Why Short Sales are a Better Option for Sellers

When making monthly payments becomes all but impossible, selling your home at a loss (short sale) may be your best option. The credit consequences of a short sale are less than a foreclosure. And, most times, the bank will cover the agent commission for selling the home.

A short sale also allows a family to move on with dignity and helps maintain the housing prices in the neighborhood. 

When a house goes to foreclosure, the value of other houses in neighborhood tend to go down by about 1 percent per nearby foreclosed property. It is far better to have a short sale as it appears more like a normal sale - seller moves out, buyer moves in and there is no visual impact on neighborhood or the family moving. Short sales also don't look as bad as foreclosures to banks for future borrowing.

In the past, short sales have failed due to lender red tape and indecision and second lien holders not signing off on the sale. In early April, a new program will help streamline short sales, making it easier for the buyer to go to closing.

Shorewest offers the largest knowledge base and amount of expertise in short sales. Many agents have taken the Short Sales and Foreclosure Resource (SFR) certification course. Shorewest's closing and title divisions are trained and versed in short sales and know how to streamline a sale to closing. For proven results you need, contact a Shorewest sales associate.

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ARMS Coming Due

During the strong 2004 to 2006 housing market, many buyers purchased houses with Adjustable Rate Mortgages (ARMs). These mortgages allowed buyers to either pay less of an interest rate during the first years of a loan or in some cases to pay ONLY the interest for a period of time.
The "flexible" payment options enabled buyers to buy a higher priced home while paying a lower mortgage payment. The thinking was that the home would continue to appreciate over the first few years thus allowing the purchaser to refinance to a more conventional loan at a time in the future when they could afford normal payments.

However, in most parts of the country the house not only didn't appreciate, but instead lost value from the 2004 to 2006 price. In many cases this eliminated any chance of refinancing, leaving the homeowner to deal with the higher payment at the time of the ARM recast.

How much higher? An article at CNBC.com on January read:

Some 88 percent of Option ARMs originated between 2004 and 2007 are going to adjust higher between now and 2012. Those option ARM borrowers could see their housing bills go up as much as 63 percent, according to Fitch ratings.

Obviously, in a struggling economy, an increase in the mortgage amount could cripple families.

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Pricing Your Home Based on Shadow Inventory

There once was a time not long ago, when homes were priced based on what sold six months ago. Today, to price homes correctly, sellers need to consider homes currently on the market as well as homes expected to come on the market. These expected homes are known as Shadow Inventory or homes that may be for sale soon because of foreclosure and delinquency. More homes coming on the market in the near future means increased supply and lower prices.

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Mortgage Delinquencies

Mortgage delinquencies will continue to play a major factor in Wisconsin real estate for 2010. According to a Making Home Affordable Program study from 11/09, five to 10 percent of Wisconsin homeowners can't afford to pay their mortgages right now and are 60 days or more delinquent.

For people falling behind on payments, fewer and fewer are able to make up the difference, resulting in a higher percentage of delinquencies. In 2005, seven out of 10 could make up past payments. Today 95 percent wind up in foreclosure. If the payments are 90 days delinquent, less than one percent will be able to cure (make up) late payments.

More foreclosures on the market mean lower prices and fewer buyers for sellers not in foreclosure.

Delinquencies today are not confined to low-end houses. High-end delinquencies are surging.

In fact, the fastest growing segment of people going into delinquencies are high-end mortgages. From 2008 to 2009, high-end delinquencies more than doubled from 4.7 to 12 percent.

Some of these high-end delinquencies are the result of borrowers defaulting on their loans even though they have the money to pay them. Strategic defaults tend to be with borrowers with home values that fell by more than 15 percent. Walking away from the moral obligation to pay a mortgage is not recommended as there are long-term risks. A foreclosure stays on a consumer's credit record for seven years and can send a credit score plunging. A lower credit score can mean higher interest rates on credit cards, auto and other loans. Plus, some states give lenders ability to seize bank deposits, cars or other assets.

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What Lies Ahead in 2010

There will be a large number of homes selling in 2010 with demand strongest in the first half of the year before rates rise and incentives disappear. Even though demand will be high, prices will continue to soften because of the large supply of distressed sales that will come to market.

Foreclosures and short-sales will be here for the foreseeable future.

As rates begin to rise and the tax credit disappears, we believe buyer demand will weaken.  The second half of the year will not be anywhere near as strong as the first half.

The one price tier that we believe will pick up momentum late in spring and carry through the year is the upper-end range. As more low and mid-tiered priced homes are sold in the first 120 days, there will be a natural inclination for a percentage of those sellers to take advantage of prices in the high end that haven't been seen in the last decade and may never be seen again.

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