So, How’s The Market? December 2008. All Data taken from Metrolist, Inc. on December 3, 2008
You could not pick a better time to buy a home than right now. There is a perfect housing storm brewing and here are the parts of the equation to focus on.
1. Inventory. The inventory on December 3, 2008 for single family homes and condominiums is standing at 22,271 homes available to buy. This represents a 19.12% decline in inventory over December of 2007.
2. Housing Interests hit a low of 5.25% for a 30 year conforming fixed rate mortgage this past week. The rate will fluctuate between this low number and 5.75% for the short term. These are extremely attractive rates for buyers.
3. Job growth in the Denver metropolitan area for 2008 was up over 2007 and will again grow in 2009.
These three factors are a clear indication that the price of homes in Denver will cause more buyers to enter the market resulting in home appreciation for 2009.
The decline in inventory is the big story. Here are the December inventory figures for the last 5 years.
You can follow the chart to show that we are at a 5 year low for inventory for this time of year, which will result in buyers having fewer choices in their housing search. At any time buyers do not have sufficient choices they tend to move faster toward buying the first house that fits their needs. This increase in activity causes properties to move faster, hence having prices rise because of the increased demand.
The second number to consider is the properties currently under contract. The economic woes of the past 90 days would make you think that buyers are no longer buying homes. The current number of properties under contract in the Denver Metro area do not reflect a position of economic concern. In fact, the number of homes that are under contract this December is 6.96% higher than it was 12 months ago. That increase supports the fact buyers in the Denver marketplace are secure in moving forward with their housing needs and not waiting for some economic bailout. Currently there are 5,396 homes placed under contract and 12 months ago it was 5045 or a 351 unit increase year over year.
The lagging sold data is one area that has not yet responded in a positive fashion. We see that it will be March before the Denver market starts to consistently outperform the previous years’ data.
In November of 2007 there were 3008 single family and condo units closed. In November of 2008 there were 2602 units closed. This 13.5% reduction in sold data year over year can be attributed to three factors.
1. In September and early October when these contracts were first written, the financing hurdles were harder to leap then they are today. In fact, interest rates hovered in the mid 6% range in September and October, which caused buyers to slow their buying process down for 30-45 days. This is reflected in the lack of closings for this November and will more than likely follow the same trend in December. The more flexible mortgage market today will show some positive closing results in 2009.
2. We did not see a reduction in gas prices till October. November closings are written in September and October. Outlying housing areas were hurt because buyers were overly concerned about the distance to cover to get to work and what the cost of their trips might be. Gas is now at a 4 year low in the fastest drop of that commodity in US history. Buyers are now starting to explore the suburban markets more as the prices are more attractive than the urban markets and the buyer pool who avoided those markets while gas prices hit astronomical levels are now revisiting these properties, but have not yet purchased causing the closings to drop off.
3. Consumer confidence in September and October was at an all time low for all products, not just housing. When people were having their retirement funds and stock portfolios reduced by tens of thousands of dollars, their desire to purchase a home became less attractive. However, what the Denver marketplace is now experiencing is a higher level of confidence than the national markets allowing buyers more willingness to buy, but this lack of willingness to move hurt the short term closing numbers at a more than seasonal drop.
The sold data year over year is down 6.83%. This is an expected reduction and although 2008 has not been a banner year for sold data, the trend of lack of inventory, increased buyer confidence and improved job growth will cause this lower sold statistic to be a thing of the past in 2009.
What should sellers do in this marketplace?
1. If your single family home is below $500,000, you are more than likely in a good position to sell faster than you think. Currently under $500,000 there is a 4.89 month supply of homes. When the supply is below a 6 month range, there typically are more buyers than there are listings causing homes to move faster.
2. If your single family home is between $500K and 1 Million, there currently is a 16.8 month supply of homes. This is a rather dramatic increase over the lower price range. Our recommendation would be to be the first positioned priced home in your market. Your home will need to show better than others, and offering terms to buy down interest rates would be something to attract buyers. The supply should continue to decrease bringing the opportunities from $500,000 up to the higher ranges as well.
3. If your single family home is above $1 million, there is a 37+ month supply. This might be misleading as some of the homes priced at this price point really aren’t worth $1 million but the sellers have chosen to position their homes at that level. The facts are that with that type of supply you must be the most aggressively priced home in the best condition. We typically see this price range supply drop faster than others because the homeowners have choices to take the home off the market and wait. We would anticipate this inventory to drop at a more rapid pace in 2009 than it has in 2008.
4. If you own a condo there is a 7.6 month supply of condos for all price ranges. You can assume that the entry level price range would have a lower supply than the upper.
Saturday, December 20, 2008
Monday, November 3, 2008
How's The Market November 2008?
So, How’s The Market: November 2008
All data is taken from Metrolist, Inc on November 3, 2008.
Inventory drops below 24,000 units. This is the first time since March of 2005 that single family and condo units have totaled less than 24,000 units in a given month. As of today the inventory for the Denver Metro area in single family and condo units is at 23,697. In March of 2005 the inventory stood at 23,647. It has been 43 months since the inventory for residential real estate hit this low of a number. Take a look at the inventory totals for the past 3 ½ years!
The good news indicator of this chart is Denver is absorbing more real estate than most national markets. The lower price points are really becoming a hot commodity. Looking at prices between zero and $250,000, the inventory for past November months until this November shows a dramatic drop in available housing this year.
And here’s the condo inventory in November of each year between zero and $250,000.
As you can see, the inventory for November for both single family and condos has decreased to their lowest levels in five years by a significant amount in the lower price ranges. This leads us to conclude that the inventory will continue to drop at a faster rate, increasing the probability of prices rising in the lower price ranges in 2009 and 2010 at a faster pace then previously predicted. Appreciation of these lower price ranges might increase as much as 6% in 2009 based upon the decreasing inventory.
Let’s look at the upper price ranges to see a comparison of inventories in Denver.
The numbers clearly indicate inventory in the upper price ranges of $750,000 to $2 million have not decreased at all and have increased in November of each of the previous 5 years.
We can conclude that the price ranges below $500,000 in the Denver metro area will continue to sell briskly, with homes priced $500,000-$750,000 somewhere in between and most likely it will take through 2009 before upper end properties will see any real appreciation.
So why would it be a good time to buy an upper end property? The best value for value today will be in the price ranges above $750,000. Getting a property at bargain values will be a good long term investment. If you wait until the market turns you might miss out on the upside if you are a buyer.
For example, if you take a 1 million dollar property that is appreciating at 4% per year, that is a $40,000 increase in one short year. If you take a $250,000 dollar property, appreciating at 4%, that will equal $10,000. Even if an upper end property does not start to appreciate till 2010, you will still be substantially ahead when buying an upper price range property today versus holding onto a lower priced property. The real deals in today’s market are at the upper end price ranges. You can build into the home a terrific price and terms to favor the buyer and take advantage of buying at the lowest point of the market. The inventory does not lie.
If you are thinking long term for your housing needs, you can really buy properties in the upper price ranges at a discount and get some good terms. If you ask the seller to buy your interest rate down you can get a discounted sales price and lower interest rates. These types of buying windows, where you can obtain discounted sales prices and still get terms, do not last forever. Those looking to move in the next year as well as those that have been sitting on the fence, now is the time to buy the home of your dreams and best take advantage of the market.
Sold data for 2008 is lagging behind previous years, but this indicator is starting to flatten out. In September of 2008 we reported that the sold data outperformed the previous year’s data. In October of 2008 the number of single family and condos closed was 3341 units. This was down 57 units from the previous year, but we have not seen two months in a row that the sold data has approached past years levels. With the current economic conditions for that blitzed the country in October, the sold data being almost level to one year ago is a very strong sign the real estate market in Denver is starting to outperform previous years.
The number of homes under contract is having a seasonal decrease to 5794 single family and condo units as of this writing. Twelve months ago there were 5566 units under contract or a 4.1% increase over last year. The confidence in Denver real estate is very good compared to most national markets and we would anticipate this to continue into 2009.
What should you do if you are a buyer today?
· Get qualified to buy the home of your dreams today. That home can be had a great price.
· If you are an investor that is looking long term, buy an upper end property for a rental. There are few rental properties in the upper end market and you will be able to find a tenant quickly.
· If you are a first time home buyer, the more suburban markets have more inventory then the City and County of Denver. Expand your search parameters, as you should buy now to take advantage of next years appreciation.
What should you do if you are seller?
· Try to be the entry price point for your product and location.
· Add terms to attract buyers to your home.
· Be the best conditioned and buyer friendly home, meaning fix the little things before selling.
For more information, statistics, or how these numbers affect the value of your property contact Michael Kozlowski.
Michael Kozlowski
TEAM-KOZ
Broker Associate/Owner
Prestige Real Estate Group
9200 E. Panorama Circle, Suite 140
Englewood, CO 80112
303.949.2755 Cellular
303.328.2951 Facsimile
team-koz@comcast.net
www.team-koz.com
All data is taken from Metrolist, Inc on November 3, 2008.
Inventory drops below 24,000 units. This is the first time since March of 2005 that single family and condo units have totaled less than 24,000 units in a given month. As of today the inventory for the Denver Metro area in single family and condo units is at 23,697. In March of 2005 the inventory stood at 23,647. It has been 43 months since the inventory for residential real estate hit this low of a number. Take a look at the inventory totals for the past 3 ½ years!
The good news indicator of this chart is Denver is absorbing more real estate than most national markets. The lower price points are really becoming a hot commodity. Looking at prices between zero and $250,000, the inventory for past November months until this November shows a dramatic drop in available housing this year.
And here’s the condo inventory in November of each year between zero and $250,000.
As you can see, the inventory for November for both single family and condos has decreased to their lowest levels in five years by a significant amount in the lower price ranges. This leads us to conclude that the inventory will continue to drop at a faster rate, increasing the probability of prices rising in the lower price ranges in 2009 and 2010 at a faster pace then previously predicted. Appreciation of these lower price ranges might increase as much as 6% in 2009 based upon the decreasing inventory.
Let’s look at the upper price ranges to see a comparison of inventories in Denver.
The numbers clearly indicate inventory in the upper price ranges of $750,000 to $2 million have not decreased at all and have increased in November of each of the previous 5 years.
We can conclude that the price ranges below $500,000 in the Denver metro area will continue to sell briskly, with homes priced $500,000-$750,000 somewhere in between and most likely it will take through 2009 before upper end properties will see any real appreciation.
So why would it be a good time to buy an upper end property? The best value for value today will be in the price ranges above $750,000. Getting a property at bargain values will be a good long term investment. If you wait until the market turns you might miss out on the upside if you are a buyer.
For example, if you take a 1 million dollar property that is appreciating at 4% per year, that is a $40,000 increase in one short year. If you take a $250,000 dollar property, appreciating at 4%, that will equal $10,000. Even if an upper end property does not start to appreciate till 2010, you will still be substantially ahead when buying an upper price range property today versus holding onto a lower priced property. The real deals in today’s market are at the upper end price ranges. You can build into the home a terrific price and terms to favor the buyer and take advantage of buying at the lowest point of the market. The inventory does not lie.
If you are thinking long term for your housing needs, you can really buy properties in the upper price ranges at a discount and get some good terms. If you ask the seller to buy your interest rate down you can get a discounted sales price and lower interest rates. These types of buying windows, where you can obtain discounted sales prices and still get terms, do not last forever. Those looking to move in the next year as well as those that have been sitting on the fence, now is the time to buy the home of your dreams and best take advantage of the market.
Sold data for 2008 is lagging behind previous years, but this indicator is starting to flatten out. In September of 2008 we reported that the sold data outperformed the previous year’s data. In October of 2008 the number of single family and condos closed was 3341 units. This was down 57 units from the previous year, but we have not seen two months in a row that the sold data has approached past years levels. With the current economic conditions for that blitzed the country in October, the sold data being almost level to one year ago is a very strong sign the real estate market in Denver is starting to outperform previous years.
The number of homes under contract is having a seasonal decrease to 5794 single family and condo units as of this writing. Twelve months ago there were 5566 units under contract or a 4.1% increase over last year. The confidence in Denver real estate is very good compared to most national markets and we would anticipate this to continue into 2009.
What should you do if you are a buyer today?
· Get qualified to buy the home of your dreams today. That home can be had a great price.
· If you are an investor that is looking long term, buy an upper end property for a rental. There are few rental properties in the upper end market and you will be able to find a tenant quickly.
· If you are a first time home buyer, the more suburban markets have more inventory then the City and County of Denver. Expand your search parameters, as you should buy now to take advantage of next years appreciation.
What should you do if you are seller?
· Try to be the entry price point for your product and location.
· Add terms to attract buyers to your home.
· Be the best conditioned and buyer friendly home, meaning fix the little things before selling.
For more information, statistics, or how these numbers affect the value of your property contact Michael Kozlowski.
Michael Kozlowski
TEAM-KOZ
Broker Associate/Owner
Prestige Real Estate Group
9200 E. Panorama Circle, Suite 140
Englewood, CO 80112
303.949.2755 Cellular
303.328.2951 Facsimile
team-koz@comcast.net
www.team-koz.com
Saturday, October 4, 2008
How's The Market October 2008?
So, How’s the Market, October 2008. All statistics are taken from Metrolist on 10.3.08
For the first time since April of 2007 the sold data for one month outperformed the same month the previous year. September of 2008 recorded 3941 single family and condo units closed. This represented a 12.31% increase over September of 2007 which recorded 3509 single family and condo’s closed.
Sold data always lags behind other indicators of market condition and one month hardly makes a trend, but to put this increase in perspective the last time Denver experienced a month over month improvement was April of 2007. April 2007 outperformed April of 2006 with the next earlier time being May 2006/May 2005. For this September to outperform the previous year is a good sign of the Denver market improving. We anticipate this trend to continue and really take hold by March of 2009.
Year to date sold data is still lagging previous years, with 33,951 single family and condo units closed through September 30th. Here’s the previous 5 years sold results through September of each year.
The year to date reduction over the previous year is 6.76% down 2465 units from last year through September. The year to date number is also coming closer to a year over year increase and we predict 2009 will have more properties sell than 2008.
Another good sign for the closed data is the difference between August and September of each year. The chart below shows that in 2008 the sold data difference this year is much improved over the last 4 years. Again, we caution this may be a one month abnormality, but we believe that the sold data will start to outperform previous by the end of 2008. It is starting just a little earlier, which is good news for homeowners. We will watch this trend over the next 4 months to see if the positive nature of the sold data continues.
The actual difference from August to September in 2008 is down 3% as compared to 19.2% for 2007, 18.01% in 2006, 21.7% in 2005 and 6.56% in 2004. The data shows that September of 2008 has the makings of a turning market.
The winner of the statistical data is the listing inventory numbers that are showing up in our market. The single family and condo home inventory continues to decrease at a rapid pace. From October of 2007 to October of 2008 the inventory decreased 19.68%. The total market inventory is as low as it’s been for an October in more than 5 years! Remember the adage, when inventory decreases, prices will…… Let’s not get too euphoric over the data, but real estate numbers for Denver are starting to really look better and better.
Finally, the homes under contract are still holding a higher level than the previous two years. Currently in October there are 6515 single family and condo units under contract. In October of 2007 there were 5566 and in October of 2006 there were 6086. 2008 appears to be holding its own with properties continuing to close over the next 4 months.
Our predictions for the market are:
· The current economic conditions will have most industries in a holding pattern for the next 90-120 days, so we do not see real estate being any different, making for a modest fourth quarter for sales in 2008.
· 2009 will outperform 2008 by more than 8% more closed properties
· 2009 will see homes appreciate in Denver by 3-4%. Some neighborhoods more than others, but all homes will be affected positively in value
· 2009 will see a little higher interest rate for homes than we are experiencing today.
· Foreclosures and short sales will be down by 25% in 2009 over 2008
· The number of homes that will close this year will be less than the previous 5 years.
· The number of homes available for sale will be less than the previous 5 years.
With this said, the next 90 days would be a great opportunity to buy a home before homes start to see appreciation occurring next year.
For the first time since April of 2007 the sold data for one month outperformed the same month the previous year. September of 2008 recorded 3941 single family and condo units closed. This represented a 12.31% increase over September of 2007 which recorded 3509 single family and condo’s closed.
Sold data always lags behind other indicators of market condition and one month hardly makes a trend, but to put this increase in perspective the last time Denver experienced a month over month improvement was April of 2007. April 2007 outperformed April of 2006 with the next earlier time being May 2006/May 2005. For this September to outperform the previous year is a good sign of the Denver market improving. We anticipate this trend to continue and really take hold by March of 2009.
Year to date sold data is still lagging previous years, with 33,951 single family and condo units closed through September 30th. Here’s the previous 5 years sold results through September of each year.
The year to date reduction over the previous year is 6.76% down 2465 units from last year through September. The year to date number is also coming closer to a year over year increase and we predict 2009 will have more properties sell than 2008.
Another good sign for the closed data is the difference between August and September of each year. The chart below shows that in 2008 the sold data difference this year is much improved over the last 4 years. Again, we caution this may be a one month abnormality, but we believe that the sold data will start to outperform previous by the end of 2008. It is starting just a little earlier, which is good news for homeowners. We will watch this trend over the next 4 months to see if the positive nature of the sold data continues.
The actual difference from August to September in 2008 is down 3% as compared to 19.2% for 2007, 18.01% in 2006, 21.7% in 2005 and 6.56% in 2004. The data shows that September of 2008 has the makings of a turning market.
The winner of the statistical data is the listing inventory numbers that are showing up in our market. The single family and condo home inventory continues to decrease at a rapid pace. From October of 2007 to October of 2008 the inventory decreased 19.68%. The total market inventory is as low as it’s been for an October in more than 5 years! Remember the adage, when inventory decreases, prices will…… Let’s not get too euphoric over the data, but real estate numbers for Denver are starting to really look better and better.
Finally, the homes under contract are still holding a higher level than the previous two years. Currently in October there are 6515 single family and condo units under contract. In October of 2007 there were 5566 and in October of 2006 there were 6086. 2008 appears to be holding its own with properties continuing to close over the next 4 months.
Our predictions for the market are:
· The current economic conditions will have most industries in a holding pattern for the next 90-120 days, so we do not see real estate being any different, making for a modest fourth quarter for sales in 2008.
· 2009 will outperform 2008 by more than 8% more closed properties
· 2009 will see homes appreciate in Denver by 3-4%. Some neighborhoods more than others, but all homes will be affected positively in value
· 2009 will see a little higher interest rate for homes than we are experiencing today.
· Foreclosures and short sales will be down by 25% in 2009 over 2008
· The number of homes that will close this year will be less than the previous 5 years.
· The number of homes available for sale will be less than the previous 5 years.
With this said, the next 90 days would be a great opportunity to buy a home before homes start to see appreciation occurring next year.
Tuesday, September 16, 2008
Wells Fargo relaxes loan rules along Front Range
Wells Fargo relaxes loan rules along Front Range
By Jeff Smith, Tuesday, September 16, 2008
Wells Fargo Home Mortgage, one of the state's largest lenders, has relaxed its loan requirements along the Front Range in recognition of a healthier housing market.
It's unclear how many other lenders will follow suit. And with credit overall tight and consumers concerned about the national economy, home- buying activity may continue to be tepid until next spring, experts say.
Liz Brown, retail division sales manager for Wells Fargo Home Mortgage, said the company upgraded the ratings for all counties surrounding Denver and most of northern Colorado from "distressed" to "stable."
"We've basically expanded our lending guidelines, in most cases giving 5 percent more in terms of the loan amount or requiring 5 percent less down for the home," she said of guidelines that took effect Monday.
But Bryant stressed the company assesses the risk of each loan so individual cases could vary.
"I think this is great news for Denver, great news for Colorado," Bryant said. "We had challenges earlier than many of the other real-estate markets in the country, and it appears our recovery is happening before others."
Only Weld County is still considered "distressed," she said. A number of other Colorado counties, including those south of Denver, already were considered stable.
Denver's market has strengthened in part because of a 20 percent drop in home inventory over the past year, according to August data from Metrolist.
"It's about time" Wells Fargo upgraded the area, said Thomas Thibodeau, academic director for the CU Real Estate Center in Boulder. "The fact of the matter is that the housing market here is vastly different than the rest of the U.S. I think the Denver housing market has turned the corner and is on the way to recovery."
Thibodeau, professor at CU's Leeds School of Business, cited Standard & Poor's Case-Shiller home price index, which shows the Denver market to be healthier than the nation as a whole.
By Jeff Smith, Tuesday, September 16, 2008
Wells Fargo Home Mortgage, one of the state's largest lenders, has relaxed its loan requirements along the Front Range in recognition of a healthier housing market.
It's unclear how many other lenders will follow suit. And with credit overall tight and consumers concerned about the national economy, home- buying activity may continue to be tepid until next spring, experts say.
Liz Brown, retail division sales manager for Wells Fargo Home Mortgage, said the company upgraded the ratings for all counties surrounding Denver and most of northern Colorado from "distressed" to "stable."
"We've basically expanded our lending guidelines, in most cases giving 5 percent more in terms of the loan amount or requiring 5 percent less down for the home," she said of guidelines that took effect Monday.
But Bryant stressed the company assesses the risk of each loan so individual cases could vary.
"I think this is great news for Denver, great news for Colorado," Bryant said. "We had challenges earlier than many of the other real-estate markets in the country, and it appears our recovery is happening before others."
Only Weld County is still considered "distressed," she said. A number of other Colorado counties, including those south of Denver, already were considered stable.
Denver's market has strengthened in part because of a 20 percent drop in home inventory over the past year, according to August data from Metrolist.
"It's about time" Wells Fargo upgraded the area, said Thomas Thibodeau, academic director for the CU Real Estate Center in Boulder. "The fact of the matter is that the housing market here is vastly different than the rest of the U.S. I think the Denver housing market has turned the corner and is on the way to recovery."
Thibodeau, professor at CU's Leeds School of Business, cited Standard & Poor's Case-Shiller home price index, which shows the Denver market to be healthier than the nation as a whole.
Tuesday, September 9, 2008
U.S. Seizes Mortgage Giants; Government Ousts CEOs of Fannie, Freddie; Promises Up to $200 Billion in Capital -- Wall Street Journal
Wall Street Journal, By James R. Hagerty, Ruth Simon and Damian Paletta
September 8, 2008
In its most dramatic market intervention in years, the U.S. government seized two of the nation's largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages.
Treasury Secretary Henry Paulson announced plans Sunday to take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies' chief executives. The Treasury will acquire $1 billion of preferred shares in each company without providing immediate cash, and has pledged to provide as much as $200 billion to the companies as they cope with heavy losses on mortgage defaults. The Treasury's plan puts the two companies under a conservatorship, giving management control to their regulator, the Federal Housing Finance Agency, or FHFA.
With that, the U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector.
Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.
Mr. Paulson noted that more than $5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide. "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Mr. Paulson said.
By taking this action, the government has seized control of the vast bulk of the secondary market for home mortgages and will have a more direct responsibility than ever for solving the housing crisis. The intervention also marks the failure of the public-private experiment that was created to boost home ownership among Americans. Fannie and Freddie were created by Congress to help prop up the housing market, and investors have long believed the government would bail the companies out in a crisis. But the companies have long been owned by private shareholders seeking to maximize profits.
The federal takeover was initially welcomed by banks and market watchers outside the U.S. who saw it as a way to dispel some of the uncertainty roiling the world's financial markets. The intervention could eventually be a boon for Wall Street, by providing a boost to the moribund mortgage industry and by perhaps diminishing the influence of Wall Street's two largest competitors in the market of packaging and reselling mortgage-backed bonds.
Markets across Asia rallied early Monday morning on the news, with financial shares leading the way.
Japan's Nikkei Stock Average of 225 companies soared more than 3%, and Hong Kong's Hang Seng Index opened 4.5% higher.
The move is also likely to nudge down mortgage rates for consumers, who are facing the worst housing bust since the 1930s. Despite steep interest-rate cuts by the Federal Reserve, the cost of a typical 30-year fixed-rate mortgage has remained well over 6% for most of the past year. To bolster the mortgage market, Treasury said it will buy, on the open market, at least $5 billion of new mortgage-backed securities issued by Fannie and Freddie.
The government rescue of Fannie and Freddie is likely to leave a trail of billions of dollars in losses for stockholders, including some major banks. But it protects the investments of bondholders, including mutual funds, foreign central banks and government investment funds that own huge amounts of debt issued by the two companies. Investors that have loaded up recently on mortgage-backed bonds -- such as Pacific Investment Management Co., the large Newport Beach, Calif., bond manager -- could benefit as Treasury purchases of such securities drive up their values.
It is unclear how much the government's intervention will ultimately cost taxpayers. In addition to its initial acquisition of preferred shares, the government receives warrants giving it the right to a stake of 79.9% of each company for a nominal sum. The Treasury's preferred shares, which carry an annual dividend yield of 10%, will be senior to those earlier issued, meaning the government will have the first right to receive dividends.
Existing shareholders won't fare so well. The new overseers will eliminate dividends on billions of dollars of common and preferred stock, moves that are expected to further drive down the price of those shares. If the government exercises its warrants, existing common shares will be drastically diluted. Common shareholders are expected to see the value of their investment, which has already fallen, shrivel further, say analysts. Even preferred stockholders are expected to see a significant decline.
That prospect is especially problematic for some of the commercial banks and thrifts that hold high concentrations of Fannie and Freddie preferred shares. The Office of Thrift Supervision, a government agency that supervises savings and loans, said that roughly 2% of the 829 companies it regulates -- or around 17 banks -- had a concentration in common or preferred shares of Fannie Mae and Freddie Mac that surpassed 10% of their Tier 1 capital. Regulators said Sunday they would work with banks that hold large exposures to Fannie and Freddie "to develop capital-restoration plans" if necessary.
The Treasury's move doesn't answer the question of what ultimately happens to Fannie and Freddie. Under the conservatorship of their regulator, the companies will still have their shares listed on the New York Stock Exchange. But management control goes to the regulator until it deems the companies financially healthy. Congress ultimately will have to decide in what form Fannie and Freddie will be relaunched or whether they will be replaced by different types of entities.
Mr. Paulson signaled that he wants to remake the U.S. housing-finance system in the longer term, ditching the "flawed business model" of government-sponsored enterprises like Fannie and Freddie. The Treasury plan limits the size of each company's mortgage portfolios to a maximum of $850 billion as of the end of 2009. (Fannie currently owns about $758 billion of mortgages and related securities, while Freddie's total is about $798 billion.) After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about $250 billion at each company.
Wrangling over the future shape of Freddie and Fannie will likely be kicked to the next Congress.
Already the majority Democrats are pushing back on elements of Treasury's plan. "Good luck on that," said Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, when asked about the Treasury's plan to start reducing the firms' portfolios beginning in 2010. Mr. Frank called it "more of a sop to the right" than a real policy prescription and said it wasn't going to happen.
Many economists and analysts believe the government had to wade deeper into the mortgage market because for now "private markets are just not willing to put up the capital" for home mortgages at prices U.S. consumers could afford, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Without government support for the mortgage market, home prices would fall much further, exposing the country as a whole to greater economic strain, Ms. Wachter says.
The turn of events for Fannie and Freddie is remarkable considering the two companies for so long shunned the riskiest type of mortgages, only to embrace those mortgages late in the game in an effort to regain market share from Wall Street rivals.
As early as 2005, Fannie executives publicly expressed concerns about growing risks in the mortgage market. In May of that year, Thomas Lund, a Fannie Mae executive vice president, said that lenders should be concerned if borrowers straining to afford homes were given loans allowing for low payments in the early years but storing up much higher ones for later. "In many cases the consumers may not understand all the risks," he said.
Yet both companies expanded their exposure to riskier loans. At both Fannie and Freddie, so-called Alt-A loans, a category between prime and subprime, accounted for roughly 50% of credit losses in the second quarter, even though such loans accounted for only about 10% of the companies' business. Alt-A mortgages include loans made with less than full documentation of borrowers' income or assets.
As these and other loans -- including many in areas such as California and Florida that are among the hardest hit by the housing crisis -- started to go bad, the companies failed to raise enough capital late last year, when investors were still fairly bullish on their prospects, to see them through the current storm. The companies have recorded combined losses totaling about $14 billion over the past four quarters, eating deeply into their meager capital holdings. Most analysts expect them to report sizable losses for at least another couple of years as the costs of foreclosures mount.
Fannie and Freddie's credit problems are largely a reflection of the overall weakness in the housing market.
Some 9.2% of mortgages on one- to four-family homes were at least a month overdue or in the foreclosure process in the second quarter, according to the latest survey of the Mortgage Bankers Association. That is the highest percentage in the 39 years that the trade group has been doing the surveys.
"Make no mistake, anybody in the mortgage business is going to see much higher losses than they thought they would a year ago because we've had the worst housing market and the largest home price declines that anybody has seen," said Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie.
Both companies are also exposed to some of the mortgage industry's most troubled players. Countrywide Financial Corp., now part of Bank of America Corp., was the largest provider of loans purchased by Fannie Mae, accounting for 29% of its business in 2007, according to Inside Mortgage Finance, and was the second largest source of loans for Freddie Mac, with a 16% share. IndyMac Financial Corp., which previously had focused its business on Alt-A loans that didn't meet Fannie and Freddie guidelines, switched to a policy of making loans that could meet their standards in 2007. IndyMac was taken over by the Federal Deposit Insurance Corp. this summer.
At Fannie, Herb Allison, who formerly served as chairman of the investment company TIAA-CREF, succeeds Daniel Mudd. Freddie's chief executive, Richard Syron, was succeeded by David Moffett, who has been vice chairman and chief financial officer of U.S. Bancorp.
Potentially, Mr. Syron could walk away with an exit package totaling as much as $15 million, said David Schmidt, a senior consultant at James F. Reda & Associates LLC, a compensation consulting concern in New York. That includes a pension and deferred compensation, about $3.7 million in severance pay and a possible payment of $8.8 million to compensate for forfeiting recent equity grants. A Freddie spokesman said Mr. Syron had said he doesn't "anticipate receiving nearly that much."
Mr. Mudd's exit package, including stock he already owns, could total $14 million, Mr. Schmidt estimates.
That includes $5 million in pension and deferred compensation, $4.2 million in severance pay and $3.4 million of restricted stock, based on Friday's closing price. The value of that stock could fall sharply, however.
Key Players
-- Henry Paulson, Treasury Secretary: Known mostly as a pragmatist when he was sworn in July 2006, the 62-year-old former chief executive of Goldman Sachs has sought, and won, authority for unprecedented government involvement in the nation's financial markets.
-- Ben Bernanke, Chairman of the U.S. Federal Reserve: A career academic focused on the interaction of the financial system and economy, especially during the Depression, Mr. Bernanke, 54, has formed close working relationship with Mr. Paulson in the last two years.
-- Daniel H. Mudd, Former Fannie Mae Chief executive: A former Marine officer, Mr. Mudd was promoted from his job as Fannie Mae's chief operating officer when predecessor Franklin Raines was ousted in December 2004.
-- Richard Syron, Former Freddie Mac Chairman and Chief executive: Mr. Syron, 64, a former senior Federal Reserve official, came to Freddie in December 2003 with a mandate to clean up after that company's accounting scandal.
-- James Lockhart, Federal Housing Finance Agency director: As head of the Office of Federal Housing Enterprise Oversight, Mr. Lockhart pushed for more power to regulate Fannie and Freddie. At the helm of the newly created FHFA, he has it.
-- Barney Frank, House Financial Services Committee chairman: With Democrats in control of Congress, the 14-term congressman from Massachusetts has an even louder voice to support a bigger role for government in solving the housing slump.
-- Herb Allison, Incoming CEO of Fannie Mae: As Merrill Lynch's president and chief operating officer, Mr. Allison presented the initial proposal for a Wall Street bailout of high-flying hedge fund Long-Term Capital Management LP in 1998. He recently retired as chief executive of pension fund TIAA-CREF.
-- David Moffett, Incoming CEO of Freddie Mac: The former chief financial officer of U.S. Bancorp, Mr. Moffett has been working in private equity for the Carlyle Group.
September 8, 2008
In its most dramatic market intervention in years, the U.S. government seized two of the nation's largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages.
Treasury Secretary Henry Paulson announced plans Sunday to take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies' chief executives. The Treasury will acquire $1 billion of preferred shares in each company without providing immediate cash, and has pledged to provide as much as $200 billion to the companies as they cope with heavy losses on mortgage defaults. The Treasury's plan puts the two companies under a conservatorship, giving management control to their regulator, the Federal Housing Finance Agency, or FHFA.
With that, the U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector.
Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.
Mr. Paulson noted that more than $5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide. "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Mr. Paulson said.
By taking this action, the government has seized control of the vast bulk of the secondary market for home mortgages and will have a more direct responsibility than ever for solving the housing crisis. The intervention also marks the failure of the public-private experiment that was created to boost home ownership among Americans. Fannie and Freddie were created by Congress to help prop up the housing market, and investors have long believed the government would bail the companies out in a crisis. But the companies have long been owned by private shareholders seeking to maximize profits.
The federal takeover was initially welcomed by banks and market watchers outside the U.S. who saw it as a way to dispel some of the uncertainty roiling the world's financial markets. The intervention could eventually be a boon for Wall Street, by providing a boost to the moribund mortgage industry and by perhaps diminishing the influence of Wall Street's two largest competitors in the market of packaging and reselling mortgage-backed bonds.
Markets across Asia rallied early Monday morning on the news, with financial shares leading the way.
Japan's Nikkei Stock Average of 225 companies soared more than 3%, and Hong Kong's Hang Seng Index opened 4.5% higher.
The move is also likely to nudge down mortgage rates for consumers, who are facing the worst housing bust since the 1930s. Despite steep interest-rate cuts by the Federal Reserve, the cost of a typical 30-year fixed-rate mortgage has remained well over 6% for most of the past year. To bolster the mortgage market, Treasury said it will buy, on the open market, at least $5 billion of new mortgage-backed securities issued by Fannie and Freddie.
The government rescue of Fannie and Freddie is likely to leave a trail of billions of dollars in losses for stockholders, including some major banks. But it protects the investments of bondholders, including mutual funds, foreign central banks and government investment funds that own huge amounts of debt issued by the two companies. Investors that have loaded up recently on mortgage-backed bonds -- such as Pacific Investment Management Co., the large Newport Beach, Calif., bond manager -- could benefit as Treasury purchases of such securities drive up their values.
It is unclear how much the government's intervention will ultimately cost taxpayers. In addition to its initial acquisition of preferred shares, the government receives warrants giving it the right to a stake of 79.9% of each company for a nominal sum. The Treasury's preferred shares, which carry an annual dividend yield of 10%, will be senior to those earlier issued, meaning the government will have the first right to receive dividends.
Existing shareholders won't fare so well. The new overseers will eliminate dividends on billions of dollars of common and preferred stock, moves that are expected to further drive down the price of those shares. If the government exercises its warrants, existing common shares will be drastically diluted. Common shareholders are expected to see the value of their investment, which has already fallen, shrivel further, say analysts. Even preferred stockholders are expected to see a significant decline.
That prospect is especially problematic for some of the commercial banks and thrifts that hold high concentrations of Fannie and Freddie preferred shares. The Office of Thrift Supervision, a government agency that supervises savings and loans, said that roughly 2% of the 829 companies it regulates -- or around 17 banks -- had a concentration in common or preferred shares of Fannie Mae and Freddie Mac that surpassed 10% of their Tier 1 capital. Regulators said Sunday they would work with banks that hold large exposures to Fannie and Freddie "to develop capital-restoration plans" if necessary.
The Treasury's move doesn't answer the question of what ultimately happens to Fannie and Freddie. Under the conservatorship of their regulator, the companies will still have their shares listed on the New York Stock Exchange. But management control goes to the regulator until it deems the companies financially healthy. Congress ultimately will have to decide in what form Fannie and Freddie will be relaunched or whether they will be replaced by different types of entities.
Mr. Paulson signaled that he wants to remake the U.S. housing-finance system in the longer term, ditching the "flawed business model" of government-sponsored enterprises like Fannie and Freddie. The Treasury plan limits the size of each company's mortgage portfolios to a maximum of $850 billion as of the end of 2009. (Fannie currently owns about $758 billion of mortgages and related securities, while Freddie's total is about $798 billion.) After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about $250 billion at each company.
Wrangling over the future shape of Freddie and Fannie will likely be kicked to the next Congress.
Already the majority Democrats are pushing back on elements of Treasury's plan. "Good luck on that," said Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, when asked about the Treasury's plan to start reducing the firms' portfolios beginning in 2010. Mr. Frank called it "more of a sop to the right" than a real policy prescription and said it wasn't going to happen.
Many economists and analysts believe the government had to wade deeper into the mortgage market because for now "private markets are just not willing to put up the capital" for home mortgages at prices U.S. consumers could afford, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Without government support for the mortgage market, home prices would fall much further, exposing the country as a whole to greater economic strain, Ms. Wachter says.
The turn of events for Fannie and Freddie is remarkable considering the two companies for so long shunned the riskiest type of mortgages, only to embrace those mortgages late in the game in an effort to regain market share from Wall Street rivals.
As early as 2005, Fannie executives publicly expressed concerns about growing risks in the mortgage market. In May of that year, Thomas Lund, a Fannie Mae executive vice president, said that lenders should be concerned if borrowers straining to afford homes were given loans allowing for low payments in the early years but storing up much higher ones for later. "In many cases the consumers may not understand all the risks," he said.
Yet both companies expanded their exposure to riskier loans. At both Fannie and Freddie, so-called Alt-A loans, a category between prime and subprime, accounted for roughly 50% of credit losses in the second quarter, even though such loans accounted for only about 10% of the companies' business. Alt-A mortgages include loans made with less than full documentation of borrowers' income or assets.
As these and other loans -- including many in areas such as California and Florida that are among the hardest hit by the housing crisis -- started to go bad, the companies failed to raise enough capital late last year, when investors were still fairly bullish on their prospects, to see them through the current storm. The companies have recorded combined losses totaling about $14 billion over the past four quarters, eating deeply into their meager capital holdings. Most analysts expect them to report sizable losses for at least another couple of years as the costs of foreclosures mount.
Fannie and Freddie's credit problems are largely a reflection of the overall weakness in the housing market.
Some 9.2% of mortgages on one- to four-family homes were at least a month overdue or in the foreclosure process in the second quarter, according to the latest survey of the Mortgage Bankers Association. That is the highest percentage in the 39 years that the trade group has been doing the surveys.
"Make no mistake, anybody in the mortgage business is going to see much higher losses than they thought they would a year ago because we've had the worst housing market and the largest home price declines that anybody has seen," said Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie.
Both companies are also exposed to some of the mortgage industry's most troubled players. Countrywide Financial Corp., now part of Bank of America Corp., was the largest provider of loans purchased by Fannie Mae, accounting for 29% of its business in 2007, according to Inside Mortgage Finance, and was the second largest source of loans for Freddie Mac, with a 16% share. IndyMac Financial Corp., which previously had focused its business on Alt-A loans that didn't meet Fannie and Freddie guidelines, switched to a policy of making loans that could meet their standards in 2007. IndyMac was taken over by the Federal Deposit Insurance Corp. this summer.
At Fannie, Herb Allison, who formerly served as chairman of the investment company TIAA-CREF, succeeds Daniel Mudd. Freddie's chief executive, Richard Syron, was succeeded by David Moffett, who has been vice chairman and chief financial officer of U.S. Bancorp.
Potentially, Mr. Syron could walk away with an exit package totaling as much as $15 million, said David Schmidt, a senior consultant at James F. Reda & Associates LLC, a compensation consulting concern in New York. That includes a pension and deferred compensation, about $3.7 million in severance pay and a possible payment of $8.8 million to compensate for forfeiting recent equity grants. A Freddie spokesman said Mr. Syron had said he doesn't "anticipate receiving nearly that much."
Mr. Mudd's exit package, including stock he already owns, could total $14 million, Mr. Schmidt estimates.
That includes $5 million in pension and deferred compensation, $4.2 million in severance pay and $3.4 million of restricted stock, based on Friday's closing price. The value of that stock could fall sharply, however.
Key Players
-- Henry Paulson, Treasury Secretary: Known mostly as a pragmatist when he was sworn in July 2006, the 62-year-old former chief executive of Goldman Sachs has sought, and won, authority for unprecedented government involvement in the nation's financial markets.
-- Ben Bernanke, Chairman of the U.S. Federal Reserve: A career academic focused on the interaction of the financial system and economy, especially during the Depression, Mr. Bernanke, 54, has formed close working relationship with Mr. Paulson in the last two years.
-- Daniel H. Mudd, Former Fannie Mae Chief executive: A former Marine officer, Mr. Mudd was promoted from his job as Fannie Mae's chief operating officer when predecessor Franklin Raines was ousted in December 2004.
-- Richard Syron, Former Freddie Mac Chairman and Chief executive: Mr. Syron, 64, a former senior Federal Reserve official, came to Freddie in December 2003 with a mandate to clean up after that company's accounting scandal.
-- James Lockhart, Federal Housing Finance Agency director: As head of the Office of Federal Housing Enterprise Oversight, Mr. Lockhart pushed for more power to regulate Fannie and Freddie. At the helm of the newly created FHFA, he has it.
-- Barney Frank, House Financial Services Committee chairman: With Democrats in control of Congress, the 14-term congressman from Massachusetts has an even louder voice to support a bigger role for government in solving the housing slump.
-- Herb Allison, Incoming CEO of Fannie Mae: As Merrill Lynch's president and chief operating officer, Mr. Allison presented the initial proposal for a Wall Street bailout of high-flying hedge fund Long-Term Capital Management LP in 1998. He recently retired as chief executive of pension fund TIAA-CREF.
-- David Moffett, Incoming CEO of Freddie Mac: The former chief financial officer of U.S. Bancorp, Mr. Moffett has been working in private equity for the Carlyle Group.
Friday, September 5, 2008
How's The Market September 2008
So How’s the Market? September 5, 2008. Data is from Metrolist, Inc MLS system. on 9.5.08.
Listing Inventory drops 18.733% in one year! This September shows an active listing inventory of 25,543 units for residential and condominium homes on the market. This is the lowest September inventory since 2004. The majority of homes being sold are under $500,000 with positive news coming for homes priced above $500,000, more info to follow towards the end of story.
The inventory reduction is a continuing trend that brings inventory levels down to 2004 numbers this year. This type of inventory reduction has caused a change in buying patterns from the last three years. When choices of homes are reduced, buyer behavior increases to make housing choices faster. As buyers make housing choices at a quicker pace, the number of sales will grow faster than the number of new active listings coming on the market, which will result in appreciation of homes.
We will watch this inventory number go below 22,000 by January of 2009 and remain at lower levels through 2009 over previous years.
The under contract data continues to stay at higher levels than 2007. August of 2007 was the month the marketplace turned sour in Denver, but really had been wavering for at least 20 months before that date. In September 2007 the data showed 5928 homes under contract and set to close. Just 12 months later in September of 2008, the marketplace is registering 7204 homes under contract. That is a 21.525% year over year positive growth. The lag in these properties closing is still a result of changing mortgage guidelines and processing delays.
Sold data continues to be the slower indicator of a rebounding market and as of August the number of properties closed still has not yet caught up with the lower inventory and higher under contract data lines. This fall season will start to see year over year changes where 2008 and 2009 will outperform the previous year.
The yearly figures for sold data follow a similar trend.
If we annualize these numbers we predict the Denver marketplace will expect to close 42,871 units for 2008. This number reflects a 6.015% decline from 2007 and will be the 5th year in a row of declining sold data for homes. This might sound gloomy but it actually reflects that we have already hit the bottom and 2009 will be the year of appreciation as inventories continue to decrease and home buyers have a change in their behavior to move quicker into the market. Here are actual previous years compared to our prediction for 2008.
What does this all mean to Buyers and Sellers? The average days on the market for residential and condo units has held consistent for three years. Given the facts of the foreclosure increases the last three years, the difficult mortgage guidelines since last summer and lack of buyer confidence in the housing market you would expect this number to rise, when in fact it has not.
For Buyers, the shrinking inventory will provide fewer choices. Specifically looking at the price ranges below, $500,000: The number of homes closed below this price point of $500,000 makes up 92% of all sold homes in Denver for 2008. The inventory below $500K is 19,080 as of today. This represents 75% of the total inventory in the market.
So if there are 92% of the buyers buying below $500, 000 and there are only 75% of available homes in this price point, we would conclude that the prices of homes below $500,000 will rise as the inventory continues to be reduced. The current absorption rate for homes below $500,000 is 5.985 months. If you take an annualized number of sales in the 0-$500,000 range gives you 38,251 for 2008 divided into the current available inventory of 19,080 in this price point, you get .498 X 12 = 5.98 months. We believe that 72% of the year has been past through August 2008 to annualize our numbers.
For sellers, if you own a home below $500,000 it is good news as your home will be able to stand out as there as not as much competition, but since real estate is localized to the neighborhoods, you must see where you are positioned against other properties in you sub area.
For homes above $500,000, sellers must be the first priced home the buyers will find and must be in move in condition to attract the buyers looking for homes above $500,000 in today’s market. Looking at the absorption rate for home above $500K, we have 6463 units available and 2469 units closed through August, 2008.
If we make the same calculations there is approximately a 22 month supply above
$500,000. This will start to drop fast and get more in the 13-14 month as homeowners in these price points will take their homes off the market for the holidays making a better environment for homes still on the market to find buyers.
Those that are on the market at the right time after the beginning of the New Year will be positioned well with a lot less inventory to find the early buyers. Remember these absorption rates are just a snapshot of the day, not a future trend, but are helpful if you are trying to see where a home might be positioned today.
Listing Inventory drops 18.733% in one year! This September shows an active listing inventory of 25,543 units for residential and condominium homes on the market. This is the lowest September inventory since 2004. The majority of homes being sold are under $500,000 with positive news coming for homes priced above $500,000, more info to follow towards the end of story.
The inventory reduction is a continuing trend that brings inventory levels down to 2004 numbers this year. This type of inventory reduction has caused a change in buying patterns from the last three years. When choices of homes are reduced, buyer behavior increases to make housing choices faster. As buyers make housing choices at a quicker pace, the number of sales will grow faster than the number of new active listings coming on the market, which will result in appreciation of homes.
We will watch this inventory number go below 22,000 by January of 2009 and remain at lower levels through 2009 over previous years.
The under contract data continues to stay at higher levels than 2007. August of 2007 was the month the marketplace turned sour in Denver, but really had been wavering for at least 20 months before that date. In September 2007 the data showed 5928 homes under contract and set to close. Just 12 months later in September of 2008, the marketplace is registering 7204 homes under contract. That is a 21.525% year over year positive growth. The lag in these properties closing is still a result of changing mortgage guidelines and processing delays.
Sold data continues to be the slower indicator of a rebounding market and as of August the number of properties closed still has not yet caught up with the lower inventory and higher under contract data lines. This fall season will start to see year over year changes where 2008 and 2009 will outperform the previous year.
The yearly figures for sold data follow a similar trend.
If we annualize these numbers we predict the Denver marketplace will expect to close 42,871 units for 2008. This number reflects a 6.015% decline from 2007 and will be the 5th year in a row of declining sold data for homes. This might sound gloomy but it actually reflects that we have already hit the bottom and 2009 will be the year of appreciation as inventories continue to decrease and home buyers have a change in their behavior to move quicker into the market. Here are actual previous years compared to our prediction for 2008.
What does this all mean to Buyers and Sellers? The average days on the market for residential and condo units has held consistent for three years. Given the facts of the foreclosure increases the last three years, the difficult mortgage guidelines since last summer and lack of buyer confidence in the housing market you would expect this number to rise, when in fact it has not.
For Buyers, the shrinking inventory will provide fewer choices. Specifically looking at the price ranges below, $500,000: The number of homes closed below this price point of $500,000 makes up 92% of all sold homes in Denver for 2008. The inventory below $500K is 19,080 as of today. This represents 75% of the total inventory in the market.
So if there are 92% of the buyers buying below $500, 000 and there are only 75% of available homes in this price point, we would conclude that the prices of homes below $500,000 will rise as the inventory continues to be reduced. The current absorption rate for homes below $500,000 is 5.985 months. If you take an annualized number of sales in the 0-$500,000 range gives you 38,251 for 2008 divided into the current available inventory of 19,080 in this price point, you get .498 X 12 = 5.98 months. We believe that 72% of the year has been past through August 2008 to annualize our numbers.
For sellers, if you own a home below $500,000 it is good news as your home will be able to stand out as there as not as much competition, but since real estate is localized to the neighborhoods, you must see where you are positioned against other properties in you sub area.
For homes above $500,000, sellers must be the first priced home the buyers will find and must be in move in condition to attract the buyers looking for homes above $500,000 in today’s market. Looking at the absorption rate for home above $500K, we have 6463 units available and 2469 units closed through August, 2008.
If we make the same calculations there is approximately a 22 month supply above
$500,000. This will start to drop fast and get more in the 13-14 month as homeowners in these price points will take their homes off the market for the holidays making a better environment for homes still on the market to find buyers.
Those that are on the market at the right time after the beginning of the New Year will be positioned well with a lot less inventory to find the early buyers. Remember these absorption rates are just a snapshot of the day, not a future trend, but are helpful if you are trying to see where a home might be positioned today.
Tuesday, September 2, 2008
The Clear Facts on FHA
What is FHA?
• A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.
• Customer Benefits:
• Low down payment options and non-profit down payment assistance programs
1 No income restrictions
2 Non-traditional credit profile
3 No pre-payment penalty
4 No minimum FICO score
• Funding Fee:
• Up front mortgage insurance premium (UFMIP): 1.25- 2.25 depending on credit score & down payment amount
• Annual MI: .55% for 30 yr
• Loan Limits:
• $406,250 for Denver- Aurora area
1 For other areas refer to HUD website or ask me: http://www.hud.gov/
• Eligible Transactions:
• Purchase
1 Full refinance (rate/term, cash out) or FHA streamline refinance
• Eligible Borrowers:
• U.S. Citizens, Permanent Resident Aliens, and Non-permanent resident aliens
1 Non-Occupant Co-Borrowers allowed
• Eligible Products:
• 15, 20-30-year fixed rate terms, 3/1, 5/1 ARMs
• Property:
• 1-4 unit, FHA approved condos, PUDs allowed (do not need to be FHA approved), Manufactured homes (meeting FHA’s property requirements)
• Credit:
• Collections- case by case, buy may not be required to pay
1 Tax liens- must be paid unless on payment plan
2 Bankruptcy
• Chapter 7: minimum 2 years from discharge- with exceptions
1 Chapter 13: payments made for 1 yr. & court approval for purchase
• Foreclosure: 3 years
• A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.
• Customer Benefits:
• Low down payment options and non-profit down payment assistance programs
1 No income restrictions
2 Non-traditional credit profile
3 No pre-payment penalty
4 No minimum FICO score
• Funding Fee:
• Up front mortgage insurance premium (UFMIP): 1.25- 2.25 depending on credit score & down payment amount
• Annual MI: .55% for 30 yr
• Loan Limits:
• $406,250 for Denver- Aurora area
1 For other areas refer to HUD website or ask me: http://www.hud.gov/
• Eligible Transactions:
• Purchase
1 Full refinance (rate/term, cash out) or FHA streamline refinance
• Eligible Borrowers:
• U.S. Citizens, Permanent Resident Aliens, and Non-permanent resident aliens
1 Non-Occupant Co-Borrowers allowed
• Eligible Products:
• 15, 20-30-year fixed rate terms, 3/1, 5/1 ARMs
• Property:
• 1-4 unit, FHA approved condos, PUDs allowed (do not need to be FHA approved), Manufactured homes (meeting FHA’s property requirements)
• Credit:
• Collections- case by case, buy may not be required to pay
1 Tax liens- must be paid unless on payment plan
2 Bankruptcy
• Chapter 7: minimum 2 years from discharge- with exceptions
1 Chapter 13: payments made for 1 yr. & court approval for purchase
• Foreclosure: 3 years
Monday, August 25, 2008
What are the limits of FDIC insurance?
What are the limits of FDIC insurance?
Bank accounts that have less than $100,000 in them and certain retirement accounts (IRAs held in CDs and money market accounts) that have less than $250,000 are fully protected by the FDIC even if the bank fails. If you want to exceed these account limits, you can keep your deposits fully protected by:
1. Dividing your money among several different bank companies. Note that dividing your money among several different branches of the same bank does not guarantee full protection.
2. If you prefer to keep your money in the same bank company, you can still be fully protected if you divide your money among various "ownership categories". Ownership categories include a personal account in your name, a personal account in your spouse's name, a joint account co-owned by you and someone else, and a trust account that names someone other than you as a beneficiary.
What are some common ways customers end up with uncovered deposits?
If you purchase a CD through an investment broker, this CD will often be placed with a bank at which you already have an account. If the CD and your other accounts exceed the $100,000 limit, you may not be full protected. Before purchasing CD's through a broker, ask where they will be placed.
In addition, keep track of the interest your accounts earn so you don't exceed the limits this way.
What will happen if your bank fails?
In most cases, depositors can fully access their funds by the next business day. Typically, failed banks are closed on Fridays, and funds are available by the following Monday. People can also usually use their ATM cards and write checks over that weekend as well. And for customers whose accounts exceeded the FDIC limit, all hope is not lost. Though this amount has varied, they can generally expect to recover 70 cents on the dollar of their uncovered funds after the bank's assets are sold.
The good news is that the vast majority of US banks are secure, but the above information will help you stay fully protected.
For more information, visit www.fdic.gov.
Bank accounts that have less than $100,000 in them and certain retirement accounts (IRAs held in CDs and money market accounts) that have less than $250,000 are fully protected by the FDIC even if the bank fails. If you want to exceed these account limits, you can keep your deposits fully protected by:
1. Dividing your money among several different bank companies. Note that dividing your money among several different branches of the same bank does not guarantee full protection.
2. If you prefer to keep your money in the same bank company, you can still be fully protected if you divide your money among various "ownership categories". Ownership categories include a personal account in your name, a personal account in your spouse's name, a joint account co-owned by you and someone else, and a trust account that names someone other than you as a beneficiary.
What are some common ways customers end up with uncovered deposits?
If you purchase a CD through an investment broker, this CD will often be placed with a bank at which you already have an account. If the CD and your other accounts exceed the $100,000 limit, you may not be full protected. Before purchasing CD's through a broker, ask where they will be placed.
In addition, keep track of the interest your accounts earn so you don't exceed the limits this way.
What will happen if your bank fails?
In most cases, depositors can fully access their funds by the next business day. Typically, failed banks are closed on Fridays, and funds are available by the following Monday. People can also usually use their ATM cards and write checks over that weekend as well. And for customers whose accounts exceeded the FDIC limit, all hope is not lost. Though this amount has varied, they can generally expect to recover 70 cents on the dollar of their uncovered funds after the bank's assets are sold.
The good news is that the vast majority of US banks are secure, but the above information will help you stay fully protected.
For more information, visit www.fdic.gov.
Loan Tips - Calculating APR
We are often asked how the annual percentage rate (APR) that appears on the Truth-in-Lending disclosure is calculated. Here's how it's done:
1) In order to calculate the APR, we need to know the principal amount of the loan (the amount the buyer borrows from the lender), the interest rate, the term of the loan, and the closing costs. Let's assume the loan amount is $200,000, the interest rate is 6.5%, the term is 30 years, and the closing costs are $6,000.
2) First, the monthly payment is calculated by amortizing the $200,000 over 30 years at 6.5% interest. That gives us a payment of $1,264.
3) Next, we subtract the closing costs from the loan principal. However, we only subtract those closing costs that are related to the loan, not the costs that are related to the real estate side of the transaction. A good example of a closing cost that is related to the loan is the origination fee. An example of a fee that is related to the real estate transaction is the appraisal because even if the buyer paid cash for the house, they would still want to see an appraisal. Let's assume that out of the $6,000 in total closing costs, $4,000 of those costs are related to the loan. So, we subtract that $4,000 from the loan principal ($200,000), leaving us $196,000.
4) The final step is calculating what the interest rate would have to be for a loan of $196,000 in order to give us the same payment of $1,264. That interest rate is 6.695%. That is the APR.
The purpose of the APR is for the borrower to compare loans between different mortgage brokers. If each mortgage broker has the same loan amount, same interest rate, and same term, then whoever has the lowest APR has the best deal because they have the lowest closing costs.
1) In order to calculate the APR, we need to know the principal amount of the loan (the amount the buyer borrows from the lender), the interest rate, the term of the loan, and the closing costs. Let's assume the loan amount is $200,000, the interest rate is 6.5%, the term is 30 years, and the closing costs are $6,000.
2) First, the monthly payment is calculated by amortizing the $200,000 over 30 years at 6.5% interest. That gives us a payment of $1,264.
3) Next, we subtract the closing costs from the loan principal. However, we only subtract those closing costs that are related to the loan, not the costs that are related to the real estate side of the transaction. A good example of a closing cost that is related to the loan is the origination fee. An example of a fee that is related to the real estate transaction is the appraisal because even if the buyer paid cash for the house, they would still want to see an appraisal. Let's assume that out of the $6,000 in total closing costs, $4,000 of those costs are related to the loan. So, we subtract that $4,000 from the loan principal ($200,000), leaving us $196,000.
4) The final step is calculating what the interest rate would have to be for a loan of $196,000 in order to give us the same payment of $1,264. That interest rate is 6.695%. That is the APR.
The purpose of the APR is for the borrower to compare loans between different mortgage brokers. If each mortgage broker has the same loan amount, same interest rate, and same term, then whoever has the lowest APR has the best deal because they have the lowest closing costs.
Friday, August 22, 2008
Thursday, August 21, 2008
Fannie May Guidance
Fannie Mae has issued guidance regarding the amount of time that must elapse before someone can get a new loan when they have had a preforeclosure or a short sale. There is a difference between the two, even though most of us use the terms interchangeably.
A preforeclosure sale occurs when a borrower is delinquent on their mortgage and the lender accepts a lesser amount than is owed to speed up the foreclosure process and save expenses. There is a 2-year time period from the completion date before that borrower (the seller) will be able to get another Fannie Mae loan.
A short sale occurs when a borrower who is NOT delinquent sells a property and the lender agrees to accept a lesser amount than is owed. The borrower will be able to get a Fannie Mae loan immediately after the short sale, provided the short sale agreement states that they are not obligated to pay the deficiency (the amount between what is owed and what the lender actually gets).
Preforeclosure sales and short sales both lower credit scores, but there is no standard way of reporting these actions to the credit bureaus, so it is impossible to say how much the credit score will be affected. A preforeclosure sale typically lowers the score much more than a short sale, only because the borrower has had recent mortgage payment delinquencies. Those late payments will show up on the credit report regardless of how the preforeclosure is reported.
A preforeclosure sale occurs when a borrower is delinquent on their mortgage and the lender accepts a lesser amount than is owed to speed up the foreclosure process and save expenses. There is a 2-year time period from the completion date before that borrower (the seller) will be able to get another Fannie Mae loan.
A short sale occurs when a borrower who is NOT delinquent sells a property and the lender agrees to accept a lesser amount than is owed. The borrower will be able to get a Fannie Mae loan immediately after the short sale, provided the short sale agreement states that they are not obligated to pay the deficiency (the amount between what is owed and what the lender actually gets).
Preforeclosure sales and short sales both lower credit scores, but there is no standard way of reporting these actions to the credit bureaus, so it is impossible to say how much the credit score will be affected. A preforeclosure sale typically lowers the score much more than a short sale, only because the borrower has had recent mortgage payment delinquencies. Those late payments will show up on the credit report regardless of how the preforeclosure is reported.
So How's The Market? August 2008
So, How’s the Market, August 2008 All statistics are taken from Metrolist data on August 4, 2008.
A passerby stops by a farm as he is driving through Colorado and waves at the farmer to come over to him holding a cold bottle of water. The passerby asks the farmer, “How’s the farming business?”
The farmer was working in the hot August sun on his tractor and this gave the farmer the opportunity to get off that darn machine and talk to the first person he had seen in 8 hours since he left his house at 4 AM to start his chores and to capture a drink of water from this person.
The farmer said, “We have had no rain, the bugs are eating my crop and the guy who buys my crop said he didn’t need as much as he used last year. The farming business is unbelievably good!”
The passerby is amused at the statement, but presses on, “How could your market be unbelievable when it seems everything around you isn’t working?”
The farmer then took a long drink from the bottle and smiled. The farmer said, “You look like a smart person, you drive a nice car and are well dressed. You come all the way out here and provide me a bottle of water. Why did you make such a trip?”
The passerby said, “I am a newspaper person, and am looking for a good story.”
The farmer said, “OK, farming is terrible, there’s no future in it and people in America will start to starve before you know it. Please write that verbatim in your paper as when the word spreads to the government how bad things are out here, they will increase the subsidy they already pay me, so seeing you made me think farming is unbelievable because I can get the newspaper guy to write something negative to help me!”
Everybody is looking to benefit from the current real estate market, whether it’s investors or newspaper people. Stories abound at the good and bad in the marketplace. The government passed a huge housing bill last week to help homeowners with the potential short term financial crunch that exists. The bill will basically give homeowners the ability to refinance if they are in a difficult financial situation due to poor judgments of obtaining a loan that probably shouldn’t have been written anyway. This will just be a short term fix and long term help comes from the local markets themselves.
Let’s take a look at the Denver marketplace, because some outstanding numbers are happening before our eyes. Does this mean we are totally out of the slower market Denver has experienced for 30+ months? No, but we do not need a short term fix in Denver and the long term prognosticators are looking good. Here’s why!
Inventory in the month of August was standing at 26,864 units for single family and condominiums. This is a reduction of 4,461 units from one year ago or a 14.24% decrease in homes on the market year over year. Anytime you have inventories continue to decrease, prices will increase. August of 2008 is also the first time in 5 years that the inventory of active listings decreased from July to August.
See the two charts below to see how inventories have changed in August of each year since 2004.
See attached pdf file for charts
Clearly, the Denver real estate market for active listings is experiencing reductions in active listing numbers. This trend historically would reduce during the fall and winter, where housing inventory decreases, but rarely does it every decrease in the summer months. When the housing market hits 22,000 units, the supply will not meet the demand. In looking at sold data, we can justify this number as the benchmark by which housing prices in Denver will go up.
Sold data has lagged behind the other indicators for more than 2 years, but appears now to be poised to start to increase year over year. In July of 2008, there were 4433 recorded sold properties in the Denver market for single family and condominiums.
Here’s the sold data for the last 5 years.
See attached pdf file for charts
As the numbers indicate, 2008 was the first July to experience a rise in sold data over June in 5 years. The next chart shows the actual numbers for sold data. One month hardly makes a trend, but this is the data we believe will show the Denver market having some long term trends to positively affect the housing market.
See attached pdf file for charts
If we were to annualize the sold data for 2008 based upon the July figures, the projections show the total number of sold properties to be 44,736 for the entire year of 2008. If the listing inventory hits 22,000 units as a medium level, the Denver Market would have a 5.9 month supply of homes. Hence, the marketplace will see appreciation when this occurs. Our best crystal ball suggests this will be in the first half of 2009.
The number of properties Under Contract in the market stands at 7306 as of August 4, 2008. This is up 476 units over 2007 or a 6.9% increase in the number of properties yet to close. This is another figure which indicates that the number of closing in August should exceed the August closings of 2007.
Homes priced above $750,000 have not experienced the same inventory drop nor increased in sold data as below this price level. We can attribute the slower upper end market to difficulties in obtaining financing and large levels of inventories. This price point takes time to get to a more robust market and will do so when the lower price points start to see appreciation. The more appreciation homeowners see from 0-$500,000, the more buyers will have equity to buy into the upper end market. Considering Denver has not had but 1-2% appreciation for 7 years, it is inevitable that this level of the market will take time to catch the pace that has been exhibited below the $750,000 range in the last couple of months.
For more information Contact
Team Koz - Michael Kozlowski
team-koz@comcast.net
www.team-koz.com
A passerby stops by a farm as he is driving through Colorado and waves at the farmer to come over to him holding a cold bottle of water. The passerby asks the farmer, “How’s the farming business?”
The farmer was working in the hot August sun on his tractor and this gave the farmer the opportunity to get off that darn machine and talk to the first person he had seen in 8 hours since he left his house at 4 AM to start his chores and to capture a drink of water from this person.
The farmer said, “We have had no rain, the bugs are eating my crop and the guy who buys my crop said he didn’t need as much as he used last year. The farming business is unbelievably good!”
The passerby is amused at the statement, but presses on, “How could your market be unbelievable when it seems everything around you isn’t working?”
The farmer then took a long drink from the bottle and smiled. The farmer said, “You look like a smart person, you drive a nice car and are well dressed. You come all the way out here and provide me a bottle of water. Why did you make such a trip?”
The passerby said, “I am a newspaper person, and am looking for a good story.”
The farmer said, “OK, farming is terrible, there’s no future in it and people in America will start to starve before you know it. Please write that verbatim in your paper as when the word spreads to the government how bad things are out here, they will increase the subsidy they already pay me, so seeing you made me think farming is unbelievable because I can get the newspaper guy to write something negative to help me!”
Everybody is looking to benefit from the current real estate market, whether it’s investors or newspaper people. Stories abound at the good and bad in the marketplace. The government passed a huge housing bill last week to help homeowners with the potential short term financial crunch that exists. The bill will basically give homeowners the ability to refinance if they are in a difficult financial situation due to poor judgments of obtaining a loan that probably shouldn’t have been written anyway. This will just be a short term fix and long term help comes from the local markets themselves.
Let’s take a look at the Denver marketplace, because some outstanding numbers are happening before our eyes. Does this mean we are totally out of the slower market Denver has experienced for 30+ months? No, but we do not need a short term fix in Denver and the long term prognosticators are looking good. Here’s why!
Inventory in the month of August was standing at 26,864 units for single family and condominiums. This is a reduction of 4,461 units from one year ago or a 14.24% decrease in homes on the market year over year. Anytime you have inventories continue to decrease, prices will increase. August of 2008 is also the first time in 5 years that the inventory of active listings decreased from July to August.
See the two charts below to see how inventories have changed in August of each year since 2004.
See attached pdf file for charts
Clearly, the Denver real estate market for active listings is experiencing reductions in active listing numbers. This trend historically would reduce during the fall and winter, where housing inventory decreases, but rarely does it every decrease in the summer months. When the housing market hits 22,000 units, the supply will not meet the demand. In looking at sold data, we can justify this number as the benchmark by which housing prices in Denver will go up.
Sold data has lagged behind the other indicators for more than 2 years, but appears now to be poised to start to increase year over year. In July of 2008, there were 4433 recorded sold properties in the Denver market for single family and condominiums.
Here’s the sold data for the last 5 years.
See attached pdf file for charts
As the numbers indicate, 2008 was the first July to experience a rise in sold data over June in 5 years. The next chart shows the actual numbers for sold data. One month hardly makes a trend, but this is the data we believe will show the Denver market having some long term trends to positively affect the housing market.
See attached pdf file for charts
If we were to annualize the sold data for 2008 based upon the July figures, the projections show the total number of sold properties to be 44,736 for the entire year of 2008. If the listing inventory hits 22,000 units as a medium level, the Denver Market would have a 5.9 month supply of homes. Hence, the marketplace will see appreciation when this occurs. Our best crystal ball suggests this will be in the first half of 2009.
The number of properties Under Contract in the market stands at 7306 as of August 4, 2008. This is up 476 units over 2007 or a 6.9% increase in the number of properties yet to close. This is another figure which indicates that the number of closing in August should exceed the August closings of 2007.
Homes priced above $750,000 have not experienced the same inventory drop nor increased in sold data as below this price level. We can attribute the slower upper end market to difficulties in obtaining financing and large levels of inventories. This price point takes time to get to a more robust market and will do so when the lower price points start to see appreciation. The more appreciation homeowners see from 0-$500,000, the more buyers will have equity to buy into the upper end market. Considering Denver has not had but 1-2% appreciation for 7 years, it is inevitable that this level of the market will take time to catch the pace that has been exhibited below the $750,000 range in the last couple of months.
For more information Contact
Team Koz - Michael Kozlowski
team-koz@comcast.net
www.team-koz.com
Housing and Economic Recovery Act Update:
Housing and Economic Recovery Act Update:
Conforming/FHA Loan Limit Calculations
Conventional Conforming Loan Limits – Effective Jan. 1, 2009
Effective Jan. 1, 2009, new calculations will be used to derive conventional conforming loan limits in accordance with the Housing and Economic Recovery Act of 2008.
The Economic Stimulus Act, signed earlier this year, established temporary higher conforming loan limits for 2008 in areas in which the median housing price exceeded the conforming loan limit up to a maximum of $729,750. The Housing and Economic Recovery Act of 2008 makes the high-cost area concept permanent, but changes the calculation.
Calculation Formula
Effective Jan. 1, 2009, in a high-cost area, the conforming loan limit will increase to the lesser of:
• 150% of the standard conforming loan limit ($625,500 if the single-family standard loan limit is $417,000); or
• 115% of the median house price in the area (with the 2008 temporary loan limits, the calculation is currently 125% of the median house price).
NOTE: HUD has not indicated what timeframe will be considered to determine the median area house price. Because of the continued changes in the housing market, the median area house price may be significantly different throughout the year. So the timeframe used by HUD is key to determining what the actual 2009 loan limits will be.
Below is an example based on the 2008 limits (prior to the release of the temporary loan limits):
Property Type 2008 Standard Limit*
(115% of local median housing price) High Cost Area Limit
Not to Exceed 150% of Standard Limit**
Single-family $417,000 $625,500
2-family $533,850 $800,775
3-family $645,300 $967,950
4-family $801,950 $1,202,925
* 2008 standard limits are established as base limits to be indexed annually beginning 2009.
** These examples are generated using 2008 standard limits.
FHA Loan Limits – Effective Jan. 1, 2009
Earlier this year, the Economic Stimulus Act temporarily increased the FHA loan limits. As of Jan. 1, 2009, the Housing and Economic Recovery Act permanently changes the calculation for the increases to the FHA loan limits as follows:
• For single-family properties, the limit will be 115% of the local area median home price, as determined by HUD (the percentages for 2-, 3- and 4-family residences will now be determined using the same ratios that are used to calculate the conventional conforming loan limits for 2-, 3- and 4-family residences).
• The ceiling will be 150% of the conventional conforming limit for a residence of applicable size (new ceiling of $625,500 for single-family properties).
• The floor will be the greater of 65% of the conventional conforming limit for a residence of applicable size (floor of $271,050 for single-family properties), or the limit in effect for the area in 2008. This is not a change from the 2008 temporary loan limits!
Conforming/FHA Loan Limit Calculations
Conventional Conforming Loan Limits – Effective Jan. 1, 2009
Effective Jan. 1, 2009, new calculations will be used to derive conventional conforming loan limits in accordance with the Housing and Economic Recovery Act of 2008.
The Economic Stimulus Act, signed earlier this year, established temporary higher conforming loan limits for 2008 in areas in which the median housing price exceeded the conforming loan limit up to a maximum of $729,750. The Housing and Economic Recovery Act of 2008 makes the high-cost area concept permanent, but changes the calculation.
Calculation Formula
Effective Jan. 1, 2009, in a high-cost area, the conforming loan limit will increase to the lesser of:
• 150% of the standard conforming loan limit ($625,500 if the single-family standard loan limit is $417,000); or
• 115% of the median house price in the area (with the 2008 temporary loan limits, the calculation is currently 125% of the median house price).
NOTE: HUD has not indicated what timeframe will be considered to determine the median area house price. Because of the continued changes in the housing market, the median area house price may be significantly different throughout the year. So the timeframe used by HUD is key to determining what the actual 2009 loan limits will be.
Below is an example based on the 2008 limits (prior to the release of the temporary loan limits):
Property Type 2008 Standard Limit*
(115% of local median housing price) High Cost Area Limit
Not to Exceed 150% of Standard Limit**
Single-family $417,000 $625,500
2-family $533,850 $800,775
3-family $645,300 $967,950
4-family $801,950 $1,202,925
* 2008 standard limits are established as base limits to be indexed annually beginning 2009.
** These examples are generated using 2008 standard limits.
FHA Loan Limits – Effective Jan. 1, 2009
Earlier this year, the Economic Stimulus Act temporarily increased the FHA loan limits. As of Jan. 1, 2009, the Housing and Economic Recovery Act permanently changes the calculation for the increases to the FHA loan limits as follows:
• For single-family properties, the limit will be 115% of the local area median home price, as determined by HUD (the percentages for 2-, 3- and 4-family residences will now be determined using the same ratios that are used to calculate the conventional conforming loan limits for 2-, 3- and 4-family residences).
• The ceiling will be 150% of the conventional conforming limit for a residence of applicable size (new ceiling of $625,500 for single-family properties).
• The floor will be the greater of 65% of the conventional conforming limit for a residence of applicable size (floor of $271,050 for single-family properties), or the limit in effect for the area in 2008. This is not a change from the 2008 temporary loan limits!
Understanding Your Homeowner's Insurance
Understanding Your Homeowner's Insurance
...before it may be too late.
For nearly all consumers, owning a home represents a large investment. But suppose your home is vandalized or damaged by a storm? Having insurance can protect you from such unpredictable losses.
When purchasing insurance, it is important to READ YOUR POLICY. Your policy is the contract between you (the insured) and your insurance company. The time to learn about your coverage and conditions is not after you have suffered a loss but before, while you have the opportunity to discuss the policy with your agent. If you do not understand the policy or want to modify it, contact the insurance agent or company for additional information. Also important is the written application for insurance that usually becomes part of the policy. Carefully examine the application before signing it to make sure the information is accurate and complete.
Choosing A Policy
When insurance policies are sold, they are issued on either a monoline basis or as a package policy. A monoline policy contains only one type of coverage, such as liability insurance, while a package policy includes several different types of coverage, such as property insurance and liability insurance. A package policy is generally less expensive than insurance coverages purchased separately. Homeowners policies are package policies that include property, liability, injury to someone on your property due to your negligence or that of a member of your family; or somebody else's property is damaged as a result of your negligence.
It is important to be aware of the different perils that you are insured against. It is up to you to determine whether you need the most extensive type of coverage or whether your insurance needs can be met with a basic policy. Some of the coverages excluded under a policy, such as earthquake damage and power interruption, can be "bought back" for an additional premium. Correspondingly, some coverages listed under a policy can be excluded, such as offpremises theft, resulting in a reduction in premium. However, some coverages, such as flood insurance, are always excluded and the only way to obtain them is through Federal insurance programs.
For more detailed information, be sure to contact a reputable insurance agent or sales representative.
Most Common Types of Homeowner's Insurance
Homeowners - 1 (HO-1) policy or Basic Policy, insures your home and contents against listed perils. Most insurers sell more comprehensive policies, such as the Homeowners-3, which includes these and other perils: Fire, Lightning and Smoke Damage, Windstorm and Hail, Glass Breakage, Vehicle or Aircraft Damage, Bodily Injury Liability, Damage to Property of Others, Personal Property (at Home), Personal Property (away), Burglary and Theft, Riot and Civil Commotion, Cost of Legal Defense, Explosion, Vandalism and Malicious Mischief, Medical Payments, Additional Living Expenses (If forced to live away from home temporarily).
Homeowners - 2 (HO-2) policy or Broad Form Policy, insures your home and contents against the perils in the HO-1 policy, plus other additional listed perils: Falling Objects, Water From Plumbing Systems, Electrical Damage to Appliances, Weight of Ice or Snow, Freezing of Plumbing Systems, Rupture of Water Heaters and Heating Systems.
Homeowners - 3 (HO-3) or Special Form Policy is the most widely used policy by homeowners. This policy covers your home for all risks of physical loss, except those that are specifically excluded, such as flood, earthquake, war, nuclear accident, etc. Check your policy for a complete listing of perils excluded. Coverage for loss of your home's contents is also covered for many of the same perils for which your home is covered.
Tips on Evaluating Your Home and Personal Property
The first step in determining how much insurance you will need is to make an analysis of the value of your home and your personal property within it. In determining the value of your home, you must calculate how much it will cost to replace it if your home were totally destroyed. You can enlist the help of your insurance agent in determining this figure. In fact, most insurance companies make a physical inspection of your home when they first insure it. Using formulas that take into account whether your home is of brick or wood frame construction, total area, number of floors, number of rooms, etc., the company will be able to give you an accurate replacement cost value.
Determining the value of your personal property will require an extensive analysis on your part. You should go through each room of your house and list every piece of furniture and fixture within it. As you compile your inventory, you should supplement it with receipts indicating the purchase price and date of purchase and photographs of major items. Your inventory should be updated on an annual basis or, at the very least, whenever you purchase a large appliance or piece of furniture.
Some people periodically videotape all their possessions. If you videotape, make sure all the drawers and/or doors of your furniture are open so you have a record of what is stored. When complete, you should store your inventory or videotape in a safe place away from your home, such as your safe deposit box. You might also store this information in the home of a friend or relative.
...before it may be too late.
For nearly all consumers, owning a home represents a large investment. But suppose your home is vandalized or damaged by a storm? Having insurance can protect you from such unpredictable losses.
When purchasing insurance, it is important to READ YOUR POLICY. Your policy is the contract between you (the insured) and your insurance company. The time to learn about your coverage and conditions is not after you have suffered a loss but before, while you have the opportunity to discuss the policy with your agent. If you do not understand the policy or want to modify it, contact the insurance agent or company for additional information. Also important is the written application for insurance that usually becomes part of the policy. Carefully examine the application before signing it to make sure the information is accurate and complete.
Choosing A Policy
When insurance policies are sold, they are issued on either a monoline basis or as a package policy. A monoline policy contains only one type of coverage, such as liability insurance, while a package policy includes several different types of coverage, such as property insurance and liability insurance. A package policy is generally less expensive than insurance coverages purchased separately. Homeowners policies are package policies that include property, liability, injury to someone on your property due to your negligence or that of a member of your family; or somebody else's property is damaged as a result of your negligence.
It is important to be aware of the different perils that you are insured against. It is up to you to determine whether you need the most extensive type of coverage or whether your insurance needs can be met with a basic policy. Some of the coverages excluded under a policy, such as earthquake damage and power interruption, can be "bought back" for an additional premium. Correspondingly, some coverages listed under a policy can be excluded, such as offpremises theft, resulting in a reduction in premium. However, some coverages, such as flood insurance, are always excluded and the only way to obtain them is through Federal insurance programs.
For more detailed information, be sure to contact a reputable insurance agent or sales representative.
Most Common Types of Homeowner's Insurance
Homeowners - 1 (HO-1) policy or Basic Policy, insures your home and contents against listed perils. Most insurers sell more comprehensive policies, such as the Homeowners-3, which includes these and other perils: Fire, Lightning and Smoke Damage, Windstorm and Hail, Glass Breakage, Vehicle or Aircraft Damage, Bodily Injury Liability, Damage to Property of Others, Personal Property (at Home), Personal Property (away), Burglary and Theft, Riot and Civil Commotion, Cost of Legal Defense, Explosion, Vandalism and Malicious Mischief, Medical Payments, Additional Living Expenses (If forced to live away from home temporarily).
Homeowners - 2 (HO-2) policy or Broad Form Policy, insures your home and contents against the perils in the HO-1 policy, plus other additional listed perils: Falling Objects, Water From Plumbing Systems, Electrical Damage to Appliances, Weight of Ice or Snow, Freezing of Plumbing Systems, Rupture of Water Heaters and Heating Systems.
Homeowners - 3 (HO-3) or Special Form Policy is the most widely used policy by homeowners. This policy covers your home for all risks of physical loss, except those that are specifically excluded, such as flood, earthquake, war, nuclear accident, etc. Check your policy for a complete listing of perils excluded. Coverage for loss of your home's contents is also covered for many of the same perils for which your home is covered.
Tips on Evaluating Your Home and Personal Property
The first step in determining how much insurance you will need is to make an analysis of the value of your home and your personal property within it. In determining the value of your home, you must calculate how much it will cost to replace it if your home were totally destroyed. You can enlist the help of your insurance agent in determining this figure. In fact, most insurance companies make a physical inspection of your home when they first insure it. Using formulas that take into account whether your home is of brick or wood frame construction, total area, number of floors, number of rooms, etc., the company will be able to give you an accurate replacement cost value.
Determining the value of your personal property will require an extensive analysis on your part. You should go through each room of your house and list every piece of furniture and fixture within it. As you compile your inventory, you should supplement it with receipts indicating the purchase price and date of purchase and photographs of major items. Your inventory should be updated on an annual basis or, at the very least, whenever you purchase a large appliance or piece of furniture.
Some people periodically videotape all their possessions. If you videotape, make sure all the drawers and/or doors of your furniture are open so you have a record of what is stored. When complete, you should store your inventory or videotape in a safe place away from your home, such as your safe deposit box. You might also store this information in the home of a friend or relative.
Wednesday, August 20, 2008
Has the Market Hit Bottom?
Compliments of:
Michael Kozlowski
Team Koz - Prestige Real Estate Group
www.team-koz.com
303-949-2755
Commentary by Walt Baczkowski
RISMEDIA, August 5, 2008-At the top of the most frequently asked questions’ list is, “How will we know when the market has ‘bottomed out’ and we should buy a home?”
Historically, two major indicators that a market has bottomed out are: a decline in the number of listings and an increase in listing and sold prices. Obviously the key here is making your move at the right time-which would be right before these two items begin to manifest in the market.
Based on sales data provided by MLSs, it appears that we are beginning to realize a slight decline in listing volume. I say “appears” because with the factors affecting the market today-and the foreseeable future-this may be a seasonal issue or being caused by any number of things.
Tracking the listing volume over the next several months will provide additional information regarding this question. In regard to sold prices, this is more difficult. Real estate-owned property or property in some stage of the foreclosure process has been driving the price point for real estate for some time now.
With a significant volume of lending institution-owned property on the market selling at what historically, could be viewed as discounted prices, we do not anticipate seeing an increase in sales prices in the near future.
With sales showing increases compared to last year in most areas and declines in listing volume, it would appear that the market is slowly changing from the buyer’s market we have experienced for the past several years.
A large listing inventory remains, however, and problems in the job sector-coupled with rising fuel costs and the overall economic state in the country-will undoubtedly prolong the market conditions we are currently experiencing.
During this time, we are also seeing a plethora of innovations and new ideas coming forward. We all need to do something that differentiates us from our competition. New services and products have continued to be introduced over the past few years, only to fail shortly thereafter or morph into something entirely different.
However, a point to keep in mind is that self respect and common sense should remain at the top of everyone’s list. This has been-and remains to be-the basis of business success.
Walt Baczkowski is president of the Metropolitan Consolidated Association of REALTORS®.
To contact him, please e-mail walt@mcaronline.com.
RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.
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Post your questions freely, we will respond as accurate and detailed as we can..
Visit us at:
http://www.team-koz.com
Presented by:
Michael Kozlowski
TEAM-KOZ
Broker Associate/Owner
Prestige Real Estate Group
9200 E. Panorama Circle, Suite 140
Englewood, CO 80112
303.949.2755 Cellular
303.328.2951 Facsimile
team-koz@comcast.net
www.team-koz.com
With years of experience in the entire Metro Area, Denver, Littleton, Highlands Ranch, Lone Tree, Castle Rock, Parker, and All Metro Denver real estate as well as intimate local area knowledge, I work extensively to help buyers and sellers meet their real estate goals.
If you are looking to buy or sell a home or would just like to know some more information, feel free to call or Email us.
As Top Producers, our extensive marketing gives a homeowner the opportunity to get the maximum value for his/her property.
For buyers, we help negotiate the best possible deal and search until we find the perfect property. Nothing satisfies us more than seeing the smiles that come with a successful sale or the purchase of a lifetime.
Thanks again for choosing Team Koz as your on-line Denver, Littleton, Highlands Ranch, Lone Tree, Castle Rock, Parker, and All Metro Denver real estate source.
Your one stop shop for the latest Denver Real Estate news, info and updates.
Post your questions freely, we will respond as accurate and detailed as we can..
Visit us at:
http://www.team-koz.com
Presented by:
Michael Kozlowski
TEAM-KOZ
Broker Associate/Owner
Prestige Real Estate Group
9200 E. Panorama Circle, Suite 140
Englewood, CO 80112
303.949.2755 Cellular
303.328.2951 Facsimile
team-koz@comcast.net
www.team-koz.com
With years of experience in the entire Metro Area, Denver, Littleton, Highlands Ranch, Lone Tree, Castle Rock, Parker, and All Metro Denver real estate as well as intimate local area knowledge, I work extensively to help buyers and sellers meet their real estate goals.
If you are looking to buy or sell a home or would just like to know some more information, feel free to call or Email us.
As Top Producers, our extensive marketing gives a homeowner the opportunity to get the maximum value for his/her property.
For buyers, we help negotiate the best possible deal and search until we find the perfect property. Nothing satisfies us more than seeing the smiles that come with a successful sale or the purchase of a lifetime.
Thanks again for choosing Team Koz as your on-line Denver, Littleton, Highlands Ranch, Lone Tree, Castle Rock, Parker, and All Metro Denver real estate source.
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