Rise in Phoenix Housing Shows Path for Other Cities

As home prices continue to drop in most cities, a nascent real-estate rebound here holds lessons for the rest of the country. This sprawling desert metropolis was one of the hardest hit housing markets during the bust. Phoenix home prices declined 55% from 2006 through the end of 2011, and Arizona’s foreclosure rate jumped to No. 3 in the nation in 2009. Hundreds of thousands of homeowners are underwater, meaning they owe more than their homes are worth.

Now real-estate economists across the country are studying an early but surprisingly broad Phoenix turnaround. The sharp drop in home prices has brought new buyers into the market. Unlike other markets where housing recoveries have been snuffed out by big overhangs of homes for sale and foreclosed properties, inventories are lean here.

“Phoenix has hit a bottom,” says Thomas Lawler, an independent housing economist who was one of the first to warn six years ago that prices in overbuilt metros were poised to fall.

The nation’s hard-hit housing markets face a tough act: engineering a housing recovery without traditional trade-up buyers, many of whom are either unwilling or unable to sell because of huge price declines. Phoenix has found a viable formula. Low prices are igniting demand from first-time buyers and investors who are converting the homes to rentals. The local economy is on the upswing with several big employers like Amazon.com Inc. and Intel Corp. hiring again, which is further increasing demand for housing. And the region is benefiting from a surge of buyers from Canada who are using their favorable exchange rate to scoop up bargains in the desert.

Local mom-and-pop investors are also playing key roles in soaking up supply. “I’m running my Realtor ragged looking at properties,” said Robert Gerundo, who last month stood inside a two-bedroom condominium, scribbling his signature on an offer to buy the unit for $50,200, slightly above the listing price set by the bank, which recently foreclosed on the unit.

Mr. Gerundo has bought 13 properties in Phoenix in the past two years and rents them out for as little as $950 a month. The 49-year-old, who drives around in a Jaguar with a Rutgers sticker on it, says he is making so much money as a landlord that he quit his job last year in New Jersey as a banker. Nationally, housing demand still remains weak and bank-owned sales are expected to rise this year, putting more pressure on prices. Many economists say they expect home prices nationally could fall by another 3% or so this year before hitting a bottom next year. Most expect that prices will rise little for several years. U.S. home prices fell another 2% in the fourth quarter on a seasonally adjusted basis, according to the Standard & Poor’s/Case-Shiller index tracking 20 cities. But prices rose by 2% in Phoenix, the biggest increase of any metro area in the country. Over the past year, prices in Phoenix are down by 1.2%, the smallest drop since its prices started falling in 2006.

Other markets are showing signs of life, too, as the spring buying season gets under way. Recent job gains for Detroit’s auto sector have helped rev up sales in recent months. Home prices in Washington, D.C., have fared better than in much of the country thanks to better employment prospects from government-related hiring. Big price drops, like those in Phoenix, are another key. In Detroit, prices are down by 46% over the past six years and have fallen to levels last seen in 1994. Sales have picked up in Miami, where prices are down by 51% over the past five years.

But low prices alone haven’t been enough to so stabilize other epicenters of the housing bust where job growth still lags. In Las Vegas, where prices have tumbled 62% since 2006, including 8.9% over the past year, the local economy is heavily dependent on tourism and gambling, both industries that haven’t recovered. “A lot of markets in the country have hit a bottom, but I just don’t see them coming back the way Phoenix has,” says John Burns, a homebuilding consultant in Irvine, Calif.

The improving housing market in Phoenix isn’t much comfort to anybody who bought a home there a few years ago. More than 52% of mortgage borrowers owe more than their homes are worth, according to CoreLogic, a real-estate data company. And not everyone in Phoenix is convinced that the improvements will last, especially if the economy falters or oil prices soar. Phoenix saw a small run-up in prices three years ago when federal tax credits spurred a buying frenzy, but prices dropped again once the credits expired.

Others worry that banks have delayed foreclosures and will begin to saturate the market with more properties in the coming year. “It feels like a temporary bottom,” says Brett Barry, a realestate agent who lists properties for Fannie Mae. Such concerns haven’t discouraged buyers like Lloyd Sheiner from taking advantage of low prices to build an inventory of 143 homes, which he rents out to families that haven’t been able to hold on to their homes. “The panic is over,” says Mr. Sheiner, an apartment and commercial real-estate investor who lives in Montreal and began buying 18 months ago after he concluded prices were too low. His average renter, he says, is a family of four with parents who have jobs. “They’ve been sitting around their kitchen table with a $350,000 mortgage on a house worth $140,000,” he says. “And they’re saying to themselves, ‘Geez, what are we going to do? Do we spend the next 20 years of our life paying this down or do we start over?’ “His company, Living Well Homes, has built its own property-management infrastructure that allows tenants to submit work orders online and automatically deducts rent from their checking account. “We don’t go running around the valley banging on the door collecting rent,” he says. Out-of-state buyers accounted for one-quarter of all purchases last month.

One in every 25 sales went to a buyer that listed a Canadian address when registering the sale, according to the Cromford Report, a local real-estate publication. Many are flush with cash from a real-estate boom of their own in Canada and an exchange rate that has given Canadians unusual buying power. Dean Selvey, a real-estate agent and investor who has built his business around marketing to Canadian snowbirds, last month set up a big booth at a two-day trade show in nearby Mesa called “Canadian Snowbird Extravaganza Celebration” that drew 5,000 attendees. “It’s chase the Canadians—that’s our market,” he says.

A few days later, Jon Mirmelli, a local real-estate agent who has bought nearly a dozen foreclosures as rentals, knocked on the door of a homeowner whose home was slated for a bank foreclosure auction. After introducing himself and informing the occupant about the imminent foreclosure sale, he popped the question: “If you’re not able to keep your house, would you be interested in renting it?” From the porch, Mr. Mirmelli’s business partner sized up the condition of the threebedroom house, which the current owner bought for $150,000 in a short sale two years ago. At courthouse auctions, homes are sold as is, meaning the buyers may have to evict the former owner.

Nearly 29% of homes sold last month went to buyers who indicated they planned to rent out the properties, according to the Cromford Report. That figure has been on the rise over the past two years. In mid-2010, the share stood near 15%. Competition from investors is frustrating for aspiring first-time buyers like Adam Brenner. “This does not feel like a buyer’s market at all,” says Mr. Brenner, a pharmacist who estimates that he has looked at 60 houses since last fall. “You hear and read about how there are so many homes for sale, but once you start looking, it’s a pretty big shock.”

Many real-estate agents have reported more bidding wars in recent weeks, and some buyers are agreeing to escalation clauses, a bubble-era provision where they agree to pay a certain price above the highest offer. Arizona makes it easier for banks to take back properties through foreclosure without going to court. The state saw the largest decline in the share of loans that were seriously delinquent or in foreclosure during 2011, according to Lender Processing Services. So called judicial states such as Florida, where banks must process foreclosures by going through court, have seen growing backlogs, which some fear could eventually drag down Florida markets again in the future.

Now prices are firming up because fewer homes are selling out of foreclosure. Foreclosed properties accounted for 36% of all home resales in January, down from 55% one year ago and a peak of 66% in March 2009, according to DataQuick, a real-estate data firm. Those declines have fallen, in part, because banks are also becoming more efficient at approving short sales, where it allows a sale for less than the mortgage debt owed.

Mike Orr, founder of the Cromford Report, says concerns that banks will begin to dump more foreclosures on the market are overblown, at least in Phoenix. “People think there’s a glut of homes the banks are hiding somewhere, and that may be the case in other markets, but not here,” he says. Still, a market recovery on paper means little to hundreds of thousands of underwater homeowners. Consider the case of Gil Monti. In just two days, he received five offers for this home—four above his asking price.

But that offers little comfort: He has been forced to sell the home, which he built 34 years ago and where he raised all three of his children, in a short sale for $275,000. He paid $100,000 in construction and land costs in 1978, and the home was valued at nearly $600,000 in 2006. He sold the property last month in a short sale because his “interest only” $473,000 mortgage reset last year, requiring full interest and principal payments. He realized the depth of his troubles last year when a neighbor sold a home for just $199,000, a third of what Mr. Monti’s home was worth at the peak. Mr. Monti isn’t alone. “The recovery that gives people like Gil the freedom to sell their property is not going to happen, possibly ever, for a lot of people here,” says Greg Markov, his real-estate agent.

Mr. Markov also represents Mr. Gerundo, the investor who bought 13 properties as rentals. “That recovery is already here” for Mr. Gerundo, Mr. Markov says. “His investment is not going down in value.”

  A version of this article appeared Mar. 13, 2012, on page A1 in some U.S. editions of The Wall Street Journal, with the headline: Rise in Phoenix Housing Shows Path for Other Cities.

Rapid Debt Reduction Through Our “Debt Roll-down” Plan

The average person has eight credit cards in their wallet with thousands in balances and an average interest rate of 16%.   Personal debt is escalating out of control (Source – Sound Mind Investing).

Keys to Getting Out of Debt

1. Adjust your budget so that you are living below your means.
2. Give a tithe and an offering to God on the first day of every week acknowledging that all we have comes from Him.
3. Stop all spending that is not absolutely essential.
4. Stop all new indebtedness immediately.
5. Sell all depreciating items for which you are now in debt.
6. Promise to put all extra income into debt retirement.
7. Closely examine food cost.
8. Begin to “do it yourself” instead of paying for services.
9. Set a challenging goal for retirement on a pay period basis and make all the necessary sacrifices until you are out of debt.
10. Make getting out of debt a family effort.

Debt Roll Down

1. Organize your debts from smallest to largest according to the normal payoff date.
2. Once you pay off the first debt, take that payment and apply it to the next debt.   This will rapidly reduce the time that it takes you to get out of debt and add to your growing motivation of being debt-free!

Reverse Mortgages Not Just For Cash-Strapped Seniors

Many seniors have the misconception that reverse mortgages are only for those that don’t have enough retirement income. While reverse mortgages are very beneficial for cash-strapped seniors, they can also be equally beneficial for those that have sufficient incomes.

One of the key reasons all seniors should at least consider a reverse mortgage is because of the line of credit (LOC) option offered through a Home Equity Conversion Mortgage (HECM)—the most popular type of reverse mortgage and one that is government insured. The LOC offers guaranteed growth, access to money, and provides a hedge against inflation and a reduction in local property values.

Guaranteed growth. The LOC allows the senior guaranteed growth at much higher rates than those commercially available through CDs or Money Market Accounts. AARP writes on their web site, “The rate by which the HECM creditline will actually grow each month will be the same as the total periodic rate being charged on the loan’s balance.”

Consider this example: a senior couple each age 64 who have a home valued at $150,000 and do not owe anything on the home. Through the HECM reverse mortgage, they can qualify for an initial credit line of $69,580. Assuming the line is simply established and no withdrawals are taken, this creditline is guaranteed to grow at a rate currently above 7% (7.28% as of 3/7/07) and changes monthly. In 20 years, if no withdrawals are taken and we assume the same initial growth rate each year, the creditline will be worth $283,825. Meanwhile, if their $150,000 home appreciates at an average rate of 3%, in 20 years their home would be worth $270,917— almost $13,000 less than what their creditline is worth!

Access to money. It is much better to have access to money and not need it than to need the money and not have access to it. In the same example above if the senior couple did not obtain a HECM reverse mortgage, they would only be able to rely on their savings and investments in case of an immediate need for sudden and costly expenses such as those for home health care, assisted living facility care, or nursing home care. To access the money tied up in their home, they would either have to sell the property, which could take several months, or obtain a mortgage on the property.

Hedge against inflation and decreasing property values. Preserving purchasing power throughout a potential retirement of 20 or 30+ years is often a senior’s greatest risk. Purchasing power is eroded due to inflation or the continual upward movement of prices for the goods and services we need and want buy. The LOC with guaranteed growth provides an ideal hedge or risk reducer against inflation. Many seniors often find their homes do not appreciate as much as others in their local real estate markets. This is often because, after living in the home for a period of years, the home becomes outdated, since home styles change and features and materials become obsolete. Again, in this case, the LOC provides a very valuable risk reducer because of its guaranteed growth–which can overcome the value of the home itself.

While a reverse mortgage may not be for everyone, all seniors age 62 and over who plan on remaining in their home should explore this option and the LOC feature available. A good place to start exploring is AARP’s website.

Reverse Mortgages: Financing the Golden Years

Until recently, seniors 62 years of age and older have not had the best choices when it came to getting cash from their homes. Traditional home loans only offered the option of either selling one’s house or borrowing against its equity.

With reverse mortgages coming on the scene, seniors now have some additional cash-flow alternatives. This type of loan allows mature borrowers to convert their home equity into tax-free income without leaving their current home or making mortgage payments – and they do not need an existing income to qualify.

How a Reverse Mortgage Works
Reverse mortgages are probably best understood when compared side-by-side with traditional home mortgages, otherwise known as “forward” mortgages. The following table shows the differences between the two:

FORWARD MORTGAGE	REVERSE MORTGAGE
Uses income to pay debt	Uses home equity to get cash or credit
Monthly mortgage payments	No payments; debt is due when the borrower(s) pass away or relocate.
Falling debt, rising equity	Rising debt, falling equity

Both loans incur debt against your home, and both affect equity, but they do so in different ways. Traditional home mortgages require making monthly payments to a lender. With a Reverse Mortgage, payments are made to you.

What a Reverse Mortgage Involves

Here are some important points to know when considering a reverse mortgage:

Eligibility: To qualify for a reverse mortgage, you must be at least 62 years of age. All owners who are on the title deed must meet this age requirement. You must also have paid off all, or most, of your home mortgage. Lastly, the home you reside in must remain your principal place of residence.

Mandatory Counsel: In order to ensure that homeowners are fully aware of the financial ramifications of obtaining a reverse mortgage, you must undergo counseling with an unbiased third party before completing a loan. HUD and AARP oversee a network of counselors who can provide this service, and it should be offered for either a nominal fee or at no charge.

Tax-Free Income: One of the advantages of a reverse mortgage is that the money you receive will not be taxed. The amount you’ll obtain depends on several factors including the plan you select, the type of cash advances you choose, your age, and the value of your home. Typically, the older you are the larger the loan, as you will have more equity in the house.

Cost: The cost of a reverse mortgage varies considerably from one type to the next. However, you can typically use the money you receive to offset the loan fees. The costs will be added to the loan balance and must be repaid with interest once the loan terminates.

Repayment: Reverse mortgages do not require any payment as long as the borrower(s) remain in the home. Should the borrower(s) pass away, sell the home, or permanently relocate, then the loan would be due in full, along with interest and additional costs. If two borrowers are on the loan and one dies, the loan would not be due since one of them still occupies the home.

Home Equity Conversion Mortgage – The Federally Insured Loan

The most common type of reverse mortgage is the Home Equity Conversion Mortgage, otherwise known as a HECM mortgage. This is the only reverse mortgage program that’s federally insured and backed by the U. S. Department of Housing and Urban Development (HUD). This type of reverse mortgage is popular for a few reasons:

• Ability to choose your own interest rate.
  You can select one that changes annually or one that changes every month.
• You have several payment options.
  You may receive monthly loan advances for a fixed term or for as long as you live in the home. You may also choose to receive a line of credit or combine monthly loan advances with a line of credit.
• The loan can be used for any purpose.
  With a HECM, you don’t have to designate the loan to a specific use; you can apply the funds to anything you choose.
• Protection.
  This is one of the most attractive features of a HECM. This plan protects you by guaranteeing continued loan advances even if your lender defaults.

Sell or Stay?

The main reason people choose a reverse mortgage is to gain financial independence and maintain an adequate standard of living without leaving their current home. The best way to decide if a reverse mortgage is right for you is to compare it to the other option of selling your house. To do this, ask yourself these three questions:

1. How much cash can I get by selling my home?
2. How much will it cost to buy or rent a new place?
3. Is it worth my moving now, or do I prefer to do something else with the money?

Perhaps you’ll confirm what you knew all along, where you now live is the best place to be.

Seek a Qualified Mortgage Consultant to Ensure the Best Results

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Debt Reduction Strategies