Joseph Botelho

Today's ProJo.com featured a story on Sheldon Whitehouse's hearing on the federal loan modification program exposing the miserable failure that it is. Of course if your an agent selling real estate you knew that along time ago, as we usually get contacted by the homeowner after months have gone by in their efforts to modify their loan with no result. Meanwhile, depending on where the property is located, values may have slipped netting the bank less on a possible short sale.

Of course the short sale process is only slightly better. It's called a short sale because it is a process whereby a property owner attempts to sell the property for less than they owe their lender, with the lender forgiving the difference. This process essentially makes the bank or the mortgage company the primary negotiating interest in a potential sale. That's why "short sales" usually take a long time to consumate.

A Riverside resident testifying at the Whitehouse hearing said it best about mortgage mod's, according to ProJo.com when he said," A service 'as simple and American and basic as a human being on the other end of the phone' is missing from the dealings that customers frequently reported having with their mortgage holders.

After successfully negotiating several short sales over the last few years I can tell you the communication regarding those is not much different.

So what is the take away here? Beware of the loan mod program. If you pursue that option and you begin to get that feeling in the pit of your stomach that its going nowhere, you may wish to move in a different direction. And if you pursue a short sale option, get an experienced Realtor to help you and be prepared to wait.

Every now and then a couple of articles appear in the same edition of a newspaper that either really make you think, or alternatively, laugh out loud. These articles in and of themselves usually reflect the goings on of the issues of the day, and read alone, offer some general information about something you may already be aware of. However, when two articles, such as the ones I've referenced below, appear together, and are read one after the other, it can give one a whole new perspective regarding issues of the day, or in this case, the comical double-standard we are constantly asked to live by today.

The first column relates to the past and continued bungling of banks regarding lending and foreclosures. The column starts off as follows...."First we learned America's biggest banks couldn't properly lend. Then we learned they couldn't keep themselves solvent without taxpayer assistance. Then we learned they couldn't effectively work with troubled borrowers in a bursting housing bubble. And now we've learned they don't even know how to foreclose."

The second column is about the ethical dilemma of strategic defaults, whereby homeowners are just handing the keys back to the back and walking away.

Reading both entries reminds me of a saying Lou Holtz uses at almost all of his motivational appearances when says; "You take two people, one you admire and one you have a problem with and you ask these three questions about both of them and you'll know why you admire one and have a problem with the other one.

1. Can I trust them 2. Are they committed to excellence 3. Do they care about me

I'll let you all derive your own opinions regarding the heroes and villains here but it's quite clear there seems to exist two sets of rules for different classes of people. Strange times indeed.

A Foreclosure Sitcom by Al Lewis

Ethical Crisis Seen in Defaults by Gail Marksjarvis

The impact of short sale and bank owned inventory is largely understated when discussing its impact on the pricing of inventory and and ultimate sale prices. In assessing a handful of communities in RI local to my general market area we notice that in some cities at least 40% of their listing inventory and 60% of their pending sales are either short sales or bank owned properties. Along with record low interest rates, buyers should be diving into this market post haste. A quick look at the pending sale to listing ratio indicates otherwise however. Many communities have record high inventories with marginal pending sales. Strange times indeed.

Predicting the future of the real estate market has never been easy but it seems like even describing the current market has become a challenge for most pundits. This is probably a result of the 24 hour news cycle and its impact on writers and columnists who are under pressure to produce material. For this reason, it seems all we get these days is a "slide-by-slide" description of the real estate market without ever really understanding the big picture. So this is my "big-picture" opinion of the market in an effort to explain where we've been, where we are, and where we may be heading.

Recent reports in the national media highlighted the rather impressive 27% drop-off in unit sales for the month of July. In my home state of Rhode Island that number was closer to 34%, although our trade group was quick to point out that prices went up 6%. As I indicated in a previous post, given the expiration of the tax credit, this should have been no surprise to any seasoned real estate practitioner. But what does the long view tell us about the market?

In conducting a ten year history of the market it shows that nothing has really changed over the last three years. In studying the market statistics in my home town of East Providence RI, which represents a very good sample of the region, it showed that the unit sales for the first eight months of 2008, 2009 and 2010 were largely unchanged. The median sale in 2009 and 2010 only reflected a difference of 1.2%. So in essence, all this does is confirm the fact that the market really took the plunge three to four years ago and has been bouncing along the bottom ever since. (See stats below.)

It also indicates that the effect of the much vaunted federal tax credit was negligible in stimulating any new activity and probably delayed the inevitable; the continued decline in the market. Now that the tax credit incentive has been washed out of the system, what can we expect over the next six to twelve months?

Current pending sale figures in the subject market look like this:

Active Listings - 191

Pending Sales - 38

Average LIST price of pending sales $171,000

Most of you will immediately notice that the pending to active unit ratio represents an exorbitant inventory as it relates to current demand. But the $171,000 average LIST price of those pending sales is 12% below the average SALE price of homes sold in the subject market this year. This indicates that at best 2010 will finish approximately the same as 2009 in all categories and will be 10% below 2008 in terms of price.

As we roll into 2011, we can expect much of the same as long as interest rates remain unchanged and the job picture is at least stable, which makes it a great time to buy....if you are employed.

So the latest numbers came out today regarding the housing market and anyone who has been around this field long enough should not have been surprised. Most of us know the tax credit was the only thing propping up sales numbers and values in the face of high unemployment, tightening lending guidelines and the loss in the demand chain by those homeowners experiencing negative equity.

Now for many people this latest "news" will have no impact. Those who have a fair degree of equity in their home can still sell it if they need to or in the event of a life changing circumstance, though they may not get the return they would have registered a few years ago. Those who perhaps purchased home in the mid part of the decade may be currently experiencing negative equity, but if they have no reason to move or sell, the impact of the market will be negligible. I've lived in my home since 1994, across from my parents who have lived in their home since 1966. We have not refinanced. During those years the market ebbed and flowed in terms of value and unit sales, but for my parents and me, the personal meaning of it was negligible. But there is a rapidly growing group of people who very sensitive to the current market; those people who may have purchased a home in the last five years or have refinanced during that same period.

During the first part of this year, a number of home owners contacted me relative to listing and selling their property out of necessity. These were good people who were dealt a bad hand by the economy and could no longer afford their home. My advice to almost all of them was the same and was based on sane real estate valuation techniques and forecasting the market environment over the next six months. I explained the importance of pricing their property aggressively along with how it was imperative to get their property placed under agreement before the tax credit expired. Although each marketing plan would have accomplished the mission of getting their home sold along with the relief of the associated financial burden, they were universally disappointed with my projected sale price. Although a few listened to my advice anyway and experienced a successful result, many others chose to hire someone else, based on their "positive attitude" as it related to their expectations.

Since the beginning of August, eight of those who sought my previous advice have contacted me in an effort to now help them. Unfortunately, time is the enemy in a declining market. Where most of these cases would have experienced a 90% success rate if they adopted my marketing plan in January or February that had now narrowed to 20% at best in most of these cases. (without going the short sale route)

For me a 20% chance of success is better than nothing and went about the work of crafting reasonable plans, but as I explained to these potential return clients, there is no margin for error, or time to waste in chances for a successful outcome.

Only one of those potential clients took my advice and the outlook is good for them, the others went back to "good news boys" and in my opinion, these well meaning people have suffered immeasurably.

So for those of you good people who are forced to enter the housing market due to a bad hand dealt by the economy, my advice is to consider this information wisely. Winners always deal with the truth, regardless of how ugly or unflattering it may be. And especially beware of those who ignore it or dismiss it.

I will leave you with this short story to illustrate my point.

You are on an Island and you hear a roaring sound coming from the direction of the shoreline. You see three people standing there starring at a giant wave rolling toward them. You yell at them, "There is a tsunami coming, what are we to do!"

The first person says, "Yep, that's a tsunami, we're all gonna die, get your shovels and start digging your graves."

The second person says," Heck, what are you talkin about? I don't see any tsunami, it's a beautiful day, let's go fishing."

The third person starts running while the other two are talking and says, "Yep, It's a Tsunami all right. One of the biggest and baddest ever. But I know how to get to the highest part of the island in the shortest amount of time."

With whom would you cast your lot?