Since the Obama Administration took office, it seemed that their goal was to keep home owners in their homes. Now, the strategy appears to have changed with a recent announcement from the U.S. Treasury. Recently, the Treasury revealed that it would encourage home owners to leave their properties – by paying them. It is believed that the new plan will prompt home owners that are behind on their mortgages to choose short sales, which could reduce the amount of foreclosures throughout America.

During short sales, home owners who are delinquent on their mortgages agree to sell their houses for less than the remaining balance of the loan. In return, banks and mortgage lenders agree to undertake losses (in lieu of not receiving any debt service from borrowers).

With an increase in short sales being eminent, many people are wondering what bearing Obama’s short sale plan will have on the real estate market. With the new plan coming into play, there are a few things people with a mortgage can expect.

First, fewer people may pursue loan modifications. In the recent past, big banks said that they were committed to helping struggling home owners who had defaulted on their mortgages. Yet, according to ABC News, of the 1.1 million people that have requested help from banks, only 168,000 have completed loan modifications this year. With the loan modification success rate being so low, more home owners may view short sales as a viable option.

Next, the number of foreclosures may decrease as the number of short sales continues to increase. Finally, more home buyers will choose to purchase short sale properties. Prior to the plan, home buyers and real estate agents wanted little to do with short sales because these real estate transactions involve long waits and complicated paperwork. Now, due to the increase in short sales and bargain prices, more home buyers will stop turning a blind eye to these types of properties.

While it is still too early to determine how US real estate markets will be impacted by the President’s short sale plan, it is apparent that more home owners will be persuaded to sell their homes and receive a payout than enter into foreclosure.

Employers unexpectedly cut 23,000 jobs last month as economists had predicted a job growth of some 40,000 positions.

Speaking of the unexpected, the good news is that more insured overdue mortgage holders got back on track last month than fell into default for the first time in over three years.

More good news is that factory orders rose in February, bolstered by strong demand in aircraft and machinery from overseas orders and increased business spending on capital equipment; continuing the recovery in the manufacturing sector, which had shed orders by some 25% during the recession.

Consumer spending rose for the fifth month in a row. Does this mean that the recession is over and that consumer confidence is back? Who knows? Jobs will be the key to recovery and as pointed out, the news is not good here; though less bad (if that can be considered good) than in the past. The increase in consumer spending may b e explained in part due to the growth in wealth as consumers have recouped (net worth of households) over $5.5T, reversing the trend that took away almost $17.5T since the zenith of net worth some three years ago.

Though nationally the real estate market continues to decline, most recently by .7% last month, locally, median sales prices rose by 8.4%; making this the third month in a row that prices have increased while sales volume also increased above what was seen during the same period in the prior year. However, don’t be alarmed at the dramatic rise in prices as this was a reflection of a particularly strong upper end of the market. Continued strength can be attributed to both pent up demand and more affordability as prices have come down nationwide by some 30% and 16%+ locally.

Single family home construction nationwide has fallen to just over 300,000 units, the lowest point in recent history. Homeowners continue to keep product off the market in the hopes of a recovery. These two facts have shrunk the pool of available housing and as we can remember from our freshman economics class on supply and demand if. …

While talking about single family homes an interesting factoid is that the national average size of newly built homes continues to migrate south as home sizes have fallen from just over 2,500 square feet in 2007 to about 2,350 square feet in 2009. One might surmise that this is due to cost containment, availability of conforming mortgages and being conscious of the environmentally impact of living large.

The question on everyone’s lips is whether the single family home market will continue to gain momentum. Home buyer credits are currently set to expire soon, and the federal government is pulling its support of housing through the purchase of mortgage-backed securities. So, can the housing market rebound without these two underpinnings? The government has just ended its program that purchased $1.25T (as in trillion) of mortgage-backed securities as well as about $175B of housing agency debt, a total of some $1.4T.
Mortgage rates continue to be at historic lows, but there is uncertainty in the market due to the looming removal of the buyer credit and government pullout (the underlying point here is that the private market will begin to function on its own again versus having the forced presence of government funds artificially manipulating market supply and demand forces). Because of this uncertainty I believe that mortgage rates will begin to drift upward over the coming months.

A recent article posted on Realtor.org regarding the slowing rate of selling homes points to one unpredictable, uncontrollable and surprising resource for the dilemma: weather. The winter of 2010, though nearly over, wreaked havoc upon the northern regions of the United States, and dealt blows to states that aren’t used to dealing with snow flurries and school cancellations. States as far south as Texas experienced extreme chills, and nor’easters continue to barrel themselves against the shores of New England.

“January pending sales, though still higher than one year ago, remain much lower than expected given that a large number of potential buyers are eligible for the expanded home buyer tax credit,” says Lawrence Yun, chief economist of the National Association of Realtors. “Moreover, the abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February.”

This quote provided by the article is probably no surprise to first time home buyers and renters. Who wants to enter into rental agreements or take the first steps to buying a house when merciless winter weather leaves homeowners with frozen pipes, staggering heating bills and leaks from an impending thaw?

This could be a positive piece of news for those who are buying a home for the first time, in that they can look forward to revived numbers in real estate market analysis for the spring, especially those who will be first time home buyers in the Northeast. Selling homes can be disparaging, but it’s nice to know that this winter was particularly terrible and that springtime will guarantee an increase in real estate riches for those who fell short over the past four months.

Regardless of how blustery it gets outside, how heavy the snow falls or how flooded your basement gets with incessant rain, keep in mind that there’s a light at the end of the tunnel for sellers, real estate professionals and first time home buyers alike. The soul-crushing weather of winter will soon be behind us, and with spring we’ve all got plenty of open houses and closing deals to look forward to.

Although the housing market has been enjoying a minor recovery, this recovery has relied heavily upon cuts in mortgage loan interest rates coupled with the tax credit made available to first-time homebuyers. As such, some industry experts are concerned about the future of the housing market once this tax incentive draws to an end in June and the $1.4 trillion mortgage-related Federal debt purchases program comes to an end.

Although analysts do believe there will be an increase in purchases in spring as buyers rush to beat the June tax credit deadline, they also anticipate experiencing a slowdown in activity during the second half of the year. As the economic recovery trickles down to the labor market, however, many experts anticipate seeing another pick up in sales.

“It (recovery) will continue. What I am counting on to bolster demand in the second half of the this year is continuing economic expansion,” commented David Crowe, who is the chief economist at the National Association of Home Builders in Washington. “Sales will be driven by pent up demand along with low house prices and a return to positive employment growth.”

Many economists predict that the labor market will start to enjoy some growth as early as March after hitting a 26-year high at 10.1% in October. Although interest rates are expected to go up, economists believe home loans will continue to remain affordable.

“Home prices are now down almost 30 percent from when they peaked in 2006, so even a 50 or 100 basis points move in the mortgage rates is not going to do substantial damage to the housing recovery,” said Tortson Slok, who is an economist at Deutsche Bank in New York.

According to analysts at Freddie Mac, home mortgage interest rates will need to rise to 6% before the rates will discourage potential buyers. Further, some analysts believe the Feds will take action once again if the rates start to get too high.

“They can’t allow the housing market to falter from here,” said Josh Levin, who is a homebuilder analyst at Citigroup in New York. “If you are under 6.0 percent, affordability is still your friend. Sales won’t be affected.”

Despite the fact that the economy is moving in the right direction in many ways, foreclosures may remain a problem.

“There are currently about 5.5 million mortgages either seriously delinquent or in some stage of foreclosure,” said Michele Meyer, who is an economist at Barclays Capital in New York.

Regardless, many economists believe that pent up demand and an improving job market will outweigh the additional inventory.

Home Warranty Plans are very popular in other parts of the country (most notably California and Florida), yet by comparison, are purchased infrequently in the greater-Boston area – if not throughout the entire Commonwealth of Massachusetts. This is because few local buyers and sellers know what they are, or are familiar with the peace of mind this kind of pre-paid coverage can provide for a relatively nominal fee.

On the other hand, folks relocating from other parts of the country increasingly expect to have this coverage made available to them by local home sellers, and/or real estate marketing agents. At the very least, they count on their Buyer Agents to be familiar enough with these products and services to raise the subject as a self-pay option at closing, or by making an Offer to Purchase on an older property contingent upon the seller’s provision of a one-year home warranty at closing.

As a full-time Realtor®, I believe that every real estate agent – whether working for the buyer or seller – has a fiduciary responsibility to educate their respective clients with respect to the availability and advantages of a home warranty. And, they should be knowledgeable enough to recommend reputable firms that offer this coverage, as well those that offer optional coverage as dictated by an individual buyer’s needs (e.g., for swimming pools, spas/hot tubs, garage door openers and so forth).

Purchasers of newly constructed homes – including condominiums – are very familiar with the one-year warranty provided by most homebuilders at closing. These warranties give the new homeowner piece of mind by guaranteeing the repair or replacement of everything from a leaky gutter or roof, to defective new appliances, to problems with mechanical systems including HVAC, plumbing, heat, hot water, and so forth. A home warranty for older condos, single and multi-family homes (most of our local Boston housing stock!) is intended to give new owners of these properties similar coverage and piece of mind by approximating the coverage provided by a new home warranty.

A home warranty should not be confused with homeowner’s insurance. Whereas the latter covers damage to the structure of one’s home (walls, kitchen cabinets, floors) and personal belongings (clothes, television, furnishings) in the event of a fire or other tragic catastrophe, the former provides coverage for normal wear and tear of appliances and systems. Lenders require homeowners’ insurance, whereas home warranty coverage is optional.

Who among us enjoys being unpleasantly surprised by a sudden, urgent need to repair or replace an expensive stove, dishwasher or central air conditioning system? How many of us look forward to devoting the requisite time and energy it takes to find a spare part, or to get repair or replacement quotes from multiple service providers, determine which provider is both reputable and affordable, and can only hope that the provider arrives on time as promised to make the needed repairs? With a home warranty one simply places a call to the home warranty firm, which then covers the remainder of expenses associated with the repair or replacement of the offending appliance or system. Generally, the only expense is a modest $50 to $75 service call fee (not dissimilar to the co-pay one gives their doctor for an office visit, while the HMO or insurance company pays for the remainder of the associated costs).

Depending upon the kind and extent of coverage needed, a home warranty can cost, on average, in the vicinity of $400 to $600. Sellers can purchase a home warranty to cover their home during the listing period and also provide buyer coverage for one full year from the closing date. Or, a buyer can purchase a warranty to commence for one year after the closing. Home warranties are generally renewable on an annual basis by the homeowner. Since one can never predict when a home system or appliance will break down, unexpected repair or replacement costs for “big ticket items” can easily strain one’s budget. A home warranty gives prepaid piece of mind to control and minimize these kinds of costs.

Here’s how home warranties work: The covered homeowner calls the warranty firm to report the nature of the failure of a system or appliance to operate fully and effectively, and is given the name and phone number of a locally contracted, preapproved service provider to call: an electrician, plumber, HVAC repair person and so forth. The repairperson will then fix the problem or, if it cannot be fixed, replace the offending part or the entire system or appliance with one equal to or better than the original. The home warranty firm then follows up with the policyholder to ensure that they are pleased with the outcome. Once again, the policyholder gets all of this service for the price of the annual policy, plus a nominal service charge (also referred to as a co-payment, service charge or deductible).

Here is an example of how this kind of coverage can work to the benefit of the covered homeowner: let’s suppose your HVAC system fails. You call the home warranty firm and select from among the network of pre-screened service providers. When the plumber, electrician or other service provider arrives at your home, you pay the nominal service charge. Since the HVAC system cannot be fixed, a system as good as or better than the original is procured and installed. Total cost to you: $70.00 for the service charge (plus the original cost of the home warranty of, let’s say, $500) = $570.00. By way of marked contrast, the cost of replacing the HVAC system with a new one without this kind of warranty protection would be approximately $15,000. Your savings with the home warranty = $14,430. Six months later the stove dies. It is repaired at a cost of $375.00, but since you are covered once again by the warranty, you pay only the $70.00 service charge once again. Your savings with the home warranty = $305. Total cost for these two items with the warranty is: $640.00. Without the warranty the cost would have been $15,375.00. Your total savings for the replacement of the HVAC system and stove repair with a home warranty = $14,735. As one can see, the savings can be quite substantial!

Real estate agents who offer home warranties with their listings will tell you that they do so to differentiate themselves in the marketplace by providing an added-value service and peace of mind at no cost to the seller and/or buyer. Occasionally the buyer and seller agent will share the cost of this expense. A home warranty provides an added benefit to both the buyer and seller – especially in those instances in which a home inspection uncovers significant problems with any item covered by the home warranty. There is no longer a need to argue or renegotiate the price at closing – at the risk of the entire deal falling apart – because the home warranty has effectively eliminated the likelihood of these stressful, last-minute circumstances.

How to Select a Home Warranty Service

As with any product or service, a home warranty is only as good as the reputation of the firm that underwrites the policy. Look for an established firm with a good track record of customer satisfaction. Be certain that the firm offers 24-hour service 7 days a week, and has a large, multi-specialty service provider network in your geographic locale. Compare the annual cost for each policy. Look carefully at the service charges: are they per issue, or is there a charge each time the service provider enters your home to work on the same issue?

Above all, “read the fine print” to be certain that you understand any and all exclusions and exceptions to coverage. If you need additional customized coverage, select a firm that also offers multiple “add on” services for a nominal fee. Ask your Realtor® for his or her recommendations. Ultimately, though, only you can decide which home warranty policy will best suit your individual needs and budget.

The bad news, contrary to what others state, is that I believe that housing prices will continue to decline, in part because of no job growth in the near future and the problems that the FHA is having. This decline will not be as dramatic as in the past year, but a decline never-the-less. I say this because there is no job growth and will not be for a least another year; this combined with low consumer confidence means that the consumer will be hesitant to obligate themselves to large purchases, though I do recognize some pent up demand. Having said this, I believe that home prices will continue to slide slightly. Low interest rates and government money is having the positive effect of slowing the rate of decline.

We all know about what is happening on the job front. The government tells us that the good news is that job loss is slowing – but it is job loss none-the-less. The other item not spoken about until recently is the trouble at the Federal Housing Administration (FHA).

Last week, the FHA acknowledged that its cash reserves were at levels unacceptable and in violation of the Congressional mandate of 2%. According to reports the FHA reserves were at .53%. The FHA is the agency which guarantees loans for many first time home buyers as well as refinancers. If the FHA runs into financial difficulties then the market could be negatively impacted – and it will be. The FHA insures about 30% of first time buyer purchases and about 20% of refinances, both up from about 3% just a few years ago. If the FHA is in trouble then the market is in trouble. The FHA requires as little as 3.5% as a down-payment, if the market continues to slide it does not take a rocket scientist to see that in a very short time the minimal equity in a home is wiped out and with it a major incentive to work things out. Currently about 17% of FHA loans are at least one month delinquent.

What might the FHA do ? They will probably require better credit from their borrowers; they may require a larger down-payment and may increase transaction costs to replenish their reserves. All of which mean that fewer borrowers will qualify and will diminish demand. A diminished demand will mean lower prices.

The silver lining, the good news, is that both locally and nationally the cost of home ownership is far better than in prior years. The monthly mortgage payment costs of the median priced home represents the lowest percentage of median family income in more than a decade. The Home Affordability Index is an excellent window with which to view home affordability. For example, if a median home is priced at $175,000 and the median family income is $55,000 the affordability index is 3.2. From the ‘80’s through ’07 that index approached 4 and in some locales like the Boston area it was 5 or higher. Today the national average is 3.4 and locally is 3.8. For the Boston area, always lambasted because of its high cost of housing this means that we can better compete with the rest of the nation, at least on this metric. Now we need job growth.

Forbes recently released a study that looked at the top ten worst places to try and sell your home in 2008.

Forbes magazine, which examined markets all over the country, concluded that Florida has the most markets that are really in the doldrums.

Here are the (unfortunate) winners:

1. Miami
2. Orlando
3. Phoenix
4. Tampa
5. Los Angeles
6. Washington, D.C.
7. Chicago
8. Baltimore
9. San Diego
10. Denver

Boston proper is not on the list. Our recent Seller survey (see Reader Poll), shows a growing percentage of current Boston condo owners will list their units for sale during the Spring / Summer season. For more information about listing your home, please contact us here at the Boston Real Estate Observer and learn about the exposure we can provide to your condo.

We somewhat regularly try and feature listings outside the Boston market for those Buyers visiting our blog who are thinking of a move outside the state of Massachusetts. We’ve got 3 properties to feature today, all with their own uniqueness.

50 Heather Drive in Rye, New Hampshire is a custom built estate in a country club community located along the shores of the Atlantic Ocean. New Hampshire provides tax-free living, and this newly built 4 bedroom home with multiple outdoor living spaces is great for entertaining – listed for $3.6 million.

1505 Pearl Street in sunny Boulder, Colorado is a new 22-unit loft-style condo development at the foot of Boulder’s Pearl Street walking mall. The development is poised for a Summer 2008 completion. Prices range from $528K to $1.4 million. For more details, you can contact the Colorado Home Finder team at 800-231-9153.

328 W. 200 S. #505 is a Salt Lake City downtown loft that boasts urban opulence. The two-bedroom two-bathroom 1,715 square foot unit offers soaring ceiling, custom chandeliers, two balconies, above and below ground parking, extra storage, and high end finishes throughout. For more information, you can contact the Cody Derrick Team in Salt Lake City at 801-326-8971. Listed for $635,000.

Back in February, we discussed the increased activity of Europeans interested in purchasing Boston real estate (see Europeans Buy Boston Real Estate), and recently, the National Association of Realtors released a survey discussing investment and vacation home purchases across the entire US, much of which chronicles the influx in foreign investment trends.

In spite of a decline in the total vacation and investment home sales, second-home sales accounted for 33% of transactions in 2007. Sales of vacation properties fell 30.6% to 740,000 in 2007 compared to the prior year which boasted a record 1.07 million, while investment-home sales fell 18.1% to 1.35 million (down from 1.65 million in 2006), according to NAR’s new Investment and Vacation Home Buyers Survey report. During this same time, primary residence sales declined 10% to 4.34 million in 2007 from 4.82 million in 2006. NAR Chief Economist Lawrence Yun cited the disappearance of speculators from the market as the reason for the decline, leaving the market to serious buyers. The disruption in the mortgage market and tightening of credit during the second half of 2007 also impacted this market sector, but lifestyle factors and strong demographics (including a peak of population in their prime years for buying recreational property), point to a positive outlook for the vacation home market. While U.S. buyers may be taking a wait and see attitude, foreign buyers are taking advantage of the weak U.S. dollar and are propping up second-home sales. Conversely, Inman News reports that U.S. buyers are looking abroad for their second home investment in such markets as Costa Rica, Belize or Mexico, taking advantage of newer resort markets where prices are still relatively low and the U.S. dollar can buy more than at home.

Given that the report chronicles a summer 2007 time period, the data is relatively old, however, the report provides insight into some high level buying trends that are interesting in and of itself.

Download (297 KB) the 2007 report on international homebuying activity in the United States.