The Reality of the Current Real Estate Market

Amidst all the uncertainty surrounding the economy, I’ve had a number of calls from my clients concerning the tumultuous real estate and mortgage markets. As such, I wanted to take a few moments to address some of these concerns and shed some light on the reality of the situation.

The Real Estate and Lending industries are in fact going through a necessary correction. The industries became saturated with fly-by-night companies. I want to assure you that I am still practicing Real Estate and have no plans to veer from my path of providing ongoing, consultative service to you and your referrals. Real Estate has always been and will continue to be not only my profession, but my passion.

Contrary to numerous reports in the media, mortgage funds are still readily available. The credit markets are tight, but it has yet to have any real significant impact on the availability of mortgage financing. Although 100% loans are all but gone, 3% down loans are still readily available, even for buyers with less than perfect credit. Most of the reports you are hearing about the rapidly disappearing mortgage products have to do with loan programs that were very common in coastal areas.

There has never been a better time to purchase real estate. With inventories at a higher than average level and extremely low interest rates (slightly under 6% for a 30 year fixed rate mortgage as of the writing of this letter) this truly is a wonderful time to move-up or purchase a vacation home. For first –time home buyers there is a window of opportunity that has never before existed to take advantage of a $7500 tax credit! I like to call this the “perfect storm” of opportunity. If you know anyone who is even considering purchasing a home, especially first-time buyers, please let me know!

If you have an adjustable-rate mortgage now may be the WORST time to refinance to a fixed rate. Adjustable rate mortgages are tied to a specific index that changes with the ebb & flow of economic conditions. If your ARM is tied to the 1-year treasury you may be in line for a rate reduction! On the other hand, if your ARM is tied to the LIBOR you may be in for a significant increase. Regardless, my suggestion is to consult you’re your mortgage professional for an audit. As I mentioned earlier, many mortgage professionals have left the industry. Those who are “left standing” are likely the professionals. If you need a referral to a highly qualified professional mortgage planner please give me a call.

Interest rates may be on the decline in the next few months. Economic conditions are ripe for improvement. Interest rates can and do move swiftly so it is imperative that your mortgage professional have an active management system in place to notify you of market conditions. Again, if you need a quality referral please give me a call. We will keep you informed here on our blog as the market changes good or bad here in the Denver Metro Area. Please feel free to contact us if you have any questions regarding buying or selling.

Riding out the market: Some Sellers turn to renting instead of selling

This current market has been challenging to say the least. We have been lucky here in the Denver Metro area not being hit as hard as other major cities in the country. A lot of sellers are feeling the frustration of selling their home now. Those in the higher end price ranges are struggling even more. Often having to reduce their price way below what they thought they would and having their home on the market for several months instead of just a couple. Some of these sellers have turned to leasing instead of selling. Not the most ideal situation but a lot of them are able to recover a part of their mortgage payment and then will look at putting their home back on the market for sale in six months to a year. If you are thinking about doing this you should consult with your real estate professional. A lot of Realtors are willing to help out with the rental process.

Real Estate cycles and a shifting market

In these uncertain times, many pundits and talking heads are reporting the news and acting as if this was the end of the world as we know it- but that just isn’t true. We most certainly are in a shifting market, which threw a lot of us off guard. A few years ago, we never would have imagined the situation we are in today, when homes were selling in record times with many multiple offer scenarios. Or when the consumer confidence rating was at a record 99.5% last September as compared to 59.8% this year. Those glory days are gone and we are facing a new beast.(http://money.cnn.com/2008/09/30/news/economy/consumer_confidence/index.htm).

This shifting market seems foreign to us, seeing as we just went through some pretty great times. But this shift is nothing we haven’t been through before. SHIFT, the most recent book by Gary Keller of Keller Williams Realty International, begins with the following paragraph: “The real estate market has shifted drastically and dramatically. Sales volume and the number of transactions have dropped significantly. Inventory has reached an all-time high. Buyers have never been more reluctant. Fear is rampant, anxiety is high, and people are getting out of the business left and right. Sounds familiar? Sure it does. The year was 1979!” Does it make us feel better to know that this has happened before? What did we learn from it in 1979? Fast forward to 1987 and it happened again. Changing tax laws this time had a disastrous affect again. Well guess what? History repeats itself. Now we are faced with this again, in 2008 but this time there are real differences. In 1979 mortgage interest rates topped 18 percent. Last week buyers were still getting approved at under 6 percent through local lenders. That is a huge difference! Today’s sellers, with the help of their real estate agents, are becoming realistic with today’s pricing, bringing our market back on track. The real estate business is “cyclical.” An experienced real estate agent and a mortgage broker will understand this and be prepared to give counsel that is in tune with the current market. Remember though, the news you heard last week is “old news,” so stay in touch with your local, trusted real estate agent for updates on this ever changing market.
Real estate remains your single most valuable asset if handled correctly.

The Feds cut the interest rate by .5%

So the feds cut the interest rate by .5% and you are probably asking yourself what does that mean for the real estate market. Many people thought it would cut loan interest rates by .5% but if that is what you thought, then you thought wrong.

The Fed rates are short term rates that are charged to banks that are literally borrowing overnight to make sure they have adequate balances for reserves. Mortgages are tied to long term money rates. The Fed rate has an effect on mortgages in the long run, because they have an impact on banks liquidity or access to funds.
In the near term, this could actually have the effect of raising interest rates on mortgages, since this move underscores the Fed’s negative view of the economy. If the Fed is concerned about the economic situation, then banks are too. That concern equates to more risk, and therefore higher rates of default on loans. If loans are riskier, the banks will require higher returns which means higher rates. If this action begins to stimulate the economy, and the financial picture starts to look better, then rates will come back down.

To pass or not to pass?

That was indeed the question of the week...and the final answer came on Friday, as the House of Representatives followed the Senate's lead and passed the $700 Billion rescue plan.
The week began with the House initially voting against the plan on Monday, causing Stocks to plunge in their final minutes of trading to their single worst loss in the 112-year history of the Dow Jones. However, on Wednesday, the Senate passed a revised rescue plan that included some tax breaks and an increase in FDIC protection from $100,000 to $250,000. This was the version the House subsequently passed and President Bush signed into law on Friday.
Why was it important for the plan to pass? Simply put, the plan frees up some of the frozen credit that consumers and small businesses across the country need to survive. As examples, even auto loans were becoming harder for consumers to qualify for...and on the business side, many retail operations have had difficulty in financing their inventory. Credit issues like these are not good for the economy, confidence, and consumer spending, and the rescue plan was passed to help matters.
In other news from Friday, the Labor Department reported that 159,000 jobs were lost in September, which is much worse than the 105,000 lost jobs that economists were expecting. So far in 2008, we have lost 760,000 jobs. And while Bonds and home loan rates would have typically improved on this weak economic news (remember weak economic news usually causes money to flow from Stocks into Bonds, helping home loan rates improve), talk that the Fed and other Central Banks around the world may start cutting their benchmark rates kept Bonds and home loan rates from making a big improvement. Remember, a cut in the Fed Funds Rate is inflationary, and therefore bad for Bonds and home loan rates.
When all was said, done and passed during this incredibly volatile and historic week, Bonds and home loan rates ended the week only slightly improved from where they began. We will continue to monitor this situation closely in the days and weeks ahead.

How many mortgages are late?

I read an interesting fact today and thought I would pass it along. Since all everyone does is talk about foreclosures and the horrible economy, it appears that people are starting to hang on to their homes. Maybe the amount of foreclosures are going to start to disappear.

HOW MANY ARE LATE? - 14 out of every 15 mortgages in the USA as of 8/31/08 are current with regard to their monthly payment of principal and interest (source: Wall Street Journal.)

Fannie Mae and Freddie Mac bailout

The Fannie Mae and Freddie Mac bailout is a result of the sub prime mortgage crisis. Many have hard feelings about the government having to bail out these two giants, but the truth is that it had to be done to prevent the U.S. housing slump from becoming any worse. When the news hit late Friday, the media as usual was painting a grim picture. The truth is this bail out has actually turned out to be quite a blessing in disguise. Due to the government stepping in it has made investors feel far more secure in investing in home mortgages. This in turn has dropped interest rates significantly. When I say significantly I mean by half a percentage point. Today fixed rates on a 30 year mortgage are at 5.625%. We have not seen them below 6% for quite some time now. Most analysts say we can expect to see rates in this range for the next year or so, but have no idea what the long term effects will be with the government now involved. We do know that these low interest rates will bring more buyers in the market and aid in the recovery of the housing slump. Colorado was hit early in the housing crisis and has been showing signs of recovery. This may be the last little boost we need to get back onto our feet again.

To start your free, no-obligation home search click the Home Buyer's Scouting Report to the right of this screen. Or click the Home Search link to the left.

What do you think of the Fannie Mae Freddie Mac bailout? Leave us a comment! We would love to hear from you.

Denver Metro area numbers of sales up, while home prices dip.

Metrolist has released their July numbers. Home sales are up from that of July last year however the median price of condos and residential home sales has dropped. Number of homes sold from July of last year to July of this year increased by 2.95 percent. The median price for a condo dropped 5.7 percent while the median price for a single family home dropped 10.12 percent. This decline in price could be due to the number of foreclosed properties being purchased. Most of them are in poor condition and often do not have any appliances in them. This could cause the price drop that we are seeing in condos and residential real estate. For more specific numbers on your neighborhood feel free to contact the Colorado Success Team at cosmithteam@msn.com or visit our website at www.coloradosuccessteam.com.

June 2008 SOLD numbers looking up from May for Jeffco South

The reported June 2008 residential housing numbers from Metrolist are up from those of May. This is good news for sellers, as we see an improvement in our local real estate market. June saw 204 homes go under contract in JFS up from 171 in May. Current days on market went down 30 days from that reported in May to 63. The average sold price in June was $329,499, up from $319,186 in May. Our average sold price is up signifigantly from $294,856 in January of this year. These numbers are great news if you are thinking about putting your home on the market! For detailed numbers on your specific neighborhood in Jefferson County South or other surrounding areas please feel free to contact us and we will be happy to send them to you!

June 2008 SOLD numbers looking up from May for South Jeffco

The reported June 2008 residential housing numbers from Metrolist are up from those of May. This is good news for sellers, as we see an improvement in our local real estate market. June saw 204 homes go under contract in JFS up from 171 in May. Current days on market went down 30 days from that reported in May to 63. The average sold price in June was $329,499, up from $319,186 in May. Our average sold price is up signifigantly from $294,856 in January of this year. These numbers are great news if you are thinking about putting your home on the market! For detailed numbers on your specific neighborhood in Jefferson County South or other surrounding areas please feel free to contact us and we will be happy to send them to you!

New Senate Bill HR3221 passed, what does it mean for our real estate market?

Senate passed a bill on Wednesday by a 72-13 vote that will allow homeowners who cannot afford their payments refinance into government backed loans. It will also tighten controls and offer a temporary financial life line to Fannie Mae and Freddie Mac. Even though many people have hard feelings toward this bill and feel that they are footing the bill for irresponsible lenders and borrowers treasury secretary Henry Paulson argued that the support given to Fannie Mae and Freddie Mac is vital in calming the markets here in the U.S. as well as abroad. This rescue plan is intended to prevent the two pillars of our house lending market from failing and causing greater turmoil in the economy. Overall I see this bill helping all of us homeowners out of this down market we have been experiencing. The light at the end of the tunnel is getting brighter. Below is an outline of the bill.
The housing bill that Congress passed Saturday and sent to President Bush would:
Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to an estimated 400,000 debt-ridden homeowners. Any losses would be covered by an affordable housing fund financed by Fannie Mae and Freddie Mac, the government-sponsored companies that finance mortgages.
Allow the Treasury Department temporary authority to lend money to Fannie and Freddie or buy their stock to avert a collapse of one or both of the mortgage giants. The authority would expire on Dec. 31, 2009.
Create a new regulator and tighten controls on Fannie and Freddie, including power for the regulator to approve pay packages for company executives. Create a new affordable housing fund drawn from their profits. Permanently raise the limit on the loans they may buy to $625,000 in the highest-cost areas. Allow them to buy loans 15 percent higher than the median home price in certain cities.
Provide $3.9 billion in grants to the hardest-hit communities for buying and fixing up foreclosed property.
Modernize the FHA and allow it to back loans for riskier borrowers. Permanently increase the size of loans the agency may insure — currently set to revert to $362,790 by the end of the year — to $625,000 in the highest-cost areas. The agency could insure loans 15 percent higher than the median home price in certain cities.
Forbid the FHA from insuring mortgages in which the borrower’s down payment is paid by the seller, beginning on Oct. 1, 2008.
Place a one-year moratorium forbidding the agency from charging premiums based on the riskiness of the homeowner, until Oct. 1, 2009.
Provide $15 billion in housing tax breaks, including for low-income housing. Give a credit of up to $7,500 for first-time home buyers who purchase residences between April 9, 2008, and July 1, 2009. Allow people who don’t itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes.
Give states an additional $11 billion in tax-free municipal bond authority for low-interest loans to first-time home buyers, construction of low-income rental housing and refinancing subprime mortgages.
Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.
Provide $180 million for pre-foreclosure counseling and legal services for distressed borrowers.
The bill is H.R. 3221

Denver Metro Real Estate and Economy Good News!

The Denver Post published the following article on July 21, 2008. I feel like this is awesome news for our local economy and real estate!
West’s growth far from done
As the population grows, more production, workers and education will be needed.
By Mark Jaffe The Denver Post
Article Last Updated: 07/21/2008 01:37:26 AM MDT

The Intermountain West — the fastest-growing region in the country over the last 20 years — is set to continue the trend by adding 12.7 million residents and 8 million jobs to its metropolitan areas by 2040, according to a Brookings Institution analysis.
That would double the population and workforce and require an estimated $3 trillion in housing and nonresidential development in the region comprising Colorado, Utah, New Mexico, Arizona and Nevada.
“The West isn’t about wildfires, endangered species and mining anymore,” said Mark Muro, Brookings’ urban-policy director.
“The region is growing up, flexing its muscle and distancing itself from California, which historically has had an outsized impact on the West’s development,” the analysis said.The study identified several challenges for the region, including increasing labor productivity, improving education and innovation, and developing better transportation links to the rest of the nation.
The Brookings analysis identified five “megapolitan” areas in the Intermountain West:
• Colorado’s Front Range.
• Utah’s Wasatch Front linking Ogden, Salt Lake City and Provo.
• Arizona’s Sun Corridor linking Tucson, Phoenix and Prescott.
• Greater Las Vegas.
• Northern New Mexico linking Albuquerque, Santa Fe and Los Alamos and Rio Arriba counties.
“What is hard to realize is that these megapolitans are now equal to the size of a Cleveland or St. Louis,” said Robert Lang, a Brookings analyst.
The growth will be powered by continued migration to the region and a young population — the Western states’ average age of 34 is about two years younger than the national average — having families, the analysts said.
Nevertheless, the region continues to lag in some key areas, the report said.
For example, labor productivity in all but the Front Range trailed the national average. And while productivity nationally rose 2.3 percent a year between 2001 and 2005, in the West it averaged 1.8 percent.
Per-capita income also lagged the national average in all the regions except the Front Range.
“Denver’s growth has been tied to new technologies and new industries, and that’s what the numbers reflect,” said Jeff Romine, an economist with the Denver Office of Economic Development. He was not an author of the Brookings study.
The lag in income and productivity points to problems in education and workforce training in the West, Muro said.
“There is a young workforce in places like the Wasatch area and a real need for training,” Muro said.
The West, Romine said, has long depended on educated and well-trained workers moving into the region.
“Now, we are getting to the point where we have to train and educate our own population,” he said.
The growth of the urban West will continue to put pressure on water supplies — particularly in agriculture, which in 2000 used twice as much water as urban areas, the report said.
The Brookings study said “creative conservation and water planning” are a hallmark of the region and that they will be critical for the region’s growth.