Posts Tagged ‘Intero Insider’

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Intero Insider: 5 Home Purchase Cancellation Prevention Techniques

By Gino Blefari | February 1st, 2012 0 Comments

The real problem in the housing industry right now is not lagging sales or falling prices. With lots of supply and rock-bottom interest rates on mortgages, demand from buyers is shaping up. The real problem now is in cancelled contracts.

In its December Pending Home Sales Index released last week, the National Association of Realtors said that pending home sales remained strong at 96.6 – still well above the same month a year earlier when the index was at 91.5. (An index of 100 is considered to be a healthy market.)

The index measures the number of contract signings made in a month and is viewed as a forward-looking indicator because contract signings in a perfect world lead to actual sales either the following month or month after. So, with all the positive numbers here, why aren’t we seeing a boom in closed sales? The answer is  simply that deals are falling through.

NAR says that one-third of Realtors are reporting that contract failures remain a big issue. This is no small potatoes. Now that we know more buyers are ready to bite, we can’t let you get blindsided or discouraged by contract failures. Here are five home purchase cancellation prevention techniques:

1. Have enough cash: A no-brainer, I know. Lenders are much stricter these days about how much cash they want to see at closing. You should know how much you can bring – for both down payment and closing costs – well in advance of your house hunt.

2. Prepare your paperwork now: Agents say that many times contracts fall through because the buyers didn’t have their paperwork ready when it was needed. To save your deal, make sure you’ve got all your financial information in line before you make an offer: proof of income, assets, debt, and proof of down payment, and letters you may need to explain gaps in income or employment.

3. Tighten up your finances: Just because your offer was accepted doesn’t mean you’ve got the house. You still need to get a loan (unless, of course, you’re independently wealthy and plan to pay cash). Long before you go house hunting, be sure to visit with a loan officer or mortgage broker to get a picture of your finances so that you’ll know whether a bank will lend to you and how much.

4. Understand your comps: Many deals are falling through because of appraisals coming in below the purchase price. While there’s nothing an agent or home buyer can do about a low appraisal, you can do something about the offer price. Make sure you know your market inside out. Pull good comps that are similar, local and recent. Get a good inspection and be sure that any defects are accounted for in some way. You need to know about any little thing that may come up to negatively impact the appraisal the bank will use to determine the home’s value.

5. If buying a short sale or foreclosure, educate yourself on these processes in advance: These types of transactions take much longer to complete in many cases. But when they move, you need to be ready to move with them. That means you should first know what to expect before making your offer, and then follow through on what is expected of you every step of the way.

Extreme caution, hyper preparedness and highly informed home buyers are the only combination that’s going to make a dent in the large portion of contract failures the market is experiencing. While we can’t control lenders, we can control our readiness to respond.

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Intero Insider: Why Low Interest Rates Are Still Vital to the Housing Economy

By Gino Blefari | January 17th, 2012 0 Comments

Interest rates. It’s a constant topic of conversation in real estate, and this year so far is no different than the last few: We’re kicking it off with some of the lowest interest rates on long-term mortgages that the market has ever seen. The average rate on a 30-year fixed-rate mortgage reached an all-time low of 3.89% this month, according to a survey tracked by Freddie Mac.

Two messages are important in this news for home buyers and sellers. They are:

1. Low interest rates are significant for home buyers, equating to big savings when locked in at the right time. This is a point that can actually motivate a lot of buyers to get off the fence.

For instance, let’s look at a .5% increase in a mortgage rate on a 30-year mortgage for $425,000. Say our buyers could get a 4.75% interest rate when they first start their real estate search. If they indeed buy a home and lock in a mortgage at this rate, they’ll end up paying $373,120.42 in total interest over the life of the loan.

But say these buyers get lost in their decision-making process and end up taking eight months to make a decision on a home. By the time they lock in their rate, they end up with a 5.25% interest rate on a 30-year mortgage for the same $425,000 loan. Now, they’ll end up paying $419,871.66 in interest over the life of the loan. That’s a $46,751.24 increase in the final interest bill – substantial to the average family buying a home.

Taking advantage of the lowest rates possible is a key message that will help to motivate a lot of buyers in 2012.

2. While no one can predict when interest rates will increase or by how much, we know they inevitably will increase, but can also feel comfortable that they’re not going to jump suddenly. Most analysts and industry observers expect rates to remain low as long as the economy is still in a slow recovery. That’s good news for buyers and sellers alike (more affordable borrowing means more buyers in the market, in most cases).

Low interest rates alone cannot save a housing slump, or single-handedly create a boom (remember that our last boom was also fueled by very loose loan underwriting standards that created a lot demand from market segments that would not be eligible for loans under today’s standards). But they’re still extremely important to the recovery story. They still have a vital role. Let’s not undermine that, or let that point get lost in the shuffle.

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Intero Insider: Why a ‘$700 Billion Loss in Home Value’ Shouldn’t Alarm Us

By Gino Blefari | January 3rd, 2012 0 Comments

It’s the first week of a new year, a time to think about what’s in store, what will improve and what may decline in the housing economy. One figure we’ve seen gain a lot of attention over the last few years is a quantified total home value loss in the U.S. It occurred to me that this figure is actually pretty dangerous.

Just before the holidays, Zillow released a report estimating that U.S. homes were set to lose nearly $700 billion in value in 2011. That’s a mighty scary number when screaming at you in a headline. But the truth is that it’s hypothetical.

What does a $700 billion loss in home values really mean? Well, nothing to the average homeowner who’s not looking to sell. And to those who are looking to sell in 2012? It’s not great news, but it does deserve some context before we all freak out.

The positive spin in the Zillow report was that the total anticipated loss in home value in 2011 is actually 35% less than the $1.1 trillion Zillow found lost in 2010. And the total loss in value figure has shrunk each year over the last four years. So the rate of home value loss is slowing – a great sign.

The reality, though – and why I assert that this is a number that shouldn’t scare us – is that home values are much different than home sale prices. A home sale price, as reported regularly by the National Association of Realtors, reflects the value a buyer paid for a home that recently sold. But the home value loss reported by Zillow comes from some fancy math that averages the value lost in total on all U.S. homes if they were sold in current market conditions.

If you’re not looking to sell or refinance, then you don’t really need to fret much about the loss of your home’s value. Markets change over time and my advice to those owners who may be getting stomach ulcers thinking about the loss in value in their area over the last few years is to not worry about it right now. If you don’t have to sell, then don’t sell. By the time you do need to sell, you’re likely facing an entirely different market out there.

Buying conditions will continue to be good for many buyers in 2012: the amazingly low cost of borrowing, relatively large selection of inventory in many markets, and slowly improving U.S. economy will keep a stream of buyers interested.

I don’t expect a miraculous recovery in real estate on a national level this year, but I do think that a gloomy number like a $700 billion loss in total home value does a great disservice to describe what is really happening in the markets we serve. Things have improved in 2011, which is what we all expected. We’re not in a boom by any means and no one’s saying that. But we’re not coming off the worst year by far. Improvement is the name of the game. It is getting better, folks!

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Intero Insider: Young Wait for Homeownership – It’s about Money, Not Values

By Gino Blefari | December 20th, 2011 0 Comments

Millennials – the generation generally defined as those born between 1980 and the mid-1990s – have no interest in buying homes. Or, at least, that’s the latest argument we’re seeing in Forbes, dubbed “Attitudes of Young Americans Bode Ill for Housing.” But, is this really the case? My sense is that it’s much more circumstantial than a foreboding ill will toward homeownership.

The argument hinges on a few key facts and observations: 1) Millennials, for the most part, have no money. The author states that 90% of U.S. born millennials (or “Echo Boomers”) has less than $1,500 in assets. 2) Millennials value education, people and leisure more than other American generations. And 3) Millennials question the importance of homeownership.

No money, no house

That’s the reality of today’s lending market, to be exact. Lenders no longer write no-money down mortgages so it makes sense that a group that generally is strapped for cash wouldn’t be interested in buying a home. Remember too that this generation also is saddled with the highest average amount of school debt than any other before it. They’re facing a tight job market that offers little opportunity for high wages. Putting yourself in these shoes for a moment makes it loud and clear why buying a home – the largest purchase of your life – is not going to be top of mind.

It’s all about the experience of life

Studies have shown that millennials are taking much longer to “settle down” in a career and lay roots in one place. They are taking longer to get married – if at all – and delaying children. These are all life circumstances that tend to spark a home purchase.

The housing boom and bust have left scars

Many millennials express skepticism about housing because they’ve witnessed an unprecedented crazy time in real estate. They may have witnessed their parents cash out tens of thousands of dollars in home equity only to see their home values plunge to depressing levels a few years later.

Any rational person would rightfully walk carefully into a real estate experience after this.

Are millennials really saying they don’t value homeownership or is what they’re really saying that they’d rather wait until they are ready? Who wants a mortgage payment when you’re still traveling the world, experiencing different jobs and career paths and haven’t yet taken the plunge with a lifelong mate? Can’t blame them for that, really.

These folks are still young. The economy is still not optimal for them. I don’t believe for one minute that a delay in home buying has anything to do with millennials’ true view of homeownership. This can be easily seen by the fact that young entrepreneurs who strike it rich almost immediately make a run for real estate. (The San Francisco Chronicle recently discussed this in an article looking at increasing home values in city neighborhoods that seem to be impacted directly by the success of young tech companies like Zynga and Yelp.)

Millennials will come around to homeownership eventually. Although that delay is what will most impact the recovering market, it’s got nothing to do with values.

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Intero Insider: Higher Loan Limits Offer Real Help in High-Priced Markets

By Gino Blefari | December 14th, 2011 0 Comments

The housing market is rife with good news lately, if you know which stats and announcements to look for and how to interpret them. Sure, we’re not reveling in record-high home sales or value increases, but it’s not all bad in some markets, including our very own Bay Area. At Intero, we have seen record sales in 2010 and 2011.

Perhaps the best news I’ve heard in the last quarter that directly impacts us was that lawmakers in Washington reversed a recent lowering of the maximum loan limits that could be backed by the Federal Housing Administration. Just before Thanksgiving, lawmakers decided to once again raise these loan limits, opening up more financing options for buyers in higher priced markets.

The new guidelines mean that the FHA will be able to back loans up to $729,750 for the next two years in the nation’s most expensive real estate markets. The higher conforming loan limits had expired Oct. 1, reducing them down to $625,500.

This is good news for California buyers – especially those for whom an FHA-backed loan is the best option. FHA-insured loans enable buyers to put down as little as 3.5% on a mortgage loan, though they tend to carry higher closing costs. With an ever tightening credit market, FHA-backed loans have come back in vogue in many areas, enabling buyers to secure mortgages they weren’t able to get in the private market.

This is an example of a clear win and instance when the government’s involvement in the housing recovery indeed serves to help buyers and sellers. The move helps sellers as it opens up more financing options for buyers in expensive markets.

This is also a win because unlike some of the other programs lawmakers have passed in an attempt to help struggling homeowners, the FHA actually does have a significant hand in the market today. While the FHA insured only 5% of mortgages in the U.S. in 2006, it insured a third of all loans written in 2010.

So if I had a wish list for 2012 real estate, more measures like this would be on it. We need to continue to seek easy opportunities to make home buying easier for those buyers who are financially capable, yet meet too many loan restrictions or unattainable down payment requirements. To keep the housing recovery engine going, we need to find ways to fuel demand without weakening lending standards.

This news may not save the market, but it at least will accomplish that.

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Intero Insider: Housing Is At Its Most Affordable in 20 Years – Except Here

By Gino Blefari | November 29th, 2011 0 Comments

As far as real estate statistics go, one of the most useful and interesting is the housing affordability index. What good are sales numbers and prices if not put into context? The affordability index provides that context, telling us the percentage of homes in a given location that a family earning an average income can afford – by traditional standards.

The Housing Opportunity Index released earlier this month by the National Association of Home Builders and Wells Fargo shows that housing affordability was near its highest level in 20 years in the third quarter. A near-record 72.9% of all new and existing homes sold during this time were affordable to families earning the national median income of $64,200.

What’s fueling this feel-good statistic are major price drops in markets across the country and record low interest rates: two factors that obviously bode well for home buyers (especially first-time home buyers who aren’t depending on the same market conditions to sell a house). Interest rates on a 30-year fixed mortgage are still hovering around 4.2%, which means borrowing is cheap by historic standards. And while prices have stabilized in some markets, they’re still much lower on average nationwide than they were five years ago.

What are the most and least affordable markets right now in the U.S.? Lakeland-Winter Haven, Fla., where 92.5% of all homes sold in the third quarter were affordable to families earning the median income of $53,800, was the most affordable major housing market. Other major metros that ranked as among the most affordable were Toledo, Ohio; Youngstown-Warren-Boardman, Ohio-Pa.; Indianapolis-Carmel, Ind.; and Ogden-Clearfield, Utah.

The least affordable major market was in New York-White Plains-Wayne, N.Y.-N.J., where only 23.3% of homes sold in the third quarter were affordable to families earning the area’s median income of $67,400.

It’s not surprising that the New York metro division has owned the title of least affordable market for more than three years. Other major metro areas that share the bottom of the affordability index were San Francisco-San Mateo-Redwood City, Calif.; Honolulu; Santa Ana-Anaheim-Irvine, Calif.; and Los Angeles-Long Beach-Glendale, Calif.

Here we are in the Bay Area – where the nation’s least affordable housing markets still sit. Fortunately, in real estate, “least affordable” can also mean “most desirable,” which means that despite affordability issues, we still have demand from buyers who want in. With the tenacity of our tech economy and record low interest rates, I don’t believe that affordability problems will derail our markets here. Affordability may slow appreciation a bit over time, but that first rule of real estate wins every time: location. Clearly, buyers still like their coastal real estate.

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Intero Insider: Home Sales Trending Up

By Gino Blefari | November 22nd, 2011 0 Comments

The housing market flashed some more good news this week as we learned existing home sales were up from the previous year’s levels for the fourth straight month in October. As we dig into the details here, I want to look at what it means and how it may impact buyers and sellers.

The latest report from the National Association of REALTORS® shows existing home sales up 13.5% to a seasonally adjusted annual rate of 4.97 million homes in October. Although national sales numbers are harder to get excited about (because real estate is local and our local markets can be vastly different from the national trend), this is generally good news because it shows a positive upward trend compared to the same fourth-month period a year ago.

In simpler terms: we’re looking at a pretty strong case here that the bottom of the market has been reached, and we’re well on our way to recovering. That doesn’t mean we’re on our way to the next boom, of course, but it’s good nonetheless.

Perhaps more interesting than the sales numbers, though, is the data about who’s buying:

  • 29% of sales in October were from all-cash buyers
  • 18% of sales were from investors
  • 34% were from first-time buyers
  • 28% were distressed sales

The data about who’s not buying is also interesting. The NAR says that the number of sales contracts that fell through in October jumped to 33% from 18% in September, and 8% a year ago. The group says contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems like home inspections and job loss.

What does this mean for buyers and sellers? The fact that contract failures almost doubled in a month’s time is a huge red flag that buyers need to have their finances and paperwork buttoned up tightly in order to get a mortgage. Buyers and sellers also need a good understanding of current appraised values before pricing homes and making offers.

I think patience is also in order when attempting a transaction in today’s market. Even though we’re seeing positive signs, there are still a lot of potential problems that can come up in the loan process. Expect that things will take longer than you think. Buyers may need to go to several lenders before you find the right loan. Sellers may end up going through several purchase contracts before the cards align and the buyer gets the loan, the appraisal comes in at the right value, and all is clear to move through escrow.

Is the worst over? No one really knows. One report out this week was commenting on the fact that the birth rate is the lowest in the country since 1999, saying that this lower rate of population growth is a bad sign for housing. However, the life expectancy in 1925 when my dad was born was 54 years old and today it is 79 years old, which means people are living in their homes longer.

We still have a lot of unsold inventory on the market, but it was down 2.2% in October – another good sign. We may not be walking on air, but the latest numbers show we do have something to be thankful for.

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Intero Insider: Buying a Home in Earthquake Country

By Gino Blefari | November 15th, 2011 0 Comments

Over the last few weeks, we’ve experienced several moderate earthquakes in the Bay Area. No major damage, no deaths and no injuries. So no big deal, right? We must be used to this by now.

In reality, though, earthquakes are a major factor for home buyers. They can be a great source of fear and anxiety. Let’s explore how buyers can consider these natural occurrences in the smartest way before closing a deal.

Basic construction
Unless you’re buying a new home, chances are that the one you’re considering buying has been through dozens of small to moderate earthquakes. To get a sense for how the house has held up, be sure to closely inspect the foundation for major cracks. This is routine in home inspections under any circumstances, but especially significant if you’re buying in this area. Pay attention to the small details during your home inspection, and seek advice from your agent if you’re not sure of the impact.

When was the home constructed?
If it’s an older home, has it undergone any seismic upgrades or retrofitting in the last 10-20 years? While these upgrades are no guarantee that a home will outlast “the big one,” in many cases they will ease your mind and help prevent small problems from growing much worse over time through several small or moderate quakes.

Proximity to a major fault line
We’ve all seen and heard stories about homes on the Hayward fault that have walls and floors that are separating more and more each year. Just because your home is close to the fault line doesn’t mean this will be you in 10 years. But if it’s really close, you should consider having an engineer check whether there’s any current shifting going on with the house. (And you really should know how close your home is to the fault line to begin with.)

When to call a geo-technical engineer
Not all home purchases in the Bay Area will require a visit from a geo-technical engineer. However, a big red flag would be that the house is built on the side of a hill that is very close to a major fault line. Houses in these circumstances may actually be sliding down the hill by an inch – or fraction of an inch – each year. Again, this might be fine, but better to know before you buy the house. No surprises!

Do you need earthquake insurance?
Earthquake damage is usually not covered by typical homeowner policies, so don’t assume you don’t need it if you’ve already got property insurance. A good way to think about it is to consider how much of your investment in your home you are willing to put at risk. If an earthquake caused major damage to your home and its contents tomorrow, how quickly could you get back on your feet with your own savings? You’ll want to think about the amount of equity you have in your home and the approximate value of your belongings when considering how much earthquake insurance to buy.

In the Bay Area, earthquakes are to be expected and many of us aren’t surprised when the building starts to shake without warning. But when buying a home, these are the basics all buyers in earthquake-prone areas should think seriously about. These may seem routine, but it’s surprising how many buyers will overlook these things – especially when they’ve already fallen in love with a property.

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Intero Insider: The Growing Wealth Gap Between Young and Old

By Gino Blefari | November 8th, 2011 0 Comments

New research out from the Pew Research Center this week finds that the wealth gap between older and younger Americans is widening. The new data found that households that were headed by Americans age 65 and older were worth 47 times more than those headed by people 35 and younger – $170,494 vs. $3,662.

It’s a stark jump from 1984, when the data showed older households were worth 10 times more than their younger counterparts – $120,457 vs. $11,521.

The interesting point for our discussion is that real estate is cited as the main cause of the disparity.

It’s not unusual for older Americans to have more wealth than their younger counterparts. In fact, common sense tells you that if the typical path of Americans is to start with little, work hard and save money, you’ll end up with a lot more when you’re older. The point that everyone is riled up about is that the wealth gap has significantly grown between the two age groups.

Real estate has played a role here because:

  1. The older households likely bought their homes before the run-up in prices took the nation by storm, which means they haven’t seen a significant drop in their home values compared to what they paid. In fact, they have the benefit of time on their sides, and that has enabled them to keep most of their gains.
  2. Declining home equity has been one factor in the wealth of the younger age group. They’ve had less time to build equity, and may even have bought at the top of the market, turning their gains upside down or taking out a substantial cut.

With the downside of this news aside (no one wants to think about our younger generation starting in a worse position than in generations past – or worse, being left behind altogether), the upside here for housing is that it’s a good concrete example of the value of home ownership on a household’s financial prosperity over the long term.

I talk a lot here about the real values of home ownership getting better over time, and this research supports that in full. The main takeaway from this research for me is that we have to do more to help younger Americans realize the value of home ownership and get into homes they can afford as early in their lives as they can financially handle.

Sure, not everyone is ready for home ownership in their 20s or even early 30s. But if we reinforce the value as one of prosperity and a path to financial security, I think we’ll see more young households striving to do it right.  A few years of poor market conditions and declining values in the grand scheme of things didn’t do much harm to the demographic that had more time in their mortgages and equity. That’s a great message that really speaks to the long-term value of home ownership.

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Intero Insider: Why Home Values Are So Misunderstood

By Gino Blefari | November 1st, 2011 0 Comments

Home values – it’s a topic we hear about a lot in the news, and one of great concern to home buyers and sellers, but one I feel many people gravely misunderstand. A survey released last week from Zillow underscores this misunderstanding.

The survey’s headline reads: “42% of Home Buyers are Unrealistic About Home Value Appreciation,” and goes on to explain that despite the recent economic downturn and volatility in the nation’s housing markets, 42% of those surveyed said they believe home values typically appreciate by 7% per year.

On a national level, home values declined for five consecutive years during the downturn. Historically, in a “normal” market, home values tend to appreciate at an average 2-5% per year. What is it that creates such an unrealistic view on home values – even now as much of the economy is still suffering?

Psychology of ownership: I think part of the reason home buyers are so optimistic about values appreciating is because they truly believe in the value of home ownership. In their minds, owning a home is the ultimate economic security, and one that will return financial value to their lives in many ways. Because it is so valuable to them, they feel like the numbers on appreciation move faster than historically they have.

Leftover boom mentality: Many buyers today witnessed the insane appreciation seen during the 10-year housing boom. News headlines constantly read crazy stats like “California home values up 20% from a year ago.” I think that collectively, we got used to this and quickly lost sight of history, which shows home values increasing at a much slower pace.

In a fast-moving society, home ownership is a slow means of financial gratification. However, even the stock market requires 10+ years to truly profit for the average investor. But you’d never know that by the programs you see on TV and the offerings of being able to pick and trade stocks online while you eat lunch.

I think it’s important as real estate service providers to give consumers the context around home values and what is so-called “normal.” Home ownership is a long-term investment that should be made first and foremost as a way to provide a stable place to live, then secondly as a way to create financial security. We can’t let consumers assume that buying a house is their ticket to retirement, just like we can’t let them assume that values will continue to decline forever.

A house is a different kind of asset than other financial investments. You can’t unload a house like you can with other investments. And home values only really matter when it’s time to buy or sell anyway. I say we promote the true value of owning a home as what it was always meant to be: owning your own home, the place you live, the place where you build a family and create your life’s memories. If its value appreciates in the process (which, historically, it normally does over the long-term), then that’s great. But keep those expectations in line with reality and don’t make any buying decisions based on what you think the resale value will be a year from now. That’s just the kind of boom mentality that got us into this mess in the first place.

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