Joe Murphy

In the past three years I have been forced to become an expert doing short sales. Right now over half my business is dealing with short sales. One common frustration comes up time and time again.

Here is a typical scenario. A family owns a home that was bought at the peak of the market, or refinanced at the peak. For example they may owe 400,000 on a home that is only worth 250,000. The owner is employed, but with the economic slow down they are making less money then they did when they took out the mortgage. They have attempted to contact their lender, with the hope to either get their principle balance reduced, or work out a way to get a lower payment. They are still employed, but just making less.

I meet with the owners, and let them know that they are 100,000-200,000 UPSIDE-DOWN, and explain the particulars of a short sale.

At this point, The customer, and I reach the frustration point. Why is it fair or correct that the family has to sell their home, potentially destroy their credit, uproot their kids from friends and schools, forced into renting, suffer from the embarrassment from losing their home. This family typically loves their home, and they do not want to leave.

I am going to sell their "home" to a new buyer for 250,000. The bank will most likely agree to the deal. The seller has to keep the home in showing condition, and deal with the aggreavation of showing.

The Frustrating Question.

Why would the bank not just sell the home to the homeowner at the price they are going to get on the open market? This homeowner could easily afford the normal payment on the fair market price. This would keep one more family in their home, prevent another home from coming onto the glutted market, and help the neighborhood maintain the prices helping to prevent future short sales and foreclosures.

From my own research I have found that lenders are unwilling to do principle reductions to modify loans for two main reasons.

1. 1/3 of home owners will "self correct" within 12 months. Meaning that if the bank does nothing that a third will catch themselves up on their own. The owner got behind because of a temporary situation, and was able to catch ou on their own.

2. Of all the homeowners that are give a loan modification the majority end up defaulting anyway. A modification simply delays the inevitable. Which is bad for the lender in a falling market, the sooner they can foreclose, and resell, the more money they would get. This concern is valid because it is the foreclosure sales that lead the market down.

My Solution to the mess.

I would propose that the government force the lenders to reduce the principle balance to 90% of the appraised value for all homeowners. The lenders would have to eat some of this, which they would do anyway if the home foreclosed, and the federal government would assist with some portion as well.

For example, the homeowner that owes 400,000, and the home is worth 250,000. would have a new mortgage payment based on the appraised value. The bank and the government would "bail out" the homeowner the difference. In the future, when the homeowner would want to sell the home. The first 150,000 of appreciation would be paid back to the lender/government. This would be a way to make the lender whole again. Perhaps there could even be some applied interest if the home sells for even more.

In the current system when the lender forecloses they will only get the fair market value of a home, minus all the costs involved with kicking out the owner, repairing damage, paying Realtors etc.

In my proposal the bank would get the reveue stream of continued mortgage payments, and the future gain of appreciation.

Home prices will eventually rise again, especially if the unneeded foreclosure, and short sales could be removed from the market. This would lead to home price stability, and aid in economic recover as homeowners would be able to more easily afford their mortgages. This would increase consumer confidence to get out their and spend money again, and get us out of the recession faster.

Since the federal government has already bailed out troubled banks with billions of dollars, and spent billions to stimulate the economy, why not bail out "main street", and have a way to eventually be repaid the bailout funds. This would be a win-win-win for the government, the banks, and finally the American homeowner.

Today's news about the big upswing in the stock market, and the 20 percent increase in sales confirms what i have seen in the last month. Sales locally have been brisk, and the traffic to my listings has really picked up. This is of course "peak season", so I hope that this trend will continue to pick up. This combined with the decreased listing inventory should cause home values to start to level out.
Really what is needed is more mortgage reform with higher loan amounts. The market above 400 is really slow. Most of the activity is in the "entry level", 200k and under market.

I think that the key to a market recovery will come with the inflation that will be coming sooner than later. Not that I am am fan of inflation. But I think it is coming.. Everything will get more expensive, including building homes, which will raise home prices, as everyone's mortgage stays stable.

Also, having our dollar devalue a bit would help too. I have a few european and canadian buyers who are deciding to stay on the fence in hopes the dollar weakens.

In Bradenton and Sarasota, our average sales price did go up by 1,000 last month. I think that is a great sign, since it has not risen in 2 years!

I have heard that no one will know when the real estate market has hit the "bottom", until we are in recovery, and prices start to rise.

Based on my experiences this weekend working with three sets of customers. I think that time is here.

My first buyer had made three offers prior to this weekend, all three times we were beat out by higher bids. Today I was able to share good news that they got the latest home. They had to bid well over list price to beat the 4 other offers. They got a great deal, on a limited that was priced below market compared to other homes in the area. Although they paid well over list, this home was still a much better value than others in the area.

My second buyer made an offer on another REO home for 6,000 over list. We are up against 2 other offers on that home.

My Third buyer made an offer of 10% below list on a very rough condition home, that backed to a very busy road, and had been on the market for over 200 days. We were informed that we were beat.

I think that the "bottom" of the market is here for perceived, FL in the under 200k market.
1. Inventory is half compared to a year ago.
2. It is very common for REO homes to sell at or above list price now, where a year ago this was infrequent
3. Interest rates are still a great deal. FHA financing is available.
4. The 8,000 First time home buyer credit is available through the end of the year.

My opinion is based off REO sales because these are typically the most aggressively priced homes on the market, and are priced based on a percieved market direction(i.e. Going down). Know that realistic homes are getting "bid up" that signals a bottom, and even a recovery home prices in certain neighborhoods with limited inventory.
Now that the under 200k market is improving this should "trickle-up" to the rest of the market which here continues a free-fall.

This is the time to buy!

Bailout, or Stimulus aside, I am noticing a general improveemtn in the success ratios on short sales in the past 60 days.

I was able to close a Short Sale in Bradenton, FL in less than 100 days. This was remarkable not for the length of time to close, but because this seller was CURRENT on the mortage, currently employed, and had considerable savings and assets.

I have now closed three transactions where the sellers were current with their mortgage payments, and employed. I am finding that the hardship requirements have become much more flexible in the past few months.

Anyone else having the same experience?

I am inviting you to my "Waterlefe Tour of Homes" for this coming Sunday February 15, 2009 from 1-4pm. If you have been considering buying a larger home, downsizing, or perhaps buying a home for investment, there has never been a better time to be a buyer for this great community. Waterlefe is a jewel that offers the rare combination of BOATING and GOLF at one address.

1. Our neighborhood is not too big, or too small.
2. There is a great variety of residences from the 200's to the multi-million.
3. Convenient location close to shopping, airports, and a reasonable drive to some of the world's best beaches.
4. A social and diverse population of residences including full time, seasonal, and vacation home owners.
5. Excellent values as home prices have dropped nearly 50% since the peak of the market.

Our real estate market was one of the first to be hit by the downturn. For the following reasons I feel that today is the day to become a buyer in the market.

1. Interest Rates are at historical low levels. A 30yr fixed mortgage can be locked in today around 5%. The rates have been very volatile recently, and many think that the rates will rise as soon as there is evidence that we are in recovery.

2. The United States Senate passed the tax credit this past week. This will give a huge incentive to buyers that are "on the fence" to jump into the market. The credit will allow a home buyer who is buying a "primary home" the ability to take up to 15,000 OFF their tax bill for 2009! There is a possibility that this amount may be adjusted, but it is highly likely to pass. This is not a deduction, but an actual credit. The money does not have to be repaid if the homeowner stays in the home for at least 2 years. Also, there is no restriction on income, or price of the home. The bill will have a time restriction of one year that will force people into becoming urgent buyers.

3. We have "PENT-UP DEMAND". There are many people that have not been effected by the economic downturn. There are still 90% of the population that are employed. There is a coming wave of baby boomers that want to retire to somewhere warm, with Boating, Golf, and plenty of sunshine. The media blitz that has made prices fall so fast and hard will actually work to our favor when it comes to a recovery. People want to know that they are getting a great deal, and that their Florida purchase will not go down any further. Once the media grabs hold of the recovery, this will drive a great wave of buyers frantic to get a deal before prices start to rise.

4. Our inventory in Manatee County is maintaining around 6,300 units. This is About HALF of a year ago! Some of this reduction can be attributed to the combining of our MLS systems, but the vast majority is from sellers that were hoping to sell have gotten realistic and taken their home off the market. Foreclosures and short sales account for about 1/4 of the inventory selling county wide.

5. Economic and Global instability make Florida look better, and SAFER. Instability in the rest of the world makes investing in Florida Real Estate a relatively safe proposition. Particularly in our area. Last year 52% of the sales in Sarasota and Manatee Counties were CASH deals. Last year Sarasota/Manatee had the HIGHEST Proportion of Foreign National Buyers in the State. We benefit from lower taxes, fewer hurricanes (than the east coast), excellent cultural opportunities, low crime rates, and a stable local government.

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -Warren Buffet

I agree with Mr. Buffet, that when we are in a recovery the opportunity is already missed. The time to be bold in real estate is when the majority of the population is fearful. Our local market is poised for a recovery based on the time of price deflation, and reduced inventory. There are no guarentees that prices will rise any time soon, but the best selection, and the best deals will become harder to find, even if prices stabilize. More buyers will mean less selection, and the really good buys will get snapped up. ( This is already happening, 6 contracts I have written so far this year have been in Multiple bid situations) Fearful sellers allow for the market to go down. If the sellers feel that the market is improving then they will be less inclined to take low offers for their properties. This includes the Lenders with the foreclosure properties. Charlie Christ created a moratorium on all foreclosures for the first 3 months of 2009. I believe this will create a flood of foreclosures that will last a good portion of this year. I think that with rise in "must sell" inventory that prices may fall a bit more for distressed properties, but will be snapped up as buyers sense an opportunity. We have currently 12 homes in some phase of foreclosure in Waterlefe. This is a much lower percentage than many other neighborhoods around our area. In conclusion, I recommend that if you have been considering buying a second home, or investment property to start looking today. I feel that consumer confidence in our market is on the rise. I am basing this on the increase in number of showings, and increase in multiple bids. When the media starts to publicize this, then the general population will return to the market in droves. 1 out of 3 homes in our country have no mortgage. We have everything that a retiree or vacation home buyer wants.

• • • BEACHES
    • PLENTY OF GOLF
    • BOATING
    • SECURITY
    • CULTURAL VENUES
    • DISNEY(for the grand kids!)

I hope to see you this weekend at our tour of homes. If you can not make it this weekend please feel free to call me or email. I can set up your own "private tour" on your schedule. If you are homeowner considering selling your home in this area I would be happy to give you straight advice and pricing information.

All the best in 2009!

Joe and Molly Murphy