2012 Predictions In Review

With just a few days left in 2012, I think it’s appropriate to check on the list of 7 predictions which I had made at the beginning of the year.  Let’s see how everything turned out:

  1. President Obama will get re-elected – Got it right – I knew without a doubt that Obama would get elected when Romney’s video explaining what he thought of ‘the 47%’ was released.  It proves that Romney, and really the Republican party, is very much out of touch with the voters.  I don’t know that they have a consolidated message and even when they do, they have done a very poor job at translating that into a message that the voters respond to.  This win wasn’t so much a victory for Obama as it was a fear of Romney. 
  2. A downturn on strategic defaults and underwater mortgages – Got it right – I figured that the housing market had hit bottom.  Last year it seemed that while things weren’t on the upswing just yet, we had leveled off.  This year did see an actual upswing in most areas of the country, and part of that included less strategic defaults and less underwater mortgages.  I guess if home values rise, this naturally brings people at or above the ‘underwater’ line, which would give people less reason to walk away. I’m very happy to see this and I hope that the housing recovery market is sustained moving forward!
  3. The Eurozone crisis will not be solved but will get less attention – Got it right – Was anything really accomplished in the European crisis?  Not really.  I think they did kick the can down the road a bit, but as far as actually solving anything, I don’t think that happened to any real degree.  However, the markets and the economy really didn’t react in much of a negative fashion.  There was a couple of months in the middle part of the year where the market did have some rough weeks, and they were tied to the European problems, but that was shrugged off relatively quickly and I don’t think it played much of a factor overall.
  4. Blackberry will be history (or RIM will be out of business) – Not so much – Blackberry is still around, and I’ve heard that the next release (Blackberry 10) is thought to be very well designed, and if it is received well, could put Blackberry back on the map.  I personally don’t see much hope here.  In the consumer electronics market, more often than not when customers abandon a particular company to the degree that has taken place with RIM, it’s pretty hard to convince them to come back.  The only big exception in history that I see here is Apple, but I’ve seen Apple, and I’m sorry RIM, you are no Apple.
  5. Apple will either provide a dividend or make a big purchase – Got it right – Apple instituted a dividend for the first time in 2012.   No big purchases, but since it was an either/or type of statement, I got it right.  The stock for Apple has been on somewhat of a roller coaster ride, rising all the way to $700 per share and dropping down to the low $500’s.  I think investors are finally starting to realize that while Apple is a great company that makes wildly popular products, the amount of growth potential may be slowing.  Wall Street investors live and die by growth, so the perception that Apple may have finally hit a ceiling could make for a bumpy ride moving forward.
  6. Unemployment will fall, the economy will improve,businesses will get better, but consumer spending will lag – Got it right – The economy has definitely continued to improve, and business profits have improved, but not to the robust levels that would indicate a long term healthy economy.
  7. Oprah will lose her network – Not so much – She still has her TV network, but the fact that I had to look this up to see where this stood, well it’s still not doing so well.  I know Oprah said that she wanted to put more of her ‘presence’ into the network this year, and I’m guessing she did that, but to what degree this matters, I really do wonder.  Before she shut down her talk show, you used to hear about Oprah in some fashion all the time.  Her opinion and voice was right up there in the cultural fabric.  Now, I think her voice has lost a lot of luster, so while she still has her ‘own’ network for now, I clearly think it’s been a disaster.

Five out of seven, or just over a 70% ‘success’ rate was how it worked out for my predictions.  That’s not too bad!

How did 2012 turn out for you personally and how did things around the world play out from what you had thought would happen in 2012?

What topics do you think I should predict for 2013?

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Mid-Year Check On My 2012 Predictions

Six months ago I made seven predictions for 2012.  Time to take a look at them and see where they stand and my current thoughts on each:

  1. President Obama will be re-electedToo early to tell – We’re still four months away from the election and Obama and presumptive Republican nominee Mitt Romney seem pretty close.  So what do I think now?  I think that the Republicans, recently defeated when the Supreme Court upheld Obama’s health care madates, will try to make the election about health care as well as beat down Obama on the stagnation with the economy.  I believe Obama will deflect that and win the election, so I’m holding pat on this prediction.
  2. The tide will begin to turn on strategic defaults and underwater mortgagesI’m thinking this one is looking correct – I could be wrong, but the number of foreclosures seems to be shrinking compared to what it’s been the last couple of years.  This might because banks are simply holding onto the inventory, but we probably won’t know for a couple of years until the rest of the housing market shakes out.  In any case, there are signs of a housing recovery here in Michigan, and based on that and the drop in news on foreclosure, I’m holding pat on this prediction.
  3. The Eurozone crisis will not go away but will get less attention – Correct on one account, incorrect on another – The crisis has definitely not gone away and has gotten more attention over the past few months (though in my defense, the first three months largely saw this ignored until Wall Street conveniently decided it needed a catalyst to explain the stop of the stock market climb).  In any case, the Eurpoean leaders (and I use that term loosely) seem in no hurry to do anything to actually fix the problem, so unless something drastic changes, I will likely end up incorrect on this one.
  4. Blackberry will be history (or at least RIM will be)Too early to tell – I think this could still be a possibility.  RIM has tried to catch up and has fallen into place with some of the consumer and business demands, but they’re holding on.  For now.  I think their demise could still occur in 2012.
  5. Apple will either provide a dividend or make a giant, unexpected purchaseCorrect – Apple announced a dividend a few month ago.
  6. Unemployment will continue to dip, the economy will continue to improve, the bottom line of businesses will get better, but consumer spending will lag – Some right, some too early to tell.    Unemployment did drop for a few months but now has lagged.  The economy showed signs of recovery and also has been lagging.  Business bottom lines have been getting better.  Consumer spending is actually picking up but has shown signs of slowing.  The next few months will be key. At this point, it wouldn’t surprise me if the economy picked back up by the end of the year, nor would it surprise me if it fell into a mild recession.  Nobody seems to know right now.
  7. Discovery will pull the plug on Oprah – Hasn’t happened yet but things have gotten no better since I wrote my initial prediction, and Oprah herself seems pretty much at a loss.  I’m still thinking that OWN will be history sooner rather than later.

What do you think of my predictions and where I stand on each one?  Was I wildly off on any?  What do you think about the rest of 2012?  What has surprised you the most about 2012?

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Did Condos Get Hit Harder Than Houses In The Downturn?

In 2007, I sold my condo and we bought the house of our dreams.  We wanted something that we would be able to start a family in, and the house has served us very well in that regard.

The condo I sold was my first real place, and I left it with great sadness.  Still, I knew that while it was a good bachelor pad, it wasn’t any place to start a family.

The condo was built around 1990.  I think the ‘original’ price was in the neighborhood of $70,000 or thereabouts.  It sold in the early 1990’s for around $80-85k if memory serves.

I bought it in the spring of 1999.  It was listed for $104,900 and I put a full price offer.  There was a second offer, equal to mine, but the seller chose my offer because I was not moving out of another house, therefore I didn’t have another sale in the way of closing.

Everything went without a hitch and I took ownership in March.  Within the first year, I replaced all of the carpeting and re-painted virtually every room.

In 2003, I re-financed from a 30-year 6.875% mortgage to a 15-year 5.25% mortgage.  These rates look high compared to today, but both at the time were pretty good rates.

Based on similar units sold, the condo appreciated pretty well, though nowhere near the crazy levels that were seen elsewhere.  I figure at its peak value around 2005 or 2006, it probably could have fetched $140,000.  It was an end unit, pretty well maintained, and the neighbors were, for the most part, quiet and courteous.

The market had already started to slip, at least in the Detroit area.  Sales had pretty much come to a standstill, so when I met with the real estate agent to help me sell the unit (the same agent who had represented me as a buyer back in 1999), he set the expectation that it could be awhile.  This was in the winter of 2007.  He suggested I paint again and do a few other things, which I did.

We listed the condo for $135,000.  Within a few days, another unit went for sale in my building around $132,000, so even though it had only been a few days, we lowered the price to match.

People looked but things were slow.  It could go a few days between viewings.

After about a month and a half, the realtor indicated that there seemed to be a pretty promising looker.  Sure enough, it was on a Saturday that he told me that we’d received an offer.

At the time, I felt the offer was far below and was actually a little insulted.  Still, after talking it over with my realtor, he advised that I accept it.  The offer was for around $122,000.  I asked him to counter with $124,900, which he did, and it was accepted.  I would also have to pay around $5,000 at closing, so it was really around $120,000.

This still represented quite a bit of equity, but after seeing the values fall around $20k from it’s peak, I was disappointed.  You have to realize that I had no idea of what was really about to come.  I felt we ‘made it up’ on the purchase of our house, as we got the house at $50k less than what the owners had paid for it in 2003 (which I thought was the ‘bottom’, though it went down another $50k or more after we bought it…but back to the condo).

The day of the scheduled closing came and we were told there was a delay. This was a nightmare for us because we were doing both closings on the same day, selling my condo and buying our house.  We were nervous about losing the house, but we had no choice to delay the week or so that the buyer’s lender (Countrywide, if that tells you anything) needed.

The new closing date came and another wrinkle came up.  Turns out that there were some limitations on what we could ‘give back’ to the buyer at closing as part of the transaction.  I want to say it was limited to around $1,000.  My realtor had been in contact with the buyer and asked that we cut her a check during the closing for the difference.

I knew that if I said no, she could just cancel the sale.  But, I also knew that we had leverage, so I offered to split the difference.

She accepted, so we ended up a couple of thousand ahead of where we had planned.  Not too bad.

At closing, I was a little horrified to find out that she would be financing the entire transaction, with a primary and second mortgage taken at the same time, both by Countrywide.  We all know how that turned out, but at the time, if you banked on the values going back up, this didn’t seem so bad.

As it so happens, it was within a couple of weeks of closing that Countrywide problems really began to emerge, and they stopped those type of loans.  So, we beat it under the buzzer.

After seeing the values continue to drop, I was curious as to what would happen with the condo.  I noted in 2008 that the condo was on the market, though it was for rent.  By that time, the buyer was definitely underwater.  I found out from an old neighbor that I kept in contact with, that she ended up moving out of state with an ex-boyfriend.

Tax records for that city are kept online and are available for public viewing.  The summer and winter taxes were paid a couple of times, and then they weren’t.

By this time, values had dropped even more, and I figured that she was giving up the condo.

Over the summer, we had dinner nearby and I wanted to drive by.  The place was definitely in foreclosure as the notices that are common were posted in the windows.  Looking in, the place looked pretty good.  The neighbor that I had mentioned earlier happened to see us, and said that, yes, she had given it up, but that the bank had just put it back on the market.

So I searched and found the listing, and I was floored when I saw what the asking price was:

$49,900.

In 2011, that was 30% lower than it had originally sold for twenty one years prior.  And while it was dated (appliances were all original, linoleum and fixtures were all original), it wasn’t destroyed like other foreclosures, all the wiring and plumbing were intact.  From the listing, you could tell that even the washer and dryer that I had to leave as part of the sale were still there.

It ended up selling pretty quick.  For more than the asking price.

How much more?

$100

That’s right, the property tax records showed that it sold for $50,000.

I simply couldn’t believe it.

I knew condo owners took a bigger hit.  But, not only was the eventual decline more than what our house went down ($75k for the condo vs. $50k for our house), the percentage differeace was huge (62% for the condo, where it was less than a third of that for the house).

As much as I hated seeing our house decline in value, it will take a lot longer for the condo to recover value than it will for the house, at least in term of percentage.

Not only that, but you have to figure at those deflated prices, that you might have had people buying condos that might not otherwise be able to afford them, and that they might not take as good of care of them given the low prices.  This could further keep the prices down.

That was shocking to me.

What have the trends been in terms of houses vs. condos where you live?

 

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5 Things It Will Take For Housing To Come Back

The housing market has been in a prolonged slump and shows very few signs of coming out.

I think that housing can come back.  Here are a few things that I think need to happen in order for the housing market to improve.

Actually, let me start with a few things that shouldn’t happen:

  • Stimulus / Government Intervention – The market has too many problems to be corrected by government intervention, and the government can’t afford to throw money at this anymore.  No more bailout programs.  No more tax credits.

Actually, that’s the only one.

Now I can get to the things that need to happen for the housing market to recover:

  1. A reality shift – People need to realize that the number one reason for having a home isn’t about how much equity you have.  First and foremost, a home should be about providing stability, having a place for your family, and some place you can take pride in.
  2. A realization that ‘new’ isn’t everything – Everybody wants a new house.  Nobody wants a house over fifteen years old because it’s too old, too hard to maintain, too much work.  Unfortunately, there are tens of millions of homes out there that are older than fifteen years, and until people see the value in occupying these homes, there will be too much supply and too little demand.
  3. Time – They say it heals all wounds.  It might take many more years before the wounds of the housing market are healed, but time can heal this.  It took us many years to get into this mess, and the problems aren’t going to sort themselves out.  We’ve become a society of instant gratification, but this simply isn’t possible for the housing market.
  4. Pride in ownership – Too many people think that because their house has lost value or because they bought their house on the cheap that it has to look cheap.  I never understand how someone willingly lets a house get run down.   Every person buying a house should commit to taking care of the landscaping, making repairs as needed, and fixing things that get broken.  These things used to be pretty much given for people that owned a house, but somewhere along the way, it became acceptable to have a race to the bottom on who could have the trashiest house on the block.
  5. A correction somewhere else – Right now, if someone has $40,000 laying around, many avoid housing because they can get better returns in the stock market, in oil, in gold, in silver, or a variety of other things that are providing better returns.  But, everything is cyclical and eventually one or more of these things will provide less attractive returns, and real estate could come back in vogue again.

None of these things are going to happen overnight.  I could be a pessimist and say that some of them (especially number 4) may never happen.  I will, however, be an optimist and say that maybe they will and if they do, you’ll see an improvement.  Bottom line, though, it will take time.  And patience.

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