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Catching A Fallling Knife Just Might Be Your Best Bet

A fear among buyers these days is that of buying a property that will be worth less next year… or next week, for that matter.

Since many homes are now selling at discounts of 30% - or more - off their prices back in 2006, and there is no evidence that prices are ready to turnaround and rise - it’s a fair fear.

As many of you know, I’m not a cheerleader who goes around telling everyone that the best time to buy real estate is NOW.

It’s just not my style… and I’m not Nostradamus.

Prices could continue to tumble for several more years, for all I know. However, if history is any guide, I can make the argument for a purchase in today’s Atlanta real estate market.

With the current economic policies of the Obama administration, we are in for some very high inflation. Some believe that at the rate that U.S. currency is being printed, we might even see hyperinflation if the presses aren’t stopped.

When inflation runs rampant, interest rates must rise - and that includes mortgage interest rates. When Jimmy Carter entered office, mortgage interest rates were around 9% - but Mr. Carter printed a lot of money… and interest rates rose substantially. By the time he left office four years later, rates had jumped to more than 14% - and didn’t peak until two years later at 18%.

But Jimmy Carter was a mere piker compared to Barack Obama.

When you consider that the money supply is being doubled this year - you can only imagine where interest rates are going. One thing is certain - the rates are heading up. Big time.

Let’s look at a $200K mortgage at today’s rate of 5.25%. The monthly principle and interest payment on a 30 year fixed rate note would be around $1104. If property values dropped another 40%, but interest rates jumped to 10%, that same property with a $160K mortgage would have a monthly payment of $1404.

Now let’s look at it another way. The property with a $200K mortgage today was probably worth at least $260K a few years ago. The price would have to fall more than 50% off the high to $126K to have a similar payment of $1106 with an interest rate of 10%.

When you consider that mortgage interest rates are very likely to go much higher than 10% - and that hard assets like real estate become very desirable as a hedge against inflation - you can see why "catching a falling knife" could be your best move.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here. 

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It’s Not All Backyard Barbecues And Waving Flags

In a time when the very fabric of our free nation is at risk of being torn by those who want our country to be more like a European - or Middle East - nation, I appreciate the service of my fellow military men and women more than ever.

Perhaps I feel differently about this day because I am a U.S. Navy veteran. Like many others who have served, I get a little choked up on this day. To me, it’s not simply a day of celebration - it’s a day of solemn observance.

I truly appreciate all of those who gave their lives or limbs to help create and protect the greatest country in the world. Most of us will never know the sacrifice that these great men and women selflessly endured so that we could live in freedom - and sadly, many do not appreciate the freedom of which these patriots gave their lives.

While today is a day of remembrance for those who have fallen, every day is a day of appreciation for our uniformed men and women. When you see a man or woman in military uniform - go shake their hands and thank them for their service. Since 9/11, every single one of them is a volunteer during wartime - and they deserve our respect and praise. 

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Straight Talk Is Getting Harder And Harder To Find

As I scan the Atlanta real estate universe, I am often saddened by the news… and angered by the cheerleaders who are more interested in making a quick buck than protecting their clients.

When I speak directly to the public or my clients - I am cautious on their behalf. I often preface the hard, cold facts with, "Let me tell you how the cow eats the cabbage…"

Well yesterday a client asked me, "So exactly how does that cow eat that cabbage?"

That got me to thinking. Where did that saying originate? I’ve used it for at least 20 years… but never knew its origin, though I remember I picked it up in Texas. With the help of our friends at Google, I was able to find this amusing story for your enjoyment:

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Another Twin Tale Of Two Buyers

This morning, I listed a barely used horse saddle for sale on Ebay. New, this saddle and accessories cost more than $400. I started the listing at $160 and also implemented the Buy-It-Now option for $250. A bargain, no question about it.

Within an hour, I had an email from a buyer who wanted me to end the auction early so that she could buy the saddle for $200 - and moments later, another buyer used the Buy-It-Now option to complete the purchase.

The first buyer could have placed a bid for $160 to start… but she knew that the bidding would go much higher than that. Instead, she figured she could offer me $200 to end the auction early - and she would "steal" the saddle.

The second buyer - recognizing an outstanding value - jumped on the Buy-It-Now. She knew that $250 was a good deal - and my 100% feedback gave her the assurance she needed.

This isn’t the first time I have seen this behavior on Ebay. While one buyer is trying to "steal" an auction - another comes along and makes the purchase. The exact thing happened a few months ago while I was selling a camera lens. While one buyer was telling me that $600 was a good offer - another was making the purchase for $900.

The same principles apply to buying real estate.

Last month, I worked with two different buyers who placed offers on seperate foreclosed properties. In the first case, I showed the first client a home back in late November when the home was priced at $150K. When asked how much the home was worth, I told my client that it was worth $130K - and that we should wait until the price is reduced, as the seller will not want to take that big of discount off of list price.

Why? Because instead of dropping $20K, the seller will test the market at $10K less before accepting $20K less.

We waited through several price drops until the property was listed at OUR price. Then we asked for a generous contribution from the seller towards the buyer’s closing costs.

My other buyer wanted a home that was priced at $175K, but was worth $155K. The seller dropped the price to $145K in the hope of getting multiple offers - which they did receive. Our offer was the strongest - and the seller countered us, offering to meet us halfway on closing costs. Instead of countering back - my client decided to stand pat on her offer. Take it or leave it.

Although the seller’s counteroffer still priced the property below market - my client did not care. She thought they should take our offer with no counter-offer. So, the listing agent will counter one of the other prospective buyers… and someone else will get the home.

This isn’t the first time I have seen this happen. Many people are confused about what they should offer - as well as what they should expect. My advice is to look for value and work from there. When a property is priced right - don’t expect the seller to meet your aggressive offer with an abundance of joy - not even in this market.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

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Those Within The Housing Industry Are Most Vulnerable

While most of the nation can appreciate the devastation in our housing market, most can not understand the pressure put upon those who derive their living from it.

Many people may believe that all of those idled construction workers can simply find other means of work. Others may believe that all of the other tradespersons and professionals such as appraisers, real estate agents, real estate attorneys, home inspectors, mortgage brokers and others can simply fill out an application for a position in an unrelated field and get hired without a great deal of difficulty before their unemployment benefits run out.

It ain’t that simple.

In the past year, I have witnessed several of my colleagues lose their homes to foreclosure. Not just a few, mind you… and not just those who have been in the business a short time. Some have been successful agents for many years. In our business, there is no unemployment insurance. When you can no longer afford to stay in this business - there is no safety net.

But much worse than that, I have also witnessed several colleagues lose their lives, as well. All relatively healthy young men in the prime of their lives - taken by heart attacks. In the last few months, we have lost an appraiser, 47; a builder, 40; and a Realtor, 43 - and those are only the ones I am aware of, as there are undoubtedly others.

Unfortunately, our legislators do not want to face up to the fact that they created this mess in the first place - nor do they want to address the fundamental problems in the housing market. Chris Dodd and Barney Frank want nothing to do with the spotlight that would reveal their complicit behavior in the Fannie and Freddie  mess.

Instead, our legislators want to pass another giant spending bill to pay back all of their cronies who helped them get elected. The housing crisis? Maybe they’ll talk about that when we get to the third or fourth trillion.

Let’s look at the first $350B - it has been revealed that the taxpayers overpaid $78B for the "toxic" assets that were acquired. So Congress not only bought "toxic" assets (which they should have picked up for pennies on the dollar) but they managed to overpay for them. Now there’s something Congress is good at - overpaying!

What did these banks do with the money? Buy other banks!

But that’s not all that they did. They also paid out big bonuses.

In the last housing bill, Congress did add a $7500 tax credit for first-time homebuyers - but they removed the down payment assistance programs. To make matters worse, the tax credit was actually a no-interest loan that had to be paid back - instead of being a true tax credit. Many buyers could no longer buy.

One step forward; three steps back.

Since then, the only substantive legislation offered has been that from our Senator from Georgia, Johnny Isakson. His proposal doubles the tax credit, eliminates the loan provision, and makes the credit available to all home buyers. who are purchasing standing, vacant inventory. The Senate, eager to pick up a few Republican votes, approved some version of the proposal. We’ll just have to wait and see what the conference bill looks like.

I continue to be concerned, however, because the President and the majority party in Congress both believe that only government and its spending of dollars (of which it does not have) will reverse the trend of the last eight years of mismanaged economic policy.

Unfortunately, the last eight years involved spending an additional FIVE trillion dollars that we did not have… and look where we are, now. We have a national debt of over TEN trillion dollars… and a President and Congress eager to start programs that will add several more trillion to the total.

The one thing we do need right now is an improvement in consumer confidence - and I don’t see that happening anytime soon. The big government types are using this crisis as a way to expand government, and according to the polls - the public is well-aware of it.

Consumers vote with their wallets - and many are simply scared to spend any money. The two-year Presidential election cycle with the complicit media helped to drive down the economy… and what started out as a snowball rolling downhill became an avalanche of epic proportion. When you tell the American people that we are in the worst economy since the Great Depression for not just months - but years - you shouldn’t be surprised if it becomes a self-fulfilling prophecy.

It is my hope that our leaders will come to the understanding that without a housing recovery - there will be no economic recovery. It is the single largest asset that most people own - and when you allow that asset to become a liability, you’ve shaken the very foundation of our economy.

I don’t know if Sen. Isakson’s proposal will be enough to stabilize the housing market - but I believe it’s a good start.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

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