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Realtors, Is It Too Late For You...Are You Ready For What Is Coming Next?

Reblogger
Real Estate Appraiser with AmcAppraisalsinc.com

Great commentary!  What a well written piece about today's housing market!!  This is worth the few minutes to read and listen to the videos!!

Original content by Tim and Julie Harris

Here is a great question for you…this is the very question that I ask myself..and all of our Harris Real Estate University coaching students…as often as possible.

This question is designed to force you to think, challenge you and then get you into action.

Yes, I know that this question will generate mixed responses. A few of you will remark with negative comments…and..that’s OK. Please don’t let your immediate emotional reaction influence your long term results.

Here is the question:

What if you knew FOR SURE..without a doubt…that in the next 6 months the real estate markets would be much worse than they are now.

(Of course, much worse means different things to different people. For example, If you are listing and selling short sales…and/ or REO’s….a market dominated by the so-called distressed sales…is music to your ears.)

OK, stay with me on this…

Again, you have some ability to see 6 months into the future…and you are now reading the newspaper headlines for Novemeber 2010.

The headlines read:

“Real Estate Market Crashes…Again”, “Home Depreciation For 2011 Expected To Be Much Worse”….you get the idea.

Now, back to today. May 12th 2010.

My question for you is this:…what 3 things would you be doing differently now? What would you be learning…what actions would you be taking?

Go ahead now and actually write down the first 3 things that come to your mind:

1)

2)

3)

Lets get back to those questions and your answers in a second….

Moment of truth….does this topic excite you or depress you? Do you think that I am being too doomy and gloomy? (as I am sure I will be accused of being).

If you are feeling anger or perhaps frustration by my question..please ask yourself, why?

Why are you feeling that way? Perhaps, those feelings are an indication that you know that you are not ready for what might be coming next. If the very thought of the markets regressing…getting worse….scares you…then treat this post as your wake up call.

Before its too late, decide what actions you need to be taking now.

Lets look at the facts. Are there any reasons to believe that things may get much worse 6 months from now?

Well, lets talk about it…here are 3 articles and a couple videos for you to check out. Watch and read…then let me know what your thoughts are. What you think matters…what you DO matters more.

Interesting…eh? Interest rates increasing…supply of homes increasing…more underwater homeowners…I guess if you don’t know how to list and sell Short Sales you may indeed have a reason to be depressed.

Now, lets look at a study that our friends over at Zillow released this week:

Zillow recently released its first quarter Real Estate Market Reports for the nation and 135 metropolitan areas. The reports show that home values continued to decline nationwide in the first quarter, amid encouraging signs in California. However, growing negative equity and record foreclosures will likely delay a broader recovery.

The full national report, in its new, interactive format, is available at www.zillow.com/local-info or by emailing press@zillow.com. Additionally, in most areas data is available at the state, metro, county, city, ZIP and neighborhood level.

Topline National Results:

* U.S. home values fell 3.8 percent year-over-year, and declined 1 percent quarter-over-quarter, marking the 13th consecutive quarter of year-over-year declines. Home values declined year-over-year in 106 of the 135 metropolitan statistical areas (MSAs) tracked by Zillow.
* Home values in several large California markets have stabilized significantly, and show tentative signs of reaching a bottom.
* Negative equity remains high with 23.3 percent of all single family homes with mortgages underwater, up from 21.4 percent in fourth quarter.
* Foreclosures reached a new peak in March, with more than one out of every thousand homes (0.11 percent) being foreclosed.

Additional resources available for media:

* First Quarter Real Estate Market Reports press release
* FAQ’s on key metrics included in Zillow Real Estate Market Reports
* Explanation of Data Source: Analysis of Zillow’s home value data compared to OFHEO and Case-Shiller Indexes and NAR/Median Sale Price reports

Still on the fence about what the markets will be like 6 months from now….here is a repost from TimandJulieHarris.com:

As promised, here is the 60 minutes video about strategic default.
Agents, this consumer lead movement is mainstream now. You must be ready to answer questions and help homeowners who are making the financial decision to walk away. The simple fact is, doing a strategic default IS the smartest financial move for millions of Americans.

Fellow Realtors, learn how to do short sales using the new 2010 Short Sale HAFA Guidelines. Watch the updated Agent Short Sale Secrets video and download the FREE Short Sale Book.


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Still not sure…are you still thinking that housing will continue to ‘recover’ and the worst is behind us? Please check out this post from our blog:

Long time readers of this blog (and Harris Real Estate University student) know that we first reported on what is now called ’strategic defaults’ back in 2007. Many of you who listened and took action back in 2007 to earn your HREU CDPD have become your areas top producers.

Back in 2007 most agents had no idea what a short sale was…let alone why a home owner may actually choose to default. It seemed counter-intuitive. Afterall, why would anyone actually want to default?

Now…oh my….has the world changed…..”30,000 people a month are simply deciding not to pay their mortgage even though they have the income to do so”

Now, defaulting…or selling your home via a Short Sale is actually considered prudent vs. keeping an upside down home.

We the nationwide roll-out of the new Obama Administrations HAFA Guidelines not only are short sales now seen as ‘OK’ but, they are actually being encouraged! Listen to the historic Harris Real Estate University, National Association of Realtors HAFA Guidelines teleconference event. Hear directly from the NAR Official who initiated HAFA!

What is a strategic default?  This occurs when the current homeowner is able to pay their mortgage but because they feel they are too underwater or simply are sick of the mortgage albatross, decide to stop paying.  So much for that pride of ownership.

According to a study conducted by the Kellogg School of Management. When the study was released it was estimated that 26 percent of current defaults were strategic in nature.

NEW REPORT: 31% of ALL Upside Down Homeowners Consider Default! Watch the CNBC Video Now.

Look at break points that push people to strategically default:
strategic default Strategic Default | Studies Prove, Upside Down   Homeowners Making Financial Decision to Default

When a home is underwater by $100,000 homeowners default.

You must read this…. 50% of ALL SALES IN THE US are Short Sales and Foreclosures! Read the whole article now!

Of course, the more negative equity you have, the more likely it is that you will strategically walk away:

strategic defaults by foreclosures in area Strategic Default |   Studies Prove, Upside Down Homeowners Making Financial Decision to   Default

The above chart basically shows that if your neighbors do it, you’ll most likely do it too.  Lets look at the just released  study from Morgan Stanley:

“April 29 (Bloomberg) — Decisions by U.S. homeowners to walk away from mortgages they can afford account for an increasing share of defaults, according to Morgan Stanley.

About 12 percent of all mortgage defaults in February were “strategic,” up from 4 percent in mid-2007, New York-based Morgan Stanley analysts led by Vishwanath Tirupattur wrote in a report today. Borrowers are more likely to stop paying their mortgages the higher their credit scores and the larger their loans, the analysts said.

Defaults by borrowers who owe more than their homes’ values are among the biggest risks for the housing market, according to analysts including Zelman & Associates’ Ivy Zelman and Amherst Securities Group LP’s Laurie Goodman. Last month, the Obama administration said it would adjust its anti-foreclosure program to encourage reductions to borrowers’ principal amounts, instead of just the payments they make, to address the issue.”

According to the study, 12 percent of defaults in February were strategic.  Given that we are seeing roughly 300,000 foreclosure filings a month, it is safe to say that 30,000 people a month are simply deciding not to pay their mortgage even though they have the income to do so.  We already know that 7 million mortgages are currently in foreclosure or 30+ days late.  How many of those are strategic?  Not the majority but certainly a large number.

SO, how many REOs are hitting the market….how long will the real estate industry be in this short sale and REO listings cycle? New report: 9 years worth of REO inventory expected to hit the market! Read the article now.

The option ARM is the king of toxic mortgages and is the ultimate financial time bomb.  That is why default rates on option ARMs are now tracking subprime loans even though we have barely entered the first recast period:

option arm chart Strategic Default | Studies Prove, Upside Down   Homeowners Making Financial Decision to Default

I know many would like to think that this issue has been swept under the rug but it hasn’t.  A large number of these loans are still active and are very likely to enter default in the next few years.  Banks are being a tiny bit more aggressive on foreclosing since the taxpayer is footing their too big to fail bill.  And public anger is still elevated:

anger on economy Strategic Default | Studies Prove, Upside Down   Homeowners Making Financial Decision to Default

From the Kellogg surveys we find that half the country is still angry about the current economic situation and keep in mind we have just witnessed a 70 percent stock market rally.  Apparently the bulk of the population wasn’t invited to the party.

Curious how the economy is ‘recovering’ when there are so many homes in default…and folks out of work? Well, many believe that the cash going into the economy is coming directly from homeowners not making their house payments!

Strategic defaults have also provided a short-term stimulus into the economy.  After all, if you aren’t paying a $4,000 mortgage and now rent a $2,000 place you basically have increased your cash flow by $2,000 per month to buy more consumer goods.  We’ve seen car sales jump up recently and we have seen spending tick up as well even though the unemployment situation is still near the trough and wages are stagnant.  It would be one thing if people were spending more because they were earning more but this isn’t exactly what is happening.

Dr.HousingBubble.com

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Comments (2)

Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

I can't believe that CBS still forces one to watch commercials with their online videos.

May 12, 2010 02:35 AM
Richard D. Ferris
AmcAppraisalsinc.com - Clermont, FL
Florida State Certified (FHA) Appraiser

Ha!  I think of that so often with major news networks!!  Are they THAT hard up for revenue?  If it was the local news outlet or major newspaper, I would say YES since they are losing so many readers and thus ad revenue!  But CBS?  We watch enough ads during Survivor each year to offset one little online video, right?!?

May 12, 2010 02:55 AM