Realtors and other real estate professionals have known about this for at least a year.  It’s been written about in the real estate blogosphere for months. Now the mainstream press is starting to pick up on it.  Here is the headline in the Washington Post: Foreclosure Wave Threatens Stability of Hosing Market (note: the Washington Post website will archive this article after today and require registration to read it.  Registration is free!).

This story is not buried in the back pages. It is at the top of the newspaper on the front page.  The Washington Post thinks it’s that important.

You should really read the article for yourself but here’s the gist:

• Many, many more home owners are becoming seriously delinquent with their mortgages.
• Banks have been working through the foreclosure process which can take as long as a year.
• Once this “shadow” foreclosure market oozes out into the market these foreclosed homes will further depress home prices
• This foreclosure mess is not short term.  It is expected to take at least three years for the homes to be released to the market and then bought by other home buyers

It’s a mess.  We can wring our hands, worry and fret. However, we cannot change reality and when the mainstream press starts to pick up on this stuff and give it prominent coverage, we would be well advised to sit up and take notice.  The Washington Post is not some rogue blogger sounding alarmist.

Here’s Part of the Solution

If you are a home seller with equity in your home, take note.  If you are a home seller with compelling plans to move — job relocation, retirement, assisted living, etc. — take note.  You cannot and will not be able to price your home at a level where it will not sell. Home sellers with equity in their homes will be “taking a hit” on their equity. This is sad.  It’s not fair.  It is reality.  Pricing a home above market levels is a recipe for a prolonged home sale (months and months and months of sitting on the market without an offer to purchase).

The sad reality of the current economic situation with increased unemployment combined with this coming foreclosure wave combined with extremely strict mortgage guidelines (i.e., a tight credit market) is that home prices will continue to feel substantial downward pressure for a long time to come.  In other words, at this point in time — Spring 2010 — we are probably at the top of a housing market that will continue to falter.

Many a year ago, there was no such thing as Virtual Tours or multiple interior and exterior photos of homes on the Internet.  Of course, many a year ago there was no such thing as the Internet.  When people wanted to buy a house, they contacted a Realtor who would help them look for homes that matched their criteria.  They would get in the Realtor’s car and go a callin’.  That’s how people decided about which home they would buy.

Fast forward to today.  Now, if a house doesn’t have multiple photos of every room in the house and lots of photos of all the angles of the exterior of the house and a few pictures of the neighborhood it might get crossed off the list.  I’ve had lots of clients tell me that if a house didn’t have photos they could look at on the Internet, they didn’t go any farther.  It wasn’t even considered.

What About Houses in Bad Shape?

There are a lot of foreclosed homes and short sales in the marketplace today.  Most of those homes do not have more than one exterior photo showing the front of the house.  Why?

• listing agents for the banks that owned the foreclosed homes don’t have the time based on the quantity of homes they list
• listing agents for sellers of short sales don’t want to be bothered
• the home may be in such disrepair that showing a photo may actually deter someone from looking at the house in person

There are even homes that are not short sales or foreclosures that simply don’t look that great.  People who have been living in a home for decades may not have made any upgrades.  Lots of people are really not that tidy.  People die and the house is just filled to the brim with collected artifacts and knick knacks.  The kids (or the Estate of the deceased owner) need to sell the house but they have no strong interest in making it look like a picture from a magazine.

The Written Description

The truth is that many Realtors will write descriptive text about a home as if you might be buying the Taj Mahal.  When you get there you wonder what planet the Realtor was on when they wrote it.  We all know the  “code”.

• Cozy = cramped.
• Lots of potential = massive fixer upper.
• Near schools = the elementary school playground is right next door.
• Golf Course view = make sure you have safety plate glass windows to deflect the flying golf balls

Yet, when some Realtors really lay it on the line and talk about the need for TLC or major rehab, people  don’t want to believe it.  That’s where some photos might come in handy.  However, I can’t help but think it would be doing a disservice to the home seller to expose a home in a state of major disrepair simply for the convenience of the Internet home shopper.

What do you think?  Pictures….or no pictures with an honest written description?

You may have heard that the October 2009 existing home sales numbers shot up, once again, this time by a staggering 10.1%.  That’s a big number.

You can read more about the details at this article by the National Association of Realtors.  The big take away for me in this article is that even the chief economist for the NAR, Lawrence Yun, admits that the increase was driven by the $8,000 first time home buyer tax credit.  If you remember, at the time, the tax credit was due to expire on November 30th. All the first time home buyers that could possibly qualify for a mortgage were scurrying around looking for a home to buy.

Many people, who are paid to think the deep thoughts about this, said that a lot of this “pent up demand” was encouraged or “stimulated”  by the tax credit and that these folks would have bought a home anyway.  Ya think?

Few Homes Does Not Equal Higher Prices…Yet

The article also talked about how home inventories — the number of homes available for sale — continue to decrease.  That’s a good thing.  It means that as less homes are available for buyers to choose from prices may stabilize and keep from falling even more.  However, a great many of the home sales are in the bank owned, foreclosure category.  In other words, it is the bargain basement, low priced homes that are getting snatched up.

The purchase of these low priced bargains create a lower priced threshold for comparable sales in the neighborhood. So, even if you are not in any kind of mortgage distress, the fact that three of your neighbors went into foreclosure affect the price of your home.  It’s sad but true.  No matter how much you try to rationalize how great your home is and how much equity you have, the surrounding neighborhood home sales affects the selling price of your home.

The Metro DC Market

One of the interesting things from the NAR article about existing home sales was this quote from 2010 NAR President, Vickie Cox Golder:

“In parts of the country, especially in Southwestern states but also in Florida and suburban Washington, D.C. (emphasis mine), we’ve been getting many reports of multiple bids in the lower price ranges with foreclosed properties getting absorbed quickly,” she said.

It’s true.  There have been multiple offers on the foreclosed homes in the area.  This is especially true for homes that are in some disrepair but not totally trashed and gutted.  However, suburban Washington, D.C. is a big geographic area and this buying frenzy is localized even within the area.

Tax Credit Extended

More to the point, the tax credit has been extended and expanded.  It now covers the first time home buyer, like before, and home owners that currently own homes. (Click Here for a great chart of the tax credit requirements and restrictions)

Since no one needs to be under contract until April 30th, potential home buyers can sit back and relax until the Spring.  In the words of Lawrence Yun, the NAR chief economist:

“Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” he said. “With such a sale spike, a measurable decline should be anticipated in December and early next year (emphasis mine) before another surge in spring and early summer.”

So it’s not time to pull out the champagne quite yet.  Sellers of mid-range to upper-tier homes are still struggling to get their pricing right in order to sell their homes.  The stimulus may be helping but, like the Cash for Clunkers program for cars, this Cash for Cul-de-Sacs may just be a temporary response to Government stimulus.

Check out the Market Trends for up to 10 zip codes in the MD Suburbs of DC by simply filling in the form over to the right or click here. You will get a totally FREE report e-mailed to you. No phone calls, no spam. I promise.

Fact:  There are a huge number of foreclosures on the market
Fact:  Many/most of these foreclosures need a lot of work
Fact:  If you’re not well-versed on the “ins and outs” of the FHA 203(k) program, now is the time to get started on that learning process.

• An FHA 203(k) is a normal, traditional 30-year fixed-rate loan.
• The interest rate runs about ½% higher than a normal FHA loan,
• The same qualifying guidelines apply to a 203(k) as apply to a normal FHA loan:
• Seller help up to 6% of the sales price
• 620 minimum credit score
• Gift money is OK for some or all of the needed cash

Which FHA 203(k) Mortgage?

There are two categories of FHA 203(k) loans…

1. a streamline FHA 203(k) and
2. a full FHA 203(k) loan

A streamline FHA 203(k) is simply where the total cost of the repairs runs from $5,000 up to $35,000…it is called a streamline because there is no need for a “HUD consultant” (see below).  The cost of the repairs is an agreed-upon price between the buyer and their contractor.

On a full FHA 203(k) mortgage, the repairs run more than $35,000…here, a HUD consultant goes out and tells the buyer and the bank what a reasonable cost should be for the repairs.  The buyer then has to find a contractor willing and able to do the specified repairs for that total cost.

The contractor must be a licensed contractor in the State where the property is located.  The mortgage company cannot allow Uncle Bob or your best buddy at work to do the job…unless they happen to have a valid contractor’s license.  The buyer chooses their own contractor.  The bank must approve the contractor, along with the buyer.  The mortgage company is  going to run his credit report…the mortgage company is going to check with his past clients and suppliers…and the mortgage company is  going to check to see how he has done on any previous FHA 203(k)  mortgages the mortgage company have done with him.

Foreclosure, Short Sale or “Plain Vanilla”

The property does not have to be a foreclosure…any house that needs work can use a FHA 203(k) to put the house back on its’ feet.

You can use the FHA 203(k) with the highly-popular Prince George’s County, MD Neighborhood Stabilization Program (also known as Down Payment on Your Dream).

If you use a direct lender you can count on 45 days for loan approval.  However, if you are combining a FHA 203(k) mortgage with the Prince George’s County, MD Neighborhood Stabilization Program, you had better count on 60-75 days, even with a direct lender.

The down-payment is 3.5% of the total cost of the job…not just 3.5% of the sale price.  For instance, if the house costs $150,000 and needs $50,000 in work, the buyer needs a down payment equal to 3.5% of the $200,000 total cost.

The beauty of the FHA 203(k) program is:

• The buyer picks out their own paint and carpeting and flooring.
• The buyer picks out their own cabinets, appliances and counter tops.
• They renovate that home to their tastes and preferences.

In addition to the required items, the buyer can choose to have some additional work included in the FHA 203(k) mortgage.  For instance, the appliances might be OK, but they would like new, energy-efficient ones.  The counter tops aren’t bad or damaged, but the buyer would love some snazzy granite ones.  As long as the buyer qualifies for these extra items, and as long as the property will appraise OK with these extra items, include them in the plan.  After all, every $10,000 in repairs only adds about $60/month to the payment.

The appraisal is based on the “after-improved” value of the home…the appraiser will know what repairs will be done, and will base the appraised value on what the house will be worth once the repairs are completed.  As long as that appraised value is more than the total of the sales price plus repairs, we are OK.  This is what is so cool about FHA 203(k) loans, the sales price might be $140,000…the house needs $40,000 in work…so you have a total of $180,000…but the house will be worth $225,000 when you’re done!

All This and the Home Buyer Tax Credit, Too

Another thing that makes the FHA 203(k) attractive is that you can use this mortgage and still qualify for the $8,000 first-time home buyer tax credit or the $6,500 existing home owner tax credit.

• The first time home buyer cannot have owned a home within the past three years and there are some are some other requirements.
• The existing home owner must have lived in their home for the past five consecutive years and there are some additional requirements for the existing home owner as well.

Click Here for a great chart of the benefits and requirements of the home buyer tax credit program

Many thanks to Dick Harbin of Monarch Mortgage located in Greenbelt, MD for providing the information used in this blog post.

I’ve written before on how appraisals can affect the sale of your home.

In yesterday’s Real Estate section of the Washington Post, Renae Merle writes an interesting article about the new appraisal rules entitled, In the Eye of the Appraiser.  In this article, Renae details how many home sellers and home buyers are thrown off course by appraisals that come in under the contract price — the price agreed upon by the home buyer and home seller — and even, in some cases over the contract price.  It seems that no matter what the home seller and home buyer agreed upon, it is the appraiser that will determine the true market value of the house.  This value, in turn, is used by the bank or mortgage company to determine the amount of money it will lend to a home buyer trying to purchase a home.

These values can vary widely depending on the area and how many short sales and foreclosures are in the area.  A particular home can be in pristine condition with lots of improvements and still have it’s value depressed by the home prices in the surrounding neighborhood.  To add insult to injury, there is very little the home seller, the home buyer or the bank can do to challenge appraisals that are wildly off the mark.

The article is worth a read.

Check out the Market Trends for up to 10 zip codes in the MD Suburbs of DC by simply filling in the form over to the right or click here. You will get a totally FREE report e-mailed to you. No phone calls, no spam. I promise.

In the current housing environment, there  are lots of home buyers, especially first-time home buyers, that are looking for bargains.  They’ve been told by the media that foreclosures are at record highs and that house prices have fallen to pre-boom levels.  What the media doesn’t tell us is that, in addition to all the foreclosures, there are lots and lots of  “short” sales.  These homes have not been fully foreclosed upon and the bank does not fully own them.  The home seller can sometimes get back on track, pay their mortgage up-to-date, and keep their home.  Other times mortgage companies will work through a loan modification that will help the home owner stay in their home.

Both instances are rare. Generally speaking, when a home owner realizes they cannot keep up with their mortgage payment they know it is just a matter of time before the bank comes with the sheriff to evict them.  However, many home sellers try to sell their home prior to foreclosure in order to prolong the foreclosure process.  Sometimes home owners think that selling their home before their home is fully foreclosed upon will help with their credit score.

Why Banks Take So Long Approving Short Sales

The bottom line is this: the home owner cannot sell their home for anywhere near what they owe for the mortgage.  They are “short”. That’s why it’s called a “short” sale.  In fact, “short” sales take a very long time because the bank must approve the sale. In order for the bank to give their blessing, they will:

• Determine if there is true hardship on the behalf of the home seller
• Determine the true market value of the home based on area sales of similar homes
• Determine the condition of the home
• Determine if applicable State and County laws are being followed as they relate to foreclosures
• Determine how long it might take to actually foreclose on the home
• Review any offer from any buyers and determine if the buyer has the financial ability for the purchase and if the price and other terms are in the best interest of the bank.

Multiply all those steps by the huge numbers of home sellers that are trying to sell their homes for some amount “short” of what they owe on their mortgage and you might have an idea of why it takes anywhere from six to eight to twelve months or more to get a bank to approve a “short” sale.

No Guarantee The Bank Will Approve The Short Sale

Many times, a bank will determine it is in their best interest to foreclose on a house. However, this takes time since there are various waiting periods and notification periods mandated by State and County laws and regulations.  So the property will sit until all the hoops have been jumped through, the auction has been completed and the bank can take possession and ownership of the house.

It’s also important to understand that both “short” sales and foreclosures are sold in total and complete “as is” condition. No repairs are going to be made by anyone.  If the roof leaks, that’s the way you get the house.  If there is fuzzy, black mold crawling up the walls and along the baseboards, that’s the way you get the house.  Cracked windows, gutted kitchens, debris in the basement or garage?  It’s yours.

So long story, short:

• The process takes a long time. (count on a minimum of 6 months)
• There are no guarantees that the bank will even approve a home buyers offer.
• The house comes exactly how you see it.

Check out the Market Trends for up to 10 zip codes in the MD Suburbs of DC by simply filling in the form over to the right or click here. You will get a totally FREE report e-mailed to you. No phone calls, no spam. I promise.

In my travels through the blogosphere, I came across a very interesting post about how one woman was able to put a halt to the foreclosure proceeding against her. It has beauty and elegance in its simplicity.

I, personally, advocate doing anything you can to stay current with your mortgage payments. I think that keeping your payments up is probably the easiest way to keep your house and keep your credit intact. Foreclosure should never be the first option. However, when push come to shove, this post on Sellsius, entitled How to Stop Your Foreclosure: Ask for the Note, is interesting reading.

Consult an attorney before you try this route.

In this video by Jonathan Jarvis, entitled The Crisis of Credit, Visualized, there is a clear, consice and easy to understand primer of how we got to where we are today.  It’s a little over eleven minutes long.  It’s well worth the time!

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Depending on who you listen to or what Internet site you surf it was either 3° or 7° when I went outside to pick up The Washington Post from the end of my driveway.  Even though there was no wind,  it was c-o-l-d.  I could feel the air going through my nose and making it feel kind of funny.

How Cold Affects Showing Homes

In a general way, showing homes in the cold is no different from showing homes in any type of weather.  If the home is still occupied by the owner and they agree to have their house shown, you and your Realtor just toodle on over and view it.  If it’s a vacant home, your Realtor logs in the appointment with the listing agent or showing service and you go on over.

Still, it means that you really need to bundle up and be prepared for the cold.  Many homes that have been vacant for awhile are very cold inside since the heat has been shut off or turned way down for an extended period.  Hopefully the owners or the banks, in the case of foreclosed homes, have “winterized” the homes so that water pipes don’t freeze and burst creating flooding that will lead to mold and worse.

It’s also important to think of the “other guy”.  The other guy could be your Realtor or, if you’re the Realtor, the other guy could be your client.  Don’t leave each other “out in the cold” with the car running or standing around outside waiting.  As inconsiderate as this is during nice weather, it’s really bad news during the times when temps are in the teens or below.

More on Vacant Homes

In this market there are lots of homes that are in “short sale” status.

This means that the current owner/Seller still owns the house and is responsible for the upkeep and maintenance of the property. The problem is, many times, the owner/Seller has walked away from the house.  That’s right.  They have actually moved out of the house and, quite possibly, mailed the key to the bank.  In this case, the houses might not only be cold (they most certainly will be) but they’ll be dark after the sun goes down since the owner/Seller has probably stopped paying the electricity bill, too.

My guess is that if you’re looking at homes in this weather than you are a serious buyer who really wants to buy a home.  If you’re selling your home during these winter months it means you really want to sell your home. The important thing to remember is to:

• bundle up,
• come prepared with a flashlight and
• your notepad.

If you’re interested in seeing a home – in any weather – just shoot me an e-mail or give me a call at 240-417-9100.

As reports go, this one, from the Maryland Department of Housing and Community Development, is pretty timely.  The report is from a quarter that ended a few months ago but, of course, it takes time to collect all the data and compile it into a report that can be distributed.

It shows a pretty bleak picture for the two Counties in the MD Suburbs of DC that I serve (Montgomery County and Prince George’s County).  However, it also shows a little bit of a downward trend.  I’m not sure how much of this is because banks have slowed down on their foreclosure activity because of new State law, the Christmas season, winter or whatever.

Here is the report, entitled: Property Foreclosures in Maryland – Third Quarter 2008

Complete with maps, tables, graphs and everything!