Marin Real Estate Pulse

Tuesday HUD’s Federal Housing Administration said it would allow first time homebuyers to use the Federal tax credit of $8000 toward the down payment at closing on a purchase.  WOW!  They are going to allow approved lenders and local and state governments to issue short term bridge loans to buyers for their down payment.  Once the tax credit is received, the loan would be paid back.  BUT (isn’t there always a “but”??) lenders need to figure out how to create the qualification method, the proper and legal paperwork, and have all these details approved by FHA……..the tax credit expires December 1^st so they better get moving!!  HUD predicts that 53% of the purchases in 2009 will be by first time home buyers.

PS: for a look at current Marin home sales stats follow this link.

Warren Carreiro, Broker

Fannie Mae & Freddie Mac have been in most major newspapers including The Wall Street Journal over the past couple of days but who are they and what do they do? If you Google Fannie Mae you are as likely to get the Chicago chocolate company Fannie May as you are the financial institution Fannie Mae. 

Fannie Mae and Freddie Mac have essentially the same federally charters which is to provide a market for your bank to sell their loans to. Once banks generate a loan they usually sell the loan in the secondary market to either Freddie or Fannie. Banks sell off the loans so they have a fresh supply of money to lend to someone else.

Both Fannie or Freddie are corporations owned by stockholders, not federal institutions. Once they buy have a portfolio of loans they package them into bonds and sell them to investors.  The bonds are guaranteed by Fannie or Freddie so investors feel comfortable buying them.  After the sale they have new money to buy loans from banks and the circle goes on. 

This system has worked well for years but with the financial crises in the United States both Fannie and Freddie are having problems raising enough capital to fund new loans.  This is why they have made newspaper headlines, the Fed is coming to the rescue by offering to lend them money and may even purchase some of their stock if needed. 

No, this article was not written ten years ago, these are Marin condominiums from Sausalito, San Rafael and Novato all currently on the market with an asking price of less than $200,000.   The lower price point has taken a significantly larger hit than the average Marin house.

If you have an interest in looking at this type of investment property let me know.

While I am on the subject of lower priced homes there are 105 condos in Marin priced under $300,000 and what I find interesting is while 31 of those are in escrow the numbers don’t add up to all of them closing.  For example for February, March, and April 2008 an average of 3 units per month closed.  That would imply we have over 30 months of low priced condo inventory.  If you look at the over thirty in escrow the number should be closer to just over three months inventory.  So what gives here, is May going to be a super month or are these just not closing?  Because I have not been following this statistic I can’t say for sure but when probing a little deeper I find that the vast majority of these condos in escrow are short sales.

In prior post I have written about the large percentage of short sales that fall out of escrow.  Part of the reason for this is sellers and listing agents are not always realistic about the asking price.  After all, it is the bank that has to agree to take something less than the full loan payoff, they are the one short at the end of the day.  I am not defending banks or their prior practices by any streach, just pointing out that short sales fall apart for many reasons; lack of or untimely bank response to offers, and unrealistic asking and offer prices just to name a couple.  That being said, I feel if you are willing to put up with what it takes to close a short sale you better have gotten a very good price on the property.

Reading the newspaper and watching television I could assume that my home town of San Rafael, California has experienced a meltdown as well.  Well, I hate to pop your bubble but the Marin County B.A.R.I.E.S (MLS) statistics don’t show that has occurred as you can see from the chart below.

Does this mean this is the best time to buy San Rafael real estate? As a real estate broker you would expect me to say, don’t wait, this is the best time to buy Marin real estate.  Well, I don’t want to disappoint but I don’t know when the bottom (or top) of the market has hit.  I recently heard someone say that those who will make money in real estate in the next ten years will be buying in the next two years and I agree with that.

Additionally, why are you buying a home, is this going to be a place to put your roots down and stay for many years or are you trying to flip it with perfect timing?  When I purchased my home in 1992 prices were soft for a couple of years after.  If my intention was to flip it I would have lost money.  That was not my intention, I was looking for a home for my family. The home has increased in value tremendously and has been a fantastic investment. It really did not and does not matter if the value goes up or down for a few years because I am not selling, this is my home.

So, if you are in the market for a home and plan on spending over five years there, Marin history says it will also be a great investment. If interest rates were to rise, and they are still low, it would make that purchase all the more difficult.  If you are waiting for the “bottom” of the market we may already be there and if you wait until the market turns it is too late to negotiate while you still hold the cards. 

Here are the statistics for single family homes in Central San Rafael (zip 94901) for the past three years

Homes are are taking longer to sell and if you can qualify for loan, you have great negotiating power.

REO House

March 10, 2008

REO is a real estate term which means “real estate owned”.  The real estate is owned by bank or lender, typically as a result of foreclosure.  When a bank lends you money to purchase a house, the home is collateral for the loan which means if you don’t make your payments the bank has the right to take ownership of the property.  Mind you, this is not property the bank wanted or wants to keep, it is a drag on their balance sheet and ties up money that could be used for other loans.

Once a bank owns the home they want to sell it a quickly as possible.  This does not mean a fire sale but often the prices are slightly under market price.  The banks will use a professional appraiser and a couple of real estate brokers to help determine market price.  The bank is not legally required to complete the usual disclosure documents because typically they don’t have enough information, though they still must disclose what they do know.  For buyer’s this means the home is purchase “as is” so it is especially important to get good inspections.

March 10, 2008

Short Sales are relativity new to the real estate/banking world.   What is a short sale and how do they affect buyer’s, seller’s, and banks.  Simply put a short sale is where a home sells for less money than the seller owes the bank and/or private lender.

For example, if you owe $500,000 on a house but it sells for $350,000 you are short $150,000 of the amount needed to pay off your loans.  Usually, because of commission, taxes, late payments, and expense the “short” amount might add up to another eight or ten percent, in this example the seller might be short $190,000.  What happens now, doesn’t the bank still want all their money?  Of course they want all their money but what are they to do if the seller does not have any money and the house value has declined?  What they do is eat the difference, the short amount. 

The bank will usually forgive the borrower the short amount and write it off as a loss.  They made a bad business decision and have to pay for it.  Usually they lent the buyer %100 of the money needed to purchase the home, and often without supporting documentation on the buyer’s income or assists.  It is called loose underwriting and those days are over.  It really was a dumb idea; when you think about it, even if the value of the home remained stable the bank would have expenses if they took back the home to sell.  In a declining market it just makes it that much worse.  Is this predatory lending, yes in many examples it is.  Did the buyer’s lie on their loan application?  Sometimes they did but other times the mortgage broker filled in the numbers.  Did the buyer’s know their interest rate was going to jump in a few years?  Many did but maybe he was not given all the information up front.

Okay, so we learned the bank eats the lost money but what happens to the buyer?  In the vast majority of cases the buyer does not owe the bank any of the shortfall, however, in most cases the buyer has a bad credit score as a result of the short sale.  Better than a foreclosure but bad none the less. 

Prior to a new law moving its way through the system (I think it is finally in effect – consult with your accountant for details) buyer’s that shorted a bank on a sale would owe tax to the IRS and state on the amount of money forgiven.  In the example above the buyer would have owed income tax on an additional $190,000 of income. 

Warren Carreiro, Broker

Crazy market.  Below is commentary on what exactly is happening when the “Fed cuts rates.”

Yesterday’s Fed move caused folks to think back on what Fed Funds really are. Remember that “Fed Funds” is the rate that banks can borrow money from each other to keep their reserve amounts in line.  This is a one day, or overnight rate. The “Discount Rate” is the interest rate at which an eligible financial institution may borrow funds directly from the Federal Reserve when their reserves dip below the reserve requirement. The Discount Rate is considered the last resort for banks, which usually borrow from each other. The Federal Reserve can change either, but they can’t change mortgage rates. If a borrower asks you why their mortgage lock doesn’t drop .75%, here is the simplest answer.  Moves in overnight rates aren’t directly linked to mortgage rates.  They set the stage for lower rates, but usually weeks down the road.  I like to use the analogy of steering our economy with steering a huge tanker in the ocean.  If the captain of a big tanker wants to make a left, he turns the wheel a mile or so in advance.  Same thing with the economy.  Corrections made now usually do not manifest themselves for a month or two.

Mortgage rates are dependent upon many more complicated factors than the Fed raising or lowering them. The supply of mortgages, the demand by investors for them, the value of the servicing, the credit quality of the borrower, etc. all factor into mortgage rate.

Here is something to consider.  Yesterday’s stock market opened in a free fall.  The Fed had to make an emergency cut announcement to stop/avoid a stock market collapse.  The “stock market” liked the move, came back in the end, and only closed around 128 points down in the Dow.  Now here is the thing…If the Fed did not cut the Fed Funds rate and Discount Rate, our mortgage rates would have been lower.  A simple rule of thumb is if the stock market is up, rates can be up.  If the stock market is down, rates usually follow.  So, what do you think might happen if the Fed cuts again at next weeks meeting?  If the stock market perceives the cut as a good thing and goes up do rates follow?

For those “students of the game” who are still reading, you may wish to check out the links below.

 http://library.hsh.com/?row_id=91 may be a help to you.

Also check out http://biz.yahoo.com/cnbc/080122/22783168.html