The past few years of rocky real estate markets has left some people wondering, why buy a home? If you find that thought running through your mind consider these things.
A recent survey commissioned by the National Association of Home Builders found that 72 percent of its respondents opposed any effort to get rid of the homeowners' mortgage interest deduction. That's despite the fact that doing so could help ease the nation's budget deficit.
Gil Gross host of Real Estate Today Radio reported that, "The survey cut across partisan lines, and even across homeowner status. 76 percent of Republicans and 64 percent of Democrats oppose eliminating the deduction, as do 75 percent of owners and even 55 percent of renters. They all recognize the importance of homeownership to the nation's economy."
But why when you hear the horror stories of markets crashing, housing underwater and homeowners facing foreclosure, would you want to buy a home?
The first reason, we just addressed. When you buy a home there are tax advantages. Effectively, homeownership provides an excellent tax shelter. But there are more reasons to trade your rent payment for a mortgage. Buying a home for this tax advantage isn't how you should look at it. Rather, think of it this way. You need a place to live. Receiving a tax advantage for the place that you choose to live in, is a nice bonus.
When carefully used, a home equity loan (line of credit that allows you to borrow against your home) can be a better way to carry credit. That's because home equity lines can have lower interest rates and are also deductible whereas typical credit card interest is not.
Owning your own home gives you more freedom and the opportunity to create a living environment exactly how you want it. There's no consulting with landlords to see if you can do something to the home or who will pay for the change. Of course, that means when you buy a home you should consider what additional changes you plan to make, so that you can appropriately budget. Also, keep in mind that with homeownership come unexpected expenses for repairs and maintenance. While that may sound like a reason not to buy, it shouldn't be. Think about owning a car. There are maintenance issues and expenses but most people still like to own their own vehicle.
Homeownership provides a sense of stability and security. Instead of wondering when the landlord might decide to sell the home, you are in control of that decision. Additionally, homeownership provides immeasurable values of belonging to a social community. Also, as a homeowner, you'll have a greater influence on community affairs. Renters, being usually more transient, have less influence on policymakers.
What it comes down to is how long you plan on staying in a particular home and area and what you can afford. Owning your home weds you to a property which some people feel limits them. However, many others see a home as their life and the legacy they'll leave behind... a place where they raise children, enjoy company, experience life's ups and downs, and eventually pass on their home to loved ones.
10% Jump in September Existing-Home Sales
Existing-home sales rose again in September, affirming that a sales recovery has begun, according to the National Association of REALTORS®.
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums, and co-ops, rose 10 percent to a seasonally adjusted annual rate of 4.53 million in September from a downwardly revised 4.12 million in August, but remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.
Lawrence Yun, NAR chief economist, said the housing market is in the early stages of recovery. “A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions,” he said.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.35 percent in September from 4.43 percent in August; the rate was 5.06 percent in September 2009.
The national median existing-home price for all housing types was $171,700 in September, which is 2.4 percent below a year ago. Distressed homes accounted for 35 percent of sales in September compared with 34 percent in August; they were 29 percent in September 2009.
NAR President Vicki Cox Golder said opportunities abound in the current market. “A decade ago, mortgage rates were almost double what they are today, and they’re about one-and-a-half percentage points lower than the peak of the housing boom in 2005,” she said. “In addition, home prices are running about 22 percent less than five years ago when they were bid up by the biggest housing rush on record.”
To illustrate the jump in housing affordability, the median monthly mortgage payment for a recently purchased home is several hundred dollars less than it was five years ago. “In fact, the median monthly mortgage payment in many areas is less than people are paying for rent,” Golder said.
Housing affordability conditions today are 60 percentage points higher than during the housing boom, so it has become a very strong buyers’ market, especially for families with long-term plans. “The savings today’s buyers are receiving are not a one-time benefit. Buyers with fixed-rate mortgages will save money every year they are living in their home – this is truly an example of how home ownership builds wealth over the long term,” Golder added.
Total housing inventory at the end of September fell 1.9 percent to 4.04 million existing homes available for sale, which represents a 10.7-month supply at the current sales pace, down from a 12-month supply in August. Raw unsold inventory is 11.7 percent below the record of 4.58 million in July 2008.
“Vacant homes and homes where mortgages have not been paid for an extended number of months need to be cleared from the market as quickly as possible, with a new set of buyers helping the recovery along a healthy path,” Yun said. “Inventory remains elevated and continues to favor buyers over sellers. A normal seasonal decline in inventory is expected through the upcoming months.”
A parallel NAR practitioner survey shows first-time buyers purchased 32 percent of homes in September, almost unchanged from 31 percent in August. Investors were at an 18 percent market share in September, down from 21 percent in August; the balance of purchases were by repeat buyers. All-cash sales were at 29 percent in September compared with 28 percent in August.
Single-family home sales increased 10 percent to a seasonally adjusted annual rate of 3.97 million in September from a pace of 3.61 million in August, but are 19.5 percent below the 4.93 million level in September 2009. The median existing single-family home price was $172,600 in September, down 1.9 percent from a year ago.
Existing condominium and co-op sales rose 9.8 percent to a seasonally adjusted annual rate of 560,000 in September from 510,000 in August, but are 16.2 percent lower than the 668,000-unit level one year ago. The median existing condo price was $165,400 in September, down 6.2 percent from September 2009.
Existing-home sales by region:
Northeast – increased 10.1 percent to an annual pace of 760,000 in September but are 20.8 percent below September 2009. The median price in the Northeast was $239,200, which is 1.4 percent below a year ago.
Midwest – jumped 14.5 percent in September to a level of 950,000 but are 26.4 percent below a year ago. The median price in the Midwest was $139,700, down 5.2 percent from September 2009.
South – sales rose 10.6 percent to an annual pace of 1.77 million in September but are 14.9 percent lower than September 2009. The median price in the South was $149,500, down 2.6 percent from a year ago.
West – increased 5.0 percent to an annual level of 1.05 million in September but are 16.7 percent below a year ago. The median price in the West was $213,600, which is 4.9 percent lower than September 2009.
Source: NAR
5 Steps to Remodeling Done Right Here are five steps to developing a great relationship with a remodeling contractor.
1. Let the contractor know if you are ready to remodel or just kicking the tires. Gary Palmer, a Charlotte, N.C.-based general contractor, says seeking multiple bids is fine, but don’t waste his or her time by letting the bidding process drag on for weeks.
2. Do your homework. Before seeking bids, develop two files. One should include information, including photos, of what you like. The other should include a list of what you don’t like.
3. Listen to the experts. A good contractor can tell you whether the project is feasible and what the pay off will be.
4. Communicate your budget. Let the contractor know up front how much money you intend to spend.
5. Be realistic and patient. Every remodeling project is messy and all of them are going to be frustrating somewhere along the way.
Source: Charlotte Observer, Barbara S. Russell (10/23/2010)
Lead-Safe RemodelingEffective April 22, 2010 remodeling work on homes built before 1978 must be performed only by contractors certified by the U.S. Environmental Protection Agency. Homeowners should assume lead paint is present and only hire certified contractors. Certified remodelers are required to display their EPA-certified certificate to home owners.
Contractors It is a misdemeanor for a person to engage in the business or act in the capacity of a contractor without having a license. This new law increases the penalties for acting as a contractor without a license.
This law makes a first conviction punishable by a fine not exceeding $5,000 or by imprisonment in a county jail for no more than 6 months, as specified, or both. The fine for a 2nd conviction is the greater of 20% of the contract price, 20% of the aggregate payments made to, or at the direction of, the unlicensed contractor, or $5,000. In addition, a 3rd or subsequent conviction is punishable by both a fine and imprisonment in a county jail, as specified, and requires that the fine be no less than $5,000 and no more than the greater of $10,000, 20% of the contract price, or 20% of the aggregate payments made to, or at the direction of, the unlicensed contractor.
A person who used the services of an unlicensed contractor is a victim of crime and eligible for restitution for economic losses, regardless of whether that person had knowledge that the contractor was unlicensed.
Amends Sections 7028 and 7028.16 of the CA Business and Professions Code.
Who must be licensed as a contractor? All businesses or individuals who construct or alter any building, highway, road, parking facility or other structure in CA must be licensed by the Contractor's State License Board if the total cost including labor and materials is $500 or more.
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums, and co-ops, rose 10 percent to a seasonally adjusted annual rate of 4.53 million in September from a downwardly revised 4.12 million in August, but remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.
Lawrence Yun, NAR chief economist, said the housing market is in the early stages of recovery. “A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions,” he said.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.35 percent in September from 4.43 percent in August; the rate was 5.06 percent in September 2009.
The national median existing-home price for all housing types was $171,700 in September, which is 2.4 percent below a year ago. Distressed homes accounted for 35 percent of sales in September compared with 34 percent in August; they were 29 percent in September 2009.
NAR President Vicki Cox Golder said opportunities abound in the current market. “A decade ago, mortgage rates were almost double what they are today, and they’re about one-and-a-half percentage points lower than the peak of the housing boom in 2005,” she said. “In addition, home prices are running about 22 percent less than five years ago when they were bid up by the biggest housing rush on record.”
To illustrate the jump in housing affordability, the median monthly mortgage payment for a recently purchased home is several hundred dollars less than it was five years ago. “In fact, the median monthly mortgage payment in many areas is less than people are paying for rent,” Golder said.
Housing affordability conditions today are 60 percentage points higher than during the housing boom, so it has become a very strong buyers’ market, especially for families with long-term plans. “The savings today’s buyers are receiving are not a one-time benefit. Buyers with fixed-rate mortgages will save money every year they are living in their home – this is truly an example of how home ownership builds wealth over the long term,” Golder added.
Total housing inventory at the end of September fell 1.9 percent to 4.04 million existing homes available for sale, which represents a 10.7-month supply at the current sales pace, down from a 12-month supply in August. Raw unsold inventory is 11.7 percent below the record of 4.58 million in July 2008.
“Vacant homes and homes where mortgages have not been paid for an extended number of months need to be cleared from the market as quickly as possible, with a new set of buyers helping the recovery along a healthy path,” Yun said. “Inventory remains elevated and continues to favor buyers over sellers. A normal seasonal decline in inventory is expected through the upcoming months.”
A parallel NAR practitioner survey shows first-time buyers purchased 32 percent of homes in September, almost unchanged from 31 percent in August. Investors were at an 18 percent market share in September, down from 21 percent in August; the balance of purchases were by repeat buyers. All-cash sales were at 29 percent in September compared with 28 percent in August.
Single-family home sales increased 10 percent to a seasonally adjusted annual rate of 3.97 million in September from a pace of 3.61 million in August, but are 19.5 percent below the 4.93 million level in September 2009. The median existing single-family home price was $172,600 in September, down 1.9 percent from a year ago.
Existing condominium and co-op sales rose 9.8 percent to a seasonally adjusted annual rate of 560,000 in September from 510,000 in August, but are 16.2 percent lower than the 668,000-unit level one year ago. The median existing condo price was $165,400 in September, down 6.2 percent from September 2009.
Existing-home sales by region:
Northeast – increased 10.1 percent to an annual pace of 760,000 in September but are 20.8 percent below September 2009. The median price in the Northeast was $239,200, which is 1.4 percent below a year ago.
Midwest – jumped 14.5 percent in September to a level of 950,000 but are 26.4 percent below a year ago. The median price in the Midwest was $139,700, down 5.2 percent from September 2009.
South – sales rose 10.6 percent to an annual pace of 1.77 million in September but are 14.9 percent lower than September 2009. The median price in the South was $149,500, down 2.6 percent from a year ago.
West – increased 5.0 percent to an annual level of 1.05 million in September but are 16.7 percent below a year ago. The median price in the West was $213,600, which is 4.9 percent lower than September 2009.
Source: NAR
5 Steps to Remodeling Done Right Here are five steps to developing a great relationship with a remodeling contractor.
1. Let the contractor know if you are ready to remodel or just kicking the tires. Gary Palmer, a Charlotte, N.C.-based general contractor, says seeking multiple bids is fine, but don’t waste his or her time by letting the bidding process drag on for weeks.
2. Do your homework. Before seeking bids, develop two files. One should include information, including photos, of what you like. The other should include a list of what you don’t like.
3. Listen to the experts. A good contractor can tell you whether the project is feasible and what the pay off will be.
4. Communicate your budget. Let the contractor know up front how much money you intend to spend.
5. Be realistic and patient. Every remodeling project is messy and all of them are going to be frustrating somewhere along the way.
Source: Charlotte Observer, Barbara S. Russell (10/23/2010)
Lead-Safe RemodelingEffective April 22, 2010 remodeling work on homes built before 1978 must be performed only by contractors certified by the U.S. Environmental Protection Agency. Homeowners should assume lead paint is present and only hire certified contractors. Certified remodelers are required to display their EPA-certified certificate to home owners.
Contractors It is a misdemeanor for a person to engage in the business or act in the capacity of a contractor without having a license. This new law increases the penalties for acting as a contractor without a license.
This law makes a first conviction punishable by a fine not exceeding $5,000 or by imprisonment in a county jail for no more than 6 months, as specified, or both. The fine for a 2nd conviction is the greater of 20% of the contract price, 20% of the aggregate payments made to, or at the direction of, the unlicensed contractor, or $5,000. In addition, a 3rd or subsequent conviction is punishable by both a fine and imprisonment in a county jail, as specified, and requires that the fine be no less than $5,000 and no more than the greater of $10,000, 20% of the contract price, or 20% of the aggregate payments made to, or at the direction of, the unlicensed contractor.
A person who used the services of an unlicensed contractor is a victim of crime and eligible for restitution for economic losses, regardless of whether that person had knowledge that the contractor was unlicensed.
Amends Sections 7028 and 7028.16 of the CA Business and Professions Code.
Who must be licensed as a contractor? All businesses or individuals who construct or alter any building, highway, road, parking facility or other structure in CA must be licensed by the Contractor's State License Board if the total cost including labor and materials is $500 or more.
The Silver Lining in the Double Dip Recession
Being faced with significant economic and political uncertainty the United States economy and its participants (that's us) have reacted like turtles, hiding in our shells, awaiting better times.
Clearly we are facing challenging times We have been facing low personal income growth, an increasing unemployment rate, uncertainty in the business climate, and a weak housing market.
In particular the weakness in the housing market is marked in six ways:
Record high home foreclosures that, according to Barclay's Bank, will not peak until 2011. These foreclosed properties will continue to flood the marketplace with inventory
A significant increase in strategic defaults, whereby home values have dropped so much that home owners send in the keys and move out, rather than keep owning an overvalued home.
One statistic claims that nearly 20% of all home mortgages are "underwater" because house values have dropped so significantly
Joblessness and economic uncertainty have reduced the demand for new housing
New home construction starts are at record lows. After a 15% drop in May, housing starts fell another 5% in June to a seasonally adjusted annual rate of 549,000. The Commerce Department estimated it to be the lowest level in eight months.
The oversupply of homes in the marketplace has reduced the value of homes in many states as sellers outnumber buyers.
Commercial Investments face major challenges On the commercial side of the ledger, we find that significant increase in business failures and restructuring is resulting in the loss in demand for commercial space nationwide. This has particularly affected:
Retail centers,
Office buildings
Industrial buildings and flex parks This in turn is:
Reducing the demand for new buildings – now and for the immediate business cycle
Creating challenges for many commercial landlords
Reducing the value of commercial assets
Increasing commercial strategic defaults is making debt refinancing difficult. The loss in rental income and market valuation is creating challenges for refinancing of debt for the investors without enough equity or cash to increase their equity positions Highly leveraged purchases made in the real estate hey-days of 2006 – 2008 are the most at risk. At a recent economic symposium Allen Sinai, economist and founder of Decision Economics, voiced his concern: "The challenge is unique: poor and diminishing growth, a sticky unemployment rate, sky-high deficits, and a sovereign debt that makes us one of the most fiscally irresponsible countries in the world." Even more depressing is that more job losses are in front of us. Governors in many states will have to make tough decisions to cut staff as additional federal funds dry up and tax increases will not be warmly received by the electorate. (Note: Most States in the union are facing budget short falls. At Least 46 States have imposed cuts.)
As states have trouble raising revenues, this will in fact also have a trickle-down effect on counties and cities and other government supported organizations that rely on government funds. This in turn will force those agencies to trim staff.
In Oregon, the governor has already implemented a 9% budget decrease and will be implementing an additional 8% cut in order to help balance the budget. This is in addition to increased corporate taxes and use of reserve funds to balance the budget.
This sounds very foreboding but there is a silver lining for those that have a strong cash position.
The silver lining Many companies have right sized their businesses and are making a profit.
I recently had lunch with a business owner of a construction related firm, who cut half of his staff in order to stay in business. But he is now more optimistic and is looking to add staff to help his marketing efforts and re-grow his business. He expects a slow increase in growth moving forward as demand catches up with supply.
At this point, much of the business employment cutting has been accomplished (with the exception of government agencies). As of July 2010, Oregon's official unemployment rate was down to 10.6% from 11.4% in July of 2009. The Federal unemployment rate has been holding steady at 9.4%. Any cuts made by the government agencies may help the economy get stronger in the future.
Real Estate
Unprecedented low interest rates for home purchases:
30 Yr Fixed as low as 4.25%
15 Yr Fixed as low as 3.75%
These low interest rates will fuel demand to purchase homes as the prices drop to a place where average Oregonians can afford them.
Lower rates for apartment property purchases ( currently around 5% compared to the roughly 6.5% for commercial property purchases)
Increased residential foreclosures mean lowered prices and opportunities for investors to buy homes as rentals
Increased demographic demand for rentals is coming
Significant reductions in Apartment vacancy rates are a reflection of the upcoming increased demand. In The Portland Metro area Vacancy rates dropped from 7% to 3.5% from January of 2010 to September of 2010.
The "silver-lining" flipside to the unemployment picture is that 85 – 90% of Americans are either employed or in school.
SBA financing is available ( at competitive interest rates and with low costs) to help small business owners buy a building for their business
They only have to occupy 51% and can rent the rest of it to a tenant until they grow into it.
Other key market place indicators
Banks are slowly recovering and have the cash they need to loan and generate income, albeit conservatively
Many banks are ending their "pretend and extend" phase and are actively taking back properties and selling them as fast as they can to get them off of their books.
Urban areas will recover faster than rural areas, so the risk is lower in urban areas.
Oregon has the Urban Growth Boundary (UGB) for cities. This means that land values will come back as the recession winds down and the population increases.
If you have money, you have an excellent 6 – 12 month window to look for real estate opportunities in Oregon.
Residentially, we are one of the states with highest foreclosure rate (percentage wise), so there will be opportunities to buy your second home or a couple of investment homes. You can still buy a small home in Bend for $100,000 - $120,000 and many other rural areas around the state. (The Bend area unemployment rate is 17 – 20%, but rentals are showing lowered vacancy rates).
Commercially, there are buildings on the market but, with the exception of SBA loans that require only a 10% down, it is harder to finance commercial purchases unless you have lots of cash.
In my lifetime I have never seen prices this low for residential real estate. There is a market place adjustment occurring, which will reduce the value of residential homes in the near term, but values will go up as jobs and our population increases, especially in Oregon where the UGB limits the amount of land available for growth. Now is the time to invest… and for the turtles among us to start sticking our necks out.
Clearly we are facing challenging times We have been facing low personal income growth, an increasing unemployment rate, uncertainty in the business climate, and a weak housing market.
In particular the weakness in the housing market is marked in six ways:
Record high home foreclosures that, according to Barclay's Bank, will not peak until 2011. These foreclosed properties will continue to flood the marketplace with inventory
A significant increase in strategic defaults, whereby home values have dropped so much that home owners send in the keys and move out, rather than keep owning an overvalued home.
One statistic claims that nearly 20% of all home mortgages are "underwater" because house values have dropped so significantly
Joblessness and economic uncertainty have reduced the demand for new housing
New home construction starts are at record lows. After a 15% drop in May, housing starts fell another 5% in June to a seasonally adjusted annual rate of 549,000. The Commerce Department estimated it to be the lowest level in eight months.
The oversupply of homes in the marketplace has reduced the value of homes in many states as sellers outnumber buyers.
Commercial Investments face major challenges On the commercial side of the ledger, we find that significant increase in business failures and restructuring is resulting in the loss in demand for commercial space nationwide. This has particularly affected:
Retail centers,
Office buildings
Industrial buildings and flex parks This in turn is:
Reducing the demand for new buildings – now and for the immediate business cycle
Creating challenges for many commercial landlords
Reducing the value of commercial assets
Increasing commercial strategic defaults is making debt refinancing difficult. The loss in rental income and market valuation is creating challenges for refinancing of debt for the investors without enough equity or cash to increase their equity positions Highly leveraged purchases made in the real estate hey-days of 2006 – 2008 are the most at risk. At a recent economic symposium Allen Sinai, economist and founder of Decision Economics, voiced his concern: "The challenge is unique: poor and diminishing growth, a sticky unemployment rate, sky-high deficits, and a sovereign debt that makes us one of the most fiscally irresponsible countries in the world." Even more depressing is that more job losses are in front of us. Governors in many states will have to make tough decisions to cut staff as additional federal funds dry up and tax increases will not be warmly received by the electorate. (Note: Most States in the union are facing budget short falls. At Least 46 States have imposed cuts.)
As states have trouble raising revenues, this will in fact also have a trickle-down effect on counties and cities and other government supported organizations that rely on government funds. This in turn will force those agencies to trim staff.
In Oregon, the governor has already implemented a 9% budget decrease and will be implementing an additional 8% cut in order to help balance the budget. This is in addition to increased corporate taxes and use of reserve funds to balance the budget.
This sounds very foreboding but there is a silver lining for those that have a strong cash position.
The silver lining Many companies have right sized their businesses and are making a profit.
I recently had lunch with a business owner of a construction related firm, who cut half of his staff in order to stay in business. But he is now more optimistic and is looking to add staff to help his marketing efforts and re-grow his business. He expects a slow increase in growth moving forward as demand catches up with supply.
At this point, much of the business employment cutting has been accomplished (with the exception of government agencies). As of July 2010, Oregon's official unemployment rate was down to 10.6% from 11.4% in July of 2009. The Federal unemployment rate has been holding steady at 9.4%. Any cuts made by the government agencies may help the economy get stronger in the future.
Real Estate
Unprecedented low interest rates for home purchases:
30 Yr Fixed as low as 4.25%
15 Yr Fixed as low as 3.75%
These low interest rates will fuel demand to purchase homes as the prices drop to a place where average Oregonians can afford them.
Lower rates for apartment property purchases ( currently around 5% compared to the roughly 6.5% for commercial property purchases)
Increased residential foreclosures mean lowered prices and opportunities for investors to buy homes as rentals
Increased demographic demand for rentals is coming
Significant reductions in Apartment vacancy rates are a reflection of the upcoming increased demand. In The Portland Metro area Vacancy rates dropped from 7% to 3.5% from January of 2010 to September of 2010.
The "silver-lining" flipside to the unemployment picture is that 85 – 90% of Americans are either employed or in school.
SBA financing is available ( at competitive interest rates and with low costs) to help small business owners buy a building for their business
They only have to occupy 51% and can rent the rest of it to a tenant until they grow into it.
Other key market place indicators
Banks are slowly recovering and have the cash they need to loan and generate income, albeit conservatively
Many banks are ending their "pretend and extend" phase and are actively taking back properties and selling them as fast as they can to get them off of their books.
Urban areas will recover faster than rural areas, so the risk is lower in urban areas.
Oregon has the Urban Growth Boundary (UGB) for cities. This means that land values will come back as the recession winds down and the population increases.
If you have money, you have an excellent 6 – 12 month window to look for real estate opportunities in Oregon.
Residentially, we are one of the states with highest foreclosure rate (percentage wise), so there will be opportunities to buy your second home or a couple of investment homes. You can still buy a small home in Bend for $100,000 - $120,000 and many other rural areas around the state. (The Bend area unemployment rate is 17 – 20%, but rentals are showing lowered vacancy rates).
Commercially, there are buildings on the market but, with the exception of SBA loans that require only a 10% down, it is harder to finance commercial purchases unless you have lots of cash.
In my lifetime I have never seen prices this low for residential real estate. There is a market place adjustment occurring, which will reduce the value of residential homes in the near term, but values will go up as jobs and our population increases, especially in Oregon where the UGB limits the amount of land available for growth. Now is the time to invest… and for the turtles among us to start sticking our necks out.
Five Tips to Increase Your Home's Appeal
Selling your home can be like a single person trying to get the attention of a prospective date--got to clean up, pour on the charm, and emphasize all those great assets.
However, if you can't get the prospective candidate to even notice you (or, in this case, your home), there sure won't be a date and that goes for the selling of your home, too (no closing date).
I've written a lot about staging homes, adding curb appeal, clearing clutter, even adding subtle fragrances to help put prospective buyers in the mood. When it comes to getting a home noticed, especially in these market conditions, you'll want to pay close attention to get the deal done before the end of the year.
1. Change with the seasons. When you go to stores, one thing you notice is the decor changes to match the time of year. That's by no mistake. The goal is to create a mood, make consumers want to buy more. Psychological and emotional advertising influence buyers all the time. If you put your home on the market in the fall and still have spring decorations around the house, it'll affect buyers. They won't feel quite comfortable. It might not be obvious to them but somehow they're likely to feel that things are “out of place” in this home even if the decor isn't overwhelming. Having out-of-season decor just leaves buyers feeling like the house isn't being well cared for.
2. Make it cozy. One of the easiest ways to make your home cozy is by drawing attention to the fireplace. As the weather turns colder, flaunting your fireplace as a focal point is often a great selling point. You can turn your fireplace into a prominent focal point by placing mirrors, artwork, and vases on the mantel. A popular trend is to place candles near the fireplace. However, rather than using real candles, you might try flameless candles that put out a soft, realistic glow.
3. Crank up the thermostat. A lot of times during open houses, the home is quite cozy because the homeowners turned up the thermostat in preparation for the prospective buyers. But when it comes to routine individual showings, especially when the house has been sitting vacant, buyers can receive a chilly non-welcome which does little to make them feel at home. Setting the thermostat to keep the home at a comfortable temperature may cost a bit more but in the end your home will be more appealing. If the home's temperature is either too cold or hot, buyers won't stick around to explore it.
4. Shine the natural light. Hold your open house during the high daylight hours. Lighting is a big attraction and often helps sell your home better. Have your agent schedule individual showings during the time of day when you know the natural lighting will light up your home. Serious buyers will often come by at different times of the day to see the home in different lighting but put your best foot forward and show your home when you know the natural lighting will favor your home.
5. Play soft ambient music. Soft, non-distracting background music can help ease tension. Often the homebuying experience is stressful. Buyers are pressed for time and cash. They are in a hurry. Selling a home is a psychological experience that goes beyond just finding a place to live. The emotional feeling buyers get when visiting your home will result in the action they take--coming back to see it again, making an offer, or crossing it off their list. Playing peaceful music that doesn't overwhelm them can enhance their mood and make them feel like relaxing for a bit in a comfortable chair in your living room ... allowing them to soak up the positive experience.
Remember the key rule when selling a home, make your home seem like theirs.
However, if you can't get the prospective candidate to even notice you (or, in this case, your home), there sure won't be a date and that goes for the selling of your home, too (no closing date).
I've written a lot about staging homes, adding curb appeal, clearing clutter, even adding subtle fragrances to help put prospective buyers in the mood. When it comes to getting a home noticed, especially in these market conditions, you'll want to pay close attention to get the deal done before the end of the year.
1. Change with the seasons. When you go to stores, one thing you notice is the decor changes to match the time of year. That's by no mistake. The goal is to create a mood, make consumers want to buy more. Psychological and emotional advertising influence buyers all the time. If you put your home on the market in the fall and still have spring decorations around the house, it'll affect buyers. They won't feel quite comfortable. It might not be obvious to them but somehow they're likely to feel that things are “out of place” in this home even if the decor isn't overwhelming. Having out-of-season decor just leaves buyers feeling like the house isn't being well cared for.
2. Make it cozy. One of the easiest ways to make your home cozy is by drawing attention to the fireplace. As the weather turns colder, flaunting your fireplace as a focal point is often a great selling point. You can turn your fireplace into a prominent focal point by placing mirrors, artwork, and vases on the mantel. A popular trend is to place candles near the fireplace. However, rather than using real candles, you might try flameless candles that put out a soft, realistic glow.
3. Crank up the thermostat. A lot of times during open houses, the home is quite cozy because the homeowners turned up the thermostat in preparation for the prospective buyers. But when it comes to routine individual showings, especially when the house has been sitting vacant, buyers can receive a chilly non-welcome which does little to make them feel at home. Setting the thermostat to keep the home at a comfortable temperature may cost a bit more but in the end your home will be more appealing. If the home's temperature is either too cold or hot, buyers won't stick around to explore it.
4. Shine the natural light. Hold your open house during the high daylight hours. Lighting is a big attraction and often helps sell your home better. Have your agent schedule individual showings during the time of day when you know the natural lighting will light up your home. Serious buyers will often come by at different times of the day to see the home in different lighting but put your best foot forward and show your home when you know the natural lighting will favor your home.
5. Play soft ambient music. Soft, non-distracting background music can help ease tension. Often the homebuying experience is stressful. Buyers are pressed for time and cash. They are in a hurry. Selling a home is a psychological experience that goes beyond just finding a place to live. The emotional feeling buyers get when visiting your home will result in the action they take--coming back to see it again, making an offer, or crossing it off their list. Playing peaceful music that doesn't overwhelm them can enhance their mood and make them feel like relaxing for a bit in a comfortable chair in your living room ... allowing them to soak up the positive experience.
Remember the key rule when selling a home, make your home seem like theirs.
Where do People Want to Live?
If you could live in any state, except the one you live in now, what state would you choose to live in?
The Harris Poll has asked this question every year since 1997. While California tops the list of most popular states to live in among Echo Boomers (now ages 18 to 33) and Gen Xers (ages 34 to 45), Hawaii is the top pick for Baby Boomers (ages 46 to 64) and Matures (ages 65 and over). Among Echo Boomers, Hawaii drops out of the top five.
Here are the top-10 states across the age groups:
1. California
2. Hawaii
3. Florida
4. Colorado
5. Arizona
6. North Carolina
7. Oregon
8. Texas
9. New York
10. Washington
Source: Harris Interactive (10/19/2010)
The Harris Poll has asked this question every year since 1997. While California tops the list of most popular states to live in among Echo Boomers (now ages 18 to 33) and Gen Xers (ages 34 to 45), Hawaii is the top pick for Baby Boomers (ages 46 to 64) and Matures (ages 65 and over). Among Echo Boomers, Hawaii drops out of the top five.
Here are the top-10 states across the age groups:
1. California
2. Hawaii
3. Florida
4. Colorado
5. Arizona
6. North Carolina
7. Oregon
8. Texas
9. New York
10. Washington
Source: Harris Interactive (10/19/2010)
Variable or Otherwise: What Has Your Mortgage Committed You To?
Mortgages are expensive things to misunderstand. What you don't know could cost you.
Too many eager home buyers sign up for a mortgage with their sights trained on their dream home instead of on the details in the mortgage contract they are signing. They forget that, nice as everybody is during the real estate transaction, they are all salespeople working for companies that earn profit from selling their products—in this case, mortgages.
Experienced property owners may be no further ahead since, once they have moved in, few settle back with mortgage and insurance documents to fully understand what they signed up for.
The first line of defence for consumers is learning as much as possible about relevant real estate topics before it is important or necessary to make a decision. In these changeable financial times, look for new products and choices in the mortgage world, as in most aspects of real estate, but don't expect them to play by the same rules.
If you take advantage of the educational resources available to you, you're off to a good start. If you wait until a decision must be made and plunge in, you may learn a few expensive lessons. Of more concern is the fact that many property owners and mortgage borrowers never realize how many extra thousands of dollars they have paid—often unnecessarily.
Consumer protection laws exist to protect consumers, but laws only work if consumers understand why and how they need protection. Products and services designed to comply with these laws should have explanations of rights and responsibilities incorporated in them, but if consumers don't read the fine print and ask questions for more detail, it's all just so many words.
Often the jobs of real estate and mortgage professionals seem easy to consumers because they don't understand the complexity and liability these professionals wade through in each transaction. Previous columns have introduced readers to layers of this complexity. Relevant professional organizations usually offer details on the benefits of working with professionals so Google™ away.
As new products come on the market, they are not automatically as consumer-friendly as they are portrayed. Some are created to fall under categories not covered by existing consumer protection. They're still legal, but the differences are not necessarily readily apparent to consumers.
Can you see what you might misunderstand?
For mortgages with blended monthly payments of principal and interest, the law limits the frequency of interest compounding to annually or semi-annually. Mortgages outside this category, like variable rate mortgages or collateral mortgages, do not fall under this restriction, so monthly compounding would be allowable. Increased frequency of compounding means more interest is paid by the borrower. How frequently is the interest on your variable mortgage compounded?
Lenders offer a range of repayment plans, marketed to attract business by making life sound easier and cheaper to consumers. That's business. Along with these variations on traditional mortgages, are those that reduce the choices open to consumers while seeming to increase flexibility. For example, mortgages are contracts set up on two time-frames:
The amortization period which is the financial calculation of how long—usually 25 years—it will take to completely pay the debt of principal and accrued interest;
The term which is the period that the interest rate and related repayment terms are set, usually 3 to 5 years or longer.
Opportunities to extend the amortization period sound great because they lower monthly payments. This flexibility also increases the amount of interest paid on the mortgage. Since paying off a mortgage may mean paying double or triple the amount of money initially borrowed, how much more can the cost of borrowing increase before you decide this mortgage is too expensive for you?
Once the term is set, even if interest rates go down, you'll pay at that agreed percentage for the term. When rates are on the rise, locking in for long terms sounds smart. What options does your mortgage contact allow you should interest rates drop below your current mortgage rate?
Borrowing plans that allow you to take some money now and more later can limit your borrowing choices in the future. If the mortgage, whatever form it takes or label it carries, is initially set up for a large amount, but you only take some of that at first, that large amount may appear on title. This means, if you want to, or must, borrow from a different lender, you may find the existing mortgage expressed relative to the large amount makes you a less than attractive borrower to the second lender. Ask how the staged mortgage will appear on title, or be registered, and what your choices will be if you want to switch lenders before the entire initial amount is borrowed.
If your mortgage comes up for renewal next year, start your mortgage education now. So many lenders have implemented plans to attract renewing borrowers that you might discover benefits in changing lenders. Before you shop around, ask your lender to review your mortgage contract with you and explain what your choices are. Deciding not to learn how the largest single debt you'll hold works could be an expensive decision.
All this is fine when you understand what you are signing. My motto of "Consumer Be Aware" encourages you to learn ahead of need. "Buyer Beware" is a before-you-sign alarm that may be too late—and expensive.
Too many eager home buyers sign up for a mortgage with their sights trained on their dream home instead of on the details in the mortgage contract they are signing. They forget that, nice as everybody is during the real estate transaction, they are all salespeople working for companies that earn profit from selling their products—in this case, mortgages.
Experienced property owners may be no further ahead since, once they have moved in, few settle back with mortgage and insurance documents to fully understand what they signed up for.
The first line of defence for consumers is learning as much as possible about relevant real estate topics before it is important or necessary to make a decision. In these changeable financial times, look for new products and choices in the mortgage world, as in most aspects of real estate, but don't expect them to play by the same rules.
If you take advantage of the educational resources available to you, you're off to a good start. If you wait until a decision must be made and plunge in, you may learn a few expensive lessons. Of more concern is the fact that many property owners and mortgage borrowers never realize how many extra thousands of dollars they have paid—often unnecessarily.
Consumer protection laws exist to protect consumers, but laws only work if consumers understand why and how they need protection. Products and services designed to comply with these laws should have explanations of rights and responsibilities incorporated in them, but if consumers don't read the fine print and ask questions for more detail, it's all just so many words.
Often the jobs of real estate and mortgage professionals seem easy to consumers because they don't understand the complexity and liability these professionals wade through in each transaction. Previous columns have introduced readers to layers of this complexity. Relevant professional organizations usually offer details on the benefits of working with professionals so Google™ away.
As new products come on the market, they are not automatically as consumer-friendly as they are portrayed. Some are created to fall under categories not covered by existing consumer protection. They're still legal, but the differences are not necessarily readily apparent to consumers.
Can you see what you might misunderstand?
For mortgages with blended monthly payments of principal and interest, the law limits the frequency of interest compounding to annually or semi-annually. Mortgages outside this category, like variable rate mortgages or collateral mortgages, do not fall under this restriction, so monthly compounding would be allowable. Increased frequency of compounding means more interest is paid by the borrower. How frequently is the interest on your variable mortgage compounded?
Lenders offer a range of repayment plans, marketed to attract business by making life sound easier and cheaper to consumers. That's business. Along with these variations on traditional mortgages, are those that reduce the choices open to consumers while seeming to increase flexibility. For example, mortgages are contracts set up on two time-frames:
The amortization period which is the financial calculation of how long—usually 25 years—it will take to completely pay the debt of principal and accrued interest;
The term which is the period that the interest rate and related repayment terms are set, usually 3 to 5 years or longer.
Opportunities to extend the amortization period sound great because they lower monthly payments. This flexibility also increases the amount of interest paid on the mortgage. Since paying off a mortgage may mean paying double or triple the amount of money initially borrowed, how much more can the cost of borrowing increase before you decide this mortgage is too expensive for you?
Once the term is set, even if interest rates go down, you'll pay at that agreed percentage for the term. When rates are on the rise, locking in for long terms sounds smart. What options does your mortgage contact allow you should interest rates drop below your current mortgage rate?
Borrowing plans that allow you to take some money now and more later can limit your borrowing choices in the future. If the mortgage, whatever form it takes or label it carries, is initially set up for a large amount, but you only take some of that at first, that large amount may appear on title. This means, if you want to, or must, borrow from a different lender, you may find the existing mortgage expressed relative to the large amount makes you a less than attractive borrower to the second lender. Ask how the staged mortgage will appear on title, or be registered, and what your choices will be if you want to switch lenders before the entire initial amount is borrowed.
If your mortgage comes up for renewal next year, start your mortgage education now. So many lenders have implemented plans to attract renewing borrowers that you might discover benefits in changing lenders. Before you shop around, ask your lender to review your mortgage contract with you and explain what your choices are. Deciding not to learn how the largest single debt you'll hold works could be an expensive decision.
All this is fine when you understand what you are signing. My motto of "Consumer Be Aware" encourages you to learn ahead of need. "Buyer Beware" is a before-you-sign alarm that may be too late—and expensive.
Survey Reveals Buying Still Appeals
If you think buying a house still makes sense even in today's economy, welcome to the club!
A recent National Association of Realtors survey revealed that nearly eight out of ten believe buying a home is still a good financial decision.
The eighth annual Housing Opportunity Pulse Survey found that despite job security concerns being the highest reported in the last eight years, buying is still on the minds of Americans.
More than two-thirds of those surveyed, 68 percent, still think that "now is a good time to buy a home." And though cost remains an impediment for many buyers, the majority of respondents worry about the drop in home values. This is happening all across the nation as neighborhoods combat the effects of rampant foreclosures.
Over half surveyed say that foreclosures are a moderate to big problem in their area. And recent statistics from Zillow.com show that foreclosures are still on the rise. Last year's survey indicated that the blame for foreclosures was on those who bought homes they couldn't afford. That focus and blame has now shifted to the ailing job market, with layoffs and unemployment
There is concern, as well, over banks and lending standards. The majority of those surveyed worry that "banks have made it too hard to qualify for a home mortgage loan."
Are there new buyers waiting to enter the housing market? The survey reveals that 39 percent of renters feel that owning a home at some point in the future is a high priority. And 24 percent rank it as a moderate priority. That could be good news for a market desperate for buyers.
A recent National Association of Realtors survey revealed that nearly eight out of ten believe buying a home is still a good financial decision.
The eighth annual Housing Opportunity Pulse Survey found that despite job security concerns being the highest reported in the last eight years, buying is still on the minds of Americans.
More than two-thirds of those surveyed, 68 percent, still think that "now is a good time to buy a home." And though cost remains an impediment for many buyers, the majority of respondents worry about the drop in home values. This is happening all across the nation as neighborhoods combat the effects of rampant foreclosures.
Over half surveyed say that foreclosures are a moderate to big problem in their area. And recent statistics from Zillow.com show that foreclosures are still on the rise. Last year's survey indicated that the blame for foreclosures was on those who bought homes they couldn't afford. That focus and blame has now shifted to the ailing job market, with layoffs and unemployment
There is concern, as well, over banks and lending standards. The majority of those surveyed worry that "banks have made it too hard to qualify for a home mortgage loan."
Are there new buyers waiting to enter the housing market? The survey reveals that 39 percent of renters feel that owning a home at some point in the future is a high priority. And 24 percent rank it as a moderate priority. That could be good news for a market desperate for buyers.
Short Sale
The goal of a short sale is to obtain a full and complete release of all liability from the lender(s) and an acknowledgement by the lender(s) that any loan obligations have been paid in full or fully satisfied. Releases with these terms were something that lenders were providing in the last economic downturn in the mid-1990s. In this economic downturn, releases with these terms have been few and far between. Most lenders today, if they approve a short sale, do so with language in an approval letter or term sheet that either expressly reserves the right to pursue the seller for any shortfall or is silent on the issue, therefore leaving the seller potentially exposed to such a claim. There are several factors that explain why this is taking place.
First, the magnitude of this economic downturn is far more significant than the last one in the 1990s. Second, the loan products utilized in the last eight to ten years and the risks inherent in them are far different. These loan products (stated income, no documentation, option at ARMs, etc.) have demonstrated that they are capable of abuse. At times, this abuse translates into misrepresentations being made to the lender(s) regarding, among other things, the income of the seller/borrower, bank accounts with inflated balances, or accounts that the seller has never maintained. Many sellers don’t even realize that this erroneous information has been submitted to the lender(s) on their behalf, because many sellers were asked to sign loan applications in blank.
Another trend revealed in this last economic downturn involved the investor/purchaser. Many such investors represented, knowingly or otherwise, that the property that they were purchasing was to be owner occupied in order to obtain a more favorable loan rate. However, many of these purchases were actually intended to be rentals rather than owner occupied.
All of the foregoing has created a much different economic landscape than that of the 1990s. Lenders are more in tune with these issues and recognize that there may be an opportunity to pursue seller/borrower(s) who have made misrepresentations of these kinds. Reserving their rights against a short sale seller for any shortfall is a way of preserving their claims based on any of the foregoing. Lastly, given the magnitude of this economic downturn and the fractionalization and securitization of many of these loans, many lenders may just be unwilling to absorb the losses that they are otherwise facing.
Irrespective of the motivation, these issues raise a number of concerns for a potential short sale seller. These concerns, and several others outlined below, should be evaluated by a short sale seller before any contact takes place with the lender(s):
First, ask the seller “is there any inaccurate or untruthful information contained in sellers loan application or any other documentation submitted to the lender(s) or signed by seller?” It’s necessary for the Seller to review their loan application, the occupancy provision of their deed of trust, and any occupancy rider to the deed of trust. This potential must be evaluated before any short sale package is submitted to the lender(s). If not, then Seller is providing the lender(s) with the potential evidence to demonstrate that misrepresentations or untruthful statements were made to the lender(s) and induced the lender(s) to make the loan.
Second, “Are the loans recourse or non-recourse?”
Third, “What are the tax consequences of a short sale versus letting the property go into foreclosure?”
Fourth, “Is the Seller candidate for any loan modification or any other relief under a federal program?”
Fifth, “Is the Seller a candidate for bankruptcy?”
Sixth, “If multiple loans, are the junior loans recourse ones?” If so, what is the amount of that loan and what is the likelihood of that lender accepting a significantly reduced amount based on the approval terms of the senior lender (typically, anywhere from $3,000.00 to $8,000.00)?
Also, “What is the impact of these various decisions on the Sellers credit?”
Finally, “What is the Sellers exit strategy from this property?” In other words, “Where is the Seller going to be living? Will They need credit in order to be able to complete their next move, and does the seller want to accomplish that move before stopping any payments on their loan?”
All of these issues should be evaluated before making the decision to embark on a short sale. Many of the answers will be in conflict with each other. Unfortunately, a short sale today typically results in a seller choosing to swallow the least unpleasant of several distasteful medicines. The key is recognizing that even if you have worked through all of the foregoing issues, in today’s short sale environment, you are still going to be faced with a lender who typically is unwilling to release you from all claims and liabilities related to the note and deed of trust. The contract that you sign must contain language which gives you the right to evaluate the approval letter/term sheet that the lender provides. That review should take place with an attorney. The choices that the seller faces at that time are to accept the terms set forth by the lender(s), attempt to negotiate with the lender(s), or cancel the transaction. The decision that each seller makes ultimately turns on a balance of all of the foregoing factors and the status of any pending foreclosure. The key is recognizing what the issues are, evaluating them, and giving the seller flexibility to make the best decision.
First, the magnitude of this economic downturn is far more significant than the last one in the 1990s. Second, the loan products utilized in the last eight to ten years and the risks inherent in them are far different. These loan products (stated income, no documentation, option at ARMs, etc.) have demonstrated that they are capable of abuse. At times, this abuse translates into misrepresentations being made to the lender(s) regarding, among other things, the income of the seller/borrower, bank accounts with inflated balances, or accounts that the seller has never maintained. Many sellers don’t even realize that this erroneous information has been submitted to the lender(s) on their behalf, because many sellers were asked to sign loan applications in blank.
Another trend revealed in this last economic downturn involved the investor/purchaser. Many such investors represented, knowingly or otherwise, that the property that they were purchasing was to be owner occupied in order to obtain a more favorable loan rate. However, many of these purchases were actually intended to be rentals rather than owner occupied.
All of the foregoing has created a much different economic landscape than that of the 1990s. Lenders are more in tune with these issues and recognize that there may be an opportunity to pursue seller/borrower(s) who have made misrepresentations of these kinds. Reserving their rights against a short sale seller for any shortfall is a way of preserving their claims based on any of the foregoing. Lastly, given the magnitude of this economic downturn and the fractionalization and securitization of many of these loans, many lenders may just be unwilling to absorb the losses that they are otherwise facing.
Irrespective of the motivation, these issues raise a number of concerns for a potential short sale seller. These concerns, and several others outlined below, should be evaluated by a short sale seller before any contact takes place with the lender(s):
First, ask the seller “is there any inaccurate or untruthful information contained in sellers loan application or any other documentation submitted to the lender(s) or signed by seller?” It’s necessary for the Seller to review their loan application, the occupancy provision of their deed of trust, and any occupancy rider to the deed of trust. This potential must be evaluated before any short sale package is submitted to the lender(s). If not, then Seller is providing the lender(s) with the potential evidence to demonstrate that misrepresentations or untruthful statements were made to the lender(s) and induced the lender(s) to make the loan.
Second, “Are the loans recourse or non-recourse?”
Third, “What are the tax consequences of a short sale versus letting the property go into foreclosure?”
Fourth, “Is the Seller candidate for any loan modification or any other relief under a federal program?”
Fifth, “Is the Seller a candidate for bankruptcy?”
Sixth, “If multiple loans, are the junior loans recourse ones?” If so, what is the amount of that loan and what is the likelihood of that lender accepting a significantly reduced amount based on the approval terms of the senior lender (typically, anywhere from $3,000.00 to $8,000.00)?
Also, “What is the impact of these various decisions on the Sellers credit?”
Finally, “What is the Sellers exit strategy from this property?” In other words, “Where is the Seller going to be living? Will They need credit in order to be able to complete their next move, and does the seller want to accomplish that move before stopping any payments on their loan?”
All of these issues should be evaluated before making the decision to embark on a short sale. Many of the answers will be in conflict with each other. Unfortunately, a short sale today typically results in a seller choosing to swallow the least unpleasant of several distasteful medicines. The key is recognizing that even if you have worked through all of the foregoing issues, in today’s short sale environment, you are still going to be faced with a lender who typically is unwilling to release you from all claims and liabilities related to the note and deed of trust. The contract that you sign must contain language which gives you the right to evaluate the approval letter/term sheet that the lender provides. That review should take place with an attorney. The choices that the seller faces at that time are to accept the terms set forth by the lender(s), attempt to negotiate with the lender(s), or cancel the transaction. The decision that each seller makes ultimately turns on a balance of all of the foregoing factors and the status of any pending foreclosure. The key is recognizing what the issues are, evaluating them, and giving the seller flexibility to make the best decision.
Three Scenarios From the Foreclosure Freeze
Gregor Watson, a principal with McKinley Partners, a development company that buys foreclosed homes, told listeners on a Citi home-builder conference call that there were three potential outcomes from the foreclosure fiasco:
· Best case: These are technical issues that can be resolved quickly so the foreclosure process can continue and the glut of foreclosed homes is cleared from the market.
· Medium case: There is significant litigation that takes years to sort out and this slows the troubled housing market even further.
· Worst case: The market grinds to a halt and title insurers refuse to insure mortgages involving foreclosed homes. “It would be devastating for the resale market if this robo-signer issue spiraled out of control,” Watson says.
Source: The Wall Street Journal, Dawn Wotapka (10/12/2010)
· Best case: These are technical issues that can be resolved quickly so the foreclosure process can continue and the glut of foreclosed homes is cleared from the market.
· Medium case: There is significant litigation that takes years to sort out and this slows the troubled housing market even further.
· Worst case: The market grinds to a halt and title insurers refuse to insure mortgages involving foreclosed homes. “It would be devastating for the resale market if this robo-signer issue spiraled out of control,” Watson says.
Source: The Wall Street Journal, Dawn Wotapka (10/12/2010)
Real Estate Outlook: Pending Sales Rise
The recent recession and slow recovery has wreaked havoc on businesses and households, alike. And according to Federal Reserve Chairman, Ben Bernanke, the government has felt "severe budgetary pressures" as well.
He notes that "for now, the budget deficit has stabilized and, so long as the economy and financial markets continue to recover, it should narrow relative to national income over the next few years."
There is progress being made across the nation. Pending sales increased for the second consecutive month, that according to the National Association of Realtors and their latest Pending Home Sales Index.
Pending sales rose 4.3 percent, and were up in all regions except the Northeast, which saw a 2.9 percent decline. Lawrence Yun, NAR chief economist, said the latest data is consistent with a gradual improvement in home sales in upcoming months. "Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market," he said. "However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence."
Yun cautioned, however, that any sudden rise in interest rates could slow a recovery. It all has to do with inflation. If we start to see higher inflation, this could translate into higher interest rates. For now, however, affordability is near an all-time high.
In foreclosure news this week, we look to eRate's latest report showing that nearly one in every four homes sold in the second quarter of this year were in some state of foreclosure.
Additionally, these homes sold for 26 percent or more below the average sales price compared to properties not in foreclosure. The largest price deficit was seen in Ohio, which saw foreclosure sales prices, on average, at 43 percent of normal sale properties.
CoreLogic, the leader in innovative analytics, also predicted that the additional inventory of foreclosed homes on the market could likely double the time it takes a home to sell, from the current 11-month average.
"Given that the tax credit simply pulled demand forward, the distressed share is expected to rise … during the fall, when non-distressed seasonal sales begin to decline," analysts said.
The International Monetary Fund, or IMF, reports that "the most likely prospect for the U.S. economy is for a continued but slow recovery, with growth far weaker than in previous recoveries, considering the depth of the recession.
In the meantime, let's keep an eye on interest rates. Fed Chairman Bernanke gives the warning that "in the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth."
He notes that "for now, the budget deficit has stabilized and, so long as the economy and financial markets continue to recover, it should narrow relative to national income over the next few years."
There is progress being made across the nation. Pending sales increased for the second consecutive month, that according to the National Association of Realtors and their latest Pending Home Sales Index.
Pending sales rose 4.3 percent, and were up in all regions except the Northeast, which saw a 2.9 percent decline. Lawrence Yun, NAR chief economist, said the latest data is consistent with a gradual improvement in home sales in upcoming months. "Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market," he said. "However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence."
Yun cautioned, however, that any sudden rise in interest rates could slow a recovery. It all has to do with inflation. If we start to see higher inflation, this could translate into higher interest rates. For now, however, affordability is near an all-time high.
In foreclosure news this week, we look to eRate's latest report showing that nearly one in every four homes sold in the second quarter of this year were in some state of foreclosure.
Additionally, these homes sold for 26 percent or more below the average sales price compared to properties not in foreclosure. The largest price deficit was seen in Ohio, which saw foreclosure sales prices, on average, at 43 percent of normal sale properties.
CoreLogic, the leader in innovative analytics, also predicted that the additional inventory of foreclosed homes on the market could likely double the time it takes a home to sell, from the current 11-month average.
"Given that the tax credit simply pulled demand forward, the distressed share is expected to rise … during the fall, when non-distressed seasonal sales begin to decline," analysts said.
The International Monetary Fund, or IMF, reports that "the most likely prospect for the U.S. economy is for a continued but slow recovery, with growth far weaker than in previous recoveries, considering the depth of the recession.
In the meantime, let's keep an eye on interest rates. Fed Chairman Bernanke gives the warning that "in the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth."
American Dream Attracting More Foreigners
They comprise only a small share of homebuyers in the U.S., but more and more foreign buyers are coming to America for the homeownership piece of the dream.
More than a quarter of Realtors, 28 percent, reported working with at least one international client in the past year, up from 23 percent during the previous Profile of International Home Buying Activity.
The recently released 2010 study, which queried Realtors for a year ending in March 2010, found that 18 percent of all Realtors were estimated to have completed at least one international sale, compared to 12 percent last year.
Foreigners invested $41 billion in homes in the U.S. during the period, 4 percent of the total $907 billion market. Adding recent immigrants, or temporary visa holders, pushed the total to $66 billion, or 7 percent of the market according to the report.
A stronger dollar, desirable U.S. property and the slow, but emerging economic recovery are seen as factors in the growing demand for an American home.
Low mortgage rates haven't hurt.
"While all real estate in the U.S. is local, the same is not true for property owners," quipped NAR President Vicki Cox Golder, owner of Vicki L. Cox Real Estate in Tucson, AZ.
"The U.S. continues to be a top destination for international buyers from all over the world. Foreign buyers understand the value of owning a home in this country," she added.
But not all U.S. real estate markets are created equal in the eyes of foreign buyers.
The survey found foreigners buying property in 39 states, but a bit more than half were in just four states: Arizona, California, Florida and Texas. Except for Texas, they are all states that were hotbed boomtowns during the last big boom.
By larger regions, foreign buyers favored the South (45 percent), over the West (32 percent), the Midwest (13 percent) and the Northeast (10 percent).
The buyers came from 53 countries, but the largest number was from just across the borders, Canada, at 23 percent and Mexico at 10 percent. The United Kingdom added 9 percent; China (including Hong Kong), 8 percent; Germany together with France, 7 percent; and India, 5 percent, according to the NAR survey.
More than one in three foreign buyers weren't closers. Thirty four percent had financing problems, often because tight fisted lenders weren't willing to lend to those without Social Security numbers.
But money talks. Among those who did close, 55 percent paid cash, compared to only 8 percent of U.S. buyers coming to the table with a full stake.
Other findings:
The median price paid by international buyers was in the neighborhood of $219,400 during the 2009 to 2010 period. By contrast, the overall median price for all existing home sales was $173,000 during the same period. However, nearly half the foreign buyers, 46 percent, paid $200,000 or less during the period.
Most foreign buyers, 66 percent, purchased a detached single-family home, compared to 23 percent buying a condo, 8 percent a townhouse and 3 percent commercial property.
Fifty percent said they bought the property to live in as their primary residence, 22 percent as a vacation home; 14 percent as an investment and 14 percent as both an investment and vacation home.
Suburban areas were most popular, chosen 50 percent of the time over urban areas (27 percent), resort areas (14 percent), and rural or small town areas (9 percent).
More than a quarter of Realtors, 28 percent, reported working with at least one international client in the past year, up from 23 percent during the previous Profile of International Home Buying Activity.
The recently released 2010 study, which queried Realtors for a year ending in March 2010, found that 18 percent of all Realtors were estimated to have completed at least one international sale, compared to 12 percent last year.
Foreigners invested $41 billion in homes in the U.S. during the period, 4 percent of the total $907 billion market. Adding recent immigrants, or temporary visa holders, pushed the total to $66 billion, or 7 percent of the market according to the report.
A stronger dollar, desirable U.S. property and the slow, but emerging economic recovery are seen as factors in the growing demand for an American home.
Low mortgage rates haven't hurt.
"While all real estate in the U.S. is local, the same is not true for property owners," quipped NAR President Vicki Cox Golder, owner of Vicki L. Cox Real Estate in Tucson, AZ.
"The U.S. continues to be a top destination for international buyers from all over the world. Foreign buyers understand the value of owning a home in this country," she added.
But not all U.S. real estate markets are created equal in the eyes of foreign buyers.
The survey found foreigners buying property in 39 states, but a bit more than half were in just four states: Arizona, California, Florida and Texas. Except for Texas, they are all states that were hotbed boomtowns during the last big boom.
By larger regions, foreign buyers favored the South (45 percent), over the West (32 percent), the Midwest (13 percent) and the Northeast (10 percent).
The buyers came from 53 countries, but the largest number was from just across the borders, Canada, at 23 percent and Mexico at 10 percent. The United Kingdom added 9 percent; China (including Hong Kong), 8 percent; Germany together with France, 7 percent; and India, 5 percent, according to the NAR survey.
More than one in three foreign buyers weren't closers. Thirty four percent had financing problems, often because tight fisted lenders weren't willing to lend to those without Social Security numbers.
But money talks. Among those who did close, 55 percent paid cash, compared to only 8 percent of U.S. buyers coming to the table with a full stake.
Other findings:
The median price paid by international buyers was in the neighborhood of $219,400 during the 2009 to 2010 period. By contrast, the overall median price for all existing home sales was $173,000 during the same period. However, nearly half the foreign buyers, 46 percent, paid $200,000 or less during the period.
Most foreign buyers, 66 percent, purchased a detached single-family home, compared to 23 percent buying a condo, 8 percent a townhouse and 3 percent commercial property.
Fifty percent said they bought the property to live in as their primary residence, 22 percent as a vacation home; 14 percent as an investment and 14 percent as both an investment and vacation home.
Suburban areas were most popular, chosen 50 percent of the time over urban areas (27 percent), resort areas (14 percent), and rural or small town areas (9 percent).
Foreclosures On Auto-Pilot?
The recent news of "robo-signing" (signing off on foreclosures without reviewing and verifying the information in the documents) has chilled the rapid pace of foreclosures... at least for now.
JPMorgan Chase has frozen foreclosures in about half the country due to the paperwork fiasco.
"It didn't surprise me. You're talking about foreclosure mills that run thousands of foreclosures a month; how can the attorney filing on behalf of them have personal knowledge of all those files," says attorney and educator, Lance Churchill, President of FrontlineSeminars.com.
It's being reported that up to 56,000 foreclosures are affected. An employee for JPMorgan Chase said in a deposition that her team signed off on some 18,000 foreclosure documents per month, yet those loan files and reports were not reviewed, according to MarketWatch.
MarketWatch also reports that at GMAC, as many as 500 foreclosure affidavits per day were signed by a professional signer without reviewing the files or having his signatures notarized.
Real estate finance professor Susan Wachter from Wharton School at the University of Pennsylvania, told MarketPlace's Bob Moon, that this may buy homeowners who are facing foreclosure some precious time.
"That's the beginning and the end. One has to document that one has ownership before one can take possession," says Wachter.
That extra time may afford homeowners the opportunity to actually sell their home rather than have it foreclosed. But in the end, Churchill says, "The bottom line is I think it may be hard to overturn a lot of the foreclosures."
What does this do to the foreclosure market for buyers?
"For the buyers of these properties, there shouldn't be any problem," says Churchill.
But he says it depends on where you purchase them, "If I as an investor bought a foreclosure at an auction and it turned out it's a robo-signing type situation, I shouldn't have any problem or suffer any consequences from it because virtually all state laws provide that if you're a good faith purchaser for value at the auction, you get good title. If there's a screw up where the lender didn't protect the borrower or didn't do something right, that's a lawsuit between the two of them now," says Churchill.
But he does offer this advice about buying foreclosures.
"A new thing that has come into play is the federal government last year passed this Protecting Tenants at Foreclosure Act. If there is a tenant in the property that's foreclosed on [that tenant] can stay for the balance of the lease. So if you buy a property that's occupied, if you don't know whether it's the owner or a tenant that's occupying it, you could get in trouble," says Churchill.
Churchill says if the property is occupied by the owners, they have to leave the property fairly quickly or are evicted. "But because of this new federal law, [tenants] are guaranteed to stay at least 90 days under the federal law and if they have a long-term lease (two-year lease), they can stay for the balance of the lease."
He points out that a tenant does have to make rent payments. "But if you intended to move in to that [property] or flip it, you're going to be stuck with it or you have to figure out a way to buy out the tenant," says Churchill.
As for the robo-signing mess, industry experts expect to see more companies freezing foreclosures due to flawed paperwork at least until further reviews are made.
JPMorgan Chase has frozen foreclosures in about half the country due to the paperwork fiasco.
"It didn't surprise me. You're talking about foreclosure mills that run thousands of foreclosures a month; how can the attorney filing on behalf of them have personal knowledge of all those files," says attorney and educator, Lance Churchill, President of FrontlineSeminars.com.
It's being reported that up to 56,000 foreclosures are affected. An employee for JPMorgan Chase said in a deposition that her team signed off on some 18,000 foreclosure documents per month, yet those loan files and reports were not reviewed, according to MarketWatch.
MarketWatch also reports that at GMAC, as many as 500 foreclosure affidavits per day were signed by a professional signer without reviewing the files or having his signatures notarized.
Real estate finance professor Susan Wachter from Wharton School at the University of Pennsylvania, told MarketPlace's Bob Moon, that this may buy homeowners who are facing foreclosure some precious time.
"That's the beginning and the end. One has to document that one has ownership before one can take possession," says Wachter.
That extra time may afford homeowners the opportunity to actually sell their home rather than have it foreclosed. But in the end, Churchill says, "The bottom line is I think it may be hard to overturn a lot of the foreclosures."
What does this do to the foreclosure market for buyers?
"For the buyers of these properties, there shouldn't be any problem," says Churchill.
But he says it depends on where you purchase them, "If I as an investor bought a foreclosure at an auction and it turned out it's a robo-signing type situation, I shouldn't have any problem or suffer any consequences from it because virtually all state laws provide that if you're a good faith purchaser for value at the auction, you get good title. If there's a screw up where the lender didn't protect the borrower or didn't do something right, that's a lawsuit between the two of them now," says Churchill.
But he does offer this advice about buying foreclosures.
"A new thing that has come into play is the federal government last year passed this Protecting Tenants at Foreclosure Act. If there is a tenant in the property that's foreclosed on [that tenant] can stay for the balance of the lease. So if you buy a property that's occupied, if you don't know whether it's the owner or a tenant that's occupying it, you could get in trouble," says Churchill.
Churchill says if the property is occupied by the owners, they have to leave the property fairly quickly or are evicted. "But because of this new federal law, [tenants] are guaranteed to stay at least 90 days under the federal law and if they have a long-term lease (two-year lease), they can stay for the balance of the lease."
He points out that a tenant does have to make rent payments. "But if you intended to move in to that [property] or flip it, you're going to be stuck with it or you have to figure out a way to buy out the tenant," says Churchill.
As for the robo-signing mess, industry experts expect to see more companies freezing foreclosures due to flawed paperwork at least until further reviews are made.
Where the Smart Folks Live
The better educated the population, the higher the salaries. So choosing to live where the smart people do can help ensure that someone’s income is also above average.
Here are the metro areas that the most- and least-educated call home:
Metro areas with the highest percentage of residents with a college degree:
1. Washington, D.C., 47.3 percent
2. San Francisco, 43.5 percent
3. San Jose, Calif., 43.2 percent
4. (tie) Raleigh, N.C. 42.2 percent
4. (tie) Boston, 42.2 percent
6. Austin, Texas, 38.7 percent
7. (tie) Minneapolis, 37.6 percent
7. (tie) Denver, 37.6 percent
9. Seattle, 37.4 percent10. New York, 35.6 percent
Metro areas with the lowest percentage of residents with a college degree:
1. Riverside, Calif., 19.
2 percent2. Las Vegas, 21.3 percent
3. Memphis, Tenn., 24.2 percent
4. Tampa, Fla., 24.6 percent
5. San Antonio, Texas, 24.8 percent
6. Louisville, Ky., 24.9 percent
7. New Orleans, 26.2 percent
8. Detroit, 26.3 percent
9. Orlando, Fla., 26.6 percent
10. Cleveland, 26.9 percent
Source: CNNMoney.com, Les Christie (10/01/2010)
Here are the metro areas that the most- and least-educated call home:
Metro areas with the highest percentage of residents with a college degree:
1. Washington, D.C., 47.3 percent
2. San Francisco, 43.5 percent
3. San Jose, Calif., 43.2 percent
4. (tie) Raleigh, N.C. 42.2 percent
4. (tie) Boston, 42.2 percent
6. Austin, Texas, 38.7 percent
7. (tie) Minneapolis, 37.6 percent
7. (tie) Denver, 37.6 percent
9. Seattle, 37.4 percent10. New York, 35.6 percent
Metro areas with the lowest percentage of residents with a college degree:
1. Riverside, Calif., 19.
2 percent2. Las Vegas, 21.3 percent
3. Memphis, Tenn., 24.2 percent
4. Tampa, Fla., 24.6 percent
5. San Antonio, Texas, 24.8 percent
6. Louisville, Ky., 24.9 percent
7. New Orleans, 26.2 percent
8. Detroit, 26.3 percent
9. Orlando, Fla., 26.6 percent
10. Cleveland, 26.9 percent
Source: CNNMoney.com, Les Christie (10/01/2010)
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