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By Victor Normand

I heard an economist speak recently about the sovereign debt crisis in Greece.  She was not overly concerned, reminding everyone that in the overall scheme of things, the Greek economy was not very large and a default on its debt would be a contained event.  In the end, a deal was struck within the Euro Zone which lowered the country’s debt burden by requiring holders of Greek debt to devalue their bonds by half.  Again, in the larger scheme of things, not such a big deal.

But, as with most economic actions, reactions occur.  In the case of the reduction in Greek debt, the “haircut” the bond holders were forced to take sent waves of apprehension toward all holders of European sovereign debt, especially the debt of Italy, Spain, Ireland, but, as it turns out, few European countries were unaffected.

Funds have begun to flow out of bond issues by European countries.  The unanswered question is where will they flow to?  That hasn’t been talked about much, but you can bet some of it is coming to the US.  Despite all our economic, political, and social problems, at least in a relative sense, the US remains a safe place for large investments.

And if those investors do what they have often done in the recent past, US Treasuries will be the preferred buy.  As more funds compete for US government bonds, particularly 10 year notes, rates will decline.  As bond rates decline, so do mortgage interest rates.

In the long run, a healthy global economy is in everyone’s best interest, but as investors and institutions search for some degree of safe haven, those home buyers and those able to refinance existing mortgages will benefit from this temporary global anxiety.

Washington Irving’s character, Rip Van Winkle awoke from his very long

Acton Real Estate Blog

nap to find many unbelievable changes in his village. If Rip was a real estate agent and took such nap today, one of the amazing changes he would find is the large number of missing home buyers.

With interest rates headed for 4% he would wonder where the buyers were. The old rate calculation books popular before internet calculators haven’t published rates below 7% in decades.

He would find home prices that have had fallen on average 10% to 20%, more in some higher priced areas. And lots of those houses are on the market today; listings are up more than 20% from two years ago.

And, if he had his eye on a particular house a few years ago, not only could he buy it today for much less, but chances are the owners have had to upgrade the property with granite counter tops, hard wood floors, new roofs and septic systems, among other things, just to prepare it for this market.

Will prices trend lower? Most experts say no and those who think declines are likely don’t see a repeat of the past two years, and in fact many markets are now experiencing price increases. How about interest rate increases? Not eminent but they are coming.

So, logically, now is the time to buy. And therein lies the answer to the question “Where are the Buyers?” Logic has been pushed aside and emotion has taken over. Who can argue with emotion? You can try but emotional arguments are, well emotional. Granted unemployment is still high (7.6% in Massachusetts), and there are economic uncertainties for many, but for the vast majority of consumers, life is stable..

The good news is that since we are talking about buyer sentiment for which there is no known cure, it is also not fatal. It will pass and when it does, emotion and logic will merge to lift the market and better times will be back. Some folks will be at the head of the line and get the best deals; most will be running to catch up.

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Housing in the News

This fall a group of student from area colleges and universities will be among 19 other collegiate teams competing to build the most innovative energy efficient solar-powered house in the US Department of Energy’s Solar Decathlon competition.  The event began in 2002 and is held every two years in Washington D.C. The goal is to build a house that is energy efficient, low cost, and of good design.  The most intriguing aspect of the effort is the idea that all these houses will produce as much energy as they consume, hence net zero homes.

Most of us spent considerably more zero? on our energy bills last year, over $6,000 for my household.  So how is net zero possible?  Basically, it is practically impossible to achieve it efficiently in most existing houses, though of course there are many ways to reduce energy consumption, but not to net zero.  New construction is a given.

The power company has been sending me comparison information lately that tells me my household is a bit lower in electricity usage than my neighbors, and I keep my oil burner tuned up.  Nevertheless, the two parents, two adult children and one adult dog who live there manage to consume over $6,000 on energy, which comes out to about $2.26 per foot for our 2,650 square foot house.

In the “Green” world, we all are all becoming more familiar with, there are certain fundamentals.  When it comes to housing, the first rule is to build a house no bigger than you really need.  The first step toward net zero is to recognize that the most efficient space is the space you do not build.   The size of new homes has been on the decline in recent years, so let’s pick 1,600 square feet as the size of our hypothetical not so big house (I am assuming the children do eventually move out and the dog stays).  Using my current energy cost of $2.26 per square foot, we get $3,616 in savings annually if the replacement house is a net zero house.

Using a 5% interest rate and a 30 year amortization, we have over $56,000 to invest in this house to achieve net zero.  Even with the high cost of photovoltaic panels (somewhere between $20,000 and $40,000 for our imaginary house depending on the availability of rebates and tax credits) and super-insulated building envelopes (double studded walls stuffed with ground up newspapers), this seems to be an adequate amount to cover costs.

Builders are indeed coming to market with net zero houses at competitive prices.  Most of the technology to accomplish this is not new, though it is continually improving, what is new is the trajectory of energy costs and the unlikely event that anything will happen to reverse that trend in the global economy we live in.

Expect to hear more about net zero homes.  Buildings represent 40% of all energy consumption in the US.  Making all buildings, including our homes more efficient will be an industry priority.

Victor. Normand

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Housing in the News –

National Association of Realtor reports that the number of home buyers from countries in Western Europe, the Middle East, South America, and Asia has increased by more than 50% over the past two years with international buyers buying properties in Florida, California, Arizona, Texas, Georgia, New York, and Nevada. In dollar terms for 2010, that represented $66 billion of residential property, or 7% of the total US market.

That’s a lot of real estate and a significant portion of the overall market, but how do these real estate sales really affect our Acton area market?  For the most part, the international buyers we deal with at Acton Real Estate are individual purchasers who are buying homes for themselves because they have temporarily or permanently relocated to the area because of a job or a family consideration.  We have not seen the international investors evident in other parts of the country.  But that does not mean that this activity has no local significance.

For one thing, the fact that international buyers see the U.S market as a safe, stable place to invest compared to their own countries is itself an endorsement of our market, and should bring some sense of increased confidence  to those who have lived under a  real estate dark cloud for the past several years. More than half of these international buyers are paying cash, by the way, compared to 7% of the market as a whole, another sign of confidence.  The doom and gloom crowd needs to take a step back and ask why the current U.S. real estate market looks better from a distance than it does up close.

The lion’s share of the buying is taking place in parts of the country hardest hit by the real estate crisis, which is not surprising since that is where the bargains are.  The benefit to the rest of the country, including our market, is that the sooner the large numbers of foreclosures and surplus inventory are behind us, along with the negative  media headlines we’re continually subjected to, the sooner the national psyche moves away from that negative perspective and the true, nature of the current housing market emerges.

So, a big thank you to the international buyers for the increased activity, and for believing in the U.S. economy and indirectly helping to put the housing market in a better light.

Victor. Normand

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Housing in the News

Victor Normand

Ever wish you could pick up your house and move it closer to work?  Bad enough the commute is a grind, now the cost of gasoline is really starting to hurt as well.  One economist predicted that consumers in large numbers will only begin to change their driving habits when it routinely costs them $100 to fill the tank of the average car, well, it won’t be long before we are there.

And this time the run up on the price of a gallon of gas looks like it’s no temporary event; no price fixing by an oil cartel; no disruption of shipping channels, just your basic supply and demand at work as the economy improves the demand for oil rises.   My last home heating oil fill-up cost me $1.10 more per gallon than I paid last April and over $2.00 more than I paid in 2000.  This time around, the Chinese are major new players in the game as their economy continues to grow and a vast new group of middle class consumers emerges who will be driving more cars and living in bigger houses you can be sure.

So, if you are in the market for a home you need to consider all aspects of high cost oil in your decision, not just how far you need to travel to get to work.  You need to consider how big that house needs to be and how efficient its heating and cooling systems are.  You need to consider how much mortgage you can afford recognizing that household budgets are strained by the high cost of oil in many ways.  Essentially, anything you buy that needs to be transported, which is everything you buy, will cost more.  Not to mention if what you buy is made with petroleum or requires something that uses petroleum to make or grow it, that will also cost more as well in the months ahead.

Another economist, also said that for all the things we do with oil, burning it in cars and homes is the last thing we should be doing with the stuff.  We will eventually find viable alternative sources of energy, but in the mean time get ready to endure some pain in the wallet and you might want to consider turning that front lawn into a vegetable garden.

The Smart Phone and the QR Code

By Victor Normand

Bar codes are everywhere merchandise is sold; in fact, it would be a surprise not to find one on a product.  By and large we trust them and even for those of us who absorb and use new technologies cautiously if not painfully, we have accepted them.  I have even felt comfortable enough to check myself out on occasion at the supermarket. So, now along comes the QR code, QR for quick response and it certainly is that! It is essentially a bar code variation with lots of uses.

The QR technology is actually not new.  It was invented in Japan in 1994 by a company owned by Toyota, and used to track parts during automobile manufacturing.  What’s new is its use in conjunction with smart phones.  It did not take long for software designers to realize the potential uses a QR code could be put to by these increasingly ubiquitous hand held devices.

Presently there are over 50 apps available which will allow smart phones to recognize QR codes and allow large amounts of information and images to almost instantly appear on the screen, and all of these apps are free. Creating the QR codes only requires searching on line for the program which is available from any number of sources.

So, expect to see QR codes EVERYWHERE, and very soon.  They are already appearing in many magazines and outdoor advertising venues.  In our real estate business, expect to see them attached to lawn signs which will allow passersby on foot or in a moving automobile (we advise caution in this regard and strongly recommend that the smart phone be in the hands of a passenger) to capture the QR code and within moments, have all of the listing information, including pictures, in the palm of their hands.

The QR code will become the portal through which complete information on a specific property will be available.  Has there ever been an invention so aptly named as the Smart Phone?

By Victor Normand

An eleventh hour add-on to the healthcare reform legislation imposes a 3.8% tax on investment income.  Realtor® Magazine  recently ran an article claiming that such a tax was not a real estate transfer tax.  Granted it is not a tax paid at closing like states impose, but in every other way it is a tax paid by many for the privilege of transferring real estate. Real estate sales has always been in the cross hairs of lawmakers looking to raise taxes and carving exemptions on lower incomes seems to soften the blow, but let’s be honest, a significant portion of investment income for many people involves real estate, and a tax that will raise $325 billion over eight years will have an impact on many individuals and families.

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True, the exemptions for our individual residences will shield some taxpayers’ form this tax, but other real estate investments are exposed to the tax and often in a not so insignificant way.  Planning for retirement for many involves the purchase of investment income property with the intention of holding on to the asset, using rental income to pay down debt and timing the sale to coincide with college expenses or retirement.

So, as is often the case, people with otherwise modest incomes will have a windfall, probably the only one in their lifetimes when they cash in on investment property. Over many years they have held on to and often managed and maintained the property themselves; now they will face an unplanned tax bill when they cash out.  For example, a couple with adjusted gross income of $120,000 sells their fully depreciated rental property for $750,000.  This may represent the bulk of their lifetime savings, which had been their plan all along.  After the closing, when doing their taxes for the year they find an additional tax (not called a transfer tax, but it might as well be) of $23,560. ($120,000 AGI plus $750,000 gain, less the personal exemption of $250,000 for the couple, leaving $620,000 exposed to the 3.8% tax).

That’s the way it is with most taxes, they seem like a small amount and seem not to affect very many taxpayers, but they end up hitting more ordinary middleclass taxpayers then anyone realized.  So, if you are in this situation and fortunate enough to be approaching the time to sell, you have a grace period.  The tax does not take effect until 2013.  Time your sale accordingly to avoid this Transfer Tax

Property foreclosure has touched the broad spectrum of homeowners all across the country.  What began as a problem limited to borrowers who had over extended themselves in order to buy a home, mostly involving lower income, often first time buyers, many of whom did not fully understand the consequences of variable rate mortgages, the limited re-financing options of low down payments, or the risks of an economic downturn, has spread through all economic strata by the effects of the recession and job loss.  From Subprime borrowers to cashiered executives, home foreclosure has become a painful reality.

Foreclosure is always the lender’s lease favored option.  It is the most costly and time consuming and complicated process even under normal circumstances.  Add to the mix some careless if not devious practices by some lenders and mortgages holders, which clouded titles, and foreclosure becomes a train wreck.  Loan modifications work sometimes to stave off foreclosure, though the track record among subprime borrowers is not good, and title issues, if they exist, remain to be straightened out at a later date.  Short Sales can save money if not time, though they require incredible patience while due diligence proceeds, and title issues must still be dealt with.

Stopping all foreclosures will bring all

mortgage lending to a halt.

Despite all the frustration and downright anger caused by lenders as they move mortgages about the globe, and the subsequent calls for a halt to all foreclosures, reason must prevail.  In the first instance, when all else has failed, foreclosures need to happen, whomever ultimately is owed money on a defaulted mortgage in entitled to recourse, that’s the contract both parties agreed to.  In the second instance, if foreclosures are halted by law, even for a brief time period, alllending for homes will come to a halt, even for the best credits.  No bank or mortgage company will lend money on a home without the absolute ability to efficiently access its collateral.  Even small steps taken to halt foreclosures across the board could chill the mortgage.

You may not have heard, but it is still possible to get a nearly no down payment mortgage in Massachusetts.  Despite the headlines and all the talk of how difficult it is to get a mortgage, MassHousing, with the support of Fannie Mae, has a product that will get some borrowers into a home for not more than $1,000; and there are grants to help bring that cost down as well.  While little or no down payments are cited as a contributing factor that set in motion the critical housing problems we have today, in fairness other factors were as much to blame, such as ill-advised use of adjustable rate mortgages and lax underwriting standards.

Renting vs. Buying a Home: Weighing the Costs

Still, one has to wonder if a program that makes it financially less painful to buy a home than to rent one is such a good idea.  In Acton, the average rent for all properties listed for rent during the past year was over $1,400 a month, with landlords typically asking for first and last month’s rent, and a month’s rent for a security deposit up front before turning over the keys.  That’s $4,200 as a “down payment” to rent.  It seems that if a renter can come up with that kind of money to close their deal, buyers should be asked to do as much.

No one wants to be discouraging buyers these days, especially those of us who depend on them for our livelihood, but a stable housing market should be everyone’s goal.  Nothing helps ensure commitment to a property or a neighborhood like an investment of one’s hard earned cash.  Asking buyers, especially first-time buyers, to come up with a down payment of 20% is often a tall order, but 3% to 5% may not be too much to ask.

When you consider all of the expenses, it does cost more to own a home than to rent one, even for most starter homes or condominiums.  Figuring out what that incremental cost increase will be is not hard to do.  Getting prospective buyers to save that increment every month is a good way to start building a real down payment while at the same time adjusting to a new housing expense budget.  Let’s be cautious as we return to a normal market; we could all do with a bit of calm and predictability.