A “Short Sale” is when the sale of the property does not net the seller enough funds to pay the full mortgage and the mortgage company discounts the note.  These properties are often nearing foreclosure and the mortgage company would rather discount the mortgage than go through the costly and time consuming process to foreclose.  Purchasers should be aware that the seller in this situation usually does not have the final authority to accept a contract without lender approval.  Often the lender is slow to provide approval of the contract and many times the purchaser will not know until just before closing whether the bank will agree to the short sale.

The risks involved in purchasing this type of property involve paying for inspections and appraisal while there is no written commitment from the lender that they will agree to the sale.  If they do not close on the property then you will not be able to recover any out of pocket expenses.  Additionally if you are not an investor and you are planning to move into the property you may be changing your plans at the last minute.  This is perhaps easier for a single person who is currently renting than it would be for a family with small children that has already agreed to sell their current home.

The reward from the purchase of a short sale is achieved only if you purchase the property below current market value or of you really want that particular piece of property.  As stated above a short sale simply indicates that the bank is discounting the amount they are owed in order to facilitate the sale.  A property could be worth $90,000 and the seller owes $100,000 and the lender discounts $5,000.  It is considered a short sale even if you just paid $5,000 more than the property is worth.  If you purchase the same property for $85,000 then you just made $5,000 in equity for taking the risk.

Your real estate professional can help you minimize the risk and maximize the reward by including proper provisions in the purchase offer and by providing a market analysis of the property before you begin the process.

If you are in the market or considering a purchasing your first home you should consider the economic factors and market conditions.  Forecasters are telling us that mortgage rates will continue to fall slightly before stabilizing.  We hear regularly that the housing market is at or near the bottom and a turn around is likely to begin later this year. I think most would agree that housing values are depressed.  As mortgage rates fall you are able to acquire a mortgage at a very affordable rate. 

That means you have a perhaps once in a lifetime (certainly a once in a long-time) opportunity to buy a home at a discount and finance that home at an extremely low interest rate.  It’s known as Buying Power and today’s first time buyers have it.

Savvy buyers and investors are taking advantage of this buying opportunity.  We are already seeing multiple offers on properties that are priced well or below the market.  Take for example a property that sold for 168,000 just 2 years ago.  It was recently listed at $137,500 by the lender that foreclosed on the property.  There were competing offers.  The property needed clean-up and painting totaling approximately $3,500.  That’s a $27,000 discount from the market high of 2 years ago (more if you don’t mind painting).  Factor a low interest rate on the mortgage and there is additional savings.  If you have seen an increase in your earnings in the past 2 years you can factor that in the equation as well.  Keep in mind that this is just one example and not the normal discount you should expect in the Metro St. Louis market but I used this one to illustrate the opportunities that are available.

The truth about whether a home is a good investment.

Overnight Real Estate Rates Sink Further Inman News

Latest Housing Forecast from National Association of REALTORS

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Search the Metro St. Louis MLS database.  Tip: look for properties with reduced prices.

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Daily Real Estate News  |  March 17, 2008
In an effort to boost market liquidity, the Federal Reserve lowered the discount rate to 3.25 percent from 3.5 percent and launched a new lending program through which money will be moved from securities dealers to the securitization markets.

The effort — the latest attempt to stabilize prices of bonds backed by residential loans as delinquencies continue to escalate and home prices tumble — will provide financing for JPMorgan Chase & Co.’s acquisition of Bear Stearns Cos. for approximately $270 million, or about $2 per share.

Meanwhile, the central bank could reduce the interest rate affecting consumers and businesses to 2 percent at its March 18 meeting, marking a decline of a full percentage point.

Source: Dallas Morning News (03/17/08)

Daily Real Estate News  |  March 13, 2008
Falling home prices spell opportunity for buyers, even if they already own a home and don’t want to be a landlord.

Here are three smart ways to invest in today’s housing market.

Trade up. Now’s the time to buy a larger home in a better neighborhood at what will almost certainly be a good price. To be sure, buyers will have to sell their old home at a modest price. Still this could be an excellent time to improve quality of life at a bargain rate.

Buy a vacation home. Buyers, especially those who are a few years away from retirement, could find this is the perfect time to buy a place that will be more than a vacation home down the road.

Help offspring go from renters to owners. This is a great time to give the kids an advance on their eventual inheritance so they will have enough money for a down payment.

Source: The Wall Street Journal, Jonathan Clements (03/12/2008)

Flat Existing-Home Sales Likely Before Gradual Recovery
WASHINGTON, March 06, 2008 - The volume of existing-home sales is expected to hold steady through late spring, with a gradual recovery during the second half of the year as the mortgage situation improves in high-cost areas, according to the latest forecast by the National Association of Realtors®.  Lawrence Yun, NAR chief economist, said many buyers have been waiting for higher mortgage loan limits.  “The higher loan limits for both FHA and conventional loans will increase consumer choice and provide greater access to lower interest rate mortgages in high-cost regions,” he said.  “Therefore, a notable rise in home sales can be anticipated in the second half of the year.”

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in January, held at a stable level of 85.9, unchanged from December, but was 19.6 percent below the January 2007 reading of 106.8.  “This additional sign of a stabilizing market is encouraging, and our members are telling us there’s been a pickup in shopping activity.” Yun said.  “Our hope is that the increased traffic of buyers looking at homes will translate soon into more contract offers.”

The PHSI in the West jumped 13.0 percent in January to 93.8 but remains 12.7 percent below a year ago.  In the Midwest, the index rose 0.6 percent to 85.2 but is 13.3 percent lower than January 2007.  The index in the Northeast declined 4.1 percent in January to 69.6 and is 28.0 percent below a year ago.  In the South, the index fell 6.1 percent in January to 89.5 and is 23.8 percent below January 2007.

Existing-home sales are forecast to remain flat around an annual level of 4.9 million in the first half of the year before improving to a 5.8-million pace in the second half.  With a weak first half, total sales for 2008 are projected at 5.38 million, but are then seen to rise 3.5 percent to 5.60 million in 2009.  The aggregate existing-home price is projected to decline 1.2 percent to a median of $216,300 this year, and then increase 3.5 percent to $223,800 in 2009. 

A pattern of disparate price performance continues around the country with a roughly even split between up and down markets.  Recently released data for the fourth quarter shows strong price gains in markets such as the Kennewick-Richland-Pasco area of Washington; Topeka, Kan.; and Atlantic City, N.J.  At the same time, many areas that have lost jobs are showing price declines.

“Significant price declines in some local markets have sharply and quickly improved local affordability conditions, and are inducing buyers to return to the marketplace,” Yun said.  NAR’s housing affordability index is forecast to rise 14 percentage points to 127.0 in 2008.

New-home sales should decline 23.7 percent to 590,000 this year before rising 7.2 percent to 633,000 in 2009.  Housing starts, including multifamily units, will probably fall 25.1 percent to 1.01 million this year, and then continue to slip another 2.7 percent to 987,000 in 2009. 

“As builders sharply cut back production, vacant new-home inventory has consistently declined over the past year-and-a-half,” Yun said.  “That will permit a quicker return to balanced market conditions in many local areas.”  The median new-home price is likely to fall 6.1 percent to $232,200 this year, and then rise 5.1 percent in 2009.

The 30-year fixed-rate mortgage, which has moved erratically in recent weeks, is expected to hover around 5.8 percent most of the year, and then rise to an average of 6.3 percent in 2009.

Growth in the U.S. gross domestic product (GDP) should be 1.5 percent this year and 2.4 percent in 2009.  The unemployment rate is projected to average 5.4 percent in 2008 and 5.5 percent next year. 

Inflation, as measured by the Consumer Price Index, will probably be 3.2 percent this year and 1.5 percent in 2009.  Inflation-adjusted disposable personal income is expected to grow 1.4 percent in 2008 and 3.1 percent next year.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.3 million members involved in all aspects of the residential and commercial real estate industries.

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(1) The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales.  In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months.  There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

Existing-home sales for February will be released March 24; the next Forecast / Pending Home Sales Index will be released April 8.

National Association of REALTORS reprinted with permission