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The Real Estate Bucket
by Phyllis Espinoza
In the past few
months there have been changes in the real estate
market. Housing prices are going down and mortgage
rates remain low, making it easier for home buyers,
but there has been a sharp increase in foreclosures.
The analogy I
would like to use to describe it is that of an ICE
BUCKET. Home sales and mortgage applications are
pouring into the bucket and filling it because
mortgage rates are relatively low; at the same time
there are delinquencies and foreclosures pouring
out. IF interest rates go up, the already-full ice
bucket will begin to melt and shrink, creating an
even greater overflow.
Letís explore the
factors that are at work.
across America are falling to their lowest levels in
recent years. A 10 Ė 20 percent reduction in
asking price is now common in both high and
moderately priced neighborhoods.
Buyers are taking
advantage of this and new-home sales climbed during
trying to get the properties off their hands quickly
before their properties lose value, and are going
the extra mile by picking up the cost of repairs or
paying buyersí closing costs. Some are offering
seller financing to improve their chances of selling
their properties quickly to buyers who do not
qualify through institutions due to credit issues or
very low down payments.
This opens the
doors to buyers who could not purchase a home a year
ago, and they can now look for the best deal.
buyers are rushing to take advantage of low interest
rates, and applications for mortgages at major U.S.
banks have increased considerably.
Mortgage Rates Low
have available to them a wide selection of all
different types of home loans, making it easier for
them to find financing.
fell 30 basis points in a seven week period, and are
down 57 basis points in the past twelve weeks. Mortgage
applications in the week ended Sept. 29, 2006
reached their highest level in eight months.
However, times are
getting tougher for many homeowners - the number of
homes entering into some stage of foreclosure is
In August, 2006,
more than 115 thousand properties entered into
foreclosure, according to RealtyTrac, an online
marketplace for foreclosure sales. That was 24
percent above the level in July, 2006 and 53 percent
higher than a year earlier.
There are a couple
of possible reasons. Housing costs in nearly every
part of the country grew sharply from 2000 to 2005.
Nationwide, median home values jumped by 32 percent
during the same period, according to a survey.
Housing prices went up much more than incomes did.
also be partly the result of rising monthly payments
on adjustable-rate mortgages, which have a low
introductory interest rate that heads higher after
an initial period. This can mean an increase of a
few hundred dollars on the monthly mortgage payment
in some cases.
Things to keep in
mind in this changing market:
If you are a
rehabber or investor :
- Chances are you may be looking to turn your properties around to
make a quick return. Make sure that you leave
yourself enough room for a property value
adjustment, as you may be selling in a declining
market. Remember that you make your profit when you
buy the property. ĎBuy wholesale, sell retailí has
been good advice over the years but when the market
is in a downturn, the Ďretailí value may deteriorate
pretty quickly, as you rehab and sell the property.
- If you plan to
offer seller financing, be careful to select your
buyers and terms while keeping a declining market in
mind, so that the buyer is able to make monthly
payments through possible tough times.
- Ask for the
largest downpayment that the buyer can afford, as
this will act as insurance for you. Donít be tempted
to offer 100% financing, as you may be left stranded
with a foreclosure or with a mortgage note that is
- Deal with
low-end properties, unless the high-end is your
niche and you feel comfortable with it. Low-end
properties donít lose as much value as high-end
properties during downturns.
- Remember that a
small loss is a lot better than a BIG loss. If you
find yourself in a situation where the market has
moved against you even though youíve done your best
to advertise your property, you may want to consider
selling at a small loss. I donít advocate doing this
for a living, but sometimes you just need to take a
small loss to avoid the BIG one. Itís your decision
and you should consider realistic expectations from
the market. Accept that you are making a decision
based on your best understanding of the situation
and live with it, even if the market turns around
later. Most of the big real estate firms that
collapsed during previous downturns, didnít see it
coming and didnít take their losses quickly enough.
- You may have
sold properties by offering seller financing and are
now holding mortgage notes. Unless you are planning
to receive monthly payments from your notes for the
duration of the term, this would be a good time to
consider selling them. During a declining real
estate market, your notes may lose value quickly.
And if interest rates go up, well Ö the ice bucket
- You should
consider using simultaneous closings to sell your
property quickly. Offering seller financing and
flipping the note on closing is one of the fastest
ways to turn around a property and reduce your risks
during market adjustments.
If you are
a homeowner facing difficult times, there
are actions that you can take before
repeated delinquencies ruin your credit or
worse, you head for foreclosure :
- You may
call your Lender and see what programs are
available for forbearance of payments. There
are a number of plans currently available by
Lenders that can reduce your monthly
payments to affordable levels. The key is to
contact them as soon as possible.-
you have no equity in your property (your
mortgage is higher than the value of the
property), you may be able to sell it by
using your lender's assistance. They may be
willing to work with you. The sooner you
contact them, the better your chances.
- You may
choose to work with a private investor to
sell your property by offering temporary
seller financing and then have the investor
buy the new mortgage at closing to get you
cash (a real estate technique called
Simultaneous Closings are a great
alternative to speed up the selling of a
property, while providing cash and freeing
you from the risks of holding a property or
note during declining markets.
you are looking to sell your seasoned
mortgage notes or to create new notes
through seller financing, I can work with
you to come up with a viable structure.
happy to offer guidance each step of the way
in finding potential buyers, screening them
for the best candidate, and providing
suggestions concerning structuring the
seller-financed mortgage note so that you
maximize your proceeds from selling the Note
(new or seasoned) and the property.
to visit our website
for more details about our services.
About the author
Phyllis Espinoza is an expert in Simultaneous
Closings, an emerging field of creative real estate
financing, and the owner of the website
Her goal is to help as many people as possible by
making this useful technique better known.