EXISTING HOME SALES RISE NATIONWIDE IN FEBRUARY!

Existing nationwide home home sales increased in February, reversing losses in January.  Of course, the January figures could have been heavily influenced by weather!  However, overall sales are still soft.  The first-time home buyer credit is motivating a lot of buyers to come to the marketplace or come back to the home-buying market (remember if you have not owned a home for 3 years, you are considered a “first-time home buyer”).  I do believe there is a lot of “pent-up” buying energy out there, as many buyers wait for the “bottom of the market”.  Timing the bottom of any market is very difficult!  It’s like a tennis ball picking up speed as it falls towards the earth, and then “boink” it hits the ground and is on its way back up before you can “take a swing”.  You can only be certain where the bottom of any market lands as that market picks up momentum!

Lawrence Yun, NAR chief economist, said first-time buyers accounted for half of all home sales last month, with activity concentrated in lower price ranges. “Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February,” he said. “Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price.”

MAIN POINTS from Presentation by ECONOMIST, JOHN MITCHELL!

Yesterday was our annual Realtor Trade Fair, with a full day of presentations, classes and new ideas from vendors.  I attended the morning session with Economist John Mitchell (I always enjoy his perspective).  I also visited all the booths at the fair and received clarification on some great new technology ideas and will be merging my office real estate web site, my excellent buyer search site and my blog into one web presence and I’m excited about that!!  These are some of the main points taken from Mr. Mitchell’s evaluation, assessment and predictions for our local, national & global economy!!

1)       Our real GDP (gross domestic productions) peaked December 2007 and we’ve been in a recession ever since and this is a global recession.

2)      We have endured 32 recessions in our economic history and all have ended.

3)      The Great Depression lasted 43 months.  In 1980, we were in recession for 16 months, the last two recessions were shorter in 1990 and 2001 (8 months).  We are in the 15^th month of this current recession.

4)      Housing is at the core of this recession.  The housing market peaked in 2005 with 2.3 million units.  We are now building 500,000 units (down 51%).  Mr. Mitchell believes we are “at or near the bottom”.  He mused that we were “bouncing along the bottom”.

5)      The housing “bubble” follows a long tradition of other “favorites” such as tulip bulbs, South Sea shares, Railroads/canals and internet stocks.

6)      The housing decline was precipitated by loose loan underwriting, regulatory failures and a colossal failure of risk management with all parties sub-dividing the transaction and no one taking ultimate responsibility, tax laws such as equity lines of credit encouraging people to take the equity from their homes and, of course, some speculation and fraud.

7)      The local change in our local real estate market really began in the Spring of 2005.

      “Housing Affordability” will cause the end of the decline.  (Actually we are already seeing that finding the “sweet spot” in pricing is what currently will move a home).

9)      We learned that “leverage” works both ways.

10)  Movement in the credit markets will be paramount to real estate moving.

11)  Case-Shiller reports Portland housing down an average of -13.1%.

12)  The prospects for GDP growth in 2009 -1.5 to -2.5% with 0 to -1% inflation and no price pressure.  The Fed has provided liquidity with Fed Funds Target at 0-.25%.

13)  What must happen to end the downturn?  Inventories have to be reduced, capital markets function again, people start saving again to strengthen balance sheets and, ultimately, confidence is restored.

14)  Mr. Mitchell believes the Stimulus Package is thinking back to Econ 101, right out of “The General Theory of Employment, Interest and Money” (1936) with government spending to offset personal “re-trenching”.  But, remember:  stimulus=borrowing and borrowing will eventually put upward pressure on interest rates.

15)  “Let’s resist the temptation to confuse what we hope or fear with what we know”.

PRICING HOMES TO SELL…Transparency Needed!

Pricing properties for market is always challenging.  There are so many components to determining at what price point a house may sell.  The usual elements such as size, age and neighborhood are definitely a consideration, alongside the more ethereal factors such as view, style and cosmetics.  Realtors utilize the RMLS web site (Realtor’s Multiple Listing Service) to view, compile and compare data on presently active listings, pending sales and recent sold properties. At present it is very difficult to compare due to one particularly overlooked element of full disclosure in our results and that is “seller paid concessions”!  These allowances can be in the form of loan points purchased by the seller to lower the buyer’s loan interest rate, a buyer’s closing costs paid by the seller, etc.  In a marketplace where pricing is already made more difficult due to a lower number of usable comparable “solds”, there should be more transparency in the amount of financing concessions.  Our local RMLS should consider a category for seller paid monies.  This would benefit sellers, buyers, appraisers AND Realtors!

FHA or CONVENTIONAL LOAN….pros and cons!

When you compare FHA loans to Conventional loans, here are some pros & cons:

·         FHA loans require only 3.5 percent of the purchase price as a down payment — conventional loans now require at least 5 or 10 percent down (20% down to avoid mortgage insurance premiums).

·         Importantly, the FHA does not mind if your down-payment funds come from a gift, a city-funded down-payment assistance program, or even a charitable organization — most conventional lenders require the funds to be from your own personal savings.

·         FHA loans often offer very low interest rates compared with lower-down-payment conventional loan programs — the government-backed insurance minimizes the risk on the lender’s part, so they charge you less.

·         FHA loans have very reasonable credit qualifying guidelines — while your specific lender might look for a higher FICO score, the FHA itself has a minimum credit score requirement of 500 if you are putting less than 10 percent down. Realistically, though, most lenders are looking for at least a 620 credit score to obtain an FHA mortgage — and they look at the borrower with the lowest middle FICO score.

·         The FHA typically implements home saving programs for homeowners with FHA mortgages much sooner and more effectively than non-FHA loans, in the event they run into financial difficulties during the life of the mortgage.

However, here are some of the potential pitfalls that FHA borrowers have also experienced:

·         FHA loans — like most government programs — are quite paperwork-intensive, causing some mortgage professionals to charge more for FHA loans than conventional loans. However, many reputable mortgage brokers will do FHA loans for 1.5 points or even less, its always best to shop around. FHA appraisals can be slightly more expensive.

·         FHA loans place more restrictions on the condition of the property than conventional loans. All elements of the home must in working order.  Abandoned homes without power, water and heat source will not pass inspection. 

·         FHA loans allow legally married individuals to buy homes on their own, but still requires that their spouse’s credit and debt be taken into consideration in the qualifying process.  Whereas conventional financing will allow spouses to buy separately without consideration for the spouse’s financials.

Action Plan

1. Avoid letting others’ experiences create anxiety or confusion in your mortgage decision-making process.

2. Get a reputable mortgage broker — ideally by referral from your Real Estate agent or a trusted friend or family member – to give you a personalized assessment of your purchasing power and mortgage options.

3. Discuss the FHA pros and cons with your chosen mortgage broker.

More Mortgage Loan Options for First-Time Home Buyers!

There is another LOAN PROGRAM available now that again rewards first-time homebuyers in the Portland area.  And, remember if 1^st-time homebuyers purchase then 2^nd time homebuyers move on and 3^rd time homebuyers get an opportunity to move up.  Hopefully, it’s a “trickle up” effect and can be another way to stimulate the local housing market!!  The definition of “first-time home buyer” for this particular program is not having owned a home in FIVE YEARS.  This interest rate coupled with the $8000 tax credit for first-time buyers plus lower housing prices should make a real estate purchase look very attractive:

Up to 80% loan-to value (in other words:  20% down or more)

$417,000 maximum loan amount ($521,250 purchase price)

3.75% initial fixed rate for two years

5.75% fixed rate for years 3 – 30

Prepayment penalty if the property is refinanced within 1^st 4yrs

NO prepayment penalty if home is sold in 1^st 4yrs

Minimum credit score of 700

Single-Family homes and Duplexes only.

No manufactured homes or new-construction

For 80-85% loan-to-value  (in other words:  15-20% down)

Add 0.50% to rate for mortgage-insurance

Mortgage Insurance (required by lenders if less than 20%down) falls off after value is 80% or less (minimum 12mo from purchase date)

Obviously, this would mean you would definitely have one year (the 3^rd year) of an (at present) over market interest rate of 5.75% (they’ve presently been hovering plus or minus 5%).  In my mind, this would only be prudent if you knew this was a short-term purchase due to a known move OR plans to move up OR move down due to expanding/contracting family plans, etc.  Otherwise, if you had that kind of money for a downpayment and a credit score of 700 (or better), you’d do better obtaining a typical conventional loan with an interest rate of around 5%.  But, it could make a short-term difference for a first-time buyer struggling to purchase their first home with plans to move onward & upward.  And, of course, you could refinance without penalty after 4 years or sell the home anytime within that 4 year period (but , we don’t know what interest rates will be in 4 years).  Call or write for more info OR just to brainstorm…..jj

“PERSONAL ACCOUNTABILITY”

I am giving a lot of thought to personal accountability!  This is merely a forum for consideration and a way for me to mentally examine.  There are absolutely people who have medical genetic predispositions to illness or incapacity, there are those who have unforeseen accidents and those born with existing disabilities.  There are definitely people who didn’t understand the loans they were getting, there were some who were blatantly misinformed and those (like a lot of us) who couldn’t imagine the level of adjustment in our real estate and stock markets.  There are those who have endured generational poverty, those with no parent or lineage to guide them regarding money and those who suffer medical emergencies or catastrophic weather set-backs.  Somewhere, somehow we have to teach, learn and share “personal accountability” so that our world can become a better place.  We have to honor our health and physical fitness by committing to a real, not imagined, work-out schedule and eating a truly healthy diet.  We have to research our financial decisions and we have to value saving our money, by actually taking a portion out of whatever money we are making and placing it into some kind of savings.  We have to respect ourselves enough to own up to our own mistakes.  The government (as a separate, distant entity) certainly can’t fix it all and remember we ARE the government (after all, where does government get its money??), so when we say “they need to… (fill in the blank)” that means that “we need to… (fill in the blank)”.  Just a thought…..

Just Some Thoughts on Economy, Housing, Finances….

Times are tough and there’s a definite sense of “hunkering down” in the atmosphere.  This is the pendulum swing back from “over-righteous exuberance” in many arenas including the housing market!  For those caught in the vortex of having to sell due to an unexpected move, a job loss or other calamity, it is real and immediate.  For the rest of us it’s a reminder that prudent attention to finances is paramount, as knowing when you are experiencing the top or bottom of a market is only evident once you are heading the other direction!  I do believe the message here is a combination of practical budgeting while still reaching for your financial dreams.  When I started my real estate career in 1985 and interest rates hovered around 13%, a wise mentor suggested that the only way to survive my new business was to work towards securing 6 months of living expenses in a “safety net” account.  As I was raising two children alone and waiting tables at night while I attempted to establish my real estate business, this sounded all but impossible.  However, I still remember the day I accomplished that goal!  Eventually, as I added investment properties to my overall portfolio six months did not seem like enough and I expanded my safety net goal.  We need to constantly re-evaluate our revenue, our budgets, our goals and our dreams to reflect the current state of our finances.  In every area of our life we should “buy the least we can buy and still be happy”.  That’s, of course, different for all of us! 

In these trying financial times, I think negativity and fear are not our friends.  We are all in this together.  If we have a steady income or savings, we need to support our economy in any way we can.  It’s a great time to buy a lot of goods and services as negotiation is ever-present.  Let’s do what we can to get our economy buzzing.  Our state economist, Tom Potiotowsky, spoke in Ashland and says there are indications that the 2^nd or 3^rd quarter of 2009 may be the “technical” bottom of this present recession.  If we can stabilize our financial markets, 2010 may see an upward swing in our economy.  I’m going to make a conscious effort to believe he’s right!!!

“Renovate and Purchase” Loans for Real Estate “Fixers”!

So, what if you’ve decided to dive into a home purchase or investment property and the property you’ve identified needs some work and is even possibly “un-financeable” as is???  Often foreclosed properties or short-sales in the Portland, OR area have been “rode hard and put away wet”.  There ARE mortgage options available to help.  There are three basic property renovation programs:

1)  FHA 203k regular and stream line, these are owner occupied only and look like regular FHA loans with fixed and ARM loan programs.  The maximum loan to value (LTV) is 110% of after improved value.  Minimum investment is 3.5% down payment. Repairs are to be done within 6 months and sometimes they do extentions up to an additional 6 months.  The only limits are the maximum FHA loan limits which for most our our counties is $418,750.

2)  Conventional Renovation works the same as above and can be done for owner occupied and investor loans.  Maximum loan to values on owner occupied properties are 95% meeting certain criteria and for investor loans it is 80% LTV.  In both cases the lender uses the after improved value.

3)  Conventional construction perm remodel.  This loan is really 2 loans; the first being a construction loan that will modify to a permanent loan at construction completion.  This is for owner occupied only.  Maximum loan to value is 75% of acquisition cost (purchase price plus improvement cost).  This option is used mostly on situations with higher loan needs , such as jumbo deals and some conforming deals.  Build time is 12-24 months.

In all these situations, bids are acquired for all work to be done and the appraisal is after improved value.  Closing happens prior to any work being started.  In all cases, work is done then draws are issued till the work is complete.  The only exception is the FHA 203k streamline where 1/2 of the money is advanced at closing and the only inspection and draw is done after the work is completed.  With all these loans the borrower/builder is set up with a draw specialist.  Don’t be reluctant to look at homes needing repair in Portland, there are financing options out there.  I can recommend some lenders well versed in the process if you are interested.

IS IT THE RIGHT TIME TO BUY REAL ESTATE…some thoughts!

This is a loaded question in a time of depreciating home values.  There is no “absolute answer” and there are lots of variables.  Obviously, consulting a trusted accountant, financial advisor, mortgage broker and real estate professional are key components.  First, you need to identify your own financial goals; do your goals include homeownership and/or real estate as part of your total financial portfolio?  For most people, at least, homeownership is a desire.  All prudent investments take some research and preparation.  Understanding the tax benefits to owning property is key and understanding how to potentially maximize your investment is a learning curve.  Is this the right time to buy?  Is this the “bottom” of the market?  Both are reasonable questions with not so obvious answers.  I do believe that it very difficult, if not impossible, to “time the market”.  You only know you’re been at the bottom of a market when you’re on your way back up!  However, one thing I do know is that interest rates are very, very, VERY low!! If you do the math on any price range and compare what even a 1% increase in interest rates does to the overall financial picture and you will determine for yourself that “interest rates trump price”.

National data on housing appreciation:

1970-1979 = 142% appreciation
1980-1989 = 52% appreciation
1990-1999 = 45% appreciation
2000-2008 = 42% appreciation

Source: The National Association of Realtors

Mayor Sam Adams and the “State of the City”!

I was on the waiting list  for this very popular “City Club” presentation on the “State of the City” by Sam Adams, but thanks to help from a fellow weight-class participant at 24-Hr Fitness I was able to secure a “standing room only” (okay, I was sitting) entrance to the speech!  After a quick apology for the recent “distraction” to our city’s task at hand, our mayor plunged right into his admininstrations’ plans for Portland’s future.  Overcoming “fear & complacency” were immediate tasks at hand as well as working towards and realizing a “green economic dividend”!  Portland has definitely gotten a lot of accolades for it’s “green pioneering” and should reap some economic benefits (and already has).  He felt two big threats were “unchecked expansion of the urban growth boundary and active the active maintenance of our vehicular roadways”.  I do believe that our commitment to not allowing unchecked urban sprawl and development and emphasis on urban renewal has benefited our housing market in that our decline has not been as brutal as some.  Mayor Adam stressed that we must work for “sustainability and social equality” and that “we pay for lack of education one way or another. In California, they’ve done a study that if students are disenfranchised from education by the 3rd grade they are likely to end up in the penal system.  And, we pay 3.4 times as much for prisoners than we do for education”.  A very good argument, I might say, for sinking our $$$ into education rather than later been forced to support the prison system.  And, hey…did you know they will begin shooting the TNT show “Leverage” here in Portland this Spring starring Timothy Hutton?  You learn all kinds of things…… 

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