Money Magazine - September 28, 2009
(Money Magazine) -- The month Jennifer Galdes moved into her condo in the Albany Park section of Chicago, the local paper suggested that the area was up and coming. Six years later, she's still waiting for a Whole Foods.
Galdes, a self-employed publicist, longs to trade up to a similar-size (2,000-square-foot) apartment in a tonier neighborhood. With area condo prices down 16% since their peak, according to S&P/Case-Shiller, she sees her chance.
The catch: She'll have to unload her current place first.
So is now really the right time to make this move, she wonders? Wheaton, Ill., financial planner Kristopher Johnson says yes.
Galdes, 43, may have to sell her condo -- bought in 2003 for $287,000 -- for less than she'd hoped. But the discount on a better place will more than offset the reduction on hers. And she'll net $86,000 after closing even if she breaks even.
Still, she's got to be strategic in selling and buying.
The solution
1. Nail down a value. Galdes should talk to agents to get an idea of what her place might sell for. If that price is acceptable to her, she should list it ASAP, as she may need six months to sell, says local realtor David Hanna. (And she should sell before buying, Johnson adds.)
2. Set a budget. Because Galdes is debt-averse, Johnson wants her to keep her mortgage the same ($175,000). He says she can use up to $100,000 from nonretirement savings toward a down payment. If she nets $86,000 on her condo, she can afford to spend about $360,000.
3. Shop like a shark. Area condos are selling 5% to 10% below list price, says Hanna. So Galdes can shop that much above her budget.
What the housing 'rebound' means for you
Money Magazine - September 24, 2009
What the housing 'rebound' means for you
Homes are selling again, but the market today is divided by price point. Your best strategy depends on where your home sits on that spectrum.
(Money Magazine) -- Home sales are rising. Builders are buying lots. And prices are no longer in free fall. After so much pain, there are signs of life in the housing market.
But the "recovery" is far from universal. In many cities cheaper homes are selling fast -- but mid-range properties are still lingering, and high-end homes are gathering dust. "The luxury market still looks ugly," says economist Joshua Shapiro at economics consultancy MFR. If you're selling or buying, your strategies should depend on the value of the home you want or own.
The bottom tier (hot)
The lowdown: A big chunk of the 1.9 million post-boom foreclosures have been among the least expensive 35% of homes. Bargain prices on these foreclosures and a new tax credit of up to $8,000 for first-time buyers have lured investors and would-be homeowners back to the market, even in hard-hit areas, says Pat Lashinsky, CEO of online brokerage ZipRealty.
Sales of homes between $100,000 and $250,000 are up 9% from a year ago. Meanwhile, many banks halted foreclosures earlier this year while waiting for details on the Obama administration's foreclosure-prevention plan. Greater demand combined with less supply is providing a strong spark to the market. "Buyers in most areas are now going up against multiple offers," says Lashinsky.
Buyers: See homes the first day they're listed, and if there's one you want, submit an offer immediately, says Phoenix realtor Susan Ramsey. Don't expect a deep discount; prices for lower-end homes are stabilizing. Put down 20% or more, if you can, to compete with cash-rich investors. Offer not accepted? Check in with the seller's agent a few more times; many deals fall through.
If you aren't under pressure to move, keep in mind that the supply crunch is probably temporary. The foreclosure rate is expected to stay at record highs for the rest of the year, and as prices stabilize, more sellers will jump back into the market.
Sellers: Forget trying to compete with foreclosures on price. Some buyers will pay more for a home in move-in condition, so spruce yours up and sell that fact hard in your marketing materials.
Many of the other listings are likely to be short sales in which the bank agrees to accept a price below what the owners owe on their mortgage. Since short sales can take months, offering a quick, flexible closing date will give you another advantage -- and attract first-time buyers aiming to take advantage of the tax credit before it expires at the end of November.
The middle tier (cool)
The lowdown: Demand is soft. That's because the likely buyers are trying to trade up -- difficult for people who bought in the past five years, because they have so little equity. In fact, about a third of all homeowners with a mortgage owe more than the home is worth, according to First American CoreLogic.
Buyers: Unload your current home first, so you know what you can afford to spend on a new place. When you find a home you like, offer 10% less than the asking price -- a realistic discount for a lukewarm market, says realtor Ramsey.
Sellers: If you have to move soon, it's all about standing out from the pack. If your home is sitting on the market, go for one big price cut instead of slowly ratcheting down. A bold move will attract attention and prevent the listing from going stale. Offer to cover closing costs, and since many buyers will be short on cash after the purchase, throw in some necessary improvements, such as new carpeting, blinds, or painting.
If your home is in the half-million-dollar range, try to set the price at a level that doesn't require a jumbo loan, normally $417,000 or less (up to $729,750 in pricey areas). The difference between a $400,000 conforming loan and a $420,000 jumbo loan is several hundred dollars a month. Finally, if you can hang in there, know that prices will likely start to recover within the next 12 to 18 months, says economist Shapiro.
The top tier (cold)
The lowdown: The recession and the credit crunch have almost shut down the top 10% of the market, says Joel Naroff, president of Naroff Economic Advisors. Fewer people can afford a luxury property, and since banks are hesitant to underwrite supersize loans, it's tough to finance them.
Moreover, foreclosures are rarer at this price level, and homeowners, unlike banks, are reluctant to slash their price. Given all that, the prices on high-end homes will probably fall another 10% until the market hits bottom, says Mark Zandi, chief economist at Moody's Economy.com.
Buyers: Get pre-approval before you shop: Jumbo mortgages are tougher to qualify for, require larger down payments (as much as 30% to 40%), and cost nearly a percentage point more than smaller loans. And ask for freebies: While sellers often balk at low-ball offers, they should be willing to negotiate, including paying closing costs and other extras. "You can set the terms," says ZipRealty's Lashinsky. If the seller refuses, move on.
Sellers: You'll need to seriously undercut the competition. (Your agent can provide comparable sales figures for the past three months.) You may want to finance the deal yourself. And motivate buyer's agents with a larger cut of the deal -- a total of 4%, says Sacramento realtor Larry Henderson. It may be painful, but the price of your home is likely to fall further if you wait -- and recovery for your market is a ways off.
What the housing 'rebound' means for you
Homes are selling again, but the market today is divided by price point. Your best strategy depends on where your home sits on that spectrum.
(Money Magazine) -- Home sales are rising. Builders are buying lots. And prices are no longer in free fall. After so much pain, there are signs of life in the housing market.
But the "recovery" is far from universal. In many cities cheaper homes are selling fast -- but mid-range properties are still lingering, and high-end homes are gathering dust. "The luxury market still looks ugly," says economist Joshua Shapiro at economics consultancy MFR. If you're selling or buying, your strategies should depend on the value of the home you want or own.
The bottom tier (hot)
The lowdown: A big chunk of the 1.9 million post-boom foreclosures have been among the least expensive 35% of homes. Bargain prices on these foreclosures and a new tax credit of up to $8,000 for first-time buyers have lured investors and would-be homeowners back to the market, even in hard-hit areas, says Pat Lashinsky, CEO of online brokerage ZipRealty.
Sales of homes between $100,000 and $250,000 are up 9% from a year ago. Meanwhile, many banks halted foreclosures earlier this year while waiting for details on the Obama administration's foreclosure-prevention plan. Greater demand combined with less supply is providing a strong spark to the market. "Buyers in most areas are now going up against multiple offers," says Lashinsky.
Buyers: See homes the first day they're listed, and if there's one you want, submit an offer immediately, says Phoenix realtor Susan Ramsey. Don't expect a deep discount; prices for lower-end homes are stabilizing. Put down 20% or more, if you can, to compete with cash-rich investors. Offer not accepted? Check in with the seller's agent a few more times; many deals fall through.
If you aren't under pressure to move, keep in mind that the supply crunch is probably temporary. The foreclosure rate is expected to stay at record highs for the rest of the year, and as prices stabilize, more sellers will jump back into the market.
Sellers: Forget trying to compete with foreclosures on price. Some buyers will pay more for a home in move-in condition, so spruce yours up and sell that fact hard in your marketing materials.
Many of the other listings are likely to be short sales in which the bank agrees to accept a price below what the owners owe on their mortgage. Since short sales can take months, offering a quick, flexible closing date will give you another advantage -- and attract first-time buyers aiming to take advantage of the tax credit before it expires at the end of November.
The middle tier (cool)
The lowdown: Demand is soft. That's because the likely buyers are trying to trade up -- difficult for people who bought in the past five years, because they have so little equity. In fact, about a third of all homeowners with a mortgage owe more than the home is worth, according to First American CoreLogic.
Buyers: Unload your current home first, so you know what you can afford to spend on a new place. When you find a home you like, offer 10% less than the asking price -- a realistic discount for a lukewarm market, says realtor Ramsey.
Sellers: If you have to move soon, it's all about standing out from the pack. If your home is sitting on the market, go for one big price cut instead of slowly ratcheting down. A bold move will attract attention and prevent the listing from going stale. Offer to cover closing costs, and since many buyers will be short on cash after the purchase, throw in some necessary improvements, such as new carpeting, blinds, or painting.
If your home is in the half-million-dollar range, try to set the price at a level that doesn't require a jumbo loan, normally $417,000 or less (up to $729,750 in pricey areas). The difference between a $400,000 conforming loan and a $420,000 jumbo loan is several hundred dollars a month. Finally, if you can hang in there, know that prices will likely start to recover within the next 12 to 18 months, says economist Shapiro.
The top tier (cold)
The lowdown: The recession and the credit crunch have almost shut down the top 10% of the market, says Joel Naroff, president of Naroff Economic Advisors. Fewer people can afford a luxury property, and since banks are hesitant to underwrite supersize loans, it's tough to finance them.
Moreover, foreclosures are rarer at this price level, and homeowners, unlike banks, are reluctant to slash their price. Given all that, the prices on high-end homes will probably fall another 10% until the market hits bottom, says Mark Zandi, chief economist at Moody's Economy.com.
Buyers: Get pre-approval before you shop: Jumbo mortgages are tougher to qualify for, require larger down payments (as much as 30% to 40%), and cost nearly a percentage point more than smaller loans. And ask for freebies: While sellers often balk at low-ball offers, they should be willing to negotiate, including paying closing costs and other extras. "You can set the terms," says ZipRealty's Lashinsky. If the seller refuses, move on.
Sellers: You'll need to seriously undercut the competition. (Your agent can provide comparable sales figures for the past three months.) You may want to finance the deal yourself. And motivate buyer's agents with a larger cut of the deal -- a total of 4%, says Sacramento realtor Larry Henderson. It may be painful, but the price of your home is likely to fall further if you wait -- and recovery for your market is a ways off.
County sees big drop in foreclosures, defaults
Union-Tribune - September 22, 2009
August stats indicate stabilizing, experts say
A dramatic drop in home default notices and foreclosures last month may signal a stabilization of San Diego County's housing market, market analysts said yesterday.
Some economists interpreted the August statistics as reflecting improving economic conditions. But they cautioned that the trend must continue for several more months before they can be certain.
Locally based MDA DataQuick reported a 19.9 percent drop in notices of defaults — the first step on the way to foreclosure — from 3,318 in July to 2,658 in August for San Diego County. The number was 6.7 percent lower than in August 2008 and the lowest since last November.
But the decline, duplicated elsewhere in the state, was at odds with rising delinquency rates, said DataQuick analyst Andrew LePage.
“Based on everything we hear from mortgage lenders and the government and private firms that put out delinquency numbers, there hasn't been a letup in the amount of distress,” LePage said.
Normally, after borrowers fail to make mortgage payments for two or three months, their lenders file notices of default, and within six months, they foreclose on the properties.
What may be happening instead, LePage said, is that lenders are not pushing owners into default and foreclosure but are working with them to restructure their loans or arrange for short sales, in which the homes are sold for less than their loan balance.
It isn't clear if these efforts will succeed — about half of all loan modifications have failed because the owners still couldn't keep up with their revised payments.
But if the new efforts succeed under a new federal incentive program, it would mean fewer homeowners would lose their properties and the overall real estate market could stabilize next year and recover the following year, as many market analysts have predicted.
Norm Miller, a real estate professor at the University of San Diego, said the new figures may reflect another factor.
“The unemployment rate is really what we should be watching,” he said. “When that bottoms out, that should correlate somewhat with the default rate bottoming out.”
He noted that San Diego's jobless rate remained unchanged in August, whereas the state and the nation's rates rose.
“It just may be that our unemployment situation is not as dire as the rest of the state or the country, because we do have the military and other stabilizing factors,” Miller said. A steadier economy would naturally help support housing values.
Marney Cox, chief economist at the San Diego Association of Governments, agreed. “All we can hope is the economy is beginning to turn around, giving people stable income so there won't be another reason for them not to make their mortgage payments, like no job,” he said.
DataQuick also released foreclosure data in San Diego for August, which showed an 8.9 percent drop in trust deed sales, down from 1,307 in July to 1,191 in August. The total was down 39.8 percent from year-ago levels.
A neighborhood breakdown showed a continued shift in foreclosure activity from areas that had been prone to subprime lending to higher-income areas newly hit by layoffs and economic reversals.
Thirteen ZIP codes registered increases from August 2008, including Carmel Valley, up 70 percent to 17 foreclosures; Ramona, up 38.1 percent to 29; and El Cajon 92020, up 2.9 percent to 36.
Some of the biggest declines occurred in eastern Escondido (ZIP 92027), down 72.3 percent to 23 foreclosures from 83 in August 2008; northern Oceanside (92057), down 70.7 percent, from 99 to 29; and Eastlake-Otay Ranch in Chula Vista (91913), down 60 percent from 95 to 38. Last week's DataQuick sales counts for August showed less activity in some of these areas, suggesting fewer distressed homes on the market.
“Look at Chula Vista,” Le Page said. “It's still a bigger problem in relative terms, but it's been worse. It's down less and there's less foreclosure inventory, which helps explain the lower sales numbers.”
Leonard Baron, a professor of finance at San Diego State University, said the slowdown in foreclosures may simply be due to banks “clogged up” with so many defaults and foreclosures in the pipeline.
But for buyers who are able to purchase distressed properties, he said, they can count on a high return on investment. He said he personally bought a Chula Vista condo recently for $110,000 that previously sold for $300,000. The monthly mortgage payment of $800 is low enough to cover all expenses and produce positive cash flow as a rental.
“It's a wonderful time to buy,” he said, but only in lower-priced areas.
Dustin Hobbs, spokesman for the California Mortgage Bankers Association, said the drop in defaults and foreclosures probably is due to more lenders and loan servicers agreeing to participate in the federal government's Home Affordable Modification Program. It offers incentives to lenders to adjust mortgage rates and balances and owners to keep up with their new payments.
“You can make the case that the system is a little backlogged with loans trying to go through this program or another program,” Hobbs said.
August stats indicate stabilizing, experts say
A dramatic drop in home default notices and foreclosures last month may signal a stabilization of San Diego County's housing market, market analysts said yesterday.
Some economists interpreted the August statistics as reflecting improving economic conditions. But they cautioned that the trend must continue for several more months before they can be certain.
Locally based MDA DataQuick reported a 19.9 percent drop in notices of defaults — the first step on the way to foreclosure — from 3,318 in July to 2,658 in August for San Diego County. The number was 6.7 percent lower than in August 2008 and the lowest since last November.
But the decline, duplicated elsewhere in the state, was at odds with rising delinquency rates, said DataQuick analyst Andrew LePage.
“Based on everything we hear from mortgage lenders and the government and private firms that put out delinquency numbers, there hasn't been a letup in the amount of distress,” LePage said.
Normally, after borrowers fail to make mortgage payments for two or three months, their lenders file notices of default, and within six months, they foreclose on the properties.
What may be happening instead, LePage said, is that lenders are not pushing owners into default and foreclosure but are working with them to restructure their loans or arrange for short sales, in which the homes are sold for less than their loan balance.
It isn't clear if these efforts will succeed — about half of all loan modifications have failed because the owners still couldn't keep up with their revised payments.
But if the new efforts succeed under a new federal incentive program, it would mean fewer homeowners would lose their properties and the overall real estate market could stabilize next year and recover the following year, as many market analysts have predicted.
Norm Miller, a real estate professor at the University of San Diego, said the new figures may reflect another factor.
“The unemployment rate is really what we should be watching,” he said. “When that bottoms out, that should correlate somewhat with the default rate bottoming out.”
He noted that San Diego's jobless rate remained unchanged in August, whereas the state and the nation's rates rose.
“It just may be that our unemployment situation is not as dire as the rest of the state or the country, because we do have the military and other stabilizing factors,” Miller said. A steadier economy would naturally help support housing values.
Marney Cox, chief economist at the San Diego Association of Governments, agreed. “All we can hope is the economy is beginning to turn around, giving people stable income so there won't be another reason for them not to make their mortgage payments, like no job,” he said.
DataQuick also released foreclosure data in San Diego for August, which showed an 8.9 percent drop in trust deed sales, down from 1,307 in July to 1,191 in August. The total was down 39.8 percent from year-ago levels.
A neighborhood breakdown showed a continued shift in foreclosure activity from areas that had been prone to subprime lending to higher-income areas newly hit by layoffs and economic reversals.
Thirteen ZIP codes registered increases from August 2008, including Carmel Valley, up 70 percent to 17 foreclosures; Ramona, up 38.1 percent to 29; and El Cajon 92020, up 2.9 percent to 36.
Some of the biggest declines occurred in eastern Escondido (ZIP 92027), down 72.3 percent to 23 foreclosures from 83 in August 2008; northern Oceanside (92057), down 70.7 percent, from 99 to 29; and Eastlake-Otay Ranch in Chula Vista (91913), down 60 percent from 95 to 38. Last week's DataQuick sales counts for August showed less activity in some of these areas, suggesting fewer distressed homes on the market.
“Look at Chula Vista,” Le Page said. “It's still a bigger problem in relative terms, but it's been worse. It's down less and there's less foreclosure inventory, which helps explain the lower sales numbers.”
Leonard Baron, a professor of finance at San Diego State University, said the slowdown in foreclosures may simply be due to banks “clogged up” with so many defaults and foreclosures in the pipeline.
But for buyers who are able to purchase distressed properties, he said, they can count on a high return on investment. He said he personally bought a Chula Vista condo recently for $110,000 that previously sold for $300,000. The monthly mortgage payment of $800 is low enough to cover all expenses and produce positive cash flow as a rental.
“It's a wonderful time to buy,” he said, but only in lower-priced areas.
Dustin Hobbs, spokesman for the California Mortgage Bankers Association, said the drop in defaults and foreclosures probably is due to more lenders and loan servicers agreeing to participate in the federal government's Home Affordable Modification Program. It offers incentives to lenders to adjust mortgage rates and balances and owners to keep up with their new payments.
“You can make the case that the system is a little backlogged with loans trying to go through this program or another program,” Hobbs said.
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