Yes is the answer........but as with all parts of this market that does not mean it is easy to get one.
Riverside/San B Counties has one of the highest foreclosure rates in the USA this year, and this inventory must come to market at some point; the banks seem to be starting to release some of it slowly. Whether they release enough to undermine price levels even more is yet to be seen.
I believe there will be plenty of opportunity in those areas over the next 12 to 24 months, with little chance of significant price increases. If they release too much we may even see further decreases but I personally doubt it as there is a lot of demand “pent-up” trying to buy at these lower levels. That is probably reflected by the fact that you are reading this!
Fannie Mae and Freddie Mac are appointing Realtors to sell large numbers of foreclosures and I do expect to see more houses available over the next few months. Some agents sell them in poor condition, often wrecked by frustrated owners losing their home, and some agents do actually fix them up/clean them up before selling.
When you find a good one, you need to put in a very clean, attractive offer. The good REO ( bank-owned) listing agent will have LOTS and LOTS of offers for anywhere that is in good shape and will not mess with badly written offers or attempts to bargain on the price.
Don't even think about under-bidding the list price, you will probably have to over-bid to get it.
The high-volume bank-owned Real Estate Agents specialize in this type of property and do nothing else. They are very, very busy, often handling over 100 properties at a time………...don’t expect them to spend time talking to you !!!!!!!!………...you want the house, you send them a well presented offer with the right documentation and you send it first-time.
If you send them a silly or badly-written offer then all you will hear is…………..silence!
I repeat one of the things I have said before:
The smart investors are now out there picking up good deals which will pay off over the next few years.
The unrealistic "investor" is sitting on his hands waiting for that one "steal" that will pay off next week, and he will end up buying nothing at all........and probably blame someone else later for missing out on this market!
Feel free to call me to discuss buying or selling Real Estate...that's what I do.
Monday, August 3, 2009
Thursday, July 30, 2009
Check the APR on your loan closely
There are great rates for loans right now.
However, some people get a shock when they see their loan documents. Always check your APR, NOT the simple rate. Your APR is a much better indicator of what you are paying. At the moment, the APR on an FHA loan may be a lot higher than the rate you think you are getting.
For instance, an FHA loan with less than 10% down will have up-front mortgage insurance payable plus an additional ongoing mortgage insurance percentage on top of your loan rate. Once you factor these in, your "5%" rate may be a 6% APR.
A GOOD loan agent will spell these numbers out for you with a "good faith estimate" detailing all the costs rolled into the loan. If you have not seen one, ASK FOR IT. If a loan officer will not give you a "good faith estimate", get a new loan officer.
However, some people get a shock when they see their loan documents. Always check your APR, NOT the simple rate. Your APR is a much better indicator of what you are paying. At the moment, the APR on an FHA loan may be a lot higher than the rate you think you are getting.
For instance, an FHA loan with less than 10% down will have up-front mortgage insurance payable plus an additional ongoing mortgage insurance percentage on top of your loan rate. Once you factor these in, your "5%" rate may be a 6% APR.
A GOOD loan agent will spell these numbers out for you with a "good faith estimate" detailing all the costs rolled into the loan. If you have not seen one, ASK FOR IT. If a loan officer will not give you a "good faith estimate", get a new loan officer.
It is a seller's market! And if you are wanting to move UP market..think about it NOW!
Surprisingly it is a seller's market right now under about $500,000. There is a shortage of simple equity sales for buyers to buy. The market is clogged with short sales which are becoming harder and harder to close efficiently. There is a shortage of foreclosures actually on the market ready to sell. This may change.
If you are thinking of selling and have equity in your home, this may be as good a time as any for the next couple of years.
The bottom seems to be here and there is competition for the equity sales that are for sale.
If you are selling to move UP in price, you are in the ideal position as the higher in price you go, the "softer" the market becomes and the better the deals.
It is worth a thought and if you are thinking of moving UP market in the next year or two, think hard about starting the process now before the upper end of the market recovers.
If you are thinking of selling and have equity in your home, this may be as good a time as any for the next couple of years.
The bottom seems to be here and there is competition for the equity sales that are for sale.
If you are selling to move UP in price, you are in the ideal position as the higher in price you go, the "softer" the market becomes and the better the deals.
It is worth a thought and if you are thinking of moving UP market in the next year or two, think hard about starting the process now before the upper end of the market recovers.
Monday, July 20, 2009
The Orange County Housing Market Illusion
-------------And why the $ 8,000 tax credit is about to be become a heartbreaker.
So the housing market is in crisis, isn’t it! We all need housing to recover, which means people need to be buying houses, and paying for the ones they have. Prices have fallen by 20-40% in Orange County and it’s close neighbors like Corona.
What an opportunity for first time buyers; cheaper houses, great interest rates, access to FHA loans and an $ 8,000 tax credit !
What an opportunity for investors to buy up cheaper houses and rent them out.
What an opportunity for those wanting to “move-up”. The gap between your house and the bigger one you want is smaller than it was or than it will be. Do it now!
Here is the problem for low-end buyers; in the market under $ 400,000, there is almost nothing to buy!
“Excuse me?”, I hear you say!
And it’s getting worse by the day, not better. The equity sale market is almost non-existent, and they sell in a few days; the bank-owned foreclosure market is in short supply (where are they?) and are subject to mountains of offers, many of them cash, and the only places with any more supply are short sales, which are also subject to multiple offers, snail-paced months-long bank processing, and even vanishing completely when the loan gets modified at the last minute
Let me explain.
Ask any experienced Realtor and they will tell you that the market is divided now into 3 segments.
1) The high end, over $ 1 million is the market everyone thinks we are in, where there is a lot of inventory, a shortage of buyers, and loans are very difficult. In this segment right now you can get great bargains and sellers are not digesting their food very easily. So if you have a million or two to spend, get out there, or better still, call me!
2) The market from around $ 400-ish up to $1million is slow but has some life because FHA loans up to $729,750 are available at good rates. Prices are still down a lot, but at least there are a few buyers out there. It is not buzzing but it’s moving along slowly if the seller is realistic.
3) But here is the shocker! Under $ 400,000, and especially under $ 250,000, most full-time Realtors have a lot of buyers who are looking for homes, but cannot find one to buy! When they do find one that is worth buying there are often ten, fifteen or even twenty offers over asking price within a day or two! The first-time buyer $ 8,000 tax credit expires if you do not close the sale by November 30th. Crazy as it may sound, most of the inventory that does exist is short sales, and if you agree to buy one of those today, you will probably not close the sale until November or December if you are lucky, and then only if you can survive the frustration, or even get an answer from the banks at all! A short sale hitting the market today will probably not even get looked at by the bank for 2 to 3 months, and then it will take 2 to 3 months more to agree the deal. Why, you ask. Great question!
Let’s look at this problem category. What is going on? Where are all these foreclosures? Surely there are lots of houses to buy!
Take 2 bedroom, 2 bathroom condos just as an example. This is a popular first time buyer condo, and investor condo.
There are three main types of sale now;
1) short sale ( where the proceeds will not pay off the loan so you have to have bank approval)
2) bank-owned ( foreclosures)
3) equity sales ( a normal sale being sold by the owner)
Equity sales are by far the easiest. You negotiate with the seller and they say Yes or they say No, or maybe they counter your offer.
Bank-Owned are next easiest. The bank owns the house and, with a little luck, you may get an answer in a reasonable timeframe.( not nearly as fast as an equity sale and probably still in a multiple offer scenario)
Short Sales. The nightmare scenario. I could write a book on this but I will give you the quick version. The bank first of all has to agree to a short sale in principle, which can take 1 to 3 months. Then the bank reviews offers, and this process can take 1 to 3 months also. Usually the agent acting for the bank/owner will have pitched the price very low to attract lots of offers from naïve buyers who think this is the actual price. The prospective buyers will often not hear for 2 to 3 months whether the bank is interested in their offer. By the time the bank approves the offer, the buyer has often already bought something else and the whole process restarts with a backup buyer. By this time, buyers and agents are frustrated and angry, but no further along in actually buying a house. They have wasted their time. The bank process and decision making in these cases is a “fog” to everyone else in the industry. There are agents and companies out there promising fast, expert short-sale closings………….no comment!
So the obvious answer then is to forget short sales and buy equity sales isn’t it? Or if you can’t do that, buy bank-owned.
Then comes the real heart of the problem.
In this category, 2 bed/2 bath condos under $ 250,000 in Orange County, last week there were 218 short sales, 32 bank-owned and 48 equity sales on the market. ( I have excluded Laguna Woods which is a subject of its own) In Lake Forest, Mission Viejo and RSM together there were 4 equity sales on the market and 3 bank owned. In Yorba Linda 1 bank owned and zero equity sales. In Corona, 8 bank owned and one equity sale.
There are hundreds or even thousands of buyers chasing these houses. Many have made 10 or even 20 offers on short sales and got nowhere. The banks/sellers are preferring cash buyers, or large down-payment buyers and the first-time buyer with their 96.5% FHA loan, and $ 8,000 tax credit are simply not attractive to the sellers.
There will be a lot of tears come November 30th unless the tax credit is extended. Even then, nothing will improve unless there are houses to buy.
There are a few questions which seem to be begging to be asked.
1) What on earth are the banks doing with foreclosures? Why are so many foreclosures not appearing on the market at all or taking months to do so, creating this housing supply shortage. Is the rumor that the banks will start to sell all these foreclosures soon actually true? Will it cause a double-dip fall in prices as we go from shortage to excess supply? Is that what they are afraid of? One theory is that the banks are waiting for the administration to take pity on them and contribute to their losses on each foreclosure. Surely not!
2) Is it true that the banks are not processing short-sales quickly because it forces them to recognize losses on their books at a time when they want to show profit growth and get Washington out of their hair? Or is it just bureaucracy and paperwork constipation? Is it just that nobody in those cubicles is empowered to make obvious decisions without getting 16 other people to sign-off on it, and it takes a week to go from one cubicle to the next! By which time the buyer has gone elsewhere and the whole roundabout starts again.
3) Does Washington/Sacramento realize what is happening on the ground? Do they realize that the banks have gone from the sublime to the ridiculous in making loans so hard to get. This is the pendulum effect gone mad. This is not a Realtor opinion; I talk to lending officers every day and get the same puzzled response.
These may sound like “tongue-in-cheek” rhetorical questions designed to raise a smile, but something is going on in the machinery of the housing market that is impeding it’s recovery.
People who are willing and able to buy houses at the entry level of the market cannot find houses to buy!
Sound crazy to you?
So the housing market is in crisis, isn’t it! We all need housing to recover, which means people need to be buying houses, and paying for the ones they have. Prices have fallen by 20-40% in Orange County and it’s close neighbors like Corona.
What an opportunity for first time buyers; cheaper houses, great interest rates, access to FHA loans and an $ 8,000 tax credit !
What an opportunity for investors to buy up cheaper houses and rent them out.
What an opportunity for those wanting to “move-up”. The gap between your house and the bigger one you want is smaller than it was or than it will be. Do it now!
Here is the problem for low-end buyers; in the market under $ 400,000, there is almost nothing to buy!
“Excuse me?”, I hear you say!
And it’s getting worse by the day, not better. The equity sale market is almost non-existent, and they sell in a few days; the bank-owned foreclosure market is in short supply (where are they?) and are subject to mountains of offers, many of them cash, and the only places with any more supply are short sales, which are also subject to multiple offers, snail-paced months-long bank processing, and even vanishing completely when the loan gets modified at the last minute
Let me explain.
Ask any experienced Realtor and they will tell you that the market is divided now into 3 segments.
1) The high end, over $ 1 million is the market everyone thinks we are in, where there is a lot of inventory, a shortage of buyers, and loans are very difficult. In this segment right now you can get great bargains and sellers are not digesting their food very easily. So if you have a million or two to spend, get out there, or better still, call me!
2) The market from around $ 400-ish up to $1million is slow but has some life because FHA loans up to $729,750 are available at good rates. Prices are still down a lot, but at least there are a few buyers out there. It is not buzzing but it’s moving along slowly if the seller is realistic.
3) But here is the shocker! Under $ 400,000, and especially under $ 250,000, most full-time Realtors have a lot of buyers who are looking for homes, but cannot find one to buy! When they do find one that is worth buying there are often ten, fifteen or even twenty offers over asking price within a day or two! The first-time buyer $ 8,000 tax credit expires if you do not close the sale by November 30th. Crazy as it may sound, most of the inventory that does exist is short sales, and if you agree to buy one of those today, you will probably not close the sale until November or December if you are lucky, and then only if you can survive the frustration, or even get an answer from the banks at all! A short sale hitting the market today will probably not even get looked at by the bank for 2 to 3 months, and then it will take 2 to 3 months more to agree the deal. Why, you ask. Great question!
Let’s look at this problem category. What is going on? Where are all these foreclosures? Surely there are lots of houses to buy!
Take 2 bedroom, 2 bathroom condos just as an example. This is a popular first time buyer condo, and investor condo.
There are three main types of sale now;
1) short sale ( where the proceeds will not pay off the loan so you have to have bank approval)
2) bank-owned ( foreclosures)
3) equity sales ( a normal sale being sold by the owner)
Equity sales are by far the easiest. You negotiate with the seller and they say Yes or they say No, or maybe they counter your offer.
Bank-Owned are next easiest. The bank owns the house and, with a little luck, you may get an answer in a reasonable timeframe.( not nearly as fast as an equity sale and probably still in a multiple offer scenario)
Short Sales. The nightmare scenario. I could write a book on this but I will give you the quick version. The bank first of all has to agree to a short sale in principle, which can take 1 to 3 months. Then the bank reviews offers, and this process can take 1 to 3 months also. Usually the agent acting for the bank/owner will have pitched the price very low to attract lots of offers from naïve buyers who think this is the actual price. The prospective buyers will often not hear for 2 to 3 months whether the bank is interested in their offer. By the time the bank approves the offer, the buyer has often already bought something else and the whole process restarts with a backup buyer. By this time, buyers and agents are frustrated and angry, but no further along in actually buying a house. They have wasted their time. The bank process and decision making in these cases is a “fog” to everyone else in the industry. There are agents and companies out there promising fast, expert short-sale closings………….no comment!
So the obvious answer then is to forget short sales and buy equity sales isn’t it? Or if you can’t do that, buy bank-owned.
Then comes the real heart of the problem.
In this category, 2 bed/2 bath condos under $ 250,000 in Orange County, last week there were 218 short sales, 32 bank-owned and 48 equity sales on the market. ( I have excluded Laguna Woods which is a subject of its own) In Lake Forest, Mission Viejo and RSM together there were 4 equity sales on the market and 3 bank owned. In Yorba Linda 1 bank owned and zero equity sales. In Corona, 8 bank owned and one equity sale.
There are hundreds or even thousands of buyers chasing these houses. Many have made 10 or even 20 offers on short sales and got nowhere. The banks/sellers are preferring cash buyers, or large down-payment buyers and the first-time buyer with their 96.5% FHA loan, and $ 8,000 tax credit are simply not attractive to the sellers.
There will be a lot of tears come November 30th unless the tax credit is extended. Even then, nothing will improve unless there are houses to buy.
There are a few questions which seem to be begging to be asked.
1) What on earth are the banks doing with foreclosures? Why are so many foreclosures not appearing on the market at all or taking months to do so, creating this housing supply shortage. Is the rumor that the banks will start to sell all these foreclosures soon actually true? Will it cause a double-dip fall in prices as we go from shortage to excess supply? Is that what they are afraid of? One theory is that the banks are waiting for the administration to take pity on them and contribute to their losses on each foreclosure. Surely not!
2) Is it true that the banks are not processing short-sales quickly because it forces them to recognize losses on their books at a time when they want to show profit growth and get Washington out of their hair? Or is it just bureaucracy and paperwork constipation? Is it just that nobody in those cubicles is empowered to make obvious decisions without getting 16 other people to sign-off on it, and it takes a week to go from one cubicle to the next! By which time the buyer has gone elsewhere and the whole roundabout starts again.
3) Does Washington/Sacramento realize what is happening on the ground? Do they realize that the banks have gone from the sublime to the ridiculous in making loans so hard to get. This is the pendulum effect gone mad. This is not a Realtor opinion; I talk to lending officers every day and get the same puzzled response.
These may sound like “tongue-in-cheek” rhetorical questions designed to raise a smile, but something is going on in the machinery of the housing market that is impeding it’s recovery.
People who are willing and able to buy houses at the entry level of the market cannot find houses to buy!
Sound crazy to you?
Wednesday, July 8, 2009
So you want to buy investment property?
The world is not run by bright people who work hard and get a paycheck. Throughout history it has been run by people who OWN things, especially property and land. Don’t we all wish our Great Grandparents had bought some of that empty land down by the ocean?
While short-term fluctuations in value, and cash-flow, are a consideration in every investment, long-term investments in property can build wealth, security and influence for generations of your family.
I firmly believe that California is one of the premier places to invest in property right now and for the future. Growth in value is driven by the health and diversity of the economy, population growth and the supply of housing. In areas such as Los Angeles and Orange County, the housing supply is limited because there is little land left to build on; the economy is now much more vibrant and diverse than it was in the early 1990s when it was defense and aerospace dependant; the population of California is predicted to double again in the next 30 years. All these people need to live somewhere.
However, as I pointed out in an earlier post, the picture right now is complex.
As an investor, first of all you have to decide priorities. Are you looking for cash-flow, return on investment, short-term capital growth, long-term capital growth, ease of ownership and management, low maintenance, location in a desirable area?
I know the facetious answer is “Yes please, I’d like all of those”, but unfortunately that is not reality; and before we even go there, you can forget about 10% “cap rates” in California on residential property, which is a request I have had from European investors. Reality is 5% to 6.5%. There are areas of the country which may tantalize with prospects of higher “cap rates”, but I think you will find them in more economically unstable areas with much higher risks to value and much lower prospects of future capital growth.
Let’s look at a few typical scenarios around my area to illustrate the picture. Such places are available now in California and remember that purchase prices are down 20-50% from the peak which was late 2005/early 2006.
1) Cheap condos in less-desirable areas: Low purchase price, some even below $ 100k. High percentage of renters in the complex, higher turnover of tenant, greater chance of delinquency. Can be a very good investment but really needs to have “hands-on” oversight to protect the investment and ensure high occupancy.
2) Nicer area, better condo complex: 1 bedroom condos in the mid 100s, and 2 bedroom in the $180k-220k range. Good investment in my personal view, but not without risk. One of the problems affecting a few of these complexes is that most lenders will not lend when the owner-occupier ratio falls below 51%, or when the Home Owner association fee delinquency exceeds 15%. If lenders will not lend, it means the universe of buyers is restricted to those with cash. That may sound attractive if you are a cash buyer as prices will be forced down, BUT there is no obvious mechanism to restore the complex to the ratios under which lenders will lend. So the liquidity of your asset is questionable in these complexes. Many of the sellers in these complexes do not realize the problem they have. However, good quality condos in financially stable complexes, are, in my opinion, worthy of attention for investors. Rents are good, maintenance is less than older condos, and the prospects for future capital appreciation are quite good. The purchase price of many of these condos is over 40% lower than 3 years ago.
3) Small to medium-sized single family homes: This is a niche that I think is also worthy of attention. Generally appeals to a stable renter, maybe a small family and has been hit by a similar fall in value. The competition for these properties, however, is stiff. A cash buyer sometimes has an advantage. I believe this niche will present a good chance of capital appreciation when the market recovers. The price levels in this niche are where the Government has intervened to give better borrowing opportunities then previously existed before the price crash, so, come the recovery, I expect to see a lot of activity in this area. One thing to consider is that, although HOA fees are generally much lower than for condos, the insurance and maintenance of the building falls on the owner and some of them have special bonds attached which increase the effective property tax rate.
4) High-end Houses: These houses are seeing a big fall in value and have much upside potential eventually. However, the timescale for recovery in the high-end market is, I suspect, longer than other segments. Also, in California we are still talking quite substantial amounts of cash being invested, and this high-end market is highly illiquid. This end of the market would require the willingness to hang on to the investment for a long time. Renters are also less in evidence when talking about over $ 5,000/month.
These are just a few of the considerations to get you thinking along the right lines. If you are looking to buy investment property, it is important to have a detailed analysis of costs and risks, preferably all laid out in a form where you can compare returns and evaluate. Then set up target parameters before you start to actually search for property.
As in life, things do not always run to plan, but that does not mean you shouldn’t have one.
While short-term fluctuations in value, and cash-flow, are a consideration in every investment, long-term investments in property can build wealth, security and influence for generations of your family.
I firmly believe that California is one of the premier places to invest in property right now and for the future. Growth in value is driven by the health and diversity of the economy, population growth and the supply of housing. In areas such as Los Angeles and Orange County, the housing supply is limited because there is little land left to build on; the economy is now much more vibrant and diverse than it was in the early 1990s when it was defense and aerospace dependant; the population of California is predicted to double again in the next 30 years. All these people need to live somewhere.
However, as I pointed out in an earlier post, the picture right now is complex.
As an investor, first of all you have to decide priorities. Are you looking for cash-flow, return on investment, short-term capital growth, long-term capital growth, ease of ownership and management, low maintenance, location in a desirable area?
I know the facetious answer is “Yes please, I’d like all of those”, but unfortunately that is not reality; and before we even go there, you can forget about 10% “cap rates” in California on residential property, which is a request I have had from European investors. Reality is 5% to 6.5%. There are areas of the country which may tantalize with prospects of higher “cap rates”, but I think you will find them in more economically unstable areas with much higher risks to value and much lower prospects of future capital growth.
Let’s look at a few typical scenarios around my area to illustrate the picture. Such places are available now in California and remember that purchase prices are down 20-50% from the peak which was late 2005/early 2006.
1) Cheap condos in less-desirable areas: Low purchase price, some even below $ 100k. High percentage of renters in the complex, higher turnover of tenant, greater chance of delinquency. Can be a very good investment but really needs to have “hands-on” oversight to protect the investment and ensure high occupancy.
2) Nicer area, better condo complex: 1 bedroom condos in the mid 100s, and 2 bedroom in the $180k-220k range. Good investment in my personal view, but not without risk. One of the problems affecting a few of these complexes is that most lenders will not lend when the owner-occupier ratio falls below 51%, or when the Home Owner association fee delinquency exceeds 15%. If lenders will not lend, it means the universe of buyers is restricted to those with cash. That may sound attractive if you are a cash buyer as prices will be forced down, BUT there is no obvious mechanism to restore the complex to the ratios under which lenders will lend. So the liquidity of your asset is questionable in these complexes. Many of the sellers in these complexes do not realize the problem they have. However, good quality condos in financially stable complexes, are, in my opinion, worthy of attention for investors. Rents are good, maintenance is less than older condos, and the prospects for future capital appreciation are quite good. The purchase price of many of these condos is over 40% lower than 3 years ago.
3) Small to medium-sized single family homes: This is a niche that I think is also worthy of attention. Generally appeals to a stable renter, maybe a small family and has been hit by a similar fall in value. The competition for these properties, however, is stiff. A cash buyer sometimes has an advantage. I believe this niche will present a good chance of capital appreciation when the market recovers. The price levels in this niche are where the Government has intervened to give better borrowing opportunities then previously existed before the price crash, so, come the recovery, I expect to see a lot of activity in this area. One thing to consider is that, although HOA fees are generally much lower than for condos, the insurance and maintenance of the building falls on the owner and some of them have special bonds attached which increase the effective property tax rate.
4) High-end Houses: These houses are seeing a big fall in value and have much upside potential eventually. However, the timescale for recovery in the high-end market is, I suspect, longer than other segments. Also, in California we are still talking quite substantial amounts of cash being invested, and this high-end market is highly illiquid. This end of the market would require the willingness to hang on to the investment for a long time. Renters are also less in evidence when talking about over $ 5,000/month.
These are just a few of the considerations to get you thinking along the right lines. If you are looking to buy investment property, it is important to have a detailed analysis of costs and risks, preferably all laid out in a form where you can compare returns and evaluate. Then set up target parameters before you start to actually search for property.
As in life, things do not always run to plan, but that does not mean you shouldn’t have one.
Thursday, June 25, 2009
California Real Estate Bargains are not a secret...but getting one is more difficult than it sounds.
The US Real Estate market is REALLY chaotic at the moment.
Much of that chaos is related to what is happening with the banks both from a lending and selling perspective.
A lot of foreclosures are happening, and a lot of people are trying to “short sell” to get out of their house without foreclosing. Many of those keeping their houses are doing so only with a great struggle to pay the bills.
So what is the situation in California?
In the last 3 to 4 months Real Estate in California has changed DRASTICALLY.
1) Good properties at good prices at the lower end of the price range are subject to multiple offers and often have 10 to 20 offers within days of going on the market. Buyers who cannot move fast simply do not get a chance. Most places for sale at the lower end of the market are either Bank Owned or “short sales” ( still bank controlled). Equity sellers are few and far between because nobody is selling now unless they absolutely have to do so. This is often a surprise to new potential buyers who had thought the market was slow and they would just be able to step in and pick up bargains. It is true that many great properties are selling at 30% to 45% below what they sold for 3 years ago, but guess what……..you are not the only person who has noticed this and can use a calculator!
2) There is now a SHORTAGE of places on the market in the lower price ranges. The banks are not releasing a lot of the bank owned properties for a variety of reasons. This MAY change in the next few months but nobody is sure because nobody is really saying why the banks are holding on to the houses now. I believe it is a mixture of being overwhelmed, and staff who are reeling from rapid changes in policies, or even a lack of clear policies. They are mired in lots of new regulations intended to modify people’s loans and keep them in their houses. There is a lot of activity on loan modifications intended to stop people losing their homes but not a lot of success. Nobody is quite sure if we are about to see a lot of modifications, or a lot more foreclosures and sales of property. The odds are on the latter.
3) Some properties look cheap, and have been on the market for a while, but there will be a reason for that. It may be area, condition, liens, HOA problems. There are not easy, clean deals just sat there waiting for someone to pick them up.
4) Banks are being terribly difficult on loans. 3 years ago, loan approvals were being given in 24 hours with limited proof of ability to pay. Now, loans are at great rates, but qualifying is tough. There are great first-time buyer tax incentives and this is adding to the frenzied offer and buy activity at the low end of the market. Buyers able to pay CASH are often at an advantage in negotiating for bank owned/short sale properties. This is not a “rule”, but a trend. Some banks and agents really like cash deals, some are just as happy with a 20% down buyer.
5) The list prices of short sales and bank owned are being driven up by the numbers of offers. Bank owned and short sale list prices are generally the opposite of those used by equity sellers. You may be used to offering 20% below asking price. That may be a starting point with an equity seller, but it is a pointless waste of paper with bank-owned or short sale properties. Bank Owned and Short Sale list prices are usually pitched intentionally low, not high, and the intention is to get a fast flurry of offers; often a bank owned list price of $ 200,000 will generate offers from $210,000 all the way up to $ 250,000 and above. It is important to look at the comparison sales in the area to get a valid benchmark for setting your offer. The list price is just a number, nothing more.
6) The vacant bank-owned properties that are not being properly marketed are deteriorating so when they do come on the market they often need extensive repairs. The logic behind the banks leaving these places to deteriorate and lose even more value is beyond the capacity of my brain-cells. My suspicion is that there is something going on at a national strategic level linked to how much money the banks think they can get out of the Government to compensate them for the losses on these foreclosures. Some of the deteriorating properties are formerly beautiful homes that now have brown grass, green pools, and holes in the drywall.
7) By the way, there are incredible bargains at the TOP end of the market. The top end of the market is very slow with houses taking a long time to sell and huge price reductions on offer. Loans over $ 729,875 are tough to get at good rates, so buyers need to have a lot of cash. However, some houses that may have gone for $ 2.5 million 3 years ago are now struggling to sell for $ 1.5 million. Houses that went for $ 1.3 million are often going for $ 800,000.
So, what do you do if you want to take advantage of the huge drop in California Real Estate prices? There will be a recovery and it may not be too far away. However, if you want to buy in California for investment, take at least a 5 year perspective and preferably 10. If you buy now, I really believe that 10 years from now you will have a big smile on your face, and will congratulate yourself on just how smart you are.
There are still good places to buy out there. How do you get them?
The key is you have to be patient, you have to be prepared to make lots of offers, and you have to be alert and responsive and have your money and/or loans ready to go. You have to work with people who know the market and will tell you the truth. You cannot do it by dabbling but only by being committed to the process. You cannot get frustrated or fixated on one particular property. Your objective must be to get a good deal, not a steal. A steal is what some guy you met in a bar told you a friend of his once got. A good deal is what real investors get. There are a lot of savvy buyers in the market and they are your competition.
California real estate bargains are not a secret…..…but getting one is more difficult than it sounds.
You know who to call!
Much of that chaos is related to what is happening with the banks both from a lending and selling perspective.
A lot of foreclosures are happening, and a lot of people are trying to “short sell” to get out of their house without foreclosing. Many of those keeping their houses are doing so only with a great struggle to pay the bills.
So what is the situation in California?
In the last 3 to 4 months Real Estate in California has changed DRASTICALLY.
1) Good properties at good prices at the lower end of the price range are subject to multiple offers and often have 10 to 20 offers within days of going on the market. Buyers who cannot move fast simply do not get a chance. Most places for sale at the lower end of the market are either Bank Owned or “short sales” ( still bank controlled). Equity sellers are few and far between because nobody is selling now unless they absolutely have to do so. This is often a surprise to new potential buyers who had thought the market was slow and they would just be able to step in and pick up bargains. It is true that many great properties are selling at 30% to 45% below what they sold for 3 years ago, but guess what……..you are not the only person who has noticed this and can use a calculator!
2) There is now a SHORTAGE of places on the market in the lower price ranges. The banks are not releasing a lot of the bank owned properties for a variety of reasons. This MAY change in the next few months but nobody is sure because nobody is really saying why the banks are holding on to the houses now. I believe it is a mixture of being overwhelmed, and staff who are reeling from rapid changes in policies, or even a lack of clear policies. They are mired in lots of new regulations intended to modify people’s loans and keep them in their houses. There is a lot of activity on loan modifications intended to stop people losing their homes but not a lot of success. Nobody is quite sure if we are about to see a lot of modifications, or a lot more foreclosures and sales of property. The odds are on the latter.
3) Some properties look cheap, and have been on the market for a while, but there will be a reason for that. It may be area, condition, liens, HOA problems. There are not easy, clean deals just sat there waiting for someone to pick them up.
4) Banks are being terribly difficult on loans. 3 years ago, loan approvals were being given in 24 hours with limited proof of ability to pay. Now, loans are at great rates, but qualifying is tough. There are great first-time buyer tax incentives and this is adding to the frenzied offer and buy activity at the low end of the market. Buyers able to pay CASH are often at an advantage in negotiating for bank owned/short sale properties. This is not a “rule”, but a trend. Some banks and agents really like cash deals, some are just as happy with a 20% down buyer.
5) The list prices of short sales and bank owned are being driven up by the numbers of offers. Bank owned and short sale list prices are generally the opposite of those used by equity sellers. You may be used to offering 20% below asking price. That may be a starting point with an equity seller, but it is a pointless waste of paper with bank-owned or short sale properties. Bank Owned and Short Sale list prices are usually pitched intentionally low, not high, and the intention is to get a fast flurry of offers; often a bank owned list price of $ 200,000 will generate offers from $210,000 all the way up to $ 250,000 and above. It is important to look at the comparison sales in the area to get a valid benchmark for setting your offer. The list price is just a number, nothing more.
6) The vacant bank-owned properties that are not being properly marketed are deteriorating so when they do come on the market they often need extensive repairs. The logic behind the banks leaving these places to deteriorate and lose even more value is beyond the capacity of my brain-cells. My suspicion is that there is something going on at a national strategic level linked to how much money the banks think they can get out of the Government to compensate them for the losses on these foreclosures. Some of the deteriorating properties are formerly beautiful homes that now have brown grass, green pools, and holes in the drywall.
7) By the way, there are incredible bargains at the TOP end of the market. The top end of the market is very slow with houses taking a long time to sell and huge price reductions on offer. Loans over $ 729,875 are tough to get at good rates, so buyers need to have a lot of cash. However, some houses that may have gone for $ 2.5 million 3 years ago are now struggling to sell for $ 1.5 million. Houses that went for $ 1.3 million are often going for $ 800,000.
So, what do you do if you want to take advantage of the huge drop in California Real Estate prices? There will be a recovery and it may not be too far away. However, if you want to buy in California for investment, take at least a 5 year perspective and preferably 10. If you buy now, I really believe that 10 years from now you will have a big smile on your face, and will congratulate yourself on just how smart you are.
There are still good places to buy out there. How do you get them?
The key is you have to be patient, you have to be prepared to make lots of offers, and you have to be alert and responsive and have your money and/or loans ready to go. You have to work with people who know the market and will tell you the truth. You cannot do it by dabbling but only by being committed to the process. You cannot get frustrated or fixated on one particular property. Your objective must be to get a good deal, not a steal. A steal is what some guy you met in a bar told you a friend of his once got. A good deal is what real investors get. There are a lot of savvy buyers in the market and they are your competition.
California real estate bargains are not a secret…..…but getting one is more difficult than it sounds.
You know who to call!
Saturday, June 20, 2009
Loan Modifications and Short Sales- a tangled web
Is it a great time to buy property ? Yes! Is it simple right now? Noooooooo!
Prices are near or at the bottom of the cycle and interest rates are near historic lows. That sounds attractive, and it is. However, buyers must be focused, patient and ready to ride a roller-coaster of emotions, especially if dealing at the lower price ranges.
Does a short sale listed at $ 199,000 mean that you can make a nice offer of $ 195,000 with an FHA loan with 3.5% down and stand a good chance of getting it. Absolutely not!
What are the possible scenarios?
1) It is likely, if the house is nice, that there will be multiple offers well over list price within days of it going on the market.
2) Many of those offers will involve 10% or 20% down, and there may even be multiple all-cash offers.
3) Even if you offer $230,000 and are the highest offer, you may not get it as the seller is suspicious of the lending market and will take an all cash offer for less money.
4) Even if you are chosen as the offer to send to the bank for approval, it may take the bank as long as 3 to 4 months to give that approval, and they may still attach conditions at that point. In the meantime you are in limbo.
5) Even if you are the best offer, the State and the Feds are pressuring the banks to modify loans, and you may find that, suddenly, the owner of the house is made a good loan modification offer and the house is no longer for sale at all.
It is a great time to buy! The process may well challenge your sanity. So, be prepared for that process and you can be a winner.
Prices are near or at the bottom of the cycle and interest rates are near historic lows. That sounds attractive, and it is. However, buyers must be focused, patient and ready to ride a roller-coaster of emotions, especially if dealing at the lower price ranges.
Does a short sale listed at $ 199,000 mean that you can make a nice offer of $ 195,000 with an FHA loan with 3.5% down and stand a good chance of getting it. Absolutely not!
What are the possible scenarios?
1) It is likely, if the house is nice, that there will be multiple offers well over list price within days of it going on the market.
2) Many of those offers will involve 10% or 20% down, and there may even be multiple all-cash offers.
3) Even if you offer $230,000 and are the highest offer, you may not get it as the seller is suspicious of the lending market and will take an all cash offer for less money.
4) Even if you are chosen as the offer to send to the bank for approval, it may take the bank as long as 3 to 4 months to give that approval, and they may still attach conditions at that point. In the meantime you are in limbo.
5) Even if you are the best offer, the State and the Feds are pressuring the banks to modify loans, and you may find that, suddenly, the owner of the house is made a good loan modification offer and the house is no longer for sale at all.
It is a great time to buy! The process may well challenge your sanity. So, be prepared for that process and you can be a winner.
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