Archive for September, 2013

Returning to normal? Some say ‘yes’

Tuesday, September 24th, 2013

When you look back over the past 100 years, the real estate market statistics show what is normal. Here are a few items that occurred over the past five years that were not normal:

1. Foreclosed properties make up to 33% of all sales. Not normal

2. Investors paying cash make up 33% of all sales. Not normal

3. Federal Reserve buying trillions of dollars of mortgage backed securities to keep mortgage rates low. Not normal

4. House prices declining over 10% (20-30% in many areas). Not normal

5. Mortgage refinancing making up over 50% of all mortgage applications. Not normal

6. Home ownership percent dropping five straight years. Not normal

Here are the latest trends on why ‘normal’ is coming back. Foreclosed sales are now below 15% of all sales and new foreclosed properties are at a five year  low. Investors paying cash have backed off now the house prices have jumped 10-20% in the past year. The Federal Reserve is about to taper back it’s purchases, many are surprised they haven’t started yet. Home prices have jumped in the past year, but the increases are starting to slow down. 3rd quarter mortgage volume is down 40% with refinancing all but dried up. Rents continue to rise and those renters will soon decide home ownership is a better value.

Appraisers are just like economists

Thursday, September 19th, 2013

Based on the facts, you make an educated guess, we call this your opinion. If you are an appraiser or economist, your opinion matters. Things happen or don’t happen based on your opinion. You have a house that you want to sell. To come up with an asking price you could hire ten different appraisers. Guess what, they all look at the same facts, yet they all come up with a different conclusion. Once your property sells, hopefully the appraiser picked by the mortgage company appraises your property at the sale price or higher. We have seen many appraisals come in below sale price. When this happens you have a big problem and need to renegotiate your purchase agreement. One of three things will happen; either the seller lowers the sale price or the buyer brings more cash to closing or the deal falls through. I have seen all three  scenario’s happen this year.

Now economist do the same thing. You could hire ten different economist to predict interest rates. They all look at the same facts, yet they all come up with a different conclusion. Ben Bernanke is an economist and his opinion is that interest rates need to remain low. Many other economists disagree. Mr. Bernanke is like the appraiser picked by the mortgage company, but he was picked by the President of the United States to be Chaiman of the Federal Reserve. So what he says goes. With his decision yesterday to keep rates low, buyers have a window of opportunity to lock in mortgage rates at attractive levels. This window will close when Mr. Bernanke changes his opinion.

do you know what ‘QE Taper’ means?

Wednesday, September 18th, 2013

Latest survey shows 75% of the people do not. We want our FSBO buyers and sellers to not only save on commissions, but understand and have knowledge of all elements involved in buying and selling. Knowledgeable buyers and sellers have smoother transactions. Knowing when to buy or sell, what to buy or sell, how to finance or refinance, etc. So for those of you that are in the 75% group, here is a quick tutorial:

It starts with the Federal Reserve, commonly referred to as the ‘Fed’. The Fed is the central banking sysem of the United States, founded in 1913. The Fed has a Monetary Policy, which is to maximize employment, stable prices, and moderate long-term interest rates. Monetary Policy is different than Fiscal Policy, which refers to taxation and government spending. The Fed does this through controlling interest rates and total supply of money. To drive down interest rates and to encourage borrowing, which leads to spending, the Fed started a new program in Nov. 2008 of buying $600 billion of mortgage backed securities. This came to be known as Quantitative easing, or QE. Since 2008 the Fed has purchased over $3 trillion dollars of mortgage backed securities and treasuries in an effort to reduce interest rates. The amount each month being purchased has been $85 billion.  Well, it worked. The rate on a 30 year mortgage has dropped from 6% to just below 3%. So now what happens. The Fed can not keep buying $85 billion each month, so at some point they will reduce or halt the buying. Most economists believe the amount will be reduced slowly each month. This slowing of the purchases has come to be known as the ‘Taper’. The QE Taper means the Fed will slow down it’s purchases, which will have a reserve effect on interest rates. In the past few months we have seen the 30 year mortgage rate go from 3% to 4.5%. This is in anticipation of the Taper.

So, why do you need to know all of this. If you are a seller, the lower the rate of interest, the more house a buyer can afford and in theory you should get more for your property. If the Taper starts and rates go up, less buyers will be able to afford your property. For buyers, the lower the rate of interest, the lower your payment and the more house you can afford.

Pricing your property for sale

Friday, September 13th, 2013

Pricing your real estate properly is one of the toughest decision you need to make once you have decided to sell. You want the most possible, but you want to get it sold quick. Here are some different ways to price real estate:

1. Replacement value:  Insurance companies use this method when selling home owner insurance policies. They have the experience and rebuilding property is what they do.  What would it cost to duplicate your property? Buy a vacant lot, pay for permits & utility hookups, buy the material and pay the workers. Look at your current policy and see what they value your property at. Keep in mind this is the brand new value. Once you have this number, you need to deduct for depreciation of the roof, paint, flooring, appliances, etc. Plus if your property is over ten years old, styles have changed and your style may not be what buyers want.

2, Income value: Commercial, rental and Multi-family properties use this method. Based on current rent, what is the return on investment determines the value. My friend owned a couple of beach front vacation condos. Over the years he kept telling me the value of his condo just keeps going up. I asked about the rents going up. His response: ” no, rental rates have remained the same for the past five years”. Well, if rents aren’t going up, the value going up does not make a lot of sense. Eventually, he did see the value drop.

3. Comparable property analysis: Banks/Mortgage companies use this method for value of residential real estate. Whether it’s a 3% down FHA mortgage or a 20% down conventional mortgage, the Bank/mortgage company is putting up most of the money. They do this for a living and they want to make sure the value is there. A professional Appraiser is hired to use this method and come up with an appraised value. The appraiser compares your property to similar properties in your area that have Sold or are For Sale. recommends you have something is writing to prove the sale price you are asking. The buyer will want to see this. If you don’t have something in writing, the buyer will get his own and it will probably be much lower then you were asking. Here are a few places to get this: Home Valuation, hire a local appraiser, ask an agent for a CMA,, or do your own research.

FSBO forecasts for 2014

Wednesday, September 11th, 2013

This year we have seen a nice rebound in the real estate market. Sellers are happy to see their values bounce back. Buyers are happy with low interest rates. Banks are happy with less foreclosures. The Federal Govt is happy that FNMA & Freddie Mac have turned in large profits. So what does this all mean for next year. Here is our forecast:

1. Mortgage interest rates will keep rising. Hitting 5% for a 30 year mortgage.

2. Home values will continue to increase, but still not back to their peaks.

3. Rents will increase to all time high.

4. The Federal Govt will keep reducing it’s role in the mortgage market. New mortgage rules by the Consumer Financial Protection Bureau will make it tougher to get a mortgage.

5. More sellers selling ‘by owner‘. With the help of the Internet, experienced home owners will save the commission when selling.

6. China will make a comeback, buying building material & commodities, pushing cost of building a new home higher.

7. Europe will make a comeback, improving their credit quality, with investors taking their money out of US Treasuries and buying Euro bonds. This creates higher interest rates in the US.

8. The Federal Reserve will reduce it’s 85 billion dollar a month purchasing of US Treasuries/mortgages and put pressure on interest rates going up.

9. Those that bought homes in 2012 & 2013 at lower prices and locked in low interest rates will be glad they did.