The Return of the Buyer Contingency Sale?

by MICHAEL BODEEN | Nov 18, 2014 | Bodeen Team Blog, Real Estate News

In the early 90’s it was commonplace to get offers subject to the sale of the buyer’s residence. When the market heated up in the mid 90’s contingency sales like this began going extinct, especially when investor’s entered our market and were making all cash offers and when multiple offers became more of the norm. An offer subject to the sale of the buyer’s home would not even be considered, and often it would not be considered even if the home was sold and in escrow waiting to close. Well, that’s no longer the case.

Now, new offers coming in that are in escrow awaiting the close are seldom refused just for the sale of the contingency. And lately, we’re seeing offers happening that are not in escrow. This is a real change to our market and is another positive sign of a “normal” market.

What should a seller do if they receive an offer with a contingency? Well, for one thing don’t toss it. If a buyer is really interested in your house, they will probably offer you full price, or close to it to make it worth your while. But price is only one consideration. Perhaps too, their home is an easier sell than yours, (i.e. less expensive, better location, better condition, etc). The bottom line should be which house will sell quicker.

Other considerations would include how long their house has been on the market? How is it priced? Your Realtor should do a Market Analysis on their home. If it’s not on the market yet, make sure you provide a clause in your counter offer that gives you and your Realtor a few days to examine the marketability of their home, then decide. And limit the time they have to find a buyer for their home, such as 30 days.

There are other considerations as well that your professional Realtor will advise you on, but today’s takeaway for our current market is for you to consider all offers, including contingency ones, if they make sense.

FORECLOSURE NOTICES OLDER THAN 2002

It wasn’t too long ago that a host of states were consistently in the news as leading the nation in huge foreclosure rates and right at the top of that list with Florida, Nevada and Michigan was Arizona.

Well the worm has turned! Now, Arizona is one of a few states leading the nation with the FEWEST foreclosures and new filings. In fact, since the foreclosure market peaked in March of 2009 with 10,712 foreclosures filed, the current number of new filings has dropped off the table to less than one thousand. Actual completed foreclosures are less than 500 per month now compared to the height of the market in March 2010, which saw 5450.

Local experts are expecting the foreclosure rate to continue stabilizing due to the stiffened underwriting standards now imposed.

NEW HOMES SALES DECLINE – NEW HOMES LARGER NOW

Although newly built single family home sales grew 4% from 867 recorded unit sales in August to 906 in September, the monthly total was 9% below the same month in 2013. The total dollar value of single family new homes closed in September was down from $311 million in 2013 to $302 million in 2014.

Closings increased month to month in both Maricopa and Pinal County. The average sq. ft. of a new home in August was 2,527 while the average sq. ft. of a normal re-sale was 2,024. This suggests the extent to which homebuilders have abandoned the entry-level market in favor of the move-up market. It also shows us why the median sales price of new homes is so much higher than for re-sales.

Thanks to Michael Orr of the Cromford Report for todays stats.

Tight Financing Adds to Market Drag!

by MICHAEL BODEEN | Nov 12, 2014 | Bodeen Team Blog, Real Estate News

You’ve seen the mortgage financing ads quoting a certain rate, such as 2.99% on a fixed rate mortgage, but your lender is quoting you 4.00% for that 30 year fixed rate loan. Is your lender gouging you?

Or, when you chose your lender, they gave you an initial quote for that 30 year fixed at 3.75% and no points. You choose that lender, and shortly thereafter, the lender quotes you a far higher rate. Are you being hustled?

Or, you’ve got a solid 20% cash down payment but now your lender is saying you’ll have to switch to a FHA loan rather than conventional. Is this bait and switch?

We know there are a few lenders who may take advantage of you, but the answers to the above frustrations are all probably no, you’re not being gouged, hustled, or bait and switched. More likely, that 2.99% fixed mortgage is a 2.99% fixed rate loan, but it’s really a “fixed/variable,” as in a fixed rate, amortized over 30 years, but in 5 years it adjusts to a variable rate mortgage.

In the case of the lender who quoted you 3.75%, they may have been quoting you based on top FICO scores of 780 or higher. When the lender actually pulled your credit and your FICO’s were lower your rate was now quoted higher based on perceived higher risk to the lender.

And the lender who’s now saying you may need to do an FHA loan rather than the conventional even though you have a strong down payment, may be suggesting that because you’re still not qualifying for the conventional, but would qualify for the FHA as their qualifying standards are more lenient.

So, how important is having stellar credit when looking to finance a home purchase? As the above examples show, you may be able to get a loan, but unless you have good credit, you will pay more for that loan as in a higher interest rate and/or higher loan costs. You also may not qualify for as high a mortgage amount which means your price range will be less, therefore you get less house or less neighborhood, or less whatever.

Today we’re seeing a number of credit issues affecting buyer/borrowers. Student loan debt, poorer credit due to fiscal mismanagement, and folks still in the “Penalty Box” waiting period of having had a short sale, foreclosure, or bankruptcy.

There is financing available for folks who have had a short sale or foreclosure and don’t otherwise qualify for a loan. These are called “Portfolio” loans. Local community banks may have these loans available, but one such loan quote we got for a buyer recently was requiring a 35% cash down payment, 10% interest, all due and payable in two years. The good news is that if you have to have the house, you can get it and then refinance in two years when you come out of the “Penalty Box.” This is risky however.

We’ve talked before about reasons why the market is not more robust with rates as low as they are, and I tended to blame the Millennials’ generation for not buying, but credit obstacles are probably the main reason. As these issues

For better or worse, I think the new congress, commencing in January will be more pro-active in setting policies that could lighten the loan requirements thereby increasing the number of qualified buyers in the marketplace. Time will tell.

(Next week, we’ll look at how you can best discern if you’re getting the best rate and terms available from your lender)

Where Have All the Buyers Gone?

by MICHAEL BODEEN | Nov 3, 2014 | Bodeen Team Blog, Real Estate News

Where have all the Buyers Gone?
Sung to the tune of “Where Have All the Flowers Gone…”

Where have all the buyers gone, long time passing
Where have all the buyers gone, not so long ago
Where have all the buyers gone, gone to rentals everyone
Oh when will they ever return? Oh when will they ever return?

2014 will go down in local real estate lore as the year we Phoenicians caught our collective real estate breath. This is a good thing. Though the Phoenix-Scottsdale metro market has been languishing for a year plus now, our prices have so far held up.

As far as sales are concerned, we have to go back to September 2006 to find as few sales as we had last month. So, this begs the question, where have all the buyers gone? More importantly, when will they return? And what will bring them back?

There’s good news on this front (in my opinion). Before I go there, let’s take a look to see where our buyers did go. Here’s a quick review, thanks to Michael Orr, of the Cromford Report. It is generally agreed that a number of issues contributed to the current real estate malaise, including:

Where Have all the Buyers Gone?
• Investor activity dropped 36% from September 2013 (our peak)
• Millennials are not buying homes like their parents did (more of them are living with their parents, sharing or renting)
• One in four former homeowners are in the “Penalty Box.” (The “Penalty Box” is where these former homeowners have to wait before they can buy a home again. Typically, this wait runs from 3-7 years, (2 years if VA) no matter how well their fico credit scores rise)
• 367,000 owners lost homes to foreclosure, short sales
• Large Lenders are holding back as they are very much risk averse and so buyer qualification standards are still pretty rough
• Demand is currently favoring Renting

A Closer Look at the Millennial Buyer:
• Starting families later than earlier generations
• Lower birth rates
• Many Still living with parents
• Higher preference for urban lifestyle
• Tendency to share accommodation and transportation
• Not convinced home ownership is good for wealth
• Expect to own a home one day – Not a high priority for them in 2014
• Mostly renting, creating demand for landlords.

A Closer Look at the Penalty Box:
• 232,767 (19% of Maricopa homeowners) have been foreclosed since 2008
• 83,849 (7% of homeowners) completed short sales since 2008
• 26% of former owners have credit issues
• Peak foreclosures were from 2008 – 2011

So What’s the Good News?

In this case, what goes down should go back up. As there were peak foreclosures and short sales in 2008-2011, the penalty box release phase begins in 2015 and continues through 2018, meaning that these buyers, assuming their regular credit is good, can qualify for conventional and FHA loans again.

If only 5% of these Boomerang Buyers (18,000+-) bought a home in each of the next four years, each of those years, save one, would make a record sales year. And if that happens, look out, we could see the wild, wild west all over again.