Friday, March 28, 2014

Investing in Real Estate: Risks VS Rewards

With limited knowledge that the real estate market has tanked over the last several years, you might be hesitant to pull the trigger to make what should be an excellent investment today. With some fortitude and patience, today is likely the best opportunity you’ll have in your lifetime to make a hefty profit from a real estate investment.

Generally, your options are to either rent out your investment or flip it. This article focuses on flipping properties. Consider Your Risks Adjustable rate mortgages were a huge problem in the real estate melt down a few years ago. Still, today some investors are going back to adjustable mortgages as a less expensive source of finances for flipping properties. Adjustable rate mortgages are being advertised as low as 2.6%.

However, the national average for adjustable mortgages is hovering around 4.2% at this time. There are two general categories of adjustable mortgages. Each comes with its own risk and reward. Each adjustable mortgage is attached to a third party index that determines the current interest rate. Also, each adjustable mortgage has a margin above the index that must also be paid.

One general category is tied to an index that moves slowly, meaning your interest rate will go up or down slowly. However, the margin that you pay above the index will be higher. The other general category attaches the adjustable mortgage to an index that fluctuates much more often, commonly on a monthly basis. The reward is that the margin paid above the index is less. The risk is that your payment fluctuates much more.

Because your reward is reflected in the risk you take, be aware of some of the traps these adjustable rate mortgages come with:
·         Your payment could go up (a lot) even if interest rates don’t go up very much.
·         Your payment may not go down much even when interest rates go down.
·         There are several scenarios built into these loans where you end up owing more than you borrowed even when you make all of the payments on time.
·         Adjustable mortgages often have a built in penalty if you pay them off early – not good when you are flipping houses.

Consider a 15 Year Fixed I think you can be sure that the super low adjustable mortgage rate will have built in advantages for the lender. They will make their money one way or another. Your financing decision needs to be made based on how much you can afford to pay each month. Besides an adjustable mortgage, you want to consider a 30 year fixed mortgage and a 15 year fixed mortgage. The 30 year fixed mortgage will have lower payment because it is spread out over a longer time period.

However, 15 year fixed mortgages have a lower interest rate than both adjustable mortgage rates and 30 year mortgages. This makes the 15 year mortgage the most attractive if you can afford the higher monthly payment. Today’s 30 year mortgages are averaging around 4.85%. Your monthly payment will be around $528 (not including insurance and property tax). If you can complete the flip in six months, the total interest you’ll pay is $2,417.48. Today, the national average for 15 year fixed mortgages is about 3.98%. Going with this loan gives you a monthly payment of about $739 (not including insurance and property tax).

If you complete this flip in six months, the total interest you pay is $1,969.66. That’s a $ 447.82 savings over the 30 year mortgage. Flipping houses is a business and you should be looking to cut expenses anywhere you can. With average 15 year mortgages lower than the average adjustable mortgage and with a lower risk, the 15 year mortgage looks the most attractive today. However, read the fine print of any mortgage carefully so you understand the risk to reward equation. 

Wednesday, March 12, 2014

California Real Estate: Not So Distressed

Vastly improved home prices over the past five years have changed the landscape of California's distressed housing market, which is now just a fraction of what it was during the Great Recession, the California Association of Realtors said today.

In January 2009, 69.5 percent of all homes sold in California were distressed, which includes short sales and real estate-owned properties, REOs. Five years later, that figure has shrunk to 15.6 percent, CAR said in a statement.

REOs comprised 60 percent of all sales in January 2009, while short sales made up 9.1 percent of all sales but rose to as high as 25.6 percent in January 2012. Short sales currently make up 9.2 percent of all sales, according to CAR. During the same time period, California's median home price has soared more than 64 percent from $249,960 in January 2009 to $410,990 in January 2014.

"The dramatic drop in the share of distressed sales throughout the state reflects a market that is fully transitioning from the housing downturn," said CAR President Kevin Brown. "Significant home price appreciation over the past five years has lifted the market value of many underwater homes, and as a result, many homeowners have gained significant equity in their homes, resulting in fewer short sales and foreclosures." The statewide share of equity sales hit a high of 86.4 percent in November 2013 and has been above 80 percent for the past seven months.

In some of the hardest hit California counties, the distressed market in January 2009 was 93.6 percent in Stanislaus County, 93 percent in San Joaquin County, 89.5 percent in San Benito County, 86.1 percent in Kern County, 85.6 percent in Sacramento County, 84.2 percent in Fresno County, and 83.6 percent in Monterey County.

The distressed market now has shrunk to 24.8 percent in Stanislaus, 25.1 percent in San Joaquin, 17.5 percent in San Benito, 18.4 percent in Kern, 19.9 percent in Sacramento, 26.3 percent in Fresno, and 16.9 percent in Monterey counties, CAR said.

Wednesday, February 19, 2014

Rising Rents Hurting California's Affordability

A combination of rising rents and falling government aid for affordable housing has dealt a blow to California's lower-income residents, according to a new study.Nearly 1 million extremely-low-income California households lack affordable, habitable homes, a need most pronounced in Southern California, a report released Tuesday found.

The foreclosure crisis displaced many homeowners, driving up demand and prices in the rental market. As the crisis eased over the last year, the housing recovery sent home prices soaring.
Incomes have failed to keep pace. The state's median rent rose more than 20% from 2000 to 2012, while median incomes fell 8%, the report from the California Housing Partnership Corp. said.

Meanwhile, state and federal funding for below-market housing plunged 79% over the last five years, the study said. “It’s creating a rapid change in our housing stock -- away from providing affordable, low-income housing toward housing the rich,” said Matt Schwartz, president of the California Housing Partnership.

Diminished government funds have reduced the production of new affordable units, stalling projects, he said. "It has dramatically lowered the number of developments that can proceed," Schwartz said.
Particularly hurtful, the study said, was the loss of redevelopment funds after local redevelopment agencies shut down two years ago. The agencies, which kept a portion of local property taxes, generated about $1 billion annually for affordable housing across California, but the state shuttered them to help ease its budget crisis.

The nonprofit, created by state lawmakers to preserve affordable units, proposed several policy recommendations to ease housing burdens for Californians, including an immediate injection of dollars from the general fund to focus on housing those at-risk of homelessness because of rising rents.

The report also urged passage of a bill that would create a permanent state source for affordable housing funding. The bill, SB-391, would impose additional fees on recorded real estate documents, except for those involved in a sale. Last year, the state Senate passed the bill and it is currently in the Assembly. The bill has drawn opposition from the California Assn. of Realtors.

“In a state where housing affordability is low, the last thing government should do is to enact an arbitrary new real estate tax on real estate recordings,” the Realtors group said in a statement. “The call for renewed support for affordable housing is laudable, but Senate Bill 391 is the wrong approach.”

The shortage of affordable units for very low-income Californians is especially pronounced in Southern California, despite the region’s relative affordability compared to the tech-flush San Francisco Bay Area. Schwartz said he didn’t know the reasons behind the disparity, but said a greater number of lower-income residents in the Southland could play a role.

There were 19 affordable units available per every 100 extremely-low-income renter households in Los Angeles County, the study said, citing an analysis of five-year Census Bureau estimates from 2006 to 2010. In San Francisco, there were 37. Orange and San Diego counties each had 18 available affordable units for every 100 poor households.

If the current trends continue, Schwartz said it would be devastating for lower-income households and California as a whole."At some point we are going to run out of available, low-income workers because no one is going to have a place to live," he said.

Wednesday, February 5, 2014

Monterey County Real Estate Market Returns to the Fundamentals

“We simply couldn’t keep going at this rate,” said Sandy Haney, the chief executive officer of the Monterey County Association of Realtors. In fact, the number of home sales statewide fell for the fifth straight month in December, according to the California Association of Realtors.

The economics of real-estate trends are complex; there are many factors that influence both home prices and the number of home sales. Leading the pressure locally is the limited inventory of homes sales. Leading the pressure locally is the limited inventory of homes in Monterey County. A decreasing supply with a constant demand equals rising prices.

For example, at the end of November in Monterey County, the inventory stood at a little under 850 homes. A month later the inventory was down to 717 with the total number of sales remaining basically flat. The median price – half sold for more, half sold for less – stood at $469,900 at the end of December. A month earlier it was $422,000.

“Homes under $300,000 are flying off the shelf,” she said. “On one of these homes we had 11 offers.”
The reason sales in the higher end are slower and much more active in the lower range is the result of several influences, experts say. Interest rates have begun to edge back up, making larger mortgages more expensive. Also, a bevy of new laws that took effect Jan. 1 have collectively clamped down on loan requirements lenders must now follow. Qualifying for a larger mortgage is far more difficult today than in 2007.

In a normal market we are transitioning back into – a homeowner would build equity in her home and then sell it to move up to a more expensive property she’s been eyeing, Haney said. But when the market collapsed in 2008, so much equity was lost – trillions of dollars nationally – that prospective sellers either don’t have enough equity built back up or they are gun-shy about making the move.

“There is a lot of caution in the market,” Haney said. “The sellers that have been through the [2008] market and didn’t lose their homes are still uncertain if the time is right to move up.”
Exacerbating the inventory problem is the falling number of so-called distressed sales, including short sales and sales of foreclosed homes. After six years, the number of foreclosures is falling dramatically as they continue to work their way through and out of the market.

That’s also a reason area Realtors are forecasting a transition period in 2014 – moving from an unstable, irrational and unsustainable market to one that is governed by the basics and fundamentals.

Tuesday, January 14, 2014

2014 Will Be the Year to Sell Your Home!

Patience seems to have paid off for those who’ve postponed putting their homes on the market until this year, real estate analysts say. They stand to pocket the kind of profits not seen since the housing boom.
Prices surged more than 10% in many markets last year, bidding wars are once again common, and homes are routinely going for well over the asking price in some cities. These trends make it seem like a return to the go-go days of the housing boom.

Single-family homes were selling at an average price of $244,300 in November, up 7.2% from a year prior and the highest price since August 2008, according to the latest data from the National Association of Realtors. Homes in major cities are experiencing big jumps in prices: In the 20 largest metro areas, prices in October increased at the highest year-over-year rate since February 2006, according to data released last month by the S&P/Case-Shiller Home Price Indices. “All in all, it’s a good time for people to put their home up for sale,” says Celia Chen, senior director with Moody’s Analytics.

The turnaround comes roughly seven years after the housing bust and amid signs that the economic recovery is picking up. As the unemployment rate drops and consumer confidence increases, more buyers are entering the housing market and sellers are finding that they have more leverage in negotiating the going prices of their homes.

Fueling this seller’s market are several factors that have unexpectedly converged: For-sale listings are limited, which is pushing prices up at the same time that mortgage rates are rising. That’s created a sense of urgency among buyers, many of whom fear that the door to affordable real estate in their market may be closing.

Rachael DeRoche, a pilot in the U.S. Air Force, says she recently started looking for a two-bedroom, two-bath condo in Charleston, S.C. and is frustrated by the lack of for-sale properties. DeRoche, 28, says she has expanded her search beyond the city’s center in the hopes of finding the property she wants. “Rates are rising and with limited listings out there, it puts people in a position to kind of accept something that they may not truly want…I worry that may happen to me,” she says.

In fact, data suggests that buyers are snatching up properties faster now. Homes in November 2013 were selling 11% faster than they were a year prior, according to the latest data from, which tracks for-sale listings. In several cities, that rate is even higher: Homes were selling 20% faster in New York and Miami, for instance, and 18% faster in Chicago and Dallas.

To be sure, the recovery to date hasn’t been enough to get every homeowner out of the red. In the third quarter of 2013, according to real-estate analytics firm CoreLogic, nearly 6.4 million homes were underwater, meaning borrowers’ mortgages were greater than value of their homes. These homeowners for the most part cannot sell their home unless their lender agrees to a short sale, in which the home is sold for less than the debt owed on it.

Still, homeowners with enough equity can benefit from current housing conditions. Inventory remains limited, which allows sellers to ask for higher prices. There were just shy of 2.1 million existing homes for sale in November, which equals a 5.1-month supply, according to the latest data from the NAR, a figure indicative of a seller’s market. A balanced market, in contrast, would have about six to 6.5 months of supply.

Separately, the Federal Reserve’s announcement in December that it’s tapering its bond purchases (from $85 billion to $75 billion per month) suggests that the era of historically low mortgage rates is coming to an end. While rates were rising before the Fed’s tapering decision — for instance, average rates for 30-year fixed-rate mortgages increased by more than one percentage point from May until September 2013, according to mortgage-info website — mortgage experts say they’re likely to rise further as the government unwinds its bond-buying program. The impact on buyers will be twofold: Some will likely pick up the pace of their home search so that they can lock in a mortgage before rates get too much higher.

Separately, as rates rise, they won’t be able to qualify for as large of a mortgage as they can now since higher rates will result in larger monthly payments that they may not be able to afford. “The expectation is that costs to buy later will be higher than they are now,” says Keith Gumbinger, vice president at
Of course, a buyer’s problem is often a seller’s upside, which might incline homeowners to hold off selling even longer for the possibility of even higher prices. While sales prices could rise, waiting comes with several risks, which could slow or even reverse recent price gains. Should the economic recovery — in particular, job growth — stall, home sales and prices could drop. And if mortgage rates spike suddenly by one full percentage point or more, demand could dampen.

But the biggest risk is from the supply side. It’s expected that the number of for-sale homes will rise this year, with much of the extra supply coming from home builders. Moody’s Analytics projects that construction will begin on 1.43 million new homes this year, up from slightly under 1 million that were expected for last year. This event alone could stall price gains. “Going forward this year, the level of price appreciation will likely be nowhere near what we witnessed in 2013,” says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.

Beyond 2014, more homes are expected to hit the market. Since the recession, investment firms, including private-equity firms and hedge funds, have been purchasing large numbers of single-family homes and turning them into rentals. Some analysts say that the supply-demand imbalance that has helped create this seller’s market is largely due to this trend. Those companies will likely put a large number of those properties for sale at the same time in a few years — which would put downward price pressure on nearby listings, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla.                     

Thursday, January 9, 2014

Is Now A Good Time to Sell?

The housing market’s recovery has been shoring up the U.S. economy, but it is still challenging for homebuyers, according to real estate market trends tracked by a new survey conducted by real estate brokerage Redfin.

Now is an advantageous time to sell, say two-thirds (65 percent) of 468 Redfin agents surveyed in the fourth quarter. This is down from 72 percent in the third quarter and 86 percent, a 2013 benchmark, in the second. Just over half (56 percent) of surveyed agents said that it was a good time to buy a home in their area.

Nearly nine-in-ten respondents (87 percent) said that low inventory is the primary challenge for potential homebuyers, which is necessitating more aggressive strategies. While nearly half (45 percent) of agents said that buyers delayed their search during the holidays, more than one-third of buyers (35 percent) are willing to pay more than the seller’s asking price, while just over three-in-ten (31 percent each) are willing to either be flexible on the features they want or are lowering their expectations.

Almost two-thirds (63 percent) of sellers consider “unrealistic expectations” as their primary challenge, the survey finds. Higher mortgage rates could seriously impact real estate market trends, agents fear. Almost four-in-ten (39 percent) said that mortgage rates of 5.5 percent would significantly limit sales and price gains, while one-third said mortgage rates of 6 percent would have the same effect.

Industry analysts project that mortgage rates could exceed 5 percent later this year. Rates for a 30-year fixed-rate mortgages hit 4.69 percent last week, according to

The most recent National Association of Realtors report showed that sales of previously-owned homes in November dipped 1.2 percent to an annual rate of 4.9 million sold. This was the third consecutive month of sales decline, which NAR attributes in part to the higher mortgage rates. Tight credit and limited inventory are other factors.

There are, though, encouraging real estate market trends. The bottleneck in new home construction may be easing, CNN reports. A December government report showed housing starts were up 19 percent of the first 11 months of 2013 compared to a year ago. However, the pace of home building is 25 percent below long-term averages.

The median home price of homes sold in November was $244,500, up 7.3 percent from a year ago, the government report found.

The NAR’s Pending Home Sales Index, an indicator based on contract signings (but not closings), ticked upward 0.2 percent in November. The National Association of Home Builders also reported that, except for October 2013, sales of newly-built, single-family homes in November enjoyed their strongest paces since July of 2008.

Friday, January 3, 2014

Looking Into The 2014 Crystal Ball

Home prices got off dead center as early as February, and climbed like the California Screamin’ roller coaster ride at Disney California Adventure Park. Unpredicted price escalation took hold for the rest of the year.

Foreclosure filings took a steep fall. The market rumbled toward recovery, despite pinched inventory and hairpin turns.

Thanks to the national debt ceiling talks, there was even an OMG moment as the year wound to a close. Economists wagged their fingers at Washington politics. Consumers took a deep gulp. And, for a spell, it seemed the Car Land sign that reads, “Dang Near Fainted,” had popped up on our road to recovery to throw a wrench in the works.

But, it didn’t happen.
As the year rolled to a close, and everyone caught their breath, seat belts should remain buckled. For 2014, more of the same, perhaps a milder ride, is predicted. But, still, it’s a conundrum as we make our way toward a full recovery.

Here’s why:
Take-Away: The economics of supply and demand played out. Most expected median price gains of 6 percent. Come February, an 18 percent median price jump in a region battered by foreclosure and short sales was a big wake-up call.

The year didn’t disappoint on price. The Inland had its strongest gains in six years. Home prices rose nearly 30 percent in some places. The crescendo, keeping demand sharp, did not abate.

Around-the-Corner: Price increases helped restore equity to many homes, and it put sellers back in the ballgame. That will help bolster supply. But it’s not a seller’s market, yet. Homeowners who get too aggressive could be left in the dust. Buyers are still bottom-feeding when it comes to price.
The hunch is, home prices will continue to rise in 2014, but at a more moderate pace. Buyers who’ve been hoping to catch a slice of California real estate need to be nimble, and run the risk of losing out. Affordability will become an issue for some wage earners here.

Take-Away: There’s nothing like that new-home smell. And, with existing home prices on the rise, there’s been a gravitational pull toward the new-home market. As construction costs penciled out, Inland region builders called a pool of long-idled craftsman to the labor force.
But the new-home market was hobbled so badly, it will take time to see a bumper crop of rooftops on the skyline. Building permits rose by the hundreds in 2013, not the thousands, as they did in the go-go years.

Around the Corner: This will be another building-block year. With Eastvale nearly built out, Jurupa Valley and commuter areas farther from the coast and work centers — think Banning/Beaumont, Calimesa, Menifee and the Coachella Valley as spots that ripen for new-home prospecting. We’re going to start to see more projects in the pipeline for 2015 and 2016.

Take-Away: Buyers follow price. So, with limited single-family detached homes coming into the market at prices under $200,000, attention turned to townhomes and condos. Young adults who are finally back on their feet, and can no longer deal with living at mom and dad’s or in shared apartments, got antsy.

Around-the-Corner: Demand will intensify for multifamily and condo-style housing, now that job growth is going in the right direction. Condo buyers in this realm are putting a premium on mobility; a lock-and-go lifestyle.

Take-Away: The much ballyhooed shadow inventory didn’t materialize in 2013, as some suspected it would. There was a lackluster start to foreclosure filings in the first part of the year — filings clocking in at a rate of about 4,750 notices of default, trustee’s auctions and take-backs were down about 54 percent from 2012.

By year’s end, filings were just shy of pre-recession levels.
Short-sale activity hit the skids. Buyers in the midst of protracted short-sale purchases exposed the hand of lenders who, as assessments rose, put off close of escrow with demands for more money. By year’s end, Realtors reported that 80 percent of all sales involved homes with equity.

Around the Corner: With home equity rising, and some GDP growth, foreclosure activity could return to a normal pace. The pool of mortgaged homes that are under water, meaning the loan is higher than the house is worth, could fall below 25 percent. A year ago, more than 50 percent of the mortgaged property was under water.
Keep an eye on the horizon, though: Some analysts see a final blip in foreclosure filings as the last of the distressed property is flushed out. They believe lenders took a bit of a hiatus as they acclimated to provisions of the California Homeowner’s Bill of Rights Act.

Take-Away: Interest rates ticked up. Mortgage lending jumped to a five-year high, driven by a sharp spike in refinancing as borrowers rushed in to lock down some of the lowest rates in 60 years before beginning a predicted climb out of the trenches. Any rise from historic lows was not unexpected. Neither was the Federal Reserve’s announcement it would start to taper its bond-buying program to $75 billion a month beginning in January, and lower its long-term Treasury bond and mortgage-backed securities purchases by $5 billion each.

Around the Corner: New mortgage rules, with tighter standards, take effect this year. And, the FHA maximum loan limit has also dropped 29 percent to $355,350 from $500,000. These two variables, along with a predicted rise in lending rates, will make this the year to watch how the housing market gyrates in response. Money finds a way, so lenders will likely get creative about how to put buyers into home loans. Watch closely, as modified lending products come into the marketplace.