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Intero Insider: A Quick Pulse on the National Market

By Gino Blefari | September 27th, 2011 0 Comments

The housing market had a glimpse of good news this past week when the latest report on existing home sales showed an increase in sales both from the previous month and compared with a year earlier. There were a lot of things going on this report, so let’s dig in:

  • Sales of existing homes increased 7.7% to a rate of 5 million in August, up from 4.67 million in July. Sales were up 18.6% from August 2010. Obviously, this is a great sign. While many news reports early this week focused on the dismal housing starts numbers, existing home sales are a better indicator to watch because as long as there’s a glut of existing home inventory in many markets, starts will remain low. In other words, existing sales need to move first before any improvement in starts will take place.
  • Investors continue to gobble up property; the share of investors buying existing homes in August accounted for 22% of total sales, up from 18% in July and 21% in August 2010. Investors are motivated by the incredibly low cost of borrowing right now and the hot rental market that continues to see more demand and rising rents in many areas.
  • First-time buyers remained steady, accounting for 32% of home purchases in August. That was unchanged from July, and up slightly from 31% in August a year ago. This is surprising, given the many problems with contracts falling through. But again, it’s a great time to buy for those buyers who are financially ready – rock-bottom interest rates, amazing affordability, and plenty of home inventory to choose from.
  • Contract problems persist. The percent of contracts that fell through in August was 18%, up from 16% in July and 9% a year ago. Realtors say cancellations are largely due to declined mortgage applications or problems with appraised values coming back too low to support the negotiated price.

What’s the overall read? Not much has changed, despite the positive growth in sales. Low rates, bargain prices and a healthy rental market continue to lure more investors and first-time buyers. Restrictions in the lending market and problems with fluctuating home values continue to plague a lot of deals. What we’re seeing now is the slow growth many predicted and expected to happen earlier in the year.

What’s next? The Fed’s been discussing its new “Operation Twist” tactic, which basically means it’s going to be manipulating long-term interest rates by buying long-term bonds. The Fed has already said it’s keeping short-term rates low for the next two years – and at zero, they can’t even really do much more on that front. So, you guessed it – even lower interest rates may be on the horizon for home loan borrowers, which should help to fuel demand going into the traditionally slow season.

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Intero Insider: Housing and the Freelance Economy

By Gino Blefari | September 20th, 2011 0 Comments

Most of us in the real estate business understand what it’s like to be an independent contractor, aka freelancer – or as I often refer to it as “we eat what we kill.” The various challenges with getting a loan or line of credit are quite different when you’re in this type of employment situation. This has become an important issue in the housing market as millions more American workers move to independent or freelance status in a continuously tight job market.

Now is the time to be mindful of the challenges ahead. What happens when a self-employed individual tries to buy a home? He’s making decent money, has a sizeable down payment stashed, and is ready to jump in. But with extremely tight lending standards and non-traditional income, he faces a complicated battle.

Here are some tips for independent contractors looking to buy a home and for agents who have them as clients:

  1. The road is difficult, but not impossible: This is the first thing to keep in mind. As a contractor, you will have to prepare a lot more than a traditionally employed borrower. But this doesn’t mean you won’t get the loan. Brace yourself for a mountain of paperwork as lenders naturally are going to ask more questions about your source(s) of income, and you’ll need the paperwork to back up your claims.
  2. Highlight income stability: What lenders are looking for is proof that your income is and has been stable for a period of time. Basically, they can’t take a chance lending you money if you’ve not proven that you can consistently pay them back. Many mortgage brokers say to expect to have to show your earnings for the year-to-date when applying for a loan this fall. This goes with the point about income stability. They need to know that you’ll have steady income throughout the year, not just seasonally.
  3. Pay off other debts: All borrowers’ credit and debt situations are highly scrutinized these days. You’re going to help your case much more by coming to the loan with a lot less debt already on the books.
  4. Gather three years’ worth of tax returns: Even if you’ve only been self-employed for the past year, showing a few years’ worth of returns can help the lender see that you have been entrenched in your industry, and even give a view of what kind of salary you’ll likely fetch should you get a payroll job once again.
  5. Seek out local banks and credit unions: Don’t rule out larger lenders, but take some extra time to shop around at local banks and credit unions. These smaller operations are sometimes more willing to take the time to get you qualified.

The Freelance Economy is a new reality for post-recession America. But it shouldn’t stop those individuals who own their own business from buying homes. Freelancing is a legitimate way of making a living – you just have to expect a lot more hurdles when seeking a loan.

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Intero Insider: Can Refinancing Save the Day?

By Gino Blefari | September 13th, 2011 0 Comments

We haven’t heard much from President Obama this summer on the housing market – other than ideas for fixing the Fannie Mae/Freddie Mac problem. He’s certainly had a lot of other things to deal with. But he ended the silence in his speech on jobs last week when he said that he’s looking to broaden U.S. homeowners’ access to mortgage refinancing as a way to get more money back in their pockets.

This wasn’t terribly exciting to hear since we’ve already seen some pretty big failed attempts at “refinancing” away the housing problem. In fact, the real housing news in the President’s speech was the $447 billion jobs package itself. We all know that jobs are the real answer to cleaning up the national housing recession.

Still, Obama believes that by broadening refinancing, the average family can save more than $2,000 a year – a much-needed boost for many. In fact, with average rates on long-term fixed-rate mortgages at ridiculously low levels – 4.12% on a 30-year fixed last week – refinancing does seem like a great option for the economy. So, what is the problem? Why aren’t millions of people already refinancing their loans? Why does the government even need to create a special refinancing program?

The problem has been that even with rates as low as they are, many homeowners have been shut out of refinancing because they either have shoddy credit histories or owe more on their original mortgage than their home is worth. What the government is trying to do now is remove these and other barriers. White House officials said in news reports on the topic that the U.S. Treasury was in talks with Fannie Mae, Freddie Mac and the Federal Housing Finance Agency about ways to open up refinancing.

The problem with simply removing these barriers to refinancing is that it could cause investors in the mortgage market to lose billions of dollars. Some also say it could put Fannie and Freddie at greater financial risk. It will come down to weighing cost versus benefit: Will that extra $2,000 per year for the average homeowner be enough to save him? And is that worth turning off many more investors who will lose much more than that?

The administration hasn’t released any specifics of how a new refinancing program would work or how it would affect the mortgage industry. But they expect to begin releasing details over the next several weeks.

Refinancing is a great idea and a great privilege to those homeowners for whom it makes sense. But, at some point in this plan, I hope we see more scrutiny of the overall benefit of a government-supported program to help the overall housing economy. We have real problems in the national housing market that affect real people; I’d hate to see it continue to be just another political platform to stand on.

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Intero Insider: Study Spotlights Bay Area College Towns for Investing

By Gino Blefari | September 6th, 2011 0 Comments

While the real estate and economic news is often bleak these days – no new jobs in the latest national report, persistent foreclosures, softening values and slower sales – the reality is that now is a great time to take advantage of the lows. This is especially true for investors.

An interesting report from ZipRealty last week tackled an age-old question in real estate investing: Are college towns better investments for landlords? The study included data pulled for Berkeley compared with the East Bay in general, Palo Alto compared with the South Bay in general, and Cambridge, Mass., compared with Boston in general.

In each case, the college town proved to be a much better real estate bet. In Berkeley, home to the University of California, the median price-per-square foot for homes sold doubled that for the East Bay as a whole for almost two years. This is no big surprise to anyone who’s tried to buy a home in Berkeley over the last few years; the market has been just as fierce for the most part as that the rest of the country felt back in 2004.

In terms of market distribution, though, Berkeley showed more market-priced sales than distressed ones compared with the East Bay as a whole. While this shows stability, distressed sales are often the sweet spot investors need to really make waves.

In Palo Alto, home to Stanford University, the data showed a similar story. The median price-per-square foot for homes sold doubled that for the South Bay as a whole for almost two years. Palo Alto also had a much higher distribution of market-priced sales than distressed sales.

College towns can be great investments for the real estate-minded. A steady influx of young twentysomethings attending school makes for a steady supply of renters. These renters usually have financial support of some kind as well, making them reliable sources of income.

However, a university alone isn’t a great gauge of whether or not to invest in one town over another. Berkeley, for instance, is infamous for its restrictive rent stabilization laws, which can quickly become a landlord’s biggest nemesis. College towns are also much more transient than other towns – so that steady influx of potential renters also means constant turnover, which can eat into profits.

One other thing that may turn the “college towns are great places to invest” theory on its head is a way investing Warren Buffet lives by – the best investments are those that no one else is paying attention to. Buffet says (about stocks), “The time to get interested is when no one else is. You can’t buy what is popular and do well.”

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Intero Insider: Why We Love Our Homes

By Gino Blefari | August 9th, 2011 0 Comments

I caught a recent episode of “Louie” on FX. It’s the humor series based on the stand-up comedy of Louis C.K. This show is often funny – painfully funny. And sometimes it’s just painful because the observations are pretty dead on, unapologetic and completely honest.

In this particular episode, Louie decides he’s ready to move from the apartment he once lived in with his ex-wife. He goes out looking for suitable rental properties in New York City for himself and his girls, who live with him part-time. Of course, after several trips through some bad places and a few bait-and-switch ads, he becomes exhausted – until he stumbles upon a townhouse for sale.

This is where the show goes from realistic to hyperbolic. The scene reminds me of what it might look like to take the collective conscience of America during the 10-year run-up in housing prices and play it out in front of an audience. See, it wasn’t just any townhouse; it was a $17 million townhouse. And Louie of course, while famous, is not exactly part of the crowd that can afford to buy such a place.

Louie then becomes determined to buy this place. He is consumed by the idea that this house will make his girls happy, and make everything fall into place in his miserable life. Never mind the fact that he only has $7,000 in the bank. Never mind the fact that that $7,000 isn’t even one-tenth of one monthly mortgage payment. He wants the house.

But, why?

I believe it’s because homes are more than the walls they’re made of – more than the investment of many years of hard work. Real estate isn’t just a market; it’s a state of mind. Homes are deeply connected to the life we live. This is why all buyers will “imagine” themselves living in a particular home when they go to see it, and why they try to think about what life would be like within those walls. This is why it was so easy to get in over your head during the days of loose lending. This is why foreclosure is so emotionally draining.

A home is a future, a present and a past. It’s a living thing. It’s where we feel attached to life, where we dream and where we plan for what’s next.

As for Louie – his show isn’t the type to slap on a happy ending. He didn’t buy the house. He merely told the real estate agent that he would buy that house, and instead went back home and repainted his apartment with his daughters. He already had it.

That episode for me said something really profound about where we live – the places we call home. The connection and what’s inside are the most important aspects of any real estate deal.

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Intero Insider: Foreclosures Coming to a TV Near You

By Gino Blefari | August 2nd, 2011 0 Comments

Dating, singing, dancing, physical challenges, trivia – these are all standard components of a typical reality show (well, the kind without housewives, anyway). And now we can add foreclosure investing to the mix.

Just as the housing boom gave rise to house flipping shows, the housing fall is now giving rise to home foreclosure shows. The Wall Street Journal reports that this summer and fall, several TV networks will premier reality shows about buying foreclosed homes. This was a bit unsurprising to hear – an obvious next step for TV.

While last week’s foreclosure report from RealtyTrac showed that foreclosures decreased in 84% of markets across the U.S. in the first half of the year, there’s still a glut of foreclosed homes out there to buy. This is the year of the real estate investor, and where there’s money to be made, there is TV to be made.

Will TV glamorize foreclosure investing, making it look easier than it is? Or will we witness the realistic blood, sweat and tears that go along with the territory (much like we saw in the house-flipping shows)? I’m guessing the latter. Anyone who’s ever gotten involved in real foreclosure investing knows it’s not the “get rich quick” scheme it’s made out to be on late-night infomercials. There’s real risk involved, solid know-how, and you do need cash – despite the no-money-down proponents.

I think it will be interesting to watch, though. We all know that every real estate deal comes with its own set of problems and solutions. This market presents plenty of opportunities, but that doesn’t guarantee success.

Here are the shows, the WSJ mentions will premiere soon:

  • Spike TV’s got a new show called “Flip Men” coming in September. It’s about a duo in Salt Lake City trying to make a profit in foreclosures.
  • Bravo’s reality show, “Flipping Out,” starring Jeff Lewis starts its fifth season later this summer. Apparently, Lewis wrangles with lenders in a quest to buy a foreclosed house to live in.
  • DIY Network has a show in development about flipping foreclosed houses that’s expected to air in 2012.
  • A&E Television Networks reportedly tapped a former “Survivor” contestant to star in a new show later this year about flipping houses.

Tune in and see how this blood sport unfolds. Reality, sugar-coated or just plain fantasy?

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Intero Insider: What We Can Learn from the Man Who Bought a Home for $16

By Gino Blefari | July 26th, 2011 0 Comments

Have you seen the recent news story in which a man purchased a $330,000 home in Texas for $16? No, that’s not a typo – he “bought” a perfectly nice house for sixteen bucks. And it’s a true story, not fiction. What is going on here?

Here’s what happened: Like many nice neighborhoods across America, Flower Mound, Texas, experienced home foreclosures in recent years. And because of a tumultuous couple of years in the lending industry, the mortgage company that owned this particular house in Flower Mound meanwhile went out of business.

Kenneth Robinson somehow caught wind of this, and moved into the house in June. According to the story, he simply went to the Denton County Courthouse and filled out a form. Due to a Texas law called “adverse possession,” he was granted rights to the house for a $16 administration fee. Now, that’s a deal!

This isn’t just an interesting story, though. I wanted to discuss here because it’s a perfect example of the “silver lining” or “diamond in the rough” kind of markets we’re seeing right now – to the point where logic can’t always describe it. Foreclosure investing is a tough and risky business that can pay off big when done right.

While the average person can’t really expect the stars to align quite like they did for Mr. Robinson, there are ways to really take advantage of the opportunity that’s out there right now. What can we learn from Robinson?

Know your market
Mr. Robinson’s edge seems to have been his keen eye for what was happening in the neighborhood. He realized this home was abandoned and he discovered it was owned by a bank that was no longer in business.

Be persistent
Robinson’s other big strength was that he persisted in researching the laws around taking possession of a property. He could’ve just figured “why bother?” when there was no owner to buy it from. But instead, he dug and he acted on the knowledge he gained.

As an investor, I’d caution not to delude yourself into thinking you’ll stumble across a similar situation any time soon. But take the lessons to heart and realize that sometimes it really is all about knowing how and when to act on that big opportunity when it lands at your feet. Persistence outscores luck any day of the week.

Interesting times indeed! Check out the full details of Robinson’s story here.

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Intero Insider: Is the Uptick in Home Remodeling a Good Thing?

By Gino Blefari | July 19th, 2011 0 Comments

Here’s some positive housing market news out this week: home remodeling hit its highest level in May since 2004, when the service reporting the numbers first started tracking it. Are we surprised? We shouldn’t be.

Home remodeling was up 22% in May from the same month a year ago, according to BuildFax. If the economy is still in a slump, many are still without jobs and consumers are facing rising prices on gas, food and other goods, why are more people spending money to remodel their homes? Two aspects of our housing market can explain this phenomenon:

  1. Foreclosure homes aplenty – Many times, homes that are foreclosed will sit abandoned for awhile or may have suffered from lack of care from owners who were sinking in debt. Buyers who grabbed these properties are likely fixing them up either to live in or re-sell.
  2. Why sell when you can remodel? It may be a good time to buy in most markets, but unfortunately, that also means it’s not the greatest time to sell in those same markets. For move-up buyers, this means potentially selling at a loss. Hey, why sell and move up when you can just take that money and fix up your current place?  Remodeling is also a bit more budget-friendly in some cases than moving, which can be rather expensive.

The next question that’s begging to be asked: Is this necessarily a good thing for the housing market? I say yes. For one thing, it’s creating at least some job creation in the construction industry. And it’s getting consumer spending flowing. It’s also adding value to homes that may be on the market four or five years from now instead of this year. And, perhaps most importantly, it’s potentially reviving foreclosed homes to make them attractive to buyers.

So remodeling is on the upswing indeed. It may not be the pill that saves the day, but it’s a sign that things are moving up. It’s also a sign that deep down inside, Americans still value their homes as much as they did before this recession. Nothing’s really changed that – and nothing ever will.

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Intero Insider: Free Money for Underwater Homeowners

By Gino Blefari | July 12th, 2011 0 Comments

More help is out right now from the federal government for a small portion of the millions of homeowners who have fallen behind on mortgage payments. What is it this time? In a nutshell, free money. But struggling homeowners need to act fast as they’re only accepting applications until July 22.

The Emergency Homeowners Loan program is a $1 billion program that offers loans up to $50,000 to homeowners who have lost their jobs. The kicker? For those who qualify, the loans don’t have to be repaid.

How it works:

The program – operated by the Department of Housing and Urban Development and the nonprofit housing group NeighborWorks America – is making loans with better terms than anything a local bank can offer. The loans are interest-free, and payments go directly to the lender to cover a portion of a borrower’s monthly mortgage.

Borrowers can get assistance for up to two years. Once assistance ends, 20% of the loan is forgiven with each passing year. So qualified borrowers who stay in their homes for at least five years after the assistance period don’t have to pay this money back – as long as they don’t fall behind on their mortgage again.

What’s the big catch? We know there’s always one that seems to derail the intent of these programs to help millions of homeowners out of bad situations.

Well, for one thing, if borrowers decide to sell their home before the entire loan is forgiven, they’ll have to pay the remaining amount back. Some say that this potentially creates an even worse situation for these borrowers as they’re further in debt than they were before taking the loan.

Also, if borrowers fall behind on their mortgage payments and either sell or refinance, they’ll also have to pay back the remainder of the loan. Because of this, some critics have already said that taking these loans may actually put some homeowners more in debt and make their situations worse.

Another catch? HUD says these loans will only be made available to 30,000 people. That’s a pretty small portion of the millions who face foreclosure due to missed mortgage payments. To be eligible, a borrower needs to have experienced income loss from either losing a job, a medical condition or some other economic problem. Details are available at this link: http://ehlp.nw.org/.

If you or someone you know is facing foreclosure, it’s worth checking out whether you can get assistance from this program. But, first make sure you have a long-term plan for staying in your home.

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Intero Insider: Are Falling Home Prices Saving Marriages?

By Gino Blefari | July 5th, 2011 0 Comments

You’ll often hear people in the real estate business talk about how most home sales are triggered by life events: marriage, divorce, babies, job relocation. These are the standard igniters. But how do situations change when the housing market is slow?

In a situation like divorce, the general truth is that economic hardship and financial stress tend to be a chief cause. So you’d think that during the recession and housing slowdown that divorce is on the rise. But you’d be wrong.

I stumbled across a discussion of a new economics paper last week that finds the opposite – that economic turmoil today is keeping couples together, and that low house prices are the reason. Although it may seem like low house prices would enable couples to break up and buy on their own more easily than when the market is hot and prices are high, it seems that couples instead would rather stay in their unhappy marriages than sell their homes at a loss.

For those couples whose home values may have fallen below their mortgages, selling may not be an option if the bank won’t approve a short sale. But, even if that’s not the case, the research notes what economists call “loss aversion,” an emotional barrier to selling at a loss. It seems we humans for the most part can’t get over that.

Just how much did the recession and drop in house prices pull down the divorce rate? The research found that a 10% decrease in home prices pulled down the divorce rate of college-educated households from 11.6% to 8.22%.

What exactly does this mean? Well, it’s interesting data to understand when examining the dynamics of the housing market, what affects it and how it affects other parts of the economy and everyday life. For some couples, who knows – maybe the extra years they spend together because of avoiding a loss on their home sale will actually help them reconcile. Or, maybe it makes it worse.

I think a big takeaway from this is that it shows the emotional component of the housing market that can’t always be predicted. Data and forecasts are great; they’re helpful to understanding the various factors and impact of economic events. But, sometimes in housing there is good old human emotion that comes in and throws all the data and forecasts for a loop.

If you’re interested in learning more about this research, check out “House Prices and Marital Stability,” by Martin Farnham, Lucie Schmidt and Purvi Sevak, which appeared in the American Economic Review, Vol. 101(3)

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