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Hello! Thanks
for stopping here on my Message Board. This is where I get to
pretty
much say whatever I like. I would like to say a
BIG HELLO to all my Friends and
Family, and Clients!
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2008-2009 … A Time of Change!
Elections, Bailout, Sub-Prime, Foreclosures, Bank Owned Properties, Short Sales … It’s all in here!
Wow! Hasn’t this been an interesting year? Summer is well behind us as is the Presidential Election. I don’t know about you, but, I miss the Warmer Weather, but, not any part of the Election coverage. That lasted way too long!
Regardless of whether your candidate won or not, I agree with those who say that we must unite as a Country, and, hope and pray that our President-elect will be a good man for the job for the benefit of our Country. It will be his to prove. There must come a point, in our Country, when we citizens stand up and say enough. Between the 2 candidates (Obama $650 million and McCain $350 Million) approximately $1 Billion dollars was expended to run for the Office of the President of the United States – a job with an annual salary of around $450,000. There is no common sense in this. There is certainly nothing "green" in this either!
Onward & Upward …
We have seen some very interesting maneuvers from the Fed recently – with the Bailout, and, possible additional Bailouts being discussed.
What you all have been wondering is: "What does this mean to the value of my Outer Banks Real Estate?" It is a good question with no real answer.
The one thing we can intelligently do is to look at the past, and be mindful of our economic history as a Country. There is no need to trace back beyond our last real market slowdown. However, if you do trace back over the past 100 years, you will see a fairly consistent pattern of economic growth and correction. Real Estate and the Stock Market run on roughly on a 10 year cycle, somewhat in opposition to each other.
With this last growth cycle, we saw an extended period of growth, fueled, I believe, by favorable financing available through Mortgage Companies and Banks selling federally backed Federal National Mortgage Association (FNMA or Fannie Mae) and Federal Home Loan Corporation (FHLC or Freddie Mac). These are private companies backed by the Fed – which was never a good idea. Mortgage loans should be a private sector funded process without Federal intervention. The Fed creates the problem, then, they use our money that we pay in taxes to give to corporations whose businesses failed. I wonder if they will give me some money too?
In 1998, during the Clinton Administration, Congress enacted requirements on all Mortgage Lenders and Banks to lend money (loans backed by FNMA & FHLC) to people without verifying their income, employment, source of down payment money, and a multitude of low or no money down type loans.
Add to that the "Sub-Prime" Loans. Sub-prime is a fancy word for securing a loan with a 6% rate with a "say" 1.5% payment rate. With a sub-prime loan, each month your loan balance increases because you did not pay the full 6% rate, therefore, the 4.5% difference is added to your loan balance each month. Now, these sub-prime loans generally had a 3 year term, then, they converted to a pre-determined rate (perhaps 6.5%). Many home buyers reasoned increased income in that time to afford the converted rate at the end of the 3 years, or, that they would sell their home for a profit prior to the end of the 3 years. Many thousands chose these type loans not anticipating loss of a job, or, a market in which values have decreased some 25% to 35% - bringing the Market Value below their loan balance.
The sub-prime loan is really no different in design than what we used to call, in the early 1990’s, a "Negative Amortization" loan. Now, in a strong growth market, for the educated buyer this type loan is not a bad loan. However, it is not without risk. In essence you are buying on the come. This is an old fashioned saying which means that you are buying with this type mortgage with the hope that what you believe will come true.
If a buyer had just gotten the 6% loan … each monthly payment would reduce your principal loan balance (15 year loan much faster than a 30 year loan). If they couldn’t afford the 6% payment, then, choosing not to buy/borrow in that range would be a good decision.
The early 1990’s was a similar Markey in many ways. We had Negative Amortization Loans, we had foreclosures, and failed Savings and Loans (due mostly to bad loan practices). The Fed, then, created what was known as the Resolution Trust Company (RTC) which bought up nearly all of the failed Savings and Loans of the day. It took years to wade through the soft market (about 5 years) before we began to see some modest growth in activity in 1996 – 1998, and growth in values beginning 1999 here on the Outer Banks. Other Markets began a recovery prior to our Market as we are a Second Home / Vacation Market.
The market survived then, and it will survive now. The individual property owner, depending on how conservatively they invested themselves, may or may not be impacted to the point of financial devastation by what we are going through. I know many many people on both sides of this fence.
On the plus side, with an economic cycle such as this, there are opportunities available that you will not see in a growth cycle.
For Example: late 1980’s / 1990 Value of a 50’ wide deep Oceanfront Lot in Nags Head sold for $175,000. By the end of that softening cycle, in 1995, the exact same type lot was available in number for values in the range of $110,000. That is a 37% reduction in value over that 5 year period.
This is where it gets interesting. If you had bought an Oceanfront Lot in 1990 for $175,000, you were likely crying in your milk over how much money you had lost in the value of the lot over the next 5 years. If you did not sell it and take a loss, here is what you could have realized: That same lot in 2004 was valued at $1.2 Million.
So, you paid too much for your property in 2004 (because that was peak market in this cycle). What will it be worth in 2016?
You see, a person’s outlook of the value of their investment can be shaped by their viewpoint. Is their view of the current year? Or, 10-20 years down the road? Long term, real estate has always been a good investment. A good question to ask is: "What would Warren Buffet do?" You know, it’s not genius, it’s fundamental … "Buy when others are selling, and Sell when others are buying." That is the recipe for success!
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FORECLOSURES, SHORT SALES, BANK OWNED Properties
… Is there a deal waiting our there for me?
The "Short" answer is yes, possibly.
Foreclosures are happening on the Outer Banks. Mostly lower end properties, but, we are seeing some in the locations where you typically find vacation weekly rental / second homes. Foreclosure happens when someone stops paying their mortgage. Bank initiates proceedings, and, if the borrower does not reinstate, the financial institution causes the property to be offered at auction at foreclosure sale on the Courthouse Steps. In this market, nearly 100% of foreclosed properties have a loan balance IN EXCESS of the property’s "actual market value". The result is no consumer bids at auction, and, the bank takes the property back. The Bank then has to dispose of the property.
BANK OWNED PROPERTY
Once a bank has taken a property back at foreclosure, they have much to do to get it on the market for sale. Ultimately, they will list it for sale with a Realtor in the area in which the property is located. Our Outer Banks Association of Realtors has been diligent in keeping up with an ever changing shifting market. Our Multiple Listing Service now includes a category "Bank Owned". So, a listing agent can identify that a property is bank owned – which, in turn, allows a Buyer Agent working with a buyer who is looking for this type property to easily provide this information. Banks, unlike other sellers in the market, will often negotiate to a sale as there is no emotion in the process, only the desire to remove the liability from their books. Many financial institutions have 100’s, some thousands, of such properties – they don’t have memories of family vacations, or, unfulfilled dreams of cashing in when they sell. Can a property owner sell a property for less than what they owe and avoid a more severe impact on their credit rating? Yes! …
SHORT SALES
This is an ever increasing Market. Short Sales, in short, is a situation in which a property owner is pricing their property at typically a "below market" price to get it sold. In so doing, a seller could not actually sell the property without bringing (in some cases significant) cash to the closing table to make up the deficiency. Because lenders have come to realize that foreclosures often end up netting them less money than a short sale, many lenders will agree to enter into communication with a borrower, and, with the borrowers written authorization, the Realtor handling the listing of the property. When a Realtor is made aware that a seller is in a Short Sale situation, the Agent will want to recommend the seller make immediate communication with their accountant/financial advisor, and, attorney who is familiar with these type transactions - of which there are few. With a Short Sale, the benefit to a seller is that the damage to their credit rating is apparently significantly less than it would be with a foreclosure. Our Multiple Listing Service has a field "Possible Short Sale" which is also a searchable field for Buyer Clients!
This is perhaps the most complicated of transactions. Many Realtors prefer to avoid these type sales. In doing so, they miss, potentially, some good opportunities for their buyer client. The main reason Realtors tend to prefer to avoid these transactions is that Lenders are notoriously slow in responding to Short Sale offers. I know of one house with over 5 offers, now outstanding for more than 2 months, with no lender response as yet. This type sale requires a certain type of buyer who is committed to follow through, open to possibly compensating their Buyer Agent directly, willing to buy "As-is" with a loan approval in hand, willing to be patient, and must operate with the realization that another buyer may be the successful buyer, or their offer rejected and no other offer accepted.
Want to know more? Contact John 252-480-4416 Office Direct or Email
ON THE POSITIVE SIDE
I have had the opportunity to travel & visit some other Resort Areas along the east coast (mostly south of us), and it is amazing to see new areas and compare them with our Outer Banks. I have yet to find another more beautiful area than where we live and vacation here in OBX. The other thing I find incredulous is that by comparison, you can still get more home for the money here than in other resorts north or south of here. That, in conjunction with 4 Lighthouses, Ocracoke, The Lost Colony, Festival Park, Jockey's Ridge, The Wright Brothers Memorial, Oregon Inlet, Off Shore Fishing, Water Sports, and the list goes on, makes this a special and unique place to vacation or live!
It is good to travel - it serves to remind what a great and wonderful place we have in the Outer Banks. Even though it has grown over the years, everywhere else has also, and yet, we still have that small beach town feel. This is especially so in the Off Season when we will again bump into friends we haven't seen in a while at the grocery store.
John
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