Real Estate News

Plant closings, high unemployment and more foreclosures seem to be dominating the local media these days. It’s easy to get caught up in that negative mindset. The press has a tendency to play to negative human emotions.
But there is lots of positive momentum building in our local economy.

Consider these few examples right in our own backyards. Within the past week there have been announcements for a new “W” hotel project, a new class A office building and a gourmet restaurant to be built, all within three blocks of our Birmingham office.

Oakland University recently announced that it is moving forward with its new medical school in Rochester that will ultimately create thousands of jobs. There are also two new major hospital facilities being built. One will be in Clarkston and the other near our West Bloomfield office. And let’s not forget Bloomfield Park, the long talked about planned unit development in north Bloomfield Township that is finally underway.

While the recent past has been filled with bleak economic news, these are signs of a brighter future. Through the outstanding efforts of our corporate relocation team and our diligent sales force, WMR is ready to lead the way as the new economy of Michigan evolves.

Buying foreclosed properties can be considered a good opportunity only if a buyer has been properly advised of these risks and structures his offer to purchase accordingly.

Several weeks ago this column included some advice regarding the pitfalls of buying foreclosed properties. The goal of that message was to point out the fact that clients should be advised in advance about the difficulties that can be expected when purchasing bank-owned (REO) properties. Not only are such offerings not always a great deal, negotiating and closing these types of transactions can be very troublesome.

As we close more and more REO transactions, we are discovering more issues with which to be concerned. In almost every case, an REO sale will require the buyer to agree to the terms of a standard bank addendum to the purchase agreement. These contracts normally supersede many of the terms in our standard PA’s including the requirement that the seller provide a timely commitment for a title insurance policy without standard exceptions and pay for same.

These addenda routinely include provisions affecting the conveyance of title. Frequently the sellers agree to provide an online policy with extremely limited coverage or, in some cases, no title insurance at all. Coverage for special assessments and other types of liens, encroachments and survey issues is excluded. In these cases it is highly recommended that the buyer purchase a full owner’s policy on his own from a reputable local title agency.

It is also important to recognize that title is generally conveyed via “covenant deeds” or “limited warranty deeds”. These are little more than quit claim deeds offering no seller warranties regarding title. This is all the more reason to strongly recommend that buyers acquire their own title insurance.

Another problem that has surfaced with REO properties relates to the condition of the property at closing. We are strongly urging that buyers perform a final walk-through inspection immediately prior to closing to ensure that the property has not been vandalized. In the unfortunate event that such vandalism has occurred, the buyer’s only recourse is to refuse to close on the property. Based on provisions included the typical bank addenda, this would constitute a buyer default. For this reason, we are recommending small earnest money deposits in these cases. Buyers should also be clearly advised of this possibility when making the offer so they know their EMD is at risk under these circumstances.

Buying foreclosed properties can be considered a good opportunity only if a buyer has been properly advised of these risks and structures his offer to purchase accordingly..

Over the past several days the sub-prime crisis has created more turmoil in the banking and mortgage industry. In the biggest bank failure of the housing downturn to date, federal banking regulators closed IndyMac Bank FSB last Friday, naming the Federal Deposit Insurance Corp. as conservator.

The FDIC said it will transfer insured deposits and “substantially all the assets” of IndyMac Bank, to a newly created successor, IndyMac Federal Bank, which will be operated by the FDIC. Insured depositors and borrowers will automatically become customers of IndyMac Federal, FSB and will continue to have uninterrupted customer service and access to their funds. This is exactly the way the FDIC system is supposed to work.

IndyMac was one of the nation’s largest independent mortgage lenders, and had been hard hit by delinquencies and foreclosures. Parent company IndyMac Bancorp Inc. announced Monday that it was no longer considered “well capitalized” by regulators and had stopped making most mortgage loans.

This failure has led to speculation that Fannie Mae and Freddie Mac may also be in trouble. However, Washington won’t let Fannie Mae or Freddie Mac fail. But there will be a cost. Policymakers’ choices are agonizing: They could do nothing and risk free fall in both the financial and housing markets or bail out the mortgage giants, eroding free market integrity and saddling taxpayers with a huge liability. For decades, the two companies operated under different rules than rivals, enjoying unspoken but openly accepted government backing. That will soon change as lawmakers and regulators insist on tough reforms. Fast action by the Federal Reserve and Treasury Department will avert a meltdown.

Senate lawmakers signed off on a bill on Friday that would modernize the Federal Housing Administration and expand FHA loan guarantee programs by $300 billion, create a new regulator for Fannie Mae and Freddie Mac, and create an $8,000 tax credit for first-time home buyers. Stay tuned for more details as this legislation moves through Congress.

Lawrence Yun, chief economist for NAR, expects a “soft” first half of this year for housing and the economy and then “notable improvement” in the second half of the year. But U.S. Treasury Secretary Henry M. Paulson Jr. noted in a recent speech that “most forecasters expect a prolonged period of adjustment” in housing.

Who’s right? How can you figure out when home prices and sales in a particular neighborhood hit bottom and begin to recover ? You will need to do specific research to find the answer. Statistics provided by MLS reports are frequently misleading because they tend to lump entire counties together. A quick look at the WMR monthly Market Report will confirm just how important local statistics really are.

Most experts agree that the most important statistic is the supply, or “inventory,” of homes that are for sale in a local area. The inventory of for-sale homes in a local area is usually measured as a number of months’ supply at a current pace of sales. For example, last month the inventory of existing single-family detached homes for sale in Birmingham between $300-500,000 was 19.4 months, which means it would take that long to deplete the supply of for-sale homes at the current sales rate.

The general rule is that more months of supply indicates a weaker housing market. Many months suggests plenty of homes are for sale or the pace of sales is slow. Those conditions are indicative of a market that favors buyers. Few months suggests a limited number of homes for sale, or that the pace of sales is fast. Those factors are indicative of a market that favors sellers.

Beyond the actual current supply figures, the trend is even more telling. If you really want to know where the market is headed, look at both the actual supply figures and whether those numbers have been trending upward or downward over the past few quarters

Local employment trends and unemployment rates are also important indicators of local housing market conditions. Employment is important because ultimately people need a place to live, and if people are moving into an area because employment is expanding, that will be positive for homeowners.