Monday, December 7, 2009

How to make money in 2010 with Real Estate

Following three years of declining home prices, the end of the nationwide housing slump may be in sight. Home sales consistently have been rising, the surplus of houses is shrinking, and most economists believe home values nationwide will hit bottom in the second half of 2010—but not before declining an additional five to 10 percent. That’s good news for homeowners hoping to sell or rebuild lost equity.

  • Mortgage rates currently are below 5 percent, and should remain low for the next few months, partially due to the Federal Reserve’s ongoing purchase of mortgage-backed securities. However, if the economy quickly turns around and inflation fears resurface, rates could rise to as high as 6.5 percent, slowing demand and pushing down home values.

  • According to one analyst, the market will remain tilted in favor of buyers over the next year, but that power gradually will be reduced as conditions in the housing market continue to improve.

  • Buyers hoping to purchase or invest in a lower-priced, entry-level home should expect some competition from investors and other buyers. To remain competitive, buyers are advised to put down as much cash as possible, as many investors are offering to make all-cash deals. Another factor to keep in mind is that offers below listing price often are outbid by others.

  • Some home sellers are postponing listing their homes until the market recovers. However, timing the market is difficult, so homeowners thinking of selling should carefully weigh their options. Congress recently expanded the federal tax credit to include some existing homeowners, but they must close before June 30, 2010 to qualify. Although existing homeowners are not required to sell their current home to qualify for the credit, those who plan to rent out their current residences should be aware that many lenders require borrowers to show they are financially capable of paying two mortgages, or show rental income for at least six months. Discretionary sellers should discuss their options with a REALTOR® before making a decision.

Friday, December 4, 2009

What is my house really worth!

It often is difficult for homeowners to objectively value their homes, which often reflects their sense of personal style. However, by consulting with a REALTOR®, using online resources, investigating neighborhood trends, and soliciting the opinion of friends, homeowners can arrive at a reasonably accurate appraisal.


  • REALTORS® and real estate appraisers are the best sources of information on current market conditions. Consumers should begin the home valuation process by consulting with their REALTOR® or a local real estate appraiser. REALTORS® can provide homeowners with a list of homes that recently have sold in the area, and use that data to help determine the most accurate and competitive price for the home.

  • Homeowners also can contact their local tax assessor’s or county clerk’s office, many of which post real estate transactions on their Web site. The records will indicate what properties have recently sold in the neighborhood and the respective sales prices. Consumers should look for homes that have sold within the last six months for a more accurate picture of current market conditions.

  • Online sites such as and also provide free online home value estimators. Consumers should be aware though that these sites derive some of their information from public records, including tax appraisals, and are subject to error.

  • Some real estate experts recommend homeowners attend nearby open houses to see how their homes compare in size and amenities.

  • Consumers also can consult the Marshall & Swift Residential Cost Handbook, which professional appraisers use to assess the value of features such as fireplaces, three-car garages, and the like. The handbook costs $300 and is available in some business school libraries. An online site,, enables homeowners to conduct an item-by-item calculation of the value of the home. Online sites and books only should be used as guidelines though, and homeowners are advised to contact a real estate professional to help determine the current value of their home.

Wednesday, December 2, 2009

1 in 4 Borrowers are upside down on their loans!

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.

Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don't have any mortgage, according to the Census Bureau.

But negative equity "is an outstanding risk hanging over the mortgage market," said Mark Fleming, chief economist of First American Core Logic. "It lowers homeowners' mobility because they can't sell, even if they want to move to get a new job." Borrowers who owe more than 120% of their home's value, he said, were more likely to default.

Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," the study said.

Just months after showing signs of leveling off, the housing market has thrown off conflicting signals in recent weeks. Jittery home builders and bad weather led to a 10.6% drop in new home starts in October, and applications for home-purchase mortgages have dropped sharply in recent weeks.

These same falling prices have boosted home sales from the depressed levels of last year. The National Association of Realtors reported Monday that sales of previously occupied homes in October jumped 10.1% from September to a seasonally adjusted annual rate of 6.1 million, the highest since February 2007.

The bump in sales was ahead of forecasts, spurred by falling prices, low mortgage rates and a federal tax credits for buyers. Congress recently expanded and extended the tax credits.

The latest First American data aren't comparable to previous estimates because the company revised its methodology. First American now accounts for payments made by homeowners that reduce principal, and it no longer assumes that home-equity lines of credit have been completely drawn down.

The changes reduced the total number of borrowers under water -- although both old and new methodology show increases from the previous quarter. Using the old methodology, the portion of underwater borrowers would have increased to 33.8% in the third quarter.

Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.

More than 40% of borrowers who took out a mortgage in 2006 -- when home prices peaked -- are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home's value.

Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home's value.

Andrew Lunsford put 20% down when he bought his home in Las Vegas for $530,000 in 2004. Now, he said, his home was worth less than $300,000.

"I'm to the point where I feel I will never get my head above water," said Mr. Lunsford, a retired state trooper who works for an insurance company. He said his bank won't modify his loan because he can afford his payments, and he's unwilling to walk away, he said: "We're too honest."

Borrowers with negative equity are more likely to default if they live in a state where the bank can't pursue their assets in court, according to a study by the Federal Reserve Bank of Richmond.

But borrowers who are less than 20% under water are likely to maintain their mortgage if their loan is modified and the payments reduced, said Sanjiv Das, head of Citigroup's mortgage unit. "Beyond 120%, the most effective modification is a complete loan restructuring, including a principal reduction."

Mortgage companies have been reluctant to reduce mortgage principal over worries about "moral contagion, with people not paying their mortgage or redefaulting because they believed the bank would reduce their principal," Mr. Das said.

Many borrowers are so deeply under water that they can't take advantage of lower rates and refinance their mortgage. "We're declining hundreds of loans each month," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant."

Realtors reported that home sales in October were up 24% from a year earlier. The number of homes listed for sale nationwide was 3.57 million at the end of October, down 3.7% from a month earlier, the trade group said. But that inventory could rebound next year as banks acquire more homes through foreclosure.

About 7.5 million households were 30 days or more behind on their mortgage payments or in foreclosure at the end of September, according to the Mortgage Bankers Association. Many of those homes will be lost to foreclosure, adding to the supply of homes for sale.

A recovery could pay off for the roughly 30% of underwater borrowers who owe 110% or less of their home's value and are able to endure the slump. "Most people prefer to stay in their home" even if the value of their property has declined, said John Burns, a real-estate consultant based in Irvine, Calif.

Source: Wall Street Journal, Ruth Simon and James Hagerty (11/24/09)

Has the Market Hit Bottom Yet?

A combination of low interest rates, tax incentives, and declining numbers of foreclosures on the market have driven up home prices in many previously hard-hit areas, but some skeptics insist that this is just the calm before another storm.

"We're entering the phase where the home owner has to earn his way out of this mess," says Mark Hanson, a highly regarded independent real estate and finance sector analyst. "This summer is shaping up as the gateway into the next move down."

Hanson says there will be a “wall of foreclosures” once mortgage servicers are no longer preoccupied by new mortgage-modification guidelines. He blames unemployment for continuing defaults.

"It took 10 years to create this problem," says Hanson. "Do people really believe we can correct it all in 36 months?"

Source: Fortune, Colin Barrr (09/01/2009)