New Signs of recession and the home prices

It looks like that another Real Estate Market crash is imminent and we can see that in last 20 days the inventory of homes for sale is increasing rapidly and the buyers are cautious due to higher interest rate and uncertainty in stock market. Most of the economists are agreeing that the recession is on its way to US markets due to two major factors .

 First is low unemployment and very high inflation rate and this is a recipe for disaster in the economy because we will have customer confidence goes down and they will stop spending and companies will stop hiring because of uncertain market which will create a downturn and slowing of economy . 

As we have seen the NASDAQ is on its down ward trend for more then a month and it is in bear market now and these factors are very impotent in any economy . As we see the inflation is highest in last 30 years we are also looking at the wage increase and shortage of skilled and non skilled worker in the market . According to my 15 years experience in Real Estate market in Las Vegas Nevada I am guessing that a sharp price reduction in residential home sales prices in Nevada and slowing down of homes sales due to high interest rates.

Mortgage Miseducation

Many borrowers, plain and simple, don't understand how mortgages work. here's what they should know before they go shop for a loan

ERIK J. MARTIN You wouldn't buy a new car without knowing how to drive it first, but would you borrow money to buy a house without understanding how a mortgage loan works? Many people do, say the experts.

According to the results of a recent Zillow Mortgage Marketplace survey, 44 percent of prospective homebuyer respondents admitted they are not confident in their knowledge of mortgages or the mortgage process, overall. The 1,005 adult surveyed incorrectly answered basic questions about mortgage information nearly half of the time. The poll also revealed that 37 percent of respondents believe pre-qualifying for a loan means they have secured financing, and 57 percent don't know how adjustable rate mortgages work.
Why are borrowers so ill-prepared to enter into the mortgage process, and who is to blame? A number of factors have contributed to the problem in recent years, including new, more complex lending laws that have increased the paperwork involved; laziness on the part of an uneducated consumer; and unethical lenders who have put profit ahead of the responsibility to properly edify customers.

"One of the most common mistakes made is calling a bank and saying, 'This is my first home, and I don't know much about mortgages,'" says Carolyn Warren, author of "Mortgage Rip-Offs and Money Savers" (Wiley, 2007). "It's as if they're holding a sign on their foreheads that says, 'Please charge me more - I won't know the difference.'"

Tighter restrictions on lending haven't made things any easier. Recent changes to the Real Estate Settlement Procedures Act require that loan originators provide borrowers with a standardized Good Faith Estimate in an effort to improve disclosure of terms settlement costs and interest rate related terms. However, loan officers cannot give the GFE up front without first reviewing the borrower's income, assets and credit. Hence, once a borrower has submitted all the necessary financials and had a credit report pulled, they often feel obligated to go with that lender.

Consequently, Warren believes there is actually less loan shopping going on now than before the new RESPA law was passed, which she says implicates politicians as major culprits in today's mortgage miseducation problem.

In analyzing the Zillow survey data she and her team gathered, Erin Lantz, director of Zillow Mortgage Marketplace in Seattle, says it's apparent that the collective real estate industry has a lot of work to do.

"Our industry is not known for transparency. We're making great strides to improve, but ultimately it is the consumer's responsibility to get themselves better informed," Lantz says. "Borrowers need to take the time to do research, prepare early in the game, and think more broadly in the context of getting ready to purchase a home."

Steven T. Alexander, president of Private Mortgage Services with Private Bank of Buckhead in Atlanta, says it's vital to do your homework before you jump into the market. Seek the help of a seasoned mortgage loan officer who can help properly structure your transaction to reach your ultimate objectives, read informative books and articles and talk to others who have recently completed the process.

"It is up to the borrower to due their due diligence so they can obtain fair and decent financing," says Warren. "Recently, a buyer asked me to look at the GFE provided by his builder's preferred lender. This lender was charging a $9,558 origination fee for a 30-year fixed rate on a loan of $268,000, while other lenders are charging less than $1,500 for the same rate. Even now, in a post-subprime world, there are gross over-charges going on."

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Home-price drops said to reflect overcorrection

We're in another housing bubble in Las Vegas, but this time it's the flip side of the overvalued market that emerged from 2000 to 2006, a real estate economist said Wednesday.

Just as Las Vegas home prices were unsustainable when they hit a median of $285,000 in 2006, they're tremendously undervalued now at $106,000 and that, too, is unsustainable, said Mark Boud, principal of Irvine, Calif.-based Real Estate Economics.

"It collapsed so hard that it overcorrected," Boud told about 60 real estate professionals at the Las Vegas Midyear Builder Symposium at Alexis Park. "You pay 11 cents on the dollar in mortgage costs, which is incredible and, in fact, unsustainable. We'll never be able to see this affordability again."

By 2015, inventory will tighten, vacancy will drop below 2 percent and there will be a strong push in pricing into 2016, Boud predicted.

Median existing-home prices fell to less then $70 a square-foot in June, down 12 percent from a year ago and nearly $30 a foot less than the cost of a new home, Las Vegas-based SalesTraq reports.

Cheap housing prices combined with the lowest interest rates in 40 years give consumers the leverage they need to buy their dream home, said Anthony Grasst, regional sales manager for MetLife Home Loans in Kirkland, Wash.

Homebuilders need to do a better job telling buyers that it's a fantastic time to buy instead of rent, he said.

"People buy emotionally and justify logically," Grasst said. "How much of the buying decision is financing? About one-third. You have more to fear in rising interest rates than depreciation."

A one-point increase in mortgage interest rate erases 11 percent of household purchasing power, Grasst said.

For example, someone who buys a $250,000 home at 5.25 percent interest rate has a monthly principal and interest payment of $1,242. If the price is discounted 3 percent to $242,500, the payment drops to $1,205, a savings of $37 a month.

If that $7,500 discount is used to "buy down" the interest rate to 4.25 percent, the monthly payment is $1,107, a difference of $135 a month, Grasst calculated.

"Your monthly payment is 11 percent below market and you save $49,000 over the life of the loan," he said. "Explain that rents are susceptible to increasing. Buy now and you're guaranteed low payments for 30 years."

Geoff Gorman, vice president of sales for Harmony Homes in Las Vegas, said the 3-year-old company has grabbed the fifth-highest market share of new-home sales in Las Vegas, but the numbers aren't where he wanted to see them this year.

While new-home sales rose to their highest level of the year at 357 in June, they're only on pace for about 3,500 for the full year, compared with 5,438 in 2010, SalesTraq's monthly report showed.

It was inevitable that sales would be lower in 2011 with "no outside impetus and no manufactured urgency," Gorman said. Demand dried up after the federal tax credit expired in June 2010, though it was later extended to September.

"It's harder than ever to sell a home today," Gorman said. "It's not 2004, with lines out the door like the Matterhorn at Disneyland."

The No. 1 challenge for the homebuilding industry in Las Vegas today is appraisals, he said.

Just this week, Gorman said he had a willing buyer and the necessary comparable sales, but the appraisal came in $10,000 short, killing the deal. The home was appraised at $194,000, about $1,000 more than an appraisal for the same floor plan a month ago. However, this home had $10,000 worth of upgrade options, including stainless-steel General Electric appliances, a larger lot by 700 square feet and several thousand dollars in flooring upgrades.

"I don't think enough of us have said the appraisal situation in town is ridiculous," Gorman said. "I know appraisers have rules to follow, but what's missing is common sense. We all hear that a new car is worth more than a repossessed car. I understand diminishing returns, but seriously, $1,000 appraisal for $10,000 in upgrades? It's not right. I don't know what can be done."

Other challenges for homebuilders include buyers' poor credit ratings and debt-to-income ratios, along with competition from foreclosures and short sales, Gorman said. Those who could qualify to buy a home last year under the federal tax credit did, and those who didn't probably have issues relative to income and creditworthiness, he said.

Las Vegas has an excess supply of distressed properties with a "shadow inventory" pushing 30,000 homes still being held by lenders that has to be absorbed moving forward, economist Boud said.

"Supply will flatten, but probably won't go negative. Demand will go negative," he said. "Unfortunately, the housing market is going to lag economic growth by eight to 12 months."

Consultant Bob Mirman of Eliant Inc. said the nation's best production builders are selling 45 percent of their homes from referrals.

He warned about "consumer terrorism," or people who use the Internet as a weapon to spread the word about how unhappy they were with customer service from a particular homebuilder.

"It's not about the home you build, but the experience you deliver," Mirman said. "Your strongest sales force is an army of delighted homeowners who then tell their friends. Nobody can sell your home better. They're the most trustworthy sources."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.


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Loans with Little Down?

Loans with Little Down?

PETER G. MILLER QUESTION:
My broker says now is the time to buy real estate because prices are low, mortgage rates are down, and it will soon be difficult to finance a property with less than 20 percent down. Why will it become hard to get loans with little down?

ANSWER:


There's been considerable confusion about this, so let's try to straighten it out.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act lenders are allowed to make whatever mortgages they like. However, if they make mortgages with certain characteristics - say, with fully documented loan applications and points and fees equal to no more than 3 percent of the loan amount - they then get certain benefits such as less liability and no need to set aside 5 percent of the loan amount in a reserve fund.

Dodd-Frank also says that loans within the "safe harbor" created to protect lenders from liability must have 20 percent down. But - and here's the part you don't hear too much about - there are huge exceptions. For instance, the 20-percent rule does not apply to FHA or VA financing, conventional loans sold to Fannie Mae and Freddie Mac or loans that lenders keep in portfolio.

The question is this: Who would benefit if mortgages with little money down were increasingly unavailable? Not sellers. Fewer sales would mean lower prices. Not lenders. They would originate fewer loans and lose substantial business. Not servicers. They would have less to manage on behalf of mortgage investors. Not real estate brokers. They would have fewer homes to sell. Not states and local communities. With fewer real estate transactions their tax collections would plummet.

There's now an effort to raise the FHA down payment from 3.5 percent to 5 percent and exchange Fannie Mae and Freddie Mac for institutions from the private sector. But even if we make changes, borrowers will still want loans with little down, and, as a matter of self-interest lenders, brokers and government will still want to make sure that such financing is available with far less than 20 percent down.
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Class-action suit filed over HOA debt-collection practices

Legal headaches seem to be intensifying for Nevada homeowner associations and their collection agencies, with the filing Monday of another class-action lawsuit over HOA debt-collection practices.

Attorneys for Benita Jones Ebel filed suit in U.S. District Court in Las Vegas against Nevada Association Services Inc. (NAS), claiming it’s been violating the federal Fair Debt Collection Practices Act by sending "dunning letters" that are "unfair and unconscionable" and invaded her privacy.

Ebel in the lawsuit seeks to represent a class of people who received such letters over alleged debts resulting from unpaid HOA assessments.

The suit specifically charges that in a Dec. 17 collection letter regarding an alleged debt to the Rancho Viejo HOA, NAS threatened to file a lien against Ebel’s home if the debt wasn’t paid within 10 days.

This violated the law in that consumers have 30 days to dispute such debts, the lawsuit suggests.

"As a result of defendant’s threat to record a notice of delinquent assessment lien, defendant threatened to take non-judicial action to effect … disablement of plaintiff’s property without the present right to do so," charged the suit, which was filed by attorneys with Cogburn Law Offices.

David Stone, president of Nevada Association Services, said Monday his company complies with the debt collection law.

"We will file the appropriate responsive pleading, and if this is found to be a frivolous lawsuit we will be seeking attorney's fees. We expect this claim to be adjudicated in our favor, as similar claims have been. We have been sued before and I expect more lawsuits. Plaintiffs are looking for a quick payday and this is not going to happen," Stone said.

With the recession causing many homeowners to fall behind on paying HOA assessments, and vacant and foreclosed homes sometimes producing no revenue for HOAs, collection activity has picked up in recent years and controversies and lawsuits have followed.

Numerous collection lawsuits are pending in state and federal court in Las Vegas and a massive complaint was filed last month with the state Real Estate Division against more than 500 Nevada homeowner associations.

Yet another pending lawsuit, filed by a Bank of America subsidiary, claims HOAs have been trying to get the bank to pay for unauthorized attorney’s fees and collection costs related to assessments against foreclosed homes.

Real Estate in Crisis

The subprime mortgage crisis is hitting the Las Vegas metro area particularly hard. In fact, Nevada has the highest foreclosure rate in the country and the metro area is consistently one of the top five worse in the nation. The crisis jeopardizes further growth by creating an overflow of available homes, which in turn slows the construction of new homes and invariably effects property values. But at the same time it creates opportunities of more affordable housing for those who have been priced out of the market in recent years.

The crisis entails homeowners losing their houses after they are unable to afford their mortgage payment. It was brought about by lenders and banks giving risky loans, or subprime mortgages, to people with poor credit scores or finances. Low interest rates first attracted such homebuyers. However, as many loans were adjustable rate mortgages (ARMs), higher interest rates down the road made payments nearly impossible, ultimately leading to foreclosure. Furthermore, predatory lenders have been accused of perpetuating the situation by unfairly taking advantage of uninformed or new buyers. There were a large number of investors who bought homes at the height of the market and expected to flip them for a profit, only to see values decline.

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Las Vegas valley new-home sales shrink

By Hubble Smith
LAS VEGAS REVIEW-JOURNAL
Posted: May 25, 2011 | 2:01 a.m.
New homes accounted for just 7 percent of total housing sales in April, a radical departure from past years when they were about 40 percent of the Las Vegas market, a local housing analyst said Tuesday.

Home Builders Research reported 258 new-home sales during the month, down from 293 the previous month and down from 471 in April 2010. For the first four months of the year, new-home sales declined 33 percent, to 1,020.

The new-home industry was once a huge contributor to the Las Vegas economy with as many as 30,829 closings in 2005. That number fell to 15,584 just two years later and then to 4,761 last year.

The reduction in new-home market share is an "unbelievable alteration" and sums up how the Las Vegas housing market has changed, Home Builders Research President Dennis Smith said.

"It's hard to compare to the way things used to be," he said. "This is what the market is resetting into, something it's never been before. I'm not saying it's bad. It's different."

Adapting to the changing market, homebuilders laid off most of their staffs and cut operations to the bone, Smith said. He counted 323 homebuilding permits in April, for a total of 1,130 for the year, down 45 percent from a year ago.

It's not a fair comparison because last year's numbers reflected increased demand from the government's homebuyer tax credit, he said.

"The numbers are sobering," the analyst said. "Closings are one thing, but I watch permits. I'd be really surprised if we don't see an increase (in permits) in the coming months."

Customer traffic at new-home subdivisions has slowly increased and net sales per subdivision have climbed to about 0.4 a week, about double from the beginning of the year, Smith said.

D.R. Horton pulled the most permits in April (182) followed by KB Home (157) and Lennar (133).

The median price of a new home in Las Vegas dropped 7.2 percent from a year ago, to $188,450 in April.

The resale segment ­continued to chug along, with 3,849 recorded closings in April, largely boosted by investor purchases. For the year, existing home sales increased 3.8 percent, to 14,375.

Median resale price was $112,000, a loss of $16,000, or 12.5 percent, from a year ago. Smith noted that 19 homes closed escrow for $1 million or more .

Smith said he's seeing signs that Las Vegas may be emerging from the recession, such as packed restaurants and an uptick in discretionary spending.

"There's some good news around the country and hopefully it'll filter down to us," Smith said.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.

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