Real Estate News Shorts

These are some short stories in the news this week of interest to real estate investors.

Home Sales Suffer from Tight Lending Restrictions

Since 2006, home prices have fallen nationally by around one-third. Home affordability hasn’t been at this level in decades. Home prices are at rock-bottom, and interest rates are at historic lows as well. This would seem to be a perfect storm for normal home buyers, but there’s nothing stirring.

The reaction to the housing crash beginning in 2007 was a severe tightening of lending requirements, and this situation hasn’t changed much at all. Lenders are still making it very difficult for would-be buyers to get a mortgage. While only around 60% of mortgage loans in 2006 required full documentation, roughly 90% do today. The average credit score for loan applications is now around 730, a far cry from people borrowing in the boom with scores in the 500s.

Short Sale Negotiation Variables

An article by a real estate broker experienced in short sale negotiations with banks provides four bargaining points that are a part of negotiations.

1. The lender wants a cash contribution at closing from the seller.

2. The seller is required to sign a promissory note for part of the shortfall.

3. A combination of 1 and 2.

4. Complete debt removal.

Of course, the goal of the real estate agent working with the seller is to get complete debt removal. However, depending on how much difference there is between the principal due on the loan and the purchase offer price, this can be a rough discussion. Of course, short sales take months longer than other types of transactions, and this leads to seller pressure and buyer walk-aways.

Steep Home Price Decline in November

The S&P Case-Shiller Home Price Index reports with around a 45 day delay, so the numbers for November 2011 are just out. They show that prices declined in 19 of the 20 cities covered by the Index. That was a decline of 1.3% from October.