Pete's Blog - Foreclosure Homes Market

Shadow Inventory Release?

The last few months have shown a dramatic reduction in the availability of foreclosures on the Denver home market. Buyers are scrambling to purchase the slim inventory. Owner occupants get first chance on what's out there, often in very competitive situations. Investors are left with very few options, often bidding against as many as a dozen other offers on the same property. I just heard this morning that there may be a start of a release of the shadow inventories that the banks are holding back. Not great news for stabilizing home prices but there should be more options available once again for buyers wishing to buy Denver homes, Parker homes, Centennial homes and nearby metropolitan area homes.

Some early good news!

According to the Nathional Assn of Homebuilders, the Denver housing market is showing measurable signs of improvement. Their index is based on home prices, employment and housing permits. Hopefully this is a good sign for the coming year if you're looking buy or sell a Denver home, Centennial home, Parker home or any home in the metropolitan area.

Parker for the new year

This really is not a new year's related blog, other than it is almost the new year. I just wanted to put in a plug for the Parker area because it is one of my favorites in the Denver area. If you're thinking of buying a Parker home then look no further! The communities of Stonegate, Clarke Farms, Idylwilde, the Pinery and Bradburry Ranch are some of the nicest in the south metro area. The schools of Chaparral, Ponderosa and the new Legend are some of the best in Colorado. If you're looking for a great place to raise a family then this is it! Please let me know if you need assistance in searching for a Parker home becaiuse I would do so with the utmost enthusiasm!!

Safest City In Colorado

CQ Press has compiled it's latest 'City Crime Rankings Report' and has rated Centennial the safest city in Colorado and the 16th safest city in the US. If you're thinking of buying that Centennial home or Centennial foreclosure, here's all the more reason to go for it!

Before You Buy

Just a bit of advice - before you begin looking for your new Denver home, call a lender and get pre-qualified! If you want to put an offer on a Centennial home and you don't have that pre-qualification, the seller won't accept the offer - then you take time to get pre-qualified and someone more prepared will get the home before you! If you do it before you start looking, you may well find that you qualify for more home than you originally thought! So get pre-qualified before you start looking for that Parker, Lone Tree, Castle Rock or Englewood home.

Foreclosure vs Normal Sale

Many homebuyers come to me with the intent of buying a foreclosure for their next home and thereby getting a screaming deal. This is all fine, but as a Realtor, it's my duty to advise of all the options. The reality is that foreclosures are seldom move-in ready and many require extensive and expensive work. If you are only prepared to do some light cleaning and maybe some painting, then foreclosures are probably not the best choise for you. Often times, normal sales in the neighborhood are priced just somewhat higher than the foreclosures but do not require the same repairs, thereby saving the buyer quite a bit of money, usually equal to the difference on cost. So next time your looking at those Parker, Castle Rock, Centennial, Aurora or Highlands Ranch foreclosures, remember to keep your options open for normal sales as well.

'Tis the Season

Don't let the holidays slow you down with your Denver real estate buying decisions. The banks are not holding back their foreclosures because the holiday season is nearing. There are still plenty of deals out there and the interest rates are still at an all time low!!

203K Loans Perfect for Foreclosures

Foreclosures are a great deal but are often in need of repair and the banks are not in the business of updating or repairing their foreclosures. FHA's 203k loans are a perfect mortgage tool for bundling repair costs into the loan so the buyer does not have to carry the upfront burden. Here's a brief overview of how you can use the 203k for your Denver foreclosure:

When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the Denver foreclosure. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.

For further information you can contact my preferred lender, Brian Quigley at The Mortgage Network. 720-949-5630 or loans@brianquigley.com.

What's the Real Deal?

Every buyer I come across is looking for a 'smokin'" deal on Denver foreclosures or Denver real estate in general. My job as a buyer's agent is to get them the best deal possible. But there is a wide beleif that banks are willing to part with their foreclosures for pennies on the dollar. This just isn't the case and the deals where foreclosures are sold for half of list are few and far between. The 'fortunate' buyers that find these foreclosures are sending out dozens of offers to find the one that may bite.The banks that I represent outright reject these offers. Buyers should note however that foreclosures typically get listed on the market for 10-20% below the neighborhood values and anything they negotiate below that list price is the real deal.

What Better Time to Invest in Real Estate

The stock market crash and subsequent roller-coaster ride of this past week has just reinforced to me the vailidity that now is the time to invest in real estate. The Fed will be keeping interest rates low for the next 2 years and the shadow inventory of foreclosures from Fannie and Freddie are rumored to be released soon. I know that the investors are out there in full force - my low inventory has been getting a huge flurry of showings. Also, the vacancy rates for rentals are at very low levels, keeping our investments occupied. Time to take advantage of all the Denver foreclosures!!

Has the Real Estate Market Bottomed Out?

That is the question I most often Hear from prople? The news keeps telling us that the recession ended a long time ago yet Denver Real Estate values have kept depreciating. This has been due mainly to the large amount of foreclosures that have hit the market. Todays Denver Post reports that the automotive industry is on a hiring spree due to larger demand on their products. This is a great leading indicator that the economy is indeed coming back. Normally this type of growth would spur home sales and home values as well. My take is that we are close to the bottom, but Denver home values will not be rising for a little while longer. Why? Because projected for the fourth quarter this, Fannie Mae will be releasing their 'shadow inventory' of foreclosures. These are the foreclosures that have been under review since the sign-off scandal hit earlier this year. This will keep values lower for a little while longer. Sell your house now before this hits the market! It is still a great time to buy!!

Some Interesting Price Comparisons

This may be fairly intuitive but I'm going to write about this anyway. I am in the process if relocating from my current home in Centennial to the Golden area. Because my vast experience has been in the south metro Denver real estate market, I was in for quite a shock when I started looking for homes in Golden. I live in a 2600 sq ft, 1995 Richmond home that has a market value of roughly $350,000. I'd like to get the equivalent in the Golden area. What I found is that my home in Golden would cost me about $500,000 +!! With my $350,000, I will be looking at a much smaller, older home :-( This is a humbling experience, and is largely due to the proximity to the mountains and a 1% growth cap the Golden put into effect years ago. There is not much new construction or space for that to compete with existing homes, so the values remain very strong.

If I deided that I wanted to move to the Castle Rock or Parker areas, that same $350K would buy me a nice Taj Mahal! Castle Rock and Parker real estate are growing - there is plenty of space and new construction so the availability of large, inexpensive homes is vast. Makes me want to cry! There are many areas where there is more bang for your buck and there are many areas of stable higher real estate prices. If you have a choice of where to buy, keep in mind where the values are and where the stability is!

Complaint About Denver Real Estate Prices

I received an e-mail the other day from an out-of-towner that came in through my website about Denver Foreclosures. They were looking at homes in the northwest areas of Wheatridge and Golden, thinking they may relocate there.  They stated that they heard there were great deals all over and that they can get decent homes for deep discounts.  When they saw the prices they almost fainted at how high they were and that there were no deals here.  They then got into what steals people were talking about in the real estate market in California and Arizona.  They were genuinely horrified at what the prices were here!

Well, there are 2 topics I see here right off the bat!  First off, we are not California or Arizona!  The Denver real estate market did not go through the huge bubble that those markets went through.  What people are seeing there are homes that last sold for, let's say, $750,000, are now reduced to maybe $350,000.  On the surface that may seem like a real bargain but my guess is that those homes were really only worth the current $350,000 (maybe some devaluation because of the current markets).  We were very lucky in the Denver real estate market that we didn't have that huge bubble.  Sure, we're losing some equity in our homes, but nothing like other parts of the country.  The values in our homes are doing much better, especially in some areas, like where the out-of-towners were looking.

My other observation is the area these people were looking.  I'm looking at some difficulty here myself because I hope to be moving into the Golden area next year and I see that the home values are quite a bit higher there than they are in the Centennial area where I live now.  I live in a solid neighborhood where my home value is roughly $350,000.  I'd like to move into a similar home in the Golden area but I would be looking at having to spend roughly $550,000 for a similar home!!  Go figure :-(  On the flip side, if I wanted to move to Castle Rock, I could get a newer home for the same price with 25% more square footage and beautiful granite countertops, stainless appliances and gorgeous cabinetry!!

I'm happy to live in Denver where we have a more solid real estate market (comparitavely).  There are great deals out there but you really have to be patient and look hard for them.  If you have the flexibility of where you can live then you can really get a lot of house for your money!

Our Mortgage Modification Findings

The following news items confirm our theory that the Treasury cannot force the Lenders and Servicers to hold REO assets indefinitely trying to squeeze out more Mortgage Modifications thereby damaging the Balance Sheets of Banks whose previous write downs are insufficient to cover the lost value.

1.  As of the first report date, the 38 largest Mortgage servicers reported only 200,000 trial Modifications, well short of the 500,000 goal set by Treasury, less than 10% of those offered. That goal has been pushed to November 1. The overall goal by 2012 is 3-4 MM Modifications – wildly unrealistic. Mark Zandi of Moody’s Economy.com  expects a best case of less than half that goal, a modest impact on the accumulating foreclosures  A Modification trial lasts 90 days and if three payments are made timely then converts into a permanent Modification.

2. The default rate on Modifications approaches 50%, so to net 500,000 Treasury would need 1 MM modifications. The FDIC chief economist, Richard Brown, said the agency experienced a 40% default rate on Modifications after FDIC took over IndyMac mortgages last fall with more defaults still to come.

3. Lenders see three types of homeowner situations:
    a. Modification makes sense because the borrower cannot stay current without it but can make payments on the new cap of 31% of gross income;
    b. Trial modification but borrower defaults only delays the foreclosure process costing the Lender mightily;
    c. Borrowers who could catch up payments so reducing their monthly amount is costly to the Lenders.
To sort out the scenarios, Treasury has Lenders holding their REOs

4. Elizabeth Warren who heads the Congressional panel with oversight for the TARP program said today in NPR that delay in liquidating REO was damaging Bank Balance Sheets impeding their lending to worthy customers.  She said more realistic expectations need to be set for Mortgage Modifications.

5. Fannie Mae and Freddie Mac reported their quarterly earning the end of last week and expressed caution about the rising rate of foreclosures up to 3 MM in 2009 (already 1.5 MM in first half of 2009) from 1.8 MM in 2008.  The delay in liquidating these assets makes the orderly disposal even more challenging for our Benham Agents and others who will have this responsibility.

6. Michael Fratantoni of the Mortgage Bankers Association said, “There has been this policy push to use modifications as the tool of choice. But there is going to be this narrow slice of borrowers for whom modifications is the right answer.”

7. A Report from the Federal Reserve of Boston  was down beat on Modifications reporting that lenders lose twice as much on foreclosures than then did two years ago with falling values and deteriorating home conditions without upkeep.  A look back at 2009 will be even more depressing given the artificial delay in releasing REOs for listing caused by the “outsized bet” on Modifications.  

In short, although mum seems to be the word publicly in dissent to the Treasury’s push to Modifications, the immediate step to release REO assets for listing that would not qualify is the only public policy that will lead to eventual Home price stability.

APRIL 2008

“I Want a Smokin’ Deal!”

How many times do real estate agents hear that from prospective buyers?  I hear it from everybody looking for homes or investments.  And why not try to get “smokin’ deals”?  You would think that with all the foreclosures on the metro Denver real estate market the banks would be frothing at the mouth to unload all these properties!  As a real estate agent my goal is to get the best deal for my clients – and they’re out there!  You just have to have realistic expectations in evaluating the properties you’re interested in.

Despite what you normally hear on the news the Denver real estate market is pretty stable (see my market statistics)   Investors and first-time home buyers are taking advantage of all the foreclosures and short sales.  I’ve been putting in many offers for clients on these properties only to find that we’re competing with multiple offers, either at list price or close to.

Deal or No Deal?

What does this mean if you’re looking for that huge windfall?  It means that you may have to either be very patient and put out 15 offers to get one accepted,  know someone who can supply these properties before they hit the MLS, re-think how you evaluate the properties or all of the above.  Many buyers automatically assume that the banks will do anything to shed themselves of their foreclosures but that is typically not the case.

When the banks release these foreclosures for the market, they have normally taken into account the condition of the property in comparison to the comparables in the area.  If you’re trying to shave big dollars off the list price for new carpet, new paint and holes in the wall, all of that has normally been taken into account in the pricing.

The discounts come in when you look at the market value of the home if it were in comparable shape to those in the rest of the neighborhood.  The property may already be listed 10% - 20% below that market value.

Then what is a realistic offer for these foreclosures if you hope to get one under contract?  As an example, if you look at the sales of lender-owned homes in south Aurora below $175K since the beginning of the year the sold prices average at 92.4% of the original listed price, the deepest discount being at 81% of list price.  There are properties that sold at 106% of list price!

In comparison, you can get a slightly better deal on short sales, provided you have the patience (some of these deals can take up to 6 months to close).  Short sales in south Aurora along the same guidelines as above are closing at an average of 87.3% of list price.  Short sales are normally in better condition than foreclosures because in many cases the homeowner lives there until the sale.

How does this compare in general to overall sales in south Aurora?  Solds average 86.7% of list price with the deepest discount at 54.6% (a rarity) of list and the highest at 106% of list. 

What does this all mean?  If you’re looking at list price don’t expect to get huge discounts – be realistic and look at the market values and do your budgeting from there (I provide these market values for my clients).  Are there smokin’ deals out there?  Absolutely!  When I come across one they go right to my best clients before they even hit the open market.

January 2008

THIS JUST IN...

Report offers hope in housing, an article from The Rocky Mountain News, reports that according to the PMI Mortgage Insurance Group's Winter 2008 Risk Index report, the Denver-area housing market is looking strong compared with many other places in the country.  Only a dozen cities across the country were ranked higher than the Denver-Aurora area.  David Berson, chief economist for PMI said, "Denver, actually, is looking reasonably good.  That doesn't mean prices will not fall, but it means there is a very low probability prices will be lower than they are today in two years. That is pretty good news."  LaVaughn Henry, director of U.S. economic analysis, said the model used by PMI judges each metropolitan area by five metrics: housing price movement, affordability, changes in local labor markets, housing supply and foreclosures.
http://www.rockymountainnews.com/news/2008/jan/16/metro-area-home-values-likely-hold/

Also heard on Channel 9 News this morning quoted from Dr Lawrence Yun of NAR, "Denver will be the leader in the recovery of the housing market.....the local economy is much much better than that of the rest of the nation."

DO DENVER REAL ESTATE FORECLOSURE RATES
HAVE TO BE SO HIGH?

It was recently reported in the media that Denver real estate foreclosures were up over 40% in 2007 to over 26,000 foreclosures.  This was equated as the equivalent of the homes in Littleton and Louisville combined!  A staggering amount to say the least and the forecast does not look much brighter for 2008.

This is of real concern not just here but on a national level and there are many efforts in government to help ease this rate of foreclosure.  When homeowners are facing the threat of foreclosure there is a lot of fear and denial that keep them from seeking the proper remedies available to them.  The first step is to always to contact the lenders and inform them of the circumstances and ask what their options are.  It is not in anyone’s best interest to foreclose on a home – least of all the lender.  There are many options available to Avoid Foreclosure and in many cases the lender will try these options to negotiate something reasonable for both parties.

In cases of severe hardship the lenders can agree to a Short Sale where they will accept less for the sale of the home than what is owed.  There are many investors and first time homebuyers in the Denver real estate market that are looking for homes for below market value prices.

There are buyers out there!  In a recent article in the Denver Post (http://www.denverpost.com/business/ci_7917416) it was reported that the number of home sales that closed in 2007 was down less than 1 percent compared with 2006.  People will always need to buy a home and are out there looking for deals.

So don’t run away from your lenders!  Try to negotiate a win-win solution to keep your home.  As a last resort contact a real estate agent who specializes in short sales to avoid the difficulties of foreclosure.

December 2007

IS IT A GOOD TIME TO BUY DENVER REAL ESTATE?

The media keeps talking about the doom and gloom in the Denver real estate market and it’s true that there are those that are suffering from the skyrocketing ARM’s and just can’t keep up.  There are those that want to move but are afraid to put their homes on the market because they think their neighborhood values are declining. The lenders have tightened their guidelines so it’s harder to get a loan these days.

 But for many, this is a time of opportunity!  When is the best time to pick up an investment?  When prices are down – that’s when!  Will the prices go lower?  Who knows, but we do know that there are plenty of great deals in the Denver real estate  market right now and interest rates are way down once again (you can get a 30yr fixed for 5 ¾%).  The Denver real estate market has a glut of foreclosures, bank owned homes, pre-foreclosures (short sales) and HUD homes.  These are being snatched up by eager real estate investors and first time home buyers for fix ‘n flips, rentals and personal homes.

 The best strategy for real estate out there today is for the long term investor or homeowner.  As has been proven time and again, Denver real estate appreciates more in the long term than the majority of other investments and is one of the few that you can use leverage.  The serious buyers out there today are looking to take advantage of the real estate market so they are looking for ‘smoking deals’.  So making a killing on fix ‘n flip’s is getting harder today.  The smartest investment in today’s Denver real estate market is ‘fix ‘n rent’ or ‘fix ‘n live there for a while’.  If you can cash flow the new rental or put some sweat equity in your new home and have the patience to hang in there for the long term, you are bound to prosper from the appreciation of the home over time.  This is especially a huge opportunity for first time home buyers with good credit, to get a good deal on a home with low interest rates.

October 2007

The market continues to be geographically segmented. As you can see from the two charts below, Douglas county real estate has typically outperformed the metro Denver market. However, there are pockets within Denver that are outperforming everything else in the state.

Denver County Sold Prices

Douglas County Sold Prices

Strategies for the Current Market

Certainly, there are opportunities to purchase houses in the metro area at prices below their recent market highs. However, careful analysis still must be done to determine what the current value really is for a particular property.

When selling a home, extra efforts are necessary to create the curb appeal and wow factor to set your house above the currently crowded market. As a skilled Realtor I can help you get the best possible price for your home.