Well, it’s another month of basically the same-old, same-old here in the Phoenix Real Estate Market. I decided this month to dig a little deeper to find out why with our dwindling inventory of REO’s and short sale and the high demand, especially among investors (should be another record-setting year for sales) – why are prices still flat. The answer may surprise you!!!

We recently got an email from a former client of ours who was interested in hearing about people who may benefit from the new HARP program. HARP is the government Home Affordable Refinance Program.

HARP

HARP was originally launched a couple years back and to date has been a complete failure for those looking to refinance their home. The number of families the HARP program has helped is less than 20% of the original projections. And in the Phoenix real estate market, the number is even lower.

So why has this refinance program been such a failure? One of the big reasons is your home could not be more than 125% underwater. So for just about everyone in the Phoenix Real Estate market, they do not qualify. The typical home is Phoenix is more like this. The homeowner purchased the home in 2006, owes $400,000 on the home and the current value is closer to $200,000. So they don’t even come close to qualifying for the HARP refinance program.

HARP Changes

But with the new changes to the HARP program announced last week, those limitations have been removed, but I am still not confident that this program is going to help man people at all. So why am I such a skeptic?

Who Qualifies

Let’s go over a few of the details of the refinance program. First your loan needs to be a Fannie Mae or Freddie Mac loan. If you are not sure if your loan is Freddie Mac or Fannie Mae you can use these loan lookup tools.
Freddie Mac lookup tool
Fannie Mae lookup tool

Now if your name comes up on one of these lists the next question you need to ask yourself is if you have a second mortgage. While a second mortgage does not automatically disqualify you, the chances that the second will agree to the terms of the refinance will hover somewhere around nil.

Next you need to be current on your mortgage payments. You cannot have missed a mortgage payment in the last six months, and no more than one payment in the last year. If this is you, continue reading. If any of the above options rule you out go ahead and just turn around now, it is not going to get any easier.

The next step to this refinance program is to see if you will qualify with your current income. If  you do not meet the current debt-to-income rations, or you are unemployed or most likely if you are self-employed you most likely will not be able to refinance. They are not going to give you a loan if you do not qualify financially, even though the new loan would help you make your payments easier.

Great, Now What?

Sound good so far? If  you are still reading you may be getting excited and ready to refinance right now. Not so fast their cowboy. If you refinance how is that going to help you. Here is the problem with the HARP refinance program. Even though your payment may end up being $50-$100 a month lower, it does not solve the big problem. Your home in the Phoenix real estate market is still worth only half of what you owe on it.

“Wait, but I thought they refinanced, so isn’t my loan now for only $200,000?” you may ask yourself. No, this is not a principle reduction program, this program will only help you lower your interest rate. While there may be a few people that qualify for a principle reduction of some kind, those people are going to be very few and far between.

This is still a good deal right?

Maybe, maybe not. Let’s go back to our typical example. You owe $400,000 on that home that is worth $200,000. So when will that house in the Phoenix real estate market be able to be sold at break even again? Depending on how quick the market goes up, it is most likely going to be 12-15 years before you can break even on that home.

So what happens if you need to sell your home in eight years because your family is larger, or you become and empty nester or even if you get a job transfer. When you go to sell that house, you will still be doing a short sale.

“What’s the difference if I do a short sale now or a short sale in ten years?”

The answer to that question is there is a huge difference between a short sale done in the next year and a short sale done any time after that. Right now if you do a short sale the lender will issue you a 1099-C. So if you sold your house for $200,000 and you owned $400,000 you would get a 1099-c in the amount of $200,000. That is considered $200,000 of income. And I don’t know about you, but for most people that is going to put them in a much higher tax bracket.

2012, is this what they Mayan’s meant?

Let’s assume the Mayan calendar is wrong for a moment and the world does not end in 2012. There is good news for you if you complete a short sale before the end of 2012. Right now there is a Mortgage Debt Forgiveness Act that is in place that allows you to write off the amount of that 1099-C (for most people that is). So you will not need to pay taxes on that $200k. But that Act expires at the end of 2012, so if you complete your short sale in 2013 or in eight years from now when you need to move, you will be writing a big check to Uncle Sam.

As you can see, there is a big advantage to doing a short sale now in the Phoenix real estate market now and not prolonging the agony for later. Is the HARP program good for you? Maybe. Maybe not. Talk to an attorney and find out if this is in your best interest.

As fall begins here in the Phoenix Metro area, the real estate remains as flat as a pancake for the year. Prices are stable, sales are strong and distressed properties are taking up less of the market share.

For buyers, you still have your work cut out for you as there is not enough inventory to go around, For homeowners, now is the time to take a final assessment of the damage – see where your property value landed so you can make a good assessment and determine if you house is an asset or a liability. It’s time to take control and make a decision – not be a victim of circumstance.

If you thought buying a house in the Phoenix and East Valley was tough in August, just wait to see what September has in store. Inventory continues to decline – 2.3 months total available with only 1.6 months supply of short sales and 0.9 months supply of bank-owned properties. That’s not a typo! At this moment, there are only 3013 active foreclosure on the market – that’s it.

Based on current foreclosure activity and short sale volume, the market looks to remain a seller’s market for the foreseeable future.

Despite the similarities to the tight 2005 real estate market, prices remain flat. Good luck buyers!

There was a good video we did for the site yesterday on Phoenix housing market myths. Some of those myths lead to buyers looking for things that they percieve to be true like the ability to steal a house for pennies on the dollar.

It is amazing how many times we sit down with Gilbert and East Valley home buyers and discuss their housing needs and they say they are looking for a good deal. That is all they want. Well the great news is home buyers in Gilbert and the Phoenix metro area now have the opportunity for the deal of the century.

A normal year in real estate prices will rise between 3%-5% a year. Of course in 2005 things went crazy and 2008 we had a huge price correction. Things kept falling until the beginning of this year and in January of 2011 we had the lowest prices in the 21st Century…. The deal of the Century!

But wait, there is more. Low prices are great, but for extreme couponing low prices are not enough, you need a 30% off coupon too. What is the coupon in this market? Interest rates. Interest rates right now are at historic lows still. If you can get a house for the lowest prices this in a decade, and low interest rates, you are getting a Deal of the Century.

It is summer in Phoenix and the only thing hotter than the weather here is the housing market. Right now there are 29,920 homes for sale in the metro Phoenix and East Valley area MLS. This includes short sales which already have contracts in with the banks being negotiated.

If you look at just the active with no contingencies in the Phoenix MLS there are less than 22,000 active homes for sale. That is LOW! In June there were over 10,500 homes sold in Phoenix which means we have only 2.3 months of inventory for sale. 2.3 months, talk about a hot sellers market.

6 months is balanced market buyers and sellers have balanced market. More than 6 months is a buyers market. Less than 6 months is a sellers market and things move very quick. With 2 months, it is like going into shopping at Target when they have things on sale 75% off in their clearance section. If you go shopping when the store opens you may be able to get a deal, but in a few days from now all that will be left is the left over 4th of July Napkins no one wants.

What about the “shadow inventory?” We have been hearing about this for years now, but the truth is foreclosures have been dropping month-over-month for a while now.

What does this mean for buyers?
1) It is going to be hard to find a house
2) Prices are not going down
3) The second bottom of the market has come and gone