When a 2nd mortgage holder can only recover 3% of the loan or $3000, whichever is LESS, and they have to release the seller from all future liability, I can see why they will not be quick to take the deal.  In Minnesota, a foreclosure does not wipe out the 2nd lienholder’s rights and therefore it’s quite possible that they will seek future payments via collections – I could imagine them getting far more than 3% back that way.

While some 2nd mortgage companies have already been taking payments around this amount, many will not and I don’t see that changing – HAFA will help, but it will help far more on homes where there is only one mortgage vs two.

Countdown timer above shows what little time is remaining for home buyers and sellers to take advantage of the tax credits!  To review:

• 1st time home buyers or those that have not been a homeowner for 3+ years may be eligible for an $8000 tax credit.
• Current homeowners who have lived in their home for 5 of the past 8 years may be eligible for a $6500 if they sign a purchase agreement for a new primary residence prior to May 1, regardless of if/when they sell their current home.

Everyone looking to take advantage of one of these tax credits needs to have an accepted purchase agreement no later than April 30th, 2010 and that sale must close by June 30th, 2010.

If you are a buyer looking at foreclosures, make sure you leave time for the bank to sign the paperwork.

If you are a buyer looking at short sales, it looks like you just need to have agreement with the seller (subject to approval from the seller’s lender) by April 30th, though you still need to close by June 30th and should also speak to your tax advisor about the situation prior to making a decision to sign a purchase agreement.

If you are a seller or potential seller, now is the time to get your house in tip-top shape, list it for sale, market the house heavily and price it to sell – it takes 23 showings on average to sell a home and those showings take time to happen!

As Chris Snowbeck from the Pioneer Press notes in a recent article, the HousingLink data is good news but can’t be considered a sign that the foreclosure problem is waning – there are many efforts being made to reduce foreclosures and they’ve had an impact temporarily but not all these efforts will be successful and there are still a lot of in-default homeowners that will need to be addressed one way or another in the coming quarters.

The Pioneer Press also has a great writeup on the MBA data in our local market - while an amazing 6.9% home loans 90+ days delinquent or in foreclosure, the percentage of loans 30-59 days delinquent has remained very flat for over a year and is showing signs of a downtrend in recent quarters - a good sign that locally borrowers current on their mortgages are having an easier time doing so.   I’d love to pour over more info in their report but they want a princely sum of money to see it and I’m not paying.

If you need to get an even more detailed image than what you can get by clicking on the image above, see page 16 of the report.

Why do I find this graphic so interesting?  First of all, the trend this year is very similar to last year’s, which shows that portions of the inner-city, suburbs and exurbs are all experiencing both some of the best and worst of our market.  The common thread with all of them is that communities that have high levels of foreclosure and short sale activity also saw high sales volume when the market was at its frothiest.  While the news portrayed by this graphic is not good, it makes it very clear that this is a regional issue that affects us all.

There have been many steps forward made in the last 12 months to help address the issues surrounding our current housing crisis but there is still much work to be done.  This graphic didn’t change much from 2008 to 2009 and I don’t expect much change from 2009 to 2010.  The difference will be that we are better equipped than ever before to deal with these issues since we’ve been there already.

One thing that gets missed in all the reporting on foreclosures and short sales is that the neighborhoods that have suffered from the highest rate of lender-mediated sales are also the areas that have quite suddenly become affordable-housing havens – there is a great opportunity here for buyers to purchase homes at rock-bottom prices, near record-low interest rates, and with mortgages and qualification requirements that make them far less likely to default in the future.  Many households have been destroyed in the last few years but we do have an opportunity to create many new ones too.

Foreclosures and Short Sales in the Twin Cities (updated monthly – co-created by me!)
Twin Cities Housing Market Activity Report (updated weekly)
City-Level Housing Market Data (updated monthly)
Twin Cities Monthly Market Activity (updated monthly)
Twin Cities Housing Supply Outlook (updated monthly)
Residential Real Estate Activity Report (RREAR) (updated yearly)
‘The Skinny’ Blog (updated weekly or more)
‘The Skinny’ Stats Video (updated monthly)

All of these reports done by 10k Research and Marketing.

As is typical for them, the Minnesota Home Ownership Center has just put together a great post describing how sellers that lose their house through foreclosure (or even via short sale) can be sued by the lien holder (bank) after everything is done.

It comes down to this: if you are having troubles making your mortgage payments or are considering foreclosure or a short sale, you need to do some research and speak with an expert.  The sooner you reach out for assistance the more options you have available to you.

With the data provided by RMLS that I used yesterday to comment about FHA transactions, I am also able to dig down deeper and look at the detail at the MLS-area level.  In Minneapolis-North, median sales prices have fallen from around $150,000 in 2006 to around $50,000 today – due almost entirely to the fact that this neighborhood has been one of the hardest hit by foreclosures.

A healthy ratio of rental to owner-occupied housing has long been advocated by the City of Minneapolis and in recent years they’ve made it clear (1,2) that they intend to do what they can to protect the housing stock.  Unfortunately the foreclosure activity is far higher than can be handled by any public or private entity.

While many foreclosures are in need of serious rehabilitation, prospective home buyers can take advantage of programs offered by the city and general rehab loans like the FHA 203(k) to finance the cost of needed repairs into the mortgage.  There are also a large number of foreclosures in generally ok shape and only need a few cosmetics to make them livable again.

Prospective home buyers of these foreclosures, the vast majority being first time buyers, see both good condition and fixer-upper foreclosures as an opportunity to purchase a home at prices not seen since at least the 1990’s.  Consider this a period where the market is providing an affordable housing explosion.  Unfortunately at these prices, these properties also become excellent investment opportunities for rentals, which creates competition with the prospective owner-occupant buyer.

These investors come in with cash offers and when presented with multiple offers where most terms are equal, many banks will take the speed and surety of the cash offer versus entrusting a successful sale to a buyer that needs financing to close.  In fact, cash can often mean double-digit percentage discounts on the list price vs. a financed offer.  These cash offers have succeeded so well in Minneapolis-North recently that while cash offers were only 5% of the transactions in 2005, they made up nearly 65% of the sales in 2009.

While many of these cash purchases may have been for owner-occupied purposes, it is impossible to quantify what percentage are investor vs. owner-occupant.  My experience and gut tell me that most of these cash sales were to investors.

Minneapolis-North is an exaggerated version of what we’re seeing all over the Twin Cities – I have heard stories of investor competition from agents around the metro and at price points up to around $250,000.  Metrowide, cash purchases in 2007 were only 5% of sales but zoomed 240% to 17% of sales two years later in 2009.  Having this strong demand has helped us dramatically reduce the inventory of foreclosures available today and has definitely provided support for the housing market, but this investor demand has also made it hard for many prospective buyers to take advantage of what may become an historic level housing affordability.

Since most sales have a Buyer’s Agent and a Seller’s Agent, we’re looking at a total of approximately 90,000 trasaction “sides.”

The Twin Cities associations have approximately 15,000 members between them.  When you divide 90,000 transaction sides by 15,000 agents you end up with an average 6 transaction sides per agent.  Taking into account commissions and average sales price, the “average” REALTOR in the Twin Cities makes somewhere between $30,000 and $40,000 per year in gross commissions.

From the $30,000 – $40,000 per year in gross commissions, they have to pay:

• Commission splits with their broker (often 10% – 50%)
• Gas & car maintenance (IRS says it is $.55 per mile – 5,000 to 15,000 miles/yr is easy to do)
• Technology (cell phones, computers, printers, etc – can easily be $500 – $1000 year)
• MLS & lock box fees (approx $540/yr)
• REALTOR membership fees ($350/yr)
• FICA taxes (15%, twice that of W2 employees)
• Healthcare costs (brokers don’t buy their agents health insurance)
• Marketing costs (typically 5% – 10% of income)

The ”average” REALTOR isn’t making much money at all!

If you get into it though, you’ll see a large number of REALTORS do not sell anything in a year – they hold onto their license for myriad reasons but don’t actively sell.  We also have many agents that are part-timers or semi-retired and only do a few sales a year, so these can also drag down the numbers substantially.

There are also agents that are making decent income and do this as their full-time job - in 2009 they had to sell more houses to make the same money but they are still earning a fair salary.

The last segment of REALTORS are the stars and superstars – these agents often sell dozens of houses per year or more - some agents are in teams that can sell 100+ per year – and these agents are financially very successful.

Regardless of how much a REALTOR makes, I believe nearly every one of them would say this job is far more difficult and time consuming now than at any time in the last decade.  It seems almost every sale has a speed bump or four and some have gigantic road blocks that take forever to get around or sometimes cannot be avoided.  If anyone questioned whether agents earn their commission, I’d say today that the ones that are working hard and doing right by their clients have earned every penny.

So many condos built from 2005-2008 in the last boom were purchased either at the top of the price curve and/or were bought with challenged loans or borrowers.  This has meant some buildings having 50% (or maybe more) of their units go back to the bank.  When that happens you have underfunded associations with expenses well above income, small or non-existent reserves and prices spiraling down.

In single family homes, if there are foreclosures around yours you will see some effect on your value but often it can be partially mitigated by your property’s unique characteristics and condition.  Additionally, an appraiser can also search the rest of the neighborhood for comparables to yours. 

When you are in a condo building, most of your comparables are the others in your building.  When you have only a few floor plans in a building and units that are only a few years old, it is very hard to argue that there is a huge difference between your “traditional seller” owned home and a bank owned REO.  With each additional sale prices fall further and more and more owners become upside down on their mortgages, which may lead some to simply walk away from their mortgage and lead to even more foreclosures.

Often these buildings become almost impossible to finance.  For many of these buildings, cash is the only way to buy them.  With FHA eliminating spot approvals for condos and further tightening lending guidelines, more buildings are about to become cash-only financing.  If you look at the financial landscape of buyers, most are taking out a loan to purchase.  Without a financing option, the pool of potential buyers shrinks even more and we see prices further decline and investors swooping in to pick these units up on the cheap.

I have seen quite a few condos that could be financed with payments well below equivalent rents – meaning these units are DEALS.  Unfortunately even though they’re good deals now (some down 40% – 60% from their peak) if they can’t be financed they aren’t an option for the majority of buyers.

Once these buildings have gone through foreclosure and are owner-occupied again, budgets and the overall health of the association will likely improve dramatically.  But until we can secure financing for owner-occupant buyers, what are we to do?

Just-before-print update:  Fannie Mae Relaxes Condo Funding Rules in Florida

What does 2010 hold in store for buyers, sellers and Realtors?  I predict that it will be much the same as what we saw in 2009 here in the Twin Cities:

• Foreclosures will continue to come on the market and many will be scooped up quickly with multiple offers.
• The “next wave” of foreclosures won’t show up till AT LEAST July – and likely later than that since there has been no uptick in sheriff sales yet.
• Short sales will also continue coming on the market but we’ll see more of them successfully close.  Some banks will learn how to get short sales done quickly but some will still take months to even reply.
• Mortgage rates will be in the 5% – 6%, with rates climbing as the year goes on.
• Mortgage underwriting standards will continue to tighten, meaning soon you will need to go through one of those airport naked-cam scanners to get approved for a loan, and then need to have your whole family go through one for a 2nd screening 2 days before closing.
• Median sales prices will remain flat or tick up slightly - foreclosure prices are at their bottom but short sales and traditional sellers will likely drop a little further but higher-priced homes will be selling in greater numbers, pushing the Median up.
• The $1M+ housing market will still be very slow and the $500k-$1M will only improve slightly – since jumbo mortgages are still tough to get these houses have fewer potential buyers.
• Total inventory on the market is likely to continue its 2009 fall (20% in 2009) – dropping to numbers we haven’t seen since 2005.

Dear Owners & Listing Agents of vacant relocation properties, short sales and foreclosures:

Today I showed one house that was completely unshoveled and a 2nd that was partially shoveled but very icy.  In both cases I and my clients almost fell a couple times each.  This is not a good way to get people to buy your house.  The house that hadn’t been shoveled at all didn’t even have any tracks – a sure sign it hadn’t been looked at since before the Christmas snowstorm over a week ago.  How many buyers & agents pulled up, didn’t want to trudge through the snow and then drove off?  When buyers and their agents have cold wet feet from the snow outside they are not likely to be as happy when they make it inside… first impressions are everything and you have certainly made a bad one.

Solution: Make it a felony

A bank has lien rights against the property.  Items attached to a property (fixtures) are considered part of the property (real property vs. personal property).  Though a homeowner has a right to modify a property, by wholesale removal of fixtures in the house it becomes no different than a burglar stealing from a homeowner.  This is already criminal – it just isn’t technically a crime yet. This costs the neighborhood in terms of further depression of home values (stripped house becomes a comparable for future sales, when condition often unknown to appraisers/public).  It also costs banks big money, which impacts future mortgage rates & fees.  It is a hidden tax on the rest of us.

RealtyTrac uses a combination Notices of Default, Notice of Foreclosure (Sheriff) Sale, and REO (bank owned) inventory to create a total number of Foreclosure Filings.  I went back and looked at the last 17 months of their data and saw a very dramatic change in their reporting for Notices of Foreclosure Sale data.  Take a look for yourself in the chart below:

See the astonishing increase in notices from March 2009 and on? What happened in March that started a trend that has continued for the last 9 months?  Honestly, I’m not quite sure.  The numbers RealtyTrac is reporting are the notices of the future Sheriff Sale versus the actual sale itself.  I and others in the business have noticed that some lenders are postponing sheriff sales multiple times, which can account for some of the increase but we’re talking about an increase of 100% – 500%… far too much to be dismissed so easily.  For reference, take a look at HousingLink’s Q3 2009 Foreclosure Report and review the chart below of the number of sheriff sales:

In Q3 & Q4 2008, RealtyTrac counted sheriff sale notices that accounted for 40% of the sheriff sales that HousingLink reported.  In Q3 2009, RealtyTrac counted 167% of the number of sheriff sales reported by HousingLink.

The Minnesota Home Ownership Center tracks a different number – the number of pre-foreclosure notices.  These notices are sent out when foreclosure proceedings are starting and are often sent 2-5 months prior to the sheriff sale itself.

While there is no denying that foreclosure activity is high and that it is likely to remain high for some time to come, I find RealtyTrac’s data very suspect and consequently their analysis on foreclosure rates in Minnesota is suspect as well.  Does anyone have an answer?