The Swami and Home Equity Insurance

By John McGory

A new wrinkle in the real estate world is the home equity insurance programs being promoted by Home Value Protection and other insurers.  The Real Estate Swami says all should move carefully when considering such policies.

The equity insurance programs are aimed at protecting homeowners from steep drops in the value of their home.   

Here is how it works.  Insurance buyers pay a monthly premium.  The insured will collect on the policy if both of the following happen.  One, the house sells for less than the value determined on the policy.  And two, homes throughout the area have dropped overall according to a national home price index. 

So if your home drops 20 percent but the overall market only drops two percent, then the policy will pay you two percent of your losses, not 20 percent. 

The Real Estate Swami says there are several considerations to keep in mind if you are considering purchasing a home equity insurance policy.

“In the past five years local home prices have dropped 11 percent.  It is likely we are near the bottom since little new housing stock is being added to the market.  Also, home equity insurers targeted central Ohio because of stable home prices.  While certain neighborhoods may continue to suffer, it is unlikely our regional price index will drop another 11 percent,” says the Swami.  “Keep in mind your payment is based on the percent drop of the entire market, not your individual home.”

The Swami says if the entire market does drop another 11 percent in the coming years, then the chances of the home equity insurance companies surviving would be slim. The best advice is to continue to try and build equity in your home.

“Pay yourself,” counsels the Swami.  “Reducing the principle on your loan each month by paying a little extra will put you in a better position when you sell than most insurance policies.”

John McGory is a licensed real estate agent in central Ohio.  He is also a partner in Webface, a content marketing company.  Get more information at www.web-face-solutions.com

Central Ohio Real Estate Is Not Normal

By John McGory

A national real estate expert came to Columbus this week to tell us that the real estate market is close to normal again.  The Real Estate Swami says statistics can be deceiving.

Ted Jones, chief economist for Stewart Title, came to town to present his real estate forecast to the Columbus Board of Realtors, Building Industry Association and Columbus Mortgage Bankers.

The Real Estate Swami was there to listen to the Houston, Texas native.  The main thrust of Jones’ speech was we are back to 2002 sales levels and that is as good as it is going to get.  The bubble years from 2003 to 2009 are but a fond memory.   

Swami believes that the evidence in the streets of central Ohio is that while we are improving we have a ways to go before we see a “normal” real estate market.

“There is evidence that the housing market is gaining strength.  But to say this is normal is either a sign of the apocalypse or someone with little faith in the central Ohio housing market,” says the swami.

The swami points to a robust 1990s market with strong residential and commercial building as more typical of a normal central Ohio real estate market.  Those days will return as the economy continues to strengthen and job creation increases.

The central Ohio job market is still down 35,000 jobs from its peak in February 2008.  We have picked up 5,000 jobs in the last 12 months, including a 3,700-job uptick in November 2011.

“Columbus and central Ohio have always been considered the poor stepchildren from real estate experts around the country,” remarks the swami.  “But our market can do much better and will do so in the coming years if we continue to get strong local leadership from business and government.”

The swami did agree with Jones that one group that needs to be encouraged that real estate is a good investment are young adults.

“Renting gives the young the illusion of freedom.  That all is possible if you are not tied down to a property,” he says.  “But we must remember that they have grown up in the worst of real estate times.  The young will soon see that ownership is true freedom.”  

John McGory is a partner at Webface (http://www.web-face-solutions.com/), a content marketing company in central Ohio, and is a licensed real estate agent.

Home Building: A Shaky Future?

By John McGory

With the demise of the home building industry, a fundamental change in how we house people is facing our country.  The Real Estate Swami says the economic meltdown may usher in a new era in how we build and pay for housing in the U.S.

Sales of newly built homes, which peaked at 1.3 million units in 2005, are running at an annual rate of just 298,000 units in 2011 and are on pace to post the lowest count since record keeping began in 1963.  

Home building starts in central Ohio’s seven-county region totaled 600 through July 2011.  In the late 1990s, it was not uncommon to see 600 permits per month in the City of Columbus. 

 This staggering drop in new housing is chasing builders, large and small, out of business.  The Swami says that home building as we know it today may never return

“Central Ohio’s impressive home building industry is but a shell of what it once was,” remarked the Swami.  “In what form it returns when housing is needed is a question not yet answered.”

The Swami says the real estate meltdown shows where home ownership and the new economy have diverged.

He predicts the speed of the new economy will challenge home ownership and 30- or 40-year mortgages.  These challenges include:

1.   Worker skills necessary today may be useless tomorrow.

2.   Middle class jobs are disappearing.

3.   Companies flourish for a short period of time, then wither away. 

4.   Governments struggle to pay their bills and maintain necessary services.

“These are signs of a troubled day-to-day economy,” remarks the Swami.  “How can a home owner sign a 30-year mortgage under such uncertain circumstances?  How can communities afford services for suburban-styled development with this short-term economic mentality?”

The Swami foresees changes such as hybrid ownership/leasing arrangements, larger multi-family housing projects and the halt to sprawling development in rural areas.

“Significant changes in society took place during the last Great Depression.  How we live amongst one another will be one of the major changes we face as this economic malaise slowly comes to an end,” says the Swami.

The Real Estate Swami is brought to you by Web Face, a Columbus communications and marketing company (www.web-face-solutions.com)

A Great Shadow of Burden

By John McGory

“It is said that hope is like the sun, which, as we journey toward it, casts the shadow of our burden behind us.” Samuel Smiles

Real estate continues to have a great shadow of burden in front of it as it struggles to recover.  The Real Estate Swami quotes Standard and Poor’s recent report that shows a shadow inventory of four to five million houses in the U.S.  Shadow inventory are homes either owned by the bank or in some stage of foreclosure.

“What holds us back from a robust real estate market are the many houses owned by the banks.  If they were to release them all at once the real estate market would crumble,” says the Real Estate Swami.  “Slowly they will come off the books and our shadow of burden will be behind us.”

The S & P report shows there has been some improvement this year on whittling down the shadow inventory.  A 52-month supply of houses existed in the first quarter of 2011, dropping to 47 months in the second quarter. 

There is much debate on how long our shadow inventory will slow down the real estate market.  The local economies across our nation will determine how quickly these inventories disappear.  Central Ohio is seeing some strength return to its economy.  Housing sales jumped 23 percent in July.

The Real Estate Swami says to keep an eye on new job creation as a sign on where the central Ohio housing market is heading.

“Many home owners want to sell but are waiting on the sidelines for house prices to increase.  Supply will continue to exceed demand so any increase in price will be gradual.   As our local economy adds new jobs our shadow will shrink as we move toward a rising sun.”

The Real Estate Swami is brought to you by Web Face, a Columbus marketing and communications company. http://www.web-face-solutions.com/

A Bright Star in Columbus' Future

The Real Estate Swami sees that MSN Real Estate ranks Columbus the 9^th best city in the country to rebuild homeownership.  The Swami perceives this as a bright star in central Ohio’s future. 

The survey ranked mid-to-large-sized cities.  Columbus was the largest city in the top ten, with Scranton-Wilkes-Barre, Pa. at the top.

The Swami’s crystal ball shows this trend to bode well for central Ohio.  Many affordable houses were constructed here in the fifteen years prior to the real estate crash.  Swami sees this stockpile of homes as an eventual benefit to central Ohio as the economy starts to grow.

“The pain of overbuilding is real to many in our community.  But the suffering will end when the jobs begin to return,” reveals the Swami.  “Many communities do not have the available infrastructure in place to accommodate growth.  New housing is not being built.  Communities that have good housing stock in place will be attractive to those who produce jobs.”

Swami believes that man creates his own destiny.  He considers Columbus’ selection as a top place to rebuild homeownership as a blessing.  Our challenge will be to take care of all our brothers and sisters.

“Our region is blessed with gifts including an ample water supply, a strong logistics component and enlightened young workers.  Our strengths can help all of our people blossom.  The region needs to focus more on taking care of its own and then the fruits of our labor will multiply.”

The Real Estate Swami is a service provided by Web Face, a marketing and communications company helping companies and central Ohio grow in responsible ways.  Learn more at www.web-face-solutions.com.

Swami and the 2011 Real Estate Crystal Ball

As the swami gazes into the real estate crystal ball to determine the future, he sees a very localized central Ohio housing market. Some good areas and some not so good. Here are his guiding visions as you consider your neighborhood.

1.      An overcorrecting market:  Prices may have dropped too much.  If prices are below 2002 levels in your neighborhood improvement may soon occur.

2.      Overdevelopment:  The swami sees too many houses built in some neighborhoods before the crash.  Over supply is a red flag in newer developments.  It may mean prolonged pain.

3.      Jobs, jobs, jobs:  Swami sees new jobs coming.  These areas will see a quickly improving housing market.

4.      Lifestyle: The swami sees people having fun, listening to music and going to farmers’ markets.   Swami sees some neighborhoods with lifestyle attractions for today’s buyers.  Is it walkable? Nearby parks? Fun things to do around the neighborhood?  If yes is the answer to these questions, then swami sees great things ahead.

5.      Responsible government:  Swami sees turmoil ahead for local governments.  Are your local taxes reasonable?  Schools ok?  Sane growth policies that make sense for sustainable growth?  Again, if yes is the answer good things are ahead

The swami sees these trends impacting the market for the foreseeable future.