Mortgage rates last week hit the lowest level we’ve seen since the 1950’s. If you’re sitting on the fence waiting to time the market, and the house of your dreams is available right now, do yourself a favor:

Buy it!!!

It’s true: interest rates on 30-year fixed home loans dropped to an average of 4.69%. I have one client who locked in early last week at 4.3875%. I-N-S-A-N-E!!!

So what does that lower rate translate into in real world numbers for you. Well, here’s one way to look at it:

Let’s start by taking a $300,000 loan and comparing this current low rate — call it 4.7% — to what is still a VERY good rate — even historically — of 6%.

Monthly payment on $300K at 4.7% = $1555.91

Monthly payment on $300K at 6% = $1798.65

That’s a difference of $242.74 a MONTH!!!

Over a year, that’s $2912.88 saved!!! 

If you did in fact get a loan at 4.7%, but you paid that extra $242.74 a month toward your mortgage anyway, as if you had a 6% mortgage, you’d pay off that 30-year loan in less than 22 years 9 months, saving you — hold onto your hat — almost $73,000!!!

Think of that: that’s NINETY-EIGHT months left on your 30-year mortgage that you would NOT send the bank ANY money, because you’d be paid off.

OR… of course… you could take that savings each month from your insanely low interest rate and:

• Work less, and…
• Start that exercise program you’ve been thinking of, and…
• Race in your first triathlon, and…
• Stand in front of the mirror relishing in how ripped you’ve become, and…
• Ask that hottie out on a date because of your new self confidence, and…
• Hit it off, marry, and start a family, all because… 
• You took advantage of the lowest interest rates in history. Do it!

If you’ve been waiting patiently for the right time — the perfect time — then guess what?!

It’s TIME!

When Heather and I first moved to Bellingham

By 2004, as the bubble-to-be started ramping up, those below a C-note properties had decreased to 1/3rd the previous year’s amount. And by ‘06 they were gone. Here, let’s look at the 2003 stats versus the 2004 stats for <$100K:

2003 Bellingham homes sold for <$100k: 18. Averag time on market: 24 days.

2004 Bellingham homes sold for <$100K: 6. Aaverage time on market: 56 days.

There were 3 sales in 2005 (two were in Glenhaven) and by 2006, the days of the less-than-a-hundred-grand homes in Bellingham were over. There wasn’t a single closing in that price range in Bellingham, according to the NWMLS.

But as values have decreased and short sales and bank-owned properties have become a major factor in the inventory, have the <$100K homes made a comeback?

Right now, in Bellingham, according to the NWMLS, there are 2 active listings (both are manufactured homes), 1 that is pending, and 1 sold for the year.

So if you’ve been holding out waiting for Bellingham prices to come down to Detroit or even Florida prices, don’t hold your breath. I suspect we’ll start seeing appreciation before the <$100K home becomes anything more than a blip on the inventory radar.

Remember back to 2005

And you thought to yourself, “But… you’re only 15 years old!”

Well, it was that easy back then. We know now that it was all the fragile skin of a giant bubble, and a lot of those professional investors will be in recovery-mode for many, many years to come.

But there were also a lot of them who made a ton of cash, weathered the downturn (or even thrived from it) and are still working it today. Some of them are making ridiculous piles of cash, even now.

The topic of today’s post is CAN YOU NOW buy a house in Bellingham, fix it up, turn around and sell it, and make a profit? Let’s go one step further and qualify the concept of “profit” by saying it’s got to be worth the effort. That’s a subjective measure, I understand, but let’s set a net profit limit of 10% of gross sale price. So if your gross sale price is $300K, you gotta turn (pre-tax) $30K after all expenses.

For a 10% profit, and considering that it costs about 10% to sell a property* (see note below) you’re going to need to buy the property, hold it, and fix it to sell again for no more than a total of 80% of final market value. For truly professional investors, that margin would be considered EXTREMELY risky. 60% is more common for hardcore, sophisticated investors.

*NOTE: By the time you pay agent fees, excise tax, title and escrow and other closing costs, kick in some $$$ for odds-n-ends repairs after the buyer’s home inspection, and taking a little hit on the list price, 10% cost to sell is a safe number for a really decent property in this current market.

So let’s say you tie up a property at a price that, with all repairs and holding costs, you’re into it for a MAX of 80% of market value. Next question: How liquid is the home’s neighborhood market? Is it Columbia or Alabama Hill? Sunnyland or Sudden Valley? That’s pretty important. A few months of extra holding costs and one price drop and with that thin margin, it’s bye bye profit.

Back to the hypothetical: Let’s say you find the property, and all it needs is a paint and carpet remodel, landscape clean-up and new roof. All easy, fast stuff to get done. Next question: Can you get a loan on it? Let’s assume you’ve got 700+ credit, lots of work history with W2’s to back it up, 25% down — a good start. How many other properties do you own? Some banks draw the line at 4, so be prepared for that rejection if your portfolio is rich.

Hard money? Yeah, it’s still out there, though it’s gotten a lot harder to find. If your financials are good and the property is a slam dunk, you can get a private loan for 3 points up front and 10% interest, 30-year amortization, 1-3  year balloon. Loan to value depends on the property. If you’ve tied it up for closer to that 60% range, you can get 100% loan to value. The private money lenders know the business, and they’re going to want to REALLY know you or know the property. If you botch it up, they want to take ownership of it with room for them to fix your mess and make their money.

To be continued…

Everything’s for sale.

But that doesn’t mean every seller will actually work with you to achieve a sale… even when the seller’s home is LISTED FOR SALE!!!

Take a HUD-owned home some buyers are trying to buy right now. HUD, or the Department of Housing and Urban Development, has homes for sale in all 50 states. You can log onto their website and see the homes — many of them very good deals — and then have a Realtor “bid” for a home on your behalf.

It’s not the same as making an offer with a stack of paperwork, like we do with regular MLS-listed homes. Yes, the HUD homes for sale in Bellingham are listed on the MLS… but HUD has its own set of rules.

A pre-approved buyer wishes to buy a HUD home, right now. So we’ve input all the information the HUD website asks for, including the terms of our very strong offer, and topped it off with a call to the HUD-hired listing agent. This all took place last Sunday.

Today is Friday, and you know what we’ve heard?

Nothing. La Nada. Zilch.

The HUD-hired listing agent told me up front that, if we don’t get the house, we’ll never even hear back from HUD.

Let me comment on that before moving on with the story. So… my clients and I go through the process of offering the largest sum of money 99% of the population will ever spend on anything, to take this liability of a house off HUD’s books, and if we’re not the winning bid, we don’t even get a “Thanks for playing!”?

It’s an automated system, I understand. And I’m no computer programmer, but how hard would it be to write a couple lines of code that tell the automated system: “If a bid is not chosen, e-mail that bidder to say, “Thanks for playing! But you lost.”" Seems pretty simple to me. But hey, I’m not a programmer. Or the US Government.

Yes, on with the story. We made a very strong offer on Sunday, waited patiently ’til Wednesday, and heard nothing. The listing agent hadn’t heard anything either, I was told when I called her. The ”listing” is still live on the MLS and live on HUD’s website.

So we offered again, on Wednesday afternoon.

Now it’s Friday. And we’ve heard… Nothing.

Meanwhile, HUD (read: taxpayers), are keeping the power, water, sewer, and taxes paid on this abandoned house as its condition slips further into disrepair, day after day.

The moral of this tale is this:

Everything is for sale. But not everything can be bought. Sometimes, not even things a seller NEEDS to sell, has listed for sale, has marketed to sell, and has a reduced price.

And yet all you hear is how the market is soft.

How do REOs affect the overall real estate market? Well, more and more, in my experience, they can steal the thunder from non-distressed, “regular” listings by either coming on the market markedly below market value, or if they’re not selling they can suddenly drop the price through the floor and garner a flurry of offers. (The first three REO offers I helped clients make this year were 1 of 4, 1 of 4, and 1 of 7 offers on the properties, respectively. We ended up getting two of those three.)

So if you’re a seller, and suddenly your neighbor’s house with the same view and similar size and layout comes on the market as a lower-priced REO, is that going to steal some buyer-traffic and interest away from your home? Very probably.

If you’re a buyer, and you see an REO in the neighborhood you want to be in, offering 3% closing costs and a 2-year home warranty with any acceptable offer, are you going to focus your attention on that home? Very probably.

Now, there’s no need to panic. We’re not talking Martian invasion here. But it certainly warrants knowing your neighborhood stats and whether distressed home listings and/or sales are ubiquitous enough to affect your buying or selling strategy.

Let’s look at some numbers:

• Total number of detached single family, sold REOs in the past 6 months, in B’ham and Sudden Valley: 51.
• Total sales of non-REOs, same time frame, same areas: 557.
• Highest REO sale price: $675K.
• Lowest REO sales price: $99.8K.
• Average REO sale price to list price: 99.68%!
• Average sold REO price per square foot: $134.14.
• Average sold non-REO price per foot: $161.88.
• Total number of active REO listings right now: 22.
• Average price per foot: $126.83.
• Total number of non-REO listings right now: 489.
• Average price per foot: $199.91.  

A couple weeks ago I was in San Francisco

In the edition I was holding, the subject was rental properties and the price point was $3000/month. In San Francisco, three G’s will apparently get you a newer 2-bedroom, 2-bathroom apartment with views “from the building” (but not necessarily from the unit) with plenty of stainless, granite and hardwood.

For $3K/month in Bellingham, you could probably find a newer custom home w/ Bay views in Edgemoor with all those same finishes and no one stomping on your ceiling during the wee hours… but that’s the subject of another post.

For this inaugural post focusing on “Price Point” I wanted to show what $350K – give or take $10K —  can get you in and around Bellingham and Sudden Valley.

First off, in this price point, according to the NWMLS, there are:
*16 active listings in Bellingham and Sudden Valley
*6 currently pending sales
*20 that have closed in the past 6 months.

Those 16 active listings have been on the market for an average of just 187 days, and they range from 4 days to 850 days on the market!

On average, that $350K will get you 2218 square feet, for which you’ll spend just over $173/foot. In that group, though, you can spend as little as $95/foot or up to $251/foot. And you can buy a home over 100 years old, or brand spanking new!

Of the 20 that sold in the past 6 months, 11 dropped their price (by as much as 20%) before selling. Collectively, they closed for 97% of their final list price. The smallest home in the group was 1360 square feet, but it was on nearly 5 acres. The largest home was 3263 square feet. All 20 had either 3 or 4 bedrooms, and the group’s average market tiime was 99 days.

The reason I began this new “column” on the NW Way of Life blog with the $350K price point is because that’s the average list/sale price — give or take a few grand — of ALL Bellingham home sales in the past 6 months. It’s the bullseye. We’ll range outward from there next time.

December of ‘08 was grim, with the global markets recently coming unhinged as banks began folding and government bail-outs ramped up. The heavy snowfall in Bellingham certainly didn’t help matters either.

So it’s no big surprise but-still-great-news that December ‘09 just ROCKED over ‘08 with sales volume climbing from just over $21 million to just over $29 million!

The other trend you’ll find on this chart is the severe drop-off in new home sales, down 59% year over year for the month of December. We’re running out of new home inventory! And when demand gets strong enough, some bank out there is going to start lending spec house money again, guaranteed. 2010 is the year, just wait and see!

Enjoy the stats, and call me with any questions.

Last summer, a buyer client of mine

Then we hit a wall. The lender couldn’t get the loan funded because the seller hadn’t owned the property for a full 90 days. It was an investor who had bought the house at the courthouse auction for roughly 75% of what my buyer wanted to buy it for.

Yes, the investor was going to make a profit! As well he should, for having taken the risk, paid cash for the house, made the upgrades, listed it fair and square on the open market, the whole enchilada. My client knew it and was totally fine with it. He is a busy professor who had no interest in becoming an expert investor and was happy to get the house at fair market value.

But for FHA to insure that loan, the title had to “season” with the seller for 90 days before we wrote up the contract, to protect “unsuspecting” buyers. In the end, we just laid low for an extra two months, re-wrote the deal, and got it closed.

But as of February 1st, 2010, the 90-day “No Flip Rule” will be temporarily lifted for a period of 1 year to stop stifling deals just like my client’s. There are some restrictions, including:

In my opinion, this temporary waiver is cause for celebration. Flipping houses can be an absolutely legitimate business, and there’s no reason to penalize investors and cause them to pay additional holding costs just to meet some random government mandate. After all, who decided 90 days would protect “unsuspecting consumers” from shady investor/flippers anyway? Why not 60 days? Why not 180 days?

From Feb 1, 2010 to Feb 1, 2011, sellers will be able to sell to buyers getting FHA-insured loans without the 90-day flip restriction.

This graph shows

Look, for example, at November 2008. In that month Bellingham had 13.3 months of inventory. A basic way to interpret it would be to say that in that month, for every 13 houses listed, one was selling.

Now look at November 2009, and you’ll see we had 5.1 months of inventory. One sale for every 5 listings. Anything better than 6 is considered a seller’s market. 5.1 is solid!

No question, November ‘09 was a hot, HOT month. THICK were the fears that the first time home buyer tax credit was about to expire. It’s estimated that, nationwide, fully HALF the homebuyers in November will be applying for the tax credit. Of course, you know it’s been extended. Now, you have through April 30th to be under contract. The tax credit also now includes a $6500 credit for existing homeowners who sell after at least 5 years of ownership before buying.

Months of inventory is also important for a seller to know, as it shows how much competition exists. If you were selling, would you rather go up against 13 other houses, or 5?

I wrote last week

And they’ve all had multiple offers. There are some banks and asset managers out there who are just blowing the bottom out on the prices of some of these properties, and in Bellingham, believe you me: There are buyers ready to pounce like lions on a stack of sirloins!

The first of the three properties had been listed for a month or so, then dropped the price off a cliff to less than $90/sq. ft. This is Bellingham city limits, west of I-5. That is, “core neighborhood” material. For comparison, the average single family home in the same area, in the final quarter of ‘09, sold for $195/foot.

We were one of four offers on that one. We came in strong, but not quite strong enough. It’s pending with another buyer.

The second property was a brand new listing that sneakily hit the market on December 23rd — about the time 95% of agents and their clients are sipping eggnog and thinking about anything but real estate. My clients and I were the first ones in the door and immediately loved the place. We wrote it up and faxed in the offer, only to find out the home had to “season” on the market for 5 days before the bank would accept anything.

Long story short, by Monday after Christmas there were 4 offers. Every buyer/agent team then got in the ring together, blind-folded, mind you, and pulled out the weapons du jour. On that one, we came out on top, and will get in there first thing next week for the home inspection.

The final of three properties in the REO Frenzy of 2009 came on the market at roughly 15% of assessed value. No, that’s not a typo. It assessed for well over $1M and hit the market under $200K!

I can’t share much info on that one just yet, because we’re still battling it out with 7 other known offers, and perhaps many more by now; (7 was yesterday’s count). I predicted 10 at least, but that number is likely low.

In situations like that, you can bet the winning offer will be all cash, no contingencies, 1-week close, with some sacrificial virgin thrown on top for good measure. Oh, and I wouldn’t be surprised to see it go for close to 200% of list.

If you find yourself salivating to get in on something like what I’m describing, get your ducks in a row by getting pre-approved first thing next week, read up on the Ninja Strategies for strengthening your offer, and psych yourself up for some flat-out real estate cage-fighting. Personally, I love it. I love the juice of competitive anything. Bring your A-game and let’s get it on!