David Welch

Sales for August topped the 2,000 mark for the third month in a row, while inventory dropped to around 16,400. The median price also dropped a bit to $129,000 as bank owned properties continue to make up about 50% of the closed sales. I did receive an approval on one of my short sales in Baldwin Park, and I am beginning to think that we may start to see banks moving on the short sales by the end of the year. There are two reasons why I think the short sale market may begin to change. First, The Fed's plans for purchasing mortgage backed securities end at the the end of the year. Right now those purchases keep the mortgage market liquid and keep those bad loans off the banks books. I do not know what The Fed's plan is regarding the purchases they have already made, but at some point they should have to go back to the banks. Second, the Financial Accounting Standards Board (FASB) is looking at requiring banks to mark to the market the value of their loan portfolio, much like corporations have to do now with securities. If that goes through, banks would have to value their loan portfolios at the market. They would have to account for pre-foreclosures / short sales on their balance sheets and income statements as an unrecognized loss. At this point, the banks are pretty much not being held accountable for their bad loans, but with The Fed actions coming to an end and the FASB looking at requirements forcing banks to value their loans at the market everything could change.

Orlando Real Estate, David Welch Real Estate Optimist

If you are actively trying to purchase a home in Orlando, odds are you have heard the phrase "highest and best". This phrase is typically associated with bank owned properties and it goes hand in hand with multiple offers. Forget the negotiating and make your best offer right up front when there are other offers on the table. While the banks would prefer cash deals, someone that comes in significantly higher, but has to obtain financing, will beat out a cash deal. The banks are very bottom line oriented and generally not looking to negotiate price and terms when they have multiple offers. They will take the highest offer that has the best terms, and then they counter that offer with their standard addendum. Each bank is different, but the bank addendum essentially makes it clear that the sale is as-is and the bank is not going to repair anything. They also typically place a per diem penalty if the buyer's loan is not ready in time to close. An extension to the contract can get pricey with per diems running anywhere between $50 to $150 per day.

Make sure you do your homework ahead of time, so that you know the values in the neighborhood before you write your highest and best. There are still good deals out there even if you do end up paying the highest and best. I am just not so convinced there are many steals out there.

Orlando Real Estate, David Welch Real Estate Optimist

Another month has flown by, and sales continue to impress here in Orlando. So far 1,627 closed sales have been posted in the MLS with a median price of $130,000. That marks five months in a row with the median price hovering around $130,000. It is a little lower than July, but I am not concerned about monthly fluctuations. The other trend that is continuing is the decline in available inventory. As of this morning the number of homes available for sale through Orlando Realtors is down to 16,559 which is down about another 600 from last month. That will probably drop some more by tomorrow since typically a lot of listings drop off the market at the end of the month. The other trend that is still running is pending sales, now topping 8,300. Basically, a third of all our listings are under contract. In the last two weeks, I have written 10 contracts with several different buyers. More often than not, we have been beaten out by higher offers. The competition for well priced homes in good condition is pretty hot.

I like to break things down for the REO and short sale market too, but our MLS recently added a field to help identify these two types of listings and not everybody seems to be complying. Prior to this field being added I was counting more than 5,000 active short sales and more than 4,000 pending short sales. Now I have 4,719 active and 3,627 pending identified as short sales. Conversely, REO's were running closer to 900 and have jumped to 1,088. My take on these two situations is that many agents are still trying to hide the fact that their listing is a short sale, because most serious buyers are avoiding them. The REO agents frequently categorized their bank owned property as corporate owned under the former system categories. Using the new identifiers for short sales and bank owned properties, I found 1,512 pending REO's and 594 closed bank sales with a median price of $84,700. Once again the number of closed short sales was modest with 246 closing at a median price of $134,950. Combined short sales and bank owned account for 51.6% of all the closed sales, 61.8% of pending sales, but only 35% of active listings.

Orlando Real Estate, David Welch Real Estate Optimist

Our inventory of homes available for sale is down around 16,700 from 24,834 a year ago. That means there are roughly a third fewer homes on the market. A year ago that inventory represented at 19.4 month supply of homes, today's inventory accounts for about an 8 month supply. That is almost a 59% drop in the months supply of homes available for sale. Almost 3,700 new contracts were written last month, and the total number of contracts pending has risen to more than 8,000. Month after month we are seeing sales figures that are averaging about 45% higher than last year.

Three things have fueled this surge in demand for Orlando real estate. First, prices have dropped to ridiculously affordable levels. Our affordability index has gotten very close to 200 recently. That simply means that the median wage earner could nearly afford to purchase two median priced homes. Second, interest rates have been extremely attractive as The Fed has worked very hard to keep the money flowing. Third the first time home buyer tax credit has definitely encouraged a lot of people to get into the market sooner rather than later. The market is stabilizing now with prices holding for five months now around the $130,000 mark. Interest rates will probably hold steady through the end of the year as The Fed continues with their plan of purchasing mortgage backed securities. First time buyer demand will remain strong through the tax credit deadline of November 30th.

What happens next depends greatly upon job creation. I believe at this point most economists agree that the economy is probably beginning to expand again. I believe that most also agree that employers will hold off hiring until they have greater confidence in the expansion. After that, you have more positive views that hiring will begin in the first half of next year. The negative projections are usually the ones you hear or read in the press, suggest the latter half of next year is the earliest we might see any appreciable change in hiring. When it happens you will see home prices start to rise again. Interest rates will probably take a jump as soon as The Fed ends their buying program at the end of the year. Even though the tax credit is ending, demand may slow slightly. The inventory of homes will continue to drop, so supply and demand should reach a balance by the end of the year.

Orlando Real Estate, David Welch Real Estate Optimist

I wanted to share three experiences with REO's that I have had recently. First let me say that the number of REO's available for sale in Orlando is less than half what it was back in January. They come on the market every day, but they are selling as quickly, more so, than they are being listed. Here are three examples.

The leaky roof: This home had been on the market and under contract for some time when the prior deal fell apart due to financing. It was put back on the market on a Thursday evening. I showed it to my customer Friday afternoon, and there was another agent there when we were leaving. My customer told me to have a contract prepared, but to hold off on the price. He felt confident that he wanted to make an offer. He just did not know how much over the asking price he wanted to pay. After seeing the home, he decided to go $10,000 over the asking price with an escalation clause going up to $15,000 over the asking price. Before we looked at the home, I called the listing agent who told me she already had offers on the home. We rushed to get our submitted, but she had already submitted the others and the bank had countered one by the time our offer was in. When the bank saw ours they withdrew their counter offer to the first party and countered ours on Monday. Wednesday we were under contract, and the inspection was Friday. The home inspection turned up an active roof leak that was not visible in the home as well as several other places where leaks were imminent. There was also a leak in the home and a distinct possibility of mold. We cancelled the deal.

The unbelievable deal: A home came on the market that was not really what another customer was really looking for, but close enough. They had their minds set on a townhome for the convenience and maintenance free lifestyle. This was just too good to be true, so they decided to make an offer on a single family home in fantastic condition. There was a line of people to see the house the day it went on the market. When I ran the comps, there were two distress sales of $250,000 and $270,000 of inferior properties. There were also several more "normal" non-distress sales all over $300,000. Their preferred price range was really only up to $250,000, but for this house they offered $275,900; $35,000 more than the asking price. When I submitted it to the REO agent, he said that it was not even in the ball park.

Stiking out: I showed homes to another customer, and all the homes we saw were REO's. In some areas and price ranges, REO's and short sales just seem to be what you find. They loved one house, but when I called the agent they had just accepted another offer. They loved another one, and that agent said their was still time to get an offer in. They already had two, but neither had been accepted yet. We submitted an offer $20,000 over the asking price with a concession for buyer's closing costs. Almost a week later we finally were notified they have accepted another offer. Our offer put us pretty much in the middle of three other comparable sales of bank owned properties that recently sold, but the competition bid it up I guess.

Orlando Real Estate, David Welch Real Estate Optimist