Of dead cats and a recovery

As I sat down (late again! Damn!) to write this months blog posting, the headlines blared “July existing home sales down 27%!” or something like that. (Actually, in Oregon it was 29.8%. Come on. Round up! I mean seriously……)

Tell me something I don’t know.

What I do know, that many don’t is that we have bounced, and are busy again. Decent August, big September. The inventory, is quietly disappearing. Not the properties I would have thought, mind you, lot’s of stuff over $400, but some at really aggressive discounts, up to 10%, some more, most less. (See Justin Fox’s Latest) If there is a bottom, 10% off this years already lowered prices is probably getting there.

Its funny how fast my news cycle has become. I don’t read the electronic newspapers dropped into my inbox every morning, because I read it on the news feed already. My cycle has become quite instant.

But back to granularity. Here’s what a real instant cycle and granularity get you in the HR market. The aforementioned news headline is based on data from July. Since then, (these last three weeks) We have had a large jump in volume of transactions, while the newspaper titles are still promoting that we languish, Buyers moved in and went for it. My impression from seeing recent sales, is that these closings are going to set off a reset in valuation in some neighborhoods. Not much, but that rash of closings, (discounted) plus the winter, plus the increased restrictions on mortgage financing will push the prices a touch lower (5%-maybe 10%, a la fox), touch off a good bump in September (because of low rates) that will close into October, but not reset anything, and then the winter buyers will move in for their traditional late season searching. Someone should send a memo out to the Sellers, so they don’t get blindsided by the raft of appraisals that are not about to make it…….Weirdly, and (insert raft of external event caveats here) I’m thinking 2011 Spring could be alright.

So it boils down to this….

Sellers, you are close, but you aren’t there yet. Keep up with the recent closings in your market, because appraisals will be required to use them. One meltdown by your neighbor, and you are stuck. Be open to compromise, and renting you home and remember, in a declining market, todays price is the one you should seriously consider. Tomorrow’s price will most likely be lower. And regardless, they will not be recovering for quite some time.

Buyers: Hood River isn’t a suburb in Reno. Understand, that this is the place you are choosing to vacation in, live in, grow your children in, and a community to be a part of (not apart of) Leave something on the table, you are moving here for love of a place, because otherwise, Reno would be perfectly fine. Others are moving here, and have understood that. They are getting the deals, and great ones at that.

See you next month.

Benefits of Government Loan Programs-Brandon Fischer

The Pacific Northwest is a beautiful part of the country to call home, but buying a house can easily become daunting. That’s why there are government loan programs to help the process become less so. More Americans – especially those who have spent time in the armed forces – deserve to own their own homes, and the following three loan programs are there to help them do just that.

VA Loans

If you’re a veteran, the VA loan program definitely your best loan option. They have no down payments as well as other money-saving benefits. The Department of Veterans Affairs has been helping veterans become homeowners with this program since 1944, and 80% of the veterans who borrow VA loans could not have qualified for a conventional loan. This program is truly meant to help. In addition to the zero money down advantage, VA loans also have lower interest rates than conventional loans by about .5%-1%, and they don’t require Private Mortgage Insurance either. Combined, these two benefits will save you a couple or a few hundred dollars each month, depending on your loan size. For most parts of the country, VA loans have a limit of $417,000, which can be found using a VA benefit calculator, and they must be used towards a primary residence. In order to qualify, there are requirements for how much time you served, but if you are a veteran, this is an option that is sure to save you money and help you buy your own house.

FHA Loans

If you’re worried about qualifying for a loan in the first place, you shouldn’t write the whole thing off before exploring FHA loans. This loan program is backed by the Federal Housing Administration, so banks are able to prepare mortgages for more people, including those with higher debt-to-income ratios. FHA loans are generally smaller than conventional loans and have limits based on average home prices in each area, but they have very low down payments with a minimum of 3.5%. For first-time homebuyers or those with low income, this is a great advantage. They also have low closing costs that can be included in your loan, and the mortgage insurance premium on these loans is only 1.5%. FHA loans are a option you definitely want to look into if you’re unsure about qualifying for a conventional loan, and compared to a conventional loan, they’ll save you money too!

USDA Loans

USDA loans are specifically for homebuyers in rural areas. In order to qualify for a USDA loan, you have to live in an area with a population of 10,000 or less, although sometimes this is extended to 25,000 for certain towns and cities. They’re the only loan program that offers zero down payments to non-veterans, even if your financing your entire home purchase. They also do not require mortgage insurance, so if you feel comfortable choosing not to get it, you can save hundreds of dollars each month. Unlike FHA loans, there are income restrictions for USDA loans, so not everyone is eligible. But if you’re looking to live in a rural area or even a smaller suburb, a USDA loan could be a good fit.

Exploring these three options more is a wise thing to do if you need to borrow money to pay for your home. Each has different requirements and different benefits, so it’s important to find the one that’s right for you.

June Market Action is out. It’s posted here.  As expected, pending sales were waaay down, though still up for the year, overall. Days on market spiked in late April, then crashed through that date (offers rush in late April) expect that to rise steeply for July’s report.

Total inventory is slightly lower ytd than last year, given the quality of the inventory, (pretty good) I can guess at a couple of things. We might have chewed though the “easy foreclosure” properties and be delving into the “hanging on for dear life” inventory……I’ve also noticed the average ask for the most recent new listings have been over $500,000…..also, potentially indicative of something more sinister.

Good news this month comes from others, smarter than I looking deeper into the SD issue. It turns out, with limited early data arriving, that the average home value drop would have to be off 62% or more, before home owners decide that an SD is the way to go…..That’s a long, long way…..especially around here.  Score one for moral fortitude.

Interestingly, when you calculate the total home value in the US against the total mortgage debt outstanding, (and this calculation has been done by a couple of sources, so I’m mostly reposting) what apparently shows up is this tidbit….that given the value of the housing inventory in the United States, the indebtedness is too high, indicating an erosion of equity, which is an indicator of increasing foreclosure pressure. (We didn’t need a macro-economics calculation of tell us that, but anyway……)

That’s certainly a big picture view, to be sure, and includes the traditional wipeout zones,(CA, AZ, NEV and FLA.)  We are not one of those areas, but comes troubling data from a couple of blog sources that Oregon is the #3 foreclosure state in the country…..I’m not sure of #3 of what (per capita? Rate per 100?) I went and looked at Realty Trac’s heat maps for Oregon, and we show 10 foreclosures for June, (1 in every 891 units, which is a screwy calc, for a whole number of reasons…)……So, moderate. Not sure where this is coming from but……….Oh wait, I figured it out…. It’s from This Article…

Ok, now that I’ve read it….it’s #3 in the rate of filing….ummm..nevermind. That was totally overhyped. Late to the party, still on the steep part of the curve…..

Which brings me to my next point. The media, blogosphere and others are tweaking the scare-o-meter too much. Don’t get me wrong, It’s bad, it’s tough, and it’s going to be a tough and long, and hard road, but claiming we are #3 in the nation for foreclosures is just patently inaccurate, and it’s meant to scare people. Unfortunately, it’s working. (see: “birds on a wire” below)

Ok, back to Hood River.

Regardless, however, the price reductions have begun, as the sellers are seeing the Summer wane, and now pivot to a strategy for Fall. Rent or Reduce? That is the question. It’s about 50/50 now, but I know that buyers are out there, sitting, watching, and waiting.  I refer to it as a group of “birds on a wire” (Forgive me, anyone whom I’ve told this to in the last week) They will all sit there, until one of them makes a move, then they’ll all move at once…..The interesting thing is this, there are more birds than there are properties they are interested in, so when one moves, expect that all of them will move at once……just in a specific section of the market (I’m not telling what part, but you could easily intuit it.) but I can assure you they are there, and they are ready for the signal. Problem is, I’m not the guy in charge of the signal…..

So, expect soft pricing, and low rates for the rest of the Summer, with a random vaporization of a segment of the market around…..first week of august. Earlier if someone clues in and jumps on the best deal first (which happens to be one of my listings! Yipee!)

Lets all go get outside and on the water. Don’t have to worry so much out there……See you next month.

…Lots of people are asking….”what’s the deal with Strategic Defaults? How is that going to affect me?”

Ummm….err…I don’t know?

I’ve been chewing through scenario after scenario, and for Hood River Real Estate, it kind of boils down to this…..This is going to be a symptom of a larger issue, (like employment outlook) and as such, it will hit neighborhoods differently.

Be sure of this, however, there is no such thing as a free lunch. Walking on a house while you can still afford the payment may sound nice in the short term, but it is again, one more example of short horizon thinking, and could lead you to a long period as a renter, with poor credit, and ultimately you might STILL owe the balance of your loan…..

However, right before I sent out the newsletter last month, This popped up in the NYT.

It outlines the issue, and a couple of interesting factors I had not thought of, and one of them is this….

Not paying your mortgage helps get you back on your feet again.

Ok, I’ll buy that, but like the old story goes, “be careful what you wish for….you might get it.”

I still think there is another phase of the bank crisis in this, as it’s a fundamental shift in the way the public at large views the trust/bond with their banking institution. Once that veil is pierced….the public no longer views the bank as having any power over them, and the bank wont trust anyone….well that’s a recipe for disaster in my book.

The bank pushback to that of course is the long term damage that will do to the individual borrower. There are literally a dozen scenarios of default….deed in lieu, judicial foreclosure, non-judicial, workout, bankruptcy….each version extracts a toll on your future ability to access credit….and in many ways, access to credit determines your standard of living (not in a jet ski/ATV in the driveway kind of thing, but more in a general, need to pay the bills kind of thing)

Did You Know?
As an example of some recently discovered pieces of the puzzle, consider the following tidbits:
1. Your debt relief in the event of a short sale is taxable income.
2. In many short sales, (and I think in foreclosures too) The issue of recourse is now in play.

• It depends on the state, and your documents, but in common instances, you could give up your house to the bank they could sell it for a loss, and then come after you for the balance (they can do this in a  number of ways, too)

Crazy eh? It’s never easy, and I return to the aforementioned axiom:

“There is no.such.thing. as a free lunch.”

OK, Now to Hood River Real Estate……….
Quality is great. Nice inventory, motivated sellers, few buyers, (still pooling at $300 and lower) but the financing is working, and I’d argue even better after the great starve-off of mortgage brokers. My last couple of deals have had total pros working the files. What a joy.

I’ve noticed that there isn’t as much attrition in Real Estate Agents…….yet. I have noticed that the sales have spread out among a laaarge list of agents, many of whom I know are operating out of less than formal locations.

Robert Reich wrote an article last month about the supposed “entrepreneurial boom” that is occurring in the United States. He basically said that wasn’t so much of a boom as it was a sign of desperation, of “basically unemployed” people trying to “do something,” anything to improve their situation……

A single Broker office, that does two deals a year is an example of that. Is this market headed that direction? Probably not, but it sure isn’t headed in the direction of the national chain either. As with all things, it will be a balance……

Hope you enjoyed the posting. Get out and enjoy the sunshine! See you next month!

Greece, Contagion and the words “Strategic Default”

Interesting uncertainty has quietly crept back into the market. I’m thinking that the heated buyers market that suddenly cooled had something to do with the tax credit, and the fact that everyone is waiting to get done with school, and into the Summer. I polled my brokers, and they are still seeing buyers show up, but everyone is early in the cycle, so it looks like summer buyers to me. I’ve been distracted with County Budgets and such, I’ve not been working the market like my brokers…..Who by the way, along with me, make up three of the top ten agents in the market this year. That makes 2/3 of our Brokers in the top ten……And our market share continues to grow……I’ll take it.

Couple other things happening in the market these days, the new phenomenon of “jingle mail” now has a slightly more serious moniker, (which means its becoming more widespread, and less novel) called “Strategic Default”

Now, there’s foreclosure, and it can be caused by a lot of things, not any of them good, but here is one that really, really scares me. SD isn’t a default because of a catastrophe, it’s a default because of choice, essentially, a business decision.

Let me be critical for a moment. Strategic default is a symptom of denial. It says you care more about your standard of living than you do your neighbors, It’s like having a campfire in a national forest, in august, and then falling asleep while it’s still going. If this takes off, it could lay waste to whole neighborhoods due to markdowns, and that could take a long, long time to recover from… Have I made my point clear?

There, now that I’ve said it, let me turn the coin. Strategic default CAN be a reasonable option for people in the right situation, for the right reasons. Like I mentioned a few months back, when this first came to light, it doesn’t sound right when a person makes a decision to strategically default, but when a company does it, often times they are rewarded for making a “shrewd business decision” (I’d hate to be on the receiving end of anything being referred to as a “shrewd business decision” these days) I don’t think there’s much of a difference between the two except for perception.
What’s really unsettling here, is this. Where does this thread stop? (see Contagion, below)

And there’s more! Compliments of Realtytrac. (www.realtytrac.com) Guess where 50% of ALL FORCLOSURES IN THE US ARE? ….You have to go no lower than #5 to encompass the top 50%. Can you imagine how bad that must be? Even with decreasing numbers of foreclosures, it’s still a scary set of numbers. Imagine if the word CONTAIGION crept into the discussion. Strategic Default leads to neighborhood contagion of SDs…..

This brings a whole new light to the phrase “keeping up with the Jones’” Thank goodness I don’t live in California.

That’s it for this month, keep an eye on inflation, which, according to Paul Krugman might not be the right thing to look at. He says we could be more Japan than Greece. I think I might take that over rioting over enforced austerity measures……

This choppiness is looking all so May of 2008……….

(postscript- Volume has just shot up, way up. New listings, New buyers, most in the higher ranges……whiplash! Also, so very 2008)

Happy almost May!

Our weather here is still stuck in spring mode. I’m hoping it will get warmer soon, but who knows. My Web cam is still screwy. Time for a new computer, says my wife. A Mac!

What I do know about is how busy things have been. People are clued (or have clued, as this is the last day, wait, is that even a word?) into the tax credit, and Sellers and Buyers have sharpened their programs to get stuff moved. In fact, lots and lots of stuff has moved, though if you thought you were going to offer on a short sale and make it under the timeline, you woefully misjudged.
Last month, all eyes were on the quality of the inventory, and I have to say, there were some very, very nice properties that came (and went) to and from the market. We have written a number of deals that will qualify, and some of them have been very good bargains.

Lending and underwriting has also improved, and we are back around 30 days for a deal, perhaps a touch longer. Buyers have returned, however gingerly, to a position of “risk-taking” given they are well compensated, which is an improvement from a few months ago, where a buyer asked for such a discount as to make the purchase almost failsafe.

This STILL doesn’t mean prices are going up anytime soon. All the short sales that have gone under contract will only lead to a fresh set of underwater houses to come on the market. I suspect we’ll have a version of this for about the next year. I would have said two, but I’ve been really surprised at the speed that last batch cleared the market. They will have a dampening effect on the market however, especially in sieverkropp and the Westside addition near fox hollow.

The majority of the action is well under the $400,000 range, but some of the Summer buyers are coming up early to get a jump on things. I’ve gone from showing piles and piles of property under $300,000 to a bunch over $400,000 in just the last week. That’s a decent sign.

I’ve been noticing that as the market re-forms, there are different players this time around. I’m also noticing, that while conditions improve for some, hurt, and duration, and general stress abound…..There seems to be a lot of it in transactions these days…..

So, short term outlook? Weak until memorial day weekend, given the tax credit hangover and the upward pressure on interest rates. Probably a little firming through the summer, with what appears to be decent amounts of inventory clearing, and softness in the fall, firmed up in late October by the bargain shoppers, depending on interest rates, which could be the big, big uncertainty….
I’m always amazed by people who dare to wait until the last moment…..nerves of steel those people…..