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Tuesday, August 31, 2010

Contrarian Indicators -- Housing Market Edition

"The Death of the Housing Market?"

"The reports of my death are greatly exaggerated."

--Mark Twain

It's hard to be a student of markets without some passing familiarity with so-called contrarian indicators: those harbingers that signal that a market is at an inflection point, presenting investors with a singular opportunity.

That opportunity can either be to get out -- before things crash -- or to get in, after everyone else has despaired, sold their positions -- and driven prices through the floor (of course, as we now know in nauseating detail in the wake of the housing market "troubles," there's a third option: '(sell) short like crazy').

One of the most famous stock market contrarian indicators was the 1979 Business Week cover story proclaiming "The Death of Equities" (pictured above).

Two, short years later, the Dow Jones began an epic, 17-fold rise spanning two decades.

The reverse would be when CNBC, Jim Cramer, etc. supplant sports programing on health club TV's.

In both cases, the underlying theory is that, by the time shoeshines are dispensing stock tips (supposedly, what prompted Joseph Kennedy to sell before the 1929 Crash), there are no more marginal Buyers/Sellers left -- and therefore things are about to flip.

Housing Market Harbinger

So, what would constitute a contrarian indicator for the housing market?

Besides the spate of stories heralding the "End of the American Dream" the last week or so, I can think of one, at least in Minnesota.

That would be a push to eliminate the time lag setting property taxes.

Background

If you didn't know, by longstanding tradition, Minnesota sets property taxes every January 2 for the following year.

So, in 2012, you'll pay property taxes on whatever your home was worth -- or the government thought it was worth -- this January.

When home values are rising, this lag works in everyone's favor.

However, when prices are dropping, "sticky" property taxes are decidedly negative, delaying needed relief for beleaguered home owners.

Continuing with the contrarian theme, a very good sign of a long-term bottom in housing prices will be when conventional wisdom decides that falling prices are the norm, not the exception, and demands grow to revise how property taxes are assessed.

Legislators??

P.S.: want to know why Minnesota collects property taxes on May 15 and October 15?

The story I've heard is that the two times farmers are reliably flush are in the Spring, before they plant, and in the fall, after they've sold their crop(s).

But is That Their Real Name??

"Ross A. Justsold," Realtor

I've never investigated -- and am not about to -- but I've always wondered if a few (too?) felicitous real estate names are the Realtor's real name, or legally changed.

So, in the Twin Cities you'll find Realtors with surnames such as "Sell," "Sells," "Sellnow," etc.

If I ever go that route, I know what I'm choosing: "Justsold."

P.S.: the phenomenon is hardly limited to real estate; Rock Hudson's real name was Roy Scherer; Marilyn Monroe's, Norma Jean Mortenson, etc. etc.

Planes, Plays, & Baseball Tix

One Size Doesn't Fit All

More than four years after it opened, I finally got to the "new" Guthrie Theatre near the Mississippi River -- just in time to see the closing performance of Tennessee Williams' "A Street Car Named Desire" (thanks for the tix, David and Shana!)

The performances were indelible and wrenching; I was close enough to the stage to see that the superb Gretchen Egolf, who played the lead ("Blanche") was clearly crying during the curtain call.

I -- and most of the audience --were merely emotionally spent.

Variable Pricing

During intermission, reading the program, what struck me was the price schedule for single tickets.

A veritable spreadsheet, it shows a theatre split into five different price zones (actually, two theatres; I hadn't realized until last night that were two venues, the Wurtele Thrust and the McGuire Proscenium).

The price for each ticket then varies depending on the play; the evening/day of the week; and where the play is during its run ("Previews" are discounted; Opening nights command a premium).

Welcome to the world of variable pricing, made possible by computers.

That has given us planes carrying 200 passengers, none of whom paid the same price for their ticket; as well as major league baseball games that charge premiums and discounts, depending who the marquee attraction is -- or how important the game is.

Speed and Fluidity

None of this is new, of course.

The only things that seem to be changing is the spread of "variable pricing" to more corners of the economy, and an acceleration in its speed and fluidity (airplane tix that seemingly re-price in real-time).

And, perhaps, the rise of viruses which can distort or even crash such pricing systems, at least when they are made on an open platform (witness Wall Street's "Flash Crash" this Spring, still not adequately explained or dealt with).

P.S.: one other discovery from Sunday night: what looks like a skyway between the Theater and the parking ramp across the street, isn't; rather, it's a bridge for transporting sets back and forth between the two buildings (sets are constructed in a shop above the ramp).

Monday, August 30, 2010

Get Ready for Thursday Tour (Thursday??)

You Read it Here First

In the course of helping clients find a rental property the last 2 weeks, it's become abundantly clear that the rental market is much more fragmented and chaotic than the For Sale market.

And pricing is much sloppier (what you get for, say, $2,500/mth runs the gamut from properties worth high $300k's to low $600k's).

While Craig's List seems to dominate, there are another 6-8 sites that have rental properties that aren't listed elsewhere.

And coming this week, rental properties will now be on MLS.

Step 2

Once you've defined the appropriate universe of rental candidates for your client, step #2 is to go look at them.

Some owners and rental brokers are quite responsive, and showings are easy to set up.

However, others take repeated efforts to reach, and have very little time available for showings ("How about after work next Monday?").

For Realtors generally accustomed to getting access during business hours, with a few hours notice, that doesn't cut it.

Proposal: Rental Tour

Once upon at time, For Sale properties suffered from a similar lack of exposure.

At least in the Twin Cities, the solution was to hold open houses every Tuesday, between 11 a.m. and 1 p.m., when Realtors can see all the new inventory.

Here's betting $100 that there'll be something similar for rental properties within the next year (at least ones whose rent justifies the marketing effort).

P.S.: my proposed time is 1 to 3 p.m Thursdays.

Housing Market "Do Si Do"

"Pick Your (Housing) Partner"

Swing your partner ‘round and ‘round,
And turn your corner upside down.
And turn your corner like swingin’ on a gate,
And meet your partner for
a grand chain eight,
And hurry up boys and don’t be late.

--Square dancing lyrics

What does the upcoming Fall housing market have to do with square dancing?

It's when Buyers and Sellers "pick their partners," before colder weather and the holidays slow things down. (Ditto for landlords and renters).

So here's a rare (but safe) prediction from yours truly:

The Twin Cities housing market is going to accelerate noticeably after Labor Day.

Assuming that most people want to close by Thanksgiving, and taking into account that the average interval between signing a Purchase agreement and closing is six weeks, Buyers and Sellers will want to consummate a deal by early October.

P.S.: as part of that acceleration, look for a spike in new listings and price reductions after Labor Day.

"The Close," "The Trial Close," & "The Reverse Trial Close"

Sales Repertoire

Consciously or unconsciously, every successful sales(wo)man develops some variation of the following techniques:

The Close. "Sign here."

The Trial Close. "If they agree to beef up the earnest money, is it a deal?"

The Reverse Trial Close. "With all those objections, this home sure doesn't seem like a very good fit for you."

If the objections are real, simply acknowledging that -- directly and honestly -- saves everyone time.

If the objections instead are disingenuous or posturing, nothing shifts the leverage faster than agreeing that the would-be Buyer's (long) list of flaws truly are deal breakers.

P.S.: my clients know one of my favorite anecdotes about Buyer feedback.

Way back when, I got an email from a Buyer's agent detailing -- in great length -- all the flaws in my client's home: the kitchen was hopelessly dated, the floor plan felt awkward, the bedrooms were small -- and on and on.

The last line?

"My clients are very interested. Please keep me in the loop."

Sunday, August 29, 2010

Sunday Open Houses & "Minnesota Nice"

I'll Take That as a "No"

"Minnesota Nice" plays out in a lot of funny ways in real estate.

Like at one of my open houses this weekend.

I greeted one woman at the front door, directed her to the literature and disclosures on the dining room table, and invited her to look around.

Ten minutes later, as she was leaving, I asked her what she thought.

"Very nice, lots of space," she answered. "Let me go get my husband" (he was parked in front with their dog).

As I talked to another open house visitor, I watched out of the corner of my eye as they promptly drove off.

Saturday, August 28, 2010

Jello & Real Estate Deals

Firming Up a Deal (Literally)

What do real estate deals and jello have in common?

They both harden -- or "set" -- as they progress.

Which is why it's important to get all key terms on the table early on.

Friday, August 27, 2010

In Vogue: 'Euro'

MN State Fair Dispatches

"Euro," the currency, may be distinctly out of favor, but "Euro," the word, is very much in vogue.

Where?

At this year's Minnesota state fair.

Half the kiddie rides seemed to use it as an adjective, as in "the Euro Bobble," "the Euro Jump," etc., etc.

How . . . exotic (and expensive!)

No doubt in Europe, the amusement parks feature rides billed as "the American roller coaster," the American tilt-a-whirl," etc.

Coming Soon!

Huge, Updated Condo in
Great Edina Location!

Where: Point of France, 6566 France Ave. South (140 unit, high-end condo building just NW of Southdale)
What: huge updated condo with 2,600 FSF close to everything
When: Broker tour Tues, 9/14; private showings beginning late next week
How (much): under $400k
Who: listed by Ross Kaplan, Edina Realty City Lakes

The finishing (staging) touches are just being made now on this sweeping, 2,600 square foot Point of France condo.

You'll love the light and flowing space, Contemporary flair, updated Kitchen, and 3 (!) balconies.

The Owner's Suite features 2(!) walk-in closets; the second bedroom has its own, private wing and full Bath (also makes an ideal home office) -- all in a full-service, amenity-rich building in a great Edina location.

Freshly painted and primped throughout, this one's a knockout!

Thursday, August 26, 2010

Is This Seller Telegraphing Something??

Subliminal Seller Messages

Yes, it's a tough market for Home Sellers.

And it's good staging technique to create clusters of three over fireplace mantles and other focal points.

Still, I'm not sure that the listing agent -- or their client -- fully appreciated the (subliminal?) message they appear to be sending in the photo above.

My New Favorite Neighborhood

Real Estate Guessing Game

OK, which Twin Cities neighborhood am I describing?

--It's in Edina, east of Highway 100;
--With its blend of rolling hills, wetlands, and manor-like homes on big lots (rules out Country Club), it feels like Minnetonka;
--It's an easy, five minute walk to both the Convention Grill and 50th & France.

Give up?

Edina's White Oaks neighborhood.

With all of 60 homes and its tucked-away location and numerous cul-de-sac's, it can be easy to miss.

However, once you've found it -- it's a revelation.

P.S.: the home pictured above, 4703 Townes Road, is one of the most impressive homes I've seen in White Oaks -- or anywhere else in the Twin Cities.

The listing agent is Edina Realty's Sue Wahman; it will be on the market after Labor Day. Asking price is $2.849 million.

The Bicycling - Industrial Complex

Pacemakers, Wheaties, and
. . . Bicycle Sprockets??

Conservation may be a sign of personal virtue but it is not a sufficient basis for a sound, comprehensive energy policy.

--Former Vice President Dick Cheney

Not only was Cheney wrong about conservation and energy policy -- he also missed its (considerable) economic benefits.

It turns out that, while the Twin Cities has been garnering awards for its bicycling grid and bike-share program -- Bicycling Magazine named Minneapolis "America's Best Biking City" this Spring -- bike-related businesses have become an increasingly important part of the local economy.

According to Minnesota Business Magazine:

The Twin Cities is home to the biggest bicycle parts supplier in North America; the largest bike tool manufacturer; two of the nation's leading bike retailers; the largest distributor of road biking goods and apparel; and one of the premier triathlon shops in the country.

But it's not just the large, multi-location shops, and big parts and tool suppliers that feed our vibrant bike culture and economy. The Twin Cities are also home to an astonishing array of quirky and colorful independent shops and service businesses.


The total economic contribution from the foregoing?

Try, $315 million annually.

According to the U.S. Bureau of Economic Analysis, that's approaching the size of "forestry, fishing, and related activities," which account for $370 million of output.

So there you have it: virtue plus profit.

Who knew?

Not Bad . . for 50!

They're creakier than they used to be, but for the most part they still work: they flex, move, and operate when I command them to; only leak a little bit; and generally keep me in good stead.

My 50 year old (plus) flesh and bones?

Those, too.

But I was actually thinking of my 50 year old (plus) Living Room casement windows -- which also date back to 1959 (and look like they'll make it through the next couple winters just fine).

Wednesday, August 25, 2010

"Hello, He Lied"

"Gotcha!" Email

"Hello, He Lied -- and Other Tales from the Hollywood Trenches"

--book by Lynda Obst

No, I've never read Obst's book -- but I've always admired the title.

What made me think of it was an email I received this morning -- from an unfamiliar name, but that's not uncommon - with the simple, sunny salutation, "Hi," in the subject field (nice alliteration, huh?)

Without really thinking, I opened it.

Yup . . . spam!

What Would "Opposite George" Do?

Recipe for Recovery. Not.

If you've been on a desert island the last three years or so, here's a quick synopsis of the financial crisis so far:

When the proverbial sh*t hits the fan, as it did beginning in early 2008, you:

1. Reward society's greediest and most reckless -- that would be Wall Street -- by giving them untold billions ("the greatest wealth transfer in world history," as Barry Ritholtz puts it, accurately).

2. Punish society's most frugal and conservative -- that would be its savers -- by reducing interest rates to zero.

3. Ignore voluminous, nauseating mountains of evidence of illegality -- quite an accomplishment, given who wrote the country's financial laws -- and prosecute no one.

As the saying goes, "how's that workin' out for 'ya?"

Doing the Opposite

So, here's an inspiration: do what "Opposite George" would do.

As Seinfeld's legions of fans doubtless already know:

George returns from the beach and decides that every decision that he has ever made has been wrong, and that his life is the exact opposite of what it should be. Jerry then convinces him that “if every instinct you have is wrong, then the opposite would have to be right”. George then resolves to start doing the complete opposite of what he would do normally. He orders the opposite of his normal lunch, and introduces himself to a beautiful woman by saying "Hi, I'm George. I'm unemployed and I live with my parents." To his surprise, she is impressed and agrees to date him.

--Wikipedia

It worked for George.

Maybe Barack, Ben, and Timothy should try it.

Strategic Default Double Standard

Business Decisions,
Big and Small

What happens to a homeowner who strategically defaults? (that is, they walk away from their home because it's worth less than what they owe).

Their credit is damaged -- if not wrecked -- for as long as seven years.

What happens to a commercial property owner who strategically defaults?

If it's a REIT, its stock goes up, due to its improved cash flow -- and hence greater appeal to investors:

In the business world, there is less of a stigma [associated with strategic default] even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments. Deutsche Bank AG's RREEF, which manages $56 billion in real-estate investments, now favors companies that jettison cash-draining properties with nonrecourse debt, loans that don't allow banks to hold landlords personally responsible if they default. The theory is that those companies fare better by diverting money to shareholders or more lucrative projects.

"To the extent that they give back assets or are able to rework the [mortgage] terms, it just accrues to the benefit" of the real-estate investment trust, says Jerry Ehlinger, RREEF's co-chief of real-estate securities.

--"Commercial Property Owners Choose to Default"; The Wall Street Journal (8/25/2010)

Good luck getting Joe and Jane Homeowner to honor their underwater, $300,000 mortgages when Corporate America is ditching their $30 million (or $3 billion) mortgages.

What's that line about "what's sauce for the goose is sauce for the gander?"

Today's FIFO Housing Market (First in, First Out)

The Best vs. The Rest

Great graphic, courtesy of City Lakes Office manager Josh Kaplan (via Marge Kane), cutting through the myriad, often conflicting statistics describing today's housing market.

Bottom line: the good stuff shines, and finds Buyers (or vice versa).

Meanwhile, homes that aren't "best in class" get overlooked and sit . . . or sink.

Tuesday, August 24, 2010

All Eyes on 10 a.m. (EST)

July Housing Stats

[Update. 10:30 am (CST): the official number is down 27.2%. Meanwhile, the market is up just a bit from where it opened, down 100. The takeaway? Nobody's shocked.]

The big number today is the imminent release of July housing sales (about a minute away).

Judging by the stock market's first 30 minutes today -- in fact, the week-long slide -- no one's anticipating that the number's going to be good.

You'll know if the number is better or worse than expected by the market's immediate reaction.

Why I Don't Put My Picture on My Bus Benches

Exhibit A

Hard to add anything to the above.

About all I can say is, there's exactly one Twin Cities suburb where the vandals and graffiti artists use Chuck Norris' image.

"Playing the Field" vs. Exclusivity

Date Tiger Woods?
"No, Thanks"

If you liked it then you should have put a ring on it
If you liked it then you shoulda put a ring on it

--Beyonce Knowles; lyrics, "Single Ladies"

Many young, attractive singles eschew commitment in order to "play the field": the variety, the excitement, the possibilities all seem to eclipse the quiet(er) satisfactions and responsibilities of a long-term, committed relationship.

The dating world, right?

Well, yes -- but real estate, too, and specifically the world of prospective home Buyers and would-be Buyer's agents.

Realtors have a saying: 'when everyone represents you . . . no one does.'

Home Buyers who think that they're outwitting the system by having multiple Realtors all scour the market for them -- none of whom are doing so with the benefit of a signed Buyer Representation Agreement -- quickly discover that their lack of commitment and loyalty is reciprocated.

Monday, August 23, 2010

Selling Agent Bonuses

Real Estate's "Chicken Soup"

Just another one of those anecdotal observations, based on what's coming through my email in-box, but lately it sure seems like there's been an uptick in selling agent bonuses (the selling agent is what the Buyer's agent becomes once there's a deal).

Sellers accomplish that two ways: 1) by offering a fatter "pay-out," the portion of the commission shared with the Buyer's agent and their broker; and 2) by dangling an actual cash bonus to the Buyer's agent.

Does it help?

Like chicken soup, it certainly doesn't hurt . . .

P.S.: As a Buyer's agent, my practice is to give my clients what's called the "Agent Full" report (unabridged) from MLS, so they see exactly what I'll be paid if they buy any given home.

Housing "Buy" Signal

Contrarian Indicators -- Housing Market Edition

If you like contrarian indicators, here's a good one, courtesy of today's New York Times:

"Housing Fades as a Means to Build Wealth, Analysts Say"

--headline, NYT (8/23/2010)

Or as Barry Ritholtz puts it, "the time to be an über-bear on Housing (or anything, really) is before the collapse — not afterwards."

Why I Call My Front Desk at 2:45 p.m Sunday

Gauging Open House Traffic

I don't know about other Realtors, but whenever I host a Sunday open house (I've been doing Sat./Sun. double-headers lately), I like to call my front desk to find out how busy it's been.

So, I try to check in around 2:45 p.m., before my front desk closes at 3 p.m.

Here's how I'd characterize the possibilities, from most to least busy:

"Jumping"

"Busy"

"Steady"

"Slow"

"Dead"


For the record, yesterday's activity was somewhere between "Slow" and "Dead" -- about par for a hot, late Summer day.

Which is still important to know, because it's one more piece of information about how the market perceives your client's property.

Establishing a Baseline

Obviously, the best combination is to have non-stop traffic on an otherwise slow day.

And any one open house hardly makes for a statistically valid sample. (First open's typically draw disproportionate, "neighbor-heavy" crowds; ditto for an open house after a long interval without.)

However, if your open houses are consistently moribund when it's busy elsewhere, it's a (loud) signal that something needs addressing.

If the home has been well-staged, photographed, networked, and marketed . . . that "something" is often price.

P.S.: And no, that's not the City Lakes' front desk pictured above -- it's a stock photo I found online.

Sunday, August 22, 2010

Great Vintages: 1993, 1998, 2004, 2010

Ranking Fresh Produce Crops

No, those aren't banner years for Cabernet Sauvignon's, or Zinfandel's, or some other varietal (I'm not much of a wine drinker, actually).

They're bumper crops for produce like cherries (OK, I made up all those dates, except for this year).

Personally, I always thought that there should be a way for "foodies" to track which years were superb, and which ones mediocre.

Clearly, for cherries and peaches, 2010 is the former!

P.S.: according to the produce guy at Whole Foods, the secret is where the produce comes from. His theory, at least, is that Washington state produces juicier cherries and peaches because the nights are cooler than in California (where more of the fruit comes from).
West St. Paul's Cesar Chavez Blvd.

One of the fringe benefits of being a Realtor is being exposed to parts of town outside your usual orbit.

So, in the course of showing homes earlier this year in West St. Paul, South St. Paul, and Maplewood (where my client ultimately bought), I discovered a two block stretch of Concord Ave. renamed Cesar Chavez Blvd (it's about a mile south of downtown St. Paul, and a couple blocks west of Highway 52).

Coming back from water tubing on the Cannon River yesterday, my family and I headed there to check out the varied selection of Hispanic restaurants and groceries.

Good move! (It also afforded a great opportunity to tell my kids who Cesar Chavez was).

P.S.: "Minnesota Nice" gets a lot of abuse from non-natives. But where else can you bum a few beers tubing on a river, as I did yesterday? (I think they saw my 3 small kids and took pity).

Saturday, August 21, 2010

"The Lights On - Lights Off" Indicator

Gauging Buyer, Seller Seriousness

The eyes are the window to the soul.

--New Testament

Want to know if a home seller is serious about selling?

They turn on all the lights before a showing.

Want to know if the showing went well?

The Buyer's agent turns them all off afterwards (yes, they should anyways -- but they don't always, especially if they're in a hurry and know they're not coming back).

A Brief History of Unemployment

(Re-)Defining "Full Employment"

"Jobless Filings at Highest Point Since November"

--headline, The New York Times (8/19/10)

One year ago, 90% of you were in the top 10% of your class. Today, 90% of you are in the bottom 90% of the your class.

--Stanford Dean of Admissions Fred Hargadon, to the incoming class of '82 (which I was in), at freshmen orientation in Fall, 1978


What makes me think of Fred Hargadon's quote is today's especially charged debate about high unemployment -- for official purposes, just under 10% nationally* -- and what to do about it.

Ten Millennia of Progress -- in a Nutshell

A good starting point would seem to be to note that cavemen didn't have unemployment (though they had many, many other problems, such as predators, disease, and lives that generally were "nasty, brutish, and short").

That's because, ten thousand years ago, it took the collective efforts of 100 people to feed 100 people (through primitive hunting and gathering).

Thanks to advances in agriculture and technology, by the 18th century (1700's), only 75 people were needed to grow enough food to feed 100 people.

As productivity and science advanced apace, that ratio gradually fell from 25 : 100, to 10 : 100, to as little as 3 : 100 in "advanced," western countries today.

With luck, in a century (or three), that ratio will fall to 1 : 1,000.

As Martha Stewart would say, "that's a good thing."

Productivity Gains

Such productivity gains are hardly limited to agriculture.

They also characterize computers, construction, manufacturing, communications, and dozens of other fields.

Thanks(?) to technology, even modern warfare requires less (wo)manpower: witness the rise of "drone" technology, fighter jets with ever-higher (more lethal) payloads, etc.

Over time, then, it would certainly seem that the natural order of things is for advanced economies to need progressively less labor -- at least to produce society's basic necessities.

So, economic convulsions like today's aside, one would anticipate what economists call "structural unemployment" to incrementally rise.

Policy Responses

To go back to agriculture, when one person can feed 99, what are the other 99 supposed to do?

Unless the foregoing analysis is wrong, it would seem that society has four possible responses:

One. We can all dramatically increase our consumption ("demand").

God knows, when it comes to food, plenty of people seem to be trying to do just that.

But over-consumption isn't good for you; and collectively, it isn't good for the planet (amongst other things, it leads to depletion of key resources, pollution, etc.).

So, no, adding a couple billion more (overweight), SUV-driving people isn't going to solve anything.

Two. Society can keep otherwise unemployed people busy through any number of economically dubious diversions.

That includes ever-bigger "make-work" projects designed to soak up surplus labor; creating low-wage service jobs ("McJob's") with little value-added (what economists derisively call "taking in each other's laundry"); or that most destructive activity of all, war.

For all its horrific consequences, World War II effectively ended the Great Depression (and no, I don't think that that was its purpose -- but it was certainly a side effect of global economic collapse, and equally clearly, an antidote to it).

Such diversions aren't just limited to society's less educated or capable: one of the ultimate causes of today's financial mess is that, roughly 25 years ago, Wall Street found its traditional business model -- helping clients raise and invest capital, otherwise known as investment banking -- under assault from increasing competition and advancing technology.

Its response?

It created a dysfunctional, highly leveraged shadow economy of incredibly complex financial instruments.

We all know how that turned out (and, amongst other things, what it did to the housing market).

Three. Society can decide to retard or even scrap labor-saving technology.

Want everyone working?

Easy.

Just idle our heavy, mechanized ditch-diggers and go back to shovels (or spoons, if we really want full employment).

Four. We can honestly acknowledge the foregoing, and devise a social safety net that takes into account economic reality, while at the same time balancing it with people's inherent need for growth and fulfillment.

How to do that in a fair, just way is what we should be talking about.

*"The Furlough Factor": count me amongst the "officially dubious" regarding government-reported unemployment statistics.

That's because, amongst other reasons, the official statistics don't account for all the companies "asking" their employees to take furlough -- otherwise known as unpaid time off -- to forestall outright layoffs.

If you assume that that furlough averages two weeks per employee per year, that translates to an unemployment rate of 13.5%.

Friday, August 20, 2010

Let's Hear it For Weak Leaders!

This exchange, between blogger Barry Ritholtz and renowned investor Felix Zulauf, caught my eye:

Ritholtz: In the US, we only have politicians who tell people what they want to hear, and very few who say “Here’s some medicine, it’s going to be uncomfortable, but you got to suck it up because the alternative is far worse.”

Zulauf: That is the case everywhere, but I’m hoping that can change. It doesn’t change just by saying things. You get strong leaders only after a period of pain and hardship. You don’t get them in a world of high prosperity.

--The Big Picture blog

So, let's hear it for weak leaders.

The Lincoln's and Roosevelt's only appear when times are really tough.

When Is It REALLY a Done Deal?

Milestones in a Deal

If you're an office manager, stop reading here.

If you're not . . . continue.

So, when is a real estate deal really a done deal?

It's not when the last signature lands on the last blank line in the Purchase Agreement.

It's not the technical, legal definition, i.e., when the now-executed Purchase Agreement is constructively delivered to the other party (getting it to their agent qualifies).

And it's not even when the legal consideration -- the earnest money check -- is received or deposited.

Give up?

It's when the Realtor turns in the sale (at least so far as Buyers' agents are concerned).

Real Estate's "Fat Lady?"

While MLS rules strictly prescribe such things as how long brokers have to deposit earnest money checks, the reality is that agents -- especially Buyers' agents -- have been known to procrastinate turning in the paperwork accompanying a sale.

No doubt that's because Realtors as a group tend to be allergic to paperwork.

And it can also be because of various loose ends, or because needed information -- like who's doing the closing -- isn't known yet.

But there's a larger, practical element.

Realtors find the time to collect that info once the deal has slowed a down a bit. Not coincidentally, that's also usually the point when the deal has firmed up.

But it's also the case that Realtors don't make the time to pull all the sale paperwork together until they're reasonably confident that it's a done deal.

Turning in the paperwork is tantamount to saying, "Done!"

P.S.: Unfortunately, while turning in paperwork promptly can avert a fine, it won't get you paid any faster; that only happens when the deal closes, typically 4-6 weeks later.

The Real Estate "Save"

Thanks, Nobu!

In contrast to the baseball save, which happens in front of a stadium full of fans (and millions more watching on TV), the "real estate save" happens quietly (in fact, the quieter, the better) -- and often late at night (like tonight).

That's when my desktop publisher (and fellow City Lakes Realtor) Nobu Hata put the finishing touches on a rush marketing piece, needed by this weekend by yours truly.

Thanks, Nobu!

Thursday, August 19, 2010

Housing Market Anomalies -- Late Summer, 2010

Ancillary Fees (& Taxes) Loom Larger

If you have to ask how much something costs . . . you can't afford it.

--Author unknown

One of the anomalies of today's housing market is more properties discounted to the point where their purchase price is suddenly very attractive -- the more so with interest rates seemingly falling through the floor.

However, they come with vestigial "ancillary costs" -- a ball-and-chain, if you will -- that are still pegged to the old asking price, deterring many of those same buyers.

Out-of-Whack Property Taxes

So, in Minneapolis alone, I can think of a dozen-plus homes whose asking price has now dropped from $1 million-plus to the high six figures.

However, they still carry an annual property tax bill that in many cases still runs $15k or more.

That's a problem -- financially and psychologically -- because the move-up Buyers for these homes most likely now own homes worth $400k-$600km, and are accustomed to property tax bills that are a fraction of that.

Even though the property taxes should re-set when a deal is consummated, there are no guaranties -- and the lag can be up to 2 years.

The same phenomenon can be a hurdle for properties that carry an association fee.

When mortgages are so cheap, suddenly that $300 -- or $800 -- monthly maintenance fee looms larger.

P.S.: Hey, fellow Realtors! Here's a freebie: instead of paying for the Buyer's closing costs, maybe such Sellers should contemplate paying down the property taxes for the first two years.

You read it here first!

(Corporate) Waste Not, Want Not

Corporate Campaign Contributions

In Citizens United v. Federal Election Commission, the Supreme Court decided that corporations could spend as much as they wished at any time, assuming there was no direct coordination with the candidate. In doing so, the court overturned its own precedents and refused to distinguish the free speech rights of corporations and unions in any way from those of actual people.

The problem with this logic is that corporations have a legal duty not to spend money unless it is likely to improve profits. Unions, too, are expected to make only contributions that will benefit members.

--Scott Turow, "Blagojevich and Legal Bribery"; The New York Times (8/18/2010)

Turow provides the ultimate rebuttal to those who would argue that allowing corporations to spend unlimited amounts on campaign contributions -- now the law of the land -- has no corrupting effect on democracy.

The argument is based on a legal term called "corporate waste."

Just as former attorney Turow notes -- there are a lot of us former attorneys out there -- corporate waste forbades companies from spending money on anything that doesn't further their profit-seeking agenda (sidebar: profits are good -- it's when they come from political suasion that they become bad).

No shareholder, to my knowledge, has ever brought suit against a company arguing that its campaign contributions were frivolously spent.

Ergo, campaign contributions are money well-spent.

Return on Investment

How well?

Staggeringly well.

To pick just one example, the $500 million or so that big Wall Street firms have given both parties the last decade or so loosened something like $2 trillion in U.S. aid and financial subsidies, both direct and indirect (TARP, ZIRP, guaranteed loans, AIG-style infusions, etc.).

And that's just since 2008!

If you do the math, that's a 40,000% return on investment.

Makes you wonder what business Wall Street's really in . . . .

P.S.: Did you know that, according to the Supreme Court, companies like Goldman Sachs, AIG, and BP are "legal persons" just like you or me?

Funny, I don't recall ever attending a wedding, going to a funeral, or having a farewell office party for someone named "Goldman Sachs."

Buyer Rep Contracts -- Cont.

Leap of Faith, Risks for Both Parties

No, it's not "Buyer Rep Contract" week on this blog, and this isn't going to turn into a serial installment.

It's just that the subject is so seldom discussed, and such a fertile topic.

So here's the last thought (to go with my earlier posts, "Real Estate Representation Contracts" and "Parachuting and Buyer Rep Contracts"):

Signing a Rep Contract does represent a risk -- and a leap of faith -- for both parties.

It's just that the risk comes at different points.

Buyer Risk

For the Buyer, it's up front: 'exactly who is this Bozo/Snake oil salesman/[your stereotype here] who I barely know and who wants me to sign an unfamiliar contract tying me to them for the next decade?'

"What if he doesn't know anything about real estate?"

"Or doesn't work hard for me?"

"Or I can't stand him (or her)?"

Realtor Risk

For the Realtor, the risks primarily come later.

That would be after they've invested a substantial amount of time scouring the market for the client, showing them properties, and educating them about how the market works.

Normally, the pay-off for that investment of time is a commission check (and ideally, some loyalty and down-the-road referrals).

However, if the client never buys, or buys from another Realtor they just met . . . all of that investment is for naught.

Yes, it's a commission business, "that's the way the cookie crumbles" -- blah, blah, blah.

But Realtors ultimately just sell one thing: their time.

Wasting it is the surest way to go broke.

Wednesday, August 18, 2010

Wanted: Cedar Lake Rental


Dear City Lakes Blog reader:

I have a client looking for a single family home in the Cedar Lake area (Minneapolis, St. Louis Park) to rent for one year or longer.

They're looking for at least 3+ Bedrooms, are very flexible, and don't have pets.

If you know of something coming up, please call me at 612-925-7701.

Thanks!

Sincerely,

Ross Kaplan

Parachuting & Buyer Rep Contracts

The Perils of Overconfidence, Experience

What do parachuting and Buyer Rep contracts have in common?

I recall from my one time parachuting, almost 30 years ago (I knew the experience would prove to be useful in later life), that parachute fatalities actually fall into two groups.

Unceremoniously referred to as "bouncing," the first group -- no surprise -- consists of the greenest, most inexperienced parachutists: people who are doing it for their first or second time, and are presumably too panicked to deal with a parachute malfunction (assuming they even knew what to do) should circumstances require. (And by "require," I mean the 12 seconds or so you have to jettison the snarled chute and open the reserve one in time to break your fall.)

Inexplicably, however, the second group of parachute fatalities consists of the most experienced parachutists.

It turns out that these types are so confident and relaxed, that they lose track of the fact that the (very hard) ground is coming up, faster and faster, to meet them.

So, they simply wait too long to open their chute.

Real Estate "Parachutes"

Thankfully, the consequences of inattention in real estate aren't so high.

But revisiting the topic of Buyer Rep Contracts from yesterday, it seems obvious that agents who rue skipping this important step split into two, similar types.

The first type is the "newbie" Realtor who doesn't know how any of it works.

They don't know what's in the Buyer Rep contract (and so therefore are uncomfortable presenting it), don't know the appropriate time to discuss it, etc.

So they don't.

When, after months or even years of hard work the would-be client buys something from someone else (or never does), they learn their lesson.

However, the second type is the very experienced agent, who knows the contract backwards and forwards.

Frequently, they may even know the client from previous deals.

Which is actually the germ of the problem.

Namely, all that familiarity and experience can breed an undue comfort level, and even -- dare I say it -- a sense of sloppiness.

Different Outcomes?

Unlike the newbie Agent, the experienced agent in this situation often makes out fine . . . precisely because they are experienced.

They know the client, the client knows them, everyone knows their assigned role and performs it well.

But still . . . it just seems that you never hear about the agent who regretted insisting on getting a signed Rep contract, early in the relationship.

But surprisingly often, you do hear about -- and from -- the one who didn't. (And yes, you're not really experienced until you've had it happen to you.)

Tuesday, August 17, 2010

"Hogging" Rental Brokers

Going to "Plan B"

Real estate agents who represent both the Buyer and Seller are said to "hog" the commission, because they get both sides.

Are (some) rental agents doing the same thing?

I'm certainly starting to think so.

I just spent two-plus days trying to get rental information on a home my client is interested in.

I called the rental broker, identified myself as an agent calling on behalf of a client, and left my contact info.

Nothing.

Over the next two days, I left two more messages, including one for the broker's assistant -- and still heard nothing.

Plan B

So this morning, I had my wife call.

Bingo.

The agent got back immediately, with all the info I'd wanted, which my wife forwarded to my client (a mutual family friend).

The only thing I can figure is that the rental broker had designs on the commission -- typically, one month's rent -- that is normally paid to the agent representing the renter.

If they have one, that is.

So, if you're a home owner contemplating renting your home and using a broker, two words of advice: 'Heads up!'

Such conduct comes straight out of your pocket . . .

"Negotiating Least"

"Brittle" vs. "Supple" Deals

He who negotiates least, negotiates best.

--saying

OK, so that's not how it goes (the original version substituted "government" and "governing").

But it's still accurate.

There are 3 reasons why that's so, at least that I can think of.

One. While some people actually like to negotiate -- Realtors often do, for one -- for most people, negotiating is stressful.

As the number of rounds of negotiating climbs, stress rises, conflict increases --and the chance of a good outcome slide.

Two. Related to that, while the two sides' stress is rising, their negotiating positions often harden.

That's in contrast to brief(er) negotiations, when positions are more fluid and ground is easier to close.

Three. Real estate deals these days involve more rounds.

First, there's getting to terms regarding the main Purchase Agreement.

Then, there's the Inspection Contingency.

Then, there's the Financing Contingency, which itself is much more protracted these days -- mainly because of stricter appraisal rules.

When the Buyer and Seller have exhausted each other and it's not even the second inning yet . . . the chances of getting a consummated deal ("a complete game," to continue the metaphor) aren't great.

Staging & "Critical Mass"

Are More Sellers Staging Today?

It sure seems that way.

No doubt, that's because every $1 spent on staging can easily add $3 (or $10) to the value of a home.

And because, in a Buyer's market, there are lots of competing homes for sale, and to attract a Buyer homes have to look their best.

Virtuous Cycle

But therein lies another reason why staging is becoming standard practice: once enough homes begin to stage -- call it a majority -- the remainder have to stage, too, or suffer by comparison.

So, pretty quickly the % of homes at least minimally staged jumps from 50% to 90% or higher (excluding foreclosures and what I'll call "pure" estate sales).

P.S.: I inherited my Dad's corny sense of humor. I can just hear him saying, "virtuous cycle?? Isn't that like a Schwinn?"

Real Estate Representation Contracts

Playing "Gotcha?" Nope, Just Setting Expectations

It's always a good idea for a Realtor and the Buyer they're representing to have a signed Representation contract.

That's true even if the Buyer and Realtor have known each other for years, and already done multiple deals together.

In fact, that's especially true if the Buyer and Realtor have known each other for years, and already done multiple deals together.

What a Contract Does

As a former corporate attorney, I know that a good contract -- and the standard, MN Buyer Rep contract is -- makes everyone's expectations explicit.

How long will the Realtor and Buyer be working together?

What happens if the Buyer wants to buy a home where the Seller is only offering a tiny pay-out? (the part of the commission offered to Buyers' agents).

What if the Seller is a FSBO ("For Sale by Owner"), and isn't offering to pay any commission?

And so on, and so on.

Timing is Everything

All these questions are easily addressed ahead of time (for example, I have a standard way of handling FSBO's, which I explain to all my prospective clients).

However, if and when issues arise in the course of a relationship, when emotions are running high and the Realtor has already invested months (years?) of their time, they can be (much) harder to navigate.

So, in practice, when are Realtors most vigilant about having their clients sign a formal agreement?

Right after a client they were working with without the benefit of a signed contract burned them (unfortunately, even very experienced agents have this happen occasionally).

P.S.: And no, a written contract isn't a panacea, and won't prevent every conflict or problem.

Attorneys often say that if there's good faith and a course of dealing between two parties, a one page contract is sufficient. If there isn't . . . . a 100 page contract won't help.

Monday, August 16, 2010

Lake Calhoun (Building) Crane

New Tower in South Minneapolis?

What new building is going up just Southeast of Lake Calhoun?

Area residents -- and observant lake walkers (I'm the latter) -- have noticed the crane for at least six weeks now.

It turns out that the crane is located on the grounds of Lakeview Cemetery (where Hubert Humphrey is buried, along with many, many other local notables).

I don't have any more specific information, but I'm guessing that the crane is there for some kind of building maintenance (given all the skirmishing over high rises closer to Lake and Hennepin about a half mile north, I seriously doubt that some new tower -- on cemetery property, yet -- is in the works).

Sunday, August 15, 2010

Who's Buying Houses for Cash?

Cash Buyers at Extremes of Market

No, I don't have any hard data backing me up.

But anecdotally, at least, it seems like the two likeliest kinds of houses to be bought for cash these days are:

One. Bank-owned foreclosures selling for bargain-basement prices -- and in such tough condition no lender would accept them as collateral; and

Two. Upper, upper bracket homes, where the Buyers' balance sheets are so large that they are effectively immune from "the recent unpleasantness."

As a practical matter, the only way to flag a cash purchase -- at least that I'm aware of -- is to look for sales where the house's "off market" date and closing date are separated by only a few days.

Or, they're the same date.

By contrast, when the Buyer requires a mortgage, the interval is typically at least 15 business days.

That allows time for the appraisal, underwriting, re-visiting the appraisal, etc.

Takeaway from BP Deepwater Horizon Spill

Skip Oil, Tap Geothermal

Here's a heretical thought in the wake of the (ongoing?) BP Deepwater Horizon mega-spill in the Gulf of Mexico:

Maybe the takeaway lesson isn't that new drilling be limited to shallower, closer-to-land oil wells.

Rather, maybe the lesson is that society should be more ambitious, and instead aspire (if that's the right word) to drill down all the way to the earth's mantle, anywhere from 50,000 to 100,000 feet below the earth's surface (by comparison, the Deepwater Horizon well was about 6,000 feet deep).

Energy Policy Heresy

What's down there?

Theoretically, enough energy to supply the world's current energy needs for 211 million (!) years.

That's what you get when you divide scientists' estimate of the earth's internal heat -- 10-to-the-31st power joules -- by total, worldwide energy consumption annually (474 exajoules).

"Well to hell," indeed (the name given to the now-abandoned Kola superdeep borehole in Siberia, which reached a depth of more than 40,000 feet).

P.S.: I remember a college friend from Reno, Nevada, who cited the locals' line, once upon a time, about living there: 'Reno may not be hell, but it's close enough you can see Sparks' (Sparks was the neighboring town just to the East).

That thought inevitably occurred to anyone riding the NY City subways -- as I did -- earlier this Summer, when the temperature on the platforms (vs. the air-conditioned cars) approached something like 110 degrees.

Open Today 12 p.m. - 1:30 p.m.

Dramatic Contemporary Near Cedar Lake

Where: 2812 Sunset Blvd.
What: 4 BR/4Bath Contemporary (built 1981) with almost 4,200 (!) finished square feet just down the street from Cedar Lake; minutes to downtown and uptown
How much: $525k
When: noon to 1:30 p.m.
Who: listed by Ross Kaplan, Edina Realty City Lakes

Please stop by my open house later today at 2812 Sunset Boulevard.

The soaring vaulted ceilings and custom, over-sized windows (pictured above) are just a few of this home's many nice features.

Other highlights includes the home office with built-in's overlooking the Living Room (in foreground in the photo above); the private Owner's Suite with a vaulted ceiling, fireplace, balcony, and walk-in closet; the huge lower level -- perfect for teenage kids or guests; and the terrific location, close to everything.

You won't find a better value near the lakes than this!

Saturday, August 14, 2010

Real Estate's "Tectonic Plates"

Renting vs. Owning:
Shifting Consumer Preferences?

Before explaining the "tectonic plates" of the housing market, this preliminary question:

What was the biggest factor in the stock market's almost 12X(!) appreciation between 1982 and 2000?

A. Increased corporate earnings
B. Low interest rates
C. An increase in stocks' price-earnings multiple
D. Reduced taxes on capital gains

Answer: C

Although the other factors all contributed to the historic 1982-2000 bull market, the stark, simple fact is that the biggest driver of gains was that stocks went from being extremely unpopular in 1982, when the average P/E ratio was 7, to extremely popular in 2000, when the average P/E ratio had more than quadrupled to 30.

Change in Sentiment

The equivalent in the housing market is the percentage of consumers who own their own home (vs. rent).

Each percentage point change in the number of households owning their own home corresponds to 1.3 million households.

So, when the percentage of homeowners shrinks from 69% to 67.2% -- as it did from 2004 to 2010 -- the number of home buyers shrinks by 2.34 million.

That compares to about 5.5 million units of total housing (new and existing) sold annually.

Renter Nation?

A recent Barron's cover article, "Renter Nation" (July 26), extrapolates a further drop in the home ownership rate due to unfavorable demographic trends, tighter credit, and an assumed sluggish economy.

As a result, it predicts weaker prospective demand for housing -- which, of course, portends lower prices.

Is Barron's right?

Maybe.

However, even if Barron's' economic and demographic analyses are correct, the conclusions it draws may still be suspect.

Parsing Barron's Case

Least in dispute is the demographic case for weaker housing demand.

Thanks to the pattern of "Boomer - "Buster" - "Echo Buster," at least in the short run, there will be fewer people in the prime home-buying age ranges.

So if past is prologue, demand for homes will fall.

However, in today's uncertain economy, it's hardly a given that historical preferences will persist, unchanged.

For example, if inflation should appear with a vengeance, "financial planning 101" says to latch onto hard assets.

The most obvious way for most Americans to do that is to . . . . own their own home.

Assumption #2

Barron's second assumption is that the economy will remain weak, impairing household formation (or even causing household dissolution).

With fewer new households, demand for housing suffers accordingly.

While a continued, weak economy certainly seems like a safe bet now, as Yogi Berra liked to say, "predictions are tough . . . especially about the future. "

Given how few economists predicted today's economy five years ago, I think it's a mistake to assume that they now know what will happen with confidence the next five.

At the very least, simply extrapolating current economic conditions certainly seems like the safe, defensive call.

Drawing Conclusions

Which leaves Barron's' conclusion: weaker demand for housing, at least in the short run -- and therefore, presumably, lower home prices.

What Barron's omits is that all housing is owned by someone.

So, if fewer households own their own homes, by definition, more landlords (or investors) do.

It's certainly possible to conjure up a scenario in which rising investor demand for housing (more than) offsets falling consumer demand.

Investor demand, in turn, will depend on things like housing's price (a bit circular, I know), market rental rates, interest rates, taxes and the like.

Here's a radical thought: yield-starved investors may decide that even getting a modest 5% on a portfolio of rental properties is a safer, more remunerative investment than lending their money to the U.S. government -- or mega-corporations like IBM, Microsoft, and Johnson & Johnson* -- for a measly 1% or 2%.

Or trusting it to the vagaries of the stock market.

*All 3 corporations just took advantage of record-low bond rates to sell billions in bonds paying as little as 1% for five years or longer. Might as well put it in your mattress -- in a house you own!

Friday, August 13, 2010

ZIRP Winners and Losers

Boon For Wall Street,
Goose Egg for Savers

Want to place a bet on how long the Federal Reserve's current policy of zero percent interest rates ("ZIRP") continues?

Consider who it helps -- and hurts:

ZIRP Winners:

--U.S. Treasury (debt service kept artificially low)
-- Wall Street (free money -- how nice!)
--Mega-Corp Borrowers (ditto. IBM just borrowed more than $1 billion for . . . 1%!!)
--Home owners (*kind of)

ZIRP Losers:

--Retirees and other savers

My money's on zero percent interest rates . . .

*Historically, cheap mortgages stimulate housing demand. But cheap money can be trumped by other factors, like falling asset prices, high unemployment, etc.

Bet on Country Club

No More New Construction?

Buy land. They're not making it anymore.

--Mark Twain

Twain was clearly wrong about land (and real estate generally) always being a good investment; when credit is cheap and demand strong, prices can and do reach unsustainably high prices.

However, his basic insight -- look for something where supply is constrained -- is still right.

Which part of the Twin Cities housing market best fits that description today?

My candidate is new construction in Country Club, the tony Edina neighborhood just northwest of 50th & France (and east of 100).

Limited Supply

Country Club has just over 500 large, very well-built homes constructed mainly between the two World Wars.

Thanks to its historical designation, no home built there before 1944 can be torn down and replaced.

On top of that, Edina and Minnesota have enacted increasingly rigorous requirements for new construction, governing everything from setbacks and variances to maximum lot coverage (ironically, many of these restrictions were a response to go-go construction a couple years ago, and are now becoming law as the new construction tide is very much going out).

Bottom line: if you want a new(er) Country Club home . . . you're going to have to buy one that already exists.

Thursday, August 12, 2010

Making Lemons out of Lemonade

Staging Props -- Summer Edition

One of the challenges in staging is coming up with props with good visuals that also have a long "shelf life."

So, fresh flowers pass the first test -- but not the second.

Silk flowers pass the second -- but (often) not the first (at least not once you stop to smell and touch them).

Which is why the staging prop I saw this morning in a Country Club home on the market was so inspired: in the middle of the Kitchen table was a pitcher filled not with lemonade, but a half dozen or so fresh lemons!

Brilliant!

4 Magic Words (to a Realtor)

Getting a Realtor's Attention

Want to get a quick response from a Realtor?

Here are the four magic words: "I-Have-an-Offer."

The only possible exception to that is a foreclosure.

Then, I'm not sure even calling to say the building was on fire would work.

Matt Taibbi on "Wall Street's Big Win"

The New Financial Crisis, Same as the Old One?

Don't have time to read thousands of pages of (purposefully) arcane legislation, to figure out whether the financial reform bill Congress passed this Summer really reforms how Wall Street does business? (I guarantee you that few if any members of Congress read the bill in its entirety, either).

Here are the Cliff's notes, courtesy of Matt Taibbi (now infamous for calling Goldman Sachs “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells of money") :

What happened to our economy over the past three years, and is still happening to it now, was not an accident or an oversight, but a sweeping crime wave unleashed by a financial industry gone completely over to the dark side. The bill Congress just passed doesn't go after the criminals where they live, or even make what they're doing a crime; all it does is put a baseball bat under the door and add an extra lock or two on the doors. It's a hack job, a C-minus effort. See you at the next financial crisis.

--Matt Taibbi, "Wall Street's Big Win"; The Rolling Stone (8/19/2010)

In damning (and depressing) detail, Taibbi lays bare how senior members of both parties gutted the so-called "Volcker Rule" and the "Lincoln Rule" -- the bill's two provisions aimed at shutting down proprietary trading and derivatives trading, respectively.

As Taibbi, Michael Lewis, Barry Ritholtz and numerous others have now chronicled in great detail, it was precisely those two activities that lay at the foundation of the financial melt-down that started in 2008 and is still plaguing our economy.

Here is Taibbi's sum-up:

Over a long year of feverish lobbying and brutally intense backroom negotiations, a group of D.C. insiders fought over a single question: Just how much of the truth about the financial crisis should we share with the public? . . . Do people need to know the real version, in all its majestic whorebotchery, or can we get away with some bullshit cover story? In passing Dodd-Frank, they went with the cover story.

--Matt Taibbi

Besides the sheer skulduggery of what transpired on Wall Street, what I find most dismaying is that the most vocal and impassioned critics -- still -- are people like Jon Stewart, Matt Taibbi, and Ritholtz.

In other words, entertainers, journalists, and bloggers far removed from the actual levers of power.

It's as though we're living through a financial Watergate, but this time the Woodward's and Bernstein's are being muscled aside.

Wednesday, August 11, 2010

The "No Feedback" Feedback

Deafening Silence

God does answer your prayers. [But] a lot of times the answer is "NO."

--Anonymous

Showing feedback from Buyers' agents comes in all forms: "constructive," "strategic," "the potshot," and that perennial favorite: no feedback at all.

Which, of course, is feedback.

The unmistakable message?

"No further interest" (thanks very much!)

Touting a Secondary Area on MLS

Defining "Location"

One of the ways Twin Cities agents search for properties for their clients -- at least until the end of this year -- is by "MLS area."

So, "300" roughly corresponds to Lake of the Isles and Lake Calhoun; "391" to St. Louis Park; "309" to Southwest Minneapolis (Kingfield, Linden Hills, etc.); and "387" to Minnetonka. (Metro-wide, there are about 100 discrete MLS areas.)

One of the ways overly aggressive agents try to get attention for their listings is by "borrowing" the MLS area of an adjoining, more upscale area.

That's definitely a no-no.

Fortunately, however, there's a legitimate way to tout a nearby MLS area: list it as a "secondary area" (MLS has a field expressly for that purpose).

Experienced, local agents will already know which areas abut which -- but it never hurts to underscore it.

New List in Fern Hill

Fern Hill for (Just Over) $200k!

Where: 2615 Monterey Ave. in Fern Hill
What: 2 BR/1 Bath stucco cottage just down the street from Cedar Lake
How (much): $209,900
When: on market 2 days (came on Monday)
Who: Ross Kaplan, agent; Edina Realty, broker

You won't find a more affordable single family home closer to Cedar Lake than this stucco cottage.

Highlights include a ton of charm and character (maple floors, custom moldings and mill work, clawfoot tub); all new windows; and an especially deep lot (140 feet) perfect for pets, gardening, or storing a kayak (or two!).

This home's perfect for a first-time Buyer, someone downsizing, or as a condo alternative.

I'll be there this Sunday from 2-4 p.m. for the first open house.

Or, please feel free to call me (612-925-7701) to set up a private showing.

Tuesday, August 10, 2010

Gubernatorial Primary Day in MN

Three Good Choices

The only color that matters is . . . green.

--Real estate saying

In keeping with this blog's (mostly) non-partisan nature, I'm not endorsing a candidate in today's DFL gubernatorial primary in Minnesota (who even said I was a Democrat??).

Suffice to say, all three candidates -- in alphabetical order, Mark Dayton, Matt Entenza, and Margaret Kelliher -- are smart, seasoned public officials who would certainly appear to have the credentials to be Governor.

Contrast that field with major party candidates for high office in some other states (Illinois, South Carolina, etc.), of which at least a few include individuals who are serially unemployed, have substance abuse or IRS problems, have restraining orders against them from former spouses, etc..

Or just as bad, don't know the first thing about politics and government.

P.S.: I have a personal connection, kind of, to two of the candidates: Matt Entenza and I are both 1990 graduates of the University of Minnesota Law School. In fact, we were both in the same section (the law school is divided into 5 groups of 50), where we not infrequently debated fine points of various case law.

Margaret Kelliher succeeded Dee Long in the state legislature after she retired in 1998. I tried, unsuccessfully, to hasten that retirement when I ran against her in 1992.

Home Sellers Who Shoot Themselves in the Foot

Unforced Errors

Given that home sellers typically want (need) to maximize what they net on the sale of their home, you'd think that they'd do everything in their power to increase the odds of that happening.

But they don't.

On the contrary, they often shoot themselves in the foot not one but multiple ways.

Here's a partial list:

--Mis-pricing
--Failing to do cost-effective repairs
--Not staging
--Hiring the wrong Realtor (or none at all)

A subset of "hiring the wrong Realtor" would be "insisting on a too-short listing contract."

That's because good Realtors invest most of their time and money selling a property at the beginning of a listing.

That's when they work with the owner on staging, market prep, and required disclosures and municipal inspections; oversee photography and drafting (and proofing, and proofing) the marketing materials, both print and online; and network the upcoming listing to other Realtors and the public.

Recipe for Failure

So guess what happens when a client insists on a 60 day listing (vs. a more realistic six months-plus) for a $500k house in the Twin Cities?

Most Realtors would decline, because they know the odds of collecting a commission -- and therefore covering their expenses and making a living -- are unacceptably low.

Too often, the Realtor who will take a listing on such a client's unreasonable terms protects them self, financially and time-wise, by not doing all the things needed to sell a home in today's Buyers' market.

So guess what happens next?

The Realtor does next to nothing to market the home.

The 60 days come and go.

And the owner is on to Realtor #2 (or #3 or #4) who, if they're honest, will tell the client that they now need to discount the asking price of their home to overcome their "false start" and re-attract prospective Buyers.

Monday, August 9, 2010

New vs. Existing Housing

"How's the Housing Market?" -- Vol. 27

"Where" (location) is certainly one of the key qualifiers for anyone seeking to divine the health and direction of the housing market.

But so is "what?" -- as in "what kind of housing?"

In the housing market, the key distinction is between existing and new housing.

Conflicting Signals

That distinction explains how, literally in the same paper (the Star Tribune, on July 30), the front page ran a story saying that new housing inventory was shrinking, and that new permit applications were up.

Conclusion: things are getting better.

Meanwhile, the lead article in the business section attested to the slow-down in sales of existing housing, and an uptick in foreclosures.

The takeaway?

Things are getting worse.

Relative Size

Certainly by size, what happens to existing housing matters much, more more: existing homes account for more than 90% of the market, or about 5 million units annually, vs. less than 500,000 units for new construction.

However, economically, new construction exerts an influence far greater than its 10% market share would suggest.

That's because each new home represents tens (if not hundreds of thousands) spent on labor, material, land, appliances, furniture, etc. -- expenditures that reverberate through the economy many times over due to what's called the multiplier effect.

Overlapping Demand

It's also true that new homes frequently compete with existing ones for Buyers, just as used (pre-owned) cars compete with new ones.

So, the supply (and therefore) price of new homes affects the supply (and price) of existing homes -- and vice versa.

However, at least in the Twin Cities, my experience is that the two markets -- existing and new -- overlap less than elsewhere.

I see two reasons for that: 1) the vast majority of new housing locally is put up in the outer suburbs ("exurbs"), where land is cheapest; and 2) the price difference between a new home in the 'burbs, vs. an existing one closer in, isn't as extreme in the Twin Cities as it is elsewhere -- for example, the Bay Area.

Going back to "location, location, location," most Buyers first settle on "where," before they get to "what" (kind of housing).

P.S.: is Jim Buchta back? The long-time real estate reporter for the Star Tribune -- switched to the travel section 2(?) years ago -- has has several housing article bylines in the last few weeks.

If true, that's very good news!

Sunday, August 8, 2010

Marketing - Manhattan Style

"How Much is That Doggie -- er, Bowl of Soup -- in the Window?"

How do you charge $12 for a $5 bowl of soup?

Show it off in the window like it's a diamond brooch (good visuals).

Sell it a in trendy bistro a block off Fifth Avenue on Manhattan's upper East Side, where digs go for multi-millions . . . and multi-multi millions (location).

And don't call it "soup" -- it's "zuppe" (marketing).

For the record, the "zuppe" of the day was turkey chili.

Saturday, August 7, 2010

Counting Calories in NY

"$4.30 For a Tiny Slice of Poundcake??"

Even by New York's inflated prices, "430" ($4.30?) for the tiny slice of marble pound cake at Starbucks seemed like a rip(off).

It turns out, that's the number of calories, not the price.

In fact, everywhere you go in New York, there are now two numbers displayed: the price, and the number of calories.

Here's a bet: Minnesota will be doing this sooner rather than later (or does it already, and I've never noticed??).

P.S.: here's a shorthand for whether the kind-of-crazy looking New Yorker, talking to themselves, is really crazy -- or just talking on their (blue tooth-enabled) cell: in the subway, they're definitely crazy. Above ground . . . the odds are that they aren't.