Ryan Shaughnessy, Broker/Attorney - Your Lafayette Square Real Estate Partner

"LET BLOCKHEADS READ WHAT BLOCKHEADS WROTE." (Warren Buffett)

Warren Buffett has it right. You can just follow the herd. You must investigate the facts, read between the lines, and make decisions based on your personal circumstances, not on market rumors and pundit opinions. Local and national media outlets are playing on the fears of the American public. Recently, I read stories in the daily paper decrying the lack of credit. From these stories, you would conclude that qualified buyers with good credit, documentable income, and a down payment were being rejected for home loans at an alarming rate. However, this has not been my personal experience or the experience reported by others in my market. If you didn't read the last line of one of the stories, you would have missed the final sentence "Local mortgage brokers report that home loans remain readily available." What? Yes, it is true. Loans are still readily available for qualified borrowers. I don't deny that the lending environment has changed. But we must examine what has changed? Underwriting standards have tightened. However, banks are in the business of making loans and qualified borrowers remain good investments.

"I NEVER ATTEMPT TO MAKE MONEY ON THE STOCK MARKET. I BUY ON THE ASSUMPTION THAT THEY COULD CLOSE THE MARKET THE NEXT DAY AND NOT REOPEN IT FOR FIVE YEARS." (Warren Buffett)

Warren Buffet has it right. You don't purchase a property based solely on what the market may bring 6 months, 12 months or 18 months down the road. The decision to purchase is an investment - but it isn't a short term investment. More importantly, it isn't just an investment. People purchase homes to satisfy their housing needs or to achieve a certain lifestyle, not just to make a profit in the real estate market.

The decision to purchase should be made based on personal circumstances and should not be based solely on short-term economic circumstances. You must focus on the long term. In a recent Trulia survey, 78% of non-homeowner respondents with annual household income of $50,000 to $75,000 acknowledged that purchasing a home is a good long term investment and is central to achieving their own personal American Dream.

If you focus on quality, you purchase a good home in a good neighborhood. When the economy improves, you reap the benefits of your investment. If you stand on the sidelines, you end up buying on the upswing and missing the opportunity to purchase a new home in a buyer's market.

"WE SIMPLY ATTEMPT TO BE FEARFUL WHEN OTHERS ARE GREEDY AND TO BE GREEDY ONLY WHEN OTHERS ARE FEARFUL." (Warren Buffett)

Warren Buffet has it right. When everyone and their brother were investing in real estate, it was a time to hesitate. Now, everyone and their brother are hesitating. This week Trulia released a national consumer survey that concludes that there is a "crisis of confidence" among potential first time homebuyers. Here are some of the key findings:

• 70% of all non-homeowners surveyed said they have no plans to purchase a new home in 2009.

•· 44% of respondents in the age range 18 to 34 years old explained that they did not own a home and didn't intend to purchase a home because home ownership was too cost prohibitive.

•· 41% of respondents in the age range 35 to 44 years old explained that the ability to qualify for a home loan is keeping them on the sidelines and preventing them from achieving home ownership.

Smart investors are looking at today's market as a once-in-a-lifetime buying opportunity. There are strong financial reasons why you should purchase a new home today. Here are seven reasons to buy today:

REAL ESTATE REMAINS THE BEST INVESTMENT AVAILABLE. Homeownership is a safe and secure way to build wealth. While year-to-year fluctuations are normal, real estate as an asset class has been one of the best and most consistent performing long term investments. Over the past 10 years, national real estate values have appreciated 88%. In Lafayette Square, the 10-year return was over 240%. By comparison, the S&P 500 Index returned 5% during this same period. The number of households owning homes is expected to increase 15% over the next decade. For consumers looking for long-term, stable growth, real estate is still the best and safest choice.

TRADING UP REPRESENTS BUYING OPPORTUNITY. Even in markets that have experienced declines, there remains a net benefit by purchasing a new home now. Assuming a 5% decline in the real estate market (not accurate for Lafayette Square submarket), you actually save money by purchasing a new and presumably more expensive home now. If you sell a $180,000 home at a 5% discount off of list price and purchase a $300,000 home at a 5% discount off of list price, you are still saving over $6,000 because you are purchasing your new home at a similar discount. The time to trade up by purchasing a more expensive home is when the market is declining or flat.

MARKET CORRECTION NEARING END-RISE IN MEDIAN PRICES. National median home prices declined over the past 18 months. However, there remains a fundamental misperception regarding the "real estate bubble" effect. National trends, although impacting credit and other markets, did not materialize in all local markets. In Lafayette Square, median sales prices rose an average 19% per year over the past 3 years-16% in 2008, 6% in 2007, and 35% in 2006. While the national market and certain local markets may see a limited price decline, the Lafayette Square submarket remains strong with positive increases in sales volume and in the median sales prices over the last 3 years.

LIMITED INVENTORY. The real estate market is driven by the old adage "location, location, location." In the case of Lafayette Square, it is a fashionable area close to Downtown. There are fixed boundaries with a limited supply. There is little vacant land to build new homes. Construction is limited to in-fill and conversion projects. More importantly, sales volume is strong with a rise in the number of sales on average 18% per year. Economic forecasts indicate that inventory will continue to decline as developers have slowed the start of new projects in Lafayette Square. As opposed to the national and local trends, only 1 residential project in Lafayette Square has been cancelled and all existing projects are being built as planned.

MORTGAGE INTEREST RATES ARE AT 40 YEAR LOWS. The average interest rate on a 30-year fixed rate loan remains at near 40-year lows. Currently, the interest rate is slightly above 6.0%. This is more than 1.0% below the average rate in 2000. The practical impact means that purchasers can either afford a larger purchase price for the same monthly payment or can reduce their monthly payment. Recent economic forecasts suggest that interest rates will rise over the next 18 months. On a $200,000 mortgage, a 1.0% rise in the interest rate could cost you up to $48,000 over the life of the loan so the time to buy is now.

DECLINE IN RENTAL INVENTORY. In Lafayette Square, the conversion of rental units to condominiums has caused a decrease in the inventory of available rental housing. Rental rates have stabilized and rents are increasing. Occupancy rates are on the rise. As a result, condominiums in Lafayette Square offer the best method for entering this sought after market. More importantly, with the increase in rental rates, it makes more financial sense to own than rent.

"RISK COMES FROM NOT KNOWING WHAT YOU'RE DOING." (Warren Buffett)

Warren Buffett has it right. In today's market, there has never been a more important time to obtain the assistance of qualified real estate professionals. Realtors can provide you with timely market, neighborhood and other information so that you make the right decision. Similarly, responsible lenders can match your personal circumstances to an appropriate loan product. However, this will require a new attitude and a new focus. The old mantra of "just get it done" must be replaced with a new mantra "get it done right." Getting it right means purchasing a quality home in a quality neighborhood utilizing a loan product that has payment terms that you can afford.

In conclusion, it should be evident that I am a Buffett devotee and find his approach to investing to be important for investing in real estate as well as the stock market.

Note: The opinions and statements contained herein represent my personal opinions and observations. These blog entries are not reviewed, endorsed or approved for publication by Gilded Age Sales, LLC.

What Separates the Best - Success is a Planned Event

We recently had informal discussions with a number of new home sales managers and their sales representatives. The focal point was what makes a top performer. Are top performers just born to sell? Or are top performers created by training and experience? Is it just a numbers game? Or is success determined more by what you do and don't do? Is it just a matter being in the right market at the right place at the right time? The comments often depended on whether you were a top performer or not. Whereas lower end performers pointed to the market or perceptions of the market, the top end performers uniformly indicated that they are having banner sales years. So, what makes a top performer? The top performers consistently showed a COMMITMENT TO EXCELLENCE.

So what does this really mean? Commitment to excellence, although a broad and over-inclusive term, usually included three personal habits:

A. Improve Selling Skills.

The top performers regularly attempted to improve their selling skills. Some of their tips included:

• Script your sales presentations.
• Practice sales scenarios with other sales representatives.
• Develop standardardized responses to common buyer objections.
• Develop showing plans based on set criteria.
• Solicit feedback from customers and prospects.
• Regularly review sales successes and failures to determine what went right and what went wrong.
• Incorporate feedback by adjusting your sales approach.
• Know every aspect of the product. Keep abreast of new products and construction materials. Review manufacturer websites to understand the features of individual products and construction materials. Identify ways to differentiate their homes from competitor homes.
• Constantly review sales training articles and materials.
• Be willing to adapt by trying new sales techniques.
• Use an online video sales training program like NewHomeKnowledge.com.

B. Develop a Business/Sales Plan and Monitor Progress.

The top performers have clearly defined sales goals and have articulated a plan to meet or exceed the sales goals. Here a few tips from the top performers:

• Develop realistic sales goals. If you sold 10 homes last year, then a sales goal of 100 is simply unrealistic and not achievable.
• Review your past sales to assist in developing a plan for the future. Identify how you generated your past sales.
• Focus your efforts on maximizing sales from past sources (e.g. internet leads or professional referrals).
• Identify new sales opportunities (e.g. increasing web presence or expanding referral networks).
• Develop sales goals based on targeted areas. For example, 10 sales from walk-in traffic, 10 sales from outside agents, 10 sales from relocations, 10 sales from internet leads, 10 sales from referrals from prior customers, 10 sales from cold leads, etc.
• Develop a sales plan for each target area.
• Break your sales plan into specific tasks - monthly, weekly and daily - to achieve your sales goals.
• Stick to the sales plan. Don't abandon the plan simply because the plan doesn't generate immediate sales. Today's task may not lead to a sale for 12 mos. or more.
• Monitor the sales plan to track the performance of tasks and progress toward goals.
• Review your sales plan and tasks on monthly basis and refine your sales plan and tasks based on experience.
• Use a software program like MyLifeOrganized.com to define the tasks in your sales plan.

C. Master the Use of Down Time.

The top performers have mastered the use of down time. In new home sales, up to 75% of time spent working a dislay is unrelated to direct contact with customers or prospects. Top performers focus on producing. They don't read novels, do crossword puzzles or shop the web. Here are some tips:

• Create a daily, weekly and monthly task list.
• Monitor progress on daily, weekly, and monthly basis.
• Use an automated reminder system for future acts.
• Use a task point system to measure your productivity.
• Eliminate distractions.
• Commit to fixed daily times to set appointments, make telephone calls, and perform written follow-up.
• Develop your referral networks.
• Conduct a site tour of your property and competing properties.
• View your website and competitor websites.
• Learn your systems. Review your contracts and forms.
• Search MLS. Research market trends - interest rates, median processes, inventory, etc. for your local market.

Conclusion

Success shouldn't (and doesn't) depend on the market. Successful new home sales representatives view changes in market conditions as sales opportunities. The old and extremely tired model of simply waiting for the purchaser to buy or the phone to ring is outdated. The simple fact is: Success is a planned event. It requires your participation, it requires preparation. Get started today and see your sales grow.

Note: The opinions and statements contained herein represent my personal opinions and observations. These blog entries are not reviewed, endorsed or approved for publication by Gilded Age Sales, LLC.

Commentary - Another Tool for First Time Home Buyers

The first-time home buyer tax credit provides another reason for a first-time home buyer to purchase their home today. The greatest misperceptions regarding the program are that the tax credit is a "giveaway" and that the purchasers receive a "check at closing." Both of these statements are incorrect. The program provides a dollar for dollar reduction in your federal income tax liability. It is not a deduction, it is a tax credit. Over the 15 year repayment period, you can save approximately $5,000 in interest. Although there is no cash advance feature (ie. check at closing), you can use the tax credit to accumulate funds for a downpayment or for closing costs by adjusting your tax withholding. However, it requires planning to do so.

First-Time Home Buyer Tax Credit at a Glance

· Available to first-time homeowners defined as any buyer who has not owned (or whose spouse has not owned) a principal residence during the 3 years prior to the purchase of the current home.

· The new home purchase must occur on or after April 9, 2008, and before July 1, 2009.

· Maximum income limits: Single Taxpayer - Up to $75,000 and Married Taxpayers - Up to $150,000 qualify for the tax credit.

· Tax Credit: Interest-free loan repaid over a 15-year period at $500 per year.

Common Questions about the Tax Credit Program

What is the difference between a tax credit and a tax deduction?

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

Because the money must be repaid, isn't the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?

Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments.

Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment.

If anyone has seen clever ad campaigns incorporating the federal tax credit, please share by posting a comment or sending me the materials by e-mail to ryan@gilded-age.com.

ARMs - Throwing the Baby Out with the Bath Water

Current Crisis

Recent new stories attribute much of the blame on the credit and housing crisis on the wide spread use of adjustable rate mortgages ("ARMs"). This type of loan product has an interest rate that adjusts periodically. Because of these adjustments, the use of ARMs carry greater risks than fixed rate mortages. In the hands of uneducated or irresponsible borrowers, an ARM can be a recipe for financial disaster. Currently, nearly 30% of option adjustable rate mortgages ("ARMs") originated in 2006 were at least 30 days past or in foreclosure less than 2-1/2 years after origination. Foreclosures on these loans jumped to 7.8% of outstanding loans. The highest delinquency rates are now in Florida, Nevada, California, and Arizona. Although there is nothing inherently or intrinsically wrong with ARMs, it just proves the point that experienced real professionals must provide guidance to their customers. That means, sometimes the lowest rate or smallest monthly payment is not always the best option. However, there is a danger of throwing the baby out with the bath water when it comes to ARMs. ARMs remain a good mortgage loan product for some consumers.

Comments from National Experts:

Here are some comments regarding ARMs from lenders:

"There's no question that an ARM can be a great tool for some, but a time bomb for others," says Bob Moulton, president of the Americana Mortgage Group. In the past year, many who bought at the top edge of their budget got unwelcome payment increases of hundreds or thousands of dollars when rates adjusted at the end of the introductory period. Often, those soaring costs forced a homeowner into foreclosure.

The problem, says Scott Yonehiro, senior board member of First Security Lending, is that "the ARM, once a niche product for a relatively small number of real estate investors and savvy homebuyers, became a product used by the masses. For many people, it's simply the wrong tool for buying a home." "Mortgages are similar to golf clubs in a golf bag," he says. "You wouldn't use a driver for an eight-foot putt, just as you wouldn't use a 30-year fixed mortgage for a house you intend to live in for three years," he says. "There's no such thing as a bad mortgage -- only bad loan officers who improperly suggest the wrong loan for a client."

Keys to Understanding the Risk

Tightening credit standards have eliminated the riskiest of ARM products including the 1 year and 2 years. However, there are still a wide range of ARM products ranging from 3/1 ARMs to 10/1 ARMs to option ARMs. The key to understanding the risk is to understand how the interest rate adjusts on the particular loan product. The interest rate on a 3/1 ARM would remain the same for the first three years and then adjust each year after that. A 10/1 ARM would hold the initial rate for the first 10 years. An option ARM permits borrowers to choose how they wish to make their payments each month: a traditional, fully amortizing payment; an interest-only payment; or a minimum monthly payment that is often not enough to cover the interest due. The failure to match one's personal circumstances to the risk associated with the type of ARM is the biggest problem. It isn't that ARMs are intrinsically bad. It is simply a product that isn't suitable for all borrowers.

Who Should Consider Using ARMs

Educated and budget-savvy buyers in certain situations stand to reap significant financial benefits by using an ARM over a traditional fixed-rate mortgage. If you meet these guidelines, an ARM still may be right for you.

1. Fiscal Conservatives.

The first test for determining whether an ARM is the right product for you is to determine whether or not you are able to budget and manage your finances in order to meet unexpected changes in the interest rate. If you live paycheck to paycheck, are perennially behind on payments, or don't have adequate savings, then an ARM may not be the right product for you.

2. Short Term Purchasers.

The second test for determining whether an ARM is the right product for you is to determine whether what length of time you intend to reside in the home. First time home buyers or people who anticipate that they will be transferred or relocated to a new city are prime candidates for using an ARM. More likely than not, these classes of borrowers will have matched the length of time of their residence with the adjustment rate. If you intend to live in a home for 3 years, then a 3/1 ARM is a good product because the rate will be adjusting near the time that you intend to sell your home.

3. Anticipated Increase in Income.

The third test for determining whether an ARM is the right product for you is to assess your financial situation. For first time home buyers or young professionals, there is a likelihood that you will be making more money as you gain experience in your position or profession. Similarly, if you receive large year end bonus, the low payments offered by an ARM may be appropriate. However, persons on fixed income or retirees typically benefit from the predictability offered by fixed rate mortgages.

4. Appreciation in Market Value.

The fourth test for determining whether an ARM is the right product for you is to assess your investment and the current conditions of your local real estate market. If the adjustments impact your ability to make payments, the responsible borrower will seek to sell the home. However, if you use an unsuitable loan product in a declining market, you ability to sell your home may be impaired. "There are good parts and bad parts of every town, and those don't change overnight," says Ivan Fujihara, CEO of SIFF Investment Services. "Even in a recession, a good house in a good neighborhood can increase in value."

Conclusion

The key to using an ARM is making an informed decision regarding the risks and benefits of the ARM loan product. The decision to use an ARM depends on a careful analysis of the market, your goals, and your finances. Borrowers can benefit by the reduced interest rate offered by ARMs provided that the borrow understands the risks (ie. changes in interest rates) and not just the rewards (ie. lower interest rates).

ARM GUIDE

Note: The opinions and statements contained herein represent my personal opinions and observations. These blog entries are not reviewed, endorsed or approved for publication by Gilded Age Sales, LLC.

Mortgage Matters - When Smart People Panic

We are inundated with daily stories about tightening credit markets. The national press has started beating the drums with the stories of denied loans. However, these stories are sometimes misleading. The borrowers who are on the front of the mortgage crisis are generally the Alt-A and subprime borrowers who are defaulting on loans that they couldn't afford in the first place and are more likely than not located in California, Arizona, Nevada or Florida where the speculation frenzy artificially inflated prices.

In the past week, there were three news stories that caught my eye.

First, the House of Representatives rejected the $800 billion bailout.

Second, even with the wild week in Washington, interest rates remain low. Bankrate.com's national survey showed no substantial change in interest rates on a 30-year fixed-rate loan. The average rate is now 6.32%. Four weeks ago, it was 6.6%; one year ago, it was 6.49%.

Third, the Federal Reserve Bank's Senior Loan Officer Survey reports that 75% of domestic lenders have increased their lending standards on prime loans and that 86% of subprime lenders have increased their lending standards on subprime loans.

So, what impact will the turmoil in the financial system have on home mortgages?

In the long run, it doesn't appear that the bill's defeat will have much effect on the availability of conforming mortgages. FannieMae and FreddieMac have already benefited from government intervention and remain committed to buying conforming mortgages and securitizing them. More importantly, the underwriting standards for conforming loans have already tightened and appear sound. Interest rates are stable and remain at historic lows.

Notwithstanding the good news, even otherwise intelligent homeowners are calling wondering whether they should payoff loans, draw cash down on home equity loans, etc. The turmoil in the financial market creates uncertainty. The simple fact is that panicked prospective homebuyers don't buy. But they should?

Conclusion

The smart buyers in today's turbulent markets - like Warren Buffett's recent investment in Goldman Sachs - focus on quality. The smart move is to look for quality homes in quality neighborhoods. The simple fact is that purchasers with good credit and stable incomes can and should view the current market conditions as a buying opportunity. These purchasers still have no problem securing loans. With historically low interest rates and favorable pricing, the time to buy is now.

Note: The opinions and statements contained herein represent my personal opinions and observations. These blog entries are not reviewed, endorsed or approved for publication by Gilded Age Sales, LLC.