Pro or Con?

There seems to be agreement regarding the positive impact of the programs designed to assist and incentivise homebuyers. A stimulus if you will. Where consternation does seem to exist is the benefit being received by homeowner’s who are underwater on their home. I’m hesitant to use foreclosure because a “Notice of Default’ may not yet be filed, but there may be little doubt it will soon be on the way.

Numerous articles have appeared about the lack of success of loan modifications. Many of the qualifications required to successfully achieve a modification or the almost unheard of principal reduction, required financial verification that distressed homeowners simply cannot provide. Anecdotal information also suggests that financial institutions are being lenient with homeowner’s (principal residence) who are not making their house payment. Evidence indicates auction dates are being postponed to allow property owner’s every opportunity to meet their obligation. Investors on the other hand who are behind on payments are not enjoying the same benefits.

The Feds Step In

A new program being proposed would give homeowners more time to qualify for federal programs designed to avoid foreclosure. In other words after your application for a modification has been denied you would now have 30 days to respond and appeal. The bottom line is the lender could not proceed with a foreclosure. More T I M E for the property owner.

If lenders will now be required to provide written certification as to why an applicant was denied a modification, look for more information on this subject in the future. Someone (government bureaucrat) will develop written guidelines as to who and what qualifies. I think lenders will be demanding more guidance from the federal government because the last thing they want to do is have their approval or denial appear subjective.

Apparently the most successful program designed for homeowner’s in distress isn’t reduced monthly payments, but increased time. Twelve or more months of missed house payments can go a long way towards financial security.

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I always thought government’s role was to encourage and increase home ownership due to the benefits derived. When individuals can own their own home the community benefits with safer neighborhoods, appreciating home values and the creation of wealth. We see increased parental involvement in the local schools. Our homes represent who we are and what we aspire to. Home ownership has always had a financial benefit associated with it. Remove the incentive and what happens. My guess is demand will fall.

Use interest rates as an example. When rates are low the housing dollar goes further, therby creating more value. When rates rise, demand falls as housing becomes more expensive. Could the same happen by removing the stimulus, which home buyers have relied on for years and have used to rationalize a more expensive home purchase? A robust housing market creates jobs while the economy prospers as appliances along with home furnishings rise as well, fueling the economic cycle.

Removing the financial incentive on housing and taxing the banks that make loans will not create a job. This is especially critical here in California with the housing market making a comeback. Penalize housing, penalize California, as if we needed another hurdle to jump. Consumer purchases create optimism, get business hiring and gets the economy going. You don’t tax your way to prosperity.

The only bright spot I can see at this point is the tremendous power of the National Association of Realtors along with the California Association of Realtors. They have been incredibly successful in putting a stop to bad economic policy affecting the housing market. Probably because they more than anyone else, realize that home ownership is the centerpiece of the American Dream!

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Announcing the opening of RE/MAX Property Concierge serving Pasadena, South Pasadena, Altadena and surrounding areas.

Over the last several years what do you think has been the single most important factor affecting the real estate market?

Was it record low interest rates, the ease and availability in which people could obtain a mortgage, sky rocketing home values, or the federal reserve’s monetary policy?

All of the above attributed to the run in the housing market, however the internet could have been the spark which lit the fire.

The internet has had a revolutionary affect on the way consumers buy and sell real estate. Aside from the travel industry, (spoke to a travel agent recently?) profound changes increased the transparency of the real estate process giving consumers new freedoms in which to research and choose their next home, neighborhood, broker and real state agent.

The industry benefits have also been numerous. People in the industry have tapped the power of the internet enhancing its visibility and awareness along with promoting themselves and the properties they have for sale.

The last 10 years in this industry has seen some amazing changes, so the question becomes:

The Future of the Real Estate Industry

What is the future of the industry? This along with many other questions were things we considered prior to joining RE/MAX.

There are many companies that offer career opportunities to individuals looking to enter or enhance their career skills. After looking at the options, RE/MAX was he best option for us. RE/MAX has incredible brand recognition which has been built on a track record of success over the last 35 years. In an industry which has seen many consolidations and closings, the RE/MAX brand has continued to prosper and the RE/MAX balloon is one of the most recognizable icons in American culture.

RE/MAX has a strong management team committed to the success of its agents and to the prosperity of the industry. They are continually at the forefront of issues impacting today’s homeowners and have been diligently working with government agencies to address these concerns.

Real Estate Agents have many opportunities to expand and continue their education while joining an exclusive club of agent productivity. RE/MAX also has a strong history of charitable giving. Their involvement with Children’s Miracle Network, the Susan G. Komen foundation and the support of Operation RE/MAX which serves spouses of military personnel is proof positive to their community commitment and involvement.

If you plan to buy or sell a home, we would appreciate having the opportunity to explain the advantages RE/MAX has to offer. If you are a real estate agent we would welcome the opportunity to discuss the benefits of joining the RE/MAX family. We can be reached at 626-432-4615.

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In these days of declining revenues and the California State budget well past the stage of life support, local communities are looking for ways to provide much needed monetary relief to the school systems. A parcel tax seems to be the weapon of choice.

Prop 13 places an unfair burden on property owners

I’m not here to express an opinion on this tax, pro or con. Every property owner will be assessed this fee if it were to pass. Across the board, everyone pays the same. Imagine, fairness in taxation. This is not supposed to happen in California. If only the rest of the taxes were as simple and as fair.

The California Tax System is Broken

Who wouldn’t pay an additional $120 in hopes of providing quality schools and good education. Maybe anyone who has to pay property taxes two times a year and before they write the check they stop to think about what they are receiving for their tax money. If you consider for a moment the two sets of rules we as citizens and taxpayers operate under it has to give you cause for concern. The private sector who cannot arbitrarily raise prices to create revenue shortfalls has to continually redefine itself and create value for the consumer. If not, they find that business declines before they may eventually close the doors. The public sector on the other hand receives annual revenue adjustments from automatic tax increases, no need to worry if consumers receive any additional value for their contribution.

Prop 13, Lucky or Not?

There is no better evidence in the lack of value or disproportionate transfer of payments than in our own property tax system in California. Thanks to Prop 13, the taxed based on seniority, here is the situation we face in California:

I looked at four houses next door to each other and all about the same size and market price. They pay $6500, $4800, $827 and $864 in annual property taxes. All based upon the duration of how long the present owner has owned the property. This is a neighborhood in Pasadena, but it has to be like this all across California.

Maybe the ones who pay $827 and $864 think an additional tax of $120 is no big deal and gladly pay it. While the two paying $6500 and $4800 think they pay more than their fare share and vote no. This is a great example of the inequity that is pervasive in our tax system and needs to be addressed.

We are seeing evidence of home buyers in the last few years who were placed into home loans that charged more expensive rates and fees, but the loan brokers received more money. Now we call them predatory lenders because they profited at consumers expense. Couldn’t we apply the same example to property taxes?

The good news about a parcel tax is that it is put to the voters, you get to decide if it passes or fails. Unlike property taxes which are put to the voters in a different way.

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Pasadena home buyers are finding fewer homes for sale

Single Family Homes in Pasadena

Taking a look in the Pasadena multiple listing service as we near the end of January there are 215 homes for sale, plus another 122 that are under contract. Add to this the 74 homes that were sold in December and the inventory issue becomes quite evident with just a little over a 4.5 month supply.

Another View

I was always told there are two ways to increase profitability. Either sell more or spend less. Real estate is no different. The more houses sold, the fewer homes available. My opinion is Pasadena and probably California as well experienced such a strong 4th quarter that many of the homes which were for sale actually did sale, thereby reducing the number of homes available. And you thought the term shadow inventory only applied to the homes in foreclosure being withheld by banks.

The stats for condos and town homes is as follows: December sales were 51 units and there are 212 units for sale and 79 units under contract, which equates to about a 5.7 months supply.

Pasadena Condos and Town Homes

If you notice condo’s and single family homes do not always move in unison. The main factor affecting the Pasadena condo and town home market has been new development. This number has actually been manipulated to look better than it is. The reason is that many of the new developments in town that are for sale have not been listed in the local multiple listing service. Developers want to create the impression that the sales volume on these units is happening at a quicker pace and will only list the units when they have an accepted contract.

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Pasadena's Annual Number of Home Sales

The reason’s for the cautious optimism are numerous:

1. Pasadena home sales have shown increasing monthly demand beginning in January of 2009, compared to the previous 12 months and for the most part on a month to month basis.
2. Interest rates remain low, albeit with the help of government intervention, and
3. Based upon our higher home values I don’t anticipate a slowdown in activity when the home buyer tax incentives expire in April.

The graph of Annual Pasadena Home Sales shows that the number of home sales were highest in 2005. Rates were low, mortgages were easy. As we went into 2006 the spread on adjustable rate mortgages began to widen decreasing affordability, plus prices were at their all time high. The middle of 2006 marked the beginning of the downfall as bank failures begin to appear and lending was changed forever.

The 2009 Housing Recovery

2009 was a year of marked improvement as the market for lower priced homes developed. Looking at the chart below, we see that homes priced below $200,000 comprised about 2-3% of overall home sales. This category was absent in the years from 2005 to 2008. Also homes priced up to $599,000 made up approximately 63% of the homes sold in Pasadena, a much higher percentage than in years past.

The area of weakness this past year was in homes priced over $1 million. This could be attributed primarily due to the less than favorable lending conditions in the first part of they year with regards to jumbo loans. Lower priced homes precipitated the action and recovery this year while step up and luxury homes were more active in the second half of ‘09.

The Future of Pasadena Home Prices

One thing I occasionally hear is a home seller may wait a couple of years before putting their house on the market in hopes of obtaining a higher price. I feel pretty confident in stating that we will never see the appreciation in home prices that we saw in the early to mid 2000’s. The free and easy monetary policy with regards to mortgage lending is gone forever and if not forever at least a long, long time. Secondly, home prices will remain steady due to supply $600,000, home ownership is still out of reach for many residents, insuring a balance in the real estate market.

I think in nature they call this the circle of life, or at least they did in The Lion King.

Percentage of Pasadena Home Sales by Price Category

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Could people in 1849 receive more reliable information than they do today, 160 years later? Was a text message delivered by carrier pigeon, a better source of communication than the same message delivered over the Verizon network?

The point attempting to be made is in this present day, information age, technology at your fingertips society; how can so many myths and misconceptions about short sales and foreclosures be so prevalent?

Many homeowners who find themselves in the unenviable position of owing more money on their home than it is worth worry about incurring additional debt in the sale process. Some homeowner’s will incorrectly assume that the bank will pursue a deficiency judgment against them, making them liable for the unpaid balance. Probably the biggest misconception is that foreclosure is inevitable and there are no alternatives, the house will be lost and the credit score destroyed in the process.

Suppose you found yourself in the position of missing your last 4 house payments as well as skipping the latest installment of the property taxes. Add to this the market value of your property has dropped $100,000 since you purchased it over three years ago. Perhaps you have suffered a financial hardship that has catapulted you into this situation that seems hopeless and unending.

This is where you need to look into the possibility of doing a short sale to sell your home.

While a short sale is not a panacea, its the closest thing we have to helping a homeowner in financial distress. Every day I see homes scheduled for auction as they progress through the foreclosure process and I wonder if the homeowner looked into the possibility of selling their home with the approval of their mortgage lender in the short sale process. Help is available, why aren’t more consumer’s finding it?

For whatever reason, some homeowner’s seem content to let the foreclosure process take its course. I think it’s due more to a lack of knowledge regarding the alternatives than it is just to accept what may seem inevitable.

Shhh, I Cannot Hear For The Noise

With all of the communication channels we have available today, you would think consumers would be aware of the choices they have and where to turn. However, just the opposite may be true. Perhaps we have become reluctant to leave another voice message on a prerecorded customer service phone line, knowing that the call will not be returned or that our request for assistance will ultimately be denied.

Maybe things haven’t changed that much after all in the last 160 years. People are still having to sift through a lot of sand to find that one lucky nugget.

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Pasadena home sales remain strong despite national trends

One of the reasons given for the decline was based on the $8000 tax credit for first time home buyers expiring. The credit was actually extended but there was a period in which it did appear that it would expire before it was eventually extended. The other reason is the comparison was judged against the October number, which to me makes no sense at all.

If you have followed our tracking of the Pasadena real estate market, you know that monthly home sales are seasonal and inconsistent with regards to monthly sales volumes.

All real estate markets are local and what happens on a national level doesn’t necessarily indicate what is going on locally. Compare the Inland Empire and its higher rate of mortgage defaults and property devaluation to the San Gabriel Valley and it becomes quite evident.

Things here in Pasadena seem much more positive than what the rest of the country is experiencing. Let me provide a few examples:

Pasadena November Home Sales

Furthermore addressing the pending home sales issue, a quick preliminary look at December sales show a total of 118 residential units were sold in 2009, against 107 units in 2008. The median price of all residential units in December was $524,500 in ‘09 and a lowly $475,000 in 2008.

It does not seem to me there should be much cause for concern.

I think what this also indicates is the $8000 tax credit is less important to Pasadena home buyers than it is to a home buyer in Shelbyville, Indiana. When you can buy a house for $55,000, the $8000 represents a 14.5% subsidy. Compare that to our median price in December of $524,500 and that $8000 gets you a whopping 1.5%.

The good news is that once the incentives expire again in April we should be able to drive right over the speed bump.

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Median Price vs Average Price per Square Foot

During the first 5 months of 2009, the only thing more tentative than home sellers were home buyers. Coming off a disastrous 2008, many people who were considering buying or selling were hoping to test the market with either low ball offers or listing prices that did not reflect current market conditions. Real estate activity in late 2008 was soon to hit bottom.

That is why we see the average price per square foot go into a free fall during the January – May time period. It’s similar to an ocean liner trying to make a sharp left turn, which they can’t. They have to start the turn well in advance. The real estate market was no different. The changes taking place were happening faster than home buyers or sellers could fathom and as a result we saw steep declines occurring.

The first 5 month of 2009 saw the recreation of home prices in the $300,000 to low $400,000 price range. Most all of the action in the real estate market occurred at the low end, while the higher end homes sat idle. In the middle of the year, activity began to pick up in the higher end market as prices and the mix of homes tended to resemble more of a bell curve. As fall approached there was more evidence we were beginning to see normal activity return as listing prices peaked and inventory declined.

Homes for Sale and Price Reductions

A “Listing Absorbed” was a home that may have sold, or was taken off of the market. As the year progressed the number of “absorbed listings” increased as home sales picked up. Plus, during this time most of the inventory available for sale was being reduced. As the number of listings absorbed went higher , the reverse was true for the number of homes taking a price reduction. Market momentum picked up, therefore sellers were less aggressive on their pricing. Keep in mind however that these charts only measure properties that are for sale and typically represent the higher end of the market. As we start the new year, notice that these two measurements are in unison.

The “average price per square foot” has been fairly steady for about 8 months. Look for that trend to continue into 2010. The median price as well as the number of listings absorbed will periodically change to reflect monthly demands. Less volatility in 2010 would be a welcome change.

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Many homeowner's are finding they owe more on their home than it is worth

If your journey toward home redemption has been less than disappointing, then the possible outcome was a short sale or foreclosure. At this point some people just give up, walk away and let the lender have the house back. We have actually worked with homeowners that may have been in a bankruptcy and the attorney has advised them to let the bank have the house. We’re talking foreclosure here. The after affects can be devastating. It has been reported that a foreclosure can reduce your credit score by up to 160 points. A short sale unlike a foreclosure does not have an impact on your FICO score. It will however be reduced by missed or late payments.

As we enter the third year of the real estate and mortgage meltdown, it now appears that the Treasury Department has issued new guidelines on short sales that will dramatically alter the way in which short sales are approved.

Components of the Plan

The new program will be beneficial in the following was:

1. Speeds up the process – lenders will now have 10 days to approve or deny the proposed sale. In the past, a short sale could take as long as 6 months.
2. Moving allowance – when completed the seller’s receive $1500 for moving expenses. Currently short sellers receive no proceeds from the sale of their home.
3. The program also allows up to $3000 for second lien holders who many times see their balance reduced to zero during a short sale. The program will also pay $1000 to mortgage service companies and investors who hold the first mortgage for allowing the program to proceed.

The program is not officially effective until April 5, 2010, but does allow for early adoption if certain requirements are met.

Short Sale Summary

On its surface this program sounds exactly like what is needed to expedite the housing recovery. It will be interesting to see if the 10 day time frame for either the approval or rejection can be met. I have only read many piece meal articles and nothing that spells out how everything is to work. It does appear that the homeowner will have to submit to either a loan modification or refinance which would ultimately be rejected for the homeowner to proceed. At this point the bank is in possession of all of the homeowners financial information so a quick decision could have been in the process for quite some time.

Lets hope this program works.

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