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Lenders are verifying home values with automated systems, broker price opinions (BPOs) and in some cases, appraisals. In short, they are ensuring that offers accepted reflect current comparable properties. Despite what lenders publicly say, there is little motivation to complete a short sale; foreclosure is not a bad option for them or one they shy away from.

Key points for buyers interested in short sales to remember:

• Most agents price short sales to generate offers, it is likely and often a virtual certainty that there will be multiple offers and that the accepted offer will be at or above list. Going in 20% lower is likely a waste of time.
• Lenders look at the net amount of an offer. A full price offer with 5% in closing costs is not a full price offer. Look at the net, lenders will.
• Keep the offer clean and simple. Cash is king and so is simplicity, focus on the net amount and demonstrate the ability to close quickly. The fewer stipulations and the shorter the time frames the better.
• Homes are almost always transferring “as is”, repairs are almost never completed.
• Don’t be surprised if the lender counters. Most short sales are not “binding” until approved; in GA it’s fairly common for lenders to counter an offer that’s been under review for weeks or months. Right or wrong, this typically happens as a result of their research on market value. In many cases, it’s wise to challenge poorly prepared BPOs and an experienced agent can often successfully appeal them.
• Don’t be surprised if the process drags on and on. As noted, lenders are mostly ambivalent about short sales; foreclosure is not a bad thing for them. As many former owners and many buyers will note, dealing with the bureaucracy can lead to aggravation, stress and ulcers. The most important thing for a particular seller and buyer is merely one of hundreds for a lender, and they treat it as such.
• Don’t be surprised if the deal falls apart. A short sale has many variables that are completely outside of the buyer’s control. Of all involved, the buyer has the smallest and least influential role after contract acceptance. Often, buyers grow weary of the process and terminate realizing that the ends do not justify the means.

Image by Colonel Flick/WilliamBanzai7 via flickr.com

Well yes, if you are a banker or a government, holding trillions in toxic mortgages, in the midst of what is still a very depressed housing market, deflation is a problem. They need those toxic mortgages to go back up in value. As such, Bernanke has taken it upon himself to buoy the housing market by buying $45 billion dollars worth of mortgage backed securities each month from now until–well, until the housing bubble has been re-inflated to a satisfactory degree.

And the federal government, strapped by massive budget deficits costing almost one-half TRILLION dollars in interest payments, (even with interest rates near zero), for fiscal 2012, are getting desperate for more and more cash. The interest payments on federal borrowing are so high, they are now the 4th largest expenditure that the government has. If interest rates were to rise, even only slightly, the government would be faced with a choice between paying their creditors or paying for defense, food stamps and social security. Indeed it’s already been that way for a number of years now, so they have devised clever ways of manipulating their debts. But the fact is that their manipulating and maneuvering is leaving you with less and less buying power as a consequence.

Anyone who has been shopping for groceries lately has noticed that those prices have been rising much faster than home values. QE1, 2,3, and 4 may have kept interest rates from rising, but it did nothing to help reduce food prices. Those of you on a budget are well aware that $100 does not buy nearly as much at the grocery store as it did 10 years ago. And to boot, many product manufacturers are helping maintain the “game” by reducing the sizes of food packaging as a way to keep the price more or less the same. So even where prices seem to be holding steady, chances are the amount of actual contents you are purchasing is getting smaller.

Take coffee as a prime example. 30 years ago, coffee sold for less than $2 per pound, and a package of coffee actually weighed 1 full pound. (16 oz) But today, coffee, (depending on the brand) has gone up to about $5 for that same package of coffee. Except that now, the typical pack of coffee only weighs 11 ounces. It looks about the same sitting there on the shelf, but the contents have been gradually reduced over time to keep the price “low”.

Sugar has been repackaged from 5 pounds to 4 pounds, to keep the price from obviously going up. Ditto with cereals, and thousands of other grocery items which can be reduced in quantity, without actually reducing the packaging size. So it looks like you are getting the same amount, but there is actually less and less content inside the package.

Prices for a dozen eggs on the other hand, have gone up about 80% in my area over the past 3 years or so. It’s more difficult to sell a dozen eggs if there are only 10 or 11 eggs actually in the container. So, the price had to rise, to keep pace with the falling value of a dollar. Milk would already be near $7 a gallon if not for subsidies paid to dairy farmers. If those subsidies were to be discontinued, we’d see drastic increases for basic food products in a matter of days.

Incomes on the other hand, are falling across the board, even for those with advanced college degrees, as globalization moves companies to look for cheap labor in other countries. So incomes are not keeping pace in America, with the rising costs of living. To hide this fact, the government has conveniently changed the way that the Consumer Price Index is calculated, in order to make it seem as if prices are not rising. And this game has been going on now for over 30 years.

Ultimately for the general public, the cost of living is rising despite what the politicians claim. In fact, one of the big points of argument over the so called “fiscal cliff” was about whether to use a handy smoke and mirrors tool called “chained CPI” to continue the “no inflation” charade. The idea with this one is to use a calculation of the cost of living that will be lower than reality, so that the government can reduce it’s social security payments to seniors. Check this article on shadowstats.com for a detailed analysis of how the manipulation is accomplished.

Keeping interest rates at ridiculously low levels has not done much to help bolster the housing market, but it has reduced the amount of interest that the government has to pay each year on it’s debts. If interest rates go up just a few percentage points, those interest payments would balloon to unsustainable levels. Calculating the inflation rate to keep it artificially low means that the government pays less to social security recipients.

But the bottom line is that they are “robbing Peter to pay Paul” as the saying goes. Unfortunately you are Peter, not Paul. Your buying power is being reduced, as the real costs of living continue to escalate. I believe this is already impacting the housing market to the extent that you cannot expect home prices or sales figures to rise substantially or “recover” to any respectable level if people have to spend more and more of their income just to eat and put gas in the car.

The problem is that inflation, whether it is 2% as Bernanke claims or higher, has a CUMULATIVE effect on your income. In other words, the 2% inflation from last year stays and another 2% gets added to that the following year. Over ten years that low 2% inflation rate that Bernanke loves to quote will become 20%. Since 1980, the official inflation rate has compounded to a total of 179.4% according to inflationcalculator.com. and this is based on “official” inflation numbers.

This means that if you earned $300 per week in 1980, you would need to earn $838.18 per week today, just to keep pace with the official inflation rate. This is why playing the lottery is now one of today’s hottest retirement plans. It’s why people are desperate to “get rich” and why everyone needs to constantly increase their income. It’s also why nearly 50 million people are now on food stamps. Fewer people today are able to even support themselves without some type of government assistance.

Unfortunately the housing market will have to begin “downsizing” itself just like they have done with coffee, sugar, and other commodities. Eventually we’ll be back to building and selling those 1000 square foot, 2 bedroom houses that were so common in the 1950′s. Only instead of costing $5000 they will sell for $42,320.04.

The government is chasing it’s proverbial tail. Monetary policies create more inflation, and that inflation leads to more people on the government dole, and fewer people who can afford to buy and pay for a home. The fiscal cliff is just a little preview of what awaits our economy, as we continue to do things that will eventually lead to the edge of a fiscal abyss.

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As home values began to slide dramatically from 2007 to 2009 there have been incremental gains in home prices in select markets.  All real estate is local and as one community can appear to recover lost equity still other areas can still be mired in a financial funk.  Yet the most widely recognized index measuring home prices, the S&P/Case Shiller Index, reported that values nationally are indeed on the rise.

The most recent reported third-quarter 2012 numbers showed a relatively large 3.6% increase in home prices compared to the same period in 2011. Home values exhibited their largest gains since the second quarter of 2010 and have experienced increases in values for four straight months.

Helping these values is the significant drop in foreclosures to a five-year low, indicating “bottom feeding” is tapering off as prices stabilize.

These numbers are being assisted by low interest rates still available in today’s markets.  30 year mortgage rates at the beginning of 2012 were in the then-record 4.25 percent range.  As 2012 came to a close, those same 30 year mortgage rates dropped to new lows at 3.50 percent.

Continued Fed intervention was announced in October of 2012 to the tune of some $40 billion in mortgage-backed security purchases in addition to a recently announced $45 billion in government bond purchases.  This $85 billion monthly investment will continue until the Unemployment Rate falls to 6.5%.

With low rates in store for 2013 and home sales slowly beginning to thaw this combination indicates an increasing demand for real estate nationwide.  This turn in valuation along with cheap money might just provide the economy the spark it needs. What we all need right now is an economic rebound.  A strong one.  And if you’re in the market for a home, the time to buy might be now.

David Reed is a published author and columnist with expertise in the real estate, financial, investment, consumer credit and mortgage industries with more than 20 years of hands-on experience.

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I was reading a very interesting article on one of my favorite research blogs, when I noticed a striking correlation between employment and housing prices that would seem to indicate that the housing market has “recovered” and has in fact, reached a fundamental peak in home values. However, as Bill Clinton might say, “this depends on your definition of “recovery”.”

The Chart below is produced by the St.Louis Federal Reserve. This particular chart simply shows what percentage of the civilian population was employed at any given time since world war II ended. You’ll notice that in 2012, approximately 58.8% of the civilian population is currently employed. You may also clearly see that this ratio is more or less moving sideways, not making any substantial progress since 2009.

As you can also see from this chart, the last time we were down to 58.8 percent employment of the civilian population was 1983. When you view the chart for the period from 1983 to 2012, you can see something of a rough parallel with growth of the housing bubble.

Current percentage of employed civilians today lowest since 1983.

When I noticed this seemingly coincidental parallel, I checked on the history of home values, as defined by data compiled by Robert Shiller, in his study of the history of home values over time. I wanted to compare current home values, with those in 1983, and see if there happened to be any correlation with the civilian employment activity.

Below is the chart I found, courtesy of pricedingold.com, that most clearly shows a correlation between the percentage of the civilian population that is employed, and historical home values.

Long Term Home Price Data – Case-Schiller

The two bottom points on the Shiller chart are also 1983 and 2012, which essentially implies that home values move roughly in tandem with trends in civilian employment. The more civilians in the work force, the more folks there are that can afford to buy a home. We all know that the declining fortunes of the housing market these past few years have been largely the result of the steep reduction in civilian employment since the recession started in 2007.

If we assume the general accuracy of both sets of data, it follows that the housing market actually has already recovered, to the extent that it CAN recover. In short, if civilian employment does not move significantly higher, then home prices cannot move higher. This is merely a display of the classic market fundamental of supply and demand. Employment creates demand, which then leads to tighter inventory and rising prices.

We have seen slight increases in home prices over the past year, and some reports of inventory tightening. Much of this activity has been driven by wall street funded investment companies who have been buying up hundreds of millions of dollars worth of foreclosures over the past year. Civilian employment has remained flat, as the first chart indicates, thus real demand from end user buyers is simply not increasing that much, in spite of Ben Bernanke’s efforts to force interest rates to historical lows.

In a nutshell, these two charts show that housing market activity is essentially at it’s peak, because civilian employment is moving sideways, not growing. In fact, there is very recent data that indicates that the current level of home prices may be as good as it gets for years to come, because the employment rate is not really improving. Millions of unemployed folks are now leaving the workforce. When you stop looking for work, the government no longer classifies you as being unemployed.

So the fact that home values seem to be improving is not proof that housing is about to take off on a new recovery that will return us to the values we took for granted in 2005. Far from it. There are other data that show that we are probably lucky that home prices are even rising at all.

Today, some 47.7 million folks are on food stamps. Over 1 million new food stamp recipients were recently added in just two months time! Indeed we’ve seen the food stamp program growing exponentially over the past few years to unprecedented levels. And the Obama Administration actually believes that putting folks on food stamps stimulates our economy.

Between the data shown in the above charts, combined with the mystifying belief that spending on food stamps is an “investment” in job creation, it’s probably safe to say that the current housing market “recovery” will be as good as it gets for the foreseeable future.

Donna S. Robinson is a real estate investor, author and residential market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults. Her latest book, Basics Of Real Estate Investing is now available on Amazon.

Image courtesy SurvivalWoman via flickr.com

Today, some 30 years later, current Federal Reserve Chairman Ben Bernanke, is telling us that inflation is not the problem, that “deflation” is instead the real problem, and as a result, Bernanke has been making aggressive attempts to force interest rates down by injecting trillions of dollars into the U.S. economy, in hopes that those low interest rates would spur the housing market into recovery. But so far, most agree, this has not worked, as home prices are essentially flat, and home sales have yet to improve to any degree that could be called a legitimate recovery.

But it is having a very real impact in another area that has been conveniently omitted from the Consumer Price Index – food and fuel. In Bernanke’s world, these items can be removed from the data set, so that the inflation numbers can be held to whatever level is desired to achieve political or economic ends.

But in the real world, the one that 99% of regular Americans live and work in, the inflation problem is getting worse, reducing the amount of funds consumers have to spend on housing. Prices for food and gasoline have reached levels never before seen in the U.S. Rising food prices are fast becoming a problem for average consumers – you know, the same folks who buy or rent houses. These people have to live with reality, they can’t remove food and fuel from their data set.

Recently, California made news as gas prices hit $5.00 a gallon for the first time ever. Thanks to a record drought in the farm belt, corn prices are up 60% just since June of this year. All food commodities are up significantly. And the only real “tool” the Fed can utilize to stop prices from rising too much would be to raise interest rates. And this means mortgage costs would also rise, making homes less affordable.

According to a detailed regression analysis of the history of inflation correlated to interest rates and housing prices, published on the ZeroHedge.com blog in 2010, inflation simply does not generate significant increases in housing prices.

This data shows that there is a strong correlation between rising interest rates, and reductions in home prices. It’s not obvious to the casual observer or the typical buy and hold investor, because the analysis discovered that there is a 6 month or longer lag time. It takes about 6 months for an increase in mortgage interest rates to begin to translate into a reduction in home prices. Conversely, in the historical past, falling interest rates stimulated home sales, and the resulting increase in demand led to rising home prices when interest rates were falling. But not this time. The near-zero interest rates have done nothing to stimulate home sales.

But the money pumping is beginning to have a significant impact on consumer prices. Grocery stores are now filled with packaged items in which significant reductions of the net contents have been used to mask commodity prices that are rising rapidly. Fuel prices have doubled in just the past three and one-half years. When you combine those facts into the equation, Bernanke is clearly caught between a “rock” of deflated mortgage backed securities, (which he is trying desperately to re-inflate), and a “hard place” of food and fuel prices that have begun a run-away inflationary spiral.

Also lurking in the shadows for housing is the continuation of high unemployment, still officially near 8%, while non-government analysts at Shadow Government Statistics place the real unemployment rate well above 20%.

I believe that the lack of real demand, from real-end-user buyers is being masked in the housing sales data, because sales data does not differentiate between end-user buyers and investors. Yes sales are up, and demand is up slightly, relative to the bottom, but it’s not the general public doing much of this buying. Instead, big investment companies are making an unprecedented push into the housing market, in anticipation of rising rental rates that may not materialize in many markets.

In short, we’ve been lying to ourselves for so long about economic data that the government and the housing industry don’t seem to realize the economic headwinds that consumers are facing.

This being said, I believe the best approach is a conservative one. All home buyers as well as real estate investors should continue to buy at the lowest possible prices, and not project any benefits from property appreciation or significant rental increases for at least the next 5 years.

An old time rental property owner, now in his 80′s told me the other day that “the rental property business just isn’t what it used to be when I was your age.” He still has rental properties that have been paid off for many years, but their tenants are struggling more than ever to pay a rent rate that has not risen in 5 or more years, while taxes and insurance costs continue to escalate.

It’s important to be realistic about the fact that rent rates can’t rise much in the markets that are not supported by strong job growth sectors. If you are in metro Washington DC, demand will remain strong because the government complex grows ever larger by the day, and is a major job growth leader nationally. (at least until Uncle Sam runs out of money) But if your properties are in metro Atlanta, GA, Phoenix, AZ, Las Vegas, NV, central Florida, Riverside California, or the “rust belt”, you should be very realistic about flat rent rates, systemic unemployment and rising consumer prices.

Personally, as a real estate investor, I’d love to see a big housing recovery, complete with rising property prices, rising employment, rising incomes and a new housing boom, but unfortunately this is 2012, not 1993. The only thing rising right now is the cost of living. As investors, it’s in our best interest to be realistic about the financial challenges that are still ahead for would-be home buyers and rent paying tenants.
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Donna S. Robinson is an investor, author and residential market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog on her website at www.RealtyBizConsulting.com

Are things really improving, or do we still have our heads stuck in the sand?

This is hardly an improving housing market. But for years now we’ve been living through the worst housing market in the history of the U.S. in terms of overall value lost, so bad news that is less bad is considered an improvement. We’re all ready for some good news. Even if it’s just that the bad news is not quite as bad as it has been previously.

It’s been pretty good news for Phoenix, Arizona, which posted the best annual gain in prices, which have risen an average of 8.6% since April of last year. Other cities that are a bit better since last year include:

Miami, FL – a city with excellent oceanside location and a temperate climate, is a market that is finally looking better after years of struggling with over-supply. Up 3.2% since 2011, Miami has recently begun to rebound as buyers from out of state and out of the country have decided that prices are finally low enough to justify buying.

It’s about time. Miami and most of Florida have been in a severe downturn longer than much of the nation. After 4 major hurricanes in one season, back in 2004, Florida residents decided to pack up and head for other states that were not so hurricane prone. Between that and the fact that Florida was drastically over-built at the time, they began having major problems years ahead of the national collapse in 2008.

Dallas, TX is another metro area showing small but steady gains. This is likely due to the strong employment picture in Texas, and especially the Dallas area. Texas did not experience the big housing bubble the way that other southern states did. This was partly, (in my opinion), because Texas real estate law made it much more difficult to pursue some of the “shenanigans” that went on in the bubble states. So the strong showing here is not a surprise, and in fact, is nothing new.

Atlanta, GA continues it’s “reign” at the “top of the bottom” in terms of lost property value. Metro Atlanta was the only MSA in the entire 10 or 20 city composite to post yet another double-digit loss, and is down 17% since April of 2011.
Overall Atlanta is down some 40% from it’s peak highs.

Atlanta’s big problems today stem from it’s “advantage” during the housing boom. Lots of land and room to grow. Atlanta has the largest metropolitan area of any city in the U.S. and perhaps even the world. With a total of 13 counties, there is a lot of room to build here, and that is just what the builders did. There are literally hundreds, if not thousands of subdivisions around metro Atlanta with less than half of the homes that were intended to be built. Some subdivisions have only 4 or 5 occupied homes, surrounded by a sea of hundreds of lots that are still waiting for homes.

Georgia had no idea how dependent the state’s economy was on residential construction and property taxes. When home building ground to a stop, so did much of the state’s economy. Job losses and high unemployment continue to plague metro Atlanta. Foreclosures in the far flung metro counties are still running near record highs in the eastern, southern and western quadrants. The northern sector has the best of the technology and corporate employment. Though the losses have been big there too, they’ve rebounded faster than the other areas. In Atlanta it’s all about the employment or lack of it. Some areas are great and some are not good at all.

Overall, both composite indexes still showed an average loss, though the loss is getting smaller. Let’s hope this is a sign of improvement. But we already know that April 2012 job numbers looked like employment was improving, only to fall way back in May. A turn that was not expected. I hope that the downward trend in employment will not translate into more foreclosures, but we’ll have to wait another month to see. Right now, the idea of an “improving” housing market definitely depends on what your definition of “improvement” is.
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Donna S. Robinson is a 17 year veteran of the real estate industry, and a residential housing market analyst. She is a real estate investor as well as holding a real estate license. Her newsletter and blog are available at her website: Realty Biz Consulting.

Image credit © Wolfgang Cibura – Fotolia.com

Most homeowners prefer to wait things out. Image courtesy of www.FreeDigitalPhotos.net

Despite the problems that the housing market has experienced in recent years, it’s encouraging to note that 90% of homeowners who have a negative equity interest in their homes, continue to pay their mortgages.

Zillow® recently released their Zillow® Negative Equity Report for the first quarter of 2012. In this report, they reveal that nearly a third (31.4%) of U.S. homeowners with mortgages (15.7 million) owed more on their homes than what they were worth.

Nine out of 10 homeowners who are in a negative equity position still continue to make their payments on time. Only 10.1 percent are over 90 days delinquent.

Stan Humphries, Zillow Chief Economist said, “While it was disappointing to see negative equity numbers remain so high, it is important to note that negative equity remains only a paper loss for the vast majority of underwater homeowners. As home values slowly increase and these homeowners continue to pay down their principal, they will surface again.”

“That said,” continued Humphries, “negative equity remains an issue for the housing market as a whole, and poses a risk to any recovery. Not only does negative equity tie many to their homes, by making homeowners unable to move when they want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures.”

The “water’s depth” that many homeowners find themselves in varies. Almost 40% of underwater homeowners (12.4% of mortgaged homeowners) owe from 1 to 20 percent more than their homes’ value. Another 21% (6.6%) owe between 21 and 40 percent more and only about 4.7% (2.4 million) of mortgage homeowners owe double their homes’ value.

Many of these homeowners are in troubled areas such the Las Vegas metro area where an astonishing 26.8% (approximately 90,000) homeowners owe twice what their homes are worth.

To get a strong visual of how these facts play out across the country, Zillow is releasing a data visualization this quarter which shows negative equity levels, right down to the zip code. Check it out here.

It could be easy to get discouraged looking at these numbers in isolation, however it’s not wise to look at any real estate fact singly, but rather look at the market as a whole. Certainly there are areas which are less prosperous than others, however if my years in the industry has taught me nothing else, it’s that the industry is cyclical – what goes down will go up again – the only question is when.

How about your market? Are you seeing growth, or do things seem to be trudging along slowly? Please share your thoughts.

You may recall that the  FHFA was created by the Housing and Economic Recovery Act of 2008, to oversee the two GSE’s, which together account for almost 3 quarters of the publicly held debt of the United States (almost 7 trillion dollars).

© Kalim - Fotolia.com

The secondary mortgage market is the backbone of the U.S. housing industry. Fannie and Freddie account for 65% of that market. Insuring the solvency of Fannie and Freddie is, at this point in time, essential to the survival of the housing market and the widespread availability of mortgage loans. The taxpayers are on the hook for the losses incurred by either of these agencies. And indeed, as I have documented in recent articles, the taxpayers are currently backing virtually the entire secondary mortgage market in the U.S., via Fannie, Freddie, FHA and USDA, which at present, account for around 95% of all new mortgage loans being issued.

So, in short, it is serious business to make any decision that could be fraught with unintended consequences. Mr. DeMarco is right, in my opinion, to insist on giving this matter his most careful study and consideration, before making any decision to proceed with any plan to reduce mortgage principal. But of course, careful study and consideration is not something that the government is given to doing, especially in an election year, when it is perceived that writing down these mortgages could help the current administration politically. At least that is the perception among Democrats, many of whom are demanding that DeMarco be fired for “standing in the way of progress in the housing market”.

But when you look at the big picture, this smacks of nothing more than election year political wrangling. 

First, Fannie and Freddie have already been the primary target of most of the current crop of housing initiatives for foreclosure aid, loan modifications and other programs for borrowers, with very little success to show for it.  There are dozens of programs already in place.  But these programs can only be applied to Fannie and Freddie owned mortgages, leaving the rest of the mortgages owned by other parties subject to totally different rules.

Secondly, while some in congress and the media would have the public believe that principal write-downs would help home owners and stem foreclosures, the real fact is that it would be at taxpayer expense. The banks are not going to lose anything.

Don’t be fooled into thinking that the recent settlement agreement between the states and the big banks means that the banks have suffered. They haven’t and they are not going to. At the end of the day, any principal reductions would be paid for by the taxpayers, not the lenders who made the loans, many of which should never have been made. That 25 billion dollar bank settlement is a joke when compared with the nearly 7 trillion dollars in mortgage debt that is guaranteed by the taxpayers via Fannie and Freddie. If you did enough principal reductions to simply stop all of the foreclosures, it would simply cost the taxpayers billions more to pay off the investors in those notes, the lenders…who only invest in such items because they are taxpayer insured, so they know they can’t lose. But even the lenders and investors in such notes do not favor principal write downs because of the potential future impact on contract law.

Which is a third potential dilemma: Rewriting enforceable contracts, signed by competent parties who agreed to be responsible for the debt could open a can of worms that could undermine the future of the secondary mortgage market. This could have a very negative impact on the future of the U.S. mortgage market from the perspective of attracting private investors back into the market.

And finally, there are justifiable worries about moral hazard. Frankly there is enough moral hazard on the side of government insured loans to argue that banks and lenders should never again have the luxury of making irresponsible loans that are guaranteed and paid for by the taxpayers. That is one form of moral hazard that contributed significantly to the housing bust, but is rarely discussed.

In the context of the position of FHFA and a decision to allow principal reductions, the question remains, “if you allow a program that specifically benefits those who are not making their mortgage payments on time, is it not reasonable to assume that this would encourage more borrowers to default, as a way to qualify for a principal reduction on their loans?” And especially so if they are current on payments, but owe more than their home is now worth.

Principal write-downs would do little to help home values, as reducing the amount you owe, down to the current value of the home might reduce the foreclosure rate to some degree, but the value of the homes would still be where it is today. And over the past 4 years, the damage to the housing market has already been done.

(If the banks thought for one minute that principal reductions would boost housing market values, they’d be all over it, because it would bolster the value of their worthless second mortgages, which are still a big problem)

If you ask me, Mr. DeMarco has plenty of reason and responsibility to be careful with any decision that would add to the already staggering taxpayer burden. Only political parties fighting for their life could justify such reckless last minute behavior after spending 4 years coming up with one poorly executed plan after another.   But after all, when it comes to housing policy, the federal government has a long history of poor decision making inspired by political expediency. ***
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Donna S. Robinson is a 16 year veteran of the real estate industry and a staff writer for Realty Biz News. She is an active real estate investor who also provides coaching and consulting services on residential real estate investing. You may join her email list on her website at www.RealtyBizConsulting.com   

Cash buyers are running the show © HitToon.com - Fotolia.com

People who bought a home when the general media said it was a good time to buy, thought that 2006 was going to be their year. Back at that time, all of the evening news shows were talking about how “hot” housing was. When the media says that buying houses is the “in” thing to do, it’s usually time to stop buying and start selling.

Today we have the media trying to “process” the pending homes sales data, which has ticked upward lately, along with the latest Case-Schiller 10 and 20 city composite, which shows home prices still falling in quite a few areas. Most, if not all of the pundits are scratching their collective heads, and thinking or saying that this must not be a good time to be buying a home. But alas, the cash buyers are the ones who know better. They are the ones who are smart enough to have the money to be buying when prices are at their lowest levels in years. And they are also the main reason, in my opinion, why we’ve seen an uptick in home sales, even as the Case-Schiller Composite shows that prices are still falling.

The most recent Case-Schiller 10 and 20 City Composite, From the St. Louis Fed. 

With prices at such low levels, investors buying with all cash certainly realize that there are cash flow opportunities to be had. So you have many of the smart investors moving back into the market in a big way , for the first time since before housing prices peaked in 2006. And foreign buyers have more cash as well. They are also making it known that they are looking to buy.  This is likely the primary reason for the increase in pending sales numbers to a significant degree.

Investors know that today’s low prices mean it’s the first real opportunity in years for strong positive cash flow on rentals. And those investors who buy foreclosures, fix them up, and then resell them to an owner occupant are seeing some of their best cash profits in years. For them it’s not a question of wondering which way prices are going, it’s a matter of cash flow. And in this market, with the low prices, the investors are finally making some good money again. Also a plus, those owner occupant buyers are getting some very nice homes for about 25% below those peak market prices

This is resulting in the paradox of increasing pending sales numbers, without a corresponding increase in home prices. Cash buyers, and investors in particular, have no intention of doing anything to drive home prices up with regard to the buy side. If anything, their ability to buy with cash is making it possible for them to get better bargains, and in so doing, it’s tending to force prices down further in the areas with the most foreclosure inventory.

But those same investors are very important to the long term future of the housing market, because they will take those homes that the owner occupant buyers would not want, and put them back into service as affordable rental property, or fix the better ones and give an owner occupant buyer a great deal on a newly renovated home.

With foreclosures still running at record levels, and many more in the pipeline, many areas will continue to see the paradox of an increase in sales numbers with little or no increase in home values until all of the excess inventory has been exhausted. For now, it’s the best of times for smart real estate investors and home buyers, in spite of the fact that the general media is reporting otherwise.
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Donna S. Robinson is a 16 year veteran of the real estate industry, and a staff writer for Realty Biz News.  She is a real estate investor, author, investing consultant and housing market analyst. Her website www.RealtyBizConsulting.com offers a variety of  opportunities for real estate investors.  Contact Donna at 888-915-9968 for consulting services. 

Appraisals are hurting real estate markets © James Martin - Fotolia.com

Mortgage lenders these days are apparently demanding even more thorough appraisals than before, and this in turn leads appraisers feeling they are required to pull sales, which may or may not included short sales and sales of foreclosed homes. It used to be that appraisers could cite just two or three recently sold properties, but nowadays mortgage lenders are asking for two or three times as many, according to the Mortgage Bankers Association president, Dave Stevens.

The problem according to Stevens is that appraisers often feel forced to value homes at lower prices than what the already accepted offer is. This is happening more and more frequently, claims SmartMoney, and the result is that either the seller must reduce his or her asking price, or the buyer has to shell out more than the appraised value.

According to data provided by the NAR, for the three months up until October 1^st, 13% of real estate professionals claim that they had to renegotiate contracts following a low appraisal.

SmartMoney notes that buyers are recommended to insert a clause into any contract they make, stating that they will be able to receive their down payment back if they are unable to obtain financing, or if the appraised value of the home is less than what is indicated in the contract.