Who Caused the Housing Bust
It’s no secret that median home prices in some parts of the country rose a whopping 40% during 2005. But who can remember the appreciation when we had a balanced market between 2002 and 2004? Not many. To refresh your memory, median home prices rose a measly 4% between 2002 and 2004.
Over the past few months, mortgage lenders began cutting off the supply of money, which is like oxygen to the housing market. If we compare current home prices with historical pricing trends, the market is facing a 15-20% downward correction.
No one is to blame when everyone is making money. But when a market correction is staring us in the face, people are quick to point the finger. Just check out the blog sites that are bashing real estate agents, mortgage brokers and overzealous investors. But who or what really caused the housing bust?
As interest rates fell from 1995 to 2005, the mortgage and housing business boomed as more and more money found its way into housing. With lower rates, more people could afford to buy houses. I know some people that bought seven or eight.
But all the madness could not have been fueled by low rates and optimism alone. People who couldn’t normally qualify for a loan, due to credit or income problems, were allowed into the market. These higher risk loans are called “subprime” loans. New financial products were engineered to offset the risk associated with subprime loans. A new security, called a residential mortgage backed security, or RMBS, was invented to pool together individual mortgages into large bundles called “tranches”. It was believed that these tranches were safer because the obligation was spread among thousands of homeowners. As long as the default rate remained below 3%, the buyer of the RMBS was guaranteed a nice return.
With home prices rising and interest rates falling, almost every RMBS was safe. Even if a homeowner got into trouble, he could still sell his home for more than he paid or find a way to refinance the debt. As the market surged, everyone made money, which attracted still more money into the market. Housing prices skyrocketed. The higher prices created more equity…consumers used that equity to take on more debt. This led to the housing bubble.
The first sign of trouble was an unexpectedly high default rate in subprime mortgages. Beginning in early 2007, studies of 20-month-old subprime mortgages showed a default rate greater than 5%. The higher-than-expected defaults led to hedge fund wipeouts and then to mortgage broker bankruptcies. Unfortunately, spread of the subprime disease didn’t stop there.
With Wall Street bundling together thousands of mortgages from different underwriters, it’s likely that hundreds of financial institutions around the world have traces of bad subprime mortgage debt on their books. Hedge fund investors quickly figured this out and were forced to sell.
Liquidity fears began to sweep through Wall Street. Not because the mortgages themselves were all bad, but because investors knew a wave of selling was on the way. What happened in August of 2007 was a good old fashioned “run on the bank”. Everyone wanted their money back and no one wanted to buy.
With no RMBS buyers, mortgage lenders began tightening lending guidelines and cutting loan programs, starting with the riskiest of loans. These include subprime loans, loans to real estate investors, Jumbo loans and loans that don’t require the borrower to provide income or employment documentation.
If Wall Street’s investment firms can find additional capital they might weather the storm. For the housing market, these events will spell a one-way slide in prices.
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Brett Nordin is a mortgage veteran who brings a unique approach to financially managing real estate asset portfolios.
Realtor Triples Her Income While Waiting For Real Estate Turnaround
If you are in the real estate sales business, wouldn’t you like that to be your headline? Can you imagine tripling your income even though housing values are dropping through the floor? For most people the answer to the latter question is no. You see, in the midst of difficult times we tend to lose our vision and our faith. However there are REALTORS all around the country doubling and tripling their incomes right now and you don’t have to be a brain surgeon to figure out how.
Here are a few techniques the savvy realtors are using to gain more market share and increase their incomes while everyone else in the real estate business is starving.
1. Short Sales – Many realtors don’t realize they can help their clients sell their homes for LESS than they owe on the mortgage. That’s right. If you owe $500,000 on your mortgage and your property sells for $450,000 most lenders will accept less money in order to manage their losses and get your loan off their books. As a matter of fact, Countrywide Mortgage Company has a link on their website giving you step by step instruction on how to do this. If you are a customer of Countrywide you can go to their website and log into your account. They will give you step by step instructions on how to complete a short sale, how to defer payments and how to modify your loan to keep you out of foreclosure.
2. Staging Properties – homes that are properly “staged,” sell for much higher prices and sell faster. Staging basically means the set up of the home (what the home looks like when the prospective buyer is walking through the home) and whether or not the prospective buyer can “see and feel” themselves in that home. In most cases an investment of less than $1,000 can completely change the look and feel of your home and sell it faster. If you are a realtor, advise your clients to take down family pictures, make the entrance to the home spectacular and have the dining room or kitchen table set. Those three techniques alone can make the home sell, especially in a competitive market.
3. Investing in properties – Many real estate professionals are buying properties. Investors like Donald Trump load up on depressed properties at times like this and sell them later for significant gains.
4. Coaching Programs – The most savvy real estate professionals make significant investments in real estate coaching programs, especially when things get tough in the industry. The uneducated agents invest in coaching programs when the economy is good. Anyone can sell a home and be profitable in the real estate business when double digit appreciation is happening and interest rates are at all time lows. The great realtors however make higher investments in coaching and training when the market is turbulent. They know having a mentor or business advisor during the difficult times is one of the most important investments they can make.
If you are in the real estate business stop playing victim to the market and take control. When everyone is running for the hills and hunkering down for the winter you can have the best year of your life.
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Avoid Foreclosure – Market Your House For Sale By Owner
When facing foreclosure you can attempt to market your home For Sale By Owner or FSBO as it is said in the real estate industry. This will allow you to not pay real estate agent fees and still be open for a foreclosure real estate investor to purchase your home if need be.
When marketing your “for sale by owner” home, there are three essential elements for a successful marketing campaign. The first is headline that will grab the attention of your prospects. When writing your headline, use the features of your home in the headline, such as “Split Floor Plan, The Kids Won’t Hear!” (that’s if you are daring) or something a bit more conservative “Beautiful Home Needs Loving Family” You want your headline to be explosive enough to catch the potential home shopper’s attention. You want them to read your ad about your home. By being different than the other headlines you will more than likely have more readers.
Another element is to highlight one of the properties best features, such as an ocean view, recently remodeled or within walking distance of schools. You want to give reason for the prospect to actually want to see your home. If you have space, show the benefit as well. “Recently remodeled so you don’t have to” Or, “Walking Distance of Schools, You can sleep in” This will give them even more reason to want to look at your home before making a final purchase. Having witty headlines again, will allow you to stand out and above the others.
A good closing line will prompt the potential buyer to call. You will want to appeal to their desire to own a home, or maybe as a good investment, or even their sense of urgency. “See it Now, before it is gone!” or “Don’t pay your landlord another dime!” are just some examples. Once you have your ad completed, you will submit it to your local newspaper.
Another effective method of marketing is by having an “Open House”. In order to have the best open house, be sure to have your home clean and clear of clutter. Take down the personal pictures so others can imagine themselves living in the house. Being that you are avoiding foreclosure, I understand that money may be tight, but if you are able complete any minor repairs that are visible.
Make up flyers so everyone who attends your open house will get a flyer before they leave. The flyers should be an 8 1/2 x 11 inch fact sheet describing your home, the asking price and numbers on how you can be reached as well as your website if you are marketing on your web page with pictures. The flyers should also list your price and describe the property. Also be sure to have the local schools and other amenities in the area listed on the flyer.
You can also attach these flyers under windshield wipers of cars, and attach flyers about your “Open House” to neighborhood mailboxes. Do Not Place Anything Inside a Mailbox! It is against the law.
When you schedule the “Open House”, be sure to schedule it for a Saturday or Sunday between 11 AM – 5 PM. Also be sure to check your calendar to ensure your “Open House” is not competing with any kind of major sports playoffs or any major religious holidays.
You might want to place an “Open House” sign in your front yard with balloons attached. If you are on a street with not a lot of drive by traffic, you may want to use some signs on prominent corners with arrows pointing the direction to your house.
Ensure you have a guest book so you can get the names, phone numbers and emails of every person who attends. If you can, make sure to take notes, and write down every positive impression and comment made by those who attended. Also write down anything that’s constructive that you can change to make the house show better. You will want to be able to keep in touch of people who show an interest. This could be especially important if you reduce your asking price or change the terms of the sale later on.
Another finishing touch for your Open House is to have cookies and water or lemonade available. It may sound hokey, but folks will feel like they are home, which is what you want.
Again, if you are facing foreclosure and want to sell your home, selling it “For Sale By Owner” may be the route to go. If you find that time is of the essence you can always contact a real estate investor that likes to purchase home that are facing foreclosure. Usually, they are able to move fast and offer a fair price.
Angela Karolyn Scott bought her first home at 22 as a single mom and no money down. She’s on a mission to teach others to create wealth with Real Estate. She is giving away a $300K house, a Mercedes C Class and a Mercury Mariner SUV Hybrid. To learn more visit http://www.ForeclosuresMakeYouRich.com
How to Sell Your Home or Investment Property
It’s off to the market you go. The real estate market that is, in all its glorious competitiveness.
You want to sell your home or investment property. Are you ready to sell it?
Are you ready for the finagling, offers and counter-offers? Can you handle the drama, the lights, cameras and all the action?
You can if you research before hand what today’s real estate market is like for buying and selling homes.
Today, buyers do their homework. Therefore, you must do yours. When potential buyers walk through your doors, they have the knowledge, acquired from doing their homework. They will know exactly what they want. They will look for specific upgrades and features. They will know the market for comparable properties in your area.
You will have to give them a reason to choose yours. This is where the little things are important when it comes to selling homes and investment properties.
Right off the bat you have to make sure your product displays in the best possible light: clean, clean, clean. Then clean some more. This means top to bottom. Outside is where it all starts. Your home has to sparkle like a diamond. The ‘wow’ factor has to slap the potential buyer in the face as soon as they step foot in your driveway.
Make sure the driveway’s swept and washed; make sure any potholes and cracks are fixed. Wash the windows from the outside, and the garage door, and anything else outside that needs cleaning. Wash the dog if he’s going to be standing around out there.
Mow the lawn, unless you want to hide the dog.
Your garage: unless it’s designated a production location for a remake of Sanford and Son, de-clutter it. Organize it. Sweep and wash down the floor, if you can find it! Neatness counts when it comes to selling a house.
Once inside give every room the critical eye. Of course, make sure any minor repairs get attention before a showing or open house. The major repairs should not be an issue; all accomplished well in advance. That dangling ceiling fan…has it been reattached properly or is ready to propel itself out the window? Those ceramic tiles in the bathroom; are they secured back in place? Does their continued falling play like a scene from the movie Earthquake? You won’t be selling your home if people walk through it wide-eyed from fear.
Create an easy, unobstructed flow from room to room. Evoke a sense of freedom and spaciousness. Along with that, allow as much natural light into the home as is possible. When selling a house you want to create a positive atmosphere. You don’t want potential buyers to feel they’ve entered a Dungeons and Dragons theme park.
Tone down your family’s personality in the house. Give it the ‘model home’ aura to appeal to a wide range of personalities who will explore its features.
Consider this too, when selling your house: buyers want the best price in the best area. If the area you live in is a high-demand area, are you competitive in your price? Have you over priced because you feel buyers will pay it because of the attractiveness of the area? Homes similar to yours in size, style, upgrades and features may be lower-priced. They may sell fast, while yours lingers on the market. Of course, if you feel it deserves a higher price and are willing to wait it out, see where it takes you.
Selling your home, or any investment property, involves a commitment from yourself. You want the greatest return. You have to be willing to devote the time and energy in return, to ensure a successful sale. Buyers want the best price in the best location. You want the best price so you can move out of the location. It’s up to you to do the things necessary to bring both sides together so it can happen.
Jason Loucks is the Nation’s Leading Expert at Selling Houses and Investment Properties Fast and For Top Dollar. To Discover more about his “7 Day Sale” Method for selling properties at retail price in 7 Days, visit http://www.7DaySaleGuy.Com .