Lending Specialists
Anything you’d care to share?
One sales guru I heard years ago mentioned a sales idea when he confronted a family with a dog. He would carry a good size doggie treat in his pocket. When the dog checked him out, he would give the dog half the treat and put the remainder in his pocket. The dog followed him around the rest of the night. Win the dog, win the sale
Thanks to Duane Gomer duanegomer.com. A good source for education
Thanks to First Tuedsay JournalOnline firsttuesday.us for this food for thought. What do you think? Your input is always valued.
Rather than becoming a vestigial organ from the past, American single family residences (SFRs) have experienced an increase in relevance, per New Geography’s analysis of an American Community Survey. According to this information, SFRs constituted almost 80% of all new households within the last decade, with vacancy rates in multi-unit housing reaching 17.1% in 2010.
Extending this analysis to include demographic trends, members of Generation Y (Gen Y) and immigrant communities are driving the expansion of SFRs within the suburbs, increasing diversity amongst its sprawl. Many developers are choosing to invest in suburban areas through the construction of multi-generational housing development in order to cater specifically to these groups.
According to Pew Research Center, a record 51.4 million Americans are living with more than one generation under one roof. Thus, companies are betting on multi-generational living in the suburbs to shape the future of the housing market, rather than considering these developments to be short-term market trends.
first tuesday take: Don’t be fooled by this analysis. The data contrasts two arbitrary calendar dates of no importance to the future of housing. The current trend is one that commenced in 2006, not 2000. While an increase in SFRs did contribute to suburban population expansion through 2006, this generalization is ignorant of the disparities between California’s distinct and hugely influential economies.
California’s human resources are simply not distributed evenly, as in any society. Urban areas close to the city core are increasingly affluent, populated by more educated groups who are inclined to rent, and thus demand and fill rental units. By contrast, suburban neighborhoods are more likely to be supported by agriculture, farming and industry, remaining heavily dependent on SFRs.
Now, the suburbs are home to the majority of the nation’s poor, a product of lesser education. Providing homes for more lower-income tenants, suburbia imposes lower overall standards of living upon its residents. As the costs of schooling and other public services become further problematic, the unsustainable nature of the suburban cultural habitat will continue to decline, with society’s elite relocating to increasingly gentrified cities. In large part, this decline is due to the low density of these communities and the lack of agglomeration.
As a result of gentrification, the nature of urban cores has grown more culturally homogeneous, while suburban areas are now increasingly diverse. While it is true that some members of Gen Y will still choose to occupy suburbia, the majority of this demographic will gravitate towards cities in order to receive higher levels of compensation than their Baby Boomer parents. Meanwhile, a growing number of immigrants are settling in suburbia, driving the demand for an increase in the sprawl of SFRs.
As cultural preferences and economic motives cause more families to live together under one roof, the demand for multi-generational housing is at an all-time high. Developers are responding to this trend with an increase in multi-generational home building. Such a response is short-sighted, however, as this type of housing is largely a temporary remedy for families still responding to the effects of the Lesser Depression, effects which will not last for perpetuity.
Once commonly associated with its sprawl, suburbia’s constructed image of affluence and efficiency is no more. Going forward, look to California’s urban cores for economic growth.
Until now, the arena of cash buyers has been dominated by big investors, both foreign and domestic. Enter the current homeowner.
Despite historically low interest rates, the percentage of all-cash sales increased nationwide from 30.8% of all sales in October 2011 to 34.1% in January 2012. During this period, cash purchases by investors and first-time homebuyers remained flat, meaning the increase in cash purchases resulted from current homeowners. [For more information on the rising trend of cash buyers, see the March 2011 first tuesday article, January 2011 sees new record number of cash buyers.]
The average cash buyer receives a 10% discount off the asking price. Sellers frequently prefer cash buyers as all-cash transactions do not contain buyer-financing contingencies, and are favored by lenders in a shortsale and real estate owned (REO) situation trying to unload properties quickly. In both circumstances, cash offers are frequently accepted over finance-contingency offers even if the amount offered is less than the listed price.
Additionally, for properties owned by Fannie Mae and Freddie Mac, cash offers made by buyer-occupants are favored over investors who will not actually occupy the home. [For information on the seller’s preference for cash buyers, see the August 2010 first tuesday article, Speculations on speculator suppression.]
While an influx of cash offers is a good thing for bloated inventories, all-cash deals are a double-edged sword. All-cash offers drive prices down across the board, as they do not provide any upward pricing momentum. These discounted prices cause appraisal comps to fall, thus making home values languish at best, and continue in their downward spin at worst.
first tuesday take: Historically, the average rate of cash purchases in California is 14% – less than half of the current rate.
The good news: current homeowners get a great deal on a cash purchase, but the majority of cash buyers are investors. Too many are speculators looking to flip on the belief prices will rise to generate a profit for them in the short term without doing one thing to add value to the property. [For more information on flippers, see the January 2012 first tuesday article, Anti-flipping waiver reincarnated.]
But is all cash really a bad thing? It’s about the resistance of sticky pricing most of all.
As all-cash buyers allegedly drive home prices down, positive equity sellers across California cringe, fearing the hit they will take to their balance sheets if they sell. However, they have no cause to cringe about pricing if, and we mean if, they purchase a replacement home within a year or two – a financial push in terms of value sold and value received.
The claimed discounts cash buyers receive clearly reflect the defined fair market value (FMV) of a given property, not its artificially inflated price buoyed by leveraged purchases as in the past. A return to fundamental pricing paves the way for home prices to reach their equilibrium price – which they have yet to do in California (we have another 10% -15% reduction to go). That is the price point at which the current dollar value of the home matches its long-term historical price level.
Further, actual sales prices must first dip below the historic equilibrium price, which runs with consumer inflation, before significant sales volume momentum will build (sometime in 2016) and prices begin to move upward to and above that mean price again (probably in 2017). [For more information on equilibrium pricing, see the October 2011 first tuesday article, The equilibrium trendline: the mean-price anchor.]
Unfortunately, the irrational exuberance experienced in the past by both buyers and lenders thinking home values would continue to increase indefinitely led to the foreseeable terrible injury it inflicted on the housing and income property/land markets. Soon enough the permissive illusion was revealed, and here we are again, approaching the crossover at the equilibrium price. It is not a free fall, but it is moving as do glaciers.
Here are some helpful tips astute first tuesday readers can put into practice: to make an offer as attractive as possible, stay away from unnecessary contingencies and offer a quick closing date (30 to 45 days). Buyers requiring purchase-assist financing should also be pre-qualified for a mortgage to be able to show the seller their lender paperwork and demonstrate a serious intent to purchase.
Re: “In today’s topsy-turvy housing market, cash rules” from the Sacramento Bee and “Throwing cash at the housing market will make it worse” from CNN Money
Copyright © 2012 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 5707, Riverside, CA 92517
This article looks at home sales volume, and discusses California trends in homebuying and selling. Many thanks to First Tuesday
first tuesday 3474 Niki Way, Riverside, CA 92507
Phone (800) 794-0494 Fax (877) 319-8510 Web www.firsttuesday.us
29,630 new and resale home transactions closed escrow in California during February 2012, up 8% from one year ago when 27,320 sales closed escrow, and up 5% from January. For the past two years, home sales have existed on a “bumpy plateau,” with dramatic changes in sales volume from month to month, but little overall change. All forecasts are made by first tuesday based on current data, influential factors and market trends.
Recent sales numbers suggest the upcoming years through 2016 will be characterized by a bumpy plateau in home sales volume. Volume and prices fluctuated from month to month in 2011, with little overall gain in sales from the year before. A (short-lived) rise is expected in the first months of 2012, continuing a trend started by hisorically low prices and interest rates in late-2011. [For more on the influence of interest rates on home sales, see the first tuesday Market Chart, Buyer Purchasing Power]
Little overall change from 2010’s numbers will occur until California employment growth and homebuyer confidence show consistent improvement over a substantial period of time. For example, in 1994, when the economy began to rise from the recession of 1991, it took 24 consecutive months of improved job numbers for the housing market to respond with increased sales volume.
Current trends in jobs and consumer confidence do not suggest any equivalent improvement in sales volume is imminent. At the time of this writing, 30% of all homeowners cannot sell and relocate because their homes are worth significantly less than the debt encumbering them. Worse, lenders are reluctant to consent to any discounts on short sale payoffs when sellers are even remotely capable of paying on the loan. [For a discussion of the challenges facing current job seekers, see the August 2011 first tuesday article, Jobs are scarce whether or not you can sell your home.]
first tuesday forecasts home sales volume will return to the 2006 levels around 2017-2018. The peak sales volume last seen in 2004, inflated by speculator acquisitions, may never return at all.
Relocating Baby Boomers going into retirement later this decade will be the primary propelling force in both selling homes and buying replacements. Their Generation Y (Gen Y) children will add to the sales volume as they become first-time homebuyers whose influence will peak at the end of this decade. [For an analysis of the Boomers’ lasting influence, see the first tuesday Market Chart, Boomers retire, and California trembles.]
A very interesting take on an area you need to consider. Thank you to Ross Kenneth Urken at Dailyfinance.com
The economic prognosticators have spoken: Tax hikes are coming — soon. And that means you may want to adjust your retirement planning to compensate.
It wasn’t that hard to do the math: Thanks to tax cuts, wars, the recession and our growing population of retirees, the federal government is spending more than it takes in — a lot more — and will have to increase revenue to make up the difference. That this will be necessary has been obvious for years, but politics and our ongoing economic malaise have postponed the inevitable.
In 2013, experts say, the fiscal strain will hit critical mass and the delays will end. The top income bracket will go from paying 35% to almost 40%, with surtaxes expected in 2014. After that? They could even go higher.
Which is why future retirees looking for savvier ways protect their money in the long term are flocking to Roth IRAs, according to Doug Lockwood, CFP at Hefty Wealth Partners in Auburn, Ind.
What is a Roth IRA?
The Roth Individual Retirement Arrangement is a retirement plan that allows you to withdraw money tax-free in retirement. That contrasts with traditional IRAs and retirement plans, that let you deposit pre-tax funds, but tax your withdrawals.
Now, in a traditional IRA, you can deduct your contribution (up to $5,000 annually) from your taxable income. But let’s think about the future.
There’s an old business school trick called the Rule of 72 for estimating how many years it will take for an investment to double: Divide 72 by your average return on investment percentage, and you have a rough answer. So, if someone earns 8% on a Roth IRA, — 72/8 = 9 — their money will double every 9 years. Thus, $5,000 invested at age 30 will become $10,000 at 39, $20,000 at 48, $40,000 at 57 and $80,000 at 66. If that were a traditional IRA, the investor would then have to pay income taxes on the $80,000.
With the Roth, you don’t get a deduction for your contribution, so you pay the taxes on the initial $5,000 you put in. Your investment grows the same way, but when you take money out, it’s tax free. Basically, you’re choosing between paying taxes on the seeds or on the crops.
The crux of the matter comes down to people’s belief that taxes will continue to increase. Based on that premise, it’s better to pay the taxes on your initial investments now, while rates are lower, than to wait and pay a higher rate on your total returns when you remove the money at retirement.
The Roth’s Rise
IRA’s are the most popular type of retirement savings product, holding $4.7 trillion in assets as of the end of 2010, according to Mintel Market Research. And according to the Investment Company Institute’s 2008 IRA report, as of May 2008, 41% ofU.S. households had an IRA. Back then, the great majority of IRA owners had a traditional IRA (89.6%), while a modest 4.2% had a Roth (and 6.1% had another type, such as a SEP or SIMPLE). But it was Roths that were experiencing the most growth — the number of accounts increased 47% from 2000 to 2008.
And the Roth has gained continued momentum throughout the recessionary period: In 2010, 38.5 million U.S. households had traditional IRAs, and 19.5 million had Roth IRAs.
“Now all of sudden, the Roth makes a whole lot more sense or at least makes people take a view at its benefits over the traditional IRA,” Lockwood said.
The advantage of a Roth is that it’s never going to be taxed again, it has capital appreciation as long as it grows and you get it back tax free. “That’s a huge, huge benefit for people worried about government manipulation and the IRS,” Lockwood said. “Inside an IRA, you don’t know what you’re going to get back.”
Much of the growth in IRAs comes from rollovers from other types of retirement plans as people try to protect their assets from future tax hikes. The majority of assets are held in Traditional IRAs, but more of the new money coming in is going into Roth or other types of IRAs, according to the Employee Benefit Research . Deduct the contribution from your annual income today or not? As tempting as a tax break today might be, the savvy personal finance planner might do well to be patient and avoid potentially painful taxes down the road by joining the Roth trend.
Here’s an alternative to being swallowed by your credit card debt; Martha Jackson brings you a new wrinkle to consider
What’s a debt management plan?
A debt management plan is an informalrepayment plan that you could agree with your unsecured lenders – ifyou can no longer afford your original repayments.
Professional debt management is designed to give people an affordable way out of debt, and take awaythe pressure of dealing with lenders on their own.
But how much will you have to repay ifyou enter a debt management plan? Let’s find out.
How could a debt management plan help me repay my debts?
Agreeing a debt management plan isdesigned to give you a realistic, manageable way out of unsecured debt problems. If you and your unsecured lenders agree that a debt management plan is the best way for you to repay yourdebts, you will:
Make smaller monthly payments, based on what you can afford after you’ve covered your basic living costs
(Hopefully) stop receiving phone calls and letters from your unsecured lenders
Have a clear way out of unsecured debt – at a pace you should be comfortable with. If you’re looking to set up aprofessional debt management plan, a professional debt management company could help you.
How much will I repay on a debt management plan?
You’ll make your new monthly repaymentson a debt management plan until you’ve repaid everything you owe – so the overall timeframe depends on how much debt you owe in total and how quickly you can repay it. However, if your circumstances improve, and you can afford to make your original full payments again, yourdebt management plan can come to an end at this point.
Bear in mind that making smallerpayments could end up being more expensive (once the interest has been taken into account), and will affect your credit rating for six years.
You probably won’t bother applying for the job now. Thanks to the Niche Report for the heade’s up.
Washington, DC – 3/9/2012 – Federal Housing Finance Agency (FHFA) Acting Director Edward J. DeMarco today released a 2012 Conservatorship Scorecard, which provides the implementation roadmap for the new FHFA Strategic Plan announced in February 2012. The scorecard includes specific objectives and timetables for Fannie Mae and Freddie Mac (the Enterprises) in support of the Strategic Plan.
FHFA also announced details on the new 2012 executive compensation programs at Fannie Mae and Freddie Mac. The 2012 pay program reduces top executive pay by nearly 75 percent since conservatorship, eliminates bonuses, and establishes a target for new CEO pay at $500,000. In setting this new compensation framework, FHFA concluded that further material reductions or uncertainty around compensation would heighten safety and soundness concerns.
“I believe the new compensation program strikes the balance between prudent executive pay including the elimination of bonuses, with the need to safeguard quality staffing in order to protect the taxpayers’ investment and achieve the objectives in the Conservatorship Scorecard,” said DeMarco. “A sudden and sharp change in pay from these levels would certainly risk a substantial exodus of talent, the best leaving first
This was sent to me by an associate. I thought you may get something out of it.
Thanks to Martha Jackson for the heads-up
Ways to obtain low interest rate debt consolidation loans
After the recent colossal economic crisis, a large number of individuals are not being able to manage the finances and are thus, incessantly falling into debt. If are also in a similar situation, drowning under the sea of outstanding debt and looking for a solution to become debt free, debt consolidation is an attractive option. Debt consolidation is a program that allows you to consolidate all your high interest debts into a low interest loan, which in turn reduces your monthly payments and saves you money. So now the concern is how to get a low interest rate debt consolidation loan.
Here are a few important ways to obtain a low interest rate debt consolidation loan.
The best way to get a low interest rate debt consolidation loan is to apply for a home equity loan. These types of loans offer low interest rates because they are secured loans, backed by collateral. This means, when you are acquiring a home equity loan you have to put your property as collateral so that in the event you should default on loan repayment, lender will take away your property. You can also choose to cash out your equity by refinancing or obtaining a second mortgage. Many people choose this option since they usually cost zero to hundreds of dollars to open.
The second way to get a low interest rate debt consolidation loan is to open a new credit card account. If you shop around well, you will find a number of credit card companies that offer zero percent interest rates. Obtain such card and transfer all the balances on debt onto the new card. However, these types of offers are introductory, that means the rates may jump in six to twelve months. So make more than minimum monthly payments and pay down the debt as soon as possible before the rates increase. At the end of the introductory offer you may acquire another zero percent interest card and transfer the remaining balances onto it. Continue the process until you can pay off all your debts.
Another best way to consolidate debt into a low interest rate loan is to taking out a personal loan. Personal loans are loans offered through banks and financial lenders. But the interest rates obtained with these loans depend on the individual’s FICO credit score and cash asset. Additionally, keep in mind, these loans are unsecured loans and thus will charge relatively higher interest rates. However, when compared with credit interest rates, these loans are significantly lower.
Finally, shop for loan interest rates in order to acquire a low interest rate consolidation loan. You should research the rates regardless the type of loan you choose. You can save thousands on interest rates by contacting several different lenders and comparing the interest rates offered.
In conclusion, if you want obtain a low interest rate debt consolidation loan, bear the above mentioned ways in mind.
Thank you to First Tuesday Realty Publications for shasring their thoughts. Their contact information is at the bottom.
As of January 1, 2012, a new law has eliminated the ability of large numbers of home buyers and owners to write off their mortgage insurance premiums (MIPs). Alongside the loss of the tax deduction, Congress now requires new fees on all conventional Federal Housing Administration (FHA) loans. Together, these regulations will lead to an increase in the cost of homeownership for buyers by the end of this year.
Millions of existing owners and new homebuyers will be affected by the elimination of the MIP deduction. The law will affect all newly originated mortgages with less than a 20% downpayment and may also apply to all low downpayment-mortgages made after 2007. [For information on personal savings and the 20% downpayment solution, see November 2011 first tuesday article, The 20% solution: personal savings rates and homeownership.]
Enacted in 2006, the MIP deduction allowed borrowers using private or federal insurance to write off their premiums. In most cases, borrowers saved significantly from their post-tax deductions, depending on marginal federal tax brackets (with higher income households saving more). Thus, the termination of mortgage insurance deductibility concerns middle-income and first-time buyers in terms of price consideration.
This elimination of the ability to write off premiums is not the only change in law to affect borrowers’ housing costs. Beginning in April, Fannie Mae and Freddie Mac will charge a surtax on guarantee fees charged to private lenders, which could add an eighth of a percentage point to rates, significantly increasing costs paid by the borrower over the life of the loan. FHA loans will raise annual premiums for new borrowers by one-tenth of a point annually.
first tuesday take: Embrace this change. Government sanctioned tax policies to supplement homeownership have artificially increased home prices as a tool to keep the economy going. The American Dream, built on expectations of homeownership, has suffered as a result.
While the virtue of owning a home has become deeply embedded in the American psyche, our present model of homeownership is riddled with detrimental policies that serve only to increase debt for homeowners and, as we have seen again recently, increase their risk of losing their homes.
The homeownership driven economy of the past 30 years was created through government tax incentives, supporting loopholes to purportedly implement the nation’s housing policy rather than personal savings for that home purchase and a sustainable economic vision for those inclined to own. [For more information on government tax deductions in relation to homeownership, see the June 2011 first tuesday article, Subsidizing the American Dream.]
Rather than benefitting American homeowners, tax subsidies always both profit the rich and support loss-operating businesses – builders, mortgage banks and the Wall Street bond market. Worse, they are bad for the economy, to say nothing about the inevitable violence these juiced up conditions bring to the real estate market.
As housing subsidies have been determined to have no effect upon the level of homeownership nationwide, the loss of tax deductions will not reduce the number of homeowners. Instead, this change will ultimately benefit homebuyers because the government will then have an opportunity to create a stronger plan for economic recovery rather than simply dropping interest rates and granting subsidies for homebuyers so construction jobs and lending activity take off again.
The removal of the MIP deduction is a first step toward the repeal of mortgage interest tax deduction subsidy, which has long been advocated by first tuesday. Such a repeal will have little impact on sales prices. The low- and mid-tier homebuyers and owners receive no value from these subsidies. Subsidies serve primarily to drive up the price of homes (evidenced most recently by the cycle in 2009-2010) and mortgages, both of which form the pass through of the subsidy to the rich.
It is the rich that scream about losing the subsidies (builders, lenders, provides of closing services and high-tier homeowners).
Better yet, without subsidies, prices will more likely remain at their fundamental equilibrium rather than be driven by conditions outside the basic need for a home. A change in the collective attitude regarding mortgage debt is needed, with the MIP deduction being a step in the right direction. [For more information on mean pricing and the historical pricing equilibrium, see October 2011 first tuesday article, The equilibrium trendline: The mean-price anchor.]
Re: “Federal tax deduction for mortgage insurance premium expires” from L.A. Times
Copyright © 2012 by the first tuesday Journal Online – firsttuesdayjournal.com;
P.O. Box 20069, Riverside, CA 92516
Readers are encouraged to reproduce and/or distribute this article.
Copyright © 2012 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.
