Tom Bernardo’s Blog

Federal Incentives for 1st Time Home Buyers

You must be under a contract to purchase by the end of April. You must have the closing by the end of June. What this means is…You have 20 minutes left to find a house!

It’s not quite that bad but in case you have been living under a rock, the federal government is giving 1st time Buyers a tax credit of 10 percent of the selling price up to $8000. That is free money. The problem is, you are very limited on your choice of houses.

You can’t purchase a short sale property because it probably won’t close on time. That eliminates 75 to 80 percent of the homes in that normal 1st home price range. You probably can’t purchase a bank owned house. The reason is the Sellers, the banks that is, will sell a house for 10% less than you are willing to pay if your offer is contingent upon getting a mortgage and the lower offer is cash.

You also can’t get a mortgage for a property that was purchased at the courthouse in foreclosure less than 90 days ago unless you are getting an FHA mortgage. These homes typically need heavy rehab, so they got purchased by a rehabber, who puts a lot of sweat equity into the house, and then puts it back on the market. The FHA used to have a silly rule that you can’t buy a house that was has been sold in the last 90 days. Hurrah for the FHA, they temporarily suspended that rule to put borrowers into nice houses fast. The problem is most of the lending industry doesn’t care about putting nice people into houses fast so banks issuing conventional mortgages probably won’t underwrite a loan on a house that has been purchased and rehabbed in the last 90 days. If you think you  can outsmart the system by qualifying for an FHA loan and then making an offer for that gorgeous house that has just been fixed up, think again. The Sellers and most of their agents don’t know that an FHA buyer is one of the best there is these days. They have stigmatized most FHA buyers and won’t accept your offer.

So you first time Buyers, the only houses you can purchase before the deadline is equity homes that haven’t been rehabbed in the last 90 days. That is secret code for a normal sale. Have your checkbook ready, be available to see the house within a few hours of it coming on the market and you may just get one. It will be hit and miss, mostly miss for the next 6 weeks but you will get one if you are committed to owning before the deadline.

There is one other source for homes that should qualify you for the tax credit. New construction. There are a few builders releasing some homes and townhomes, and the secret is catching the ones that are close enough to being finished to meet the closing deadline for the tax credit. I can help you find builders that meet that criteria.

One more thing…you may be hearing that the deadline will be extended to keep the economy from shutting down. Do you want to bet 10% of your next home’s selling price on that?

Call me if you want to beat the deadline and get that tax credit.

Insurance Deadlines

There are some really good reasons to shop your homeowners policy right now. First, you don’t want to be looking for a policy during hurricane season. There are no deals during the highest risk portion of the year!

Second is, even if your policy expired and you just recently renewed, you might not have thought about shopping it. Why wouldn’t you shop it? You bargain hunt for the best price on canned tuna…doesn’t it make sense to shop the big ticket stuff too? It is never too late. If you recently renewed and you find a better deal, you buy the new policy and cancel the old. They do give refunds.

If you happen to be with State Farm, they are a mess right now. A mess in that they threatened to pull out of the state unless they got an astronomical rate hike approved. It appears they will be able to cancel any policy they choose at renewal time. You can expect that you will see an exhorbitant rate hike if they choose to keep you, but you will more than likely get cancelled.

You don’t want to be in the position where you have a limited amount of time to select a new carrier. Plan on doing it now. Here is a link with more detailed info. http://homeinsuranceguru.com/2010/02/04/msnbc-state-farm-cancels-thousands-in-florida/

Call me if you need contacts for possible insurance sources.

As always, if there is someone you know, here or anywhere, that has a real estate concern, please show them you care by putting me in touch with them.  In return, I will show them you care by treating them the way I would treat you. 

If you have a comment or question on this or any real estate topic, please don’t hesitate to let me know. I can be reached at tombernardo@earthlink.net, or 239-425-4900.

My warmest regards,

Tom Bernardo, GRI, Realtor

Keller Williams World Class Realty

www.FtMyersDreamHomes.com and www.WhatsMyShackWorth.com

I am hoping this post will generate comments and interaction as opposed to my typical one sided posts.

Laying out the background…I have said several times that “loan modification” is not a solution to the housing/foreclosure/banking crisis. The reason is, in our area as well as others, house values have fallen so far that the loan modifications currently being blessed by banking only prolongs the crisis.

Here is why. If you purchased a house in 2005 for $250,000, in some areas, it is now worth around $70k. A typical loan modification will extend the loan to 40 years, and reduce the interest to make to make the payment more manageable.

That looks good on the surface, but, what if you want to sell your house in say 5, 10, 15, or 25 years? You are likely still going to be upside down even if values appreciate at 5% every year starting this year. That is not very likely.

That means your only remedy will be, short sale, foreclosure, or bankruptcy whenever you are ready to sell…sound familiar? According to experts, our crisis is supposed to end in 3 to 5 years but the loan modification solutions being offered today won’t allow it.

What if we modify the loan modification? Let’s say, the banks agree that if you are in trouble they will reduce the principal of your loan to current market value? Assuming the borrower can afford that payment, it seems that we solve both the immediate problems and avoid the problem of still being upside down in your house in 20 years or more.

Therein lies the dilemma. When our neighbors get their loans modified to today’s market value just by missing a few payments, why in the name of all that is sacred wouldn’t the rest of the people with mortgages attempt to get their loans modified too?

Realistically, all property has gone down in value in our current crisis. So if we modify the loans of the ones that miss payments by reducing the principal, wouldn’t the ones that keep making payments lose value?

So, if the ones that didn’t get modified decide to sell if 5, 10, or 25 years, wouldn’t they still be upside down? Do you see where this is going? Could the housing crisis still be going on in 2025 or beyond?

What if we modify every loan given between say 2004 and 2006 to current market value. Would the banking system, the financial markets, even the world economy survive?

So, (some of) the issues are:

1)      Don’t you have a moral duty to meet your obligations and if there is a loss to take, now or in 20 years, then shouldn’t you just buck up and take it?

2)      Isn’t the bank your partner and by definition, thus assuming risk similar to yours? Thus, shouldn’t the losses be split?

3)      The banks enticed us into easy credit and into using our homes as cash machines so shouldn’t they take all the loss?

The issues revolve around practical concerns as well as moral ones. Can the financial markets handle it if every loan got modified? Likewise, don’t we have an obligation to honor our contracts to pay back money we borrowed?

Those issues relate directly to the concern of, “if I am making my payments, and the bank won’t modify my principal, then I will quit making payments until they do.”

Please post comments and questions on the blog for all to see rather than through directly to me through email. Who knows, if we kick it around enough, maybe we can come up with a solution.

I hope to see some interaction on this.

As always, if there is someone you know, here or anywhere, that has a real estate concern, please show them you care by putting me in touch with them.  In return, I will show them you care by treating them the way I would treat you. 

If you have a comment or question on this or any real estate topic, please don’t hesitate to let me know. I can be reached at tombernardo@earthlink.net, or 239-425-4900.

My warmest regards,

Tom Bernardo, GRI, Realtor

Keller Williams World Class Realty

www.FtMyersDreamHomes.com

Prediction Number 1:

Jon and Kate Gosselin(sic) will help start the real estate turnaround by being directly accountable for at least 5 sales. (I never watched the show but it was all the Buzz). Jon and Kate are getting a divorce so their reality show got cancelled, they will have to sell the happy marital home that helped bring them fame, and they will each buy a new home! Their attorneys will each get a new house too so that makes 5 transactions.

Most of my predictions will be serious…read on.

Prediction Number 2:

Mortgage defaults will likely increase in 2010. Too many Option Arm loans are resetting, too many borrowers are opting for strategic default, and unemployment has not peaked yet.

Prediction 3:

Distress will not go away, but there should be some changes in how banks handle them. Specifically, it is safe to assume banks will lead with altering mortgages rather than foreclosures as their first choice. The problems is, a loan modification just doesn’t look that good to the borrower based on the terms the banks are offering, and many of the modified loans end up in defualt in the next 6 months. When loan modifications fail, I expect the lenders to take a proactive role in short sales in order to avoid both the cost and outcome of ownership that comes with foreclosure.

Prediction 4:

At some point, it may be later in the year or perhaps into early 2011, but there will be competition for borrowed money. As that happens, interest rates go up. The borrowed money encompasses unsecured credit as well as mortgages. I have heard 5.8 to 6.0 percent by this time next year. The bad news really is if it doesn’t go up…that means the economy has remained stagnant or gotten worse, and there is no growth (which usually gets financed) going on.

I have heard all sorts of terrible predictions about how hard it will be for people to buy houses, cars, and other durable goods if rates go up. I purchased my first home at about 18% interest when I was 25 years old. I was betting that things were so good in the general economy that my income would go up enough to make that rate affordable. That’s exactly how it panned out. So, I really don’t expect mortgaged sales to go down significantly unless it becomes cheaper to rent and property values are not increasing at the same time.

The following is based on the fact that real estate is a long term investment. If you don’t follow that line of thinking you will have to believe that you are smarter than the market and can time it to win. If you can, I would be happy to help you with the paperwork.

Prediction 5: Homes $100k or less

Entry level houses are the best investment out there. If you are renting, you should be buying. If you are building a portfolio of real estate, you should be buying. The reason is, there was a time when a basic house was selling in the 40’s. They are now moving back up and are still less than what it would cost to build it even if you already owned the land. Expect it to bounce along the bottom for a couple of years, but they won’t be going significantly lower. Also if you invest, plan on some rental vacancy.

Prediction 6: Homes $175k to $375k

The outlook in this range is not quite so rosy. We sold a little over half of the homes that came on the market in this range. Another way to look at it is they are coming on the market almost twice as fast as we are selling them. Considering my original comments about more inventory coming, prices will have to adjust in this range before we see a light at the end of the tunnel.

Prediction 7: Gulf Access Waterfront Properties

These houses dipped below $200k early last year. Those are gone. Even if you see it listed below $200k, it will likely sell for more. We literally sold as many houses in this price range as we listed. Since there is only X amount of waterfront, there is a limit to the inventory. I expect these are finished correcting and showing signs of going the other way. Don’t expect to retire on appreciation of properties in the next year, but they will go up before other product classes.

 Prediction 8:

Tiger Woods will divorce. In the future he will avoid marriage and just buy some lady a house every 5 years. 

Prediction 9: Luxury Class Properties over $750k.

These could be mansions or Gulf Front bungelows. This product class has seen the least amount of activity in the past year. By rights they should, simply due to price, but their activity was abysmal so it goes beyond simply price, and still needs correction. Over 80% of the houses listed in 2009 in this class didn’t sell.

Earlier in the year I made a statement that if it wasn’t priced at or before the prices in 2002 then it wasn’t going to sell and that statement prevailed in all price levels. I stand by that and the owners and agents in this class have not met the requirements to get the Buyers off the fenses. We will see more success in that strategy as the year goes on. Sellers in this price range will either feel the pinch of Option Arms resetting, or, they can take the credit hit of short selling because they are wealthy, or even if they own it free and clear there will be some realization that it was a bad investment and owners can think of other things to do with the money if they sell.

Prediction 10: A Return to the Good Old Days

Somewhere, someone got the notion that 75% of the people should own houses. It wasn’t happening so we started making mortgages easy to get to facilitate that. We actually called them “Liar Loans”.  Banking also used low interest to entice sales and future adjustments to get some of their money back, Option Arms. So, you lie, then you buy, the payment was low enough that you could afford it, even with mortgage insurance. Lots of houses got built due to the demand created by these incentives.

When it came time to sell, at a profit of course, there were no more Buyers left. That brings us to today. Homeowners, realtors, banks, and mortgage insurance companies, builders, title companies have all taken a terrible beating. Most sales are now adversarial, not much trust left, and it is not a pretty way to find a new home or sell your old one. Banks, brokerages, title companies have folded.

I expect private mortgage insurance to be a thing of the past. If you don’t have 20% down, you go FHA or no deal. Believe it or not, that’s the way it was in the good old days.

I will do my part to make transactions more civil, friendly, and perhaps just like the old days, a closing may become enjoyable again. It won’t happen as long as a closing represents shattered dreams, but I will do my best to make it as painless as possible.

As always, if there is someone you know, here or anywhere, that has a real estate concern, please show them you care by putting me in touch with them.  In return, I will show them you care by treating them the way I would treat you. 

If you have a comment or question on this or any real estate topic, please don’t hesitate to let me know. I can be reached at tombernardo@earthlink.net, or 239-425-4900.

My warmest regards,

Tom Bernardo, GRI, Realtor

Keller Williams World Class Realty

www.FtMyersDreamHomes.com

Look for “Real Estate Predictions 2010″ on this blog during the first week in January. I am not trying to outsmart the smart, but simply apply some thoughts, insider knowledge, logic and analysis to the local market. Could be fun or it could break the limb. We’ll see how I do.

As always, if there is someone you know, here or anywhere, that has a real estate concern, please show them you care by putting me in touch with them.  In return, I will show them you care by treating them the way I would treat you. 

If you have a comment or question on this or any real estate topic, please don’t hesitate to let me know. I can be reached at tombernardo@earthlink.net, or 239-425-4900.

My warmest regards,

Tom Bernardo, GRI, Realtor

Keller Williams World Class Realty

www.FtMyersDreamHomes.com

I guess there is usually some horn blowing around New Years so we won’t be any different.

In the past week, Keller Williams was voted the Best Real Estate franchise by Entrepeneur Magazine. These guys do sophisticated analysis, and not merely give their advertisers some press. I like that kind of even handed news.

We also were voted most recognizable franchise among….drum roll please….among realtors! That’s right, even our competition knows we are here and are paying attention to us.

In any business, people say one company is like the next one and that it is the people that make the difference. That is true.

 Having said that, I can honestly say that our company has a creed of God, then Family, then Business. I wouldn’t be here today if the person that recruited me hadn’t actually asked me how my family felt about my coming to Keller Williams. No manager had ever asked me that in any job I applied for since about 1972 when I got my first job! 

Yes, it is the people, not the company…but the people make the company. Its an old fashioned thing called putting your money where your mouth is. Back in May, we had a day called RED Day. I forget what the acronym stands for, but it was in the middle of the week and a vast majority of our 75,000 agents nationwide took the day off to give back to our communities.

Perhaps this mindset will help your business no matter what you do.

Yes, some realtors will read this too, and if you aren’t certain of the motivations of your company, regardless of where you are, we should talk.

As always, if there is someone you know, here or anywhere, that has a real estate concern, please show them you care by putting me in touch with them.  In return, I will show them you care by treating them the way I would treat you. 

If you have a comment or question on this or any real estate topic, please don’t hesitate to let me know. I can be reached at tombernardo@earthlink.net, or 239-425-4900.

My warmest regards,

Tom Bernardo, GRI, Realtor

Keller Williams World Class Realty

www.FtMyersDreamHomes.com

Mortgage rates have started inching upwards over the last 3 weeks and are hovering around 5.0%. Trend? As I have been saying for quite a while, when they are at historically low rates for an extended period, it seems they will have to go up at some point.

We also can’t forget, that unless you are paying cash, the two elements affecting the cost of the house is the price of the house and the cost of the money borrowed to purchase it.

So, if we can safely predict that mortgage rates are going up, the only reason to not purchase as soon as possible is if home prices are falling by enough to offset the interest rate climb. Make sense?

Here is a calculation I did earlier in the year. It still holds true. If you hold off purchasing, because prices are falling, and they go down 10% next year, (not likely) and the interest rate goes up by 1 percent (quite conceivable), on a $200,000 house, you will saved $73 by waiting. Double that if the house costs $400k and cut it in half if the house costs $100k.

Let’s assume you itemize your taxes. That means your interest is deductible. If you didn’t buy the house, you can’t claim the interest. If you can’t claim the interest, then you can’t reduce your taxable income. That means you pay more tax if you don’t get a mortgage. So, you paid $10,000 in interest, you reduce your taxable income by $10,000 and if you are in the 25% tax bracket, that reduction means you save $2500 in taxes. If you don’t buy, you pay $2500 more in taxes.

Now how does that $73 savings look?

There is potentially one more reason to purchase now rather than later. You only have until April 30 to take advantage of the Federal incentive. If you qualify, why would you wait? Even if you own your home, you may qualify. Let’s talk.

Now for the geographical gotcha. Are home prices falling in the area you wish to purchase? Believe it or not, just in this county, I could give you 3 different answers depending on the type of house and the location. (Yes, some prices are coming up…call me if you want to know which ones. Hint: waterfront in the $250k range)

The secret to predicting is, don’t watch the news! Seriously,  determine how many houses went on the market against how many houses sold in say the last 6 months for that type and location. If you sold more than went on the market, prices will flatten or perhaps rise in the next 6 months. On the opposite side of the coin, if more came on the market than were sold, prices still have some correction coming for the next 6 months.

The message here is, there may be a reason to wait, but it requires some math and pinpoint market analysis rather than watching the news and trying to out smart the market. Beating a market is not that easy. If it was, everyone trying to sell now would have sold back in 2005, everyone in foreclosure now would have sold in 2005, and everyone with an adjustable mortgage now would have dumped it in 2005. Don’t be embarassed, it happened to major builders with teams of economists too. You are in good company.

I can help you find a realtor/economist in your area, and I can help you personally in the marketplace. Let’s talk.

As always, if there is someone you know, here or anywhere, that has a real estate concern, please show them you care by putting me in touch with them.  In return, I will show them you care by treating them the way I would treat you. 

If you have a comment or question on this or any real estate topic, please don’t hesitate to let me know. I can be reached at tombernardo@earthlink.net, or 239-425-4900.

My warmest regards,

Tom Bernardo, GRI, Realtor

Keller Williams World Class Realty

www.FtMyersDreamHomes.com

That is my standard ice breaker when talking to a new prospective client from northern climates. It used to get chuckles, now it causes gastric distress for the person on the other end of the call.

The reason it causes distress is, they have been reading the reports that everything in Florida is at 70% off. I had that conversation with a person from up north just this week. You could hear the terror in his voice that implied he had already “missed the market.”

First, I am sure he doesn’t know me well enough to understand my jovial nature, and second I can understand the distress of thinking you could buy 3 for the price of one when in fact you can only get two for the price of one. Even though he was doing his research, he had bad data from the main stream media, thus eroneous expectations.

That is my worst enemy, a client with unreasonable (perhaps a better word is “unfounded”) expectations. I have another prospect that wants to buy a particular class of property for $175k. The property that she was interested in was priced at $199k. She was quite disappointed when I predicted it would sell for the listing price or more. Her response was, “I keep hearing about all these people buying waterfront for $175k and that is what the deal I want.”

Thank you once more to the main stream media. So, I have thick enough skin that it doesn’t hurt my feelings when you believe some real estate article written and edited by someone in Bombay, (I know they changed the name of that city) posted on a web site that is hosted by a high school student from a basement in Nebraska, and Tom probably doesn’t know what he is talking about. Post the article on MSN and I don’t stand a chance.

This isn’t a poke against foreign nationals or techno-kids in Nebraska. I found a real estate link on MSN that led to a article on the Kiplinger Report, a pretty authoritative source. The article was written by an “investment counselor” and essentially, this is not a good time to buy real estate according to the article. The reason is, real estate “might go down” more.

If I share my brokerage fees with that investment counselor, real estate might become a better investment if you know what I mean. Regardless, the message here is, your expectations are wonderful, but don’t change your mind because the reality doesn’t meet your expectations.

Every house is different, every zip code is different, every Seller and Buyer are different, every deal is different. If the first Buyer I mentioned can buy at about half the price of what they were selling for in 2005, is that a good deal? If the second Buyer can’t get a house for $175k is $199 a bad deal? The answer is, maybe, maybe not.

It will all depend on circumstances. Your circumstances, the circumstances of the market for that particular property on the day you are looking, and your perceptions.

There are houses selling for $50k that originally sold for $250k. That appears to be 80 percent off. (Wait till the press gets a hold of this blog) Not one of them overlooks the Gulf of Mexico. Waterfront homes have sold for $175k in Cape Coral, but not in the last 6 months. In actuality, more waterfront homes in a particular region of Cape Coral were sold than came on the market in the last 6 months. Does that mean the prices are going the other way on those? Does that explain why you can’t get one for $175k?

If you can’t get one for $175k is it a bad deal? If you get sore muscles from catching too many fish on a fishing trip, is it a bad trip? Were sore muscles in your expectations when you planned the trip?

For all of you Buyers out there, this is like a fishing trip. You are trying to catch the big one, you are doing everything right, but someone on the boat could catch one bigger. You still had a great trip, have a very photogenic fish, and a great story to tell when you get home.

Please feel free to share this.

My warmest regards,

Tom Bernardo, REALTOR, GRI

Keller Williams World Class Realty

tombernardo@earthlink.net

239-435-4900

Interest rates have dropped again. I don’t know if they are the lowest since WWII or since banking was invented or what, but If you missed previous opportunities to refinance, there won’t be many better opportunities than this. (same goes for buying)

Re-financing isn’t for everyone, but here are the basics. Essentially you will have a new closing on the new loan. The only thing missing from the closing table is the Seller since you already own your house. Don’t forget that most of your closing costs when you purchased your house, other than perhaps your down payment were fees associated with your mortgage.

So, do you want to pay those fees all over again? The answer lies in the analysis of your closing costs vs your savings over time. A mortgage lender will estimate your closing costs and your new payment without charging you a nickel. If they want to charge you, find a new lender.

Now look at the monthly savings and figure out how many months it will take you to pay back those closing costs. If you don’t plan on staying in the house that long, don’t re-finance. There used to be a rule of thumb of 3 years. Ignore that, the rule is, how long do you plan on owning the property.

By the way, one of the costs of re-financing is an appraisal to determine the value of the property so that the bank can decide if they want to write a new mortgage against it. If the house isn’t worth 20% more than your loan, the bank will add mortgage insurance to your monthly payments, or you will have to bring more money to the table to pay down the mortgage or they will flat out decline your mortgage application.

Rather than paying for the appraisal, check with me to determine the value. I can at least get you in the ballpark to see if it makes sense to pay for a certified appraisal. If you are considering the re-fi for a property in another area, I can refer you to someone that knows that market.

Web site appraisals like Zillow and others are NOT decision making tools. Talk to a local agent.  The media obtains statistics from Zillow, and you know my feelings about the media when it comes to real estate statistics.

Stay well, stay warm, and feel free to share this with anyone that you care about. Feel free to let me know if there a topic you would like more info on.

Sincerely,

Tom Bernardo

tombernardo@earthlink.net

239-425-4900

This one is to Mike Norton for referring Pete Mulgrew. I promise to treat him like family.

Average mortgage rates for the week ending 11/20/2009 were down around 4.89%.

Other market news reports that 2010 is the year of the housing recovery, and that there will be more foreclosures in 2010 than ever before. That will keep inventories high and prices low. So, which is it?

If you have read anything I have written in the last 6 months, you know where my vote is…Do understand, I would love to be wrong, but all positive predictions defy logic and the principals of economics.

I saw a new index this week…it is called the Realtor Confidence Index. I still am not sure what it measures, or predicts, but I am not a big fan of any confidence measuring statistics. Confidence is too subjective and can be swayed by the tone of the question.

Did more realtors buy new cars? Was it because they feel so good about the market that they feel “confident” in making such a frivolous purchase or is it because the car they normally trade every three years is now 8 years old and beyond its useful life?

If we buy houses, cars, washing machines, toys, investments or whatever when we need them, then we should be able to measure the consumption and make an inference based on that. The Consumer Confidence Index, Realtor Confidence Index, and any other convoluted index are not measurements of anything. Gross national product, gross domestic product, durable goods sales, employment, unemployment, the population of Florida, are all accurate measures of something tangible. Those are numbers worth knowing and understanding.

It’s time to go to the office…Call me if you need help or know someone who needs help.

Tom Bernardo, REALTOR, GRI

239-560-6702

tombernardo@earthlink.net