July Real Estate Sales Were Bad Everyplace, I Guess

Recently I reported to you on how bad real estate sales were in Pinellas County during July. It was awful!

Now, I must report to you that apparently it was bad all over.

The St. Petersburg Times reported today (August 25th) that real estate sales throughout the Tampa Bay area fell 29 percent from June to July. They are off 19 percent for the last year.

Nationally, home sales dropped 27 percent from June to July according to the National Association of Realtors. That's the biggest one month sales plunge since they started keeping records of such things back in 1968.

In Florida, home sales were off 25 percent from June to July, and down 14 percent for the last twelve months.

As if sales volume was not bad news enough, median sales prices fell another 9 percent to $130,500 in Tampa Bay and to $138,000 statewide.

Hey, it wasn't just here. In New York, sales dropped 50 percent from June to July and 35 percent in Ohio.

There are two reasons for this plunge. First, expiration of the federal tax credit which gave $8,000 to first time buyers and $6,000 to those making a repeat purchase. In order to qualify for this you had to close by the end of June. So, a lot of people bought early so they could close in time to qualify. Those folks moved up their timetable, leaving fewer people to buy in July. Maybe that's part of the reason for these crummy numbers? If that's the case, these numbers are skewed and should not be taken too seriously -- just like the numbers for April that showed lots of home sales. Those numbers were artificially inflated because of the tax credit.

The second reason for the plunge is the high level of national unemployment. When lots of people aren't working, they aren't buying. The only number here that is skewed is the percentage of people who are unemployed. When you include the number of people who have stopped looking, the unemployment figure jumps from about 9.5 percent to a little over 16 percent. Now, add the number of folks who are underemployed, and you have a figure of nearly 25 percent of the total U.S. workforce. And still, large companies export needed U.S. jobs to low-salaried workers in Asia in order to improve corporte earnings by reducing overhead -- that ought to be illegal.

According to Mark Vitner, a senior economist with Wells Fargo, the combination of high inventories, increases in distressed properties from foreclosures and short sales, and a general decline in demand means prices are likely to fall further in the coming months.

I heard this past week from one of the talking head real estate pundits on CNBC that for the foreseeable future, real estate is no longer considered one of the paths to building personal financial wealth. This guru, whose name I did not get but had a PhD from someplace, said that real estate prices were going to remain depressed for another GENERATION! What's that? Twenty-five years? This same guy suggested that if you are going to live in an area for 10 years or less, that you rent rather than buy your home because the property will not increase in value enough to justify a purchase if you only live there less than 10 years. I almost threw my shoe through my brand new HD TV.

I realize that we've had four years of these falling prices and dwindling sales. We are way, way past due for a positive correction leading to a long-term recovery. The correction in real estate, however, is going to be directly linked to an improvement in the nation's overall economy and an increase in employment. So far, we have seen little of either, although corporate profits are rising which I consider to be a good sign. Once the recovery begins in earnest -- and that means a recovery that includes jobs for those who want to work including people over 50 -- it will feed upon itself and grow faster and faster. When that happens, other things being equal, the housing markets will improve right along with everything else.

When is that going to happen? Well, it's been four years. How much more can we take?

Happy Selling!

-30-

Tough New Rules About Permitting

Up until a few months ago, the pre-printed contracts used by real estate agents to sell houses were about 5 pages long. Known as the FAR/BAR contract, the new contract is now 11 pages of lawyer-speak that will absolutely put an insomniac to sleep.

One of those new rules, however, might keep you up at night if -- like some people -- you had work performed on your property that was never permitted.

Here's the first part of the new rule. It reads: EXCEPT AS MAY HAVE BEEN DISCLOSED BY SELLER TO BUYER IN A WRITTEN DISCLOSURE, SELLER DOES NOT KNOW OF ANY IMPROVEMENTS MADE TO THE PROPERTY WHICH WERE MADE WITHOUT REQUIRED PERMITS OR MADE PURSUANT TO PERMITS WHICH HAVE NOT BEEN PROPERLY CLOSED.

In other words, if you're the seller you are guaranteeing that all permits were pulled and properly closed out when the work was done. It doesn't matter if the property being sold was a single family home, condo or an investment property.

This is not something you want to mislead buyers about. If something looks fishy, all the buyer or his agent has to do is go down to the building permit office and ask for what is known as a "property card". The property card lists all the work done to the property since it was built for which a permit was pulled. If the buyer sees something that was done at the property and there is no record of the permit having been pulled, well, you may have a problem.

The buyer is within his rights to do this research.

Another new section to the contract states very clearly that the buyer may have an inspection of all the records and documents made to determine if there are any open or expired building permits or any unpermitted improvements to the property. This is now known as the "Permit Inspection", and it's part of the new contract. I would think that most buyers will now make this a standard part of their due diligence when buying property.

If you are the seller, you will be given only five (5) days to have an estimate prepared to remedy the permitting problem(s). Then, no more than five (5) days prior to closing, the seller will have to get the open and expired building permits closed by the appropriate governmental entity, and obtain and close any required building permits for improvements made to the property. There are other provisions involved in this part of the new contract, but ultimately if this permitting matter is not attended to in a timely manner, the contract could be cancelled with a full refund of the buyer's deposit.

Here's my advice on this matter. If you're a seller and you know that non-permitted work was done on property you want to sell, get it corrected before you even talk to a real estate agent about listing your property. If you don't know for sure if the permit was pulled, or if you don't know if a permit needed to be pulled, call your local building codes or permitting office and ask them. Finally, if you're thinking about having some work done on your property, call the permitting department in your city to find out if the work requires a permit -- even if it will be a do-it-yourself project. You will be a lot better off getting this matter squared away before you put the property under contract than afterwards.

-30-

July Real Estate Sales Bring More Bad News

We have learned two important things during July. First, low mortgage interest rates don't mean much when unemployment is soaring. And second, without the first time buyer program we aren't going to sell as many homes.

How do we know?

Just look at the Absorption Rate (AR) for July as compared to June. In July, the AR for single family homes fell to 8.3% as compared to June's 12.4%. That's a big drop, a very big drop.

For condos, similar bad news. The AR for July fell to 6.1% from June's 7.9%. Pretty sorry.

I blame the economy in general. There's just too much economic bad news and it's discouraging people from buying homes and condos.

For single family homes, the inventory of homes available in the MLS jumped in July to 6,675 homes as compared to June's 6,479. So, more homes are on the market and that means home sellers have more competition to deal with. To top off that bad news, sales dropped like a big rock down a deep well. In June, some 802 single family homes were sold. In July, only 555 homes managed to close. Big drop.

On top of all that, it looks like the median price is stuck in neutral. The median price for July 2010 was the same as the median price for July of 2009 -- $140,000. To be honest, the median price has been staying pretty much within a few thousand dollars from month to month for over a year now. I don't know if that means we've "bottomed-out", but it sure looks like these prices have become fairly stable for the last year or so in Pinellas County. Perhaps that's good news -- at least the market has stabilized for the time being.

Condo statistics for July resemble single family home stats.

The number of listed condos increased in July to 5,482 as compared to June's listings of 5,344. So, there are more condos on the market making for more competition for all condo sellers. The number of condos sold in July fell to 335 units as compared to June's 424 sales.

Unlike the median price for homes, condo prices continue to fall. In July 2010, the median price in Pinellas County was $110,000; in July 2009, it was $128,000. That's a drop in median price of 14.1% in the last year. Not good if you're trying to sell a condo.

So, that's it. July was not such a good month for real estate. We can only hope that things will pick up soon.

-30-

Advice For Condo Sellers:Seller Financing May Be The Way To Go!

Because of all the easy-to-get mortgages that were available in the last few years, we kind of forgot about a tried and true form of real estate financing -- Seller Financing.

I am predicting a return to seller financing in the coming years, especially for condominiums in Florida.

Under the new Fannie and Freddie rules, a condo in Florida now requires a down payment of 30 percent. This, I am told, is because in Fannie and Freddie's view, condominium values in Florida continue to fall due to overbuilding and lack of demand. So, they want buyers to put more down to help offset the possible losses. I think they also want buyers to have more skin in the game, so to speak.

It does not matter if you agree with this or not. That's how it is.

If you are selling a condo, that 30% down stroke can be a real difficult thing for prospective buyers to come up with. Let's take a condo valued at $150,000. To buy it now requires a down payment of $45,000 in cash at closing. A $100,000 unit will require a $30,000 down payment.

For most people, coming up with the down payment is now a very big hurdle to be overcome when purchasing a condo. I think down payment requirements are now one of the main reasons why condo sales are so slow throughout most of Florida, and I don't see any improvement until Fannie and Freddie change the policy.

So, how do we overcome this challenge?

There are two ways. The first is to have the buyer get an FHA loan where the down payment will only be 3-1/2%. Problem is, in order to qualify for an FHA mortgage, the entire condominium community must be approved by FHA, not just the individual condominium (another new rule). Community approval is a time consuming and often troublesome undertaking for most condo Boards of Directors -- I know; I just went through it with my condo community last spring. It was a pain!

That leaves us another alternative -- Seller Financing. With seller financing, the seller of the property actually provides the financing for the buyer. Think of it as a private mortgage.

With seller financing, the Fannie and Freddie rules don't apply. Instead of requiring a 30% down payment, the seller sets the amount of the down payment. I suggest that you require enough of a down payment to cover your closing costs and real estate commissions so you don't have to bring your checkbook to the closing. Usually, a down payment from the buyer of 12 to 15% will cover the costs. Remember, a 15% down payment is HALF the conventional amount required by Fannie and Freddie. Right away your property starts looking very attractive to most buyers.

Next, I suggest you amortize the payments as if it was a 30 year mortgage. Since the seller is assuming the risk of the mortgage, it is common to set an interest rate that is a bit higher than what a bank would charge for a mortgage. In today's market, an interest rate of about 7% is probably about right, but you might have to negotiate this a little with your buyer so he's comfortable with the monthly payments.

Finally, the agreement for seller financing will likely have a balloon payment at the end of 5 years. This means that the balance due on the property is due to you in full at the end of 60 months. This also gives the new buyer a 5-year period to arrange permanent mortgage financing with a bank or some other financial institution. So, it's a win-win situation for both buyer and seller.

Now, here's the downside. You have in your current mortgage a clause called a "Due On Sale" clause. Some mortgages call it a "Due On Sale Provision". Same thing. This means that when you sell your condo, the outstanding amount of your mortgage is due to your mortgage holder. So, if you are going to offer seller financing, make sure the amount you owe to your mortgage company is something you can easily pay to them when you complete your seller financing sale. Or -- and this is probably the best way to handle it -- pay off your mortgage totally before you complete the seller financing sale with the new buyer.

One final thing, and it's no biggie. As the seller, you will have to do your own credit check on the new buyer. Your real estate agent most likely will not do it for you. Real simple reason. Most agents don't want the responsibility. Real estate firms are not credit reporting agencies, and don't want to be. In this day of internet info, you can run a credit evaluation on somebody pretty quickly. If not, go talk to a loan officer at your bank and see if they can be of assistance. Or a car dealer.

Any experienced real estate agent, title company or attorney can help you arrange seller financing. If you've got a condo to sell in Florida, this might be the answer you've been looking for -- and it's the kind of creative thinking you may need in today's real estate world.

Happy Selling!

-30-

I Wonder If Bankers Get It

There was a big story in the St. Petersburg Times today stating that in Florida, foreclosures remain high but seem to be on the decline.

It was a long story so I'll summarize it: During July, 1 out of every 171 Florida homes received a foreclosure filing of some kind. That's right, 1 for every 171 homes.

Perhaps the reason foreclosures appear to be on the decline is because there isn't anybody left to serve foreclosure papers on!

I'm going to make a generalization here. I'm going to lump everybody who makes mortgages into the term "banker". That may not be entirely correct or fair, but I'm going to do it anyway for the sake of simplicity.

So, here's the question: Have bankers ever have stopped to think about what these foreclosures are doing to their image as an industry? Remember, I used to be in the public relations business and I still think about matters like that.

Certainly, the person who just received a foreclosure notification is no longer going to go to that bank for financial services -- even after he gets back on his financial feet! He'll find some other bank to meet his needs, and the banker who foreclosed will have lost a customer forever. Bankers need to remember that an unhappy customer will tell everyone about how unhappy he is with you, thus compounding the loss of business.

Some friends who are bankers and I have discussed this matter over Cool-Aid. They look me right in the eye and ask what they are supposed to do? The homeowner is behind. The homeowner can't make his payments. The homeowner is underwater in the mortgage. The property secures the note, so they have to go after it. What are they supposed to do, ignore the matter?

Sure. Sounds like a banker talking, doesn't it? And from a business viewpoint it's hard to argue with the reasoning.

But here's something bankers ought to think about before they drop the f-bomb on some struggling homeowner.

First, they will lose that customer forever. Many of those customers will survive economically, but that bank will never see them again. Over the remainder of his lifetime, that foreclosed-upon person may do hundreds of thousands of dollars -- perhaps millions -- of banking business that will be lost due to an old foreclosure.

Second, on average in Florida, it costs the bank about $50,000 to foreclose on a property. I've heard that the foreclosure figure averages as high as $69,000 in Florida, but I'll use the lower figure here. Suffice it to say that foreclosure is costly.

Third, after foreclosure the bank has to sell the property, probably at a deep discount, and probably for less than the amount of the outstanding mortgage. So, the bank loses money anyway.

Fourth, the longer a foreclosed property sits vacant, the more it deteriorates. As it deteriorates, it pulls down the value of the other homes in the neighborhood. So, as property values decline in the neighborhood, the value of the bank's foreclosed property drops right along with the other property values. Remember, when the tide goes out in the marina, all boats sit lower in the water.

It's easy to see the financial problems that happen in a foreclosure. What I'm wondering is if the bankers are even aware of the public relations problems that are beginning to mount with this wave of foreclosures.

It's not just the foreclosed homeowner who will dislike the bankers, it's John Q. Public who is beginning to ask why these bankers are so heartless and won't do anything much to aid folks -- many of whom are unable to make their payments through no fault of their own. More and more, it appears that banks are giving financially strapped people only three options: foreclosure, short sale, or deed in lieu. And for each option the homeowner loses the house.

Banks make a good point by saying that loan mitigation is proving to be unsuccessful for the majority of debtors. But a lot of that has to do with the extremely high levels of unemployment in Florida and throughout the United States. When your job gets shipped off to India and you can't find another one, well, the homeowner is going to have a hard time making payments -- mitigated or not. C'mon, let's be fair and logical about this. Maybe bankers have to be a bit more open-minded about loan mitigation and give people more than one chance at it.

Anyway, here's the point of all this. Bankers are beginning to look real bad to most folks because it appears they are heartless, uncaring money-grubbers who don't give a blankety-blank darn about helping people solve their mortgage problems -- and the rising number of foreclosures, short sales and deeds-in-lieu support the mounting loss of respect the public feels toward bankers.

Yet, foreclosures seems to be continuing. Question: Do bankers not get it, or don't they care? Are they so fixed on the dollars that they can't see the damage being done to their own reputations?

There used to be a saying in this country, often quoted by bankers. "If you can't trust your banker, who can you trust?"

Somehow, I think that in 1 out of every 171 homes in Florida in July, the bankers might not like the answer to that question.

-30-