Important info you need to know...

Tips for buying home in 2010

Amazing what a few months can bring in the way of changes in the real estate market. As many seasoned real estate buyers and sellers know a real estate market can change on a dime. For example at the beginning of the year we saw, according to according to NAR (the National Association of Realtors) in the beginning of 2009, Nationwide home sales were down about 20 percent from the same time the previous year. Compared to 2006, 2007 & 2008 we saw an increase in inventories of existing and new homes for sale, a record number of foreclosures, and the strongest buyers' market in a decade. Well changes made how banks reported to their shareholders, the effects of toxic and distressed home loans has slowed the release of foreclosed properties to the market which in combination of buyer's incentives has dried up home inventories. In fact according to NAR, nationally the present inventory of unsold homes has fallen to the lowest level since April of 2007. This was attributed to historic low home loan rates and the government's $8000 first-time Buyer tax credits which allows anyone who has not owned a property for 3 years to qualify as a first-time homeowner. In addition anyone upgrading their principal residence may qualify for upto a $6500 tax credit for the replacement home.

Now for some bad news...Asset managers and sellers alike have learned an old time marketing tactic and that is, if you want to drive traffic to your product put it on sale! In other words as it relates to real estate, price it for less than the market value and you will expose it to a larger pool of potential buyers which in turn will create a bidding war. This has added to buyer confusion and dried up inventory quick!

Next piece of bad news is, as published in an industry report:

Rates to Begin Slow Climb through 2010

The Fed's recent announcement that it will be tapering off its mortgage-backed securities (MBS) purchase program by the first quarter of 2010 means one thing: Mortgage rates will begin a gradual rise back to around 6% range.
What does this mean to the buyer who is sitting on the side line? If you are waiting to purchase or refinance, further delay may mean missing the opportunity to lock-in rates that have remained around the upper 4%-low 5% range for much of this past year. The MBS-purchse program was designed to keep rates low, and while this announcement does not mean we'll see a sharp increase in raes, we can expect a steady climb in rates through the program's end at the begining of next year. Combine this with the other factors like the end of the $8000 tax credit, the normal seasonal reduction of available inventory and the home buyer is in for an even tougher time as the typical laws of supply and demand may in fact create a seller's market and have an opposite effect that higher rates normally have.

Some helpful information

Most homes going through the foreclosure process have found no buyer’s at auction because there is no equity left in the properties so these homes become Bank Owned, known as REO properties. When a bank forecloses on a home it becomes a non-performing loan. This affects the amount of money a bank can borrow from the Federal Reserve. Since banks only make money by borrowing from the Fed and lending to the public, they must borrow as much as they can. Every non-performing loan reduces the amount the bank can lend to the public, affecting their bottom line profits. The banks are forced to unload these properties for tens of thousands below what was originally owned on them allowing buyer’s to buy properties far below their market value at a time when interest rates are still at near record lows. This magic moment will not last since the losses amongst lenders is climbing and eventually this pressure will translate to a dramatic increase in rates and even tighter lending guidelines, so even if home prices were to decline even further unless you are paying 100% cash your costs will increase due to higher interest rates. Combine this with the end of the Fed's recent announcement that it will be tapering off its mortgage-backed securities (MBS) purchase program and we are in for higher rates.

Since October of 2008 we have seen the Federally mandated Foreclosure Moritoriums having the effect of drying up inventories nationwide to a point that every listing has multiple offers on them. In addition the Federal government created new laws allowing banks to actually lease back distress properties back the original homeowners further reducing inventory. Banks are also being forced to reduce the number of homes they take back so they are taking losses at auction by discounting the bid amounts and selling the foreclosure property to investors who in turn resell the properties. Combine all this with the fact that vertually every asset manager for REO properties is listing properties as much as 10%-20% under market value we end up with multiple offers on every listing. The reason the asset managers do this is so that they can expose the homes to as many potential buyers as possible in order to sell them in the shortest amount of time.
This creates the illusion that prices are rising. In fact several journalists have made statements to this effect. NOTHING is further from the truth, the properties are simply selling for the true market value.
What is the true market value? Ah, that is where working with an experienced and skilled REO Buyer's agent with the tools at their disposal to define this for you. That is where I come in.

For imediate release:

Quick Facts:

·          Calif. median home price: November 09: $304,520 (Source: C.A.R.)
Calif. highest median home price by C.A.R. region November 09: Santa Barbara So. Coast $750,000(Source: C.A.R.)

·          Calif. lowest median home price by C.A.R. region November 09: High Desert $124,710 (Source: C.A.R.)

·          Calif. First-time Buyer Affordability Index - Third Quarter 2009: 64 percent (Source: C.A.R.)

·          Mortgage rates - week ending 1/14/10 30-yr. fixed: 5.05 Fees/points: 0.7% 15-yr. fixed: 4.45% Fees/points: 0.6% 1-yr. adjustable: 4.39% Fees/points: 0.5% (Source: Freddie Mac)

·          Tax credits -The Federal Government extended the $8000 first-time buyer tax credit and expanded the tax credit to include homeowners who upgrade their principal residence. These buyers will qualify for up to a $6500 tax credit

All this led to a continuing reduction in the days on market and a steady increase in home sales despite historical lows in home inventory.

More info

Foreclosures rise 21 percent in 2009
Foreclosures rose 21 percent in 2009 compared with 2008, as nearly 3 million properties received a foreclosure filing, according to RealtyTrac®’s Year End 2009 Foreclosure Market Report. 

Foreclosure filings were reported on 349,519 U.S. properties in December, a 14 percent increase from November and a 15 percent increase from December 2008.  Despite the increase in December, foreclosure activity in the fourth quarter decreased 7 percent compared with the third quarter, according to the report.

California continued to lead the nation in foreclosure activity by volume, with 632,573 California properties receiving a foreclosure filing in 2009.  Following four consecutive month-over-month declines, California foreclosure activity increased approximately 9 percent in December compared with November.  Foreclosure filings declined 17 percent in California in the fourth quarter compared with the third quarter, the report found.

California Price Shows Year-To-Year Gain for First Time in Two Years
By: Robert A. Kleinhenz , Ph.D., Deputy Chief Economist

The median price of a home in California experienced its first year-to-year gain in over two years during the month of November, as the California housing market continued recent trends in terms of prices, supply, and sales. The monthly median price crossed the $300,000 threshold in November with a median of $304,520, up 2.4 percent from the October median price of $297,500 and up 5.8 percent from $287,880 a year earlier. The situation has improved greatly from a year ago during the worst of the financial crisis, when the median price had registered 41.3 percent year-to-year decline.

After a 59 percent peak-to-trough decline, the California median price has increased 24.1 percent from a trough of $245,170 that occurred in February 2009.  The increase in price has been sustained by a combination of lean supply and high demand, the latter triggered by historically high affordability (See November article). By comparison, the NAR national median price for existing single family homes, which experienced a 29 percent peak-to-trough decline, has increased by 4.7 percent from its trough of $164,200 in January 2009 to $171,900 in November 2009.

Nine consecutive month-to-month increases in the California median price have been the result of the lean inventory conditions throughout the year. The MLS-based unsold inventory index for California has averaged 4.8 months since the start of the year, well below the 7 month long run average. (See the October article for an analysis of the relationship between MLS-based unsold inventory, defaults, and foreclosures). By comparison, the national unsold inventory index for single family homes has averaged 8.4 months over the year. Inventory levels in both California and the US have trended down for most of the year.

As for sales, California returned to pre-peak levels of sales in late 2008 and sustained them throughout 2009. With sales of 536,720 homes in November, the market was 4.6 percent lower than the October sales figure of 562,400, but 4.7 percent above the November 2008 figure of 512,840. Sales throughout the year have averaged 545,600, compared with the pre-peak monthly average over the 2000-2002 period of 537,300 homes. Over the 2000-2002 period, US sales of existing homes averaged 4.8 million homes, compared with the low- to mid-4 million range of sales that the national market experienced from late 2007 until late this year when sales finally exceed the 5 million threshold.

                    Click on graph for larger view


The year-to-year increase in the California median price is the latest sign of turnaround from the dire circumstances facing the statewide housing market a year ago. Its foreclosure problems notwithstanding, California’s housing market appears to be ahead of the national market, both in terms of hitting bottom and in demonstrating important signs of market stability and improvement.

To learn more about our Trends Newsletter, please contact the Research & Economics Department at  research@car.org or (213) 739-8352 
 
 

 

Is it important to work with an experienced REO and Short Sale Buyer’s agent?

Read on…

A recent article was published in an on line industry news letter where the buyer used an agent who was inexperienced working as a Buyer’s agent. The reason was that the agent agreed to donate part of their commission to help the Buyer to buy the home which was a REO property.

Well the lender had the Buyer jump through all sorts of hoops and provide what they felt was an unusual amount of additional documentation (Causing them to close escrow late and pay a per diem penalty for late close, a common practice with REO transactions). Gee, can you imagine why the lender would request this additional information?

Let me help clarify why. Lenders see these types of transactions all the time and the warning sign of trouble ahead is when the Buyer needs assistance from the agent just to have enough money to close and skips inspections that are put in place to protect the Buyer just to have enough money to close escrow. If the buyer’s finances are so tight at the time of purchase can they survive future bumps during home ownership?
 

Well to continue with our Buyer’s story a few days after moving in they experienced an extreme plumbing problem where the sewer line was not draining not allowing them to use the kitchen sink, the showers, baths, or any of the sinks without flooding the home ruining the carpeting and flooring and causing mold problems. After many Home warranty calls to snake the lines it was determined that the lines was damaged to an extent that it needed replacement at a estimated cost of over $5000 (not counting the cost to replace the carpeting, flooring, and rectify the mold damage)!

A Property Inspection would have picked up on this plumbing problem and saved this homeowner money and headaches. They could have requested the repairs to be done as a condition of continuing with the purchase or even cancel the transaction without losing their earnest money deposit. The only loss would be the cost of the inspection, a few hundred dollars. Often times even REO banks will agree to do some repairs that may inhibit a financed transaction and an experienced REO Buyer’s agent would have known this. REO homes are bank owned properties and because unlike a homeowner, the bank has never lived in the home they do not know of any the history or imperfections in the property and therefore are exempt from most Disclosures concerning the condition of the property or the area and therefore cannot be held responsible for Non-disclosure issues. In addition working with an agent who is construction literate offers you someone who has a working knowledge of the mechanics of a home and what is and is not a home with good bones and not an alligator that will eat you alive!