Lenders more receptive to real estate short sales
Last month, the Obama administration, through the Making Home Affordable program, offered property lenders and loan providers an incentive of up to $1,000 for each completed real estate short sale, and up to $1,000 more to share the cost of paying any second-mortgage lenders to release their claim on the property. Property homeowners too were offered up to $1,500 for relocation expenses. The incentives offered by the government, coupled with lenders wanting to reduce bad loans, are likely to increase the number of real estate short sale transactions in the near-future. "Without a doubt, lenders are more willing to work through real estate short sales," said Andre L. Mitchell, the executive vice president of the Lynx Mortgage Bank. "In this marketplace if the lenders can negotiate in any way to get rid of a bad real estate loan, they're going to do it." Banks may lose less money in real estate short sales than in real estate foreclosures, where banks may carry the house for a considerable period of time before selling it. Analysts believe real estate short sales are often the best option, even for property homeowners thinking about a new loan to save the home. "It's gotten to the point where people understand that sometimes you have to start over," says Mitchell. "A loan modification might help you in the short term, but sometimes what people need to do is get out completely."
About 23% of homes for sale see price cuts
According to Trulia.com, a real estate website, about 1 in 4 homes on June 1 had their prices reduced at least once since coming to the market. The average reduction was 10.6% of the original price, Trulia stated in the report. Among homes costing $2 million or more, 24% have been reduced in price, with an average reduction of 14.3% off the original asking price. Among homes costing $2 million or less, 23.6% have seen a price reduction, with an average reduction of 9.7% off the original price. Of single-family homes for sale, 26.2% have seen at least one price reduction and the average reduction was 10%. Among condos for sale, 27% have been reduced in price at least once and the average reduction is 10.6%, according to the report. Analysts believe that price reduction is not necessarily a bad thing. "Price reductions may turn out to be this year's most effective stimulus package," said Pete Flint, Trulia.com co-founder and CEO. "These deals are doing what they are intended t o do -- encourage purchasers and move inventory," Flint added.
Build-to-order to build-to-stock?
Given the oversupply of houses and availability of foreclosed properties at bargain prices, home builders have stopped constructing homes without a signed contract. According to Michael Rehaut, an analyst at J.P. Morgan, new-home inventory is down 35% year-over-year and 48% from its peak in July 2006. Unsold inventory involves carrying costs and builders may have to offer profit-eroding incentives to get properties off their books. However, with the housing sector showing signs of revival, home builders have started wondering if they should be building "spec" inventory - houses which are built with the idea of a sale later - in order not to miss the recovery when it starts.
"In order to be competitive today, you have to have inventory to move into to get a lot of buyers," said Brent Anderson, vice president of investor relations for Meritage Homes Corp. "(Buyers) want something that's either completed or nearly completed. If you don't have inventory on the ground, then you might be out of luck." In addition, first-time buyers, who must close their housing transactions before December 1 to avail a federal tax credit, may add to the demand. "We are building more spec homes as a percentage of what we're building than we have for a long time," said Anderson.
Get ready for $24 billion in tax hikes
Twenty nine states, as they struggle to manage their deficit, are looking at raising some $24 billion in revenues by tax and fee hikes. At the same time, state budgets continue to shrink as recession takes its toll. Corporate income tax is expected to be down 15.2%, personal income tax down 6.6% and sales tax down 3.2% this year. States' general fund spending is estimated to decline 2.2% in the current year and 2.5% in 2010. According to the National Governors Association and the National Association of State Budget Officers, this is the largest decline in the last 30 years. Scott Pattison, executive director of the budget officers group, said, "These are some of the worst numbers we've ever seen." In the proposed $24 billion tax hikes, California accounts for $11.3 billion, Illinois makes up for $4.4 billion, and New York accounts for $4 billion. Economists predict tight times through fiscal 2011 and 2012. "There's no capability to build the revenue base, build the rainy day
fund," said Raymond Scheppach, executive director of the National Governors Association, a public policy organization. "You are really on the defensive the entire time."
Will TALF be profitable for taxpayers?
The Federal Reserve (Fed), in an attempt to reduce cost of consumer loans, introduced the Term Asset-Backed Securities Loan Facility (TALF) last November. Some analysts have questioned whether the TALF program is too good a deal for investors, putting the Fed at risk. William Dudley, president and chief executive officer of the Federal Reserve Bank of New York, does not think so. "Does the possibility of attractive returns for TALF investors mean that the Federal Reserve is taking on large credit risks? I think the answer is a clear 'no'," Dudley told a summit hosted by SIFMA, a financial industry group. Dudley said that a number of factors, including top credit ratings, protect the Fed from losses and any loss would first be absorbed by returns the Fed has earned on the TALF. Dudley said the program will succeed in pushing down borrowing costs for households and businesses, and it was critical for investors to take part in the program for it to be a success.
Now on to our real estate investor educational section...
Cultivating Relationships that Matter
When it comes to investing in real estate short sales on Maui or simply conducting business in everyday situations it's more important than ever to build strong, effective and reliable relationships that won't let you down. If you are new to short sales it is even more important to understand how to navigate these "people problems" to avoid problems and set the stage for profits. Learn how to begin cultivating relationships that matter with these quick tips below:
Tap into a Team. You have heard about teamwork for years but have you ever really put it to use in your own investments? Sit down and decide who to put on your "dream team" then set out to recruit, hire or volunteer until you have the talent and expertise needed for success. Bankers, brokers, insurance agents, mentors, apprentice, workers, repairmen and others are just a few examples of people to know.
Give - Generously. Nobody likes a 'taker' or 'user' so set the stage up front by giving of yourself...generously. Everyone has something to offer - whether you exchange information or hard labor, make it obvious that you value the contribution and will make it worth their time and effort.
Ask & You Shall Receive. Believe it or not, one of the most effective ways to build relationships that really matter is simply to ask. Be straightforward and share your goals, insight and needs openly and truthfully...then ask for help.
Reward. Never fail to thank those that show a personal interest in your success...no matter how large or small. Gratitude never goes out of style and often it is the simple things that make a major impression upon others.
Make a point of acknowledging and showing your appreciation for any gesture - large or small. Remember, a small matter may demonstrate the type of talent and aptitude deserving of larger attention by big players in the future. Don't neglect the details.
Become Super-Supportive. Cultivating relationships that matter means forming a circle of trusted advisors, experts and others that simply will not allow you to fail. Likewise, you must also become super-supportive in return. Learn how to initiate networking, make meaningful meetings that could assist others even before they ask and stay alert for opportunities that could benefit others even if you are unable to take advantage of it.
Shed the "Self-Made" Myth. Few ideas have done more harm to individual investors than the concept of the self-made man...plain and simple, it doesn't exist. Everyone, to some extent or another, has help and support from someone. Perhaps it is a spouse, the assistance of a good job or merely a competent broker...rather than reluctantly accept help - learn to embrace it instead. It's not a character defect but rather reality...invest in your own success by cultivating real relationships that build the foundation of success needed in your short sales career.
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