Ever heard of a seller carry-back? Quite possibly not. The house pictured here is offered as a seller carry-back.

The best way to describe it is when the seller of a property “carries the loan” instead of a bank.

So, imagine you are the buyer of a home. Instead of going to a bank to get money to give to the seller, you just pay the seller in installments. The seller and you figure out what your interest rate will be and how long he or she will carry the loan. Let’s say 10 years at 6% interest, amortized over 30 years.

Huh?

Let’s look at that again. You calculate the loan based on a 30-year term. You pay monthly installments as if it is a 30-year term, but the balance of the loan will come due at the end of 10 years.

So, let’s say you buy a $200,000 house with a seller carry-back, and you put down 10%. You amortize at 30 years and the seller charges you 6% interest. Your monthly payments will be about $1,100.

At the end of about 10 years the balance will be somewhat more than $100,000. At that point, you either come up with cash or you get a loan from a bank.

The entire time, a title company takes a small fee and keeps track of the payments for you. So, it is safe for the buyer.

If you can’t buy the house at the end of the 10 years, the house goes back to the owner. So, it is safe for the seller.

Who uses this?

1) People who can’t get a loan. In the early 1980’s the average bank loan interest was somewhere around 15%. So many people did seller carry-backs and left the bank out of the equation all together. They made a private deal between the buyer and seller.

2) Co-op owners. A co-operative is kinda like a condominium, but you can’t get a loan on a unit in a co-op. Long story. So, it is either cash or seller carry-back only.

3) Family members. Sometimes families or trusts will do seller carry-backs so that they can sell something without the bank involved. That way the profit from the interest payments stays in the family.

4) Investors. I have met investors recently who buy homes, then do a seller carry-back with somebody, knowing that that person could get a loan later, but now now. This gives the investor a stream of income on their property.

5) Sellers who don’t want to sell in this market. If the market average is $140,000, you, the seller paid off your home a long time ago and you don’t want to sell at that price, you can sell at a higher price to a person privately. The price is higher than you can get right now, but lower than the buyer could probably get 10 years from now.

Why is this relevant?

I’m in awe that we are not doing more seller carry-backs. Hundreds of thousands of people who have lost houses due to foreclosure or short sale have bad credit but are not necessarily a risk to the seller. If you can’t deal with the bank deal with a human being!

I think the only reason we don’t see more is because so few people know about this tactic. It was 30 years ago that they were last seen commonly.

Could you imagine what the housing market would look like if we could get more buyers buying up some of the lost and forlorn homes? Many buyers can’t get it from a bank. But if an investor buys a home from the bank and a buyer can buy it from the investor on reasonable terms, why not? If you write a contract and have a title company manage the payments, then you are safer. (Never do a seller carry-back on a handshake!)

How do you find them?

The Multi-listing Service has a tag for homes where the seller is willing to do a seller carry-back. All I need to do is look for you. Please shoot me an email at realestate@kenclarkforaz.com and I’ll have a look.

In an era when we all feel pretty stung by the banks, I am surprised that we are not doing more of these. Maybe this is a great way to vote with our wallets and tell the banks what we think of them!

OK. I don’t have a degree in economics. I’m just a lowly real estate agent. But these guys over at ASU are only now saying that home prices are going up and I think they’ve spent a little too much time away from the light of day!

“The March figures also show the first monthly increase in the median price of non-foreclosure homes since the end of 2007,” said ASU Professor Karl Guntermann, who is the Fred E. Taylor Professor of Real Estate. “This may signal the start of price stability throughout much of the housing market.” (4/28; Phoenix Business Journal)

This is great news, but I still maintain that prices have been going up, albeit slightly, over the past year.

Here is the data, directly from the Multi Listing Service:

I think it might be that the folks at ASU are reporting prices for active listings, not what that actual sales prices were. Look above and you will see that Active Listings $/SF (price per square foot) shows $179.63 on this day in 2009, but $148.18 yesterday. Looks like things are going down.

But, wait! All that this is telling us is that people are listing them for lower now, not that they are selling lower.  Probably because they are more realistic about prices when they list them.

Look at Monthly Sales $/SF. In April of last year they were $82.49 and now they are sold at $90.18. That is down from last month slightly, but up from 2009.

Even the Average Price – Monthly Sales is up.

I think these guys at ASU are running these numbers through some complicated and possibly unnecessary equation just to come to these conclusions.

I still maintain that they are dead wrong.

At least they might be starting to come around. As I said yesterday, watch for folks who have been hesitating to get back in the market in May.

I am happy to help you with any further analysis, listings or home searches. Please contact me at realestate@kenclarkforaz.com

As you might guess, March was an insane month.

Everybody was jumping for that tax credit. There were almost 9,000 sales of homes & condos in the Phoenix metro area in March, which was the 2nd highest March sales month ever.

The median sales price in March was higher than March 2009, making it the first year-over-year increase since July 2006.

Let me say that again for all y’all (CNN!) who think price prices are still falling. That is higher than March 2009.

This is raw data from the multi-listing service. This is reported as it happens. When I close on a house, the system shows that close. Nobody can tamper with it. No third party interpretation. (CNN!)

As of April 20, there are 22,684 properties currently under contract, an all-time high.

Active listings in MLS are 34,064, down 24% since April 2009.

Want to see how things are going in your neighborhood? Check out this link to see this new feature I have. It is a free market trends analysis. After clicking on the image, you can scroll down to find your zip code and then it will show you active listings, sales per month, price per square foot, & foreclosure data for the past year.

Here is what I predict will happen in May: People will start getting back to normal buying patterns.

Source: Businessweek

We will spend the first three weeks of May waiting for this mythical “shadow inventory” to arrive, and it won’t.* Once we see that prices are not taking a downward spiral, people will start doing what they usually do. They will move if they need to move. They will buy a house if they need to buy.

There will be two types of buyers that come on the market first. 1) Those who have jobs but did not buy previously because they were afraid that they were about to lose their jobs. Now that economic indicators are turning up, they will feel more secure in their jobs and they will go ahead and buy. 2) Those who recognize that prices actually have been going up over the last year and that this is the best time to grab a new home or an upgrade before interest rates go up.

I’m happy to help you with your buying and selling decisions. Please give me a call at 602-456-9388 for more information.

*As you may recall from my previous posts, I don’t see this happening. There are many houses that are foreclosed or awaiting to foreclose, but the banks will not depress prices by throwing lots of inventory on the market all at once.

**Thanks, Leif Swanson (www.leifswanson.com) for contribution of market data.

This New York Times article is a very interesting demonstration of determining whether you should rent or buy.

This is for those of you who want to geek out on numbers a little this morning.

This is a great way to look at the situation without getting all hung up on predictions about where the market will go next. Because, as I’ve spoken about many times, you can never guess exactly when the market will be at its lowest point until that point is gone. But, if the conditions are right for you now, that is the best measure.

Basically, you take the price of the home for sale and divide it by the annual rent of a comparable rental home. If the resulting number is higher than 20, then continue renting. If it is below 20, then you are better off buying. Got it?

So, I want to apply this demonstration to a case here in Phoenix. Let’s take, for instance, 2214 N 12th Street, which is my listing.

This beautiful historic property is listing for $189,000. It is a 4 bedroom, 2 bathroom, 1,600 square foot home in a popular neighborhood. Let’s say you buy it with 10% down at 5.5% interest and a 30-year loan. You are looking at about $960, principle and interest. Add $115 per month for taxes and $70 per month for mortgage insurance and $40 per month for home owners insurance (all rough estimates). This home costs about $1,185 per month.

So, what should we compare it to? I did a search of 4br/2ba homes, minimum 1,400 square feet that are also in popular neighborhoods in CenPho. I found no 4 bedroom homes. So, I found eight 3 bedroom homes in the area. The cheapest at $1,050 per month and the highest at $2,995.

Just so you know I’m not cherry picking an example that best makes the case for buying, let’s take the cheapest one, at 1805 E. Willetta, as a case in point. I’ve posted all of the homes in this study here for your reference.

$1,050 x 12 months equals $12,600 annual rent. (You could keep much of that money by owning –just had to say it.) Divide that in to the price for the home above and you get a factor of 15. So, even in this case it is better to buy.

On the high end, let’s take 902 W. Verde as an example. That one is renting for $2,750 per month. So, that is $33,000 per year going to a landlord. That results in a Rent Ratio of 5.7.

I think this is pretty accurate analysis, especially as you consider that these are all 3 bedroom homes, and any 4 bedroom homes would certainly cost more to rent.

So, what have we learned, besides how fun numbers are?

We’ve learned that you can divorce yourself from the daily back and forth speculation about where the market is going so that you can make a decision that is good for you.

Will the market go lower? I don’t know. I doubt it. Will it go higher? Probably, yes. How quickly, we don’t know. But we know that prices have been going up in more popular neighborhoods in CenPho.

But I’ll say it again: you can never find the lowest point until it is gone. If you buy when the market is generally low and sell when the market is generally high, you are in good shape. This ain’t the stock market, after all!

If you would like to get out there and explore the market, or if you have specific questions, please give me a call at 602-456-9388.

This MSNBC article is a perfect example of how waiting for some mythological, dramatic drop in prices might actually price you out of the market because interest rates go up.

In just a few weeks interest rates for new homes have gone from 5.0% to 5.3%. See the article for the reasons why.

The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent. So, accordingly, if you’ve been waiting, your buying power has eroded by 3% in the last three weeks.

Now, interest rates are still historically low. The best I got on my house in 2001 was somewhere around 7%, as I recall. In 1981, they were over 15%. Yeah, really.

But if you are on the fence, now is the time to get off the fence. You have three weeks to get an offer accepted on a house if you want both historically low interest rates and the $8,000 tax credit.

This news just in from John Hall and Associates:

Initial numbers are in for March.

Number of Closed Escrows for March is 8846, that’s a 16% increase over March 2009 and a 34% increase over February 2010.

2010’s YTD Closed figures show a 19% increase over 2009’s 1st Quarter numbers.

REO sales numbers are continuing to decline as a percentage of sales-39% of Closed; 34% of Pending; and 15% of Active listings.

Short Sales on the other hand are increasing with 21% of Closed; 30% of Pending (or 3930); another 6585 in AWC status (89%); and 27% of Active listings.

What does this mean? It means that all of the dire predictions keep turning out to be false. The market is moving and people are picking up incredible deals before the tax credit goes away.

You have 25 days and counting to get an offer accepted on a property if you want to get the tax credit.

Please let me know if I can help you, or if you know of friends and neighbors who are thinking of buying or selling.

Remember, a rush for the tax credit helps sellers as well as buyers.

Really. It’s going away. The $8,000 first time home buyer and the $6,500 repeat home tax credits will not longer be available after the end of April. So, set your clocks!

By “Tax Credit Two-Step”, I mean that you must have an accepted contract by April 30th, but you can close as late as June 30th.

If you want an accepted contract by April 30th, you need to start looking right away!! Prices are still historically low, but many people are out in force looking to cash in on this tax credit.

If you want to know more, have a look at this CNN article. As is par for the course for CNN on the real estate news, they are overly pessimistic, talking about huge price drops in Miami, for instance. (They’ve been projecting dire forecasts for a year now, which have not come true.)

But this article is useful in talking about how the tax credit will not be extended. Even the credit’s biggest proponent, Johnny Isakson, R-Ga., says he will not support the extension.

So, if you are thinking about it, now is the time to make it happen. Let’s dance! Contact me at realestate@kenclarkforaz.com

The Arizona Republic and other news outlets vacillate between terror and hope.

At one moment they are telling us that the real estate market is about to enter a tailspin not seen since the History Channel did a major retrospective of WWII airplane dog fights.

In the next moment they are telling us that the fragrant flowers of prosperity and recovery are about to pop out of the ground around our feet.

Thanks, guys. Now, here is the data.

This table is from the Cromford Report. If you’ve been following for a while, you know that I talk about this information source quite a bit. The Cromford Report takes data directly from the Multi-Listing Service, which is the most accurate report of sales in Arizona.

This data is for Maricopa County. Look at the gauges for “Annual Appreciation” and “National Trend”.

You can see that we are in the green zone. This means that we have appreciated in prices 7.7% over the same month last year. It also means that March is doing 3.9% better than the entire year. Now, the second gauge does not say much, as it is only March. But these are positive signs.

The Monthly Average is showing that homes are selling for more on a square foot basis than they were last year. Annual Average is a measure of sales prices, averaged at any moment over the last twelve months. These have seemed to bottom out.

Now, I don’t want the press to only print rosy stories in some attempt to talk our way to recovery. But here are some things they are doing wrong:

1) They report sales trends that are at least 3 months old. So right now they are talking about Christmas and January sales trends. Those months tend to be slower.

2) They are using national data and applying it to Arizona. That is like saying that Arizona’s average summer temperature is 75 degrees because that is what it is nationally.

3) They keep reporting that we won’t recover until 2014, which is a minority view.

4) They keep talking about a glut of homes coming on the market, which has not happened the last three times they reported on it and shows little understanding of how banks like to slowly let homes on to the market to avoid price drops.

5) They ignore that certain parts of the city, specifically Central Phoenix, are doing better than the suburbs and people are moving in to town, thus driving the market!

Here are the conclusions I get from the data:

1) You can never perfectly guess the lowest or highest point of the market. But if you buy generally in the low point and sell generally in the high point, then you are following Warren Buffet’s model (be greedy when the market is bad and miserly when the market is good).

2) I sold my first house at 2.5 times what I bought it for because I sold when I first started hearing news on the radio of price drops. Well, we are getting news of price increases now, so my estimate is that now is the time to buy.

3) If you are buying for yourself, then you don’t need to worry too much about price fluctuations. This is not day trading. Buy it low and hold it for at least 5 years. You will be fine.

4) The market may not recover tomorrow. It will probably not fall lower. But if you are buying now and holding you are in a great position.

Please feel free to contact me for more information and to have a look at the market.

After fears in late January that interest rates for FHA loans were going to start going up, they seem to have leveled off again.

There are still concerns that rates will start heading upward in March. See my earlier post.

Lesson: lock in now while rates are down!

Have a look at the charts, below for rates –at least those that my friend Dan Hlavac over at Met Life is getting.

This is what you can expect for FHA loan: a 30-yr fixed loan at 5.187% APR.

MetLife Rate Update FHA

See this link for what you can expect for a conventional loan: a 30-year fixed for 5.136% APR

MetLife Rate Update Conventional

I think people have been taking this recent tax credit for granted. They think that they have plenty of time to grab a house before the tax credit goes away in June.

Nothing could be further from the truth.

Here is what you need to know:

1) You must have an accepted offer by April 30th and a house closed by June 30th.

It is now a two-step dance, my friends!

2) Expect people to start panic buying in late March. This will mean fewer houses available and that you will need to act very quickly when you see a house that you like.

3) You should work backward from April 30th. If you need to have an accepted offer then:

a. Short sales may be tricky. You may get an accepted offer in time, but you may not close by June 30th.

b. Leave time for the bank to get back to you on your offer –that can take a week or two –if you are offering on a foreclosed property.

c. Start looking in early March. Expect 2-3 weeks of “shopping time.” Get those offers in no later than April 15th.