A Real Estate Flashback to the Spring of 2005

By Publisher on November 22, 2009

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While cleaning up my laptop and external hard drives I ran into several interesting flash backs from a time most of us thought that trees really could grow all the way up into the sky without bending or breaking under their own weight. The following stories come from a real estate blogsite called Hot Properties. It was a happy time and very few saw the writings on the wall, least of all the Bush Whitehouse and the Federal Reserve, who focused their tunnel vision on the power of cheap money.

It was a time that in hindsight proves that “ignorance is bliss” and that there is a hefty price to pay. For me it once again proves that “experts” should be rounded up and given free rein for thought and action locked up in the interior of Greenland, where the TSA and the border police will have the task to keep them away from us. This was less than 4-1/2 years ago when almost 73 million American families lived in their “own” homes. Some 15 to 20 million have come to find out the hard way in the meantime, that they never owned their home.

When reading this, please don’t be ignorant and shovel the guilt onto the Bush Whitehouse and keep blinders on what’s happening now in the Obama Whitehouse. It is as bad or worse. If it continues we may have to say goodbye to the experiment of democracy, as two wolves and a sheep are discussing what’s for dinner. And don’t fool yourself this time. We, the tax payers are the sheep here.

Hot Properties – Spring 2005

JUNE – National Homeowner’s Month!
The first quarter numbers from the U.S. Census Bureau show that America’s homeownership rate is at an all-time high of 68.6 percent. Nearly 73 Million families live in homes of their own.‚Ä®One of the greater challenges continues to be improving those statistics for the minority homeownership.

In 2002, President Bush announced a goal of adding 5.5 million new minority homeowners by the end of the decade. Since then 2.3 million new minority households have surfaced. Still, homeownership rates for Native Americans, Asians and Pacific Islanders is ‘just’ 58.2 percent; for African Americans 49.3 percent; and for Hispanics just 47.3 percent.

So what goes on this month? According to the proclamation by the President we should observe this month with appropriate ceremonies and activities recognizing the importance of homeownership (I thought that was done with an open house on weekends?). The National Association of Realtors (NAR) is advancing homeownership and housing opportunities for minorities and other first-time buyers through a number of programs, including:

The Housing opportunity Program, which focuses on narrowing the homeownership gap through coalition building, research, training and communication.
The HOPE (Home Ownership Participation for Everyone) Awards Program, which honors those who are making outstanding contributions to increasing minority homeownership.
Advancing legislation such as the recently passed American Dream Downpayment Act, the Low Income Housing Tax Credit, and improvements to the Federal Housing Administration’s Mortgage Insurance Program.

The “At Home with Diversity” program, a joint effort with HUD is designed to help real estate companies diversify their workplaces and certify real estate professionals who are trained in diversity outreach and have made a commitment to diversity principles.

As you might guess the theme for this year’s National Homeownership Month is “Open the Door”. It is reflective of the great work that Realtors do every day to make owning a home a reality for millions of people. And there are so many opportunities remaining if you will just investigate the wide array of programs right here in your own backyard (or balcony if you have not jumped in). National Homeownership Month will last for only 30 days but the commitment through all of the local realtor associations is ongoing.

Remember this motto: Regardless of your circumstances, bad credit, divorce (bad credit), limited income, or no downpayment, make it a point to contact a local real estate professional and just ask about how you might become a homeowner. You will be surprised about what you might learn. And with some good counseling and the right program, you could be eligible to own your first home! For more information on real estate and mortgage related issues, or to obtain the name of a qualified real estate professional or mortgage lender, log on to www.capitaltitleoftexas.com. You can also tune in to Marc Miller and his associates as they discuss pertinent real estate issues on KRLD1080 radio station Saturdays at 10:00 am. posted by sandy @ 10:39 AM
Monday, May 23, 2005

Why Would You Go for a Pre-Approval?

A pre-approval is a step often confused with pre-qualification. The pre-qualification is an informal checking of the credit-worthiness of a person. There is no certification of it and without it too your mortgage application will work fine. But you would not want to choose the house you want to own and then get rejected for its mortgage. That is why a pre-approval is this important. A pre-approval with a lender involves pulling up of your credit reports. Judging from your income, spending pattern and liabilities the lender estimates the upper limit of the loan you can afford. Thus you can then start looking for a house which fits into the price bracket you can afford.

This calls for a realistic search for a house rather than later making compromises on your dreams.

Firstly, it tells you how much mortgage you can afford. This helps the real estate agents too. It narrows down the search range. Now rather than groping in the dark one can channel one’s energies to find a house that would fit the estimate of the pre-approval.

Secondly, it involves documentation. So, you have a solid certification of the limit you can afford in mortgage.

Thirdly, it gives you precedence in the list of prospective mortgagees. You can easily negotiate on the offer you would get for a home because you are pre-approved. After all you are certified as a real buyer. This would also fasten your loan processing procedure.

When you go in for a pre-approval it is better to get a mortgage broker to handle it. Then you can get your application pre-approved by more than one lender. Every time your credit report is pulled up it will be registered in the credit bureau database. If a mortgage broker works this part of it for you and gets your application multi-approved, the credit report is pulled only once and you can get the real picture from different lenders.

There is usually a time gap of 120 days allowed between a pre-approval and mortgage closing. You can go in for the purchasing at that time. You can also improve on your credit if you are hell bent on acquiring the house you really want but cannot afford presently. So, go in for a pre-approval and you will have a definite plan of action and can peacefully choose your home without the fear of being rejected. Mortgage Knowledge Base is where all the knowledge related to mortgages is consolidated in a very efficient way.

If you have any other queries related to mortgages, feel free to visit www.mortgagekb.com . Source: PR Web posted by realtybaron @ 11:40 AM
Wednesday, May 04, 2005

Why Should I Refinance? Source: PR Web posted by realtybaron @ 7:27 AM
Tuesday, April 26, 2005

As the rates dip phenomenally, more and more homeowners are going in for a refinance. But there is more to refinance than meets the eye. Refinance involves switching over to a new mortgage deal from an old one without moving out of your home.

There are various reasons why the refinance trend is emerging.

Firstly, today the interest rates are falling. So before the rates pick up, you would want to lock in with these rates. But do not indulge in refinancing, every time the rates fall by a point. The fact is, refinance involves redemption charges, valuation and legal expenses and arrangement and broker fees. These may offset the gains, you think you will make if you go for lower rates. Study the trends and then go for it.

Secondly, your property value must have appreciated from the time you closed in your first mortgage. You can now afford a larger loan amount and tap the equity in your home.

Thirdly, your lender might not be providing the service. A new lender would always service you better because they are always on the look out for new clients and to keep them too.

Fourthly, a better rate means lower monthly payments. That means you can save a considerable amount of money and channel the same for other expenses.

Lastly, and most importantly you can consolidate all your unsecured debts into one and pay them with a refinance. Rather than paying high interest rates for individual loans, this would prove more cost effective. Moreover the payment become tax deductible a swell.

Making hay when the sun shines is the real mantra behind refinancing. But make sure as to where the markets are going.

You can also refinance with your lender itself because some costs may be waived in this deal. Shop for hat is best for you keeping in mind your affordable as well.

Mortgage Knowledge Base is where all the knowledge related to mortgages is consolidated in a very efficient way. If you have any other queries related to mortgages, feel free to visit www.mortgagekb.com .

Flexible Mortgage: The Modern Mortgage Type

A mortgage normally lasts for 25-30 years. When one takes a mortgage in his/her twenties, then there seems to be no reason for worry. But as one ages the worry lines increase as to how fast a mortgage can be paid off. This is where creative loans like flexible mortgage comes up.

Flexible mortgage was a concept originated in Australia in 1995 and it gave mortgage payments a much deserved elasticity and consumer friendly. Earlier interest only mortgages and remortgages allowed one the facility to underpay for a fixed interval of time for the former and to shift to a new deal in case of the latter. When it made its entry into the American market, it had no takers. Slowly this alien concept gained ground and today most of the mainstream lenders have this in their catalogue.

A flexible mortgage helps one to underpay and overpay at will. Not everyone has a fixed monthly income. Most of the people work on bonuses and commissions. It becomes very difficult to meet the monthly obligations during those off months when the pocket runs dry. When you get a bonus you would like to put it to good use by overpaying and thus saving on interest rates . This also helps your debt to reduce early.

But one must be careful while shopping for a flexible mortgage. There must be a provision for borrowing back the overpaid amount later and investing the same in the other months. The lender must offer you both the facility to overpay and underpay. The interest must be calculated monthly rather than yearly. This will not only adjust your debt but also you will have no arrears at the end of the year.

You can take advantage of monthly fluctuations in rates.

You must make sure that the offer you are getting on overpay does not have a redemption penalty attached. This would compensate any money saved due to the flexibility. Flexible mortgages are associated with ARMs. Thus the adjustment, if made monthly counts in the deal as stated earlier.

The popularity of flexible mortgages has reached such a point where 22% of the gross lending market is taken up by it. You can now adjust your mortgage payments according to your lifestyle. The sunny days are not forever and the warmth must be preserved rather than bask in the present glory.

So, go in for flexible mortgage and you know your mortgage can be paid off faster than you think.

Passing on the Legacy

The ultimate gift that a parent passes on to their children is their home. The historical trend has been through an inheritance after death. However, recent findings show a new trend of parents selling their home within the family – it is referred to as legacy home sales.

This type of home sale can benefit parents and children alike if handled properly, but if not it can create potential tax burdens and some emotional baggage. The best advice is to treat the transaction as an actual sale.

First, remember that the IRS has a particular interest in the construction of this transaction.

Be careful that you are not selling the home at less than fair market value. If you sell your home for less than what comparable homes have sold for in your neighborhood, the difference between the fair market value of your home and the sales price will be treated as a gift to your child for tax purposes. According to Trey Bayne, Director of Tax Services for Chapman, Hext & Co., P.C. (www.chapmanhext.com), the IRS generally tends to accept an independent third party valuation of the property. They normally recommend that the parties obtain a valuation before they assign a value to the property.

In 2005, the IRS will allow an individual to make taxable gifts of up to $1,000,000. In addition to the lifetime exemption, a taxpayer can give away up to $11,000 a year per person, to anyone, tax-free each year.

So you want to sell you home to your child? As an example, if it has been established that your home has a fair market value of $300,000 and you decide to sell it to your child for $175,000, the IRS says that you just made a gift of $125,000. To illustrate how you could avoid the gift tax and keep the transaction within IRS regulations, if both husband and wife each gift $11,000 to their child and $11,000 to the child’s spouse, the total possible gift from the parents to their child and spouse would be $44,000 in one year.

This scenario could be repeated each year with the entire amount being excluded from gift tax implications. So, in an ideal world, the parents could sell the house to their child and their spouse on December 31st. Assuming they have not gifted any amount to the children up to that point during the year (not even Christmas presents), they could “gift” $44,000 in the first year, effectively reducing the sales price by that amount. Then repeat that amount (principal and interest) each year until the house is fully transferred to the children.

Obviously, this activity would only apply to taxpayers (the parents) who expect to have a taxable estate (meaning assets of more than $1,500,000, in 2005). Otherwise, it’s a waste of time to go through all the hassle of the sale if the inheritance would not be taxable anyway. Now if you want to avoid all of these gift calculations, you could always charge fair market value for the home and carry a note back (seller finance) to your children instead. You would want to draw up a contract for purchase, note and deed of trust (if they default it is a whole new meaning to kicking your kids out of the house!). You will be required to charge interest on the loan under the IRS guidelines of “applicable federal rate”. You can get a rate table online.

Currently the loan term rates longer than 9 years are 4.52% annually. But beware that if you charge less than that amount in interest, the government will consider it a gift for tax purposes. The beauty of this structure is that the parents can assist in canceling the debt over the years by making $11,000 gifts to the children and or spouse each year as illustrated above (where is all this money coming from?). Make sure that you write separate gift checks and have the children write separate loan payments by checks as well. In case of an audit you will want clear documentation. Parents, you will also need to declare the interest on the loan as income.

Fair warning kids. Your parents have lived in that house a very long time. Make sure they understand that when they sell you the house it is actually yours. To solidify that feeling tell them up front what you plan on doing with the home. Yes, those hideous colored drapes are going to be replaced with shutters. You can give them to Mom though, she might want to store them or make a dress! And make your payments on time and for the full amount.

Confirm your responsibility of homeownership in the same way you would with a mortgage company, make your payment.

For more information on real estate and mortgage related issues, or to obtain the name of a qualified real estate professional or mortgage lender, log on to www.capitaltitleoftexas.com. You can also tune in to Marc Miller and his associates as they discuss pertinent real estate issues on KRLD1080 radio station Saturdays at 10:00 am. posted by sandy @ 9:59 AM
Wednesday, April 06, 2005

What Exactly Does “Jumbo Mortgage” Mean?

Mortgage loan amounts for more than $359,650.00 are referred to as “Jumbo Mortgages.” They are truly non-conforming mortgages because they exceed the conventional mortgage loan amounts allowed by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), both of which are government sponsored businesses that invest in mortgages in the secondary market and set standards for the mortgage industry. Because the number of Americans that can afford to have a Jumbo Mortgage is somewhat limited, so too is the market for such a home if in rare instances, the lender had to foreclose.

As a result, there is more risk associated in granting a Jumbo Mortgage, which is off-set by a slightly higher rate than a standard conventional mortgage.

Expert offers tips on how to detect a housing bubble

Knight Ridder Newspapers‚ The experts can’t decide whether there’s a housing bubble or not. That’s no surprise. If bubbles were easy to spot, everyone would flee the market at the first warning sign and bubbles would never develop.

Just think of the Internet bubble of a few years ago. Some people thought it was a bubble well before the crash proved them right. But others thought the rules were different in the “new economy” and that it made sense for the stock of a money-losing company to skyrocket. You don’t get consensus on a bubble until it bursts and prices collapse.

Last week, Federal Reserve chairman Alan Greenspan said he did not believe the entire nation is in a housing bubble but he said there are “a lot of local bubbles.” Since most of us buy only one home at a time, a local bubble is as bad as a national one. It could leave you with a home worth less than you’d paid. How can a home shopper spot the overheated communities where home purchases are too risky? There’s no foolproof way, but answers to some questions may raise red flags.

For example: How much have prices gone up? This is common sense. A bubble is more likely in a community where prices have soared than on one where they have not. Is there a clear reason for prices to jump? If a big company has just put up a headquarters nearby and moved in a lot of well-paid personnel, you can expect high demand to push home prices up.

What’s going on in nearby communities? Try to compare apples to apples, looking at communities with school systems of similar quality, residents with similar incomes and so forth. How long are homes on the market before selling? If they’re being scarfed up in a week or two, the buyers may be over-eager, and paying too much. When markets are really over-heated, buyers get into bidding wars and end up paying more than the sellers had initially asked.

There are many other questions. But finally, what are your own intentions? Even if you buy during a bubble and prices then fall, you’ll probably be okay if you stay in the property for many years. Over time, you can expect housing prices to rise at the inflation rate, which averages around 3 percent. So even if you take a 20 percent loss soon after buying, you could be back in the black in seven or eight years.

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Posted in Real Estate | Tagged real estate

Publisher

achoubeach

What an excellent overview of the mess that won't go away. money for nothing chicks for free
meghannb

Don't blame your former President, Mr Bush? Why not? Why would you blame President Obama the man is not a god or saviour he has been in office less than a 1 yr did you really expect him to wave a magic wand and clean up the mess from the previous administration of 8 long yrs??? It wouldn't matter who was in the White House this mess will take a long long time to fix up and no one wants it to go away more than the current president.
Homes are for living in, yes it is great that you can make money on them most of the time, people should cool their jets and relax and enjoy the fact that they own a home and now worry about how much then can get for it down the road. Yes of course some people need to sell especially if they have lost jobs and can't pay the mortgage payments or they need to move from state to state to look for jobs but in the end good times or bad, many many people took out mortgages that they knew they could never afford if times got tough, maybe home ownership is not for everyone, maybe people really do have to earn the right to own a house as it has been made far too easy under the former administration.
tommylee

This is not about the president, current or past, since as of 1913 every elected president was carefully selected by the financial puppet masters. The real power behind the president are the ones that hold the financial purse.
Hal_Burns

I remember these type of articles very well. 2005 was a great year looking at it as if it were a bottle of fine wine. It was at the end of this year that we began to hear on the nightly news "has the real estate bubble burst?" or "is the real estate bubble about to burst?". It was these kind of messages that started the "herd" moving in a different direction, fear was driving that heard, not reality. Prior to that unemployment was down, it was difficult to find someone to work, jobs were plentiful and almost everyone had a paycheck. The last thing to remember was the number of forclosures were "normal", not a run away train as we have today. Yes, I remember these articles very well.
tommylee

Was there really a real estate herd? Are "bubbles" herd induced or "Expert" induced? I guess we like to think in "blame" terms. We need to put the blame on someone else, right? I have to agree with the publisher when stating that all those "experts" that spew their rubbish and sell fairy tales should be locked-up and they key should be thrown away.

When will common sense prevail. If you got a dollar in your pocket these "experts" would tell you that you could borrow 10 based on a backwards system of "debt servicing". I can't escape the thought that common sense tells me that I still have to earn the 10 and then plus some. So the question arises that I need to figure out how to do that in a "secure" manner. I could look at my "past" (Credit History) like all those "experts" do, but is that where I really get an idea about my future earnings?

Again common sense to me would be to look at how long it took me to "save" that one dollar in my pocket rather then looking at how fast I can spend what I have not earned yet and how long it takes me to pay back what I have already borrowed from the future. The law of economy (also called the law of frugality) is inalienable. There is no way to defeat that law.

Let me exemplify this: I'm a software company providing the "engine" to run a computer. I'm counting on the fact that the computer will evolve, becomes faster, will get more capabilities and will get into more people's hands over time and thus I will "grow" with those capabilities and thus I make a projection of my future based on this knowledge. Is that realistic? Many will say yes. I doubt that because the law of economy dictates that people have sought over centuries to make processes more "economical". If I would go by the premise that evolution of a gadget is based on the same gadget we all would still live in the dark ages. Pre-historic as a matter of fact. When we humans figured out a way to "create" fire with a stick and a stone and I would be stuck on the idea that fire could only be created by stick and stone (and all those that remembered the movie with Tom Hanks in Cast Away how frustrating and labor intensive it was) I would be a fool to believe that the "evolution" of creating fire would be "stuck" to the stick and the stone. The law of economy tells me that someone will come up with a better way.

Now back to my software company. If I believe that my business model will be based on the same principle infinitely I would fool myself. Even if I would re-invent my business model appropriately, my company would still be wiped out with one breakthrough invention making that computer that I create this software for, obsolete. Question is: "will that happen"? I bet you.

Bio Nano technology is not a myth and will most certainly make its presence and will wipe out my software company.

So Hal, I will make tons of money while it lasts but I will not be able to defeat the law of economy unless I evolve. Darwin was right when he stated that survival of the fittest is not based superiority but on adaptability.

This brings me to the question why there are still 350+ Realtors in the Nassau County alone while on average there are only some 15-20 houses changing hands and most of them due to foreclosures per month, having fancy offices and "doing business" far beyond their means. All in hopes that the good times of 2005 return?

No Hal, it was not the real estate bubble that burst at the end of 2005 due to evening news broadcasts creating a "scared" herd effect. It was those same spin doctors that could not hide anymore the fact that you had been lied to in believing that you could borrow well beyond your means by looking at your past through rosy glasses in stead of looking at what you could save and how long it would take you to "save".

In another article today about "Famous Quotes" there is one that jumps out on us. This country lives by statistics, but unfortunately most "experts" fall in the following category:

“He uses statistics as a drunken man uses lamp-posts… for support rather than illumination.”
- Andrew Lang (1844-1912)
Publisher

To answer your opening line on bubbles:it's all about the money. Money was originally invented to facilitate barter transactions that had no timely or functional equality. For example: I need a boat to fish today but can only offer the boatbuilder a choice of shoes and pants that I produce over time.
Well the value of the boat outweighs the boatbuilder's maximum need for shoes and clothes, so what to do about the difference? That's how beads, coins, mirrors, gold, silver and ultimately paper money came into the picture of currency transactions. All good and well so far. But than the financial wizards needed new products to sell to the people (around the mid 1990's) Since those days money was packaged into financial products and leveraged as if it were it distributable product that came from the heart of the Amazonas, all financial institutions stood in line for a piece of the pie. They used their contacts within the media to announce that the holy grail was found. These contacts became "experts" and "spin doctors" pushing the financial institutions "Gospel" that homeownership and prosperity was now within everyone's reach. They created Capitalist Socialism by leveraging the financial shorts of the fieldworker with the financial power of the landowner, mixed and bundled it with hundreds of similar ones and than leveraged the muddy package of good and bad properties and loans by selling it several times over to earn commissions from. The overriding idea always was that the good loans would make up for the bad ones if things would go wrong. But than everyone got greedy by building monster Credit Default Swaps (blocks of highly leveraged loans). The bubble was a herd action, fed and guided by the "expert" cowboys in the saddle who got their instructions from the financial manipulators back in their glass towers. (the same ones that are now starting to pay themselves huge bonuses again). You decide whether this hoax was intentional or not. I only observe and am politically unbiased and ideologically centered.
tommylee

Thanks for the illuminating answer on the chain reaction, but if I read correctly, my analysis still holds water. The bubble was not created by the herd but by a small group of "experts" dishing up a holy grail of smoke and mirrors they themselves did not understand completely telling fairy tales on how everyone could become a homeowner no matter how bad the "credit" was.

When you build a castle on sand (credit history) and the underlying foundation is quicksand (leveraging of Credit Default Swaps) you can't blame the burst of the bubble on the Herd. "Expertise" from the "cowboys" listening to the instructions of the glass tower Emperors created this mess, intentional or not.

Unless we start breaking down what "expertise" today still means, the underlying meaning back then was still to assist those that do not have this knowledge and get paid (often exorbitantly) for this knowledge. Once you who does not have this knowledge have to pay for this knowledge from the "Experts" the word accountability comes to mind. Here is where I have a problem like yourself since the glass tower manipulators today are still the same breed as those that created this mess.

Accountability has lost all meaning to most of us, intentionally or not.