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Consumer outlook up, worst may be over for housing

August 26th, 2008 1:59 PM

By ANNE D'INNOCENZIO, AP Business Writer
Tue Aug 26, 11:27 AM ET

Americans felt better about the economy in August, as a widely watched barometer of sentiment posted the biggest boost in two years amid falling gas prices. Meanwhile, two reports suggested that the worst may be over for the slumping housing market.

The Conference Board, a private research group, said Tuesday that its consumer confidence index rose to 56.9, up from a revised 51.9 in July. That's the largest gain since August 2006, and is ahead of the 53 expected by economists surveyed by Thomson/IFR.

It's also the second month in a row that sentiment improved, after a six-month slide since January — but it remains about half what it was a year ago.

"Consumer confidence readings suggest that the economy remains stuck in neutral, but may be showing signs of improvement by early next year," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

The latest reports on housing, meanwhile, showed that the severity of the slump may be lessening. The Standard & Poor's/Case-Shiller U.S. National Home Price Index showed home prices dropping a record 15.4 percent during the second quarter. However, the rate of single-family home price declines slowed from May to June, a possible silver lining.

Sales of new homes also posted an unexpected increase in July as heavily discounted properties lured cautious house hunters to become home buyers, according to the Commerce Department.

Falling gas prices in recent weeks helped boost consumers' gloomy mood, Franco said. A national survey shows gas prices have dropped 15 cents a gallon in the last two weeks, according to the Lundberg Survey of 7,000 gas stations nationwide, released Sunday. The average price of a gallon of regular gasoline at self-serve stations was $3.70 on Friday.

Despite the drop, gas nationally was almost 95 cents higher than a year ago, and the volatility in oil prices are a big concern for investors. But Tuesday's reports helped offset the impact of a spike in oil prices that rose out of concerns Hurricane Gustav might hit installations in the Gulf of Mexico in coming days. In late morning trading, the Dow Jones industrial average rose 47.71, or 0.42 percent, to 11,433.96.

The Conference Board's Present Situation Index, which measures shoppers' current assessment of the economy, declined to 63.2 from 65.8 in July. But the Expectations Index, which measures their outlook over the next six months, jumped to 52.8 from 42.7 in July. The 10-point increase marked the biggest increase since November 2005, when the economic fallout of hurricane Katrina was subsiding.

Franco said that declines in the Present Situation Index, both in term of business conditions and the labor market, appear to be moderating. She noted that an improvement in consumers' expectations suggest better times ahead. However, "overall readings are still quite low by historical standards and it is still too early to tell if the worst is behind us."

Economists and investors closely monitor consumer sentiment as consumer spending represents about two-thirds of all economic activity.

While economists say they can't underestimate the relief among consumers to see gas prices come down, Americans are still faced with a number of big economic challenges as they head into the crucial fall and holiday selling seasons, from a weak job market to tight credit conditions and the housing slump.

The Standard & Poor's/Case-Shiller report showed that 14 cities in the monthly index showed improvement from May to June, but nine recorded positive returns. And the government reported that sales of new single-family homes rose by 2.4 percent last month to a seasonally adjusted annual rate of 515,000 units, the most since April.

Still, the Consumer Confidence report — derived from responses received through Aug. 19 — of a representative sample of 5,000 U.S. households — showed Americans' pessimistic about business conditions and jobs.

Consumers' assessment of current conditions did not improve in August. Those claiming business conditions are "bad" increased to 33.2 percent from 32.6 percent while those who saw them as "good" edged up to 13.4 percent from 13.2 percent last month.

People's appraisal of the labor market also turned bleaker. Those saying jobs are "hard to get" rose to 32.0 percent from 30.2 percent in July, while those who found them "plentiful" declined to 13.1 percent from 13.6 percent.

Consumers' short-term expectations improved, but still remained negative. Those expecting business conditions to worsen over the next six months declined to 25.8 percent from 32.4 percent, while those expecting conditions to improve rose to 11.9 percent from 9.2 percent.

The outlook for the labor market was less gloomy. The percent of consumers anticipating fewer jobs in the months ahead decreased to 30.6 percent from 37.3 percent, while those expecting more jobs increased to 10.5 percent from 8.0 percent.

Posted by The Value Team on August 26th, 2008 1:59 PMPost a Comment (0)

How to buy Bank Owned Properties- REO 101

July 21st, 2008 2:06 PM

So you’d like to buy a bank owned property?
You’ve watched the late-night infomercials and you’re ready to do the bank “a favor” and take a problem off their hands. Plus, you expect to make "a killing" in the process. Sounds great and it might just happen, but first you should take a look at some facts and get prepared.

REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.

Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property.

Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.

REO Properties For Sale
The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.

A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain.

How Banks Sell REO's
Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.

Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."

Property Condition
Banks always want to sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted.

Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.

Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has extensive damage and you are purchasing it "as is."

Making an Offer
Before making an offer, have your agent contact the the listing agent and ask the following:

Are there any inspection reports?
What work has the bank agreed to?
Is there a special "as is" form?
How long does it take the bank to accept an offer?
How does your agent deliver the offer?

Offers are usually FAXED to the bank. The listing agent needs your originals. There is no formal presentation. Keep in mind: nothing happens evenings and weekends (banks are closed)

Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept.

Hopefully these tips will manage your expectations. Remember that REO's sell at pretty close to full market value and are not the deals presented on late night television.

Source- Walt Harvey, real estate broker, CRS, GRI

Posted by The Value Team on July 21st, 2008 2:06 PMPost a Comment (0)