Month: September 2013

Rising home prices restoring lost equity

As home prices continue to rise, millions of home owners are regaining equity, according to date released yesterday.

An estimated 2.5 million homes went back into a positive equity position in the second quarter, meaning they are no longer underwater – that their owners no longer owed more on their mortgage than the home is worth.

According to date from CoreLogic, the likelihood that a home was underwater dropped to a level where only an estimate 14.5% of all mortgages had negative equity.  This is compared to 19.7% in the first quarter of 2013.

What does this mean for the Real Estate Market?

First, people simply feel better about their overall position in life.  Many consumers have the bulk of their wealth tied to the real estate.

Many people the past 5-years have wanted to sell their house, but have been unable due to being underwater. As equity positions improve, these people can now safely put their home on the market without fear of having to write a check to sell their home.

It also allows more people to refinance to today’s lower rates.  Programs like HARP (the Home Affordable Refinance Program), FHA Streamline Refinance, and a VA IRRRL Streamline Refinance, have allowed many people to refinance today without an appraisal, and without having to worry about being underwater. Yet about 20% of all loans are NOT a Fannie Mae, Freddie Mac, FHA, or VA loan. If you are one of the 20%, you have not been able to refinance if your home was underwater.  Improving equity allows these people to refinance, freeing up money to be spent elsewhere.

Buying real estate,  especially those for first time home buyers can result in a wide variety of emotions. Fear, excitement, and a sense of being overwhelmed are many that I hear from my mortgage clients.

All real estate is local, so while in some areas, the buyers are in control, in others, the seller is in control. Regardless of the situation, negotiations skills are important.  Most of the time, the actual buyer is not in direct control of the negotiations, your Real Estate Agent is.  So be sure to pick a good one, and to use the following negotiation tools to get the home you want, at the price you want:

Keep your emotions at bay – One can get excited over the perfect property.  Being transparent, or having a poker face with your emotion may lead to getting a better deal.   If  you have already become too attached to the property, you might end up compromising the deal and giving in to the sellers demands.   Be as objective as possible and take control of your emotions.

Study the local real estate market – Whether you are buying through a real estate agent or you are on your own, you must have a good knowledge of how much is the worth of the properties around, especially the one which you are most interested in.  Studying the market will give you a good picture if the property you like  is underpriced, overpriced or just priced just right.   Do not just go into the field of negotiation without having the right knowledge of what you are getting yourself into. Knowledge and sound assessment is the key.

Discover the selling motivation – Sellers sell for many reasons.  Knowing why will help greatly in your negotiations.  Have they been in the house for 20-years, and own nothing?  Do they owe exactly what is is worth?  Have the kids received the house because of a parents death and just want to dump it?  Try to find out the selling motivation and use it to your benefit.

Don’t be afraid to make a low offer.  Housing is the most expensive item the average person ever buys.  We’ve all heard that making a low-ball offer will offend the seller.  Yes, you might.  Big deal.  95% of them will still negotiate on price.  So don’t be afraid to start realistically low, and near the appropriate value of the home.  You can always counter-offer higher.

Be prepared to walk away.  Walking away is the most powerful tool you have. It may not feel like it at the time, but I promise if the numbers don’t work on this house, you’ll soon find another that you just just as much were the numbers to work.

I just about threw up in my mouth after reading this article on Bloomberg news on “Homebuilders Using Financing Incentives To Defy Price Cuts”

The article reads like free advertising for builders, but seriously lacks the true story. The article examines the “incentives” that builders are offering to home buyers who use their preferred mortgage company, and implies scare tactics that only the builders mortgage company will close the deal on time, saying “Few things are more frustrating to the homebuyer than having to push back a closing by a few days or weeks because the outside lender wasn’t ready with the mortgage.” I cry foul…

Builders are reporting record profits – No builder is giving away anything! They simply price it into the overall cost of the home, then offer teasers to lure unsuspecting home buyers into their trap.  Increase the margins on the home price by $20,000 – then give a buyer a $10,000 credit for closing costs by forcing a client to pay more with “their” lenders isn’t a deal.

Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.

REMEMBER: “There’s a sucker born every minute” –  P. T. Barnum (1810–1891), an American showman.