A message from Steve Harney:

The short term fixes used to bolster the real estate market (the purchase of mortgage-backed-securities and homebuyer tax credits) proved to be just that: short term fixes. Everyone now seems to feel that the only true solutions to the challenges in housing are

• the creation of jobs and
• the increase in consumer confidence jobs will create.

I totally concur. However, if tomorrow the administration was to announce the greatest jobs program ever attempted and promised to implement that program immediately, it would take 12-18 months for it to have any noticeable impact on housing demand. That begs the question:

What if you want (or need) to sell in the next 6 months?

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Holy Cow! Have you taken a look at where interest rates are these days??? There are Ten Year Mortgages in the 3.75% range for heaven’s sake! Yes, 3.75%!!!

What are some of the issues to consider as you (and all of America) contemplates a refinance?

1.  Does it make financial sense?

If you are considering a “rate/payment reduction” refinance, I typically recommend that people do one simple calculation. Divide your monthly savings into the costs (out-of-pocket expenses AND any increase in your principal balance). That number will tell you how many months’ payments it will take to “break even”. Depending on how long you anticipate staying in the home, and comparing that to your “break even” month, will give some clarity to what is the right decision.

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Rumors are running wild that the administration is considering a new tax credit for homebuyers. We don’t want to comment on whether or not a new tax credit would be a good or bad thing for real estate right now. We’ll let others handle that hot potato. Our goal is to give you the best, up-to-date information on the chances it will happen.

Our strong belief is that it will NOT happen.

The rumor started when Housing and Urban Development Secretary Shaun Donovan appeared on CNN‘s “State of the Union with Candy Crowley” on Sunday. CNN reported:

When pressed on whether the White House will now push for an extension of the tax credit, Donovan suggested the credit will not come back in the short-term but he left the door open to bringing it back down the road if the industry does not improve.

“I think it’s too early to say, after one month of numbers, whether the tax credit will be revived or not,” Donovan told CNN. “All I can tell you is that we are watching very carefully. I talked earlier about new tools that we will launch in the coming week, and we are going to be focused on where the housing market is moving going forward. And we’re going to do everything we can to make sure that this market stabilizes and recovers.”

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MacroMarkets has assembled a very distinguished panel of over 100 economists, investment strategists, and housing market analysts who are surveyed every month regarding their 5-year expectations for future home prices in the U.S. The report is the  Home Price Expectations Survey.

Their purpose for this undertaking?

We are hopeful that this survey, and our panelists, will help to stimulate constructive debate among consumers, institutions and policy makers regarding expected future changes in home prices – and their behavioral, policy, and risk management implications.

We believe each of their goals is important. We also want to relay the findings of the surveys to you in order for you to see what the experts are saying and also look at the trends that are developing in their beliefs.

What the experts are saying:

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Last week, HUD announced their intention to change their insurance premiums, in order to raise HUD’s own reserves to cover anticipated losses and fund their operations. Let’s look at the impact on today’s home buyer, resulting from the changes which will go into effect on September 7th.

The “spin” is that they are trying to reduce the closing costs to buy a home by lowering the Up Front Mortgage Insurance Premium (UFMIP) from 2.25% to 1.00%.  On a $300,000 loan, the borrower will save 1.25% on $300,000 or $3750- a significant number no doubt. BUT, that amount can be financed into the mortgage; therefore, at 5%, the borrower’s monthly payment will only be reduced about $20 a month. Yes, $20 a month for 360 payments would be a big deal, but since most people are more concerned with their monthly payment than loan amount, let’s look at the other change to the insurance premiums…

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People often ask us how they should determine with whom they should list their house. Aren’t real estate agents really all the same? Don’t they all do the same thing? Shouldn’t I just hire the one that charges me the lowest commission rate?

The answer to each of these questions is NO!

In any other profession, there are good and not so good practitioners. Real estate is no different. How long it will take to sell your home will be determined by the quality of agent you hire. The price you will receive will be determined by the agent you select.

How can you tell the pretenders from the professionals?

Here is a good checklist to use when interviewing potential agents:

The pretenders tell you what you want to hear. The professionals tell you everything you need to know.

The pretenders worry about your feelings and place great emphasis on whether or not you will like them. The professionals worry about your family and how they can help.

The pretenders are afraid you will ask a lot of questions about the changes in the current real estate market. The professionals take the time to simply and effectively explain your options in today’s rapidly evolving market.

The pretenders will spend the majority of time talking about themselves and their company. The professionals will spend the majority of time talking about your family’s needs and goals and how they plan to help you reach them.

The pretenders think you hired them to list the house. The professionals realize you hired them to do one thing – get the house sold.

We hope we helped you do two things:

• Realize there are major differences in the professionalism of real estate agents
• There is a way to determine the true professional during the interview process.

The big question in real estate is what will happen with home prices over the next few months. The experts have already weighed-in predicting prices will probably take another dip down. The reasoning? Put simply, the inventory of homes on the market is greater than the demand for housing.

Demand will remain stable at best. No study or report is predicting a dramatic increase in demand over previous estimates. PMI, Inc. is actually cutting their forecast back. In their most recent issue of The Home and Mortgage Market Review they announced:

“We have lowered our projection of home sales for 2010 in response to the larger-than-expected decline in sales in May.”

If demand doesn’t increase, the supply of inventory will determine future prices. Here is a great industry guideline that has withstood the test of time:

• 1-4 months inventory means it is a sellers’ market and we can expect appreciation.
• 5-6 months inventory means it is a balanced market with prices following inflation.
• 7+ months inventory means it is a buyers’ market and we can expect depreciation.

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The MacroMarkets LLC co-founder and Chief Economist is Robert Shiller, the founder of the S&P Case Shiller Report. Professor Shiller surveys 109 economists, real estate experts, investment and market strategists each month for the their Home Price Expectations Survey. In the July survey, it was reported:

“The consensus indicates diminished confidence in the prospects for a near term recovery … This month, 60% of the panelists projected negative home price growth for 2010.”

"When exploring your options for financing today, I believe everyone should at least consider an FHA Mortgage.  Today, I want to tell you why:

1. Loan Amounts 

The loan amounts available (especially in High Cost Areas, like mine) are on a par with Conventional Financing.  In the past, FHA programs were typically only made available to the more low-to-moderate housing price ranges.  Now, practically every community can enjoy the benefits of FHA financing.

2. Old Stigmas Are No Longer True 

It used to be that “FHA takes Longer” or “FHA loans are more expensive” or “FHA has tougher appraisal guidelines”.  Over the past few years, FHA has given more and more responsibility to its Direct Endorsed Lenders in the underwriting arena.  Additionally, the Secondary Market has worked to price Mortgage Backed Securities for FHA loans more aggressively.  There is now little difference in turnaround times, pricing, and appraisal issues between FHA and any other loan product.

3. Minimum Down Payment 

On FHA loans, you can still put as little as 3.5% down.  Conventionally, even the 5% minimum down is very difficult to obtain without pristine credit and strong liquid reserves….more often than not, you need 10% down on most conventional loan products.  This is a huge consideration for first time buyers (who struggle with savings) and move up buyers (who have lost much of their equity over the past few years).

4. Source of funds 

While the FHA does require a minimum investment by the Buyer of 3.5%, all of those funds can be gift monies from a family member.  There are many potential home buyers who are unaware of this niche in FHA lending that can help people with sufficient credit and income, but limited cash accumulated, who have relatives looking to help them become homeowners.

5. For now at least, a 6% Seller’s Concession 

With so much available inventory, home sellers are more likely to structure transactions wherein they (the seller) will pay the closing costs and/or pre-paid expenses (like tax and insurance escrows) on behalf of the buyer.  The ability to reduce or even eliminate closing costs for a buyer is a terrific incentive for the buyer to choose one house over another.  Once again, less cash needed to close is a good thing!  FHA has proposed lowering the amount for sellers to pay from 6% to 3% (a BAD idea), but, for now, 6% is the most liberal sales concession in the market.

6. Leniency of Credit and Income Standards

In so far as the FHA is really a Federal Insurance Program that insures lenders in case of borrower default, the Program gives approved lenders the flexibility to make more common-sense underwriting decisions.  Historically, lenders are more understanding of past credit challenges and more aggressive in income ratios because the loans are insured by Uncle Sam which, in turn, helps get more borrowers approved. 

7. FHA Loans Are Assumable 

Five to seven years from now, when a home buyer is looking to become a home seller, nearly every expert in the world envisions higher (more “normal”) interest rates of 6.5%-7.5%.   An often overlooked feature of FHA loans is the fact that a new buyer can take over the seller’s loan at the seller’s interest rate (assuming they qualify based on their income, assets, and credit).  What that means is, if you close today on an FHA loan at 5%, you can sell your home with a 5% mortgage, while your “competition” of home sellers will be handicapped with higher rates.  That factor alone could make your home 5-15% more valuable (because home buyers buy more on monthly payment than they do on sales price)."

Much of the main stream media are concentrating on two major changes which are occurring in the foreclosure numbers:

1. Foreclosure filings by banks are decreasing
2. Homeowners who are falling behind on their mortgage payments are decreasing

What the media has not concentrated on is that the number of homes banks are actually repossessing (REOs) is up 38% over last year.

According to the most recent foreclosure report from RealtyTrac:

“The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.”

The reason banks are concentrating on repossessions instead of foreclosure filings is to clear the existing foreclosure inventory from their books. How many properties are we talking about? From the same report mentioned above:

“The midyear numbers put us on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions.”

That is 1 million properties the bank will be bringing to market. That number is on top of the number of short sales already in the works.

What does this mean to you?

The banks have sped up the repossession of foreclosed properties in preparation to bring them to market. On average, an REO property is sold at a 34% discount. This wave of discounted properties will become your competition if you are planning to sell this year. Price your house to sell now before the banks release their inventory.

This might be the best time to buy a home in American real estate history.

Some might think I’m crazy. Cynics might think that I am saying this because I still hold a real estate license (though I have not listed nor sold a home in ten years). My reason for saying it is actually quite simple. Owning a home makes more sense than not owning a home for the vast majority of families in this country. Let me give you five reasons why.

1. Real Estate is a Great Long Term Investment

Don’t take my word on this. This is what Mike Mandel, former chief economist at BusinessWeek and current Senior Fellow at Wharton’s Mack Center for Technological Innovation, had to say:

We’ve just had the biggest boom and bust in real history in recent history. Nevertheless, real estate has still greatly outperformed the stock market over the past ten years.

Below is his chart actually showing the difference between real estate and the stock market.

2. A Home Is a Better Place to Raise a Family

Don’t take my word on this. When Fannie Mae asked current renters for the major reason to buy a house in their  National Housing Survey 2010, these were the answers renters gave (they could pick multiple answers):

• 78% said it was a good place to raise children
• 75% said because they would feel safe
• 70% said because you have control of your own space 

3. A Home Creates a Sense of Community

Don’t take my word on this. The Federal Reserve Bank of New York just published a paper The Homeownership Gap. The paper explained:

Because owners have a financial interest in their property, they have incentives to take measures that will maintain or increase the value of that property. Some of these measures—such as fixing a leaky roof—are closely related to the house itself. Others, such as investing resources in the betterment of the neighborhood and the community, have broader beneficial effects on the local area, creating what economists call “positive externalities.”

4. It’s Cheaper to Own Than Rent in Many Parts of the Country

Don’t take my word on this. Housing Wire just reported on a Credit Suisse study:

While a segment of the renting population continues to rent, many are looking to dip their toes in the homeownership waters. Credit Suisse said the percentage of median household income needed to pay the mortgage on a median priced home is at a 30-year low… Low mortgage rates and property values makes homeownership more attractive than renting for many. In many markets — including Washington DC, California’s Inland Empire, Las Vegas and Phoenix — paying for a mortgage is less expensive than renting.

And here is a graph from the study:

5. The People Who Do Buy a Home Don’t Regret It

Don’t take my word on this. Probably the best people to ask if buying a home makes sense are the people who currently own homes. A recent national poll commissioned by Bankrate.com found:

Ninety percent of homeowners say they don’t regret buying their home despite a nationwide tsunami of foreclosures, short sales and loan modifications.

It’s a great long term investment. It’s a great place to raise a family. It gives you a greater sense of community. It’s less expensive than renting. People who currently own have no regrets. Buying a home seems like a no brainer to me.

Are you interested in taking advantage of this market and buying a home?  Visit FindCharlottesvilleHomes.com or contact Kevin to get started!

I made a comment a few weeks ago that the only thing that will bring the housing market back is honesty. It was a simple statement; unplanned and unrehearsed. It sort of just fell out of my mouth. I didn’t think much of it even after I said it. I was shocked at how it resonated amongst those who heard it.

It flew through twitter tweets. Friends on facebook continued to share it and re-share it. I was amazed. I decided to look deeper into why such a simple statement could actually impact so many. It was then that I realized that honesty was exactly what was missing in the real estate market for several years.

For years, many buyers weren’t honest about their income and some loan officers didn’t care. The loans were bundled by Wall Street and sold to investors who were told anything but the truth about their value. For years, some real estate professionals prodded appraisers to move that appraisal up ‘just a bit’ and most sellers thanked them for it. The housing bubble was created on a bed of dishonesty. I’m not saying that any group was malicious in their intent. Everyone probably believed that it would all work out in the end. But, it didn’t.

Instead, we were faced with the largest housing collapse since the Great Depression. A market built on so many half-truths couldn’t continue to grow. Its foundation was rotten. Governmental regulation has forced most parties to rethink the way the housing industry can survive. A person given a mortgage must now prove they have the capability to repay it. An appraiser is held to a higher standard as they determine values. Has the pendulum swung too far? Perhaps. But, something needed to be done.

That brings us to today. Let’s make sure that we demand honesty from real estate professionals in everything we ask them to do. Buyers must insist that the loan officer determines the amount of mortgage they can actually afford. Sellers must make sure they are given an honest estimate of their home’s value in today’s market when listing. Remember to reward the person who has the courage to tell you what you need to know not the one who is telling you what you want to hear.

Honesty is the only thing that will bring back the housing market. I now realize the power of that statement.

We are bombarded constantly about how important our credit score is. What do we actually need to know? We asked our ‘resident expert’, Dean Hartman, to shed some light on the matter. – The KCM Crew

Everyone knows that you need a good credit score to get a mortgage.  Most even know that your score will affect the rate and fees you pay for your loan; but few are aware that your credit score also is a determinant of your homeowners’ and auto insurance rates and a myriad of other things.

Simply put, your FICO Score has a huge impact on your financial life.  So, how can we get the best possible score?

There are five components to your score:

1. Your Credit History makes up 35% of your score.

This is obvious.  How you have paid your responsibilities before is a good predictor of how you will pay them in the future.  While your credit profile will look back seven  years, the most weight is given to your activity and performance over the last 24 months.  Here’s a little known tip about your credit.  Let’s say, you have a “charge off” for a cell phone bill you didn’t pay 5 years ago.  Today, that “charge off” has little impact on your score.  Many people, as they prepare to buy a home, will just pay the “charge off” to clean up their credit report.  Makes sense, doesn’t it?  However, by doing this, you will move the activity on the “charge off” to now (which is in the two year window), actually lowering your score.  Before you do anything like this, talk to your mortgage professional!

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**Do you have questions about your credit score?  Ask Kevin for his list of preferred mortgage advisors.