MONEY home prices

Why You Should Be House Hunting for Foreclosures Right Now

140529_REA_ForeclosureDeals_1
Tetra Images—Alamy

If you bought a foreclosure a year ago you probably overpaid. Good news: The discounts are back.

Last year, if you went shopping for a bargain foreclosed home, chances are you were thwarted by investors – some of them Wall Street-backed firms with massive bank accounts – thrusting wads of cash at every decent under-$200,000 home in sight.

And, in fact, investors were buying up so many homes, so fast, they pushed prices of foreclosures past what they were worth, according to new data from RealtyTrac. For three months last summer, the average foreclosure sold at a premium to its market value.

Well, looks like it’s safe to go shopping again. As investors have pulled back on their buying, discounts on bank-owned homes have drifted up again this year to 7% in March, RealtyTrac says.

Foreclosure Discounts
Source: RealtyTrac.

That’s good news for buyers willing to put in the effort on some renovations in exchange for a deal. After all, that’s the whole point of buying a foreclosure. Sure, it often needs work – maybe even a lot of work if it’s one of those “anger management” homes exited by a bank-hating owner – but if the subsequent gain in home value exceeds the cost of improvements you’ve just set yourself up for a nice profit whenever you sell.

Back in 2011, those discounts got as high as 15% (this is for bank-owned property listed on the open market, not foreclosures sold at courthouse auctions – those discounts are much steeper). Such values lured investors onto the scene seeking to tap increased rental demand.

Over the last year, institutional investors (defined generally as investors buying 10 or more properties) have cut back, though not in all markets. They’ve generally shifted out of boom-bust hotspots like Phoenix and southern California into more stable areas in the Midwest and South.

So too, the discounts vary by city. The best deals tend to be found in places where the number of foreclosures remain relatively high and economies are struggling—Ohio, for example, and Rochester, N.Y. and Scranton, Pa. But they’re pretty juicy in some large metropolitan areas too, like 11% in Chicago, according to RealtyTrac data.

City Discount
New York City 10%
Los Angeles 2%
Chicago 11%
Philadelphia 10%
Houston 21%
Washington, D.C. 2%
Miami/Ft. Lauderdale 5%
Atlanta 9%
San Francisco/Oakland 2%
Detroit 18%
Riverside, Calif. 4%
Phoenix 5%
Seattle 8%
Minneapolis 7%
San Diego 3%
St. Louis 21%

The trend toward bigger discounts, notes Chris Clothier, co-owner of Memphis Invest, may reflect the quality of the foreclosures now on the market: The more renovation they require, the higher discount they need to offer to attract buyers.

Plus, he says, more banks are making repairs themselves before putting them on the market. Such nicer properties might not even be listed officially as foreclosures and therefore wouldn’t show up in the numbers, Clothier says. “They’d rather fix them up and sell them at a higher price than take the steep discount,” he says. “You might be buying a foreclosure and you don’t know it.”

It’s certainly true that the number of foreclosures on the market has declined significantly, to 9.2% of sales in April, according to RealtyTrac, though it really does depend on the area. Take California, says vice president Daren Blomquist. Foreclosures are way down in hot markets like San Diego and Los Angeles, but in inland California cities (Modesto and Stockton) the percentage of sales that are bank-owned top 20%.

“Distressed property may be more rare, but you’re also buying in a housing market that’s improving and growing,” so it’s not as risky, Blomquist says. “Arguably the best time to buy a distressed property is in a market more like the one we’re entering right now.”

More from Money: When Wall Street Becomes a Landlord

 

MONEY buying a home

Buyers Guide: How to Beat the Competition in a Hot Housing Market

Buying a home in a city where homes go fast? These strategies will help you win the bidding war.

The average home spent 86 days on the market in April, according to Realtor.com. But that’s downright luxurious compared to areas like Denver, for example, where the average house sold in just 25 days. In these cities, bidding wars are the rule: Tyler McKenzie of the Seattle-King County Association of Realtors, says one Seattle home spent a mere week on the market and received over 40 offers.

More: 12 CitiesWhere Homes Are Flying Off the Market

How can buyers compete? These tips will help your offer come out on top.

Be prepared to move fast

When houses are selling fast, you’ve got to be faster than rival buyers. “No buyer can succeed if they don’t pull out all the stops,” says McKenzie.

Do your research ahead of time to hone in on exactly what you’re looking for. Paula Swayne, president of the Sacramento Association of Realtors, says buyers should check out houses in their target neighborhood four-to-six months in advance.

Hire a realtor with local expertise who can prepare you for what homes will cost. That way, when you do find that dream home, you’ll feel comfortable making an offer that will be taken seriously.

More: How to Choose A Real Estate Agent

When you’re ready to house hunt in earnest, don’t just rely on general searches of listings sites like Trulia and Zillow. Ask your agent to put you on an email list so you’re notified as soon as houses hit the market.

Have your finances in order

Unless you’re paying cash, you’ll need to demonstrate to the seller that you’ll be able to seal financing and close on time. Get pre-approved—not pre-qualified—for a mortgage in advance. In Denver, “pre-qualification is not worth the paper it’s written on,” says Denver Metro Association of Realtors’s Anthony Rael.

Even the type of mortgage may affect seller perceptions. A low-down-payment FHA loan, for example, may lead sellers to assume the buyer has less-than-excellent credit and may not be able to close when the time comes, says Ruby Grynberg, founder of Salmon Bay Community Lending.

Have all your paperwork in order, and be ready to document the funds you’ll use for your down payment.

Don’t pussyfoot around

If you’re financially ready to buy, waiting around won’t do you much good. There’s no “gem under the rock,” McKenzie says. Not only do you risk prices going higher, but interest rates as well.

Byron Bogaard, CEO of the Central Valley Association of Realtors in northern California, recommends researching pricing trends in your market (ask your agent and check the Data page of Realtor.com) to help you gauge how quickly you need to move.

Then, once you find a home you love, you must put in an offer immediately. Talk negotiating strategy with your agent ahead of time. In the case of multiple bids, where homes are going for above the asking price, you might consider what’s called an “escalation clause” that automatically tops any other offers by $1,000. Just be sure to set a cap to ensure your bid doesn’t go above your comfort zone, says Don Frommeyer, president of the National Association of Mortgage Brokers.

Make the seller’s life easy

You don’t have to pay cash or even offer the highest price to win the deal. Be an easy customer. Show the buyer you’re serious by scheduling a home inspection immediately, no later than a week after agreeing on a price, Rael says.

Offer to rent the house back to the seller once you own it. Brendon Desimone, consumer blogger for Zillow.com, says sellers often need the proceeds from their home sale to buy a new one but don’t want to move twice. Giving them the option to rent for a month or three while they search for a new house might give you an edge.

Pay your seller’s closing fees. If there’s a bidding war, offering to take care of closing fees (not the agent’s commission, which can run as high as 7% of the sale price) may satisfy the seller more than increasing your bid, Swayne says.

“Seller’s closing costs aren’t that much,” says Swayne, and covering that expense “makes the seller feel really good.”

More: What closing costs do sellers pay?

Write a letter to the seller

It might sound corny, but tugging on the seller’s heartstrings can win the day. Swayne advises clients to send a letter to the seller, along with a group photo, explaining how owning the house would affect their lives.

In one case, a buyer wrote that they could picture their young daughter, all grownup, walking down the home’s staircase in her prom dress. It worked. Not only did that family get the house, but Swayne says the seller even accepted a lower offer.

A personal letter increased an offer’s chances of success by 9% in 2013, says Redfin.

MONEY real estate

Retiring? Stay or Go, You’ve Got Moves to Make

Housing accounts for the biggest part of your costs in retirement. So spend wisely.

Once you start looking at retirement over a horizon of five years or so, it’s time to start thinking about how you’ll manage your biggest single asset: your home.Whether you intend to stay put or move to that lake cottage, keeping real estate costs under control is key to your security.

Those costs may be larger than you think. On average, housing makes up one-third of spending for those ages 54 to 74—the largest single category. More than half of Americans ages 55 to 64 are carrying mortgages, higher than in previous generations. “Paying mortgage debt into retirement reduces your lifetime wealth and limits your spending,” says Pam Villarreal, a senior fellow at the National Center for Policy Analysis.

Staying in your house, with your mortgage paid, doesn’t free you from making decisions. Few pre-­retirees think about adapting their homes for retirement living. “It’s hard for active people in their fifties or sixties to think about what they might want 15 years from now,” says Bonnie Sewell, a financial adviser in Leesburg, Va.  Should you end up not being able to get around easily, though, you’ll have fewer choices and less ability to make them. So take action now:

Moving? Don’t take your mortgage with you. Nearly 30% of boomers plan to relocate when they retire, according to a new AARP survey. Many of them are seeking to cut costs by moving to a lower-tax state. Carry a mortgage, however, and this strategy may not have a big impact on your cash flow, as a recent analysis by Villarreal found. Mortgage debt can easily erode the benefits of lower taxes. Run your own numbers at whynotmove.org.

Cash flow

Sure, if you’ve got plenty of cash, mortgage payments may not seem like an issue. But there’s security, and flexibility, in not carrying debt. “Many of my clients see having no mortgage payments as a way of freeing up cash for future health care costs,” says Philadelphia financial planner Cathy Seeber.

If you plan to stay, renovate now. By your late fifties, your kids are probably out of the house, and the tuition bills are behind you—or nearly so. Time to renovate? Use this opportunity to make a few additional changes that will let you stay in your home for the next couple of decades. “The last thing you want to do in your seventies or eighties is manage a major rehab in an emergency,” says Sewell.

If you have a house with stairs, make sure you can live on one floor if necessary, says Mary Jo Peterson, a design consultant in Brookfield, Conn.  That may mean expanding a powder room to a full bath. You can also add design touches that appeal to people of all ages—a sloped ­entrance-walk instead of steps is more convenient for moms with strollers and college students dragging suitcases, not just the elderly. Find more ideas at aarp.org/­livable-communities, and your family home can last for generations.

 

MONEY buying a home

Homes You Can Buy For $250,000 in … Portland, Nashville and Philadelphia

If your home shopping budget is around $250,000, here are some choice examples of what you’ll get for your money in three very different cities. Listings from Realtor.com.

MONEY buying a home

Did a Heartfelt Letter to the Seller Land You a Home (or Fall Flat)? Let Us Know!

Were you competing to buy a house, and wrote a letter to the seller to persuade them to pick your offer? MONEY wants to hear about it.

For a new project, MONEY is looking for people who tried to win a bidding war or multiple offer situation (and maybe saved money in the process) by telling the seller something about themselves and connecting on a personal level.

Whether your letter scored you the property or wasn’t enough to win over the seller, we’d love to speak with you. If you’d like to participate, email realestate@moneymail.com with your story and the letter you wrote (if you still have it).

We won’t use your story unless we speak with you first.

MONEY

30-year Mortgage Rates Flat This Week

Average mortgage rates edged up a hair to 4.14% with an average 0.5 points from last week’s 4.12%, according to Freddie Mac data. That’s up from 3.91% a year ago.

Related: Which Mortgage is Right for Me?

The rate on the average 15-year mortgage was 3.23% with 0.5 points, up from 3.03% a year ago. For adjustable-rate mortgages, the rate on a five-year ARM averaged 2.93% this week with a 0.4 point and a one-year ARM averaged 2.40% with a 0.4 point.

MortgageRates060514
Source: Freddie Mac survey.

 

 

MONEY Housing Market

The Most Underwater Homes — That Aren’t in CA, FL, AZ or NV

It's not just the states hit hardest by the housing bust where homes are underwater, though it may seem that way from the stats.

It’s no surprise that lots of homeowners in the states hit hardest by the collapse of housing prices – California, Florida, Arizona and Nevada – don’t yet have enough equity to pay off their mortgage. That’s despite the healthy increase in home prices.

See our story: Where Are the Most Underwater Homes

Nine of the top 10 most underwater cities (using the largest 170 metros) are in Florida, with Las Vegas rounding it out, according to research firm CoreLogic. Finally, we get to Flint, Mich.

So, here, just to mix it up a bit, we give you the most underwater cities that are NOT in what’s known among real estate geeks as CANFLAZ:

City % Underwater
Flint, Mich. 27.5%
Detroit 26.9%
Elgin, Ill. 24.4%
Toledo 24.1%
Cleveland 23.9%
Chicago 22.4%
Memphis 21.2%
Akron 21.2%
Cincinnati 20.8%
Lansing, Mich. 20.3%
Atlantic City 20.3%
Dayton 20.1%
Atlanta 19.5%
Lake County, Ill. 19.3%
Savannah 19.2%

Source: CoreLogic

MONEY Housing Market

Where Are The Most Underwater Homes? These 13 Cities

Fremont Street, Downtown Las Vegas
In Las Vegas, 32% of homes are underwater. Sounds bad, but a year ago the figure was 47%. Brian Jones—Las Vegas News Bureau

Homes without enough equity to pay off the mortgage continue to plague the market, especially in the cities hit hard by the bust (basically, anywhere in Florida). The good news: There's way fewer of them than a year ago.

Home prices rose enough to put another 300,000 homes above water in the first quarter, according to CoreLogic. Over the last year, in fact, prices have bounced back enough to put a significant dent in the percentage of homeowners who don’t have enough home equity to pay off their mortgages.

As of March 30, 12.7% of all homes with a mortgage were upside down, compared with 20% a year ago.

And if prices rise just another 5%, as the research firm predicts, a year from now that share of underwater homes will be closer to 10%.

Still, the financial stability of American homeowners remains stubbornly fragile, reflecting just how painful the housing crash was. In addition to the roughly 6.3 million homes in negative equity, an additional 10 million have less than 20% equity.

Homeowners in that “under-equitied” position are less equipped to sell or refinance, because of lender requirements. Homeowners looking to trade up, for example, often need the proceeds from the sale of their current home to make a 20% down payment on a new one. A 20% down payment not only secures the best interest rates, it eliminates the need for costly mortgage insurance.

Money 101: What Mortgage is Right For Me?

The depth of the underwater problem hurts potential buyers too, by keeping homes off the market amid general overall shortages of listings. First-timers are particularly impacted, because far more lower-priced homes are underwater than higher-end, according to Zillow research.

More: Why Underwater Homes are a First-Time Buyers’ Enemy No. 1

Where the water is deepest shouldn’t surprise: Nevada has the highest share of underwater properties (29.4%) followed by Florida (26.9%). After that comes Mississippi, Arizona and Illinois. Of the 25 largest regions, Tampa had the highest share at 29.5%. Still, that’s a nice improvement from 41% a year ago.

When looking at the largest 170, fellow Florida city Ocala takes the top spot with a remarkable 34.4% of homes in negative equity followed by Lakeland, Fla. (32.7%) and Las Vegas (31.8%).

The list below represents the highest percentage of underwater homes in cities with at least 200,000 mortgaged properties, according to CoreLogic.

UnderwaterCities
Source: CoreLogic
MONEY Rentals

How Your Home Can Bring In Some Cash This Summer

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In addition to beach and ski destinations, homes in rugged outdoor spots do well as vacation rentals, says HomeAway. Spaces Images—Getty Images/Blend Images RM

Ever considered turning your home into a vacation rental? Here's how to make your house pay for your time away. Plus:

AAA predicts this summer will be the strongest travel season in years, and all those vacationers will need a place to stay. Should your home (or second home) be one of them?

Turning your home into a short-term vacation rental could bring in some nice extra change to pay for your own vacation, or even help you pay off that second home: Rates on rental site HomeAway.com average $217 a night.

Before you decide, ask yourself these four questions:

Do people want to come to your city?

Certainly you’ll have the best luck if your home is in, or at least near, a top travel destination. Most of the cities seeing the biggest increases in traveler inquiries, according to HomeAway, are on the beach – places like Mexico Beach, FL and Lavallette, NJ.

No sand in sight near your home? The most important thing is being near your area’s main attractions, whatever those may be, says Jan Leasure, founder of Monterey Bay Property Management. You’ll just have to charge accordingly.

So, how much CAN I make?

Your price depends on the location, of course, and your home’s size and amenities. Search comparable listings on HomeAway and similar sites to determine how much you might fetch.

Then, expenses. There’s marketing: HomeAway and VRBO charge renters 10% of each booking or a flat annual fee of $349 to $999 (the more you pay, the higher your listing will rank in search results). FlipKey and Airbnb, which offer fewer services, charge 3% per booking.

You’ll also need to hire a housekeeper to clean up after guests. HomeAway suggests ballparking each session at $20 for each bedroom and bathroom.

The biggest cost may be your time: An average nine hours a week, according to a HomeAway survey. You may prefer to pay a property manager to help with booking and maintenance. These businesses generally charge anywhere from 10% to 50% of your nightly rate depending on the level of service they provide.

And don’t forget taxes. If you rent your home for two weeks or less, you won’t owe the government a cent. Longer, and you have to pony up the taxes — but you’ll be able to deduct certain expenses. How much you can deduct will depend on how often you stay there yourself. Learn the IRS rules. You also may have to pay local tourist taxes.

Is it legal?

Your county or city may not allow short-term rentals at all (New York City largely prohibits leasing property for fewer than 30 days) or might have specific requirements such as registration and tax collection. Even if the law allows it, your individual homeowners or condo association may not.

Check the rules with your zoning department and your association board. Ideally, consult a local real estate lawyer.

HomeAway offers a helpful guide. Other good resources are at Realtor.com and the Short Term Rental Advocacy Center.

How do I protect my home?

If you’ve decided you do want to try this, guard against vacationers trashing your place with a strong rental agreement, insurance and a security deposit. The security deposit— a few hundred to a few thousand dollars depending on the value of your home and length of stay—may save you the trouble of making an insurance claim if a rowdy vacationer acts up.

HomeAway offers a sample rental agreement. Consult a lawyer to ensure it complies with local laws and to lessen the chances you’ll be on the hook for any damage your guests cause.

A good agreement should cover liability for any necessary repairs or cleaning charges following your guest’s stay, rules on smoking and pets, and a liability waiver for pools and other hazards. Miami real estate lawyer Ben Solomon also suggests adding an occupancy limit so that nice young man doesn’t bring his entire fraternity along with him.

As for insurance, call your home’s insurer to let them know you’ll be renting out your home. Most insurance are “fairly accommodating” to occasional renters, says Jeanne Salvatore of trade group Insurance Information Institute. Make sure you’ve maxed out liability coverage on your homeowner’s policy, which offers protection in case of, for example, a guest’s injury. Consider an additional umbrella liability policy of at least $1 million, says Maryland real estate lawyer Harvey S. Jacobs.

 

MONEY buying a home

13 Rules for First-Time Home Buyers

Man and woman embracing in front of house with sold sign
Man and woman embracing in front of house with sold sign Paul Bradbury—Getty Images/OJO Images

Millenials stepping into the home buying arena for the first time grew up in an era of boom-and-bust, insane home price escalation and subprime lending. Here are today's new rules to follow.

Having witnessed the housing market’s wild ups and downs, Millennials may be wondering what new rules apply in this evolving real estate realm. Luckily, the ‘new rules’ can be discovered in the same tried-and-true traditional rules of home buying that were overlooked in years past.

Here are 13 rules for Millennials looking to buy (while avoiding a housing bubble burst):

  1. If you can’t afford it, don’t buy it.
  2. Don’t jump into a home purchase blindly. Do your research, learn about the area, get advice from others, and study all the available data.
  3. No more creative financing: buy properties with traditional 30- or 15-year fixed loans – and know what your mortgage payment will be each month for the entire mortgage term.
  4. Always put 20% down.
  5. Whatever the bank says you can afford, subtract 20%, and you’ll never be house poor.
  6. You’re not just buying a house, you’re buying a neighborhood.
  7. It’s harder to get a mortgage because qualifications are more stringent these days. Keep great financial records, and be patient throughout the process.
  8. Don’t expect the market to bail you out. That means no overpaying for a house you can’t really afford in hopes of market appreciation making up the difference.
  9. Less is more. A smaller, practical, easy-to-maintain house is the new, big, rambling mansion.
  10. Stay on top of your credit, and shoot for an excellent score (above 750).
  11. Plan to stay in your home at least 5 years. Think you’ll need to sell before then? Keep renting until you know you can stay put for a while.
  12. Budget for all the ongoing costs of home ownership – not just the monthly mortgage payment. Be sure you have the funds for property taxes, insurance, maintenance, upkeep, and even an emergency repair fund.
  13. If you are questioning your job security and your ability to get a new job quickly in the event of a layoff – don’t buy yet.

To a generation who saw risking everything and buying homes with zero down as the norm, these rules may seem new. But, as they say, everything that’s old eventually becomes new again. In this new era, Millennials simply need to look back to get ahead and buy safely, sanely, and securely in the current housing market.

More from Trulia:
9 Things to Look For When Touring An Open House
The Pros and Cons of Buying a Newly Built Home
The 10 Most Costly Home Selling Mistakes – & How To Avoid Them

Michael Corbett is Trulia‘s real estate and lifestyle expert. He hosts NBC’s EXTRA’s Mansions and Millionaires and has authored three books on real estate, including Before You Buy!

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