Joe Pryor.com Realtor Oklahoma Investment Properties

Ben Bernanke the Fed chief spoke today in Austin and announced that the Federal Reserve would target long term rates. This with the announcement that the recession started a year ago, and consumers didn't buy enough this weekend, caused the stock market to sell off and long term bonds to go to incredibly low yields. This normally would jump start the housing industry, but as we all know, these are not normal times. Today conventional rates for a 30 year fixed rate mortgage were at 5.5% conventional, and 5.375% FHA, with all signs pointing to even lower rates possibly below 5%. Let's break this down for the Oklahoma market, and analyze what may happen as we go into 2009.

First Time Buyers

The average age of a home buyer is around 28, or as we like to call them Gen Y. These are the easiest people to convert because they are not burdened with a home in the first place. in Oklahoma City, Class A apartments are running at 97% occupancy, and it is not unusual to see a top drawer 2 bedroom, 2 bath unit renting for $875 and up. Some of the apartments have detached garage areas that can add $200 a month more to the lease. With new home builders discounting their properties, that same buyer can get a new home, condo or a town home for less monthly expense even at $160K, plus with a tax deduction for interest and property taxes, it becomes even cheaper. These buyers can get more space, upgraded interiors, and attached two car garages that give them more room to move and a yard for the dogs. This group can be persuaded to make changes because they are more open to change. We should see an uptick in numbers for this group.

Older Existing Homeowners

This is a group that have a home they have made comfortable and personal. Because of the stability of the Oklahoma City housing market they have also preserved their equity. It would seem natural that if their home is under $200K that with an absorption rate below 6 months on existing inventory and above $200k with enough inventory to make it a buyers market, normally we would see this as a "no brainer" for those people to move up of rates and the ability to get a good buy. I believe i said before these are not normal times. To get these buyers move you need to more Sigmund Freud than Adam Smith. These folks are just plain scared. They watch CNBC nightly and hear of the mighty U.S. becoming more like Uruguay. Things are bad but pundits make there money on sensationalism. Actually in Oklahoma City if these people have a house under $200K they are in the best position to buy I have seen in the last 10 years. First, under $200K in the suburbs like Edmond are selling fast and in some categories only 3 months of inventory is on the market. Then if they buy form $200K to $350K the numbers work strongly for the buyer. The key is to look for the long term. Selling high and buying cheap is a great formula for wealth building. The key as Realtors is to be able to show the statistics to back up the psychology pep talk.

Refinance

Here we have the real winner. With rates going below 5%, this will save the bacon of many homeowners on the edge. These owners we want to be able to refinance because if they default that is a drag on the market. Hopefully they will resist the temptation to cash out also, because that is a scary scenario. If they have the self discipline to pay off then tear up their credit cards okay. Getting rid of high interest loans is always a good idea unless it becomes another spending spree in the making. All that does is hasten the foreclosure process.

Choose a knowledgeable Realtor

This sounds like a stupid statement, except I see people working with no nothing Realtors all the time. This is not the time to work with someone who does not have the ability to evaluate the market, and understand how to do functions for you like absorption rate, or is first class in marketing your property. It is also time to trust the knowledgeable Realtor. When they give you the right information about your homes value, and you would rather listen to a Realtor who will tell you anything to get the listing including a pie in the sky price, run like the wind. This is the time for honesty not greed. This is the only reason to pay a commission, otherwise stay in the home you are in. Now is the time to make your financial security better for the long term and nothing is worth jeopardizing that.

The last post concentrated on the process of going through a short sale, and today we will explore more details about why a homeowner should want a short sale versus a foreclosure, and to also eliminate some misconceptions about what this means for a buyers credit standing.

How a short sale starts

In Oklahoma the use of sub-prime financing was little used. Certainly there was 100% financing, and less than prudent use of 2nd mortgage equity lines of credit. There will always be people who want everything now, and the ease of obtaining cars, furniture, and credit cards can add to the problem. Many people just don't budget or plan for a rainy day. Other standard reasons can include divorce, loss of job, or medical problems that can cause someone to get behind on a mortgage. In Oklahoma, once three payments are missed, the lender has to step into legal action and file against the owner. It is not unusual for the owner to want to give up, or not understand what their alternatives are. In the moment, many of them feel that the world is falling in on them not realizing that the future can change for the better. Asking for a short sale can get them on the road to recovery.

What is the next step?

The first move is to find a Realtor who knows how to work the system. Our team members who specialize in short sales have been able to get the lender to pull the home from the sheriff's sale list. This can give us the time to complete the first part of the process which is to find a buyer quickly. One of our advantages is that we have a list of over 600 individuals who have bought investment property from us in the last four years plus over 2000 more in our database. many have put themselves on a waiting list for short sale purchases. It is normal for us to have a buyer in a matter of days. Lenders are more willing to listen to you when they know that you can complete a contract as soon as they are contacted. For the lender, the whole reason for going with a short sale is the time value of money. if they can take a loss up front, and it that can be completed quickly it is off their books, and the up fron loss is not as great as going through the full foreclosure process. They also see the current statistics about refinancing these toxic loans with over 50% of recent workouts not working almost from the day they are done. In this our team is unique in that not only do we have experts who can negotiate with the loss mitigator, we have others who work with investors on a daily basis.

The Advantage to the owner

When the time comes for a short sale to be asked for, the owner is already behind on payments which are reflected in their credit report, and nothing can be done to change that. With a short sale the damage can be minimized. At this time the IRS cannot charge taxes on the deficiency, but the lender can. In better days lenders would just write off the loss but not anymore. Deficiency notices are being sent out after foreclosure and that can force people into bankruptcy which deals a more serious blow to credit ratings. Doing a short sale gives the owner the ability to eliminate the deficiency judgement. One misconception that is very important to note is that a short sale is not a foreclosure, but it does not erase the process for the participant. It will be noted as a write off by the lender but that is not as much of a serious hit to the owner than just letting it go. Plus, at some time people will repair their credit and have the ability to buy another home, and participating in a short sale that aids the lender will show responsibility in dealing with this problem versus just letting it go. So for those who may be in this position, avoiding a deficiency judgment, and having a faster track to repairing your credit are strong reasons for you to making this happen.

Conclusion

If you are a person or family in this economic plight, the sooner you contact us the easier it will be for us to prevent the foreclosure. If you are a potential buyer, getting on our short sale list will give you the ability to buy one before it hits the market. Either buyer or seller can contact us by emailing me at joe@joepryor.com.

This Thanksgiving I have lots to be grateful about, but I thought I would hit the highlights. Hopefully this will get you in the mood to create your own list. There is plenty we can be negative about, not just in these perilous times, but always. I don't highlight family and friends becasue we should be gratful every day for that blessing. Today to use the Monty Python song, "Always look on the bright side of life"!

The Election

As a 60 year old man I would have never thought that this country would elect a black man as President. First, it shows you that for all our problems, there is a deep goodness and an openness to change in Americans. It can also show grace as exhibited by John McCain's concession speech that was deeply moving and his best speech of the election.

The iPhone

Before I came to Houston for cancer treatment I wanted to give myself a present, and the iPhone is wonderful. The down loadable apps give me traffic problems, the restaurants and more around me, the ability to hear a song and to find out who it is, and the complete works of Shakespeare all for free. The Google earth free app is worth the purchase of the phone. The computer just got smaller.

Gas Prices

I know that as an Oklahoman in an energy state i should want high gas prices, but can you imagine the misery of a financial meltdown and $4 gas? This is the biggest tax cut incentive plan that the American people can have. Just filling up for $30 and not $50+ is a psychological boost.

Sheila Blair of the FDIC

President-Elect Obama should return her. Her workout package of IndyMac was genius, and her recommendations on how to handle the housing crisis was genius. Finally it looks like the Bush Administration got the message and the Treasury is dealing with toxic mortgage assets, and money will flow again.

Oklahoma!

Not the musical but the state. Finally Oklahoma and my city of Oklahoma City is the place to be. With a diversified economy, energy and agriculture, a robust housing market that is still going up, and Indian Tribe corporations that are making brilliant investments outside of casinos, the state although affected does have a distance from the economic plight of the country.

Political Satire

Tina Fey, Colbert, and The Daily Show gave me reason to smile. National elections have a meanness to them, and sometimes it's hard to separate truth from fiction, but the purpose of satire is to put meaning in perspective, lets us laugh at ourselves, and often speaks truth we need to hear.

MD Anderson Cancer Center

As I write this in my apartment a mile from the center, my thoughts, prayers, and tears are with the Doctors, Nurses, and staff of this miracle in a building. I came to MD Anderson with what I thought was a death sentence, but through these caring people and great medical technology, I am leaving cancer free. The fact that I can breathe, smile, and live gives me the ability to give to others. The first thing I will do when i get home is open a chapter of a head and neck cancer group so that I can give comfort to others who are diagnosed. This Thanksgiving please remember those who come hear every day. Some will not live but many more go home like me. Please also consider giving to Stand Up to Cancer. It is one thing to treat cancer, but it equally important to work on prevention and ways to help the body heal itself instead of chemo and radiation. I wish you Happy Holidays. Please share with me what you are grateful for.

Yesterday, the TARP program finally did what it should have down 6 weeks ago, and that is to buy up or guarantee toxic assets so that credit is freer. Real estate may be at the base of the problem, but car loans, credit card debt, and student loans have also put the financial sector is a perilous position. The stock market reacted in a positive way, treasury bonds and bills had lots of buyers, so interest rates are going down. In fact I saw a mortgage company offering an FHA 30 year fixed loan at 5.25% with no points. The large inventory of homes and the potential foreclosures will certainly be aided by refinancing and new sales that low rates can bring. it cannot solve the problem all by itself. For those who can't refinance, a short sale is the best way to avoid a complete foreclosure, and transfer ownership to a qualified buyer.

What is a short sale?

A short sale is a mortgage company willing to take a loss up front from what is owed instead of going through a costly foreclosure process and a sometimes lengthy process of getting it back on the market to sell the asset at the highest price possible. There is no national standard for how much loss a mortgage company is willing to take. In hard hit areas like Florida and Arizona I have seen a 60% reduction from the original purchase price if the home was bought in the last five years. In Oklahoma, the short sales I have been involved with have normally been within 20% of purchase price. The difference is in the appraisal. Oklahoma is still appreciating so there is not a lot of downward pressure on homes, so when an appraisal or brokers price opinion is done, it reflects current value which is stable, so individual markets will have different evaluations.

The Buying Process

First, you should only deal with a Realtor who is an expert in negotiating with lenders and our team has this expertise. The loss mitigators for the mortgage companies often have over a hundred files to process at a time, so dealing with them is a delicate matter and they cannot be bullied into a price. You have to know how to deal with them. Another problem is that some owners have taken out a second mortgage which also has to be dealt with. Because of the sheer volume of potential short sales the time it takes to close can be much longer than a normal sale, sometimes as long as seven months so you need staying power. Short sales are also "as is" purchases, so if repairs are needed, a buyer needs to be prepared to foot the bill for fix up. You can do an inspection on the property to insure that you don't have serious problems beyond the value of the total expenditure, but it is not a tool to get the lender to pay for repairs.

A case history

My team currently has a property that is the above picture. It is a 1998 built 2300SF(mol) single family home with 4 bedrooms, 2.5 baths, 3 car garage, on a 1/3 acre lot with a shop with electricity in the back. A current value is at least $215,000 according to recent comparable sales in the neighborhood, and it has 2 mortgages. If the property was rented it should bring $1500 to $1700 per month. The short sale price should be around $170,000 and it is in good condition. In a market like Oklahoma where only 6% of MLS reported sales are distressed property sales, and a market that has not gone down in value, this is real equity. When you combine $45,000 in equity in a market without excess inventory and appreciation still appreciating, this is a great buy for an owner-occupant or investor. You might get a bigger discount in a state that has really melted down, but those markets have a conditions that indicate further losses of value becasue of the years it will take to absorb the excess inventory of property.

Conclusion

Mortgage interest rates continue to drop now, but soon we will pay for the myriad government bailouts with inflation that comes from printing too much money, and rates will rise. There is no better time to buy than now, and a short sale is a fast track to creating an instant wealth increase. Short sale possibilities are happening across the price spectrum, and often they are sold before they hit the public listing time. If you would like to be on a list for a short sale purchase before they hit the market, please email me at joe@joepryor.com, and let me know some basic guidelines of whether you are an investor or owner-occupant and a general price range that fits you. If you know the Oklahoma City area you can include what areas you are most interested in.

It sounds a little crazy to say you are bullish on real estate anywhere in the United States. The stock market is continuing to go down, the American auto industry is on the brink, and the foreclosure rate is still continuing to rise. America is in for a hard fight to get out of this recession, but improvements could be coming next year. Obama looks like he is bringing in the best and the brightest, Detroit will get their money but with reforming strings attached, and public works spending will help employment. Oklahoma is not following the downward trend of much of the country, and I would like to show some sunshine peaking through the dark clouds. Here are my reasons to be bullish.

Gas Prices

Gas in Oklahoma has gone down in Oklahoma from $4 a gallon to $1.70. It is estimated that in short order nationally this will result in A $225 Billion dollar savings. this is the equivalent to a massive tax cut. With more money in peoples pockets there is more money to spend. Some of it will go into savings but that is good to. If financial institutions get your business, they have that money to loan. This is bigger that the stimulus package that Bush initiated.

Interest Rates

Rates dropped today on the ten year note to 3.01%. One week ago it rose to 3.93%. Let's use a $160K home mortgage and see the effects of lower rates. If we take this loan and lower the fixed rate to 5.75% from 6.5%, we lower our payment around $77 per month. Using the cost per thousand of a 30 year mortgage of $6 then that is the equivalent of approximately $12,800. That means that I just got a discount of $12,800, or because of the lower interest rates, I now have $12,800 in buying power. We all go by the monthly PITI payment, so that is the economic value of lower rates.

Inventory and Foreclosures

Oklahoma City still shows a sellers market below $200K overall. Edmond, Oklahoma, the most affluent suburb shows 6 months of inventory on the market from $150K to 200K, and 3 months inventory below $150K. This is a condition for prices rising. A discount in an over inventoried market doesn't help you becasue that with foreclosures will put tremendous pressure downward on pricing. You want a market that is rising to protect your largest investment. On foreclosures, Oklahoma City has only 6% of all listed homes as foreclosed property on the market. In areas of Arizona, Florida, California, and Nevada, it has run as high as 65%. In those markets the scary thought is that you don't know what the bottom is. Chances are in may be 2010 or 2011 before the bad inventory works itself out of the system.

Oklahoma Economics

The larger Oklahoma cities like Oklahoma City is sitting on 3.7% unemployment which is dramatically below the national average. Federal government statistics show that Oklahoma is leading the country in the rise of the average and median price, and the economy is stable and not dependent on manufacturing like the Rust Belt and Midwest. Plus, having strong industries in energy and agriculture creates strength. Although prices are down on energy most Oklahomans are grateful. Can you imagine the current U.S. economy with high gas prices. The prices will rise again, but hopefully when we have recovered, and Oklahoma will benefit greatly. The push for 25% biofuels by 2025 will create 160,000 jobs and billions of dollars in revenue. Oklahoma is growing and if you look to a long term purchase you want the economic prospects to be bright. The time to buy is now. To get set up on an auto-email notification of property listings in real time, go to www.homesearchbyemail.com, fill in the information with your guidelines, and we will get you started.