We may be all doom and gloom about our real estate market, but foreign investors aren’t. It’s good to remember that real estate always has it’s up and downs. I can remember paying $19,000 for my first house I had built when I moved to Nevada County. It had hardwood floors, a real fire place, custom cabinets and it was 1,900 square feet. Now it’s worth much, much more then that. Like I’ve said many times, when times are good, people think it will be good forever, and when its bad, its bad forever.

So anyhow, here’s a quote from The Dallas Morning News

“Foreign investors are more confident about the U.S. real estate market and expect to spend significantly more this year than in 2008, according to survey results released this week by the Association of Foreign Investors in Real Estate.

Foreign lenders plan to increase real estate loans by 54 percent globally and 58 percent in the United States based on transactions completed as of October, the report found. Foreign equity investors plan to increase their investment activity by 40 percent globally and 73 percent in the United States.”

If you have time, read the full article, foreign investors know the United States is a great place to buy real estate. I do too.

Well, I wish I could say prices are going up, but they are not, they’re going down. There have been 141 price changes this month so far, including 24 today.  Price reductions vary, but some have reductions of  $225,000.  A further example of price reductions is a home in Alta Sierra listed at  $250,000.  The shock is that the bank has a first of $400,000 and they have agreed to a short sale, taking the loss of $150,000!

The positive signs are that the interest rates are at an all time low.  As a consequence, mortgage applications have increased as indicated by an article in Realtors Magazine 

Here is an excerpt from their article today.

“The Mortgage Bankers Association weekly index of application volume rose to 1,324.8, an increase on a seasonally adjusted basis from 1,143.8 last week.  On an unadjusted basis, the index rose 95.7 percent compared to the previous week and was up 52.4 percent compared with the same a week a year ago”

In more good news, the credit market seems to be loosing up. Companies are selling bonds at a pace not seen since last spring. It’s getting easier for companies to issue commercial paper, the short-term loans necessary for quick access to cash. For a full report, see the San Francisco Chronicle article.

San Francisco Chronicle
 
These are hopeful signs that we are approaching the light at the end of the tunnel, hopefully, that’s not a train!

As foreclosure rates hit record levels, more sellers are asking their banks or mortgage companies to do a short sale. How does that work? In a short sale, the seller arranges for a mortgage lender to accept a price that is less than the amount they owe on the property. In most cases, the lender typically agrees to forgive the rest of the loan. As a result, the seller doesn’t have to go through a foreclosure, and although the seller’s credit rating will drop, it may be a little less then a foreclosure.

Buying a home in a short sale usually means that the bank will not pay for any inspections. Therefore it is imperative that a buyer obtain a whole house inspection, termite report and carefully review a title report for easements and liens that may affect the property. If the house is in the country, then the well should be checked for production and possible harmful minerals. The septic system should also be checked out and boundary lines verified by a licensed land surveyor

Speaking of title reports, if you are a buyer; remember that there could be two loans on the property, a first senior loan and a second junior loan. If you are buying the home for $125,000 to pay off the first loan and there is a $75,000 second on the property, then you have just bought a home for $200,000.

For a very good example of what I’m saying go to

Rocklin & Roseville Today article

That is a real horror story of Bank of America refusing to work with the seller to the extent that (according to the story) it may kill the short sale.

As a buyer, you may have to wait anywhere from six weeks to six months to finally complete the sale. Banks work by committees and we all know how committees work, slowly. Of course while you are waiting, someone else might submit a larger offer and you are out of the picture with your purchase and the short sale turned out to be very long indeed!

Questions? Email John O’Dell
Real estate broker, civil engineer and general contractor

What is a person to do? I recently talked to a client who’s daughter wants Countrywide Mortgage (now owned by Bank of America) to refinance her home to a lower interest rate. She has an excellent credit rating. But because she lost one of the three jobs she was holding, she wanted a loan modification. At this point in the market, she still has equity in the home, which is great; at least she’d not upside down on loan to value.

In keeping with current banking mentally, she was told “Why should we refinance?.. You are making your payments now. If you stop making your payments, we will sit down and talk to you.” Now this woman has a credit score in the upper 700’s. So the question is, should she stop making payments, ruin her credit score and THEN maybe Countrywide will renegotiate her loan?

My advice was to go somewhere else and get another loan. Rates have now fallen below 5% for a thirty year fixed loan and it’s a great time to refinance. With a good credit score, equity in her home, she has a good chance to get a new loan at a lower interest rate.

By the way, there were an average 3,100 foreclosures per day in the U.S. in November, according to RealtyTrac Inc., an Irvine, California real estate data company. That’s triple the 1,000 per day average in 1933, the worst year of the Great Depression, according to the Federal Reserve Bank of St. Louis. So my question is, when are the banks going to learn that they have to work with home owners to stabilize the housing market and help their bottom line?

Here’s some photos of the Great Depression from the Federal Reserve Bank of St. Louis:

The Great Depression Photography

Questions? Email John O’Dell
Real estate broker, civil engineer and general contractor

According to Realty Times ® Freddie Mac today released the results of its Primary Mortgage Market Survey in which the 30-year fixed-mortgage rate (FMR) averaged 5.19 percent this week. This is the lowest FMR that Freddie Mac has recorded since it started keeping records in 1971 or 37 years ago. A year ago, the rate for a 30-year FMR averaged 6.14 percent.

Well that’s the good news. The bad news is in order to qualify for the above rates, according to Donna Knapp of Empire Home Loans, you need to have a FICO score of 740, full documents, that is proof of your income, the assets that you have and a review of your income tax returns. However, if you have all of that,you can get up to 100 percent financing.
The couple were then qualified for a large loan to buy a home beyond their means. With a low starter teaser interest rate, they could manage to hang on the home thinking the price of the home they purchased would go up and when the interest rate increased, they could refinance or sell. However, when the interest rate rolled over to a higher rate, they could not afford the new payment. In the meantime,the value of their home had gone down and they could not refinance. All the couple could do was move out and let the home go into foreclosure.

You may ask why banks ever made stated income loans. These type of loans were designed for self employed people, who’s income is erratic, but in general have good credit and usually are a good credit risk. So,understanding how the system was abused you can also understand how we are in such a financial mess because of the loose loans that were made in the recent past. In summary, the banks did not do due diligent on their part to assure themselves as to whom they were dealing with. Now they have gone to the other extreme, making it hard for most people to get a loan to buy a home with their stifling requirements.