Advice from the Big Kahuna: Foreclosure King Leo Nordine
AOL Real Estate spoke with him recently, on the heels of the news that housing prices fell 3 percent last quarter--the biggest drop since 2008 -- and that 28.4 percent of single-family home owners are upside down on their mortgages.
AOL Real Estate:When will the real estate market hit bottom?
Nordine: It's already hit a soft bottom. The government realized that we would have a full-on Depression if it didn't slow down the foreclosures, so it came up with all these plans for loan modifications, short payoffs. One of Washington's really good ideas was offering the tax credit for first-time buyers; a bunch of people were able to jump into the market on that. But all that's happened from all the government's efforts is that we've managed to stem the flow of the bleeding.
Q. Why should anyone buy a house now?
I'm actually not that keen on buying anything. I think a better course is to take any spare cash you have and use it to pay down your debt. Sure, it's still fun to own a house, fix it up the way you want. And there are tax advantages to owning a house, so if you have a steady income, that's not a bad reason to buy a house. But if you're struggling financially and have debt, don't do it.
Q. Where do you see home prices headed longer-term?
I think for the next 10 years, prices will be a flat line. Buy a house because you want to live in it, not because you think it will be a good investment.
Q. What has to happen for the market to recover?
Jobs. Our economy is still in terrible shape. All these rosy reports that come out? The average guy doesn't buy it. There are no new jobs out there. If they don't have jobs, people aren't going to buy houses and they become at risk for losing the ones they do have.
Q. Adjustable-rate mortgages are making a comeback. What do you think of them?
A. People have such short memories, don't they? The only reason people want an adjustable loan is because they can't qualify for or afford a fixed-rate mortgage. If you can't afford a fixed-rate loan, you can't afford to buy the house. Period.
Q. What about an ARM for a couple in their 60s who won't live long enough to ever pay off a 30-year-fixed rate loan? Why shouldn't they consider a lower-rate ARM?
Because in 10 years, they will be a couple in their 70s forced out of their home and living on the street. It's back to that old thinking that your house will appreciate in value. Haven't the last five years taught us anything?
Q. What advice do you have for people with homes they can't sell?
If someone lives in it, get the house in as good condition as possible -- and make it as empty as possible. Cleaner, brighter houses sell faster. Above all else, price it to sell it. Get over what you think it should be worth. Get yourself an aggressive agent who will tell you the truth about what the price needs to be for it to move quickly. This isn't a good market for overpriced listings.
Q. Can you foresee us becoming a nation of renters?
I certainly see more Americans becoming renters. The government pushed home ownership as a dream. It encourages stability. But I have still rented for more of my lifetime than I owned. There is something to be said for the freedom to be able to move on a moment's notice and not having the tax burdens of home ownership. There's lower overhead, lower burden of debt. There is a lot to be said for renting.
Q. You grew up in a low-income family, raised by a single mother. You've talked about being a boy and buying T-shirts for school for 25 cents at the thrift store. Describe your financial philosophy today.
A. I'm conservative. I long ago discovered that for me, it felt better to save than to consume. I admire the people of China for how thrifty they are, how they incur very little personal debt. They save up for the things they want. In practical terms, I still like real estate as an investment. I don't trust commodities and stocks that can jump or fall in one day. I love real estate because it moves like a glacier. If you are paying attention, you can see the direction the real estate market is headed. It doesn't get there overnight, so you have time to make adjustments.