Happen to catch the news lately? It’s war out there, this economy. Carnage. Tailspin. Depression. Anchormen drooling as they report news on yet another plummeting housing statistic.

Then this. On Tuesday, the National Association of Realtors reported that its pending home sales index was up 6.3% nationwide in December fueled by a very strong showing in the South and Midwest. Pending home sales in the South were up 13% from November and 1.6% over 2007. This is good news no matter how you split it. Basically, more homes went under contract in December and are now heading to closing and producing more sales (January existing home sales numbers come out February 25th). More sales mean less inventory which then shifts the supply-demand towards a more healthy balance. But news media could not let some facts get in the way of their established theme for the month. They quickly jumped to qualify this positive showing as “foreclosure driven” and “unsustainable”. From the CNN Money Story:

Sales of homes that were repossessed in foreclosure proceedings contributed significantly to the index’s improvement. Repossessions and short sales, when homes are sold for less than what borrowers owe on their mortgage, now account for more than 30% of all U.S. home sales, according to real estate Web site Zillow.com.

In the end, the numbers are the numbers, so spin shouln’t matter much. But the fact is spin does affect the state of mind of the consumer and keeps them on the sidelines when they would otherwise be in the marketplace taking advantage of the most favorable environment for buying a house in half a century. I say, shut off GloomTube, have a nice evening with your family and go about your business.

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Real Estate Market Statistics for Rice Military:

Free Standing Homes

Active on the Market

There are currently 44 total properties for sale asking an average of $172.62/SF priced as low as $309.9k all the way up to $1.2M. Almost 70% of the current inventory for sale are new developments. On average , active listings have been on the market for 93 days. None of the homes for sale in the neighborhood are bank foreclosures.

Pending Sales

As of the writing of this article, there are 8 properties that went under contract in January, at different stages of the transaction (i.e. pending inspection, pending but taking backups, pending closing). The average asking price of the homes that went under contract is $162.31/SF priced as low as $309k all the way up to $960k. On average , pending sale listings have been on the market for 68 days. None of the pending sales are bank foreclosures.

Sold

A total of 3 properties were sold during January at an average of $128/SF with sales prices ranging from $206k all the way up to $405k. Just one of the sold properties in Rice Military during January was a new development. On average, sold listings have been on the market for 141 days. One out of three solds was a bank owned property.

The current absorption rate for freestanding homes in Rice Military is 6.2 months - that is, it would take about 6 months to sell all the current inventory at the rate homes have been selling in the neighborhood over the past year. This statistic demonstrates that the area is trending towards a balanced neutral market. On average, sold listings fetched 95% of asking price, which shows that Seller’s who were willing to discount their prices got their homes sold, while the rest held on to their price point waiting for the right buyer. Something to keep an eye on is large number of new builds in the area versus resales. Their inflating days on market tell me their prices may be coming under some downward pressure and some good deals might come as a result of it.

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Townhomes

Active on the Market

There are currently 28 total properties for sale asking an average of $162.03/SF priced as low as $221.9k all the way up to $1M. Almost 50% of the current inventory for sale are new developments. On average , active listings have been on the market for 99 days. None of the homes for sale in the neighborhood are bank foreclosures.

Pending Sales

As of the writing of this article, there are 2 properties that went under contract in January, at different stages of the transaction (i.e. pending inspection, pending but taking backups, pending closing). The average asking price of the homes that went under contract is $168.15/SF priced as low as $231k all the way up to $343k. On average , pending sale listings have been on the market for 127 days. None of the pending sales are bank foreclosures.

Sold

A total of 2 properties were sold during January at an average of $136.81/SF (shameless plug: one of them was ours =) with sales prices ranging from $235.9k all the way up to $545k. None of the sold properties in Rice Military during January was a new development. On average, sold listings have been on the market for 40 days. None of the solds were bank owned properties.

The current absorption rate for freestanding homes in Rice Military is 3.9 months- that is, it would take about 4 months to sell all the current inventory at the rate homes have been selling in the neighborhood over the past year. This statistic demonstrates that the area is actually in a Seller’s Market. On average, sold listings fetched 93% of asking price, so Seller’s ask yourselves this question: “Provided that I am priced right, would I be willing to take an offer 7% less than what I’m asking?”. And if the answer is no, the market is telling you that you should not be in it right now.

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Real Estate Market Statistics for Houston's Heights District:

Active on the Market

There are currently 138 total properties for sale asking an average of $198.85/SF priced as low as $154.9k all the way up to $1.35M. Over half of the current inventory for sale (54.3%) are new construction homes. On average , active listings have been on the market for 139 days. Just three homes in the neighborhood are bank foreclosures.

Pending Sales

As of the writing of this article, there are 24 properties that went under contract in January, at different stages of the transaction (i.e. pending inspection, pending but taking backups, pending closing). The average asking price of the homes that went under contract is $190.79/SF priced as low as $192k all the way up to $899k. On average , pending sale listings have been on the market for 88 days. Just two pending sales were bank foreclosures.

Sold

A total of 8 properties were sold during January at an average of $163.33/SF with sales prices ranging from $140k all the way up to $485k. Just one of the sold properties in The Heights during January was a new development. On average , sold listings have been on the market for 61 days. Twenty five percent of the solds were bank owned properties.

The current absorption rate for Houston Heights is 6.7 months - that is, it would take about 7 months to sell all the current inventory at the rate homes have been selling in the neighborhood over the past year. This statistic demonstrates that while it is trending towards a neutral market, it remains a buyer's market at least for the moment. On average, sold listings fetched 98% of asking price, which shows that when priced correctly, homes in The Heights can get pretty close to asking even in this market. Something to keep an eye on is the disparity between asking prices and pending (or sold) prices on a per square foot basis. As it stands right now, asking prices are about 4% higher than the prices of homes that are going under contract. This might be just to allow some room for negotiation, but in this environment, Sellers cannot afford to price above market because they risk chasing the market down.

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This is one of the questions our prospective clients ask us most often. So it was only natural to include it in our Real Estate Investing Guide.

What are HUD Homes?

Along with conventional mortgages, the federally insured (FHA) loan program is one of the most commonly used financing options for residential real estate in the United States. When a loan is made under this program, the U.S Government vouches for the borrower and insures the lender against potential loan default. When the homeowner defaults on an FHA mortgage, the lender forecloses on the property and subsequently “cashes in” their insurance policy with the government. So, the lender gets their investment back, while the government takes ownership of the property. Being that the government is not in the business of owning real estate, it will try to liquidate these properties in the open market in order to recuperate their investment. The department that handles the liquidation process within the U.S Government is the Housing and Urban Development (HUD). Hence the name, HUD Homes or Government Foreclosures.

How does the process work?

New properties are listed every week on Friday with the auction deadline the following Sunday. During this 10 day period, prospective buyers (investors and otherwise) would get an opportunity to see the property if they’re accompanied by a HUD Approved broker that can grant them access to the entire HUD inventory. Once a decision has been made to bid on a property, only an approved broker (agent) can place a bid on your behalf. In order to place a bid, the HUD approved agent will need your full legal name, address, phone number, social security number and offer amount. Bid is entered electronically and no contracts are signed at this point. Also, the timing of bid submission does not favor or hinder your chances of winning the bid. As long as the bid is entered prior to the deadline, all offers are considered at the same time, Monday morning. However, HUD’s mission is to promote home ownership first and foremost, therefore they will favor homeowners over investors, to a certain extent.

If your bid wins, then your agent has 48 hrs to get an original executed contract package to the HUD office so time is truly of the essence. Your contract package is not complete until it includes a pre-approval letter from a mortgage company or a bank, so it is recommended that you secure a pre-approval first, before you start your search. They will also require $1,000 earnest money (if price is over $50,o00) in a cashier check. Once the contract is executed by HUD, the buyer has 45 days to close the transaction (if they’re getting a mortgage) or 30 days if paying cash. However, be careful! As part of their standard procedure, HUD requires closing documents at the title company 7 business days prior to closing so truly you have about 35 days to close. Once time comes for inspections, HUD will not turn on the utilities for you - But they will allow you to turn them on in your name if you submit a written request. For investors, the inspections are for informative purposes only - regardless of the findings, you will forfeit the earnest money if you walk away from the deal. The executed contract will then be forwarded by your agent to your mortgage person, so they can move forward with processing the loan. Upon final approval and issuance of closing documents, the title company will then schedule a closing time and consummate the transaction after which the property is a HUD Home no more. It then belongs to you, for you to do with it what you wish (see: renting).

How are they different from bank foreclosures?

In most aspects, they are not different at all. They are sold “as is” with title insurance and right of inspections. The differences are in the process by which they are liquidated. Like bank foreclosures, HUD Homes are listed on the Multiple Listing Service by designated brokers working for HUD. However, unlike bank foreclosures, they are sold through an electronic bid auction system. As stated earlier, the timing of the bid is not a factor with government foreclosures while it is crucial in bank foreclosures. Lastly, the process is much more transparent with HUD Homes in that they allow you to see the bidding results as soon as a decision has been made so you can determine why you won or lost that particular bid.

Are all HUD Homes great deals?

As with all types of foreclosures, HUD Homes are not all investment grade, at least not right away. A percentage of HUD Homes are great deals from the moment they are first listed on the market. Some others may not make great investments right away, but as they sit on the market, HUD’s price flexibility grows and their price reductions are often sufficient to make a mediocre deal into a steal. And of course, some of them are never good deals. The way you can tell as a buyer, is to work with a pro that has extensive experience in dealing with HUD Homes and knows the process well.

Where can I get the list?

If you are looking for HUD Homes outside of Houston, head here, enter your criteria and you will get to see all the matching homes currently available. Or visit the easy to navigate site with weekly updated listings for Houston HUD Homes. For any properties you find interesting, you can request complimentary research of market value, sales and rental comps, tax records, cash flow breakdowns and more.

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P.S If there’s anything additional you’d like to know about HUD Homes or the process by which they are sold, please comment on this post and I will edit the post for all to see.

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