Short Sales and REOs: Interpreting List Price in MLS

I have seen a strategy change in the last few months that Buyers need to understand.

Agents who are listing Short Sale properties and REOs (bank owned, foreclosed upon properties) are listing the sale prices for their homes BELOW fair market value.

How does it work?

A practical example:

A home in Roseville is listed in our local MLS at $425,000. The listing agent immediately gets 10 offers on the home. He / she collects the offers and submits them to the bank who has title on the home. The bank counters everyone's offers and says "come back to us with your highest and best price".

By the time it is all said and done, this house had 3 offers between $450,000 - $465,000, and the final closing price really has nothing to do with the initial list price.

Yesterday.... another example in Folsom:

A newer house was listed at $330,000. I had a Buyer who wanted to make an offer, so I called the listing agent. She was following the same strategy. She already had several offers in front of the bank - all higher than list price - as a result of the "list low, counter offer everyone" practice.

As a result, this house will probably close between $345,000 - $360,000.

What does this mean?

BE CAREFUL when searching the MLS details for "bargains". Do not get your hopes up and emotions involved. Those homes that are in Short Sale status or REO are likely being listed at lower prices than the actual transaction will close.

I am keeping a short list of agents who are using this strategy, and advising my Buyer clients when I see this happening.

Remember - agents who list REO (bank owned) property get measured on how quickly the "move" a home. So? They do what they think is necessary to attract a zillion offers immediately.

- Jim

Existing Home Sales are Up!

Not a surprise really... at the very micro level, we are seeing a significant amount of Buyers jump back in to this market.

I signed 7 new Buyer clients / families during a 5 day period last week. AMAZING. But this is to be expected, isn't it? With home prices in our area 25% - 60% below 2005 prices, and with interest rates at nearly all time lows - Buyers should be acting.

Here's an article from Yahoo Finance, which cites National Association of Realtor data points:

For the first time in seven months, existing home sales increased, says the National Association of Realtors. February sales rose nearly three percent over January. For the first time in seven months, existing home sales increased, says the National Association of Realtors. February sales rose nearly three percent over January. That's encouraging says the NAR, but is it enough to spur buyers?

For one thing, the sales pace, even improved, is still nearly 24 percent lower than a year ago, and year-over-year home prices are down over 8 percent.

But that's exactly why home sales are improving. Home sellers have dropped prices enough to be attractive, and coupled with below six percent interest rates, February was a good time for buyers to lock a rate and put a contract on a home.

Consider that home prices in February 2007 were $213,500 and interest rates for the month averaged nearly 6.5 percent. In 2008, prices sere $195,000 and interest rates averaged 5.9 percent.

So it shouldn't be surprising that housing inventories have dieted down to a 9.6-month supply from over 10-months on hand in January.

Metropolitan areas are showing the most growth in housing sales with roughly half the major markets showing mild increases. For those communities with the density to support multi-family homes like condominiums and coops (up 3.7 percent), the improvement in sales was even greater than single-family (up 2.8 percent.) by 30 percent. Condos and coops also held their prices a little better than single-family homes at $211,700 or five percent below February 2007. That's despite a 13-month supply on hand.

Market gains were highest in those areas in communities that are helping themselves -- like Oklahoma City -- which has put millions into the revitalization of its downtown and has plans to extend its scenic historic district water feature, the Bricktown Canal, through the warehouse district around the city.

They're also improving in areas that were depressed because of over speculation such as the Western segment dominated by California, Nevada and Arizona. Existing-home sales in the West are down 13.4 percent from a year ago, and the median price is down the most of any region at 29.2 percent. But the good news is that sales slipped only one percent in February, which suggests that the slide could be coming to an end.

One month doesn't make a spring, but things could be improving but only if more homes aren't dumped on the market, interest rates hold in a reasonable range, and the credit crisis improves. One ways to see if there's a positive trend is to watch for the new home sales report from the Commerce Department, due Wednesday.

- Thank you Yahoo Finance for providing this article, Jim

Neighborly Realty Grows!

Welcome Juli Marty!

For all of the right reasons, Neighborly Realty is growing. ...and this is a big step! Juli comes to us as a licensed broker. She has years of management experience with a few big names (like Hewlett Packard). She has impeccable formal education credentials too - an MBA from UC Davis!

Welcome to the team Juli!

Juli's business philosophy is a perfect match for Neighborly Realty - service before salesmanship. Let's do the right thing for our clients, and the business will naturally grow.

Juli can be reached at her new Neighborly Realty email address of: Juli@NeighborlyRealty.com

These certainly are exciting times.

- Jim

Term Securities Lending Facility (TSLF)

Here's the best update I've seen about the TSLF. Many thanks to Kristie at Masters Team Mortgage for creating such an easy to read summary (and for a bit of humor):

"JUST WHEN I THOUGHT I WAS OUT...THEY PULL ME BACK IN." Al Pacino in the 1990 film, The Godfather III And if Bonds and home loan rates thought they were out of the days of volatility...they got pulled right back in, as last week brought daily price swings of almost historic proportions. For the week overall, fixed home loan rates improved by about .25%.

What led to the dramatic action this week? The bipolar emotional state of the markets began deeply depressed on Monday, but then were filled with joy Tuesday, when the Fed made an interesting move by announcing the creation of the new Term Securities Lending Facility (TSLF). The TSLF will provide borrowing banks with $200 Billion to draw on to help inject liquidity into the credit markets, and further, will accept some mortgage-backed securities as collateral, which effectively may help to "upgrade" the value and perception of battered Mortgage Bonds.

But in the meantime...struggles are still being played out related to the downgrade and losses experienced by companies holding massive amounts of mortgage-backed securities. Headlines hit on Thursday about The Carlyle Group, which manages a portfolio of mortgage-backed securities, not being able to meet a margin call and being forced to sell off large amounts of mortgage paper into the markets at great financial losses. Then on Friday, the news broke that financial brokerage and investment banking giant, Bear Stearns had suffered enormous losses, and their lack of liquidity endangered them from going out of business...or "sleeping with the fishes". The new aforementioned TSLF is designed to help this type of liquidity problem, but it will not go into effect for a few weeks, and Bear Stearns would not last that long. Coming to the rescue with loans were both the NY Fed and JP Morgan Chase. These sure are exciting times.

One bright spot for the financial markets was a low consumer inflation reading. The Overall and Core Consumer Price Index (CPI) figures were reported unchanged, far cooler than the expected increases of 0.3% and 0.2% respectively. These tame inflation numbers give the Fed a green light to cut the Fed Funds Rate by another .75% at Tuesday's meeting...but read on to understand exactly how this cut may impact YOU.

Is California Real Estate Recovering?

Wow, is that a loaded question!

Yet I get it every day.

At the very micro-economic level, it seems to be so. Or at least stabilizing - enough that Buyer's are moving off the fence and into the purchase process.

I had 6 families (six!) "sign up" over the last week to go house hunting. An amazing number, and the greatest influx I've had in a single week long period.

Now, is this a sign that the finance and real estate worlds are turning to the positive? Probably not. Is it an indicator that this is a great (and appropriate) time to buy? Absolutely.

When I'm looking for market trends and analysis, I keep my eye on the NAR (National Association of Realtors) website. Their link is posted to the right of this article. They spend a great deal of time and energy watching our economic cycles, and just got recognized for that hard work (from the NAR website today, thanks NAR). I will post more analysis from Lawrence in the coming weeks:

NAR Chief Economist Named Among Top Forecasters for Accuracy

WASHINGTON, March 17, 2008 -

The National Association of Realtors® Chief Economist Lawrence Yun has been named among the top 10 economic forecasters by USA Today. Yun is ranked fifth on the list and is responsible for NAR’s real estate statistics and economic forecasting. The annual list recognizes accuracy in forecasting.

“NAR is proud of USA Today’s recognition of Lawrence Yun and his economic forecast accuracy. He is a highly regarded economist, and the housing and real estate industry have come to rely heavily on his economic analyses,” said Dale Stinton, NAR executive vice president and chief executive officer. “This acknowledgement contributes greatly to NAR’s reputation as the leading innovator in housing-related research.”

Yun was named NAR’s chief economist and senior vice president of research in November 2007. He has been with the association since 2000, previously serving as vice president and senior economist. He pioneered the development of the Commercial Leading Index after helping develop the residential Pending Home Sales Index.

“I’m honored to be recognized among some of the best economists in the country,” said Yun. “The economy and housing industry are facing many challenging issues at this time, which makes this an interesting and stimulating position.”

USA Today enlisted the help of the Federal Reserve Bank of Atlanta to determine the most accurate forecasters among the economists surveyed in the newspaper’s quarterly survey on the U.S. economy.

The economists, whose identities were unknown to those gathering the data, received four scores – one for each quarterly survey – and were ranked on the average of those four scores. FRBA used statistical methods to assess the joint accuracy of the predictions rather than assessing the accuracy of each forecast variable separately, as is commonly done.

Before joining NAR, Yun worked as an economic consultant to the U.S. Department of Veterans Affairs and the U.S. Department of Education. As a research associate at the University of Maryland, Yun developed the graduate economics curriculum for and taught free-market economics in the former Soviet Union as that country transitioned from communism to a free-market system.

Yun received his Ph.D. in economics from the University of Maryland in 1995. He received a B.S. degree in mechanical engineering from Purdue University in 1987.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.3 million members involved in all aspects of the residential and commercial real estate industries.

New California Loan Limits !!

Outstanding!

The new jumbo loan limits are out.

Many thanks to the fine ladies at Masters Team Mortgage for getting this data out immediately. Here are the details behind this change - and remember, these changes are only good until the end of the calendar year (mandated in the Bush stimulus package). We'll see what happens in 2009, but if you can take advantage of these changes now, please do so!

From Masters Team Mortgage, thanks again ladies,
- Jim

The government has raised the limits on mortgages that can be purchased by the Federal Housing Administration this year. New limits are 125 percent of an area's median home price (minimum of $271,050, maximum of $729,750). Here are figures for California counties. (Limits for Bay Area counties not at maximum in parentheses.)

$729,750: Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Ventura

$600,000-$729,749: San Diego, San Luis Obispo, Sonoma ($662,500)

$500,000-$599,999: Alpine, El Dorado, Mendocino, Nevada, Placer, Riverside, Sacramento, San Bernardino, Solano ($557,500), Yolo

$400,000-$499,999: Amador, Butte, Calaveras, Inyo, Lake, Madera, Mariposa, Merced, Mono, Plumas, San Joaquin, Shasta, Stanislaus, Sutter, Tuolumne, Yuba

$271,051-$399,999: Colusa, Del Norte, Fresno, Glenn, Humboldt, Imperial, Kern, Kings, Sierra, Siskiyou, Tehama, Tulare

$271,050: Modoc, Lassen, Trinity

Source: U.S. Department of Housing and Urban Development

Specific to our surrounding counties:

Placer & Sacramento: $580,000!!
El Dorado & Yolo: $580,000
Merced: $472,500
San Joaquin: $488,750
Solano $557,500

*These loan limits are currently guaranteed until 12/31/08

How Are Rental Markets Doing?

Many of our clients have asked about rental markets, and how this downturn has impacted that business.

Here's an article from the National Association of Realtors that partially answers that question. It's addressing the macro level question. If you want data at the micro level in our areas, give me a call.

Note my extreme happiness with the Austin numbers!

Many thanks to NAR for this article,

- Jim


Rental Squeeze Play By Lawrence Yun, NAR Chief Economist

Home sales activity has fallen to levels similar to those before the housing boom years. Many regions are experiencing the lowest sales activity in nearly 10 years — looking all the way back to 1998, the year when no one would say homeownership and housing was in a boom. The flip side of lower levels of ownership, which has fallen to 67.8 percent at the end of 2007 from as high as 69.2 percent in 2004, is that there are more people renting.

Just in the past year, the number of rental households grew by 1.5 million while homeowner households fell by roughly 600,000, according to the U.S. Census Bureau. With the U.S. population growing at 3 million per year, there is a natural increase in demand for housing. People need to live somewhere. ut more renters have pushed up apartment rents strongly — particularly in localities where home sales took a notable dive yet job gains continue at a solid pace. Here are some samples of rent rises in markets with strong jobs yet experiencing recent significant declines in home sales (partly due to lower housing affordability from a strong run-up in home values of the past 3 years):

Austin — rents are up 5.6% over the past year
Honolulu — up 5.9%
Portland, Ore. — up 7.0%
San Francisco — up 8.8%
Salt Lake City — up 8.9%
Seattle — up 9.6%
San Jose — up 10.3%

The rent data is from Torto-Wheaton Research. One REALTOR® in Salt Lake City told me that he has never experienced a better market condition because he is covered on both sides. With many properties, a strong rise in home values have resulted in substantial capital gains while his monthly income flows are rising better than 10 percent for his properties — something he never experienced in the past.

Of course, not all markets are equal. Rents are falling in regions where jobs are being lost like in Detroit and sluggish in areas where there is a high inventory of vacant homes such as in Orlando. Nationally, according the Bureau of Labor Statistics data on consumer inflation on rents showed a rise of 4 percent.

In 2008, I suspect that markets with continuing strong jobs as in Oklahoma City, Washington D.C. and New York could get a jolt in rising rents.

America is fortunate to have dynamism in population growth. More people mean more demand for housing — either rental or for ownership. In eastern Germany, many people migrated to the western side after the fall of the Berlin Wall thereby leaving behind hordes of vacant housing units. Both apartment rents and home values fell as a result. Similar trends are observed in current rural Japan where overall country population has stalled yet people are moving in to the metro areas of Osaka and Tokyo.

Within five years, I suspect Florida markets, along with Arizona and Las Vegas, to be the hotbed of the housing market in terms of both home price and high apartment rents, because demographics of baby boomer retirement nearly assures very high demand for warm climate regions.

Again, America is fortunate to have a solid 3 million population addition per year. That normally would translate into about 1.5 million household formations. In 2007, it was much lower than that as people found additional roommates or moved back in with their parents. That naturally also means that recent slowdown in household formation and the accompanying lower than normal demand for housing units just cannot be sustained when the country is continuing to add 3 million new people. With homebuilders having cut back production to 1 million units per year, any return to normalcy in household formation could result in either an accelerating rents, rising home sales, or both.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®.