Important Changes to FHA Insured Loans

The U.S. Department of Housing and Urban Development (HUD) just announced some significant changes to the Federal Housing Administration (FHA) loan program for borrowers seeking FHA insured home mortgages.

More detail about the program(s) can be found on the HUD website, but the most noteworthy proposed changes are synopsized as follows:

• The up-front Mortgage Insurance Premium (MIP) will be raised from 1.75% to 2.25%. There has been talk of no longer allowing this fee to be financed into the mortgage, but as of this writing rolling it in is still allowable. While the increase sounds significant, on the average sale price under $200,000 that we have here in Pickens County GA, this amounts to less than $1,000 -- or less than $10 a month when financed into the loan;
  
• A possible increase in the annual MIP, if so authorized (but no change at this time);
  
• [PROPOSED] To qualify for the program's popular 3.5% downpayment option, a minimum 580 credit score will be required for borrowers. Below a 580, the minimum downpayment would climb to 10%. Something of a moot point at this time, as finding a lender willing to fund a loan with a score less than 620 is tough enough, without talking about a 580 or below;


• [PROPOSED] Reduce the total allowable seller concession to a total of 3%, versus the 6% previously allowed (perhaps the most significant of the changes for buyers, many of whom relied on seller assistance for closing costs, but overall probably a good move for the stability of the housing market);


• Increased enforcement on FHA lenders. (I smell more paperwork and delays on the way, for loans already notoriously documentation intensive and red-tape bound.);
  
• Most of the changes are scheduled to take effect between spring and early summer, if approved.

These changes come as a general response to heavy default rates on home loans, and the resulting foreclosure and short sales losses that have reduced, or threatened to reduce, FHA capital reserves below the mandated minimum, which places the entire program in jeopardy. Since the vast majority of loans currently being originated in and around Jasper GA -- as with most areas of the country -- are currently FHA insured, the loss of this option for borrowers could be very damaging to an already shaky real estate market.

So, like it or not, the changes are what they are and will be a part of our lives for a while.

Shadow Inventory (Part 3): Real Estate as a Need and Investment

Wrapping up my thoughts on the reported potential of a large "shadow inventory" of home listings entering the local real estate market, and whether now is a "good time to buy or sell", this final post of three explores the more important aspect of motivation for buying or selling a home.

As covered previously, it is perhaps wise to view the purchase or sale of a house in much the same way as any other investment, in fully investigating all relevant aspects. Examine the area, neighborhood, schools, job opportunities, local government and other factors that could impact the long term health of the investment, and with a particular focus on the home itself. The home should be inspected and full due diligence performed to avoid any sudden surprises down the road.

However, while still an investment, one essential difference between buying a home and other "investments", is that most other investments are discretionary. The need for shelter is a more fundamental one, and one that usually cannot be delayed or ignored, and, since employment, education, and family, are often a deciding factor in the "where" and "when" of a home purchase, flexibility of choice can be inhibited. Life events like marriage, divorce, job change, births and deaths, can all have a big impact on the need to buy or sell.

Beyond the physical need, there is also a high level of emotion in the purchase and sale of a home that isn't necessarily present in other forms of investment. Beyond any basic purpose of shelter or as a vehicle for financial return, there is the element of comfort and enjoyment. A place where a majority of time is spent relaxing, entertaining, being with family, and escaping the world around us. This psychological sense of place is important -- as is finding a home that suits the lifestyles of its occupants. Even minor irritants can become significant over time. So it's rarely just about finding "a" home, or "a" home with potential for a good monetary return, but about finding "the" home that best fits our needs . . . whatever that entails.

In the end, regardless of what's going around the world, the country, Georgia, or right here in Pickens County, the answer as to whether or not now is the right time to buy or sell lies within the wants and needs of the individual, and can only be decided by them. Choice can be taken away by circumstance, but where choice is present, the goals and intentions of the person making the decision are really what's key -- not what the market may day do tomorrow, next month or next year.

What a home provides -- shelter, comfort and security -- are things it can offer under any market conditions. The only real impact market conditions have on the benefit of homeownership, are financial in nature. In the current market, is a buyer going to overpay, or get a great deal? Will a seller lose money, or land a healthy return? If these considerations are important (and for most people they are), it is important to remember that this as a long term investment and act accordingly . . . which greatly reduces the import of "current" conditions.

Owning a home for a year or two should rarely be expected to net significant financial reward, other than in overheated markets (which also carry their share of risk). There are certain costs in a home purchase -- financing charges, inspections, surveys, real estate commissions, moving costs, etc. -- that are very difficult to offset in a quick turnaround sale. Not without getting a really good deal to begin with, or convincing a new buyer to overpay. Those with low risk tolerance or who intend to only live in a home for a short period may be better off renting . . . regardless of the market. Buying in hopes of a quick short term gain is less investing than it is speculating.

On the other hand, if it's "the" home, the one that meets all of a buyer's fundamental physical and emotional needs right now, is trying to time the market perfectly really that crucial? And is perhaps losing the ideal home worth waiting for conditions to improve? Likewise, if selling is necessary, the motivation for doing so is in all likelihood more important than any market conditions and can't be ignored. If the need isn't critical, then it's a matter of choice, and market conditions, which are always subject to change, are only a small part of the overall decision.

There is no harm in asking questions or researching to learn about home values or buyer / seller activity in the local market, as one of many considerations, but simply knowing whether it is a buyer's market or seller's market isn't the whole picture. The possibility that a wave of new listings may appear, or that pent up demand may result in a rush of buyers, or that interest rates may or may not go up in the future, is little more than a guessing game, and should be considered as such.

In brief, there is no right (or wrong) universal answer to the question, "Is now a good time to buy/sell a home?", no matter what the National Association of REALTORS or other trade groups and individuals try to preach. Buying or selling a home always comes down to a very personal situation or choice, and should be acted upon accordingly.

Shadow Inventory (Part 2): Predicting the Future

In my previous post I discussed a backlog of foreclosure properties, coupled with a growing pool of homeowners needing to sell, potentially creating a surge in the number of homes for sale in Pickens County GA, and other parts of the country.

I have since read further "dire predictions" about the next wave of foreclosures and the potential for additional price drops in a majority of the markets surveyed. I have also read countervailing theories and reports of growing improvements in home sales and values.

So the big question is, what do we do? Believe the predictions? Buy into the hype? And if so, whose argument should we believe in choosing our course?

For buyers, there is the obvious concern of buying into a declining market. On the other hand, if we've already reached a "bottom"-- as some would hold -- the only direction for prices is up, so not buying now could be costly down the road. For sellers there is the similar challenge of knowing "when to hold" and "when to fold". Sell now before prices decline further, or wait for a turnaround and a better price?

To me, this is very similar to trying to "time" the stock market as a whole. It's like watching the Dow Jones or NASDAQ indices and trying to decide based on current performance whether the trend will be up or down for the future. And from there, if the decision is to participate in the market at all, trying to decide on a particular stock or company, based on a similar prediction as to whether those shares are going to perform better or worse in the future. This requires a certain level of guesswork (dare I say gambling?), to suggest at what point a floor or ceiling has been reached, and whether this is now a "safe" investment with all potential downside removed.

The are plenty of Wall Street analysts calling both sides of the coin. Only a few get it right. Even fewer with any consistency. The truth is, predicting the future has never been a very reliable means of decision making.

I think an analysis of successful investors will show that a majority of them generated their good returns by picking companies with solid fundamentals and holding for the long term. Their decision is based on factors such as a quality product or service, good management, appealing P/E Ratio, etc. Of course there are the stories that abound of millions made overnight via "lucky" investments in tech startups and so on, but these are anomalies, much like suggesting that winning the lottery is a wise investment "strategy". Absolutely, it would be great if you can do it . . .

Likewise, selling smart in the stock market isn't always the windfall of an insider tip, "premonition", or knowledge of the future. It is a sound decision based largely on changing investment needs, restructuring, or early warning signs of potential trouble on the horizon for that company or sector. An investment held for a long time that has seen comfortable gains can be easily divested, even in the face of an already declining stock price, leaving no need for second-guessing. If the pricing pressure is seen as temporary due to some particular event, such as a lawsuit, product recall, or other "bad" news, but the company's fundamentals remain strong, the option remains of riding the stock to the bottom and back up again, if it is a long term investment.

Since real estate is perhaps the largest investment most people will ever make in their lives, it seems that similar logic to other forms of investing should apply. Of course, the analogy isn't 100% identical, as there are a lot of factors, considerations, and data available in stock trading that there aren't in real estate, but the decision making should be similar.

In real estate, as with the stock market, even the so-called "experts" are often caught flat-footed by the direction of the real estate market as a whole. Just as deciding that the Dow hitting "10,000" is a good time to jump in, or when it drops to "8,000" is a time to bail, deciding to buy or sell a home based on national sales statistics reported in the Case-Schiller Index, by the National Association of Realtors, or the Office of Federal Housing Enterprise Oversight (OFHEO), is like playing darts while blindfolded.

Declines or gains in home and land sales volume or price have a tendency to vary greatly by location, much as certain sectors in the stock market may perform against the general trend of the index on which they are listed. Precious metals may be a good investment versus energy stocks in an otherwise declining market. Likewise, buying or selling in the southeast may be a very different proposition from the midwest. Atlanta may be very different to Chattanooga. And Jasper may be completely opposite to Atlanta, based on local dynamics. Certain neighborhoods in Jasper may in turn perform better or worse than other neighborhoods in the area.

As described above, when investing in the stock market, one generally doesn't invest in the market as a whole, or even a sector, but a carefully chosen company or two. The same is true of buying a home. The broader market, the area, the city, the neighborhood, are all just a general backdrop which have to be taken into consideration, but, the actual investment is the home itself.

So, ultimately, in my opinion, rather than the question I hear so often "How's the real estate market? Is it a good time to buy / sell?", a better question might be, "Based on my particular unique set of circumstance in the current environment, is it a good time for me to buy or sell a home?"

If considering a purchase, the issue should always be,"Is buying this house as a long term investment, in this location, at this moment in time, a good decision for me?". If deciding whether or not to sell, similarly the issue is, "What are my alternatives, options and consequences, in choosing to sell or not sell at this precise moment?"

Questions which will be more fully explored in Part 3 of this post . . .

Shadow Inventory: A New Wave of Foreclosures in the Cards?

A big issue currently being debated in economic and real estate circles is the question of a "shadow inventory" of homes that could hamper any recovery effort.

This shadow inventory arises from two sources. One is the supposedly growing number of potential homesellers who have taken to the sidelines to await a more stable market and stronger prices, and who are likely to emerge at the first solid sign of improvement. The other is a possible surge of homes coming to market from sizable existing REO portfolios of unsold foreclosure homes already held by banks, investors and lenders, accompanied by a new wave of foreclosures, as large (some say larger) than that we've already experienced.

This spectre of rising foreclosures is a widely held belief among many in the industry and government, and is worth keeping in focus. Whereas the bulk of prior foreclosure activity was blamed on poorly qualified buyers, and resetting ARM's, the next go round is said to arise out of Option ARM's and Alt-A loans, possibly running to millions of foreclosed properties over the next few years. And many of these homes will be in a higher price range than the majority of distress sales currently coming to market.

There is hope that being aware is a step in the right direction to address the problem, but with the declines in property values, high listing inventory in many areas, increased unemployment, and questionable success in resolving current issues, it's hard to know from where any relief will come. More and more sellers are upside down on their loans, and even when they are able to find a buyer, actually closing the transaction becomes an iffy prospect that can be blown apart at any point by tougher (and very changeable) lending standards, unpredictable appraisals, and, more and more of late, the vagaries of dealing with short sale / loss mitigation departments of the seller's lender.

I have blogged elsewhere that remedial efforts thus far may have unintended consequences, causing them to backfire, while only a small percentage of homeowners have actually been able to take advantage of them. Lenders appear to have become more amenable to considering short sales and negotiating on foreclosures they hold, but as the number of failed banks climbs, it also becomes a question how much more banks can continue to suffer these kinds of losses . . . particularly when the equally ugly likelihood of growing commercial foreclosures approaches.

So, if all the indicators hold true, we're not quite out of the woods. This suggested shadow inventory of increased foreclosure numbers and "try-it-again" sellers could swell inventory and reign in any upward pressure on prices that might otherwise occur, even if the increased buyer activity we have been seeing were to continue.

That's a great many "ifs" and "buts", when none of us has a crystal ball -- a subject I will pick up in part 2 of this blog post . . .

Pickens County GA Things to Do and Places to Go: Parks and Recreational Areas

Despite an attractive mountain setting and numerous small lakes and creeks, Pickens County GA unfortunately has no larger lakes, parks or recreational areas of any size, or any with particularly noteworthy features. Unlike our neighbors, who have Lake Allatoona, Lake Lanier, Carter's Lake, the Etowah River, Amicalola Falls, etc., as a recreational backdrop, our parks are somewhat limited in size and scope.

This is not meant to disparage or criticize the Jasper City Park, Chamber of Commerce Park, and rec fields at Roper Park, which serve their purpose -- and where I have taken my kids on numerous occasions over the years -- but which for some, have certain functional, spatial and /or aesthetic limitations. With that in mind, there are places to see and things to do outside of Jasper and Pickens County, GA, that I will cover from time to time, hopefully broadening the opportunities for residents and visitors alike.

This post will cover some options for those looking more to the east and southeast of Pickens County, closer to the Marblehill and Big Canoe area . . .

One of the most obvious is Amicalola Falls, in Dawson County, about which I have written before, as this nearby venue offers options for both simple picnic and sightseeing activities, as well as more rigorous hiking and climbing.

A related choice is the Amicalola River itself. As part of the Dawson Wildlife Management Area, the river is accessible to the public in a couple of spots for kayaking, tubing, fishing, hiking, and picnicking. One such access point is located directly off Highway 53 East, heading toward Dawsonville, at the bridge across the Amicalola. A small side road provides parking and access to a boardwalk that follows the river, complete with benches and river entry along the way. This makes a great spot to stop and eat with the kids, where they can wade in the water or play on the rocks in a pleasant setting , without having to go too far off the beaten path. [I hope to add some pics shortly.]

Another possibility is Poole's Mill Park in northwest Forsyth County. Just off of Highway 369 (Matt Hwy), on Poole's Mill Road, this lesser know park offers a good size playground, a pavilion, a scenic covered bridge, and a broad creek.

Large rock formations in and around the water create shallow cascades and waterfalls, making it a fun place for kids of all ages. The park is rarely crowded it seems, although generally more so at lunch than early morning or late afternoon. (And aside from the park, the area itself is generally attractive, surrounded by appealing neighborhoods like The Legends of Settendown Creek, The Preserve at Etowah, Etowah Trails, River Rock, Wolf Creek Park, and more, which are definitely worth a look for anyone in the market to buy a home).

So, next time you're wanting to take advantage of a crisp spring morning or balmy summer evening, want to share some of North Georgia's natural beauty with guests from out of town, or just have a couple of hours to kill, these close-at-hand scenic spots are worth keeping in mind.