John Morrison - Boston area real estate - Exclusive Buyer's Agent, CBR

It appears our economy is in a bit of a spot right now. No kidding, right? We learned over the past few days that our U.S. banking system has effectively been nationalized. How did this happen? Hammerin' Hank, of course.

Paulson conspired worked with his Wall Street buddies, the Federal Reserve, and the FDIC before deciding how to use the first $250 billion that we recently invested into the HPHF.

What do you mean, 'nationalized'? The always insightful folks at the Wall Street Journal wrote an informative blog post describing what actually happened early this week. Basically, Hank bought a bunch of super senior preferred shares from many of the country's largest 'banks'. Goldman Sachs, a bank? Apparently it is becoming one. A few of these firms got $25 billion each, and a few got $10 billion. JP Morgan Chase, Wells Fargo, Citi group, Bank of America, you get the drift. These preferred shares mean that the HPHF owns up to 28% (in the case of Morgan Stanley) of the shareholder equity in each of these companies.

HPHF stands to make out pretty well. They will be paid 5% per year for the next five years on their investment in the form of quarterly dividends. The government gets its share before any other preferred or common shareholders do. After the initial five-year period, they will make 9%.

Hank himself terms this capital injection a 'temporary investment' in order to restore confidence in our banking system and encourage private equity to reinvest in these companies.

What effect does this bank bailout have on real estate/the housing market? It is HPHF's hope that banks will now send that new money through the system by writing new loans and providing liquidity to the credit markets. Will more folks be able to qualify for a loan? Probably not, but here's hoping. Keep an eye on the LIBOR, which has dropped almost 30 basis points over the past few days, and is a solid indicator of where mortgage rates are going.

The power brokers in Washington just met for a photo shoot and gave some brief comments about the pending bailout that has dominated the news in recent days. After negotiations between both parties, Sen. Chris Dodd announced that they have agreed, in principle, to the principal amount. Got it? Here are the vague details that Dodd, among others, provided.

• Congress will give Paulson the money he needs (assumption: $700 billion)
  

• They have agreed on protecting home ownership (how?)
  

• They have agreed on executive compensation limits (will be part of the terms of the bailout bill)
  

• There will be taxpayer protection (likely story)
  

• The federal government will get equity stakes in the form of warrants from the companies that participate in this bailout. (exactly how much, how this will happen has not been disclosed, nor agreed upon as of yet)
  

Thus far, there has not been consensus reached regarding who exactly will be covered under executive compensation limits (not giving golden parachutes to executives). Is it only the top officials from these companies, or will it encompass all executive officers, of which there are hundreds in the large Wall Street firms.

When will Wall Street get this money? Most likely the money will be paid out in installments. The mortgages and associated securities will be sold via reverse auction to the government. Pricing these assets is the tricky thing. Companies will need to write off these assets and most likely raise new equity (here comes.... shareholder dilution!).

Whether you think this bailout needs to happen or not, your opinion does not really matter. It will happen, and they will most likely be voting on the bill Friday or Saturday, according to many reports. There are still many items to negotiate and iron out, but things are progressing at a fairly rapid rate.

The following numbers come from the Massachusetts Association of REALTORS® (MAR). Surprise surprise, prices are down as are the number of units sold. It is interesting to note that condo prices statewide dropped a very small amount on average. The towns north of Boston were hit a little harder, with both single-family and condo prices dropping 12.1% versus a year ago. As always, real estate is local, and some towns are very insulated from the effects of these price drops. That said, it is quite a buyer's market right now, with plenty of inventory and lower prices. When this whole thing turns around, it will turn sharply, so if you are thinking about buying, don't get caught on the other side when prices increase dramatically. It looks like next year will be the low point, so save that money and give me a call when you're ready to buy!

MA Detached Single-family Home Sales and Median Selling Prices

July 2007 July 2008 % Change

4,363 3,928 -10.0%

$365,775 $326,500 -10.7%

MA Condominium Sales and Median Selling Prices

July 2007 July 2008 % Change

1,933 1,804 -6.7%

$293,500 $284,000 -2.9 %

North Shore Detached Single-family Homes Sales and Median Selling Prices

July 2007 July 2008 % Change

373 328 -12.0%

$385,000 $338,075 -12.1%

North Shore Condominium Sales and Median Selling Prices

July 2007 July 2008 % Change

158 156 -1.2%

$262,500 $230,625 -12.1 %

The folks at Buyer’s Resource in Ohio wrote about home energy efficiency and mentioned a great resource that is available online. It’s called the The Home Energy Saver. If you are concerned about the environment, or just interested in saving money each month, you should utilize this free tool.

One of the most useful features I found on their website was a page full of links to ways we as people - owners/renters/lessors/lessees etc. can make our home or business more energy efficient, either for free (who doesn't love free!) or at low cost.

These are the types of resources that can make a difference, since so many have access to them. Even if you are not in the market to buy a home right now, I encourage you to check this site out, since you are living somewhere that most likely is not as efficient as it should and could be.

An interesting article appeared in the March 2008 issue of “REALTOR” magazine. This publication is put out by the National Association of Realtors®, and you can find this article online as well. It involves a review of one of the many house hunting shows on TV. On the show, the family’s agents, who happen to be their current landlords, are ‘helping’ them find a new home. The family is approved for a much higher mortgage amount than what they are comfortable spending on a home, yet their agents first show them a property that is in their preapproval range but is way above what they would ideally like to pay. The reviewer of the show, Charmaine Englesman-Robins, correctly notes that this is not the way a professional agent should do business, and she questions their motivations.

Don’t let this happen to you. Look for an Exclusive Buyer Agent that will put in writing their pledge that they will work only in your best interests. Why waste time with an agent who doesn’t listen to your wants and needs. A real EBA acts as a consultant, not a salesperson, and will sit with you to develop a comprehensive home buying strategy, taking into account your particular situation. All too often, potential buyers are suckered in to working with the first person they discuss buying with, and many times they are left unsatisfied and disappointed with searching for a home. Buyers deserve representation and an agent who will work for them, not just show them any house they the agent happen to like.