Hardly a day goes by without an article in the paper or a news clip bemoaning the state of the real estate market. While values have clearly suffered over the past year, there are several components of the real estate market that are positive.

 

Interest Rates 

Interest rates for 30 year, fixed rate mortgages are at historical lows. While rates are a bit of a moving target, I have clients who closed on homes over the past couple of weeks with rates as low as 4.8%. The impact of these low rates can be significant. On a $200,000 mortgage, the difference between 4.8% and 6.25% is $180/month!

 

While you may hear from the media that no one is lending, I have not seen any problem with qualified Buyers getting approval on home loans. Even though qualifying is a bit more difficult than years past, there are still several outstanding programs available. The more traditional programs will require 20% down, but options still exist for Buyers with as little as 3.5% down.

 

If you need the name of a quality lender, please do not hesitate to give me a call.

 

Home Values

So, what can be positive about the decline we have seen in prices over the past 12 – 18 months. Depending on the area, prices have declined between 10 – 20%.  This decline in prices, however, has created affordable housing opportunities for a larger group of people.

 

There has never been a better time to buy for the first time home buyer. There are close to 200, newer 3 bedroom, 2 bath homes in the Boise/Meridian area priced under $150,000. In 2006, this would have been close to zero! Additionally, first time home buyers may qualify for a $8,000 tax credit. This combined with the low interest rates makes buying a home as inexpensive as renting.

 

For those people considering selling their current home and buying a larger home, this is also a good time to be looking at real estate. While the value of their existing home has declined so has the value of the larger, dream home. The key is to focus on the net difference between the price of the home you want to buy and the price you will receive for your current home. In absolute dollar terms, the larger home has corrected by a greater amount than the less expensive home. If you budgeted $50,000 additional to spend on a home, that $50,000 will go a lot further today than it would 2 years ago. The lower interest rate will also help the affordability.

 

The Stimulus Package

It is currently looking like there will be a very attractive in the stimulus package to bolster the real estate market. The current plan if approved would provide an $8,000 tax credit to first time home buyers. Unlike the current program in place, this $8,000 would not need to be repaid.   

 

While I am not able to predict when home prices will stop their decline, I can say that we will only know the bottom has been reached after we have had several months of increased prices. With very low interest rates, significantly reduced prices and unheard of tax incentives all indicators are it is a good time to be buying real estate!

 

 

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It is hard to pick up a newspaper or turn on the news without hearing about short sales or the increase in foreclosures. As I talk with people about real estate, this is one of the areas that is probably a bit of a mystery.

 

Short Sales

In the vast majority of real estate transactions, when someone purchases a home they borrow money from a bank or mortgage lender to cover a portion of the purchase price. As security, the lender places a lien on the property in the amount of the loan. In order for the home to be sold and clear title issued to a new buyer, the lender has to remove the lien. Typically a lender removes this lien once the loan balance is paid in full. A short sale occurs when the net proceeds of a real estate transaction are less than the amount owed on the property. In a short sale situation, the lender must agree to accept less than the amount owed in return for removing the lien.

 

A lender’s willingness to accept a short sale depends on several factors:

 

• The home owner has to display some type of financial hardship. They must submit past tax returns, bank statements, brokerage account documents, etc. Based on their review of a person’s specific financial situation, the lender will give preliminary approval for a short sale.
• All offers on a home in a short sale situation must be approved by the lender. While the person selling the home may agree to the offer, the lender must also approve the sale and agree to remove the lien. Getting approval from the lender can be a very time consuming and involved process. The biggest time consuming part of this process is getting the contract and associated paper work to the top of the stack. Lenders are dealing with so many short sales it is easy for your contract to get lost in the process. Once you are on the top, the lender will compare the contract price to a liquidation appraisal or similar value estimation. They will also compare the estimated net proceeds from this transaction to what they feel they would obtain under a foreclosure scenario.

 

Short sale transactions can take anywhere from 30 – 180 days to close. My experience this year is that the average is running close to 75 days. Given the drawn out nature of this process and the uncertainty associated with getting lender approval, many Buyers shy away from a home going through a short sale. As a result these homes are typically sold at a significant discount.

 

Foreclosure

 

When a home owner falls behind in their payments, the lender can initiate the foreclosure process to gain full title to the property. There are very specific steps the lender must take as they work through a foreclosure. In Idaho, this process takes a minimum of 120 days. If the home owner has been approved for a short sale, they can still sell the home during this time period. If at the end of this period, however, the home owner is still in default an attempt is made to sell the property at auction. Typically the lender places a minimum bid on the property at the auction. If there are no buyers at this price, the property is taken over by the lender and becomes what is referred to as an REO property or Real Estate Owned.

 

It is important to note that a home facing a short sale situation may not be in foreclosure. A home owner could very well be current on their payments yet still owe more on the home than it is worth.

 

Deed in Lieu of Foreclosure

 

There are times when a home owner is facing foreclosure that they may opt to sign all of their interest in the property over to the lender in exchange for avoiding a formal foreclosure. The benefit to the home owner is that they are immediately released from their debt and they avoid any of the public notoriety associated with the foreclosure process. The benefit to the lender is they avoid the timely process associated with a foreclosure.

 

While the above three scenarios are not very appealing, they are a reality of the times. If you have any questions, please do not hesitate to give me a call.

 

 

 

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