Real Estate Information

In 2000, as housing prices grew out of reach for buyers, more creative financing crept in and subprime lending became big business. Wall Street wanted its hands on more of these loans, and the hot housing market spawned a wave of new subprime companies. By 2004, 75 percent of borrowers were buying a home without using a down payment or proving income.

But by 2006 the subprime market started falling apart; Borrowers were defaulting on loans and subprime companies were going out of business. Bitner says these are some factors that caused the subprime market to crumble:

1. Greed. Mortgage brokers made more money if they sold loans with higher fees and interest rates. So borrowers would often be steered toward riskier products, even if a more traditional (and less risky) loan were available. "My income was directly proportional to the revenue I generated, and subprime was three to five times more profitable than any other type of loan we securitized," Bitner says. "I saw no logical reason to sell something that made less money and carried no competitive advantage."

2. Rampant fraud. Bitner estimates that more than 70 percent of all brokered loan applications submitted to his company were in some way deceptive, which meant everything had to be double-checked and verified. "The practice of massaging loans, making them appear different from what they are, became standard operating procedure," Bitner says. "With little accountability for their actions, brokers [were] left to decide how far they're willing to go."

Economic Stabilization: What Happens Now?

The following is a reprint from the National Association of Realtor Magazine.  It helps understand the economic bailout in layman terms.

The Housing Market Economy; Loan Issues - Or Not ?

I thought I would take a moment to talk about what is - and what isn’t going on in the real estate market today.

I do recognize that in some areas of the country things are very bad.  In fact I was recently at a Star Power meeting in with other top Realtors and was gasping at the market being presented by an agent from Ft Myers Florida with in some cases over 9 years supply of homes.

But here in South Central Alaska, things are slow and steady.  In some areas prices are up as much as 3 - 4% such as Eagle River and Anchorage, while in others area, such as Palmer and Wasilla, prices are down 3-5%.  But this is good news, when you compare it to other parts of the country, where home owners have seen the market and value of their home decline as much as 30 to 40 %.  The issue is loans, and buyers obtaining financing,  and really I have not noticed too much change other than credit scores are more important than ever.  All of the "stupid loans” are gone, and while the pay option arms had a purpose - particularly for someone who might move in less than 5 years - they are not being sold to buyers without good credit and a good down payment.

All markets are local, and while what happens almost anywhere these days effect the economy all over the world to some degree, housing markets are basically driven by the supply and demand and local economic conditions.   When the demand is up and supply is down, prices are up.  Conversely when the supply is up, and the demand is down, prices fall downwards. Basically we have a fairly balanced market; it is neither a Buyers Market or a Sellers Market.  Market values in Alaska continue to appreciate at a reasonable rate of about 2 -3 % annually.  When compared to the double digit appreciation rates of a couple years ago, this may be a snails pace to some, but the current appreciation rates are healthy.  It is precisely because Alaska did not go through much of the craziness some real estate markets went through, with zero down interest only loans, and annual appreciation rates of 25 – 30%, that we are not experiencing much of the doom and gloom we hear and read about in the news media.

What has changed is the loans need to make sense, and if so they are still being given.   As Eagle River’s top selling Prudential real estate team, we are having a slower year than last year, but homes are still selling.  In the heyday over 7 million homes sold across  the USA and there will be close around 5 million USA homes sold this year.  That’s still five million homes; and people still have to buy and sell; at the end of the day we all need a place to live and that is what housing has always and will always provide.  This will never change.

So I wanted to let you know we are still here and not going anyplace.  I am investing more in my team now than ever before and as with all things, this too will change.  We will be ready to work with you on all your real estate needs whether now or in the future.

Often in todays economy, Realtors hear the refrain from Sellers:  "But I owe more than my house is worth.  Particularly when you include Realtor fees, and closing cost, I cannot afford to sell".  There is a whole host of reasons sellers find themselves in such a position:

• They paid too much for their house, and bought it at the top of the market
• They have not owned it long enough to build equity, or perhaps they had an Adjustable Rate or Interest only Mortgage.
• Another reason may be they had a zero down mortgage, and financed all the closing cost into the loan, and as such have not built enough equity.
• Some Seller took out a second loan to remodel or pay college tuition for a child
• Others may unfortunately be going through an expensive divorce that is eating away at community assets

The list of reasons are endless.  Many such sellers consider drastic steps, such as turning the keys back over to the Bank, or perhaps filing for bankrupt.  Either of which will trash the credit of the seller for years to come.

A typical Sellers situation may look something like this:  The Seller purchased the property three years ago at the top of the market for $300,000, financing in their loan origination fee, and other closing cost.  Two years ago the eldest child went to college, and they refinanced, pulling out $30,000 equity to pay college tuition.  Now there has been a downturn in the market, and because they had an Adjustiable Rate Mortgage, their loan payment has increased by $500 a month.  They can no longer make ends meet, and have to sell.  Their current mortgage payoff is $330,000, however the Realtor tells them the market value of their home is only $300,000.  Additionally it will cost them about $25,000 to sell their property.  Anyway you slice it, these Sellers are upside down by about $55,000.  They are considering filing bankrupty, or simply turning the keys back into the bank.

Such sellers may qualify for a little know secret banks do not readily advertise, it is refered to in the Real Estate community as the "Short Sale Process".  Basically the bank does not want to become the owner of your house, they are not in the business of owning real estate holdings, they are in the money lending.  Therefore the bank may be willing to forgive the seller of the difference, and allow the property to be sold for current market value.  Often times in is more cost effective for the Bank to cut their losses and move on, rather than go through the foreclosure process.

The "Short Sell Process" requires a Realtor who is familiar with the process, and can help the Seller navigate through this complicate process.  Further the Seller and the Property both need to qualify.  If a seller has a 2nd or 3rd note on the property, it becomes much more difficult to get all the variouse lenders to agree to participate.

If you would like more information on the Short Sale Process, please feel free to contact us.

Many investors and buyers wonder if Real Estate is still a good investment.  Will I continue to get a good appreciation rate.  For about six years, beginning in about 2001, real estate in many areas of the country enjoyed double digit appreciation rates.  New terms entered our vocabulary, like "Fip this House".  People would purchase a house, fix it up a bit, and then sell it a month or two later for a tidy profit.  In places like Las Vegas, out of state buyers would purchase a new house under construction from a Builder.  Six months later, as the house was being completed, they would list it with a Realtor, and sell it for sometimes as much as 15 to 20% more than they paid for it.  If they purchased  a $500,000 house, they usually gave the builder a 10% deposit ($50,000), and in six months, the house was worth 20% more than the purchase price.  When they sold it, it sold for $600,000, profit of $100,000.  This was flipping on steroids, and too much of this activity has resulted in over building, and the decline of the market in such geographic locations.

Alaska investors do not have to worry about the market crashing here as in the above senerio.  One of the reasons was the "Flipping Phenomone" never really took root here.  Sure there were a few investors who purchased and fixed up houses and sold them, this has always been the case.  Yet buyers were not going into new subdivisions, entering into contracts with builders, and then selling the house just as it was being completed.    Market values here in the Anchorage and Mat-Su area are still appreciating at about 3% per year; a good healthy appreciation rate.  A recent national study ranked Alaska as one of the lowest places in the nation where a decline in the housing market was probable.  In fact there was only a 2% chance market values in Alaska would decline.  Said another way, there is a 98% chance market values will continue to appreciate.

In Alaska, there is a strange phenomenom that occurs every year.  There is a common misconception amongst Alaskans that the Spring and Summer months are the best time to sell a home.  

Each Spring wives give their husbands "honey-do" lists and tell their husbands "it's time to put the home on the market."  Each Spring the number of listings and/or inventory in the Multiple Listing Service doubles and even triples.  During the Spring and Summer months, buyers have a lot more homes to choose from than during the winter months.  With that said, there is generally the same amount of buyers in the winter months than in the summer months.

What does that mean to you as a seller? 

It's quite simple...less inventory in the winter months with the same amount of buyers in the market, means your home has a lot fewer properties to compete against and more of a chance it will be picked by a buyer.  With the same amount of buyers looking at fewer homes, it generally equates to a shorter marketing time for Sellers.

Therefore, the winter months generally yield good sales.  In fact, January is traditionally the second best month for home sales in Alaska.  The winter months are a good time to sell a home for the most amount of money, in the least amount of time, and with the least hassle.

 Eighteen percent of FSBO sellers indicated that preparing the home for sale was the most difficult task when selling without the assistance of an agent, followed closely by understanding and performing paperwork (16 percent) and selling within their desired time frame (15 percent).

As for profit — after all is said and done, FSBOs don’t always come out with fatter wallets. Again, the numbers tell the truth.

Homes sold with the help of a real estate professional in 2006 sold on average for 32 percent more than FSBO sales. The median FSBO selling price in 2006 was $187,200, compared with $247,000 for agent-assisted transactions.

If you are considering building a new home in the Anchorage or Mat-Su Valley, it's a good time to start.  Les Bailey and Associates is well versed in the new construction process and will help you get into the home of your dreams within your budget. 

If you currently have a home you need to sell before you can build your new home, don't worry, Les Bailey and Associates has a "Guaranteed Purchase Program" to ensure you get into your new construction home.  If you are interested in this program, you can contact Les Bailey and Associates on the web at www.LesBaileyandAssociates.com or www.RealEstateInAk.com. 

From the time you decide to start a new construction home and enter into a Purchase and Sale Agreement, you can expect approximately 140 to 180 days for completion of your new home.  During this time, you won't make a single mortgage payment on your new home because the Builder assumes all interest in your lot and construction loan during the construction process.  That essentially buys you approximately 6 months to get your current home sold if you need to do so.  Keep in mind, it takes more than only placing a For Sale sign in your yard to get your home sold now.  It is crucial you list your home with a top producing realtor with an agressive marketing system.  Don't just list with any realtor because most realtors can't afford to agressively market your home.  Make sure you do your homework and list with a realtor with a proven marketing system.