The Bottom Of The Market Feels Like A Bumpy Road

It’s the New Year, and just in time the banks are raising interest rates, but just a little – so far. However, the banks are also relaxing their down-payment requirements because they are seeing increased confidence in the housing market. The truth, according to one banker friend I spoke with is because they are not making any money. They need to make loans to make money. In some markets borrowers can now borrow 95% of a property’s value. Of course one would hope this means property values are not going down any further and loan applicants are going to be scrupulously vetted?

Despite favorable sales figures as we finished out this year, Tim Warren Jr., CEO of the Warren Group sees home prices bouncing up and down along the bottom during the next 3-6 months, and possibly throughout most of 2010 even though sales figures will appear to continue trending positively. This is the way it was in the early 90’s as we pulled out of the last recession. Some economists call this an “L” recession. For sure the recovery is going to be slow, but I do think it is safe to say we are at the bottom albeit a bumpy bottom. I believe in making a decision about when is the best time for you to buy an investment property one indicator you should pay attention to is interest rates. When interest rates go up this can herald the onset of an inflationary period.

Warren feels it was the rush to take advantage of the initial first-time home buyer tax credit by signing contracts before November 2009 expiration that contributed the biggest boost to the market. Wednesday’s WSJ reported that first-time buyers made up 51% of purchases in November, according to NAR. The initial first-time home buyer tax credit has been extended and broadened to include more potential buyers which may once again give a boost to the housing market. Contracts have to be signed by April 30, 2010 with closing dates on or before June 30, 2010. According to Carl Reichardt, an analyst with Wells Fargo, “The spring selling season would be critical to determining whether a possible double-dip is at hand, or whether housing’s recovery will regain steam.”

Tim Warren believes another reason for the upturn is the brighter unemployment figures in Massachusetts which in turn enhance consumer confidence. Okay, but one of my sources tells me the actual national unemployment figure is above 17%, if you factor in the non-registered ‘shadow’ unemployed.

News Flash: Massachusetts unemployment rate drops slightly from 8.9% to 8.8%
Read about it here > http://www.businessconnector.biz/news/show/523

In January, it is predicted that 1,000,000 unemployed workers will lose their benefits. Another prediction is going to be a surge in commercial foreclosures as more companies lay off workers and close doors in leased office spaces. But who knows? I still believe in miracles.

If You Don't Buy a House Now, You're Stupid or Broke

Interest rates are at historic lows but cyclical trends suggest they will soon rise. Home buyers may never see such a chance again, writes Marc Roth for Business Week.

Where To Now Martha's Vineyard?

Are you upside down? Did you know one in four home owners in America with a mortgage are under water? By that I mean their home is worth less than what they owe. The beginning of 2010 will see more Option ARM’s coming to term. In many cases where home prices have fallen drastically borrowers are so deeply under water that they can't refinance their mortgage in order to take advantage of take advantage of the current lower rates. "We're declining hundreds of loans each month," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant."

5.3 million homeowners have mortgages that are at least 120% of their homes’ value. According to Mark Fleming, chief economist of First American Core Logic, homeowners whose loan to value ratio is greater than 120% are more likely to default and 520,000 of these borrowers have received default notices. Even if they want to sell (Short Sale), they can’t afford to --- they’re stuck. Sanjiv Das, head of Citigroup's mortgage unit said "Beyond 120%, the most effective modification is a complete loan restructuring, including a principal reduction. Mr. Das goes on to say “Borrowers who are less than 20% under water are likely to maintain their mortgage if their loan is modified and the payments reduced”.

As financial institutions continue to struggle with how they are going to solve the mess they have created, about 588,000 borrowers defaulted on mortgages last year even though they had employment and could afford to pay. That is more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," the study said. Previously the advice to borrowers has been, only by defaulting on their loans will lenders pay attention and consider adjusting rates and principals in line with today’s market. However, lenders have been reluctant to reduce mortgage principal over worries about "moral contagion, with people not paying their mortgage or re-defaulting because they believed the bank would reduce their principal," Mr. Das said.

I expect that we will see more loan defaults on Martha’s Vineyard and more foreclosure auctions at the beginning of 2010 despite the fact that we have leveled out in our market. In the early 90’s we called this moment in the market a “trough”. I also think the Martha’s Vineyard recovery will slow down because; with the optimistic forecast more less-motivated homeowners have placed their properties back on the market at overly optimistic prices. I believe the result will be a stall in the market because everyone is confused. However, I still maintain that this is a great time to buy. Look at what you have going for you. Interest rates hit an all time record low this week averaging 4.78% on a 30-year fixed-rate mortgage --- this has never happened before in all the time Freddie Mac has been keeping records. For comparison sake, the interest rate last year was 5.97%. "Interest rates for 30-year fixed-rate loans are currently 0.8 percentage points below this year's peak set in mid-June, which shaves roughly $100 off the monthly payments on a $200,000 mortgage," said Frank Nothaft, Freddie Mac chief economist. Interest rates will only go in one direction from here, and don’t forget the extended and broadened home buyer tax credit; it no longer applies only to first time home buyers.

I want to urge you, if you see something you like take a run at it. You will never know what you can negotiate until you engage, but be patient, realistic and resolute in your objective. $20,000 one way or the other today is not going to make a difference ten years from now.

How long until we return to a balanced real estate market on Martha’s Vineyard?

My guess is 18 months. The unsold housing inventory of all properties and classifications on Martha’s Vineyard is just over 800 units. In any normal market, one that is balanced, the average time on market is about 90 days. When the inventory absorption rate or days on market (DOM) goes beyond 6 months we consider that to be a ‘buyer’s market’, and conversely when the average is less than 90 DOM we call that a ‘seller’s market’. When the inventory is high, buyers are in a better negotiating position --- as a rule. In order to thoroughly analyze the market you have to consider the various classifications and price lines as well as locations and the type of market. I think in our second home market the average time on market is a little longer. Buyers do not have to buy and sellers do not have to sell; they already have their primary residences.

As an example, taking only single family residences (SFR) on Martha’s Vineyard during the last 12 months, the average time on market was 317 days. Currently, the inventory of only SFR has increased to 516 units, so using the previous DOM rate we have about a 2 year supply of homes to absorb. I think it will be a lot less than that, as many more buyers are gaining confidence in our economic recovery and realizing the bottom of the market is here. Eager investors are entering into the market in increasing numbers to take advantage of the lower prices and attractive interest rates – below 5%!

Although the inventory is high, and actually increasing, in spite of all the recent sales, I attribute the increased inventory to more owners rushing their properties to market or re-listing their properties because they believe we have turned the corner and now is a better time to sell.

There are still those home owners who will be facing major loan adjustable rate resets before the end of the year and they want to get out now if they can in order to save their credit rating. Short sales continue to be a slippery slope for both sellers and buyers, but lenders are getting more assistance allowing them to be receptive to home owners applying for loan modifications. I do believe we will see more property loans in default even though a good majority of them will never go to auction, at least not on Martha’s Vineyard.

You still have time to take advantage of the many available and affordable opportunities in this market with the assurance that an investment made today will appreciate handsomely within the next five to seven years. Just remember, as the supply diminishes and demand increases those so-called good deals will become fewer and far between.

A Vineyard Primer Not Just For The Obamas

When I was a young child, my family would “summer in the Hamptons”, which describes the three towns near the far end of Long Island, NY. I remember the trip out there as if it were yesterday. It was an easy but boring 3-hour ride from Westchester County in our 1949 Ford “Woody” station wagon. We knew when we were getting close because the scenery would turn into potato fields and all you could smell was duck and chicken poop. The houses my family rented looked like the barracks I lived in during my military basic training and none of them were air conditioned, but they were right on the water. We would stay all summer and we rarely had a TV, but life was wonderfully simple.

The other night I watched the pilot program for a new TV series, ROYAL PAINS, on the USA Network. It’s about a young surgeon played by Mark Feuerstein who is fired from a hospital, sued for malpractice and blackballed. He decides to go to the Hamptons with his brother, the accountant, for a weekend of party crashing and debauchery, but he ends up staying for the summer as a concierge doctor to the rich and famous. What I like so much about the show is that it presents a showcase of the Hamptons in 2009. It sure has come a long way since I was a little boy or even since I went back there during my college years for fun and mischief.

Martha’s Vineyard could become, maybe it is already, the new home of the rich and famous --- the CEO and celebrity playground. With properties like Steve Rattner’s newly completed 15,000sf plus compound on Obed Daggett Road on Cedar Tree Neck, and the equally excessive estate properties belonging to high rollers like Brian Roberts, Dirk and Robert Ziff, Jerome Kenney and Bill Graham in the area, Martha’s Vineyard is losing its battle to stay small and simple the way it was 40 years ago when I first drove my yellow Corvette roadster off the ferry.

Many of us have received calls from the White House advance agents inquiring about accommodations for August rental lodging. The general consensus here is that the President will be renting a house on Temahigan Avenue close to the State Police headquarters, maybe the old Gloria Swanson house on the water side. There is still no definitive word on what the Clintons are planning, but we keep hearing about Ted Danson’s home up-Island and Chelsea’s wedding plans at the large Chilmark estate of long time Clinton friend and Washington power broker Vernon Jordan.

I guess we will just have to accept the fact that we are no longer inaccessible and anonymous; we have a reputation now that people like to brag about, and complain about. Maybe one day we will change our name to Martha’s Vineyardton. Here is a short essay that appeared in the Boston Globe titled A Vineyard primer for Obamas that provoked dozens of reader comments. The comments section is always fun to read because people have such strong views for and against what is Martha’s Vineyard. The Vineyard is all about passion and emotion and trying to hold onto what most of us remember as being so special and what so many new comers imagine still is so special. It is all of our jobs and responsibility to do all we can so that we don’t become just another East Hampton. Sure we have famous people here, but on Martha’s Vineyard no one gives a damn and we leave them alone. If you ‘GET’ the Vineyard and you want to be here, I can help you get the right place to live your dreams and balance your life. SplitRock Real Estate represents Buyers Only and their dreams.

To Fish or Cut Bait, that is the Question….

It’s been a couple of weeks now since I planned a fishing outing with a good friend of mine for this weekend. He came to the Island this morning, and I really wanted to go fishing. Instead, I am working for several buyer clients who are going fishing; they are not sitting on the dock cutting bait. They recognize the time is right and the fish are in; they are getting rigged and ready to catch their prize winner.

Remember a few months ago when the property inventory was up around 800 units? Today the inventory of available SFR, Vacant Land, Condos and Commercial properties in all towns totals 658. There are 17 properties under Purchase and Sale Agreement and 10 Offers to Purchase. This is only a count of those properties updated in our LINK system. I can assure you there are more properties under negotiation and it is not uncommon to have multiple offers and bidding wars on the nicer properties.

To a great extent, the public opinion about the depressed state of the real estate market is based upon other parts of the country that are not as special as Martha’s Vineyard, not even close. But did you know property sales in some of those depressed real estate market areas are up? According to an article in this week’s WSJ, some of the states with big sales increases from the depressed levels of a year before included Nevada (up 117%), California (up 81%) and Arizona (up 50%) and Florida (up 25%).

Here on Martha’s Vineyard, prices are down, Sellers are ready to deal, FHA guidelines are easier and first time home buyers who qualify are taking advantage of the remarkable $8000 tax credit opportunity that will sunset at the end of this year.

I’ve got to get back to rigging fishing tackle for my clients, but I tell you if you want to catch one of those big ones you have got to get your line in the water very soon. Cast away or sail away. This is your time, so please, don’t miss the season.