Tag Archives: FHA financing

Cash Sales Dominate SW Florida Real Estate Market

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If you look at the February and March 2012 graphs for single family home sales in Lee County, you’ll quickly notice that a large percentage of homes have sold for cash versus financing. This is not a new trend. While cash sales have saved our market the last few years, it does have its good and bad points. And we’ll attempt to explain why we’re seeing so many cash sales as well.  Cash Sales Dominate SW Florida Real Estate Market!

Cash Sales Dominate SW Florida Real Estate Market
SW Florida Cash Sales Versus Financed Sales

You would think that with interest rates at historical lows, more people would be jumping on the train to buy now and finance. Homeownership is affordable, as rates are low and prices are low compared to the height of the market, although prices are on their way up. We believe price will go much higher if the government would get out of the way and make financing possible again.

Local lenders are complaining, as are buyers, that the Dodd Frank Act has made it so difficult for qualified borrowers to actually produce unnecessary redundant and onerous documents that many just give up. Banks have gone from easy documentation loans in the boom to crazy stupid documentation now. We can’t just blame the lenders, because lenders are just following new provisions of the Dodd Frank Act. You might recognize the names, Chris Dodd and Barney Frank, two names synonymous with getting loans and perks from the banking industry maybe they shouldn’t have gotten. We’ll leave those scandals for another story. I’m sure you can read all about them over the Internet.

In an attempt to regulate and improve the mortgage market, Dodd Frank has hurt the market in several ways. Parts of the act require higher down payments which will take many buyers out of the market. 2 recent studies suggest requiring all buyers to put at least 10% down would force about 40% of otherwise credit worthy buyers out of the market and requiring 20% down would force about 60% out.

Mortgage Rates 2010-2012
Mortgage Rates Trends

FHA has always required about 3-3.5% down and allows sellers to pay buyers closing costs, and their delinquency rates haven’t been substantially higher than banks requiring 10% down or more.

Secondly, and speaking from personal experience, the documentation requirements banks are adding because they’re afraid of getting fined or having to buy back the mortgage are awful. We’ve had several buyers have to go back to the Social Security Administration and request newer social security cards because their older cards may not reflect a name change due to a divorce, marriage, etc. The number has stayed the same throughout their life, and the lender can see this, but they still require the new card which pushes back the closing. Because the closing gets pushed back, it generally requires all new bank statements and employment stubs. We’ve had lenders wait until next month’s stubs before they’ll loan the money, so both buyer and seller must wait.

Wait, there’s more. Because a few fees might change due to the delays, like the interest rate lock may have expired, or the prorations could be off due to the delays, it required a new Truth in Lending Disclosure. You guessed it, if the lender has to re-disclose, there is a waiting period for that. That waiting period could trigger more bank statements, and updated pay stub, etc. It seems the cycle never ends, and it’s ridiculous. It’s no wonder listing agents want to know which bank is approving the buyer, and if the bank has a track record of delaying deals due to extemporaneous paperwork, it may cause the seller to accept another buyer’s offer over that one.

Lenders are getting penalized under Dodd Frank, and they’re getting hammered by sellers and real estate agents who are looking at best offer and most likely to close on time, if at all.

We feel that requiring higher down payments wouldn’t stop the market in a correction like the one we saw starting in 2006, so why add that on to borrowers who could never save that down payment while paying rent, preventing them from the American Dream? And even if you disagree with that statement, most would agree that Dodd Frank is preventing the market from moving higher because it’s essentially blocking access to capital markets for many.

Don’t get me wrong, if you’re qualified, you can get a mortgage. You just have to know where to go to get the money, and be prepared to document everything just in case.

Good luck and happy house hunting. Rates are low, and prices are low but on the rise. If our buyer agents can be of assistance, feel free to call us at 239-489-4042

SW Florida Real Estate Update April 2012

SW Florida New Years Resolutions

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Well, we’ve just concluded another year and it’s that time of year when people spell out their new years resolutions. You know, the typical things like the gym memberships, lose weight, quit smoking, reduce debt, go back to church, read more, travel more, eat out less, eat out more, spend more time with family, etc.

New Years Resolutions for SW Florida Real Estate Market
SW Florida New Years Resolutions

While most lay out their personal resolutions, each year we spell out resolutions we think would be great for our local SW Florida real estate market. Some may be a repeat of last year’s resolutions.

1. Agents and lenders become more familiar with FHA financing- As prices rise, less investors may be competing against first time buyers as flipping margins are reduced. Banks have stiffened up on lending so bad that FHA has become the predominate form of lending in recent years. It will pay for agents and lenders alike to become more familiar with FHA guidelines unless lending rules change dramatically

2. Lee County would attract outside business to relocate to SW Florida-We know the county and Chamber is working hard on this.

3. Parking garage at Fort Myers Beach becomes a reality-Fort Myers Beach is one of the staples of local tourism. We now have a great park and view to enjoy as visitors come over the bridge. Adding parking to the equation would serve as a hub for business and tourists to enjoy our area

4. Banks roll out plans to refinance homes under new guidelines allowing underwater borrowers to stay in their homes

5. Economy-Jobs are what ultimately will drive our real estate market and we’re not seeing growth in the job market other than seasonal jobs nationwide. A pro-growth government could help lift the business climate and the real estate market

6. Election-November can’t get here soon enough. Later this year we’ll know who our new president will be and what direction Congress will take. Voters sent a strong message last election, but Congress is still too evenly divided for politicians to get that people want real change.

7. US Government needs to spend less- We cannot end up like many countries in Europe. We must act now to reduce spending before it’s too late

8. Congress needs an English Lesson-Since when are tax cuts considered spending? Taxes are revenue, not spending. Congress and the President need to cut spending and stop treating taxes as spending. Tax cuts spur business to invest and hire. These 2 month extensions are too short term for businesses to decided what direction economy is going in

9. Red Sox stadium worth the Investment-Lee County paid a lot of money to build new stadium. Let’s hope new stadium brings new energy, new visitors, and lots of money back to local economy

10. Certainty in Oil Market-Uncertainty leads to rising oil prices which leads to loss of disposable income. I think all Americans could use a little more disposable income, and a better energy policy would help. A little luck with agitators like Iran would as well.

11. Places like banks, airlines, and cell phone companies will stop adding add-on fees simply to increase bottom line- We are in a price sensitive market. When will these companies learn? Someone in these companies marketing departments should warn the CEOs that these fees are unpopular and go over about as well as an occupy movement in the middle of a city.

12. Speaking of Occupy Movements-Maybe this will be the year they actually come up with a message, or decide to get back to work. There’s nothing worse than watching interviews with attendees who don’t know why they’re camping out all night or what they realistically would like, other than a free handout.

13. If It’s to Be, It’s Up to Me-America needs to get back to personal responsibility. It’s obvious we cannot give to everyone and pay our nation’s debts. One day the world will stop lending to us. What happened to “Ask not what your country can do for you, but rather what you can do for your country?”

They may not all come true, but wouldn’t it be nice. We’d love to hear your new years resolutions.

 

What is Your Home Worth?

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This is another question we get asked a lot and the quick answer is value is in the eyes of the beholder.  It also depends on who you ask.

If you ask the seller, they’ll tell you about how they personally built the house, what kind of insulation is in the attic and walls, how many screws are holding up the shelves in the kitchen pantry, how they clean the solar panels on the pool twice per month for maximum longevity, how they just cleaned out the dryer vents, the fact that they imported fruit trees from Malaysia for maximum fruit yield, and the date and time each fruit tree was planted.  All of these things carry emotional value to the seller and should equate to monetary value in the seller’s eyes.

Value is in the Eye of the Beholder
Value is in the Eye of the Beholder

The lender wants to know how sound the buyer is, if the homeowners association is fiscally sound, and the opinion of value from the appraiser.

The property appraiser looks at value from last year and tells you what they think your home used to be worth last January 1 based upon sales from last year.  This is done on a mass-appraisal system because the property appraiser cannot possibly do a full-blown appraisal on all parcels in the county.  While this is a monumental task, the property appraiser is at a big disadvantage ascertaining actual value on any one particular property because of the scope of the task.  While we would never rely on the property appraiser’s assessment of value due to these issues, we are amazed at how many times they do a good job of getting in the ball-park or close to value, but they are subject to error because the values are based upon a previous time frame and done on a mass scale.

This brings us to the last two people in the equation; buyers and appraisers.  Buyers look at several homes and size them up against one another.   Buyers are always on the lookout for property that meets their needs, and presents the best value to them.  Typically they’ll make an offer on the best value property that meets their needs.  They don’t often waste time by offering on over-priced properties; they go straight for their favorite and offer there.  Only when negotiations fail on their favorite do they typically move on to their second choice, so over-priced sellers remain the bridesmaid instead of the bride.

Lastly the appraiser becomes involved.  Since May 1 there has been a new governmental rule in effect called the HVCC (Home Valuation Code of Conduct).  It was intended to improve the appraisal system and provide more accurate appraisals, but as is anything government related, it’s been a disaster.  Appraisals have been far from accurate, and you could easily argue that the mass appraisal system the local property appraisers system uses has been far more accurate than some of these appraisals.

The HVCC setup a management company to act as a middle-man so to speak.  Costs to consumers have gone up, and turn around times have increased.  The lowest priced appraisers have gotten many of the orders, so consequently many appraisals have been handled by out-of-town appraisers unfamiliar with our local values.  The management companies give appraisers little time to do their work-typically 2 days, but appraisals take sometimes weeks to receive back because the middle-man has to review them.

FHA accounts for 70% of the financing today, and if you get a bad appraisal you’re stuck with that value for 6 months under FHA.  We’ve seen many properties under-appraising by $70,000 and more.  The sad thing is the buyer wants to buy the property, and the sellers wants to sell, but the faulty appraisals are preventing not only the current buyer, but also future buyers from purchasing the property.  It is literally forcing many properties into foreclosure.

You can literally blame the Federal government since May 1 for wrecking our market.  Oh, we can’t blame them for all the faults leading up to May 1, but we’re in serious recovery mode right now and the new HVCC system is preventing prices from moving when they should, and sales from occurring when buyers and sellers want to do business.

The banks are powerless.  Even though they want to lend money to a qualified buyer, the faulty appraisals are preventing it, and appealing the process is almost futile.  A loan officer cannot speak with an appraiser, and the appraiser has total control, even when facts are presented clearly showing value is present.

We recently had an appraisal done where the appraiser would not use a comparable two houses down, but preferred to use a foreclosure two neighborhoods over.  The neighborhoods were not the same.  The appraisers are so afraid a bank may come back on them later that they’ve gotten too conservative, and many times use poor condition and gutted properties against good condition properties.  Appraisers should be worried buyers could sue them to level the playing field, and in fact one state has introduced a law stating just that.

Congress really needs to step in and fix this mess.  The government created it through additional regulation, and the unintended consequences are wrecking the market, and this market needs help, not an outside entity kicking it when it’s down and trying to get up.