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U.S. Real Estate Bubble Watch

Sunday, May 26th, 2013

If you are looking to buy a house or apartment in U.S., you may need to face some tough competition. Almost every property in San Francisco bay area is getting multiple offers and there are bidding wars. Real estate agents tell me to always bid for price little higher than asking price. It reminds me of 2005. I won’t be surprised if this is going to end badly as happened from 2006 thru 2010. Recently, real estate site Trulia introduced something called “Bubble Watch” to track the real estate prices in U.S. You can read more about this in Forbes.

Trulia’s chief economist argues that we are not in bubble zone, yet. When a real estate site’s chief economist favors buying properties, that is not coming in as a surprise. You need to take his theory with a grain of salt. Do not trust the theory from chief economist of National Association of Realtors as well. These guys are obviously biased. Do your home work. Trulia’s Jed argues that current prices are 7% undervalued. That number is the average for entire nation even if you buy into his calculation. In many areas, like San Francisco Bay Area, the prices are already shooting up. There is no justification for the bidding wars. One of the main reasons is the foreign money inflow. Many foreigners are making cash purchase. Low interest rate is also fueling the market. But, what about the job market situation? There are still foreclosures happening in many parts of the country. Trulia’s economist agree that the next bubble is just the matter of time. If you are not totally comfortable with your job situation or do not have enough down payment, it would be a good idea to rent rather than taking the risk of buying.

If you do decide to buy, check out apps like Homesnap. AllThingsD has good review of this app. The app gives you useful information about financial data about the property and neighborhood information.

Related posts: Right time to buy a house? | Home prices rise again

Home prices rise again as housing recovery continues

Saturday, December 15th, 2012

We wrote “Is it the right time to buy a house?” in Feb 2009. We got some criticism for our post (check out the comments in that post). Market slowly recovered since then. Real estate market picked up momentum in 2011. Now, the hot news is “Single family home prices rose in September for 8th straight month”. Real estate market picks up the momentum slowly. The market doesn’t behave like Apple stock. It won’t go up and down 4% in one day.

Our article in 2009 encouraged the buyers who could afford to pay for the house. Whoever acted then would be happy now. The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.4 percent in September on a seasonally adjusted basis, in line with economists’ forecasts. Prices in the 20 cities rose 3.0 percent year over year, just topping expectations for a rise of 2.9 percent. More on this at NBC news. In some housing markets, sellers are getting multiple offers from buyers. I hope the market won’t go back to craziness of 2006.

Do I really need a Financial Advisor?

Saturday, October 23rd, 2010

This used to be a simpler question some years back, but now with the advent of the Internet, the waters have been muddied. Some investors wonder why anyone would have an advisor (and probably pay for it) when you can find out anything you need for free on the internet. Sounds like a slam dunk for the argument for not having an advisor (Stockbroker).

How well do all those content writers who write in those websites really know you? What do they know of your risk tolerance? What do they know about your retirement goals? Since the answer to that question is going to be a big fat no, can you really trust what you are reading on the net? There is so much information on the internet it is a real challenge to know what information is accurate and pertains to you and your situation and what doesn’t.

So how can my financial advisor help me? The more your advisor knows about you the better. He should know all your investments, your investment goals, particularly regarding retirement, and your risk tolerance.

In order for you to make a wise decision not only do you need to know the ins and outs of a particular investment you are considering, you also have to sleep at night after you buy it. A financial Advisor can sift through all the information and present only those things that pertain to you and your particular needs, based on your risk tolerance and investment timeline. The more your advisor knows about you and your situation the better help he will be, so don’t hold anything back.

I used to get asked if it was okay to have more than one advisor and I think it doesn’t hurt to get more than one opinion but remember the old saying, too many cooks can spoil the broth. No matter what position you take on an investment you can easily find five professionals who oppose your decision and five who agree with you. That’s why it is so important that you work closely with your advisor so you can get clear and concise advice that works for you.

Keep in mind, you may not have the time needed to make the best informed decisions, but your advisor will have his finger on the pulse of the market and the economy probably fifteen hours a day or more. If you don’t have that kind of time maybe you should consider working with a Financial Advisor. Just don’t turn your brain off the moment he is on the phone. It should be a team approach with you making the final decisions.

Good luck and happy investing.

Bait and Switch in Mortgage Industry

Monday, October 18th, 2010

Everyone knows bait and switch is illegal but that doesn’t mean it is not practiced, especially in the mortgage industry. Here’s how it works.

Mr. Client makes a call to Lender B and asks what their rates are. After answering a few questions the mortgage consultant for Lender B asks what rates other companies have offered Mr. Client. After hearing what his competitors are offering Lender B will beat the lowest rate and the lowest points, no matter how low Mr. Clients says he’s been offered. Lender B knows there is no way he can close the loan at the rate he promised and it doesn’t matter that he can’t. His client will take whatever he offers.

I know that sounds crazy but it works nearly all the time. All Lender B has to do is wait until the loan is set to close, then he calls Mr. Client with some reason why he can no longer offer the rate he sold. He can offer a different rate, even if that new rate is as much as a percent higher. So how does Lender B get away with it?

This really only works with non prime lending and works best when they have a client that is paying off revolving debt with the loan. Many clients, confident the loan will close in time stop making car payments, card payments, and sometimes mortgage payments and they pocket the saved money. They are that sure that the loan will close and pay all that debt off.

Fast forward three weeks into the loan process and they are told the rate will be significantly higher, but will still close on time. Mr. Client can either stop the loan process and go to another lender or go through with the loan. The problem with starting over with another lender is the client hasn’t been making their debt payments and may even incur new late payments on their report. That could easily lower their score enough to where they cannot get a rate that even equals the new rate their lender changed on them. They may be out of money because they have begun spending expecting cash out at the closing and suddenly they are in a position where they cannot afford to start the clock ticking with a new lender.

Lender B has his client over a barrel and they both know it. So how can you prevent the above scenario? Number one, do not stop making any kind of payments. Pay them up until the loan funds. That will alleviate most of the problems. When Lender B quotes a rate, if it sounds too good to be true, it probably is too good to be true. Trust your gut. You have to find a broker you can trust and that is a subject for another article.

Does credit check affect your credit score?

Sunday, October 17th, 2010

What happens to my credit score when a mortgage lender checks my credit? The old answer used to be, “your score drops.” Not so any more.

If you are getting ready to purchase a home, or refinance an existing home, do all of your investigation within a thirty day period. The law says your score will only drop one time in a thirty day period if you are getting a home loan or purchasing a car. If you have the first potential lender run your credit on March first, make sure that at the end of the month you don’t allow any other lenders to check your credit. That of course could lower your score, maybe enough to disqualify you from the low rate you could have had.

“But my lender warned me not to let anyone else check my credit or my score will drop.” That’s a common sales tactic to scare borrowers from shopping around; don’t believe it. The next question people often have is, “How much could my score drop if I apply for a loan outside of my thirty day window?”

I had the opportunity to ask a representative from TransUnion that very question and received the following answer. “There is no way to tell for sure.”

Before I could object, he qualified his answer and here it is in a nutshell. How much ones score will drop is dependent on a number of factors. Some of those being; number of revolving accounts open, debt to available credit ratio, length of time accounts have been open, and of course adverse factors like late payments on accounts. Those are just a few factors that influence how much you score will drop.

Be safe, do all your searching for lenders in the thirty day window and you won’t have to worry about your score dropping fifteen points and disqualifying you from the best possible rate you qualify for.

Three Ways to Keep Your Loan From Funding

Sunday, October 17th, 2010

Don’t tell your appraiser about the leaky faucets: Or the mildew on the ceiling and the water stains on the wall. If you have any similar issues there is no point in having an appraisal done. Your appraiser will notice these issues however minor and he will include it in his report. Your lender will of course see it and halt the process. You’ll have to fix the issues then have the lender send the appraiser out again to verify the problems are taken care of. You will probably have to pony up another $100. Once your loan has been pulled out of the line in the funding process it could easily cost you fifteen days or more.

Leave the five broken down cars on your lot: Okay, so maybe you are not operating a car repair shop on your off days, but your appraiser and lender don’t know that. If it is decided that you have income producing property there are different guidelines and it may cost you points and a rate. It may even cost you the loan. Clean up your lot and clear out anything that may be misconstrued as a side business on the premises, either inside or out. I’ve had borrowers who failed to mention they operated a daycare in their home and the lender was not happy to find that out late in the funding process. I was not too thrilled either.

Occupy your owner occupied home: Everyone is looking to get the lowest possible rate and no one wants to pay that extra one percent in rate because the home they are refinancing is a non owner occupied home. Quite often borrowers will tell the lender and the appraiser it is occupied by them but there are ways the lender can find out. For example, the docs you sent in all had a home address different than that of the “owner occupied” home they are refinancing. That one catches a lot of people. If the appraiser inspects the house and strangely finds pictures of the Ramirez family on the walls instead of the McKenzie family you’ve got a problem. You may still get away with it. Bear in mind most lenders require you occupy an owner occupied home for one year and if it is found in that time that you do not live there the entire balance of the loan can come due. Just don’t take the risk.

There are any number of ways to derail your loan process and those are just a couple common ones. Be honest and upfront with your lender in the entire process and you will find you are having a much better experience.

How to determine the true value of your house?

Sunday, October 17th, 2010

For those who are looking to refinance their home, determining the value of your house can be critical. No one wants to go through the long and laborious process of a refinance only to be shot down by a value that is too low to go ahead with the loan.

Ideally you should try to determine your home’s value before starting the process, and here is one way to do so. The first thing I would do is check the last appraisal and find the value you got on it. If it has been a couple years or more you will probably find your home value has increased. However, with the meltdown in the real estate market, your home may not have appreciated much so finding an accurate value is very important.

Look for the appraisers name and phone number at the bottom of your last appraisal report and start with them first. Make the call to the appraiser, let him know your plans, and ask him to give you a comparable value. Let him know if you have done any work on the home that may affect its value. Be honest as well if there are some issues that may negatively impact its value. Appraisers don’t like surprises and neither will you when your home appraises for less than expected. The appraiser that did your last inspection will probably remember your home after he glances at your report and he is more likely than anyone to give you a reliable value. Keep in mind of course, that the value he gives you on the phone is just an estimate. You will still need a full inspection. Still, once given an estimate, they are usually pretty accurate and you will likely not be surprised down the road.

Most of the work of an appraisal is done in the office doing research on the computer. In fact the average appraiser will spend thirty minutes at your house and another five hours in the office. Even if the guy who inspected your home has moved on, they will probably still have the appraisal in their computer system. Any appraiser there should be able to access it and call you back with a value.

Once you have that value, you are green lighted to go ahead and find a lender to work with. If you cannot determine who did your last inspection there are ways to find your home’s value so look for other articles addressing this issue.

How to find a home that really is comparable to yours?

Sunday, October 17th, 2010

I can’t tell you how many times I have been on the phone with a dismayed borrower whose appraisal came in less than he’d expected, and the homes they hoped to use as comparables just weren’t comparable.

Just because the house is across the street from yours doesn’t make it comparable, even if the square footage and bedrooms and baths are the same. If you live in a typical suburban neighborhood, but the house across the way is in a private gated community, it is just not comparable to yours. If your bay windows open out to the back of Safeway while his butts up against the eighteenth hole, you may not be able to use that one, or your value will be downgraded accordingly.

Location, location, location. Most lenders want comparable sales that are within blocks rather than miles, or even one mile. Once you get farther away than just a few blocks and are looking at a half mile or more, it’s a different neighborhood than yours and it can’t be used as a comp.

If your house is an immaculate four bedroom dream home but you are surrounded by dilapidated ranch style homes your home’s value will be adversely affected; keep that in mind.

Quite often when people are looking for comparable sales they overlook the age of the home. Even if the potential comparable property is similar in every other way, some lenders won’t accept it if it’s not at least in the same ball park as the other homes age.

If you live in an A-Frame house let any prospective lenders know upfront. Unless that style of home is standard in your town you won’t be able to find any comparable sales and that is an issue for a lender. If you happen to own any kind of a unique home you will still have the same problem.

By unique I don’t necessarily mean a glass house for example, but if you happen to have a house on 80 acres and everyone has a standard lot, you’ve got a problem. If you live in a house that is completely off the power grid, tell your lender right away. Unless everyone else is off the grid, you have a unique property and it will be tough to impossible to get comps. If your house is solely dependant on solar energy you live off the power grid; same goes for the guy with nothing but a wood burning stove and a gasoline generator.

Time and time again borrowers will tell me of the house down the street that went for 450,000, only to find out after a bit of research that the house was for sale for that amount and has yet to sell. You cannot use sales prices; you have to use the amount the homes near you have sold for, and in the last 3-6 months. Many lenders want comparables that have sold in less than three months, but that depends on the lender.

Bottom line, if you do your footwork you should be able to come up with a value that’s pretty close to being accurate and you can feel good about taking the next step with the lender of your choice.

Existing Home Sales Plunged

Tuesday, August 24th, 2010

Sales of previously owned homes fell 27.2% from June to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors said Tuesday, the lowest level since the industry group started its tally in 1999. (Source: Wall Street Journal) Job growth is going to be the key to economy recovery. Although the number of home sales went down, I don’t see any drastic reduction in home prices.

Everyone keeps talking about great bargains of $20,000 houses available in Detroit. If you are not living or working in Detroit area, what is the point of buying those houses anyway? Some may try them as investment properties. However, everyone needs affordable homes in the area where they have a job. If you are in the market for home in San Francisco bay area, you would know how difficult it is to find a decent single family house for less than $600,000. That’s not a bargain. It’s just not affordable at all for many of us.

I don’t see a dramatic fall in home prices anytime soon. The prices may stabilize in the next 12 weeks. I won’t be surprised if the prices move up a little bit next year. If you have a stable job and are able to find a decent home at a fair price, it’s a good time to buy the house especially given the low mortgage rates.

Related Link: Is it the right time to buy a house?

Housing Data Trip Up Stock Market

Wednesday, November 18th, 2009

Just when you think you are out of the woods, one more stats will come out of the blue and strike you. This is how the stock market works! We heard about improvements in U.S. real estate market for the last weeks. Today, Commerce Department reported unexpected drops in home construction and building permits in October. The data showed housing starts decreased 10.6% to a seasonally adjusted 529,000 annual rate compared to the prior month. Economists expected 1.7% increase. The 10.6% fall carried construction to the lowest point in six months.

Building permits in October fell 4.0% to a 552,000 annual rate. Economists had expected permits to rise by 0.9% to a rate of 580,000. Building permits are a sign of future construction and it appears that future is not that bright for real estate market.

Related Link: Choppy Trading Continues

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