Wednesday, October 29, 2008

How did we get into this economic mess? Gambling.

In Vegas you can bet on pretty much any sporting event. Even some you've never even heard of. Turns out our economy is the same way. But it hasn't always been that way. I recently watched this 60 Minutes special on Credit Default Swaps and how they contributed to our current economic downturn. Enlightening to say the least. Check out the written transcript here if you don't want to watch the video. Even for a financial novice like myself it makes perfect sense. And it's extremely worrisome.

What are credit default swaps? Steve Kroft of 60 Minutes states,
"Essentially they are side bets on the performance of the U.S. mortgage markets and the solvency on some of the biggest financial institutions in the world. It's a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages."
Kroft goes on to say,
"Think of it for a moment as a football game. Every week, the New York Giants take the field with hopes of getting back to the Super Bowl. If they do, they will get more money and glory for the team and its owners. They have a direct investment in the game. But the people in the stands may also have a financial stake in the ouctome, in the form of a bet with a friend or a bookie."
This type of betting and gambling used to take place in what was called "Bucket Shops" which were outlawed around 1907 after the stock market fell 50% from it's peak the previous year. In 2000 Congress exempted this "Bucket Shop" law and the credit default swap markets went soaring from roughly $100 billion to more than $50 trillion dollars. Yes. Trillion. According to the report,
"You could bet on anything from the solvency of communities to the fate of General Motors...A lot of the money was made financing what seemed to be a never-ending housing boom, selling mortgage securities they thought were safe and credit default swaps that would never have to be paid off."
And then the housing market took a turn for the worse and there was not enough money to pay off the debts which is essentially what ruined Bear Stearns, Lehmann Brothers and AIG. The scariest part of all this is that these credit default swaps are completely unregulated so we have no way of knowing how much money is still floating out there.

Hedge funds operate in a very similar manner and I posted my thoughts about this a while back and how I feel it can be conflict of interest when a person who is influential over a particular market or industry can bet for or against itsself and reap the rewards. This just doesn't make sense to me. But again, I'm no financial guru. What I took away from this report is that we simply allowed anyone to bet (Trillions of dollars) against our own housing market which at the time was similar to betting against the race horse who is favored to win. Then when the housing market started suffering people demanded their "winnings" and there simply wasn't enough cash to go around and the gears quickly grinded to a hault.

So...I contend that while the housing market has seen better days, it's certainly not what got us into this mess. A law was created roughly 100 years ago in order to prevent a stock market crash. Here we are eight years after the law was overturned and look at where we're at. It's funny how history repeats itself and we'll just never learn from our mistake.

I know you have opinions on the matter so bring it. Watchoo got?

Tuesday, October 21, 2008

"Property features plenty of natural light"

Seriously? This house obviously has electricity since the breakfast room chandelier is on. How hard is it to flip a switch before taking a picture?

Someone puh-LEEZE tell me how these people's clients can possibly be happy with this type of service.

Friday, October 10, 2008

Ugliest kitchen ever?

I thought Pepto Bismol was supposed to soothe your stomach, not make you nauseous. Not only am I baffled as to why someone would paint their kitchen this color, I'm more confused as to why someone would actually buy this house. It's under contract and is severely overpriced.

Thursday, October 9, 2008

Check out these interest rates!

My good friend Norma Minnis, a mortgage broker with Travelers National Mortgage, sends me this email regarding mortgage rates:
"Did you know that on a jumbo loan with good credit, 20% [down], you can get a 5 year ARM at 5.625 and a 7 year ARM at 5.875%?"
It's a great time to buy a home and if you're in the market you should definitely give Norma a call. She'll take great care of you.

Phone: 214-887-9544

Tips From Jeff

I sent the following email out today to my friends and clients. It was after I sent this email that I noticed the stock market fell yet again to below 9,000 points for the first time since 2003. It is during times like these that more millionaires are made than during times of prosperity. I think this is because it forces us to become more introspective and take a good look at our spending behaviors and locate areas that need improvement. It also allows people to identify areas of need that may have been overlooked when everyone was rolling in the dough.

So keep your heads up. "This too shall pass."

Dear friends,

Much has been said recently about the state of our country’s economic climate so I wanted to share a bit of advice during these difficult times and hopefully clear up a few things, even if only slightly.

Tip #1 – “Spend less money than you make”

As simplistic as this might sound it works. It works in any economic climate both good and bad. If you make $5,000/month and you’re spending $7,000/month then you will soon be broke. One positive thing that is coming out of all of the financial turmoil is that it is forcing many of us to take stock (no pun intended) of our financial situation and tighten our belts when it comes to superfluous spending. If we train ourselves how to operate on a budget now we will be able to enjoy the good times without reservation and guilt when it arrives. If you don’t have a personal budget there isn’t a better time than right now to get started on one.

Tip #2 – “Now is the best time to buy”

Not only does this statement pertain to real estate but certainly the stock market as well. “Buy low, sell high” makes sense to me and there are bargains to be had. If you’re trying to time the bottom of the market then please let me know when it gets here. The most educated financial gurus in the world will tell you the only way to know you are at the bottom of any market is when it is has already passed you by.

Tip (myth) #3 – “But there isn’t any financing available!”

Wrong! This is perhaps one of the biggest myths floating around the media outlets. If you are currently renting and have a credit score of over 700 and can comfortably put 10% to 20% down on a property you are the best candidate to take advantage of our current real estate market. There isn’t a bank in this country that won’t give you a loan on a home right now. Anyone that tells you different has been misinformed. A huge developer trying to get a loan to build a 150 unit high-rise condominium in Dallas is a different story.

Tip #4 – “If you have questions about the stock or real estate markets ask a professional”

Are you curious about what your home is worth in today’s market? Are you unsure of what to do if you have money in the stock market? Should you be buying stock or moving your money around? Most people today are talking about these issues with their co-workers, neighbors or friends and should probably be talking to a professional. Call your financial advisor and request a meeting with him or her. If you don’t have one but are thinking of hiring one give me a call. I’ll be happy to refer you to some top notch professionals. As far as real estate goes if you’re hearing things about the real estate market and want clarification just pick up the phone and call me. Don’t be afraid to ask the hard questions. That’s what I’m here for. And, unlike our favorite politicians, I won’t make up statistics just to sound smart.


Jeff Duffey, Realtor
Coldwell Banker Residential Brokerage
Park Cities Office
Top 5% in Production Nationwide - '06 & '07
214.521.0044 Office
214.507.2878 Cell

Tuesday, October 7, 2008

Giving the middle finger to Uncle Sam?

I've discussed the glaring discrepancy between a property's true market value versus the Dallas County Tax appraisal before. Why I am bringing it up again? Because of this.

4800 Preston Rd. - House of John and Lyn Muse. Valued on DCAD for just over $30 million. (Land is worth $21,175,000)
Description: 8 year old house with 25,000 sf, with all sorts of cabanas, guest quarters and greenhouses sitting on 7.7 acres and backs to Exall Lake.

4101 Beverly Dr. - Home of Edwin Cox Trust. Valued on DCAD for almost $22 million. (Land is worth $21,832,500)
Description: 97 year old home with 20,000 sf, pool, tennis court, etc. all on 6.6 acres and backs to Exall Lake.

And then I click on 4100 Beverly Dr. and 4101 Mockingbird. Home of Dallas Country Club. Total value on DCAD is just under $10 million. Wait. What? Am I reading this right?
Description: One of the most prestigious country clubs in the country with roughly 10 buildings that total around 150,000 sf of air conditioned space sitting on 113 acres in one of the most expensive neighborhoods in the country.

In summary, according to DCAD, Ed Cox and John Muse's combined 14 acres of dirt is worth approximately $43 million. Dallas Country Club's 113 acres and 10 buildings is not even worth $10 mil. Do country clubs fall under the church and school categories when it comes to property taxes? Am I missing something here?


Monday, October 6, 2008

What the $700 billion settlement means to you

Where to begin dear readers? There is so much "stuff" out there to sift through that it's tough even for us that sell real estate full time to figure out which way is up. So allow me to clear up a few myths that are running amuck.

Myth #1: "There is no financing available for buyers"

False: If you have over a 700 credit score and are putting 10% to 20% down on your home purchase, there is not a bank in America that won't give you a loan. If you have a 615 credit score and can only afford to put 3% down on a home purchase then you probably shouldn't be buying a home. Instead, try paying down your credit card debt, getting that credit score up and saving up so you can put down 10% to 20%.

Myth #2: "The bailout plan will free up money for buyers"

Unclear: While I do believe this will free up money for some buyers, it's my opinion that it's only freeing up money for those people I just described above. There is not a bank out there that is willing to take on too much risk. For example, if I wanted to get a loan to build a $100 million, 100 unit high rise on Turtle Creek, there isn't a bank out there that would give me money because our city - and country - is overbuilt. See the difference?

Here is what some folks are saying about the bailout and the Countrywide mortgage relief settlement. Regarding the bailout, Shawn Hartmann, a Realtor in Minnesota writes, "With taking the financial hardship off the lending institutions from the non-performing assets, the lenders are now able to free up capital to lend more money. " I agree. But not for just anyone. See my examples above.

Regarding the Countrywide settlement, "This is good," said Christopher Whalen, managing director at Institutional Risk Analytics, a provider of analysis and ratings for banks. "I hate to say we'll need to see a lot more of this, but we will. Banks have no choice because the economy's getting so flat. They're going to become increasingly aggressive about keeping homeowners in their homes." I think this is a step in the right direction but will definitely not solve our problems. There are many other unforeseen consequences that we have yet to see and I think these quick solutions will have long term consequences.

In closing, I believe this is the tip of the iceberg. What hasn't been mentioned is the amount of credit card debt looming in the background. When people can't pay their mortgages they stop paying their credit cards first. Then they stop paying their mortgages. Wachovia, WAMU, BofA, Chase all hand out tons of credit cards each year. All of these banks also deal in mortgages. No one has mentioned how the credit card issue has impacted their cash flow concerns which worries me.

Bottom line is that if you have good credit and can put 10% on a home you have nothing to worry about. If you don't have good credit and don't have much free cash, then you probably don't need to be in the market and never should have been in the game over the last 5 years. It's not your fault. You were just given bad advice by greedy lenders. So if you're looking to buy or sell and want straight up advice, give me a call. I'll be happy to make this all as clear as mud for you.

Friday, October 3, 2008

Want To Meet the True Top Producing Agents in the Park Cities and Preston Hollow? The Numbers Don't Lie

Over at Dallas Dirt Candy posted some production numbers for the Preston Hollow and Park Cities areas. To me her source's numbers were a little vague and didn't give the clear picture of who was doing what type of production. If you know me at all, you know I love me some numbers. I didn't look specifically at the companies but at the Top 50 producing agents. I find that just as interesting. So dig in, analyze, discuss. (Can you believe I came in above number 1? I needed my own line because I'm in a different league. This was so unexpected.)

Production in Park Cities and Preston Hollow only: