The Obama administration recently outlined a mortgage plan, for responsible homeowners, aimed at helping families in distress to avoid foreclosure. Here is an excerpt from a statement released by the U.S. Department of the Treasury on March 4, 2009, outlining the intent of the plan.
“Only two weeks after the President unveiled his plan to help promote homeowner affordability, we are moving forward today with these guidelines to implement that plan,” HUD Secretary Shaun Donovan said. “This step forward represents a tremendous coordinated effort between major government and regulatory agencies to help bring relief to America’s housing market and homeowners. This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans.”
This is an important part of President Obama’s plan to reduce the number of foreclosures in this country. It could help you save your home by showing you how to acquire refinancing or a modification of your present home loan that will substantially reduce your monthly payments. If you are interested in finding out more about this plan, I would suggest that you contact an appropriate agency in your area to discuss the details as they specifically apply to your situation. How do you find that agency? Go to HUD Government Offices. There will be information on this site to show you how to start the process by putting you in touch with a loan counseling service for your state. These services are free to you and paid for by HUD. There is no need to pay any private company to do this for you; you can do it all for yourself. But you must take the first step.
There is so much good information on line to help you. If you go to Financial Stability, this site, while still under construction, already has many links with good resources and valuable information for homeowners. At the bottom of the site will be links to recent press releases and statements, one of which on 03-04-09 inspired this blog.
How Banks Value Your Home or Why They Cut Your Home Equity Line
Have you had your Line of Credit reduced recently because your house value has gone down? Well, if your answer is yes, the following might be one of the reasons, so take note.
I came across an article in MSN Money yesterday which caught my eye because it referenced a study by one of my favorite whipping posts, Zillow, the free property valuation service available on the Web. See our earlier blog on May 24, 2007 – “Zillow and Others Help You Research the Value of Your Home” on the risks of putting too much faith in on-line valuation services. By now most everyone has probably gone to the www.Zillow.com Web site to check on the value of their or another’s home and has come away in disbelief at Zillow’s sometimes wildly inaccurate valuations. They may be too high or too low, but no big deal because it’s only meant to satisfy our curiosity anyway, right? Well no!
What I found interesting in the article was that not only do we as consumers utilize Zillow and similar valuation services to determine our home values, but that ALL major mortgage banks utilize similar services to price our homes. It was a startling revelation that although we may find this property valuation information interesting, banks are actually using similar and possibly inaccurate valuations to make policy decisions. As the article explains, banks like Wells Fargo “….holds tens of thousands of mortgages on its books, each backed by a unique house. It’s impractical to regularly review each home for a fresh value, so Wells and other big banks like Citigroup, JP Morgan and Bank of America rely on analytics firms to provide property values churned out by what are called Automated Valuation Models, or AVM’s”.
Well, unfortunately these AVM’s are quite likely to provide data as inaccurate as Zillow’s. “By its own admission, Zillow’s values are merely estimates based on amalgamating sales data from nearby homes, comparing bedroom counts, living area, lot size and other salient characteristics.” In any case, all of these valuation models are similarly flawed because they are taking only the available data and ignoring such very important factors as location, architectural style, condition, quality, post sale improvements, etc. I suppose that in some cases these AVM models might be fairly accurate if comparing brand new condominiums or tract homes of the same design and floor plan, but not my house, and probably not yours either.
So, what can happen? The surprise letter from your mortgage company reducing or eliminating your mortgage backed Line of Credit is a result of your company’s just having used an AVM to determine your house’s value. Never mind that it may be grossly inaccurate; your home’s new value is now a fact, at least as far as the bank is concerned. What can be done about it? I’m not sure. If you have better data to support a higher valuation and really want to argue with your bank, go for it. The bank might even provide that option, but that’s not the point here. The point or two points are: understand that the bank’s perception of your home value may be detached from reality, and secondly, if you are going to work towards reinstating your Line of Credit, use an experienced Realtor to assist you in determining your house’s current value. He is in the best position to provide you the most relevant comparable sales figures. Good luck!
Alternatively, if you’re like me, maybe it’s just better to learn to live with less credit and pay off the dang credit line! Read more at Bank Practices.
The News Headlines Shape Buyer Expectations
A recent report on real estate sales and trends here in Palm Springs for December came out in The Desert Sun on last Thursday.
More important than the actual numbers or trends reported in the article, the author explains that what is being reported is a distortion; the cause is that when all types of houses, in all neighborhoods are averaged together, the median price figure from this mix of sold homes is strongly distorted by the large number of foreclosed properties being sold at distressed prices.
The article explains, “…the falling median (price) is as a much larger factor of the mix of properties selling in today’s market than is an indication of actual values” and “…because there are so many bank-influenced sales the market is seeing much more ‘radical erosion’ in the statistics than is occurring in the actual marketplace”.
In previous blogs, I have highlighted this same fact – that the trends, price, and sales figures reported in most news media when all averaged together, produce a distortion of what is actually happening in the housing market. Finally in last week’s article, there is a media awareness of the distortions.
Now, what does this all mean?
For many months now I have found that buyers arrive here with great expectations, looking for rock bottom prices and expecting to find repossessed, i.e., bank-owned houses in move-in condition, or close to it. No amount of talking persuades them otherwise, they have to see for themselves. So we go out and inspect a bunch of houses and after a few inspections, they go into an “Oh My God!” mode. As much as I explain to them about our glutted market , most buyers will need to see for themselves that a majority of the lowest priced, repossessed homes are trashed. It still holds that you get what you pay for. It’s my job to sift through the myriad of properties out there and find the good values for my clients. And I do find them, but it takes time.
Location remains the most important factor in valuation, and in many cases provides a measure of the bottom price of a particular property (let’s forget about lease land for a minute). After all, if you were to remove the house, you would still have the land. Where land is scarce, prices are high, where land is plentiful, prices are low. That’s why you can’t generalize on housing prices, its all about location.
Take Home Point
So if you are a potential buyer, make sure your expectations are realistic. Don’t be fooled by the many headlines trumpeting more falling prices and increasing foreclosures. That information is only one part of the total equation. The eventual price that you or someone else will pay is always dependent on location, condition of the property, and its market value (that market value being determined by the value of similar properties in a similar location, in similar condition, and based on a recent appraisal or competitive market analysis).
Once we’ve found a particularly well-valued home, and it meets my clients needs and wants, and they decide it’s really the one, it’s best for them to act and make an offer. If they wait for its price to fall further, thinking it’s not going anywhere, it’s quite likely that they’ll be disappointed when someone else comes in and buys it. I work hard to educate my clients on the importance of location, condition and value as explained above, and then we go out and find their perfect house. The clients who are happiest are those who, after we submit their offer (and perhaps counter offers), go ahead and buy that home. Knowledge of the local market and its particularities is a very important part of what I offer, and it’s what you’ll miss if you try plowing through the thousands of homes for sale on your own. For the entire Desert Sun article, click on Home Buyer Expectations.
Palm Springs Modernism Week 2009 – A Celebration of All Things MOD!
The 4th annual Palm Springs Modernism Week 2009 kicks off this coming Friday, February 13, 2009 and will include a wide variety of events over a 9-day period. As in previous years, Modernism Week will begin with the two-day Modernism Show on February 15 and 16, preceded by an evening Preview Reception on the14th, held at the Palm Springs Convention Center. Eighty dealers of decorative and fine arts objects will offer a vast collection of modern furniture, jewelry and clothing and other items of the period.
Modernism Week 2009 features architecture tours, films, lectures, parties, a vintage car show, and many other activities to be held in various venues throughout the City of Palm Springs; all are offered as an homage to the ideals of mid-century modern design, architecture and culture. The style, which originated in the late 1940’s and continued to the mid-1960’s, is typified by clean, simple lines that celebrated an elegant informality and came to define desert modernism. Palm Springs is blessed in having the largest concentration of such mid-century homes and condos in our country, perhaps in any country. So this festival is a celebration and affirmation of one important element of Palm Springs that makes our city so special.
Modernism Week is the only such event in the country celebrating the aesthetics of modernism over such an extended number of days, thus making it appealing for aficionados to plan their vacations to coincide with the event. As a result, Modernism Week has established a passionate and enthusiastic following of fans who now literally number in the thousands, and who come from all around the country and the world to Palm Springs for the event.
Numerous renowned architects such as Richard Neutra, John Lautner, William Krisel, Albert Frey and others designed Palm Springs’ stellar examples of modernism, inspired by the Coachella Valley’s desert topography and climate. From around 1940 to the early 1960’s, these men helped to create in Palm Springs one of the most important concentrations of modernist architecture in the world. For the full schedule, visit Modernism Week.
Help for the Beleaguered Real Estate Market – Homebuyer Tax Credits
Wow! It looks as if the congressional stimulus package now coming together in Washington may find a way of providing some assistance to our beleaguered Palm Springs real estate market. The New York Times is reporting today that today the Senate approved by voice vote a measure that, if approved, would provide up to $15,000 in a tax credit to today’s homebuyers.
The bill is sponsored by Senator Johnny Isakson, a Republican Senator from Georgia and former real restate broker. This may not just be “pie in the sky” as this guy is out of the industry. While some may argue that it’s pandering to the big housing industry, I am not sure exactly how putting a potential home owner into a much needed primary residence and reducing our bloated housing unsold inventory could be considered pandering.
Senator Isakson argued that this provision of the stimulus package was modeled after a similar $2,000 homebuyer incentive in 1975 that helped lead the country out of that earlier recession. He went on to argue that, “We do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what’s happening now”.
“Within one year of the inception of that tax credit, two-thirds of the available inventory that was on the market was gone. The market moved back to a balanced inventory, values stabilized and things became very healthy. The only reason I know all of that is I was selling houses in 1974, that’s what I was doing to feed my family and make a living”.
The proposed tax credit would give buyers 10 percent of the price of a primary residence, bought within one year of the bill’s enactment, up to a total of $15,000.
Evidently this provision has a way to go before we see any tangible benefit. However, this tax credit provision, or something similar, is the first tangible sign that our noble leaders are serious about fixing the problems on Main Street.
Now if only they would stimulate banks to provide home loans again! As the Chinese proverb says, “A journey of a thousand miles begins with the first step” . . . or something like that. For the complete New York Times article, go to Homebuyer Tax Credit.
Here We Go Again – December 2008 California Housing Outlook
This is an update of my November 2008 Blog reporting on the state of the real estate market. The California Real Estate Association (C.A.R.) has just released a report stating that the number of single-family homes sold in California increased 84.9% in December from the same period one year ago, with year-to-date sales nearly 27% above last year. Further, the C.A.R. report states that prices of sold homes have continued to decrease throughout California. Okay so far, as prices fall, sales increase – no surprise there. But then the report compares the current median price of $281,000 in December 2008 to the higher median price of $480,820 a year ago in December 2007. Wow! That’s a 41.5% decrease. Does that mean my house is worth 41.5% less than last year? No! Not at all!
As about 80% of sales presently taking place involve lender owned or seller owned distressed properties, going at rock bottom prices, even a casual observer can understand why we are seeing such a sharp drop in statewide selling prices. So unless your property is being foreclosed upon, or if you have to sell now in a short sale, the median price trend only means that, in general, your home may be losing value. Otherwise, in absolute terms, the statistic means very little to your specific situation.
These market trends do however fuel more and more headlines, unfortunately offered without clarification as to region. This practice suggests that all properties everywhere are taking very steep nose dives. Well, that just isn’t the case in all cities of California, nor in all neighborhoods within those cities. Again, remember that averages and statewide statistics and trends are meaningful only on a macro level when looking at the general health of the industry. However, when we buy property, it’s on a micro level – one house, in one neighborhood, at a time. So if you are buying or selling, make sure to find out what is happening with prices and with sales volume in your own city and neighborhood. Then analyze your decision to buy or sell, based on what is happening in your locale. Never mind what is happening somewhere else.
I think we can safely say that all property across the Palm Springs region has decreased in value since the peak years of 2005/2006. But the amount of decrease in market value has greatly varied from community to community, neighborhood to neighborhood, from a reduction of as little as 10-15% in certain neighborhoods of Palm Springs, to 50%+ in parts of Desert Hot Springs, to cite two examples.
Punch Line – So, if you refer back to my last blog on market conditions in November, you will see that the news is basically the same – prices are down and sales volume is up. Don’t be misled by the hyped up averages or trends being talked about daily on MSNBC or even in local headlines. Rather take a hard look at your community and your neighborhood. You might find out that things aren’t really as bad for you as these headlines suggest. As always, contact your local real estate professional for detailed information about what is happening in your neighborhood before making any buying or selling decisions.
To read a Desert Sun article with more stats for this time period, go to Dec 2008 Market Report.
http://www.mydesert.com/article/20090129/BUSINESS04/901290311/1043/business04
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