How to Get the Best REO Deal
REO and short-sale properties can be money pits when offers take forever to close and vacant properties are trashed.
Here are some suggestions for expediting the deals:
- The best short-sale deals are those where the bank has pre-approved the sale price. The property may still take a long time to close, but not as long as it would otherwise.
- Buyers of a short-sale should be prepared for multiple offers. If the short-sale property is an attractive one, the lender will continue to market the property even after signing a sales contract. And if it gets a better offer, it may sell the property without giving the original buyers a chance to negotiate.
- Seek out houses protected by the Cash for Keys program, which gives short-sale and foreclosed owners money to prevent them from trashing the place on the way out.
- Inspections are important. If a home has been vacant, get the property re-inspected prior to closing.
- Buyers shouldn't focus on price alone. Homes that are in poor neighborhoods, have serious maintenance issues, or have terrible floor plans aren’t bargains despite the price.
Source: Inman News, Bernice Ross (11/30/2009)
Parents Should Consider Homes as Gifts
Parents who are looking for a gift to give their kids this holiday season should consider a house.
With prices in the cellar, this could be a terrific year to give a down payment or even the whole home.
The Internal Revenue Service says a married couple can each give gifts of $13,000 of money or property without triggering taxes for the gift givers or the recipients. That means a married couple can give another married couple a total of $52,000 a year. To maximize that they can give $52,000 in December and another $52,000 in January for a total of $104,000 to be used on a property before the federal tax credit expires.
This would buy a house in some parts of the country and be sufficient for a down payment in most others.
Source: The Wall Street Journal, June Fletcher (11/27/2009)
Harvard Economist Predicts Prices Will Stay Low
Harvard University economist Edward Glaeser discusses with Money Magazine where home prices will move next. He argues that older, colder cities are unlikely to come back because their initial growth was tied to transportation costs. Now that few goods are moved by water, their productivity – and number of residents – has declined.
Today, cities are likely to grow because they are located in warm areas where people want to live, Glaeser says. Cities like Atlanta, Dallas, and Houston that have a vibrant economy and a lenient building environment have gone through the housing meltdown with less of a decline in prices. These cities, he says, are likely to continue to attract residents, while their flexible approach to building regulation will keep home prices moderate.
But Glaeser doesn’t foresee property values rising to previous levels even in attractive locales. “The harsh reality is that real estate prices that go up come down. I've found that for every real $1 increase in local market prices over a five-year period, prices go down 32¢ over the following five years,” Glaeser says.
Source: Money Magazine, Lisa Gibbs (11/25/2009)
Loan Modification Success Said to be Overlooked
A report from the voluntary, mortgage industry-driven Hope Now program says the mortgage industry has assisted 2.7 million homeowners in 2009 with mortgage modifications or repayment plans outside of the federal programs.
The statement released Wednesday lacked many details about what kind of help servicers were offering. "What are the circumstances?" asks economist Joel Naroff, with Naroff Economic Advisors. "It's a large number, but they're probably not helping a lot of people who we'd think of as getting a modification. They might just be rewriting a mortgage to more of a fixed rate."
The Executive Director of Hope Now Faith Schwartz says industry efforts to solve the foreclosure problem are significant. "We've got to talk about what else is going on in the market. That's the bigger picture," she says.
Source: USA Today, Stephanie Armour (12/03/2009)
Fed: Economy Improving, Commercial Still Weak
The U.S. economy has “improved modestly” since early October, the Federal Reserve said Wednesday in releasing its monthly “beige book” survey of regional economic conditions.
The Fed said residential real estate sales increased everywhere but the Northeast. Also, fewer homes overall were being built.
The report also said commercial real estate was worse than the residential market, with conditions reported to have weakened in virtually all districts, with “rising vacancy rates, downward pressure on rents, and little, if any, new development."
Overall, the Fed reported that the labor market remained weak in most areas, but it noted improvement in some areas and an uptick in retail sales.
Source: The Wall Street Journal, Sudeep Reddy (12/03/2009)
Mortgage Applications Rise Over Thanksgiving
Mortgage applications rose last week, according to the Mortgage Bankers Association weekly survey.
On a seasonally adjusted basis, mortgage loan applications increased 2.1 percent compared to the previous week. The seasonally adjusted purchase index increased 4.1 percent from the previous week, while the refinance index rose 1.7 percent.
On an unadjusted basis – reflecting the Thanksgiving holiday – the purchase index decreased 30.4 percent compared with the previous week and was 34.9 percent lower than it was the same week a year ago.
Mortgage rates continued to decline, with 30-year fixed rates reaching their lowest level since May.
30-year fixed-rate mortgages decreased to 4.79 percent from 4.82 percent;
15-year fixed-rate mortgages decreased to 4.27 percent from 4.32 percent;
1-year ARMs decreased to 6.56 percent from 6.66 percent.
Source: Mortgage Bankers Association (12/02/2009)
Remodelers Say Business Is Picking Up
Home remodeling business is picking up all over the country. Contractors began noticing the trend at the end of what was a long, slow summer.
The reason for the upturn is that home owners, unable to sell properties, are deciding to stay and fix up the deficiencies. An added incentive is the $1,500 federal tax credit for energy-related improvements.
The National Association of Home Builders' Remodeling Market Index, a measure of contractor confidence, rose slightly last month and its futures index also increased, indicating contractors are more confident that business is improving.
Kermit Baker, chief economist for the American Institute of Architects and Senior Research Fellow at Harvard University's Joint Center for Housing Studies, agrees that the remodeling industry hit bottom during the summer, but he doesn’t expect substantial improvement until Spring 2010.
Source: CNNMoney.com, Les Christie (12/04/2009)
30-Year Rates Hit Record Low
The average interest rate for 30-year mortgages has fallen to the lowest level since Freddie Mac began compiling its weekly survey in 1971, declining to 4.71 percent this week from 4.78 percent a week ago.
Rates also were more attractive for 15-year fixed loans, which fell from 4.29 percent to 4.27 percent, but many consumers may not have qualified for them because they now face higher credit standards from lenders.
Still, the Mortgage Bankers Association's index of application demand, which rose 2.1 percent on a seasonally adjusted basis during Thanksgiving week from the previous week, shows that consumers were looking to take advantage of mortgage rates at a historic low.
Source: USA Today, Stephanie Armour (12/04/09)
Banks Start to Embrace Short Sales
Even before the government put pressure on them to embrace short sales, more banks were starting to take their lumps, do the short-sale deals and move on.
Three years into the housing meltdown, short sales have tripled to 40,000 in the first six months of 2009, compared to the same time period a year ago, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
Wells Fargo, Bank of America Corp., and JPMorgan Chase & Co. this year have hired and trained more staff to handle short sales and also developed software for expediting them.
“It’s really finally dawning on banks that they’re better off with a short sale,” said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “I think banks were in denial.”
Source: Bloomberg, John Gittelsohn and Margaret Collins (12/4/2009)
A new report from the Federal Housing Financing Agency indicated that home prices were flat in September compared to August.
Some analysts saw this and other factors as a sign that home prices are likely to fall again.
Predicting a new 10 percent decline, John Silvia, chief economist at Wells Fargo, said, “There is no clear, easy way out for housing. Contrary to my hopes, housing prices and the housing market in general will weaken again.”
Meanwhile, the Federal Reserve continues to predict that unemployment will remain above 9 percent through 2010. Minutes of its most recent meeting show that Fed officials are unwilling to raise the overnight federal funds rate from its current level of zero for fear of pushing up mortgage rates and adding to the malaise.
Source: The New York Times, David Streitfeld, Edmund L. Andrews and Javier C. Hernandez (11/24/2009)
Got questions about where real estate is headed? Here are informed answers to some of the most frequently asked questions about today’s housing market.
When will housing hit bottom?
There isn’t any single answer to this question. It depends on where you live. Home prices are rising again in the most convenient suburbs of such cities as New York and Washington, D.C. In other places that are in less demand, prices continue to fall.
How can I figure out the value of my home?
Talking to a real estate professional and/or hiring an appraiser is the best idea. But even after getting a professional opinion, it is hard to tell what a home will sell for until you put it on the market.
Is now a good time for a renter to buy a home?
It could be. Prices in many areas are down significantly from their peak a couple of years ago. Plus, Congress has extended the tax credit for first-time home buyers and added a $6,500 credit for many previous owners of homes who sign a contract to buy by April 30, 2010.
Should I invest in foreclosed homes?
A foreclosure can be a risky buy, even for the most experienced real estate investors. Use caution.
Source: The Wall Street Journal, James R. Hagerty (11/17/2009)
The complexity of new home buyer tax credits leaves potential buyers with many questions. Here are answers to some of the most confusing:
How does a current home owner qualify for the $6,500 credit?
Buyers must have lived in their homes for at least five out of the last eight years. The home they buy must become their primary residence, but buyers don’t have to sell their previous home. They can use the previous home as a rental or a second home and still claim the credit.
Does the new home have to be more expensive than the one the buyer currently owns?
No. It is fine to use it to downsize. If the property sells for more than $800,000, the buyers don’t qualify.
Can buyers who are building a new home claim the credit?
Yes, although the contract must be in place by April 30 and the buyer must move in by July 1.
Can buyers claim the credit if they purchase a home from a relative?
No. The legislation prohibits taxpayers from claiming the credit if the sale is between “related parties,” including parent, grandparent, child, or grandchild.
Source: USA Today, Sandra Block (11/24/2009)
Driven by the home buyer tax credit, existing-home sales showed another big gain in October with a strong uptrend established over the past seven months, according to the NATIONAL ASSOCIATION OF REALTORS®. At the same time, inventories have continued to decline.
Existing-home sales—including single-family, townhomes, condominiums and co-ops—surged 10.1 percent to a seasonally adjusted annual rate of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.
Tax Credit Fuels Surge
Lawrence Yun, NAR chief economist, was surprised at the size of the gain. “Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” he said. “With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.”
Now that the tax credit has been extended and expanded, potential buyers have until April 30 to have a contract in place. “There is still a large pent-up demand that can be tapped before the tax credit expires. Our recent consumer survey further shows that 13 percent of successful first-time buyers had a previous contract that was cancelled or fell through—there likely are many more buyers who were attempting to purchase but simply ran out of time,” Yun said.
Historically low interest rates also are boosting the market. “Mortgage interest rates last month were the third lowest on record dating back to 1971,” Yun noted. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.95 percent in October from 5.06 percent in September; the rate was 6.20 percent in October 2008. Last week, Freddie Mac reporter the 30-year rate dropped to 4.83 percent.
Inventory Declines
NAR President Vicki Cox Golder said strong demand by first-time buyers is creating some unusual conditions. “In parts of the country, especially in Southwestern states but also in Florida and suburban Washington D.C., we’ve been getting many reports of multiple bids in the lower price ranges with foreclosed properties getting absorbed quickly,” she said.
“In fact, low-end inventory has become very tight in many areas and in some cases buyers are becoming more aggressive. In this kind of environment it’s important to work with a REALTOR® who can walk you through the process and help you negotiate a satisfactory deal,” Golder said.
Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago.
“The supply of homes on the market is now at the lowest level in over two-and-a half years – we’re getting closer to a general balance between buyers and sellers,” Yun said. The last time the relative housing inventory was this low was in February 2007 when it also was at a 7.0-month supply.
Existing Home Price by Type
The national median existing-home price for all housing types was $173,100 in October, down 7.1 percent from October 2008. Distressed properties, which accounted for 30 percent of sales in October, continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area.
“In the second half of 2010, if home values show consistent stabilization or even a modest increase, then home sales could remain at normal healthy levels because consumers would no longer be worried about a price overcorrection,” Yun said.
He added that low home prices also are contributing to extremely favorable affordability conditions. “With the abnormal drop in home prices over the past few years, the price-to-income ratio has fallen below the historic trend line,” Yun said. “This is adding to the buying power of the typical family, with affordability conditions this year at the highest on record dating back to 1970, but prices are beginning to flatten and are poised to rise next year.”
Single-family home sales rose 9.7 percent to a seasonally adjusted annual rate of 5.33 million inOctober from a pace of 4.86 million in September, and are 21.4 percent above the 4.39 million-unit pace in October 2008. The median existing single-family home price was $173,100 in October, down 6.8 percent from a year ago.
Existing condominium and co-op sales surged 13.2 percent to a seasonally adjusted annual rate of 770,000 units in October from 680,000 in September, and are 40.8 percent above the 547,000-unit level a year ago. The median existing condo price was $172,900 in October, which is 10.4 percent below October 2008.
Regional Views
Here’s a look at existing-home sales figures in different regions of the United States:
Northeast: Existing-home sales rose 11.6 percent to an annual level of 1.06 million in October, and are 27.7 percent higher than October 2008. The median price in the Northeast was $235,400, down 2.6 percent from a year ago.
Midwest: Existing-home sales surged 14.4 percent in October to a pace of 1.43 million and are 28.8 percent above a year ago. The median price in the Midwest was $146,600, a gain of 1.1 percent from October 2008.
South: Existing-home sales rose 12.7 percent to an annual level of 2.30 million in October and are 25.7 percent higher than October 2008. The median price in the South was $151,100, down 6.3 percent from a year ago.
West: Existing-home sales increased 1.6 percent to an annual rate of 1.31 million in October and are 12.0 percent above a year ago. The median price in the West was $220,200, which is 14.7 percent below October 2008.
—NAR
