Jul

22

Long Island Distressed Housing Report July 2011

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The Long Island real estate market has seen its share of lumps during this turbulent housing crisis. I want to emphasis the word “crisis”. There are still many homeowners out there trying to sell their own home or using discount brokers to “save on the commission”.

I’ve got news for you, in this market, you’re not saving anything.

We are in the middle of a housing crisis, not a “bad market”. And from the numbers I’m looking at, Long Island is in the middle of its uphill battle. I’m not saying prices are going to decline another 30% or that housing values will continue to decline for the next 5 years (yes it’s been nearly 5 years that home prices have steadily declined – since 2007). Time flies when you’re…well time just flies I guess.

In any event, I decided to run the numbers on some random towns and what I looked at was the current available inventory in 10 towns. I then looked at how many short sales and REO (real estate owned – bank owned properties) listings were available and came up with a percentage for each town. The numbers are incredible.

10 Towns

Baldwin 22.6% [190 homes for sale, 42 short sales, 1 Active REO]
Bay Shore 44.8% [386 | 165 | 8]
Bellport 38% [50 | 19 | 0]
Centereach 30.5% [154 | 42 |5]
Corona 23.1% [221 | 48 | 3]
E. Patchogue 29.9% [144 | 42 | 1]
East Hampton 18.4% [87 | 15 | 1]
Hempstead 72.1% [208 | 137 | 13 ]
Lindenhurst 24.6% [260 | 59 | 5]
Shirley 38% [310 | 115 | 3]

When I did this random sample of towns on Long Island, it wasn’t just the numbers that caught my eye, but the differences between how many short sales there are on the market and how little foreclosures are currently listed in comparison. This is a problem and it’s spelled out very good in the graph below.

When you look at a town like Hempstead (in bold), I wasn’t just shocked that nearly 3 in 4 homes is in distress, but that there are only 13 bank-owned homes. The graph above demonstrates how far behind the banks and courts really are to clearing out these homes or fixing the crisis. There’s that word again!

If you take into account that in July of last year, the Times pointed out that the process was taking nearly a year and a half to actually foreclose on a homeowner shows that this problem is systemic.

Fast-forward to the end of 2010 and you see that Nassau and Suffolk county rank in the top three areas of the country with the most months of shadow inventory and what you have an area that has a lot of work to do.

Now I also looked at the national REO numbers in comparison to the sales prices of homes throughout the period from 2008 through 2011 and it’s a mirror image.

As foreclosures go up in volume, the prices drop just as much in the opposite direction.

The Bottom Line

If you’re a homeowner and you’re trying to sell on your own to “save a commission”, please stop and call me right now. This is a housing crisis we’re in, not a “bad market”. It takes special and careful planning and review of information like this, to determine where your price point should be and what marketing strategies to use. If you’re behind on your payments, do not delay, contact me now to go over your options.

If you’re buying, now or 2 years from now – the differences will be tremendous. The cost of mortgages is going up, but prices won’t move all that much from here on out. Shadow inventory or steady short sales and slow-to-the-market foreclosures aren’t going to move the housing prices much further down so you won’t be “saving” either.

Call me to discuss this. I have more slides and information than you can possibly need to make an educated decision about investing in real estate (631)831-9048. I look forward to your call.

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Jul

22

Assets And Your Mortgage Application

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When lenders evaluate mortgage borrowers, they look at four things: income (the ability to repay), credit (the willingness to repay), collateral (appraised value and property condition) and assets (cash in the deal and cash reserves after closing, mostly). Of the “four legs of the table”, assets are the least discussed, and yet may be the most important.

What do we mean when we talk about assets?

Monies needed for the down payment (the difference between the purchase price and the loan amount which may or may not be the same as the money deposit at contract signing)
Monies needed for closing costs (fees to the lender and third parties for things like appraisals, title insurance, settlement services, and so on)
Monies needed for Pre-Paids (homeowners insurance, flood insurance, real estate taxes, etc.) and establishing escrow accounts for future payments
Monies for Reserves- the money you still have left after closing. Monies that would be available, if a problem were to arise

Why do we care about assets?

Assets may be the truest reflection of a borrower’s fiscal strength. Their ability to save and properly budget could be a significant indicator to their future paying habits
The source of the assets is important. Savings? Gift or inheritance? Lottery victory? Insurance settlement? Sale of a baseball card collection? Each reflects differently on the borrower.
Many people don’t show all their income on their tax returns (it’s just a fact). Undocumented income can’t be used to qualify; however, often assets become a truer representation of a borrower ability to pay than their 1040s.
Reserves are an issue. A client with $50 in the bank after closing is riskier than one with $50,000. Also, clients who have money in the bank but have some sporadic lates on their credit are looked at differently than those who didn’t have the money to make the payments.

Common Asset Issues in Mortgage Packages:

Large deposits (defined as those which are excessive for the income level) raise an underwriter’s eyebrows. Where did the money come from? Maybe the borrower took a loan that doesn’t yet show up on their credit report.
Cash deposits are another red flag. In this day and age, people keep their money in the bank, not under their mattress. Where did the cash come from?
Gift monies and seller’s concessions, while considered as borrowers assets when doing calculations, will give an underwriter pause when assessing the borrower’s real ability to replay.

Guidelines have tightened. When borrowers are paying off credit cards to get their ratios in line, lenders are asking where that money came from now. That act has nothing to do with the home purchase, but may be a sign of something fragile in the borrower’s financial make up.

The best advice is to consult a loan professional to discuss the proper way to position your assets and the timing of it that will put you in the most favorable light.

By Dean Hartman
Continental Home Loans

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Jul

21

Mortgage Loan Limits Expiring

Filed Under Buyers, Sellers, Sellers & Buyers | Comments Off

Something for homeowners and buyers to consider very seriously are the conforming loan limits for FHA-backed mortgages, especially on Long Island. Currently, loan limits are higher thanks to the congress raising the limits on home purchases, helping the real estate industry achieve higher conforming loan limits so more people can get better rates (at higher price points).

QRM

This has helped to keep the Long Island real estate market moving in the right direction of growth. Additionally, as mortgages became increasingly difficult to get after the debacle of the mortgage market in 2007 and 2008, they have slowly become “normal”, meaning banks are lending to qualified buyers. Now with the onset of QRM – Qualified Residential Mortgage – (see page 4 of this guide), mortgages will become more expensive and these requirements will reduce the buyer pool.

Conforming Loan Limits

Conforming loan limits are vital to the improvement of the Long Island housing market for several reasons. It helps the “move-up” buyer acquire financing at the current great rates. This allows the homeowners in the higher range to have a larger buyer pool and thus more demand. We all know that demand is low as it is so with these expiring mortgage loan limits, decreased demand won’t be good for housing prices.

As you can see from the graph, $104,250 decrease in the loan limit will significantly change the housing market and not for the better.

What can you do? Contact me and I’ll point you to the right person to speak with at National Association of Realtors (NAR). We have action committees working with congress to reach sensible solutions to our housing challenges.

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Jul

7

To Rent Or Buy?

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Now I’ve written a few articles about the cost of higher mortgage rates and how it will impact your ability to purchase a home, but I wanted to take a look at what some experts are saying now about the cost of renting vs the cost of buying a home. I think the information will surprise you.

What CitiGroup Said

Now this of course only applies to people that actually have a job (unemployment is still high throughout the country and locally here on Long Island), but while maybe 1 in 10 people are not employed, 9 in 10 are, so those with a job, income is actually higher than the “cost of living” to own a home.

Now nominal home prices are in line with household income, selling at less around 2.6 times median income according to Citi.

Again, don’t forget that the cost of a home is not necessarily what you pay for it, but what it costs you out of pocket via down payment, closing costs and then of course, monthly payment. So “affordability” when compared to renting, is very advantageous mainly because of the historically low interest rates.

Bottom Line

As we progress through this year, it’s going to be important that you evaluate where you stand with regard to measuring the cost of renting vs. the cost of actually owning your own home. Only you can make that decision but it’s best to get as much information as possible in order to make the best buying (or non-buying) decision that’s best for you and your family.

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Jul

22

Long Island Distressed Housing Report July 2011

Jul

22

Assets And Your Mortgage Application

Jul

21

Mortgage Loan Limits Expiring

Jul

7

To Rent Or Buy?

Buying A Home?

Selling A Home?

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