I was talking with a customer yesterday and they asked me what I thought about the 700 Billion dollar “bail out” of Wall Street using tax payer dollars. Well, I said, I am not an economist, but I think it is a good deal for tax payers. The response from my client was a gasp of surprise. A good deal for tax payers? How could funneling $700 billion to Wall Street be a good deal for us? Well, I said, it depends on how the money is spent. These funds are not designed to just be handed over. The government, thus you and I are buying mortgages from the banks. These mortgages, while underperforming and in many cases are for an amount over the current market value of the property, are backed by REAL property. A house, or condo, a real asset that has value. The governments plan is to buy these mortgages at .40 to .50 cents on the dollar of what the face value is. So lets look at the math really quick. The bank did a mortgage at 95% of the value of a house worth $300,000, so they now have a mortgage at $285,000. Economy is bad, house values decline, buyer can’t pay the mortgage…Now we have a bad mortgage debt that is really hurting the bank and their ability to raise new capital. The government comes in and offers the bank .50 on the dollar for the $285,000 note, or $142,500. Lets say the house has declined 30% from the original value, that means it is still worth $210,000.  The difference is that the Government has a much lower cost basis than the original lender did, thus they are actually in a significantly improved position compared to the bank. 

I also see it possible for the government to renegotiate the rate on these purchased notes, to help the struggling homeowner keep their home. A worse case scenario, the government could force foreclose and easily recoup their cost of purchasing the mortgage.

With that explanation, my client felt as though we actually might be making an investment rather than bailing out the banks that have made bad credit decisions for the past 4-5 years. There is a lot of details yet to be ironed out, but I do believe that this “investment program” was needed, or we could have been facing a far higher price in the very near future.     

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For those of you who’ve been looking forward to Halloween, and all the fun leading up to it, Here’s a downloadable list of Events and Venues for the Month Pumpkin Patches 2008 .

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I attended an annual private function on Camano Island yesterday, where I soaked up the rain with an extended family of clients and friends. As is the case with almost anything I attend lately, most of the questions I fielded were about the local housing market. One client was looking for a part-time assistant, and mentioned that a majority of applicants were real estate agents who needed a steady paycheck. A cousin of one of my friends asked me about foreclosures and short sale opportunities. But overwhelmingly, most were curious when I thought this current slump might be over. In the face of a volatile week in the stock market, and with the government bailout of Lehman Brothers and AIG, I stunned almost all of them when I said that all of the bad news is an indication of forthcoming stability in the real estate market. If things are going to get worse before they get better (as so many pundits like to say), then I say let’s look for the worst and we’ll see markers for coming improvements. Here are a few indications why I think we may be seeing the worst:

Foreclosures Rise Locally
Excuse me while I put on my rose-colored glasses. Ok – seriously, this isn’t good news for a lot of people. A recent article published in the Everett Herald states that foreclosures in Washington State went up 64% in August (year over year), while the national average was only up 27%. overall. 64% is a big number, but when you look at the numbers in perspective the news doesn’t seem as alarming. In Washington the number of households that went into foreclosure in July was 1 in every 856 households. In August it rose to 1 in every 805 households, which is almost half of the national average (1 in every 416. For comparisons sake, Nevada’s foreclosure rate is 1 in every 91!).

Considering this, I offer up this quote from the source of the Herald Article:

“In August the total number of U.S. properties that received foreclosure filings as well as the national foreclosure rate were both the highest we’ve seen in any month since we began issuing our report in January 2005; however, the annual increase of 27 percent was actually substantially lower than in previous months this year, when it was hovering around 50 to 65 percent,” said James J. Saccacio, chief executive officer of RealtyTrac. “The lower annual percentage increase this month is due to a big spike in activity last August — particularly in default activity. Over the past few months we’ve seen annual increases in default activity and auction activity moderating, and that trend continued in August…”

In short, August saw a sharp spike in foreclosure activity – the worst spike since they started keeping track of foreclosure filings. Take now the perspective of Jason Bloom, a local lender also quoted in the article:

So, how much longer will foreclosure rates keep going up? Bloom said he’s talked to big national banks that are seeing a leveling out of homeowners in trouble. And unless home values drop significantly more here, Bloom doesn’t foresee a huge wave of new foreclosures hitting Washington.

Still waiting for the good news? Consider this the trickle down effect of real estate – historically our local market has been a little slow to respond to national trends – both positive and negative trends. I believe that when we see the real estate trends reverse in Florida, California, Arizona and Neveda we’ll start to see a reflection of those changes here as well. Which is why I think it’s only fair to point out that…

Sales are way up in California
Quoting from an article entitled “California home sales surge as prices plummet”:

Home sales in California surged 13.6 percent in August as a flood of foreclosures drove down prices…46.9% of all homes sold last month were foreclosed properties.

California, Florida, Arizona and Nevada account for more than half of the nation’s foreclosures, so an indication of increased sales activity in any of these states bodes well for not only the national real estate market, but the stabilization of our local market as well.

Last but not least…

Prices & Rates are down
From another recent article published in the Everett Herald:

Statistics released Tuesday by the Northwest Multiple Listing Service showed that prices for single-family homes continued to fall in the Puget Sound region during August. In Snohomish County, the median price for houses was $339,950 last month, a 9.35 percent drop from a year ago…The price drop for homes, coupled with still rising inventory and slow sales, have put buyers in a strong position.

Prices are lower than they were a year ago, and if there are signs that the national real estate market might be shoring up (especially in the hardest hit states like California), then we can’t expect our prices to stay this low for long. Couple the low prices with some of the lowest rates that we’ve seen historically, and you have the makings of a perfect storm for homebuyers. Those that realize this unique opportunity will start buying homes, and when homes start selling, inventory wanes and prices go up.

Which is why the latest round of bad news is good news for the local real estate market If you’re thinking about buying, don’t wait until it’s too late. We haven’t seen an opportunity like this within the last decade, and we’re unlikely to see another quite like it for another ten years.

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Water cooler conversations, the media and your pocketbook make it hard to escape the fact the economy is affecting personal finances. Grocery prices are climbing, gas and oil are near all time high and goods and services have increased across the board. If these concerns are on your mind you are like most Americans.

There is a bright spot on the horizon. In the past few days, the U.S. government has taken over mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). The rescue puts the companies under the control of their regulator, the Federal Housing Finance Agency, and includes a plan for the Treasury to purchase these mortgage bonds as well as the firms’ senior preferred stock.

The government’s plan should alleviate growing concerns about the financial sector in general now that two of the most troubled companies enjoy the explicit backing of the U.S. government. Fannie Mae and Freddie Mac own or guarantee more than five trillion dollars in mortgages and play an essential role in supporting the U.S. housing market. This will provide a sizable boost to the market for mortgage bonds guaranteed by Fannie Mae and Freddie Mac.

In a nutshell, this is a positive step meant to stabilize the mortgage industry and in turn the housing market – and its working! Interest rates – already great – have gone down even more and the housing market showing signs of improving! More good news – the Buyers Market is prevailing. If you are considering a move or buying a second home or investment property, there is plenty of available inventory and the low interest rates mean you will either have a lower payment or qualify for more home – either way you win! With these changes, it might be a good time analyze your home mortgage. The recent events may put you in a position to lower your mortgage interest rate, reduce the amount of your monthly mortgage payments.

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Every job has its challenges. In the last few weeks, for many, remaining employed is becoming a primary challenge. That, of course, is one of the many reasons I pursued self-employment; I may not have control of many external things, but at least I’m in good with the boss, and I know what I’ve got to do to keep food on the table.

Another of my key reasons for being a Realtor is the knowledge that I am in a position to help good people who are frequently making decisions that will have a huge impact on the futures of themselves and their families. It’s a weighty responsibility that I take very seriously, and that incurs some sleepless nights, frequently long hours, and a challenging schedule, but the satisfaction that I get from being a part of their lives at this vital juncture keeps me striving to be at the top of my game.

A prime example of this is the young couple I’m currently working with on their first home purchase. I’m going to call them Ted and Jennifer, for the sake of privacy. Ted is a graduate of West Point and has spent the last 9 years in service to our country as a member of the Army Rangers, Special Forces, including tours in Iraq & Afghanistan. Continuing their record of selfless service, he will be soon serving our area when he becomes a member of the local police force.

Their young family has made immense sacrifices that I will never be able to fully acknowledge. The connection I have made with them has provided an insight into my own motivations that I’d never given much consideration before; they have refreshed my sense of purpose in doing a job that I’ve always felt has an element of community service, but that I now see in a more gut-level way, as they prepare to put down roots in our area, and become contributors to the fabric of our community. Their exemplary character and sacrifices have put an urgency in my desire to provide the best possible service to them, as they’ve served us.

Additionally, they’ve helped me to recognize yet another opportunity our current real estate market offers, that was all but lost in the go-go Real Estate days gone by; the opportunity for our veterans to realize home ownership using the VA housing benefits promised them. Just 2 years ago, it was virtually impossible for a VA loan to compete in the marketplace, due to the Veteran’s Administration requirement stipulating that the seller pay closing costs. In a seller’s market, it’s challenging enough to just secure a property, not to mention making a significant demand that dramatically impacts their bottom line. This made it at least highly unlikely, if not impossible, for Veterans to utilize the programs that were intended to help compensate them for their service, on return to civilian life.

Our new reality, the Buyer’s Market, in addition to providing affordability, has finally returned this VA benefit to ‘benefit’ status, rather than the ‘liability’ it had become. As the saying goes, “Every cloud has a silver lining”, and I am thrilled to be in a position to help put that ‘lining’ to good use.

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Regardless of whether your glass tends toward half empty, or half full, the last week has provided plenty to talk about. Starting with the announcement Sunday that Treasury Secretary Hank Paulson was busy cleaning house at the 2 GSE’s, and then Monday’s market rally, along with the dramatic 1/2 point mortgage rate drop, it was one for the history books, as they say. And this all follows a bold prediction by CNBC’s Jim Cramer, of Mad Money fame, stating unequivocally that the third quarter of 2009 will see the housing bottom. Whew- Now that’s a lotta meatballs!

Whatever your perspective, there’s more than enough to chew on for a while. So, while you’re digesting, I’m going to review where we are:

Rates have dipped to the mid 5% range, as a direct result of news that Fannie and Freddie are now property of the taxpayers, stocks jumped over 300 points as Wall Street’s Monday juices got flowing, and we’ve had a prediction from one talking head that housing will reach its nadir in a year. And no, I didn’t make any of this up.

What does it mean? If I knew the answer to that….
My short answer goes like this, and it’s what I’ve been saying for, oh… forever, so you can chant along, if you’d like- or hum a few bars if you know the tune: Buying a home is an investment- a longterm investment. Which is why they invented 30 year mortgages. If you’re in it for the longterm, then today’s or tomorrow’s news shouldn’t make much difference.

If your home purchase plans of today include a reasonable forecast that this purchase will suit your needs for the next 5 years, and you have either access to a VA loan, or some Down Payment socked away, I say you’re a prime candidate to take advantage of the phenomenal rates, killer deals, and amazing opportunity available now.

My expectation is that we will continue to see a flat-ish market for the next 6 months or so as we get through the election season, with spring time (Beginning in February)  bringing a gentle upswing to the market here in the northwest. Which is why Cramer’s admonition of July 23rd, to “Buy a home in the next 6 months” fits well.

Taking it further, I believe the next year will see appreciation trending fairly flat, while we work to put this mess in the rear view mirror, and then appreciation will begin to improve, giving you another 4 years to recoup acquisition costs, cover selling costs, and earn equity. Ideally, your game plan goes beyond 5 years. However, that said, situations change, plans change, jobs change, etc. What counts is that you have a plan, work the plan, and let the plan work for you.

Which leads to the other part of a purchase: financing. It’s available. I don’t really need to say more. Yes, the game has changed. Yes, it’s back to fundamentals, and yes, lenders require documentation. That’s as it should be. Never should have been otherwise; in fact, if we had stuck with fundamentals, we never would have had a need for this major correction. Should you have a grandparent handy, ask them for a definition of ‘Fundamentals’. They’ll tell you that’s a lesson their generation learned long ago- stick to the fundamentals, and you’ll do alright.

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