Stop Foreclosure Blog

In recent years the real estate market has been in a nose dive. The average U.S. home price doubled between January 2000 and April 2006, according to the First American Loan Performance index.  Since then, the average home price has fallen 30%.

If you’ve been trying to sell your home, or just own one, then you’re no doubt concerned with the recovery of the housing market.   Here are ten critical questions that you should be asking about the current housing market:

1. Is the housing market getting better?

It has shown some signs of healing this year, but the much herald recovery is only temporary and fragile.

Home sales have improved greatly from the lows of 2008.  Unsold home inventory listed for sale is also down.  In some neighborhoods there are even bidding wars for foreclosed homes, which attract first-time home buyers and investors seeking rental properties.

However, nearly 7 million homes with mortgages are behind on their payments, representing 13% of all homes with mortgages according to the Mortgage Bankers Association..  Eventually, many of these homeowners will lose their homes and flood the market with a surplus of homes.  Unemployment has also continued to rise, and the housing market cannot recover until job growth resumes.

2. When will housing bottom out?

There probably won’t be any clear turning point.  The usual monthly indicators, such as home sales and prices, tend to bounce erractically from month to month, making it hard to discern the underlying trend.  And the housing bust will end at different times in different places.  House prices already might have bottomed out in the coveted suburbs of Virginia that surround Washington, D.C.

Generalizations about states or metropolitan areas don’t say much about what is happening in your neighborhood.  While those areas around D.C. may have stabilized, it will be years before all the unsold condos find buyers in Florida.

3. What signals should I watch to determine whether my local market is improving?

One way to get a sense of supply is to ask a good local real estate agent for data on how many homes are listed for sale in your town and how many months it would take at the current sales rate to absorb that supply.  Anything over 6 months is generally considered high, and it means that sellers will have to cut those prices.  Another way to tell is to count the number of for-sale signs and vacant houses.  If there are more than two on any block, this may be a bad sign, especially if the homes are not being up kept.

Keep your eyes out on the local job market as well.  The recovery for homes will not happen in your neighborhood if there aren’t any jobs.  So if you start to see an uptick in the number of “help wanted” signs or you notice new businesses opening up or a new factory comes into town, then you know that a recovery for the housing marketing in your neighborhood shouldn’t be too far behind.

4. How can I figure out the value of my home?

You will never the know the value of your home until you sell it.  You can always say your home is worth ‘X’ amount of dollars, but this isn’t true unless you find some one willing to pay you that.  What you’ll need to do is check with a local realtor to figure out the recent selling prices of a similarly styled and sized houses in your neighborhood.  Websites such as Zillow.com, HomeGain.com, and Cyberhomes.com provide estimates based on recent sales; however, these are sometimes way off.

If you really want to be more scientific you can always hire a professional appraiser, but it will cost you a few hundred dollars.

5. Does it matter whether I’m “under water”?

Don’t despair too much if you’re underwater as 20% of homeowners are currently underwater with their mortgages.  If you can afford your monthly payments, and don’t plan on moving anytime soon, then it shouldn’t be too much of a problem.  But it will be hard if not impossible to refinance your mortgage and take advantage of these record-low mortgage rates.

You may realize that your home may never recover to its peak price or anywhere close to when you bought it, and it may be cheaper just to rent a home in the area that is of similar size.  If that is the case speak with your tax and real estate attorney about your options for a short sale.

6. If I lose my home to foreclosure, how long will it take to repair my credit?

It will be three to five years before you can qualify for a home mortgage insured by the government, depending on your circumstances, and that assumes you have re-established a record for paying your bills on time.  The foreclosure will remain on your credit history report for seven years, and you will be paying higher interest rates as a result.  The quick answer to recovering from a foreclosure is to re-establish credit by paying your bills on time, keep balances low to non-existent, and don’t have too many lines of credit open.  For more detailed instructions check out The Clean Credit Clinic.

7. If I’m renting, is now a good time to buy a house?

Now may be a good time.  Prices in most areas are well below their peaks, even if they haven’t hit bottom.  Don’t kid yourself that you can time the bottom of the market perfectly.  But don’t feel any pressure to buy in a hurry, because the supply of housing is likely to remain high for years in many areas.

8. Can I get a tax credit if I buy a home now?

Under an expanded and extended program approved by Congress earlier this month, tax credits are available to many people who buy or sign a contract to buy a principal residence by April 30th adn complete the purchase by June 30th.  The tax credit is up to $8,000 for first-time home buyers and $6,500 for people who already have owned a home for at least five consecutive years during the previous eight years.  The credit is available for individual taxpayers with annual incomes of up to $145,000 or joint filers with incomes up to $245,000.

9. Can I get a mortgage on attractive terms?

If you have a good credit history, and a moderate debt-to-income ratio and the ability to fully document your income.  The last requirement is fairly easy for people who work for a salary and have had the same employer for more than two years, but it can be tough for self-employed people whose incomes vary substantially from year to year.

10. Should I invest in foreclosed homes?

No.  You should be an experienced investor or contractor before diving into the business of flipping foreclosed properties.  Homes that are sold at courthouse auctions are done so on an ‘as is’ basis, and there are no provisions for an inspection before you take ownership– so the home may end up costing you a lot more than you originally thought.

You should also have access to a lot of cash or a special short-term loan for investors.  You will need a lot of time, nerve, cash, and knowledge of the local market in order to pull off a successful flip.

Credit for these questions, answers, and content goes to James R. Hagerty (bob.hagerty@wsj.com).  “Ten Questions on the Volatile Housing Market”, Wall Street Journal

Related posts:

1. 1 in 4 Homeowners Are Underwater

This entry was posted on Friday, December 4th, 2009 at 2:28 pm and is filed under Foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.