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Saturday, October 31, 2009

"The Biggest Loser"

Revisionist History

As historians know full well, Presidential reputations sometimes take decades to settle out, experiencing ups and downs in the meantime.

For example, Harry Truman left office in 1953 quite unpopular.

Over time, though, his stock gradually rose as society came to appreciate -- after the fact -- his straight-talking populism, common sense, and decency.

It also helped that, unlike contemporaries, later generations were less inclined to see him in FDR's (enormous) shadow.

Ironically, Truman's successor, Dwight D. Eisenhower, was another politician who left office under appreciated.

Viewed through the prism of the tumultuous '60's and turbulent '70's, the relatively placid '50's that Eisenhower presided over could easily inspire nostalgia a generation later. The nation's top general in World War II, his prescient valedictory warning about the "military-industrial complex" has also endeared him to posterity.

Finally, later generations, who only caught glimpses of JFK's charisma on movie reels, were more inclined to focus on JFK's substance and record (promising but incomplete) rather than his style (dazzling).

Today's Crop of Leaders

So, roughly two years into what appears to be shaping up as The Great Recession, how do today's leaders and recent-leaders fare?

Using a scale of minus-100 (-100) to plus-100 (+100), here's my take on the shifts to date:

Paul Volcker. Then: 50; Now: 100. Net gain: +50. Steered the country through the last comparable mess in the early '80's. Never worked for Goldman Sachs -- or aspired to. None of this would have happened on his watch. Tall Paul, indeed.

Alan Greenspan: Then: 90; Now: -75. Net loss: -165 (sets "the Biggest Loser" bar for a long time). "The maestro" now "the charlatan." Every one of his major tenets and policies have now been discredited if not repudiated, i.e., : 1) markets are self-regulating; 2) the Fed's job is to mitigate the damage from bubbles, not identify and prevent them; 3) financial actors pursue self-preservation above all other goals (wrong! they chase short-term profits and maximum compensation); and 4) excessively accommodative monetary policies don't risk liquidity traps (wrong! they do -- and we're clearly in one now).

Bill Clinton: Then: 40. Now: 10. Net loss: -30. The "Party Hearty" President from Arkansas (by way of Yale and Oxford). If the 1990's were the 1920's redux, that makes Clinton this era's Coolidge -- a feel good, go-with-the-flow leader whose lieutenants (Rubin, Summers, et al) did everything they could to keep the party going.

Ronald Reagan: Then: 60. Now: 40. Net loss: -20. Yeah, he gets splattered by this, too. Conservatives' darling, he pushed the pendulum rightward at a time when there was a strong case for it (sorry, liberals, but the Great Society overshot, and Carter never measured up). Unfortunately, the pendulum . . . kept going.

On the other hand, Reagan's resolve and optimism were a welcome tonic after Carter's malaise. He also gets much credit for the demise of the Soviet Union ("a good thing," as Martha Stewart would say).

Bonus question: if Reagan had been President 20 years later, would he have recognized the financial excesses, and shifted course? (He did finally fire Don Regan, formerly head of Merrill Lynch, but mostly because he was a jerk, not over policy disagreements).

Herbert Hoover: Then: -90. Now: -40. Net gain: +50. OK, he screwed it up. But it was harder to get right than we thought. At least his Treasury Secretary did what he thought was best for the country, not his own pocket or Goldman Sachs'.

FDR: Then: +70. Now: +90. Net gain: +20. Another beneficiary of "it was harder to get right than we thought." They were lucky to have him (and where's ours??)

George W. Bush: Who?

Friday, October 30, 2009

Real Estate's Most Overused Word

"[Fill in the Blank] Opportunity!"

To overuse something is to devalue it.

So, what is arguably the most overused word in real estate today?

"Opportunity" (followed by the obligatory exclamation mark).

As in:

--Rare opportunity!
--Wonderful opportunity!
--Great opportunity!
--Investment opportunity!
--Don't miss your opportunity!
--What an opportunity!
--Opportunity knocks!
--Seize the opportunity!
--Renovation opportunity!
--Rental opportunity!
--Perfect opportunity!
--Once-in-a-lifetime opportunity!
--Fantastic opportunity!
--Excellent opportunity!
--Turnkey opportunity!
--This is your opportunity!
--Nice opportunity!
--Equity opportunity!

Plus, of course, that old Realtor-to-Realtor staple: 'open house opportunity.'

You get the idea.

Jeez, guys, how about some non-cliche sales verbiage??

To paraphrase Thomas Friedman, Realtors never miss an opportunity to use the word "opportunity."

P.S.: how about this one: 'not-so-rare opportunity?'

Updated vs . . . Not

Fixer Uppers On Sale

Fixer-uppers are not the darlings of the New York City real estate market right now. With so many well-groomed apartments for sale to choose from, why bother? But when there is a lot of inventory on the market, the price gap between the renovated and unrenovated often grows.

--For the Right Price, the Right Fixer-Upper; The New York Times (10/30/09)

Not all New York housing trends apply to the Twin Cities: different housing stock, different demographics, and most certainly, different prices (New York's are 4x-6x more).

However, in this case, the parallels stick: fixer-uppers locally are now as discounted as I've seen in my 8+ years selling Twin Cities real estate.

One more reason for the deep discount not mentioned in the above article: mortgages are cheap, renovation money is expensive (and scarce).

Growing . . in Stature

"Did You Get Taller??"

I seem to see a lot more of my parents' friends in the Fall than the rest of the year.

That's especially true if their grandkids go to the same school as my kids do (there a lot of school-year programs for both parents and grandparents).

Invariably, the first thing they say, is "haven't you gotten taller?" (I'm about 6' 2".)

I wish.

At (almost) age 50, I'm certainly not growing anymore -- at least upward.

On the other hand, many of my parents' friends -- now in their '70's if not '80's -- are at a stage of life where they're clearly, um, shrinking.

Rather than point out the obvious . . . I just thank them for the compliment.

(I seem to recall something about "discretion being the better part of valor.")

Aerial Shots

Photography Trends

It's still rare, but I'm seeing more instances of home photographs including aerial shots.

They're especially useful in a couple situations:

--the home is elevated and/or obscured by landscaping, so there are no good exterior shots available from street level;

--the home's spectacular physical setting and views are accentuated by an aerial shot (definitely true of the home pictured above).

--"the value is in the land," as they say -- that is, the home is underwhelming and/or the lot is especially attractive, due to its size, location, and features (walkout, for example).

--the home is so large that exterior front and rear photos don't do it justice.

Implicit in all of the foregoing is that the home's asking price justifies the added expense: anywhere from $50 to $300 extra, depending on the photographer and their equipment (cherry picker, long pole).

So, as a practical matter, the home's asking price usually has to be upper six figures before you see aerial shots.

Not Selling? Raise the Price

When is a Price Increase Really a Drop?

Normally, you don't raise your price when your home doesn't sell.

However, every rule has its exceptions.

The best example of a legitimate price increase is when the homeowner has invested substantial money to correct a defect -- for example, putting up a two-car garage where there had only been a one-car garage previously.

Even then, it's smart not to bump the price by the full retail value of the improvement.

That's because it's seldom the case that homes fail to sell because of one, specific issue; typically, it's multiple issues, including a too-high asking price.

So, to go back to the home with the new, two-car garage: bumping the price, say, $5k is really a price drop, because $5k is less than the value of the improvement.

Thursday, October 29, 2009

Home Buyer Tax Credit: What's Next?

Post-Nov. 30 Tax Credit: More Targeted

The following is from Edina Mortgage's Steve Mohabir, City Lakes' excellent, in-house loan officer:

Good morning Lakers,

There has been some encouraging news on the extension of the $8000 tax credit. However, it is NOT a done deal, as it still must be reconciled between the House and Senate and then voted on for final approval.

It is not only looking good for the extension, but there are some additional enhancements to the credit in the works as well. Yesterday, the Senate reached an agreement to extend the $8000 tax credit for first-time home buyers. They also added a $6,500 tax credit for other primary home purchasers, meaning that it is not just limited to first time home buyers.

They also raised the qualifying income limits in a very meaningful way – singles were increased from $75,000 to $125,000, and joint taxpayers from $150,000 to $250,000. Buyers must have executed purchase agreements in hand by April 30th, and then will have until June 30th to close.

More details are likely to come, and changes could be made as reconciliation and voting takes place.

Please feel free to call Steve (612-925-7755) directly for more info . . . .

"Really, Wall Street, Really??!!

"Learning to Love Insider Trading"!!??

Want to keep companies honest, make the markets work more efficiently, and encourage investors to diversify? Let insiders buy and sell.

--Donald J. Boudreaux, "Learning to Love Insider Trading"; The Wall Street Journal (10/24/2009)

Goldman Sachs director Stephen Friedman resigned from the New York Fed in May, after The Wall Street Journal reported he had bought more than 50,000 shares of Goldman stock following AIG’s takeover. (10/29/09)

One of the technology industry's highest-profile executives has become ensnared in an alleged insider-trading case that is shaking the corporate and financial worlds.

--"Ex-Chief of AMD is Linked to Galleon"; The Wall Street Journal (10/28/2009)

One has to conjure up Jon Lovitz' infamous Saturday Night Live character, "The Pathological Liar," to properly respond to Donald Boudreaux's assertion (above) that investors who put their faith in fair markets and "a level playing field" should, well . . . get over themselves.

"The market's perfectly fair to rank-and-file investors right now," The Pathological Liar would say.

"In fact, small shareholders have it too good.

Negative returns on their stocks for a decade?

Zero interest on their savings?

Why, the spoiled jerks. They should be grateful to get any of their capital back!"

"Really, Wall Street, Really??!!

Moving on to CEO pay:

"CEO pay, at 600 times the average worker's salary? Why, the employees are lucky to get paid anything. Make the pay ratio 1,000:1! Better still, 5,000:1. That'll teach 'em who calls the shots.

"In fact, executive compensation now is an insult! Executives should make even more money, by front-running other investors trading their own company's stock before publicly disclosing material news.

"Yeah, that's the ticket. Why should companies have to disclose anything?"

And so on.

About all I can figure out is that, the SEC's recent track record is so abysmal enforcing insider trading laws, it has decided to mount a rear-guard action arguing that insider trading is benign, or -- cue The Wall Street Journal article -- actually good for the markets (and average investors).

To channel another, more recent Saturday Night Live bit:

"Really, Wall Street?? Really??!!

"Garage Mahal"

New Term?

Don't know if it's a new term, but it's a new term to me: 'Garage Mahal.'

I overheard it at a Realtor meeting this morning that was hosted at a close-in, city home -- one that only had an attached, single car garage.

I certainly know the Garage Mahal archetype: an overlarge, over elaborate garage to hold all the owners' "toys," often found in the kinds of 'burbs where McMansions predominate.

However, given the setting, you'd guess there was a little garage envy involved, too.

Jeremy's Jeremiad

"Redesigning the Financial System" -- Or Not

In a world with few wise men -- financial or otherwise -- Jeremy Grantham certainly makes the cut (Paul Volcker, Warren Buffett, and John Bogle also come to mind).

It's hard to improve upon Grantham's own words, from his 3rd quarter letter to shareholders (his fund manages a measly $87 billion for investors).

Here are a couple choice excerpts:

In general, countries with simpler and less aggressive banks have had much less pain in the recent crisis . . . “Oh!” say the bankers, “If we become smaller and simpler and more regulated, the world will end and all serious banking will go to London, Switzerland, Bali Hai, or wherever.” Well, good for those other places. If that means they will have knee-buckling, economy cracking, taxpayer-impoverishing meltdowns every 15 years and we will be left looking like a boring back water, that sounds fine to me.

And this nugget, capturing the current mindset towards reining in a clearly out-of-control financial sector:

I can imagine the company representatives on the Titanic II design committee repeatedly pointing out that the Titanic I tragedy was a black swan event: utterly unpredictable and completely, emphatically, not caused by any failures of the ship’s construction, of the company’s policy, or of the captain’s competence.

“No one could have seen this coming,” would have been their constant refrain. Their response would have been to spend their time pushing for more and improved lifeboats. In itself this is a good idea, and that is the trap: by working to mitigate the pain of the next catastrophe, we allow ourselves to downplay the real causes of the disaster and thereby invite another one. And so it is today with our efforts to redesign the financial system in order to reduce the number and severity of future crises.

Grantham's take on Alan Greenspan, Ben Bernanke, Geithner, Goldman Sachs and a long list of others is bracing, infuriating, refreshing -- and most of all, accurate.

Wednesday, October 28, 2009

"Sell in May & Go Away"

Best Selection vs. Best Deals

Sell in May and go away.

--stock market saying

At least by lore, there are seasonally better (and worse) times to make moves in the stock market.

Are there any equivalents in real estate?


While seasonal timing can be trumped by events -- Presidential elections, wars, expiring tax credits -- there do seem to be some predictable peaks and troughs to the Twin Cities' housing market.

To no one's surprise, Spring is probably the best time to sell.

That's when Buyers are out in force; families who buy then can be in place for the Fall school year; and, well, "animal spirits" just seem to be higher then (along with the sun and the temp!).

Best Selection vs. Best Deals

So when's the best time to buy?

In terms of choices, definitely Spring again, because of the foregoing factors.

However, the best time to get a real estate deal is typically Fall.

That's when Sellers who've been on the market all Summer (and perhaps Spring) have to decide whether they're serious about selling.

If they are, they need to price their home to truly stand out from the competition, then give serious consideration to whatever offers materialize.

If not, they need to be prepared to own their home through much of the winter, because the Twin Cities housing market typically decelerates considerably between Thanksgiving and early Feb. (believe it or not, the Super Bowl traditionally marks the beginning of the "Spring" housing market locally!).

Tack on 6-8 weeks for a typical closing, and you're suddenly not getting cashed out until April, 2010 (yes, 2010!).

So why isn't Thanksgiving or Christmas day an even better time to buy?

While you certainly won't have much competition from other Buyers then, as you might guess, most Sellers don't want to spend the holidays prepping their homes for showings, vacating for inspections, etc.

Of course, that's assuming that the Sellers' homes are still on the market, and they're not traveling or entertaining then.

Price Cuts on Thanksgiving

Trees, Forests, & Price Reductions

If a tree falls in a forest and no one is around to hear it, does it make a sound?

--ancient riddle

I don't know the answer to the tree-forest question, but I do know the answer to this one: "if you drop your price when no one's paying attention, does it do any good?"

That's why I'm recommending to my listing clients that, if their home is overdue to take a price reduction, better to do it now, when the market is active, than nearer (or after) Thanksgiving, when things predictably slow down.

Lake Calhoun Visitor

Big Fish in a Little Pond?

The first thing you notice isn't the Bald Eagle, it's the crowd of people all watching something.

So, you stop, too, and pretty soon it's apparent: a big, Bald Eagle sitting on Lake Calhoun's Thomas Beach late yesterday afternoon.

While infrequent, I've now seen a couple Bald Eagles on and around Lake Calhoun the last couple years.

Fall Treat

I've always assumed that they wandered over from the Mississippi, which they supposedly follow south this time of year -- and which you'd assume has more and bigger fish to choose from.

So, maybe the lakes really are getting cleaner.

Of course, it's also possible that the eagle was after something else found near the city lakes: a big, fat duck.

P.S.: the other way to spot a Bald Eagle is to watch them in flight: they look like 747's compared to the various ducks, sparrows, etc. that are also airborne.

Tuesday, October 27, 2009

Media Mention

Chris Snowbeck on Hijacked Listings

Chris Snowbeck has a nice piece on hijacked listings on the Pioneer Press' Web site today.

He goes beyond my posts on the subject with quotes from a few good, industry sources, and provides nice background and a national context.

He also credited me with flagging the subject on this blog way back in August (thanks, Chris!).

Case-Shiller Aug. Numbers

Mpls. Leads 20-City Index with 3.2% Gain

According to Case-Shiller's August statistics, Minneapolis showed the best appreciation of 20 markets nationally, with a 3.2% increase (the raw number increased from 118.87 in July to 122.66 in August).

So what does that mean?

I don't put too much stock in it, for two reasons: 1) a one month snapshot is too short to be meaningful; and 2) I have issues with Case-Shiller's "sale pair" methodology.

Practicing, "boots-on-the-ground" Realtors form their opinion of the market not just from what's sold, but what's currently for sale -- and what's not selling.

My take, which has been consistent for several months now, is that we're experiencing a schizophrenic market: the low end, stimulated by bank foreclosures and the $8,000 tax credit, is quite strong (if not approaching overheated).

At the other end, upper bracket housing is suffering because prospective buyers of those homes are facing a one-two whammy of higher financing costs and stricken balance sheets.

Knowing When to Pass (on an overpriced listing)

Realtors & Overpriced Listings

"I will not take an overpriced listing."
"I will not take an overpriced listing."
"I will not take an overpriced listing"
"I will not take an overpriced listing."

Four down, 496 to go.

There are many, many reasons it's a bad idea for a Realtor to take an overpriced listing.

Here are four of them (unfortunately, all gleaned from personal experience).

One. A homeowner who insists on an unrealistic asking price will blame you when their home fails to fetch it.

No matter that you did everything short of hire the Goodyear blimp to hover over the home -- to the Seller, it won't be enough.

They'll expect you to go broke buying ads; host endless Sunday open houses; and find fault with your marketing literature, photos, sales skills, work ethic -- you name it -- no matter how professional.

Contrary to popular myth, it wasn't Caesar but a Realtor who first said, "the fault, dear Brutus, is not in our stars, but in ourselves" (substitute "Realtors" for "stars" and "asking price" for "ourselves").

Two. Lack of cooperation. The flip side of the foregoing is that homeowners who see their home through rose-colored glasses see little or no need to spend time or money on things that undeniably make homes easier to sell, for more money (Realtors' generic term for this is "client cooperation").

That includes things like staging, fixing things, keeping the home sparkling clean (tough to do, but very important if you want to sell), and being accommodating about allowing showings (and then leaving for them!).

Three. It's expensive. For the Realtor and homeowner, both.

As the saying goes, "nothing kills a bad product faster than good marketing."

Driving a ton of traffic through an overpriced home is a waste of time and money, because prospective Buyers will inevitably be underwhelmed.

So, weeks (or months) later, when the home has been reduced to a more reasonable price, you'll need to do it all again.

Then, another axiom applies: 'it's easier to get prospective Buyers through a home the first time then to get them back in a second time.'

Of course, owners of homes that have been on the market too long discover another truth: you often need to discount below market value to get a deal done with now-skeptical Buyers.

Confronting that truth does nothing to help what by then is already a strained Realtor-Client relationship.

Four. It's demoralizing.

Selling a home that people want to buy is exciting.

There's a palpable feel to a home that's "priced to sell" (as they say): there's a buzz at the broker open; first showings kick in right away (some of which quickly progress to second showings); Buyers (and their agents) feel a sense of urgency that you pick up on.

All that energy creates momentum that gets deals done.

By contrast, trying to sell an overpriced home has all the energy of a . . . flat can of soda.

While Realtors are trained sales professionals, they're people, too. After awhile, trying to sell a home that's priced too high makes you feel like Sisyphus pushing a boulder uphill.

Instead of attending to an overpriced listing, you try not to think about it. Which isn't doing the homeowner or the listing any good.

Reality Test: Failing Grade

Twice in my eight years in real estate, I was so exasperated with a prospective Seller and their price expectations that I insisted that they view their competition.

So, I set up previews of 4-5 nearby, competing homes -- homes that not only were larger and/or in better condition, but had lower asking prices.

The would-be Sellers' reaction at the end of the tour?

Both were convinced that their asking price was too low -- and insisted on raising it!

Unfortunately, the cure for that mentality typically is market time . . . lots of it.

(There! . . . I feel better)

Monday, October 26, 2009

Financial Res Ipsa Loquitur

Comparing Guns, Credit Derivatives

Guns don't kill people, people kill people.

--NRA bumper sticker

Credit derivatives don't blow up financial systems, people do.

--Wall Street mantra du jour

Despite the incalculable harm wrought by credit derivatives on the U.S. -- and global -- financial system the past two years, Wall Street is clearly resistant to the idea that credit derivatives are a destructive force that need to be reined in. Or simply banned.

Wall Street's argument?

Using credit derivatives to hedge risk is a legitimate financial function. Things go awry when credit derivatives are misused.

In the words of Jerry Webman, Oppenheimer's chief economist, credit derivatives are no different than gasoline. The same gasoline that powers your lawn mower can just as easily blow up a Molotov cocktail.

Examples of legitimate uses of derivatives include airlines that need to hedge their fuel cost; farmers who need to lock in the price of their harvests; and oil producers who need to sell their output.

Flaws in the Argument

The problem with the foregoing argument is that it ignores reality -- recent, catastrophic financial reality.

Imagine hearing the dirigible industry defending hydrogen as an inert gas, safely used with the right precautions . . . the day after the Hindenburg blew up.

The public wouldn't buy it.

So why, in the aftermath of AIG, Lehman Brothers, Bear Stearns, etc. isn't there a massive public groundswell demanding regulation of credit derivatives? Why hasn't Congress taken action?

Two reasons stand out: 1) credit derivatives aren't well understood outside Wall Street (and perhaps, inside as well); 2) Congress isn't protecting the public, but rather the financial industry.

Financial Res Ipsa Loquitur

When a patient emerges from surgery with a scalpel left in their back, they don't need to prove negligence because of a legal principle called "res ipsa loquitur" -- the thing speaks for itself.

In practice, res ipsa loquiter shifts the burden of proof from the patient, who normally must prove that the surgeon was negligent, to the surgeon, who must now prove that he wasn't.

Something similar is now needed to weigh the utility of credit derivatives. In this case, the surgeon is Wall Street; the patient would be . . . us (as in savers, investors, and taxpayers).

Society doesn't allow assault weapons on school playgrounds.

There's no reason to permit what Warren Buffett famously labeled "financial weapons of mass destruction" to wreak havoc on our financial markets ever again.

The West End in St. Louis Park

Retail Roll Out Continues

As the West End in St. Louis Park nears completion, the grand openings of various tenants are proceeding on a staggered schedule.

The development, formally called "The Shops at West End," is being marketed as a "lifestyle center" -- think, one-stop shopping -- and is located just southwest of 394 and 100 in St. Louis Park.

First to open: a new Rainbow grocery store, which opened last month, followed by Cooper, an Irish bar, that just opened.

Coming soon: Crave, an upscale restaurant, and a 14 theatre cineplex.

"Super Target" Killer?

While the planned hotel and office buildings are nowhere in sight -- casualties of the recession for now -- the street-level retail appears to be in place and attracting good business.

In particular, I'm already a fan of the Rainbow: easily the nicest in the Twin Cities, as far as I can tell (and much bigger than you'd expect looking at it from the street).

I can't speak to whether the development or the concept are going to be long run winners, but as a consumer and area resident, I'm happy for the added choices. The complex is also infinitely better than what existed on the site before: a hodgepodge "dead zone" of dated industrial buildings, a mothballed health club, and parking lots.

The fact that the project has a deep pocket co-developer, Duke, and powered ahead through what could only be called a "challenging" last 2 years for commercial development are other good omens.

History Lesson

P.S.: long-time area residents -- I qualify -- will recall that once upon a time (like 1960) the parcel was slated to be the site of Candlestick Park. Of course, the Giants left New York for San Francisco, and Candlestick Park was instead built on a windswept outcropping south of that city.

A few years later, the Twin Cities got the Washington Senators, and Metropolitan Stadium was built in an obscure suburb named "Bloomington" (now home to Mall of America; next time you go, look for the bronzed home plate in the exact location it occupied while the stadium was standing).

Sunday, October 25, 2009

Global Glass Steagall

Canadian De Tocqueville Does Finance

The world's concentrated financial sector has been grabbing more than its fair share of wealth because it has been able to and this must stop.

"This is like looting," said outspoken Boston money manager Jeremy Grantham. "This industry can grow to gobble up all the benefits of the real economy if allowed to. It is trying to grab our cash. It's obscene."

--Diane Francis, "Time to Bust Up the World's Banking Giants"; National Post (10/24/09)

The above quote is just one of the highlights from Diane Francis' SUPERB piece in Canada's National Post yesterday.

What makes the piece especially worthwhile are: 1) her sweeping, historical take, alighting on everything from Standard Oil more than a century ago to the Microsoft anti-trust saga in the '90's; and 2) her non-U.S. perspective (think of her as "de Tocqueville does finance").

Here's one of Francis' milder indictments of the financial status quo: 'Excessively large banks destroy democracies, like the United States, through inordinate influence on policy, politicians and regulators.'

Her prescription -- and one endorsed by such luminaries as Paul Volcker and Bank of England Governor Mervyn King:

Enact a "global Glass Steagall on steroids" -- making sure that investment banks can't make bets with savers' insured deposits -- and break up the too-big-to fail banks, starting with Goldman Sachs.

Not just great, timely ideas -- but, in Glass Steagall's case, the law of the land for 67 out of the last 76 years.

Devastating arguments, and a truly great read.

P.S.: So is Jeremy Grantham a bomb-throwing Commie? Hardly. More like a Boston Brahmin-type, very Establishment, who runs an $87 billion investment fund.

Hijacked Listings, Cont.

Note to Readers: in my post Aug. 20, Hijacked Listings, I discussed the practice of scammers using homes listed for sale to snare unsuspecting, would-be renters. The information below is from the home page of the Multiple Listing Service ("MLS"). While it's addressed to Realtors, the follow-up steps are relevant for anyone who may be affected by this scam.


Craigslist Rental Scam Targets the Area

There is a rental scam using craigslist that has targeted some properties listed for sale on NorthstarMLS. Property information and photos are taken by criminals from public broker/agent Web sites and then listed as a rental home through a Craigslist classified ad at an unbelievably low rate. The landlord-who had to leave the country and travel to Nigeria-asks that you wire him two months' worth of rent. You arrive at the home on the agreed-upon date, but there's just one small problem-the house is not actually for rent and its owners know nothing about your agreement. This latest scam being perpetrated by Nigerian criminals located halfway around the world has been seen in a number of U.S. states, perhaps in response to the current housing market-with fewer people buying, more people are renting.

What to do if your listing is a victim of this scam

Email the details to Be sure to include the URL (or 10-digit post ID number) in your message. For further recommendations, check out the craigslist page on who to notify about fraud attempts. You may also report it to the FBI's Internet Crime Complaint Center to help them determine the extent of the problem.

Saturday, October 24, 2009

An Ode to the '50's Rambler

Built for Baby Boomers -- By Their Parents!

Like narrow ties and bell bottoms, wait long enough and the most dated fashions come back in style.

The same is true in real estate.

As Baby Boomers age, the unheralded, '50's-era rambler is making a comeback.

I can think of (at least) four reasons why.

One. One-level living. Once you hit 50, stairs suddenly matter. Depending on their health, baby boomers in two story houses need to start thinking about downsizing well before retirement. By contrast, people in ramblers . . . can stay put.

In fact, spend $10k or so to move the laundry room to the first floor, and -- Voila! -- everything's on one level. The basement then becomes the province of the grandkids (or guests).

Two. Construction quality. Realtors aren't supposed to play favorites, but I (kind of) do: I'll take a well-built, '50's rambler over virtually anything other era or architectural style.

I've sold any number of these, and while some were dated or even suffered from deferred maintenance, the remarkable thing is how well they weathered any neglect.

I remember selling a rambler by Cedar Lake a couple years ago, and showing up three hours into the inspection to touch base with the inspector (usually, that's about when the inspector is winding up).

It turns out I missed the inspector by two hours: he quickly determined the home was solid as a rock and had left! (It was also true that the Buyers planned to do extensive remodeling, so the inspector's charge was more limited).

Three. Location. Think back to when ramblers were most popular: the '50's. Before suburban sprawl, and before far-flung highways were built.

As a result, many ramblers are located in convenient, close-in neighborhoods. Added bonus: they tend to come with large lots, often times .25 acre or more.

Four. Simple is back.

Unlike McMansions with their two-story foyers and other showy (and arguably, wasted) space, ramblers tend to be sensibly laid out, and the space in them efficiently used.

Want a little more flash?

You can always add crown moldings, granite counter tops and/or hardwood floors (see below).

Rambler Drawbacks

So, what's not to like?

Perhaps ramblers' biggest Achilles Heel is the number of bedrooms on the first floor.

Families who want four bedrooms on one level are going to have a hard time finding it in a rambler. Or, if they do, they're not going to like the room sizes.

In the same vein, master baths hadn't yet become super-sized in the 50's (that took another 30 years), so the odds of finding a bigger one are slim.

Ditto for larger garages.

So what was in vogue in the '50's?

High-quality, mass-produced carpeting! Low pile, high pile, shag -- you name it.

Unlike boring hardwood floors, carpet was colorful, comfortable . . . and suddenly, oh so affordable!

Fifty years-plus later, pulling that same carpeting -- if it's still in the home -- and replacing it with hardwood floors is one of the quickest ways to create value.

Not all .5 Acres Created Equal

Similar Lots . . . Dissimilar Feel

Anyone who knows real estate knows that not all 3,000 square foot homes seem like they're the same size.

Due to floor plan, size and number of windows, ceiling height and other variables, some homes this size feel absolutely huge. Others have you scratching your head to see if the square footage can possibly be right.

The same variability is true of lots, too.

I just finished previewing a rambler sitting on a .5 acre lot for a client looking for a nice piece of land -- and in particular, a big back yard.

Notwithstanding the huge lot size, this home didn't have it.

Long and rectangular to begin with, the lot's narrow feel is accentuated by the (long and narrow) rambler's location in the center, back of the lot.

As a result, most of the acreage is on the front and sides, cut up into smaller pieces that seem to diminish the lot's overall size as well.

Unseasonal Photos

"That Was Some October Snowstorm!"

Where: 14xx June Ave. South
What: 4 BR/5 Bath home with over 6,000 FSF in Golden Valley's South Tyrol Hills neighborhood
How (much): $1.139M ($10k price cut today)
Who: listed with RE/MAX Results

It's certainly possible that the photo above was taken at the height of the October snowstorm we had about a week ago.

Or . . . it was taken prior to when the home was first listed, for $1.679M, last March.

The marketing verbiage indicates that the home is a short sale -- which pretty much clinches it.

Friday, October 23, 2009

"Our" New Paymasters?? Define, "Our"

Confusing "Us" and "Them"

Today's Wall Street Journal is running a house editorial decrying government wage controls on the top 175 executives at seven companies that are still using money from the Troubled Asset Relief Program ("TARP").

The title of the piece?

"Our New Paymasters: wage controls are politically easier than genuine reforms."

I can see how if you're one of the 175 affected executives, it would certainly seem like the government was your new paymaster.

But where does "our" come in?

"Our" presumes an "us."

"Us," of course, would be the 99.9999% of Americans who don't make millions annually running banks that were bailed out by the government, and are being sustained even now by free money from the Federal Reserve.

Thursday, October 22, 2009

RICO and Goldman Sachs

"Goldman Sachs Leadership Arraigned," Says U.S. Attorney

Michael Moore, in his new movie, "Capitalism: A Love Story," shows up in Goldman Sachs' Wall Street lobby to make citizens' arrests of senior Goldman officials.


Here's what Michael Moore should have demanded instead (whoever said we didn't need new laws to clean up financial corruption . . . was 100% correct):

Paulson, Blankfein, Others Arraigned on RICO Charges

(October 23, 2010) NY, NY. Citing multiple violations of RICO ("Racketeer Influenced and Corrupt Organizations Act"), the U.S. attorney for the Southern District of Manhattan today announced stunning, pre-dawn arrests of Goldman Sachs CEO Lloyd Blankfein, former Goldman head (and U.S. Treasury Secretary) Henry Paulson, and ten other current and former senior Goldman officials.

According to U.S. Attorney Preet Bharara, the allegations are serious and broad. "At their heart is an ongoing, organized effort by the firm to subvert U.S. policy in ways that self-interestedly benefited Goldman Sachs at the expense of U.S. taxpayers, the Federal Reserve, and myriad competing, financial institutions," Bharara solemnly intoned.

"Goldman's fingerprints are on virtually every piece of legislation designed to address the deterioration in the financial markets beginning in 2007, and continuing through the near-chaos that peaked in September, 2008," Bharara said.

"Indeed, we believe the pattern of inappropriate -- and, in fact, illegal -- contacts between various Goldman officials and U.S. policymakers constitutes self-dealing, insider trading, misappropriation of funds, and fraudulent misrepresentation," amongst other causes of action.

"The government plans to vigorously pursue these racketeering claims -- as clearly permitted by RICO -- and not rest until it achieves its aims of full divestiture, civil and criminal damages, forfeiture of ill-gotten gains, and, where appropriate, incarceration," Bharara continued.

Bharara announced that hearings to determine bail, as well to freeze Goldman assets (as allowed under RICO), would begin Friday morning.

In an unrelated development, Dan Brown announced that the subject of his new book would be Wall Street finance.

One can dream, right??

If a (very) rusty, former attorney-now Realtor can come up with the foregoing . . . imagine what a real-live one could do? Or several of them?

Option-ARM with 12 Zeroes?

The Mother of All Re-Financing Risks?

Taking on new debt is an action that has implications for the true cost of the U.S. government's financial rescue initiatives. This cost may have significant refinancing risk."

--Special Inspector General Neil Barofsky

Let's see . . . one of the main story lines of the housing bubble involves millions of borrowers scooping up easy, short-term money -- from creditors more than happy to dispense it -- based on the belief that they could easily refinance on favorable terms.


As we all now know too well, housing stopped appreciating, the credit spigot got turned off . . . and millions of homeowners got stuck with spiking mortgage payments.

Now, to mitigate the fallout from the housing bust, the U.S. government is issuing trillions in (for now) dirt-cheap, short-term debt.

Thank you, Alan Greenspan (it was Greenspan who said the Fed's job was to mitigate the fallout from burst bubbles, not to prevent them).

So what happens if all that debt can't be rolled over on easy terms?

Unlike individual households, the government can always print money to repay its obligations.

But creditors who are wise to that: a) refuse to lend; b) require rates significantly higher than zero (what the Fed is able to pay now); or c) both.

Wednesday, October 21, 2009

Paul Volcker

Paul Volcker, Window Dressing (Sadly)

[Former Federal Reserve Chairman Paul] Volcker scoffs at the reports that he is losing clout. “I did not have influence to start with,” he said.

--Louis Uchitelle, "Volcker’s Voice Fails to Sell a Bank Strategy"; The New York Times(10/20/2009).

I don't have many heroes, political or otherwise.

Teddy Roosevelt. FDR. Abraham Lincoln. (If you're keeping score, that's two Republicans and one Democrat.)

My list of living heroes is even shorter.

But Paul Volcker's on it.

His leadership as Fed Reserve Chairman in the early '80's was perhaps the crucial piece in subduing inflation -- which threatened to spiral out of control at the time -- and thereby helped set the stage for an unprecedented 20 year-plus period of prosperity.

Now, he is on record recommending that too-big-to-fail financial institutions be broken up; that commercial banks, whose deposits are federally insured, not be allowed to use that money to make risky financial bets; and that credit derivatives be strictly regulated (and in many cases, banned).

Hard to argue with any of that.

But none of these proposals are going anywhere, because Volcker and others like him no longer have any power.

We are all poorer, in many ways, for that.

P.S.: Near the end of the Reagan administration, when Iran-Contra and other scandals were undermining Presidential authority, a satirical bumper sticker came out saying, "None of this would be happening if Reagan were still alive." Today, substitute "Volcker" for "Reagan."

Tuesday, October 20, 2009

Real Estate & Inflation -- Updated

A *Macroeconomic Overview

Back in April, I ran a post called "Real Estate & Inflation" that isolated wage growth as the key to whether any inflationary outbreak would help or hurt real estate (incidentally, that post is now ranked 18th in the world, according to Google).

Specifically, if inflation spilled over into workers' wages, it would drive up real estate; absent that, inflation would hurt real estate.

That's because static wages plus rising prices for everything else (food, gas, health care, etc.) would "crowd out" consumers' ability to spend on housing.

Six months later, how do things look?

Clearly, there is no inflationary pressure on wages. In fact, with unemployment at about 10% nationally and still rising, there is more downward pressure on wages than upward.

However . . . two other developments have come into clearer focus.

Coming Into Focus

The first is the Fed's apparently indefinite commitment to an easy (free?) money policy -- at least to banks that borrow from it.

Second, while wage inflation is nowhere to be found, asset and commodity inflation -- at least outside of housing -- appears to be rampant. (Hmmm . . . maybe the two are linked).

The Dow Jones is well over 10,000, gold smashed through 1,000 an ounce weeks ago, and oil appears to be poised for another run at $100 (and beyond). Meanwhile, the dollar is plumbing record lows against the Euro, yen, and other major currencies.

So, to return to the original question, what will an outbreak of inflation mean for real estate -- and specifically, the housing market?

Based on the foregoing, I've shifted into the camp that believes that rising inflation elsewhere in the economy will ultimately spill over into real estate, as well -- even if wage growth is flat (or negative).

If the economy can simultaneously experience recession and inflation -- a phenomenon dubbed "stagflation" in the '70's -- there's no reason why houses can't appreciate in a lousy economy, given what's happening to other asset prices.

P.S.: Peter Lynch has a famous line that if you spend 15 minutes a year trying to figure out macroeconomic factors . . . you've wasted 13 minutes.

Monday, October 19, 2009

Hot Trend: "The Great Kitchen"

Successor to "The Great Room"

First there was the "Great Room" (although in practice, it felt more like the "Great First Floor" -- no interior walls anywhere).

Now, privacy-starved families are pushing the pendulum back towards what I'll call the "Great Kitchen" -- a fusion of the Kitchen and Family Room.

The Great Kitchen

In the usual setup, there is a sitting area around a large(!) flat panel TV, a second focal point like a fireplace, and a wall of windows framing a nice backyard.

At the other end of the room is a showcase Kitchen, complete with center island, deluxe appliances, and lots of counter and cabinet space.

Interestingly, the rest of the first floor is (still) laid out more formally.

It's as though the home now has two, distinct areas: the informal "living quarters" in back of the home, and the still-formal "public/entertaining area" in front.

Turnover & Older Neighborhoods

Renewal vs. Decline

It happens to every neighborhood fortunate to get old enough (at least in the family-friendly Midwest): the original owners raise their kids, become empty-nesters, and downsize.

All at once -- or at least it can seem that way -- the block is for sale.

Is that an opportunity for Buyers?

Like so many things, it all depends.

Potential Upside

Probably the biggest benefit for prospective Buyers is the discount associated with buying a dated home.

Instead of paying more for a home in mint condition, Buyers can use the savings to update and decorate to their taste.

When multiple Buyers all put significant money into upgrading their homes, over time the block and surrounding area can appreciate significantly.

Something much like this happened to Minneapolis' Bryn Mawr neighborhood -- located just west of downtown -- in the '90's.

In the span of less than a decade, that neighborhood went from tired and old to young and hip. In a Twin Cities market that went up 75% in that period, Bryn Mawr prices appreciated almost twice as much.

Less obviously, there's a social benefit to buying on a block experiencing significant turnover: when everyone on the block is a newcomer, it can be easier to fit in.


Perhaps the biggest negative buying on a block experiencing generational turnover is short-term re-sale value.

When a lot of dated homes hit the market in a relatively short period of time, a "double-whammy" can result: Buyers discount the homes once for condition, and a second time because there's a lot of (competing) supply.

Longer term, there's also the risk that if your new neighbors can't or won't improve their (dated) homes, the neighborhood can gradually slide from "dated" to "deteriorating."

Really Long Run

Ultimately, the key to any neighborhood's viability is whether successive generations of owners have the financial wherewithal and motivation to update the housing stock.

In the Twin Cities' healthiest neighborhoods, such transitions take place seamlessly -- and repeatedly.

P.S.: note that nowhere in this post did I use the term "gentrification." Gentrification occurs when more affluent homeowners move into a deteriorating area and displace poorer residents.

Sign Clutter

Sign(s) of the Times: "Vote For" & "For Sale"

Are there really that many homes for sale at the moment?

Drive down any busy urban Twin Cities street these days, and it can seem like the entire block is for sale.

Until you realize that the names on a lot of the signs aren't Realtors selling homes . . . but candidates running for office.

Look for "inventory" to peak just ahead of the election in two weeks (always the first Tuesday of November).

P.S.: Ironically, this phenomenon is more subtle in an off-election year like 2009, because instead of saying "Obama" and "McCain," the candidates' signs say "Peterson" and "Johnson."

Sunday, October 18, 2009

"Slow Movement": Growing Fast

Picking up Speed

First, it was slow food -- you know, the antidote to "fast food."

Now, it seems, the "slow movement" is taking hold and expanding to other walks of life.

Slow design. Slow living. Slow money. Slow sex (from wikipedia, not me!)

And now slow parenting (the label may be new, but the idea isn't: I remember a New York Times piece years ago making the case for parents' spending "quantity time" (vs. "quality time) with their children).

I suppose the good thing about a trend like this is that you don't have to worry about missing it . . .

Saturday, October 17, 2009

"Asking Price is Negotiable"

Memo to Sellers

Lots of Sellers, in lieu of reducing a too-high asking price, are instead directing their agents to tell prospective Buyers that "the [asking] price is negotiable."

Here's a news flash: they already know.

In the vast majority of these cases, the issue isn't that no offers are coming in -- low, high, or otherwise.

Rather, the problem is that no Buyers are even looking at the (overpriced) home.

No Showings = No Offers

Buyers typically don't make offers until at least a second showing, and often times a third.

If and when they reach the point of making an offer, many Buyers today feel obliged to start with a number that, to be generous, is "unrealistic" -- especially if the home is upper bracket and has lots of competition.

Once that's rejected -- and it always is -- the negotiation can begin in earnest.

P.S.: discussing hypothetical offers on a home that's not even getting showings reminds me of one of my favorite lines, "if your parents don't have kids, you won't either."

Selling Your Own Listings

Buyer's Market Phenomenon:
More "Dual Agency" Deals?

I don't have any hard data, but at least anecdotally, it seems like the number of homes being sold by the listing agent -- that is, they represent the Buyer as well as the Seller -- is on the rise.

(One of the quirks of real estate is that the agent representing the Buyer is called the "selling agent"; when one agent represents both parties, it's called "single agent dual agency").

It further seems like that phenomenon is happening more in the upper brackets.

Assuming I'm right about that, what's the explanation?

"Forlorn Listings"

Here's my shot:

When a home first comes on the market -- especially if it's a a "hot property" that's in great condition, priced well, etc. -- Buyers' agents practically line up to get their clients in the door.

Six months or twelve months later . . . not so much.

Showings drop to a trickle, if that. (Showings are when Buyer's agents take their clients through a home privately.)

Often times, the only agent driving any traffic to the home is the listing agent, via open houses.

As a result, the odds of the listing agent also finding the Buyer (or vice versa) go up significantly.

Upper Bracket Phenomenon?

So, which homes are sitting on the market the longest?

Not the entry-level homes, roughly defined as under $200k; those have been selling briskly all year.

Rather, the homes with the longest projected market time now are the most expensive homes. According to MLS recently, there is now a three year supply of $1-million plus homes on the market in the Twin Cities.

With all that competition and scarce Buyers, a Realtor who wants to sell such a home had better be prepared to do it themselves.

Thursday, October 15, 2009

3 Keys to 2010 Housing Market

Which Way the "Move-up Market?"

I'm working on my 2010 letter to clients now, but here's a quick preview -- following are 3 factors that I think are key to next year's housing market (p.s.: if you want a copy of the letter in December, instead of February when I'll post it on this blog, send me an email at If you bought or sold a house through me in the last few years, you're already on my mailing list):

One. Fate of the "move-up" market, or, "as the move-up market goes, so goes 2010 housing."

Thanks to the $8,000 tax credit for first-time home buyers -- plus cheap foreclosures dumped on the market by banks -- entry-level housing has been strong virtually all year. Perhaps too strong.

Just ask prospective Buyers and their Realtors what the choices are like below $200k in nicer areas of the Twin Cities right now.

Strength only at the bottom of the market doesn't make for a strong market, though.

So, everyone's looking for evidence that the higher rungs of the market will "join the party."

Other Shoes Dropping?

Two. Given how instrumental the $8,000 tax credit has been, there is a bit of a "waiting for the other shoe to drop" quality to the housing market at the moment.

Namely, everyone's waiting to see if demand tanks once the incentive(s) disappear. (That is, assuming that they do; there's rampant speculation that the tax credit will be extended in one form or another.)

However, assuming Nov. 30 really is it, there's some evidence that things will transition just fine: at least some Realtors are reporting that their clients are postponing their home searches till after Nov. 30.

Their logic?

Artificially-spiked demand is driving up entry-level home prices more than the $8,000 tax credit is going to save them.

Three. The other "other shoe" is a much-rumored second wave of bank foreclosures.

In particular, millions of so-called "option-ARM mortgages" (pay what you feel like -- at least for awhile) are due to re-set nationally in 2010.

The good news for the Twin Cities: these loans never became as popular here as they did in places like Southern FL, Southern CA, and Las Vegas.

The bad news: a continuing, lousy economy -- and in particular, high unemployment -- is hurting many other homeowners who got more conservative mortgages.

Wednesday, October 14, 2009

Coen Bros' "A Serious Man"

The Hebrew School Connection

[Editor's Note: 'A Serious Man' isn't a mystery, so revealing the ending isn't exactly ruining it. However, if you plan to see it and would rather be surprised . . . stop reading here. Regular blog readers may recall that I ran a post, "Economic Stimulus --Local Version" commenting on the mini-city that sprung up on Highway 7 while the movie was filming in St. Louis Park last Fall.]

It's hard not to like a movie that ends with a tornado bearing down on the Hebrew School where you spent thousands of stultifyingly bored hours growing up.

But I didn't.

Too dark. Too dry. And with none of the sweetness or inspired comic schtick in previous Coen brothers' movies like Raisin' Arizona (my personal favorite), The Big Lebowski, or The Hudsucker Proxy.

Is that really '60's St. Louis Park?

Still, if you're Jewish, over 40, and have a St. Louis Park connection . . . you may want to see it just for the local flavor.

The bar mitzvah scene was filmed at St. Louis Park's B'nai Emet synagogue, and many of the extras and smaller, supporting roles are members of the local community. For example, the retired cantor (prayer leader) at Beth El Synagogue played the cantor in the movie.

Other trivia tidbits: a reference to Fern Hill Road (no such thing -- it's actually a St. Louis Park neighborhood); Ruth Brin (an esteemed elder in the real-life Jewish community who just passed away); long-defunct Red Owl grocery stores; and Ron Meshbesher, locally prominent criminal defense lawyer.

Sticklers for accuracy (of a sort), the law firm's real-life address shows up on an invoice in the fictional movie.

Left Out

In the bigger scheme, though, the surprise was how little the Midwestern suburb depicted in the movie resembled the St. Louis Park I knew and grew up in, only 5 years later than the Coens.

Physically, the "movie" neighborhood was very flat, broad, and almost windswept --like what you'd imagine a small town in '50's Nebraska might feel like.

By contrast, the real-life St. Louis Park is leafy and cozy, and on the doorstep of countless lakes, parks, and other recreation.

And while '60's St. Louis Park could definitely breed cynical detachment -- after all, the Coen brothers were a product of that environment -- it also produced Thomas L. Friedman and Al Franken.

Hebrew School

Oh, yeah: the Hebrew School connection.

My pet theory is that "torture-by-boredom," as practiced by old-time Hebrew Schools, explains the creative energy of many ex-St. Louis Parker's.

How else do you entertain yourself when you're confronted with such boredom?

The list of attendees includes Ethan and Joel Coen, writer Neal Karlen, and possibly Thomas L. Friedman (at least, several of his friends went).

P.S.: Here is Neal Karlen's review of the movie, in The Washington Post.

Pop(Up) Goes the Neighborhood


What do you get when you combine a high-demand, close-in neighborhood, smallish existing housing stock, and small city lots (typically, 120' x 40')?

Not tear-downs, because of the lot size.

And not bump-outs, for the same reason (there'd be no yard left).

Give up?


As in added second stories.

One of the areas where this trend is well under way is in St. Louis Park's Fern Hill neighborhood -- specifically, the west side of it (roughly between Monterey and Highway 100).

This six block stretch is prime territory for pop-up's because these blocks are full of smaller, $250k-$350k homes -- yet homes just to the east go for $400k-$600k (and sometimes much, much more)

The pop-up's are simply closing the gap.

Over time, this trend is driving all of Fern Hill up . . . literally.

"59' Lakeshore" vs. "Waterfront"

"Full Service" vs. "Discount" Realtors

Much attention is paid to what Realtors get paid.

A lot less to what services they perform for that money.

The reality is that there is no such thing as a "discount Realtor" offering full service. Rather, what they offer is more properly called "limited service."

What do I mean by that?

To pick just one detail -- and real estate involves hundreds of them -- a discount Realtor will put up a "For Sale" sign in your front yard.

A full service Realtor will add a sign "rider" that reads "waterfront" to draw attention to the otherwise invisible lake in back.

A great full service Realtor will have a custom rider made up that says "59' Lakeshore."

Tuesday, October 13, 2009

"Economists in Glass Houses . . . "

SuperFreakonomics: due Oct. 20

“A Realtor and a pimp perform the same primary service.”

--SuperFreakonomics (2009)

Egged on by their success skewering Realtors in their best-selling 2005 book, "Freakonomics," its authors have an encore due out next week.

Judging by the above quote from the book, they plan to pick up where they left off.

I'll have a more-considered rebuttal soon.

For now, suffice to say that economists in glass houses shouldn't be throwing stones -- at Realtors, or anyone else.

Not only didn't economists as a group anticipate today's economic ills, their constructs actually laid the groundwork for them -- by assuming that people are always rational, reward-maximizing actors.

Oh, yeah: and free markets are efficient; business (and Wall Street) can be trusted to regulate itself; and a laundry list of other misguided beliefs and practices that are collectively as enlightened as medieval physicians' bloodletting was in their day.

Lagging Indicators

As I've posted before, not only can't economists accurately forecast the future, they can't even accurately describe the present: witness the almost one year lag declaring the current recession.

Is the recession now over? Economists will tell us . . . sometime in 2010.

Enough for now.

In the meantime, please feel free to check out my previous posts on the subject, "Freakonomics Rebuttal" (one of the most popular posts ever on this blog!).

Showing Instructions

"Do's" and "Don'ts" for Home Sellers

Want your home to sell?

Here's a quick checklist of "do's" and "don'ts":

--Hire a good Realtor, who knows how to price, market, pre-market, draft contracts, and negotiate (and can coach you through the rest of this list)
--Make sure that everything in your home is in good working order. If your city has a point-of-sale requirement, get a certificate of compliance.
--Price your home well, based on the comp's ("comparable sold properties")
--Hire a good stager.

Last but not least . . . make sure your home is accessible.

I'm trying to get clients into a home now that requires 24 hours' notice for showings, says no showings before 1 p.m., and no showings on Saturdays. Seriously.

Might as well put up a billboard that says, "not serious about selling."

P.S.: And yes, in lots of these situations, the delay is due to a renter. If you're a landlord/owner, make sure your lease permits access on reasonably short notice.

Eeek!!?? No, E.I.K.

"Do Not Adjust Your Set . . ."

If you're a prospective home buyer and are stumped by the acronym "EIK" -- don't worry, it's not you (it's them).

While there are plenty of recognized acronyms and abbreviations in real estate . . . EIK isn't one of them (at least not so far).

For the record, it's short for "eat-in kitchen." (I just came across a new listing that used it, along with way too many other acronyms.)

P.S.: not to be confused with EIK is "PIK" -- a nasty Wall Street creation that stands for Payment-in-Kind. Don't ask . . .

Monday, October 12, 2009

Winter in Oct.?

Silver (White) Lining: No Twins Game Tonight

Just because real estate marketing has bypassed the Star Trib (and virtually every other print newspaper) doesn't mean it hasn't had -- and continues to have -- fine writers and columnists.

Hard to improve on Nick Coleman's sentiments, from his column yesterday:

Next spring, a new, half-billion-dollar publicly financed baseball park will open in Minneapolis and it will also, for the first time since 1982, open the game to the elements. This back-to-the-future is good for us, we are told, but it didn't seem so great when I was a boy watching the Twins at the old Met when it was snowing or blowing or raining . . .

On Tuesday night, as our modern Twins beat the Tigers in the cozy confines of the Dome, it was blowing and cold and rainy outside at Target Field, where they will play next year. Good luck with that, Minnesota. You may want your lid back.

--Nick Coleman," Did I Hear Someone Say 'Stadium'?"; Star Tribune (10/11/09)

Real Estate Misunderstandings

Key to Conflict Resolution: Check Assumptions

Being a good Realtor doesn't mean you never have disagreements with clients (or they with third parties -- see below); it means you're good at resolving them (even better: avoiding them).

Looking back over 8 years of real estate practice (and the occasional conflict), it's startling how often the source of the problem is an invalid belief or assumption.

Here are three examples:

One. A client needed extensive electrical work done to comply with Minneapolis' point-of-sale inspection requirement. I provided three, reputable names -- my standard practice -- and let her follow up.

A week later, the client called me up in arms over the ($900) bill.

I asked her to fax me a copy of the bill, which she did, then reviewed it with her (it was three pages, single-spaced).

As I reviewed the work performed, I inquired whether the electrician did the work described, satisfactorily completed it, had been on the premises three straight days, etc. Check, check, check.

It quickly emerged that the problem was the electrician's hourly rate: $80. My client thought the going rate for electricians was half that. I wish.

Two. I am a full service Realtor, and my commission reflects that (in fact, I pride myself on charging less than other Realtors delivering similar service).

Which isn't to say commission never comes up.

One client was under the impression that a full service commission in the Twin Cities was in fact half of what it currently is (and therefore thought my rate was unreasonable).

I told them to check it out, and get back to me.

They did . . . and hired me later that week. I subsequently sold their home in nine days, for 98% of their asking price.

Three. Another client was adamant that I run photo ads of his parents' home in the Star Tribune (the parents had passed away, and he was handling the estate sale).

The reason?

He'd found his home that way.

It turns out he'd bought his home in 1988.

I explained that real estate was now advertised almost exclusively online, and that rather than waste money on declining print ads, Edina Realty had wisely chosen to put its resources into creating the Twin Cities' best real estate website.

Which it did -- and has.

$10k Property Tax Bill? "That's Nothing!"

It's All Relative

One of the things you have to remember doing open houses around the City Lakes is how much the housing costs, relatively speaking -- not to mention the property taxes that come with.

Normally, a $10,000 annual property tax bill isn't a selling point.

However, I had three parties come through my $600k Sunset Gables open house yesterday who were contemplating downsizing from significantly more expensive, nearby homes.

I literally heard variations of the following multiple times: '$10,000 a year? That's nothing. I pay double (or triple) that now!"

P.S.: I remember getting gas a few years ago, and the man one pump over couldn't seem to take his eyes off my two sleeping kids (pure angels when they're asleep!).

The look in his eyes could only be described as wistful. I gently said to him, "You must not have kids." "Oh, God, no," he answered. "I have nine."

Sunday, October 11, 2009

Better Type in "Saint Louis Park"

On House w/ 20 BR's for $750k

After the finishing the immediately preceding post, a little voice in my head said: 'OK, the Star Trib print ads for housing might be circling the drain -- but maybe it's because the online section is where the action is.'


My first search for St. Louis Park open houses today in the (online) Star Trib homes section returned . . . zero hits.

It turns out that the search engine will only accept "Saint Louis Park."

Assuming you figure that out, the correct query returns four hits -- out of 37 St. Louis Park open houses that MLS says are being held today.

And one of those 37 is mine! -- at 4400 W. 25th St. in Fern Hill.

Apparently, the $60 I just paid for a microscopic mention in the (print) Star Trib Open House Directory today doesn't include a mention online.

Like I said, my advertising budget can be spent better elsewhere . . .

P.S.: in the course of poking around online, I ran a search on "55416," the zip code that covers the eastern half of St. Louis Park. One of the (three) hits was for 3816 Cedar Lake Place, which is listed for $749,900 and apparently has 20 bedrooms. As they say, "Better Hurry!"

"The Reverse Car Dealer Effect"

Star Trib Advertising Woes

Once upon a time, people shopping for a home looked in the local newspaper's (print) housing classifieds.

Not anymore.

Consider the following numbers from today's (Sunday) Star Tribune (chosen for St. Louis Park, as an illustrative example):

37 -- Number of Realtor open houses in St. Louis Park today (out of 370 active listings total).

6 -- Number of Realtor open houses in St. Louis Park advertised in today's Star Tribune's Sunday Open House Directory (including one of mine).

3 -- Number of St. Louis Park open houses running picture ads in the Star Trib.

0 -- Number of St. Louis Park open houses running classified ads.

In fact, the total number of classified ads for St. Louis Park's Star Trib advertising zone -- which covers 30 suburbs including Edina, Golden Valley, Minnetonka, Plymouth, Chanhassan, Richfield, New Hope, Robbinsdale, and Eden Prairie -- is 8!


Call it "the reverse car dealer effect."

Advantages of Clustering

As everyone knows, car dealers famously cluster in the same parts of town (restaurants tend to, as well).

The reason is that, by doing so, they create a destination in consumers' minds that drives traffic and thereby benefits all of them.

Yes, they compete directly, and only one dealership will ultimately make the sale. However, the "traffic effect" outweighs the "competition effect."

No "There There"

The same phenomenon and psychology applies to selling homes.

As a Realtor, the above advertising numbers tell me that the number of people looking in the Star Trib print ads has fallen below a critical mass.

If no one's looking there, spending good money to advertise your listings there is . . dumb.

No wonder Edina Realty pulled its Star Trib advertising insert more than two years ago, opting instead to pump the money into its Web site.

No wonder the Star Tribune filed for bankruptcy protection last January (it recently emerged), and faces a daunting future.

P.S.: memo to Star Trib: the open house ad I purchased today is my last, for the reasons mentioned above. Like Edina Realty, I'm instead spending the money on improving and marketing my Web site . . . and this blog!

Saturday, October 10, 2009

"Now, That's Useful Feedback!"

Realtor Showing Feedback ("Heads Up?")

As a listing agent (representing Sellers), one of my stock lines is that "the only feedback I really care about is a full price offer from a well-qualified Buyer."

That's only a slight exaggeration.

While there's always the truly unique property that's difficult to wrap your head around, the fact is, if the home you're listing has been on the market for a month, and you're surprised by the feedback you're getting . . you're not a very good Realtor (at least in my opinion).

(Sort of like the advice trial attorneys are given never to ask a witness a question that they don't already know the answer to).

Exceptions to the Rule

So, are there exceptions to that?


Earlier this week I showed a home that my client said had a strong gas smell (my own sense of smell is non-existent). I immediately called the listing agent, who followed up.

Last week, I showed a property where it was obvious that the owner's cat had been . . . ahem . . sick. In multiple places.

Again, I called the listing agent.

Believe it or not, he was grateful to get the call. The client was out of town for the week, and I just saved him a few ruined showings.

Who's Peeking at Edina's Web Site? vs.

According to Quantcast, attracts about 150,000 unique visitors a month -- the most of any Twin Cities broker.

By contrast, Edina's closest competitor, Coldwell Banker Burnet (CBB), attracts about 1/5 that number of visitors to its site each month.

Since Edina and CBB are virtually tied for 1st and 2nd place for Twin Cities market share (with just over and under 20%, respectively), it seems to fair to ask: are the competition's clients peeking at Edina's Web site? (Edina's site shows all the local MLS listings, not just its own.)

Parsing the Traffic

If the answer's yes, the next obvious question is, "why?"

Before Edina starts to feel smug, though, one has to ask: if its Web site is clearly superior -- as the aforementioned traffic certainly suggests -- why isn't the public using Edina Realty agents in the same proportion that it's frequenting the company's Web site?

Does Edina have a "free rider" problem? Or maybe it's just a "conversion" issue.

P.S.: time for breath mints in the reception areas??

United Against . . .. Consumers??!!

Banks and Bank Regulators

Best nugget -- OK, boulder -- I've run across the last few weeks discussing banks, bank regulators, and the tortured birthing (maybe) of a consumer financial protection agency:

The real reason current regulators don’t pay more attention to consumer problems is not that they are evil (well, mostly they’re not), but that they have another mission that takes priority. They are charged with insuring the safety and soundness of the banking system. And safety and soundness means making sure that banks have enough capital — and are compensating for loan losses. When a bank decides to raise a customer’s credit card interest rate to 35 percent to make up for losses elsewhere in the credit card portfolio, that believe it or not, is a good thing from the perspective of safety and soundness. Even though it is a terrible thing for consumers.

--Joe Nocera, "Have Banks No Shame?"; The New York Times (10/9/09)

P.S.: my first "real" post-college job -- about 25 years ago(!) -- was as a CPA. My specialty? Auditing small banks and agricultural co-ops.

Friday, October 9, 2009

"Property Tax Protester Beware"

The Downside of Appealing

October is not exactly high season for property tax appeals: it's too late to contest 2010 valuations -- set way back in January -- and too soon to challenge as-yet undetermined 2011 taxes (due to a lag, property taxes in MN are set each January 2 for the following year).

Yet, disgruntlement with property taxes has been an undercurrent at practically every Sunday open house I've hosted this year.

Up until last week, my standard advice was, "if you think your tax assessed value is too high, go ahead and try to challenge it -- you've got nothing to lose."

Well, apparently, you do.

At an open house last Sunday, I ran into the first documented instance of a (Minneapolis) homeowner having their property taxes raised as a consequence of protesting their tax assessed value.

I don't believe that this is common, and certainly wouldn't generalize from one instance.

However, no Realtor -- myself included -- wants to see a client bit by this.

So, my new advice is, "make sure you're not in fact under assessed before trying to protest your bill."

P.S.: I had an economics professor whose grading policy on exams was that anyone who felt that their grade was too low was free to challenge it. However, he made clear that he would review the entire exam -- not just the disputed part -- to find offsetting mistakes. In other words . . "don't bother."

"How are You?" for Realtors

"Selling Any Homes?"

As almost everyone knows, "How are you?" is seldom a sincere inquiry into your well-being.

Even if you've just been diagnosed with a terminal disease, the correct, Minnesota-nice answer is always, "Good, thanks."

In real estate, the equivalent is, "selling any homes?"

Fortunately, most of the time I can enthusiastically answer "yes."

However, even if things are temporarily slow, my answer -- and I'm guessing most Realtors' -- is still pretty much the same.

It's not that anyone's necessarily trying to deceive.

Rather, it's just recognizing that, when asked socially, the question is more of a social reflex (vs. say, coming from my office manager).

P.S.: once upon a time, I ran -- unsuccessfully -- for the state legislature. People who just knew me casually would run into me months later and ask, "So, how'd you do?" Tiring of confessing that I'd been steamrollered, more than once I was tempted to blurt out, "Great! I won!" (I'm confident that not 2 in 100 would have known otherwise).

Thursday, October 8, 2009

Gold Bulls and Bears

That's the Bearish Case??

Though gold performs well as a defensive asset in times of global economic strife, its long-term record is spotty. Over $1,040 an ounce is only a record if you leave inflation out of the picture. Factor that in and gold prices haven't gotten near prices from the early 1980s.

--Melinda Peer, "Gold: High Risks And High Prices"; Forbes (10/7/09)

Let's see . . .

Today's ongoing economic crisis is supposedly the worst since The Great Depression.

At $1,040 per ounce, gold is making nominal highs, but is nowhere near it's all-time, inflation-adjusted high -- reached during the now-eclipsed, early 1980's recession.

Isn't this actually the bullish case for gold??

Factor in that gold is a smaller, thinner market than oil; and that commodity speculators now have mega-capital at their disposal (how else do you explain $160 a barrel for oil more than a year ago?) . . . and it sure seems like conditions are favorable for an epic run.

Time-Saving Technique

Coke Didn't Make America Fat.

--Wall Street Journal headline (10/8/09)

Pressed for time? (and who isn't)

Then do what I do, as I hurriedly scan the Op-Ed pages (online and off) for the 8-10 pieces I want to "dig into" that day:

1. Read the headline;
2. Jump to the byline at the end, to check the author's title, credentials, etc. to see if the author has an "an agenda" or other, obvious bias;
3. Based on #2, decide if you want to read the article.

So, applying the foregoing, guess who the author of the "Coke" Op-Ed piece is?

A. A nationally recognized nutritionist.
B. Head of a non-profit, child advocacy organization.
C. The CEO of Coca-Cola.
D. The President of the company that makes Fruit Loops, Captain Crunch, and Cocoa Puffs (presumably confessing).

While "D." is certainly intriguing . . . the correct answer is "C."


Resisting Treatment

Imagine you had a medical condition, and sought advice from an expert.

They told you that, while there was a tiny chance that you could spontaneously recover, in the vast majority of cases the condition was degenerative. Meanwhile, there was a medicine available that was 100% effective, albeit expensive.

Would you take the medicine?

The vast majority of people in this situation probably would -- and sooner rather than later (at least assuming they could afford it*).

"Needles in Haystacks"

Now substitute "home seller" for patient, "Realtor" for expert, and "unrealistic asking price" for "medical condition" . . . and suddenly people's behavior changes.

Instead of responding rationally to overwhelming evidence that their home is overpriced for current market conditions, they opt to wait -- hoping for a stronger market, a needle-in-a-haystack buyer . . . or both.

Unfortunately, like the aforementioned, hypothetical medical condition, time is your enemy when you are trying to sell an overpriced home.

By the time the patient is resigned to taking the medicine, the chance for a "cure" may already have been squandered.

*Of course, just like some patients are willing to take medicine but can't afford it, some home sellers know that their home is overpriced, but can't afford to reduce it -- because they owe more than its fair market value.

Then, they either need to pursue a short sale, whereby the bank(s) reduce the mortgage amount, or, failing that, contemplate defaulting.

Wednesday, October 7, 2009

Taking a Listing -- Or Not

Knowing When to "Take a Pitch"

[Editor's Note: sorry, couldn't resist the baseball metaphor, after last night's dramatic Twins game!]

Just as homeowners must weigh myriad considerations when deciding which agent to list with, listing agents must weigh a host of factors when deciding whether to take a listing.

Yes, that's right: Realtors turn down listings.

By far, the most common reason is price.

First & Last Realtors

A home that's priced too high is costly, both in time and energy.

It's also a drain on one's wallet: ads, literature, new literature each time the price is cut, endless open houses (or at least requests by the owner).

Although many Sellers are loathe to believe it until they see it with their own two eyes, too-long market time almost always torpedoes their price.

The result is that they invariably get significantly less than what they would have gotten months (or years!) earlier had they priced realistically from the get-go.

P.S.: I've never used it personally -- it strikes me as too cheeky -- but there's a famous Realtor line (at least amongst Realtors) to use on Sellers who don't like the price guidance they're being given: 'If I can't be your first Realtor . . . maybe I can be your last."

Part 2: How Close to the Strike Zone Does it Have to Be?

Melt-Down Post-Mortem

Revisiting the "'They-All-Did-It' Defense"

They all did it, right?

That is, all the big-time U.S. commercial and investment banks got swept up in the rush to cash in the housing market boom -- issuing subprime mortgages, booking origination fees, and re-selling securitized debt as fast as they could create it.



It turns out that, in addition to many hares, the U.S. banking industry also had some tortoises, like Twin Cities-headquartered U.S. Bank ("The Contrarian: How Dan Arrigoni Saved His Bank Billions"; Minnesota Business, July 2009). The tortoises caught flak for missing the party, but after it crashed they were the ones still solvent.

Melt-Down Aftermath

If in fact some bankers had the prescience not to partake, why save the ones that succumbed?

How come only a handful of CEO's, like Countrywide's Anthony Mozillo, Merrill Lynch's John Thain, and now Bank of America's Ken Lewis, have been sacked?

Isn't that the essence of "moral hazard?"

On the other hand, if everyone really did get pulled in, then doesn't the flaw lie with the system -- its incentives, competitive pressures, etc.?

In that case, the logical response would be to reform the system.

Unfortunately -- depressingly -- one year after the financial crisis crested, we're getting neither corporate accountability nor systemic reform.

E-Cards Eclipse Paper

First Newspapers, Then Greeting Cards?

As goes the Star Tribune (and Chicago Tribune, and Rocky Mountain News, and any number of now-bankrupt or extinct newspapers) . . . so goes Hallmark Cards?

It's hard to avoid that thought watching three kids -- mine -- react to the cards my five-year old daughter received on her birthday today.

The paper cards were barely glanced at.

By contrast, the eCards -- with their dynamic graphics, sound effects, and story lines -- kept them transfixed for eons (OK, a few minutes, but that's an eternity for small kids).

Hard to go back to black-and-white -- or 2-D -- once you've seen 3-D.

P.S.: Ironically, my guess is that paper cards will survive if only because they serve as the "delivery system" for another anachronism: a personal check as birthday gift (vs. gift cards and other forms of digital money).

Tuesday, October 6, 2009

Home's First Showing? On the Internet

Professional vs. Amateur Photography

One of the (few) things about Manhattan I knew I was going to miss when I left a decade ago was Angelica's, a truly amazing, mostly organic restaurant in the East Village.

When I suggested they open up a branch in Minneapolis, the manager -- who'd obviously fielded many such suggestions -- instead handed me a $35 cookbook with all of Angelica's most famous recipes. Which I promptly bought.

I remember thinking at the time, isn't that a bit like Coca-Cola telling anyone who asks what its secret formula is?

Actually, no.

The reason is that Angelica's recipes are so elaborate that you quickly realize that it's (significantly) cheaper and faster just to go to the restaurant and order their food off the menu, than to try to prepare it yourself! (Assuming you don't have to get on a plane.)

It's All in the Execution (or, "Public Secrets")

What made me recall all this was a (very well-done) presentation at my office's weekly meeting this morning by Jenny Terrell, a VHT photographer. The company is one of a handful that Twin Cities Realtors can hire to take their photos.

My first thought was, "Why is she going to tell all the Realtors in the room -- her clients -- how to do on their own what she charges for? Isn't that going to undermine demand for her services?

Just like Angelica's . . . only if you have the time, money, and skill to do what she does.

As Terrell explained in the course of a 30 minute presentation, not only is she highly trained, but she uses specialized, high-end equipment (mega-buck camera, wide angle lens, supplemental lighting, tripod, etc.) that costs about $5,000.

All her photos have just-right (manually set) exposure and composition, then are further edited to look even better.

Best of all, Realtors can expect to get finished photos from her in about 48 hours.

Bottom line: my clients are paying me to professionally market their homes. That means making sure the photography of their home is taken by a professional, not an amateur (me).