David Welch

I was called by Mary Shanklin from the Sentinel to comment on this piece, but I have been sick for the last few days, and not so quick to return calls and e-mails. http://www.orlandosentinel.com/business/orl-bk-home-resales-florida-092409,0,6291593.story Mary, thank you for calling, and I apologize for not getting back to you in a timely manner. Please keep me in mind in the future. While Orlando's median prices are lower than the state average, I believe that was actually typical prior to the 2005 boom and bust. As far as the lower condo prices in Orlando are concerned, you have to keep in mind that the other big condo markets around the state are on the coast. We don't have any ocean front or gulf front condos to pull our condo prices up.

My only other comments I have to share involve the impact of distressed properties on our market. There are over 5,000 active short sales and more than 4,000 pending short sales listed by Orlando Realtors in our MLS. These make up roughly a third of our active inventory and half of our pending inventory of homes. That is definitely having an impact on our marketplace right now. Fewer than 10% of the pending short sales have been closing each month though as banks continue to show no discernable method to their short sale approval process. Bank owned properties also have had a big impact on our market, although making up a much smaller percentage of the active and pending listings. REO's are making up a considerable percentage of our actual closed sales. About one in thirteeen active listings is bank owned, one in eight pending sales belong to the banks and about one in three of the closed sales is an REO property. If the banks could get things approved and closed we would be seeing huge sales each month. As it is, our sales are running almost 50% better than last year. That is not a bad start.

Orlando Real Estate, David Welch Real Estate Optimist

Two factors have had a huge impact on the affordability of Orlando real estate. First, prices have dropped 36% since last year. This is a result of several changes in our market. The proliferation of short sales and bank owned properties has driven prices down in many neighborhoods. In fact, no area is immune to the effects of distressed properties. Some areas have fared better than others, but all have seen significant decreases in values. Who is buying has had a big impact on our market as well. First time home buyers and investors make up a large contingent of the market place. Consequently, lower priced properties are selling better than higher priced "move up" homes. The financing policies toward condos crushed values on condos which caused a flood of investors to swoop in and pick up units at ridiculously low prices. The first time home buyer tax credit has helped get some people off the fence about purchasing their first home. Since many of these properties are distressed sales, there is no owner looking to move up, just an empty property getting a new owner.

The other factor having a huge impact on affordability is interest rates. While prices are likely to remain at a lower level and will probably rise more slowly, interest rates can move in bigger swings. The Fed is scheduled to end a very aggressive purchase of mortgage backed securities at the end of this year. If we begin to see inflation creeping back into the picture they may have to revisit their rate policies as well. The ending of the purchase of the securities could have an immediate impact on mortgage rates, and availability of mortgage funds altogether. The Mortgage Bankers Association reported a big increase in mortgage applications this week. In that report they noted that interest rates were not at their low, but had dropped below 5% to 4.97% that is down from 6.08% a year ago. That difference saves the median home purchaser here in Orlando nearly $90 per month on their mortgage payment.

When you combine the drop in values and the lower interest rate, the median home purchaser today is paying $525 less per month on principle and interest than the median home purchaser from a year ago. They are probably paying even less than that because the drop in values has driven property tax values down too. I am estimating the tax savings is in the neighborhood of another $100 per month savings. Today's buyer is paying about half of what someone would have paid a year ago. If that is not an incentive to purchase, I don't know what is.

Orlando Real Estate, David Welch Real Estate Optimist

Just a quick update on the Orlando real estate market. Currently there are 16,295 active listings available through Orlando Realtors. REO's make up 1,266 of them and 5,124 are short sales. There are 8,731 pending sales stacked up with 1,725 REO's and 4,433 short sales. Almost 58% of the REO's, over 46% of short sales, but only about 21% of "normal" sales are under contract. It all comes down to price and price range. With roughly 50% of our sales coming under $130,000 and about 50% of the normal listings priced above $215,000 there is a disconnect in the market. The void between these two is being filled by bank owned and short sale properties. I am not saying that a home priced at $250,000 is over priced, but I am saying there is not much of a market for homes in that price range. Right now there are only 69 homes pending with a list price above $1,000,000. There are 242 pending with a price above $500,000 and 1,116 pending priced above $250,000. While that seems like a pretty good number in that price range there are about 5,400 active listings priced at $250,000 and higher. About one in six listings priced above $250,000 has a contract on it. That includes bank owned and short sales.

Closed sales this month are just about to break the 1,000 mark with 970 closed so far with a median sales price of $129,900. I believe this makes the sixth or seventh month in a row with a median price around $130,000. At this point, I think anyone would agree that we have bottomed out. We are into a typically slower time of year, but there is nothing typical about our market any more. It will be interesting to see what happens after the tax credit expires at the end of November. I am also curious to see the effect on mortgage rates and banks' willingness to approve short sales when The Fed stops purchasing mortgage backed securities at the end of the year. For right now, things are moving forward.

Orlando Real Estate, David Welch Real Estate Optimist

Yesterday I reported that there were 4,275 short sales pending in the MLS. I closed one yesterday, so there are only 4,274 left in the backlog. There is no real magic to getting a short sale closed. It is mostly a matter or persistence. The seller has to be willing and able to produce all their personal financial information for their bank, and keep it updated every 30 days for seven to eight months on average. The closing yesterday has been under contract for 6.5 months. It would have taken seven months to get closed, but the buyer had already pushed her lender to get the loan ready even before the short sale was approved. The brings me to the buyer side of the equation. Buyers considering a short sale need to be prepared for a very long wait with very little in the way of true updates on the progress. I have another short sale that took the bank over a month to even acknowledge they received the short sale package from me. Even though I received confirmation after confirmation that my faxes were going through, they denied ever receiving them. This addresses the other aspect of persistence as the listing agent. You must follow up early and often. It is very hard not to lose your cool when you are told for three months to call back next week, and a negotiator will be assigned to your file. You finally get a negotiator assigned, and they basically ask you to resubmit everything all over again. By the way you have 72 hours to comply with their request, so they can begin ignoring it as quickly as possible.

I apologize for the disgusted tone, but it is time for the banks to start getting their acts together on short sales. We still have 4,274 in Orlando and closing 300 a month is not cutting it. I guess I should not complain one of mine got closed yesterday. When The Fed stops picking up the mortgage backed securities, and Fannie and Freddie stop picking up the toxic assets this might force the banks to move a little faster.

Orlando Real Estate, David Welch Real Estate Optimist

In the immortal words of Jan Brady "short sales, short sales, short sales." Ok, Jan did not complain about short sales getting all the attention, but her older sister Marcia. I could categorize the different types of sales we are seeing these days using the Brady girls though. Let's start with Jan - she is definitely the normal sale stuck in between the all style and no substance Marcia "Short Sale", and the irresistable Cindy "Bank Owned". Jan as the "Normal Sale", is a little more solid or real. Like the normal sales she represents, Jan is more firm like real owners are with their prices. Jan wants to be popular, but is not necessarily willing to concede (lower price) to popular fads. There is an underlying value to Jan, (sellers disclosure, history of the property) that you don't always get from Marcia (As-Is) and Cindy (As-Is Where Is). Marcia is all about appearances (too low price) and not as concerned with what is underneath (will it ever close). It is hard to overlook her though (great deal if you can put up with the bank). Hopefully, in the end she will be worth the wait. Cindy is just adorable (multiple offers), and everybody likes her (highest and best offer). She has that little lisp though (leaky roof?, mold?, missing A/C?) that might make you just a little uneasy. In the end all the Brady girls have their issues, but they are all so darn cute. You better ask one of them to the prom (buy a house) before it's too late.

Orlando Real Estate, David Welch Real Estate Optimist