Caught in a Web of mistakes?
By Al Heavens
Posted: 07/24/2011 12:00:00 AM PDT
In the old days, if you were looking for a new place to live, you picked up the local newspaper, looked at the real estate classifieds, put on comfortable shoes or gassed up the car and began a house-to-house search. The Internet has made the job easier, at least on your feet. In short order, you can look at all kinds of sales and rental listings just about anywhere — around the block or across the country. Given their promise of information from all over the place, how reliable are websites such as Zillow, Trulia, HomeGain and a growing number of others? A colleague posed the question after seeing that his Abington, Pa., house was listed online by its ZIP code, shared by portions of neighboring towns, and included the wrong school district. Ken Shuman, head of communications at Trulia, said his website obtained information on 95 million houses from county assessors’ offices nationwide and Fidelity National Real Estate Solutions, a data provider. Various sources provide details about Zillow’s 100-million-plus homes, both for rent and for sale, said chief economist Stan Humphries: “Information comes in from public-record data, real estate brokerages, users of our information (consumers) and real estate agents directly.” School sources provide that information, Humphries said, adding that “we do take pains to say the closest school to the property will not necessarily be the one children will be attending.”
Real Estate agents take issue with these website flaws, as well as with the values the sites place on houses, for sale or not. (They also offer price information about homes already sold, for example.) When asked whether he recommended these sites to consumers, Kit Anstey of Prudential Fox & Roach in Chester County, Pa., said, “Absolutely not. Very misleading.” But Mark Wade, of Prudential Fox & Roach in Philadelphia, said the real estate websites did have some value. “I think they play a very helpful part in house and condo hunting,” he said. “A lot of information is available at a potential buyer’s fingertips. (Trulia and Zillow) consolidate the information and are both fairly easy to navigate.” Yet Wade added that he thought estimates of value offered on some websites, such as Zillow’s “Zestimates,” were unreliable, saying that using the formula that determine them “is akin to throwing arrows at a dartboard. You rarely know where it is going to land.”
Trulia’s Shuman, acknowledging that there is sometimes a 90-day delay in obtaining data, said the three-month “rolling average” his site offers is based on properties within municipalities rather than within metropolitan statistical areas. “When people buy houses, they are looking for specific places — a city, town or neighborhood,” he said. “MSAs can skew numbers. There are often dramatic differences from neighborhood to neighborhood.” Trulia lets consumers “leverage” information about houses, Shuman said: “People often save homes from the site if they are not interested in buying them. If they are following a property, we serve them up recent comps (comparable sales) so they can manually update that information.”
HomeGain has an “instant home-prices tool” that allows an owner to recalculate a price range that might be better if actual amenities and square footage of living space were addressed. It doesn’t affect the information from official sources. Regarding the accuracy of location and school information, Trulia, Zillow, and Home-Gain all said owners could update details posted about their homes. “If you feel your house is misrepresented on Trulia, you can update the information as long as the house is off-market,” Shuman said. “We hope to get edited information for houses on the market, but right now we are trying not to tussle with listing agents.” The site also is “resetting school boundaries, as a result of a new relationship (with a data provider) we have just formed,” Shuman said. “We have school rankings and are expanding it to do searches based on school boundaries, setting a polygon search for the consumer on the map.” Rollout is planned for late July to mid-August.
Wall Street Journal
The clouds hanging over upscale vacation-home markets are starting to lift. While prices are still falling in most regions, the luxury segment is picking up, and brokers are reporting more inquiries than they have had in years.
The upshot: If you have the money and plan on staying put for the long term, now may be a good time to buy.
Five years after housing’s peak, markets that once were out of sight even for well-heeled buyers are now in range. On Hilton Head Island, S.C., a three-bedroom home nestled between the Atlantic Ocean and Calibogue Sound changed hands in April for $750,000, after having sold for $1.2 million in June 2006. In Vail, Colo., a three-bedroom home that fetched $3.3 million in 2008 sold in February for $2.5 million.
Overall, the median second-home price was $150,000 in 2010, down 11% from 2009 and roughly 25% from 2006, according to the National Association of Realtors. That isn’t pretty, but it is only slightly worse than the 22% drop for the overall housing market. The higher end of the market—homes in the $5 million-plus range—has held up better, says Douglas Duncan, chief economist at Fannie Mae. “At the top of the market, particularly luxury homes, prices have proven very elastic, and have sprung upward quickly,” he says.
Buyers are taking heed. On Palm Beach Island, Fla., sales were up 50% in the year ending June 30. Transactions in the Hamptons, on New York’s Long Island, jumped 59% in the second quarter from a year earlier. In Aspen, Colo., sales for the year ending May 31 were up 10%.
The number of people looking at properties is up as well: In Vail, Hilton Head and Palm Beach, foot traffic has jumped by at least 30% this year, according to local real-estate agents. “People have frugality fatigue,” says John Burns, president of John Burns Real Estate Consulting Inc. in Irvine, Calif.
This isn’t to suggest the boom is back. In general, properties situated in prime locations—on the water or near a ski slope—are selling well, but homes in less desirable spots are languishing on the market. Banks are increasingly wary of making second-home mortgages, particularly “jumbo” loans above federally guaranteed limits; 10% of banks raised their standards on such loans last year, according to the Federal Reserve. And the tax deduction for mortgage interest on second homes is at risk of being cut back.
Geography is the best guide to today’s vacation markets: In some places prices are holding up, while in others they are still tanking.
The blue-chip market consists of a handful of spots where prices have stabilized and could soon rebound as sales pick up. Some, such as Hilton Head, have benefitted from tough restrictions on building, which kept inventories manageable during the bust. Prices there have risen by 4% during the past year.
The other market is still very much in crash mode. In places like Miami, Fla. and even Martha’s Vineyard, Mass., prices have continued to drop as foreclosed properties flood the market. But bargains abound as sellers cut their asking prices or accept less to unload properties. In March, for example, a three-bedroom home on Palm Beach Island, Fla., listed for $4.6 million sold for just $2.5 million.
With the broader housing market still so sick, it might seem the height of folly to jump into such unpredictable investments now. Even in blue-chip markets there isn’t a guarantee of price appreciation anytime soon. Indeed, over time vacation-home markets don’t do noticeably better than primary-home markets. Homes on Martha’s Vineyard appreciated by 40.9% over the past 10 years, edging out Boston’s 40.5%. But Hilton Head’s 15% gain was trounced by nearby Charleston, S.C.’s 25.4% rise.
Then again, most vacation-home buyers aren’t looking to make big investment profits. More than 80% of second-home buyers surveyed by the National Association of Realtors in May reported that they bought for consumption reasons—to live in the house and enjoy it.
And many second-home buyers are wealthy enough to pay in cash, sidestepping the restrictive and time-consuming mortgage process. Last year, 36% of vacation-home transactions were all-cash deals, up from 29% in 2009, according to the National Association of Realtors. “If you have cash right now, you are in unique position,” says Paul Dales, senior U.S economist with research firm Capital Economics.
Low interest rates are driving high-end home buyers to supersized mortgages at a pace unseen since the housing boom. But the deals may have a limited shelf life.
So-called jumbo loans — generally those bigger than $417,000 — are a better bargain now than they have been in years. The average rate on a 30-year jumbo mortgage is 5.15%, down from 6.41% two years ago, according to mortgage data firm HSH Associates. That means the monthly payment on a 30-year $600,000 home loan is now about $3,280, some $480 less than the cost of the same loan two years ago, for an annual savings of nearly $5,800.
Not only are jumbo loans cheap relative to historical rates, they are cheap relative to smaller “conforming” loans, which are backed by Fannie Mae, Freddie Mac and federal agencies. The difference between the rates on a jumbo mortgage and a conforming loan is just 0.43 percentage point, the narrowest spread since 2007.
That makes borrowing bigger amounts more attractive than it has been in recent years, and also presents opportunities for buyers who might have been previously locked out of pricey markets due to higher rates, says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.
Buyers already have taken advantage. Jumbo loans accounted for almost one in every six new mortgages, including new-home purchases and refinances, in the first quarter of 2011, according to Inside Mortgage Finance.
At that pace, the number of jumbo loans issued in 2011 could be the highest in five years, when the housing market was near its peak. That is in part because people are trying to lock in a government-backed jumbo loan now ahead of a planned limit reduction.
Starting in October, the federal government will start easing its support of jumbo loans as large as $729,750, which it began as an emergency measure three years ago. The new limits will vary by location, but will drop to $625,500 in top-tier markets such as New York, Los Angeles and Washington, D.C.
Many potential buyers are trying to take advantage of substantial price declines of expensive homes over recent years, Mr. Gabriel says. That includes people who bought well before the housing bubble and who are still significantly above water now and want to trade up while prices are low.
Other prospective buyers who sat out the boom but stayed employed and saved money during the downturn now have money for pricier houses, and the jumbo loan is their ticket in.
Right now, some of the cheapest jumbo mortgages can be found at independent mortgage firms, some of which are Web-based. Those include Ultra Mortgage LLC, WCS Lending LLC and Multi-State Home Lending Inc., where the annual percentage rate on a 30-year fixed nonconforming jumbo loan ranges from 4.64% to 4.99%, according to LendingTree LLC, which tracks mortgage rates.
Depending on location, jumbo loans typically require a down payment of 20% to 30%, says Keith Gumbinger, vice president of HSH Associates — double or triple the typical 10% down payment for a smaller loan. Buyers also need to be able to document their income, assets and net worth, including two years of tax returns and recent brokerage and bank statements, he says. They also will need high credit scores, at least 740 to 760 on the FICO-score range.
But borrowers should act quickly. Since lenders won’t be able to sell as many jumbo loans to government-backed agencies — thereby unloading risk — they may not originate as many, says Mr. Gumbinger. What’s more, the added risk means they likely will raise their interest rates. The upshot: buyers could have fewer choices and face pricier loans.
Many lenders will have to stop originating mortgages over the $625,500 limit by the end of July for home purchases and by mid-August for refinances, Mr. Gumbinger says, since mortgages can take up to two months to close.
All of this could make it harder for home buyers to get financing, possibly leading to fewer home sales and pushing down prices.
Still, some housing analysts say that with the government out of the way, more lenders will eventually start competing against one another — perhaps as early as next year. The renewed competition could result in easier lending standards over time.
Bank of America has announced that it will accept backup offers on short sales. The bank will allow the backup offer to take over if the first buyer does not complete the transaction, without requiring the process to start again. Under this new guidance, agents no longer will have to initiate a new short sale in Equator if the original buyer walks away from the transaction. Instead, agents can continue with the original transaction in Equator and work with the same short-sale specialist. The file will remain open, and the paperwork that has been submitted will remain active. However, the buyer’s qualification and the offer price will need to be reviewed again if a backup offer is used. In addition, the new process applies only if there’s an available backup offer when the original buyer does not follow through with the transaction. In December, C.A.R. leadership met with representatives of Bank of America and asked the lender to accept backup offers without starting the process over again. C.A.R. also has raised this issue with Fannie Mae, Freddie Mac, and Wells Fargo, and hopes they will follow Bank of America’s lead with this process.
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