Orlando Real Estate

Anthony Randazzo with the Reason Foundation wrote a piece for the Washington Times arguing for the dismantling of Fannie Mae and Freddie Mac. First, I would like to disclose that Anthony was a Sunday School student of mine years ago, so I am very proud to see him doing so well and published in a major newspaper. With that said, I agree with his conclusion that Fannie and Freddie need to stand on their own. For those who don't really know what purpose these enterprises serve, it is a vital one. Fannie and Freddie help create and facilitate the secondary mortgage market. When you take out a loan to purchase a home, the note you sign likely conforms to Fannie or Freddie guidelines. By conforming to those guidelines, your loan can be bundled with other conforming loans and sold in the secondary market. This allows the bank to recoup the cash they just loaned and loan it again. In Anothony's article he states that Fannie and Freddie either hold or guarantee $5 trillion in debt. That is trillion with a capital "T".

That is why in 2008 the federal government stepped in and completely took over the two quasi-governmental entities, declaring them too big to fail. I am not arguing with that particular move, because the results of a complete collapse would have been devastating. I believe, like Anthony that the government needs to have a plan to get completely out of this business. I also believe that the financial meltdown of 2008 should have taught the entire industry a valuable lesson. Too big to fail can also mean too big to succeed. If Fannie and Freddie were AT&T of 30 years ago, the justice department would file suit to bust them up. I don't presume to have all the answers, but regional entities makes some sense to me because real estate is about the local market. Just look at the large insurers who have separate legal corporations just in the state of Florida to help with their risk exposure. In addition to limiting exposure, regional entities can react more quickly to trends in their local markets, easing or tightening guidelines as necessary to facilitate a healthy primary and secondary market for mortgages.

I believe that the size of these two entities as they exist now, contributed to the financial debacle from which we are still emerging. The sheer magnitude of the assets being managed, held, and guaranteed is too big. The levels of bureaucracy have become too immense, and the leaders too detached from the market. Between the billions for banks, the stimulus and more than a trillion The Fed has spent purchasing mortgage backed securities, my estimate of the cost to the average American is over $9,000. Proper management of lending guidelines could have helped reign in some of the exuberance in the real estate market that played a major role in the situation in which we are working to get out. Fannie and Freddie may be too big to fail, but in my opinion they are too big to bail again.

Orlando Real Estate, David Welch Real Estate Optimist

I live in Baldwin Park in uptown Orlando, and our high school is Winter Park. As a parent, I could not be more pleased to have my daughters attending the schools in this area. Audubon Elementary, Glenridge Middle and Winter Park High School are absolutely top notch. This week is FCAT week, and I am sure all three will excel as they always have. This particular school year has just been phenomenal for Winter Park High School. The football team played for the state 6A championship. They came up a little short, but playing for the state championship in Florida is tough. As a state, we produce more 1-A college football talent than just about any other area of the country. The Sound of the Wildcats marching band won the state championship title, and I was there to watch them. A couple of parents from other schools leaned over to me and my wife and said that Winter Park was in a completely different class from every other band.

This past weekend was another reminder of the fantastic things going on here with our schools. Dr Phillips in SW Orlando and Winter Park played for the 6A state basketball championship. Winter Park came out on top, but what a great statement about high school athletics here in Central Florida. The Winter Park Winter Guard was also crowned champions this weekend in their competition. The arts and athletics are alive and well here in the Winter Park area, and after the FCAT reports come out in a few weeks I expect the tradition of academic excellence to continue as well. Good luck to all the students this week, and GO WILDCATS!

Orlando Real Estate, David Welch Real Estate Optimist

Do not underestimate the power of the pen, or in this case the keyboard. I read for years that the internet was changing our business, and I knew that people were getting more information from the internet. I advertised my listings, and had a full featured website with all kinds of great real estate information. I did not see any more business coming from it. Two years ago that began to change when Risa Saltman from our Remax Town and Country office spoke at Remax 200 where I work. Risa is sort of a pioneer here in Orlando when it comes to using the internet in the real estate business. She came to speak to us about SEO and blogging. I had heard of blogging, and frankly it sounded like "dear diary" stuff to me. After that meeting, I checked out some of the blogsites like Active Rain, and found them to be pretty good.

My website www.davidwelch.com has a blog feature, so I started, and I signed up on Active Rain too. As I started posting my opinions and local real estate statistics, I noticed the activity on my web site began to pick up. I did not rank highly on the search engines, but I must have been improving. My page views grew from about 100 per day to more than 300 pretty quickly. The number 300 sticks in my head, because an internet guru from Advanced Access had spoken at our office. He had said that you needed to have at least 300 page views per day to see any kind of business from the internet. I was very excited when my site activity picked up to that level. I continued to blog, and found other venues where I could syndicate my posts. I found out that Realtor.com had a blogspot called Talk.Realtor.com, and I signed up there. I quickly became one of the most viewed blogs, and they now feature me right on the front page, as well as on Ask A Realtor.

Page views of my blogs alone are now in the 60,000 per month range, and if you google "Orlando Real Estate Blog" I hold the top four spots in the organic results. My blog is how Doug and Lisa found me, which landed me on the HGTV show House Hunters. I have found my blog quoted in the Orlando Sentinel and even the Colorado Springs Business Journal. My google page rank has risen from 0 to 4, and my primary website regularly gets close to 2,000 page views per day. Last year 72% of my business came from the internet. Write about what you know; your local real estate market. Happy blogging.

Orlando Real Estate, David Welch Real Estate Optimist

Cash is king as the saying goes, and the table below shows where the smart money is going. Orlando real estate as an investment is very attractive to investors. The table highlights the changes in our marketplace over the last few years. Even though money was very easy in 2005, many people were taking equity lines out to purchase homes for cash to give themselves an advantage over other buyers bidding on the same properties. There were also people moving here from other areas with much higher prices that cashed out and purchased here. In the last half of 2006 the market meltdown hit. The Orlando real estate market did not look like such a good place to put your cash, and you can see the percentage of cash deals dropped along with total sales.

The rising tide of prices began to ebb after peaking around October of 2006. In 2007 sales fell significantly, as did cash sales although the percentage crept back up. Prices began to come down more significantly in 2008 when sales dropped to less than half of their 2005 peak. The bigger drop in prices enticed more cash into the market as cash deals doubled even though total sales were down from 2007. At least a part of the additional drop in sales in 2008 was caused by the financial sector meltdown. Financing dried up, but obviously there was still cash. Over 40% of the purchases last year and over half of the closed sales so far this year have been closed with cash.

It looks like the smart cash began bypassing the financing middlemen and started going straight into the real asset. If you think about it logically, mortgage rates are in the low 5's, and The Fed has been supporting the secondary mortgage market. So, there is not really that much confidence in the mortgage market yet. Real estate prices have been driven into the ground in areas like Orlando to the point that investors can expect an 8%-10% return on their investment. (I am looking strictly at cash to cash, not appreciation.) I have a transaction closing next week for $62,000. The monthly rent is $1,000 and the monthly expenses are about $500. The investor has a cash return of $6,000/yr or almost 9.7%. Until banks get smart and start making loans again, cash will remain king. Long live the king.

Orlando Real Estate, David Welch, Real Estate Optimist

The home buyer tax credit is counting down again. If you are not aware, the credit was extended and expanded by Congress to include both first time home buyers and repeat buyers. First time buyers can still qualify for a credit of up to $8,000 and repeat buyers can now get up to $6,500. Check out my page with details on qualifying by clicking above. The thing you need to know right now is that this version of the credit expires June 30, 2010, but you must have a binding contract by April 30, 2010 to qualify. That leaves just 60 days including today to find a home and negotiate a contract. You have another two months to get the deal closed. If you are considering a short sale, you may just have enough time if you are under contract right now. While 60 days sounds like a lot of time, it can go by very quickly. Don't wait to get started.

Orlando Real Estate, David Welch Real Estate Optimist

You have to love the experts that predict that prices have already fallen. I would guess a lot of people do not read articles very critically that they find in the paper (if anyone still reads the paper) or online. This article was just on Yahoo real estate http://realestate.yahoo.com/promo/duck-watch-out-for-falling-home-prices from CNNMoney.com. I cannot comment on the particular markets highlighted in the article, but I pulled up the numbers for Orlando. They show a median price for the third quarter of 2009 of $168,000, and I assume that is an annual number. The monthly median prices that I track were already in the $125,000 range well before September of last year. Last month's median was around $105,000 and is actually well below the projected 15.7% drop forecast in the article.

My point with this is two fold. First, get information about your local market from a local source. You will be able to get more current information that is more relevant to your personal real estate needs. Second, when you read these types of articles ask where the data is coming from and how current and accurate is the information. I rarely find any of these articles that explain how they come up with their forecast. Negative news sells ads. I do have to say that I am thankful Orlando was not one of the featured areas expected to be hit the worst. Everyone knows that Orlando realty searches usually top the charts, so we are a favorite target of the bad news bunch. Personally, I see Orlando poised for a lot of improvement in 2010. New short sale guidelines begin soon, and should help us get through the tremendous backlog of short sale contracts pending. As the weather begins to improve, I also expect employment numbers to begin improving which will jumpstart things.

Orlando Real Estate, David Welch Real Estate Optimist

Orlando real estate has continued to post strong sales, but prices took a big nosedive in January. The median price for most of 2009 was around $125,000, but dropped to $102,000 last month. So far this month, as I reported yesterday on my blog at www.RealEstateOptimist.com, the prices are up a little to about $107,000. We saw a very different result here in Baldwin Park. In 2009 there were 190 closed sales with a median price of $346,500 and an average of $399,395. So far in 2010 there have been 19 sales with a median sales price of $430,000 and an average of $500,880. That is about a 25% increase either way you look at it. The big difference between Baldwin Park and Orlando overall is the impact distressed properties is having on the neighborhood. Of the 94 active listing in Baldwin Park less than 31% are distressed compared with about 48% in the marketplace overall. Pendings are close to the norm with about 78% distressed sales, but not so many are getting closed. Only about 42.1% of the closed sales so far have been distressed, which is far below the 70% in the greater Orlando market.

Orlando Real Estate, David Welch Real Estate Optimist

Currently, there are 16,216 active listings in the Orlando marketplace with 1,776 bank owned and 6,056 short sales making up 48.3% of the active inventory. That is a pretty big chunk of the market, but pales in comparison to the percentage of pending and closed sales so far this month. The good news is that pending sales are going through the roof with 9,467. The not so hot news is that 83.2% of the pending sales are distressed with 1,876 REO's and 6,002 short sales. The number of closed sales so far is 1,043 suggesting a pretty good month for the number of closed transactions. Closed sales so far are also very heavily weighted with distressed properties. There have been 464 bank owned and 268 short sales closed so far making up 70.2%. The high percentage is showing up in the sales prices too. The median sales price for bank owned properties is at $76,050, short sales is $99,000 and "normal" sales is $164,000. The overall median sales price is up slightly from January at $107,000.

The inventory remains fairly stable, sales remain fairly strong with around 2,000 closing per month since June of last year. So why are the prices coming down? I believe at least a part of the problem lies in the condition of the distressed properties that are for sale now compared to a year ago. When the foreclosures first started hitting the market here, many of them were investor purchased homes in excellent condition. In fact, many of them were brand new homes that had barely been lived in. More and more, I am showing homes in disrepair and otherwise poor condition. Some are newer homes, but the process to foreclose and market has taken very long and time and toll on the homes. Others are foreclosures and short sales created by economic conditions. The owners just began to neglect the home, because they could not afford to maintain it. Of course, some take out their frustration on the home by damaging and ransacking the property before the bank takes it back.

Orlando Real Estate, David Welch Real Estate Optimist, As Seen On HGTV's House Hunters

The Fed announced an increase in one of their interest rates, so what does that mean to mortgage rates? The Fed rates that you hear so much about are short term interest rates that they charge member banks to borrow money overnight. Banks are required to maintain certain reserves in their accounts, but sometimes find themselves short. Typically, they will go to other banks to borrow the needed funds overnight, but in a pinch they will go directly to The Fed. This is the rate The Fed raised yesterday. Since this is where banks go as a last resort, it probably means nothing.

While short term rates have virtually nothing to do with longer term interest rates directly, they do have an indirect impact through pressure on the yield curve. Short term lending is less risky than longer term lending, so you expect higher yields on longer notes. If the short term rates get pushed up at some point investors will expect a greater return on their long term money. Again, the discount rate The Fed raised is rarely charged and should have little to no impact on other borrowing rates. Banks generally are able to obtain the temporary funds from other institutions, and that rate is called The Federal Funds rate. The Fed has done nothing to this rate which is still at 0-0.25%.

In a nutshell, don't look for any immediate changes in mortgage rates as a result of this move. The Fed noted their reason for doing this now is that they feel things are heading in the right direction and the emergency measures they took are less necessary.

Orlando Real Estate, David Welch Real Estate Optimist, As Seen on HGTV's House Hunters