Mike West

This post continues my study of REO (Bank Owned) home sales in El Dorado Hills and Folsom, CA. This time we will look at September 2008 sales.

The number of REO properties sold in the study area went back up to 40. (In July 45 REO properties sold and in August that number dipped to 25.)

The average days on market dropped to 51. Although there were two homes sold that had been on the market for over 200 days and another three that were active for over 100 days, a full 35% of the REO homes sold were on the market for 14 days or less. Obviously, REO properties are moving rapidly and some of the "stale" listings are clearing off the market as well.

Of the 100 homes sold in September, 40 were REO proerties. 36.4% if the total.

A full 47.5% of the REO properties sold for more than the final asking price, one for 114.08% of the asking price. One home sold for 86.68% of the final asking price.

The cost per square foot for all homes sold dropped to $ 190.00, the second month in a row that number was below $ 200.00. The cost per square foot of REO sold properties was $ 173.00, 91.1% of average price. REO properties remain an excellent buy.

Specific data follows.

Folsom/El Dorado Hills Sold REO Properties September 2008
		DOM	Original Listing Price	Listing Price at Time of Offer	Sold Price	SP as % Original Price	SP as % Final Price
1	Fol	27	$ 198,900.00	$ 192,900.00	$ 185,000.00	93.01%	95.90%
2	Fol	128	$ 266,000.00	$ 219,900.00	$ 219,900.00	82.67%	100.00%
3	Fol	0	$ 299,900.00	$ 299,900.00	$ 299,900.00	100.00%	100.00%
4	Fol	18	$ 279,900.00	$ 279,900.00	$ 300,000.00	107.18%	107.18%
5	Fol	1	$ 299,900.00	$ 299,900.00	$ 304,000.00	101.37%	101.37%
6	Fol	10	$ 305,900.00	$ 305,900.00	$ 316,000.00	103.30%	103.30%
7	Fol	21	$ 299,900.00	$ 299,900.00	$ 325,000.00	108.37%	108.37%
8	EDH	12	$ 284,900.00	$ 284,900.00	$ 325,000.00	114.08%	114.08%
9	Fol	12	$ 314,900.00	$ 314,900.00	$ 330,000.00	104.80%	104.80%
10	Fol	9	$ 335,000.00	$ 335,000.00	$ 336,000.00	100.30%	100.30%
11	Fol	225	$ 350,000.00	$ 350,000.00	$ 337,500.00	96.43%	96.43%
12	EDH	32	$ 349,900.00	$ 349,900.00	$ 347,900.00	99.43%	99.43%
13	EDH	32	$ 359,000.00	$ 359,000.00	$ 350,000.00	97.49%	97.49%
14	EDH	96	$ 391,900.00	$ 368,900.00	$ 360,000.00	91.86%	97.59%
15	Fol	10	$ 359,900.00	$ 359,900.00	$ 365,000.00	101.42%	101.42%
16	FOl	54	$ 419,900.00	$ 399,900.00	$ 370,000.00	88.12%	92.52%	*
17	EDH	20	$ 389,900.00	$ 389,900.00	$ 389,000.00	99.77%	99.77%
18	EDH	12	$ 391,400.00	$ 391,400.00	$ 400,000.00	102.20%	102.20%
19	EDH	40	$ 401,000.00	$ 401,000.00	$ 401,000.00	100.00%	100.00%
20	EDH	47	$ 429,899.00	$ 409,499.00	$ 405,000.00	94.21%	98.90%
21	EDH	208	$ 499,900.00	$ 457,900.00	$ 415,000.00	83.02%	90.63%
22	EDH	10	$ 389,900.00	$ 389,900.00	$ 418,000.00	107.21%	107.21%
23	EDH	149	$ 569,900.00	$ 459,900.00	$ 420,000.00	73.70%	91.32%	*
24	EDH	9	$ 399,000.00	$ 399,900.00	$ 420,000.00	105.26%	105.03%
25	EDH	88	$ 529,000.00	$ 475,000.00	$ 430,000.00	81.29%	90.53%
26	Fol	63	$ 475,000.00	$ 429,900.00	$ 434,900.00	91.56%	101.16%
27	EDH	32	$ 449,000.00	$ 449,000.00	$ 439,000.00	97.77%	97.77%
28	EDH	79	$ 529,900.00	$ 478,234.00	$ 450,000.00	84.92%	94.10%
29	EDH	35	$ 469,900.00	$ 459,900.00	$ 461,000.00	98.11%	100.24%
30	EDH	45	$ 527,900.00	$ 482,900.00	$ 485,000.00	91.87%	100.43%
31	EDH	78	$ 479,000.00	$ 479,000.00	$ 486,000.00	101.46%	101.46%
32	EDH	5	$ 499,000.00	$ 499,000.00	$ 500,000.00	100.20%	100.20%
33	Fol	14	$ 529,900.00	$ 529,900.00	$ 550,000.00	103.79%	103.79%
34	Fol	94	$ 719,000.00	$ 629,000.00	$ 565,000.00	78.58%	89.83%
35	EDH	122	$ 654,900.00	$ 569,000.00	$ 576,500.00	88.03%	101.32%	*
36	Fol	12	$ 588,000.00	$ 588,000.00	$ 630,000.00	107.14%	107.14%
37	Fol	68	$ 695,000.00	$ 695,000.00	$ 649,000.00	93.38%	93.38%
38	Fol	95	$ 749,900.00	$ 749,900.00	$ 650,000.00	86.68%	86.68%
39	EDH	13	$ 635,000.00	$ 635,000.00	$ 655,000.00	103.15%	103.15%
40	EDH	16	$ 719,900.00	$ 719,900.00	$ 731,000.00	101.54%	101.54%
AVE.		51				94.1%	97.2%
REO Sold Cost Per Square Foot:				$ 173.00	91.1%
Total Sold Cost Per Square Foot:				$ 190.00
Total Number of REO Homes Sold in November for area: 45					40	36.4%
Total Number of Homes Sold: 136					110

How do I get the best deal on a home? Where do I start? Part 5

At this point you have decided that you want to purchase a home. You are tired of paying rent that only makes your land lord richer.

You have communicated with a loan consultant and narrowed your selection to a loan package that you can live with-NO UNPLEASANT SURPRISES. NO PREPAYMENT PENALTIES.

You should have a fairly good idea what your payments are going to look like and, although you are not excited about having to pay so much, you can live with the payment. You will have a good idea of what price range you should be looking in. You will be able to obtain a pre-qualification letter from your loan consultant.

(A pre-approval is better. That means that your financial

information has been verified and there are no skeletons

in your financial closet.)

Armed with the knowledge about what you can afford, it is time to start looking for THE HOME.

Remember the old adage, location, location, location. If you buy in the very best area that you can afford, your property will tend to maintain it's value and appreciate more over time. A smaller, older home in a better area is a better selection than a new home in a questionable area.

Almost everyone starts looking on the Internet. There are thousands of real estate related sites out there. Select one that you feel comfortable using. Naturally, I recommend two web sites,

http://www.BuyYourVilla.com

and

http://www.BMikeWest.com

They are both my web sites and provide access to EVERY property

available on the Realtor's MLS in our seven county area. They also

provide information about our local area as well as information about the real estate buying and financing process.

While you are performing your property search, try changing your search criteria just a little in one or two categories. You will be amazed at the difference in your search results.

Note that most property search sites require that you enter your name and e-mail address. Mine are no exception. However, the worst that you can expect is the occasional e-mail with real estate related information that you may find useful.

Stay tuned for Part 6 Enjoy your search!

This post continues my year long plus study of REO (Bank Owned Home) sales in El Dorado Hills and Folsom, CA. This post covers August 2008 REO sales.

In August the number of REO properties sold in the selected market areas dropped signicficantly from 45 in July to 25 in August. This represents more than the normal seasonal end-of-summer activity decline.

The Days-On-Market number increased considerably from 72 in July to 105 in August. A full 40% of the homes sold in August were on the market for over 100 days. Another significent statistic remains applicable. A full 28% of the REO homes sold were on the market for fourteen days or less. We seem to have heavy representation from both ends of the spectrum with respect to the length of time the sold homes were on the market. However, the market has cleared six homes off the active list that were on the market for over 200 days, one for 411 days.

Another interesting statistic is the drop in cost per square foot the both REO properties and the cost per square foot of all homes in the area. The is the first time that the cost per square foot for REO properties dropped below $ 180. It is also the first time that the cost per square foot for all homes sold has dropped below $ 200.

The trend that REO properties are consistently sold for about ten percent lower than the general population of homes sold in the area continues. However, the REO properties represent only 21.7% of all homes sold. That has been just over 25% for the past year.

THe specific data follows.

Folsom/El Dorado Hills Sold REO Properties August 2008
		DOM	Original Listing Price	Listing Price at Time of Offer	Sold Price	SP as % Original Price	SP as % Final Price
1	Fol	87	$ 383,900.00	$ 336,900.00	$ 310,300.00	80.83%	92.10%
2	Fol	37	$ 338,000.00	$ 327,900.00	$ 315,500.00	93.34%	96.22%
3	Fol	33	$ 353,000.00	$ 340,000.00	$ 330,000.00	93.48%	97.06%
4	Fol	303	$ 324,900.00	$ 324,900.00	$ 335,000.00	103.11%	103.11%
5	Fol	10	$ 339,000.00	$ 339,000.00	$ 344,150.00	101.52%	101.52%
6	EDH	202	$ 315,000.00	$ 315,000.00	$ 345,000.00	109.52%	109.52%
7	EDH	183	$ 363,000.00	$ 363,000.00	$ 348,000.00	95.87%	95.87%
8	EDH	205	$ 483,000.00	$ 369,900.00	$ 404,000.00	83.64%	109.22%
9	EDH	6	$ 391,900.00	$ 391,900.00	$ 404,260.00	103.15%	103.15%
10	EDH	18	$ 399,900.00	$ 399,900.00	$ 420,000.00	105.03%	105.03%
11	EDH	1	$ 391,875.00	$ 391,875.00	$ 425,000.00	108.45%	108.45%
12	EDH	5	$ 394,900.00	$ 430,900.00	$ 430,000.00	108.89%	99.79%
13	EDH	177	$ 579,000.00	$ 449,900.00	$ 449,900.00	77.70%	100.00%
14	EDH	6	$ 429,000.00	$ 429,000.00	$ 450,000.00	104.90%	104.90%
15	EDH	205	$ 464,900.00	$ 464,900.00	$ 470,000.00	101.10%	101.10%
16	EDH	99	$ 514,900.00	$ 489,900.00	$ 478,000.00	92.83%	97.57%
17	Fol	6	$ 475,000.00	$ 475,000.00	$ 488,000.00	102.74%	102.74%
18	Fol	23	$ 529,500.00	$ 529,500.00	$ 490,000.00	92.54%	92.54%
19	EDH	1	$ 499,900.00	$ 499,900.00	$ 510,000.00	102.02%	102.02%
20	EDH	51	$ 640,000.00	$ 599,000.00	$ 551,000.00	86.09%	91.99%
21	EDH	15	$ 585,900.00	$ 585,900.00	$ 595,000.00	101.55%	101.55%
22	Fol	411	$ 608,000.00	$ 608,000.00	$ 615,000.00	101.15%	101.15%
23	EDH	180	$ 679,900.00	$ 659,900.00	$ 635,000.00	93.40%	96.23%
24	Fol	143	$ 949,900.00	$ 774,900.00	$ 681,000.00	71.69%	87.88%
25	EDH	215	$ 899,900.00	$ 812,159.00	$ 780,000.00	86.68%	96.04%
AVE.		105				96.0%	99.9%
REO Sold Cost Per Square Foot:				$ 177.00	90.8%
Total Sold Cost Per Square Foot:				$ 195.00
Total Number of REO Homes Sold in August:					25	21.7%
Total Number of Homes Sold:					115

How can I get the best deal on a home? Where do I start? Part IV

It is essential that you understand some of the pitfalls of mortgage loans when making

the determination as to which is the best loan for you. You should be very familiar with

each loan program you are considering.

In the rather lengthy Part 3 we discussed several loans, how they work and some

of the pitfalls related to each. Naturally, you should discuss these loans with your loan

consultant in detail. Make sure you are completely comfortable before making the decision.

The last loan that will be discussed is the "Pick-A-Pay" or the "Pay-Option-Arm." This

type of loan offers the greatest number of options for the borrower. Each month they

can decide to:

1) Pay the fully amortized (paying principal and interest) payment

for a 15 year payment period. (The highest dollar payment.)

2) Pay the fully amortized (paying principal and interest) payment

for a 30 year payment period. (The Gold Standard for loans.)

3) Pay the interest only (the original principal remains the same)

payment. (A lower monthly payment.)

4) Pay a "teaser" interest payment, far below the market interest

rate which will not even cover the monthly interest for the loan

principal. With this option, the difference between this "teaser"

payment and what you actually owe is added to the outstanding

loan balance EACH MONTH. This phenomenon is known as

negative amortization.

Depending on the lender, once the principal balance reaches 110% to 125% of the

original loan balance, the loan recasts. That means that all the rules change and

your payment takes a giant leap upward.

Another issue is that the interest rates are adjustable and tied to a financial index.

The borrower has no idea what is going to happen to their interest rate. There are

caps involved but the caps allow interest rates that result in frighteningly high

payments.

If we go back to our $ 250,000 loan amount used in Part 3 and maintain the 6%

interest rate, the four payments would look like this:

1) 15 year fully amortized payment........$ 2109.64

2) 30 year fully amortized payment.........$ 1498.99

3) 30 year Interest only payment.............$ 1250.00

(remember with this one you are NOT paying down the principal!)

4) 2% Teaser Rate payment......................$ 416.67

(The difference between this payment and the $ 1498.99 above is

added to your loan total EACH MONTH.)

After two years of this payment history your principal would be

$ 275,975.68, over 110% of the original loan! When the loan recasts

an interest rate of 11% is not unlikely. At that rate your new payment

would be $ 2628.18! That is 175% of the original 30 year fully amortized

loan payment.

We are sure that many people in 2004 - 2006 committed to this kind of a loan package

knowing that their home value was increasing at astronomical rates and certain that they

could always sell and get out from under that loan obligation if necessary. Unfortunately,

for far too many in this position, property values dropped. Thus the foreclosure boom.

Experience teaches us that risky loans can produce disastrous results. Negative amortization

was attractive bait created by investors to increase their yield. However, it backfired

on both those who committed to those kinds of loans and well as the investors who were trying

to take advantage of the market.

Caveat Emptor (let the buyer beware) really applies to this category of loan!

Stay tuned for the next Blog in this series.

As you zero in on a loan for your home you are going to have a number of choices.

This post will discuss the good, bad and ugly aspects of the most common loan offerings.

Fully Amortized Fixed Rate Loans

The most conservative loans in the market are the fully amortized, fixed interest rate options; you are going to know what your monthly payment is going to be for the entire term of the loan. It will not change. There should be no surprises or hidden changes. You will also be paying down the principal each month along with the interest. However, the monthly payments on these loans are usually higher and many people can not qualify for them. This is one reason that so many borrowers opt for another type of loan.

The standard loan terms in the industry are 15 years, 30 years, 40 years and 50 years. The shorter the term of the loan the higher the payment. Conversely, the longer the term of the loan the higher the amount of interest you are going to pay-MUCH HIGHER.

Let us take a loan amount of $ 250,000 at 6% interest as an example.

The principal and interest payment would be:

For a 15 year loan....................................$ 2109.64

For a 30 year loan...................................$ 1498.88

For a 40 year loan...................................$ 1375.53

For a 50 year loan...................................$ 1316.01

As you can see, there is little incentive to extend your loan term to fifty years. If you multiply the monthly payment by the total number of months you will be making the payments you see impact immediately. We are talking hundreds of thousands of dollars.

The way the process works is that the early payments are applied mostly to interest, with very little going to the principal. As the loan term progresses the portion applied to interest declines and the portion applied to the principal increases. This has an impact on your annual tax deduction, since the interest portion is tax deductable. However, the lenders get their money early in the transaction in the form of that interest. A good loan consultant will provide you with an amortization chart for your loan so that you can see how your funds will be applied.

Fixed Rate Interest Only Loans

A loan option that many borrowers select is a fixed rate Interest Only product. In this provides a fixed rate for the term of the loan, usually thirty years with an initial period of interest only payments. At the end of the interest only period the loan recasts and you end up with a fully amortized loan for the remaining term of the loan.

The most common interest only periods are five or ten years. The interest only loan rates are higher than the fully amortized loans. So if we go back to our $ 250,000 loan again, at a 6.5% interest rate the payment will look something like this:

The initial interest only payment would be $ 1354.17, slightly lower than that of a fully amortized loan for the thirty year period. However, that $ 144.71 per month can be the difference between qualifying to buy the home or not.

If the interest only period is five years, when the loan recasts the payment increases to $ 1688.02. You have to repay the principal over the remaining 25 years of the loan period.

If the interest only period is ten years, when the loan recasts the payment increases to $ 1863.93. You have to repay the principal over the remaining 20 years of the loan period.

Interest only loans enable borrowers to qualify for loans when they can not afford the fully amortized loan option. The fixed rate eliminates any surprises. The borrower knows what is coming. Since the average buyer only stays in a home for five to six years, many plan to sell before the big adjustment. However, unless the market value of the home increases, they will have no equity in the property when they sell. Remember that you are paying only the interest and not reducing the principal.

This option works for many buyer/borrowers, especially if the value of the property appreciates during the interest only period. Some borrowers also consider an option of refinancing if interest rates decline or their financial picture improves during the interest only period.

You can also pay more than the interest only payment. When you do that every additional dollar is applied to reduce your principal.

Beware of the possibility that the property may not appreciate and the borrower's financial picture can get worse. There is a potential for trouble down the road. Caveat Emptor--(Let the buyer beware.)

Adjustable Rate Mortgages

A third category of mortgage products is the ARM, or Adjustable Rate Mortgage. This option enables a borrower to qualify for a loan at a reduced fixed rate for the introductory period, one, two, three, five, seven or ten years, depending on the specific loan.

However, at the end of the fixed rate period, the mortgage becomes a fluctuating interest rate loan. The adjustments are tied to financial indices such as the Federal Cost of Funds Index or the LIBOR. Most adjust once a year after the initial fixed period, with caps on the amount that they can adjust each year and a maximum adjustment over the term of the loan.

Usually, the shorter the fixed period is, the lower the introductory interest rate. Depending on market conditions these rates can be far below the fully amortized, fixed interest rate loans or they can be similar.

Adjustments can be increases or decreased in rate and payment. It is not prudent to expect decreases. The borrower is unsure of what to expect when an adjustment is due unless they monitor the specific index very closely. Few have the interest or training to do so.

If we look at an example of a three year ARM with a fully amortized, introductory rate the payment would be 5.375%. Our $ 250,000 loan amount will result in a monthly payment of $ 1399.93, $ 98.95 less than the fully amortized, fixed rate, loan payment. However, at the end of the three year fixed term the interest rate can go up 2%, making the payment $ 1657.62 or less, depending on what happens to the governing index.

The more seductive three year interest only ARM with the same 5.375% interest rate would yield monthly payment of $ 1119.79. However, three years down the road the payment could be $ 1726.69, or lower, depending on the index.

As you can see, navigating this process is similar to sailing through a mine field. Find a loan consultant that you trust and ask a LOT of questions.

My next Blog with discuss some other, more risky, loan options. Stay tuned.