NEW APPRAISAL RULES FIGURE TO SLOW PROCESS

Inflated appraisals have been a huge issue in real estate for many years, and real estate commissions all over the country have had enough...

In response to complaints about too many appraisers being too cozy with lenders who routinely ask them to bring properties in "at the number" in exchange for more business, new regulations are coming soon that will force lenders to give up their existing appraiser relationships and, instead, order appraisals from "pools" of pre-screened appraisers who will not be permitted to have direct contact with the loan originator.

The two arguments against this are as follows:

1) appraisers who specialize in certain areas or certain types of properties will not be readily available to appraise in their areas of expertise, while those "out of their league" on certain types of properties will be asked to submit binding appraisals, and

2) this "appraiser pool" system will break down accountability between appraiser and lender and probably lessen the overall responsiveness of appraisers, who often will expedite appraisals or otherwise accommodate clients working off of tight timeframes for lender partners they know, trust and value.

The upside, in turn, is a perceived end to corrupt appraiser-lender relationships that are focused more on saving deals than protecting a buyer's interests.

In my opinion, however, the answer here lies with the consumer. If buyers do their research and choose to work with ethical, trustworthy lenders, these problems would not exist. I understand there have been plenty of not-so-ethical people in the lending and appraisal business, but any buyer should do some research on who he or she is dealing with before signing anything.

In the age of the Internet, there are very few secrets. Seeking out a personal referral from someone you know and trust is always the best way to find a competent service professional. Ratings agencies like the Better Business Bureau or a simple "Google Search" of a person's name or company may be all you need to do to get the answers you need.

Every piece of legislation always has unintended consequences, and while I'm sure there will be cases where shady appraisers are squeezed out of the market, we're all going to have to be prepared for extra delays and a few more headaches with some of our appraisals.

Since full licensing (with fingerprints and background checks) for mortgage lenders went into effect in Colorado two years ago, we've already flushed most of the cheaters out of our business. Now new regulations are just making it harder to do business.

ROCKY MOUNTAIN NEWS: DEATH OF A NEWSPAPER

As most of you know by now, the Rocky Mountain News ceased publication yesterday, two months after the paper's parent company announced it needed a buyer in 30 days to stay in business.

This story is interesting to me on two levels. First, back in the day (1992), I was a journalism major in college and spent two years working for a newspaper in Sacramento, California.

But second, and perhaps the more important lesson, is why the Rocky died.

Because of new technology, over the past few years I have cancelled my newspaper delivery, discontinued traditional "home phone" service and publish much of my own material electronically.

And while I thought the Rocky's website was decent, the reality is that the newspaper could not adapt fast enough to the changes in technology and to the changes in the economy.

Prepare for change.

That's about the best advice I can give to anyone. If you're a sole proprietor or an independent contractor, recognize that YOU are the product. You may be selling something, but the reality is that most people will make a decision on the SELLER before they decide on the service or commodity.

Rather than link to a story about the Rocky's demise, I thought it would be better to post this 45-slide photo gallery of Rocky employees as they gathered to hear the news on Thursday. Not pretty.

Remember that no matter who you work for or what you do, YOU are the product. I can't emphasize enough how important it is to devote some time and focus each day to looking for ways to become faster, smarter, healthier, better educated, more accountable and increasingly efficient.

Becoming a better product in the marketplace is the wisest thing you can do right now. Let the demise of the Rocky be a warning to us all...

MORE ON THE GOVERNMENT'S PLAN TO "STABILIZE" HOME PRICES

Yesterday I posted that Fannie and Freddie are getting ready to increase fees on mortgages. After hearing President Obama's speech yesterday on "stabilizing the housing market", you'll see why.

"A key element of the plan will allow up to five million borrowers who owe more than their home is worth to refinance through Fannie Mae and Freddie Mac."

If Fannie and Freddie are essentially going to agree to take on five million "bad loans", doesn't that significantly increase their operating costs?

"For those already in foreclosure (but not yet out of their homes), the federal government will provide matching funds to lenders to lower interest rates on loans. The plan requires that payments be no more than 31% of monthly income."

So if you owe more than your home is worth, but your payment is now affordable, aren't you just renting the home from the government until you decide to move, at which time you mail the keys back to the lender?

One section of the Obama housing plan that will require congressional approval for enactment would give bankruptcy judges added power to perform "cramdowns", or unilateral powers to renegotiate mortgage loans when borrowers go into bankruptcy. If this change to the bankruptcy codes is approved by Congress, get ready for a lot more bankruptcies over the next few years.

I'm not saying we shouldn't work on some kind of stabilization plan. I'm just saying this plan has a very high likelihood of driving interest rates up, which means that under the Obama plan future buyers are going to pay a large part of the price for mistakes that were made in the past.

That's why rates in the 5's RIGHT NOW are too good to pass up.

"I REMEMBER WHEN INTEREST RATES WERE IN THE FOURS..."

Although I can give you a detailed list of reasons why housing under $400,000 in the Denver metro area has upside (no new construction coming online, better-than-average economy, growing population, $8,000 first-time buyer tax credit), there's one elephant in the room - at least as I see it - and that's higher interest rates.

In addition to the inflationary effect of $800 billion in government spending, Fannie Mae and Freddie Mac announced today that, in another effort to clean up their bleeding portfolios, loan fees will be increased across the board on April 1.

What that means to borrowers is that, in about six weeks, there will be a .75 point add on to the cost of Fannie or Freddie financing for any home purchased with a down payment of less than 25%. You likely won't pay the .75 point directly as a closing cost... rather, you'll see it "priced into the loan", which means it will make rates about 25 basis points higher than they otherwise would be.

On a $200,000 fixed rate loan amortized over 30 years, an extra 25 basis points pushes your P&I payment up from $1,167 at 5.75% to $1,199 at 6.00%. That $32 a month, times 360 payments, equals $11,520 in higher payments over the life of the loan.

I have said for a while that your best opportunity to take advantage of low rates and ample inventory is RIGHT NOW. And as I have said before in this space, rates are low because there is fear in the market.

If and when people's feelings about our economic situation change, rates are going nowhere but up.

WHEW, WHAT A WEEK! (OR, HOW THE STIMULUS BILL WILL AFFECT COLORADO)

Well, there was no lack of drama in Washington this week.

The House and Senate voted on Friday to approve the final version of the $787 billion (with a “b”) economic stimulus package that has been the talk of the country for the past month.

While we certainly can debate the merits of whether this bill was appropriate or responsible, it is going to have a dramatic and undeniable impact on our lives both in the short-term and in the long-term (unless, of course, you don't own a house, don't have a job, don't have children and don't pay taxes - if that's you, then life simply goes on).

Since what we do here is help folks buy and sell homes, let's focus for a moment on the most important provision of this bill as it pertains to the Colorado housing market: the debate over the tax credit provision for home buyers.

The tax credit provision was one of the most heavily lobbied and debated components of the economic stimulus package. In fact, because I am involved in a number of online communities and networking groups, I was getting almost hourly email updates this week from the National Association of Realtors, investor groups, builders, mortgage companies, as well as my local congressperson, US Senators and even a note from the President himself! (electronic, of course, but I'm sure he wrote it for me...)

In short form, here’s how the tax credit idea evolved:

Last year’s Housing Recovery Act included a provision which offered a refundable, repayable $7,500 tax credit to first-time buyers who purchased a home between April 9, 2008 and June 30, 2009. The credit was limited to those who had not purchased a home in the past three years and actually served as more of an “interest-free loan”, as the credit had to be paid back by the taxpayer in 15 installments of $500, beginning with the 2010 tax year.

The House version of the Economic Stimulus bill extended the existing credit out to the end of 2009 and forgave the repayment requirement, while the Senate’s version when much further, doubling the credit to $15,000 and making it available to all homebuyers purchasing a principal residence.

Sparks shot in all directions throughout the week as interest groups clamoured for a larger piece of the biggest pie ever baked by the US government.

In the end, the committee which negotiates out the differences between the House and Senate drafts of the bill settled on $8,000 for first-time buyers, eliminating the repayment clause and extending the credit through December 1, 2009.

So, in summary, the tax credit provision remained only for first-time buyers, but was increased to $8,000, made non-repayable, and extended to December 1. Those who purchased last year will remain bound by the terms of the original first-time buyers credit.

While some are disappointed that the full $15,000 tax credit did not end up in the final bill, the reality is that the new credit is larger and better than the old credit, and it will be around longer than in the original Housing Recovery bill from last year.

The biggest payoffs for those in Colorado, as I see it, are obviously for first-time buyers... but also for private sellers with homes under $250,000, where most first-time buyers will focus their interests.

Earlier this week, I posted about how strong the market was in January for homes at the lower price points, and how about one in 3 homes on the market under $250,000 is already under contract.

In the end, these changes should give our market a good, solid dose of adrenaline, especially at the lower price points.

If you or someone you know is interested in taking advantage the $8,000 first-time buyer tax credit, please give me a call.

CHASE, CITI, B OF A AND WELLS FARGO SUSPEND FORECLOSURES

While the government's wheels are in motion, the foreclosure train has stopped again.

JP Morgan Chase, Citigroup, Bank of America (Countrywide) and Wells Fargo have all announced that they will suspend foreclosures through March 6 as the government works on another "financial stability" (i.e. bailout) bill aimed at keeping people in their homes.

I'll be brief and to the point: the reason this is happening, in my opinion, is not because the banks are good-hearted Samaritans. They are suspending foreclosures again because their hope is to sell these junk loans to the government at a better price than they would get by foreclosing.

In other words, they want to transfer their losses to you and me.

I have many buyers with an interest in foreclosures right now, and we have been seeing this "stop-start" process since November, as banks suspend normal operations in hopes of offloading these bad loans to the government.

I won't attach a judgement to it here, other than to say it's really messing with the market. We've got people ready, willing and able to buy these homes and improve them, but the inventory is so (artificially) limited that buyers get frustrated.

Sooner or later, most of these bad loans will be foreclosed on... and most likely it will be taxpayers who take the hit.

DENVER MARKET UPDATE - UP OR DOWN?

Opinions on the stock market are bound only by the number of people you ask. Same with housing.

Last month, the number of homes on the market fell 19.4% from January of 2008.

The "absorption rate", or the number of months it would take to sell all homes on the market at the current pace of sales if no new homes were to come on the market, fell by over two months, to just over a six-month supply of homes.

The absorption rate for homes priced between $250,000 and $400,000 fell from 12.6 months to 7.0 months. Inventory for homes from $0-$250,000 fell from 4.22 months to 3.25 months.

Among all homes on the market priced between $0-$250,000, one in three is under contract.

So, of course, the Rocky Mountain News headline writer gleefully proclaims: "Worst January Ever for Home Sales"

Say what?????

The Rocky based its story on the fact that sales volume was down 15% in January versus one year earlier (but remember, the inventory of homes is down 20%). The paper also said the median price fell 16.3%, to $181,500. While that's accurate, remember that median is simply that price where half of the homes sell for more, and half sell for less.

What's selling right now? Homes below $200,000. In fact, nearly 70% of all pending contracts at the moment are on homes priced below $250,000. Homes below $250,000 account for 34% of the active inventory but two-thirds of all sales.

Of course the median price is going to drop!!!

I can't change how news is reported, but I can educate my clients about the state of our market. I have very strong beliefs about what lies ahead for our market, and some of those beliefs aren't necessarily great for folks trying to sell higher-end homes.

But I can tell you where the value is. I can tell you where the activity is. And I can tell you why it's happening.

The quality of your outcomes (and your life, for that matter) is based on the quality of your information. I would be happy to consult with anyone looking to buy or sell a home in this market, and give you a much clearer picture of what is really happening underneath the headlines.

RULE CHANGE FAVORS INVESTORS

If you read what’s being said on the many forums and posting boards online about the housing market, you hear a lot of different things about real estate investors.

Some say investors over-speculated in certains market, causing declines and foreclosures. Others say investors are an important part of the solution, since they have the expertise and stomach to purchase and rehab distressed bank-owned inventory that is otherwise passed by.

In response to the first line of thinking, Fannie Mae slapped a four-property restriction on investors in December that caused outrage in the investor market. Thinking that too much investing was a bad thing, regulators said that Fannie would not purchase any loans made to investors with more than four homes in their portfolio.

This week, Fannie reversed itself, sort of.

At the urging of NAR, investor groups and even local community activists, Fannie Mae revised its policy last week which opens the doors for investors to own up to 10 properties, but with stricter qualifying guidelines after the fourth property.

Now, for homes five through 10, borrowers must have a credit score of at least 720. The maximum loan-to-value ratio is 70% or 75%, depending on specified criteria. Borrowers may not have any history of bankruptcy or foreclosure in the past 7 years, or any mortgage delinquencies of 30 days or greater within the past 12 months. Reserve and other requirements also apply.

It’s a good “middle ground” step to get investors back into market while ensuring there isn’t excessive speculation.The recovery taking place in our market is demand driven, and that demand will be further fueled in coming months by discounted prices, tax incentives and a committed “buy-in” from the investor community.

Fannie did the right thing in welcoming investors back into the fold.

AMERICANS RANK DENVER AS TOP CITY

Short, interesting article today from Reuters which says Americans have ranked Denver as the top city in country in which to live.

San Diego was second, followed by Seattle.

The survey was based on interviews in October with 2,260 people in all 50 states.

If you're thinking of moving to Denver, call me! (Knew there had to be a plug in there somewhere, didn't you?)

CASE-SHILLER RANKS DENVER MARKET #2

A prominent theme in yesterday's economic outlook presented by Dr. Ted Jones was that "all real estate is local". Common sense, but often forgotten.

We are impacted by national events.

But we are also cushioned by the relative strength of our own local economy.

I have said in buyer presentations for the past 18 months that Colorado is on the backside of its foreclosure crisis. It came early (2004) and it was severe, but because we went into first, we're coming out of it before the rest of the country.

Two pieces of supporting evidence:

1) The number of foreclosures in the seven-county Denver Metro area last year was 24,650, down from 26,521 in 2007. That's a decline of more than 7%. In California, there were over 236,000 foreclosures last year, an increase of 180% from 2007. When your appreciation dies off, the foreclosures begin. Our market topped in 2004, whereas many markets didn't hit the skids until 2007.

2) The widely-followed Case-Shiller home price index was released yesterday, and Denver ranked as the #2 market in the country, behind only Dallas. According to Case-Shiller, home prices in the Denver region lost 4.3% of their value from November of 2007 to November of 2008. Dallas and Denver were the only two markets with losses of less than 5%.

While a 4.3% loss may not be cause of celebration, I remind my investor clients often that it beats a 40% loss in the stock market. And while some homes may have lost some value, my investors continue to see positive cash flow and my first-time buyers continue to pay less on a mortgage that they would in rent.

These are uncertain times, and as I said yesterday, that's why interest rates are the lowest they have been in almost 50 years. When confidence returns, prices will rise, and so will rates. It's always been that way, and that cycle will surely play out again.

AN ECONOMIST'S VIEW OF THE 2009 COLORADO REAL ESTATE MARKET

Here is the text of an email I sent out to my database earlier today. Hope you find it of interest!

January 27, 2009

Good afternoon:

This morning I had the privilege of attending a 2009 State and National Economic Forecast meeting featuring Dr. Ted Jones, a nationally recognized real estate research expert who is senior vice president and chief economist for Stewart Title Company. Formerly, Dr. Jones was chief economist at Texas A&M’s Real Estate Research Center, the nation’s largest publicly funded real estate research organization.

In a diverse and wide-ranging discussion of the Colorado economy, Dr. Jones made a few points I thought I would share with you.

While the nation is most definitely in a recession, and a severe one at that, Colorado’s fundamentals remain better than most states in the country.

Because there was not a speculation-driven “bubble” in Colorado home prices between 2000 and 2005, we are not seeing anything like the corrections taking place in California, Arizona, Nevada, and Florida.

Unemployment rates should be at least a full percentage point lower in Colorado than the nation as a whole throughout 2009.

Lower oil prices are temporary, in Dr. Jones’ opinion. In fact, he fears we may see gasoline at $5 per gallon (!!) within 2-3 years.

Interest rate right now are artificially and temporarily low, in Dr. Jones’ opinion. With an $800 billion stimulus program working its way through Congress (and possibly even more to follow), Dr. Jones sees a short term injection of confidence and capital back into our economy, but the price will be significantly higher interest rates (he is predicting the mid 7’s on 30-year fixed-rate loans within 18-24 months - over 2 full percentage points higher than where rates are today).

What this means…

Well, we all know that we are living in volatile times. Expect that to continue for a while.

When it comes to purchasing big ticket items like homes, emotion and psychology play a huge factor in the overall health of the market. People are reluctant to take on large financial commitments when they are operating from a place of fear, and one of the primary objectives of any stimulus plan to come out of Washington will be to change how people feel as well as provide some short-term economic relief.

Based on Dr. Jones’ presentation, it seems likely that higher mortgage rates will be unavoidable in the future. Whether that shift happens in three months, six months or a year will depend on how people react to whatever help comes out of Washington.

Right now, confidence is low. So are interest rates. There is a direct relationship between consumer sentiment and how low a return investors will tolerate on mortgage-backed securities. When confidence returns, rates will rise. And that rise may well be tied more to how people feel than whether or not the economy is actually getting healthier.

So watch consumer sentiment. In reality, the stimulus package being debated right now may actually be more of a psychological stimulus package than a true financial stimulus package, even though its cost to taxpayers is unprecedented.

I’ll be discussing Dr. Jones’ presentation in more detail this upcoming Thursday night at 7 p.m. at the Arvada Public Library as part of my Home Buyers Workshop series. If you or someone you know is thinking of buying or selling a home in 2009, I would love to discuss this information with you in more detail.

In the meantime, if you have any questions at all, please don’t hesitate to give me a call.

Have a great week,

Dale Becker

RE/MAX Masters

(303) 416-0087

MORE INTEREST RATE JITTERS

Sometimes you gotta go out on a limb...

I said a month ago I was concerned about inflation and higher rates, and nothing has changed that opinion. After briefly touching the high 4's last week, 30 year fixed rate are back into the 5's this week (still AMAZING!) but the market is jittery, to say the least.

Here's the dilemma:

If the economy deteriorates further, rates will likely fall as investors seek the "safe haven" of mortgage backed securities.

If the economy improves (or gets a massive, artificial injection of stimulus from the federal government), money will fly out of bonds (which dictate interest rates) and into the stock market. If no one is left to buy bonds (because other investments look better), the yield must rise, which means higher interest rates.

So which will it be? Great Depression 2, or the Trillion Dollar Money Bomb?

It seems to me that we are undeniably just a few weeks away from the biggest federal intervention in the US economy in our nation's history. The printing presses are running even now, and once that money (and those jobs) begin flowing out into the economy, there will be a different psychology altogether.

Right now people are scared. They are looking for a bottom, looking for certainty, looking for some guarantee that things are going to get better.

That is the reason why 30-year interest rates are at 5.00%!

When the psychology changes - and it will - our interest rate environment will change as well. And even if rates bounce back up to 6.00% - which they will, sooner or later - your purchasing power will probably never be greater than it is today.

Consider the following scenarios:

$200,000 loan at 5.00% = $1,074 per month

$180,000 loan at 6.00% = $1,079 per month

If (when) rates go up 1.00%, you have just lost 10% of your purchase power.

A $400,000 loan today at 5.00% carries the same payment as a $360,000 loan at 6.00%. Do you see what happens if you choose to "wait things out"?

Now, there's one segment of the market I won't pitch this idea to, and that's the high end ($500,000 and above)... and that's because I see in the numbers some trends that are very concerning to me right now. If this is your situation, we need to have a separate conversation.

But for the vast majority of buyers, the combination of low prices and low payments should be incredibly compelling.

If I was considering purchasing or refinancing a home right now, and rates mattered to me, I would not wait.