I’ve mentioned before that I see trends.  I think it is because I look for trends.  Everything we know points us to conclusions that are colored by what we believe.  Yesterday I read an article and thought, “well, duh!”.  Everything said was something that I had already identified and knew to be true.  The article just seems a little late to the party or am I prescient?  Certainly other people must see what I’m seeing.  If you read the popular press it keeps pointing out statistics that seem to show that the economy and real estate markets are improving.  From my perspective, we had an artificial blip produced by the tax credits and we have borrowed buyers from the future.  I don’t see new jobs being created and am not sure where they will come from, but perhaps China loosening their currency will help with exports.  Or perhaps it will help with cost of goods manufactured in the US so that they are more competitively priced so that we Americans will buy goods manufactured in the US.  That would help create jobs here at home.  Luckily for us all, nothing stands still and things will improve, but until people feel secure and feel they have options, the economy will be at a standstill.  The news isn’t all bad because the DJIA is still hovering around 10,000 and that indicates people are feeling more comfortable financially than they were a few years ago.  Let’s hope we can keep improving on that comfort level to the benefit of all Americans.

Oh yes, the article I read is right here for you to read too.  Enjoy!

Summertime and Showings Are Increasing

On Friday I gave you the new Monday market report early so that you could catch up on your web browsing over the weekend.  At that time our company, RE/MAX Properties, Inc (the company with the greatest market share by far in Colorado Springs) showing activity for active listings was down 48% from the best week of the year so far, April 5-11, 2010.  The number of listings was up 7% between April and the week of May 31-June 6, 2010.  The good news is now that graduations, early summer weddings, and the hub-bub that surrounds kids getting out of school here in the West has passed, people are interested in looking at houses once again.  Listings are still increasing (10% increase from the first full week of April), but showing activity has increased 41% in the past week from the week before.  Our company showing activity is down 26% from early April, but we are still hoping for steady sales through the next few months before the high real estate season in Colorado Springs winds down.

Bill to Extend Closing Schedule for Tax Credit Qualifiers

One bright spot is that a bipartisan bill is in Congress to extend the closing deadline for home buyers who have been under contract as of April 30, 2010 to September 30, 2010 rather than June 30, 2010.  This bill is intended to keep the tens of thousands of short sale purchases that were contracted for in play as banks attempt to approve short sales and give buyers enough time to close on those homes.  Without the extension many of the purchasers of these homes could change their minds without the benefit of one of the two tax credits offered this year.  Getting these homes closed could make the difference in how many more homes go into foreclosure between now and the end of the year.  It’s better for those homes to sell at a short sale price rather than an almost assuredly lower price if they go on the market as a bank foreclosure at a later date.

More next Monday!  Get the latest real estate market news here each week.

Real Estate Market Statistics

A new feature on this blog is something you can look for on Mondays.  I’m posting it early this time, so that I can get the new statistics from May 31, 2010 to you to review as you browse the web on your computer this weekend.

The two reports you will receive are actually links to the RE/MAX Properties, Inc company blog (for which I am a featured blogger) because the raw data and charts are posted there for you.  I will give my interpretation of what I’m seeing so you will know when I think the market really is turning up and that better times are ahead for sellers.  For you buyers, that means you will want to know when prices are starting to go up.  Increases in prices are going to have a dramatic effect on the amount of home you can purchase for the money available to you and consequently affects your payment and down payment requirements.  Interest rates are not the only variable when you are trying to decide when the time is right to purchase a home or sell and move-up (or downsize).

Days Supply and Target Market Analysis

The two reports you will see are the RE/MAX Properties Days Supply and Target Market Analysis.  The Target Market Analysis is weekly information on changes in the number of listings and showings generated through RE/MAX Properties, Inc.  Since we have the largest market share in the Pikes Peak Region, our numbers reflect the market as a whole very well.  The second report you will find monthly is Days Supply.  This is a chart of different areas and price ranges and the changes in the rate of sales over the previous 4 months.  It reflects one point in time and shows you the number of homes that are on the market and have sold during the period.  From those numbers are calculated the number of days it would take to sell all homes currently available as if nothing new were coming on the market.  A negative number is an improvement and for May 31st, that number overall is -16.52%.  In the same period (07/01/09-10/31/09) prior to the last $8000 tax credit expiring (which it never really did) that number was -9.98%.  So we saw more than a 65% improvement with the latest tax credits than we did last year.  But remember, we have borrowed buyers from the future so that they could take advantage of the tax credit and I expect to see less improvement in coming months.  Our showing activity has decreased 48% since the top of the market the first week of April and listing activity has increased 7% since then.  Sellers need to be realistic in this market if you want to sell at all.  Those first to the party with the best price and condition will win because it will still be a buyers market for the foreseeable future.

Remember Mondays for new information

So check back here weekly for new Target Market Analysis information and monthly for the latest Days Supply numbers.  We want you to be on top of the market so that you can be an educated consumer when it comes to real estate.  We’re here when you need us.  We’ll put a light on the market for you.

Real Estate Stimulus in Retrospect

Last spring the federal government sprung the $8000 home buyer tax credit on the real estate market in an attempt to spend stimulus money and nudge the real estate market forward.  Many buyers took advantage of the tax credit and sales increased, even though prices haven’t really.  Then when it was apparent that the real estate market, especially new home sales, needed further resusitation, the $8000 tax credit was extended to April 30, 2010 and a new $6500 tax credit for current home owners who have been in their home 5 consecutive years out of the past 8 years was launched.  These homeowners now had the opportunity to buy one of those higher priced homes languishing on the market or to build the home of their dreams up to $800,000 and with very low interest rates (if they qualified for a loan).  Many people have taken advantage of these programs as well.  It has been a boon to the real estate market — but a temporary one, in my opinion.

Sellers Tired of Languishing Market?

So what will happen now?  Past posts on this blog have addressed this issue, but an update would be timely given that the clock is ticking on all the sales generated through April.  Many transactions have already taken place and new homeowners have the keys to their new home.  Congratulations new homeowners!  Builders have until the end of June to get all those new home starts closed for first time homebuyers and repeat buyers alike.  Sellers whose homes are currently available for sale have been making price adjustments to try to capture the attention of buyers who haven’t pulled the trigger yet.  Some sellers who would like to sell and have been sitting back waiting are putting their toes into the water, but they haven’t had a market reality check yet and many are probably too optimistic in their pricing.  This could have the effect of making homes with recent price reductions look more attractive, but it also increases competition for buyers.  Only sellers who have decided they must sell now and are willing to price their homes competitively will capture the buyers who are actively pursuing a home.  And those buyers know they are in the driver’s seat.  That isn’t going to change for quite awhile.  Even in a good market, all homes don’t sell.

Just what is median price?

But, wait a minute you say.  I’ve seen reports that the median price is going up.  Doesn’t that mean that sellers are getting more for their homes than they were in the past?  Not necessarily.  Here is how the dynamics of the recent market works.  Since the first round and second round of tax credits were aimed at first time homebuyers, the segment of the market that has been in demand has been the entry level home market.  In 2009 that meant that the median price of homes that sold were lower than if the sales distribution fell along a more normal curve with sales throughout all price ranges.  In Colorado Springs, the entry level market is primarily homes under $200,000 and definitely below $150,000.  The sales during the past year have been skewed to the lower end having the effect of lowering the median price.

Homes priced over $400,000 have a lot of competition because those are typically move-up homes in our market and there haven’t been many move-up buyers.  The over $1Million home market has been abysmal.  The middle ground ($200-400K) is a mixed bag since some first time buyers buy in this price range.  The good news is that by targeting first time homebuyers, former renters now own homes and the sellers of those entry level homes have had a lot of well priced homes to select from for their next home.  The sales of those homes has had the effect of increasing the median price this spring as sellers of entry level homes now have the opportunity to buy.  More higher priced sales brings the median price up.  The bad news is that about 1/3 of the sellers locally are either short sales or bank sales of foreclosure properties, so those sellers won’t be moving up into a nicer home.  They are back in the rental market.  So there’s not as much help for sellers of more expensive homes as we’d like to see even though the median price has gone up in recent months.  Those increases are not due to increased prices for sellers.  They are a function of what the sales curve looks like.

That brings us back to the repeat homebuyer tax credit.  If someone who has been in their home for the past 5 years or longer wants a nicer, bigger home, the government offered $6500 for them to take their shot.  Of course, all those underwater homeowners who purchased since late 2005 are out of luck.  Chances are they would have to bring cash to closing to sell anyway and are unlikely to move unless they have to.  Do you think the government stimulus plan architects knew that?  Their goal was to get homeowners who had equity in their homes to move that money to a new home thereby generating commissions to market professionals and increasing mortgages that can be bundled and sold to Fannie Mae and Freddie Mac.  An underwater homeowners best option may be to stay put, accelerate their mortgage to gain equity faster, and create a selling opportunity in the future.

Future Trends?

The next 3 months is the remainder of the best selling season in a lot of markets.  Once school starts again in the fall, people tend to stay put and sales slow during the cold winter months.  We are keeping a close eye on local activity in the Pikes Peak Region so we can try to anticipate what the future trend will be in 2011.  With the government financial incentives gone, sellers will need to create those in the marketplace to encourage buyers to keep buying.  If they aren’t willing to do so, they may as well stay put.  My expectation is that activity and prices will decline, with declining median prices once again, until buyers start feeling secure in the job market and we reach an equilibrium that starts to generate demand once again.  Classic economics.

We Can Help You!

If you are a seller sitting on the sidelines or a buyer who is uncertain what to do now, I work with a team of professionals who can help.  By understanding the underlying factors in the market and knowing our local market, we can provide you with the knowledge you need to make the right decision for you.  We love to help!

Don’t forget to come back here every week for updates on the real estate and financial markets.  And don’t forget restaurant reviews on Thursdays.  Tomorrow - where to get a great pizza!

Recent Statistics of Interest in Foreclosed Properties

According to a recent Harris poll, less buyers are interested in purchasing foreclosure or short sale properties.  And when they are interested, a whopping 36% have unrealistic expectations that bank owned properties will sell for a discount of 50% or more off the price of a non-foreclosure property.  For more details, here is the link to the article.

Walking Away

In the article, new statistics are also provided concerning what percent of the population would consider walking away from an underwater mortgage.  This topic seems to keep showing up in the press.  The good news is 59% of respondents would not walk away from their homes.  One percent would make walking away their first option.  In other posts on this blog, we’ve learned that those whose loan to value ratio exceeds 125% are the most likely to walk away.  This one percent may already be there and see no other option out of their situation.

Freddie Mac and Short Sales

If you have a VA loan, you have a relationship with Freddie Mac.  As one of the former quasi-government agencies and now owned by the federal government after the mortgage industry blew up in 2008, Freddie Mac is the go-to insurer of VA loans.  Consequently, they are very concerned about fraud when lenders who are originating VA loans approve short sales for borrowers.  The attached link is directed towards these lenders, but consumers can learn from this post.  Note the Fraud Prevention Red Flags.  Remember my earlier post about borrowers paying off their credit cards and letting their mortgage go?  This idea belongs in the Land of Unintended Consequences.  If you need the advice of someone who has experience with and ongoing education about short sales, please contact me.  My team of CDPE trained Realtors® stay on top of what is going on with this segment of the market.  We are here to help!

Distressed Property Sales Statistics

Depending on the season, anywhere from 15-35% of residential real estate sales in the Pikes Peak Region are distressed properties (short sales and foreclosures) in the past few years.  We have a relatively stable market compared to Nevada, Arizona, Florida, and California.  The number of mortgages that are underwater in California varies with the city, but many California communities are finding they have an unusually high number of homeowners who owe more than they can sell their home for.

The Top Three

The cities and states with extremely high rates of underwater mortgages are also the markets where huge unsustainable appreciation rates were the norm during the height of the market.  These appreciation rates were exceeding 30% a year in many cities.  Three statistics I thought were the scariest for homeowners were Las Vegas (70% underwater), Phoenix (58%), and Florida (48%).  It will take many years for these locations to dig out from under their real estate problems.  As long as rates stay low, buyers will come, but the condo markets will continue to be in distress due to tightening financing requirements for these properties.  Las Vegas and Florida have a lot of condos that were built with speculation in mind.

Strategic Defaults

A consequence of all this misery is that some homeowners are making strategic defaults - a fluff term that means walking away from your home and sending the keys to the bank.  Many homeowners in these greatly distressed markets don’t see any way out.  They would rather trash their credit than pour more money into these properties or wait for the turn around.  Statistics show that homeowners most likely to default on their loan are those that have a loan to value ratio of 125% or greater.  Other sellers with an underwater loan are seeing an opportunity to rent out these properties to people who would rather rent than buy or who aren’t in a position to buy, let them pay the mortgage, and wait for things to improve.  And the third group doesn’t need to move, like their homes, and are content to just wait it out and live their lives.

Just food for thought.  What do you think will happen in the next 5 years in your community?

Active, Pending, and Sold Since January 1, 2010

Since the $8000 first time homebuyer and $6500 move up buyer tax credits expire after 04/30/10, I thought it would be interesting to see what the effect of the home buyer credits have been on our local market this year.  By analyzing the numbers now, I can do another analysis at the end of summer and see what the real impact has been.  Many of the residential properties closing between now and the end of June undoubtedly are affected by the tax credits.

Since January 1, 2010

There are currently 6027 residential properties for sale in the Pikes Peak MLS.  Since January 1, 2010 2682 have sold and 2174 are pending.  Of the properties pending 328 or 15% are tagged as short sales.  What is more interesting is the distribution of activity in different price ranges in 2010.

Sales and Pending Sales in 2010

The statistics related to different price ranges is very interesting.  Of the 6027 active properties today, 19% are priced $400,000 or higher.  That equals 1165 homes.  Of those, 159 are priced at $1Million or more.  Between $300-400K, there are 883 homes or 15%, between $200-300K, there are 1672 homes or 28%, and below $200,000 there are 2307 homes or 38% of the homes available for sale.

Pending sales with a $300,000 or higher list price are 18% of the pending sales or 389 homes.  Between $200-300K are 23% or 507 pending sales, and the remaining 59% of pending sales are priced below $200,000.  I would say from this that the first time homebuyer credit is definitely having an effect on which homes are selling.  This affects the median sales price as well since a much greater volume of lower priced homes are selling.  It will be interesting to see if the median price increases as the tax credits go away.  Right now demand is high below $200,000 and it is helping to stabilize prices at this level.  As the tax credits go away we will see if that demand continues to keep prices stabilized.

The High End of the Market

So higher priced homes ($300K and above) account for 34% of the market but only 18% of pendings and 16% of sales so far in 2010.  The mid-range of $200-300K accounts for 28% of the available homes, 23% of pending sales, and 24% of sold properties in 2010.  The curve is very much skewed to the lower end of the spectrum as 59% of available homes are priced below $200,000 as are 38% of pending sales and 60% of sales so far in 2010.  The properties included are single family homes, patio homes, townhomes, and condos.

For homes priced at $1Million or more, 7 have sold in 2010; 9 are pending, and 159 are available.  It will take a long time for that part of the market to recover.  With 34% of the market but a much lower percentage of sold properties, sellers in the $300,000 price range and above are going to have to have their homes be very competitively priced and in excellent condition to acquire a sale in their peer group.  For buyers with extra cash, wonderful homes can be purchased at prices that wouldn’t have even been dreamed about 3 years ago.  Stay tuned for our follow-up report in August as the high selling season winds to a close for 2010 and we prepare for the more sluggish autumn sales months.

I’ve read articles by The Mortgage Professor, George Mantor, over the past several years, but his articles have taken a very different direction recently.  I believe his research is probably right, that banks pushed products to keep money flowing which benefitted financial intermediaries and the financial intermediaries found a way to skim off a lot of money from credit default swaps as things went very wrong.  The result is that retirement plans have changed for almost everyone, especially those in retirement or getting close to retiring.  Here’s a link to a recent article on George’s blog.  To be honest, his posts depress me and I prefer to be an eternal optimist, but perhaps this is information that someone can use to improve their situation, so here it is for you to read.  Actually, George’s posts segue right into one of my top pet peeves.  Why is it that we don’t provide financial education in US schools?  This is something that I’ve always felt is missing and plan to be involved in during my retirement years.

Financial Education

We make sure kids can read and write and do minimal math, but we don’t train them to understand finance.  They leave high school and fall into the trap of easy credit and not saving and lack an understanding that they are the ones ultimately responsible for their financial well being.  They become buried in debt at too early an age and don’t know how to dig themselves out.  If we had been educating our children on how our markets work and on how to manage money wisely, do you think more mortgage borrowers would have made a different decision about the loan they signed for?  Maybe they would have had a better understanding of what was really going to happen with their loan.

Affordability

When I first became aware of the increasing use of interest only loans being used for home purchases after I became a Realtor in 2003 , it made my skin crawl, because I knew these products were intended to be used for cash flow management by wealthy investors, not mom and pop homeowner.  Builders in states where prices were unaffordable by the masses worked with banks to provide loans that made their homes “affordable”, at least in the short term.  With the dream of homeownership twinkling in their eyes, many people signed up.  We’ve seen the result in places such as California, Florida, Arizona, and Las Vegas.  Is it any coincidence that these are all areas where new construction was a huge part of the economy?  These were communities where warm temperatures and vibrant lifestyles drew new residents.  They are all areas where home values shot up 30-40% a year and where foreclosure rates now top the list year over year.  The high appreciation rates were unsustainable because they were eventually going to run out of buyers who could afford the homes, even with tricky loan products.  But without a basic understanding of how the financial markets work, the average home buyer didn’t have a clue.

The Solution - Supply and Demand

Since I hate to discuss a problem without trying to find a solution, what is the solution?  It’s not going to be easy.  One in four mortgages is underwater in the country.  The good news is that 3 of every 4 is not.  But without jobs and people having a sense of stability, more home value decreases will come.  Hopefully many of the go-go markets have hit bottom or near it so that they can recover.  Supply and demand is real and it is the solution.  With low real estate prices now in places where homes were unaffordable until 2008, people who want to buy, can.  The tax credits that end April 30, 2010 have provided an extra incentive for those sitting on the fence to buy, and they are.  What happened in the housing market had to happen for anything to change.  Over time those who lost their homes to foreclosure will recover as well and be able to buy again, hopefully with a better understanding of what happened so they can avoid it a second time.  We are already seeing people who qualified for a short sale being able to buy again.  We can all hope that this next wave of home appreciation will be more tempered so that we don’t hit a wall again anytime soon.  With 40% of baby boomers selling and moving somewhere else (somewhere warm, like CA, AZ, FL, and Las Vegas?), there will be a lot of big homes available to the next wave of move-up buyers.  Lots of supply, probably not as much demand, so that prices stay steady.  In Colorado Springs, we usually have steady growth with a few hiccups along the way.  We saw prices decrease in 2008-2009, but most homeowners are okay.  Foreclosure and short sale properties are selling and many other sellers are sitting on the fence waiting for things to improve.

The Future

When I look back in 5 years I expect to see that things settled out, prices started to go up slowly once again, and sellers who really want to sell and move will put their homes on the market increasing supply and keeping prices from becoming overheated.  In areas where supply is limited, prices will go up faster, but without loan products that trip them up, buyers will have to save before buying a home and that will keep demand in check.  During the height of the market, 25% of sales nationwide were for second homes and investment properties.  I wouldn’t expect to see that same ratio going forward because investors will have to bring larger down payments to the table.  But investors are part of the solution too.  While they are saving up a down payment, buyers need to live somewhere and if they aren’t living in mom and dad’s house, they’ll be renting and investors who bought real estate during this perfect storm of low prices and low interest rates, will be able to make a profit renting them out.  Rental income may become a cornerstone for some retirees so that they have enough income to retire.  Property managers will manage those properties, make money, hire people to help manage them, hire people to make repairs and improvements, and a new cycle will start.  Whew, what do you know, I get to be an optimist afterall!  Right now things feel dire to many people and we still have a lot of issues with government debt and the elitist, arrogant thinking in Washington, but this is America and when we know what needs to be done, we do it.  If you are financially able to, go out, buy a house or some land, and get the economy moving.  You’ll be the one who benefits down the road.

Should I sell my home now?  Why not wait until things improve?  When are they going to improve?  I don’t want to sell unless I can get a buyer to pay what I put into the house.  Will they do that?  What can I expect to get for my house?  Do I have to pay closing costs for the buyer?

These are all questions Realtors hear daily.  The answer to most of these questions is - It depends.  It depends on when you bought your home.  It depends on whether you have been paying down your mortgage since you purchased your home.  It depends on how much money you have invested in your home on improvements.  It depends on whether you are willing to bring money to closing if you owe more than you can sell for.  It depends on whether you have a hardship that is forcing you to leave your home, in which case you may qualify for a short sale.  It depends on what your goals are when you leave your current home.  Are you leaving town?  Do you want to be a landlord long distance or would rather not?  Have you outgrown your current home and need more space or want a different type of home or a different location?

The fact is that as a buyer of another home, this is a golden opportunity - right now!  Interest rates are staying low for now.  Home prices are staying low for now.  There are plenty of resale homes available for sale.  Builders are anxious to keep their employees and sub-contractors busy during this lull so they are prepared when the market improves and they’d love to build a home for you.  And no one has a crystal ball that tells us exactly what will happen in the future.  The only real information you have to work with is what we know now.

Here are some other things to consider.  If you are thinking of buying a more expensive home, did you know that this is the perfect market for saving money?  Here’s a sample scenario:  Your current home can sell for $200,000, but was worth $220,000 2 years ago, which is a $20,000 difference (10%).  The home you would like to buy sells for $300,000.  Two years ago it would have sold for $330,000, a 10% difference.  By selling (or keeping your current home as a rental) and buying a more expensive home now, you save $10,000 over buying in a “normal” market!  With 5% down payment and a 5% interest rate on a fixed 30 year mortgage, that saves you about $153 a month for principal and interest.  Other savings include lower taxes, possibly lower insurance premiums, and $1500 less down payment required for a 5% down payment.  Currently FHA loans require 3.5% down payment, but that may change to 5% this year.  Down payment requirements can vary.  In this example we’re assuming 5% is required.

If your sights are set on a new house, go to your favorite web calculator and run the numbers yourself.  If you like what you see, give it a shot!  Talk to a Realtor.  We’d love it if you talked to us.