By Joel Persinger
YourRealEstateDude.com
One of the many interesting things that happened in the real estate business this December was the “Eighth Annual Residential Real Estate Conference” presented at the Burnham-Moores Center for Real Estate at the University of San Diego. This year it was billed as “Outlook 2008.”
Several hundred industry leaders representing mortgage banking firms, banks, credit unions, real estate brokerages, home builders, developers and the like, attended this early morning symposium to hear the forecasts and fortune-telling of various economists and other industry leaders. This was followed by regional predictions offered by the current graduate students and a round table question and answer period involving a panel of experts. The end result was a rather fascinating examination of the previous year’s business statistics and a host of expert predictions regarding the coming year, not one of which seemed to agree with any of the others to any great extent. This is hardly surprising. Any time you get twenty “experts” to come together and opine, you are certain to get at least twenty different opinions. As my grandfather used to say, “A camel is nothing but a horse that was designed by a committee.”
All the same, there were some general agreements and not just a few interesting little tidbits of information that came out of it. Among them was the consensus that the recent downturn in the San Diego real estate market is quite different than that which occurred in the early 1990’s. Deputy Chief Economist for the California Association of Realtors Doctor Robert Kleinhenz, Ph.D. was most eloquent in his defense of this assertion when he clarified the differences in the basic economies of the two periods and the underlining causes of the downturns. According to Dr. Kleinhenz, the housing slump of the 1990’s was chiefly the result of high paying jobs leaving the County as the companies which offered them moved to other states. I was practicing real estate at the time and vividly remember the mass migration of aerospace jobs from San Diego to Denver, Colorado during that period. Aerospace was one of many industries that left town. The result was a staggering drop in home prices during a time when interest rates were quite high. The real estate market simply came to a halt.
By contrast, today’s San Diego economy is far more vibrant and the causes of today’s real estate slump are quite different. Unlike previous real estate downturns which were caused by other forces in the economy, Dr. Kleinhenz demonstrated that, for the first time that he could discover, our current downturn has actually come about in reverse. In the past, the real estate market has slowed as a result of other disruptions in the economy. This was the case in the 1990’s. However, for the first time according to Dr. Kleinhenz, the real estate market was driven to its knees by itself. There was universal agreement between the presenters at the conference that the current sharp decline in housing sales was most radically affected by the lending industries decision to tighten underwriting standards in the second quarter of 2007, making it much more difficult for borrowers to acquire loans.
This general consensus was that lenders may loosen their underwriting standards somewhat this coming year and that changes in the law will have some positive affect on lending as well. The economists’ predictions were that prices will continue to decline slightly for the first half of 2008 and that the market, while still remaining slow, will begin to turn around in the second half of the year. It should be noted that the students who presented agreed. This is perhaps the most important piece of information, since from year to year the students appear to have been more accurate in their forecasts than anyone else. Either way, this is not nearly the gloomy picture of the coming year that many have painted. If 2008 turns out to spell the end of real estate’s downward slide and begin its recovery, it could be a happy new year after all.
Monday, December 31, 2007
New Tax Law Helps Distressed Homeowners
By Joel Persinger
One of the many wonderful things about Christmas is the fact that our leaders in both the Congress and the Whitehouse would like to be able to go home for the holidays. But, they have to get their work done before they can go. Consequently, they actually put their noses to their respective grindstones and get some things done. There’s nothing like a deadline to spur someone on to greatness. This Christmas season is no different.
As reported by the California Association of Realtors, on December 20th, just in time for Christmas, President Bush signed into law a measure that gives tax breaks to homeowners who have mortgage debt forgiven. This is a fabulous Christmas present for all those who are forced to sell their homes because of financial hardship, yet owe more on their homes than the houses are presently worth.
Under preexisting law, when a homeowner sold a home for less than the balance owed on the loan, the lender would send that homeowner a 1099 for the difference between the amount the lender received as a result of the sale and the balance due on the loan. If the homeowner had a loan balance due of $500,000 and was only able to sell the home for $400,000 the lender would likely receive somewhere in the neighborhood of $375,000 after all the costs of sale were subtracted. Preexisting law required the lender to send the homeowner a 1099 for the difference; in this case $125,000. The homeowner would then be required to pay taxes on the $125,000 as if they had actually received that money. Many such folks are already bailing like mad to keep their financial ships afloat to begin with. A tax liability of this magnitude would likely put a hole in their boats that would sink them financially for years.
As of the signing of Mortgage Forgiveness Debt Relief Act of 2007, the problems created by the “phantom tax” have been effectively eliminated for many distressed homeowners. This paves the way for many more sales to be completed without the need for lenders to foreclose. Previously, the main obstacle preventing homeowners from selling prior to foreclosure has been the fear that they will end up swamped in tax liability. As a result, many have chosen to simply walk away from their homes in the hope that the non-judicial foreclosure process might prevent their lender from sending them the 1099. It has been a choice of the lesser of two evils; sell the home for less than what is owed and suffer the tax consequences or allow the lender to foreclose and suffer the greater damage to the homeowner’s credit score. The change in the law will allow the homeowner to sell the home without the income tax consequences, rescue some of their credit rating by doing so and walk away rightfully feeling that they have done their level best to do what is right. It may also stem the tide of foreclosures which have been predicted this coming year.
As with any new law, there are rules that must be followed and limitations as to its application. For example: the law applies to loans secured by a qualified principle residence (qualified principal residence indebtedness is that which was incurred in acquiring, constructing, or substantially improving a residence), so your rental property is not going to be covered. There are other restrictions as well. So, getting good tax advice is a must. Still, for those who will be helped by the new law, it is most likely the best gift they will find under their tree this year.
One of the many wonderful things about Christmas is the fact that our leaders in both the Congress and the Whitehouse would like to be able to go home for the holidays. But, they have to get their work done before they can go. Consequently, they actually put their noses to their respective grindstones and get some things done. There’s nothing like a deadline to spur someone on to greatness. This Christmas season is no different.
As reported by the California Association of Realtors, on December 20th, just in time for Christmas, President Bush signed into law a measure that gives tax breaks to homeowners who have mortgage debt forgiven. This is a fabulous Christmas present for all those who are forced to sell their homes because of financial hardship, yet owe more on their homes than the houses are presently worth.
Under preexisting law, when a homeowner sold a home for less than the balance owed on the loan, the lender would send that homeowner a 1099 for the difference between the amount the lender received as a result of the sale and the balance due on the loan. If the homeowner had a loan balance due of $500,000 and was only able to sell the home for $400,000 the lender would likely receive somewhere in the neighborhood of $375,000 after all the costs of sale were subtracted. Preexisting law required the lender to send the homeowner a 1099 for the difference; in this case $125,000. The homeowner would then be required to pay taxes on the $125,000 as if they had actually received that money. Many such folks are already bailing like mad to keep their financial ships afloat to begin with. A tax liability of this magnitude would likely put a hole in their boats that would sink them financially for years.
As of the signing of Mortgage Forgiveness Debt Relief Act of 2007, the problems created by the “phantom tax” have been effectively eliminated for many distressed homeowners. This paves the way for many more sales to be completed without the need for lenders to foreclose. Previously, the main obstacle preventing homeowners from selling prior to foreclosure has been the fear that they will end up swamped in tax liability. As a result, many have chosen to simply walk away from their homes in the hope that the non-judicial foreclosure process might prevent their lender from sending them the 1099. It has been a choice of the lesser of two evils; sell the home for less than what is owed and suffer the tax consequences or allow the lender to foreclose and suffer the greater damage to the homeowner’s credit score. The change in the law will allow the homeowner to sell the home without the income tax consequences, rescue some of their credit rating by doing so and walk away rightfully feeling that they have done their level best to do what is right. It may also stem the tide of foreclosures which have been predicted this coming year.
As with any new law, there are rules that must be followed and limitations as to its application. For example: the law applies to loans secured by a qualified principle residence (qualified principal residence indebtedness is that which was incurred in acquiring, constructing, or substantially improving a residence), so your rental property is not going to be covered. There are other restrictions as well. So, getting good tax advice is a must. Still, for those who will be helped by the new law, it is most likely the best gift they will find under their tree this year.
Does the congress have the “Big Fix?”
By Joel Persinger
YourRealEstateDude.com
This past week the U.S. Senate passed S. 2338, the FHA Modernization Act. It did so to great fanfare. The California Association of Realtors even sent out a broadcast email to all of its members boldly stating, “Senate Passes FHA Loan Limit Increase! Big Win for California REALTORS!” This was supposed to be the panacea, the cure-all pill for what ails the housing and mortgage markets. Since the bill passed, my phone has been ringing off the hook with people calling to pump me with questions about what this is going to accomplish and how soon the market will turn around as a result of the Senate’s amazing achievement.
Politicians are a funny breed, and when you put a bunch of them together and ask them to solve a problem they have a very strange way of going at it. Committees are formed, hearings are held, talking points are issued, blustery speeches are given and promises are made all in the name of fixing the problem, which quite often was created by the politicians in the first place. Take the current state of the housing and mortgage industry, for example. Some years back, the congress decided that everyone in this country was entitled to own a home regardless of whether they could actually pay for it. So, the political folk put pressure on the mortgage industry to find ways to lend money to people who otherwise would never have a prayer of getting a loan. Thus, the sub-prime lending market was born.
Many years later we have a collapsed sub-prime market and a great many politicians who have been making blustery speeches expressing their shock and dismay at the fact that the evil mortgage industry has put so many people’s lives in unbelievable turmoil. Those greedy lenders have been making ridiculous loans to low income people who had no way of paying them back; never mind the fact that lenders would never have done it if congress hadn’t pushed them to do so. So, they march into the hallowed halls of congress, form committees, hold hearings, issue talking points, make blustery speeches and promise to fix the problem that the evil mortgage companies have caused.
I realize that by pointing out the classic role reversal on the part of congress I may appear to have become a cynic in my middle age, but there are some things that government simply doesn’t do well and fixing the problems it creates is one of them. By way of illustrating my point, let’s look at just one of the many issues plaguing the FHA Modernization Act which the Senate just passed. On the one hand, the Senate has expressed its concern that so many borrowers with no money were previously able to get loans. But, according to Shanne Sleder at Clarion Mortgage the bill that the Senate just passed by an overwhelming majority vote would reduce the amount of down payment that a borrower is required to have in order to get an FHA loan from 3% to 1.5%. This directly contradicts the Senate’s stated intent by lowing the bar, effectively allowing people with less money to get a loan. As Albert Einstein once said, “The problems that exist in the world today cannot be solved by the level of thinking that created them.”
YourRealEstateDude.com
This past week the U.S. Senate passed S. 2338, the FHA Modernization Act. It did so to great fanfare. The California Association of Realtors even sent out a broadcast email to all of its members boldly stating, “Senate Passes FHA Loan Limit Increase! Big Win for California REALTORS!” This was supposed to be the panacea, the cure-all pill for what ails the housing and mortgage markets. Since the bill passed, my phone has been ringing off the hook with people calling to pump me with questions about what this is going to accomplish and how soon the market will turn around as a result of the Senate’s amazing achievement.
Politicians are a funny breed, and when you put a bunch of them together and ask them to solve a problem they have a very strange way of going at it. Committees are formed, hearings are held, talking points are issued, blustery speeches are given and promises are made all in the name of fixing the problem, which quite often was created by the politicians in the first place. Take the current state of the housing and mortgage industry, for example. Some years back, the congress decided that everyone in this country was entitled to own a home regardless of whether they could actually pay for it. So, the political folk put pressure on the mortgage industry to find ways to lend money to people who otherwise would never have a prayer of getting a loan. Thus, the sub-prime lending market was born.
Many years later we have a collapsed sub-prime market and a great many politicians who have been making blustery speeches expressing their shock and dismay at the fact that the evil mortgage industry has put so many people’s lives in unbelievable turmoil. Those greedy lenders have been making ridiculous loans to low income people who had no way of paying them back; never mind the fact that lenders would never have done it if congress hadn’t pushed them to do so. So, they march into the hallowed halls of congress, form committees, hold hearings, issue talking points, make blustery speeches and promise to fix the problem that the evil mortgage companies have caused.
I realize that by pointing out the classic role reversal on the part of congress I may appear to have become a cynic in my middle age, but there are some things that government simply doesn’t do well and fixing the problems it creates is one of them. By way of illustrating my point, let’s look at just one of the many issues plaguing the FHA Modernization Act which the Senate just passed. On the one hand, the Senate has expressed its concern that so many borrowers with no money were previously able to get loans. But, according to Shanne Sleder at Clarion Mortgage the bill that the Senate just passed by an overwhelming majority vote would reduce the amount of down payment that a borrower is required to have in order to get an FHA loan from 3% to 1.5%. This directly contradicts the Senate’s stated intent by lowing the bar, effectively allowing people with less money to get a loan. As Albert Einstein once said, “The problems that exist in the world today cannot be solved by the level of thinking that created them.”
Monday, December 10, 2007
Hope for the best. Prepare for the worst.
By Joel PersingerYourRealEstateDude.com
The holidays have seen the government begin to wrestle with the on-going problems in the lending and housing market. Congress has been working on several bills, the President has proposed fixes for the mortgage industry and talking heads on television have thrown opinions around like snow balls in Julian. Even the Presidential candidates have started weighing in, promising the moon and the stars and anything else that might help their campaigns garner increases in the polls.
The most recent attempt to save the struggling housing market is the plan announced last week by President Bush. After meeting with mortgage industry leaders, the President announced a plan that would potentially save sub-prime borrowers whose loan rates are about to adjust upward from the “teaser” rates they currently enjoy to much higher interest rate. Without such relief, many people’s mortgage payments could almost double, potentially placing them in the position of having to walk away from their homes. Foreclosures would rise and the housing market would slide deeper into a slump.
In case you haven’t read the news about it, here are the basics. According to the Whitehouse, the plan is meant to help some 1.2 million distressed homeowners by freezing the current low interest rates for some distressed homeowners for a period of five years. There are some limitations: anyone who is 30 days late on their payment or has ever been 60 days late is excluded. Likewise, anyone whose loan adjusts prior to January 1, 2008 or is judged by the lender to be capable of paying the loan at the higher rates is also out of luck. Still in all, it appears to be a decent plan, at least in theory.
The issue at hand is the secondary mortgage market. After they have lent money to homeowners, lenders sell the loans to investors by packaging them into mortgage-backed securities. This means that anyone who has mortgage-backed securities as part of their investment portfolio (401K, money market fund, retirement fund, etc.) quite possibly owns part of these loans. So, how do you solve the problem presented by the fact that big wigs in the mortgage industry have apparently agreed to accept less interest on investments, which in many cases, they no longer own? It seems logical to me that the folks who own these loans just might not agree with the idea of getting less return on their investment, particularly when the big mortgage companies made their money when the sold the loans in the first place. Many in the industry are expecting a number of law suits to be file surrounding this issue which could delay the implementation of the plan.
How this will all flesh out nobody really knows, so the bottom line question in my mind is, “What can you and I do about it?” The simple answer is, if you are in some financial trouble or about to be when your loan adjusts, the only advice I can give you is to hope for the best. Things just might turn out all right. But, just in case the result is not quite what we’ve hoped for, it’s always best to plan for the worst by getting solid advice from professionals you trust. That way you won’t be caught sleeping.
Monday, December 03, 2007
The Professionals Only Market
By Joel PersingerYourRealEstateDude.com
This past week I had occasion to bump into a few Realtors I know. Without exception each one asked me, “How’s business”. One fellow went on for quite some time about his single client who has, according to him, been quite a challenge. He expressed his frustration at having no choice but to work with a client who is a stinker simply because she’s the only client he has. Then he finished his lament with, “I keep wondering if this is only happening to me.” What I found most interesting was that each and every one of these folks expressed the same lament in almost exactly the same words, “It’s not that I don’t have any business, I just don’t have any business that will close escrow.”
So, why do so many real estate people have plenty of clients who want to sell or want to buy, but few, if any who can actually achieve it? The answer is simple. This has become a “Professionals Only” market.
In the terminology of “business” TV news shows, the current real estate climate is called a “down market” or “slump”, etc. Lenders have experienced serious losses due to loans going bad and have tightened the requirements that borrowers must meet in order to get a loan as a result. Sellers have to compete with thousand of “foreclosure” properties being sold by banks. Banks price these properties low so that they will sell fast. This drives prices down, often to the point that the average seller can no longer afford to sell. Thus, fewer people can buy and fewer people can sell. The situation gets worse when we consider the number of distressed sellers in the marketplace who owe more on their home than the property is currently worth. There are also those folks who are frozen in place because they can’t sell their current home in order to move up to a larger one or downsize into a smaller one. No matter how you look at it, the bottom line is that it is much harder to buy or sell in this market than it was before.
When times are good and properties are selling like hot cakes everybody who has a desire for fast cash races down to the Department of Real Estate to get a real estate license. Suddenly the market is flooded with thousands of new real estate agents, most of whom have no idea what they’re doing. Real estate firms, anxious to get their piece of the fast market pie, lower their hiring qualifications so much that just about anyone who can fog a mirror and has a real estate license can hire on. The result is a market full of inexperienced, opportunistic agents.
By contrast, our current market is agonizingly slow. Inexperienced, opportunistic agents don’t thrive in such markets because there is no easy money to be had. They have never actually established a business or built lasting relationships with their clients. Instead, they simply grabbed the business that fell into their laps during the good times. Neither do they know what to do in order to help any clients they may have now. Thing have become more difficult and complicated. Some of these opportunistic folks may hang on for a while, but most will leave the business before long leaving only the career minded, professional agents behind to serve.
So, if you are one of the clients hoping to sell or buy, where does this leave you? In my humble opinion, it’s time for you to leave the amateurs behind and look for a seasoned agent who has lived through times like these before. This is a “Professionals Only” market. Hire a professional. There are plenty of them out there.
East San Diego County Realtor Launches Virtual Brokerage
Joel Persinger, East County real estate broker and founder of YourRealEstateDude.com has launched Persinger Properties, a real estate and lending firm that doesn’t have an office!
With the growth of internet, wireless, cell phone and portable printer/scanner technology, a real estate client no longer has to go to the agent’s office. Instead, Persinger’s agents simply take their office to the client.
“I can’t remember the last time I actually had a client come to the office,” Persinger said. “The vast majority of the time, we go to them.”
This approach has been good for both the clients and the company. Persinger says clients like the extra level of service. “It’s like the old days when doctors still made house calls.”
It’s also freed up money the company would rather spend elsewhere. “I’d much rather spend money on services our clients appreciate,” Persinger said. “Why spend money on a building they never see.”
With the growth of internet, wireless, cell phone and portable printer/scanner technology, a real estate client no longer has to go to the agent’s office. Instead, Persinger’s agents simply take their office to the client.
“I can’t remember the last time I actually had a client come to the office,” Persinger said. “The vast majority of the time, we go to them.”
This approach has been good for both the clients and the company. Persinger says clients like the extra level of service. “It’s like the old days when doctors still made house calls.”
It’s also freed up money the company would rather spend elsewhere. “I’d much rather spend money on services our clients appreciate,” Persinger said. “Why spend money on a building they never see.”
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