Blah Blah Economy

Who Can Afford A Down Payment?

December 27, 2011 By Jon Griffith Leave a Comment

As I’m reading through the latest predictions for the upcoming market conditions, I’m taken aback by one of the statements. In an article written by Jed Kolko, Chief Economist for Trulia.com entitled What the Cyrstal Ball Says about the housing market in 2012, he points out the probability of rental rates increasing, and that it would be a bad thing.

I believe the reason that it is perceived as a bad thing is part of the core of the financial problems we have in this country. The reasoning is this. If rental rates increase, and housing prices decrease, then it creates a great environment for buyers, “but only for prospective buyers who can afford the downpayment and qualify for a mortgage.”

I apologize if I’m completely out of my mind, but what kind of buyer do we want? Do we want to encourage people who cannot afford a home to buy a home? And what about cash buyers? There’s no mention of them, and they do exist, in droves.

As a real estate agent who doesn’t believe borrowing money is part of a sound financial plan, I have a hard time with the topic of mortgages. There are great deals out there, but we shouldn’t be waiting until someone wants to take advantage of a good deal to counsel them about the principles of money…mainly saving, which is what’s required to build up a down payment. If you haven’t figured that out by now, then you might want to consider re-signing your lease until you do. If you’re thinking about buying a house, know that a down payment is going to be part of the equation. Plan your life around a 20% down payment and your long term costs will be much less than if you go with a more “creative” financing plan.

As my financial coach Dave Ramsey always says, “creative usually means too broke to buy a house.”

Filed Under: Blah Blah Economy Tagged With: buyers, housing, market, mortgage

Certifications Mean Nothing

July 21, 2010 By Jon Griffith Leave a Comment

True, I once thought certifications made a difference. What an accredited organization claimed they could provide you, which was basically human approval and recognition that you can pass a series of tests, once appealed to me and was even believed to be needed in order to succeed.

I suppose they could make a difference to someone who doesn’t know the difference, and in some industries they do matter…but I can tell you from personal experience, there are two things that realtors seem to hold dear to their hearts for no good reason. 1) The brokerage they are with, and 2) the little letters that follow their name.

In this business, the experience you bring to the table, and the trust relationships that you build with your clients is what matters. I don’t need a four-letter designation trailing my name to prove I can do what I do. I also can’t condone putting a designation behind my name that represents a few hours of video conferences and the ability to answer 50 questions on a fairly simple test.

Designations are proof of one thing. They are proof that the person holding them paid someone else to tell them they’re important. It frustrates me to no end that someone can take a little test and claim they are a short sale expert when they haven’t completed a single short sale.

If we want designations to carry more weight, we should make them much more difficult to attain, and require apprenticeship under a seasoned veteran.

Filed Under: Blah Blah Economy, Short Sale Success Stories Tagged With: cdpe, certification

This Is Going to Hurt

July 7, 2010 By Jon Griffith 2 Comments

The economic crisis as we have experienced it thus far has been rather devastating. I have close friends who are out of work, who have been forced to sell their homes for less than they owe, and who have lost everything they have. I’m thankful that I’m able to be there to help them through this time.

All but one of the homes that I have sold in the past 2 years has been under water. I also haven’t placed a buyer in a non-distressed home (short sale or foreclosure) in the same time frame.

Some said that we would be out of this mess by now. Reality dictates otherwise, and it’s been that way for a while. We can continue down a road of denial steeped in a bog of irresponsible optimism, or we can open our eyes and see the housing market for what it is.

If you’ll recall, when the market shot through the roof sporting unsustainable prices, it was a direct result of lenders offering incentives (free money) to people who weren’t in a financial position to buy stamps, let alone a house. When you give money away, you are effectively stealing future business from the marketplace. In other words, millions of people who would have otherwise not purchased a home until a future date were lured into buying.

The consequences of those purchases resulted in a surplus of homes, and if you know anything about the laws of supply and demand, when there’s too much supply, the price of the product naturally falls because the suppliers (home sellers) are forced to compete against each other, which means lowering their prices to be competitive.

Many economists share the opinion that the free market can take care of itself without intervention. One example of intervention is minimum wage. Minimum wage is an example of a price floor. In other words, we artificially set a price for the supply of labor regardless of the demand. It’s manipulation of the basic laws of supply and demand, and it doesn’t work.

In the real estate market, we recently went through a period where the government offered $8,000 to anyone who entered into a purchase contract to buy a home before April 30th. Sound familiar? By offering money to people who would have otherwise not purchased stamps, let alone a house (see the pattern?) we have yet again borrowed from the future to acquire buyers to buy now. Naturally, when the dangling carrot is revoked, sales fall off, and the market begins to correct itself. Unfortunately, like any swing, it will over-correct by swinging past the balancing point, and this will lead yet again to more foreclosures, more short sales, and more unemployment.

It’s 2010. We are nowhere near recovering. In fact, we are in the midst of a wave of mortgage rate resets that are going to devastate the 2nd batch of unsuspecting home-owners who had no idea what type of loans they were getting themselves into back in 2005 and later.

So what makes me think there’s a problem?

Option ARM mortgages. These are miserable products, and there are billions of dollars worth of Option ARMs (Adjustable Rate Mortgages) that are resetting over the next 2 years. Option ARM mortgages have a very low rate of interest in the beginning, and even allow for the borrower to go negative on their mortgage. In other words, their payment can be so low that the balance of their loan increases instead of decreases as they may payments. What a bargain! In the midst of declining market values, your loan balance is going up.

The risks of an Option ARM place you on a very slippery slope akin to betting your life savings on one company’s stock. Most borrowers will suddenly be hit with “payment shock” as their payment is reset after a period of time has passed. Option ARMs can negatively amortize up to 110-125% of the home’s appraised value at the time of purchase. Once this happens, it caps, and the payments are amortized based on a normal 30 year period, or other similar terms. Either way, most mortgagors (home owners) suddenly see their payments skyrocket to an unaffordable level. That means distressed home-owners, which leads to loan mod applications, short sales, and foreclosure (in that order.)

What’s the Solution?

It’s time to get real about your money. It’s time to get real about the future of our economy. In the most uncertain economic times that we have known, with speculation that we’re entering the Greater Depression, and being witness to some of the most heinous fiscal decisions our federal government has ever considered, it’s time to get to work. It’s time to start going without those little luxuries that you’re accustomed to. Adjust your lifestyle to fit a greater vision of how you see yourself in the future and save your butt off. Stop spending other people’s money with the justification that “it’s a low rate of interest,” or “it’s only $7.00/month extra,” or “I’ll just pay it off the next time I get paid.” You may not get paid again, and then where will you be?

Don’t be fooled by what the optimists are saying. We are not out of this mess yet, and it will be a long while before we ever see what we used to know as “normal” appreciation in the real estate market. Bottom line? This is going to hurt, for a while.

Filed Under: Blah Blah Economy, Coffee Shops, Market Updates, Short Sale Success Stories Tagged With: amortization, economy, foreclosure, mortgage, negative amortization, option arm

Cash For Clunkers Is Absolute Ultra Stupidity

July 28, 2009 By Jon Griffith 3 Comments

Quite a controversial headline wouldn’t you say? I would bet you think my tone may be a bit strong, but I think I have just cause.

The “Cash For Clunkers” plan that Congress has approved is an absolutely stupid idea. Sure, it sounds nice. Bring your gas guzzling vehicle to a dealer and they’ll apply a government issued voucher for up to $4,500.00 which would be applied towards the purchase of a more efficient vehicle of 22MPG or higher according to the Associated Press and Foxnews.com.

Why Is This Stupid?

Cars go down in value, and the program is going to entice people to drive their perfectly good vehicle, which in most cases is going to be paid for, and has already lost most of its value, to the dealer where they’ll get sucked into financing a newer vehicle.

THIS IS GOING TO TEMPT PEOPLE TO GO DEEPER INTO DEBT by investing their money in a consumable product that goes down in value, not UP! Not a good plan.

Why Is This ULTRA Stupid?

The dealerships must agree to destroy the “clunker.” Are you serious? Who are these people!? For those who have “clunkers” that work just fine, the market for resale to people who are a bit smarter with their car purchases is eliminated. All of those people who would love to buy a used car won’t be able to.

Let me explain what a smart car purchase is. Save, pay cash, then save, then upgrade with cash. Repeat. Let’s say you bought a car for $2000.00 cash. Sure, it wouldn’t be luxurious, but it would get the job done. Then, for 10 months, you saved on average $300/month and put it into a car fund.

“How am I going to save $300/month?” You dummy! How are you going to afford $300/month for a car payment?

After 10 months, in a car that has already lost most of its value (someone else took that hit, hopefully) plus $3000.00 (10 months X $300.00) you are able to trade your $2000.00 “clunker” in for a $5000.00 “clunker.”

Do this for another 10 months and you can upgrade to an $8000.00 car. Another 10 months and you’re in a PAID FOR car for $11,000.00. Another 10 months and you’re driving a fairly nice 2-3 year-old car worth about $14,000.00 and it’s only taken you 40 months to get there. AND IT’S PAID FOR. That’s a little over 3 years.

Buy a new car, and you’re stuck with $300.00+ payments for at least 60 months. As Dave Ramsey says, “stupid tax.”

The amount of gas that you’ll save by upgrading from your SUV to a newer, more efficient car will be all but wiped out by the loss of value you’ll incur with the car you borrow with your $4,500 voucher.

Shredding perfectly good older cars that someone might treasure for the sake of luring someone who can’t afford a more expensive car into debt is a stupid and very wasteful plan. Besides, WHERE IS THE MONEY COMING FROM?

Filed Under: Blah Blah Economy, Short Sale Success Stories Tagged With: car payment, car purchase, cash for clunkers, clunker, congress, consumable product, stupid idea, voucher

Arizona Anti-Deficiency Laws Are Changing

July 16, 2009 By Jon Griffith 3 Comments

The following information was provided by Marc McCain, Attorney at law, regarding the changes that are coming regarding the Arizona Anti-Deficiency legislation.

A deficiency is the amount that you still owe the bank after the bank forecloses. If you are selling your home short of what you owe, or you are about to experience a foreclosure, then this information is important for you. As always, please seek professional legal council when it comes to your particular situation. I can help you sell your house, but I’m not an attorney. We leave that up to the legal experts.

Arizona’s anti-deficiency laws are changing effective September 30, 2009!

The change is designed to limit the type of borrowers that will qualify for anti-deficiency treatment. Set forth below is a general outline of Arizona law regarding when a borrower may be subject to a deficiency action or sued on its note following a foreclosure or short sale. However, borrowers must understand that these are only general rules — every situation must be analyzed carefully based on the specific facts – consult with a professional at all times to determine your rights and obligations in connection with a foreclosure or short sale.

In Arizona, if a borrower fails to pay its loan, a lender can foreclose its Deed of Trust lien either judicially per A.R.S. § 33-721
If the foreclosure price does not pay a lender what it is owed, the lender may generally seek a deficiency against the borrower for the difference. However, certain states, including Arizona, have what are called anti-deficiency laws that bar a lender from seeking a deficiency in certain situations.
In determining if anti-deficiency rules apply, the first step is to confirm what law applies to the loan, particularly the lender’s remedies under the Promissory Note. The applicable law should NOT be assumed. Read your Promissory Note and other loan documents carefully and understand their terms.
Assuming Arizona law applies to the lender’s rights under the Promissory Note, Arizona’s anti-deficiency laws are found in 2 places – in A.R.S. § 33-729(A) (regarding judicial foreclosures), and A.R.S. § 33-814(G) (regarding trustee’s sales).
In both judicial foreclosures and trustee’s sales, anti-deficiency rules apply only if the property being foreclosed meets the following criteria: (a) 2½ acres or less; and (b) limited to and utilized as a single one-family or single two-family dwelling. However, on July 10, 2009 Governor Brewer signed into law a change to A.R.S. § 33-814(G) which will take effect September 30, 2009. In addition to the above requirements, the trustee’s sale statute will also require that: (a) the trustor has lived in the property for at least 6 consecutive months; and (b) a certificate of occupancy has been issued. Until September 30, 2009, there is NO requirement that the trustor use the property as a residence – residential investment properties satisfy the anti-deficiency criteria. Effective September 30, 2009, investment properties sold at trustee’s sale will NOT qualify for anti-deficiency treatment if the trustor has not lived in the property for at least 6 consecutive months. Commercial properties and loans secured by residential homes being developed for sale but never used as dwellings don’t qualify for anti-deficiency treatment. In addition, a deed of trust that is a lien against more than one property will not be subject to anti-deficiency rules — the deed of trust needs to be a lien against a single trust property.
A.R.S. § 33-729(A) also requires that the loan be a purchase money (“PM”). However, the trustee’s sale statute, A.R.S. § 33-814(G), does NOT require that the loan be a PM loan. A PM loan doesn’t lose its PM nature when it is refinanced. However, cash out refi’s raise interesting issues.
In a judicial foreclosure, only a PM lender on qualifying residential property is prevented from seeking a deficiency; a nonpurchase money (“NPM”) lender is not – it can obtain a deficiency following a foreclosure or sue the borrower on the note.
In a trustee’s sale, both PM and NPM lenders that foreclose on qualifying property are prevented from seeking a deficiency and from suing directly on the note.
Junior liens extinguished by a 1st position foreclosure may be able to sue on the note. The issue is whether the junior loan was a PM or NPM loan – if it was a PM loan on qualifying property, the lender can NOT sue the borrower on the note following the foreclosure; if it was a NPM loan, the lender CAN sue the borrower.
If a lender can not seek a deficiency, then the lender can NOT waive its security and sue directly on its note. This means that a lender under a PM loan on qualifying property will NOT be able to sue the borrower on the note. This rule also applies to short sales. Note there are gray areas regarding cash out refi’s. Other Lender claims are also not barred – e.g. mortgage fraud.
Even if anti-deficiency rules apply, a borrower will be liable to a lender for any diminution in value of the trust property due to voluntary waste. In other words, don’t damage the property, take fixtures, A/C units, etc., or let the Property go to waste.
Real property taxes are NOT an owner’s personal obligation, but only a lien against the real property. However, HOA assessments ARE an owner’s personal obligation and if not paid can result in credit damage, lawsuits and other collection efforts.
Last, but not least, consult with qualified tax professionals BEFORE deciding to do a short sale or foreclosure. 1099 income, gains, losses and other tax consequences may result from foreclosures, short sales and loan modifications. Know what tax consequences you will face and plan accordingly.

Filed Under: Blah Blah Economy, Market Updates, Real Estate Finances Tagged With: applicable law, foreclosure, information, legislation, mortgage, short sale

Good News for Phoenix Real Estate

June 21, 2009 By Jon Griffith Leave a Comment

It’s not a big surprise considering the number of homes that have been selling recently that the inventory has depleted considerably and the availability of affordable housing is drying up after this massive real estate hemorrhage.

I cannot tell the future, but I can see when there’s a break in a pattern, as you will also see indicated in the graph below. Whenever a market corrects, it usually over corrects to a comparable intensity of the original inflation. Prices were so overinflated, and people have SO overreacted, that the low prices in the valley are deflated and can be considered as artificially low as they were high.

Average Monthly Sales

If I base my opinion simply on the pattern in this graph which outlines average monthly sales in the Greater Metropolitan Phoenix Market, then we are on track to recover, and we will bounce back. Since Arizona is a national leader in real estate trends, we should see a healthy recovery. Again, I cannot predict the future.

It was towards the end of 2003, beginning of 2004 that things started to exponentially bloat, soaring to ridiculous heights, and absolutely crashing as quickly as a 747 filled with solid lead.

In August of 2005, my neighbor bought the same unit I purchased in 2003 for $200,000.00 more than I paid for mine. They are still there. Oops.

The market’s plateau began in approximately June of 2006, rose a bit more, and then decidedly burned in flames at about January of 2008, through March of 2009. The number of homes sold began to increase in May of 2008, but the price continued to drop.

What would have happened if we had continued to grow at a normal, typical rate of 4% per year? Perhaps the following, showing a line drawn at about a 4% increase over the same period of time. This shows that a starting value of $175,000.00 would over the time represented in this graph, grow to approximately $244,000.00.

Average Sales with Assumed 4% Annual Increase

One could argue at this point one of two possibilities. Either a) the market will quickly correct, over correct, and bounce back and forth over the next 8 years or so to find equilibrium along that blue line, or b) the blue line must be adjusted down, erasing all of the growth in this millennium.

If that’s the case, then the home you’re living in, which is now worth what it was pre-Y2K, will not be worth what it should be worth for as long, if not longer than it takes to re-write the entire first decade of this century. To reach home prices that we should be at, we’re looking at roughly 10 years of steady growth at a “normal” rate.

The problem is that nobody knows what normal is anymore BECAUSE OF THAT GIANT HUMP in the middle of the chart. Who’s to blame? Many people think it was the government forcing the banks to lend to people who couldn’t afford it which drove them to “get creative.” Dave Ramsey calls “creative financing” “Too Broke to Buy a House.” I tend to agree.

Either way, it will be interesting to see what happens, and ultimately, it appears as though we’ve experienced the beginning of the bottom of this roller coaster ride. Which means one thing…

If you haven’t bought a house yet, it’s time to buy. There’s blood in the streets and the street sweepers (the investors) have been very busy recently. Don’t miss out.

Filed Under: Blah Blah Economy, Market Updates, Real Estate Finances, Real Estate News Tagged With: Arizona, average, growth, market, pattern, Phoenix, PRICES, RealScottsdaleLiving, Scottsdale, value

What Makes a Buyer’s Market: Supply and Demand

February 9, 2009 By Jon Griffith 3 Comments

This is a pretty simple concept that can be over complicated by economists. A buyer’s market simply means that it’s better to be buying than selling. Why? Too many houses (supply surplus) and not enough buyers (no reckless lending.)

Supply and Demand

When a supplier (people selling homes) floods the market with too much product (houses) the buyers tend to take longer to choose what they want. As a result, sellers who are tired of waiting will lower their prices to spur the buyer into taking action. This is a natural movement that many sellers miss because they don’t understand the LAW of supply and demand. When the supply is low, buyers climb over themselves to bid on what product is available which drives the price up.

The red line represents the supply. The green line represents the demand. The point at which they cross is the market value or market equilibrium. This is the price that we aim for when we price a home.

The graph can be interpreted as such. On the demand curve (green) when the price of the product is $1.00, the number of units sold will be 100. When the price is $10.00, the number of units sold will be about 14. It’s the economists challenge to set the price of his product as close to market equilibrium as he or she can whereby the most money is made for the least amount of production. 100 units sold X $1.00 = $100.00. 14 units sol X $10.00 = $140.00, but 50 units sold at a price of $6.00 each is $300.00.

Shifting Curves

This is the important note for supply and demand. When supply is increased, the entire red curve shifts to the right by the number of units produced. Assuming demand remains the same, the point at which the lines cross will naturally fall and the price will naturally fall. If the price is not adjusted, the product will not sell. If demand increases at the same rate as the supply increases, then the price will remain the same because market equilibrium will simply follow along. True, more product will be sold, but the price will stay put. Remember, when supply and/or demand increases or decreases, the entire line shifts left or right. For example, if demand suddenly dropped off for a given product like homes, and there was an excess of supply or a surplus such as we have now, the price point would fall dramatically.

Buyers Market

In Phoenix, we have a surplus of homes. Nation wide we have a shortage of buyers because of tightened lending. In many cases, the buyers are really still there, but they’re just afraid to move forward and/or they don’t realize they actually can get a home loan. While the buyer’s market exists, it means the influence of movement on the supply and demand curve has shifted to the demand curve. Buyers can ask for more, and have more to choose from than ever before, so why not wait it out?

On the contrary, if it’s a buyer’s market and there is blood running in the streets, take advantage of it because you won’t want to be buying in a seller’s market.

Filed Under: Blah Blah Economy, Real Estate Basics, Real Estate Finances Tagged With: buyers, Buyers Market, market, Shifting Curves

Big News is No Suprise

November 25, 2008 By Jon Griffith Leave a Comment

I’ll be frank. The media is the cause of all of our negative perception. Last night as I was listening to Fox news (Channel 10 Cox Cable, Scottsdale Arizona) I heard nothing good. People dead, people run over, people hurting, bad, bad, bad…

…and the bad news continues. “HOME PRICES POST A RECORD DECLINE.”

…yeah? And?

Here’s the bottom line. If you owned a home before 2004, or you bought in 2004, then you’re probably exactly where you should be. I purchased my town home in 2003 for $115,000. In August of 2005, my neighbor purchased the same floorplan for $319,000. That’s a disgusting increase in value. It’s unheard of. It’s 177% in 12 months (15%/month).

No market can sustain this type of abnormal growth and when you have record artificial growth you are bound to have a record decline. Thanks to the media, most people look at their 401K, their wallet, their job, and they freak out when they see that “even the media says” that things are bad. These things are all relative.

There is money for qualified buyers. That is who should be buying a home. If you don’t have to sell right now, then don’t sell because you’re not in control, the buyer is. Stop listening to the media and start listening to we who are in the trenches every day working out the numbers, talking to the lenders, keeping it real.

Filed Under: Blah Blah Economy Tagged With: control, DECLINE, perception, PRICES, RECORD, relative