John Mulkey, Housing Guru: John Mulkey, Housing Guru (TheHousingGuru.com)

1. Read the builder contract thoroughly. Some builders have their own sales force and will require buyers to use their internal contract form. Such contracts are ALWAYS written in the builder’s favor. Read IT and get explanations for anything you don’t understand. Look for any stipulations with which you disagree.

2. Make certain your purchase offer includes everything you want. Everything of importance must be written in the contract. Verbal promises from the builder’s representative are not binding. While the builder’s agent may not knowingly attempt to deceive you, the builder’s obligation is to meet only those terms and conditions that are written in the contract.

3. Ask for a copy of the builder’s warranty. If the builder has a written warranty, read it. Understand what is covered and what may be excluded. Be careful of builders who have no formal warranty or who defer to their state guidelines which, in many cases, may be vague and difficult to enforce on minor issues.

4. Understand the amenities package. If the community includes an amenity package—pool, tennis court, playground, etc.—make certain you understand how the facilities are to be maintained. Is the builder still involved in the process? Is there a possibility of future assessments to homeowners when the builder is no longer involved? If the facility isn’t complete is there a written commitment for completion? Is the builder financially sound so that completion will not be delayed or cancelled?

5. Who is to hold the earnest money? Some builders specify that they will hold the deposit or earnest money. Be careful, for this clause is specifically designed to keep you from cancelling the contract should something go wrong with the process. Builders who are unwilling to allow a Realtor® or other third party to hold the earnest money do so to maintain control and can use it as leverage if problems arise. If there is a disagreement or if such builders declare bankruptcy, the money may be lost. I recommend having a third party hold the funds.

6. Understand the closing. Make certain you fully understand the options for scheduling your closing. Can the builder force you to close earlier than you wish if the house is completed ahead of schedule? Does the contract specify that closing must take place upon the issuance of a certificate of occupancy by the local building authority? If so, you could be forced to close sooner than you wish, in some cases prior to the completion of the punch list. Can the builder delay closing—perhaps causing you to lose your preferred interest rate—without penalty? Read this section of the documents and understand what is specified.

The bottom line on purchasing from any seller is to understand all the documents you sign, to make certain that everything is in writing, and to get clarification of anything that is unclear. Home buyers who recruit a qualified and experienced Realtor® will have an additional safeguard to insure that their interests are protected.  Click HERE for more great  tips on buying from a builder.

The Housing Guru: The one source for all your housing questions

In a POST I did last September I explained how the increase in sales directly attributed to the First Time Buyer Tax Credit showed the cost of the program to be as much as $43,000 per additional sale. New information reported by CalculatedRisk.com shows that a tepid response to the program’s extension may leave us with a cost that is more than double that of the original credit, and could equal as much as $100,000 per additional home sold.

Not only does the cost far exceed any benefit from such an artificial stimulation, but the increase in sales appears to be only “stealing” those sales from the future. I reported the same result for the original tax credit in a POST I did last November. Regarding the current credit, Mark Vitner, a senior economist at Wells Fargo Securities, stated, “We clearly pushed demand forward. . . .” Additionally, according to government reports, the original tax credit experienced as much as $500 million in fraud, including fraudulent requests from as many as 53 IRS agents.

Whether we’re talking of stimulating the auto industry with Cash for Clunkers, increasing jobs as in Cash for Caulkers, or boosting the housing industry with the Tax Credit, such programs appear to be ill conceived, fraught with problems, and ultimately cost far more than originally intended. Those of us in the housing industry as well as our political leaders must acknowledge that the recovery will be slow, and that attempts to speed it up only result in wasted money and the potential for future bubbles.

The Housing Guru: The one source for all your housing questions

An article on Yahoo Finance provides yet another example of why artificial attempts to stimulate the housing market are a bad idea. When offered on a grand scale, as in the easy money of the last decade, they only serve to create bubble markets which at some point must collapse. And we’ve all experienced the disasters created by the bursting of such bubbles. And when the offer is more limited, as in the First Time Buyer Tax Credit or Cash for Clunkers, they do little more than “steal” future sales.

According to the article, Realtors® around the country are reporting a tepid response to the present $6,500 credit for existing home owners. The author outlined several reasons, some of which I discussed in a recent POST; and all point to the improbability that large numbers of existing home owners will be seeking new digs in the near term. Many are either underwater or have lost so much equity that a sale would fail to generate sufficient cash for a new purchase, commission, closing costs, and moving expenses. And, of course, millions are currently unemployed.

While the spring market may experience some growth, it now appears that a dramatic increase in sales is unlikely.

The Housing Guru: The one source for all your housing questions

While those in the northeast may disagree, with many areas still white from a season of record-breaking snowfall, spring is only three weeks away. It’s not too early to get out the tool box and start planning your home’s seasonal maintenance. Developing a routine of home maintenance will keep it functioning more efficiently, prolong the life of equipment and appliances, and make your home safer and more comfortable. A schedule of regular maintenance will also save you money by helping you avoid expensive repairs.

Click here for SPRING MAINTENANCE TIPS.

The Housing Guru: The one source for all your housing questions

In a post I did a couple of days ago, Six Reasons Why The Housing Market Peaks Will Not Return, I outlined reasons why I don't anticipate a return the glory days of the past decade; and while most seemed to understand my purpose for writing the post, some suggested that I should refrain from such "gloom and doom" projections.

Some even suggested that I had some sort of agenda, that I would somehow benefit by creating negative expectations. Strangely, I’ve been criticized when I pointed out opportunities in the housing market and as well as those times I advised caution; but I have no vested interest in either promoting or impeding home sales. The purpose of my blog is to share the knowledge I’ve gained during 4 decades in the housing industry.

I write to help both buyers and sellers make the most prudent choices, and I base my posts upon what I have observed in the market as well as the overall economy. Is it just the opinion of one man? Of course it is; my opinion is the only one I can have. And, I don’t claim to have all the answers, but I can offer the experience of having come through several recessions. I make no attempt to change the opinion of anyone, for I have no benefit in doing so; but I do attempt to encourage an intelligent discourse so that we may all benefit.

Some of those commenting have reminded me of the cyclical nature of the housing market--that we only have to wait for things to return to business as usual. There have even predictions of a greater boom to follow. But this is not the recessions of 1980 – 82, or 1990 – 91. This is not the dot com bust. Conditions are vastly different.

Yet, regardless of what has transpired, many expect the government’s housing and stimulus programs to restore things to normal. However, their efforts to date have been dismal failures. The projections for HAMP, the program intended to save millions from foreclosure, appear to have been grossly overestimated. And the government’s stimulus and TARP have only served to keep failed institutions in business, while creating few jobs.

Today we have predictions of a bottoming of the housing market, talk of "green shoots," and the end of the recession; but we have also had voices in our past, financial “experts” who have also made predictions, and much of what they described was based more in wishful thinking than in fact. Some of their predictions caused others to take action or make purchases and investments based upon the information presented; and many suffered greatly.

Some of the more blatant examples are listed here:

● “We will not have any more crashes in our time.” John Maynard Keynes, 1927

● “There may be a recession in stock prices, but not anything in the nature of a crash.” Irving Fisher, economist, Sept. 5, 1929

● “The depression is over.” Herbert Hoover, June 1930

● “This is the time to buy stocks.” R. W. McNeel, financial analyst, October, 1929

And more recently:

● (We will have) “an on-budget surplus of almost $500 billion . . . in fiscal year 2010” and “an implicit on-budget surplus . . . well past 2030.” Alan Greenspan, 2001

● . . . “we see no serious broad spillover to banks and thrift institutions from the problems in the subprime market.” Ben Bernanke, May, 2007.

I have more than a hundred pages of similar predictions, all flawed. What that demonstrates, of course, is that mine could be flawed as well. But if I’m even partially correct, is it not better to prepare for the consequences, to base our decisions upon the potential that the market will not recover as it has in the past? Everyone must ultimately make their own decisions, and must steer their course based upon their interpretation of the information presented. If my post helps some to make more prudent choices, then my efforts have been worthwhile.

Finally, I’m neither predicting the total collapse of housing nor advising buyers to become renters. For those who need and can afford a home, great bargains exist in almost all markets. Home ownership can provide advantages that far exceed any financial return; and for those who make wise purchases, the future may still provide a healthy return.

My original post was intended to serve as a guide for those unfamiliar with the intricacies of today’s market, for those expecting the market to follow past trends. As I have outlined, I don’t believe it will; and I would advise anyone considering the purchase of a home to seek the guidance of a real estate professional to help them through the mine field of short sales, FSBOs, and foreclosures. The consequences of making the wrong purchase can be dreadful, but the rewards of a well-researched purchase can be significant.

For more on the advantages I see in home ownership, I would suggest reading the following posts:

Home Values Have Remained Unchanged

The Best of Times or the Worst of Times to Buy a Home?

Why Should I Use a Realtor?

The Housing Guru: The one source for all your housing questions

Recent conflicting reports about the housing market and whether or not it is truly in recovery have left consumers as well as those in the real estate business more than a bit confused; those whose business plan is dependent upon a full or quick recovery should proceed with caution. I believe the housing market is far from recovered, and, in fact, will not return to the levels of the past decade for many years—if ever. I see six reasons why the housing market peaks can not return, that it will never regain its past “glory days.”

● Robust home sales are dependent upon consumer confidence in the economy. Consumers must feel that both their personal economy as well as that of the nation is on sound footing before committing to such a major, long-term purchase, especially on the heels of the longest recession in more than half a century. Thus far, consumers are far from confident.

● A vigorous recovery of the housing market cannot occur as long as we have unusually high unemployment. While there is much disagreement on when and how our recovery will occur, the financial experts all agree that unemployment will remain at higher than normal levels for several years, and some projections do not indicate a recovery to “full” employment for as much as ten years. With at least 20 million unemployed or underemployed, and with awareness that many of the jobs lost will never return, a high rate of joblessness could possibly become the norm.

● The dramatic loss of home equity will significantly limit the pool of available move-up buyers. In the past, move-up buyers used the equity from their former home to help them purchase a larger/more expensive one; however, declining home values with the associated loss of trillions in equity means fewer sellers will have the resources to purchase another home.

● A continued high rate of foreclosures will depress both the housing market and the hopes of many potential buyers. The millions who have experienced foreclosure will be automatically ousted from the buying pool. For some, several years of damage to their credit rating will be the defining factor; and others will become permanent renters, avoiding the potential for further pain and the trauma associated with foreclosure.

● A slow increase in mortgage rates will reduce the number of qualified buyers. As we experience the higher mortgage payments associated with rising interest rates, many will fail to qualify for loans on the homes of their choice. Others, having been “spoiled” by the low rates of the past decade, will stay out of the market hoping for a return to those rates.

● Tighter lending restrictions will also result in fewer buyers qualifying for home loans. And the restrictions, combined with the declines in credit scores experienced by millions of consumers will only further reduce the number of buyers.

Additionally, there are other factors such as: high levels of consumer debt, changing demographics, and a diminishing of the appeal of home ownership as a result of experiences during the current recession, will only serve to dramatically alter the housing market for the foreseeable future. While there will always be a group committed to home ownership and will always be homes available for them to purchase, an expectation that the housing market will soon recoup its losses and regain its momentum, for me, seems extremely unlikely.

The Housing Guru: The one source for all your housing questions

In some just released numbers and reported in the LA Times, the Obama administration admits that the $5 billion Weatherization Program, affectionately known as Cash for Caulkers, is a bit more expensive than expected. Like many of the other “Stimulus” programs, it is beginning to look like just another dismal failure. The program’s stated goal was to create 90,000 “Green Jobs” by weatherizing 593,000 homes in its first year. Well, surprise – surprise, they didn’t meet that goal. According to the article, the program has only weatherized about 9,000 homes or about 1.5% of the intended number.

But the news gets better. Not only did the program fail to accomplish anywhere near its stated goal, they spent $522 million dollars just getting started. Based upon their expenditures to date, the costs for weatherizing each of those 9,000 homes is more than $57,000. Now that’s a profit margin this former builder can appreciate. (Let’s see: $1,500 worth of material plus about $500 in labor per home means I could pocket more than $50,000 per house and still pay some Wall Street type bonuses to my crew.)

To be fair to the government—I’m trying to give them the benefit of a modicum of doubt, though I know none is deserved—I’m sure they’ve included their “start-up” costs, and the final cost per home will be significantly lower (jeez, I hope so!). But we all know the realities of such programs. There will be millions in fraud, millions more in contracts to cronies, and the ultimate result will be a waste of more billions of taxpayer money on a program that benefits few.

The Housing Guru: The one source for all your housing questions

Following its most recent meeting, the Federal Open Market Committee (FOMC) has issued a statement of its projections about the economy, but instead of “sugar coating” or garbling the message, let’s call it like it is—it’s not a recovery. Chairman Bernanke had already warned us to expect a “jobless recovery,” but exactly what is that? Isn’t that just another way of saying, no recovery? Those without jobs or who are bringing home smaller paychecks or whose employment remains precarious, would have difficulty agreeing that their financial picture is recovering.

For those of us in real estate related businesses, the FOMC said little about their expectations for the housing market; and since housing is a major component of the economy, the omission seems a bit strange. While the November and December reports both mentioned improvement in the housing sector, the January report continued to focus upon last year.

What the report did point out, however, is that the jobs market will remain tenuous at best, and continued high unemployment means no housing recovery. Conversely, the lack of a robust housing market only serves to keep unemployment at higher than normal levels.

Regarding the labor market the report stated:

Participants anticipated that labor market conditions would improve only slowly over the next several years. Their projections for the average unemployment rate in the fourth quarter of 2010 had a central tendency of 9.5 to 9.7 percent, only a little below the levels of about 10 percent that prevailed late last year. Consistent with their outlook for moderate output growth, participants generally expected that the unemployment rate would decline only about 2.5 percentage points by the end of 2012 and would still be well above its longer-run sustainable rate. Some participants also noted that considerable uncertainty surrounded their estimates of the productive potential of the economy and the sustainable rate of employment, owing partly to substantial ongoing structural adjustments in product and labor markets.

The report further states: The weakness in labor markets continued to be an important concern for the FOMC; moreover, the prospects for job growth remained an important source of uncertainty in the economic outlook, particularly in the outlook for consumer spending.

To translate the above: Unemployment to remain high for several years, and Americans should be prepared for a prolonged period of anemic economic growth. Those whose plans have been based upon a “V” shaped recovery must alter their course or have it altered for them.

Finally, our Fed wizards said: Because current conditions may differ from those that prevailed, on average, over history, participants provide judgments as to whether the uncertainty attached to their projections of each variable is greater than, smaller than, or broadly similar to typical levels of forecast uncertainty in the past . . . (Translated: Everything we’ve said could be wrong, but we’ve stated it well.)

Let’s call it like it is—It’s not a recovery yet; and won’t be one for a long time.

The Housing Guru: The one source for all your housing questions

With all the news about the declines in residential real estate, I thought it would be good to remember that home values have remained unchanged, and, in fact, haven’t changed in decades. In the midst of a recession, and with real estate prices plummeting across the country, how can that be?

It’s all a matter of understanding value and the difference between value and price. While home prices have dropped, home values have remained unchanged. Home prices are determined by the market; home values, by the family residing there.

Certainly home ownership isn’t for everyone, and the current housing market is evidence of that; but for those who can afford to buy and for those who realize the benefits, owning a home may just be the value many are seeking in today’s chaotic environment.

HOME OWNERSHIP PROVIDES:

● An anchor to the community (Owners are more involved in community, civic, and political affairs)

● Stability (Owners move less often and are more likely to develop relationships with neighbors)

● Freedom (Owners can customize or modify their accommodations as they wish and as often as they wish and will reap the financial benefits of their improvements)

● Pride of ownership (Becoming a home owner provides a sense of accomplishment)

● Security (Neighborhoods filled with owners have less crime, and strangers do not have keys to your home)

● Homes provide a place for family activities (Backyard swing sets, tree houses, or room for the family pet)

Yes, real estate prices have suffered, but home values have remained unchanged. Homes are a place where you can plant trees and watch them grow, nurture a garden or a lifetime of memories, and where families can bloom and grow. Owning a home may not make one rich, but that home can enrich a life with a bounty beyond measure.

The Housing Guru: The one source for all your housing questions

There seems to be a lot of confusion among consumers regarding credit scores, credit reports, where to get them, which ones are accurate, and how to access your credit report and score without getting scammed. With the economy in the doldrums and with mortgage lenders and credit card issuers having tightened lending guidelines, awareness of credit status is more important to consumers than ever. And the numbers of companies offering “free” credit reports along with credit protection services has grown dramatically within the past few years.

The catchy jingles playing nightly on TV tout the advantages of knowing your credit score, and many succumb to their clever marketing and offers of a “free” credit report. And while many are aware that the offers do come with strings attached, they may not realize that some of those strings will entangle unsuspecting users in a costly web from which it is sometimes difficult to escape.

Then there is the issue of credit scores, some of which are offered for free. Consumers will find scores offered by the three credit bureaus as well as multiple websites, but be aware that there is one main score used by lenders (FICO), and the number reported will vary from the other providers. Below I have listed the simple facts about credit reports and scores:

The three major credit reporting agencies are:

Experian, 475 Anton Blvd.,Costa Mesa, CA 92626 888.397-3742,  www.experian.com

Equifax, P.O. Box 740123,  Atlanta, GA 30374, www.credit.equifax.com

TransUnion. P.O. Box 7000, North Olmstead, OH 44070. www.truecredit.com

The best way for consumers to view their CREDIT REPORT is to visit, AnnualCreditReport.com. This is the site that offers the government mandated free credit reports which can be downloaded without cost once per year. And while the site doesn’t try to sell anything, the individual credit bureaus, once accessed, will; and, unless you are interested in credit protection services, ignore their offers with one exception. If you would like to know your FICO credit score, the one lenders use when considering your credit worthiness, you can purchase it for $7.95 from Equifax, the originator of the FICO scoring system. Don’t be fooled by other offers of credit scores, they’re not the ones used by lenders, and while they may provide you with an approximation of your real credit score, they’re worthless if you need to know precisely where you stand.

Finally, there are some free sites that do offer credit scores, but here again, they’re not the FICO score and will only give you an idea of your standing. Unless you’re planning on applying for credit, however, you may not need the FICO score. If you’re only satisfying your curiosity, get one of the free scores at: Credit.com; Quizzle.com; or CreditKarma.com.

The Housing Guru: The one source for all your housing questions