Monday, October 29, 2012

JUST SOLD! Regal Roy Rambler

I just closed on this sale with a buyer in Roy:

This home is located at 4454 S. 2300 W.  While shopping for property, my clients and I viewed 6 homes that seemed to meet their criteria.  Closer inspection revealed that all of them were unsatisfactory in condition or floorplan...except for this one.

The home was listed for $174,900.  We placed an offer of $170K and asked for $5,000 in closing costs.  The seller countered us at $175K  while honoring our closing cost request. We accepted. 

Unfortunately, we ran into an appraisal problem.  He appraised the home at $173K which posed a dilemma for us.  Since the appraisal was short, that meant my buyers needed to cough up $2k out of pocket to close the gap.  Fortunately, their loan officer was able to work out a credit from their company to cover most of the shortfall and we made some contract adjustments so the sales price reflected the appraised value.

Once we cleared that hurdle we ran into some underwriting challenges.  Those were cleared as well until a day before closing we discovered that this home is in a flood plain.  Interestingly, because it is close to a park, it appeared in a flood zone despite the fact that it is surrounded by homes that have been previously exempted.  The sellers of the home have been paying flood insurance for years while all their neighbors exempted themselves long ago.  My buyers agreed to pay the flood insurance premium for now while they work on getting an exemption and a subsequent refund. 
The challenges were worth the home. Congratulations to my buyers who have purchased a beautiful home at an excellent value! 

If you are looking to move up to your next home, contact me and lets find a property that is just right for you.

Wednesday, October 24, 2012

New Construction "Boom" Coming? Charts Say So

I recently found some charts on CalculatedRisk that I thought were very insightful.  These charts are just more evidence that we are at, or in Utah's case, past the cyclical market trough.  After years of gloom, we are being ushered in to a new market paradigm.

Queue the first chart please....

This first chart is always a jaw dropper.  This shows new construction nationwide since the 1960s.  Following past patterns, we should have entered a housing bust in 2000 but we didn't.  Instead, new construction took on a meteoric trajectory which was followed by an absolute collapse.  The silver lining is that, after being placed in the iron lung for the past four years,  new construction is again showing a pulse and eked just above previous recession lows going back to the beginning of the records. NOTE:  It would be curious to see how this chart would look adjusted for population growth. 

This next chart brings some more sunshine to the subject.  Queue next chart please...

This chart shows the Months Supply of new construction homes.  This is important because it illustrates market forces.  Since supply and demand dictate prices and new construction activity, low supply means that prices can move upward and more homes can be built.  This chart shows that we are on the cusp of entering a period where builders can reasonably start to increase prices and/or the number of homes they build.  That is good news for builders.

Our final chart looks at nationwide mortgage applications to purchase homes.  Queue chart please...

As you can see, after a significant and persistent decline in mortgage applications, the bottom appears to be in.  This portends a consolidation in the market.  It may take a year for market psychology to accept the fact that house prices aren't going down any further and that postponing a purchase may cost more as time moves forward.  Even the Mortgage Banker's Association is estimating that house prices will appreciate about 3.5% next year.

These measures seem to strongly indicate that we are transitioning, albeit slowly, from a bust phase of the real estate market cycle to a coming boom phase.   

Monday, October 15, 2012

Boomerang Buyers Back From Foreclosure

There has been a sense in the housing market that things are improving.  While incomes are not increasing wildly, people have been holding jobs and credit has been steadily improving.  Since the housing crash is now almost four years behind us here in Utah, it is interesting to see what time has done for folks who went through foreclosure.

In many people's minds, foreclosure was the end of the world.  It held a social stigma as well as carried a significant financial penalty for anyone who experienced it.  Making payments on your home was just something that you did as an act of decency and honor.  So, when the economy turned on it's head and forced many borrowers into the uncomfortable reality that they could no longer afford their homes, it sent a significant portion of the homeowners into the emotional and credit "penalty box".   

Well, time heals all wounds and foreclosure is not the end of the world.  So much time has passed now that borrowers who foreclosed can now qualify to buy homes again, and at today's low price and interest rate environment.  They could be termed "boomerang buyers". The Wall Street Journal has this interesting quote in a story today:

Using the three-year benchmark it takes to get an FHA-guaranteed loan, in this year's second quarter there were 729,000 households that were foreclosed upon during the bust that are now eligible to apply for an FHA mortgage, up from 285,000 in the second quarter of 2011, according to an analysis of foreclosure data by Moody's Analytics. The company projects that number will grow to 1.5 million by the first quarter of 2014.
An curious side note about this phenomena is the effect it has on the rental market.  These borrowers were all forced into rentals when they lost their homes.  As a landlord, some of my best tenants were former homeowners.  They took pride in their rental units and knew how to care for space.  If many of them return to homeownership, this will put downward pressure on the overall quality of the tenant pool and require more rigorous screening on the part of landlords.  I have already begun to see some of this in our rental market today.  The question that remains is how soon will these former homeowners return to the market to buy again.  Even though they have paid the credit penalty, the emotional penalty is one they will have to overcome at their own pace and in an unknown time frame.  Market psychology will play a big role here.     

The news is a mixed bag depending on your perspective.  It portends increasing house prices and property values which makes most property owners happy, yet it means a bit more work for them to preserve the condition and rent revenue as tenant quality weakens slightly.  Let's keep our eye on the market and see how this shift manifests itself.

Monday, October 8, 2012

Mormon Missionary Age Requirements and Utah's Housing Market

On Saturday, the Church of Jesus Christ of Latter Day Saints announced changes to its missionary program that will have a significant impact on the timeline of social milestones for individuals of the faith. 

For as long as I have been alive, young men have been encouraged to serve missions at the age of 19 and young women, if they choose to serve, at the age of 21.  The mission experience is a right of passage for most who serve and marks a bright line in time between youth and maturity. 

So, the question arises:  Will this change in time frames affect Utah's Housing market? 

First, to understand how it might impact it, we need to know that the housing market is affected by demand for housing.  Demand for housing is a direct result of people seeking shelter for themselves which initially happens as a result of them leaving their parent's home.  While young adults just starting out will tend to rent, newly married couples tend to gravitate toward home ownership.

Since LDS returned missionaries will be coming home at a younger age, will this portend earlier marriage and household formation than has been experienced up until now?  Would these younger married couples complete their studies earlier and purchase their first home sooner than in previous years?  Will these policy changes affect the number of households being formed as well as the shift in time? 

My gut says that this policy change will be felt in the markets slowly enough almost not to be noticed but that it will be have a meaningful contribution as a whole over time.  

Obviously it is too early to tell, but it would make a curious study to see how this church policy change will affect sociological dynamics which ultimately affect the housing economy in the long term.   Perhaps this would be a good thesis paper for a desperate grad student somewhere scouring the earth for a fresh idea.  If you are that grad're welcome.   

Friday, October 5, 2012

Bank Owned Homes Evaporate From Utah Market

I have been sifting through the market today and have found some interesting changes occurring.  Just a year ago, banks were fire-selling REO property and investors were swooping in to clean up the inventory.

Today, the inventory of bank owned property appears to be scarce.  Also, the banks that do have REO homes for sale have made it increasingly difficult for investors to participate in the market.

For instance, lets review some "Agent's Remarks" as found on the MLS.

Here is an example of an REO in Roy:

"Seller only accepts full price offers only, no BCC, 10% EMD with cash offers, Property is being sold subject to 24 CRF 206.125. Mold remediation needed, All EMD with Sellers Title company"

Now that is enticing.  It is no wonder the home has been on the market for 5 months with no accepted offers.

Another agent has a bank owned home for sale in Farmington with this wild Agent Remark:

" NO LOW BALL OFFERS PLEASE! 203K OR HOMEPATH RENOVATION MORTGAGE RECOMMENDED!! Showing desk does NOT have any information regarding offers received. Please email ******@****.com for offer status. Offers must include 1% EM or 10% on cash offers (must be deposited into sellers title co @ time of acceptance), pre-approval letter/proof of funds less than 30 days old. The seller has directed that all offers on this listing be made using the HomePath Online Offer system at the HomePath website All owner occupant offers will require owner/occ cert from listing office. Please be advised Fannie Mae does NOT accept electronic signatures. IN ADDITION: please go to https://*******.com -Near the bottom click on "Search Properties". Search by listing agent. Enter "****", choose "Utah" from the state drop down box, and click on "search". Locate the correct property (search house number) and click on "make an offer". Do NOT forget to upload the Pre-Approval (or POF), REPC, Fannie Mae Addendum, and Owner Occupant Certification (if applicable). Sold as-is, NO SELLER DISCLOSURES! Due diligence deadline is 10 calendar days from verbal acceptance. Deed restriction will apply to investors: cannot sell property for 3 months for more than 120% of sales price.  More info on MUST REVIEW ALL MLS ATTACHMENTS PRIOR TO SUBMITTING OFFERS. Sold as-is. Buyer to verify all information."

Oh beautiful...deed restrictions, stiff earnest money requirements, and a convoluted system to submit an offer to boot!  The remarks should simply say NO INVESTORS!

An answer to why this is happening comes when we look at the inventory figures of REO homes in relation to the rest of the market.  In Weber County, 452 bank owned homes sold in the past 12 months. That constitutes 15% of all homes sold last year. 

Today there are only 32 bank owned homes available out of 1536 for sale.  Our REO inventory has shrunk to 2% of the market   Thus, we have less than a 30 days supply of "investment grade" inventory.  The banks know this and they are ratcheting up prices and placing silly restrictions to discourage investors.  This means that we have entered an environment where investors are competing with end-users for some of the best bargains. 

This is ultimately good news for the housing market but frustrating for those seeking to create wealth through acquiring discounted real estate.  The best deals for now will go to those who are prepared and in the right place at the right time. 

Monday, October 1, 2012

JUST SOLD! Updated Turn of the Century Bungalow

I just closed on this home with some seller's in Ogden.

I originally visited with the owners of this home back in April to discuss their selling options.  In August they called me to formally list the home and we put it on the market.

After several showings we finally received an offer from a buyer relocating from northern Utah.  We negotiated a sales price of  $105,000 while paying $1,575 of the buyer's closing costs.   The appraisal and inspection processes went very smoothly and we closed about a week early. 

Congratulations to my sellers!  If you are thinking of selling your home, CONTACT ME, and lets discuss a plan that works for you.