David Parrish Realtor

Our youngest child is frustrated, exasperated and disappointed. In the past three weeks he has put offers in on 5 houses… Four of the five went “Highest & Best”… another went under contract with no opportunity to re-bid. In the four cases that went Highest & Best, he did re-bid. His re-bid offers were 8-10% higher than the list price. He hasn’t been the highest or best in any of these bids. He is submitting a Highest & Best on a sixth home this morning.

All of this is taking place in South Florida (St Petersburg), one of those horribly distressed markets that served as a harbinger of the economic period we have come to call the Great Recession.

As I’ve reported previously, the most common question I am greeted with is: “How’s the market?” My standard response; “Well that depends on where you live.” You see: All real estate is local! But I can tell you that the call for Highest & Best is all too common here as well in the tri-county area making up the bulk of the Greater Birmingham Market. As I write this, I am waiting on a response to a Highest & Best offer. Some areas (markets) of course have more than others. It’s all matter of supply and demand.

While this law of supply and demand has been with us for eons, those three words are too oft glossed over… their meaning not fully understood. While supply and demand might be reduced to an equation where the components are thought of as equals, nothing could be further from the truth. Experience has taught me that demand is key, if not king! Without demand, supply is meaningless… it’s dividing by zero.

With that in mind, it is useful to understand what creates or impacts demand. In the world of real estate those factors include: (spoiler alert) Location, profile (major features), condition, amenities, price. That is, what are potential buyers looking for. It is the balanced but considered combination of these factors that create individual action taking demand… that point on the demand curve that causes action to be taken. Ignoring or improperly weighting any of these factors is to miss-gauge demand.

Lest I be accused of ignoring the impact of supply, it is fair to say that supply finds its meaning by comparison to demand. The role of supply is to measure competition and is to be considered in pricing. While supply may impact price, it does not define demand. High supply may be the result of low demand or it could be the result of some other external factor that is not related to a specific property or market, for example high interest rates, a change in requirements to obtain a mortgage, or other factors may result in a high supply even when demand is high. Although, those factors could also be said to reduce demand… it is usually more accurate to say they disrupt the market.

Understanding Supply and Demand is much more complicated than the months of inventory for sale… it’s understanding the market.

May the Market be with you…

While for decades the thought that Bigger is better has ruled, it looks like the tide may well be turning. This change in trends is being brought about by two very different groups: Baby Boomers and Millennials. The Tiny House Movement has caught the imagination of these two outwardly dissimilar groups due to many shared realities as well as shared dreams/desires.

Simplicity… As a rising number become aware of the complicated lives brought on by burdensome debt, both groups seem to be leaning toward a more simple existence led largely by the desire to be less encumbered with debt. But, simplicity for both groups also includes a desire for peace of mind, as well as, eliminating/reducing both the fiscal and emotional costs of following the aspirations of others.

Mobility… Another strong motivator for both groups seems to be mobility… the ability to see more of the world or to take advantage of developing opportunities for either career or life experience. The large expensive home is often viewed by members of both groups as an anchor holding them back from experiencing life without the limits of a permanent homestead.

Lifestyle… Much of this could be summed up as a refocusing on life experience rather than the acquisition of things… Lifestyle is seen more as experience than assets.

Independence… Of equal importance is the desire for independence. Mellennials, so often burdened with excessive student loan debt and reduced/limited employment opportunities are opting for the independence of their on space rather than having to live through what feels like a protracted period of adolescence living with parents. Living smaller… means being on their own sooner. For the Baby Boomers, living smaller means less to maintain and more independence to complete their bucket list.

Freedom… All of this should sound rather familiar… It really sounds like the forces that drove the development of the American persona for most of the past 400 years. The great American spirit seems to be more embodied in the search for freedom, independence, and a better life beyond that our predecessors experience. I’m reminded of the words of Kris Kristopherson from the song Me and Bobby McGee: “Freedom’s just another word for nothing left to loose.”

Now I realize that this transition may seem counter cultural if not counter intuitive for many. And almost certainly, the masses are not moving toward living in a space less than 500 square feet. But the move is strong enough to impact the way the masses look at where and how they live and this will affect us all.

May the Market be with you…

When I set out to write this piece, the plan was to put together in 600 words or less an informative article on the basics of financing your real estate purchaser. In doing so, I recounted the almost daily conversations that I have with buyers… first-time buyers, last-time buyers, move-up or move down buyers, investors, or vacation-home buyers. Each with a personal vision … each with a personal story.

As often happens in the writing process, I slept on the idea and it was transformed a bit as it emerged from my dream state. Rather than talk about FHA, VA, USDA, LTV, DTI or any number of other oft thrown about initials, I should instead speak/write about the process of guiding a buyer to the realization of their dreams and how that process works.

While the path to buying a home has many common components or pieces, every buyer’s path is a bit different. I’ve worked with hundreds and hundreds of buyers… no two have ever had the same story, the same obstacles or needs… every path is different. No doubt the agent representing a buyer must have the requisite experience about the buying process and financing options to be of assistance. But it has also proven to be the case that knowledge of the options is not the transformative ingredient.

For the process to work, it begins with lots of questions. Questions being asked by a near total if not total stranger in a world filled with fear: fear of being sold, fear of being manipulated, fear of giving away advantage or private information. That brings us to the transformative ingredient: trust.

Trust is not easily won. But, make no mistake about it; it must be earned. It must exist for all parties. It must flow in both directions: Buyer trusting agent… Agent trusting buyer. For trust to be developed one of the parties must initiate the relationship’s movement toward trust by being vulnerable… letting down their guard. The response to that expression of vulnerability is not only to listen but also to hear. It is in this intercourse of speaking and being heard that trust is built.

I often describe my role to clients as that of a river guide. We are traveling down a river I have traversed many-many times. But no two times have ever been the same. The river is ever changing and where the obstacles, sleepers and eddies lie may change from day-to-day, my experience is in how to handle each challenge as and when they occur. For us to make it safely down this river, we must communicate openly and trust each other.

May the Market be with you… But more importantly, may your dreams be realized.

Those of us in the real estate industry often speak of Buyer and Seller Markets and while that may well be a valuable view of a particular market, what may be more important for the market in general is the issue of Housing Affordability. So, what is housing affordability? How is it measured? What does it mean to me?

As with so many of the complex issues in any arena, there is an index or indices to measure that.

The National Association Of Realtors Housing Affordability Index (HAI) measures whether or not a typical family could qualify for a mortgage loan on a typical home. A typical home is defined as the national median-priced, existing single-family home as calculated by NAR. The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. The prevailing mortgage interest rate is the effective rate on loans closed on existing homes from the Federal Housing Finance Board. These components are used to determine if the median income family can qualify for a mortgage on a typical home.

To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.

For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home.

An increase in the HAI, then, shows that this family is more able to afford the median priced home and conversely as the HAI decreases buyers are less able to afford the median priced home.

Note: The calculation assumes a down payment of 20 percent of the home price and it assumes a qualifying ratio of 25 percent. That means the monthly P&I payment cannot exceed 25 percent of the median family monthly income.

As you can see there are several moving parts to this equation… Home Price, Income, Interest Rate all of which are variable over time and to a large extent location. So the purpose of the HAI is not to indicate an individual buyer’s ability to buy but to understand how the larger market is trending.

On an individual level you may find it more useful to use the measure of monthly payments to determine how much of a mortgage you can afford. Note that home prices are definitely trending up and have been for over a year. Most of our local markets are experiencing appreciation in the range of 2 – 6% with 4% being the prevalent rate of appreciation. The most critical factor in determining home affordability for an individual being interest rate and of course income. While interest rates have remained at near historic low levels, they have again begun a trend up.

The infographic above depicts the historic impact of interest rates on affordability. As you can see we are at near historic levels for affordability of housing. Yet that number is beginning to decrease from the peak HAI of near 200 to a national HAI around 175 and locally 185. As of this writing, the best interest rates for a 30-year mortgage are 4.08%.

It’s a great time to buy.

May the Market be with you.

The past seven years have had many putting their lives on hold… waiting for the return of better times. For many this has meant renting rather than owning their own home… often considered step one in realization of the American Dream. I have reported many times that the American Dream of homeownership is alive and well. Perhaps these observations will be useful if you find yourself still renting and on the fence about owning your own home.

The personal reasons to own differ for each buyer, with many basic similarities. Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of homeownership in his paper -The Dream Lives On: the Future of Homeownership in America. Here are the five benefits, each followed by an excerpt from the study:

1. Housing is typically the one leveraged investment available.
“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”… Buyers using FHA Financing are putting down 3.5% providing a leverage factor of 28.5% increase in investment/equity for every 1% rise in value!

2. You’re paying for housing whether you own or rent.
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”

3. Owning is usually a form of “forced savings”.
“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

4. There are substantial tax benefits to owning.
“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5. Owning is a hedge against inflation.
“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

This same group (the Joint Center of Housing Studies at Harvard University) also conducted a survey on the top reasons to own a home. It’s interesting to note that the top 4 reasons to own a home cited by respondents were not financial.

1. It means having a good place to raise children & provide them with a good education.
From the best neighborhoods to the best school districts, even those without children at the time of purchasing their home, may have this in the back of their mind as a major reason for choosing the location of the home that they purchase.

2. You have a physical structure where you & your family feel safe.
It is no surprise that having a place to call home with all that means in comfort and security is the #2 reason.

3. It allows you to have more space for your family.
Whether your family is expanding, or an older family member is moving in, having a home that fits your needs is a close third on the list.

4. It gives you control over what you do with your living space, like renovations and updates.
Looking to actually try one of those complicated wall treatments that you saw on Pinterest? Want to finally adopt that puppy or kitten you’ve seen online 100 times? Who’s to say that you can’t in your own home?

The 5th reason on the list, is the #1 financial reason to buy a home as seen by respondents:

5. Owning a home is a good way to build up wealth that can be passed along to my family.
Either way you are paying a mortgage… Yours or someone else’s. Why not lock in your housing expense now with an investment that will build equity that you can borrow against in the future?

The Housing (Homes for sale) Inventory is low! What is low? Lower than demand… Low enough that buyers are becoming very frustrated. So low that there are competing offers on the same home and the call for Highest & Best Offers are commonplace in today’s market.

We’ve been talking to clients about this fact for some time now… A common question from many has been: Why?

There is no one single factor that is causing this shortage. It is instead a mix of many factors, none of which look likely to change in the near term.

Economic Recovery: Yes, Virginia there is an economic recovery that has been going on for several years… that recovery is real although not universal… Things are improving, employment numbers are up, overall confidence in the economy is up… The general feeling that real estate is a sound investment is again the norm.

Continued Low Interest Rates: The FED, as they are lovingly referred, has kept money rates to banks at near zero resulting in near record low interest rates. At this writing the national average interest rate being quoted for a 30 year fixed mortgage is below 4%. These low interest rates and knowledge that these won’t last a lot longer are fueling Buyer activity. If interest rates rise 1% that is equivalent to a 20% increase in a home’s price for a financed sale. And of course the vast majority of sales are financed sales!

Increase in Existing Home Sales: Fueled by a renewed confidence in the economy and continued low interest rates, there is an increasing interest in homeownership. Demand for homes has improved dramatically. This is especially true for homes priced below $250,000. Remember this number is for the local market… but is the rule for Birmingham, AL and surrounding areas. This number may be different if you are thinking about another market area. The largest increase in home buyers is by far 1st Time Home Buyers and 1st Time Move Up Buyers.

Low Number of New Housing Starts: New Housing Starts are on the increase and have been for almost 18 months at this writing; however, they remain at a below normal rate. The number of active homebuilders is at the lowest rate in decades. Lot inventories (number of already developed buildable lots) is at the lowest point for more than 20 years.

Reduction of Foreclosure Inventory: Foreclosure rates are down to almost normal rates for most of the nation. Yes, foreclosures are still occurring; but, they are having much less impact on the general real estate market than they have for almost 8 years.

Many Homeowners Remain Underwater: Despite all of the positive news in the general economy and in the real estate market, it will take some additional time for many of the homeowners that purchased or refinanced between 2004 and 2010 to make up for the losses in home value caused by the “Great Recession.” A 20% loss in value takes a while to overcome when appreciation rates are running at 4%. Selling before those losses in value are recovered or equity can be built means selling at a loss and perhaps even bringing money to the table at closing. So, unless there are some pretty strong motivating factors, many homeowners who would love to sell are still on the sidelines waiting to be in a better position.

Fear of Rising Prices & Interest Rates: Fear is a significant motivator! For much of the past six years Buyers have held back on purchasing waiting on even lower prices and lower interest rates. With the reality that the bottom is now significantly past, Buyers are now acting out of fear that prices will start to increase… and in fact they have begun their climb just as building costs have increased… Only the most truly uninformed buyer believes that the record low interest rates will remain with us much longer.

Millennials Entering the Market: (Those with birth years ranging from the early 1980s to the early 2000s) Talk about pent up demand… the under 40 crowd is ready to get it on. Having lived most of their adult life in one or another form of disaster, they are finally seeing some light at the end of the tunnel… some hope for the future! Ready to move out of the parent’s basement or that cramped apartment they are entering the home market with a vengeance while not quite the overwhelming force that my generation (Baby Boomers) was, they are a force to be reckoned with.

So, is the glass half empty or half full? Yes, Home inventories are low and prices are rising… Good news or Bad news? I’ll let you be the judge…. But for me, I’m happy to see the return of the American Dream!

May the Market be with you.

I suffer from SAD (Seasonal Affective Disorder)… extremely mild case. I am overwhelmingly happy with the return of Daylight Savings Time… and even more so with the approaching opening day of spring! As I sit here with all the windows and doors open letting in the still pollen free air into the house closed up too long from the wintery weather… I am basking in temperatures in the mid-seventies wanting so much to get outside and work in the yard!

But alas, there is paperwork to do… and a column to write!

It was a busy weekend… two new listings for Sellers looking to take the next step in life… On the Buyer side… two full price cash contracts written for other Sellers… all wanting to close this week and I still had time for Church and a bit of yard work yesterday.

Yes, spring is here… and so too the long awaited recovery that grows stronger by the day.

You would think that everyone would be celebrating this re-birth/revival of the real estate market. But you would be wrong! I work with several investors who are struggling with the market’s resurgence… every offer seems to go highest and best, with the winning bid being too high to create a profitable flip opportunity. I just got off the phone with a fellow agent bemoaning that very fact!

With this huge shortage of inventory we have for the most part moved to a normal market… Some markets have even become a Seller’s Market (a market favoring the Seller)… with fewer and fewer Buyer Markets remaining.

Foreclosures are approaching normal levels; however, banks are now slower to deal… As a matter of fact, some banks are finally awakening to the opportunity to reclaim their loses by repairing properties and selling at or near full market value.

Yet many sellers remain on the sidelines, perhaps realizing that short sales and bankruptcy are painful solutions when another year or two will have them whole again. All of this is creating stress on the supply and demand equation causing a reduction in discounts and even an increase in prices.

Interest rates remain at or near record lows. So even though the deals may be harder to come by, today’s low interest rates make for a deal. If interest rates rise to 5% by year-end, as projected by Fannie Mae and the Mortgage Bankers Association, from where rates are today that is equivalent to a 20% increase in the monthly payments (Principal & Interest).

Yes spring has sprung… I hope you’re enjoying it as much as I am!

May the Market be with you.

Brrr it’s cold outside… Super Bowl done and gone, the Ground Hog saw his shadow again, and Valentines were delivered… The big box hardware stores are putting the finishing touches on all their displays and holding “How to… classes every Saturday morning… We are now in the throws of Home Improvement Season!

As you walk around the big box hardware/home improvement store of your choice… you seem to find the biggest crowds (waiting lines) at the paint department. This seems to be the number one place for folks to begin when thinking about sprucing the house up. After that, it is usually the flooring and tile department or the lighting department.

When you own a home, it seems there is always something you would like to do to make it more attractive, comfortable or efficient. The choices seem to be endless… but if you are looking to do these things with an eye on selling sometime in the near term it is wise to approach the project(s) with care.

Now there clearly is no way I can fully address all of those options in the limited space allowed. So, I’ll focus on the number one place that most people start: The Paint Department.
Before you select your paint color(s), take a moment to look at what you’re about to paint (usually walls) and see what kind of shape they are in. Now is the time to recondition those walls and repair any damage. Chief among the possible items being addressed at this point may be the “damage” created by previous painting efforts or excessive painting. Poor paint type or application methods can all but ruin a surface. This can sometimes be corrected by sanding or “sizing” the walls. Make use of Google to find out more about this.

If the walls are in really horrible shape, you may want to consider re-sheet-rocking the walls with ¼” drywall or in less sever cases using a technique called Knock-Down… Another Google opportunity!

Once walls are in good shape … smooth and clear of blemishes, clean them well with a cleaner like Simple Green or Tri-Sodium Phosphate (TSP) and then caulk any cracks or gaps near trim.
Ok now were ready to actually select the paint. Back in the waiting line… Or go to one of the many websites provide by leading paint manufactures where you can upload a photo of the area to be painted and test out the possible colors. Note many of these websites also offer the ability to print a coupon that can save you up to 30% on your paint!

If you opt not to do the online thing, go by the store and gather some color swatches that look like possibilities and bring them home to view in your home and in the light that you will actually see the color… The amount and type light play a big role is what the color will really look like in your home. My suggestion is go for a neutral color. Currently grays are the big color family for wall color…And believe me there are more than 50 Shades of Gray! Then add the spice to your room through the use of window treatments and accessories. This will give you far more versatility and if looking to sell provide a more universally appealing setting for potential buyers.

You are now ready to paint so that the investment in paint is actually rewarded with the hoped for result.

Oh but before you start applying paint protect the surrounding area. While plastic drop clothes are abundant and cheap… Don’t use them! Opt instead for canvas (duck clothe) drop clothes… There is a tendency to track paint on to floors with the plastic clothes much more likely than with the canvas clothes. You can tape off areas/edges. When selecting tape, opt for the more expensive Frog Tape that develops a tighter seal when it is wet by the paint. But even if you tape edges, I would recommend using edging tools as though the areas were not taped.

Now when applying paint, it’s important to learn how to apply paint so that the brush and roller patterns are not visible … again Google and YouTube are great resources here… always ready when your are.

All of these little details are important in making that paint job an actual improvement. As my Drill Instructor in the Marine Corp drilled into us at Paris Island… There’s a right way and a wrong way to do everything… and the difference though seemingly small makes all the difference. Well those weren’t the exact words he used but his exact words can’t be repeated here.

There you go… Improve your home now and enjoy it for years to come!

May the Market be with you.

It has become a tradition of sorts to open up each year with examination of the state of the Real Estate Market…. This year is no different except in what I have to report. For the past couple of years we have experienced some tentative signs of recovery… 2014 was indeed a very different year… the kind of year that should put at least a hint of a smile on the face of homeowners. The bulk of the housing crisis is behind us… we’re back into an almost normal world, if indeed such a thing has ever existed.

Foreclosures are down significantly… the lowest they have been since 2008 and it appears moving lower… The Inventory of homes for sale is also at its lowest point since 2008. Yet new construction has kicked into high gear. And with those changes, we have seen the solid return of home appreciation rather than depreciation.

S&P Case-Shiller Home Price Indices

Despite our projection and those of the market experts that interest rates were surely to rise in 2014… They have fallen to historic lows again… Though the forecast for rising rates on the horizon remains… Just 10 days ago rates were at 3.5% for a 30 year fixed rate mortgage. Even the market pessimists don’t foresee rates higher than 5% by the end of 2015.

With improved and sustained economic indicators across the board, things are certainly looking better than 2010/2011… the real pit of the economic crisis. Add to that the unimaginable reduction in gasoline prices (though call me a pessimist, we know that won’t last) and the economy looks to be poised for some healthy growth in 2015, and perhaps a new period of American optimism.

This makes for the return of opportunity for the general public… for the ability of Baby Boomers to downsize, for millennials to buy their first home … for renters to join the ranks of homeowners whose net worth is more than 36 times that of a renter (Federal Reserve 2014).

What it doesn’t do is provide reasons to keep renting, or to expect to steal a home that’s in foreclosure (or otherwise), or to keep waiting for the bottom of the market… you missed it.

If you’re looking to buy a home, those that don’t act in 2015 will be saying: “If Only, I had…”

For the rest of you congratulations you’ve made it to the other side… I hope that you’re a homeowner and enjoying that fact again.

May the Market be with you.

We find ourselves now near the end of the Holidays… at that most special time of the year for many… Christmas. A reflective time… loaded with expectations and hope. Traditions and expectations abound. Within those, we carry both joy and sorrow.

In the mobile society we have become, we are no longer bound to a single location or perhaps even to our roots. Even so, there is the yearning especially at this time of year to return to what was… to come home. Yet coming home for Christmas is often an elusive and difficult thing… sometimes a seemingly impossible thing.

This past week, I was a small part of a group of local businessmen and women that reached out to help ease the pain that can be connected with this longing to go home for Christmas. Early this fall, several of us had remembered a facility on Old Springville Road called “Three Hots & A Cot” … a shelter for homeless veterans. Now our group is a small group with limited means but we wanted to do something outside of our own self-interests to make a difference… We decided that we were a good match for this group and so we began our Christmas project… a first for our little group.

We managed to gather quiet an impressive collection of needed items… enough that there was no doubt we would need a truck to deliver them… a real truck not just a pickup or a minivan. Several of our members made it to the presentation of these gifts to the Springville Road campus of “Three Hots & A Cot.” They now have 4 homes housing homeless veterans… both men and women.

In speaking with Buddy and Lynn, the managers of the Springville Road home, we received not only gracious thanks but also a reminder that their needs extended beyond the holidays… that their proverbial cupboards would be bare again in February.

And so it is planted in our minds that perhaps our support should be more than seasonal… I feel certain that will be the choice made at our January business meeting. Perhaps you may want to help as well… so I’ve provided below contact information… or call me, I’ll be glad to tell you more.

   JD Simpson, President & CEO
   Three Hots & A Cot
   300 81st Street South
   Birmingham, AL 35206
   (205) 202-5124
   Cell: (205) 306-4761
   www.cotsforvets.org

More than seventy years ago Thomas Wolfe wrote: “You can’t go home again.” Despite that observation that many now accept as fact, we carry with us our memories of home… Distorted and exaggerated as they may be, they have become our home, at least until we can construct a new set or memories in the homes that we build.

I hope you will make it home for Christmas.

May the Market be with you.