distributed throughout the community, but concentrated near the most expensive commercial and residential buildings.

That's because putting out fires in those structures would be much more lucrative than battling blazes in the poorer parts of town.

"Crime Apprehension Services"

Now imagine what a for-profit police force would look like.

A safe, low-crime community doesn't need much police protection -- ergo, low profits.

However, once there's crime . . . suddenly there's demand for police protection. That is, provided society can afford it (high crime + no money = the South Bronx, circa 1978).

Certainly, no fire department or police force -- for-profit or non -- would actually break the law to stimulate demand for their services.

But why have monetary incentives that create that temptation?

Private vs. Public Health Care Model

So . . . if a for-profit fire department would in theory benefit from more fires, and a for-profit police force would benefit from more crime, what would a for-profit "health care" industry profit from?

Bingo! More illness.

In fact, the more sick people, the better -- as long as they can still pay. Or someone can. Like government -- which really means the rest of us.

Which catches us up to today.

After decades under the sway of the for-profit medical model, the U.S. economy is clearly straining under the financial burden.

Like the manager who reluctantly goes to the mound to take the ball from the fading starting pitcher . . . . maybe it's time to substitute a new business model.

Fortunately, it already exists.

P.S.: Bonus questions: 1) how does a lightly regulated, for-profit financial sector maximize revenues? Answer: we already know; 2) what does a for-profit military benefit from? Dwight Eisenhower was the first modern President to pose -- and answer -- that one.

And finally . . . want to know what happens when you privatize a city's parking system? Chicago just did -- and early reports are that it is so unpopular that it might end Mayor Richard Daley's career.

Advertising Rebound Riddle

The Wall Street Journal really got my attention this morning.

No, not because of some riveting story.

Rather, because when I picked up the blue bag it comes in -- it's my one remaining paper subscription, and only because I could use frequent flyer miles to pay for it -- it was twice as thick as usual.

Hmm, I thought, is that evidence of a so-far awfully quiet advertising rebound?


The snowstorm held up delivery yesterday, so today's delivery bag included both the Wed. and Th. papers.

One-Two Market Punch

Deep Freeze -- Weather & Housing, Both

What happens when you combine a seasonally slow time of year with the season's first major snowstorm and subsequent deep freeze?

Not much real estate activity.

Anecdotally, I'd estimate that new listings in the Twin Cities are down about 75% the last few days.

"American Dream 2.0"

Not Exactly a Dream -- But No More Nightmares

Thanks to a rare confluence of factors -- mortgages that far exceed home values and bargain-basement rents -- a growing number of families are concluding that the new American dream home is a rental.

Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That's freeing up cash to use in other ways.

"It's just a better life. It really is," says [one former homeowner who's now renting].

--"American Dream 2: Default, Then Rent"; The Wall Street Journal (12/10/09)

Good read for anyone who wants real-life examples of homeowners wrestling with mortgage defaults -- strategic and otherwise.

As I've been posting lately, a "strategic" default is when the homeowner can still pay the mortgage -- at least for the time being -- but walks to conserve their cash flow, and because their house is so underwater it's not likely to rebound.

The article makes two other points:

One. As strategic defaults rise, the stigma is falling. Put it this way: when a housing market "Katrina" strikes, everyone gets hit -- not just the financially irresponsible. And businesses hungry for otherwise-solid customers know that.

Two. Strategic default may be bad for the banks, but it's (very) good for the broader economy.

That's because -- surprise! -- homeowners who ditch $4,000 - $5,000 monthly PITI payments (principal, interest, taxes, and insurance) for $2,000 monthly rent suddenly have another couple grand a month to spend on everything else!

I knew there was a silver lining in there somewhere . . .

Wednesday, December 9, 2009

Holiday Gifts

Fruit Cake Rival?

I think I can confidently identify the successor to the Christmas fruit cake -- the talismanic gift that endlessly circulates, almost like a pseudo "gift currency."

That would be the Barnes & Noble (or gift card, pick your favorite denomination ($20, $50, or $100).

Maybe they can even start to put famous people's profiles on them.

I nominate Paul Volcker for the $100 gift card.

Wall Street Transaction Tax

Wall St Still Pushing Back on Reform

Transactions costs have declined significantly over the past 10 years, thanks to the many structural changes in equity markets, including trading in decimals instead of eighths, the proliferation of scores of trading venues that function as exchanges, and an explosion of high-frequency trading. Vanguard has estimated that total transactions costs on an average trade have fallen by more than 50%, resulting in approximately $1 billion of annual savings to its investors. When magnified across the whole investment industry, investors have probably saved tens of billions of dollars in transactions costs

--Burton Malkiel and George Sauter, "A Transaction Tax Would Hurt All Investors"; The Wall Street Journal (12/9/09)

I'm not sure I've seen a more egregious example of "missing the forest for the trees" in quite awhile.

After all the financial tumult the last 18 months -- and the negative returns on stocks the last decade(!) --- I don't think investors' problem with the stock market is inordinately high transaction costs.

Check that.

I'd volunteer to pay dramatically higher transaction costs if that damped down the speculative, hyper-liquidity driven trading that has captured most equity markets (actually, given that I seldom trade, I pay practically zero transaction costs).

Speaking for investors everywhere, I think I can confidently say how I grateful I am that Wall Street has cut its commissions billions annually -- as stocks have lost trillions (and gyrated wildly, to boot), and Wall Street's pay has exploded.

Sadly, if you want a quick shorthand as to whether a given proposal is sensible, good for the broader economy, etc. -- just ask, is Wall Street for it or against it?

If Wall Street opposes it . . . it's a good idea.

P.S.: you might know Burton Malkiel as the author of "A Random Walk Down Wall Street," which argues that markets efficiently price equities by incorporating all known information. If you weren't aware . . . that notion has been thoroughly discredited the last decade or so -- and so has Malkiel.

Exit Strategies

"Surge" or "Stay the Course?"

Depleted and demoralized by the huge sums it has already spent (and arguably squandered) trying to stabilize a still-hostile environment, the U.S. must decide its next move.

The three choices are to: 1) double down ("surge"); 2) "stay the course"; or 3) declare victory and get out.

U.S. forces in Afghanistan?

Try, the federal government and the U.S. housing market.

A partial list of all the direct and indirect financial support provided to the housing market to date includes:

--Record low mortgage rates, courtesy of the Fed's $1.25 trillion purchase of mortgages.
--Zero percent short-term interest rates, intended(?) to resuscitate the banks and promote private sector lending.
--Hundreds of billions shoveled into Fannie Mae, Freddie Mac -- and prospectively, FHA --to enable them to (continue to) fund and guarantee a huge chunk of all U.S. mortgages.
--Tax credits and incentives to home buyers, expanded and extended through April 30, 2010.
--A combination of financial incentives and political muscle designed to induce banks to modify non-performing mortgages in their portfolios.

In light of all the foregoing, the two, $64 billion (times 10) questions looming over the 2010 U.S. housing market -- indeed, economy -- are: 1) how much financial support will the government provide to housing going forward?; and 2) how long can it afford that amount?

Oh, yeah -- one last question: isn't "limited surge" an oxymoron (like "jumbo shrimp?").

Busy Real Estate Photographers

Snow Shots

The last day it was permissible to have exterior home shots showing brown -- or green -- grass was officially . . . . yesterday.

The banks selling foreclosed homes aren't going to bother to update their photos (assuming they have any).

However, it's a good idea for all other Twin Cities home Sellers to swap out their Fall (or Summer) photos for winter ones.

Not doing so gives the impression that the home is a short sale or foreclosure, which is: a) bad for the price; and b) bad for showings (which ultimately is the same thing).

P.S.: In fact, I just changed my web site,, to substitute snow flakes for Fall leaves. Check it out!

Tuesday, December 8, 2009

"Your Chance to Enhance"

Eye-Catching Marketing

If you want to get the attention of Realtors who receive dozens of emails a day pitching new listings . . . it helps to have an eye-catching title.

The ideal title is creative and original without being (too) gimmicky.

Want a good example?

The email I received this morning titled, "Your chance to enhance."

Much better than the usual fare: 'just needs your remodeling touches"; "great opportunity to build equity"; and euphemisms like "meticulously cared for by original owner."