Why am I posting so many times on the same issue - financially distressed homeowners?  Unfortunately, that’s where the market still is and will be for some time to come.  The number of contacts I have had recently pertaining to this issue has put this topic at the top of my mind.  It is important for people who are in fear of losing their homes to know that there are people in the real estate industry they can trust to discuss their situation.

I’ve mentioned in a previous post that many homeowners who are behind in their payments do not talk to anyone before being foreclosed on.  It is embarassing.  They didn’t expect to be in this situation.  They don’t know where to turn.  They don’t want their friends and family to know they are in trouble.  They think they can find a way out on their own.  But homes are being foreclosed on without any attempt to stop the process.  What they need to know is that there are options available.  If they wait until the last minute, it’s almost impossible to save their home from the public trustee’s sale.  One place to start is CDPE.com to find trained Realtors in the homeowner’s city.  Other training is becoming available to Realtors.  NAR now has the SFR (Short Sales and Foreclosure Resource certification).  If you don’t find a CDPE trained Realtor in your city, look for a Realtor with the SFR certification.  These Realtors have taken the time to educate themselves on the short sale process.

But the real reason for my post today is to warn you about scammers that take advantage of homeowners who are in default and who also take advantage of Realtors who don’t know what they are doing when it comes to short sales.  Everytime there is a crisis, creative criminals find ways to take money from well-intended individuals.  In this economy there are short sale scams, loan negotiation scams, you name it.  Here are some questions to ask before starting to work with any self-described short sale company.  I want to thank Brandon Brittingham of Maryland for his post of these tips on BrokerAgentSocial.

1.  Ask if the type of short sale practice they use is legal in your state.  Different states have different requirements.  Check your state laws and local laws or common practices and thoroughly research any company you are considering.  If they say they are short sale experts, what experience do they have to support that?  How many short sales have they closed?  Are they willing to give you legitimate references?  Do they work with reputable real estate brokers, lenders, and title companies who can provide those references?

2.  Are they asking for money upfront?  Some legitimate companies do charge upfront, but it isn’t the norm.  Realtors who are short sale specialists only get paid at closing and their payment is outlined on the HUD1 Settlement Statement.  How is the short sale company you are considering getting paid?  Are they accountable to the seller’s bank, who will be approving a short sale, or to anyone else?  What recourse do you have for getting your money back if they don’t do what they say they will?

3.  Be wary of companies that have no affiliation with a real estate company.  Companies Brandon says he has run across that are running scams or offer no real service are not affiliated with a real estate broker for a reason.  Real estate brokers and agents that are members of NAR are required to abide by the Code of Ethics of the National Association of Realtors.  Any licensed Realtor is required to abide by the laws of the state in which they are licensed.  If you aren’t a licensed real estate broker or agent you don’t have to follow these laws or codes.  So be cautious of companies who are not affiliated with legitimate brokers.  Do your homework to see if they are legitimate companies and provide the services they claim to offer.

Let me add one last caution.  In a short sale, the seller’s bank is agreeing to take less than is owed to allow the homeowner to sell their home.  Therefore, they have to approve the sale.  Some short sale or real estate investment companies do what is referred to as a double close.  An investor buys the property at the first closing and then shortly after (the same day) the investor sells the house to another buyer the seller has never met at a second closing and takes a profit from the transaction.  Do you think there is room for fraud in this type of activity?  Very much so.  If the seller could have gotten a higher price to begin with, don’t you think their bank would like to know that? 

There are people in the marketplace who want to take money out of the deal without putting down any money of their own or getting their own loan for the first closing.  Oftentimes the company you are talking to is the investor.  Please know there are legitimate investors who close and then sell to someone else.  And legitimate real estate investors are a group that will help get us out of the real estate mire we are currently in, but they do things according to the rules.  If the buyer won’t have their own hard money on the table at the first closing, be suspicious and cautious.  This same caution goes to buyers who know there is an intermediary between them and the seller.  Work with a reputable Realtor who can spot suspicious activity and help you avoid it.

As always, if we can help, we are here to do that.

Are you considering taking advantage of the $8000 home buyer tax credit or the new $6500 move-up buyer tax credit?  The deadline to do so is April 30, 2010 with a closing by the end of June, 2010.  But what if you want to purchase a brand new home?  That is still possible also.  I have been working with clients who are building new homes in the past 6 months and the builders are eager to get you in a house.  Just recently Hallmark Homes notified me that they will guarantee a closing by the end of June and are offering finished basements in some areas.  I have found Classic Homes in Wolf Ranch to be excellent to work with and my clients feel like VIPs.  Thank you to Tina and Teresa for being exceptionally caring and communicative.  We all appreciate you.

If you want to look into this option yourself, I have a team of experts who can help you come up with a plan so that you can be in your own home in 2010 and hopefully take advantage of the tax credit as well.

During the recent market downturn, many owners of larger, more expensive homes are staying put because they would have to take much less for their homes than they would have received 3 years ago.  Those that do have their homes on the market are still having difficulty selling because buyers in the higher price ranges are still scarce.  A recent article I read from the Dallas Morning News states that 60% of Baby Boomers intend to stay in their current home when they retire.  With 40% considering a move, that still leaves a lot of buying power on the table.  For now though, many are waiting for the housing  market recovery before making the decision to downsize or change location.

Below is an excerpt from the Dallas Morning News article.  Many of the WWII Generation own their homes outright.  The percent of Baby Boomers who own their homes outright is less.  This generation has moved around more and bought increasingly larger homes as their incomes increased.  Builders will have to adjust to a new cost conscious perspective of Baby Boomer retirees.  Social Security is in trouble and many retirees will still work parttime in retirement and will be watching spending.  Many will be retiring later than they planned and their 401K and other investments aren’t as robust as they were 2 years ago.  The housing market isn’t the only part of the economy that is recovering.  A new more frugal outlook will drive a desire for smaller, more energy efficient, more affordable homes for retirees.  I personally believe this could mean a shift to smaller more affordable communities that have nice amenities and are close to good health care.

More than 75% of 55-plus buyers say they want a home in the suburbs. But that doesn’t mean they want a big house. Surveys show older buyers are more frugal about housing needs. “The 55-plus buyers are not interested in growing their house size,” Crowe said. “They are asking for about a 1,900-square-foot home” on average. “They’re worried about energy costs.” Most older homebuyers surveyed are holding down their cost expectations, industry research shows. “When we asked the consumer, ‘What are you willing to pay?’ they said $190,000,” Crowe said. “And when we asked the builders, ‘What are you building for this market?’ they said $287,000. “Obviously, there’s a real big problem there.”

Indeed, builders say they are in a quandary over what kind of housing to produce for 55-plus buyers. “The baby boomers are absolutely unpredictable,” said Andy White, a South Carolina developer. “There is no model to say what we ought to build.”

For the full Dallas Morning News article, click here.

First, let me share a little history lesson.  The change in the markets the past few years is now affecting what people are buying when they do buy a home.  During the roaring 90s when the dot com industry rose, people had a lot of extra cash in their pockets and built homes to reflect their desires.  Showy, big, extravagant homes dotted (that is a pun ) the landscape, especially in California.  Then the dot com bubble burst starting in 2000 and the market changed.  Investments in the stock market tied to technology went poof and bank accounts dwindled.  Real estate then became the go-to investment arena and we all know what happened.  Real estate prices escalated until 2006.  In markets like CA, FL, AZ, and Las Vegas, prices were surging 30-40% per year and those who were actually awake during that time realized what goes up must come down.  I personally could not believe that interest only loans were being used by consumers to purchase the home they would be living in.  Interest only loans are a strategic product used by real estate investors to manage cash flow.  I don’t think that description applies to most of our neighbors.  So what does all this have to do with smaller homes?

Just think how different the real estate market and our economy would be today if we had foregone the speculation of the past decade.  Did you know 1 in 4 homes was sold as an investment during the go-go years?  That’s 25%.  Do you think that had an impact on pricing?  Absolutely.  Just like tulip bulbs in Holland centuries ago.  We Americans went around with blinders on because getting money was so easy and we didn’t want to believe it could end.  But just like the dot com bubble, it was an upside down pyramid and collapsed under it’s own weight.  We ran out of buyers who could buy at such frothy prices.  Fortunately, in some markets such as Colorado Springs, we had more steady increases in prices and never saw huge increases, so most homeowners can weather the current market.  But even here prices have dropped about 20% on average over the past 3 years and people who bought at the height of the market are underwater unless they had a large down payment or have been making extra principal payments since they bought their home.  If they can stay put, they’ll be okay.  If they have to sell, they have a problem unless they can bring cash to closing.  For some, hardship will allow them to qualify for a short sale to avoid foreclosure.  Sadly, others will lose their homes.

So back to my question.  What would the market be like if the housing market had been steady instead of the scenario we did have?  First off, not as many people would own homes or if they did, they would own smaller homes than they purchased because they wouldn’t have based their decision on an expectation that their home was going to appreciate in the double digits every year and make them rich.  Home ownership DOES make people rich, but it is a slow steady process that lasts a lifetime.  The other thing we would have seen is smaller homes because they would be more affordable.  In some places, like California and Hawaii, they’ve had to keep home sizes smaller in general because land is so expensive.  If speculators hadn’t driven up prices buying properties with loans that required no verification of income or assets, more people would still be in their homes because they would have been given those loans based on more realistic requirements.  Hind sight is always 20-20, and looking into the past shows us a process that was totally out of control.

Fortunately, our economy provides the answers and we will dig ourselves out of this mess.  Without buyers who can or will pay inflated prices, home sellers have had to reduce prices in order to sell.  Many people who would like to sell have kept their homes off the market for now, reducing inventory, which will help with recovery.  The market is winding down, although in some places, it definitely crashed.  At some point we will reach equilibrium.  We are getting closer, although there are still more foreclosed homes coming to the market that will keep prices down for the next few years.  As prices have come down, people who didn’t want to or couldn’t buy when prices were high, are now finding that homes are affordable.  The rate of affordability has increased.  Builders will build smaller homes to entice first time buyers and seniors who are downsizing.  The other good thing that has happened is that people have started saving again and are being more cautious about buying.  Loans aren’t as easy to get and people have to jump through hoops to prove they can pay their mortgage in order to get a loan.  Many people will wait until they feel more secure in their work or feel they will be in the house long enough for buying to make sense.  But more people who didn’t think they could ever afford to buy, can now find homes within their means.  And ultimately we will help the environment as green technologies become more prevalent in building and remodeling and energy efficiency becomes more important.

If we keep the recent market lesson fresh in our minds, what has happened can prove to be a good thing because it is changing how people view money.  Perhaps individually people will remember and not allow themselves to be drawn into craziness in the future.  New homes built will be smaller so that builders can keep prices where buyers can afford to buy.  Condo owners will ultimately be helped as people discover that is an affordable option in not so affordable markets.  As baby boomers retire they will still want 2nd homes and that will once again help the Florida, Arizona, and condo markets recover.  Some baby boomers will retire to smaller, more affordable communities and will help the economies of those areas where their spending will create more jobs.  First time home buyers have a fantastic opportunity right now to get into a home at lower prices and amazingly low interest rates.  Even when the $8000 tax credit ends, homes will still be affordable.  But that still doesn’t mean everyone should buy.  It still needs to be a careful decision.

For those who can’t buy yet, investors are buying foreclosure and short sale homes and renting them out, so renters will find more choices available to them.  Investors will be part of the solution as well.  So there is light at the end of the tunnel.  Now is the perfect time to put money aside and plan to one day be a homeowner or get that 2nd home or move up to a bigger home.  With planning they are all great choices.  If you are in a position to act now, congratulations!  This will prove to be one of the greatest opportunities of the 21st century.

What is a CRS?  Find out here:

I read articles on several real estate websites weekly and found an article I read today a great synopsis of what has happened over the past few years.  We started noticing the impact of the real estate meltdown in Colorado Springs the beginning of 2007.  There were hints things were changing in 2006, but prices didn’t start really changing until the foreclosure activity started increasing in 2007.  Here’s the article from Broker Agent Social if you’d like to learn more.

Every week I provide sellers whose homes I have listed with information about trends in our local market so they can be up to speed on what’s going on.  The good news during March was that the number of listings flattened and the number of showings for our company is staying steady.  Sellers have to know this market is not easy and must have a hardy constitution to weather all the uncertainties if they really want to sell their home.  This is not a market to “try” to sell.  That commitment has to be made upfront.  But, with a leveling of listing activity and a 22% increase in sales in El Paso County for March 2009, there is a glimmer of a silver lining on all those clouds.

There are still a lot of foreclosures and short sales to wade through and many more coming, so any upward trend won’t happen quickly, but when it does come, it will be steady because that’s what our local market usually is - steady.  No flash and dash like 40% gains per year seen in Florida, just steady upticks in prices.  Distressed property sales are still more than 30% of the monthly sales for March and 94% of homes that sold were priced below $400,000, so El Paso County is becoming more affordable to more people.  With the $8000 tax credit for first time buyers (remember that also means people who haven’t owned a home in 3 years) and low interest rates, we are in the midst of a perfect storm.  What an opportunity!!!  There is increased activity in some areas of California and in Las Vegas, so we’ll just keep watching the trends and keep you informed.

It’s been a tough time in real estate since July 2008 when the stock market started tumbling and the banks took a turn for the worse, but I’m here to tell you homes are still selling.  It’s just a different market.  At our company, RE/MAX Properties, Inc in Colorado Springs, we are using new tools and techniques to address the realities of today’s market.  I’m on top of it.  In analyzing my business I also realized that since January 2007 when many Realtors started leaving the business or getting part time jobs because their business dried up, I’ve kept going and only really started feeling the impact of the changing market in the fall of 2008.  I have sold 25 homes since January 2007, my buyer specialist closed 2 for me, and I have 2 under contract now.  How many Realtors can post those statistics?  It’s less than in previous years, but I and my team are getting homes closed!

What we are seeing is that all of my sales since fall have been either foreclosure or short sale properties.  As I’ve said before, unless sellers are willing to compete with these types of properties they will find themselves in the group of homes that didn’t sell when 2009 is over.  Last year that number was 64% of homes that were in the MLS in the Pikes Peak Region.

I recently completed training as a Certified Distressed Property Expert (CDPE), so I am able to help people who are at risk of losing their homes determine whether they would benefit from a short sale.  I am actively using a great new tool for buyers to be able to check out the price and information on any home in our MLS from their car - anonymously!  And I am ramping up our new InvestorLoft tool for the investors I am working with so they can search on cash flow or Cap Rate.  Awesome!

Finally, towards the end of March I will be learning more about how to help buyers purchase real estate in their self-directed IRA.  If your stock market investments aren’t cutting the mustard or you have cash in IRAs that you don’t know what to do with, you may be interested in looking into this option.  Along with converting to a Roth IRA while your account values are down, if you qualify to do so, looking at real estate may be just what gets you going in the right direction.  Stay tuned.

If any of this intrigues you, you can learn more at carefreehomes4u.com.  To use the tools mentioned above, just email me or give me a call.  It is a fantastic time to buy!  Opportunities are everywhere.

I just love Google streetview!  Here’s the link to the streetview of a home I just listed.  It was built in 1909 and is near the Stratton Open Space so a sweet location.  It needs work but is a gem for someone who wants to turn this little treasure into their own piece of Cheyenne Canyon.  Here’s the link: Cheyenne Blvd home

What do real estate, inflation, and CDs have to do with each other?  Other than the obvious - that they are all part of the financial picture in the US?  Wait, we don’t have inflation.  No, not yet, but it is coming.  The stimulus package will make certain that it happens.  If you didn’t live through the late 70s and early 80s, let me explain. 

Did you know we have seen many economic cycles that occur at about 30 year intervals?  Part of my college training was in economics, accounting, and finance.  My degree is in Computer Information Systems, because when I hit differential equations being taught from an engineering perspective, I decided a BS in Computer Systems was not where I wanted to be.  So my degree provided me with an education in programming, systems analysis, and business systems.  I never regret it.  I use what I learned every day and actually wish I also had a degree in economics.  I guess I’ll just hit the public library more often.

In the late 70s and early 80s inflation was rampant.  Everything was rising quickly, there was a shortage of oil, and interest rates went to double digits.  I personally paid 15.75% for a 2nd mortgage in 1982.  Ouch.  But I also made 16.5% on a 6 month CD.  The problem is that it was all funny money.  Incomes went up but so did the cost of everything.  In 1976 our home cost $39,000.  In 1988, our next home cost $163,000.  That same home today is worth over $400,000.  In California, it would probably be closer to $1Millon.  Who in middle class America can afford that?  With creative financing, a lot of people did, but then the stream of buyers dried up - just like in the early 80s.  ARMs, owner financing, assumptions, and other creative lending tools were the only way people could buy homes 30 years ago.  Sellers paying points for the buyer to buy down their rate was common.  Our seller did it to get us to 9 5/8%.  By 1982 that rate was a bargain when new loans were at 12.5%, hence we took a higher rate 2nd when we remodeled.

So what does all this have to do with 2009?  When the government starts printing more money and there is no gold standard, inflation happens.  Where do you think that $1.4Billion is coming from?  Future debt created by funny money.  So what will you invest in?  The stock market?  It will be a wild ride and may only go sideways at best for many years.  But still a good choice depending on your time horizon.  CDs or bonds?  Lock in low rates now to be eaten up by inflation later.  How about real estate?  Yes, what about real estate?  It’s tangible.  They aren’t making any more.  It goes in cycles that rise and fall with the economy, i.e., inflation.  Right now is a perfect storm for buying real estate.  Fear is keeping many buyers on the sidelines, but for the bold with a vision, history tells us you can be very wealthy down the road by making good use of real estate, by buying wisely, and letting the rising market and tenants paying down your mortgages help you leverage those early properties into more.  My grandparents started doing this during the depression.  They retired rich in real estate they owned without mortgages.

So educate yourself.  There are pitfalls with real estate that you need to be aware of, but the future can be quite rosy when you do it right.  For a great little treatise on how to do this, read the book or get the CD of The Automatic Millionaire Homeowner by David Bach.  David writes many books with great themes.  For this market, this one is his best.  Much success to you!  For more recommended reading, check out the Recommended Reading List Page.