Monday, February 11, 2013

Inventory Reductions

As I have mentioned in the past, most data regarding real estate is backward looking, and by the time you receive the information, the time to act on it has passed. However, one data point that helps predict future events is inventory, or the number of homes on the market.

Over the last few months, virtually all reports (local, state & national) that I have seen show a reduction in inventory. More importantly, as I enter new clients into the Multiple Listing Service (MLS) to receive property listings matching their search criteria via e-mail, I am surprised at how few properties are available. (I just entered a search that would have generated 50+ matches a year ago, and I received 17!)

As always, the most important issue is how this trend could affect you, specifically, in your own real estate transactions.

Given the lack of inventory, if your home has a feature that is a drawback for you, personally, but it's not a generic defect, now is a great time to place that home on the market. In the alternative, if your property has one or more selling features that you don't care about, for whatever reason, now is an ideal time to sell it and buy a home that doesn't have those features.

For example, you may own a legitimate, functional three-bedroom home which flows nicely, but really only need two bedrooms plus an office (much more difficult to sell). If you see a three-bedroom home in which you need to go through one bedroom in order to access another, this may fit your needs perfectly. If the home has been sitting on the market, you can likely get it for a good price. And with so little inventory on the market, your three-bedroom home should sell quickly if presented properly and priced right. One caveat, however: if you buy a home that isn't easy to sell, unless you can rectify the defect, you will encounter similar challenges when you go to sell that home in the future.

Every situation is unique, so if you have any questions, feel free as always to call (978-423-9309) or e-mail ( me at any time to discuss your options.

Monday, November 12, 2012

Real Estate Tax Issues, Post Election

Whatever your position on the recent elections, now that they have been decided, there will be consequences concerning real estate tax issues.

First, there has been much confusion and discussion about a 3.8% real estate tax included in Obama Care. Now that President Obama has been re-elected, Obama Care is a certainty. With that said, there is a 3.8% tax in the bill and, while it is not specific to real estate, it does affect certain real estate transactions. The tax will affect only higher income demographics and will apply only for significant capital gains. (See prior entries for more specifics on this tax.)

Along with the tax described above, it is likely that new revenue will be required to avoid the fiscal cliff that is to occur by year's end if the government does not act. There are several revenue/tax options on the table which could affect many of you. Depending on your circumstance, you may want to let your elected officials know where you stand.

The mortgage interest deduction is likely in play and should be the most concerning to anyone who owns their primary residence and has a mortgage on the property. As interest is front-loaded on mortgages, the newer the mortgage you have, the greater advantage you receive from the deduction. While the deduction will likely remain, there is a good chance it will be reduced.

Similar to the 3.8% tax mentioned above, there is a capital gains exemption on your primary residence which is based on income levels and amount of gain. This exemption may also be modified or eliminated.

For anyone involved in a short sale, under tax law, the forgiveness of debt creates a taxable event and is considered income. Under current law, there is an exception for mortgage debt forgiveness relating to short sales. However, this exception is due to expire (I believe at the end of the year), so it is incumbent upon anyone engaged in a short sale to determine whether the exception will be in place at the time of your closing.

These are just a few financial issues to consider relating to the the sale of property.

Please keep in mind that I am not an accountant, tax attorney, or financial planner. This information is cursory in nature and anyone concerned with the issues mentioned above needs to consult an expert for details.

Wednesday, June 20, 2012

Declining Inventory Could Skew Annual Trends

Over the past few weeks, the data points with respect to housing in general have been fairly consistent. Prices are stabilizing and, in some areas, increasing slightly. Homes are selling closer to their asking prices and are requiring fewer days on the market in order to sell. The above has resulted in a dearth of inventory, which leads me to my point...

Since the market decline which began in 2006, as a general proposition there has been a glut of inventory. Given annual cycles, many sellers chose to take their properties off the market during this time of year as the summer months are typically a slow time for buyer activity in the Northeast. However, this may be a year to buck this trend.

I have personally seen a lack of inventory of quality properties, particularly in the more affluent areas and at price points which would cater to upper-middle class income buyers.  My suggestion is that anyone looking to sell should take the pulse of his or her local market (I recommend doing so here) and not necessarily assume that the next month will be the "slow season". If there is no or little inventory comparable to your property, a contrarian play may be the way to go this year!

As an aside, real estate professionals plan their lives around annual trends and the vast majority take advantage of this next month or so to vacation. This includes agents, lenders, brokers, appraisers and attorneys, so you may want to add an extra week's time when planning a closing date.

Wednesday, March 28, 2012

The 3.8% Real Estate "Medicare" Tax

Many questions and concerns have been presented to me recently by homeowners regarding a "real estate" tax included in the controversial health care bill passed by Congress in 2010. Let me start by saying that this tax, like most, is complicated. Therefore, I am not going to provide examples of how exactly the tax will be calculated, but here is some general information which may or may not belay your fears.

The tax does exist, although it is not specific to real estate, but targets "unearned income" of "high income earners". It is scheduled to take effect on January 1, 2013. The tax, however, does not apply to all real estate transactions.

Regarding one's primary residence, the capital gains exemption - of which many of you are aware - will shield a primary residence from this tax. Therefore, if the capital gain is less than $250,000 for a single person, or less than $500,000 for a married couple, the tax will not apply. Similarly, the tax does not apply to individuals with adjusted gross incomes of less than $200,000 or married couples with adjusted gross incomes of less than $250,000.

To put it another way, unless you make what the government has determined to be a lot of money and you are making what the government has determined to be a large profit on your primary residence, you need not be concerned with this tax. With that said, if you have any doubt as to whether the tax applies to you, you should consult an expert prior to making any decisions on a primary residence sale scheduled to close post-2012. (I am not a tax attorney or accountant. Do not rely on these comments as legal or tax expertise.)

As an aside, the tax may also apply to investment properties and rental income.

(Source: National Association of REALTORS, "The 3.8% Tax Real Estate Scenarios & Examples")

Saturday, January 7, 2012


I continue to be impressed with the value and power of social networking. I don't think I'm that old, but I remember my dad putting aluminum foil on the rabbit ears of the television so we could better see the Hagler/Duran/Leonard fights. Time might be passing me by, but in many societies, age is revered. With age supposedly comes wisdom. This is my long-winded way of saying that we over-40s have seen a few things and may be able to add some perspective to the social media era...

This country is predicated on freedom, including freedom of speech. With that said, freedom of speech is not a mandate to share every thought one has. When you share on Facebook, Twitter, etc., you may as well place an ad on a national network. It may seem like no big deal and some may feel like they finally have a forum. True and so be it, but as often stated, with great power, comes great responsibility.

In short, don't disparage people online unless you have thought it through. Think about a bad review before you post it. Think about an endorsement before you put your name behind it.

Never has it been this easy to reach so many people and have such an immediate impact.

Tuesday, November 29, 2011

"Should I Take My Home Off the Market for the Winter?"

A common question posed to me at this time of the year is whether sellers should pull their homes off the market for the winter. I also get asked whether potential sellers should hold off listing their homes until spring. The simple answer is that it is subjective and depends on many factors. 

There is no question that in the Northeast, activity decreases around Thanksgiving and increases again when the winter begins to wind down. Many sellers see no benefit to marketing a home during a period of relatively low activity. Moreover, winter is a difficult time of year to keep a home in good showing condition and is inconvenient given the weather, holidays, etc. These are valid considerations, but many people fail to see the upside.

Those buyers and sellers that are in the market during the dead of winter are serious and motivated. You seldom see a family taking a Sunday drive to random open houses in 20-degree weather and snow on the ground. As a general rule, sellers do not test the market at this time of year. Therefore, with serious, motivated parties on both sides, there is more of a chance of getting a deal done. Even better for sellers is the fact that not only are the buyers motivated, but there are fewer homes from which to chose.

Were I looking to sell my home at this time of year, I would weigh the various factors as discussed above along with the conditions specific to my local market and personal factors. What I would never do is make the decision based solely on the fact that there is generally less activity in the winter than in the spring.

As an aside, there was a time when the market history in the multi-listing service was easily manipulated. Taking a property off the market for a bit - or changing listing agencies - gave the appearance of less overall time on the market. (There is a bit of a stigma against homes that sit on the market for a long time). However, at least in the system used in my area, you can now see the full property history and, therefore, this "benefit" has been substantially diminished.

As always, your thoughts and questions are welcome ( or comment here).

Wednesday, October 19, 2011

The Time to Buy is NOW!

I challenge everyone reading this entry to remember a time in your life when purchasing a home was more attractive.  Forget the articles about foreclosures, negative equity, etc. - I am talking about this static point and time and how you will be affected moving forward.

Last I heard, prices were at 2003 levels, on average. Prices in most local real estate markets are 15%-30% lower than their highs of 2006. As the tax code now stands, there is a significant tax advantage to owning a home as opposed to renting.

A few years back, when rates hit approximately 5%-5.5%, they were at a 30-year low and it was the opinion of most experts that rates could not go much lower. Since that time, however, the housing crisis has continued to spiral out of control and has done so for far longer than most had imagined possible. As a result, the government has done everything possible to depress interest rates as one means of spurring a housing recovery. To its dismay, this policy has not had its desired effect and housing prices have declined slightly further or, at best, leveled off in most local markets.

Sounds awful, but that was then and this is now...

Assuming you can find a 30-year fixed loan for which you qualify, the rate should be approximately 4% today! If you lock into this rate, you are doing better than your parents and likely their parents before them, and really, what could be the downside? Rates could go slightly lower and if they get to a point where it makes sense, you simply refinance at the lower rate. However, once these interest rates begin to increase, it will be the result of a policy shift, or the fact that the government is out of tools with which to depress rates. Either way, they will only continue to increase for the foreseeable future, and you will have missed the boat.

While the government is keeping interest rates low, it is simultaneously trying to stabilize prices so as to save any equity current homeowners may have and to spur an economic recovery. That makes the likelihood of further significant price declines unlikely. Also keep in mind that the longer you intend to own the home, the less important price is in relation to the interest rate.

Finally, buying a home and locking into a fixed rate gives you price stability over time, as well as flexibility. Many markets are seeing increases in rents given the difficulty of qualifying for loans and the general misconception that owning a home is a bad idea at this time. If you look at historic inflation rates and tie them to rent increases assuming 30 years of renting versus ownership, then it is a no-brainer to own a home. Roughly speaking, given a rent of $1,800 - $2,000 per month today, you would pay roughly twice as much in rent over 30 years as you would if you owned a home and were paying on a thirty-year fixed mortgage of the same amount. (These numbers are approximate. Speak with a tax lawyer, accountant, or mortgage lender to fully vet the savings.)

One more thing to think about. Assume the market bottoms, and interest rates (or prices and interest rates) begin to rise and you do not yet own a home. Maybe we even go into a period of inflation where interest rates rise unexpectedly and drastically as mentioned above. Without home ownership, you may be priced out of the market indefinitely. In the alternative, if you own a home under any of these circumstances, you at least have options.

If prices increase, you gain instant equity. You can sell your current home and use that equity to put down on a new home. Depending on interest rates and rents, you may alternatively want to keep your current home as a rental to offset some of the cost associated with a new purchase at a higher rate. Worst case scenario: if we do hit a period of rapid inflation, can you imagine how expensive it would become to rent a property or to buy a home? Just as no one predicted interest rates of 4% five years ago, no one predicted rates 0f 15-20% in the early 80's - until it happened, that is.

Just a few things to think about as you read all the negative articles bashing home ownership.

Sunday, September 11, 2011

That Day

My career was in flux. I was closing my law practice on Revere Beach Parkway in Everett and leaning toward a real estate business full time. I thought this was the most important thing there could be and, in retrospect, was extremely self-absorbed.

I was walking out of the Gold's Gym across from my office and saw people staring at the TV's. A plane had hit a building. I had headphones on so I couldn't hear the commentary. I saw a replay, but noticed the building was already on fire? That didn't make sense. I took off my headphones and was told it wasn't a replay, it was a second plane hitting the World Trade Center in New York. I said, "Oh shit." I left and headed for Seabrook, New Hampshire where I was starting a new real estate endeavor. I was listening to Howard Stern which was riveting as they were there and giving a front-line, second-by-second report.

I called my wife, who was working in a high-rise in Boston and told her to get out immediately as it wasn't safe. She said she would not leave until everyone else was leaving. I told her that would happen within the hour. We hung up. She called me back 5 minutes later and told me that they were being evacuated and she was concerned for me.

In the interim, I was hearing the second tower was coming down (Tower 1 had already collapsed), there had been an explosion at the Pentagon, and more planes were unaccounted for. Howard Stern was yelling that we knew it was Bin Laden and that we should flatten most of the Middle East (I'm paraphrasing). Some New Yorkers were already heading down to volunteer, while others were walking over the bridges, briefcases in hand, covered in ash.

As Flight 93 was going down due to the bravery of its passengers, the Pentagon was in flames, firemen and volunteers were running toward the carnage in New York, and my phone rang. My wife now was leaving Boston on foot and wanted to know I was in a safe place. I told her I was on Route 286 in Seabrook and that I was as safe as I could be. I hung up, looked to my left, and was staring at the nuclear power plant less than a mile away. I stopped my truck in the middle of the road. I thought about where was safe and realized safety had become a fiction. I went to my destination and carried on with my life.

Ten years later, the question remains...where is safe? This is my answer.

The United States remains the greatest, strongest, most philanthropic - and yes, safest - country in the world. Where are we safe? Where we see our military, police, firemen and generally brave brothers and sisters such as those on Flight 93. Where are the terrorists not safe? Where they don't see our special forces and government operatives.

As Ronald Reagan said in his farewell address, "God bless you, and God bless the United States of America."

Friday, August 12, 2011

Housing Fix or Folly?

You may have heard that the Obama administration has reached out to experts in the field of real estate regarding foreclosures for their opinion on reviving the market. His idea is twofold. First, bundle thousands of Fannie Mae and Freddie Mac owned properties and sell them to investors provided they agree to rent the units as opposed to selling them. The second idea is to have investors partner with Fannie and Freddie to manage the properties as rentals and share in the profits. I normally reserve my opinion on this blog, but occasionally deviate from that norm. So here goes...

Bundling the properties and selling them as a package may be the quickest way to take the pain (a/k/a ripping off the band-aid). This, I have no problem with, on a macro level.

The government is, or should be, in the business of taking care of society's basic needs and the private sector is in the business of making money which leads to innovation and prosperity. When the government dictates the use of resources, the resources are not used to their full potential, unless blind luck intervenes. The term that personifies productivity as it relates to real estate is "highest and best use."

In simple terms, sell the properties individually or by the thousands, but let the buyers dictate the use (environmental issues as the caveat). The properties will then garner the highest price which is best for taxpayers currently on the hook for the losses of these agencies. Moreover, the highest and best usage of the properties will not artificially affect the rental market. There are unintended consequences to any government intervention. (The people owning rental properties will be unduly burdened financially by this plan.)

Put another way, if I know I can generate a greater return on the purchase of a property by renovating and selling, yet the government tells me that if I buy it, I must rent it at a lower return, am I going to pay the same price as if I could sell it? Is the government going to obtain an optimal return on the debt owed by these quasi-governmental agencies? The answer is axiomatic. I welcome your comments on this important issue.

Wednesday, July 20, 2011

Irresistible Force vs. Immovable Object

Remember the following paradox no doubt posed to you at one time or another:

What happens when an irresistible force meets an immovable object?

One of the answers proffered by many philosophers and scientists is that there is no answer as the two concepts cannot coexist.

I pose a similar question to you with respect to the current real estate market:

What happens when a seller brings a property to market based subjectively on desired return and buyers believe any price is too high as this is, after all, a "buyer's market"?

The answer is simple: the two cannot coexist.

My point is that while it is unfortunate for sellers that we are in one of the most depressed real estate markets on record, a property must be priced objectively based on current market conditions. Of course, there comes a point where a party simply cannot afford to sell a property. However, more often than not, the selling party simply desires a greater return (or, in a worse scenario, desires less of a loss) than the market will bear. The irony is that, in overpricing a property, you reduce the likelihood of a maximum selling price. The most activity a property will see - either on the internet, or in person - will occur in the first few weeks it is on the market. After those first few weeks, the traffic falls off dramatically. While price reductions will help, many potential buyers will no longer have the property on their radar and/or will become skeptical as to its value. Buyers start to ask, "Why has no one bought this property? It must be overpriced or have serious issues." This will almost always result in a lower selling price than if the property was priced reasonably from the beginning.

With the above said, be wary of real estate professionals who agree to list your property at the price you suggest (or even higher) unless they support your price with objective analysis. This objective analysis should be contained in a comparative market analysis (CMA) and will include similar properties to the one being sold.

Conversely, while it is a "buyer's market", some properties are actually priced reasonably from the start and, in any event, there is always a price at which a property is a good deal. You cannot assume that an asking price is too high and that there is a dollar amount reduction, or percentage off the asking price, at which you are going to purchase the subject property. As is true for the seller, a buyer should rely on comparable properties to base an opinion of value. With that said, a property may be slightly out of your price range, or may only be worth a certain amount to you, at which point there is no harm in making a low offer. However, if you truly want the property and it is worth the price, you should make a reasonable offer. If you play the game too long, you may give the seller the impression you are not a serious buyer, or you may lose the property to another buyer. (I have actually seen some properties sell at or above asking price in recent weeks!)

In short, sellers want to sell and buyers want to buy. More often than not, there is a middle ground at which the two can strike a reasonable bargain.