Archive for December, 2008

“U.S adults” may not want foreclosed homes, but homebuyers sure do

This is my column for this week from the Arizona Republic (permanent link).

 
“U.S adults” may not want foreclosed homes, but homebuyers sure do

Did you see in the news where only 47% of U.S. adults would consider buying a foreclosed home?

An amazing number, isn’t it? What does it mean?

Almost nothing, of course. The real estate market in Phoenix, along with many, many other cities, is dominated by foreclosed homes right now. They are virtually all that is selling.

So how could so many homes be selling if so many people are averse to buying them?

This is a nice lesson in the uselessness of public opinion polls. “U.S. adults” are not homebuyers. Homebuyers are homebuyers. Asking U.S. adults how they feel about sushi or blackberry wine will tell you nothing about their sales, either.

What the survey does tell us is that the news has gotten out about the sometimes difficult process of buying a foreclosed home — especially a short sale — and about the often dismal condition of those homes.

And yet, foreclosed homes are selling and virtually nothing else is.

Why?

Because they’re cheap, that’s why. Even in the nicest neighborhoods, a lender-owned home will sell at a discount of 50% to 80%, compared to owner-occupied homes. In not-as-nice communities in the West Valley, you can pick up a stucco-and-tile 3 bedroom, 2 bath, 1,500 square foot home with a two-car garage for $50,000.

As I write this, there are 120 homes like that, all built 1995 and later, listed for $75,000 or less.

Let the price rise to $100,000 and there are 690 available right now.

Last month, 191 of those homes sold for $100,000 or less. That’s an implied absorption rate of 3.61 months, arguably a seller’s market.

So on the one hand an undifferentiated population of U.S. adults, who may or may not be in the market to buy a home, has a generally negative opinion of foreclosed homes.

And on the other hand there is a land-office business in foreclosed homes.

We will see many years’ worth of foreclosures in our market. How we feel about that in the abstract makes no difference.

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Workable real estate deals may require even more creativity

This is my column for this week from the Arizona Republic (permanent link).

 
Workable real estate deals may require even more creativity

I do a lot of work with buy-and-hold rental home investors, more and more of whom are able to come into Phoenix with all-cash offers. Poor me, I know.

But: I’ve been spending a lot of my time, lately, thinking about “triangle-trade” strategies — old-style funding mechanisms that we were happy to forget all about when money was easy.

So picture a buy-and-hold investor with 100% equity who wants the best deal he can get when he sells his former rental home. Why not do a lease-purchase instead of a straight sale? The investor can help his buyers accumulate a down-payment, perhaps working with them to improve their credit score at the same time. The investor gets a higher purchase price, the buyers get a lower monthly payment, everybody wins.

Or how about selling with a contract-for-deed? There are a lot of people out there with great incomes but lousy credit — more every day. If an investor — or ordinary homeowner — is willing to take on the risk of a carrying back a note, the home can sell now, rather than languishing on the market.

Or if the seller isn’t able to carry the whole mortgage, how about carrying back a second loan? If the seller has the equity, and if that will swing the balance with the buyer’s lender, it can make sense.

San Diego Realtor Don Reedy has come up with his own blast from the past: Parents help their kids get into homes by co-signing on the loan and helping with the payments, then share in the equity on resale.

Single people or single parents or childless couples could do the same sort of thing with a larger home: Go in on the home together as tenants-in-common, using their combined income to qualify for the loan, then paying the mortgage and sharing in the equity on a pro-rated basis.

Buyers are not in short supply, nor are homes available for sale. Creativity could make all the difference, going forward, in putting workable deals together.

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For some, the most financially-astute course of action may be to fake their way to foreclosure

This is my column for this week from the Arizona Republic (permanent link).

 
For some, the most financially-astute course of action may be to fake their way to foreclosure

Looking for some good news in the Phoenix residential real estate market? So is everyone else.

New foreclosures are down, as are new foreclosure filings. Lenders are working with homeowners to help them stay in their homes, just in time for Christmas. That’s good news right?

Maybe. It turns out that, of the folks who negotiated loan workouts in the first quarter of 2008, 60% are back in default on their loans.

It gets worse. The typical newer stucco and tile West Valley tract home lost 7.41% of its value. In November. Year-over-year, that house is down 35.46%. Compared to its high in December of 2005, that property is down 48%.

Now there is a silver lining. If you bought your home in 2003 or before, and if you have resisted the impulse to refinance it, you’re probably still ahead of the game, at least by a little bit. And with interest rates at historic lows, this might be the time, finally, to refinance to lower payment.

And investors and first-time homebuyers could not have things better: The selection of available homes is still very broad, prices are below replacement costs, and interest rates are deliciously low.

Better news — for people who don’t own homes: Prices could go a lot lower, and interest rates could drop even more.

But what, then, is the implication for loan workouts? Until home prices stabilize and start to rise again, a loan workout against substantial negative equity might not make the best financial sense.

As we talked about last week, the hit on your credit rating from a foreclosure is a terrible thing. But it’s plausible to me that you could recover from that faster than your home will once again be worth what you’re paying for it.

And that’s the worst news of all: We have mismanaged our economy so dreadfully that, for many people, the most financially-astute course of action they can take is to pretend to be deadbeats, to fake their way to foreclosure. It worked on Wall Street and it can work on Mockingbird Lane, too.

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Seriously, who’s a better risk for a mortgage than someone who has already lost a home to foreclosure?

This is my column for this week from the Arizona Republic (permanent link).

 
Seriously, who’s a better risk for a mortgage than someone who has already lost a home to foreclosure?

We talked last week about credit flexibility among merchants as they try to find ways around the banking crunch. The flip side of the same coin is how the credit marketplace will react, going forward, to home foreclosures.

You’ve heard all your life that a foreclosure is second only to a bankruptcy in the way it will ruin your credit. This is still true, but “ruin” may turn out to be an adjustable calamity.

Here’s why: A lot of people are going through foreclosure. Ninety percent or more of homeowners are unaffected by the wave of bank repossessions, but that still leaves millions of people who are going to have a foreclosure on their credit for the next seven years.

What’s going to happen to those folks when they go to the furniture store or the jewelry store or the car dealership? They might end up paying a higher interest rate, but they’re still going to get financing.

I have been advising my investor clients for months to ignore recent foreclosures on credit reports. Past performance on every other sort of credit account matters a lot. But if landlords refuse to rent to folks who have lost their homes, they will be turning away half or more of the tenant population.

My take is that, right now, a recent foreclosure is like hospital debt: If everyone else was getting paid before, during and after the financial catastrophe, you just have to look past the elephant in the room.

And here’s the funny part: I am sure this will apply to home loans in due course, also. If mortgage money remains freely available, lenders will find a way to overlook recent foreclosures in order to underwrite new home loans.

We can hope that, this time, interest rates will reflect the true risk lenders are taking on. But this country runs on credit. Just because a borrower recently defaulted on a six-figure debt, that’s no reason to withhold the unlimited boon that is homeownership.

In America, we can sell ourselves on anything — provided we don’t have to pay for it today.

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Four ways to experience the F.Q. Story Home Tour this weekend

Here are four great ways you can take in the holiday goodness of the F.Q. Story Historic District Home Tour this weekend:

  1. Get thee hence. The tour is on Lynwood Street this year and runs Saturday evening and Sunday afternoon.
  2. Tour our past F.Q. Story listings. We’ve listed a number of stunning historic homes in Story in the past. Here are a few of them:
  3. Tour the F.Q. Story Historic District house-by-house. We love these homes. We have photos of hundreds of F.Q. Story homes. You can wander through the neighborhood from home, taking a peek at everything.
  4. Join us at Open House. We don’t have a home listed in Story right now — our listings are selling in 43 days, on average, in 2008. But we have an amazing home for sale just a few blocks east, at 56 West Willetta Street. The home is a 1926 Craftsman, roomy and comfortable, with a heated pool and spa. Even better, you’re just a short walk from the new light rail line, which opens at the end of the month. If you’re coming down to Story for the tour, be sure to drop in and see us. We’ll be there from 11 am to 5 pm.


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Join us at 56 West Willetta Street, Phoenix, AZ 85003
Sunday, December 7th, 2008, 11 am to 5 pm

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