Our Meridian Blog

One of the things that is holding up a real recovery in the real estate market is the unwillingness of many would be homesellers to realistically price their properties to where the market is today.  Not many want to accept that their property’s market value is as low as the market says that it is.  I read an interesting article on this very thing a little over a week ago which called it “Homeowner denial“.

A recent Coldwell Banker report showed that more than three-quarters of its real estate agents surveyed said most sellers have unrealistic initial listing prices for their homes.

Likewise, an unscientific study released last week by real-estate Web site Zillow.com found that half of homeowners polled think their home’s price has increased or stayed the same in the past year.

“We expected people to get a little more in touch with reality especially over the summer, because you couldn’t turn on the TV or read the newspapers without seeing that home prices are falling,” said Amy Bohutinsky, a spokeswoman for Zillow.com. “It was very surprising to see this kind of disconnect.”

In fact, the median sales price of an existing home dropped 9 percent to $191,600 in September from a year ago, according to the National Association of Realtors.

Here in Ada County, that median home sales price has gone from $235,000 in September of 2007 to $207,900 in September of this year, a decline of 12%.  We’ve seen home prices decline by roughly 1% per month since the beginning of the year by this measure.  In some neighborhoods it is even higher, depending on how many homes are for sale nearby, or how many short sales there are.

Another thing affecting the whole market, besides overpriced listings, is that so many home sellers are drifting down with the market.  Already reluctant to put what they feel is “too low of a price” in the first place, many sellers take a small price reduction every month, hoping to find where the buyers will start “biting”.  The trouble with this strategy is that most of the other owners are doing it as well.  No one is gaining an advantage and getting their sale, so all the houses trickle lower together.  Everyone follows the market down.

Some owners finally get a sale, but then run into the other problem with this scenario… difficulty getting the appraisal.  After the last few years, who could have imagined a time when a home had trouble appraising at a value sufficient to make the mortgage loan?  But that is indeed where we are right now in the Treasure Valley.  Our area has been classified as “Declining”.  The practical effect of that is many underwriters taking an appraisal and reducing it another 5-8%.  Some homes in our area have had problems making value, throwing the whole process into turmoil.  

Bottom line?  Believe what your Realtor tells you about the market price your home can be expected to bring today.  The old trick of pricing it a little high and letting the market reach up to get you has not worked in years, yet we continue to see it.  If the goal is to sell the property, and if you really must move on, then price it where it will sell.  There is no magic in this market, and there are no agents who can really sell your property for what it might have gotten last year, or what you “need”, or what you “know it’s worth”.

Perhaps you read the paper this morning, or have heard the news on the radio, that Ada County home sales ROSE in September by 14%.  “What’s up with that?” you say, and you wonder if it means the worst is over.

Yes, it’s true that we sold more homes this September than we did in 2007, and yes, it’s true that this is the first month over month increase we’ve had in a couple of years.  But what does it mean?  I notice that the paper and the radio didn’t try to give us any more information, so what they did give us isn’t enough to make any decisions on.

I’d like to give you a bit more information.  In August of 2007 we had the first hard stumble in the mortgage market.  Over night, a couple of large mortgage money sources went under.  A number of sales contracts throughout the United States, and yes, even here in Ada County, fell out and many of them were not put back together.  It even happened to me.  I had helped a wonderful young couple to sell their home and make an offer on a bigger one for their growing family.  Two contracts tied together, due to close in mid-August.  We got both deals signed and waiting for funding.  The buyer’s lender for the first home was unable to fund the sale because the money source had failed.  Mad scramble to get both deals extended, and the buyer scrambled to find a replacement program.  We were blessed and successful.  But many deals fell last year and were not able to be put back together, deals that should have closed in September, making last September an unusally poor sales month.

What do you think?  Are you ready to call the bottom based on the 14% increase the paper is reporting?  I’m not.  I’d like to see a few more months of better sales before I say we’ve turned the corner.  There are a couple of markets in the country right now that are seeing increasing sales, and perhaps the Meridian, Boise, Ada County maarkets are next.  But let’s wait and see a few more data points, shall we?

By the way, I should have a better look at the September sales figures posted here early next week.  See you then. 

Just a reminder that the 19th Annual Meridian Lions Club happens this Saturday and Sunday, September 27th and 28th.  Events begin with mutton busting and steer riding at 1pm, with the regular rodeo events beginning at 2pm.  Because of the record number of cowboys and cowgirls this year, there will be “slack time” on Sunday starting at 8am, to accomodate all the participants.  It should be a great time, and the weather promises to much better than last year!  The rodeo grounds are west of town on Cherry, past Black Cat.  Hope to see you out there!

(Don’t forget to bring a donation of non-perishable food for the Meridian Food Bank.  They thank you, and so do the Lions.)

I mentioned that I would post a graph going back a number of years so that you might be able to see what I think is a more normally shaped sales year.  I beleive that is the first sign of a healthier market.

This is a chart of Ada County Monthly Solds going back to January of 2001.  You can see the “usual” shape of our real estate sales in the first couple of years.  You can also see how wildly out of balance our market became between the end of 2004 and the beginning of 2006.  Then, look at how broken the shape was last year, in 2007.  Now,  while much smaller than we’d like,  2008 seems to have a more normal shape to it.  Our largest sales month usually happens in June or sometimes July, then we tail off into the holidays.  Remember that, when the Statesman tells you how dismal the fall sales are.  It all depends on how you look at it.

Despite all the doom and gloom we sometimes hear on the TV and in the papers, the foreclosure situation in Idaho is not threatening to ruin the economy or the housing market.  Certainly we’ve gone through a period of loose credit, and a number of folks will be affected by it.  But in the broad view, Idaho is not struggling like many other states are with foreclosures.

RealtyTrac, a California-based company that tracks foreclosures nationwide, said 666 homes in the state were in default in June, including 469 that received notices of default that signals the start of the foreclosure process.

Apparently that gets us a #21 ranking nationally, and to give the Statesman its due, they repost that that is 18% below the number from a year ago. The state of Idaho has a number of resources for homeowners who are struggling and might be looking at a foreclosure in the future.  You can find these resources at the Idaho Department of Finance website.  There is information and links for a number of mortgage, debt, tax, and foreclosure topics.  You can also call the Homeowner Hope hotline at (888) 995-HOPE for information and assistance.
 

Meridian Dairy Days is coming at the end of this week, June 18th through the 21st, highlighted by the parade on Friday evening.  This is truly one of our best small town events here in Meridian, and the weather looks like it’s going to be perfect.  Last year there were thousands of folks who turned out to see the parade, which features tractors, horses and riders, a number of very creative floats, the cheer squads , bands, and teams from the local schools, lots of classic cars, and a few racing cars from Meridian Speedway.  A great time for everyone, celebrating our dairy heritage, and our small town Idaho community.

The parade stages on Watertower, and gets started at 7pm, running North down Main Street, then back up 2 1/2 and 3rd Streets.  Come early, pick your spot, and remember to cheer for the Meridian Lions and the Rodeo Queens.

There will also be a carnival at Storey Park from Wednesday through Saturday, and the Meridian Chamber’s Pancake Feed returns Thursday evening beginning at 5pm with a symphony to follow.  Friday night also marks the start of an arts and crafts fair featuring 80 vendors.

The Dairy Days celebration wouldn’t be complete without cows and goats, so on Saturday, all day, there will be a cow and goat show, along with a number of educational exhibits for everyone to enjoy.  See the Chamber of Commerce website for more info.  See you there!

Did you get your new property tax assessment in the mail this past week?  If you did not, be on the look-out.  Mine arrived on June 2nd.  Here in Idaho our property taxes pay for schools, law enforcement, fire protection, some highways, libraries, and much more.  Rates vary across the state, and even from neighborhood to neighborhood.  So, with that in mind, for buyers and sellers, here are five things to find out  about property taxes:

1. What is the assessed value of the property? Note that assessed value is generally less than market value. Ask to see a recent copy of the seller’s tax bill to help you determine this information.  Your Realtor can also find this for you through the MLS or from the County Assessor’s office.
2. How often are properties reassessed and when was the last reassessment done? Generally taxes jump most significantly when a property is reassessed.  In Idaho the law requires that all property be assessed annually at market value.  Market value is determined by comparable sales and the condition of the current market.  In some areas this year, you will find that the value of the “improvement” went down slightly (but the “land” value went up, so in most cases the total value still went higher).  An appraiser must visit each property once every five years.
3. Will the sale of the property trigger a tax increase? Often the assessed value of the property may increase based on the amount you pay for the property.
4. Is the amount of taxes paid comparable to other properties in the area?  Here is another thing your Realtor can find out for you.  If the amount is not in line with similar homes in the neighborhood, it might be possible to appeal the tax assessment.   You won’t get a lower rate than your neighbors, but the assessed value might be adjusted.
5. Does the current tax bill reflect any special exemptions? For example, many tax districts offer reductions to those 65 or over.  Here in Idaho, we have a Homeowners Exemption which lowers the value that taxes are paid on by 50%, with a maximum of  $100,938 for 2008 taxes.  There are also income and other situations that might qualify an owner for tax reductions.  See the County Assessor’s website for specific details on these programs.

I mentioned “short sales” last week, in my market recap post, and a commenter asked me to clarify just what that is.  So let’s talk a little bit about short sales.

What is a short sale?

Simply put, a short sale happens when a piece of real estate is sold and the net proceeds of the sale do not cover the amount of mortgage debt still owed.  The seller is “upside down” on his mortgage.  Many things can add to this situation, but the usual reasons are job loss and declining home prices.  Usually the situation involves a seller that does not have other assets to make up the difference, and an agreement is made with the lender to “forgive” the difference. 

Is it the same as a foreclosure?

No, a short sale usually (hopefully, for the seller) occurs before the foreclosure process.  In a foreclosure, the lender takes complete ownership of the property, and the owner who has defaulted on the mortgage loses all rights.  Usually the lender will then market the property to try to recover its investment.  A foreclosure is also much more damaging to the homeowner’s credit.

Why would a lender agree to a short sale?

Many lenders will agree to a short sale because the foreclosure process is very time consuming, and more expensive for the lender.  When a seller and an agent bring a short sale offer to a lender, it is oftentimes in their favor financially to take the smaller loss represented by the quicker short sale process than the much longer and more involved foreclosure route.

How long does a short sale take?

Here is where we find a major difference between a normal real estate sale and a short sale.  In an everyday sale the seller will look at offers on their property, choose whether or not to accept it, and if they accept it the deal can be closed in as little as a week for a cash sale or a couple weeks if a lender is involved (25-35 days is pretty usual for a contract with a lender involved).  In a short sale however, while the seller might be willing to accept an offer that would get them out of the property, the lender who holds the mortgage is the one with final approval.  How is that, you ask?  Well, while the seller holds the ownership rights, the lender has the right to determine whether or not they will change the terms of the contract they have with the seller for the repayment of the loan.  If the lender is unwilling to accept an offer that gives it too large a loss it will not sign off the mortgage or release the deed, and the seller is unable to make good on the agreement to sell.

Most lenders right now have an unusual number of mortgages that are upside down.  It is not unheard of to find a lender’s loss mitigation department handling 400 or 500 files at one time.  It can take three to eight weeks after an offer is submitted before an answer is given whether the lender will accept it.  Even at that point, there may be changes requested by the lender, price and agent commissions being two of the more common items changed.

What if I have a house to sell as a short sale?

Most owners know where they are with their mortgage, whether they’re current or not, and if they are upside down or not.  Not every seller in this market is.  If you bought in 2005 or 2006 and you put little or no down, then it is likely that you could have a short sale situation.  Or if you refinanced in the last few years or used your home equity line of credit.  My best suggestion is do not ignore the problem!  If you have to get out of the property, start sooner, not later.  Do not wait until you are behind on the payments, do not wait until the bank sends you the foreclosure notice, and do not just walk away from the property (like some so-called TV gurus have suggested).  Treat the property like a normal sale, fix it up as well as you can, price it very competitively so you generate lots of showings and possible offers, and by all means, use an agent that is familiar with handling a short sale.  They can be a lot of work for an agent, and not all are willing or able to do what it takes to be successful.

Is a short sale right for me to buy?

That will depend a lot on what your goals and time frame are.  If you are moving to the Meridian or Boise area and you need a home for your family soon, then I would suggest thata a short sale might not be appropriate in your case, simply due to the uncertainties and time involved.  If you are an investor, then certainly a short sale opens up the possibility of getting an attractive property at a better price.  How much time can you spend, and how hard are you willing to look?  These are things you should go over with your agent before you decide to consider short sales, but they definitely offer value to many buyers.  One big difference between a short sale and a foreclosure is with inspections.  With a foreclosure you do not get to inspect the property, but you can in a short sale.  Repairs will not happen in a foreclosure property, but they may be possible with a short sale, especially if the offer is close to meeting the lender’s number.  Patience and flexibility are the keys to buying a short sale.