- Seattle Sunset in November
Just turned around in my office to this fabulous view. Thought I’d share it with you on this beautiful Saturday.
Another Proof that it doesn't always rain in Seattle
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Author Archives: ARDELL
October King County Home Prices at 10/2005 Level
Back in a late October post, I said “Once prices roll back to January 2005 levels, we will be “at bottom
Don't Pay Off Bad Credit
Step three in the “Should I Buy a House Now” series is somewhat of a sidetrack. In Step 1 people learned the difference in calculating your current gross income, especially if any part of your income is not guaranteed “salary”. In Step 2 you were sent off on a long project of accounting for your past practices of spending that gross income. By finding the money you wasted, and taking steps to waste less of your earnings, you were able to find additional monies to put towards housing payments.
Step 3) Start Improving Your Credit Rating This can take a long time, as does Step 2. I am suggesting you do these simultaneously. Don’t think that because you pay your bills on time, that you have good credit. Paying your bills on time only accounts for 30% to 35% of your credit standing.
Get all copies of your credit history. Generally there are three sources (or more) and you don’t want to get your credit score, you want full copies of your credit report. Go through the reports and make sure the history pertains to you. The more comon your name, the more likely you will have something of someone else’s on your report. If you are divorced, you want to remove things that you are no longer legally responsible for by divorce decree, even if the item has a high rating.
Let’s assume you have at least one item that you didn’t pay well. Don’t pay it off! This is the biggest mistake I see people making. You need to turn bad credit into good credit. Paying it off does not remove it from your credit history, so paying it off simply locks in a bad credit item. You want to “pay it as agreed”. Sometimes you do that by agreeing to a new payment schedule and then paying the new payments on time for a year. Sometimes you pay off the balance, but leave the card open, and charge one small item every month and pay that item off every month. I’m not a credit expert for sure, but this issue goes back long before scoring was used. All too often people pay off the balance on a bad credit item thinking they made it good. No. You locked in the bad long term.
Here’s a story from back when I was 25ish. My Mom needed me to co-sign on a house. I had a bad charge card at a department store that was charging me 3% of the balance due until it reached near the max, and then wanted 20% of the now higher balance each month. There was no way on my income that I could pay 20% of the balance, so it got behind. It was a ding that was potentially going to cause my Mom to not get the house and everyone panicked.
I went to the store with the full balance due in my hand, and after a lengthy conversation with the credit manager, I was very angry and said I hated the store and would never buy anything there again. The Manager said to me, “You can’t hate us. In fact you have to buy from us. You can’t just pay off the balance to restore your credit. If you never buy from us again, that bad rating will sit on your report for years. The only way for you to improve your credit is to buy more from us and pay off that more well.” That made me angrier and I started to leave when a lightbulb went on. I turned around and said, “Are you telling me that I can go downstairs right now and buy something on this card? He said absolutely, please do. I said can you give me a letter to that effect. He said sure. I took that letter to the mortgage company and said how can you deny my Mom a mortgage based on a bad credit item, when the bad credit item doesn’t think it’s so bad, in fact they invite me to continue shopping there on credit. I handed them the letter from the Credit Manager on the store letterhead, they agreed and my Mom got the house.
Lesson learned: Turning Bad credit into Good credit involves not simply paying off balances, but continuing to charge and pay as agreed until the credit rating for that item improves. Then you can close it after it has a good rating.
I have to meet someone at a house shortly, so I’m going to end here though this post could be a 20 page short story, if I highlighted all the ways to good credit. The point is EARLY in the process, here at Step 3, know your credit score, review your credit history from 3 credit bureaus, and improve as needed. Even if your score is high, go through the detail and make sure you correct anything that needs correcting. It takes a long time for the credit bureaus to reflect change…so don’t wait until the last minute to work on this step in the series.
U.S. % Change in Home Prices
This chart reminds me of the crash in real estate prices in the late sixties when REIT (real estate investment trust) stock prices dropped to pretty much worthless. I was still in high school, but the Courts got involved in the loss of value in trust portfolios, so I was looking at those in 1974 in my accounts. I would think that today’s national drop in home prices emulate the drop in the late sixties to some degree.
I do recall in recent years warning people not to buy into REITs, but must admit I felt a bit “old-fashioned” at the time. Once you see those losses, you don’t forgive or forget, somewhat like people who lived through the Depression.
This post is supplemental to last night’s post and as a result of the comments that follow in that post. The source of this info is at the end of last night’s post for those who want to look at the detail.
U.S. YOY % Home Price Changes
Sunday Night Stats – 5 Year Hold
Many people are asking, “What do you think will happen if I buy now and hold for five years?”
You may be surprised to see that this “bubble” is not nearly as big as the 3 five year periods from 1973 to 1988. 1973 to 1978 is the highest appreciation period. The lowest appreciation period is the five years that followed those dramatic increases for 15 years, and still not showing a loss for any five year period going back from third quarter 2008.
Five Year Price Changes based on U.S. 3rd Quarter average prices of homes sold.
Sold in 2008 at $283,400; bought in 2003 for $248,100 – UP 14.2%
Sold in 2003 at $248,199; bought in 1998 for $184,300 – UP 34.6%
Sold in 1998 at $184,300; bought in 1993 for $148,000 – UP 24.5%
Sold in 1993 at $148,000; bought in 1988 for $141,500 – UP 4.6%
Sold in 1988 at $141,500; bought in 1983 for $ 92,500 – UP 52.9%
Sold in 1983 at $ 92,500; bought in 1978 for $ 63,500 – UP 45.6%
Sold in 1978 at $ 63,500; bought in 1973 for $ 35,900 – UP 76.8%
Sold in 1973 at $ 35,900; bought in 1968 for $ 26,600 – UP 34.9%
Sold in 1968 at $ 26,600; bought in 1963 for $ 19,200 – UP 38.5%
Note: U.S. Peak Price to date 1st Quarter of 2007
Sold 1Q 2007 at $322,100; bought 1Q 2002 for $227,600 – UP 41.5%
Data Source
Short Sales – Another "Buyer Beware" Aspect
How does a seller price a short sale listing?
An email from Trulia pointing to a post titled Short Sale Saga, reminded me to write a post on the topic of how a buyer’s offer can be “used” to determine the list price of a short sale property. Back in December of 2007 when I wrote the post “Should You Buy a Short Sale?” , I didn’t touch on this aspect of the various “difficulties” you might expect to encounter, as the buyer of a short sale property. Today, the likelihood that the seller may be USING your offer to determine a list price, would be more commonplace than it was back in December of 2007. While this may seem inappropriate from the buyer’s perspective, let’s look at the facts.
Say a seller has his home on market at $625,000 and owes $580,000. The seller doesn’t have to show it as a short sale at that price, as he needs an offer at $575,000 to “clear the table”. After 90 days on market with no offers, the owner wants to reduce his price, but would have to show it as a short sale. Does he reduce it to $549,950 or $499,950 or what? The seller has no idea what the bank is willing to take, and the bank won’t tell the seller until there is an offer on the table to look at.
The minute the seller is forced to say “short sale” of even “possible short sale”, the seller is going to get a lower offer than if he did not have to disclose this information. The asking price has to be low enough to get an offer, and the price may be “false advertising”, leading the buyer to believe the seller has any info as to what the lender will take. If the seller reduces the price to current market value, and the buyer offers full price, the buyer will feel duped (as in the Short Sale Saga) into thinking that a full price cash offer should be acceptable.
If a buyer submits an offer of 80% under market value, the seller should accept it. Why? Because that offer becomes the means by which the owner learns what the bank is willing to accept. In the above case, let’s say the seller decides to list the house at $549,950 and the buyer makes a cash offer of $100,000. The seller should accept it, leave the property on market, submit the $100,000 offer and get an answer from the bank. The bank rejects the offer and says they will not accept an offer of less than $430,000. The seller has learned, via the buyer’s offer, that he can list his house at $450,000. The seller used the buyer’s offer to determine the list price that matches what the lender is willing to accept.
Here’s what I think. I think all short sales should be listed for $1.00. By doing so, the seller is making a clear statement that he has no idea what the acceptable offer price will be, and the buyer is on notice that the seller can’t provide that information. Until that time, the only short sales I have seen where the owner and seller’s agent are making any commitment to the asking price, are the ones who used a buyer’s offer to get a price from the bank.
Using the buyer’s offer to determine list price, under the current system, seems to be the only way for the seller to proceed. Many buyers being disappointed by the current system is not acceptable. Offering the property at $1.00, and letting the buyers decide what to offer (vs. full price of a “fake” list price) seems to be a better alternative to the way we do it now.
Count all the money you wasted this year
This is post #2 in the First Hundred Days series designed to answer the question “Should I Buy a House Now?”. We often go to professionals to help us make decisions, but whether or not you should buy a house now, isn’t one of them.
By the time you walk into a real estate office or speak with a lender, you should already know whether or not you should buy a house now. A lender tells you whether or not you CAN buy a house, not whether or not you SHOULD buy a house. An agent helps you select which house, and guides you through the process of buying a house. Only YOU can answer the question of whether or not you SHOULD buy a house, and this series is designed to assist you and give you confidence in your decision.
Step 1 – Calculating Your Gross Income for Home Buying Purposes was addressed yesterday.
Step 2 – Account for how you have spent that Gross Income, using hindsight.
It’s pencil and paper time…yes, you have to move away from the computer for this step 🙂 Take out all of your bills from the last 12 months. You are not making a budget in this step. You are accounting for every dime of your gross income for the last 12 months. Get three different notebooks and mark one of them WANTS, one of them NEEDS and the other one WASTED. Everyone has that dream where they go to sleep, and every dime they’ve ever wasted shows up in their bank balance the next day. So let’s not pretend we haven’t wasted any money over the last 12 months.
You are not finished until the total dollars in the three notebooks equal your total gross income from Step 1.
You, and no one else, can determine your needs. I NEED a cell phone…it’s not optional for me, for others it may be optional. I don’t NEED a landline (though I have two) so I guess that goes in my WASTED notebook. Don’t Google sample budgets for this. Make your own choices. Picture yourself without that item when determining which notebook it should go in. I WANT to see my children and grandchild X times a year (anyone who thinks seeing their children isn’t a big expense is a lot younger than I am, LOL)
Everyone’s wants and needs are different, and what you view as a need could appear to be wasted money from someone else’s perspective. That is why this is a very personal part of the decision process that no one else can answer for you. You may have children with expensive sports activities. You may feel getting that Starbucks Coffee everyday is not optional. It is your right and obligation to determine your own personal wants and needs. No real estate agent or lender can tell you what you have “left over” from your gross income to spend on a housing payment.
I know this step is a lot of work, but it’s almost year end and a very good time to pull those receipts anyway. If you don’t have receipts, you’ll have to fudge a bit, BUT starting today keep more receipts than you have in the past. Put a big envelope in your car for this purpose. If you use three envelopes marked NEED, WANT and WASTED, all the better. You may find you waste less money if you force yourself to put the receipt in the money WASTED envelope on a daily basis.
Even if you decide not to buy a house at the end of these First Hundred Days, the process should be of value to you, by forcing you to account for every dime of your Gross Monthly Income. Better to START the process with accountability, then to be forced into facing a hard reality AFTER you buy a house.
"Should I buy a house now?"
Q: Should I buy a house now?
A: NO!
Q: Why?
A: Because you should never buy a house when you are not sure that is what you want to do, and you should never let someone else make that decision for you. Don’t EVER give anyone that much power over your life.
As part of our exuberant expectation of CHANGE, I will be starting a series called “First Hundred Days”. It’s not enough to vote for change and then sit around waiting for change to come from someone else. If each of us does something different every day for the next hundred days, that produces a change for the better…then change will happen.
I will tag all posts “First Hundred Days” and I will do my best to include all of the tools and skills you should employ to make your own decision about buying a home. We hear so much about “the stupidity” of people in trouble. Instead of criticizing, let’s do our best to help the future buyers of homes make better decisions and choices by providing meatier, education oriented, instructional blog posts.
The first step in the home buying process does not start at the lender or the real estate agent. It starts with you sitting in your own home working through some numbers.
1) Calculate your gross income. If you are salaried, you have the number. If you are commission based or hourly, add the last 12 months income to the previous 12 month income and divide by two. Now double check it by taking the last 3 months income and multiplying it by 4.
Let’s say you are hourly or salary plus commission/bonus. Note these are not lender guidelines. These are old-fashioned and proven standards for responsible decision making and so will likely be more conservative than lender guidelines.
Non-salaried income Last 12 months: $75,000
Non-salaried income previous 12 months $60,000
Current annual income for home buying purposes = $75,000 plus $60,000 divided by two or $67,500.
Now the double check.
Total income for the last 3 months = $14,000 (boss gave you fewer hours)
$14,000 times 4 (12 months) = $56,000.
The double check system suggests that you should not think about buying a home in the near future based on an income of more than $56,000 a year, and you should not buy a home until you are certain that the cut back in hours is not leading to no job at all or even fewer hours. Stabilize your income situation before buying a home.
If the last 3 months income is $20,000 times 4 or $80,000, you still use $67,500 as your annual income and not $80,000, for homebuying purposes.
You use the average two year income or 4 x your latest 3 month income, whichever is LOWER.
I’ll stop here and see if people have questions before going to the next post in the “First Hundred Days” series. When you buy a house…if it is the wrong decision…you can blame lots of people, but you will be left holding the bag. So let’s work together over the next hundred days to make sure you can answer the question for yourself without heavily relying on the opinion of others.
Treat the series like a workbook, get a notepad, and calculate your numbers. Questions? Ask them in the comments section.
President Barack Obama
Sunday Night Stats – Days on Market DO Matter
I have to admit that it is hard to think about anything but tomorrow’s election. It’s an historic occassion, to say the least. Especially for those of us who grew up in the turbulent 60’s, and have been around from when President Kennedy was killed to present. I can’t help but feel that tomorrow “is the first day of the rest of our lives” in a profound and meaningful way.
Next Sunday will be the first opportunity to capture a snapshot of October 2008 as to closed transactions. Last week I reported that October pending sales that will close in November are obviously down in price, and fairly substantially down, from 3rd quarter sales.
This week I’ve been trying to answer the question “Where are prices?”. Are they back to early 2006 levels? Are they back to mid-2005 levels? The answer is both, and days on market is what separates the two. When comparing apples to apples and studying data within small segments of each market, virtually no sales are selling at peak levels, peak being summer of 2007. Those that sell in 20 days or less are selling at mid 2006 to early 2006 levels. Those that remain on market for 40 or more days are selling at mid 2005 levels. Those that try to sell at 2007 levels, end up at 2005 levels. If they had started at 2006 price level, they would have sold more quickly and at a higher price.
There’s really no message to anyone in this post. Just reporting the facts. Buyers who buy something as soon as it hits the market, will still do that, and rightly so. Sellers who ask more than the last property sold for will still do that, because they need the market to beat them down. Most people can’t sell for less than the neighbor by voluntarily electing to do that. They have to be on market for 100 days or more before they “give in”, which costs them about 5% on price. Still, that’s human nature for most people.
New construction is more attractive than it has been for a long time, short sales are still the best values, and best homes in the best locations still sell quickly at the highest prices. No big news there. Once we get to early 2005 pricings, the wait will be over. Why? Because the prices in 2004 and 2003 and 2002 are not substantially different from one another. Once prices roll back to January 2005 levels, we will be “at bottom” here in the Seattle Area, unless you think prices will get to 1998 levels.
So for all of the people waiting for “bottom”…your wait is about over. Now you just have to figure out how to finance those “at bottom” prices, and interest rates will be the obstacle vs. fear of overpaying.
Now let’s all focus on the election tomorrow. It’s an historic event. Don’t miss it. Vote and vote early.