RobReportBlog May 2012
Armonk real estate sales up 22%
Chappaqua sales up 21%
Bedford Corners sales down 50%
Pound Ridge sales up 19%
Bedford real estate sales up 15%
Bedford Hills sales up 25%
You may know it by any of its many names—drywall, gypsum, gypboard, plasterboard, or the familiar brand name, Sheetrock. Whatever the label, it can be heavy, cumbersome, and tedious to work with. Yet over 400 billion square feet of the mineral-based material have been wrestled into place in homes and buildings in our collective lifetime.
Gypsum—the earthbound sulfate of calcium to which plaster of paris owes its existence—has been around forever. But it’s been only since the turn of the century that an enterprising soul named Sackett developed a method of layering it between sheets of felt paper to produce a “plaster board” that made the hand-troweled wall a thing of the past.
Plasterboard has come a long way since that time, but one thing hasn’t changed: It still looks best when installed or repaired according to Hoyle. And even though you may not know a putty knife from a plaster pan, you can learn how to install drywall with a small investment in tools and an honest go at it. Actually, gypboard is well suited to those who expect to make mistakes, simply because it’s relatively inexpensive.
Even if you didn’t know it at the time, you’ve probably seen an unfinished drywall sheet somewhere. Its face (the side that goes toward the interior of the room) is finished in a cream- or natural-colored paper. The back is usually gray, and the edges are trimmed with folded tape to protect them.
Typically, you’ll see 1/2″-thick paper-faced panels measuring 4′ × 8′ or 4′ × 12′, though they’re available in lengths up to 16′ . In better-quality construction, 5/8″ board is used; conversely, 3/8″ panels are suitable for economy or two-layer work and when bending radii, while 1/4″ drywall is reserved for surfacing existing plaster walls.
But the choices don’t stop there. Aside from the standard drywall, there’s also a 5/8″-thick fire-rated sheet (used on walls common to the garage and house and in commercial work), a water-resistant board with specially treated facings and core (for bathrooms, and as a backing for tile and plastic wallboard), and a foil-backed gypboard that incorporates a vapor retarder.
If you sight down the long edge of a drywall panel, you’ll notice that the face is tapered toward the edge. That’s to allow a slight recess to accommodate the tape and reinforcing compound, which makes a smooth, strong joint. You could still use the older style of square-edged panel, however, if you’re planning to cover the surface with wallpaper, since the joints won’t show.
There’s also a special round-edged tapered board that’s used on walls and ceilings that might be exposed to high humidity and temperature swings during construction. Conditions like these often cause ridges and beading in the joints; the design allows for an initial filling of setting plaster, which bonds permanently, without shrinking, in an hour or two. Afterwards, a regular joint compound would be used to finish the job.
In some cases, your past experience will help you make a good decision about what to do in a current home-sale transaction. But if you rely only on past real estate experience to make decisions about selling a home today, you could end up with an unsatisfactory result.
The old rules, such as they were, don’t always work for the current home-sale market. For example, more purchase contracts specify that time is of the essence. In other words, contingencies will be met on time.
In today’s market, it’s often difficult for buyers to remove their financing contingencies on time unless they are paying all cash and don’t need to go through the rigors of mortgage underwriting. Due to no fault of the buyers, they often need to ask the sellers for an extension in order to satisfy a contingency.
Extensions should be reasonably granted but only after making due diligence investigations. For instance, it wouldn’t be wise to grant an extension to a buyer that hasn’t even submitted a loan application. In this case, it would be better to find yourself another, more dedicated buyer.
Article continues belowHowever, if the lender is so backlogged that it hasn’t had a chance to underwrite the buyers’ loan package, and there doesn’t appear to be a problem other than the time delay, grant the extension.
HOUSE HUNTING: To make it through a home purchase or sale in the current market, it’s important to understand the point of view of the person on the other side of the transaction. It’s impossible to control all facets of a home-sale transaction. Patience and compromise are essential.
When buyers are doing everything they can to make a deadline in the contract, or the closing date, but are delayed for conditions beyond their control, they are doing what they agreed to do.
Most buyers don’t like to ask for extensions any more than sellers like granting them. But, standing on principle could result in a dead deal. If you won’t grant an extension because a seller refused to grant you one in a previous transaction, you could find your home is back on the market.
Buyers have a choice. They don’t have to buy your house, no matter how much they like it. Some buyers will walk away from a home if they think the sellers are unreasonable or are treating them unfairly.
Another rule that is broken fairly often in the current market has to do with inspections. In situations where sellers provide buyers with presale inspection reports, the expectation is that buyers won’t come back and ask the sellers to pay to correct defects they were aware of when they made their offer.
Buyers were more forgiving in the bubble market when prices were rising rapidly. They felt they had less to lose and could afford to take on some of the repairs. Today’s buyers are more cautious and conservative. Some are more risk-averse than others.
Second opinions by buyers’ inspectors are more common today than they were when the market was hot. Second opinions can lead to different conclusions about the seriousness of a defect and the urgency for making repairs.
Although sellers may feel they’re being taken advantage of, they should weigh the merits of the offer in hand, even if it means settling for a lower price, before they decide to play hard ball. If you can’t resolve inspection issues, you might have to start over again searching for a buyer. This takes time and could cost more if you have to sell for less.
Disclosure obligations vary from state to state. Even so, it’s wise to make any future buyer aware of all reports generated on the property to protect yourself legally.
THE CLOSING: Another buyer might be even tougher on inspections.
As the parent of a newly-minted adult, I can reflect on how much of my advice thus far has been delivered in the negative. “Son,” I’ve said, time and time again, “I’ve been there and I’ve done that and here’s what NOT to do.”
I suspect this might be a theme of any great advice in any realm of life: it’s critical to know from those who have gone before what you should do, and just as critical — sometimes more so — to know what not to do. In the interest of ensuring that the advice I gave last week on how to be a happy homeowner is comprehensive, then, it behooves me to share some insights on how to be an unhappy one — in the hopes it will help you avoid this fate.
1. Move a lot. Moving house is stressful, in and of itself. Mention the prospect of moving to any cocktail party crowd, and you’ll undoubtedly hear a chorus of moans and groans of “I hate to move!” Studies actually rank moving right up there with getting a divorce or being widowed in terms of stressfulness — no joke! And that’s just the moving part — there’s also the stress multiplier of selling your home, which includes such unhappy-making activities as:
- Deciding when to sell.
- Studying market data on recent sales in your area.
- Interviewing listing agents.
- Giving your home the deepest clean ever.
- Opening your home to strangers.
- Waiting for, fielding and responding to offers.
- Holding your breath, anxiously awaiting the appraisal and closing.
Homeowners who move a lot not only have to deal with the inherent stresses of moving, but also with each of these other attendant stresses of selling.
Article continues below2. Make mortgage moves a lot. In a landmark study by Thomas Holmes and Richard Rahe ranking various life events in terms of their relative stress, taking out a mortgage was given a score of 30. And here’s some context, having your home foreclosed was given a score of 31! For smart homeowners, taking out a mortgage can be a tense series of decisions that they don’t always feel well-equipped to make, from selecting a mortgage broker to selecting a loan type and term to trying to ascertain whether they’re getting the best deal on rates and fees. And there are also the uncertainties involved — the feeling that an appraiser and an underwriter who you’ll never meet are in control of your financial fate doesn’t feel good.
Beyond that, it’s highly worrisome to have to scurry around and meet seemingly nonsensical documentation requirements or show up to sign stacks of papers at weird times in weird places at the whim of the mortgage lender, which you must do on the principle my Dad leveraged so frequently during my childhood: “he/she who holds the cash makes the rules.” And the biggest stresses around frequent mortgage moves come when they are being made because the current mortgage obligations are simply too burdensome or overwhelming, which just puts an even greater level of pressure on the unhappy homeowner to close the loan — something that is not 100 percent within their control.
3. Try to time the market. Those who try to time the market, whether trying to lock in an interest rate at the precise bottom or trying to sell at the tippy-top of the market, rarely do. By the time you can register that a bottom is in the wind, it has usually passed — and if you’ve been a homeowner in an ascending market, you know that the temptation is to hold in order to collect every penny of appreciation, not to get out while things are hot.
Those who are very emotionally invested in their timing games set themselves up not just to fail, but also to experience great distress. This is about fixating on things beyond your control — at some point, with home ownership, as with investing in other asset classes, you have to make a decision and commit to feeling good about that decision. Fretting that rates went down after you locked yours or that you could have made an extra ten grand if you had held onto your place another few months is a sure-fire way to stress yourself into a premature spot on the Botox power user list.
4. View your home as a short-term investment. In light of recent market madness, this seems silly, but the reality is that a large number of homeowners who lost homes in the last wave of foreclosures were people who had bought homes planning to be in them a few years or less — and who were counting on them to rise in value in the interim.
Not only does viewing your home as a short-term investment (vs. a long-term residence) make you more likely to take on mortgage obligations that are unsustainable in the long-term, it also positions you to select a home that is more of a Band-Aid for your living needs than a real solution. And that renders you less likely to pick a place that will be functional for your life over the long run if the market does decline and you need to stay put. I personally know at least three young men who lost urban lofts they had counted on to appreciate through short sales or foreclosure when they found themselves married with children at the bottom of the market.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses unemployment claims, and imports and exports.
- The number of people filing for unemployment checks declined modestly in the latest week. The latest figure of 367,000 new first-time filers is close to being normal in a dynamic economic economy like the U.S. where there are lay-offs and firings even during good economic times. However, the pool of people on the unemployment dole (not the first-timers, but continuing filers) still remains high.
- In separate data news, imports and exports both increased in March. However, slightly faster growth in purchases of foreign products by U.S. consumers compared to sales growth of U.S. goods to foreigners widened the trade deficit. Imports shot up 8.4% from one year ago, while exports grew by 7.3%.
- The increase in international trade activity is good news for commercial practitioners, particularly affiliated with SIOR. Leasing and purchasing demand for industrial and warehouse spaces will be rising. Rising international trade is also good news for REALTORS® selling homes to foreign nationals. For example, there are increasingly more German homebuyers in Greenville, South Carolina because of the expanding BMW factory nearby.
- Though the widening trade deficit will hold back current economic growth by a few decimal points, the broad increases in international trade is critical to a long-term rise in standard of living. Extra international competition always forces companies to shape up and drive towards efficiency while consumers are exposed to better products.
- The falling international trade in 2008 and 2009 were due to the harsh economic recession, when the U.S. economy lost 8 million jobs and the number of people filing for unemployment checks skyrocketed. The Great Depression of the 1930s was also associated with a major collapse in international trade. Many European countries after the First World War sunk into terrible economic hardship as many newly created small-sized countries started to impose foreign tariffs (say between Croatia and Austria) which previously had not existed as part of the Austrian-Hungarian Empire. The disintegration of Soviet Union and its equivalent of the Great Depression in the 1990s was also associated the sudden collapse in border trade, say between Ukraine and Russia. In a more recent example, North Korea today is one of the poorest countries in the world because it believes principally in domestic production without foreign competition.
The concept of utilizing a large scale refinance program to aid the ailing housing market and to stimulate the economy has been floating around since 2008 (1). Since then, rates eased below 4.0%, yet millions of Americans have not taken advantage of the opportunity because of the upfront costs of refinancing and other frictions unique to the current market. On May 8th, Senator Robert Menendez (D-NJ) and Senator Barbara Boxer (D-CA) proposed a bill that would attempt to deal with these issues.
The proposal by Senators Boxer and Menendez follows several of the recommendations made by President Obama earlier this year and includes:
- Extending streamline refinancing for Fannie and Freddie borrowers
- Elimination of up-front fees on refinances
- Eliminating appraisal costs for all borrowers
- Allowing lenders not currently servicing a loan to refinance the loan with the same representations and warranties and streamline ability as the current servicer, thereby creating competition and lower costs to the consumer
- Requiring second lien holders who unreasonably block a refinance to pay “restitution to taxpayers”
- Requiring mortgage insurers who unreasonably fail to transfer coverage to refinanced loans “to pay restitution to taxpayers”
To analyze the impact of the proposal, data generated by Lender Processing Services (2) was used to estimate the universe of mortgages held by Fannie Mae and Freddie Mac that are both eligible and likely to refinance under such a program. An average 30-year fixed rate mortgage of 4.0% along with a Federal tax rate of 25%, a state tax rate of 5%, and an average loan balance of $150,000 (3) were used to estimate the effect of the refinance program in the first year. It is assumed that borrowers with a current mortgage rate of 5% or higher will refinance (4) and there is no change in mortgage insurance premiums. The proposed changes would result in:
- Just over 3 million refinances
- Reduce the average annual payment by roughly $2,800
- Save borrowers $4.5 billion to $4.8 billion per year (after tax considerations) and more than $45 to $48 billion by 2022
- Some of the reduction in payments might result in increased savings, but much would be spent on goods and services (5). The lower payments would have a multiplier effect resulting in an injection to the economy of possibly the full amount of the money saved by borrowers or perhaps more.
The impact of a refinance program would extend beyond the savings to the consumer. The CBO (6) estimated that a similar program extended to loans securitized by the GSEs and FHA might result in 111,000 fewer defaults. Given the significant proportion of likely GSE refinances, the large number of loans held in portfolio that were not included in the CBO analysis, and lower subsequent CBO forecast for Treasury rates (and thus mortgage rates), it is reasonable to assume that the number of foreclosures averted by the GSE refinance plan would be substantial.
While the number of REO sales, modifications, and short sales have risen in recent quarters, the number of loans in foreclosure or REO remains high, thus underlining the need to staunch the flow of properties into this bucket. REOs are a significant problem for home sellers, the market and local communities:
- NAR estimates a price discount of 20% on REOs relative to non-distressed properties and some groups estimate this to be as high as 30%
- By one estimate, the sales price of a home was lowered by approximately 2.5% for every percentage increase in foreclosures in the same census tract, other factors constant.
- Homes that are vacant for an extended period impose costs on municipal governments ranging between $5,000 and $35,000, depending on length of vacancy, maintenance requirements, and damage to the home.
- Another study found a one percent increase in county foreclosure rate, increased the burglary rate by 10.1 percent. The impact was also significant on larceny and aggregated assault.
Finally, resurgent concerns about European financial conditions as well as the impending fiscal cliff in the Unites States will weigh on the 10-year Treasury and mortgage rates in the near term, allowing more time for consumers to take advantage of a refinance program.
While the estimated $4.5 to $4.8 billion in savings and reduced defaults may seem like small figures, these refinances could have a significant impact in the local areas where the refinances would be concentrated. Furthermore, the relaxation of representations and warrants and loan level pricing adjustments sets an important precedent that could help to ameliorate the tight lending conditions on the originations side of the market.
Like housing markets overall, the market for luxury homes is growing tighter as the spring buying progresses. Though still a buyer’s market, the ILHM Luxury Housing Report for last week shows a pattern of rising prices and fewer days on market since the first of the year.
Days on market for luxury homes have fallen to 120 days, significantly higher than the 85 days for April registered by all listings on Realtor.com but down from 155 days at the outset of the buying season in February. Media price per square foot is $334 and the ILHM national luxury composite price is $1,128,509. Prices have decreased on some 31 percent of homes in the ILHM market profile have 9 percent of been relisted.
Most markets in the Institute for Luxury Home Marketing report are improving. Those with the fewest days on market are Silicon Valley (138) San Francisco (153), Washington (156), Austin (158) and Seattle (163). New York City had the most expensive average luxury price in the nation, ($4,129, 649) followed by Los Angeles ($2,222,451), San Francisco ($2,015,114), Silicon Valley ($1,890,121) and Washington ($1,556,589).
