The Short Sale Effect vs. The Short Sale Dilemma

Posted on February 3, 2012 by Tim Freund

Selling short sale properties is a reality most Realtors have come to accept.  This past week I received an offer on a short sale listing, where my seller had already tried to modify their loan but had been declined.  In pricing this home in December, I looked at the comps and the active listing inventory to come up with a price that was “in the market”.  The idea being that to successfully and quickly not only sell a short sale but close a short sale, I had to offer the bank a reasonable price.  After a month of no offers, we reduced 5% and got a low, all cash investor offer.  At the time, we discussed it and I told my client that I felt the offer was too low and that I didn’t think the bank would accept it, so we trudged on.  Two weeks later and still no new offers, we reduced another 5%.  At last we received another offer, only this one was lower than the all cash investor’s offer.  When I explained to the other agent that this was the case, her response was, “Why not take it and let the bank decide what they are willing to sell the home for, they’re going to decide anyway…”  To this I said, “Uh, sorry, no” and we countered a little below our asking price.  The buyer came back with another counter not far from ours and we took it.   When I take this offer to the bank I will explain what transpired and I believe, this will help us to get any foreclosure sale date postponed and accelerate the often long process of getting short sale approval.

Contrast my story with this:  A home that last sold for $1.4M in 2005 comes on the market yesterday at $599,000, even though its Fair Market Value (FMV) is probably $800-900,000.  Why?  In this example, the seller at the listing agent’s suggestion, prices “the home to sell” right away.  Many times a home like this even comes on the market as “sold before processing” where the listing agent  also acts as the selling agent, though they’ll use someone from their office to “write” the offer since lenders won’t allow a two sided sale commission in most short sales.  This kind of scenario can easily cross the line of lender fraud, especially at the ridiculous listing price.  Fraud aside, with this kind of pricing approach, there will be no haggling and perhaps even multiple offers.  Unfortunately one of three things is going to happen.  First is that the process gets dragged out forever because of the absurdity of the asking price and the seller actually gets foreclosed on.  Second, the bank comes back with a counter offer much higher than the asking/selling price after having done an appraisal, where they learned what the true value of the real estate is, and that causes the buyer to quit because they either feel duped or can’t go to the new, higher price.  Third, the bank, who must depend on third-parties like the appraiser and listing agent, having no idea what the home is really worth, ultimately accepts the stupid-low price offer.  In this last scenario, the Realtor gets paid; the seller, who’s lost everything, walks away and the buyer gets a steal.  You can see the appeal to many people of this approach.  Bully for the buyer who got the steal of a lifetime I suppose, but here’s the thing, someone has to pay for this “deal”, but whom?

The obvious is the bank, their investors and their share holders who bear the burden of greater losses; write downs etc.; and then there is the amorphous “tax payer” who’s been footing a lot of the bill of the housing crisis.  But there’s another victim here that’s real, one that we should care about and that’s the neighbors.  Because this last scenario is so common, neighborhood values across America are still crumbling, and it’s neither right nor necessary.  I call this the “Short Sale Effect” and it’s happening time and time again.

Upon first glance one might conclude that the listing agent should bear some responsibility since they are the one counseling the seller on where to price the short sale.  But the agent really only has an obligation to their seller as their representative, and to a lesser degree the buyer.  They certainly do not have any obligation to the lender nor do they to “the neighborhood”.  Clearly the banks need to do a better job of assessing value, but with so many distressed properties working their way through the system, homes fall through the cracks all the time.  As a Realtor, I am member of the National Association of Realtors and I am bound by a code of ethics, but that code doesn’t preclude me from selling a home at whatever my client is will to accept and a buyer is willing to pay, because in fact, that’s the job.  But should it end there?  I don’t believe so.  In fact, I believe we as Realtors have a responsibility to the communities we serve.  Sure, we’re in business to make money by selling houses, but I believe we should always try to get the best price for the market we’re in.  I tell my clients, that I will, “Get them the highest possible price, in the shortest amount of time, with the least amount of hassle”, yet to accomplish this I cannot “Give their house away” because that isn’t serving the seller’s best interest.  However, this is the “Short Sale Dilemma”. Because your seller gets nothing in a short sale, they have no vested interest in the selling price and in many cases, have very hard feelings towards their bank, so the idea of doing anything to help their lender, would likely elicit disdain.  So how then, are we as Realtors supposed to walk this tight rope?

If you reexamine the way I handled my short sale, you’ll find my answer: Try to get the best price you can and you’ll do right by your client; be fair to the bank and you’ll help the neighborhood and community you serve.  By approaching the business of short sales in this way, you might also get some new business out of it but if nothing else, find it a little easier to sleep at night.

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Pending Home Sales And The Lessons of Rocky And Bullwinkle

Posted on January 25, 2012 by Tim Freund

The Pending home sales for December came out today and rosy is almost all you can say about them – not that you’ll find that in the headlines which read, “Pending Home Sales Down For December”, none the less, the numbers were staggeringly strong.

While true, sales were off 3.5% nationally month over month, and this is the lead sentence of every news report, what is equally true is that December’s Seasonally Adjusted (SA) number is the 2nd highest in 4 years.  Let me repeat that so it really sinks in, December pending home sales were the second highest in 4 years.  November was the highest (except for the tax credit months).  Said Chief NAR economist  Lawrence Yun, “Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period,”

A mortgage broker I work with asked me, “How is it that a couple months ago everything was garbage and now suddenly, everything is great?”  The answer, I explained, was that things have been improving for months, but you had to be willing to accept it, which most folks were not prepared to do.  (I blogged about accepting change last week if you’re interested…).

Now I wouldn’t be honest if I failed to mention the Non Seasonally Adjusted (NSA) numbers were somewhat alarming.  If you’ve read my previous blogs on the Pending Home Sales, I tend to discount the SA numbers and focus more on the NSA but December’s NSA numbers were poor, down 21% nationally and 35% in the west.   This is something that could just be an anomaly or a regular and predictable trend.  I’ve requested annual percentage numbers from NAR to compare the multiyear trend for December.  I’ll report back if it proves to be interesting.  But since I don’t have those numbers handy, and this is my blog after all, this month I’m going to ignore the NSA and instead just focus on the positive, and act a little like Bullwinkle the talking moose. ..  If you were American born, anytime after 1960, you probably remember the Rocky and Bullwinkle cartoon show.   In it, there was always a little comedy bit snippet where Bullwinkle, would say, to Rocky, the talking squirrel, “Hey Rocky, watch me pull a rabbit out of my hat”.  Rocky would say, “Not again…” and Bullwinkle would invariably pull out a ferocious lion or some such animal, and retort, “Looks like I grabbed the wrong hat” or “Time t get a new hat”, and that’s how I’m handling the NSA numbers this month, maybe it’s time to get a new hat.

There is another lesson to be learned from Rocky and Bullwinkle that I’d like to leave you with.  At the end of every episode, there would be a big lightning storm that would destroy everything.  The music was loud and violent.  The show’s music would shift to a gentle piano and we would then see an empty field where, from the storm, a smiling sun would appear; sunflowers would begin rapidly popping out of the ground, ending with Rocky and Bullwinkle popping out too.  So like the zany cartoon characters, we are experiencing the same.  The numbers are great.  Sales of existing homes are stabilizing and things are getting better.  We are out of the storm and sunflowers are popping up everywhere and it feels pretty darn good.

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How Will We Be Remembered?

Posted on January 24, 2012 by Tim Freund

So what’s a Realtor writing about ho,w we should be remembered?  Hey, everyone’s got an opinion right?  But seriously, I was watching ESPN tonight as players and people from State College were remembering Joe Paterno.  To put this in some context, like most anyone who is a college football fan, we either have memories of JoePa; memories of his players or all of the above.  Yet here is a man that did nothing to stop a sexual predator who raped young boys in the Penn State Football shower.  It raises the question, how do we behave and how do we judge how, as a people, we behave?

OK, so that’s pretty heavy stuff that has nothing to do with real estate, yet let me relate my last week…

Picture a home that is fantastic yet has come on the market as a short sale, totally under priced.  I’m talking stupid priced.  This home sold for $1.75 new, before upgrades, of which there were countless, and landscaping which was perfect.  Views, open space, the works… you get the idea.  And it came on the market at $875,000!  So naturally it goes multiple offer right?  Of course… Now picture me; a Realtor fighting to make a living every day.  I know the value of this property.  The goal I tell my clients is not to get it at the price offered but rather to get your offer accepted so you are in first position with the lender to reply to their counter offer.  It’s at least $200K below market so you just want to get in the game so to speak.  I have 3 clients in the market for this home – only one can get it.  There are also another 5 buyers who want it also.  Ugh.  The first buyer I have writes at my recommended sight unseen, all cash at full price.  The third writes higher; still well below market but 10% above the asking.  The middle buyer is a friend; a former neighbor and someone I know wants this home in the worst way.  Yet the other offers are for all cash and he can’t do that, but his best friend can.   He tells me, “I’ll write the higher offer with financing and my buddy will write another offer at a lower price all cash and “sell to me later.”  “Why not just write a strong offer with both you on the title?” I say.  “I’ll write it and we’ll come in strong”.  He says his buddy who is a broker says that he has to write with the listing agent if he is to get the deal.  “Uh, what”? I say?  “You are going to cut me out of the deal so you can try a plan that you think will result in you getting the house?”  “It’s the only way” he says.

So how do we judge this behavior?  Is it right for the buyer to work around the agent for his best interest?  Should the agent step side so the friend gets the home?  How close is the friend?  Isn’t it a business transaction?  What is ethically, morally right?  What should the parties do?

I led with the Joe Paterno story which is a story about a hallowed man in Happy Valley, who showed terrible, terrible judgment after years of exemplary service.  Do we assess his story without his moral and ethical lapse or do we condemn him for it?  Should the friend/client who does wrong by his friend/agent be judged as a bad guy or a person just doing what’s right for his family?

I relayed this story to another very successful local Realtor.  He said, we are supposed to care about our clients but they don’t have to care about us.

Unless you’ve been paid on commission only, it’s probably impossible to fathom what it means to both make a sale and lose one.  I remember once, after working a client for hours while selling new homes, I finally got the check.  I ran into the sales office, dropped to one knee, fist and elbow pulled down and shouted, “Yes”!  Someone from corporate who happened to be at my sales office at the time, just looked at me like I had lost my mind.  She was on salary; I was not, and she couldn’t grasp the magnitude of what had transpired.

The sales racket is not what it used to be.  Sure, there are still plenty  con men and women who will lie, swindle and cheat a rube whenever given the opportunity.  But there are more people like me: Hard working sales people, looking out for their client’s best interest and by and large doing a good job.  For Paterno, I believe he showed such poor judgment he will fall amongst the Al Campanis’ and Helen thomas’ of the world; perhaps not quite the Pope Pius XII of the world who, during the Nazi regime, turned a blind eye to the Jews and their plight, but none the less, Paterno will be viewed with a record tainted beyond repair.  Perhaps you will consider these stories as unrelated.  Perhaps you will side with the buyer who only wanted a home for his family.  But to a salesperson who lives and dies by his client’s loyalty and behavior, the line between ethical and cruel; decent and indecent are very clear.  Something to think about next time you deal with a salesperson.  Do as to others, as you’d have them do unto you… words and concepts we really should take under advisement, don’t you think?

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Change Is Gonna Come

Posted on January 19, 2012 by Tim Freund

This week we celebrated Dr. Martin Luther King and with his memory as a backdrop I’m reminded of what in 1963 recording artist Sam Cooke wrote in response to the rising tide of a nation tired of racial inequality, “It’s been a long, long time coming, but I know… change is gonna come.”  His words rang true then, as they do now, change is coming; it’s happening; it’s happening in a hurry; the ships leaving port and you better have your ticket before it passes you by like a Sandy Koufax fastball. What’s happening you ask? The economy is rebounding and building undeniable momentum. I know you doomsayers are rolling your eyes right now, but change is hard to accept but sometimes we just have to accept the inevitable and go with it.  When real estate market first began its long slide in 2007 I was at a “Power Group” roundtable of top Realtors in our community.  And although I have been selling real estate since 1990, there were plenty of agents far more experienced than I.  Many were talking about how our business was going to change; how we needed to do short sales and become foreclosure experts; begin contacting the various banks and develop relationships with them so we would be positioned for the upcoming tsunami of foreclosures coming our way.  I left that group depressed, shaken but none the less defiant.  I was not going to change my business to that of foreclosures and short sales I swore, because frankly, I didn’t want to.  I wanted to sell regular homes, to regular people. Helping buyers buy the right house, the first time, and sellers to get the highest possible price, in the shortest amount of time, with the least amount of hassle.  Determined to be the lone tree leaning into the wind, I dug my heels in.  The depression I felt was not that the good times were over as much as there were so many people telling me I had the change my business from what I so enjoyed to something I had no desire to do. Marathoners will tell you there’s a point in any race that you mentally hit the wall.  Where the challenge to continue is overwhelming and the will to finish is the only thing that keeps you going.  After nearly 22 years of selling real estate, 2011 was the wall for me and I found myself in a battle to survive.  I leaned on my savings to stay afloat; my health suffered under the stress of the difficult real estate market and economy to the point where my blood pressure soared and April found me in the hospital with a coronary blood clot at age 49.  When asked about how I was doing and the state of the market, I would say honestly, “I’m doing better than most,” which while true, wasn’t saying much.  I would often say, “We’re all in the same boat: pitching out water as fast as we can to stay afloat” and everyone to a person agreed.  But, there was no way to quit; no place to go and no place to hide.  The market had taken down many a good Realtor and taken many a great Realtor to the edge of an economic abyss.  It was no longer about survival of the fittest it was just about survival, one day at a time.  Like the runner, just one step in front of the other.  I just had to keep on going.  Yet despite the challenges thrown at me, 2011 ended pretty strongly for housing sales across the nation and in particular California.  I posted relatively solid numbers by most measure.  As it turned out, I actually enjoyed handling short sales, successfully negotiating them in record time.   I sold my listings at higher prices than any other Realtor in my “farm” and started 2012 brimming with optimism.  But it wasn’t easy to keep my head up, because change is hard.  I’d had to adapt really push against a lot of adversity.  Sales master extraordinaire Zig Ziglar says “People don’t change their mind; rather they make new decisions based on new information”.  I’m here to say, there’s new information and it’s good, really good.

On Thursday and then again on Friday of this past week, RealtyTrac, the online California foreclosure tracking service proclaimed the following: “Foreclosure filings hit a 49 month low”.  They went on to say, “December Default notices (NOD, LIS) decreased 19 percent from the previous month and were down 23 percent from December 2010; Scheduled foreclosure auctions (NTS, NFS) decreased 12 percent from the previous month and were down 24 percent from December 2010; and bank repossessions (REO) increased 10 percent from the previous month but were still down 12 percent from December 2010.”  In other words the shadow inventory pipeline has been dwindling, is dwindling and will continue to dwindle.  That begs the question: if the distressed property pipeline isn’t being refilled, how much longer can the market be called a distressed market?  The data on the economy shows by every measure that the recovery is picking up steam and like a snow ball rolling down a hill, is getting bigger and badder than ever.  Consider this: unemployment numbers have been steadily improving.  Yesterday it was reported that manufacturing is on a tear; auto sales, durable goods, retail sales – they all continue to post stronger numbers, homes sales are up and even home developers are more optimistic than they’ve been in years and are ramping up housing starts.  Sure there are still storm clouds but believe me, this recession is over and we are accelerating towards better times ahead. Yes change is hard and for all the doomsayers who’ve been predicting our country’s demise, the train is leaving the station so you better get on board now or you’ll be left behind.  David Lebental, owner of PNL Benefits, a small business insurance brokerage in Torrance, Ca regularly reminds me that, “life is not a sprint but rather a marathon”.  I began by quoting Sam Cooke where he sings, “Change is gonna come”, but I left off this part, “oh yes it is”.  And as tough as this concept is for everyone on the housing sidelines to accept and resist it as you may, any champion marathoner will tell you, once you push through the pain, it really gets easier, and with any change, at some point you capitulate and accept it.  But to make it easier for you, try applying Zig Ziglar’s thoughts on change – you’re not changing your mind, you’re just going to make a new decision based on new information.  See you in escrow.

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Ben Bernake Hits For The Cycle!

Posted on January 11, 2012 by Tim Freund

A baseball term?  Bernanke in a baseball uniform?  Not exactly the image most of us have of our Federal Reserve Chairman.  A few months ago, I criticized Chairman Ben Bernanke for announcing that rates would stay low to 2013.  I felt at the time that it took the “fear of loss” – a sales technique for using urgency to guide a buyer to act now rather than later – out of the equation, thereby hampering my ability to compel would-be buyers to act now rather than wait.  I called it “Bernanke’s Big Blunder”.  While I still question his decision to do that, it’s becoming clear and evident the Fed Chairman knows what he’s doing.  He’s orchestrated an amazing shift in Fed policy to greater transparency, so the markets become less volatile; he’s overseen the saving of a financial system on the brink of collapse and it appears he maybe in office long enough to witness an economic recovery few thought would happen.

But perhaps the most fascinating aspect of Bernanke’s efforts has been his profitability.  While not the home run of saving the financial system or even the triple of guiding an economy on the mend, it’s none the less, very impressive.  A number of months back, as the banks paid back their bail out money, the Federal Reserve humbly, quietly, reported that the return on that investment was extremely lucrative for the U.S. Taxpayer.  Fortune Magazine reported in July 2011, that the TARP and the Bail Out payback yielded a return to U.S. Taxpayers of $100B in 2010 and was on pace to return another $40-100B profit in 2011.  All of this payout goes directly into the U.S. Treasury.  It really does take money to make money.  So when the Fed, in an effort to stabilize interest rates and force them lower, chose to begin Quantitative Easing I and II, by purchasing U.S. mortgages and mortgage backed securities (MBS), the critics came out of the woodwork.  Inflation! they screamed.  Growing government! they protested.  The Fed is printing money like Monopoly they decried. But today over my morning coffee, I read in the back of the LA Times Business section, that because the Fed bought those mortgages – the action of which can be directly credited with salvaging whatever was left of our real estate market – they (we) get the interest on those mortgages and that interest has returned a whopping $77B in profit for 2011.

Bernanke has long been criticized as an academic, not a businessman, but I am here to say that if he is not viewed by his contemporary’s as a genius businessman, surely history will do so for them.  Yes, it takes money to make money and Bernanke had the money, and he’s making us money.  Now if he can just get the banks to ease up and lend to small businesses… 

There’s a term in baseball called “hitting for the cycle”.  It’s where a player singles, doubles, triples and homers in a single game.  It’s one of the rarest accomplishments in baseball.  The player that accomplishes this has to have the power to hit a home run; both speed and power to leg-out a triple, the ability to make contact to get a single and the vision to stretch a single into a double. In other words, they have to be Willie Mays.  And on that rare day, sometimes it all comes together.  Using that analogy as a backdrop, I’d like to suggest that Bernanke’s move towards Fed transparency is like a single; as I said earlier, his saving of our financial system clearly a homerun and the overseeing of an economy on the mend a triple.  So while making a $80B-$100B profit annually for the U.S. Taxpayer is not in his charter, it’s an excellent windfall for the American Taxpayer and a solid double.  It’s rare, it’s amazing, it’s exciting and frankly it’s incredibly impressive.  That is what Bernanke has done my friends; he’s hit for the cycle.

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Pending Housing up Again! How Rosy Will 2012 Be?

Posted on December 29, 2011 by Tim Freund

Well that all depends.  The Rosy-ness depends on Congress not blowing it again; it depends on the election dialog and most importantly it depends on Jobs.

The National Association of Realtors Pending Home Index posted another month of improvement and yet another sign that the housing market recovery is gaining traction.  As a watcher most specifically of the Western Region, I am again stuck by the strength of the bounce in homes under contract.  Seasonally Adjusted (SA) numbers indicate improvement across virtually regions, but only the West showed improvement (1.7%) Non Seasonally Adjusted (NSA),  This was because the seasonally adjusted numbers in the West were up a staggering 14.9% over last month – an indication that we are finally getting out from under the shadow of the debt ceiling debacle and back on track. Moreover the numbers show a 2.9% increase (SA) over last year and a solid 3.5% improvement NSA, year over year.

There’s a familiar saying that if it looks like a duck, quacks like a duck and walks like a duck, it’s a duck!  The continuing signs are that we are on the path towards stability in real estate.  In September S & P’s Case-Shiller spokesman, David Blitzer said, “Continued increases in home prices through the end of the year and better annual results must materialize before we can confirm a housing market recovery.”  By my measure, we are at year end and the market continues to improve month over month and year over year, so according to Blitzer, we are in a recovery.  The pending numbers figures are the closest thing to real time we have in real estate data and to me the most important to watch.

So how am I feeling you ask?  How’s that song go? “It’s beginning to look a lot like Christmas…”  That’s right; my optimism is growing and so should yours.

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Ho-Hum Case-Shiller…

Posted on December 27, 2011 by Tim Freund

As kids are often quoted, “Bor-ing…”  It’s the last Tuesday of the month and Case-Shiller posted the numbers from November.  No surprises; prices down, sales up; blah, blah, blah.

When I was selling homes during the 1990’s and buyer’s were seriously considering adjustable rate mortgages because fixed rates were in the mid 8% range, one of the factors I would discuss with my clients was the index.  As a reminder, an adjustable rate mortgage consists of the index, the margin and the lifetime cap.  That is, the baseline index to which the adjustments are tied to; the margin of profit or spread between the index and the rate; and the highest rate the loan can adjust to, which is also tied to the index.  The margin and the cap are predetermined at the time the loan is taken.  A typical margin might be 2.25% and the cap 5%.  In other words, say the index was at 5% the lifetime cap would be 10% (5% + 5%) and the “fully indexed margin” would be 7.225% or 5% + 2.25%, as distinguished from the low start rate or “Teaser Rate”.  The margin was only component that could be adjusted with the purchase of loan points.  The smaller the margin, the lower the rate; simple right?  Where shopping a rate became interesting was in choosing an index the loan would be based on or “tied to”.

There were/are typically 3 indexes used in adjustable rate mortgages.  The 1 year Treasury Bond, the LIBOR and the 11th District Cost of Funds Index or COFI.  The 1 year Treasury is just that, the rate of the 1 year Treasury bond or T-Bill.  LIBOR stands for the London Inter-Bank Offered Rate – the rate banks in England lend each other money on an overnight rate, and the 11th District Cost of Funds was based on the 3 Western States’ average rate of lending to themselves.

So was/is there any real difference in the index rate?  Sure.  There are differences because the 3 indexes move or change at different rates of speed, thus affecting the interest on the mortgage.  When these programs were popular I would caution my clients that the LIBOR is very volatile and can change rapidly.  Since their loan program would adjust and change incrementally each month, if the LIBOR changes rapidly, which it was inclined to do, the monthly interest rate on the home loan could change quickly too.  Thus in a time of declining rates, borrowers would come out ahead because their loan would adjust downward.  But in the 1990’s rates were rising and so the low starter rate would begin a very rapid upward move.  Similarly, if the Fed raised the rates they charge banks, which was happening back then, the adjustable loan would go up whenever the Fed made a move.  But the 11th District COFI was slow moving.  It lagged behind the market.  So in times of declining rates a borrower wouldn’t feel the effects as quickly. Conversely, when rates were rising, the slow moving COFI meant your rate stayed down.  This was the desired index for an adjustable loan at that time because rates were rising and the lag time of posting those changes was beneficial to a borrower with that kind of loan.

So what has all this to do with Case-Shiller?  Like the 11th District Cost of Funds Index, Case-Shiller lags.  The data is old and since it reflects closed transactions of a month prior, which means homes that went under contract 2-3 months ago and even longer for short sales, make up the data Case-Shiller is looking at.  During price declines and slowdowns their data is significant because it portends of things to come.  However, during times of improvement, that information becomes old and confusing.  For you who read my blog regularly, you know I have been arguing that had the Congress not paralyzed us over the summer with the whole debt ceiling debate, our economy would have been where we are today, back in August and September.  Because we are just now getting back to where we would have been and due to the lag in closed sales reporting, Case-Shiller is behind the curve.  In other words, ho-hum to Case-Shiller, your news is old.  The market is showing signs of improvement as is the economy in general, albeit slowly.

David Blitzer, the S & P spokesman said of this month’s Case-Shiller report: “In the October data, the… good news is some improvement in the annual rates of change in home prices, with 14 of 20 cities and both Composites seeing their annual rates of change improve.”  He went on to say, “Home sales rose in November… (and) Single family housing starts also rose.”  These words of encouraging data were buried deep in the Case-Shiller report, neither making the headline nor influencing the interpretation they put forth.

Hey, it’s almost New Year’s and it’s the time of resolutions and predictions, so here’s mine: 2012 should be the beginning of a stabilization of prices, as home sales continue to increase in numbers along with the overall improving health of the economy; a continued brightening of the jobs picture and if true, the first strong spring home buying season since the housing credit of 2010.

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All I Want For Xmas Is…

Posted on December 22, 2011 by Tim Freund

All I want for Christmas is my two par-tees, my two par-tees, my two par-tees, all I want for Christmas is my two par-tees, so we can have a merry Christmas.  So the song goes… sort of…  No I’m not talking about the office parties and family gatherings… I’m talking about the Republicans and the Democrats.  All I want is for these two organizations to work together and then get the heck out of the way.  The data is adding up.  The economy is improving despite Washington.  However, as we saw with the near Government shut down in August, the feuding parties can derail our prospects as quick as you can say, Santa’s little helper.  Consider this: Jobless claims: down.  Employment: up.  Home sales: up.  Consumer confidence: up.  Consumer Spending: up.  Homes in Default: down.  Foreclosure Actions: up but shadow inventory down.  Corporate profits: up.  I could go on like this for an entire page because it’s really happening.  But any recovery is predicated on not letting petty Party politics get in the way.

We know for example that last June housing was looking better and at that time I blogged that the worst was over.  It even got me quoted on a Philadelphia radio station. Then suddenly the bottom fell out.  Why? The debt ceiling debacle.  So after suffering an enormous setback, we have finally put that behind us and our economy is improving ever so slightly.  The government’s hot air blew us off course and we’re just now finding our way back.

In my local housing market like so many local housing markets, things aren’t so bad.  Our inventory is low.  Interest rates are stupid low and rents are crazy high.  I have a stack of rental applications for a 3 bedroom, 2 bath, 1200 square foot home with Formica countertops that was built in the 1970’s – all people hoping to get this place and willing to pay $2,050 a month for it.  Why? Because they’ve harmed their credit during their struggle to survive the Great Recession.  Many of these folks will be buyers in a few years after they repair their credit, but for now they are renting and paying top dollar in rent.  When rent becomes the same as buying, the choice to buy becomes far easier.  If you picture the scales of justice where one side is renting and the other owning, the owning side of the scale is flat on the table with the benefits far outweighing the risk of further downside home price depreciation.  Yes there are plenty of naysayers out there talking up a continued decline, lack of income growth and high paying job growth, but I take the position that every fire starts with good bits of kindling and we’re seeing that economic kindling smoldering across the country, in all of these reports.

It’s true that our current economic growth is currently insufficient to pull us out of our economic doldrums and move us forward.  But baby steps are what they are but they’re a far cry from crawling of worse, falling backwards.  This happened to us in August, but it mustn’t happen again.  So this holiday season let’s just hope that Congress and the President can get it together and pass the kind of tax legislation that will help us over the next year.  Then, get out of the way Scrooge, because the Ghost of Christmas yet to come is pointing us in the right direction, provided we learn the lessons from the recent past.

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No More Messing Around

Posted on December 16, 2011 by Tim Freund

If you are behind in your payments and you live in California, you better contact your bank and discuss your options and you need to do so quickly.  In all likelihood you’ll need to hire a Realtor to get your home listed as a short sale ASAP.  Why?  Because the lenders in non judicial states like California are going to foreclose on you now.  FYI – Non judicial means that there is no judge involved in the foreclosure process.  The lender uses what’s called a trust deed rather than a mortgage.  With a trust deed the lender has a third party or “trustee”, who is authorized to foreclose at the beneficiary’s (the bank’s) behest.  This is in contrast to judicial states where a mortgage is used (only two parties, borrower and lender – no trustee); where the lender must go before a judge to demand the foreclosure.  A judicial foreclosure is a far more time consuming process.

For the past several years the slow nature of the foreclosure process has given a false sense of security to many underwater borrowers.  You hear the stories of people who have been in default for 2 years and the bank takes no action.  That is changing.  Sure, there are states like Nevada where as a state they are devastated by an enormous downturn in value and the State’s Attorney General is stepping in and freezing foreclosures.  But here in California where 9 of the 10 highest foreclosure metropolitan areas reside, banks are accelerating their seizure process.

Sadly, like the poor stepchild in children’s stories, it’s the inland areas that are suffering the most.  Average incomes are lower to begin with and many of those working class people, the most vulnerable.  It was largely in these inland areas of California like Modesto, Fresno, Bakersfield, Stockton, San Bernadino to name a few, where the rampant development during the market’s heyday offered the American Dream to so many families. All you need to do is look where there has been vast new home construction and you’ll find a plethora of distressed property.

I’m not sure that most people across the country really understand how big California is.  Everyone knows it’s the nation’s most populous state but geographically it’s huge as well, only third in area to only Alaska and Texas.  If California were on the east coast it would include every state from southern portion of New York to much of Georgia and as far east as West Virginia; that’s almost all the 13 Colonies and then some!  For years California was a state of north and south.  The north had water, the south had political clout.  Now of course the north has the Silicon Valley and the south a diversity of business unequaled virtually anywhere on the planet.  Because of this, the state is no longer about north and south but rather, east and west.  Housing in the coastal areas remains in demand and land is at a premium.  Much of that land is permanently protected against development, and those areas that are not, so encumbered by municipal red tape, that many would be developers just opt to sell the land in frustration… just ask The Edge of U2, who tried but failed this year to develop a large parcel of land in Malibu overlooking the Pacific Ocean.  He knows all too well about the difficulties in developing along the California coast.

In the Conejo Valley (straddling the Los Angeles and Ventura County lines) where I live and conduct the majority or my business, we too are seeing distressed sales, about 30%.  There are some foreclosures but mostly short sales.  Prices have dropped 25-30% but that’s not collapsed.  Contrast this with the inland communities where values have declined as much as 60% and it’s a little like comparing Paris to Bosnia in the 1990’s; one elegant and gentile and the other a war zone.  Yet our inland communities do share one thing with the coastal areas and that is, if you are behind in your payments the banks are going to seize your property.  Gone are the days of indefinite grace periods.

About 8 months ago I received an email from someone who had read one of my blogs about accidental landlords.  He had been relocated and was unable to sell his home because it had fallen in value below what he owed, so he rented it.  Finally after running a monthly negative for nearly two years, he approached me about short selling and I gave him an assessment.   Shortly thereafter, he told me that his tenant wanted to buy the property and that she knew a Realtor who had lots of short sale experience.  Not really knowing me, he went with the other fellow.  We spoke periodically over the many months and he expressed his frustration with the short sale process.  Meanwhile I kept telling him that I was pushing my short sales through in less than 2 months on average.  Still he stuck with the current arrangement.  After all, he had a buyer and was working with the bank already.  He had moved and his tenant was already living there, so no big deal… that is until Tuesday of this week when responding to a follow up email I’d sent a week or two previous, he said, someone told him his home was going to auction that day.  He asked me to look into it.  Unfortunately it was true, I told him.  The auction was set for that day.  Here’s a guy who thought he was safe because he was trying to negotiate a short sale with his bank, and the bank went and sold the home right out from under him.  His tenant, now on a month to month lease, will be forced to relocate and with the sheriff’s help if necessary.  So what happened?   The banks aren’t messing around anymore; they’re moving forward.  We see this in the increased number of Default Notices.  The banks are trying to address the “shadow inventory.”  They are clearing their books.  Many lenders are, as I’ve written previously here at TheRealEstateConversation.com, selling their nonperforming paper at a discount to private equity firms; taking what they can get and letting these new lien holders foreclose or negotiate a resolution.  You can see it in the numbers.  The time has come for delinquent borrowers to face the music and if you are behind in your payments, hoping for a loan mod or short sale approval, be aware that this is quickly becoming a game of musical chairs and the chairs are being taken away at an ever increasing pace.  Needless to say, you don’t want to be left standing when the music stops.

So what should you do?  Talk to your bank; talk to a Realtor.  Ask questions like “Have you ever seen a loan mod or short sale like mine go through?”  Consult a real estate attorney.  Ask your agent about their approach – ask how they plan on getting the short sale approved?  If you are in default, you may still have time, but now is the time for action, because the banks are getting serious about foreclosure and no longer messing around.

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Case-Shiller: Predictably Not Great, But…

Posted on November 30, 2011 by Tim Freund

As I’ve been saying since the Government’s near shut down in July/August, America’s home buying confidence has been shaken.  The National Association of Realtors Pending Home Index has been pointing to a decline in price and sales for months.  Yesterday’s Case-Shiller Home Price Index, being a backwards looking survey, based on closed sales that went under contract as long as 90 days ago and even longer for short sales, is only reporting what we in the field have been seeing for the past several months: it’s slow out there.  People who are not confident don’t buy houses.  So “predictably not great” is just that; the numbers are off a little but they’re not exactly terrible either (unless you’re in Las Vegas, Phoenix or Atlanta where their markets remain semi-post apocalyptic).  Is this in any way good news?  No.  Does it portend for a greater decline going forward, probably to a degree but not necessarily.

Yesterday S&P/Case-Shiller Index Director, David Blitzer said this, “Over the last year home prices in most cities drifted lower, (but) the plunging collapse of prices seen in 2007-2009 seems to be behind us.  Any chance for a sustained recovery will probably need a stronger economy”.  A “stronger economy”… hmmm, that’s a point to keep in mind.

So that I won’t be told that I am always looking through rose colored glasses, I must acknowledge that there are many storm warnings on the horizon for housing.  Distressed sales, most notably short sales, are putting increased pressure on sales prices, and sellers have to remain vigilant in their home’s condition and aggressive on the price, but standard sales will continue to sell for more than distressed properties.  They’re faster, easier and by and large in much better condition.  They coincidentally or maybe not so coincidentally tend to be in superior locations to those that are distressed too.   We also don’t have an enormous amount of data because sales are so scant, and the lack of data always skews any analysis.  To this point, Blitzer also said this, “The markets are fairly thin, and the relative lack of closed transactions might be exacerbating the downside.  The relative good news is that 14 cities saw improvements in their annual rates of change, versus the six that weakened”.  Not exactly a dire statement.

But let’s face it; as long as we have an ineffectual government, haphazardly affecting legislation, instead of focusing on job creation, our economy is in the same boat as the housing market, facing that same stormy horizon.

When Bill Clinton was running for President in 1992, he had a banner in his campaign office that read, “It’s the economy stupid”.  The same is true today.  If we improve our employment picture, many of the problems in housing simply go away.

I recently listed a short sale in a neighborhood where every closed home in the past 6 months was a distressed sale.  My husband seller, a father of two, was a customer service rep for a builder of new construction and had lost his job a little over a year ago.  His mortgage payment now represented more than 50% of his family income.  They tried a loan mod but were told they didn’t qualify.  If he has his job, he doesn’t fall behind in his payments, and would have likely opted for the new government program of refinancing into today’s lower rates despite owing more than the home was worth, thereby lowering his payments and even infusing the economy with more of his now disposable income.  While still underwater, he would almost certainly have chosen to stay in the family’s home.  But he is now freelancing, going back to school and can no longer afford to stay.  Conclusion?  We need lower unemployment and better paying jobs.  Until that happens, we should expect more of the same listless sales figures and softening prices.  However, when that happens, and eventually it will, don’t be surprised to see a rather rapid recovery in most housing markets.  Like Clinton said, “It’s the economy stupid”, plain and simple.

On a quick side note about the a fore mentioned short sale… we didn’t do what so many in my industry are doing which is list at a slashed price, get a silly offer and try to get the bank (who really has no clue from one neighborhood to the next) to accept, thus ultimately driving prices down further.  Rather we listed at the last model match sale price, got multiple offers, countered both, and ultimately came off our price less than 1%.  Because we also assembled a complete package for the lender, we are 1 1/2 weeks into our deal and have already moved through the document preparation phase and have been assigned a negotiator; had the BPO (Broker’s Price Opinion) done and been requested by that very negotiator to shorten our estimate for closing from the 6 months we prepared for, to 45 days.  We will close this two lender deal, under the government’s HAFA program in less than 60 days from start to finish at a market price – not below.  I preach the “3 P’s” to my sellers: Preparation, Presentation and Price.  The same can be said for a short sale package.  Put together a thorough package, make it easy for the lender to understand and give them a fair price and your short sale will fly through smoothly.

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