Real Estate Information

With interest rates at historic lows and home values where they are (the Housing Affordability Index is as favorable as it has ever been) I have one question… “Why hasn’t everyone jumped into the market?”  Housing is still one of the most basic of needs (food, clothing, and SHELTER).

But moreover, real estate is the way to building a financial fortune. Today, rents collected can cover mortgage payments, often creating a positive cash flow. That is a critical determinant to the strategy; buy something, have the rent make the payment, and wait for the market to improve. Ten years from now you will be glad you did. This is no “get rich quick” scheme. It is a long term commitment.

I truly believe that to eat up all this inventory we are going to have to entice more than the people who want to own their own slice of the American Dream into the market. We need to bring back the entrepreneur to real estate… the investor who wants to “buy and hold” real estate for a long-term investment. Investors often buy multiple units/homes and find long term returns that outpace the stock market.

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There is no one that wants the housing market to recover more than I do. Over 50% of my investment portfolio is comprised of real estate. My job is to teach real estate professionals what is happening in the market and why it is happening. It would be a lot more fun if I could tell them the housing market is about to come roaring back. I would be lying if I did.

All indications are that the real estate market will remain soft for some time to come. It will be better for everyone if we accept that fact and move on with our housing plans accordingly. Over the last week, there were three major reports released that prove that many people are still unclear as to the severity of the market:

SALES

Each month the National Association of Realtors (NAR) puts out their Pending Sales Report which measures the number of existing homes that went into contract the previous month. Based on the expiration of the Home Buyer Tax Credit, everyone expected the June report would show a substantial decrease in contracts.

Bloomberg News surveys economists each month prior to the release of the report to establish what the economists assume NAR will say. For the June report the economists predicted it would show a 14% decrease.

The actually number was a decrease of 30% - over twice what the economists had predicted!

PRICES

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BREAKING NEWS:  Tax Credit Deadline Extension and Flood Insurance Extension passed by Senate. Headed to the President!!!

New York Times report:

Congress has sent President Obama a plan to give home buyers an extra three months to qualify for up to $8,000 in federal tax credits. Buyers who already have signed contracts will now have until Sept. 30 to complete their purchases. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale. The House approved the measure on Tuesday. Legislation in the Senate was approved Wednesday night by unanimous consent.

There has been some confusion about a possible extension to the Home Buyer’s Tax Credit. We asked Steve to clear up some misconceptions and, at the same time, talk about what it all means in the end.  – The KCM Crew

Let’s start by killing two rumors that are out there: that the extension would allow new buyers to be eligible for the credit and that the extension has already been granted.

1. The possible extension is only an extension on the closing date deadline of June 30th.

There were two different deadlines in the Tax Credit. The home had to be in contract by April 30th and closed by June 30th. There was never talk of extending the date to get the home into contract (April 30). The proposal was to allow buyers who were already in contract by the April deadline to close after the original June deadline.

2. The extension has NOT been approved.

Though it was reported by many that the extension was granted and by others that it was a ‘done deal’, it didn’t happen. The confusion started when some reported the Senate approved the extension two weeks ago. The Senate did vote to approve an amendment extending the deadline. This amendment was part of a much larger bill. The larger bill then failed to get Senate approval thus ending the approval process for any amendments (including the extension) in that bill.

Where does the extension stand today?

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Are you thinking of selling your home? Are you dreading having to deal with strangers walking through the house? Are you concerned about getting the paperwork correct? Hiring a professional real estate agent can take away most of the challenges of selling. A great agent is always worth more than the commission they charge just like a great doctor or great accountant. You want to deal with one of the best agents in your marketplace. To do this, you must be able to distinguish the average agent from the great one. Let us help.

If I were hiring an agent to sell my home today, I would require they:

1. Tell me the truth about the price

Too many agents just take the listing at any price and then try to the ‘work the seller’ for a price correction later. Demand that the agent prove to you that they have a belief in the price they are suggesting. Make them show you their plan to sell the house at that price – TWICE! Every house in today’s market must be sold two times – first to a buyer and then to the bank.

The second sale may be more difficult than he first. The residential appraisal process has gone through a complete overhaul in the last twelve months. It has become more difficult to get the banks to agree on the contract price. A red flag should be raised if your agent is not discussing this with you at the time of the listing.

2. Understand the timetable with which my family is dealing

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The government has tried many stimulus programs to re-energize housing.  They attempted to kick-start demand by offering the First Time Home Buyers Tax Credit and they did have some success originally. They extended the program and added a provision for move-up buyers also. Even the government admits that the extension may not have increased demand but instead just moved it forward. In any case, demand has fallen off dramatically since the expiration of the program April 30, 2010.

The FED also tried to entice buyers to the market by keeping interest rates low with their program of buying mortgage-backed-securities. This coupled with the tax credit gave the real estate market some life in the first four months of the year. Rates have remained low and many have refinanced but purchase applications (mortgages for people buying homes) have plummeted.

The supply of distressed properties has increased substantially despite government efforts to help people avoid foreclosure through loan modifications. Only one in ten people determined to be in need have been given a permanent modification. A new study shows that 55-75% of those who have received modifications will re-default.

We can see that the initiatives to boost demand and curtail supply have not been successful.

Many are now coming to the conclusion that only one thing can turn housing around: the creation of jobs.

Harvard’s Joint Center for Housing Studies clearly defines the challenge in their State of the Nation’s Housing 2010 report released this month. The report explains the importance of sustained job growth to the future health of the housing industry:

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