Tiered Real Estate Blog – Reality in Realty

If you are a watcher of the stock market you will notice that many times the market will undergo a “correction.”  This usually happens when stock prices race up to a high level.  Then investors will sell stocks to pull out profit and the prices fall.  Hence, a “correction” in the market.

Real estate appears to be going through a “correction” as well.  Prices raced up to a high level and then many sold off and took out profit from their homes.  Like most corrections they tend to drop considerably lower and then start climbing back up and there are swerves along the way.  Think about driving your car.  If you are sliding and you turn into the skid (like you are supposed to), your car will turn and you may have to make another small correction or two to be back to going straight again.  We have been experiencing a drop and there have been some ‘swerves’ where prices have increased and market times have dropped, while there have also been areas where prices have again decreased and market times risen.

Unfortunately, housing is not like the stock market in terms of expedience.  You can’t call a broker and sell your house today like you could sell a stock.  Sales in real estate take time and even if you had a buyer today for your home, it would take a minimum of a few days (for a cash transaction) to several months (for a short sale).

So what happens when the prices start to drop and everyone else decides they want to get out?  You end up with the current market and creative, new ways of getting rid of homes.  We have short sales (where owners sell for less than they owe) and foreclosures (where the bank takes the home back from the owners).   These are both part of the current market correction.  Anyone in the stock market will tell you that it cannot go straight up forever.  There will be ups and downs along the way.  To accommodate this correction, the banks had to either find ways to let people pay significantly less on homes they owed, or they had to find ways to get people out of their homes and let market forces (supply & demand) take over.

So while many people fret over the number of short sales and foreclosures and many worry about the stigma of short sales and foreclosures (either on them or their neighborhood), everyone should realize that this is part of the market correction and largely is going to be universal throughout the market.  That means that every neighborhood should experience the same issues.   In fact, we should realize that many homeowners are taking advantage of the current situation and leaving their homes intentionally so they can set themselves up for a better future.  Homeowners who are constantly struggling to tread water are realizing that they don’t want to live like this for the next 2, 5 or 10 years and are better off leaving now and realigning their finances and saving for the future.

Once we get through this correction (which will take longer than a stock market correction because of the time it takes to buy and sell real estate), hopefully everyone will have taken prudent steps to firm up their finances and prepare for a better tomorrow.

Previously the government was running a program to try and help homeowners who were caught “upside down” (who owe more than their home is worth) in the market.  Despite their best intentions, this program was a failure.  It was reported that 9 out of 10 people whom the program was intended for did not get help!  As a result, they introduced the HAFA program.

HAFA stands for “Home Affordable Foreclosure Alternative” program.  It opens the door to a lot of people who need help.  It makes it easier to qualify for help (one of the biggest problems previously).  For those who still do not qualify, or who choose to short sell their home, it provides $1,500 at closing to help them get started at their next residence (most likely a rental).  This was intended to both help get the homeowner established and to motivate them to short sell their home because there is time and effort involved.

If you are struggling, please ask your lender about the HAFA program and find out if you qualify.  It can help you save your home or help you get started at your next home.  If you are looking to short sell your home, contact one of the agents at Tiered Real Estate who will be happy to help you.

There has been significant discussion about extending the home buyer tax credit.  The speculation has been wide ranging from doubling the credit to extending it to all home buyers.  While neither of these seems to be financially plausible, there seems to finally be a consensus on what will happen.  The Wall Street Journal posted this discussion about the extension.

While some of the details are subject to change between now and the vote by Congress, one thing should be clear, this is not going to stay around forever.  In fact, buyers should feel fortunate that it is going to be extended at all.  Many congressmen opposed extending the credit due to the cost.  If you are considering buying a home, consider this a blessing and an expiring benefit.  Take advantage of it now while you have the chance!  You should expect that this is going to be gone by the middle of 2010.

If you are interested in buying or selling a home, contact one of the great agents at Tiered Real Estate and we will be happy to help you!  If you need to know if you can qualify for a loan (or how much home you can afford) then contact Mike Vrba at Cherry Creek mortgage.

My attention was recently drawn to an article (click here to read the article) that while it is several months old, it is still one of the most popular online.   The article discusses signs the housing market is starting to recover.  This is a very good sign for the economy overall since housing is a ‘leading indicator‘ or the economy (i.e. it is one of the first to move up or down to indicate which way the economy may be moving).

In particular, I noticed several things that lead me to believe that housing has reached its bottom and is finally turning around.

First, last winter there was an enormous number of cash transactions.  What does this mean?  After sitting on the sidelines for a long time, investors (basically anyone who had cash to invest) decided that they couldn’t wait any longer.  Simply, it was too great of a risk to wait because they saw that the market was extremely low and the best deals may start to disappear.  Since that time, there has been a steady flow of cash transaction as more and more investors return to (or start in) the housing market.

Second, on occasion, I provide market information to banks.  For the first time in several years, I had to report areas of increasing values, increasing number of sales and a reduction in inventory.  Inventory is simply the name used for the number of homes on the market.  As little as two years ago, some areas had four times as many homes for sale as sold in the previous 6 months.  This means that if no homes came on the market for 2 years (4 times the amount x 6 months) then we would finally exhaust the inventory.  That is an awful ratio in housing.  Two year market time is not something that any homeowner wants to face when selling their home (this is part of the cycle that leads to dropping prices… high supply +  low demand = drop in price to sell your home before another).

Finally, the simplest (while the most subjective) reason is simply the activity that we have experienced.  As the market was free-falling, the number of inquiries and phone calls also went into a free-fall.  Not only have those levels stabilized, they have increased.  Again, buyers are competing for homes that are great deals.  No longer can we casually make an offer and expect to have it taken.  While we certainly do make offers of all shapes and sizes, nothing is a ‘sure-thing’ any longer.

What does this mean for you?  If you are a home owner who wants to sell or refinance their home, then good news!  Everything is starting to come back and buyers are looking.  Values are slowly (and not in all areas) starting to increase.  If you are potential home buyer, it means that you shouldn’t wait on the sidelines and hope that you can squeeze out another 5%-10% decrease in price.  Go out and look at homes and if you find something you like, negotiate.  Use your buying power to get a decrease in price, don’t hope for a price drop that doesn’t look likely to happen.

If you are interested in buying or selling a home, contact one of the great agents at Tiered Real Estate where we will be glad to help you with all of your home buying and selling needs!

There has been an active campaign telling renters that they are throwing away their money renting and that they should buy a home. The skeptics have said that this is just propaganda by real estate agents who are desperately trying to make a sale any way possible. BusinessWeek.com examined the cost of renting and compared it with the cost of owning a home.

While there are costs associated with owning a home (the general maintenance and upkeep) what BusinessWeek.com found was that the costs in the areas examined were exceptionally close and, in many cases, owning was even cheaper than renting! In addition, this does not factor in any appreciation that owning a home can provide. While it does not appear that there will be significant appreciation in the short term, the market has always increased in the long term and staying in a home can provide you with additional profit that renting can never provide.

If you are considering buying a home and tired of paying your landlord’s mortgage, contact one of the great agents at Tiered Real Estate and let us help you find a home. Don’t forget that if you are a first time home buyer, you may qualify for an $8,000 credit from the government!

Recently there has been a lot of talk about ways to save the economy by giving money directly to Americans. It is a very intriguing discussion that has many possibilities. By giving money directly to Americans it removes the control that the government would have over the money or business who receive the money. It could be used for fixing a home’s financial situation. It could be used for investing. It could be gambled away at a casino or spent on drugs. There is no way that the government can know how it will be used. Most of the time, it will impact where needed and it most definitely will get money flowing in our economy.

If most homeowners used it to pay down debt, creditors would have a huge influx of cash. Mortgage companies could see billions of dollars hit their books while finding mortgages brought back into good standing. In addition, this flow of capital will make banks and other creditors more willing to offer loans again. First time home buyers will have down payment money. Economically stable families will have investment and vacation money. Spending will increase. Hiring will increase to fill the demand placed on our increasing consumption. Some potential retirees will get enough money to leave the workforce and create jobs for younger workers. The economy will start moving and it should start moving in a very short period of time.

What about the down side? The US government says that there are about 116 million households in the U.S. If every household was given $25,000 it would cost almost $3 trillion. Wow! A staggering cost. In addition, what happens with inflation and the value of our currency if the government passed out $3 trillion? It would be rough.

There are ways to reduce the cost. Offer the money to those who file income taxes and limit it to U.S. citizens. Only offer the money if your household income is under $250,000.

Another option is to offer the money to individuals instead of households. If the amount was $10,000 it could still cost $3 trillion if everyone received their money. However it would give more money to families who are larger and need more money and less to those who are smaller and need less money. Again, limiting to U.S. citizens and tax payers would reduce the overall cost.

A third option is to restructure the housing market and let the trickle-down work from there. Under one option, all loans would be reset to 4.5%. This would reward those who do pay their loans and save from foreclosure those who don’t while still putting money in the pockets of banks and largely eliminating the number of foreclosures. An alternate plan involves putting together local teams of real estate agents and appraisers who make independent valuations on homes. Then they work with the assessor and the banks to correct the amount of the loan and the taxes. The shortfall could then be made up by the federal government in one of their ‘bailout’ packages.

What do you think? This is an important topic that affects every one of us and will shape our economy for the foreseeable future. Post your opinions, ideas, suggestions and comments.