In the news recently, there have been a number of stories foreshadowing the fact that extended school years, and longer school days, will be upon us sooner than later. These various stories refer to the fact that American school children are lagging behind their foreign counterparts, and specifically Asian kids, when it comes to educational prowess, and that this is drastically impacting our ability as a country to compete in this global marketplace. 

The reason why our kids lag those in parts of Asia is due to the fact that the Asian children, according to those who “study” the issue, is simple; the Asian kids spend more time in school.  So the solution to this problem, as proposed by many, is just as simple; extend the school year, and school days in order to get more knowledge in our kids’ heads. And the people behind this movement have some pretty influential allies such as President Obama. The President has recently begun outlining his intentions to extend the school year with the simple underlying logic that, "...if the Asians can do it, so can we." However, the logic applied to extending the school year, no matter how well intentioned, is a fallacy at best, and shameful naiveté at the worst.  To recognize that our society's problems regarding inadequately prepared students lies in the fact that the school year isn't long enough to learn, requires a willingness to take the easy way out.

It would be safe to assume that The President is acknowledging the accurate generalization that Asian students excel at a pace academically that is leaving their American counterparts in the dust.  But to attribute that chasm to a longer school year will create solutions that will never fix the problem.  The fundamental difference between our culture and theirs is VALUES.  They value discipline, structure, they have a reverence for teachers and authority figures, and most importantly, they value the lessons learned from failure.  And I'm sad to say that our country does not value those things equally.  We have created a culture that refuses to let our kids fail preventing them from truly learning.  And the byproduct of that ideology is a destructive sense of entitlement.  There are teachers in our country who are instructed to NOT hand out failing grades to students for fear of hurting self-esteem; only D- and above is acceptable, regardless of performance.  Do you think that happens in Asia?  

We reside in the greatest country on Earth, and by the grace of God, we enjoy freedoms and lifestyles afforded to few others on this planet.  But America didn't become great by accident.  It did so by building a culture on a foundational set of values, typically referred to as Judeo-Christian values, even though not all of our founders were religious.  But unfortunately, those values have been replaced by another set of religious values called Secularism. Where only the individual matters; where children have rights and can sue their parents, where good intentions justify disastrous results; where there are no privileges, only rights; and where life is manipulated to ensure equal results, regardless of performance and despite equal opportunity.

We spend more money per capita on education than any other country on Earth, but yet we still have people arguing that our kids are inferior because we don't spend enough! When are we going to scream UNCLE! We have a Values problem, plain and simple, and that is most influenced by the home environment. You can keep those kids in school all year, but as long as we, as a country, continue to focus on symptoms, our problems will persist.

But dealing with the root of the problem is extremely difficult and complicated as morality and values are next to impossible to legislate, and most likely immoral to legislate certain values.  Because we live in the freest country in the world, sometimes the price we pay is that we have a broad range of interpretations of that freedom and an even broader spectrum of values.  But if one really wants to get to the root of the issue, we have to look at how values are derived. 

In most cases, if not all, there is a direct correlation between a person’s religion, and/or world-view, and the type of values they have.  Meaning, if someone is an Atheist, they will have a different set of values than a Christ-Follower.  And a Christ-Follower will have a different set of values than a Muslim, or Secularist and so on and so on.  And the ways these values manifest themselves is through behavior.  An even simpler way to look it is: Theology=Values=Behavior.  And this equation is the most impacted by what takes place inside of the home.

Children don’t just magically turn out a certain way but rather, they develop values and behavioral traits by what they learn from their environment.  And despite what some may think, parents have the greatest impact over these things.  But it starts at a very early age and parents need to have the ability, understanding, and most importantly the courage to create a loving environment at home that does not waver about how the family’s value system is carried out.  Because sometimes, this will create tension between child and parent and the parent needs to be strong enough to stand their ground as they recognize the future consequences of decisions made today.  But then again, even our parental values have changed through the years.  Parents today would rather be liked by their kids and be their friends than to fill the appropriate role as a parent. The desire to be liked by their children will always trump the parent’s ability to be effective.

So in order to alter the educational course that our children are on, we really need to start addressing some things in our own homes.  Some of the best-educated and wealthiest people in this world have turned out to be some of the most evil, detestable, and violent people in this world.  And conversely, some of the brightest, most innovative, and creative people in history were school-system dropouts.  None of this to say that a good education doesn’t matter; clearly it does.  But it’s hard to believe that these people, or anyone for that matter would have turned out differently if they would have just spent more time in the classroom.  Education alone can’t change a person, but values can.

This week's contribution comes from one of our preferred lenders. He has a new program that will allow you to "short" refinance your home if needed if you meet all the guidelines. Although this might not be for everyone maybe you know of someone who this information might be helpful.

                                                 SHORT REFINANCE

Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development has approved a new loan program to refinance your home at market value!

 Refinancing at current market value is the better option than loan modification. It is a transaction, where the current lender agrees to accept less than the full amount owed on your property. It results in reduction of principal on your loan. A Short Payoff is when your current lender reduces the principal balance on your mortgage and allows you to refinance or sale your home at current value.

Key differences:

Loan modification negotiates change in rates and terms leaving principal unchanged.

Short Refinance negotiates reduction in principal.

The process is similar to a short sale but, instead of the property being sold, it is refinanced with a new lender. The short-refinance allows the homeowner to retain ownership of the property.

In many cases, short refinance requires approval and consent from a new lender and will require better credit score along with a reasonable debt-to-income ratio. We are working with the largest pools of lenders, which are available to help with short refinance.

Refinancing at Market Value

• Must be current on mortgage payments
• Minimum middle credit score is 620
• No more than one 30 late mortgage payment in last 12 months
• Documentation of three most recent mortgage payments
• Payoff letter
• Written Principal Reduction Agreement from current lender – The agreement must include the name of the borrower and must indicate the loan amount being paid off
• Primary residence only
• Must have sufficient documented income to qualify for the new lower loan amount (no stated income)
• Must be able to prove hardship
• Borrower with two mortgages are not eligible at this time

Many lenders are now cooperating with a principal reduction to refinance your home. The first step is to contact your existing lender and verify that they will cooperate with a short payoff/settlement to refinance. The next step is to apply. We will request your employment, income, and asset documentation to verify that you will qualify for a new FHA loan at current market value and issue a loan approval. We will then negotiate with your current Lender to achieve the desired principal reduction for your refinance.

EXAMPLE: Short Refinance (Refinancing At Current Market Value)

Current mortgage:                                      $300,000

Current value:                                            $220,000

New loan(97.75% of current value):            $215,050

Closing cost for new loan:                            $5,000

Current lender approves short payoff for:     $210,050 

For more information and all inquires please contact Troy Schuricht below:

Troy Schuricht

CFS Mortgage Corporation

7720 N 16^th st   Suite 325

Phoenix, AZ 85020

602-354-0537- office

602-241-9912 - fax

www.TeacherAPlus.com

 Banker #0905178 

Let's first make a distinction between "walking away" and "losing" a house.  This article is strictly addressing homeowners who are current with their mortgage and voluntarily give their house back to the bank.  We are not addressing the homeowner who loses their home because they can no longer pay the mortgage for whatever reason.  With that being said, the number one concern that gets owners thinking about walking away is the fact that the value of their home has gone down drastically over the past 24 months.   And the chronology of questions usually goes something like this; How much is our home worth today? How much do we owe on it? When will we get back to even?  The answer to any of these questions could sway a homeowner one way or another, but the critical answer is the one to the last question posed.

If you experienced a significant financial loss on paper, but had confidence that you would be made whole again in a couple of years; would you consider making drastic changes? What if the recovery would take 10 or more years?  Would you do anything then? That's the dilemma.

Despite the behavior of the masses, no one expected the appreciation trends of in 2005 and 2006 to continue forever, but now moving forward, what is a realistic expectation for housing appreciation?  Truth is, no one knows! The percentage of appreciation in Arizona between 2005 and 2006 was about 20%*.  The total appreciation from 1990 to 2004 was 10%*, averaging between 1% and 4%* each year, with a few dips in between.   But let's assume that moving forward, at least in the foreseeable future, we are generous and average 5% appreciation each year, and apply that to a typical home situation that many owners find themselves in.

Let's say you bought a house in '06 or '07 for $400k; that house today is probably worth around $250k today, give or take.  At 5% annual appreciation, how long will it take to get back to $400k?  I'll save you some time; it will take 10 years.  At a more modest and probably more realistic 3% rate, it will take 16 years.  That's 16 years just to get back to your purchase price!  Those numbers can seem rather ominous when writing out your mortgage check every month, which is why many credit worthy, responsible people are considering letting their house go back to the bank.  Because the next 2 questions asked are, Does it make sense to keep paying on a house that is worth almost half of what we bought it for? And, What's the impact to my credit if we walk away? Many people are answering the first question with a resounding, NO! If it will take 16 years to get the value back in your house, you could walk away from your house today, re-purchase it for the current value, (theoretically) put it on a 15-year fixed-rate mortgage keeping roughly the same payment you have now, and have the house PAID OFF before it gets back to it's original value in 16 years!  It's tough to keep writing that monthly check when you look at the numbers that way.  But what would happen to your credit if you did this?

Having a foreclosure or a short sale on your record is not a productive way to improve your credit rating.  But is it the end of the world?  We have a client who had a failed business and had to file for personal bankruptcy, leading to the short sale of their house.  When they filed for bankruptcy, they were told by seemingly everyone that their life was over, and they would be relegated to being renters for at least the next 10 years.  Long story short, one year after their bankruptcy filing, they owned a new home with a 30-year fixed-rate mortgage.  Now their rate is 7%, but hardly the 15% you might expect with a bankruptcy and a short sale.  All that to say, the overall impact to your credit life, may not be as bad as one would think.  Of course each situation has variables, and just because it works for one person, doesn't mean it will work for everyone.

Now let's assume that the owner gets past the initial shock of the numbers, and decides that giving the home back to the bank is what they want to do.  Especially since Deficiency Judgments are illegal in Arizona, and there is no way that the bank can sue the owner for them coming up short at the Trustee Auction of your house.  But what about the moral considerations of that decision?  Is it morally wrong to do this?  After all, you did sign a contract stating that you will pay the money back to the bank.   These are the same exact questions that were asked of a prominent, local, and very well respected theologian recently at a conference that one of our agents attended.

Dr. Wayne Grudem is a Professor of Theology at Phoenix Seminary who travels the globe teaching the Bible in its original Ancient Greek and Hebrew languages.  Dr. Grudem is also the General Editor of the English Standard Version (ESV) Study Bible.  All of that to say that he is well qualified to offer a moral opinion on this subject.  So when these questions of ethics were posed to him his, rather succinct answer was this- paraphrased:

"I am familiar with people doing this (walking away from their house) but I haven't studied the issue too much.  However, just like the owner signed a contract to repay the bank, the bank made a deal as well.  And the deal was that the owner gets to live in the house as long as they pay the monthly mortgage.  If they don't pay the mortgage, the owner can't live in the house and the bank gets the house back; seems like a pretty fair deal to me.  So, in a nutshell, I think the homeowner is fine morally, to walk away from the house and give it back to the bank."

Grabham and Associates is not offering this article as an encouragement or even a justification to walk away from your house and give it back to the bank. And conversely, we are not suggesting that it is wrong to that either.  What we are trying to do is offer some additional information for our clients who may or may not be privy to all of the information out there regarding their situation.  And again, every situation is different and the decisions need to be made based on the uniqueness of the deal along with your trusted advisors.  In our efforts to stay relevant and effective, it is our hope that the information and perspective offered here will assist our clients in making informed decisions.

*Historical Data regarding home appreciation provided by the Federal Housing Finance Agency. www.FHFA.gov

At Grabham and Associates, we pride ourselves on being relevant and well informed regarding the current state of the housing market in Arizona.  And it is a goal of ours that our clients are equally as savvy, in order to make the best decisions in relation to their respective situations.  A few days ago, we were asked to negotiate an agreement between two of our clients with regards to a lease to own contract on a rental property.  And as we've been preparing for our clients, we started the morning yesterday opening the paper to a very pertinent article regarding lease to own options in Arizona. The article was published this week in the Business section of the Arizona Republic, on July 29^th, written by J. Craig Anderson.  The article brings up a lot of good points, so we thought we'd chime in on the conversation as well, in an effort to provide all of our clients with information that will better equip them when making decisions. We've included the article below for you to peruse, and then follow our subsequent comments.

************************

With thousands of single-family rentals spilling onto the metro Phoenix housing market each month, a growing number of investment owners and brokers now market their properties as rent-to-own deals. Local experts say rent-to-own agreements, also called lease options, are a way for prospective buyers with cash shortages or credit problems to build up a down payment while repairing their credit.

With a glut of investor-owned homes available for rent, offering lease options is another way to stand out in the crowd while appealing to credit-impaired residents who may have gone through a recent foreclosure, short sale or bankruptcy. Advocates say an increase in lease options could help ease the looming problem of investment homes flooding the market when today's investors decide to sell.

But others argue that lease-option agreements rarely result in sales because buyers back out or fail to qualify when the lease expires. Those renters generally lose their down payments and end up back at Square 1, critics say. "My guess is that less than 10 percent ever exercise that option," said Kammrath & Associates owner Bob Kammrath, a Phoenix real-estate analyst who follows the rental market.

"It's a good way to do a test-drive on a house," said Jason Grandon, who operates Scottsdale-based InstantRenters.com with his sister, Stacey Grandon.  Jason said lease options have found a relatively new audience at the high end of the market, with wealthy buyers staking their claim on recently foreclosed-on luxury homes at a time when jumbo mortgage loans are expensive and nearly impossible to get.

Even prospective buyers who intend to pay cash are leasing to own, Stacey said, because luxury-home prices are on the decline and desperate sellers are willing to negotiate attractive terms. Kammrath said he sees the logic in using a lease option to wait out "the worst environment for jumbo lending in the last 20 years," but he said there is no guarantee the situation will improve in a year or two.

Phoenix real-estate broker and agent Bill Brandt agreed, adding that lease options generally work better in theory than in practice. "The big thing is the price," said Brandt of AZ Paradise Realty. "When are we going to determine the price, and who's going to determine it?" Most lease-option deals involve a two-year lease that can be extended to three or four years if a buyer's credit isn't expected to be good enough to obtain a mortgage after only two years, Stacey Grandon said.  Brandt said the current real-estate market could be particularly treacherous for lease-purchase buyers who agree months ahead of time on a sale price. "If the house doesn't appraise for the agreed-upon amount, then the buyer won't be able to get a loan and they won't be able to buy it," he said.

************************

Obviously, Bill Brandt hit the nail on the head, that the most important thing to consider, on both sides of this deal, is when is the price set, and who sets it.  Everything else is in the equation is based upon the purchase price that the renter and owner agree upon; i.e. the rental price, lease term, etc.  As the owner, if the price is set today, what happens if the home appreciates significantly during the lease term?  If the price is set at the end of the term, what happens if the appreciation prices the renter out of the purchase?  Either one of these situations can be worked out, but the devil is in the details of the agreement.  So what's the benefit to the owner to do a lease to own option with a tenant?

Right now, the home rental market in Phoenix is inundated with investors trying to fill empty homes with prospective tenants, and there doesn't appear to be enough tenants to go around because houses are so affordable, even though lending is tighter.  And those that are looking to rent, are being very selective with where they live.  But a growing number of investors are looking at setting themselves apart by offering a lease to own option to their tenants.  So by offering the option, the investor is increasing the likelihood that they will get a tenant in their property.  And depending on the particulars of the agreement, the lease to own option could have other benefits as well for the investor.

If the purchase price were set at the beginning of the lease term, than it would be ideal for the investor to receive a premium inside of the rent payment to account for any anticipated appreciation between the time of setting the price and the actual purchase.  But this scenario is unlikely as the renter theoretically is already paying an above market rent rate with a percentage of that payment going towards their down payment.  However, another option to consider, if setting the price early, would be to have the renter pay a rent premium and have none of it go towards a down payment, with their benefit being a below market purchase price, assuming the home appreciates during the lease term.

If the purchase price were set at the end of the term, then there's really no benefit to the renter to enter into a lease to own agreement, unless a significant portion of their rent payment is going towards a down payment; and that is assuming that the lease is a market rate lease.  And that is also assuming that the house is one that the renter really wants to live in.  Because after all, this agreement is basically saying that the renter is so sure that they want this house, that they want to take it off of the market until they can afford it, for fear of it not being available when they can.  But what happens if the renter chooses not to purchase the home at the end of the term?  What happens to the money that they were paying towards the down payment?  Does the investor get to keep that money?  If so, how much? If not, why?

If the renter decides not to purchase the home, then there is a good chance that the only benefit to the investor was the fact that they had a paying tenant for a period of time, which is certainly something to be appreciated.  But if that was the only benefit to the investor, what's the point of doing these deals in the first place?  The incentive for the investor has to lie within the rent premium as well as being the beneficiary to the escrow account holding the down payment funds in case any issues arise.

Unless these lease to own deals are structured with acute attention to detail, they may be more trouble than they're worth.  And with the uncertainty and volatility of the housing market, there is an elevated element of risk for the investor.  Because let's not forget, the overwhelming majority of prospective tenants who are doing these deals are people who don't have the ability to qualify for a mortgage on their own!  So what are the odds that they will be able to qualify for a mortgage in a year or two? Who knows, which is why the investor needs to be protected financially.  A lease to own option can very quickly turn into a one sided deal if it isn't structured right, or many of the details are "assumed" by either party. 

Now, there are plenty exceptions, and these deals have worked out great for some.  The point is to make sure that the due diligence is done before entering into these deals, and it probably wouldn't hurt to have a real estate attorney finalize the agreement to make sure nothing is missed.

Last night, our day concluded with a meeting of our two clients, to go through many of the aforementioned details.  Now the deal isn't done yet, but it has been a tremendous benefit to both sides to take our time and go through every painful detail to ensure that this is a win-win for all involved.

New Neighborhood Stabilization Program: 1% Down Payment… And More!

By Harvey Mackay

No firm came to symbolize the opulence of the economic boom better than Google. With some "workplaces that feature pool tables and volleyball courts," this Internet giant has bent over backwards to woo top performers. Tough times are upon us all, including this mega-search engine. "Google has also begun chipping away at perks," the Wall Street Journal reported recently. "In recent months, it reduced the hours of its free cafeteria service and suspended the traditional afternoon tea in its New York office."

Just months ago, you could get your foot in the door of many an employment office sporting a tattered sneaker. Talent was king. According to the Department of Labor, more than 10 million people were unemployed in December. Of these, more than 1.2 million lost their jobs between September and November. Overnight, job hunting has become a buyer's market, and employers have turned downright picky about who will be offered a coveted spot on the payroll.

A crisp and businesslike appearance is back as an expectation on the part of many prospective employers. A recent New York Times article announced "The Return of the Interview Suit." It quotes Gloria Mirrione, a managing director of a financial services placement firm: "We are back to a time when every company expected both women and men to wear suits and we didn't have a Casual Friday. . . . They are looking for a sharper style. I recommend a strong suit that says you are collected and ready to work."

The article highlights some critical appearance details. For example, a solid black suit screams attention to dandruff flecks or gray hairs. White shirts should be "pristine" and preferably new. Ladies' tote bags need to provide a professional-looking home for one's BlackBerry. In other words, don't look like you're going camping.

The clothes you wear—and they don't need to be expensive—say a lot about your discipline, taste and social poise. That accepted, the most important thing you need to dress for an interview remains your mind.

Learn everything you can about the company and its immediate needs. Any company hiring in this economy is banking on their new employee making a key contribution immediately. Find out what that is.

Times author Eric Wilson suggests scouting a prospective employer's tastes and expectations before an interview. "The key is to research the corporate culture to learn what a potential boss might expect." I like that research to go well beyond appearance preferences. If your prospective boss is a golf nut or is crazy about symphony music, be prepared to say something sensible about these topics.

Sometimes standing out can win the day. One reader, who was no hockey wizard, got a job as a hockey announcer by suiting up as a goalie in everything from mask to skates.

Rob Donkers, a Canadian educator, recently emailed me that a young woman sewed up a job as a "software programming ninja" when she appeared for the interview in a Japanese warrior costume. For most jobs, though, the button-down look is the better bet.

When you enter an interviewer's office, zero in on memorabilia and personal touches:

• What books are prominently displayed on the shelves? Can you share a comment or two about an important lesson you learned from reading one of the authors?
• Autographed photos and civic or industry awards can be particular points of personal pride. If you can offer some authentic praise or admiration, consider making a passing comment.
• The individual's laptop, monitor or other office equipment can open up a conversational opportunity.

A job interview is fundamentally a sales encounter. People buy from people they like. And people hire people they like. It's that simple. People like people who are genuine, pleasant, sincere, easy to talk with and friendly.

Have a clever story, quote, or anecdote or two in mind that you can slip into the conversation. Something positive and memorable. Billionaire Oprah Winfrey, for example, uses an unforgettable trademark line: "I still have my feet on the ground, I just wear better shoes."

Follow-up a job interview with a handwritten thank-you note. They are essential, especially when they mention how you will fit into the company's culture or help meet its immediate business needs.

Paying attention to how you look can help you get a job. For that matter, it can also help you keep one. With companies trimming right and left, they want to retain people who best present their firm's image.

Mackay's Moral: Dress like a mess and you won't see success.

November brings two remarkable holidays: Veterans Day and Thanksgiving. I thought of both when I came across the touching story of the creation of "Taps," the tune that gives me a lump in my throat and usually brings tears to my eyes.

The song dates to 1862 during the Civil War, when Union Army Captain Robert Ellicombe was with his men near Harrison's Landing in Virginia. The Confederate Army was on the other side of the narrow strip of land.

During the night, Captain Ellicombe heard the moans of a soldier who lay severely wounded on the field. Not knowing whether it was a Union or a Confederate soldier, the captain decided to risk his life and bring the stricken man back for medical attention.

Crawling on his stomach through the gunfire, the captain reached the soldier and pulled him toward his encampment. When the captain finally reached his own lines, he discovered it was actually a Confederate soldier, but the soldier was dead.

The captain lit a lantern and suddenly caught his breath and went numb with shock. In the dim light, he saw the face of the soldier. It was his own son. The boy had been studying music in the south when the war broke out. Without telling his father, the boy enlisted in the Confederate Army.

The following morning, the heartbroken father asked permission of his superiors to give his son a full military burial despite his enemy status. His request was only partially granted. The captain had asked if he could have a group of Army band members play a funeral dirge for his son at the funeral. The request was turned down since the soldier was a Confederate. But out of respect for the father, they gave him a single musician. The captain chose a bugler.

He asked the bugler to play a series of musical notes he had found on a piece of paper in the pocket of his son's uniform. And thus, the haunting melody we now know as "Taps" used at military funerals, was born.

Here are the words, which I find so appropriate for these November holidays:

Day is done, gone the sun
From the lakes, from the hills, from the sky.
All is well, safely rest.
God is nigh.

There are more verses, but I think you get the drift. Every day is a new day. And no matter how bad things seem, there's always a ray of hope here in America. We, as Americans, have weathered every kind of storm and managed to prevail. All will be well.

The reason? We are an optimistic people, able to see the glass as half full.

The Pilgrims toughed out awful conditions, unsure of what might lie just 100 miles to the west. They found a way to coexist with Native Americans, and celebrated their harvest not knowing what the coming winter would bring. These folks were not just hardy, they were heroes.

Then, through the Revolutionary War and the following years of growing pains, the Civil War demonstrated just how divided a nation can be—or in the case of Captain Ellicombe, how divided a family can be. Yet somehow, we recovered and became the most powerful, most amazing nation in the world.

As a business owner, I can't imagine this kind of success anywhere else. Many of you know my story: bought a small struggling envelope company at age 26 and worked as hard as I could to make it a success. We are close to our 50th anniversary, and despite market turns and any number of threats to our survival, we have not only survived, but thrived. Why? Because we are also optimistic.

We have every reason to remain optimistic. If I've learned anything about American workers, it is that they want to succeed as much as their employers do. They take pride in their products and services. They see hard work as a badge of honor. They are resilient when challenges present themselves. They are my heroes. They are the reason I can stay in business and prosper. When day is done, all is well.

Mackay's Moral: If we pause to think, we'll have cause to thank.

Beginning Real Estate Investors - Listen To The Right People

See below link for current Arizona Market Statistics:

http://www.makingazhome.com/links.asp

In-Depth Analysis January 2008 Market-at-a-Glance The Market-at-a-Glance section contains an overall summary of the trends described in our detailed articles. A recap of the current market indicators are as follows: 1. Resale Listings – 54,513 a. This has been the second month in the past eleven with a decrease in the number of resale listings. The decrease from November to December was 2,237 (3.9%). The trend of this metric shows that listings have been increasing for the past 30 months. The December decrease fits the normal calendar cycle. 2. Resale Sales – 3,412 a. Resale sales volume is down from this month in 2006 by 1,981. b. Resale sales volume is down 3,137 sales from this month in 2005 (the Decmeber 2005 figure was inflated by speculator activity). c. Resale sales volume is down 4,490 from this month in 2004 (the December 2004 figure was very inflated by speculator activity). d. Resale sales volume is down 2,945 from December 2003. e. Resale sales volume is down 2,528 from December 2002. f. Resale sales volume is down 1,054 from December 2001. 3. Resale Sales Price - $229,800 a. The median December sales price is down by $2,700 from November 2007. b. The median sales price has declined $25,200 in the last five months. c. The median sales price is $30,200 below the September 2005 level. d. The appreciation rate for the last twenty-seven months (September 2005 to present) is a negative 8.6% on an annualized basis. 4. New Home Market a. The number of New Home specs in December decreased by 104 from the November count to 3,739. The record level was in October 2006 at 4,692. Prior to February 2006 the record was 2,400 homes. b. The number of new home subdivisions selling dipped for the second time in the last six months - down by 11 to 1,102 (the largest number ever recorded prior to 2006 was 813 in May 2003). The spec inventory remains far above norm. That level is currently about double the level that has historically been healthy for our market. What will it take to get the inventory level back into a normal range for our market? Sales have now been below the 2002 level for seven months. I believe that a major portion of the drop in sales from the 2002 level can be attributed to three factors: 1. Potential buyers waiting to be able to sell their homes 2. Buyers concern about the magnitude and timing of the market price correction 3. Tightening in mortgage qualification criteria. This is not true of the drop from 2004 - 2006 which can be almost totally attributed to drastically reduced speculator buying.

Markets Adjust Nationally

The National Association of REALTORS® (NAR) reported in late September that existing homes sales fell in August, caused in large part by recent adjustments within the mortgage industry. The overall national market for existing homes slowed 4.3 percent in August. NAR still anticipates close to 5.5 million units to be sold in 2007, which is 12.8 percent below last year's pace for existing home sales.

On September 28th, the Wall Street Journal reported that the thirty year conventional, fixed rate mortgage was averaging 6.42 percent, which is up from 6.34 percent earlier in the month. Still, NAR president Pat Combs explains that today's mortgage picture is getting better. "Mortgage interest rates have been declining and loan availability is improving,” she said. “Movements to enhance the FHA loan program and to raise the limits for conventional financing could provide additional relief, and it looks like the worse of the mortgage availability problem is behind us. The abundant choice of homes is permitting buyers to better negotiate price and terms. There are good opportunities in the market now, especially for first-time buyers.”

The national median home price for all types of housing was up .02 percent from this time a year ago, to $224,500. The median is the typical market price where half of the homes sell for more and half sell for less.  "Price gains in the Northeast and Midwest were largely offset by a decline in the West, while medial existing home price in the South was down slightly, demonstrating that all real estate is local," Combs said.
 
 
Advice for Home Sellers!

Competition for qualified buyers is greater than it has been in years past, but there are still buyers out there who are willing, able, and interested in purchasing your home! If you are realistic about what it takes to sell in a buyers market — and you are willing to meet the buyer in today's market — then success can be yours! Here are a few tips to make your home stand out from the crowd:

Pricing - Price your home realistically.  Remember, buyers are comparing your home against all others and are looking to stretch their dollar. By pricing your home to sell, you end up saving time and money in the long run by keeping your home from being shop-worn and overlooked.

Home Inspection - How does your home stack-up against new construction?  Pre-existing homes often require more effort to maintain.  By ordering a home inspection and fixing any known defects, buyers can be confident in what they're buying.

Incentives - Buyers love incentives. With larger housing inventories, incentives can be the deciding factor between your home and the competition.  Consider offering a free home warranty, a carpet allowance, or assistance with closing costs.  Incentives don't have to cost a lot to be attractive.

By offering value, you attract buyers and enhance your property's desirability.  If you are thinking of selling your home, please contact us for a current market analysis and marketing consultation.  There is no obligation for these services.

The Great Capital Inflow into Real Estate

Throughout the 1990s, the investment community had largely considered real estate undesirable because of its falling rents, occupancy rates, and prices; so investors shifted most of their attention and funds to stocks and bonds. This helped launch a record price rise in world stock markets. Soaring stock prices drew money away from real estate into stocks until the Internet stock bubble burst early in the new century.

Overnight, real estate morphed from a pariah among investors to the major viable and easily accessible way to invest funds, since stock markets were plummeting in value. The NASDAQ composite index fell over 70 percent in value from its 2000 peak in two years, and the other major indices also declined sharply. But real estate investment trust (REIT) stock prices started a steady climb as money flowed into both residential and commercial property markets.

This money came mainly from a global over-supply of savings from rapidly developing nations like China and India, from newly independent Eastern European nations just returning to market economies after almost a half-century of Soviet domination, from soaring profits in oil-producing states like Russia, Saudi Arabia, Venezuela, and Iran, from zooming corporate profits in the U.S. economy, from investors borrowing money at almost zero interest in Japan and investing it elsewhere at higher rates and from a variety of other sources. A fundamental paradigm shift took place in the attitude of world financial institutions and investors toward the relative desirability of real estate – especially commercial properties – as compared to other asset classes.

The Impacts of Securitizing Real Estate Finance

The expansion of a financial technique known as securitization helped to encourage the change in attitude toward real estate. Formerly, mortgage lenders often held onto the entire mortgage until it was repaid. But under securitization, lenders put many such mortgages into a single pool, dividing the interests into several different “tranches.” With differing yields and access to mortgage repayment flows, tranches offered differing degrees of risk. Mortgage repackagers could sell off tranche pieces to other investors, spreading the risks of any one mortgage among many lenders. This technique reduced the risks and allowed for the expansion of world capital available to real estate. The globalization of capital markets also aided the flow.

Securitization also generated more private mortgage lenders and packagers who were not covered by extensive federal regulations. Residential mortgage-backed securities issues by private labels rather than federally regulated agencies accounted for $135 billion, or 21 percent, of all such securities issued in the first quarter of 2003, but rose to about $320 billion, or 56 percent of the total issued, in the fourth quarter of 2005. Private label issuers were more likely to engage in reckless subprime lending with extremely easy credit terms for subprime borrowers. So their expanded responsibility for residential mortgage lending increased the risks of such lending through 2005.

Securitization of real estate debt also created great uncertainty about who would be responsible for absorbing losses or working out repayment problems if borrowers were unable to pay on time. The actual sources of capital for any one loan were so scattered among multiple lenders, each with a relatively small piece of each total loan, that no one was certain who would bear the costs for defaults or delinquencies. The massive amount of securitized debt outstanding had never been subjected to a large-scale repayment crisis; so past experience was not much of a guide.

Effects of the Massive Capital Flow into Real Estate Markets

As capital poured into real estate, especially after 2000, it generated a worldwide upward movement in real property prices. This was most evident in housing prices, not only in the United States, but throughout the developed world – except in Japan and Germany. According to Freddie Mac’s home price index for 381 U.S. metropolitan areas, based on repeat sales of the same properties, housing prices had risen 46.5 percent in all of the 1990s, but they then rose almost another 59.8 percent in just the first six years of the new century.

This worldwide inflow of financial capital into real estate was a crucial factor influencing U.S. housing prices and the general boom in housing production after 2000. As the value of housing soared, U.S. homeowners realized they had more equity in their homes; so many borrowed against that equity or refinanced their homes at falling interest rates and used some of the acquired funds to stimulate their general consumption. That helped keep the entire U.S. economy booming. It also led to bigger U.S. trade deficits with the rest of the world as we imported more than we exported, and paid for that deficit by issuing Treasury securities and other I.O.U.s to foreign investors and governments.

Much of that gigantic pool of capital from around the world is still out there looking for something in which to invest, and investors are still willing to consider real estate – including American real estate. The outcries of Wall Street that there is a capital crisis are exaggerated – there is only a shortage of confidence in some of the instruments that Wall Street has invented to capture some of that capital. Though the resulting uncertainty has spread to banks and other financial institutions, plenty of capital is still out there and looking for a home.

The Current Overall U.S. Housing Market Situation

In both 2004 and 2005, the U.S. housing industry built 2 million new housing units, including mobile or manufactured homes. Yet most demographers believe our economy actually needs only about 1.3 million new housing units to supply shelter to all new households formed each year, plus 200,000 to 400,000 new units to replace obsolete older ones. This means the homebuilding industry was reaching into future demand to support its high levels of new housing production in 2004 and 2005. Four previous high-level bursts of new housing production have been followed by two-to-five year production declines averaging 37.5 percent. Housing starts have already fallen below 2005 levels by 13 percent in 2006 and 29 percent so far in 2007. So the housing industry’s production decline is not over yet, and will continue through 2008.

Sales of existing homes have also decreased in number from a peak rate of 7.2 million per year in September 2005 to 5.5 million per year in August 2007, a drop of 23.6 percent. However, that does not mean housing prices as a whole will collapse, even though such prices have risen dramatically in the past decade. According to Freddie Mac’s home price index, housing prices in 381 U.S. metropolitan areas rose an average of 46.5 percent in 10 years from the first quarter of 1990 to the first quarter of 2000, then soared an average of 59.8 percent in the six years from the first quarter of 2000 to the first quarter of 2006. From early 2006 to the second quarter of 2007, home prices continued to rise in 314 of those metropolitan areas, or 82 percent, by an average increase of 7.3 percent. In the other 41 metropolitan areas, prices dropped by an average of 3.4 percent. The areas with continued price increases included 24 of the 29 largest metropolitan areas in terms of population.

As of September 2007, National Association of Realtor data show that the median price of existing homes sold was down only 4.2 percent nationally vs. one year earlier, though down 8.8 percent in the west. These data show that prices of existing homes are not collapsing, despite large decreases in both new home production and sales of existing homes.

Why is that happening? Most American home owners do not have to move. So when prices start to fall below what they think their homes are “really worth,” they will simply withdraw those homes from the market and wait for prices to improve. This puts a floor under the prices of most single-family homes. Where overbuilding has been spectacular and many buyers were speculating on flipping the units they bought rather than occupying those units, a price collapse could occur. That is most likely in condominium markets in big cities like Miami and Las Vegas, but probably will not spread to typical single-family homeowner units in most U.S. metropolitan areas.

The Subprime Mortgage Situation

The subprime mortgage market has recently generated the most concern that credit markets may completely seize up and paralyze the economy. In fact, subprime mortgages form a relatively small part of all mortgage originations. They are mortgages made to households with poor credit records at interest rates 3 to 4 percent above normal prime mortgages. Lenders liked them because they had higher interest rates than prime mortgage rates, which had fallen very low in the early 2000s. Borrowers with poor credit liked them because they enabled such households to buy homes when they otherwise could not do so.

But when prices stopped rising and began to decline, as they did in many markets after 2005, subprime default rates began to rise. Since many mortgage-backed-bonds had been based on subprime loans, the conduits floating those bonds had a hard time making their payments to the persons or institutions investing in such bonds. Surprisingly, those persons and institutions included many in Europe and even in Asia who had been attracted by high-interest rates and the prospects of continuing increases in housing prices. Moreover, the conduits creating such bonds were largely unregulated, private firms, unlike Freddie Mac and Fannie Mae, and took many risks by making loans with no down payments, monthly payments of interest only and even no checking of borrowers’ incomes.

Yet among all U.S. residential mortgage originations, subprime loans altogether comprised a cumulative total of under 13 percent from 1994 through 2005, though they rose to 19 percent in the year 2004 and 21 percent in 2005, according to the Mortgage Bankers’ Association (MBA). This means at least 87 percent of residential mortgages as of mid-2007 were not subprime loans, according to the MBA’s delinquency studies.

The serious delinquency rate among subprime mortgage loans remained below 8 percent from 1998 through the third quarter of 2000. Then it rose to between 10 and 13 percent through the second quarter of 2003, and has declined to below 8 percent since the fourth quarter of 2003. Thus, at least 87 percent of subprime home loans had not defaulted as of 2005. True, this is much higher than the serious delinquency rate among prime mortgages, which has remained below 2 percent from 1998 through 2005. Subprime delinquency rates may rise somewhat more in 2008 because monthly payments on many such mortgages will be re-set to higher levels when interest–only periods end or adjustable rates are driven upward. But even then, the vast majority of subprime mortgages are likely to remain fully paid up as long as unemployment remains as low as it is now in the U.S. economy.

The Broader Repercussions of Subprime Mortgage Problems

These facts hardly indicate a credit crisis throughout the economy or even in mortgage markets. But the subprime mortgage problems do glaringly reveal the inadequate mortgage and other credit underwriting standards in practice during several recent years of high-volume, low-interest lending. Subprime mortgage problems make many real estate lenders realize they should have been conducting more thorough underwriting, demanding higher-interest rates and putting more loan covenants into their deals.

Lenders have woken up to the fact that their actual risks were much greater than they had recognized. In response, many recently stopped making any loans until they could better assess the real risks involved. Other lenders raised rates and increased loan covenants. The resulting shock threatened to upset lending activity throughout global credit markets. This fear was encouraged because many complex securitized loan funds contained small portions of delinquent subprime mortgages. If this seizing-up of credit markets became worldwide, that would slow down economic growth everywhere – hardly a desirable outcome.

In response, the Federal Reserve Bank, the European Central Bank, and the Bank of England all cut their discount rates (the rates at which they lend money to banks) and pumped more liquidity into credit markets. Then the Federal Reserve Bank further cut the fed funds rate (at which banks can lend reserves to each other) and the discount rate by 50 basis points each – a dramatic change in past policy. This has seemed to reassure credit markets somewhat, although interest rates and credit terms are almost certain to remain higher than before the subprime mortgage mess – as they should. How long it will take credit markets to recover fully is not yet clear. But investors still have a tremendous amount of financial capital that they must put to work somewhere – there is no basic shortage of money.

The Booming World Economy

The world’s generally favorable economic conditions suggest continued prosperity rather than a collapse of market economies. Western Europe, Eastern Europe, Asia’s developing nations, and Japan are all prospering and growing economically faster than they have been in the past decade. The U.S. economy has slowed down somewhat, but our gross domestic product is still growing and our unemployment rate is very low compared to historic norms. There are large supplies of capital being generated around the world looking for places to invest. Although growth rates in developing nations are faster than the U.S. growth rate, our economy is still regarded as the safest and most politically secure place to invest in the world, despite the devaluing U.S. dollar. This is shown by the recent decline in U.S. Treasury interest rates as lenders fled into Treasuries seeking guaranteed security. These are not the conditions likely to generate a financial crisis.

As noted above, the world’s major central banks have taken steps to pump more liquidity into financial markets to forestall any fears among investors of a credit crisis. The Fed has put billions of additional dollars into U.S. banks, and those banks must lend that money to someone to make it work for them. These actions are designed to offset the feelings of panic generated by the Wall Street purveyors of gloom and doom. Some aid to their borrowers might be justified, but bailing out the lenders even more than we have up to now would create a moral hazard of merely encouraging them to do it again when the next chance appeared.

Is Real Estate’s Boom Sustainable?

Nothing in this world lasts forever, and the recent unprecedented prosperity in housing and real estate markets is no exception. Activity in U.S. residential markets has already slowed down, and that slow-down will probably continue for the next year or so, though it may recover after that. But in commercial real property markets, though interest rates are appropriately rising somewhat, there is still considerable capital looking for someplace to go. Thanks to the paradigm shift among world investors about the basic desirability of real property as an investment asset class, much of the money that has moved into real property will stay there.

Yet the impacts of the tremendous inflow of capital into existing real estate have in some respects undermined its continued attractions as an investment. As competition among investors drove prices of existing properties up and their yields down, more investors have begun to consider building new properties rather than buying existing ones. They think they could get higher initial yields from new and “greener” or more high-tech properties than from older, more obsolete existing ones, since the older ones had become so expensive and have such low yields. This change in views could start another new development boom like those that have ended so many real estate cycles in the past. That is especially likely to happen if the oversupply of capital keeps borrowing very cheap and interest rates do not rise much. Eventually, such a new development boom would overbuild world property markets and make it less desirable to keep putting more money into them. But that would take several years of booming new development.

So real estate’s boom cannot last forever – nothing does – but it could last a lot longer than it has lasted up to now. There is still plenty of financial capital out there looking for somewhere to go, and there are still plenty of property markets around the world that present good development opportunities. In the absence of some catastrophic world crisis that would upset all forecasts, there is no reason to think we are in the midst of an inevitable credit crisis. Just look at the facts.

The National Association of Realtors (NAR) said in a monthly snapshot that sales of existing homes and apartments tumbled to a seasonally adjusted rate of 5.04 million units in September from 5.48 million in August.

The drop was worse than expected. Most economists had only expected sales to decline to around 5.25 million.

Stripping out apartment sales, sales fell to their lowest level since January 1998.

August's sales pace meanwhile was revised down from an original tally of 5.50 million properties.

The depth of the housing depression was underlined by an annual reading which showed sales of homes and apartments across the United States have plummeted a hefty 19.1 percent from September 2006.

Sales activity has slowed dramatically and dragged down prices in many areas in the past 12 months in a market downturn which has also forced many mortgage lenders out of business.

The national median existing-home price for all housing types was 211,700 dollars in September, down 4.2 percent from a year ago.

The glut of unsold homes swamping the market rose 0.4 percent at the end of September to 4.40 million, marking a 10.5-month supply at the current sales pace.

Excluding apartments, the supply of homes has risen to its highest level since February 1988.

"Existing homes sales fell sharply in September," said Stephen Gallagher, an economist at Societe Generale.

"Potential buyers, those without credit obstacles, had plenty of reason to wait and see hoping for greater supply or declining prices," Gallagher said.

Economists are concerned the housing slowdown could put a brake on US economic growth.

The Federal Reserve slashed borrowing costs last month and many economists expect the central bank to trim interest rates again at a policy meeting next Wednesday. The federal funds short term rate is currently pegged at 4.75 percent.

Home sales fell the most in the northeast of the country, dropping 10 percent in September, followed by lesser declines in the West, Midwest and South.

Resales across metropolitan Phoenix were down again in August, but new-home sales held steady.

It could be a sign that the thousands of speculatively built homes across the Valley are selling while buildersResales across metropolitan Phoenix were down again in August, but new-home sales held steady.

It could be a sign that the thousands of speculatively built homes across the Valley are selling while builders are pulling back on putting up more new ones. Both moves will help the resale market because fewer listings mean less supply.

The Phoenix Housing Market Letter tracked 3,110 new-home closings in August. It was the fifth straight month the figure didn't lose any ground. advertisement 
 
 

New-home prices have dropped since last year, which also is helping sales. The typical new Valley home price shot up to $285,000 during the frenzy of 2005, but this year slipped back to the $255,000 range.

But the report's publisher, housing analyst RL Brown, said based on home-price increases during normal years like 2002 and 2003, the median price of a new home likely should be even lower, in the $220,000 range now.

Another good sign for metro Phoenix's housing market is that listings seem to be flattening.

According to the weekly tally of David Blank of the Freedom Team at National Realty Brokers, the number of homes for sale in the Valley stabilized at just under 57,000. Part of that was due to the expiration of some listings at the end of the month, so next week will be telling.

The uptick in new-home closings and leveling off of listings hasn't helped the Valley's resale market yet. Early counts by real-estate agents show existing-home sales fell again last month.

And Brown is still giving the housing market a "code red" rating, but he can see it turning the corner in early 2008.

New housing chief

Sheila Harris is leaving the Arizona Department of Housing. The well-known housing advocate has been director of the agency since its inception five years ago.

She is firming up her future career plans, which likely will include some affordable-housing development in the private sector. Her contract is almost up, and Harris decided with her youngest child going to college, it was a good time to make a change.

The department's incoming director is no novice to the state's housing issues. Gov. Janet Napolitano has named Fred Karnas Jr. to the position.

Karnas, who recently joined the housing agency as administrator of its new Center for Housing Affordability and Livable Communities, began his career working for the Phoenix task force on homelessness. He then went on to become the first executive director of the Community Housing Partnership, a non-profit housing corporation.

In 1995, he joined the U.S. Department of Housing and Urban Affairs and worked on projects across the country.

Condo craze reverts

Metro Phoenix now leads the country for condo "reversions."

Developers jumped on the condo-conversion craze in the Valley a few years ago, snatching up apartment complexes to turn them into for-sale condos.

But the demand for those condos slowed with the rest of the housing market. Now, more than 2,946 condos are being turned back into apartments in the Phoenix area, according to Real Capital Analytics.

Baltimore is second in the country for condo reversions, with 1,433 units going back to the rental market. Orlando is third, with 1,233 units.

The figures were published in the new PriceWaterhouseCoopers Korpacz Real Estate Investor Survey.

Not all condo conversions in the Valley have failed, however, and some developers are trying valiantly to sell the projects. People with big signs, and often wearing eye-catching costumes, still can be seen promoting condo-conversion projects on many Valley  are pulling back on putting up more new ones. Both moves will help the resale market because fewer listings mean less supply.