The Eimers Group Newsletter

Fear is a powerful motivator. It can drive banks to failure, nations to war and people watching their growing waistlines to put down that third slice of pizza.

Extreme fear, mixed with hope, was behind recent manic gyrations in the world’s stock markets and has been the only reason why the buyers and sellers in Destin are real estate frozen. The Destin real estate market has so many buyer and sellers both wanting the same thing, a new home. Yet fear is keeping them from moving towards one today when the interest rates are low and the inventory is plentiful. Interest rates are expected to grow to 8% next. Whatever the buyer thinks he will save by waiting will cost him triple with a higher interest rate. Most buyers never calculated the cost of waiting. They will be shocked when they realize that the $10,000 they thought they would save by waiting actually cost them $200 more per month in a payment which equals a $72,000 loss over 30 years. It is sad for me to watch FEAR keep buyers from making a great investment decision. Remember in 1990 when the media said, “don’t buy real estate”. I bet everyone who bought in 1990 is very glad they did. 15 years of incredible appreciation is what they were able to take to the bank.

Hope also is a powerful motivator.

To think, the financial crisis gripping us today started when people imbued with hope purchased homes they could not afford. That misplaced emotion led to a massive housing market bubble.

The bubble started bursting in our market September 2006 because of the onslaught of hurricanes Ivan and Katrina. It appeared for awhile that Destin lead the rest of the national real estate market in the bubble burst because our economy is tied to the those markets crippled by these hurricanes. The reality is the Destin real estate market is expected to be one of the first markets to emerge from the busted bubble because as a second home resort market our buyer prospects remain credit and cash strong. Resort real estate markets are different that traditional homeowner occupied markets. We have many sellers struggling to sell and buyers afraid to buy for unrealistic reason caused by false fear.

The media and the financial districts both live together in New York. Doom and gloom live next door to each other. They see each other daily at the local pubs, delis and subways. Doom loves gloom because it sells their air time and the fall out for Destin of doom and gloom spending so much time together in New York is buyers missing great resort properties and sellers growing weary by waiting. 

I just spent three days at a Mastery Weekend event with top REALTORS from all over the country. I spoke to agents from New York, Florida, Nevada, California and Virginia that reported 50 to 80 percent of their sellers are in short sale or foreclosure. The Destin real estate market is nowhere close to those numbers. Short Sales and Foreclosures have grown to approximately 35% of my market.

Destin did  have a real estate bubble because our appreciation rates were so much higher than competing markets, Destin pricing has always been undervalued compared to similar ocean/gulf side resort communities. Hence Destin real estate was in the forefront of the burst; de-escalation of property values triggered by the Hurricanes was key. But there were a number of contributing factors not least of which were the increases in Property taxes, Property Insurance and our regional economies.

In September Florida continued to be one of the most desirable places to live in the U.S. Second only to California in 2007, Florida has remained one the top 3 states since this Harris Poll began. I am still thankful to be living and working in Destin Florida in spite of the fear I have had 2008 has been our best selling year since Katrina. I also have many other well priced properties sit and wait for buyers for no reason other than fear. Great properties, perfect condition, priced well and not sold because buyers are frozen with fear.

Anger, is also at play in the Destin real estate market.

It was a seller’s market more than 2 years ago and it is a buyers market Today. The industry always fluctuates between those two groups. As a result, buyers and sellers deal with different emotions depending on which way the pendulum is swinging.

Buyers are afraid to buy because they think prices are going to go down more and sellers are really angry. Sellers express anger by saying things like, ‘My neighbor got $50,000 more for their house a year ago. Why can’t I get that now?” “What are you going to do to sell my house?” “Why won’t buyers make an offer?” “I am going to take my home off the market and wait”.

By contrast, when we were in a seller’s market, it was buyers who were “really angry because prices were so high. Buyers found themselves competing with other buyers for the same house driving prices even higher. They experienced the frustration of losing homes they really wanted in bidding wars with other buyers.

While many buyers are afraid to purchase too soon, those that do make a bid on a home become very cocky. They come in with low-ball offers and they ask for everything! They want everything fixed, and they expect a low price too.

Desperation, of course, is another powerful motivator.

Amid financial chaos and the volatility of world stock markets, it is puzzling, yet somehow reassuring, that the most powerful forces controlling our economic destiny happen to be our own emotions. Isn’t it time to get them in check before our country implodes? It is a better plan to control those things that we can control - we have the power to control our emotions.

Richard Eimers, Lead Agent
richard@eimersgroup.com
Main: 800-775-5914 | Cell: 850-259-1798

Coordinated Rate Cuts: Central banks around the world, including the Fed, the European Central Bank and the Bank of England, jointly announced a series of rate cuts. The fed funds rate was reduced 50 basis points to 1.5%.  The Federal Reserve led a global coordinated emergency interest rate cut this morning that included the European Central Bank, Canada, UK, Switzerland and Sweden. The Federal Funds Rate was lowered by 50bp to 1.5%, while the discount rate was also cut by 50bp to 1.75%. The joint effort was to ease the economic effects of the worst  financial crisis since the Great Depression.

The coordinated effort helped keep the currency markets in balance - this gave our Fed the green light to cut, without the inflationary concerns from a weaker Dollar. Additionally, the strong Dollar is keeping oil prices in check…much different from the past string of isolated US cuts that led to a much weaker Dollar and skyrocketing oil. And the European Central Bank, which had turned its back on rate cuts (they actually hiked not too long ago) because of its single mandate of fighting inflation, gains cover in making the move to avert a global collapse. Look for more cuts ahead, especially from the ECB and the Bank of England, which both have lots of room to slash rates.

Below is a statement from the Federal Reserve. I think the main point here is that inflation worries have            diminished, so the central banks around the world can be much more aggressive in providing liquidity and cheap funds. That’s critical for us and even more so for the central banks in Europe and Australia, who are more hawkish on inflation than we are. The Dow and S&P futures are up this morning, so stocks should stop the freefall at the opening bell (let’s hope).  Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.   Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.  Federal Reserve Actions The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures.   Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of        households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice   Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-3/4 percent. In taking this action, the Board approved the request submitted by the Board of Directors of the Federal Reserve Bank of Boston.

Kristen Pope, Parish National Bank & Access Mortgage Corporation
kristen.pope@accessloans.com
800-465-1994 Office | 850-337-7600 Direct Line | 850-585-3335 Cell

Last month I talked about the 10 steps to buying the right property and finding the right rental property. So now that you know how to find the right property, we need to talk about how to put in the best offer on the property in order to get the best deal.

Once you have chosen the property you need to first determine the purchase price that will make a great deal for you as the buyer.  You can determine this by looking at comparable sales prices.  Your Realtor should be able to put together this information from the MLS and public records.  We are finding in this market most sellers are negotiating from their asking prices by an average of 8-12%.

Review sales history…how long has the property been on market and what did the seller pay for the property?  Although in this market these details won’t always determine selling price, it will sometimes help you to determine the level of motivation of the seller.  Your Realtor should also be able to tell you if this is a short sale, foreclosure sale, or regular sale.  The type of sale will determine your plan of attack for pricing and negotiating to get the best price.  (The difference on these sale types is a whole separate article…watch for that next month.)

Find out if any other offers have been put on property yet…if so, you will be able to get a feel for what the seller will or will not accept, and also be a little more telling as to the seller’s level of motivation.  I keep referring to the seller’s level of motivation…all sales will come down to this, and this is something that can change on a daily basis depending on personal situations.

Once you have reviewed all of this information, you should have a final purchase price you are comfortable with that will give you a good deal on the property.  So, now comes the time to put together the details of the offer with your Realtor.  Different documents will be needed for the different sale types (again, more to come on that next month), but the basic terms will remain the same.

In most circumstances when we talk about getting a good deal, it means getting a great price on a great property.  In order for a seller to come down to the lowest price possible, you have to make the offer as strong as possible in other terms…no finance contingency, quick closing, as is condition, good earnest money deposit amount to show commitment to transaction, and both parties paying their own closing costs or better.  When all of these terms are reviewed together, a realistic seller should be happy to sell to you as the buyer.

Dana McIntosh, REALTOR
dana@eimersgroup.com
800-775-5914 Main | 850-428-0243 Cell

Well the housing market decline and everything attached to it, has reared its ugly head now from Wall Street to Main Street. And everyone’s going to feel some pain. Home prices still searching for stable ground, 401K’s in the trenches, the job market in a spiral, etc. Seems like a never ending stream of dour news. But…there is light emanating from the end of the tunnel. Thankfully, though some may disagree, the government has stepped in to at least try revive our once vibrant economy.

With all of this being said, it’s time to take a good look at the other side of the equation. The side of opportunity that is readily apparent for those who have vision beyond the current economic whirlwind in which we now reside. But this will pass and better times will prevail somewhere down the road. And for those who maintain this vision and see value for what it really is, whether stocks or real estate, the rewards should be very handsome over the course of time.

For the here and now, we still have a lot of clean up work to be done. And it won’t be easy by any means. But it can and will be done. Now, I’m no economic expert by any means, but I do have a few suggestions that I see as viable jumpstarts to help stem the slide we’re currently in.  So if anyone has ideas, suggestions, please feel free to share them with myself at Mark@EimersGroup.com or anyone else here at Eimers Group. If nothing else, it sure does help to vent. So here are a few of my suggestions:

1)   How about a 1 year moratorium on Capital Gains Taxes including gains on Real Estate and Equities purchased within that one year window. Any of these purchases would be recognized as free from Capital Gains Tax as long as the sale occurs outside of the one year window. Note that the sale would have to take place outside of the one year window to discourage trading within the tax free time frame. And this should encourage more investors to adhere to the buy and hold theory. 

2)   One of the biggest, if not the biggest, culprit behind the wave of defaults and foreclosures in the real estate market has been the free-wheeling , foot loose and fancy free world of finance over the last handful of years. Buyers purchasing beyond their means based on the temptation of ARM financing that was the enabler. Credit markets were open to just about any takers who had a pulse and credit checks were no longer a qualifier, but a determining factor on the initial interest rate to be paid.  Then came the reality…ARM’s, or Adjustable Rate Mortgages, began to reset with the teaser interest rates gone. So the best hope was to refinance…yet the home could no longer appraise at the necessary value to enable a refi. So the owner is now stuck with a whopping increase in house payment on a house that is no longer worth what he paid. In other words, upside down. And to make matters worse, the housing market continued to head south as more investors and upside down owners defaulted and walked away from their property. So now you have this two-headed monster that has encroached onto Wall Street infecting the lending institutions that encouraged the chaotic lending that began the cycle. SO…..I suggest that we need to try to keep owners in their property and slow the defaults on real property. And one way to do so would be to freeze all ARM rates at a number established by the Treasury and Federal Reserve and covert the loans to fixed rate long term notes. And this number would have to be no more than the teaser rate that enabled owners to purchase in the first place. Maybe, just possibly, this could slow defaults and we could start working through the credit mess from the bottom up.

3)   With the Treasury and Federal Reserve freeing up capital for the lending institutions, somehow some of this capital needs to be earmarked for the mortgage market. And I don’t mean to clean up the mess driven by the greed on Wall Street. I’m talking about this capital flowing downhill to the Every Day Joe in the form of very low rate mortgage loans that would enable real, qualified buyers to enter the market.

4)   Wake up Fanny Mae to the realization that we need more FHA financing available to the Jumbo product to help clean up some of the mess created by investors and second home owners who overbought and are now left holding the proverbial bag. So in  a nutshell, increase the FHA Jumbo numbers to realistic numbers that would entice qualified buyers to come off the fence and help clean up some of the overpriced inventory that exists in many markets across the country. And even though there has been an upward adjustment of the FHA Jumbo product, the number still isn’t nearly enough. With rigid qualification standards and favorable rates, I believe we’d see quite a bit of high end property begin to filter from the market into the hands of stable ownership.

That’s my quick, down and dirty take along with a few suggestions. Again, feel free to let me know if you agree or disagree with any of these ideas. I can take the good and the bad. Thanks and best of luck to us all.

Mark Evans, REALTOR
mark@eimersgroup.com
850-837-8880 Office | 817-637-2453 Cell