Why Deals Die
I have seen estimates stating that 29% of deals that go to contract and require a mortgage, don’t close. That number boggles my mind. It means that even after a buyer and seller come to terms on a sale (not an easy feat these days), 3 out of 10 transactions fall apart. What are some of the more common reasons?
- Appraisal issues – In many markets, we are still seeing declining values. Appraisers are in a difficult position, and with so many transactions (including seller’s concessions to assist buyers with closing costs) values aren’t always coming in at sales prices.
- Short Sales not being approved by the current lender – With so many sellers owing more than their home is worth, buyers’ proposals need to be sanctioned by the lender (who will be receiving less than they are owed). Some of the offers are too low, but often, the lender isn’t local and they really don’t know what the property is worth today.
- Bad pre-approvals from the loan officer – Today, loan officers who are not reviewing tax returns, analyzing bank statements, and asking for detailed explanations and documentation on credit blemishes, are truly hurting the customers. Issuing pre-approvals based on the representations of the customer is reckless and a cause for dismay later.
- A lack of transparency – Whether it’s a seller or agent not disclosing property issues, or a buyer trying to sneak things by an underwriter, too many people think they can cut corners. That is not the world we live in anymore. Everything is uncovered. Being honest in the beginning, gives you the best chance to overcome obstacles.
It is clear by the numbers that closing loans can be more difficult today. However, with proper planning and integrity, many of the challenges can be dealt with early and successfully. Agents documenting values of the homes, loan officers doing complete reviews of the loan profile up-front, and everyone telling the truth helps get deals to a successful conclusion and avoids horror stories.
Where Are House Prices Headed in 2012?
There is no shortage of opinions as to where home prices are headed in 2012. From Clear Capital’s expectation that prices will show a ‘slight uptick’ this year to Fitch’s projection that prices ‘will fall another 13 percent’, there seems to be no consensus as to where real estate values are headed. How can there be such a disparity of opinion among industry experts? Prices are determined by the relationship between supply and demand and there are many unanswered questions regarding both of these components.
Questions about Demand
Will this be the year that the 5.9 million adults between the ages of 25 and 34 that are still living with their parents decide to purchase a home of their own?
With mortgage payments lower than rent payments in the majority of the country, will first time buyers finally decide it makes more financial sense to buy rather than rent?
Will the baby boomers take advantage of the great deals available and start purchasing vacation and retirement homes?
Will investors continue to purchase large quantities of distressed properties?
Will hedge funds negotiate a deal with the banks for bulk purchases of foreclosures?
Questions about Supply
Will 2012 be the year that builders again increase inventories of newly constructed homes?
Will baby boomers put their primary residences up for sale and relocate to their retirement destinations?
Will 2012 be the year that the shadow inventory of foreclosures finally makes its way to market?
If prices depreciate, it will force more homes into a negative equity situation. Will this create another surge in short sales and foreclosures?
Will the government put together a plan to convert large numbers of foreclosures into rental properties?
Bottom Line
With so many unanswered questions regarding both the demand for housing and supply of properties, it is very difficult to determine where prices will be at the end of the year. We suggest you contact a local real estate professional to help you determine where values are headed in your area.
People Are Buying Homes AND GETTING MORTGAGES!
Many believe that very few houses are selling and that almost no one can get a mortgage. We want to let everyone know that neither of these assumptions is true. Recently, the National Association of Realtors (NAR) released their Existing Homes Sales Report. According to the report there are, on average, 12,109 homes selling in the United States EACH and EVERY DAY! That means that approximately 12,000 houses sold yesterday, approximately 12,000 will sell today and approximately 12,000 will sell tomorrow. So the thinking that homes aren’t selling just isn’t true.
Another interesting fact in the report was that 72% of these transactions were accompanied by a mortgage. That means that approximately 8,719 people qualify for a mortgage on a daily basis in this country.
There are over 12,000 homes sold and over 8,000 mortgages granted every day. The real estate market is doing better than many believe.
Negative Equity: State By State
InfoGraphic
The above map shows the percentage of homes with a mortgage in each state that are in a ‘negative equity’ situation meaning that the value of the home is less than the mortgage amount. Approximately 30% of the homes in the country don’t have a mortgage on them.
Comparing Real Estate To Other Investments
We recently posted Real Estate: Today’s Golden Opportunity comparing the current housing market to the market for gold about a decade ago. Some commented on the fact that you can’t compare gold to real estate as an investment as gold is a very liquid asset and it would take more time and effort to sell a house. We were not trying to make the case for real estate vs. gold as an investment in our blog. We were just showing that all investments go through cycles and that the best time to buy any investment may be when everyone is saying not to.
However, since the subject of comparing real estate to other investments has come up, let’s take a closer look. There are two major advantages to investing in a home of your own rather than another option:
You Can’t Live in Your IRA
When you buy your own home you are not taking available dollars away from another investment. You are replacing one housing expense (rent) which has no potential for a return on investment with another (mortgage payment) that does give you an opportunity for a return. We realize that there has been research showing that over the last 30 years renting has been less expensive than owning. That research also says that if you invested the entire difference between the rent payment and mortgage payment you may have done better financially. There are two challenges with this conclusion:
- Today, in the vast majority of the country, renting is actually more expensive than owning a home.
- History has proven that tenants DO NOT invest the difference in their rent and mortgage payments.
Today, study after study shows that owning a home is no more expensive than renting a home. However, even if this wasn’t the case, history shows that owning a home creates greater wealth.
Paying a mortgage creates what financial experts call ‘forced savings’. The Joint Center for Housing Studies at Harvard University released a study earlier this year titled America’s Rental Housing: Meeting Challenges, Building on Opportunities. In the study, they actually quantified the difference in family wealth between renters and homeowners:
“[R]enters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $ 234,600—about 46 times the $ 5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.”
There Are Tremendous Tax Advantages to Investing in a Home
There is no doubt that selling an investment such as gold is easier than selling your home. However, this liquidity comes at a price. The price is called capital gains. That is the tax you pay on any financial gain you receive from the investment. This tax doesn’t apply the same way when you sell your primary residence:
Theresa Palagonia, a CPA and the Accounting Manager for the firm G.S. Garritano & Associates, was good enough to explain the Home Sale Exclusion Rules:
“You may qualify to exclude from your income all or part of any gain from the sale of your main home.
Maximum Exclusion
You can exclude up to $ 250,000 of the gain on the sale of your main home if all of the following are true:
- You meet the ownership test.
- You meet the use test.
- During the 2 year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you and another person owned the home jointly but file separate returns, each of you can exclude up to $ 250,000 of gain from the sale of your interest in the home if each of you meets the three conditions listed above.
You may be able to exclude up to $ 500,000 of the gain on the sale of your main home if you are married and file a joint return and meet the requirements. (Special rules apply for joint returns.)
Ownership and Use Tests
During the 5 year period ending on the date of the sale, you must have:
- Owned the home for at least 2 years, and
- Lived in the home as your main home for at least 2 years
Certain exceptions exist in which you may qualify for the exclusion without satisfying the tests listed.”
Bottom Line
Every investment has pros and cons. That is why there is such an assortment of great opportunities. Real Estate has been, is and always will be one of those opportunities.
Best Post of 2011: InfoGraphic
This week we are posting the best blogs of 2011 by category. We hope you enjoy them as much as you did when we first posted them. – The KCM Crew
Best Post of 2011: For Sellers
This week we are posting the best blogs of 2011 by category. We hope you enjoy them as much as you did when we first posted them. – The KCM Crew
The First Question You Should Ask Your Listing Agent
What is the most important thing a seller should look for when hiring a real estate agent to sell their house? We are often asked this question. Is it the size of the company they are licensed with? Is it their marketing program? Their years experience in the business? Should you choose the agent who suggests the highest listing price?
There are many things that should be taken into consideration when hiring someone and giving them the responsibility for selling your home. In our opinion, the most important question you can ask a potential listing agent is a simple one:
Do you truly believe that now is a good time to buy a home?
Why should this matter when hiring someone to SELL your home? Buyers are nervous about purchasing right now. They want to know they are making an intelligent choice. We believe, especially in today’s market, you need to hire someone who realizes that this is one of the best times in American real estate history to buy. If an agent doesn’t believe that, how will they be able to convince a potential buyer to buy your home?
When interviewing a real estate professional, ask them to explain why purchasing a home makes sense today. They should be able to explain it simply and effectively. See how many of the following facts (which should be shared with every potential purchaser) the agent knows:
The Wall Street Journal last week stated:
“With home sales starting to improve, and with prices now possibly forming a bottom, real estate could well be the asset class that represents the best low-risk buying opportunity out there today.”
Donald Trump was just quoted saying:
“I’m pretty sure this is a great time to go out and buy a house. And if you do, in 10 years you’re going to look back and say, ‘You know, I‘m glad I listened to Donald Trump’.”
John Paulson, a multibillionaire hedge fund operator and the investment genius who made a killing betting against housing a few years ago, is now bullish on residential real estate market. He recently said:
“If you don’t own a home, buy one. If you own one home, buy another one. If you own two homes, buy a third. And, lend your relatives the money to buy a home.”
A recent Gallup Poll showed that 67% of American’s think that now is a ‘good time’ to buy a home. The Gallup Organization went on to say:
“Overall, there is good reason for most Americans to think now is a good time to buy a house. Interest rates remain near historic lows. Home prices are down sharply, providing many incredible buys.”
The iconic financial paper in this country, the country’s most famous real estate investor, the most successful prognosticator of the housing market and 2/3 of all Americans say now is the time to buy a home. Shouldn’t your agent agree?
Bottom Line
Selling is nothing more than the transference of conviction. How can agents transfer that conviction if they themselves are not convinced? Find a listing agent who truly believes that someone should buy your home – TODAY! This is the single most important thing you should look for in a potential listing agent.
- Why Deals Die
- Belief That “Now Is the Time to Buy” by Age Group
- Where Are House Prices Headed in 2012?
- Home Down Payments by State
- People Are Buying Homes AND GETTING MORTGAGES!
- Negative Equity: State By State
- Comparing Real Estate To Other Investments
- Best Post of 2011: InfoGraphic
- Best Post of 2011: For Sellers
- Happy Holidays from the KCM Crew!!
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