HOUSE PRICES IN OUR AREA, WHAT DO THE TEA LEAVES SAY NOW?

As new economic data become available, it is possible to try and read the tea leaves and divine what is going to happen to house prices over the next year or so. This is my shot to do just that. Thanks for reading and I hope that it makes sense.

First a little background. It is generally understood that house prices peaked in our area (and in most of the country) in mid to late 2006. That means we have been in a downturn going on five years now.

According to CNN Money, prices kept declining until April of 2009, at which point they began to recover. A few pundits felt this was the bottom. However, the national number dipped again and hit a new low in February of 2011.

Further, numbers of foreclosures are still accelerating. According to the OCC and OTS Mortgage Metrics Report of 3/20/11, forclosures in process nationwide were 1,290,253 in the fourth quarter of 2010. That is up by 19.6% from the same quarter a year earlier.

According to the same report, new short sales are up by 30.3% from a year earlier, although the pace is down a little from the third quarter of 2010.

One nice thing about history is that at least you know where you have been. With respect to forecasts, the only thing you know for sure is that you will be wrong. You never know if you will be wrong early, wrong late, wrong high or wrong low - just that you will be wrong. However, knowing about general directions in advance can be real helpful in making plans, so here goes.

One of the factors driving real estate price declines across the country has been the number of foreclosures and short sales. California, Nevada and Arizona have been cited as worst examples of the basket cases in real estate. However, the S&P Report of 4/20/11 shows that many areas in those three states are projected to be clearing up their backlogs in from 18 to 36 months. On the other hand, many areas in SE Pennsylvania are projected to need between 72 to as much as 120 months to clear the backlog. If true, that would say that we are in for a long spell of working off excess inventory which will keep prices low.

Reuters News Service in February stated, "...economists now expect home prices will fall 2.3 percent in 2011 and then begin a slight recovery in 2012..."

David Stiff, chief economist of Fsserv said this in February, 2011. "Large supplies of foreclosed properties will continue to be the biggest downside risk for home prices..."

Radar Logic reported in March, 2011, "The supply of homes for sale and potentially for sale is very large relative to demand, and it continues to be fed by high rates of mortgage defaults and foreclosures. At the same time, demand for houses is constrained by tight lending standards. Unfortunately, delcining home prices are likely to exacerbate these challenges to the housing market"

I could quote more of the same, but you get the idea. My bottom line and what I am advising people is this:

+ If you absolutely need to sell, sell now. This is as good a time as you will probably have in the next two years.

+ If you can afford to stay in your present house for two years or more, it may be best to do that.

+ However, you really need to consider what you will do if you sell. It could be that the low mortgage rates and prices will help you to make up more in your next purchase than you will lose in selling now.

Where is the bright side you ask? - it is a fantastic time to buy. Prices are soft and going lower; mortgage interest rates are at historic lows. If you have equity in your house and want to move up, now is a great time.

How can a seller make use of these current trends? Well if you need to sell, now is probably the best time that you will have in the next couple of years. If you can wait for more than two years to sell, my advice would be to do it. I certainly hope that prices will be better by then. Of course, if somebody had asked me two years ago if prices would still be going down, I would have said probably not.

Not an easy set of trade offs to manage, but it can be done. If anyone would like some help in that or has another related real estate question, please feel free to email me at delcorealestate@gmail.com or call me at 484-468-1306.

Would appreciate your thoughts and comments.

HELP, I'M GETTING BEHIND ON MY MORTGAGE AND DO NOT KNOW WHAT TO DO

To begin here is a shocking statistic. 28% of the homeowners in the United States are "Under Water". That means they owe more on their mortgage than their house is worth.

Now, that does not mean that every one of these homeowners is in trouble. Many are still making their payments on time and plan to continue.

The folks who are in real trouble are the ones who are "Under Water and who also lose a job, need to sell right now to move to another part of the country, have a serious illness that interrupts employment, undergo a divorce or other big family upset. If they owe more than the house is worth and also encounter anything that undermines their ability to pay, they can be in a real pickle.

In other words, they find themselves in a place where they need to sell their house but the proceeds are too small to pay off the lender(s). What in the world can they do? Is foreclosure the only option? Most people would probably say yes to this question, but they would be wrong. A homeowner in this position has options other than foreclosure, but they need to get help. An experienced realtor, backed up with the right kind of legal and accounting help can provide this help.

If a homeowner is really "Under Water" and cannot make ongoing mortgage payments, the better avenue is to present the lender, who holds the first mortgage, with all of the facts in the case. If the lender agrees that the homeowner has a legitimate case, they will probably agree to a "Short Sale".

What is a "Short Sale" you say? That is an agreement wherein the lender agrees to accept whatever proceeds come from the sale of the home, even if it is less than what is owed, as full satisfaction of the debt. The lender will insist on the right to approve the deal, but in most cases, they will accept significantly less than the total amount owed.

Stated differently, if the lender(s) agree and the homeowner sells the house, all of the debt/liens that were on the house can be forgiven.

There are lots of advantages to this course of action as opposed to foreclosure. A few of them are:

Person who undergoes foreclosure is ineligible for another Fannie Mae backed mortgage for 5 years. A person who closes a short sale may become eligible after only 2-3 years.

After foreclosure, the former homeowner may find that he or she still owes the bank a lot of money. With a short sale, whatever the bank does not recover from the sale is forgiven and the homeowner owes nothing more.

Foreclosure lowers credit scores from 150 to 300 points, typically for over 3 years. A short sale can lower the credit score by as little as 50 points and the impact can be as short as 12 to 18 months.

Short sales are also better for the banks. On average, a short sale property sells for 89% of the full market value of the house. If the bank has to foreclose, that typically costs the bank another $60,000. For that reason, if the bank becomes convinced that the homeowner really cannot be expected to pay, it is also in their best interest to arrange for a short sale.

For the above and a lot of other reasons, a short sale is a lot better than foreclosure.

If you or anyone you know would like to learn more, in confidence, please email me at DelcoRealEstate@Gmail.com or call me at 484-574-4088.