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| Robert Melodys Real Estate Report For March 2010 |
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Articles and Advice |
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| 2010: year of the turnaround? By Dian Hymer A spurt in home sales in 2009, aided by low interest rates and the first-time homebuyer tax credit, has led some economists to forecast a turnaround in the housing market this year. Other forecasters feel this is too optimistic a projection. Among those who see improvement in the 2010 market is Lawrence Yun, chief economist for the NATIONAL ASSOCIATION OF REALTORS® (NAR). Yun hopes that the extension of the first-time homebuyer tax credit will provide a new pool of buyers to absorb the additional foreclosures that will hit the market this year. He expects existing-home sales to rise 13.6 percent in 2010; home prices should go up 3 to 5 percent, with wide geographic differences. The average rate on 30-year fixed mortgages will range from 5.3 percent in the first quarter to 5.8 percent by year end. This forecast assumes there will be no major economic surprises. The weak job market remains a concern. The Mortgage Bankers Association (MBA) has a slightly different take on the 2010 housing market. MBA predicts existing-home sales will increase approximately 11.2 percent. Interest rates should be about 5.6 percent by the end of 2010. The unemployment rate is expected to peak at 10.2 percent and gradually decline in 2011. National average home prices should stop sliding during the first part of the year and stabilize, depending on area and price range. The November 2009 Economic and Housing Market Outlook from Freddie Mac expects there will be an increase in foreclosures and short sales this year, even though foreclosures declined significantly in some of the worst foreclosure markets (like Las Vegas) at the end of last year. RealtyTrac reported that foreclosures nationwide decreased 8 percent in November 2009. Zillow.com, an online real estate marketplace, reported in December 2009 that stabilization and increased home prices were found in 48 of the 154 markets tracked. However, Zillow forecasts a decline in demand as interest rates rise. Foreclosures are expected to stay high and could challenge recent stabilization. Some economists think prices will continue to decline in some areas through this year. Others feel that at best, the economic and housing recovery will be a bumpy ride. And, we could bounce along the bottom for some time. Few expect home prices to rebound quickly. HOUSE HUNTING TIP: There will be significant variation from one market to the next. Areas that have a good diversified economic base and limited inventory of homes for sale could stabilize in 2010 and see an improvement in home prices. Areas that are bloated with foreclosure and short-sale inventory and have a weak local economy probably won't see a turnaround this year. Credit tightening would put a damper on the market. On Dec. 12, 2009, Fannie Mae took steps to make mortgage qualification more difficult. A significant change is that the maximum allowable debt-to-income ratio is being lowered to 45 percent from up to 64 percent. This means that the housing cost plus all other debt can't exceed 45 percent of the borrower's income. Buyers with strong credit and assets have a chance of approval with a debt-to-income ratio of 50 percent. 2010 is not expected to be a banner year for housing. But it could be a year of improvement for some niche markets and some price ranges. Expect to see more purchase offers made contingent on the sale of the buyers' home. Credit tightening has made it impossible for most buyers to qualify to own two homes at once. There will likely be an increase in short-sale listings. Buyers have shied away from these listings in the past because they took so long to process, and were often denied by the lender. Lenders are now more open to approving short sales than they were a year ago. THE CLOSING: Hopefully, they'll improve their performance in 2010. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Rate-lock dos and don'ts By Dian Hymer Interest rates dropped at the end of last year after creeping up over the summer, with 30-year fixed-rate mortgages with interest rates below 5 percent readily available. Mortgage interest rates change as often as two to three times in one day. Securing the lowest rate possible is every borrower's goal. However, it's impossible to time the finance market, just as it's impossible to predict exactly when the housing market will peak or slide. In this low-interest-rate environment, many buyers are locking in a rate, either when they submit their loan application and purchase contract, or some time before closing. A lock-in is a commitment from the lender to hold an interest rate for a period of time. Points (the lenders original fees) can also be locked. The length of the rate lock varies from seven days to 60 days and possibly longer. However, it's more expensive for a longer lock -- about 1/8 percent to 1/4 percent in rate or points for each additional 15 days. Today, it's wise to lock in your rate for 45 days if you lock when you submit your package. With delays due to appraisal issues and lenders asking for additional documentation, it can take this long to close the loan. There are advantages and disadvantages to locking in a rate. If rates fall after you lock, the lender probably won't give you the lower rate. If rates rise after you lock, the lender should honor the locked rate as long as you close on time. Some lenders offer a "float down." This would come into play if interest rates were to drop between the lock data and the date your loan documents are drawn. The lender probably won't let your locked rate float down to market rate, but to something in between. A float down is a one-time-only option. HOUSE HUNTING TIP: Because rate locks have an expiration date, it's essential to provide as much financial documentation needed to qualify you for the mortgage as soon as possible. This will speed up the approval process. Lenders require much more personal financial information than they did several years ago. Ask your loan agent or mortgage broker at the time you submit your loan application what personal financial data the lender will require -- like pay stubs and information supporting your cash downpayment and cash reserves (in bank accounts, IRAs and 401(k)s. If you're self-employed, you'll need to provide tax returns for the last two years. After your loan package is submitted to underwriting for approval, there could be other conditions that must be met. If you drag your feet producing additional documentation, this could delay approval and jeopardize your rate lock. Extensions of rate locks are sometimes granted, but don't count on it. If the delay is due to a slowdown in the lender's processing, the lender might agree to an extension, especially if interest rates haven't changed much. But, if the delay is due to your failure to provide the materials necessary to qualify you for the loan, don't expect a sympathetic ear. Try to get the lender's rate-lock commitment in writing. Some lenders will do so, but many give only verbal agreements, which are hard to enforce. Lenders often give processing priority to purchase loans over refinances. If you're refinancing and rates are low but threatening to rise, lock in for 45-60 days. Now is a great time to refinance not only because interest rates are low, but because there will be fewer home sales during the winter months and less competition to worry about in terms of getting the loan closed on time. THE CLOSING: Get a copy of the Federal Reserve Board's "A Consumer's Guide to Mortgage Lock-Ins" at http://www.federalreserve.gov/pubs/lockins/default.htm. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Home prices put to ZIP code test By Dian Hymer The wealth created by the housing bubble has been wiped out, according to Lawrence Yun, chief economist for the NATIONAL ASSOCIATION OF REALTORS®, who spoke at the group's annual conference in November 2009. Does this mean that if you bought your home in 2005 in an area that experienced rapid appreciation from 2004-2007, you'll lose money if you sell today? NAR tracks home-sale price trends nationally and by regions. Relying on national, regional, or even statewide home-sale price data to determine home values in a given micro market could lead to misleading conclusions. Norm Miller, director of the Real Estate Academic Program at the University of San Diego, analyzes several factors to determine the health of housing markets. During a presentation at the UC Berkeley Haas Business School Real Estate and Economics Symposium, Miller advocated a ZIP code analysis to get an accurate picture of the local market. A ZIP code approach can reveal that home-sale price trends in a given ZIP code could be higher or lower than what the widely used S&P/Case-Shiller Home Price Index indicates for the entire city. For example, the Case-Shiller index for Los Angeles in January 2009 was quite a bit lower than it was in Pacific Palisades, a high-demand district in Los Angeles. In addition to other factors, Miller looks at foreclosure sales (REOs) in an area. He believes that foreclosure sales need to be tracked separately from regular sales. The price discounts on REOs in relation to regular sales can run from 25 to 50 percent or more. An abundance of REOs have a big affect on local sale prices. A low number of REOs will have very little, if any, price impact. Although Miller's approach to assessing current home values and where they might be headed is more informative than broader indices currently used, a ZIP code analysis may not be narrow enough to give an accurate picture of a niche market where you are considering buying or selling. It wouldn't work well for large cities like Oakland or San Francisco, where there is significant price variability between neighborhoods and within price ranges. There are micro markets within ZIP codes. HOUSE HUNTING TIP: To obtain an accurate micro-market assessment on which to base a decision about buying or selling at a point in time, you need to find out the following information about home-sale activity in the local neighborhood: • Look at the sales of listings that are similar to one you'd consider buying or selling that closed within the last three months. Did the listings sell close to the asking price or were they discounted? How long did they take to sell? How much inventory is there on the market now? Is the market dominated by REOs and short sales? Your real estate agent can help you with this analysis. • You also need data on pending sales. These are listings that are under contract but have not yet closed. Were there multiple offers? Were they priced higher or lower than the sold listings? If lower, this indicates a declining market. • How much standing inventory of unsold homes is there in the area? More standing inventory gives buyers an advantage because they have a lot to choose from. They can afford to be picky, and they will negotiate for the lowest price possible. Low-inventory, high-demand markets tend to favor sellers, and may have a positive impact on home prices. THE CLOSING: Supply and demand of homes for sale in the area, along with the state of the local economy, have a profound effect on local home prices. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Double the escrow, double the pain By Benny Kass DEAR BENNY: I own a house worth approximately $400,000. The current mortgage is $25,000. A company in Florida took over the mortgage about six months ago. The mortgage company handles the tax and insurance payments through an escrow account. Given the current schedule of payments, the account will have a positive balance all next year. The mortgage company now wants to double the escrow payments. What, short of paying off the mortgage, are my options? Can the mortgage company legally demand such payments? I have owned a number of homes, vacation homes, and rental homes over the years and never experienced anything this outrageous. --John DEAR JOHN: Lenders throughout this country usually demand that their borrowers pay money monthly into escrow so that the lender will pay the annual (or semi-annual) real estate tax and the home insurance. Most lenders are conscientious about making timely payments out of the escrow funds. But over the years, many of my clients have encountered such problems as nonpayment or late payment. I have never liked the concept of escrow for taxes and insurance. As far as I am concerned, it is basically a means of giving the lender some extra dollars. Many years ago, when Congress learned of the many abuses involved with real estate, it enacted the Real Estate Settlement Procedures Act -- commonly known as RESPA. One aspect of RESPA deals with these escrow accounts. Under the law, unless local law requires otherwise, a lender has the right to require a borrower to deposit into an escrow account for property taxes and insurance a sum not to exceed the amount of these actual charges, plus one-sixth of the estimated total amount of these taxes or insurance premiums. In other words, the lender cannot require more than approximately two months of escrow payments. Do your calculations. If the required escrow exceeds the limits described above, contact the lender to complain. If that does not work, you should file a formal complaint with your state's attorney general or banking commission. You should also file a complaint with the Federal Trade Commission, the U.S. Dept. of Housing and Urban Development (HUD), and if the financial institution is a national bank, with the Office of the Comptroller of the Currency. DEAR BENNY: My six-unit condominium (with three owners renting their units) is attempting to change our bylaws to prevent any other owners from renting. It has something to do with FHA not approving loans for condo buildings with more than 50 percent rental units. This gives these owners (one of whom plans to sell) a virtual monopoly! My question: Can bylaws be changed to affect owners who have purchased units under the current bylaws -- ergo, we would never be able to rent our units? I am 81 and would like to rent out my home if I should need to go to a nursing home or assisted living. With no income from my home, this would be impossible. Or, on my death, I wish my daughter to have the option of renting out the unit if she cannot move here. Do I understand correctly that the bylaws cannot be changed to affect current owners of the units? --Lois DEAR LOIS: Unfortunately, bylaws can be changed. You are correct that the legal documents in a condominium (declaration and bylaws) are carved in stone. This means that the board of directors (or a small minority of owners) cannot suddenly decide to change them. It takes a supermajority of all owners (usually based on their percentage ownership interest) to amend the legal documents. You (or your attorney) should read your bylaws carefully. Near the end of that document, you will find a section entitled "Amendments." (Sometimes the rules for amending documents will be found only in the declaration). The law is very clear. A condominium unit owner is legally bound by the existing documents when he or she first bought into the complex, and as those documents are legally amended from time to time. You are correct that FHA (as well as VA, Fannie Mae, and Freddie Mac) have lender requirements that no more than 50 percent of the owners can be investors (the percentage varies slightly between these various secondary mortgage organizations). However, your three investor-owners on their own will not be able to amend your bylaws. You should talk to the other two owners who live in your complex and try to convince them not to vote for the amendment. And if the investor-owners pursue the amendment anyway, have a lawyer review the process to determine if it was done legally. DEAR BENNY: I entered into a contract to buy a house built in 1908 that was refurbished by a local company that had partnered with a city redevelopment group to restore an old neighborhood. Shortly before closing, a title search showed that the house was still owned by the estate of the family who purchased the house back in 1908. We cannot buy the home. After paying for an inspection fee and an appraisal to get the loan, I am now out of pocket and feel the developer should reimburse me. Had they researched the title they would have found what I did and not done the renovation and put the house on the market. I have asked for reimbursement of the money I paid out, but am getting the runaround. Is this a reasonable request? --Brit DEAR BRIT: It is more than reasonable. Have you discussed this with a lawyer? Is there any way that the purchase can be salvaged? Perhaps the estate will be happy to sell the house to you -- although the estate should get the sales proceeds and not the developer. Assuming that you have a valid contract, you have the right to sue the "seller" for breach of that contract. Depending on the laws in your state, you may be entitled not only to be reimbursed for your out-of-pocket expenses, but for the loss of that house. For example, if you subsequently buy another house, which costs more than the other house -- or if you have to pay a higher rate of interest for your new mortgage -- these are damages that a court may give you in a lawsuit. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
| FHA program funds fixers By Dian Hymer Investors have been taking advantage of low interest rates and discounted prices to buy run-down foreclosure properties, sometimes 10 or so at a time. They fix up the properties enough to be rented until the market turns, which could take years. When the time is right, the investor puts the finishing touches on the improvements and hopefully sells for a profit. This can be a risky strategy for an inexperienced homebuyer. It's hard to compete with investors who make all-cash offers. Investors usually have a team of contractors who can do the fix-up work. If they're working on several properties at once within close proximity of one another, it's more economical than fixing up one property at a time. Financing the improvements to fix up a property in today's market is difficult. Construction financing is virtually nonexistent. Most conventional financing requires a 20 percent cash down payment. Before the subprime mortgage meltdown, fixer buyers often used a home equity line of credit (HELOC) to finance improvements. Today, you would need to have enough equity in the property to tap this kind of money. For instance, if you made a down payment equal to 50 percent of the market value, you might be able to find a lender that would give you a HELOC for up to 30 percent of the value. HOUSE HUNTING TIP: Another option that doesn't require a huge outlay of cash is to use the FHA 203K mortgage program that is designed specifically to provide financing for repairs and renovations to single-family residences. It is available only to owner-occupants, not investors. The maximum mortgage amount varies with location. It's currently $729,750 in high-cost areas like the San Francisco Bay Area. The program works like this: Suppose you buy an $800,000 home using your savings for the cash downpayment and a $729,750 loan from FHA. FHA 203K loans are available with as little at 3 to 5 percent cash down, plus some cash reserves to pay contractors' initial payments. The interest rate is a little higher than it is on a standard FHA loan. When you make your offer, be sure to include a 45-day financing contingency and a 60-day closing. The seller won't be happy with a 45-day financing contingency. However, if the listing has been on the market for some time with no offers, your chance of acceptance is good. After your offer is accepted, you and your real estate agent walk through the property and create a wish list of all the repairs and improvements you'd like to make. Then a contractor and FHA inspector preview the property and either approve or disapprove the items on your wish list. They might even add something to the list that they think needs to be done, like a new roof. Let's say the approved amount for rehab is $40,000. An appraisal is done giving two values: the property in its "as is" condition and the property after the improvements have been done. To get approval, the cost of the improvements ($40,000, in this case) plus the "as is" price can't exceed the appraised value of the property after the renovations are complete. After approval, the $40,000 for improvements is deposited into an escrow or trust account. Up to five releases can be made during the course of renovation. The work must start within 30 days of closing and be completed within six months. THE CLOSING: The FHA 203K program can also be used to refinance and finance renovations. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Get real with unrealistic sellers By Dian Hymer In some areas there is a shortage of desirable, well-priced listings. Sellers who don't need to sell now are waiting for a better market. Many sellers who would like to sell now have unrealistic expectations about what a buyer would be willing to pay for their home. If you like a listing that is overpriced for the market, one approach is to keep your eye on it and wait for a price reduction. The risk of this approach is that another buyer might come along and start a negotiation with the seller. It would be unfortunate if you were to find out later that the listing sold for a price that you would have been willing to pay. A better approach would be to start the negotiation process and hope to find a price that is mutually acceptable to both you and the seller. Be prepared for a protracted negotiation if the property is listed considerably over a fair market price. Recently, a pair of buyers made a very low offer on a listing that was priced a little higher than market price. The sellers wouldn't even respond to the buyers' initial offer. The buyers waited a week or so and offered a higher price, but one that was still unacceptable to the seller. Finally, after six weeks the buyers and sellers came to a mutually agreeable price and the sale closed. HOUSE HUNTING TIP: When you are dealing with an unrealistic seller, don't play all your cards at once. If you offer your best price initially, and it's quite a bit lower than the asking price, you have no room to move up pricewise. The purchase price isn't the only item to consider when negotiating. For example, if you don't need to take possession of the property right away, you might offer the seller the option to rent back after closing. This would be particularly attractive to sellers who can't get into their next home right away and would have to rent elsewhere for a while. In a case like this, consider not including this perk in your initial offer. You can add this benefit in future rounds of negation to sweeten your offer. For example, recently sellers of a home in the hills above Oakland, Calif., received an offer that didn't meet their expectations. It was a clean offer and not contingent on the sale of another property. The sellers wanted a higher price. The buyers were willing to accept a higher price but only if their offer was made contingent on the sale of their current home. The sellers, who were in contract to buy another house, decided to accept the offer with the lower price that was not contingent on the sale of the buyers' home. Presenting sellers with an either/or option can bring positive results. The closing date can be used as a bargaining chip. A seller who has already closed on another home and is now paying mortgages on two properties would benefit financially from a relatively short closing. If you have this flexibility, you might offer to close in 60 days or so, but agree to a shorter close in exchange for a price reduction. It's always a good idea to be preapproved by a lender before you make an offer. If you include a preapproval letter with your low-priced offer, at least the seller knows he is dealing with someone who is qualified to buy. THE CLOSING: It is a good idea to find out as much about the sellers' situation as possible so that you can tailor your offer and subsequent counteroffers to your best advantage. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Appraisal rules tangle with home values By Dian Hymer How much your home is worth depends on who's looking at it. Your home insurer will value your home in terms of the cost to rebuild it. A mortgage lender's appraiser will value your property in terms of the sale prices of similar homes in your neighborhood that sold recently. The property tax assessor may have a different set of criteria. Due to recent changes in the economy, the market value of your home could be considerably less than it was a few years ago. However, don't be too quick to ask your insurance carrier to drop the valuation on your homeowner's insurance. This would save you money but could leave you underinsured. Replacement cost and market value aren't necessarily the same. When home prices peaked in 2006, the market value of your home might have been much higher than the replacement cost value. Today, the sale price of your home could be a lot less than the cost to rebuild. Talk to your insurance agent about how much coverage you need. This will depend on the square footage of your home, upgrades and amenities, and the price per square foot to rebuild in your area. HOUSE HUNTING TIP: Most states levy property taxes, and the property tax structure and rate varies from state to state. In California, your initial property tax assessment is based on the purchase price. If you purchased your home in 2006, your property tax base could be higher than your home's current market value. In this case, you can appeal to the assessor's office for a reduction in your property taxes. The current appraised value of your home, or one you want to buy, may be lower than you expected due to changes brought about by the Fannie Mae Home Valuation Code of Conduct that took effect May 1, 2009. One of the major changes is that loan originators -- mortgage brokers and loan agents -- can no longer talk directly to the appraiser. This new restriction, while intended to be in the consumer's best interest by keeping loan originators from pressuring appraisers, is resulting in misleading valuations -- not in every case, but in enough cases to raise concern. Many loan originators now order arm's-length appraisals from third-party appraisal services. Some of the appraisers who work for these companies are hired to appraise properties outside their area of expertise. In one case, an out-of-area appraiser used a property in East Oakland, Calif., as a comparable for a home in Albany, Calif., a much pricier community located 15 miles away. Appraisers used to appraising homes in planned-unit developments where there is uniformity in the housing stock often have a hard time making sense of market value in areas with a lot of diversity. For example, some older neighborhoods were developed over several decades. Some homes have been remodeled and some not. House size can differ significantly. A 1,500-square-foot home could be next door to one with 2,400 or 3,000 square feet. Another negative repercussion of the new code of conduct is that there are more inexperienced appraisers doing appraisals. Many of the experienced appraisers, who have plenty of work, won't work for fees offered by the third-party appraisal companies, which may take a big chunk of the fee to run their companies. Homebuyers or homeowners trying to refinance who receive a low appraisal should ask to see the comparable sales used by the appraiser. Even though your mortgage originator can't talk to the appraiser, a homeowner or real estate agent can. THE CLOSING: Ask your real estate agent to provide you with recent comparable sales that closed within the last three months. Then, ask the appraiser to consider these. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Hot Links |
| Fair Oaks Chamber of Commerce http://www.fairoakschamber.com Nationwide Mortgage Protection Services http://www.nationwidemps.com Rancho Cordova Chamber of Commerce http://www.ranchocordova.org/ Rosemont Community Association http://www.rosemontca.org American River Parkway http://www.arpf.org |
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