Thursday, August 21, 2008

NORTHWEST AUSTIN HOMES: Make sure you understand what you are reading about Austin Real Estate

"Central Texas home sales declined for the 13th consecutive month in July, and a record 10,913 homes were on the market. The picture could worsen for the next 18 months before a turnaround comes, a veteran mortgage broker predicts.
Austin-area real estate agents sold 2,071 homes, down nearly 21 percent from a year ago, according to the Austin Board of Realtors. From January through July, 12,971 homes were sold, an 18 percent drop compared with the same period last year.
The year-to-date declines were evident in all price ranges, with the steepest drops at the high and low ends of the spectrum.
Sales were down 30.6 percent for homes priced between $100,000 and $129,999, and down 33 percent for homes costing $1 million or more.
The drops were lowest for mid-price homes, with a 5 percent decline in sales between $200,000 and $249,999.
Rising foreclosures are adding to the housing troubles. In Travis County, foreclosure postings for the September auction are up 45 percent from last year. They're up 34 percent in Williamson County, according to Foreclosure Listing Service Inc. in Addison.
Still, experts continue to say that Austin's market is the envy of many other cities. The median price continues to rise, up 3 percent last month to $195,000."

Click here for complete story
This is an article from the Austin American Statesman yesterday. The article is using information to highlight a downturn in the Austin Housing Market. I will never understand what the media has to gain by making the housing market seem worse than it really is. People see headlines that say home sales down 20% from last year and they think,"Oh, that means a $200,000 valued home in 2007 is now worth $160,000 because that is 20% less". The 20% thata the stats are based on is 20% less volume not sales price. The problem is that is not spelled out in the article they just say 20%......20% of WHAT?

There are plenty of reasons why there is less activity this year than prior years. There are less lenders, more strict qualifying for home buyers, the disappearance of no down and some low down loan programs and a weakening economy. Also, the article focuses on differences in properties in extremely high or extremely low price ranges. In the $200,000 to $250,000 price range which is the average Austin area home, has seen a difference in volume of 5%. The extremly low priced houses are not moving as much because "no-down" programs have gone away for buyers and investors alike. Higher priced homes are effected by the strict standards for jumbo loans and premium rates for higher loans.

In a lot of areas in Northwest Austin for example, homes are taking a little longer to sell but the home prices are continuing to rise. The homeowners that are losing money on their homes right now are the people that need to sell now for relocation or financial reasons. In this market, it is essential to plan ahead, price the home competitively, and make sure the home appeals to a large group of buyers by taking personal effects out of the home and changing personal paint or decorations so prospective buyers are not distracted from the home. The homeowners that make the neccisary changes are selling their homes and moving on. If you would like my help in getting yourr home ready for the market, contact me.

Wednesday, August 13, 2008

"Wrap Around" Financing?? No Thank You!

We’ve all heard the term, “wrap around,” but what exactly does it mean? A wrap around mortgage, or simply a “wrap,” is an agreement where the buyer of a property makes monthly payments to the seller of a property, who then pays the original lender each month. This is perceived as a way of an owner “selling” a property to a buyer without the buyer obtaining conventional financing.
While a wrap can be viewed as a traditional sale, in reality it’s anything but.
All mortgage loans contain a “due on sale” clause. That means if the current owner of the property sells or otherwise transfers ownership then the lender can immediately call the loan in completely. In other words the lender says, “Okay, you sold the property, we want our money.” In the past, the due on sale clause was not as prevalent, but now all mortgage loans contain such language.
So how would the lender ever know? First, if it’s a legal transfer of ownership, the sale would be recorded and therefore become public record. Lenders would receive notice from the companies they employ to monitor such transactions. The lender could also find out following the change of the original owner’s mailing address.
Now say the owner of the property tells you that they could “carry the note” for you if all you did was make monthly payments directly to him or her. If your agreement was to pay $2,000 per month, those funds could then be directly applied to their original mortgage payment.
Many wrap arrangements require a substantial down payment from the buyer along with the agreement to make a mortgage payment above and beyond what the real mortgage payment requires. Wraps are typically made because the buyer, the seller or both are unable to secure financing. While it may appear to be a solution to a tough problem, a wrap around mortgage is inherently problematic (and generally not worth the trouble).
For example, what would happen if the seller was notified by the lender that an illegal transfer of ownership took place and the lender activates the no-sale clause and wants all its money back?
First, the seller would have to immediately refinance the current note, which would be nearly impossible because the property would have been sold. A new lender wouldn’t finance the new deal nor would the buyer, because the lender wouldn’t recognize the new owner.
Second, and perhaps more importantly, what if the buyer indeed made the monthly payments on a regular basis but the owner somehow fell behind and didn’t make the payments to the original lender? The lender would be forced to foreclose on the original owner, meaning that the new buyer would lose the down payment and payments to the original owner!
A wrap around isn’t a “last resort” method of financing, it’s a “no resort.” Violating the terms of a mortgage, having the mortgage called in by the lender and the buyer losing his down payment and presumed equity with no legal ownership rights is a losing proposition for everyone!