Category Archives: Buying a house

Flood... Flip... FLOP!

Flood… Flip… FLOP!

The pitfalls of trying to renovate and resell flooded homes, which should also concern buyers.

After any major flood event, such as the great flood of 2016, there are generally many damaged homes available for purchase, often at low prices. While such homes may offer great opportunities, they also bring with them a higher than normal number of factors which must be carefully considered. This is true for both those who might want to renovate them, as well as purchasers.

As with any renovation project, the wannabe “house flipper” must evaluate the potential market value of the finished home, and compare it to their total costs. Those costs include acquisition, renovation, interest, permits, and sales commission. One must always allow for unexpected cost overruns, and plan accordingly while keeping Murphy’s Law in mind.

With a flooded house, there are even more factors in the equation. Continue reading

A Tale Of Termites

A Tale of Termites

Termites are very destructive, and the outside appearance of wood doesn’t necessarily indicate what’s going on inside.

Not long ago, a very nice listing of ours went under contract. During inspections, evidence of termites was discovered in several rooms of the home. The inspector seemed to think that the termites had been in the house for quite some time, due to how far they had spread. After hearing this, we were very fearful of what damage they may have done. In this series of posts we are going to show how they were discovered, the extent of the damage, and what the final outcome was.

termite1

This picture shows a baseboard in one room of the house. At first glance, it appears normal, but if you look closely, you can see faint lines in the wood. A couple of those lines have dark spots or cracks in them. One can easily be fooled into thinking this is just the grain of the wood, but these actually indicate the presence of termites. Continue reading

Town Hall Meeting on Flood Recovery 9/13/2016

Town Hall Meeting on Flood Recovery 9/13/2016

Notes and comments on the meeting

I attended this meeting last night, which was held at our beautiful Live Oak United Methodist Church. Those present included State Representative Valarie Hodges, Livingston Parish President Layton Ricks, Livingston Flood Administrator Chuck Vincent, several representatives of FEMA, SBA, the governor’s office, GOHSEP, and others.

Below is a summary of the notes I took during the meeting, along with my comments in italics.

Continue reading

After the 2016 Flood: What to Expect in Real Estate and Beyond

After the 2016 Flood: What to Expect in Real Estate and Beyond

Answers to important unresolved issues may change this, but as of now, here are our broad views on what lies ahead.

We broke down residential properties into 3 general categories, and offer our thoughts on issues related to each:

1. Homes which were untouched by the flood
As detailed in our previous article, we believe that prices for these homes should rise modestly (10-15%) over the next year. This is due to the simple law of supply and demand. Among these houses, those in so-called “no flood” zones (zones X, C, or B; properly called “moderate to low risk areas”) should be the most sought after. (Click here for a more complete explanation of flood zones.)

Undamaged houses in “flood zones” (zones A, AE, or V; properly called Special Flood Hazard Areas / SFHAs) will still be in demand, but because of their flood zone classification, they’re not quite as attractive.

2. Homes which received minimal flooding, and have never flooded before
These houses should still be very marketable after PROPER repair, especially those not in an SFHA. Sellers will have to disclose the fact that it flooded, of course. Homes such as these will take some time to repair, and once complete, probably won’t fetch quite as much as undamaged homes. However, they will have considerable value, since there are a limited number of homes which were completely untouched. It’s possible that bargains may be found among these once-flooded houses, if the owners decide to sell them as-is and move instead of repairing them.

3. Homes which received a significant amount of flood damage
Houses in this category have many potential issues to examine. Local governments are requiring inspections before issuing building permits. Also, higher water levels mean more damage, thus the “substantial repair” rules are more likely to apply. “Substantial repair” is a repair costing at least 50% of the property’s market value. FEMA mandates that properties requiring substantial repair must also be brought into compliance with current NFIP (National Flood Insurance Program) guidelines. In other words, if a house is below BFE (Base Flood Elevation) and “substantially damaged” then it must be elevated at least to the BFE in order to be compliant. Ascension and East Baton Rouge Parishes have even stricter requirements with regard to “substantial repair”. Ascension normally requires elevation to 1’ above the highest water level during a flood, and East Baton Rouge considers 40% to be the threshold for “substantial repair”. However, as of now, Ascension has relaxed their elevation requirement to 1’ above BFE, which is still tougher than FEMA’s standards.

Houses such as these will need a lot of work. If the owner had flood insurance, then they SHOULD receive sufficient funds to repair it, unless elevating is required. Flood policies include up to $30K of ICC (Increased Cost of Compliance) coverage to help elevate, but that might only pay to raise a small house on piers, and not much else. Mandated elevation is the number one concern on everyone’s mind right now! If a house needs “substantial repair” and lies below BFE, then the cost of elevation must be added to the already large repair cost. Even with flood insurance, the total is likely to be out of reach for many homeowners. People are justifiably upset about this. Some are talking about simply walking away from their homes, as they have no way to pay for everything.

If communities are left with thousands of houses which are deemed both non-compliant and substantially damaged, and whose owners cannot afford to elevate them, it will be a disaster. The houses would stand empty, meaning we could be faced with entire neighborhoods of abandoned homes.

On a positive note, it is likely that there will be opportunities among houses with considerable damage. Some owners will want to simply get rid of their damaged homes quickly, and sell them at bargain prices. This would allow those willing to invest the money, time, and effort to acquire a house inexpensively. Doing so would benefit new homeowners, property flippers, or those wanting to use the house for rental income, thus bringing new life to these homes and neighborhoods. However, buyers need to be very diligent in evaluating “bargain” houses, as any potential issues such as elevation, etc. would be theirs to face. Non-compliant homes are especially problematic, because even a cash buyer could not purchase and renovate them, and simply choose not to have flood insurance. Parishes will not issue a building permit for the repairs on a non-compliant structure, so they’d still have to elevate if the house is below BFE.

The prospect of abandoned homes is something else to consider for those thinking about picking up flooded houses cheap. Suppose that the newly renovated property is surrounded by empty, gutted houses? It won’t have much appeal, and could turn out to be a bad investment. Nobody wants to live in the middle of abandoned homes or vacant lots.

We believe that there will be new activity among even the badly flooded homes. People have a way of bouncing back strongly from disasters like this, and often the neighborhoods end up being better than before. However, that activity could be severely limited by the FEMA/local elevation rules. After Katrina, there were Road Home grants which helped many people without flood insurance. As of now though, nothing similar seems to be available, and thousands of people are gravely concerned.

We’re not sure what the solution is, but the prospect of losing a substantial part of the population (thus the tax base) should motivate governments into action. Hopefully those in charge recognize the gravity of the situation, and will fight for a workable solution. Ultimately, it’s the federal government (as in FEMA and the National Flood Insurance Program) whose guidelines are the overriding factor, so they would have to either relax the rules, or cough up the money to help fix these houses.

If you want to know more about your specific situation, give us a call or send an email. We’ll help you in any way we can.

After the 2016 Flood: Now What?

After the 2016 Flood: Now What?

With the floodwaters gone, many are wondering what lies ahead for home sales and prices.

The devastating flood of 2016 laid waste to much of central Louisiana, on a scale not seen since Hurricane Katrina 11 years ago. More than 80% of the structures in Livingston Parish sustained flood damage, and 35% of those in East Baton Rouge. Other nearby parishes were severely affected as well.

As you may have seen in our 4-part series on flood insurance and related issues, our former home in St. Bernard Parish was completely flooded and lost to Katrina. While there are indeed differences between the flooding from Katrina and this year’s flood, there are many similarities as well. Just as in Katrina, entire neighborhoods have been devastated, and many thousands of homes have been made unlivable. As it was back then, everyone is asking with regard to houses: “Now what?”

There is no simple answer to that question, because issues such as FEMA payments, rebuilding requirements, and others remain unsettled. However, based upon our research of what happened in the years following Katrina, and our knowledge of the market, we can offer some informed analysis.

The main factor is that the supply of habitable houses is down, at least temporarily. There was already a shortage of available homes prior to the flood, and with tens of thousands damaged, that supply has now shrunk incredibly. The law of supply and demand will definitely apply, though with some limitations.

After Katrina, I saw some people raise the price of their undamaged houses ridiculously high just days after the storm, hoping to “cash in” on the sudden demand. However, since most home sales are financed, the price MUST be supported by an appraisal. This fact kept rampant price gouging to a minimum. At the same time though, there WAS a legitimate shortage of homes. Plus, buyers who had cash could afford to pay a reasonable premium to quickly get a house untouched by the hurricane. So, home prices indeed rose.

Danielle and I remain members of the New Orleans MLS, so I did some in-depth research of home prices before and after Katrina. I chose to compare homes which sold at a price of $250K or less; were in Very Good or Excellent condition; and were not foreclosures. I excluded St. Bernard Parish from the initial search, since EVERY structure in the entire parish (including our house) was declared uninhabitable after the storm.

From January 1, 2005 through August 28, 2005 (the day before Katrina) sales of homes meeting my search criteria averaged $92.59 per Square Foot of Living Area (SFLA). In this period, 4,309 such homes were sold.

I then ran the exact same search, for the same period 1 year later, in 2006. The average sales price per SFLA was $105.85. The number (volume) of sold homes increased to 4,487.

So, the average sales price per SFLA for these homes increased by 14.3% after Katrina, with the sales volume going up about 4.1%.flood2016_now_what_graph1I  went back and applied the same search criteria to St. Bernard Parish. Prior to the storm, from 1/1/2005 through 8/28/2005, there were 246 sales, averaging $82.71 per SFLA.

Due to the utter devastation in the parish, it took a long time for rebuilding to begin, so only 7 (SEVEN) houses meeting my criteria were sold there in all of 2006! I therefore extended the post-Katrina comparison period through the end of 2007. During this time, 131 such homes sold, at an average price per SFLA of $92.28.

While the number of sales fell by 46.7%, the average price of those sales was 11.6% higher! It makes sense that the volume was down, since literally EVERY house had been damaged. It also stands to reason that prices went up, due to the low number of available homes. It is encouraging that even homes in an area which was completely destroyed, all of which had to be repaired, still sold on average for 11.6% more than before the storm.flood2016_now_what_graph2

In my opinion, our part of the state after the 2016 flood is a lot like New Orleans and its surroundings were after Katrina. Some areas were completely flooded, while others were untouched, and yet others fell somewhere in between. I think we will see a similar trend in prices, with non-flooded homes, and later, homes which flooded once and were well-repaired, increasing in price somewhere in the 10%-15% range. This estimate will NOT apply to homes which were heavily damaged and/or lie below Base Flood Elevation (BFE). Those will not fare so well, unfortunately.

The road back to full recovery from this disaster will be long and difficult. If you’d like to ask our opinion on your specific situation, we’ll be glad to do so. Just give us a call or send an email.

In my next article, I’ll talk about some of the issues, challenges, and opportunities you can expect with regard to real estate in the coming months.

Hell Freezes Over!

Hell Freezes Over!

That’s got to be why the fees on a widely-used type of mortgage will be FALLING as of October 1, 2016.

The USDA Rural Development (RD) Single Family Housing program just announced that the cost of their version of mortgage insurance will be significantly lowered for fiscal year 2017! This is the period starting October 1, 2016 and ending September 30, 2017.

Commonly known on other loans as PMI, MI, or MIP, these fees are called guarantee fees on RD loans. It’s the same thing, by a different name – mortgage insurance that YOU pay, which covers the lender against any loss they might face should they foreclose on the house and have to sell it for less than what they are owed. Having to pay for something that benefits only the lender is frustrating, but it’s a necessary evil. Without it, lenders wouldn’t write mortgages.

On an RD loan, there are 2 parts to their guarantee fees: The first is an upfront, lump sum fee which you pay at closing. Currently it is 2.75% of the loan amount. The 2nd part is a recurring fee based on an annual 0.5% of the outstanding loan balance, which is broken down and paid monthly as part of your note. While it falls slightly as your principal goes down, this monthly fee stays in effect for the life of your loan.

RD has been raising their guarantee fees over the last few years (see our previous article) which is why we were utterly amazed when we were notified about the upcoming reduction. It will definitely benefit buyers who finance with an RD loan, thus helping sellers as well. Since the loan fees will be less, houses will be more affordable.

As an example: Currently, to buy and finance a $150,000 house with an RD loan would require a 2.75% upfront guarantee fee, which is $4,125.00. The annual guarantee fee of 0.5% is $750.00 per year, which works out to an extra $62.50 on the monthly note.

As of October 1, 2016 the upfront rate drops to only 1.0%, and the annual fee to 0.35%. On our $150,000 example house, this would make the upfront fee $1,500.00 which is a difference of $2,625.00. The annual fee would drop to $525.00, or $43.75 per month, a savings of $18.75 off of the note.

Regardless of the price of a home, these reductions are substantial, and will make a significant difference to many people. We salute the RD program for enacting these reductions.

IMPORTANT NOTES:

  1. If you have an existing RD loan, these changes DO NOT affect you! Existing loans are locked in at the rates and terms in effect when the loan was originated.
  2. The new, lower rates only apply to loans which receive their official commitment from RD on or after October 1, 2016. If you’re buying a house prior to that date, and the RD commitment is issued anytime from now through September 30, 2016, the current rates will apply.

Let us know if you have any questions, or need help buying or selling!

HomeReady, Buyers Not

HomeReady, Buyers Not

Was one more nail in the mortgage industry’s coffin hammered in on December 21, 2015?

We are not, and some could argue that we may never, be fully recovered from the huge mortgage fiasco of a few years ago. Although many people have different opinions on what caused the mortgage crisis, this former loan officer and current real estate agent attributes it to several reasons. The main issues I saw were: 1) Somewhere along the line, the government promoted the opinion that homeownership is a right as an occupant of the United States, rather than a privilege and conscious choice for a person who is financially ready for the investment and maintenance that owning a property entails. 2) The government went too far in its effort to “protect” the “underserved” groups of the population by actually monitoring and fining large and small banking institutions that simply didn’t have their prescribed mix of borrowers in their portfolios. As a result, loans that shouldn’t have been made to borrowers who weren’t financially ready were pushed through to make sure the quota was covered. The sad part is, while these rules seem to care for the economic underdog, they actually hurt the people they profess to help, because those people simply aren’t prepared for the $5,000 expense of replacing the AC unit, or the $10,000 roof repair. Also, just the mortgage payments themselves proved to be unaffordable for many. In spite of this disaster, the government is back at it!

A new Fannie Mae program called “HomeReady” took effect on 12/15/2015. It reduces the income requirements, down payment requirements, and mortgage insurance requirements below those of even a current day FHA loan. You remember the FHA loans, right? They took place of the previously labeled now taboo “subprime” loans. They have a lower credit score requirement, higher debts allowed, and looser credit report rules. They are also the loans that when their buyer loses the home it is taken over by HUD. Have you seen many HUD foreclosures? We all have. So, take those standards and dip them lower to get a larger group of unsuspecting, unprepared borrowers so we can make a bigger foreclosure market and a larger financial problem for the people that are already not making it by even today’s standards.

Here are the basics of the HomeReady loan:

- Minimum 3% down payment
- NONE of the down payment has to come from the actual borrower! They can use grant money, grants, gifts, and the never allowed before CASH ON HAND. The cash on hand is such a no-no in the industry that it has caused home purchases to be delayed and even get turned down because the borrower couldn’t document where the cash came from. The reason that it is an issue is claimed to be that they need to be sure that the funds aren’t from terrorist sources OR are not that of someone other than the borrower. Yet, here on the new loan, those issues don’t seem to be a concern.
- REDUCED Mortgage Insurance coverage for loans that have less than 10% down payment! This is where you want more insurance coverage, as these buyers have less to lose if the 3% isn’t even theirs!
- Homeowner Education Requirement: A mere 4-6 hours to learn everything you need to know to become a homeowner with an online test.

Click here to see a comparison chart showing how HomeReady stacks up to Conventional loans and the MyCommunityMortgage (which has quietly passed away).

Yes, it appears that it has a higher credit score requirement than you would expect, but there are efforts in motion to allow VantageScore to be used instead of the traditional FICO scores, which will allow rental payments and utilities as sources of credit history. This change some are saying would add 100 points to everyone’s score or create credit history where there was none before. It’s arguable whether or not these payment histories of non-traditional credit sources are indicative of a borrower’s ability to pay a large regular payment like a house note. When you don’t pay your cell or electricity, they turn off those services. When you don’t pay your house note, it can take months or years to lose it to foreclosure, so the penalty of not paying is even less of an immediate concern.

What’s even more interesting is that I am not hearing any chatter on the typical mortgage and housing channels on this supposedly sweeping edict of benevolence. There are a few small articles, but not nearly the amount of attention it should be getting. Lenders, please share what you know and let us know what you’ve heard!
Hopefully, individual lenders will not be eager to jump aboard the HomeReady bandwagon. However, if the government convinces them that they will (again) be bailed out when foreclosures happen, they may very well embrace this insanity. If this occurs, many knowledgeable people in the real estate and finance industries fear that another meltdown could occur that would be far worse than what we’ve already lived through.

One loan officer we’ve spoken with said that a lender in her portfolio with this program has added additional rules called “overlays” on top of the basic guidelines, but they don’t have all of the details yet on exactly how it will work.

We are excited to help people buy their homes, and do it all the time. Yet, we feel it is irresponsible of the government to seduce buyers into an attractive, but potentially damaging financial situation which they may not be capable of sustaining. Furthermore, with these “low cost” loans being offered, the future of our industry and economy continue to be jeopardized without disclosing the true price tag to the public and unsuspecting buyers.

A win for homeowners!

The new 2015 transportation bill does NOT take money from those who pay mortgages.

After a huge outcry from realtors and many others, the proposal to appropriate steal part of the guarantee fees (mortgage insurance premiums) from homeowners who pay them was dropped from the transportation bill. The bill was then passed and signed into law. In our recent article, we detailed this proposal, and how damaging it would be to almost everyone who pays a mortgage. The idea was  strongly opposed across the board. Only some Washington DC politicians supported it, seeing it as yet another way to get hardworking homeowners to shoulder the financial burden of yet another government project they can’t afford.

To our pleasant surprise, common sense prevailed. We want to express our sincere thanks to all who contacted their representatives in Congress and opposed this ridiculous proposal. Great job!

The Dreaded Holiday Real Estate Slump

The Dreaded Holiday Real Estate Slump?

But, as with Santa, we have to wonder: Is it real, or imaginary?

In our opinion, the answer is a little bit of both. There is no question that as the holidays approach, buyers get caught up in preparing for the season. Also, some sellers may not want showings to take place, as they’re having parties and company at their houses. Agents are people too, and have their own holiday obligations and commitments as well.

However, it seems that many buyers, sellers, and agents too readily accept as fact that “real estate is going to slow down for the holidays”, so they themselves slow down. Thus, their belief brings about the very result they fear! What we have seen is that this belief is contagious. Sellers all too often decide to take their houses off the market and “wait until next year” or “hold off until the spring”, missing out on months of prime exposure. Buyers sometimes make the same mistake.

This holiday “can’t do” attitude is something we heartily disagree with. At this wonderful time of the year, we do not let up one bit in marketing our listings or working with our buyers. The result is that historically, the months of November and especially December have been among our very busiest ever!

Rather than looking at the holidays as a time when “everything is going to slow down”, we recognize the great opportunity it presents for buyers and sellers. People have time off of work, students are out of school, and those who are motivated seize this opportunity with gusto.

If you have a house to sell, let us put it on the market for you NOW. While others sit around “waiting till next year”, YOUR house can be getting all the activity!

If you’re a buyer, RIGHT NOW is the time to be looking. There is less competition from other buyers, meaning you’ll have more homes from which to choose.

Even though the holidays stay busy for us and our clients, we still do take time to enjoy all that they offer. No matter what, be sure you do the same, and set aside time for celebration, relaxation, family, friends, and God.

Have a blessed holiday season!

ALERT: CONTACT CONGRESS ASAP TO STOP THEM FROM HARMING HOMEOWNERS!

ALERT: CONTACT CONGRESS ASAP TO STOP THEM FROM HARMING HOMEOWNERS!

Once again, the idiots in Washington, DC are trying to find a way to make it harder and more expensive to purchase a home.

Background: Every type of loan has some sort of mortgage insurance which the buyer is required to pay. It is called PMI (Private Mortgage Insurance), or MIP (Mortgage Insurance Premium), or a Guarantee Fee. This insurance can be an up-front lump sum payment, a monthly premium added onto your note, or a combination of both. Even conventional loans with a 20% down payment, which don’t charge any monthly PMI, compensate for that by having a higher interest rate! So, while some forms of PMI are more apparent than others, the American homeowner always ends up paying to cover the lender’s risk of loans going bad.

Behind every lender is some entity which is ultimately responsible for the loan. VA loans are backed by the Veterans Administration; Rural Development loans are backed by the US Department of Agriculture; and FHA loans are backed by the Department of Housing and Urban Development (HUD). Note that these are all government agencies…

Conventional loans are backed by FNMA (Federal National Mortgage Association, commonly called “Fannie Mae”) and FHLMC (Federal Home Loan Mortgage Corporation, known as “Freddie Mac”). These are public government-sponsored enterprises (GSEs), created decades ago to provide a “private” secondary market for mortgages. In simple terms, they purchase conventional mortgages from the lenders. In our opinion, since the government has pretty much taken over Fannie and Freddie along with every other form of home lending, the GSEs are now just another department of the government.

Unfortunately, if you want to finance the purchase of a house, you WILL end up paying some form of mortgage insurance. It is a necessary evil, and there is no way around it. With so many mortgages going bad in past years, lenders are more reluctant than ever to write loans, and mortgage insurance helps reduce their risk. Without it, financing a house would be even harder, so there is a benefit to homebuyers.

The problem: RIGHT NOW, a new transportation (highway) funding bill is being debated in Congress which would steal part of those premiums away from the GSEs and use it for roads! The federal government cannot resist ANY opportunity to take money from taxpayers whenever they see it, and this is just the latest attempt by them to do so. It turns out that they raised guarantee fee rates for the GSEs back in 2011 to “offset” a measly 2-month payroll tax cut. This rate increase was for 10 YEARS! In other words, the millions of hardworking Americans who financed or will finance a home with a conventional loan between 2011 and 2021 will be paying for that “tax cut” over the entire life of their mortgages!

The highway funding bill currently in Congress seeks to extend that rate increase another 4 years. And, there’s no telling if they’ll try to raise the rates even more! Either way would keep the financial burden squarely on the shoulders of homeowners. This will prolong the harm being done to everyone trying to purchase a home, and possibly make it worse, all the way through the year 2025!

We urge you to contact your Senators and Representatives and ask them to oppose any use of guarantee fees (“G-fees”) in this highway bill. Homebuyers should NOT have a special “tax” placed on them alone to fund public projects which have nothing at all to do with housing.

You can get contact info for your Senators and Representatives at this website simply by entering your zip code.

Please act NOW, as this bill could be voted on at any time! They are pressing hard to get it pushed through.