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The Real Estate Bucket


by Phyllis Espinoza


Real Estate Bucket

In the past few months there have been changes in the real estate market. Housing prices are going down and mortgage rates remain low, making it easier for home buyers, but there has been a sharp increase in foreclosures.

The analogy I would like to use to describe it is that of an ICE BUCKET. Home sales and mortgage applications are pouring into the bucket and filling it because mortgage rates are relatively low; at the same time there are delinquencies and foreclosures pouring out. IF interest rates go up, the already-full ice bucket will begin to melt and shrink, creating an even greater overflow.

Letís explore the factors that are at work.



Busy Housing Market

Housing prices across America are falling to their lowest levels in recent years. A 10 Ė 20 percent reduction in asking price is now common in both high and moderately priced neighborhoods.

Buyers are taking advantage of this and new-home sales climbed during August, 2006. Investors are trying to get the properties off their hands quickly before their properties lose value, and are going the extra mile by picking up the cost of repairs or paying buyersí closing costs. Some are offering seller financing to improve their chances of selling their properties quickly to buyers who do not qualify through institutions due to credit issues or very low down payments.

This opens the doors to buyers who could not purchase a home a year ago, and they can now look for the best deal.

Homeowners and buyers are rushing to take advantage of low interest rates, and applications for mortgages at major U.S. banks have increased considerably.


Mortgage Rates Low

Homebuyers now have available to them a wide selection of all different types of home loans, making it easier for them to find financing.

Mortgage rates fell 30 basis points in a seven week period, and are down 57 basis points in the past twelve weeks. Mortgage applications in the week ended Sept. 29, 2006 reached their highest level in eight months.

However, times are getting tougher for many homeowners - the number of homes entering into some stage of foreclosure is rising.


Foreclosures Up

In August, 2006, more than 115 thousand properties entered into foreclosure, according to RealtyTrac, an online marketplace for foreclosure sales. That was 24 percent above the level in July, 2006 and 53 percent higher than a year earlier.

There are a couple of possible reasons. Housing costs in nearly every part of the country grew sharply from 2000 to 2005. Nationwide, median home values jumped by 32 percent during the same period, according to a survey. Housing prices went up much more than incomes did.

Foreclosures may also be partly the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period. This can mean an increase of a few hundred dollars on the monthly mortgage payment in some cases.


Things to keep in mind in this changing market:

If you are a rehabber or investor :

- Chances are you may be looking to turn your properties around to make a quick return. Make sure that you leave yourself enough room for a property value adjustment, as you may be selling in a declining market. Remember that you make your profit when you buy the property. ĎBuy wholesale, sell retailí has been good advice over the years but when the market is in a downturn, the Ďretailí value may deteriorate pretty quickly, as you rehab and sell the property.

- If you plan to offer seller financing, be careful to select your buyers and terms while keeping a declining market in mind, so that the buyer is able to make monthly payments through possible tough times.

- Ask for the largest downpayment that the buyer can afford, as this will act as insurance for you. Donít be tempted to offer 100% financing, as you may be left stranded with a foreclosure or with a mortgage note that is not marketable.

- Deal with low-end properties, unless the high-end is your niche and you feel comfortable with it. Low-end properties donít lose as much value as high-end properties during downturns.

- Remember that a small loss is a lot better than a BIG loss. If you find yourself in a situation where the market has moved against you even though youíve done your best to advertise your property, you may want to consider selling at a small loss. I donít advocate doing this for a living, but sometimes you just need to take a small loss to avoid the BIG one. Itís your decision and you should consider realistic expectations from the market. Accept that you are making a decision based on your best understanding of the situation and live with it, even if the market turns around later. Most of the big real estate firms that collapsed during previous downturns, didnít see it coming and didnít take their losses quickly enough.

- You may have sold properties by offering seller financing and are now holding mortgage notes. Unless you are planning to receive monthly payments from your notes for the duration of the term, this would be a good time to consider selling them. During a declining real estate market, your notes may lose value quickly. And if interest rates go up, well Ö the ice bucket may melt.

- You should consider using simultaneous closings to sell your property quickly. Offering seller financing and flipping the note on closing is one of the fastest ways to turn around a property and reduce your risks during market adjustments.


 If you are a homeowner facing difficult times, there are actions that you can take before repeated delinquencies ruin your credit or worse, you head for foreclosure :

- You may call your Lender and see what programs are available for forbearance of payments. There are a number of plans currently available by Lenders that can reduce your monthly payments to affordable levels. The key is to contact them as soon as possible.-

Even if you have no equity in your property (your mortgage is higher than the value of the property), you may be able to sell it by using your lender's assistance. They may be willing to work with you. The sooner you contact them, the better your chances.

- You may choose to work with a private investor to sell your property by offering temporary seller financing and then have the investor buy the new mortgage at closing to get you cash (a real estate technique called simultaneous closing). Simultaneous Closings are a great alternative to speed up the selling of a property, while providing cash and freeing you from the risks of holding a property or note during declining markets.

Whether you are looking to sell your seasoned mortgage notes or to create new notes through seller financing, I can work with you to come up with a viable structure.

Iíd be happy to offer guidance each step of the way in finding potential buyers, screening them for the best candidate, and providing suggestions concerning structuring the seller-financed mortgage note so that you maximize your proceeds from selling the Note (new or seasoned) and the property.

Feel free to visit our website http://www.simultaneousclosing.com for more details about our services.


About the author

Phyllis Espinoza is an expert in Simultaneous Closings, an emerging field of creative real estate financing, and the owner of the website http://www.SimultaneousClosing.com. Her goal is to help as many people as possible by making this useful technique better known.



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