The real estate blog.

One of the most confusing part of the home buying process for new homeowners is the concept of seller paid closing costs or seller concessions. Seller paid closing costs allow for less out of pocket expense for the home buyer, but are rarely truly seller paid. Seller paid costs are actually buyer borrowed. Regardless, there is still a great benefit to having them.

Let’s examine real quickly how they work. Assuming an asking price of $100,000 with the buyer using an FHA loan that has a maximum of 6% in seller paid closing costs, a buyer could offer $106,000 with $6,000 towards closing costs. The seller is going to net out at the same amount, so they usually don’t care and it helps the buyer close easier. The buyer could also offer the asking $100k with $6,000 going towards closing costs netting the seller $94,000. Considering the way the real estate market is, that could easily be accepted or there may be further negotiation.
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In 2006 the world’s oil rigs pumped out crude at a rate of nearly 85.5 million bbl. a day. They haven’t come close since, even as prices have risen to USD 115 per barrel and are forecasted to reach USD 150 per barrel twelve months from today (source: www.oil-price.net ). All of which raises a question of potentially epochal significance: is it all downhill from here?

It’s not as if nobody predicted this. Survivalists, despisers of capitalism, a few billionaire investors and a lot of respectable geologists have long cited the middle to the end of this decade as the likely turning point. Governments and the oil industry have typically dismissed such talk as premature. There have been temporary drops in oil production before, after all. In most official scenarios,
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In desperate economic times, everyone wants to know when it’s going to end. I’ve said before we won’t know bottom until long after it’s passed. Several national articles this week have suggested we’re bottoming now, but many in the real estate business have been calling bottom for quite some time.

While there is still quite some individual pain ahead, perhaps we’ve approached or reached bottom now? The experts write:

Oil hit another record high but has since pulled back. The dollar has finally started to show some signs of life. And for the most part, corporate earnings were - as Larry David would say - pretty pretty good.

Long term interest rates have risen sharply in the last two weeks with the 10 year bond gaining over 40 bps in that time frame. Stocks have
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The numbers are in for Northern Utah real estate and they’re not pretty. Though prices have remained essentially flat, the number of transactions has decreased significantly. Much of that has to do with the tightening of mortgage loan standards.

In Salt Lake County home prices rose less than 1%, but sales activity dropped 42.2%. Davis County also saw flat prices while activity dropped 26.6%. Tooele County saw prices drop 6.3% with a sizable drop in activity. Utah County saw declines on both fronts.

The Salt Lake Realtor Board President said -

Jillinda Bowers, president of the Salt Lake Board of Realtors, said she remains bullish about the market despite the drop in sales and softening of prices.

“People shouldn’t be fearful. You have motivated sellers, and interest rates are low. It’s a great time to buy.”
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Over the past two weeks I’ve had the opportunity to speak with dozens of potential home buyers around the country. Here are some of the key trends/takeaways I’ve noticed.

1. People in formerly bubble markets - California & Florida specifically - are excited at the prospect of more affordable housing. The question of prices dropping further is not a consideration, affordable monthly payments are.

2. Most people are unaware of the changes in the credit markets. Some are still looking for stated income, pick-a-payment and subprime loans.

3. It’s no longer a matter of how much a borrower can qualify for, it’s if they can qualify at all. I’m having to turn down loans that could have been approved as little as three months ago because of low credit scores. As far as minimum thresholds go, 620 is the new minimum for a decent rate and 580 is the new minimum to get any type of loan.
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I’m just getting back into my regular routine and was checking around the web on all the stories I missed this week while on an Internet free blogcation. One of the stories that hit me was titled Inflation Is Everybody’s Problem.

It’s true because inflation impacts consumption. Whether you’re rich or poor, you have to eat, get shelter and transport yourself. With inflation hitting all three of these aspects of life, everybody feels the pain. The housing bubble was partially a form of housing inflation and increases in food a fuel prices over the past several years is hurting a lot of people, particularly those on fixed incomes.

While I was in New York this week, I stepped into the tail end of a panhandling transaction. I was lining up to buy a Nathan’s hot dog in Coney
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I love New York City. I wouldn’t want to live there unless I was rich, but I love it nonetheless. When I found out Yankee Stadium will be demolished after this season, I decided the time was right to see a Major League game…at Yankee Stadium.

I’ll be gone this week and won’t be blogging. I’m not even taking my laptop, but I will be taking my cell phone, so it will be almost a technology free vacation.

This blog has gone “dark” before, usually unannounced, due to lack of time in my real life. Please take this time to review some of the over 300 articles written over the past year and a half. If you haven’t read it before, it will be new to you.

I’ll follow up with all emails and non-cellphone calls when I return to SLC on Thursday.

I’m not sure if potential home buyers truly understand the changes in lending standards that have taken place. In the news we keep hearing about people walking away from homes and tarnishing their credit in the process. Some people see no other option, while others are doing it because of drops in home values. Other than not liking making the mortgage on a currently depreciating home, they can otherwise afford the payment. The price? A credit rating.

As the economy has modernized, those three numbers that comprise your credit score have become instrumental in not only determining whether you’ll be extended credit, but they impact your insurance rates and even if you’ll be extended a job or a promotion. Voluntarily tanking your credit score is simply foolish.

In the past
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Putting a human face on an otherwise abstract concept like financial responsibility is something that tends to create interest. CNNMoney and numerous volunteers have created a personal profile to the “credit crunch.”

Mass media has only two modes: great success or great failure. If it bleeds, it leads. During the boom, it was the success stories. Now, we’re watching the blood in the streets. Whether it’s roses or thorns, the nation’s attention is captured. Media dictates the mood. The average are ignored.

When it comes to finances, sometimes it’s good to be average. It’s good to be consistent and it’s good to avoid extreme downs. One way to do that is to plan in advance for the inevitable bad times. The best way to do that is to establish an “oh crap” fund. This isn’t an emergency fund, it’s for small crises that can wind up being big drains if borrowed funds have to be used.
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I received word in my email this afternoon that zero down mortgages were gone. Fannie and Freddie have several high loan to value programs available, but mortgage insurers are simply not writing the policies any more. Even risk based policies are gone.

This means that while the program may exist, no investor will buy them. I checked a few other lenders before writing this post and saw they still had them for now, but I expect the die-off to complete itself before week’s end.

A clue of this outcome came last week when Congress made a compromise in the housing bill to raise FHA loan down payments instead of lowering them. This is a pretty big indicator of the fear associated with high LTV loans.

Senate Democrats also yielded ground on a provision to change the
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