Housing Musings

Friday, February 27, 2009

To breed or not to breed

Somewhere between the baby dearth of the early '70's and the lady who just had the 8 babies by in vitro fertilization is a responsible attitude toward procreation that will satisfy the urge to reproduce and provide growth for the future while being sensitive to the current economic climate.

My Portuguese Water Dog Cleo (yes, the Obama's are going to get one) is in heat. Because of her previous litter (she had puppies at the urging of my kids, a year and a half ago with Riley, an amazingly good looking, easygoing couch-potato stud muffin of a dog who took two awards of merit at Westminster), we have an opportunity to breed her again to this amazing dog Chopin who took breed two of the four days at the recent Chicago International Kennel Club dog show. To accomplish this, I have to drive to Detroit, where Chopin is again wowing the world at yet another dog show, and get the lovebirds a room, or a utility closet, or the back of a van. Maybe this is too much information, sorry, but Cleo is very interested in doing this. She has told me as much.

I was trying to explain why I'm considering doing this to a friend of mine. Why? she said. I struggled to find words. The puppies are so cute, I said. She said, you slept in your basement for 8 weeks. Yes, but, we have this line going, and I need to develop it. She said, what??? I fumbled again. I am a real estate broker, not a dog breeder, although financial rewards for brokerage are about on par with dog breeding these days...she said the economy is bad, you might not sell the puppies, it's very stressful, don't do it. I thought about it. I told my daughter I wasn't going to do it. She said I would regret not doing it. Cleo makes gorgeous puppies. I didn't believe her. But now, here, a mere few hours later, I am again reconsidering, being compelled by some irrational desire for puppies. The puppies are so cute. Also the dogs. Last time I kept two. My husband has threatened to leave me if I keep any more from any future breedings.

Maybe what I mean by all this is that there is a crying need for a thought to the future, now especially. Having offspring, canine or otherwise, is the ultimate vote of confidence in the times to come. I think that is what is really going on here. We all need a little confidence. And if it is cute, and black and white with hair (not fur!) then so much the better. More on Cleo's puppies as things develop...

Tuesday, February 17, 2009

A Return to Somewhere

For the last five or so days, between a couple of showings and a few communications with clients and my dear assistant Jen, I've been sleeping a lot, trying to kick a monstrous upper respiratory infection and reading a book, morosely titled, "The Geography of Nowhere," written by James Howard Kunstler. So you know where he's coming from, he's a novelist, former newspaper editor and editor for "Rolling Stone". He's a frequent contributor to the New York Times Sunday Magazine, and he lives in upstate New York.

That is a salient fact, I think. The only other experience I have with a person who's from upstate New York is my friend Lisa's husband Max. Max is fiercely plainspoken and smart as a whip but dour as all get out and sees things through the caul of the failed businesses and technologies of the past 250 years that makes up the region of upstate New York. So I think Max and James Kunstler could have a really good conversation. The thing about Max, and also James Kunstler, is that he is so often right about things. It's kind of depressing.

"The Geography of Nowhere" is a polemic against suburban sprawl and the failed policies of the business and government partnership that made the needs of business, especially automobiles and automobile manufacturers, paramount to the demands of human scale, public transportation and sustainable economies in our unique history of housing and development in America. It's a really good book, and entertaining in a horrifying kind of way, as it catalogs the decline and fall of communities as they used to be. It's also a treasure trove of information about historic building styles and theories of what makes for an ideal community, from the Pilgrims all the way through postmodernism. It has interesting asides on the unreal communities that are Las Vegas and Disney World, the horror of Detroit and Los Angeles and what makes for a sense of place and home.

"The great suburban build-out is over," Kunstler declares. We can no longer afford to live in the far-flung houses, offices, and discount marts connected by freeways (note the need for Obama's huge infrastructure component in the economic recovery legislation as support). It may be part of what has contributed to the perfect storm of financial failure, oversupply of housing and high energy costs which we attempt to weather now. In the end, what Kunstler calls for is nothing short of a redesign of our everyday world. Towns, rather than suburbs, with mixed use properties close to public transportation and higher population densities have been called for by urban planners for decades, but have been resisted by all sorts of people for all kinds of reasons, some of them even well-intentioned. What has been lost in the bureaucracy of town planning and zoning ordinances and building codes and minimum lot sizes and setbacks is the reason behind it all...we want to live in relationship to one another, with a sense of permanence, an appreciation for beauty and nature and a sense of belonging. This is I think the challenge of building our physical landscape in the future, to provide a sustainable environment where these very important human needs are met. You should really read the book. I don't know if I liked it, but I can't stop thinking about it.

On a more practical, immediate help kind of note, click below for Broker Agent New's top ten tips:

click here for a list of 10 things to do to help sell your house.

Sunday, February 8, 2009

investment vs. speculation and the joy of owning your own home

Oh, boy. There is so much interesting stuff out there on the Internet, yes? There are a number of blogs that seem awfully nasty. The bloggers themselves even admit it, to an excess of Schadenfreude...excessive joy taken from observing the misery of others. These people say they knew the bubble was coming and the fear and greed of people who bought at the peak of this situation really have it coming. They rent, they say, and are proud of it. Well, good for them! It must be comforting to feel so vindicated in one's decision not to have participated in buying something they couldn't afford anyway and that may be worth less today than it was in 2005.

I'm reminded of a great friend of mine, a dear person who considered herself something of a socialist. She didn't believe in speculating in real estate. She found it immoral, somehow. My husband and I were at her apartment for dinner, and when I excused myself at some point to use her bathroom, I found in the magazine rack an annual report from Exxon. She owned stock, in Exxon.

She, and some of the bloggers from Irvine, CA and many other locations all over the country, are still renting. They have no equity, no forced savings, they are subject to the vicissitudes of the rental market, how cool is that?

Don't get me wrong, I don't advocate paying more than something is worth to my clients, in fact, the opposite is true. Let's find a great deal! But buying a single family home or condominium is not an investment in the true sense of the word. Buying a single family home or condominium to sell is speculation, if you are planning to resell it anytime soon, and hopefully for more than you paid for it and put into it. Speculation is risky, and not for everybody (I really hated those reality shows like Flip this House, they made me want to cringe when I saw rank amateurs spending their savings in an effort to rehab a home and sell it fast. So sad. Like watching a train wreck, or a really bad auto accident.

Buying a single family home or condominium to use as your primary residence is financial planning, it is responsible, it is one of the few things you can buy and pay off over 30 years, while you still have full use and enjoyment of it. You can refinance it, or take a HELOC out, tax free. You can deduct the mortgage interest. You can experience pride of ownership. You can decorate and improve it at will. And, if you got a good deal, and bought in the right place, and maintained the property, and are lucky and live there long enough and can sell it for more than you paid, the profit you make is exempt from tax (up to certain limits). Try doing that with your rent receipts!

Friday, February 6, 2009

Finance (not) Just In Time

I read a funny story today which I think relates to our current situation in the housing market...

"There is an old story about a tin of sardines. One trader bought it and sold it to another, who sold it to a third, and so on. At each stage, the sardines changed hands for a higher price--until a real customer bought the tin. When he opened the tin, which was now very old, he discovered the sardines were moldy. He complained to the trader who had sold them. 'But, my friend,' said the merchant, 'these were trading sardines, not eating sardines.'

Investors can be split into two schools: those who go with the flow and those who seek out fundamental value. The former view shares and other financial assets (like real estate) a bit like trading sardines. They are concerned with the momentum building behind a stock, the psychology of other investors, the way a share price has moved in the past and so forth. The second school holds that, even if share prices are driven away from fundamentals for a time by herd-like behavior, they will eventually come back to fair value. "

This is a quote from a book called, Finance Just In Time, by Hugo Dixon. I really wish I'd read it before now. Whatever "fair value" is, in commercial real estate, is fairly straightforward and relatively easy to discern. Supporting estimates of value along with land and construction costs and the cost of comparable properties are things like rents, taxes, maintenance costs, leases and lease terms, insurance costs, and the like. Also included in this formula is what buyers are willing to spend, and what banks are willing to finance. Things went a bit awry in the late 80's and early 90's in the commercial world, when we saw banks writing off millions of dollars worth of loans on non-performing assets. Investors and institutions had lost sight of the importance of things like rents, maintenance, insurance, taxes, etc. In other words, they were engaging in trading sardines, not selling sardines for consumption.

In the housing market, there typically is no income and expense consideration when deciding what a house is worth. While the "income approach to value" is still there on the appraisal form, banks historically minimized the importance of that approach in evaluating single family residences. They instead focused on the cost of construction, land prices, the cost of comparable properties, and then the big one, what a buyer is willing to pay. (There is an old joke among brokers about appraisers...M.A.I. doesn't stand for "Member, Appraisal Institute" but rather "Made as Instructed." Appraisers worked for the banks, banks wanted to make the loans, so if possible, the appraisal often came out right around the purchase price.)

Consequently, housing is really an "eating sardines" model. It's best to buy your house based on what you can afford, what you like, and where you want to be for a while. While some of us grew up in that environment wherein houses doubled in value every 8-10 years, our current experience has been one of falling prices for at least the past two years. Prices are back to 2004-2005 levels in some markets. Construction costs continue to climb, and taxes have been discouragingly non-reflective of current market conditions, but the cost of land, and most importantly, comparable properties, has fallen significantly. Inflation in housing prices is proceeding slowly, if at all. Buyers cannot afford to make mistakes and wait for the rising cost of housing to bail them out, at least not for the immediate future.

The bright side of all this (I have to see a bright side, I'm in the real estate business!) is that now is an incredible buying opportunity. If you need a different place to live, have a little money and good credit, you can find amazing deals. Additionally, the Senate just passed a bill that extended the $7500 tax credit for first time buyers to a $15,000 tax credit for all buyers. That could be another compelling argument for buying now. Eventually, if immigration is allowed to return to pre-9/11 levels, and when the children of the baby boomers enter the home buying market in full force, the current overstock of homes will evaporate and prices should rise again. In the meantime, I guess we're lucky to have sardines to eat, moldy or not.

Wednesday, February 4, 2009

If you like modern, green, and affordable, click here

I had the amazing experience lately of one of my listings collapsing. Yes, it actually fell down, under the weight of snow on the roof, and believe me, the neighbors and the city were NOT happy. It's kind of funny, most of my friends were delighted when they heard of it...this is a house we were going to remodel EXTENSIVELY anyway, but somehow right now doesn't seem like a good time for us to start a spec house project.

Anyway, in looking for affordable housing alternatives to replace this little (former) shanty, a/k/a pile of lumber, I looked into two interesting options: The wee house, by Alchemy Architects, and the FlatPak house by Jeff Lazor. Both of these ideas have been featured in Dwell magazine and have been shown at the Walker Museum in Minneapolis, at Yale and there was even a variation at the Museum of Science and Industry in Chicago. Pre-fab to an extent, architect-designed, affordable to build (depending on your municipality, and their willingness to go along with the whole idea), these homes are small, green, modern alternatives to the hulking suburban museums that many of us live in now. I must admit, I fell in love...I was ready for a new affair, as my kids have all recently left the nest and we need so much less space than we used to. My husband has modern sensitivities, too, and loved the idea of the small carbon footprint, low costs and abundant sunlight that characterize these homes.

Reality impinged on my happy reverie when I showed the websites to two of my girlfriends, both of whom have great taste and one of whom is the daughter of an architect and an interior designer. "Ick" they said. "I could never live there!" Oh, well...what was I thinking?

Even "This Old House" recently featured a pre-fab home. It went up so nicely, all built inside under perfect conditions, with every contingency planned for ahead of time. I'd be happy to hear from other people on this issue. Am I completely off base for loving these little gems?

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