Archive for 2010

So, what is happening with our high-end homes?

21 October, 2010 | David Morris | No Comment

FAQ: What is happening to the high end market updates for homes $800,000 to $5,000,000 year to date?

First a simple truth, homes are selling!

Optimistically it is important to look at how 2010 is coming together.  From a look at the numbers of what is selling YTD in Northern Nevada we have sold over 4,085 homes and counting.  Comparing 2010 to 2008 with 3,591 sales and 2009 with 5,253 sales we still have 1,396 homes in escrow and 2.5 months to close them so we look good to equal or exceed 2009.  Inventory is falling in 80% of the markets.  I realize that the press, blogs, news reporting and on are beating an awful drum beat but we are doing much better than the public realizes.  That said we have a very long road ahead of us to a stable and growing market in all price points and when that does happen we need to be prepared for growth of 1.5%-3.5%  with 2.5% being more the norm. 

FAQ:   When will the market stabilize?  That day will come when we have reported that we have had 120 days or more of price firmness.  Today in homes priced under $450,000 the best bet is summer of 2011. For homes over $450,000 to $800,000 the best bet will be 2012.

FAQ:  Is it time to start fresh and re price our high end market?

I am suggesting that as owner’s of high end home’s you may want to sit down and take the time to consider taking serious stock of the Northern Nevada housing market and high end home sales.  I am finding all high end sellers are shocked, disappointed, dismayed, angry, confused, frustrated and in many cases all of the above with a dash of disgust added to the poor showing (or sometimes good showings and no offers and feeling all the time that you are living in a fish bowl) and of course  the lack of offers.

Take a moment to ponder these numbers for a moment: 65 high end homes have sold or are in escrow today.  That means on the average each month 6.5 sellers sold their homes.   Or put even more directly each week 1.6 sellers sold a high end home.  From a sales point of view selling that many homes is excellent but with the glut of homes that need to be sold it is a drop in the bucket.  There are two ways to bring buyers to the market.  Artificially create a sellers market or two adjust prices to the level where more buyers can buy.  Maybe and this again is just a suggestion, perhaps as the owner of the home you might want to re visit where your home sits in the market today and listen to what is said about price being critical, if values can change should your price expectations and asking price not keep pace with the changes?  Or conversely maybe your prices were so high that each price reduction was a “day late and a dollar short” and then again maybe your agent is a hobbyist and wanted the listing to badly that they failed to be honest with you on what the market is doing, or maybe just a little of both?  Price and pricing expectations are the age old nemesis of real estate.  All too often I and other great agents find ourselves defending a price reduction because of failed past price reductions, objections to pricing at the right price to sell for fear of getting a “low” offer, or past estimates of value/appraisals, or what the home was valued for 4 years ago, the cost to build the home today or “improvements”. 

Downward pressure on prices is hell for all.

Change is tough.

As we complete our 5th year of the market down turn (yes, 5 long years) time and time again the question is being asked when is the bottom going to be found and when will prices move up noticeably?  The answer to the 2nd question is a bit easier than the first question but let’s address the 1st question first.  For 80% of the market the bottom is  doing all it can to form now.  For 29% of the market the bottom will begin to form as soon as the bottom firms up, maybe starting next spring, for 1% of the market the very best educated guess is maybe late spring/summer of 2012.  The markets will continue to overshoot the real bottom through this winter but by June the homes under $450,000 will be forming real foundations of value (with a small chance for a 3% “surge” in prices).  For homes over $450,000 but under $800,000 mid to late summer a tentative bottom should form a bottom and it should be fairly firm by the end of 2012 with the real danger to these homes being price reductions from the luxury home market pressing down on these homes stalling price stability.  The bottoms when acknowledged by the media and the public will lag the real market by 120 days and as much as 180 days.  That said housing as a whole will not be off the critical list before spring of 2012.  So what about the 1%, the homes priced over $800,000?

Here are some numbers to look at:

2010 sales year to date have amounted to 4,086 closed escrows.  Homes priced over $800,000 account for just 1% of the sales yet these homes account for over 9% of the market for sale and are growing.  On average the asking prices for homes for sale are averaging something over $308,000 or over 20% over what the average homes have been selling for in this market segment.

For the homes that did price to attract an offer the average price negotiation was +10%.  In a healthy market 3% is what the market looks for.  This suggests again it can be reasonably assumed that the average home for sale is overpriced by as much as 30%.  The rest of the market has already has closed the gap on such price inequities except the high end homes.

This segment of the market is comprised of well to do homeowners with normally deep pockets and strong egos that can afford to see the world from their viewpoints.  Unfortunately so can the buyers.  Most homes in this range sell only because a buyer has made the decision to own.  At this price point no buyer has to buy, they have alternatives, and time.  

The danger facing the high end market is time and age.  As an owner of a high end home you may want to step back and look at the changing face of your own market as changing lifestyle needs, age, health and families growing up and moving away lead to many owners no longer needing the home they are living in and this segment of the market will continue to add inventory while other parts of the market stabilize.  The majority of high end homes were built before 2004 and therefore are no longer “near new” homes (that is a grace period from new to 5 years).  We now have a 6 year+ gap on age and growing all the time of these homes.  All the while in our most thought out places to live the availability of lots is considerable.  In Arrowcreek and Montreux to name two places the potential lot inventory is huge.  As an example of what we can expect for lot values to come can now be seen in Arrowcreek this year with 10 lots out of 12 sales having closed escrow in 2010 under $65,000, all foreclosed and more will be coming along as more sellers plan strategic defaults on land that they paid up to $700,000 for lots worth a fraction of that amount today.  As market conditions improve, as confidence enters the market in force overpriced inventory will naturally move buyers who can buy in this price range back to new construction.  And you can be sure the builders will run a tight bottom line to attract those buyers.  It is very feasible that 80% of our high end buyers will move to new construction by 2012 and not be willing to pay high prices for the old luxury homes for sale. 

FAQ:  Does it make sense to wait for the market to come to me?

What does this mean to you?  Without pricing for the current market and adjusting quarterly for changes coming we will continue to see the gap in luxury homes grow, showing will stay very low and inconsistent and the buyers will be cherry with their offers and many buyers will just continue to stay on the sidelines and wait to pick off the really good buys (distressed/strategic defaults/highly motivated sellers). 

Now for the answer to the 2nd question: When will prices for the high end market turn upward measurably?  Sadly not in 2011 and not in 2012 can that be expected.  The inventory is naturally going to far exceed demand forcing or holding prices down and by 2012 we need to expect that buyers will begin building new homes for themselves.  I know that this question is being asked “A buyer cannot build today for what they can buy my home for” and that is a true statement as long as the buyer must build at the costs that the average home was built for in pre 2006 and pays pre 2007 prices for the land, but what you built your home for is not a measure of value, never has been.  Always keep in mind that buyers in these price points have options as well and will always justify building.  Therefore having a brand new home in 2012/13 and paying more for the home because it is new and the buyer built what the buyer wanted will justify the buyer’s decision to move away from the resale market.

Here is a quick thought. Assume a free and clear $1million dollar home.  Assume taxes @ $10,000 year.  Assume yearly cost to care for the property @ $6,000 and assume utilities at $8,500 year and association fees of $2,500 a year and misc. of $3,000 or a total cost to own your free and clear home of $30,000.  Now assume that you decide to wait out this market to obtain your price and that will be 10 years at an even 3% growth rate or $300,000.  Now assume that same $1 million cash is invested and will earn you a lowly 1% or $10,000 a year.  At an average growth of 3% then in 10 years after selling costs you more or less will net your price difference that you want today but paid $300,000 out of your pocket to obtain your price for a zero net gain.   Now what about that money  earning that lousy 1% over the next 10 years?  In a ten year wait for the market to return your value to you that means that you will spend $300,000 plus the lost value of your money.  So in fact you might as well account for the $10,000 year income on your money x 10 years for another $100,000 for a grand total of $400,000 waiting to get what you think your home is worth today.  I guess that the question comes down to this.  Is this good business for you?

In fact the ultimate answer two question 2 as to when will high end homes (and this goes for most homes as well) go up in value will depend on how fast new construction can come on line.  When new homes being built become a factor in the market place and after those new values have had a chance to percolate down into the resale market older homes will begin to rise in value, and not until then.  So there you have your answer on when prices will move up again instead of down or dead flat.  Sometime after 2012 will be the earliest possible time to see any growth and most economists do not see that before 2013 so my simple math above is basically 2+ years out.

Please give me a call so I can answer more directly all of your questions.

Sincerely,

David Morris

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Good news series 3 of 3

24 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 23, 2010—

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury has released the August edition of the Obama Administration’s Housing Scorecard (www.hud.gov/scorecard), a comprehensive report on the nation’s housing market. In July, housing prices remained level after 30 straight months of decline, while some price predictions have improved. In addition, historic low interest rates continued to promote home affordability and refinancing options for the nation’s families. However, the market remains fragile with foreclosure starts showing a slight increase and serious delinquencies continuing to work through the pipeline.

“While there has been some stabilization in the housing market, it remains clear that we have more work ahead,” said HUD Assistant Secretary Raphael Bostic. “Through the Obama Administration’s efforts over the past 16 months, we have seen increased price stabilization and improved home affordability for prospective, qualified homebuyers. At the same time, we know that we must continue to provide support to underwater borrowers, unemployed homeowners, and to the nation’s hardest hit neighborhoods.”

The August Housing Scorecard features key data on the health of the housing market including:

• Stabilizing housing prices drive improving expectations in some regions. After 30 straight months of decline, home prices have leveled off in the past year; futures indices have shifted upward since January 2009 as signs of recovery continue, although overall housing outlook measures remain mixed.

• More than twice as many modification arrangements begun compared to foreclosure completions. More than 3.15 million modification arrangements were done from April 2009 through the end of June 2010. This includes more than 1.3 million trial Home Affordable Modification Program (HAMP) modifications started, over 472,000 Federal Housing Administration (FHA) loss mitigation and early delinquency interventions, and 1.4 million proprietary modifications under HOPE Now. The number of agreements offered continues to more than double foreclosure completions for the same period (1.24 million).

• More than 4.2 million families have benefited from housing counseling since April 2009. Working with a HUD-approved housing counselor can help borrowers manage debts apart from a mortgage – car payments, credit cards and personal loans, for example – and help them avoid falling into default.

• More than 37,000 homeowners received a HAMP permanent modification in July. While the pace of program entry has slowed due to upfront documentation requirements in place since June 1, this policy change streamlines the process to help more eligible homeowners convert to a permanent modification. Homeowners in permanent modifications are experiencing a median payment reduction of 36 percent, or more than $500 per month.

“HAMP, which represents just one, targeted piece of the Administration’s larger efforts on housing, has so far offered more than a million and half responsible homeowners the chance to modify their mortgages. This program has helped to stabilize a housing market that remains fragile and has redefined the modification standard for the industry – both of which are delivering real benefits to struggling homeowners in communities across the country,” said Treasury Assistant Secretary for Financial Stability Herb Allison. “Currently servicers are working through their pending modifications, and while Making Home Affordable works for a number of homeowners, many others are offered other means of avoiding foreclosure. As careful stewards of the scarce resources of the American taxpayer, we see this as prudent progress – and we will keep working to help the Americans hardest hit by this crisis.”

Data in the scorecard show that the recovery in the housing market continues to remain fragile, with some measures suggesting recovery will take place over time. For example, foreclosure starts went up slightly in July from the previous month, but remain well below July 2009 levels.

Foreclosure completions also inched upward as the volume of serious delinquencies continues to work through the pipeline.

Each month, the Housing Scorecard incorporates key housing market indicators and highlights the impact of the Administration’s unprecedented housing recovery efforts, including assistance to homeowners through the FHA and HAMP.

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Good news series 2 of 3

24 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 19, 2010—

(MCT)—As director of the Joint Center for Housing Studies at Harvard, Nicolas Retsinas has had a front-row seat for the real estate market’s dramatic boom and bust. After 12 years at the center, Retsinas left the director’s job to teach housing finance at Harvard Business School. He spoke recently with New Jersey’s The Record about why buyers got mortgages they couldn’t afford, and why real estate matters so much.

Were you surprised by the magnitude of the housing bust and how long it has lasted?
Nicolas Retsinas: Yes, by the severity of the housing bust but even more so, how credit just seized up.

When do you see any kind of loosening-up of the credit markets?
NR: I would suspect we’re likely to see the same dominance of the government at least through the balance of this year. One of the big issues facing public policymakers is what to do with Fannie Mae and Freddie Mac. If we want to attract private capital, not only from this country but also global capital, some part of that credit risk has to be borne by the government.

One of the biggest factors in the bust was that credit standards got too easy. Buyers who weren’t qualified got mortgages. Do you have any ideas about why this happened?
NR: In part, people were granted mortgages not on their ability to repay the mortgage, because it was clear that wasn’t going to happen. But there was an expectation that even if they couldn’t pay, the future increase in the value of the property would end up being the collateral for that loan. For a long time, that was a formula that worked. But we reached a point where even with these exotic—what turned out to be toxic—mortgage terms, they just weren’t affordable.

What has been the biggest human cost of the housing bust?
NR: The biggest human cost is the millions of people who have lost their homes. One can look back coldly and say, “Well, maybe a lot of them shouldn’t have bought a home in the first place.” But a lot of people lost their homes the old-fashioned way: they lost their jobs.

Who has benefited from the bust?
NR: Beside the investors who played with different sorts of financial products, I think the key winners probably have been first-time home buyers, who have maybe longed to buy a house but could not afford to. Now we’ve essentially transferred wealth from existing homeowners to new homeowners.

Some observers have been disappointed by the number of homeowners helped by the federal loan modification program.
NR: In defense of the government, when they designed this program 18 months ago, they based it on a premise that the principal problem in the housing market was egregious mortgage terms. And if those mortgage terms could be reset and recalibrated to more typical mortgage terms and could be afforded, through subsidy or whatever means, by the borrower, that would stem the hemorrhage of the defaulted loans and foreclosures.

As we moved into 2009, the problem was less about the subprime loans and more the traditional reason why people have problems making ends meet—which is that they lost their jobs. If you modify the loan so that your monthly payments are only 31% of your income, and your income is zero, that’s probably not going to work. The problem outran the solution.

Will home-price appreciation return anytime soon?
NR: The next couple of months will be an interesting test because we’ve had the withdrawal of the home buyer tax credit. I think we’re likely to have a sort of trawl-along-the-bottom type of recovery, a little bit lumpy for a year or so.

Congress is looking at new financial regulations. What effect are these likely to have on mortgages?
NR: I think it’ll make it more difficult to go back to the Wild, Wild West. There will be a new consumer financial agency, and I think that will be more likely to look at some of these (mortgage) products. I think that’s going to be critical. RE

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Good news series 1 of 3

24 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 13, 2010—

The real estate trend in firming home prices solidified in the second quarter with more metropolitan areas showing increases from a year ago, aided by a surge in home sales driven by the home buyer tax credit, according to the latest survey by the National Association of Realtors. In the second quarter, 100 out of 155 metropolitan statistical areas (MSAs) had higher median existing single-family home prices in comparison with the second quarter of 2009, including 14 with double-digit increases; two were unchanged and 53 metros showed price declines. In the first quarter of this year, 91 areas had higher prices, while only 26 MSAs experienced annual price gains in the second quarter of 2009.

The national median existing single-family price was $176,900 in the second quarter, up 1.5% from $174,200 in the same period of 2009. The median is where half sold for more and half sold for less. Distressed homes accounted for 32% of second quarter sales, down from 36% a year ago.

Lawrence Yun, NAR chief economist, said the correction in home prices appears to have ended in 2009. “All year we’ve been seeing relatively flat national home prices, which appear to be supported by market fundamentals,” he said. “Prices in some areas remain below replacement construction costs, so even with an elevated supply of existing homes on the market, we don’t expect any consequential movement in home prices for the foreseeable future. Very low inventory of newly built homes will also help to support home values.”

Yun urged caution on interpreting price data. “The median price is influenced by the mix of homes that were sold and do not reflect pure appreciation or depreciation,” he said. “The recorded home prices in many markets were significantly depressed last year because of a large percentage of distressed homes sold at discount. Now as more normal, non-distressed home sales are occurring, the median price in many areas is showing higher values.”

Total state existing-home sales, including single-family and condo, rose 9.1% to a seasonally adjusted annual rate of 5.61 million in the second quarter from 5.14 million in the first quarter, and were 17.3% above the 4.78 million-unit pace in the second quarter of 2009.

Sales increased from the first quarter in 44 states and the District of Columbia; 47 states and D.C. had increases over year-ago sales levels.

NAR President Vicki Cox Golder, owner of a Tucson, Ariz.-based firm, said record low mortgage interest rates will help cushion a summer slowdown. “As expected, sales are slowing down now that the home buyer tax credit has expired, but record-low mortgage interest rates, along with stable and affordable home prices in most areas, provide opportunities for buyers who weren’t able to take advantage of the credit,” she said.

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was a record low 4.91% in the second quarter, down from 5.00% in the first quarter; it was 5.03% in the second quarter of 2009.

“Job creation will give home buyers more confidence, but the market over the next few months is likely to be below what we would expect for the size of our growing population,” Golder said. “With improving bank balance sheets, credit restrictions should gradually improve—Realtors are a great resource for consumer information on loan availability as well as neighborhood market conditions, which vary widely.”

In the condo sector, metro area condominium and cooperative prices—covering changes in 55 metro areas—showed the national median existing-condo price was relatively flat at $175,700 in the second quarter, down 0.5% from the second quarter of 2009. Twenty-six metros showed increases in the median condo price from a year ago; the first quarter of 2010 showed 24 metros up, while only four metros saw annual price gains in the second quarter of 2009.

Regionally, the median existing single-family home price in the Northeast declined 3.2% to $238,000 in the second quarter from a year earlier. Existing-home sales in the Northeast jumped 14.9% in the second quarter to a level of 980,000 and are 23.6% above the second quarter of 2009.

In the Midwest, the median existing single-family home price increased 1.4% to $148,500 in the second quarter from the second quarter of last year. Existing-home sales in the Midwest rose 14.5% in the second quarter to a pace of 1.30 million and are 20.9% above the same period in 2009.

In the South, the median existing single-family home price slipped 2.0% to $155,500 in the second quarter from the second quarter of 2009. Existing-home sales in the South increased 10.9% in the second quarter to an annual rate of 2.10 million and are 18.8% above a year ago.

The median existing single-family home price in the West rose 2.6% to $219,700 in the second quarter from a year ago. Existing-home sales in the West fell 2.6% in the second quarter to an annual rate of 1.23 million but are 7.6% higher than the second quarter of 2009.

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Rates are at all-times lows, but are buyers taking advantage of cheap money?

3 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 3, 2010—(MCT):

The 4.5% fixed-rate mortgage is here, although more than 14 months late. That magic number, or a close approximation, was reached recently, when Freddie Mac reported a 30-year rate of 4.54%. The possibility first arose in early 2009, when the government began mass-purchasing mortgages from Fannie Mae and Freddie Mac to prop up housing. Just about everyone predicted the rates would hit what builders and real estate agents call a “sweet spot” in a few months, and the housing recovery would begin, especially if consumer confidence had recovered to prerecession levels as well.

“What gets people buying again?” asked mortgage broker Peter Buchsbaum of Arlington Capital Mortgage in Horsham, Pa. “The answer is confidence—confidence in the value not falling and confidence they’ll still have a job.”

Even if behind schedule, the 4.5% rate has arrived, but in an environment that buyers perceive as anything but inviting.

Consumer confidence fell again in July, and why? Jobs and sagging real estate values.

“People will start buying houses again when they feel securely employed, house prices are rising, and they can make low down payments,” Bankrate.com columnist Holden Lewis said. “I don’t see any of those conditions coming anytime soon, at least in most parts of the country,” Lewis said. “Job security is the most important factor.”

Suburban homebuilder Marshal Granor said that “when we went under 6 percent, I was amazed and excited, but 4.5 percent artificially increases affordability. If rates start to climb, it will severely dampen already-spotty sales.”

Moody’s Economy.com chief economist Mark Zandi concurs. “The key to more homebuying is more jobs,” he said. “Once job growth kicks in earnestly, household growth will ramp up, and so will demand.”

Zandi added that despite these “extraordinarily low rates,” many prospective buyers have little savings for a down payment and tattered credit scores.” The securely employed appear to be nibbling at the bait, however.

“There’s a new group of buyers just entering the market because of the low rates,” said Art Herling, regional vice president of Long & Foster Real Estate, although the weather is keeping them “from totally getting into the buying mood.”

Buchsbaum also reports “a greater influx of buyers than past summers.”

Philadelphia Realtor Fred Glick compared the economy to a driver with his “feet on both the accelerator and the brake at the same time.”

“Until the jobs are produced, the banks start lending, and the underwriting guidelines start to make sense, we’ll be caught in this conundrum,” Glick said.

What about home prices?

Although the Case-Shiller Home Price Index rose again in May, economists believe that prices nationally will drop 6-8% more through the end of the year.

May’s increase, economists say, is attributable to the federal tax credit that expired April 30, and to seasonal buying patterns that typically boost prices.

The indexes are three-month moving averages, “so May’s readings reflect transactions in 20 markets that closed in March, April and May,” IHS Global Insight economist Patrick Newport said. With the credit gone, “we expect them to rise for two months, then start to decline,” with recovery in 2011.

That means a lot of buyers will remain on the sidelines until prices level off completely. The lowest fixed interest rates in 50 years won’t be enough to draw them in.

“Many people are bottom-fishing,” Herling said.

On the other hand, “People are starting to view houses as places to live and build equity over time, not financial assets where they can make a killing,” said economist Joel L. Naroff of Holland, Pa. If that is the case, demand for housing would rise much more moderately. “Add to that the lack of equity and the difficulty in qualifying for a mortgage, and the outlook for sales is not great,” Naroff said.

Interest rates are rock-bottom because the economy is rock-bottom. As more investors shift their money out of a volatile stock market and to the safety of Treasurys, rates will drop further, at least in theory.

Assuming “the debt crisis abates and the economy doesn’t double-dip, both of which seem more than likely,” Zandi expects rates to close in on 5% by year’s end and over 6% next year.

“I wouldn’t bet my mortgage payment on rates remaining this low for a long time,” Lewis said. “If I were refinancing, I would lock now instead of floating in hopes of rates falling further. I think there’s a greater possibility of rates rising than falling.”

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Why’s it’s still a great time to buy real estate.

27 July, 2010 | Shauna Morris | No Comment

Courtesy of Today’s Real Estate Advisor, Margaret Kelly:

Here are three great reasons why it’s still a great time to buy real estate and make smart investments in a down market.

Low Home Prices
Although there is widespread agreement in the industry that the housing market has reached the bottom, home prices aren’t expected to spike upward. Instead, they’re likely to skip along the bottom into 2011. They will continue to decline in some markets and creep up in others. As long as buyers remain diligent in the home search over the coming months, possible pricing fluctuations won’t have a dramatic effect on their property options.

Low Interest Rates
Interest rates on 30-year, fixed-rate mortgages hit a five-month low of 4.93% in May, and as of early June the rates were holding steady below 5%. Financial concerns over the growing debt crisis in Europe have stemmed discussions in the U.S. of raising rates. The historically low rates will save home buyers thousands and thousands of dollars over the life of a loan, which arguably is reason enough to enter the market.

Other Tax Benefits
The U.S. Home Buyer Tax Credit was temporary, but there are other tax benefits that buyers can continue to count on for the foreseeable future. Property taxes, mortgage interest payments and mortgage insurance premiums are qualified deductions that can help reduce many homeowners’ tax liability. For eco-conscious homeowners, purchasing energy-efficient appliances and making other green upgrades can mean a tax credit up to $1,500. For more information, be sure to visit www.irs.gov or consult a tax professional.

Don’t miss your opportunity to take advantage of the best buying conditions the market has seen in decades. There are plenty of deals to be had in our local Reno/Sparks market. We are the experts that can help you find the right deal for you!

-DMG

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Encouraging real estate news

19 July, 2010 | Shauna Morris | No Comment

Courtesy of Vince Lotito of Prime Lending:

Some analysts feel the homebuyer tax credits artificially boosted the housing market by pushing forward home sales that would have happened later. Others feel most buyers would have bought anyway. In any case, there’s now concern about a coming drop in sales. Well, June sales figures should still benefit from activity spurred on by the tax credits. And tax credit sales should even help monthly reports through September, now that buyers in contract on April 30 have been given until September 30 to close.

Nonetheless, we ought to keep an eye on monthly Pending Home Sales, which track signed contracts that turn into sales a few months out. Even though we may have a sales dip after the tax credit, the fact remains that near historic low mortgage interest rates are getting people back into the market. These rates, combined with today’s prices, have made homes more affordable than they’ve been in years, letting many buyers move up to better neighborhoods with more choices.

But buyers shouldn’t wait. The National Association of Realtors chief economist sees the median home price rising nationally 2% to 3% this year. The NAR’s CEO feels sales will pick up in the fall and that the down-cycle has run its course. The chief economist at Moody’s Economy.com also believes the housing crash is nearly over. And we all know mortgage rates won’t stay at their current levels indefinitely. In other words, this could be one of the best times to buy a home in decades.

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Fannie Mae announces changes to the ARM policy

4 May, 2010 | Shauna Morris | No Comment

Courtesy of Perry Faigin, Mutual of Omaha Bank:

MortgageOrb.com, Sunday 02 May 2010 – 22:00:02

Fannie Maehas announced new standards for the purchase and securitization of adjustable-rate mortgage (ARM) products. The company says it is changing its eligibility criteria to protect consumers from potentially dramatic payment increases and to help ensure that borrowers who hold these types of mortgages can sustain them beyond the initial interest-rate period.

“Our goal is to make sure consumers can sustain their mortgages and remain in their homes over the long term, while helping our lender partners offer a range of mortgage products for qualified borrowers,”says Marianne Sullivan, senior vice president of single-family credit policy and risk management at Fannie Mae. “These policy changes reflect our intention to continue providing liquidity to different market segments by ensuring that support for ARM products remains in appropriate circumstances.”

For ARMs with initial periods of five years or less, Fannie Mae will require that borrowers be qualified at the greater of the note rate plus 2% or the fully indexed rate (i.e., index plus margin).

Fannie Mae will continue to make available an interest-only loan product, but will change its qualification criteria. The maximum loan-to-value ratio cannot exceed 70%, the borrower’s credit score must be 720 or higher and the borrower must have a minimum of 24 months of liquid asset reserves remaining after loan closing.

Balloon mortgages, which typically offer lower initial interest rates but leave a significant balance due at maturity, will no longer be eligible, except with special approval from Fannie Mae.

All loans not meeting the new guidelines must be purchased as whole loans on or before Aug. 31, or delivered into mortgage-backed security pools with issue dates on or before Aug. 1, the agency says.

SOURCE: Fannie Mae

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Good news!

28 April, 2010 | Shauna Morris | No Comment

The Reno/Sparks Association of Realtors came out with some good news about our market Tuesday morning. They analyzed median home price, number of units sold, percentage of original price received at sale among other key statistics from our area that help gauge the health of our market.

Click here for the Reno March 2010 Monthly Market Report

In short, things are looking up! The median home price is $175,500, which is an increase over both January and February of this year. The number of homes sold also had a big spike in March of this year which is a great indicator to help determine the absorption rate of properties and if the available inventory is headed back to a healthy level, which it is.

Possibly one of the most interesting statistics is the Sold-to-Asking Price-Ratio. This ratio shows how much of the original list price was achieved in the final sale. Even as far back as March of 2009, this ratio has not been lower than 96%. As of March 2010 this ratio jumped up to 97.9%, meaning sellers are getting near, at or over their asking price at closing.

This is critical for buyers to understand that the days of “wiggle room” are over. It’s time for buyers to write serious offers and be prepared to pay asking price for a home they really love. From my perspective, this can be attributed to the large number of short sales being purchased. Short sale banks are not accepting low offers and more often than not are countering at a higher price based on the value they receive through an appraisal.

I am an optimist. If these numbers continue on this path, we could see some great progress this year in our local market place. We still have a ways to go before we are really out of the woods, but the light at the end of the will get brighter every month.

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Posted in Housing Market News 2010, Market Statistics, Monthly Existing Home Sales, Northern Nevada | No Comments »

New goverment rescue plan for foreclosed and underwater homes

31 March, 2010 | David Morris | No Comment

Over the last seven days the papers have been full of new ideas to help the troubled home market. Anyone that is interested in the economy, job growth and unemployment must be concerned with the health of the housing market.  Until housing is back on a solid footing the US economy will be wobbly at best, and at worst it will have a second recession.  Bank of America’s proposed plan to help 45,000 homeowners is laudable but about as effective as using a squirt gun on a home fire.  What is important about Bank of America’s plan is that after three years of blindness they have cracked the door open to the unpleasant, smelly reality of the housing crisis and offered a solution to it. 

Banks and investment banks played with the US economy and profited mightily at the expense of America on the whole.  Regardless if you were conservative and never played in the housing boom, you were used by the banking industry and are now worse off for it. 

On Saturday the Reno Gazette-Journal ran a front page story “Rescue may miss many who need it”. First, let me say in essence that the paper is correct.  Bank of America is recognizing that 45,000 very sick homeowners are going to lose their homes.  The real issue is that those 45,000 are the nearly dead and it is the 16 million homes underwater that need to be focused on and until all banks step up to the plate, housing is flying south for a very long and bitter winter. 

I want to acknowledge just how difficult acting on the problem really is.  The banks have woven a web of curious networks between insurers, investors, servicers and others with protections, profits and liabilities that can be hard to understand.  Despite the problems we are facing, some are profiting from the chaos, not least the very assorted banks and investment banks that brought on the disaster to the American people.

On one hand the commonly held belief, still held by many, is to let the cleansing process work itself out.  Many homeowners that never bought during the boom, or have free and clear homes, are heard to shout this sentiment out and cast all that are in trouble as dilatants that have received their just rewards for not being smart like them.   Without a question in 2006-2007 tens of thousands of people lost their homes that should never have ever received a loan.  But now we are talking about 2010.   We are talking about people that bought homes in 2007, after the “bubble burst”, fully qualified for a home, put 20% cash down and today are underwater!  We are also talking about homeowners that purchased homes in 2001, well before the much talked about “bubble” and put 20% cash down and today have homes that are underwater.  Our market has rolled back well beyond the stupidity of 2003-2006, back to 1998-1999 values.

In the Saturday RGJ article titled “Rescue may miss many who need it”, University of Nevada, Reno economist Tom Cargill said of the new Obama plan “it’s a terrible waste of taxpayers’ money. It uses taxpayers’ money to support bad decisions made by people to buy homes they can’t afford.” Personally, I highly disagree.

We are looking at homeowners that now realize that they are $200,0000-$500,000 upside down in their homes. These were all qualified buyers, who all put down 20% or more and are underwater.  Mr. Cargill, please tell these tens of thousands of Nevada homeowners tough luck and that they made bad decisions.  Please tell them to forget that they owe more money than most and to go out and become consumers again and run up their credit cards and spend money so the economy can grow and the banks can profit and they just need to suck it up and in 7-12 years, if they are lucky, their homes just might, maybe have some equity in them.

What needs to be done?  I suggest the radical notion of the following:  protect the principal, protect the investors, encourage homeowners to pay off their principal loan balances.  First, work with all homeowners that have homes underwater and who are current on their payments.  Move all loans to a .5% interest based on a 15 year amortized loan.  Years 1-5 are at .5%, years 6-8 are at 4%, years 9+ are at 6%.

Example:  A $300,000 loan @ 5.5%/30 years has a P.I. payment of $1,703 per month.  .5% has a payment of $1,730 per month.  The point here is that many homeowners are short selling as much as they realize that it will easily be 10 years before they have equity but can make the payment.  With a 15 year loan not only do we have free and clear homes in 15 years in a mere 5-7 years, the loans will have been paid down so much that with no appreciation whatsoever in the housing market the homeowner will have equity. 

For those homeowners that are not current they can be offered 20, 25, 30 year loans.  In the same example the loan payment would drop over $800 per month on a 30 year loan.  If that does not save the homeowner then per Mr. Cargill they truly overbought or their income has been cut so much that foreclosure is their only option. 

 Drastic?  Not really.  Homeowners take homes off the market, principal is preserved, fewer homes for sale, better chance for stabilization.  Better stabilization and growth, better tax income for the city, better confidence in an individual’s personal financial position, the more likely they are to spend money. The more money they spend the more taxable income to the state, the more confidence homeowners have about themselves, the more likely to buy services, the more services they buy, the more companies can expand and hire. The more people that have jobs the better the economy and so on.

What about the federal government and the bailout money?  Well obviously .5% for 5 years is a bit painful for the banks so that money goes to give the banks/investors a 2% additional return for years 1-5.  When a seller sells in years 1-5 they pay to the federal government a percentage of the profits, if any, as a form of repayment.

Investors get their principal, banks stop write- downs, banks stop paying tens of thousands of employees to handle bad debt, banks save hundreds of millions of dollars on foreclosure costs and write-offs, homes come off the market and prices stabilize.

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Posted in Financial/banking information, foreclosures, Government Information, Housing Market News 2010, Northern Nevada, short sales | No Comments »

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