Weekly Real Estate Kick-Off

Weekly Real Estate Kick-Off

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Hey Everyone, Josh here. When I have a few spare minutes throughout the week I love checking out what’s going on in the world of real estate news. Take a look at some of the articles I found – I think you’ll find them interesting!

April 12, 2010 - This Week’s Topics:

  • Overtaxed Homeowners Fighting Back
  • 30-Year Mortgage Rates Hit 8 Month High
  • Freddie Mac Announces REO Auction Blitz
  • Commercial Delinquencies Above 7%
  • Dislocated Housing Market Impacts Homeownership Views
  • Are Strategic Defaults Fueling Consumer Spending?
  • Establishing Brand Equity

Overtaxed Homeowners Fighting Back

Here’s another effect of the burst housing bubble - overassessed property. Experts estimate that 60% of the nation’s taxable property is actually overassessed. This means homeowners are paying thousands of dollars more in taxes than they should be, and many aren’t taking it lying down. In many markets there has been a flood of homeowners eager to cut their taxes and better align tax valuations with reality. The problem is that many counties only assess property values every three to five years, with little incentive to do it faster or more frequently. But considering home prices have fallen an average of 30% since 2007, things are out of synch. So far only a small percentage of homeowners are appealing, and the results are mixed. Only 20-40% of those who do appeal are winning the fight. Municipalities are fighting tooth and nail for every dollar, so appeals are becoming more difficult. In one case, a resident from Morristown, NJ fought his battle for 14 months before finally emerging victorious with a 25% reduction on his tax bill. He now pockets that $5,400 each year. This new battlefront has spawned a new industry – companies filing appeals on behalf of residents, in exchange for roughly 50% of the first year’s tax savings. There are also many other resources in the form of local government workshops available to taxpayers seeking help. The odds of a successful appeal increases in the hardest hit areas. Winning appeals does result in a bit of a catch-22 for cities that rely on 45-cents of every revenue dollar from property taxes. Less revenue will result in municipalities having to make up the difference somewhere.

30-Year Mortgage Rates Hit 8 Month High

Thirty-year mortgage rates hit an eight month high last week, on the brink of the spring selling season. Higher borrowing costs, combined with the end to some of the government interventions to stabilize housing should together curb housing. But there is a lot of pent up demand that is driving buyer traffic up. The 30-year loan rate jumped to 5.21% last week, up from 5.08% the previous week. Treasury yields are used as a peg for setting mortgage rates. Mortgage rates are trending higher after the Federal Reserve ended its program to buy more than $1.4 trillion in mortgage-tied debt on March 31. Most economists agree that fixed home loan rates should stay below 6% for this year. This eight month high mark in rates somewhat dampened demand for home loan refinancing last week, but applications to buy new homes rose slightly, thanks to the final push for tax credits, slated to end this month.

Freddie Mac Announces REO Auction Blitz

April 24 and 25 are days to watch, as Freddie Mac hopes to entice deal-seekers to snag foreclosed properties it has repossessed in hard-hit Las Vegas and Southern California. Working in conjunction with New Vista, a California asset management firm, Freddie Mac will be auctioning off hundreds of REO properties to individual homebuyers in Las Vegas on April 24 and in California’s Inland Empire on April 25. The auction blitz is in support of the federal Neighborhood Stabilization Program (NSP), set up for the purpose of stabilizing neighborhoods that have a glut of foreclosed properties. Under NSP, buyers are eligible for closing cost and down payment assistance when they buy a foreclosed property in designated communities. The auctions are being held so bidders would still have time to qualify for the homebuyer tax credit, which requires homebuyers be connected with a contract by April 30. Freddie Mac adds that the homes up for auction have already been removed from the market, inspected, repaired and ready to sell in “as-is” condition. This event will help turn foreclosed homes into homes for many deserving families, and help revitalize hard-hit communities.

Commercial Delinquencies Above 7%

In March, the delinquency rate for commercial mortgage-backed securities (CMBS) topped 7%. This marks the highest monthly increase since summer, 2009, according to both Trepp LLC and Fitch Ratings. Trepp is a company that tracks the commercial real estate market, and Fitch is a ratings company, both based in New York City. The percentage of loans 30+ days delinquent, in foreclosure or REO settled at 7.61%. According to Fitch Ratings, delinquencies are most prevalent in the multifamily (13% of all multifamily-backed loans) and hotel sectors (17.2%). A spokesperson at Fitch also added that “recent notable transfers to special servicing are indicating a future increase in office delinquencies.” Fitch does admit that the data is inflated somewhat by that fact that New York City’s $3 billion Stuyvesant Town is now considered “in foreclosure,” and had a significant impact on delinquency rates.

Dislocated Housing Market Impacts Homeownership Views

Attitudes about housing and homeownership are changing quickly. In a poll released by Fannie Mae this week, the number of people who think homes are a safe investment fell 13 percentage points to 70% in the past seven years. This correlates to the decline in American homeownership rates to 67% in 2009, down from a high of 69% in 2004. Instead of seeing homes as a direct path to financial independence, home buyers have come to realize a greater appreciation of the downsides, including the commitment to maintenance, mortgage payments, loss of flexibility and potential for loss of value. This survey is Fannie Mae’s attempt to gauge how the foreclosure crisis has affected public attitude about homeownership. About 48% of the 3,000 people surveyed felt banks should foreclose on people who can’t pay their mortgages, but they took a more lenient approach on underwater homeowners. Fifty-three percent also blamed homeowners, not lenders, for taking out loans they could not afford. Interestingly, according to the Center for Responsible Lending, most homeowners with subprime loans could have qualified for a traditional mortgage, but were steered towards riskier and more expensive products. It’s the lender’s job to assess whether a borrower can afford a loan. Borrowers can easily mistake their ability to afford a loan, but lenders do this every day. Finally, most of those surveyed agree it is not acceptable for an underwater homeowner to simply walk away from their home.

Are Strategic Defaults Fueling Consumer Spending?

Last week we saw a slight increase in consumer spending, with stocks rising and trading as if the consumer is back to good health. But with still so many challenges in the economy, where is the money coming from? According to some experts, it’s coming from mortgage payments. As homeowners face huge payments on houses with negative equity, many are deciding simply to not pay their mortgage, resigned to the reality that they will lose their home to foreclosure anyways. So it’s a “eat, drink and be merry - for tomorrow we’re evicted” attitude. It reflects a sense of hopelessness about residential real estate homeownership. The principal of homeownership as a wealth-building tool is being disputed, and many homeowners are willing to turn in their keys, walk away and hope for a better deal once their credit is repaired. It really shows the dark side of the assistance programs. It is estimated that for every foreclosed house on the market, there are five or six in strategic default.

Establishing Brand Equity

Most people coming into real estate investing have little idea what is meant by the term: Brand. Fewer understand how a brand should be built. A brand is either your name or a company name that conveys one salient idea about everyone involved in that particular company. Brand equity is how you build positive associations with your brand name. Several steps are necessary to do this:

How do you present your business through materials? From letterhead to mainstream advertising, what image and message do you convey? This includes not only marketing materials, but also your appearance. The more professional you are, the more trust you will garner and the more credibility you will achieve.

  1. How solid is your base of knowledge about your industry and what do you offer in the way of information that your competition doesn't?
  2. How can you structure your business (i.e., automate your business) to allow for as many positive associations to be created as possible? In large part, the real estate investing     business is a networking business. Yes, you will drive business to your company with marketing initiatives, but after you have established the brand equity of your company, you will find that a large percentage of business will come from referrals.

Consider what kind of brand awareness you hope to create. What do you want people to associate with your company? Look at what your competition is doing and to do the opposite. In other words, how will you differentiate your business from the other players in your market?

Hope your week is filled with real estate investing success.

Until next time… ~Josh

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