There have been some new discussion with mortgages and regimes.

There is a law that says that  if a certain number of people are behind in their regime payments within a certain condo complex, lenders are not allowed to lend in these developments.  This is really making it hard to sell some condos because they need cash buyers.

I was talking to a fellow Realtor in Chicago and she was telling me about this particular issue that was complicating one of her sales; financing would not go through on a purchase because there were too many people behind on their regime payments. 

She ended up going to the complex and found out that there were only two people too many behind on their payments; she paid their fines to bring them up to date which allowed the financing and the sale to go through. 

I’m hoping that we will not see this problem in Hilton Head, but this is already a problem in one particular complex.  This has been driven by many people going into foreclosure; when they can’t pay their mortgage they often stop paying regime fees and insurance. 

I’ll keep you posted on this – it is something that is new and we don’t know all the details, but it is definitely concerning to all of us.

About two weeks ago I wrote a blog talking about how low mortgage rates could go.  Just when I thought they couldn’t go any lower I saw the Monday morning paper where the headlines read that they had been reduced again.

According to the paper, a lot of investors were not pleased with the European markets and this has driven them to other avenues.

I always talk about the “bundle of costs” that are involved in a purchasing decision.  These costs include interest rate, price, insurance, taxes, regime fees and possible income.  I think it is great for the market that these rates continue to be at all time lows. 

We need some good news in this real estate market and I think this is a great start!

I noticed in the local Island Packet today that the average 30-year fixed mortgage has reached 4.93% which is the lowest level we have seen in quite some time.  If someone is interested in purchasing property on Hilton Head Island, interest rates are your friend.

There are a lot of things pointing out that now is a great time to buy – there is a great selection of property, great prices, low interest rates and motivated sellers.

I was reading that more than 14% of US homeowners with mortgages were either behind in their payments or they were in foreclosure at the end of September – a record high for the 9th quarter in a row.  Wow – 14% – one out of every 6.5 homeowners are having trouble making their payments. 

Some of these have figured out that they are “upside down” in their house and they think that they are better off to stop making payments – throwing good money after bad money and just suffer the consequences.

Some of these people just don’t care about their credit rating and think that they won’t be buying anything.

This is a very alarming statistic regardless of why people are no paying.

The Federal Government needs to figure out why, when and what they can do to help it. 

If you trace back the steps to when real estate values started going south, you can trace it back to $5/gallon gas.  This is when people stopped buying houses.  When people stop buying homes, prices drop – simple supply and demand. 

Saving home values are one of the most important things that can happen in our country – everyone loses when home values drop.  The more home values drop the higher percentage of people going into foreclosure simply because more of them are “upside down”.  We all know that most anyone who purchased a house between 2003 and the present and wants to sell now has a problem.

It would be great if there was a tax credit with no exclusions, 1st home, 2nd home, mountain home, beach home, etc.  All of those markets are hurting.  The credit for first time home buyers has helped that market, but that is only a small percentage of the market.

The Federal Reserve Board’s looming shift in policy could escalate 30 year fixed mortgages to 6% or higher. Rates currently are enjoying rock-bottom levels at 5.02%. Last week’s stimulative decision to extend the $8,000 first-time home buyers tax credit and innovative creation of a $6,500 credit for current homeowners could be neutralized with a sharp increase in interest rates.

A $300,000 mortgage at 5.02% today for example works out to be about $1,614 a month. On the other hand, at 6% the mortgage amount would have to be $270,000 to maintain the monthly payment at $1,614. It is clearly in your best interest to buy or refinance now with so many unbelievable deals and selection at 2002 housing prices plus all time low interest rates.

Now is a great time to buy Hilton Head Island Real Estate!

I would hate for us to get to the point where we are in a “cash only” real estate market.

What would happen if we were?  Obviously, supply and demand is important, but availability of capital is also important because they are connected hand in hand. 

We are seeing in our homesite market that very few banks are loaning money.  Therefore, we are in what we call a “cash only market” meaning that the only buyers we have are the people willing to pay cash. 

In this type market, we have very few sales which means an increase in inventory because we have more properties coming on the market than we have leaving the market.  This also means that buyers are buying from a position of strength meaning that they know the market is slow and they know there is not a lot of capital available so they are holding firm on their prices and sellers are giving in to their price.

I really don’t understand what banks are thinking – they have gone from one end of the spectrum to the other.  Three years ago they were offering credit to anyone who wanted it – you could get 100% financing on loans.  Now, they are offering no financing at all.  It does not make sense to me.  Maybe somewhere in the middle is where we need to be and hopefully we get there soon.

One of the major influences on the Hilton Head Island real estate market is availability of capital through loans. 

We have recently seen a situation where most banks are not making lot loans.  The few banks that are making these loans are requiring that you build within a year and use them for the construction loan. 

In other words, if you want to buy a single family lot, you either have to follow this requirement or pay cash.

In this type of environment, it has a negative effect on sales.  Since most people do not want to pay cash they do not buy at all.  Their thinking is – we don’t need the lot until we retire so we will just wait until we retire to buy a lot and build.  This helps explain why single family lot sales were down 92% in 2008 compared to a 10 year average.  It is hard to believe that any commodity could drop that much, but when your source of purchasing dries up I think one could understand why that would happen.

It is also true in homes and villas.  An agent in my office has someone who wanted to buy an oceanfront house and they wanted to put down $1 million.  The bank required that they put down $2 million and they did not want to put that much down because it would take most of their available cash that they had.  Therefore, the deal did not go through whereas a couple of years ago the person could have bought the same property with $500,000 down. 

 The availability of capital has a huge effect on the real estate market.   When there is not much capital available, less sales occur and prices drop because of the simple economics of supply and demand.

I recently saw an article in USAToday that said “Foreclosure Filings were over 3 million in 2008, which was up 81% from 2007 and 225% from 2006″. 

Nevada leads the country with 7% of homes being foreclosed on – that is hard to believe.  In other words, that is a foreclosure on every cul de sac. 

There were over 303,000 that were in some stage of foreclosure during the month of foreclosure, up 17% from the previous month and 41% from December 2007.  This surprised everyone. 

People ask me what the #1 reason is why homes go into foreclosure.  This is obvious – falling home prices.

For example, say a family buys a house for $250,000, they put down 10% so they owe $225,000.  If property values drop 20%, the house is now worth $200,000 and they owe $225,000.  They have to pay a Realtor $14,000 to sell the house, so in essence, they have to bring at least $39,000 to the closing table just to sell their house.  In that case, they usually just let the house go into foreclosure.

As long as home values continue to drop, foreclosures will increase – especially because of the very liberal lending rates that we had in 2004 and 2005 when many people could get into homes for as little as 3% down.

Congress is concerned about this, but I do not think they really understand the problem.  They keep talking about all the people that they want to help keep from going into foreclosure.  What they do not realize is that the best way they can help these people avoid foreclosure is doing all they can to make a stronger market because then home prices will rise and less people will be in foreclosure.

Obviously this is good for Real Estate.

When people buy Real Estate they basically make their decision based on what their costs are.  Lower interest rates means costs are less and higher taxes mean their costs are more, high regime fees mean their costs are more and they usually look at their bottom line. 

In other words, what does it cost them to own a condo at the beach out of pocket?

Your income in this situation would be your rent and your expenses would be mortgage costs, regime fees, taxes, utilities and association fees.  Over my years of selling Real Estate I have had many people say that if they could own a place at the beach that they could use two or three times a year and it only cost me $10,000, I would consider doing it.  If that same cost was $20,000, they might not consider doing it. 

Now is a good time to keep your costs down simply because the #1 factor in your overall cost is the price of the property.  As we all know, prices have dropped somewhere between 20% and 25% since the high of June of 2005.  Therefore, the #1 cost factor would be the cost of the property.  The #2 factor would probably be the interest rate which is at an all time low.  The other costs (taxes, insurance, regime fees and association fees) are up – but they are not up as much as the others are down which means now is a good time to buy.