Tag Archives: Investment

Watching the Dow

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It has been a very long time since I was in the Trust and Investment business. I don’t read the Wall Street Journal every morning anymore. But I do watch the Dow.

Every time it reaches close to the next level, as it is now, I get excited. It’s like watching a runner getting close to the finish line. Today we are at 10,953.95! It’s been over 11,000 before. But I keep thinking, it can’t get to 12,000 if it doesn’t get over the 11,000 mark and stay there.

I remember being at my desk back on “Black Monday” October 19, 1987. I was one of the few Investment Officers at the time who wasn’t an MBA. In fact, I think I was pretty much the only one in history to be an Investment Officer without a college degree of any kind. While I had attended the Wharton School of Business at night, I didn’t take the electives that would give me a degree. I was often the only woman in the room as well. But it didn’t seem to matter that day as all of the MBAs around me were sweating and stammering as all of the phones were ringing off the hook and people were screaming and yelling with the DOW plunging 22.6% in one day.

Finally one of the guys came to me and asked why I was so happy and why my phone was ringing, but I appeared to be having pleasant conversations while they were all ready to slash their wrists.

For some unknown reason, the week before Black Monday, I was selling off everyone’s stock. I had decided it was time to re-balance and take profits and bring everyone back to their original stock position. People who had originally invested 40% of their portfolio in stock were up to 80% stock due to the market increase. I just got it into my little head (I was pregnant with my third child) to sell them all back to 40%. That put all of my accounts into large cash positions, which I used to buy back into the market at the lowest point it has ever been to this date. I think it dropped from 2,500 to 1,750 or so that day.

On days like today, watching the DOW inch past the 10,950 mark, I am reminded that just having good gut instincts about things, has served me well for many years. Not much unlike real estate. Sometimes you just know.

Good night.

Follow the Money…

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Have you ever wondered where mortgage money comes from? Years ago, the money came from your local banker. If your credit was good, and the bank had the available funds, you had yourself a home loan, and you diligently made your monthly payment to that same bank.

These days, the majority of all conforming home loans begin the same way as they did years ago, but they now follow a trail that most often leads to three major institutions: Fannie Mae (Federal National Mortgage Association); Freddie Mac (Federal Home Loan Mortgage Corporation); or Ginnie Mae (Government National Mortgage Association), then on to Wall Street.

Please understand that there are many variation of this, and I’m speaking of standard conventional loans. Depending on a many circumstances, some loans follow different pathways.

We begin the process with a mortgage professional as we always have. We answer the questions, jump through the hoops, and sometimes feel our whole life is being reviewed, but all goes well, and we end up with a home loan. Now it’s here that the trail can take some turns.

If you placed your loan with a bank, it frequently appears that your loan is still with that bank, but in most cases the bank is simply “servicing

Ignorance is not an excuse, but…

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The common phrase is that ignorance of the law is no excuse. In this case, I have some clients who just received a $1,000 ticket for renting a home without a business license. If this was their profession and they had 20 or so units, a $1,000 fine probably wouldn’t be a good thing but it could be absorbed. But when you are in your 80’s and retired it is a pretty big impact. Especially when the ticket is the first time you’ve heard of the new regulations.

I’ve talked to 4 property management companies, some with properties in the same area and none of them were familiar with this law. Makes me wonder how much effort the city took to alert property owners of the change.

As of January 1, 2005, the City of Des Moines (Washington, not Iowa) added rental of residential real property to the list of business that require a business license. In addition to a business license, the landlord is now also required to obtain “crime free housing endorsement

Seabrook, WA – Buy or Not To Buy?

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(Marian is a friend of mine who has been following the Seabrook development on the coast of Washington. Based on many interesting conversations that we’ve had about this development, I thought it would be fun let him write updates about the process of buying into this development. -Dustin)

Buy or Not To Buy?

That’s a question to all of you Seattle beachcombers who like ocean sunsets, salty air, sand dollars and beach fires. If you’ve been taking your family down to Newport, Cannon Beach or Seaside in Oregon, now you have a comparably beautiful alternative on Central Washington coast. We are not talking Long Beach or Ocean Shores. We are talking about Seabrook.

I fell in love with this part of the Washington coast several years ago, before anyone announced plans to develop properties in this area, when our family visited the Griffiths-Priday state park. It reminded us of Oregon Coast with its sand cliffs, dunes and beaches. Seabrook is being built just north of the park, on adjacent 88 acres of land on a bluff overlooking the beach and the ocean.

seabrook layout

I have to give kudos to Casey Roloff and his team at the Seabrook Land Company for making their vision of building a town on the undeveloped part Washington coast a reality. Using the New Urbanism approach and building a dense, pedestrian-friendly neighborhood with the public amenities of a small resort and the atmosphere of a beach town, they hit a jackpot. Seabrook is a runaway hit! Just 15 months ago, new 3 bedroom/2 bath “cottages

Real estate is a smaller part of American's income than ever before… and rent is an even smaller part

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Yesterday, the New York Times reported that “Twenty Years Later, Buying a House Is Less of a Bite.” Two points on this:

1. It’s a macro-level article and points out that housing on the coasts is not necessarily a deal:

In high-profile places like New York and Los Angeles, home to many of the people who study and write about real estate, families buying their first home often must spend more than half of their income on mortgage payments, far more than they once did. But the places that have become less affordable over the last generation account for only a quarter of the country’s population.

2. They entirely ignore the fact that 20 years later, most things are cheaper. For instance: food, beer, wine, appliances, computers, telephone service, and so on. Some things, particularly services, have become more expensive, but the most important thing when you’re talking about the relative cost of houses, rent, is still cheap. An older article from the New York Times points this out:

In the Bay Area of California, a typical family that buys a $1 million house – which is average in some towns – will spend about $5,000 a month to live there, according to the Times analysis. The family could rent a similar house for about $2,500, real estate records show, and could pay part of that bill with the interest earned by the money that was not used for a down payment.

Seattle is not the Bay Area, but owning here is still much more expensive than owning in Dallas. I think this fits with anecdotes about buying rental properties. Twenty years ago, it was fairly easy to buy a rental property in the Seattle area and have the rent pay for repairs and the payments; you could earn equity for the cost of finding tenants. Today, the search to find a property like that is a challenge.

So will house prices plummet or flat-line this year? I don’t think anyone can say. A lot of people seem to be betting on increasing prices (they are still buying rental properties), however I believe that the stock market is beginning to bet against builders because they fear an over-supply of housing. My advice: If you have above 50/50 odds of staying in the same house for 10-20 years (unlike most Americans), you should definitely buy. If you can’t save money to save your life, maybe you should buy because your home could serve as a sort of inefficient savings scheme (again assuming you won’t sell right away). If you really value owning a home, buy one. Just don’t expect prices to continue increasing at the same rate as they have over the last 5 years. And don’t get an interest only loan!

-Galen
ShackPrices.com

More In-depth Sale Price vs List Price Analysis

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Me and my sistersIf you were following the comments from my post from yesterday, I said I would follow up with another stab at diving into how the sales prices versus listing price changes over time. Seeing as how it is already getting late (and I’m tired!), I’m going to stop trying to make sense out of the numbers and present what I’ve found so far.

However, before I go any further, I’m going to rant at my fellow real estate agents! For the sake of all of us who actually care about data, please learn to double check your work before submitting listing information to the MLS! I spent more time cleaning up the database due to lazy real estate agents then I did actually creating the charts! Here are some things to look out for (but this list is by no means exhaustive): (1) Spelling: Fremont is spelled with only one “e”, (2) Location: South Lake Union is not a neighborhood located within Ballard and (3)Price: your home that sold for $345,000 probably should not have been listed for $34,500,000.

With that rant out of the way, I thought I would also mention that I’m not the only one surprised by housing numbers today… Hot Property had an article where Amey Stone says reading NAR’s press releases on sales levels “is starting to be a bit of a yawn — sales weren’t quite at record levels, but darn near close to it.” Unless you get tickled by trends and statistics, expect to sleep through the rest of this post…

When I look at the entire Ballard Area as defined by the MLS (this is a huge area that includes places like Greenlake, Blue Ridge, Wallingford, Fremont, Sunset Hill etc). We see the same seasonal trends over the past two years that I identified yesterday. But when we go back another season, the trend becomes much less pronounced.

Adjusted vs Original List Price Chart

Here are the things I found most interesting about the chart:

  1. The seasonal variation is much less pronounced in previous years
  2. There has been a steady trend up wards where the sale price is greater than the listing price
  3. In terms of trends, it didn’t really matter whether I used the original list price or the adjusted list price.
  4. The huge drop in 08/03 is due to some homes in Broadview that were listed way to high!

My speculation is that the patterns identified the above chart have a lot to do with evolving sales tactics by agents. It seems like it has become more and more common for agents to list a home below the value that they think it will sell for… This does two things: (1) It assures a quick sale and therefore a quick commission for the agent. (2) It has the potential to bring in more buyers and thereby raise the final sale price of the home.

When I went to analyze the data at a more local level, things got much messier… Rather than seeing clear seasonal patterns as I did in Loyal Heights, things simply got fuzzy. They got so fuzzy that I’m hesitant to even provide the next chart because it simply looks like an ugly mess…

My goal in creating the chart was to see if the same trend that held up in my analysis yesterday for Loyal Heights, would hold up for other neighborhoods. As the chart above demonstrates, it roughly holds up for all of Ballard, but as the chart below demonstrates, it does not hold up at the neighborhood level. I’ve done enough regression analysis for transportation planning studies to know that a chart like this is going to give meaningless trends.

Sale Price as a Percent of Listing Price for Ballard Neighborhoods

By the way, if you’re interested in the raw data that I used to create these statistics, just email me, and I can send you the Excel file that has all the wonderful (?) pivot tables and charts I used in creating this post.

Also, please feel free to comment on other ideas you might have for exploring the wealth of information that is locked up behind the MLS database. Anna has the key that opens that door! 🙂

Real Estate Geekiness…

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Tonight, I’ve been playing engaging the inner real estate geekiness along the likes of Tom Dozier’s Seattle Property News blog… I’ve been following (from a distance) Tom’s “Home Tracking” posts and not exactly sure where he was going until today. When he said “since one of the signs of the strength of a market is whether high demand is causing people to bid prices above the original amount the seller seeks,” I decided to test out his theory with a larger sample size…

So here is my method. I took all the homes that sold in my neighborhood (Loyal Heights) over the past year and calculated the “Net (Sale minus List Price) as a Percent of List Price”, or this calculation:

  • (Average Sale Price – Average List Price)/Average List Price
  • Average((Sale Price – List Price)/List Price)

The result is summarized in this chart:
% of List Price
(Click on the chart to see a larger version!)

The first thing I found interesting is the extent to which the “Gross Net as a Percent of List Price” varied seasonally… For two years running the % of List Price bottomed out around Feb/Mar and then quickly picked up to peak around May (with homes selling for 4% and 8% over the list price!). Note that February (the bottom) is also when the number of sales bottomed out over both of the last two years.

For reference, there were 182 homes sold between October ’03 and August ’04 in Loyal Heights with the average home selling for 1.2% over asking price. (I threw out September 03 and September ’05 data since I only downloaded data for the partial months…)

My conclusion is that Tom is wasting his time if he expect to see the health of the market by looking at whether or not homes are selling above or below the market price. As my chart demonstrates, there is way too much seasonal variation for a one or two home snapshot to be valuable. Even in the last two years where the value of homes in my neighborhood have consistently risen (quite substantially), there have been long periods (up to six months) where the average home has sold for less than the asking price. However, with that said, I want to say thanks to Tom for raising this intersting issue because you’ve given me an opportunity to learn about (and demonstrate) the huge seasonal variation in the local market!

I welcome anyones comments on my method if you have ideas on improving things (including the obvious improvement of adding more neighborhoods).

Update: I realized this morning in the shower that I was calculating the net (sale price minus list price) as a percent of list price, so I’ve corrected the text in the post (but not the chart!).

The Federal Reserve and Mortgage Rates

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Beeswax dragonConsumers are often misled when it comes to the subject of the Federal Reserve and how it affects mortgage interest rates. Often the media is the culprit causing the confusion. In the last few years, the Fed has taken action that caused mortgage interest rates to move in a direction other than what consumers expected, because the media provided weak reporting on the subject.

The Federal Reserve affects short−term interest rate maturities, the Fed Funds rate, and the Overnight Lending rate. These factors have a direct impact on the Prime rate. If you took only this into consideration, you may mistakenly conclude that changes made by the Fed will cause a similar movement in mortgage interest rates. However, mortgage interest rates are dictated by the trading of mortgage−backed securities, which trade on a daily basis.


The real dynamic at the heart of interest rate movement is the relationship between stocks and bonds. Stocks and bonds compete for the same investment dollar on a daily basis. There is literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes bullish, the money to invest in stocks comes from the selling of mortgage−backed securities. Unfortunately, selling mortgage−backed securities to fuel stock market rallies causes interest rates to go up, not down.

Historically, there have been many times when the Federal Reserve has increased interest rates. Stocks then sell off in fear that the increase will affect corporate profit margins, and the liquidated stock assets need a place to park until the next rally comes along. The safe haven is found in mortgage−backed securities which cause mortgage rates to drop. The daily ebb and flow of money is what matters most when it comes to the movement of mortgage interest rates. I make it a point to continuously monitor interest rates for my clients, and advise them of opportunities to manage their mortgage debt at a better rate. This is the foundation of my business model as a Trusted Advisor.