Housing Market Recovery? Maybe in 2013

US housing may fall further under the weight of foreclosures and
not rebound until 2013, even as the economy builds momentum and
mortgage rates remain at record lows, according to a survey of
109 economists released this week by Zillow Inc. When values do
rise, the gains probably won’t match those seen in the years
prior to the bursting of the bubble in 2006.  Prices for resold
homes are down 31% since the July 2006 peak, based on the
S&P/Case-Shiller Index that tracks 20 major metropolitan areas.
Values have increased 3.1% since bottoming out in March, though
more than a quarter of homeowners with a mortgage are
“underwater,” or owe more than their property is worth.  Prices
may drop an additional 7%, according to Scott Simon, head of the
mortgage- and asset-backed securities teams at Pacific Investment
Management Co. in Newport Beach, California. Homes are more
affordable now than at any time on record, setting the stage for
a turnaround, he said in a telephone interview.  US home values
probably had their smallest decrease in four years in 2011,
according to Zillow, whose survey found that prices may find
their floor in late 2012 or early 2013 and will begin rising by
3% a year through 2016. That appreciation is modest compared with
the last decade, when double-digit annual increases were common,
the Seattle-based provider of real estate data said.  “Negative
equity, unemployment and low consumer confidence remain the key
factors delaying a true recovery,” Stan Humphries, Zillow’s chief
economist, said in a statement.

Prices will fall 1% in 2012 and rise 2% in 2013, Frank Nothaft,
chief economist for mortgage-finance company Freddie Mac, said in
a Dec. 14 report.  “A full-fledged recovery in the housing sector
will likely elude the US in 2012, but new construction and home
sales are expected to be greater than in 2011,” Nothaft wrote.
Beating 2011 shouldn’t be hard.  Sales of new single-family homes
this year are on pace to fall to 301,000 from 323,000 in 2010,
which was the lowest in Commerce Department data going back to
1963. While housing starts hit a 19-month high in November, led
by a surge in multifamily construction, the annual rate of
685,000 for the month compares with a January 2006 high of 2.27
million.  Existing home sales rose to an annualized 4.42 million
in November, the highest in 10 months after figures were revised,
the National Association of Realtors said yesterday. The data
showed that annual sales were an average of 14% lower than
previously reported since 2007, magnifying the impact of the
downturn.  “Even before the revisions things were bad,” Lawrence
Yun, the group’s chief economist, said at a news conference
yesterday. “Now they are even worse.”

As lenders tightened credit standards, 33% of Realtors reported
sales being canceled last month because of problems such as
mortgage denials or low appraisals, the Chicago-based group said
yesterday. That’s up from 9% a year earlier.  Americans are
taking advantage of low interest rates to refinance rather than
buy, according to the Mortgage Bankers Association. Refinancing
accounted for 80.7% of home-loan applications for the week ending
Dec. 16, the most in 13 months, the Washington-based group
reported yesterday.  Foreclosure filings, which slowed in 2011 as
banks and loan servicers faced investigations over the use of
improper documentation to seize homes from delinquent borrowers,
are expected to be little changed in 2012, according to
RealtyTrac Inc. A total of 224,394 properties received default,
auction or repossession notices in November, down 14% from a year
earlier, the Irvine, California-based real estate data service
reported Dec. 15.

Mortgage rates hit new lows

The Associated Press reported today that the average rate on the 30-year fixed mortgage fell to a record 3.91 percent this week, the third time this year that rates have hit new lows.

Freddie Mac says the rate on the 30-year home loan fell from 3.94 percent the previous week. The average on the 15-year fixed mortgage was unchanged at 3.21 percent. That’s also a record.

Low rates combined with lower prices are making home ownership more affordable than it has been in many years.  It is an incredible opportunity to buy property.  The low rate also offers a historic opportunity for those who can afford to buy a home or refinance. It is an incredible opportunity to buy property.

But many Americans either can’t take advantage of the rates or have already done so.  As a result, this year will be among the lowest for home sales in decades.  Sellers need to be brutally realistic in pricing their property in order for it to sell.

Real Estate Market Turnaround: Impact of Shadow Inventory

There is talk of a turn-around in the housing market in 2013.  If you are planning to sell I would not bet on it.  If you are planning to buy I would not wait.  See the article below on interest rates which cannot go much lower and the impact they will have on your monthly payments.

Standard & Poors released their Third Quarter 2011 Shadow Inventory Update yesterday.   Standard & Poors included in the Shadow Inventory all stages of financially distressed properties.  And as I keep reminding people, do not forget about the deep shadow inventory, consisting of all those people who are not financially distressed but for many reasons need and want to sell but do not have their property on the market.

The KCM Blog, one of the most reputable sources of real estate information reported the following:

“Is this inventory increasing?”

“The report shows that shadow inventory is decreasing in many parts of the country as banks are starting to release distressed properties to the market. From the report:

“We estimate that it will take 45 months to clear the national shadow inventory [emphasis added].  This is seven months below our peak estimate but three months longer than our estimate a year ago. Twelve of the top 20 MSAs recorded declines in months-to-clear during the quarter, while eight reported increases.”

“What impact will shadow inventory have on real estate?”

One of two things will happen:

1. The inventory will continue to mount and be a hindrance to a housing recovery
2. The inventory will be placed on the market and impact prices

“Bottom Line:”

“We believe the inventory will come to market impacting prices now but bringing about a housing recovery in a much shorter period of time.”

Is it worth the time and money to refinance?

By Homestead Title of Madison, Wisconsin

Many people have media-fatigue when it comes to interest rates. It seems like 10 straight years of constant chatter that “interest rates are near historic lows.” Once again, the news, radio ads, and constant phone calls are imploring people to refinance because “rates are at or near historic lows.” Many people shrug this off and ignore it, happy with their already “historically low” interest rate. This can be a mistake. The reality is that, with a dragging economy, mortgage rates have once again dropped.

Rates ARE at Historic Lows!

Interest rates are indeed at historic lows and, for most people, it makes economic sense to refinance. At this time last year, consumers heard the same drumbeat about low rates. And the news was all true – rates were at historic lows, with 30 year rates at about 4.5%. Today, many banks are offering rates of 3.85% on a 30 Year mortgage. Once again, rates have hit record lows. But many home owners just don’t believe the hype.

Lender and Realtors will tell you that there is no better time to borrow or buy. From the standpoint of interest rates, this certainly appears accurate. Indeed, even if a homeowner purchased or refinanced this summer, it can still make perfect financial sense to refinance again. With interest rates almost a full point (ten basis points in lending terms) lower than early summer, a homeowner with a $225,000 mortgage can save over $130 per month. And, a first time homebuyer has incredible purchase power, with the combination of lower home values and incredibly low interest rates.

Is an ARM an Option?

It is hard to believe that mortgage rates could go any lower. Of course, we’ve all been saying this for 10 years. Still, most people would say it is crazy to pass on locking in on a 30 year mortgage at rates in the 3′s. Then again, how many people own the same house for more than 30 years? Most people move before the end of 10 years. Indeed, it is very common to move every 5-7 years. If you know that you will not be in the same house 4 or 5 years from now (your kids will be in college, your family will outgrow the house, your already thinking of a move), then an adjustable rate loan (an ARM) could be an incredible cost savings. Some banks are offering 5-Year Adjustable Rate Loans at 3.2% or lower. Using the same example above, a homeowner with a 5% interest rate might save $235 per month for the next 3-5 years.

The Challenges of Refinancing

There are challenges to refinancing. Of course, there is the paperwork and time. And there is also the increased standards and scrutiny. Gone are the days when a poor credit score could be overlooked. And gone are the days of easy appraisals. With housing values near or below levels seen 8-10 years ago, many homes simply don’t appraise for enough to support a new loan. For homeowners with decent credit and a lot of equity in their homes, these are not insurmountable hurdles. And, any homeowner thinking of refinancing should work with their lender and never assume they simply won’t qualify.

All of this is to say, believe the hype. Interest rates ARE at historic lows and it IS a great time to buy or refinance. Don’t pass up an incredible opportunity to save money or buy the home of your dreams.

Homestead Title is not a lender and does not provide any loan products. We do provide incredible service and great rates for Wisconsin buyers, sellers, and home owners wishing to refinance their loans.

A workable solution to foreclosed homes: large-scale investor purchases and conversion to rentals

Finally, the federal government is moving towards one of the few avenues of resolving the vast foreclosed home crisis.  The solution, large scale investor purchase of foreclosed homes and conversion to rental properties.  Many of these rental properties will be single family homes.  Already the percentage of the US population living in owner-occupied housing has dropped 5% from the peak about 2007 and another 5% shift from owner occupied to rental housing is predicted, bringing the percentage of the population owning versus renting back to historic norms.  The number of people involved in such a shift is huge, about 31 million.

The new innovation driven economy demands a highly mobile workforce and that is only going to be possible if many people rent or homes are highly liquid assets and easily sold for purchase price plus transaction costs.  The latter certainly is not the case now and nor will it be for the foreseeable future.  So the solution is investor purchase of single family homes on a large scale, converting them to rentals in a wide range of prices.   This will also allow the US government agencies to dispose of their vast inventory of repossessed properties.  Hooray for some pragmatic thinking!

Big investors are showing interest in an evolving Obama
administration plan to sell off foreclosed homes, although the
government will have to make the offer sweet enough to coax
private funds.  The White House is assessing how best to
encourage private companies and investors to snap up foreclosed
properties held by the government and convert them into rentals.
Officials want private partners to take over as much as $30
billion in single-family properties that are currently on the
books of government-run Fannie Mae, Freddie Mac and the Federal
Housing Administration.  Several money managers with large fixed
income funds are interested, according to sources, and a request
for ideas on how to construct a program received nearly 4,000
responses.  The foreclosure conversion program would come as the
next step to complement other government supports for housing,
including an expanded refinance program announced on Monday.

The main question for prospective investors, which include
broker-dealers and firms already overseeing similar rental
programs, is the type of financing the government will make
available—an issue officials are still struggling with.  “In
order to get a better bid, there has to be some incentive
involved to get qualified investors involved,” said Ron D’Vari,
co-founder and chief executive of NewOak Capital. “The reality is
not a lack of interest, but so far it looks like a lack of
financing.”  Incentives could include low interest rates, tax
benefits or some type of rental assistance, said D’Vari, a
portfolio adviser who has been involved in mini-bulk auctions of
real estate-owned properties, or REOs, in California.  REO
properties are those acquired by a lender, whether a bank or the
government, after an unsuccessful auction attempt. Fannie Mae,
Freddie Mac and the FHA own about 250,000 properties, close to a
third of the country’s REO pool.

One key challenge would be finding big enough blocks of
properties in specific geographic areas that could be sold at one
time. Analysts say this is what it would take to make the program
attractive to large institutional investors.  The transaction and
liability costs property managers will face as they try to bring
deserted units back up to code also pose a hurdle.  The
government also needs to determine how it will protect taxpayers,
and it might explore ways to pair up with investors and allow
Fannie Mae, Freddie Mac and FHA to keep some type of an ownership
stake in the rental properties.  A public-private partnership,
somewhat along the lines of a program the Treasury tried to use
to soak up toxic bank assets during the financial crisis, would
allow the government to gain from the sales.  Fannie Mae, Freddie
Mac and the FHA have already undertaken some small efforts to
reduce the backlog of foreclosed homes. They have donated a few
vacant properties for demolition and have held some small
auctions.  Having already received $141 billion in taxpayer
support since being seized by the government in 2008, Fannie Mae
and Freddie are under enormous pressure to make sure they
maximize the returns from the properties they hold.  “This has
got to be thought out. Fannie and Freddie would need to assess if
they are getting the return they need from a rental,” said Ken H.
Johnson, a real estate professor at Florida International
University. Johnson said one way to get over the hurdle would be
for the two agencies to be given an explicit mission of market
stabilization.

If you want to sell, lower the price!

There is no other solution. Even in Madison and Dane County.

At the risk of being repetitive, if you want to sell your property in the next year or longer, you must reduce the price so it is the best property for the money on the market or it will not sell. Over-priced properties will languish on the market and grow stale. Empty properties will feel stale to anyone walking in the door.

If you decide to rent the property until the market improves, know that this is a long term solution. When you put the property back on the market–buyers are picky because they can afford to be–so you will likely need to repaint, refinish or recarpet floors, and maybe even replace kitchen appliances. Are you prepared to do that? If not, lower the price.

Two key indices of home prices likely fell in August, suggesting large numbers of foreclosures and continued high joblessness are acting as a drag on the market, according to a new forecast. The Case-Shiller 20-city composite home price index, scheduled to be released on Tuesday, likely fell 3.8% in August from a year
earlier and 0.3% from July on a seasonally adjusted basis, said a forecast from Zillow Inc. chief economist Stan Humphries. The downward trend will continue through the end of the year, he predicts. “We expect to see continued home value depreciation as unemployment and negative equity remain high,” said Humphries. “The large foreclosure pipeline will produce relatively low priced REOs in the market, putting downward pressure on prices going forward, and we do expect the pace at which homes exit this pipeline to pick up in the near-term.” The Case-Shiller 10-City composite index is expected to register a seasonally adjusted decline of 3.5% in August from the previous year, and 0.2% compared to July.

“After showing monthly appreciation earlier this year and building some momentum, recent weak economic data is starting to be reflected in home values,” Humphries said. “Existing home sales have been disappointing, with September sales down 3% from August.” Humphries is bearish on the overall housing market for at least the next year. A survey of more than 100 economists by Pulsenomics shows the median expectation for that group is a decline in the Case-Shiller 20-city index of 2.8% in the fourth quarter from the final three months of 2010. Zillow, on the other hand, is projected a 4.5% decline, and then another 2.5% drop from the fourth quarter of 2011 to 2012. Zillow has a strong
track record of accurately forecasting changes in these Case-Shiller indices. Zillow’s July forecast for the non-seasonally adjusted 20-city index was off by just 0.1 percentage point, coming in at 4.0% compared to the actual number of 4.1%

Declining housing prices forecast for Spring 2012

Sellers waiting until next spring for better prices are likely to be seriously disappointed.

Many years, the spring market appeared to favor the sellers with the number of houses coming onto the market not be as great as the number of buyers entering the market, thus causing prices to tick upwards.

The spring of 2012 likely will be different. The supply of homes coming to the market will be increased dramatically by foreclosed properties being released by lenders. Simultaneously the number of buyers will be held down by stringent new lending standards.

So what are the real estate gurus predicting?

–Zillow believes we will not see a bottom in prices until the first quarter of 2012.
–Standard & Poors thinks prices will drop %5 in the next few months.
–JP Morgan Chase believes prices will depreciate 6 to 7% over the next six months.
–Barclays says prices will fall 7% by the end of the first quarter of 2012.

I would not rely on the real estate gurus, few of whom predicted the real estate and subsequent economic crash.  I would rely on thoughtful assessment of the facts, and those facts point to continued declining real estate prices.

 

Don’t Miss a Great Time to Buy; If You’re Waiting to Sell for More You Have a Long Wait

The following are several perspectives on the real estate market from Chris McLaughlin’s e-newsletter.  Viewing the market through several different lenses, it looks much the same.  Now is a great time to buy.  And if you are waiting for prices to rise before selling you have years to wait.  Can you afford to do that?

REO or lender owned properties will continue to have a major impact on real estate market for years to come.

Rick Sharga Says Market Will Hit Rock Bottom This Year

The US housing market hit bottom this year and will remain flat
until 2014, when it will start to slowly recover, said Rick
Sharga, an executive vice president with Carrington Mortgage
Holdings.  “We’re looking at a catfish recovery,” he told
attendees at the Asian Real Estate Association of America
conference in San Francisco Friday, saying the market will bump
along the bottom for some time before starting to revive.  More
than a million foreclosure actions that should have taken place
this year have not yet moved forward, and that delay pushes a
resolution of the housing market’s problems into next year and
beyond, he said, citing data from RealtyTrac, where Sharga served
as a senior vice president until this week.  “We can’t expect
to see home price appreciation until we work through these
distressed assets,” he said.  Since 2005, there’s only been one
quarter in which US banks have sold more properties than
they’ve taken back through foreclosure, leaving a huge overhang
of real estate-owned assets that need to be cleared out.

Banks hold about 800,000 REOs, and three-quarters of those are
not listed for sale, said Sharga. Another 800,000 homes are in
foreclosure and 1.5 million loans are delinquent.  This “shadow
inventory” will slow down a housing market recovery, he said, as
monthly foreclosure numbers will remain elevated through 2012 and
REO inventories will stay high through 2013.  Even with the
continuing distress in the housing market, the country is not
likely to enter a double-dip recession, said Eugenio Aleman, a
director and senior economist at Wells Fargo & Co.  Although US
workers have suffered as the nation has lost 9 million jobs over
a two-year period, the manufacturing and service sectors are
expanding, he noted.  “The rest of the economy is not booming,
but it’s doing fine,” said Aleman. Wells Fargo is projecting
that the US economy will expand over the next few years, but at
anemic rates: 1.6% this year, 1.4% in 2012 and 1.9% in 2013.  “We
are standing firm,” said Aleman of Wells Fargo’s economic
forecast. “We are not going to go into a recession.”

ECRI says new recession inevitable

Weakness in leading economic indicators has become so pervasive
the Economic Cycle Research Institute now predicts a new
recession is unavoidable.  “The vicious cycle is starting where
lower sales, lower production, lower employment and lower income
[leads] back to lower sales,” co-founder Lakshman Achuthan
declares in the accompanying video.  Whereas Achuthan said the
jury is still out in late August, the weakness in leading
economic indicators — and ECRI uses a dozen for the US alone,
he notes — has become a “contagion” that is spreading like
“wildfire.”  Although the recovery has been “subpar” by nearly
every measure, Achuthan refutes the idea the economy never got
out of recession in the first place. “Just because it looks and
feels a certain way doesn’t mean it’s a recession,” he says. “You
haven’t seen anything yet. It’s going to get a lot worse.”  It’s
too soon to predict just how bad it’s going to get, but he
expects another spike in unemployment and further expansion of
the federal government’s $1 trillion deficit. This forecast has
huge ramifications for the 2012 election and the already
struggling US consumer and Achuthan says a “mild” recession is
the best-case scenario.  By now you may be wondering what
separates ECRI’s recession call from the myriad other recession
calls out there. First, ECRI’s primary raison d’etre is
predicting recession and recovery calls. Second, and more
importantly, The Economist reports ECRI has never issued a “false
alarm” on a recession call, meaning many of the Chicken Littles
currently declaring “the sky is falling” might actually be right
this time around.

Mortgage help for unemployed disappears

The federal government can’t even give money away to help the
unemployed pay their mortgage.  A $1 billion program to assist
the jobless will likely end up spending only half the funds, at
most, because so few people met the strict criteria.  The Housing
Department, which had to approve the applications for the
Emergency Homeowners’ Loan Program by Friday, expects that only
10,000 to 15,000 people will qualify. That’s only a small sliver
of the roughly 100,000 who applied.  “No one could have
anticipated how difficult the statutory requirements make it to
reach homeowners,” said Lemar Wooley, a HUD spokesman.  Those who
make the cut are expected to receive between $35,000 and $45,000
in aid, he said.  Many had high hopes for the loan program
because it was targeting a segment of delinquent homeowners not
being helped by other federal initiatives, such as mortgage
modifications.

The initiative quickly became a quagmire of delays and
requirements, however. The rollout was postponed for months,
finally launching in late June. HUD originally gave people less
than six weeks to apply, but then pushed back the deadline to
mid-September.  But it was the income and delinquency guidelines
that prevented many seemingly eligible people from getting
assistance, housing counselors say. HUD used a complicated
formula that took into account monthly payments, income and
arrears.  Only 34 of the 174 homeowners who came to Tierra del
Sol Housing Corp. in Las Cruces, N.M., met the criteria, said
Rose Garcia, the agency’s executive director. Some people were
turned away because they were already too far behind in their
payments or because their income fell because of a family
member’s illness.  “This program could have made a difference to
save people from being homeless,” she said. “But it doesn’t meet
people’s needs.”  In Philadelphia, Michelle Lewis is waiting to
see how many of the 400 applications her Northwest Counseling
Service received will be approved. She fears it will be few.  One
problem she ran into was that many applicants lost their jobs
more than a year ago. Under HUD’s rules, the circumstance that
caused the delinquency had to have occurred within the past 12
months.  The Pennsylvania loan program, which ended in June
because of state budget cuts, allowed for many more hardship
conditions so it was able to reach more people than the federal
effort, she said.  “The [HUD] guidelines were so restrictive that
it knocked out a lot of otherwise eligible and worthy consumers,”
said Lewis, the agency’s chief executive.

Can you wait 9 years for home prices to recover?

A survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels until 2020,  another nine years.   Only 21 percent said that they would rise to 2007 levels before 2020.

The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.  Of  course, each community and each neighborhood is a mirco-market, not the national average.  Nevertheless, those holding out for a housing market recovery are likely to be sorely disappointed.

In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years.

 

Home prices continue to plummet; no end in sight

Home prices are continuing to drop with no turn around in sight.  I am still finding it hard to convince some sellers of this. If they wait for the value of their property to recover, they are in for a very long wait.

“Deep shadow market” home for sale. The home is for sale; it is not publicly listed for sale anywhere, including the MLS, while the owner waits for home prices to recover.

Home prices could dip another 6% to 7%, before hitting rock bottom in early 2012, according to analysts at JPMorgan Chase.   If that is the case, prices will fall about 37% from peak levels reached before the 2008 housing meltdown. In the banking giant’s September home price monitor report, analysts said the outlook is bleak, noting persistently weak housing demand. The firm said existing home sales in July hit a disappointing annualized pace of 4.67 million units, while mortgage applications plunged 14% in August. JPMorgan Chase analysts warned policymakers are running out of tools to boost housing demand.

CNBC’s Diana Olick concludes that “housing’s recovery will not be founded on anything having to do with housing; as I have argued previously, over and over and over, housing’s recovery is all about jobs and consumer confidence. It is about the bigger economy, which needs to improve before anyone can or will want to buy a house. The trouble of course is that historically, economic recovery is often driven by housing, not the other way around.”

I agree with Olick.

Madison Waterfront Frank Lloyd Wright Style Home for sale with 200 Feet of Frontage

Prairie School home by disciple of Frank Lloyd Wright

Own a rare piece of paradise, 200 feet of glorious Lake Waubesa waterfront,  2.5 spectacular acres of private hilltop. Rarely available on the market is so much lake frontage with so much acreage.  Dry hill-top lot with easily walkable slope down to lake.  Set among burr oaks, true  Prairie School home, unaltered design by notable Frank Lloyd Wright disciple John Steinmann.  Many wonderful Prairie School details.

Located in secluded large lot neighborhood, surrounded by extensive natural  areas, only 5 minutes from Beltline, 15 minutes from downtown Madison.   Dock and boat included.  As secluded as a house in the North-woods, yet only minutes from all the

200 feet of frontage, 2.5 acres, rarely on market

cultural amenities of Madison.  Great place to relax, to entertain, to raise a family, for inspiration.

Has over 2,800 square feet,     3 spacious bedrooms,       2 baths,  2 car garage, attached by breezeway.  Cathedral ceiling, expansive windows, mahogany finish.  Loads of built-in storage.  Energy efficient window covers.  Priced at only $940,000, the property would command a price of over $1 million if it had been updated.

Dining and living room with expansive windows

Square footage & acres per appraisal; house plan irregular; measurements approximate; buyer to verify.

For a private showing call me at 608-354-9456.

Historic preservation as economic stimulous

Congressman Mike Turner, Co-Chair of the Congressional Historic Preservation Caucus, has introduced legislation to encourage homeowners to preserve homes of historical significance across the country. The Historic Homeownership Revitalization Act (H.R. 2555) extends the tax credit currently in effect for commercial property owners to families living in historic homes. This legislation encourages the maintenance and rehabilitation of buildings which exemplify the culture and heritage of our communities. Furthermore, the Act incentivizes new construction on historic buildings; creating jobs.

“Across the country there are a number of communities with aging homes, with homeowners unable to keep up with their maintenance. Extension of this tax credit ensures that the history of our neighborhoods and nation remain intact for future generations,” said Turner.

The Historic Homeownership Revitalization Act would create a 20 percent tax credit — up to $60,000 — for homeowners who make expenditures to rehabilitate certified historic structures (listed in the National Register and is located in a registered historic district) in a way consistent with the historic character of the home and neighborhood in which the home is located.

Given the current mood in Washington, this bill has a snowballs chance….. of passing.  If it were to pass, it would provide excellent, labor intensive, and much needed economic stimulus and provide re-investment in housing which has suffered from neglect in the Great Recession.

 

Home sellers: don’t wait!

I cannot saY it loudly enough.

If you need to sell, have to sell, want to sell, do not wait.  Prices are headed down, significantly down.

You need to price your property to sell and sell now.  Otherwise, you are simply the highest bidder on your own property.  Here is what others are saying:

Bloomberg Businessweek

“The crux of Simon’s analysis is that the loose lending practices seen during the housing bubble allowed 5 million renters to become homeowners, and that the market is in the protracted process of evicting this group. He believes housing prices will decline 6 percent to 8 percent nationally, with 6 million to 7 million more foreclosures yet to come.”

Yahoo Finance

“The problem with the real estate market remains excess inventory. Based on Shilling’s research, there are 2 million to 2.5 million excess homes in the country — a supply that will take 4-5 years to work-off. The result: Housing prices will fall another 20% and underwater mortgages will balloon from 23% to 40%, he says.”

KCM BLOG

As of October 1,  20% down-payment will be required for most mortgages.  Number of years a family with a median household income would need to save this amount–14. Percent of current mortgage applicants who will not be able to qualify–25.2%.
 

 

 

 

Stockholm leads in historic preservation, conservation, sustainable development

In 2010, Stockholm, Sweden, was selected as the first Green Capital of Europe. It is easy to see why. In almost every area that one can think of — transportation, sewage, heating, new development, historic preservation, assorted clean technologies — Stockholm has a model project to observe.

With 800,000 people, Stockholm is roughly double metro Madison, Wisconsin in size.  And in terms of historic preservation and environmental conservation and social adaptation to sustainable development, Madison lags way behind.  We could do more–a lot more–as this article in the Huffington Post shows.

Predictions coming true: buying opportunities continue–for now–and sellers situations worsen

As reported by Chris McLaughlin in his e-newsletter, the amount of
shadow inventory remains very high.  Unresolved distressed properties are currently at an estimated $405 billion. This amount of inventory would require four years to sell, if no other properties came on the market.  Behind this shadow inventory is the market that few are talking about, the deep shadow inventory of  all those who want to sell and need to sell but do not have their property on the market.

At the start of the year, home builders were cautiously optimistic about their prospects for 2011. Home prices were picking up, prompting some builders to buy additional land and start to plan new communities.  What a difference a few months can make. The spring buying season—typically the strongest
season for home sales—ended with a thud. Builders are now backtracking on the land deals and some prices have started to fall again.

All this bodes well for buyers except that except that much higher hurdles to obtaining a loan are in the offing, scheduled to take effect October 1.  Buyers who wait may get a lower price but may not be able to get a loan.

Geoffrey Gyrisco 608-354-9456

Loans, Lead & Historic Properties

Attended training at the Realtors Association and discovered that buying historic and vintage properties potentially has become a lot more complicated in the past couple of months.  With conventional financing limited to those with substantial down payments and strong credit, many buyers are turning to FHA and Rural Development Loans (formerly Farmers Home Administration loans).  However, in order to issue a loan, FHA and Rural Development, require that all utilities be in working order, FHA requires at least 2 years of useful life remain on the roof, and both require that any peeling or chipping lead paint be corrected not only on the house but all outbuildings on the property, even on farm properties.  This can be a major barrier to obtaining a federal loan for properties requiring significant rehab.

However, such properties may be eligible for HUD Section 203(k)  Loans, (For Details on 203 Loans click here) whereby funds to accomplish the rehab work are escrowed at closing.  Keller Williams Realty is forming a national partnership with Home Depot to provide a team of federally certified building contractors to facilitate the work under such loans.  Nevertheless, this program is truly complex and is not suitable for everyone.

This market and the use of such complex programs requires a strong Realtor-Lender team such as we have with Waterstone Mortgage Corporation.   More than ever, this market requires a professional realtor who keeps up-to-date on the weekly developments, and can see all the way through the purchase process—from the initial identification of needs and desires, property search, financing, to occupancy and any needed rehab work— and be the champion of your vision.

Lead, Loans & Historic Properties

Attended training at the Realtors Association and discovered that buying historic and vintage properties potentially has become a lot more complicated in the past couple of months.  With conventional financing limited to those with substantial down payments and strong credit, many buyers are turning to FHA and Rural Development Loans (formerly Farmers Home Administration loans).  However, in order to issue a loan, FHA and Rural Development, require that all utilities be in working order, FHA requires at least 2 years of useful life remain on the roof, and both require that any peeling or chipping lead paint be corrected not only on the house but all outbuildings on the property, even on farm properties.  This can be a major barrier to obtaining a federal loan for properties requiring significant rehab.

However, such properties may be eligible for HUD Section 203(k)  Loans, (For Details on 203 Loans click here) whereby funds to accomplish the rehab work are escrowed at closing.  Keller Williams Realty is forming a national partnership with Home Depot to provide a team of federally certified building contractors to facilitate the work under such loans.  Nevertheless, this program is truly complex and is not suitable for everyone.

This market and the use of such complex programs requires a strong Realtor-Lender team such as we have with Waterstone Mortgage Corporation.   More than ever, this market requires a professional realtor who keeps up-to-date on the weekly developments, and can see all the way through the purchase process—from the initial identification of needs and desires, property search, financing, to occupancy and any needed rehab work— and be the champion of your vision.

Madison’s Historic Preseration Ordinance Upheld

One of the most unfortunate aspects of the recent debate over the Hammes Co.’s complex proposal to redevelop and enlarge the Edgewater Hotel has been the one-sided,  ideologically-driven coverage by the Wisconsin State Journal.  The many competing public policy decisions deserved far better public presentation.  The Madison City Council recently backed the city’s Historic Preservation Commission and rejected the motion to over-ride the commission’s denial of the Hammes Co.’s current proposal.

The citizen experts on Historic Preservation Commission spent seven hours carefully reviewing the Hammes Co. proposal to reconstruct and enlarge the Edgewater Hotel in the Mansion Hill Historic District.  They made their decision in accordance with the law they are required to follow, that the huge building was not compatible with the small scale of the buildings with which it is “visually related” and not compatible with the scale of the historic properties of the Mansion Hill Historic District.  To have decided otherwise would have been a violation of  the equal protection clauses of the state and federal constitutions,  granting permission to those with huge budgets to build large very buildings in the historic district while denying permission to those  with modest budgets to build small structures.

Madison certainly needs more jobs–even temporary construction jobs and hotel service jobs–and would benefit from better public access to the lakes from downtown.  There were many big questions about the design of the project, about how much additional access to the lake it truly granted, whether the pier shown in the drawings could be built legally and many more.

Another big question for city council is whether this project merits a $16 million TIF tax subsidy, the largest in the city’s history.  Also do we really need to subsidize more hotel rooms?  The Alexander Co. is building a hotel much closer to the Convention Center at its Capitol West project and Bruce Bosben of Apex is proposing to build a hotel only two blocks from the Convention Center with no subsidy.  Meanwhile the current downtown hotels are barely surviving with an occupancy rate of only 50%.  Yes, someday we may need more hotel rooms, but now?

The US Number One Lender Raises Loan Requirements

In a dramatic  announcement–an announcement that was impossible to locate on the FHA official website, but was widely reported in major media outlets– the nation’s leading mortgage lender significantly tightened lending standards.

The measures were necessary as members of Congress and others grow increasingly concerned about the long-term solvency of the agency, given the current mortgage default rate.

For a more complete explanation of these changes, please consult with a professional mortgage specialist.

On Tuesday, January 19, Reuters reported in part, below:

WASHINGTON, Jan 19 (Reuters) – The U.S. Federal Housing Administration said on Tuesday it will raise the minimum down payment required to secure an FHA-backed mortgage for less creditworthy borrowers as part of a series of steps to shore up the agency’s finances.

The FHA said borrowers with credit rating scores below 580 would be required to make a down payment of at least 10 percent, while the rate for higher-ranked borrowers would stay at 3.5 percent.

It also said it would increase the up-front mortgage insurance premium, which is paid by the borrower when the loan is made, to 2.25 percent from 1.75 percent.

The FHA also said it was cutting the amount of aid sellers could provide buyers to 3 percent of the purchase price from 6 percent, a move it said could help lessen incentives to inflate appraised home values.

The FHA said in November that its capital reserves had dwindled to just 0.53 percent of the value of the thousands of home mortgages it insures, well below the 2 percent required by law and down sharply from 3 percent in 2008.

To help rebuild reserves, the agency said it would seek congressional approval to allow it to raise annual mortgage insurance premiums — which are paid out by the borrower over the life of the loan — above the 0.55 percent maximum.  If approved, this would allow it to shift some of the increase in the up-front premium to the annual premium.

Applications for FHA-guaranteed mortgages exceeded an annual rate of 3 million in October, nearly triple the level in 2007. In 2006, when subprime and other Wall Street programs were at full speed, the annual rate for applications was less than 600,000.

Tax Credits for Replacing Heating and Cooling Systems

By: Suzanne Cosgrove

Published: September 21, 2009

By HouseLogic of the National Association of Realtors

Upgrading to an energy-efficient heating and cooling system can save hundreds on your utility bills and earn you a tax credit worth as much as $1,500.

Progress	$ E K
Save Money	Med $200/yr (energy bills)
Effort	Low 1 day (install)
Investment	Med $3,500 (HE furnace)

Do you qualify?

• Your HVAC system is at least 10 years old.
• You install a qualifying replacement in 2009 or 2010.
• You haven’t maxed out the energy tax credit on other upgrades.

The federal energy tax credit is based on 30% of the cost of an eligible HVAC system, including installation charges. Image: Bryant

Replacing an aging heating and cooling system can save you money over time. According to Energy Star, a federal program that promotes energy efficiency, about half of what the average household spends on energy bills goes toward heating and cooling.

Upgrading your heating, ventilation, and air conditioning (HVAC) to energy-efficient units can cut utility costs by about 20%, or $200 annually, on average. A tax credit for heating and cooling systems can make the project more affordable.

This type of home improvement doesn’t come cheap. Prices vary widely based on where you live, unit specifications, and the condition of your home, but figure a high-efficiency furnace will start at around $3,500, including installation, estimates Corbett Lunsford, executive director of Chicago-based Green Dream Group. A standard furnace may cost $2,400. To help offset the price difference, the IRS allows a tax credit worth up to $1,500 on eligible HVAC systems put into service during 2009 or 2010. Consult a tax adviser.

Pay attention to efficiency ratings

To earn an Energy Star rating, furnaces must be more efficient than standard units, with annual fuel utilization efficiency ratings, or AFUE, of 85% for oil furnaces and 90% for gas furnaces. The Energy Star seal of approval alone isn’t enough to garner the federal tax credit. Credit-eligible gas furnaces (either natural gas or propane) must have AFUE ratings of 95% or greater; oil furnaces, 90%. A boiler must have an AFUE of 90%.

Heating by burning a fuel is inherently inefficient. Simply put, high-efficiency furnaces have components that are better designed to get more heat out of the combustion process, Lunsford says. You’ll need to hire an HVAC contractor to calculate the size of the equipment needed for your home. Beware bidders who take a one-size-furnace-fits-all approach. Air source heat pumps and advanced main circulating fans can also qualify for the $1,500 tax credit.

Technically, a homeowner could replace either a furnace or a central air-conditioning unit and be eligible for the tax credit. Practically speaking, you probably will have to replace both for the A/C to qualify, says Enesta Jones, a spokeswoman for the U.S. Environmental Protection Agency. Most homes have split systems made up of an outdoor condenser and compressor that are connected to an indoor air handler that’s part of the furnace. Split systems must have a SEER rating of at least 16 and an EER rating of at least 13. The higher the rating, the more energy efficient the unit. A package A/C system, which houses all of its components outdoors, requires lower ratings.

HVAC’s value goes beyond savings

It typically takes about a decade’s worth of energy savings to recoup the investment in a new HVAC system, Lunsford says, though that time frame can vary greatly depending on how much fuel prices fluctuate. Less apparent in dollar terms are increasing the comfort level in your home and lowering your household’s drain on non-renewable fossil fuels. Then there’s the effect on your home’s value when it comes time to sell.

You’re going to enhance a home’s salability by moving to a more energy-efficient heating and cooling system, says Frank Lesh, president of Home Sweet Home Inspection Co. in Indian Head Park, Ill. That doesn’t mean adding a $5,000 furnace will add $5,000 to the sale price. Rather, potential buyers are less likely to push for repairs or negotiate a credit if the HVAC is in good shape. Evaluate systems older than 10 years for possible replacement.

But before you do, conduct a wider energy audit of your home. Lunsford, also manager of consumer education for the U.S. Green Building Council’s Chicago Chapter, says he rarely recommends replacing a furnace as the first step in making a home more energy efficient. Instead, start by sealing it against air leaks. Do-it-yourself caulking and weather-stripping help, as does adding insulation in the attic. Professional air sealing, which is more effective, can cost as much as $5,000 for a large house, he says. The payoff: Energy costs should go down, and you might be able to get by with a smaller HVAC system.

Getting tax credit for your upgrades

The federal energy tax credit is based on 30% of the cost of an eligible HVAC system. Installation charges count too. A $5,000 bill would max out the credit. You’ll need to owe more in taxes than you’re trying to claim in credits to qualify. Use IRS Form 5695. Save receipts for your records, as well as manufacturers’ certification statements. If part of a new HVAC system qualifies for the credit but another part doesn’t, ask the contractor to itemize the receipt.

The tax credit is aggregated for all qualifying energy upgrades—insulation, roofs, windows, and so on—so you can’t claim separate $1,500 credits for each project. Only improvements to your existing primary residence count. New homes and second homes are excluded.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Suzanne Cosgrove, who spent nine years as an editor at the Chicago Tribune, has written for a number of business and real estate publications. She has a 90-year-old house and a long list of home-improvement projects.

“Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.”

Real Estate Crisis Continues

The following draws heavily on an e-mail newsletter by Realtor, attorney and real estate trainer, Chris McLaughlin:

Mortgage Rates to Rise

The rate on 30-year fixed-rate mortgages, excluding fees, rose 0.06% from the previous week to an average of 5.01%. Analysts expect mortgage rates to rise as the Federal Reserve stops buying mortgage securities end March. “The Fed will likely take a step back to see if the private sector steps up and starts purchasing the bonds,” said Bill Emerson, CEO of Quicken Loans. “If they do not, mortgage rates could move significantly higher.” The higher rates may be demanded by those who once again take on the risk associated with Mortgage Backed Securities, one of the key elements in the financial melt-down of the fall of 2008.

Home prices may not rise significantly any time soon—

given the inventory overhang in the market. Emerson said the housing “inventory will pressure prices, so, many people are sidelined right now, waiting for prices to fall further.” The MBA’s seasonally adjusted index of refinancing applications decreased 1.5% last week. The refinance share of mortgage activity dropped to 67.2% from 69.1% the previous week. The fixed 15-year mortgage rate averaged 4.32%, up from 4.27% the previous week.

Foreclosures Rate Stabilizes—Due to Legislation and Processing Delays

According to data released by RealtyTrac, foreclosures increased 6% from the year-ago level in February; this is the smallest annual increase in 4 years. Over 308,000 households with loans received a foreclosure filing in February; this was a drop of over 2% from January. Analysts say the drop in foreclosure rate does not necessarily mean that homeowners are seeing any better times. “This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity,” said James J. Saccacio, RealtyTrac Chief Executive Officer. Nevada saw the highest foreclosure rate in February with 1 in 102 households receiving a filing. Nevada was followed by Arizona, Florida, California and Michigan. Can we expect to see a further drop in foreclosure in the coming months? “It’s premature to declare victory just yet,” said Rick Sharga, a senior vice president for RealtyTrac. Dane County, Wisconsin saw about 170 foreclosure filings in February 2010, a large number for a community supposedly sheltered from the economic storms.

Borrowers Unable to Refinance at Lower Rates:  One-quarter of all Borrowers are Upside Down on Their Current Mortgage

Credit Suisse, an investment bank, says about 37% of all borrowers with 30-year fixed rate mortgages pay 6% or higher on their mortgage. The mortgage rates are currently at 5%. If only the borrowers can refinance their mortgage, they would save 0.50% to 0.75% on their mortgage cost. Given the outstanding loan amount of $1.2 trillion on mortgages with rates of 6% or more, the potential savings run into billions of dollars. “Traditionally, these borrowers would be aggressively refinancing,” said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse. But given the negative home equity (over 25% of mortgage holders are currently “underwater”) prevailing in the housing market, tightening of lending norms by banks, unemployment and declining incomes, homeowners are unable to take advantage of the fall in mortgage rates. Some analysts say hike in loan fees imposed by Fannie Mae and Freddie Mac after delinquencies rose has also deterred homeowners from going for refinancing. Alan Boyce, a mortgage-securities-market expert, says loan fees are partly “responsible for why there’s been no refi boom.”

Alternatives to Foreclosure: Update on HAFA, HAMP, Short Sales

 

Homestead Title of Madison provided the following

If you handle any aspects of short sales, you must know about HAFA.  For updates and information, see Homestead’s Blog, or read the following:

The Home Affordable Foreclosure Alternatives Program (known as HAFA) went into effect on April 5, 2010. HAFA allows owners to participate in a “short sale” with standardized procedures and expedited timelines. Short sales are traditionally the hardest and longest transactions to complete and involve dozens of hours of phone calls and paperwork and a very high level of expertise. HAFA, it is hoped, will streamline this process. It is important to note, however, that HAFA does not replace the traditional short sale. Rather, it is a stream-lined short sale process that applies to specific owners who have mortgages with specific, participating lenders.

HAFA Is Not For Everyone

HAFA is not a mandated program that all lenders must follow. Nor does it apply to all distressed home owners. HAFA only applies to lenders that voluntarily participate in the HAMP Mortgage Modification Program. The good news is that this includes most major, national lenders, such as: Citi, Bank of America, Wells Fargo, GMAC Mortgage, Chase, Litton, and many others. The bad news is that the program does not apply to Fannie Mae or Freddie Mac loans, which account for a huge percentage of home loans. Nor does it apply to most smaller, local lenders.

In addition, the program does not apply to the following:

• Loans originated after January 2009,
• Loans with a balance over $729,750,
• Property that is not the seller’s principal residence,
• Loans where the total monthly mortgage payment does not exceed 31% of the seller’s gross income.

In other words, HAFA may make a difference for some distressed home owners. But, it may not even apply for a large group of owners and their lenders. In that case, the traditional short sale process may still be a viable option.

How It Works

HAFA is a short sale program designed to work with the Federal home loan modification program called HAMP. The HAMP program is intended to allow distressed homeowners to stay in their homes by using mortgage modifications that lower their monthly payment. The Federal government recognized that many (if not most) homeowners either did not qualify for HAMP or could not even pay the lowered mortgage payment. HAFA is intended to offer these home owners an option to sell their home through a streamlined short sale process.
Traditional Short Sale

In a traditional short sale, the home owner needs to request a short sale from the lender. The process, in a nutshell, goes something like this:

1. Sellers and/or Realtor contact lender and initiate discussions about short sale.
2. Sellers collect reams of documents to prove to the lender that they cannot pay the mortgage.
3. The Realtor lists the property and tries to find a buyer, having no idea how much the lender will demand or what purchase price will be enough for a short sale.
4. Once a buyer has signed an offer to purchase, the seller submits a “short sale package” to the bank. The package contains all financial information and documentation showing the seller is unable to pay and the offer to purchase.
5. The bank often (usually) requests additional documents and follow up documents and it can take many efforts, phone calls and faxes to finally confirm that the bank has what it needs.
6. The Seller, Realtor, and perhaps attorney spend weeks or months negotiating with the bank over the terms of the short sale, including the purchase price, what closing costs and commissions will or will not be paid, how much money the seller might need to contribute at closing, and whether the bank will forgive the debt or demand a deficiency after closing.
7. The Bank finally approves the short sale based on the purchase price, offer to purchase, and any amendments that needed to be negotiated to get bank approval;
8. The sale finally closes.

This process can take months, and in some cases more than a year. Every lender has slightly different requirements and they each handle transactions differently. Most short sales require dozens upon dozens of long phone calls and an unbelievable level of persistence, patience, and hard work. And, Sellers and Realtors must repeat this process for every second mortgage. Up Until the moment of closing, the seller may not know if the lender will demand a deficiency. If the lender does demand a deficiency, the Seller will still owe the bank after closing.

HAFA Short Sale Process

HAFA is intended to streamline and standardize the procedures for short sales. The HAFA process goes something like this:

1. Seller applies for mortgage modification through HAMP program and is either denied or misses payments;
2. The lender must proactively notify the Seller about the option of a HAFA short sale (or the seller can ask);
3. The lender sends a Short Sale Agreement (SSA) and a blank document called a Request for Approval of Short Sale (RASS);
4. The Seller has 14 days to sign the SSA and return it to the lender along with the Realtor’s listing agreement and a title search showing any other mortgages or liens;
5. The Lender will inform the Seller (even before any buyer submits an offer) what it will take to get short sale approval – either a purchase price or the amount of proceeds needed
6. Once a buyer has signed an offer to purchase, the Seller and Realtor have 3 days to fill out and submit the Request for Approval of Short Sale (RASS) to the lender.
7. The lender has 10 days to accept or deny the RASS;
8. Upon acceptance of the RASS, the Seller proceeds to closing.

The fact that we were able to summarize both processes into 8 steps does not mean that HAFA will be just like an ordinary short sale. Step one will require the seller to submit much of the same documents as a traditional short sale. Indeed, a Mortgage Modification also requires financial disclosures and reams of documentation. But, once this step is done, the rest of the process is much smoother, much faster, and standardized.

Differences Between HAFA and Traditional Short Sales

HAFA improves the short sale process in a number of important ways. But it also comes with some trade-offs. The following chart highlights the differences between HAFA and traditional short sales:

Traditional Short Sale	HAFA
The home owner generally does not make mortgage payments up to the date of closing. They live “rent free” during the short sale process.	Under HAFA, the owner must make mortgage payments up to 31% of their income. Failure to pay the mortgage will disqualify the owner from participating in HAFA.
Lenders can demand a deficiency for the amount of the short-fall. In other words, the debt is not forgiven after closing.	First-Mortgage lenders must waive the deficiency and must negotiate with second-mortgage lenders to waive their deficiency as well.
The Seller could receive no funds at closing.	Sellers can receive “cash incentives” at closing for up to $3,000.
Lenders generally budget up to $3,000 to pay second mortgage holders.	Lenders are given a government incentive of up to $6,000 to pay to second mortgage holders.
The property could be sold by a Realtor or For Sale By Owner (FSBO)	Property must be listed with a Realtor.
Lenders can take as long as they wanted to approve or deny the short sale	HAFA imposes strict and short time-lines on participating lenders
Lenders will not begin to “negotiate” a short sale or even initiate the process until a buyer has signed an offer to purchase	Lenders must start the process at the time or even before the property is listed with a Realtor.
Lender does not give short sale approval until days before the closing.	Lender must approve the short sale, including the amount they will receive within 10 days of receiving the accepted offer.

These differences are important to understand. More importantly, it is critical to understand that HAFA
does not replace the traditional short sale. It is an additional tool that applies to certain lenders and certain home owners.

Homestead Title is always available to answer questions and help you with your short sale closings. Subscribe to our Blog for updates on Short Sales, HAFA, Title insurance and other interesting news.

We look forward to seeing you at the closing table!

HOMESTEAD TITLE

Chris McLaughlin says the current real estate market can make you rich

Today’ e-newsletter from Chris McLaughlin had some interesting insights into the longer-term direction of the real estate market.

“Six Reasons Short Sales Will Make You Rich” by Chris McLaughlin

1. Inflation – Past, Present & Future. The historic rate of inflation is roughly 3 percent but double digit inflation has taken place during periods of economic volatility and expansionary monetary practices such as those embraced by the current administration. Experts tend to believe we may encounter inflation in the 8 or even 10 percent rate within the next 3 to 5 years leading to high rates of nominal returns among all physical assets including real estate.

2. Demographic Demands – Immigration, escalating birth rates among minority populations and longer lifespan for elderly citizens all adds up to a rapidly expanding number of people seeking shelter and basic homes.

3. Declining Inventory – The media makes much ado about excess inventory but savvy short sale investors will also notice the simultaneous reporting of a ‘shortage’ of affordable housing. Can both situation be true?

Yes. While the absolute number of housing units available may currently exceed demand, the actual number of affordable and desirable units is much more restrictive. For example, pier construction, energy efficiency, zoning regulations and other mandates often result in a lack of affordability even if the primary mortgage is acceptable. As units become functionally obsolete, the demand for safe, convenient, inexpensive homes will grow.

4. Leverage – Real estate benefits the small investor via the use of leverage; few other investments have the advantage of leverage combined with physical assets and alternative sources of income; it’s a winning combination that provides maximum flexibility and minimal personal risk when properly structured.

5. Taxing Tribulations – Budget shortfalls and aggressive social support obligations are stressing federal and state budgets to the maximum. Earned income taxes, estate taxes and even a newly proposed VAT tax are likely to take a big bite out of average taxes for middle class Americans. Shifting from higher taxed earned income to lower taxed Capital Gains is a quick way to reduce the overall tax burden by 10 to 15 percent.

6. Short vs. Long Term Strategy. The age old adage to “buy and hold” stocks, bonds or even real estate for the long haul has come under increased scrutiny in the wake of fiscal irresponsibility, irregular reporting habits and unreliable regulatory agencies. The new trend is to take profits when they are available, maximize cash flow and focus on short term gains rather than the promise of long term appreciation. Short sales provide exceptional ROI without the long term risk.

Donovan Rypkema Defends Save America’s Treasures Program

Donovan Rypkema’s blog provides an extensive discussion of the Obama Administration’s cutting of the Save America’s Treasures program.  Few are as well qualified as Donovan Rypkema to defend the program on economic policy grounds.  Rypkema also summarizes other attacks on historic preservation around the country, motivated by political ideological posturing.

“And if the White House action were the only bad news we could attribute it to some idiot in OMB who deserves a trip to the woodshed. But in the legislature in Arizona a Republican State senator has introduced a bill to end property tax reductions for historic houses. In Indiana a Republican state legislator is angry because CVS was denied permission to demolish a historic church in her district so she is proposing to emasculate the Indianapolis Preservation Commission. In Missouri, Iowa and elsewhere reducing the effectiveness of state historic tax credits is high on legislative agendas. In Washington the state Main Street program is proposed to be zeroed out. A new city council in Poughkeepsie, New York repealed the historic preservation ordinance just passed by the previous council.”

Federal Home Buyer Tax Credits End

To be eligible for the federal tax credits of  $8,000 for those who have not owned in the past 3 years or $6,500 for those who have owned for 5 years, a purchase contract must be in place by April 30 (except for those serving in the armed forces abroad who have additional time).  In Madison and Dane County, Wisconsin, the inventory most appealing to first time buyers is picked over, leaving the less attractive and over-priced properties behind.  Real estate agents have been working frantically to assist buyers in meeting the deadlines.  Now the crunch moves on the certified building inspectors.

The local Dane Count housing market will move into the next phase.  Life circumstances and economics will lead to new inventory coming on the market.  Confounding me as well as the experts, interest rates have risen only gradually after the Federal Reserve Board ended the purchase of Mortgage Backed Securities, holding interest rates artificially low.  Interest rates for those with excellent credit are expected to reach only 6% for a 30 year fixed loan by the end of 2010 and 7% in 2011, still low by historic standards.  Buyers who stood on the sidelines will find new opportunities with fewer competing buyers, new inventory, bargains in hundreds of distressed properties, and sellers who will be compelled to reduce their price.  Sellers will be able to sell to serious buyers, often those with considerable cash to put down and less dependent on ever changing federal loan policies and incentives.

Donovan Rypkema Takes Obama Administration to Task: Stimulus Spending vs. Save America’s Treasures

The many diverse projects scattered across the country might make the Save America’s Treasures program look like pork barrel spending by members of Congress.  Donovan Rypkema, the nation’s foremost authority on the economics of historic preservation has taken the Obama administration to task for killing the program without undertaking the most basic analysis of the program’s impact.  Historic preservation has been documented as creating jobs at roughly one-twentieth for every one created by the stimulus plan.  In this case the Obama administration, like so many of those now holding public office seems more concerned about political posture than facts and effective governance.

“Between 1999 and 2009, the Save America’s Treasures program allocated around $220 million dollars for the restoration of nearly 900 historic structures, many of them National Historic Landmarks. This investment by the SAT program generated in excess of $330 million from other sources. This work meant 16,012 jobs (a job being one full time equivalent job for one year…the same way they are counting jobs for the Stimulus Program). The cost per job created? $13,780.

This compares with the White House announcement that the Stimulus Package is creating one job for every $248,000. Whose program is helping the economy?

If there was such a thing as shame left in Washington the White House should be ashamed to be throwing away a program that creates 18 times as many jobs per expenditure than does their own Stimulus Plan; ashamed to be so inattentive they the couldn’t be troubled to do a couple of hours of work before they dumped a program; but mostly ashamed of kicking around a constituency group because they were deemed to be too weak and small to defend themselves.”

For a series of articles on this topic.

Zillow Predicts No Home Appreciation for 5 Years

A growing percentage of U.S. homeowners were saddled with “underwater mortgages” in the first quarter, accounting for almost one in four homes in a trend that poses a serious threat to the housing market’s recovery, real estate website Zillow.com said on Monday. U.S home values also declined again in the first quarter, Zillow reported. It was the 13th consecutive quarter of year-over-year declines. “Several large California markets have shown significant stabilization in home values, marking what could be a bottom,” Stan Humphries, Zillow chief economist, said in an interview. “But, most markets across the country remained in decline.” Home values declined year-over-year in 106 of the 135 metropolitan areas tracked by Zillow. Humphries said the government’s recently expired homebuyer tax credits likely only shifted the timing of sales, rather than creating new demand. Buyers seeking to take advantage of the tax credits had to sign purchase contracts by April 30 and have until June 30 to close on the sales. Humphries said inventory levels were rising during the first quarter and home values continued to decline at a steady clip, even when the tax credits were still in place.

As a result, national home values are likely to reach bottom in the third quarter, and home value appreciation will likely then be near zero for some time, possibly as long as five years, he said. The number of homeowners losing their homes to foreclosure across the country rose to a new peak in March, with more than one in every thousand homes, or 0.11 percent, being foreclosed, the highest since Zillow began recording national foreclosure data in 2000. Foreclosure resales remained high in March, accounting for 22.2 percent of all U.S. home sales. Foreclosure resales made up the majority of sales in several metropolitan areas, the reports showed.

Commercial Real Estate Vacancies to Peak Early 2011

Vacancy rates continue to rise in most commercial sectors and are not expected to level out in most markets until the end of this year or early 2011, according to the National Association of Realtors®.Lawrence Yun, NAR chief economist, said there is one bright spot in commercial real estate. “The multifamily sector can expect increased demand as the economy creates jobs and new households are formed, likely in the second half of this year,” he said. “However, the office, warehouse and retail sectors continue to experience the delayed effects of the recession. These sectors should see gradual improvement after jobs pick up and create additional demand for space, meaning a broader improvement in commercial real estate is likely in 2011.” The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of nearly 700 local market experts, confirms that significant fallout from the recession remains.

Looking at the overall market, commercial vacancy rates appear to be approaching a plateau, according to NAR’s latest Commercial Real Estate Outlook. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

The information above is taken from a daily e-newsletter prepared by Chris McLaughlin.

Shadow Inventory will Prolong Real Estate Slump: Economists

“Economists, during an annual meeting of the National Association of Real Estate Editors, shared that continuing foreclosures and an “overhang” in housing inventory will likely prolong the housing slump for several more years.  Home values in many markets are still in decline, said Stan Humphries, chief economist for online real estate search and information company Zillow. And housing demand may not see a normal balance with new household formation and housing starts until 2013, said Doug Duncan, chief economist for secondary mortgage giant Fannie Mae.

The “overhang or shadow supply” of housing inventory has a lot to do with the drawn-out recovery for the housing market, he noted.  Zillow also forecasts a bottom in home prices during the third quarter. The “tremendous amount of shadow inventory,” which Humphries defined as properties that are in foreclosure and not yet on the market or are seriously delinquent and not yet in foreclosure, is definitely a contributor to the stalled real estate recovery, he said. Negative equity, combined with high unemployment is the other key factor. The federal tax credit programs offered to first-time and existing homebuyers do not appear to have had a major impact in driving sales, he also said Humphries. Also, the tax credits appeared to just be “stealing demand” ahead in time, and July and August are the months to watch out for.”

From E-newsletter by Chris McLaughlin.

I would add to the shadow inventory the many properties that belong to people who urgently need to move or have moved, yet do not have them on the market because they do not believe that they will get the price they need.  Even in Dane County, between every home or condo with a for sale sign hanging out front, there is another property that is part of the shadow inventory of properties for sale.

HAFA & HAVA: Feds Work Towards Solution to Mortgage Crisis

Until recently, the response to the nation’s mortgage crisis has been much like the response to the Gulf oil spill.  As the size of the problem grows and grows, repeatedly under estimate the size, rely on the private sector while claiming the government is in control, and experiment with one untried program after another until something works.

Well, finally, the federal government and leading banks seem to have developed a program that can work. For details see http://u.nu/5n3pb Called the Home Affordable Foreclosure Alternatives Program (known as HAFA) it provides a workable means for homeowners to sell their homes for less than what they owe on the property and cannot afford to pay.

Yard Sign Sells Homes? Doubtful. Internet? Yes!

According to Karen Rivedal, “when it comes to selling a house, a good old yard sign is still one of your best bets, local agents tell Property Trax.”

“But” Rivedal goes on, ”the sign needs to have some new-fangled technology associated with it, they said.”

“‘You need a rider on there with some number the potential buyer can call or text immediately for more information or to schedule a showing,” said Jo Ferraro, a leading agent with Century 21 who markets properties around Dane County.”

Bill Kessler, president of Century 21 Affiliated, also listed a yard sign among his top selling tools, along with “stand-out Internet marketing like Realtor.com enhanced listings.”

A little computer research turned up quite a persistent and lively debate among agents about those enhanced listings, though. Sponsored by the National Association of Realtors, the listings were judged too expensive by many agents, though some swore by their value.

Noting “everybody goes online” to search for houses, Ferraro also advocated using Internet tools that set the home apart and — most importantly — that make the process of exploring listings quick and easy for the potential buyer.

Another important thing to keep in mind is the quality of the home photos that a seller posts with an online ad.

They have to be good, no exceptions, Ferraro said.

“If you don’t have quality photos, if your house doesn’t show well online, you won’t get buyers to even look at it,” she said.”

Geoffrey Gyrisco’s take on all this?  I may get a chance this fall to demonstrate that a yard sign matters little in this day and age, with a potential listing in University Heights where the owner does not feel that the neighbors would look kindly on a large yard sign.

I agree with Jo Ferraro that a sign rider is useful for those wanting to pull up a full description and interior photos on their smart phone while standing in front of the house, while the agent has a chance for an immediate follow-up call to see if they would like to see the property.  This is the era of instant information.  Nevertheless, a yard sign is very much secondary to how the home appears on the internet.

As for Realtor.com “enhanced listings,” Keller Williams Listing Service provides more information to prospective buyers using the internet than Realtor.com and at less cost.  Check out www.GeoffreyHomes.com, which pulls information from the Keller Williams Listing Service and the Multiple Listing Service.

I agree with Ferraro that top quality photos are critical.  About 90% of buyers search for their homes on the internet, whether in Madison or rural villages, and unless the photos are compelling they will click on to the next property.  And they have a lot of properties to choose from.  To get on the list of “must see” properties the photos have to be excellent. Personally, I am skeptical of value of the fancy virtual tours with their languid panoramic views and accompanying music.  How many buyers looking through a large batch of listings will spend the time?  The fancy tour may do more to seal the value of the agent’s marketing in the eyes of the seller, than to catch the eyes of the buyer.

In the current market it is 80% price, price, price; 15% condition and presentation; and 5% marketing.  Agents will stress how their marketing is superior to their competitor’s.  Good marketing is essential and poor marketing can sabotage a property selling.  It will not sell an over-priced property.  More on that in another column.

Foreclosure to Carry More Severe Penalty

Some homeowners, often owing far more than their home is now worth and suffering from other financial difficulties, now will find foreclosure a much less attractive way to live “rent free” for one to two years or more.  That is, the owner pays utilities and makes critical repairs and makes no mortgage payments.  This reduction in household expenses has permitted some financially strapped home-owners to get back on their feet. These strategic defaults on mortgages now will in many cases be a less attractive route out of burdensome debt.  A key aspect of the new policy, is who has to prove and by what means that the homeowner could or could not have paid the mortgage, and made a choice to default when they could have paid the mortage.  For other paths out of mortgage hardship, see the article on HAVA-HAMP programs (click here). I highly recommend the advice of an attorney in determining what course of action to take.

Fannie Mae Gets Tough on Homeowners Who Walk Away

by Chris McLaughlin

The courts will now come to the mortgage giant’s plans to take on those who decide not to make their payments. It also will limit their access to future loans. Foreclosures continue at a rate of 2.5 million a year, Federal Deposit Insurance Corp. Chairwoman Sheila Bair said, and some 11 million households owe more on their mortgage than their home is worth.  Taking aim at homeowners who are able to pay their mortgage but decide it’s not worth it, Fannie Mae plans to go after them in court and to limit their access to home loans for seven years. It was a clarion call to companies servicing its loans to recommend, engaging in a so-called deficiency judgment — a court order requiring a defaulting borrower to pay any remaining unpaid portion of the loan after a seized home is sold.

Fannie Mae also said it would make new mortgages harder to obtain for borrowers if it can be proved that they engaged in a “strategic default” — abandoning a home to foreclosure not because the required payments are unaffordable but because the mortgage is larger than the value of the residence. For such a borrower, Fannie said it would not buy or guarantee another home loan for seven years.  Borrowers who are slightly underwater — owing just a little more than their homes are worth — are unlikely to stop paying their mortgages if they have the resources, according to studies by research firm CoreLogic. But if the home’s value is at least 25% less than the loan amount, borrowers are far more likely then to walk away.  Last March, 31% of foreclosures were described as strategic by the borrowers themselves, compared with 22% in March 2009, researchers at the University of Chicago and Northwestern University reported.

Diana Olick – Fannie Mae: Walk Away and You Will Pay

“Dare I say it? “What took you so long??” An announcement from government-owned mortgage giant Fannie Mae warns: “Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure.” I have to ask: Why only seven years? Up the ante! Look, I understand that a lot of folks are sitting on overwhelming bundles of negative equity in the form of four walls. A very credible argument can be made that a bad investment should not be a jail term. However, a lot of the housing crash was based on a fundamental change in attitudes toward home ownership, i.e. that a home is an investment before a dwelling.

The pendulum needs to shift back, not all the way, but more toward the traditional use of home: A place to live, not an A.T.M. “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments,” notes the press release. I’m wondering why they haven’t been doing that all along? My guess is they simply don’t have the legal resources available to handle such a huge job…which brings me to my final thought: If the mortgage walk-away issue is big enough for Fannie Mae to get this tough, then why have Administration officials been telling me over and over that “it’s just not that big an issue.” Seriously, I’ve done several interviews over the past year, bringing it up over and over, and they just seem to want to sweep it under the rug. I guess the rug is getting a bit too bumpy.”

Low Interest Rates Increase Affordability: Buyers Still Reluctant

Jul 8, 2010 11:24am EDT

By Julie Haviv (edited by Geoffrey Gyrisco)

NEW YORK July 8 (Reuters) – U.S. 30-year mortgage rates dropped to a new record low in the past week, according to a survey released on Thursday by Freddie Mac FMCC.OB.

Attractive mortgage rates have raised demand for home refinancing loans in recent weeks. They have failed to increase appetite for mortgages to purchase a home, a trend that does not bode well for a housing market that still faces a huge imbalance between supply and demand.

Rates on 30-year fixed-rate mortgages, the most widely used loan, averaged 4.57 percent for the week ended July 8. (Actual rates any borrower may be offered will depend on a complex grid involving many factors.)

Freddie Mac said the 15-year fixed-rate mortgage averaged 4.07 percent.

The rate on the 5/1 ARM, set at a fixed rate for five years and adjustable each following year, was 3.75 percent.

While low rates and high affordability have helped the housing market gain ground, it has struggled in recent months given stubbornly high unemployment and mounting foreclosures.

Home loan refinancing, however, puts more cash into consumers’ hands to funnel into the U.S. economy and could help many homeowners avoid foreclosure.

These historically low interest rates have significantly increased home affordability.  However, many would-be buyers, facing job insecurity and surrounded by a national sense of financial anxiety,  are reluctant to buy.

Luxury Foreclosures Up

While we have relatively few home in the $million plus price range, the rate of default in loans on higher value properties is higher than lower value ones.  So if you have the money for a home in upper price ranges, opportunities for an excellent purchase are here and more are coming.

Rich are biggest defaulters

According to the real estate analytics firm CoreLogic, more than 1 in 7 homeowners with mortgage loans in excess of a million dollars are seriously delinquent.  Whether it’s their residence, a second home or a house bought as an investment, the rich have stopped paying mortgages at a rate that greatly exceeds the rest of the population.  By contrast, homeowners with cheaper housing are much more likely to keep on top of their mortgage. Only about 1 in 12 mortgages below the million-dollar mark is delinquent.  CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.  “The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.  The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.  With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

From E-Newsletter by Chris McLaughlin

Madison, Wisconsin’s Great Neighborhoods

The August 2009 issue of Madison Magazine had this article on Madison’s distinctive and historic neighborhoods.

By Neil Heinen, Brennan Nardi, Shayna Miller and Katie Vaughn

Westmorland

Year Established: 1916 (the first subdivision plat filed)

Icons & Landmarks: Beatty & Strang International Style house, Frank Lloyd Wright–designed Usonian House, Glenway Golf Course, J.H. Findorff & Sons’ “Lustron” steel-built homes, Midvale Community Lutheran Church, Midvale School and Community Gardens, Queen of Peace Catholic Church, Sequoya Commons, Stone Pillars at Westmorland Blvd. and Mineral Point Rd., Otto Toepfer house, Village Bar, the annual “Weed Feed” invasive species recipe fest, Westmorland Park

Why It’s So Special: The new library at Sequoya Commons, a condo and retail complex that woke up the sleepy west-side neighborhood, is the busiest branch in the city, and residents are fully engaged in community, environmental stewardship and revitalization. With a neighborhood association that goes back almost seventy years, there’s a deep-rooted sense of appreciation and belonging that crosses generations whether it’s ecovolunteering, attending social events, enjoying the bike path, donating to the neighborhood health charity fund that raises $12,000 annually, or simply gathering with friends in the park or coffee shop. –BN

Williamson-Marquette

Year Established: 1857 (oldest home in the neighborhood)

Icons & Landmarks: Yahara River bridges, Marquette and O’Keeffe schools, Machinery Row, Orton Park. Brick wall advertisements: Gardner’s Purity Bread, King Midas Flour, Madison Candy Company. Festivals: Waterfront, La Fête de Marquette, Orton Park, Willy Street. Retail: The Kitchen Gallery, Rick’s Olde Gold, MadCat. Restaurants: Eldorado Grill, Weary Traveler, Jolly Bob’s, Lao Laan-Xang; Willy Street Co-op

Why It’s So Special: Known affectionately as “Wil-Mar,” the Williamson-Marquette neighborhood is a “forever ’60s” kind of place. With one sandal-clad foot firmly in the past and the other in the present, Wil-Mar has established itself as more than a crunchy ’hood. Whether you’re a young, hip urbanite or an old hippie, festivals invite everyone to celebrate, and residents depend on them to support the community. While we all love Wil-Mar for its eccentricities worn as badges of honor, businesses you won’t find anywhere else— Hempen Goods, Grampa’s Gun Shop, A Woman’s Touch and Ford’s Gym—are weathering the shaky economy, proving that funky or not Wil-Mar marches to a healthy, here-to-stay beat. –SM

University Heights

Year Established: 1893 (annexed by the city of Madison in 1903)

Icons & Landmarks: Olin House, home to the UW–Madison chancellor; the Gilmore House, built by Frank Lloyd Wright; the Bradley House by Louis Sullivan, the Elliott House by George Maher, Randall School, First Congregational Church

Why It’s So Special: Strolling through this neighborhood is literally a walk through Madison’s architectural heritage. Frank Lloyd Wright, Louis Sullivan, George Maher, Frank Riley, Alvan Small and others made their mark here, popularizing the Prairie style and also furthering the Queen Anne, Georgian revival, Tudor and International traditions. And look no further than the street signs—marking roads such as Van Hise and Bascom—for proof that the neighborhood developed in tandem with UW–Madison in the early twentieth century. –KV

Dudgeon-Monroe

Year Established: How about 1909 when Madison’s first gasoline filling station was built at Spooner and Monroe streets? The Dudgeon-Monroe Neighborhood Association was established in 1973.

Icons & Landmarks: Budd’s Auto Repair, Edgewood College (and the Pleasure Drive that runs behind it), the Southwest Bike/Pedestrian Path (or Bicycle Beltline to the locals), the “mini-arboretum,” Blessed Sacrament (“BS” to the locals), Temple Beth El and the Friends House, David Maraniss, the real Arboretum (or at least part of it), Mallatt’s and Neuhauser’s pharmacies, Michael’s Frozen Custard and the Laurel, Orange Tree Imports and Parman’s

Why It’s So Special: Are you kidding? Frozen custard, trustworthy car care, walkable, bikeable, pretty, practical and politically active with a football stadium on one end and the home of the Madison Opera on the other. You’re surrounded by Vilas, Nakoma and a cemetery with your own golf course. (Okay, you share the golf course.) You’ve got a good mix of businesses, outdoor recreation, restaurants, coffee shops, property tax bills and little red flags to help you get across Monroe Street. Life is good in Dudgeon-Monroe. –NH

First Settlement

Year Established: 1837 (Madison’s first residential settlement)

Icons & Landmarks: The Progressive magazine, the Isthmus newspaper, Essen Haus, Lake Monona, the State Capitol building, Café Continental, the Great Dane Pub & Brewing Co. (formerly the Fess Hotel), the Majestic Theatre, Marina condo building

Why It’s So Special: Whether it’s at the top of the Marina condos, a sidewalk table at Café Continental or even the Capitol rotunda, the First Settlement ’hood has some of the most amazing views in the city—all different, all special. Cosmopolitan in some parts and residential in others, this downtown neighborhood has one of the most urban slices of the city within its confines. Walking down King Street, it’s a bustling cityscape with high-end men’s shop Context, live band venue the Majestic Theatre, stellar sushi place Muramoto, cheeky gay sports bar Woof’s and chic cocktail haven Opus. Walk a block or two east and find peaceful, tree-lined residential streets with a lake view and a beautiful bike path thrown in. –SM

Tenney-Lapham

Year Established: 1850 (the year the first building was constructed in the area)

Icons & Landmarks: Annual Art Walk, Avenue Bar, Christ Presbyterian Church, 1909 Prairie-style City Market converted into apartments, East Johnson business district, Gates of Heaven public meeting house, James Madison Park, Lapham School and Community Gardens, Reynolds Park, Tenney Park and Locks, Tour de (Chicken) Coops, Yahara River Parkway

Why It’s So Special: From mansions on Lake Mendota to two- and three-story flats along the busy Johnson and Gorhman thoroughfares, you’ll find historic and contemporary housing stock of all kinds and people of all ages living in this close-knit community that organized its first annual neighborhood festival this summer. Residents are also raising $1.6 million for a beautiful new Tenney Park Shelter that hopes to open in time for the 2010 ice-skating season. –BN

Vilas

Year Established: 1889 and 1896 (annexed by the city of Madison in 1903)

Icons & Landmarks: Vilas Park, Henry Vilas Zoo, Bear Mound Park (also known as Vilas Circle); Lake Wingra, Edgewood College and Monroe Street lie along the neighborhood’s borders

Why It’s So Special: What kid wouldn’t want to grow up amid forests, houses painted a rainbow of colors, a lake, parks and a zoo? Indeed, Vilas has been a family-friendly neighborhood since developing as one of the city’s original “suburbs” as the electric streetcar line extended out from the isthmus at the turn of the century. Nestled in between the Edgewood and UW campuses, the neighborhood often finds students commuting by foot or bike through the tree-lined streets. But an even more common sight is residents walking dogs, pushing strollers or toting kids past tidy bungalows and lovingly tended gardens to Vilas Park or the adjacent zoo. –KV

Schenk- Atwood

Year Established: 1999 (give or take a hundred years). The Schenk-Atwood-Starkweather-Yahara Neighborhood Association was established ten years ago. Fred Schenk opened his general store at the intersection of Atwood and Winnebago about ninety years before that.

Icons & Landmarks: Becky Steinhoff and the Goodman Atwood Community Center, Olbrich Botanical Gardens, The Harmony Bar, community gardens, Absolutely Art, United Way of Dane County headquarters, public murals and sculptures, Circle Park, the bike path, the Starkweather Solstice Celebration, Studio Paran, bad dog frida, the Barrymore

Why It’s So Special: When a young woman sustained a serious injury that restricted her mobility, her neighbors, including some she barely knew, simply stepped up and built a ramp to her home. This is a special place, aptly described in the neighborhood association brochure as a “diverse, friendly and human scale village.” Schenk-Atwood has a chic urban hipness with a friendly, inviting warmth, punctuated by gardens, little parks and one well-known river. And the mix works because the people care, plain and simple. –NH

Hopeful ‘Hoods: Three Neighborhoods Worth Watching

Thumbs Up North

The north side of Madison, one of the most economically and culturally diverse areas of the city, has been on a steady upswing since the early 1990s, when community organizers formed the Northside Planning Council to stamp out pockets of poverty and crime. Today safe and family-friendly streets, neighborhoods and schools dot the area, Mallards baseball is a summer tradition, and Warner Park Community and Recreation Center—a $4.5 million facility built with $800,000 in private donations—has seen ten years of success. The NPC, which also publishes a bi-monthly newspaper with a circulation of 12,000, hopes to add another city pool to the list of north-side amenities. Meanwhile, Community Groundworks and Co-Housing at Troy Gardens in the Lerdahl Park neighborhood is a hidden gem, featuring Madison’s first urban farm that sells CSA shares, plus community and kids’ gardens, a natural area resoration project, an apple orchard, youth farming with East High and the Goodman Center, UW–Madison internships and more.

Gateway to Madison

In the news most recently as the neighborhood in which the truly important and almost-lost Catholic Multicultural Center is located, Bram’s Addition is poised to bloom in its proximity to Park Street, the new Villager Mall and the southern gateway to Madison. Perhaps the city’s richest in diversity, the neighborhood boasts Mt. Zion Church, the Boys and Girls Club, the South Madison Health and Family Center, great Mexican food, Penn Park and Wingra Creek. As the whole Park Street corridor grows in influence so, too, will Bram’s Addition.

Green Living

An almost exclusively residential neighborhood distinguished by Falk School, Norman Clayton Park and the bike path leading to Elver Park and beyond, Greentree’s neighborhood association is active, engaged and committed. Impressive participation by neighbors in both civic issues and annual parties and events and regular newsletters and e-mail alerts suggest considerable grassroots potency. Faced with challenges in the surrounding neighborhoods of Elver Park, Meadowood and Schroeder Road, Greentree has responded with conviction and a collaborative approach that positions it well to lead in determining the future of the southwest side. And if you like the Boston Marathon … well, you’ve got to see the Greentree Gallop.

Underwater on Your Mortgage? May be time to refinance or buy another home!

Currently, approximately 25% of all people with mortgages on their homes are “underwater,” that is, they owe more than the current market value of their home. Increasing numbers are abandoning their homes and renting.

In a very insightful article in the Wall Street Journal, M.P. McQueen explains how, “some might not be as trapped as they think.”

It seems counter intuitive.  If you have access to the needed funds, it may be a wise long-term financial move to pay off the existing home and buy another home–larger or smaller–or refinance the existing home. If buying a larger home or one in a better neighborhood, you may be investing in property that has greater appreciation potential. If buying a smaller home you may be creating space in your financial life for other priorities.

If homeowners are willing to take a loss on their current home, given the ultra low interest rates on top of lower property prices, they may be able to buy twice the home for the same monthly payment. Or, they may be able to purchase a less expensive home that meets their needs and significantly reduce their monthly housing payment.

Alternatively, investing more money in real estate may provide a long term better return than stocks according to some financial advisers.

As McQeen notes, “with stocks essentially where they were 11 years ago and market volatility seemingly on the rise …devoting extra cash to repay a mortgage early is among the safest ways to produce an investment return.” “At this point,” says Jay Brinkmann, chief economist of the Mortgage Bankers Association in Washington, “they are buying themselves an annuity by paying their house off sooner than they needed to.”

According to McQueen, during the fourth quarter of 2009, 33% of refinancings were of the cash-in variety.

The major stumbling block to this strategy may be emotional. People are so reluctant to take a loss on their current home or current mortgage they are reluctant to act. If you sell at a loss, you can buy your next home at a discount, often a deeper discount than your loss.

From the 1980s through the mid-2000s, people were taking money out during refinancing, using their homes as cash cows to live beyond their means. Now people are bringing checks to refinancing, to pay off existing mortgages and obtain new ones with the lowest interest rates in 50 years or shorten the repayment term or both. Currently 30 year fixed mortgages are approximately 4.5% and 15 year fixed are at approximately 4% (many conditions apply).

Well worth thinking about. For the full article, point your browser to the Wall Street Journal.

Facing Foreclosure: Can the Lender Legally Do It? Buying a Foreclosure: Do I Have Good Title?

For those buying foreclosed property, often referred to as REO for Real Estate Owned, there is a major caution sign.

Attorneys have started challenging major lenders in court, demanding that they prove that they hold the mortgage and have a legal right to foreclose.  Up until now, most homeowners being foreclosed upon–being under a lot of stress–were too intimidated to challenge lenders’ rights to foreclose.  However, many mortgages have sold between lenders, and many transformed into securities, often without a strong paper trail making clear who actually holds the mortgage and thus has the right to foreclose.  Further complicating the situation, the company servicing the mortgage and receiving the monthly payment may not be the company that holds the mortgage and thus the right to foreclose.  In response to court challenges. several of the nation’s largest lenders have been forced to halt all foreclosure proceedings until they get their documents in order.

The Wisconsin Realtors Association provided the following information which warns that even in cases where the property has already been sold, the buyer may not have a good title to the property.  If you are contemplating purchasing such a property, the Wisconsin Realtors Association urges caution accompanied by expert legal advice.

If the following does not answer your questions, please consult an attorney specializing in real estate.

From the Wisconsin Realtors Association:

We hear in the news that lenders such as GMAC Mortgage, JPMorgan Chase and Bank of America have halted foreclosure proceedings and are delaying closings on bank-owned (REO) homes in Wisconsin. Questions have arisen regarding the validity of the paperwork used in foreclosure actions as well as whether the lenders and servicers who foreclose home mortgage loans have clear title and the legal right to foreclose. Many mortgages have been sold and resold, sometimes via electronic means, with the result that proper documentation confirming the current note holder may be missing.

This brings into question the validity of some completed and ongoing foreclosure actions. If the foreclosure was defective because the party bringing the foreclosure action did not have legal authority to foreclose, then the buyer at the sheriff’s sale – and any successive purchasers – may find that the title they hold is subject to challenge. This could potentially impact Wisconsin consumers and REALTORS in transactions involving foreclosed properties.

Pending Foreclosures

Q: If it is discovered that the plaintiff (lender or loan servicer) in a foreclosure action does not have actual legal authority to foreclose, for instance they do not have legal title to the promissory note and mortgage and the foreclosure action is ongoing, will the court address this?

A: Yes, it is likely that the lender or servicer would not proceed further if these issues are present. The court could vacate or rescind any foreclosure judgment if the plaintiff’s authority is successfully challenged.

Q: If the sheriff’s sale has been held and then the error is discovered, can the sale be challenged at the judicial confirmation hearing?

A: Yes, once again the court would have the power to vacate the foreclosure judgment.

Q: What if the sheriff’s sale is confirmed – can the purchaser/new owner from the sheriff’s sale be required to give the property back?

A: Yes, the sheriff’s deed can be voided by the court if the mortgage holder who brought the foreclosure action did not have the authority to bring the action or otherwise failed to comply with the requirements of the foreclosure statutes.

Q: Do title companies provide title insurance for sheriff’s sale acquisitions? If so, do they insure against these types of errors?

A: The seller does not provide title insurance to the buyer at a sheriff’s sale. A prospective buyer may purchase a title insurance commitment for the property being sold at sheriff’s sale that may be used to determine lien holders and other title defects. Some title insurance companies will issue a title insurance policy to the sheriff’s sale buyer, for a price, while others will not.

REO Transactions

Q: What happens to REO transactions scheduled to close?

A: Many REO sellers are putting these transactions on hold until all title issues can be resolved. These lenders/servicers do not want to sell these properties until they can confirm that the foreclosure was properly initiated by a legally authorized party. REO buyers typically are being offered the right to cancel their purchase contracts and get their earnest money deposit back if they do not want to wait for the seller to complete its internal review. Any buyer purchasing an REO property who has concerns about the transaction or the title to the property should be referred to the title company or the buyer’s attorney.

Q: If the lender acquires the property at the sheriff’s sale and then sells the property (REO) to a third party, is the title to the property at risk for the new owner?

A: The property could be at risk due to a procedural defect which could void the sheriff’s deed. If the third party buyer has an owner’s title insurance policy, that buyer would have a claim against the title company for not properly reviewing the foreclosure file. The title company may have to defend any lawsuits if the third party buyer’s title is challenged. Depending upon the specific grounds for the challenge, this could be quite problematic for the REO seller and the title company.

• REALTOR Practice Tip: REALTORS should refer all parties with questions about REO transactions or the title to an REO property to their attorneys or the title company.

REALTOR Practice Tip: No one should ever purchase a property at a sheriff’s sale without a title commitment and the advice of their attorney

Banks May Be More Flexible Working with Distressed Homeowners Selling Their Property

With banks putting the brakes on foreclosures, and 50 state attorneys general in hot pursuit in an election year, banks may be more willing to negotiate with homeowners rather than foreclose.  Two alternatives they may be more willing to use are: 1) the currently little used The Home Affordable Foreclosure Alternatives Program (known as HAFA) went into effect on April 5, 2010. HAFA allows owners to participate in a “short sale” providing for a smoother and expedited short sale,  as well as 2) standard short sales.  See details in previous articles though note that conditions and rules are ever changing.

If you are someone you know might benefit from these programs, please do not hesitate to contact me in strict confidence at 608-356-9456 or Gyriscollc@tds.net.  If you are not in the Madison, Wisconsin area, please feel free to contact me and I will personally recommend a great agent to work with anywhere in the U.S. and promise to follow-up periodically to make sure you are getting top service.  Based on the service we provide Keller Williams has grown right through the real estate crisis to become the nation’s third largest real estate franchise.

National Market Trends Affecting Local Real Estate Sales

Never before has there been a better time to buy… however, national doom and gloom regarding the state of the real estate market and economy are affecting how Madison area buyers act.  Above is a video I wanted to pass along that points out the Nation’s “bubble markets”.  Fortunately, we haven’t experienced a down turn in our values like these particular markets.  If you are curious what your home would sell for in today’s market CLICK HERE.  If you would like to view the homes currently for sale CLICK HERE.

Regardless of the circumstance, I can help anyone interested in buying or selling real estate in the Greater Madison Area.  If you know of anyone that would benefit from my services please have them contact me today at 608-354-9456.

Housing home sales increase as post-tax-credit bust ends

Reuters reported today that the 10 percent increase in September home sales over those of August far exceeded economists’ expectations for a 4 percent rise to a 4.30 million-unit pace, they remained below the 5 million-unit pace normally associated with a healthy market.

“The September data shows that the post-tax-credit bust in home sales has come to an end and we are now on a gradual recovery path,” said Zach Pandl, a U.S. economist at Nomura Securities International in New York.

September Real Estate Market Was More Down Than Up: Selling or Buying, Time is not on Your Side

Chris McLaughlin in his daily e-newsletter attributes the following information to Diana Olick.  It is important to remember that Olick’s perspective is national and that talking about national real estate market trends is like talking about average weather trends across the entire US.  It is getting generally colder and the temperature in a particular locale varies widely.

In line with Olick’s perspective, at the rate homes and condos are selling in Dane County, it would take 11 months to sell them all, even if no new properties came on the market.  In addition there is an equally large grey market of people who need to sell but have not listed there home for sale or who are in financial distress.  Home and condo prices are continuing to trend downwards.  While all this is retrospective not prospective, it seems likely that real estate prices will generally trend downwards through next spring.  Waiting is not going to lead to a higher price.

Keller Williams Mo Anderson predicts that housing values will show a long L-shape, with prices not fully recovering until 2020.  If you have to sell, can you wait that long to sell?  If buying–with borrowed money incredibly cheap, great inventory, reduced prices, and many investors’ retreating to the sidelines in face of the massive foreclosure fraud–why would you wait, and lose the opportunity of a lifetime?

According to Olick, there is Noise.  There’s an awful lot of it in the report on September existing home sales from the National Association of Realtors.  Yes, it was the biggest monthly gain in 28 years, but it was also the third worst sales month on record. This was thanks to the historic plunge in home sales in July, after what we first thought was the closing deadline for the home buyer tax credit.  September’s data still has government stimulus in it, as it’s showing the final closings from the tax credit. Thirty-two percent of home buyers in September were first timers and a whopping 29% paid in cash, which really gives you an idea of where the mortgage market is today. Sales were still 19 percent below September of 2009 levels, so that tempers the big gain as well. The median sales price also fell 2.4 percent year over year and is the lowest reading since March.

If you take out the seasonal adjustments in September, there were actually 35,000 fewer home sales in September than August, or a 8.5 percent drop. We always use the seasonally adjusted numbers, because home selling is a very seasonal business, but you can’t ignore the raw stats on this one. The most important number in this report, however, is that 35 percent of all sales in September were of “distressed” properties, or foreclosures and short sales. We all know a huge chunk of that goes away in October, thanks to the foreclosure servicing issues and resulting moratoria.

In a speech today before a conference on the future of housing finance, Fed Chairman Ben Bernanke said the Fed “is evaluating potential effects of these [foreclosure servicing] problems on the real estate market and financial institutions.”  I think the answer to that is in today’s home sales report. The housing market is looking at a rough road.  “Bottom line, the data is an improvement off a very depressed level,” notes Peter Boockvar of Miller Tabak. “But with the robosigner, foreclosure moratorium taking center stage at the very end of September, which today’s figure didn’t capture and neither will Oct (this number measures closings), the figures towards year-end will look much different.”

The Foreclosure Fraud Crisis Deepens

Well, the other shoe is about to drop on the massive foreclosure fraud, involving hundreds of thousands of fraudulent affidavits.  The holders of the Mortgage Backed Securities are alarmed that they may be on the hook to repay wronged home-owners.  Additionally, they are angry about the erratic process banks use to write down the values of the loans, undermining the value of the securities.  They are uncomfortable as it has become increasingly clear that there often is only a tenuous tie between the securities they hold and the supposed mortgages that back it.  Furthermore, investors are extremely uncomfortable about the huge unknown: how the courts will rule on the many aspects of this unprecedented legal mess.

In addition, the uncertainty around the foreclosure process is likely to make home-owners and investors wary of buying lender-owned properties. These properties are a significant part of the current real estate market–even in Dane County, Wisconsin–and a means by which foreclosed houses are repurchased and occupied.  Chris McLaughlin, in his daily newsletter reports below.

Nearly 200 investors are expected to attend a meeting in New York on Wednesday, October 26, 2010,  called “Robosigners and Other Servicing Failures,” said David Grais, a New York securities lawyer who is sponsoring the conference and represents two Federal Home Loan Banks that have filed lawsuits over mortgage-backed securities they own.  It’s one of several indications that investors are using the latest fiasco to recoup losses.  Some of those investors also are sizing up potential strategies for trying to recoup losses and trying to shield themselves from the cost of any settlement between mortgage-servicing companies and state attorneys general, who are investigating mortgage-servicing practices.

“Investors’ frustration has reached a boil in response to monthly loan losses, unexplainable bond write-downs, stonewalling access to loan files, inequitable treatment of first- and second-lien mortgage loans and ineffective loan modifications,” said Jonathan Lieberman, a managing director with Angelo, Gordon & Co., which invests in mortgage-backed securities.  The most public display of bondholder unrest came last week when a group of large investors objected to the handling of 115 bond deals issued by affiliates of Countrywide Financial Corp., now part of Bank of America Corp. The investor group includes government-owned mortgage companies Freddie Mac and Fannie Mae, the Federal Reserve Bank of New York, BlackRock Inc. and Allianz SE’s Pacific Investment Management Co.  Potential losses to banks from the repurchase of troubled loans could reach $55 billion to $120 billion, according to bond analysts at J.P. Morgan Chase & Co.

The Importance of Being Surveyed

A client of mine, who I had recently shown some rural property sent me the following humorous story by Sheri Dixon from www.Homestead.org (click here).  It underlines why when someone asks me about property boundaries I hand them a survey map or tell them if it is important to them they may measure it themselves or hire someone to do that.  I never guess, no matter how logical the boundaries seem.  For rural properties, I have the listing Realtor meet us at the property show where she believes the boundaries lie.

As told by Sheri Dixon …

“Ten years ago I was overworked, underpaid, alone in the world and adrift without a home to call my own…. I was fortunate to find this place I call home on a land contract purchase.  It was a happy day when I signed papers to buy this place and an even happier day to receive the deed free and clear from our county tax office.

Interested, since I had never seen the legal description of my land, I playfully paced out my east lot line (the only one that’s a pretty straight shot over pretty level land).  I started at the north corner and counted out paces.  I looked up when I reached what should’ve been the end.

Curious… my house was up ahead of me by about 100 feet.

Confidently, I started at the other end of the east lot line and counted off paces.  I looked up.

There was my house, teasing me from 100 feet away again.

This was potentially bad.

My mind has a wonderful way of being able to fly off in several directions simultaneously.  I think there are medications for that…

My first thought was, “Very nice.  I don’t own my house.”

My second thought was, “Who DOES own my house and will I have to buy it from them?”

My third thought was, “What’s the cure for hyperventilation?”

For the rest of the story, see Sheri Dixon’s web article.

Real Estate Market: All Signals Say Buy.

Now is the Warren Buffett moment for real estate.  Buffett made billions by buying good companies cheap.  You can do the same.  If the real estate market is like the stock market–and I believe it is–when the sentiment if overwhelmingly negative, it is a great time to buy, and when the sentiment is irrational exuberance, it is a warning that a down market is coming.

Now is truly the Warren Buffett moment for real estate.

Remember that Buffett made billions by buying good companies cheap.  In today’s real estate market, you can do the same.  Borrowed money is cheap, with interest rates down to levels we have not seen in 60 years.  Prices are down with some sellers asking and accepting far less for properties than they paid.  Even in Dane County (which is not hard hit compared with the states in the national news) 26% of all recent home  sales involve foreclosed properties or short sales (where the bank agrees to accept less than the loan amount) and more than 15% of sales involve sellers bringing money to the closing.  In Dane County prices did not soar as close to the sun as elsewhere, so the fall has been less.  Even in the Dane County market, property is currently a great buy.

The stock market phenomenon is well known.  If the sentiment is overwhelmingly negative or bearish, it often is a great time to buy, and when the sentiment is overwhelmingly positive or bullish, it is a warning that a down market is coming.  Just think of the tech stock bubble  and subsequent crash.  And the crazy soaring real estate prices that preceded the current collapse.

If you are curious what your home would sell for in today’s market CLICK HERE.  If you would like to view the homes currently for sale CLICK HERE.  Regardless of the circumstance, I can help anyone interested in buying or selling real estate in the Greater Madison Area.  If you know of anyone that would benefit from my services please have them contact me today at 608-354-9456.

So what is the evidence of overwhelming negative sentiment in the real estate market?

In a recent interview, Mo Anderson, Vice Chairman of Keller Williams Realty International is predicting that the US real estate market recovery will be long and slow, not fully recovering until 2020!

Chris McLaughlin provides the following round-up of negative real estate news from around the nation.

Fiserv, a market analytics company, has scaled back its home price projections considerably. In February, it forecast national price gains of about 4% through the end of 2011. The company’s latest prediction is for a 7.1% drop in prices between June 30, 2010 and June 30, 2011.  In fact, after five months of gains, prices in the 20 largest metro areas fell 0.2% in August, according to the latest S&P/Case-Shiller report.  The good news is, “There’ll be no vicious, self-reinforcing spiral down,” according to Mark Zandi, chief economist with Moody’s Analytics.  But, he added, “more home price declines are coming.”   He’s forecasting another 8% drop in home prices through the third quarter of 2011, which will put the total peak-to-trough decline at 34%.  Even after that, in 2012, he sees very little price growth.

Home prices continue to fall because sales aren’t taking off. Without buyers, the market can’t bottom out.  New home sales continue to languish around historic lows, barely exceeding an annual rate of 307,000. Existing home sales did rise to a 4.53 million annualized rate in September, up 10% compared with a month earlier, but are still well below the boom years.  Of course, nobody is buying homes when they can’t find jobs. And still more people can’t hang on to their homes because they’re out of work.  Nearly a million homes are expected to be repossessed this year, and analysts seem to be competing to issue the most dire forecast for future foreclosure numbers.

- Morgan Stanley reported that about 3.1 million borrowers are seriously delinquent with many expected to lose their homes.

- Zandi said more than 4 million are in trouble with half of those expected to go to foreclosure.

- And Laurie Goodman, of Amherst Securities, estimates the number of homes in danger of foreclosure at a whopping 11 million.

- Real estate analyst Kyle Lundstedt of LPS Applied Analytics said serious delinquencies will continue to spike and will not return even to the current rates — which are already at peak levels — until late 2012 or early 2013.

And finally this piece from Rob Minton of Renegade Millionaire (Click Here).

Foreclosure Alternatives: HAFA, HAMP, Short Sales Explained

For the most up-to-date information on government supported foreclosure programs including Home Affordable Modification Program known as HAMP see the US Treasury website Click Here; for information on the Home Affordable Foreclosure Alternatives Program known as HAFA see the U.S. Treasury website Click Here.  For an update on the HAVA Program, Click Here In addition, I recommend consulting an attorney specializing in this area of law.  The following is not a substitute for legal advice.

The Home Affordable Foreclosure Alternatives Program (known as HAFA) went into effect on April 5, 2010. HAFA allows owners to participate in a “short sale” with standardized procedures and expedited timelines. Short sales are traditionally the hardest and longest transactions to complete and involve dozens of hours of phone calls and paperwork and a very high level of expertise. HAFA, it is hoped, will streamline this process. It is important to note, however, that HAFA does not replace the traditional short sale. Rather, it is a stream-lined short sale process that applies to specific owners who have mortgages with specific, participating lenders.

HAFA Is Not For Everyone

HAFA program is available through most major, national lenders, such as: Citi, Bank of America, Wells Fargo, GMAC Mortgage, Chase, and many others.  It may not apply to some smaller local lenders.

In addition, the program does not apply to the following:

• Loans originated after January 2009,
• Loans with a balance over $729,750,
• Property that is not the seller’s principal residence,
• Loans where the total monthly mortgage payment does not exceed 31% of the seller’s gross income.

HAFA may make a difference for some distressed home owners.  It may not apply in some cases.  In those cases, the traditional short sale process may still be a viable option.

How It Works

HAFA is a short sale program designed to work with the Federal home loan modification program called HAMP. The HAMP program is intended to allow distressed homeowners to stay in their homes by using mortgage modifications that lower their monthly payment. The Federal government recognized that many  homeowners either did not qualify for HAMP or could not even pay the lowered mortgage payment.  HAFA is intended to offer these home owners an option to sell their home through a streamlined short sale process.
Traditional Short Sale

In a traditional short sale, the home owner needs to request a short sale from the lender. The process, in a nutshell, goes something like this:

1. Sellers or Realtor contact lender and initiate discussions about short sale.
2. Sellers collect reams of documents to prove to the lender that they have a hardship and cannot pay the mortgage.
3. The Realtor lists the property to find a buyer, having no idea how much the lender will demand or what purchase price will be enough for a short sale.
4. Once a buyer has signed an offer to purchase, the seller submits a “short sale package” to the bank. The package contains all financial information and documentation showing the seller is unable to pay and the offer to purchase.
5. The bank often requests additional documents and follow up documents and it can take many efforts, phone calls and faxes to finally confirm that the bank has what it needs.
6. The seller, Realtor, and perhaps attorney may spend weeks or months negotiating with the bank over the terms of the short sale, including the purchase price, what closing costs and commissions will or will not be paid, how much money the seller might need to contribute at closing, and whether the bank will forgive the debt or demand a deficiency after closing.
7. The bank finally approves the short sale based on the purchase price, offer to purchase, and any amendments that needed to be negotiated to get bank approval;
8. The sale finally closes.

This process can take months, and in some cases more than a year.  Every lender has slightly different requirements and they each handle transactions differently.  Many short sales require dozens upon dozens of long phone calls and an unbelievable level of persistence, patience, and hard work.  Up until the moment of closing, the seller may not know if the lender will demand a deficiency.  If the lender does demand a deficiency, thesSeller will still owe the bank after closing.

HAFA Short Sale Process

HAFA is intended to streamline and standardize the procedures for short sales. The HAFA process goes something like this:

1. Seller applies for mortgage modification through HAMP program and is denied;
2. The lender must proactively notify the seller about the option of a HAFA short sale (or the seller can ask);
3. The lender sends a Short Sale Agreement (SSA) and a blank document called a Request for Approval of Short Sale (RASS);
4. The seller has 14 days to sign the SSA and return it to the lender along with the Realtor’s listing agreement and a title search showing any other mortgages or liens;
5. The lender will inform the seller (even before any buyer submits an offer) what it will take to get short sale approval – either a purchase price or the amount of proceeds needed
6. Once a buyer has signed an offer to purchase, the seller and Realtor have 3 days to fill out and submit the Request for Approval of Short Sale (RASS) to the lender.
7. The lender has 10 days to accept or deny the RASS;
8. Upon acceptance of the RASS, the seller proceeds to closing.

The fact that we were able to summarize both processes into 8 steps does not mean that HAFA will be just like an ordinary short sale. Step one will require the seller to submit much of the same documents as a traditional short sale. Indeed, a mortgage modification request also requires financial disclosures and reams of documentation. But, once this step is done, the rest of the process is much smoother, much faster, and standardized.

Differences Between HAFA and Traditional Short Sales

HAFA improves the short sale process in a number of important ways. But it also comes with some trade-offs. The following chart highlights the differences between HAFA and traditional short sales:

Traditional Short Sale	HAFA
The home owner often does not make mortgage payments up to the date of closing. They live “rent free” during the short sale process.	Under HAFA, the owner must make mortgage payments up to 31% of their income. Failure to pay the mortgage will disqualify the owner from participating in HAFA.
Lenders can demand a deficiency for the amount of the short-fall. In other words, the debt is not forgiven after closing.	First-Mortgage lenders must waive the deficiency and must negotiate with second-mortgage lenders to waive their deficiency as well.
The seller could receive no funds at closing.	Sellers receive “cash incentives” at closing of $3,000 to assist in their move to other housing.
Lenders generally budget up to $3,000 to pay second mortgage holders.	Lenders are given a government incentive of up to $6,000 to pay to second mortgage holders.
The property could be sold by a Realtor or For Sale By Owner (FSBO)	Property must be listed with a Realtor.
Lenders can take as long as they wanted to approve or deny the short sale	HAFA imposes strict and short time-lines on participating lenders
Lenders will not begin to “negotiate” a short sale or even initiate the process until a buyer has signed an offer to purchase	Lenders must start the process at the time or even before the property is listed with a Realtor.
Lender may not give short sale approval until days before the closing.	Lender must approve the short sale, including the amount they will receive within 10 days of receiving the accepted offer.

Reasonable Solution to Mortgage Crisis

Originally  Posted on October 8, 2010 by geoffreyrealtor| 2 Comments

Let the housing market crash?

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.  When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.   “Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

The further the market descends, however, the more miserable one group — important both politically and economically — will be: the tens of millions of homeowners who have already seen their home values drop an average of 30 percent.  The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. Ultimately, “the administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”

A solution for responsible homeowners

Keith Gumbinger, a leading mortgage expert, has an interesting proposal for how the government can help responsible homeowners who actually pay their mortgage, help the housing market, and even help whoever owns your mortgage.  Say you bought a house for $350,000 in July 2006 — those were the days of 100% financing, so you borrowed $350,000 on a 30-year fixed-rate mortgage at 6.8%. The house is now worth $280,000, but your mortgage balance is $334,000. The current rate for a 30-year fixed-rate loan, if you could get one, is 4.7%.  Under Gumbinger’s plan, you’d get a new $280,000 mortgage at 4.7%, and the government would guarantee the other $54,000, on which you’d pay 4.7% interest to the current mortgage holder.

This would reduce your payments by $6,700 a year, or roughly 25%. Your mortgage holder wouldn’t have to take a write-down, because the shortfall would be guaranteed by Uncle Sam. You get lower payments, preserve your credit rating, and save your pride by not becoming a deadbeat.  The government is probably on the hook, in one way or another, for some of your shortfall now. This way everyone gets breathing space for the home market to recover. The government’s exposure would shrink over time as house prices begin to rise modestly (or so we hope) and your payments gradually reduce the principal on your loan. You wouldn’t have any equity in your house until its market value exceeds the loan balance plus the government’s guarantee, but then again, you don’t have any equity now.

This article is from a daily e-newsletter compiled by Chris McLaughlin

Understanding A Deed: How Good Is It?

With the apparent massive fraud and perjury in the foreclosure process, buyers may have a concern about the type of deed they have, the warranty it provides, and title insurance.  The following article was prepared before the current news reports.  It was written by Peter Zarov attorney at Homestead Title Madison, click here for their blog.

What Deeds Do

A deed is the legal document that transfers ownership rights (called “Title”) from one owner to the next. There are many different kinds of deeds in Wisconsin, and the type of deed used has important legal ramifications. A clear understanding of the different kinds of deeds also illuminates why title insurance is so critical.

A deed transfers an interest in property from one party to another. In addition, a deed may contain other important language that can affect the new owner, including among others, warranties and reservation of rights.

Warranties

A deed may contain certain warranties or promises. Warranties are the Seller’s promise to the Buyer regarding the title interest that the buyer will receive. The standard Warranty Deed contains the following warranty:

Grantor warrants that the title to the Property is good, indefeasible in fee simple and free and clear of encumbrances…

Thus, a Warranty Deed offers a legal promise that the buyer will receive good title. By contrast, a Quit Claim Deed contains no warranties at all. Other deeds may have limited warranties.

Reservation of Rights

Deeds may also contain reservations of rights. For instance, a deed may reserve interest or rights in the seller or grantor, such as a life estate. A deed might also contain provisions for easements or other restrictions. In other words, deeds may contain limitations on the rights the new owner will receive.

Various Types of Deeds

There are many different types of deeds, including Warranty Deeds, Quit Claim Deeds, Trustees Deeds, Sheriff’s Deeds, and Personal Representative Deeds. The major difference between each kind of deed is the level of warranties provided.

Type of Deed	When Used	Warranties
Warranty Deed	In most standard sales.	Warrants good, indefeasible title in fees simple, free and clear of encumbrances. This is the strongest warranty and generally gives the new owner the right to seek redress or damages from the seller in the event of most title problems.
Quit Claim Deed	Many inter-family transaction, between neighbors, divorce	Contains no warranties at all. A seller conveys, and the buyer receives, whatever interest the seller has in the property, even if that interest is nothing at all.
Sheriff’s Deed	Sale at the end of Foreclosure	Like a Quit Claim deed, there are no warranties. The Buyer gets whatever interest the sheriff was able to convey (which could be nothing at all).
Personal Representative’s Deed	Used to transfer property rights from a deceased person’s estate. Involves Probate Court.	Like a Quit Claim deed, there are no warranties. Generally, the Personal Representative is unwilling to warrant or promise anything relating to property that he/she has never personally owned.
Special Warranty Deed	REO (Bank Owned) Sale	Provides very limited warranties. Generally only warrants that the Bank had title sufficient to sell the property.

 

Title Insurance and Deeds

A title insurance policy insures that the new owner will receive good, indefeasible title, free and clear of encumbrances other than exceptions noted in the policy. You may notice that this is almost exactly what a seller Warrants in a warranty deed. Title insurance can be viewed as an insurance policy in the event that a seller breaches a warranty and is unable to pay. And, after all, how many sellers could come up with the kind of money needed to pay for a breach of a warranty?

But what if the seller gave no warranties at all? What if the deed is a Quit Claim Deed, a Sheriff’s Deed, or a Personal Representative’s deed. Then title insurance becomes even more critical. The Title policy would be the buyer’s only recourse in the event of a title defect.

Title Insurance policies always protect buyers against certain unforeseen title problems. This is often added protection above and beyond the buyer’s right to seek redress from the seller. Whenever the buyer has no right to seek redress from the seller – when there are no warranties – it becomes imperative that the buyer receive a title insurance policy.

Giving Legal Advice

This information is intended to serve as a warning to Realtors and other non-attorneys to steer clear of giving legal advice. It is important to understand the characteristics and limitations of each kind of deed. It is even more important to leave the legal advice to attorneys. If a question or issue arises involving which type of deed is appropriate, always consult an attorney.

This information was provided by Attorney Peter Zarov. The information provided is not to be construed or used as legal advice and may not be accurate outside of Wisconsin.

The Deficit Commission Could Have a Major Impact on Historic Preservation

Alexander Balloon, in his blog posted yesterday provides a thoughtful and detailed analysis of the potential effects of President Obama’s Deficit Commission’s plan on historic preservation.

I have mixed feelings about the elimination of all earmarks.  Often they involve favors for special interests, and closed door horse trading.  Many of these earmarks have benefited historic preservation, urban revitalization and heritage tourism projects.

The proposal to sell excess federal property is one we need to watch closely.  The federal government is the largest owner of historic properties in the nation and any transfered to private ownership need to be preserved in the process.

The commission proposes reduction in funding for the National Park Service and Smithsonian Institution.  The National Park Service has been woefully underfunded for years, and an observant visitor to  most National Parks sees once outstanding infrastructure crumbling from lack of maintenance.  I agree with Alexander Balloon that giving maintenance of existing facilities and assets over building more would be an excellent policy change.

Changes in the tax code that eliminated the Federal Rehabilitation Tax Credit would eliminate what has been the nation’s most effective historic preservation tool and an exceptionally cost-effective effective community revitalization program.

For many more details on how the deficit reduction proposals would affect the Main Street Program and Community Development Block Grants, point your browser to Alexander Balloon’s blog.

Big Banks Face Racketeering and Foreclosure Fraud Lawsuits

The following is from an e-newsletter by Chris McLaughlin.  I had been wondering when banks would finally face racketeering charges, generally aimed at organized crime entities.  I am amazed that it took so long for these charges to get traction in the courts when the illegal actions had been going on for years.

“Foreclosure-fraud class action lawsuits piling up against major banks across the US, threatening a besieged industry with billions more in potential losses.  The class actions, which could be expanded nationally, seek damages for homeowners whose properties were illegally foreclosed upon by banks using fraudulent documents. Suits have been filed in Maryland, New Jersey and Massachusetts that target Bank of America Corp., Wells Fargo & Co., HSBC PLC and JPMorgan Chase & Co. In Florida and Maine, Ally Financial, formerly known as GMAC Mortgage, is also being targeted.  Perhaps an even bigger threat are the lawsuits that contend the banks’ foreclosure machinery amounted to a racketeering enterprise. One such case, an Indiana lawsuit against Bank of America, was filed under civil Racketeering Influenced and Corrupt Organizations or RICO laws, which allow damages to be tripled.  The race is on for the banks to keep the scandal from metastasizing. Crisis management specialists are working around the clock to help banking executives stem the financial and public relations disaster.

Shares of Bank of America, the biggest US lender, are already down 21 percent for the year, making it the biggest laggard in the 30 stocks that make up the Dow Jones industrial average.  Even if a settlement materializes with the state attorneys general, it won’t necessarily stop all the class actions, although it could slow their momentum and limit their scale. A settlement would also help assuage public distrust and outrage that is fueling a consumer backlash against banks.  The probe by the state prosecutors amounts to far more than an effort to root out the “robo-signers,” whose back-office antics of signing thousands of foreclosure affidavits a day helped trigger the scandal. Lawmakers are also pressuring the banks to re-engineer their entire mortgage and foreclosure process to rid it of what they say is systemic dysfunction.  For now, much of the talk in the banks’ negotiations with the state prosecutors involves a possible compensation fund, modeled on the one created for victims of the BP oil spill, for people who went through foreclosure proceedings based on faulty documents. Details are still hazy, but a consensus seems to be building that some kind of financial remedy is needed.”

Mortgage Rates Soar as Fed Bond Buying Faces Political Headwinds

The Federal Reserve Board had proposed buying $600 Billion in bonds, pushing down mortgage rates to stimulate home sales, create 700,000 jobs and reduce the value of the US dollar, making our exports more competitive and stimulating our economy.  Some had seen it as the first step in an even larger program to get the stalled US economy moving.  However, this proposal has met major resistance from other countries fearing a trade war as countries sought to stimulate exports by devaluing their currencies, and US politicians who are convinced that anything that creates more debt in the US will be a disaster.  Most professional economists however, see little risk that the additional money supply will set off inflation, considering that the U-6 unemployment rate (the more meaningful measure than the one usually cited in the press) in the US is near 20 percent and there is a vast amount of unused factory capacity, massive amounts of vacant office space, retail space and housing.  The Federal Reserve Board, facing a hostile Congress is beating a retreat, and mortgage rates are rising, reducing home affordability.  Politics does not produce good economic policy.

Chris McLaughlin cites Diana Olick of CNBC for the following item in his e-newsletter.

“Higher yields on 10-year treasury bonds are wreaking havoc on mortgage rates, but will they do the same to housing’s recovery? A jump in rates was enough to prompt online home sale site Zillow.com to put out a ‘Media Alert’ that the 30-year fixed had reached 4.34%—the highest rate reported on the site in 16 weeks.  ‘While the Federal Reserve expected a second round of quantitative easing to push yields down, or at least keep them low, the opposite appears to be happening,’ writes Zillow’s Chief Economist Dr. Stan Humphries in the release. “This trend has only been exacerbated in the past week when fears increased that the bond-buying program might be facing political challenges which ran counter to market expectations that the government would be in the marketplace.’

So how high will rates go?  Not much higher, opines Bob Walters over at Quicken Loans. ‘A sloppy Treasury auction last Tuesday began the sell off, and the beginning of the Fed’s purchases for QE2 caused it to pick up steam Friday. Monday’s strong retail sales number was all the excuse the bond bears needed to sell. A rally was attempted but was thwarted as selling escalated into the close,’ recounts Walters.  So rates are moving around quickly and violently, and while some might argue that shouldn’t affect home sales, which are usually a long-term, bigger picture purchase, they certainly did last week. Refinances fell off a cliff last week, down 16.5% and purchase applications were down 5%, according to the Mortgage Bankers Association’s weekly applications survey.

Real estate professionals have been touting fantastic affordability in today’s housing market, with low interest rates and lower home prices combining to open doors for many more potential buyers. But I continue to believe that uncertainty trumps affordability at every turn. Just take a look at household formation, which continues to fall despite improved affordability.  With 7 million borrowers either facing or already in foreclosure, big banks facing whippings in Congress and many-fold investigations over foreclosure practices, and home prices taking a turn for the worse, rising mortgage rates will only put another barrier in front of would-be buyers. 4.34% is still an historically, ridiculously low interest rate, but a quarter-point jump in mortgage rates inside of a week is a bullet to buyer confidence.”

Prediction: Housing Market Will Stagnate in 2011

According to a Reuters poll, the US housing market will stagnate next year as foreclosures and joblessness sap the demand needed to mop up an excess of homes on the market.  While a housing recovery will be sustained, home prices, which have plunged by about a third since their 2006 peak [probably a bit less in Dane County], will barely rise next year. Medians from the poll showed a mere 1.1% rise in 2010 and 1.0% in 2011.  Expectations for next year haven’t budged from the August poll, and won’t even keep up with the expected 1.6% rise in the consumer price index next year.  “Housing activity has likely bottomed, but the recovery will be slow and long-developing,” David Berson, chief economist at California-based mortgage insurer PMI Group, said.

The poll showed US homes are currently fairly valued, the same as in the last poll, assigning a score of 5 on a 10-point scale where 1 is extremely undervalued. But medians from the poll suggest they have 5% still to fall from here.  Negative housing sentiment has grown with the US unemployment rate lingering at 9.6%.  “The simple fact is that prices will not be able to rise when poor economic conditions continue to undermine demand and when foreclosures will continue to boost supply,” said Paul Dales, US economist at Capital Economics in Toronto.  After one or two months of delayed foreclosures, the country is likely headed for a record 1.2 million bank repossessions this year, said Rick Sharga, a vice president at RealtyTrac, a foreclosure listings and data firm in California.

Move-up Buyers Can Buy the Home of Their Dreams

Historic homes in Madison. To search for homes currently for sale, click on link at the top of this blog.

It is a move-up buyers’ market.  In the absence of hard research data, we might assume the average Dane County home fell 15% in value from the peak of the market  Thus a home once valued at $250,000 would now sell at about $212,000, a discount of $28,000.  A house valued at $400,000 is now at $340,000, a discount of $60,000.  Thus the move-up buyer gains an extra $32,000 in value.  (In actual fact, it is common knowledge among Realtors that higher valued properties have lost a greater percentage of value than lower valued properties thus making the estra  gain in value even greater.)  Yet potential move-up buyers are missing the opportunity to get their dream home because they are emotionally stuck on a perceived loss on their current home.

The situation is even more dramatic for those considering moving to a warmer climate in Florida, Nevada, or Arizona. If a person  in Madison sells their home here and heads to Florida, they can buy a great home or condo for 1/3 of what it sold for a few years ago.  People are making decisions based on emotion around perceived loss and not the hard numbers. They are not taking advantage of some opportunities so large they seem like dreams.

HAMP Program A Giant Failure

Before plunging into the failures of the HAMP program (Home Affordable Modification Program), it is important to note that for those who are still current on their mortgage payments and are struggling to meet those payments and are willing to sell their home, the HAMP program can be used as a step in an expedited Short Sale of the property under the HAVA program.  See article on HAVA and Short Sales below.  The following information is taken from an e-newsletter by Chris McLaughlin. If you or someone you know might benefit from one of these programs and would like to obtain more information, please do not hesitate to contact me in strict confidence.  It would be my pleasure to provide the best possible professional assistance. Cell 608-354-9456.

The HAMP program (Home Affordable Modification Program) has been found lacking, again.  Last April, the Congressional Oversight Panel found the program to be struggling to get off the ground despite having been in action for a year and a half. The latest evaluation of HAMP came out Tuesday and the result was — same deal. HAMP has undergone tweaks since April. But the Congressional Oversight Panel, created to issue periodic reports on the TARP bailout program, found little improvement in performance. Instead of helping 3 million to 4 million struggling mortgage borrowers keep their homes, as originally projected, HAMP will prevent only about 700,000 to 800,000 foreclosures. That number is dwarfed by the 8 million to 13 million foreclosures expected to occur by 2012. Through the end of October, there have been 519,648 permanent modifications made. And, since the Treasury Department lost the authority to further restructure the program at the end of October, bolstering its prospects is no longer likely, the report sai d. In fact, banks are offering more modifications through their own process than through the government’s.

The new report cited several reasons for the program’s failure. For one, servicers, the companies hired by banks to manage the loans, earn extra profits through fees imposed during foreclosure. Because of that, servicers were preventing or delaying modifications. Another big obstacle was that many loans in trouble often came burdened with second mortgages — home equity loans or lines of credit — that had to sign off on potential deals. Because so many homes are worth less than the borrowers owe, there is little money to cover the first loan, let alone a second mortgage. So many banks in the second position refused to sign off unless they were paid something. The oversight panel also faulted Treasury for not having effective means of collecting and analyzing HAMP data. The department, said the panel, did not even set meaningful goals against which to weigh the program’s effectiveness. Because participation has been so limited, HAMP will probably only spend about $4 billion of the $30 billion allocated for it. even the loans that have been permanently modified through HAMP have not performed well. Many have already re-defaulted, and that means taxpayer money down the drain.

Investors in Real Estate Key to Ending Housing Crisis

 

Diana Olick of CNBC sees investors as the key to ending the housing crisis.  It would be my pleasure to work with any investors looking for opportunities in the current real estate market.  Know that you have a key role to play as country shifts from more owner occupied housing to more rental housing.   Also many properties need refurbishing before they can be returned to the retail housing market.

I disagree with Olick in that many can no longer afford their mortgage.  They have lost their job; their new job does not pay what the previous one did; or their new job is in a different part of the country. The economy, when it starts creating new jobs, will create new jobs with new skill sets and in different parts of the country from where most of the jobs have been lost.

According to Olick, “Just because you owe more on your mortgage than your home is worth doesn’t necessarily mean that you are no longer able to afford your mortgage. For many Americans who bought their homes during the housing boom, little has changed for them financially other than what the appraiser has determined on paper.  What has changed are attitudes, and attitudes can be dangerous.  22.5 percent of U.S. borrowers were in a negative equity position on their homes at the end of 2010 Q3, according to a new report from CoreLogic.  The authors of the study warn that deteriorating home prices now will likely push the percentage back up in 2010 Q4.  The definition of home ownership, at least according to the Census, includes homeowners in a negative equity position. ‘However, homeowners in negative equity are not likely to behave similarly to homeowners with equity, because their financial interest (the equity) has disappeared and has only a small prospect of returning soon, given price trends,’ note CoreLogic authors.

Underwater borrowers are more likely to behave like renters, which means they’re not going to invest much in home improvement. They are also more likely to walk away from their commitment, although not in the waves some had predicted.  The Obama Administration has been pushing lenders, Fannie Mae and Freddie Mac to write down principal on underwater mortgages in order to put borrowers back into a positive equity position.” Interestingly, the latest push is for borrowers who are current on their mortgages. They lenders argue, why should they give money voluntarily if the loans are still performing? They don’t even do that very often when the loans are in trouble!  The answer is: attitudes.  The Administration is clearly concerned that more borrowers will either walk away from their commitments or stop spending money on their homes, which are usually their single largest investment.  But is the Administration’s answer—to give borrowers back a few percentage points of equity on paper—really going to fix that and change owner attitudes? No, especially since so many Americans got used to taking money OUT of their homes to pay for all those lovely upgrades.  The change has to come in real home price appreciation.  That is the only thing that is going to give homeowners that much-needed faith in the market, that confidence to stay where they are and spend, not some measly equity handout that won’t amount to much and may just prompt the borrowers to put their house on the already glutted market.

And how do you get home price appreciation?  Get rid of that glut of inventory—especially the foreclosures. I’m back on my investor high horse again. Stop offering handouts to underwater borrowers who don’t need them to pay their mortgages and start focusing that same money on eating up empty houses and restoring real home price appreciation through a competitive marketplace. If you help well-vetted, responsible investors buy up the properties and rent them to all the families that lost their homes, you will do a lot more good.

Well-priced Property Not Selling? Buyers Expect Bargains

One reason that seemingly well-priced properties, even those in great shape are not selling is that many of the buyers currently in the market may be looking for bargains–incredibly deep discounts.  A recent article by Diane Olick of CNBC provides some insight into buyer thinking.  There are a lot of very reasonably priced properties in great condition for sale in Dane County and they are not moving.  This may be why.

“The good news is that more Americans say they are willing to consider buying a foreclosed property; the bad news is that they’re expecting a bigger discount on that property than ever before.  A new survey from online real estate sites RealtyTrac and Trulia finds 49% of those surveyed said they would be ‘at least somewhat likely to consider purchasing’ a foreclosure, up from 45% last May; however, 2/3 of those respondents are expecting at least a 30% discount to real market value, and 1/3 expect a 50% discount.  So much for house prices finding a bottom any time soon.  The reason behind the discount is clear: Risk.”

“A growing number of Americans think that the process of buying a foreclosure is more risky than ever. There’s your impact of the big bank robo-signing scandals. And those scandals, which helped to diminish faith in the mortgage market overall, also pushed back the housing recovery, at least according to the survey.  Suffice it to say that faith is not abundant among today’s potential home buyers, but that doesn’t exactly mean they’re immovable. Credit Suisse reported the first ‘uptick’ in buyer traffic in November since last April: ‘We heard varying reasons for the slight bounce in traffic, with some agents surprised and unsure of the real cause. One clear theme was the attractiveness of low mortgage rates and the fear of rising rates, which we think led some buyers to decide to act. In addition, many buyers emerged from their summer/fall sabbatical to see some of the bargains firsthand.”

Real Estate as Ponzi Scheme

What follows is a short extract from a lengthy and insightful article by Nick Carey of Reuters on what went wrong with the U.S. economy, entitled, “Special Report: Is America the sick man of the globe?”  To see the full article, point your browser to Reuters Canada.

For this blog, one of the most interesting points is how the housing market developed into a giant Ponzi scheme, something especially striking in the areas hardest hit by the decline in housing prices, Florida, Arizona, Nevada and California.  Even in Dane County, people began to assume that double digit increases in home values would continue year after year, and they built their home purchases and financial lives around such assumptions.  I will admit that I said many times that the purchase of a home in Madison was buying an asset as liquid as Microsoft stock.  If you wanted to sell,  you could sell it anytime, in a matter of days sometimes hours for at least what you paid for it.  That may have been true then: it is no longer true.

Nick Carey —

DECLINE OF MANUFACTURING & RISE OF FINANCE

Manufacturing as a percentage of U.S. gross domestic product (GDP) peaked in 1953 at 28.3 percent. By 2009 it was 11 percent. Employment in manufacturing continued a roller coaster ride for a couple more decades, peaking in 1979 at just over 14.5 million workers. But by 1979 the oil shocks began to threaten the middle-class status of manufacturing workers….The 1970s and the Last Days of the Working Class.

From the 1980s onward, manufacturing jobs and the sector’s contribution to U.S. GDP declined, a process accelerated by productivity enhancements and increasing competition from lower-cost markets. Now there are just over 8 million manufacturing workers in a population of 300 million.

Instead of seeking a solution to the sector’s woes America’s political class sought a different way out.  According to Diane Swonk, chief economist of Mesirow Financial, “we decided as a nation to issue debt and focus on the financial sector to counter what was becoming a major structural issue in the 1980s.”

That decision would have far-reaching implications for the structure of the U.S. economy.   While manufacturing’s contribution to U.S. GDP had declined since 1953, the financial sector’s steadily increased. The two sectors crossed paths but once — in 1986 during President Ronald Reagan’s second term in office — with finance on its way up and American manufacturing on history’s down escalator.

“This mess has been a long, long time coming,” PIMCO’s Bill Gross said. “We should have been getting people out of the unemployment line, re-educating and retraining them for the future. We failed to do that.”

WHILE CONSUMERS FIDDLED

The consequences of what happened when, as Swonk says, credit in America went “from being a privilege to a right” are well documented.

Thanks to low interest rates and the spurious promise that property prices could only go up, U.S. consumers in the first decade of the 21st century bought into the property market hook, line and sinker in order to profit and afford a better lifestyle.

They also drew down home equity in order to fund that lifestyle, spending money they did not have.

This is a phenomenon John Hoffecker of restructuring advisory firm AlixPartners LP refers to as “pulling forward” purchases. In just one example, Hoffecker said his firm estimated that U.S. consumers pulled forward 17 million car purchases from 2001 to 2007;…. that gives a ballpark figure of around half a trillion dollars ($504 billion).

When the real estate boom began to show signs of unraveling in 2006, lenders used ever more exotic products to get people into homes they could not afford, such as stated-income or “liar” loans where the borrower merely stated how much they earned without verification.

It is interesting to note that on the U.S. Securities and Exchange Commission’s web site the definition of a Ponzi scheme (a type of fraud also known as a pyramid scheme) includes the following line: “Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.”

“With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” the web site says. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”

The crumbling housing market brought the U.S. financial system to the brink of collapse in 2008, requiring an unpopular bailout by the government and emergency action by the U.S. Federal Reserve to prop it up.

“Obviously the last two years have made it clear that finance has its limits,” PIMCO’s Gross said. “We have seen the end of the magic era of finance as opposed to making things.”

New Year’s Prediction: Madison Home Prices Down, Sales Up

Geoffrey Gyrisco, Ph.D., Realtor

An article in in this week’s Wall Street Journal entitled “Housing Recovery Stalls: Fresh Fall in Home Prices Is Headwind for Economy: Other [Economic] Signs Still Strong” reported that home prices across 20 major metropolitan areas fell 1.3% in October from September , the third straight month-over-month decline, according to the Standard & Poor/Case-Shiller home price index.  “Many ecnonomists expect the declines to continue into at least next spring.”

Of course, such national trends are like giving the average temperature in the United States.  On the other hand, it is fair to say that today’s temperature in Florida and Wisconsin is lower than it was at the end of September.  So I would expect that real estate prices in Dane County will continue to fall through 2011.  The 40% of sales in Dane County that are distressed properties, with a huge inventory of property for listed for sale , as well as shaddow inventory,  surely will exert downward pressure on prices throughout 2011.

Today, CNNMoney.com reported that ”the era of near 4% mortgage rates has ended after a quick rate rise since early November. But some industry experts think that may be a good thing for the flagging housing market.”

“The average 30-year fixed mortgage rate has risen to 4.86% from 4.17%, according to Freddie Mac’s weekly mortgage market survey. In the Bankrate.com weekly survey, the rate has risen to 5.02% — crossing the 5% mark for the second time in three weeks — after being as low as 4.42% as recently as early November.”  Forecasters now predict them to remain between 5% and 6% for all of 2011.

“I don’t think we’re going back to a 50-year low anytime soon,” according to Keith Gumbinger of HSH Associates, a provider of mortgage informationa. ”Rates will probably never revisit those levels.”

The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power, according to Greg McBride, chief economist for Bankrate.com.

However, Keller Williams Realty in cooperation with Waterstone Mortgage is offering a program of sellers buying down interest rates by paying old-fashioned points for the buyer, thus reducing monthly payments significantly without reducing the amount the seller nets from the sale of the home.  Please do not hesitate to contact me at 608-354-9456 or Gyriscollc@tds.net for details.

However, CNNMoney suggests that higher interest rates may even prove stimulating to the housing market in the next few months.  The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more.

The strength of the economic recovery will have far more impact on the housing market that this relatively modest increase in mortgage rates, according to Lawrence Yun, chief economist for the National Association of Realtors.Yun. If hiring gains momentum, housing markets should revive.

“If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume,” said Yun.

The real mortgage challenge, according to Yun, is to increase the number of loan applicants winning approvals. Too many potential homebuyers are still finding it difficult to qualify for loans. “It’s less about rates than it is about underwriting standards, which are, in my opinion, still too stringent.  If lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy.”

Seller’s Don’t Wait: Spring Will Bring a Deluge of Properties to the Market

In a provocative article by Mary Umberger of the Chicago Tribune, she reports housing industry consultant Steve Harney recently advised real estate agents to tell sellers who have been sitting on the fence that the time is now — if they want to sidestep more marketplace competition in a few months.

Or, as he put it, the cork in the dam is about to pop.   That “cork” is banks’ indecisiveness. The “water” behind the dam is their stockpile of foreclosed homes, which has been growing with a vengeance for a couple of reasons.

Nationally, banks have been in a state of limbo this year about what to do with repossessed houses, and so they have mostly held on to them in order not to add to the nation’s oversupply of homes for sale.  While banks have been waiting for a sign of market stability–which now may be in sight–before putting their holdings on the market, nationally they also were foreclosing at a rapid pace. In August, the number of houses banks took back was up 49% over the year before, and September was the greatest month in history for repossessions

Then, the robo-signing mortgage-document fiasco unfolded, causing major lenders to put new foreclosures on hold for a while. However, as that situation creeps toward resolution, banks are resuming foreclosures.

Harney expects that banks will pull out the cork by the second quarter of 2010, as lenders push 3 million or 4 million (as seen by foreclosure-data firm RealtyTrac) to 8 million (as forecast by Morgan Stanley) foreclosed houses onto the market.

Dane County does not face a huge volume of foreclosures waiting to hit the market.  Recent months, however, have seen 40% of all property transactions as distressed property sales.

Thus I agree with Harney that selling earlier this year will probably net a better return than later.

More Foreclosures Coming: Great Opportunity, Much Pain

The following is taken from an e-mail newsletter by Chris McLaughlin with information largely from Diana Olick of CNBC.  While it speaks to the national market, approximately 40% of sales in Dane County now involve distressed properties.  While the volume of bank-owned foreclosures seems likely to further depress housing prices, it provides opportunities for others who could not otherwise afford to buy and for investors looking for properties that they can rent out.  With a predicted shift of 10% of the U.S. population from owner-occupied to rental housing–33 million people–the demand for rental housing seems likely to remain strong for years to come.  Furthermore there are opportunities to buy, fix and flip. To find these bank-owned bargains please check out my website at www.GeoffreyHomes.com or call me on my cell at 608-354-9456. It would be my pleasure to work with you.

“It’s coming, no question.  [A recent] report from RealtyTrac serves as a warning to big banks, Fannie, Freddie and local communities; the foreclosure glut is coming, and they’d better be ready to get rid of that glut in a big way.  2010 saw a record number of bank repossessions, over a million, even with a big drop in volume toward the end of the year, thanks to the robo-signing scandal and ensuing foreclosure freezes.  ‘Early indications in January were that this robo-signing related delay will be over by the end of first quarter if not sooner,’ says RealtyTrac’s Rick Sharga. ‘I think we’re going to see a significant spike in foreclosure activity early in 2011, and that will contribute in part to 2011 being a record year.’  Sharga estimates as many as a quarter of a million foreclosures that should have happened in 2010 will now be pushed into the 2011 numbers, and added to an already huge supply of bank owned properties.

The four biggest banks already have close to $7 billion worth of foreclosed properties (REO-Real Estate Owned) on their books, and Fannie and Freddie have about $24 billion collectively. While REO sales make up about one third of all sales in the current market, there is an estimated 3 year supply.  There are obviously many incentives to buy REO’s, number one being the price discount, as well as some other programs offered by the government; but there are a lot more downsides.  However,  HousingWire today reports on a study by Field Asset Services that finds rehabbed REOs spend five fewer months on the market, 69 days compared to 222 days. Many investors buy foreclosures and do the rehab themselves, but for regular home buyers, clearly having the home renovated, with no sign of the preceding trouble, is a huge added value.

Through its Neighborhood stabilization Program, the Department of Housing and Urban Development has provided $7 billion in grants to local governments and nonprofits; that money can be used to rehab foreclosed properties, or, to bulldoze them.   I also know there have been many discussions brewing within the government and at the banks with hedge funds looking to buy up bulk foreclosures. So far no big deals we know of, but they’re coming for sure. The government may even be considering incentives to get more investors to buy foreclosures, which I blogged about last month.  As the numbers mount, Freddie, Fannie, and the banks will have to put more resources into unloading these properties, especially as new spring organic housing supply comes on the market. If they choose to slash prices even more, the dip in overall home prices may fall deeper than expected.”

A final note.  There is a contrarian viewpoint that recent court rulings and the now clouded title of many properties whose mortgages were bundled securities could reduce the volume of bank-owned properties coming on the market for many months to a year or more, reducing the downward pressure on prices.

Carbon Monoxide Alarms Required in Wisconsin Homes by Feb. 1

Madison homes now require carbon monoxide detectors.

Wisconsin’s Department of Commerce reports that all single- and two-family homes in Wisconsin must have carbon monoxide detectors by Feb. 1. Homes being built after that date in Wisconsin will have to have CO detectors hard-wired into the home electrical system with backup battery supply. Existing residences may use battery-powered, stand-alone alarms. Such alarms are required in the basement and every floor of a dwelling, except for attics and garages. The law only applies to houses with garages and homes that contain CO sources, such as fireplaces, furnaces, heaters, and cooking sources that use coal, wood, and so forth. This comes on the heels of Madison’s smoke alarm ordinance that went into effect last year, which requires hard-wired or 10-year battery-powered smoke alarms in bedrooms and on all floors of all residences.

Home prices continue to fall & may reach bottom next year

The following comes from an electronic newsletter from Chris McLaughlin.  Much of it concerns the national market, not the Dane County market or Madison market or your neighborhood market.  However–with few exceptions–while the Dane County housing market has not been hit by declining prices and foreclosures as much as other markets, prices have fallen and the number of sales last year declined. In addition,  currently 40% of sales in Dane County are distressed property sales. If the historic and artificially low interest rates move up to norms, this will put significant additional downward pressure on prices by reducing what buyers can afford to pay.

According to Bank of America Merrill Lynch (BOAML),  the nadir for home prices appears to be still more than a year away.  BOAML strategists Chris Flanagan, Ryan Asato and Timothy Isgro said their model calls for home prices reaching a bottom in the second quarter of 2012. The analysts expect the Standard & Poor’s Case Shiller home price index to fall another 4.1% from its third-quarter level.

CNBC’s Diana Olick reported, “you can talk all you want of renewed interest in housing, slowly increasing sales and supposed stabilization in prices, but the elephant in the room is slowly growing, and banks, Fannie, Freddie and the government know it. REO (Real Estate Owned by lenders) inventory is rising…four million seriously delinquent loans, out of 50 million first mortgage loans. There are still over 600,000 properties in REO, which will only put more pressure on prices when they come to market.

Housing economist Mark Zandi’s biggest concern is that 14 million homeowners, according to his calculations, are underwater (owe more on their mortgages than their homes are worth), and 4 million of those are underwater by more than 50%. ‘That’s deeply underwater.’ he elaborated. Those who owe two times the value of their home are likely to walk away.

Last year various government home buyer incentives helped mitigate the foreclosure losses to the overall market; the market doesn’t have that benefit now. Zandi says one answer is for Fannie and Freddie to stop charging higher refi rates for borrowers with low credit scores and higher LTV’s (loan to value ratios) in order to facilitate more refinancing, even when borrowers are underwater. These are loans Fannie and Freddie likely already own or back. ‘It will cost Fannie and Freddie in interest income, but they will benefit in the form of fewer foreclosures,’ argues Zandi.”

Madison & Dane County Market Housing Forecast: New Home Starts Down; Fewer People Move from Rentals to Owner Occupied; Rentals Up

Lakewood Gardens, Madison: A Mix of Investor Owned Rentals and Owner Occupied Condos

Looking over the housing market currently some major long term trends are evident.  While some of my evidence is based on national stats, I believe it applies here in Madison and Dane County.

First, new construction starts are greatly reduced from the peak of the market.  There is so much existing inventory.   In many cases, you can buy a 3 to 5 year old home for less than what the first occupants paid for it.  Furthermore,  the lack of good paying jobs, even in Dane County, has significantly reduced the total number of households as people have doubled up, meaning many housing units are vacant.

Second, discussions earlier this week indicate that many people who might be moving from rental housing to owner occupied housing in Dane County are staying in rental housing.  Earlier this week, the rental agent for a major rental firm with many town houses and high credit standards for tenants, said that in 13 years in the business she has never had so many tenants renew their lease. Often her company’s rentals are a stepping stone to home ownership and they lose many tenants every spring.  Not this year. National information suggests that both young people and seniors are appreciating the flexibility of renting in a market where homes and condos cannot be readily resold as personal needs change.

The demand for rental housing is growing.  I anticipate that more modest homes will be bought by long-term investors acquiring rental property.  Additionally, rental apartments should do well in the coming decade as people must rent or prefer to rent over buy. This is a result of major economic changes resulting from the Great Recession as well as a shift in American cultural values.

Though many have pointed out that owner occupied housing is far more affordable now than it has been in many years, in my view, this is not enough to offset economic, social and cultural factors in favor of rental housing.

Third, rising gas prices are going to push down demand for ex-urban housing (that is housing in rural areas for people whose work and recreation is oriented around an urban center) while supporting demand for housing close to metropolitan centers with their employment and recreational opportunities.  In Dane County, we will see less Madison oriented people pushing out into the countryside to live.  If nothing else, this bodes well for the preservation of green space and farmland and sustainable compact development. Details below.

Home starts down
Nationally, new home construction took a sharp dive in February, according to a Commerce Department report released today.  Housing starts, the number of new homes being built, fell 22.5% to an annual rate of 479,000 in February, down from a revised 618,000 in January.  Economists had expected the figure to fall to 545,000 housing starts in February.  The number of permits for future housing construction fell to an annual rate of 517,000 last month, down 8.2% from a revised 563,000 in January, the Commerce Department said. Economists had expected 565,000 building permits.  Both permits and new construction remain more than 20% below their prior-year levels.  One key impediment to the sector’s recovery is a vast backlog of unsold inventory, while a shaky job market has also made consumers reluctant to embark on any major new financial commitments. Making matters worse, a glut of foreclosures, stalled in recent months by revelations of improper loan documentation, is depressing the market. These trends apply in Madison and Dane County.

CNBC’s Olick – apartment REITs
While Diana Olick of CNBC  writes in regard to Real Estate Investment Trusts (REITs), the trends apply to all rental housing, including those using the federal and state historic rehabilitation tax credit. “With all the turmoil and unknown in the markets, investors today may be searching for a safe-haven. U.S. real estate wouldn’t exactly sit at the top of the list for most, given the still uncertain state of the housing and credit markets, but there is one sector that seems to have fundamentals and sentiment on its side: Apartments.  We’re in Boston, MA today for day two of the Spring Realty Check: Opportunity Knocks. Boston is home to Avalon Bay, one of the largest apartment REITs in the nation. It’s revenues were up 8% year over and shares are up 34% from a year ago. It’s the upside to the downturn in housing. Many people who lost their homes to foreclosure have been forced to the rental market, others who are unable to get a mortgage are doing the same, and still others who would have headed toward home ownership have been scared away from the market by still falling prices. In turn, apartment vacancies are down, rents are up and REITs are reaping the rewards.

Historic Craftsman Style Rental Unit in Madison

We interviewed a young couple in Boston, fiancées, and I think their insights are indicative of so many around the country.  ‘A lot of people are scared to buy just because if they have to move or things change, you lose money on the house and you might not be able to sell it. In my mind it’s just easier and more safe to rent.’  ‘I think more and more people are going to go away from buying and start renting more just because it’s convenient. It’s a no brainer to rent, especially when you’re young and you want to live in the city.’  The story appears to be the same in most cities around the country. Even though affordability is very high, renting just seems like the safer bet for many on the fence. The big question of course is whether this is a temporary phenomenon or not? One important fundamental of note: There is very little multi-family supply, as new construction essentially ground to a halt during the housing crash. It is just now starting up again, but there will be at least a two year lag time before that new supply comes to market.”

Mortgages are cheap–if you can get one; Homes are affordable–if you can afford one

With a vast inventory of properties for sale, significantly reduced prices even here in Madison and Dane County, and mortgage rates as low as they have been in about 50 years, homes have become more affordable.

Dane County Market

What is pushing down prices and limiting sales in Madison and Dane County  are the difficulty in obtaining a mortgage loan and the lack of jobs or job security.

Chris McLaughlin provides this national perspective in his e-newsletter, trends that apply here.

According to the Federal Reserve, nearly a quarter of people who apply for loans are turned down.  The denial rates tell only half the story. Many potential buyers aren’t even applying for loans because they assume they can’t get one.  That shows up in credit scores for loans financed with backing from Fannie Mae and Freddie Mac. The average credit score has risen to 760 from 720 a few years ago. For FHA loans, the average score has gone to 700 from 660. Loans made to borrowers with sub-620 scores are almost nonexistent.  Another factor keeping people out of the mortgage market is that lenders now require much more up-front cash. The median down payment for purchase is about 15%. During the housing boom, it approached zero.  On most loans, banks want 20% down. On $200,000 purchases, that’s $40,000, an insurmountable obstacle for many young house hunters.

Industry insiders say all these factors have reduced the pool of buyers, lowering demand for homes and hurting prices.  “We feel it really reduces the demand for houses,” said Mike D’Alonzo, president of the National Association of Mortgage Brokers. “It’s an unbelievable buyer’s market, but there hasn’t been as much activity as you would expect because not as many people qualify for loans.”  And it’s about to get harder for buyers. Federal regulators proposed rules last week that are designed to discourage risky lending but that will also likely further restrict lending.

Banks would be required to keep 5% of some loans, specifically those with less than 20% down payments, on their books rather than selling them all off as securities. As a result, banks make be unlikely to issue loans where less than 20% is put down. So much for first-time buyers.  “We think the new rules are appalling,” said the NAHB’s Howard. “Only the wealthy will be able to buy homes at low interest cost.”  It could also further erode consumer demand for homes.  The immediate impact, should the new regulations get adopted, should be minor, according to Steve O’Connor, spokesman for the Mortgage Bankers Association. That’s because Fannie, Freddie and FHA loans are all exempt from the requirements and they represent more than 90% of the market right now.  The government, however, wants to reduce the presence of all three agencies in favor of private lenders, and banking experts fears the long-term impact of abandoning the field to mostly private companies.

Mortgages Harder to Get Affecting Sellers as Well as Buyers

Banks are reluctant to make loans without the Fannie and Freddie guarantee, and loans backed by them account for just about every mortgage written these days.  In 2009, the agencies lifted the minimum credit score that borrowers must have from 580 to 620. That’s probably for the best.  But they’ve pushed through a host of other requirements as well, and that means real estate deals don’t get done, even for some relatively low-risk borrowers.  This affects sellers in reducing the number of potential buyers and it results in buyers being unable to meet the finance contingency.  Realtors need to remain current on these rapidly changing rules in order to advise sellers on the viability of offers and need to assure that their buyers are qualified in advance by a lender.

“You can have one Fannie/Freddie guideline you violate and that gets you rejected,” said Alan Rosenbaum of GuardHill Financial.  According to the Federal Reserve, a quarter of all mortgage loan applicants get denied. Many other potential homebuyers never even try to get loans, said Jerry Howard, president of the National Association of Home Builders.

For Fannie/Freddie lenders to approve a mortgage to finance purchase of a condo, a large majority of the units — 70% — have to be already sold or under contract to individuals. Before 2009, the threshold was 51%.  If more than 30% are still owned by the company that built the complex or sponsored its conversion from rental units, the mortgage will be denied, no matter how qualified the buyer is.

Fannie and Freddie have also increased their emphasis on income relative to debt.  If someone’s total debt payments exceed 45% of income, the mortgage will be denied. In 2009, the limit was 55%.  Some borrowers lost homes to foreclosure but then diligently rebuilt their financial health. Despite high credit scores, ample assets and income and steady employment, lenders are not allowed to finance their Fannie/Freddie mortgages if their foreclosures happened any time within the past seven years.  Before spring last year, the wait time was five years.  Fannie and Freddie also have gotten stricter in how they factor in missed payments on credit cards, auto loans and other debts in which the balances do not have to be paid off every month.  They used to be okay with a missed payment or two. Now, one missed payment will hit your debt-to-income ratio, because banks will add 5% of your outstanding loan balance to the debt part of the calculation.

Keller Williams Realty, Tops in Real Estate

Keller Williams Realty Williams Realty was ranked number one among real

Keller Williams Realty Tops the List among Real Estate Franchises in Madison, Wisconsin & Globally

estate brokerage franchises in an annual survey by Entrepreneur Magazine, and ranked 78th overall out of 500 franchises.  In Madison, Wisconsin, Keller Williams, a comparatively new company in town, is now the community’s number one real estate franchise.  Entrepreneur Magazine ranked Coldwell Banker Real Estate LLC  second among real estate franchises and as the fastest-growing real estate franchise.

Overall, eight real estate franchises were chosen among the Franchise 500. Financial strength and stability, growth rate, size of the system, number of years in operation and total time franchising, startup cost, litigation, percentage of terminations, and other statistics factor into the franchiser rankings, according to Entrepreneur.com.

The rankings are based on data from July 2008 through July 2010.

Housing Market’s Continued Plunge Favors Buyers and Investors in Rentals

In the past few months, many housing market gurus had been predicting a bottom to the fall in housing prices later in 2011.  Based on persistently high unemployment and under-employment, I doubted their predictions, as did many realtors and lay persons on the front lines.  Now the data is in.  During the first quarter, 97% of the 132 markets that Zillow tracks posted quarter-over-quarter declines in home values. The gurus can only say, “Oops!”

According to the Zillow Home Value Index report released May 9, 2011, home values dropped 3% in the first quarter, their sharpest quarter-over-quarter decline since the financial market meltdown of late 2008.

Zillow is revising its forecast.  ” With accelerating declines during the first

Housing Market's Continued Decline Favors Buyers & Owners of Rental Properties

quarter, it is unreasonable to expect home values to return to stability by the end of 2011,” said Zillow chief economist Stan Humphries in a statement. “…underlying demand post-tax credit, as well as rising foreclosures and high negative equity rates, make it almost certain that we won’t see a bottom in home values until 2012 or later.”

In addition, the 25 largest metro areas in the Zillow Home Value Index  also posted a new high of 28.4% in which all single-family homes found their mortgages underwater, meaning home owners owed more on their mortgage than the market value of their home.

Comparing the first quarter to that of a year ago, the picture is even bleaker, with the Zillow index down 8.2%.  Since the real estate market hit its peak in June 2006, home values have plummeted 29.5%, according to Zillow.  These, of course, are national averages.  Each city and neighborhood is a unique market.  In Dane County, the drop, if carefully researched, probably has not been as great, though it has been substantial.

Despite the loss in equity, most people with underwater mortgages  still are choosing not to walk away from their homes.  As employment picks up, a complicating factor is that many persons may find their job is in a new location, too far from their existing home to commute.  Then they will face the prospect of renting out their current home, bringing cash savings to the sale if they have it, or in some way, defaulting on their debt through short sale, cash for keys, or strategic foreclosure.

Additionally, those with new jobs will find the banks charging higher interest or mortgage insurance fees until the newly employed have established themselves in their new positions.

All this adds up to a strong indication that owner-occupied housing prices are not going up anytime soon and there will be an increased demand for rental properties, making them an especially good investment for years to come.  Therefore, I believe, people need to make the best decision under the circumstances, and look at how to move on with their lives without waiting for a recovery in housing market values.

Finally, if you are likely to be staying put for a while, now is an ideal time to buy, with interest rates being held artificially low by the Federal Reserve Board.  An uptick interest rates could offset any further decline in housing prices when calculating monthly payments.

Donovan Rypkema Provides Compelling Statistics on the Economic Benefits of Historic Preservation

Don Nelson reports that real estate and economic development consultant Donovan Rypkema’s recent presentation on the value of historic preservation was even better than expected.  Rypkema delivered his talk April 15 at the University of Georgia Chapel as part of the Preservation BBQ hosted by the Sigma Pi Kappa Honor Society and UGA’s College of Environment and Design.

Donovan Rypkema details historic preservation economic benefits: complelling studies and statistics

The guest speaker included some information from a recent report, “Good News in Tough Times: Historic Preservation and the Georgia Economy,” which Rypkema’s Washington, D.C.-based consulting firm, PlaceEconomics, conducted, but he also presented data from around the country on how historic preservation affected local economies.

For a summary of the talk by Donovan Rypkema, with many compelling and useful statistics, please click the link here to the column by Don Nelson’.

Real Estate Industry Suprised by Declining Sales; Homeowners and Renters Are Not

Nationally, sales of existing homes in the U.S. unexpectedly declined in April from the pace  of March according to industry experts at the National Association of Realtors.   Those outside the industry were not surprised.  The median sales price declined from a year earlier and 37 percent of transactions were of distressed dwellings.  These figures generally apply in Dane County as well.

Geoffrey Gyrisco

Despite the opportunity to buy in a buyer’s market, falling prices may make many Americans hesitant to purchase homes. With the most commonly used national unemployment figure at 9 percent, and true unemployment and underemployment at double that number, a recovery in real estate values may be years away.

Of all purchases, cash transactions accounted for 31 percent after a record 35 percent in March, NAR chief economist Lawrence Yun said in a press conference.  The Realtors group began tracking the monthly figure in August 2008, and the share on a yearly basis before that was around 10 percent, Yun has said.

This likely reflects investors buying up housing stock to use as rentals.  With a projected 10 percent of the American population, about 33 million people, shifting from owning to renting, the demand for rental housing likely will be strong for years.  Now is an excellent time to invest.  Follow the smart money.

Nationally, distressed sales, which comprise foreclosures and short sales (in which the lender agrees to a transaction for less than the balance of the mortgage), accounted for 37 percent of the total after 40 percent in March, Yun said.  This is generally consistent with figures in Dane County, though recently the Dane County market has shown fewer distressed properties coming on to the market.

In this situation, unless you have to sell in the near future, you may be better off waiting.  The wait however, could be several years.  “We still have a very large foreclosed, distressed inventory that needs to be worked through,” Yun said.

CoreLogic Inc. in March estimated that nationally about 1.8 million homes were delinquent or in foreclosure, a so-called “shadow inventory” set to add to the unsold supply of existing houses already on the market.

Those outside the real estate industry may have the most realistic projection of the future.  More than half of U.S. homeowners and renters say housing won’t recover until at least 2014, according to a survey released yesterday by Trulia Inc. and RealtyTrac Inc., collectors of real-estate data.  The survey, taken in April, found that 54 percent of respondents don’t expect a recovery for at least three years, up from 34 percent in November. Those who see a turnaround by the end of next year fell to 15 percent.

Builders of new homes are seeing no gain in demand as they are forced to compete with cheaper, foreclosed properties. If you want and can afford a custom house, now is the time to build, with many builders scraping to get enough work to survive.  With an oversupply of both residential and commercial real estate on the market, it is certain that increased construction of homes and commercial properties will not pull the nation out of the recession.

Think the housing market is a mess in Madison; it is far worse elsewhere

It could be worse and it is worse, far worse elsewhere than Madison and Dane County, Wisconsin, as Gina Ferazzi of the Los Angels Times (April 22, 2011) explains.

In parts of North Las Vegas, more than 80% of homeowners owe more on their mortgages than their homes are worth. Staying is expensive, but many can’t afford to move.

For example, Charles Mills can barely afford to stay here. But he also can’t afford to move. That’s why the 44-year-old heavy-equipment operator was preparing to leave his wife and young daughter here and go where he could find work — the Oklahoma oil fields. Mills has a mortgage to pay, even if its size pains him.  He purchased his house in 2006 for $308,500. Current value: $105,797. “We talked about it: What can we do with the house?” Mills said. “Nobody’s going to buy it. Nobody’s going to rent it. If we walk away, my credit’s shot. We’re stuck.”

Mobility in search of new opportunity has long been a cornerstone of the American economy, much the way homeownership has long offered a path to firmer financial footing. But the housing bust has left tens of thousands of homeowners across Nevada essentially trapped.  Elsewhere on Midnight Breeze Street are Steve and Gay Shoaff, who once talked of selling their house and retiring somewhere pretty.  But the Shoaffs have been living mostly off savings since the construction industry sputtered.  Their $187,980 home is now assessed at $99,220. “This house won’t be worth what we paid on it until after we die,” Gay Shoafff said. Some economists would agree, predicting that a full recovery in parts of the West’s “foreclosure belt” — California, Nevada and Arizona — won’t occur until at least 2030.

Some economists argue that, in a way, these homeowners are worse off financially than those who lost their houses through foreclosure and were forced to move on. Those borrowers often were able to live rent-free for years because of the snail’s pace of foreclosure proceedings. Meanwhile, their underwater neighbors poured money into mortgages, not savings or investments. They couldn’t chase higher-paying work. Homeowners with negative equity are at least a third less mobile than other homeowners, according to a recent study in the Journal of Urban Economics. But abandoning their homes was an option that appeared too dicey. “Walking away, it does wreck your credit history for a while and you can’t get another mortgage for seven years,” said Richard Green, director of the USC Lusk Center for Real Estate. Defaulting also makes it harder to rent an apartment.

Home prices continue to fall

Chris McLaughlin reports in his e-newsletter that “home prices fell below the 2009 housing bust bottom in the first quarter, dropping 4.2% from the prior three months, according to the S&P Case-Shiller national home price index.  The 20-city composite index was at 138.16, falling below the 2009 low of
139.26. It was the third straight quarterly drop for the index,
which was down 5.1% from a year earlier. National prices are now
down 32.7% from their peak set five years ago.  The
S&P/Case-Shiller national home price index covers 80% of the
housing market.  “This month’s report is marked by the
confirmation of a double-dip in home prices across much of the
nation,” said David Blitzer, spokesman for Standard and Poor’s.
The housing market went through a brief recovery period starting
in mid-2009.”   All I can add is Ouch! And yes, it is affecting much of Madison, and Dane County, Wisconsin.  The only exceptions might be certain high demand historic neighborhoods, such as University Heights.

Why It’s Time To Buy

The Wall Street Journal Reports that “back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor’s Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody’s Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer’s market.”  For the full article, click here.

Many buyers still seem to be waiting for a market bottom.  As Gary Keller noted a couple of years ago, no one will know that real estate prices have reached the bottom until they are on their way up. In most sub-markets in Dane County and Madison, Wisconsin, sellers waiting for prices to go up significantly should be aware that the most likely scenario is a further decline in real estate values and then a couple of years before there is a significant increase.

If prices are going to fall further, why shouldn’t buyers wait?  First, buyers have shifted their perspective from a home being a rapidly appreciating saleable financial investment to a place where they can invest themselves, landscaping and painting it as they choose, rather than as their landlord chooses.  Second, if they are purchasing a $200,000 home or condo, with 5% down and a $190,000 mortgage, when interest rates rise from 4.57% to closer to the historic norm– say 6.5%– monthly mortgage payments rise from about $990/month to $1,200/month.  To this, add mortgage insurance, homeowners’ insurance, and taxes, and the property may now be financially out of reach.

For those in Madison and Dane County who would like to buy and do not have a good down-payment, please give me a call at 608-354-9456.  There are numerous down-payment programs to assist you.  I would be glad to direct you to a mortgage banker familiar with them.

Luxury Home Sales Lead Recovery

According to Chris McLaughlin, in his daily e-newsletter, luxury home sales are leading the housing recovery.  In Dane County and Madison, Wisconsin, the sale of high priced homes is up significantly though still far lower than before the housing and financial crash.

The housing market is showing “signs of improvement” with help
from luxury home sales, Toll Brothers Chief Executive Douglas
Yearley said yesterday.  “There are some signs luxury is leading
us out of this a little bit,” he said. “We’re clearly off the
bottom.”  But while Toll is a builder of those luxury homes, the
CEO expects sales the rest of the year to be relatively flat.
That’s despite 60% of Toll sales coming from the northeast
corridor of Boston to Washington, D.C., which was not hit with

Luxury Home Sales Up

the same housing problems as Las Vegas and Florida, among others.
“I think in pockets we’ll see some success,” Yearley said.
“The good news is pricing has definitely stabilized. We’re not
seeing price reductions. In some isolated cases, we have some
pricing power, we’re able to raise prices.”  He added that
after five or six years of waiting, buyers want “to move on with
their lives and I think they’re done trying to time the perfect
point to get in the market. They’re taking advantage of great
interest rates. Affordability’s at an all-time high…It’s
helping us but we have a long ways to go.”

Mortgage Rates Reach New 2011 Low

Home mortgage rates fell again to a fresh 2011 low during the week ended June 10. The decline in fixed rates represented the eighth-straight weekly fall. The Wall Street Journal reports the 30-year fixed-rate mortgage averaged 4.49%  down from year’s 4.72% average. Rates on 15-year fixed-rate mortgages fell to 3.68% from 3.74% the previous week and 4.17% a year earlier. Five-year Treasury-indexed hybrid adjustable-rate mortgages fell to 3.28%, from 3.41% last week and 3.91% a year earlier.  To obtain the rates, fixed-rate borrowers required an average payment of 0.7 point, while the adjustable-rate mortgages required a 0.5 point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

Don’t expect this to lead to any leap in sales. In an article published last week, the American Association of Retired Persons pointed to the nation’s 19% underemployment, statistics unprecedented since the Great Depression.  Furthermore lenders are demanding proof of ability to repay the loan, unlike the heyday of the real estate bubble when it seemed that anyone who could sign some papers could get a loan.

No, it’s not that bad here in Dane County and Madison, Wisconsin, though underemployment is very high here too. Also, it sure is hard to get buyers to commit, when each week brings a better deal. However, as Gary Keller pointed out, we will not know when mortgage rates and home prices have hit the bottom until they are on their way up.

HAVA a Giant Flop; Banks Ramp Up Short Sales

HAFA (Home Affordable Foreclosure Alternatives) provides financial incentives for servicers and borrowers to agree to short sales (selling the property for less than the mortgage) and deeds in lieu of foreclosure (giving the property to the bank). The program was launched in April of 2010 with much fanfare, and it was streamlined in December 2010.   So far, nation-wide,  HAFA has completed a measly total of 7,113 short sales and deeds in lieu of foreclosure.

In comparison, the much maligned banks have done far more short sales, assisting distressed home-owners.  JP Morgan Chase has done over 110,000 short sales since 2009 and is now processing about 5,000 a month. They are the number three servicer behind Bank of America and Wells Fargo.  These top three banks probably are doing more than 20,000 a month, and they’re ramping up,something they should have done long ago.   In fact, the Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey reported that nationally,  short sales hit a record high of 19.6% of all home purchase transactions in March. These national figures are mirrored in Madison and Dane County, Wisconsin.

Banks ignore HAVA and finally ramp up short sales

Banks have discovered that short sales are often the fastest and most cost effective way to resolve a severely delinquent mortgage, and they have greatly
improved their processing systems.   Compared to a foreclosure, other sources say, short sales result in smaller losses. There is more financial certainty than from an REO (bank owned) sale many months down the road when the property likely has deteriorated. The banks are currently looking at so many potential REO’s from so many delinquent loans in the pipeline, they’d be ridiculous not to try to short sell as many as they possibly could.  Some servicers are aggressively seeking out borrowers for short sales.  “Chase reaches out to borrowers who have already listed their homes or were recently denied a modification to initiate the short sale evaluation process. The goal is to have as much paperwork completed as possible prior to receiving the offer, thereby reducing the time from offer receipt to approval,” a Chase spokesman explains.

But why, if HAFA actually pays borrowers and servicers to do short sales and DIL’s, would banks be doing so many outside of the program? The short answer is it is a taxpayer funded program and comes with a boatload of restrictions and regulations.  This regulations knock out investors (a major segment of buyers these days) and sellers who don’t meet the “hardship” requirements of the federal government.  Remarkably, the big banks likely are more flexible on the definition of “hardship” knowing that a short sales will be cheaper in the end than a foreclosure.

Real Estate Market Alert: If selling you have 3 months to sell; if buying you have 3 months to buy.

The American real estate market is entering a unique three month period before major changes hit, changes that will adversely affect most sellers and most buyers.

Currently the Federal Housing Administration, Fannie Mae, and Freddie Mac, are the underlying financiers of 90% of the nation’s new mortgage loans.  The standards for these loans are about to change dramatically, with the introduction of the Qualified Residential Mortgage (QRM) on October 1 of 2011.  The QRM will limit jumbo loans (affecting a few in Madison and Dane County), require higher credit scores, and most importantly require 20% down, greatly reducing the number of potential borrowers. Pleas from Realtors and mortgage bankers may reduce these onerous requirements a bit; expect, however, that standards for obtaining a mortgage loan to be far more stringent beginning October 1.  Many buyers will not qualify.

Sellers who need to sell and do not get their property sold in the next three months will be hit from three  directions. First , the pool of eligible buyers will be significantly reduced.  Second there is a huge number of foreclosures that have yet to hit the market, sometimes called the “shadow inventory.”  These sales currently are being held up as banks reorganize their procedures following being caught having produced in court perhaps a million or more felonious and fraudulent affidavits in foreclosure proceedings.   While some believe the banks are getting more of their money back with fewer homes on the market, others are urging them to get as many properties through the process as fast as legally possible, in order for the  real estate market to recover.  At some point soon, large numbers of these properties will hit the market, depressing prices.

Thirdly, there is another large shadow inventory.  This consists of the many properties owned by people who need to sell and who have been able to hold off selling for several years in hopes of a market recovery.  One way or another, many of these properties are likely to be added to the market, even further depressing prices.

The short story is, if you need to sell, get your property sold in the next three months or you will sell it for less in the next several years. If you intend to buy, buy now, while interest rates still are being held artificially low and lending requirements are still within reach.

 

Houses are selling. Why not yours?

I love Steve Harney’s blog headline:

Almost 14,000 Houses Sold Yesterday

It’s true. The National Association of Realtors reported that last month homes were selling at an annual rate of 5.10 million.  That is almost 14,000 homes for every one of 365 days.  This being spring, probably 28,000 homes sold yesterday.

If yours did not, it was probably overpriced.  In this market it is all about price, price, price. 

Or, as I explain to sellers it is 85% price, 10% condition and staging, and 5% marketing, regardless of what any Realtor looking sell your house tells you about their slick marketing plan.  (However,  bad marketing and poor condition and staging can sabotage a good price.)

The best staging and marketing will not sell an overpriced home.  90% of buyers search the internet and can easily compare prices and determine your home’s market value.

Foreclosure Tsunami Coming

“Foreclsoure Tsunami Coming.”  That sounds like hyperbole.  It isn’t.  Banks have slowed down the foreclosure process while they revise procedures to conform to the law.  Nationally, there are currently 1.3 million homes in the foreclosure process.  Even more remarkable, 2.1 million households are 90 or more days late on their mortgage payments.  Less than 1% will redeem their situation.  If they cannot afford to protect their home, they are unlikely to be able to come up with a much larger catch-up payment.

In Wisconsin, if no other homes come on the market, at the rate homes are currently selling,  it would take 13 months to sell the foreclosures.  This is better than most states;  more sensational stats may have been presented in the national news. Nevertheless, it is a lot of homes.

According to real estate guru Steve Harney, if non-distressed sale price equals 100% of value, short sales are selling at 90.5% of value, while bank owned properties are selling at 64.9% of value, on average.

These distressed property sales are having an impact on the entire market.  Due to the large number of distressed property sales being used as comparables, in April, nationally, one in four sales were adversely affected by low appraisals.  This is happening in Madison and Dane County, Wisconsin also.

So what is the bottom line.  If you are selling, now is the best time to get the highest price you are likely to get in the next couple years.  Once the tsunami of foreclosures hits the market, prices will go down further.  If your home is not selling, you are in effect the highest bidder, and at the end of the day, will continue to own the home.

For buyers, many lenders have not made it easy to buy foreclosed properties, despite what you may hear on the news.  Madison and Dane County, Wisconsin Realtors can share many horror stories.  However, if you have extraordinary patience and persistence, you can end up with a real deal.  In Janesville such deals are easy to find.  In Madison, know that you will be competing with others scrounging for deals at the bottom of the market.  More such deals are coming.