“[Voluntary foreclosure is] fast becoming a major challenge to the government’s $75 billion effort to keep distressed borrowers in their homes.” “…About 588,000 borrowers walked away from homes last year, double the number in 2007.”

“People are going to determine it doesn’t make financial sense to hold on to their homes. …Strategic defaults mean foreclosures could be high for a long time.”

“The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they’re able to pay the mortgage.”

“An unprecedented 16 million homewoners currently are underwater, according to Moody’s Economy.com. That’s about a third of all homeowners with a first mortgage.” “An even higher estimate comes from Deutsche Bank, which predicted in an August study that the number of homesowners underwater will grow… …[to] 48% of all those with a mortgage, by the time home prices stablilize.”

“The most disturbing aspect of this is that it’s becoming acceptable to do, ’says Joel Naroff, an economist with Naroff Economich Advisors, ‘What does that mean down the road for housing and the economy if people are happy to walk away and destroy thier credit? They’re saying, ‘Why pay a high amount if they can get something, even a rental, for less?’”

Bottom line is that it may soon take more cash out of pocket for homebuyers to purchase a home. If you are considering purchasing a home in the near or distant future, the window of opportunity to take advantage of a small down payment and 50 year low interest rates may be closing. Better to buy sooner than later.

I’ve negotiated on several bank-owned homes and short sales as well.  Here’s what I’ve noticed:  The bank-owned homes start at a higher price, and when you bring a low offer they counter back slightly.  They don’t seem to mind if you walk away after the counter offer.  They’ll leave the house priced the same for a few more weeks and then reduce the price and hold to the same pattern if another offer comes in.

Short sales are different.  The sellers are happy to accept a lower offer, but their lienholders rarely agree to a dramatic reduction in price.  Therefore the transaction fails after spending weeks, even months trying to obtain lienholder approval.

I know my experience is merely antecdotal, but do the statistics support what I’ve just recounted.  If you look at sales price as compared to the listing price in King and Snohomish counties, you’ll see that for all homes sellers reduced their price by 3%, bank-owned homes by 2.6%, and short sales by 4.7%.  Bank-owned homes were less flexible than the general market.  The best prices were with short sales, but only by less than 2%.

This means that on a $300,000 home you might negotiate a better price on a short sale by about $5,000.  Is this really worth  the months and the hassle?  I say no.  It can be argued that home prices can easily come down another $5,000 in all those months in the general housing pool.

There are a couple of good practices to insure that’ll you’ll get a good value on your next home.  Firstly, do your research.  Look at lots of homes.  When a good value comes along you’ll readily recognize it.  Secondly, have your agent do a market analysis on a home before you place an offer on it. 

A good agent can easily save you thousands of dollars by the time you close on your home.  You will do much better with a good agent rather than a short sale or bank-owned property.

Great news for first-time homebuyers! Home prices are low, interest rates are low, inventory is high – if all you’ve been waiting for is to save up a down payment – stop waiting! It’s time to buy your home!

The Washington state legislature has just approved a program that will allow first-time homebuyers to use the $8,000 federal tax credit (see post below on tax credit) as a down payment.

From the press release: “The program authorizes the state treasurer to deposit $25 million in a financial institution, which would then open a line of credit for the Washington State Housing Finance Commission (HFC). The HFC would use that credit line to pay for down payment loans to first-time buyers. Buyers repay the advance loan after filing for and receiving the tax credit.”

First-time homebuyers  will be able to make a loan from the Washington state HFC for the amount of their tax credit to use as their down payment, and will repay the loan from their tax return.

If you are a first-time homebuyer who needs down payment assistance, be sure to choose a real estate agent and a mortgage professional who is aware of this new program and how to use it in structuring your purchase.

According to the Mortgage Bankers Association, 78% of all mortgage loans being done right now are refinances. It is stunning that in this unique market of 40-year low interest rates and great home prices, more people aren’t taking advantage of this incredible opportunity.

What is the fear? It’s simple. People are concerned that if they purchase a home today, it may be worth less tomorrow. But if that were to happen, does that mean that you would lose money?

Let’s take a look and see. Here is an example of a home that was purchased for $400,000 with 20% down and an interest rate of 4.75%, along with a comparison of what it would look like if this homebuyer decided to wait and sure enough, one year later the price had dropped $50,000 to $350,000. Interest rates, however, are likely to have climbed back up. We’ll use the average interest rate over the last 24 months of 6.250% for this example.

As you can see, by waiting, even though the price of the house was $50,000 less, this homebuyer is actually going to spend $55 more per month.

Over the 30 year life of the loan, the house that was priced $50,000 less, will actually have cost $9,705 more with a higher interest rate.

Even though he put $10,000 lesss down, he will spend $19,705 more in actual payments, $59,705 more in interest.

So much for waiting for the bottom to save money. As long as you are buying a home for the long term, not just to flip it in a few months or years for profit, you may actually be better off to buy it now when the combination of interest rates and home prices is so low, than you would be to try and time the bottom of the market, which is impossible to do anyway.

With all of the different bailout programs and rescue plans, it’s hard to keep it all straight – TARP, HLPR, TALF, H4H…. programs totalling trillions of dollars, with the intent of helping keep businesses and people afloat during this difficult economic time.  So have you wondered if any of these programs are actually working? If our hard earned tax dollars are being put to good use?

Remember last July when the “Hope for Homeowners” program was unveiled? It sounded so good – so hopeful.  The plan was designed to help people who found themselves “upside down” in their mortgages due to falling home values; people who were at risk of default and foreclosure.  The plan was that the government would modify the current mortgage, insure it through the FHA (Federal Housing Authority) and in turn, if and when the home was sold, the government would get half of the profit.

According to HUD (Housing of Urban Development), there were a total of 865 homeowners who applied to be a part of this program. Out of that number, 51 mortgages were modified (but not by using the Hope for Homeowners program) and 1 mortgage was completed. One.  Just one.  One very lonely mortgage.

The astonishing part of this is the other numbers in the story -
$300 Billion has been set aside for FHA to use for this program
An additional $20 Billion credit subsidy was made available to help fund the plan
400,000 was the  number of mortgages the plan was estimated to benefit
865 applications were received out of 66,000 phone inquiries (since last September)

We can only hope that the one homeowner who modified their mortgage with the H4H program got a really, really good deal.

In contrast, Hope Now, a private sector group is the alliance of mortgage market participants, mortgage servicers, and counselors that is working to help as many homeowners as possible avoid foreclosure and stay in their homes. They help facilitate either a repayment plan that allows the borrower to become current and catch up on missed payments that are appropriate to the borrower’s circumstances, or a modification which occurs any time the term of the original loan contract is permanently altered.  This can involve a reduction in the interest rate, or forgiveness of a portion of principal or extension of the maturity date of the loan.  This program has been in effect since July 2007 and has to date helped 3,675,971 homeowners stay in their homes. What has this program cost taxpayers?  Zero. That’s right – zero.  Amazing what can be accomplished by organizations and businesses when the government stays out of the way.

In it’s defense, the government’s latest program – Making Home Affordable program, which was available as of April 6th, does seem to be on the right path. It allows homeowners to refinance their first mortgages, up to 105% of the current value of their home, without having to pay mortgage insurance.  So far, I’m finding it very easy to get people approved – quite often with no appraisals required, and only a pay stub and verification of employment needed for income documentation. The rates are quite good, especially if you have a 720 credit score and are only refinancing up to 95% of the value of your home. The government has committed another $75 billion dollars for this program which is designed to help seven 7-9 million homeowners.

We’ll have to wait and see if it fares better than their first attempt. I’ve been able to help a few people already with this program, so I know for sure, that only one week into it, they’re already ahead of the previous score of one. ]]> http://twistrealestate.com/blog/2009/04/one-is-the-loneliest-number%e2%80%a6/feed/ 3 http://twistrealestate.com/blog/2009/04/do-you-really-want-to-sell-your-home/ http://twistrealestate.com/blog/2009/04/do-you-really-want-to-sell-your-home/#comments Wed, 08 Apr 2009 22:46:14 +0000 Ken Sutton http://newhomelane.com/blog/?p=15 I had an appointment to show a home in Bothell, WA this evening. I arrived early at the house to turn on lights and make sure everything was in order. There was a note on the front door requesting that we use the back door. I collected the keys from the lock box and proceeded to the back of the house. The key opened the dead bolt but the door knob was locked.

The only way into the house was breaking and entering. This, however, was not an option because it’s against the law for agents too. I had no choice but to re-schedule the appointment with my first-time home buyers. Understandably they were disappointed.

I’m sure you remember what it was like when you purchased your first home. You were probably a little unsure and anxious, and every little mishap caused you to second guess your decision. This is why it’s so important to make sure things go as smoothly as possible for potential buyers and their agents.

If you’re a seller, I recommend that you make access to your home easy and inviting. One house I showed in Snohomish, WA a couple of months ago had a plate of cookies on the table for my buyers. That kind of neighborliness was refreshing and helped my buyers to feel welcome. They stayed a little longer than usual.

Try not to require agents to jump through a lot of hoops to show your house. ‘By Appointment Only’ homes are very difficult to arrange when there are several schedules to juggle. Typically an agent will show several homes at a time, and it is a real temptation to avoid all the homes that make that requirement.

I’m grateful for all the sellers that do what they can to remove all the obstacles that would cause a buyer to second guess their decision to consider a home.

The “invisible price” is the price where you are receiving the most money for your home that the market will bear.

What is that price and how do you find it? I’m a real estate professional and I’m supposed to know the answer to this; but I don’t. Some agents have suggested to their seller to start at a reasonable price and drop their price weekly at even increments until a buyer comes along. I’ve seen homes drop weekly between $10,000 and $50,000. Incredible.

But here’s what my buyers are saying, “Hey, the longer I wait, the less I’ll have to pay.” They’re not concerned about losing out to another offer because there’s many homes from which to choose and more are arriving on the market every day.

One of my buyers was interested in a home that arrived on the market at $260,000 and watched the price drop weekly by $10,000 until it came down to $180,000 and settled with the seller at $175,000. What if the seller started at $225,000? I’m certain that they would have received much more for their home.

It’s advisable for sellers to find that “invisible price” and place their home for sale there originally. Where is that invisible price? Well, here’s what it’s not:

• It’s not the price of similar homes in your neighborhood that have been on the market for several months. (Even if your home is much nicer than all your neighbor’s homes.)
• It’s not even the price of similar homes that have sold in your neighborhood in the last few months.

What is it then? It’s the price where buyer’s are certain that they won’t regret the price of the house 1 year from now. I have been asked by more than one buyer, “What if I buy this house and it’s worth 10% less six months from now?” Is there something special about 10%. Maybe.

Let’s say your market analysis comes out to $300,000 based on sold comparable homes. I believe you will need to price your house for no more than $270,000 and figure on taking an offer for at least another 5% below that.

This may seem over the top to a seller, but if you don’t have to sell right now; don’t sell. If you do have to sell; you’ll need to be an aggressive seller to match the mood of this market’s aggressive buyer.