Quality of Life

Getting on with your life

Getting on with your life

2011 is just around the corner. What kind of advice does John Burns have for the market? In today’s interview with The Real Story, John talks about people trusting the recovery enough to start getting on with their lives. Yes, he reminds us, if you sell, you’re probably not going to make a big profit…but if you sell to purchase another house, you can make it up on the Buy Side.

John was in Northern California to present his annual look back and forecast to the Building Industry Association. He showed that although there are no startling breakthroughs in the plus columns, that if you look at the problem areas, like job creation, that the numbers are getting better—with the exception of San Jose, we’re not in positive territory yet, but even being less negative is a good thing.

Looking back on the year, John points out that America has regained its confidence in the banking system and that regulators have learned that banks are better at managing banks than the government; that Fannie Mae has done its job of providing mortgages; and that even if home prices go down, interest rates could go up—and buyers need to decide what makes the perfect balance of price and mortgage rates so they can get off the fence and get into the market.

Above all, John says, “Once you buy a home, you’re in the game.” The real estate market isn’t going to be in growth mode again for a while. But buying real estate isn’t just about making money. It’s not just about hedging future inflation with a hard asset like a home. It’s about living your life. John finishes up the interview offering a long-term view: “Get in, live your life, and have a valuable asset.”

Exploring the buying experience

Exploring the buying experience

The experience of buying a home has changed enormously over the last few years, and not just because it’s an extreme buyer’s market. Real estate economist John Burns points to the Internet as a powerful—and empowering—tool in the process. He believes that people will not visit a model home these days unless they are assured it’s a good use of their time.

We also asked John about price stability. He predicts that prices will trend down again next year, because more REO product will become available and there will be no tax credit. People wanting to sell will find what their home is really worth today, which is probably about 10 to 20 percent less than they think.

Will they stay in their present home and wait for prices to trend up again? According to John, it’s more likely that their decision-making is based on whether or not they really want to move. People still get married, have babies, get divorced and want to live in a certain neighborhood. If there’s a compelling enough reason, they’ll make the move.

Up, but not out of the woods

Up, but not out of the woods

A bit of good news was announced yesterday by the National Association of Realtors: the number of people who signed a contract to buy a home rose in August for the second straight month by 4.3 percent—more than many economists predicted.

To keep things in perspective, this is more than 20 percent below the pace in August 2009, when Federal tax credits were providing some incentive to buy.

Lawrence Yun, the association’s chief economist, said the latest data is consistent with a gradual improvement in home sales in upcoming months. “Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,” he said. “However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence.”

Here’s to that gradual improvement in the months ahead!

Addressing buyers’ questions

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The Real Story has been talking with real estate financing expert Thomas Murray Jr. about how home sales are affected by tight money, new appraisal system and stricter borrowing rules. The net effect, says Thomas, is that even after buyers find the home they want at a price they can afford, they are no longer safe in the knowledge that there is a loan out there for them.

We asked him about people working two jobs: how does that look on their loan applications? He says that as long as the job has had at least a two-year duration, and has every indication that it will continue, that the second income IS counted. The self-employed? Thomas thinks that the self-employed listen to too many rumors about being judged as credit risks. If someone who is self-employed is filing tax returns showing a profit, and can prove his or her financial viability for two years prior, then they pass that CIA test (credit, income, assets) that he talked about earlier in the week.

The things that still seem to surprise people are low credit scores. Thomas suggests that people utilize the government ruling that allows one free credit score check per year. Ask questions so you understand how credit agencies look at you, monitor it, and go to work on repairing your score if it is low—he recommends something as simple as keeping a lower balance on one’s credit cards as an effective way to be assessed as a better risk in this risk-averse market.

The appraisal crapshoot

The appraisal crapshoot

The Real Story is talking to real estate finance expert Thomas Murray Jr. about another roadblock to making a home purchase in today’s market: the appraisal. Last spring, the federal government adopted the HVCC—Home Valuation Code of Conduct, to protect consumers from inflated appraisals and encourage independence in the appraisal community. According to Thomas, who sees hundreds of deals, this remedy has created a much bigger problem, and has fundamentally changed the way that appraisals are made.

The government has created the Appraisal Management Center, which doles out appraisal jobs to the top name on a list of qualified appraisers. The trouble is, there is no specificity in the expertise needed for the appraisal, so someone with a background in equestrian properties can be assigned an urban condo. To boot, there is so little money left in the appraisals process (since the Appraisals Management Center is taking a cut) that many appraisers will take an assignment, whether it matches their experience or not. Who pays? The buyer, upfront, and without recourse. So what happens? Often, the buyer pays and pays for repeated appraisals until they get the one that supports their deal. Asks Thomas:  once more, HOW is this better for the market?

No quick fix

No quick fix

Talking to Thomas Murray Jr., mortgage lending consultant and principal of his own lending firm, one gets a clear idea of the problems facing buyers today: not only does the buyer need to find the right home and negotiate a price for it, but he or she also has to work hard to get a loan.

Thomas tells The Real Story that not long ago, there was quite literally a loan for every buyer. Now, in this risk-averse environment, loans are scarce for people with less-than-good credit scores. The pendulum has swung the other way from the days of so-called liar loans, and loan packages need to be clean and risk free or the banks won’t touch them. If the originator doesn’t follow all of the guidelines to the letter, they can be held responsible for the losses on a failed loan. So the banks are being much more careful about the loan packages, and more and more deals are not making it through the lending part of the sales process.