We are talking about Notice of Default signs and Notice of Trustee Sale signs posted to front doors. We are talking about For Sale signs in your neighbor’s front yard. We are talking about the vacant sign, “This House Has Been Abandoned” sign posted to doors and windows. These are signs of our times. We need to get rid of bad investment, bad debts, so we can start over once again.
What are we really losing here? Keep in mind that you are losing a home that you can no longer afford. So you have to start over: Is it such a bad thing? The next home you buy will be more affordable, and the payment will be more realistic. Stay focused on the positive, good things will come out of this bad economy.
We are deep in the slump of a real estate bust. This estate bust was created when homeowners paid too much to buy their homes during the real estate peak and now they cannot afford the high payments.
Investors paid too much for rental properties, and rent is not covering the mortgage payments. Worst yet, one of two of the homeowners are unemployed in the same household and have no way of refinancing without employment.
During the real estate peak, there was the buying frenzy and there was the re-finance frenzy. One of my recent short sales came from a homeowner who has been in their home for more than 42 years. This homeowner took advantage of the refinance frenzy when his home value kept going up. He kept cashing out and it backfired on him.
His current mortgage term will be paid off in another 24 years. He and
his wife are now retired and living on a fixed income. They would like to travel, spend time with children and grandchildren. They want to downsize to a smaller, one-story home. They want an affordable payment, not one that sucks them financially dry and leaves them house poor and broke every month. They have both decided to short sell. They are both looking forward to starting over in a few short years. Or they can buy immediately with an FHA loan.
We still have a way to go, probably another three to five years. I say that because there are homeowners who took out refinanced loans in 2008 with five-year adjustable rates. Homeowners who have this type of adjustable rate loan are having a hard time making their higher and higher payments now. These homeowners will most likely short sale in the next two years.
This will affect the overall rate of appreciation. Homes are definitely not appreciating the expected 3 percent norm in the last five years. In the newer subdivision (less than 10 years old), if you are lucky enough to buy a distressed home for less than what is being sold today, then you have some equity to brag about.
A first-time homeowner who will be selling to move up to a bigger home in five to seven years might come out ahead a little. Most real estate agents will recommend focusing on these factors when house hunting: newer homes (built in last 10 years), some upgrades included, generally in good condition. A buyer in a short-term hold should invest no more than paint and/or carpeting before they put the house on the market. If this buyer invests more than paint and carpet, he could diminish his return on investment or profit nothing in the end.
In the midst of the deep real estate bust, if you are gainfully employed you should definitely check into buying a home. Why? It is cheaper to own than to rent. Most of my sellers who are going through a short sale are staying positive that they will buy again. These homeowners plan to hire a professional credit repair company to restore their credit. Hope and faith will restore our economy. Don’t give up!
Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.