This may be right time to buy a getaway, but do your homework

Fiona Anderson
Sun

With the recession hitting the United States harder than Canada, and the Canadian dollar still strong, this may be a great time for Canadians to buy that sunny, tranquil getaway in the U.S. or further south. But to make sure it is tranquil, do your due diligence, just like you would at home.

Tom Kelly, a syndicated columnist based in Washington state, has co-authored two books about buying real estate in Mexico and Central America.

He believes prices in those areas will go up once American baby boomers recover some of their wealth.

U.S. boomers weren’t prepared for the economic downturn and once they rebuild, they are going to look for a cheaper lifestyle. And it’s definitely cheaper in Mexico and Central America, Kelly said. Canadians, on the other hand, haven’t been as hard hit and were better prepared, he said. So they are in a better position to buy now.

“And the further you go, typically the less expensive it’s going to be,” Kelly said.

Panama, for example, “is a bargain right now,” Kelly said. “But it costs money to get there.”

And while Puerto Vallarta and other places in Mexico are easier to get to, deals can be found there too, because not as many people are buying, he said.

The outbreak of H1N1 flu in the spring turned some people off. And the rash of drug-related crime did too, Kelly said.

But Kelly believes Mexico is perfectly safe, with the violence limited to the drug trade near the border. “There’s no history of these people targeting non-nationals,” Kelly said.

Mexico is also safe from a purchasing perspective with title insurance now available to those buying property, he said.

A lot of the horror stories of people buying in Mexico and ending up with nothing really stemmed from “non-nationals buying property they should have never bought in the first place because nobody owned the title to it,” Kelly said.

So just like you would in Canada, “go out and do the due diligence” before you buy, he said. “Don’t leave your brains at the border. Check out the property in person to make sure it’s what you want, rather than buying off the Internet.”

For financing, it’s cheaper to remortgage your Canadian property and buy with cash than get local financing. While there are international banks that will lend you money, they will charge more, he said.

David Ingram is a North-Vancouver-based former real estate agent who has made a career out of advising Canadians who want to buy property outside the country, and foreigners who want to buy property in Canada. About 6,000 people attended his seminars last year, an indication of the interest in offshore real estate, Ingram said.

The first thing to remember is, every country, and every state, is different, he said. So get the advice you need to learn the rules before you buy. In Mexico for example, non-nationals aren’t allowed to buy within a certain distance of shores or borders, for reasons of national security. But that can be overcome by setting up a trust to purchase the property, for which title insurance is available.

Other things to think about are local laws relating to rentals. If the property is to be rented out, chances are tax must be paid on the rental income, both Kelly and Ingram said.

While owners may be tempted not to pay the tax, Kelly recommends against it. If you don’t pay and the government finds out, you will have to go through a hearing and the government could put a lien on the property.

“So it’s better to be safe than sorry,” Kelly said.

Don’t forget about visa requirements to stay in the country where you buy, Ingram said. While no visa is needed for the U.S., if you stay too long you may have to pay tax on your worldwide income. And if you’re not careful, you may lose your entitlement to B.C.’s medical services plan, which requires residents to be physically present in the province for at least six months of the year.

“So get proper advice” before you buy, Ingram advises.

© Copyright (c) The Vancouver Sun

Stephanie Armour
USA Today

Foreclosures are continuing to set records despite the Obama administration’s $75 billion plan to help borrowers at risk of losing their homes.

There were 1.9 million foreclosure filings in the first six months of this year, a 15% increase from the first six months of 2008, according to a report today from RealtyTrac. One in 84 homes received a foreclosure filing in the first half of the year.

The administration is taking steps to improve the effectiveness of its mortgage modification program, but millions of Americans still face foreclosure even if it is a “total success,” a senior Treasury official said Thursday.

Herbert Allison, Treasury assistant secretary for financial stability, told the Senate Banking Committee that 325,000 trial modifications have been offered to borrowers under the Home Affordable Modification Program since its launch around five months ago.

But he said the program had limits.

“This plan will not save every home,” Allison added. “Even if HAMP is a total success, we should expect millions of foreclosures, as President Obama noted when he launched the program in February.”

June was the fourth consecutive month that foreclosure filings surpassed 300,000, RealtyTrac says, and the number of properties receiving one or more filings in the second quarter totaled 889,829 — the highest since RealtyTrac began issuing its report in 2005.

Foreclosure filings include default notices, auction sale notices and bank repossessions.

“The Obama plan doesn’t seem to be having a significant effect,” says Mark Zandi at Moody’s Economy.com. “I don’t think it’s going as well as they’d hoped for. Foreclosures will continue to rise through the end of the year.”

California led the states with the most foreclosure filings in the first half of 2009 — 391,611. That was 2.94%, or one in 34, of California‘s homes.

Foreclosures are growing as more Americans lose their jobs or take pay cuts. The federal effort to help at-risk homeowners includes giving lenders financial incentives to modify mortgages with more affordable terms.

Falling home values are also taking a toll. The high number of borrowers who find themselves owing more than their homes are worth presents a potentially significant risk of more foreclosures, according to RealtyTrac.

Not all economists agree. Some say there are significant signs that the housing market may be on the rebound.

Total inventory of unsold homes is falling. Inventory at the end of May fell 3.5% to 3.8 million previously occupied homes available for sale, which represents a 9.6-month supply and is down from a 10.1-month supply in April, according to the National Association of Realtors (NAR).

In addition, single-family home sales rose 1.9% in May from April, NAR reported.

“Given the evidence, the housing market is turning around,” says Bernard Baumohl at Economic Outlook Group. “In the third quarter, we might see evidence that the rise in foreclosures has finally stopped. We’ve hit bottom on foreclosures.”

Brian Bethune, an economist at IHS Global Insight, says the deep and prolonged recession is mainly what is driving foreclosures now. “Foreclosure-mitigation efforts do need to be stepped up, but they can only have a limited buffering effect. … The most urgent policy priority should be to jolt the economy out of the recession,” he says.

First half foreclosures:

Rate rank	State	Properties with filings	1 per X housing units	% chg. from Jan-Jun 08
—	U.S.	1,528,364	84	14.66
30	Alabama	9,657	221	179.75*
34	Alaska	1,072	263	18.45
2	Arizona	89,799	30	54.51
25	Arkansas	8,646	149	25.69
4	California	391,611	34	14.52
10	Colorado	26,565	80	-18.62
27	Connecticut	8,801	163	-31.18
32	Delaware	1,559	249	32.01
	District of Columbia	1,776	160	-31.06
3	Florida	268,064	33	41.95
6	Georgia	56,391	70	16.06
18	Hawaii	3,603	141	296.81
9	Idaho	7,952	79	112.90*
8	Illinois	68,932	76	29.46
13	Indiana	24,665	113	-10.77
41	Iowa	2,996	444	3.67
33	Kansas	4,660	262	43.61
40	Kentucky	4,356	438	28.95*
39	Louisiana	5,160	360	34.38*
42	Maine	1,540	452	10.63
15	Maryland	18,112	128	2.76
23	Mass.	18,458	147	-43.73
7	Michigan	60,786	74	-1.28
24	Minnesota	15,537	148	52.74
43	Mississippi	2,175	577	94.37*
28	Missouri	13,880	191	-21.11†
48	Montana	290	1,502	-59.61
45	Nebraska	638	1,224	-69.65
1	Nevada	68,708	16	61.33
22	New Hampshire	4,044	147	24.16
21	New Jersey	23,889	146	-30.25
37	New Mexico	2,631	328	11.11*
38	New York	24,210	328	-18.87
36	North Carolina	12,642	326	-37.91
49	North Dakota	200	1,553	85.19*
12	Ohio	58,937	86	-14.76
35	Oklahoma	5,609	289	-27.03
11	Oregon	19,053	84	122.43
31	Pennsylvania	23,864	230	24.61*
19	Rhode Island	3,172	142	-7.95
26	South Carolina	13,145	154	125.12*
47	South Dakota	256	1,395	59.01
16	Tennessee	20,365	134	-20.96††
29	Texas	49,144	192	-14.38
5	Utah	13,496	69	87.65
50	Vermont	35	8,898	-42.62
14	Virginia	28,368	115	3.76†
17	Washington	19,855	138	43.01
46	West Virginia	663	1,331	73.56
20	Wisconsin	17,984	142	49.69*
44	Wyoming	413	587	43.4

Contributing: Reuters

 

Stephanie Armour
USA Today

More than four months after the Obama administration launched its housing rescue plan, scores of lenders are focused on rewriting mortgage loans to make them more affordable.

But one demographic is being largely ignored: homeowners with higher-price loans.

They don’t qualify for mortgage modifications under the Obama plan. They can’t get today’s low interest rates if they try to refinance. And with newly cautious lenders warier about who they lend to, just try to sell a home that costs $730,000 or more these days. In many cases, finding a buyer who can get financing takes far longer than for lower-price homes, because banks want as much as 30% down and six months of mortgage payments in reserve.

The result is a housing market in which sales and purchases of higher-price homes have come almost to a standstill, and it’s a predicament that could undermine the housing recovery. Move-up buyers (homeowners who want to buy larger, pricier homes) are getting locked out by lack of financing. Too many unsold homes in the top tier of the market also can push down prices for homes in the mid-price range.

“We need to have a market recovery in all segments,” says Lawrence Yun, chief economist with the National Association of Realtors (NAR). “If the high-end market weakens, those in the middle have to reduce prices.”

While the number of homeowners with higher loans is small relative to the entire market, Yun says, “All of Middle America is undoubtedly impacted.”

Jumbos and super-jumbos

Bigger loans, known as jumbo loans, come in three types.

Loans up to $417,000 are considered “conforming,” and can be sold to mortgage-finance giants Fannie Mae and Freddie Mac, which also guarantee them when they resell those mortgages to investors. But after that, the situation is more complex.

Loans between $417,000 and $729,750 are “conforming jumbo,” and loans above $729,750 are “super-jumbo.” Fannie and Freddie back only conforming jumbos, and what qualifies as conforming can vary depending on location. In San Francisco, Fannie and Freddie will back loans up to $729,750. In Atlantic City, the maximum is $453,750.

Lenders are leery of making loans above the amount that Freddie and Fannie will guarantee, because if a jumbo loan borrower defaults, it’s harder for a bank to quickly sell a higher-end foreclosed property. And because Freddie and Fannie don’t buy non-conforming jumbo loans, there’s less of a secondary market for super-size loans.

States with the highest percentages of jumbo mortgages include Hawaii, California and New York, as well as the District of Columbia. In New Jersey, Maryland, Massachusetts, Virginia, Connecticut, Washington, Nevada and Florida, jumbos account for 10% or more of all loans.

Jumbo loans aren’t just for the very rich: In some pricey areas, $500,000 may buy only a modest single-family house or condo.

Sales of higher-price homes have slowed to a glacial pace, driving the supply of homes for sale above $750,000 from 18.7 months in 2007 to 41.1 months in 2009, according to NAR.

With home values still falling in many areas, borrowers who took out jumbos a few years ago are finding they can’t refinance, and their mortgages are sliding into default. The number of jumbos 90 or more days delinquent reached 4.83% in March 2009, up from 1.68% in March 2008, says First American CoreLogic.

That trend is helping spread the foreclosure crisis from real-estate-bubble markets, such as California and Florida, where the housing crisis started, to other areas. Data from First American CoreLogic show that delinquency rates on jumbo mortgages under $1 million have more than doubled in areas such as Atlanta, St. Louis and Portland, Ore.

Some cities with high percentages of jumbo loans that are 90 or more days delinquent include Merced, Calif., Muncie, Ind., and Las Vegas-Paradise, Nev.

It’s been a costly situation for Victor Montalvo-Lugo, a clinical program manager at MedImmune in Gaithersburg, Md. He and his wife, Janette, bought a $1.6 million home in Thousand Oaks, Calif., in late 2005. He moved to Maryland for the MedImmune post in December, contracting for an $800,000 home to be built by late August. But with the California house on the market for weeks, he’s had no luck selling, even asking $1.05 million.

If he can’t sell that home before a company buy-out option expires, Montalvo-Lugo worries about the financing on the new one. A similar but smaller home down the block from his in California is listed in the $900,000s, forcing him to lower his initial asking price. “I’m very concerned. We are already listing for less than what we owe,” Montalvo-Lugo says. “We lost all of the initial equity, and we owe the bank more than we will get.”

Pressure on prices

Those with jumbo loans who lose a job or have an adjustable-rate mortgage that resets to a higher amount are struggling. But help is scarce: Under the Obama housing rescue plan, homeowners with loans above $729,750 aren’t eligible for mortgage modifications. Lenders may make such modifications on an individual basis, however.

Many homeowners in higher-end markets are finding they must drastically lower prices to try to get buyers. From July 1, 2008, to July 1, 2009, nearly 26% of homes on the market for more than $1 million have seen price reductions, and the average reduction is 13% off the asking price, according to real estate information provider Trulia. Homes on the market for less than $1 million have seen an average reduction of 9% off the asking price.

“What you’re seeing are those properties sitting on the market for a lot longer because people can’t get loans,” says David Kerr, a ZipRealty agent in the San Francisco area. “I got a call about a property in Berkeley for more than $1 million and almost fell out of my chair. All of what we’re showing is in the $200,000 to $300,000 price range.”

Jumbos are still being offered at Investors Savings Bank in Short Hills, N.J. But demand has slacked off because those taking out or refinancing jumbo loans must pay higher interest rates than other borrowers, says Richard Spengler, chief lending officer. Rates on jumbos are hovering around 6%, vs. 5.20% on a 30-year, fixed conventional loan.

The bank requires down payments of 20% to 30%, depending on the size of the jumbo. Spengler says many banks have gotten out of jumbo lending because of the lack of a secondary market. Investor Savings Bank keeps jumbos it issues in its own portfolio.

The overall stagnation in the market has a spillover effect on the economy. NAR estimates the slump in the jumbo home loan market has led to a $42 billion decline in economic activity.

That’s because borrowers who take out jumbos have much higher incomes than a typical borrower (an average $207,600 in 2007, says NAR’s most recent data) and when they buy a home, they spend a lot to furnish it. When sales of costly homes slow, sellers of furniture, carpeting, flooring and appliances get hurt.

Z Gallerie, a home merchandise retailer, is the latest in a string of higher-end stores to feel pinched. The store filed for bankruptcy-court protection from creditors in April, citing a severe sales drop. January sales were down 19% from a year earlier.

“The high-end retailers are being impacted,” says Gary Drenik at BIGresearch, a consumer intelligence firm. “When people buy a home, home-improvement and related sales go up.”

Those who can buy higher-end homes are seeing their discretionary income further whacked by strict lending conditions. Lenders are requiring some borrowers seeking to finance 80% of their home purchase keep 40% of the total loan value in a reserve account, says Michael Tooker, a mortgage planning specialist for Valley Private Mortgage Group in Scottsdale, Ariz. On a $1 million loan, “that’s $400,000 in reserve,” he says. “Some want six months total debt service in reserve. It’s so arbitrary.”

Camille Swanson, a Realtor at Realty Executives in Phoenix, can relate to the struggle. After selling her home, she fell in love with a foreclosed stacked-stone home in the desert that had been abandoned. But she discovered that no lender wanted to give her a jumbo loan on a property that needed so much renovation.

Swanson is almost finished obtaining a loan for the new place with an approval up to $640,000, but details are still being negotiated. With her 20% down payment, the total investment will be $800,000. She approached five lenders as far as Washington before finding one in her area to give her a loan. She didn’t need money in reserve because of her retirement assets. “For them, it’s an issue of risk,” Swanson says.

Raising the roof

Real estate groups such as the NAR are pressuring Congress and the Obama administration to increase the jumbo loan limits that Fannie and Freddie will guarantee and make them permanent. Current amounts were raised in 2008 and are set to expire Dec. 31. They also want the Federal Reserve to buy jumbo-backed securities because Freddie and Fannie can’t. The hope is that Fed purchases would create enough of a secondary market for these loans so banks would be more open to lending higher amounts.

Meanwhile, in jumbo-heavy markets, homeowners are increasingly frustrated by their inability to sell. They can’t relocate for jobs or retirement. They can’t unload vacation homes that they may now struggle to afford.

One such homeowner is Robert Westover, who works for the federal government in Washington, D.C. He’s been trying for months to sell a home in Hawaii with an ocean view. He bought it for $585,000 six years ago; it was valued at $1.1 million during the real estate peak in 2006. But there are no offers. He planned to list it for $940,000, but his Realtor suggested $890,000. Then he lowered it to $850,000. At one point, a potential buyer came forward but had no financing.

“It’s just been tough. It was getting crazy,” says Westover, 45, who now is taking the home off the market and renting it instead. “I hope I’ve learned a lesson, which is don’t put anything on the market in this economy. Most people who have homes in the jumbo (price range) are reliable, pay bills. Why are we suffering while the government gives help to everyone else?”

 

Vancouver up 77 per cent in second quarter

Derrick Penner
Sun

Rising sales in British Columbia‘s real estate sector helped put the bounce in Canada‘s overall property market, according to new reports.

Vancouver was among the major markets to see stronger activity, with sales up 77 per cent in the second quarter over the first quarter, the Canadian Real Estate Association said Tuesday in its second-quarter report.

Such a big increase was surprising given the still-weak nature of the overall economy, Bryan Yu, an economist with the B.C. Real Estate Association, said in an interview.

“At the same time, we have to realize what’s driving the market has been improved affordability,” Yu said. “We have seen lower mortgage rates and lower prices.”

Yu added that second-quarter sales represent a rebound from the dismal lows between last November and January.

The B.C. Real Estate Association released its own June sales report this week showing transactions for the month, at 9,970, were some 40 per cent higher than in June 2008. Most of the gains were concentrated in the bigger markets of the Lower Mainland and Vancouver Island.

“In areas like Vancouver and Victoria, we’ve seen balanced conditions emerge,” Yu said. “In other areas of the province, they’re still in buyers’ markets.”

Across Canada, sales were up 1.4 per cent from the corresponding quarter a year ago, the first year-over-year quarterly increase since the fourth quarter of 2007, CREA said.

Sales also rose from the previous quarter, with seasonally adjusted figures jumping to a record 31.5 per cent from the first quarter of 2009.

“Potential buyers who moved to the sidelines late last year when economic uncertainty peaked are returning to the housing market now that the worst of the recession may be behind us,” said CREA president Dale Ripplinger.

Demand was high in some of the most expensive markets in the country, CREA said in a release, “skewing the national average price upward.”

Nationally, the average home price of $326,613 was 3.6-per-cent higher than a year ago. In B.C., CREA calculated an average price of $461,931, down 0.3 per cent from June a year ago.

Increases in Toronto (45 per cent), Vancouver (77 per cent), Montreal (33 per cent), Calgary (66 per cent) and Edmonton (39 per cent) contributed most to the national increase in activity.

© Copyright (c) The Vancouver Sun

Alex Veiga
USA Today

Less than three months after new rules for home appraisers kicked in, the real estate industry is in uproar.

Realtors, homebuilders, mortgage brokers and the appraisal industry itself all agree the rules are causing problems. Some are backing a bill in Congress to kill them.

The new guidelines bar mortgage brokers from ordering appraisals themselves, forcing them to do so through a mortgage lender. Lenders may order appraisals through in-house staff or appraisers hired by outside firms known as appraisal-management companies. But neither may talk to the appraisers about the value of the property they’re evaluating.

Since they went into effect May 1, the rules have created a slew of unintended consequences that critics say are causing delays in closing sales, or undermining sales because botched appraisals are coming in too low.

“This thing is not only preventing the housing market from recovering, it’s destroying the housing market,” said Marc Savitt, president of the National Association of Mortgage Brokers. “We’re eliminating competition, and we all know what happens when you eliminate competition: Prices go up.”

After a homebuyer and seller agree on a price, the buyer applies for a mortgage. The lender then orders an appraisal to ensure the value of the property, because if the borrower defaults the property will be sold to satisfy the debt. The appraisal fee, which can run between $250 and $500, is usually paid by the buyer.

To determine what a home is worth, the appraiser compares prices of similar homes that were recently sold in the area and makes adjustments for different features, such as a swimming pool or extra bathroom. If the property appraisal comes in below the agreed upon price, the buyer usually has to make up the difference and may instead walk away.

Suzanne Wilhelm, who has been trying to sell her home in Henderson, Nev., for six months, blames an appraisal done under the new rules for scuttling what had been a done deal with a buyer several weeks ago.

The appraisal valued her four-bedroom, 2,000 square-foot house at $190,000 — $45,000 less than the price the buyer agreed to pay. Wilhelm, who paid $187,000 for the house in 2001, believes the appraiser based his estimate on the sale of several foreclosed homes in the area but ignored sales of regular homes that would have reflected a higher price.

“It’s very unfair that we’re put into the same bracket as those people who were so irresponsible in buying their homes,” said Wilhelm, a teacher.

The rules, dubbed the Home Valuation Code of Conduct, are meant to eliminate conflicts of interest that created pressure on real estate appraisers to inflate the value of a property. Lenders, agents and brokers have been known to pressure appraisers to “hit the number” that the homebuyer and seller agreed on so the deal would close and everyone could collect their fees. Inflated appraisals were partly blamed for fueling the housing bubble.

But under a settlement last year with New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac agreed only to buy loans from lenders that don’t directly hire appraisers. The move sent shock waves through the industry because Fannie Mae and Freddie Mac own or guarantee about half of all U.S. home loans.

So lenders started giving more business to appraisal management companies, which critics say draw appraisers from a pool of candidates willing to do the job for less money and who, in some cases, may be unfamiliar with a neighborhood.

Paul Conforti, a broker with Prudential Douglas Elliman in Merrick, N.Y., said he’s seen appraisers based as far as Maryland, about 200 miles away, come into New York‘s Nassau County to evaluate homes there.

“If you’re appraising a house, all you really have to go on is the” recent sale of similar properties, Conforti said. “If the person doesn’t know the area … they end up using comparables from another town. It doesn’t make sense.”

Almost 60% of builders are reporting that inadequate appraisals are causing serious problems in the market, often comparing newly built homes to foreclosures without considering the money needed for property repairs. Of those reporting appraisal problems, more than half said the appraisal amount was actually less than the cost of building the home, according to a survey released this week by the National Association of Home Builders.

Cuomo’s office maintains the rules are necessary, and that critics are using the appraisal rules as a scapegoat for a declining housing market made worse by the recession.

“With homes prices falling and foreclosures rising, this complaint is simply wrong and risks returning us to a corrupt system filled with conflicts of interest that promoted artificially inflated values,” said Emily Browne, a spokeswoman for Cuomo.

Browne added that there’s no evidence of a spike in appraisal delays in the two months that the rules took effect.

“Even if there are some delays, there is no reason to think the (rules are) the cause, as opposed to the unrelated, nationwide drop in home values which has made the appraisal process more complicated,” she said.

But the real estate industry is coming out against the rules in force.

The National Association of Mortgage Brokers went to court in February to block the changes, which it claims limit competition. Since then, other key industry groups, including the Appraisal Institute, have voiced their opposition to all or elements of the home appraisal guidelines.

Last week, the National Association of Realtors urged members of Congress to support a bill that would impose an 18-month moratorium on the new appraisal guidelines. The measure is still working its way through Congress.

The Realtors said the new appraisal guidelines are hurting the real estate industry. It contends that appraisers hired by appraisal management companies are not hired “for their competency and qualifications, but for their turnaround time and price.”

Freddie Mac tried to address some of those concerns last week when it issued new home appraisal “best practices” guidelines for lenders.

Among its recommendations, the mortgage finance company said appraisers must be certified or licensed in the state where the property being appraised is located and be familiar with the local market.

Fannie Mae issued similar guidelines in April.

“We’re optimistic that the push to quality will in fact solve some of the problems,” said Ken Chitester, spokesman for the Appraisal Institute. “If consumers are demanding that qualified appraisers perform the valuation on the properties, then that’s a big step in the right direction.”

Copyright 2009 The Associated Press. All rights reserved.