Austin Property Talk

Loan Credit Standards Tightened Further

Their making a list and checking it twice . . . .

We thought the worst was over but it seems like every month there is some new federal guideline tied to final mortgage approval; an extra hoop to jump through.  First it was full disclosure on the good faith estimate, then it was raising FHA fees and now its extensive credit checks.  Its probably going to get worse before it gets better. 

The most recent change to Fannie Mae's guidelines called the "Loan Quality Initiative" calls for credit checks on the buyer(s) up to the day of closing.  Who can blame them.  Recent history indicates that everyone involved in a real estate transaction needs to go the extra mile to assure that there is no funny business going on. 

This is not necessarily a new practice.  Most lenders have been following this practice for some time now.  That is why it is imperative for a buyer not to do anything between the preliminary loan approval stage and the final "clear to close" stage that would negatively effect debt to income ratios. 

This means waiting to buy a new car, not putting new furniture purchases for the new house on credit and not even using existing credit on credit cards that have high limits.  Anything that alters the balance of the amount of debt that you carry compared to the income you generate can be a red flag for the lender, delay closing.  

Smart Money (Wall Street Journal) published a very good article that explains the entire procedure. 

One thing I found interesting in this article is the part that states that lenders are going to be extra diligent to confirm the occupancy plans for the property.  That is not something that we have seen in the past and I haven't seen it yet at a recent closing but it does have the opportunity to effect a number of closings.  Sometimes plans change during the escrow process and it looks like that could be a recipe for added chaos. 

A word for the wise: just keep everything status quo until the loan funds and the transaction closes. 

Foreclosure vs Short Sale vs Resale

I always like to compare the sales data between regular resales and distressed property sales due to the recent popularity of bank owned homes and distressed properties.  Everyone is looking for a deal.   I pulled the numbers for the first quarter of this year to compare.

From January 1 through March 31, 2010 . . . . .

Regular Home Sale Transactions

• 2939 homes were sold that were not labeled foreclosures. 
• The average size home was 2190 square feet and sold for $116/sqft
  
• That equates to an average sales price of $259,345
• The average final sales price to original list price was 93.8%
• These houses sold in an average of 78 days
  

Foreclosure Transactions

• 518 foreclosed homes were sold via central Texas MLS
• The average size home was 2023 square feet and sold for $74/sqft 
  
• That equates to an average sales price of $148,873
• These houses sold in an average of 41 days
• The average final sales price to original list price was 92.7%

Short Sale Transactions

• 44 short sales were completed according to the MLS system
• The average size home was 2424 square feet and sold for $81/sqft
• That equates to an average sales price of $198,908
• These houses sold in an average of 95 days
• The average final sales price to original list price was 93.4%

Yes, the difference in the price per square footage numbers between regular and distressed properties is significant.  However, you have to consider the fact that the bulk of the foreclosures that are sold via MLS are usually located in areas further outside the Austin city limits.  As such, property values are lower to begin with. 

The majority of the prime foreclosure properties with the better yields and higher property value are sold at the foreclosure proceedings at the court house steps.  Also consider that these resale numbers include new construction home which on average sell for a higher price per square foot. 

Still, if you are not afraid of getting your hands dirty and taking a little bit of risk, foreclosure still offer a great opportunity to some. 

2009 Real Estate Market Summary

Every once in a while I like to give myself a good research project.  It's funny because I didn't realize how much I enjoyed reading and studying until I got away from school.  Now, I get to read and study the things that actually interest me. 

This time around I decided to do a detailed 2009 analysis of the Austin real estate market.  I especially wanted to focus on the differences between resale, short sale and foreclosure sales and how they reacted differently to market dynamics.  I also focused only on house sales.

Foreclosures and distressed sales are the most popular thing with buyers.  Everybody wants a deal but I wanted to explore more about whether or not they really were good deals or just hype.   Keep in mind this is a very unscientific study.  The market data included the entire Austin MLS Area which spans a large area.  The number of regular resale transactions far exceeds foreclosure sales and even more so short sales (therefore the short sale numbers are a bit skewed)  

Id be happy to send the spreadsheet to anyone who is interested, but here are some highlights from the analysis.  In 2009 there were 18537 house sales tallied overall across the Austin market.

• The Median Sales Price for all House Sales in Austin for 2009 was $190,000
• The highest level of sales occurred in June (2051) followed by July (2013)
  
• The highest median sales price occurred in June ($200,000) followed by May, July and December, surprisingly (all $195,000)
  
• The average time it took to sell a house in 2009 was 75 days and the median was 47
• On Average, all Sales yielded 93% of Original List Price

There were 2195 Foreclosure Sales on Austin MLS for 2009 only about 12% of all recorded sales.         

• The Median Sales Price for foreclosures in Austin was only $122,000 for 2009
• The Average Sales Price was $153,203
• On Average, it took only 45 Days for Foreclosures to Sell (29 Median)
• The Quarterly Breakdown of Foreclosure Sales was evenly distributed (545, 604, 590, 514)
• On Average Foreclosure Sales yielded 93% of Original List Price
  

There were 506 Recorded Short Sale on Austin MLS for 2009 - about 3% of all recorded sales.  (These were sales that were accurately marked as short sales, there could have been more that were not labeled)

• The Median Sales Price for 2009 Austin Short Sales was $140,000
  
• The Average Sales Price for 2009 Short Sales was $191,306
  
• On Average, it took 102 Days to Complete a Short Sale with 80 days the Median
  
• The highest number of Recorded Short Sales took place in December 2009
• On Average, Short Sales yielded 90% of their Original List Price

For a detailed breakdown of the MLS Sales for all areas of the Austin Real Estate Market, you can download the comprehensive report here.  Plus a link to the MLS Area map for reference. 

2010-2011 Austin Economic Forecast (Angelou Economics)

Good News on the Foreclosure Front

This past Friday, HUD secretary Shaun Donovan announced a temporary lift on the FHA mortgage seasoning requirement.  This change will allow for quicker resale of many properties in short sale or foreclosure. 

Since that probably didn't make any sense to you, lets try that again in English.  Up until Friday, when this announcement was made, if the current owner of a property did not own that property  for a minimum of 90 days, it could not be sold to a buyer who planned on using FHA financing.  FHA financing is a government insured loan program that has become the program of choice for many home buyers these days due to its qualifying criteria and lower down payment requirements.  

The original primary reason for the "seasoning" requirement was valid.  HUD wanted to ensure that prospective house flippers were not purchasing properties under the premise of owner occupancy, using the lower down payment requirement, rehabbing the houses, and turning around and selling them quickly for a profit.  That part of it made sense.  However, a secondary effect was that many short sale or foreclosed properties that were held or purchased by an intermediary were no longer eligible for the FHA financing until they became "seasoned".  Thus, many would-be buyers were turned away as a result.

This temporary change will have a broader effect on areas outside of Austin and Texas that have been hard hit by foreclosure activity, but it hit very close to home last week.  

I am currently working with a first time buyer couple who's only option at this point is FHA financing.  Fortunately, we received news last we that we'd "won" out in a multiple offer situation on a great short sale deal, only to find out that it came with a stipulation:  No FHA financing.  It turns out that the loss mitigation company (short sale negotiation company) currently has an option to purchase the property and turn right around and sell it almost simultaneously.  This is a huge benefit to the seller because he almost assuredly avoids foreclosure, but we found ourselves in a situation where the "seasoning" requirement was not going to be met.  Talk about frustrating!

Then low and behold, the real estate Gods looked favorably upon us and this announcement was made on the very day that we had to make some sort of decision.

I know all of this might be a little confusing, but trust that this is going to benefit the Austin Real Estate market as a whole. Though our foreclosure numbers are lower than some, the quicker they sell, the quicker resale prices will come back in some areas.  

From the Good News Department

From the Good News Department . . . .

Anyone who has been involved in a short sale knows how frustrating and stressful the entire situation can be on all involved.  Obviously the most stress falls on the shoulders of the seller.  But, the frustration part usually falls in the buyer's lap.   Reason being, to date short sales can take anywhere from six weeks to six months for lender approval. 

A lot depends on what stage the proposed "short sale" sale is in.  For instance, if a responsible homeowner has been in consistent contact with the lender and a short sale package has been completed, the house may be an "approved" short sale and has a better chance of closing sooner.  On the flip side, and where most short sales wallow, is the "short sale - subject to lender approval" category.  

Depending on the lender, these unapproved short sales can last months and months.  Oftentimes they end up falling out of contract for a couple different reasons.  Either the homeowner or Realtor assisting has little to no idea about what "net number" the lender will be willing to accept and so the property is marketed well below the realistic sales price.  Or, the approval process takes so long that prospective buyers who may have a deadline decide to withdraw their offer and look elsewhere. 

Want to know exactly what a Short Sale is? 

You are waiting for the good news, right?  The government recently announced improved short sale guidelines.   Here is the Information on the New Short Sale Guidelines taken directly from the press release through the National Association of Realtors. 

This is encouraging news and should help a number of families avoid foreclosure which is the biggest detriment to future credit implications.   

Underwater Homeowners Continue to Struggle

The government is ramping up its foreclosure prevention plan.   As part of the President's $75 billion foreclosure modification program, eligible borrowers who are at risk of default are being allowed (upon approval of course) to lower their monthly payments on a trial basis for several months to make sure that they can handle the adjusted payments.  

Trouble is that so far only 4% of the trial adjustments have been made permanent after 3 months.   The reason:  well depends on who you ask.  The mortgage companies claim that only 33% of the homeowners currently involved in the "trial" have submitted all of the necessary paperwork to make the adjustment permanent.  In fact, 20% have not submitted anything.   On the other hand, frustrated homeowners say that the financial institutions are repeatedly losing their paperwork.  

The bottom line is that to this point the program that was supposed to have a widespread affect on stemming the foreclosure trend has not lived up to its billing.  

Last week the government again stepped its game up and send what they called "SWAT" teams into these financial institutions to determine what the biggest hold up may be.  The banks are now responsible for submitting progress reports on their modification files twice a day during the month of December as a means to speeding up the conversion process.   

The goal has been to shift 375,000 borrowers from temporary status to permanent status by years end.  A benchmark that is quickly appearing quite unrealistic. 

10 Ways to Get a Down Payment

Nicole Lahti with United Lending here in Austin Texas recently published a blog post detailing 10 Ways to Get a Down Payment.  

With the new expanded tax credits available to home buyers between now and April 2010, mortgage rates hovering around or below 5%, the market is ripe with opportunity. 

However, with first time buyers especially, the question can often be, "Id like to buy but where would I come up with the down payment?" 

Currently, the least amount that you can put down would be with a FHA loan which requires 3.5% down on a qualified purchase.   

But you might be surprised about some of these creative sources for a down payment that may not have crossed your mind.  Take a look at this list.  

Option ARMs - What a Mess!

About a month after I got my real estate license in 2006, I had a meeting set up with a lender acquaintance of mine for a brief seminar on some of the "hot" loan programs.  One of the first things he was so anxious to tell me about was option-ARMs.  I distinctly remember him telling me, "you need to push this on all of your investor clients. It's really the way for them to go."

If you aren't familiar with the term option ARM (option adjustable rate mortgage), basically it is/was an exotic loan program that allowed the borrower to decide whether he/she was going to pay principal and interest, interest only, or a minimum amount less than the interest amount due.  And this decision was made on a monthly basis.  Not only that, but the program also allowed the purchaser to come to closing with little cash and in some parts of the country allowed 40 year loan terms.  

Now you don't have to be a rocket scientist to figure out that was probably a bad idea.   According to a recent report released by Standard and Poors, over 93% of option arm borrowers selected the option of paying an amount each month that was less than the interest amount due on the note.  So in addition to not gaining any equity in the property, the unpaid interest was also being tacked back onto the original loan amount.   

Thankfully, the last year that this loan program was issued was in 2007.  The default rate for borrowers issued an option arm in 2007 alone has reached almost 25%, and the projected default rate has already been labeled a possible "housing recovery killer." 

Its no secret that the option arm program was most popular in the "bubble markets," where house prices soared in the middle of the decade.  These same areas have been hit the hardest in the past two years as once lofty property values have fallen rapidly, sending the financial industry into a tailspin.  

In the last quarter alone, California, Florida, Arizona and Nevada represented 44% of all homes beginning the foreclosure process.  Nationwide, almost one in four (23%) of people with mortgages owe more than their home is worth.  

As borrowers across the country are falling behind in record numbers, the government has ramped up its efforts to help struggling homeowners.  Just this past week, President Obama and the treasury department have tightened the screws on mortgage firms who are largely in responsible for implementing the $75 Billion Home Affordable Modification Program aimed toward modifying existing loans to keep borrowers out of foreclosure.   

Down Market can be a Good Time to Move Up

As prices of resale homes have been trending downward over the past 12-18 months across many markets in the United States, most homeowners have logically decided that now is not the time to sell unless absolutely necessary.  Now is not the time to trade up for that newer, better and pricier home. 

While that is sound logic, an angle that most homeowners may not have considered is that the newer, better and pricier home may never have been more affordable.  It might make the most sense to sell at a slight loss and buy at a discount. 

What we have seen in the Austin market and is most markets is that the First Time Homebuyer tax credit has spurred on sales in the lower end of the sales price spectrum.  This year, 14648 homes have sold in the Austin area.  Of those, 54 percent (7973), had sales prices under $200,000.   

This influx of buyers has not yet translated to what would be considered the "Move-Up" market segment ($300,000-$500,000).  This segment of the market has accounted for only 15% of sales year to date.  On the flip side, this price segment accounts for almost 22% of the active listings.  

With a limited buyer pool and supply of homes that currently exceeds market demand, home sellers in this position have endured longer time periods to sell, which leads to more price reductions and ultimately a better deal in the long run for a buyer.

In the grand scheme of things, taking a $5,000-$15,000 hit on the sale of a property to turn around and save $20,000-35,000 on the purchase of new home can be a sound financial decision for those who have the means to do so. 

On top of that, when you factor in artificially low interest rates on 15 and 30 year mortgages that can potentially save thousands of dollars in interest payments, now might be the best time to buy that newer, better and pricier home?

From the Good News Department . . .

 Based on figures released by the Austin Board of Realtors this week, Austin area Home Sales reached the Hiighest Mark since June of last year.  Last month 2135 single family homes were sold representing a 4% decrease over June 2008.  However, the 4% decrease is the smallest month over month decline since June 2007.  The year of year sales gap has been closing steadily since December 2008 - a positive sign for the market as a whole.  Pending sales for July and August were up a healthy 4% as well. 

Further evidence that the Central Texas market may have hit rock bottom - Foreclosure postings hit a 5-month low.  A decrease in Foreclosure postings is positive news for resale home prices.

You can download a full report on June 2008 home sales here.

Economists and local housing insiders predict possible housing shortage

Have you have ever heard yourself say, "If I would have just (insert your phrase of choice) back in 2001-2002, just think about where I would be today?"  The premise being that if you would have had the courage and decisiveness to take advantage of the potentially lucrative opportunities that the post 9/11 economic landscape presented, you would be much better off and further along today, three quarters of a decade later. 

The truth is, we find ourselves in much the same place today. As some sit in front of the computer or TV and watch the stock ticker run across the bottom, others are keenly aware that now is the time to act. 

One of the most puzzling remarks that I hear from time to time from those considering purchasing a home is, I don't want to buy now while the market is down. So essentially, what they are saying to themselves is, "I want to buy when; prices start to rise again, there is more competition in the market and interest rates are higher."  Flawed logic caused by fear and indecision. 

In early January, I attended the 2009 Austin Economic Housing Forecast.  It featured a panel of economists and housing industry leaders from all over the state of Texas.  The last gentleman to speak, Eldon Rude, of Austin Metro Study asked the same question that I posed at the open of this post. 

Once he was done painting a somewhat dim yet realistic picture of expected Austin market activity for the coming year, he remarked that 2009 will present some of the best buying opportunities in a long time for buyers because once supply and demand begin to readjust in early 2010 and the market rebounds from its current lull, competition is going to be much higher and the market much tighter for those looking to make a purchase. 

This past week, Community Impact, published an article, Economists and Industry Leaders Predict a Local Housing Shortage, that reiterates much the same sentiment.  Because of a severe decline in new home starts as a result of hits that most builders have taken recently, the Austin market stands to see a significant correction in 2010 as the population continues to increase and fewer homes come available for sale. 

If you haven't watched the video that I posted below, please do as it will explain in further detail why now is a great time to buy for those who are in the position to do so.

Quick Update on the Austin Real Estate Market

You get what you pay for

The old adage of, "you get what you pay for" is becoming more and more prevalent in the real estate industry these days.  And, I'm not necessarily talking about the amount of space that you get when you buy a house.  I'm talking about the advice, the representation and the level of professionalism that you can expect in any real estate transaction.

As times get tough, more and more agents are willing and open to taking a reduced commission or fee to work with buyers and sellers - business is business.  In fact, some agents are so desperate for business that they may be willing to tell you whatever you want to hear in hopes that it might lead to a payday in some capacity.  While that may seem like a positive thing for clients, you get what you pay for.

Let me explain further.  I was previewing properties this afternoon to educate myself on a neighborhood prior to a listing appointment. Its so obvious which sellers are working with a knowledgeable and professional real estate agent and which arent. 

The first house I toured was staged nicely, it was clean, the flyer box was full and the house showed well.  It was all downhill from there.  The next houses that I looked at got progressively worse and worse culminating with a house that had a sign frame but no sign, and a broken flyer box with no flyers.  You tell me what seller in their right mind would say, 'Now thats the kind of first class service I expected when I signed my listing agreement.'

What it did have was 50 business cards on the kitchen counter of the listing agent as if to say "look at me."  Side note on the business cards:  When I walk into a house for a preview or a showing and I see piles and piles of business cards my first thought is "Man, this house has been shown a bunch and is still available, I wonder what's wrong with it."  It could be a number of things, most likely starting with price - but that's for a different day.