How the Fiscal Cliff Affects Homeowners

January 7, 2013 by Michael Borger

Aloha, friends. Apologies for the time away, but holidays call and yours truly got engaged(!). But time waits for no one and there’s much to discuss. The biggest news upon us now has been the dreaded fiscal cliff that we narrowly avoided. President Obama was in and out of Hawaii, alternating between vacationing with the First Family in Kailua and presiding over some of the most delicate negotiations to hit Washington in quite some time. And when it appeared that we were all about to go over the cliff like Thelma and Louise, the elephants and donkeys of Congress cut a deal.

But where does the Fiscal Cliff deal leave Hawaii’s homeowners?

Great question. The biggest advantage that many people are talking about is the one-year extension of the 2007 Mortgage Forgiveness Debt Relief Act, which was set to expire December 31 2012. To recap: when a house is sold as a short sale, the difference between the sale price and the mortgage balance is called the deficiency. The banks will normally waive the deficiency to help facilitate the short sale (and avoid a costly foreclosure). However, the IRS considers debt forgiveness to be income, so while the homeowner will largely be off the hook for the deficiency, they would still owe taxes on that amount according to their tax bracket. The 2007 Act allowed the short selling homeowner to waive that tax liability as well, essentially making a short sale free.

The looming fiscal cliff threatened to let that policy expire and, with it, the hopes of many homeowners with underwater mortgages who weren’t able to close a short sale before the end of the calendar year. Now, with the extension through 2013, anyone closing a short sale this year will still be able to take advantage of the tax waiver on their deficiency. That’s THOUSANDS OF DOLLARS in savings when you look at the average deficiency of a mortgage for a short sale in Hawaii! I’ve personally spoken with owners who have been underwater over $500,000. Do the math on the tax savings, even at the lowest bracket, and you’ll see the impact of extending the policy another year.

However, it’s not just about over-leveraged mortgages. The fiscal cliff deal did not really address the nation’s growing debt load which continues to steadily rise. Nor did it help from another tax angle — payroll taxes. You may have noticed this already. Furthermore, the deal postponed any discussion on spending cuts for another two months.

So while a crisis may have been averted, it’s safe to say that there’s more work yet to be done.

West Side Oahu Rising? A Story of Numbers

November 26, 2012 by Michael Borger

Do you know your numbers?

I love numbers. You know what I love more? Watching people use them incorrectly. Ok, ok, I don’t really love that, but I’m always amused by how numbers can be used misleadingly or inappropriately to tell a story that’s not really there. I used to be in the geography field, and there’s a wonderful book called How to Lie With Maps that illustrates this very same concept.

The October home sale numbers just came out by the Honolulu Board of Realtors. And while the overall message is promising, it’s important to tease out the important data from the statistical noise. For example, the post states that the Ewa and Kapolei area rose 30% from last year (October 2012 vs. October 2011). The rise was specifically the number of recorded sales, from 35 to 46.

So last month there were 11 more recorded sales in that entire region compared to the same month a year before. I’m admittedly not breaking out my statistical z-score formulas right now as it’s now 6:00am and I’ve been up for 2 hours as I’m fighting jet lag having just come home from Thanksgiving in Philadelphia, but that increase of 11 sales, while encouraging, doesn’t seem to be too much beyond statistical noise (random fluctuations). However, it is encouraging.

The flip side? Median prices declined by 4 percent (itself potentially just noise). So what’s more telling to you – more sales or a dropping price point? It’s not a rhetorical question – you likely have different needs or intentions as they relate to real estate and will, therefore, be influenced by different criteria than your neighbors. I’m just illustrating some of the challenges in making sense of data instead of just taking the spin. We gotta be analytical. Take it all in but focus on the numbers that relate more to your objectives, even if they’re counter to current sentiment.

Let’s bounce over to the windward side where in Kailua and Waimanalo, sales rose 85% from 13 to 24. That’s a large percentage increase and is likely indicative of true market uptick, but it’s such a small sample set that you have to at least curb your enthusiasm somewhat. The number to latch onto more is that that the median price for single family homes rose 40%. Even with a small set of only 24, that’s a substantial increase.

Now the report doesn’t mention if distressed properties (short sales and REOs) are included, but I’m assuming they’ve been weeded out. If not, then it’s a giant asterisk of Mark McGwire proportions (baseball fans know what I mean).

I agree that October appears to be a good month and concur with my real estate colleagues that we seem to be entering into healthier times. I just like to be a bit conservative when looking at numbers because they can often incur emotional reaction that clouds judgment and more required analysis.

By the way – if you have a cure for jet lag, then please share below!

2012 Mid-Year Hawaii Housing Status

July 31, 2012 by Michael Borger

Aloha! Ok, we’re about a month past midyear 2012 but it still works as it can take a while for those troublesome stats to kick in. What a first half of the year it’s been for housing and real estate in Hawaii. Let’s look at some key points:

Inventory is tightening up just about everywhere and prices have creeped up. Homeowners are in many instances holding on to properties whereas before they may have considered selling. Is this a sign that the housing bottom is behind us? Perhaps….
….but others still clamor that the banks are holding back about 90% of their foreclosed inventory and we’re about to get whacked back down again, maybe sooner than we thought. Do you agree?
I can tell you from my own experience running my real estate investment company that many homeowners today are also choosing to turn properties into rentals to either cash flow or at least break even and wait out an expected price appreciation to sell down later on the road for more gain.
The controversial Oahu rail project continues on, despite calls for its removal both in and out of the mayoral race.
Speaking of the Honolulu race for the mayor, who do you think is the best candidate for Hawaii’s homeowners? Cayetano? Carlisle? Caldwell? (Apparently your last name needs to start with a “C” to be mayor…)
The banks continue to foreclosure through the courts (judicial) and Hawaii homeowners who were in mortgage default for a year or even longer (yes, it’s happened all around us) are finding out that the time has come to decide how best to move on

It’s my opinion that the temporary tightening of inventory in Hawaii is just that — temporary. Sure, the banks can’t open up the faucet on wide of their shadow inventory and flood the market — we all know that will depress the local housing market to levels possibly even lower than they were a few years ago. But they have to figure something out and that REO pipeline will stay open for, as some estimators predictor, 3 to 5 years.

But here’s thing — it’s still very much tied to JOBS. And while Hawaii’s unemployment rate is very favorable compared to those of our mainland cousins (thanks to encouraging recent tourist numbers), we’re still connected to the national system and all its wonderful nuances.

STAT TIME

Let’s look at some interesting stats courtesy of RealtyTrac…

As this bar chart surely shows, the key point of interest is the steady decline in properties in Preforeclosure. In case you’re not familiar with the term, “Preforeclosure” generally means homeowners who are in default but have yet to be officially foreclosed upon. In other words, they are still the homeowners on title.

To the point, I have a hard time believing that the numbers of homeowners in default went from just under 500 in January to under 100 in June — as is many times the case, stats can be deceiving and not tell the whole story. I suppose there could be a logical reason for this, some mix of increased refinancing and/or successful loan modifications (the latter unlikely). Anyone care to shed some light?

In this chart we can see, unsurprisingly, that the vast majority of homes either headed for foreclosure or already past that point fall in the 300-400K category. Unfortunately, these numbers include all housing types (SFH, townhouse, condo) so making a clear inference is a bit difficult, but it would appear that most homeowners in Hawaii needing help are in the lower end of the price spectrum when compared across the state. However, interestingly enough, the high end luxury homes are represented as well — I guess some people bit off more than they could chew in the good times!

By the way — completely unrelated — but is anyone else enjoying this year’s flowers as much as me and my girlfriend??

Source: via Michael on Pinterest

Top 5 Criteria to Choosing the Right Real Estate Agent

July 9, 2012 by Michael Borger

How to Choose a Good Realtor

Even in today’s version of the real estate industry of FSBOs and technology out the wazoo, most home sales and purchases are done the traditional way — by utilizing the services of a licensed real estate agent. Is it necessary or legally required to use a realtor to buy or sell a house in Hawaii? No, you can sell your house on your own (FSBO) or you can sell direct if you wanted to avoid paying 3-6% commissions and/or potentially lengthy listing times.

However, most people who buy and sell aren’t ‘motivated’ beyond normal levels or in a hurry to close a transaction. These folks generally operate in the retail pricing space and are content to act accordingly. This usually means working with an agent as their representation.

Let’s look at the Top 5 Reasons Why a Homebuyer or Seller Would Opt to Use a Realtor:

Access to listed properties and historical data on MLS
Familiarity with local contracts and other paperwork
Familiarity with local specific housing or industry knowledge and trends
Leveraging an agent’s time, mobility and other resources to maximize buying/selling efficiency
Having someone else negotiate your purchase or sale

These are all solid reasons why using an agent might serve you well. Let’s now dig deeper…

Top 5 Criteria to Choosing the RIGHT Agent

Not this type of agent....

It’s not just enough to decide that you want realtor representation. If you weren’t aware, there is no shortage of licensed agents in Hawaii, no matter which island you reside on. In fact, you probably walk by a dozen licensed agents everyday just going about your business. The young 20-something girl sitting next to you at the bus stop? Agent. The chatty guy at Starbucks ordering up a green tea latte? Agent. However, this is not to say they’re all the same.

Here’s a quick list of criteria to look for when choosing which real estate agent to hire. This is not a complete list but covers most of the big ticket items:

Profession vs. Hobby. Some agents make their entire living helping others buy or sell real estate, while others use it as a supplemental source of income. Either is fine and respectable, but you’ll of course be dealing with different levels of experience. Speaking of which….
Experience. Experience is important, HOWEVER it is not everything. Too much experience could actually make an agent complacent or unwilling to embrace new trends and/or technologies. Experience is great as long as it doesn’t also mean one has a closed mind (this goes for any profession).
Get Geeky. There’s no way around it — technology rules the day. Can your potential agent pull up listings on their smartphone? Have documents ready to sign in the field on their new iPad? Pocket protectors aren’t required, but staying ahead of the tech curve today is a fantastic way for agents to set themselves apart from the crowd — and to provide you added value.
Telling It Like It Is. How many times have you seen a house listed for sale $50,000 or even more above what you know its market value to be? Then you watch as week by week the list price is reduced until, incredibly enough (insert sarcasm), the price is dropped to market value and gets sold. Rocket science, I tell ya. Who on earth does this help? Certainly not the seller. But unless the inflated asking price was requested by the seller (which happens), then it just seems like a ploy to garner a higher commission. Don’t fall for that trap. Ask the tough questions and get someone who will tell you directly what your home is really worth.
Like Me. This may sound trivial, but you should actually like the person you’re working with. After all, if you’re shopping for a new home, then you’re going to be seeing a lot of your agent, may even being driven around island. If you’re selling your house, then plan on communicating frequently with this person. You don’t need to share milk and cookies at the end of the day, but if you don’t like the realtor you hired — and no one likes everyone — then, believe me, it will just sour the entire experience.

There you have it. Have your own thoughts on the subject? Share below!