Fed’s QE3 instantly lowers mortgage rates

We speculated at the end of last week that the August employment report would be a deciding factor in whether or not the Fed would decide to react following their two-day meeting which concluded on Thursday.

From our weekly Market Trends newsletter:

So, will the Fed hold their fire? Odds are probably 50-50 at the moment; a stronger employment report on Friday might have made that perhaps 60-40 in favor of holding steady.
A huge change in policy might signal that the Fed is gravely concerned about prospects for the economy in the near future, and that might have unintended consequences, even causing a stock market selloff.

So what happened?

The Federal Reserve came right out and said the dismal economy, specifically continued high levels of unemployment, prompted an aggressive plan to buy $40 billion in mortgage-backed securities each month until employment improves. The plan, dubbed “QE3,” is the third installment in the Fed’s asset-purchase efforts to push long-term interest rates lower.

The result? Mortgage rates dipped almost instantly and the stock market rose to levels unseen since 2007.

“Consumers should see about a quarter percent dip in mortgage rates,” says Keith Gumbinger, vice president of HSH.com.

This time it’s different

While the Fed’s QE and QE2 both had definitive end dates, QE3 does not. “The Fed will keep buying mortgage bonds until it doesn’t feel as if it needs to,” wrote Karen Lawson.

Why QE3?

You could argue, of all the stimulus this country has seen in recent years, of all the moves the Fed has made during that same time period, low interest rates have been what has worked. One of the hardest things about stimulus is making sure the relief makes it to the street level. The Fed has been able to lower mortgage rates and influence home prices higher. Furthermore, the Fed’s move was one the market understands well. The Fed’s decision wasn’t unexpected, in fact, the Wall Street Journal wrote that Fed Chairman Bernanke “devoted weeks to laying the groundwork for the new program by signaling its arrival and explaining why he wanted to launch it.”

When does it end?

When is enough, enough? When can we expect QE3 to sunset? What troubles me somewhat is that the Fed has set no benchmarks as to when “enough” people have refinanced or when the job market has improved to an acceptable degree.

Not only may QE3 be with us for some time, it could also prompt legislative action on additional programs.

Given the renewed downward pressure on rates, it’s not far off to believe that HARP 3.0 could be just around the corner. If one of the Fed’s only moves is to ensure lower interest rates, it makes sense to have the most streamlined, inexpensive refinancing program in place to ride shotgun.

Mortgage debt falls by $900 billion

A number of recent reports tell us that things are looking up in the real estate market, the latest being that real estate debt is on the decline.

Figures from the Federal Reserve show that mortgage debt on one- to four-family residences reached $11.075 trillion in 2008. Now that number is down to $10.178 trillion. In other words, about $900 billion in mortgage debt has disappeared.

Saving money, reducing debt

These days, there are several factors contributing to the decline in mortgage debt:

1. Home prices: The value of the national housing stock has fallen. In 2005, residential real estate was worth $22 trillion, a sum which the Fed estimates was reduced to $16.4 trillion in the first quarter. People are paying less today than they would’ve paid five years ago for the same property
2. Mortgage rates:  Mortgage rates have fallen significantly. Lower mortgage rates mean smaller monthly payments
3. Refinancing: Record-low mortgage rates and an expanded HARP program have kept the recent refi boom alive. A borrower with a $200,000 loan refinancing from 5.5 percent to 4 percent will save nearly $150 a month
4. Loan modifications: The typical savings under the federal Home Affordable Modification Program (HAMP) is $536 a month

More debt reduction on the way?

There is currently a debate on Capitol Hill regarding whether to expand the HARP program to include even more borrowers, underwater or not. A proposed bill by Senators Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.) would greatly increase refinancing opportunities for a large number of homeowners.

What’s interesting about the proposed legislation is that it has impacts which go far beyond mortgage rates, loans and equity. If passed, more homeowners will be able to cut their monthly housing costs and that’s good for them — but also for the rest of us.

Why? Two reasons:

1. Money saved on mortgage payments will be money spent
2. Lenders accrue less risk

The reality is that 41 banks have failed so far this year. The financial sector becomes less risky as higher-rate mortgages are removed from the system–and that should mean easier loan access for the rest of us.

Builders bullish on housing

Home builders continue to be bullish about housing.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, released Tuesday, posted its fifth consecutive rise in builder confidence for newly built single-family houses. The latest gain pushed the September index to its highest level in more than six years, according to the Washington, D.C.-based trade group.

Builders are expressing a more positive outlook about current sales, future prospects and foot traffic through their sales offices and model homes, said David Crowe, NAHB chief economist, in a statement.

Barry Rutenberg, NAHB chairman and a home builder in Gainesville, Fla., said in the NAHB statement that the builders’ renewed confidence was further assurance of a housing recovery.

Still, both Crowe and Rutenberg were quick to note several concerns which could reverse this positive trend.

Builder concerns

Builders are concerned about a shortage of buildable lots in some markets and rising costs of certain building materials, Crowe said.

In his blog, he explained that builders are paying higher prices for wood panels, dimension lumber, drywall and other materials because suppliers are holding back on opening new facilities until they’re certain more homes will be built.

“Given the fragile nature of the housing and economic recovery, these are significant red flags,” Crowe said.

Rutenberg noted another obstacle—financing. Rutenberg thinks tight credit conditions are slowing the sector’s progress.

“Tight credit conditions are preventing many builders from putting crews back to work, which would create needed jobs, and discouraging consumers from pursuing a new-home purchase,” Rutenberg said.

Improving housing markets

Separately, the NAHB/First American Improving Markets Index, released on September 10, showed a significant rise in the number of improving housing markets across the country. This index is based on home-building permits, employment and house price appreciation.

“The number of improving housing markets grew by 19 in September as 68 metros retained their spots, 31 new metros were added and just 12 dropped off the list,” Rutenberg said in an NAHB statement. “This solid growth is an encouraging sign that housing continues on a slow but steady recovery path that is gradually advancing from one local market to the next.”

The newly improved markets included Tucson, Ariz., Jacksonville, Fla., Springfield, Ill., Greenville, N.C., and Bend, Ore.

Mortgage rates down; home prices, sales up

What more could you ask for?

According to HSH.com’s latest Mortgage Rates Radar, rates continued their downward trajectory this week, as the 30-year fixed-rate set a new record.

The average rate for conforming 30-year fixed-rate mortgages fell by five basis points (0.05 percent) to 3.64 percent, a new record low. Conforming 5/1 Hybrid ARM rates increased by a single basis point, closing the Wednesday-to-Tuesday wraparound weekly survey at average 2.70 percent.

“The Federal Reserve has aimed their efforts squarely at the mortgage market,” said Keith Gumbinger, vice president of HSH.com. “They will be buying up to $40 billion of Mortgage-Backed Securities monthly in an effort to drive mortgage rates lower. The overall effect on rates might prove to be as much as a quarter percentage point in time, and it looks as though we started on that path this week.”

There are likely a number of possible reasons for the Fed’s move, each of which is discussed thoroughly in HSH.com’s latest Market Trends newsletter.

Are rates as low as they can be?

“There are a number of factors which might keep lower rates from being passed down to borrowers more rapidly,” noted Gumbinger. “For one, lenders can’t handle any significant increase in volume at the moment, and don’t need to price more aggressively to attract business, not with rates near sixty-year lows. Another is the forthcoming increase in the cost lenders will be charged to have their loans guaranteed by Fannie Mae or Freddie Mac. That said, if the Fed wants to see lower rates, it will probably get them in the end.”

Home prices and sales on the rise

The good news continues for prospective buyers and sellers. The National Association of Realtors reported on Wednesday that both existing-home sales and prices were up significantly in August and from one year ago.

Existing-home sales rose 7.8 percent in August, and are up 9.3 percent from August 2011. At the same time, the national median existing-home price saw its sixth-consecutive-monthly increase in August, landing at $187,400. Prices are up 9.5 percent from the same time last year.

What more could you ask for?

We come back to the question we led off with—what more could borrowers ask for? Despite the record-low rates and the rising sales and prices, less-stringent lending conditions continue to be that one more thing borrowers are asking for.

While the NAR remains confident despite strict lending conditions, the truth of the matter is that lenders are being picky, perhaps too picky.

Keep an eye out for a post next week from Michele Lerner where she’ll delve into the reasoning behind current lending conditions and talk with the experts to find out whether or not relief is just around the corner.

Part 2: Our possible solution to principal reductions

Below is part two of our two-part series examining the decision not to use principal reductions as part of HAMP modifications. Rather, Keith Gumbinger, vice president of HSH.com, has developed what he thinks is a fairer concept for a principal-reduction strategy, one which would still provide meaningful debt relief that is needed.

Instead of offering a principal reduction today–when home values are arguably at their lowest and the cost to the taxpayer could be the largest–defer any principal reduction until the home is sold. If the principal reduction is even still needed–that is, if the homeowner is underwater at the time the property is sold–the principal reduction could take place at that time as part of a streamlined short-sale process. If the home is not underwater, there would be no reason for principal forgiveness or a short sale.

Would some homeowners “dump” their properties simply in order to get debt forgiven?

That would be unlikely, given that these would be homeowners who engaged in HAMP modifications in order to keep their homes from foreclosure and retain a place to live. Although a HAMP modification would generally provide a lower interest rate on their loan (creating a “loss of expected interest income” to the investor), they would at least be responsible for trying to pay back the amount they borrowed.

In effect, the borrower can still benefit with a HAMP modification–getting a lower mortgage rate, improved loan terms and a reduced monthly payment, not to mention the considerable benefit of keeping their home–but will receive no “reward” of a reduction in debt simply because they might have bought a home when prices were high.

What DeMarco should have done

It seems to us that rather than refusing principal reductions outright, Mr. DeMarco might have countered with an expedited-short-sale arrangement that reduces principal at the time of a sale.

So, instead of allowing principal reductions today, we could offer them to HAMP borrowers should they need to sell their home. In turn, Fannie Mae and Freddie Mac would agree to forgive the difference between the sales price and the amount owed, and will waive the right to pursue any deficiency judgments.

For borrowers with assets to draw upon, a forgiveness of a larger amount might be done in exchange for the homeowner making up some of the gap between the mortgage amount and the sales price. This kind of arrangement is essentially an expedited short-sale process and consistent with the GSE’s new short-sale policy.

Home prices could help limit losses

Although not much the case at the moment, home prices will generally tend to rise over time, gradually helping to limit losses incurred by the GSEs (taxpayers). All eligible borrowers will still be able to access relief under HAMP, and homeowners will still reap the benefits of a reduction in their home-related debt at the time the home changes hands.

Forgiving principal tomorrow accomplishes several things:

1. It may reduce or eliminate a loss for an investor who owns the loan (e.g. the taxpayer)
2. It provides meaningful debt relief for a borrower who would be otherwise “trapped” in a home, or who might face a large obligation in a short-sale transaction
3. It provides no additional incentive to “strategically default” in order to get debt relief

So instead of flat-out saying no to principal reductions in conjunction with HAMP, perhaps allowing them at the time of a home sale would be much more beneficial to everyone involved.

Part 1: Defending Ed DeMarco

Below is part one of a two-part series–”The argument about mortgage principal reductions”–which discusses the role of principal reductions in loan modifications. Part one explains, and partially defends, the decision not to include principal reductions as part of loan modifications. In part two, which will be published on Friday, we offer a compromising, cost-saving solution that still allows borrowers to take advantage of a principal reduction if they need it. Here is part one:

Mortgage principal reductions. Proponents say they are a crucial missing piece to helping struggling homeowners. Opponents see them as another taxpayer-funded giveaway to prop up a housing market still populated with people ill-suited to the requirements of homeownership. Good or bad, there’s certainly not a lot of black or white contained in the argument, just many shades of grey.

Like all government offers of assistance, there is no doubt an audience which can benefit. There are arguably some borrowers for whom a principal reduction would be a home-saving strategy, better suited to their needs than a standard loan modification.

But for homeowners who aren’t especially struggling, for those who aren’t eligible for HAMP and for those who haven’t lost enough home equity to be underwater, the words “principal reduction” can  evoke a different set of emotions, as in, “why should those people get thousands in mortgage debt eliminated when I get nothing?” To be fair, wouldn’t everybody like to see their mortgage chopped by thousands of dollars?

Well, Federal Housing Finance Agency head Ed DeMarco—the man who is in charge of the agency that oversees Fannie Mae and Freddie Mac—put an end to the debate when he officially announced that the FHFA would not endorse principal reductions in conjunction with HAMP modifications. As expected, not everyone was exactly happy with his decision.

“Fire Ed DeMarco,” “Firing FHFA Chief Ed DeMarco Could Be ‘The Biggest Stimulus Program In America‘” and “Demote, Defang DeMarco,” were just a few of the scathing headlines written in the days following the FHFA’s decision.

Homes, like any asset, can devalue

But is it fair, or even logical, to call for Mr. DeMarco’s job? He is in charge of ensuring that Fannie Mae and Freddie Mac don’t lose any more money. He is, in his own words, shielding the taxpayer from additional costs.

Let’s think about this for a second: Assets devalue all the time. If you buy a new car, drive it off the lot and see what it’s worth even 30 days later, you’ll find that your brand-new car is worth substantially less. Would you go back to the dealer and ask the finance company to write down the loan amount to the car’s current market value? They would laugh you out of the office! The same goes for stocks and bonds and any other item which has a value established in a free marketplace. Prices of assets go up and down all the time.

DeMarco’s decision may be the right one

Looking back, DeMarco has been against principal reductions all along. With the agency he heads managing two entities in conservatorship, his mission since becoming head of the FHFA has always included limiting the amount of loss to the taxpayer. Furthermore, DeMarco is also concerned about the “moral hazard” of allowing people to get out from under their contracted obligations while others get no such deal.

To be perfectly honest, since he is charged with limiting losses to Fannie Mae and Freddie Mac, DeMarco’s decision may be the right one, since the estimated cost to the taxpayer (in the FHFA’s own analysis) would be about $2.1 billion. This remains true even if he is standing in the way of what the White House, certain members of Congress and many economists would like to see happen.

What does a principal reduction accomplish?

Forgiving principal today accomplishes several things:

1. It causes an instant loss for an investor who owns the loan with no chance of recovery
2. It can provide a financial reward for the homeowner when home prices recover (if there is no requirement for repayment of the gift)
3. It creates a perverse incentive for some number of additional borrowers to strategically default so they might be able to obtain a loan-reducing modification

Also: In the event that the borrower is underwater, will the principal reduction be sufficient to wipe out their deficit, or will we still be leaving folks underwater, but only by a smaller amount?  How is this beneficial?

It’s time for a compromise

Instead of a black and white, accept or reject, attitude when it comes to principal reductions, perhaps an alternative, a compromise, could bring the administration and one of its top directors back on the same page.

Is there is potentially a fairer, more equitable way to approach the issue than just adding a principal reduction on top of today’s HAMP modification program?

We think so. Debt forgiveness (a principal reduction) could be done when the home is sold, and then, only if needed.

Siesta Key Real Estate - The Allure Of Investing In One Of The Country's Best Travel Locations

Siesta Key is a district of the city of Sarasota, located along the Gulf Coast south of Tampa. It is part of Sarasota county; and is considered as one of the most livable, friendliest, well-maintained counties in all of Florida.

At present, there are approximately 24,000 residents living in this key, as some are permanent residents while others live on the island during the winter season. The Travel Channel recently named this area as the "Best sand Beach In America." Siesta Key was selected by a panel of prominent beach experts who reviewed different criteria such as cleanliness, sand quality and surrounding areas.

How The Lovely Beaches Make For An Added Incentive To Buying Real Estate Here

According to the manager of the Sarasota County Parks and Recreation department, "This beautiful, wide beach has something for beach lovers of all ages,".

The County Parks department also added that, " The key the greatest sand anywhere, leading to the clear blue water of the Gulf of Mexico, with shade trees and recreational areas nearby." This is not the first time that the beaches in Siesta Key have been ranked among the best. Last year, the Travel Channel also listed it as one of Florida's top 10 beaches.

In a recent readers poll by USA Today, more than 3,000 people across the continental US named Siesta Key as one of the top three U.S. beaches. The Woods Hole Oceanographic Institution also designated Siesta Beach as having "the whitest, finest beach sand in the world" out of more than 30 other locations worldwide. The Conde Nast Traveler Magazine also hailed the areas' sand as being "the best of the best" in 1999.

Real Estate Options Abound In Siesta Key

Many travel and real estate observers have noted that Sarasota and surrounding Gulf Coast areas in Florida are truly wonderful places to live and invest in. The area offers a wide array of homes for sale, from standard to upscale condominiums and lavish luxury estates.

In getting the best housing option, it would be advisable to acquire the services of a local property broker who can show you the best real estate choice that would be suited to your preferences and needs. From choosing a wide option of upscale condos, waterfront homes and estates, a knowledgeable property broker from the Sarasota area can guide you in selecting the right real estate investment option.

The Keys Are Going Green With New Environmental Standards For Hotels And Housing

A growing number of hotels, resorts, condos and other housing projects in this area have begun to implement greener standards, which are mandated by the Department of Environmental Protection's Green Lodging Certification. A significant number of resorts, hotels and condos in Siesta Key, have made major strides in following ethical business practices to conserve water, reduce waste, and improve energy efficiency and air quality.

In order to receive consideration for getting a Florida Green Lodging Certification, hotels, lodges and resorts, as well as other property projects must complete and submit an application for admission, and also implement core activities.

Real Estate Boom in Vernal Utah - What You Need to Know Before It's Too Late

How the domestic oil industry is changing city of Vernal?

Vernal, a city located in Uintah County of Utah in the United States has been a small average city with a handful of residents. But its fate changed with the boom of domestic oil industry in the United States. It is supposed that there is more oil deposited under the soil of the Vernal area than in the Middle East.

The United States has more than 2 trillion barrels of oil in its deposits and if brought to use then it could eliminate the dependence on oil from the Middle East, Africa and South America for hydrocarbon. The research has found that more than 70 percent of US oil reserves are in Green River Formation in Utah, Colorado and Wyoming. The Uintah County is also a part of Green River Formation so if oil production in the Green River Formation starts on large scale then the city of Vernal will grow at an immense rate. Some residents in the city have already experience the boom in the real estate industry and other major areas.

The recent data shows that the real estate prices for an average home in Vernal city was near $100,000 but now has increased to above $185,000. Moreover, the basic land price which was about $40,000 an acre has jumped up to the $70,000 range. This shows how the oil industry in Vernal is changing the economic structure of the city.

Unfortunately, it is not that easy to extract oil from the oil depositary of Vernal Utah area as the land is full of shale rock and extracting oil form these rocks can cost more than the average sale price. The average oil plumping cost in Middle East is averaged on $5 per barrel whereas in the Vernal Utah, it can reach up to $25 per barrel increasing the price for end user. But if, the price for oil is going to exceed in the way it is doing recently, then there will be time when the rigs in Vernal Utah might be economically feasible.

Big oil companies including Shell, Exxon and Chevron - Texaco have speculated the amount of oil deposit in this area and have started to invest heavily. Though the exploration of oil in and around Vernal and Utah State was done early 19th century but its commercial production stated only after 1925 when three companies namely Utah-Southern Oil Company, the Midwest Enterprises Company, and John Howard's Utah Oil Refining Company started digging oil in Utah. Vernal, Utah had its first oil boom only in 1948.

The booming oil industry has helped Vernal become popular hotspot for people looking to invest and live in this area. As the oil prices all over world increases, the new domestic oil industry in Vernal, Utah is going to change the perspective of people who highly depend on Middle east and other politically troubled countries for supplying oil to United States. Thanks to the oil boom Vernal city has been able to capitalize on its growth and welfare for its people.

Learn the Hottest Real Estate Markets Today

Before, residential properties are very saleable. But now, selling a house is like right next to impossible. This is why other people, especially who are in the real estate industry, think if the market today is still burning hot like what they used to have in the past. Believe it or not, the market is not yet dying down. This may sound exaggerated since other countries could not relate. Their markets are slowly deteriorating. However, for some cities in US, signs of improvements are noticeable. You just have to be observant with the minor changes in the market today.

When you try to go over the current state of the real estate market, you would notice that indeed, it has improved. The unemployment rate has gradually gone down. Aspiring homeowners have now the confidence to avail home mortgages since they earn more. The number of foreclosed properties is slowly decreasing. Compared in the past, foreclosed houses are just anywhere and everywhere.

You will notice that signs of hot markets in the real estate sector by looking at the small properties which are readily available for middle class income earners. These properties are made so they can have the chance to own a house even if they do not earn that much. The use of eco-friendly resources and promotion of green living are known for their tremendous effects on the lives of every homeowner. The major benefit from these is, they can save more from the expenses on basic commodities.

People are beginning to love green living since they are not only saving more but it makes them healthier. If you try to look into modern homes, these houses are built from eco-friendly construction materials and the owners are also into green movement. Homeowners of these times are very concerned with their surroundings and thus they promote green lifestyle.

Another obvious signs of a hot market is the continuous construction of cheap houses. Although these properties are not that big, but they can actually provide shelter for a standard-sized family. These homes look simply and cozy. They do not need high maintenance in keeping the quality of the house. As long as the owners are responsible enough in taking good care of the property, then these cheap houses can last long like the high-end ones.

As for the renting aspect, renters have quickly increased their number. More and more people are renting out apartments since they find it more practical. These people know that they are still not financially stable to buy a house and thus they would rather rent. They will wait for the right time before they can finally buy their dream house.

Real estate sector is recovering from the global financial crisis that hit them in the past. There are several signs which can prove that the market is boiling hot and that opportunities are sprouting everywhere.

Lakewood Ranch Country Club Real Estate for Sale, Lakewood Ranch, Florida

The pride of Lakewood Ranch sits majestically in the midst of the master planned development's verdant rolling greens and prime real estate properties. Lakewood Ranch Golf and Country Club is a magnificent model of Italian-inspired architecture, patterned after Sarasota's own Ringling Museum of Art.

The clubhouse is located on Legacy Boulevard, surrounded by vibrant green fairways and a scattering of pristine lakes. Upon entrance to the elegant grounds, country club members are immediately enraptured by the stunning aura of 1920s elegance. The imposing grand lobby branches out to several formal and informal dining rooms, including the Grille, Patio, and Wildwood Cellar, card rooms, and a grand ballroom for weddings and charity events.

Of course, what is a country club without golf and tennis? Lakewood Ranch Country Club offers a total of 18 lighted clay tennis courts-16 Har-Tru and 2 classic red-that use the highly advanced HydroGrid irrigation system for superior maintenance; hence, optimal play is guaranteed all the time. Facilities include locker and shower rooms, as well as a pro shop. Hungry players can take a break at the Players Club Deli and savor some home-made pizza or the highly recommended lobster bisque in front of a 50-inch TV.

At the Athletic Center, just a few steps north of the Tennis Center, visitors can enjoy two outdoor pools. The whole family is sure to have some fun in the sun at the resort-style pool, and serious swimmers can train in the eight-lap Junior Olympic pool.

Moreover, the 13000-square-foot Fitness Center provides state-of-the-art Cybex cardio and strength equipment, along with personal trainers to assist members with their workout regimen. Special fitness programs, such as aerobics, yoga, step, and Pilates are also offered, in addition to soothing massage services that will do wonders to the body and refresh the spirit. As well, members may use the sauna and whirlpool.

Lakewood Ranch Country Club Golf

Golf is a priority at Lakewood Ranch Country Club, which boasts of three 18-hole, par 72 golf courses. Two of the courses, Cypress Links and King's Dunes, were designed by "The King" golfer Arnold Palmer and eco-friendly golf course designer Victoria Martz. The third, Royal Lakes, was a product of international golf designer and master planned landscape authority Rick Robbins. All three courses were designed for all playing levels, which can be a breath of relief to beginners and, at the same time, pose a challenging game to expert golfers.

Cypress Links was opened together with the private club in November 2001. Teeing grounds have a slope rating ranging from 119 for white to 134 for black. King's Dunes was opened in March 2005, almost four years later, with a higher slope rating of 123 for white and 134 for black. Royal Lakes was designed for all levels. Beginners can tee at the red marker, which has a slope rating of 109, whereas experts can head for the black tee with a slope rating of 137.

Lakewood Ranch Real Estate for Sale

Additionally, Lakewood Ranch Golf and Country Club works with Audobon International to help preserve wildlife, especially our fine feathered friends, and their natural habitats. Areas surrounding all 54 holes are installed with regularly monitored nesting boxes as part of the club's Nesting Box Program.

With such grand amenities and elegant ambiance, it's no wonder that Lakewood Ranch Country Club real estate is much prized in Florida's southwestern coast. The community along the breathtaking green slopes is a perfect complement to the elegant lifestyle that is highlighted by its posh country club.

Farming For Real Estate - How Farming Has Changed During The Past 50 Years In Real Estate

Farming has been used by real estate professionals since the 1950's. Before that all real estate transactions were handled by bankers, attorney, and accountants. If someone was moving these were the people who knew about it first and made all of the arrangements. Even if you were relocating to a new city or state these people would call their connections in the new town and someone there would handle it for you.

This all changed during the 1950's. Real estate offices began to open and real estate agents began to specialize in buying and selling real estate on someone else's behalf. These offices were small, with only two or three agents at the most. In the beginning only men performed the job of real estate agent.

As more real estate offices opened up it became necessary to divide the work into areas or territories. This became known as farming. The owner of each office would assign a farm to his agents and they worked in that neighborhood, helping the homeowners to list their homes and look for a new one.

This was accomplished by walking through the farm area regularly to speak with the homeowners and to introduce yourself to anyone who did not yet know you. The real estate agent would follow up with a phone call and then a letter or postcard. The agents would give small gifts to the homeowners at various times of the year. These gifts would have the name, address, and phone number of the agent and their office. This made it easy for the homeowners to call the agent without having to look up the number.

This practice continued well into the 1990's. At that time computers and other technology began to surface and suddenly it was possible to contact more people in less time, and for less money, than ever before.

Even with the new technology it is still a good idea to walk through your farm two or three times a year. This will help keep you informed of what is going on in this area and what needs the homeowners may have.

Real Estate Investing Produces Extraordinary Profits

Imagine making $5000 a year from real estate investing without recognizing you are real estate investing!

Real estate values are so dynamic. The marketplace is always fluid and changing. The only constant is the eventual escalation of value.

Suppose you had owned that little piece of property in your neighborhood years ago where McDonald's is located today. If you had owned it for 20 or 30 years, what would your profit be from that sale?

Real estate values fluctuate in cycles and according to a myriad of owner situations. However, the price of real estate almost always goes up.

Let me give you a real-life example. (And if you are old enough, you have your own similar story!)

In 1970 I bought a little house in the Green Hills section of Nashville for $27,000. You know it wasn't much because of the price. But it was home, and the location was respectable.

In 1978 I sold that house for a bigger house in Green Hills. The sales price for that little house I sold was $67,000.

That's when the light bulb went off in my head! I suddenly realized that I had profited $40,000 from that little house in only eight years. I hadn't added any more rooms or a patio. And I hadn't even painted. I was witnessing first-hand how property values increase, often drastically!

I made a $5000 profit per year from that house, just from living in it.

It was an amazing discovery to me. It had been a reality forever, but it was no longer a vicarious experience in my mind. It was alive, because it was happening to me. And it changed my view of the world. That personal experience led me to start a real estate investing career.

I still live in Green Hills, and I pass that house every day on the way to the post office. That house recently sold for $200,000. Same size. Same location. But a phenomenal increase in value.

Asset growth from $27,000 to $200,000 is pretty astounding. And while the asset growth ratio varies from property to property (and city to city), real estate values generally increase. Even owning and maintaining your personal residence is cash generation right under your nose. I can't believe I was so dumb not to see it before it became so apparent.

If even home ownership can be so profitable, can you fathom the profitability in real estate investing?

Phil Speer, Ph.D., started his real estate investing career 25 years ago. Without the availability of credit and using only a $10 bill, he purchased $1 million in properties in his first year, and had accumulated $10 million in properties by his fourth year. He was featured in a Wall St.Journal editorial as most successful investor in the Nothing Down Real Estate Movement, and was honored with a Caribbean cruise as top investor of the year. In his hometown of Nashville, Tennessee, he has been a businessman and Human Resources Consultant for 30 years.