Kingdom Realty

There have been a few headlines in the papers over the last few days which connect, at least in my mind, to troubled waters ahead for small banks. This, in turn, could spell even more troubled waters ahead for even the most successful entrepreneurs and small businesses. Over the past 1.5 years, we have all been made aware of the credit crunch which has adversely affected entrepreneurial activities as individuals and existing small businesses have largely been cut off from new and already-extended credit. The bright spot in the arena has come from local small and regional banks. These banks have continued to offer credit to people and businesses with good credit scores and track records. F&M Bank of Concord and Bank of Granite are examples of banks that have received many recent favorable recommendations from local businesses here in Concord, NC & Charlotte, NC. At the same time, the larger banks such as Wells Fargo and Bank of America have largely shuttered their doors to even the most qualified of customers.

However, the articles I have been reading over the past week leaves plenty of room to ponder the future of credit availability over the next year. A 02/12/10 Wall Street Journal article entitled “Georgia Gives Banks More Rope” describes how the state signed into law a bill that allows banks to exceed current lending limits of a borrower hasn’t fallen behind on payments. It was previously illegal for banks to put more than 25% of their total capital into an existing lending relationship secured with collateral or more than 15% to an unsecured borrower. Some opined that if this law change did not pass, it would have deepened the real estate crisis in Georgia, which is the #1 state in bank failures. Supporters also worried that Georgia banks would lose some of their best borrowers unless the limits were loosened. Loan losses since the housing bubble burst have eaten into capital levels at many of the state-regulated banks, causing them to collide with the loan-limit caps even when trying to extend additional credit to longtime, highly reliable borrowers. But others believe now is not the time to give banks more flexibility. Since the start of 2008, regulators have seized 32 banks in Georgia, most located near Atlanta in an area know as the “ring of death” by local bankers. In one failure example, Integrity Bancshares lent almost all of its available capital to one real estate developer.

Next to this article is another titled “Small Banks Hit Snag as They Raise Cash”. This article outlines how some small banks are trying to buy back trust preferred securities at an 80% discount. Most potential new investors are leery of investing in banks with these type of outstanding secruties, since holders of those investments would be first in line to recover losses if the bank collapsed.

And from the day before “Small Banks are facing loan woes because of losses on commercial real-estate loans”. The article stated that nearly 3,000 small US banks could be forced to dramatically curtail their lending because of losses on commercial real estate loans. Of the roughly 8,100 US banks, 2,988 small institutions have problematic exposure to commercial real estate loans.

It seems small banks and ultimately, small businesses, have a real whirlwind of issues coming up, eh?

Foreclosures have infiltrated all levels of the housing market. From shacks in sketchy neighborhoods to suburban vanilla homes on cul-de-sacs to the most glamorous of luxury mansions….any type of house you can imagine can be found up for auction at the courthouse steps.  Right now, there are 1.5 million such homes for sale, and prenty more are expected to come down the pipeline throughout 2010. That provides both opportunities and pitfalls for bargain hunters.

I have helped several buyers navigate through the foreclosure purchasing process, and over the years have purchased a dozen foreclosures for my own investing purposes.  Here are a few tips that may be helpful to people looking for a bargain:

1) If you have not purchased a foreclosure before, get help from someone who has. Anyone from the general public can go to the courthouse steps and bid on the properties that come up for sale.  Here in Charlotte, if you have 5% of the price of the home bid, then you can potentially be the highest bidder.  Many people don’t know, however, that your winning bid could have been on the house’s 2nd mortgage, or the house you just won may have other liens or debts on the property superior to the debt you just erased (overdue property taxes, federal tax liens, other superior mortgages).  A person who has successfully navigated the process before and has recent experience with the system is invaluable.

2) Pay for a title search.  Pay an attorney to do a title search prior to putting a bid on a property.  Title searches usually take 2-4 days and cost $50 – $200.  The attorney can confirm what debt you are bidding on and what other superior debts there are.

3) Determine the home’s potential value.  Work with a real estate professional who can tell you what the house might potentially sell for on the open market.  You may want to evaluate different scenarios (not fixed up – its “wholesale price”, or fixed up – its “retail price”).

4) Try to get in the house.  Houses in the process of forclosure are still owned by the person getting foreclosed on.  In many instances, these houses are not available for people to see the inside.  Sometimes, though you can get a sneak peek so that you can know the condition of the house.  The owner may have the house up for sale.  In this instance, you can have a realtor get you in to see the inside.  The owner may have previously tried to sell the house…if so, there may be interior pictures available online (ask a realtor to check).  The house may be abandoned by the owner and empty.  In some cases, they may have left a door or window open, or a neighbor might have a key.

5) Its not always the best to be the first bidder.  The foreclosing bank will be the first bidder.  After that, the bidding process is open to anybody interested.  The advantage to bidding right after the bank (at the time of the initial bid) is that you can bid $1 over the banks bid.  However, the disadvantage is that you may have not had time to do a title search or determine if the bank’s initial bid is low enough for it to be worth your while.  Did you know that in Charlotte, anybody can up the bank’s bid over the next 10 days (from the date the bank initially bid)?  The disadvantage to this tactic is that after the time at the courthouse steps when the bank initially seeks other bids, then if you want to outbid the bank, you have to raise the bid price by a minimum of 5% or $750, whichever is greater.

6) The bank’s offer at the courthouse steps is not always a good one.  Over the past few months, I have been shocked at the banks bid is at the courthouse steps.  The bank has been putting initial bids for properties higher than the market value of the property.  These are DISTRESSED assets and the initial price should reflect this status.  However, the banks around here seem to be in some sort of denial right now.  For instance, a house in Concord recently went foreclosed.  The house is probably worth $60,000 at today’s prices if it were fixed up and marketed property.  The debt that the bank was foreclosing on was $80,000.  The bank’s initial bid was $89,000, which reflected the full debt amount plus penalties and extra fees.  Needless to say, nobody bid on it except for the bank.  A few weeks later, the bank employed a realtor who went in and analyzed the condition of the property.  He concluded the house was worth $42,500.  The house appeared on the MLS for this price, and within days the house had 3 offers on it.  Conversely, in Nevada and California banks are many times opening with bids of 30% of the mortgage debt on the house.  Do the numbers first to figure out what the highest you are willing to pay.

The population of the United States has grown more than 9% to 307,006,550 since the 2000 census. The population grew 0.86% since last year’s estimates.  North Carolina was number three on the list of largest population gains.

The population of Texas grew by the greatest number of people (478,000) during the 12 months ended July 1. California was second with 381,000 followed by North Carolina with 134,000.

Some of the reasons cited for large population gains include low cost of living, low property taxes, affordable home prices, relatively stable housing market and a growing economy.

Despite a slow market and a slight decrease in the resale value of most remodeling projects, REALTORS® report that the smartest home improvement investments may also be some of the least expensive. Results from the 2009 Remodeling Cost vs. Value Report show that small-scale exterior projects are the most profitable at resale, according to estimates by REALTORS® who completed a recent survey.

On a national level, eight out of the top 10 projects in terms of costs recouped were exterior replacement projects that cost less than $14,000. Certain types of door and siding replacements, as well as wood deck additions all returned more than 80 percent of project costs upon resale. A steel entry door replacement – a new addition to this year’s list – recouped 128.9 percent of costs, followed by upscale fiber-cement sliding replacements at 83.6 percent. Wood deck additions recouped 80.6 percent of costs.

“Once again, this year’s Remodeling Cost vs. Value Report highlights the importance of a home’s first impression,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. “With exterior projects returning a high percent of project costs upon resale, Realtors® can help give your home curb appeal while adding value to the real estate transaction.

The 2009 Remodeling Cost vs. Value Report compares construction costs with resale values for 33 midrange and upscale remodeling projects comprising additions, remodels and replacements in 80 markets across the country. Data are grouped in nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the twelfth consecutive year that the report, which is produced by Hanley Wood, LLC, was completed in cooperation with REALTOR® Magazine, as REALTORS® provided their insight into local markets and buyer home preferences within those markets.

On a national level, the project with the biggest improvement from 2008 was the attic bedroom addition, recouping 83.1 percent of remodeling costs compared to 73.8 percent in 2008. The only other interior project that landed in the top 10 was a minor kitchen remodel with 78.3 percent costs recouped.
Other exterior projects in the top 10 include midrange vinyl and upscale foam-backed vinyl sliding replacements, which returned more than 79 percent of costs. In addition, several types of window replacements – midrange wood, midrange vinyl, and upscale vinyl – all returned more than 76 percent of costs upon sale.

Similar to last year’s report, the least profitable remodeling projects in terms of resale value were home office remodels and sunroom additions, returning only 48.1 percent and 50.7 percent of project costs.

According to the most recent REALTORS® Confidence Index, 39 percent of recent buyers purchased a home with a Federal Housing Administration-insured loan. REALTORS® who took part in the November survey also reported that the number of first-time home buyers continued to climb to 51 percent.

“FHA helps provide affordable mortgage financing to home owners, particularly first-time home buyers who are so important in drawing down inventory to help stabilize the current housing market,” said NAR President Vicki Cox Golder. “These recent survey results reaffirm that, despite its current challenges, FHA is a critical part of the American housing fabric.”

Foreclosures declined 8 percent in November compared with October, but were still up 18 percent from November 2008.

This was the fourth-straight month that U.S. foreclosures have declined since hitting an all-time high in July, according to online foreclosure marketer RealtyTrac.

Default notices, an indicator of coming foreclosures, also were down 8 percent from October, but up 22 percent from November 2008. Bank repossessions were flat from the previous month and down 2 percent from November 2008.

“We don’t really believe the underlying problems have been resolved,” said Rick Sharga, senior vice president for RealtyTrac. Many borrowers, he told the Associated Press, “simply aren’t going to qualify” for government and mortgage servicer help.

States with the highest foreclosure rates are:

• Nevada
• Florida
• California
• Arizona
• Idaho
• Michigan
• Illinois
• Utah
• Maryland
• New Jersey

Four states account for more than 50 percent of actual foreclosures: California, Florida, Illinois, and Michigan.

Source: Realtytrac

For the first time since 2007, home prices in the greater Charlotte area have increased.  Number of homes sold also jumped again.

The Charlotte Regional Realtor Association reported that the average home sales price was $195,244 in November 2009, a gain of more than 1% from November 2008.  This gain marked the first annual price gain for the area since November 2007.  The average home sales price is also greater than the average price of home sales occuring in 2004, which means people who have owned their homes for this amount of time or longer are likely able to realize a profit if they should decide to sell right now.

In other good news, number of sales transactions in the Charlotte area rose 31% compared to November 2008.  The extreme rise in sales is due in part to the 1st time homebuyer tax credit, which was set to expire at the end of November 2009.  Congress has since extended the tax credit into 2010.  October 2009 also experienced a jump in Charlotte-area home sales of almost 20%.

December 8, 2009  - The weekly average rate borrowers were quoted on Zillow Mortgage Marketplace for 30-year fixed mortgages increased five points last week to 4.67 percent, up from 4.62 percent the week prior. Meanwhile, rose one basis point to 4.20 percent from 4.19 percent, while 5-1 adjustable rate mortgages remained flat at 3.74 percent.

The volume of mortgage requests last week rose 10 percent from the prior week. Of last week’s requests, 51 percent were for refinance loans, 48 percent were for purchase loans and 2 percent were for home equity loans. The prior week, 49 percent of requests were for refinance loans, 49 percent were for purchase loans and 2 percent were for home equity loans.

Nine Consecutive Gains for Pending Home Sales Pending home sales have risen for nine months in a row, a first for the series of the index since its inception in 2001, according to the NATIONAL ASSOCIATION OF REALTORS®. The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, increased 3.7 percent to 114.1 from 110.0 in September, and is 31.8 percent above October 2008 when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006 when it was 115.2. Lawrence Yun, NAR chief economist, said home sales are experiencing a pendulum swing. “Keep in mind that housing had been underperforming over most of the past year. Based on the demographics of our growing population, existing-home sales should be in the range of 5.5 million to 6.0 million annually, but we were well below the 5-million mark before the home buyer tax credit stimulus,” he said. “This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.”

By Region

• Pending sales in the Northeast surged 19.9 percent to 100.2 in October and is 44.2 percent above a year ago.
• In the Midwest, the index rose 11.6 percent to 109.6 and is 36.6 percent higher than October 2008.
• Sales in the South increased 5.4 percent to an index of 115.4, which is 31.6 percent above a year ago.
• In the West, the index fell 11.2 percent to 127.7 but is 21.9 percent above October 2008.

The weekly average rate borrowers were quoted on Zillow Mortgage Marketplace for 30-year fixed mortgages decreased six basis points last week to 4.69 percent, down from 4.75 percent the week prior. Meanwhile, rates for 15-year fixed mortgages fell two basis points to 4.23 percent from 4.25 percent, and 5-1 adjustable rate mortgages increased one basis point to 3.69 percent, from 3.68 percent the week prior.

The volume of mortgage requests last week fell 4.4 percent from the prior week. Of last week’s requests, 49 percent were for refinance loans, 49 percent were for purchase loans and 2 percent were for home equity loans. The prior week, 47 percent of requests were for refinance loans, 51 percent were for purchase loans and 2 percent were for home equity loans.

For North Carolina, the average 30 year mortgage rate quoted this week was 4.72%