There have been rumors circulating for months that banks are holding on to thousands of foreclosed properties so that they don’t flood the market to further depress prices. Over the last few weeks however, those rumors have started to surface from credible sources, including The Washington Post, where Renae Merle takes a closer look at a family that wants to foreclose, but can’t due to the bank back-log. Some would argue that we have not yet seen the bottom of the housing slump and if investors are looking for opportunities to purchase foreclosed property, all they have to do is sit tight and wait for more distressed property to hit the market.
The backlog of seriously delinquent mortgages, which so far affects about 1 million borrowers, is a shadow over hopes for a rebound in the nation’s housing markets. It masks the full extent of the foreclosure crisis and threatens to depress prices even further just as some parts of the country are hinting at recovery. For lenders, it could portend even more financial losses tied to the mortgage meltdown.
Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.
Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008.
California allocated $100,000,000 for a tax credit to help stimulate home purchases for first time home buyers. The California tax board was allocating credit on a first-come, first-served basis and once the $100,000,000 was allocated, the tax credit would no longer be available. Certificates of credit started to be allocated on May 1, 2009 but as of June 29, 2009, California has reached $100 million in new home credit applications and will no longer be accepting applications. Congratulations to those California home buyers that got to take advantage of that credit!
In its rawest form, a free market will determine the value of a good or service based on the elementary principle of supply and demand. A good or service is worth what any person is willing to pay for it on an open market. Real estate doesn’t work as simply due to the fact that most homes are purchased through a financing program, thus, the “free market” is cluttered with multiple purchasers (the borrower and the financier). Usually, a buyer must borrow money to be able to afford an assest as large and expensive as a home, but before the bank shells out in upwards of 80% of the “value”, said bank wants to make sure they are lending on a valuable asset. This brings us back to appraisals and the challenges they are currently creating for buyers, sellers and lenders alike.
On May 1, 2009, the rules of appraising property has changed. Now, lenders that sell loans to Fannie Mae or Freddie Mac are required to set up a firewall between appraisers and loan officers to prevent improper influence. The rules are the result of an agreement between the mortgage buyers and New York Attorney General Andrew Cuomo, who said an investigation found appraisers inflated values under pressure from lenders. Buyers and real estate professionals are finding that many of the most recent appraisals are coming up short of what the buyer is willing to pay for a home, thus, limiting the amount of financing the bank will provide.
We want to hear from you, real buyers and sellers. What do you think a home should be worth?
As we mentioned in our last post, Vero Beach, Florida was recently ranked the most undervalued real estate market in the nation by CNN Money.
“The report claimed the most undervalued metro area in the nation is Vero Beach, Fla., where the median home price has fallen 29.7% since the first quarter of 2005 to $125,400. That is 42.5% below the expectation. Houma, La., prices, at a median of $113,500, are undervalued by 41.4%. Las Vegas prices have dropped more than 46% since 2005, and the city is now undervalued by 40.9%.
To arrive at these figures, the analysis focused on three key factors of home affordability: income, housing densities and historical prices.”
There are several active homes in Vero Beach right now and we’ve found a couple of great deals by searching through the available properties and using our Analyze button to determine how good of an investment we could make.
Some would argue that the housing “crises” started in conjunction with the bank collapses last September. Buyers got wary and held off on purchases, listings sat on the market for lenghts of time not seen in years and got stale. The banks that didn’t fold were afraid to lend money and the Federal Reserve was siezing financial instutions that were teetering! Yikes, it got messy for a moment. There are solid arguments being presented on both sides of the “have we hit bottom yet?” conundrum, but it’s clear that some markets are looking more attractive than others to home buyers and investors. Yahoo Real Estate recently reported that:
home price declines have sent affordability soaring. Prices have fallen so far that the average U.S. home is now undervalued by 12.2%, according to a new report from IHS Global Insight.
Atlantic City, New Jersey was ranked as the number one most overvalued city in the nation as it has listings like these on the market. We’ll take a closer look at the most undervaled city as ranked by IHS Global Insight Vero Beach, Florida in our next post.
Automotive plants are closing and the population is shrinking in Detroit, Michigan, so demand for housing has dissapeared in conjunction with high default rates on mortgages which has led to a glut of inventory. What’s next for this city that has been struggling since late 2004? Investors! Investors from around the world are starting to flock to Detroit for the amazing deals on under valued property. An example from CNNMoney:
Two years ago, [an investor] paid $12,000 for a two-family house with two bedrooms and a bath in each unit. He spent $18,000 repairing it for a total cost of about $30,000. Imbruglio has kept tenants in both apartments most of the time and charges $1,100 a month. After taking into account the 10% he pays a management company, plus utilities, property taxes and maintenance costs, he says he is making double-digit profits.
After reading the story, we decided to take a look at available Detroit, Michigan property and boy did we find some killer deals! Take this place, a 4 bedroom/ 2 bathroom/ 2548 square foot home, currently selling for $5 per square foot. You read that correctly, $5 a square foot, making that a $12,500 purchase. See for yourself! 5997 Kensington Ave.
Having a network is important. It’s powerful to have a place to share ideas, hear thoughts and get support. We at eRealinvestor.com are in the process of building our network to help our clients, customers and real estate investors by creating a suite of web locations where you can find new “real deals,” get your questions answered, learn about our products, get to know our personality and most importantly, to count on you for suggestions, feedback, testimonials and problem solving. eRealinvestor wants to find investors a great deal on a house or building, we want to empower agents with tools to help them retain and gain buyers and sellers. Join us, become our fan on Facebook, follow us on Twitter, link to us on Active Rain and tell us what other online communities we should join!
To slow the foreclosure process down in California, last February Governor Schwarzenegger signed ABx2 7 (Lieu) also known as the Foreclosure Prevention Act which went into effect on Monday 5/15/09.
The Act adds 90 days onto the time period between when homeowners default on a loan and when their home can be repossessed in foreclosure. Banks can avoid the 90-day holdup by having a comprehensive program in place to make mortgages more affordable by reducing the interest rate, extending the loan term, or reducing or deferring some of the principal.
Investors have a primary goal… to make a return on their investment (ROI). ROI can be measured through careful analysis of financial statements and a concrete result will be achieved under such anaysis. Before an investment purchase, we at ERealInvestor try to help you with your purchase decision by arming you with scenarios to help you measure your possible ROI with the ease of push-button analysis. Something many investors do not measure however are the non-monetary benefits of owning investment property. The other benefits may not put cash in your pocket, but may have a major impact on your “mental portfolio”.
Pride of ownership–a psychological benefit to owning rather than
renting. It is reflected in well-maintained property. A price cannot
be attached to this subjective value, and its importance will vary
from person to person.
Diversification–risk management technique, related to hedging, that mixes a wide variety of investments within a portfolio. It is the spreading out investments to reduce risks.
Leverage–investing with borrowed money as a way to amplify potential gains.
Tax advantages–Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free
To stimulate the housing economy, the federal government tried motivating first time home buyers by issuing an $8,000 credit to the buyer if they met certain criteria. When it comes to purchasing a first home, every little bit counts, so this credit is a welcome one, but since lending practices have changed so drastically this year, it should be noted that the $8,000 credit cannot be used towards a down-payment of a loan. Since a down-payment is now a required variable to obtaining a loan (years ago, practically all you needed was a pulse and social security number), here are a couple of tips to help you come up with a down-payment.
Get a gift from a relative
Use your 401(k)
Sell something
Change your withholding rate
Obtain seller credits
Create a stringent savings plan
Click here to see the above tips in more detail. The above tips are just that, tips, so you should speak with your tax adviser and mortgage broker before you make any financial decision.
