Montague, Miller and Company Blog

According to my basic research, which is flawed from the start, given lack of assignment from foreclosed individual owner to lender in the Albemarle courthouse, there are 14 bank owned properties and 25 Fannie or Freddie (GSE = Government Sponsored Entities) owned properties.  (One on-line tool indicated 41 total active foreclosures in Albemarle County, though the author can not validate that number.) The sample included fourteen major and mid-sized mortgage lenders.  HUD owned homes appear to be still listed in the previous homeowner’s name, as do many of the bank or GSE-owned homes, so understanding how large the population base is very hard to determine. 

We can extrapolate to some degree but without any statistical accuracy from Fannie & Freddie’s on-line listings:  Fannie publishes properties available through HomePath.com, which offers incentive loan programs.  Currently, there are nine listings appearing in Albemarle County, but only six of those are shown on the property records as Fannie Mae.  Freddie also publishes their properties on HomeSteps.com and of the four listed, one was not shown on the records as Freddie owned.  So, is it 25%-33% of the market more than on the rolls?  Who knows.  Further, since we know there are an additional 16 properties not listed on MLS, HomePath or HomeSteps, we know that this is “shadow inventory,” that is a REO that hasn’t make it back onto the MLS. 

Surely, the MLS would help.  No, a quick check that a Realtor provided for me listed one Active listing for “Fannie” and none for “Federal”.  In fact, the vast majority of the REOs in Albemarle County do not show up on the public side of the MLS as active listings.  This could mean they are under contract, but most likely it means they are shadow inventory.  Add in the individuals already foreclosed upon, but assignments have not occurred in the tax records and that number jumps. 

What’s the takeaway?  We don’t have a good handle on REOs, but it would appear from anecdotal evidence that home sellers – both distressed and not – are pricing properly, perhaps with a view to the shadow inventory that lurks and the Spring market is starting earlier than usual.

This past Tuesday marked the culmination of a six year planning process as representatives from the City of Charlottesville, Albemarle County, and the Rivanna Water and Sewer Authority met to approve the new Community Water Supply Plan.   The plan is intended to provide for the Charlottesville area’s water supply needs for the next 50 years.  The first order of business is the construction of a new earthen dam at the Ragged Mountain Reservoir, which is supposed to begin this spring.

The process of arriving at this agreement between the 3 entities has not been without its challenges and bumps in the road.  Congratulations to Montague, Miller’s own Mike Gaffney who, as chair of the RWSA Board, has played an integral role in shepherding this plan to completion.

The KCM Crew Blog posted the following positive article today . I don’t know about you, but I like it!

There is a growing belief among many experts that 2012 will be the year housing turns the corner and starts heading in a more positive direction. Whenever we write a post like this, we unleash the hordes of critics who say we are again wearing rose colored glasses or are puppets being controlled by the National Association of Realtors (NAR) and other industry groups.

It is for that reason we will not be covering the projections of those groups. Instead, we want to share the beliefs of other organizations.

Washington Post:
“Housing Market and Economy Showing Encouraging Signs.”

The Wall Street Journal:
“From Bottom Up, Signs of Housing Recovery”

USA Today:
“Housing Outlook is More Upbeat”

CoreLogic:
“CoreLogic’s chief economist Mark Fleming says housing statistics and the duration of the downturn to date indicate 2012 may be the year the housing market begins to turn the corner.”

Freddie Mac:
“With the New Year comes a sense of cautious optimism. There are some positive signs in the job market and consumer confidence; housing is starting to raise hopes for continued gradual economic recovery.”

Fannie Mae:
“The housing sector will likely take incremental steps forward in 2012 …according to economists at Fannie Mae.”

It seems appropriate to share the information in this article as we have found that Matt Hodges and his team at Presidential Mortgage exceed all the parameters described here. 

Carol Clarke, President
Montague, Miller & Co

What Value Does Your Loan Officer Add?

For the longest time, I have listened to other loan officers talk about why people should do business with them; and 95% of the time their presentations boil down to three things – price, product, and service. On the pricing front, they talk about low interest rates and/or closing costs; on the product side, they position themselves as experts in a particular loan program (like a 203K or reverse mortgage); and on the service side, they discuss turnaround time or how available they are…

Read more: http://www.kcmblog.com/2012/01/19/what-value-does-your-loan-officer-add

by Dean Hartman for KCMblog

Here is a great article called Five Good Reasons to Buy a Home which appeared on the Zing site and was shared on Linkedin. 

Chart reprinted from Steve Harney- Keeping Current

It seems Home Ownership is back in style.  With some of us, it never was out of style. 

Reason #1 -Prices may begin to move up.

Reason #2 – Tax deductions:  Interest and property taxes are still fully deductible for residence and vacation homes.

Reason #3 – You can exclude some amount of the gain on sale.

Reason #4 – Equity Builder- Chart reprinted from Steve Harney- Keeping Current Matters

You don’t really need all 5 of these  reasons, do you?  What are your reasons?

Today I ran across an article about that age-old topic of Rent vs. Buy. This article by Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research, points out that there are several factors attributing to the findings that owning is a better wealth-accumulator than renting.

Several real estate economists have shown that the average homeowner accumulates more overall wealth than the average renter.[i] However, it is not clear how this is done. Is it that owned property usually appreciates at such a rate that, after considering leverage, returns to ownership are extraordinarily high? Said another way, might homeowners accumulate more overall wealth because ownership is a great levered equity creator through property appreciation? Or, is it that owners acquire greater wealth, on average, because they are systematically paying down a mortgage thereby creating equity thanks to loan amortization? In other words, paying off property creates wealth.

In ongoing research being conducted by Beracha and Johnson,[ii] these and other questions concerning homeownership and the accumulation of wealth are being investigated. In earlier research, Beracha and Johnson show that renting is the superior investment strategy; however, in this earlier strict horserace between buying and renting, a very bold assumption is made. Specifically, it is assumed that any rent savings (from lower rent versus mortgage payments) are reinvested without fail. Thereby, after balancing all of the costs and benefits from ownership and comparing them to renters’ portfolios from reinvesting rent savings, renting wins.

The question, however, very quickly becomes that, in a setting where Americans generally save less than 5% of their disposable income, is this assumption realistic and how might the removal of this reinvestment decision alter the outcome of the horserace between buying and renting? As part of their current research, this question is directly addressed. In particular, Beracha and Johnson find that after allowing renters to spend any rent savings on consumption (beer, cookies, healthcare, education, etc.), ownership leads to greater wealth accumulation, on average. The graph below highlights this finding.

The graph looks at the ratio of renters’ portfolio values to owners’ proceeds from sale for the entire U.S. between 1978 and 2010 both with strict reinvestment of rent savings and without reinvestment of rent savings.[iii] Clearly, numbers greater than 1 indicate that renting leads to greater wealth accumulations, while numbers less than 1 indicate that homeownership creates greater wealth, on average.

When renters are forced to reinvest (top line in the graph), the results confirm the earlier findings of Beracha and Johnson (2012). That is, in a strict horserace between buying and renting, renting wins in the vast majority of cases. However, when renters are allowed to spend rent savings on consumption (i.e. economically act like the typical American consumer), homeownership wins in virtually all instances. Notice that in the bottom line of the graph (no reinvestment), the renters’ portfolio values divided by owners’ sale proceeds is great than 1 for only four of the 32 years of the study. Thus, when renters are allowed to spend rent savings, homeownership is the clear winner in the wealth accumulation horserace.

Finally, in the same current research, Beracha and Johnson find that allowing for property appreciation rates to increase as much as 20% over their actual historic values results in virtually no change in the outcomes concerning wealth accumulation. That is, property appreciation contributes only marginally to wealth accumulation.

Implications
Without proof many have speculated about this outcome for years. However, there is now actual quantifiable evidence that homeownership is not the great levered equity creator that it has so often been touted to be. Instead, it appears that homeownership creates extra wealth mainly through its ability to force owners to save rather than through property appreciation. Thus, homeownership appears to be a self-imposed savings plan, which through time leads to greater wealth accumulation as compared to comparable renters. In short, buying a home makes Americans save.

Who says that Americans are horrible savers? Apparently, we are not. We have simply been saving through our homes rather than putting our savings in the bank.

Some of you may be like me and use the gray winter months post the Holidays to organize and accomplish indoor projects. I stumbled upon this article on the Internet which has some very helpful information for keeping a healthier home. I hope you will benefit from the suggestions. Some of the ideas were “eye-opening”. I had never heard of freezing stuffed animals to get rid of dust mites! This will be especially helpful to read if anyone in the family has allergies.

Stay healthy!

Carol Clarke, President

http://rismedia.com/2012-01-10/home-trends-healthy-home-room-by-room/

The KCM Blog published this facinating article about the real estate market yesterday. I’m a believer!

John R. Talbott, previously a Goldman Sachs investment banker, is a bestselling author and economic consultant. When it comes to the housing market he is also a prophet. When housing prices started to skyrocket in 2003, he published The Coming Crash in the Housing Market correctly warning us that a real estate bubble was forming. Then in January 2006, he called the absolute peak of home prices in the US by releasing a new book, Sell Now! The End of the Housing Bubble.

Mr. Talbott, the person who accurately predicted the housing bubble and its bust, now has a new prediction – IT IS THE TIME TO BUY A HOME! In a recent article, Homes – Buy Now!, Talbott simply explains:

“I have been waiting for more than five years to offer this advice. It is now time in most cities across the country to buy a new home or refinance your existing home with thirty-year fixed rate mortgage debt.”

He goes on to explain that his conclusion is based on four different metrics, all of which favor buying today:

Home Prices Relative to Peak Prices During the Bubble
Home Prices Relative to Construction Costs or Replacement Costs
Home Prices Relative to Incomes and Rents
Home Prices in Real Terms, Not US Dollar Terms
Bottom Line
If the person who called the real estate bubble and its bust says now is the time to buy, we believe it is time to buy.