When a developer develops lots, he or she incurs heavy upfront costs to acquire the land and install the infrastructure. These costs must either be financed or paid in cold hard cash. If the costs are finacned, the developer must pay interest on the acquisition and development loan and may have a “balloon” for the repayment of the loan. Those financing costs result in ongoing debt payments that erode any potential profit when the lots are eventually sold. (Life gets exciting when a developer owes millions of dollars on an asset that is unsalable and/or declining in value). The lots created by the developer must either be built upon or sold to builders to recoup development costs and, hopefully, a profit.

In our current market, builders have stopped building because they can’t obtain construction financing and/or they fear they cannot sell the homes when built. This leaves the developer facing the decision to hold onto his lots or sell them at today’s lower lot prices. If the developer sells his lots at a lower price point, builders who purchase them can then build lower-priced homes to meet market conditions. That means homeowners who previously purchased homes when times were better may end up with smaller homes or homes of lower quality built on the remaining vacant lots in their subdivision. This, of course, robs the owner of the “nicer” home in the community of any equity which may remain.

Another separate consideration is what may happen with incomplete common areas and other amenities (pool, community clubhouse, so on and so forth) if the developer sells his remaining lots to another builder who doesn’t deliver on promises to complete those amenities.

All this said, it is essential to be within a proven subdivision developed by a developer possessing financial strength and a track record of delivering what they promise. Otherwise, you may be in trouble.

Questions about your community and the status and/or your developer? Call me at 869-3469, I’d be happy to acquire information for you.

source boiseblog

Closed Sales – February 2009
# Closed: 19
Average Sales Price: $407,505
Median Sales Price: $398,000

Closed Sales – February 2010
# Closed: 29
% Change: +52.6%

Average Sales Price: $380,523
% Change: -6.6%

Median Sales Price: $365,000
% Change: -8.3%%

Pending Sales
# Pending: 77
Average Asking Price: $366,665
Median Asking Price: $335,000

Available Homes
# Available: 330
# Vacant: 120
Vacant Percent: 36.4%
Average Asking Price: $459,420
Median Asking Price: $350,000

Data does not include condominiums or townhomes. Data taken from Intermountain MLS on3/5/10 and pertains to single-family residences on lot or acreage.

source: boiseblog.com

Closed Sales – February 2010
# Closed: 108
% Change: +31.7%

Average Sales Price: $185,052
% Change: -8.9%

Median Sales Price: $160,744
% Change: -12.4%

Closed Sales – February 2009
# Closed: 82
Average Sales Price: $203,049
Median Sales Price: $183,400

Pending Sales
# Pending: 250
Average Asking Price: $188,249
Median Asking Price: $169,000

Available Homes
# Available: 1,000
# Vacant: 575
Vacant Percent: 57.5%
Average Asking Price: $198,957
Median Asking Price: $174,900

Data does not include condominiums or townhomes. Data taken from Intermountain MLS on3/5/10 and pertains to single-family residences on lot or acreage.

source: boiseblog.com

Closed Sales – February 2009
# Closed: 290
Average Sales Price: $209,422
Median Sales Price: $181,625

Closed Sales – February 2010
# Closed: 365
% Change: +25.9%

Average Sales Price: $197,431
% Change: -5.7%

Median Sales Price: $165,000
% Change: -9.2%

Pending Sales
# Pending: 877
Average Asking Price: $203,269
Median Asking Price: $164,534

Available Homes
# Available: 3,684
# Vacant: 1,905
Vacant Percent: 51.7%
Average Asking Price: $240,280
Median Asking Price: $174,900

Data does not include condominiums or townhomes. Data taken from Intermountain MLS on3/5/10 and pertains to single-family residences on lot or acreage.

source: boiseblog.com

It is also important to not look for only bank owned homes.  There are numerous non-distressed homes on the market (fair market sellers) that must sell.  These homes are priced competitively and do not need the improvements that a foreclosed upon home typically does.  With that, it is important to consider the costs of repairs when deciding whether to purchase a home which needs some love (yet is priced lower than the home down the street) or one that is turn key and ready to be moved into.

Bank owned homes will be prevelant in our market through 2010 and part of 2011.  Would you like a list of bank owned homes forwarded to you?  If so, send me an email with your contact info and I will provide a list of bank owned property currently on the market.

Negative equity soars in Boise metro area

In the Boise metro area, 34 percent of homes are now worth less than what is owed on the residence.

Homes in this category are referred to as “underwater” or “upside down” properties, and their ranks have been growing as home values have declined.

The Boise area’s performance has been worse than both the national average and the state average, according to national research firm First American CoreLogic. Nationally, 24 percent of all residential properties with mortgages were in negative equity at the end of the fourth quarter of 2009. In Idaho, 23 percent of residential mortgages (53,663 homes) were under water in that quarter.

“Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” saidMark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”

Don’t start flipping homes if your financial situation is not “healthy”.  Ensure that you have the following necessities in place prior to making your first flip:

1)      Full-time job or a steady stream of income

2)      A separate account with at least $10,000 set aside for repairs on your future flip

3)      6 months worth of living expenses in reserves

4)      Income which allows 10% of your monthly wage for savings or retirement

5)      Potential investment partner or partners

Don’t be without a business plan.  Create a personal financial budget, if you don’t already have one.  Next, create a businessfinancial plan that indicated the amount of capital set aside for repairing and remediating future properties that are purchased with the intent to flip. 
Don’t take on too many projects at once.  It is wise to begin the flipping process with just one home (unless you have a large backing).  Once your feet are wet with a successful flip then move on to the next. 

Don’t purchase a home “site unseen”.  Whether or not the home is in the most ideal area or the asking price is priced substantially lower than homes in the vicinity, never purchase a home without having a proper visual and structural inspection.  Flipping a home requires estimating the amount of capital it will take to repair any cosmetic or structural damage.  Purchasing site unseen is a gamble not worth taking!

Don’t purchase a home to flip if you are unable to carry the loan for an extended amount of time.  Ignore the urge to flip homes if you can’t afford 2 mortgage payments for an extended amount of time.

Don’t purchase a home with structural problems.  A leaky basement, water intrusion and large cracks in the foundation are an invitation to huge out-of-pocket expenses (along with other structural defects).  Carpet and paint is one thing—mold is another.  The goal is to pay as little as possible to spruce up the home for the next purchaser.

Don’t quit your day job (unless you have a lot of cash lying around).  You find THE home that is going to net you a years salary at your “real” job and think, “I should just quit and do this full time!”  Think it through.  You may net a year’s salary from one flip yet you may not be able to do it consistently.  Ensure that you have a knack for turning property at a significant profit prior to considering house flipping full time.

Don’t start without a solid exit strategy.   Good intentions unfortunately do not develop into dollars.  Have a plan if your flip doesn’t perform in that manner that you thought.

TRUTH:  Although short sales are difficult, acquiring or selling a home as a short sale is not impossible.  More and more short sales are being approved on a monthly basis and the new HAFA guidelines should help making short sales easier to facilitate.  Most importantly, it is essential to acquire the services of a short sale specialist who is experienced and knows the “ins and outs” of short sales along with systems used to make the sale a success.

2)  Banks are waiting for a bailout.  Thus, making it difficult to purchase a short sale or sell your home as a short sale.  FALSE

TRUTH:  Banks have already been bailed out and seem to be doing everything possible to avoid another foreclosure.  More and more banks are pursuing short sales and agents who understand how to process the transaction.  In most cases, it costs that bank 30% more to let the home go into foreclosure rather than approving a short sale.

3)  You must be behind on your mortgage in order to be eligible for a short sale.  FALSE

TRUTH:  In the past it was very difficult to obtain a short sale approval from the bank.  However, the financial institutions mindset has reversed.  Today lenders are looking for verifiable hardship, monthly cash flow shortfall or pending shortfall insolvency.  If you meet any of the mentioned requirements then you are eligible to sell your home as a short sale without being delinquent on your home loan.

4)  Buyer are not interested in short sales and tend to avoid them like the plague.  FALSE (for the most part)

TRUTH:  Some buyers are not interested in short sales due to the lengthy waiting periods–especially when there are time constraints associated with the purchase similar to the First Time Home Buyer Tax Credit or Move-Up Credit.  On the other hand, those that can be patient tend to obtain some very good buys–some which are sold for over 30% under current market values. 

5)  Selling your home as a short sale is an embarrassment.  FALSE

TRUST:  Most sellers would prefer that the community wasn’t aware of the financial hardships at hand.  However, 1 in 5 homeowners within the United States owe more on their home then what it can be sold for.  Even wealthy owners must stop the bleeding at some point.  Those who sell their home as a short sale rather then letting it go into foreclosure should be congratulated.  Check out my recent post which discusses this by clicking here.

6) The bank would much rather foreclose than bother with a short sale.  FALSE!!!

TRUTH:  The myth began in part to collection representatives working for the lender which would often state this myth in an attempt to collect the debt.  The realty is that banks do not want to foreclose on homes–it costs way too much.  An average foreclosure costs the bank 30% more to foreclose than to facilitate a short sale due to the holding costs, insurance, realtor fees and other miscelaneus fees needed to care for and sell the home.

7) There is not enough time to negotiate a short sale before the home is foreclosed upon.  FALSE

TRUTH:  This myth hurts homeowners the most.  The foreclosure process is lengthy.  It can take up to a year (or more) for the home to be foreclosed upon by the bank.  Nearly all banks will postpone a foreclosure with a legitimate contract for a short sale.  A postponement can be obtained within days of foreclosure.

The $8,000 tax credit expiration date has been pushed forward to Spring, requiring homebuyers to have an accepted written contract no later than April 30, 2010 and to be closed on the purchase by June 30, 2010.

“Move-Up” buyers were also provided an incentive to purchase with the expanded program.  Homeowners that have lived in their current residence for five out of the last 8 years are eligible for a tax credit of $6,500.   Don’t get confused by the “move up” lingo–a current homeowner can purchase a home that has less square footage and amenities than the current residence and still be eligible for the credit.  For example, my folks have decided to move from their 3000-sqft home into a 1000-sqft town home and are eligible to receive the incentive.

The tax credit’s basic eligibility requirement remain the same: 

• A home cannot be acquired through gift or inheritance
• A home cannot be purchased from an entity in which your are a majority owner
• All parties to the purchase must meet eligibility requirements
• A home cannot be purchased from a parent, spouse or child

There are some additional criteria that must be followed, as well.

First, the property being purchased cannot exceed a sales price of $800,000.  Second, household income thresholds have been raised to $125,000 for those who file their taxes singly, and $225,500 for buyers that file taxes jointly.

Don’t forget that the incentive is a true TAX CREDIT—not a tax deduction.  A tax filer who is eligible for the full $8,000 credit would receive a check from Uncle Sam for $8,000 if there is no tax liability for that particular year.  What a time to buy! 

A complete list of qualifying criteria is posted on the IRS website.  It is important to review your qualifications with a tax professional in order to determine your eligibility. 

Interest rates along with home prices are at an all time low.  Contact Matt for additional information and/or to take advantage of this once in a lifetime opportunity:  208-869-3469.

Just over 60 days to go . . .

“If you look at the trend in rents to see where housing prices are headed, you’re looking at the right measure.” Says Yale economist Robert Shiller who is the co-developer of the S&P Case/Shiller Home Price Indices that monthly track residential real estate values nationally and in 20 metro areas.

In the past, people have been willing to pay a modest premium to own rather than rent a home with recent studies reporting that in 1999 rental income averaged 87% of the after-tax mortgage payment for dwellings of similar size in the same neighborhood.  This percentage changed when home prices skyrocketed.  By mid-2006, rental income had fallen to less than 60% of after-tax mortgage payments with investors banking on appreciation.  In some markets, owners of property were paying twice as much as renters for a similar property in the same neighborhood and in select pockets, owner monthly payments were three times more than the average of rental income.  Wow!

The 87% ratio of rental income to ownership cost for 1999 is a very good benchmark since it stayed around that level throughout the 1990’—prior to the steep rise in home pricing.  With that as our guide, one can conclude that the stabilization of home pricing is on the horizon. By the end of 2009, rental income on average was up to 83% of ownership costs!

Conditions vary from market to market so check with me on current market pricing in our area.  With historically low mortgage rates plus the homebuyer tax credits, this is a great time to be buying.  Call me today for a no-obligation consultation! 

*The idea for this particular post along with some misc statistics were used from an email sent from Guild Mortgage.