The Absolute Worst Place to Find Real Estate Information About Your Neighborhood

Stories on TV about the national real estate market are misleading to Americans.

This is because there is no such thing as a "national real estate market".

Consider the latest American Housing Survey. It found that there are 124,377,000 homes in America spread across:

50 states, with

More than 30,000 incorporated cities, and with

An innumerable number of neighborhoods

And yet, the media repeatedly groups all 124 million homes into one giant lump and then gives an analysis. No matter how you slice and dice the data, a home in Utah can't be compared to a home in Alabama.

This is why national real estate statistics are pretty much useless.

To get real estate analysis that matters, look local instead. And I don't mean stats from your state -- I mean stats from your neighborhood. It's the only way to know what's driving home prices on your street.

Unfortunately, finding local data like this isn't easy; it's far too narrow to be covered by the press. So, the best place to get local real estate data is from a local real estate agent or from somebody else with access to raw real estate data in and around your neighborhood.

By talking to "in the market" professionals that know your backyard, you'll get a much clearer picture of your local market -- good or bad -- than the national media could ever provide.

Real estate is a local market so your real estate data should be local, too.

Don't Look at Annual Housing Data - It's The Monthly Data That Matters

For the third straight month, at least 15 of the nation's 20 largest real estate markets showed relative monthly improvement in May 2008, according to the S&P/Case-Shiller Home Price Index.

I use "relative monthly improvement" as another way of saying that markets are "less worse than they were" and that's good for the housing market (although you wouldn't know it by looking at the headlines).

Instead of pulling the positives out from the data, newspapers are highlighting the year-over-year, cliff-diving-like decline in prices.

Now, it's not wrong to look at annual trends in home prices, it's just a little bit misleading. Remember: Active home buyers are probably seeing something completely different from what the papers are saying they should be seeing.

See, year-over-year comparisons are fine for identifying long-term trends, but as it relates to an active home buyer, annual data don't mean squat. It's the short-term trend that matters.

The obvious example: If you've been shopping for a home over the last 3 months, you've probably noticed the market slowly slipping away from you, and moving into the sellers' favor.

When you see "all the good homes" go under contract, or sellers regaining their negotiation power, it's your sign that the market is shifting.

In other words, if you're buying a home now, the real estate market of 12 months ago is irrevelant. What you're going to pay for a home is based on market activity today, not activity from 2007.

Why Are Homebuyers Coming Back to the Market Now? There's Suddely Good Value in Real Estate.

Statistics won't always tell the whole story, but they often
provide good perspective.

The graph at right shows Existing Home Sales data going back three years. An "existing home" is one that can't be called new construction; a "used home", so to speak.

Note the steep decline from 2005 through late-2007.

Since November, however, Existing Home Sales have remained within a very tight range and appear to have reached a flattening point.

The Existing Home Sales data supports the word-on-the-street from real estate agents nationwide that buyers are returning to the housing market in search of good values.

But let's not forget -- demand is only half of the story. There is the supply factor, too, and the supply side of the housing market is showing the same leveling signs as the demand part.

Looking at the national inventory at left, the number of existing homes for sale has hovered near 4.5 million for the last several months. No change suggests strength.

Now again, statistics won't tell the whole story but there are plenty of positive signals from the real estate market right now, just like there are negative ones.

This is one reason why real estate data causes so much debate -- people want to take an either/or proposition about the state of the real estate and it doesn't work like that. Real estate can be simultaneously strong and weak and when it is, buyers look for value.

Perhaps this is why the national housing data is beginning to level off after a 3-year slide. There's good values to be had, and today's home buyers know it.

Why Home Values May Rise When Home Building Falls to a 17 Year Low

A "Housing Start" is a new home on which construction has commenced. In May Housing Starts fell to a seventeen year low nation wide.

At first glance, this may seem like a negative for the already-battered U.S. housing market.

It's not.

Falling Housing Starts reflects the broader real estate market and shows us that builders are working hard to get their inventory of homes "off the books".

It would not be a strategic move for them to build new homes now -- each new unit makes selling the existing ones tougher.

So, when we look at the figure objectively, we can see that Housing Starts reaching a 17-year low could be good news, because real estate prices are based on supply and demand to a large degree.

With Housing Starts touching new lows, we can infer that there will be fewer new homes coming on the market in the coming months and that should help support higher home values nationwide for just about everyone.

Using Mosaics To Show Why "National Real Estate News" Is Useless

These photos represent six neighborhoods in America and their respective real estate markets.

They are six different neighborhoods with six different feels, each with its own character and flavor. Some have dogs, some are blue, some are smiling -- some are young, some are old, some are blurry.

Now, look at the photo below.



This photo represents the national real estate market.

If you look carefully, you'll find the six "neighborhoods" mixed in. One is in the cheek, one's on the forehead, one's off to the side, for example. The "Big Picture" is made up from thousands of "Small Pictures" representing our country's streets and neighborhoods.

These small pictures each have their own unique characteristics, but combine to form a completely different look.

The mosaic is one more reason why we all should look deeper than headlines to get our real estate news. The Big Picture tells us nothing.

Recent real estate reports tell us that this is the worst market in years but that's a national story.

On a local level, there are a handful of neighborhoods in both Chicago and Cincinnati that are exploding.
Symmes Township
Montgomery
Lakeview
Bronzeville

And there are many more, too. But, instead of talking about the areas where homes are selling for list price or more, the media shows us the goateed guy instead, the metaphorical "national" real estate market in which nobody actually buys or sells.

Think about the next home you'll buy. It won't be a home that exists in all 50 states simultaneously. It will be a home that exists in one state, in one town, in one neighborhood, on one street and with has its own character.

Your next home will be a small square on the face of the national real estate market because that's what real estate is -- a series of very, very small pictures.

So, the next time that headlines talk about our nation's housing market -- strong or weak -- skip to the next article. You can't lump every home in America into one giant chunk of data.

Closing In May, June, July, And August Deserves Advance Planning

Between Memorial Day and Labor Day, home buyers should take special care to schedule their purchase closings with three simple rules in mind:
1. Don't close on a Friday
2. Don't close in the afternoon
3. Don't close on the last day of the month
You stick with that, the rest is cream cheese.
These are three rules to live by because home purchases require a lot of man-hours and during the summertime, man-hours are in short supply.
And, if you didn't already know, home purchases are a carefully orchestrated dance.
Check out the people involved in a typical home purchase:
1. The buyer(s) of the home
2. The seller(s) of the home
3. The buyer's real estate agent
4. The seller's real estate agent
5. The buyer's attorney
6. The seller's attorney
7. The buyer's mortgage lender
8. The title company agent
9. The buyer's appraiser
And that's before we count assistants, interns, and the other staffers involved. Closing on a home purchase is a 20-person collaboration and each is needed to make the process smooth.
This is why mid-week closings are preferable in the summer months -- it's more likely that all 20 people will be around. By the time Friday rolls around, at least one person will have started their weekend early. You can count on that.
And often, it's more than one.
It's also why mornings closings are preferred to afternoon ones. In the summer, people leave their offices early for all sorts of reasons -- baseball games, golf outings, Caitlin's Cooking on Fountain Square.
It's harder to reach people when they're oat and a boat and not tethered to their desks. That's bad news if you need to reach somebody now.
So, let's say you've scheduled a 9:00 A.M. closing on a Wednesday and all parties to your purchase are standing by, ready to assist. There's another issue about which to be aware -- title company agents are overworked.
Every day, title agents work hard to close home purchase and have to work even harder as the month goes on. This is because home buyers tend to schedule closings at month-end.
When there is more work to finish, there is less room for error.
Unfortunately, mistakes happen and title companies on their busiest days are a lot like airports on Thanksgiving -- a delayed landing in the morning starts a chain reaction that delays every other landing later that day.
Therefore, to minimize the chance that of closing delays, avoid closing during peak hours, the time when everyone else is trying to close, too.
Peak title company hours are:
• Fridays
• Afternoon
• The end of the month
Purchase closings are complicated because there are loads of moving pieces and 20 different people are working to coordinate them. It won't always be perfect, but you can make your home purchase closing easier by scheduling for an appropriate date and time.

For Truth-in-Housing, You Have To Know Where To Look

Each quarter, the Federal Reserve surveys 84 U.S. banks about demand for loan products and general banking conditions.

It's like "street reporting"; a pulse of what's really happening behind retail bank walls. Almost always, it paints a different picture of lending from what's being reported on the news.

For example, according to April's survey results, demand for mortgages is picking up and may rebound into positive territory by July of this year.

To hear the media tell it, you'd think that the mortgage and real estate business was DOA.

When mortgage demand spikes like this, we have to at least consider that consumers may be submitting mortgage applications to multiple banks at the same time but the more likely answer is that we're moving into a favorable real estate market.

It's on-the-street surveys like this tell the other side of the housing market story; the one to which business television is oblivious and about which top real estate and mortgage professionals won't stop shouting:

Homes are selling, buyers are buying, and there is a growing demand for home loan products.

Projected over the next handful of months, the housing market may be positioning for a strong national recovery.

Simple Real Estate Definitions: Average Days On Market

In the world of real estate, Days On Market is the number of days between when a home lists for sale and when it goes under contract.

It is often abbreviated as DOM.

Average Days on Market is a similar statistic but instead of applying to one home in particular, it applies to all homes in a given neighborhood, ZIP code, or city.

Average DOM is calculated by adding the number of days for which every listed home in an area was available for sale, and then dividing that number by the total number of listings.

In a buyer's market, Average Days On Market is often elevated. This is because homes don't sell as fast as during a seller's market when the Average DOM can be quite low.

For buyers and sellers of real estate, Average Days On Market can be a strong indicator of home prices. When Average DOM falls, home prices tend to increase.

Stop Asking Your Real Estate Agent If "Now Is A Good Time To Buy"

For Americans wanting to buy a new home, there are always two time frames to consider:

Now

Later

It's why prospective home buyers love to ask the question: "Is now a good time to buy?" If now is not a good time, they reason, certainly later must be.
Strangely, though, "Is now a good time to buy?" is a question that people ask their real estate agent but never their mortgage guy.
It's probably a good thing, too, because loan officers have seen a lot of changes over the last few months and we're expecting a lot more this year.
But it's okay. You can ask me now: "Is now a good time to buy?"
And I answer: "Absolutely and unequivocally yes."
Now is a good time to buy -- not because home prices are flat or because sellers are willing to make like Monty Hall -- but because none of us mortgage guys can predict what the mortgage market will look like "later".
"Now" is full of knowns. "Later" is full of unknowns.
Mortgage markets are seizing and lenders have no choice but to limit what they will lend and to whom.
It may appear that lenders are going overboard with their restrictions but that's not the case at all. Lenders are simply more concerned about not wasting money than they are about making money.
Today, a bank doesn't mind if it passes on 9 good loans in a stack of applications if it means that it also passes on the 1 bad one that's in there.
Mortgages are only a small percentage of the bank's balance sheet, but it's the uncertainty about the demand for mortgages by investors that makes them nervous.
If mortgage bonds become worthless worth less, the little guy could eventually topple the giant much like Little Mac did to Mike Tyson.
The first major change we expect to see is with second mortgages. Currently, 90% home equity lines of credit are available from most banks. Judging from the graphic at left, expect that percentage to fall to 80% or lower very soon.
The second major change we expect are more credit score-based fees. Currently, a 680 score puts mortgage applicants in the safe zone from credit-score based fees.
Expect that minimum score to raise to 720.
The third major change we expect is for the declining market designation to expand. This will force every home buyer to need an additional 5 percent (or more) of his own funds beyond what the bank's lending guidelines will allow. If you needed a 10% downpayment now, you may need a 15% downpayment later.
The fourth major change we expect is based on property type. New construction condos are in ample supply in many cities (including Chicago) and that may create an overall weakness in pricing. If a single-family home requires a 20% downpayment, banks may protect themselves by requiring 25% downpayments on condos.
And the last major change we expect is for every mortgage product in existence to get a complete makeover. New minimum standards will apply in all categories.
It's impossible to know what these new standards will be, but expect mortgage lenders to follow their losses and trim their menus accordingly. If you find yourself in the same Risk Class as other homeowners with high default rates, expect a tough road ahead.
So back to the question: "Is now a good time to buy?"
Yes it is. Not because homes may be priced right, though, but because mortgage products should look very different come this Fall. And no matter how "cheap" the home, you can't buy it if you can't get financed for it.