Century 21 Castlewood Agencies
108 Edmonton Trail, Airdrie, Alberta
P: 403-948-2121
F: 403-592-2233
Stability seen returning to Calgary housing market
By Mario Toneguzzi, Calgary HeraldMay 13, 2009
CALGARY - Calgary’s resale housing market is seeing an uptick in activity as consumer confidence increases and we can expect a slow, steady return to stability over the coming months, says the president of Coldwell Banker Canada.
The local resale housing market has slowed compared with last year because of the current economic conditions and the high inventory of new homes built during the past few years of the boom, said John Geha, who was in Calgary on Wednesday speaking to local professionals about the real estate market.
“The trend that we’re seeing — the increase, the stabilizing — we see that continuing. And we really see the Calgary market starting to right side itself throughout the year and be back on track towards the end of the first quarter in 2010,” he said.
“We see it on a continued basis. Not a major jump because you still have a lot of inventory out there, but we do see here in Calgary a stabilization of the market and a nice gradual increase in business.”
So has the Calgary market hit bottom?
“I would say that we’ve come close to the bottom. I don’t think that there’s a slam down in the bottom.
“One of the things that’s taking place (is) there’s a lot of new buyers out there and that’s what is really fuelling the consumer confidence as well,” said Geha. “When you have a drop in value, a very low interest rate, stability in your financial markets, you’ve now expanded to a new buyer. That triggers the movement of the market.”
Geha said the market is now seeing a trend with new buyers who would normally be tenants but are being enticed into purchasing residential real estate because of the historic low mortgage rates.
“We still talk to the consumer here in Calgary and they still want to build wealth on real estate. It’s not the quick fix. The speculation hopefully has subsided, but people are still looking at the Calgary real estate market as a value and wealth-building opportunity,” said Geha.
According to the Calgary Real Estate Board, the city’s resale housing market rebounded in April, with sales increasing from the previous month.
In April, there were 1,290 single-family home sales in Calgary, an increase of 19 per cent from 1,086 sales in March, but a five per cent drop from the 1,363 sales a year ago. The number of condo sales for April was 579, a 30 per cent hike from the 446 transactions recorded in March, but a 0.3 per cent decline from April 2008, when 581 condos changed hands.
The average price of a single-family home in Calgary in April was $426,311, increasing by one per cent from March, when it was $420,354, but down 10 per cent from April 2008’s $474,564. The average price of a Calgary condo was $277,953 in April, off two per cent from the March price of $284,056, and an 11 per cent decrease from the April 2008 level of $312,586.
“People will call us and ask us when is the right time to buy. When is the bottom going to fall out?” said Geha. “Our answer is that we don’t know when the bottom is going to hit. Don’t speculate. Don’t wait for the bottom to hit.
“It’s very, very difficult to ever anticipate when the real estate market is going to turn or when the bottom is going to hit. You’re better off going to Las Vegas because we don’t know.”
As Foreclosures Rise, More Sellers and Lenders Consider Short-Selling
The headline news recently was that the number of mortgages entering the foreclosure process rose to a record level. Of the nearly 44 million mortgages, about 0.58 percent — that’s 254,590 — or one out of every 172 loans, are now officially in foreclosure.
Foreclosure occurs when borrowers have not made two or more payments and lenders respond by filing a legal notice and commencing a legal proceeding to take possession of the home.
The record number of foreclosures does not appear to be evenly spread around the country. According to the Mortgage Bankers Association, the rate of mortgages in foreclosure would have fallen if not for big jumps in foreclosures in local markets of California, Florida, Nevada and Arizona, where investors who bought on speculation that values would rise are walking away from property that is now worth less than they owe. Also, in regions of Ohio, Michigan and Indiana, areas marked by large job losses in manufacturing are seeing big increases in foreclosures.
A Foreclosure Alternative
The prospect of foreclosure is difficult for a homeowner, but there is another option.
A little-known alternative, once more commonly used in the real estate downturn of the early ’90s, is the "short sale," which works like this: A homeowner falls behind on his or her mortgage payments, usually due to a job loss, rising debt payments, or both. Facing a situation in which the home value has fallen and cannot be sold for the amount of the mortgage owed, the homeowner works out a deal with the lender to sell the home for whatever the market will bear. If the amount of the sale is for less than the amount owed on the mortgage, the lender gets the proceeds and discharges the remaining debt. The homeowner will have to leave the house as soon as it is sold.
Alternatively, with a foreclosure, homeowners who can no longer make payments are served with a notice of foreclosure, which essentially informs them to either bring the loan current or face the home being taken over and sold at a public auction, after which the homeowner will face eviction proceedings. While this process is going on, the homeowner can live in the house rent-free for up to a year, depending on that state’s foreclosure and eviction laws. But this fact alone does not mean the foreclosure is better; in fact, it may be worse.
Lose the House, but Not Your Credit
According to sources in the mortgage industry, people who agree to a short sale with the lender do far less damage to their credit rating than those who go through foreclosure.
While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating, at least short sellers avoid having a "debt discharged due to foreclosure" on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.
Short sales show up on a credit report as a "pre-foreclosure in redemption" status and can result in a credit score reduction of 100 points or less. After the sale, the mortgage may show up as "discharged." People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months. So, if buying a home is a future goal, then a short sale is the better option for many.
Homeowners cannot simply decide that they want to unload a home with a short sale; the lender must agree to it. The key to getting a lender to go along is to demonstrate two things: that you have no other financial resources to pay the mortgage, and that the sale price the buyer is willing to pay is the fair price the market will bear. If a lender believes it can get more for the house by taking possession of it and selling it themselves, then they will not go along with a short sale.
To begin the process of a short sale, you first need to call the lender and speak directly with the person in the loan workout or short sale department. At GMAC ResCap, a large residential mortgage lender, there is a "foreclosure prevention department" with people trained to work with homeowners in exactly this situation. Their motivation is summed up by Steve Nelson at that company: "We pretty much know what our loss is going to be if we foreclose. If a short-seller results in a payoff that’s better than that number, we’re talking all day long with people who want to put a short sale together." Some lenders report a three- to four-times rise in the number of short sales over the past year.
People who want to go this route should contact a local real estate firm and ask to work with a real estate agent who has actual experience with short sales. These specially trained agents will know the process and deliver the documentation that the lender requires to authorize the short sale. The agent can also find a buyer that is qualified to complete the transaction.
If all goes as planned, the lender will receive all of the proceeds, typically not enough to pay off the loan. The remaining balance of the loan is discharged. But a homeowner agreeing to a short sale should also get legal advice to protect his or herself from future claims of the lender. In some states, only purchase mortgages are fully discharged. For all other types of debt (equity loans, refinancing, etc), the homeowner can be held personally liable for repayment in the future. For this reason, a lawyer’s advice will include getting the lender to agree to fully discharge all mortgage debt involved in the short sale.
Buying a Short Sale Home
Buyers who can find a short-sale can get a good deal. The advantages of buying a property through a short sale include buying at a discounted price and buying a house where the sellers are still motivated to sell the home and may take care of it until it is sold.
Some buyers think they can get a better deal by waiting to buy a house when it goes into foreclosure, but buying a house through foreclosure is risky business and not for first-time buyers or inexperienced real estate investors. You should get advice from an experienced professional. Hire a lawyer to help you with the eviction process if the home is occupied. Sometimes, tenants who are sued for eviction can retaliate. When sellers realize they will lose their home to foreclosure, they often stop caring for it. Many states require buyers to make certain disclosures to the owners, and failure to do so on the proper forms and in the required timeframes can result in fines, lawsuits, and even cancellation of the sale and loss of your money.
It’s typically advised to work with a realtor with experience in short sales, because they can help you research the market to find the properties where foreclosure notices have been filed as well as how much is owed by the lender. Typically, this can be done at the county registrar of deeds. They can also approach these homeowners for you to let them know that they are aware that the foreclosure notice has been filed and that, if the owner is interested, there is a buyer who could work with them to complete a short sale.
Even if you find a home where the owner is willing to work out a short sale, don’t assume the lender will go along with it. Once the seller agrees to your offer, your agent will need to send it to the lender for approval, and you will not have a deal until the lender OKs it.
Expect a lender to negotiate a higher price; they will want to know they are getting paid the most they can get for the house. Since the lender is paying the realtor’s commission, it will likely ask your agent to lower his commission, or you to pay some of it. Typically, the lender will not bear the cost of items that are typically paid for by sellers, such as inspections, and the lender will agree only to sell the property if the buyer agrees to buy it in "as is" condition. This makes it all the more important for a buyer of a property through a short sale to make an offer contingent upon approving a through home inspection.
Monday, February 1, 2010 - New Listing - C3408996
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