Orlando Florida Real Estate Blog

A recent survey and a rate increase could mean more competition for homes

Recent indication is that first time home buyers are getting tired of sitting on the sidelines. According to a recent online poll taken by the National Apartment Association, 17 percent of renters plan to make the jump to home ownership in the next year; 41 percent of the 2,041 respondents planned to be home owners within two years. Only 31 percent planned to still be paying rent five years from now.

Another factor that could very soon contribute to an increase in home buying could be rising mortgage costs. Fixed-rate mortgage rates rose to 6.32 percent, the highest it has been since October. After months of aggressively dropping interest rates, many lenders are worried that the Fed will be forced to raise rates back up. As interest rates rise, so do mortgage rates. According to a press release on freddiemac.com, Frank Nothaft, Freddie Mac vice president and chief economist said that, "Mortgage rates jumped this week after a number of Federal Reserve officials, most notably Chairman [Ben] Bernanke and Vice Chair [Donald] Kohn, expressed concern over a threat of inflation." We may very well be seeing the beginning of the end of the super-low mortgage and potential buyers may realize that with rising rates, now may be the time to jump in. Nothaft added, "Moreover, pending home sales for April unexpectedly rose by 6.3% and mortgage applications for home purchases ... were also up last week."

"I NEVER WORRY ABOUT ACTION, BUT ONLY ABOUT INACTION." ~ Winston Churchill. These words proved especially true last week, as the big story was the Fed's lack of action following their recent meeting, or decision to leave the Fed Funds Rate unchanged - but is the Fed's decision a cause for worry? The financial markets seem to think so. The Fed is in a tough spot with the economy performing sluggishly, the housing market still struggling to stabilize, consumer confidence being low, and food and energy costs going up seemingly every day. They made the decision to hold rates steady for now, but looking forward, what does all this mean for Bonds and home loan rates?

While the Fed made a smart move to cut its benchmark rate back in September to stimulate the economy, the continued string of cuts has considerably weakened the US Dollar against the Euro. And since oil is priced in Dollars, the decline of the Dollar has pushed oil prices to rise, even though consumption in the US is down. Prior to the Fed starting their recent string of cuts in mid-September, oil was trading at a then staggeringly high $73/barrel, and it took $1.35 to buy 1 Euro. And after nine months of Fed rate cuts, the Dollar has weakened to where it takes $1.57 to buy 1 Euro...which has greatly influenced oil prices to top $140/barrel. And because oil is involved in so much of what we purchase, prices have gone up on everything.

The bottom line: A stronger stance against inflation by the Fed - which would mean rate hikes ahead - could help strengthen the Dollar, combat high oil prices, and cause Bonds and home loan rates to improve in turn, as inflation is the arch enemy of both. It will be important to see what the Fed decides to do about the Fed Funds Rate at their next meeting in August, so stay tuned!

About the author: 

Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of real estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs.  Please give me a call if you have questions about the Orlando and Central Florida real estate market.

Jerry LaRose, P.A., ABR, GRI, e-PRO, CLHMS, REALTOR® 407-580-7011

(Copyright © 2008 By Jerry LaRose, P.A. All Rights Reserved.)

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What is a Short Sale?

A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure. Financially the lender is actually ahead after a short sale.

What is a Foreclosure?

In simple terms: The homeowner has not been making the mortgage payments, and it is the action the financial institution can use to take the house back. The homeowner borrowed money using the house as collateral with the agreement that if they could not pay it back, then the lender could take the house.

What is involved to do a Short Sale?

In order to start negotiating the Short Sale the lender will usually require the homeowner to submit verification that they are qualified in order to consider the short sale. The information required and documentation necessary is provided as well as training on the entire process.

Will the bank come after the homeowner for the difference?

I will always negotiate with lenders to “Not seek a deficiency judgment” against the homeowner.

Is the seller going to get hit with a tax bill or a 1099 if you do a short sale?

Upon successfully closing a short sale, lenders will always report a loss to the IRS and issue a 1099. However, the Mortgage Forgiveness Act of 2007 was signed into law on 12-20-07 and is now official, effectively getting rid of the question "will I be taxed on the Short Sale". Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was potentially taxable income to the borrower.

This was the subject of much media attention and led to many questions and concerns from Sellers wondering whether or not they were going to get “hit with taxes” on the Short Sale.
The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009.
This will effectively put an end to the question from Sellers... will I be taxed on the Short Sale discount. The definitive answer (at least until the end of 2009) is NO!

For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 or http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

Will the homeowners credit be affected?

If the homeowner has to short sale their home they’ve most likely missed payments already. That in itself has already adversely affected their credit. The key here is to stop the devastating affect on your credit that a Foreclosure causes. A Foreclosure is the most damaging record on your credit report – its even worse than bankruptcy.

By working with Jerry LaRose you give yourself a fighting chance of avoiding foreclosure and start towards the “Rebuilding” process. With our help, your credit will recover quickly if you keep your other lines of credit in good standing. With Jerry LaRose you have an experienced team of professionals that will help you through these tough times.

Is a Short Sale right for me and my situation?

Mortgage lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship, and are unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through foreclosure.
As you consider the option of pursuing a short sale, remember your lender is looking to limit any potential loss on your loan. By completing a short sale, your lender has arrived at a solution that is, for them, much better than a costly foreclosure.

What sort of hardship would my lender consider legitimate?

To some extent, that will depend upon the mortgage company considering the short sale request. Generally, as long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the short sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.

Will the lender approve a Short Sale even if the homeowner is current on their mortgage?

Yes we have successfully negotiated and received an approval on a short sale even when the homeowner was current on their payments.

Why would a mortgage company agree to accept a short sale?

There are actually several reasons why a mortgage company would approve a short sale payoff, including the following:

• Legal Concerns: Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
• Wall Street is Watching Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful short sale gets the loan payoff resolved quickly.
• Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes – spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful short sale eliminates most of these costs.
• Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful short sale lets the lender put their money back to work.

Can I still short sale my home even if I have 2 loans?

Yes, it doesn’t matter how much you owe. The lender will evaluate what the current market value is and then decide how much they will accept.

Can I still do a short sale even if the property is in very bad condition?

Yes. Lenders are more motivated to do a short sale on a property that needs work than on a property that doesn’t. Lenders know losses start to skyrocket when they foreclose on a property that needs a lot of repair work. Lenders are in the business of lending money not property management and home repairs.

If I am behind in my payments and can't afford closing costs what can I do?

The Orlando Real Estate Voice is happy to offer a great article on jumbo loans from David Reed - the author of Mortgage 101 and Mortgage Confidential:

Everyone knows the jumbo loan market has been out of whack for nearly 18 months. "jumbo" loans, those amounting to more than $417,000, took it on the chin when mortgage investors stopped buying subprime and alternative loans. For that reason, jumbo rates can be as much as 1.50 percent higher than conforming rates. Historically, jumbo rates were only about a quarter of a percent higher than a conforming rate, but this new spread has kept many out of the housing market: especially those that I call, "just jumbo."

So what exactly is "just jumbo?" It's a loan amount that just exceeds the conforming limit of $417,000 and typically reflects a sales price in the $500,000­­-$600,000 range. Many local markets offer homes in this price category, but the marked difference in rate from conforming to jumbo is slowing down sales. What is the difference in payment between a conforming loan at 6 percent and a jumbo loan at 7.50 percent? On a $500,000 jumbo loan, mortgage payments jump from $2,997 to $3,496 a month. That's almost $500 more!

Fortunately, with some changes in strategy, we can put a major dent in that increase in payment by buying a property with two loans - a first mortgage and a second. With the first mortgage at or below the conforming limit, the second mortgage then eliminates the need for private mortgage insurance, or PMI. And still, with only 10 percent down on a $500,000 sale.

For example, let's say we have a sales price of $500,000 and you put 10 percent down. With a jumbo loan at 7.50 percent, the monthly payment on a 30-year note is $3,146 plus a PMI payment of about $188, for a total of $3,334. Using a 40 percent debt ratio means that you need to make about $9,700 per month to qualify.

Now, let's make the first mortgage for $400,000 at 6 percent (conforming) with a second mortgage at 7 percent on a $50,000, 30-year note. The mortgage payments would be $2,398 and $332 respectively, for a combined total of $2,730. That's a savings of over $600 per month, and now the income to qualify is almost $1,500 less at $8,200 per month! Do you think that has an impact on affordabilty? I do.

Here's another idea: sellers can carry back that second note to provide some additional income, providing an even better second rate for the buyer!

Orlando’s housing market appears to be continuing its slow shift toward a market balanced between buyers and sellers. For the third month in a row, the Orlando Regional Realtor® Association reported a month-to-month increase in the number of home sales, an increase in the number of contracts pending, and a decrease in the amount of inventory.

Members of ORRA sold 1,276 homes during the month of May 2008, which is 3.66 percent above the April 2008 tally of 1,231 home sales but 26.88 percent below the 1,745 homes sold in May 2007. To date, 5,391 homes have been sold by ORRA members during 2008; at this time last year that number was 8,064 (a 33.15 percent decrease).

The median sales price of a home in the Orlando area in May rose to $214,000, a 1.42 percent increase over the April 2008 median of $211,000. (The median sales price for May 2008 is 14.40 percent below the May 2007 median of $250,000).

The increase in the median home price to $214,000 means that the area’s affordability index dropped a fraction in May to 105.45 percent. (An affordability index of 99 percent means that buyers earning the state-reported median income are 1 percent short of the income necessary to purchase a median-priced home. Conversely, an affordability index that is over 100 means that median-income earners make more than is necessary to qualify for a median-priced home.) Buyers who earn the reported median income of $48,952 can qualify to purchase one of 9,294 homes in Orange and Seminole counties currently listed in the local multiple listing service (MLS) for $225,663 or less.

The first time homebuyer affordability index decreased to 74.99 percent from April’s 77.38 percent.

There are currently 3,225 homes in the MLS with pending sales contracts (an indicator of increasing sales activity), up from 2,853 in April and 2,398 in March. The number of homes that came newly under contract in May decreased slightly to 2,010; there were 2,012 homes newly under contract in April and 1,679 in March.

The area’s average interest rate was 5.94 percent in May 2008, up from 5.77 percent in April.

Homes of all types spent an average of 121 days on the market before being sold in May 2008; the average home sold for 93.79 percent of its listing price. In May 2007 those numbers were 94 and 95.43 percent, respectively.

The majority of single-family homes (243) that changed hands in May 2008 were sold in the $200,000 - $250,000 price range. Another 137 homes sold in May for between $250,000 and $300,000. Three hundred seventy-five homes sold for less than $200,000 in May, and 284 sold for more than $300,000. On the far ends of the scale, 25 homes were sold for $1 million or more while 11 homes sold for less than $50,000.

Inventory
There are currently 25,015 homes available for purchase through the MLS. Inventory decreased by 421 homes in May 2008, which means that 421 more homes left the market than entered the market. Compared to last year, the May 2008 inventory level (25,015) is 1.76 percent lower than it was in May 2007 (25,463).

The current inventory level reflects a 19.60-month supply at the current pace of sales, which is down from April 2008’s 20.66-month supply and March’s 22.74-month supply.

There are 18,665 single-family homes currently listed in the MLS. Most (3,310) are listed in the $200,000 - $250,000 price range. Condos currently make up 4,283 offerings in the MLS, while duplexes/town homes/villas make up the remaining 2,067. Most condos (591) are priced at $120,000 - $140,000, but nearly as many are posted in the $140,000 - $160,000 range (513). The majority of duplexes/town homes/villas (413) are listed in the $200,000 - $250,000 price category.

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Let us help you achieve the American dream:

• Gift funds up to 6% of the final contract sales towards your downpayment and/or closing costs
  
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  (Nehemiah charges a nominal processing fee that may be paid by the seller, homebuyer, or lender.)
• Gift funds for both new construction and resale homes
  
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If you are a qualified homebuyer using an eligible loan program, such as an FHA loan, The Nehemiah Program can help you become a homeowner!

(May 12, 2008 – Orlando, FL) Orlando’s housing marketing for the second month experienced a month-over-month increase in the number of home sales, an increase in the number of pending sales contracts, and a decrease in the amount of inventory – all indicators of a continued, although admittedly glacially paced, shift toward a market balanced between buyers and sellers.

The monthly statistical reports released by the Orlando Regional Realtor® Association also revealed an across-the-board, four-month trend indicating decreases in Orange and Seminole counties’ month-to-month sales comparison percentages. For example, Orange County sales were down by 28 percent when comparing April 2008 to April 2007; 40.16 for March; 44.28 percent for February; and 49.23 percent for January.

The median sales price of a home in the Orlando area decreased by 4.09 percent ($9,000) from $220,000 in March 2008 to $211,000 in April 2008. The median sales price for April 2008 is 12.85 percent ($31,100) below that of April 2007 ($242,100).

The decrease in the median home price to $211,000 means that the area’s affordability index increased in April to 108.81 percent. (An affordability index of 99 percent means that buyers earning the state-reported median income are 1 percent short of the income necessary to purchase a median-priced home. Conversely, an affordability index that is over 100 means that median-income earners make more than is necessary to qualify for a median-priced home.) Buyers who earn the reported median income of $51,563 can qualify to purchase one of 9,104 homes in Orange and Seminole counties currently listed in the local multiple listing service (MLS) for $229,589 or less.

The first time homebuyer affordability index increased to 77.38 percent from March’s 72.78 percent.

The number of sales in the Orlando area declined by 25.03 percent in April 2008 compared to April of last year (1,147 to 1,530), but the number of sales that took place in April 2008 did increase by 2.41 percent compared to the number of sales that occurred in March 2008 (1,120).

There are currently 2,853 homes in the MLS with pending sales contracts (an indicator of future sales activity), up from 2,398 in March and 2,175 in February. The number of homes that came newly under contract in April increased by 333 to 2,012; there were 1,679 homes newly under contract in March and 1,537 in February.

The area’s average interest rate was 5.77 percent in April 2008, down from 5.94 percent in March and 5.87 in February. Homes of all types spent an average of 121 days on the market before being sold in April 2008; the average home sold for 93.14 percent of its listing price. In April 2007 those numbers were 97 and 95.49 percent, respectively.

The majority of single-family homes (232) that changed hands in April 2008 were sold in the $200,000 - $250,000 price range. Another 112 homes sold in April for between $250,000 and $300,000. Three hundred thirty-nine homes sold for less than $200,000 in April, and 259 sold for more than $300,000. On the far ends of the scale, 21 homes were sold for $1 million or more while 11 homes sold for less than $50,000.