Forty is on my mind today. Yesterday, we celebrated the 40th birthday of my “little” brother Danny, and this month we celebrate the fact that 40 tough months of real estate is most likely behind us.
Today, we begin to make the climb up from the bottom of the worst housing market since the Great Depression. Incentives are ripe for home buyers, with federal income tax dollars, low interest rates, and some great buys in the housing market.
Sometimes you have to look backwards to see where you are going. Understanding the cyclical nature of the real estate market gives us a long-term perspective on what we should be expecting.
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Year To Date Home Sales Worst Ever
The graph below is one of my favorite views when trying to figure out how we are doing compared to previous years. It combines both single-family detached home sales with condominium and townhouse sales to show a year-to-date comparison with every year going back to 1991.
The residential real estate market really should be viewed this way, as townhouse sales are encroaching on what historically was more of a single-family detached home market. This is primarily due to the increased cost of land as well as location to popular services such as medical, shopping, employment and dining.
Of course, what strikes me when I look at this graph is that we are recording the worst year on record for home sales in Tallahassee (on record means all recorded home sales going back to 1991).
I find great optimism in this graph because I understand the cyclical nature of the housing market, and that the high levels of sales five years ago have given way to our current recovery period.
Leon County is far more populated than it was in the early 1990s, so I am confident that as this recovery cycle ebbs, we will return to levels near 400 home sales per month again. Hopefully, we’ll see those numbers by 2012.
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Often times I deal with sellers who know of others that are going through the short sale or foreclosure process. My clients find themselves taking advice from those other short sellers and start to formulate ideas or conditions to their own short sale approval. For example, I went on listing appointment to meet with a short sale candidate. The sellers had been attempting to negotiate a loan modification for the last 8 months with Citi Mortgage. The terms of their loan had been modified without any written documentation for them to sign off on or to inform them of the change. When they received the bill they paid it using their retirement funds and later contacted the mortgage company to ask that they send them written confirmation of the modification for their records. Citi Mortgage declined and said they were not under any obligation to send them anything confirming the changes. The next month's statement came in and the payment had readjusted to what it was prior to such modification. They quickly contacted Citi Mortgage to discuss their bill and found that the
previous "modified" bill was issued by mistake and that they had been declined for a loan modification. By the time I met with them I discussed what they can expect of the short sale process and the possible conditions that may be presented by the mortgage company for approval. Before I could finish my thought, they interrupted and said that under no circumstance will they agree to sign a promissory note. Friends of theirs had been issued a $12,000 promissory note and now they have to make payments on something they don't actually own. They said they would rather foreclose or file for bankruptcy than agree to a promissory note.
Let's look at another family facing the same difficulties. The other day I received short sale approval from US Bank where the PMI Company issued a condition to approval not uncommon when a PMI company is involved. After pulling the borrower's credit report and identifying that they are not delinquent in any obligation other than their mortgage payment, the PMI Company issued a $6,000 promissory note payable over 60 months at $100 per month. The borrowers quickly declined and threatened bankruptcy instead as a logical solution to their problems. I quickly advised that they consult with a 
bankruptcy attorney to see if they even qualified for chapter 7 bankruptcy because if they didn't, they'll have to pay the amounts back anyway under chapter 13 bankruptcy. Not to mention that the average cost of filing for bankruptcy is approximately $2,500. So in reality, he's only looking at a $3,500 difference in payments. Plus, to file for bankruptcy, the borrower would need to pay the $2,500 in full up front rather than over a 25 month period at $100 per month. And let's not forget the adverse effects that bankruptcy has on their credit that will remain on their credit report for 7 to 10 years completely killing their credit worthiness.
Agreeing to a promissory note is a financial commitment that although it may not sound like the best option at the time, it actually is a fantastic option to avoid further damages to your credit. If you make your payments on time, it will actually help rebuild your credit over time. Best of all, a promissory note is unsecured and interest free so all payments made will be towards the principal balance.
