Armor Realty Blog

Distressed sales in Leon County have sky-rocketed since 2008.  A “distressed” sale is defined as a short sale (where seller’s lender accepts a payoff that is less than the amount owed on the property), foreclosure sale, or the sale of a bank owned property.  These types of sales have increased from 27 in 2008 to 793 in 2011.  The percentages of ”distressed”  sales have increased accordingly, 1% of total sales were distressed in 2008, 9% in 2009, 26% in 2010, and a whopping 34% in 2011!  Information for the charts below came from the Tallahassee Board of Realtor’s Multiple Listing Service.

It’s that time of year when we look ahead and try to give our best guesses about the market,the industry, and the effects they may have. So, here are some thoughts about the mortgage world:

 
Interest Rates Should Be Stable

With a faltering economy nationally and worldwide, including pessimistic estimates for employment, there is little chance that the Fed will risk increasing rates which would jeopardize any recovery. Couple that with a Presidential Election in November and conventional wisdom says we’ll see rates hovering in the same neighborhood for most of
2012.

Mortgage Costs Will Increase

Quietly tucked away in those bills passed in Congress to extend the payroll tax cuts before the holidays was an increase of 10 basis points in the guarantee fees on loans sold to Fannie Mae and Freddie Mac. That will translate into .10% higher interest rates (which would be $4000 extra on a $200,000 loan over 30 years).  Interestingly enough, the additional revenue is not going to Fannie or Freddie to help with defaulted loans, but rather going to the US Treasury to make up for the payroll tax cut….go figure.

 
The Mortgage Interest Deduction Will Be Challenged

Look for people of a certain income level to lose their write off as a measure to increase revenue. Taking away from the wealthy as a way to raise governmental revenue is politically strategic. It is unlikely everyone will lose the deduction (political suicide), but that top 1%…watch out.

Loan Products Will Expand

Common sense lending will start creeping back. Large down payments will liberalize credit and income standards. This will likely begin with local banks who are comfortable with
appraised values. I’m not calling for a return to the madness, but some loans that are low risk are not being done today. Anticipate some lenders expanding their guidelines.

Don’t be shocked by a lowering of FHA loan limits and/or an increase in the FHA Up Front Mortgage Insurance Premium either. Overall, mortgages should give people more reasons to buy homes in 2012 as the economic recovery is strongly tied to housing. Given that most people vote their own personal economy rather than policy beliefs, I expect
support by those who are looking to be re-elected.

Source:  Steve Harney, Keeping Current Matters, Jan 2012

Existing-home sales rose again in November and remain above a year ago, according to the National Association of Realtors^®. Also released today were periodic benchmark revisions with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners.

Although rebenchmarking resulted in lower adjustments to several years of home sales  data, the month-to-month characterization of market conditions did not change. There are no changes to home prices or month’s supply.

The latest monthly data shows total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums, and co-ops, increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25  million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010.

Lawrence Yun, NAR chief economist, said more people are taking advantage of the buyer’s market. “Sales reached the highest mark in 10 months and are 34 percent above the cyclical low point in mid-2010 – a genuine sustained sales recovery appears to be developing,” he said. “We’ve seen healthy gains in contract activity, so it looks like more people are realizing the great opportunity that exists in today’s market for buyers with long term plans.”

According to Freddie Mac, the national average commitment ratefor a 30-year, conventional, fixed-rate mortgage fell to a record low 3.99 percent in November from 4.07 percent in October; the rate was 4.30 percent in November 2010. Records date back to  1971.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc. in Miami, said housing affordability conditions have set a new record high. “With record low mortgage interest rates and bargain home prices, NAR’s housing affordability index shows that a median-income family can easily afford a median-priced home,” he said.

“With consumer price inflation rising by more than 3 percent this year, consumers are looking to lock in steady payments by taking out long-term fixed-rate mortgages. However, the problem remains that some financially qualified families who are willing to stay well within their means are being denied the opportunity to buy in today’s market by the overly restrictive mortgage underwriting situation,” Veissi said.

An elevated level of contract failures continues to hold back a broader sales recovery. Contract failures were reported by 33 percent of NAR members in November, unchanged from October but notably above a year ago when it was 9 percent.

Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including lower conforming mortgage loan limits, home inspections, and employment losses.

Also released today are benchmark revisions to historic existing-home sales. The 2010 benchmark shows there were 4,190,000 existing-home sales last year, a 14.6 percent revision from the previously projected 4,908,000 sales. For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to gross domestic product.

“From a consumer’s perspective, only the local market information matters and there are no changes to local multiple listing service (MLS) data or local supply-and-demand balance, or to local home prices,” Yun explained.

A divergence developed over time between sales reported by MLSs and sales determined by a U.S. Census benchmark; the variance began in 2007. Reasons include growth in MLS coverage areas from which sales data is collected, and geographic population shifts. “It appears that about half of the revisions result solely from a decline in for-sale-by-owners (FSBOs), with more sellers turning to Realtors^® to market their homes when the market softened. The FSBO market was overwhelmed during the housing downturn,and since most FSBOs are not reported in MLSs, national estimates of existing-home sales began to diverge based on previous assumptions,” Yun said.

NAR consumer survey data in 2000 showed FSBOs accounted for a 16 percent market share, which fell to a record low 9 percent in 2010.

“In essence, Realtors^® began to capture a greater market share. In addition to a decline in FSBO transactions, more builders began marketing new properties through real estate brokers that weren’t completely filtered from the existing-home data,” Yun said. “Some property listings on more than one MLS, and issues related to house flipping, also contributed to the downward revisions.” The new independent benchmark was discussed with government agencies and outside housing market experts, and will allow for annual
revisions in the future.

Total housing inventory at the end of November fell 5.8 percent to 2.58 million existing
homes available for sale, which represents a 7.0-month supply at the current sales pace, down from a 7.7-month supply in October. “Since setting a record of 4.04 million in July 2007, inventories have trended down and supplies are moving close to price stabilization levels,” Yun said.

The national median existing-home price for all housing types was $164,200 in November, down 3.5 percent from a year ago. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 29 percent of sales in November (19 percent were foreclosures and 10 percent were short sales), compared with 28 percent in October and 33 percent in November 2010.

All-cash sales accounted for 28 percent of purchases in November; they were 29 percent in
October and 31 percent in November 2010. Investors make up the bulk of cash  transactions.

Investors purchased 19 percent of homes in November, little changed from 18 percent in
October and 19 percent in November 2010. First-time buyers accounted for 35 percent of transactions in November, up from 34 percent in October and 32 percent in November 2010.

Single-family home sales rose 4.5 percent to a seasonally adjusted annual rate of 3.95
million in November from 3.78 million in October, and are 12.9 percent above the 3.50 million-unit level in November 2010. The median existing single-family home price was $164,100 in November, down 4.0 percent from a year ago.

Existing condominium and co-op sales were unchanged at a seasonally adjusted annual rate of 470,000 in November and are 6.8 percent higher than the 440,000-unit pace
one year ago. The median existing condo price was $164,600 in November, which is 0.2 percent below November 2010.

Regionally, existing-home sales in the Northeast jumped 9.8 percent to an annual pace of
560,000 in November and are 7.7 percent above a year ago. The median price in the Northeast was $240,200, which is 0.1 percent below November 2010.

Existing-home sales in the Midwest rose 4.3 percent in November to a level of 960,000 and are 15.7 percent higher than November 2010. The median price in the Midwest was
$133,400, down 4.0 percent from a year ago.

In the South, existing-home sales increased 2.4 percent to an annual pace of 1.74 million in
November and are 12.3 percent above a year ago. The median price in the South was $143,300, which is 2.1 percent below November 2010.

Existing-home sales in the West rose 3.6 percent to an annual level of 1.16 million in
November and are 11.5 percent higher than November 2010. The median price in the West was $195,300, down 8.4 percent below a year ago.

Reprinted from REALTOR® Magazine December 2011 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2011. All rights reserved.

LOCAL LEON COUNTY (Tallahassee, FL) sales statistics trended a little differently than on the national level.  Leon County had about the same number of detached single family home sales in November as it did in October (116 in November vs 118 in October).  However, the 116 detached single family home sales this November were markedly higher than the 103 that sold a year ago in November 2010, a 13 percent gain.

The average price of a home sold in Leon County from Jan – Nov 2011 was $201,163 compared to $208,092 (a 3% decrease) during the same time period last year (Jan – Nov 2010).

Real Estate as a Hedge against Inflation

We haven’t heard a lot about inflation recently. However, prices have started to creep upward over the last year. As examples, here are a few categories that increased from November 2010 to November 2011:

• § Food at home – up 6.2%
• § Housing fuels and
  utilities – up 3.5%
• § Transportation – up 9.2%

Today, we want to address the issue of inflation and the advantages of owning real estate. The National Association of Realtor (NAR) took an historic look at the impact of inflation. Here are some inflation numbers over the past 30 years:

We can see that real estate has fared very well. The most important number is the $0 increase in mortgage amount. The study assumed that the homeowner took a 30 year fixed rate mortgage thereby locking in the housing expense for the thirty years.

NAR then looked at inflation moving forward over the next thirty years. Obviously, if it remained the same as the last thirty years the percentage increase would be the same. They looked at a low inflation scenario and a high inflation scenario.  The graph below shows the findings:

Bottom Line

We can lock in the housing costs of our primary residences and vacation homes at all time lows if we purchase today. Either would be a great hedge against future inflation.

Source:  Steve Harney, Keeping Current Matters, Dec 2011

It seems like we are constantly bombarded with bad news about the real estate market.  While things remain tough, there are certainly a few encouraging signs that should be passed along.  Here are some of them:

Housing Inventory Shrinks to 4 Year Lows

http://realtormag.realtor.org/daily-news/2011/11/28/housing-inventories-shrink-four-year-lows

National Assn of Realtors:  Commercial Markets Expected to Grow in 2012

http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=1&id=267904

30 Year Fixed Rate Mortgages Remain at 60 Year Lows!!!

http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=5&id=267922

The National Association of Realtors recently released their 2011 3rd Quarter Housing Report.  In the report, they showed that combined sales of single family homes, condos and co-ops increased in EVERY state as compared to the 3rd quarter of last year. Here are the numbers. (Source:  Steve Harney, Keeping Current Matters)

Modest Volume, Price Gains Seen Next Year

The housing recovery will continue on its slow but steady pace over the next couple of years, NAR Chief Economist Lawrence Yun said Friday morning at the REALTORS® Conference & Expo Economic Issues & Residential Real Estate Business Trends forum.

November 2011 | By Robert Freedman

NAR Chief Economist Lawrence Yun predicted home sales would increase by 4 percent next year and home prices would inch up 2 percent during the Economic Issues & Residential Real Estate Business Trends forum Friday morning. In 2013, he projected sales to pick up another 6 percent and prices to rise another 3 percent.

Home-sales growth has been flat this year, even though it couldn’t be a better time for consumers to buy, because prices are still down—essentially under replacement value—and interest rate are at historical lows. Even employment and wages have been heading up, although both at a modest pace.

Yun characterized today’s market as “strange” because of this disconnect between the good buying conditions and the low sales growth.

Rock-bottom consumer confidence is a big part of the weak market but the hurdles to borrowers imposed by lenders through stringent underwriting requirements are a major issue, too. Lenders are requiring applicants to have credit scores of about 760 for Fannie Mae and Freddie Mac loans, and just under 700 for FHA loans, shrinking potential home sales by about 20 percent.

The stiff requirements come at a time when banks are seeing strong profits and run counter to the Federal Reserve’s efforts to use rock-bottom interest rates to attract borrowers and get the economy moving.

Behind the tough underwriting is a concern among banks about borrowers’ ability to repay loans, but Yun says that risk is low. Rather than continuing to head down, home prices have been stable for the last two years and are poised to head up, which will reduce lending risks, lower foreclosures, boost sales, and further strengthen the market.

To show that home prices have been stable, he cited both NAR and Case-Shiller data, which show prices have been hovering around a $140,000 national median since 2009.

Yun said it was crucial that the federal government not stymie what little momentum the housing market is seeing by moving forward with a proposal to require 20 percent down payments from home buyers or making other destabilizing housing policy shifts. It’s also crucial for interest rates to stay low, although if lenders return their underwriting to the sound standards they used before the housing boom, he said, the market could handle higher interest rates.

Richard Peach, senior vice president at the Federal Reserve Board of New York and the other speaker at the session, offered a unique suggestion to improve the housing sector, one that was particularly suitable for Veteran’s Day: help military personnel who served overseas purchase foreclosed homes.

“My idea is to allocate certificates to 2.5 million service members who served in Afghanistan and Iraq that could be used as a downpayment on a foreclosed home in the Fannie or Freddie portfolio,” Peach said.

Reprinted from REALTOR®Magazine November 2011 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2011. All rights reserved.

The chart above shows that since 2000, real estate has been a solid investment, even considering the drop in values the market experienced over the past few years.

Let’s say you had $100,000 to invest in 2000.  Had you put it in the DOW, that $100,000 would now be worth $106,700.  You would not have faired as well had you placed it all in the S and P where your $100k would now be worth only $88,000 or the NASDAQ where it would be worth only $70,000.  Real estate would have been the clear choice since that $100,000 would have gained 43% on average, which means that $100k is now $143,000!!

Source:  Steve Harney (Keeping Current Matters)

Multiple Signs Point to an Uptick in Real Estate Market

http://rismedia.com/2011-10-24/multiple-signs-point-to-real-estate-rebound/?utm_source=twitterfeed&utm_medium=twitterarket

Mortgage Applications are UP!

http://www.linkedin.com/news?actionBar=&articleID=870072430&ids=0VejoPc3oRdzwIczwNczgVdjoUb30Pd38Tc30Te2MVcjcTcP8SdzwId38ScPsMdjoU&aag=true&freq=weekly&trk=eml-tod-b-ttle-44&ut=3vEioe68RbFkY1

Mortgage Interest Rates Change Little This Week—Remain at RECORD LOWS!!

http://realtytimes.com/rtpages/20111028_rates.htm

Renters Spend 5% More than Homeowners!

http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=1&id=266711

Investors See Bigger Profits from Rising Rents

http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=5&id=266727

Builders Cut Prices Resulting in 5.7% More New Homes Sales

http://realtormag.realtor.org/daily-news/2011/10/27/builders-slash-prices-new-home-sales-rise-57

Pending Sales Slip From Aug to Sep, but are UP Compared to Last Year

http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=4&id=266723

Existing-home sales were down in September on the heels of a strong gain in August, but
remain well above a year ago, according to the National Association of REALTORS®.

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010.

Lawrence Yun, NAR chief economist, said the market has been stable although at low levels, and there is plenty of room for improvement. “Existing-home sales have bounced
around this year, staying relatively close to the current level in most months,” he said. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable — this speaks to an unfulfilled demand.”

Market Issues

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.11 percent in September, down from 4.27 percent in August; the rate was 4.35 percent in September 2010.

Contract failures were reported by 18 percent of NAR members in September, unchanged
from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

NAR President Ron Phipps said access to credit is unbalanced. “All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” he
said. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery—not place more obstacles in the way of financially qualified buyers.”

Who’s Buying? What’s Selling?

All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of
cash purchases.

Investors purchased 19 percent of homes in August, down from 22 percent in August; they
were 18 percent in September 2010. First-time buyers accounted for 32 percent of   transactions in September, unchanged from August; they were also 32 percent in September 2010.

The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes — foreclosures and short sales typically sold at deep discounts — accounted for 30 percent of sales in
September (18 percent were foreclosures and 12 percent were short sales), down
from 31 percent in August and 35 percent in September 2010.

Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current
sales pace, compared with an 8.4-month supply in August.

Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33
million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago.

Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate
of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 in September, which is 1.0 percent below September 2010.

Around the U.S.

Regionally, existing-home sales in the Northeast rose 2.6 percent to an annual level of
790,000 in September and are 6.8 percent above a year ago. The median price in the Northeast was $229,400, down 3.3 percent from September 2010.

Existing-home sales in the Midwest slipped 0.9 percent in September to a pace of 1.09 million but are 17.2 percent higher than September 2010. The median price in the
Midwest was $137,400, which is 1.4 percent below a year ago.

In the South, existing-home sales declined 2.6 percent to an annual level of 1.89 million in
September but are 10.5 percent above a year ago. The median price in the South was $144,400, down 3.0 percent from September 2010.

Existing-home sales in the West fell 8.8 percent to an annual pace of 1.14 million in
September but are 10.7 percent higher than September 2010. The median price in
the West was $207,400, which is 4.5 percent below a year ago.

“The falloff in Western sales from a surge in August was expected because many lenders had lowered mortgage loan limits over concerns that sales wouldn’t close before the
higher loan limits expired at the end of the September,” Yun said. “Given the concentration of higher cost housing in the West, particularly in California, many buyers were motivated to close in the months leading up to the changeover while they could still get low interest rates on conventional mortgages. Unless Congress reinstates the higher limits, the overall housing market recovery will be slower than it otherwise could be, and will hold back the broader economic recovery.”

Reprinted from REALTOR®Magazine October 2011 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2011. All rights reserved.

The Tallahassee Area (Leon County) saw the same trends we saw regionally and nationally.  September sales were down from August (175 sales in Sep vs 210 Sales in Aug), but were up compared to September Sales a year ago (175 Sales Sep 2011 vs 168 Sales Sep 2010).  The graph below shows additional information.

CASH FLOW IS KING!!

THERE’S NEVER BEEN A BETTER TIME TO BUY REAL ESTATE!!! INTEREST
RATES ARE AT RECORD LOWS, THERE IS PLENTY OF INVENTORY, PRICES ARE LOW, MANY SELLERS ARE WILLING TO BARGAIN!!  THE LOW PRICES AND RENTAL RATES HAVE RESULTED IN AN ENVIRONMENT WHERE CERTAIN INVESTMENT PROPERTIES ARE CASH FLOWING AGAIN!

–Let’s go over a scenario:  It is certainly reasonable to assume an investor will be able to purchase a rental townhome for $90,000 (or less!!!) that brings in $825 per month rental income.  Let’s assume that an investor is able to get a loan where the total monthly payment, including taxes and insurance is $585.  (Reasonable Assumptions:  $72,000 loan amount–20% downpayment, 4.875% 30 year fixed interest rate, $1,700 in annual property taxes due).  In this scenario, the investor could see an income of $240 per month!  He/she could use the $240 per month to pay down the principal faster or to save up for maintenance repairs/upgrades to the property.

–It gets even better!  Most of the expenses the investor incurs may be tax deductible (taxes, insurance, mortgage interest, utilities, repairs, mileage to and from the property, depreciation, etc…)

–Also,the investor is likely gaining equity as he/she pays makes the mortgage
payment…..using the TENANTS money!!  Or equity can be gained as the home appreciates.

–As always, please check with your accountant/lawyer for professional advice

–The chart below illustrates the long term success of real estate as an investment.