Todd & Lisa Sheppard
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Archive for March 2012

The Bay Area Rental Bubble – And Why Buying Might be Better

March 30th, 2012   by lisasheppard

If you think buying a home can be tough, try renting in the Bay Area. Double-digit cost increases, not enough inventory, bidding wars, and sky-high rents have contributed to make us the least affordable rental market in the country. And just wait until the Facebook IPO, when newly minted millionaires (and new Gen Y hires) will all need a place to live.

Believe it or not, buying a home in the Bay Area can beat renting – mortgage rates are still at rock-bottom and housing prices are not yet accelerating out of reach. Learn more at the Pacific Union blog:

If you’d like to get out of the rental race or just want to talk about the housing market in general, give me a call or drop me a line.

Short Sale Stats

March 30th, 2012   by lisasheppard

More Affordable To Buy in 98% of Major Metros

March 27th, 2012   by lisasheppard

Last week, Trulia released their Winter 2012 Rent vs. Buy Index. In the index, they report that:

“After years of home price declines and tightening rental markets, home ownership is now more affordable than renting in all but two of the 100 largest metros – even in expensive real estate markets such as New York, Los Angeles and Boston.”

The two metros where renting was more affordable were Honolulu and San Francisco. However, Trulia explains that, even in these markets, buying a home:

“…might make sense for people who plan to stay in their next home for at least five years and can benefit from the mortgage-interest tax deduction.”

This rent/buy ratio favors buying more so then at almost any time in history. In a recent article, Forbes Magazine quotes Jed Kolko, Trulia’s chief economist:

“Certainly prices have continued to fall nationally, but rents have been rising so this would be the lowest price-to-rent ratio that we’ve seen.”

Bottom Line

It might be time to talk to a local real estate professional about the possibility that buying a home makes sense for you and family.

First Time Buyers: The Stats

March 23rd, 2012   by lisasheppard

Lessons From the Goldman Sachs Letter

March 22nd, 2012   by lisasheppard

Last week, the news world and social media were buzzing about a very public resignation in the form of a New York Times opinion piece written by Greg Smith, formerly of Goldman Sachs.

This week, Howard Schultz, CEO of Starbucks, addressed his company’s annual meeting and shared the importance of culture and values for a vibrant, sustainable business.

Both events prompted our leadership team to reflect on our values at Pacific Union International. And I’m happy to say the conclusion is we’re on the right track, with a strong culture of client service, teamwork, integrity, and innovation.

Read more about our philosophy and values on the Pacific Union blog:

I’m proud to be affiliated with Pacific Union – and I thank you for your continued support and commitment to our company.

Spring Has Sprung

March 22nd, 2012   by lisasheppard

Here comes Spring, historically the time of year when buyers awake from the winter slumber of the holidays and snowfall, and go on their pilgrimage to look for new housing. Houses look better in Spring with green grass, blooming trees, and flowers.

Plus, buyers who find a home in the next 60 days can close after the school year ends and enjoy the summer months in their new backyards. It’s almost a rite of passage; baseball teams go to spring training, buyers go look at homes, and the birds fly back north.

But this Spring is different than those of recent memory…

  • § Because of the warm weather we experienced here in the Northeast for most of this past winter buyers have been out for months – making offers and buying homes.
  • § Many sellers have finally come to understand that they need to have a compelling price on their home to attract buyers. The days of listing your home and negotiating down are over because there are homes on the market already priced correctly, and those are the homes that buyers are going to. The overpriced inventory doesn’t even get their chance to negotiate down.
  • § Rates have ticked up as economic news (like unemployment numbers) has improved. That, coupled with rising mortgage insurance premiums and guarantee fees, seems to have given some sense of urgency to buyers.
  • § The looming shadow inventory, which most certainly will keep downward pressure on home prices (when added to easier short sale approvals), has tended to encourage home sellers to be more realistic in their expectations.
  • § The abundance of information available to consumers has further increased their need for sound advice from top-notch real estate and mortgage professionals. The cream is certainly rising to the top in those professions.

Low interest rates, a tremendous selection to choose from, and the seasonality of it all makes for an exciting next 60-90 days. My advice to anyone looking to buy or sell is that waiting to be aggressive could be a fatal mistake if you hope to find the best deal. From my experience, the best deals come when more people are competing for them…and that time is NOW!

Rents Rising as Rental Availability Shrinks

March 21st, 2012   by lisasheppard

Because of the challenges in the current economy, many families have either decided to rent or been forced to rent. How has this impacted rental options and the cost of the available options?

HousingWire recently quoted Paul Dales, senior economist with Capital Economics:

“As a consequence of Americans being less willing and less able to buy a home, the number of households in rented accommodation is set to rise by at least 850,000 a year over the next few years.”

The price of anything is determined by supply and demand. As demand increases, the price of an item will increase unless there is an equal increase in supply. The article mentioned above said:

“Dales said in his research that rental vacancy rates will fall again in the future, pushing prices up. The median rent is already up to $712 per month—well above the average monthly mortgage cost of $647, Dales reported.

He estimates vacancies in the home-rental market will push average rental rates up as much as 5% by early 2013.”

How many markets will be impacted? A new rent index offered by Zillow:

“…showed year-over-year gains for 69.2 percent of metropolitan areas covered.”

Bottom Line

Rents are increasing and will continue to do so for the foreseeable future. In many parts of the country, buying a home might make more sense as you can lock in your housing expense for the next thirty years.

Even a 14-Year-Old Knows It’s Time to Buy

March 20th, 2012   by lisasheppard


Willow Tufano is a 14 year old who lives in Florida. One thing that differentiates her from her friends is that she just bought her first house, a rental property. She bought it with her mother, but anted up her fair share with money she saved for over a year by selling free items she had previously found and fixed up.

The area was hard hit by the housing crisis and Willow and her mother were able to buy the home which was once valued at $100,000 for just $12,000. Why would a 14 year old even consider buying a property?

She is using her half of the rent they charge ($700) to pay back her mom for the second half of the house and the renovations they put into the house. Willow says she’ll have it all paid off in six years. Then she’ll keep the house as a source of income.

“It was definitely a lot of inspiration from my mom and my grandma,” Tufano said. Her mom is a successful real estate agent who owns several investment properties.

March Madness for Real Estate and Mortgages

March 15th, 2012   by lisasheppard

It’s the time of year when the so-called experts tell you how to fill out your brackets for college basketball. The frenzy has been coined March Madness. Well, in the mortgage industry, we are seeing a frenzy of headlines, offers of so-called expert advice, and an unusually high level of buzz around real estate and mortgages. Here are some of the things I keep hearing…

  • § “The bank bailout settlement is going to allow all the shadow inventory to come to market at lower prices, which is going to drive home prices even lower.” Likely true. How much and how fast prices fall will be determined by the speed at which lenders proceed with the foreclosures.
  • § “The bank bailout settlement means people will get large principal reductions in their loans, if they are underwater.” Some will, most won’t. In its settlement, Bank of America will exclude loans owned by FannieMae/FreddieMac. This agreement will probably be mirrored by others, and therefore, won’t help a good portion of the population.
  • § “The government has finally helped the homeowner who is underwater yet still maintained a good payment history.” Semi-true. If you have an FHA loan closed prior to June 2009, you are able to do a streamline IF rates make sense in June (too soon to tell). If you closed after June 2009, no such luck. On the conventional front, HARP 2.0 may offer some help to those who have had their loan held by FannieMae/FreddieMac as long as there was no private mortgage insurance. Not exactly all inclusive – but applaudable.
  • § “You need to put 20% down to get a mortgage these days.” I hear this crazy notion from people far too often. Besides the FHA insuring loans with as little as 3.5% down (on loans up to $729,250 in high cost areas), people often forget that veterans can still finance 100% of the purchase price, and that Private Mortgage Insurance Companies are still insuring loans with 5-10% down.
  • § “Costs associated with loans are going up.” Most definitely. The hike in the guarantee fees has already caused a 3/8 – 1/2 increase in conventional loans and will raise FHA loans by 10 basis points in April. The FHA is also changing its premium structure to increase the cost of the mortgage—regardless of where rates themselves are headed.
  • § “Rates will stay low through 2014.” While every indication from Ben Bernacke & friends is consistent in their rhetoric that rates will stay low, we have already seen some significant swings in rates based on market conditions (unemployment numbers, problems in Greece, and so on). Rates will likely stay low, but getting the best rate will still require staying on top of everything.

Amongst the whirlwind of sound bites and headlines, there is some good news about real estate and mortgages. Never as rosy as it may sound, there is relief and opportunity for many  if you can sort through the hyperbole and consult with a true professional to make sure you have all the facts.

Federal plan to make short sales shorter

March 14th, 2012   by lisasheppard

For home sellers, buyers and real estate brokers hoping for breakthroughs on simplifying short-sale transaction and timelines, this may not be the proverbial silver bullet, but it’s definitely positive news: The agency that controls Fannie Mae and Freddie Mac has a serious effort under way to remove or minimize some of the major hurdles and to put those changes in the field as soon as this fall.

Officials at the Federal Housing Finance Agency — the folks who now make the rules governing millions of mortgage transactions at both companies — told me last week that they are actively seeking input from lenders, servicers, Realtors, investors and housing counselors about how to speed up short sales on loans connected with Fannie and Freddie.

National Association of Realtors officials, who have already met with the agency’s special short-sale task force, confirm that the effort is for real and promise potentially significant reforms. FHFA officials say their deadline to wrap up their review of short-sale obstacles is June 30, and they plan to announce detailed improvements to the process no later than Sept. 30.

Given the sheer size of the companies’ portfolios — plus the estimated 1.7 million additional loans expected on the foreclosure conveyor belt at Fannie and Freddie in the coming several years — any substantive improvements could have wide-ranging benefits for everybody involved.

What’s the agency looking at?

High on the list:

1. Second liens. Banks that hold second mortgages and equity credit lines on underwater houses often drag out the short-sale process by refusing to recognize hard economic realities: The collateral that once secured their loan no longer exists.

They stand to be zeroed out in the event of either a foreclosure or short sale, and they will have to report that loss to auditors, investors and regulators. As a result, they dither and delay deals by demanding too much for their consent to sale terms, or they simply hold out until buyers give up and the transaction collapses.

FHFA officials leading the short-sale reform effort believe that Fannie and Freddie have sufficient pressure points on banks that they can bring to bear — mainly related to servicing rules and penalties — but they decline to discuss what they might entail. For their part, servicing experts in the private sector say better standardized rules between the two companies on second liens in short sales, plus fixed ceilings on what banks can expect out of transactions in advance, could reduce much of the current friction.

Travis Hamel Olsen, chief operating officer of Loan Resolution Corp., a Scottsdale, Ariz.-based firm that assists major lenders in troubled mortgage workouts, says FHFA should enforce a non-negotiable 10 percent ceiling on what second lien holders can obtain from short sales.

That is higher than the 6 percent or $6,000 ceiling allowable under the federal government’s HAFA (Home Affordable Foreclosure Alternatives) ceiling, but attractive enough to bring most major banks who deal with Fannie and Freddie to the table faster.

2. Mortgage insurers. The FHFA task force expects to come up with rules that eliminate or reduce mortgage insurance companies’ current ability to prolong negotiations indefinitely over claims in short sales, and thus contribute to the breakdown of transactions.

3. Mandatory timelines. Though FHFA is nowhere close to deciding on hard and fast timelines for participants to meet in short sales involving Fannie and Freddie, they are a top priority in the current effort. Six months from start to finish “is way too long,” said one official, who declined to suggest what would be a more acceptable limit.

Legislation pending in Congress and supported by NAR (House bill H.R. 1498) would nail down one key time segment — it would require servicers to respond within 45 days to any fully executed short-sale offer.

4. Valuation issues. FHFA expects to produce better guidance on the steps servicers and other participants in short sales should follow to arrive at acceptable property valuations. That, in turn, should help limit negotiations over what lenders and buyers expect from transactions and the methodologies used to get to the final numbers.

In its recent meeting with FHFA officials, NAR pushed hard for Fannie and Freddie to tell brokers and other interested parties early in the process what minimum price they will accept in any given short sale.

5. Staffing. Though the biggest banks and servicers have muscled up their loss-modification and foreclosure alternatives staffing since the start of the mortgage bust, FHFA believes that greater responsiveness to short-sale participants — sellers, buyers, realty agents — is needed. Since both Fannie and Freddie have “servicer performance evaluation” standards, FHFA has a variety of administrative carrots and sticks available to prod lenders and servicers to push through short sales faster.

So what does this all add up to? Just another bureaucratic exercise? Or could FHFA’s new push for short-sale efficiency really mean something on the front lines? My guess is that it just might. FHFA, which is tasked to “conserve” Fannie’s and Freddie’s assets and achieve the best possible financial resolutions of their troubled loan portfolios in the taxpayers’ interest, appears to be genuinely seeking to cut timelines and red tape in short sales. They also know the hard facts: Short sales yield Fannie, Freddie and investors much more at the bottom line — they cost taxpayers a lot less on average — than foreclosures.

Remember these deadline dates — June 30 and Sept. 30. We’ll check back and see how much actual streamlining comes out of the FHFA’s latest high-priority project.