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
I actually have not had this come up as an issue myself, probably because so many of the bank owned properties I have sold were cash deals. Some banks insist "owner of record" be the seller on the contract for sale and purchase. I am not a lawyer, so I am not completely sure why they would insist on this unless they don't really know which of the entities involved in the foreclosure is actually the owner until they get the title work completed. The lending side of the bank is having fits with the term "owner of record", because they want to know the title is going to be insurable before they will make the loan to purchase the property. So you could possibly have the REO side of the bank with a policy that contradicts a policy of the lending side of the bank. These are the types of frustrating situations that are really holding our real estate market back from recovery.
I believe it all starts with the inconsistent policies of HUD, FHA, Fannie Mae and Freddie Mac. I have written about the incongruity of Fed monetary policy with lending policy set by these other government entities. Now is not the time to worry about current buyers walking away from their homes. The reason it has been happening is because of the significant errosion of equity, the media's popularization of strategic default, and the recession. Buyers now are looking to take advantage of the lower values and interest rates, and it is highly unlikely that values will errode much further. In fact, if lending were less restrictive and banks more cooperative in the short sale process, sales would be quite robust. The economy is beginning to turn around, and the job market should begin to rebound with it. More jobs will create greater demand for homes and greater stability in the housing market. As far as the media is concerned, I believe most people have had enough of the op/ed being passed off as journalism.
I am poking a little fun at the "owner of record" issue, but it is causing real problems for buyers trying to obtain financing on REO's. I have had buyers trying to use Federal down payment assistance (which can only be used to purchase REO properties) turned down, because the bank would not accept contracts using down payment assistance. Loans turned down, because the buyer owns cash flowing rental properties and takes depreciation on them for tax purposes. Recently, another agent in my office had a contract declined, because USDA announced they are running out of funding for their mortgage program. Come up with consistent policies that encourage lending, and see what happens.
My website www.DavidWelch.com has seen nearly a 100% increase in web traffic in terms of page views in the last two weeks. I was averaging around 1,700 page views each day but that number has jumped to more than 3,200 in the last week. Most of the views are coming through my Orlando real estate blog. Two people contacted me directly from the blog about buying a home this week, another was referred to me by a Realtor in Texas that contacted me through the blog. There were two others that contacted me from my website, looking for help with financing and first time home buyer programs. Two more people were referred to me by recent customers plus two sign calls and family friends contacted me about selling. So, I guess everything is picking up.
Well, I have to go. I have showings all over the place today.
Real estate has been anything but normal here in Orlando since about 2003. I still am stopping short of saying things are back to normal, but the Spring selling season seems to be back. In 2004-2005 everything sold all the time. By the end of 2006-2008 nothing seemed to sell. In 2009 prices dropped and sales shot up significantly. Now in 2010, after nearly a year of stable inventory sales trends seem to reflect the typical seasonal trends. Things slowed down a little bit in January and February while sales appear to be picking up (and new listings) so far in March. Last weekend I predicted we could hit 10,000 pending sales by Monday. Well, I got busy and did not have a chance to track pendings this week, but today we stand at 10,032 properties under contract. Although 6,221 are short sales that leaves over 3,800 "normal" and REO sales with a high likelihood of closing soon.
In March 1,264 real estate sales have closed just 2/3 of the way through the month. Typically about half the sales close by the 20th with the rest coming in the last few days of the month. The median price of those sales is right in line with February at $110,000. Inventory is up a little bit too with just over 16,400 homes available for sale including almost 6,100 short sales and just over 1,900 bank owned properties. About 1/3 of the closed sales are "normal", while 554 or almost 44% have been REO and the remaining 294 or 23% have been short sales. Cash continues to be king with 645 or 51% of the closed sales being all cash deals. If we really are returning to our typical sales "seasons", then April, May and June should be very strong. I am looking to reach 2,500+ sales in each of those months. We might even make it this month.
The name of my blog is www.RealEstateOptimist.com, but I may need to change it to BankingPessimist.com or something like that. Did you ever learn a new game when you were a kid, and it seemed like the person teaching you the rules was making them up (in their favor) as they went along? I think that kid grew up and is now running HUD and Fannie Mae and Freddie Mac and the bank. I will give you just one of the most recent examples I am trying to work through right now.
The Neighborhood Stabilization Program (NSP) is an initiative by the federal government to help areas hit especially hard by foreclosures. The program was funded with $200 billion dollars available to local communities, and required a plan to be submitted detailing how the funds would be used. Here in Florida there are already county level down payment assistance programs in place. The state worked with the counties to use the existing system to administer the program. In my opinion that was a very smart decision, and I would like to thank our state and county governments for doing the right thing. The funds are available in the form of down payment and closing cost assistance to qualified buyers. Because the program is designed to help areas with high foreclosure rates, the money can only be used to purchase foreclosed properties.
I submitted an offer on a bank owned property with the contingency of the buyer receiving the NSP funds. The buyer is pre-approved for an FHA loan, and using a lender that is not only very experienced in down payment assistance; she teaches the class for the county. We did not make a low offer or ask for closing cost concessions, since the home is priced fairly and the NSP funds will cover the down payment and closing costs. The bank has come back and said they cannot review the offer without proof the NSP funds are available for the buyer. NSP cannot set the funds aside and designate them for the buyer without a contract. Conveniently, there are other offers on the property, and we are in a Catch-22. Is this actually the bank's policy or is the asset manager or agent mistaken? The lender has used NSP funds with this bank before, so they should know the rules. Or, are they making them up as they go along (in their favor)?
March is going to have a lot of closed sales. So far there are 837 half way through the month. I am looking for over 2,000 by the end of the month, based on that number. The median price seems pretty firmly set at $110,000 about the same as February and up from the bid drop in January. Investors have been wielding a lot of influence on our market with half the closed transactions being cash deals. Of the sales closed this month 549 or 65.6% are distressed properties which is actually down a bit from the prior three months. Spring will be here before long, and with it will come the buying season.
The job market has not yet started to recover with construction dragging heavily on unemployment numbers. In spite of the job situation, I believe we may start to see a more normal pattern emerging for our real estate market. Distressed properties will continue to play a major role in Orlando for some time, but as sales remain solid we should see the inventory of REO's and short sales begin to wane over the next year or two. This could happen a lot faster if jobs begin to return to our area. Keep an eye on jobs, and that will be your first sign that things will begin moving back up.
I expect by Monday there will be more than 10,000 pending sales in the Orlando real estate market. Over 6,200 are short sales, so I don't expect to see 10,000 closings in the next two months. There are about 4,000 REO and "normal" sales, and you can expect between 50% and 65% of those to close between March and April. With more REO's active and pending, the title agents that handle them are getting behind. I have a cash deal delayed by a week, simply because they could not get everything ready in time. In the first two months of this year just over 50% of the closed transactions have been cash deals, but the financed transactions are still taking longer in many cases.
Even with the delays and additional hurdles, we are off to a pretty strong start considering the employment market has still not seen the improvement I had hoped for. Obviously, by the continued rise in pending sales buyers are still actively pursuing homes. Investors and first time buyers dominate our local real estate market. Investors are taking advantage of the low prices, and seeing 8% to 10% returns on their investment. Home buyers are taking advantage of low prices, low interest rates, and tax credits for first timers and repeat owners. Overall the state of Florida is starting to see growth again. After all, the weather and the beaches are still the big draw, and it shows with the number of pending contracts.
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.
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.
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.
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.
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