Opening & Closing Doors

When one door closes, another door opens.
--Alexander Graham Bell

You've probably encountered the above quote, you just didn't know it was a sliding door.

I just saw a clever ad, in a home remodeling magazine, pitching sliding doors and room partitions as a way to make your existing space more functional. Of course, in a recession, the alternative -- moving to bigger quarters -- isn't feasible for many people.

The company's pitch: 'if you can't afford an addition, try division.'

Clever.

"Made 'Ya Look" Marketing

The Real Point of Online Photos

Real estate photography, as it's currently practiced, reminds me of the joke about two hikers who encounter a Grizzly in the woods.

The first hiker thinks he has to outrun the Grizzly. The second, smarter hiker realizes that his task is to . . . outrun his companion.

So, too, the object of online photos of a given property is not to get you to buy the property. Even at the peak of the housing market, in the hottest locales, very few people were buying, sight unseen, purely on the strength of online marketing materials (and 100% of those likely regretted it).

If the point of marketing photos isn't to sell a home, then what is it?

To get you in.

It's axiomatic that if you don't tour a property, you're not going to buy it. And if you don't see it in person, there's no chance for you to fall in love with the amazing built-in's, the cozy Kitchen nook, or the lovely gardens in back. (And no chance for the listing agent to engage with you -- or your Realtor -- about what you're looking for, your budget, time frame, etc.)

Unfortunately, simply getting prospects in to a home only to be disappointed once they get there is to win the battle, but lose the war.

In my experience, the single best way to sell a home is to exceed a Buyer's expectations.

Getting a prospect in to a home using borderline false pretenses is guaranteed to sow disappointment (if not anger).

That reaction is the opposite of the mindset that leads to a deal.

Real Estate "Upticks" & "Downticks"

Divining the Direction of Housing Prices,
One Deal (and Tick) at a Time

Both the stock and housing markets have "upticks" and "downticks."

The difference is that, in the stock market, ticks are measured in pennies, whereas in residential real estate, they're measured in thousands -- or even tens of thousands -- of dollars.

For the uninitiated, a "tick" is simply the difference between the current selling price and the last selling price.

So, if the last trade for Microsoft stock was for 1,000 shares at $19.62, and the trade before that was for 500 shares at $19.61, it's selling at an uptick.

In the housing market, the equivalent is a home that sells faster, at a higher price, than its peers ("comp's," or comparable sold properties).

What difference does any of that make?

While you can't tell where the broader housing market is going, at least at the "micro" or neighborhood level, it's possible to tell whether housing prices are headed up or down at the moment by looking at the direction of the "tick's."

In fact, that's how good Realtors recommend their clients price: they know the inventory in a given neighborhood cold, and can tell whether the trend is up or down (news flash: clients don't always heed their Realtors' advice).

If the last few ticks have been up, the next homeowner has leeway to price more aggressively; down, the reverse.

I'd go even further: three consecutive "upticks" signals a rising market.

Notwithstanding the latest, gloomy Case-Shiller numbers (for February, covering the Twin Cities market as a whole), in several local neighborhoods this Spring, there are now a string of sales at consecutively higher prices.

Real Estate & Inflation

Inflation's Effect on Housing

[Note to Readers: please also see the update to this piece, posted Oct. 20]

One of the big questions in the (financial) air is whether all the money that's been pumped into the system (the various TARP's, the Fed Reserve's serial loan guarantees, government purchases of bank equity, etc.) the last six months or so will ultimately be inflationary.

In turn, that begs the question: if in fact inflation is on the horizon, how does that affect real estate?

Traditionally, anything that makes paper money (currency) less valuable makes hard assets more valuable. And assets don't get any harder than real estate.

Another factor that cuts in real estate's favor is the effect on debt as money becomes less valuable.

Because mortgages are calculated in constant ("nominal") dollars, repaying a fixed debt with increasingly cheap dollars benefits borrowers. If everything doubles in price, your $50k -- or $500k -- mortgage suddenly becomes smaller by comparison.

The key is whether "everything" includes wages.

"Crowding Out" Effect?

If wages increase along with the general cost of goods and services, real estate comes out ahead.

However, if static wages must be spread over household expenses bloated by inflation, it stands to reason that there will be less left over to spend on housing.

Diminished purchasing power spells weaker housing demand . . . which means lower housing prices.

Of course, one of the principal tools to fight inflation is raising interest rates. Because more than 80% of the money used to buy housing is borrowed, more expensive money equals more expensive housing. To correct for that, housing prices would have to fall.

So how do all of the foregoing factors net out?

If you're keeping score, two benefit housing, two harm it.

Call it a draw, 2-2.

"Showing Log"

More Buyers Looking

Yes, it's Spring, which is a seasonally busy time of year. And yes, there are a lot of steps in between someone looking at a home, and deciding to buy it. And -- one more "yes" -- a good chunk of the inventory that prospective Buyers are checking out consists of foreclosures and short sales.

Still, it's good news when my office's weekly showing log registers its highest number -- almost 250 -- since September, 2006.

That's especially significant given that the office's number of active listings, around 100, has remained relatively constant during that interval. (My office, Edina Realty City Lakes, is near Minneapolis' Lake Calhoun, and has about 60 full-time Realtors.)

Will those showings turn into closed sales?

Stay tuned . .

Closing MN's Budget Deficit

State Tax Deductions for Housing: Endangered Species?

Is now a good time to make upper bracket housing in Minnesota (or anywhere else) more expensive?

The Minnesota state legislature -- or at least the House -- seems to thinks so.

On Saturday, it passed a bill that would make mortgage interest and property taxes non-deductible in calculating state income taxes (the bill would also raise taxes on those making more than $250k). The moves are the corner piece of the legislature's efforts to close an estimated $4.2 billion deficit.

Leaving aside the public policy merits of the bill, consider its effect.

If you want to make something more expensive, tax it -- or in the case of housing, remove a long-standing subsidy.

The problem with the House's bill is that upper bracket housing is already under siege, from multiple quarters.

The gap between "conforming" loans -- up to $417k-- and jumbo loans is at record levels. The former carry an interest rate around 4.75%; the latter, well over 6%. The reason is that only conforming loans can be readily packaged and sold to investors via Fannie Mae, Freddie Mac, etc.

"(Un)settled Expectations"

Of course, the recession is already pressuring prospective Buyers of upper bracket housing.

Companies trying to pare their labor costs can save a lot more axing senior executives than more modestly paid subordinates.

Meanwhile, anyone who can afford an expensive home has likely seen their investments -- and their wherewithal to come up with a healthy, six figure downpayment -- whacked by as much as 50% the last two years. That's at the same time that the middle-bracket home they currently own has dropped an average of 25%, metro-wide.

Further raising the cost of owning a more expensive home is not exactly going to stimulate demand.

Even if subsidizing expensive housing isn't something that we, as a society, want to continue to do, the fact is that thousands of area homeowners made their purchase decisions relying on the rules as they understood them to be at the time. Lawyers and policy-types refer to this phenomenon as "settled expectations."

For now, the debate is likely moot: the Minnesota Senate hasn't taken action on a companion bill, and Governor Pawlenty has signaled that he will veto anything that the entire legislature approves.

However, you could say that the issue is now on the table.

P.S.: Foreclosure Feeding Frenzies

(More) Market Manipulation?

In my last post, "Banks Price Low to Elicit Multiple Offers," I discussed the increasingly popular tactic of foreclosure Sellers pricing low to precipitate bidding wars.

What I left out was the identity of the banks who appear to be behind many of them: notorious, sub-prime lenders such as Countrywide and Indymac.

Just to refresh your memory, these are the same folks at the epicenter of the real estate market melt-down in places like Southern California and Florida.

While credit was free-flowing, they handed out such exotic fare as option-ARM's (the borrower decides how much to pay, with any interest shortfall added to the principal); mortgages with initial teaser rates on loans that later "explode"; and various other, negative amortizing products.

When people refer to "Liar Loans" (no documentation of any kind required), these are the lenders who handed them out. Big surprise: such lenders made their money originating such loans and re-selling them.

So nice to see how far we've come . . . not.

Foreclosure Feeding Frenzies

Banks Price Low to Elicit Multiple Offers

Real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas. . . Brokers say banks appear to be deliberately setting asking prices low in some cases to provoke bidding battles

--James Hagerty, "Bidding Wars Are Emerging on Foreclosures"; The Wall Street Journal (4/23/09)

I can personally vouch for the "deliberately setting asking prices low" part of the above quote: I'm working with a client who is now zero-for-three bidding on foreclosed homes in the last two weeks.

In each case, my client saw the property within hours of the property hitting the market (I'm watching like a hawk); submitted an offer for as much as 25% over asking price by the end of the day; waived all Seller disclosures, agreed to buy "As Is," etc. . . . and still lost.

In at least one of these deals -- all in Minneapolis -- the Seller had failed to provide a mandated (non-waivable) Truth-in-Sale of Housing disclosure. That's a big "no-no" that can be fined up to $1,000.

According to a Realtor representing one of the banks, the purpose is to create a feeding frenzy -- and a rash of instant offers -- that the bank can pick and choose from.

It may accomplish that, but it leaves lots of Buyers feeling chafed, and convinced that the system is "gamed."

Hard to argue that they're wrong . . .

P.S.: just underscores the wisdom of an astute Buyer like Warren Buffett, who never, ever gets into multiple offers on companies he wants to buy.

"Frozen in Amber" Homes

What Does Tax Assessed Value
Say About Market Value?

In a Buyer's market like today's, more and more listings announce that the home is "selling for less than tax assessed value" -- sometimes substantially less. The inference is that the home is a bargain.

Is it?

Not necessarily.

One situation where tax assessed value can be well above fair market value is when the Seller has been in the home for decades.

While their neighbors have been steadily updating and renovating over the years, the long-time homeowner has stood pat. So, thirty years later, the kitchen, mechanicals, and decor are all quite dated.

Even worse, the floor plan and amenities may be obsolete. The upstairs may only have one, hallway bath; if the home has hot water heat, switching from window a/c units to central air may be prohibitively expensive; and the one-car garage that was fine 30 (or 70) years ago just doesn't cut it.

Unfortunately, to the tax assessors most of these lagging characteristics seem to be invisible. They assume that the housing stock in a given area is relatively consistent, and as the neighboring homes change hands at ever-rising prices, the tax assessed value of the "frozen in amber" home rises, too.

Over time, the gap between the tax assessed value and fair market value of such a home can become increasingly wide.

I've personally seen instances recently where the tax assessed value was more than 20% too high. And that was for homes that weren't foreclosures or short sales!

Who Can You Trust?

(More) Recession Trend Spotting

If you want a friend in Washington . . . get a dog.

--President Harry Truman

To my mind, what's unique about this recession isn't just the damage to people's pocketbooks -- bad as that may be so far -- but to something more fundamental: their trust.

You don't have to have invested with Bernie Madoff to worry about getting "burned": today, the safety of your savings, the balance in your 401(k), even the food you buy is potentially suspect.

So who can you trust?

Yourself, for starters. You'd guess that that at least partly explains the appeal of vegetable gardens (Burpee seed sales: up 30% so far this year).

But maybe the question should also be "what can you trust?"

It might just be my imagination, but it seems like people are spending more of their (shrinking) disposable income on . . . pets.

You may not have much faith in Wall Street or Washington, but Fido (or Rover or Boots) will always be there for you.

"Not a Foreclosure," Translated

"Not a Foreclosure! Not a Short Sale!"

Sellers don't usually start out proclaiming what they're not. But this isn't a usual market.

In some Twin Cities neighborhoods, the normal ratio of "traditional" sales relative to lender-mediated sales (foreclosures, short sales) has inverted. Furthermore, many Buyers have come to associate lender-mediated deals with extra risk and hassle.

So, to avoid being lumped in with the bank deals, more Sellers are trumpeting their non-bank owned status on MLS.

Translated, here's what they're really saying (or trying to):

--If you make an offer, you'll get a prompt response (1-2 days, vs. one week or more).
--The Seller is willing to vouch for the condition of the property; provide the standard Minnesota disclosures; and comply with any applicable municipal inspection requirements.
-- The home has been fairly priced -- not 30% under market, to foment a bidding war, or 30% over, because that's what the Seller needs to pay off their mortgage.
--You may write an offer using the standard Minnesota Purchase agreement forms and addenda (vs. using custom, bank-required forms with untested terms, Buyer booby traps, etc.)
--If you reach agreement on terms with the Seller, then find legitimate issues during the Inspection, you'll be able to negotiate an accommodation with the Seller (vs. taking it or leaving it).
--If you have questions about the property or its status during the course of the deal, the listing agent (representing the Seller) will actually return your phone calls and email's.
--The Buyer will be able to use their own title company (vs. the bank's), to check on outstanding liens, taxes, city assessments, etc.
--At the end of the process, the Buyer's Realtor won't have to fight to collect the percentage commission advertised on MLS.

I could keep adding to this list . . . but you probably get the idea.

Krugman: 'Only One Parachute'

Fixing the Financial System

If . . taxpayer funds end up providing windfalls to financial operators instead of fixing what needs to be fixed, we might not have the money to go back and do it right. And the lesson of Ireland is that you really, really don’t want to put yourself in a position where you have to punish your economy in order to save your banks.

--Paul Krugman, "Erin Go Broke," The New York Times; 4/20/09

Too often, op-ed pieces discussing the financial system are impenetrable. Written by economists for economists, they leave the general public in a fog.

Krugman is one of the few economists whose pieces are (in my opinion) both consistently on target, and readily accessible -- none more than today's. (I'm not automatically a fan of every economist who has a Nobel prize on his mantle, but in Krugman's case, it's well deserved.)

If you don't understand what's been happening, Krugman boils it down to as succinct a two-sentence summary as I've seen (the rest of the piece discusses Ireland's terrible predicament, whose ultimate financial sin was "being just like us, only more so").

Home Showcase: 1802 Colfax So.

More Than Meets the Eye (For a Change)

Where: 1802 Colfax Ave. South, in Minneapolis' Lowry Hill neighborhood

What: all brick 6BR/5BA; almost 6,400 FSF on a double lot

How much: $1.195M

When: originally listed 8/08; two, $100k price cuts since then

It isn't often these days that the photos on MLS don't do justice to the listed home. In fact, more and more, the online photos are unduly flattering, leaving prospective Buyers disappointed once they're inside.

This isn't that home.

With 630 square feet, the cavernous Living Room alone (pictured above) is the size of a small South Minneapolis single family home.

But the physical size doesn't begin to do justice to the feeling you get standing in the room.

In a word, it's . . . sumptuous.

The richness of the millwork, the grandness of the room dimensions (also created by the high ceilings), the detailed appointments -- all these things simply don't come through the pictures.

Standing in the room, you get the feeling that it was built for a Vanderbilt or a Rockefeller.

In fact, the owner is the Minnesota equivalent: a MacMillan, from the Cargill founding family.

Peggy Noonan Recession Trends

Noonan: 'Goodbye Bland Affluence'

Peggy Noonan, who writes a column for The Wall Street Journal, is as thoughtful a social observer as there is. Notwithstanding her conservative, *Manhattan-centric take on things -- which she freely concedes -- she is consistently insightful, and a good barometer of where center-right thinking is at.

So it's noteworthy that her current column, "Goodbye Bland Affluence," comments on a family of self-described "back-to-the-land" economic survivalists.

While she doubts that many people will emulate this family -- you really can't go "back" to something you never knew -- she does note some less dramatic concessions to today's recessionary times.

Her are some of Noonan's more notable predictions:

The cities and suburbs of America are about to get rougher-looking. This will not be all bad . . . storefronts, pristine buildings—all will spend less on upkeep, and gleam less.

People will be allowed to grow old again. There will be a certain liberation in this. There will be fewer facelifts and browlifts, less Botox, less dyed hair among both men and women. They will look more like people used to look, before perfection came in. Middle-aged bodies will be thicker and softer, with more maternal and paternal give. There will be fewer gyms and fewer trainers, but more walking. Gym machines produced the pumped and cut look. They won't be so affordable now.

New home fashion will be spare. This will be the return of an old WASP style: the good, frayed carpet; dogs that look like dogs and not a hairdo in a teacup, as miniature dogs back from the canine boutique do now.

[America] will look like 1970, only without the bell-bottoms and excessive hirsuteness. More families will have to live together. More people will drink more regularly. Secret smoking will make a comeback as part of a return to simple pleasures. People will slow down. Mainstream religion will come back.

According to Noonan, what will replace "bland affluence"?

Something she dubs "authenticity chic."

As she notes, it comes with some notable silver linings: a more genuine, connected, and, hopefully, meaningful existence.

*Clearly, Noonan hasn't spent much time in the Midwest: plastic surgery is much less a fixture here than in upper-income New York. Ditto for "frou-frou," manicured dogs that fit in purses.

In the rest of America, people aren't putting off visits to their plastic surgeon so much as the doctor, the dentist, the pharmacist, etc.

"Two's Company" Overlooking Mpls' Cedar Lake

There is a joke among musicians that if you hit a wrong note once, then shame on you, but if you hit it twice then you’re playing Jazz.

As the parent of a 9 year-old boy, I've observed how one (slightly) nerdy kid can be a lonely island, but two is suddenly . . . a club! (It's funny how in the Realtor business, two Realtors -- or sometimes just one Realtor and their cat -- automatically become a "group" or "team").

So, too, one distinctive home in a high profile location can stick out like a sore thumb. But two can play off each other and look . . . cool.

A great example of that is the two home "combination" at 26th and Huntington, overlooking Minneapolis' Cedar Lake.

After sitting twenty years as an empty lot (the previous home burned down in the mid-'80's), a developer bought the land about five years ago and promptly subdivided it into 3 parcels.

The first of what were to have been three homes, 2545 Huntington (pictured on the left in the photo above) broke ground in 2005, close to the peak of the housing market. After almost two years on the market, it finally sold for $2.1M -- surprisingly close to the original asking price of $2.2M.

Due to its unique, contemporary look, the home has inspired a wide range of comments, mostly negative. I've heard people call it a post office, an office building, "vaguely institutional" -- or simply throw up their hands trying to describe it.

For what you'd guess were economic reasons, the developer scrapped its plan to build two more homes. Instead, it is now finishing a second building, very much like the first, alongside it (it's on the right in the picture above).

So will it fetch anywhere close to the $2.1 million that its architectural sibling did?

We'll never know: the buyer is the owner of the first house. Apparently, he intends to use it as a pool/guest house (the pool is in between the two).

Huge St. Louis Park Lot!

What: .24 acre lot
Where: 7508 West Lake St. (10 minutes to downtown Minneapolis, less to City Lakes and Uptown)
How much: $99,900
Contact: Ross Kaplan (612-925-7701)

No, it doesn't have goal posts at either end -- but it's big enough that it could! This surprisingly affordable lot is located in a pocket neighborhood close to Knollwood, Sam's Club, and Miracle Mile.

If you're looking for a nice, level piece of land to put up a $300k-$400k new home on, this is a strong candidate . . .

Making $$$ in Foreclosures

Are You Right For Foreclosures?

The key to making money in foreclosures isn't sizing up a particular property -- it's knowing yourself.

Specifically, your timetable, temperament, budget, fix-up skills (or access to them), and intended holding period.

If you're deficient in any one category, the odds of success go way down; two, the odds become infinitesimal.

Timetable. Before embarking on a lender-mediated property, ask yourself: can you wait a week or longer to find out if your offer is accepted? (1-2 days is the norm for non-bank deals)

If you're pursuing a "short sale," can you wait weeks -- maybe months -- for the bank(s) to approve the sale?

In the meantime, you'd better make sure you don't have to vacate an apartment or house -- or have access to a friend or parents' basement, if you do.

Temperament. More questions: will you be OK if you happen to get bumped from the house at the last minute -- possibly weeks or months after acceptance?

How do you feel about "swallowing" such lender-dictated terms as forfeiting your earnest money before you know whether you qualify for a loan; or accepting the home "As Is," with no Seller disclosures or legal recourse in the event of major problems?

Budget. Often times, the purchase price of a foreclosure is just the "cost of admission"; the subsequent fix-up costs can be equal or greater than the cost of the house.

Do you know what needs to be fixed? What doesn't? Who will be doing the repairs?

Fix-up Skills. If you're a contractor, you already know the answer to that last question. If you're not, what's your strategy for getting bids? Contractors come in all sizes and shapes. Some prefer to do bids, others work on a time-and-material basis.

Holding Period. The same foreclosure glut that let you buy low might very well turn and around and bite you as a quick Seller. Especially if you're planning on a market turnaround to generate your profit (vs. sweat equity), you should have a 2-3 year holding period, minimum.

Bottom line: is there money to be made in foreclosures and short sales? Sure.

But I'm not convinced that there isn't more money -- not to mention time -- to be lost.

Proliferating User Fees

Ticketing Wall Street?

Financially strapped local governments, in an effort to make ends meet, avoid layoffs, etc. apparently are now adding service fees for such mundane things as police responding to car accidents. The bill, which arrives in the mail, can be as much as $400 per incident.

I think that's a great idea. But why waste time with such small potatoes?

Using the same logic, the big financial players on Wall Street should be fined, er, assessed, hundreds of billions.

Down Time/Catch-Up

Hot Search Term(s): "Realogy Bankruptcy";
"Firing Your Realtor"

Note to Readers: no, it's not your imagination -- I've been off-line for a few days. Family trip to Chicago; taxing foreclosure deal (that came to naught); and ramping up a new blog design (details to come).

Question: What do parents (combined age: 95) of 3 kids (combined age: 19) say after driving to and from Chicago for four days?

Answer: TGIM ("Thank God it's Monday).

Enough catch-up . . .

One of the fringe benefits of a being a frequent blogger -- the last few days notwithstanding -- is that, in conjunction with my site meter, I can tell what key terms people are surfing for.

(Just in case you're concerned about your privacy: I can't tell the visitor's identity, but only such things as the name of the visitor's service provider, the time and length of their visit . . and the search words that brought them to the blog.

So, just like radio stations can tell which songs are popular and which aren't, blogs can tell which posts are attracting attention, and which aren't.

Out of some almost 300(!) posts the last six months or so, the far-and-away most popular is Coldwell Banker Burnet Troubles.

Clearly, there are lots of people out there speculating about the company's future -- so much so that my post has become one of the half dozen or so most frequently read on the subject. (Full disclosure: in the blogosphere equivalent of "being famous for being famous," blog posts that attract attention then draw attention for drawing attention -- very circular.)

To recap, Realogy is the parent company company of Coldwell Banker Burnet, an Edina Realty competitor, and is loaded with debt even as the recession whacks revenue. Not quite as bad as the problems facing the now-bankrupt Chicago Tribune or Minneapolis Star Tribune . . . but close.

Tough Market . . Rocky Relationships?

Winning the title of most popular "up-and-coming" blog post? Something I wrote last month titled, "Firing Your Realtor."

In a challenging market -- and this certainly is one -- more Sellers are taking multiple price cuts; more listed homes are expiring, unsold; and more Buyers are looking at more property, and taking longer to make offers. All those things can stress relations between Buyers and their Realtors, and Sellers and their Realtors.

So, clearly, unhappy clients are seeking online advice about when -- and how -- to find the exit.

Last item: I didn't even know that the Star Tribune had something called a "Netlet" -- an online-only guest column -- until they ran one of mine.

And I didn't even see it until a week after it ran (and two weeks after I submitted it).

Both of which just underscore the paper's declining business fortunes.

The piece was called "Who are Obama's Air Traffic Controllers?" In it, I made (I think) the rather obvious and unassailable point that, sometimes it's important for top government leaders (President, Federal Reserve Chairman, etc.) to tell key constituencies "no" -- and be willing to take the political heat for it.

Ironically, I was the one who got the "heat" -- in the form of multiple "flames" (critical, if not abusive, email criticism).

For the record, I am not a Reagan apologist, a defiler of the environment, anti-labor or anti-union, against air traffic controllers, in favor of gargantuan deficits, etc., etc.

Recession Silver Lining

Time to Revisit New Airport?

Like a homeowner who chose to remodel their current home instead of buying new, the Twin Cities decided -- sometime in the '80's -- to update and expand its current airport rather than build a new one.

In today's economic environment, it makes sense to revisit that decision, for the following three reasons:

One. It's a lot cheaper.

Twenty years ago, developers laid claim to practically every sizable parcel of land within 50 miles of the Twin Cities. Then, beginning a decade ago, the ethanol boom kicked in, driving prices for crop land higher.

As a result, assembling a parcel big enough for a second Twin Cities airport would have been prohibitively expensive.

Today, of course, the real estate boom has played out (to say the least). Even though gas prices are dramatically below their peak last Summer(!), no one knows for how long. That uncertainty, plus a severe recession, makes the economics of the exurbs much less compelling.

Combined, all these factors suddenly reduce the land costs associated with building a new airport by as much as one-third.

Two. The other major cost associated with building a new airport, labor, is also "on sale" now.

State unemployment is now well over 8%, and real estate construction projects all over the Twin Cities are either stalled or simply not getting off the ground.

As a result, thousands of skilled construction workers are idle at the moment. Instead of depleting state funds to pay unemployment benefits -- or simply watch as people lose their jobs and possibly, homes -- put them to work!

Done well, a long-term capital project like a new airport is stimulus spending at its best: in the short run, it creates high-skilled, high paying jobs that boost the economy; in the long run, the community gains a long-lived asset that truly is an investment in the future (it pays back more than its cost, including the debt that will inevitably be used to fund it).

Three. Today is the right point in the economic cycle.

The time to plan and build a new airport isn't when you need it -- it's 15-20 years before. Even the most pessimistic economists project that today's recession will lift by 2012 (the optimists say later this year), and that home prices will begin to recover in the next few years.

Meanwhile, according to the Metropolitan Council, by 2030 the Twin Cities will likely be pushing 4 million, and have 30%-40% more jobs than today. Air traffic by then could easily double from today's depressed levels.

With foresight and long-term planning, the Twin Cities could be cutting the ribbon on a brand, new state-of-the-art airport just as the area needs it most.

Mpls. Advantage Program

Home Buyer Incentives: Mpls.

Click here for the latest eligibility information on Minneapolis' Advantage program.

Limitations are by property type (foreclosed or vacant); income; and neighborhood (mostly north and central). According to the Web site, the program "offers 200 loans at $10,000 each that can be used to pay for closing costs, down payment, or even small repairs to the home."

Depending on the kindness of . . family

Recession Housing Trend: Doubling Up?

Families around the country are weathering the recession by hunkering down with relatives and friends . . "I'd rather be home if I'm going to be broke," said [one person who moved back home].

Kris Haher, "Homeward Rebound: Weathering the Storm With Kin"; The Wall Street Journal(4/7/09)

If you don't know the term, "boomerangers" refers to 20-somethings who move back in with their parents after leaving home for college.

Now, thanks to the recession, that trend appears to be spreading to older adult children -- sometimes with their own children. According to the Journal, the people opening their doors aren't just parents, but in-laws, extended relatives, and even friends.

Aggravating the problem: overwhelmed social service agencies, and long waiting lists for such things as food stamps.

The article mentions such places as Alabama, Iowa, and New Hampshire, but no doubt there are plenty of affected families in Minnesota, too.

Love the Home You're In?

The Psychological Appeal of Remodeling

And if you can't be with the one you love
Love the one you're with
Love the one you're with

--lyric, Crosby Stills Nash & Young

How is the recession affecting people's spending?

For one thing, they're doing a lot less of it (logical, if you're making less, have less, etc.).

For another, in a time of stress, people seem to be seeking out things that are familiar -- and avoiding (still more) change. (2012 Presidential slogan: 'Enough Change Already!')

So, while moving seems like a big decision, my guess is that remodeling seems less daunting -- even if the total dollars involved are about the same (a major remodel can easily trip $100k or more).

The net result? Instead of looking for their dream home, more people are trying to create it, right where they are . . .

Cuomo Does Heavy Lifting

Bernie Madoff Gets Sued . . . in NY, MA

[NY Attorney General Andrew] Cuomo Sues Over Madoff Investments

--Headline, The New York Times (4/6/09)

How is it that Bernie Madoff broke state laws in New York and Massachusetts (that state is also suing), but not Minnesota? Doesn't Minnesota have an attorney general -- and almost 200 assistant attorneys general?

And didn't I read about Minnesotans losing hundreds of millions to Madoff? (As I've posted earlier, I know of at least four homes locally that are for sale because the owners were victimized by Madoff.)

Just asking . .

Eight Months Later: Deal . . or No Deal?

Where: 29XX Quentin (St. Louis Park's Fern Hill neighborhood)
What: 3 BR/3BA; *3,937 FSF. Year built: 1936
How much: $379,900
On Market: 7/23/08

I originally profiled this home way back in July, when it first came on the market ("Too Good To Be True"). The question I posed -- "4,000 FSF by Cedar Lake for $380k? Not So Fast" -- said it all. In fact, I estimated that the actual square footage was closer to *2,100 FSF.

So what happened?

Nothing -- or shall I say, "no deal."

After one, $10,000 price reduction in September, the listing expired in January.

Although a tough housing market certainly didn't help, exaggerating the square feet so much likely sealed its fate.

29,000 Ft. Peaks & 3,000 FSF Houses

29,000 Foot Peaks and 3,000 FSF Houses

What do 29,000 foot mountain peaks and 3,000 finished square foot ("FSF") houses have in common?

They don't exist. Or at least, almost never.*

When I see a house listed on MLS ("Multiple Listing Service") with 3,010 FSF (or 2,043 FSF, or similar), I'm immediately skeptical. My thought is, the Realtor knows that Buyers tend to look in discrete ranges -- like over 3,000 FSF, 2,000 to 2,500 FSF, etc. -- and tend to "stretch" sometimes to meet those cut-off's.

I can't prove it, but I'd guess that at least half the time, when a house on MLS just trips an obvious round number, in fact, it's real size is below it (sometimes, well below).

*I heard a story -- not sure if it's apocryphal or not -- that the surveyors who first measured Mount Everest came up with exactly 29,000 feet. However, because they thought that "headquarters" would automatically assume that they'd rounded, they changed the number to 29,029 feet.

Contractor Etiquette

Good vs. Not So Good Contractors

[Editor's Note: see "Giving Good Invoice" for an update to this post.]

In my various capacities as a Realtor, remodeler/rehabber, homeowner, and neighbor, I've witnessed a wide range of contractor etiquette.

At one extreme, there are contractors who show up late, leave early, and seem to spend the time in between listening to inappropriate --and very LOUD -- music. At best, their work (and prices) are so-so . . and they leave your home a mess.

At the other extreme, there are contractors who are consummate professionals from start to finish. They do excellent work at a fair price, start and finish the job on time, etc. After they're done, you'd never even know they were there, but for the completed project.

At least so far, you'd guess my neighbor's new contractor -- who I've independently heard good things about -- is in the latter camp.

I knew my neighbors were bumping out their Kitchen, because I'd shown them a few homes last Fall when they were in "buy or remodel" mode.

Still, I was pleasantly surprised to receive a "heads up" letter of introduction -- complete with ear plugs(!) -- from the contractor last week.

The letter, addressed to the immediate neighborhood, explained that the contractor's employees would be working on the block the next few months, and would do their best to minimize the disruption, debris, etc. If there were any issues or problems, we were invited to call the project manager.

It may just be smart PR with an ulterior motive (getting more business) . . . but it's pretty effective PR.

I'm sure my neighbor will let us know in a few months if the positive first impression was warranted.

Renting vs. Buying & Selling

Realtors & the Rental Market

If you are a prospective home seller who is convinced that prices are temporarily depressed, what do you do? Contemplate renting.

If you are a prospective home buyer who is convinced that prices have further to fall, what do you do? Contemplate renting.

For the above-mentioned reasons, Realtors -- myself included -- are overlapping with the rental market much more often these days.

Buying vs. Renting -- or Selling vs. Renting -- is a case-by-case decision that depends on personal circumstances, time horizon, risk tolerance, and any number of other factors. So, I don't presume to tell clients what to do.

However, I'd encourage anyone weighing the decision to at least consider the following questions:

Prospective Sellers

--If you are convinced that home prices will be higher next year -- or in two years, or whenever -- what is that belief based on?*

--As a prospective landlord, are you prepared to deal with property maintenance, tenant screening, insurance and liability issues, etc.?

--What is the condition of your home? If your home is in mint condition now, how much time and effort will it take to un-do the wear & tear associated with renting?

--What are your investment alternatives? Specifically, is collecting monthly rent a better or worse return on your money than selling and investing the proceeds elsewhere?

Prospective Buyers

--If you are convinced that home prices will be lower next year -- or in two years, or whenever -- what is that belief based on?*

--Where do you think interest rates will be when you're ready to buy? Even if home prices are lower, higher interest rates may negate any savings (unless you're paying cash).

--For the same budget, how do your rental choices compare to your purchase choices, net of any tax benefits associated with buying?

--If you have kids, how will renting (vs. buying) affect your choice of schools? Choice of neighborhood(s)?

Just because I'm a Realtor does not mean I automatically think everyone should own.

In general, the more short-term your horizon is, the more sense it makes to rent rather than buy. That's also the case if you're not prepared to maintain your property, or simply don't have the money for the necessary upkeep (not to mention the downpayment). Of course, if you are new to a community, it can also make sense to rent until you know the area better.

Lending a Hand

As a Realtor, how do I handle prospective Buyers who decide to rent?

I try to be as helpful as I can, with the caveat that I'm not an expert on the rental market -- it's hard enough to keep track of home prices metro-wide.

That said, as a courtesy to my clients (and former clients), I'm happy to do an email to fellow Edina agents to see if they know of something; check Edina Realty's (internal) classified ads for leads; and suggest such resources as rental agencies, Craig's List, and even local university bulletin boards (online and off).

I'm also happy to keep my eyes and ears open.

While I was showing a home two years ago, I struck up a conversation with the tenant, who mentioned that their lease was expiring soon. Although my clients passed on the house, I had other clients who were looking for a rental in the area.

I put them in touch with the owner, who ultimately decided to take his home off the market and rent to my clients. (Based on my first client's feedback from their showing, as well as my own market knowledge, I was pretty confident that the home wasn't going to sell -- at least not anywhere close to the asking price.)

*P.S.: If you know where housing prices are going to be in the future . . . by all means tell me!

"Greenspan Did It"

Adjustable Rate Mortgages the Missing Link

What about Greenspan's argument that he only controlled short-term rates? And that short rates became decoupled from long-term rates in 2002? Nonsense, says [Stanford Professor John] Taylor. Surely the existence of adjustable-rate mortgages (accounting for about one-third of mortgages starting in 2003) linked the mortgage market and short-term rates.

--Susan Lee, "It Really Is All Greenspan's Fault"; Forbes (4/3/09)

One of the more interesting debates within economics circles is exactly how culpable former Fed Reserve Chairman Alan Greenspan is for the housing bubble. Put me in the camp that says, "very."

Greenspan has protested -- and continues to protest -- that as Fed Chairman he was only responsible for setting short-term interest rates.

True enough.

But thanks to the explosion of adjustable rate mortgages -- encouraged by none other than Greenspan himself -- dirt-cheap, short-term interest rates quickly spilled over into the housing market.

As a result, Greenspan's drive to lower rates in the wake of the tech stock bust and the post-9/11 recession directly led to vast, new sums of capital being made available to home buyers.

The rest, as they say, is history.

Vanishing FSBO's

The Mysteriously Disappearing FSBO

One of the less-remarked developments in today's housing market is the relative absence of FSBO's ("for sale by owner" homes).

As recently as two years ago, more than 10% of all listings were; now, I'd guess that number is less than 5%. (Note: there are actually two kinds of FSBO's: the "pure," sign-in-the-yard, no commission-to-anyone kind; and the FSBO offering a "payout," i.e., a commission to the Buyer's Realtor, but bypassing the listing agent, and typically paying a flat fee to list on MLS).

What accounts for the shrinking number of FSBO's?

Maybe it's because if the pro's (professional Realtors) are having a hard time selling homes, the odds of an amateur succeeding are pretty low.

The fact is, selling a home involves dozens of judgement calls concerning marketing, pricing, negotiating, etc. A FSBO seller just needs to make one mistake to more than offset any money they may have saved on commission.

Realtor Tips

So what's an example of something that a Realtor knows that a "layman" wouldn't?

Yesterday, a client just about to put his house on the market wanted me to take photos while (the previous night's) fresh snow framed his home. His logic was that the snow made the home look more aesthetic -- especially compared to the brown grass underneath.

While he's undoubtedly right, the problem is that the Multiple Listing Service ("MLS") is cluttered with literally thousands of "stale" listings now -- homes that have been on for months (in some cases, years) without attracting a Buyer.

How can you tell? Amongst other things, they have out-of-season photos (many quite flattering, by the way).

I told my client to use the less flattering -- but seasonal -- photos to avoid the negative association, and not risk losing prospective Buyers.

Not Just Wall Street

Local Exec Cashes In While Company Crashes

If you're disgusted by financial executives hauling in tens of millions while their companies crash and burn, it might be consoling to think the phenomenon is limited to Wall Street.

Unfortunately, it's not.

As the Star Trib reported yesterday, the former CEO of MoneyGram, Philip Milne, received a $13.1 million severance package. The company's headquarters are just off 394 and 169, in St. Louis Park.

So how did the shareholders do? Their stock is trading at a little over $1 a share, down 96% the last year.

Incredibly, the entire company is only valued at about $90 million.

An old Wall Street joke asks, "how do you make $1 million on Wall Street? Start with $10 million."

In Mr. Milne's case, the equivalent would be, "how do you create a company worth $90 million? Start with a company worth $2 billion."

Marooned in the Exurbs

Exurbs: 'Tomorrow's Low-Income Housing?'

As the housing bust and recession has turned the exurbs from engines of growth to economic laggards, many [families who bought recently] have the worst of both worlds. They are still on the fringes but have no equity. In many cases the amenities they hoped would follow -- new shopping centers, movie theatres -- have ceased construction or opened with only a few stores. Government projects like new schools and parks have also been delayed as budgets get cut and population growth has slowed.

--Conor Dougherty, "In the Exurbs, the American Dream Is Up for Rent"; The Wall Street Journal (3/31/09)

If high gas prices put the brakes on far-flung suburban developments -- dubbed "exurb's" -- wouldn't dropping prices logically revive them?

Well, no.

Even though gas is much cheaper, no one knows for how long. Like Hummers, homes that are long commutes from city centers are still very much out of favor (the WSJ article quoted above focused on metro Chicago).

Another problem is that the recession has laid low all the ancillary development that was supposed to arrive after the housing was in place. Now, private developers, government, and even billion-dollar companies such as Target are scaling back infrastructure and expansion plans. So, the promised amenities never arrived.

The combination of these factors has socked exurban property values, driving a disproportionate number of Buyers into foreclosure. In many cases, the foreclosed homeowners simply become renters nearby.

Mix together half-built subdivisions, long commutes, lots of foreclosures, a high percentage of rental properties, few (or non-existent) services . . . and the picture is not especially bright.

According to the Journal, that's why "some observers believe the growth of rental property is the first in a series of steps that will transform today's exurbs into tomorrow's low-income housing."

"Does This Impress . . Floyd Norris?"

The Quick Way to Bank Profitability

If the roots of today's financial crisis were economic in nature, the vital signs to monitor would be such financial measures as the stock market, unemployment levels, and interest rates.

However, a growing chorus of commentators believe that today's dysfunctional financial system is ultimately a symptom of a political problem. As in, who makes the rules?

So, before investment banks could leverage their bets 35:1, the SEC had to give its ok; before AIG could write billions (trillions?) in exotic credit insurance, regulators had to look the other way; before Citigroup, Bank of America and others could bury hundreds of billions in liabilities in off-balance sheet entities, the Financial Accounting Standards Board ("FASB") had to allow it.

As President Obama has said, the dirty little secret of today's financial crisis isn't how many laws were broken . . but how few.

"Does This Impress . . . Floyd Norris?"

So, have trillions in Wall Street losses and bad bets (so far) weakened bankers' control over regulators? Hardly.

Here's the latest from Floyd Norris, the chief financial correspondent of The New York Times -- not just the unofficial dean of financial journalists, but as impeccable and unimpeachable a commentator as you'll find anywhere:

The world of accounting rulemaking is normally a staid and slow-moving one, with the board offering detailed rationales for changes and giving interested parties months to comment on them. Most comment letters come from people well versed in the accounting literature, arguing points that can seem arcane even if they could have a major impact on financial reports.

The process this time has been different in almost every respect. The board allowed only 15 days for comments, and said it would act after taking just a day to review the comments. Those comments arrived by the hundreds, including bitter reactions from investors. “Market value is market value. Stop letting the financial industry call a duck a whale,” stated an e-mail message signed by Diane Walser. “Who will benefit?” asked Roy Bell. “Only the very ones who already broke all the rules and have brought destruction to the world as we know it.”

--Floyd Norris, "Banks Are Set to Receive More Leeway on Asset Values"; The New York Times (3/31/09)

Leaving all the arcane accounting aside, the basic issue is whether the banks must write down their assets to market value, or use more subjective criteria (their own). The latter approach has been called, deservedly, "mark to management."

Suffice to say, the banks are prevailing.

The Tonight Show has a running bit, called "Does This Impress Ed Asner?," in which amateurs perform kitschy routines to try to win Mr. Asner's approval.

I propose my own version for the financial markets: "Does This Impress . . Floyd Norris?"

The banking industry's latest trick -- anything but the work of amateurs -- decidedly does not (disgust is more like it).

Real Estate Auction Checklist

Considering an Auction?
Buyer Beware (Very)

I have had more clients ask about -- and have noticed myself -- that more distressed property is now being sold through auctions locally (see my post discussing wwww.AuctionToday.com). I don't handle those -- such auctions typically are an alternative to selling through Realtors.

However, I feel I'd be remiss not to raise a few (ok, a lot of) threshold questions that any prospective Bidder should ask. Such as:

--What kind of title will you be getting if your bid is accepted?
--What fees will you be charged? Auction Today discloses, in fine print, that they tack on a 5% fee to all winning offers.
--Who are you bidding against? (beware of "straw buyers" bidding remotely to drive up the price).
--Are there "minimum's" or reserve prices?
--What kind of payment is accepted -- and how long do you have to deliver it?
--What are the "comp's" (comparable sold properties) for the property you're interested in buying?
--What is the condition of the property you're bidding on?
--What liens, fines, taxes or other fees are owed against it?
--What legal recourse (if any) will you have if there are major problems after you close?
--If you're buying a townhouse or condo at auction, what are the association fees? Complexes with large numbers of foreclosures are being forced to raise fees on solvent owners to compensate for shortfalls associated with non-paying foreclosures.

When I handle a transaction for a client, I can answer each and every one of these questions. Plus, my client will have been able to tour the property multiple times, then bring in a professional inspector.

You should insist on the same access and disclosures if you're buying at auction.

Jim Buchta Reassigned?

More Turmoil at Star Tribune

The stager I work with most often, Lori Matzke, mentioned in passing that her regular Saturday column in the Star Tribune is ending. The column was a highlight for many readers, and juxtaposed "before" and "after" staging shots with Lori's (always insightful) commentary.

That's one less reason for people to read (or buy) the paper, which is not a good omen for a publication already in bankruptcy protection, and suffering a precipitous decline in advertising and subscription revenue.

Lori also mentioned that the "dean" of the Strib's real estate reporters, Jim Buchta, had been reassigned to the Travel section. Not sure what the motive was -- and I haven't independently confirmed it.

However, Jim's byline has been conspicuously absent from the real estate section lately.

If true, that would be a real loss: Jim's regular articles (many with me as a source!) were always well-reported and well-documented, and gave readers real insight into the Twin Cities housing market.

P.S.: I wish this was only an April Fool's joke . .