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

A Recent article on Calculated Risk seems to point out that the government’s much touted HAMP loan modification plan will fall far short of meeting its goal of saving millions from foreclosure. The article references an update on the government Making Home Affordable website that lists the following points:

● There have been 170,000 permanent modifications granted to homeowners.

● An additional 91,800 permanent modifications have been approved by servicers and are pending borrower acceptance.

● More than 1.3 million homeowners have received offers for trial modification.

● Only 32% of the trial modifications begun at least 3 months ago have been approved for conversion.

● Of the 6 million borrowers who are currently 60 days delinquent, only about 1.8 million are eligible for HAMP.

The report also shows that the pace of modifications has slowed and is now less than half what it was in September 2009, and indication that the number of eligible borrowers may be nearing an end. And if that is the case, we’re still due for millions more foreclosures and short sales.

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

Today’s housing market has left many homeowners owing more on their home than it’s worth and others with so little equity that selling seems difficult if not impossible. Homeowners who need to sell, but have no budget for making their home more appealing by making upgrades or repairs may find the following tips helpful. Each of these can be accomplished with little or no money and can make a dramatic difference in the appearance and appeal of a home.

Exterior:

1. View your home from the street as prospective buyers will see it as they approach. Then, increase the appeal by doing the following: Unless it looks new, replace or repaint the mailbox and post. Add new street numbers that are bright and easy to read. Does the lawn need work? Weeding and adding fresh mulch cost little yet make a dramatic difference. Is the driveway stained and need washing? If you can’t afford to have it power washed, buy a scrub brush on a long handle and some TSP (Trisodium Phosphate) and wash it by hand.

2. Make the exterior sparkle. If it’s stained, cleaning with a TSP solution and scrub brush may be enough. However, some painting is probably necessary. Paint the trim around windows and doors as well as the front door, and replace the front door lock unless it looks new. Have leaves and branches accumulated on the roof and in the gutters? Clean them or have someone do it for you.

3. Trim shrubs and bushes, especially those that block the view of windows or attractive features. Large overgrown bushes make a home look old and can keep light from brightening the interior.

4. Move garbage cans, toys, dog houses, outdoor equipment, or anything else that may detract from the first impression. You’ll have no second chance at making a good first impression.

5. Keep the lawn neatly trimmed. Cutting grass diagonally can give a nice, manicured appearance.

Interior:

1. Make the foyer or entrance area appealing by cleaning, painting, and removing excess furniture. Try to make the entrance as open as possible. You’ll often have an agent and two or more clients entering at once. Try to keep it from feeling crowded. Buff hardwood to a brilliant shine and touch up or repaint any areas that don’t look fresh. Keep the rest of the home spotlessly clean at all times.

2. If you have pets, farm them out if possible. Regardless of how clean and neat your pets are, they have odors that are easily detected by strangers. Worse, some potential buyers have allergies that may flare with viewing the home. If you’re serious about selling, have someone keep the pets.

3. Remove all clutter and excess furniture; but don’t store it in the garage or basement. Buyers are looking for places to store their “stuff.” Show them that your home has plenty of space. Donate or store unused clothing, and then neatly arrange ALL closets or storage areas.

4. Remove personal items such as trophies, most photos, and memorabilia. Buyers are looking for THEIR new home; leaving out personal items presents a subtle psychological barrier for them.

5. Have the home professionally staged. While you may think it’s not in your budget—a basic staging may cost less than you think—staging will help your home sell faster and may bring a higher price.

One of the most important tools in a seller’s arsenal is the real estate agent hired to help in the process. Selecting the right agent can make the difference between a quick sale and disappointment. Your agent can advise you on pricing—one of the most critical factors in selling—and you must trust their judgment (if you don’t you’ve selected the wrong agent). And while you may be thinking of selling FSBO (For Sale By Owner) in an effort to reap the most cash at closing, in today’s market I think that’s a bad idea. Click HERE for an unbiased evaluation of agent vs. FSBO.

For more great tips on selling, visit: The Housing Guru

For several months we’ve seen encouraging REPORTS describing how consumers were paying down their credit card and other debt, a positive sign for the long term health of the economy. However, a recent article in MarketWatch, based upon numbers from CardHub.com says that may not be the case.

It seems that consumers are not being more frugal, but defaulting on their credit card debt in huge numbers. Of more than $93 billion drop in outstanding credit card debt, all but about $10 billion was due to charge-offs by the banks.

So the good news isn’t really very good at all. Charge-offs of credit card debt by banks continues at record levels; and while the rate of increase is slowing, the only bright spot is that consumers may be positively altering their spending habits.

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

With many homeowners unwilling to accept the prices being offered by today’s buyers, some have taken the remodeling approach. If the reason you wish to move is to have a new kitchen or bath, or to have additional space, remodeling may be just the answer.

Today is a great time to remodel, and the changes just might make you fall in love with your home all over again. Materials and labor are at extremely competitive prices, and the government may even help foot the bill by providing tax credits for energy saving upgrades.

However, those who are seriously considering a remodel or addition should ask themselves the following:

● How long do I expect to remain in the home? Most remodeling projects fail to recoup their cost when the home is sold. Staying in the home several years allows you to spread the cost over a longer period.

● Will the features or changes I desire appeal to a wide range of future buyers? Don’t make your home so “unique” that it will be difficult to sell.

● Will the changes I make cause my home to be significantly more expensive than other homes in the neighborhood? Unless you plan to remain in the home forever—a rare occurrence—avoid changes that will make it far more expensive than others in your neighborhood. Not only will it be difficult to sell in the future, but you’ll probably lose much of the money spent remodeling.

● If financed, will the additional expense be a burden to my budget? Don’t stress yourself or your budget by doing work you cannot easily afford.

● Can I afford the job if it exceeds my budget by 20%? The work may create unexpected expenses, and you may decide to make changes during the process. Few remodeling jobs are completed within the original estimate.

● Can I tolerate the disruption to my life? The job will create lots of dust, noise, and you may have occasional disruptions of water or electricity. You’ll also have strangers in your home who may arrive early in the morning.

● Can I accomplish the same thing by just de-cluttering or re-purposing a room? Getting rid of unnecessary junk/furniture may help to create the space you need; or you may find that an unused living room or spare bedroom can be re-purposed to serve your needs.

● Can I afford the subsidiary costs of remodeling? Be sure to budget for any new furniture the remodel may require; and be aware that your insurance, property taxes, and utilities may increase due to your changes.

If, after answering the above you still believe remodeling to be the best approach, here are a few tips.

● Before interviewing contractors, make a list of everything you might want. Try to be as specific as possible when listing the changes or additions you wish.

● When hiring a contractor, interview at least 3, and get references of recent jobs completed, as well as banking and supplier references. Professionals should be able to provide several references of their recent work; those who can’t should be avoided. And in today’s tough economic environment you’ll need to make certain that your contractor has the financial stability to complete the job. Pick a contractor who is likeable. You may be working with them several weeks or months. Go with your “gut.”

● Check the references—all of them. If you can visit a recently completed job, that’s even better.

● Professional contractors will supply a written contract, including the scope of the work, building plans if necessary, and specifications for materials, appliances, and fixtures. They should also provide copies of state and local licenses, and certificates of workman’s comp and general liability.

● Don’t base your selection of contractor solely upon price. The most expensive isn’t necessarily the best, and the lowest price may not ultimately be the least expensive.

● Never pay for a job up front. The risk of losing some or all of your money is too great. The recession has brought out lots of “scammers.” Don’t be taken in by slick sales talk. While large jobs may require periodic payments as work is completed, don’t allow the payments to exceed the work in place. Ask for a payment schedule up front and make sure you understand it fully.

● Ask the contractor to provide Lien Waivers as requests for payment are submitted. Some states allow unpaid workers or suppliers to place liens on homes to collect for unpaid labor or material, causing unsuspecting homeowners to pay for work twice.

Finally, be as flexible as possible. On occasion you may have to compromise and disruptions may sometimes be frustrating. If you can tolerate the disappointments when things don’t go as planned, and if you don’t allow yourself to become stressed over the minor annoyances, your remodel just may leave you with the home of your dreams.

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

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