There is a pretty good article in the Orlando Sentinel today by Mary Shanklin about short sales. The only thing I question is the statement that banks were approving short sales in seven weeks back at the beginning of the year. I have not seen that as a typical or average response. There are short sales that receive approvals very quickly, but they are generally limited to smaller banks that only have a handful of short sales that they are negotiating. Currently, there are just over 5,100 short sales pending and 199 have closed so far this month. We have seen between 350 and 450 closing each of the last few months which represents less than 10% of the total number of short sales with contracts on them. I typically see about half of the closings occurring by the 20th of the month, so if we double the short sale closings so far to 398 the closed to pending ratio is just under 8%. Let's compare that with "normal" sales of 354 so far this month. If you double that to 708 and as a percentage of pending "normal" sales of 1432, the closed to pending ratio is just over 49%.
This is where I have come to the conclusion that the average short sale that actually closes is around seven months. The closed ratio for "normal" sales is about seven times that of short sales. Unfortunately, time is the biggest enemy of a real estate transaction. While waiting on a short sale approval, how many more properties will come on the market or reduce their price luring the short sale buyer away. How many times can the bank or banks in a short sale ask the seller to bare their financial soul to them before it becomes disrespectful as the person in the article states. Realtors have been calling for banks to adopt a uniform streamlined process for dealing with short sales. Sometimes I do not believe the banks have a process at all.
If the banks did have a process it would go something like this: Step 1-Fax all the paperwork to the bank; Step 2-Call the bank (they did not receive the fax); Repeat steps 1 and 2 until the bank acknowledges receipt. This usually takes one to two months; Step 3-Call to check the progress (this takes another one to two months); Step 4-Phase 1 Negotiator assigned (re-send all the information you sent in step 1); Step 5-Broker Price Opinion ordered by negotiator; Step 6-File sent to Phase 2 Negotiator (re-send all the information you sent in Step 1 and Step 4); Step 7-Phase 3 Negotiator assigned. At this point the actual transaction could be approved or the negotiator will want to negotiate the sales price, the Realtor's commission, and the release of hostages to this process. Add a second mortgage or home equity line of credit to this situation, and things take even longer and become more difficult to resolve. Currently in Orlando there are 5,100 pending transactions going through this "process" with another 5,400 active short sales waiting in the wings.
Orlando Real Estate, David Welch Real Estate Optimist
Buyer beware. The tax credit has not I repeat has not been extended yet. It is looking more likely with key Senators agreeing to extend the current credit through the end of April and even as far as July 1, 2010. There is also an agreement to expand the qualifications for the credit to higher income buyers and repeat buyers who have lived in their home for five consecutive years out of the last eight. Right now this agreement has not even been voted on in the Senate. This is just a tentative agreement to go forward with legislation. There are still a number of obstacles in the way including the House of Representatives where concern over fraud from the exisiting program may hold things up. It is estimated that up to 100,000 of the tax credits submitted may have been fraudulent. That is a lot of zeros, and adds up to an $800 million ripoff.
Many in the Realtor community believe that it is just a matter of getting some fraud protections in place before the credit is extended and expanded. For now, it is not a done deal so govern yourself accordingly. Get your deal closed by November 30, 2009. Be careful with that date too, because many lenders are taking an additional day to fund transactions. November 30th is also just after the Thanksgiving holiday. A lot of lenders and title agents like to take that time off too. I would really recommend trying to close before Thanksgiving just to be safe. If the tax credit is extended and expanded, I will have the details on my tax credit web page.
In the last seven days there were 12 sales in Baldwin Park ranging in price from $431,300 to $714,900. So far this month there have been 27 contracts written on two condos, one townhome and 24 single family homes. The prices have ranged from $210,000 to $799,000 with a median list price of $449,900. Currently, there are 99 active listings in Baldwin Park and 62 pending sales with 151 closed so far this year. The median list price of the active listings is $437,500. The properties receiving contracts have a median list price of $349,500 while the closed sales have posted a median sales price of $332,000 on a list price of $359,900. The most recent month seems to be bucking the trend for the year with a median list price $80,000 and $90,000 higher than closed sales and pending sales thus far.
Overall that does not appear to be the case. Orlando Realtors have written 3,516 new contracts in October that are still pending (3,337) or closed (179). Of these only 943 or 27% are "normal" sales with bank owned accounting for 34% or 1,183 contracts and the remaining 1,392 almost 40% categorized as short sales. The median list price of the contracts this month is down around $117,900 which is far below the median sales price of $129,900 so far this month. This is probably in part due to the last big push by first time home buyers to take advantage of the tax credit expiring at the end of next month.
When the rules changed on condo financing back in the spring of this year, it had a tremendous impact on condo owners and would be condo buyers. If the condo you are interested in purchasing is FHA approved, it still has to meet a number of strict criteria. FHA of HUD approval does not guarantee that you can obtain FHA financing. There are not a lot of absolutes in real estate where everything is negotiable to some extent. Here is one absolute that you can take to the bank - actually you can't take it to the bank. There is no bank financing available to investors purchasing condos. I don't even think a loan shark would loan to a condo investor these days, it is difficult enough for someone purchasing a condo as a primary residence or second home.
If you are purchasing a condo as a primary residence you better have a minimum of a 690 credit score, 20% to put down and be prepared for an adjustable rate mortgage. Second home buyers need a 710 minimum score at least 20% down and will also face an adjustable rate mortgage. Some recent quotes on these ARM's are 5.25% on a 3/1, 5.5% for a 5/1 and 6.5% on a 10/1 ARM. The only fixed option is 6.25% for a 15 year mortgage. Let's face it rates are probably not going to be much lower than they are right now, so these ARM's will adjust upwards. I would like to thank Jeffrey Sachs with FBC Mortgage for giving me some insight on the condo financing situation.
I posted on Twitter the other day that it was 90 degrees with the wind chill here in Orlando. Several people liked that. Our sales are continuing to persist like the summer time weather. We have over 1,500 closed sales so far in October, and it looks like we will have our 5th month in a row with more than 2,000 sales and our 7th month with a median sales price hovering around $130,000. It would be even hotter if every contract we write actually closed. Since April we have been writing more than 3,300 contracts each month with just over 2,000 getting to the closing table. Short sales are still slow to close with well over 5,000 pending of the 9,000+ contracts pending in our market place. REO's can be a little challenging, but close almost as well as "normal" sales. I can't remember if I have had a closing this year that actually happened on time because of delays in financing. This too shall pass, but I hope the strong demand continues for a while. Our inventory level seems to have leveled off just under 16,000 which is just about an eight month supply. First time buyer tax credit is set to expire in just over one month. I do not think we will notice much difference in demand here.
Mary Shanklin covers the real estate market for the Orlando Sentinel, and had a great article this morning on the state's attempt to turn the tax credit into down payment assistance. When this went into effect back in the summer, I checked with every lender I know. Every one of them had questions about how the assistance was going to be administered. Some were really trying to figure it out, and others just gave up immediately. With millions of dollars going unused, it appears to be another example of government cheese. If you remember back in the 80's the government gave away cheese. It was a program that really did not seem to help anyone other than the late night comics looking for good joke.
Down payment assistance for first time home buyers is not a joke. I believe the biggest obstacle to home ownership for most first time home buyers is the down payment. The FHA minimum down payment on the median priced home in Orlando of $130,000 is $4,550. Add to that closing costs that could also be around $4,500, and that is $9,000 the buyer needs to get into their first house. Many sellers are willing to put up the 3% toward the buyers closing costs, but well priced properties are frequently drawing multiple offers. The buyer with more cash wins that contest more often than not. Fully funding the existing state and local down payment assistance programs would be a better use of money than the tax credit. Some argue that the credit is supposed stimulate purchases after the closing of the home, but if the buyer does not have the cash to close in the first place there won't be a sale. Existing systems, processes and procedures are already in place, they just lack funds. We don't need more cheese, we need solutions that work.
You can go to my webpage www.DavidWelch.com/taxcredit to keep an eye on the countdown clock for the tax credit. Keep in mind, this countdown is until closing. You must close your transaction by November 30, 2009 to be eligible for the tax credit. We are finding that a lot of transactions are being delayed, so I do not recommend setting a closing for the last day of the tax credit. That also happens to be right after the Thanksgiving holiday. If you are writing a contract today, push to close before Thanksgiving or you may miss the credit completely. Surveys seem to indicate that only about 15% of first time home buyers say the credit was a primary influence on their decision to purchase. The first time buyers that I have been working with agree with that sentiment.
Considering this, why would the government consider extending the credit. First time buyers probably make up less than half the buyers, so the credit is probably accounting for fewer than 8% of the sales. Here in Orlando sales are up nearly 50%, so the credit while appreciated, is not really doing much to stimulate additional sales. Low prices and low interest rates have much more to do with the increased demand in Orlando. The banks cannot get all the sales closed anyway with pending contracts rising to more than 9,100 here in the City Beautiful. In stead of extending the credit, let it expire and see what happens with demand for homes. If we actually see an appreciable drop as some speculate, then maybe the credit should be reconsidered.
On a side note, reports suggest that real estate and manufacturing are leading the country out of the recession. The two hardest hit segments of the economy are doing the most to turn things around. Go Real Estate!!!
Check out my answer to a seller's question about owner financing and sales expenses. http://www.realtor.com/blogs/2009/10/18/commission-structure-ask-a-realtor%c2%ae/
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Check out Mary Shanklin's article in the Orlando Sentinel today, and see my quote at the bottom. Like the article states there are a number of possible causes for the slow down. Of course, if you read my last quote, I am holding out hope that we are really turning the corner on this trend. The three hardest hit states were also areas where the most speculative buying was taking place. The foreclosures I was seeing a year or two ago were frequently new or nearly new homes in fantastic condition. Investors were the first to just walk away from these properties, because they had little invested in them. Like the gentleman in Clermont in the article, most real home owners have struggled to hold on, but real estate crash has also taken its toll on the economy. This has made it difficult to impossible for many people to keep up. The second wave of foreclosures effected more families as ARM's adjusted and taxes soared. A lot of these properties suffered from more neglect as people let maintenance slip as they tried to hold on.
As all of this has played out over the last three years, prices have been on a continuous slide until about six months ago. Our median price in Orlando has been hovering around $130,000 since April. That is about half of the peak median price back in 2006. Also since April, new contracts have been piling up at better than 3,300 every month with over 3,800 written in September. If demand remains this strong, I do not expect to see prices drop any more. The price stability may also be having an impact on short sales and foreclosures. If you factor in the expected growth finally taking place in the economy and improvement in confidence, I believe we may be seeing a turnaround in the foreclosure trend. "Holy smokes!" I hope so.
Pricing properties these days is tricky, with all the short sales and bank owned homes on the market. When you factor in all the people that bought homes in 2005-2008 you can see how current prices can be tough to swallow. I do believe I have some good news for people who bought in 2003 and before. This week I sold two homes that were essentially priced where they were in 2003. Both homes were purchased in 2003, both were priced within $5,000 of their sales price in 2003 and both homes brought a lot of attention and contracts in a relatively short period of time. They were both in excellent condition and easy to show. One home was priced in the $170's and the other one was priced close to $300k. This supports my thoughts that there is strong demand out there for good homes that are easy to show and priced correctly.
If you purchased a home in 2003 or before, and need to sell, find out what homes in your neighborhood were selling for in 2003. Compare that with the most recent sales and see if my observations are correct. I am sure there will be areas of town where this will be off, and it will be impossible to apply this to new areas that were developed after 2003. I would love to hear some feedback from you though if you think this works in your neighborhood.
John has been around the block a few times when it comes to Orlando real estate. He has been selling real estate since 1971, so he has seen up markets and down markets. I am telling you this, because he came up with a perfect analogy for our current real estate market conditions. He said "you know it's like a store advertising a really great sale, but none of the cash registers are open." His point is that home prices are at fire sale prices, interest rates are at historic lows, but the banks just cannot get the deals done. Nobody is working the registers to check out the customers. You cannot get an approval on a short sale, you cannot get an answer on your REO offer, and getting financing is about as hard as I have ever seen.
So come on down to the Orlando real estate store. We have a big sale going on, but the lines at the register are a little long. Almost 9,000 pending sales; now serving number 12.
Active listings in Orlando remain basically unchanged with 16,045 homes on the market. There are 1,292 REO's or about 8% of the total active listings, and 5,385 short sales or about 34%. Pending sales continue to climb with 8,968 properties under contract. Over half are short sales with 4,972 or 55% being identified as being in a short sale situation and another 19% or 1,723 are bank owned. Closed sales so far indicate another good month with 490 closed with a median sales price of $131,500. Exactly 40% or 196 of these sales were bank owned with another 22% or 109 being short sales. The 109 closed short sales only accounts for about 2% of all the pending short sale contracts.
New Price
Buy Both and Save
"I feel a blog coming on." That is what I told a customer of mine a couple of days ago as she and I went out again to look at some new listings that had come on the market. She put an offer on a Fannie Mae property on September 7th, Labor Day and today is October 12, Columbus Day. We have no answer, just that they are really busy and have not had a chance to get around to looking at the multiple offers on the property. Just in case you don't have your calendars out that is five weeks with no response from Fannie Mae. On top of the wait, is my concern that they may not accept her offer because it is contingent on Neighborhood Stabilization Program down payment assistance. She has already qualified for this assitance and the property is in the target area, so it is a done deal. Unfortunately, nobody seems to know what the NSP is. It is a part of the stimulus package that nobody seems to know about. In Orange county this money is being used for down payment assistance in specific target zip codes. If you have a question about it contact David Holbrook at Waterstone Mortgage at 321-945-1434.
Then I see this article in the Orlando Sentinel yesterday http://www.orlandosentinel.com/business/orl-first-time-home-tax-credit-101109,0,3568996.story. This reminded me to blog about what we are seeing here in Orlando. Since April we have been writing more than 3,400 contracts a month, not offers but contracts, but the most we have been able to close in a month is around 2,200. Demand for homes is fantastic, but actually being able to negotiate a contract is a challenge and closing the deal is almost as tough. If my experience is typical in the market, I would say the average buyer is writing a minimum of five to six offers and I have heard of people making more than a dozen to finally get a property under contract. That is just a result of the demand for properties. The greater frustration is that you wait for days and even weeks to find out that your offer has not been accepted by the bank. It is much easier to put a contract on a short sale, because they tend to be the last resort for some buyers. With only 10% of the pending short sales closing in any given month there is a lengthy wait and uncertainty if the deal will close at all.
Once you clear the hurdle of going from offer to contract there is still the financing contingency to clear. I have read that up to 1/3 of mortgages are being denied. A year after the financial meltdown and it is still difficult to obtain financing for a lot of potential buyers. The government has responded with appraisal guidelines that have made the process more convoluded and lengthy and new disclosure requirements that help nobody. In stead of changing the rules every month why not just return to basic lending principles, and make loans for borrowers who qualify.
I really do not believe we need an extension of the tax credit from a fiscal perspective or as a demand stimulus. I feel badly for the people who will not get to take advantage of this program. I feel even more badly for the people who have tried, but were unsucessful because the banks and Feds just do not have their acts together. Most first time buyers in our market are looking forward to the tax credit, but the low prices and super low interest rates are the big factors in making the homes affordable and driving demand. There are fantastic buying opportunities, great prices and low interest rates. Keep a stiff upper lip, and keep writing offers.
Short sales undeniably make up a considerable portion of our market here in Orlando. They account for about 5,500 of our 16,000 active listings and about 4,400 of our 8,700 pending contracts. They only accounted for about 450 of our 2,100 closed sales last month, and that was a big increase over August's 350. I believe this might be the start of a trend. The Fed is continuing to purchase mortgage backed securities through the first quarter of 2010 but at a slower pace. When this practice ends, banks I believe will be forced to begin addressing short sales seriously. Right now though only about 10% of the pending short sales are closing each month. This made me start thinking about what it would take to make a business out of short sales.
Let's assume you want to make $100,000 per year selling short sales, and also assume a commission split with the broker of 50%. That means you have to generate $200,000 in commissions selling short sale listings. Assume for this example you only work short sales from the listing side. This would require selling $8 million in real estate with a commission of 5% split with another broker. The average selling price of the short sales in our market in Orlando is about $160,000, so you would need to sell 50 homes. Let's just call that four houses per month. With only about 10% of the short sales closing in any given month, you would need to have 40 pending sales to see four closed. If you look at the market averages, you would need to carry about 90 listings to have 40 pending. If you have a one year listing agreement, then you will probably lose about seven listings a month between expireds and foreclosures. You will need to replace the four that close. Typically about 1/3 of deals fall apart, so you are likely to lose some of those listings. If you lose half of the deals that don't close that adds another six new listings you need to replace your inventory. By my count, you need to list 17 homes a month to keep up the pace.
You will definitely need at least a couple of assistants to help with this kind of volume. There goes the profit margin. Of course with that kind of listing inventory, you should be able to keep a couple of buyer's agents very busy. That should help with the profitability of your business.
Best of luck.
For the fourth month in a row our closed sales in Orlando have surpassed the 2,000 mark. It is also the sixth month in a row with more than 3,400 new contracts being written. In fact, I count more than 3,700 contracts written in September making it the busiest month yet this year. The inventory has dropped a bit more too, which is typical at the end of the month. Yesterday we dipped below 16,000 active listings, and paired up with the 2,000 plus sales our months of inventory should drop below eight. We typically view six months of inventory as a balanced market place. The median price is a little lower around $126,000, but continues to hover around $130,000 where it has been since March of this year. Combined with interest rates averaging at or just below 5%, I expect a big rise in our affordability index for last month.
There are a lot of people, Realtors included, pushing for an extension of the tax credit. Demand could be very different in other markets, but I am mostly hearing of similar improvement around the country. I do not think we need additional demand stimulus at this point, but we do need the banks to start approving short sales, accepting offers on their REO's in a timely manner, and getting loans closed. If they could handle the pace we are writing contracts, this would be a banner year in Orlando real estate. Instead of focusing on additional tax credits, let's focus on getting the banks up to speed getting our current 8,900 contracts closed.
I did find out that Pie Town Productions will be releasing my episode of House Hunters to HGTV on October 23rd. The episode taped here in Orlando could air as soon as that week or any time over the next two months. I have been following up with the HGTV website and will definitely be keeping a close eye starting October 23rd. If anyone at HGTV is reading this, my birthday is October 25th. That would make a great birthday present if you could show my episode on my birthday. I have a page that I created to promote the episode, but there are no hints. You will have to watch and guess which house. Check back here for updates.
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