Perrysburg Blog

Foreclosed vs. Short Sale?

Sadly becoming an important question.

A vital question.

A confusing question.

As a CDPE (Certified Distressed Property Expert – trained and credentialed by The Distressed Property Institute -  of whom I am now on their Board of Directors) I have seen first hand how this question is impacting the decisions that many homeowners have to make this year.    Tough, gut-wrenching decisions.

As always, seek legal counsel.  But – sadly, I have attorney’s who ask ME for help and information!  So be careful what attorney you ask!

Here is a chart of the effects on your credit of doing a short sale vs. being foreclosed:

Along with TARP and STIMULUS, and all kinds of other new, wasteful government programs, the munificent leaders in our nations’ capital have proffered a little stimulus to the housing market.

Now, if you read this blog, you know that Perrysburg real estate has taken it on the chin.

Many have put off buying  -

Many have given up on buying -

Many buyers are confused.

But when the Feds want to shovel $7 or $8k into your hands, just for doing something you were going to do . . . well, Mama did not raise a dummy.   You follow their rules when buying, and take the money.

Facts on the ground:

• Northwest Ohio real estate prices have dropped by 25-30% in many areas.
• Interest rates are under 5%.
• Financing is still available with as little as 3.5% down.
• First Time Home Buyer Tax Credit.

Here’s a summary of how the tax credit works:

• Tax credit is 10% of the purchase price of your home ($8,000 maximum).
• Must be your principal residence.
• Buyer, or spouse, must NOT have owned another principal residence within the previous three years.
• Property must be the buyers’ principal residence for 36 months after purchase to avoid repaying the tax credit.
• Tax credit begins to phase out if modified adjusted gross income exceeds $75,000. No tax credit is available if your modified adjusted gross income exceeds $95,000 ($170,000 if you file jointly).
• You must purchase between January 1, 2009 and November 30, 2009.
• Any amount of the tax credit not used to reduce your income tax owed may be added to your tax refund check.

ALL the juicy and monetary details are HERE.

Now, reading the rules, applying them to Pburg, we are talking about a lot of possible homes – perhaps in Perry Commons/Pheasant Run or Three Meadows, or even a Forrester/Wehrle resale.

You can always let me know if you need help -  the Jon Modene Team closed 17 houses last month and we fit in at least 3 more this month!

I get asked “how is the market” all the time.

In fact, if I had a nickel . . . .

But HOW IS the market?

That is the wrong question.  Really.

I will tell you how our current Perrysburg real estate market is.

The banks?  Lending.  They have money.

Interest rates?  Are you kidding!?  Best in history.

Inventory?  Plenty of homes to choose from – but not way too many as 2 years ago.

The secret to figuring out how the market is . . . . is knowing how local employment is.

JOBS.

How is the jobs market?  That will answer the real estate question.

If we have MORE jobs – we sell more homes and house prices rise.

If we have MORE layoffs and firings – we have more depressed home owners and more depressed demand and more declining values.

The local economy is hemorrhaging jobs.  The red above shows where it hurts – it’s a static photo here, so don’t try to make it work!

When that stops the real estate market will improve.

No government program, no mandated plan for mortgage cram downs, none of that will work.  Or help.  In fact they all make the local housing market worse.  Because they cost jobs.

Do you remember the old Toledo version of the board game Triopoly?  (You probably do not – it has even lost its Wikipedia page . . .)

It was a Monopoly like clone game with big local companies “advertising” by buying the right to be a property/company on the board.   It came out back in the 1970′s.

Well, I no longer have my copy of Triopoly.  But I remember some of the “big, local companies” that were on it.

And they are gone.

Toledo, which used to boast 10 or so members of the Fortune 500 being headquartered here . . . we have lost our job/manufacturing base. (Sheller-Globe, AutoLite, Champion, Toledo Scale, and many more . . . brownfields, empty buildings, or worse now)

When it comes back – then the housing market will come back and real housing values will increase.

Most people know that Perrysburg prices have dropped (a few Realtors surprisingly have not gotten that memo – but I don’t want to be snarky . . .)

But what of taxes?

Property taxes should be coming down too, n’est pas?

I do not believe that the County automatically adjusts taxes down.   They must have missed that memo too!

So what can I do to find out the history of taxes.  Not that hard if you have a record of old MLS comparable sales . . . and here is what we find:

We find that property taxes in Perrysburg have relentlessly increased.

The 3 bed, 1.5 bath house in the Southwood Park subdivision of Perrysburg would cost you $393 in 1/2 year taxes back in 1984.

In 1994 that same house would cost the owner $557.

In 2004 your 1/2 tax bill would have been $1076.

Today?  You are may be looking at almost $1400 per 1/2 year for a 3 bed, 1.5 bath in Southwood Park (Edgewood, Southwood, etc. by the big blue city water tower for those who do not think in terms of subdivisions like I do!) (Caveat: Not everyone pays the same tax amount for the same home – it depends when you were last assessed/appraised by the County, how accurate your assessment is, and if you have recently filed for a reappraisal).

$393 to $1400.   I think that is an increase.

But – property values have declined in 2006, 2007, 2008 and this year.

I wonder if property taxes have gone down since 2007?

What is your experience?

Enjoy your tea!

I love reading. (Off on a rabbit trail here, but I LOVE the free book catalog www.Librarything.com.  AMAZING.  Get yourself an account and put your own books in there . . . )

Books about history.  Books about business.  Books about science.  Even about birds.

The Dodo bird was friendly with humans – even fearless.  Dodo’s were known to man – one was even captured and brought alive to Europe.  Then they were dead.  Extinct.  In the 1600′s.   A testimony to man’s thoughtlessness for the wonderful creation we have been given.

But I digress.   Because just as quickly, just as suddenly, and with just as little fanfare – the local mortgage broker has become endangered and now almost extinct.

Where there was once 20+ mortgage brokerages in Toledo, there is now only 1 or 2 that I can find.

90% extinct.

In 2 years.

(N.B. A mortgage BROKERAGE is different from a mortgage BANKER and both are different from a full service BANK that makes mortgages.   I am only writing about mortgage brokers)

Where did they go?  Why are they gone?  What does this mean?

First of all I don’t know.  Some went into other businesses.  Some joined banks to sell mortgage products.  Some vanished -  POOF -  no forwarding address.

Why?  The great loan fiasco / mortgage crisis has caused their extermination.   Making Liar Loans, No-Doc Loans, Alt-A loans, and what I call “Pre Foreclosure” Loans and then selling them to Fannie Mae and Freddie Mac was great sport.  Until the music stopped and the light got turned on and the party was over.

What does this mean?  No one knows yet.   Most likely a little less competition for consumers.  Hopefully higher quality loans that will not be in danger of failure/foreclosure in the future.

The closing of mortgage broker is not a Toledo phenomenon.  All over America the lights have been turned off at hundreds of these firms.   The pipelines they filled are empty and now torn up.  The giant industry they built has crashed.

And hardly anyone noticed.  Just like the Dodo Bird.

I do hear this.

Probably at least once per week.  Maybe more.

The buyer calls me or emails me and has the address of a specific house that is REO (“real estate owned” aka bank owned) and wants to see/buy said house.

But the problem is . . . THIS house is not for sale yet.

It is bank owned.  But NOT for sale!

It is part of the “Shadow Inventory”.

“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.” (San Francisco Chronicle)

Many people cannot understand why it is not for sale.

There are many reasons.

1.  The foreclosure process may not be completed.

2. The former home owner may still be occupying the house.

3. A tenant may be in the house.

4. The home is being appraised/prepared for market.

5.  The lender is simply overwhelmed and CAN’T get it on the market.

6. The lender is not willing to sell it – so that it does not have to be written off as bad debt on their balance sheet.

And amazingly the most common reason is that the bank is simply not going to put it on the market right now.

Which seems to make no sense.

But if ALL the REO homes hit the market right now . . . their values would be very depressed.  So it makes financial sense for banks to parse them out “slowly” or at lease more slowly then they can be marketed.

And think about this – up until this year, in Perrysburg, we have MAINLY been dealing with “Alt-A” and Sub-prime foreclosed loans.

But there is a giant “clot” of OTHER types of bad loans/foreclosures coming right for us.

Look at this chart:

It is a forecast of the future REO inventory.

And it is a sobering picture.

There is no inflation.

Now.

There is the threat of DEFLATION.

And the powers that be want to “goose” the economy as any person awake knows.

So what?

Just a thought – interest rates are very, very low right now.  In fact the 30 year fixed rate a week ago was the lowest ever recorded according to the MBA.

I send out a “Buyer Intelligence” newsletter every Friday (just email me if you want to get on the list . . . jon@modene.com)

And I quote the current interest rates in a variety of programs each week.

I have NEVER seen them this low.  Never.

National averages here:

Here are Northwest Ohio’s LOCAL INTEREST RATES:

Conventional:  4.875% with 0 points.
FHA:  5.5% with 1/2 point.
VA: 5/5% with 1/2 point.
OFA (State of Ohio $$): 6% with 0 points (grant cost paid by seller).

How long will these rates last?

Will they go lower?

Will inflation decimate them next year?

I have no idea.  As someone said – “That’s above my paygrade”.

But I do know this – they are a great bargain for anyone borrowing to buy real property today.

You know, stats / statistics are dangerous things.

Easily manipulated.

Slice the data in the time frame/price range/criteria you want . . . and you can make it say “BLUE”.  Do it in the way I want and I can make the same data say “RED”.

Very dangerous.  Deceptive.  At least that’s what my statistics teacher at Duke told us before he taught!

N.A.R.  (the National Association of REALTORS) comes out with some stats.   Sales are UP in the past month!!!  Yeah!!!

But comparing one month against another . . .

When you know that the current months’ “bump” is solely due to depressed REO assets selling . . .

When many local markets are cratering . . .

Highly dubious.  Almost deceptive.  Even though technically true.

But what of the big, national statistical picture?   Can we look at ALL the numbers?  What will that tell us????

Here is the picture:

National numbers are both up 4.7% but they are also down by 41.1% over the past year.

There is no honest way to say that sales are up.

The days of a million or 1.2 million homes selling per year in the USA?  Gone.  For a long time.

Pricing and your homes’ pricing strategy are all important in this market.

In Perrysburg and everywhere else apparently.

All markets are local.

They are all different.

I talked to a Long & Foster agent in suburban D.C. today.  He said that 65% to 75% of the houses for sale in one of his marketing counties are “REO” aka foreclosed.

Perrysburg?  Not even close.

The most recent Case-Shiller Home Price study came out on Friday.  The average home lost 19% in their study.   Which is made of matched pair sales in major metropolitan areas.  Toledo is not included.

But Detroit is.  And the average house value in Detriot is now what it was in 1997.

An “11 Year Drop”.   A regression.  A retreat.  A decline.

What of Perrysburg?  The median sold price for Perrysburg Single Family homes in March of 2009 was $146,450 according to our local MLS.

This represents a -25.7% decline in the past 24 months.

Which is a 1% drop in value per month over the last 2 years.

Which is a lot “better” than 1.5% per month that a lot of other markets have experienced.

If you NEED to sell, you need to understand these numbers.

These numbers might influence your decision.

Your houses’ potential buyer, appraiser, and lender understand them!

Sometimes the news is bad.  (Case-Shiller, value trends, time on the market, etc)

Sometimes the news is good. (Lenders with $$, interest rates, great buys, etc)

It all depends on what side of the bread you put your butter . . .

Loans:  Most banks are still very much in the lending business.    The reliable WSJ has just run a story on small towns where lending is still going on.    I can report that lending and lenders and loan makers are all doing fine in Perrysburg.  If you need money and are creditworthy, guess what?  You can get a loan.

Real Estate Loans:  Same story.  Rates are low.  Rates have been low.  Rates might go lower.  At least this year.  Banks are reporting that loan apps are up by 80% last month vs. 2008.  Why?

Smart owners are refinancing.  There are ridiculously low fixed rate loan products out there.  Save – pay a point or two – reuse your title work – and BOOM!  You can lower your payment on your existing house by hundreds of dollars/month.

Buyers who need a loan are doing great.  Ohio and the USDA (!!) have incredible programs for down-payment short buyers.  Fannie has just upped the number of investment properties anyone can own and still get a financing.  Title companies are dealing.

Over all things are very good for the average Perrysburg investor/owner/buyer.

The one fly in this ointment is that you better “get it while it lasts”.

Seriously.

There WILL BE a lot of inflation in 2010 and following.  Interest rates will go up.  Everyone will lose and be poorer.  (Hint:  get your loan/lending situation fixed now with today’s money/rates – that is really the only way for a normal American to offset inflation.)

This coming inflation will eat away at savings, stocks, 401k’s, and equity.  Sorry.  That’s the price we will certainly pay for the reckless spending going on at every level of government today.   So – make sure that your financial house is in order this year.