It is a buyers' market, no doubt. Buyers have unprecedented inventory to select from. February sales fell yet another 9.6%, worse than economists expected. Median price is down 5% from this time last year. Affordability is at an all time best, and inventory rose 3.5%.
Put all these together, you get buyers' market -- in a big way.
So how do you buy a house in today's climate? Some diligence.
1. Select more than one home.
This is a great time for buyers, but one that is driving sellers crazy with frustration. Many are still in the mindset that they will get their ideal price for their house. Even reasonable offers get turned down. The general (very general, it's market specific) rule of thumb I tell people today is to offer 10% below asking in most markets, 20% in the previously overheated ones. If the seller doesn't want it, just move on. Banks are more eager than ever to sell the short sales, so consider looking at homes in short sale status.
2. Know your credit score and shop the mortgage.
It's tougher than ever to get credit and interest rates are becoming steeper (though still super cheap) coming close to 5% again. Toughening credit standards continue to make it difficult for the self-employed or people without a full 20% down to get any type of traditional loan. This isn't necessarily bad for the market in general, but not great if you want a new pad. A high credit score is more important than ever. This may change how you chip away at debt. If you are paying down debt only for that purpose, it makes sense to chip away at it based on either highest payment that is causing you worry, or highest interest rate that is making you go more in debt. But, that isn't necessarily the best way to bring your score up. Getting each balance under 50% of its limit (30% even better) is going to get those scores up. Get your credit score as high as possible to have the negotiating power.
3. Be very careful buying into a new neighborhood.
It sounds great to have "new everything". Hell I like it a lot and even found a new place in NYC, almost unheard of because I like to walk in and have stuff work. But, many of these areas with "new everything" are ones where builders overbuilt, and you may not know the house for sale down the block is actually a foreclosure. As those mushroom, the value of your new home will go down. Look for areas that are established. Older (but good) schools and grocery stores are an indicator.
4. Don't make an offer with contingencies. Sell before you buy.
No one likes to be without a home, or in a hotel or a 1 or 2 month rental. But even more, sellers (and the agents advising them) hate contingencies. Bonus to you, not having the debt on your books (and maybe even a little dough if you are one of the few who will get money from the sale) will look great for your loan app/credit score and great to the sellers. Making the new purchase contingent on your home selling isn't going to excite anyone and will put you toward the bottom of the list on two identical offers. People take offers for lower prices with no contingencies over higher prices with contingencies often.
5. Be smart. Do your research.
Location matters and not just for the obvious traditional reasons. We see this when we look at a map of where the foreclosures are at - pockets of issues. The housing crisis after all is not a nationwide one, it's a regional and local one. Take some time to find areas with lower property taxes, lower unemployment rates and shorter commutes to lessen the chance of value depreciation. Determine whether new homes are going up in the area. All of these effect prices over time. Be sure you know what the home is really worth.
Happy House Hunting :)
Friday, March 25, 2011
Sunday, November 28, 2010
Bush Tax Cuts - Letting them expire hurts small business owners
Here is what we face with the tax cuts expiring:
Couples earning 375,700 or more will have a 4.6% increase
Families earning between 232,950 and 375700 will pay 3% more
210,400 to 232,950 will pay 5% more -- this is the hardest hit class
percentage-wise
In total, 36 million people reported small business income in 2009. This is
24% of all tax filers. We aren't talking small numbers here.
Since many business owners report their income as personal income, many
actual businesses will be affected. Many CPA's are recommending that
businesses defer their income for next year and try to take it this year if
possible, including offering an incentive for those owing the business money
to pay up this year.
The hardest hit businesses will be small to middle market companies.
The biggest issue for small business owners is uncertainty. 5% is a lot for
these businesses, and it may mean the difference between paying an extra
employee, laying someone off or having to not expand as they planned.
Reasonable opportunity that they will slow hiring if they'd planned to do
so.
Also, some business owners are being encouraged to delay end of year 2010
bonuses to 2011 so they can take the deduction next year. This could affect
holiday spending.
30% of the nation makes their living from a small business that will be
affected by these increases.
Couples earning 375,700 or more will have a 4.6% increase
Families earning between 232,950 and 375700 will pay 3% more
210,400 to 232,950 will pay 5% more -- this is the hardest hit class
percentage-wise
In total, 36 million people reported small business income in 2009. This is
24% of all tax filers. We aren't talking small numbers here.
Since many business owners report their income as personal income, many
actual businesses will be affected. Many CPA's are recommending that
businesses defer their income for next year and try to take it this year if
possible, including offering an incentive for those owing the business money
to pay up this year.
The hardest hit businesses will be small to middle market companies.
The biggest issue for small business owners is uncertainty. 5% is a lot for
these businesses, and it may mean the difference between paying an extra
employee, laying someone off or having to not expand as they planned.
Reasonable opportunity that they will slow hiring if they'd planned to do
so.
Also, some business owners are being encouraged to delay end of year 2010
bonuses to 2011 so they can take the deduction next year. This could affect
holiday spending.
30% of the nation makes their living from a small business that will be
affected by these increases.
Saturday, December 5, 2009
Home Seller Tax Liability after a short sale - and how California is different
I've been asked a lot more lately about whether a seller has a cancellation of debt tax liability after a short sale if the property is the one you lived in - your primary residence.
A few pieces of demystification.
Sellers take the full loan balance and subtract the sales price. In a short sale, this is a positive number (or zero) and is treated as ordinary income.
But - the Mortgage Forgiveness Debt Relief Act of 2007 requires that the seller not be taxed on this income for federal income tax purposes (note, not necessarily state) if the following conditions are met:
1. You lived in the home - primary/principal residence
2. the loan was used to buy, construct or improve that home referenced in #1
3. the income not taxed is capped at $1 million for a married person filing separate and $2 million otherwise;
4. the short sale has to take place after Jan 1, 2007 and before January 1, 2013 (any guess as to how long the government thought this might be an issue? Hmm...)
A reduction of debt tax savings is applied to reduce the basis of the property though which could increase your capital gains tax owed.
Want to know what else qualifies? Check this out:
http://homebuying.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=homebuying&cdn=homegarden&tm=28&f=10&tt=13&bt=0&bts=0&zu=http%3A//www.irs.gov/individuals/article/0%2C%2Cid%3D179414%2C00.html
California residents? Beware. Cali tax law says that while a lender may have a legal right to go after assets (they usually won't) some states limit their ability to obtain deficiency judgments. In California, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale. This means that if you took a home equity line out and your home is in foreclosure, the lender may try to sue you (though they usually don't).
How does all of this affect credit? Im asked that a lot too so did some homework tonight.
Short sales: You aren't asked about them on applications. All lenders report short sales differently and some do not report them to the credit bureaus at all. A short sale is not a derogatory mark on your credit because credit bureaus do not show the word "short sale" on your credit. It may say "pay as agreed" or "paid as less than agreed". Some report negative FICO score drops from 50 points to 130 points. If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait time for an FHA loan is 3 years. If your credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines, you will be eligible to buy another home immediately.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.
The point drop is typically due to being in default, that is behind on your payments.
Foreclosures: You are asked about them on applications referring to the past 7 years. You may be denied a job if a company runs credit. Reports of FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years. If you want to buy again, you may be eligible to buy another home in 5 years if the home was your primary residence. Otherwise it's often 7 if you need the FHA.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
If you are in foreclosure and have had a judgment filed, a short sale may put that off for 2-3 months while the bank considers it.
There.. clear as mud? :)
Dani
A few pieces of demystification.
Sellers take the full loan balance and subtract the sales price. In a short sale, this is a positive number (or zero) and is treated as ordinary income.
But - the Mortgage Forgiveness Debt Relief Act of 2007 requires that the seller not be taxed on this income for federal income tax purposes (note, not necessarily state) if the following conditions are met:
1. You lived in the home - primary/principal residence
2. the loan was used to buy, construct or improve that home referenced in #1
3. the income not taxed is capped at $1 million for a married person filing separate and $2 million otherwise;
4. the short sale has to take place after Jan 1, 2007 and before January 1, 2013 (any guess as to how long the government thought this might be an issue? Hmm...)
A reduction of debt tax savings is applied to reduce the basis of the property though which could increase your capital gains tax owed.
Want to know what else qualifies? Check this out:
http://homebuying.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=homebuying&cdn=homegarden&tm=28&f=10&tt=13&bt=0&bts=0&zu=http%3A//www.irs.gov/individuals/article/0%2C%2Cid%3D179414%2C00.html
California residents? Beware. Cali tax law says that while a lender may have a legal right to go after assets (they usually won't) some states limit their ability to obtain deficiency judgments. In California, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale. This means that if you took a home equity line out and your home is in foreclosure, the lender may try to sue you (though they usually don't).
How does all of this affect credit? Im asked that a lot too so did some homework tonight.
Short sales: You aren't asked about them on applications. All lenders report short sales differently and some do not report them to the credit bureaus at all. A short sale is not a derogatory mark on your credit because credit bureaus do not show the word "short sale" on your credit. It may say "pay as agreed" or "paid as less than agreed". Some report negative FICO score drops from 50 points to 130 points. If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait time for an FHA loan is 3 years. If your credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines, you will be eligible to buy another home immediately.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.
The point drop is typically due to being in default, that is behind on your payments.
Foreclosures: You are asked about them on applications referring to the past 7 years. You may be denied a job if a company runs credit. Reports of FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years. If you want to buy again, you may be eligible to buy another home in 5 years if the home was your primary residence. Otherwise it's often 7 if you need the FHA.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
If you are in foreclosure and have had a judgment filed, a short sale may put that off for 2-3 months while the bank considers it.
There.. clear as mud? :)
Dani
Wednesday, November 25, 2009
Afraid to Fly? This Might Help. Or Give You a Good Laugh!
Warning: I realized after writing this there is a lot of data here.. And this turned more into a story than a blog entry. :) This is probably a 20 minute read, so caution!
It seems lately I've found myself on a lot of flights with quite a few fearful travelers. I can completely empathize because not all that long ago (well okay 19 years ago, but it seems like yesterday) I had to take my first business trip - curled up in the fetal position crying my eyes out certain I was to meet my death that day. Having a crush on the gentleman you are traveling with doesn't exactly help the situation either - it's pretty hard to look cool when you are scared to death.
A few steps back before a few steps forward…
Why on Earth was I so afraid? I was working for a statistician at the time who did his best to help me, without success. I have vague memories of my only flight as a kid, parents and brother with, flying to four islands in Hawaii. With already-overprotective parents and a mother scared to death of flying you can only imagine the things discussed on this flight.. How to hold your head in crash position and "I hope the rivets on this plane door do not come off like on that DELTA flight leaving Honolulu." (When I was a kid, the mantra was DELTA stood for "Don't Ever Leave the Airport"). I don't blame my parents, they were afraid too.
At 17, I was a Technology Director and Stats Advisor while still in High School - and I had to fly to Michigan to take part in a global presentation on Information Technology and talk about what our University was doing that the others might benefit from. I remember laying awake nearly a week before taking that flight, wondering first how I could get out of it, second how I'd ever conquer this fear, and third that I would die - or maybe I could just resign first.
Quite literally. I was completely numb with fear to a point of being unable to function. I called in sick every day that week to work. Not long after my college boyfriend and I were on a trip to Arizona and he wanted to .. Ahh.. Fly! When the plane swung from wind sheer I literally screamed out loud. Thankfully being a super nice guy he just held my hand but the others on the plane wondered what the heck was wrong with me. This continued for some years, and as I boarded a flight in Paris to head back to LA (another terrible experience - GETTING THERE!) the Concord crashed on the runway behind me. We had to wait 4 hours for experts to "clear the runway" to make sure debris didn't cause the crash before we could leave. I spent the next 18 hours staring at the GPS to make sure that our altitude hadn't dropped without my awareness while everyone else slept and jumping at every slight bump along the way. I had images of fiery engines and wings coming off in every area of my brain and it was overwhelming.
So when I say I can empathize with these passengers, I mean it. I never understood how my boyfriends' parents traveled the world without a care in that same world.
I met a freaked out passenger on my very last flight that asked me to write about (and then email him) the way that I "got over it" and I realized that so many people struggle with the same thing, "why not post about it and get others to share their tips too". And now, you are reading this blog doing precisely that. :)
I told this man, Dan, that the key was forcing myself to realize the fear was irrational and then take action on it. His response? "flying in a tin can at 650mph and being afraid of it isn't irrational." Good point - sort of. Emotionally he's right, but using physics and math? He's wrong. I continued… after realizing I had no choice but to fly anyway so I might as well get used to it, I did what any crazy chick trying to overcome a fear would do after growing up in an overprotective household where every time you had to conquer a fear you had to push it to its limits to see "worst case" - do it to an extreme so that you have no choice but to see the worst of the worst - which will make the "average" seem so easy. Yes, I use this method a lot for various things. :)
Step 1 was to fly in little planes with a man that was like a cat on his 8th life. A private pilot that often flew IFR with a VFR license (when that wasn’t suspended) was my boss at my night job while in college (as opposed to the day job I wrote about above) and he flew a lot to Catalina Island (dubbed the aircraft landing strip for VERY good reason - Google it sometime!) and liked to graze mountains in an open-top plane and then stall the motor on purpose to watch mag lights float in the air at 0g's. Sometimes he would follow dirt bikers through the hills at 200 feet above ground - I'm not kidding. We would "wing the water", 30 feet above ground, and try to get out of there before someone gave the FAA his wing number. He was as extreme as extreme gets. And I flew with him every time I had a chance to, scared to death, and yes crying and yelling sometimes. Even hitting him wildly out of pure fear for an hour at a time. He laughed through the whole thing. How could he laugh when I couldn't function -- and then why did I continue to get on that plane? I was NOT having a good time. I had to.
So I continued, afraid. That is.. Until I took the stick. About a year later, not only did I know how to fly these little planes, but I loved every second of it. I loved stalling, I loved recovering, I loved it when we lost the fuel pump on take off and had to go to Plan B, and loved it when I would fly over my parents house at 2000 feet and call them from my brick-sized cell phone and tell them to look outside to try to freak my mother out. I was 20...21, and knew what it felt like to fly in IFR rules without even a VFR license (only a student license) not able to see even 20 meters in front of you, and to have your "instructor" (if you could call him that) say "shit! That's a mountain, holy crap where did THAT come from?" and then veer hard to the right at a stall angle… only to.. Stall, with a mountain right below. You haven't lived until that has happened - or you lose your landing gear on approach while the Ontario, CA airport tower is screaming at you in your headset and the real pilot is trying to jump into your seat so keep you out of trouble.
Never in a million years did I think that not only would I find that to be a blast with some damn funny stories to tell after, but most vitally? It would help me lose my fear of flying. Like truly, madly, deeply gone. What would American Airlines do that could POSSIBLY be worse than what he and I did in that plane? Absolutely nothing. (this guy didn’t have a drivers license, he lost it to reckless endangerment, so he had to fly to work, by the way.) Yes, head case.
So what happened to that 40's vintage plane without the top that soon became my favorite one to fly? He crashed it into a muddy ravine in Central California and it died a slow painful death as mud filled all the gears and open spaces. :( RIP. My friend got out of the mud and used his handheld GPS back in the day when they were the size of a backpack to get to a payphone 15 hours away. He still hadn't used up his lives. I think he's at 8.5 and counting.
Back to Dan and this recent flight. I was assuming Dan didn't want to take that much risk - but I had to tell him the story anyway so he could see that 1) planes can handle an incredible amount of force - in fact our limbs would come apart, as I told him, before the wings did from g forces (he didn't seem to think that was helpful) and are designed to do so, and 2) it could be much worse than a steady 37000 feet for 7 hours at 675 mph. Even if it is a flying tin can.
Now I teach stats, econ, and technology, and needless to say the statistics come in handy. So before I spent the rest of the flight telling Dan what each noise was (a big fear if you are afraid to fly and the Bose just don't block the sound and the Valium just hasn't kicked in) let me first tell you the same statistics I told Dan. There are many ways to calculate them so here are a few.
The odds of dying in a plane crash are about 1 in 22.8 million in the 90s; now roughly stated as 1 in 34 million. You would, statistically speaking, have a greater chance of winning the lottery twice than dying in a plane crash. Fatality rates are about 90% if your plane does crash. (okay that last point probably didn't help my case)
From the book Truly Mad Statistics, more people die in the US in six months in cars than in the air in the last 100 years.
There are about 36 crashes per year according to the NTSB. Here is a link to the NTSB's aviation accident log:
http://www.ntsb.gov/aviation/aviation.htm and here is a table of accidents you can download:
http://www.ntsb.gov/aviation/Stats.htm
Do you want to see stats from one place to another or on a specific carrier? http://www.ntsb.gov/ntsb/query.asp
IF air travel was only as safe as a car, a plane with 120 passengers would crash every single day of the year with no survivors.
A high crash rate was in 1994 with 239 people dying. 2.5 million Americans died that year total, 700,000 of heart disease and 500,000 of cancer. How many from medical screw-ups? 50,000 (now up at about 100,000 with prescription errors). (side note: I've yet to face my fear of surgery/hospitalization/anesthesia, partly because of these odds even though yes, they are small too! That I'm sure will come another day.. I'm just not sure how "extreme anything" will help me prepare LOL)
At any given time over the US alone, there are about 5000 planes in the air. Large aircraft. This doesn't include private planes or jets.
Highest risk flights are short flights in developing countries. Even there the odds are about 1 in 500,000.
The US Bureau of Transportation Stats calculates fatalities per million miles traveled. Car 9.3, Train 5, commercial flights 1.22. Flying is 8 times safer than driving.
Here is a link by year showing a graph of accidents:
http://www.pbs.org/wgbh/nova/planecrash/risk-02.html
Pilots can't avoid pre-checks like drivers can. They can't use old unmaintained equipment like drivers can. They are forced to retire if there is a chance they can't see, and they are given tests often to make sure they're up to date on their procedures. Want to see how safe it is to be a pilot? http://www.bls.gov/opub/cwc/archive/spring2000brief1.pdf Far safer than in construction, in timber, a farmer, a truck driver, etc...
What should you be more worried about? The ride to the airport, not the ride once you get there.
Still, easier said than done if your fear is crippling you. In some cases it's the loss of control and lack of visibility into what is happening, at least it was for me. Remember this though. You'd have to ride on a plane every day of your life and still wait an average of 26,000 years to die in one.
Take a look at Greenspun's General Aviation Safety write up - great stats with fascinating stuff http://philip.greenspun.com/flying/safety
So what about those noises? I'll run through some of them - some that were the worst for me and were the worst for Dan and many other passengers. If you are afraid to fly, print this part out and take it with you. Even book a seat just in front of or just behind the wing or engines so you can see the movement, too.
1. Before takeoff, the AC and lights may go off and back on. This is when the pilot changes power sources from the generator to an internal source.
2. While the plane is making its way to the runway, or taxiing, parts of the wing will move down and back. This is partly a test, and partly to get ready for take off when the flaps have to extend to provide more lift. Lesson 101 from pilot school: lift has to be greater than weight (gravity) to take off. Lift puts pressure upward to make the plane go up, weight or gravity puts pressure downward to make the plane go down.
3. Right after take off, floor panels shake or make noise. This is the landing gear coming up.
4. While climbing up during take off, the sound of the engine goes down, as though the engines are winding down. I remember this being one of the scariest sounds. It's normal! The engines go to lower power outputs after the initial full throttle for take off. This is because during flight, thrust of the aircraft has to exceed drag caused by wind, air, pressure and so on. You don't need full throttle to maximize this, you just have to tweak out your controls to the optimal point. (The engines also go to "idle power" just before you start to descend, so that is another time you might feel "power loss".
5. During the climb, there is a change in the tone of the aircraft. Sometimes it sounds like "vr vr vr vr"… yeah good description huh? This is especially true on older aircraft. (and yes, well maintained older aircraft are very safe. No one has ever died from an accident on Southwest Airlines and they have some of the oldest aircraft period). This is a sound that the flaps make as they retract. You will hear it as they extend, and as you land.
6. Flashing lights. These are usually strobe lights on the wing tips that reflect off the clouds. Sometimes it's lightning but even if that happens and worst case your plane is hit (rare but it does happen and it's happened on one my flights), in almost all cases nothing catastrophic happens to the plane.
7. Wings move up and down and there are turbulence. They are designed to withstand many G's. They wont just come off. Your body will rip limb from limb first. Seriously. Nice mental picture, huh? If the wings come off, you won't even know. ;)
8. Landing produces a hard blowing sound and sometimes more engine sound. To stop, engines often use thrust reverser which redirect air forward to slow the plane. Normal!
And of course there is landing with pulsing brakes. This is much like the braking systems your car uses and they help control skidding. The length of the runway also impacts how intense your landing will be.
According to AA, I have flown over 2 million miles and I'm in my 30s.. And that is one airline. While I still think they are wrong, I'm guessing they'd air on their side and not mine if they were. That doesn’t count all the no-name airlines, the overseas airlines, the small plane trips, the airlines where I haven't checked.. So many millions of miles. I've had a large plane from Chicago into Charlotte lose power because it was struck by lightning, touch and go's in Miami that required diversion to Ft. Myers and bunches of other exciting things happen on flights.. Including just this past weekend simple stuff like a 777 tug overshooting the bridge and pushing back the plane 2 feet. Eventually it's all fun, and you come to enjoy your flight time as a way to get away from the cell phones (though I am liking GoGo a lot). After you start seeing the world and living with other cultures for weeks or months in a year all thanks to a 17 hour flight somewhere, you realize the fear is worth getting over. And it's pretty interesting to see that Air China departs without requiring the pilots shut the door sometimes and that they leave bags laying around "wherever" (not to mention those cool temperature sensors to see if you have h1n1), and which airlines don't have the stupid rules about having cell phones off (because NO, it does NOT cause planes to crash!) and all sorts of various random things you learn.
So if you are afraid to fly, I hope this helps. And if you aren't, thanks for laughing WITH me and not AT me (I hope?) :=)
Dani
It seems lately I've found myself on a lot of flights with quite a few fearful travelers. I can completely empathize because not all that long ago (well okay 19 years ago, but it seems like yesterday) I had to take my first business trip - curled up in the fetal position crying my eyes out certain I was to meet my death that day. Having a crush on the gentleman you are traveling with doesn't exactly help the situation either - it's pretty hard to look cool when you are scared to death.
A few steps back before a few steps forward…
Why on Earth was I so afraid? I was working for a statistician at the time who did his best to help me, without success. I have vague memories of my only flight as a kid, parents and brother with, flying to four islands in Hawaii. With already-overprotective parents and a mother scared to death of flying you can only imagine the things discussed on this flight.. How to hold your head in crash position and "I hope the rivets on this plane door do not come off like on that DELTA flight leaving Honolulu." (When I was a kid, the mantra was DELTA stood for "Don't Ever Leave the Airport"). I don't blame my parents, they were afraid too.
At 17, I was a Technology Director and Stats Advisor while still in High School - and I had to fly to Michigan to take part in a global presentation on Information Technology and talk about what our University was doing that the others might benefit from. I remember laying awake nearly a week before taking that flight, wondering first how I could get out of it, second how I'd ever conquer this fear, and third that I would die - or maybe I could just resign first.
Quite literally. I was completely numb with fear to a point of being unable to function. I called in sick every day that week to work. Not long after my college boyfriend and I were on a trip to Arizona and he wanted to .. Ahh.. Fly! When the plane swung from wind sheer I literally screamed out loud. Thankfully being a super nice guy he just held my hand but the others on the plane wondered what the heck was wrong with me. This continued for some years, and as I boarded a flight in Paris to head back to LA (another terrible experience - GETTING THERE!) the Concord crashed on the runway behind me. We had to wait 4 hours for experts to "clear the runway" to make sure debris didn't cause the crash before we could leave. I spent the next 18 hours staring at the GPS to make sure that our altitude hadn't dropped without my awareness while everyone else slept and jumping at every slight bump along the way. I had images of fiery engines and wings coming off in every area of my brain and it was overwhelming.
So when I say I can empathize with these passengers, I mean it. I never understood how my boyfriends' parents traveled the world without a care in that same world.
I met a freaked out passenger on my very last flight that asked me to write about (and then email him) the way that I "got over it" and I realized that so many people struggle with the same thing, "why not post about it and get others to share their tips too". And now, you are reading this blog doing precisely that. :)
I told this man, Dan, that the key was forcing myself to realize the fear was irrational and then take action on it. His response? "flying in a tin can at 650mph and being afraid of it isn't irrational." Good point - sort of. Emotionally he's right, but using physics and math? He's wrong. I continued… after realizing I had no choice but to fly anyway so I might as well get used to it, I did what any crazy chick trying to overcome a fear would do after growing up in an overprotective household where every time you had to conquer a fear you had to push it to its limits to see "worst case" - do it to an extreme so that you have no choice but to see the worst of the worst - which will make the "average" seem so easy. Yes, I use this method a lot for various things. :)
Step 1 was to fly in little planes with a man that was like a cat on his 8th life. A private pilot that often flew IFR with a VFR license (when that wasn’t suspended) was my boss at my night job while in college (as opposed to the day job I wrote about above) and he flew a lot to Catalina Island (dubbed the aircraft landing strip for VERY good reason - Google it sometime!) and liked to graze mountains in an open-top plane and then stall the motor on purpose to watch mag lights float in the air at 0g's. Sometimes he would follow dirt bikers through the hills at 200 feet above ground - I'm not kidding. We would "wing the water", 30 feet above ground, and try to get out of there before someone gave the FAA his wing number. He was as extreme as extreme gets. And I flew with him every time I had a chance to, scared to death, and yes crying and yelling sometimes. Even hitting him wildly out of pure fear for an hour at a time. He laughed through the whole thing. How could he laugh when I couldn't function -- and then why did I continue to get on that plane? I was NOT having a good time. I had to.
So I continued, afraid. That is.. Until I took the stick. About a year later, not only did I know how to fly these little planes, but I loved every second of it. I loved stalling, I loved recovering, I loved it when we lost the fuel pump on take off and had to go to Plan B, and loved it when I would fly over my parents house at 2000 feet and call them from my brick-sized cell phone and tell them to look outside to try to freak my mother out. I was 20...21, and knew what it felt like to fly in IFR rules without even a VFR license (only a student license) not able to see even 20 meters in front of you, and to have your "instructor" (if you could call him that) say "shit! That's a mountain, holy crap where did THAT come from?" and then veer hard to the right at a stall angle… only to.. Stall, with a mountain right below. You haven't lived until that has happened - or you lose your landing gear on approach while the Ontario, CA airport tower is screaming at you in your headset and the real pilot is trying to jump into your seat so keep you out of trouble.
Never in a million years did I think that not only would I find that to be a blast with some damn funny stories to tell after, but most vitally? It would help me lose my fear of flying. Like truly, madly, deeply gone. What would American Airlines do that could POSSIBLY be worse than what he and I did in that plane? Absolutely nothing. (this guy didn’t have a drivers license, he lost it to reckless endangerment, so he had to fly to work, by the way.) Yes, head case.
So what happened to that 40's vintage plane without the top that soon became my favorite one to fly? He crashed it into a muddy ravine in Central California and it died a slow painful death as mud filled all the gears and open spaces. :( RIP. My friend got out of the mud and used his handheld GPS back in the day when they were the size of a backpack to get to a payphone 15 hours away. He still hadn't used up his lives. I think he's at 8.5 and counting.
Back to Dan and this recent flight. I was assuming Dan didn't want to take that much risk - but I had to tell him the story anyway so he could see that 1) planes can handle an incredible amount of force - in fact our limbs would come apart, as I told him, before the wings did from g forces (he didn't seem to think that was helpful) and are designed to do so, and 2) it could be much worse than a steady 37000 feet for 7 hours at 675 mph. Even if it is a flying tin can.
Now I teach stats, econ, and technology, and needless to say the statistics come in handy. So before I spent the rest of the flight telling Dan what each noise was (a big fear if you are afraid to fly and the Bose just don't block the sound and the Valium just hasn't kicked in) let me first tell you the same statistics I told Dan. There are many ways to calculate them so here are a few.
The odds of dying in a plane crash are about 1 in 22.8 million in the 90s; now roughly stated as 1 in 34 million. You would, statistically speaking, have a greater chance of winning the lottery twice than dying in a plane crash. Fatality rates are about 90% if your plane does crash. (okay that last point probably didn't help my case)
From the book Truly Mad Statistics, more people die in the US in six months in cars than in the air in the last 100 years.
There are about 36 crashes per year according to the NTSB. Here is a link to the NTSB's aviation accident log:
http://www.ntsb.gov/aviation/aviation.htm and here is a table of accidents you can download:
http://www.ntsb.gov/aviation/Stats.htm
Do you want to see stats from one place to another or on a specific carrier? http://www.ntsb.gov/ntsb/query.asp
IF air travel was only as safe as a car, a plane with 120 passengers would crash every single day of the year with no survivors.
A high crash rate was in 1994 with 239 people dying. 2.5 million Americans died that year total, 700,000 of heart disease and 500,000 of cancer. How many from medical screw-ups? 50,000 (now up at about 100,000 with prescription errors). (side note: I've yet to face my fear of surgery/hospitalization/anesthesia, partly because of these odds even though yes, they are small too! That I'm sure will come another day.. I'm just not sure how "extreme anything" will help me prepare LOL)
At any given time over the US alone, there are about 5000 planes in the air. Large aircraft. This doesn't include private planes or jets.
Highest risk flights are short flights in developing countries. Even there the odds are about 1 in 500,000.
The US Bureau of Transportation Stats calculates fatalities per million miles traveled. Car 9.3, Train 5, commercial flights 1.22. Flying is 8 times safer than driving.
Here is a link by year showing a graph of accidents:
http://www.pbs.org/wgbh/nova/planecrash/risk-02.html
Pilots can't avoid pre-checks like drivers can. They can't use old unmaintained equipment like drivers can. They are forced to retire if there is a chance they can't see, and they are given tests often to make sure they're up to date on their procedures. Want to see how safe it is to be a pilot? http://www.bls.gov/opub/cwc/archive/spring2000brief1.pdf Far safer than in construction, in timber, a farmer, a truck driver, etc...
What should you be more worried about? The ride to the airport, not the ride once you get there.
Still, easier said than done if your fear is crippling you. In some cases it's the loss of control and lack of visibility into what is happening, at least it was for me. Remember this though. You'd have to ride on a plane every day of your life and still wait an average of 26,000 years to die in one.
Take a look at Greenspun's General Aviation Safety write up - great stats with fascinating stuff http://philip.greenspun.com/flying/safety
So what about those noises? I'll run through some of them - some that were the worst for me and were the worst for Dan and many other passengers. If you are afraid to fly, print this part out and take it with you. Even book a seat just in front of or just behind the wing or engines so you can see the movement, too.
1. Before takeoff, the AC and lights may go off and back on. This is when the pilot changes power sources from the generator to an internal source.
2. While the plane is making its way to the runway, or taxiing, parts of the wing will move down and back. This is partly a test, and partly to get ready for take off when the flaps have to extend to provide more lift. Lesson 101 from pilot school: lift has to be greater than weight (gravity) to take off. Lift puts pressure upward to make the plane go up, weight or gravity puts pressure downward to make the plane go down.
3. Right after take off, floor panels shake or make noise. This is the landing gear coming up.
4. While climbing up during take off, the sound of the engine goes down, as though the engines are winding down. I remember this being one of the scariest sounds. It's normal! The engines go to lower power outputs after the initial full throttle for take off. This is because during flight, thrust of the aircraft has to exceed drag caused by wind, air, pressure and so on. You don't need full throttle to maximize this, you just have to tweak out your controls to the optimal point. (The engines also go to "idle power" just before you start to descend, so that is another time you might feel "power loss".
5. During the climb, there is a change in the tone of the aircraft. Sometimes it sounds like "vr vr vr vr"… yeah good description huh? This is especially true on older aircraft. (and yes, well maintained older aircraft are very safe. No one has ever died from an accident on Southwest Airlines and they have some of the oldest aircraft period). This is a sound that the flaps make as they retract. You will hear it as they extend, and as you land.
6. Flashing lights. These are usually strobe lights on the wing tips that reflect off the clouds. Sometimes it's lightning but even if that happens and worst case your plane is hit (rare but it does happen and it's happened on one my flights), in almost all cases nothing catastrophic happens to the plane.
7. Wings move up and down and there are turbulence. They are designed to withstand many G's. They wont just come off. Your body will rip limb from limb first. Seriously. Nice mental picture, huh? If the wings come off, you won't even know. ;)
8. Landing produces a hard blowing sound and sometimes more engine sound. To stop, engines often use thrust reverser which redirect air forward to slow the plane. Normal!
And of course there is landing with pulsing brakes. This is much like the braking systems your car uses and they help control skidding. The length of the runway also impacts how intense your landing will be.
According to AA, I have flown over 2 million miles and I'm in my 30s.. And that is one airline. While I still think they are wrong, I'm guessing they'd air on their side and not mine if they were. That doesn’t count all the no-name airlines, the overseas airlines, the small plane trips, the airlines where I haven't checked.. So many millions of miles. I've had a large plane from Chicago into Charlotte lose power because it was struck by lightning, touch and go's in Miami that required diversion to Ft. Myers and bunches of other exciting things happen on flights.. Including just this past weekend simple stuff like a 777 tug overshooting the bridge and pushing back the plane 2 feet. Eventually it's all fun, and you come to enjoy your flight time as a way to get away from the cell phones (though I am liking GoGo a lot). After you start seeing the world and living with other cultures for weeks or months in a year all thanks to a 17 hour flight somewhere, you realize the fear is worth getting over. And it's pretty interesting to see that Air China departs without requiring the pilots shut the door sometimes and that they leave bags laying around "wherever" (not to mention those cool temperature sensors to see if you have h1n1), and which airlines don't have the stupid rules about having cell phones off (because NO, it does NOT cause planes to crash!) and all sorts of various random things you learn.
So if you are afraid to fly, I hope this helps. And if you aren't, thanks for laughing WITH me and not AT me (I hope?) :=)
Dani
Tuesday, July 28, 2009
Bogus Real Estate Numbers
I've been listening to many analysts these past few days cite the Case Schiller numbers that came out today along with the existing home sales numbers that came out two days ago as a sign the market is rebounding -- the numbers are *bogus* and here is why.
First - and vital - Case Schiller is a bunch of bunk. They are a 20 metro city index - 20. This is not a national number. They also have a new ETF, UMM, that trades higher if people are optimistic about the market. One of the major indices we "used to use" should be completely removed out of the market because of its now inherent bias.
I'd like to be bullish on real estate too but here is why the numbers suggest otherwise.
1. 11% increase in sales means contracts (number released this week). It doesn’t mean the homes will close. This is up to banks! Have you tried to get a loan lately? :)
2. 32000 more homes sold in May to June than expected. This is 1% of the 3 million in inventory. (note: correction from .01% thanks to Mark Steele)
3. Inventory dropped from 10.8 months to 8.8 months. The 10.8 months was an over inflated number from foreclosures.
4. In major cities it is foreclosures accounting for as many as 60% of sales at incredibly reduced prices. This will create new comps for appraisers, which means many of the homes noted in #1 won't close because they won't appraise!
5. 22% of people are upside down. Studies show that when a homeowner is 15% underwater (owes 15% more than the home is worth) 1 in 4 default on purpose plus the rest that just default. More foreclosures are coming.
6. Foreclosure moratoriums have ended, so we will only now see those hitting the markets.
7. Looking at spring buying numbers - down 21.3% over this time last year. This is a good sign?
8. The tax credit incentivizing some buyers to get off the fence is ending Nov 30, 2009.
9. Jumbo defaults havent hit the market yet.
10. When we hear numbers like "new housing starts up 3%" this is NOT good news! This is inventory which = supply which = downward pressure on prices.
How do you survive in this market? Yes there are some deals!
1. Know your goal (flipping versus living has entirely different tactics)
2. Don’t be deceived by numbers
3. Get a good deal - know the prices
4. Rent when it's appropriate, like if your job isn't stable
5. Buy where jobs are going to - don't buy where they are leaving!
Dani
First - and vital - Case Schiller is a bunch of bunk. They are a 20 metro city index - 20. This is not a national number. They also have a new ETF, UMM, that trades higher if people are optimistic about the market. One of the major indices we "used to use" should be completely removed out of the market because of its now inherent bias.
I'd like to be bullish on real estate too but here is why the numbers suggest otherwise.
1. 11% increase in sales means contracts (number released this week). It doesn’t mean the homes will close. This is up to banks! Have you tried to get a loan lately? :)
2. 32000 more homes sold in May to June than expected. This is 1% of the 3 million in inventory. (note: correction from .01% thanks to Mark Steele)
3. Inventory dropped from 10.8 months to 8.8 months. The 10.8 months was an over inflated number from foreclosures.
4. In major cities it is foreclosures accounting for as many as 60% of sales at incredibly reduced prices. This will create new comps for appraisers, which means many of the homes noted in #1 won't close because they won't appraise!
5. 22% of people are upside down. Studies show that when a homeowner is 15% underwater (owes 15% more than the home is worth) 1 in 4 default on purpose plus the rest that just default. More foreclosures are coming.
6. Foreclosure moratoriums have ended, so we will only now see those hitting the markets.
7. Looking at spring buying numbers - down 21.3% over this time last year. This is a good sign?
8. The tax credit incentivizing some buyers to get off the fence is ending Nov 30, 2009.
9. Jumbo defaults havent hit the market yet.
10. When we hear numbers like "new housing starts up 3%" this is NOT good news! This is inventory which = supply which = downward pressure on prices.
How do you survive in this market? Yes there are some deals!
1. Know your goal (flipping versus living has entirely different tactics)
2. Don’t be deceived by numbers
3. Get a good deal - know the prices
4. Rent when it's appropriate, like if your job isn't stable
5. Buy where jobs are going to - don't buy where they are leaving!
Dani
Monday, July 27, 2009
Why the new home sales numbers dont mean jack
Analysts are all excited about the new housing numbers - unfortunately they don't mean anything positive for the market. Let's break this down.
1. There is an $8000 tax credit for “first time” home buyers. From May to June, the percentage distribution of sales of homes with prices under $150k rose from 14% of sales to 20% of sales. (For homes priced in the $150k-199.9k range, the percent of total sales went up from 26% to 28%.) The tax credit ranges are where more sales are. Houses have to be purchased before Nov 30 2009 to qualify. This is impacting sales in the low end.
This is a case of some economist forecasting a low number, and even though it's even lower than last year, people are happy that it's higher than the prediction from the Commerce Department.
2 Hardest hit areas are still hit hard. The increases were in the Midwest of over 40% and the northeast at 29%. The areas struggling are still struggling.
3 REALITY - 11% rise yes, BUT -- this is 384,000 - expected was 352,000. This is where percentages can be deceiving. This is 32000 more homes. There are over 3,000,000 homes on the market. The 32000 homes represents .0106% change in that inventory number.
4. Median home price is down this month (May to June) -- had risen previous 2 months. Price destabilization or downward trend isn't good. We need several consecutive stable months.
5. Still have an 8.8 months supply of inventory in a conservative measure.
6. Single family home sales are 21.3% lower than this time LAST year!
7. The homes sold during spring buying season close usually May-June, so this is to be expected...
8. There is also some fear of rising rates in the Fall that may be driving some buyers into the market.
9. 1 out of 4 homeowners today in default are defaulting on purpose! Once the owner owes 15% more than the house is worth, the rate of defaults that are intentional go up to the 25% level. (Chicago School of Business)
10. Still to come - 22% of homeowners have a mortgage bigger than the value of their home. We WILL see more defaults. This will push prices down. Jumbos haven't begun to show up in the markets yet. Banks will stop lending again, and we will face crisis #3.
1. There is an $8000 tax credit for “first time” home buyers. From May to June, the percentage distribution of sales of homes with prices under $150k rose from 14% of sales to 20% of sales. (For homes priced in the $150k-199.9k range, the percent of total sales went up from 26% to 28%.) The tax credit ranges are where more sales are. Houses have to be purchased before Nov 30 2009 to qualify. This is impacting sales in the low end.
This is a case of some economist forecasting a low number, and even though it's even lower than last year, people are happy that it's higher than the prediction from the Commerce Department.
2 Hardest hit areas are still hit hard. The increases were in the Midwest of over 40% and the northeast at 29%. The areas struggling are still struggling.
3 REALITY - 11% rise yes, BUT -- this is 384,000 - expected was 352,000. This is where percentages can be deceiving. This is 32000 more homes. There are over 3,000,000 homes on the market. The 32000 homes represents .0106% change in that inventory number.
4. Median home price is down this month (May to June) -- had risen previous 2 months. Price destabilization or downward trend isn't good. We need several consecutive stable months.
5. Still have an 8.8 months supply of inventory in a conservative measure.
6. Single family home sales are 21.3% lower than this time LAST year!
7. The homes sold during spring buying season close usually May-June, so this is to be expected...
8. There is also some fear of rising rates in the Fall that may be driving some buyers into the market.
9. 1 out of 4 homeowners today in default are defaulting on purpose! Once the owner owes 15% more than the house is worth, the rate of defaults that are intentional go up to the 25% level. (Chicago School of Business)
10. Still to come - 22% of homeowners have a mortgage bigger than the value of their home. We WILL see more defaults. This will push prices down. Jumbos haven't begun to show up in the markets yet. Banks will stop lending again, and we will face crisis #3.
Thursday, June 25, 2009
MultiFamily Areas to Buy – And Avoid – In Today’s Turbulent Market
MultiFamily Areas to Buy – And Avoid – In Today’s Turbulent Market
In today’s turbulent markets, lots of people are speculating about where to buy -- or perhaps most importantly where not to buy. This analysis is mostly performed for the residential markets because of the gluttony of inventory and the high volume of press that the housing bubble receives – but those in the multifamily industry are trying to determine the same things.
Down payment requirements and loan terms, unlike residential properties, have not improved much for the multifamily borrower. In fact many banks are now requiring higher down payments than ever before, with units that have 4 or more residences requiring 30% or more down and 12 months or more of reserves to cover payments, taxes and insurance. Banks that used to assume a 75% occupancy rate often now assume as low as 60% to cover their proverbial behinds.
Given the restrictions and skin in the game the multifamily investor has in today’s market, analysis is even more vital than it was in the past. As an analyst, I am often asked where I would buy - and most importantly – why. Doing work in the media and calling an area “a wait and see” or a “bad buy” leads to hundreds of hate emails, letters to producers at networks and outcries by those in local markets. I experienced this most recently in the
The criteria I use when analyzing which markets I would go into are fairly simple. They focus on:
- Jobs – are they moving in, or out?
- Humans – are they moving in, or out?
- Unemployment trends in the area (6 to 10 mile radius)
- Type of jobs (healthcare would worry me, education doesn’t)
- How stable prices have been in the past 90 to 180 days
- Inventory on the market.
-
So given these criteria, I have a few places and recommendations for the residential or multihousing investor.
We know that high tech companies are moving into two areas:
Another interesting market?
So what about places to avoid? I don’t like area where boomers are moving out of.
Today’s investment market is rocky, but this is the time I believe that we see about every decade to invest. Continuing this discussion on my website at The Babb Group, www.thebabbgroup.com, Forums/Real Estate.
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