Buyer’s Choice Realty blog

Current statistics of homeowners show four types. Those that borrowed at subprime make up 9% of owners. Those who borrowed at prime make up 50%. FHA/VA mortgagees make up 6%, while the remaining 35% of owners own their homes free and clear. So what, right? The flip side of this picture is more telling. Foreclosure statistics show that owners who were approved for subprime loans - they may have paid no money down, did not have income verified, or did not have a sufficient credit score to qualify for a normal, prime loan, among other reasons - comprise 53% of current foreclosures. Prime borrowers make up 33% of this category, while FHA/VA borrowers account for 14% of foreclosures at the moment. Take a minute to let this sink in - one tenth of all homeowners are subprime owners, but they make up more than half of all foreclosures.

The first subprime loans were made in 2000, and none have been made since August of 2007. Roughly 1/5 of all borrowers who have subprime loans are currently late (in default) on their mortgage payments, as opposed to approximately 3% of prime borrowers. The fact that there are no subprime loans being originated right now is a good start, but we will be feeling the effects of this crisis for years. I will examine in my next post who really should be blamed and will try to provide some ways we can fix this problem. For the record, we at Buyer’s Choice Realty encourage all our clients to meet with a lawyer and their lender so they may endeavor to understand the terms of their loan and verify that they can meet their payments.

I recently attended a breakfast featuring Lawrence Yun, the chief economist for the National Association of Realtors, as keynote speaker. Dr. Yun recently received the honor of being named to the USA Today’s top 10 economic forecasters (NAR’s press release). As the release states, “The National Association of Realtors® Chief Economist Lawrence Yun has been named among the top 10 economic forecasters by USA Today. Yun is ranked fifth on the list and is responsible for NAR’s real estate statistics and economic forecasting. The annual list recognizes accuracy in forecasting.“

Yun spoke about the state of the current market and backed up his forecasts for the near term with statistical charts and graphs which were very helpful. He believes there will be a modest increase in home sales in the second half of 2008, but because of negative buyer psychology right now (i.e. prices are going down, have been going down, and might continue to keep going down, so why buy now?) the gains in home sales may not be very big. Yun essentially believes that the market is bottoming out right now and should stabilize by the end of this year and start gaining ground again in 2009, though not very rapidly.

It is interesting to note that prices fell nationally 1.5% in 2007. The NAR started keeping market statistics in 1967 and this had not happened in their entire time compiling this data. Dr. Yun believes, as do many others, that this is the first time prices have fallen year-over-year since the great depression in the late 1920s and early 1930s. I must caution you that we are nowhere near entering such a time this time around. The unemployment rate has risen, but nowhere near as drastically as back then. Inflation is steady. Many areas around the country are creating jobs, while the public has experienced the greatest amount of job loss in the midwest due to the struggling auto business and manufacturing/industrial decline in that area.

Dirk Zeller wrote an informative article over at Real Blogging, a real estate industry site. If you get a chance, take a look at what he has to say. Mr. Zeller provided some solid insight regarding the current market and helping avoid conflicts between potential buyers and sellers with homes on the market. Some highlights - talk about every aspect of the offer before presenting the price. It is the hope here that you can find some common ground with the seller ahead of money talk. The next step is to present the offer price, and break down the difference between the offer and the asking price over a period of years so the amount does not appear as large to the sellers. Explain to the sellers that the $15k difference is only a few bucks a day that the sellers would have to pay on their next mortgage over the next ten or fifteen years. Most sellers would think differently about this as opposed to looking at receiving much less than they hoped. In the same way, this opens a path for negotiating between buyer and seller. Explain the same numbers to the buyer and see if there is any common ground that can help the deal get done. As with any offer, you should always explain how your buyers arrived at their offer price. Explain your interpretation of current market conditions, identify comparable properties that have sold recently, etc. This will help justify the offer being presented as legitimate.

This is all well and good, but many list agents (sellers’ agents) do not want you to present offers face-to-face to their seller. Presenting as much as you can about a buyer’s ability to close on the deal, and remember, the worst they can say is ‘no’. There are many different strategies for negotiating, and if you are a potential buyer, you must be sure to ask your agent about negotiating experience, if they have had any negotiation training, etc.

The Mortgage Banker’s Association (here’s a link to the Mass. chapter) announced today that the percentage of homeowners receiving foreclosure notices has reached a record high of 0.65%, up from 0.58% in the first quarter. You can find one of the many articles about the MBA’s release here. What’s more astounding than these disturbing numbers is the fact that the delinquency rate, those who are behind on mortgage payments but have not yet started the foreclosure process, is at its highest rate in 5 years - 5.12% of all loans are currently delinquent. This is a huge amount of money that has not been paid, and it is just one of the numerous causes of new lending restrictions.

The chief economist for the MBA, Doug Duncan, states that the huge job losses in midwest states like Ohio, Indiana, and Michigan from auto industry and other manufacturing job cutbacks. In fact, according to Duncan, the problem shows itself the most in Ohio, where the number of mortgages that are in foreclosure or are more than 90 days late is more than twice the national average.

What else accounts for this growing problem? Warm weather states. Florida and California have seen flocks of prospectors buy up property and develop areas during the housing boom. Now that the boom has gone bust, those same prospecting investors are out of cash and are unable to keep up on mortgage payments. Nevada and Arizona also have seen these same problems in recent months.

Most experts predict that foreclosures and defaults will continue to increase in the short term. More explanation on further reasons for this later.

Recently, the North Shore Association of Realtors released updated information on market statistics in their area. In case you are curious, you can check which towns comprise the NSAR area. The numbers are rather discouraging, and include January through July statistics as compared with the same months from a year ago. The average sale price for single family homes has dropped 3.3% in the past year, with condo prices dropping a modest 1.6%, while multi-family average prices have dropped 12.4% versus the same seven months in 2006. That translates to a more than $50k drop in average sale price for multi-family homes. Looking to invest in real estate and/or become a landlord? The time may be right to pick up that triple decker you have had your eye on.

Single family homes stayed more than a month longer on the market on average, going from just over 112 days to 146, or almost five months, an increase of 30%. Condos spent 5.5 months on the market, up 34% from 2006, and while multi-families spent the least amount of time on the market, their average DOM (days on market) rose nearly 42%, from 97 to an average 138 days. Are the buyers still out there? Yes. But they are waiting in the wings until the property they like drops thousands of dollars as it lingers on the market.

The number of units sold dropped across all three categories as well, with multi-family properties selling 30% less units versus 2006 sales. Over 1800 single family homes were sold in both 2006 and ‘07 in the North Shore area (see above link for town list), with a negligible 2% decrease. Condo sales dropped more than 11%, with 1146 condos selling from January to July 2006, while only 1013 were sold over the same months this year.

What does all this mean? It means what everyone has been seeing and hearing about - too much inventory that is priced too high with not enough qualified or interested buyers buying up that inventory. It is simply a part of the real estate cycle - the market is correcting itself and evening out as it tends to do at least once per decade.

Yesterday, the Massachusetts Association of Realtors, based in Waltham, released housing data for July 2007. Here are the numbers:

Detached Single-family Home Sales and Median Selling Prices