Drew Peterson

Each month, the Orlando Regional Realtor Association publishes its Market Pulse, a report containing essential market data. Here is our breakdown of the March edition (you can read the full report by clicking here):

First, the bad news:

1.) Overall inventory increased by 260 homes to 25,984. We actually debated whether to include this on the list of bad news or the list of good news. A net increase of 260 is actually far less than expected. However, as long as inventory remains high, prices will have to come down.

2.) 922 total sales closed last month. Although this is an improvement from January (813), it's still not anywhere near the number we'd like to see.

3.) The average days on market continues to creep upward. In January it was 117. Last month it was 123.

Now, the good news:

1.) There were 4,811 new listings placed on the market in February. That's a marked improvement from last February, when 5,566 were listed.

2.) The number of new contracts rose to 1,537. That's the highest it's been since last July. New contracts is the best indicator of the number of serious buyers in the market, so the increase is a very positive sign.

3.) The total number of properties under contract in February rose to 2,175 from 1,731 in January. Those should translate into closings in March, boosting this month's numbers.

Overall, the numbers from February were pretty much what we expected. The only exception, which we have already noted, is the relatively minor increase in overall inventory. Buyer activity has been steadily increasing, and sellers in the lower price ranges have been pleased with the offers they have received. Unfortunately, the upper price ranges remain slow and deals are few and far between.

Our recommendations to buyers and sellers will look familiar.

Sellers should continue to evaluate their situation carefully. The lower price ranges ($100,000 - $250,000) seem to be doing well and will probably continue to do well as properties become more and more affordable for first-time homebuyers. If you have been considering a move, and don't want to wait out the market (2 to 3 years or more), go ahead and list for a competitive price. They key here is to make a decision and stick to it.

Buyers still control the market. The volatility of interest rates and available financing, however, makes waiting a somewhat risky game. We still haven't hit bottom, so the possibility of a better deal makes for a tempting carrot. It just comes down to your particular situation. If you're only looking for a good deal and don't much care about the house itself, go ahead and roll the dice. Wait and see what happens. Otherwise, it's probably a good idea to at least take a look at what's out there.

*If you are interested in market trends for your specific zip code, please contact us and we will be happy to provide you with the data.

This one goes out to all you potential homebuyers out there. Yes, you've heard it's a buyer's market. Yes, you've heard there are some great deals out there. So, what exactly does that mean?

Well, let's actually start with what it doesn't mean and go from there. First, it doesn't mean you can make ridiculous offers hoping that they'll stick. No one is amused when they receive a verbal offer for 25% less than the list price. It doesn't make the sellers think, it tells them you really don't care about their house, and it makes it easy for them to assume that the buyer is an "investor" or "bargain hunter". If there were 7 Dirty Words You Can't Say To Homeowners, those would be at the top of the list.

Second, just because it's a buyer's market doesn't mean you get to be a bully. Screaming and yelling that it's a buyer's market, ranting and raving about how lucky the sellers are to even receive an offer, and/or threatening to take your offer elsewhere are not acceptable means of negotiating. We've seen sellers reject perfectly good offers out of "principle" because the buyer tried too hard to push them around.

***This is where we should probably write a quick disclaimer. There is nothing wrong with being a bargain hunter or investor. Nor is there anything wrong with reminding a seller that there are other, equally attractive, homes on the market. It's all in how the offer is crafted and presented. Let's discuss this in further depth.

Regardless of who you are as a buyer (first-time, investor, bargain hunter, etc.) there are a couple of guidelines to follow for optimum success. First, research the property, neighborhood, homeowner(s), and zip code. Draw up an offer based on this research and include this research with the offer. Explain to the seller why you chose their house, how you decided on your price, and what you can do to help them out (this is key).

Second, negotiate with a win-win attitude. Yes, it sounds cliche and maybe it is. However, it's the best way for you to get what you want. As a buyer, you represent an opportunity for the seller. Show the seller (in a pleasant way) how missing out on that opportunity would be a mistake.

This blog is the introduction to a series of blogs on crafting and negotiating offers in a buyer's market. We'll break it down from both the buyer's and the seller's perspective. We'll also point out potential landmines. In the meantime, you are always welcome to contact us for more information.

This blog is just a quick update about the recent passage of Amendment 1. As you might know, Floridians voted in favor of the Save Our Homes Amendment during the January 29th Presidential Primary. Among the provisions of the new law is a stipulation that homeowners can take their previous Save Our Homes savings with them when they move.

Here's the important part. If you received the homestead exemption in 2007 on a home that you sold or otherwise abandoned during 2007 and you purchased a new home prior to January 1, 2008, you are eligible to take some or all of your savings with you. However, you must apply with your property appraiser by March 1st to receive this benefit.

One other provision of Amendment 1 is a doubling of the homestead exemption. If you homestead your property, this doubling is automatic and does not require any action on your part.

Here are the websites for the local property appraisers:

1.) Orange County - www.ocpafl.org
2.) Seminole County - www.scpafl.org
3.) Volusia - http://webserver.vcgov.org/index.html
4.) Osceola - www.property-appraiser.org

About a month and a half ago, in The Return of the Down Payment, we blogged about the disappearance of 100% financing for all but the top tier of borrowers. We discussed four non-traditional methods of obtaining a 3 to 5 percent down payment. That was an "oops" on our part. We should have made recommendations for obtaining a 10 percent down payment.

Last week, two of the nation's largest private mortgage insurers announced that they would be tightening their underwriting standards for "distressed markets" including California, Nevada, Arizona, and Florida. PMI Group, Inc. will require a 10 percent down payment and a minimum 620 credit score effective March 1, 2008. MGIC Investment Corp will require a 5 percent down payment (10 percent on condos) and a minimum 620 credit score, will eliminate cash-out refinances, and will eliminate investment loans effective March 3, 2008.

Before we get ahead of ourselves, a quick explanation of what private mortgage insurance (PMI) is and how it works. Basically, PMI is an insurance policy on loans greater than 80 percent of the value of a property. You, the borrower, pay the premiums as part of your monthly mortgage payment. If you default on the loan, the PMI company insures the primary lender against that loss.

As an example, say you have a 10 percent down payment. You purchase a property for $100,000 and your lender loans you 90% ($90,000) of the value of the home. Each month, you would pay principal and interest on the full $90,000. Then, you would also pay a PMI premium on the amount you borrowed over 80% of the value of the home (in this case, 80% would be $80,000; you borrowed $90,000 so you would pay PMI on the extra $10,000). Once you reduce your loan balance to 80%, the PMI is removed.

Now, back to the impact of the impending changes in PMI underwriting standards. Thanks to the fact that FHA loans (government-backed) only require a 3 percent down payment, there will still be low-money-down options. It's also possible that some of the smaller PMI companies will ignore the move made by their larger competitors. Either way, not ALL loans will require a larger down payment.

The unfortunate aspect of the changes, however, is the reduction in the total buyer pool. Inevitably, there will be borrowers who will no longer be able to purchase a home as a result. In order to return to a "normal" market, we need more borrowers, not less.

Our recommendations? For those buyers that have 10% to put down, just be aware of the minimum credit score (620) requirements. If you have less than 10% (or 5%), make sure you shop for lenders. Explore all your options, including FHA. The bottom line is that the requirements are only going to become increasingly strict, so if you're a borderline borrower, make your move sooner as opposed to later.

Each month, the Orlando Regional Realtor Association publishes its Market Pulse, a report containing essential market data. Here is our breakdown of the February edition (you can read the full report by clicking here):

First, the bad news:

1.) Only 756 total sales were closed in January. Compare that to last January, when 1,469 sales closed. Although this drop is staggering, it's not entirely surprising given the recent trends.

2.) 1,239 properties were under contract last month. This is an increase over December and November of last year, but it's still historically low.

3.) The average number of days a property is on the market rose to 120. This represents the most significant month-over-month increase since July 2007.

Now, the good news:

1.) Total inventory in January was 25,724. An increase in inventory from December to January was expected, but we were preparing ourselves for a marked increase. The net gain of 1,500 homes from December to January is very mild and bodes well for sellers in the upcoming buying season.

2.) The total number of properties expiring or being withdrawn from the market remained high. Should these indicators remain that way for the next few months, it will go a long way toward reducing total inventory.

3.) Interest rates continue to plummet. The average market rate went from 5.93% in December to 5.60% in January.

Overall, we were pleasantly surprised by last month's numbers. Total inventory had the potential, based on historical trends, to skyrocket. It did not. Reducing inventory (getting supply more in line with demand) is still our best chance of returning to a "normal" market. Anecdotally, we witnessed far more buyer activity last month than we had in 6 months prior. We'll see if that is reflected in next month's numbers, or if potential buyers were merely "kicking the tires".

Our recommendations to both sellers and buyers will probably surprise you (and, frankly, annoy some of our fellow Realtors).

Sellers, if possible, should wait until conditions improve. Now, there is a stipulation here. If you think you will want or need to move in the next 2 years, list your property right now for a competitive price and get it sold! We cannot stress enough that the market is not going to rebound tomorrow, or even 6 months from now. Barring some unforeseen, earth-shattering event, nothing in the data indicates a rapid return to appreciation. To be blunt, get in or get out. And, plan to stay in until you sell or plan to stay out until things improve.

Buyers, take the same advice we gave sellers, but reverse it. If you are in the market simply to find a good deal, wait a bit. Depreciation is still the norm, and it will likely be the norm for the foreseeable future. Jump in when interest rates begin to climb or when inventory begins to steadily decline. However, there is a stipulation to this as well.

If you are in the market because you want to find your dream home or first home, now is a pretty good time to buy. You'll probably never again have this much choice, and sellers will be more flexible on both price and terms now than they will be when recovery is in full-swing. Plus, if you are planning on staying put once you buy your home (the average is 5-6 years), you can reasonably expect to make money when you decide to move.

*If you are interested in market trends for your specific zip code, please contact us and we will be happy to provide you with the data.