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Are you in the market to purchase a home this year? Homebuyers and investors are now presented with prices at unprecedented lows and interest rates that have never been so desirable. For those who are now “looking,” the big questions to ask would be, did our housing market really hit rock bottom and should I look into these cream of the crop deals AKA short sales, reo’s & foreclosures?

So, have we hit rock bottom? 

The housing market showed signs of improvement this 2012 year. Non-distressed properties show on average a 1.7% increase in prices according to a recent HousingPulse survey and experts are optimistic for the latter half of 2012.

Does this mean the only direction house prices can go is up from here on out? Not necessarily. One of the key factors that result in house prices increasing is the decrease of supply in the market (less supply, more demand). Although it may seem our nations shadow inventory is decreasing as investors are rapidly buying homes at all-time low prices, a new wave of foreclosures are set to flood the market again as a result of the robo-signing scandal. This incident caused many lenders to lag behind in listing their foreclosure properties and ultimately pushing them through. One could reasonably presume prices to halt its gain again or drop even lower.

However, this does not mean that now is not a good time to purchase a home.  If your financial status suffices to buy, looking into short sales and REO properties can win you an outstanding deal in today’s market. Mortgage rates recently hit another all-time low. According to Freddie Mac’s Primary Mortgage Market Survey released on July 5^th, 30-year fixed-rate mortgages sunk down to 3.62 percent which is a considerable decrease from a 4.6 percent just one year ago. Concurrently, rent prices have gone up on an average of 5.4 percent over the last 12 months according to real estate website, Trulia.

Washington State (Seattle-Tacoma-Bellevue, WA), is in the top 20 nationwide for rising short sale discounts. The average sales price is $224,294 with an average discount of 31.35 percent.

*Before you begin putting offers on properties, I highly recommend following Dave Ramsey’s guide prior to purchasing a home.

Our team of agents specialize in short sale and reo properties and have been extremely successful in helping clients purchase discounted homes in the Washington State area. If you are looking into purchasing a home this year, contact our team of local agents to find the best deals in your desired location(s).

Peter

Many homeowners are now capable of purchasing a home with the all-time low home prices and interest rates. Short sales and Foreclosure/REO properties offer cream of the crop deals that are difficult to simply pass by. If you are looking into the housing market, it is wise to adequately educate yourself especially when looking into distressed properties.

The big question we’ve been getting is, is a short sale or a foreclosed property the better deal? Below is a large pros and cons list for both short sales and REO properties.

*Information derived from Foxbusiness, ABC ActionNews, RealtyStore, WhisselRealty

Pros

• The seller of the property is a bank that has no emotional attachment to the property…they are all about the numbers.
• They are often priced aggressively as the bank wants to sell the property as quick as possible.  They want to stop the business of managing and selling property, and get back to the business of lending money.
• These homes are typically vacant and are very easy to show.
• The banks will usually respond to your offer in 3-5 business days.
• If the home is owned by Fannie Mae, it may qualify for HomePath financing which only requires 3% down and does not require an appraisal or mortgage insurance (MI).

Cons

• Because these homes are aggressively priced, they often received multiple offers.  This is where it becomes important to work with an agent that has a strong understanding of how to write your offer to make it stand out from the competition.
• These homes are sold as-is and the bank will often make no repairs.  As you have probably seen in the news, many of these homes have been stripped by the previous owner and/or vandalized by criminals.  Because of this, they may not qualify for FHA or VA financing.
• You will also have no disclosure forms from the previous owner with REO properties, nor will you be able to get good answers about the neighborhood with repossessed homes as simply as you would through the normal process with a realtor and private seller.
• In these post-bubble days, a bank may also not own the repossessed homes as cheaply as was the norm in previous economies. They may also try to recoup some of their expenses from the foreclosure process as well as the monthly costs of owning and carrying REO properties.

Short Sale Properties: Homeowner sells for less than what is owed.

Pros

• Many agents will not show short sales due to the long response time which opens up opportunities for those buyers that are not in a hurry to buy.
• These homes are typically in better condition than bank owned homes because the homeowner is usually still occupying them and taking care of the home.
• The banks will often accept less than market value because they do not want to foreclose on the home and take on the task of managing and selling the home.

Cons

• The process of negotiating a short sale with the mortgage bank typically takes 1-6 months.
• The bank is under no obligation to approve a short sale offer.  Less than 50% of short sales that are submitted to banks are approved.
• Often times the banks will not pay off all of the liens against the property (HOA dues, property taxes, ….) and the buyer may be asked to pay for these items.

In conclusion, one of the main discrepancies between a short sale vs an REO property can be described by the scenario of buying a used car either from a dealer or from a private owner. If you get it from an owner (REO), you may get the vehicle at a more discounted price but the quality of the asset is a gamble. You may end up spending a lot in repairs because the vehicle’s engine hasn’t been maintained.

In many cases, an REO property is vandalized and/or the previous owner out of spite, trashes the property prior whereas in a short sale, the property is significantly less likely to be vandalized or mistreated prior to transferring the home.

What do you think? Which would be the better deal? Short sale vs Foreclosure

Rent rates are continuously increasing in our country while home prices and mortgage interest rates have hit unprecedented lows making home buying more feasible. Home buying now would be a great investment if your specific financial situation permits but let’s explore the time frame of this window of opportunity.

Am I losing my chance to snatch me a discounted home?

To be blunt, NO ONE can say for sure where the direction of the market will go. However, you may infer predictions based off a few key factors:

• Overall health of the economy – i.e. employment (or lack thereof –un and -under)
• Interest Rates
• Supply & Demand of the Housing Market

Keep in mind there are a number of other factors that affect the housing market such as demographics, government policies, consumer confidence, and etc.

Mortgage rates have consecutively hit lower percentages for some time now. Based off data from bankrate.com (last checked 8/8/12), 30 yr fixed rate had a slight increase to 3.81% and a 15 yr fixed at 3.00%. These are premium low rates and it is unlikely that it will move further down than the current rates.

Meanwhile, based off information from dsnews.com, unemployment rates stands at 8.3%. There are also issues with underemployment. For more information, please read the article Economy Surprises with 163k New Jobs in July, Unemployment Rate Up from dsnews.com.

Supply and Demand is also big factor for the fluctuation of home prices. Supply has decreased especially in this 2012 year as properties flew off the market by investors. However, there is a worry about the ominous shadow inventory that experts are afraid will drag prices even lower (supply increase, demand & prices decrease). The influx of distressed properties is largely due to the robo-signing scandal which occurred earlier this year. This incident caused many lenders to lag behind in listing their foreclosure properties and ultimately pushing them through. Still, Freddie Mac gives assurance by saying the “shadow” over the housing market is not as long as some may think.

Bottom Line: Again there is no way to give a 100% accurate prediction of where the housing market will go. Based off a few factors such as interest rates being low, -un and –underemployment rates remaining constant, and supply & demand showing positive signs exempting the shadow inventory fear, one can be optimistic about the housing market now.

In my personal opinion, I believe that although the housing market is rebounding, we will not, as Robert Shiller stated in the video above, be expecting a U shaped recovery. Although history doesn’t repeat itself exactly, based off the historical housing cycle, we have time with this window of opportunity.

The worst thing an individual can do is purchase a home without being financially prepared. We will be regressing into the subprime mortgage crisis era if we are purchasing homes we are not able to afford. Just because someone is able to afford the mortgage payments, does not mean you are able to afford a home. In fact, the monthly mortgage payment amount should be a third of a homeowner’s monthly income. We should also take into consideration taxes, insurance, HOA dues (for condominiums), maintenance costs, upkeep, and more. Lastly it is wise to have accrued 3-6 months’ worth of emergency prior to purchasing. These are all factors to consider prior to looking into homes. A great place to start would be www.daveramsey.com.

Do not rush into a home just to seize the opportunity. Make sure you are able to afford the opportunity first and then move forward.

If you believe you are able to afford purchasing a home, contact our distressed properties experts in Washington State for more information on these cream of the crop properties! Submit your information here and our experts will get in contact with you within 24-48 hours.

Peter

Full article at:www.seattleshortsaleblog.com

Next Article: Is A Short Sale or A Foreclosure/REO property a better deal?