Local Lending Would Have Helped Mortgage Mess
The Lake Martin real estate market has not really felt a direct effect of the mortgage meltdown yet. Sure, the subprime fiasco has caused conventional and jumbo rates to rise, but I consider that indirect. By direct effect I mean huge waves of foreclosures from high risk loans, and we haven’t really seen that on Lake Martin up to this point. I don’t think we will see as much of that here as was seen in other markets, because I don’t think that many of the 2004 and 2005 sales were fueled by speculators. A quick trip to the Tallapoosa County Courthouse last week confirmed the low foreclosure rate.
This is not true of other markets around the nation. Headlines like this abound: “Fraud Seen As Major Driver In Wave Of Foreclosures.” In a subject this big, there is a lot of blame to go around: borrowers who falsify their income to buy a home they know they cannot afford, unscrupulous realtors selling for commissions instead of trying to educate clients on wise home buying, dial-a-dollar appraisers who will sell their integrity for $400 a pop, and downright dirty mortgage brokers who churn up new paper and burn families in their wake.
Basically, in many of the cases I think much of this could have been avoided if buyers had stuck with local lenders.
I know this sounds naive of me. Sure, the mortgage industry has changed in the past 10 years.
I know, I know, huge national companies can loan you money no matter where you buy, from Alaska to Port Orange. Sure, because of the internets they can offer low low rates with no no documentation.
So why go with your local yokel lender?
And how would local lending would have helped this mess?
First of all, it’s true, huge national companies can make mortgage loans anywhere with great rates. But the opposite is also true - local banks can tap national rate markets, and almost always match the best rate you can find on the internet. Plus their closing costs are usually lower, at Lake Martin, or anywhere else.
Secondly, more local lending would have helped because it’s human nature to care more about the person you know than you do about some number that’s three states away. If you’re a buyer, would you try to convince your local banker that you can afford a caviar home when she knows you can barely make the payments on your Gremlin? And if you’re a mortgage lender, how willing would you be to give a buyer a loan that you know you will have to foreclose in three months, if your wives are in the same bunko group? If you’re an appraiser who’s on the edge, wouldn’t it be easier to lie to an out of state lender versus one that you sit by at every Friday night football game?
I am not suggesting that we all turn the clock back 40 years and only deal with the bank on the corner and that we all have a credit account at the Feed n Seed. Shareholders pressure banks to make lots of loans, and to do that, they must venture out of state. I get that. But maybe this latest mortgage scare will cause lenders to return to common sense lending.
All Real Estate Is Local (This Means You, Lake Martin)
Life as a Lake Martin area realtor means I hear (and try to answer) lots of questions. One I get regularly is:
“I saw on CNN where home prices in (fill in here with name of huge city 3,000 miles away) are down 75%. All the sellers are being foreclosed on their sub prime mortgages. It’s spreading across the nation like locusts. When will Lake Martin be on sale like that?”
My answer – probably never.
It’s because All Real Estate Is Local. Including (and especially) Lake Martin.
A couple of days ago I read a great post on the WSJ Developments Blog entitled “There Is No National Housing Market.” Also another good one with the same title on the Matrix Blog. Basically they point out that while all markets are influenced by things like the mortgage market, most pricing and activity in the real estate industry is due to local factors. What might be true for rent on the west side of Manhattan won’t set the price in the middle of a Edward Scissorhands-esque subdivision in Tampa.
The “locality truth” is especially evident on Lake Martin. We have about 770 miles of shoreline, but only about 30% of it is developed. Of the undeveloped waterfront property, 99% of it is owned by only two companies: Alabama Power and Russell Lands. They are very good at not flooding the market with too much supply, which helps hold prices up. Think the De Beers diamond cartel.
Another truth about Lake Martin real estate is that you don’t have huge developers selling 
hundreds of spec homes in one subdivision at a time. Sure, there are some builders with $5 million in unsold homes – but that amount is concentrated in 3 homes. Sure, some builders are hurting, but not enough to affect the market (yet). And they’re not hurting because of some national phenomenon, but because they themselves have raised their prices too high too quickly. Simple supply and demand. Moreover, most waterfront property for sale right now is by private citizens, not builders, whom are not under too much pressure to sell.
I agree, the sub prime mess did not help Lake Martin waterfront sales in 2007. But it wasn’t a majority player. The majority of the slowdown was due to unrealistic sellers, with a minority influence of the drought thrown in for good measure. Odds are pretty good that it will straighten out in 2008, and 2009 will be the start of the next seller’s market.
So why aren’t the talking heads reporting this? I guess media reports that are numbers based and rational don’t pull those huge national ratings.
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Lake Martin Real Estate Spotlight: Eagle’s Point
One of Lake Martin’s newest developments – Eagle’s Point – has a model home that is ready to see plus several other spaces for lots.
Located at the easternmost end of Coosa County Road 20, Eagle’s Point has big water views looking southeast at the junction of Parker Creek and Kowaliga towards Willow Point and Sand Island.
Density: Phase I of Eagle’s Point has a total of 11 homes planned. Each home will have and its own pier. They have already cleared out the home sites, so if you drive by boat or car, you’ll see the phase I area. The planned Phase II extends east, across the causeway towards Veazy’s Marina. There are 20 planned homes in Phase II. A Phase III of interior lots is also planned.
House Plans: Eagle’s Point offers three different house plans. There are 2 plans with 3 
bedrooms and 2.5 baths. One plan has 4 beds and 4.5 baths. All are three stories and have at least 2,500 square feet.
Builder: All the homes will be built by Lake Martin builder Sammy Ransome. You cannot bring your own builder.
Pricing: The smallest home on lots 4 and 5 go for $980,000. The 2,762 square foot 4/4.5 is priced at $1,175,000. Right now there are 2 on the MLS – lot one (a 3/3.5 and 2,762 sf) priced at $1,115,000 and lot two (4/4 at 2,762) priced at $1,150,000. Prices like these put it in a similar to other Lake Martin developments like The Ridge and Willow Point.
Amenities: Eagle’s Point will have a gated entrance, private beach, common area fire pits, community dock for guests, golf cart parking by boat launch.
Directions: Eagle’s Point is in the Coosa County side of Lake Martin, at the end of Coosa County Road 20. Google Map to Eagle’s Point
Lake Mag Interview: The Uncensored Director’s Cut
Lake Martin Magazine interviewed me a couple of weeks ago about the effect of the drought on the Lake Martin real estate market, and general trends affecting buyers, sellers, and realtors. They included it in an article called “Special Report: The Water Issue” in the November 2007 issue. I thought Nikki Reeves and Kenneth Boone did a good job of covering a huge topic.
While they didn’t publish the entire interview, they did use a couple of nuggets, and managed to add in a compliment to me. Here’s the entire interview, with the parts that Lake Magazine used highlighted in yellow:
Lake Magazine: Has the lake level affected your individual/company’s business this year in comparison to previous years? Has it done so in a positive/negative way?
John Coley: While I personally have been fortunate to have a better year in 2007 than 2006, I can’t say that for the real estate market as a whole. Through August, the number of waterfront closings per year was down 35%, from 346 to 226. I can’t help but think that a portion of that is due to the low lake level. I don’t think that it’s a majority of the culprit, though. I think the major blame for a slower market still lies at the feet of sellers who have overpriced their offerings. From 2000 to 2006 sellers became accustomed to 30% gains in value per year, and priced in 07 accordingly. The facts have shown that there was little or no value gain in 07 from 06, and some sellers have not figured that out yet. Case in point is the auction in July 07 at Harbor Pointe. They sold 25 condos in one day even though the water was extremely low, so you can’t blame it on the level. They sold them because the prices were low enough for buyers to accept.
LM: Do you think the drought will be a positive thing for the lake market - in terms of rebalancing a surplus of property and real estate agents?
JC: This is kind of a philosophical question. I think it is part of the natural free market cycle of business, so I don’t think it’s “positive” or “negative.” It’s just natural, so deal with it. Is a forest fire a “positive” experience for wild turkeys? Well, if you’re the turkey that gets burned up, no. But if you survive it and the forest in general grows more healthy because of the fire, then maybe it’s “positive” for you.
On the practical side, I do think that the lake will follow the national trend of less people joining the real estate profession over the next two years or so. The same thing happened in the tech stock boom of the late 1990s. Lots of people quit their jobs to be “day traders” or they did it on the side. The stock market crashed, and they went back to their old jobs.
There will always be room in the market for good, honest, hardworking real estate agents. In a slower market, there is less incentive for those who are half hearted or not dedicated to join up. The same rule applies in any profession. In the minds of the average American, real estate agents have a pretty low image, so I doubt we’ll see any “Farm Aid” style benefit concerts for starving Realtors.
LM: What benefits are there for buyers in the coming months? Sellers?
JC: Buyers - I think it’s a buyers’ market in every category (condos, lots, homes), so they have the benefit of buying at good prices. The only way they can benefit, though, is to actually buy. If they sit around and try to perfectly time the “bottom” - then they may miss out. Study after study shows that most “experts,” much less the average joe cannot accurately predict the perfect bottom of any market. In fact, once the public realizes that a market is on an upswing, sellers have started to gain momentum again.
Sellers - I have talked to several people that are now considering upgrading their homes to take advantage of the buyers’ market. I think another benefit is that if they price their property correctly, and either the water comes up next spring or interest rates tick down a half point, they could have some pressure relieved. The last buyers’ market in 1999 and 2000 lasted for a couple of years, if that, then it took off and ran for 7. Sellers can be confident that, if they price it right, stage it properly, and market it hard, their home will still sell. It might take longer, but a good agent can get it done.
LM: Is there a silver lining to the drought for the area’s real estate market?
JC: If Alabama Power is successful in their efforts to raise the winter level water pool to 483 or 485 as opposed to 480, that would be great. If this drought gives them the evidence they need to make the case, it will be worth it.
And if there are fewer real estate agents around, maybe there will be fewer agents’ mugshots grinning at you from signs, magazines, and mail outs. Ha!!
LM: What are your predictions/plans for 2008?
JC: If this severe drought continues, I think it will become a major, rather than minor negative effect on waterfront sales. The question in the minds of the buyer that’s new to the market, is “will it ever come back?” Veteran buyers realize we’re in an 80 year anomaly and it hasn’t bothered them that much. But 2 or 3 years straight of less than full pool conditions will start to take a heavy toll. Personally I think that is highly unlikely if you look at the rain patterns over the last 50 years. But it’s a remote possibility.
I think that most sellers will not be very negotiable in Jan 08 - Mar 08, gambling that the water will come up. They will figure, “hey, I’ve waited this long, why not wait a little longer.” I think more buyers will start to wake up and realize that the time to buy is now. For so long I heard from buyers that said “call me when that market is not so crazy.” I’m calling them now.
LM: Anything else you think needs to be included.
JC: Feel free to quote from these related posts:
Nobel Winners in Economics Say Buy Now on Lake Martin
This Man’s to Blame For the Slow Lake Martin Market
6 Crucial Changes Coming to Lake Martin Real Estate
To Predict Lake Martin Real Estate, Look West
Thanks again for the mention, Lake Mag!! (all photos in this post were taken by Kenneth Boone / Lake Magazine – Lake Martin Issue, November, 2007)
Click here for the entire Lake Magazine Article.
Nobel Winners In Economics Say Buy Now On Lake Martin
The winners of the 2007 Nobel Prize in Economics, are advising buyers to act now on Lake Martin.
OK, OK, maybe Leonid Hurwicz, Eric Maskin, and Roger Myerson haven’t come right out and literally said that, but a quick review of their work should tell you that they would advise it. Their work laid the foundation for mechanism design theory, which attempts to explain how sellers and buyers allocate resources in the real world.
Our old friend Adam Smith describes the theoretical world of free market capitalism, where buyers and sellers have perfect information. If a seller has 100 widgets, he sells exactly 100 for his lowest price and has no one asking for more. Exactly 100 buyers show up and buy them at their highest price, and no one walks away empty handed.
In the real world, however, information is not perfect. Sellers don’t know buyers’ top number. Buyers
don’t know how bad a seller needs the money. Let’s say a butcher has 20 people show up for his 15 steaks, and 5 people go home mad because of the shortage. The butcher should have raised his price to the point that he had 15 and only 15 buyers. Classic shortage strategy. Or, what if it’s the opposite? Say the butcher has so many unsold steaks that he may be forced to throw out meat. That’s called a surplus. So the butcher should lower his price and sell the steaks rather than trashing them. If steak loving buyers realized that he was dropping prices, they should get off their duffs and get down to the grocery. Simple, right? Easily applied to Lake Martin real estate, right?
FACT:
There is a surplus of Lake Martin waterfront property right now. At current buying rates, it will take 25 months to sell it all. That, my friends, is a surplus.
SURPLUS STRATEGY:
If you’re trying to sell your Lake Martin real estate, you should get realistic about prices. I am beginning to see this happen. There are very few sellers still out there that think that it’s still a booming sellers’ market. But have they learned the lesson enough to look in the mirror and lower prices on their own waterfront homes or lots? They all say “I know the market has cooled off, but…”
BuyersLake Martin buyers need to come to the table. All through 2006, the only thing I heard from reticent buyers was “call me when this crazy market slows down, I’ll buy then.” Well, I’m calling. It’s slow. Sellers are hurting. Are you going to wait until it takes off again to buy? Don’t say I didn’t warn you.
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ElCo Tax Man Squeezes Lake Martin Property Owners
If you own Lake Martin waterfront property that is in Elmore County, chances are that your assessment (and therefore property taxes) went up this year. I have heard lots of anguish from taxpayers that were shocked by their increase this year. I don’t know that those in Elmore County are any worse than Tallapoosa or Coosa, but ElCo has been hit hard this year. Property tax rates have stayed the same, but when they raise your assessed value, your taxes go up anyway.
If you disagree with your assessment, there is an appeals process. You will need to call the Elmore County courthouse at 334–567–1428. They only allow you to appeal for a certain time, so if you disagree, hurry up. Be warned – I have heard of some taxpayers’ appraisals actually going UP after an appeal. I guess after scrutinizing, the tax man figured he needed to go up, not down.
Lake Martin property owners from outside the state of Alabama should note that our property tax fiscal year runs October 1 to September 30. So, the bill that you have to pay by December 31, 2007, is based on an appraisal at October 1, 2006. Therefore any appeal that you make would need to estimate the value at 10–1–2006.
The best way to get your appraisal lowered is to show them comparable sales that prove a lower
value. The best comparables are those that are most like your waterfront home or lot. On Lake Martin, most of the value is in the dirt, so look for comparables with similar views, water depths, and sizes as yours. Then try and find homes that are like yours. Generally, it is easier to first find similar lots, then adjust for the differences in the homes. For instance, if your neighbor sold on September 20, 2006, and his lot is almost exactly like yours, you would only need adjust for the differences in your homes. If he had four bedrooms and you only have three, then you would adjust down by the cost or value of an extra bedroom.
If you are trying to appeal your assessment, and need some comparable sales, or you are just wondering what your Lake Martin waterfront home or lot is worth, give me a call. I would be glad to help you out, no cost, no obligation, no cheesy sales pitch, no guilt. I promise. Just buy me a Slim Jim at Nail’s and we’ll call it even.
To Predict Lake Martin Real Estate Market Cycle - Look West
Most Lake Martin real estate observers now recognize that the sellers’ market is over, because all real estate is local. In fact, we are in a buyers’ market. For those who are in doubt - a buyers’ market means that the buyers have the advantage - IT’S A GOOD TIME TO BUY.
Market forces in real estate shift back and forth like any other market in free nations. We can learn about what might happen in Lake Martin by looking at other markets - like one of the most high end markets in the nation - Silicon Valley.
Recently I came across an excellent post by Patrick Kapowich on his blog - Silicon Valley Broker. He covers some excellent points about different parts of the real estate market cycle. We at Lake Martin would do well to read and learn.
I love his first sentence describing the changes in ’Cycle One of a Buyer’s Market’ - he says (talking to
buyers) - “Listing Agents return your calls.” Hilarious, but true! Great work, Pat.
2 or 3 Thousand Expected at The Ridge Showcase of Homes - Lake Martin
Russell Lands is hosting the “Annual Showcase of Homes” at its newest Lake Martin development – The Ridge.
The showcase is happening over two weekends – September 15 and 16 as well as September 22 and 23, 2007. Many of the builder spec homes that are for sale will be open to the public to tour. Russell Lands is also having the Grand Opening of The Ridge Club on September 15.
I am not sure which or how many of the The Ridge spec homes that are currently for sale will be in the Showcase. By my last count on the Lake Martin Area MLS, there are about 35 homes and 8 town homes (The Ledges at the Ridge) for sale right now in the Ridge. In the Spring Home and Boat Tour, (the last “parade” they did) I think they had like 14 or so homes available.
According to their press release by Schroder Public Relations, Russell Lands expects between 2,000 and 3,000 people to come through these two weekends.
Would you like a friendly, unbiased, neighborhood realtor to help guide you through the festivities? Drop me a line and I would be glad to help.
6 Crucial Changes Coming To Lake Martin Real Estate
As the Lake Martin real estate market shifts to a buyers’ market, away from sellers, what does this mean? If you are about to sell or buy waterfront property, how can you use this to your advantage? What changes can we expect? We can guess a few possibilities from studying other markets around the nation that have been experiencing this phenomenon for a longer period of time. I’m not saying that all of these will happen, but they are strong possibilities:
1. More pizazz from sellers - there are 5 times as many waterfront properties for sale now as there were in 2005. More competition means Lake Martin sellers need to do more to get noticed and get paid. Some examples:
a. more pictures - too easy not to do it
b. home staging- a must
c. talking homes - look for a sign on the home that says “tune in to FM XX.X for more info” where a commercial is played over and over
d. text message info for homes - like the talking homes above, they have a “for more info text #12345″ rider on the sign
2. Builder incentives to buyers - Builders who have extra spec homes sitting unsold are always among 
the first to slash prices. Some Lake Martin builders have already started doing some of the below:
a. free TVs
b. free boat storage
c. pay for first 3 months’ mortgage payments - haven’t seen this one yet, but just wait
d. extra commissions (above the 6%) to the realtor that brings the buyer. As a buyer, you need to ask your realtor if such an incentive exists. Not that that would affect your agent’s impartiality, of course……..
3. Less downward pressure on realtor commissions - A buyers’ market exposes the pretenders from the listing agents that really know how to market. If the sellers feel that they can pay the popular 6% in commission and have their waterfront home sell, instead of languish unsold for a year, they are less likely to go for the cheapest “low bidder.” In the Lake Martin sellers’ market up to 2005, sellers had so much influence they could almost name their commission. Not so now.
4. Proliferation of buyers’ agents? Since buyers hold the cards on Lake Martin now, many agents may shift their marketing focus to buyers. Some agents may even pitch themselves as exclusive buyers’ agents, refusing to list homes for sellers. In extreme buyers’ markets in other locations, they even go so far as to advertising that they will give part of their commission as a rebate back to the buyer. Could this happen at Lake Martin? It’s possible, but doubtful, I think.
5. Reduction in effective FSBOs - FSBO or For Sale By Owner - (pronounced FIZZ-bo) - again, in a sellers’ market, it was a lot easier for Lake Martin waterfront sellers to go it alone. Stick a sign in the yard, and get twelve offers tomorrow, right? Now that there is more supply out there for sale, it’s a lot harder to get it done, even for agents. See #1 and #3 above.
6. No change in BUDDY-BOs - I define “buddy bo” as sales by owners directly to that buddy or relative 
that told them “hey - if you ever sell that house on Lake Martin, let me know.” OK, so it’s not a change. But maybe the lack of change is crucial. These type sales are not as dependent on market conditions so I really don’t see a huge change here.
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