Lawmaker hopes to spark job creation with private loan fund for startups

How market is faring depends on whether you’re a buyer or a seller

Can the market get any better than this? Can it get any worse than this? Of course the economy will get better by and by and the market will change.

For those looking to lease or buy commercial space in which to operate their business, we feel now is the time to make a deal. For those needing to lease out or sell space they own, now is still a difficult time. Perhaps the best that can be hoped for is to hold on for better times. And for those looking to buy for investment purposes, it’s a mixed bag.

Dr. Peter Linneman, NAI Global chief economist and principal at Linneman Associates, said that the nation’s economy bottomed out in July of 2009. He further stated that the recovery has started at least in the nation as a whole. The housing and auto sectors led us into the recession and will be the last to fully recover. But they too are showing positive signs.

He contends this recession is not a unique event in our history. Certainly it has been rather harsh, but not any more so than those in 1973 to 1975 and 1980 to 1982. So real estate will recover as it did in the past. The vacancy rate will drop, particularly because we have not been building for two years. Rates and prices will start back up after the precipitous fall of 2009. Employment will pick up, albeit slowly.

Nationally, company profits were up each of the last four quarters, prompting a rebound in the stock market. As jobs come back, the economy will pick up substantially and all of this will fuel the commercial real estate market.

To be sure, this is not a normal market. Distressed sales are the norm rather than the exception. But we are working through that inventory. As optimism infects the public, and it always does in this country, prices will continue to rebound and those who miss this market will be looking back at the lost opportunities.

I believe retail will be the first to recover. Location is still the key to this market in which the property’s location, appearance and access are integral to how well the business does. There are only so many great intersections or anchored centers. How many grocery-anchored centers have been built in this valley even in the boom years since 2002? Almost none. If your business depends on traffic past your door, there are only so many good locations. So great retail locations will lead this sector back to health.

Industrial space has traditionally been a tightly controlled commodity in the Treasure Valley. Vacancies are at high levels and there is more flexibility for buyers as to where they locate. But speculative building has not been seen for two years now so the upturn will absorb the vacancy fairly quickly.

Office has never completely recovered since the dotcom bust in 2001. But office rates are below what someone could afford to build and lease out for. Lease rates will increase if just from the inflationary pressure that is bound to flow from the federal deficit.

And the Treasure Valley is still a great place to work and live. Just ask BMC what drew it back here. The population is growing and so will the need for places to conduct business. Look for the first improvements in the office market conditions in desirable areas like Parkcenter, downtown Boise and the Eagle Road and Overland area.

Investments are starting to attract the wise and savvy investors. It will take cash or substantial equity to pick up the best deals. Anyone who still has cash or equity is savvy in my book. Residential lots sold in bulk are at prices less than the improvements costs. Commercial buildings are selling for less than replacement costs. Notes are selling at substantial discounts.

This cannot last. A little staying power here will yield great returns. We will be looking back and asking where did these new players come from. They will be coming from deals they make this year.

So if you have been laid off from your job, this is a recession like no other. But in aggregate this is another in a series of recessions or adjustments. Things will change as they always do but life will go on, the markets will improve and those who take advantage of this downturn will be tomorrow’s movers and shakers.

***

By Ray Frechette

Home Pricing Slow to Recover

The latest report from First American CoreLogic indicates a more pessimistic outlook than previously expressed.

The national real estate data company predicted the U.S. will see further declines in home prices, followed by a recovery in the spring.

But that recovery is now projected to occur later and to a lesser degree.

The national home price index (a system that takes into account price, time between sales, property type, loan type and distressed sales) is expected to be up by just 0.23 percent by November 2010.

In the Boise metropolitan area, the outlook is not much better. Home prices are expected to be up by 0.35 percent in November 2010.

Home prices in November 2009 were down 14.13 percent in the Boise area from the previous year. Nationally, the decline was 5.7 percent in the same period.

Around Idaho, prices dropped 10.98 percent in November 2009 from year-earlier rates. Idaho posted the fifth-largest decline in the nation.

“On average, we are expecting home prices to turn around next spring,” Mark Fleming, chief economist for First American CoreLogic, said in a release. “While the share of REO sales are down, allowing price declines to moderate, there is concern moving forward with the levels of shadow inventory, negative equity, and the ability of modification programs to mitigate this risk.”

*IBR

ATTENTION INVESTORS!! New FHA rule change should encourage house-flipping

A new market will soon open to people who buy houses with the purpose of fixing them up and selling them: FHA buyers.

Since 2003, house flippers have been restricted from selling to buyers using Federal Housing Administration loans for 90 days after purchasing the property. That meant some flippers would shy away from deals with potential FHA buyers, knowing they’d have to wait for that 90-day period to end.

FHA loans often serve first-time and moderate-income homebuyers, enabling them to purchase a house with a low down payment.

The FHA said Jan. 18 that the 90-day restriction will be suspended for a year, beginning Feb. 1.

One result will likely be that more investors will jump into the flipping market, buying up foreclosed homes in disrepair and rehabilitating them for a profit.

Some say this will inflate housing prices, making homes less affordable for buyers. And some say this opens up FHA buyers to scams.

But the FHA says there are rules in place to prevent predatory practices. First of all, deals must be “arms-length:” The parties in the sale can’t have the same interest.  

This is designed in part to prevent homeowners from defaulting on a loan, then bringing in a friend to buy it from the bank at a rock-bottom price and return it to the homeowner at a slightly higher-than-rock-bottom price. In that scenario, the friend/flipper would make a profit and the homeowner would have a cheaper mortgage, all at the lender’s expense.

Another notable restriction prevents sellers from knocking the new price up more than 20 percent from its purchase price, unless an independent appraiser says the renovations justify that increase.

“They’ve seen enough of those abuses now over the past four to five years that they’re getting much better at identifying [predatory] transactions,” said Steve Cox, a branch manager at Boise-based Stonebrook Mortgage and president of the Idaho Association of Mortgage Brokers.

He said the rule’s suspension will help transactions move faster through the closing process, allowing more transactions to be final in time for the homebuyer tax credit, which is set to expire in June.

And he said renovating and selling houses is a “legitimate business activity, as long as they’re not turning around and making a substantial profit after beating up the bank for a low price.”

And since FHA loans have come to play an ever-more-important role in homebuying in the last two years, being allowed to sell to FHA buyers makes house flipping a lot more attractive.

**IBR

New RESPA regulations may slow real estate recovery

New federal regulations designed to protect homebuyers from nasty surprises at loan closing time could slow the recovery of the real estate market, some industry insiders say.

The regulations require early disclosure of expected loan costs for residential mortgages, with potential penalties if the actual costs exceed the early estimates.

One real estate attorney said the new rules can hamstring lawyers by forcing them to accept only their basic fee, even if they have to spend extra hours on a real estate deal. Another industry lawyer said the rules will discourage use of local professionals in favor of big national banks and their affiliates.

The new rules are revisions to regulations under RESPA, the 1974 Real Estate Settlement Procedures Act. The law is aimed at exposing hidden kickbacks and referral fees to consumers.

“Everybody has been going to school for the last three months trying to figure out what to do, and they will continue to try to figure it out,” said one title insurance executive.

New rules approved in November went into effect Jan. 1. They require new forms to give homebuyers advance notice of the costs involved in loan settlement and an easy way to compare actual costs with the estimated costs. If the actual costs are significantly higher than the estimated costs, the lender has to pay the difference.

The minutiae of the new rules are available through a FAQ page maintained by the Department of Housing and Urban Development.

With new forms to learn and looming penalties for mistakes, real estate professionals have been studying for several months to get ready for the changes, said Lisa K. Tully of Richmond, vice president-underwriting counsel with Lawyers Title Insurance Corp.

“There is a significant impact on the settlement industry, especially residential real estate attorneys,” Tully said.

Lenders are required to be extremely accurate in their early estimates of closing costs, Tully explained. If the actual costs exceed the estimate by a certain tolerance amount, the lender has to pay the difference.

“The lenders and the settlement agents have to be in really close contact throughout the settlement process, so there’s going to be a lot of up-front discussion,” she said.

Tully described a situation where a lender estimates the recordation tax based on the sale price – only to learn later that, due to the depressed real estate market, the assessed value of the home is higher than the sale price. Since the tax is based on the higher of the two figures, the lender is out the extra tax the borrower has to pay. “It’s very tricky,” Tully said.

As of last week, we couldn’t find anyone who had actually closed on a loan under the new regulations. Settlements still were being done on loans originated before the new year.

“Just judging by the workload this week, I’m thinking lenders are delaying some loan closings,” Tully said. “I think they are being very, very careful”

At a recent gathering of Charlottesville-area real estate lawyers, no one reported any closings yet with the new rules were in effect. Larry J. McElwain said about 15 lawyers met for a brown bag lunch on Jan. 11, but no one had any experience yet with a settlement under the revised RESPA.

“At this point, we’re still going – such as it is – business as usual,” McElwain said. He said it will be interesting to hear reports at this week’s winter meeting of the Virginia Bar Association, where McElwain is vice chair of the real estate section council.

In Virginia Beach, the story was the same, according to Howard R. Sykes Jr., whose practice focuses on residential real estate closings. “At this time, we haven’t seen any effect, positive or negative.”

Sykes expects a slowdown, at least at first. “It adds another page to the settlement statement,” he said. “There’s a whole lot more numbers.”

Sykes said there are other new regulations coming into play, including new rules under the Truth in Lending Act.

Sykes said lawyers can get in a bind with the new RESPA regulations if a complication arises between the early estimate of costs and the actual closing. If there’s a dispute over the contract, a title question pops up or repairs are required, the lawyer might spend two to three extra hours on the file.

Under the new regulations, the attorney would be hard pressed to charge for that time at closing without the lender paying a penalty.

Sykes said there is no way to increase fees to account for the unexpected complicated case. “It’s just a cost of doing business, I’m afraid,” Sykes said.

Tully acknowledges concern that the new rules could clog the real estate recovery. She said there are three potential problems. First, lenders will be going slow to make sure they don’t end up paying substantial penalties for unforeseen cost increases. Second, the new forms allow lenders to lump fees together for title services, making it easy to hide excessive charges.

Third, Tully said RESPA allows lenders to direct borrowers to affiliates through required lists of settlement service providers. Although the rules are designed to avoid insider deals such as kickbacks, Tully said the requirement to provide the consumer with names of professionals creates an opportunity for favoritism.

“They are really allowing the lenders to direct settlement business,” Tully said.

Tully said the long range effect may be to take business away from local “Main Street” providers and send it to national banks and their controlled entities. “I truly do not believe HUD saw this. They should have, but I don’t believe they did,” she said.

Those affected by the new rules have a four-month reprieve if they goof up while trying to comply with the new rules. HUD officials made it clear, however, that the 120-day restraint in enforcement is not a delay in the effective date of the regulations. The grace period is only a period of forgiveness for those who unintentionally run afoul of the rules while trying to comply. Failure to use the new forms is not excused.

*IBR

FHA Relaxes Property Flip Regulation For One Year

New information imperrative f

Effective for all sales contracts dated on or after February 1, 2010 and for a period of 1 year. Certain property may be resold and financed using FHA insured financing without waiting 90 days. FHA has temporarily waived the 90 day wait period, on certain transactions. These recently purchased homes may be sold and financed with FHA insurance. · Private sellers and investors are now eligible to take advantage of this waiver.

· These transactions must be arms-length, with no identity of interest between the buyer and the seller or other parties participating in the sales transaction.

· In cases where the sales price is 20% or greater than the seller’s acquisition, the lender must justify the increase in value with supporting documentation of renovation, repair and rehabilitation work. 

·If no such work was performed the appraiser must provide an appropriate explanation of the increase in property value since the prior title transfer.  

·The lender must order a property inspection and provide that report to the home buyer. Buyer’s may be charged for the cost of this inspection.

There is much more detail to this wavier and if you have transactions meeting this guideline you are advised to read the waiver in its entirety here:

http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf This is fresh information and I wanted you to have good news as you start your weekend!

Idaho ranks sixth in 2009 per-property foreclosures

The year-end totals are in, and Idaho ranks No. 6 for most per-property foreclosures in the nation.

A grand total of 17,161 properties were foreclosed on in 2009, or one in every 37 houses. That number is double what it was in 2008 and almost four times what it was in 2007, according to RealtyTrac.com.

Nevada fared the worst in the country, with one in every 10 properties entering foreclosure. Only 0.05 properties in Vermont, on the other end of the spectrum, went through foreclosure in 2009.

The national average was one in every 45 properties.

“As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” RealtyTrac CEO James Saccacio said in a press release. “After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline.

“Despite all the delays, foreclosure activity still hit a record high for our report in 2009, capped off by a substantial increase in December. In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog.”

Online auctions put twist on tradition

For more than 2,000 years, the auction industry really didn’t change much.

An auctioneer – a person who was one part showman and two parts marketing genius – would display at item and then, using the verbal agility of a veteran sportscaster, work to establish the highest possible price for that item.

It didn’t matter what was being sold – arts, household goods, animals or stocks and bonds – a good auctioneer could quickly establish exactly what the market would pay for any given item.

That industry standard hadn’t changed much in more than 2,000 years.

Then the world found the Internet.

Today, the local estate auction that draws buyers from across the county can bring in buyers from across the next county, the state, the next state or even a foreign country or two. Only instead of going to one place and bidding on items there, potential buyers can sit down at their computers and sign on to auctions from around the world.

Once the sale is completed online, the goods are shipped to their door.

Call it the digital version of the auction, and it’s growing.

“It’s a world market,” said Louis Dakil. Dakil, who along with his wife, Susan, owns and operates Louis Dakil Auctioneers Inc., said the company gets bidders from across the globe. “We have bidders from England, from Guatemala, from Hong Kong from Saudi Arabia, from all over the world.”

And what was once just a local or regional market for auctions, has, through the Internet, been opened to the world.

And for Dakil that expanded market offers his company the chance to sell its clients goods across the globe.

“At almost every major auction we give people the opportunity to bid anywhere in the world,” he said. “We actually run the online auction parallel to the live auction on the floor. We’re trying to maximize on everything for our clients.”

Take, for example, oil-field equipment.

Once Dakil and his company set the auction date, prospective bidders are given the chance to preview the equipment in person about a week before the sale. On the sale date, photos of the equipment are shown and bids are accepted at Dakil’s headquarters on NW 114th Street.

And while that spot might draw a few hundred bidders, Dakil’s online version can draw many more times that number of bidders from across the globe.

“Yes. There are still people who need to see it, feel it and touch it,” Dakil said. “But they are becoming fewer and fewer between,” he said. “Our online presence continues to grow. The younger generation is more computer-literate and -friendly than the folks over 50.”

According to the National Auctioneers Association, more than $268 billion worth of goods were sold via auctions in 2008. With the advent of online auction services such as eBay, the Internet-based auction is now as commonplace as its real-time counterpart.

“The online component of auctions continues to grow and grow,” NAA spokesman Chris Longly said,

“Our buyer pool is no longer just in the county, but in the country,” Longly said. “Business owners have adapted their tools to reach a larger pool of buyers. No longer do you have to be live on site to participate in the auction.”

Additionally, Longly said, online auctions such as eBay have actually helped the industry.

“EBay has actually done the reverse of what some thought it would,” he said. “People enjoy competition. They enjoy the treasure hunt. But on eBay there is a wait. It’s static. Auction, however, is immediate. It’s adrenalin-pumping. People have gone from being an eBay buyer to attending live auctions.”

For auctioneers such as Enid-based Troy Lippard, the online auction is simply another tool he can use to reach a potential buyer.

“I think it’s kind of a good sales tool,” Lippard said. “We still sell more stuff to people in the audience. In fact, about 90 percent of our stuff is going to be sold to someone who is right there.”

But the online component, Lippard said, brings in additional dollars and expands his reach.

“We just recently sold a ranch in Latimer County,” Lippard said. “And there was a bidder who saw the stuff online. He found out about it just a day before the auction. We got him qualified, but he couldn’t come to Enid to bid, so he goes to Dallas and bids online and he ended up buying the ranch. That deal was in excess of $2 million and without the online component we wouldn’t have had the buyer.”

Still, for many, the auction is just more than a fast-talking guy with a microphone. It’s an event, a competition, a place and a market all at once and it’s best when it is done face-to-face.

“There will always be a place for the bid-calling auctioneer,” Longly said. “That’s not going to change – ever.”

Article brought to you by M Scott Carter, IBR

TAX CREDITS GALORE!!

Great news for potential Idaho homebuyers! Idaho Housing and Finance Association has awarded $34.2 million in American Recovery and Reinvestment Act funds through the Tax Credit Assistance Program and Tax Credit Exchange Program to developers to help restart Low-Income Housing Tax Credit developments that may have stalled because of declining equity prices. This will doubtlessly stimulate the sluggish Idaho Home Construction industry as well as the Idaho Homebuyers market as new and more affordable Boise Idaho Homes will become available while interest and mortgage rates are at an all time low!

The funding is intended to help kick-start the nation’s ill economy, with it’s primary focus being creating and saving jobs in the near term and investing in an updated infrastructure that will provide long-term economic benefits. Funds will not be committed until all applicable federal requirements have been satisfied. Gerald Hunter, IHFA president and executive director said, “Idahoans will directly benefit from this funding through the new jobs created and through the additional affordable housing that will soon be available for Idaho residents.” The Tax Credit Exchange Program funds projects for construction or acquisition and rehabilitation of low-income housing to continue where developers are unable to proceed due to lack of real estate investors. In this way, the near-term goal of creating and retaining jobs is achieved, as well as the long-term benefit of increasing the affordable housing supply.  

Low-Income Housing Tax Credits provide a dollar-for-dollar federal tax liability reduction for owners of newly constructed or substantially rehabilitated rental housing, encouraging developers to build affordable rental housing. Cities that are home to awardees of this funding include: Ketchum, $7,523,333 – Buhl, $1,432,032 – Montpelier, $1,938,101 – Caldwell, $5,950,000 – McCall, $4,659,074 – Chubbuck, $393,100 – Fruitland, $2,465,000 – Marsing, $646,000 – Grand View, $408,000

BOISE AREA FORECLOSURE UPDATE

The number of foreclosures filed in Ada and Canyon counties in 2009 rose 66 percent over the total from 2008.

IdahoDataProviders.com reports that 8,639 foreclosures were initiated in the two counties last year, compared to the 5,202 filed in 2008. Both totals dwarfed the 2,402 foreclosures filed in 2007.

December 2009 foreclosure starts were down 8 percent from November 2009 in the area.

IdahoDataProviders CEO Charlie Nate said in a press release he anticipates a “continued, constant and record stream of distressed properties” going into foreclosure in 2010.

“Government efforts to stem the foreclosure tide through its loan modification program (HAMP) have failed miserably and there are no other real solutions on the drawing board to stop or prevent foreclosures,” he said.

Local home prices may  fall another seven to 10 percent this year, a prediction backed by national economists.

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