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Interest rates dropped to 5.37! The media says that buyers are finally getting off the sidelines. We are seeing positive signs and evidence of this. One of my lenders tells me his applications have gone up and people are inquiring feriously about mortgage financing.
Heading into the holiday season generally yields a decline in real estate interest, but we're seeing quite the opposite. Now that people know Obama has been elected people are feeling comfortable that they have some solid footing on what the future might hold.
The calls I have been fielding lately have been lease about renting or renting-to-own and more about purchasing.
Pricing is simply amazing, today I pulled up a bank-owned foreclosure for a buyer who is divorcing and needs to live somewhere new. The home was in southeast Gilbert, a newer home over 1700 square feet and they were asking $153,000. It was 10 days on the market and when I called the seller (bank) had just accepted an offer on the home. Wow! What times we are in.
Tuesday, November 25, 2008
State of the INVESTOR real estate market
Home sales are moving along steadily at approximately 5,000 units per month with a hovering inventory level of 55,000 across the county. In talks with various title companies that perform escrows on bank-owned foreclosures an overwhelming majority of their REO sales are sold to not investors, but owner occupants. This causes one to wonder, what is going on out there? Investors know that there are great deals to be had, and prices are now at the 03-04 levels. Bank-owned foreclosures are generally selling for close to the list price, which are becoming better and better values.
Why aren't investors getting after it?
For one reason, hard money, which has historically been easy to obtain (contrary to its title), is coming more difficult to come by; Gone are the days when the hard money lender didn't really care where the property was in the valley (Queen Creek, Surprise, etc) and the loan-to-values could be over 70%. With the tightening of the conforming and nonconforming mortgage markets comes the tightening of the hard money loans.
Although many HM lenders are friendlier on the upfront cost side (starting to see more flat fees vs. points), the down payments are becoming to be a big challenge for investors to come by, preventing them from capturing these great deals everyone is hearing about. Couple that with the fact that many investors have either hit their 4 property limit per most lending guidelines or they simply don't have the cash to capitalize and it's no wonder why investors are not purchasing as many REOs. And then you have investors competing with the first-time home buyers, who want a great deal but don't necessarily need to by the home for as steep a discount as a typical investor.
The advantage investors have in this market is that they have to put 20-25% down and take out a conventional loan. First time buyers generally go FHA, which means that they only need to come up with 3%, and from what I am now seeing, sometimes as little as 0-1% down (yes it's true!). And no, these loans are not just in the outlying areas, USDA, etc. However, I have come to find out one investor loan program only requiring a 10% down investment on the buyer's side.
From a seller's perspective this is a dream sale. With 20% plus down (10% in some cases) the chance of the investor not being able to qualify for the loan is minimal, although there can be issues in underwriting. In some cases the bank will take a lower, stronger offer over a higher, weaker one. Earnest deposits of $5,000 or more for a starter home (around the $200k range) are also very attractive, and closing in 30 days or less puts the buyer is a very strong negotiating position.
Why aren't investors getting after it?
For one reason, hard money, which has historically been easy to obtain (contrary to its title), is coming more difficult to come by; Gone are the days when the hard money lender didn't really care where the property was in the valley (Queen Creek, Surprise, etc) and the loan-to-values could be over 70%. With the tightening of the conforming and nonconforming mortgage markets comes the tightening of the hard money loans.
Although many HM lenders are friendlier on the upfront cost side (starting to see more flat fees vs. points), the down payments are becoming to be a big challenge for investors to come by, preventing them from capturing these great deals everyone is hearing about. Couple that with the fact that many investors have either hit their 4 property limit per most lending guidelines or they simply don't have the cash to capitalize and it's no wonder why investors are not purchasing as many REOs. And then you have investors competing with the first-time home buyers, who want a great deal but don't necessarily need to by the home for as steep a discount as a typical investor.
The advantage investors have in this market is that they have to put 20-25% down and take out a conventional loan. First time buyers generally go FHA, which means that they only need to come up with 3%, and from what I am now seeing, sometimes as little as 0-1% down (yes it's true!). And no, these loans are not just in the outlying areas, USDA, etc. However, I have come to find out one investor loan program only requiring a 10% down investment on the buyer's side.
From a seller's perspective this is a dream sale. With 20% plus down (10% in some cases) the chance of the investor not being able to qualify for the loan is minimal, although there can be issues in underwriting. In some cases the bank will take a lower, stronger offer over a higher, weaker one. Earnest deposits of $5,000 or more for a starter home (around the $200k range) are also very attractive, and closing in 30 days or less puts the buyer is a very strong negotiating position.
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