Pacita Dimacali - e-PRO, SRES, CDPE, MBA East Bay, North CA real estate

Is it a good time to buy and sell real estate?

The perception is that REALTORs are always trying to convince their clients to buy or sell real estate each and any time. But the reality is that when the buyers or sellers are on the verge of making a decision, they are the people who make that decision based on the information they have, and how they process that information.

As such, it is always a good idea to stay abreast of the real estate market movement and factors that are affecting --- or effecting --- that movement.

Affect versus Effect

There is a difference when used as a verb:

• Affect means: to have an influence on; to act on the emotions of; to attack or infect
• Effect means: to bring about to produce an outcome to achieve a result

How to we apply this to real estate and to answer the question of whether or not it's a good time to buy or sell? The answer lies in how people process, interpret and take action on the information they know about the current situation.

Tax credits

• The National Association of REALTORS helped to effect(cause to happen) the extension and expansion of the tax credits by encouraging its membership to contact their legislators to pass the bill and encourage President Obama to sign it.
• Who are affected by the bill when it was signed? The first time home buyers and repeat buyers who have until April 30 2010 to get into contract, and have 60 days to close escrow to qualify for the tax credit.

Short sales and Foreclosures

• The four largest lenders are staffing up their short sale department to effect a simplification of the short sale process
• Homeowners who are suffering reduced incomes and drop in home market values are facing foreclosure, and are directly affected by the economic downturn. Market observers like Steve Harney say that "if anything, future foreclosure inventor is underestimated, not overestimated."
• More short sales and foreclosures may adversely affect the market values of neighboring homes. So if property owners are contemplating selling their home, they should factor the projected increase in distressed properties. How can they compete? Price their homes aggressively so that they move fast and ahead of the market. Assume

Assume $500,000 home in November 2009, and owner has an outstanding loan of $400,000 at 6% interest.

• Selling now for $500,000 with projected close of escrow by April 30, 2010: $64,600 net at closing
• Waiting until June 2010 when more foreclosures and short sales are expected to come on the market, the value of his home may be affected by as much as 10% or down to $475,000. Projected close of escrow 90 days: $61,873 net at closing

Interest rates and FHA down payment

Historically speaking, the current rates are still some of the lowest they've ever been in 40 years. See FreddieMac for a peek at 30-year rates since 1971.

• Interest rates may rise by 1 - 2% by next year. A concern for increasing rates may effect renewed interest in buying property, coupled by a desire to meet the tax credit deadlines.
• When interest rates rise, this may affect the buyers' ability to qualify for a loan if the monthly mortgage payments based on the higher interest rates are higher than what their current income level can support. It is important to relate the cost of buying a home --- if prices decrease by 10%, but the interest rate increases by 1% --- how will that affect your monthly payment? Assume 30-year mortgage with 20% down payment , in Oakland CA
  • $500,000 purchase price at 5% interest rate: $2,814/month
  • Reduced purchase price by 10% or $475K, with increased interest rate to 6%: $2,912/month, or $98 higher

Now, about that FHA down payment....

Keep your eye on this bill H.R. 3706 that proposes increasing down payment for FHA insured mortgages from 3.5% to 5%. Reactions are mixed regarding the pros and cons of this bill and what its effect will be (more bailout?) and how it will affect buyers (more difficult to qualify to buy).

According to Wall Street Journal, the agency opposes this bill. David Stevens, the commissioner of the FHA, warned that "the biggest mistake" the agency could make is to "overcorrect."

Can one say information overload? Political intervention and interference? Who do we believe? What can we expect?

Is it ever a good idea to simply let go of an unhappy and dissatisfied seller?

I can't remember where I first saw it, or heard about it. But I know that since I've become a realtor, I have always offered a no hassle, easy exit guarantee on my listing agreements. I figured that if someone is not satisfied with the service I provide, it is best to let go of the client and part on amicable terms.

If you google "easy exit guarantee" you will see a ton of realtors and agencies who subscribe to this principle.

But not everyone agrees.

UNHAPPY SELLER

An unhappy seller had posted her concerns about her agent who reduced on the MLS the list price on her property without her knowledge. Many realtors and brokers who responded said the same thing: that the agent shouldn't have made that change without her knowledge and written consent.

Thereupon she wrote to the broker that she wants to terminate the agreement. She included many other reasons for her dissatisfaction.

BROKER SCOLDS SELLER VIA EMAIL

The broker, instead of making a phone call or asking to meet with the seller, responded via email, starting off with....

"You personally have been extremely detrimental to your agent's efforts...."

The broker provided his own view of what has transpired as a rebuttal to the seller's complaints. He itemized examples of what he thought the owner had done or refused to do.

Then he ends it by saying he will not release the seller from the contract. And that if the seller lists the property with another agent, they will file a claim for full commission on any sale of the property.

Is this the way to build a bridge to a client base?

EMAIL IS FOREVER

The Seller is incensed. She told the broker that his assertions are incorrect.

She may wait until the listing agreement period is expires. But the damage is done. She is on the warpath and is planning to file complaints against the broker and the agent. She is also spreading the word. She is bound and determined not to let this go, invoking the power of the internet and all that.....

Is it worth winning the battle but lose the war? How would you handle it?

Agree or disagree, this is an interesting outburst --- a voice echoing the cries of distressed homeowners and their advocates. "Homeowners: "Hey Congress.. Get off your a**!"

Petition to the U.S. government from the Homeowners proposing "an immediate halt to all foreclosures until new, mandatory guidelines are established and that these guidelines be overseen by a new Consumer Protection Agency..."

EXCERPT:

We propose an immediate halt to all foreclosures until new, mandatory guidelines are established and that these guidelines be overseen by a new Consumer Protection Agency, which was recently recommended by President Obama and endorsed by Sheila Bair, chair of the FDIC.

We also demand that these guidelines include not only a simple 31% of the borrower's gross monthly income, but that the Net Present Value (NPV) test:

• be created and administered by the government, not the banks,
• have its data, assumptions and formula published so that they may be verified by the public, and
• be made available at www.makinghomeaffordable.gov in a calculator form so that people can learn immediately, with the other eligibility questions available there now, whether they're eligible for HAMP.

We are also strongly advocating that additional guidelines be formulated that would open the door for modifications at an even a lower rate in significant hardship conditions and for writedowns of principal when homes are severely underwater."

Read more at: http://www.huffingtonpost.com/richard-zombeck/homeowners-hey-congress-g_b_342665.html&cp

Lenders make more money on foreclosures than from short sales or loan modifications. That's what Steve Harney conveyed in a seminar. He caused an earthquake in San Francisco

When loan modifications are turned down, the next thing we attempt is a short sale. And we know that lenders turn over the short sale accounts to loan servicing companies who make our lives hell getting short sales approved. As such, we should know that these loan servicing companies make MORE money by letting the properties foreclose than to approve the short sales OR the loan modification.

RUMBLE...GRUMBLE...CRIES OF DISMAY!

Did he just confirm what we were afraid of?

So I researched this topic and found a few articles worth reviewing. How did I miss these? Was I under a rock in a desert?

CONSUMERLAW.ORG REPORt ON "Why Servicers Foreclose when They Should Modify And Other Puzzles of Servicer Behavior"

DAILY PRESS headline. Oct, 30 2009. Do Mortgage Lenders Make More Money when a Loan Goes iInto Foreclosure?

HUFFINGTON POST. Oct. 21, 2009, Foreclosures Are More Profitable Than Loan Modifications, According To New Report

Washington Post. July 28, 2009. Foreclosures Are Often In Lenders' Best Interest. Numbers Work Against Government Efforts to Help Homeowners.

ThinkGlink. October 21, 2009. Loan Modification Help: Why Lenders Are Slow To Provide Loan Modifications

Dayton Daily News. Oct. 17, 2009. Drop in foreclosures called "very scary". Lender's actions show they think properties are not worth pursuing.

Mortgage101.com. October 23, 2009. Mortgage Companies Make More on Foreclosures Than They Do Modifying Existing Loans. (This blog refers to the news article on Huffington Post)

FLASHBACK: Huffington Post, June 8, 2009. Short Sales: Banks Blocking Way Out of Foreclosure Crisis

FLASHBACK: Huffington Post, May 15, 2009. Short Sales Stories. Lenders tend to stick with more familiar foreclosure process, losing money for everybody.

UPDATE: Huffington Post, November 2, 2009. Homeowners: "Hey Congress, Get Off Your A**"

KNOCKING OURSELVES OUT TRYING TO HELP

So are we engaging in self-flagellation helping our distressed clients with their short sales and loan modification?

Are lenders really more likely to foreclose?

Are the short sale servicing companies really trying to help?

Or are they stalling and withholding their help because they know their leaders would rather have the property burn into foreclosure?

Is there no resolution in signt?

There oughta be a law!

For the statisticians and other folks who prefer graphs to see what's going on a specific market, here's a snapshot of what it looks like in Walnut Creek CA, comparing the market activity the past two years, starting in October 2007 - October 2009.

MONTHS SUPPLY OF INVENTORY When there are more buyers than there are sellers, it means that it's a seller's market. The higher the months inventory, the more it becomes a seller's market. Traditionally, if the the months inventory is more than six months, it's a buyer's market, and vice versa.

In Walnut Creek the months' inventory was 8.2 months in October 2007, and 2.2 in October 2009 --- 73% decrease.

UNDER CONTRACT

• October 2009 reports the highest peak, with 155 homes in contract compared to only 65 in October 20007 and 85 in October 2008.
• December 2007 reported the fewest contracts. The following year, December 2008 recorded 68 homes in contract.

MEDIAN PRICE The median price was the lowest in February 2009 and bounced back in April. Nonetheless, the general trend seems to be downwards. October 2009's median price is the next lowest point. Sellers may have to adjust their expectations depending on current market values.

SUPPLY AND DEMAND Here's a good way to correlate number of properties sold (demand) with number of properties for sale (supply). .

DAYS ON MARKET So, how long do the Walnut Creek properties stay on the market before they have accepted offers? With the exception of February 2008 where the average days on market peaked to nearly 100 days, the average days on market is steady at between 60-70 days.



So...what are these graphs telling you?