A Home and the American Dream

This blog often discusses the data behind the housing market. Today, we want to address the emotion behind the market comeback; a belief in homeownership which is still alive and well in this country.

A study conducted by Coldwell Banker and psychotherapist Dr. Robi Ludwig found that owning a home is still very much a goal for many Americans. In the study, 91 percent of those surveyed said owning a home is part of the American Dream. A second study by TD Bank, reported similar results:

• More than half of consumers polled say homeownership is a vital component to defining the American Dream


• 59 percent associated feelings of excitement or pride as part of their first time home buying process


• 84% of today’s younger renting generation-ages 18-34-intend to buy a home

This belief in homeownership is a major reason Americans are again buying homes. As Dr. Ludwig explains:

“Now that we’re picking up the pieces, we’re seeing a psychological shift. Instead of looking at homes through the eyes of an economist, we’re realizing that a home doesn’t solely equate to financial return or measure only to a mortgage amount. Instead the home is the emotional center of our lives, and it remains a critical component of who we are…

The feeling you get when you step through your front door or pull into your driveway is indescribable and priceless and the same holds true for our children who crave stability. While I know that financial hardships during the recession clearly have impacted many households, it is clear that the emotional value of a home is still strongly recognized.”

 

Idaho's Foreclosure Inventory

Here is a national graphic comparing foreclosure inventories by state, Idaho is reported at between 2-3%.



*as a percentage of all mortgaged homes

 

Watch Out, We Are Drowning!

Nearly 16M Homes Are Now Underwater

Zillow just reported that their data shows nearly 16 million homes in this country are now in a negative equity position where the house is worth less than the mortgages on the home. This number is dramatically higher than the approximate 11 million reported by other entities. Why the huge difference? Zillow professes to take into consideration ALL loans on the property not just the most recent loan (purchase or refinance).

The key findings in the study:

• Nearly one-third (31.4 percent) of U.S. homeowners with mortgages – or 15.7 million – were underwater on their mortgage.


• A slower pace of foreclosures after the robo-signing issues of 2010 contributed to slower progress in working down negative equity. Foreclosures cause homes to come out of negative equity when a bank or third party takes ownership.


• Nine in 10 homeowners continue to make their mortgage and home loan payments on time, with just 10.1 percent of underwater homeowners more than 90 days delinquent.


• Nearly 40 percent of underwater homeowners, or 12.4 percent of all homeowners with a mortgage, owe between 1 and 20 percent more than their home is worth.


• An additional 21 percent of underwater homeowners, or 6.6 percent of all homeowners with a mortgage, owe between 21 and 40 percent more than their home is worth.


• About 2.4 million, or 4.7 percent of all homeowners with mortgages owe more than double what their home is worth.

How can negative equity impact the housing market? In the report, Zillow Chief Economist Stan Humphries explains:

“Not only does negative equity tie many to their homes, by making homeowners unable to move when they may want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures.”

 

It is all about the price.

It is always nice to hear "the experts" verify what I have been saying. In pricing homes it is critical to get it accurate right out of the gate. I have often stated that starting too high often results with a lower selling price than if you had been properly priced at the start.

I have the experience to assist you in  getting your home priced right, it takes experience, knowledge, understanding and sometimes a measure of "gut feeling."  I suppose much of that actually comes from experience, it goes beyond the actual numbers sometimes to a sense of what the trend is, even before you can quantify it with hard numbers.

Now here the actual research with thanks to KCM Blog.

The Research

Are there any negative effects from changing the listing price of a property?  This question haunts Brokers/Agents as well as sellers of property every day.  At present, there does not seem to be a consensus answer to this question within the professional real estate community.  Fortunately, this question was scientifically investigated by John R. Knight. Unfortunately, few know the results of Professor Knight’s research.

In Knight, the impact of changing a property’s listing price is investigated.  Additionally, the types of property that are most likely to experience a price change are also estimated.  The findings from this research indicate that, on average, properties which experience a listing price change take longer to sell and suffer a price discount greater than similar properties.  Furthermore, bigger price changes are found to experience even longer marketing times and greater price discounts.  Finally, as for which properties are most likely to experience a price change, Knight finds that the greater the initial markup; the higher the likelihood that any given property will experience a listing price change.

Implications for Practice

Sellers as well as Brokers/Agents should therefore be aware of the critical necessity of getting the price correct from the start.  Sellers wanting to over list will ultimately take longer to sell and will sell their property for less, on average, according to Knight.  Brokers/Agents’ desire to take a listing and get the price right later will ultimately lead to their working harder according to Knight, and they are not doing their sellers any favors.  Thus, an initial and detailed analysis of the proper price is much more critical than many originally thought.

Interestingly, I have found in my own research that the direction (up or down) of the listing price change does not matter.  A listing price increase and decrease both lead to similar results found in Knight’s work – longer marketing times and lower prices.  Therefore, get the price right from the beginning.  It is best for all.

 

Back to Business-Listings Needed-Boise Area Inventory Down

Well Memorial Day weekend has come and gone, with the normal, it seems, rain and cool weather for all your campers, although it did get nicer as the weekend progressed. I did not do the camping thing, I just stayed in town and worked around the lawn and such. But I did take a couple day breather from the real estate whirlwind. It is now back to business, with a couple of closings this week along with an inspection, walk throughs and new listings.

Speaking of new listings, I need some more! Sales are up and inventory is down. It is hard to keep up the personal inventory. So if you are interested is selling give me a call and we will "get er done!"

Bank of America offering Idaho Home Owners $2500 to $30,000

So did you see this news? I would not hold my breath for the $30,000, I suspect they will be few and far between. But it is still great news for Idaho home owners under water with their mortgage and needing to do a short sale. Through personal experience I can tell you that their short sale processing has improved dramatically.  If you happen to in this situation, let me help you.

Bank of America says it will provide up to $30,000 in relocation assistance to delinquent borrowers who work with the bank to obtain a preapproved short-sale price before submitting purchase offers.

Short sales must be initiated by the end of this year and close by Sept. 26, 2013, to be eligible for the payments, which will range from $2,500 to $30,000 at the completion of a qualifying short sale. Payments will be determined on a case-by-case basis using a calculation that includes the value of the home, amount owed and other considerations, Bank of America said in announcing the program.

The program -- based on a similar incentive offer Bank of America tested last year in Florida -- will be available nationally. But Bank of America anticipates the greatest response will come from borrowers in California, Nevada, Arizona, Florida, and other states hit hardest by the economic downturn and falling property values.

Customers who believe they may be eligible for Bank of America's short-sale relocation assistance program may contact program specialists at (877) 459-2852. Qualifying short sales that have already started but have not closed may be eligible for the program.

Bank of America says its short-sale initiatives have generated 200,000 short sales in the last two years and another 30,000 in the first three months of this year.

Last month, Bank of America announced it was shortening decision times on short-sale offers to 20 days, down from 45 days or longer.

 

Will the Mortgage Forgiveness Debt Relief Act be Extended?

I  seem to talk a lot about short sales and for good reason, there is still a good portion of Idaho's  sales in this situation.  I have posted many times regarding short sales and you can review those old posts to learn all about it. I have also mentioned the importance of getting going on a short sale if one is going to need one due to the Mortgage Forgiveness Act being set to expire. This is a big deal with a HUGE impact to borrower/sellers in this situation, and foreclosures as well.

So the question becomes will it be extended? I think it is likely and the following opinion agrees with me. But with the U.S. Congress, do you ever really know?

Many of our readers have asked whether or not we believe theMortgage Forgiveness Debt Relief Act of 2007will be extended past its current expiration scheduled for the end of the year. As a reminder, the legislation ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.

The reason this act is important in today’s housing market is that, without the act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. If the legislation is not extended, then it would require homeowners to complete a short sale or modification prior to year’s end in order to avoid a tax consequence.

In February, DSNews reported:

“Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007…

In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.”

The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015.”

In today’s political environment, the passage of any budget proposal could be considered doubtful. However, both parties seem to be in agreement that this provision should be extended. We can only hope that it doesn’t fall victim to an election year.

Disclaimer: As with all tax issues, we strongly suggest you consult with your accountant to find out how this may impact you and your family.