I’ve seen a lot of folks predicting a lot of things about the housing market. First, know that real estate is local. Market conditions in other parts of the country will change differently than our area. I feel it’s impossible to “peg” the market in general as far as what’s going to happen. However, in our area, I see a lot of optimism for this year. Let’s take a look at the factors:

There hasn’t been a lot of market activity over the past couple years. Buyers have been waiting for a good deal. Foreclosures are moving briskly but there’s an ever-plentiful supply. This has made it difficult to impossible for existing home owners to move. This pressure has created pent-up demand in the market.

Mortgage rates are extremely low right now. Close to the levels they were back in 2005 before Greenspan messed them all up. Lenders have tightened restrictions but those that can buy will be getting a good deal on loan rates.

There is increasing national attention being put on the housing crisis and the extreme number of foreclosures. The government may be stepping in at some point this year to stem the tide of foreclosures. Once the foreclosures slow, values will begin to rise.

Rentals are now getting harder to find and rent prices are rising. Rent prices are now getting higher than the cost of owning a condo or single-family home. This increases the number of buyers in the market as renters decide it’s better to buy than pay more in rent.

We’re now entering the spring market - a naturally busy time. This should reduce inventory as buyers begin to take up the slack. If the number of foreclosures begins to slow, we’re going to see a further reduction in inventory for the fall. This points to the possibility of an uptick in the market beginning this fall. I predict conditions will remain flat during the spring and summer as the existing inventory begins to be eaten up by buyer demand but this fall we should see a slightly better market.

What does this mean for home buyers? If you haven’t yet entered the housing market, now is the time. You want to buy when the market is at or close to bottom - not after it has started to recover. If you’re looking for the point at where there’s the biggest inventory at the lowest prices, put yourself in the position to purchase this spring and summer.

The foreclosure “crisis” we’re experiencing now (up 57% in some areas from 2007 levels) is affecting everyone - not just the homeowners who’s lives and credit are turned upside down by this unfortunate experience. If everyone knew how much this situation is affecting everyone, there might be more impetous to solve things. Here’s a quick breakdown of how the current situation is affecting YOU:

As homes go under foreclosure and banks take possession of the homes, they are eventually listed on the market at 20-30% under market value. Because of the limited number of buyers right now, this might mean that out of 20 homes in a subdivision currently on the market 3-4 might be foreclosures priced at 20-30% under the others. These mostly aren’t homes that are “torn up” in the traditional foreclosure sense - these are often homes in good condition. For a buyer that sees two homes that are very similar but one is priced 20-30% lower, the choice is obvious. What this means for homeowners trying to sell homes is that they’re forced to compete with the foreclosures and drop prices or not sell. This drops market values in an area as sellers have to constantly compete with a continuous stream of foreclosures. The homeowners pay for this crisis with dropping home values.

For buyers, purchasing a foreclosure at 20-30% under market value sounds like a sure thing. However, many buyers that haven’t contacted a loan officer in a while might be suprised to find that they can no longer qualify for a loan. Due to tightening restrictions on income ratios, credit scores and downpayment requirements, many buyers who want to buy and may be capable of affording a home will not be able to get a loan. Also, for the buyers that can get a loan, banks are borrowing money from the federal government at a greatly reduced rate (everyone’s been hearing about the dropping fed funds rate) and then turning around and lending that money to buyes at higher rates (rates have stayed the same or slightly risen while the fed funds rates has dropped) in order to generate more income on the loans being writted and to offset the losses taken by the increased number of foreclosures. The buyers pay for this crisis with tightened restrictions on loans and higher interest rates.

Of course, the most highly impacted party in a foreclosure is the homeowner being foreclosed upon. Not only do they have to endure a severe lifestyle change, but credit scores will be greatly damaged by a judgement of foreclosure. This means that they will be unable to buy for the foreseeable future (especially with increasingly-tightening lending restrictions). All of the foreclosures and buyers unwilling to commit to a purchase have driven up rental prices and made rentals hard to find. This compounds the problem by forcing families that have been foreclosed upon to pay more for a place to live.

This foreclosure “crisis” we’re currently experiencing has a ripple effect that touches everyone - no matter who you are. If you don’t feel it now, you soon will as your home value drops or rent goes up. It’s time for everyone to take responsibility for this mess and make the right moves to get these homeowners some help or otherwise reduce the rate of foreclosure for everyone’s sake.

The latest statistics show that the foreclosure rate in our area has risen 57% since March of 2007. A foreclosure is truely a sad event. It results in a family loosing one of their most important possessions. Shelter is a basic human need so when a family - often with small children - looses their home, it puts them in a survival situation. Often, the turmoil associated with a foreclosure can be devastating to a family - tearing apart husbands from wives and even children from mothers and fathers.

It’s easy to look on people experiencing a foreclosure as bad people - irresposible - someone that did something they weren’t supposed to do or didn’t pay a bill that was due. However, the truth of the matter is that many foreclosures are the result of situations that aren’t predictable. Still others are the result of a lack of information and education during the buying process.

Often, a foreclosure is the result of financial hardship - the loss of one’s job, sickness or other unforseen circumstances. As our country stands on the brink of a recession, jobs are getting difficult to find. Companies are cutting back and laying off. For single-income families, the loss of that income is devastating and often un-expected. My own father was laid off several months ago and has been looking for a job ever since to no avail. If he had to provide for a family and pay a mortgage at the same time - if this would have happened 20 years ago - we would have likely  joined the many people facing the decision of whether to spend an unemployment check on food or a mortgage.

Sickness can also place someone in extreme financial hardship. The inability to work combined with incomplete healthcare coverage - insurance companies seem to love denying claims nowdays - leave folks at thier most vulnerable the inability to earn income combined with a lot of extra healthcare bills. Again - a financially devastating situation that is nearly impossible for single-income families to bear.

The truth of this is that, these situations can happen to anyone at any time - they are the unforseen bumps in the road of life. For homeowners without a mortgage or enough equity in their homes, sometimes these events can be weathered. For the rest - foreclosure is often the result. These are not bad people - they are people who loved their homes. I see it almost every time I enter one of these homes - schoolwork and A+ papers on the fridge, toys, family pictures and heirlooms left behind in the chaos. These aren’t people who knew this would happen to them. It’s easy to think of people experiencing foreclosure as “those people” who did something wrong. However, we need to keep in mind that if this was a choice these buyers had when they purchased the home - if the loan paperwork had a box you could check that said “Foreclosure in 2 years” - I don’t think anyone would check it.

If you’re in the market to buy or sell a home, eventually you’ll encounter an appraisal. Most folks know that it deals with home values but many might not understand exactly how important a role the appraisal plays in the home buying process.

First it’s important to distinguish between two different types of home value estimates. First, the report a real estate agent often does for a home seller in order to arrive at a list price for the home is commonly known as a Comparative Market Analysis. However, this is almost never an actual “appraisal”. An appraisal is a home value estimate that is compiled by a licensed real estate appraiser. The appraiser is often hired by a lender, bank or other mortgage company to determine an official value of the home for loan purposes. The distinction between a market analysis and an appraisal can sometimes be very small but in other ways very large. For example, the way a real estate agent prepares a comparative market analysis is by examining the sales prices of similar properties in the area (known as “area comps”). A real estate appraiser may use this same technique to arrive at the value of the home, however appraisers often have several different methods they can use.

Perhaps the biggest distinction between the value arrived at in a comparative market analysis and that of an appraisal is that only an appraisal is accepted by lenders as an “official” estimate. This creates an interesting situation because the appraisal can sometimes differ from the value arrived at in a comparative market analysis, especially if the appraiser is using a different method than pulling the “comps”. This is perhaps one of the biggest issues that can occur between buyers and sellers after an offer on a home has been negotiated and accepted. Consider the following situation:

A real estate agent estimates the value of a home using area comps at $325,000 and a buyer comes allong and offers full price for the home. Later, the lender hires an appraiser to do an official appraisal on the home and they use a square footage method for determining the value and arrive at a value of $300,000. Now there’s an issue because the lender is unwilling to lend more to the buyer to purchase a home than the home is actually woth. So the end result is, in order for the sale to progress, the seller must agree to reduce the sales price by $25,000.

In many ways, a home is worth what someone is willing to pay for it, however, that value must still pass muster by the appraiser. This is perhaps the biggest reason why pricing a home correctly from the beginning is so important. Many sellers have the idea that by pricing the home high initially, they can always “get lucky” and find a buyer willing to pay more for the home. However, because the home has to eventually pass the appraisal, even if the home were to sell at an inflated price, it wouldn’t pass the appraisal.

Lately, the lending industry has been putting the “mort” in Mortgage with a bevy of bewildering rule changes that are leaving some buyers unable to secure loans. OK, here’s the thing: last year some bad stuff went down with the sub-prime market. Rather messy - and it really put the damper on what might have been a better market last spring. Lenders got slapped around a bit and told to shape up. So, you’d think they would actually think about things a bit and come up with a plan. Spend a couple months brainstorming about how this tangle all started and what to do in the future to prevent a similar snarl.

However, the way things are now the lending industry reminds me of a 3-year old that’s pouting because mom and dad gave them a spanking. Look, when it comes to holding buyers more responsible for the loans they take out, I’m first in line for the fan club. However, denying loans to people that can easily afford them for stupid reasons is not helping anyone. Over the past three weeks, I had 2 deals fall apart - one because, at the last minute, the lender decided that the home the buyers wanted to purchase was too close to train tracks and a feed supply store and that made it “unacceptable” to the lender. Who cares about what the buyer wants to buy, right?

The second deal fell apart because the government doesn’t trust individual condo owners to pay for their own flood insurance - never mind that they’re fine with single family home or even townhome owners doing the same. I guess the fact that it’s a condo and not one of those others really makes a difference.

The silly part of it is I ALMOST had a third deal fall apart, apparently because the underwriter mis-read one of the “new” rules. And this, my friends, is at the heart of my beef. Rules are great. Legislation and oversight and regulation and all that. But for god’s sake, if you make rules, be smart about them and don’t keep changing them. The way it is now, lenders don’t know what the heck is going on. People that got approved two weeks ago can’t get a loan today because things are changing all day every day. What we’re seeing in the lending industry is going too far in the oposite direction. Make buyers responsible but don’t restrict the people who can buy and can afford to buy the ability to buy.

What we might see this spring is a unique situation where buyers have the desire and ability to buy, yet things are so messed up with the lending industry that those same buyers might not be able to get a loan. Yet another “side effect” of this whole mess we find ourselves in.