David Welch

Mary Shanklin covers the real estate market for the Orlando Sentinel, and had a great article this morning on the state's attempt to turn the tax credit into down payment assistance. When this went into effect back in the summer, I checked with every lender I know. Every one of them had questions about how the assistance was going to be administered. Some were really trying to figure it out, and others just gave up immediately. With millions of dollars going unused, it appears to be another example of government cheese. If you remember back in the 80's the government gave away cheese. It was a program that really did not seem to help anyone other than the late night comics looking for good joke.

Down payment assistance for first time home buyers is not a joke. I believe the biggest obstacle to home ownership for most first time home buyers is the down payment. The FHA minimum down payment on the median priced home in Orlando of $130,000 is $4,550. Add to that closing costs that could also be around $4,500, and that is $9,000 the buyer needs to get into their first house. Many sellers are willing to put up the 3% toward the buyers closing costs, but well priced properties are frequently drawing multiple offers. The buyer with more cash wins that contest more often than not. Fully funding the existing state and local down payment assistance programs would be a better use of money than the tax credit. Some argue that the credit is supposed stimulate purchases after the closing of the home, but if the buyer does not have the cash to close in the first place there won't be a sale. Existing systems, processes and procedures are already in place, they just lack funds. We don't need more cheese, we need solutions that work.

Orlando Real Estate, David Welch Real Estate Optimist

You can go to my webpage www.DavidWelch.com/taxcredit to keep an eye on the countdown clock for the tax credit. Keep in mind, this countdown is until closing. You must close your transaction by November 30, 2009 to be eligible for the tax credit. We are finding that a lot of transactions are being delayed, so I do not recommend setting a closing for the last day of the tax credit. That also happens to be right after the Thanksgiving holiday. If you are writing a contract today, push to close before Thanksgiving or you may miss the credit completely. Surveys seem to indicate that only about 15% of first time home buyers say the credit was a primary influence on their decision to purchase. The first time buyers that I have been working with agree with that sentiment.

Considering this, why would the government consider extending the credit. First time buyers probably make up less than half the buyers, so the credit is probably accounting for fewer than 8% of the sales. Here in Orlando sales are up nearly 50%, so the credit while appreciated, is not really doing much to stimulate additional sales. Low prices and low interest rates have much more to do with the increased demand in Orlando. The banks cannot get all the sales closed anyway with pending contracts rising to more than 9,100 here in the City Beautiful. In stead of extending the credit, let it expire and see what happens with demand for homes. If we actually see an appreciable drop as some speculate, then maybe the credit should be reconsidered.

On a side note, reports suggest that real estate and manufacturing are leading the country out of the recession. The two hardest hit segments of the economy are doing the most to turn things around. Go Real Estate!!!

Orlando Real Estate, David Welch Real Estate Optimist

There is a pretty good article in the Orlando Sentinel today by Mary Shanklin about short sales. The only thing I question is the statement that banks were approving short sales in seven weeks back at the beginning of the year. I have not seen that as a typical or average response. There are short sales that receive approvals very quickly, but they are generally limited to smaller banks that only have a handful of short sales that they are negotiating. Currently, there are just over 5,100 short sales pending and 199 have closed so far this month. We have seen between 350 and 450 closing each of the last few months which represents less than 10% of the total number of short sales with contracts on them. I typically see about half of the closings occurring by the 20th of the month, so if we double the short sale closings so far to 398 the closed to pending ratio is just under 8%. Let's compare that with "normal" sales of 354 so far this month. If you double that to 708 and as a percentage of pending "normal" sales of 1432, the closed to pending ratio is just over 49%.

This is where I have come to the conclusion that the average short sale that actually closes is around seven months. The closed ratio for "normal" sales is about seven times that of short sales. Unfortunately, time is the biggest enemy of a real estate transaction. While waiting on a short sale approval, how many more properties will come on the market or reduce their price luring the short sale buyer away. How many times can the bank or banks in a short sale ask the seller to bare their financial soul to them before it becomes disrespectful as the person in the article states. Realtors have been calling for banks to adopt a uniform streamlined process for dealing with short sales. Sometimes I do not believe the banks have a process at all.

If the banks did have a process it would go something like this: Step 1-Fax all the paperwork to the bank; Step 2-Call the bank (they did not receive the fax); Repeat steps 1 and 2 until the bank acknowledges receipt. This usually takes one to two months; Step 3-Call to check the progress (this takes another one to two months); Step 4-Phase 1 Negotiator assigned (re-send all the information you sent in step 1); Step 5-Broker Price Opinion ordered by negotiator; Step 6-File sent to Phase 2 Negotiator (re-send all the information you sent in Step 1 and Step 4); Step 7-Phase 3 Negotiator assigned. At this point the actual transaction could be approved or the negotiator will want to negotiate the sales price, the Realtor's commission, and the release of hostages to this process. Add a second mortgage or home equity line of credit to this situation, and things take even longer and become more difficult to resolve. Currently in Orlando there are 5,100 pending transactions going through this "process" with another 5,400 active short sales waiting in the wings.

Orlando Real Estate, David Welch Real Estate Optimist

Check out Mary Shanklin's article in the Orlando Sentinel today, and see my quote at the bottom. Like the article states there are a number of possible causes for the slow down. Of course, if you read my last quote, I am holding out hope that we are really turning the corner on this trend. The three hardest hit states were also areas where the most speculative buying was taking place. The foreclosures I was seeing a year or two ago were frequently new or nearly new homes in fantastic condition. Investors were the first to just walk away from these properties, because they had little invested in them. Like the gentleman in Clermont in the article, most real home owners have struggled to hold on, but real estate crash has also taken its toll on the economy. This has made it difficult to impossible for many people to keep up. The second wave of foreclosures effected more families as ARM's adjusted and taxes soared. A lot of these properties suffered from more neglect as people let maintenance slip as they tried to hold on.

As all of this has played out over the last three years, prices have been on a continuous slide until about six months ago. Our median price in Orlando has been hovering around $130,000 since April. That is about half of the peak median price back in 2006. Also since April, new contracts have been piling up at better than 3,300 every month with over 3,800 written in September. If demand remains this strong, I do not expect to see prices drop any more. The price stability may also be having an impact on short sales and foreclosures. If you factor in the expected growth finally taking place in the economy and improvement in confidence, I believe we may be seeing a turnaround in the foreclosure trend. "Holy smokes!" I hope so.

Orlando Real Estate, David Welch Real Estate Optimist

Pricing properties these days is tricky, with all the short sales and bank owned homes on the market. When you factor in all the people that bought homes in 2005-2008 you can see how current prices can be tough to swallow. I do believe I have some good news for people who bought in 2003 and before. This week I sold two homes that were essentially priced where they were in 2003. Both homes were purchased in 2003, both were priced within $5,000 of their sales price in 2003 and both homes brought a lot of attention and contracts in a relatively short period of time. They were both in excellent condition and easy to show. One home was priced in the $170's and the other one was priced close to $300k. This supports my thoughts that there is strong demand out there for good homes that are easy to show and priced correctly.

If you purchased a home in 2003 or before, and need to sell, find out what homes in your neighborhood were selling for in 2003. Compare that with the most recent sales and see if my observations are correct. I am sure there will be areas of town where this will be off, and it will be impossible to apply this to new areas that were developed after 2003. I would love to hear some feedback from you though if you think this works in your neighborhood.

Orlando Real Estate, David Welch Real Estate Optimist