I wrote the book, Create A Great Deal, the Art of Real Estate Negotiating, which just being published.  It has been very well received.  Here is a review from Inman News by Bernice Ross, their most published columnist.  I wanted to share it with my friends.  If you want to buy the book, or for more information, go to www.CreateAGreatDeal.com.  

Secrets of a master negotiator

Top tips from real estate broker Tim Burrell

By Bernice Ross, Monday, June 1, 2009.

Inman News

Negotiation is the No. 1 skill that you need in real estate to succeed. Are you ready to master the secrets of becoming a master negotiator?

Whether you are a newbie or a 30-year real estate veteran, growing your negotiation skills is one of the best ways to improve your conversion ratio and to close more business. In his book, "Create a Great Deal," Tim Burrell provides the strategies you need to maneuver through virtually any tough real estate negotiation. Here are some of Burrell's top tips.

1. Trust is paramount
How do you establish trust in a negotiation situation? There are three key steps: Listen, ask questions, and let the clients be in control of the process. Outline their options (including not accepting the offer) and allow them to decide which option is best for them.

2. Get something in return
Some negotiators constantly grind the other party to obtain concessions. To break this pattern, when you make a concession ask, "If we do that for you, what are you willing to do for us?" If you allow the other party to come up with a concession, it may be better than what you would have proposed.

3. Reciprocity
This is the opposite of "getting something in return." In reciprocity, you offer to give something first in order to get something back. For example, if negotiations are at an impasse, you can restart the negotiation by making a new concession. For example, you could say, "We could move up the closing date. Is there something you could give us in exchange?"

4. Flinch and vise
When a buyer wants to make a ridiculously low offer, grimace (that's called the "flinch"). After you grimace, respond by saying, "You'll have to do better than that" (that's the "vise.") This approach often causes the buyer to raise the offer. If not, you have uncovered that this may be the best the buyer can do.

5. Let silence do the heavy lifting
Make your proposal and wait for the other party to respond. Most Americans are uncomfortable with silence and feel compelled to say something. In contrast, people from other cultures often use silence to get what they want. Burrell recommends that silence is particularly effective when the other side has made you angry. Rather than lashing back at them, silence actually accomplishes more.

6. The decoy
It's always smart to include at least one item in your negotiation that your clients are willing to concede. For example, if the sellers want to close after school is out, the buyers could ask to close quickly. When the sellers make a counteroffer pushing the closing date back to the end of the school year, they will feel as if they have gained a major concession. You can then ask for a concession in exchange for the later closing date.

7. Give your clients alone time
When your clients appear to like a property, find a way to excuse yourself so they can talk in private. This is especially important for people who do not speak English as their first language. The only buying sign you may see will be when they excuse themselves to have a private conversation in their native language.

8. Don't accept the first "no"
According to Burrell, for determined negotiators, "no" is merely an opening bargaining position. This is particularly true for bureaucracies including the government, banks, major builders and insurance companies. If you accept the first "no," they don't have to do any additional work. Burrell said the same thing is true for home warranty insurance. If they can tell you that, "No, it's not covered" and you go away, their problem is over. Be persistent.

9. Accept a really good offer slowly
If you receive an offer that is way too good, don't jump up and down with glee. The other party will believe that they made a mistake. Instead, question some of the terms. Suggest that you might have to stretch to accept their proposal. Alternatively, ask them to throw in a little something to get you to accept. That way, the other party will feel that they did all right rather than feeling that they gave too much away.

10. Translate issues into numbers
Assume that your buyers are making an offer on a house that is listed for $150,000. The buyers and the sellers are $3,000 apart. The buyers are resisting coming up with the additional $3,000. Each $1,000 of their loan amount results in an additional $6 per $1,000 in payments. In this case, the additional payment would be an additional $18 per month. Explain to the buyers that if they are able to skip one inexpensive restaurant meal per month, they will be able to get the right home with the right schools for their children.

If you are serious about upgrading your negotiation skills, "Create a Great Deal" is a great way to do it.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com.

Copyright 2009 RealEstateCoach.com

Reproduced with permission from Bernice Ross

I am amazed that the Today Show put Rick Santelli on as the first thing to start America's Day.  He has a complaint about the government's efforts to help the housing crisis.  That would be alright if he had any facts as the basis of his opinion and any educational background that would qualify him to talk about the economy.  I understand that he was an English Major at Buffalo.   THE MAN IS A LIAR, AND THEY GAVE HIM AIRTIME!

He said that he is upset because the new programs to stop foreclosure let people reduce the amount of their principal of their loans, i.e.  not pay back what they borrowed.  That is not true, they are adjusting the interest rates and the time over which the payments are made to help borrowers make the payments, but they are not talking about modifications to eliminate the obligation to pay the money back.

He said this effort will help speculators and "flippers" who bought homes to resell.  That is not true, the plan only applies to owner occupied homes.  So, it does not help people who were just speculators, it helps families stay in their homes.  His pathetic statement wondering how you separate out speculators from deserving people shows that he should not be a commentator allowed on the air.  The plan separates them out specifically by refusing to help homes that are not owner occupied.  In spite of many attempts by Brian Williams to ask what Rick Santelli would propose, he had nothing, absolutely nothing to suggest, other than to say there should be much debate on these issues.  He could not even say what he wants the 92% of America that is paying their mortgage to do.

So, he gets America riled up at a time when we need to work together, and the Today Show gave him the podium to do his damage.  His lies need to be corrected.

You can look at my information and see I am a Realtor in Raleigh, North Carolina, then dismiss what I have to say because of my profession.  However, I a big part of my business is listing and selling homes that have been foreclosed.  So, the more the Today Show put a liar like Rick Santelli on the air to make housing worse, the more money I make. This is not about my self interest, this is about saving America.  While liars like Santelli make me more money, I am an American first.

This new effort by the government will allow people like my daughter, a school teacher, to get an adjustment to her mortgage.  She bought a home for her family with four children while we were selling her home in California. The idea was to refinance the new home once the house in California sold.  Before the government's efforts, she could not refinance, because the new rules established by the banks say she has to be in her new job for two years.  She has excellent credit, she is improving her skills to make more money but the inappropriate restrictions on credit are making her efforts to support her family much more difficult.

Instead of focusing on how this plan will benefit America, and give me less foreclosed homes to sell, the media puts a liar on the air to spread mis-information to undercut this effort.  This mistake needs to be corrected.  I sent a similar message to the Today Show.  Let's hope they do something, as this kind of journalism would even make Fox News blush. 

 

 

Wachovia Bank is in merger talks with several financial institutions, apparently because there is concern about their portfolio of sub prime loans.  Their stock price has fallen dramatically, and they are talking with potential suitors.  I do not see anything wrong with Wachovia's financial situation, but I have seen where unfounded concerns have caused big problems for our financial institutions.  With a little help from their friends, Wachovia will stay independent.

It is better for North Carolina if Wachovia remains independent.  The firm is a large employer in North Carolina, and it is one of the highlights of the Charlotte economy.  I do not work for Wachovia, and I live in Raleigh, so neither of these affrect me directly.  I want the financial crisis to stabilize, and for our employment to increase, not decrease.  If Wachovia merges, you know Charlotte will be hurt and many North Carolina jobs will be lost or transfered elsewhere.

The people of North Carolina always help their neighbors stay out of trouble.  It looks like Wachovia is not in fact in trouble, as the financial information reveals that the bank is stong.  But, perception is critical in these times of bad financial news.  I do not want the media coverage of the merger talks, with the tag line that implies that there is a problem with their portfolio of sub prime loans, to give Wachovia the same problem that happened to Washington Mutual.  If the depositors support Wachovia, there should be no reason to merge, particularly with the imminent signing of the bail out plan that will solve some of the issues with sub prime loans.  I want us to learn from the experience of Washington Mutual.

Washington Mutual was in fact well funded, until the public got worried about them.  It is true that Washington Mutual had a "Memorandum of Understanding" with the Office of Thrift Supervision, a part of the Treasury Department, so there was something for the depositors to talk about.  There is nothing like that with Wachovia.  When the Washington Mutual depositors paniced and took billions out of the bank, it could not survive.  Remember the scene from the movie, Its a Wonderful Life, where George Bailey barely keeps the bank open by using all but two dollars of his honeymoon money during a run on the bank.  The run on the bank is what happened to Washington Mutual, only they did not have George Bailey.

Washington Mutual was taken over last Thursday by the FDIC, and sold at a fire sale price to JP Morgan Chase.  The sale price for the assets was $1.9 Billion, which is a lot of money, but it is nothing for one of the largest financial institutions in the United States. 

What did the WAMU failure do?  The people who left their money on deposit did not notice any change, as the bank opened the next day and all their money was there.  So, everyone who took their money out of Washington Mutual and participated in killing the institution, did not have any advantage from withdrawing their money.  My personal hope is that they misplaced some of their cash, so they lost something, while all of the people who left their money in Washington Mutual still have every cent.  There should be some "bad karma" from being the cause of further problems in our economy.

What eles did the death of Washington Mutual do?  All the stockholders lost everything.  The WAMU employees who had lots of WAMU stock in their retirement plans were wiped out.  So, the working people just lost a major part of what they worked for.  In the meantime, JP Morgan Chase is going to have a huge profit.  So, the rich get rich, and the working people get wiped out.   Also, the rest of us get less competition in the financial market, so there is less competition when we want to get a loan.

What do I want you to do?  Do not take any money out of Wachovia.  Those of us in North Carolina want to stand by our major institutions, and Wachovia, and the banks that are now part of Wachovia, have been a part of this state for a long time.  In fact, I want you to put money in Wachovia so North Carolina can show our neighbors that we want them to be an independent part of our community.  Most of my money is in Bank of America, and they have been gobbling up Countrywide and Merrill Lynch, so they will be fine without me.  I have some small Wachovia accounts.  Monday morning, the money comes out of Bank of America and goes into Wachovia.  I want to be like the friends in the movie Its a Wonderful Life who contribute to the success of my neighbors and the bank we need in North Carolina.  I do not want to say it is unpatriotic if you particupate in a run on the bank, but you sure are not helping your country or your neighbors if you do. 

If you know someone at Wachovia, please let them know we want them to remain independent.  If you have any money in Wachovia, it is safe so long as it is within the limits of the FDIC insurance.  So, leave it there.  Even better, take whatever you have in your mattress and put it in Wachovia.  If North Carolina shows them that we care, I hope they will show us they have the strength to remain independent. 

If you are wondering why I am doing this, financial stability is partially in my best interest.  I am a Realtor, so if banks remain strong, then my clients can get loans and buy real estate in Raleigh.  However, I sell foreclosed properties, the ones that banks have taken back, we call them REOs.  So, if there are more financial problems, I make more money because I sell more REOs.  I am not doing this for the money, I am doing this because it is good for North Carolina and the people who buy homes here.  If you want to find out more about me, visit my main blog at http://www.TeamForYOUrDreams.com/blog.

I will see you at Wachovia on Monday morning, putting money in the bank.

posted by Tim Burrell -  Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart  held a press conference Sunday to announce that the government had placed Fannie Mae and Freddie Mac under conservatorship.  After meetings with the Board of Directors of both organizations,  the Federal Housing Finance Agency  took control of these institutions that are vital to financing of home purchases. 

Fannie Mae and Freddie Mac are government sponsored enterprises (GSEs) that are involved in more than half of all the real estate financing in the U.S.  They do that by buying loans from banks and packaging those loans as Mortgage Backed Securities, and selling the securities.  By selling the loans to Fannie and Freddie, the banks get fresh capital to make new loans.  The sale of mortgage backed securities by Fannie and Freddie has been hurt by concerns overt sub-prime loans and the higher than normal default rates on mortgages.  In other words, the buyers of these securities are scared by the reports concerning the sub-prime loans and the increase in foreclosures.  So, you have the combination of a huge increase in the number of loans that need to be purchased by Fannie and Freddie with the decline in the ability to sell mortgage backed securities resulting in a financial mess for Fannie and Freddie.

Fannie and Freddie are involved in 5.4 trillion dollars worth of mortgage debt.   To give you an idea of how huge that is, it is more than the amount of the privately held national debt of the entire United States.  In the past four months, Fannie Mae and Freddie Mac have been involved in 80% of the financing of home purchases.  In short, if you want to get financing to buy a home, there is an 8 out of 10 chance that you will need Fannie Mae and Freddie Mac. 

What did the government do?  They replaced the leadership of these two organizations as Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.  The hope is that the rest of the staff will remain in place, and Fannie's Daniel Mudd and and Freddie's Richard Syron, the  former leaders of each organization, have agreed to stay on during the transition. 

The government is going to buy $5 billion in mortgage backed securities held by Fannie and Freddie.  This will provide a quick infusion of capital for each organization.  The Treasury Department said it will immediately be issued $1 billion in senior preferred stock from each company, but eventually the Treasury could be required to put up as much as $100 billion for each company if the funds are needed to keep the companies afloat. This continuing support  guarantees that each organization will remain solvent, assuring that financing for real estate purchases will not be thrown into chaos.  The government also will receive warrants representing ownership stakes of 79.9 percent in each firm.   The existing stockholders will be subordinate to this obligation to pay the federal government, so the 36 billion in outstanding stock for these companies just moved down a notch to be in second position to the federal government.  This puts those shares in the position of junk bonds according to Standard and Poor's ratings.  

In the short run, Fannie and Freddie will be allowed to increase their holdings and buy more loans.  In the long run, the government wants to shrink the size of Fannie and Freddie, with their portfolios shrinking by 10% per year starting in 2010.  All lobbying will cease, all dividends will stop and other cost cutting measures will be instituted to make these institutions more efficient. 

What will that do to Raleigh Real Estate?  In the past few months, some mortgage rates were dropping, but the rates on loans associated with governmentmal agencies were not, as Fannie and Freddie could not pass along the better prices to consumers.  The conservatorship will probably lower the cost of these loans associated with governmental organizations, so buyers may get better rates.   It will also guarantee that these loans will continue to be available.  When I watched GMAC financing close their doors to new loans in the Triangle, I was concerned about the availability of new loans.  Now, I am not, as government will infuse up to $100 billion into each of Fannie and Freddie to see them through.   In other words, investors are much more confident knowing that up to $200 billion will be available to guarantee the long term viability of these organizations.

One of the biggest problems in the real estate industry is the availability of financing.  The raleigh real estate market is in excellent condition, but you cannot close a deal if you cannot get financing.  This move makes financing more certain, and lets Realtors stop worrying about whether they can get loans for their customers.  Just the certainty that loans are available is valuable, and the prospect of getting better interest rates is appealing.  For example, on Monday, interest rates on these types of loans dropped one half of one percent, which has a wonderful effect on lowering monthly payments and allowing buyers to qualify to purchase more house. 

The loss to the taxpayers is debatable, as we taxpayers just got preferred shares in companies that will do well in the long run.  My hope is that the projections of a $25 billion loss to the taxpayers is highly inflated, and the taxpayers may even make a profit from the preferred shares that pay 10% interest.  If Fannie and Freddie make a profit, the government is one of the first to be repaid.  

In general, this is good news for the real estate industry and benefits the stability of Raleigh real estate.  For a local perspective on this event, visit my blog at http://www.TeamForYOUrDreams.com/blog .  Inman News was kind enough to publish an article I wrote on this subject at http://tinyurl.com/67lvze .

posted by Tim Burrell - The Housing and Economic Recovery Act of 2008 has some amazing benefits for first time homebuyers.  When is the last time someone gave you a $7,500 loan, that has no interest, no payments for two years, and if you do not make enough when you sell, you do not have to pay back the loan?  That is what first time homebuyers get.  Call everyone you know who wants to buy their first home, this is too good to miss.

If you have not owned a home in three years, you are a first time home buyer.  If you buy a home after April 9, 2008 and before July 1, 2009, you qualify for a credit.  Call your friends who just bought a home and tell them they may take $7,500 off their tax bill.  It has to be your principal residence, so rentals do not count.

The tax credit is 10% of the cost of the home, up to a maximum of $7,500.  So, if the home costs $65,000, your tax credit is $6,500.  If the home cost $100,000, you would get a credit of $7,500.  This is not an additional deduction that lowers the amount of income to be taxed, it is a tax credit.  In other words, you take $7,500 off your tax bill.  What if your tax bill is only $5,000?  The IRS will send you the additional $2,500 as a refund.  When was the last time the IRS sent you a refund because you bought something?

The loan has no interest, and will be paid back over 15 years.  You get the credit on your 2008 taxes, but you start paying it back on your 2010 taxes that are due in 2011, so you get at least two years without a payment.  You pay back 6.67% of the credit each year, so for a $7,500 credit the payment is $502.50 per year.  If you stay put for 15 years, you pay it off with no interest.

What happens if you sell the house?  You pay the balance back at the closing.  So, you get $7,500 now, and pay the rest of it back if you make money on the sale of your house.

What happens if you do not make enough money when you sell your house?  They forgive the rest of the debt.  In other words, get $7,500 now and pay back nothing if your house only breaks even at closing.  When was the last time you got a loan on a speculative venture where the person who gave you the loan forgave the rest of the loan if you did not make enough profit on the sale? 

The risk of loss in buying now is on the government.  In other parts of the country where real estate is going down in value, you can lose 10% of the value of the home (up to $7,500) and the loss is covered by the fact that you do not pay back the tax credit.  The Raleigh real estate that first time buyers can aford is going up in value, so we are not as worried about the risk of loss.  Even a bad buy that does not go up in value is covered by the tax benefit because you get $7,500 no matter what happens.

 Similarly, if you die before repaying the debt, it is forgiven.  There are special rules for sales as a result of divorce or if the government takes your property by condemnation.

There are restrictions on the amount of income that you can make and still get the credit.  But the restriction is $75,000 per year for a single person and $150,000 for a couple filing jointly, so the vast majority of people qualify.   If you make more than that, you can still get some of the tax credit, but there are complicated rules about phasing out the credit as the income goes up.  If you make that much money, you can afford to hire someone to figure out the formula.  The restriction on the location of the property is minimal, it has to be in the United States.  Not too tough, huh?

There are minimal restrictions on the financing.  If you use a loan that is supported by mortgage revenue bonds, you do not get the tax credit.  These loans are normally made by North Carolina housing agencies, but there are not many of them available, and the qualifications limit their use.  In other words, nearly every loan allows you to get the tax credit. 

What is the catch?  You have to buy your first house in three years before July 1,2009, not be super high income, not use bond financing and buy anywhere in the US,   Not too difficult, right?

If you know someone who wants to buy their first home in three years, call them.  Don't miss it.  This information is the best available as of July 30, 2008, so you want to consult a tax specialist to see if anything has changed while you are looking at houses.

The government gives tax credits to huge companies, here is one for the little guy.   Don't miss it.

Posted by Tim Burrell - President Bush just signed the Housing and Economic Recovery Act of 2008.  The first thing I noticed is that some first time homebuyers may need to hurry.

If you are a buyer that does not have 3.5% downpayment and you want to buy some Raleigh real estate,  you have to buy before October 1, 2008.  The program where sellers can arrange for downpayment assistance ends on that date.  If you are a first time home buyer, you can get an amazing benefit of a tax credit of 10% of the purchase price of the home you bought, up to a maximum of $7,500.   This is not just a deduction to reduce the amount of income you have.  It is a tax credit, i.e. it directly lowers your taxes.   For example, if you buy a home that is worth $100,000, you get the maximum tax credit of $7,500.  If you were going to pay $17,500 in income taxes, you reduce the amount of tax you pay to $10,000.  So, you can buy a home with no money down and get up to $7,500 off your taxes. 

There is a catch.  You have to pay back the tax credit over 15 years, with no interest, or if you sell the house for a profit.   That is not so bad.  Where else do you get an interest free 15 year loan. 

The bill provides $300 billion in financing to allow people who got bad loans to refinance with FHA loans.   If you want to refinance the mortgage on your principal residence, the payments on your current loan have to be more than 31% of you income, the legislation's line of being unafordable.  I have paid over 31% of my income in housing payments for all the decades I lived in California.  The loan had to be taken out before 2008, so it is not meant for newly acquired loans.  The maximum loan is $550,400.  The loan cannot exceed 90% of the appraised value of the house, so the existing lender may have to take a short payoff to make the deal work, if the value of the home went down.  Since the values of Raleigh real estate are holding strong or going up, this provision should not be of major importance to our area. 

Again, this relief comes with a catch.  If you accept this refinancing, you have to share some of the profit with the FHA when the house sells or is refinanced.  FHA gets 100% of the profit if it sells, or refinances,  in the first year, and the amount for the FHA goes down by 10% per year until it reaches 50% for the FHA. 

The legislation also props up Fannie Mae and Freddie Mac.  The sudden decrease in the value of their stocks shows that the investment community has lost confidence in these institutions that are extremely important to financing in the US.  Since these two have an interest in nearly half the loans in the US, their stability greatly affects housing.  The legislation increases the lines of credit for these two and authorizes the government to buy their stock if necessary to give them additional support.  The loan limits for Fannie and Freddie were also raised to 115% of the areas median home price, not to exceed $625,500.  The last part does not have a dramatic effect on Raleigh real estate, as it will be a long time before the median price in Wake County will get anywhere near that limit.

There is one other provision that foreign investors like.  Under existing law, they had to fill out a form with their social security number and give it to the seller.  Now, they give the form to the closing agent and do not have to reveal their social security number to the seller.  Since the dollar is so low compared to foreign currency, and the Triangle is one of the best places to invest in the US, there may be an increase in foreigh investors who purchase Raleigh real estate, so this provision may have some affect in our area. 

It is true that housing has problems, banking has problems and there are more foreclosures.  But, did you know that most of the prices of homes in the United States are going up? Did you know that these prices have been going up consistently since February?  Do you think that information would help prevent a recession?

Here are the facts.  According to National Association of Realtor statistics, the median home price has fallen from a high of $230,200 in July 2006 to a low in February 2008 at $195,600, a drop of 15%. That is the bad news, and that is what you hear in the media.  Since February, however, the median home price has risen steadily every month. By May the index had risen to $208,600, up $13,000 and a full 6.6%. It will be interesting to see what the next index shows when it comes out the end of July.  Another indicator, the mean home price (most of us would call it the average home price),  has risen from a low of $242,000 in February of this year to $253,100, a rise of $11,100 or 4.5%. It, too, has risen every month since February of this year.  That is the good news.   Have you heard any good news about real estate in the media?

In the Triangle area of North Carolina, we did not have the orginal bad news, our market has always been better than the national average.   Instead of going down by 15% in the last year like the rest of the nation, our average sales price went up, from $270,065 in June of 2007 to $278,506 in June of 2008.  If you like median numbers, they went up over the last year also, from 218,000 to $221,900.  Our supply of homes for sale has increased, and it is taking longer to sell the average house, but our average days on the market is a respectable 82.  The Triangle market is not as good as it has been as we have a nine months supply of homes for sale, but I cannot find anything that supports the media "doom and gloom".

We really appreciate our clients who listen to us instead of the media, because they are making a killing in the market.  The media is making everyone think it is a buyers market when, in fact, the prices are increasing.  So, our smart clients are picking up great deals.  We are having a wonderful time negotiating with people who listen to the media instead of knowing the true facts.

So, our Team wants to have a little contest.  We are stumped by the media. Why would they give the image that prices are going down when they are going up?  Why would they want to create problems for all of us who own homes, when I cannot find support for the image of disaster that I hear on the evening news?   Whoever has the best explanation, or possibly the most humorous explanation, will win a $25 American Express Gift Card.  Just send your answer to tim@TimBurrell.com and watch our blog at www.TeamForYOUrDreams.com/blog for the winner. 

Posted by Tim Burrell -   As a part of the new stimulus package recently signed by President Bush, the loan limits for Fannie Mae, Freddie Mac and FHA loans were increased to 125% of the median price of a home in the area, up to an amount of $729,750.    The Department of Housing and Urban Development has released the increased limits for the state of California yesterday, and the limits for other states are expected to follow in short order.   The new loan limits are set county by county for the entire state.

There are fourteen California counties where the loan limits for FHA, Fannie Mae and Freddie Mac were raised all the way up to the new $729,750 cap. Most of these counties are in the San Francisco Bay Area and northern California (Alameda, Contra Costa, Marin, Monterey, Napa, San Francisco, San Mateo, Santa Cruz, Santa Clara are on the list) with five more in the Los Angeles area (Los Angeles, Orange, San Benito, Santa Barbara, and Ventura).

Unless you have a large down payment, this increase in the loan limit will not allow you to use these GSE loans to buy a single family home in many areas of Los Angeles County, like the South Bay and the Palos Verdes Peninsula.  However, if you are buying a condo or townhouse, you may be able to use them.  The jumbo loans are priced much higher than they have been in the past, so avoiding the jumbo loans by using a conforming GSE loan is a major advantage.  For example, in the past, jumbo loans had an interest rate that was 1/8 to 1/4 percent higher than a conforming loan.  Now, jumbo loans are around one percent higher.  So, homes that can be bought with this lower interest financing will result in much lower monthly payments, which will make their purchase more attractive.

The other effect on real estate in the South Bay of Los Angeles will be that homes in other areas will be easier to sell.  So, buyers who are moving from these areas to the South Bay will have an easier time selling their homes, and homes in the South Bay may have an easier time selling.  Since jumbo loan rates are way above what they should be, allowing the use of loans with more reasonable interest rates will help the real estate market in much of California.

What will be the effect on North Carolina, particularly Triangle area real estate?  The direct effect will be small.  Most of the counties in North Carolina have homes where 125% of the median price is below the old limit of $417,000.  This is true for most of the Triangle.  However, there may be an indirect effect, mainly due to the media.

A good example was a news report last Saturday on NBC-17 in the Triangle area.  The headline talked about the dramatic increase in the number of foreclosures, referencing the high numbers of foreclosures through out the nation.   Then, they gave scary figures about the number of foreclosures in the state of North Carolina.  They put a table on the screen that showed the increase in foreclosures in the nation, the state, and major areas in North Carolina.  If you could read very fast, you could see that the increase in foreclosures for Wake County was only 0.12%.  One eighth of one percent is nothing!  But the viewer heard there is a huge increase in foreclosures because of the headline, when the statistics show there is virtually no increase.

If real estate is selling better thoughout the United States and there are less foreclosures, the media will not have the scary headlines that have a depressing effect on real estate sales.  The depressing effect occurs when buyers sit and wait to get a deal on the non-existent increase in foreclosed homes.  When less buyers buy, the rate of sales goes down, the inventory increases and the market looks worse.

 The new loan limits for North Carolina should come out today, so we will soon see the direct effects of this new legislation. 

The Senate Finacne Committee has approved an economic stimulus package that does not include an increase in the limits for loans by Fannie Mae and Freddie Mac (commonly called GSE's), and does not include an increase in the limits of the guarantees allowed by the FHA.   The stimulus package passed by the House of Representatives in HR 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008, includes increases in the limit of Fannie Mae and Freddie Mac loans to 125% of the median price of homes in high cost areas, with a cap of $729,750.  The House bill would also allow FHA to guarantee loans up to 125% of the median price in high cost areas, with the same cap.  This increase would be temporary, as it would expire at the end of they year.

Now is the time to contact your Senator and explain the obvious: THE PROBLEM IS REAL ESTATE LOANS, STUPID! 

The main source of the economic problems, and possible recession, is the lack of availability of real estate financing.  The exotic loans that used to allow a segment of the market to buy homes do not exist any more.  The standards for qualifying for nearly all loans have been raised, a second shrinking of mortgage funding.  With the increase in housing prices in many areas, conventional loans that are limited to $417,000 or less do not allow "regular folks" to buy a home in those areas.

The House bill would allow the limits on the conforming loans that "regular folks" need to go up.  This would allow more people to buy houses in the areas hardest hit by foreclosures.  The National Association of Realtors projects that this increase would prevent about 200,000 foreclosures nationwide.  Decreasing foreclosures would help consumer confidence, not only in the housing market but in the economy in general.

It is hard to imagine any reason for the action by the Senate.  The problem is a sudden decrease in the availability of real estate financing.  Why not deal with that problem by providing a short term increase in that financing?

The House bill would increase the availability of real estate loans, and cost the consumer nothing.  The Sentate is concentrating on giving money from the US Treasury to taxpayers, and proposing amendments to give money to recipients of Social Security, both of which will eventualy cost taxpayers.  The money given to consumers will be used to buy consumer goods at WalMart and Best Buy.  We need something that will allow consumers to buy houses.  Also, the increase in loan limits is temporary, so that it is not a long term authorization which means any potential problems are limited in duration.

This difference between the House of Representatives and the Senate gives you a better appreciation for our form of government.  The Founding Fathers wanted to have a body in the legislature that was more in touch with the people, and they created the House of Representatives.  The Senate has only two members from each state, and focuses on larger pictures, but is less in touch with what is happening with "regular folks".   This is why it is important that Senators hear from "regular folks".

The National Association of Realtors is making an effort to have Realtors contact Senators to point out this mistake.   It would be even more important for consumers who are not Realtors to contact their Senators, so that the national importance of this mistake is felt, and the Senators cannot dismiss this as a self serving effort by Realtors.

Please contact your Senator and ask the Senate to face the problem head on.  Since the problem is a decrease in real estate financing, provide an increase in that financing.

The Federal Reserve cut the Federal Funds interest rate by 1/2 point and the Discount Rate also by 1/2 point.  The one is the rate of interest when banks borrow from the Federal Reserve, the other is when they borrow from each other.  There were two quick financial responses.

In the first response,  major banks cut their Prime Rate, the rate that their best borrowers get, from 6.5% to 6%.  The second was an immediate improvement in the stock market, that had been down before the announcement, trading immediately went from negative territory to positive.

The decrease in the Prime Rate affects many homeowners who have Home Equity Lines of Credit (HELOC).  Many of these loans have an interest rate that floats with the prime rate.  So, this decrease will reduce the monthly payments on those loans.  This will have a positive effect on Raleigh Real Estate, as it will enable more families to afford their mortgages and stay out of financial trouble.  It may not directly lower the number of homes going into foreclosure, but it will help.

The decrease in the two interest rates by the Federal Reserve may also further reduce interest rates, eventually but today they went up.  More on that later.  Even though the federal interest rates went down by 1/2 percent, do not expect mortgage rates to go down that much.  There are a great number of factors calculated in setting the interest rate on a 30 year loan, and the changes made by the Federal Reserve are to the rates on extremely short term loans that banks take out in order to maintain the proper amount of liquidity. 

It is not unusual for the interest rates on 30 year mortgages to anticipate what the Federal Reserve will do, so they went down last week.  Immediately after the announcement, they went up, but just slightly as you have to be well tuned in to even notice.  The rate before on a fixed 30 year conforming loan was 5.5%.  The rate on the same loan after was 5.5%.  The part that went up is the cost of the loan to originate.  The rates went up so slightly that the interest rate offered the customer did not change, but the cost of a $200,000 loan increased by about $250.  Most lenders will absorb that cost, so it looks to the consumer like the rate is the same, but it actually went up.  Doesn't it seems odd that a cut in the Federal Reserve rates designed to make loans more affordable would result in an increase in the cost of a 30 year mortgage?  But, if you understand that the market tries to anticipate the move of the Federal Reserve, then corrects when it actually announces its move, it will make more sense.   It is like they say in the Stock Market, "Buy on rumor, sell on news".

So, will this help real estate?   I am in Raleigh, North Carolina, and I deal with homes all over the Triangle area.  I think it will olny have an indirect affect on real estate, as the cost of a conforming mortgage did not change much, and most of our sales involve conforming loans (a loan of $417,000 or less).  The economy will be better, the prime interest rate will be better, the HELOC payments geared to the prime rate will be better, so there may be fewer foreclosures.  But, there are so few foreclosures in the Triangle area that I could only find one HUD foreclosure in our entire Multiple Listing Service.

In more expensive parts of the country, like the South Bay of Los Angeles, there may be a similar indirect effect for areas where most of their sales involve Jumbo loans, over $417,000.  The action by the Federal Reserve will save banks money and maybe make it easier for them to ease rates on Jumbo loans.  It is more likely that the effect on the economy in general will be larger than this effect on Jumbo loans

In general, Raleigh real estate is in good condition, and it will stay in good condition or improve.   The real estate in Palos Verdes and the South Bay also has a much better market than the rest of California, so its condition should remain good, and probably improve.