Real Estate Facts
Is it time to buy real estate? Our editors discuss mortgages and the housing market.
Jill:All right, it's time for an episode of Ask The Experts. This episode dedicated to the real estate market. And we have a very special guest star, Ms. Ilyce Glink of Think Glink and Money Watch blogger as well. And author, and let's, why don't you sell that book title for me baby?
Ilyce: You know next week the brand book comes out finally: Buy, Close, Move In, and it's a guide to safely and successfully, profitably, investing in the real estate market and buying a home.
Jill: All right, so we're doing all real estate today. If you've got real estate questions let us know. We've got a bunch of questions lined up. And we just want to remind you that this live web cast is sponsored by Charles Schwab. So Ilyce, what's going on in the real estate market? Things picking up? What's happening?
Ilyce: You know it's been a very interesting week. We saw today that the primary mortgage market survey from Freddie Mac and them saying that mortgage interest rates jumped to the highest level they've been at, maybe in the last 8 months. I just blogged about it on the home equity blog, so you can go there and check out the exact rates. But it looks like a 30-year mortgage rate, fixed rate mortgage is now about 5.25% and then there's a .6 percent fees on top. So a grand total of about 5.35%.
Jill: Now Jack Otter, who is real estate maven extraordinaire. What was your refi price there? What was your rate?
Jill: Okay, come on.
Jack: Thank you.
Jill: Is a
Jack: Thank you for bringing that up.
Jill: Thank you very much, very nice.
Ilyce: That's very nice. I have to say that I got a 15-year at 4-1/4.
Jack: We waved that. You and I talked about it, you know?
Jill: Yeah, I made them go for the 30 year.
Jack: And probably that will have been, when history is written
Jack: That will have been the better choice. But at least I can sleep at night and know that
Ilyce: I think sleeping at night is underrated by a lot of people. I think a good nights sleep is very important. And if that helps you, I think it's a great choice.
Jill: Ilyce, so the mortgage market, mortgage rates picking up a little bit of action in the last month or so, because of the expiration of the Home Buyer Tax Credit. Do you; pull out your crystal ball for a second, do you think that's going to continue going forward?
Ilyce: I'm a little bit concerned. I think the expansion and extension of the home buyer tax credits, the $8,000 first time home buyer tax credit, $6,500 long term home owner credit. I think that the value of extending those and expanding it has been very minimal. When you look out and you take a look at how many homes are actually getting sold, January the numbers were down, December the numbers were down, February the numbers were down. Finally, last month we see a bit of an up-tick, nowhere near where we saw last November and into early December. So I think that the value of them has been, has really subsided. And what I'm more concerned about is that we've run out of people to buy houses for a little while. We've pushed forward so many sales, I'm wondering really where every, if there just isn't going to be a big deep dive, say in May once the tax credits really kind of expire.
Jill: You know, the only person here that's rooting for that is Jack Otter, because he's sort of thinking maybe I'm going to buy that other house, or that. Right?
Ilyce: The fourth, the fourth home, the mansion?
Jill: I just want to say that the Otter's probably were like making that big old smile across the family when you got the refi and you're ready to rock-n-roll. And, you know, you are just basically hoping that the whole thing falls apart now, aren't you?
Jack: Yeah, it's way beyond Debbie Downer.
Jill: Yeah, I know it.
Jack: But, you know, there is a silver lining.
Ilyce: I'm so glad that somebody else feels a little bit concerned, a little bit pessimistic about the real estate market.
Jack: But there is a silver lining to what you were just saying, which is that if the $8,000 wasn't boosting, one might say, artificially inflating sales in recent months, maybe the fall off won't be that dramatic.
Ilyce: No. I think it's really boosting it for March, because now we're getting into that sort of deadline area again.
Jill: Right. Right.
Ilyce: But what we didn't see, and if you look at the new construction home sales, they've declined all the way over the last 5, 4, 5, 6 months, and we're now seeing new home sales at the very lowest point ever since they ever started recording numbers. But I think the last number I saw was 302,000 on an annualized basis. I mean that's just; that is horrible. I mean horrible. There is no lipstick to put on that pig. I, I don't,
Ilyce: I, yes. So when you look at it the extension and expansion has had zero affect there, and you really have to buy a new home. You don't just go in and buy it like you would buy with cash. I mean there are a lot of existing homes out; existing for new construction homes that are built and never sold. But you just didn't see a boost there at all. So I'm very concerned about what's happening in that marketplace. And that, of course, represents a huge number of jobs in this country.
Jack: Yeah, sure.
Jill: Okay, I'm about to kill myself, so both of you be quiet. This is all right, say something good.
Jack: Okay, here's something good, which is that if you are a buyer you should know that based on what Ilyce was just saying, and the fact that these builders, they have bills to pay. Unlike the homeowner who wants to sell, but can't, well they can, just, most of them, can stay where they are. The builders got to unload that thing, because he owes the bank, he owes his employees, he owes Viking for putting in that beautiful range.
Jack: And so that's where you can really negotiate a good deal.
Jill: You do. You have to be very careful. So the bank has taken; the banks collectively have taken back a huge number of these sort of half built, quarter built, semi built properties, where maybe 10 out of 200 lots have actually been built. Or 50% of the lots have been built. You have to be careful, because even though the bank now owns it, you, they are selling these different lots at different prices. And so you're going to want to make sure you're buying in an estate development that's got enough funding to get the infrastructure, and then it's going to be sold out.
Jack: You need water.
Ilyce: You need water.
Jill: Okay, we have, we need questions. We've got a bunch of questions. If you've got a question send us an email. AskTheExperts@MoneyWatch.com or click on the link of the, the side of our homepage to send us a question. Let's get into some of these questions. Ilyce, Jack has basically decided he's not answering any of these questions, because they're all for you. Oh, no, no, no. We're going to do something
Jack: We're talking about physics, and Einstein is our guest.
Jill: Exactly. Okay, Einstein.
Ilyce: So when I get it all wrong everybody's going to be all sad.
Jill: Oh, oh, who cares. Come on now. All right, now there's a lot of questions about the new mortgage program, the government mortgage program, so let's get into some of these.
Jill: First of all, this one comes from Stacey who has both a, has a, owns a primary residence with a first and second mortgage with, you know, she's completely underwater. And they're both interest only mortgages. She's concerned about their second mortgage. They have excellent credit scores in the 700's, and she thinks they qualify for the government assistance program. Here's the question for Ilyce Glink of ThinkGlink.com. If we own rental property will this be taken into consideration and disqualify us from one of the new mortgage plans. We own rental in California and Oregon, and we don't make any money on our properties. What's the best way to approach our mortgage company about the program?
Ilyce: So there's a lot of unknowns here. And any one of these could take a mortgage modification. First of all when you have other properties, the bank is looking at all assets. A couple of posts I did last year for Money Watch, my home equity blog, net present value. There are these complex calculations that lenders are doing. And honestly I'm hearing from people we've posted this on my loan modification from hell blog where there are, as of today, 400 comments. Moving on. The; the story it jut started growing and growing. But, you know, what's happening here is that people are reapplying for the mortgage modification programs every single time they get rejected. And they're finding in some cases that it's a matter of being off by $50 bucks in your checking account that will allow you to get your loan modified or not. So for her she's got these properties, these rental properties, they may not be earning any money, but she has equity in them, she's sunk. So in terms of getting a loan modification. Now I am hearing about lenders that are doing loan mods on rental properties, so it's worth checking there as well to see if you can get somewhere that's going to ease up you know your financial situation.
Jill: And we could make sure tat people understand that even though this is a government program, that you really do have to start with your lender who will kind of hook you through, right, the process.
Ilyce: Right. You can start there or you can also call the Hope Now hotline, 888-995-HOPE and those are HUD certified housing counselors, and they will route you back through secret backdoor channels to your lender.
Jill: Do that phone number again, I love that.
Ilyce: 888-995-HOPE. I feel like I should have a little jingle to go along with that.
Jill: I wish they were sponsors, but we have a great sponsorship by Schwab, by the way, this episode of Ask The Experts is sponsored by Charles Schwab. Here's one by Michael in Sarasota, Florida. By the way I'm quite familiar with Sarasota, Florida. It's one my favorite, my grandparents lived there for many years.
Ilyce: It's a lovely place.
Jill: Beautiful. I own a home in Florida with a current market value of $235,000, a $300,000 first mortgage. He's been unemployed for 18 months. I have no cash, assets, or earned income. However, I have a 401K, it's worth $450 grand. I'm making my mortgage payments, supporting myself by slowly withdrawing money from my 401K. Here's a question Ilyce or Jack.
Jill: Will Bank of America require me to take a single large withdrawal from my 401K to write off principle or consummate a short sale, or even to lower payments or refinance. It's a Fannie Mae Loan, qualifies for the Making Home Affordable Program, I'm really interested in your opinion Ilyce.
Ilyce: He does not qualify for the Making Home Affordable Program, because he's unemployed. If you don't have a job, and you don't have income, you don't qualify. I think people just don't understand that. It's heart breaking. Now under the New Mortgage Modification Program they're supposed to be giving a 3-month forbearance.
Jill: 3 to 6 months.
Ilyce: 3 to 6 months forbearance, but that doesn't mean you're just going to qualify for the program either. You eventually have to get a job with income. Another thing to keep in mind, that 401K money is safe. It can't be tapped. So the idea that Bank of America could, or any other lender, let's not pick on BOA, although they're your lender, they're not, you know. They, they just can't force you to do that. I question whether you should even be making payments. I wonder if you shouldn't be some of the 15% of Americans who are so far under water that you shouldn't walk away from this loan wondering if you're ever going to get back on top of it. You're draining your retirement money to pay for this. What happens when you're all done with your retirement money? What are you going to do then? So you're going to then be out of a house and out of a retirement pot. I wonder if this isn't a case where you should consider walking away.
Jill: Oh, I love that. Because, you know, I love that whole notion. Jack and I are big proponents of it.
Jack: People get very angry at us, but imagine if a corporation were in that same situation. Would we suggest that the corporation drain its pension program to pay a vendor for something? No. They'd negotiate a deal with the vendor.
Ilyce: I would, I would suggest; I'd suggest the CEO take his person pension plan, perhaps and do that. No, but you're exactly right. Strategic default, which I've been covering on my home equity blog, it has really become, you know, just something that. People were so angry at me in the beginning, and now everybody's kind of saying, you know what? I'm thinking this isn't such a bad idea as more and more media have kind of caught onto the idea that well, companies are doing this, why shouldn't people be able to take advantage of the terms that are actually in their loan documents.
Jill: Okay, by the way, when I did that on The Early Show I got the most enormous pile of hate mail from people saying that it was Un-American. Ilyce says I'm a very big patriot, so, you know, come on.
Ilyce: I think you're a patriot. I'm waving the flag for you.
Jill: All right, we've got some more questions here. Two, let's see. Okay, here's somebody that had a first and a second, and they were able to settle the first mortgage on a modification plan, but the second is not on the plan. And the, I don't know if this is a man or a woman, and the questioner keeps getting calls and letters from the second holder, the second lien holder. I was told that I could keep the new rate for 3 months, and the second will fall in place later, since it's not that much, $27,000. The loan is through a bank you may have heard of. What should I do, my husband has lost his job and now I have one income? So it's a woman.
Ilyce: All right, well so this has been a perennial problem. The second lenders have totally gotten, you know I can't think of a nice family friendly word for this, but messed up here, screwed over. Because what ends up happening is the primary lender will take back the loan, or they restructure, and the secondary lenders get nothing. But under the Obama plan, second lenders are supposed to be getting a payment if they modify these loans. And I think what's happening is lenders are figuring out that they just don't have to do that, and the $3,000 or $1,500 bucks they're going to get from the Making Home Affordable Plan, is it worth it, and they might get more if they just hold out. And so people are getting the first loans modified, in a very small number of cases by the way, and the second lenders are just kind of hanging in there thinking, I don't know what, that their money's going to come back, and slowly people get jobs, and they'll start making those payments again. And I just think it's a big, big problem.
Jill: All right Jack I got a question for you. Here it is. I don't know this person's name, but it's a good question. My girlfriend and I are moving in together. We both own our homes and neither of us is underwater. She sounds very good looking if she's not underwater. She will
Jack: Does she look good underwater too?
Jack: So I've heard.
Jill: She will try to sell her house; should she try to sell her house now or rent it a while and maybe sell it later?
Jack: Well my feeling is that if she's not emotionally attached to it, the question is, do you want an asset that can have pipes bursting, that can have a leaky roof , that you have to chase tenants for their rent payments? Or would you rather have an asset that you could sell whenever you need to, that you could diversify? You know, my bias is obvious here, I would sell the house and invest that money in whatever smart way you want to for whatever you plan to use it for.
Jill: Now Ilyce Glink who is also known as Ethel Mertz, because she owns rental property in her life. That's a reference for you young kids at CNET watching, Ethel Mertz was the neighbor at, on I Love Lucy, and she owned the building. Okay, Ethel, what do you want to do? You want them to rent it or do you want them to sell the house?
Ilyce: Listen, if you can rent it I think you want to rent. Why? I mean it's obvious, you see the longer you can postpone having to sell an asset that's underwater, the longer the opportunity you have for that asset to grow in value. So if you can rent it great. But I was sharing with Jack before we started the podcast today, that the new numbers that were released yesterday show that 1.2 million households have been lost in the year, from 2005 to 2008. And in 2009 they suspect, although the data isn't out yet, that the numbers going to look even worse. Now you loose 1.2 million households, and you get in the same time that you gain 3-1/2 million people in the population. So what you're seeing is a dramatic loss of household formation, and that's why the rental markets have been so soft, as soft as the housing markets. So while you might say Jack what you were trying to have this, that'll be like pent up demand someday, and I think someday is right when people get jobs, you may have a hard time selling and you may have a hard time renting. I still think it's a good idea to try and bring in some income if you can't sell.
Jill: All right. I'm with you Jack, I'm lazy. I would never; you know, but if people
Jack: Well they have to run the numbers and see how much they could get in rent, rental income, what's it going to cost to carry the property.
Ilyce: Right, I mean, but if you can't; if you're not renting it and it takes a year to sell, and you're carrying that property vacant for a year
Jack: Oh, oh, oh then,
Jack: Yeah. Income.
Ilyce: So you have to really figure out how long it's going to take to sell it. And really, I think, you know, market times now are really like 9 months to a year in some places, 2 years in others.
Ilyce: the stuff just still in some cases isn't selling, especially if you've got a ton of foreclosures in the area.
Jill: All right, speaking about selling, Christen in New Jersey asks that, my husband and I are trying to sell our home ourselves, the FSBO, For Sale By Owner, right?
Ilyce: Um hum.
Jill: We figure were already going to get less for the house than we'd like, why turn over several thousand more dollars to a real estate agent? I was going to use a modifier, but I decided not to, since Ilyce's mother and my mother are both realtors. Ilyce, why hire a realtor?
Ilyce: You know, about 20% of Americans are able to sell on their own without, you know, the aid of an agent. Are they actually getting a better deal? I don't know. They might think they are. Are they selling for every last penny they could? Are they getting as many buyers as possible to see the property? One way to kind of split the difference, and I've personally done this, is of course to list it yourself but cooperate with agents. So you pay a half commission, 3%, to an agent. Maybe even pay 3-1/2%. So you're saving a little, but you're not paying out as much as you would with a full commission. And then all of those agents are motivated to make sure your house gets sold. Right now it's a numbers game. You do not want to do anything that excludes buyers from coming through the front door. And the way to do that is to open it up and make sure that every agent knows, because they represent the 80% of buyers out there who aren't buying unassisted.
Jack: The fact that these people should look at it as if, because the price is depressed I don't want to spend that extra money. The only goal for these people is to maximize the amount of money they can get for it, whether the markets booming or whether it's sinking. And if you think an agent can actually help you get more than the agent's going to cost you, then it's something worth doing. And they can negotiate, as Ilyce said, and you can also sit down with the agent before agreeing and saying, hey what am I getting for this? How are you going to market the house? Are you, you know, how good are you at pulling comps? And am I any good at pulling comps? You know, are we both working, or my wife and I could spend full time marketing this house? I mean, there's a lot of questions there.
Jill: Well that's very good advice, I like that. And the realtors of America would like you to thank you for that Ilyce.
Ilyce: No problem.
Jill: Ah we
Ilyce: Our mom.
Jill: Exactly. Hi mommy. If my mother could actually figure out how to stream videos she'd be, this would be great. Let's move onto our next question, it's from Holly. We have a property that's been on the market for 3 years, and in the recent months we have qualified for a short sale. Now, remember gang, this is a little Jill speaking here. Short sale you actually have to sell the house to somebody, then get your mortgage company to say, okay, it's fine, you've sold the house for less than what's owed on the mortgage. Okay, they're having no luck selling the home, and we're on the verge of foreclosure. All the payments are up to date. Ilyce, should they be considering the deed in lieu, which is part of the new Home Modification Program just released in the last week or so?
Ilyce: Why are on the verge of foreclosure if all their payments are up to date?
Jack: That's what I was wondering.
Ilyce: Do we know?
Jill: No, but I'm thinking
Ilyce: Maybe they feel like they can't make any more payments?
Jill: I'm so tired of making payments. I think; I wonder if that means that they, maybe they've drained their savings. Let's assume that they have no money left.
Ilyce: All right. So if they don't have any money left, the next thing that's going to happen is they're going to stop making payments all together, and the bank is going to realize that if they don't take this short sale where maybe they're getting, you know, 80% of the value of the mortgage, they're going to let it go to foreclosure, which means they'll get 20% of the value of the mortgage, or 30%. Why banks haven't woken up and understood that if they don't do a short sale it's going to go to foreclosure, I'm really not sure. But I think part of it is they don't want to take more inventory back onto the banks books. And with a short sale you're actually having to write off bad debt, and that's another thing they don't really want to do. So
Jack: I think that's it.
Ilyce: Short sales have just become, again a nightmare. So the Obama administration has stepped up with another, another plan.
Jill: By the way Ilyce is from Chicago. So she's obviously a lover of this entire administration. She's friends with everyone there for God's sakes, right?
Ilyce: I don't know anybody in the administration.
Jill: Oh, come on. I'm so bummed, all right.
Ilyce: Although I will, I will in the interest of full disclosure say that when Obama was a senator, and a new senator, because he just stepped in, we too our then very little kids to Washington D.C. and he arranged for, his office arranged for us to have a tour of the Whitehouse.
Jill: Okay, let's just say that
Ilyce: But I don't' know. There you go. That's
Jill: Okay, she, she and Michelle went out to lunch.
Jack: Even their kids are.
Jill: I know it.
Ilyce: That's about as close as I come
Jill: Oh, my God!
Ilyce: To actually knowing the Obama's. But I have to say that the plans just simply have not been working. All of them have not been working, which is why we keep seeing new iterations of them. Now supposedly short sales as of, I think it, today or yesterday.
Jill: Yesterday I think.
Ilyce: Yesterday. The new short sale plan went in with more money to the lenders. I think they upped it to $1,500 bucks to $3,000 dollars.
Ilyce: It's all supposed to happen. You're supposed to get a yes or a no in 30 days. I just got an email from somebody saying, it's supposed to be in 30 days, and yet my lender just told me they won't know from 45 to 60 days whether or not my short sales approved, what gives? So the answer is, these are all new programs we're day 1 in, I have no idea if this was a, if this latest plan is going to work. But I have to say that unless you make the banks do it, and there's some real teeth to it, I don't see these plans necessarily working any better than the last set.
Jill: Right. So what Ilyce is saying, which I think is very important is, that these are not compulsory plans. In other words, the administration is saying, we would love lenders to do this, and we will incent buyers, and sellers, and lenders, and all those folks, we're going to try to incent them and pay them off a little bit. But they don't have to. So you still are really at the mercy of the kindness of your banker.
Ilyce: Yeah, I'm a little concerned. We did see that Citi, Citi Groups people all apologized today for their role in, the, you know, causing the entire meltdown. But does that mean that you're going to get Citi to refi and do your short sale faster? We'll see.
Jack: I don't think they want to record that on the books.
Ilyce: They don't.
Jack: I think that's one of the biggest problems. But I'm a big fan of short sales. Everybody feels pain, which is how it should be.
Jack: And we get back to a market price. People are going to purchase the property who can actually afford it.
Ilyce: I'm a little; you know it's interesting, Sheila Bear was on, I don't know, some CNN or something yesterday talking about how there are 800 banks in trouble. That's about a tenth of all the banks in this country right now. And I have to think number one on her list is all the commercial property that has yet to be written down.
Ilyce: But number 2 has to be all these residential properties. And I will even call it quasi-residential the developer properties that are still out there that haven't, they haven't moved on it. I think you're exactly right. When banks have to start writing this stuff down, their capitalization ratios go all out of whack, and we end up with more banks failing and people getting in bigger trouble. So there's a lot of concern.
Jill: Well, I wanted just to thank Ilyce for saying capitalization ratio and that's been, that's a special treat.
Ilyce: It makes me sound smart.
Jill: Cause we're going to have to wrap up. Jack last comments.
Jill: Oh nice, I love that. Jack Otter is a, what are you again?
Jack: Executive editor.
Jill: Executive editor of MoneyWatch.com. Ilyce Glink, say the name of that book again baby.
Ilyce: Buy, Close, Move In, it's your guide and we'll show you the way home.
Jill: Ilyce Glink is a Money Watch Blogger as well. And you gotta go check her stuff out, it's awesome. This episode of Ask The Experts was sponsored by Charles Schwab. We love our people from Charles Schwab. The music is sponsored by Megan, our producer, and Roland, who is running the board. And we want to thank both of them as always. And never better than ending with, sounds like
Jack: David Burn
Jill: Sounds like David Burn, the Talking Heads. Sounds very good to me.
Ilyce: Oooo, nice.
Jill: Thanks for tuning in, we'll see you next week.
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