Vince Hoehn of CENTURY 21 Pierce Realty LLC, Manitowish Waters, WI

As graphical representation of data for a post on my Northwoods real estate outlook for 2010 earlier this month, I charted 4th quarter closings of the sale of single family homes in the years 2006-2009.  This chart represented closings throughout the entire Greater Northwoods Multiple Listing Service.  If one attempts to do this type of thing, one must choose a large enough geographical area to ensure that there will be enough data points to provide useful information, even more so if one is interested in trend information.

I tried a similar approach while limiting myself to western Vilas and eastern Iron Counties, specifically the communities of Manitowish Waters, Mercer, Winchester, Presque Isle, Boulder Junction, Lac du Flambeau, Oma, and Sherman.  I have charted the sales in units of single family homes and sales in units of all types of listed real estate by month for the 4th quarter of each year from 2006 through 2009.  The number of units for each category and time period is not huge, but I think large enough that we can learn something from the effort.  Without further ado,

(If the green lines seems a bit sketchy, it is because I drew it in freehand -- I couldn't figure out how to make the program do it for me. Y-axis is units.  X-axis is year.  All means all types of real estate; SF means single family residences.)

Points I wish to emphasize:

1. The trend line is up for the 4th quarter of 2009, units are similar to 2007.
2. Single family home sales in units approached 2006, which was well before anyone realized what was coming (though we should have.)
3. From 2006 to 2008 the green lines are converging, which, in this instance, means that single family home sales were becoming a greater and greater portion of total sales in units; i.e., buyers were purchasing more improved properties and fewer vacant lots, relatively speaking.  In 2009, the lines started diverging again, meaning more vacant parcels and fewer improved properties, relatively speaking.  Part of the effect is due to the finalization in December of the sale of a number of vacant lots in Manitowish Waters that were auctioned off in November following a foreclosure.
4. Nation-wide the implementation and extension of the First Time Homebuyer Tax Credit had a large impact on the increase in home sales.  I don't believe that had anything to do with the upturn experienced in our local market.

An article in the February 2010 issue of Entreprenuer details the rise of the phenomenon of ghostblogging in the business world -- the practice of hiring an individual to write posts and tweets for the busy executive or business owner in the name of the executive/business owner.  The ghostblogger is tasked to write in the "voice" of the client so the world at large will be none the wiser and have no reason to suspect that the CEO's pearls of wisdom are ghostwritten.  One estimate is that up to 25% of business blogs are ghostwritten, in effect creating a whole new industry for laid-off PR types and journalists. 

So what, you say?  I don't know about you, but I, for one, was shocked, shocked  to find out that something on the internet is not what it purports to be.  In light of this revelation, I suggest that you take everything you read or see on the internet with a large dose of salt -- except for this blog and vincehoehn.com, which I consider to be beacons of truth and light in a sometimes dark and dangerous world.

It's time to make some predictions about how the real estate market will fare in Wisconsin's Northwoods in 2010.  My crystal ball is just as murky as the ones belonging to all the other prognosticators, and my forecasts may be worth only what you are paying for it, but here goes:

• Even though mortgage rates have trended down somewhat since the first of the year, they are once again going to turn upward soon, perhaps to about 6%, for the reasons I previously wrote about.  I don't see the rise in rates to be enough to severely impact our market, though it certainly won't help. 
• Most sales will remain in the lower end of the market, price-wise, and the upper end of the market will remain very slow, except in the instances wherein sellers have really and sincerely priced their high-end properties to sell.

• The three most important things about real estate?  In 2010 it will not be location, location, location, but rather location, price, price.   I predict that 2010 will bring more buyers to the market than we have seen the last 2-3 years, and the primary motivation of many of these buyers will be the hope of purchasing a bargain property.  I further predict a fair amount of success for buyers in 2010.

To prove that I am not merely blowing smoke with my predictions, I have done a little research using data from the Greater Northwoods Multiple Listing Service.  The following chart represents total 4th quarter closings MLS-wide for the last 4 years for single family dwellings. Note that the trend line is up for all three months of the last quarter for 2009.

Y-axis is units of single family dwellings, not anything to do with dollars.  I chose to chart units as my predictions have to do with numbers of buyers and not with dollar value of sales (though I could chart that, too.)

"Freddie Sees Mortgage Rates Hitting 6 Percent in 2010"
Washington Post (12/26/09) P. A12; ElBoghdady, Dina

As reported in the Washington Post, mortgage rates could increase to six percent by the end of 2010, or even sooner, according to Freddie Mac.  (Freddie Mac is a GSE, or government sposored enterprise, that purchases mortgages on the secondary market, pools them, and then sells them as mortgage-backed securities.)  Interest rates for 30 year fixed rate mortgages have been rising in recent weeks, a process that is expected to continue.   The Federal Reserve has been buying mortgage-backed securities issued by firms such as Fannie Mae and Freddie Mac, which has helped keep mortgage rates at low levels, but the central bank plans to wind down the program by March. Federal Reserve economists believe that the gradual tapering of purchases will draw private investors back to the market for the mortgage-backed securites and moderate the pressure on rate increases.  However, according to the Post, Amy Crews Cutts, deputy chief economist at Freddie Mac, believes private investors will require a higher rate of return on the securities than the Fed has been willing to accept, and, as a result, mortgage originators may have to raise the rates they charge to consumers. "Anything we get at or below 5 percent is a gift at this point," says Crews Cutts.

(An aside:  I found the name Crews Cutts so unlikely that I took the time to use Google to confirm that, yes indeed, that is her name.)

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My previous blog posts (May 29th and August 3rd) about the home inspection contingency and how it is constructed in the Wisconsin WB-11 Residential Offer to Purchase continue to receive beaucoup views, averaging about 7 per day for the last 6 months.  Apparently a large number of people are doing online searches looking for information on that very subject, and in light of that fact, I am presenting the information once again using a different format – a (fictionalized) case study.

The facts of the case:  Seller “S” has accepted an offer written on the WB-11 Residential Offer to Purchase by buyer “B” for a single family home constructed in 1985.  The home is in a rural area and has a private well and septic system.  S had noted on the Real Estate Condition Report (which had been received by the buyer and attached to the offer as an addendum) that the basement wall has a crack in it that developed shortly after construction and has remained stable over the years.  The home inspection contingency provision of this contract provides that:

·         The offer is contingent upon a home inspection by a Wisconsin registered home inspector which discloses no defects as defined within the contract language.

·         The buyer has 30 days from acceptance to complete the inspection and deliver a notice of defects and a copy of the inspection to the seller or the contingency will automatically be deemed satisfied.

·         Buyer bears the costs of the inspection and any follow-up inspections.

·         Seller has the right to cure.

(Contract provisions do not specifically address testing, therefore, there will be no radon, asbestos, mold, water quality, well capacity, nor any other type of tests performed.  The home inspection contingency does not automatically allow for well and septic inspections – these also must be specifically addressed.)

B immediately retains a home inspector and receives the inspector’s report within 10 days.  The home inspector notes that:

·         The asphalt shingle roof is the original roof, near the end of its life-span, but appears to remain weather-tight.

·         Loose kitchen cabinet hardware.

·         No GFCI (ground fault circuit interrupter) devices in the garage (required since 1978) or the unfinished basement (required since 1990.)  The GFI outlet in the  master bath is not working properly.

·         Deck railing needs repair.

·         Several smoke detectors have no or dead batteries.

·         Crack in basement foundation wall, but it appears stable.  Recommends qualified expert follow-up inspection.

B contacts his agent, “R”, and states that he wants the seller to pay for a new roof, fix the cabinet hardware, replace the malfunctioning GFI outlet and install GFCI devices in the garage and basement, fix the deck railing, and provide proof that the foundation wall is stable, or fix it if it is not – in short, everything on the inspector’s list except for the smoke detector batteries, or he is walking.  R, to her credit, says “Not so fast there, big fella.”

Explains R, “The deteriorated deck railing and the failed GFI outlet are safety issues and it would be proper to ask the seller to fix these problems.  There should be GFI outlets in the garage as they were code-required when the house was built – however, they were not required in the basement at that time.  We can ask the seller to install the outlets in the basement, but he may say no, with some justification.  We cannot just demand that a seller bring an older home properly constructed for its time up to current code and not expect resistance.”

“The loose kitchen cabinet hardware does not rise to the level of a “defect”, as defined by the contract.  We can ask the seller to fix the hardware, but if he says no, we won’t be able to use that as a justification to walk from the contract.  And I really hate to tell you this, but the foundation wall crack was known to you before you wrote the offer – according to the language of the inspection contingency you cannot claim it is as a defect unless the extent of the problem can be proven to be much greater than you reasonably believed it to be.  Surely you remember, we talked about this.  Another problem is that this issue may impact your financing contingency.  Remember, your lender also has a copy of the Offer and the Real Estate Condition Report.  As for the roof, let’s see what we can negotiate on that.  We have two weeks time remaining to negotiate with the seller before we have to deliver the notice of defects.”

B turns out to be the reasonable sort after all, so B and R prepare an amendment to the purchase contract that states that the seller agrees to:  either install a new roof on the house before closing or escrow $5,000 to be used to pay for a new roof after closing; replace the failed GFI outlet and retrofit GFCI devices into the garage and basement; repair the deck railing, and authorizes a follow-up inspection by a qualified expert of the foundation wall if the bank requires it as a condition to providing financing.

S receives the amendment as presented by his agent and says, “Forget this guy!  He knows he is not buying a new home!  I am not paying for a new roof!  I factored in the age of the roof into the price I accepted!”

S’s agent, “V” by name, as professional, charming, and sophisticated as he is handsome, says, “Take a chill pill, “S”, we have something here that we can work with.  Let’s not throw the deal over yet – this is the fun part --negotiating.”  

V continues, “Let’s start with the stuff that shouldn’t be too controversial.  I suggest that you agree to fix the railing – you remember, we talked about it, and for a few dollars you can replace the GFI outlet.  I also think that it would be a good idea to put GFCI devices in the garage as they should have been originally installed.  I further suggest spending the few dollars for the outlets in the basement as a gesture of good will.  We should also agree to allow the follow-up inspection on the condition that the bank demands it – otherwise the deal may die due to lack of financing.”

“All these things are not going to cost you very much, but we will get estimates before proposing our own amendment.  While we are at it, let’s also get an estimate for a new roof and then I will work up some net proceeds scenarios and then decide what we are going to do.”

Within one week S has estimates of about $450 to replace the deck railing and $200 to replace and retrofit the GFI outlets.  The roof came in at $5400.

S and V respond to the buyer’s amendment with one of their own.  Initially S remained adamant that he would not pay for a new roof, but eventually accepted that it was not in his best interests to lose this deal for a few thousand dollars.  The new amendment, as delivered to R,  proposed that the seller would replace the deck railing and provide GFCI devices in the garage and basement as well as replace the defective one.  Furthermore, S would escrow $2,000 for  a new roof that must be installed within one year of closing.  S agreed to the follow-up foundation inspection, but only if it was required as a condition of financing.

Ever since B had presented his amendment he had been sorely tempted to go to his lender and point out the foundation crack and use this as a stratagem to get out of the contract if indeed there was something severely wrong with the foundation.  His agent, R, got wind of this and two of them had a long talk about the wisdom of this approach.  On R’s advice, B instead had another conversation with the home inspector, and this comforted B’s mind to some degree as the home inspector reiterated that the foundation appeared to be stable as that the crack didn’t weep moisture, was old, and didn’t appear to be growing.  As it turned out, the bank didn’t make an issue of it either, and a follow-up inspection was never done.

B was now ready to accept the amendment as proposed by S except for the issue of the roof.  He was feeling that if he was going to have to accept the foundation wall crack, he shouldn’t have to stand any of the cost of a new roof.  B and his agent had a long talk about this, also.  R pointed out that B and the seller were only $3,000 apart at this point.  R also knows from conversations with V that a new roof will cost about $5400.  R tells B, “I was told long ago that splitting the difference while negotiating is for suckers, but I think that may be the approach to take in this circumstance.  We may hold out for the $5,000 we first asked for, but then we may run the risk of the seller refusing and then running out of time to continue negotiations as we only have 4 days left to deliver a notice of defects if we can’t come to some sort of agreement.  If we do deliver a notice of defects, the seller may elect not to cure, as is his right.  Then you don’t get the house.”

Continued R, “But the seller doesn’t want this deal to die any more than we do.  Maybe he would go for the 50/50 split.”

And so B and his agent prepare their second proposed amendment, which mirrored everything in the seller’s proposed amendment except that the seller would escrow $2,700 for a new roof instead of $2,000, and it provided for 2 days for S to accept.  V had already anticipated this move and had prepared an estimated net proceeds sheet for S with these figures, and after waiting till almost the last moment, S accepted the buyer’s amendment.  B and his agent then prepared and delivered a notice stating that the home inspection contingency was satisfied.   

S fulfilled his contract requirements by seeing that the work that he agreed to was done in a good and workmanlike manner and delivered a notice to the buyer 4 days prior to closing detailing the work done.  He and V further arranged for the escrow with the title company of the $2,700 to be used for roof replacement, a project completed 10 months post-closing.

And so ends our case study.  Simple, right?

I previously wrote in July about how I had taken my own advice (It’s a great time to buy!) and purchased a second property here in Manitowish Waters.  The better half and I are fixing the home up for extended family use this winter, but we plan on reselling it not too far down the road.  So, it seems to me that this is not too soon to start talking about the property, and it especially seems appropriate to be writing about it as various aspects of the rehabbing seem to occupy my every available hour these days.

This home was in pretty sad shape when we purchased it and working on it has been a real challenge, but I really like what we have done so far.  It was built in 1948 well before today’s “northwoodsy” look became the predominant style for homes in our area.   “Country home” would perhaps be more historically and stylistically appropriate for this home, and so that is the approach the wife (hereafter to be referred to as "the boss") and I are taking.  That means more paint and more drywall and less wood on the interior than the wood, wood, and more wood style that I prefer.  But the boss and I both like how it is turning out anyway.

An illustration -- we picked up some new, name-brand vinyl windows for $50.00 a piece.  Now, before this project, I would not have considered vinyl windows, but these seemed like such a great buy that we decided that we would make them work somehow.  I trimmed out the windows with stained pine stool, apron, top cap, and jamb extensions, with casings of 1X4s with eased edges, rather than using the much simpler to install modern picture frame mitered corner style of casing, and I think it makes all the difference.  I now realize that I like the look of the stark white vinyl in conjunction with the dark wood.

Consider the number of steps and time involved just to construct just one top cap. 

1.      Rip the board to width.

2.      Cut the board to length.

3.      Miter cut the end to create a return.  Edge grain doesn’t look good stained, so a return is necessary for a proper job in my view.  Extra credit for matching the grain.

4.      Glue on the return pieces.

5.      After glue dries, ease the edges with a round-over bit.

6.      Sand

7.      Stain

8.      Three coats of polyurethane

With all the gluing, staining, and polyurethaning, this takes two days to accomplish.  Installation takes 30 seconds.

So far we have installed a rubber roof on the shed dormer, re-sheetrocked portions of the kitchen and dining room, installed new light fixtures, installed 4 new exterior doors, 4 new windows, and 1 new interior door, upgraded the kitchen and basement wiring, repaired a lot of cat-clawed wood trim and paneling, cleaned and scrubbed and painted (lots!), started cleaning up the yard, and much more I don't even want to think about.  Still a lot to do, including our big plans for the exterior, which I will get into later.  No guarantees that all this expenditure of money, time, and blood (literally, remember the nail through the finger?  http://www.vincehoehn.com/blogs/vince_hoehn/archive/2009/10/12/one-reason-to-let-someone-else-do-it.aspx) will pay off, but at this point we remain optomistic. 

Following up on my previous post, here are additional statistics form the National Association of REALTORS Profile of Home Buyers and Sellers 2009:

• Forty-seven percent of recent home buyers were first-time buyers.
• The typical first-time buyer was 30 years old, while repeat buyers averaged 48 years old.
• Twenty-one percent of recent home buyers were single females; 10% were single males.
• Median household income was $61,600 among first-time buyers and $88,100 among repeat buyers.
• The median price of a home purchased was $210,000 in the Northeast, $158,000 in the Midwest, $175,000 in the South, and $240,000 in the West.
• The typical home purchased was 1,800 sq. ft. in size and built in 1991.
• New home purchases were 18% of all recent home purchases, the lowest level in 8 years.
• Ten percent of buyers purchased a home in foreclosure, up from 3% in 2008.
• Ninety percent of home buyers used the internet to search for homes, and this was the first step oin the process for one in three buyers.
• Seventy-eight percent of buyers purchased their home through a real estate agent.
• Forty-four percent of buyers found their agent through a referral from a friend or family member.
• Eighty-five percent of sellers sold their home through a real estate agent.
• Forty percent of represented sellers found their agent through a referral from a friend or family member.
• Among represented sellers, 81% reported that they would definitely (59%) or probably (21%) use their agent again or recommend to others.
• Eleven percent of sellers were unrepresented, ie., sold their home without the assistance of a real estate agent.
• Forty-five percent of these successful unrepresented sellers knew the buyer prior to the purchase.
• Recent sellers typically sold their homes for 95% of the asking price, and 60% reduced the asking price at least once.

Statistics are all fine and good, but their value is in what one does with them.  Can't eat them, can't wear them, so we will have to find some other use to justify the time, effort, and money spent to compile them.  I have some thoughts on that; might be a topic for next time.