New home sales rise 11% in June

Real Estate News & Commentary by Chris McLaughlin, July 27, 2009

http://www.shortsalesriches.com

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New home sales rise 11% in June

According to the Commerce Department, sale of new homes rose 11% to a 384,000 annual pace in June; this was the strongest sales pace since last November. This points to stabilization in the housing sector which has been in slump since 2005. Despite the rise in unemployment, falling home prices and drop in interest rates are helping home sales. “Home demand is stabilizing and that’s not surprising given the improvement in affordability,” said Zach Pandl, an economist at Nomura Securities. “Home sales are likely to pick up from here.” The Obama administration has committed $1.25 trillion for buying mortgage backed securities in order to lower borrowing costs for homebuyers. On account of government initiative, the rate on 30-year mortgages dropped to a record-low of 4.78% in April this year. While the rate has risen to about 5% since April, housing experts believe that the interest rate is still favorable to homebuyers. Federal Reserve Chairman Bernanke said recently that the economy is showing “tentative signs of stabilization” and the “decline in housing activity appears to have moderated.” Unemployment continues to remain a concern for the housing market. Analysts say that housing recovery could be hit if unemployment continues to rise.

FHFA’s expanded “home affordable” program likely to help struggling borrowers

As home prices fall, homeowners find that their homes are worth less than what they owe towards mortgage payments. The Federal Housing Finance Agency (FHFA), on account of rising negative home equity, has expanded the home affordable program to allow lenders to offer new mortgages to borrowers even if their home’s value exceeds the mortgage amount by as much as 25%, as long as the borrower has been regular in loan payments in the past year. The government feels that “good” borrowers may become part of the next wave of foreclosure unless offered assistance. According to zillow.com, 22% of homeowners nationwide have negative home equity. In states such as California, Nevada, Arizona Las Vegas, and Florida, over 40% of homeowners have negative home equity in certain areas. The new version of home affordable program will lower monthly mortgage payments for troubled borrowers. The program covers only loans purchased by Fannie Mae and Freddie Mac.

If you cannot sell it, rent it

Builders who are unable to find buyers for their apartment complexes are increasingly looking at the option of renting their properties. Unsold properties impose a significant cost-of-carry and in order to keep money coming in, developers are looking for renters. Robert Levine, the president of RAL, a company which could not find buyers for its condominium project in New York, said: “We’re subject to the real world. The real world is such that financing is an issue for buyers, sale of their current residences is an issue for buyers. All of those factors enter in and slow down the process.” RAL has begun renting out its apartments. Developers must specify the right to sell unsold apartments in the original condominium offering plan. “If the developer can’t sell, he makes this decision with his lender,” said Andy Gerringer, who manages the development marketing group at Prudential Douglas Elliman. “They agree together that in order to get cash flow, they’re going to rent units.”

Will minimum wage hike impede economic recovery?

The federal minimum hourly wage got hiked to $7.25 last week. Some economists are worried about the cost impact on small and medium businesses which have already been hit by recession. “How will they absorb the increase?” said Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center. “They will either hire less people or they will do less business.” Those who are in favor of minimum wage hike say that more money in the hands of workers means higher consumer spending which in turn means higher economic growth. According to Labor Secretary Hilda Solis, the wage increase will translate into an additional $5.5 billion in consumer spending over the next year. In states such as Alabama, Florida, Georgia, Indiana, North Carolina, South Carolina and Tennessee, where unemployment is in double digits, the pay increase could have a further adverse impact on employment. “The increasing power from the higher wages will be swamped by the losses from the people who lost jobs,” said Dhawan. Economists who are advocates of wage hike say that positive effects of the additional buying power of consumers are likely to be significant. “You can’t have an economy that’s based heavily on consumer purchasing power, and at the same time, not pay the consumer enough to live on,” said Holly Sklar, senior policy adviser for Let Justice Roll, a national campaign aimed at increasing the minimum wage to $10 by 2010.

Auto repossession industry faces tough times

With the economy in slump and defaults rising, one would expect the half-billion dollar repossession industry to be thriving. According to Barnes Reports, the industry will shrink by 10% this year, laying-off a large number of workers. What could be the reasons for the poor industry performance? Art Blanchette, a 40-year veteran of the repo industry and president of the American Recovery Association, says that creditors are giving troubled borrowers more time to pay in order to minimize their losses. This means repo firms are called in less often. “The last thing our clients want is to get a car back,” says Blanchette. “The moment they do, they take a loss.” GMAC spokesperson Sue Mallino said: “Our end goal is to keep people in their vehicles; it’s in the interest of both parties.” In addition, banks are lending less given the current state of the economy. “If no money is being lent, nothing is being bought, therefore there’s nothing to default on, and so there’s no need for my services,” Blanchette says. Some players emphasize on the importance of diversification for survival. Mike Scott, president of Scotty’s Carriage Works, says, “If you’re not diversified, you’re not going to make it.”

Now on to our real estate investor education section…

What’s Better – Short Sales or Tax Certificates?

Late night guru’s and top selling books both proclaim tax certificates as a sure-fire way to build wealth. While tax certificates and liens can certainly become a profitable part of your investment portfolio, they are not without risk. When it comes time to investing your hard earned dollars into real estate, what is better – short sales or tax certificates? Keep reading to learn the facts behind the façade then decide for yourself which makes the most financial sense.

Fact- Tax Certificates can generate returns as high as 16 to 18 percent. While that certainly beats putting your money into a savings account or even the stock market, it’s still a far cry away from the returns realized by many short sale investors. Consider this, if you were to take $100,000 and invest it entirely into tax certificates each earning an incredible 18 percent, you would generate $18,000 profit (before taxes, transaction fees, losses etc…). On the other hand, that same $100,000 could be used to purchase up to 5 short sale properties at 20 percent down payment…each of which could easily earn $18,000 in much less than one year’s time!

Fact – Tax certificates and raw land rarely generates residual income. Your money is tied up until the redemption period or the property is sold. Short sales can be rented, leased or otherwise used to generate income prior to the actual sale.

Fact – Tax certificates are not always redeemed! Especially during tough economic times, the back taxes plus interest and other fees may cost more than the property is worth leaving tax certificate investors holding the bag. You can petition to have the property sold but back taxes, liens and other expenses often make it a losing proposition. Worse, if you don’t continue to pay the taxes on the property, additional liens could drive up the total cost even more.

Fact – Liens, environmental restrictions and major clean-ups can further reduce the profit potential of a property even should you become the “high bidder” for a non-performing concern. People promoting the benefits of buying tax certificates for investments rarely talk about the cost of taking acquisition should a property fail to be redeemed. The underlying assumption is the value of the underlying land would compensate for the risk – but what happens if the land itself is the risk? Remember, there is a reason certain properties are forfeited…typically because the value of the property has dropped below the back taxes and other liens or because there is a very high assessment, clean-up fee or restriction associated with the parcel.

Fact – Minimum bids on auctioned properties may not ever reach the minimum you have invested into the property. Further compounding the problem, if more than one tax certificate investor has an interest, proceeds are further divided.

Fact – Clouded title is common. Another relatively expensive problem rarely mentioned in association with tax certificates Is the issue of a clouded title or lack of proper recording. Remember, tax certificates only earn those great interest rates if they are actually redeemed – otherwise, you could be stuck with a property you never expected to own and which could cost a small fortune to obtain clear title, pay off existing liens, bring the property up to par in order to sell or even “unload” if excessive environmental or other concerns are noted.

See you at the top!
Chris McLaughlin

http://www.shortsalesriches.com

Copyright Loss Mitigation Institute LLC 2009.

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes.  Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,

running 4 different offices, supporting nearly

450 agents, uniquely positioning him to help

thousands of investors make money in the

biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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