Salt Lake City’s housing affordability has returned to levels not seen since 2004, a time when Salt Lake was recognized nationally for having bargain-priced real estate.  In fact, house affordability has not been higher since third quarter 2004 when 73 percent of the Salt Lake City homes were considered affordable.

The Housing Opportunity Index (HOI) determines affordability through a mash-up of local home prices, interest rates, and median family income.  It’s a joint report offered by the National Association of Home Builders and Wells Fargo.

I DON’T HAVE A PROBLEM, YOU HAVE A PROBLEM

25 percent of loan defaults in certain states are driven by strategy, not necessity.  They are leaving their home behind not because they can’t pay, but because they don’t want to.  In California, the fastest growing category of loan defaults is made up of people with high FICO scores.  The bailout mentality of 2009 appears to have created a moral disconnect.  Future generations will be paying for selfish behavior, not predatory lending. 

MORE CREDIT DEFAULTS TO COME

Mark Green, CEO of FICO, predicts the next six months will lead to more mortgage and credit card defaults.  “I’m a notch less sanguine than some financial observers are,” said Green, in an interview with Bloomberg. 

DISTRESSED PRICES ARE THE NEW NORM

Distressed sales increased to 33 percent of all home sales nationally last month. The high inventory of distressed properties on the market is now heavily influencing buyers’ perceptions of home prices.  Buyers are beginning to treat every home as if it were in foreclosure waiting to happen. 

EXTERIOR IMPROVEMENTS GIVE THE MOST BANG FOR YOUR BUCK

Eight out of the top 10 home improvement projects that returned the most money for resale were exterior remodeling projects under $14,000.  This figure is from the results of the 2009 Remodeling Cost vs. Value Report based on a REALTOR survey.  This confirms the importance of a home’s curb appeal and first impression.  Other improvements in the top ten included finishing the attic bedroom and minor kitchen upgrades.

Watch Out for Lease Option Land Mines

Lease-Options and Seller Financing have become more and more prevalent in Salt Lake City since the market downturn.  In the right hands and under the right conditions, unconventional real estate transactions can save the day for both buyers and sellers.

Oliver Frascona, Esq. I attended a fantastic course led by real estate attorney Oliver Frascona, Esq.  He revealed several hidden land-mines inherent in using Lease Option Contracts (one of which cost me $32,000 in attorney’s fees in 2009). 

Lease option contracts are not bad.  But in many cases, it may be better to have an attorney draft an All Inclusive Deed of Trust Contract (a.k.a The Wrap). Wrap contracts may have less risk, and may provide greater tax benefits to the buyer.

You’ll find that many real estate agents and title companies in Utah are weary of these types of contracts because of the Due on Sale or Transfer Clause included in most mortgages.  Essentially, the Due on Sale clause gives the owner of the loan the right to call the entire balance due and payable if the Deed is transferred to a third-party that’s not a signer on the loan. But the key concept here is the lender has the “right”, it does not mean that they will exercise that right.

Considering the problems that most banks are facing today, one would assume that last thing they want is to take ownership of yet another home; assuming all mortgage payments, taxes and insurance are current.

If a homeowner gets backed-up against a wall and can’t afford to make another payment, a lease-option or wrap transaction may be the best alternative.  It keeps the home out of foreclosure, reduces stress on the neighborhood and gives someone else a shot at home ownership.

I’m ending this post with a CMA disclosure: I’m not an attorney and I’m not licensed to provide legal advice in the State of Utah.  Utah REALTORS have the authority to execute State approved Short Sale Contracts, but the All Inclusive Deed of Trust contracts must be drafted by an attorney. In my opinion, the protection and benefits afforded by the wrap contract is worth the extra $350 legal fee and far out-way the risk of the Due on Sale or Transfer clause.

Want more details and a referral to a good real estate attorney?  Send me an email:  md@michaeldruce.com.  I’ll hook you up.

How do you turn an ordinarily calm person into an emotional wreck? 

Beyond ReasonPresent them with a difficult decision; that involves lots of money; that affects their quality of life; that’s really difficult to undo.  In other words, buying and selling a home can unravel just about anyone.

One of my favorite courses at this years NAR was led by Daniel Shapiro, Director of the Harvard Negotiation Project.  He highlighted the five core emotional concerns that impact nearly every negotiation.  Through more than ten years of research they’ve learned that Appreciation, Autonomy, Affiliation, Status and Role effect every negotiation.  The key of course, is to fully understand the effects that these powerful emotional concerns have on the negotiation, and to use them to create trust and acceptance from the other party.

Of the five core emotions, the most universal tool in the tool-box is Appreciation.  If people feel misunderstood, devalued or unheard, you’re less likely to succeed in influencing the other party to your cause.  The second is Autonomy.  If people feel as if they have lost their freedom to make decisions without imposition, they begin to listen and cooperate less.

It’s surprising how much technology has changed the negotiating process in real estate.  It’s difficult to address a buyer or seller’s emotional concerns when most of your communication is by fax, email and phone.  The best agents understand the importance of communication, listening and building relationships.  They start by dealing with the emotional concerns of the other REALTOR.  If they can establish trust with them, they might open-up and reveal the true emotions and needs of their clients.

My favorite take-a-way from Mr. Shapiro:  “We have all been negotiating since we learned to cry for our milk.  Unfortunately, some people have not changed their strategy since”.

Romancing the Home

Luxury markets are defined as the top 10% of homes in any given market, measured by price, but never less than $500,000. 

There’s currently a 30-month inventory of homes priced over $1,000,000 in the Salt Lake City area. Total transactions are off by 25% from a year ago. This is shaping up to be one of the weakest categories of real estate in 2010.

This year at the NAR Convention, I attended two great courses led by Laurie Moore, Director of the Institute of Luxury Home Marketing.  The overriding theme:  Now, more than ever, luxury sellers are in need of agents that are entrepreneurial problems solvers and great marketers. 

Luxury Market Trends:

• Mortgage defaults on Jumbo Loans (loans over $750,000) are now twice the rate of Conventional Loans.  This means a growing inventory of short sales and foreclosures of luxury properties.
• Attitudes and motivations are shifting away from conspicuous consumption, to comfortable and peaceful luxury.
• Design esthetics are shifting as younger buyers enter the category.  A low carbon foot-print is growing in importance.
• All-cash bargain hunters are on the move.

My favorite take-a-way from the panel of experts is a strategy called Romancing the Home.  It’s based on the premise that every home has a story to tell that is unique.  The best marketers are telling stories that are compelling, visual and emotional.  The more detail, the better.