Salt Lake City Real Estate, Greg Fabiano, ABR

As a Realtor, I frequently speak with clients who state that they need to sell their house. My response is often: Do you NEED to sell, or do you WANT to sell?

It is always an enlightening conversation to explore the NEED to sell, and differentiate between this and the WANT to sell. As a generality, my suggestion to clients is to keep the property, unless there is a distinct NEED to sell.

There are indeed specific circumstances which would indicate a NEED to sell a property, i.e. relocation, death, divorce, etc. At the same time, this is NOT to say the WANT to sell is bad; rather, it seems important to understand the difference between WANT and NEED, and thereby be prepared to make a rational and more informed decision.

On a frequent basis, these conversations lead to the client's realization that it may indeed be in their best interest to simply retain the property, leasing it to a tenant, and gaining the potential income and tax benefits.

In our marketplace, the rental inventory is shrinking, vacancy rates are evaporating, and rental rates are increasing. This is an ideal environment for those who have the desire to own rental property.

There are always pros and cons to owning rental property (best reserved for another blog entry), and right now, there are a lot of pros!

Regardless of the ultimate decision - to sell or not to sell - it seems wise to consult the appropriate professionals before heading down a path of big decisions. :)

Charles Dickens spoke of the 'best of times' and the 'worst of times. For my part, I think they're the former. :)

As can be readily seen by all, the steady stream of grim economic news items over the past few months has had a negative impact on the stock market.

The downgrading of the Dow-Jones Industrial Average (DJIA) has sent many skittish investors seeking a safe haven in the bond market. With this daily see-sawing in the markets, the popularity of the bonds has sent mortgage interest rates into record-low territory.

In our local marketplace, the 30-year mortgage rate has drifted between 3.875 to 4.125%. (The 15-year mortgage rates are in the low 3% range.) What does this mean to the average home-buyer? It simply translates into a savings of approximately $100/month on a $150,000 home purchase.

The other question is: Why does this matter? Quite simply, we are seeing the 'Perfect Storm' in the real estate industry.

In July 2007, our local marketplace peaked and has been headed south. At this point, it appears that we're nearing the bottom of the pricing trough, being that the prices have finally been seeing single-digit, rather than double-digit, declines which were prevalent in the previous years of this recession.

In many areas, these price declines have erased all of the gains of the previous decade! As such, the prices of real estate in much of our marketplace are now at par with those of 2001.

The combination of prices at a 10-year low, and interest rates at an historic low, makes for the perfect conditions for prospective home purchasers. For those who are willing to jump into the buying market, they'll find opportunities which have never existed during their lifetimes!

From 1987 to 1991, the market price conditions were very similar to what we're seeing now, inasmuch as the prices had plunged from a peak to a new trough. The primary difference at that time was the prevailing rates of interest.

In 1991, I vividly recall sitting down with a client who was purchasing a home, and who had procured an astounding, bargain interest rate. What was that rate? It was ONLY 9.5%! This was the best interest rate I had seen on a newly procured loan for several years!

To give a little bit of real-life perspective, in 1988, we purchased a home for $58,500 with an FHA loan at 11%. The principal and interest (PI) payment of this loan was approximately $557/month. Today, that same home would sell for about $140,000; however, with an FHA loan of approximately 3.875%, the payment (PI) today would be only $658.

One might say: Well, things aren't as good as they were then, because the payment has gone up about $100/month since that time. While it is true that the payment has increased about $100/month; however, it is important to look at the inflation adjusted amount - which has actually DECREASED significantly.

What I mean is that most wages have increased by approximately 100% since 1988, though the comparative house payment in this example has increased by only 18%.

For this reason, it seems to me that housing is actually more affordable now than it has ever been during my adult life. As such, this is my definition of the Perfect Storm for prospective home purchasers.

This is not a 'storm' from which one need take cover; rather, it would behoove all who are sitting on the sidelines to jump in with both feet and get wet!

Ciao for niao. :)

(Columnist Steve Chapman recently wrote an article, regarding the efficacy of FHA lending guidelines, which is published on Townhall.com. This blog entry was written in response to the column.)

While Steve Chapman is right to be concerned about mortgage lending policies, I think he's looking in the wrong place. In reality, FHA has become MORE stringent in their lending policies than before.

Let's take a little look at history: Previous to and during the housing boom, FHA required only a 3% down payment, and their underwriting (approval) guidelines were quite reasonable. FHA for many years was the most common loan made for first-time home buyers. Now FHA requires a 3.5% down payment, and the underwriting guidelines have become more strict. Is this a step in the wrong direction? No. Has FHA become insolvent? No. So, what is the problem - or what changed?

In reality, the Conventional lending guidelines - those directed by Fannie (FNMA) & Freddie (FHLMC) - are those which spiraled out of control per political meddling and financial market fraud by both buyers and investors.

Prior to the advent of the Clinton Administration, Conventional lending guidelines required a MINIMUM 5% (though typically 10-20%) down payment. With the politicization of Fannie & Freddie under the likes of Barney Frank, Chris Dodd & the Clinton administration, the guidelines were greatly relaxed to the point that anyone with a a pulse and 0% down payment could purchase a home. Suddenly, people who previously couldn't qualify to purchase a TV on credit could now purchase a home without any problem. Add to the mix the fraud-friendly no-income-qualifying lending guidelines and you now have a recipe for financial disaster.

Now as for the present policies of FHA, other than being a little more strict than they were during the pre-boom years (and they never changed during the boom years), they're essentially as they were in the first place. FHA is still filling the role that it had pre-boom: offering a reasonable alternative to conventional loans.

Conventional guidelines are again requiring a MINIMUM of 5% (typically 10% - 20%) down payment - which is where they were during the pre-boom years. Now that mortgage investors can no longer plan to pass the default bill on to the taxpayers, they are becoming more responsible with their lending guidelines once again.

In the end, it would seem the best thing to do would be to keep the meddling politicians & fraud-mongers out of the industry all together.

Sailing along with typical tech-tools.

Our local real estate association (Salt Lake Board of Realtors) hosts an annual technology trade show for the benefit of our Realtor members. As veteran of almost 20-years in our profession, I regularly attend this trade show because I like to keep abreast of the latest tech-trends that will help me bring more value to the table with my clients.

As many real estate professionals, I too have long since gone essentially 'paperless' in both presentations and contract negotiations. For several years, all agents in our office have been strictly using laptops at the client's kitchen table to determine property valuations while working with sellers and buyers. Furthermore, we've had the capacity to do automated property searches via the internet which are then emailed automatically to our buyers.

These items are a few of the tech-tools that we've been using for quite some time, and I'd been resting on the proverbial laurels thinking that I was keeping up with the market. Well, at least that was what I thought - until last week. That was when the Tsunami hit me as I turned around.

The initial FaceBook wave.

Several months ago, one of my best friends returned from summer vacation with his family, bearing a load of photos, and asked that I sign up on FaceBook that he might share their photos with our family. I'd assiduously avoided getting involved with online social networks as I considered them toys for bored housewives and teenagers. Ultimately, I relented and signed up to placate him.

The surprise came within a few minutes thereafter when I suddenly found myself somewhat inundated with friend requests from several mutual friends, as well as many neighbors - mostly housewives and teenagers - who were already avid FaceBook users. (I was rather ignorant of the fact that the program was gleaning email addresses from my Outlook contacts.) Fearing that I might offend people, I simply accepted the friend requests. Within 24-hours, I had over 250 FaceBook friends - people who I know very well, though I had no interest in knowing that they were playing Mafia Wars or Farmville.

Stay Tuned for: Real Estate and The Social Networking Tsunami (Part 2 of 2)

Today

Last fall, we were told that the sky would fall if Congress didn't pass the Bailout Package. It was a dire emergency! If only the Federal Government could pass this $700 Billion bill immediately, the tide of economic destruction would be held at bay forever. Well, in spite of public opinion to the contrary, Congress and our erstwhile President passed this bloated behemoth.

Fast forward less than four months, and voila: The tide of economic destruction needs to be held at bay once again! Again, this is a dire emergency! (Haven't we already heard this tune?) If only the unbelievers would stop obstructing the mandate of His Holiness (Pres. Obama), he could sign the $800 Billion "spendulous" bill and "save this economy." This time, Pres. Obama and Congress - with the mainstream media cheerleading the action - passed an even bigger monstrosity.

Do you see a pattern here? Just wait: I give Pres. Obama and Congress less than three months, and they'll be doing the third episode of this same song-and-dance routine.

Where Did it Begin?

In 1977, President Jimmy Carter and the Congress pushed forward the Community Reinvestment Act (CRA) with the "good intentions" of helping poorer members of society - primarily in minority urban areas - enjoy the "rights" of home ownership.

What was the underlying assumption of the CRA? You see, President Carter and many members of Congress ASSUMED that because mortgage loans weren't being made as readily in poorer minority urban areas as they were in more affluent suburban areas, it MUST be because all lenders are racists! Of course, they didn't (and still don't) seem to comprehend the fact that lenders WANT to lend to anyone who is capable of repaying a loan, because lenders survive on interest paid - PROFIT - on those loans.

In 1993, President Clinton and the Congress furthered Pres. Carter's dream by expanding the size, scope and funding of the CRA; but of course, they did so with such "good intentions."

There is a saying: The road to Hell is paved with "good intentions." The price of government-mandated benevolence (good intentions) has ALWAYS cost more in freedom and treasure than originally anticipated.

The Profit Motive

As an aside, let's understand a basic economic axiom, which we might call The Profit Motive. The Profit Motive is completely blind to color, race, national origin, sex, marital status, etc. Lenders ARE, however, acutely biased to the demonstrated ability of the borrower to repay the loan. In short, regardless of any other factor, if the borrower has demonstrated (as determined by one's credit, income and employment records) a very high probability of repaying the loan, the lender has a strong Profit Motive for making the loan.

Unfortunately, among "progressives" in our society, PROFIT is a bad word. They don't seem to understand that PROFIT is the fuel of a dynamic economy which pays the taxes these very progressives lust after.

What Did They Do?

In 1993, after strengthening the CRA, the Congress has strong-armed Fannie Mae (FNMA), Freddie Mac (FHLMC), and other major players in the retail and wholesale mortgage markets to loosen their lending standards in order to promote the "right" of homeownership to people who - in reality - weren't sufficiently credit worthy to obtain a mortgage loan in the first place.

Is it reasonable to suppose that politicians are more adept at making sound lending decisions than lenders themselves? If you think the government has done a great job meddling with the mortgage and banking industries, just wait until they get their hands on your healthcare!

During the tenure of Pres. Bush, the administration repeatedly asked for Congressional accountability as to their oversight of Fannie and Freddie, et al, but were repeatedly snubbed by the illustrious Rep. Barney Frank (D-Mass) et al, who were (and still are) in charge of the Banking and Finance Committees. Even as late as August 2008, Mr. Frank assured everyone there was no problem with Fannie and Freddie. Well, you already know the rest of the story.

What Now?

Unfortunately, the President and Congress have just signed the largest act of robbery and economic treason in the history of the earth. (The now 2nd biggest scam was enacted by Congress and Pres. Bush just a few months ago.) They seem to be hell-bent on repeating the same monumental errors of the Hoover and Roosevelt administrations that turned what would have been a minor recession, into the Great Depression.

Roosevelt's Secretary of the Treasury, Henry Morgenthau, stated: "We have tried spending money. We are spending more money than we have ever spent before, and it does not work. ...I want to see the country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say, after eight years of this administration (FDR), we have just as much unemployment as when we started... and an enormous debt to boot."

Do our present circumstances sound familiar? In short, will the "stimulus" work? Of course it will NOT! The bailout didn't work in October, the February stimulus is doomed to fail, and any subsequent similar actions shall follow the same course of failure.

It's time to contact our Congressmen and urge them to fight against any further intervention on the part of the Federal Government.

What do you do when you find yourself at the bottom of a big, deep hole? Stop digging!

Have a swell day! gf