If you have not read the first two articles in this series, you can read them by clicking on the following links:
When will the Cherokee County Real Estate Market Recovery Begin, Part I
When will the Cherokee County Real Estate Market Recovery Begin, Part II

For many decades, real estate has been regarded as the safest of investments with values always increasing–keeping pace and frequently rising faster than the rate of inflation. That paradigm has changed. Buyers (and an increasing number of would-be sellers) are now aware that property values can go down as well as up, depending upon the vagaries of the marketplace. So buyers have become wary. They are no longer willing to buy homes at perceived market value – they want to buy below market to protect themselves from future declines.

Unfortunately, because conventional mortgage amortization is front-loaded with interest, it takes over 20 years to pay down half of a 30-year mortgage. In the first five years of that mortgage, only 13% of payments are applied to principal. So what happens if a property values decrease by 10-12% during that period? Homeowners selling during that period have to bring money to the closing table if they have borrowed close to 100% of the value of their home 2-3 years ago.

There are homes that have retained their value due to factors that set them apart from their competition. These factors may include location, lot configuration, and visual appeal, interior and exterior. But the statistics indicate that such homes are in the minority. The majority of homeowners– and specifically for those who anticipate selling in the next 5-10 years–should begin now to accelerate the paydown of their mortgage balance. Paying more than the required payments during any given month triggers a month-end recalculation of the amortization schedule, canceling a portion of the interest and increasing the principal’s share of the monthly payment. In addition to accelerated buildup of equity, this procedure can result in substantial savings in interest.

I have become an agent for United First Financial, whose financial planning software system, Money Merge Account®, has been cited by Personal Real Estate Investor magazine, as the most credible, cost effective and user friendly software tool for helping pay off their mortgages and other debts in a fraction of the time allotted by traditional amortization schedules.

Here is a graph that compares the amortization of a traditional 30 year mortgage with a typical Money Merge Account® scenario. A homeowner using the MMA system in this scenario would pay down 9.6% of the original loan amount vs. 2.5%; the difference is even greater after five years (25.4% vs. 7.0%). Imagine having a 15 year mortgage with the monthly payments of a 30 year mortgage.

The actual savings will depend on the homeowner’s financial situation. As income and expenses change, which inevitably they do, the software tracks the effect of these changes on the mortgage pay off schedule as well as the interest savings.

It is outside the scope of this blog post to describe how Money Merge Account® works. That will be the subject of another article.

My point is simply that homeowners now have a credible alternative to just hoping that home values will be recover quickly. In the three years that Money Merge Account® has been on the market, thousands of homeowners across the country have used this system to reduce their debt principals by over $150,000,000. Your market recovery can begin when you take control of your own prospects for selling your home MMA may not be the right solution for everyone, but I think it is worth 30 minutes of your time to look into.

In a 30 minutes phone conversation, with you sitting in front of your computer, I can show you a personalized analysis that will tell you exactly how much equity you can build in a year, or two, or three, as well as give you a thorough demonstration of the software.

Please give me a call to set a time for our conversation.

If you have not read the first post in this series, you can access it by clicking here.

In my last post, I pointed out that annual unit sales in Cherokee Count fell over 50% from their peak in 2005 (6801) to 2008 (3291). Fortunately prices do not necessarily follow unit sales. In the following graph, you will note that even though unit sales started declining in 2006, prices did not start dropping until the following year. In 2008 median prices dropped by 9.22% and have continued to drop this year (6% during the first four months compared to the same period last year).

Source: AJCHomefinder.com

Fortunately, Cherokee County did not experience the widely-publicized speculative price inflation and resulting deflation that has been troubling California, Florida, and Nevada. But even low double-digit declines have thwarted the plans of many home owners who now owe more on their mortgages than their homes are worth (in the eyes of buyers and appraisers).

Everyone is now aware of the dramatic increase in distressed properties (foreclosures and short sales) that are driving the drop in prices. Distressed properties represent at least of half of the sales that have occurred so far this year.

I recall when I first entered the real estate industry in 2003, the number of foreclosure notices appearing in the Cherokee Tribune ranged between 30 and 40 properties each month. Last Friday’s issue listed 362 such properties. Not all of these properties will go to auction on June 2, but even so, buyers are now using distressed-property pricing as the benchmark for offers and negotiations.

There are two reasons why this situation is likely to persist long after buyers return to the market. First, notwithstanding the belated efforts of the federal government to moderate if not eliminate the “foreclosure tsunami” (as one commentator describes it), this situation is likely to continue, because even after the current recession is declared to be officially over, many families will continue struggling with lower incomes than they enjoyed during the boom years. Even when the foreclosure flood abates, it will take a quite some time for banks to liquidate their real estate holdings. There is a limit as to how much the banks can write off in losses each year.

The second reason is what some observers call the “shadow inventory” of houses and building lots (lots that have been zoned for residential construction). Many homeowners as well as builders who have survived the downtown) and banks sitting on an inventory of foreclosed properties, are just waiting for the first sign of a buying recovery to flood the market with resales and new constructions.

The county-wide inventory of active listings has decreased from as high as 20 months in some areas of the county to approximately 10 months over all (due to unsold homes being withdrawn from the market). To restore the balance needed to strengthen the sellers’ side of the market, the backlog of homes to be sold should decrease to below 6 months. Unfortunately, a significant increase in buying activity may well trigger a surge of new construction and new listings that would deal a severe setback to the aspirations of homeowners waiting for a resurgence of home values.

For these reasons, I think it is reasonable to expect that, even with a revival in home sales during the next year (or two), it may take 5-10 years for prices to follow suit.

So what can a homeowner who needs to sell in the next couple of years do to deal successfully with this scenario? I will introduce you to a strategy for essentially engineering your own market recovery. in my next post, which you can read by clicking here.

I am asked this question almost every day, and I wish I could give a precise answer to homeowners who are frustrated by the way home values are dropping. The frustration often takes the form of a question. . . . “When will I be able to get what my home is really worth, i.e., what I want my home to be worth, based on (a) what I paid for it of (b) what I owe on it, or (c) what comparable homes sold for three years ago?”

I don’t know the answer to that question, and I can’t even tell you when values will bottom out. The experts who predicted that the market would hit bottom last year are now predicting that bottom will occur later this year. I hope that they are right, but I suspect, as do many economists, that the recovery of the real estate market will be “L-shaped” rather than “V-shaped,” i.e., the precipitate drop in property values will be followed by an extended period of level or values.

The purpose of this series of articles is lend credibility to this prediction, and thereby provide useful counsel to that homeowners who need or want to sell during the next 5-10 years.

Let’s begin by looking at a chart showing the track of home sales in Cherokee County during the last 6 years.

Source: http://ajchomefinder.com

From this graph you can see that unit sales peaked in 2005, declined just slightly in 2006, and have been sliding ever since, a trend that is continuing in 2009. Sales during the first four months of this year are 24% below the comparable period in 2008. Obviously the biggest decline has been in the sale of new construction. Resales are only slightly below their 2003 level.

Government incentives in the form of lower interest rates and tax incentives have not yet gotten first time home buyers (representing 40% of the market off the sidelines) to the table in significant numbers, largely due to the pervasive uncertainty over the employment picture. All of us real estate professionals are hoping that these buyers will come to the table as consumers confidence starts to rebuild. The next three months will be a meaningful gauge of consumer attitudes.

The other 60% of home sales represent homeowners who have to sell their current homes in order to buy another one. This is a catch-22 situation. We need an influx of new residents in order to boost the market for resales.

The long term outlook in Cherokee County is promising in terms of growth. The metro Atlanta area in general and Cherokee County in particular retain their appeal. Population growth will continue, albeit at a slower pace. Continuing economic development in Cherokee County (and especially the expansion of the county airport due to be completed in 2010) as well as the quasi rural life style in the northern half of the county, will attract new residents. Cherokee County continues to be a destination for retirees, especially those with children and grandchildren living here.

Even so, I don’t foresee a resurgence of home buying to the peak level of 2005-2006, because the dynamics of the market have changed. The return of rationality to the mortgage business will exclude prospective buyers who would have qualified for loans three years ago. The political and economic climate that drove the rapid explosion of development earlier in the decade has changed, as evidenced by the unanimous rejection earlier this month by the Cherokee County Board of Commissioners of a large planned unit development.

The big question is when the expected turn around in home sales – whether it begins this year or (more likely) next year – will have a positive effect on home values. I will address this question specifically in my next article, which you can access by clicking here.

The Cherokee County Tax Assessors Office mailed out 2009 Assessment Notices on May 11. That date starts the clock running on the 45-day appeal period. This means that if you own property in Cherokee County and wish to challenge your 2009 assessment, your appeal must be submitted by June 25.

You will need to furnish a documented estimate of your property’s value. Newspaper articles concerned with national or regional market trends, alone, are not considered “adequate documentation.” The assessors’ office will consider comparable sales over the last year (with more weight given to the last six months) and will look at all factors “deemed pertinent in arriving at fair market value,” including foreclosures. They will attempt to make adjustments wherever there have been concentrations of foreclosure activity.

Keep in mind that as a licensed REALTOR®, I have ready access to comparable sales and tax data, and will be happy to provide a comparable market analysis with price per square foot, based on this data, to my past and prospective clients as well as to my friends in Cherokee County — without cost or obligation. Please call me (770.546.5364) or shoot me an e-mail (jules@julesleni.com) to request an analysis.

One final note: If you file an appeal, an appraiser from the assessors’ office will visit your property within a month or so to verify that the information they have on your property is correct. This visit will include asking you some questions and checking the measurements around the outside of the structure. There will be no need for them to enter the interior unless specifically requested by the property owner.

I read an informative article this morning on the Smart Money web site listing 10 mistakes that first time home buyers are inclined to make. Here is the list:

1. Not knowing how much house you can afford.
2. Assuming foreclosures are great deals.
3. Letting your true feelings show if negotiating directly with the listing agent.
4. Failing to find a good buyer’s agent
5. Underestimating the costs of owning a home.
6. Failing to budget for property taxes.
7. Assuming your first offer will get accepted.
8. Skipping the inspection.
9. Doing too much too fast.
10. Failing to include a contingency clause in the contract.

Obviously, avoiding mistake #4 will go a long way from protecting first time buyers from the other 9 mistakes. Working with an Accredited Buyers Representative (ABR) is like a security blanket.

Click on this link to read the article:
http://www.smartmoney.com/personal-finance/real-estate/10-mistakes-first-time-home-buyers-make/?cid=1122

Thanks to Gino Berchock of Hometown Mortgage for bringing this article to my attention. You can reach Gino at (678) 428-7544, gino@hometownmoney.com.

The stimulus plan that President Obama signed into law laste month contains a new $8,000 tax credit for qualified first-time home buyers. First-time buyers or anyone who hasn’t owned a home in the 3 years prior to a purchase of a primary residence may qualify for a tax credit of up to 10% of the purchase price or $8,000, whichever is less.

In addition to this gift from the federal government, the Georgia legislature passed and Governor Purdue passed a bill give Georgians a one-time tax credit when they purchase a single-family home or condominium. The credit would total 1.2 percent of the purchase price or $3,600, whichever is less. Payout of the credit could stretch over three years.

For a first time buyer purchasing a home for $150,000 before September 30, the combined credit would be $9,800.

Remember, a tax credit is much more valuable than a tax deduction. A tax credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable. This means the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.

To qualify for the full federal credit, the buyer’s modified adjusted gross income must be less than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. Partial credit is proportionally reduced for incomes under $95,000 (single) or $170,000 (married). For married taxpayers, the homeownership history of both the home buyer and his/her spouse are taken into account. This means if you or your spouse has owned a principal residence in the last 3 years, neither you nor your spouse qualifies for the credit.

According to the IRS, a primary residence is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence. If you built your main home, you are treated as having purchased it on the date you first occupied it.

The $8,000 federal tax credit is available for qualifying home purchases made from Jan. 1, 2009, until Dec. 1, 2009. This is not a typo. To receive the credit you must purchase a qualified home before December 1 st, 2009 – not the end of the year. The Georgia credit applies to any home purchase up to September 30, 2009.

Unfortunately, you can NOT use the credit as a down payment. To receive the federal tax credit, you must purchase a qualified home first and then claim it on either your 2008 or 2009 taxes. If you make a qualified purchase after April 15, or after having already filed your 2008 taxes, you and your tax professional can submit an amendment to your return. To claim the credit, use form 5405.

The current combination of lower home prices and lower interest rates makes for an amazing opportunity to buy real estate. Add to that this gift of $95,00 or more (depending in the case of the Georgia credit on the price of your home) from the government, and renting a home just doesn’t make much sense.

If you or someone you know is ready to stop paying the landlord’s mortgage and start building equity in your own home, give me a call. I will help them determine whether they qualify for this gift from the the federal and Georgia governments and help them navigate the process of buying a home.

The combination of dropping interest rates and a recently enacted temporary tax incentive is providing a window of opportunity for home buyers. No one knows how long this window will stay open, so it is important that anyone with the intent of buying a home be informed about the current opportunity and how to navigate the path to home ownership. That’s why I have developed a no cost, no obligation online clinic to enable prospective home buyers to get the information their need to make a smart decision and to get their questions answered.

If you have any concerns or curiosity as to whether this is the right time to buy a home, click on the date of your choice in the body of this e-mail to reserve a place at one of these upcoming informative events.

Friday evening, March 27, 8:00 PM – 9:00 PM EDT
Monday evening, March 30, 8:00 PM – 9:00 PM EDT

This morning I attended the monthly breakfast of the Cherokee County Chamber of Commerce. The speaker at this event, which was sponsored by Edward Jones, was Milton Ezrati, a partner, senior economist and market strategist for Lord Abbett, an 80-year old money management firm on wall Street. Aside from my enjoyment of Milton’s Bronx accent – music to the ears of a transplanted New York City native – I found his talk enlightening and encouraging.

Like most New Yorkers, Milton is strongly opinionated. The difference with him is that is opinion his based on facts and keen insights.

Here are some of his observations:
• The stock market is being driven by panic. Once the fearful investors have exhausted the holdings they are unloading, the downward pressure on stock prices will end. At that point, he predicted that the market will climb quickly, as it has in similar panic situations in the past. A surge in the stock market will send a positive message throughout the economy.

• Fears that we are headed into a depression are greatly exaggerated and totally unrealistic. A cursory comparison between the Great Depression and our current economy in no way lessens the pain of those who are personally affected by what is going on, but in his view, it makes clear that the potential for a repeat of what happened 75-80 years ago is virtually nil. There is a vast difference between 10% unemployment (which is what pessimistic forecasters are predicting—he things it will cap out around 8-5.5%) and the 30% unemployment that existed in the early 1930s.

• The economy today is cushioned by the government insurance of bank deposits (FDIC) and unemployment insurance, which did not exist in 1929-1933. The flip side of this cushion is the explosion in personal and government debt. The encouraging news about debt is that while consumers have cut back on spending money they don’t have, they are saving more of what they do have. In the last 7 months, consumer savings have increased by $500,000,000,000 (that’s 500 billion dollars). If this pace continued for 20 years (which he doesn’t expect to happen), Americans would be debt-free.

• Ezrati’s most cogent point was that healing has already begun. He cited trends in some key lending statistics as well as improving national statistics in housing sales — which he observed in answering question may not be applicable to overbuilt areas (such as Cherokee County).

• Ezrati predicted that the employment and housing busts will bottom out by this summer, but that neither the economy nor the housing market will grow for a while, possibly a year or two.

From this brief summary, you can see what I am feeling better about the economy after listening to this blunt-speaking and knowledgeable expert.

According to a recent report from the Atlanta Regional Commission, Cherokee County added 6,300 people to its rolls between April 1, 2007, and last April. That breaks down to 17 newcomers a day.

The statistic cited above represents a 3.2% annual growth, which is considerably lower than Cherokee County experienced in recent years. Cherokee’s population, stood at 203,000 last April, compared to 141,900 in 2000. That’s a 43% increase in 7 years.

It will be a while before we know how much the slowdown in growth has been affected by the bad economic news of the laswt six months. It is my opinion that the drop in home sales during the last year may reflect more of a drop in people moving within the county rather than moving into it. Most of my business comes from people who are downsizing or upsizing, but staying within the county, and often within the same school district as their children are currently attending. With the decline in property values, more of these people are staying put, at least for the time being.

But it is nevertheless reassuring to home sellers and REALTORs® that people from other counties and other parts of the country are continuing to relocate to Cherokee County, albeit at a slower pace.

I am happy to report that my sales activity –especially on the real estate side of my business – has picked up noticeably (even dramatically) in the four weeks since the start of 2009. And it isn’t just me. Other REALTORS® have had a similar experience. Even a car dealer sales manager told a recent Chamber of Commerce gathering that his company had a record month in January.

So what happened? Has somebody turned on a hidden switch? After months of doom and gloom, is the economy turning around. That would hardly seem the case, with the continuing string of corporate downsizings and retail closings. Maybe there is a parallel with the weather. Here we are in the midst of freezing winter weather, but we all know that spring is coming (and the days are getting longer, hooray).

Americans are by temperament a resilient people. And the start of a new year is symbolically an occasion for making a fresh start. And it helps to have a new national leader who exudes self-assurance, a hope based not on dogmatic ideology, but on an innate confidence in the character of the American people and our system of government.

I believe that the significance of the controversial stimulus package is not in the amount or way of money being spent (and I have serious concerns about the whole process) but in the expectation by a cross-section of professional economists (with the obvious exception of dogmatic libertarian ideologues) that whatever its weaknesses, the positives outweigh the negatives. [Click here to read what some leading economists have to say on this issue.)

And this to me is the real value of the stimulus package. It’s not the dollars being spent, whether they be in projects and/or tax cuts, that will pull our nation out of the dumps. It is the attitudes and energies of individual Americans that will lead the way, and what I am witnessing and experiencing is the surfacing of confidence in a future that has perhaps already begun. The stimulus bill is symbolic of our collective determination to take definitive action to get the economy back on its feet. I agree with President Obama that we do not have the option of doing nothing and I am confident that his pragmatic approach will result in legislation that will satisfy the legitimate concerns of citizens and politicians alike who want to do what is best for our country.

In the meantime all of us can do our part by maintainin our own positive attitude. While doing a Google search, I came across a site of quotations on the subject , “What Is Gratitude? which includes a phrase attributed to Doris Day, “Gratitude is riches. Complaint is poverty.”

An invisible hand has turned on the switch. Have a bright 2009!