The Daily Dirt - Real Estate Outlook: Housing in Recovery

11/2008 Vol 1, Issue 21 Real Estate Outlook: Housing in Recovery Dear E-mail,   I always appreciate your feedback about my eNewsletters.   If you have any feedback, please let me know (good, bad and ugly) at mj@milehighhomehunter.com     By the way, I have set up some real estate resources for you on Amazon.com.     Are you: A first time homebuyer? Check out: The First-Time Homeowner's Handbook Investing in Apartment Buildings? Check out: Investing in Apartment Buildings Investing in Real Estate? Check out: The Pre-Foreclosure Property Investor's Kit Needing tools for your next "Fix n' Flip"? Check out the Amazon.com pre-canned search here  If you are looking for anything else, check out any of the affiliate links under the "Amazon.com: Real Estate" button on the top of my website: www.MileHighHomeHunter.com Market Place Links   Have something to sell? A small business to promote? Contact me to have your link added here:   Shop for real estate books   Shop for home improvement tools   Mary Kay Cosmetics   Send Out A Card - Online! Experience Renewal   Get Financial Renewal Quick Links Foreclosure Homes Market Stats Valued Lender Referral Search for Homes    Join our Mailing List! Don't Forget! Support the Race for The Cure! Help me raise funds for the Race for the Cure! Donate directly to Komen Denver here     Real Estate Outlook: Housing in Recovery   Real Estate Outlook: Housing in Recovery Written by Kenneth R. Harney November 18, 2008   With all the turbulence and losses in stocks and bad economic news in the headlines lately, you can easily lose perspective on what's really going on in the real estate sector.   For example, new mortgage applications increased last week by 12 percent, according to the Mortgage Bankers Association. Applications from people looking to buy houses with FHA loans were up by 15.3 percent, while applications from purchasers seeking conventional mortgages rose by six and a half percent.   How could that be, with all the grim economic news? Well, remember that there is a huge pent-up demand simmering away out there for housing -- especially from first-time buyers who want to scoop up low-priced deals.   When fixed interest rates drop -- and last week they were down by a quarter of a percentage point -- those buyers start doing the math and getting into the market with offers.   Fixed thirty year rates fell from six and a half percent to 6.24 percent during the week. Fifteen year rates broke below six percent to 5.9 percent, down from 6.14 percent.   Another piece of positive news you may not have noticed: Pending home sales were higher than year-earlier levels for the second straight month -- 1.6 percent higher than September 2007.   Although pending sales contracts were down slightly for the month, in the western states they were up by 3.7 percent, and now stand at an extraordinary 39.7 percent higher than they were at the same time in 2007.   At the National Association of Realtors' convention in Orlando, chief economist Lawrence Yun, warned the delegates not to expect a housing recovery overnight, certainly not with unemployment on the rise. But he projected a slow, steady, multi-year upward trend, with 5.02 million total sales this year, 5.3 million for 2009, and 5.6 million for 2010.   Already sales are up significantly in major markets in many parts of the U.S. Yun specifically mentioned the west coast of Florida, the Phoenix area, Virginia, Long Island New York, Kansas City, Minnesota and Idaho.   So here's the key point to keep in mind as you try to make sense of the headlines: The stock market is NOT the housing market. It's on a whole different set of tracks. And it's been in a highly volatile state for more than a month.   Housing, on the other hand, has already endured its painful correction for two and a half years ... is now pretty much stabilized ... and is slowing moving toward its cyclical recovery. Want The Latest Real Estate News? -- Contact me get automated updates for your home, neighborhood or a neighborhood where you are looking to purchase Click Here To See My New Real Estate Video News Channel!   - Realty Times     Click Here To See My New Real Estate Video News Channel! As always, whenever YOU are ready, I am here Bringing The World Home To You™     And, if you know of someone that is looking to buy or sell, I am NEVER too busy for any of your referrals.       Kind regards and happy "Home Hunting",      Michael J. Clarkson   Broker/Owner - Mile High Home Hunter Realty  303.332.6393 MJ@MileHighHomeHunter.com        On the web: http://www.MileHighHomeHunter.com http://www.MileHighForeclosure.com http://www.HomeHunterBlog.com http://MileHighHomeHunter.Blogger.com

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The Daily Dirt - Credit Unions To The Rescue

11/2008 Vol 1, Issue 18 Credit Unions to the Rescue: Been down to your friendly, neighborhood credit union lately? Dear E-mail,   I always appreciate your feedback about my eNewsletters. This month, I address what seems to be two separate markets developing in Denver.   If you have any feedback, please let me know (good, bad and ugly) at mj@milehighhomehunter.com     By the way, I have set up some real estate resources for you on Amazon.com.     Are you: A first time homebuyer? Check out: The First-Time Homeowner's Handbook Investing in Apartment Buildings? Check out: Investing in Apartment Buildings Investing in Real Estate? Check out: The Pre-Foreclosure Property Investor's Kit Needing tools for your next "Fix n' Flip"? Check out the Amazon.com pre-canned search here  If you are looking for anything else, check out any of the affiliate links under the "Amazon.com: Real Estate" button on the top of my website: www.MileHighHomeHunter.com Market Place Links   Have something to sell? A small business to promote? Contact me to have your link added here:   Shop for real estate books   Shop for home improvement tools   Mary Kay Cosmetics   Send Out A Card - Online! Experience Renewal   Get Financial Renewal Quick Links Foreclosure Homes Market Stats Valued Lender Referral Search for Homes    Join our Mailing List! Don't Forget! Support the Race for The Cure! Help me raise $2,500 for the Race for the Cure! Donate directly to Komen Denver here     Credit Unions to the Rescue   Credit Unions to the Rescue By Broderick Perkins   Been down to your friendly neighborhood credit union lately?   You could find that elusive home loan you been unable to get anywhere else.    Credit unions didn't need a bail out during the Great Depression, they didn't need federal intervention during the Savings & Loan debacle and they don't need government assistance now. In fact, right now, they are rolling out the red carpet for home loan borrowers.   During the boom, credit unions avoided writing subprime home loans and other easy-money mortgages. They also shunned selling packages of mortgages to Wall Street moguls who packaged them into now low- to no-return securities. That means credit unions are relatively untainted by the credit squeeze and they have both money to burn and a sound business foundation that allows them to keep on lending.    Instead of fearing the next Great Depression, member-owned credit unions are bracing for what could be their boom time in home loans and other financial services, now that banks and mortgage lenders are crashing and burning.   Mortgage production among credit unions is small by comparison to banks and mortgage lenders, but their originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA).    The Mortgage Bankers Association recently reported bank and mortgage lender loan originations took a nose dive, falling 17 percent during the same period.    Credit unions are more willing than many lenders to make homes loans for the creditworthy, but the old fashioned way. If you go shopping for a credit union mortgage, leave your subprime attitude at the door. You won't be coddled, you can't get away with lying on your application, your creditworthiness will have to pass muster and you likely won't get more home than you can truly afford.   Credit unions are non-profits in the business to make money, but not profits. They serve members who pool their money to get a decent return, either in the form ofsavings interest or competitively priced loans.    The fundamentals apply: Credit unions take in deposits. They use the money to make loans. They charge more on those loans than they pay on deposits. Voila! A thriving business.   It's the lack of the profit motive that kept credit unions out of harms way during the mortgage meltdown. They have no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes.    Credit unions hold most loans to maturity and return the interest to members in the form of interest-bearing checking, savings and CD accounts. The rest they invest smart so they can continue to help members. Also, because credit unions didn't hop aboard the home loan assembly line, their members aren't suffering the kind of housing hangover many home owners face today.    Less than 1 percent of all credit union mortgages are 60 days or more late, according to their Credit Union National Association (CUNA). And, along with fixed-rate 30-year mortgages they also offer conventional adjustable rate mortgages (ARM) and hybrids.    As with other financial products -- savings and CDs -- rates on loans are often better at credit unions. The spread isn't as much with mortgages as it is with credit cards and car loans, but credit unions' mortgage rates are competitive.   As of October 15 UNA reported the average rate on a 30-year fixed rate mortgage was 6.27 percent; for a 1-year ARM, 4.91 percent. Meanwhile, the MBA reported an average 6.47 percent for a 30-year loan and an average 6.67 for a 1-year ARM.    "Credit unions are the safest depository institution in the country to put your money in right now," says Dan Mica, President and CEO of CUNA.    He has room to boast. Just as the Federal Deposit Insurance Corporation (FDIC) insures accounts up to $250,000 in federally insured banks, credit unions are likewise regulated and federally insured by the NCUA for the same amount.    -  Realty Times     Click Here To See My New Real Estate Video News Channel! As always, whenever YOU are ready, I am here Bringing The World Home To You™     And, if you know of someone that is looking to buy or sell, I am NEVER too busy for any of your referrals.       Kind regards and happy "Home Hunting",      Michael J. Clarkson   Broker/Owner - Mile High Home Hunter Realty  303.332.6393 MJ@MileHighHomeHunter.com        On the web: www.MileHighHomeHunter.com www.MileHighForeclosure.com www.DenverHomesRealty.com

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A solution for the housing crisis

In the interest of full-disclosure, I am a Realtor®. I think this bailout is insane and incredibly short-sighted!

Taking my Realtor® hat off and putting my MBA hat on, let me offer the following:

• I understand that liquidity is the problem, but injecting money does NOT guarantee that liquidity will improve nor will resolve the housing inventory glut.
• Looking at the St. Louis Fed's credit numbers, credit is at literally an all-time high.  

This is like putting water in a blocked toilet and flushing again and again…it doesn't break the blockage!

Now, I have not necessarily heard how this package directly addresses dealing with:

1. Oversupply of inventory, created by
2. Rampant foreclosures

which seems to be at the core of the crisis (foreclosures – really oversupply).

I think the most conceptually simple approach (the devil is always in the details) is:

1. Provide a 40, 50, 60 year amortization for loans in trouble (at market rates), not a 30-year rework…which essentially gets you to a minimally different payment.
• This keeps homes off-market, creating price support due to the current level of demand competing for a reduced supply (inventory) of homes.
• This has the ancillary benefit of keeping property values up (not artificially, but by ACTUAL, desired home ownership) which benefits state and local economies (who rely on property taxes) based on valuation
2. Trade off a portion of the equity on the back end of the sale for the privilege of doing this rework, say 10%, for the opportunity to do this.
• This would have the effect of neighborhood stabilization (lest remaining homeowners just get fed up and leave the keys on the counter and leave at some point, if they see their homes go underwater to the tune of $50k, $100k or $200k as their neighborhoods implode). This encourages value preservation.
• This 10% trade off would also discourage homeowners from "working the system" - and hold the homeowners accountable for getting in over their heads - if they had to provide an additional lien for $20k on a $200k home (present value); while permitting a MEANINGFUL adjustment to payments of homes that are in trouble.  Also, this additional lien discourages churn of those homes when
• values start to improve and brings them into the market only when appreciation is substantially over the encumbrances (including the 10% trade-off noted in #b).  The homes would HAVE to be owner-occupied.
• Now, I would waive the 10% if they paid their homes off earlier than the 60 years (say on the original 30 year schedule) – to encourage equity accrual.
• Require homeowners to purchase some sort of life insurance policy that pays off the mortgage, should they pass away prior to the 60 year mortgage being paid off.  Guess what? This creates a wealth transfer to the heirs of the troubled homeowners, too!  (Great reason to abolish the death tax!)
3. How do you fund the gap between the cash flow of the 30 year loan vs the 60 year amortization? 
• Create a private investment fund for raising funds for this endeavor, perhaps with tax free benefits paying, say, 7%, after all, at 10% return on the back end, you would make 3% differential (mind you, I haven't done an NPV analysis or time-value of money analysis on this).
4. Moreover, this would ESTABLISH VALUE of these mortgage assets due to increased (or, really, commencing) cashflows from the DISTRESSED loans.
• Moving from a 30 year to 60 year loan would reduce payments by 15% (from $600 per $100k @6% to $514 per $100k @6%).  (That doesn't take into account the differential from reducing the rates based on percentages.)
• That benefits banks as 85% of something is better than 100% of nothing. This should increase cashflows in the credit market and permit the ability/encourage willingness to loan in the market. The differentials (the remaining balance of the loans in distress) would be funded through the private investment fund noted above.
• If there were a gap remaining there, THEN fund THAT. I mean, we are putting 1/14th of the GDP into Wall Street in one bill. That's insane.

 

The net-net is: You keep supply of available homes down. Due to the implicit requirement of having any given home needing to overcome its encumbrances, these homes should not churn until value (and equity) is acquired. That is equity that can be used to move up somewhere down the road, or provide a legacy to these homeowners' family and children.

 

Over 150,000 unique visitors come to MileHighHomeHunter.com and MileHighForeclosure.com to find the best that Denver real estate has to offer. 

 

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Kind regards,

 

Michael

 

 

Michael J. Clarkson Broker/Owner, GRI, MBA
Work: 1.303.317.2478 Mobile: 1.303.332.6393 Fax: 1.866.723.4337 Email: mj@milehighhomehunter.com IM: mjclarksondenver (MSN) Home Page Mile High Home Hunter Realty PO Box 837 Erie, CO 80516 USA
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The Daily Dirt - Markets Not Frozen - FHA Still Strong

11/2008 Vol 1, Issue 16 FHA Still Going Strong: Markets not as frozen as the media claims Dear E-mail,   I always appreciate your feedback about my eNewsletters. This month, I address what seems to be two separate markets developing in Denver.   If you have any feedback, please let me know (good, bad and ugly) at mj@milehighhomehunter.com     Market Place Links   Have something to sell? A small business to promote? Contact me to have your link added here:   Shop for real estate books   Shop for home improvement tools   Mary Kay Cosmetics   Send Out A Card - Online! Experience Renewal   Get Financial Renewal Quick Links Foreclosure Homes Market Stats Valued Lender Referral Search for Homes    Join our Mailing List! Don't Forget! Support the Race for The Cure! Help me raise $2,500 for the Race for the Cure! Donate directly to Komen Denver here     FHA Still Going Strong   FHA Still Going Strong By Kenneth R. Harney   The country's top housing official has an urgent message for potential home buyers: You may have heard that the credit markets were "frozen," but FHA has been open for business throughout the credit squeeze, and so are Fannie Mae and Freddie Mac. In fact, FHA's volume has tripled and the agency is now insuring well over a hundred thousand new loans a month.   In an exclusive one-on-one interview with Realty Times, Housing and Urban Development Secretary Steve Preston said that FHA, Fannie and Freddie -- who account for a combined 90 percent plus share of the entire U.S. mortgage market -- "have kept liquidity alive" for home buyers -- and have virtually unlimited funds for new mortgages.   "There is no credit crisis" for individual home buyers who have at least three percent to put down, documentable employment, and at least a moderately good credit record, said Preston.   Business loans and various other types of credit may have been more difficult to obtain in recent weeks, Preston told Realty Times, but thanks to the government's backing of the three biggest sources of mortgages, buyers and refinancers of houses have had no unusual problems.   Preston and HUD are playing key roles in the $700 billion financial system bailout plan now getting underway. Preston is one of just five members of the Financial Stability Oversight Board that oversees the entire effort. HUD's main task in the weeks ahead, he said, will be to either refinance or help work out thousands of delinquent subprime and underwater homes financed by private lenders during the boom years.   The agency's new "Hope for Homeowners" program, which started October 1, allows it to cut the principal debt, monthly payments and interest rates of delinquent loans through refinancings into fixed-rate FHA mortgages.   In the interview, Preston emphasized the importance of a new, $3.9 billion program that has received virtually no attention in the press, but which could have huge positive impacts on neighborhoods and communities struggling with large numbers of foreclosures.   Congress authorized HUD to provide funds and other assistance to local governments to buy, fix up, resell or rent out foreclosed houses that are dragging down local property values.   Known as the Neighborhood Stabilization program, it offers not only roles for local governments to fight housing blight, but also provides opportunities for alert realty agents, rehab contractors, builders and investors to be involved -- profitably -- in the turnaround efforts. If you're interested, talk to your city or county housing and community development officials for details. Though HUD will be providing the funds, local officials will be calling the shots.   - Realty Times     Click Here To See My New Real Estate Video News Channel! As always, whenever YOU are ready, I am here Bringing The World Home To You™     And, if you know of someone that is looking to buy or sell, I am NEVER too busy for any of your referrals.       Kind regards and happy "Home Hunting",      Michael J. Clarkson   Broker/Owner - Mile High Home Hunter Realty  303.332.6393 MJ@MileHighHomeHunter.com        On the web: www.MileHighHomeHunter.com www.MileHighForeclosure.com www.DenverHomesRealty.com

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Denver Market Statistics

Today's Denver Real Estate Market reminds me of the old joke just about every finance professor tells in college. The joke goes like this:

Three folks go in for a job interview: A Mathematician, An Economist, and an Accountant.

The interviewer asks them all one simple question: What's 2 + 2?

The Mathematician gets out a slide rule (yes, it's an old joke), works a few numbers and responds: Well, 2 + 2 = "4.00000000".

The Economist leans forward and answers: Well, 2+2 = 4, plus or minus a little bit.

The Accountant looks to the left. Then, the Accountant looks to the right. Then, the Accountant leans forward and whispers: What do you WANT it to equal?

Though our market is not quite as corny as that joke, the answer the Accountant gave just about sums up this market: "What do you WANT it to equal?"

Some might call it a mixed market. Some might call it a strong market. Some might call it a weak market. However, all might be right.

There are great spots. There are also some areas of concern, which are noteworthy. However, the areas of concern are also areas of opportunity of which one should be cognizant. Should you panic? No. However, you should keep your ear to the ground.

The Denver market is sending mixed signals. Though GREATLY outperforming the national market, the local market is constrained with the reality of a nationally weak market.

Here is a snapshot of the Denver vs. the National Market in the chart below:

 

Based on information from MetroList, Inc. for period August 7, 2008 to September 9, 2008.

Note: This representation is based in whole or in part on content supplied by MetroList, Inc. MetroList, Inc. does not guarantee nor is in any way responsible for its accuracy. Content maintained by MetroList, Inc. may not reflect all real estate activity in the market.

 

Can you see just how STRONG the local market is? The Denver market is running about ½ the months of inventory that the national market is 5.43 months of inventory for Denver vs. 11.2 months for the National market.

Here's another chart to show you JUST how STRONG the local market is:

Based on information from MetroList, Inc. for period August 7, 2008 to September 9, 2008.

Note: This representation is based in whole or in part on content supplied by MetroList, Inc. MetroList, Inc. does not guarantee nor is in any way responsible for its accuracy. Content maintained by MetroList, Inc. may not reflect all real estate activity in the market.

 

You see above that there are ONLY 24,648 active listings on market. That is 22.2% FEWER active listings on market that the peak in 2006! So, of the 5 listings you saw on market in 2006, you now will only see 4 in today's market. In terms of active listings, down is an indication of relative market strength.

Oh, and there are 4% more folks in Denver than 2 years ago, with more moving here with the traditional and renewable energy industries all the time!

Now, if you have the following, you will generally get a loan:

1. Good credit – 720 credit score or higher
   
2. Money down – 10% is good; 20% is better
   
3. A W-2 job – Sorry, stated income (self employed) is largely gone. So, if you work for yourself, it's going to be tougher to get a loan – tougher than before.
   
4. AND if you aren't an investor with more than 3 other Freddie Mac/Fannie Mae backed loans (your 4^th loan – the one you would be seeking - is the maximum you can get since August 1^st, with the new conforming guidelines).
   
5. If you meet #'s 1-4, then lenders want to speak with you NOW!
   

Now, there are areas of concern and/or opportunity. Here's why: Our Denver market is now apparently branching in two different directions:

• Average/Median Price and below – That's the market at about $280k and below (call it $300k and below for round numbers)
  
  • The AVERAGE price of a sold, single family residence was $284,531 as of August 1, 2008 (the latest date for which Denver data was available)
    
  • The MEDIAN (the price where 50% of the market sells above that price and 50% sells below that price) was $225,000 as of August 1, 2008 (the latest date for which Denver data was available)
    
  • These markets ($300k and below) are showing 4.17 months of inventory; that's a Seller's Market
    
• Now, ABOVE $300k (going to infinity), the Denver market is showing 11.42 months of inventory; that's a Buyer's Market
  
  • The market breaks down like the following:
    
    • $300k - $400k – 6.9 Months of Inventory – Buyer's Market
      
    • $400k - $500k – 10.3 Months of Inventory – Buyer's Market
      
    • $500k - $600k – 11.9 Months of Inventory – Buyer's Market
      
    • $600k - $700k – 16.2 Months of Inventory – Buyer's Market
      
    • $700k - $800k – 19.2 Months of Inventory – Buyer's Market
      
    • $800k - $900k – 19.7 Months of Inventory – Buyer's Market
      
    • $900k - $1M – 29.0 Months of Inventory – Buyer's Market
      
    • $1M and over – 33.1 Months of Inventory – Buyer's Market
      

    
     

Why the two different markets? Consider the following:

• To qualify for a $350k home or more (assuming $0 down – which isn't happening these days), a borrower(s) would need to earn $100k per year. In Denver, that represents 11.6% of the population.
  
• Using that data, along with MLS Data and some purchase assumptions (1 home purchase every 7 years), one finds the following for the Denver Market:
  
  • There are an estimated 21.71 potential buyers for each listing up to $300k. This includes folks who can afford homes over $350k; though these buyers likely won't buy less expensive homes, they are still POTENTIAL buyers.
    
  • There are an estimated 2.11 potential buyers for each listing over $300k
    
  • Based on the current months of inventory, there are 9.90 buyers for each listing in the Denver market in aggregate
    
  • A well-balanced Denver market should have about 11.86 buyers for each listing (a market with 6 months of inventory)
    
  • So, one can see that the under $300k market is experiencing "gang-buster" activity; while the over $300k market is experiencing some lethargy.
    

What does that mean to you, my readers?

• If you are buying in the market up to $300k, you should be prepared to compete and compete strongly for the inventory that is available.
  
  • Get serious.
    
  • Get ready.
    
  • Write a strong offer.
    
  • Don't act like it's a buyer's market. Why? Cuz' it AIN'T at the present time.
    
• If you are buying in the market OVER $300k, you have an AMAZING opportunity to take advantage of what is a Buyer's Market.
  
  • The latest Denver MLS (MetroList) indicates that the average, single family residence, listing price is $503,573, up from $427,067 on January, 1, 2008, (or up $9,563 per month this year). Now, that price increase, along with the static or softening average and median sold prices indicates that homes are coming on market, but are not coming off-market via a "sale path".
    
  • If they were selling in meaningful numbers relative to the market, one would see the average price drift up, followed at a later time with the median price drifting up.
    
  • So, there is one of four paths those homes will follow:
    
    • Sell
      
    • Sell short – (sells less than its encumbrances)
      
    • Comes off-market – doesn't sell, the owner keeps it
      
    • Forecloses – fails to sell and is repossessed by the bank
      
  • Given the amount of potential buyers per listing, and the MLS data (shown below) what are your thoughts about which path those listings will follow? In any of those paths, the market softness means a buying opportunity.
    
  • Indeed, in three subdivisions I can name right off the top of my head, homes are selling for 50% or more under their original prices. So, the prepared buyer is in a position to be rewarded.
    

The chart below shows the data relating to the above.

Based on information from MetroList, Inc. for period August 7, 2008 to September 9, 2008.

Note: This representation is based in whole or in part on content supplied by MetroList, Inc. MetroList, Inc. does not guarantee nor is in any way responsible for its accuracy. Content maintained by MetroList, Inc. may not reflect all real estate activity in the market.

 

So, one can see that the Denver market is offering two different faces: It's busy and frenetic median priced market and it's opportunity-laden higher end market.

If your plans include a home purchase in either market, just know I am here to help you with the information to make the right choice for your home buying or selling needs.