Analysts Say Housing Is on the Way Up

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Analysts at both Standard & Poor's and Barclays Capital agree that the uptick in home resales last month is a favorable sign of things to come. Because pending home sales — an indicator of future activity — were up in February, S&P believes transaction volume will rise for April.

Barclays, meanwhile, says March's 3.7 percent gain in existing-home sales merely reinforces its position that the housing market actually hit bottom in late 2010.

Source: “Monday Morning Cup of Coffee,” Housing Wire, Jon Prior (04/25/11)

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Is It Time to Diversify Your Investment Portfolio?

by The KCM Crew on April 26, 2011

Studies now show that over 20% of the houses with mortgages in the country are underwater (where the loan amount exceeds the value of the property). Some bought their house at the top of the market and saw prices come tumbling down over the last few years. Losing this value has caused challenges for many in this category.
Other homeowners are underwater because they refinanced their homes at the height of the market and cashed out some of their equity. Some did this several times as values continued to rise and interest rates continued to fall. When prices dropped, they too found themselves in a negative equity situation. But not everyone in this category is in a worse position financially. Let’s break down this category.

Some Used Their House as an ATM

Some homeowners took cash out of their home to finance a lifestyle they desired. They bought a new car or a new boat. Some used the cash for fabulous vacations to locations they had always dreamed about. This group didn’t lose their equity. They spent it. Maybe these purchases were worth the price that these homeowners are now paying. Only the individual person can answer that question.

Some Used Their House to Finance an Education or Start a Business

It has long been a tradition in this country that people tap the equity in their home to finance their children’s college education or to gather together the start-up capital necessary to open their own business. These people didn’t lose their equity. They invested it in their children or their business. Was it worth it? For the couple who refinanced their home for their son or daughter’s eduction in 2007, a good time to ask may be next month as they are attending their children’s college graduation. For those who started a business with the money, whether it was a good idea was determined by their business plan not the housing market.

Some Used Their Home to Diversify Their Investment Portfolio

Some savvy homeowners, upon seeing their home values skyrocketing, decided to pull cash out and invest in other asset classes. At the height of the market (2006), some took $100,000 out of their home and invested in the stock market or in precious metals. Instead of sitting on their equity, they decided to put it to work for them. How did this group do? If they invested in the Dow, that $100,000 is now worth approximately $115,000. If they invested in gold, that $100,000 is now worth $290,000. (We never read about these people in the thousands of stories on the housing bubble. Good news just doesn’t seem to sell papers.)

Bottom Line

In every challenge there is an opportunity. Perhaps the opportunity in housing today is to use some of the equity in other assets we currently own to purchase real estate while it is low and mortgage money remains cheap. The Wall Street Journal and Forbes Magazine both suggested this exact strategy to their readers in the last three months.

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Your Retirement Home: Is Now the Time to Buy?

by The KCM Crew on April 25, 2011

The last several years have wreaked havoc on many people’s plans for retirement. They have seen their nest egg dwindle and in some cases disappear. Many have pushed back the date they will stop working and some have stopped even thinking about what part of the country to which they plan to relocate. For some however, this may be the time to again begin putting their retirement plan together.
There is a tremendous opportunity right now to buy a home at a sensational price in certain traditional retirement destinations. Couple that with the fact that in other parts of the country the housing market is still experiencing falling prices and we may be looking at a perfect window of opportunity to buy your retirement home.
Example: If you currently live in New Jersey, you are probably well aware of two things:

1. there was a lot of snow there this past winter and
2. the local housing market is struggling

Point number one might have you dreaming of spending your retirement years in a place like Las Vegas or Tucson or San Diego. However, point number two might have you believing this is not the time to even consider the move: If I can’t get top value for my house, why sell now? Actually, this may be a very opportune time.
What caused prices to tumble throughout the country was the emergence of distressed properties (foreclosures and short sales). These discounted properties put tremendous downward pressure on the values of the other homes in the region. The states that are clearing this inventory rapidly are the states where prices will recover more quickly. The states that were first hit with the housing crisis (Arizona, Nevada, California and Florida) are now the first to show signs of a recovery because they are selling off their distressed properties at a faster pace than many other parts of the country. New Jersey, on the other hand (along with much of the Northeast), is seeing their inventory of distressed properties growing. That is why prices are continuing to soften.

What does this have to do with my retirement plans?

If you own a home where prices are falling and plan to buy a retirement home in one of the areas that are beginning to recover, you are sitting on an asset that is losing value and waiting to purchase an asset that is about to increase in value. That doesn’t make sense financially. Even if you are not 100% ready to move right now, it might make sense to sell the 4 bedroom colonial you currently own in New Jersey (or in NY, MA or WA) and buy a smaller home or condo in town. With the additional money from the sale, you could probably buy a beautiful retirement home in the area you always dreamed about relocating to. Even if you needed some extra financing to buy the perfect home, you are borrowing while mortgage money is very inexpensive.

How do I know if this applies to me?

As mentioned above, the primary factor determining where prices are headed is the number of distressed properties in the area. Look at the map below from NAR. It shows the amount of distressed properties about to come to market in each state in the country. If the state you currently live in is red, yellow or orange and the state to which you plan to retire is a shade of green, you should at least consider the move.

Bottom Line

There are definitely challenges for many in the current housing market. At the same time, opportunities exist for others. Sit with a real estate professional who can give you the right data to help determine whether such an opportunity currently exists for you.

5 Reasons To Hurry Up And Get Your FHA Mortgage

by Dean Hartman on April 21, 2011

With the likely installation of QRM looming, it is clear that FHA mortgages will clearly become more popular merely because of the lesser down payment requirements. And as we have all learned, when the demand for something goes up, and the supply remains constant, prices go UP…that is, it becomes more expensive.

Talking Point One

The FHA is permitted each year to insure a specific dollar amount of loans by Congress. I find it unlikely that anyone has factored the increased demand for FHA that QRM will create. Further, getting Congress to allocate more money to HUD in these days of deficits is not a sure thing. I could see a fourth quarter of 2011 with little financing available (or much more expensive financing) to people with less than 20% down.

Talking Point Two

We hear, almost daily, that FHA is only semi-solvent…that they don’t have sufficient reserves. Foolishly, the MIP schedule was altered to give them less cash today (lowering the Up Front MIP) and increasing the longer term collection of monies (the Monthly MIP). To me, that almost insures another MIP change this year…one in which the UFMIP is hiked to get more money in the reserves now, making mortgages more expensive.

Talking Point Three

The FHA is floating rumors about tightening guidelines. Maybe it will be an increase in minimum down payment from 3.5% to 5%. Maybe a cut in seller paid closing costs from 6% to 3%. Maybe both. Regardless, it is going to get harder to qualify. Understand with increased demand and steady supply, lenders will be choosier.

Talking Point Four

Rates are creeping up anyway. With inflation making a strong comeback (fueled by high gas prices), the Fed will look to hike rates to control inflation.

Talking Point Five

The current loan limits are going to be slashed. Presently, FHA will insure loans up to $729,250 in high cost areas. That number is huge when compared to historic loan limits and was instituted when desperate times called for desperate measures. And while we still might be semi-desperate, look for those loan limits to be lowered by at least $100,000 come the end of the year (when Congress sets them for the next year).
For buyers, waiting can be expensive, or worse. You might not even get a loan. For sellers, more expensive loans and less buyers who qualify, will force you to lower your prices even further. ACT NOW!

Has Housing Reached a 'Recovery Path'?

Sales of existing homes rose slightly in March, marking the sixth consecutive monthly rise for existing home sales in the last eight months, the National Association of REALTORS reported Wednesday.

"We're clearly on a recovery path," says Lawrence Yun, NAR chief economist.

Existing home sales rose 3.7 percent in March from February, as distressed sales, such as those in foreclosure, continued to make up a big bulk of home sales (40 percent of all purchases).

"At this point, we're likely to see a steady improvement in sales," says economist Joel Naroff of Naroff Economic Advisors.

So just in time for the spring buying season, here’s what economists have to say about who’s buying and currently driving the market:

Investors: All-cash deals last month made up a record number of sales, accounting for 35 percent of all resold homes. Investors continue to make up a big part of those cash deals. Investors are buying distressed homes and flipping them for a slight profit or turning them into rentals, says Patrick Newport, economist at IHS Global Insight.

Luxury consumers: Some real estate professionals are reporting a pick up in luxury markets in some cities too. "The confidence is back in the market," says Neil Palmer, CEO at Christie’s International Real Estate.

Foreign buyers: Coastal markets, in particular, are seeing a surge of foreign buyers, such as in New York, Palm Beach, Fla., and San Francisco, AOL Real Estate news reports.

Traditional buyers: Traditional buyers are also re-emerging. Mortgage applications to buy homes rose 10 percent over a seven-week period, according to the Mortgage Bankers Association’s most recent report. "This pickup in demand should show up in improved existing home sales in April and May, unless lending conditions tighten," Newport says.

The market is making “slow, steady progress” and demand in housing is rising even with higher mortgage rates “so that's encouraging,” Pierre Ellis, an economist at Decision Economics in New York, told The New York Times.

"It's the new financial psychology," says Jarvis Slade Jr., Christie's managing director for the Americas. "We've had two years of hesitation, the sellers are realistic, the buyers confident and cautious, but Americans are starting to feel better."

Source: “Rising home sales point to a recovery; Prices expected to keep falling 5% to 7% this year,” USA Today (April 21, 2011), “U.S. Home Sales Top Forecasts in March,” The New York Times (April 21, 2011), and “Rich People Buying Homes Again--Should You?” AOL Real Estate News (April 20, 2011)

Will the Cost of Buying Increase Even If Prices Fall?

Buyers Sitting On the Fence and Waiting... Make Sure You Read This!!

by The KCM Crew on April 20, 2011

We have discussed the proposed modifications to the mortgage process several times in this blog already. We want to make sure our readers understand the potential impact to the cost of financing a home these changes will have. The cost of buying a home may increase even if prices continue to soften. The total cost of a home is determined by two factors:

• the price of the property 
• the expense of financing the purchase (assuming you are not paying all cash)

Check with a local real estate professional to determine where prices are headed in your region for the type of home you are considering. However, even if prices are predicted to soften further in your area, the COST of the home may rise because of increased expenses in financing. These expenses could increase rather dramatically.

Interest Rates

Interest rates have remained at historic lows for over a year. As the economy improves, there will be less need for the government to keep rates low. Many are predicting interest rates will increase from 1/2 point to 3/4 of a point before the end of the year. We may also see an additional increase in rate for loans deemed ‘less qualified’.

New Mortgage Standards

The government has proposed a new definition for a ‘qualified residential mortgage’. The new standard would set a bar much higher than we have today. Anyone not meeting these requirements would not be eligible for the ‘best’ rates available. What could be the difference in interest rate? In a white paper released last week by a group that included the Center for Responsible Lending and the National Association of Realtors:

Some private estimates have concluded that 5 percent risk retention could result in a three-percentage point rise in interest rates for loans funded through securitization. In other words, today’s 5 percent market would become an 8 percent interest-rate market.

Even if the rates for these loans are only one percentage point higher than the best rate, the additional cost to a buyer could be dramatic.

Impact of Interest Rates on Mortgage Payment

The interest rate you receive obviously plays a big role in determining your monthly mortgage payment. How big a role? Here is a chart showing how your payment is impacted even if home prices fall:

Bottom Line

You may have delayed your home purchase decision because of concern over where PRICES may be headed. To make the best financial decision for you and your family, also take into consideration where the overall COST of the purchase may be headed.

What Do Homeowners Say About Homeownership?

by The KCM Crew on April 19, 2011

There is no shortage of experts that want to let us know how Americans feel about owning a home after the collapse of the residential market in the last five years. They MUST be devastated. They MUST feel trapped like prisoners in their own homes. They MUST be sorry they ever bought the house. These assumptions seem logical at times and can occasionally be supported by anecdotal evidence.
However, we want to go to the only people who truly understand how homeowners feel - the homeowners themselves. There have been three major surveys done this year that can shed light on the issue:

The National Housing Survey

This survey conducted by Fannie Mae showed:

• 96% of all homeowners said homeownership has been a positive experience.
• 64% consider buying a home as a safe investment. Buying a home was considered safer than buying stocks by over three times the number of people (64% vs 17%).

The top four reasons to buy:

1. It means having a good place to raise children and provide a good education
2. You have a physical structure where you and your family feel safe
3. It allows you to have more space for your family
4. It gives you control over what you do with your living space (renovations & updates)

American Attitudes About Home Ownership

According to this survey conducted by Harris Interactive for the National Association of Realtors, home owners believe that home ownership benefits individuals and families and strengthens our communities.

The vast majority of home owners say that owning a home is a smart decision over the long term. Even in today’s challenging economy, 95% of owners believe that over a period of several years, it makes more sense to own a home.

Home owners are much more likely to be satisfied with the quality of their family and community life than renters. While more than half of owners (56%) are “very” or “extremely” satisfied with the overall quality of their family life, only about one-third (36%) of renters report the same levels of satisfaction. Also, 43% of home owners are “very” or “extremely” satisfied with their community life, compared with 30% of renters.

An overwhelming majority of home owners are happy with their decision to own a home. A full 93% of owners surveyed would buy again.

Pew Research Center Survey

This recent survey titled “Home Sweet Home. Still” delves into homeowners’ current belief in homeownership as a long term investment:

Homeowners whose home value has fallen only a little are equally enthusiastic about housing as a long-term investment: 85% say buying a home is the best long-term investment a person can make. Among those who say their home has maintained it value or increased in value, 88% agree…

Even those who have seen their home values plummet are still committed to the idea that buying a home is a solid, long-term investment. Among those who say their home has lost a lot of its value, 80% agree that buying a home is the best long-term investment (36% strongly agree, 44% agree somewhat).

Bottom Line 

There have been families that have been devastated by the current economy. However, through it all, homeowners have not wavered  in their belief in homeownership as the best long-term investment.

QRM: The Other Side of the Argument

 

by The KCM Crew on April 18, 2011

There is little doubt that the ease in which mortgage money was issued early in the last decade was one of the major reasons for the housing crash. What constitutes a ‘quality residential mortgage’ (QRM) definitely should  be redefined. However, several organizations see the newly suggested guidelines going too far.

The newly proposed QRM definition offered by the government addresses four main issues:

• Type of mortgages that would qualify
• The ratios between a purchaser’s income and their payment/overall debt
• The amount of down payment which should be required (20% is being proposed)
• The minimum FICO score for a borrower

The National Association of Realtors (NAR), the Center for Responsible Lending (CRL), the Mortgage Bankers Association (MBA), the National Association of Home Builders (NAHB), the Community Banking Mortgage Project and the Mortgage Insurance Companies of America (MICA) issued a white paper on the subject titled: Proposed QRM Harms Creditworthy Borrowers and Housing Recovery
The paper only challenges the potential down payment requirement (eventually the organizations will address the remaining three conditions in updates to this original white paper). Let’s look what the report says:

In the midst of a very fragile housing recovery, the government is throwing a devastating, unnecessary and very expensive wrench into the American dream. First time homebuyers will have to choose between higher rates today or a 9-14 year delay while they save up the necessary down payment…
High down payment and equity requirements will not have a meaningful impact on default rates. But they will require millions of consumers, who are at low risk of default, to either put off buying a home or pay unnecessarily high rates. The government is penalizing responsible consumers, making homeownership more expensive or simply out of reach for millions. We urge regulators to develop a final rule that encourages good lending and borrowing without punishing credit-worthy consumers.

Will Higher Down Payments Substantially Decrease Defaults?

The report actually studies the impact a higher down payment would have had on the default rates of loans written from 2002 through 2008. The report states:
They actually break it down:

…moving from a 5 percent to a 10 percent down payment on loans that already meet strong underwriting and product standards reduces the default experience by an average of only two- or three-tenths of one percent… Increasing the minimum down payment even further to 20 percent… (creates)  small improvement in default performance of about eight-tenths of one percent on average.

Will Higher Down Payments Impact a Buyer’s Ability to Purchase?

The white paper looks at three separate areas the proposed QRM would impact:

1. The reduction in eligible buyers caused by an increase in down payment
2. The time it would take to save a 20% down payment
3. The cost of financing for a non-qualified mortgage

1.) The reduction in eligible buyers caused by an increase in down payment
As it did when looking at defaults, the paper studies the impact a higher down payment would have had on buyer demand from 2002 through 2008. The breakdown:

…moving from a 5 percent to a 10 percent down payment on loans that already meet strong underwriting and product standards…would eliminate from 7 to 15 percent of borrowers from qualifying for a lower rate QRM loan. Increasing the minimum down payment even further to 20 percent, as proposed in the QRM rule, would amplify this disparity, knocking 17 to 28 percent of borrowers out of QRM eligibility.

2.) The time it would take to save a 20% down payment
This section of the report was eye-opening. Here is the time it would take a family to save for the newly suggested down payment.

Based on 2009 income and home price data, it would take almost 9 years for the typical American family to save enough money for a 10 percent down payment, and fully 14 years to save for a 20 percent down payment. A 20 percent down payment requirement for the QRM means that even the most creditworthy and diligent first-time homebuyer cannot qualify for the lowest rates and safest products in the market. Even 10 percent down payments create significant barriers for borrowers, especially in higher cost markets. This will significantly delay or deter aspirations for home ownership, or require first-time buyers to seek government-guaranteed loan programs or enter the non-QRM market, with higher interest rates and riskier product features.

3.) The cost of financing for a non-qualified mortgage
Remember, the QRM does not set mandatory requirements for ALL loans. What it does is define the loans that are deemed less risky. The less risky loans will not add additional costs to the banks issuing them. Loans that are not eligible for this category will still be written but at a greater expense to the purchaser to cover the increased costs to the banks. How much greater? According to the study:

(T)oday’s 5 percent market would become an 8 percent interest-rate market. While that estimate may be high, even a one-percentage point increase in interest rates could be devastating to a fragile housing market. According to estimates from the National Association of Home Builders, every 1 percentage point increase in mortgage rates (e.g., from 5 percent to 6 percent) means that 4 million households would no longer be able to qualify for the median-priced home. A 3-percentage point increase would price out over 12 million households.

Bottom Line

Loan qualifications needed to become more stringent than they were five years ago. There is no argument about that. However, the QRM seems to set a down payment requirement (20%) that has a minor impact on default rates yet a major impact on a purchaser’s ability to buy. We should look long and hard at this issue before deciding.

Survey: A Home Is Still the Best Long Term Investment

by The KCM Crew on April 15, 2011

After a five-year swoon in home prices, many assume that housing may have lost its luster as an investment. However, a nationwide Pew Research Center survey shows this drop in values has done little to shake the confidence of the American public in the investment value of homeownership. According to the survey:

Fully eight-in-ten (81%) adults agree that buying a home is the best long-term investment a person can make.

What do homeowners who have lost value think?

Even 82% of homeowners who say their homes are worth less now than before the recession began agree that homeownership is the best long-term investment a person can make.

As for rental housing being the desired choice of habitation for many, the survey shows:

Renters are hardly immune to the allure of homeownership, even in the face of the five-year decline in prices. Asked if they rent out of choice or because they cannot afford to buy a home, just 24% say they rent out of choice. And when renters are asked if they would like to continue to rent or if they would prefer one day to buy a home, 81% say they would like to buy.

Bottom Line

With so many questioning  people’s desire for homeownership, we should remember:

• 81% of adults still believe that homeownership is the best long term investment available;
• 82% of homeowners who have seen their house lose value still believe that homeownership is the best long term investment available and
• 81% of renters hope to be home owners in the future.

NEWSFLASH: There Is NO Inventory!!!

by Dean Hartman on April 14, 2011



I was in a conversation with one of the most productive agents in our area recently and he told me that there were “no homes for him to sell”. I thought he had a brain cramp. Look at all the ‘For Sale’ signs, all the homes on MLS, all the short sales and foreclosures plus all the shadow inventory on its way. Had this respected agent lost his mind?
As he saw the puzzled expression on my face (which was his intent), he began to explain that every home that is priced correctly is being gobbled up by buyers right away. The only homes that remain on the market for more than 30 days are the ones where the price doesn’t COMPEL a buyer (even multiple buyers) to make an offer.
I pondered his assertion for a while and his premise began to make more and more sense because I am witnessing:

1. Increased attendance at Open Houses. Buyers are coming out to look because they know now is the time to buy(great interest rates with higher rates around the bend, huge inventory available, etc.)
2. Realistic sellers (in terms of asking price) are getting significantly more traffic. This results in an increase in interested buyers; more interested buyers push prices higher. By adjusting prices, many sellers are getting higher offers. By remaining overpriced (and hoping to negotiate down), other sellers are seeing no traffic and no offers.

Why are there record numbers of homes on the market when the properly priced homes are being gobbled up (some at even higher than the listing price)? Because there is a huge difference between a home ‘being on the market’ and a home that is seriously ‘for sale’. Sellers who are serious about selling are aggressive with pricing because that is how you gain the highest price. A little counter-intuitive maybe; but, it’s very true.
Pricing is the centerpiece of your real estate agents marketing plan (although not the only component). The marketing plan should be designed to drive as many qualified buyers to see your home because THAT is the single most important factor in getting the most money – the number of people bidding. My advice is to give yourself the best chance for highest bids by pricing the home at a compelling number.

Why the Wealthy Are Buying

by The KCM Crew on April 13, 2011

We have taken the stance that real estate is currently a great investment. There have been MANY that have let us know that they think we are crazy. Today, let’s look at a few prominent people, media sources and one very important group that agree that now is the time to buy.
Fortune Magazine and The Wall Street Journal
John Paulson, billionaire investor.
Donald Trump, no introduction necessary.
Barbara Corcoran, real estate TV personality.
A pretty impressive list! The question: Is anyone listening to them? The answer: The wealthiest people in the country. According to the most recent Existing Sales Report from the National Association of Realtors, at a time when sales of all homes have decreased 2.8% compared to last year, homes over $1million dollars are selling at a rate 3.9% higher. Why are the wealthy purchasing real estate right now?

• Money is cheap. The 5% interest rate will not be available forever.
• The ability to lock in that interest rate for 30 years may soon disappear.
• Getting a mortgage may get much more expensive soon.
• They want to buy low and sell high. The price of real estate is low.

Bottom Line

We know many will disagree with us about now being the time to buy. But if the wealthiest people in the country are buying, shouldn’t we at least consider the possibility?

4 Mistakes to Avoid When Buying a Foreclosure

Foreclosures continue to flood real estate markets across the country, and buyers are looking to cash in on what they view as some of the best real estate deals. But experts say that while some foreclosures are a great purchase, buyers need to be cautious before jumping in to make sure they really are getting a bargain.

Dan Steward, president of Pillar to Post Professional Home Inspections, advises buyers considering a foreclosure to avoid the following:

1. Don’t judge a house by looks alone. A $2 million mansion may look fabulous but have mold hiding beneath the walls or need numerous, costly repairs. A fixer upper, on the other hand, may look rundown but have excellent bones and can be repaired at a reasonable cost. A home inspection prior to purchasing a property can help buyers determine if they might be getting in over their head, Steward says. He cautions buyers to not just rely on previous inspections, however, since vacant homes can deteriorate rapidly.

2. Don’t focus on price alone. Buyers may focus on the ultra-low price so much that they forget to factor in other qualities, such as the home's school district, view, location, and crime rate. Steward cautions buyers to not assume that financial problems of the previous owner are the main reason for every foreclosure.

3. Don’t be tempted to “flip.” Purchasing a home at bargain price, updating it, and then trying to sell it for a lot more may seem tempting, but Steward warns buyers to be cautious. Unless the buyers are pros at house flipping, they’ll likely run into several novice mistakes in trying to make fast money on flipping a foreclosure. Steward recommends buyers consult a real estate professional, home inspector, and contractors before considering a flip.

4. Don’t go over budget. Foreclosures often require some fixes so buyers need to make sure they have the money to afford needed repairs. Steward recommends that buyers have at least half of the money in cash for needed repairs. He says that buyers will want to avoid taking more loans than needed, particularly private loans, because the interest on them will slowly chip away at their initial foreclosure bargain.

Source: “What to Watch Out for When Buying a Foreclosure: Help Your Clients Know Which to Buy ... and Which to Walk By,” RISMedia (April 7, 2011)

Investors, Foreign Buyers Cashing in on Market

With affordability at an all-time high, the number of investors and international buyers taking advantage of bargains has reached a record number in all-cash purchases — and some experts predict that number will only grow higher.

A record 33 percent of existing-home sales were made to cash buyers in February, the National Association of REALTORS® recently reported. The proportion of cash deals could hit 40 percent by the end of this year, predicts Thomas Popik, research director for Campbell Communications in Washington, which conducts monthly surveys of 3,000 real estate brokers.

"Lenders have only been willing to lend to the cream of the crop in terms of credit scores," says Walter Molony, an NAR spokesman. "As a result, you're seeing a depressed level of traditional buyers."

But it’s not just investors moving in: Many of these cash deals are also coming from a growing number of international buyers. About 55 percent of international buyers paid cash for their U.S. homes, according to an April 2010 report by NAR.

The Cash Buyer Advantage?
Cities where about half of all purchases were done with cash include Detroit, Miami, Las Vegas, and Phoenix, in which prices have dropped considerably and foreclosure rates remain high, says Oliver Chang, a housing market analyst with Morgan Stanley.

Short sales and foreclosures accounted for 59 percent of last year's cash sales, according to a report by Morgan Stanley.

"You buy the house at a discount with cash. Then you flip it almost immediately to the first-time home buyer who's using a mortgage, simply because they were not able to buy at the foreclosure sale," Chang says.

Lenders increasingly reject mortgage applications for foreclosed properties because appraisals are often too far below the agreed-upon price or the transactions take too long to close, says Popik.

With tightened lending standards, cash purchases can provide buyers with more leverage and allow buyers to close properties more quickly.

Mike Simmons Troy, a Detroit real estate investor, says that if a house is listed at $40,000 and a buyer offers $35,000 cash, "nine times out of 10, the bank will take the cash."

Source: “Cashing in on Bargains,” Detroit Free Press (April 10, 2011)

Read more:

Success Story: Foreign Clients

Rental Costs Are About to Takeoff

by The KCM Crew on April 8, 2011

We are often asked whether it is better to rent or buy in the current housing market. The answer to that question is: “It all depends”. There are certain situations where renting short term probably makes sense. It may make sense if you are retiring to a different region of the country and are not yet sure where you want to set down roots for the next 25 years. It may make sense if you have a one year employment contract which will probably require a move to another place upon termination.
However, in most other cases, renting right now makes little sense for several reasons.

• Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase.
• Mortgages may soon become much more expensive than they are right now.
• Owning a home is less expensive than renting a home in 72% of major U.S. cities.
• Rental costs are about to explode.

Let’s take a closer look at the last reason. We have often said that the cost of anything is based on supply and demand. The number of widgets for sale and the number of widget buyers together create the price for widgets. That will also apply to rents. There is a much larger demand for rentals right now. The economy has forced many to leave their foreclosed homes and other buyers are afraid to plunge into homeownership.
At the same time, the supply of rentals is rapidly decreasing. Here is a graph from Calculated Risk showing the apartment vacancy rate in the United States:

When supply is rapidly decreasing and demand is quickly increasing, prices have only one place to go – and that is UP! That is exactly where rental prices are headed.

Bottom Line

Is now a good time to rent? We think not. You can buy a home today at a discounted price and get a 30 year mortgage at a historically low interest rate. You can set your housing expense for the next thirty years. On the other hand, rental costs are poised to increase for years to come.

Where Have All the Foreclosures Gone?

by The KCM Crew on April 6, 2011

The inventory of foreclosed homes for sale has been dwindling for almost six months. Everyone is wondering if the worst of our challenges with distressed properties are behind us. We are sorry to report that isn’t the case. We must realize that the problems banks have experienced with their paperwork on these properties has done nothing but delay them from coming onto the market.
The robo-signing blunders and then the MERS mess have caused the banks to slow down the foreclosure process dramatically.  Just last week, the Office of Thrift Supervision released their Mortgage Metrics Report covering the 4th Quarter of 2010. In that report, they showed how foreclosure completions fell sharply because of these paperwork complications. Here are the numbers:

 

Foreclosures are not disappearing. They are just being delayed.

Bottom Line

If you think that waiting to sell your home makes sense, you may not be correct. Check with a local real estate professional to see how this will impact your market.

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Bargain-Seeking Home Buyers on the Hunt

Housing prices across the country are at multi-year lows and mixed with low interest rates bargain hunters are targeting real estate.

More investors are heading to the market looking to make cash buys for real estate, investing in second or even a third home, Reuters News reports.

"We're starting to get a lot more inquiries and assisting in transactions," says Rocco Papandrea, a senior vice president and wealth management adviser at Merill Lynch in New York. Papandrea says he’s seeing more interest in properties along the West Coast and in Colorado, as well as Florida.

Canadian buyers in particular are expected to be looking to purchase U.S. homes. The Bank of Montreal estimates that one-in-five Canadians is considering buying U.S. property.

With dropping home prices, more cities are looking to be attractive buys, such as the increasing affordability in popular vacation-home designations along the U.S. Sunbelt. For example, home prices have fallen 44 percent in Tampa, 54 percent in Phoenix, 57 percent in Las Vegas, and 49 percent in Miami, the Bank of Montreal reports.

"If the economy keeps clicking along and jobs keep growing, housing will be fine," says Dean Frankel, a portfolio manager at Urdang Capital Markets in Plymouth Meeting, Pennsylvania, who oversees around $1.7 billion in real estate equity investments.

The economy--and ultimately housing--may then get a boost from the latest unemployment report released Friday. The unemployment rate reached a two-year low of 8.8 percent in March as companies began a brisk wave of hiring, adding employees at the fastest two-month pace since before the recession even started, the Labor Department reports.

The unemployment rate has fallen a full percentage point in the last four months, which marks the sharpest drop since 1983.

Source: “U.S. Housing Market Attracting Bargain-Hunters,” Reuters News (March 31, 2011) and “Unemployment Rate Falls to 2-Year Low of 8.8 Pct.; Employers Add 216k Jobs in March,” The Associated Press (April 1, 2011)

Flipping Foreclosures Becomes New Game

More investors are finding a sweet spot in flipping foreclosures, but it’s not the same type of house flipping seen during the real estate boom.

During the housing boom, investors would take advantage of skyrocketing real estate prices and loose lending regulations by buying a property, remodeling, and then selling it for profit.

Today’s flippers are buying at ultra-low prices — mostly in cash deals — and are doing mostly only minor repairs, such as repainting, replacing appliances, and sprucing up the landscaping. Their profits aren’t as large when they sell, but they may sell more properties in a year, says Penny Boling, the broker-in-charge of Century 21 Boling and Associates in Myrtle Beach.

The 'Street Sweepers'
Keith Gamble has made foreclosure flipping a full-time job. He purchases properties at a monthly foreclosure sale and usually has about four properties at any given time.

“Some people’s bad fortune is other people’s opportunity,” Gamble says. “I know that sounds callous — I know people doing what I’m doing at the courthouse each month are there to take advantage of that opportunity, but I also feel we provide a backstop to the market.”

The flippers are often taking the neighborhood’s blight and helping to fix up the homes that had been badly trashed from the previous owner. Boling says the investors’ abilities to also pay cash will help the market get through the abundant foreclosures that are plaguing sales.

“They’re kind of like the street sweepers,” Boling says of the property flippers. “They’re part of the cleanup committee of this marketplace.”

Source: “Foreclosures Offer New Twist on Old Game: Flipping Houses," RISMedia (April 4, 2011)

It Pays to Support Responsible Homeownership

By: Dona DeZube

Helping others become homeowners protects your home's value and builds stronger communities.

When people move from renting to owning a home, they're more likely to vote, get involved in community groups, and care about their home's appearance. The children of homeowners do 23% better in school, according to a 2001 study by Harvard's Joint Center for Housing Studies. And a steady flow of first-time homebuyers makes it easier to sell your own starter home when you're ready to move up to a larger property.

Make housing affordable

One way to make more people homeowners is to make housing more affordable. All U.S. homeowners benefit from policies like the mortgage interest tax deduction. Many use government-backed mortgage insurance to lower loan costs. A variety of public and private programs offer low-cost loans and downpayment assistance to help Americans become homeowners. Help prospective homeowners save a downpayment by donating to sites like EARN, a non-profit that uses donations to match funds saved by low-wage earners.

Reduce foreclosures and preserve home value

Foreclosure matters because it hurts all homeowners. In 2009, foreclosures will cause property values to decline an average of $7,200 for about 70 million homeowners, resulting in a $502 billion loss in home equity, the Center for Responsible Lending estimates. Each foreclosure within 1/8th of a mile of your home lowers your property value about 0.744 percent, CRL says.
"One of the sad lessons of the [recent past] is that we aren't alone," says Nicolas P. Retsinas, director of the JCHS. "It's clear that if the family next door loses their home to foreclosure, my home's value will go down. Therefore, I have a vested interest in ensuring that people become homeowners and that homeownership is sustained over time."
One effective tool against foreclosure is educating homeowners before they buy. The Joint Center found that loan delinquencies fell 13% with homeownership counseling. People who go through pre-purchase and post-purchase counseling and learn about mortgages, family budgeting, and home maintenance are less apt to face foreclosure, says Michael Berti, senior homeownership specialist at the Rural Ulster Preservation Company in Kingston, N.Y.

Support groups that help homeowners

One way to do your part to help other homeowners is by donating your time or money to some of the many non-profits that promote responsible homeownership.
Habitat for Humanity partners with new homeowners to build affordable housing. Habitat homes aren't free. Homeowners work hundreds of hours, get homeownership counseling, and make mortgage payments.
The United Way supports many local programs that build affordable housing, help families build financial assets, and teach financial management skills. If you donate to United Way, you can direct your contribution to those causes.
HomeownershipSF, in San Francisco, tries to intervene where people facing foreclosure have the resources to catch up on their loan. If "the home can't be saved, we try to get a first-time homebuyer we've worked with into the home as quickly as possible to stabilize the neighborhood," says Interim Director Christi Baker.

Government programs support homeownership

Supporting federal state, and local programs that help create homeowners is another way you can expand responsible and affordable homeownership.
The U.S. Department of Veterans Affairs and the Federal Housing Authority provide mortgage loan insurance or guarantees that let people buy homes with only a small downpayment and borrow at lower interest rates.
Government-sponsored groups Fannie Mae, Freddie Mac, and government-run Ginnie Mae buy and securitize mortgage loans made by banks, freeing up money, so banks can keep lending.
Sites like Govtrack and RollCall help you stay on top of laws that affect homeowners.
HUD's HOME program provides financial support to state and local housing authorities to build and renovate for-sale and rental housing for lower-income Americans.
In U.S. cities of all sizes, the HOPE VI program has funded plans to replace deteriorating public housing with new low-rise, mixed-income homes. These developments sell most homes at market rates, but designate a percentage for use by low-income homeowners.

How to get involved

You can support responsible homeownership in many ways. Retired construction contractors France and Bill Moriarity travel the country in their RV managing Habitat construction projects. "We like it because it's a hand up, not a hand out," France Moriarity says. Habitat volunteers don't need construction skills and can sign up to work as little as one day at a time. Groups can volunteer together. Organizations like Rebuilding Together and NeighborWorks America sponsor once yearly volunteer events that help lower-income homeowners repair their homes.
In San Francisco, Gregg Lynn convinced 150 people from his professional network to donate a percentage of their income to EARN. Follow his lead by asking your professional network, trade association, or social group to contribute.
Dona DeZube has been writing about real estate for over two decades. She lives a suburban Baltimore 1970s rancher on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer, and her blue-tick hound.

Housing Shortage on the Horizon?

Mike Castleman, founder and CEO of Metrostudy, which tracks real-time data of the country’s inventory of new homes, says a housing shortage is looming that will soon will create a huge surge in demand for new homes. As such, now is the time to buy, he says.

In the 41 cities Metrostudy covers, 78,000 houses are either vacant and for sale, or under construction — that is less than a quarter of the new homes that fell in that category during the housing boom in 2006 and way below the level of a decade ago.

"If we had anything like normal levels of buying, those houses would sell in 2½ months," says Castleman. "We'd see an incredible shortage. And that's where we're heading."

The historic drop in new construction mixed with the decline in housing prices is laying the foundation for a dramatic recovery in residential real estate, Castleman told CNN. Castleman expects home owners soon will start returning, which will drive up prices in many markets later this year.

While demand remains low for new construction, he expects that to change. He foresees the recovery following a similar path as previous ones: A severe housing shortage will drive a big increase in demand.

“We'll get a big surge in demand and the drywall companies will take a long time to ramp up, and it will take years to get new lots approved,” he predicts. “Buyers will show up looking for a house in a subdivision, and all the houses will be sold. The builders will tell them it will take six months to deliver a house." But they’ll want the house so bad that they’ll “bid the prices up."

Source: “Real Estate: It’s Time to Buy Again,” CNN (March 28, 2011)

Don’t Believe Everything You Read

by The KCM Crew on April 1, 2011

Many headlines in the media right now are proclaiming the total collapse of the housing market. What makes it seem very believable is the headlines are based on two reports from the National Association of Realtors (NAR): the Existing Home Sales Report and the Pending Home Sales Report. However, all is not what it seems.
Both reports look at two different sets of data:

• A year-over-year comparison of transactions (Y-O-Y)
• A month-over-month comparison of transactions (M-O-M)

The negative headlines you have been reading are based on the Y-O-Y statistics. They are horrific. There is a logical explanation for this however. Last year, at this time, we were headed toward the expiration of the Homebuyer Tax Credit, one of the greatest buyer tax incentives in American history. There were people rushing to get their home into contract and/or to a closing. This dragged demand forward. People who would have normally closed later in the year moved their closing up in order to take advantage of the tax credit. Comparing sales in the first four months of this year to the same time last year wouldn’t be comparing similar situations. That wouldn’t make sense.
A better way to judge the market at this time is to compare month-over-month sales. Here is a graph showing the increase in pending sales over the last twelve months.

As we can see, sales dropped dramatically after the expiration of the tax credit in April 2010. Then sales began to slowly rebuild and are now increasing nicely.

Bottom Line

The market is gaining momentum not losing ground. Headlines sell papers. Actually knowing what is truly happening in the real estate market is what’s important.