As a former Engineer, it always requires further explanation whenever someone asks me, “I hear the Real Estate market is really good. Is that true?”

I usually respond with, “That depends. Are you looking to buy, sell, or trade equity of an existing home?” 

The reaction I get is usually best explained by the facial expression that says, “Huh?” or “Yeah…whatever.”

To put things simply, the Real Estate market goes through momentum swings, just like any market. However, to say the market is “bad” or “good” is definitely oversimplifying things.

Most agree that today’s market is an appreciating market. Prices have not yet peaked. When the market is appreciating, it often leads to some of the worst decision making by buyers and sellers due to confusion.

Common sense would tell us that increasing values is good for everyone. Unfortunately, this is not the case in Real Estate. For some folks, it’s the opposite of what would seem is common sense. There’s an old saying, “Money is made when you buy.”

Let’s create a few groups of people affected by the market:

A. First-time homebuyers. This group includes anyone that is buying without having to sell a property in the same market location and segment.

B. Move-up buyer. This is a homeowner who needs to sell their existing home in order to move in a more expensive home. This includes a homeowner who decides to take a “cash out” loan on their existing home to use as a downpayment on another home. Both transactions are happening within the same market location and segment.

C. Downsizing seller. This is a homeowner who needs to sell their existing home in order to move in a less expensive home. This includes a homeowner who decides to take a “cash out” loan on their existing home to use as a downpayment on another home. Both transactions are happening within the same market location and segment.

D. Cash out seller. This is a homeowner who is simply selling and will not buy under the current market conditions.

Keep in mind that this table shows who benefits from a financial standpoint and assumes sellers have enough equity for a downpayment toward their upleg home.

 “I’m going to wait until my home value goes higher.”

Most sellers think this is the smart move. Unfortunately, you can see from the chart above that only the “cash out” seller is the only one who would benefit from waiting. For the other sellers, their replacement home becomes more expensive as well and the choices of homes become fewer. Even for the “cash out” seller, the problem with this particular strategy is that you must predict if the market has peaked.

 

One example that comes to mind during a hot market: The market becomes more attractive to “move up” buyers because they are happy their home has increased in value. I have a client right now who could’ve sold her home last year for $485,000. The larger more expensive home would’ve costed about $650,000 within the same market.

Today, her home is worth $515,000, a gain of $30,000. Sounds like a good thing she waited, right? Wrong. The replacement home now sells for around $725,000, an increase in $75,000! In addition to the gap widening between her home and the replacement home, closing costs, commissions, and taxes will be higher due to the higher sales prices.

Ultimately, dollars and cents aren’t what decisions are based on. The best time to buy or sell is when you are ready. Life does not wait for optimal Real Estate markets. Just don’t kid yourself in thinking that waiting for higher prices will benefit all situations.

The 2 largest investors in our nation have added another program for homeowners who have continued to make payments on their mortgage while their home is upside down. Fannie Mae and Freddie Mac are two of the “GSE” investors that own many mortgages while large servicers such as Bank of America, Chase, Ally, CitiMortgage, etc, collect payments for them.

Is your loan owned by Fannie Mae or Freddie Mac?

You can check if your loan is owned by either of them by following these links:

Fannie Mae: https://www.knowyouroptions.com/loanlookup

Freddie Mac: https://ww3.freddiemac.com/corporate/

Make sure you enter your information EXACTLY the way it is written on your mortgage statement from your 1st mortgage. Fannie Mae & Freddie Mac usually do not own any 2nd mortgages or HELOC loans.

Let’s summarize Fannie & Freddie’s reactions & solutions to the housing crisis over the past years:

1. HARP / HARP 2.0 – a refinance program for homeowners that have been current on their payments. Loan-to-value can be over 100%.

2. Fannie Mae quietly tells servicers not to postpone auctions if the borrower is more than 12 months delinquent.

3. Although the $27B settlement includes generous principal reductions, Fannie Mae and Freddie Mac initially did not participate. They later change their tune after political pressure and allow limited principal reductions under certain circumstances.

4. Fannie Mae and Freddie Mac withdraw from HAFA in December 2012. HAFA is a short sale program that included a $3,000 incentive to the borrower and full forgiveness of the debt.

5. The National Association of Realtors urges FHFA to revaluate the valuation issues reported by agents from Fannie/Freddie short sale properties. Several Realtors across the country suspect that Fannie/Freddie are intentionally inflating values to derail short negotiations. Failed short sales usually lead to foreclosure.

6. Fannie/Freddie announce that they no longer require borrowers to be delinquent on their mortgage to qualify for a short sale.

7. Here’s the latest: Fannie Mae announces a new deed-in-lieu program that allows homeowners who are current on their mortgage to walk away with full forgiveness.

Anyone notice some consistency here?

Fannie/Freddie have voiced their concern with programs that seem to be encouraging homeowners to miss payments on their mortgage. While it may sound good on the surface for the housing market, some of the policies have punished homeowners who were simply seeking a foreclosure alternative.

Looking for a day trip during this holiday season? Here’s a few places that I’ve personally visited with my wife and son:

ICE at Santa Monica & Winterlit – downtownsm.com – Enjoy real ice skating on an 8,000 square foot rink on the corner of 5th and Arizona near the famous 3rd street promenade.

Magical Snowfall and Santa at the Grove – thegrovela.com – the trendy shopping district of “The Grove” in Los Angeles comes to life with snowfall every night at 7 & 8 PM. A double-decker bus transports shoppers with an occasional live band on board.
104th Annual Newport Beach Christmas Boat Parade – christmasboatparade.com – watch the boat parade beginning Wednesday, December 19th through Sunday, December 23rd.
Holiday train rides, Santa, and railroad museum – traveltown.org – Located in the hills of Griffith Park, Travel Town Museum changes into it’s holiday mode. Dec 12th – 23rd from 5 – 8 pm, $7 per person, infants 18 months and under are free.

North Orange County
Christmas Lights at Candy Cane Lane – the entire neighborhood of the “Eagle Hills” community of Brea becomes a Christmas destination with just about every home decorated from top to bottom. Eagle Hills homeowners have been attracting local visitors for years with animated decorations, music, hot cocoa, and holiday snacks. The neighborhood is east of the 57 freeway southeast of Lambert and Kraemer. You can do a driving tour or park your car and walk through the neighborhood.

It’s that time again. Property tax is delinquent if not paid by today, December 10th.

In Real Estate Principles class, we had a saying called, “No Darn Fooling Around” to memorize the property tax calendar.

Each letter stood for a milestone or deadline:

‘N’ stands for November. The 1st installment is due by November 1st.

‘D’ stands for December. The 1st installment becomes delinquent if not postmarked by December 10th.

‘F’ stands for February. The 2nd installment is due by February 1st.

‘A’ stands for April. The 2nd installment becomes delinquent if not postmarked by April 10th.

Taxes are paid in arrears. The 1st half of the tax year runs from July 1st to December 31st. The 2nd half runs from January 1st to June 30th.

If your taxes are included in your mortgage bill, or “impounded”, you don’t have to worry about the tax bills unless you’ve received a supplemental tax bill.

If you can afford to make a payment, you don’t have to mail a check. You can visit http://tax.ocgov.com/tcweb/search_page.asp and enter your address. You can pay by check (no charge) or by using your debit card ($3.95 fee).

I can’t pay the full amount. What are my options?
Pay by credit card. In Orange County, they will add a 2.3% “convenience fee”. This will allow you to make payments without being assessed a late fee.

Pay with a promotional check issued by your credit card company. These are usually thrown away by most homeowners. They’re actual checks that can be used toward anything (except the credit card itself) for a promotional rate. Credit card companies want their customers to transfer balances with these checks. There’s usually a one-time fee (about 4%) and the promotional period usually lasts at least 1 year at very low interest rates or no interest at all (0%).

Pay late or don’t pay it at all. Of course, you need to know the penalty and consequences.

What usually happens if I don’t pay by the “delinquent” date?
1. You’ll receive a notice from your servicer of your mortgage. Similar to homeowner’s insurance, some servicers will increase your monthly payment to include taxes.
2. You’ll continue to receive notices from the County Assessor. The tax due will be higher after penalties are added to your balance.
3. If no payment is received for a prolonged period of time, the Assessor can start foreclosure on your home. With today’s backlog of delinquencies, this likely will not start until at least 1 year of being delinquent. It will be important to know the foreclosure timetable.

I believe my assessed value is too high. Is it possible to appeal my assessed value?
For those who live in Orange County, call (714) 834-2727 and ask to speak to an appraiser. If you feel that that your value is too high, you can file an appeal. The filing period for appeals runs from July 2nd to September 15th. They will be able to guide you through the appeal process.

We plan on selling our home in 2013. How does this affect the taxes owed?
For those who have an impound/escrow account that includes taxes in the monthly payment, you will need to know what your running balance is. Taxes will be prorated until the day of closing. For most homeowners, they will have enough in the impound account where they would receive a credit toward closing.

For those paying separately and plan on paying your 2nd installment (due February 1st), it would be a good idea to receive a stamped proof of payment at the county office and give it to your esccrow company handling the sale of your home. This will eliminate any hassle or double payment that may be required by title.

If you have NOT paid your 2nd installment and will be closing before April 10th, you can pay your taxes through the escrow company handling the sale of your home. After April 10th, you can still pay through escrow, but a late fee will be added.

For those selling their home after June 30th, you will have to pay prorated taxes through your closing date through escrow.

Confusing enough? I hope this simplifies things:
Homeowners with impound accounts – unless the balance is insufficient, you will likely have a small CREDIT through escrow.

Paid separately and sold home before June 30th – you will likely receive a CREDIT through escrow.

Paid separately and sold home after June 30th – you will likely OWE taxes.

Call me with any questions.