Jan

22

Long Island Real Estate: January 2011 Update

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This is another update for the Long Island real estate market, featuring the latest information on price forecasts from Bank of America and other sources. As you know, it is my goal to keep you updated on a monthly or weekly basis as to the status of the real estate market and this article is packed with some helpful information.

Price Forecast

Bank of America notes that prices throughout the real estate market, not just Long Island, will continue to soften during the entire year of 2011. This is mainly due to an over supply of inventory and lower demand. This is despite the fact that buying demand is up and will remain high throughout the whole year. The demand just doesn’t meet with supply (or even come close).

As more people are tying to sell their homes, buyers have a lot to choose from. Take this into account; for every one buyer, there are 10 sellers vying for that same buyer on Long Island.

Long Island Supply Vs Demand

This has been and remains the number one challenge for the Long Island real estate market. This high supply is impacting nearly every single town, development, and gated community. On average, 8 to 10 sellers are trying to market to the same buyer. That’s what is making this a “tough market” for sellers.

Those homeowners that are priced “right”, attract the most buyers, offers and get their home sold. Those that have continued to price their home too high for the last four years, have allowed many qualified buyers to slip through their grasp, listening to weak real estate agents provide incorrect pricing strategies and signing up for LONG-TERM Listing Agreements (I offer 4 month listings – mainly because it shouldn’t take longer than that for me to sell your home).

Foreclosure Inventory

As the Wall Street Journal points out in the slide above, banks like Wells Fargo are predicting an 8% drop in pricing through mid-2011 due to an ever-increasing foreclosure crisis. Pricing on these types of properties sell at steep discounts. The more foreclosures there are on the market, the more they drag down prices (because they drag down appraisal values).

You must remember that your home must appraise for what ever your buyer agrees to pay you. Unless the buyer is an “all cash” purchaser or putting down over 20%, if your home doesn’t appraise for enough, you will have problems getting your home closed. This is yet another reason to call a professional real estate agent and get more than one opinion on price point (hint: beware of the agent who gives you the highest value of your home).

Should you have any questions or would like to schedule an appointment, you can contact me at (631)881-5959.

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Jan

13

Will Home Prices Decline in 2011

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The big question facing the Long Island real estate market is, “Will home prices decline in 2011?” I agree with most experts who believe prices will continue to soften for the first half of the year. Supply and demand will determine this. Let’s look at where real estate sits entering this year compared to the beginning of 2010.

Demand

1.) Last year, The Home Buyers Tax Credit was both extended to the end of April and expanded to include move-up buyers. This increased demand to some degree. However, most now believe that the tax credit simply dragged demand forward from later in the year. What took place was a surge in sales prior to the deadline and then a dramatic fall off after April.

This year, there is no such tax credit in place to drive demand. It also seems that there is no political will to revisit a homebuyers’ tax credit at this time.

2.) Last year, the Fed’s purchase of mortgage-backed-securities was extended to the end of March. That increased demand by guaranteeing low interest rates through the first quarter. And economic conditions forced interest rates to new lows even after the Fed backed off the purchases. There was a full six months of historically low rates to bolster demand.

This year, interest rates are rising as we enter January and are projected to continue their upward climb. The National Association of Realtors, the Mortgage Bankers’ Assoc and PMI are all calling for rates to continue to rise through the first half of 2011.

Supply

1.) Last year, the administration was taking the initial steps in implementing a comprehensive loan modification program. This program limited the number of foreclosures coming to the market at discounted prices. It also delayed the entrance to the market of many more distressed properties. According to the OCC and OTS Mortgage Metrics Report, we enter 2011 with “newly initiated home retention actions” down 32.4% from the same time last year.

This year, the administration is touting their new ‘short sale’ program. This will increase the number of distressed properties hitting the market.

2.) Last year, state and local governments were declaring foreclosure moratoriums thereby limiting the number of foreclosures entering their markets. There doesn’t seem to be the same political will to revisit moratoriums in 2011.

This year, though the robo-signing mess will initially delay the entrance of some distressed properties to the market, most believe there will be a wave of discounted properties coming in the first quarter.

CNBC reported on economist Nouriel Roubini’s predictions on this issue:

“There has been an effective moratorium on foreclosure,” said Roubini.

And the beginning of the end of that moratorium means more housing supply is about to become available on the market.

“The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year,” Roubini says.

Bottom Line

Without the programs that encouraged buyers last year, I see a steady but slow growth in demand.

Without a strong commitment to limiting distressed properties, I believe that there will be a wave of discounted real estate entering the market in the form of ‘short sales’ and foreclosures.

A limited increase in demand and a surge in supply will equate to lower home prices as we move into the year.

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Jan

11

Are Short Sales the BIG Solution?

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The article, Foreclosure VOIDance, discussed the challenge that banks are facing in their attempt to complete foreclosures. Some courts are attempting to void the foreclosure if the bank did not properly transfer the mortgage from one bank to another. The courts are claiming that, if you didn’t ‘legally’ transfer ownership of the loan documents, then you don’t ‘legally’ own it. If you don’t own the debt instruments, you can’t foreclose on them. What does this mean to banks when they handle future foreclosures?

One possibility is that banks may start favoring ‘short sales’ over foreclosures in more cases. The ‘short sale’ option has already been gaining momentum. The OCC and OTS Mortgage Metrics Report shows foreclosures are up 57.5 % year over year; ‘short sales’ are up 82.9%.

Now, with courts scrutinizing the foreclosure process, it may make more sense for banks to work with the current homeowner to sell the home even if it is at a price less than the amount owed on the mortgage. Adding to this possibility is that banks could lose less in a ‘short sale’ than a foreclosure. A ‘short sale’ sells for 81% of what a similar, non-distressed property would sell. A foreclosure sells for 59% of full value.

In the past, banks weren’t concerned with the difference because mortgage insurance companies had the legal requirement to cover the majority of the additional loss. However, insurance companies are now fighting these payments claiming that the original mortgage application might have been fraduantly written. This all adds up to the liklihood that banks will look more favorably at the ‘short sale’ process.

To this point, an article in Housing Wire quoted John Vella, the chief operating officer at technology provider Equator:

“Investors usually see a 20% to 30% better execution on a short sale versus an REO sale when it comes to loss severity. With the foreclosure volume, current and pending REO inventories, servicers will be pressed to do more short sales in 2011…they could see an increase of at least 25% over 2010 in completed short sales.”

Bottom Line

For the reasons mentioned above, the banks will probably lean more toward ‘short sales’. If you are a homeowner not able to pay your mortgage, this may be a much better option then allowing the home to go to foreclosure.

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Jan

11

Foreclosure VOIDance?

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A court in Massachusetts voided two bank foreclosures this past Friday. The decision has already created a ripple effect across the banking community. Will other courts also decide to void local foreclosures? Does this put an added burden on banks when they are trying to complete a foreclosure process? What will it mean to the real estate market? Let’s take a look.
What actually happened?

Though the challenges addressed yesterday might have been brought to light by the robo-signing mess, that situation was not involved in this ruling. The question addressed here was much deeper than someone not checking paperwork. The question was whether the bank could prove they owned the mortgages they were foreclosing on.

There are set legal procedures that must be taken to transfer a mortgage from one person/entity to another. It seems that these requirements were not fulfilled by many banks over the last several years when mortgages were transferred quickly and often.

The court decided that, since proper procedures were not followed, there was no legal transfer of the mortgage to the new bank. If the new bank didn’t legally own the loan, they had no right to foreclose on it.
What does that mean to other foreclosures?

That’s the million dollar question! No one knows for sure. Will every foreclosure be voided? No. Will many? That depends on how the courts rule and how the banks react.

Bloomberg reported:

Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., called the decision “a landmark ruling” showing that at least in Massachusetts a mortgage “must name the assignee to be valid.”

“This is likely to open the floodgates to more suits in Massachusetts and strengthens cases in other states,” Rosner said…

Although the decision was issued by a Massachusetts state court, it will be used by homeowners in foreclosure cases in other states, said Matthew Weidner, a St. Petersburg, Florida, lawyer who represents such homeowners.

“This is a very detailed, very specific indictment of an entire industry’s practices and procedures, and it’s an indictment that is going to send shockwaves throughout the entire mortgage, foreclosure, real-estate servicing industry,” he said.

Couldn’t this cost banks millions of dollars to correct?

Actually, it could cost billions. Market Watch reported:

Bank stocks fell sharply Friday as the highest court in Massachusetts reportedly ruled that two foreclosures were invalid because banks didn’t show they owned the mortgages.

The decision is the latest setback for banks after some lenders halted foreclosures in 2010 following claims they didn’t have proper documentation.

… “These cases fall generally into the class of mortgages where origination paperwork was mishandled or poorly documented,” Mitchell said, estimating that U.S. banks face between $80 billion and $120 billion of potential liability.

What does this mean to real estate?

If you are in the market to buy or sell, realize that the inventory of foreclosed properties that had been scheduled to hit the market in the first half of 2011 may be delayed. The New York Times reported:

An array of federal and state investigations into the way banks foreclose on delinquent homeowners has contributed to a sharp slowdown in foreclosures across the country…

The pace of foreclosures could be curtailed further by courts. In a closely watched case, the highest court in Massachusetts invalidated two foreclosures in that state on Friday…

If the slowdown continued through this month and into the spring, it could be a boost for the economy. Reducing foreclosures in a meaningful way would act to stabilize the housing market, real estate experts say.

Bottom Line

If you are in the foreclosure process and think your rights have been impaired in any way, you should perhaps get legal counsel.

If you are thinking of selling, this has increased the window of opportunity you have to sell before this ‘discounted’ inventory comes to market.

If you are buying, prices may not soften any further to later in the year. Many are predicting that interest rates will rise as we go through the year. If you are thinking of buying in the next six months, now might be an opportune time.

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Jan

7

Long Island Real Estate Market: To Sell Or To Wait

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I recently had a conversation with my mother about the Long Island real estate market. She asked me if it would be a good time to sell. She was talking about the home I grew up in and of course I told her it was never a good time to sell! Once I regrouped my rational thoughts, I was able to give her a more comprehensive answer and this is what it was.

First of all, you must measure your motivation for selling. Do you “have to” sell? This is a relative question that requires a comprehensive look at personal circumstances. The short answer to the question of selling now is: Of course it’s not a good time to sell a home. Additionally, measuring the “have to sell” factor requires that personal in-depth look at your financial, life and family situations and match them to the market information you get from a professional.

The part about matching your circumstances with market information from a professional is vital to the success of your decision-making. My Mother has the advantage of having her son be the Long Island real estate market expert!

So as we continued our conversation under the umbrella of personal circumstances plus market information, I showed my Mother some slides and we talked about her life circumstances. To keep this from becoming a boring example of my Mom’s circumstances, I will point out some general positions homeowners may find themselves and highlight the advantages.

1. You can be selling and wanting to buy another home either on Long Island or in another state (i.e. Florida). Advantages are that you’re selling lower but buying lower (and with the rates at or under 5% as of today, you’re buying power can be tremendous – see graph below).

What this graph demonstrates is the difference between monthly principal and interest payments. At lower rates, you can buy more and still pay less!

What are the disadvantages to selling now and buying another home? None.

2. You’re selling your home but not buying another home. Perhaps it’s a family estate or a second home? The number one question you’ll have is, “Should I sell now or wait?” And my answer is, wait for what and for how long? If you’ve been fighting the notion to sell for the past several years, give up already. Sell your home now and here’s why.

Let’s look at the gains first.

Here we can clearly see that if you invested your money in the stock market in 2000 or in real estate, your return is still tremendous if your money went into real estate. So that’s the bright side to selling now.

Want to wait until the market comes back a little? And this is where the conversation with my Mom focused, because there is so much to weigh. Our lives aren’t just about the “all-mighty dollar”. Selling a home is not just a financial decision, it’s a life decision. Let’s look at waiting for the short-term (until Spring or later in 2011). This is a risk or the result may be the exact same as selling right now.

For an explanation of this slide, see this article: What Will Impact Home Prices in 2011?

But to be more accurate to our area, I focused on our local Long Island real estate market. And when we talk about the unknown in the marketplace, this is exactly what we’re talking about.

When Long Island is the number two highest area in the country with foreclosures/distressed properties, this should be a main area of concern. All the expertise on the real estate market can’t predict how this can impact the market during 2011 and through 2012. This and unemployment are the “X-Factors” of our local market.

So as I discussed this with my Mom, my recommendation, given all her circumstances, was to not sell now because that’s the home I grew up in!

But seriously, she asked out of general curiosity. She has every plan to live in the home through the next decade and if this is a remote option for you, the future looks very bright. But it’s a long way to get to 2019. Life circumstances like where you’re children and grandchildren live, how old you are, if you’re retired or just about to, if you can continue paying high taxes, if the house is vacant, if the property maintenance fees are too high, if you like mild weather, etc., are all a part of what you must look at in conjunction with, the market information I provided here.

Should you have any further questions or would like to schedule an appointment, please call me at (631)881-5959.

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Jan

22

Long Island Real Estate: January 2011 Update

Jan

13

Will Home Prices Decline in 2011

Jan

11

Are Short Sales the BIG Solution?

Jan

11

Foreclosure VOIDance?

Jan

7

Long Island Real Estate Market: To Sell Or To Wait

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