Again, as we have said here before, these are “cocktail conversations” of a general nature intended to give you a pretty good idea what is happening at the moment.  If you want specific answers for a specific property or area, give us a call…we can get very detailed with you then.

Low End price range…let’s say $250,000 and below.  One would assume this is a very active part of the market since it is the most affordable, and one would be right.  As a result, this segment of our local Riverside market is very solid,  has very stable pricing, and we have even seen some appreciation (yes, appreciation…it’s been a long time since we have used that word…Google it!) in certain areas.  This is a very affordable segment of the housing market, and most first time buyers land in this price range.

Did you know that a $250,000 loan, at today’s 4% rate,  has a monthly principal and interest payment of only $1,194?  No gimmicks, no rising payments, no balloon stuff…just a straight monthly payment that is, in many cases, lower than the rent you would be paying for the same house.  Many first-time buyers are beginning to figure this out and get in while the rates remain low.  The net result is that this price range is very active and very stable.

Middle Price Range…let’s say $250,000-350,000.   This range is also really strong, only slightly less so than the entry level range quoted above.  Again, the incredibly low interest rates have a lot to do with this.  We can’t say there is as much appreciation as we are beginning to see in the lower range, but we are getting real close…and there as some pockets of Riverside where prices are showing signs of rising.  For both of these price ranges, there is a fairly strong demand at the moment, and not enough inventory to satisfy all the buyers who are looking for property.  Therefore, prices have definitely stabilized, and it is only a matter of time before we see appreciation across the board for this mid price range.

High End Prices…$350,000 and above.  This is actually a pretty large range, and if we were getting specific here, we would divide this at the $500,000 mark, but for general purposes, this end of the market is also showing signs of waking from it’s slumber.  The reason this range has been slower to react is that for the most part, even with the low interest rates, a buyer needs a larger down payment to make this work.  In the “old” days, these down payments usually came from the sale of the buyers home…but since many of the sales in the lower price ranges are not generating “trade-up equity” (foreclosures and short sales do not let the seller buy a larger home), then the only sales occurring in this higher range is with buyers who have saved enough to come up with the approximate 20% needed to get a loan. 

So…while there are fewer buyers here than in the lower ranges, it is not an empty void.  In fact, for the month of January, Westcoe sold 4 houses over $500,000…so take heart…those buyers are out there.

In the end, no matter where you are on the price spectrum, there is no doubt that our market is truly showing signs of improvement everywhere.  This is great news for everyone, and we only hope that it continues throughout 2012 and beyond.  It’s been a long time since we have been able to comment on some good news for housing.  It feels nice for a change.

So…to give all our readers a little “cocktail information” to dazzle your friends, we thought that today we might shed a little light on why rates fluctuate, and how to get a general idea of where they are headed.  Below are a few things that definitely affect the interest rate a buyer will pay on their loan.

Europe…Yes, we are all connected.  No country stands immune from the financial issues of the world.  At this point in time, the financial markets in Europe are nervous over the potential interest rates countries such as Greece, Spain, Italy and others have to offer investors to get these investors to purchase their bonds.  Countries borrow money too (bonds), and if said country looks shaky to the investors that purchase bonds, then that shaky country has to offer a higher interest rate to attract investor money.  Too low, and the investors will not take the risk….too high, and the country will buckle under the payments.

Why does this affect the interest rate on a home loan in California?  Because of a thing called…

…Flight to Safety.  What this means is that those same investors who might be thinking about purchasing bonds of a European country will instead make a run for something much safer….like U.S. bonds.  Our country’s bonds offer a much lower interest rate, but investors know that they are traditionally very safe (the dollar is the world’s currency).  As an example,  this week, private Greek bondholders are being asked by Greece and the European banks to cut the face value of their bonds by approximately 50%, and also accept a lower interest rate for a longer time period.  That’s a massive hit to take, and so far, they are balking…who can blame them?  No matter the outcome in Greece, this type of action makes investors head to our bonds, and since we (the U.S. government) has so many investors that want their bonds, we can get away with offering a much lower interest payment…because we are safer.

As an example, in the recent past, Italy has had to offer interest rates anywhere from 4% to 7% to attract investors, but here in the U.S., as of today, 10 year Treasury bonds are offered at 1.94%, and 30 year bonds are at 3.08%.  This is a huge gap, and shows that investors are willing to receive less money if they feel they are safe.

And now to tie this all together…or…why is the above important?

Because the 10 year and 30 year Treasury rates are huge (HUGE) indicators of the interest rates available on 30 year fixed rate loans for home purchases.  The higher the Treasury rates, the higher the home purchasing rates, and of course, the lower the Treasury rates, the lower the home purchasing rates.

Naturally, it’s not entirely that simple, but relatively close…at least close enough for you to get a grasp on where we are now, and where we may be in the future…and as for the future, the Federal Reserve has issued a statement today that their intent is to keep housing rates low for at least the next couple of years.

What does all this mean to you…a home buyer or seller?

It means that our current rates of approximately 4% for a housing loan should be here to stay for a while.  Now don’t get us wrong…they could bounce around a little…nothing is totally static in the financial world.  However, 4% should be the benchmark for the foreseeable future…and remember, a $250,000 loan at 4% is only $1,194 per month, which is many times less than the equivalent rent.

However, while you digest the above, we have one caveat…and it’s a big one.

While the Fed has great intentions (keeping rates low), and Europe will continue to affect our rates, this can all change in days, and no one rings a bell as a warning if rates are going to rise.  We are not trying to scare anyone, only pointing out that in past financial history, there is no early warning system.  Rates simply rise, and that is that….and all the great intentions of the Fed and the financial markets aside, it now will cost more to borrow money.

So…the moral of this story is that while all looks good for now, as your Momma said…one in the hand is worth two in the bush.  Interest rates will do whatever they are going to do, and if you are concerned about getting a great rate on your home loan, don’t wait for them to rise to understand what you should have done.  Indeed, they are great now, and so take advantage of them…because there is another saying that is relevant here….pigs get fat, hogs get slaughtered.

Don’t take the chance on getting slaughtered. 

However, for all you vets out there who are trying to purchase a home…we are not so in love with the VA loan program that our government offers to all vets to “help” them purchase a home.  In fact, your VA loan program is really hurting you when it comes to purchasing  a home…at least in many parts of Southern California.  Let us explain.

There is a great article in the Riverside Press Enterprise this morning written by their real estate writer Leslie Berkman, in which Leslie quotes a home builder who says the strict and very conservative appraisals that come from VA appraisers are keeping homes from closing for the very vets the program is trying to help.  As a result of these common practices with regards to VA appraisals, many new home builders “shy away from VA offers because of the frustration with the process.”

As the leading independent real estate firm in the Riverside area, all we can say to the above is a very loud “AMEN.”

In theory, the VA loan was designed to help all vets with the purchase of a home.  The basic features of this type of loan that make it easier for a vet to purchase are the zero dollar down payment feature (3.5% for FHA, 10% or more for conventional loans), and the fact that the seller can also pay 100% of the buyers closing costs.  In essence, a vet can move into the home with no money out of pocket.  This is a great program for all vets, and is highly supported by the Realtor community.

The problem comes with the “guidelines” that the Veterans Administration has put on the lenders who make the loan.  In reality, the very governing body that administers the loan program is making it almost impossible for the vet to close the loan, because the “junk” that comes with this loan usually blows most sellers out of the water.  Sellers want to work with these vets, but the VA makes that very hard to do…especially in this real estate market.

Why?  Two reasons.

First…In an attempt to “protect” the veteran from  overpaying for the home (as if they need any protecting),  so many of the VA appraisals come in with a lower value than the sales price.  This kills the deal for the seller, who while wanting to work with the vet, cannot take thousands of dollars less than what they thought they were getting.  Granted, if the appraisal is low, there is an appeal process, but good luck with that.  In the real world, getting an appraisal changed is highly improbable and very cumbersome to try.  Most sellers just pass and let the escrow fall out, thereby keeping the vet from getting the home.

Also, once a VA appraisal has been made on a home, it stays there for 4-6 months….which means the seller is stuck with it even if another vet comes along and wants to pay a higher price.  So in the example above, not only did the conservative appraisal keep the original vet from getting a home, it keeps all future vets from getting the home unless the seller wants to take the lower price.  We don’t run into this issue nearly as often with FHA or conventional appraisals.

Secondly, the other issue with VA appraisals is the general nature of the work requirements noted by the appraiser.  Again, we see many times that the appraiser calls out for so many items to be fixed or checked by the seller, that the seller says “forget it”, and moves on.  It doesn’t matter if the home inspector (who is hired for this exact purpose) says the house is OK, it doesn’t matter if the vet is happy to get the home for a little lower price because the vet can make the repairs…none of that matters.  The bottom line is that the appraiser is required to call out “everything” ( including some really, really picky things), and all of this costs the seller money…so the seller has no choice but to say “no.” 

Understand that both FHA and Conventional appraisals are not held to this same standard, so sellers are more inclined to work with those type of financing than subjecting themselves to the unrealistic rigors of a VA appraisal.  It’s almost as if the VA is saying that the vets are too stupid to make this type of decision themselves, so the VA will do it for them…with the net result is that the vet simply can’t buy the home!

Lastly, remember that in our current market, almost 2/3 of all available homes for sale are either short sales or bank repos…which in most cases, means the home may need anything from paint and carpet, to major repairs.  In either case, the price reflects the work needed, because one thing is for sure…the seller in a short sale (who is getting no money from the sale) nor the bank that has lost tens of thousands of dollars is not going to make any repairs…which then blows the veteran buyer out of the water because the VA will not allow the buyer to accept the home unless all repairs noted on the appraisal are completed prior to the close of escrow.  This is a serious Catch-22 here…the VA is “helping” so much they are preventing the very thing they are trying to do.

In short, the VA is killing the home purchasing ability of the veterans they were designed to help.  Does anyone really think that an individual who is qualified to serve in the military is not capable of fixing up a home…or making their own repairs if the price is low enough to make that feasible?

In the end, everyone wants to help the vets…and most sellers, given the choice would gladly pick a veteran to purchase their home…but not if it’s going to cost them thousands of dollars to do so.  It is our fervent hope that the VA does something about their unrealistic loan program, and put one in place that rewards these heroes, and not hurts them.  They deserve it.

Therefore, we at Westcoe learned long ago not to get into the prediction business.  However, after 27 years of being the leading independent real estate company in the Riverside area, we do have a few “feelings” about our local area…”feelings” being defined as possibilities based upon experience, not predictions based upon ego. 

So…since we get asked by so many of our clients about our “feelings” about local real estate and what we can expect in the year to come, we will venture forth with the following:  We think that 2011 will be the bottom of this real estate cycle…and here is why.

Closed escrows for 2011 for residential property in the Riverside area were down by approximately 25% as compared to 2010, according to MLS statistics.  However, the real important issue here is why were the number of sales down…and the answer is inventory.  In 2011 we had very limited inventory for all of our buyers.  The bank foreclosures were stalled due their own inefficiencies, short sales were a frustrating nightmare because the banks were not in the mood to make them happen, and standard sellers were just beginning to re-enter the sales market.  All this made for a smaller supply pool, which could not keep up with buyer demand.

In 2012, we think all three of the above areas will show some improvement. 

All of our banks that we have direct foreclosure relationships with have indicated that they fully expect more properties to hit our market in 2012.  Short sales will improve simply because the banks now have more experience and staff to handle the demand.  Lastly, standard sellers are tired of putting their lives on hold, and will move on with the acceptance that the smaller equity they now have as compared to 2007 will simply have to do.  Besides…those same sellers usually become buyers who will enjoy the lower price of their new home to be purchased.  Therefore, we think this will all add inventory to our real estate “cupboards” that were far too bare in 2011.

Remember, as we have stated before, buyers are not the problem.  There are now plenty of people who see the lower prices and ridiculously low interest rates as the opportunity to purchase a home…they just lacked much to choose from.  Therefore, we think the increase in property availability when coupled with an increase in demand will work it’s magic on the market.  We are already seeing more stable housing prices, with some areas showing appreciation from last year.

In the end, only time will tell if we are right…but after 27 years of helping Riversiders with their housing needs, we will trust our experience in expecting things to slowly work back upwards after this 5 year downward spiral.

Take care, and thanks for reading our blog. 

First…when was the last time you saw a major national bank show any sort of benevolence towards the general public?  Please, give us some credit for intelligence.  Banks don’t do things out of the kindness of their hearts…so anytime you get the bank’s public relations department spewing that tired line of not wanting to hurt the public any further, do your best to stifle your laughter.

So…why aren’t the banks releasing their repos?  Easy…they are horribly inefficient, and get in their own way when it comes to processing their foreclosures.  Understand, we are talking about the BIG national banks, not the regional banks.  The regional banks generally have their act together because they have far fewer layers to navigate in order to get something done.  But the big boys?  They are a mess, and have been a mess for many years.  Most of us are aware of just how hard it is to even get a live voice on the phone, so it is a very small leap to grasp the concept that these big banks can’t make the simplest of decisions on any sort of timely basis when it comes to their foreclosures.

Secondly, as to our Riverside area, rest assured that if these same big banks wanted to “dump” their repos on our market, they would get swept up and sold faster than Kim Kardasian filed for divorce.  We cannot speak for other parts of the country, but here in our Riverside area, we have been clamoring for increased foreclosure inventory (or any other type of inventory for that matter) for the past two years.  Our market is saturated with both investors and first time buyers who would gladly purchase entry level homes if there were more available.  Right now, these same buyers are totally frustrated with the slow delivery of all these repos the banks supposedly have in their inventory.  Trust us…”dump” away…we can more than handle it.

 We don’t really enjoy being this sarcastic about a very sensitive subject, but it is really hard to sit by and watch the PR departments of all those major players (Big banks, Fannie Mae, Freddie Mac, etc) continue to say that they are concerned about supply and demand, when at least in our area, demand is far outpacing supply and has been for quite some time.  NO…the bottm line here is that the major banks are simple too inefficient to get their repos on the market.

And the real killer here is that this housing market CANNOT IMPROVE until the foreclosures and short sales (foreclosures in waiting) move through the system…because once they are gone, then what will be left is homeowners with equity…and that will start the housing ball rolling for everyone.

So…next time you see a large national bank saying they care about the rest of us, smile…because they say laughter is good for your health.

Happy New Year…let’s hope 2012 brings us more of the “right” type of laughter and humor….not the type above.

May the spirit of all that is wonderful and fun bless you and your loved ones during this time.

I’ll be back after the holidays.

At Westcoe, we pass no judgement on this issue.  There are a large number of very good, very responsible people who through no fault of their own, have found themselves behind the housing 8-ball…forced to ultimately make a decision on the best path to follow.  Today, we simply want to let you know some basics about the liabilities that can come from either a short sale or a foreclosure.

Also, before we begin, this would be the place where we make certain that you know Westcoe Realtors are not attorneys and we cannot give legal advice.  You should always consult an attorney with regards to your particular situation.  However, what we can do is give you general information from our real estate perspective…which is what we are doing today.  So…call and attorney and don’t sue us…but here is some info you might want to know.

CREDIT ISSUES

Simply stated, most lenders will tell you that a foreclosure will create a larger ding on your credit report than a negotiated short sale.  In fact, depending upon your situation, it is possible to close escrow on your short sale and purchase another home the next day.  This takes an unusual set of circumstances (and is fairly new to the financing world), but it can be done.  However, in most cases, you will need to wait before you can purchase a new home…but standard consensus is that the wait will be shorter with a short sale than with a foreclosure.  Lenders vary on how long this wait can be, so check with your local lender.

LIABILITIES

Here’s where it can get a little tricky.  We will try not to get too detailed here, but we need to dig a little deeper to make sure you understand the differences.

Foreclosure

In a foreclosure, if the loan (or loans) you have on your home are the original loans you obtained to purchase the home, then you will have no continuing liability to any lender when the home is foreclosed upon.  In other words, if the loans are “purchase money” loans (the loans you used to purchase the home), no matter how much money the lender (or lenders) lose on the foreclosure, they cannot come after you for any of their losses.  Their security was the home itself, and sometimes you win, and sometimes you lose.  They have the right to take back the home if you are not making the payments, but your obligation ends there.

However, if the loan (or loans) on your home are not the original purchase money loans (line of equity, refinance, newly added 2nd trust deed, etc), then in a foreclosure, the lender (or lenders) DO HAVE THE RIGHT TO CONTINUE TO COME AFTER YOU FOR THE MONEY THEY LOST.  Many lenders do not choose to go down this road, but they have the right…and some of your smaller, 2nd trust deed lenders are making sure they retain their right to future action.  Every lender makes their own choice, and we cannot answer for yours…but you do need to know that they have the right to try to recover their losses from you if they choose.

Short Sale

In a short sale, it is different.  Here, regardless of the type of loan you have on your home, if the lender (or lenders) agree to accept a short sale, then they are also agreeing that whatever money they get from the sale satisfies the debt.  They cannot come after you for the money they have lost, and they have no future recourse for the lost money.  This is a new law that went into effect in July of 2011.  This “satisfaction of debt” and release of any future liability on the sellers part for the debt applies to any an all loans on a property…original loan, refi, home equity, etc.  It is a total get-out-of-jail-free card.

Again, we stress that the lender must accept the short sale…all lenders.  In the case of a home with a 1st and 2nd trust deed, if only the 1st lender agrees to the short sale, but the 2nd refuses, then the 2nd lender is reserving the right to retain their future legal rights with regards to getting their money.  However, that is a bit of a moot point, since it is virtually impossible to close the short sale escrow without all the lenders in agreement.  In essence, one lender can nix the entire escrow by refusing to agree to the short sale.

TAX CONSEQUENCES

On this one, you will really need to check with a tax professional.  In the old days, the money that the lender lost was viewed by the IRS as “forgiven debt”, which meant that the seller was going to have to pay taxes on the lender loss, since the loss was technically viewed as income to the seller.  Talk about a double whammy!

However, the Bush administration changed this, but tax laws are evolving almost monthly on this issue, so you really need to get the advice of someone who knows tax law…and that isn’t us.

In the end, as a homeowner, none of the above is pleasant.  We get that…but it is the reality for so many people today.  In Riverside, approximately 1/3 of the homes listed for sale are foreclosures, and approximately another 1/3 are short sales…so this issues represents around 66% of our market.  No one volunteers to head down the short sale/foreclosure road, but we hope that the above information at least helps you if you find yourself headed in this direction.

Take care, and as always, thanks for reading our blog.

The reason this professor was fond of that saying was that he was always telling us that you can do pretty much whatever you want with numbers, and basically get them to say whatever you want to say.  As an example, he sited the famous Bayer aspirin commercial that said…”In independent testing, no aspirin has been found to be more effective at stopping headache pain than Bayer aspirin”.

Pretty definitive there…but upon critical examination, what that really says is that Bayer aspirin tested to be the same as all the others…hence no one tested better because they were all the same!  (Please, no Bayer lawsuits here…I am only making a point on an ad saying over 35 years ago).

So…what has all the above have to do with real estate?  It shows that one can offer an explanation for most anything with numbers….as long as you use the right numbers.  As an example, using the actual numbers for the Riverside area, we can present two opposite cases about our current real estate market.

EXAMPLE 1:  THE MARKET IS WAY DOWN FROM LAST YEAR…Using the closing numbers for the 1st 11 months (through November) of 2010 as compared to the same time period for this year of 2011, we show that there were 5,146 closings in 2010, and only 3,763 closings so far in 2011.  This is a reduction of 1,383, or 27% fewer closings in 2011 than in 2010.

Wow…that is a large number (and large percentage), and it would certainly make one think that the 2011 year is far behind the previous year of 2010.  How could one think otherwise?

However, using these same numbers, let’s look at example 2.

EXAMPLE 2:  THE MARKET IS STABILIZING…Looking at the same numbers, but only using the last 6 months as our guide, things change considerably.  The closings for the 6 months of June-November in 2010 were 2,292…and for the last 6 months of 2011, the closings were 2178…a difference of only 5%.  Therefore, one could also factually paint a case for the real estate market to be fairly close to the previous year, and when compared to the 11 month difference of 27%, we certainly seem to be headed in the right direction.

Why the big gap between two sets of factual numbers?

Here’s the secret.  In May of 2010, the real estate market was closing out the last of the tax incentive sales that the Obama administration had allowed as part of it’s plan to help the housing market.  Therefore, any closing figures after May of 2010 more accurately reflect the true sales market.  Hence, when comparing 2010 to 2011, using any data from 2010 prior to May is really a comparison of real estate apples to real estate oranges…and is not fair.

The moral of this story?  Be careful when reading information from any source in the media.  They may have it right, or they may be all wet.  The bottom line here is that if you really want to know what is happening in your local area, then call a local company…like us.  We walk this path every day, and can give you the real picture of what is happening.

Thanks for reading our blog, and as always, let us know if there is any issue you would like to see addressed here.

First…a primer.  The short version of why Freddie Mac and Fannie Mae exist is this:  They buy the loans your local bank makes to buyers who purchase a home.  This keeps the banks flush with cash to lend to new buyers.  Fannie and Freddie are not government organizations, but instead are private entities that are sponsored by the government…meaning that they are not owned by the government, but merely backed by the government in case something goes wrong…and boy, has something gone wrong the past few years.

So…back to the insanity that is Fannie and Freddie.

Did you know that these two organizations lost a combined 10 Billion dollars in the most recent quarter?  Yes, that’s Billion…starts with a Capital B…Billion.  But wait, there’s more.

Did you know that this most recent 10 Billion dollar loss brings the total combined losses for these two financial pillars to 170 Billion dollars in the past few years?  Yes, that’s the “B” word again…Billion.  170 Billion dollar loss…in just a few short years.

Did you know that taxpayers (that’s you and me) are on the hook for this money since the government had to step in and bail them out many billions of dollars ago?  IN fact, these two shining examples of why the occupiers are hanging out in parks across the nation have just recently asked for another almost 8 Billion dollars from the government to shore up their losses.

And finally, did you know that the taxpayer money given to this dynamic duo is more money than all the bailout money combined given to all the banks, car manufacturers, AIG and anyone else I can’t think of at the moment?

Well, probably not…but, once again…wait, there’s more.

So what are Fannie Mae and Freddie Mac doing now?

They are giving their executive staff, from CEO’s on down, a total of 10 million dollars in bonuses!

Yes Toto, I don’t think we are in Kansas anymore…nor anywhere else recognizable to anyone with at least half a functioning brain.   Maybe it’s just that words that begin with “M” are not as horrific as world that begin with “B”.

On behalf of all those individuals and companies who are working non-stop to simply tread water in today’s economy, there are few words that could aptly sum-up this deplorable action by Fannie and Freddie.

Wow…good thing that they limited their losses to only 170 Billion dollars.  We’d hate see the size of the bonus if they really had a bad run.  I can see we out here in the real world have it all wrong.  It appears the goal of business is to tank your product horribly, get massive money from the government, continue the tanking at an accelerated pace, and then reward yourself handsomely with additional money you borrow from somebody stupid enough to give it to you…ie: our government.

And all this time, we thought it was the other way around.  Silly us.

So…now that you are both aware of what is happening with your tax dollars, and aware of the new business model that is required in today’s economy, what are you waiting for?  Be the first on your block to run out and obtain a small business loan, and simply point to the Fannie/Freddie model as your golden ticket to riches and retirement.

And here we thought the word “bonus” was defined as a reward for doing something really outstanding, which in the business world was thought to mean “profitable”.  Shame on us.

Oh, and by the way.  Once you get past the 10 million dollar bonus, anyone want to try and handle their indignation on how a government sponsored entity such as Fannie and Freddie gets to even lose 170 Billion dollars and still get additional bail out funds?

But that’s a topic for another blog…I am out of energy after this one. 

Lastly…I know Trillion comes after Billion…but what scares me is that I am now trying to find out what comes after Trillion?  Anyone know?  Let us know, and until then, we’ll just roll with Bazillion..sounds right.

 We set aside today to remind us that all the freedoms we hold dear have come with a price…the price of time and sacrifice someone else has made for our country and our people.

In our industry, we have the freedom to own property…to own it, plant it, paint it, and hand it down to our family if we choose.  There are still many places in the world where this most basic of rights is not possible.  We can choose to own, we can choose to rent, and we can choose where to do either…choices that are possible because of the efforts of so many military men and women.

There are too many words written by far better people than I, so on behalf of all our entire Westcoe Realtors family, we will simply add our thanks to the long list of people who are doing so today.

Find a service man or woman today and say thanks…it’s the least we can do.