Low-ball offers decline in some housing markets

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Realty agents say low-ball offers on homes for sale, typically those that are 25% or more below list price, are disappearing in high-demand markets.

via: LATimes/Kenneth R. Harney

WASHINGTON — It's not something that economists routinely track, but it provides a rough sense of what's happening in local real estate markets. Call it the low-ball index.

A year ago, according to researchers at the National Assn. of Realtors, 1 out of 10 members surveyed in a monthly poll complained about low-ball offers on houses listed for sale. In the latest survey — conducted during March among a sample of 4,500 agents and brokers across the country and not yet released — there were hardly any. Instead, the focus of volunteered comments has shifted to declining inventory levels — fewer houses available to sell — and multiple offers on well-priced listings.

A low-ball offer typically involves a contract submitted to a seller where the price proposed by the purchaser is 25% or more below list. Low-ball offers increase sharply when there's a glut of properties available, asking prices are out of sync with local economic realities and values are depressed or uncertain. Buyers figure: Hey, why not? Maybe I'll get lucky.

Based on the latest survey results, that sort of strategy is not a winning move in many communities this spring. In fact, in local markets where inventories are tight and competition for homes rising, realty agents say that buyers looking to steal houses by low-balling their offers are ending up at the back of the line — their contracts either rejected out of hand or countered close to the original asking price.

In high-demand, high-cost markets that have rebounded from recession slumps, sellers are now firmly in control; they pay scant attention to low-ball offers. Jayne Esposito, an agent with Coldwell Banker Residential Brokerage in Los Gatos, Calif., said multiple offers are "the rule, not the exception," in her area, and many transactions end up with final contract prices higher than the listing.

"Sure, I've had a few buyers try to low-ball and they wouldn't listen," she said, "but that didn't work out well for them."

Similar trends are underway in more moderately priced markets. Wes Neal, an agent at Prudential Olympia in Olympia, Wash., said, "Low-ball offers are down a lot because we're seeing more homes come on the market that are more realistically priced" — sellers have absorbed the hard lessons of the recession years about what the market can bear.

Even when buyers submit shockingly low bids, sellers no longer are so insulted that they send the contract back without a counteroffer. Now they negotiate aggressively and the final number ends up close to the original asking price. For example, Neal said, a buyer recently came in with a bottom-fishing offer of $150,000 on a house listed for $250,000. Although the seller was irritated, after a series of negotiations the low-ball buyer settled for a final price of $230,000.

OutsideWashington, D.C., in the Northern Virginia suburbs, well-priced houses in good locations move fast, sometimes pulling in multiple offers within 48 hours of listing, said Chris Ann Cleland, an agent with Long & Foster Realtors. Sellers who encounter the occasional outrageous low-ball offer reminiscent of the recession years tell listing agents "don't even bother" with them. After all, there's an excellent chance there will be a realistic offer shortly — maybe more than one.

In the suburbs south of Chicago, Judy Orr, an agent with Classic Realty Group in Orland Park, Ill., said low-ball frequency and efficacy depend on the specific neighborhood or town. "We still see them, and we try to work with them" in communities where prices are soft and the effects of tough economic times persist, she said.

Elsewhere, although low-ball offers are down, Orr urges sellers to stick with it and negotiate. Recently a low-baller came in $40,000 below the asking price. Through negotiations with the buyer, Orr managed to close the gap to just $2,000 below asking.

Marnie Matarese, an agent with J Wood Realty in Sarasota, Fla., said that while low-ball offers are far fewer this spring, some out-of-town buyers still appear to be under the impression that all Florida real estate remains depressed. They insist on submitting offers that make no sense in today's environment. But Matarese has no problem with this — "you can't blame a buyer for trying to get a good deal," she said, but the fact remains: They usually risk losing the house.

The take-away here: Rolling low-balls at sellers may have been an effective approach between 2008 and early 2011. But in 2012's environment — at least in rebounding markets — it could be counterproductive if you truly want to buy.

 

HARP 3.0 : What It Means, Who May Qualify

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via: TheMortgageReports.com/Dan Green

HARP 2.0 is just one month old and already there's talk of a HARP 3.

The rumored program was born January 2012, conceptually introduced in the president's State of the Union address. Since that date, the notion that "every responsible homeowner" should be able to refinance to today's low rates has gained traction.

In some form, it's likely that HARP 3.0 will pass.

In Brief : The HARP Refinance Program

Home Affordable Refinance Program (HARP) is a government-backed refinance program. It was launched in 2009 as a means to stimulate the economy. At the time, mortgage rates were falling but few homeowners were able to refinance because they had lost too much equity in their respective homes.

HARP waived certain loan-to-value requirements, and close to 1 million U.S. households took advantage.

Then, in 2012, HARP was expanded. Dubbed Harp 2.0, all loan-to-value requirements were suddenly waived, as were proof of income requirements; proof of asset requirements; minimum credit score requirements; and, as a host of other qualifiers. In many cases, HARP 2.0 won't even ask for a home appraisal.

The retooled HARP 2.0 was specifically designed to remove refinancing hurdles. Consider the program's three basic requirements :

1. To use HARP, you must have less than 20% equity in your home
2. To use HARP, you must have paid your loan on-time for the last 6 months
3. To use HARP, your loan must have been securitized prior to June 1, 2009

There's a fourth requirement, too -- HARP requires that your mortgage be backed by either Fannie Mae or Freddie Mac. However, with the rumored passage of HARP 3.0, that requirement will be no longer.

With HARP 3.0, everyone who meets the above requirements will be eligible to use HARP to refinance to today's low mortgage rates.

HARP 3.0 : Help For Non-GSE Mortgages

HARP 3.0 is not yet passed, and may never pass. But it makes for some interesting talk. HARP 3.0 would target homeowners whose mortgages are not backed by Fannie Mae or Freddie Mac.

This is a big deal because, although the Fannie Mae-Freddie Mac-FHA triumvirate controls more than 90% of today's new mortgage originations, that wasn't the case from 2001-2007. Last decade, non-GSE lending was a major part of the U.S. housing market.

For example, Alt-A mortgages accounted for 27.5% of mortgage originations in 2005. Today, each of these homeowners is locked out from HARP. HARP 3.0 would allow these Alt-A customers to (finally!) refinance their home loans.

In addition, there were lots of "A Paper" mortgages that went to sub-prime investors last decade because, at the time, the sub-prime market offered lower mortgage rates than the conforming market did. Ludicrous, but true. Conforming, 30-year fixed rate mortgage rates were 5.50 percent in mid-2005.

By contrast, sub-prime 30-year fixed rates were just 5.25%. Which would you have taken?

And, lastly, HARP 3.0 would help homeowners with jumbo mortgages that, in today's market, would not be jumbo mortgages.

Last decade, before conforming loan limits were raised to $625,500 in "high-cost areas" throughout California, Virginia, Maryland, and New York, for example, homeowners who bought or refinanced were relegated to non-conforming loan products -- loans that met typical underwriting guidelines but that were too big for Fannie Mae or Freddie Mac to purchase.

After home values fell, although their mortgages met Fannie Mae loan standards; and, although their mortgages were within Fannie Mae loan limits, these homeowners were unable to use HARP 2.0 because their mortgages weren't backed by the government. They were held by a bank, such as Wells Fargo or Bank of America.

With HARP 3.0, these "high-cost", jumbo homeowners would get the chance to refinance.

HARP 3 Candidates

We don't know when HARP 3.0 will be made official (if ever). Nor do we know who will qualify for HARP 3.0 when it's passed. However, based on HARP history and talk from Washington, D.C., we can fathom a few guesses.

Here are a few "borrower types" that HARP 3.0 is expected to target  :

• A self-employed person who used stated income loan for the original mortgage, and can verify their current income via federal tax returns
• A "prime" borrower who used a sub-prime mortgage because mortgage rates were lower and/or fees were less as compared to a conforming one
• A jumbo mortgage homeowner who lives in a "high-cost area" whose original mortgage was for between $417,000 and $625,500
• A wage earner who used a stated income and/or stated asset mortgage for convenience
• Sub-prime borrower who has paid mortgage as agreed and can verify income and assets
• An Alt-A borrower whose FICOs were low at date of origination, but have since improved

There are literally millions of U.S. homeowners who would meet HARP 3.0 eligibility standards, opening today's low mortgage rates to all of them.

Compare HARP Mortgage Rates

HARP 3.0 is an interesting product. It's the extension of HARP 2.0 to homeowners who used private-market mortgage money, either because it was cheaper than a government loan, or because no suitable GSE product existed.

So, whether you're a HARP 2.0 candidate, HARP 3.0 candidate, or just want to see today's mortgage rates look like, stop a take a quote. HARP mortgage rates are comparable to non-HARP rates, and fees are often fewer.

Fed Minutes Expose “Tightly-Wound” Mortgage Rate Environment

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via: TheMortgageReports.com/Dan Green

Today is a bad day to be a mortgage rate shopper. Mortgage rates rose sharply Tuesday afternoon after the Federal Reserve released the minutes from its March meeting.

Mortgage rates of all types -- FHA, conventional, jumbo, VA and USDA -- are rising. In some cases, sharply.

Fed Minutes Move Mortgage Rates

The Federal Open Market Committee meets eight times annually to discuss U.S. monetary policy and, when appropriate, to add, remove, and/or revise policy already in place.

3 weeks after the FOMC meets, the Federal Reserve publishes what's known as the Fed Minutes. The Fed Minutes are similar to the minutes from a condo board meeting, or a corporate conference call -- it summarizes the conversations that shaped the meeting, and is loaded with detail.

Investors pay close attention to the Fed Minutes because the Federal Reserve swings a big stick with respect to Wall Street.

Since 2008, Fed policies have helped drive stock markets up and bond pricing down, creating the low mortgage rate environment to which we've all grown accustomed. As a result, when investors believe the Fed is close to withdrawing said policies, mortgage rate rise.

That's what happened Tuesday. Mortgage rates rose in all 50 states.

 

Fed : No Rush For QE3 , New Stimulus

The March Fed Minutes show a Federal Reserve committed to improving the U.S. economy, but clearly within a "Wait-and-See" mode. After 2 rounds of quantitative easing, Fed members are watching employment data improve, housing numbers rebound, and an increase in consumer spending.

Before launching new stimulus a la QE3, the Federal Reserve seems content to ride out the current spate of economic expansion. Wall Street wasn't prepped for that.

Based on comments from Fed Chairman Ben Bernanke made last week, investors thought a new stimulus round was imminent; likely to follow even the slightest economic hiccup. Today, those expectations are reversed.

Based on the March Fed Minutes, the Federal Reserve is unlikely to add new market stimulus, short of the economy losing its momentum, or deflation setting in. And, right now, with growth occurring steadily and consistently, and with inflation running just short of 2 percent, markets are at risk for neither.

30-year fixed rate mortgage rates had famously dropped below 4 percent last week.

They're back above 4 percent now.

 

30-Year Mortgage Rates Back Above 4 Percent

Since 20 weeks ago, mortgage rates have held within a very tight range. They've dropped as low as 3.875% for borrowers willing to pay discount points, but have failed to break below that.

One thing that's for certain, though, mortgage rates are wound tighter than a coil.

Each time they rise, they don't rise slowly -- they rise quickly. This tells us that mortgage rates are unsustainable at their current, sub-4 levels. As a rate shopper, consider this your call-to-action. It's time to start that refinance. It's time to lock that mortgage rate.  Get started with a rate quote.