De-Lead or Disregard?

This week The Closing Table answers a question from a listener in Somerville who wrote in to the blog.

Mike, We own a two family house and live in one of the apartments. Our tenant is a single woman who has rented for the past three years with no problems. For the past year she has had her boyfriend staying with her and is now pregnant. He plans to move in next month. Our house is old and may contain lead paint. We like her but can’t afford to de-lead. What do you suggest?

Thanks for the question and a good one at that. In Massachusetts, you need to be very careful when it comes to evicting tenants because of potential lead paint issues.

Its hard for me to tell you how to evict her when that may not be in your best interest. 

De-leading apartments do not cost as much as you may think. If you have a tenant who pays rent and keeps the place clean, they are helping to preserve your property value. You may want to explore de-leading. Also, when her boyfriend officially moves in, talk to her about increasing the monthly rent to cover your additional expenses.

There is a chance she may not even stay once the baby is born. If she is a tenant at will which means month to month, talk to her about her plans.

When owning and living in a two family home in Massachusetts, the owner has more liberty when it comes to who can live in the rental unit. She may end up being the life tenant that landlords always look for. There is a way to make this situation a winning one for you whether she stays or not.

In my opinion, explore the potential for her to stay in your house. You may make more money, avoid vacancy loss and have great tenants. 

Fannie, Freddie and Forclosures

It appears the Federal Government will be taking over Fannie Mae and Freddie Mac. What’s happening to these two pillars of the mortgage industry is indicative of the real estate market as a whole. Too many consumers who could not afford homes, bought them in the early 2000’s which created this mess.

Although Fannie and Freddie did not purchase the high risk adjustable rate mortgage products, the overall impact of the sour real estate market is now impacting them.

Foreclosure rates are still on the rise as well, meaning that more loans are going bad.

We’ll keep our eyes on the federal bail out plan, which now, will include running Fannie and Freddie.

The only potential upside to a federally operated Fannie and Freddie, is perhaps the lowering of interest rates.

If interest rates drop below 6%, buying activity could be generated. However, sellers will have to keep their homes priced according to market conditions.

No one has a crystal ball and can predict when we’ll be out of this slow cycle. Some say another year and perhaps all of 2009.

One thing is for sure, the breaking of Freddie Mac and Fannie Mae is not a good thing. We’ll see how this impacts the industry in the coming weeks.

Season's End

It's Labor Day week and with it comes an end to the fast paced energy that our short season brings us here on the outer cape.

The resort town lifestyle resembles the real estate market performance, in a way. Amuse me if you will and let me explain.

The mad rush of buying, selling, refinancing and exponential appreciation from 2001-early 2005 fueled what can only be described as a frenzied real estate market, not unlike our summer from Memorial Day through Labor Day.

With the summer season officially over, we now enter fall, a quieter time, yet still a little busy with tourists. However, after New Years… we all know, its like hitting a brick wall of silence and isolation. Dinner parties and the occasional holiday weekend may pop up… but let’s face it, its pretty dead. That’s where we are right now in the real estate market. It’s the winter. We have seen pockets of activity and some large commercial transactions, but overall, we are not immune to the national trend.

Some experts are saying the market is starting to turn around. Others say it will still be another 9 months to one year.

With prices low, interest rates hovering in the mid 6’s, new federal and state laws created to stimulate the housing market, hopefully, we’ll see a new season begin shortly for real estate.

Even though we are most likely skidding along the bottom, until homebuyers truly believe this is where we are and start buying, activity will remain sluggish.

How far away is Memorial Day for real estate? No one really knows. Stay tuned.

Good Time to Buy?

Clients ask us everyday about how the market is performing and what time of the year would be the best time to buy on the Outer Cape. The best way to answer this is by reviewing market activity and to examine any trends. This way, you can make an informed decision about when to jump into the market. 

It is interesting to note that many buyers who have been in a holding pattern for the past two years have chosen this summer to make their move. Year to date sales volume is up in Provincetown and Truro compared with the same period in 2007. 

(Unlike those two towns, Wellfleet volume is lagging compared to last year’s performance) Even though volume is up, we continue to see multiple price reductions each week, in all markets. Some feel that the increase in the number of buyers will lead to a slowing of price adjustments.

A recent property in Provincetown was introduced to the market at a price that was 5-10% below market value. Four offers were submitted and the property will most likely sell above asking price. What does this tell us? Properties that are priced competitively are selling. It also illustrates that the buyers in today’s market are savvy and are waiting for and recognize a good value when one presents itself.

The best time to buy, is when you want to make that investment. Whether emotional or financial, an opportunity will present itself if you start the search.

Gold Rush or Ghost Town?

Happy Carnival Week for those of us in Provincetown. The theme of Wild, Wild West this year is so fitting as a description of the real estate market.

Are we on the eve of a gold rush for the purchase of foreclosed properties? Will there be a ghost town of empty homes fueled by distraught sellers who lowered their prices to virtual giveaways?

Most likely we won’t see this in Provincetown, Truro and Wellfleet. Here’s what we’ve seen so far this year.

Sellers who have a large equity stake or those who need to sell have priced their properties in line with what the market is doing. This alone presents opportunity for those buyers waiting for the right time. There has been talk of more adjustment over the next year, but even so, the time to buy is now. On the average, Provincetown, Truro and Wellfleet have experienced a 10% adjustment in the market.

Sellers who have been unrealistic took their homes off the market or left their listings active for vanity’s sake, hoping that a magical and perhaps naïve buyer will come along.

Here’s what’s bring buyers this year. Besides the low prices, when mortgage interest rates adjust down, a flurry of buyers rush to town and take advantage of the low priced homes and condos. They buy creating a hiccup of activity.

When rates go up, the activity seems to stop. This time presents cash buyers who use their strong buying power to make a dream of owning on the cape a reality. A cash buyer is now worth his or her weight in gold. 

One thing is for sure. The remainder of 2008 will be an interesting time to see how the market performs.

Happy Carnival. Have fun. Enjoy the festivities.

Making Sense of Refinance

This week we answer the following blogger question:

Q: Interest rates have gone down since I purchased my home in Truro a few years ago. How will I know when it makes sense to refinance?

A: Homeowners refinance for many reasons. Common reasons include: the desire to opt out of an adjustable to a fixed rate loan, the need to use the equity in your house for another expense (like a remodel or a child’s tuition), or simply to save money on your monthly payment. 

The formula to figure out whether a refinance will be favorable for you is quite simple. First, you need to figure out how long you plan to be in the house. Take the amount of your monthly savings with the new loan, and multiply it by the number of months you plan to be in the house. Compare this number to the fees that you will be charged for the refinance. If the fees are higher than the savings, then it may not be worthwhile to refinance at this time. Many people never get past the illusion that a lower monthly payment can create. Remember, you must consider the long-term equation.

It is always a good idea to consult an expert. Speak with your mortgage broker and ask him/her to lay out the comparison for you. If you don’t have a trusted broker, ask a friend or your real estate professional.

Keep in mind that it may be difficult to refinance in today’s market due to the difficulty of obtaining accurate comparable sold properties. Appraisers are hard pressed to provide banks with current sales due to the slow down in the market. This could impede your refinance efforts. 

Stimulating the Market

This week we’ll briefly outline the new federal housing legislation to help stimulate the failed housing market and take a peek at the state’s law to address the foreclosure issue.

The federal program, which became active last Wednesday provides the following: 

Tax relief to first time homebuyers in the amount of a $7,500 tax credit. This will be issued providing it is used by July 1 of next year. The credit must be paid back, interest free, at a rate of $500 per year over 15 years.

Homeowners who claim the standard tax deduction can receive a tax relief of $500 for single and $1,000 if married. 

Bonds will be made more attractive to investors potentially lowering the cost to develop affordable housing.

For some owners here on the cape…the capital gains you claim when selling your second or vacation home may be impacted if you used it as a primary residence for a certain period of time leading up to the sale.

Lendors will need to provide revised disclosure statements early in the process and provide mortgage documents no later than seven days prior to closing.

Freddie Mac and Fannie Mae will increase their lending amounts to markets with higher property values.

Homeowners facing foreclosure will now be able to take advantage of federally backed mortgages to get out of aggressive mortgage products.

Senior Citizens will benefit by an increase in the monthly payouts for reverse mortgages.

Veterans are protected from the foreclosure process until nine months after they return from active service

Communities hit by the demise of foreclosed properties will share a redevelopment fund to restore vacant homes.

We’ll see how the federal program works out. It is a massive step in the right direction to help correct the soft real estate market and rescue suffering homeowners trying to save their properties.

The state law which delays property foreclosures seems to be working. The law which became active May 1st, is designed to give homeowners a 90 day grace period before being foreclosed upon.

There were 2308 new foreclosures in June of 2007. This June there were only 350 according to The Warren Group, a Boston based real estate data publishing company. The law may be working. However, the overall number of foreclosures are due to double this year compared to 2007.

Completed foreclosures have dropped 19.5% from May to June. More time is needed in order to determine the results of this law.