By Stephanie Armour, USA TODAY
Kelly Butler just got a bargain.
Sure, her new three-bedroom home came with fake barn wood nailed to the bathroom walls, carpet that had to be ripped up, broken closet doors and a need for plumbing and tile work.
EXAMPLES: How buyers saved on 2 homes
No matter. Butler, 27, and her husband, Jim, 28, represent the new face of today's home buyers: first-timers who are snapping up distressed homes and fixer-uppers that are being sold at bargain prices.
Up to 45% of homes being purchased today are in that category, according to an April report by the National Association of Realtors (NAR) — and that's a major force driving existing home sales. First-time buyers accounted for more than half of all home sales in March, with activity concentrated in lower price ranges. But there is a troublesome side, because sales of foreclosed and other distressed homes tend to drag down overall home prices across the USA. These properties typically sell for 20% less than traditional homes.
Economists tracking the beleaguered housing market say these first-time home buyers represent a critical demographic that could help lead the industry out of its doldrums by buying up much of the excess inventory of homes that is drawing down home values nationwide. And in one promising sign, the inventory of unsold homes is starting to shrink. Total housing inventory at the end of March fell 1.6% to 3.74 million existing homes for sale, which represents a 9.8-month supply at the current sales pace, compared with a 9.7-month supply in February.
The Butlers have been fixing up their home since they moved in on Jan. 31. They plan to paint the brown exterior a cheerier white, with blue shutters. For 3% down, they got the foreclosed home in Stratford, Conn., with three bedrooms and two baths for $213,000 and a fixed loan at a 5.5% interest rate. The price was about 35% less than the previous owners paid a few years ago.
"Yeah, it's a little scary from the outside," says Kelly, an operations manager at The Regus Group, which rents office space. "But these fixer-uppers are really selling. There were even bidding wars. All these people were fighting for these houses."
The hope among housing experts is that interest in millions of such properties across the nation will rise because of low interest rates, a tax credit for first-time home buyers of up to $8,000, and home prices that have sunk in some markets by more than 20%. Distressed homes are moving fast because they often sell below market value.
"In the open houses, many first-time home buyers are walking through," says Lawrence Yun, chief economist at NAR. "It's a very good sign that first-time home buyers are responding to tax incentives and historically low interest rates. I'm hopeful. This all points toward improving market conditions."
An unwanted side effect
Signs that buyers are jumping off the sidelines to purchase distressed properties is a welcome indication that sales overall could pick up. But sales at these low prices are having the unwanted side effect of drawing down home prices across the board.
Although prices rose from February to March, the national median existing-home prices for all housing types was $175,200, down 12.4% from March 2008, according to NAR, which attributes much of the downward pressure on prices to the sale of distressed homes.
And there are potential risks to home buyers, who may leap at the good prices on distressed properties only to find they lose any cost savings because the homes need so much work. The national average cost of a bathroom remodel in 2008-09 is nearly $16,000; a major kitchen remodel runs more than $56,000, and replacing a roof is $18,825, according to Hanley Wood, which analyzes the housing industry.
"It can become like that movie The Money Pit," says Leif Thomsen at Mortgage Master, a provider of mortgage services. "These first-time home buyers getting distressed properties can easily get in over their heads if they don't know what they're doing. We strongly recommend against buying any home at auction, because you can't inspect the property first and have an inspection. There are real risks."
The shift toward buying distressed properties does have an upside: In areas hard hit by foreclosures such as Florida, California and Nevada, some neighborhoods peppered with boarded-up homes with overgrown lawns now are showing signs of revitalization.
Florida was among the 10 states with the highest foreclosure rates, according to an April report by RealtyTrac. Despite a 12% decrease from the previous quarter, Florida's first-quarter total of foreclosures was still the second highest in the nation.
Foreclosure filings were reported on 119,220 Florida properties, a 36% increase from the first quarter of 2008. The state posted the nation's fourth-highest state foreclosure rate during the quarter, with one in every 73 housing units receiving a foreclosure filing.
Some houses that were in foreclosure had previous owners who took everything that wasn't nailed down, so the homes have had sinks ripped out, baseboards missing and wires dangling where light fixtures used to be; some banks that own the homes have gone in first and done some fix-up work, such as installing sinks, to spur sales.
Those distressed properties and low prices are boosting sales, with NAR reporting home sales higher than a year ago in Florida.
"What I'm seeing is incredible. At ground zero in Florida, my business has tripled overnight," says Suzanne White, an agent at ZipRealty in Tampa. "There isn't grass overgrown and mosquitoes all around in these neighborhoods anymore. First-time home buyers are saying rates are so low they can pay less than rent. The bank-owned properties are getting multiple offers and selling higher than asking price."
Sacrifices for fixer-uppers
Financing isn't as easy to get as it was during 2006, the peak of the housing boom. Buyers need good credit and a solid income that can be documented, and they need to be prepared to put money down.
The median down payment by first-time buyers was 4% in 2008, up from 2% in 2007, according to NAR. Many are turning to Federal Housing Administration (FHA) loans, which can require as little as 3.5% down.
The volume of single-family FHA-insured loans originated has tripled from $59 billion in fiscal year 2007 to more than $180 billion in 2008.
Buying a fixer-upper also can mean sacrifices: Buyers may have to wait before they can move in because the homes need work, and first-time buyers often have to look past a home's problems to see the potential. For those buying foreclosed homes, dealing with a bank instead of a private owner can sometimes mean lengthy delays.
The sale of distressed properties could have a trickle-down effect that may help boost remodeling businesses, which have seen business slump as homeowners halt renovation plans.
And first-time home buyers are showing more interest. More than three-quarters of first-time home buyers say now is a good time to buy a home despite concern about the economy, according to a March survey by Century 21 Real Estate of 1,000 prospective first-time buyers. More than 80% say prices are affordable, and 68% say now is a better time to buy than six months ago.
Kimberly Miles, 26, is one of them. In February, she got an FHA-insured mortgage on a three-bedroom house with a two-car garage, overlooking a lake in Myrtle Beach, S.C.
The flooring, which smelled because of the previous owner's pets and smoking habit, was ripped up. The drywall needed caulking, and the previous owner had taken the fridge.
The home, which had been in foreclosure, was listed at $142,000 in November and dropped to $122,000 in January. With the FHA-loan, she had to put down only 3.5%, and the $8,000 federal tax credit will pay for a lot of the renovations.
"It smelled awful. You couldn't breathe in there, but I saw the potential," says Miles, who works for the Myrtle Beach Area Chamber of Commerce and Convention and Visitors Bureau. "During the housing boom, I could never have gotten it."
>
FIRST-TIME HOMEBUYERS FIND DEALS | Story
house
House
Buyers: Brian McGee, Chelsea Johnson
* Where: East Atlanta neighborhood in Georgia.
* What did they get? The new home, which stood empty 1 1/2 years, has four bedrooms, 3 1/2 baths, hardwood floors, large deck and is eight minutes from downtown Atlanta. The original asking price was $400,000; the purchase price was $280,000 (seller pays closing costs).
William Kincaid
* Where: Mason City, Iowa.
* What did he get? The home is new construction in a new cul-de-sac carved out of an Iowa corn field. It was on the market a year or more, and the homebuilder has since gone bankrupt. Kincaid said he saved maybe $30,000 to $40,0000 and only looked a few months.
Thursday, April 30, 2009
Wednesday, April 29, 2009
Obama expands foreclosure fix
Two steps: Second liens now covered by modification program; servicers must offer eligible borrowers principal reduction under Hope for Homeowners.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.
Announced with great fanfare in mid-February, the president's $75 billion program has gotten off to a slow start. Loan servicers only recently started taking applications and many delinquent borrowers have complained about being left in the cold because their home values have dropped or they've lost their jobs.
The administration is seeking to address some of the concerns by tweaking the original modification plan, which calls for adjusting eligible borrowers' loans so monthly payments are no more than 31% of pre-tax income.
Servicers covering 75% of the nation's mortgages are now participating in the program, which also allows some homeowners with little or no equity to refinance their mortgages, a senior administration official said Tuesday. Together, the plans are expected to help up to 9 million avoid foreclosure.
Second mortgage roadblock
During the housing frenzy, many borrowers obtained second mortgages to allow them to put little or nothing down when buying a home. Up to half of at-risk borrowers have second liens, according to the administration.
These loans have complicated the modification process. For one thing, they add to troubled homeowners' debt levels. Also, mortgage investors have balked at reducing payments on first mortgages when the second loan was left intact.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor.
Servicers will be paid $500 for each modification and an additional $250 annually for three years if the borrower stays current. Borrowers can receive up to $250 per year for five years to pay down their first mortgage.
Investors can also receive a payment in exchange for extinguishing the second lien. They would receive 3 cents on the dollar for loans more than 180 days delinquent and between 4 cents and 12 cents for less delinquent loans, depending on the borrowers' debt levels.
Servicers who join the new program must modify secondloans when a borrower's first mortgage is adjusted. It will likely take a month to implement, but it should not slow down the modifications of primary mortgages, the administration said.
"By bringing both the first lien and second lien program together, we can reduce monthly payments for borrowers and make it much more likely that they can stay in their homes," a senior administration official said.
Hope for Homeowners option
Also Tuesday, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers had balked at participating in the Hope program because it required they reduce the mortgage principal balance to 90% of a home's current value.
Hope for Homeowners, which began in October, is being revamped in Congress. Servicers would have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
As an incentive to participate, servicers will be paid $2,500 for each refinancing, while lenders who originate the new loans will receive up to $1,000 a year for three years, as long as the loan remains current.
Separately, however, another pillar of the president's plan appears to be headed for defeat this week. The Senate is not expected to pass legislation allowing bankruptcy judges to modify mortgages. The administration had sought this change to pressure servicers to modify loans before borrowers declare bankruptcy.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.
Announced with great fanfare in mid-February, the president's $75 billion program has gotten off to a slow start. Loan servicers only recently started taking applications and many delinquent borrowers have complained about being left in the cold because their home values have dropped or they've lost their jobs.
The administration is seeking to address some of the concerns by tweaking the original modification plan, which calls for adjusting eligible borrowers' loans so monthly payments are no more than 31% of pre-tax income.
Servicers covering 75% of the nation's mortgages are now participating in the program, which also allows some homeowners with little or no equity to refinance their mortgages, a senior administration official said Tuesday. Together, the plans are expected to help up to 9 million avoid foreclosure.
Second mortgage roadblock
During the housing frenzy, many borrowers obtained second mortgages to allow them to put little or nothing down when buying a home. Up to half of at-risk borrowers have second liens, according to the administration.
These loans have complicated the modification process. For one thing, they add to troubled homeowners' debt levels. Also, mortgage investors have balked at reducing payments on first mortgages when the second loan was left intact.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor.
Servicers will be paid $500 for each modification and an additional $250 annually for three years if the borrower stays current. Borrowers can receive up to $250 per year for five years to pay down their first mortgage.
Investors can also receive a payment in exchange for extinguishing the second lien. They would receive 3 cents on the dollar for loans more than 180 days delinquent and between 4 cents and 12 cents for less delinquent loans, depending on the borrowers' debt levels.
Servicers who join the new program must modify secondloans when a borrower's first mortgage is adjusted. It will likely take a month to implement, but it should not slow down the modifications of primary mortgages, the administration said.
"By bringing both the first lien and second lien program together, we can reduce monthly payments for borrowers and make it much more likely that they can stay in their homes," a senior administration official said.
Hope for Homeowners option
Also Tuesday, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers had balked at participating in the Hope program because it required they reduce the mortgage principal balance to 90% of a home's current value.
Hope for Homeowners, which began in October, is being revamped in Congress. Servicers would have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
As an incentive to participate, servicers will be paid $2,500 for each refinancing, while lenders who originate the new loans will receive up to $1,000 a year for three years, as long as the loan remains current.
Separately, however, another pillar of the president's plan appears to be headed for defeat this week. The Senate is not expected to pass legislation allowing bankruptcy judges to modify mortgages. The administration had sought this change to pressure servicers to modify loans before borrowers declare bankruptcy.
Tuesday, April 28, 2009
A wave of homebuilder consolidation?
With an industry on the ropes, analysts say more companies will join forces - some to grow, some just to survive.
By Janet Morrissey, contributing writer
NEW YORK (Fortune) -- When Richard Dugas, the president and CEO of Pulte Homes Inc. recently talked about his company's $3.1 billion purchase of rival Centex Corp., he added fuel to the fire for a possible wave of consolidation in the battered homebuilding sector.
"This is the right combination at the right time," Dugas told analysts when the deal was announced earlier this month. "As the industry prepares for further consolidation, we believe acting first gives us an advantage."
Now analysts and investors are placing bets on which marquee names might be next for a hook-up - and which ones will close their doors.
Large, well-capitalized homebuilders with low debt, such as D.R. Horton Inc., (DHI, Fortune 500) KB Home (KBH), and Pulte (PHM, Fortune 500) - as well as cash-flush private equity firms - will likely be shopping around, while highly leveraged builders with significant chunks of debt coming due in the next three years are likely targets, industry experts say.
Like companies in just about every other industry, homebuilders are having a tough time refinancing in the frozen credit markets. As a result, distressed builders, unable to meet debt calls, could be forced to sell assets or the entire company at bargain-basement prices.
Builders with debt-to-market cap ratios above 75% include Beazer Homes USA Inc. (BZH), Hovnanian Enterprises Inc. (HOV), and Standard Pacific Corp. (SPF), according to Bob Curran, managing director at Fitch Ratings. Their high debt makes them vulnerable to takeouts if the credit markets don't improve in the next two years, experts say.
Builders on the hunt may also be looking for strategic targets. Toll Brothers Inc. (TOL) has a robust balance sheet, but its strong brand name and leadership in high-end housing could make it an attractive buy for a company wanting to expand into the luxury sector, says Stephen Kim, senior real estate analyst AT Alpine Woods Capital Investors LLC, which holds shares in homebuilding stocks including Toll Brothers.
KB Home could fit well with Ryland Group Inc. (RYL) which shares a similar market cap and business strategy, says UBS analyst David Goldberg. But, he notes, "Who knows if KB wants to be acquisitive?"
Then there's D.R. Horton, which could acquire another company to regain its position as the country's largest builder. "There is a certain empire-building nature to this industry, and people want to be the biggest, and you can't be the biggest picking up pieces of raw land or buying private builders - you can't get scale fast enough. So that might push people to do deals" says Goldberg.
Too much too soon?
Most industry experts believe consolidation will accelerate, but many wonder if Pulte might have jumped in prematurely and overpaid for Centex (CTX, Fortune 500).
"We have always felt that there would be additional consolidation in the industry - just not right yet," said Joe Snider, vice president and senior credit officer at Moody's Investors Service in New York. "We're in the middle - we're not at the end yet - of a very deep and long-lasting downturn."
Based on Pulte's closing price on April 7 just before the deal was unveiled, the transaction valued Centex at $10.50 a share, which represented a 38% premium to its closing price of $7.62.
"My gut would tell me that what Pulte paid was a little bit high," says Goldberg. If the market rebounds and prices go up, "Pulte will look like geniuses for buying a big land position at the bottom of the market," he says. But if the market tanks for two or three more years, he believes the merger will be viewed as ill-timed.
Although traffic and sales have improved for homebuilders since February, it's not clear if the Pulte/Centex union is a blip or the beginning of a trend, says Carl Reichardt, an analyst with Wachovia Capital Markets LLC.
Indeed, plunging home prices, rising inventory, surging foreclosures and the frozen credit markets have decimated the housing sector. Home prices are off about 30% on average from their peak in 2005, with once-hot markets such as Las Vegas, Phoenix, and parts of Florida and California tumbling 50% or more, says Kim. "And we're looking for another roughly 10% decline in home prices" this year, he says.
As a result, the nation's publicly-traded homebuilders have slashed prices, boosted incentives and taken roughly $30 billion in writedowns during this period, says Snider. Homebuilding stocks have plummeted 88% from their peak in 2005 until their trough in November 2008, according to Kim. Although they've rallied 6.5% so far in 2009, they're still off about 79% from their peak, he says.
Casualties of the housing bust
Analysts expect a number of distressed builders to exit the market through bankruptcy filings, mergers or fire-sales in the next year or two.
So far, about 17 of the country's top 100 homebuilders - including three publicly-traded builders - Levitt & Sons LLC, WCI Communities Inc., and Tousa Inc. - have filed for Chapter 11 bankruptcy protection over the past two years, says Reichardt. More recently, Comstock Homebuilding Cos. Inc. indicated it may seek bankruptcy protection
Publicly-traded builders, in general, are better capitalized than their rivals in the private sector. Many learned tough lessons from the crippling downturn almost 20 years ago where high debt and inventory levels pushed a flurry of builders into bankruptcy.
Some of the names that survived this rocky period, such as NVR Inc. and M.D.C. Holdings Inc., have among the lowest debt levels and land holdings today. "They learned a bitter, but very wonderful, lesson," says Snider. "They're the best positioned homebuilders today."
Still, many companies are at risk. "Some of the weaker public builders have already gone, and there may be more to go," says Kim. And that's where the well-capitalized players can step in, but they may be best suited to hold off a while longer.
"This is the arguably the worst downturn since the end of World War II and more severe than the late '80s and early '90s," says Curran. "Most parties will probably tend to wait until it's clear that a bottom has been established, and into the early stages of the upside," said Curran.
"I don't think anybody should feel rushed here," said Kim. "But I think they will look and they are looking."
By Janet Morrissey, contributing writer
NEW YORK (Fortune) -- When Richard Dugas, the president and CEO of Pulte Homes Inc. recently talked about his company's $3.1 billion purchase of rival Centex Corp., he added fuel to the fire for a possible wave of consolidation in the battered homebuilding sector.
"This is the right combination at the right time," Dugas told analysts when the deal was announced earlier this month. "As the industry prepares for further consolidation, we believe acting first gives us an advantage."
Now analysts and investors are placing bets on which marquee names might be next for a hook-up - and which ones will close their doors.
Large, well-capitalized homebuilders with low debt, such as D.R. Horton Inc., (DHI, Fortune 500) KB Home (KBH), and Pulte (PHM, Fortune 500) - as well as cash-flush private equity firms - will likely be shopping around, while highly leveraged builders with significant chunks of debt coming due in the next three years are likely targets, industry experts say.
Like companies in just about every other industry, homebuilders are having a tough time refinancing in the frozen credit markets. As a result, distressed builders, unable to meet debt calls, could be forced to sell assets or the entire company at bargain-basement prices.
Builders with debt-to-market cap ratios above 75% include Beazer Homes USA Inc. (BZH), Hovnanian Enterprises Inc. (HOV), and Standard Pacific Corp. (SPF), according to Bob Curran, managing director at Fitch Ratings. Their high debt makes them vulnerable to takeouts if the credit markets don't improve in the next two years, experts say.
Builders on the hunt may also be looking for strategic targets. Toll Brothers Inc. (TOL) has a robust balance sheet, but its strong brand name and leadership in high-end housing could make it an attractive buy for a company wanting to expand into the luxury sector, says Stephen Kim, senior real estate analyst AT Alpine Woods Capital Investors LLC, which holds shares in homebuilding stocks including Toll Brothers.
KB Home could fit well with Ryland Group Inc. (RYL) which shares a similar market cap and business strategy, says UBS analyst David Goldberg. But, he notes, "Who knows if KB wants to be acquisitive?"
Then there's D.R. Horton, which could acquire another company to regain its position as the country's largest builder. "There is a certain empire-building nature to this industry, and people want to be the biggest, and you can't be the biggest picking up pieces of raw land or buying private builders - you can't get scale fast enough. So that might push people to do deals" says Goldberg.
Too much too soon?
Most industry experts believe consolidation will accelerate, but many wonder if Pulte might have jumped in prematurely and overpaid for Centex (CTX, Fortune 500).
"We have always felt that there would be additional consolidation in the industry - just not right yet," said Joe Snider, vice president and senior credit officer at Moody's Investors Service in New York. "We're in the middle - we're not at the end yet - of a very deep and long-lasting downturn."
Based on Pulte's closing price on April 7 just before the deal was unveiled, the transaction valued Centex at $10.50 a share, which represented a 38% premium to its closing price of $7.62.
"My gut would tell me that what Pulte paid was a little bit high," says Goldberg. If the market rebounds and prices go up, "Pulte will look like geniuses for buying a big land position at the bottom of the market," he says. But if the market tanks for two or three more years, he believes the merger will be viewed as ill-timed.
Although traffic and sales have improved for homebuilders since February, it's not clear if the Pulte/Centex union is a blip or the beginning of a trend, says Carl Reichardt, an analyst with Wachovia Capital Markets LLC.
Indeed, plunging home prices, rising inventory, surging foreclosures and the frozen credit markets have decimated the housing sector. Home prices are off about 30% on average from their peak in 2005, with once-hot markets such as Las Vegas, Phoenix, and parts of Florida and California tumbling 50% or more, says Kim. "And we're looking for another roughly 10% decline in home prices" this year, he says.
As a result, the nation's publicly-traded homebuilders have slashed prices, boosted incentives and taken roughly $30 billion in writedowns during this period, says Snider. Homebuilding stocks have plummeted 88% from their peak in 2005 until their trough in November 2008, according to Kim. Although they've rallied 6.5% so far in 2009, they're still off about 79% from their peak, he says.
Casualties of the housing bust
Analysts expect a number of distressed builders to exit the market through bankruptcy filings, mergers or fire-sales in the next year or two.
So far, about 17 of the country's top 100 homebuilders - including three publicly-traded builders - Levitt & Sons LLC, WCI Communities Inc., and Tousa Inc. - have filed for Chapter 11 bankruptcy protection over the past two years, says Reichardt. More recently, Comstock Homebuilding Cos. Inc. indicated it may seek bankruptcy protection
Publicly-traded builders, in general, are better capitalized than their rivals in the private sector. Many learned tough lessons from the crippling downturn almost 20 years ago where high debt and inventory levels pushed a flurry of builders into bankruptcy.
Some of the names that survived this rocky period, such as NVR Inc. and M.D.C. Holdings Inc., have among the lowest debt levels and land holdings today. "They learned a bitter, but very wonderful, lesson," says Snider. "They're the best positioned homebuilders today."
Still, many companies are at risk. "Some of the weaker public builders have already gone, and there may be more to go," says Kim. And that's where the well-capitalized players can step in, but they may be best suited to hold off a while longer.
"This is the arguably the worst downturn since the end of World War II and more severe than the late '80s and early '90s," says Curran. "Most parties will probably tend to wait until it's clear that a bottom has been established, and into the early stages of the upside," said Curran.
"I don't think anybody should feel rushed here," said Kim. "But I think they will look and they are looking."
Thursday, April 23, 2009
Signs of Life From the Real Estate Market
n ZIP codes across the country, as once-inflated property prices bottom out housing sales are increasing dramatically
Earlier this year Herson and Liz Enerio put in a $400,000 bid on a four-bedroom house on a private street in Fairfield, Calif., with three pine trees and a backyard that opens onto a hiking trail.
One would think that the 30-year-old police officer and his wife, who works as a nurse, were well positioned to negotiate, especially in a market like Fairfield, a town about 40 miles from both San Francisco and Sacramento where more than 80% of homes for sale are owned by banks or by homeowners facing foreclosure. For one thing, the people selling the home are under water on their mortgage and are trying for a so-called short sale, where the lender agrees to take less than what's owed to prevent a foreclosure. But the Enerios decided to play it safe, bidding $1,000 above the asking price and offering to cover some of the closing costs, because Fairfield—like many of the most battered areas of California, Florida, Nevada, and Arizona—is suddenly hot again.
Prices have dropped so low that cash-ready investors and first-time buyers are making multiple offers on distressed properties. Fairfield sales jumped 226% in the fourth quarter of last year compared to the same quarter in 2007 and home prices during that period fell 19% to $179,500, according to mortgage and housing data analytics company First American CoreLogic.
The Enerios bid on another house in November but lost out to a buyer who agreed to pay $5,000 more. They're hoping that their current offer is accepted, but they aren't necessarily in a rush to buy. Homes in this Bay Area market are once again affordable for people in their income bracket.
"I tried looking for a home when I was living in Orange County four years ago, but homes there were ridiculously expensive," said Herson Enerio, a first-time buyer. "The only thing I was able to handle down there was a three-bedroom condo… Now we're looking at a house for sure."
Not All Sun Belt Cities
The Fairfield ZIP code had the biggest annual increase in sales in the fourth quarter of last year, according to a ranking of the 25 U.S. ZIP codes with the most improved sales compiled for BusinessWeek.com by Santa Ana (Calif.)-based First American CoreLogic. California, Florida, Arizona, and Nevada ZIPs dominated the list, as we expected, but Howell, Mich., near Detroit; Woodbury, Minn.; Rio Rancho, N.M.; Humble, Tex., outside Houston; Duluth, Ga., in the Atlanta metro area; and the Chicago suburb of Des Plaines, Ill., also showed strong or at least stable sales at the end of last year. We limited the ranking to ZIPs with at least 10,000 households and selected only one ZIP for any given metro area. (If we hadn't done this, California would have taken almost all of the top 25 slots).
Of course, even though sales are strong in these places, the pace is increasing from anemic levels. In many markets, foreclosure sales are driving down prices, which are only making things worse. At the same time, the accelerating sales pace appears to be finally cutting into inventories of unsold homes.
In Fairfield, for example, about 1,900 homes were listed for sale in January compared to 3,000 listings in January 2008, according to Christine Wiley, a Fairfield-based agent who works with her Realtor mother Katherine Wiley. But Christine Wiley, who has studied the pre-foreclosure data, said she expects another wave of foreclosures in Fairfield. Many of the homes built in Fairfield during the boom have been taken back by the banks, but even more are likely to be foreclosed on, she said.
Across the country in Prince William County, Va., outside Washington D.C., buyers are out in force. The market, where subprime loans and boom-time construction were rampant, was badly damaged in the downturn. Making matters worse, a controversial law in Prince William County that allowed police officers to enforce immigration laws helped drive out many of the Central American immigrants who came in to work on building the new homes during the boom. Many of those immigrants who moved to neighboring Fairfax County allowed their Prince William County homes to go into foreclosure, said John McClain, senior fellow at George Mason University's Center for Regional Analysis.
Proximity to D.C. Helps
The good news now is that inventories of unsold homes are shrinking because of the accelerating sales, though homeowners who could afford to have also likely taken their properties off the market, McClain said. In January, 3,346 homes were on the market compared to 5,355 in January, 2007, McClain said. In January, 647 homes sold in Prince William County compared to 312 a year earlier. Home prices, however, fell 34%.
One factor that could help Prince William County toward recovery is its proximity to Washington D.C., one of the few local economies with relatively good prospects thanks to its federal government and defense contractor jobs. Woodbridge, Va., in Prince William County, came in at No. 14 in our ranking. Woodbridge sales jumped 32% in the fourth quarter while median home prices dropped 18% to $215,500, according to First American CoreLogic.
The drop in inventory and the rise in sales are "good signs" for Prince William County, McClain said.
"We are at that point with that trend [in Prince William County] where the economics have to kick in," McClain said. "Prices have to stabilize and then start up again."
Erick Blackwelder, associate broker with Exit Realty in Woodbridge, said buyers have flocked to the market and have already bought many of the foreclosed homes that were in good shape. The remaining foreclosures are largely "junk," he said.
"It started in April 2008," Blackwelder said. "It was like all of a sudden, somebody flicked on a light switch and there were buyers galore."
ZIP Codes With the Most Improved Home Sales
No. 1
Fairfield, Calif.
ZIP: 94533
Metro area: Vallejo-Fairfield
Annual home sale increase: 226%
Fourth-quarter sales: 342
Median home price: $179,500
Median home price change: -19.0%
Nondistressed sales percentage: 17%*
No. 2
Rialto, Calif.
ZIP: 92376
Metro area: Riverside-San Bernardino-Ontario
Annual home sale increase: 170%
Fourth-quarter sales: 243
Median home price: $148,000
Median home price change: -19.1%
Nondistressed sales percentage: 10%
No. 3
Sylmar, Calif.
ZIP: 91342
Metro area: Los Angeles-Long Beach-Santa Ana
Annual home sale increase: 149%
Fourth-quarter sales: 254
Median home price: $295,000
Median home price change: -19.2%
Nondistressed sales percentage: 31%
No. 4
San Diego (Mira Mesa community)
ZIP: 92126
Metro area: San Diego-Carlsbad-San Marcos, Calif.
Annual home sale increase: 119%
Fourth-quarter sales: 195
Median home price: $337,500
Median home price change: -13.2%
Nondistressed sales percentage: 48%
No. 5
Cape Coral, Fla.
ZIP: 33914
Metro area: Coral-Fort Myers
Annual home sale increase: 103%
Fourth-quarter sales: 274
Median home price: $137,450
Median home price change: -14.5%
Nondistressed sales percentage: 30%
Earlier this year Herson and Liz Enerio put in a $400,000 bid on a four-bedroom house on a private street in Fairfield, Calif., with three pine trees and a backyard that opens onto a hiking trail.
One would think that the 30-year-old police officer and his wife, who works as a nurse, were well positioned to negotiate, especially in a market like Fairfield, a town about 40 miles from both San Francisco and Sacramento where more than 80% of homes for sale are owned by banks or by homeowners facing foreclosure. For one thing, the people selling the home are under water on their mortgage and are trying for a so-called short sale, where the lender agrees to take less than what's owed to prevent a foreclosure. But the Enerios decided to play it safe, bidding $1,000 above the asking price and offering to cover some of the closing costs, because Fairfield—like many of the most battered areas of California, Florida, Nevada, and Arizona—is suddenly hot again.
Prices have dropped so low that cash-ready investors and first-time buyers are making multiple offers on distressed properties. Fairfield sales jumped 226% in the fourth quarter of last year compared to the same quarter in 2007 and home prices during that period fell 19% to $179,500, according to mortgage and housing data analytics company First American CoreLogic.
The Enerios bid on another house in November but lost out to a buyer who agreed to pay $5,000 more. They're hoping that their current offer is accepted, but they aren't necessarily in a rush to buy. Homes in this Bay Area market are once again affordable for people in their income bracket.
"I tried looking for a home when I was living in Orange County four years ago, but homes there were ridiculously expensive," said Herson Enerio, a first-time buyer. "The only thing I was able to handle down there was a three-bedroom condo… Now we're looking at a house for sure."
Not All Sun Belt Cities
The Fairfield ZIP code had the biggest annual increase in sales in the fourth quarter of last year, according to a ranking of the 25 U.S. ZIP codes with the most improved sales compiled for BusinessWeek.com by Santa Ana (Calif.)-based First American CoreLogic. California, Florida, Arizona, and Nevada ZIPs dominated the list, as we expected, but Howell, Mich., near Detroit; Woodbury, Minn.; Rio Rancho, N.M.; Humble, Tex., outside Houston; Duluth, Ga., in the Atlanta metro area; and the Chicago suburb of Des Plaines, Ill., also showed strong or at least stable sales at the end of last year. We limited the ranking to ZIPs with at least 10,000 households and selected only one ZIP for any given metro area. (If we hadn't done this, California would have taken almost all of the top 25 slots).
Of course, even though sales are strong in these places, the pace is increasing from anemic levels. In many markets, foreclosure sales are driving down prices, which are only making things worse. At the same time, the accelerating sales pace appears to be finally cutting into inventories of unsold homes.
In Fairfield, for example, about 1,900 homes were listed for sale in January compared to 3,000 listings in January 2008, according to Christine Wiley, a Fairfield-based agent who works with her Realtor mother Katherine Wiley. But Christine Wiley, who has studied the pre-foreclosure data, said she expects another wave of foreclosures in Fairfield. Many of the homes built in Fairfield during the boom have been taken back by the banks, but even more are likely to be foreclosed on, she said.
Across the country in Prince William County, Va., outside Washington D.C., buyers are out in force. The market, where subprime loans and boom-time construction were rampant, was badly damaged in the downturn. Making matters worse, a controversial law in Prince William County that allowed police officers to enforce immigration laws helped drive out many of the Central American immigrants who came in to work on building the new homes during the boom. Many of those immigrants who moved to neighboring Fairfax County allowed their Prince William County homes to go into foreclosure, said John McClain, senior fellow at George Mason University's Center for Regional Analysis.
Proximity to D.C. Helps
The good news now is that inventories of unsold homes are shrinking because of the accelerating sales, though homeowners who could afford to have also likely taken their properties off the market, McClain said. In January, 3,346 homes were on the market compared to 5,355 in January, 2007, McClain said. In January, 647 homes sold in Prince William County compared to 312 a year earlier. Home prices, however, fell 34%.
One factor that could help Prince William County toward recovery is its proximity to Washington D.C., one of the few local economies with relatively good prospects thanks to its federal government and defense contractor jobs. Woodbridge, Va., in Prince William County, came in at No. 14 in our ranking. Woodbridge sales jumped 32% in the fourth quarter while median home prices dropped 18% to $215,500, according to First American CoreLogic.
The drop in inventory and the rise in sales are "good signs" for Prince William County, McClain said.
"We are at that point with that trend [in Prince William County] where the economics have to kick in," McClain said. "Prices have to stabilize and then start up again."
Erick Blackwelder, associate broker with Exit Realty in Woodbridge, said buyers have flocked to the market and have already bought many of the foreclosed homes that were in good shape. The remaining foreclosures are largely "junk," he said.
"It started in April 2008," Blackwelder said. "It was like all of a sudden, somebody flicked on a light switch and there were buyers galore."
ZIP Codes With the Most Improved Home Sales
No. 1
Fairfield, Calif.
ZIP: 94533
Metro area: Vallejo-Fairfield
Annual home sale increase: 226%
Fourth-quarter sales: 342
Median home price: $179,500
Median home price change: -19.0%
Nondistressed sales percentage: 17%*
No. 2
Rialto, Calif.
ZIP: 92376
Metro area: Riverside-San Bernardino-Ontario
Annual home sale increase: 170%
Fourth-quarter sales: 243
Median home price: $148,000
Median home price change: -19.1%
Nondistressed sales percentage: 10%
No. 3
Sylmar, Calif.
ZIP: 91342
Metro area: Los Angeles-Long Beach-Santa Ana
Annual home sale increase: 149%
Fourth-quarter sales: 254
Median home price: $295,000
Median home price change: -19.2%
Nondistressed sales percentage: 31%
No. 4
San Diego (Mira Mesa community)
ZIP: 92126
Metro area: San Diego-Carlsbad-San Marcos, Calif.
Annual home sale increase: 119%
Fourth-quarter sales: 195
Median home price: $337,500
Median home price change: -13.2%
Nondistressed sales percentage: 48%
No. 5
Cape Coral, Fla.
ZIP: 33914
Metro area: Coral-Fort Myers
Annual home sale increase: 103%
Fourth-quarter sales: 274
Median home price: $137,450
Median home price change: -14.5%
Nondistressed sales percentage: 30%
Wednesday, April 22, 2009
Surviving a layoff
After being laid off, Carl Clay was lucky enough to find a new position. Just one problem: It ends in 10 months.
By Paul Keegan, Money Magazine contributing writer
(Money Magazine) -- Last fall Carl and Brenda Clay thought they had their financial life under control. After years of struggling to support themselves while Carl got a Ph.D. in molecular medicine, they were finally earning enough to start paying down student loans and credit card debt and saving in earnest for retirement.
Carl, 36, made $135,000 a year, plus bonuses, as medical director for a pharmaceutical communications firm. Brenda, 37, chipped in another $14,000 as a teacher's aide. And the couple had more than they'd hoped for: three beautiful kids; a lovely split-level home in Wilmington, Del., with a recently renovated kitchen; two new cars; and three cats, a dog, and a turtle named Snickers.
But a few days after Christmas, Carl was called in by human resources: His company was downsizing. He was being laid off. "I was stunned," he says. Despite the economy, the firm had seemed to be doing well.
When he told Brenda, she tried to be optimistic. And when he gathered Eric, 11, Hannah, 9, and Mark, 8, the next morning to explain why he was still home in his slippers, Mark hugged him. "It's okay, Daddy," he said. "You'll find another job."
Two months later, however, Carl had few leads and no offers. The pharmaceutical industry was suffering - and so was he. With no emergency savings, the Clays had burned through Carl's two weeks of severance. His unemployment benefits and Brenda's salary were hardly enough to get by on; they were buying groceries on credit.
Just as Carl felt at his personal nadir, the phone rang. It was a temp firm calling about a résumé he'd sent to pharmaceutical giant Astra-Zeneca: Would Carl be interested in a 10-month contract job directing clinical trial publications for close to his old salary of $135,000 a year?
"I was thrilled," he says.
Then he read the fine print: He'd technically be an employee of a temp firm, Yoh Staffing, which offers no 401(k) plan, no bonuses, and no vacation (besides six paid holidays). He'd have to pay for his own health insurance. And, of course, if his contract wasn't renewed, he'd be back in the same boat in 10 months.
Still, Carl felt he had no other choice. He took the job.
In this economy he's probably not the only one who's been forced into temporary work: The number of un employed people who've accepted short-term assignments is up 73% over the past year, reports the Bureau of Labor Statistics.
Trading full-time staff for freelancers and contractors lets businesses cut the cost of benefits and payroll taxes. It also gives companies the flexibility to adjust headcount according to economic demands, says James Ziegler of Solo W-2, which provides services for independent professionals.
A few months into his new job, Carl likes the work he's doing. But he can't help feeling unsettled. He's full of questions: How can I get hired? How do I budget knowing my salary might again disappear? What about saving for retirement? The following answers should help him - and you, if you end up in the same predicament.
Network on the job
Carl has long wanted to work for AstraZeneca; now he has a golden opportunity to make an impression from the inside. He'll need to show his bosses he's not just a gun for hire focused on a single project but someone who can advance the mission of the company, says New York career coach Win Sheffield. He should offer to take on tough projects, pipe up at meetings with smart ideas, suggest solutions, and get friendly with office "influencers."
Sheffield also recommends networking in the office to find out if hiring temps is an experiment or the norm. If it's the former, full-time positions may come back when the economy does. He should ask for a quarterly review to make sure he's on track and let those in a position to hire know he's interested. If it's the norm, he should find out which jobs in which divisions are salaried, then make contacts in those areas who can notify him of open spots.
One thing Carl should be aware of as he pursues a permanent post: Per his contract, he can't come on staff at AstraZeneca for 90 days after his completion date without written consent from Yoh. (Staffing firms use such breaks to renew contracts year after year and protect themselves from losing talent to client companies.) This clause means that if Carl were lucky enough to get a real job with AstraZeneca, he could lose a paycheck for three months. That's a possibility he'll need to plan for.
Budget for a new reality
On paper, the Clays' income will be roughly the same as it was before Carl was laid off. But that doesn't mean they can just resume their old lifestyle. That paycheck comes with an expiration date, after which there may not be another equally well-paying job to be found.
Also, they now have new expenses, such as Carl's health insurance. Fortunately taxes are taken out of Carl's check; some contractors, known as 1099 employees (for the tax form), need to save for Uncle Sam as well.
"Temporary employees really need to scrub their budgets to find places to save," says McLean, Va., financial planner Everette Orr. The Clays might use a free budgeting site such as Mint.com or Quicken-Online.com to see where their money is going and how they can reduce expenses.
A top priority will be finding ways to build emergency savings. Contract workers need 12 months of living expenses banked, says Orr. Even if Carl gets a job with AstraZeneca, he'd need three months' expenses by January to cover that 90-day furlough.
The Clays' $4,000-a-month debt obligations - from their mortgage, kitchen reno, school loans, cars, and credit cards - eat up half their take-home pay, so they won't be able to build that kind of safety net quickly. But refinancing (see "Three Fast Fixes") may free up a chunk of cash.
Replace lost benefits
As a salaried worker, Carl had a lot of perks he'll miss out on as a contractor. Chief among them: subsidized health insurance and a 401(k) with employer match.
Brenda and the kids currently get insurance via her teaching job, but Carl can't join the plan, as he's been offered group coverage by the staffing agency. Luckily, those plans are a decent option: Though the firm doesn't help pay, the rates are good - $100 to $450 a month.
As for retirement, the options depend on how your income is reported to the IRS. W-2 workers such as Carl are technically considered employees. Thus, for tax-advantaged savings, they have merely the choice of a Roth IRA (which phases out at $166,000 in modified adjusted gross income for couples) or a traditional IRA (no income limit if neither you nor your spouse has a retirement plan at work). In either, you can save only $5,000 yearly, or $6,000 if you're 50 or older.
Because he has to focus on his emergency fund, it's unlikely that Carl will be able to save for retirement this year. But if he renews his contract next year and has sufficient emergency savings by then, he should open a Roth at that time, says Reston, Va., financial planner Frank Boucher. "He can take the payout tax-free when he retires, and since he's only 36, the money has a long time to grow."
Workers receiving 1099 income are considered self-employed and can therefore stash away a lot more. They can choose between an individual 401(k), with a $49,000 yearly contribution limit, and a SEPIRA, which allows contributions up to 18.6% of net profits, also maxing out at $49,000.
Keep up the hunt
Carl has called off his job search to focus on his new gig. But since his contract allows either side to terminate for any reason, he should keep looking for a position that pays as well but includes benefits, says Sheffield.
Benefits are worth a lot in terms of compensation - plus his family may need them, since Brenda isn't guaranteed a teaching job in the fall. And since Carl isn't guaranteed work at AstraZeneca either, he needs an all-fronts attack.
In the meantime, however, Carl is starting to appreciate the advantages of contract work. No more late nights at the office, for example. For now, that means extra time with his kids, but he may begin looking for freelance medical writing to help build that emergency fund.
"I'm still ambitious - I'd like to be president of a company someday," he says. "But right now it feels pretty great to go bike riding with my daughter and play Guitar Hero with my son."
By Paul Keegan, Money Magazine contributing writer
(Money Magazine) -- Last fall Carl and Brenda Clay thought they had their financial life under control. After years of struggling to support themselves while Carl got a Ph.D. in molecular medicine, they were finally earning enough to start paying down student loans and credit card debt and saving in earnest for retirement.
Carl, 36, made $135,000 a year, plus bonuses, as medical director for a pharmaceutical communications firm. Brenda, 37, chipped in another $14,000 as a teacher's aide. And the couple had more than they'd hoped for: three beautiful kids; a lovely split-level home in Wilmington, Del., with a recently renovated kitchen; two new cars; and three cats, a dog, and a turtle named Snickers.
But a few days after Christmas, Carl was called in by human resources: His company was downsizing. He was being laid off. "I was stunned," he says. Despite the economy, the firm had seemed to be doing well.
When he told Brenda, she tried to be optimistic. And when he gathered Eric, 11, Hannah, 9, and Mark, 8, the next morning to explain why he was still home in his slippers, Mark hugged him. "It's okay, Daddy," he said. "You'll find another job."
Two months later, however, Carl had few leads and no offers. The pharmaceutical industry was suffering - and so was he. With no emergency savings, the Clays had burned through Carl's two weeks of severance. His unemployment benefits and Brenda's salary were hardly enough to get by on; they were buying groceries on credit.
Just as Carl felt at his personal nadir, the phone rang. It was a temp firm calling about a résumé he'd sent to pharmaceutical giant Astra-Zeneca: Would Carl be interested in a 10-month contract job directing clinical trial publications for close to his old salary of $135,000 a year?
"I was thrilled," he says.
Then he read the fine print: He'd technically be an employee of a temp firm, Yoh Staffing, which offers no 401(k) plan, no bonuses, and no vacation (besides six paid holidays). He'd have to pay for his own health insurance. And, of course, if his contract wasn't renewed, he'd be back in the same boat in 10 months.
Still, Carl felt he had no other choice. He took the job.
In this economy he's probably not the only one who's been forced into temporary work: The number of un employed people who've accepted short-term assignments is up 73% over the past year, reports the Bureau of Labor Statistics.
Trading full-time staff for freelancers and contractors lets businesses cut the cost of benefits and payroll taxes. It also gives companies the flexibility to adjust headcount according to economic demands, says James Ziegler of Solo W-2, which provides services for independent professionals.
A few months into his new job, Carl likes the work he's doing. But he can't help feeling unsettled. He's full of questions: How can I get hired? How do I budget knowing my salary might again disappear? What about saving for retirement? The following answers should help him - and you, if you end up in the same predicament.
Network on the job
Carl has long wanted to work for AstraZeneca; now he has a golden opportunity to make an impression from the inside. He'll need to show his bosses he's not just a gun for hire focused on a single project but someone who can advance the mission of the company, says New York career coach Win Sheffield. He should offer to take on tough projects, pipe up at meetings with smart ideas, suggest solutions, and get friendly with office "influencers."
Sheffield also recommends networking in the office to find out if hiring temps is an experiment or the norm. If it's the former, full-time positions may come back when the economy does. He should ask for a quarterly review to make sure he's on track and let those in a position to hire know he's interested. If it's the norm, he should find out which jobs in which divisions are salaried, then make contacts in those areas who can notify him of open spots.
One thing Carl should be aware of as he pursues a permanent post: Per his contract, he can't come on staff at AstraZeneca for 90 days after his completion date without written consent from Yoh. (Staffing firms use such breaks to renew contracts year after year and protect themselves from losing talent to client companies.) This clause means that if Carl were lucky enough to get a real job with AstraZeneca, he could lose a paycheck for three months. That's a possibility he'll need to plan for.
Budget for a new reality
On paper, the Clays' income will be roughly the same as it was before Carl was laid off. But that doesn't mean they can just resume their old lifestyle. That paycheck comes with an expiration date, after which there may not be another equally well-paying job to be found.
Also, they now have new expenses, such as Carl's health insurance. Fortunately taxes are taken out of Carl's check; some contractors, known as 1099 employees (for the tax form), need to save for Uncle Sam as well.
"Temporary employees really need to scrub their budgets to find places to save," says McLean, Va., financial planner Everette Orr. The Clays might use a free budgeting site such as Mint.com or Quicken-Online.com to see where their money is going and how they can reduce expenses.
A top priority will be finding ways to build emergency savings. Contract workers need 12 months of living expenses banked, says Orr. Even if Carl gets a job with AstraZeneca, he'd need three months' expenses by January to cover that 90-day furlough.
The Clays' $4,000-a-month debt obligations - from their mortgage, kitchen reno, school loans, cars, and credit cards - eat up half their take-home pay, so they won't be able to build that kind of safety net quickly. But refinancing (see "Three Fast Fixes") may free up a chunk of cash.
Replace lost benefits
As a salaried worker, Carl had a lot of perks he'll miss out on as a contractor. Chief among them: subsidized health insurance and a 401(k) with employer match.
Brenda and the kids currently get insurance via her teaching job, but Carl can't join the plan, as he's been offered group coverage by the staffing agency. Luckily, those plans are a decent option: Though the firm doesn't help pay, the rates are good - $100 to $450 a month.
As for retirement, the options depend on how your income is reported to the IRS. W-2 workers such as Carl are technically considered employees. Thus, for tax-advantaged savings, they have merely the choice of a Roth IRA (which phases out at $166,000 in modified adjusted gross income for couples) or a traditional IRA (no income limit if neither you nor your spouse has a retirement plan at work). In either, you can save only $5,000 yearly, or $6,000 if you're 50 or older.
Because he has to focus on his emergency fund, it's unlikely that Carl will be able to save for retirement this year. But if he renews his contract next year and has sufficient emergency savings by then, he should open a Roth at that time, says Reston, Va., financial planner Frank Boucher. "He can take the payout tax-free when he retires, and since he's only 36, the money has a long time to grow."
Workers receiving 1099 income are considered self-employed and can therefore stash away a lot more. They can choose between an individual 401(k), with a $49,000 yearly contribution limit, and a SEPIRA, which allows contributions up to 18.6% of net profits, also maxing out at $49,000.
Keep up the hunt
Carl has called off his job search to focus on his new gig. But since his contract allows either side to terminate for any reason, he should keep looking for a position that pays as well but includes benefits, says Sheffield.
Benefits are worth a lot in terms of compensation - plus his family may need them, since Brenda isn't guaranteed a teaching job in the fall. And since Carl isn't guaranteed work at AstraZeneca either, he needs an all-fronts attack.
In the meantime, however, Carl is starting to appreciate the advantages of contract work. No more late nights at the office, for example. For now, that means extra time with his kids, but he may begin looking for freelance medical writing to help build that emergency fund.
"I'm still ambitious - I'd like to be president of a company someday," he says. "But right now it feels pretty great to go bike riding with my daughter and play Guitar Hero with my son."
Tuesday, April 21, 2009
How to nab a low-rate home loan
Getting a new loan can save you a bundle, but cautious lenders will make you jump through hoops. These strategies can help.
Carla Fried, Money Magazine
April 17, 2009: 11:52 AM ET
(Money Magazine) -- On paper it seems like the perfect time to refinance. The average rate on a 30-year fixed mortgage recently hit a 20-year low when it fell below 5% in mid-March. And the Fed has said that it will spend $300 billion to buy back government-backed Treasury bonds; that will probably keep loan rates low for months to come.
But wade into the mortgage market, and you may quickly feel as if you're trying to grab a dollar in a game-show booth where the money is blowing around: Those ultralow rates are right in front of you, yet maddeningly elusive.
Lenders, grappling with deadbeat homeowners and shifting regulations, have pared back on mortgage products and upped credit requirements. Still, you have a good incentive to try: If you took out a mortgage two years ago, when rates were in the mid-sixes, you stand to drop your rate nearly two percentage points, saving almost $300 a month on a $300,000 loan. Here's how to navigate the roadblocks.
Figure out if you qualify. Nowadays, credit score and equity are king. To land the best rates, you'll probably need a credit score of at least 740, and 20% equity. "Banks are looking for reasons not to lend you money," says Mark Miskiel of Lighthouse Mortgage in Sedona, Ariz.
If you don't have 20% equity, a refi isn't out of the question - President Obama's housing package allows homeowners who owe as much as 105% to receive government-backed loans. To qualify for that program, however, your original mortgage must be held by one of the government-sponsored entities, Freddie Mac or Fannie Mae; you must prove that you can keep up with payments; and you'll get stuck with fees that tack 0.25% to 3% onto your rate.
Get rid of the HELOC. Home-equity loans and lines have become the enemy of would-be refinancers. Before you can close on a new loan, your home-equity lender must agree to "subordinate" the secondary loan (meaning that your primary lender will get repaid first in the event you run into financial trouble). That can take at least a month, says Bob Moulton of the Americana Mortgage Group in Manhasset, N.Y.
One way to speed up the process is to do a consolidation refi through your home-equity lender. If that's not possible, aim to submit the subordination paperwork as you start shopping for a primary mortgage. And know that other lenders may add up to 0.25% to your rate to cash out the secondary loan.
Know where to look. No matter how stellar your credit, you won't get a great rate without doing some serious shopping. That's because every bank is using different standards for underwriting loans, so while you may look like a risky borrower to one, another may welcome you with open arms. In general, says Keith Gumbinger of mortgage data firm HSH Associates, you're likely to get the best rates from small local banks and credit unions.
Unfortunately, if you need a jumbo loan (typically $417,000, but it can go up to $729,750 in high-cost areas), you can kiss those super-low rates goodbye. While jumbos normally run about half a percentage point higher than smaller ones, today the spread is a point and a half.
Pay a point upfront. A point, which equals 1% of your mortgage amount, typically buys you an eighth to a quarter of a percentage point drop in your rate. Today some overloaded lenders are knocking half a percentage point off for those who pay a point, hoping this extra initial cost will deter serial refinancers.
If you're planning to stay put for about five years, it may be worth it. Conversely, consider adding an eighth of a percentage point to your rate to lock it in for 45 days. Banks and lenders are putting a lot more effort into vetting applications, so it can take up to two months to close a loan, vs. about 30 days in the past; you don't want to risk rates' moving against you while you wait. The payoff for patience: a loan you can live with, for a very long time.
Not so long ago, having a pulse qualified you to take out a mortgage. These days lenders are vetting applicants with the ardor of a Senate committee grilling an AIG executive. Here's a summary of what's changed.
Carla Fried, Money Magazine
April 17, 2009: 11:52 AM ET
(Money Magazine) -- On paper it seems like the perfect time to refinance. The average rate on a 30-year fixed mortgage recently hit a 20-year low when it fell below 5% in mid-March. And the Fed has said that it will spend $300 billion to buy back government-backed Treasury bonds; that will probably keep loan rates low for months to come.
But wade into the mortgage market, and you may quickly feel as if you're trying to grab a dollar in a game-show booth where the money is blowing around: Those ultralow rates are right in front of you, yet maddeningly elusive.
Lenders, grappling with deadbeat homeowners and shifting regulations, have pared back on mortgage products and upped credit requirements. Still, you have a good incentive to try: If you took out a mortgage two years ago, when rates were in the mid-sixes, you stand to drop your rate nearly two percentage points, saving almost $300 a month on a $300,000 loan. Here's how to navigate the roadblocks.
Figure out if you qualify. Nowadays, credit score and equity are king. To land the best rates, you'll probably need a credit score of at least 740, and 20% equity. "Banks are looking for reasons not to lend you money," says Mark Miskiel of Lighthouse Mortgage in Sedona, Ariz.
If you don't have 20% equity, a refi isn't out of the question - President Obama's housing package allows homeowners who owe as much as 105% to receive government-backed loans. To qualify for that program, however, your original mortgage must be held by one of the government-sponsored entities, Freddie Mac or Fannie Mae; you must prove that you can keep up with payments; and you'll get stuck with fees that tack 0.25% to 3% onto your rate.
Get rid of the HELOC. Home-equity loans and lines have become the enemy of would-be refinancers. Before you can close on a new loan, your home-equity lender must agree to "subordinate" the secondary loan (meaning that your primary lender will get repaid first in the event you run into financial trouble). That can take at least a month, says Bob Moulton of the Americana Mortgage Group in Manhasset, N.Y.
One way to speed up the process is to do a consolidation refi through your home-equity lender. If that's not possible, aim to submit the subordination paperwork as you start shopping for a primary mortgage. And know that other lenders may add up to 0.25% to your rate to cash out the secondary loan.
Know where to look. No matter how stellar your credit, you won't get a great rate without doing some serious shopping. That's because every bank is using different standards for underwriting loans, so while you may look like a risky borrower to one, another may welcome you with open arms. In general, says Keith Gumbinger of mortgage data firm HSH Associates, you're likely to get the best rates from small local banks and credit unions.
Unfortunately, if you need a jumbo loan (typically $417,000, but it can go up to $729,750 in high-cost areas), you can kiss those super-low rates goodbye. While jumbos normally run about half a percentage point higher than smaller ones, today the spread is a point and a half.
Pay a point upfront. A point, which equals 1% of your mortgage amount, typically buys you an eighth to a quarter of a percentage point drop in your rate. Today some overloaded lenders are knocking half a percentage point off for those who pay a point, hoping this extra initial cost will deter serial refinancers.
If you're planning to stay put for about five years, it may be worth it. Conversely, consider adding an eighth of a percentage point to your rate to lock it in for 45 days. Banks and lenders are putting a lot more effort into vetting applications, so it can take up to two months to close a loan, vs. about 30 days in the past; you don't want to risk rates' moving against you while you wait. The payoff for patience: a loan you can live with, for a very long time.
Not so long ago, having a pulse qualified you to take out a mortgage. These days lenders are vetting applicants with the ardor of a Senate committee grilling an AIG executive. Here's a summary of what's changed.
Friday, April 17, 2009
Mortgage rates ease
Bankrate says the average 30-year fixed rate home loan now stands at its second lowest level on record.
By Ben Rooney, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- Mortgage rates fell slightly this week and appear to be settling into a range near historically low levels, according to a national survey released Thursday.
Bankrate.com, an online aggregator of various types of interest rates, said 30-year fixed mortgages averaged 5.18% this week, down from 5.2% the week before. Rates on 15-year fixed mortgages fell to 4.72% from 4.75%.
The average jumbo 30-year fixed rate fell to 6.69%. Adjustable rate mortgages were mixed. The average 1-year ARM rose to 5.28%, while 5/1 ARMs sank to 5.12%.
Mortgage rates remain at historic lows. In the nearly 24-year history of Bankrate's weekly rate survey, the 30-year fixed has been lower just once -- two weeks ago, when it averaged 5.13%.
Still, rates have held relatively steady over the past few weeks as lenders respond to a surge in mortgage applications, particularly refinancing activity. That has helped offset ongoing sings of weakness in the economy, which would normally push rates lower, according to Bankrate.
"The ailing economy and inundated lenders are the two factors that will likely keep mortgage rates rangebound in the weeks to come," Bankrate said in a report.
Bankrate's national weekly mortgage survey is based on data provided by the top 10 banks and thrifts in the top 10 markets. To top of page
By Ben Rooney, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- Mortgage rates fell slightly this week and appear to be settling into a range near historically low levels, according to a national survey released Thursday.
Bankrate.com, an online aggregator of various types of interest rates, said 30-year fixed mortgages averaged 5.18% this week, down from 5.2% the week before. Rates on 15-year fixed mortgages fell to 4.72% from 4.75%.
The average jumbo 30-year fixed rate fell to 6.69%. Adjustable rate mortgages were mixed. The average 1-year ARM rose to 5.28%, while 5/1 ARMs sank to 5.12%.
Mortgage rates remain at historic lows. In the nearly 24-year history of Bankrate's weekly rate survey, the 30-year fixed has been lower just once -- two weeks ago, when it averaged 5.13%.
Still, rates have held relatively steady over the past few weeks as lenders respond to a surge in mortgage applications, particularly refinancing activity. That has helped offset ongoing sings of weakness in the economy, which would normally push rates lower, according to Bankrate.
"The ailing economy and inundated lenders are the two factors that will likely keep mortgage rates rangebound in the weeks to come," Bankrate said in a report.
Bankrate's national weekly mortgage survey is based on data provided by the top 10 banks and thrifts in the top 10 markets. To top of page
Thursday, April 16, 2009
Obama launches mortgage rescue plan
First participants in the Treasury Department's program to help homeowners avoid foreclosure include some of the nation's largest banks.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- The Obama administration's loan modification program is finally underway.
The Treasury Department announced Wednesday the first six participants to sign up for President Obama's plan. They include three of the nation's largest banks: JPMorgan Chase (JPM, Fortune 500), which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo (WFC, Fortune 500), $2.9 billion; and Citigroup (C, Fortune 500), $2 billion. The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million.
Additional loan servicers will be added to the list over time, a Treasury spokesman said.
Several major servicers, including JPMorgan Chase and Wells Fargo, said they began modifying loans under the government initiative earlier this month. CitiMortgage signed up for the program on Monday and will start processing applications soon.
"We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership," Wells Fargo said in a statement.
Distressed homeowners and housing counselors have been eagerly awaiting the program's launch since Obama first announced it on Feb. 18. However, it took weeks for the government to clarify the terms and for the financial institutions to update their systems and start accepting applications, frustrating many of those in trouble.
Billed as helping up to 9 million borrowers stay in their homes, the two-part plan calls for servicers to reduce monthly payments to no more than 31% of eligible borrowers' pre-tax income or to refinance eligible mortgages even if the homeowner has little or no equity. The government is allocating $75 billion to subsidize part of payment reduction, as well as provide thousands of dollars in incentives for servicers and borrowers to participate.
The Treasury Department said Wednesday it is capping the payments to servicers to allow more companies to participate. It is allocating $50 billion to the program, with Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and the Department of Housing and Urban Development providing the rest.
The modification plan calls for the servicer to reduce interest rates so that the monthly obligation is no more than 38% of a borrower's pre-tax income, and then the government would kick in money to bring payments down to 31% of income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.
Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2%.
It was not immediately clear whether the servicers must pay the incentives to homeowners and investors out of their funding share.
In addition to subsidizing the interest rates, servicers will use the Treasury funding to pay for incentives for themselves, homeowners and investors. The program gives servicers $1,000 for each modification and another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.
Homeowners, meanwhile, will get up to $1,000 a year for five years if they keep up with payments. The funds will be used to reduce their loan principals.
The Treasury Department set the caps based on public data about the mortgages the servicers handle. Though the program mandates that servicers modify all loans that meet the requirements, the department feels the servicers will have sufficient funds to cover all troubled borrowers' applications.
"We're confident we'll have enough money," said Treasury spokesman Andrew Williams.
Separately, major servicers also recently started accepting applications under the refinance portion of the program.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- The Obama administration's loan modification program is finally underway.
The Treasury Department announced Wednesday the first six participants to sign up for President Obama's plan. They include three of the nation's largest banks: JPMorgan Chase (JPM, Fortune 500), which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo (WFC, Fortune 500), $2.9 billion; and Citigroup (C, Fortune 500), $2 billion. The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million.
Additional loan servicers will be added to the list over time, a Treasury spokesman said.
Several major servicers, including JPMorgan Chase and Wells Fargo, said they began modifying loans under the government initiative earlier this month. CitiMortgage signed up for the program on Monday and will start processing applications soon.
"We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership," Wells Fargo said in a statement.
Distressed homeowners and housing counselors have been eagerly awaiting the program's launch since Obama first announced it on Feb. 18. However, it took weeks for the government to clarify the terms and for the financial institutions to update their systems and start accepting applications, frustrating many of those in trouble.
Billed as helping up to 9 million borrowers stay in their homes, the two-part plan calls for servicers to reduce monthly payments to no more than 31% of eligible borrowers' pre-tax income or to refinance eligible mortgages even if the homeowner has little or no equity. The government is allocating $75 billion to subsidize part of payment reduction, as well as provide thousands of dollars in incentives for servicers and borrowers to participate.
The Treasury Department said Wednesday it is capping the payments to servicers to allow more companies to participate. It is allocating $50 billion to the program, with Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and the Department of Housing and Urban Development providing the rest.
The modification plan calls for the servicer to reduce interest rates so that the monthly obligation is no more than 38% of a borrower's pre-tax income, and then the government would kick in money to bring payments down to 31% of income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.
Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2%.
It was not immediately clear whether the servicers must pay the incentives to homeowners and investors out of their funding share.
In addition to subsidizing the interest rates, servicers will use the Treasury funding to pay for incentives for themselves, homeowners and investors. The program gives servicers $1,000 for each modification and another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.
Homeowners, meanwhile, will get up to $1,000 a year for five years if they keep up with payments. The funds will be used to reduce their loan principals.
The Treasury Department set the caps based on public data about the mortgages the servicers handle. Though the program mandates that servicers modify all loans that meet the requirements, the department feels the servicers will have sufficient funds to cover all troubled borrowers' applications.
"We're confident we'll have enough money," said Treasury spokesman Andrew Williams.
Separately, major servicers also recently started accepting applications under the refinance portion of the program.
Wednesday, April 15, 2009
FHA Key to Housing Rebound, Say Realtors®
The Federal Housing Administration is a primary source of mortgage financing for millions of America’s families and plays a key role in helping bring stability to the housing market. This is the message that the National Association of Realtors® delivered to the Senate Appropriations Subcommittee today.
“Without FHA financing, families would be unable to purchase homes and communities would suffer from continued foreclosures and blight,” said Lennox Scott, a member of NAR’s Real Estate Advisory Board and CEO of John L. Scott Real Estate in Bellevue, Washington. In his testimony, Scott shared NAR’s belief in the importance of FHA and concern for the safety and soundness of its programs due to its dramatic growth over a short period of time.
“We believe that FHA has done a good job stepping up to today’s market challenges. However, along with the dramatic growth in market share comes greater responsibility and the need for increased infrastructure and staff,” Scott said. Over the past 18 months, FHA has handled an increase in volume four times greater than 2007 levels, increasing its market share to over 30 percent.
NAR suggests a number of FHA improvements that will help maintain safe and affordable FHA loan products. These improvements include investment in staff and technology improvements; increased oversight and risk management; technical correction to help implement FHA programs; and monetizing the $8,000 first-time home buyer tax credit to allow buyers to apply it toward downpayment requirements.
“The U.S. Department of Housing and Urban Development has made a number of important and valuable changes to FHA over the years that has enabled it to stand up to the challenges of today’s mortgage market,” Scott said. “FHA is now a principal source of financing for millions of America’s families, and without it, the economic crisis would be significantly prolonged. This is why it is so important to invest in FHA improvements and advancements.”
NAR pledged to continue to work for FHA reforms that will ensure the continued success, availability and safety of FHA mortgage insurance programs.
“Without FHA financing, families would be unable to purchase homes and communities would suffer from continued foreclosures and blight,” said Lennox Scott, a member of NAR’s Real Estate Advisory Board and CEO of John L. Scott Real Estate in Bellevue, Washington. In his testimony, Scott shared NAR’s belief in the importance of FHA and concern for the safety and soundness of its programs due to its dramatic growth over a short period of time.
“We believe that FHA has done a good job stepping up to today’s market challenges. However, along with the dramatic growth in market share comes greater responsibility and the need for increased infrastructure and staff,” Scott said. Over the past 18 months, FHA has handled an increase in volume four times greater than 2007 levels, increasing its market share to over 30 percent.
NAR suggests a number of FHA improvements that will help maintain safe and affordable FHA loan products. These improvements include investment in staff and technology improvements; increased oversight and risk management; technical correction to help implement FHA programs; and monetizing the $8,000 first-time home buyer tax credit to allow buyers to apply it toward downpayment requirements.
“The U.S. Department of Housing and Urban Development has made a number of important and valuable changes to FHA over the years that has enabled it to stand up to the challenges of today’s mortgage market,” Scott said. “FHA is now a principal source of financing for millions of America’s families, and without it, the economic crisis would be significantly prolonged. This is why it is so important to invest in FHA improvements and advancements.”
NAR pledged to continue to work for FHA reforms that will ensure the continued success, availability and safety of FHA mortgage insurance programs.
Monday, April 13, 2009
Obama urges mortgage refinancing
President cites low rates while announcing a loan modification program.
WASHINGTON (Reuters) -- President Barack Obama encouraged Americans Thursday to take advantage of historically low mortgage rates and said his administration was rolling out further phases of its plan to address the housing crisis.
Turning his attention to the U.S. economy after finishing his first trip as president to Europe and Iraq, Obama said more people across the United States could save money by refinancing their loans.
"The main message that we want to send today is, there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates," he told reporters during a meeting with advisers and a group of people who had taken advantage of the lower rates.
"We estimate that the average family can get anywhere from $1,600 to $2,000 a year in savings by taking advantage of these various mortgage programs that have been put in place."
Obama said citizens could check a Web site, MakingHomeAffordable.gov, to see if they were eligible for mortgage refinancing.
"We are in the process of rolling out additional phases to the program," he said, referring to the administration's housing measures.
"We are putting in place a loan modification program, working with banks, working with services that will allow other folks who are closer to losing their home (be) in a stronger position in the future.
Interest rates to go lower?
Meanwhile, the top U.S. housing official said interest rates on typical home loans will continue to fall from their current, record lows.
"I think you will see them continue to come down, based on everything that we're doing, but recognize that they've already started to make a big difference," Housing and Urban Development Secretary Shawn Donovan said on CNBC.
Obama, who spent part of his trip to Europe working on solutions to the global economic crisis, emphasized that the U.S. problems stemmed from the housing sector.
"Obviously one of the triggers of the financial crisis and now the economic crisis that we've suffered is that because in some areas ... housing values got way overheated, in some cases you had a lack of regulation that allowed all sorts of complex financial instruments take advantage of home owners," he said.
"We have seen a collapse in the housing market, a precipitous drop in values, and that led to our problems in the financial markets." To top of page
WASHINGTON (Reuters) -- President Barack Obama encouraged Americans Thursday to take advantage of historically low mortgage rates and said his administration was rolling out further phases of its plan to address the housing crisis.
Turning his attention to the U.S. economy after finishing his first trip as president to Europe and Iraq, Obama said more people across the United States could save money by refinancing their loans.
"The main message that we want to send today is, there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates," he told reporters during a meeting with advisers and a group of people who had taken advantage of the lower rates.
"We estimate that the average family can get anywhere from $1,600 to $2,000 a year in savings by taking advantage of these various mortgage programs that have been put in place."
Obama said citizens could check a Web site, MakingHomeAffordable.gov, to see if they were eligible for mortgage refinancing.
"We are in the process of rolling out additional phases to the program," he said, referring to the administration's housing measures.
"We are putting in place a loan modification program, working with banks, working with services that will allow other folks who are closer to losing their home (be) in a stronger position in the future.
Interest rates to go lower?
Meanwhile, the top U.S. housing official said interest rates on typical home loans will continue to fall from their current, record lows.
"I think you will see them continue to come down, based on everything that we're doing, but recognize that they've already started to make a big difference," Housing and Urban Development Secretary Shawn Donovan said on CNBC.
Obama, who spent part of his trip to Europe working on solutions to the global economic crisis, emphasized that the U.S. problems stemmed from the housing sector.
"Obviously one of the triggers of the financial crisis and now the economic crisis that we've suffered is that because in some areas ... housing values got way overheated, in some cases you had a lack of regulation that allowed all sorts of complex financial instruments take advantage of home owners," he said.
"We have seen a collapse in the housing market, a precipitous drop in values, and that led to our problems in the financial markets." To top of page
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