David Parrish Realtor

I begin with asking forgiveness for beating a drum loudly and often, but signs abound that the market improvement continues. Yes I know that was the focus of my last rather lengthy column. So what’s new to report… First of all is the continued upward trend of the market…. Especially our local market, the continuation of these positive trends is in of itself news and newsworthy.

In a recent interview with NPR, Robert Shiller, the legendary Yale economist who famously predicted the dotcom and housing bubbles, stated that he wouldn’t call the bottom of the market until he had seen 12 months of positive data… I can tell you that  since last October in the Birmingham Market agents have been running at a pace not seen for more than 4 years. Without repeating (with updated charts) the charts from last month, all numbers are documenting an even tighter market… lower home inventory (homes on the market) and increased demand (homes sold). You have to go back to February of 2006 to find a time when we had less inventory on the market in Jefferson County.

Home Sales August 2012

Investors continue to be a heavy force in the market, as they snap up bargain priced properties especially in the eastern and western markets to either flip or put into the rental pool driven by the increasing rents being demanded by those profiting off of persons either unable or afraid to buy.

Multiple offers which had been much more unusual in the past several years are now becoming increasingly commonplace. Meaning we are seeing competition in the market place.

A new sub-division in Trussville has sold 18 homes in the last 4 months! That is almost the 12-month equivalent of what has been the strongest selling sub-division in the Trussville Market over the course of the last three years!

Developed / shovel ready lots have begun to move out of inventory… granted at much lower prices that that being paid in 2006… but the investment into real estate by the astute investor has definitely picked up steam.

Nay-sayers and others down on the real estate market, continue to discount this progress… Others, perhaps for political reason, don’t want to admit to any improvement of the market or general economy. You can buy into this tainted view or look at the facts. I personally believe facts outweigh dogma when it comes to investing or spending money.

Barbara Todara Realtor and blogger of Franklin, MA, reminds us:

“Buyers need to understand that buying a home is not like “day trading.” Buying a home is a “long term investment.”  If one is planning on selling that home in a year, that homeowner will take a loss.  If the new homeowner is thinking that he/she will be transferred within a short period of time, expect to take a loss.

If a homeowner has a resale home to sell, and that homeowner’s dream is to own a new home and live in it for decades, now is the time to make that happen.  Resale homes are in demand in my area.  We have a shortage of fresh inventory.  Interest rates are incredibly low. 

This is the time to buy a home that your family will live in for many years.  This is the time to buy and settle in for the long haul.  Real estate is a “long term investment” and the best time to invest is now with low prices and low interest rates.  It’s a no brainer.”

Like so many who invest in the stock market buying when everyone is enthusiastic and selling when the bears show their claws and fangs, following the emotions of the market is no way to take advantage of the market.

I’m not known as a market cheerleader. But I am seeing evidence of a real change in the market regardless of the fear mongering of those talking about the fiscal cliff. I firmly believe the best buys will be made in the next 12 months. This is arriving much earlier than I originally thought possible.

May the market be with you.

The market has improved markedly! That’s right the Real Estate Market has been improving steadily now for almost 10 months!

Are we at 2006 levels?  No!  Is it a new boom?  No!  Are prices increasing?  No!

So then what’s so great about the market that you would say it has improved?

The parachute has opened!

This decided improvement in the market is a combination of several factors… Which is a really good thing! One factor improving doesn’t make for any real improvement… Even a couple of factors can be taken as a hiccup. Be when several factors trend positive for as long as we have seen these improvements, there are certainly signs for at least a cheer, if not a celebration.

While we look at our homes with a great deal of emotional attachment… Real Estate, as any market, is a supply and demand issue. Supply and demand are the first two critical factors that we look at when measuring the market. Lower Supply and Higher demand are positive factors when desiring an increase in prices (or a slowing of price decreases).

Residential Inventory July 2012

On the supply side: The Birmingham Metro Market has seen a decided decline in the number of properties for sale… Given equal demand this translates to more competition for homes, which would make prices trend higher.

This would obviously beg the question: So what is the demand?

Sales / Demand July 2012

While July sales were not at their highest level of the past 3 years (Remember 2009 & 2010 were both years in which we were offering home buyers a tax credit to buy a home… $6,000 and $8,000 respectively… those credits ended in June of 2010) the sales rates are at very respectable levels, only 4% off of last year’s pace while supply was off by 16%. The real measure is demand compared to supply. The ratio for these two factors is the strongest we have seen (for the past 6 to 10 months) that we have seen for the last three years.

When looking at the market, the strongest measure professionals use is one we call the Absorption Rate, which is the rate at which homes are selling. That number is computed by dividing the number of homes on the market by the average number of sales per month for the past six months. Using that formula we have an absorption rate of 8.7 meaning that if no other homes were put on the market, it would take 8.7 months to sell the existing inventory. This absorption rate is the best we have seen in almost six years.

A market is said to be a Seller’s Market if the Absorption Rate is less than 5 months. The market is considered a normal market when the absorption rate is between 5 and 7 months and a Buyer’s Market if the rate is greater than 8 months. So while this is still a Buyers’ Market it is trending toward a normal market. This time last year the absorption rate was 13 months.

So what’s happening to prices? As you might expect this has had a favorable (from the Seller’s perspective) impact on prices. Whether using Average of Median Price as a measure (the median is a more appropriate measure in my opinion), the price of homes sold has risen. Be careful not to misinterpret this number. This does not mean that houses are selling for more… The actual price of properties is still declining but at a much slower rate than they have been. The anticipate decline for prices for 2012 in the Birmingham Metro market is between .5% to 1.5%, which is a significant improvement over the declines of the past two years which were in the 4-6% range.

Price History July 2012

A fourth and critical factor in the look forward is Housing Affordability. There is actually an index that measures this. NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark. Recordkeeping began in 1970.

Related to the Affordability index are the Mortgage Interest Rates which while they have had a recent up tick remain at near record lows.

Another factor creating increased demand is that of increasing rents. While homes are becoming increasingly affordable, rents continue to rise at a 5-10% rate.

These factors have been so positive that we have also seen a very noticeable increase in Home Construction Activity. In the Birmingham Metro Market there has been a 24% increase in new housing (single-family) starts as compared to the same period last year.

So what about foreclosures? Birmingham area’s foreclosure rate ranked No. 101 among 212 U.S. cities during the first half of 2012, according to RealtyTrac, a firm that tracks mortgage data across the nation. RealtyTrac counted 3,289 foreclosure filings in the metro area during the first six months, equal to one filing for every 152 household units in the area. The number of filings decreased by 7.2 percent from the same time frame in 2011. So the number of future foreclosures and other distressed properties available to buyers looks as though it will be on the decline.

So what does all this mean? If you’re a Seller this is great news… Even so, it will still be a while before we actually see home prices rise.  At he present rate, I would expect that to occur about this time next year… Although, to be sure the rate of increase will be modest probably less than 1%. If you’re a Buyer, this may not be such great news… as you should expect prices to start a slow rise… But with home affordability as high as it is… it’s your early warning that the bottom of the market appears to be here… and may last for a year… But at the same time realize that shrinking inventories could  make finding that perfect home just a bit more challenging. We are frequently seeing house sell before Buyers decide to pull the trigger on making an offer and increasingly, we are seeing multiple offer situations putting additional pressure on buyers.

Now having said all that, if you were to ask me tomorrow: “How’s the market?” I would respond as I have for the last five years: “That depends on which market you’re talking about!”

May the market be with you.

I recently made a post of FaceBook that included the graphic below, which points out the truth about the viability of the Real Estate Market over time (from January 1^st, 2000 thru June 1^st of 2012) as compared to other leading/dominate investment channel indexes.

Real Estate ROI from Jan 2001 thru June 2012

I received from a good friend the following response: “C’mon… houses are getting foreclosed on all over, because borrowers owe more than the structure is worth. I am a bit skeptical of this graph.”

My response follows: Ah… But the chart is accurate! When compared to the value of each investment area’s growth since 2000 (pre-bubble) to it’s current value (June 1^st  2012) Real Estate did outperform other investment channels shown!

Do not confuse that with the pain that people are suffering because of bad decisions which include the use of HELOC (Home Equity Line Of Credit) Loans and re-financing to rob themselves of their home’s equity, the use of ill advised finance instruments: Interest Only Loans, ARMS, Balloon Notes, etc. when they were the wrong choice for the purchaser’s situation …

If you are comparing current real estate values to their value at the height of the bubble (late 2006 in most markets) it is certainly true that homes are worth less today than they were then… However, that is not what this chart measures… it goes back to 2000 to begin this comparison.

One of the big problems inexperienced investors have is that there is no such thing as a market or investment that only goes up… We as a people were lulled into believing that real estate was an exception by more than 60 years of values rising with few exceptions that were minor hiccups. We have at last finally seen that the principle of the ups and downs of markets do apply even to real estate.

Like other markets, there’s a time to buy and a time to sell. Buying when market exuberance disregards proven forces (when prices are soaring) is not generally the best move one can make.  Selling when everyone is scared to death and panicking is an equally poor choice. However, one that some cannot avoid due to their personal circumstances and desires.

Even so, over time there has been no more sound investment for the average man than real estate. Despite, the current situation this is still true…

In the past it almost made no difference what real estate you invested in… That is no longer true! Today’s buyer must be smarter… must use real expertise in his or her purchases of real estate. Smart and well-informed buyers have always done better.

Now is not generally the best of times to sell, but if you must sell in the next few years you will generally be better off selling sooner than later… for the market is still falling although not as fast as it was… Conversely, with prices at well-adjusted values from the unreal exuberant levels of 2004-2006, it is a great time to buy…

Those who realize the truth of buying low and selling high and buy with a sound strategy and the ability to hold will see the power of the Real Estate Market work for them in much kinder fashion than the stock markets… which was the point of the chart.

Also note… Foreclosures are not the result of declining home prices… Foreclosures are a significant cause of declining home prices.

Foreclosures are caused by the Mortgagee not living up to the contract they signed with the Mortgagor… Most commonly: Not making their payments, not properly caring for the property, not keeping insurance enforce, etc.

Now there may be justifiable reasons these things did not happen.

The fact that someone was foreclosed on doesn’t make him or her a deadbeat or an otherwise person of lessened integrity. Bad things do happen to good people…

I personally, feel that banks could do more to assist in solving these problems, which would in fact be beneficial not only to themselves (enlightened selfishness)… but also the society that they are chartered to serve. More on that in a future column.

The truth of the matter is that this is a Real Estate Crisis because that is the tip (the part that is most readily seen) of the iceberg that the ship ran into… The iceberg was reckless financial practices, and unwise buyers. Real Estate is actually an even better investment than it was in 2005 when everyone was so high on the market that they through caution and logic to the wind to ride its coattails.

May the market be with you.

That’s right… GOOD NEWS… We’re seeing it everywhere by all the “Market Experts.”

Some of the headlines:

“Americans Expect 1.4% Increase in Home Prices: Fannie Mae,” HousingWire (June 6, 2012)… More Americans are optimistic that home prices will inch up over the next year, with expectations that prices will rise at least 1.4 percent in that timeframe. That marks the highest amount ever recorded in Fannie Mae’s monthly National Housing Survey. Thirty-four percent — also the highest ever recorded — of the 1,000 respondents in the May housing survey say they expect to see a boost in home prices in the next year.

“Inventory of For-Sale Homes Falls 20% From Year Ago,” Daily Real Estate News, (June 13, 2012)… The number of homes on the market continues to become a shrinking pool. Inventory of for-sale single-family homes, condos, townhomes, and co-ops dropped 20 percent in May compared to year-ago levels, according to data from REALTOR.com of 146 markets.

“The shadow inventory fell nearly 15% annually and is now similar to October 2008 levels.” CoreLogic  (June 14, 2012)… The number of properties pending foreclosure or REO, but not yet on the market to sell, is down year-over-year in April. The shadow inventory supply now stands at 1.5 million units, representing a four-month supply, down from a 6 month supply in January.

“The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices,” said Mark Fleming, chief economist for CoreLogic. “This is one of the reasons why some markets that were formerly identified as deeply distressed, like Arizona, California and Nevada, are now experiencing price increases.”

Do National Real Estate Headlines Actually Influence Local Markets? This is a question we are frequently asked. Local real estate professionals know the best information for either buyers or sellers is local market data. However, we must realize that what happens in the national real estate market dramatically impacts regional and local markets. For example:

Are 30 year mortgage interest rates in North Dakota under 4% because of what happened in the their market over the last few years? Of course not. They benefit from lower rates because of what happened in the national economy (if not the world economy).

 Buyers all over the country are concerned about the reports of distressed properties about to come to market and what impact they will have on house values. The truth is only a handful of states will be adversely affected.

However, if overall consumer confidence is shaken, every market is impacted. This is why it is important that you work with a real estate professional that understands three things:

1. What the national headlines are saying and why they are saying it

2. What impact the issue may or MAY NOT have on your local market

3. How to simply and effectively explain both of the above to you

Agents who just ignore national headlines are hiding their heads in the sand. Agents who use the headlines as scare tactics to unfairly influence the actions of their customers are engaging in unethical behavior. Agents who take the time to keep abreast of the national real estate issues and are patient in explaining how these issues will impact you in the local market are true professionals.

The first two types of agents could cost you dearly. The last group will maximize the outcome of your real estate transaction – both personally and financially.

So back to the headlines… What is the Real Story?

 Celebrate the return of even a smidgen of optimism … not by the professionals but by the public. This is the energy that will begin to drive a recovery. That’s not to say that we will not hear bad news in the future… We will bump along this rocky valley for some time…. But rays of sunshine are starting to burst through the clouds!

In the interim, or for that matter from this point forward, get the facts… not every deal is a good deal… consult a professional who understands your market.

May the market be with you.

I was attending a funeral last weekend and ran into a Realtor friend from out of town… Lake Jackson, Texas… As you might expect our conversation eventually ran into a discussion of market conditions. Like so much of our country, she too had that experience of a tough market with an abundance of foreclosures, short-sales and steeply declining market prices. However, things had recently changed… She was experiencing a Seller’s Market! They have a shortage of inventory! Move-in ready homes are going under contract within 30 days!

If you’re a regular reader, you know that all markets are not the same… As a matter of fact the much spoken of averages that are used to simplify discussions about market conditions are more than misleading! All markets are unique and for the most part independent… What is happening in one market has little if any effect on another market.

Even so, what is happening in distant or even nearby markets can be an indicator of what is possible and the general direction of markets.

Recent Industry Headline (Bloomberg.com): “Home Prices Rise in Half of U.S. Cities as Markets Stabilize” a (May 9, 2012) report citing recent reports from the National Association of Realtors stating that: Prices for single-family homes climbed in half of U.S. cities in the first quarter as real estate markets stabilized. The median sales price increased from a year earlier in 74 of 146 metropolitan areas measured. This being a further improvement over an increase of prices in the fourth quarter in 29 off the 146 markets measured.

While we have not seen an increase in prices locally, we have seen a noticeable reduction of homes for sale (inventory) and a moderate decline in the rate at which prices are falling, which is often a precursor to market stabilization and eventually price increases.

In other news, the often maligned Fannie Mae recently (May 7, 2012) reported “Confidence in Economy and Home Values Increasing.” In this report based on Fannie Mae’s April 2012 National Housing Survey both the expectation for home prices and the percentage of those who think the U.S. economy is on the right path reached record highs for the current era. Americans continue to expect home prices to go up, with the projection averaging 1.3 percent over the next 12 months, the highest value recorded. At 71 percent, a high percentage of Americans still say it is a good time to buy while the percentage that said it is a good time to sell was 15 percent, a 1 point increase from March.

A recent CNN Money report (May 3, 2012) stated… “Buying a home may never get any cheaper than this. Several housing experts are predicting that this year will be the last chance for bargain hunters to cash in on the best deals of the weak housing market.

With home prices down 34% nationally since 2006 and mortgage rates at historic lows, homes have never been more affordable — but it won’t stay this way for much longer.

Stuart Hoffman, chief economist for PNC Financial Services, said he expects home prices to flatten out by the third quarter and start climbing by next year.”

Other financial institutions agree that the market is improving and see an increase in prices albeit a small increase in 2013.

While the expiration date on the fire sale of housing is still in question by location, when you look at these trends and the fact that Housing Affordability has reached it’s highest level since record keeping began in 1970, combined with even lower interest rates, now increasingly looks like the time to buy!

Even so, I remind you of the three most important factors in real estate: Location, Location, and Location… Alabama as a whole remains one of those locations where the impact of the down market is still being felt… according to the CoreLogic index the states suffering from the highest level of average housing deflation (loss in value) in the last year were: Delaware(10.6%), Illinois (8.3%), Alabama (8.0%) and Georgia (7.3%).

But it does look like the market is turning… It looks like we are bumping along the bottom of the market with gradual improvement on the horizon… but remember that varies from location to location, from neighborhood to neighborhood!

The big question is will this good news hold or will another wave of foreclosures cause a further market decline before the next bottom is felt. This Shadow Inventory is the topic for our next conversation… until then…

May the market be with you.

It’s a Buyer’s Market… even so if you’re depending on someone else to provide the money for your purchase … that is you’re going to have a mortgage… you’ve got to be aware of and follow certain rules to keep the deal together.

In the excitement of realizing a dream… getting that new home… I have seen buyers do things that have resulted in their dreams being crushed. Over the years I have seen many deals that have been delayed (and even killed) by seemingly insignificant actions… Play it safe… follow these Do’s and Don’ts to protect your deal.

1. Don’t make any large purchases like a new car or a bunch of new furniture. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.
2. Don’t apply for new credit. It doesn’t matter whether it’s a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
3. Don’t close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more approvable. Wrong. A major component of your score is your length and depth credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those to the determinant of your score.
4. Don’t co-sign other loans for anyone. When you co-sign, you are obligated. With that obligation comes higher debt-to-income ratios, as well. Even if you swear you won’t be making the payments, the lender will be counting the payment against you.
5. Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Frankly, before you even transfer money between accounts, talk to your loan officer.
6. Don’t deposit cash into your bank accounts. Lenders need to source your money and cash is not really traceable. Small, explainable deposits are fine, but getting $10,000 from your parents as a gift in cash is not. Discuss the proper way to track your assets with your loan officer.
7. Don’t change jobs. A new job may seem like a perfect opportunity… But any change in employment status will be scrutinized closely and even if the job is for an increase in pay may create a less favorable outlook, as far as your lender is concerned. This is especially true if you are making a change in the type of work you do.
8. Do pay your bills on time. A single late payment can modify your credit score sufficiently to kill the deal. Even if it’s only a few dollars… the impact can be devastating!
9. Do keep a sufficient balance in your checking or savings account to cover the money you must bring to the table … even if you are on a no money down deal… last minute expenses could arise that will need to be covered by you in order to close. My advice is Save, Save, Save!
10. Do consult your loan officer before doing anything that remotely reflects on your financial situation. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. Any blip in income, assets, or credit should be reviewed and executed in a way to keep your application in the most positive light.

This is truly an exciting time for the homebuyer… keep these rules in mind and make your dream a reality.

May the market be with you.

Recent Market Notes:

•      Jobless Claims fell to the lowest level since February 2008
•      Building Permits climbed to the highest level since October 2008
•      The NAHB Housing Market Confidence index was at the highest level since June 2007
•      The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week
•      Core CPI inflation was 2.2% higher than one year ago
•      Retail Sales posted the largest monthly increase since September 2011
•      Weekly Jobless Claims matched the lowest level in four years
•      The Dow stock index climbed to the highest level since December 2007

There has been a lot of good news in the market over the course of the last several months. Definitely an increase in the real estate market activity locally. So, many are feeling we’re starting a turn around… They feel prices have hit bottom and back on their way back up although slowly.

I’ll share a very recent story… a true story; although, I’ll not share names and addresses. I listed a home recently for a previous client… Great neighborhood, well maintained and cared for home with lots of amenities added since their purchase four years ago. Not the highest priced home on the block but not the lowest either. While we put the home on the market higher than my recommended price based on my market analysis… not so high that it impacted our traffic…

Short story even shorter… four weeks and we have an offer… low as are all offers today, but not unreasonably low… as a matter of fact it was right where I had predicted the home would sell. Even so, we negotiated it back up to an offer acceptable by my client. Everybody is happy! I am looking like a great agent!

Just got to take care of all those “little details” that happen “after the sale” that make the sale a reality… inspections, title search, title policy issuance, termite inspection and contract transfer, get this thing through the ever changing rues of under writing, mortgage pay-off ordered, closing set with closing attorney’s office, etc.

The purchaser, as is the case for most purchasers, will have a mortgage… That is somebody is going to lend him the money to buy this home. So they (the lender) want to have the home appraised as to current market value based on the historic although recent sales data for similar properties. You know, just in case they have to take the home back and resell it… and also because they will probably re-sell the loan way before the first purchase anniversary arrives. And the secondary market that they are selling to requires certain documentation to be sold to the largest number of bidders… and thus with the smallest discount.

We are in a new world … a world that changed several years ago, that closely watches how appraised values are determined and who can influence those valuations. A world that changed due to past abuses and sometimes even outright fraud. Changes that we needed and yet changes that are very painful.

The hour of truth has been reached… The appraiser comes back with his independent assessment of value based on sales within the past 90 days and preferably for properties within a one-mile radius… It’s $20,000 less than the agreed upon price!

Understandably my client is not happy… as for that matter neither is the purchaser.

My client doesn’t understand why the fact that he has a ready, willing and able buyer that this doesn’t establish the market value! Truth of the matter: one buyer does not a market make, at least not in the world we operate today.

We of course did protest the appraisal and provided additional comps that were rejected due to their distance from the subject property.

So here we are with this $20,000 gap that appears to be a chasm as deep and wide as the Grand Canyon. Either the seller reduces the price or the purchaser makes up the difference before counting a penny toward his down payment. The seller’s equity is non-existent… the $20,000 would have to come totally out of pocket… This is not a short sale… not even remotely a potential short sale at this point in time.

We will continue working to try and find a comp that will save the deal. True we could negotiate some more … and maybe we will… but this sale is not now a sale. No amount of wanting it to be different will by itself make it different.

So the question is: Should the appraisal rules be different? As painful as it is to say this: I don’t know … Probably not! But, if they remain as they are, we are a long way from prices rising or the market recovering. As a matter of fact, I don’t know how prices can ever increase with this current set of rules.

 May the market be with you.

Another Indication – 3/13/2012

The Housing Affordability Index was developed over thirty years ago to help consumers determine when it is a good time to buy a home. It’s considered advantageous to the buyer when the index is over 100 because a median income family can qualify for a median price home.

Recent figures released by the National Association of REALTORS’ economic department show that the 2011 index of 184.5 is the highest annual average since it has been calculated. The most recent month released, December 2011, was 194.9. The index is also broken down into four regions of the country.

The two major components that contribute to the index are home prices and mortgage interest rates which are lower than they’ve been in the last five years which account for the dramatic rise in the index since 2006.

The Housing Affordability Index is another indication that this is a good time to buy a home for people who have good credit, a down payment and want a home. It may be the best time we’ll see in our lifetimes.

What You Need to Know about Cancellation of Mortgage Debt

Posted By susanne On March 11, 2012 @ 1:07 pm In Consumer News and Advice,Home Owner News,Real Estate Information,Today’s Top Story,Today’s Top Story – Consumer | No Comments

NOTE: The announcement below may seem very confusing following last week’s blog post concerning FHA’s decision to rise some of these very same rates. The new guidelines announced here apply only to qualifying refinance applications. The changes mentioned previously are still in effect for original mortgages. Stay tuned things may well change again.

FHA Announces Price Cuts to Encourage Streamline Refinancing