Welcome to my blog. Your response is appreciated. I will post your comments if you email me at fred@fredcurrie.com
Directory of Postings:
9/4/08 Why Should You Buy a Short Sale Property?
12/29/06 Even With a 5% Correction Real Estate is Still a Great Investment
6/3/06 Housing Futures Trading on the CBOE
10/10/05 Mortgage Deduction is Debated by Tax Reformers
9/13/05 The Cost of Waiting
8/29/05 What Goes Up Must Come Down
7/30/05 Real Estate Bubble: Fear or Fact
Why Should You Buy a Short Sale Property?
9/4/08
Charming 2 bedroom, 1347sf townhouse in Quail Hill, list price $440k, is near the end of the short sale process. This property hit the market as a short sale in May of 2008 and today I am happy to report that the bank is expected to approve or deny the terms of the sale by mid September. There is still time to get an offer in on this charming property. Go to www.fredcurrie.com to get the details.
Why should you make an offer on a short sale? Short sales have a reputation for being difficult because the terms of the deal are subject to approval by at least one bank. This process is time consuming but on this property we are at the end of the process. This is an opportunity to get a great deal on a deeply discounted property in the beautiful Irvine Village of Quail Hill.
Market Report for Quail Hill: there are currently 40 properties on the market in Quail Hill. Starting on the low end at $359k for an 800sf, 1 bedroom and on the high end $2,450,000 for a 4750sf, 5 bedroom. There are 15 properties in escrow and 69 properties have closed escrow this year. Included in the 69 closed sales there were 8 foreclosures, and 9 short sales. Did you miss out on a great deal?
Timing is important if you want to win in this real estate market. Keep up with the latest real estate news for your area and property type contact me today to request your own custom real estate search site. Fred Currie, RE/MAX Premier Realty, (949) 632-9673
Even With a 5% Correction Real Estate is Still a Great Investment - Get the Podcast
12/29/06
The Real Estate forecasters are still gloomy going into 2007. I just checked Jon Lansner's blog, we are in for a 5% drop in real estate prices in 2007 according to Charles Rother's analysis. If, you are thinking of buying a home, should you wait for the analysts to say the correction is over? I ran some numbers and found that if you buy a house now for $620,000 and hold it for 5 years through a 5% drop you will still come out ahead by over $6,000. If you rented during the same 5 years you would loose over $90,000. Click on this link to download the spread sheet and check the details of my calculation. Once you have the spread sheet you can and plug in your own numbers and see for yourself that buying a home even in a market that is trending down is a good deal compared to renting. You will be amazed that when you factor in all the benifits of buying a home fluctuations in the price become less significant. Compared to the high cost of renting, buying is a great deal even if prices drop more than 5%.
It is a great time to buy a house as a long term investment. The days on market numbers are continuing to rise and some sellers are getting impatient. That means there are deals to be made. If, you believe houses are going to fall 5%, then discount that into your offer and let the seller decide if he will take the hit for next years potential decline. This is a buyer's market. Now is the time to ask sellers to discount the price, pay closing costs, pay points, make repairs and test their motivation to sell the house. I am finding sellers that are willing to take a loss on their house.
Buyers should not let forecasts of dropping real estate prices stop them from pursuing a good deal. Keep in mind that the news is focused on median prices and overall market moves. That does not mean that there are not great deals to be made in the specific areas. Of course I should not fail to mention the obvious point that the forecasters have been wrong before and we could get a gain in prices. The costs of waiting for housing prices to drop could be much larger than the potential savings. Let's go over your situation and run through the numbers. Don't wait too long because there is no telling how long the buyer's market will last. One key indicator, the number of houses on the market or inventory of houses, has been dropping in Orange County for the past 3 months. If, inventory declines through the spring of 2007, that would be an indication that the buyer's market is coming to an end.
Lansner's blog can be found at: http://blogs.ocregister.com/lansner
6/3/06
Housing Futures Trading on the CBOE
Is trading futures contracts based on the median price of houses in 4 regions plus 1 for the nation overall a good idea? My gut reaction is, yes! I think it is a major change in viewing housing as an investment that is way overdue. It gives home owners a way to hedge their investment, or if they are optimistic about real estate they can go long.
The activity will be instantly tracked and reported. This is a refreshing change from the sort of reporting we have now. With economists making predictions with little or no accountability due to the fact that trends in real estate are tough to put your finger on in less than a 90 days.
There has been a lot of speculation about the changing real estate market. Are we in a level market? Will prices pull back? Will prices continue to climb? How big will the move be? How fast? Would you like a better answer to these questions than tracking home builder's stock prices, or listening to confllicting economic forcasts? Futures trading is a good way to track what the opinion of people who move the market are thinking. Do you really believe the real estate market is going down? Then buy some put contracts, or short the market. Do you think real estate is going up? Then buy some calls and go long. People who are willing to put their money at risk are a good indicator of what the market is doing.
The problem I see with these contracts is that they cover too wide an area. Will a regional contract be a good indicator of what is going on in your neighborhood? Perhaps REITs give a better indication how specific types of real estate are performing?
Could we some day option our house, like we option a stock? Not a good idea for a principal residence buy why not for investment properties?
Get more info at:
http://search.cboe.com/cgi-bin/MsmGo.exe?grab_id=457&page_id=8332032&query=housing+futures&hiword=FUTUR+FUTURE+FUTURESON+futures+housing+
10/10/05
Mortgage Deduction is Debated by Tax Reformers
They are at it again. Check this article:
http://news.yahoo.com/news?tmpl=story&u=/latimests/20051008/ts_latimes/taxreformerseyebreaksforhousing
Should we be worried? Maybe, but remember this talk has gone on in the past and law makers have not made significant changes since 1997.
One thing the article does not discuss is the huge tax income gains the government received because of the boom in prices. It is not unusual for a homeowner to double his tax basis when buying a new home these days. The article looks at the cost of the capital gains tax breaks without factoring in the increased tax base. I hope before they start making changes they figure out how much they have netted from the 1997 changes.
What is particularly bothersome is the last line of the article: "One modification Garrett said the tax panel could consider: raising the period the homeowner must live in the house to qualify for the capital-gains exclusion. Currently it is two years." I hope you folks out there that are planning on selling as soon as your 2 years are up get it in before they change the rules.
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The Cost of Waiting
By Fred Currie
The OC Register published an article on 9/11/05 on the front page of the “Local” section titled; “A Caution on the Home Front.” The short article reports on a financial strategy conference where Cal State Fullerton finance professor, Don Crane, recommends that his 27 year old daughter wait on buying a condo in
The risk of waiting
If we assume she rents while she waits for the market to come down for 3 years and pays $1500 a month rent. That’s $54,000 in rent, money that could have been used to build equity in a condo. If, we assume her father is correct in his prediction and the market pulls back 20 percent that would make today’s $500,000 condo fall to $400,000. If she decides to buy after 3 years we will assume that her father is also right about higher rates putting her 30 year fixed rate mortgage at 7 percent.
Summary of costs to wait 3 years:
Rental costs $54,000
Down payment 3% $12,000
Closing costs and points $13,000
Cash paid after 3 years $79,000
Monthly Payments:
17% loan ($68,000) to avoid mortgage insurance, 10% interest only: $566
80% loan ($320,000) 7%, 30 year fixed rate fully amortized: $2129
1.25% property taxes $416
Homeowner’s insurance $100
Total monthly payment $3211
The risk of buying now:
If she has saved up enough for a $500,000 condo she should have at least $28,000 cash on hand to cover the deposit and closing costs. Assuming she has good credit she will qualify for a 5.5% fixed rate mortgage and should be able to get a 7% interest only loan to avoid mortgage insurance.
Summary of costs to buy now:
Down payment 3% $15,000
Closing costs and points $13,000
Cash paid to purchase condo $28,000
Monthly Payments:
17% loan ($85,000) to avoid mortgage insurance, 7% interest only: $495
80% loan ($400,000) 5.5%, 30 year fixed rate fully amortized: $2271
1.25% property taxes $521
Homeowner’s insurance $100
Total monthly payment $3387
Where Don Crane’s daughter will stand in 3 years if she buys now:
Assuming Don Crane is right about the 20% drop in the next 3 years:
Equity loss 20% after 3 years -$67,905
Assuming Don Crane is right about the 5% increase per year for the next 3 years:
Equity gain with 5% appreciation for 3 years $101,906
Assuming the national average appreciation of 7% per year continues:
Equity gain with 7% appreciation for year $135,615
Assuming the Orange County 35 year average appreciation continues:
Equity gain with 9% appreciation for 3 years $170,698
Where Don Crane’s daughter will stand in 3 years if she waits:
What are we to conclude from these numbers? Don Crane’s daughter stands to save $176 on her monthly payment and avoid $67,000 in equity losses if her dad is right about the market going down 20%. If her dad is right about the market going up at 5%, after 3 years today’s $500,000 condo will cost $578,813.
Conclusion:
Don Crane should have told his daughter that it is silly to look at her home as a 3 year investment. She should buy a home where she will be happy and will stay for many years. If, she stays in a home for 10 or more years in
Regarding the effect of rising rates on housing prices the lesson from recent history does not confirm Don Crane’s conclusion. According to Freddie Mac’s mortgage survey, in the year 2000 the 30 year fixed rate was at 8.05%, yet housing prices continued to climb. It was a good time for housing appreciation rates, the same cannot be said of most stock investments.
P.S. More needs to be said on the fear of adjustable rate mortgages. Are they really the lurking menace to the housing market that some say they are?
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8/29/05
What Goes Up Must Come Down and Paper Profit Myths
Fred Currie
The bubble talk is waning lately but Alan Greenspan is still trying to persuade us that there is a frothy real estate investment market in the United States. His latest point is what goes up must come down and be careful of "paper profits." He is lumping real estate investments and stock investment together and "cautions people not to think that the value of their investments will only go higher." Duh. Does Alan think the American public is really that dumb? Or, is Alan just short of facts to support his opinion that real estate has gone up too fast and is due for a fall? His key argument is that higher interest rates will cause the real estate market to drop in value. I remember the "irrational exuberance" days when the Fed raised rates and the stock market came tumbling down but the real estate market surged upward in spite of rates. Why? Because real estate is the oposite of "paper profits" and since the last stock market bubble burst many people have chosen real estate over stocks. Currently, there is little to support Greenspan's opinion. The national 35 year average rate for real estate appreciation is 7% and it is 9% in California. In Orange County California the average appreciation rate since 2000 is 35%. Show me a paper investment that has that record and gives the tax benefits of real estate.
On the point of whether or not people are dumb about investing. My answer is no. The people I meet in the real estate market are well informed about market risks and are very careful about investing. They realize that they could loose money and they do everything they can to reduce their risk.
Alan's conundrum about the mortgage rates staying low despite his interest rate hikes points out how little the market respects his fed speak. Mortgage lenders continue to keep the rates low by cutting their margins and competing for market share.
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7/30/05
Real Estate Bubble: Fear or Fact?
By Fred Currie
Have you noticed that financial reporters are required to reveal their positions in the investments they are reporting so that the audience can make an informed decision on whether or not the reporter has a vested interest in swaying public opinion on the investment? It is a great regulation, but it still leaves plenty of gray area. Take for instance this talk about the real estate bubble. Have you ever heard a reporter who was reporting on the real estate bubble say that he would benefit if more people liquidated their real estate holdings and put them into stocks? Let's take for instance Paul B. Farrell who wrote in the Wall Street Journal, July 17, 2005, about the real estate bubble. His article asks is there a "Mega-Bubble"? Many of his readers, judging by the email response he is getting, are worried that a real estate bubble could burst any time. His readers who scored the real estate bubble risk as high are officers in banks, security firms, professional financial advisors, corporate executives, federal and state government officials, mortgage bankers, building contractors and real estate pros. Before I get blinded by this group's credentials, is it rude to ask what they have to gain by this real estate bubble talk? Presumably, the next best yielding investment to real estate is some sort of balanced portfolio of stocks and bonds. Wouldn't many of the folks on this list benefit from people selling real estate to buy more stocks and bonds? Ask yourself what does the person who is talking about the real estate bubble have to gain? Since the "bubble" term gained popularity during the dot com disaster, I submit that people who use the term are thinking more in terms of stock trading than real estate markets thus revealing their motives. By the way dear reader, as a realtor, I stand to benefit the most if real estate prices continue to go up.
I won't spend a lot of time trying to prove that the real estate and stocks are radically different. Let's all just agree that it is a lot easier to dump your shares of stock than it is to pack up and sell your house. If, you think that real estate speculators are changing that, I must point out that even a real estate speculator has to wait until the escrow closes to get his money out, so, the fastest he can sell a property is still a month or more. Is there really a comparison here with stock speculators? Also the stock trader could unload his stocks with a discount broker with a few clicks of his mouse and a small fee. It takes a marketing plan and thousands of dollars in closing costs to sell a house. Let's look at some other ways that real estate is a unique asset. Real estate is driven by supply and demand. The population is growing and the land is getting more crowded. Do you see any sign of us running out of stock investment opportunities? The inventory of houses for sale in Orange County is roughly one third of last year's inventory during July. In July 2004 real estate prices continued to go up with more available inventory. Now, we with less inventory, do you think that prices are more likely to go up or down?
One way that real estate is like most stocks is that low interest rates make it easier for people to afford to invest. Interest rates have been bouncing around 40 year lows since 2003. If interest rates went up would that wreck the housing market? Maybe, but let's look at some facts. Interest rates, in the last 20 years, have never gone up more than 3 points in a year. Normally, when rates go up, it is a gradual process. But let's look at a worst case scenario. Back in 1979 when the average rate on a 30 year fixed rate mortgage went from 11.20% to 13.74% in 1980. Do any of you remember what how the economy of this country was running? The short answer is it was nothing like today's economy. Let's get back to the stock market comparison. During the stock market bubble burst of the late 90's interest rate increases played a strong role. Rates went up. Looking at 30 year fixed rates it went from 6.95% in July of 1998 to 7.63% in July of 1999 to 8.15% in July of 2000. These numbers are national averages from Freddie Mac's web site. The point is which type of investment went down more? Anyone else out there wish they had put their dot bomb money into real estate?
Bottom line is all investments carry risk. No one knows what will happen in the future. If, the people talking about the bubble could time the top and bottom of the market, they would not be wasting their time selling newspapers. Keep in mind 2 things that sell newspapers: bad news and fear.
If you want to talk about real estate, give me a call, I won't burst your bubble.
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