Tom Bernardo\’s Blog

This probably isn™t news in that they have been hovering just above or just below 5.0 for many weeks. But, here is another way to interpret it. I have been preaching that they have to go up¦and they will, but we don™t know exactly when. Do you want to gamble with when?

 For Buyers

You missed the free government incentives to buy a home before April 30. Back then rates were running around 5 1/8. Today they are 4 7/8. On a $150,000 mortgage, you will save about $1800 in interest in just the first 5 years. That looks like an incentive to me.

The following analysis can change drastically based on owning a property as an investor, or as a primary residence or as a second home. They all get different tax treatment from the IRS. Speak to a tax specialist for exact details.

For instance, you might prefer the tax treatment for investors, but there are rules about having to rent a property out for a specific amount of time to qualify as an investment, and some folks get squeamish about other folks using their property¦Have you ever stayed in a hotel and do you think you were the first and only person to occupy that bed? You can™t mix emotions and investment.

On that same property in the first paragraph, if it is your primary residence or an investment, you will reduce your income tax by $9000 over those same 5 years if you take a mortgage interest deduction and you are in a 25% tax bracket. Your tax bracket may differ.

On that same property, you will reduce you income tax by about $5000 over 5 years for the property taxes you paid.

For condo fees, maintenance, and repairs for an investment property, you are looking at another $5750 in tax benefits over 5 years. That™s a grand total of about $22,000.   Now that is what I call a tax incentive!

For investors, I forgot to mention tax depreciation of the asset. Speak to a tax specialist. It is significant and may be the deciding factor between purchasing as an investor or as a second home.

Renters don™t get these benefits. People don™t get them for their investments in stocks and commodities. When exactly do you want to re-think your portfolio?

 For Sellers

You weren™t thinking of selling? What if you sold your house at some price substantially below what it was worth in 2005? Disappointed? What if to ease the pain you purchased a whole lot more house, perhaps even your dream house, also at a substantially reduced price and got a 4 7/8 mortgage rate?

Try this example. You want to sell a house that was worth $250k in 2005 and today™s value is $125k. You sort of interpret that as a $125k loss, tantamount to giving it away and every single Seller I have spoken to in the last 10 years has uttered the words, “I am not going to give it away”!

But, you are now free to purchase your dream house for $250k that was worth $500k back in 2005 for a $250k gain.   You offset your gain by the loss and are still ahead by $125k and that doesn™t count that interest rates on the new place are lower! You couldn’t have done that in 2005. If you could have, you would have.

Prices and interest rates won™t be this low forever. Do you want to buy, sell or invest now, or after the interest and house prices go up?

There are people in circumstances where it doesn™t make sense to buy, sell or invest right now, but if we don™t sit down and chat about it, you will never know. As your real estate expert, I would be remiss if I didn’t recommend tax discussions in the context of real estate decisions. I can refer  a tax expert  if the need be. Then you will be fully informed.

 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

www.FtMyersDreamHomes.com and www.WhatsMyShackWorth.com

Try this scenario. Not too dissimilar from the previous post except you don™t own any œfree and clear real property.

Your investments accounts have tanked. What if you divert some of your portfolio to a Self Directed IRA and then use that to purchase real estate. Yes, you can do that!!! I wrote about this several years ago, but it may make even more sense in today™s economy.

Your investment advisor may have never mentioned this because they don™t make any money if you don™t buy a stock or bond. A true advisor will tell you that a real estate component in your portfolio is a wise move towards diversification.

So, picture this, you liquidate part of your portfolio, and buy some real estate. You rent the real estate out and the income stream performs much like your annuities.

Wait a minute, I don™t have enough assets to divert to a self directed IRA and purchase a piece of real estate. Did you know that Fannie Mae has a mortgage product for investors where you can put 10% down and not pay for any mortgage insurance, and finance the rest? And, you can purchase up to 10 properties simultaneously!

Follow me here. You move 30,000 to the IRA. Can’t buy much real estate with that.

You see a house for $60,000. You take 6000 from the IRA for a down payment, and mortgage the rest. You monthly cost is $516 for principal, interest, taxes, and insurance. You rent it out for 725 per month. Your profit is $209 per month. Over a year you will see a 41% return on your investment of $6,000.

Now go and do it again¦4 more times since there is still $24000 in cash in the IRA. In under 2.5 years there will be $30,000 in cash plus the 5 assets in the IRA. Can you think of something to do with the cash?

We won™t run out of $60,000 houses in the next 1-2 years, but we might in 3. That means there is a limited window for this opportunity if you only have limited funds. It also means that your return will go up as value of the asset goes up. And, that will happen when we run out of $60,000 houses.

Gee, if only there was a way to buy $30,000 houses and turn them into $60,000 houses. Ooops, I forget to mention that Fannie Mae also has a product where you can borrow money to re-hab.

Again, I will never advocate that you move your entire portfolio to real estate, but with interest and housing prices at an all time low, shouldn™t every portfolio have a component of real estate?

I can help you with an investment advisor that will handle the Self Directed IRA, a mortgage specialist to help with the Fannie Mae financing sides of it and I will help you personally with the property side of it. Just give me a call.

 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

www.FtMyersDreamHomes.com and www.WhatsMyShackWorth.com

So, you put in 30 years, got a gold watch, and a pension. Your pension was based on investments in the stock market. The market is down 30% over the past 5 years. Your retirement funds are running out of money, now what?

How about, taking a piece of real estate that you own and sell it so you can buy more stocks that provide more uncertainty, and oh by the way, the real estate market is flooded with inventory.

How about this¦go ahead and sell that property but carry the paper. That™s right, you be the bank. You get rid of the property, taxes, condo fees, and upkeep and collect interest. Here is how it works.

Put your property on the market, and offer owner financing. In the second home condo market getting a mortgage from a bank is next to impossible. There are millions, yes millions, perhaps 10™s of millions of boomers (baby boomers and echo boomers) out there that are dying to take advantage of this market and the banks aren™t cooperating.

If you are offering owner financing, you open up your pool of buyers. The larger the pool, the better chance of selling, and selling at a higher price.

It costs very little to write and record a mortgage, our title company can handle that. You get 20% down, charge an interest rate of 1/8 to  1/4    of a point over what banks are offering, say 6%. You amortize it for 30 years so the payment is manageable for the Buyer and have a balloon payment for the balance in 5 years.

In five years, on a $250k property sale, at 6% interest, you will have collected 50,000 in down payment, 60,000 in principal and interest, and about 182000 in the balloon, for a grand total of about $292000 on a $250k sale.

After the 5 years are up, hopefully the banks are loaning again and the buyer can go re-finance and you get a pocket full of cash. If the interest  rates are  real high in 5 years, say 7.5%, and your borrower has been paying on time, why wouldn™t you do the re-fi for say 7.25% for another 5 years?

If the Buyer defaults, you have that 20% down payment plus all the payments collected  to pay for a foreclosure and you get the property back and you get to it again. Usually, you can agree forgive the debt in exchange for the deed and keys, so that you save the foreclosure time and costs.

If this idea is making sense to you, call me and we can discuss details and how to qualify the Buyer.

 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

www.FtMyersDreamHomes.com and www.WhatsMyShackWorth.com

1)           Interest Rates  dipped below 5% this week. By the way, they  are driven by  Treasury Bonds. Would you buy a bond if the return is low?

2)           The stock market crashed about 10 days ago, supposedly due to a computer error. If you knew that the programs had flaws, and you could make a few million in about 90 seconds by capitalizing on that, would you pay a geek a million to make it happen? Do you trust that nobody else would either?

3)           We haven™t seen the total fallout of the meltdown last year. Economies have been propped up artificially by governments. Europe had a volatile week, I suspect the coming weeks could be worse if Spain, Portugal, and Italy follow Greece. How long can they prop up whole coutries?

4)           You can buy unimproved land for less than you could 10 years ago and you can buy improved property for less than you could build it.

5)       The government has taken away the tax credit. That means you have less competition. Is it good for a Buyer,  to compete against fewer Buyers in a Buyers Market?

In summary, I will never advocate that you put all your money into real estate, but when it is under valued, and you can buy it using OPM (other people™s money) at a very low interest rate, is there a better hedge?

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

www.FtMyersDreamHomes.com and www.WhatsMyShackWorth.com

Mortgage rates went from just under 5.0% to 5.21% in the last few weeks and then back down to just above 5%.

The media reports that rates are up because the Federal Reserve is no longer purchasing mortgage backed securities. Ok¦so if a federal agency that can print their own money, doesn™t think a mortgage backed security is a good investment, even using funny money, then who will buy them using real money?

If nobody will buy the mortgage backed securities, then how will that affect your ability to borrow money for a mortgage? You should be able to say that if there is a ton of money in the banks, the rates should be low. Now, it doesn™t seem to matter how much money is in the bank, the bank will not loan it out if they can™t sell the note to somebody else. I suspect the next big news story will be that nobody will buy the loans if nobody will buy securities that are backed by the loans. (Look for changes in the sale of loans and in mortgage backed securities in the future. Don’t be surprised if Fannie and Freddie are gone in 5 years)

Who remembers the good old days when a bank made a loan, and kept it in their own portfolio, and if the bank made  enough bad loans, the bank ran out of money and went under. The system progressed to where they made tons of bad loans, sold them with impunity, and wall street creates securities that bankrupted many companies, countries and retirement plans. Look for reform that will cost you money in the form of mortgage interest.

Back to you and what all this means. I am certainly not an expert in the money markets, but, I can say that they have been artificially supported. Now that the artificial support is gone, I expect to see rates go up and for a prolonged period. The reason is, the artificial support is gone that was intended to keep interest rates low. Now the rates can follow their natural cycles and we know what comes after a very prolonged  low in  the cycle.

Assuming mortgages continue to rise, when you go to get a mortgage, you may be tempted to pay to œlock the rate as a hedge against rising interest from now until the time you close.   That locks in your rate today so that even if the rates go up 10% between now and your closing date, you will receive the locked rate. Sounds good, even if it does cost a little money.

Be careful. Rate locks expire. If for some reason, you can™t closed on time the lock goes away. You can pay to extend it, but, get this, your lender has to give you a new truth in lending statement, and you will have 3 days to review it, and new banking laws say you can™t close in that 3 day period. Sellers may not be willing to extend your closing for those additional days.

In some cases, a rate lock is necessary or the borrower can™t get the loan. In other words, if rates go up to a certain level, the Buyer/borrower may get disqualified.

The message in all this is rates are likely to go up and mortgage rate locks will become prevalent but  be careful to ask a couple of questions of your loan officer.

1)           What does my signing any piece of paper cost me up front, at the closing and in the long run?

2)           What does my signing any piece of paper cost me in time.

Generally wisdom says, when a closing date is set, you should avoid changing it. That tends to keep the Seller happy.

If you are the Seller, and you are asked to agree to an extension, ask for documentation that the borrower won™t qualify for the loan if a lock and extension aren™t signed. Then decide if you want to go find a new Buyer or ride the present one to the finish line.

Ask the important questions.

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

www.FtMyersDreamHomes.com and www.WhatsMyShackWorth.com

The following comes word for word from another article, with proper credit given. It is amazing that in these days of secondary markets for mortgages, mortgage backed securities, derivatives, simple advice almost word for word from my parents many years ago, still holds true.

 The best deals on homes these days are often on properties that aren™t perfect.

Home shoppers looking for a great deal should keep these factors in mind when they are looking for a place with potential:

· Location, location, location. It™s still true that you get a better deal when you buy the worst house in a great neighborhood than you do when you buy a fancy house in a not-so terrific neighborhood.

· Less than 50 years old. Properties older than a half decade are likely to have more fundamental problems ” like aging wiring, inadequate plumbing and sagging foundations.

· Livable floor plan. Buyers should select a home with a basic design they can live with. Once they start moving walls, they™re into big money.

· Light. Houses with the most potential have plenty of natural light.

· Good storage. Adding storage isn™t cheap, so it™s smart to choose a property that already has it.

Source: MSN.com, Marilyn Lewis (04/12/2010)

 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

www.FtMyersDreamHomes.com and www.WhatsMyShackWorth.com

Foreclosure Auctions 2.0    

Well, it was bound to happen and frankly, I wonder what took so long. Courthouse auctions of foreclosed properties are a thing of the past. You can now buy a house at the courthouse auction from a base camp at the foot of Mount Everest or from a cruise ship in the Caribbean if you can get an internet link. I am betting you can.

A little history¦

You don™t pay your mortgage, your bank sues you, your bank wins a judgment, and the house is sold œon the courthouse steps at auction. The reality is, the sale on the courthouse steps was usually in a lobby area, under air conditioning. It was very quiet. An outside observer would have seen a group of people, holding folders and chatting and never known real estate was changing hands in that little cluster.

There was usually a clerk for the court, a representative for the bank, a potential buyer and that was about it. The bank always bid the amount of the judgment. That is the unpaid balance of the mortgage, plus costs. If the auction price goes over the judgment amount, the winning bidder gets the house in a couple of weeks.

If nobody opposed the bank, the bank actually got the house for $100 and they had to pay a transfer tax (documentary stamps) of $70. Then the bank could do with the property what they wanted.

In a rising market, the bank often got outbid, and if they didn™t they could take the house, put it back on the market and re-sell it themselves for a profit.

More recently, the courthouse sales moved to a fairly large œjury pool room in the courthouse. Due to the limited seating the room fills over an hour before the sale starting time of 11:00 am. In the hour before the sale starts, reps for the various banks file in and announce case numbers and their corresponding bid for that property. All very fast, very quiet, and if you don™t pay attention, you miss it. If you thought you could arrive at 10:55 for a sale that commenced at 11, you missed it.

At 11:00 the auction started. All very quiet, no œauctioneer chant, just a bored clerk stating the case number and the plaintiff (the bank) bids $100. If someone else bids, they have to state their name and the amount of their bid. The bidder usually bids $100 more, even if the bank has already announced that they will be bidding up to say $52,000. Oh, and the bidder states their name every time!

Needless to say, it takes a while to get to the bank™s number. If there are 100 properties being auctioned that day, it is a very long day! The reason the bank won™t jump right to their max is that they have to pay documentary stamps of 70 cents for every hundred dollars they bid. They don™t really want to see the property bid up to $100k when their reserve amount is $150k. They would rather open at $100 and hope the next bid is above their limit so that the other bidder pays the doc stamps.

Who buys at these auctions? The predominant Buyer is the re-habber. They have previewed the property, know how much it will take to make it look nice and be sellable, and what they can sell for. They bid until they find that they can™t make a profit. They tend to obtain, rehab and have it back on the market in 30 days so they have crews, money,  and are ready to get the job done. They are pros.

Landlords will buy at these auctions. After all, these are the lowest priced houses available. Lowest prices means largest ROI from future rents and when they do eventually sell the property. There is a little risk even though they are buying without a title insurance policy, but they do a little homework before the sale to evaluate their risk.

The last type of buyer at the auctions is a savvy buyer that simply wants a super deal on their primary residence or a vacation home. There are very few of these.

Tomorrow morning, April 5, 2010, we will enter the era of courthouse auctions 2.0. The web site is www.lee.realforeclose.com.

It is slick. You can see the property appraiser™s value, the judgment value and what the bank will be bidding. You can see at least a month in advance all the properties on the sale docket. You get the address, not just the case number or strap number so it is very easy to go view the properties. In the past, most of the clients I work with on these are ones that couldn™t figure out what the address was because court documents reporting was so cryptic.

If you need to get a loan to buy, this is not for you. The reason is, you need to pay for the house the day after the sale and you can™t get a loan that fast. Consult me and I will be happy to help you find other opportunities.

If you are interested in properties, but live elsewhere, consult me. I can help you discover some of the things you will want to know about the property. Either I can teach you where to look or I can personally look for you.

2.0 is going to change the dynamics of the courthouse auctions and potentially the real estate market. The first ones in will do the best. That is always the way with trends. In a couple of months it will be harder to buy at the online auction because of competition.

 There will be more rehabbers. Face it. If you know a contractor in Florida, even if you live in Poughkeepsie, could you see yourself as an investor if you don™t have to go to the courthouse to acquire the property? I can help you establish those contractor relationships.  Could you be a landlord if all you do is acquire the property remotely and then hire a property manager to run your Florida operations? I can help you with property management connections.  

There will be more end-user buyers in the auctions now. Face it. If you can do it online and are willing to bid if you just had a few answers about the property from someone that knows, would you be interested? I can help with those answers.

So, why am I so willing to help you when there isn™t a commission in it? There are a few of reasons, all of which are mercenary.

1)           The faster we get rid of distressed inventory, the faster my property value goes up again.

2)           The faster property values go up, the bigger the pay check for me where commissions are involved.

3)           Some of you will purchase to rehab and re-sell and you will hire me for that job.

4)           Some of you will purchase to collect rents. I don™t want any part of that business, but, forever is a long time. Sometime between now and forever, you will want to sell and you will want to hire me for the job.

5)           All of you will think enough of me for helping you  to send people my way that I can also help.

 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

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 œloan 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