All week we have seen pundits and oracles talk about the imminent doom of Fannie Mae and Freddie Mac (I’ve written before about who they are and what they do, and why it’s a little problematic). Jim Cramer has been saying to get out of Fannie and Freddie’s stock for a year.  Warren Buffet told us about his concerns on Monday (scroll down this page for the link). Also Monday, some investors speculated about the impact that “The imminent failure of both Freddie Mac and Fannie Mae” would have on rental housing — which even at record homeownership levels represent over 30% of housing in America.

Now, of course, we aren’t talking about them collapsing.  We’re talking about a massive bailout. I did hear someone on CNBC talk about them merging, but that has to be the dumbest thing I’ve heard all week:  how exactly are you going to make one healthy company out of two companies said to be failing, ailing, and ready to collapse?

Robert Reich used the rumors of bailout to talk about “socialized capitalism” — keep the profit for the executives, but spread the losses across the taxpayers like so much fertilizer.  Business Week is asking just how much this bailout is going to cost, both up front and as impact on the economy.

In the medium to long term, there will be no normalization of the real estate markets on a national level until we all know exactly what is up with Fannie Mae and Freddie Mac, and what is going to be done to make the market for mortgage backed securities stable.

On a local level, however, there are signs of life.  According to our in-house research team, there are 16,408 single family homes available and year-to-date sales of 14,635.  That’s closings and keys changing hands, not purchase offers.  Over 550 of those homes sold for less than $80 per square foot — you can’t build it for that price. An issue of concern is that there is only a 2.23 month supply of rental housing while our population continues to grow every month.  Part of the reason it’s so low is that banks don’t rent out the REO properties they own;  thousands of homes that could be occupied are vacant, and current mortgage restrictions make it difficult to purchase investment property.  If you happen to have the cash for a big downpayment, this really seems like a great time to buy a rent house in Vegas.

And one last item on renting a house in Vegas:  be careful when renting a home from an Elvis impersonator.  The FBI is looking for him.

More links and a new topic in the sidebar.  Check it out!

The World’s Highest Porta-Potty.

That is all.

On a national basis, existing home sales are up (3.1%), and up almost double what was expected (1.6%).  Of course that’s still down substantially from last year (-13%).  Unfortunately, the inventory of available homes is up to a record level.  Some people blame this on a “buildup of condos“.  Bloomberg has condensed what all the economists are saying about these numbers for you.

It’s worth pointing out that although nationally we have inventory of 11.2 months, locally we have just under 7 months.  And for the record, that’s down from 25.5 months inventory at the beginning of the year!  I have mentioned this before, but new foreclosures and current escrow closings — the end of the home sale process — are at pretty close to equal levels. More than a few of the bank-owned homes are being bid up from list price.

There are other hopeful signs on the short sale front:  not only are banks coming to the conclusion that they had better approve these if they don’t want to own more houses, more than a few of my colleagues are going to the effort of learning how these sales work and how to make them happen for their clients.  Historically, short sales only close about a third of the time, and some people consider that number very optimistic.  For the record, I have successfully gotten short sale approval as both the listing agent and the buyers agent, and I have every confidence I can get the transaction done most of the time.  Bank owned and short sales account for roughly 55% of currently available listings as of last week.  Don’t let anybody tell you this number is higher without sharing his source of data.

As for the rest of the market, privately owned homes that require no lienholder’s approval, the sellers in general have more realistic expectations. They understand that they are competing against homes being sold by banks, and homes being sold at a loss.  They know they have to compete on condition, curb appeal, and being able to close a sale quickly.

The Vegas market isn’t doing too badly.  Your local real estate market may vary.  Since the availability of credit — the ability of ordinary people to get mortgages — is key to all our markets, let’s hope Mr. Buffet is exaggerating about the problems he sees at Fannie Mae and Freddie Mac.

I realize that few of my readers ever visit Al Jazeera’s English site.  This article on the American economy spends a good deal of time talking about Vegas:

On the Las Vegas Strip, there’s little sign that the US economy is in trouble.

Glamorous, or merely garish, the Strip – a four mile stretch of huge casinos and outrageously themed hotels -  appears to be in rude health.

[snip]

The truth is a little more complicated.

You’ll have to read the rest over there, including a few paragraphs on a luxury condo development by Frank Pankratz.

When the house is burning down, step one is to get out.  Then you worry about putting out the fire, cleaning up, and figuring out what happened.  In many ways the mortgage meltdown is still a house on fire, but Citizen Carrie of Carrie’s Nation would like to get a checklist to the arson investigators.

Specifically, Carrie would like to get beyond the sad anecdotes and the finger-pointing.  She has some survey questions for researchers to ask people who have lost their homes.  College students in need of a research topic may consider this list a gift.  I will echo Carrie’s request that if this study actually exists, please send it her direction.  I’ll update this post as needed.

I guess the Hulkster won’t be taking that penthouse condo after all. Maybe Jesse Ventura wants it?

Las Vegas can make a museum out of almost anything.

Guess what state is NOT on the list of 10 most expensive places to get homeowners insurance?  Nevada!

If you are trying to get money out of your house, make sure you understand the difference between a cash-out loan and a reverse mortgage.

Have a great weekend!

Some time back, Bloodhound Blog published a must-read piece for home buyers, The Top 7 Things Every Home Buyer Should Know.  (This item for mortgage brokers is also a good one!)  The points hold true if you are buying your 1st home or your 10th home!  Because so many of the homes currently available are REO, it’s a good idea to look at the issues specific to them.

Home prices — actual closing prices — are down 7.6% year over year, propelled by these properties.  They continue to decline despite the assurances of the National Association of Realtors that this or any other time is a great time to buy a house. Please remember, my opinion is that on a local basis, we are in the long process of putting in a bottom on prices and have a stable amount of housing inventory. Your Region May Vary. It is interesting to note that despite this drop in home prices, inflation is still at the highest levels since the Original Bush Administration. Let’s get started.

1. REO means Real Estate Owned. It’s the title of the line on the lending institution’s asset sheet that describes these properties.  They are also called, foreclosed homes, foreclosures, bank-owned, or repossessed.

2.  There are a lot of them, but not as many as some people will have you believe. Most of the foreclosure data you will see gives a total number of everything from Notice of Default (NOD, the first step of the process) to REO.  MarketWatch was kind enough to break it down both by type and by state in the tables at the end of this article. Nationwide we had 55,601 NODs filed and 77,295 actual repossessions in July of 2008;  in Nevada we had 5,350 NODs and 3,315 repossessions (the majority in Clark County). Since there were 3,030 properties that closed and were sold in Clark County in the same month, we clearly have some equilibrium. Roughly 25% of the homes currently available in the Las Vegas Valley are REO (roughly 4,000 single family homes and 1,200 condos).  We already debunked the “28,000 vacant in Vegas due to foreclosure” myth, right?

3.  They are not all bargains. Sure, you can get some good deals.  But remember, the bank wants to get a good deal too!  In most cases you can’t offer 65% of the purchase price and have a deal. Furthermore, it is a total myth that “banks automatically drop the prices every 30 days.” Some do have a system for reducing prices on a regular basis, but not all. Just like any other sale, prices are set in relationship to current market prices and how much money the bank has in it.  If you see what seems like a really good price, it may be priced to attract multiple offers (bidding up the home to higher levels).  It may also be that it is fairly priced once needed repairs are taken into account.  This brings us to the next important point.

4.  Many of these homes need work. Just a few years ago, the conventional wisdom was that if somebody couldn’t afford the house payments, they probably couldn’t afford a lot of maintenance either. Houses sitting vacant tend to have maintenance issues in general, as nobody is there to make repairs as needed.  This is one of several reasons that REO used to be an investor’s game:  buy it, fix it, rent or sell it.  Now, there is the added complication of “house rage”, where the outgoing owner makes as big a mess as possible on the way out.  The “nice” ones are the exception, not the rule.

5.  All of them are sold “As Is”. Taken with our last point, that means you need to count on making any necessary repairs at your own expense. Be sure to figure this into your home purchase budget, and be double sure to get an experienced home inspector! You will not get any standard disclosures such as Nevada’s Seller’s Real Property Disclosure (SRPD), because the bank never lived in the home and has no way to know what might be wrong there.

6. FHA financing is a tricky thing on these homes. The Federal Housing Authority has very strict rules about the condition of homes. Broken glass has to be repaired.  Plumbing must be in good order. The property has to pass a termite inspection. And most importantly, important defects must be fixed before closing! But the bank is selling it “as is.”  But it can’t be sold until the repairs are made.  Irresistible force meets unmovable object.

7.  The listing agent will try to make the buyer make repairs at his own expense before closing. The owner is in no position to make repairs;  the owner is a large bureaucracy, probably based in another state.  The listing agent wants to get things done. Hey, it’s going to be your house anyway, why shouldn’t you just pay for the repairs and move towards close?  There are two big reasons why not!  First, if for some reason you don’t close on the house, you lose the money you put towards repairs.  Second, it’s not your property yet;  you wouldn’t just send a contractor to do work at your neighbor’s house, would you?  This is to say nothing of the inconvenience to you and your Realtor of arranging a contractor, getting them into the home, and supervising the repairs.  If you find yourself in this situation, insist on getting written permission to get the work done, including a “hold harmless” clause should the work result in damage or injury.  I often find that the bank would rather pay for the repairs (perhaps being reimbursed from the buyers at escrow) than actually sign any such permission.

8.  It is a longer process to buy these homes than to buy from a private seller. If you are on a strict timeline, don’t try to buy an REO property.  Although some banks respond quickly, count on spending 5-10 business days before you hear anything about your offer.  Last week I got a phone call about a property a client put in a purchase offer on back in June.  By the time counter-offers go back and forth, you will spend several weeks.  That’s one of several reasons I have started putting in proposed Close of Escrow dates like “30 days from acceptance” or “45 days from acceptance”.  You don’t know up front when you will have an accepted offer!

9.  You will end up signing away most of the protections your state’s or local Realtors’ group’s forms give to buyers. The forms commonly used by Realtors in your area almost always balance the interests of buyers and sellers.  Since all the Realtors use them, they all know the provisions and what they mean.  Dealing with a bank changes the rules.  Once you and the bank come to an agreement, they will send over a lengthy “addendum” written by their team of lawyers. Every bank has one, and they are all different. The one thing you can say for certain about every single one of them is that they are written to protect the interests and rights of the bank. You do not have the right to change a lot about it;  their attitude is that you can take it or go find another property. Although your state’s laws may overrule some of the provisions, you will have a hard time enforcing that. Most of these documents include the “as is” provisions, although in Nevada you will also have to sign and notarize a separate Waiver of NRS 113 Rights.  Some even say the bank has the right to cancel the transaction any time before closing.  Sadly, it’s true when I say “It’s not a sale until Close of Escrow”.

10.  Once everything is signed, it’s very difficult to get anything changed. A number of people had to sign of on this before the paperwork made it back to you, and all those people will have to sign off on it again to make changes.  Pay close attention to the paperwork, and particularly the closing date.  Make sure your mortgage professional is aware of the closing date.  It’s not set in stone;  if it were we could change it with a mere chisel.  Even if you can make changes, it will take a week or two.

11.  Escrow is a more complicated process than with a home from a private seller. In areas where HOAs are prevalent, there is another wrinkle.  Banks aren’t particularly conscientious about paying the HOA dues, and delinquent amounts must be paid before the sale can be completed.  Sometimes, the HOA sends a Notice of Default and tries to foreclose on the bank!  If there are other “defects in the title”, those have to be cleared too.  Even though your escrow officer will start working on this as soon as he or she gets all the documents, it still takes time.  Furthermore, all those people who had to approve the transaction in the first place have to approve the final sale documents.  Most of them are not in your home state.  They may be in several different places. It could take a week after you sign your closing documents before the sale actually closes.

I hope this lets you know what to expect when trying to purchase one of these properties.  I’m looking forward to helping you.

The number 8 is lucky in Asian cultures the way 7 is lucky to Western cultures.

If you want to “get lucky”, the Stratosphere is celebrating 8/8/08 with a mass wedding that will only cost you $8.88 — plus the cost of your license, of course! More:

The fee includes the en masse wedding ceremony, admission to the observation deck, minister fees, a free glass of champagne, free admission to the thrill rides, and a free photo.

I don’t know, the whole thing reminds me of that song.

Oh, and the Chinese character at the bottom of the ad? It means “love”.

It’s that time of year.  Kids are preparing to go back to school.  Clark County Schools begin classes August 24.  That includes all students in Las Vegas, North Las Vegas, and Henderson.

Michael Politz of The Vegas Eye has let us know that Hope Central Ministry is running a school supply drive.  Sadly, many kids don’t have the physical stuff they need to succeed at school this year.  For locals, the nice folks at Vegas Parent gives us a list of ways you can help families in the Valley.

Please, consider donating to a local school supply drive wherever you may be. For some kids, a new box of crayons is a real treat.

Details are dribbling out as more people have a chance to read the actual text of the big foreclosure prevention bill. It is worth noting that the President did not bother to sign it until Wednesday.

CNBC tells us this bill is bigger and will cost more taxpayer dollars than originally expected.

Alternet tells us it will actually help fewer than one in 20 families facing foreclosure in the next 2 years.

The Christian Science Monitor gives us a summary: No Rescues Soon.

In the meantime, Hope Now is still out there.  They claim to have helped 181,000 borrowers with 76,000 permanent modifications and 105,000 repayment plans in June alone.  Nevertheless, 82,000 families that contacted them still lost their homes.