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Thanks to Mary Adams at Element Funding for the updated information. Element Funding is an example of the full-service I am able to offer through John R Wood, Inc. Realtors.
I wanted to share as this can, and has, become an issue for some buyers - as well as investors looking to purchase and then quickly flip a property.
A sale is considered a "flip" by lenders when title has been transferred (via sale or otherwise) within a 12 month period.
The mortgage industry, including the agencies that ultimately provide the underwriting for these loans, are very sensitive to property flipping. They know that historically this can lead to "artifically" inflated values.
Here are some updates on how various agencies are handling property "flips":
FHA has very specific guidelines- In a nutshell:
ü Only owners of record can sell properties that will be financed using FHA insured mortgages (in other words... someone who is currently 'under contract to purchase" a home cannot go to contract to sell the property to another buyer)
ü Any re-sale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing
ü Resales that occur between 91 and 180 days- where the new sales price exceeds the previous price by 100% or more - FHA will require additional documentation validating the properties value, including a 2nd appraisal. In addition, the rule provides flexibility for FHA to examine and require additional evidence of appraised value when properties are re-sold within up to 12 months.
FNMA/ FHLMC- Conventional lending would require indepth review of appraisal if there has been significant increase in sales price from when the current owner purchased (within 12 months). They will also want to document any improvements made to the property since it's purchase to support the increase. There are no specific time limits on how long the prior owner would have to have owned the property prior to selling as FHA requires. Ultimately, the lenders are reviewing the appraisals on these properties with a fine toothcomb.
USDA lenders are also reviewing these properties in much the same light as conventional lending.
A year ago, the auctions didn't create much of a stir in the county. A few investors might have attended here or there. But mostly it was bank representatives who were there to buy the homes back for the lender. Now and then a luxury home in a luxury multi-million dollar Country Club community would attempt an auction, not always successfully.
Even six months ago, the auctions didn't draw much attention. But over the past few months that's changed, with more investor groups and other spectators going and bidding in hopes of getting a good deal. There's an auction on the sixth floor of the Collier County Court House at 11 a.m. Monday through Thursday. Now, there can be 30 or even 50 people attending a day. The homes being auctioned are to the east of Collier, Golden Gate area, for the most part, and under $200,000 and $300,000.
What's remarkable to me and my market share is a home on Gordon Drive, on the west , beach side that was just auctioned. With a winning bid of $1,427,000. The estate home, with four bedrooms and four and a half bathrooms, offers 4,300 square feet of living space near the Gulf of Mexico. It's in a small gated community with private beach access for residents. Collier County property records show the assessed value for the home at nearly $2.9 million. It is very rare to have a property of that quality go to foreclosure.
There's more interest from investors at the auctions because buyers are back. They are jumping off the fence, especially at the low end of the market. Home resales have been up every month this year in the Naples area. Meanwhile, median prices continue to fall, dragged down by foreclosures and short sales - sales made for less than the bank is owed to avoid foreclosure. The median price for all resales fell to $174,000 in May, down from $314,000 in the same month a year ago, according to a report released by NABOR. However, if you don't know what you are doing you could end up paying too much for a home, or getting stuck with someone else's back taxes and liens.
Washington -- Federal Reserve Chairman Ben Bernanke gave his most optimistic prediction yet Tuesday about the end of the recession, saying he expects the economy to start growing again this year--although the comback could be weak and more jobs will disappear even after a recovery takes hold.
The Fed chief told Congress' Joint Economic Committee that he saw hopeful signs, including firmer home sales, a revival in consumer spending and some improvement in lending conditions for banks, businesses and individual borrowers.
"We continue to expect economic activity to bottom out, then turn up later this year," Bernanke said.
Previously, Bernanke has suggested the recession could end this year if the government managed to stabilize the financial markets. This time, he said not only that he expects an end to the recession this year end buy also a return to growth.
Noted Florida economist Hank Fishkind gave Naples Realtors and brokers a dose of reality, along with a sprinkle of hope of better days to come.
Speaking to a sold-out crowd at the offices of the Naples Area Board of Realtors on Friday, he said home prices in Collier County aren't going to drop much more. He sees them improving later this year.
His predictions for the Naples-Marco Island market are far rosier than those given by an economist with Moody's Economy.com, who in a report earlier this week said he expected average home prices in the metro area to fall more than 70 percent from their peak in 2006 to their "trough," or bottom, in 2010.
Fishkind sees prices recovering a year sooner and based on his research doesn't expect their drop to be anywhere near 70 percent when they hit bottom.
His prediction is based on deeds, which show average home prices falling 33 percent from their peak to the end of 2008.
"I think what's going to happen this year is that prices will stabilize," said Fishkind, principal of Orlando-based Fishkind & Associates. "It's going to come sooner. It's going to come this year."
He said the Moody's report is based on a federal index and a random sampling of homes that have sold over the past few years so it's not the best reflection of the entire market and it shows more volatility.
In his annual speech to NABOR in April of last year, Fishkind said he thought home prices had already hit bottom. It appeared as though they had stabilized, but then came the financial crisis in September and October that he didn't foresee.
"I never thought the sky would really fall," he said. "It fell."
In terms of sales, the housing market in Collier County has hit bottom, Fishkind said. Sales have been rising month after month, spurred by lower prices driven by foreclosures and other distressed sales.
A flurry of foreclosures continues to drive down prices. It will get worse before it gets better, Fishkind predicts.
In Collier County, foreclosures are not "spread all over the place like peanut butter," he said. He showed a map of where most of the foreclosures are happening. Red dots were all over Golden Gate, indicating that community has been hit hardest.
He expects there to be more than 18,000 foreclosure-related filings in Collier this year - about twice the number as last year. That includes all filings, from defaults to bank repossessions. It doesn't mean that many people will lose their homes.
This year, sales will continue to be the most active in the $300,000 and under price range, he said. Nearly 1,400 single-family homes sold in that category in 2008.
New home starts will be very modest this year and next, Fishkind said. He expects there to be about 1,000 - a number some in the audience thought was even too high.
"It's the commercial side that is going to get whacked over the next 12 months," Fishkind said.
Brett Brown, a real estate broker and president of the Naples Area Board of Realtors, said Fishkind's talk backs up what his group has been reporting monthly about sales and prices. Sales have been trending up and prices have showed some signs of stabilization, he said.
"I was quite proud of our group," he said. "We are on the same page."
Fishkind also talked about Collier's economy. He shared some sobering numbers. The county's population shrank by 1,004 last year. The city of Naples lost 545 people.
Marco Island's population actually grew last year by 1,031.
In the Naples metro area, 9,800 jobs were lost between September 2006 and the same month in 2007. Most of those were in construction.
The county lost another 3,700 jobs between December 2007 and December 2008.
The good news, he said, is that most of the layoffs are behind us.
"They don't get lost again because they already got lost," Fishkind said.
He described these times as both "troubling and confusing," saying this is the worst recession Florida has seen since 1976.
The state lost 155,000 jobs last year. He said it's a difficult recession for our state because it has been so dependent on construction and growth. Florida is no longer the nation's fastest growing state.
Last year, the recession spread to every county in the state, Fishkind said.
"It will take time to crawl out of this one," he said.
He said this recession may go down as one of the longest; a recession lasts 10 months on average, Fishkind said.
But he thinks help is on the way with the federal economic stimulus plan President Barack Obama signed earlier this week. The sweeping plan is a mix of spending and tax cuts designed to stop the nation's economic spiral.
"We are going to get a ton of dough through the stimulus package," Fishkind said, referring to Florida. "Make no mistake."
Most of the help will come in the form of tax cuts.
"This is going to make a huge difference," Fishkind said.
NAPLES - BONITA SPRINGS - ESTERO MARKET AREA
CLOSED SALES
Total closed sales units in 2008 increased by 20% over 2007. This upward trend continued through the year with most months showing increases over prior year month. In fact, as you can see from the graph below, 2008 is very close to 2002, the year that preceded the run-up in units and volume experienced during 2003 through 2005. Volume for the year is down 9.6% and almost on par with 2003 volume, the third highest year during the nine year reporting history.
ANNUAL CLOSED SALES UNITS HISTORY
The highest number of closed sales occurred during May with 695 sales recorded, and the lowest number in January with 372.
The unit growth was driven by the sale of properties priced under $250,000, with this segment posting a gain of 130% over prior year. Overall, active listing inventory was reduced by 7% during the year, and the number of new listings taken was the lowest since 2005.
ANNUAL NEW LISTINGS HISTORY
Inventory levels based on closed sales are down from approximately a 3.1 year supply in February 2008 to a 2.1 year supply on January 1, 2009. Absorption levels are increasing, while supply levels are decreasing in the overall market, creating an increasingly balanced situation in many market segments. This has already occurred in a number of areas which are currently showing a one year or less supply of product.
PENDED SALES
Pended sales are the best indicator of current market conditions. Commencing October 2005, pended sales began showing a significant decrease on a monthly basis when compared to same month, prior year. This decline continued, almost uninterrupted, for 28 months, until February 2008 when pended sales began posting increases over prior year. Although January and March 2008 were down slightly from prior year, all other months recorded increases. The month over prior year month increases ranged from 6% in April (the lowest monthly increase for the year) to 107% in September (the highest monthly increase in 2008). Actual fourth quarter increase was almost 68% over 2007 fourth quarter.
ANNUAL PENDED SALES UNITS HISTORY
The ratio of pended sales to new listings taken (on a monthly basis) was one pended sale for every 2.6 new listings at the end of December, vs. the high of one pended sale for every 6 new listings recorded in January 2007.
SUMMARY
The increases in both closed and pended sales throughout most of 2008 indicate that a steady and strengthening recovery is underway. The reduction in inventory, along with decreasing numbers of new properties coming on the market, should bode well for real estate activity in 2009. A key to the strength of the recovery lies with what happens in the market segment of properties priced above $2,000,000. This segment has been comparatively quiet during 2008, posting a 20% decline in sales units from 2007. Although not quantifiable at this point, activity in this segment has increased significantly over the past three weeks, based on the number of showing appointments scheduled. The next 30 days should indicate whether there will be a full recovery of this segment in 2009.
Prices have fallen in virtually every price segment and property type across the market. Existing median price is almost 25% below 2007, but we expect this to begin to move upward again in some areas where supply and demand have balanced. Be aware that some areas are still over supplied and will require further price adjustments. However, these are diminishing, and prudent buyers and sellers will insist on specific neighborhood and/or building information upon which to base a buying or pricing decision.
John R. Wood Realtors continues to be a market leader in today's market. As the "Symbol of Local Knowledge" in real estate, we attribute our success to:
- The delivery of timely, reliable information to the customer.
- Well educated and informed agents who can communicate and interpret market indicators.
- Highly targeted marketing designed to reach a maximum number of buyers and sellers.
This focus enabled us to sell more of the properties listed with our firm in 2008 than any other local broker, and achieve an enviable position at the top of the market.
The Nation's foreclosure hemorrhage has finally slowed and 2009 should see a significant decline in foreclosures as buyers return, pushing home prices up and fueling a real estate recovery, accordingto the 2009 Outlook from ForeclosureS.com.
RECOVERY IS UNDERWAY
Affordable is back in the housing market,"says Alexis McGee, real estate expert, educator, and president of ForeclosureS.com. "In 2009, housing will not only recover, but we'll see buyers leap into this market in droves, depleting our housing oversupply and actually put higher price pressures on the market."
THE FED'S 500 BILLION PLAN TO BUY FANNIE MAE AND FREDDIE MAC
SECURITIES AND DRIVE LONG TERM INTEREST RATES DOWN
With 4.5% fixed mortgage rates, housing prices lower than they were' pre-housing bubble', commodity prices lower, tax credits available for homebuyers, and the government eager to stimulate our economy, for the first time in years, I can see prices rising again in 2009" adds McGee. "This is a great time to buy properties for investors - to buy properties at wholesale prices below today's already low prices - rent them out for positive cash flow and then sell them for big profits in late 2009 once price appreciation kicks in."
FORECLOSURES FALL FROM RECORD PEAK
The latest U.S. Foreclosure Index by ForeclosureS.com shows a slight drop (from 84,534 to 84,291 in the number of properties repossessed by lenders following foreclosure last month (November) over October. These are REOs or lender-owned real estate. But that's off nearly 21% from September's 106,415 REO filings. (year to date 12.6 of every 1000 households nationwide have been lost to foreclosure.) "Certainly some of the drop reflects growing results of government and private efforts to keep homeowners in their homes,"says McGee. "But the recovery takes shape when you factor in other things like what the National Association of Realtors calls ‘solid'gains from a year ago in existing home sales in some key areas and the fact that many of the same areas are seeing dropping home prices. Fewer foreclosure actions were initiated in the last quarter too, according to the latest Mortgage Delinquency Survey from the Mortgage Bankers Association,"McGee adds. "California is a great example of what's happening now and what lies ahead for the housing sector. Long a leader in the sub prime mortgage mess and rising numbers of foreclosures, thestate's foreclosures have slowed significantly." Says McGee.
"Potential homebuyers and investors on the other hand, will find the bargains growing in 2009," says McGee. "As the year progresses, more bright spots will emerge too, both in terms of foreclosure numbers and housing markets as efforts to work with strapped homeowners really begin to take root." "I wish my crystal ball could pinpoint everything that's going to happen with housing markets in the next 12 months, but there are just too many variables. What I can tell though, is that hardest hit housing markets have already hit bottom and others will follow in 2009. Third-quarter National Association of Realtor numbers actually show existing home sales picking up in about 20 percent of the areas studied. And, given the uncertainty and volatility of the stock market combined with all time low interest rates, extremely affordable low priced homes and all the choices out there, 2009 is an excellent time to buy real estate. Properties, especially foreclosed ones, will be highly discounted, lenders are motivated to work with buyers and the opportunities are abound. The bottom line is to keep in mind: What goes down, absolutely positively will go back up again.
"The return of solid housing markets is an important part of restoring stability to financial markets. The market will return when mortgage rates and home prices are down and that's exactly what is happening now in the hardest-hit areas of the country," adds McGee.
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Mortgage rates continue to plunge toward record territory.
The benchmark 30-year fixed-rate mortgage fell 31 basis points, to 5.33 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point.
The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index was 5.88 percent; four weeks ago, it was 5.8 percent.
The benchmark 15-year fixed-rate mortgage fell 31 basis points, to 4.85 percent. The benchmark 5/1 adjustable-rate mortgage fell 14 basis points, to 5.72 percent.
These benchmark rates are averages. Rate shoppers with excellent credit and plenty of equity (or a big down payment) may be able to do better.
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Weekly national mortgage survey
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| Results of Bankrate.com's Jan. 7, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan: |
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30-year fixed |
15-year fixed |
5-year ARM |
| This week's rate: |
5.33% |
4.85% |
5.72% |
| Change from last week: |
-0.31 |
-0.31 |
-0.14 |
| Monthly payment: |
$919.33 |
$1,291.95 |
$959.75 |
| Change from last week: |
-$32.07 |
-$26.65 |
-$14.71 |
"Right now, the 30-year (fixed) I have this morning -- I have 4 5/8 (percent) on a regular conforming and I have 4 3/8 (percent) on a 15-year today," all with 1 discount point plus fees, says Jeff Lazerson, president of MortgageGrader.com, a brokerage in Southern California. Minutes later, he sends an update by e-mail -- the 15-year fixed is available at 4.25 percent.
For Lazerson, business is better than it's been since summer 2003, the last time rates dropped so low. In Bankrate's weekly survey going back to 1985, the 30-year fixed hit a record low of 5.28 percent June 11, 2003, and was 5.31 percent two weeks later. This weeks' rate of 5.33 percent is the third-lowest in the 23-plus-year history of Bankrate's weekly survey.
Income and debt ratios rule
About four in five applicants today are homeowners who want to refinance their current loans, according to the Mortgage Bankers Association. In formerly hot real estate markets, a lot of those applicants are turned away because house values have fallen and they don't have enough equity in the home to refinance. "Maybe 30 percent of the people we can actually help, and 70 percent we cannot help, and the primary driver is they don't have any equity," Lazerson says. "The secondary issue is their income and debt ratios won't fly and the third issue is credit score."
When Lazerson mentions income and debt ratios, he refers to guidelines that limit borrowing ability to ensure that mortgages are affordable. Generally, Fannie Mae and Freddie Mac want to keep borrowers' total debt payments to 36 percent of before-tax income. That's total debt payments -- house, vehicles, credit cards, student loans. The FHA is more lenient, and likes to limit total debt payments to 41 percent of gross income. Lenders can make exceptions, but they're not inclined to during this credit squeeze.
While it can be hard to qualify for a refi, the picture is brighter for homebuyers. They can get Federal Housing Administration-insured mortgages, which require down payments as low as 3.5 percent. "I would say that most of the first-time buyers calling in -- 75 percent of those people -- we can actually help because FHA is more lenient about credit scores," Lazerson says.
Volume affected rates
The reasons for this week's drop in rates are complicated. First of all, Bankrate surveys the same 100 lenders each week -- 10 lenders in 10 large markets -- and some of those lenders had been quoting high rates because they already had as much business as they could handle.
During this downturn, lenders "whacked (operational) staff en masse and simply can't handle intense volume today," writes Jim Sahnger, mortgage planner with Palm Beach Financial Network, in an e-mail from his office in Stuart, Fla. "So, if you are already at capacity, (you) increase rates and then you can concentrate on getting your loans closed without being bombarded by new apps."
Certain lenders in Bankrate's survey -- Bank of America, most prominently, and also Chase and Citi -- had kept rates high for the past few weeks. But they dramatically cut their rates on the 30-year fixed this week, and that's partly what's behind this week's decline in the Bankrate survey.
And then there's the Federal Reserve, which last week opened the checkbook for the first time on its promised shopping spree for mortgage-backed securities. The Fed plans to buy up to a half-trillion dollars' worth of mortgage-backed securities in the first half of the year. Think of the Fed as an extremely deep-pocketed bank, competing with other banks to provide money for mortgages. When banks compete, you win: Rates go lower.
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Nan Dietrich
Naples,
FL
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John R. Wood Realtors
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