Which House Wins the Gold Medal?

Winning House 

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If you are a buyer the correct answer (simple version) is the one that gives you the most bang for your buck.  Based on what you wanted and needed (location, school district, price range, number of bedrooms, number of covered parking spaces, etc.)  You would first sit down and figure out what was it you needed (that you could afford).  Then you go shopping.  You want to only look at those homes that meet your specifications with regard to price range, and that have all (or at least a majority) of the features you really have to have. 

There are few “perfect homes” and there are usually going to be concessions.  Few get everything they wanted.  But most won’t settle unless they get most of what they wanted.  In this market they don’t have to.  So the buyer goes shopping and looking over the relevant properties in the area they want to live in they pick the one that gives them (when compared to all the others they could have purchased) the nicest house for the least amount of money.

This is the system in use by home buyers today.  It was the same system used by home buyers when I entered the business in 1978.  I suspect it was the same system in use in 1958, as well.  I am very confident it will still be the one used in 2058.  Which one gives me the most for the least?

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If you are a home seller you have a huge advantage over the athletes who compete in the Olympics: you don’t have to beat out every other home seller around in order for you to completely win.  All you have to do is to know (or hire someone who does) where the “water line” currently is for a house like yours.  Fishing with your bait out of water makes little sense, just as pricing your home so low that you wind up leaving money on the table that could have been yours.

No house is the “right house” for everyone.  But any house – properly priced and properly marketed – can be the right house for someone.

The Homeowner Rescue Bill Rescues Fannie and Freddie Investors.

The Homeowner Rescue Bill Rescues Fannie and Freddie Investors.  I don’t see any other groups being rescued.

Pinch Me - Housing Mess Normally I don’t find it difficult to disagree with President George W. Bush about pretty much everything (save the curvature of the earth and that humans should breathe oxygen).  This time it is different.  Bush had to have been ashamed to have signed it.  Just look at how it is buried on this pageArizona Senator John Kyl was one of the 13 dissenting votes.  Kyl even called a close Realtor friend of mine here in Arizona to explain why he could not vote for it – that it was simply an awful piece of legislation.  It is supposed to help save 400,000 people from going into foreclosure.  If that was really the purpose, considering how much it will cost (800 billion dollars), It would have been a lot cheaper to have a lottery and simply select the 400,000 supposed lucky ones and just buy their home for them.

But that really isn’t the purpose at all.  It is the Fannie Mae –  Freddie Mac Bail Out Bill.  That is why Bush signed it.   He accepted all that other crap so he could do what he had to do to keep Fannie & Freddie afloat.  Fannie & Freddie are the Big 2 of the secondary mortgage market.  Most any lender (Bank of America would be an exception, Countrywide would not have been) would completely run out of money to loan in about 30 days.  So the loans are packaged and sold to these two companies – who then go back to Wall Street again and again to replenish their money supply.  What I don’t understand is why (in the final form it passed in) the National Association of Realtors backed it.  Unless we are to assume that anything that gives any Realtor anything is “good” – no matter the cost, this one just makes no sense.

My office already has had sellers who need to do a short sale either take their home off the market or fail to let agents and buyers show their house.  No need.  The government is here to help them.  If foreclosures are estimated to be in the range of 5.5 million between now and the end of 2010 how does “fixing it” for 400,000 solve anything?  And don’t be surprised if there aren’t 400k people (not counting FNMA and FRE stockholders) who get helped at all.  I predict less than half of the estimated 400,000 will have anything other than foreclosure or a short sale occur.

The change that will hurt the Phoenix market the most is the complete elimination of the AmeriDream and Nehemiah programs.  Effective, October 1st – they are gone.  Currently, those seller-funded down payment assistance home sales account for about half of all the homes being sold here.  As a taxpayer, I can totally agree that there was a problem with seller-funded down payment programs (they have 4X the default rate of other FHA loans).  But was now, of all times, when it had to go away?  Homeowner Rescue Bill.  Really?

Loads of other stuff.  Thanks for nothing, Barney.

Step Into the Limelight

You’re a seller in today’s market.  What does it take to get your house noticed No Hassle Limelight with all the other houses out there for sale?  Short answer?  The very same thing it takes in any market. 

Or sure, in the market we had three years ago the average busboy or cab driver could have sold a house.  In fact, many of them did and are now back to doing what they did prior to the market going wild.  What is funny is that even in that market where a home seller could just put their home on Craigslist or pound a sign in the ground and from either of those actions, find their own buyer (at one point, in less than a day) – it still wasn’t the same as what we did for the seller.  I understand that this can come across as self-serving but in most cases that seller cost themselves about 40k (estimated average loss in the Phoenix area) by “saving the commission”.  They found A buyer.  At that same time, the top agents were “finding” around 25 buyers per house. Really.  This created a bidding war and drove the price of the house up.  Way up.

This market isn’t that market.  Now, the balance between sellers and buyers is completely reversed.  Now, we have more sellers than buyers and it is going to be that way for a while.

So, is now a “good” time to buy?  Is now a “good” time to sell?  Well, it depends: if you are a first-time buyer the important question is how would your house payment compare with what you are paying right now in rent.  Are the prices going to continue to slide?  Maybe.  There is no YES or NO answer to that question because it depends on the price range and the part of the valley.  Some areas will not have any further meaningful price declines.  Some will.  My counsel to a person currently renting would be to see how the payment (using only a 30 year fixed rate loan, thank you) would compare with projected rent increases.  You can make that type of comparison here.

What if you are a local home changer?  You live here now and would be buying another home here.  Then it makes NO difference what the market is doing.  If the market “went up” it does not help you.  If the market “went down” it does not hurt you.  The only significant variable in this instance is interest rates.  Interest rates moving up or down does make a difference – but not the prices of the houses.

Selling and not buying another home?  Better to sell now or wait?  The real answer depends on the location of your home (the one thing you can not change).  To give a specific (as in correct) answer requires doing a supply – demand analysis of the immediate neighborhood.  It doesn’t take long for us to do and is the only way to give you a real answer to that question.

What does it take to get your house noticed (the only way to actually get top dollar) is effective marketing.  Literally letting agents and buyers know that the house is for sale.  Can a sign on the property cause a buyer to call?  Sure, but the only people who will see the sign are those people driving down that street.  Same for an open house and in today’s world you can have an “open house” 7 days a week, 24 hours a day with a virtual tour.  So having the house on the internet is vital but isn’t enough.  Anyone can put any house on a web site (just about every home for sale today is on one or more web sites) but that isn’t enough to get the home viewed or sold.  There must be the right kind of traffic to that web site.  The right kind of traffic.  People looking for homes because they want to own one.  Do enough of that last one, and have the home priced correctly and it will sell.  It doesn’t have to take a long time either – even in this market.

A Tale of Two Markets Revisited

“It was the best of times, it was the worst of times…” so begins the novel a Tale of Two Cities, As we mentioned a couple of months ago, in the case of Phoenix area real estate it is the tale of two markets: homes under $350,000 in sales price and homes above the $350,000 sales price. That price point couldn’t be more exact.A_Tale_of_Two_Cities_frontispiece

There are 52,361 active listings in the local MLS (Arizona Regional Multiple Listing Service). There were 5,616 sales in the past 30 days. This is a 9.32 month supply. At that level there is still an over supply based on current demand, but not nearly what one might fear. At least that is how it appears, but let’s take a closer look. Under 350k there are 35,667 active listings and with 4,628 sales – a 7.71 month supply. With less than an 8 month supply we could say we had returned to a “normalized market”.

Now let’s take a peek at the sales and inventory in the above 350k price range. Inventory stands at 16,695 homes for sale. On the surface that sounds pretty good. Except there were only 886 sales in that price range for the past 30 days – this is almost a 19 month supply (18.84 months to be exact)! That is a dramatically different picture and in sharp contrast to the homes below 350k.

Why the disparity?

Answer: FHA financing. The FHA limit for Maricopa County is $346,250. FHA loans, almost a relic for the past decade are now back in vogue. In fact, the majority of the sales are currently FHA financed sales. Why? A variety of reasons – lower interest rates than jumbo loans, more generous lending guidelines, and the availability of FHA down payment assistance programs allowing buyers to purchase with no down payment or closing costs. So for all of the brainstorming that Congress is doing on housing bailout programs, perhaps the simplest answer lies in expanding the FHA price limits

Be that as it may, even these small bright spots are tenuous. Currently, and for a period of the next 60 days, Congress and HUD are revisiting the down payment assistance programs called Nehemiah and Ameridream. Because these programs currently comprise at least 50% of all the FHA sales locally, elimination of these programs would send another shock wave through our already fragile market.

Good News and Bad News

All Sales in MLS January – May


January February March April May
2006 5,243 5,860 6,713 6,709 7,585
2007 4,343 4,883 5,785 5,475 5,774
2008 2,868 3,070 3,854 4,844 5,647

And it’s the same news. As you can see from the chart showing sales from the Arizona Regional Multiple Listing Service (ARMLS) sales have been moving up since the first of the year. As you can also see – as I’m showing same month sales for the past two years – it is quite normal for sales to move up this time of the year. The most impressive number on the page is the total sales for May of 2008. Compare that to May of 2007. If you look at January of 2007 and compare it to January of 2008, we are down by almost 34%. Same comparison for February and we are down by 37%. March is 33% and April is down to an 11% difference. But in May it is only a 2% difference. As in, things are improving! That is the good news.Good News Bad News

If that trend was to continue – and I believe it will – the total sales in the valley are starting to head towards “good times”. However, there is a caveat. There is a problem and it isn’t going away anytime soon. We wrote about it last month and this month will give yet a different take on that same issue (the “bad” news part). Most of the sales reported in ARMLS — and that is most sales in the valley– are either short sales (pre-foreclosure) or Real Estate Owned by banks (foreclosures). Usually referred to as REO properties, it is the banks who are currently selling the most houses just now; either through a short sale where they announce what they will settle for or as the owner of the foreclosure.

Isn’t more business a good thing? Absolutely, yes. I am delighted to see that statistic moving north which is also contributing to a decline in inventory, particularly in the 350k and under range (the FHA price range). But as those banks continue to sell off their inventory of homes taken back and as they approve the short sales (where they are settling for less than they are owed) another thing is affected: neighborhood value. The sales prices that any appraiser will see when doing an appraisal on a “regular” open market listing are going to be lower. Significantly lower. When there is just one bank sale in a neighborhood and the rest of the sales are non-distressed open market sales, that one sale can be ignored. When the bank sales and the short sales comprise the bulk of the sales, they can’t and won’t be ignored.

This isn’t intended to panic anyone or cause concern. It simply is what is happening. Currently in the edge communities, sales are occurring of homes that are being sold for about 30% less than one can buy the land and build them. This is happening often enough that those sales are no longer “that low one”, they are the market there.

Oddly enough, after those houses are sold off and if interest rates stay relatively low, you will read in the local and national news outlets that “prices are rising”. It will seem remarkable (as it is complete nonsense). What will have “risen” will be the median price. That number where half of the sales fall above and half fall below. Median prices have precisely nothing to do with short term price movement but people who do all of their “research” from an ivory tower don’t know that. So it will get printed and quoted. What will have risen aren’t THE prices but WHAT people are buying – as the cheaper product is gone.

The fact is prices will not start to go up until there is a rebalancing of inventory. Prices adjust in accordance with changes in supply and demand, monitored by fear and greed. This is not a complex subject but it can be made to seem that way. The main point here is that unless you plan on waiting for some years for prices to rise, right now is as good a time to sell as you are likely to see in the near future.

Real Estate by the Numbers

A Tale of Two Cities “It was the best of times, it was the worst of times…” so begins the novel a Tale of Two Cities. Or in the case of real estate, it is the tale of two markets. On the one hand inventory for unsold homes in MLS remains fairly stagnate at 56,000 homes. On the other hand, pending sales continue their trend upward currently hitting 8099 – certainly a record high this year.

In fact there are really two real estate markets at this time. Homes that are correctly priced for their condition and properly marketed, are selling. In some cases we are even seeing offers within days of listing or multiple offers. On the other hand, there is the second market of homes that are not at current market value for their condition and location. Those homes are stagnating and accumulating market times of 300+ days with no sale.

Is this good or bad news for sellers? Well, we think overall it is good news because the factors that control the sale actually remain unchanged from any earlier markets. Fortunately, all of those factors are under the seller’s control – price, condition, and marketing. Pricing is established by the seller (hopefully with the aid of a qualified agent), condition is controlled by the seller, and even marketing is determined by the active FSBO or by selecting a qualified agent.

So what is making this market appear so different from earlier markets?? We think it comes down to the number of “qualified” buyers. It is said that the seeds of failure are sown in times of success, and that certainly applies to the real estate market. Let’s review how the seeds were sown. Prior to 2003, buyers were using traditional financing to obtain homes. Yes, there were buyer programs to allow buyers to purchase with nothing down (VA, Nehemiah, etc.) but still they had to qualify. They needed income, a decent credit history, and a reasonable debt load that supported their proposed house payment. Those standards in lending began to change in 2003. Standards began to weaken as the housing market roared forward. Foreclosures were low because the increasing values allowed sellers who couldn’t make their payments to sell as the market built their equity rapidly. Lending confidence grew stronger and caution, weaker. And so the seeds of failure were sown. Both lenders and buyers threw caution to the wind, since the market seemed Teflon coated. Investors sensing the potential for quick money, jumped in to the market with a vengeance. This created an artificially high number of buyers – buyers never before seen in this marketplace. These buyers were unqualified, whether owner occupants or uneducated investors.

Eventually the lending market imploded in August of 2007, and it took a large pool of buyers out of the marketplace. Let’s look at some numbers to put this in perspective. At the peak of the market in 2005, there were over 10,000 transactions closing a month. In the first half of 2007, average closings per month were down to approximately 5500. After the lending meltdown in August, the numbers dropped monthly until hitting a low in January 2008 of only 2877 MLS sales. Since January’s low, February posted sales of approximately 3436, and March rose to 4302.

Probably the most troubling trend is the number of short sales (homes that are being sold for less than the amount owed to lenders) and REO’s (real estate owned – more commonly called foreclosures). Currently, foreclosures (both pre and post) amount to approximately 25% of the market – both in active listings and solds. Sadly, foreclosures are predicted to continue to mount through this year. However, Congress and both the current and each of the possible new presidents are proposing a myriad of legislation to attempt to halt this trend. This is why predicting the future can be so difficult. However, it seems fairly clear that we are at near bottom, if not bottom of the market.

So what does a seller do in this tale of two markets? First, if you need to sell, be assured that there are still buyers out buying and your home can be sold. On the other hand, if you are not buying as well as selling (in which case any loss on the sale is neutralized on the purchase) and can wait – wait! Real estate markets operate in cycles, and this too shall pass.

The Mortgage Blues: A Few Options

foreclosure signOf all the sellers we talk to on a daily basis one of the most heart wrenching conversations we have is the one about the possibility of foreclosure. A tragic side effect of declining values has been the number of homeowners facing the real possibility of losing their homes. Declining values can prohibit the sale of the home or refinancing due to the property now being over-encumbered for today’s value. This can leave homeowners struggling who cannot afford the payment or who must sell due to changed circumstances. For those who are confronted with this situation or who know someone who is, the options are limited.   These options include keeping the home, renting the home, loan restructuring (also called loan modification), a short sale, or foreclosure. For the sake of brevity, let’s examine a few of these options.

Loan Modification: Loan Modification is perfect for homeowners who have met with a temporary setback and cannot catch up on the back payments but can pay the current payment amount. In this case you can contact your lender who may agree to fold any past-due amounts, including interest and escrow, into the unpaid principal balance. This new amount will be re-amortized over a period of time. Or, if you are unable to make payments at the current payment rate, your lender may agree to extend your loan for a longer period of time, modifying the payment amount to a more affordable level. In either scenario, a Loan Modification will bring your account current.

Short Sale: The definition of “short sale” is a property where more is owed on the property than the current market value. In this scenario, a seller with a legitimate qualifying hardship (loss of a job, marriage failure, etc) in cooperation with their current lender(s) sells the home for less than is owed. The bank(s) then agree to lower the payoff amount of the loan(s) to facilitate the sale. Numerous banks are currently participating in these short sales in order to avoid the often greater loss of proceeding with a foreclosure.  However, not all sellers qualify. It is always best to speak with your lender to confirm they will participate with you in a short sale. Here are the typical requirements to qualify for a short sale agreement with your lender:

  1. The property needs to be a primary residence or second home. Some lenders will not do short sales with investors. If you are an investor, make sure you meet the remaining qualifications and contact your lender to determine their policy.
  2. Your payment is delinquent or about to be. Most lenders will not work with homeowners who are successfully making their loan payments.
  3. You have a qualifying hardship. Examples that qualify are divorce, loss of a job, medical bills, etc.
  4. You have no other assets. Lenders who see homeowners with 401Ks and large bank accounts are less likely to cooperate on a short sale.
  5. The loan has been in place close to one year or more. If the loan is not approximately one year old or more, the current lender may choose to charge the loan back to the originating lender.

If a seller meets the lender criteria for a short sale, they then place their home on the market for sale. Once an offer is accepted, the offer and supporting documentation is submitted for lender approval. One caveat, currently the Loss Mitigation Departments at most lenders are overwhelmed with the number of files submitted for approval. Lenders are taking anywhere from one to three months to approve these files. These delays can be frustrating to both buyers and sellers of these properties. If you are a seller, your best option is to hire a real estate agent who does short sales to guide you through this process and explain the pros and cons.

Foreclosure: The last option is foreclosure of the home. This is where the owner simply ceases making payments and walks away from the home. Currently, the government and the lending industry are taking aim at “walk-away” home owners who stop making payments and months later send the house keys back to their lender.

If you or someone you know is considering a short sale or foreclosure, it always a good idea to consult an attorney first. This article should not be construed as legal advice. Our goal, as always, simply remains to help our clients through this challenging market. If you would like the numbers for both local and national homeowner hotlines or are considering a short sale, please contact us so we can further explain your options. Or contact us and we will send you our Mortgage Relief Kit. Above all remember, this too shall pass.

Russell & Wendy