Tough times for REO buyers

Q: My family wants to buy a house in Miami. They are looking for a foreclosed property around $60,000, and will pay all cash. Do you think the time is right to buy now? If not, when would be the best time to buy? --Mehmet, Florida

A: First, I'd like to ask you and your family to rethink a core element of your approach to this process. I'm often approached with questions by buyers-to-be who say they "are looking for a foreclosure."

I submit that what you're actually looking for is a good deal -- even a really good deal -- on a property that is well-suited for your purposes. I also submit that the property that best fits that description may or may not be a home that was foreclosed on.

Sellers of individually owned homes that are currently on the market are largely aware that they are in competition with many distressed (bank-owned and short-sale) properties.

As a result, there are many bargains available on non-foreclosures, which are often in superior condition to foreclosed homes. As well, individual sellers tend to be vastly more negotiable on terms like repairs, included personal property, etc., when compared to banks.

Now, let's turn to your question of when the best time to buy is or will be. Overall, the best time to buy is the time that makes the most sense for your family's life, plans and vision for the future. This is also a very frequently asked question, though, especially from those savviest of buyers and investors who are fixated on market timing, so let's talk about whether the market has hit bottom.

The most recent Case-Shiller housing index reported that Miami home prices were on their third month of increases, after nine straight months of decline. As a result, some learned observers of the real estate market would say that Miami prices are actually slightly past their bottom.

However, just as many learned observers might opine that the Miami market -- and the American real estate market in general -- are actually simply going to bounce around the bottom of the appreciation trajectory for awhile. Long story short: It's impossible to know with certainty whether the market is at bottom.

And frankly, trying to time the bottom is a fool's errand on at least two levels. The first? It's impossible. The second: The desire to time the bottom arises out of fallacious reasoning.

A logic flaw called myopic loss aversion causes consumers to be more afraid of losing money than they are excited about gaining a similar amount of money, or equity.

The fact is this: We all know that prices in Miami are very, very low, and likely near bottom. But some will hold off from buying because they think losing even a dollar's worth of equity would be excruciating; in that desperate attempt to avoid a post-purchase loss in value, they will wait so long that prices will go up and they will experience the opportunity cost of lost appreciation they might have realized had they bought a bit sooner.

Human tendency when trying to time the bottom of the market is to wait too long. When prices hit bottom, everyone comes out and wants to buy, sending prices right back up. The only thing stopping that from happening on today's market are the twin buyer paralytics of unemployment and tight mortgage lending guidelines.

That creates a great atmosphere for you and your family to take advantage of low prices soon, without feeling a desperate, breakneck urgency to buy anything before prices skyrocket -- although I don't expect we'll be seeing any true "skyrocketing" anytime soon.

So this might be a great time for your family to buy, if it's a good time in the context of your lives, and if you are comfortable making the commitment to owning a home for a good seven years, plus or minus a bit.

With a longer-term view, you can feel much more comfortable that you'll come out ahead on the purchase and don't have to be fixated on whether the value of the home rises or falls by a percent here or there in the very short term. But to do that, you have to let go of the all too currently common fixation on getting the absolute most for the absolute least, and decide to be OK with buying very, very low.

"So if you wait for the robins, spring will be over," Warren Buffett once famously said about the stock market, and the same applies to real estate. He elaborated that no one -- not even he -- can predict the short-term market movement and that, in fact, those who buy near the bottom might very well lose money -- in the short term.

But if you wait until the signs of appreciation and recovery are clear enough to make a strong short-term prediction, you will have waited so long that everyone else will be buying, too, and prices will be on the rise. Your bargain-basement pricing opportunity will have passed.

With all that said, if you are committed to buying a foreclosed home, or happen to simply select a foreclosed home as the one that works the best for your family, I'd say that now is a very difficult time for REO buyers. There is a great deal of uncertainty about whether flaws in the foreclosure documentation practices of a number of banks may have created "clouded" or unclear title for the buyers of those homes.

If you do elect to buy a foreclosed home, make 150 percent certain to obtain title insurance, which is commonly forgone by cash buyers. I'd also recommend working with a local title or real estate attorney during your purchase, or consulting with them in advance on how to obtain clear title, if you plan to buy a property at an actual foreclosure auction. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Source: http://www.boston.com/realestate/news/articles/2010/11/18/tough_times_for_reo_buyers/?page=1

By Tara-Nicholle Nelson
November 18, 2010

Foreigners Buying Up US Property

Home and condo prices have gotten so low in many areas of the country that foreign nationals are buying up property like it's an old Blue Light sale at K-Mart. American real estate seems like its on sale at bargain basement prices. But whether the spike in foreigners buying property materializes into a full swung market rebound may be the bigger question.

“We’re seeing an increase,” said Lamont Crump, director of sales for Condo Vultures in Miami, Florida. “Foreign purchases make up 50 to 60% of our sales.” Investors are swarming to Miami Beach from as far away as Europe and Israel to grab American land and condos. Buyers from Columbia, Brazil, France, Italy and Norway have been counted in recent transactions.

The trend has also been seen in many other large urban U.S. markets, including Los Angeles, New York, San Francisco and Las Vegas where housing prices have deflated at least halfway from their market peaks. Record low mortgage rates tied with low property prices may be driving the beginning of a real estate rebound anticipated and hoped for by real estate professionals for years.

Pending home sales, including single-family homes and condominiums in Miami-Dade County increased 28.6% in September compared to year ago figures, according to the Miami Association of Realtors. South Florida real estate sales are up due to the impact of international buyers.

“Current market performance points to sustainable demand for South Florida properties,” said Jack H. Levine, chairman of the board of the Miami association. “Record affordability, a wide selection of properties to choose, and an enviable lifestyle continue to attract both international and U.S. buyers.”

Pending condominium sales in Miami are higher than single family homes. In September, condominium pending sales increased 40% over a year ago to 5,838 units for the month. Pending sales of single-family homes rose 16.1% over 2009 levels.

“The Euro has recently re-strengthened, resulting in even greater demand from European buyers,” said Oliver Ruiz, the association’s president. “Many Latin American buyers are looking for a safe haven to invest their money. The Miami area is the top market for European and Latin American buyers in Florida.”

Source: http://www.housingpredictor.com/foreign-buyers.html

Home renovators alert: House passes 'cash-for-caulkers' bill

Homeowners could collect thousands of dollars in Cash for Caulkers rebates for renovating their homes with better insulation and energy-saving windows and doors under a new economic stimulus bill the House passed Thursday.

The Home Star bill, passed 246-161, would authorize $6 billion over two years for a program that supporters — mostly Democrats — said would have the added benefits of invigorating the slumping construction industry and making the earth a little cleaner.

"Home Star is that solid investment that's going to achieve that hat trick of energy savings for the homeowner, of moving toward a cleaner environment and of creating jobs here at home," said bill sponsor Peter Welch, D-Vt.

Republicans overwhelmingly opposed the bill, and they were able to attach a condition that it would be terminated if Democrats do not come up with a way to pay for it.

The measure has come to be dubbed Cash for Caulkers, a takeoff on the popular 2009 Cash for Clunkers initiative that rewarded people for replacing gas-guzzling vehicles with more fuel-efficient models.

President Barack Obama has promoted the bill, which also needs Senate approval.

The initiative is separate from an energy tax credit of up to $1,500 that was included in last year's economic stimulus act. That credit for energy efficiency improvements runs through the end of this year.

Supporters estimate that 3 million households would make use of the new program, saving $9.2 billion in energy costs over a 10-year period. They said it would create 168,000 jobs, mainly in the recession-hit construction industry.

"Nearly one in four workers in the home construction and services industry has been laid off," said Energy and Commerce Committee chairman Henry Waxman, D-Calif. "Passing Home Star says, 'Help is on the way."'

Republicans were more skeptical, saying the price tag was too high at a time of mounting federal debts.

"We are going to authorize $6.6 billion of money we don't have so we can caulk homes?" asked House Republican leader John Boehner of Ohio.

"This is not a terribly bad bill, but it has one fatal flaw: It is not paid for," said Rep. Joe Barton of Texas, top Republican on the energy committee. Democrats argued that the issue of paying for the legislation will come later in the budgetary process, when Congress approves annual spending bills.

Republicans succeeded at the end of the debate in altering the bill to say it will be terminated if it is found to drive up the federal deficit, a provision that will force Democrats to come up with an offset. The Republicans also were able to alter the legislation so that the rebates would go directly to homeowners. In the original version, homeowners were to receive a discount or rebate from a retailer or contractor, who then would apply for payment from the government.

In debate on the bill, Republicans questioned whether the government can run the rebate program fairly and effectively. They said a $4.7 billion weatherization program that was part of last year's economic stimulus act has been slow to provide grants to states.

The Cash for Clunkers program, too, had some problems. An Associated Press study last November found that the program was commonly used by people turning in old pickups for new trucks that got only marginally better gas mileage.

Under Home Star, rebates or discounts would be provided to homeowners at the time of sale. The retailer or contractor then would submit documentation to a processing office which would verify the information and forward the request to the Energy Department for payment.

To prevent fraud, the program would require licensing for all participating contractors and a certain percentage of projects would be inspected.

The bill has two parts: The Silver Star program provides upfront rebates of up to $3,000 for specific energy-efficient improvements in homes, such as installing energy-efficient appliances or duct sealing, insulation or new windows or doors.

A Gold Star program would entitle people to up to $8,000 when they conduct comprehensive energy audits and implement measures that reduce energy use throughout their homes by more than 20 percent.

The bill has the backing of a wide spectrum of environmental and business groups.

"There is strong evidence that temporary, targeted incentive programs like Home Star can generate jobs, investment and economic growth," National Association of Manufacturers president John Engler said at a hearing in March.

With House passage, the bill moves to the Senate, where it most likely will be attached to the next jobs bill.

The legislation also would approve $600 million over two years for grants to states for programs to replace mobile homes with more energy efficient models.

Source: http://www.sun-sentinel.com/business/fl-cash-for-caulkers-20100506,0,3894298.story

By Jim Abrams, Associated Press Writer