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Tag Archives: real estate

A Seat at the Table…

Freddie Mac

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Millions of American families are facing foreclosure.  Millions more have already been through the process… and there are millions that don’t know it yet, but they will be staring at foreclosure proceedings in the future.  It is an epidemic, one that is difficult to escape.  Not impossible… but difficult.

Foreclosures are accelerating for a couple of reasons… but one of them is momentum.  As a neighborhood faces foreclosures, the values of the non-foreclosed homes dwindles.  Foreclosures generally bring lower prices, which pushes down the prices of non-foreclosed homes… which pushes down the prices of the foreclosures.  It is a self-perpetuating cycle.  Buyers are afraid to jump in because they see prices still moving down.  Sellers get desperate to get out because they see their equity (if they have any) drying up.  The cycle continues.  Some of the people that needed to move couldn’t hack the values anymore, and they let their home slide into foreclosure.

Those that are marginal or that trying to be proactive call their banks.  They talk with them about short sales or loan modification.  For the vast majority seeking a loan modification (we are talking 98%+ here), they might as well talk to a brick wall.  Short sales are slightly more common, assuming the seller only has one mortgage.

Banks simply aren’t really open to talking with the homeowners about their situation.  And there are a variety of reasons.  Some of them they are willing to say (in an unguarded moment, perhaps).  Other reasons the people in the Loss Mitigation department might not even realize… if they do, they aren’t talking.

  • The sign in the lobby of AIG's headquarters at...

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    The borrower doesn’t have enough income anymore to support the modified loan (in their opinion…)

  • If they grant a principal reduction to one borrower, they will be flooded with others expecting the same thing.
  • The “other bank” won’t accept an amount that is inside of their guidelines.
  • There just isn’t enough staff/resources to handle the load.

And the big one that nobody seems to talk about…

  • The banks insurance on the loan will cover them in a default, limiting the amount of loss they will suffer.  However, if they modify or allow a short sale, their insurance won’t kick in.  That increases their loss.

This is the one that really needs to be worked on.  The insurance company… the people that REALLY need to be involved in loss mitigation, don’t have a seat at the table.  And the big losses are at the loan insurance level.  Whether it is a private insurer like AIG (remember their bailout?), a government sponsored entity  like Freddie Mac or Fannie Mae or a public loan guarantor HUD, they don’t have the chance to be actively involved in the process until it is too late.

To Fix it…

The first thing that would need to happen is for the entity that insures of guarantees the loan to have an active role in the decision about modification or foreclosure.  Right now, in the case of a short sale, it is up to the “investors”, those that actually own the loan (often that is NOT the bank).

When a homeowner inquires about a loan modification, the bank should do their best to determine two things… they should look at the value of the property and the homeowner’s ability to pay.  What they should be looking for is to find at what level the homeowner would likely be able to pay.  At that point, the insurance company (or loan guarantor) should take over if the numbers look like they would be bearing the loss.

 

graph shows U.S. foreclosure trends (quantity ...

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Example:

 

  1. Bob the homeowner loses his job and ends up working for less money.  He can no longer really afford his home, but doesn’t want to walk away.  He paid $300,000 for the house and owes $285,000.
  2. Bob contacts his bank.  The bank determines that the house would likely sell in a foreclosure sale for $210,000.  Bob would be able to qualify for a loan of $220,000.  The banks insurance kicks in at $240,000.
  3. At this point, the insurer would review the file.  If the bank takes the house, they would have to pay the bank whatever loss they suffered under $240,000.
  4. Rather than the bank going through with foreclosure, the insurance company agrees to pay $30,000 if they re-write Bob’s loan to $215,000.

Bob ends up owing a little more than the house might fetch in a foreclosure sale.  The bank doesn’t incur the costs of foreclosing and having to get the property ready for sale.  The insurance company takes a hit, but it might be a smaller hit than they would have taken had the house been foreclosed.  And there is less risk for everyone involved.

 

 

Free Money Collection in Cash

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Of course, the example above is completely fictitious.  The numbers are pulled out of thin air…  And honestly, there are a LOT of people that would not be helped in such a situation.  The goal, however, isn’t to save every homeowner in the country that is upside-down.  The goal is to minimize losses to consumers, the banks, insurance companies, GSEs and the government, while helping people that still have some capacity to participate.

 

 

People without income or expenses too high to make a reasonable payment are not going to be helped.  People that take advantage of the system once and are trying to get a third chance would likely not be helped (I would call a program like this a good second chance).

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Lawrenceville, GA Market Report, April 2011

Downtown Lawrenceville (as of June 2006)

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Market stats for Lawrenceville, April, 2011, indicate that there are 1576 properties on the market. Overall, there is about a 7.6 month supply of properties. In 2010, sales for April were at 216, so 229 sales isn’t much of an increase, year over year.  But, coupled with the recent decrease in inventory, things are looking up.  However, there were 239 sales in March, 2011, so that makes the 229 seem like a giant step backwards.  Normally at this time of year, we are seeing healthy increases in month to month sales.

For Lawrenceville, GA, Homes Under $200k, there are 1343 listings, with about an 7.1 month supply of homes.  Sales were way up from April 2010 (209 v 186).  This segment is easily the lion’s share of sales for the area.  Last month this was one of the strongest price/area segments in Gwinnett County, but this month it is just mid-pack.  The big drop in Absorption Rate (AR) is more due to lower inventory than strong sales.

Between $200k and $400k, there are 204 listings for sale, and about 13.3 months of supply.  Oddly, this was one of the weakest segments in the county.  The 20 sales for April, 2011 were WAY down from the 29 from March last year.  Ditto for February and March… so April is the second weak month in a row here.

From $400k to $600k, there are 22 homes on the market. The absorption rate is around 22 months.  However, with the level of sales in this segment, a couple of sales added or subtracted can have a HUGE impact.  Case in point is that we went from a 12 month AR to a 22 month AR because of a lack of sales for last month.  Just 4 months ago there was 87 months of inventory, though…

In the $600k to $800k arena, there are 4 listings, with about 12 months of supply. As with the next lower priced segment, a couple of sales makes a big difference and there was only 1 sale in the last three months.  I was looking for 2 sales in April… and there were none.  Even with the inventory drop from 6 to 4 listings, the AR doubled.

Between $800k and $1M, and Above $1M there are 3 homes listed (combined) and not enough sales data to give an accurate absorption rate. There has only been one sale in this range in the last 2 years (Aug, 2010), according to FMLS.

Lawrenceville is in Gwinnett County, GA, just outside of Atlanta. As of the 2000 Census, there were 22,937 people in Lawrenceville, but that is only including people in the city limits, and there has been a lot of growth since 2000 in Gwinnett County (2008 estimates from the Census Bureau peg population around 29,000). It was incorporated in 1821. Lawrenceville is home to Central Gwinnett High School, and also has students that the Mountain View and Archer clusters. It is also home to Gwinnett Technical College and Georgia Gwinnett College. Another recent addition to Lawrenceville is that it is home to the Gwinnett Braves, playing at the Gwinnett Stadium on GA20 between I-85 and GA316. Possibly the most famous resident of Lawrenceville was Oliver Hardy. As a small boy he lived in Lawrenceville with his parents for a short time. Lawrenceville was also home to Junior Samples. Some of its other residents included Jeff Francouer, Brian McCann and Jennifer Ferrin.

I have a page dedicated to Lawrenceville Market Data.

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Lilburn, GA Market Report, April 2011

great_room_6

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Market stats for Lilburn, GA, April, 2011, indicates that there were 440 properties on the market (as of April 30th). Overall, there was about an 10.6 month supply of properties and 44 properties that closed (sold) in April.  I had been looking for an increase in sales for March and it came through.  And while April was an increase over last year’s sales (36), it was a decrease from March, 2011 (55 sales).  Usually, we would be on an upswing until July or August.  I’m still hopeful… the Absorption Rate notched down a little.

In the sub-$200k arena, there are 310 listings, with about an 9.6 month supply with 32 sales.  This represents most of the sales in the market area.  Sales dropped sharply from last month (43), and were only slightly above last year (31).  While the Absorption Rate dropped slightly from 9.7 to 9.6 months of inventory, I really wanted to see more movement in this segment.

Between $200k and $400k, there are 115 listings for sale, and about 14.4 months of supply.  This segment has been quite weak for months.  Having 0 sales in December, and only 6 in November didn’t help. Nine sales in January was HUGE. But, February was back down below last year.  March was strong last year, but a little stronger this year (9 v 8 in 2010).  April was HUGE… 11 sales compared to just 4 last year.  If May stays strong, this could signal a return to a more balanced segment… and Lilburn has been missing that.

From $400k to $600k, there are 11 homes on the market. The absorption rate is 11 months. There were no sales in this segment from December through February, but there were 2 in March, which really turned the segment around, followed by 1 sale for April.  It doesn’t seem like much, but this is a segment hasn’t posted that many months with back to back sales… Watch May, because there haven’t been sales posted three months in a row since 2009.

From $600k to $800k, $800k to $1M and Above $1M, there are 4 listings (combined), but too few sales to have any sort of reliable number of months of inventory.  March posted the first sale since August, 2010.  It was in the $600-$800k range. One of the listings is above $1M (none between $800k and $1M), and there is no market activity in the last 12 months for that range…

Lilburn is in Gwinnett County, GA, just outside of Atlanta. As of the 2000 Census, there were 11,307 people in Lilburn, but that is only including people in the city limits, and there has been a lot of growth since 2000 in Gwinnett County. It was incorporated in 1910. Lilburn is home to Parkview High School, and also has students that the Brookwood, Berkmar and Meadowcreek clusters. It is also home to Killian Hill Christian School, Providence Chrisian Academy, St. John Neumann Catholic School and Parkview Christian School. Possibly the most famous resident of Lilburn is General Beauregard Lee, a groundhog with a better winter prediction record that Puxatawnee Phil up in PA. Dominique Wilkins, formerly of the Atlanta Hawks also lives in Lilburn.

I have a page dedicated to Lilburn Market Data.

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Can the Market Decide?

Installation of a sidewalk in Middletown, Rhod...

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It has been almost a year since the last of the real estate targeted stimulus funds ended.  In fact, it was April 30th last year that contracts had to be written… with a June closing.

Interest rates were a touch higher than now… and sales were mixed compared to this year.  They were certainly up from the year before.

But there are some other VERY important facts to also consider:

  • Values in most of the country, including Gwinnett County, GA, are down from last year…  +$8000 tax credit…  -$15000 in value.
  • The government (taxpayers) borrowed about $17 billion for the rebates…
  • Much of the money went to people that would have bought homes anyway…
  • A good bit of the money went to people that weren’t actually eligible…

Maybe we should have just let the market work it out.  Maybe.

Here we are a year after the credits started to go away, and the market is showing signs of recovery… but the market tanked for a while immediately after the credits expired.  It would be VERY easy to argue that the reason the market is starting to turn is that prices have eroded further, not because of any lasting stimulation effect of the tax credit.

$17 billion here, $17 billion there… pretty soon you are talking about real money…

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Photo Friday… What Hits, What Fits…

Yes, that is my little truck… and it is inside a garage.  This particular one is listed as a 2 car garage.  It is about 540 square feet.  And yes, I did actually close the door… because I could.  ;^ )

One question I often get (from agents, not my car enthusiast buyers or sellers) is how big is a “standard” garage.  The easy answer is about 400 square feet, 20′ x 20′. But, looking at homes that are a bit older, the garages seem to be a little deeper… often around 22′-23′.  Sometimes they are a little wider, too… around 21′-22′.  So, I run across a lot of two car garages that are in the 440sf range.

On the other end of the spectrum, a lot of new homes seem to have garages around 380 square feet.  I certainly can understand that cars are generally smaller now that during the 70s… but 380sf is pretty small.

Occasionally, I run across something a little different… like tandem 3 car or 4 car garages.  These might have a bay or two that is closer to 40′ deep, keeping the normal width of a little over 20′.  Much more common in the 3 or 4 car range are garages that are 30′-45′ wide.  But, I do have to say that there are some nice advantages of having a longer bay… like pulling in a longbed truck, or even a boat on a trailer.

If you are ready to step up to a bigger garage, let me know…

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