Mohamed Ibrahim’s Blog

I am a news addict. I like reading news and listening to news a lot. At the start of my day, I listen to news in the morning during my morning routine. I have speakers mounted in the bathroom ceiling and the radio tuned to 103.5 wtop news.

Today I heard a commercial about lennar announcing a 4.9% fixed loan, with lots of disclaimers following the announcement. Check it out. I’m not related to lennar by any way nor I will benefit from anyone taking a loan from them.

I knew mortgages with even lower rates than that … all the way down to 2.5% fixed. I haven’t researched lennar’s loan, but from my previous research those very low rates are negative amortization loans. It’s those loans where the real rate is something like 6%, you pay only a smaller amount and rest gets added over your principal. So in reality, your principal grows and is not paid off.

If that 4.9% is not a negative ammo then it would really be a good deal! you know, the inflation in the united states is between 3%-5% i.e. money loses value at 3%-5% a year approx. If someone is giving a loan at 4.9% then they’re really pushing their risk level high - unless there’s a catch in there. If you add the effect of inflation plus the cost of the loan (salaries and wages to people working on it, commissions, originations …etc) a 4.9% fixed amortized loan is definitely either barely breaking even or a losing deal for the lender - I really don’t know how they’re making it happen.

The reason to sell or buy real estate should be the need to do so. Either you moved due to work, you have a loan that will reset and you won’t afford it any longer (although you can also try refinancing), or you’ve got a bigger income and can easily upgrade to a larger home.

Don’t sell or buy real estate just because you’re afraid of the market. That’s my opinion for the everyday person - not the investor.

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This is an updated chart to the posts I had made earlier. At that time I was hoping that the curve pointing up is pointing to a recovering real estate market, but actually it looks like there are minor cycles repeating and we’re still going down. Worse, those minor cycles seem to repeat every two years - and now we are in a minor cycle trough.

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“Too little too late” This is the phrase that I’ve been hearing continuously in the news both for reaction of the government to stimulate the economy with tax rebates, and today with the federal reserve decision to cut the interest rate by 0.75%.

Why does the federal reserve need to cut the rate? Our economy is based on ever increasing credit. If people don’t borrow, there will be no money i.e. DEBT=MONEY CREATED IN THE SYSTEM. The reverse is true, repayment of a debt destroys the money created, which is the same thing that happens when a mortgage goes to foreclosure - the money gets destroyed.

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MRIS has an excellent statistics tool, which is publicly accessible. It can show the housing market statistics in every zip code. The last time I ran the statistics I had 1 out of every 10 units selling. I just ran it now and in my zip code 20876 at the end of Dec 2007, 11 units sold and 202 units active - that’s 5.4%. It’s really not dim as that in all areas, once you get closer to DC, and lower the price bracket the rate of selling goes higher. In Arlington it is approximately 47%, which mostly contain condos. However, you have to price right and aggressive pricing is not an option in most cases.

Those number are very important in case you’re selling your home. You need to know your possibilities of selling your listing i order to determine the correct price. It is a very hot investor/buyers market, but not any buyer can now buy! If you are a seller, think twice before you counter offer.

A lot of work was done this weekend. Although I refer to it as a lot, yet the amount that is actually reflected on the pages is small. I changed the way mibrahim.net is reading the media from MRIS to a better way, since MRIS update of photo manager.

The old sneeky way that I used was to increment the last digit in the main photo URL. It worked great for most of the listings, and in very rare cases it did not work. After the photo manger update, I noticed that the number of misses started to increase and by further research I found that MRIS now stored more images in the database - i.e. there is no weblink to the media and those images can only be retrieved using a RETS query.

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Too many people mistakenly make themselves liable to pay capital gains taxes when they exchange an investment property with another. They simply haven’t been told about the 1031 tax exchange, the law which enables you to reorganize your investments without actually paying capital gains. Lots of people also mistake the 1031 tax exchange as a way by which they will not pay taxes well they say taxes and death you can’t run away from them. Simply and in summary, the 1031 tax exchange tells the IRS that you really did not stop investing, it is just that you found a better investment and re-organizing your money. That said, it means that you’re not going to take any money out of the property.

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I’ve been reading more lately about financing. I mean the core of money, where it comes from and how it gets killed, not just real estate financing. I’m surprised by a lot of what I read, and actually hope that others take the time and understand the pillars of our economy in order to know how to plan for his or her future.

I watched some videos on Google video: Money As Debt , Money banking and the federal reserve . Although sometimes those videos generalize their talk, yet after doing some research I found that a lot of it is actually true. The fact is we are dealing with non-existent money.

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What is the homestead tax credit?

Exactly like it sounds, it’s a credit you get back. Why would the state do so? In my opinion, they’re trying to limit the speed by which tax assessments are growing relative to the speed by which home prices grew in the past five years, resulting in higher tax rate for residents. It is mainly targeted to benefit home owners who live in those residents.

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I found a flyer today in my mail box from empire financial titled NO PAYMENTS FOR 6 MONTHS. The flyer read ‘Move your buyers into their dream home without making a mortgage payment for up to the first six months with the buyers’ Bonus Mortgage Program’.

I think it is good that many finance companies are trying to make the secured loan market more innovative. Sometimes to complete sales one is required to keep all those type of programs in the back of his head, although I’m not seeking financing myself - yet my buyers are, and sometimes I need just to point them out to some loan programs that I might know, and they don’t.

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The housing bubble wrote a not so short post about housing troubles in California. Well, it’s not only in California - may be as far as I recall that California was one of the leading states to reach the downhill. However, in DC metro areas the bubble also bursted strongly.

We’re seeing an exceptional opportunity to buyers especially those with cash in hand. The usual qualified buyer can sometimes negotiate around 10% of the property’s asking price, and that for upgraded units, with new appliances and freshly painted - and I’m saying that they are excellent. Properties that need work, well, will be negotiated even more.

Its not over. The CEO of country wide and KB homes both say the US will still face a tough market next year. All the people I know and who’s working full time in real estate say that yes they feel the crunch of the market. It’s not the normal market like before, and when I say normal market I mean fair one. At one point of time the market was advantageous to the sellers and was unfair to buyers and things started moving around till the market became unfair to sellers. In between there was a slight lapse of what we call a fair market to each, and it was not very long.

In my area and in average one out of eight listings sell. That’s my own stats & analysis. Two month ago approximately, it was one out of five. And as you can see in GCAAR’s report, it seems more expensive houses are being sold than less expensive houses, compared to earlier this year and last year. That’s the only way I can explain the continued rise in the average and median prices of homes !

Youtube changed the internet. News segments, ads, and homes for sale are not being posted as videos on youtube. Increasingly, I’m noticing home videos being added. Since I did a video for my listing, I’ll describe my experience and things that I learned - which might be helpful to others.

When I looked on youtube, I noticed that most videos are being shot using a video camera held by hand. My advice is to use a tripod. Carrying the camera by hand makes it wobble and it becomes harder on the viewer to focus on details.

The second advice is to rotate the camera slowly by hand. If you can record the video non-interlaced, it will be better.

The third advice is to shoot the video in segments. Do not try to shoot one big piece of video. Visit every room or ares in the house by itself. If you have a wide angle lens it will produce a much better video than normal lenses. Also, for sunrooms or large basements shoot from a lower hieght.

A simple video maker is enough to put your real estate compilation together. I used Microsoft Video Maker, the one that shipped on my home windows XP on the DELL laptop. There are many more professional video editors, including GPLed / open-source ones like kdenlive or Cinelerra .

When composing the video give introductions for a couple of seconds, who you are & what’s your phone number. Before every video segment, write a caption screen describing what is the next segment is about. You can use a creative commons licensed piece of music for your background, while your video is playing.

At the very end, make sure to place a summary and information about you and your company - as well as equal housing opportunity (may be even you want to place the icon all the way on the video).

Finally, upload your video to as much video sites. Insert the video to your weblog, and make sure to write well about the listing. The process is not hard, but time consuming. Every time you’ll update the video you’ll want to see the preview at minimum. Sometimes after composing the final version, other factors will show and you’ll modify the timeline again.

Remember to generate a low bandwidth version of the video - not all the people have DSL and FiOS.

Amazing ! It looks like different groups of people are analyzing different markets. Two posts about fairfax forecolsure rates one in the examiner and the other in wtop and I’m sure there’s more out. Both articles say that forecolsure rates are up, and people cannot afford what they used to before.

In the same time, GCAAR’s May report shows there’s a price increase [June's report was temporarily removed from their website].

HOW CAN THAT HAPPEN !. The only theory I have is lesser homes are being sold at the lower range - since buyers with low income are now renting versus buying. Buyer’s with higher incomes are buying lower valued properties and the rate by which those buyers decreased is smaller than at the lower range. However, property values are going down, which is totally different from the median price of sold homes.

I will try to validate my theory and write another post soon.

In a previous post, I showed a chart in which I plotted my local real estate market absorption rate relative to a year earlier. When that ratio was over one, it meant that the market is bullish and below one meant that it’s bearish.

I updated the chart based on the new June 07 monthly statistics released by GCAAR, and also used Montgomery county MD single family home as a sample of my local market.

Two charts appear here. The smoothed version is in green, and the non-smoothed version is in light transparent blue.

The updated news doesn’t really show us any good indicators. The end of the chart is trending down, and what’s worse is that the previous trough started from June 05 and ended on Feb 07 (see the green smoothed chart). I hope that the trough isn’t that deep or it’s going to be disastrous to sellers specially those with ARMs as they won’t be able to sell at a price that covers their loan.

There’s a lot to talk about when it comes to insurance. Whether you’re renting or owning you’ll definitely need to have at least one insurance policy. I will write a set of posts in which I will outline different types of insurances and how they are related to real estate. I will also present some opinions that I have, which does not necessarily mean that they are advices or imply that they are correct nor that they are suitable for you. Actually, those opinions can be wrong, and can cause you harm - and sometimes can just work well and can save money.

Starting with opinions. I support the services that insurance companies give. In summary, the objective is to protect you against accidental loss or damage. There are many forms by which an insurance company can be established. Two of those forms: A. the form that we all know and exist around us is a profitable corporation that gains from people’s premiums and provides coverage against loss or damage. B. The infrequent form is a corporation owned by its investors, that invest their money and use the income to protect its investors against accidental loss. The second form is of course the more beneficial for people, and the least frequently seen. I like the second form.

I don’t like all the ways by which insurance companies advertise. Specifically, I don’t approve of putting the viewer in a mood of fear, out of which he or she decides to buy insurance. Buying insurance should not be an outcome of fear, it should be the result of needing the service.

To demonstrate what I mean, I will link to four commercials from three reputable companies. And I’m specifically commenting on the way of advertising and not the quality of service.

An out of fear commercial , also out of fear, out of something else other than fear, out of something else other than fear.

… To be continued.

We changed the way pictures albums are presented for every listing. The way it currently works is by showing the large version of the picture you click on in the same listing page. The page refreshed quickly and moves you to an anchor just above the thumbnails.

By testing a couple of times, I found it much easier than the older way of a separate page showing that displays the album. Also, the website visitor will not move away from the listing page just to see the picture. Feedback is welcomed.

All pictures of listings are now presented through an album instead of a large picture that pops up. This should enhance the user experience while browsing our website.

When it comes to the real estate market there’s dozens of opinions. I like to see charts and analyze numbers, so I will explain my point of view of the real estate market using my own analysis. Like any analysis in the world, it might be correct and there’s a chance that it is wrong - And you can consider that as a disclaimer.

Every month GCAAR releases a monthly statistics that shows how many new listings came on the MLS, and how many contracts did we have, and how many settlements we had by the end of that month. Those numbers are from the MRIS MLS. One of the categories they present is Montgomery County single family homes, which includes both townhouses and detached units.

I ran a monthly analysis starting from January 2003. For each month I calculated the absorption rate, defined as Settlements/New listings. This is not accurate but close to the real absorption rate and the reason is that settlements during that month happened due to listings in the past months. I took that as an indicator of the probability that a listing sells.

For every month, I calculated the relative absorption defined as the ratio between this months absorption, and the absorption of the same month a year ago. In essence, if this number is greater than one it means that the possibility that a listing sells at that month is higher than the previous the same month a year ago. If less than one, it means that the possibility to sell a listing is less i.e. the market is slowing down. The lower the number, the faster the market is falling. The lowest point in this curve would define the slump i.e. the time in which we saw the steepest fall.

Remember, this curve starts at Feb 2003, ends April 2007. A month is missing at the start and the end because there’s a three months moving average with a sliding window centered at each month.

Any one would notice that according to the method I used, the steepest fall was on Feb 2006. That does not mean that Feb 2006 had the lowest sales prices, because the curve continued to be less than one after i.e. absorption continued to drop, as well as prices due to large inventory. However, on March 2007 the curve passed 1 up, and down again in April. If the curve continues to hop up and down close to one, this means that the market is stabilizing as absorption rates are neither falling down nor going up. In my opinion one of the reasons that led to that curve going closer to one is the fall in new home sales from builders.

The absorption rate in April 2007 was 36%, and in my opinion the number we need to see for the market to turn back into appreciation is 80% !

Since the chart does not show the future then we just have to keep analyzing :).

Now for every listing we show the area of its land in acres, displayed as ‘Acreage‘. The field was already in our database from long ago, we just had to make some corrections in the code to be displayed. The land area field will be displayed only if it was present in the listing as some listings do not have the acreage of the lot.

Happy home hunting.

Sunday June 3rd we have an open house on 2412 Boland Farm Rd, Germantown, MD 20876. The house is in an excellent location, a minute from I270.

Come in, bring your friends and give us your feedback.