Has the housing market improved in the last four years

Dan Krell, Realtor®
DanKrell.com
© 2012

HousingIn retrospect, the beginning of the global recession in late 2007 was the end of the housing boom and may have spawned the foreclosures crisis and the financial crisis of 2008.  And although this period of time will undoubtedly become the basis of many future dissertations examining the “Great Recession;” you might ask “how much has the state of housing improved since 2008?”

If you recall, the Housing and Economic Recovery Act of 2008 (HERA) was anticipated to have wide reaching changes in the mortgage and housing industries as well as supposed to have assisted struggling home owners.  This multifaceted piece of legislation consolidated many individual bills addressing issues that were thought to either be the cause or the result of the financial crisis.  Besides raising mortgage loan limits to increase home buyer activity, the historic legislation was the beginning of changes meant to “fix” Fannie Mae and Freddie Mac, as well as “modernizing” FHA to make the mortgage process easier for home buyers and refinancing easier for struggling home owners. Additionally, this law was the origination of the Hope for Homeowners program to assist home owners facing foreclosure (www.govtrack.us/congress/bills/110/hr3221).

The Federal Housing Finance Agency (FHFA), originated from HERA, has been the “conservator” of the then sinking Fannie Mae and Freddie Mac. Since the FHFA took control, there has been conjecture as to what would become of the mortgage giants: some talked about closing their doors, while some talked about changing their role in the mortgage industry. Since FHFA became the oversight agency, Fannie Mae and Freddie Mac has strengthened their role in maintaining liquidity in the housing market by helping struggling home owners with their mortgages as well as freeing up lender capital by the continued purchases of loans (fhfa.gov)

The inception of Hope for Homeowners was the beginning of a string of government programs designed to assist home owners facing foreclosure, or assist underwater home owners refinance their mortgage.  Although there have been individual success stories, there has been criticism that these programs did not assist the expected numbers of home owners.  A January 24th CNNMoney article by Tami Luhby (money.cnn.com) reported that “…the HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners — a far cry from the promised 4 million…” and “HARP, which was intended to reach 5 million borrowers, has yielded about the same results. Through October, when it was revamped and expanded, the program had assisted 962,000…” (money.cnn.com/2012/01/24/news/economy/Obama_housing/index.htm).

HousingDespite the recent slowdown in foreclosure activity, there is disagreement about the projected number of foreclosures going into 2013.  A March 29th Corelogic news release (www.corelogic.com/about-us/news/corelogic-reports-almost-65,000-completed-foreclosures-nationally-in-february.aspx) reported that there have been about 3.4 million completed foreclosures since 2008 (corelogic.com).  And although an August 9th RealtyTrac® (www.realtytrac.com/content/foreclosure-market-report/july-2012-us-foreclosure-market-report-7332) report indicated a 3% decrease from June to July and a 10% decrease from the previous year in foreclosure filings; July’s 6% year over year increase in foreclosure starts (initial foreclosure filings) was the third straight month of increases in foreclosure starts.

So, if you’re wondering if housing is better off today than it was four years ago, the answer may be a resounding “maybe;” It all depends on your situation.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 3 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Debunking myths about foreclosures, timing the housing market, and hiring the “big name” agent

by Dan Krell ©2012
DanKrell.com

Debunking common real estate myths.

real estate myths debunkingAs a real estate agent, I often encounter people who talk about common and persistent real estate myths.  In recent years, these few seem to be among the top myths:

Myth #1: “If you wait until the market bottoms out, you’ll get the best deal”
Counter point: “People trying to time the market may find in hindsight that they will have reacted either too soon or too late.”

Anderson & Harris, in their reveling study Timing the market: You don’t have to be perfect (Real Estate Issues 35, (3) (10): 42-42-50) indicated that you don’t have to be perfect when timing your purchase and sale of a home.  They suggested that you could do just as well to aim your sale during market peaks and your purchase during market lows; however, they conceded that you would most likely know in hindsight when the market is at a peak or low.

Their results demonstrated that the typical “buy and hold strategy” over a thirty year period results in an annualized return of 8.18%; however, buying when a recession has ended with a predetermined sale period yields a wide range of return that ranged from 13.38% to 1.42% annualized total return.

Myth #2: “Buying a distressed home will result in a good purchase.”
Counter point: “There is inherent risk when purchasing distressed homes.”

There is inherent risk when purchasing distressed homes, regardless if they are foreclosures, bank owned homes, or even short sales.  Although short sales are often occupied, foreclosures and bank owned homes are often vacant for many months; these homes are often sold “as-is; where is” meaning you are purchasing the home regardless of the condition of the home.

Besides the purchase and anticipated fix up costs, unanticipated repairs and expenses are often encountered.  However without risk, there is no reward; due diligence, conducting inspections, and hiring the proper representation may reduce the risk and make your purchase a positive experience.

Myth #3: “The ‘big name’ agent with the most home buyers will sell my home quickest and for top dollar.”
Counter point: “Home buyers typically search for homes by characteristics and location, rather than searching for homes sold by individual agents or brokers.”

real estate myths debunkingI have never had a home buyer tell me they want to see (or buy) a home because it is listed by a particular agent or broker.  Rather, home buyers typically search homes by price, physical characteristics, amenities, and/or location.  Home buyers will view your home if it matches their search criteria, regardless of who listed your home.

When interviewing listing agents, look beyond the sales pitch to list your home, and ask for real data and sources to back up claims.  Agents will often not discuss the homes they could not sell; asking about the homes that did not sell as well as the reasons behind the non-sale may be more revealing than flatly accepting claims made by the agent.  Asking for references of satisfied clients of homes that sold as well as homes that did not sell is useful to not only get a recommendation, but also understand how the agent conducts business.  Ultimately, your home purchase or sale falls upon the experience and skill of the agent you hire. Protected by Copyscape Web Plagiarism Detector

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of July 23 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

This is not your father’s housing recession or recovery

by Dan Krell ©2012
DanKrell.com

homesWhen the housing market began its decent into uncharted territory in 2007, people talked of a “V” shaped housing market recovery, meaning that they braced for a market bottom followed by an upturn of increasing activity. What many experts are now talking about is an “L” shaped market recovery, where the housing market will hit bottom and not begin its ascent for a number of years. In retrospect, we have experienced the market’s bouncing along the bottom for at least 2 years (seeing inconsistent activity from month to month); although some still think that the market has yet to bottom out.

Two reasons why the housing market may continue to drag along the bottom include the dramatic loss of net worth in recent years and the recent increase in foreclosure activity.

The fact that the mean (average) income fell 7.7% is nothing compared to the 38.8% drop of mean net worth, as reported by a recent Federal Reserve Bulletin, “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances” (fed.gov). The report stated, “Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.” The report further clarifies, “…The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent)…”

This report underscores what many in the industry have known, but have not fully admitted about the weak move-up market; the dramatic loss of home equity in recent years has not only made it difficult for many to sell their homes, but also has taken away the means to purchase another [home]. Additionally, the combination of diminished net worth and reduced income has forced many would-be first time home buyers to wait on the sidelines.

Additionally, foreclosures have not been news for some time, but the reduced foreclosure activity in the past year was said to be temporary in response to legal challenges and the robo-signing fiasco. As the shadow inventory (homes in foreclosure or bank owned) has been building up, many speculate the impact when foreclosure activity picks up.

A recent RealtyTrac (realtytrac.com) press release reveals that foreclosure filings have picked up and discusses the possible outcome. Besides a 9% increase in nationwide default notices was reported in May; RealtyTrack reported, “Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.”

Lenders are becoming increasingly aware of the benefits of selling distressed homes as short sales over repossessing them. Brandon Moore, CEO of RealtyTrac, was reported to say that the increase of pre-foreclosure sales is an indication that many recent foreclosure filings may end up as short sales or auctioned to third parties, rather than becoming REO (bank owned).

The dramatic loss of net worth along with continued foreclosure activity only contributes to the changing perception of home ownership. This housing recovery will certainly be recorded in the history books as one of the most protracted and having a lasting impact; this is not your father’s housing recovery.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of June 25, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Buying a home after a foreclosure or shortsale

by Dan Krell
© 2012
DanKrell.com

If you’ve been through tough financial times, you know that it feels as if your financial picture may never improve. But for most people, experiencing a financial challenge turns out to be just a blip in time; they eventually move on with their life. Given that notion, mortgage lenders know that people endure temporary financial problems through their lives- underwriting guidelines may allow for a past foreclosure, short-sale, or even bankruptcy.

In the old days (prior to desktop underwriting), underwriting was “manual,” meaning that a loan’s approval or denial was decided by a human who reviewed your file. If you were lucky enough to borrow from the local small neighborhood lender, there was a very good chance they knew you, your family, and your financial circumstances (much like the Bailey Building and Loan from “It’s a Wonderful Life”); you had a chance to provide explanations and compensating factors to increase your chance of being approved.

Today, mortgage underwriting is mostly accomplished through automated systems, such as “Desktop Underwriter” and “Loan Prospector.” The automated systems make decisions based on algorithms and do not have the ability to weigh circumstances for negative reports on a credit history. Some lenders may still provide manual underwriting, but borrower requirements have become increasingly strict (including higher minimum credit scores).

Take heart; you still may be able to get a mortgage after a foreclosure, short-sale, or bankruptcy.

For conventional mortgages underwritten with Fannie Mae guidelines, you’ll have to wait at least seven years after a foreclosure. Likewise, you’ll have to wait seven years after a short-sale- unless you can muster a large downpayment (you may be able to qualify: after two years with a 20% downpayment; and four years with a 10% downpayment)! You’ll have to wait four years after a chapter 7 bankruptcy is discharged; and two years after a chapter 13 is discharged (but four years if the chapter 13 is dismissed).

For FHA mortgages, you’ll have to wait at least three years after a foreclosure, two years after a chapter 7 bankruptcy discharge, and one year current on a chapter 13 payment plan (with court approval). A short-sale is differentiated depending if the loan was in default: if the loan was not in default at the time of the short-sale and your previous 12 months payments were timely, you may be eligible for a FHA mortgage; however if the loan was in default prior to short-sale, you will have to wait at least three years before you can qualify.

If you are eligible for VA financing, you will have to wait two years after a foreclosure, short-sale, and chapter 7 bankruptcy (one year into a chapter 13 payment plan with court approval). However, if your foreclosure or short-sale was on a VA mortgage, then your eligibility may be reduced.

If you’re financial issues were caused by circumstances beyond your control, you may be able to get an exception that could shorten the waiting periods. However, you’ll have to provide documentation for the underwriter to review, and not all lenders grant such exemptions.

There are many different mortgage programs, and underwriting guidelines vary. The timelines and requirements posted here are as of time of article; it’s very possible that these guidelines will or have changed. It’s important to talk to a licensed loan officer to know what you need to qualify, as well as which mortgage program will be best for your particular circumstances.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 9, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Be Prepared to Repair Home Before You Purchase It!

by Dan Krell
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The FHA mortgage has recently changed to accommodate the changing marketplace. Due to its broad availability and higher loan limits, the FHA mortgage is more prevalent now than it has been in the recent past. So, if you are a home buyer, it’s a good chance that you may be applying for a FHA mortgage to purchase your home.

You can expect the FHA underwriting to be flexible yet careful and thorough. You know that FHA underwrites your credit as a buyer, but did you know that FHA underwrites the property condition as well?

FHA underwriters and appraisers are required to assess a home for security, safety, and soundness. To protect your interests as a home buyer (security), as well as the interests of the FHA and lender, the home you are buying must meet minimum health and safety standards, as well as being structurally sound. Any deficiencies identified by the FHA appraiser will be required to be repaired prior to your closing (HUD.gov).

Having a home inspection may allow you to identify easily seen deficiencies within the home. If there are any safety or structural issues, you can be fairly certain that the FHA appraiser will see these as well and require these items to be repaired. However, since your home inspector is not an appraiser nor is the appraisal a home inspection (and having different purposes), there may be disparity between the two.

Items that are often identified by the FHA appraiser as needing repairs include (but not limited to): defective (peeling or chipping) paint surfaces in homes built before 1978; broken windows; roof having less than two years of useful life remaining; drainage problems; lack of handrails on stairwells of three or more steps; pest infestation; damaged and/or non-functioning electric, plumbing, or HVAC systems; foundation and structural defects; underground fuel (i.e., oil) tanks; and any other health or safety issue (fhainfo.com).

The FHA addendum (GCAAR form 1330 in this area) explains who is to make the required repairs: the buyer typically gives the seller notice what repairs are to be made. However, if the seller refuses to make the repairs the buyer has the option to make the repairs themselves. If both the buyer and seller refuse to make the repairs, the contract becomes void.

Many times, the buyer and seller negotiate as to how the repairs are to be made prior to closing. However, if you are purchasing a bank owned home, the bank usually prohibits the buyer from making any alterations to the home prior to settlement- including repairs.

If the home is in poor condition, however, the FHA appraiser will likely reject the home for FHA 203b financing. Don’t worry, though, you can apply for the FHA’s renovation mortgage (FHA 203k). Additionally, you can apply for a FHA 203k if the home you are purchasing is conveyed “as-is” (such as a bank owned home or short sale) and repairs are required. Be careful though, not all FHA lenders offer the 203k loan; you can find a FHA 203k lender at HUD.gov.
The FHA mortgage is an excellent way to finance your home purchase. However be prepared because property condition can sometimes turn a seemingly good deal into a no-deal.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 29, 2008. Copyright © 2008 Dan Krell.