We are starting to see a few properties come on the market as “short sales”.  I have had a few questions about them so it might be useful to go over them here.

What is a short sale?

     A short sale is the sale of a house for less than the amount that is owed on the mortgage.  Occasionally, an owner finds themselves in a position in which they absolutely have to sell their home, but find that their property is worth less than they owe.

Why do a short sale?

    If an owner finds that they cannot make their payments and can plainly see that their situation is not likely to improve in the near future, it’s time to sell…NOW.  But if they have recently purchased the home, or recently refinanced it to the maximum they may not be able to sell it for the amount owed.  That’s where a short sale comes in. 

    Before the home goes into foreclosure it’s best to talk to the lender about the situation.  You might be able to work out a lower payment temporarily or discuss with the lender the possibility of selling it for less than is owed. That would be a short sale.

How does it work?

     You list the house for a realistic sales price.  That is a price for which the house would actually sell.  You need to let people know up front that this is a short sale and your acceptance of their offer is contingent on the mortgage holders acceptance as well.  It is rare that the lender will agree up front to a sales price.  They want to review each offer individually.

    It normally takes a week or two for the lender to commit to an offer on a short-sale.  That is the problem for buyers, most of them want to receive a commitment within a day or two.  So, a short sale needs to be priced attractively to a buyer to make it worth their time to wait.

After the contract    

    After the lender commits to the contract you coordinate the rest of the transaction in a normal way.  The lender will have some instructions and may need to sign some documents as part of the closing but it should proceed in an orderly way.

Is a short sale a smart move for the seller?

     I have been told by people who know, (lenders, and title officers), that a short sale is better for your credit than either a foreclosure or a bankruptcy.  That would be the primary reason that a seller would sell their home with a short sale.  You would normally only do a short sale if the other choices are foreclosure or bankruptcy.

Why would a lender agree to a short sale?

     If a lender is in a position to take possession of the house, why would they agree to a short sale?  Because the process of taking possession of the house through foreclosure and then reselling the house costs a lender a lot of money.  It has been reported that the costs to a lender may average as much as $50,000–$75,000.  The lender may be way ahead if they take a $25,000 hit on a short sale.

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I mentioned in yesterdays Market Memo that although the Fed lowered it’s rates by 1/2% it didn’t seem to change long term mortgage interest rates.  In fact, fixed mortgage rates went higher last week.

Howard Nugent at Wells Fargo sent me two interesting articles with a little better explanation about how mortgages work and what causes the interest rates to rise and fall.  The Fed And You, and Mortgage Saga are excellent informative articles for anyone looking for a mortgage or helping someone else to find a loan on their home.

If you are looking for a home…give us a call.  If you call 907 373–0999 it will ring on Jay’s cell phone and my cell phone at the same time.  You get whoever picks up first…try it.

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Here are the statistics for the Wasilla and Palmer Real Estate Market for this week.  These figures actually show the numbers for the whole borough from Mat-Su Borough. 

Our pending sales have been in the low twenties now for the last two weeks.  We normally see a small bump in real estate after the Permanent Fund Dividend checks come out.  That will happen in October.  It will be interesting to see what happens.

I notice that the pending sales this week averaged just over $200K.  The closed sales are still quite a bit higher.  With the new retail stores going in we will have more jobs in the area.  I would assume that these jobs will not raise the average household income in our area by much if any.  They affordable home for the average household remains about $200,000. Click here for an explanation of affordability in the Mat-Su Borough.

Mortgage Rates This Week

Last week the Federal Reserve dropped their interest rate…what happened?  Mortgage rates went higher!  I was quoted 5.875% on a 30 year fixed on September 14, that same loan had risen to 6.375% on Sept 21.

For a good explanation of why this happened click here.

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I think I’m going to start a new category just for fun.  In my travels around I see a lot of interesting houses. Alaskans are unique, and some of us show it in our classic Alaskan houses. 

I’m trying to think of a name for these houses…if anyone has a good title let me know.

The one in the photos here is a good starter.  I don’t know the story behind this house but I’m sure there is one.  It is located right here in the Mat-Su Borough.

I can’t give you good directions to drive by it, the driveway is probably gated.  This house has been there awhile and has proven that it can withstand the winds and earthquakes.  It must be pretty stout, although it looks to me like it should fall over.

Take a look at the photos below…

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I have said for awhile that Alaska has no real good news on the horizon.  We need some good news to revive the economic spirit in this state.

I am not a pro on the natural gas pipeline, but I have been watching it with the same interest most Alaskan’s have.  We know that it would bring a needed boost to the state.  There is a lot of gas in the state, (there is even some outside of Juneau).  If we can figure out a way to get it to market it might replace some of the declining oil revenues.

One of the major arguments against a liquified natural gas system is that there were no ports to accept it on the west coast.  But now I find that there are some plans in place and people are moving ahead.

In the unlikely place of Anchorage Daily News political blog I find this link to an application to build a deep water LNG port off the coast of California.  Apparently there are plans for several more up and down the West Coast.  That will put some wind in the sails of the people pushing for an “all Alaska line. 

So while it isn’t a big deal yet, you can use a little imagination to see that this could become a big deal.  Now we just need the other two pieces of the puzzle.  The LNG tankers…and the LNG pipeline and we are in business.

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Here are the numbers for the Matanuska-Susitna Borough for the past week.  It looks like closings are still healthy and all the other numbers are down a little.  That includes new listings and total listings.  It appears that we may be slowly moving into the winter market.

Often, we notice a slight bump in pendings during October.  That is when the Permanent Fund Dividends come in.  Sometimes people use this money for the little extra that they need for closing costs or down payments. We will be watching for that this year.

I spent some time today trying to find matched pairs to determine if the prices are rising or falling.  Without matched pairs we are left dealing with averages.  I did find a few matched pairs that indicate to me that prices are pretty steady.  I would say that if you bought a house last year and it is in exactly the same condition this year your value is within 2% of your purchase price. 

If you have to sell it one year later, don’t expect to make a profit.  In fact, after closing costs and Realtor fees you will probably have to write a check at closing.  That is why we generally advise people NOT to buy unless they are planning to live in the house for a few years.  That advise didn’t hold during recent years of faster than normal appreciation but it is now back. 

If you are only planning to live in your house for a year or two, you should rent instead of buy.  The caveat to that is to buy a fixer upper into which you can sweat equity.  That assumes you have the skills and the time to do the work.

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Almost every issue of the Mat-Su Valley Frontiersman and the Anchorage Daily News for the last few weeks have included opinion pieces and letters to the editor against Proposition One in the upcoming Mat-Su Borough election.

Noticing the sensational language, and repeated terms I recognized it as a coordinated campaign. Someone has been handing out talking points and asking volunteers to write as much as they can on this issue.  I also remembered that both the Mat-Su Assembly and the Palmer City Council had considered spending public funds to fight this propostion. 

I became curious about Propostion 1 but it took a phone call from someone asking how I planned to vote on the issue to actually cause me to read it.  I just read it this morning…you can read it too.  It’s right here on the Mat-Su Borough website.

It protects private property owners from an overzealous government.  That seems like a reasonable thing to do in the old US of A.  No wonders it’s called the Private Property Protection Act. 

The fear mongers make it sound like it will bankrupt the Mat-Su Borough.  Perhaps they haven’t read the ordinance, or perhaps they can’t understand it.  It appears to be very plain English to me. 

Propostion 1 says that if the borough restricts the right of a property owner to use his/her land in such a way that it decreases the value of the property then the borough has a choice.  They can pay the owner just compensation for the decreased value, or they can lift the restriction.  It seems very plain and simple to me.

The only way it would cost the Mat-Su Borough any money at all is if the borough decided that the restriction in land use was important enough that they would reimburse the private property owner for it’s decreased value.

It is really just an extension of the current law which requires government to pay for any land or property that they actually take from a land owner.  For example, the state has paid quite a few people along Trunk Road for land they have taken to straighten the road.  We have worked with at least three of those displaced land owners. 

Will there be a shake-out period as the intricacies of the new law are defined by the courts?  Of course there will be, just like there normally is when any new law is passed.  Only this time it will be the government challenging the new law rather than the private citizen.  The shoe is on the other foot.

I honestly don’t have any idea if Propostion One will pass.  I will certainly vote for it. 

By the way, if you want to know how to vote on local issues but don’t have time to really look into things, just drive by 4–corners.  That’s where the two photos were taken.  The conservative signs are on the North Side of the Palmer-Wasilla Highway, and the Liberal ones are on the South. 

For anyone not local, Four Corners is the intersection of the Palmer-Wasilla Highway and Trunk Road…and the above comment is only partially “tongue-in-cheek”.  That method of choosing your votes is currently very accurate.

Whatever you do…VOTE…Oct 2, 2007.  These local elections generally affect your day to day life more than the big ones do.

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An important guage of housing prices in any area is a comparison of the average sales price to the average income in the area.

The closest figure I could find was $56,084 as a median income for the Matanuska-Susitna Borough as a whole in 2004. So I am making a couple of assumptions to come up with a working figure.  First, I assume that the household income is higher now than in 2004 and, second, that it is higher in Wasilla and Palmer than in the whole borough. 

Let’s use $60,000 for an average household income, I think that it is a reasonable number…plus, it’s nice and round.  For you in the Mensa Society, I do realize that median and average are two different things. 

$60,000 divides nicely into $5000 of income per month.  If we use the old standard that your monthly housing payments, (PITI), should be 30% of your monthly income or less, that leaves $1,500 per month to pay your Principle, Interest, Taxes, and Insurance, (PITI).  This 30% standard has been stretched in recent years but it is a good safe standard to use.  Pushing beyond that amount often puts people into financial difficulty.

Taxes are running at about 13 mils which equates to $1,300 for every $100,000 of assessed value, or about $2,990 for the average Wasilla-Palmer home.  You can check out the taxes on any particular house on the Mat-Su Borough website. 

As you can see from the following two charts, (click on them to expand), the average sales price for Wasilla and Palmer is about $230,000

.

You should be able to get insurance for about $900 per year for an average house in Wasilla or Palmer. 

That equals $3,890 for taxes and insurance…plug it in to the mortgage calculator in the right column.  You need to put the total amount for taxes and insurance in the tax slot.

The default on the calculator is 6.5% interest on a 30 year fixed loan.  Don’t choose anything but a fixed loan unless your have very good reasons for doing so.  You might be able to get a little better than 6.5% if you shop around.  I mentioned an attractive quote just the other day in this post.

That equals a monthly PITI of $1770.93…oops…a little high.  If you get 6% interest you can get it down to $1703.14 but you are still high.  Play around with the mortgage calculator and you can find a price that equates to our magic 30% of monthly income figure of $1,500 per month.

Depending on how you play with the numbers the average price for the average household should be between $190,000–$200,000.  Hmmm…no wonder most of the sales are under $200,000.  But we certainly aren’t as high on the affordability scale as many parts of the country are.  A starter home in Los Angeles for example is higher than $500,000 with an average household income of only $75,000.  No wonder their prices are coming down to reality so quickly.

Can you get a house in Palmer or Wasilla for $200,000?  You certainly can.  Jay and I recently did a final walk-through on a just completed brand new three bedroom, two car garage home that we recently helped someone buy in Palmer for only $175,000.  We both commented on how nice a home it was for the price.

Here’s a nice one on one acre for $179,900.  You can get a lot of house for less than $200,000. 

Give me a call on my cell (907) 232–7900 if you need help finding a home.

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And hopefully a little more…

I’m already ducking tomatos for using the same bad pun twice in one week.

But here are a couple properties currently on the market that look as if they would produce an income right out of the box. 

• $250,000 for a very unusual four plex…Listed with Charlene Moss at Prudential Vista Real Estate.

• $189,900 for a 1,952 square foot duplex with a garage.  Listed with Larry Ficek at RE/MAX of Wasilla

It’s easy to make a case for these multi-family units to actually produce a monthly income.  If you would like to see any of them, give me a call on my cell, (232–7900).  I would love to show them to you.

Some people make a distinction between investment property and income property.  In this distinction investment property isn’t expected to pay off until it eventually sells, when the appreciation hopefully exceeds the purchase price and holding costs. 

Income property actually begins to pay for itself immediately and if it is maintained properly usually appreciates as well. It seems to me that if one is investing in real estate it would be a good idea to purchase something that pays for itself.

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Here are the statistics for this week.  We are still moving along at a fairly steady pace.  Closings are down from last week but about up with everything since spring. 

I took a look at the closed sales for the last three months:

• New Construction  60, Average price $229,680
• Less than 5 years old. 163, Average price $254,735
• 5–10 years old. 45, Average Price $246,402
• Over 10 years. 161, Average Price $193,585

It’s interesting to see the difference in the markets.

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