Russell's Real Estate Realities

Where Are House Prices Now

2011-11-02T15:35:00.000-07:00

We are at 2003 home prices now. However, interest rates are 2% lower, so affordability is much higher than it was.

In fact, in 2007, only 10% of Californians could afford to buy real estate. Now with lower prices and interest rates that figure is up to 50%.

Cash Sales Up!

2011-11-02T15:10:00.000-07:00

In 2001, about 8% of home sales were cash. That figure is now 26%!!

Investors in particular are paying cash for rental properties, showing great confidence in the value represented by the market.

Russell's Roundup

2011-10-05T11:17:00.001-07:00

Foreclosure starts driven higher by Bank of America

2011-09-15T09:56:00.000-07:00

Foreclosure starts driven higher by Bank of America
Foreclosure filings and foreclosure sales increased in August throughout the majority of areas covered by ForeclosureRadar.

Foreclosure starts – the first notice filed, either a Notice of Default or Notice of Trustee Sale depending on the state – rose in every state, and appears to have been primarily driven by Bank of America and related entities, where foreclosure starts rose 116 percent from July to August, according to the report. Wells Fargo and US Bank also saw increases in foreclosure start filings, while filings by JP Morgan Chase and Citibank were essentially flat.

Notice of Default filings increased 69.5 percent in California, to the highest level in a year. Notice of Trustee Sale filings were up more moderately, rising 6 percent month-over-month, but down 23.6 percent year-over-year. Cancellations were nearly flat, up just 1.9 percent from July.

Activity on the courthouse steps increased in August, with Properties Sold Back to Bank (REO) increasing 12.3 percent from the prior month. Properties Sold to Third Parties rose 9.9 percent month-over-month and 10.8 percent year-over-year. Time to Foreclose increased to 333 days in August, 49 days longer than a year ago.

AR recently issued a Call For Action urging REALTORS® to contact Congress and clearly communicate that Congress needs to prevent conforming loan limits from expiring on Sept. 30.

Unless Congress acts, the current loan limits will expire on Sept. 30, and the cost of a mortgage could rise significantly. More than 30,000 California families will face higher down payments, higher mortgage rates, and stricter loan qualification requirements if conforming loan limits on mortgages backed by the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are reduced beginning October 1, 2011, according to analysis by C.A.R.

Despite the Obama administration claiming it will support a one-year extension of the current loan limits, Bank of America already has lowered its loan limits for new loans, and others will follow suit.

Please contact Congress today and communicate clearly that a housing recovery depends on keeping mortgages affordable and that Congress needs to prevent these higher loan limits from taking effect.

Buying Real Estate today is like buying gold when it was $ 300/ounce.

2011-09-02T16:56:00.000-07:00

Not too long ago, Gold was $ 300-400/ounce. Now where is it?? $ 1700..$1800?

Property prices have dropped to the point that, allied to low interest rates, some people are going to making themselves rich over the next 10 years.

Investment in property, medium to long-term, has got to the point in the present scenario that it is probably the best place for investment money. You would expect that from me as I am in the business, but read this

CNN Money: Forget stocks. Don't bet on gold. After 4 years of plunging home prices, the most attractive asset class in America is housing.

CBS Money Watch: This may be a once in a generation buyer's market.

Forbes: It's a buyer's market, but like everything else in life, the bargain deals won't last.

Vegas roadblock

2011-09-02T16:38:00.000-07:00

Its Friday afternoon of the holiday weekend and the road to Las Vegas is blocked by a fire!! Had to be this weekend didnt it. Glad I am not on the 15 Freeway. If you are on the 15 traveling at 2 mph I am sure there will be a bathroom soon!! You can hold on!

New Property For Sale

2011-07-14T10:47:00.001-07:00

2011-06-14T09:58:00.000-07:00

Upgraded Largest Model. 4 bed

plus bonus, 3376 sq ft

on small Cul-de-Sac - $844,900

Very rarely available in exclusive

Hidden Ridge Estates

Largest

model in exclusive Hidden Ridge

Estates, first on market in

many years. Very rare. 4

bedrooms, bonus, formal dining with

cathedral ceiling, huge kitchen/family room.

Kitchen remodeled in cherry with

8 1/2 foot granite island.

Windows all replaced, then hand

finished inside with stunning molding.

Walnut floor in living/dining room

and downstairs bed/office. Plantation shutters,wet

bar/wine fridge. Master bedroom a

relaxing oasis,huge shower, double-sided fireplace,walk-in

closets. Relaxing front balcony recently

tiled. Large laundry room. Large

flat lot with view of

hills front and back. Built-in

Bar-B-Q and large entertaining area

with patio covers. Above ground

spa and room for pool.

Lots of storage. Dual AC

systems, up and down. Security

system built-in. All this and

no Mello-Roos. HOA only $68/month.

Quiet 11 house Cul-De Sac

close to Toll Rd, stores,

schools and trails. Value-priced for

quick sale to facilitate next

purchase. Halfway between Saddleback Church/Cook

s Corner.

	Remodeled kitchen
	replacement windows
	Cul De Sac
	Very low HOA

	walnut floors
	fireplace in master
	No Mello-Roos
	Great condition

MLS:	s662599
Sq Ft:	3376
Yr Built:	1990
Bdrms:	4
Baths:	3
Pool:	No
Parking:	3 Car Garage
Asking:	$844,900

5 Mulberry

Trabuco Canyon, CA

92679

Property Map

Russell Taylor
949 584

7289

RTaylor@c21superstars.com

www.fineochomes.com

Lic#: 01382354

Century 21 Superstars.com
22342

Ave Empresa
Suite# 150

Rancho Santa Margarita, CA92688

949 584 7289

Realtor Email Flyers by EmailFlyers.net

Selling Your House with Me-Part 2

2011-06-02T11:09:00.000-07:00

Once you have a buyer:

Many people think finding the buyer and signing a sales contract means it’s all over. This could not be more wrong.
Clients ask me “When can I be sure the deal will close?” My answer is “When the money hits your bank account at the end of the process.”
Opening escrow with a buyer is the start of a process with many hurdles, and it may still present you with uncomfortable decisions to make. It is vital to stay engaged in the process and understand the things that will, or may, happen.

Things to understand:
1) You are in a contract. It is a fact of life that it is much easier for the buyer to withdraw than for the seller to withdraw. If the buyer fulfills their obligations, and meets timelines, it is very difficult for you to pull out from selling your house, and if you do so without good legal reason, they can sue you for “specific performance” and make you sell it. This very rarely happens but it is important you do not think you can change your mind easily once under contract.
2) The buyer has the right to make any non-destructive investigations they want during the “contingency period” ( usually 17 days), at their own expense, and you must provide access for this. Usually a buyer just does a “home inspection” using a licensed inspector, but they could, if they choose, do a mold inspection, a roof inspection, a geo-technical inspection, a chimney inspection etc., and you cannot say “No”.
3) It is normal ( except in bank-owned and sometimes short-sales) for the seller to pay for a “wood destroying pest” ( termite) inspection, and also to pay for the work that is needed to remedy problems found. This can cost more than you might expect, and may even involve fumigation of the house , for which you will have to move out for a few days. A typical cost can be $ 2500 but it can sometimes cost a lot more.
4) During the contingency period of the escrow, the buyer conducts their investigations/inspections, finalizes their loan approval, and the lender does an appraisal to evaluate if they think the house is worth the price that has been agreed. After inspections, the buyer may present a “Request for repair”, which you are at liberty to accept in full or in part, or reject. The buyer is at liberty to cancel the sale depending on the response given so the response is a “double-edged sword”. The repairs and response are often a subject of negotiation.
5) Once the contingency period is over, the buyer is asked to remove those contingencies, having hopefully agreed repairs, and had the loan approved, and an acceptable appraisal. Many sellers assume that at this stage, if the buyer pulls out, the seller will get the buyer’s deposit money. While the contract could be read that way, and it may seem fair, it is very, very rare for it to happen, so do not expect it. In general buyers can find a way out and get their money back.
6) Many people want to sell “as is”, thinking this is a way to avoid having to make repairs. This is not always the case. Firstly, selling “as is” may make a buyer assume there is a lot of work to be done and this will affect the price they are willing to offer. Secondly, “as is” does not eliminate the buyers right to make inspections during the contingency period, and they can still make a “request for repair” based on their findings. You can reject that request, but they can also withdraw from the deal on that basis. So, “as is” has it’s place, but is not a simple way to avoid expense and can be counter-productive in the wrong place.
7) If you have altered or added-on to the house, but did not pull permits to do so, it is likely that the appraiser will not include these improvements in the appraisal. Any value you are going to get for such work would be at the behest of the buyer, and they may have to pay cash for the amount over the appraisal.
8) You will be sent a lot of paperwork during the process. One of the most important issues is “Disclosure”. You will be asked to disclose everything you know about the house, good or bad. It is very important that you do this thoroughly and honestly. If the buyer buys the house and you told them that 3 days a week semi trucks run their engine all day by your back window, then they cannot claim to be surprised when it happens. If you didn’t tell them, and a court deems this to me a material factor in their decision to buy, then you are in trouble.

Selling Your House With Me-Part 1

2011-05-23T13:30:00.000-07:00

You want to sell your house!

You want:

1) to sell your house for the best price with no complications.

2) to deal with a Realtor who is experienced and knowledgeable and who you can trust.

Selling your house is a complex transaction. Complications and stress are a part of every home sale. Anyone who promises you no stress during the sale and escrow process, and no difficult decisions, is selling you hope over experience.

The way to avoid as many complications as possible and reduce stress is:

1) plan the process carefully with your Realtor and be aware not only of your needs, but also your obligations. Try to look at the house as a buyer would see it, not as your home. (This is actually difficult)

2) Choose a Realtor who can help you handle the complications and the unexpected twists and turns that may occur, especially during escrow. A Realtor doesn't earn their fee by finding a buyer, but by guiding the deal to actually close escrow.

3) Have realistic goals and be flexible in problem solving. Understand that the buyer is looking at the transaction from a completely different perspective and their actions and decisions may make no sense to you. A buyer's motivations may be clear, but it is possible there are factors at work of which you have no knowledge.

Are OC House prices on the rise?

2010-04-26T10:04:00.000-07:00

The OC market is slowly climbing off it’s knees. The OC Register just reported Newport Beach prices up by 29.7% It does NOT mean that house prices are up 29.7% in Newport Beach. The median is the figure at which half the houses sold went for more than this and half for less. It can go up just because people are now buying bigger houses. However, it is probably a mixture of the fact that prices are going up and also people are beginning to buy higher value houses now, which have been dead for a long time.

In the peak year, there were over 50,000 homes sold in California for over $ 1 million. Last year there were only 7,000!!!!!

That probably means that not only have prices have come down but also that there is pent up demand now being released by improved confidence and easier lending at the higher levels. I think homes in the $700k-1.3mill range are going to see rises in the next few months. Over $ 1.5mill I think it may still take time unless economic news continues to get better.

Prices at the lower end continue to be pressured by demand, especially under $ 300,000, but are complicated in the condo market by many very poor HOA “ratios” which often disqualify whole complexes from getting new loans.

I think this last 9 months and the next 9 months will, in hindsight, have been a unique opportunity for real estate purchases, as I don’t see such a combination of prices and interest rates re-occurring.

Are there bargains in the Inland Empire ?

2009-08-03T10:10:00.000-07:00

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.

Check the APR on your loan closely

2009-07-30T17:29:00.000-07:00

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.

It is a seller's market! And if you are wanting to move UP market..think about it NOW!

2009-07-30T17:19:00.000-07:00

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.

The Orange County Housing Market Illusion

2009-07-20T11:43:00.000-07:00

-------------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 you want to buy investment property?

2009-07-08T14:06:00.000-07:00

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.

California Real Estate Bargains are not a secret...but getting one is more difficult than it sounds.

2009-06-25T11:06:00.000-07:00

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!

Loan Modifications and Short Sales- a tangled web

2009-06-20T12:49:00.000-07:00

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.

First Time Buyer Tax Credit- Expires December 1st

2009-06-02T12:45:00.001-07:00

Many people are just getting turned on to the fact that the Government will give a first-time buyer an $ 8,000 tax credit for buying a house. It's a great program ! With prices low and interest rates low, it is just an additional reason to agree that now is the time to buy.

HOWEVER.......... the tax credit expires on December 1st. That means you must have identified the house, negotiated the sale, survived escrow and loan approval, and closed the deal by December 1st. Yes....CLOSED THE DEAL by December 1st. It is now June. To be anything like safe, you need to be in escrow by September. That means you should be looking now!

I fear I will be hearing some screaming from 1 st time buyers in December who have missed out. Maybe the Government will extend it....but maybe they won't.

The lending market and appraisals- a new game in town!

2009-05-19T15:38:00.000-07:00

3 years ago, if you wanted to buy a house, you called your lender, qualified easily for a loan, and then found a house to buy.

Now it is a new world! There are great loans out there....maybe loans that we will not see again for many years...but the road to having them approved and funded is completely different.

1) Qualification requires good credit and proof of income. Be ready to bare your soul and have patience, because the days of 15 minute loan approval are gone.

2) The banks are swamped with work, and have in most cases of course, reduced staffs to deal with the work. Even after pre-approval, there will be document and funding conditions during the process that may require you to do more work and can hold up the funding.

3) New laws regarding appraisers are putting up the price of appraisals, slowing down their completion and some would say, pressuring the appraisers to come in low. This went into effect on May 1st and will probably cause some disruption to "normal service".

It is a great time to buy property, but make sure you deal with a lender and a Realtor who really know what they are doing, and will discuss such issues as those above. Don't take "It'll all be OK...I have it under control" as a reassurance that it really is. Ask questions and insist on straight answers.

Why is the low-end market really busy and the high-end market really slow?

2009-04-30T11:28:00.000-07:00

The simple answer is LOANS and PRICES.

The low-end market has prices at 25% to 50% down from 3 years ago. We are back to around 2002-2003 prices and they are starting to look like bargains. The pendulum effect in market swings often leads to "overshoot" in market corrections. I think we are close to that territory now.

HOWEVER, that would not be important if loans were not available. Loans at this end of the market, and even up to $ 729,000 FHA, are there if you have good credit, and the interest rates are really low. First time buyer incentives are tremendous. Anyone who can buy right now should be doing so. A first time buyer may even end up with net payments after tax relief less than their rent !

The high-end market is tough. Why? 30 year loans over $ 729,000 are expensive and hard to get. So, if you want to buy a house for $ 2 million with a good loan, you need over $ 1.25 million in cash or equity. This is in a market where investors stocks are way down, business profits are down, and many people in this range used stated income loans to buy their present houses....stated income loans are almost impossible to get right now.

There are people in big houses who bought them on adjustable loans, and are now worried that when interest rates rise, they will not be able to pay. Some houses that were "Worth" $ 3 million 3 years ago, are now selling for half that. But who can buy them? That's the issue!

What is a short-sale and how do I buy one?

2009-04-30T11:17:00.000-07:00

A "short-sale" is where a house is sold, with lender approval, at a price which results in the lender not getting all the money they are owed. The lender agrees to take a loss, and the resident/owner of the house gets NOTHING! You cannot short-sell your house and walk away with money. You usually cannot short-sell your house if you have other assets which you could use to pay off the shortfall. A short-sale is designed for people who owe more than their house is worth, cannot make the payments, and do not have other liquid assets. Even then, lender agreement is not automatic. It is a tough and time-consuming process.
If you are looking to buy a short-sale, the price at which it is listed may be attractive, but it is probably at a price or even below the price it will sell for. Even then you may well be competing with multiple offers, and it may take months for the deal to be agreed and completed. If you like a short-sale house, you need to make an agressive offer, and then have a lot of patience. Your agent really needs to know what they are doing also....there are a lot of people operating in this bank-owned/short-sale environment who do things in very strange ways.

Problems with condo financing

2009-04-28T10:36:00.000-07:00

As you can imagine, with so many people in financial trouble, there are many people behind on their HOA payments. Well, if the complex has more than 15% of it's units more than 30 days behind on HOA payments, the lender will probably NOT fund the loan for you to buy in that complex! Also the same applies if the complex is less than 51% owner-occupied.

This is a potential major problem as, when this occurs, the only buyers who can close the deal are CASH buyers. Some lenders are trying to get loans through but my information is that it is very, very difficult.

If these rules stay the same, the problem could get worse, as many cash buyers are investors, and this just makes the owner occupied ratio further away from lenders acceptable ratios.

Selling homes in these complexes is going to be very hard. On the other hand, if you are a cash investor, you may be in a very strong position.

The market at the moment is one of great opportunity, but it is NOT a simple market!

Buying good deals in this crazy market

2009-04-27T20:23:00.001-07:00

Many people do not realize that the market for houses under $ 500,000 in Orange County and LA now is very busy, and there is even a shortage of houses to buy !
There are many reasons for this. Surprised potential buyers think they can make lowball offers on houses where the prices are already low. WRONG! Most of the bank-owned and short sale houses on the market now are already priced low, and they will sell around asking price or even higher. They may also sell fast ! You have to be ready, find a place, or ideally a few, that you like, then make an aggressive offer. If you do not, a long period of confusion and frustration will be your result.
This is a great time to buy; prices are low, interest rates are low.......but don't think you are the only person who has realized this.
In 10 years everyone will wish they had bought now.The market over a million $ is a place for tremendous deals if you have access to cash. The market there is slow, and there are a lot of houses that just have to be sold. If you are in that fortunate position, buy now.

Avoid Closing Cost Sticker Shock

2009-04-02T12:14:00.000-07:00

Buying a house involves a lot of costs that you may not initially expect. If you are buying a house for $ 400,000, and putting down a hard-saved 5% of $ 20,000 with a $ 380,000 FHA loan, you may think…..”Wow, we’ve got the $ 20,000 we need, isn’t that great! ”

It is quite possible that, when you are closing the deal, the escrow company will call you 2 days before close and say..,,, " send us $ 30,000"..... not $ 20,000! ................ouch!....... How much? ……………………What on earth can that be for?

Let’s have a look at why that might be true and how to prepare for it.

First of all, the escrow company is the only place you will get an exact number for your closing costs. However, they themselves cannot give you that number until the very last minute, so that does not help you very much.

The next best place to get an approximate number, and the most commonly used, is your lender. Your lender should give you what is called a “Good Faith Estimate” which lists all the costs with an approximate amount. If you don’t get one, ask! A good lender will work out all the costs associated with the purchase and put in a little extra for unexpected items.

Your realtor can also give you an estimate, but often will not have access to the loan costs, so the lender is the best place to get a reasonably accurate number.

Here are some of the costs that you will face:

1) Property taxes: You will have to pay some of the taxes paid by the previous owner for the period you are taking over; this varies according to when you buy the house. It can be a lot. Your bank may also insist that you “impound” you property taxes and could ask for as much as 6 months property taxes to be paid to them in advance! Ouch! Some of these may be based on the OLD tax rate for the house, not on your new tax rate based on your purchase price. You would get that back in the future, but right now, it is cash out of pocket.

2) Home Owners Association fees. You may have to pay some of this month and next month.

3) Insurance: you may have to have this impounded also and pay some in advance.

4) Escrow fees, title insurance fees, document fees, HOA transfer fees etc etc.

5) Loan fees. You hear about “No-cost” loans, but the costs are somewhere! Either you pay a higher interest rate, or you get fees and a lower rate. This can be a decision for you based on how long you intend to live in the house. The lowest rate will almost always have fees attached and these can be quite a lot if you want the lowest rate. No-one is out there doing this for nothing.

Get to grips with your closing costs early on so they do not bite you in the behind at the last minute.