RE-AL NEWS

Clock Ticking on FHA Limits

2011-07-25T23:06:00.002-05:00

If ever there were a Cinderella moment in real estate, it will strike this fall when the gilded, stimulus-minded mortgage limits for FHA loans return to their pre-recession, pumpkin-patch levels. As of Sept. 30th, the current mortgage loan limit of $365,000 will fall back to $274,050. That's an entire castle's worth of lost buying power. In addition, experts predict the minimum down payment (now 3.5%) is bound to rise again. So, as a prospective home buyer, take advantage of FHA's programs and historically low interest rates to purchase - at prices that rival rent payments! Doing so will help to ensure your 'glass slipper' dreams of home ownership aren't shattered. Besides, your fairy godmother would be proud.

FLOOD INSURANCE: IT’S NOT JUST FOR RIVER DWELLERS

2011-04-25T22:01:00.001-05:00

We've all seen media coverage of the incredible devastation wrought by this year's spring floods. Even homes miles away from any type of water are regularly affected by floods and flood related mudslides. Unfortunately, the vast majority of those who suffer damage do not carry flood insurance and "flood" is one of the primary exclusions on a typical homeowner's policy. Flood insurance is not difficult to purchase, but there are limitations and restrictions to "wade" through, such as:

Water entering your home from snow melt is not covered under a flood policy unless surface water or mudflow covers 2 or more properties, or an area of at least two-acres is affected.
The maximum property coverage you can purchase through this program is $250,000 for a private dwelling, and $100,000 for contents.
Coverage for property in a basement or sublevel is very limited to building and equipment only.

Typically, there's a 30-day waiting period from date of purchase before your policy goes into effect. However, if Flood insurance is required for your closing, there is no waiting period for the policy to take effect.

OWN A HOME? BOOST YOUR INSURANCE COVERAGE

2011-04-05T12:31:00.001-05:00

A lot has been written about the importance of protecting one's financial future against loss by purchasing an excess liability umbrella insurance policy. After all, one in five liability lawsuits are settled for well over $300,000. The evidence is irrefutable....every adult who owns a motorized vehicle and/or owns or leases a place to live needs an umbrella liability policy. That being the case, the next logical question is, how much umbrella coverage does one need to purchase? Unfortunately there is no definitive answer. The general rule of thumb is "cover your net worth," however, as you will see below, this cannot be the only measure. There are many other factors that must be carefully considered from a risk management basis when choosing an amount of umbrella coverage. Here are a few areas to consider:

Ø Your future earning potential.

Regardless of your current net worth your future earning potential could be significant. If you are found liable for injury to another and were short on your coverage, you could have your wages garnished and paid to the injured party for years to come.

Ø Your hobbies and social activities.

Certain hobbies or activities can substantially increase your liability. Golf, for example, surprisingly causes frequent injuries. Hardly a golf season goes by without a cart accident or someone striking another with a golf ball. Should you be unlucky enough to hit someone else with a golf ball, the results could be financially devastating. Other "high liability" activities include hunting, casual racecar driving, and fishing tournaments.

Ø Your possessions.

Multiple properties as well as many "toys" that are owned can drastically increase your liability exposure. Multiple properties carry higher exposure primarily due to the simple increase of "exposed" land. Also, vacation homes, cabins, etc. are often "loaned" to friends and family and the exposure to injury on the property increases dramatically.

Toys such as jet skis, snowmobiles, ATV's, boats, and high performance vehicles are all liability increasing exposures. In fact, the majority of severe bodily injury claims occur due to the use of these vehicles.

Ø Clubs you belong to.

If you purchase stock in a private club you have just assumed a substantial amount of liability exposure. As a shareholder, you are subject to assessments from the club for any shortage in insurance proceeds for a claim of bodily injury or property damage against the club.

Ø Swimming pools.

Swimming pools account for more home liability claims than any other type of loss with the exception of dog bites. While pools are inherently dangerous on their own, diving boards and water slides increase the exposure dramatically.

Ø Dog bites.

Dog bite claims account for more personal liability claims than any other exposure. With the substantial increase in dog ownership in the U.S., the number and size of dog bite claims is increasing dramatically.

Ø Boards of Directors

Whether the Board(s) you sit on is non-profit or for-profit your personal wealth is at risk. Should there be a non-covered or under- funded loss to the organization, members of the Board of Directors are typically held personally liable. This exposure is potentially enormous.

Ø Children

Without a doubt, children represent an extraordinary exposure increase. Persons under the age of 24 operating an automobile or any other type of motorized vehicle, account for the vast majority of large, tragic accidents. If that weren't bad enough, the newest exposure, lawsuits stemming from "toxic" postings on social networks, have increased in both number and size of "damages."

Ø You

Whether you are an entertainment, sports, or other type of celebrity or if you are simply a relative of a celebrity, lawsuits that involve you just grew dramatically. People with celebrity status suffer more frequent and larger lawsuits because they are perceived to be wealthy.

Obviously, no one can ever accurately determine your exposures and the amount of umbrella coverage to purchase. The above is simply a guide; however, please pay close attention to your own personal profile. As you can tell by the statistic above, umbrella claims occur rather frequently. Don't be caught short!

2011-02-17T14:54:00.001-06:00

The Obama administration laid out three broad options Friday for reducing the government's role in the mortgage market. All three would almost certainly lead to higher interest rates and costs for borrowers. The administration said in a report that the government should withdraw its support for the mortgage market slowly, over five years or more. The report describes a path for winding down the troubled mortgage giants Fannie Mae and Freddie Mac. But rather than making a single recommendation, the administration offered Congress three scenarios and will let lawmakers shape the final policy.

The options are:
· No government role, except for existing agencies like the Federal Housing Administration.
· A government guarantee of private mortgages triggered only when the market is in trouble.
· Government insurance for a targeted range of mortgage investments that already are guaranteed by private insurers. The government guarantee would kick in only if those private companies couldn't pay.

The private sector will assume a greater role in housing finance under all of the options. The government currently owns or guarantees more than 90 percent of new mortgages. "Under any of the scenarios there's going to need to be more private capital in the housing system," said Michael Barr, who recently left his post as assistant treasury secretary to return to teaching at Michigan University Law School. "That's going to mean more pressure on interest rates." The bailouts of Fannie and Freddie have cost taxpayers nearly $150 billion. Republicans have called for Fannie and Freddie to be abolished, and have largely blamed the two for leading the country into the 2008 financial crisis. But there is a growing recognition that drastic action would upend the housing finance system, threatening the broader economy. The report comes after years of debate about how to end the government's role in housing. The options have been discussed for years as well.

By handing the decision to Congress, the administration sidesteps one of the most complex and politically explosive questions facing the financial system. Any of the three options will almost certainly cause mortgage rates to rise. Treasury Secretary Timothy Geithner said the Obama administration needed to defer to Congress on a final decision to avoid having a "monopoly on ideas." He said the housing industry was years away from recovery and that it would take five to seven years to dissolve Fannie and Freddie. "We're going to drive West without knowing where we're going," Geithner said. "Somewhere around Salt Lake City, we'll have to make a choice." A near-complete withdrawal by the government probably would end the popular 30-year fixed rate mortgage or, at least, make it more expensive. Banks would prefer adjustable-rate mortgages that would fluctuate with the markets. However, all three options maintain some level of government support, either through guarantees or through existing agencies,such as the Federal Housing Administration.

Administration officials said the proposals will end the hybrid model of public-private companies that left the public on the hook for billions when Fannie and Freddie failed. The housing finance system should guarantee access to affordable housing for Americans who can afford it, they said. To that end, any plan would increase support for rental housing, add safeguards for people in rural and underserved areas and preserve FHA loans for low- and moderate-income borrowers. The report, issued jointly by the Treasury Department and the Department of Housing and Urban Development, suggests several short-term measures that would effectively increase the cost of taking out a government-backed mortgage.

Other financing options would become more competitive, drawing private dollars back into the market. These include reducing the maximum size of mortgages purchased by Fannie and Freddie by more than $100,000, to $625,000, by October. The companies would require 10-percent downpayments for all loans. And the fee for the government guarantee would increase. Geithner said the plan to dissolve Fannie and Freddie would proceed "very carefully," and promised that the companies would have the cash they need to meet their existing obligations. "We think there's very broad consensus on the Hill and in the broader private market that there needs to be a transition to a much smaller role for the government," he said.

The plan calls for changes beyond the government's massive support for mortgage finance. For example, it says there should be national standards for the companies that collect borrowers' monthly payments. Those companies, known as mortgage servicers, admitted last year to foreclosing on borrowers without filing the required legal papers.

The New Urgency

2010-12-18T21:14:00.002-06:00

Along with gasoline prices, you may have noticed that interest rates have certainly inched up as of late. But in this market we often hear from buyers that there are so many houses on the market, they just don't feel any need to rush, or that they know that there will be more houses coming on the market, so they don't feel there is any urgency to buy right now.

While those statements may be partly true with regard to inventory – now and next spring – it's important to understand why there may very well be some urgency that's not readily apparent.

With every small advance we've made (and will continue to make) through this economic recovery, interest rates will most likely continue to inch upwards. Here are some concrete numbers to show what difference these incremental moves can mean to your borrowing and purchasing power:

At 4.25%, the principal & interest (P&I) payment on a $250,000 loan is $1,229.85.
At 4.875% (the rate as of 12/17/10), with that same $1,229.85 P&I payment, the loan amount would be $232,000.
At 5.875%, that same payment of $1,229.85 would give you a loan amount of only $207,900.
That means if you bought a home with a payment of $1,229 two months ago, you were able to get $18,000 more home for the exact same cost as today. That's a 7% difference. Waiting until rates hit 5.875% will mean $42,000 less home for difference of 17% difference.

Looking at this change over time:

$250,000 at 4.25% = P&I of $1,229, whereas $250,000 at 5.875% = P&I of $1,479 for a difference in the payment of $250 per month for the same loan amount. That equates to $30,000 difference in payments made over just the first 10 years.
Using those same terms, over the first 10 years, you would pay $96,190 in interest at 4.25% and $135,972 in interest at 5.875% for a difference of $39,782.
If you'd made standard payments over those first 10 years and then went to sell, your principal balance (had you been at 4.25% ) would be $198,081. But if you were at 5.875%, your principal balance would be $208,053. Same initial loan amount. Same time in the home. But at 4.25% you're walking away from the closing table with an additional $9,972 atop of the $39,782 in interest you had saved. That's an overall difference of $49,754 in your pocket because you bought when the rates were 4.25% rather than waiting for a "better" deal when the rates had gone to 5.875%.

With the economy moving, albeit slowly, in the direction of a recovery, the rates (and eventually prices) will continue to rise. Is the picture (and level of urgency) getting any clearer now? J

[Stats courtesy of Bart Anderson, Edina Realty Mortgage]

2010-11-21T09:14:00.001-06:00

This week put fairly continuous upward pressure on mortgage rates. We have inched up about .25% within the last two weeks. This upward pressure has been fueled by inflation fears in China, some higher than expected economic reports in the US (i.e., retail sales and Philadelphia Fed Manufacturing Index) which were slightly positive t...owards the economic recovery, and QE2 – the Fed’s new bond and treasury purchase program. Again, one of the goals of QE2 is to create some mild inflation to offset the fear of deflation in the US, and bond investors are a bit nervous about that. Next week, the Treasury has announced that it will auction $99 Billion in 2, 5 and 7 year notes. Considering it's a holiday-shortened week. which will result in a reduced amount of trading, we could see the bond market even a little more volatile than it has been. Stay tuned.

2010-04-30T12:14:00.000-05:00

Best Housing Markets 2010

2010-03-10T11:29:00.000-06:00

Some U.S. housing markets have faired quite well regardless of the economic turmoil of recent years. These markets share a few things in common: modestly appreciating home prices, a high affordability rating, better-than-average economic activity and a low foreclosure rate.

RealtyTrac, an online marketplace of foreclosure listings, estimates that 4.5 million foreclosure filings are expected in 2010, up from 2.8 million in 2009. This weighs heavily on the housing market. Foreclosures supply an excess of inventory that destabilizes home prices. Louisville, Kentucky, is fairing well partially because it has a 1.15% foreclosure rate, the lowest in the country, and about half the national average. Louisville — as opposed to some coastal cities and vacation destinations — never really encountered the boom and so it’s been less affected by the bust.

Midwestern cities such as Indianapolis, Minneapolis and St. Louis have among the best housing markets largely because they have some of the best housing affordability rates in the country. Indianapolis had the highest affordability with 96% of homes affordable to families making the median income.

According to Forbes, Pittsburgh, Pennsylvania, has the best housing market in the country for a host of reasons: the second lowest foreclosure rate, a housing affordability rate of 85%, home prices anticipated to increase 2.67% in 2010, and a diversified and comparatively robust economy. This stable economy is largely due to Pittsburgh transforming itself, over several decades, from a center of manufacturing to one of education and health care.

Stable economic activity is also boosting the real estate markets in Tacoma and Seattle, Washington. The housing market in Memphis has faired well and is expected to improve, largely because the city’s largest employer, FedEx, will be one of the first industries to rebound in the economy recovery.

LIKE LOW RATES? TIME TO BUY IS NIGH

2010-01-09T10:44:00.006-06:00

Since the beginning of 2009, the Federal Reserve allocated $1.25 Trillion to purchase Mortgage Back Securities. This buying power has been one of the single largest reasons that interest rates have stayed so low. Through the end of the year, they have spent $1.11 Trillion, leaving $140 Billion remaining to be spent through the end of March 2010, which is when they have said their buying program will expire. The end of the buying spree will likely put upward pressure on rates as a large institutional buyer (the Fed) will be out of the market. Yields most likely will have to rise (rising rates) to lure other buyers in.

The National Association of Business Economists (NABE) said in an article on Nov 23rd that they expect companies to begin adding jobs in this first quarter of 2010 (Yeah!). Many experts predict that the return of jobs is an integral cog in the country’s economic recovery. If that's the case, as the jobs return, the economy will begin to recover in earnest, which will raise consumer confidence but will also most likely lead to higher rates, as the Federal Reserve sees opportunities to raise the Federal Funds Rate (the rate by which banks lend to each other).

As consumer confidence grows, this will increase the velocity of money (a good thing for a recovering economy) as consumers and businesses feel more comfortable spending and banks feel more comfortable lending. This will also, most likely, cause some form of inflationary pressures and, once again, upward pressure on interest rates.

There will most likely be a window of opportunity as jobs and confidence begin to return, while rates continue to stay relatively low. As a result, this will be a good time to be poised to buy or sell.

2009-12-21T10:45:00.006-06:00

Housing Starts for November were in line with estimates and, as you can see in the chart below, the housing sector seems to have stabilized after bottoming out at 458,000 Housing Starts in April.

Meanwhile Building Permits, which are a leading indicator of housing construction, reached the highest level seen in the past year. This is encouraging, and the extension of the Home Buyer Tax Credit should provide an added boost for home sales over the next few months.

LOW RATES WON'T LAST. HERE'S WHY

2009-11-16T10:36:00.008-06:00

The Federal Reserve's purchases of Mortgage Backed Securities (MBS) peaked at an average of $250-billion per week last May - and they are getting closer every day to being done spending their allotment of $1.25-trillion. Since they announced that their remaining purchases would be rationed out until the end of March 2010 - but not making any additional purchases beyond the original commitment - the average purchases per week have been moving lower, down to $14 Billion per week so far in November (see chart ).

Why is this important? Because home loan rates are based on MBS - so when the Fed agreed to be a big buyer, it helped provide a market and helped keep MBS prices high and home loan rates low. So as the Fed's program wraps up and eventually stops (and/or inflation raises its ugly head), home loan rates are quite likely to be on the rise. So while rates are still very good, they may not be for long. Tick-tock.

Homebuyer Tax Credit Extension

2009-10-29T13:47:00.002-05:00

Yesterday (Wed.), the U.S. Senate reached a tenative agreement to extend the $8000 tax credit for first-time home buyers. They also added a $6,500 tax credit for other primary home purchasers, meaning that it is not just limited to first time home buyers.

Additionally, they raised the qualifying income limits in a very meaningful way – singles were increased from $75,000 to $125,000, and joint taxpayers from $150,000 to $250,000.

Buyers must have executed purchase agreements in hand by April 30, 2010, and then will have until June 30th to close. More details are likely to come, and changes could be made as reconciliation and floor voting takes place.

Stay tuned.

The new mortgage process and timelines

2009-07-29T13:09:00.007-05:00

On July 30, 2009, the new Housing and Economic Recovery Act (HERA) regulations go into effect. They require all mortgage lenders and brokers help prevent deceptive lending practices and protect customers by helping them become more informed. But these new requirements could impact your eventual transfer of ownership. If you're financing the property, these new regulatory and investor guidelines will impact — and could even dictate — the closing date.

#1 - Purchase contracts can still be written with a specific closing date in mind, but it's recommended you plan on at least a 30-day close. Going forward, the earliest any “rush” transaction for a home purchase can close is about 7 business days after initial mortgage disclosures have been issued.

#2 - Upfront fees cannot be collected by the lender until you receive the initial disclosures. Fees are needed to order the credit report, appraisal and get the process underway. Upfront fees can be collected immediately when the application is taken face-to-face and the homebuyer receives his or her initial disclosures.

#3 - As a Buyer, you must be provided with a copy of the appraisal a minimum of 3 business days prior to closing. If, for whatever reason, you (the homebuyer) believe the 3-business-day required review period is NOT necessary, you have the right to waive that requirement upfront.

#4 - An increase of more than .125% in the Annual Percentage Rate (APR) from the initial disclosures requires the truth in lending (TIL) to be revised and reissued to the homebuyer at least 3 business days before closing.

Your Role As the Homebuyer

- Obtain a credit-checked pre-approval before shopping for a home. (Applying face to face may help expedite the process.)

- Review the timeline and potential impacts with your home mortgage consultant in order to keep your REALTOR® or Builder informed. Again, it's wise to plan for at least a 30-day close.

- Review the appraisal delivery disclosure with your lender and determine whether or not you wish to waive the 3-business-day review period prior to closing.

- Understand that the interest rate on the loan impacts your APR. This means that until you lock on the rate, an exact APR cannot be determined.

- Plan to lock your loan a minimum of 10 business days prior to your desired closing date.

- Know that a change in your mortgage product, the addition of a home equity loan or line of credit, etc. could impact the APR and, therefore, the estimated closing date.

- Understand that changes in fees by third parties, such as the settlement agent, could also impact your closing date.

The various impacts of these new regulations and investor requirements should be outlined in your initial mortgage disclosure packet. Any questions should be discussed with your home mortgage consultant. And know that these new regulations and investor requirements are in place to ensure you have time to consider your loan choice and feel confident to move forward.

-MDS

DUST STARTING TO SETTLE

2009-07-07T17:28:00.006-05:00

Minneapolis area sales last week were up a whopping 31% from the same week one year ago. For six weeks in row the percentage of increased sales has exceeded 20%.

New listings declined 2.6 percent in the week ending June 13th compared to the same week last year. Over the last three months, new listings were down ten percent compared to a year ago.
Pending home sales were up 34 percent from a year ago during the week ending June 13.
In the past 90-days, pending home sales were up 27 percent compared to a year ago.
Active listings continue to decline. The inventory of homes for sale declined 20 percent from a year ago during the week ending June 22nd. This compares to a decline of 19 percent during the last three months compared to a year ago.
Days on the market until home sale have declined for each of the last six months when compared to a year ago.
The supply/demand ratio, houses for sale compared to buyers, declined from a peak of 14.4 homes per buyer in December 2008 to 5.0 homes per buyer in June 2009. That's essentially a balanced market.

The combination of fewer new listings and increased pending sales is reducing the inventory of unsold homes, and days on market are declining. These are all positive trends. But low prices and historically low mortgage rates will not last. So, if you're looking to buy, there will not be a better time. And for first timers, remember the federal tax credit ends Dec. 1st. Which means if you don't sign a purchase contract until mid-October or November, you can just about forget about reaching the goal-line in time. The que will likely be full.

- L&M

2009-05-17T23:45:00.004-05:00

Talk about your 'Angels & Demons'...

(With apologies to Ron Howard and Tom Hanks.) -M.

HUD TO ENHANCE FIRST-TIME-BUYER TAX CREDIT

2009-05-13T14:50:00.005-05:00

WASHINGTON, D.C. - Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development (HUD), said that the Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 federal tax credit as a downpayment.

Donovan’s remarks came in an address to several thousand Realtors® gathered this morning at The Real Estate Summit: Advancing the U.S. Economy, a special daylong session at the Realtors® Midyear Legislative Meetings & Trade Expo here.

Secretary Donovan said that important changes, which the National Association of Realtors® has been calling for, will help consumers purchase a home. “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment,” Donovan said. According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Donovan said the Obama administration plans to further stabilize the housing market. “I do think we have some early signs hat the market overall is stabilizing,” said Donovan. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said, “As the leading advocate for housing issues and homeownership, NAR continues to take a leadership role in promoting ideas for improving our economy by stabilizing the housing and real estate markets. Today we have the best of the best to begin a dialogue, develop solutions and initiate action toward real estate and economic recovery.”

The morning session included a panel discussion that was moderated by CNBC’s Ron Insana. The 13 panelists and Realtors® in attendance examined cutting-edge solutions necessary to promote and preserve homeownership and real estate development, stimulate the economy, and protect the nation’s taxpayers. They also shared their ideas on what the role and responsibility of the federal government is in the revitalization effort.

The list of distinguished panelists include Dr. Martin Feldstein, professor of Economics from Harvard University; Dr. Barry Bluestone, professor of Political Economy from Northeastern University; John Taylor, CEO of the National Community Reinvestment Coalition; Maria Kong, president of the National Association of Real Estate Brokers; and Sarah Rosen Wartell, executive vice president for the Center for American Progress.

“Right now the Federal Reserve is the market,” said Jay Brinkman, chief economist for the Mortgage Bankers Association. “What will be the effect when the Fed stops buying?” Brinkman explained that an exit strategy must be planned for the long-term; the federal government cannot continue to support the mortgage markets indefinitely.

“We must make sure FHA and the GSEs are supported,” added the Wharton School’s Susan Wachter.

“We are thrilled that so many high-caliber individuals were able to join us today at this important meeting to promote stability in the housing market and the U.S. economy,” McMillan said. “We look forward to an ongoing dialogue and action toward this goal, during our midyear meetings this week and beyond.”

The real estate summit is part of the Realtors® Midyear Legislative Meetings & Trade Expo here through Saturday. During the week, more than 8,500 Realtors® will attend meetings, visit lawmakers and inspire action on Capitol Hill.

2009-04-24T13:08:00.003-05:00

The spring market is in full bloom!

Our statistics show appointment activity up nearly 17 percent over the first quarter of 2008! While some of this activity can be attributed to interest rates going to record lows, people are also taking advantage of great deals among distressed and traditional properties. In fact, in recent weeks many agents have been involved in multiple offer situations. This is encouraging because it means consumers are recognizing the historic opportunities present in the rare combination of low prices and low interest rates.

Some economists are saying that housing is showing more hopeful signs of recovery than other market segments. We see an ongoing decline in new inventory coming on the market and pending sales continue to be on the rise. In fact, pending sales in the Twin Cities market have been up for the past 10 months straight. While there are some ongoing challenges, it’s clear that people are seeing the value of investing in real estate once again.

The Marketplace

YTD March 2009, homes priced under $250,000 comprised 77.5 percent of our total pending sales compared with 67.6 percent in 2008.

Homes priced from $250,000 - $500,000 made up 18.6 percent of our total pending sales.
Homes priced at $500,000 and above made up just 3.9 percent of our total pending sales. Ugh.

In the first quarter, bank-owned properties accounted for a record 41.8 percent of our business compared to 16.6 percent this same time last year.

As a result, the median sales price of Edina Realty’s pending sales is $165,000 compared with $200,000 in March of 2008.

Edina Realty continues to lead the market with 21.4 percent market share in closed transactions; our closest competitor has 17.8 percent market share according to the Regional Multiple Listing Service of Minnesota (RMLS) for the previous 12-month period.

13-County Metro

According to the Minneapolis Area Association of REALTORS® (MAAR):

The median sales price in the 13-county metro area in March was $154,125 – down 23 percent from 2008. This can be largely attributed to the drag distressed properties have had on the market. It’s important to keep in mind that traditional homes are experiencing declines of around 5 percent.

Nearly 60 percent of first quarter pending sales have been lender-mediated foreclosures and short sales, while just 37.1 percent of new listings have been lender-mediated. The fact that sales of these properties are out-pacing new listings of distressed properties is a hopeful sign.

Pending sales were up 13.7 percent from first quarter 2008.

Active listings were down 13 percent from first quarter 2008.

New listings were down 14.2 percent from first quarter 2008.

Average days on market were at 150 compared with 165 this same time last year.

According to statistics compiled by the Keystone Report for the Builders Association of the Twin Cities (BATC), new residential building permits issued in March increased by 5 percent over February.

Brainerd Lakes Area

According to data from the Greater Lakes Area Association of REALTORS® (GLAR):
First quarter sales were down 17 percent from 2008.

Average YTD sales price was down 23 percent to $149,980; median sale price was down 16 percent to $119,900.

Listings taken were down nearly 15 percent from first quarter 2008.

Total active inventory was down 3 percent.*

Average days on market were at 165 compared with 176 this same time last year.

*Listings that were off the market before the start date for the search, and put back on the market after the end date for the search, may be included as active listings during the time period being reported (1/1/2009 – 3/31/2009).

Central Minnesota/St. Cloud

According to data from the St. Cloud Area Multiple Listing Service (SCAMLS):
First quarter sales were down 14 percent from 2008. However, pending sales were up 1 percent.
The average YTD sales price was down 17 percent to $130,446.

New listings were down 11 percent from first quarter 2008.

Active listings were down 7 percent.*

Average days on market were at 103 compared with 111 this same time last year.

*Active anytime during date range (1/1/2009 – 3/31/2009).

Financing

As of April 3rd, mortgage rates fell to 4.75 percent. That means, on an average $250,000 home loan, a consumer can expect to save $276 per month – more than $99,000 over the life of the loan – at a 4.75 percent rate versus a 6.5 percent rate that we had in July 2008.

Looking Ahead

While we see several hopeful market indicators and our pending sales are slowly and consistently moving in the right direction, we anticipate many challenges in 2009. We are faced with a growing unemployment rate and a continued decline in the median sales price. We may also be faced with additional foreclosures as people lose their jobs. But we have our fingers and toes crossed and hope for the best. As always, we appreciate your support and referrals.

-L&M

THE TIME TO BUY IS NIGH

2009-03-26T20:57:00.000-05:00

Despite what you may be hearing, reading, or feeling about today’s economy, know this: right now may be the very best opportunity in your lifetime to buy a home! Both interest rates AND home prices are hovering at record lows – a remarkable combination not seen for generations. And if you’re a first-time homebuyer, the Feds, as part of the president’s stimulus package, are essentially giving you FREE MONEY – $8,000 to buy a home before Dec. 1st, with no repayment if you stay put for just three years. That’s a no-brainer. And for those looking to step-up to a larger home, that same tax credit will help you get your home SOLD, too. The market is beginning to hum again now and real estate sales are increasing. But the great deals and market incentives won’t last forever. So, if you’re looking to buy or sell a home and have any questions, please feel free to give us a call.

POSITIONING YOUR HOME FOR SALE

2009-02-11T16:27:00.004-06:00

Statistically, if we were to ask what your mortgage rate is today, most of you would be in the 5.75% to 6.5% range. Now, if we asked you how much longer you intend to be in your home, and you answered 3-to-5 years or longer (to "ride out" the current down market), our response would be to look at refinancing with an FHA loan. Now.

For one thing, interest rates are still phenomenal - hovering around 5%. Over the next few years, inflation will return and rates will undoubtedly rise. Perhaps even more importantly, especially if you expect to sell in the next few years, is that FHA loans are fully assumable! How's that for having a great selling point, when compared to other homes you'll be in competition with?

Now, if you're already reaping the advantages of an existing but higher rate FHA loan, you have the option of refinancing by doing a "streamlined" FHA, which reduces the rate to the current neighborhood of 5 percent (or less). Streamline refers only to the amount of documentation and underwriting that needs to be performed by the lender, and does not mean that there are no costs involved in the transaction. But closing costs are minimal and out-of-pocket costs can be zero. The basic requirements of a streamline refinance are:

- The mortgage to be refinanced must already be FHA insured.

- The mortgage to be refinanced should be current (not delinquent).

- The refinance results in lowering the borrower's monthly principal and interest payments.

Also, no cash may be taken out on mortgages refinanced using the streamline refinance process.

However, if you do refinance at a lower rate and can still swing it, keep your monthly payment the same. Doing so can literally knock years off the term of your mortgage and has the potential to save you hundreds of thousands of dollars on your loan. Slick, huh?

Now, take action. -L&M

Why Waiting is Worrisome

2009-02-05T14:08:00.009-06:00

Nobody possesses the magical ability to predict exactly what the dynamics of the housing and interest rate markets will do in the near term or beyond. It's more compelling to listen to the words of those who've studied and continue to study the trends, history and market indicators, rather than those who simply report on it. Below are a couple of excerpts from Larry Baer, an expert in the mortgage industry:

1. The media publish reports suggesting the government is positioned to push interest rates down into the 4.0% to 4.5% range. The source of all these stories is quoted as "anonymous" because, by the authors' own admissions, these sources have not been authorized to make such comments. It seems that the national media and their sources are more than willing to forego credibility in favor of sensationalism.

2. It's a tragic journalistic malfeasance for unnamed and unauthorized sources to build expectations among the public for outcomes that could be very distant if not completely unrealistic. The immediate result of these "rumors" could cause huge numbers of buyers to miss out on the home purchasing and financing opportunities of a lifetime, while simultaneously delaying any meaningful recovery in the housing market by months or longer.

Market dynamics - not government intervention - dictate what the rates will do. While governmental actions can have an effect, they cannot set the interest rate levels in a free and open market place. It could be the case that rates will dip lower. But it could also be the case that they will rise. Chances are good that, in the future, with the unprecedented sums of money being printed to keep up with the government's "stimulus" that inflation will finally come back and cause rates to rise. If we'd asked you 6 months ago if you'd be happy with a 5.000% mortgage, you would no doubt have been thrilled. Hopefully, we can impress upon prospective buyers the great opportunity that's here - right now - rather than waiting for something that may never arrive. -L&M

2009 Twin Cities Real Estate Outlook

2009-01-14T18:26:00.002-06:00

Having just returned from the 2009 Twin Cities Residential Real Estate Summit, we want to share our outlook for this year. Our information is based on insight from leadership at the Federal Reserve, National Association of Realtors, U.S. Department of Housing & Urban Development (HUD), U.S. Department of Veteran’s Affairs, the CEO of Homes Services of America, and some of the largest home builders in the Twin Cities and the nation.

SNAPSHOT
The Federal Reserve anticipates unemployment in Minnesota will remain well below the national rate, but will continue to creep upwards to around 7 percent by year's end. While that suggests difficult times are still ahead, there is general agreement (and we're feeling it, anecdotally) that the housing industry will be the first to recover. The big question: When? Ron Peltier, CEO of Homes Services of America (which owns Edina Realty), who was just at planning meeting with Bill Gates and Warren Buffet, predicts the housing market in the Twin Cities will turn around June of '09.

In 2008, the median sales price for Twin Cities home was $195,000 -- that's down 13.3%. More importantly, there was a huge spread between homes that were "traditional" sales and those in the "lender-mediated" market of short sales and foreclosures. The median sales price for traditional sales was $223,000 and $145,000 for lender-mediated. And a whopping 31.7 percent of the sales last year were short sales or foreclosures. That's an unprecedented percentage.

We think that we're finally touching the bottom in the foreclosure market, but the market must determine how the lower foreclosure prices will impact the price of "traditional" sales. We know that more foreclosures are coming but don't expect to see the "bubble" that had been predicted, at least in this market. Lower interest rates and loan mediation programs are helping. In fact, the 4th quarter of 2008 was the first in some time in which the number of new foreclosures coming onto the market had dropped.

FIRST-TIME HOME BUYERS
The outlook continues to be outstanding! With both prices and interest rates still at record lows, this is a fabulous time to buy. The current $7,500 tax break for 1st time buyers is still available, but only until June. FHA is lending and, in some cases, is willing to qualify buyers with only $100 down. Many of the foreclosures and HUD-owned properties are coming on the market in remarkably good condition. While the process is certainly not always predictable or smooth, the result can be a fantastic value.

TEACHERS, EMT’S, FIREFIGHTERS AND POLICE
The growing stock of HUD-owned properties can be purchased by "community" workers for about 50 percent of a sale price on the traditional HUD market, if the property is located in one of the 68 designated revitalization areas in Minnesota. And these areas are all over -- both inner-cities and suburbs. This program is really an opportunity to help rebuild neighborhoods and provide access to quality housing stock to people who want to live in the community in which they work. (We're gaining considerable experience with buying these homes, so please let any 1st time home buyer1 who is a teacher, EMT, firefighter, or law enforcement officer to call us.)

HOME SELLERS
Sellers who are planning to buy another property should not be overly concerned about values because what is "lost" on one transaction will be gained on the other. There is also less quality inventory on the market, with a 10% decline in listing inventory. So, well-maintained homes in good neighborhoods that are priced right will sell. They always have.

Sellers who own their homes outright have a special opportunity in this market. About one third of all Minnesotans own their own homes outright, with no mortgage. These folks can attract buyers if they are open to selling on a Contract for Deed (CD). You may remember these from the interest rate crazed era in the early 1980s. As lenders tighten credit, sellers can act as the banker and structure sales which offer greater flexibility, lower closing costs, attract a larger potential buyer pool, and generate a steady income stream. Let us know if you have questions about whether your home would be a candidate.

BUYING NEW CONSTRUCTION
Surprisingly, there has been some home building, which continued last year. In most cases, developers were sitting on land they had already purchased and could not sell at a profit. The only way they could make money was to build-out the homes and sell them, often below cost. The maniacal land-buying has stopped and there will likely not be much new home construction until the industry becomes much more stable. So, if you have your eye on a new home, remember that when they say only "X" number of homes remain - they really mean it. This is especially true in the first-ring suburbs.

OUTLOOK FOR INVESTORS
Simply put: "Buy now". In a few years, we will all look back on this time as perhaps the greatest buying opportunity in history.

SUMMARY
This time next week, we will have a new administration in the White House. How Americans react will be determining. We need to have confidence to get the housing market and our economy moving. We do not have a crystal ball but expect many initiatives in Washington and at the state level targeted to housing.

There are great opportunities in today’s real estate market. The number of homes being shown in January is up substantially, anecdotally, traffic at open houses is much stronger than we expect at this time of year (especially given current weather conditions), pended sales are up slightly. We won’t know when we hit the bottom until after we're already on the way back up. But all indicators suggest we are close.

We thank you for your business. Please call if we can help and do share this with your friends and families. We are optimistic about the housing market this year and hope we can share a part of 2009 with you!

Best,

L & M

2009-01-08T16:24:00.002-06:00

Hello and Happy New Year!

2008 was almost unprecedented in its challenges for the housing industry, which in turn generated a lot of adverse news. Experts now vary in their opinions on where the housing market is going in 2009 and nobody seems able to agree. All in all, we know that times like these are unsettling. The good news is December’s housing affordability index was at 180, which is very high – meaning the average family can afford 180% of the average home price. Mortgage rates, which had averaged 6.3 percent in the third quarter, recently fell to the 4.5 percent range – the lowest in nearly 50 years! Coupled with lower home prices, this should bring buyers back to the marketplace.

The recent Case-Shiller home price data reports Minneapolis housing as a 135.71 raise from 2000 values; a 3.4% home price decline from Sept 2008; a 16.3% decline from Dec. 2007. One surprising trend about the real estate market here shows that prices are stabilizing. Many of the year end housing reports will be released within the next few weeks. We're happy to send them to you.

A crisis of this nature feeds on itself and creates a descending spiral. A recovery isn't likely until potential buyers believe prices are bottoming-out. The reluctance of financial institutions to lend is also slowing a recovery. However, the Fed has taken action that should start to take hold in 2009 to recharge housing sales:

o FHA loan limits were increased and rates lowered
o Approved a $7,500 tax credit for first-time home buyers (ends April 2009)
o Purchases of mortgage securities issued by Fannie Mae and Freddie Mac.

The question we ask is: what happens to home prices once foreclosures taper-off and all the foreclosed homes are bought-up, builders have no models for sale, construction costs rise and consumer confidence turns positive on housing again, opening up a back log of 3-4 years of pent-up housing demand?

Will we quickly see things change to a sellers market? Will the reversal be so slow that nobody notices? Only time will tell. I suspect that many of the buyers who purchased real estate during this correction may one day look back on this as the year they found the great bargains.

There are two things we’d like to point out about our local market. First, many of the buyers we’re currently working with to find new homes aren’t finding good quality properties that easily fit their needs. While listing inventory is still high, truly “nice” homes are selling relatively quickly and are limited in number.

Second, "true" new listing inventory has been on a consistent decline in the Twin Cities since last June, and the number of pending sales is increasing. However, the percent of pending sales that are “lender-mediated” is incredibly high – over 40 percent (!) with deep discounts for quick disposal. Nearly 70 percent of these transactions are priced under $120,000. The bulk of bank-owned homes are in the “starter” range so the sale price is lower, thus the resulting overall mean average is skewed. If you’re wondering how all this has affected the value of your home, I’m happy to provide you with a current market analysis.

You may soon be preparing your 2008 federal income tax return. It’s helpful to know what to supply your accountant with so that all legitimate deductions may be taken.

o If you purchased a home in 2008, any mortgage interest you paid at closing through the end of the month shown on the closing statement is qualified interest, but it will not show on the year end statement supplied by the lender.

o If you refinanced, any pre-payment penalty to retire a mortgage, or unamortized points not previously deducted, may be deducted on the return.

If you have questions about any of these issues, please rely on the counsel of your tax professional. If you’ve misplaced your home's closing statement, I can easily get them and save you some time and effort in searching.

If you have friends who are talking about moving, please tell them about me. Your referrals are crucial to my business plan. Thanks and let me know if there is anything we can do for you.

L&M

FORECLOSURE HOLIDAY ANNOUNCED BY FANNIE & FREDDIE

2008-11-21T07:12:00.001-06:00

[News Release]

FREDDIE MAC SUSPENDS ALL FORECLOSURE SALES OF OCCUPIED HOMES FROM DAY BEFORE THANKSGIVING UNTIL JANUARY 9, 2009

McLean, VA – Freddie Mac (NYSE: FRE) today announced it has ordered its national network of mortgage servicers and foreclosure attorneys to suspend all foreclosure sales and evictions involving occupied single family and 2-4 unit properties with Freddie Mac-owned mortgages between November 26, 2008 and January 9, 2009. The suspension will help servicers implement the Streamlined Modification Program recently announced by Freddie Mac, Fannie Mae, the Federal Housing Finance Agency (FHFA), HOPE Now and 27 mortgage servicers. The temporary suspension is also expected to give servicers more time to help borrowers avoid foreclosure.

Specifically, Freddie Mac servicers and foreclosure attorneys were told to contact as quickly as possible an estimated 6,000 borrowers with foreclosure sales scheduled between November 26, 2008 and January 9, 2009. If the property is occupied, the servicers and foreclosure attorneys will halt the sale. This temporary suspension of foreclosure sales will not apply to vacant single family properties. Additionally, no evictions will be completed between November 26 and January 9.

“By working closely with FHFA and our servicers, Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year,” said Freddie Mac Chief Executive Officer David M. Moffett. “Today’s announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays.”

Moffett said that by delaying these foreclosure sales, the nation’s servicers will have the opportunity to work with more borrowers who could qualify for a modification under the new Streamlined Modification program scheduled to begin by December 15.

“Today’s announcement has the potential to enable more families struggling in these extraordinary times to take advantage of this vital new initiative developed with FHFA, the Treasury Department and the mortgage finance industry,” said Moffett.

Moffett also emphasized that lenders servicing Freddie Mac-owned mortgages will continue to work with borrowers to consider all workout options Freddie Mac employs to help distressed borrowers who can and want to stay in their homes, such as permanent rate reductions and mortgage term extension modifications.

This year, Freddie Mac expects to approve 84,000 workouts for the estimated 140,000 who are delinquent on Freddie Mac-owned mortgages. (For more about Freddie Mac workout options, see freddiemac.com/avoiding_foreclosure.)

Freddie Mac's temporary suspension of foreclosure sales is the latest in a series of efforts to help troubled borrowers. Other recent initiatives have included, delegating expanded workout authority to servicers, doubling the amount of money servicers are paid for successful workouts, and paying non-profit organizations to reach out to worried borrowers.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

NO TIME FOR OSTRICHES

2008-09-30T12:10:00.000-05:00

It was a sad day Monday (9/29) when the U.S. House of Representatives failed to approve a fix for the liquidity crisis in the financial markets, spawned by the burst in the housing bubble. We can only hope our political “leaders” eventually see the light and find a path forward. Most of us don’t have a good handle – and after yesterday's vote, it's unclear if anyone does yet – of the nature and scope of the credit problem. So here’s a quick, understandable overview of the issue:

- First, the vast majority of people are not in trouble. About 3% of total households are behind on their mortgage payments (33% of households have no mortgage at all), and about 1% eventually go through foreclosure.

- Most homes are not mortgaged over their true value. Nationwide, homeowners have on average a 71% LTV mortgage on their property (2006).

- The foreclosure level of today is very similar to the foreclosure level in 1986 from a national perspective. But Minnesota did better that time around.

- A major difference today is about how financial firms packaged and sold mortgage securities to investors - often leveraging the value many times over (see more below).

- Fewer loans with no mortgage insurance. As consumers opted for loans that avoided PMI, it increased the lender's exposure.

Government asset reporting, as a result of the Enron fiasco (also referred to as Sarbanes-Oxley), requires a a company's balance sheet to show the true reflection of an asset's value. This means that the 65% loan-to-value (LTV) mortgage that a financial institution (or Fannie Mae/Freddie Mac) issued and now holds in their portfolio is reported as a “bad” investment because the value of the asset has dropped. As an example, say I take out a mortgage with 5% down and am issued a 95% LTV mortgage on a $200,000 home. This means the mortgage is $190,000, but it’s protected by an asset valued at $200,000. I make all of my payments on time for 3 years. However, in the last 3-years the home's value has dropped by 10% to $180,000. Now, the bank /financial institution/Fannie/Freddie must report the lower asset value on their books - which means they do not have enough asset value in the home to cover their loan. Multiply this scenario by hundreds of thousands of loans and you can see how massive this problem becomes.

Remember the leverage issue mentioned above? The financial institution now must report, and investors will see, that the assets protecting their securities are not sufficient protection to cover their investment. Keep in mind; I’m still paying my mortgage on time - as are the vast majority of people with a mortgage. Yet, if the LTV is upside down because the asset value has dropped, the lender is in trouble and in need of funds to shore-up his balance sheet for the investors who purchased the securities backed by those mortgages.

In the past, private mortgage insurance (PMI) was part of the protection against declining asset values. But because so many newer loans were issued without PMI, the lender's exposure to downside risk is much greater this time around.

“Liar loans" and other poor lending practices are a piece of the problem and demonstrate clearly how greed (at all levels - consumer, lender, appraisers and advisors) overwhelmed basic reasonableness. This also happened in the mid-1980's with the FHA/VA "fog a mirror" assumable mortgages. Credit tightening and ensuring that consumers have some skin-in-the-game will help eliminate this in the future.

But over the next two years, problem loans will primarily be the result of 2nd and 3rd mortgages, which are tied to the LIBOR index (the London Inter-Bank Offered Rate, which is the interest rate that banks charge each other for loans). Some of these mortgage are sub-prime, many are prime.

The LIBOR went up 50% last week and it’s the index used to determine the ARM interest rate. Many of these are held by middle-class folks who spent their home equity taking out 2nd & 3rd mortgages. The problem they face is LTV when they go to refinance out of the bad ARM product. For example: I have an 80% 1st mortgage and a 20% 2nd mortgage taken out in 2005 to buy a boat and pay off credit cards. The total of the 2 loans is $200,000 on January 1, 2005. I make all payments on time. In October, my 2nd mortgage - which is an ARM - has a payment increase of 25% because of the LIBOR index. I cannot afford the additional payment because of my job situation, health insurance, etc. so I go to the bank to refinance. Because the value of my property has fallen since I took out the mortgages, I can no longer borrow an amount equal to the 1st and 2nd mortgages on the house. You can see the hole that I’ve dug for myself - whether I used a sub-prime or "liar-loan" - as the asset value drops my options are significantly reduced and now I must make some very difficult choices.

It’s important to remember that for many years our homes were considered hard, ill-liquid assets. People rarely borrowed against their home, except for major repairs or emergencies, and the growth in their equity stake made upward movement possible. Over time, Wall Street’s financial geniuses invented derivative products and convinced people that homes should be a liquid asset that they individually leveraged in order to increase their standard of living. That strategy worked for a while, until people in mass began living far beyond their means. Often we find that the fundamental principals of the past are concrete solutions for the future.

(Portions of this article courtesy of the Minneapolis Association of Realtors.)

"Liar Loans" Come Home to Roost

2008-08-15T12:54:00.000-05:00

The hysterically ridiculous (read as: zero) underwriting done on many home loans in recent years has, predictably, returned to haunt lenders with historically high mortgage loan defaults. Delinquency rates on single-family mortgages have reached their highest level on record (the Fed started tracking this statistic in 1991), dragging up the delinquency rate on all loans held by U.S. banks.

This chart is more proof that, despite lowered interest rates, there are a record number of mortgages in the hands of subprime borrowers who can’t make their payments. These delinquency rates show that the financial system has not emerged from the credit crisis, but rather, entered a new stage where bad loaning schemes are blowing up in the face of the lenders who created them.

Buy Now, or Wait? (Psst, first-timer? The answer is "Buy")

2008-08-14T18:18:00.000-05:00

When all of the Congressional hoopla and political posturing over the nation's housing dilemma had subsided, it appeared as if the $7,500 "First-Time Home Buyer Tax Credit" (for houses purchased between April 9, 2008 and June 30, 2009) is one of the most straight-forward (and truly helpful) answers that our political leaders delivered. Here's a thumbnail summary:

What is the First-Time Home Buyer Tax Credit?

The Tax Credit is part of the Housing and Economic Recovery Act of 2008, signed into law on July 30, 2008.The intent of the tax credit is two-fold:

• To provide a financial resource for home buyers in the year that they purchase a home

• To provide a stimulus to the housing market and the economy, helping to stabilize home prices and increase home sales

The law provides a tax credit equal to ten percent of the qualified home purchase price. The credit is capped at $7,500. The credit is essentially an interest-free loan. Home buyers are required to repay the credit to the government -- interest free! -- over 15 years in equal installments, or when they sell the house.

Who's Eligible?

• First-time home buyers, defined as a buyer who has not owned a principal residence in the previous three years

• U.S. citizens who file tax returns

• Eligible properties include any single-family home that will be used as a principal residence (including condos and co-ops)

• Buyers must close on the sale of the home between April 9, 2008 and June 30, 2009

Income Limits

• The full $7,500 credit is available for individuals with modified adjusted gross income (per IRS definition) of no more than $75,000 ($150,000 for couples filing jointly)

• A partial credit is available for individuals with modified adjusted gross income between $75,000 and$95,000 (between $150,000 and $170,000 for couples filing jointly)

Is the Tax Credit “Refundable?”

• Yes. The credit reduces the income tax liability for the year of purchase

• The credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit

Payback Provisions

• Home buyers claiming (as an example) a full $7,500 credit would repay the credit at $500 per year via their tax returns. But they would not have to begin repayments until two years after the credit was claimed.

• If the homeowner sells the house within 15 years, the remaining credit would be due at closing from the profit of the sale.

• If there is insufficient profit from the sale, the remaining credit payback would be forgiven.

So, if you're still on-the-fence about buying, we say stop riding the rails and let's go shopping before all the good stuff is picked over.

-MDS

Vision + Patience = Dream Home

2008-07-22T00:34:00.000-05:00

There was a time when younger, cash-strapped buyers sought out the "promise" or "potential" of a home they were considering for purchase. Today's more affluent, first-time buyer (steeped in an instant gratification, need-it-now culture) has created a new and, in many cases, impossible housing demand: "perfection." They want their parents' home now.

Sometimes it seems what drives this urge is that many such buyers have little or no vision for a property, let alone the patience to wait for that turn-key dream home they pine for; or to gain some sweat equity and market appreciation over time from a lowly starter home.

With so many great deals out there on so many homes, it might make sense for young buyers to put dreams of perfection on hold and to look closely at the true value of properties they tour. Buy low/sell high applies to real estate as well as stocks, so now is the time to seek what you need at the right price, rather than everything you want for more than you can realistically afford.

-M.

When Foreclosure Is Not Politically Correct

2008-05-25T15:49:00.000-05:00

Typically when a politician and the word foreclosure are in the same sentence, it’s in relation to some piece of legislation created to combat the recent surge. But the topic of foreclosure recently became much more personal for one Long Beach, CA politician.

Multiple media outlets are reporting that U.S. Rep. Laura Richardson has lost, via foreclosure, the 1,600 square-foot, two-story Sacramento home with three bedrooms and 1.5 bathrooms on a 4,800 square-foot lot she purchased after being elected to the state assembly in 2006.

Located in the upscale Curtis Park neighborhood of Sacramento, the property has gone through the foreclosure auction process and reportedly been purchased by Red Rock Mortgage for $388,000, a far cry from the $535,000 Richardson paid for it back in January 2007. Records show that a Notice of Default was recorded against it on Dec. 14, 2007 for $18,356, followed by a Notice of Trustees Sale being recorded on March 19, 2008. The Trustee’s Deed transferring the property to Red Rock was recorded on May 19, 2008, according to the Long Beach Press-Telegram.

At the time of sale Richardson allegedly owed her lender, Washington Mutual, more than $578,000 thanks to the 100 percent financing used to purchase the home and the additional fees and costs incurred by foreclosure. The home’s former owner also claims that she kicked in $15,000 towards Richardson's closing costs, according to the Los Angeles Times.

A story released by Capitol Weekly says that Richardson let the property slip into default when she was running for the seat she now occupies in the U.S. Congress — a seat that was vacated because of the untimely death of Rep. Juanita Millender-McDonald due to cancer.

In addition to defaulting on the mortgage payment, the MercuryNews is reporting that Richardson had a lien against the property for unpaid utility bills in the amount of $154, and was delinquent in property taxes to the tune of almost $9,000.

In a statement released by her office, Richardson denies being foreclosed on, or that the bank ever seized the property. Published by the Times, Richardson’s statement says: “I have worked with my lender to complete a loan modification and have renegotiated the terms of the agreement — with no special provisions. I fully intend to fulfill all financial obligations of this property.”

Still, Red Rock’s recorded deed seems to contradict Richardson’s statement। In the same statement Richardson answers her critics who claim she recused herself from voting on some key pieces of legislation dealing directly with the foreclosure issue.

Politically correct or not, this case goes to prove just how fast personal finances can get out of hand in the current economic environment. Real estate investors and potential home buyers who want to find the type of deal that Red Rock apparently realized at the foreclosure auction of Richardson’s property can start mining the foreclosure marketplace. But they should be very cautious in doing so given that there is no clear sign the housing market has reached bottom yet.

-RealtyTrac

GIVING CREDIT WHERE IT'S DUE

2008-05-23T15:06:00.000-05:00

There's quite literally a 'war-of words' being waged these days on Chicago radio station WWYW (Y103.9 FM) over the TVLand network's refusal to show the closing credits for The Andy Griffith Show, the iconic 60's comedy starring Andy Griffith and Don Knotts that aired weekly for years on CBS Television. I wholeheartedly support the station's petition to encourage the network to show the on-screen credits as they were intended (http://www.y1039.com/). It's like a theatre performance with no curtain calls - or even a curtain, for that matter. It's simply a case of not giving credit where credit is due.

But this is merely one battle in a much larger war that encompasses more than one program or network. Many syndicators and so-called "classic" networks are re-writing - or digitizing - movie and program credits altogether; running them at breakneck speeds in tiny boxes along one edge of the screen while the next program (or, more often, a promotion) gets the lion's share of the available pixels. The pure business logic is simple: create additional space and elasticity in an otherwise linear universe to make room for more programming (i.e., commercials). I am somewhat surprised that this issue hasn't become more prominent among various labor unions and trade associations representing actors and writers. Perhaps it's because many of those being credited on-screen are largely forgotten or deceased.

The dispute over closing credits is instructional for our culture. Today, in our over-caffeinated society, it's more important than ever that we s-l-o-w d-o-w-n a bit and take a look at what's truly important, not only to ourselves but to our neighbors and communities, as well. That could not be a more appropriate sentiment than during the nation's Memorial Day holiday this weekend. It transcends a three-day vacation, or cook-outs, or the traditional start of summer. Sincere appreciation and common decency for those who went before - especially those who gave the last full measure - never goes out of style and should never be forgotten.

-MDS

MARKET BRIMMING WITH GOOD NEWS

2008-05-20T13:37:00.000-05:00

You may have already read about it in The Wall Street Journal, but we wanted to share with you the increasing amount of good news concerning real estate market conditions here in the Greater Minneapolis area.

Today, we had a chance to sit down with analyst Jeff Allen of the Minneapolis Area Association of Realtors (MAAR). Listed below are some of the key trends that Jeff pointed-out, which we want to share with you concerning the Twin Cities:

1.) The number of new listings is down considerably from this time last year and down 15% this year over two years ago. This is an important statistic because the first sign of a market recovery is a shrinking market pool.

2.) The number of pended sales (signed agreements that are moving to a closing date) is no longer dropping. April was the first month in quite a long time that this number has flattened out which indicates that buyers are recognizing the opportunity to buy is now.

3.) The number of properties on the market is actually less than this time last year. This is the first time that has happened in quite awhile.

4.) Affordability indicators have all strengthened which is continued good news for buyers. Prices for sellers may continue to be soft for awhile.

5.) The inventory of condo and townhome properties continues to decline and is down about 6%. And the price drops that we have seen in the condo/townhome prices appears to have flattened. It appears that the condo market suffered price dips earlier than the single family market and has reached a period of recovery faster.

Overall, tightening credit will continue to make for tough sledding among some potential buyers. And we will continue to have two distinct markets for while – the "short sale and/or foreclosed property" and the "traditional" (retail).

Please share this news with friends, family, or colleagues who are considering listing their home or making a purchase. And remember: our business rests on referrals.

All the best,

-L&M

http://TeamStrand.com
Mike & Lindsay Strand
REALTORS, ABR e-Pro
(952) 945-3151
TheStrands@EdinaRealty.com

The Housing Crisis Is Over

2008-05-19T08:30:00.000-05:00

By CYRIL MOULLE-BERTEAUX
Wall Street Journal
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

(Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.)

Buying A Home In Today’s Market: Why Homeownership Is Still A Smart Decision

2008-05-18T15:51:00.001-05:00

We've all heard the news reports saying the housing market's in "turmoil", and that home prices are "stalling", if not "falling", in many areas. And that it's tougher to get home financing. So, does this mean the game's over – is it just too late to buy a house? Well, before you write yet another rent check, or write off-the opportunity to buy, consider the following things you need to know when it comes to homeownership.

1. HOMEOWNERSHIP IS A SOLID LONG-TERM INVESTMENT. In fact, it’s probably the smartest investment you will ever make during your lifetime. That’s because homeownership has proven to be a critical contributor of financial well-being for American families for decades. While residential real-estate did especially well between 1998 and 2005, I’m not thinking of just that period. Instead, housing has been making consistently solid gains since at least the 1950s. It’s simple – homeownership generates wealth, renting your home does not.

2. THE IRS GIVES BIG ADVANTAGES TO HOMEOWNERS. The federal government provides tax breaks for homeowners – from allowing you to deduct your mortgage interest, mortgage insurance and property taxes to exempting capital gains taxes on your primary residence, within limits (be sure to check with a tax professional to see how these may apply to you). In some cases, you may find that your after-tax mortgage payment is comparable to, and perhaps lower than, your current rent payment!

3. GENERALLY SPEAKING, HOME VALUES ARE STILL RISING. During the past year, home prices across the country rose 1.8%, according to government statistics. While that’s the lowest rate of appreciation we’ve seen since 1995 and sharply slower than the 7.5% rate recorded a year ago, the value of the typical home continued to increase through the third quarter of 2007. And history is on your side, especially if you remain in your home for at least a few years. Since 1975, and through recessions and expansions, the average annual appreciation rate for the typical home is 5.9%.

4. WHAT THE MARKET DOES NATIONALLY IS IRRELEVANT TO YOU. The media likes to refer to a “nationwide housing slump”. But don’t be misled. Like politics, real estate isn’t national, it’s local! The only market you need to be concerned about is your local market. Some areas throughout the country are indeed in dire strairs and struggling. On a state-by-state basis, six states recorded price declines of at least 2%, with a 3.7% decline in Michigan being the weakest performance of all. But at the same time, six states posted increases of at least 7%, with Utah’s 12.9% appreciation outperforming all other states. When considering future home price appreciation in your area, ask yourself about prospects for local job growth: Is it anemic or healthy? And rely on your real estate agent, who can tell you a lot more than just listing prices. Ask about days on market, the local housing inventory, and selling prices to get a clear picture of your current local market. Don’t let headlines in the media scare you away.

5. BUYING OPPORTUNITIES HAVE IMPROVED. In most of the country, the number of homes on the market has risen steadily, making this largely a buyers’ market. Sellers are more willing to make concessions on price or even paying part of the closing costs. Mortgage rates remain low by historic standards, and while lending terms have become more stringent for those with less-than-perfect credit, borrowers with a good credit record probably won’t notice much of a difference.

6. YOU DON’T HAVE TO WORRY ABOUT TIMING THE MARKET. Ideally, you’d snap up a new home when the price is at its lowest, and see it start to appreciate right away. It’s nice to dream, but don’t let that keep you from getting into the market. Remember it’s not timing the market, it’s time in the market. If you’re making a long-term purchase – a property you expect to own for at least four years or so – you’re usually better served just getting in.

7. SMART HOME FINANCING OPTIONS ARE STILL AVAILABLE. There’s a wide array of mortgage products out there, filling various needs for borrowers in certain situations. Be sure you understand what you’re getting. Will the rate change? If so, how soon? How high could it go? Can you handle bigger monthly mortgage payments? Are you paying down the loan’s outstanding balance? If you have the option of paying less than the monthly interest accrued, are you willing to add the unpaid interest to your loan’s outstanding balance (known as negative amortization)? These are just some of the questions you must consider. The mortgage that’s right for you depends on your situation and your preferences. Some financing options available to you may actually harm, not help, your financial security. That’s why it’s critical to work with a lender who takes the time to understand your financial circumstances and preferences, and then ensures that you understand your choices. Again, the main point is: Homeownership is the way American families move ahead financially, and waiting for the current concerns to fade away can cost you. Don’t simply assume that this is a bad time to buy real estate. Go beyond the headlines, and make yours a well-informed decision.

-Mark Bach
http://TeamStrand.com
Mike & Lindsay Strand
REALTORS, ABR e-Pro
(952) 945-3151
TheStrands@EdinaRealty.com

The Market: Condition & Comment

2008-05-18T13:33:00.000-05:00

There is a Chinese proverb that states, “May you live in interesting times.” It is often argued that the word interesting is meant to be a synonym for turbulent or dangerous. This phrase hits the bull’s-eye given the current state of the financial markets.

Mortgage bond prices rose last week pushing mortgage interest rates lower. Stocks fell which helped bonds rally. Trading remained very volatile. Record high oil prices tempered improvements in mortgage interest rates as the fear of inflation continued to dominate the financial markets. OPEC blamed speculators and a weak dollar while some analysts expressed supply concerns associated with unrest in Nigeria. Foreign demand for US debt securities dwindled. For the week, interest rates on government and conventional loans fell by about 3/8 of a discount point.

While stocks and bonds are swinging around wildly there is some good news. Interest rates for conforming and FHA/VA loans are still historically low by many standards. However, low rates are not a given considering the escalating inflation fears that continue to dominate trading amid rising oil prices. Many analysts predict oil prices will continue to rise. While this doesn't automatically equate to higher mortgage interest rates, rising energy prices are usually viewed as inflationary. Inflation erodes the value of bonds causing bond prices to fall and rates to rise. Other investors believe slowing growth and the credit crisis will eventually stem the rising prices. This scenario would generally be positive for bonds. With so much uncertainty, a cautious approach to float lock decisions would be wise.

http://TeamStrand.com
Mike & Lindsay Strand
REALTORS, ABR, e-Pro
(952) 945-3151
TheStrands@EdinaRealty.com