DEAN GRAZIOSI: DEAN GRAZIOSI REAL ESTATE

A few short years ago experts were predicting that by 2012 the housing market and foreclosure rates would return to normal. Now that 2012 is almost here, it seems that the predictions were not as accurate as everyone hoped. The down economy is certainly a factor, but this time, there is another culprit in the situation.

The primary reason 2012 is likely to be heavy on foreclosures is due to recent irregularities in the mortgage industry. Specifically, the paperwork was not being handled properly. Low-level employees were rubber stamping documents at an alarming rate.

It would have been impossible for the workers to review the paperwork and get the correct information and signatures in the flash of time they spent on each document. Perhaps they were under pressure to get a certain amount of work done. Maybe they were just poorly trained. For whatever reason, the foreclosure documents were signed thoughtlessly and mistakes were made. Eventually, legal action was taken to halt these foreclosures.

Now the mortgage companies have begun to revamp their processes and clear up these bad practices. They are now meeting with government approval and are getting back in the business of handing out foreclosure notices. By 2012, the big players should be in full swing, working on reclaiming properties from non-paying owners.

The bottleneck could have been avoided with proper training and supervision of all employees at these mortgage lenders companies. Yet, the number of foreclosures overall may not be much different. Instead of coming spaced out evenly over the months, there was a time when the process slowed down, and now there will be a time when the mortgage companies make up for lost time with their foreclosures.

The good news for homeowners is that it gives them a longer period of time to come up with the money to catch up their mortgages. If they have a chance of saving their home at all, they are more likely to do it with this extra time they have been given.

The good news for people who want to buy a home is that there will likely be a glut of REO homes on the market after awhile. Because of this, there will be inexpensive houses for them to choose.

Real estate investors will also see benefits, as they snap up the foreclosed properties, rehab them, and sell them again at a profit. They may have opportunities to buy homes to rent if they prefer. Investors can make the most of this bad situation if they have enough contacts and are good at reselling or renting homes.

It is a good time to raise capital to be ready for the 2012 housing situation. It is the best way for homeowners to keep their homes, potential owners to be ready to buy, and investors to be ready to make the best deals. There is no need to fear what will happen in 2012. Instead, look it as an opportunity, and get your ducks in a row.

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No one will tell you that the economy is not struggling right now. It is in a major downturn and will probably be slow to recover in most areas. Housing prices are still down for most of the country. However, there are a few markets where the housing market is beginning to recover.

1. El Paso, Texas

The Base Realignment and Closure (BRAC) Act of 2005 has been steadily improving the economy of El Paso. The post is expected to more than triple its contributions to the El Paso economy by 2013, and it is well on its way to that goal. The post not only provides military jobs, but also construction jobs for El Paso workers, as well as jobs in almost every field off post. Because of this, El Paso’s economy is doing well, and housing prices continue to rise.

2. Tri-Cities, Washington State

The Tri-Cities is facing a housing shortage, which is causing housing prices to go up. Unlike many other parts of the country, there are more people who want to buy houses than there are houses on the market.

3. Omaha, Nebraska

If you look at the overall figures for Omaha, they still look bad. The averages for the city have stalled at low prices and some areas still seem to be headed down. However, if you go to the right areas of Omaha, you will see prices beginning to lift. Areas like Benson, Hanscom Park, Hillsborough, Clairmont Heights, and Fort Redman are going for more now than they were in the recent past. In Omaha, it is wise to research the area you are looking into, and have a Realtor you can trust.

4. New Orleans, Louisiana

New Orleans is a tricky town when it comes to real estate. Nice new apartment buildings have cut down on the needs in other sectors of the real estate market. Many of the older apartment buildings are scrambling for tenants. The residential housing market is nearly level, but what makes New Orleans special is that there are very few distressed homes on the market – only about 5% compared to about 20% elsewhere. Right now, New Orleans is a good place to find a nice house at a reasonable price. At the same time, the prices are not so low that you are likely to lose everything if you are the seller.

5. Anchorage, Alaska

In Anchorage, housing prices overall have stayed pretty even. While the rest of the country was seeing big drops in their prices, Anchorage houses seemed to hold onto their value well. There have been some gains in certain areas, and the average sales price rose 2% in the city over the last year.

6. Bangor, Maine

The recovery in the Bangor housing market is not so much in the pricing of the houses as it is in the number of sales that are being completed. More people are out shopping for homes now. Younger people are buying houses now, as opposed to baby boomers. They are more optimistic about the long term value of the home and less concerned about making a profit quickly.

The climate is beginning to change in the housing market, at least in pockets here and there. Careful study of the different markets will help you determine the best places to buy and the best times and prices for selling. You do not have to figure it out all on your own; a Realtor or fellow investor will help you succeed.

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REO’s are Real Estate Owned properties. REO in the real estate investment business usually refers to those homes that the banks hold for one reason or another. The most common reason a bank would have an REO is if the homeowner defaulted on the home and the bank foreclosed. Then, the bank would take possession and the house would become an REO. It might seem to the untrained observer that banks could hold onto these homes until the market improved or other conditions were right for the sale. However, there are several reasons banks need to get rid of their stock of REO’s as quickly as possible.

Classification

There is a problem with the classification of REO properties for lenders. They are literally bad debt, but lenders are only allowed to claim a certain amount of bad debt on their books. Otherwise, the lender may be termed as insolvent. Selling the REO property will take care of this problem in the sense that there will be no excess bad debt to be added to the lender’s financial reports.

Focus

The bank’s focus is on dealing with money. They are not in the business of maintaining homes, getting them ready for market, or even selling them. This creates a dilution of the bank’s objectives. The more REO property they can sell off, the more they can stay on track to accomplish their financial goals. A bank which keeps its REO’s to a minimum is a healthy bank, and one which is focused on being a bank above all else. 

Use of Bank Resources

REO properties do not sit empty and take care of themselves. If a bank allowed that to happen, they would be asking for the home to go down in value rapidly. What is more, REO homes do not ordinarily sell themselves. The bank has to devote manpower and money to maintaining and selling every REO home they hold. This diverts resources away from the main purposes of the bank, such as lending money. If you can offer the bank an acceptable price for an REO home, they will be happy. They will be able to free up more of their human and financial resources to be put to use for the bank’s primary goals.

Auction Problems

One way banks try to get rid of REO’s is through foreclosure auctions. However, there are several problems that plague these auctions. For one, banks may place a minimum bid on the property as the amount the homeowner still owes. Yet, the home may not be worth that much. When no one bids on that home, it reverts to the bank. If you can come in and make an offer that will keep the bank from going through that useless process, the bank may jump at the chance to make it happen. It is rarely if ever a good deal for the bank to hold onto an REO property. That leaves you, as the investor, in a position to acquire properties that you might not have otherwise.

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An emerging trend of the real estate downturn shows a significant spike in the home improvement industry.  According to the National Association of Home Builders (NAHB) Remodeling Index showed big upturns in the consumer confidence.

Rose Quint, an economist for NAHB, “The phones are ringing more.  That has led to a nice increase in the future indicator.”  The index still is under the threshold 50-point barrier, which is the index’s dividing line between pessimism and confidence.

With prospects realizing that current values are will below the values achieved during the real estate boom, many homeowners are opting to stay put.  These owners have decided to invest in upgrades and take advantage of bigger lots by adding space and new upgrades in the competitive home improvement marketplace.

Additionally, many homeowners are capitalizing on new government energy tax incentives to improve and economize on home energy.  Marvin Windows and Doors reports that replacement windows are outselling new construction windows for the first time. 

The revitalized nesting population is typical for down markets.  But with more than 28% of homeowners in foreclosure or late on payments, owners know many homes are underwater, with more owed on the home than its current value.  Rather than take the loss, owners are improving and waiting for an upturn.

Home improvement sales volume is up more than 20% during the first three quarters of 2009m compare to the first three quarters of 2008.  The key ingredient for new home improvements is a desire to increase living space and add at-home office space.

Depending on the area. today’s home improvement costs can range from $100 - $200 per square foot.  When considering their options, homeowners are leaning toward remaining ion their neighborhood, in the same school district and surrounded by known friends.  Demand is expected to continue to increase through 2010.

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