Bank of America Allows Select Few to Stay in Homes And Lease Back

Bank of America recently announced a program to allow some struggling homeowners to sign their deed over to Bank of America (similar to a deed-in-lieu) and then rent the home back for up to three years. This pilot program, called “Mortgage to Lease,” will initially be tested in only Arizona, Nevada, and New York and will be offered to less than 1,000 of their customers. Bank of America will hand select the participants and reach out to them. Unfortunately, there is no way to apply for the program as indicated on Bank of America’s press release, “there will not be any opportunity for customers to volunteer or apply for consideration.”

According to Bank of America, those who successfully complete the program will be forgiven of their mortgage debt. They will then be expected to rent their home back at market value, which would presumably have to be less than their current mortgage payment for their participation to make sense.

It’s a very narrow scope of who would qualify for this program. The loan must be delinquent for more than 60 days, the home must be owner-occupied, foreclosure seems inevitable, no second liens, you have to be able to afford the market rent payment, and the loan has to be owned by Bank of America (even if you currently make your mortgage payments to BofA, they may not technically own the loan).

My assumption is that we’ll likely not see this in Flagstaff, at least not initially. I’m guessing they’d want to stick to a few large markets to get the administrative efficiencies of dealing with fewer property managers and analyzing fewer rental markets. I’d be curious to hear from anyone in Arizona who’s solicited for the program outside of the Phoenix area.

Keep in mind that Bank of America is only offering this to 1,000 people, which represents a very small fraction of all their customers facing default. Even if a homeowner isn’t contacted for this program, it’s important that they know there are often better options than foreclosure. Many people could still be eligible to do a short sale and avoid many of the consequences of foreclosure.

Bank of America Press Release

Distressed Property Institute

Special thanks to Alex Charfen of the Distressed Property Institute for keeping us CDPE®’s up to date on these issues.

As a disclaimer, this is not intended to be advice, legal or otherwise. It is also not intended to be an official or comprehensive guide to this program, as their terms could change. See Bank of America’s website for more information.

Home Sales and Prices Climbing in Flagstaff – Shortage in Some Segments

The Flagstaff real estate market appears to be heating up and there’s even a shortage of homes in some segments!

The number of homes sold in March jumped up 69% over February of this year and 18% over March 2011. The inventory of homes available for sale remains lower than usual and almost a third of the homes on the market are under contract, which is higher than it’s been in quite some time.

The above figures are for all of Flagstaff and the immediately surrounding communities. If you look at just Flagstaff city limits, the market is showing even more signs of improvement, to the point where it leans slightly more towards a seller’s market.

One of the most in-demand segments of the market right now is townhomes. As of this writing, there are only 74 townhomes on the market, with 30 of those under contract! Given the current pace of townhome sales, this equates to 4-month supply of available townhomes – solidly in the territory of a seller’s market. Certain price segments are also in the 4-month supply or better!

The trailing average price has risen for 10 of the last 12 months, for a total increase of 6.3% in the past year. It’s possible that prices had over-corrected downward and are now adjusting back to where they should be based on current supply and demand.

If you think you can’t sell if you’re not in a short sale or foreclosure, think again – over half of all homes sold were not “distressed” sellers and, again, the inventory (your potential competition) remains lower than it’s been. Please contact me for further info on what the current market conditions mean for you and the sale of your home.

Source for Statistics: Northern Arizona Association of Realtors MLS – Flagstaff area residential home sales.

Why You Should Buy A Condo For Your NAU Student

The reality is that college is expensive and housing is a big part of that expense. Your kid is going to need a place to live for the next four years, so why not defray some of that cost by investing in a property that your kid could live in while at NAU? Right now it’s typically less expensive to own than to rent, plus you have other benefits such as gaining equity through paying down the mortgage and possible appreciation. Let’s explore some of these options…

Living in the NAU dorms:
Looking on NAU’s Residence Life website, dorms can be as high as $599/month, with a typical rent appearing to be $470/month. This isn’t horrible, but in most dorms you have to move your kid in and out each school year and you have nothing to show for all that money spent in rent for four years. Even if you’ve decided to have your kid in the dorms for the first year, it still makes sense to invest in a property for their remaining three years and maybe even keep the property as a rental after they graduate.

Renting off campus:
Renting off campus in Flagstaff can be $500+ when sharing with roommates and even more if you rent your own 1-bedroom place. The problem here is that you’ve spent over $24,000 in rent in four years with nothing to show for it. Plus, you’re competing with many others to find the good rentals and being at the whim of a landlord means your son or daughter may be forced to move multiple times during their time at NAU.

Buying a Condo or Townhome in Flagstaff:
Your total monthly payment on a 1-bedroom or studio you purchase will very likely be less than the amount you’d pay in rent, depending on how much you put down. An even better option is to buy a two or three bedroom condo or townhome and have your student get roommates whose rents contribute to the mortgage, making your total monthly cost much less than if you were just paying rent. Not only are you paying less each month, but no matter which option you choose, you’re also gaining equity by paying down your mortgage each month, which can add up to thousands of dollars over the course of three or four years.

Single-family homes are also an option, but most people prefer a condo or townhome in this situation because of the lower maintenance and lower prices. I can help you determine which options might make the most sense for your situation.

If you’re wondering how much you’d need to spend upfront for this, you can purchase a second home with conventional financing and a down payment anywhere from 5-20%. There’s also an FHA loan product, informally called a “Kiddie Condo Loan,” that allows you to purchase the home with your son or daughter for as little as 3.5% down. I can provide you with more specifics on which condos and townhomes in Flagstaff might be the best fit and what to expect with the prices of those units, but in general, condos are ranging in the low-to-mid $100k’s and townhomes in the mid $100k’s to $200k.

Owning investment property is one of the best ways to gain wealth and investing in a condo or townhome for your NAU student is a perfect opportunity to get started. At the very least, you’ve defrayed some of the costs of college, you’ve provided a stable environment for your son or daughter, and given them an introduction to the responsibilities and benefits of homeownership.

Pending Sales in Flagstaff are Up

February’s stats for Flagstaff real estate are in and pending sales (listings under contract) have shot up 25% over last month to the highest level since last July. Pending sales have increased in all categories: short-sales, foreclosures, new construction, and traditional sales. Of course, the great part is that it’s only March and sales typically increase from now through the summer.

The number of homes on the market has begun climbing, which is typical as spring and summer approach. Distressed sales (short sales and foreclosures) made up a little over half of the 54 sales in Flagstaff in February. One in five sales were short sales and one in three were foreclosures.

The market is showing signs of life and prices are holding stable! If you’re considering selling, now is a good time for you with the market being more balanced than it’s been in years and if you’re a buyer, now is your chance to take advantage of the low interest rates.

2011 Market Review – Striking Distressed Stats and Other Highlights

After reviewing the year-end statistics for the Flagstaff real estate market in 2011, the most striking statistic is that foreclosures were just under 30% of all sales and short sales were nearly 12% of all sales. Combined, distressed sales (short sales and foreclosures) were over 41% of all sales!

What’s the significance of foreclosures outnumbering short sales 3-to-1? That means three out of four homeowners in distress didn’t do a short sale or their short sale wasn’t successful. This goes to show that many people don’t know they have better options than foreclosure or they need to be working with an agent who is trained in short sales. Short sales are usually better for the homeowner’s credit and it saves the surrounding community from having another foreclosure nearby, which further depresses prices.

Of course, 59% of all sales were not distressed. This includes new construction, which was 3.5% of homes sold.

There were 953 total residential sales in Flagstaff. This includes single-family, townhomes, condos, and manufactured homes. This is 97 more sales than in 2010, which amounts to an 11% increase and is the highest number of sales since 2007.

The trailing median price ended 8% lower than the beginning of the year. It dropped a total of 12% in the first part of the year before climbing back up in the last few months.

The supply of homes (the balance between the inventory and the current pace of sales) has continued to drop to a normal level. It started at 8 months of inventory and dropped to 5.3 months at the end of the year. Six months of inventory is considered a balanced market, so the current level is helpful for price stabilization because it indicates that the major oversupply of homes is diminishing.

Buying Power Incredibly High

You probably know that interest rates are historically and unbelievably low. What you may not know is how much the change in interest rates affects your buying power –  the amount of house you can purchase without increasing your payment.

Let’s assume you want your mortgage payment to be $1,500 per month for principal and interest. Rates fluctuate daily, but at the current 4.125% for a 30-year fixed mortgage, you could purchase a home for roughly $386,000 with a 20% down payment. If the interest rates rise to 5%, you’re only able to purchase a $349,000 home for the same payment. Now, if the interest rates rise to a modest 6%, which is still considered historically low, your $1,500 per month payment will only get you a $312,000 house! That’s a big difference in purchasing power and keep in mind that, historically, rates above 6% were the norm.

The above example assumes a 20% down payment, but it’s important to know that there are options for only a 10% down payment on conventional loans and there are programs that allow for even less.

Being this low, the rates will inevitably go up at some point. Don’t look back on this time period as the time you wish you would’ve purchased your next home!

Purchase Power By Monthly Payment and Interest Rate
$1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500
4.125% $257,918 $322,398 $386,877 $451,357 $515,836 $580,316 $644,796
4.50% $246,701 $308,377 $370,052 $431,728 $493,403 $555,078 $616,754
5% $232,852 $291,065 $349,278 $407,491 $465,704 $523,917 $582,130
5.50% $220,152 $275,190 $330,228 $385,266 $440,304 $495,342 $550,381
6% $208,490 $260,612 $312,734 $364,857 $416,979 $469,101 $521,224
6.50% $197,764 $247,204 $296,645 $346,086 $395,527 $444,968 $494,409
7% $187,884 $234,856 $281,827 $328,798 $375,769 $422,740 $469,711
Amounts are based off of and include a 20% down payment

Not as Dead of Winter this Year

Yes, this is the dead of winter and the slowest time for real estate sales. However, the interesting news is that the number of residential sales in Flagstaff weren’t as low as they have been the past few years. In fact, with 59 sales, this was the busiest January since 2008. In Jan ’09, we had only 34 sales! Maybe the lack of unusually large snowstorms this winter has helped keep people looking.

Other than that, inventory is still low, which is good news if you’re thinking of selling. Compared to the previous month, pending sales are up quite a bit, the number of distressed sales (short sales and foreclosures) notched up, and pending new construction inched up as we get closer to the building season.

The trailing median prices also inched up again, rebounding from December’s slight drop. This makes it 5 out of 6 months that this figure has increased.

Market Up 4 of the Last 5 Months in Flagstaff

Is the market going up or going down? Or are we just bouncing along the rocky bottom? The local paper reported a decline in housing prices for 2011, which is true, but let’s take a closer look. In short, it was at first worse and then better.

The total decline in Flagstaff for 2011 was about 8%. However, this includes a sharper drop in the first half of the year and then somewhat of a rebound in the second half. From January through July, the median price fell a total of 12%. But then from July’s low through November, the median price rose a little each month for a total increase of 7%. It’s difficult to know which way the trend is going due to another slight drop in December; however, four straight months of price increases is significant. Hopefully, the next few months will give us a better idea of the direction of the market.

Take note that these monthly stats are based on the median prices for the trailing six months to give us a more stable and accurate figure. The average price on a month by month basis swings too wildly because a few really high or really low sales can throw off the average in any given month.

Source for Statistics: Northern Arizona MLS – Flagstaff area residential home sales.

Dues change in Continental Country Club

Members of Flagstaff’s Continental Country Club have seen somewhat increased dues for 2012. A full membership is now $400 per year and an associate membership is $285.

The full membership has access to all of Continental’s amenities, such as the pool, tennis courts, fitness center, and a discount on golf. They also have access to the Bear Paw Activity Center, which has an outdoor pool, kids splash pool, hot tub, basketball court, and games, movies, etc. for the kids.

The associate membership includes architectural review and CC&R compliance (the HOA drives through the areas regularly), which are good features for resale. Plus, according to Continental, associate members can upgrade to a full membership on a year-by-year basis by paying the difference.

The default type of membership is determined by the subdivisions within Continental.

Of course, when you consider that the annual fee is per property and not per person, the full membership is a very good value for what you receive in amenities.

In related news, Continental’s new restaurant, to replace Jotini’s, will be opening very soon and will be called Jake’s on the Green.

Housing Supply Back to Normal?

It appears housing demand may be catching up with supply, at least for the moment. The supply of homes in Flagstaff has recently dropped to a 6.4 month supply (down from an 11-month supply this summer) and there have been almost 100 more sales here this year-to-date than last year-to-date. Housing supply is the number of months it would take to sell the current inventory based on the pace of recent sales and the National Association of Realtors considers a 6-month supply a balanced market, neither a buyer’s nor seller’s market.

Of course, it’s normal for inventory levels to fall as winter approaches, but the fact that they have fallen this far may indicate that the glut of homes is beginning to diminish. This is also the trend nationally as reported by the National Association of Realtors. Their latest economic report shows a mostly continuous decline of inventory recently, which could help to stabilize prices.

It does seem natural that as the prices have become more and more affordable and interest rates have continued to be low, buyer demand would eventually increase. Plus, according to the US Census, family formation and the number of households have continued to grow through this recession, further adding to the demand in housing.

So the question is, like a kid on a long and tiring trip, “are we there yet?” Have we hit the bottom of the market? Unfortunately, no one knows when we’ve hit bottom until we’re past it, and many economists suggest we’ll “bounce along the bottom” for quite some time, but it’s good to see that the fundamentals are improving.

Reports Referenced:
Lawrence Yun, Chief Economist, National Association of Realtors. (October 21, 2011). Housing Inventory Falls in Winter.

US Census. (November 2011). HH-6, Average Population Per Household and Family: 1940 to Present.

Source for Statistics: Northern Arizona MLS, Flagstaff area sales of single family homes, townhomes, condos, and manufactured homes. Information based on listing data input by individual REALTORS®.