Here’s four real estate related stories in the media this week. The first is yours truly on OPB’s Think Out Loud discussing the same year end Portland real estate market data cited in the second Portland Business Journal article. The third article from the USA Today is more of a national story but interesting nonetheless. The fourth, on Oregon’s unemployment rate (bad but getting better) is a key factor to any housing recovery.

Is the Housing Market Coming Back?

Is the Portland housing market beginning to turn around?

Analysts are taking up that question with the release of a new report from the Regional Multiple Listing Service. The bad news is that the organization’s data show the median house price in the Portland metro area fell another 7.9 percent to $221,000. Home sales totaled $5.2 billion in 2011 — an 11-year-low.

Home sales end 2011 mixed

Year-end sales figures paint a mixed portrait of Portland’s residential real estate market for 2011. Overall sales rose compared to the prior year but other metrics, including price, fell.

Bartiromo: JPMorgan’s Jamie Dimon sees housing at bottom

Scroll down to question on U.S. housing Market:

We have seen the worst. We are at the bottom. We may hug along the bottom for a while, but we are at the bottom. People think housing is terrible, but the early indicators tell you a lot about where it will be in 18 months or so. Supply and demand are rapidly coming in balance. Renting is now more expensive than buying in half of America. We’re adding 3 million Americans a year. In the next 10 years, we have 30 million more Americans. Those 30 million Americans are going to need 15 million homes, or something like that. Household formation has gone so low. You had kids move back home — and, yes, by the way, it doesn’t work for them, either.

Oregon unemployment 8.9%

Portland Business Journal

Oregon’s unemployment rate has dropped to its lowest level in three years.

It’s not a real estate article but jobs are a key factor in the housing market.
I’m not loving the orange background on the quotes, will work on getting that toned down!

I’m just heading down to the OPB studio for this morning’s Speak Out Loud segment at 9:00 AM.  Here are the links to the December 2011 RMLS Market Action reports:

• - All Areas (68 pages)
• - Baker County
• - Columbia Basin
• - Coos County
• - Curry County
• - Douglas County
• - Grant County
• - Lane County
• - Mid-Columbia
• - North Coastal Counties
• - Polk & Marion Counties
• - Portland Metro
• - SW Washington
• - Union County
• - Wallowa County

This Willamette Valley Multiple Listing Service’s year end report.

Here’s the link to my comparison of the average sales price of the local Portland areas for 2010 and 2011.

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Yesterday I wrote Buying a Bank Owned Property Part 1.  Today we’ll dive right in with more of the FAQs from Atlantic & Pacific Real Estate with my commentary added in italics.

Will the seller make repairs?
Most foreclosures are sold “AS IS, NO DISCLOSURES.” This means the property is offered “as is,” without repairs or upgrades. The seller has already reduced the price of the property for any damages or needed repairs, which are reflected in the listing price. As for “No Disclosures,” the seller cannot provide disclosures because typically the seller has not personally seen the home to have knowledge of its condition. Foreclosure sellers generally rely on what the listing agent and appraiser have seen.

Going in, you should expect “as-is.” That being said we have seen instances where banks have made repairs that were not considered in the original pricing as they were unknown prior to thorough inspections.  One bank paid for the decommissioning of two underground tanks on the property found during the inspection period- one oil and one fuel.  Another did sewer repairs.  

Will the seller allow for an inspection period?
Typically, yes. This inspection period is normally 10 days long. It is designed so that the buyer can have a home inspection, termite inspection, septic inspection, survey (if desired) and appraisal completed. An appraisal is part of the inspection period.

The inspection is not designed to allow the contract to be re-negotiated. Generally this will kill the transaction if the buyer attempts this. The seller will not activate utilities if the condition of the property is deemed unsafe. Ask the listing agent for more information.

See my previous comment.  This underscores that the inspection period is not a negotiation period.  It may be necessary to have the home de-winterized to conduct inspections.

Does the seller have any special forms?
Most sellers do have what they call “special addendums.” These forms vary from lender to lender. The addendums supersede the original purchase and sale agreement and become part of the purchase and sale agreement. Most of these forms have a few items that the buyer must pay close attention to, such as per diem charges, inspection periods, closing costs, and earnest money requirements.

If the bank provides additional addendum with their acceptance it is imperative to return them promptly as their acceptance may be contingent on their return to have a binding contract.

When will the seller respond to my offer?
Response times on an offer can vary from just a few days, to much longer.

You may feel like you are playing a game of “hurry up and wait.”  Always try to get any requested material or response back as soon as possible but realize that a reply may be slower than desired. 

Should I get a home inspection?
Yes. A thorough home inspector can provide the buyer with valuable information.

Yes, yes, yes.  In Oregon, read the Oregon Property Buyer Advisory.  Remember, banks are exempt from disclosures so it is your responsibility to discover any property defects through your own due diligence.

Can my agent provide me a home inspection?
No. A home inspection can only be performed by someone associated with ASHI (American Society of Home Inspectors) or NACHI (National Association of Certified Home Inspectors).

Will the seller pay my loan closing costs?
Closing costs, along with other aspects of the transaction, are subject to negotiation.

When a seller pays any or all of the buyer’s closing cost it lowers the seller’s net proceeds.  Full price offer A with no seller paid closing costs nets the seller $3000 more than full price offer B with $3000 seller paid closing costs.  Those are just two components of an offer so it is not impossible that offer B could be considered the better offer when the whole package is presented.  As mentioned yesterday, there may be incentives to use the in-house lender. 

Does the seller accept FHA?
This depends on the seller and the condition of the property.

Will the seller finance the property?
This depends on the lender. If they do, it will be advertised as such.

Will the seller accept contingencies or a Lease/Purchase?
No. Contingency and lease/purchase offers are generally not accepted on foreclosed properties.

The previous three statements are are pretty black and white so there isn’t anything I can add!

The ultimate goal of any property purchase is minimizing risk.  The road to getting there requires due diligence regardless of who the seller is.

In its simplest form purchasing a home can be broken into three parts: 1) find house; 2) buy house; 3) get keys to house. Generalizations pretty much end there. The three legs of the current real estate market are the traditional sale, the short sale and bank owned property (aka: Real Estate Owned (REO)). There are currently 230 bank owned homes listed in Portland.  For the purpose of this discussion we pick up the conversation where the property is listed for sale, not the process of getting it there.

During a traditional sale and short sale the seller is the homeowner. In a traditional sale, the buyer and seller negotiate the terms (through their Realtors). In a short sale, the seller typically rubber stamps the buyer’s offer so it can be given to the bank for third-party approval. The bank will counter with their terms for and both the buyer and seller have the option as to whether they accept them. The majority of the negotiation is between the listing agent and the bank’s representative.

When a bank owned property is listed for sale the institution is the owner of record and there is no third party to the sale.  There are many ways in which the intitution becomes the owner (foreclosure, deed in lieu of foreclosure or by purchasing a portfolio from another institution, etc) .  The Asset Manager makes all decisions as the seller. They use Broker Price Opinions (BPOs), which are mini-appraisals (not dissimilar to a CMA), pictures, bids and other information to make their decisions. It is very unlikely that they have physically seen the home.

This is the first part of Atlantic & Pacific Real Estate’s FAQ about buying bank owned property.  Keep in mind that every situation cannot be covered here.  I’ve added some comments (my opinions) from experience in italics. 

What price does the bank (seller) want for the property?
The same as if a private seller was listing their home. They want the listing price or better.

How did the seller come up with their listing price?
The sellers typically try to determine fair market value through a combination of Broker Price Opinions and appraisals on the property. The condition of the property was also taken into consideration.

How do I place an offer for the property?
All offers must have either a pre-qualification letter or proof of funds attached to them. A pre-qualification letter can be obtained by going to a direct lender. Proof of funds can be a bank statement showing the balance in the account exceeds the offer amount or a statement from a securities company. A prequalification letter must be current and contain the following information:

* Borrower’s name * Borrower’s lending limit * Lender’s name * Lender’s address
* Loan Officer’s name * Loan officer’s direct phone and fax numbers.

Once you have obtained proof of funds or a pre-qualification letter, then you should begin looking at houses.

You should always get pre-approved early on in the home search process and you are typically able to choose what lender you use to complete the purchase.  Most bank owned properties will also require a pre-approval from their selected bank (a pre-approval from Wells Fargo Mortgage for a Wells Fargo owned home).  Your Realtor will have those instructions in the listing.  There may be incentives offered by the seller to use their bank.  It’s an extra step to get pre-approved for a second time but it also provides a second opinion which can never hurt.  You might have to go through the hoop-jump numerous times if you are making offers on property owned by different banks. If you are providing a bank statement as proof of funds black out your account numbers before giving it to anyone, including your Realtor.

What should I offer for the property?
You should make an offer that feels comfortable to you. However, if you are going to submit an offer substantially below the list price, be prepared that you may: (1) be outbid by other prospective buyers (2) need to wait an extended amount of time for a seller’s answer; or (3) be forced to look for a different property if your offer is not accepted.

We always want our buyers to be comfortable with what they are offering on a property.  In the case of multiple offer situations we ask the question, ” if you know you want the property and the other party gets it for $x more than your offer will you be upset?”  Just because someone else is willing to pay more doesn’t mean you should be.  Multiple offer situations are returning to our market in both traditional and bank owned properties.  An accurately priced home will sell in any market and just because it is bank owned doesn’t mean it is underpriced, accurately priced or overpriced. 

Will the seller look at more than one offer?
YES. And the seller will not consider a property under contract until the seller has signed all contract forms and addendums. (They will not do this until the buyer has signed all of these forms first). Therefore, if you make an offer on a property and receive seller addendums back, you need to review and (if you agree to the terms) sign them immediately and return them. (Never cross out or make changes on the seller addendums unless you are willing to have the seller treat such changes as a counter offer that can result in your offer subsequently being rejected by the seller)

The Asset Manager may reject, accept  or counter an offer; just like a traditional seller.  In the case of multiple offers they may come back to all interested parties with “make your highest and best offer.”  At that point the buyers can choose to revise their offer or stand pat.  Potential buyers are not going to know what others have offered.  Banks will often have their own paperwork and addendums.  Most banks use some sort of electronic property and offer submission system and Realtors may never have the opportunity to talk directly with the asset manager so complete paperwork is imperative and filling it out in a timely manner is equally important.  Electronic signatures such as those through DocuSign may or may not be permitted.     

Let’s end there for today.  I’ll link all future related posts to each other.

RMLS has released the year end December 2011 Market Action report.  Portland Metro inventory is 5.3 months.  This is the lowest inventory level since June of 2007 (5.0 months).  Inventory is the ratio of the number of closed listings for a month divided by the number of active listings.  There are fewer closed sales and fewer active listings than there were in 2007 but what it shows is that buyers have fewer homes to look at and compete for.

Overall, the Portland Metro market average sales price slid 6.2% from the previous year.  The local market areas are interesting because in 2010 the close in markets fared better than the suburbs.  That wasn’t universally true in 2011 (compare West Linn/Lake Oswego to SE Portland):

I collected a few real estate related articles this week. The first couple of paragraphs of each are quoted here and the complete stories are linked. All three are somewhat interrelated.  The first, from the National Association of Realtors says that the market is picking up on its own.  The third article suggests that the Feds might act lower interest rates even further in order to stimulate the housing market.  The middle article underscores how important it is to make money available to those that qualify or even those who do not qualify under new (and needed) lending requirements .  Loan modifications have never worked the way they should have.

2012 Home Sales: Positives on Many Fronts

 NAR released its latest pending home sales index figure last week and for the second month in a row the index is up. But more than that, the index has broken 100. This is significant because the only time since the housing boom collapsed that the index has broken 100 is when the home owner tax credit was in effect. The fact that the index has returned to that level a year since the credit has been in effect means the housing market is strengthening completely on its own, without any stimulus.

CoreLogic: More Portland homes in trouble in October

More Portland area homeowners lost their property or fell behind on their mortgages in October but the region is still performing better than average.  CoreLogic Inc. , a Santa Ana, Calif.-based real estate firm, said Thursday the foreclosure rate for Portland rose to 2.45 percent in October, an increase of 0.24 percentage points compared to one year ago.

Portland’s highest rate was 2.72 percent, recorded in July 2011.  The national foreclosure rate in October was 3.51 percent, a 1.06 percentage point increase from the prior year.

Dudley Calls for Government Steps on Housing as Fed Considers More Easing

Federal Reserve Bank of New York President William Dudley called on the U.S. government to try new programs to revive the housing market while saying the central bank may still consider ways to cut interest rates.

“Implementing such policies would improve the economic outlook and make monetary accommodation more effective,” Dudley said today in a speech to bankers in Iselin, New Jersey. At the same time, it’s “appropriate” for the Fed to consider steps to ease monetary policy, he said.

Predictions for Portland’s real estate market is that it will either go up or down.  Or be flat.  Depends on who you ask.  Housing Predictor gives their 2012 prediction:

Portland should witness an increase in sales in 2012 but a weak job market and lay-offs among high-tech firms in the region will keep home sales, including condos sluggish. Portland is forecast to sustain another year of falling home prices, netting 5.1% less.

Back in October we linked to a Wall Street Journal interactive graphic with data from Fiserv Case Shiller that predicts Portland property values will increase 5.9%.  The two sources have a 10% spread and there are so many variables that crystal ball predictions are risky at best.  What we’re telling our potential clients now is that the market may remain mostly flat or even lose a little on the short-term but that with a long-term view (more than a few years) there are lots of reasons for optimism.  As a buyer how you personally weigh each of the factors will determine if this is a “Buy Now” market for you or whether the sidelines are still the place to be.

• Interest rates
• (Un)employment rates
• Size of shadow inventory- homes that will be foreclosed on or that are already owned by banks but not yet on the market
• Local and national politics- election year
• Strength of rental market
• Your personal feeling about the market- your gut
• How you qualify for a loan now versus working on your credit, building a larger down payment, etc

As a seller you have to weigh the factors above but you may not have a choice based on hardship or other events.  I started to write a list of things to consider as a seller but quickly realized that there a too many situational factors which in list format are either to vague, don’t apply or are too complex depending on the individual situation.  The best advice is going to come from having a conversation so that an educated decision can be made.  That’s true for a buyer too.  Decide on a goal and pick a strategy to get there.

If there is a legitimate endeavor you can pretty much guarantee there is a scam to go with it.  While most “for rent” postings are probably legit we’ve seen numerous scam attempts over the years using a property that is listed “for sale” as bait.  I wrote this post about Craigslist in 2009.  One of our listings became a target of a rental scam this week.

The scammer used hotpads.com account to post the home for rent which then syndicated to other real estate related websites, including Zillow, which allowed the “for rent” listing to overwrite our legitimate “for sale” listing.  The scammer went as far as to create an email address using a derivation of the owner’s name.  What tends to happen is that people do drive-bys to check out the property and once they see it they call us from the real estate sign outside.  It doesn’t take long to figure out there is a scam in progress.  In this case the lady who called had also talked to the scammer: “we’re retired and the house is vacant.  Wire money and we will send you the keys.” Presumably the callback came from a disposable cell or blocked number.

We reported the posting to both Zillow and Hotpads and they were removed within 24 hours.  Zillow has a dedicated page of “Five Tips to Help You Avoid Becoming a Rental Scam Victim.”  Zillow’s tips are listed here but go to their page for the details.  Criagslist has a similar scam awareness page.

1. Remember the mantra, “If it seems too good to be true, it probably is.”
2. Carefully analyze email correspondence for red flags.
3. Make sure that the property you are interested in is legitimately for rent.
4. Use a reputable source in your search for rental listings.
5. Finally, if someone asks you pay rent without seeing the property and signing a lease, don’t do it

October 2011′s Portland Case Shiller Index was released yesterday.  Portland slipped slightly over the previous month from 136.10 to 135.44.  October’s pricing nearly mirrors January’s 135.80 but the 12 month average still makes the Portland Business Journal’s headline, “Home prices down 4.7% in past year.” True but this time last year it was down  7.8% over the previous 12 months and the 12 month rolling average was at its worst between May 2009 and May 2008 where it dropped 16.3%.  The market’s health is improving but years of abuse isn’t going to allow it to recover overnight. The reality for 2011 is that, “flat is good.”

I has a long conversation yesterday with a reporter from Reuters.  Among the things we talked about was the ability to buy at at historic low interest rates with down payments at 3.5% for and FHA loan.  There’s the mortgage insurance hit but not much, if any, interest rate hit for these types of these loans.  Lending requirements are more stringent but for those that qualify (and want t0) money is available.  In Portland, we’re looking at January 2005 pricing according to Case Shiller.  A CS report recently pegged Portland’s 2012 potential price rise at 5.9%.

We also talked about the return of the single family property investor.  We’ve got clients looking to take advantage of a really strong rental market in Portland.  Buyer’s are using conventional financing but also self directed IRAs to purchase.  I’ll write an updated post on using an IRA to purchase real estate soon.

There are certainly positive signs for a strong 2012 but we’ve still got to be wary of Portland’s unemployment rate, local and national politics/elections and global economic problems.  Any one of these or in combination could hamper recovery.

I just downloaded the 100+ page National Association of Realtor’s 2011 Profile of Buyers and Sellers.  Obviously there’s a lot to read there but these are the highlighted stats listed for buyers: