Archive for June, 2008

Foreclosure Increases Led by Just Four States and that’s Great News!

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The Mortgage Bankers Association (MBA) recently released a Press Release showing the figures for foreclosures across the continental USA were the highest in the organization’s 55-year-long history of carrying out surveys.

The delinquency survey which the MBA carries out covers more than 44 million mortgages and it showed that the previous highest percentage of defaulting home owners recorded was in 2006 and it was 0.43%. This has now risen to 0.58% of all loans made.

Small as the percentage may be it shows that more than 286,000 loans entered the foreclosure process during the quarter in question.

You will ask me here, ok, where’s the good news? Well, gloomy as the figures may be they are actually pretty good because of all the States surveyed they all showed a decline in the overall number of foreclosures with the exception of states of California, Florida, Nevada and Arizona. In these four States foreclosures actually increased and they increased by a number large enough to actually make up for the dip in the other thirty-four States surveyed.

This means two things: 1. The dip in real estate is about to plateau and then we will see a steady incline as we head for the next growth period. 2. The increase in foreclosures in those four States is also a direct reflection of the robust real estate market they had there and the fact that they simply had more people than any other State buy their own home and borrow money to do it.

There is clear correlation on this: According to the MBA report California has 17% of the sub-prime ARMs in the country and more than 19% of the foreclosure starts on sub-prime ARMs. California, Florida, Nevada and Arizona have more than one-third of the country’s sub-prime ARMs and more than one-third of the foreclosure starts on sub-prime ARMs.

What is probably happening is that we now are beginning to enter the phase where the number of foreclosures is reaching a plateau prior to the market picking up and the four States in question are still locked in the shake up that releases new properties into the market and corrects house prices through the foreclosure mechanism.

The million dollar question is, of course, just how close are we to the end of the real estate market’s woes. Hard to tell. There are still figures coming through which may represent the tail end of foreclosures but that tail end could be both quiet substantial and prolonged. There are other factors affecting foreclosures and defaulting such as the ability to create new jobs in the economy and if that shrinks it affects home owners.

Overall we can see there is now light at the end of the tunnel and that is great news indeed. What we are not sure of yet is how long the tunnel is.

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The Foreclosure System Creates New Opportunities

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If you are looking at the country’s latest real estate news and are wondering whether the bottom has fallen out of the real estate market and it’s maybe time you looked for something else to invest your money in, don’t!

The phrase “safe as houses” did not originate casually. Real estate has always been a great area to invest and though the market has suffered from occasional peaks and troughs these are an inevitable part of the progression rather than evidence that real estate is beginning to lose its glow as a great area to make money.

We are, at the moment, locked into a cycle of foreclosures which has grabbed newspaper headlines eager to catch on anything that will sell copies and it has resulted in a short-sighted feeding frenzy of negative publicity.

Now, this is not to say that an increase in foreclosures is good news. No. Foreclosures are problematic and they are accompanied by a certain amount of heartache and discomfort. They are, also, a vital part of the way our economic system works and act as a self-correcting mechanism which slows down and overheated market and returns balance to house prices.

Without foreclosures the following things would happen: 1. New house buyers would be squeezed out of the market as house prices would rise and rise. New house buyers are part of what drives the housing market so when they are squeezed out of the system it is never a good thing. 2. House buyers would be locked within their particular income bracket in terms of the house they could buy and they would never be able to move out of it. 3. Real estate investors would be unable to step in and jump-start a sluggish economy as there would be no opportunities.

Luckily, the way our economy is structured we have the foreclosure system which acts as a type of gear that allows us to shift down and speed up so we can scale up instead of getting locked in a one-speed market that is destined to run out of fuel.

Foreclosures present the smart real estate investor with the perfect opportunity to create win-win situations where he helps out homeowners stuck in a debt-trap, offers properties to new home owners at prices that allow them to get their foot on the property ladder at a much better level than they would otherwise have been able to afford.

In the process, real estate investors also benefit which is also a good thing for the economy at large. None of this would have been possible without the foreclosure system we have set up as a means of maintaining a balance in our economy.

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Five potential home re-sale problems

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There are far too many factors that can influence your decision when you select a home to buy where you and your family can reside securely and in comfort. However, at some later stage in you life, you may want to resell your home. Most people would expect minimum 4% annual appreciation on the original price they paid to buy the house. Towards this end, you will have to undertake all minor repairs, anticipate and keep ready answers to all possible sales objections that your prospective buyers may raise. The price your home will fetch is related to its marketability. If your home has all the merits the buyers expect, then it will be the most sought-after home by all buyers, and, needless to say, your home will sell at the highest possible price in the market. Here are 5 potential re-sale problems:

The first likely problem may pertain to the site. There may be certain peculiar restrictions such as neighbors may have to trespass into your property, house expansion may not be feasible, major pipelines are running underground etc. .Inadequate outer space can be a serious problem, particularly if your home has much less yard area than other homes in the neighborhood. Prospective buyers will in all probability shy away.

The second problem may be with regard to the location. Homes located in remote or less developed areas and homes that are situated opposite office buildings or retail centers are less fancied by buyers. Buyers looking for family peace and domestic comfort want homes away from commercial areas. If your home has no direct street frontage or there is a building or some other construction in front of your home. It is a positive disadvantage. Intending buyers will certainly be put off. The general reaction by buyers to high tension wires crossing near you home is to summarily reject the house. Most prospective buyers will simply drive away if the approach road is steep. They would obviously want to choose an area that is elitist and reflect pride in ownership. There could be security problems in your area - drug dealers, thefts, and other safety aspects which will make your home not saleable.

The third problem, though seemingly peculiar but quite common, is whether your home has been in the market for sale for a long time. Is it because the price simply set too high or is there a problem with the house that is difficult to correct? A house can remain unsold in the market for a long time if lots of houses in the area are available for sale. This may simply be a supply and demand issue.

The fourth problem may be with regard to amenities. Poor water drainage may prove to be a serious problem. Talk with an expert about improving the drainage around the house, and evaluate any previous damage caused by flooding or rain water entering the house. There could be structural defects like loose fill on the lot, clay soil, drainage issues, or poor construction. Excessive remarks noted on your inspection report will indicate that your house was not maintained properly or was it was poorly constructed. Previous history of large insurance claims can pose a serious problem as there may be difficulty in obtaining insurance on the home.

The fifth likely problem may arise if the home that have excess acreage as most people feel safer buying one of the cheaper houses in the neighborhood instead paying for unwanted additional land. Badly designed floor plans that make living in the home uncomfortable will turn away buyers. Rooms that are disproportionate in size, poor access to the backyard, low ceilings, fewer windows, less ventilation and other layout issues will result in a re-sale problem.

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Foreclosures Revitalise Sluggish U.S. Economy

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There are many reasons why foreclosures are opportunities for everyone if handled correctly. We are, currently, in the midst of a property market correction which has seen a reduction in available credit, more difficult financing and an increase in foreclosures as banks and financial institutions call in mortgages which have fallen behind in their payments and try to minimize their exposure.

Without a doubt on the face of it none of this looks great for our economy but before we leap into superficial opinions let’s look at the facts by dissecting the process of a foreclosure and what happens the moment a real estate investor acquires a house.

A property will not even be considered for foreclosure unless its owner has missed at least four monthly payments, sometimes more. The moment a property comes up as a foreclosure prospect its owner has become unable to keep it. He cannot service his debt and he cannot maintain the property. The bank or lender is not getting paid, the local economy is not benefiting, local house prices in the immediate vicinity begin to become affected by a property that’s failing to maintain the standards. The City may put fines which start to accrue on a daily basis because regulations are being broken. The property, in other words has become financially gridlocked and, in terms of what it does to its immediate micro-economy, has become a black hole.

This is exactly the process that a foreclosure stops and reverses. The moment a foreclosure comes into play a property that has been gridlocked and has been sucking money out of the economy, begins to pump money back in again. For a start the Real Estate Investor will pump money immediately into the system as they do the appraisal for the property, complete their due diligence and set up advertising and publicity.

Even if, at this stage, he sells the property without lifting another finger or doing anything else he will have sold it to someone who is prepared to do it up which means more money going into the economy in terms of DIY and upgrading of the house.

The Real Estate investor will have made money which is taxable and certainly he will need to spend some in order to maintain his lifestyle and office. If he is really successful he might expand which means hiring more staff decreasing unemployment and enabling more people to have jobs, benefiting them and the local economy.

The chain goes on and on and the more you analyze it the more clearer it becomes that foreclosures are part of our financial system for a very good reason. Without them property, money and jobs would be trapped, unable to escape from the downward spiral of depreciation and recession they would find themselves locked in.

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Why some houses do not sell?

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Selling a house can prove a daunting task unless you are familiar with the things that need to be done before letting people know your house is for sale. There is no magic formula to sell the house and you need to do careful planning and meticulously spruce up your home.

Despite best efforts, some houses do not sell and there must be certain valid reasons for this. Of course real estate agents will tell you that there is buyer for every home. The one most likely reason is your expectations are unreasonable and the house is overpriced. All prospective house buyers know the market value of a house and will simply turn away if you quote anything exorbitant. So, the right thing to do is to lower the price after studying the market conditions and knowing what prices houses in the neighborhood are fetching.

Most real estate agents, real estate investors and prospective buyers will see your listing within 30 days and the first thing they notice is the expected price. Even if the indicated price is marginally more, they will lose interest and will not pursue further. Some real agents also play tricks that delay the sale. Sometimes, they are the ones who ask you to inflate the sale price. They generally use the over-priced properties to sell their own listed properties.

Another reason for delay in selling your house may be because the house was ill-maintained. Remove all personal photographs from the walls and all personal collections from the showcases. Prospective buyers are not interested to see your possessions but imagine their own photos on the walls and their own belongings all over the house. People have a habit of collecting huge piles of junk which is an eyesore to any visitor. Get rid of all the junk or donate them if they are still useful. Make sure the kitchen and toilets are particularly neat and .clean. All prospective buyers have a tendency to open and view kitchen and bathrooms. If a buyer finds everything organized, he will believe you would have taken good care of the house all along. Carry out all minor repairs lest the buyer lest these things distract a buyer into changing his decision. Remove all unwanted furniture that blocks free passage when the buyer comes to inspect the house. Mow the lawn and keep the sidewalks clean as the first impression a buyer gets is the best impression.

The location and neighborhood of you house are of paramount importance. The buyer will obviously expect schools, shopping, hospital, and other similar facilities near the house. If your house is not in a proper locality, you can not be blamed.
All you can do is to extend some concession in price or offer seller financing or a lease option with rent credit.

Another key factor is engaging the right kind of real estate agent. The wrong type of agent will encourage you to overprice your home, fail to screen for potential buyers, not responding to interest from other agents. If your agent is apathetic, other agents may not share their prospective buyers list.
Computers and the Internet have dramatically changed the real estate marketing scenario. According to the National Association of Realtors, more than one-third of all home buyers use the Internet for deciding their purchase. Your agent will have to do your listing in color to show to clients and communicate with clients through emails.

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Foreclosures Have Led to Tighter Lending by Mortgage Companies

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The number of foreclosures coming into the U.S. market have led to a large number of defaulting borrowers and a credit crunch which has made it harder for new borrowers to borrow more money. Read at face value these are all signs of an economy about to go into a tailspin, but is it really like that?

In real estate nothing ever occurs in a vacuum and this case is absolutely no exception. There is always a knock-on effect on things which means that no bad situation can lead to a worse one without also sowing the seeds for its own improvement. While this may sound, at first, paradoxical, it is actually very logical.

Let’s examine the current state of the foreclosure market. Home owners are defaulting and, as a result, foreclosures are coming to the market at auctions and then, if they fail to sell, become the property of the bank which will try to dispose of them in a variety of different ways in order to reclaim at least some of its money.

The banks and the lending institutions are, at the same time, tightening up on lending, which has led, according to the latest figures released by Experian, the credit check company, to up to half of all credit card applications being refused and more than a 20% increase in rejections in mortgage applications.

Now you will ask how is it possible to view the increase in foreclosures and the fiscal crunch as a positive thing and the answer has to lie in our examination of the effects. While, for instance credit rejections have risen, there is still a sizeable majority getting through and these represent low-risk, rock-solid borrowers who will go ahead and purchase a home they can afford to repay.

By the same token, the increase in foreclosures is fuelling movement and interest in the driving engine of the real estate market: the new home buyers and real estate investors looking for value homes which will appreciate in price.

So, while the credit crunch is forcing a tightening of the market it is also creating the conditions which will help it grow again. More and more of the borrowers approved have the credit necessary to support the backbone of the market, and with an influx of homes being sold off at below market rates there should, in future, be enough low priced homes appreciating in value to lead to a further jump in equity and create the buzz which is needed to sustain interest and momentum in a market.

And all this because right now we are facing both a credit crunch and an increase in foreclosures. The real estate market is ran along the lines of a very organic model and by the looks of it, it is pretty robust.

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Foreclosures are this Century’s Biggest Investment Possibility

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Foreclosures are on the increase and the country’s national Press is busy vilifying the lenders and borrowers. The former for lax lending practices and checks and the latter for being insufficiently transparent about their ability to handle the mortgages they were taking out in the first place.

Certainly foreclosures, at one level, represent a market correction and a system crash that’s deplorable. The thing to remember is that a certain number of foreclosures are always going to take place, our national economy is organized along the lines which make this possible no matter how the economy is doing.

The thing is that you do not want the number of foreclosures to get above a certain level because the moment that happens the resources available to assist those who suffer a foreclosure are insufficient and it creates a unique set of problems.

The thing is that foreclosures are also this century’s biggest real estate investment opportunity. Think about it for a moment. Suddenly the market is flooded with a large number of low-cost homes being sold at below market value. Even the worst of this, provided some other conditions are first met, can provide a savvy real estate investor with the opportunity to make some good money and feel good in the process as he is doing his part in helping rejuvenate the national economy.

The over-heating of the housing market, particularly in the sub-prime mortgage sector which saw a huge number of financial institutions expose themselves to the tune of $1 trillion, was due for a correction. The increase in foreclosures represents exactly that kind of correction.

But this is not at all bad news. A correction in a market brings it back to the levels where it can be sustained so that growth can start anew. The number of foreclosures we see is exactly that kind of correction and, by releasing back into the market, homes which can be sold to first time buyers and local developers at advantageous prices, it plays a very large part indeed in making sure that the real estate market does not stagnate.

The first-time buyers who are necessary in order to continue the growth of the housing and real estate markets are now being attracted by the affordable housing deals which are  put together by real estate investors and real estate agents active in the real estate foreclosure industry.

Because buying and selling activity in the foreclosures segment of real estate is going on the chances that the real estate industry, as a whole, will soon start to recover and we will see new signs of growth are very good indeed.

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Overseas Banks Publish Exposure Figures in U.S. Sub-Prime Mortgage Sector

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The moment Barclays, a UK bank with a banking tradition stretching back to 1896, has to publish an extraordinary public statement adding greater transparency to its exposure in the U.S. sub-prime mortgage market you realize that the global economy is now here to stay and that the U.S. economy is still at the centre of the world.

The reason the activities of a UK bank are important for the U.S. sub-prime mortgage market and foreclosures is because it is the clearest indication to date of the interconnectedness of markets and the value of U.S. homes to the economy not just of our country but, as it turns out, the rest of the world.

In terms of foreclosures this means that the world’s interest in the U.S. property market is creating opportunities which at the moment are not reflected by the current state of the market and this is exactly the point where the smart money gets in and makes a killing.

Foreclosures, the seeming real estate crisis aside, represent a sizeable opportunity for those on the look out for a real estate investment bargain as they are always off-loaded below market value, can be bargained down further by someone with the right persuasive skill and often ready-made equity already built-in.

I understand this is a generalization and just as there is no really ‘average’ foreclosure any more than there is an ‘average’ real estate investor. However generalizations are useful as they allow us to focus away from the details long enough to see the bigger picture and the bigger picture looks a lot better than most people would expect.

Let’s take a look at the reasons why. The banking crisis in the sub-prime mortgage lending market was sparked off by a market imbalance and rising interest rates which, in turn, led to an examination of indiscriminate lending practices and a questioning of the degree of exposure of banks in these sub-prime mortgage loans which then closed the loop as lenders started to crack down on late payments by borrowers and those who were beginning to default and this, then, became a self-fulfilling prophesy.

In truth there is continued interest in the U.S. housing market and the foreclosures coming to the market are releasing housing stock which, if bought now, at competitive prices has the potential to hugely appreciate in price creating a new level of wealth for those coming into the market either as home owners or real estate investors.

This means that even as the U.S. real estate market is dipping now, the foreclosures we are seeing are providing the springboard that will make it rise again generating, in the process, more wealth for those who were perceptive enough to see it and take advantage of the opportunities offered.

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The Sub-Prime Lending Market Does Not Need to Go but It Does Need Regulating

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The great American Dream is to own your own home and start building your wealth and it is so deeply rooted to the heart of our economy that it has become, without exaggeration, the engine that drives the world.

Take the sub-prime mortgage sector for instance. At the last count the exposure of banks and money institutions around the world in the sub-prime mortgage market amounted to $1 trillion. That’s right, $1 trillion!

When that kind of money is involved you begin to appreciate that not everything on the plate is going to be kosher and this is exactly what has happened in the sub-prime mortgage lending market. The backlash, in terms of foreclosures across the country has been so harsh that many critics have called for sub-prime mortgages to be abandoned altogether and the sector to be curtailed and that would be a mistake.

Before you think that this is the case of yet another real estate expert defending a lucrative corner of the market let’s examine what the sub-prime mortgage sector was set up to do: Sub-prime mortgages were traditionally set up so that those less privileged than ourselves were able to realize the great American Dream and own their first home.

In many parts of the country, from inner city sectors to city-edge neighborhoods it has worked beautifully. Single moms, low-income families and less-privileged youths have managed to achieve what would, under different circumstances, have seemed impossible.

Now, it’s true that the sub-prime mortgage sector grew a little too fast for its own good. In the heady rush to make sales, clinch commissions and claim bonuses many a lender failed to adequately supervise the process or provide the due diligence required even for this level of lending.

The result is we now face a spate of foreclosures that look set to blight many of the same areas they had helped to regenerate. This is a good argument for two things: 1. Tighter policing of lending procedures in the sub-prime mortgage lending sector and 2. A look at setting nation-wide standards in the way lenders deal with those borrowers who fall into arrears.

The first will give us sub-prime mortgages which actually do what we want them to do: help those who need help acquire a home and start building their great American Dream. The second will stop foreclosures which are a knee-jerk reaction to arrears and get both lenders and borrowers back to the negotiating table.

If we succeed in carrying out these two reforms the chances are that the great American Dream will be alive and well for a long time to come.

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The State of the U.S.Housing Market is Reflected by Florida and Texas

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The macro-economics of the U.S. and, quite possibly, the world are reflected in the reviving micro-economies of the States of Florida and Texas. The diversity of properties and property-types and the demand for properties in both these States makes them prime examples of what will happen with the rest of the U.S.

Both Florida and Texas have defied the usual boom-and-bust cycle of real estate. Florida experienced a slump as early as 2005 because of huge appreciation of house prices which led to a correction and Texas has got off slightly with perhaps the softest of soft landings in its real estate prices and demand never, appreciably, dipping very much at all.

The reason both these States have got off so lightly despite having lenders exposed to the sub-prime mortgage market which has led to foreclosures is because they also manage to meet the criteria for recovery:

1. A correction that does not crash the market – real estate prices in Florida dropped and in Texas there has been a correction but in neither State was the drop so sudden and so dramatic as to crash the real estate economy and stop demand.

2. Steady development – Florida is currently awaiting the completion of a new international airport in Panama City which will greatly increase the number of people coming into the State and the demand on its housing. Texas is undergoing steady development of its lakefront and surf properties as well as its recreational properties which means that investors are constantly looking at Texas Real Estate as a means of making good buys with their money.

3. Fresh supply of properties- finally both Florida and Texas have seen no appreciable decrease in new properties hitting the market. Whether it’s in the form of brand new housing or property developments or value properties coming in as the result of foreclosures both States show a healthy base of new properties and this is vital as it sis these which drive the overall engine of the real estate economy by attracting an influx of new buyers.

Summarizing, the micro-economies of Florida and Texas indicate that provided the three conditions I have just covered are adequately met then there is no reason to fear that the housing market slump is going to last any time at all. Recovery is probably just around the corner and as the pace of development continues house prices will continue to appreciate and this will offer both growth and the opportunity for growth which drive markets in an upward trajectory, attract first time buyers and investors and do much to inject the needed lifeblood of the local economy.

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