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It’s now been eight years since we saw the first signs of a “housing bubble” beginning to implode. Only five years ago we were in early stages of one of the most active foreclosure periods in our history and short sales were becoming our “new normal.” Finally, three years ago our market bottomed out and we began our now sustained recovery. There have been big winners and big losers under the identical market conditions. An industry of “flippers” materialized from nowhere, made millions, and remain active today. Investors continue to add rental properties to their portfolio realizing significant capital gain while rising rents add to cash flow.
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Cash Flow Chart

Values bottomed out between 2009 and 2011 and now demonstrate
a modest, yet stable, upward trend. Still, an estimated twenty five
percent of owners have a mortgage balance which exceeds the
market value of the property. As values rise, negative equity is erased
compelling underwater owners to stay the course rather than pursue
a distressed sale.
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Cash Flow Chart

Purchasers are now challenged by a decline in the number of homes available for sale. What had been a buyer-biased market has quickly trended to a more neutral, or even
seller-favorable environment. While not comparable with the overheated situation they saw in 2003 to 2005, buyers need to act with resolve to be successful in today’s market.

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Cash Flow Chart

Unless paying cash for a property, your mortgage interest rate
will more significantly impact return on investment than will the purchase price. While the Federal Open Market Committee pledges to keep overnight interest rates steady through 2015,
 long term rates are scheduled to begin moving up in 2013. 
A $1,000 principal and interest payment borrows $222,000 at today’s 3.5% interest rate. Read More


Cash Flow Chart

There are no longer widespread concerns over the sustainable positive direction of our housing market but it is your opinion that matters. Individuals will be well served to evaluate available data, reach a conclusion, then enact
a personal strategy. A conscious decision as to whether real estate belongs in your portfolio is fundamental.
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Frankly, we are buyers of real estate at today’s price and terms. Referencing the trend set forth within the graph on Page 1, the 2002 Median Value in our MSA was $200,000. Ten years later in 2012, after having absorbed the worst housing cycle of our generation, Median Value stands at $339,000. The implied capital gain of $139,000 represents a 69% return on equity if

the 2002 buyer paid cash for a property. If the buyer financed the purchase, the return on equity becomes exponential.

In many market segments within our region, real estate continues to be offered at a substantial discount to it’s peak value several years ago. It is not unreasonable to consider the likelihood that values will be higher in 2023 than they are today. Stable fixed rate financing is available to purchase real estate at rates currently below 4%; no balloons and no adjustments down the road. To top that all off, the owner gets to live in the real estate while they own it if they choose to!
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Why sell in an appreciating market? Sellers certainly enjoy a more favorable market position today when compared to that

of only a year ago. Inventory has decreased by fifty percent while buyer side confidence has essentially been restored. With equity restoration as a result of increasing values, many sellers once again control their own destiny.

If our clients are living where and how they want to live, we encourage them to refinance to today’s low rates and enjoy their home. If a currently-owned property no longer fulfills our client’s lifestyle, we encourage them to weigh the alternative of converting the property to a rental against the clarity of listing the property for sale. In most cases, either alternative will position owners to acquire a property better suited to their needs.
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Twenty five percent of homeowners remain in a negative equity position despite the recovery of values to date. Public Policy will encourage the orderly and cost effective disposition of these assets over the next several years. Incentives to homeowners which facilitate short sales will diminish as the risk of another spike in inventory continues to decline. An owner’s absolute priority should be to understand the alternatives and choose a direction.

Resolving default before it occurs is always a more favorable alternative. Policy guidelines change on a regular basis and some mortgage loans are not eligible for participation in any government sponsored programs. Postponing evaluation of alternatives until the lender makes unilateral decisions to resolve a default is damaging. In some cases, lenders have internal programs available for borrowers that do not qualify for any of the Administration options.

Not everyone who claims to be a “Short Sale Expert” is one. The guidelines are complex and subject to alteration on short term basis. Getting a lien released for less than the amount owed is only the tip of the iceberg. The contingent liability
exposure to deficiency judgment and tax liability has potential to be devastating if unresolved.
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If you are considering a real estate transaction, thorough analysis and competent representation are essential. We are in a transitioning market. There is potential for profit, as there is risk of loss. If we understand the underlying facts, we can continue to make good business decisions logically and without emotion. I am a real estate professional and accept responsibility for keeping my friends, neighbors, and business community informed as to all aspects of things affecting the real estate portion of their holdings.

If your home is currently listed for sale, this is not a solicitation. If you have a real estate question, I will be happy to answer it, or find the answer. If you have a real estate need, I will appreciate an opportunity to compete for your business. Our team is very good at what we do…our results demonstrate that. Don’t settle for less.

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