“Wake Up and Call John!” - John Wake, Associate Broker, HomeSmart Real Estate

I don’t do short sales. It’s a real specialization.

Now, however, a local Realtor and high school friend (”Go Redcoats!”) has developed a way to get your Phoenix short sale sold.

The key, Rick says, is to closely estimate the minimum price the bank will accept and to list the home a bit above that.

Call me at 480-596-3851 or fill out the form below if you would like to speak with Rick about your problem house.

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I ran into well known Scottsdale Realtor/blogger Dru Bloomfield at the gym this morning and she said she was considering running in the Mad Mud Run this weekend.

Sounds wild! She is so adventurous!

I think we should all encourage her to participate.

Send Dru your encouragement at Dru at(@) DruBloomfield dot(.) com. Today is the last day to sign up.

Dru, I want to see photos!

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Here is one columnist’s take on the new program to reduce foreclosures. The principal reduction aspect is unusual and since it is unusual it could have unforeseen impact such as encouraging under water homeowners to quit making mortgage payments.

To qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 percent of the home’s value. It’s fine if you owe more than it’s worth.

Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies.

If you meet these requirements and can document your income, your servicer will reduce your monthly mortgage payment - including property taxes, insurance and association dues - to 38 percent of your gross income.

The reduction can be accomplished in one or more ways:

– Reducing the interest rate, but not below 3 percent. (The new rate, if below market, goes back to a market rate after five years.)

– Extending the term of the loan up to 40 years.

– Reducing the principal on which monthly payments are calculated. Unpaid principal is added to the loan balance and due when the homeowner sells or refinances. The reduced interest payments never have to be repaid.

If you owe more than the home is worth, the plan will only reduce principal down to 100 percent of market value, according to an official for the Federal Housing Finance Agency, which supervises Fannie Mae and Freddie Mac.

If all three of these maneuvers can’t reduce your payments to 38 percent of income, you won’t get a fast-track modification but could still request a customized deal, says the official, who spoke on the condition of anonymity.

The streamlined process looks only at income, not assets. If you refinanced your home to buy a Mercedes or own another home, you won’t be expected to sell them to pay your mortgage.

Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.

“This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.”

The government is offering loan servicers $800 for every homeowner they get into the plan.

Schiff predicts that loan agents “will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan.” [emphasis added]

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This piece in the New York Times is from last month but still very true today.

We do need action to fix our banking system, but we don’t need quixotic policies aimed at pushing up housing prices. I suspect these policies have some appeal because they seem to help homeowners (like myself) as well as financiers. Still, the government can’t repeal the laws of supply and demand in the housing market. The price decline should remind homeowners, and home buyers, that housing should never be seen as a short-term speculation, but rather as a place to live, and hopefully to enjoy, for the long run.

I agree that the solution to the housing crisis is lower housing prices.

The problem is the lower the housing prices go the worse the banking crisis will get.

The housing crisis is beginning to end but the banking crisis is just beginning.

The Incredible Irony

The incredible irony of all this is that many credit crisis recovery ideas like having a moratorium on foreclosures are intended to strengthen weakening U.S. housing prices (in order to help banks and homeowners) but those efforts would also hurt the affordability of U.S. housing.

The irony is that one of the primary causes of the real estate boom and this current real estate bust was U.S. government policies intended to make housing more affordable my requiring that banks make some loans to people who didn’t qualify.

As my grandmother used to say, “The road to hell is paved with good intentions.”

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Freddie’s decision to tap the $200bn facility pledged by the Treasury when it seized the company and its peer, Fannie Mae, will add to the government’s bill for rescuing the battered financial sector.

I got an idea. Let Fannie and Freddie go under.

Spend the billions instead to sponsor new entities to do the exact same thing as Fannie and Freddie.

Let the investors in Fannie and Freddie eat the losses, not the taxpayers.

Let the taxpayers front the money to create new entities with clean slates. It will be far cheaper.

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All real estate geeks should try to read this extremely entertaining and long piece on the demise of Wall Street investment banking.

Mortgages play a starring role.

This article was penned by Michael Lewis, the author of “Liar’s Poker.” I hope it’s as accurate as it is well written.

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Several major banks are putting foreclosures on hold while they try to work out loan modifications. I’m not optimistic that it will have much of an impact except to delay some foreclosures, although delaying some foreclosures might be a good way to take some of the downward momentum out of prices as we approach a bottom in many parts of metro Phoenix.

The article from Jack Guttentag mentions why real estate loan modifcations haven’t worked.

An excellent study by Alan M. White provides some indications of what has happened to modifications during this tumultuous period. In a sample of subprime loans he examined, the mortgage payment was reduced in only about half the modifications, and the balance was reduced in very few cases. In many cases, the modification consisted of adding the amounts past due (”arrearages”) to the balance, which raises the payment. It is no wonder that during the annual period he examined, the number of foreclosures swamped the number of modifications.

My opinion is that loan modifications won’t work because home prices have fallen too much. Loan “mods” would only work if a significant amount of the principle is forgiven by the bank.

There is, however, a huge problem with forgiving principle.

If banks forgive some principle for those who haven’t paid their mortgage, then a lot of other people will simply stop paying their mortgages and want a principle reduction too.

That idea could very well spread like smallpox and if it did, it would be the end of the financial world as we know it.

Fortunately, much of Arizona residential real estate is set to bottom out next year. Unfortunately, new government programs could mess that up big time.

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Karl Guntermann at Arizona State University’s W.P. Carey School of Business; Center for Real Estate Theory and Practice puts together an index of home prices in the Phoenix area based on repeat home sales.

Guntermann takes the analytical methodology used by Case-Shiller and applies it to the Valley of the Sun. Case-Shiller only publish information for the metropolitan Phoenix area as a whole while Guntermann gets more “granular” and runs an index for several cities in the metro area as well as a composite index for Phoenix as a whole.

In this graph below you can see that the home price index dropped below trend in July. (The latest published data is for July. It takes the economists a while to run all the math on the home sales numbers to get the index.)

You, of course, might draw a different trend line. And home prices might still be above your trend line.

Nevertheless, you get the point.

Prices were way down and near trend… in July.

And prices are lower now than in July.

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This graph comes straight from the local MLS. It includes all residential real estate listings.

The bars on the graph are the months of inventory. Months of inventory is how many months it would take to sell all the listed homes if the same number of homes sold each month as that month.

Be aware that we may see fewer bank-owned homes hitting the market in the next few months because some major banks have changed their policies. Time will tell.

You can see that the metropolitan Phoenix residential real estate market is well on its way to correcting.

We will see the months of inventory tighten up in the Spring as usual. The only question is, “How tight?”. In my book, 5 to 7 months of inventory is normal. Some people say 4 to 6 months is normal.

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Jay Butler of Realty Studies at ASU came out with his Phoenix area residential real estate sales and median price numbers for October 2008. Realty Studies is associated with the Morrison School of Management and Agribusiness at Arizona State University’s Polytechnic campus.

We expected September to have strong sales because many buyers were trying to get in before most lenders “outlawed” many seller contributions to buyers. Essentially, many buyers had to have more down payment after September.

The worry was that the number of Phoenix home sales would tank in October after those programs ended. In addition, October is usually a slower month anyway.

It turned out, however, that October (non-foreclosure) home sales were only down 3% from September.

Phoenix Median Home Price - Non-Foreclosures

October 2008: $175,000
October 2007: $250,000

The median home price in Greater Phoenix therefore fell 30%.

Said another way, the median home price in Phoenix was 43% higher in October 2007.

The median home price in Greater Phoenix was $180,000 in September.

A median home price of $175,000 means that home prices in general are very attractive to buyers. We can see that home sales are way up over last October.

Phoenix Number of Homes Sold - Non-Foreclosures

October 2008: 4,465 homes
October 2007: 2,825 homes

The number of homes sold in Greater Phoenix increased 58%.

When the higher number of sales eventually brings down the high inventory of homes for sale to normal levels, the fall in the median home price should stop. I expect prices in a few zip codes to start leveling off in the next few months.

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WOW!

The Search Phoenix Area Listings MLS search has a ton of new features. (The permanent link to “Search Phoenix Area Listings” is in the upper right-hand column.)

New Search Capabilities

• Search for bank-owned homes
• Search for homes listed in the last __ days
• Search for homes that have had a recent price reduction
• Search by school catchment area

New Information on Listings

• Listing price history / Previous list prices

If you are serious about buying a home in the Phoenix area, you should be using this MLS system.

In addition, you should be use the “Email Updates” (also called “Alerts”) on the MLS system so you can be one of the first buyers to know when a home hits the market or has a price cut.

Tutorial

You gotta see this!

Check out the video, Tutorial - Search Phoenix Area Listings.

And when you are ready to buy a home, call me if you would like to work with a Realtor who takes a highly analytical approach to managing your buys and sells of real estate.

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At the the Heart of Scottsdale Realtor Tour today a friend told the story of going to an auction last week for a group of condos in Antigua in McCormick Ranch in Scottsdale, AZ. Many (but not all) of the condos were promoted as having no reserve price.

He said the first 3 bedroom home went for $180,000 which was a good price for the buyer but not crazy. The auctioneer then lectured the crowd about how bids had to be higher.

Next, went up a 2 bedroom home. The sale highest bid was $155,000 which again was a good price for the buyer but not crazy low.

THE AUCTIONEER THEN CANCELED THE AUCTION!

He just shut it down. The many potential bidders complained bitterly, according to my friend, but the auctioneer said he would rather be sued than sell at those prices.

Having no reserve price doesn’t do a buyer any good if the auction is canceled when prices are low.

I bet neither of the 2 homes that were “auctioned” will actually have their ownership transferred. There will likely be some escape clause for the seller.

Do you have any real estate auction stories? Success stories? Horror stories?

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I’ve been wondering if there was a way to short New York residential real estate.

The demise of all of the big 5 investment banks and their astronomical compensation even to mid-level employees will take away an important market for luxury real estate in New York. (Some of the investment banks converted to commercial banks to save their bacon, however, commercial banks don’t pay like the investment banks used to.)

Now I read that the New York condo market is set for a crash.

That means housing bubble stories will continue in the national press long, long after the Phoenix real estate market has bottomed out and is back to normal.

When home prices go down 25 percent to 30 percent anywhere west of the Passiac River, it’s just a curiosity to the New York media. When their personal New York condo falls 5 percent in value, it will be the end of the world as we know it. And then their homes will fall another 5 percent… Oh, the humanity!

There will be no end to the whining stories coming out of New York. They shouldn’t expect too much sympathy, however, from California, Florida, Arizona, Nevada et al.

In the 1980’s I used to say that if home prices fell in Washington D.C. like they did in Houston Texas, there would have been a massive Federal housing program created as soon as the damage struck the policymakers’ homes.

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Boy oh boy! I’ve invested over 25 hours into this blog this week!

1. More new listings. Now, you can quickly see all the new single family detached listings added to the MLS in the last 8 days.

   I added “New MLS Listings - Snapshots” to all the Zip Code Real Estate Notebooks. It’s a quick, fun way to see what’s hitting the market.

   You still have, of course, the MAP of new listings and the link to the LIST of new listings.

   I hope you see where I’m going with this. My goal is to make Arizona Real Estate Notebook the best web site for checking out new listings.

   Stop by weekly. Amaze your friends with your real estate knowledge. Knowledge is power.

2. New look. I updated the look of the web site. In WordPress software lingo, I changed the theme to one called “Thesis.” The new look is still very clean and undistracting, great for putting the Phoenix real estate market information front and center.

   The look is going to be fine tuned over the next few weeks.

3. Backend software update. I had a huge security problem so I had to update the software behind this web site, WordPress blogging software.

   Unfortunately, I ran into a problem which I just couldn’t solve. [For the WordPress geeks out there, the plug-in "exec-PHP" was adding line-feeds to the end of some "included" code.] Eventually, I found an inelegant solution and I changed the code on over 250 pages of this web site.

   While I was at it, I decided to make some improvements to the web site as well and so added the “New MLS Listings - Snapshots” and updated the theme.

I was up until 5:00 AM this morning. Another night it was 4:30 AM. Another night 2:30 AM. This was a big project and I’m not done yet. And this is in addition to the normal weekly and monthly time invested in this web site.

I’m toying with the idea of making a premium version of this web site which will only be available to my clients.

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