Thank you, RealtyTrac

The foreclosure situation continues to loom. RealtyTrac has published its latest numbers, adding to the doom and gloom which is hanging over the real estate industry. The media makes it hard to get us out of things. If we want to change things, we need to start thinking they are changing. That's hard to do when we are constantly being pumelled.

Here is some of what RealtyTrac said...

• 1 in 483 homes nationwide has receive a foreclosure notice in the month of May
• This is up 48% over May, 2007
• This is up 7% over April, 2008
• 74,000 properties where foreclosed on by lenders in May
• Another 58,000 received default notices

Of course, it's not RealtyTrac's fault that the number slook like this. These guys do a nice job of presenting the facts. I'm sure, at the same time, there is something positive to find in the data. It would be nice to hear about that, too. Thjere are markets where things are still groing. There are markets that are beating the national averages. Where is all of this positive stuff?

Here are a few things to be positive about

• Now is a good time to buy, deals are out there waiting to be made
• There are more choices now than anytime in the past several years
• Banks are still writing mortgages

So, if you are thinking about buying a home, now is a good time. You'll be there for the long-haul and there is much more upside ptential for real estate in the long run.

Cheers

Greater Hartford Inventory

Here are a few facts just published about housing in the greater Hartford, CT area. These facts have been published by GHAR (Greater Hartford Association of REALTORS)

• Year-over-year house inventory has gone up by 7%.
• Year-over-year housing prices dropped 3.53% from $255,000 to $246,000
• Year-over-year shows a drop in pending sales for the month of May while the averages days-on-market has gone from 63 to 67 (up 6%)

On the more positive side...

• May pending sales are up compared to April by 6%.
• Closed sales are up 17%
• With the inventory levels up and rates still low, it's still a great buying opportunity

Got HUD?

In times like these, many people want to understand things like foreclosures and short sales. Here is some information to help people understand more about HUD homes

What is HUD?

HUD stands for Housing and Urban Development. The mission of HUD is to "promote adequate and affordable housing, economic opportunity, and a suitable living environment free from discrimination" (http://www.hud.gov/offices/adm/about/admguide/history.cfm)

What is a HUD home?

Basically, it is a home that is owned by HUD. The real question is, how does HUD end up owning a home? It all starts with FHA. Within HUD, you will find the FHA (Federal Housing Administration). The FHA insures loans. They provide a financial guarantee to a lender. If a lender needs to foreclose on a property, they have the option to deed the property over to HUD in exchange for a claim payment. This is how a property becomes owned by HUD.

How do I buy a HUD home?

You need to work with a HUD broker. You can see listings in local MLS databases and through a local HUD website. In the end, you need to work with a HUD broker to submit your bid.

I hope this is helpful.

Home inspection top 10 list

Here's a quick reference guide for top 10 things you want to make sure your home inspector covers for you.

1. On/off switches for furnaces, air conditioners, etc.
2. Pilot light on hot waer heaters, overs, furnaces, etc.
3. Electric panel - Fuses or Circuit Breakers?
4. Main water shut-off controls
5. Foundation
6. Floors, walls and partitions
7. Roof
8. Windows & doors
9. Septic tanks, wells and/or sewer lines
10. Heatings ventilation and air conditioning systems

And as a special added bonus - if you are buying a condo, don't forget to take a peak at the common areas

I hope this is helpful to anyone with limited experience in buying a home.

Quick home buying tips

Here's a few quick tips when deciding on evaluation criteria for your next home...

• How well are other homes in the area maintained?
• Look around the community - are there signs of others doing things that you like to do?
• Look for signs of children - whether you want them or not, it's good to see what's going on.
• Look at shopping, recreation and transportation. Are you able to easily access the things you want and need?
• Try to avoid falling in love with the first house - use it as a baseline. Always look at 3 of anything before making a decision.

Hope these tips can help. There's plenty of more where that came from!

How mortgage shopping affects your credit score

The short answer is that it doesn't affect it too much. When looking for a mortgage or auto loan, credit score treats all inquiries made in any 14 day period as a single query.

Another point worth noting is that credit scores do not factor in inquiries for these types of loans if they have been made within 30 days of the credit score calculation. Therefore, if you find your mortgage or auto loan within 30 days, your credit scores which the lender uses to review your application will not be affected at all.

Hope this helps!

What a great buying opportunity!

I have been talking to eveyone I know about why now is a great time to buy real estate. It's simple...

• There's a ton of options out there as inventories sit and wait to be sold
• Sellers are more flexible
• Interest rates on mortgages are still really low.
• Prices have softened. Are we at the bottom yet? Maybe. Maybe not. Either way, we're definitely not near the top. Buy low, sell high. That's what investors do, and so should you!

Now is an excellent opportunity to buy. If you felt like you missed out on something over the previous years, you did! Don't make the mistake and miss out again. Get in the water BEFORE the wave comes if you wanna good ride!

Unused Home Equity Lines of Credit Being Cut

Today there was an AP article which mentioned that banks are starting to cut unused HELOCs. While mostly centered around Wachovia's recent announcement to cut HELOCs, the article mentioned the following banks:

• Washington Mutual
• Countrywide Financial
• Indymac Bancorp
• Bank of America
• SunTrust Banks

It is estimated that the total sum of outstanding credit line exceeds $1 Trillion in the US. Banks are begining to reduce lines to help reduce thier exposure, with Washington Mutual having the most exposure (over 100 billion between used and unused HELOC loans).

What does this mean? If you still have some unused line and you may be planning to draw, you should consider making you decision sooner rather than later. This especially applies to HELOCs with the banks listed above.

Home Improvemnt & Remodeling ROI

The other day I did a blog on ROI for home projects. Pacita Dimacali http://activerain.com/pacita pointed me towards more up-to-date information. Here's a summary of what I found for New England and the National Average.

If you are planning a project to help sell your home, you may want to consider the following statistics. This data is for the year of 2007. As you can see, there are no projects over 100%. That said, these are statistical averages based at a time where we have had downward market trends in the resale values of homes. Each individual situation may be different and these facts are not meant to encourage or discourage your project.

2007 Averages	New England			National Average
Project Midrange	Job Cost	Resale Value	Cost Recouped	Job Cost	Resale Value	Cost Recouped
Attic Bedroom Remodel	$48,982	$37,584	76.7%	$46,691	$35,771	76.6%
Back-Up Power Generator	$13,759	$7,317	53.2%	$13,357	$7,748	58.0%
Basement Remodel	$61,673	$40,544	65.7%	$59,435	$44,661	75.1%
Bathroom Addition	$38,617	$25,437	65.9%	$37,202	$24,553	66.0%
Bathroom Remodel	$16,302	$12,197	74.8%	$15,789	$12,366	78.3%
Deck Addition - Wood	$10,634	$8,977	84.4%	$10,347	$8,835	85.4%
Family Room Addition	$81,931	$54,713	66.8%	$78,989	$54,148	68.6%
Garage Addition	$55,598	$37,067	66.7%	$53,897	$37,461	69.5%
Home Office Remodel	$27,630	$15,398	55.7%	$27,193	$15,498	57.0%
Major Kitchen Remodel	$56,438	$43,848	77.7%	$55,503	$43,363	78.1%
Master Suite Addition	$102,741	$70,175	68.3%	$98,863	$68,172	69.0%
Minor Kitchen Remodel	$21,516	$18,507	86.0%	$21,185	$17,576	83.0%
Roofing Replacement	$20,307	$14,065	69.3%	$18,042	$12,166	67.4%
Siding Replacement	$9,990	$9,156	91.7%	$9,910	$8,245	83.2%
Sunroom Addition	$71,064	$41,289	58.1%	$69,817	$41,231	59.1%
Two-Story Addition	$143,298	$105,475	73.6%	$139,297	$103,010	73.9%
Window Replacement - Vinyl	$10,702	$8,698	81.3%	$10,448	$8,290	79.3%
Window Replacement - Wood	$11,697	$9,514	81.3%	$11,384	$9,241	81.2%

© 2007 Hanley Wood, LLC. Reproduced by permission. Complete city data from the Remodeling 2007 Cost vs. Value Report can be downloaded for free at costvalue.remodelingmagazine.com.

Why You May Want To Stop Making Extra Mortgage Payments

I have had a lot of discussion with people on the subject of making extra mortgage payments. I have my own opinion (let's just agree to call it that.) I have gained this opinion through education and experience. In the end, I feel that making extra mortgage payments is a mistake. Here's why.

When is your home safe?

Following the philosophy I have developed, the answer is when it is in one of two states of existence:

-Paid in full

-Mortgaged to the max

If your house is paid in full, about the only entity that can possible take it away from you is the town if you do not pay your property taxes. Therefore, your house is safe when it is paid off. Most people get this right away and say, "That's why I want to pay extra towards it and pay it off sooner."

Why would mortgaged to the max be the other one? That doesn't seem to make a lot of sense, and it's one of the things that people struggle with. There's a plain and simple way to explain this. If something happened to you and you became unable to continue your mortgage payments, what would happen? Foreclosure. How much equity is left after a foreclosure? The banks concerns stop at what you owe them. If you only owe $100,000 on your $300,000 house, you're leaving $200,000 at risk.

Liquidity

When opportunity knocks, will you be ready? How fast can you take the money out of your home? The last time I tried, it took about 30 days. But wait, what if I had a bad year last year and my income could not support it? Oh yeah, I'd be out of luck.

This kind of goes hand-in-hand with the keeping your house mortgaged to the max concept. If something happened to you, at least you'd have access to the cash you need. If you had kept your money in a 401k (for example), you can get your money out of your 401k no matter what your personal circumstance. What about the 10% penalty? You only pay penalty on the amount you withdraw. Using the $300,000 home example from before, what if you had to refinance your entire mortgage just to take out $50,000? Add up the closing costs and the points and you're probably pretty close to even to the 10% penalty on your 401k withdrawal.

Accounting 101

Have you ever seen this formula?

Assets = Liabilities + Equity

Another way of putting this is:

Equity = Assets - Liabilities

Which of the two situations below would you rather have?

You see, they both have the same net worth. One has better liquidity and manages more assets, while the other is more conservative. This is why I said at the beginning that it was my opinion. It's up to each of us as individuals to know what our threshold for risk is.

Arbitrage

Now let's talk about arbitrage. Simply put, arbitrage occurs when someone acquires something at one value and resells it at another. Let's continue with the earlier example. Here we have 2 people, starting today in the same place. They both have homes worth $300,000 and take out 20 year mortgages at 6.5% for $100,000 on the same day.

Scenario 1: Standard 20 Year Amortization

In this scenario, the first person (let's call him Bob) decides he does not want the risk of investing and stress of a mortgage. He pays his mortgage over 20 years exactly s required.

Bob starts with $200,000 in equity. Each year, he pays a little less interest and a little more towards principal. On his interest, he gets a write-off, so we indicate his tax credits, too. Notice how his net worth grows as he pays off his mortgage. It's working well for him.

Scenario 2: Interest only loan investing instead of principal payments for 20 years

Jamie also bought her house for the same price at the same time. She also started with $200,000 in equity. Instead of paying towards principal, she invests in a tax-deferred vehicle which has a rate of return EQUAL TO the cost of borrowing from her mortgage (6.5% in this example). Her arbitrage only comes from the fact that the investment is tax defered and the interest expense is a tax write-off. In the chart below, there are 2 additional columns: Invested and Value. Since Jamie is not making principal payments, those amounts which would have been principal are instead invested. Invested shows the amount invested each year and Value shows the value of the investment account, assuming 6.5% annual ROI.

Growing Wealth

In the end story looks like this.

As you can see, Jamie was able to outpace Bob by almost $42,000 (nearly 30%). Guess what? Even after the 20 years are over, Jamie’s money is still growing. Why? Because she invested it long term.

Being Real

There are many different scenarios. Of course, this did not include ups and downs in the market value of Bob and Jamie's home. These scenarios were really meant to show that if you had the same thing going on with your home, how the 2 different approaches would yield you different results.

Another variable is the fact that this is based on 20 years. If you go out 30, it's even more apparent. Then there's the fact that the investment growth rate is equal to the lending rate on the mortgage. If you get that 8% return your financial advisor is always telling you about, then you'll have an even wider spread. You can slice this many, many different ways.

To be successful at this type of plan requires good money management skills. Most people do not save money very well. If you are of the type of person to fret over how much money you owe, or lack the self discipline to know how to control your spending, then pay your mortgage first. If you can learn how to take control of these issues, you can grow your wealth more quickly. You now have the information. The decision is yours.

Cheers

Stacey Brown is a real estate broker, not a financial advisor. The information in this article is informational only. Any risks you take will be based on your own decisions. Stacey Brown & ILM Realty, LLC will not be held responsible for any gains or losses you may incur.