Realtor Flacks (or Hacks)

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Like many of you out there reading “Blown Mortgage” and other real estate related blogs, I have to use my intelligence and an air freshener to sift through all the information-overload that is thrown my way every day.

But then there are days like yesterday when I had puke up a lung. I could pick on Bernice Roos, who writes for a Realtor trade group and Inman News, but that would be too easy.

My story happened when a top producing Realtor came into my office to discuss the realty market and a new marketing plan my firm is rolling out. My opening question was, “Tell me how you feel about our local real estate market today?”

And how did he respond, you ask? With the usual NAR/CAR pull-the-string-on-the puppet Realtor line of, “Interest rates are approaching an all-time low, home prices have stabilized and more inventory is hitting the market to give buyers a wider choice of homes to buy.” (the daily chorus)

Okay, I know I’m supposed to be in sales and all, but WTF?!

I smile back and reply, “Pretend I’m a potential home buyer. What are you going to do to convince me that now is a good time to buy?”

Puppet Realtor says, “We’re gonna take a slide show presentation out to the local City Council, County Board of Supervisors, Rotary, Kiwanis and Lions Clubs, to anyone and everyone who will listen and tell them this is all a media driven scare. Real estate is still the best investment they can purchase because of … (see above chorus).”

He didn’t like the look on my face. My jaw dropped and I had the “yeah, but…” eyes.

And he says, “What would you recommend?”

So I tell him. “I would advise all my clients that real estate, a home, is a great place to live – if you can afford to make the payments. That includes principal and interest on a 30 or 15-year fixed rate loan, property taxes, homeowners insurance, mortgage insurance, HOA fees, Mello-Roos supplemental taxes, repairs, upkeep, etc.”

“I would advise any investor clients that if you can’t qualify for a 30-year fixed rate, full doc loan, then pass on the deal. That if a property doesn’t cash flow including PITI and at least a 10% vacancy factor, then walk away.”

“Yes, interest rates are low because the Fed is desperately trying to fend off not a
soft landing like they predicted, but a crash landing.”

“Real estate prices have not stabilized. The average closed sale in our market is sold 15-20% of the original list price. That is a severe downward trend that will probably last a few more years.”

“Inventories are increasing, but that’s mainly because of those trying to bail out of their ticking mortgage bomb. Did you see that “a record 31,676 Californians lost their homes to foreclosure in the three months ended Dec. 31, the third-straight quarter of record-breaking foreclosures, up 421% from last year?”

Blank look on his face. He has drunk too much NAR/CAR kool-aid.

We all have very short memories. I can remember talking to a Realtor back in early 2000 who was spending most of her time on the Internet trading stocks online to make her money (on paper). She was bragging how Yahoo (ticker: “YHOO”) was up another 40 points that day to $500 a share.

I asked her if she sold and took her profit.

She said, “No. Why would I sell when the stock is going up?”

So I told her Yahoo is trading at over 800 times earnings (P/E ratio) and that by historical standards an 80 P/E was an expensive stock. This means that Yahoo could fall 90% and still be expensive.

Now granted that Yahoo has had two 2-for-1 stock splits since, but that makes the split adjusted price $125. Yahoo trades today at $19. It’s not that Yahoo was a bad company, just grossly overvalued in early 2000.

Please read the following article in today’s New York Times and repeat this mantra to yourself, “The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.”

“For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up.”

Econ 101 my blog friends. It’s not that real estate is a bad investment, but at what price?

I love real estate, but for the right reasons. Much like some girlfriends from my previous life (I’m married now) that I had to say, “No, this isn’t right for me.”

Our industry needs to clean up itself. We all need to learn to tell more borrowers “no”. You can’t afford this monthly payment. You have no down payment or even closing costs. You should rent, improve your credit score, pay down your bills and save at least a 3% down payment, then come back to me in 1-2 years and we’ll talk.

I don’t want you to buy a home. I want you to stay in the home for as long as you want without the stress of losing your home via foreclosure.

Like Martin Luther King, I have a dream too. My dream is that more mortgage lenders/originators think long-term and about the relationship with their clients. Not about the one time commission.