Outlook on Housing and Finances May Spur Potential Homebuyers to Act

Potential homebuyers may enter the purchase market sooner rather than later  as more Americans expect mortgage rates and home prices to climb, according to  results from Fannie Mae’s June 2013 National Housing Survey. The share of  respondents who say mortgage rates will go up during the next 12 months jumped  11 percentage points to 57 percent, the highest level in the survey’s three-year  history.

Meanwhile, consumers’ home price expectations have stayed strong in the face  of rising mortgage rates. The share of respondents who believe home prices will  go up in the next year also hit a survey high of 57 percent, while those who say  prices will go down stayed steady at 7 percent. Although sentiment toward both  the current home buying and selling environments retreated slightly, it remains  near the survey highs of last month, with 72 percent saying it is a good time to  buy and 36 percent saying it is a good time to sell.

“The spike in mortgage rate expectations this month seems to have had an  impact on a number of the survey’s indicators and may increase housing activity  in the near term by driving urgency to buy,” said Doug Duncan, senior vice  president and chief economist at Fannie Mae. “Consumers may recognize that  today’s still favorable mortgage rates and homeownership affordability levels  will recede over time. Given rising home and rental price expectations and  improving personal financial attitudes, more prospective homebuyers may be  deciding that now is the time to get off the fence.”

Among those surveyed, 56 percent say rental prices will go up during the next  year – an 8 percentage point increase and the highest level since the survey’s  inception – and the average 12-month rental price change expectation jumped 1.2  percent to 4.6 percent. Americans’ outlook on their personal finances also  increased significantly in June. The share who expect their personal financial  situation to improve during the next year climbed to 46 percent, the highest  level since June 2010. The share who say their household income is significantly  higher than it was 12 months ago jumped 6 percentage points to a survey high 26  percent.

Other survey highlights include:

  • At 3.8 percent, the average 12-month home price change expectation fell  slightly from last month’s survey high.
  • The share of people who say home prices will go up in the next 12 months hit  a survey high 57 percent, while those who say home prices will go down held  steady at the survey low 7 percent.
  • The share of respondents who say mortgage rates will go up increased 11  percentage points to 57 percent, the highest level since the survey’s  inception.
  • Forty-seven percent of respondents think it would be easy for them to get a  home mortgage today, a slight increase over last month.The percentage of people  who expect their personal financial situation to get better over the next 12  months jumped to 46 percent, the highest level since June 2010.
  • The share of respondents who say their household income is significantly  higher than it was 12 months ago rose 6 percentage points to a survey high 26  percent.
  • The percentage of respondents who say their household expenses are  significantly higher than they were 12 months ago rose to 36 percent.

850,000 Properties Bounce Back to Positive Equity

Residential property analytic provider CoreLogic® recently released new analysis  showing the market is making big moves, with 850,000 additional residential  properties turning to positive equity during the first quarter of  2013.

In addition, the analysis shows good news for mortgages: the total  number of mortgaged residential properties standing in negative equity is down  by nearly 1 million from the previous quarter, moving from 10.5 million (21.7  percent) at the end of the fourth quarter of 2012, to 9.7 million (19.8 percent)  in the first quarter of 2013.

The national aggregate value of negative  equity decreased more than $50 billion to $580 billion at the end of the first  quarter from $631 billion at the end of the fourth quarter of 2012. This  decrease was driven in large part by an improvement in home prices.

Of  the 39 million residential properties with positive equity, 11.2 million have  less than 20 percent equity. At the end of the first quarter of 2013, 2.1  million residential properties had less than 5 percent equity, referred to as  near-negative equity. Under-equitied mortgages accounted for 23 percent of all  residential properties with a mortgage nationwide in the first quarter of 2013.  The average amount of equity for all properties with a mortgage is 32.8  percent.

“The impressive home price gains of 2012 and the beginning of  2013 have had a big impact on the distribution of residential home equity,” says  Dr. Mark Fleming, chief economist for CoreLogic. “During the past year, 1.7  million borrowers have regained positive equity. We expect the pent-up supply  that falling negative equity releases will moderate price gains in many of the  fast-appreciating markets this spring.”

“The negative equity burden  continues to recede across the country thanks largely to rising home prices,” says Anand Nallathambi, president and CEO of CoreLogic. “We are still far below  peak home price levels, but tight supplies in many areas coupled with continued  demand for single family homes should help us close the gap.”

Highlights  as of Q1 2013:

- Nevada had the highest percentage of mortgaged  properties in negative equity at 45.4 percent, followed by Florida (38.1  percent), Michigan (32 percent), Arizona (31.3 percent) and Georgia (30.5  percent). These top five states combined account for 32.8 percent of negative  equity in the U.S.
- Of the largest 25 metropolitan areas, Tampa-St.  Petersburg-Clearwater, Fla. had the highest percentage of mortgaged properties  in negative equity at 44.1 percent, followed by Miami-Miami Beach-Kendall, Fla.  (40.7 percent), Atlanta-Sandy Springs-Marietta, Ga. (34.5 percent),  Chicago-Joliet-Naperville, Ill. (34.2 percent) and Warren-Troy-Farmington Hills,  Mich. (33.6 percent).
- Of the total $580 billion in negative equity, first  liens without home equity loans accounted for one-half, or $290 billion  aggregate negative equity, while first liens with home equity loans accounted  for the remaining half at $290 billion.
- 6.0 million upside-down borrowers  hold first liens without home equity loans. The average mortgage balance for  this group of borrowers is $211,000. The average underwater amount is  $48,000.
- 3.7 million upside-down borrowers hold both first and second  liens. The average mortgage balance for this group of borrowers is $294,000.The  average underwater amount is $79,000.
- The bulk of home equity for mortgaged  properties is concentrated at the high end of the housing market. For example,  88 percent of homes valued at greater than $200,000 have equity compared with 73  percent of homes valued at less than $200,000.

“As leaders and agents, it  is up to us to get the word out,” said Gary Scott, President of Long &  Foster Real Estate, during RISMedia’s recent Power Broker Forum at NAR Midyear. “There is a huge opportunity for people who had negative equity to come back  into the market. We have to help those sellers. It’s about a grass roots  effort—about taking your sphere of influence and walking them through the  reality of the market.”

For more information, visit www.corelogic.com.

All About Short-Sales

Thinking of Making an Offer on a Short Sale?  What You Need to Know…

Are you looking to buy a new home? Are you thinking that now’s a great time to find bargains? That’s true, but it pays to know a little about the seller’s situation before you make an offer.

If a home is being sold for below what the current seller owes on the property-and the seller does not have other funds to make up the difference at closing-the sale is considered a short sale. Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.

A short sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

You’re a good candidate for a short-sale purchase if:

• You’re very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.

• Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you’re preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.

• You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property-or you need to be in your new home by a certain time-a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.

If you’re serious about purchasing a short-sale property, it’s important for you to have expert assistance. Here are some people you want to work with:

• Experienced real estate attorney. Only about two out of five short sales are approved by lenders. But a good real estate attorney who’s knowledgeable about the short-sale process will increase your chances getting an approved contract. Also, if you want any provisions or very specialized language written into the purchase contract, a real estate attorney is essential throughout the negotiation.

• A qualified real estate professional.* You may have a close friend or relative in real estate, but if that person doesn’t know anything about short sales, working with him or her may hurt your chances of a successful closing. Interview a few practitioners and ask them how many buyers they’ve represented in a short sale and, of those, how many have successfully closed. A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender. (All MLSs permit, and some now require, special notations to indicate that a listing is a short sale. There also are certain phrases you can watch for, such as “lender approval required.”)

• Title officer. It’s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property. If there are multiple lien holders (e.g., second or third mortgage or lines of credit, real estate tax lien, mechanic’s lien, homeowners association lien, etc.), it’s much tougher to get that short sale contract to the closing table. Any of the lien holders could put a kink in the process even after you’ve waited for months for lender approval. If you don’t know a title officer, your real estate attorney or real estate professional should be able to recommend a few.

Some of the other risks faced by buyers of short-sale properties include:

• Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.

• Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.

• No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.

The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.

For more information regarding Truckee real estate short-sale properties and north Lake Tahoe real estate short-sale properties, please contact me.

* Not all real estate practitioners are REALTORS®. A REALTOR® is a member of the NATIONAL ASSOCIATION OF REALTORS® and is bound by NAR’s strict code of ethics.

Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.