10 Real Estate Myths

1. "Home prices have dropped 20%"
Incorrect. Many times, when seeing those reports, the number is skewed. For example, the Case-Shiller Index heavily emphasizes distressed home sales; including short sales & foreclosures. These homes have had steeper declines than home prices in general. Locally, MLS data shows that the average home price has dropped 4.82%, to $300,546, in October 2008 from one year ago. Additionally, the average list to actual sale price in the Baltimore Metro area is 90.52% which is down about 2% from last year. 

2. "Less homes being built = not so good outlook for the industry"
Incorrect. The problem is an oversupply and not enough demand, so the last thing we need are more homes being built. Builders have cut back production to help lower inventory and stabilize prices. Its a good sign that they recognize they need to cut back. NOTE: With an abundance of completed homes not sold, there comes good buying opportunities! 

3. "When the market does recover, appreciation rates will only be 4-6% annually"
Maybe so, but remember, this is normal. Historically, housing appreciation rates have been 1-2 points higher than the inflation rate; thus, 4-6%. However, consider that most people don't buy homes for cash, you are now leveraging your money. For instance, if you put 10% down on a $100,000 home, you get the annual appreciation of 4-6% on the market value of your home, not just limited to what you put into the transaction. Provided your home continues to appreciate at 5%/year for 10 years, your home is now worth $163,000 and you've gained 6x your original investment of 10%. Not bad, huh?  

4. "Soon to be Baby Boomer retirements & move to smaller homes will add to the inventory"
Many retired baby boomers have stayed in their homes or have moved to homes of comparable size. Plus, even if they do sell their larger home and downgrade, they are taking another home off the market with their purchase. Not to mention, the rapidly growing population will help absorb these homes. 

5. "The bailout of Fannie Mae & Freddie Mac will cost taxpayers a bundle"
Too soon to know. We may have to cover some losses, but its conceivable that there might be no loss in taxpayer money. The bailout is still preferable to what problems might have come about if both mortgage companies had gone belly up. The government is bailing out struggling homeowners. Click here to learn more about the Hope for Homeowners act. 

6. "The Fed controls consumer mortgage rates"
No. Their activity influences it, but they set the Fed Funds Rate; which is a short term rate. The rates we get for consumer mortgages resolutes from global savings, credit spreads, & inflationary pressure. We have seen evidence of this with the Fed raising and lowering the Funds Rate from 5.5% to 2% over the past few years, while mortgage rates have maintained in the 6-6.5% range during that time. 

7. Wrong time to buy
NO! First, if you are financially & mentally able to buy a home, then there is no question that there has not been a better time to buy in years. Declining interest rates combined with lower home prices and higher inventory levels make for ideal conditions in which to buy a home. We understand many buyers who are able may not be willing because of the uncertainty with home prices in the short term. However, real estate is a long term investment in which you can expect to begin wealth accumulation, so the impact of prices today, tomorrow, or several months down the line shouldn't impact your long term goals. Housing has always historically provided a solid foundation for building wealth. TIP: Contact us and a lender for help in deciding if now is a good time for YOU to buy. 

8. "Everyone should buy right now"
Not really. Again, the decision to buy needs to be based on whether the buyer is ready mentally & financially. Definitely consult with a Realtor and lender to help with deciding about your financial ability. Determining on whether you're mentally ready depends on if you're ready to take on the responsibility that comes with maintaining your home & budgeting your finances. Its imperative to have a plan. People spend a year planning out a one week vacation, so wouldn't it be best to spend time planning out one of the largest purchases you'll ever make? 

9. Its a terrible time to sell
Depends. If you bought within the last 2 years, then it might not be an ideal situation, but if you have equity in your home, then there is certainly opportunity to be had in selling now. Either way, it is crucial to price your home correctly from the get go. In fact, because the buyer pool is looking for value, if you price your home slightly below market value then there's a chance you might get more than one offer. Also if you're looking to trade-up, you will be able to take advantage of buying the larger home for less. When the market recovers, you'll have a greater return on price appreciation. Don't hesitate to contact us with any questions with this! 

10. Because of the internet, more homes are being sold For Sale by Owner & professional real estate assistance is not needed
Not true. According to Lawrence Yun, chief economist with the NAR, FSBO's have actually decreased 20% since the late '80s. In addition, he reports only 4 of 10 who successfully complete the sale say they would do it again without the help of a Realtor. Lastly, the success rate of a FSBOs getting to settlement table it anywhere from 40-60%. TIP: It doesn't cost you money to consult with a Realtor. Give us a call or shoot us an email & we'll be happy to discuss your goals/concerns with you. 

 Return vs Cost for Home Improvements

During one of the most turbulent economic times in U.S. history, many homeowners ponder where their money is best suited to be invested. Investing in your home still seem to be a safe place to put your money during these uncertain times. In a recent article published in the December 2008 issue of Realtor Magazine, author, G.M. Filisko, writes of the advantages of putting money back in your home. 

In the 2008-2009 Cost vs Value Report, NAR stats illustrate only a small decrease of 3.8% in average value of these investments. Additionally, on average nationally on 30 different remodeling projects, home owners can recover a little more than 67% of their investment. 

In the 2008 report, exterior remodeling that increases the outside appearance, such as: siding, decks and windows, are at the top of the list in regaining the investment. As anticipated, kitchens lead the way as the highest return on investment for interior remodeling. As they always say, kitchens & bathrooms sell! 

Locally in our region, for this report is the South Atlantic, the cost recouped beats the national average with the following additions:
- Bathroom
- Decks
- Family Room
- Garage
- Master Suite
- Sunroom
- 2 story add-ons 

This region is also higher than the national average in the following remodeling projects:
- Basement
- Bathroom
- Home Office
- Kitchen 

Lastly, the South Atlantic area tops national averages in replacement renovations:
- Roofing
- Siding
- Windows
Renovating is a popular option and is holding value over prices today because many people have decided to stay in their homes. In addition to making their homes nicer and more livable, it is a future service to a future buyer. Today's buyer is looking for a home they can move right into without the cost and time needed to do any renovating. It also helps justify the fair, market price a home owner wants as opposed to a buyer docking dollar amounts off the list price. However, it should be noted that not every project needs to be done by every home owner. Do what you feel comfortable doing and what makes sense. Adding an addition to a home in a neighborhood of $500,000 homes might not be best, but renovating a kitchen or bathroom in a community with older homes should certainly increase the value of the home.
As always, if you, or anyone you know, has any questions about a project and/or selling a home, please don't hesitate to contact us for advice!
 

Alternative to Foreclosure...Short Sales

You are probably aware of the increase in potential foreclosed properties across the country due to the number of “bad” loans that had been written over the course of the last few years. The foreclosure process is set in motion after becoming delinquent on 3-6 months of mortgage payments. At this point, if the loan is not brought current during the Reinstatement Period, in which the borrower still has the opportunity to avoid foreclosure, a sale date is then set. On this date, if the loan is still not brought up to date, the home will then be auctioned off to the highest bidder and the borrower is now going to be “scarred” with a foreclosure on their credit report, potentially affecting one’s credit up to 280 pts, which can remain with them for at least 7 years. 

Recently, the US government has unveiled a plan that offers a 5 year rate freeze to those borrowers who qualify to help curb the nation’s foreclosure problem. In order to qualify, a homeowner must be considered a credit risk and unable to keep up with their payments once their interest rate adjusted. In addition, it is for sub prime mortgage borrowers who took out their loans during January 1, 2005 – July 31, 2007 and are expecting a rate adjustment in the next 2.5 years. This will certainly offer relief to those homeowners, but what about those who don’t qualify and are still in danger of losing their homes via foreclosure? 

Short sales are an alternative to going through the foreclosure process, and can be a win-win situation for both the lender and the homeowner. Simply put, a short sale is when a lender is willing to accept less than what is owed on the home. This can be an acceptable scenario for the lender, over foreclosure, because it saves them the cost & time spent on the actual foreclosure process. Although they are still taking a loss, in some cases, it is still less than adding that same loss to costs associated with foreclosing. Also, a bank is not interested in owning property; especially in a depreciating market. They work with money and would prefer money now then the possibility of less money later. 

For the homeowner, a short sale represents the opportunity to potentially rinse your hands clean from the debt owed on the home and move forward with minimal credit damage many times just between 80-100 pts. Obviously, this option does not present itself without some possible negative effects on the borrower too. For one, the borrower could be subject to a deficiency judgment for difference between the loan amount and the amount the short sale was for. This means you are still obligated to pay back the amount shorted to the lender. Another potential negative impact for the homeowner is that the lender could issue a 1099 for the amount shorted which would cause the homeowner to pay taxes on that amount. Ultimately, it is up to the lender to whether or not they will pursue the deficiency judgment and hold the borrower responsible for the loss. A Realtor, such as any of us with The Campbell & Kellar Group, can help you with this process from start to finish. In addition, it is imperative that if you feel you are in a prospective short sale/pre-foreclosure situation, not only do you speak contact any of us, but also obtain legal advice from a real estate attorney and consult with an accountant to discuss any possible tax consequences. 

We are very empathetic towards anyone experiencing financial hardship and having trouble keeping up with their mortgage. That’s why you can contact us, with confidence, knowing that we are more than happy to meet with you privately to discuss your specific situation and see how we can help you! If you have any questions, concerns, and/or would like to meet with us, please don’t hesitate to contact us anytime. Thanks for your time and for visiting the site! 

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