Goodbye old friend

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And hello 2017!

I bought a car on the first business day of 2017.

For most folks, buying a car is not a big deal, but I am definitely not a car person!  I drove my mother’s last car for almost eleven years after her death in 2006 and was embarrassed to shed a few tears at the dealership when I sentimentally traded it in on January 2. That car has 200,000 miles on its odometer! It’s still in great running condition, and I hope it finds a good home with someone, maybe a teenager, who needs safe and inexpensive transportation. Before my mother’s car, I drove a car I bought from a deceased friend’s estate. Are you detecting a pattern in my vehicular history?  Until this week, no car dealership had made a dime on me in the past 15 years!

My colleague and friend, Tom Dunlop, on the other hand, is definitely a car person. He currently drives a bright red late model Mercedes which he will upgrade this spring for the mere reason that two years have passed. His dealership loves him! In addition to trading every two years, Tom takes donuts to the staff when his car is serviced. What a nice guy! We’ve enjoyed that shiny red Mercedes as our lunch vehicle and can’t wait to see what Tom decides will be our new fancy ride in the spring.

new-year-new-startWhy is this car talk relevant to dirt law in 2017? It’s relevant because our success in the housing industry this year may depend on whether Americans and specifically South Carolinians are really home ownership people.

There are some reasons for concern. Interest rates are climbing. The mortgage interest rate deduction is under attack in Congress. The future of the CFPB may be precarious under the new administration and because of pending litigation challenging its constitutionality.  Some financial advisers are recommending renting as a better economic alternative for many Americans. Some retirees are being advised to sell the large homes where they raised their families in exchange for nifty, low-maintenance town homes, condominiums and even rental apartments.

But unlike my personal lack of thirst for new cars, I believe many Americans and many South Carolinians have an enduring thirst for new and upgraded residences. And I believe their thirst is most often quenched only by purchasing those residences. We have been taught that home ownership is an excellent investment vehicle coupled with a tax advantage. This advice goes back several generations. This wisdom is so ingrained that the counsel to retirees to rent shocked me! I had to read it from several sources to believe it was serious and sound advice for some folks.

And, thankfully, the economy is continuing to improve. Zillow is reporting that the U.S. housing market has regained all the value it lost during the housing crisis. South Carolina is particularly poised for success. Charleston is one of the fastest growing markets in the country. Hilton Head is digging out and rebuilding from Hurricane Matthew. The Rock Hill/Fort Mill area is growing toward Charlotte rapidly. It is impossible to ride around Myrtle Beach, Greenville and even Columbia without dodging construction activity. My own office’s numbers have improved during 2016, and I budgeted up for 2017. I suspect most South Carolina dirt lawyers are looking for a better year in 2017 than in 2016 assuming they can maintain their momentum and sustain the excellent staffing that momentum requires.

I am optimistic!  Here’s hoping Americans and South Carolinians continue to be home ownership people. And here’s hoping 2017 is a healthy, happy and prosperous year for you!

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The Big Short: Required Reading (and watching) for Dirt Lawyers

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thebigshort

Super Bowl 50 was the big entertainment news of the weekend, but coming in at a personal close second were the book and movie The Big Short. I rushed to finish the former before dragging my husband to a Saturday matinee of the latter. Then, a friend pointed me to an NPR special “The Giant Pool of Money”, which provided a fascinating diversion for my Saturday afternoon walk.  (I confess to being easily entertained by all matters involving real estate.)

I encourage everyone involved with “dirt” to read the book, watch the movie and listen to the podcast. All relate to the 2008 financial crisis. At the center of the book (and movie) were several eccentric investors/money managers, who predicted the fall and brilliantly crafted a method to cash in on it. At the center of the podcast was the “giant pool of money”, the trillions of dollars in the economy that constantly need a place to be invested.

Locally, we heard the stories about real estate investors who lost properties and funds in the crash. In our office, we compared the crash to a game of musical chairs. The investors who sat in the chairs when the music stopped (the ones who held titles to the properties) were the ones who lost.

All areas of South Carolina were affected, but our coastal areas were hardest hit. Property values were phenomenal!  A contract on a yet-to-be-constructed residence might change hands several times at increasing prices before the final purchase. And loans were easy to procure at all income levels. No one thought property values would ever soften, and it didn’t matter if adjustable rate loans would reset in two years at staggeringly high fixed interest rates because refinances were readily available. Properties and mortgages churned like butter. There was apparently no end in sight.

The book’s author, Michael Lewis, who also wrote Moneyball and The Blind Side (back to football, which really is the center of the universe), said in explaining the mindset of the people who would borrow again and again, “How do you make poor people feel wealthy when wages are stagnate? You give them cheap loans”.

One of the money managers in The Big Short had his eyes opened by a story from his own household. His babysitter revealed she and her sister owned five townhouses in Queens. When he questioned asked how that possibly could have happened, she responded that after they bought the first townhouse, the value increased, and lenders suggested they refinance and take out $250,000, which they used to buy another townhouse. And so on….

The “giant pool of money” that at one time had been invested safely in boring assets like Treasury bonds, needed a place to land with higher interest rates. With mortgage rates being at 3.5% and higher, no better place could be found.

How did the money managers cash in?  They looked at pools of mortgages that were being sold on the secondary market, saw that the interest rates would collectively begin to reset in early 2007, and bet against the housing market.

They created a “credit default swap” market that bet against collateralized debt obligations. Huh?

One of the points of the book is that the financial markets created fancy terms that average individuals could not possibly understand. In this particular case, it turned out that that the big Wall Street firms, the people who ran them as well as their regulators, did not understand what was happening either.

“Credit default swap” is a confusing term because it is not a swap at all. It is an insurance policy, typically on a corporate bond, with semiannual payments and a fixed term. The money managers who predicted the subprime lending crisis bought credit default swaps that paid off, like insurance policies, when the market crashed.  These eccentric money men were able to predict that there would be a crash of the subprime mortgage market even if housing prices only stalled because borrowers would not be able to refinance or make payments.  When prices dropped, the money men were able to cash in at astonishing levels.

The most horrifying point of the book was that the government’s response to the crisis, the so-called bailout, will not prevent the crisis from happening again. We can only hope that we are all better educated the next time around. As I opened Outlook this morning, though, the first article that caught my eye was from Housingwire entitled “Risky home lending really on the comeback?”  Let’s collectively hope not!

Trulia’s Blog Paints a Rosy Picture of Housing in SC for 2016

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Charleston is identified as the second hottest market in the country! Columbia is seventh!

_SC FlagIt’s budget time for me and for many real estate professionals. We are reading everything we can uncover on economic forecasts, and for me, the focus is real estate in South Carolina. Today, an interesting blog entitled “Housing in 2016—hesitant households, costly coasts, and the bargain belt” popped up in my newsfeed in Facebook. The blog, dated December 3, was written by Ralph McLaughlin of Trulia, the online residential real estate site for buyers, sellers, renters and real estate professionals.

As a part of its annual forecast for housing, Trulia commissioned Harris Poll to conduct a survey in November of about 2,000 Americans concerning their hopes and fears on housing. The survey indicated that the American Dream of home ownership is alive and well and continues its resurgence since the economic downturn.  The blog states that the percentage of Americans who dream of owning a home is up 1 point to 75% and up 2 points among millennials to 80%. But 22% of Americans believe it will be harder to get a mortgage in 2016.

Hesitant households in the title of the article is a reference to the obstacles consumers perceive to buying a home:  down payments, credit history, qualifying for a mortgage and increasing home prices are the top four.

Costly coasts are the expensive metro markets in the West and Northeast. Trulia is expecting those markets to cool because affordability has decreased, homes are staying on the market longer, and saving for a down payment is taking decades. In addition, consumers in those markets are pessimistic about housing.

The good news for us in The Palmetto State is that we are located in the so-called bargain belt, the highly affordable markets in the Midwest and South, where the survey shows consumers are upbeat about housing and where Trulia is expecting growth housing.

Trulia also identifies ten markets with the strongest potential for growth in 2016, and two of them are ours:

  1. Grand Rapids, Wyoming
  2. Charleston, South Carolina
  3. Austin, Texas
  4. Baton Rouge, Louisiana
  5. San Antonio, Texas
  6. Colorado Springs, Colorado
  7. Columbia, South Carolina
  8. Riverside-San Bernardino, California
  9. Las Vegas, Nevada
  10. Tacoma, Washington

Everyone paying attention is aware that the Federal Reserve has expressed a commitment to raising interest rates either by the end of the year or early in 2016, and we have seen the stock market respond each time Janet Yellen speaks on this topic. But if this projection and others that indicate the market in South Carolina will be strong in 2016 are correct, we should expect a strong 2016. Perhaps by the end of the first quarter, we will begin to feel the worst of the TRID transition is behind us, and we will be ready to embrace the growth we are anticipating.  Let’s all look forward to the ride!