Monday, August 27, 2007

"Full-Blown Recession"

Dude, that is a huge statement.

Mark Zandi, chief economist at Moody's, says that housing is in a "full-blown recession."

Listen to this interview at{7AE3CA10-3E79-4840-87A0-6FDC5F3862FA}

Zandi is reacting to the National Assn of Realtor's report, which came out today.
The report's overall message is that sales are very slow and prices are down. You can read about it in the Star Trib:

Zandi has some good points, but I don't agree with him on everything.
He says on of the reasons we have such a big backlog of homes on the market is because of the number of foreclosures (agreed). But, here's where we disagree: he believes that the number of foreclosures will slow down, and the market will catch up. I actually believe we will see more foreclosures in the next year or two. If the market picks up, it will have to be in spite of high numbers of foreclosed properties on the market.

I believe foreclosures are because of the ARM financing and refinancing, and I don't think all of the ARMs that were sold have kicked in at the high rates yet. We've got a couple more years.

In the Zandi interview they say foreclosures represent about 7% of the market. I will tell you that some neighborhoods have more than than. St. Paul's North End is hit hard, North Minneapolis, St. Paul's East Side....
The Strib has a very well done map of foreclosures you can access from the front page of the Strib site.

I also published a post a while back about how foreclosures weren't such a great deal. The Strib did a story on another angle of that -- it takes eons for the banks to respond to your offers on foreclosed properties.

The foreclosures are throwing this market for a real loop.
If you are an owner of a 3 bed, 1 bath, 1500 square feet, and you think your house is worth about $250,000, but the foreclosed 3 bed, 1 bath, 1500 square feet with no appliances and smashed walls goes for $180,000 --- well, your $250,000 price will get close scrutiny.

The good news that everyone keeps missing in all of this is that it is a fabulous time to buy property. There are tons of options out there, and prices are amazing.

But to stop the bleeding in the foreclosed properties, both the government and the banks are going to have to step up. People got sold into products that were inappropriate for their financial situation (ARMs, etc.). The bank should be willing to refinance these mortgages and spare everyone the work and money that a foreclosure costs everyone. Certainly, there are some people who are actual deadbeats that aren't paying the bills -- but there are others that got suckered into a mortgage product they don't understand. Like 78 year old ladies and Hmong single moms that don't speak very good English. Those are the people that need a bail-out -- they were sold inappropriate products. I wish the damn mortgage brokers that sold them the products were held accountable and were required to fix those situations.

A concerted effort between banks and government could do a world of good -- but I don't think that will happen.

In the mean time, happy shopping.

Friday, August 17, 2007

Mortgage Meltdown Explained

There is a fabulous, fabulous article on today that pulls back the curtain to show us exactly what's going on in the investment world with mortgages.

Thursday, August 16, 2007

How to Respond to the Market

What to do if you are in the real estate market today?

Well, I am always a backer of the downtrodden, and always a cheerleader of my industry, and I honestly bought stock in a lender at a bargain price. I didn't buy much -- even if I lose it all that's okay.

If you are considering buying a house, get on it. There are really wonderful bargains out there, not just last year's prices but 4 years ago prices. And especially shop very carefully for your mortgage broker/banker and lender. A strong reputation backed by a strong lending institution is what you need today.

If you need to sell your house, don't mess around. Just get it done.

If you want to sell your house but don't have to, think twice. One one hand, it's an amazing opportunity to buy something really really fabulous at rock-bottom prices. But remember, you will also be selling at a rock-bottom price. But think of it this way: someone coming down 5% on a $400k house is a lot bigger chunk than coming down 5% on a $200k house.

Don't Call It a Comeback

I'm really fascinated by the financial news today.
Countrywide, the biggest lender in the country, is struggling. They've borrowed $11 billion to cover their butts. The analysts are not happy and are downgrading Countrywide's credit rating, and investment-worthiness ratings.

Earlier this week, Yun, the guy that does all of the commenting for the National Association of Realtors, says this is the bottom.
I think we've heard that one before.

All of the mortgage guys I work with are sending out "all clear" type emails to let us know the local firms are doing fine. One called me yesterday, just to chat about it all. I think everyone's a little scared.

One of my mortgage guys sent out an email talking about his take on "the bottom." Here's what Todd wrote:
From my perspective or explanation for the volatility is that we are bottoming out. One major key component or characteristic of a bottom is bouncing off of the floor. In this case I am talking about the bottom of the real estate slump. It is pubic knowledge and all over the newspapers and internet of the collapse of the secondary market for certain types of mortgage products such as sub prime which is no longer around. If this is the bottom now we must start the long climb upward. Granted there is a lot of foreclosures taking place and that will be a lengthy process to filter out. The climb could and should be shortened with some help from the FED regarding rates. This past weeks meeting showed that the FED is starting to take notice of the risk of the credit crunch and they followed quickly by adding liquidity to the markets almost $20 million worth. Many economists now believe that the stage is set for the FED to lower rates more quickly than they thought.

I really hope Todd is right, I really do. However, I just wonder if all of the flailing about is really about uncertainty -- will some of the biggest lenders in the nation topple? Thornburg? Countrywide? Countrywide, really??

Interest rates have also been steady, and some in the mortgage industry think Bernanke is holding rates to pacify the larger market to the peril of the mortgage and real estate industry. (Where does the middle class hold wealth? Real estate.) If the Fed pulls down rates, it may trigger a small, and probably short-lived, rally in buyers of real estate.

How did the mortgage industry get into this pickle? Some say they are a victim of their own success. They sold anyone and everyone a mortgage, in the name of the "American Dream."

I am a Realtor, and bought my first house at 22, and really believe in that "American Dream." However, I once heard someone say, "He's just not cut out to be a homeowner." And I think that's really true. Not everyone has the dedication and financial stability and responsibility to do it.

But in the go-go times of recent years, anyone and everyone could get a mortgage. People with bad credit, people just out of (and probably in) bankruptcy, people with eyes bigger than their stomachs got into big mortgages. Too big. And now they can't pay, and the banks end up getting the properties back.

Much of that property was bought at the height of the market, and the bank now holds a house that isn't worth what it was when it was purchased.

Todd is right -- it's going to take a long time to sell of the foreclosure inventory, and for the banks to tally up the losses they took on those properties. It's going to be huge. And on top of that, the banks have a terrible liquidity problem right now that goes beyond the mortgage industry and into the whole economy. has a great article about the lenders today:

Wednesday, August 15, 2007

Trouble in MortgageLand

There has been a lot of press in recent months (heck, years) about the stagnating (heck, dropping) prices of residential real estate.

Well, that was bad but not as bad as the current state of the mortgage industry, in my opinion.
Here's a snip from a story on
Several lenders such as American Home Mortgage Investment Corp. and New Century Financial Corp. have already filed for bankruptcy after facing margin calls. Now, other mortgage REITs such as Thornburg Mortgage Inc. and NovaStar Financial Inc. are struggling to survive.

Struggling to survive???? Some big, publicly-traded, reputable mortgage companies are "struggling to survive"? These companies don't do just the sub-prime loans, either.

This shakedown could get bad, and could affect all of us in a really dramatic way. If the bigger mortgage companies start to go under, or if it becomes more risky for investors to buy mortgages, it becomes more expensive for banks and brokers to sell mortgages. That means rates and fees could increase for everyone.

All I can say is if you are a buyer on the fence, not sure if you should buy or not, I will tell you that rates aren't going to get any better.

There's also a good story on this topic at WSJ:

And always has great articles. They have one about a tough situation: if you were preapproved and the lender goes bankrupt. Yikes!!

I think this is going to be a major, major story this fall.

Mayor Coleman Proclaims: Sheila Connolly Day, Friday August 17, 2007

My boss, Sheila Connolly, is retiring on Friday.

Mayor Chris Coleman stopped by the Edina Realty Grand office Tuesday to let us all know that Friday, August 17, 2007 has been proclaimed Sheila Connolly Day in the City of Saint Paul.

I have really enjoyed Sheila. I've learned a lot from her. She's one of the best no-B.S. people I have ever met. She's good at identifing what is the issue and what is ego.

We don't yet know who will be the new manager of the Edina Realty Grand Avenue office, but word is there are a lot of people that want the job.

Our office is one the best in Edina Realty, with agents that are all really strong. That's credit to Sheila -- she has recruited and attracted the best talent. I am very lucky that she chose me, and I am very lucky to have the support of Sheila and all of the other fabulous agents in my office that help me out when I need it.

One of the first questions I had for Sheila was if the office was more collaborative or competitive. She told me it was certainly collaborative -- and that was true. It's kind of amazing, because in a lot of ways we are all in competition with each other. But Sheila has set the tone so we can all work with each other instead of against each other. Again, cutting the B.S. so we can get some work done.

Thanks Sheila!

Monday, August 13, 2007

What Realtors do in August

It's hot. Lots of people are on vacation. People with kids in school aren't looking to move right when school starts. August dog days.

I'm just waiting for a few closings, and I really have just one kind-of active buyer client and I'm keeping my fingers crossed that the last showing is going to sell my listing.

It's a real contrast from April, the month of unending showings and stagings and signings.

So what do I do? I clean, something I did not do much of in March, April and May.

I attacked my house's clawfoot today. I have a medium to large size tub, not as big or grand as the old place's tub, but still a luxury. I always struggle with finding the perfect thing to clean the tub with, and yesterday I bought my mom's old standby: Comet, with bleach.

The tub came out so shiny and beautiful, but had old a few stains left in the areas that have lost it's finish and is now porous. I don't think Comet is a very good solution for a tub in good shape, but mine's on it's last legs and I figure what the heck. It's over 100 years old and has been losing finish to the previous owner's tough cleaning methods for many years.

I am always sad to see what I call the "hotel tub"in so many homes. New places, mostly. And when you remodel the bathroom, really, spend a little more to get a really great tub. It's worth it. The clawfoot is the best tub you can have -- deep, smooth, and keeps the heat of the water for a long time. I could almost lay down in a foot of water in the tub in the old house.

My favorite bathrooms are the old Ramsey Hill mansions with marble walls (sometimes creating a marble-walled shower stall) or subway tile walls, small octagonal tiles on the floor, and Carrera marble sink tops with giant clawfoots. Sometimes you even run into a great original toilet.

My bathroom's overdue for a remodel. It's gonna be a classic, to match my 1905 house.

In the mean time, I'll be buying Mr Bubble and steaming the house up, making good use of the simple luxury that is a claw foot.

Wednesday, August 8, 2007


A lot of people ask me about foreclosures. They want a "good deal."

From today's Strib article about Invest St Paul:

The city experienced more than 1,100 foreclosures from January through July and currently has 1,200 vacant buildings.

There have been so many foreclosures that the Sheriff has had to hire extra staff to complete all of the paperwork. (Yes, the Sheriff is actually the one that "sells" the property back to the bank.)

Here's the interesting thing about the foreclosures out there today: many of them are priced above market value, because the previous owner bought the home when the market was high and supported the price. Prices have fallen in some neighborhoods. Also, when people are foreclosed, they don't leave the property in a very good condition. That affects the sale price.

I did see one foreclosure that had the tub, toilet, tile, switchplates, lighting fixtures and other pieces removed from the house. It was pretty ridiculous -- the switchplates?? Those babies are 30 cents each at Home Depot.

I've also watched a foreclosure listing in my neighborhood drop the price by over 38 percent. The previous owner paid over 50 percent more than the property is currently listed at. And the thing won't sell. It's not a high-priced house, either -- 38 percent is more than $100,000 in this case. And it is still priced too high for the market to absorb it -- no one will buy it for almost half off of what someone paid for it a few years ago.

So, no, not all foreclosures are a "good deal."

It can also be difficult to purchase a foreclosure, which I will talk about later. If you really were getting a good deal it might be worth the work it would take to purchase the property, but so many of them are overpriced right now. You're better off to look at other things that don't require negotiation with a bank.

Invest St Paul

Yesterday the budget for the City of St Paul was announced. Mayor Coleman is working up a program called Invest St Paul, and it looks as if he is targeting the city's toughest neighborhoods to do a little clean-up. From the Strib:
If the mayor's plan, called Invest St. Paul, is approved, the city will put those funds into beautification, demolition and rehab projects in four neighborhoods -- Dayton's Bluff, Lower East Side, Frogtown and North End. Those neighborhoods would receive most of the funding connected to the initiative.

Strib says a special half cent tax will generate up to $25 million. Sounds like the heart of the plan is to buy up vacant buildings, beautify streets and sidewalks, and create more neighborhood programs.

For the sake of those neighborhoods, I hope the program works.

My first condo was at Laurel and Dale ... when we first moved in, Selby and Dale was a really cool place to sell rugs featuring tigers, lions and Tupac as well as off-brand athletic shoes. Pretty likely it was a place to pick up your favorite flavor of illegal substance, as well. The city started pouring money into Selby between Dale and the Cathedral. Then Mississippi Market came in, and suddenly it wasn't so fun to sell crack in front of the organic food store.

Do I think the North End is the next Selby Dale? No. I don't. Selby had been a city project and community project since the mid to late 70's. It takes a LOOONG time. And, the Historic District (the neighborhood East of Dale) is a very wealthy neighborhood that attracted business.

But I do think City investment in these communities is important.

But I also have another angle on all of this. I do know that it's not the buildings or the sidewalks or the businesses that make a neighborhood, it's the people. And if there are people in those neighborhoods that are not good neighbors (criminals, drug dealers, gang members) all of the money in the City budget won't change that. So it is possible we will spend a lot of money on some neighborhoods that could be great (Dayton't Bluff, I'm talking about you) but until the absentee landlords and criminals are driven out, the place won't change.

Another phenomenon I have been interested is something the St Paul Police told one of my neighbors. I mentioned the development of Selby ... some call it "gentrification" but I prefer development. As the area improves, housing costs increase. Most of the riff-raff has been moved from the area east of Dale, but we still get some riff-raff north of Selby between Dale and Lexington. The St Paul Police told a neighbor that neighborhood is improving and the worst of the tenants are being removed, and are finding housing in new neighborhoods (like mine).

The bad tenants are having a hard time fitting in here in my neighborhood, and have a very short time left before the eviction is final. But -- it leads to the bigger question --- where do the bad people go when a neighborhood improves and they are pushed out due to higher costs, sale of buildings to landlords that care, etc.?

You could house the bad tenants in a perfectly designed house, with perfect sidewalks and perfect streetlights. But that won't change the behavior.

The Twin Cities experiences a migration of these bad seeds every once in a while. From Selby to the East Side. From the East Side to Brooklyn Center. You never really know which neighborhood will succeed in getting rid of the bad landlords that keep bad tenants and which neighborhoods will suddenly get an influx of the bad tenants.

Criminals, drug dealers, gang members, and the sociopaths do live somewhere. They're in every neighborhood, really, just to different levels. I think absentee landlords have a lot to do with accepting renters that no one else would want living near them (the criminals, gang members, drug dealers). I don't think this $25 million from the City will change that.
Every neighborhood crosses its fingers -- "Maybe this is the program that will shove all of our bad seeds to the other side of the freeway!"

We just move them around....

Tuesday, August 7, 2007

Fiduciary Duties

Realtors in Minnesota have fiduciary duties to clients. Kind of like attorney-client privilege or the secrets that your doctor keeps about those bumps you have.

I actually enjoy this aspect of my job a lot. The client really has a lot of control of the agent, because it is the client that needs to make the decisions, not the agent. The agent should advise, and educate, but not make the decision.

Here are the fiduciary duties every agent in the State of Minnesota owes clients, from the Agendy Disclosure Form:
Loyalty - broker/salesperson will act only in client(s)’ best interest.
Obedience - broker/salesperson will carry out all client(s)’ lawful instructions.
Disclosure - broker/salesperson will disclose to client(s) all material facts of which broker/salesperson has knowledge which might reasonably affect the client(s)’ use and enjoyment of the property.
Confidentiality - broker/salesperson will keep client(s)’ confidences unless required by law to disclose specific information (such as disclosure of material facts to Buyers).
Reasonable Care - broker/salesperson will use reasonable care in performing duties as an agent.
Accounting - broker/salesperson will account to client(s) for all client(s)’ money and property received as agent.

Every agent has a time when one of these factors is tested. There are times when loyalties get split, when proper disclosure becomes difficult, when you just accidentally screw up and you didn't show reasonable care. I hope never to have a problem with the accounting requirement. I am very cautious with my clients' earnest checks and property.

I could write all day on this topic. More to come.

What's a Realtor(r)?

I recently ran across an article in Realtor magazine (yes, I read it, and yes, it's super-dorky) about the difference between a Realtor(r) and a real estate agent. I didn't know this until recently.

Here the thing: Realtors (r) are members of the National Association of Relators (NAR). I keep putting that (r) after the word Relator(r) because it is a registered trademark of NAR.

I guess there are some real estate agents that are not Realtors(r). It's a small minority nationwide.
How it works in the Twin Cities is that you must have a broker hold your real estate license (essentially you need to get recruited into an existing real estate office) and then you must become a member of a local real estate board (such as the St Paul Area Association of Relators or Minneapolis Association of Realtors). The local real estate boards are also members of NAR, so it's a group affiliation thing. Kind of like a union. So, if you become a real estate agent in the Twin Cities, you must join the local board that hooks you into NAR and their members are called Realtors(r).

The State of Minnesota's Department of Commerce regulates and licenses real estate agents and brokers.

If a Realtor(r) does something bad/unethical, they are taken to Realtor Court at one of the local boards. If they do something really naughty, the Department of Commerce will come down on you. If you really screw up and take money or embezzle, the Feds will come calling. It's serious. You can go to jail for the really bad stuff, and recently, people from Minnesota have gone to jail.

The beginning of the end....

So I used to work in the web world. I built giant websites for giant corporations, and then I managed the clients of those giant websites owned by the giant corporations. And some smaller corporations. And after over 10 years in technology, my number finally came up and I got laid off. It's quite a miracle I survived the boom and bust and everything in between without a layoff until late in 2005. I guess they just liked me ... or more likely, I was low on the payscale and never caught the eye of HR.

I had been an amateur real estate agent for many many years, carefully tracking my neighborhood market (Cathedral Hill, back then). I knew everything on the market and obsessively tracked it all.
When I got laid off, I sent off the resume, did the interviews, half-heartedly thought about shackling myself to a desk again. I had been told that a layoff has a way of changing your life, and I found that to be true.

One morning, I woke up, and went straight to the computer to check the new listings on
There was something fabulous with a great price in my neighborhood. I knew it would go fast. I put on my pants and drove over there, cell phone in hand. I called through my list -- which of my friends would want to buy this house? It's going to be gone soon! Other real estate agents were swarming around it in their Lexuses, on their cells, calling their clients to come see it.

And that's when I realized I was acting like a real estate agent and I should probably just commit to it.

My husband was in law school at the time. All in all, it's about a 4 and a half year process from LSAT to Bar Exam.

It took me 3 and a half weeks to become a Realtor (r). A few days of waiting for the training class to start and 3 weeks of training.

When I decided to change my career, it took 3 weeks. When Luke decided to change careers, it took 3 years.

So this blog is the beginning of the end. When I left the web world, I was pretty burned out and thought I would never again work with the web.