Real Estate Facts to Consider

There has been plenty of negative news about the state of the market right now. Much of it is justified but also overblown. Here are some things to consider that may bring some perspective on the soft market we are seeing today.

• Even though national housing prices are likely to dip around two percent this year, 2007 will still be the 5th best housing year on record.
• The East and West Coast typically flex higher and lower than the middle of the country, so it's not surprising that when the housing boom started back in 2002, prices skyrocketed in California and Florida, while going flat in other places.
• Rapid price gains are unsustainable, and will always overcorrect before settling back to normal rates of appreciation.
• Those believing that price gains would go on forever are the ones who were likeliest to get hurt -- speculators and homebuyers who bought beyond their true means.
• Most foreclosures and delinquencies are concentrated in the subprime market, and those who qualify for conventional financing are still seeing extremely favorable interest rates.
• Homeownership is not a quick in and out purchase like stocks. Wealth is built over the long term, which is one reason why homebuying is heavily subsidized by tax savings and generous loan programs that enable people to get into homes without large downpayments.
• Stocks and houses aren't the same. Over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield nearly $24,000. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly 5 times the stock market return, or over $110,000.
• While some markets have reported major losses in home values, they also have extenuating circumstances such as major job loss as is the case in Detroit, or overspeculation, as in parts of Florida. For many communities, home values are going up, not down.

I would also emphasize that real estate remains a "local" game. If you have questions concerning your market, consult a professional in your area.

First Time Home Buyer's Workshop Nov 29th

Thinking about buying a home but don't know where to start?

Have questions about the home buying process but you don't know who to ask?

Do you want reliable information but not a high pressure sales pitch?

Attend this free First Time Home Buyer's Workshop. It's a great way to educate yourself about the home buying process--giving you greater confidence as you move forward toward your goals for home ownership.

In my presentation, I will cover a variety of topics including:

* The home buying process from start to finish.
* Financing options for first time homebuyers.
* Tax information on bridging the gap between renting and buying.
* Samples of a different types of properties across different price points.

Date: Thursday, November 29th
Time: 6 pm, lasting roughly 1 hour with ample time for questions
Location: Chase Bank 3335 N Ashland, Chicago, IL 60657
I will be joined by Adam Lawrie, Home Finance Specialist with Chase.

Please register at http://www.agentbarclay.com/homebuyersseminar.html
Seating is limited so be sure to register early.

News and notes for Monday Nov. 5, 2007

With woeful news out about the economy adding to an already unsteady housing market, there are many theories as to what are the root causes of buyer and seller squeamishness. Of course, there is plenty of blame to go around too. Loan officers? Appraisers? Greedy, unrealistic sellers? Promise the moon Realtors? Broderick Perkins says it's for sure not the media's fault.

Speaking of the blame game, appraisers may have to pay the piper over the issue of inflating their appraisals. Appraisers are supposed to offer an independent opinion of a property's value--resisting any pressure from banks to give a specific number in order for the loan to go through. Now there is news that the attorney general of New York, Andrew Cuomo, has sued a major appraisal management company for allegedly giving in to pressure from one of the largest lenders in the country, Seattle-based Washington Mutual.

David Reed writes that the Mortgage Reform and Anti-Predatory Act of 2007 is a bad idea at the wrong time.

On a sad note, I'm not the first Rock and Roll Realtor. That would be Linda Stein. Blanch Evans writes of her amazing live and her horrific, untimely death.

Man, that's about all the news I can take today. Hope tomorrow is a little brighter...

Mortgage Confusion

A survey conducted on behalf of the AFL-CIO yielded some surprising and ominous returns regarding what homeowners understand about their mortgages.

The survey conducted by Peter D Hart Research Associates questioned 500 homeowners with adjustable rate mortgages. It found that a majority of those surveyed fail to understand the most basic points of their loan programs:

• 18% of those surveyed don't know their current interest rate
• 20% don't know how their rate is determined
• Almost half (47%) don't know what factors will determine the amount of their rate adjustment
• 73% don't know how much their monthly payment will increase the next time their rates adjust.
  

Not surprisingly, many of the respondents expressed dissatisfaction with their lenders or loan officers:

• 49% say they aren't very informed about their mortgage terms and conditions
• 56% don't recall their lender telling them how much they would pay when their rate adjusts
• 40% say they don't know where to turn for help and guidance should they experience difficulty paying their mortgage.
• 77% say the government should do more to regulate the mortgage lending industry in order to protect consumers
  

In general, borrowers who obtained their loans directly from a lender or bank fared better than those who worked with a mortgage broker.

Not surprisingly, lower income borrowers were worse off than their high-income counterparts. Regarding their rate adjustment:

• 80% said they will likely have to cut back on essential items once their rate resets, compared to only 20% of high income borrowers
• 37% of low income borrowers said they may face foreclosure
• 18% say they may have to give up health insurance because of payment increases

Following the results of the survey, the AFL-CIO has announced a "Save My Home Hotline" 1-866-490-5361 to offer free advice and counseling from the US Dept. of Housing.

More Short Sale Info

I've written a bunch about short sales recently. They are, unfortunately, becoming common in today's market. Here are two more articles that shed some light on this type of transaction. Phoebe Chongchua writes that short sales may be the solution for delinquent homeowners. And Broderick Perkins discusses the tax ramifications of a short sale.

I will be posting more information on this trend in the coming days. If you have questions, don't hesitate to email me and I'll be happy to discuss your specific situation further.

HUD rules against seller funded down payments

Lew Sichelman writes that HUD says "no" to seller-funded down payment assistance. Sellers are, by FHA rules, not allowed to fund the downpayment necessary for any FHA loan. DPA's are a way for buyers to roll the required 3% down payment into their mortgage by writing a contract for 3% above the agreed upon price. The seller then gifts the 3% surplus to a non-for-profit organization who, in turn, gifts that money to the buyer. It's 100% legal and it really works.

I should know. When I bought my first home in 2001 I was a hard working professional musician with outstanding credit and no money for a down payment. My lender told me and my wife at the time about AmeriDream, one of the non profits mentioned in the article. 7 years and two houses later I have been very successful in my personal real estate ventures. I never would have been able to do it without programs like these.

I hope that the FHA reconsiders their position. I am living proof that there are responsible would-be home owners out there who can and should buy a home--they just need help with the downpayment.

Pricing strategy

Correct pricing is crucial to selling a home in any market. Particularly in slower times, it is even more important to price the home realistically based on the most up-to-date market statistics. Many home sellers are obsessed with the idea of over pricing their homes in order to leave "negotiating room" or because they "have to get" a certain value for their home.

The harsh truth is the market doesn't care how much you need from the sale. Period. A good real estate agent will give you a detailed analysis of your home's value based on recent closed sales. If the fair market value of your home is less than what you need you have options: not selling, selling and paying the difference at closing, readjusting your plans for your sale proceeds, etc. The one option you can't count on is a buyer giving you more than what the home is worth!

Of course, it is typical to list the home slightly above market value, but it is important that the seller be realistic in their mark up. In Chicago, the average home sells for about 4-5% less than list price. Therefore, homes that are obviously marked up higher than 5% are at risk for being ignored. By pricing close to market value, you actually increase your chances for showings, offers and, ultimately a quick sale at the best price a seller could reasonably expect.

M. Anthony Carr recently wrote in the online news service Realty Times:

"If you price right, actually you don't have to come down at all. Many of the houses in our market area are selling for the asking price. These are the houses belonging to sellers who dared to meet the buyers in the market instead of hoping the buyers would come up out of the market to make an offer.

Forget nudge room, fudge factor, and space for negotiation. Place the house on the market at a bold price -- then hold the line."

Truer words have rarely been spoken. You home sellers out there take heed!