Housing and Economic Recovery Act of 2008

Well, the big Housing Act of 2008 has been signed. Based on what I’ve read and studied, this political move will do little in the long run. It may simply postpone true recovery in the national housing market by impeding the movement of the real estate to where it eventually wants to go. It might bail out some home owners, at our expense, but people who get themselves into financial trouble like that will probably do so again.

The borrower bailout is intended to help stem foreclosures. HUD Secretary Preston isn’t sold though. When asked in a Bloomberg TV interview if he was confident that money for the loan bailout program would be spent effectively with no loss to the taxpayer.

“No, I’m not,” Preston said. “Roughly a third of the people who get this assistance will end up in foreclosure,” he said, citing Congress’ own estimates, “and many more, we believe, will be chronic delinquencies.”

Another way the act is suppose to help America and the economy is to generate more buyer demand by offering a $7,500 tax credit to “first time” home buyers”. I put “first time” in quotes because the word “first” means something different to our government than it does you or me.

Using the govenment’s definition of “first time”, your marraige would be a “first” if you’ve been single/divorced for at least three years. If you haven’t bought a new car in at least three years, your next one would be your “first” car purchase. If you give birth to a new baby this year, that baby would become your “first” if all your other children are older than three years.

Thus, you are a “first time buyer”, as defined by this new Housing Act, if you haven’t purchased or owned a home in the past three years. What will the tax credit do for you?

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Dear Out of State Investors – We Told You So

Austin Foreclosures by California OwnersToday’s Austin Statesman has an interesting, if not predictable article about California investors being disproportionately represented in Austin area foreclosures. We’ve participated in several sales by California investors (not ones that we sold to though) bailing out, some of which were short sales or pre-foreclosures.

As the Austin real estate market rebounded at the end of 2005 and through 2006 and the first part of 2007, Sylvia and I were deluged with calls from investor prospects, mostly from California, wanting to invest in Austin real estate. We were careful in screening those buyers. We never departed from our philosophy of sticking “closer in” rather than chasing better cash flow to the outskirts. As stated on the Investing in Austin page of our website;

Our approach to investing seeks to do more than simply help you buy or sell a rental property in Austin. We have some specific ideas and values about the manner in which real estate investing should be approached, and the effects it can have on neighborhoods and the greater Austin Community. If you agree with our viewpoint, we want you to consider working with us.

Mainly, we do not wish to participate in the mass caravan buying approach that other real estate agents have implemented in Austin in recent years. We don’t think riding in a bus full of other investors out to a new home neighborhood where you buy what your “real estate investing club” tells you to buy is very smart. This approach results in the overselling of homes in many of the new subdivisions around Austin. Especially in the “starter home” areas that young families and first time buyers can afford.

We think you should spend a little more money and buy a better home in an area that less enlighten, short-sighted investors stay away from. Or consider purchasing your investment property in a mature and established neighborhood. While other investors are looking for the cheapest homes with the best cash flow, you should be looking at the neighborhoods with better appreciation potential, where the homes are well cared for, or the area is undergoing a renewal.

The above is verbatim what we’ve told investor since 2005 when we started working heavily with real estate investors buying in Austin.

How did we do?
Were we right in holding this viewpoint?

This philosophy of ours eliminated a lot of potential clients who would have been easy sales for cheap homes in Pflugerville, Round Rock, Hutto, Kyle, etc.  We left a lot of potential sales and commissions on the table by turning away misguided buyers who wouldn’t agree with us on where they should buy rental property in Austin.

What happened to those investors who disagreed with our long term approach and found other Realtors to work with? Let’s look at an example quote from the Statesman article:

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Austin Sales Market – June 2008 and Mid-Year Stats Update

Below is the June 2008 Austin real estate market update, including YTD stats. For starters, I thought I’d post a graph showing Average Sales prices in Austin from 1999 through June 2008 for houses, condos and multi-family properties. Austin’s real estate market has historically moved in fits and starts. The slowdown indicated by the June 2008 YTD dip in the graph is real and present, but I’ll match this graph against that of almost any other metro area in the US and say that, relative to the rest of the country, the Austin real estate market is looking pretty darned good.
Austin Sales Market History 1999 through June 2008 Graph

The average sales price for houses in Austin increased 0.47% in June from $263,421 in June 2007 to $264,653 June 2008. We continue to have a large number of expired and withdrawn listings though, and days on market continues to creep upward. Nevertheless, many homes are selling fast with hardly a sign of a slow market, while others, though seemingly well priced and in good showing condition, sit with no offers. Sylvia and I placed a new listing in South Austin on the market a couple of weeks ago and had it under contract in 4 days with a good offer. It was in average condition. Other listings we have in south Austin are equally as well priced and in better showing condition, but no offers yet. I just placed a new listing in Cedar Park yesterday which is priced at about 97% of market value, and I expect it to sell fast, but can’t be as confident as I could in 2006 and 2007. The market seems fickle and somewhat unpredictable at present.

Here is a quick summery of the June stats.
• Number of homes sold is down 25% from 2,702 June 2007 to 2,032 June 2008.
• Average sold prices in Austin were up 0.47% over the same month last year to $264,653.
• Median sold price was up 3.62% over the same month last year to $202,000. I’ll have to doublecheck, but I think this is the first time the median sales price in Austin has broken through the $200K mark.
• Avg sold price per square foot is up 0.84% over June 2007 to $124 per sqft.
• Avg days on market is up 11 days (22%) from 50 last year to 61 this May. Exactly the same as last month.
• Median days on market is unavailable again this month because our $1M/yr MLS software, MLXChange, won’t produce it. (I continue to be dismayed and deeply disappointed in the poor performance of our MLS software, MLXChange, which we are 8 months into and still experiencing numerous data intergity problems.)
• Number of “Not Sold” (exp or withdrawn) is up a whopping 29% over the same month last year, but a far less increase than last month.

Below is the chart with these stats, along with a YTD chart. I’ll have area breakdowns posted in a separate post later today or tomorrow, so check back to see how your area is doing.

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Is Your Austin Realtor a Beta Test or a Production Version?

I was evaluating some Property Management software recently, which was still in the “beta” stages of development. Beta software is commonly thought to be ready enough to function, but is expected to have undiscovered bugs and flaws, and may not be ready or stable enough for production use. I decided against this particular software because it has shortcomings and limitations I cannot live with.

I started thinking of some of the many past encounters we’ve had with what I would call “beta version” Realtors. These are freshly minted, green agents who have passed some testing requirements, such as passing the real estate exam and completing basic training classes, but have not yet been proven as stable and reliable in a “production” environment.

Now all they need are some beta testers. Like beta software, many of these beta agents will never achieve the level of maturity and stability required to move into full production release status. They’ll never become Version 1.0. But they will be tested by some users (clients), with varying results, before the market spits them out. Some will pass the test and become great agents, but they still have to be tested first.

Will that beta tester be you? And is it a good idea to use a Newbie Agent to help buy or sell your home in Austin?

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Does MLXChange MLS Software Calculate Price Per Square Foot Properly?

I have have been critical of our new Austin MLS System called MLXChange since it was first placed into production in Austin in November 2007. It produces what I believe to be incorrect data. I was contacted yesterday by a product manager from MLXChange because they saw my last blog article showcasing some of the bad data. In that article, I mentioned that the price per square foot is not calculated correctly by the system.

The product manager was very nice and I enjoyed our conversation. She wanted to explain to me how the average price per square foot numbers are calculated and that, in fact, the numbers are calculated correctly. She is right on a certain level. That is, if one understands and follows the formula being used by MLXChange, it can be argued that their number is a mathematically correct.

But I maintain that the method being used by MLXChange to calculate average price per square foot is not the correct formula. I’m not smart enough to articulate it in a scientific or mathematical argument, but my intuition and instinct tells me I’m right. I’ll do my best to explain below and I hope a smart reader can chime in and offer a mathematical or statistical point of view and explanation of why two different methods, each of which seems correct independently on face value, produce different results.

So let’s look at an example that illustrates the MLXChange formula versus the method I believe most of us would use, and the method I believe makes the most sense. I’ve created a small sample set of data, shown in the chart below.

Price Per Square Foot Calculation Method

Square Feet
Sold Price
Sold $ per SQFT
House 1
House 2
House 3
House 4
House 5
MLXChange Avg
My Average

What is the average sold price per square foot of the 5 homes shown above?

MLXChange computes the Average Price per Square Foot by adding together all of the individual price per square foot numbers (the five psf numbers in the far right column) and dividing by the number of sales (five). This produces a result of $82.12 per square foot as the average price per square foot of the sold homes in our sample set.

I compute the average price per square foot by taking the average sqft size of all homes (1400) and dividing it into the average sold price of all homes ($112,000). My result is $80 per square foot. That’s what you would see on a stats chart that I manually produce and post regularly on this blog.

The two methods, in this particular example, produce results that are 2.65% different. 2.65% is not an insignificant amount when pricing a home. It’s a bigger gap than the List/Sold price difference on most sold homes in Austin. It’s a $5,300 difference on a 2500 sqft home at our example psf rates. Would you like to sell your home for $5,300 too little? Would you like to pay $5,300 too much, based on your Realtor’s CMA, produced by MLXChange?

Let’s dig deeper into why I think the MLXChange method is flawed.

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Responding to Lowball Real Estate Offers

Lowball Real Estate Offer

Austin Real Estate Agents disagree on the best negotiating strategy for responding to lowball Real Estate offers. There are two general camps of thought. One philosophy says that the amount of an initial offer doesn’t matter, and that the seller should always respond to any offer with a counter-offer of the lowest ‘bottom dollar’ price she is willing to accept for the property. I not only disagree with this strategy, but believe it is fails to protect the seller’s best interests.

To put it harshly, it is incompetent and negligent, in my opinion, for an agent to advise a seller to disclose her bottom line price based upon nothing more than the existence of a lowball offer. Nevertheless, I’ve heard many veteran agents claim that this is the best response to any offer – that “any offer is a good offer and deserving of a counter-offer”.

Would this ham-handed technique be representative of the “expert negotiating skills” that we as Realtors hold forth as one of the primary reasons you should hire us? I hardly think so. Of course there are exceptions to every rule, but in general, in a healthy market with a properly priced home – and the seller being under no extraordinary duress – I think responding to a lowball offer with an immediate price decrease is a very poor negotiating strategy.

Another approach, the one I follow both as a listing agent and as a seller of my own properties, has always been to respond to lowball offers with a cordial “thanks, I appreciate the offer – really I do, but we’ll have to pass on it at this time”.

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