I've been hearing so many people out there, buyers and sellers alike, speculating that things will improve drastically as a result of what happens in November. Specifically I'm talking about the impending presidential election.
I believe, personally, that this is a lot of hogwash.
Now I, personally, live in an area, (the Chicago area specifically), that seems to have a tremendous liberal/Democrat bias. Obama is their boy and they all seem to believe that if he is annointed in November, that there will be a miraculous change to the real estate market on par with how Jesus changed water to wine.
I hate to break it to them, and everyone else who holds this belief but no matter who is elected be it Obama or McCain, the real estate market will not inherently change.
So many people hold the emotional belief that the Republicans are to blame for our current economic woes and that simply changing figureheads is going to "change" everything. But that is not the case. The congress has the Democratic majority and, with that, they could have easily and successfully changed politics in Washington over the last couple of years. They could have ended war funding and brought the troops home, they could have enacted stricter laws and penalties for the truly criminally misleading loans that have been written, (which is the REAL issue at hand here), and they have been impotent in effecting any change. In fact, overwhelmingly, they've towed the line for the current administration which, in my opinion, that whomever you vote for the outcome is likely to be the same. The two parties exist in theory as a dog and pony show but the course of the country has already been determined.
That said, if you look at the fundamental cause of the current crisis, you have to look not at the government per se, but at the banking industry. These guys are the real culprits and the blight that has been unleashed on the greater economy is a direct result of some really bad decisions.
The government, for all it's infinite wisdom, should have taken some larger precautionary steps long ago to avoid the fallout of what we're all dealing with today. Stricter regulation may have slowed the tremendous boom that the real estate market saw in the last 5 years or so, but it would have kept false growth in check. It would have curtailed a lot of speculation and it would have kept people from falling prey to loans they simply could not afford.
We should have seen this coming! It was exactly an environment like this where banks were making wildly speculative loans to unqualified borrowers, that threw Japan into a 10 year plus recession! TEN YEARS!!!
No matter what side of the political aisle you're on, I think there are plenty of people both Democrat and Republican who are unhappy with the present administration. But thinking a change in leadership will provide some sort of miracle relief to the current doldrums in the housing market is simply ludicruos.
What you need to look at and what matters statistically, is a very simple thing. If prices are moderating and interest rates remain low. If the negotiating power is in the buyer's hands and they are able to secure funding and a deal that places them in a positive situation: That means it is time to buy.
When rents outpace mortgages or on par with them, then it is a good time to buy, or in other words: If you live in an area where your mortgage would be equal to or less than your monthly rent then you should buy. Otherwise, it makes more sense to rent until a point of equalization is reached.
It's not rocket science. It isn't politics. It is simple economics.
It's more about how you manage your money than it is who you vote for.
Sunday, June 29, 2008
Friday, June 27, 2008
Hello::(hello)::is there anybody out there?
Hello buyers, sellers and everyone in between.
I've been off the blogosphere for a little bit here, licking my own wounds from the slumping market here in the Chicago area. I know I'm generally a pretty solid source of optimism, but the last couple of months have been nothing short of tragic.
Where have all my buyers gone?
Afraid I'm guessing and, it would seem, for pretty good reason. All of the economic indicators; the price of food, gas, and the essentials of life: All of it seems to be spiraling out of control in the worst possible way. To top it off, we've also seen a pretty steady delcine in both the prices of and the sales figures for both new home sales.
But wait...what's this? A glimmer of hope? A report that says there was a slight increase in existing home sales last month?!?
Well there very well might be a good reason for that and buyers, you need to be ready to get your heads out of the sand and prepare for buying opportunities because there will only be a small window.
Here's why:
It would appear that home values have been and will continue to fall albeit at a slower rate. This decline has lasted approximately 18 months and the "experts" predict we won't actually see a turn around for another 6-8 months. Here comes the "but-monkey"...BUT, it does appear that sometime between now and the first of the year, that the Federal Reserve will begin to raise interest rates to help stave off further devaluation of the sagging dollar.
What does this mean?
This means that now may be the perfect storm for buyers. The interest rates have stagnated for the moment and are holding steady. If you have good credit, particularly if you are a first time buyer with solid credit scores, it is an excellent time to get a loan at a very attractive interest rate. And, to top it off, with a glut of inventory out there it is possible to really negotiate some serious deals, particularly with people who are in a position where they have to move.
So buyers, get ready and get out there. This is the time to buy if you can because in a couple of years, when this slump is over, the sellers will have their revenge and anyone who buys in the next 6-12 months should be sitting pretty.
Sorry sellers!
Keep your chins up though, the buyers are out. You're going to have to be reasonable if you want to sell.
More soon.
Rick
I've been off the blogosphere for a little bit here, licking my own wounds from the slumping market here in the Chicago area. I know I'm generally a pretty solid source of optimism, but the last couple of months have been nothing short of tragic.
Where have all my buyers gone?
Afraid I'm guessing and, it would seem, for pretty good reason. All of the economic indicators; the price of food, gas, and the essentials of life: All of it seems to be spiraling out of control in the worst possible way. To top it off, we've also seen a pretty steady delcine in both the prices of and the sales figures for both new home sales.
But wait...what's this? A glimmer of hope? A report that says there was a slight increase in existing home sales last month?!?
Well there very well might be a good reason for that and buyers, you need to be ready to get your heads out of the sand and prepare for buying opportunities because there will only be a small window.
Here's why:
It would appear that home values have been and will continue to fall albeit at a slower rate. This decline has lasted approximately 18 months and the "experts" predict we won't actually see a turn around for another 6-8 months. Here comes the "but-monkey"...BUT, it does appear that sometime between now and the first of the year, that the Federal Reserve will begin to raise interest rates to help stave off further devaluation of the sagging dollar.
What does this mean?
This means that now may be the perfect storm for buyers. The interest rates have stagnated for the moment and are holding steady. If you have good credit, particularly if you are a first time buyer with solid credit scores, it is an excellent time to get a loan at a very attractive interest rate. And, to top it off, with a glut of inventory out there it is possible to really negotiate some serious deals, particularly with people who are in a position where they have to move.
So buyers, get ready and get out there. This is the time to buy if you can because in a couple of years, when this slump is over, the sellers will have their revenge and anyone who buys in the next 6-12 months should be sitting pretty.
Sorry sellers!
Keep your chins up though, the buyers are out. You're going to have to be reasonable if you want to sell.
More soon.
Rick
Monday, April 14, 2008
If you feel like you are drowning, I may be able to help!
For anyone out there who might be facing foreclosure in the Chicago area, I may be able to help you.
Right now, banks are doing everything they can to stop the bleeding and stop the foreclosure ratios. If you currently find yourself in a situation where you are "upside down," (ie you now owe more on your home than it is currently worth), have received a notice of Lis Pendis or notice of foreclosure, and want to weigh your options, (and you DO have options), please contact me.
I know it can be an overwhelming and traumatizing feeling. I can help simply, and clearly, clarify the path for you and help you towards making the best choices no matter how tough they may be.
If you are afraid about losing anything, you have nothing to lose by taking a few minutes to discuss your situation with me.
Rick
Right now, banks are doing everything they can to stop the bleeding and stop the foreclosure ratios. If you currently find yourself in a situation where you are "upside down," (ie you now owe more on your home than it is currently worth), have received a notice of Lis Pendis or notice of foreclosure, and want to weigh your options, (and you DO have options), please contact me.
I know it can be an overwhelming and traumatizing feeling. I can help simply, and clearly, clarify the path for you and help you towards making the best choices no matter how tough they may be.
If you are afraid about losing anything, you have nothing to lose by taking a few minutes to discuss your situation with me.
Rick
Wednesday, April 09, 2008
Options for serious buyers in a scary market.
I know it is incredibly confusing to wade through the information about the housing market. If you listen to the media, everything is gloom and doom. This has caused near panic among buyers and sellers alike across the United States. The market has been crippled by fear!Wake up America and don't be afraid! Yes there is plenty to be concerned about but, the bottom line is that we all need a place to live. At the end of the day we all need a place to go home, seek solace and shelter, house our families, and live out our lives.
There is no shame in hedging one's bets in the rental market right now; none at all. If, for whatever reason, you can't afford to buy, are credit restricted due to the new credit rules, or are simply concerned about buying a home that might not be worth what you paid for it in 6 months, your fears are legitimate.
On the other hand, if you aren't prevented from buying by credit; if you need to make a move, and if you are currently weighing the pros and cons of purchasing; I would urge you to read on.
1) Foreclosures: This is not as bad, (or as good for consumers), as it may sound. Foreclosures are up everywhere across the nation but, for the most part, have higher concentrations in some areas versus others. The factors are purely economic. The foreclosures in today’s market are mostly coming from situations where the buyer of the home bit off more than they could chew, (whether they overestimated their income, misunderstood an adjustable rate mortgage, or fell into the “sub prime” category). Many misrepresented or miscalculated their ability to pay a mortgage and were given the mortgage by the bank with little to no money down and little more than a handshake representation of their income.
Not smart.
When people hear about foreclosures, they often think that means they can get a “deal” on the home. Even in this market that isn’t necessarily the case. The banks will take losses, most definitely. They will also write off those losses and will, over time, weather the storm. Whether they market the home with an agent or through an auction, those commissions must also be factored in. In many cases, homes have lost value, (which is why the individuals who were foreclosed on walked away), which is where the “bargain” can come into play, but the banks aren’t going to give these homes away. Particularly if you are at an auction, there is generally a reserve price or, the minimum acceptable price that the bank will accept for the home. Auctions can have some hidden expenses for the buyers including the auction house’s fees which are, in many cases, passed along to the buyers directly at a cost of 7-10% or more of the final auction price. Say for example you are bidding on a home that was valued at the peak of the market at $1,000,000. Now it has been foreclosed upon and in an effort to recoup their expenses the bank has factored in a 25% loss on their side making the reserve price of the home $750,000 at auction. Now even if you are the only one to bid the reserve price, (you could very well be looking at higher competing bids), you then make this purchase and then have to pay 10% for the auction fee or an additional $75,000 making the total purchase $825k. This is still a relative bargain but, in most cases, these homes are being sold “as is, where is” and whatever needs to be fixed or updated will also become the buyer’s responsibility. This is where a perceived bargain might start to, in reality, be whittled down to very little. In a foreclosure or auction situation, as a buyer, you are looking to achieve an equity position. That is the goal. So back to the $1,000,000 house; if the entire neighborhood of million dollar homes is suddenly worth 10-20% less because of price corrections in the market, you can see how the price you pay for something at auction may not put you in the position you were hoping for at the end of the day.Foreclosures are certainly a problem in the current market, but remember, people who are facing foreclosure have many options at their disposal to stave off or delay the process. For one thing, people have up to 6 months to recover, (ie pay their back mortgages), after receiving the bank’s notice of intent to foreclose. This gives many people a window to save money or restructure themselves. Banks are also offering loan modifications to help cash strapped home owners prevent foreclosure. For the bank, the foreclosure process is long and expensive. The foreclosure courts are backed up which can also provide the person in default some breathing room simply because the court cannot keep up. In the current market, it can take the bank, in some extreme cases, a year or more to fully foreclose and even if a person is at the absolute end of their rope, they can always file for bankruptcy which can further delay the foreclosure process.The bottom line with foreclosures: they are not all they’re cracked up to be and, in many ways, the banks are at the disadvantage. With little to, sometimes, negative equity in the homes being foreclosed upon, the deals rarely live up to investor’s expectations.
2) The Short Sale: This is a good situation to look for if you are in the market for a home at this time. A short sale is, essentially, what a bank and a current homeowner agree to accept for a home, (provided both parties agree), in an attempt to jointly liquidate a property and mitigate losses both to the seller and to the bank. In many of these cases, the homeowner is behind on their payments, is willing to sell and vacate the property, and is in a negative equity situation, (where they basically owe more than the current value of the home). In this situation, the bank independently assesses the current value of the home versus what is owed, and then reviews all offers that may result from the homeowner’s efforts to sell the home. The downside is that the bank can take several weeks, (sometimes a month or more), to reach a decision or make a counter offer. This is partially because these departments are currently overwhelmed. So while a potential buyer needs to be patient, the possibility of getting a good deal is definitely there. The bank understands that they will be selling the property at a loss but taking a certain percentage loss up front helps them avoid the expense and time involved with formal foreclosure proceedings. This method is generally favored by the bank as a way to further mitigate losses.
I’ll give you an example:
Say there is an urban condo that, with parking, sold just a few short years ago for 455k. Now, given the current market conditions, the unit with the parking is worth 415k at the top end. The loss to the current owner is 40k in value. Now let’s say that the owner made this purchase with a 100% loan product. The owner has negative equity or negative amortization in the property and is now having trouble paying the mortgage on a home that is suddenly worth 40k less than they originally paid for it. This is a troubling situation for the bank and the owner. When the owner considers selling they feel like they can’t because their place is now worth so much less. This is when a smart owner who is in trouble contacts their lender directly and speaks to someone in loss mitigation. Every loan service company or lender has a loss mitigation department that is there, specifically, to handle issues with struggling homeowners. When someone from the department and the homeowner discuss their options, the idea of a short sale often comes up. In this scenario, the bank considers any offers on the property. The seller can generally employ any real estate agent they choose at customary fees, and the bank then, in considering the offer, considers all of the expenses and losses and then, if the offer is acceptable forgives the seller the shortage.For example, in the case above: Let’s say that an offer of 400k comes in. The bank has an estimated value of 415k, down from 455k the home was purchased for. Now the bank must decide if, in order to facilitate the sale of the home, they are willing to accept 400k, the loss of 55k plus any brokerage fees and fees associated with the sale, and essentially forgive the seller those funds to get the deal done.
In the current market, this is happening more than you might imagine and it is, very often, a win/win situation.
So what do you do in today’s market?
True things look very uncertain, but there are so many opportunities, particularly in the “short sale” market, that a patient buyer who has good qualifying credit and money down, can do pretty well. Every individual needs to consider their own situation carefully before deciding.
Bottom line: The real estate market, long term and as a whole, has a track record as a place to build wealth.
Fair warning: If you aren’t ready to look at any real estate purchase you make in this market as a long term, “buy and hold” investment, then it may make sense for you to continue renting.
On the other hand, if you are looking at a purchase in this market as a long term investment, (at least 5+ years), then this market may have a lot to offer you right now. With the Fed lowering rates to near historic lows, and pumping much needed cash into credit strained markets, if you qualify for a loan at today’s restrictions, the deals are yours to be had. As a qualified buyer, right now, you have an incredible amount of negotiating power.The optimal position is that of someone with good credit and assets, and no contingencies such as a current home to sell. If you are a buyer in this category, you wield an incredible amount of power in this market.
What if you have a home to sell?
Well, I’ll start by saying that “move up” opportunities are better than ever. The sticky wicket is selling that house you already have.
Stay tuned. I’ll be covering that very topic in an upcoming post.
No one can predict the future, but fear is not the answer!
Remember:
Amateurs built the Ark
The Titanic was built by “professionals”
There is no shame in hedging one's bets in the rental market right now; none at all. If, for whatever reason, you can't afford to buy, are credit restricted due to the new credit rules, or are simply concerned about buying a home that might not be worth what you paid for it in 6 months, your fears are legitimate.
On the other hand, if you aren't prevented from buying by credit; if you need to make a move, and if you are currently weighing the pros and cons of purchasing; I would urge you to read on.
1) Foreclosures: This is not as bad, (or as good for consumers), as it may sound. Foreclosures are up everywhere across the nation but, for the most part, have higher concentrations in some areas versus others. The factors are purely economic. The foreclosures in today’s market are mostly coming from situations where the buyer of the home bit off more than they could chew, (whether they overestimated their income, misunderstood an adjustable rate mortgage, or fell into the “sub prime” category). Many misrepresented or miscalculated their ability to pay a mortgage and were given the mortgage by the bank with little to no money down and little more than a handshake representation of their income.
Not smart.
When people hear about foreclosures, they often think that means they can get a “deal” on the home. Even in this market that isn’t necessarily the case. The banks will take losses, most definitely. They will also write off those losses and will, over time, weather the storm. Whether they market the home with an agent or through an auction, those commissions must also be factored in. In many cases, homes have lost value, (which is why the individuals who were foreclosed on walked away), which is where the “bargain” can come into play, but the banks aren’t going to give these homes away. Particularly if you are at an auction, there is generally a reserve price or, the minimum acceptable price that the bank will accept for the home. Auctions can have some hidden expenses for the buyers including the auction house’s fees which are, in many cases, passed along to the buyers directly at a cost of 7-10% or more of the final auction price. Say for example you are bidding on a home that was valued at the peak of the market at $1,000,000. Now it has been foreclosed upon and in an effort to recoup their expenses the bank has factored in a 25% loss on their side making the reserve price of the home $750,000 at auction. Now even if you are the only one to bid the reserve price, (you could very well be looking at higher competing bids), you then make this purchase and then have to pay 10% for the auction fee or an additional $75,000 making the total purchase $825k. This is still a relative bargain but, in most cases, these homes are being sold “as is, where is” and whatever needs to be fixed or updated will also become the buyer’s responsibility. This is where a perceived bargain might start to, in reality, be whittled down to very little. In a foreclosure or auction situation, as a buyer, you are looking to achieve an equity position. That is the goal. So back to the $1,000,000 house; if the entire neighborhood of million dollar homes is suddenly worth 10-20% less because of price corrections in the market, you can see how the price you pay for something at auction may not put you in the position you were hoping for at the end of the day.Foreclosures are certainly a problem in the current market, but remember, people who are facing foreclosure have many options at their disposal to stave off or delay the process. For one thing, people have up to 6 months to recover, (ie pay their back mortgages), after receiving the bank’s notice of intent to foreclose. This gives many people a window to save money or restructure themselves. Banks are also offering loan modifications to help cash strapped home owners prevent foreclosure. For the bank, the foreclosure process is long and expensive. The foreclosure courts are backed up which can also provide the person in default some breathing room simply because the court cannot keep up. In the current market, it can take the bank, in some extreme cases, a year or more to fully foreclose and even if a person is at the absolute end of their rope, they can always file for bankruptcy which can further delay the foreclosure process.The bottom line with foreclosures: they are not all they’re cracked up to be and, in many ways, the banks are at the disadvantage. With little to, sometimes, negative equity in the homes being foreclosed upon, the deals rarely live up to investor’s expectations.
2) The Short Sale: This is a good situation to look for if you are in the market for a home at this time. A short sale is, essentially, what a bank and a current homeowner agree to accept for a home, (provided both parties agree), in an attempt to jointly liquidate a property and mitigate losses both to the seller and to the bank. In many of these cases, the homeowner is behind on their payments, is willing to sell and vacate the property, and is in a negative equity situation, (where they basically owe more than the current value of the home). In this situation, the bank independently assesses the current value of the home versus what is owed, and then reviews all offers that may result from the homeowner’s efforts to sell the home. The downside is that the bank can take several weeks, (sometimes a month or more), to reach a decision or make a counter offer. This is partially because these departments are currently overwhelmed. So while a potential buyer needs to be patient, the possibility of getting a good deal is definitely there. The bank understands that they will be selling the property at a loss but taking a certain percentage loss up front helps them avoid the expense and time involved with formal foreclosure proceedings. This method is generally favored by the bank as a way to further mitigate losses.
I’ll give you an example:
Say there is an urban condo that, with parking, sold just a few short years ago for 455k. Now, given the current market conditions, the unit with the parking is worth 415k at the top end. The loss to the current owner is 40k in value. Now let’s say that the owner made this purchase with a 100% loan product. The owner has negative equity or negative amortization in the property and is now having trouble paying the mortgage on a home that is suddenly worth 40k less than they originally paid for it. This is a troubling situation for the bank and the owner. When the owner considers selling they feel like they can’t because their place is now worth so much less. This is when a smart owner who is in trouble contacts their lender directly and speaks to someone in loss mitigation. Every loan service company or lender has a loss mitigation department that is there, specifically, to handle issues with struggling homeowners. When someone from the department and the homeowner discuss their options, the idea of a short sale often comes up. In this scenario, the bank considers any offers on the property. The seller can generally employ any real estate agent they choose at customary fees, and the bank then, in considering the offer, considers all of the expenses and losses and then, if the offer is acceptable forgives the seller the shortage.For example, in the case above: Let’s say that an offer of 400k comes in. The bank has an estimated value of 415k, down from 455k the home was purchased for. Now the bank must decide if, in order to facilitate the sale of the home, they are willing to accept 400k, the loss of 55k plus any brokerage fees and fees associated with the sale, and essentially forgive the seller those funds to get the deal done.
In the current market, this is happening more than you might imagine and it is, very often, a win/win situation.
So what do you do in today’s market?
True things look very uncertain, but there are so many opportunities, particularly in the “short sale” market, that a patient buyer who has good qualifying credit and money down, can do pretty well. Every individual needs to consider their own situation carefully before deciding.
Bottom line: The real estate market, long term and as a whole, has a track record as a place to build wealth.
Fair warning: If you aren’t ready to look at any real estate purchase you make in this market as a long term, “buy and hold” investment, then it may make sense for you to continue renting.
On the other hand, if you are looking at a purchase in this market as a long term investment, (at least 5+ years), then this market may have a lot to offer you right now. With the Fed lowering rates to near historic lows, and pumping much needed cash into credit strained markets, if you qualify for a loan at today’s restrictions, the deals are yours to be had. As a qualified buyer, right now, you have an incredible amount of negotiating power.The optimal position is that of someone with good credit and assets, and no contingencies such as a current home to sell. If you are a buyer in this category, you wield an incredible amount of power in this market.
What if you have a home to sell?
Well, I’ll start by saying that “move up” opportunities are better than ever. The sticky wicket is selling that house you already have.
Stay tuned. I’ll be covering that very topic in an upcoming post.
No one can predict the future, but fear is not the answer!
Remember:
Amateurs built the Ark
The Titanic was built by “professionals”
Is the government REALLY doing anything to help?
So we've all seen that the housing market has been sliding backwards for some time now. As a real estate professional, I watch the market intently on a daily basis. As I saw this happening, I saw the Federal Reserve and the various houses of Congress get up and talk about how to deal with the "subprime" crisis. I would hear news of rate cuts and "stimulus" and would get excited thinking that, as we've seen in past years, some minor adjustments would be all it would take to get the housing economy back on track.
Sadly, that has not been the case. Now, although I am listening intently, I give these promises less and less sway as it pertains to the real estate busines. I have begun to see a lot of these moves on the part of our government to be disingenuous in so many ways. For example: the Fed put a cash influx of $300 billion, yet the consumers saw no relief. The Fed has made drastic and aggressive rate cuts yet we, as consumers and borrowers have seen no movement in rates on the consumer side and, in fact, have actually seen a tightening of credit and lending policies.
Certainly the banks are wary now that they are feeling the impact of their loose lending practices; practices which have significantly contributed to the current economic crisis. Of course banks want to ratchet up the lending standards a bit to stave off any future issues. The problem is that the correction has been too steep and the pendulum has swung too far in the opposite direction. Instead of moderating and moving to a more reasonable and logical set of standards for lending, what was once a flood of money to consumers has not eased to a trickle. But there is more to it; much more! In the background, behind the scenes, the banks are scrambling over the fallout of the loose lending practices of the last few years as homeowners who now owe more than they paid for the home, are simply walking away from their properties or are, in fact, waiting out the foreclosure process and living, essentially, for nothing. Banks are cutting their losses and attempting to avoid the financial disaster of putting more cases into the already clogged foreclosure courts, cases which cost the banks ridiculous amounts of money, and are mitigating these losses by accepting pittances over what is owed by a current borrower in order to "short sell" a home.
Case in point: In a case I worked on recently, a seller was over 50k upside down in value versus what he paid for the home. He had negative equity and the need to sell. Furthermore, the values in his particular situation, were still in flux and trending downward. He had borrowed on a 100% loan, so he had no money into the home and this loan was structured by two lenders where one lender held an 85% stake and the other a 15% stake, (these types of loans were common practice whereby borrowers were able to avoid the 20% equity stake necessary to avoid private mortgage insurance or PMI). In this case, the lender with the 85% stake had the power position and agreed to take a significantly lesser sum in order to get the loan off their books. They then gave the 15% lender a total of $1,000 for their troubles which the 15% lender accepted knowing full well they would get NOTHING if the property were to go into foreclosure.
So, behind the scenes, the banks are working hard to stop the bleeding. Or so it seems right?
Not necessarily because when the Fed is bailing out big firms like Bear Stearns, infusing 300 billion into the economy and lowering rates, all without any quid pro quos, this has amounted to nothing but a stealth bailout of all the banks. This hasn't benefitted main street, it has benefitted Wall Street!
So now that we know these steps haven't worked and, just last month it was announced that real estate sales are off by 21% this year alone and are down to lows not seen in 7 years, what's going to happen?
There are a lot of ideas flying around. On Monday, the Washington Post reported about this dismal failure:
http://www.washingtonpost.com/wpdyn/content/article/2008/04/06/AR2008040601727.html
This is about a proposed incentive program from congress that will give incentives to people who buy foreclosed properties. The writer of this article called this a "pro-foreclosure" article as it, basically, promotes foreclosure and doesn't address stopping the foreclosure issue.
Now if you're a buyer this could be a very beneficial windfall. You can get a good home, at a good price, and get a bit of a government incentive for doing so.
But if you are a homeowner who is being threatened with foreclosure, then it puts you in a much stickier situation, particularly if you want to stay in your home.
The banks are working with people. Their loss mitigation departments are completely overwhelmed but even when mortgages are reworked, that doesn't guarantee that the problems won't continue for these beleagered and cash strapped homeowners.
The answer: We may need to consider that there might come a time where all values need to be scrutinized and reassessed and, if necessary, the banks are going to have to lower the principle on these homes to reflect their actual valuations. After all, with so much of the homeowner's payments going to interest we all know how much money the bank makes on the sale of a home. If people think Realtors make too much on a home sale, look at what your bank makes over the life of your loan. It's sickening!
There needs to be fair credit, maybe even a credit revolt to inspire a movement toward a truly fair system of credit for consumers.
For now, we can only hope that if the government is going to get involved at all, they do the right thing.
Mr. Bernanke: No more rate reductions or influxes of cash to benefit these banks. It is time to institute a quid pro quo; a price for the bail out. That price? Make your rate cuts and your cash influxes contingent on these banks making loans and not just "A" paper loans, but fair loans across the spectrum.
THAT is what will spark the economy. Accountability for these huge financial institutions is the only thing that will truly keep them from hording the money you infuse in order to mitigate their losses and truly put the money into the greater economy where it will benefit the average American.
Richard Doty
Sadly, that has not been the case. Now, although I am listening intently, I give these promises less and less sway as it pertains to the real estate busines. I have begun to see a lot of these moves on the part of our government to be disingenuous in so many ways. For example: the Fed put a cash influx of $300 billion, yet the consumers saw no relief. The Fed has made drastic and aggressive rate cuts yet we, as consumers and borrowers have seen no movement in rates on the consumer side and, in fact, have actually seen a tightening of credit and lending policies.
Certainly the banks are wary now that they are feeling the impact of their loose lending practices; practices which have significantly contributed to the current economic crisis. Of course banks want to ratchet up the lending standards a bit to stave off any future issues. The problem is that the correction has been too steep and the pendulum has swung too far in the opposite direction. Instead of moderating and moving to a more reasonable and logical set of standards for lending, what was once a flood of money to consumers has not eased to a trickle. But there is more to it; much more! In the background, behind the scenes, the banks are scrambling over the fallout of the loose lending practices of the last few years as homeowners who now owe more than they paid for the home, are simply walking away from their properties or are, in fact, waiting out the foreclosure process and living, essentially, for nothing. Banks are cutting their losses and attempting to avoid the financial disaster of putting more cases into the already clogged foreclosure courts, cases which cost the banks ridiculous amounts of money, and are mitigating these losses by accepting pittances over what is owed by a current borrower in order to "short sell" a home.
Case in point: In a case I worked on recently, a seller was over 50k upside down in value versus what he paid for the home. He had negative equity and the need to sell. Furthermore, the values in his particular situation, were still in flux and trending downward. He had borrowed on a 100% loan, so he had no money into the home and this loan was structured by two lenders where one lender held an 85% stake and the other a 15% stake, (these types of loans were common practice whereby borrowers were able to avoid the 20% equity stake necessary to avoid private mortgage insurance or PMI). In this case, the lender with the 85% stake had the power position and agreed to take a significantly lesser sum in order to get the loan off their books. They then gave the 15% lender a total of $1,000 for their troubles which the 15% lender accepted knowing full well they would get NOTHING if the property were to go into foreclosure.
So, behind the scenes, the banks are working hard to stop the bleeding. Or so it seems right?
Not necessarily because when the Fed is bailing out big firms like Bear Stearns, infusing 300 billion into the economy and lowering rates, all without any quid pro quos, this has amounted to nothing but a stealth bailout of all the banks. This hasn't benefitted main street, it has benefitted Wall Street!
So now that we know these steps haven't worked and, just last month it was announced that real estate sales are off by 21% this year alone and are down to lows not seen in 7 years, what's going to happen?
There are a lot of ideas flying around. On Monday, the Washington Post reported about this dismal failure:
http://www.washingtonpost.com/wpdyn/content/article/2008/04/06/AR2008040601727.html
This is about a proposed incentive program from congress that will give incentives to people who buy foreclosed properties. The writer of this article called this a "pro-foreclosure" article as it, basically, promotes foreclosure and doesn't address stopping the foreclosure issue.
Now if you're a buyer this could be a very beneficial windfall. You can get a good home, at a good price, and get a bit of a government incentive for doing so.
But if you are a homeowner who is being threatened with foreclosure, then it puts you in a much stickier situation, particularly if you want to stay in your home.
The banks are working with people. Their loss mitigation departments are completely overwhelmed but even when mortgages are reworked, that doesn't guarantee that the problems won't continue for these beleagered and cash strapped homeowners.
The answer: We may need to consider that there might come a time where all values need to be scrutinized and reassessed and, if necessary, the banks are going to have to lower the principle on these homes to reflect their actual valuations. After all, with so much of the homeowner's payments going to interest we all know how much money the bank makes on the sale of a home. If people think Realtors make too much on a home sale, look at what your bank makes over the life of your loan. It's sickening!
There needs to be fair credit, maybe even a credit revolt to inspire a movement toward a truly fair system of credit for consumers.
For now, we can only hope that if the government is going to get involved at all, they do the right thing.
Mr. Bernanke: No more rate reductions or influxes of cash to benefit these banks. It is time to institute a quid pro quo; a price for the bail out. That price? Make your rate cuts and your cash influxes contingent on these banks making loans and not just "A" paper loans, but fair loans across the spectrum.
THAT is what will spark the economy. Accountability for these huge financial institutions is the only thing that will truly keep them from hording the money you infuse in order to mitigate their losses and truly put the money into the greater economy where it will benefit the average American.
Richard Doty
Thursday, March 27, 2008
Just In Case You Missed It!!!!!
http://rblandmark.com/main.asp?SectionID=1&SubSectionID=1&ArticleID=3502&TM=
57664.51
2/19/2008 10:00:00 PM
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Richard DotyBrookfield to be featured in national cable TV show
Brookfield will get some national TV exposure later this year, when HGTV broadcasts an episode of "House Hunters" that was filmed entirely in the village.
Some filming has already taken place, said Richard Doty, a Brookfield resident and real estate broker associate at Saffron Realty in Chicago.
According to Doty, who moved to Brookfield from Chicago six years ago, the connection with HGTV was something of a coincidence.
"It was a friend of a friend thing," said Doty, who spent a lot of time working in California for a previous employer. "Someone at [the show's production company] was looking for a Realtor, my name came up and the producer got in touch with me."
At the time, Doty had a young couple looking to buy a home in Chicago and the network gave the green light to go ahead with the shoot. At the last minute, however, the couple bailed.
But Doty also had a Chicago couple looking to make a move to the suburbs, specifically to his hometown of Brookfield. HGTV agreed to the change of plans and began working on the episode.
"House Hunters" typically features a couple looking to move to a specific area. With a budget in mind and a Realtor in tow, the couple is shown three homes to choose from and picks one at the end of the show.
Doty said he wasn't allowed to discuss the homes or any details about the couple, citing a confidentiality agreement with HGTV. The filming won't wrap until later this spring, Doty said, with the show airing likely sometime this summer.
-Bob Uphues
57664.51
2/19/2008 10:00:00 PM
Email this article • Print this article
Richard DotyBrookfield to be featured in national cable TV show
Brookfield will get some national TV exposure later this year, when HGTV broadcasts an episode of "House Hunters" that was filmed entirely in the village.
Some filming has already taken place, said Richard Doty, a Brookfield resident and real estate broker associate at Saffron Realty in Chicago.
According to Doty, who moved to Brookfield from Chicago six years ago, the connection with HGTV was something of a coincidence.
"It was a friend of a friend thing," said Doty, who spent a lot of time working in California for a previous employer. "Someone at [the show's production company] was looking for a Realtor, my name came up and the producer got in touch with me."
At the time, Doty had a young couple looking to buy a home in Chicago and the network gave the green light to go ahead with the shoot. At the last minute, however, the couple bailed.
But Doty also had a Chicago couple looking to make a move to the suburbs, specifically to his hometown of Brookfield. HGTV agreed to the change of plans and began working on the episode.
"House Hunters" typically features a couple looking to move to a specific area. With a budget in mind and a Realtor in tow, the couple is shown three homes to choose from and picks one at the end of the show.
Doty said he wasn't allowed to discuss the homes or any details about the couple, citing a confidentiality agreement with HGTV. The filming won't wrap until later this spring, Doty said, with the show airing likely sometime this summer.
-Bob Uphues
Tuesday, March 18, 2008
Options for serious buyers in a scary housing market.
I know it is incredibly confusing to wade through the information about the housing market. If you listen to the media, everything is gloom and doom. This has caused near panic among buyers and sellers alike across the United States. The market has been crippled by fear!
Wake up America and don't be afraid! Yes there is plenty to be concerned about but, the bottom line is that we all need a place to live. At the end of the day we all need a place to go home, seek solace and shelter, house our families, and live out our lives. There is no shame in hedging one's bets in the rental market right now; none at all. If, for whatever reason, you can't afford to buy, are credit restricted due to the new credit rules, or are simply concerned about buying a home that might not be worth what you paid for it in 6 months, your fears are legitimate.
On the other hand, if you aren't prevented from buying by credit; if you need to make a move, and if you are currently weighing the pros and cons of purchasing; I would urge you to read on.
1) Foreclosures: This is not as bad, (or as good for consumers), as it may sound. Foreclosures are up everywhere across the nation but, for the most part, have higher concentrations in some areas versus others. The factors are purely economic. The foreclosures in today’s market are mostly coming from situations where the buyer of the home bit off more than they could chew, (whether they overestimated their income, misunderstood an adjustable rate mortgage, or fell into the “sub prime” category). Many misrepresented or miscalculated their ability to pay a mortgage and were given the mortgage by the bank with little to no money down and little more than a handshake representation of their income. Not smart. When people hear about foreclosures, they often think that means they can get a “deal” on the home. Even in this market that isn’t necessarily the case. The banks will take losses, most definitely. They will also write off those losses and will, over time, weather the storm. Whether they market the home with an agent or through an auction, those commissions must also be factored in. In many cases, homes have lost value, (which is why the individuals who were foreclosed on walked away), which is where the “bargain” can come into play, but the banks aren’t going to give these homes away. Particularly if you are at an auction, there is generally a reserve price or, the minimum acceptable price that the bank will accept for the home. Auctions can have some hidden expenses for the buyers including the auction house’s fees which are, in many cases, passed along to the buyers directly at a cost of 7-10% or more of the final auction price. Say for example you are bidding on a home that was valued at the peak of the market at $1,000,000. Now it has been foreclosed upon and in an effort to recoup their expenses the bank has factored in a 25% loss on their side making the reserve price of the home $750,000 at auction. Now even if you are the only one to bid the reserve price, (you could very well be looking at higher competing bids), you then make this purchase and then have to pay 10% for the auction fee or an additional $75,000 making the total purchase $825k. This is still a relative bargain but, in most cases, these homes are being sold “as is, where is” and whatever needs to be fixed or updated will also become the buyer’s responsibility. This is where a perceived bargain might start to, in reality, be whittled down to very little. In a foreclosure or auction situation, as a buyer, you are looking to achieve an equity position. That is the goal. So back to the $1,000,000 house; if the entire neighborhood of million dollar homes is suddenly worth 10-20% less because of price corrections in the market, you can see how the price you pay for something at auction may not put you in the position you were hoping for at the end of the day.
Foreclosures are certainly a problem in the current market, but remember, people who are facing foreclosure have many options at their disposal to stave off or delay the process. For one thing, people have up to 6 months to recover, (ie pay their back mortgages), after receiving the bank’s notice of intent to foreclose. This gives many people a window to save money or restructure themselves. Banks are also offering loan modifications to help cash strapped home owners prevent foreclosure. For the bank, the foreclosure process is long and expensive. The foreclosure courts are backed up which can also provide the person in default some breathing room simply because the court cannot keep up. In the current market, it can take the bank, in some extreme cases, a year or more to fully foreclose and even if a person is at the absolute end of their rope, they can always file for bankruptcy which can further delay the foreclosure process.
The bottom line with foreclosures: they are not all they’re cracked up to be and, in many ways, the banks are at the disadvantage. With little to, sometimes, negative equity in the homes being foreclosed upon, the deals rarely live up to investor’s expectations.
2) The Short Sale: This is a good situation to look for if you are in the market for a home at this time. A short sale is, essentially, what a bank and a current homeowner agree to accept for a home, (provided both parties agree), in an attempt to jointly liquidate a property and mitigate losses both to the seller and to the bank. In many of these cases, the homeowner is behind on their payments, is willing to sell and vacate the property, and is in a negative equity situation, (where they basically owe more than the current value of the home). In this situation, the bank independently assesses the current value of the home versus what is owed, and then reviews all offers that may result from the homeowner’s efforts to sell the home. The downside is that the bank can take several weeks, (sometimes a month or more), to reach a decision or make a counter offer. This is partially because these departments are currently overwhelmed. So while a potential buyer needs to be patient, the possibility of getting a good deal is definitely there. The bank understands that they will be selling the property at a loss but taking a certain percentage loss up front helps them avoid the expense and time involved with formal foreclosure proceedings. This method is generally favored by the bank as a way to further mitigate losses.
I’ll give you an example: Say there is an urban condo that, with parking, sold just a few short years ago for 455k. Now, given the current market conditions, the unit with the parking is worth 415k at the top end. The loss to the current owner is 40k in value. Now let’s say that the owner made this purchase with a 100% loan product. The owner has negative equity or negative amortization in the property and is now having trouble paying the mortgage on a home that is suddenly worth 40k less than they originally paid for it. This is a troubling situation for the bank and the owner. When the owner considers selling they feel like they can’t because their place is now worth so much less. This is when a smart owner who is in trouble contacts their lender directly and speaks to someone in loss mitigation. Every loan service company or lender has a loss mitigation department that is there, specifically, to handle issues with struggling homeowners. When someone from the department and the homeowner discuss their options, the idea of a short sale often comes up. In this scenario, the bank considers any offers on the property. The seller can generally employ any real estate agent they choose at customary fees, and the bank then, in considering the offer, considers all of the expenses and losses and then, if the offer is acceptable forgives the seller the shortage.
For example, in the case above: Let’s say that an offer of 400k comes in. The bank has an estimated value of 415k, down from 455k the home was purchased for. Now the bank must decide if, in order to facilitate the sale of the home, they are willing to accept 400k, the loss of 55k plus any brokerage fees and fees associated with the sale, and essentially forgive the seller those funds to get the deal done. In the current market, this is happening more than you might imagine and it is, very often, a win/win situation.
So what do you do in today’s market? True things look very uncertain, but there are so many opportunities, particularly in the “short sale” market, that a patient buyer who has good qualifying credit and money down, can do pretty well. Every individual needs to consider their own situation carefully before deciding.
Bottom line: The real estate market, long term and as a whole, has a track record as a place to build wealth.
Fair warning: If you aren’t ready to look at any real estate purchase you make in this market as a long term, “buy and hold” investment, then it may make sense for you to continue renting. On the other hand, if you are looking at a purchase in this market as a long term investment, (at least 5+ years), then this market may have a lot to offer you right now. With the Fed lowering rates to near historic lows, and pumping much needed cash into credit strained markets, if you qualify for a loan at today’s restrictions, the deals are yours to be had. As a qualified buyer, right now, you have an incredible amount of negotiating power.
The optimal position is that of someone with good credit and assets, and no contingencies such as a current home to sell. If you are a buyer in this category, you wield an incredible amount of power in this market.
What if you have a home to sell?
Well, I’ll start by saying that “move up” opportunities are better than ever. The sticky wicket is selling that house you already have.
Stay tuned. I’ll be covering that very topic in an upcoming post.
No one can predict the future, but fear is not the answer!
Remember:
Amateurs built the Ark
The Titanic was built by “professionals”
Wake up America and don't be afraid! Yes there is plenty to be concerned about but, the bottom line is that we all need a place to live. At the end of the day we all need a place to go home, seek solace and shelter, house our families, and live out our lives. There is no shame in hedging one's bets in the rental market right now; none at all. If, for whatever reason, you can't afford to buy, are credit restricted due to the new credit rules, or are simply concerned about buying a home that might not be worth what you paid for it in 6 months, your fears are legitimate.
On the other hand, if you aren't prevented from buying by credit; if you need to make a move, and if you are currently weighing the pros and cons of purchasing; I would urge you to read on.
1) Foreclosures: This is not as bad, (or as good for consumers), as it may sound. Foreclosures are up everywhere across the nation but, for the most part, have higher concentrations in some areas versus others. The factors are purely economic. The foreclosures in today’s market are mostly coming from situations where the buyer of the home bit off more than they could chew, (whether they overestimated their income, misunderstood an adjustable rate mortgage, or fell into the “sub prime” category). Many misrepresented or miscalculated their ability to pay a mortgage and were given the mortgage by the bank with little to no money down and little more than a handshake representation of their income. Not smart. When people hear about foreclosures, they often think that means they can get a “deal” on the home. Even in this market that isn’t necessarily the case. The banks will take losses, most definitely. They will also write off those losses and will, over time, weather the storm. Whether they market the home with an agent or through an auction, those commissions must also be factored in. In many cases, homes have lost value, (which is why the individuals who were foreclosed on walked away), which is where the “bargain” can come into play, but the banks aren’t going to give these homes away. Particularly if you are at an auction, there is generally a reserve price or, the minimum acceptable price that the bank will accept for the home. Auctions can have some hidden expenses for the buyers including the auction house’s fees which are, in many cases, passed along to the buyers directly at a cost of 7-10% or more of the final auction price. Say for example you are bidding on a home that was valued at the peak of the market at $1,000,000. Now it has been foreclosed upon and in an effort to recoup their expenses the bank has factored in a 25% loss on their side making the reserve price of the home $750,000 at auction. Now even if you are the only one to bid the reserve price, (you could very well be looking at higher competing bids), you then make this purchase and then have to pay 10% for the auction fee or an additional $75,000 making the total purchase $825k. This is still a relative bargain but, in most cases, these homes are being sold “as is, where is” and whatever needs to be fixed or updated will also become the buyer’s responsibility. This is where a perceived bargain might start to, in reality, be whittled down to very little. In a foreclosure or auction situation, as a buyer, you are looking to achieve an equity position. That is the goal. So back to the $1,000,000 house; if the entire neighborhood of million dollar homes is suddenly worth 10-20% less because of price corrections in the market, you can see how the price you pay for something at auction may not put you in the position you were hoping for at the end of the day.
Foreclosures are certainly a problem in the current market, but remember, people who are facing foreclosure have many options at their disposal to stave off or delay the process. For one thing, people have up to 6 months to recover, (ie pay their back mortgages), after receiving the bank’s notice of intent to foreclose. This gives many people a window to save money or restructure themselves. Banks are also offering loan modifications to help cash strapped home owners prevent foreclosure. For the bank, the foreclosure process is long and expensive. The foreclosure courts are backed up which can also provide the person in default some breathing room simply because the court cannot keep up. In the current market, it can take the bank, in some extreme cases, a year or more to fully foreclose and even if a person is at the absolute end of their rope, they can always file for bankruptcy which can further delay the foreclosure process.
The bottom line with foreclosures: they are not all they’re cracked up to be and, in many ways, the banks are at the disadvantage. With little to, sometimes, negative equity in the homes being foreclosed upon, the deals rarely live up to investor’s expectations.
2) The Short Sale: This is a good situation to look for if you are in the market for a home at this time. A short sale is, essentially, what a bank and a current homeowner agree to accept for a home, (provided both parties agree), in an attempt to jointly liquidate a property and mitigate losses both to the seller and to the bank. In many of these cases, the homeowner is behind on their payments, is willing to sell and vacate the property, and is in a negative equity situation, (where they basically owe more than the current value of the home). In this situation, the bank independently assesses the current value of the home versus what is owed, and then reviews all offers that may result from the homeowner’s efforts to sell the home. The downside is that the bank can take several weeks, (sometimes a month or more), to reach a decision or make a counter offer. This is partially because these departments are currently overwhelmed. So while a potential buyer needs to be patient, the possibility of getting a good deal is definitely there. The bank understands that they will be selling the property at a loss but taking a certain percentage loss up front helps them avoid the expense and time involved with formal foreclosure proceedings. This method is generally favored by the bank as a way to further mitigate losses.
I’ll give you an example: Say there is an urban condo that, with parking, sold just a few short years ago for 455k. Now, given the current market conditions, the unit with the parking is worth 415k at the top end. The loss to the current owner is 40k in value. Now let’s say that the owner made this purchase with a 100% loan product. The owner has negative equity or negative amortization in the property and is now having trouble paying the mortgage on a home that is suddenly worth 40k less than they originally paid for it. This is a troubling situation for the bank and the owner. When the owner considers selling they feel like they can’t because their place is now worth so much less. This is when a smart owner who is in trouble contacts their lender directly and speaks to someone in loss mitigation. Every loan service company or lender has a loss mitigation department that is there, specifically, to handle issues with struggling homeowners. When someone from the department and the homeowner discuss their options, the idea of a short sale often comes up. In this scenario, the bank considers any offers on the property. The seller can generally employ any real estate agent they choose at customary fees, and the bank then, in considering the offer, considers all of the expenses and losses and then, if the offer is acceptable forgives the seller the shortage.
For example, in the case above: Let’s say that an offer of 400k comes in. The bank has an estimated value of 415k, down from 455k the home was purchased for. Now the bank must decide if, in order to facilitate the sale of the home, they are willing to accept 400k, the loss of 55k plus any brokerage fees and fees associated with the sale, and essentially forgive the seller those funds to get the deal done. In the current market, this is happening more than you might imagine and it is, very often, a win/win situation.
So what do you do in today’s market? True things look very uncertain, but there are so many opportunities, particularly in the “short sale” market, that a patient buyer who has good qualifying credit and money down, can do pretty well. Every individual needs to consider their own situation carefully before deciding.
Bottom line: The real estate market, long term and as a whole, has a track record as a place to build wealth.
Fair warning: If you aren’t ready to look at any real estate purchase you make in this market as a long term, “buy and hold” investment, then it may make sense for you to continue renting. On the other hand, if you are looking at a purchase in this market as a long term investment, (at least 5+ years), then this market may have a lot to offer you right now. With the Fed lowering rates to near historic lows, and pumping much needed cash into credit strained markets, if you qualify for a loan at today’s restrictions, the deals are yours to be had. As a qualified buyer, right now, you have an incredible amount of negotiating power.
The optimal position is that of someone with good credit and assets, and no contingencies such as a current home to sell. If you are a buyer in this category, you wield an incredible amount of power in this market.
What if you have a home to sell?
Well, I’ll start by saying that “move up” opportunities are better than ever. The sticky wicket is selling that house you already have.
Stay tuned. I’ll be covering that very topic in an upcoming post.
No one can predict the future, but fear is not the answer!
Remember:
Amateurs built the Ark
The Titanic was built by “professionals”
Tuesday, January 29, 2008
Is this really the time to buy?
So many people have been asking me this question lately: Is this REALLY the time to buy real estate?
The answer is, overwhelmingly, YES! At least that's the case in the Chicago area, but I believe there hasn't been a universally better time to buy in a very long time.
There area a number of reasons for this and I think they can be broken down to a variety of key components:
1) Interest rates: Let's face it kids, you can't argue with the fact that the cost of borrowing money continues to get lower. For those of you who are planning on hanging tough in your current home, then this is the time to refinance into a fixed loan program and get out of any ARM or Option ARM product you might have. These recent rate cuts by the Federal Reserve are a gimme to you ARM holders out there so do yourselves a favor and refinance. For buyers there is a double decker goodness in the rate cuts because it dovetails directly into...
2) Moderating and receding home prices: OK so the rates are about what they were when they were at their best, BUT, the houses are actually going DOWN in value. This is a rare situation historically and the combination of low race and moderating home values is about the best opportunity many of you have had, particularly among first time buyers. Even if it takes another full year or more for us to pull out of the housing slump, buying now is not going to hurt you. As the market recovers, the FED is likely to raise rates and while prices slide up and rates slide up the opportunity to really get in low is not going to be there the way it is right now.
3) There are a lot of homes on the market for a variety of reasons: It isn't JUST because of foreclosures and bad mortgages that there are a lot of homes to choose from out there. It is, after all, the Spring market and that said, people are had planned to sell or move anyway are going to be putting their homes up for sale. It's part of a normal market environment. BECAUSE of the foreclosed properties, they may be forced to accept a lower price on their home. In this environment, no matter what your price point, you can afford to be picky and look for the home that has the MOST of what you are looking for. That's an added bonus to this current market.
4) The law of incremental percentage savings: What? What is he talking about? I'm glad you asked! I know there are many of you out there who are concerned about selling your homes and the fact that you might have to take a loss, but you recognize that you can now afford to move up to that larger home. We call people like yourselves, "move ups." As a move up, you are facing having to take a lower price for your current home but take heart, that's where the law of incremental percentage savings applies, (and yes, I made up this law). Here's an example of how it works:
Let's say your current home is 250k
Now let's say the home you want to upgrade to is 500k
In the previous "hot market" you would have been able to get your asking price, but so would the other party in the home you wanted to buy.
NOW, let's say both sides are going to have to back off their prices by 10%.
This means that your 250k home will now sell for 225k.
This ALSO means your "move up" home priced at 500k can now be purchased for 450k!
So although your "loss" on your home is 25k, your net gain on the purchase of your move up home is 25k even after your loss. This is the law of incremental percentage savings! The basic concept is the higher the price of the home, the higher incremental loss even if the relative percentage is the same!!!!!
Smart money has already figured this out and based on information I have from a variety of real estate attorneys, there are a large number of contracts on higher priced homes, or move ups, that also happen to have home sale contingencies, (meaning the people who are looking to do the move up often can only do so if they sell their current home).
You know what that means? First time buyers get your butts out there and start buying. The next 6 months will be full of opportunities to get homes cheaper than you've been able to for several years, at interest rates that are some of the most favorable in history.
5) Stock market investment: Again, you're probably saying, "what is he talking about?" but it isn't as crazy as it sounds. Here's why: I have a number of friends in the industry who, now that the banks and REITs, (real estate investment trusts), have taken a beating in the stock market, have been quietly buying stock in banks and REITs. Why? Their answers have been simple bits of genius. They have said that because of public perception and all of the negative media attention, these stocks have lost significant amounts of value but the value lost has been beyond realistic proportions. Sure there have been losses in banking and real estate, but my experts do not feel the actual losses justify the devaluation of these stocks.
Translation: There's still gas in the real estate tank and the current slump cannot and will not last forever. In fact, the statistics are firmly stacked against it.
My best advice:
If you have been thinking of buying, do it and do it now. Now is when there are more options, you can be choosy and hold out for a property that has as much of what you want and need in a home for your budget and when you find a place that matches your criteria, don't hesitate; go for it!
If you have been thinking of upgrading but have been concerned about the loss on your current home: Consider the law of incremental percentage savings and take the plunge.
If you are struggling: try to stay calm and stick it out. The market will improve and even if it doesn't improve quickly enough to keep you in your home, don't panic. Stay in contact with your bank, they may be able to help you before the federal government steps in, (which there is no guarantee of).
The market is certainly bumpy, but it isn't as scary as you think.
Rick
The answer is, overwhelmingly, YES! At least that's the case in the Chicago area, but I believe there hasn't been a universally better time to buy in a very long time.
There area a number of reasons for this and I think they can be broken down to a variety of key components:
1) Interest rates: Let's face it kids, you can't argue with the fact that the cost of borrowing money continues to get lower. For those of you who are planning on hanging tough in your current home, then this is the time to refinance into a fixed loan program and get out of any ARM or Option ARM product you might have. These recent rate cuts by the Federal Reserve are a gimme to you ARM holders out there so do yourselves a favor and refinance. For buyers there is a double decker goodness in the rate cuts because it dovetails directly into...
2) Moderating and receding home prices: OK so the rates are about what they were when they were at their best, BUT, the houses are actually going DOWN in value. This is a rare situation historically and the combination of low race and moderating home values is about the best opportunity many of you have had, particularly among first time buyers. Even if it takes another full year or more for us to pull out of the housing slump, buying now is not going to hurt you. As the market recovers, the FED is likely to raise rates and while prices slide up and rates slide up the opportunity to really get in low is not going to be there the way it is right now.
3) There are a lot of homes on the market for a variety of reasons: It isn't JUST because of foreclosures and bad mortgages that there are a lot of homes to choose from out there. It is, after all, the Spring market and that said, people are had planned to sell or move anyway are going to be putting their homes up for sale. It's part of a normal market environment. BECAUSE of the foreclosed properties, they may be forced to accept a lower price on their home. In this environment, no matter what your price point, you can afford to be picky and look for the home that has the MOST of what you are looking for. That's an added bonus to this current market.
4) The law of incremental percentage savings: What? What is he talking about? I'm glad you asked! I know there are many of you out there who are concerned about selling your homes and the fact that you might have to take a loss, but you recognize that you can now afford to move up to that larger home. We call people like yourselves, "move ups." As a move up, you are facing having to take a lower price for your current home but take heart, that's where the law of incremental percentage savings applies, (and yes, I made up this law). Here's an example of how it works:
Let's say your current home is 250k
Now let's say the home you want to upgrade to is 500k
In the previous "hot market" you would have been able to get your asking price, but so would the other party in the home you wanted to buy.
NOW, let's say both sides are going to have to back off their prices by 10%.
This means that your 250k home will now sell for 225k.
This ALSO means your "move up" home priced at 500k can now be purchased for 450k!
So although your "loss" on your home is 25k, your net gain on the purchase of your move up home is 25k even after your loss. This is the law of incremental percentage savings! The basic concept is the higher the price of the home, the higher incremental loss even if the relative percentage is the same!!!!!
Smart money has already figured this out and based on information I have from a variety of real estate attorneys, there are a large number of contracts on higher priced homes, or move ups, that also happen to have home sale contingencies, (meaning the people who are looking to do the move up often can only do so if they sell their current home).
You know what that means? First time buyers get your butts out there and start buying. The next 6 months will be full of opportunities to get homes cheaper than you've been able to for several years, at interest rates that are some of the most favorable in history.
5) Stock market investment: Again, you're probably saying, "what is he talking about?" but it isn't as crazy as it sounds. Here's why: I have a number of friends in the industry who, now that the banks and REITs, (real estate investment trusts), have taken a beating in the stock market, have been quietly buying stock in banks and REITs. Why? Their answers have been simple bits of genius. They have said that because of public perception and all of the negative media attention, these stocks have lost significant amounts of value but the value lost has been beyond realistic proportions. Sure there have been losses in banking and real estate, but my experts do not feel the actual losses justify the devaluation of these stocks.
Translation: There's still gas in the real estate tank and the current slump cannot and will not last forever. In fact, the statistics are firmly stacked against it.
My best advice:
If you have been thinking of buying, do it and do it now. Now is when there are more options, you can be choosy and hold out for a property that has as much of what you want and need in a home for your budget and when you find a place that matches your criteria, don't hesitate; go for it!
If you have been thinking of upgrading but have been concerned about the loss on your current home: Consider the law of incremental percentage savings and take the plunge.
If you are struggling: try to stay calm and stick it out. The market will improve and even if it doesn't improve quickly enough to keep you in your home, don't panic. Stay in contact with your bank, they may be able to help you before the federal government steps in, (which there is no guarantee of).
The market is certainly bumpy, but it isn't as scary as you think.
Rick
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