The Agent Center Blog

Home Values Will Go UP - Two Reasons Why

#1 - Increase in Population = Increase in Demand

The population of the United States has grown by an average of 1.27% every single year since 1900. At current population levels, this means that we are adding about 3 million people to our population every year. As our population grows, we have about 1.3 - 1.5 million new households that are formed each year. These can include people who graduate from college and enter the work force, and adults who are currently living with their parents that decide to move out on their own.

Over the last 30 years, the average growth in new households has been about 1.4 million each year. Of course, these people will need a place to live.

In fact, the National Association of Realtors estimates that up to 40% of all home buyers in today's market are purchasing their first home - a perfect indication that this segment of the marketplace will continue to thrive even in the midst of an economic downturn.

The growth in population isn't the only thing that will increase demand for new housing. In fact, approximately 300,000 housing units are demolished each year. This is primarily due to functional obsolescence because buildings become old and outdated. This means that the demand for new housing is about 1.7 million new units each year in order to replace the demolished homes and house the new households that are formed. Okay; so now that we understand the demand for housing, what does the supply look like?

#2 - Less Building = Decrease in Supply

It's no secret that home builders are struggling in this economy. In fact, the number of new housing units being built went from a peak of 2.1 million in 2005 to less than one million in 2008. New housing starts for 2009 are also scheduled to come in below one million as the market continues to work off the excess supply of housing that was built during the last few years. In fact, here's an interesting breakdown of new housing starts since the year 2000:

• 2000 = 1.6 million new units

• 2001 = 1.7 million new units

• 2002 = 1.7 million new units

• 2003 = 1.9 million new units

• 2004 = 2.0 million new units

• 2005 = 2.1 million new units

• 2006 = 1.8 million new units

• 2007 = 1.3 million new units

• 2008 = less than one million new units

• 2009 forecast = less than one million units

As you can see, from 2000 - 2002, the supply of new housing units each year was just about right in order to meet the demand of 1.7 million as outlined above. However, things started to get a bit out of whack with some oversupply in the market between 2003 and 2006. Home values went into decline from 2007 - 2009 as the market started working through this over-supply.

However, sometime during the next 12-24 months, the oversupply of housing units will be completely absorbed due to the demand issues that we outlined above. In fact, if the trend continues, there could even be a housing shortage at some point in the next two years unless home builders start building new units at a much quicker pace! Do the math yourself:

• Annual Demand for New Housing Units: approximately 1.7 million new units

• Annual Supply of New Housing Units: less than one million

• Bottom Line: Demand will become greater than the supply at some point in the near future, and house prices will go up.

Remember, there is no "national housing market" as all real estate markets are local. Therefore, a state like Michigan that is losing population may take longer to see house prices recover and go up; while a state that is gaining population, like Texas, may see house prices go up much sooner. In all cases, talk to your mortgage, financial, and real estate professionals for more details regarding your specific marketplace.

If you are in the market to purchase a home or refinance your existing home(s) before inflation kicks in and are planning to shop around for the best lender or broker, take a look at “Shopping Around”.  Low rates and low fees are what everyone wants, I know that. This guide will help you determine who will be the best fit for you and your family when making such an important decision. Most lenders are brokers are in the same ball park when it comes to rates and fees. Where an experienced professional truly earns their pay is during the planning process and after the transaction closes. A true adviser will tell you what you don't know, offer alternatives to traditional thinking, and continue to provide value to you and your family after your transaction is complete. Be sure to take this into consideration before making your decision.

Kurtis Kooiman, CMPS
Certified Mortgage Planning Specialist
President of Silverstar Finance, Inc.
Irvine Chapter President of Society of Financial Awareness

The Agent Center Blog Contributor

What Are They Misinforming the Public About This Time?

I was sitting at my desk on a Wednesday night around 7:30 p.m. just trying to wrap up another work day and of course just before I’m leaving I received one of those pesky blast emails from another loan modification company. I asked myself, “what are they are misinforming the public about this time?” So of course I had to open it! I really don’t understand, IF they are going to send these things out with tons of wrong advice…would they not think to remove a broker of 17 years from the email list? Yes, I had to shoot an email to them suggesting they quickly get their facts right. Shame on me…I’m not sure why I get so fired up and feel the need to waste valuable time responding, but quite frankly I feel for those who fall victim, believing this stuff and misled by declared professionals regarding short sale, loan modification and short refinance tax ramifications. Are they just trying to make a quick buck and hoping the consumer will close their eyes when taxed on the deficiency amount of which could be upwards of 40% of the balance? Maybe they have some “master plan” which includes not being around to fess up to their mistakes. So what exactly was it that got me fired up? I shouldn’t…but I will, I definitely can’t mention the company name - but here is the excerpt:

Excerpt from a Random Loan Modification Company soliciting a Short Refinance

“4. You don't pay tax on the deficiency balance (the amount your principal is lowered) as long as you are the primary resident whereas, with a loan mod, the principal balance is NOT lowered in the first place, and with a short sale, even though the balance you owe is lowered when the bank sells it, you owe taxes on the deficiency balance. Please talk with your CPA.”

“What?”

Are you kidding me? Please people - don’t believe this stuff! I’m thrilled they at least suggested a CPA. There is however multiple ways to qualify for tax relief….but for these people to state “just because you live in the house you don’t have to pay taxes” and never even mention a possible deficiency judgment is asinine. This is a huge issue and potentially an enormous debt you could be walking into. Take the time to simply learn the steps to protect yourself…it’s not that hard. FYI - any mortgage balance reduced, waived, shaved off, sold and walked away from carries a potential tax consequence or a deficiency judgment. Know you state laws and rights; don’t avoid considering a short sale or short refinance….just pick a credible source like The Homeowner Center to get all your life changing facts from.

Christina Inman – Broker, Contractor, Author

http://www.thehomeownercenter.com

Short Sales: 7 Legal Pitfalls

In many areas, short sales are the biggest game in town. But you don't want to jump into this niche willy-nilly.

By Robert Freedman | April 2009

In addition to educating yourself on the ins and outs of these complex deals, you also need a good picture of the legal risks that exist for you.

 1. Misrepresenting tax consequences.

Although it’s true that the federal government passed a law in 2007 directing the IRS not to count mortgage debt forgiven by a lender as income, the provision is limited. It applies only to purchase money; it doesn’t apply to debt on a cash-out refinancing, and it doesn’t apply to second homes. There’s also a dollar limitation, albeit a generous one ($1 million for married couples filing separately, twice that for joint filers). "A lot of associates are telling people there are no tax consequences," says Lance Churchill, a short sales specialist and trainer who operates in Boise, Idaho, and San Diego. "But it’s a limited law and you just need to be accurate about it."

 2. Misrepresenting how secondary debt is treated.

Practitioners might mistakenly tell sellers that all the house debt is forgiven once the primary lender approves a short sale. But that might not be the case, Churchill says. Holders of second deeds of trust don’t typically forgive the debt. More commonly, they accept a partial payment, like $2,000; and rather than write off the balance, they sell the balance to a collection agency for another few thousand dollars. In many states, these second loans are recourse, so sellers can be caught by surprise when the collection agency contacts them a year later seeking payment of the debt.

 3. Acting on inappropriate lender requests for seller contributions.

It’s not uncommon for lenders to go after money that the sellers have in the bank or in a retirement account before they approve a short sale request. They’ll sometimes seek to put the onus on the real estate practitioner to get sellers to sign over a note for the amount they have in the bank as a condition of sale. But in states where mortgage debt is nonrecourse, lenders have no right to the money, and associates that suggest otherwise to the sellers might be later sued for negligence.

 4. Breaching fiduciary duty.

Investors are increasingly executing what’s known as a "double close and flip," a type of short-sale transaction that can leave practitioners exposed to irate sellers who say they got a raw deal. Here’s what typically happens: Investors insist on handling short-sale negotiations with the lender, freeing up their real estate practitioner to concentrate on finding a buyer. During the negotiations, the investors—often without the practitioner’s knowledge—talk the sellers into turning over the deed. Once the practitioner finds a buyer, the investors do a double closing, buying it themselves at a deep discount and then flipping it to the buyer at the listed price, making money on the spread. "The seller might feel he got less than he would have had the associate done his job and not handed over negotiations to the investor," says Churchill. 

5. Providing poor oversight of a loss mitigation company.

Companies that specialize in managing short sales promise to focus on the complicated details of the short sale, freeing up practitioners’ time to find buyers. But if you take a hands-off approach, you can be charged with negligence if a deal falls apart. "A lot of these companies are fly-by-night or have one person who’s overworked," Churchill says. "Practitioners are coming back a month later to find no one’s even opened the file."

 6. Lacking the required license to undertake loss mitigation.

It often makes sense for practitioners to take a two-pronged approach with clients facing a difficult time paying their mortgage—first trying to help them accomplish a loan modification (for a fee), and then finding a buyer if a modification doesn’t work. But watch out. Depending on your state, you could need a specific license, sometimes called a credit repair license, to earn a fee for helping owners modify mortgage terms. Without having the right credentials, taking a fee for loan modification assistance could be a criminal offense.

 7. Facilitating transactions not listed on the HUD-1 form.

It’s not uncommon for investors to offer incentives to sellers to move a deal forward, but lenders typically frown upon sellers who walk away with money when they’re supposedly taking a loss. Investors sometimes work around this limitation by offering to buy something from the sellers at an attractive price, such as a couch for $5,000. Associates who communicate these offers to sellers can get tied into charges of lender fraud because the deals may be deceptive.

 Robert Freedman is a senior editor of REALTOR® magazine. He can be contacted at rfreedman@realtors.org

Mortgage Rates Bob Up and Down

For homeowners that are holding out for sub-5 percent rates, sorry but I think that ship has sailed," he said. "The low 5s might be the best we can hope for."
 
In addition to the drop in 30-year rates, the 15-year is now at 4.89 percent.  Borrowing costs should not be an impediment to those looking to buy a house, McBride said. "Make no mistake, these rates are low and they're going to stay low," he said. "The Fed still has approximately $1 trillion in its buyback program to put to work for the balance of 2009. That will continue to keep a lid on mortgage rates.”
 
Read rest of Article: Mortgage Rates Bob Up and Down.

 
How much longer can you wait to lower your payments? If I cannot save you at least $200.00 a month, I won't even bother. Every month you wait is another month you could be saving money.  And remember, if your loan is a Fannie Mae loan, it can be refinanced up to 105% of your homes current value not counting the second mortgage if you have one.  For example, if you have a home that is worth $400,000 and you owe up to $415,000 on the first and suppose you owe $50,000 on the second, we can still do the loan to $420,000 because your first mortgage is not more than 105% of the value.  Yup, I said it.
 
Talk to you soon!

Kurtis Kooiman, CMPS
Certified Mortgage Planning Specialist
President of Silverstar Finance, Inc.
Irvine Chapter President of Society of Financial Awareness

The Agent Center Blog Contributor