Shane Tilton

Listen to the evening news and you feel like going into the street and throwing a going away party for most of your neighbors. The impression is that most of us will be homeless in the next few months because the banks will be foreclosing on our mortgages. The economy will be grinding to a halt because so many of us are not capable of managing our money, or we were tricked into bad loans that are about to re-price at higher interest rates.

Upon hearing of the 1919 Chicago Withe Sox "Black Sox" baseball scandal, a young baseball fan was quoted as saying "Say it ain't so." Well, it ain't so!

More than mortgage trickery and poor personal management are to blame for the rising foreclosure rates, but fortunately here in the Midwest, we haven't been subjected to the additional circumstances. Combined with some questionable loan practices, and some individuals who can't manage their finances, two other factors are involved.

First, particularly on the coast, we have seen double digit increases in home values over the past five years. This rate of increase was not sustainable. Prices finally bubbled, and the price bubble burst leaving those who bought in "the last days" with properties that were devalued over night. In some instances, properties lost 25% of their value.

Second, because of the rapid value increases, many investors bought with the intent of selling at a profit over a very short timeframe. Since the property had no shelter value (it wasn't going to be used as a primary residence), and since these investors were involved in many transactions, their losses are multiplied. Indeed, there is a problem that will be shaken out of the economy and the market over the next two years, but not so much here in Southern Indiana, and probably not as severe a problem as you are being led to believe.

Consider current and historic foreclosures. In the Midwest, historically, the foreclosure rate is about 7/10 of 1 percent, that's .7%; less than 1 in 100. The media tells us "The Foreclosure Rate has Risen To 176% of Normal," GASP!!! Actually, with a rise of 176% we see that mathematically (.7 x 176% = 1.23%), the number of foreclosures has risen to 1.23 in 100. Doesn't seem so bad now, does it?

The media also blows another statistic out of proportion in the hope to scare you into watching tomorrow. They might give an example of a financial institution foreclosing on a $1 million dollar property. Sounds like a huge loss, right? They make it sound like the bank just lost $1 million. But wait! The bank may have loaned $1 million (so they may have a risk of 1 million), but they get the house, right? At some point they are going to sell the house, let's say for 80% of its value or $800,000. So really, the bank only lost $200,000. A lot of money, but not nearly what the media leads us to believe. And actually, the bank had been putting back a few dollars every month in case one of its mortgages went bad, so they have $75,000 held in reserve to cover any loss they have. They apply the $75,000 toward the $200,000 loss, and their actual loss is $125,000. Still a big number, but not nearly as bad as the $1 million you were led to believe. It takes a lot more losses of $125,000 to ruin the bank.

Things aren't as bad as they seem. We are being misled, in hopes that fear will encourage you to tune in tomorrow for "Scared Stiff: How to Change Your Life for the Worse Through Exaggeration".

Over the past year or so, we have been inundated with news reports that the real estate market is in the tank. Yes, the bubble has burst, the sky is falling, and those who dare to voluntarily make a move are destined to spend eternity in hell for being so reckless. Combined with the recent news about the mortgage industry, you'd have to believe that a giant, flaming meteor is on a collision course with downtown Indianapolis.

The biggest issue facing the real estate market today is fear. A motivational speaker once explained fear to me as False Evidence Appearing Real. Most often, fear is not based in reality, but in our perception of reality. We hear things, accept them as fact, and draw conclusions. Indeed, perception becomes reality. In this article, I want to address a number of these perceptions and share with you what is really happening in our Southern Indiana Real Estate Market.

A common perception is that home sales are down. This morning, I researched our Southern Indiana MLS to determine the number of home sales from January 1 - August 30, 2005 verses the same time period in 2007 and 2008; a year-to-date snapshot of where we are compared to this same time the past two years. In 2006, there were 2,301 home sales through August 30. In 2007, the number was 2,438 (5.4% increase). In 2008, the number is 2,439. The truth is home sales are not down. At worst, sales are flat. When you consider 2006 was the third best year ever nationally for home sales, we are doing quite well as a Southern Indiana real estate market.

Another perception is that properties are taking longer to sell. Two factors contribute to this. First, the number of properties entering the market for sale (inventory), and second, the price at which those properties are offered. In 2006, there were 5,516 new listings entered into the MLS. In 2007, there were 6,194 (10.9% increase). In 2008, the number is 6,201. The perceived "slowdown" actually resulted from what happened in between 2005 and 2006. During that time, the percentage increase in new listings versus sales was roughly double (supply in excess of demand). The result; a glut of inventory.

This is where price plays such an important role. For fourteen consecutive years, our market grew in relative equilibrium, resulting in steady (though relatively modest) price appreciation. When the level of available inventory exceeded the demand, the market created a downward pressure on price, something we were in no way used to in Southern Indiana. In 2006, the average days on market (DOM) was approximately 108 days. In 2007, DOM averaged 102 days. In 2008, the number is 105 days. These averages represent the time period from January 1 through August 30. These averages are also only based on properties that actually sold. Our MLS tracks listings by assigning a listing number, not by property address. These DOM averages do not account for expired listings or for sale by owner properties. What these averages do reflect is the average amount of time properties took to sell when they were priced where the market was willing pay. The perception that it takes longer for properties to sell is not accurate. What is actually happening? It is taking longer for sellers to get their properties priced right based on greater competition in the marketplace.

Many people would like to move into a newly constructed home, but are concerned about getting their current house sold. From May 1 - July 31, 2008, existing (resale) homes accounted for 83.4% of total sales. Of total sales, 65.7% sold below $150,000 (84.7% sold below $200,000). If someone were to try to determine what segment(s) of the market are "hot," it would definitely be resale homes under $200,000 (especially under $150,000). So, if someone currently owed a home that falls into this category, and wanted to buy new construction, what they have to sell is exactly what the market wants to buy at this time.

What does this mean? If a person wanted to sell an existing home, the demand is red hot. If the same person wanted to purchase a new construction home, it's actually more affordable this year than last. Granted, we've heard stories about trouble in the mortgage industry. What you might not have heard is that mortgage rates actually tracked down this week! Let's see, it should be a good time to get my house sold if I price it right; my new house will cost me less now than if I'd moved last year (and probably less than if I wait until next year); and the cost of mortgage interest just went down. Sounds more like an opportunity to me.

My greatest fear is that while we are all waiting for Armageddon, we might just be missing the real estate Rapture!

What' So Bad?

It was Thomas Paine who said "These are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country." While we are not fighting for our individual liberty, we at Schuler Bauer are fighting hard. But over time, we forget all that is not important, or relevant, to the situation in which we find ourselves immersed.

Just so is today's REAL ESTATE MARKET. Having the disadvantage of age, I remember too much, and too well, the bad old days of the past.

Entering the real estate market place as a new licensee in 1980, I confronted a market where unemployment was historically high. Marble Hill had just shut down. What is Marble Hill you ask? It was a nuclear power plant project east of Charlestown that was stopped, throwing the local economy into a dither. Labor unrest at GE, and Ford, also had Louisville's metropolitan area employment confidence at a low spot. Couple all this with mortgage rates at 16%, due to out of control inflation, and you have a terrible market.

As terrible as that market seemed, it was a great time to enter the real estate market. Agents learned the correct way to market properties. Clients did not think the agent was overpaid; they earned every cent of their commissions. An additional benefit to buyers and sellers was how creative agents developed creative strategies to market every property on the market. Additionally, lenders participated in creative lending situations that help clients through these tough times.

In retrospect, "tough" seems like an understatement when describing my first three years in the business (1980-1983). Yet, through these three years, Southern Indiana still saw price appreciation. Southern Indiana still saw the number of transactions increase. Southern Indiana faired better than the rest of the nation, better than Indiana, and better than Louisville.

Remember the market of 1991-1992. During these years, we endured a national recession that flattened price appreciation and lengthened the number of days needed to market a property. During that time, new construction glutted the market, and it took a few years to absorb that glut, but no great catastrophe occurred.

In hindsight, today's market doesn't even close to times that "try men's souls." Unemployment levels are historically very low. Some might argue that we are at or near full employment. UPS and other industries continue to expand employment opportunities, and as an area, we are continuing to get better at attracting new employers. Although mortgages are a little harder to qualify for, the rates are extremely reasonable. Consumer confidence isn't as high as last year, but it's not bad, and traffic at open houses is brisk.

We do find ourselves at a time where new construction is glutted, but that's a buyer's opportunity. All in all, this is a great "move-up market time." How could that be, you ask?

Let's say the market is off 2% in value from its high of last year. I own a home that was worth $100,000 last year, so this year I am able to sell it for $98,000. I lost $2,000. I qualify to purchase a home for $200,000, if that home is also de-valued 2%,that means I bought a home that was valued at $204,000, I saved $4000. To recap, I lost $2,000 on the sales of my present home, but saved $4,000 on the purchase of my new home. At the end of the day, I saved $2000 and am living in the home of my dreams, not a bad deal.

This market is full of these opportunities. You need a Realtor who understands investment, and when real opportunities present themselves. You need an agent who is capable of thinking creatively and positively about your opportunities. I think you have come to the right place and I hope you will return to our website when your real need arises.

www.indysfinesthomes.com

Top 10 Ways to Make Your Home Green

Do something good for your family, your pocketbook, and the environment. Make your home a little greener. A few simple changes in your house can go a long way to combat both high energy bills and global warming. To be green, you've got to be efficient.

1. Use CFLs

Replace your incandescent light bulbs (the cheap ones you probably got at the grocery store) with ENERGY STAR® qualified compact fluorescent light bulbs (CFLs). By replacing even your five most frequently used light bulbs, you'll save $100 per year. Find out exactly how much you can save (pdf). If every family in the U.S.A. did this, greenhouse gas emissions would be reduced by one trillion pounds--there are 12 zeros in a trillion! More on energy-efficient lighting.

HVAC maintenance is key to healthy and efficient heating and cooling. Get a professional tune-up every two years. It will cost around $100, but will save 5% to 10% on your heating and cooling bills. Also, clean or replace your filter every month. Dirty filters block normal airflow and significantly reduce the efficiency of the system, which wastes your money.

6. Optimize Your Water Heater

If you don't have one installed already, put an insulative jacket around your hot water heater, and insulate the pipes around the water heater. Insulative jackets cost between $10 and $20, and you can get pipe insulation for less than $1 for six feet. Also consider turning the temperature on the water heater down to 120 degrees. It will save you money and prevent scalding.

7. Plant a Tree

Shade trees can significantly lower your cooling costs by up to 25% . They also make your home more comfortable, and provide habitat for song birds. In addition, properly placed trees and shrubs act as windbreaks, shielding your home from cold winds and reducing heating costs by 20%.

8. Buy ENERGY STAR

When replacing your appliances, select ENERGY STAR qualified products. When replacing your water heater, furnace, or air conditioner, you should also select ENERGY STAR qualified products. You will save 10-30% on the operating costs vs. non-ENERGY STAR equivalents. Find out exactly how much you save.

11. And a Bonus...Check Insulation

Make sure that there are no areas in your attic floor with inadequate insulation. Insulation is your 'Great Wall of China' against heat loss. Imagine the effectiveness of the Great Wall in protecting against invaders if it had a 300 foot gap in it, or only stood a couple of feet high. Insulation works the same way. Even a small area with limited or no insulation, or insulation that has been damaged or compressed, can significantly decrease the effectiveness of the area's insulation. How much insulation do you need? Follow the Department of Energy's recommendations.

If you look at my townhome popularity, I mentioned how supply was outpacing demand. Well, while that is true, the average sales price for condos in downtown is up, way up.

Despite the fact the number of Indianapolis condominiums sold is down by more than 100 or 36% since last year, the average selling price rose to $324,541 in 2008. This price jump represents an increase of almost $50,000 or 18% over the previous year's numbers. Obviously, this means despite the decrease in units sold there are higher priced units selling in downtown Indianapolis.

My best guess is that more and more people are finding that downtown living is more attractive with gas prices and the general cost of living increasing on a daily basis. In addition, more and more developers are building higher end units in the downtown area with approximately 2,000 new units in the pipeline most of which are due to be completed by 2010.

Other parts of the country saw a huge oversupply of downtown condos in the previous year's real estate boom and developers are hemorrhaging in areas like Miami. While sales could be better here, this is certainly not the case for the condos in the downtown market.

The downtown market is always a little more fickle and unpredictable than the suburbs, but I believe with the current projects underway the Indianapolis condo market is a good buy right now. It appears to be on an upswing, but there are still deals to be had.

If you are in the market for a condo in Indianapolis, visit our website www.indysfinesthomes.com to view all the available condos that are currently for sale.