Eye on the Housing Crisis

This past weekend the Senate met for an emergency session regarding the housing crisis.

A bill sponsored by Democratic Senator Chris Dodd passed 72 to 13 in a rare Saturday session and will most likely be signed into law by George Bush this week. This bill is designed to help homeowners who are committed to risky adjustable rate mortgages that are due to increase to an un-affordable amount. Some 400,000 struggling homeowners could be positively impacted by this measure. It authorizes government backed mortgages for homeowners at risk for foreclosure, provides tax credits to first time home buyers, new property deductions and new standards for brokers and mortgage contracts. This will hopefully slow the foreclosure epidemic down.

The foreclosure rate is now close to 8500 families per day and a projected 1 in every 8 homes will be foreclosed upon within 5 years. The law has also dedicates $4 billion to help communities maintain and redevelop homes that have been foreclosed upon, an affordable housing trust fund and tax exempt bonds to refinance bad mortgages. Also, part of the law will allow for the creation of an agency with a president appointed director. The agency will dedicate unlimited federal funds to help insure the mortgage giants Freddie Mac and Fannie Mae.

As we skid along the bottom of the real estate market, we'll keep our eye on how things play out. 2008 is turning out to be a very interesting year in the real estate market.

Seasonal Price Shift?

Buyers and sellers alike often ask if prices decrease during the winter on the Outer Cape. It’s a good question, but the answer is contrary to what you might expect. Even though our local population diminishes during the cooler months, the real estate market on the Outer Cape is active year round. We never see a seasonal shift in pricing deflating some buyers hopes that if they wait for the winter, they will get a better deal. In fact, one of our busiest periods traditionally falls in January, right after New Year’s. Determined buyers often begin their search during the winter months so that they can be assured of summer occupancy in their new properties. Also, many buyers receive sizable year end bonuses that can provide the down payment needed to make the dream of owning on the cape a reality.

We tend to see a slight increase in market inventory immediately following the summer season. Another ‘trend’ that we have seen is increased activity in the Commercial market during the winter months. Future business owners shop for and purchase property during our quiet months in order to allow themselves enough lead-time to prepare for the summer crowds.

The best time for you to buy is when you find the perfect property and your gut tells you so! Remember, that in addition to being the ideal summer destination, the Outer Cape is a beautiful and restful place to visit in the off-season.

Trouble for Goliath?

In the wake of the failure of such giants as Countrywide and Washington Mutual, no one expected this past week to see Indymac Bank join the ranks of failed mortgage institutions. Federal regulators shut down IndyMac last Friday. The bank’s assets as of the end of the first quarter 08 were over $32.01 billion, making it one of the largest Lendors in the nation.

The Federal deposit insurance corporation has taken over the bank which it described as the "fifth FDIC-insured failure of the year." Indymac reopened Monday under management of the FDIC.

But more startling and perhaps disturbing is the potential failure of Fannie Mae and Freddie Mac. Fannie Mae was created during the Depression as a way to revive a collapsed housing market by providing mortgage guarantees to low- and middle-income Americans.

Today they own or guarantee a mind-boggling $5 trillion in loans, which is why the fear that they could go under is so important. Fannie Mae or Freddie Mac usually purchases home loans as packages from banks. Your home loan could be one. If Fannie Mae and Freddie Mac were to fail, analysts say mortgage rates would soar, mortgage lending would grind to a halt and borrowers of all kinds would pay higher rates, negatively impacting the already sluggish economy and real estate market. 4
The Bush Administration met over the past weekend to explore options to prevent any failure of the mortgage giants.

Senator Chris Dodd, trying to calm fears, says there is no crisis and no bailout is necessary. Quote "The economics are fine in these institutions, and people need to know that." End quote

It is truly an interesting time for the real estate industry.

2008: A Look Back ... So Far

This week, we take a look back with a year to date recap through July 6, 2008 and comparison of year to date 2007 of the real estate activity in Provincetown, Truro, Wellfleet and Eastham.

This includes all categories of real estate, Single family homes, multi family homes, condominiums, lots of land, hotels and commercial.

In Provincetown, 93 properties sold in 2008 year to date. In 2007 77 properties sold during this time. Provincetown activity is up 16 sales compared to last year.

In Truro, 33 properties sold in 2008 year to date. In 2007 30 properties sold during this time. Truro is up 3 sales compared to last year.

In Wellfleet 26 properties sold in 2008 year to date. In 2007 48 properties sold during this time. Wellfleet saw a decrease in activity by 22 sales.

In Eastham 62 properties sold year to date 2008. In 2007 65 properties sold during this period. Eastham saw a decrease in activity by 3 sales.

In 2008 the majority of sales in Provincetown have been condominiums, 68 in total, in Truro 20 single family homes, In Wellfleet 17 single family homes and Eastham 48 single family homes. 

Provincetown appears to be performing slightly better than the past few years. This could be due to the low interest rates in the first two quarters of 2008 combined with low prices. Buyers are taking advantage of this opportunity.

Truro has seen a slight increase in sales. This could be due to price adjustments and buyers seeking opportunity.

Wellfleet has seen a dramatic decrease in sales this year compared to the same period last year. This could be due to pricing and buyer demographics for Wellfleet.

Eastham has seen a negligible decrease in sales.

We’ll keep monitoring the activity and bring it to you weekly.

Second Mortgage

This week we answer a listener email.

Q: I received a decent offer on my property but the buyer asked me to hold a second mortgage. What should I do?"

A: Seller Financing is becoming more common in today’s market. Traditional qualifying criteria for mortgages have tightened significantly and in general, our ailing economy has made it more difficult for potential buyers to save money.

You may stand to benefit from ‘holding paper’ on the sale of your property. Firstly, you may negotiate the interest rate and terms, and in most cases the rate is higher than traditional financing. You will be earning interest on your equity in the property, and in the end, you will make more money in the transaction. Also, you may qualify for the tax benefits of an installment sale where you can defer a portion of your gain until the loan is satisfied. But of course, check with your accountant.

There are risks to providing seller financing. Most often, your loan is subordinate to the primary financing, and in the case of default or foreclosure, your equity may be surrendered.

There are steps you can take to protect yourself, however, and you should seek the assistance of your attorney and/or accountant. Make sure you verify the credit worthiness of the buyer. Require the buyer to carry hazard insurance on the property and include a due-on-sale clause. Also, in some instances, you can require the buyer to carry PMI to insure your loan against default.

In summary, you should not be scared off by an offer that asks you to hold financing. With professional advice and the proper protections in place, agreeing to participate in the financing can result in a win-win situation.

Online Accuracy: Property Values

This week we answer a listener question.

Q: "I am addicted to looking at property values on Zillow.com. I watch my home’s value fluctuate. Exactly, how accurate are the estimates from these sites?"

A: There are many websites that estimate property value and each one needs to be taken with a grain of salt. Zestimates from Zillow.com appear to be random and are not consistent. These online estimates range from 5% of the sales price to over 20%. 

Websites that assess the value of your home, rely upon data from your town’s tax assessor’s database and also upon recent sales data. There are a few problems with this means of evaluating a property’s worth. 

First, it is not possible for an entity located off the Cape to accurately assess the condition of a property. A physical inspection is valuable.

Second, location attributes are crucial line items in any physical appraisal. An external obsolescence may not be noted that can significantly impact value. 
Third, when you look up a property, the list of comparable recent sales that are used to determine value, almost always includes homes or condominiums that have nothing in common with the subject. 

A perfect example of this flaw is when you research a waterfront property in Provincetown, Truro, Wellfleet or Eastham. You will see comparable sales listed that may only be a half mile from the subject but are not on the water. The value is tremendously different, however, this is not figured into the equation.
The best way to determine the value of your property is to hire a Certified Appraiser. An appraisal will provide the definitive value of your home. Or, ask your Real Estate Broker to prepare an opinion of value backed up by a Comparative Market Analysis. 

Take those online websites and do yourself a favor…hit escape.

Happy Birthday!

This week The Closing Table turns 2 years old. In those two years, we covered topics that addressed the real estate market on the outer cape and answered questions from you.

You’ve emailed, stopped me on the street and approached me at social functions in order to ask about your home, condominium and market conditions. Most importantly, you provided feedback regarding this program. Weekly shows have moved many of you to send in a response. I strongly encourage you to do this. No question is silly, no concern unwarranted.

It seems that The Closing Table has established a solid listener base, who tunes in to pick up a tip and check out the real estate activity in Provincetown, Truro, Wellfleet and Eastham. At the end of each calendar quarter, I recap the activity in these four towns, a particular listener favorite. 

Every weekday at 1PM, whether at work, in a car or at home you listen. It is to you that I extend a grateful thanks. It makes this seem worth while, knowing that the information broadcast, helps you, whether a homeowner, renter, buyer or seller with your real estate needs in some way.

I ask that you keep listening, keep emailing and feel free to stop me wherever you see me to ask a question or provide feedback. Thanks. 

A special thank you is extended to the underwriters who have continued supporting The Closing Table on WOMR for two years. The law office of David Hallet, Pride Mortgage and The Home Inspector. 

So in closing, Happy Birthday to The Closing Table… I’ll be back next week.