How the Serenity Prayer Applies To Selling a Home

You may believe that selling your home is impossible in today’s market. You may feel powerless to the process. What could YOU possibly do to turn this housing market around? There is no doubt that today’s real estate market is extremely difficult to navigate. However, we want you to know that thousands of homes sold yesterday, thousands will sell today and thousands will sell each and every day from now until the end of the year.

It is totally within your power to guarantee that your house will sell even in the current market.

How you ask? Let’s look at the simplicity of the famous Serenity Prayer and apply it to selling a home in today’s real estate market.

“Grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.”

Accept the things you cannot change

The two main reasons that the housing prices have softened:

1.      the current economy

2.      the inventory of distressed properties (foreclosures and short sales)

As an individual homeowner there is no way for you to impact either of those two situations. The best think-tanks in the country are struggling to discover solutions.

Have the courage to change the things you can

There is not a vacuum of buyers in the market. There is a vacuum of homes a buyer in today’s market will purchase. Let us explain: could you sell your home today for $1? … $1,000 … $10,000? Of course you could. There are plenty of buyers in the market for a home they consider priced correctly. You have to decide what the correct price is for your home if you truly want to sell. If you want your house sold, you must list it at a price a buyer will pay for it. Not a buyer from 2006 but today’s buyer who has plenty of homes from which to choose.

It will take courage to sit with a real estate professional and honestly decipher the true value of your home. If you want to sell, you must have that courage.

The wisdom to know the difference

We all realize that the economic situation will take some time to correct. If we want to wait for prices to return to 2006 levels, we will probably have to wait for 5-7 years.

Look at the reason you decided to sell in the first place and decide whether the extra money you would get from the sale is worth that wait. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

This is where your wisdom must kick in. You already know the answers to the questions we just asked. You have the power to take back control of the situation by pricing your home to guarantee it sells. The time has come for you and your family to move on and start living the life you desire. That is what is truly important.

Will Mortgage Forgiveness Debt Relief Act Be Extended?

Many of our clients have asked whether we believe the Mortgage Forgiveness Debt Relief Act of 2007 will be extended past its current expiration scheduled for the end of the year. As a reminder, the legislation ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.

The reason this act is important in today’s housing market is that, without the act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. If the legislation is not extended, then it would require homeowners to complete a short sale or modification prior to year’s end in order to avoid a tax consequence.

Last week, DSNews reported:

“Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007…  

In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.”

The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015.”

In today’s political environment, the passage of any budget proposal could be considered doubtful. However, both parties seem to be in agreement that this provision should be extended. We can only hope that it doesn’t fall victim to an election year.

Disclaimer: As with all tax issues, we strongly suggest you consult with your accountant to find out how this may impact you and your family

Mortgage Settlement to Drive Increase in Foreclosures

Last week, we explained that the National Mortgage Settlement gave banks a roadmap showing them how to proceed with the backlog of foreclosures (known as shadow inventory) that has been hanging over the housing market for more than a year. We believe that understanding this dynamic is crucial in determining home prices as we go through the year. We believe the number of houses sold will grow somewhat dramatically in 2012. However, the increase in demand will be offset by an increase in supply of distressed properties that sell at a discount.

Others also feel there will be an increase in foreclosures as we move through the year.

Calculated Risk

“It does appear the number of completed foreclosures will increase following this settlement – especially in some judicial states with large backlogs – so there will probably be more REOs (lender Real Estate Owned) for sale.”

Brandon Moore, chief executive of RealtyTrac

“The settlement sets forth clear guidelines for lenders and servicers to follow when foreclosing, which should allow them to push through some of the delayed foreclosures from last year.”

Susan Wachter, professor of real estate and finance, University of Pennsylvania’s Wharton School

“There remains a danger that ‘a wave of foreclosures’ may destabilize the housing market. The logjam has to be unleashed – [the settlement] will do that.”

Mark Zandi, chief economist Moody’s Analytics

“I think there’ll be more price weakness, because we’ll see the number of distressed sales pick up. But I think the price declines will be modest.”

What does ‘modest’ mean? Celia Chen, Moody’s Analytics suggests:

 “The latest settlement will hasten the pace of filings and push up the distress sale share of total sales over the next several quarters, driving national house prices down another 3%.”

Bottom Line

The increase in supply will cause prices to soften even though we will see an increase in demand. Check with a real estate professional to help you understand how this will impact your local market.

Two Things You May Have Missed

Before the end of the year, Congress and the President agreed to extend the payroll tax cut. In that bill, there were two items of interest for those involved in real estate. 1.) The hike in the Guarantee Fees charged by the GSEs Fannie Mae and Freddie Mac. The 10 basis point increase in the fees has translated to a .375% to .5% increase in mortgage rates for conventional loans. Many customers who started their loans a couple of months ago are being “surprised” with higher than expected rates. Heck, everything you read in the papers says rates are at historic lows and will likely stay there through 2014. Many consumers feel as if their lender is being unscrupulous. However, your lender has fallen victim to the increase in Guarantee Fees and how the secondary market is passing on the cost. What looks like possible lender greed is just a passing on of the increased expense imposed by the government. Sadly, the increased revenue isn’t even being used to help aid an ailing Fannie Mae or Freddie Mac. It is being turned over to the US Treasury to cover the temporary extension of the payroll tax cut. 2.) Permission for HUD to increase the insurance premiums they charge on FHA loans. If you remember, HUD charges two insurance premiums – a monthly one and an up-front one that is usually added into the loan. Most recently, they reduced the up-front mortgage insurance premium (UFMIP) and dramatically raised the monthly fee (MMIP). It is widely anticipated that, maybe as soon as April, we will see a hike in the UFMIP with no adjustment to the MMIP. While this will help shore up the reserves in the insurance fund, it will simultaneously make buying a home more expensive. No one knows the effective date or amount of the increase. Buyers should look to buy before the increase in fees. We always hear how our government officials tuck away things in their bills. In this case, while the headlines during the holidays praised Washington for preserving the payroll tax cut, they may have hurt us more in the long run.

Who's The Quarterback?

Given that it’s Superbowl Week (Go Giants!), I thought we might go with a football theme today. I can’t tell you how many different people I hear proclaim that they are the quarterback of the real estate transaction – the agent, the loan officer, an attorney, accountant or financial planner. But for goodness sake, the buyer/borrower had better be the one calling the shots. Not that everyone else doesn’t play an important role, but the buyer/borrower is the one most impacted by the choices made.

Here’s my opinion of how the team works best:

§ Head Coach (Your Loan Officer) – Your loan officer should be the Head Coach. After careful analysis of your income, credit and assets, this is the person in the best position to make sure you are playing to your strengths and minimizing your weaknesses.  Your loan officer can discuss the economic realities of homeownership, while listening to your quality of life concerns. (How often you’ll be able to eat out or vacation, for example.) The loan officer can set up the game plan.

§ Offensive Coordinator (Your Real Estate Agent) – Your real estate agent is your offensive coordinator. Armed with the game plan (which includes your limitations), the agent calls the plays, counseling you on the geography, the competition, the best ways to negotiate your way to your personal touchdown. Agents know the playing field (the inventory and the market). If you hire them to represent you, they can disclose the weaknesses of your competition (the seller).

§ Offensive Line (Your Attorney, Accountant and Financial Advisors) – Your attorney, accountant and financial advisors are your offensive line. They are there to protect you from the blitzes that come from outside (sellers, title issues, tax consequences, and protecting your assets). Not the glamour positions, but vital to any success you are going to have.

§ Running Backs and Wide Receivers (Your Friends and Family) – Your friends and family are the running backs and wide receivers. They often receive the glory and attention, but honestly, if everyone else doesn’t do their job, they rarely ever see success. Bad game plans, weak play calling, poor execution on the offensive line or by you, as quarterback, leave them merely as names on the roster.

As with any team, communication is the most important component to getting the desired results. Being the center of the action on the field, the quarterback (you) needs to honestly talk with your coaches and coordinators, so they can help direct you on the proper play calling. Simultaneously, you need to heed the feedback from your offensive line, running backs, and receivers to filter wise advice from emotion. Be the quarterback of your own home-buying process and you’ll be more likely to realize your dreams (and not the dreams of someone else).

Is It Time for Young Families to Buy a Home?

We have reported that almost six million adults between the ages of 25 to 34 are currently living with their parents. That number reflects an almost 50% increase since 2003. These young adults are now being advised to jump into homeownership.

Who are the people selling them on the American Dream? Their parents! It seems that parents of some adult children are strongly suggesting that their children take advantage of the low cost of homeownership available today. Some moms and dads are helping financially and are even co-signing for the mortgage. Middle age parents who have owned a home understand its true value. A home has always been a good long term financial investment. However, homeownership also has many other benefits.

In Fannie Mae’s most recent National Housing Survey, they asked the question directly: Is this a major reason to buy a home?

The study broke up the answers into financial and non-financial reasons. The top four reasons and six of the top ten reasons were NON-FINANCIAL. The top four are below:

1.It means having a good place to raise children and provide a good education.

2.       You have a physical structure where you and your family feel safe.

3.       It allows you to have more space for your family.

4.       It gives you control over what you do with your living space (renovations & updates).

Should this surprise us? Aren’t these the same reasons our parents bought their home? Aren’t these the same reasons we purchased our home? These are the same reasons parents have suggested their children buy a home. They want the same things for their grandchildren that they believed to be important for their children.

And today, the cost of homeownership is at all time lows:

J.P. Morgan

“The numbers on housing have an important message for American families today, and particularly younger families setting out on life’s great adventure: Five years ago, at the peak of the home-buying euphoria, it was emphatically a time to rent. Today, when home ownership is depreciated more than ever before, the numbers tell us it is a time to buy.”

MSNBC.com

“[S]omeone who plans on staying put for seven years would come out ahead by about $9,000 if they bought a median-priced home rather than being a tenant in a median-priced rental.”

HUD

“Homes today are more affordable for average families than they have been since 1971. Median-income families today have nearly double the funds needed to purchase the average home.”

Bottom Line

Now that the economy is beginning to show signs of stabilizing, people are getting back to the core values that families have always embraced. Homeownership is definitely high on that list. And today, from a financial standpoint, it may be the opportunity of a lifetime.