This program is heavily used in the boonies  the sticks Greater Minnesota. This is a big change for Rural America and likely to cause some short-term issues for both buyers and sellers.

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!

What I’m wondering is at what point do commissions get so lucrative that it can severely influence an agent’s actions in representing their buyer?  Since discussing “usual” or “typical” commissions in a public forum can lead to antitrust issues, I won’t discuss numbers but I will say that 5% is above any buyer cooperative commission (buy-side only) that I’ve ever received.

For as long as I’ve been in the business (on my 8th year now!) I’ve heard grumblings of suspicion that some agents working with buyers put a bias towards listings that pay them higher commissions.  In many ways it makes sense – most agents are paid on commission only so selling a higher-priced listing or one with a higher payout does directly affect what they earn.  While it may make sense, steering a client based off of compensation reasons is unethical and violates Agency laws in Minnesota (and likely most other states too).  Needless to say, the influence is there and I have no doubt that some agents practice this, though I truly believe that most agents are true to their clients and don’t let a fatter commission check affect their representation of their client.

What concerns me here is that at some point the commission dollars get to be big enough that it becomes a much bigger enticement and therefore the chances of agent influence become higher.  Even if there is no true influence, the mere appearance of a conflict of interest becomes apparent.

On the flip side, this is a great marketing tool by DR Horton – they attract lots of interested agents to see if DR Horton has a house that fits their buyer’s needs since it would be a big fat payout for the agent.  DR Horton only has to pay that commission on closed sales that meet their rules, so a penney isn’t spent unless there is a result.  Also, since this is only for inventory/spec homes, what they’re doing is putting them on a kind of clearance sales so that they don’t have to keep paying the carrying costs for a vacant completed home.  Smart.

There are two sides to this – I’m curious on what anyone else may think about this.  Please comment!

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.

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

The chart below shows that January historically has a stronger showing activity than November and December and due to the 20% decrease in houses for sale in the last 12 months, there’s less competition in the market now.  Less competition makes it more likely that a buyer will find and select your house.  In fact, in January and February 2009, the houses that sold took 15% fewer appointments to do it.

The other reason you should consider listing now is that the home buyer tax credit is only good for purchase agreements accepted by April 30th, 2010.  That gives you less than 4 months to take advantage of what is effectively a subsidy.  If your buyer is a 1st time buyer or has owned their current home for more than 5 years, they’ll get a tax credit ($8000 and $6500, respectively).  If you have been in your house for more than 5 years and plan to buy again, you can get a tax credit too!

While showings pick up substantially in March, more listings historically come on the market during that time too and that only gives you 60 days to put a sale together to take advantage of the extended credit.

I’m a big proponent of the philosophy of “you make your own luck.”  If you want to take the greatest advantage, get moving now.

This is an intriguing question.  While I had my suspicions, I wasn’t sure what I would find so I put together this little image from Twin Cities MN Pending Sales and the 10 Year Treasury Note.  While the 10yr isn’t a direct mortgage interest rate gauge, it correlates very closely.  This chart is on a 5 year scale.

(Pending home sales data from MAAR, click image to see larger picture)

What we see from this chart is that the housing market is very cyclical but the influence of interest rates on the housing market isn’t all that clear.  While rates definitely play a role in housing demand, to me it doesn’t appear to be the dominant factor in housing sales activity.

There are lots of things that may impact housing in 2010 – anyone else want to share their thoughts?

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?

Every day more and more homeowners are falling behind on their payments, right?

So…………. where are the foreclosures?

County Sheriff Sales activity in Anoka, Dakota and Hennepin counties are all at or below the levels this time last year.  So while banks have more and more bad loans on their books, they appear to be very slow in taking action on it.  Of course there is always the possibility that the reason the sheriff sale activity hasn’t increased is because of all the workout programs that are in place but I don’t believe that those efforts have been substantial enough to account for this on their own.

Here are my latest tallies of sheriff sale activity for the counties in the Twin Cities that make it easy:

There is a TON of information in here to see but some of the big items of note:

• Foreclosure/REO new listings are down 42.4% from November 2008.
• Foreclosure/REO inventory is down 63.4% from November 2008 – now at less than 2 months’ supply.
• Foreclosure/REO median sales prices ROSE 2% year of year – the first year over year increase!
• Traditional Seller median sales prices FELL 15.6% from November 2008 to November 2009.
• Short Sale median sales prices FELL 15.6% from November 2008 to November 2009 as well.

There’s lots more to cover than I have time for right now but the reporting has become so detailed and clear that almost anyone can spot the dozen or so other notable items.

Read the latest report here.