t mi re december09 us

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Keller Williams Research

This Month in Real Estate

Released: December 4, 2009

Commentary……………………………………. 2

The Numbers That Drive Real Estate………… 3

Recent Government Action……………………. 9

Topics for Buyers and Sellers…………………. 15

Steps to Recovery

Small steps to economic recovery continued last month. Among the positive readings was the report

of a third quarter GDP growth rate of 2.8 percent, which followed four consecutive quarterly

declines. This advance comes in well ahead of that of our Canadian neighbors, whose economy was

once anticipated to be the first country out of recession, and by significant margin. Canada posted

marginal 0.4 percent growth. Unemployment fell in November for the first time since April 2008.

A strong rebound in home sales activity from year ago levels also points to a firmer stabilization.

With the extension of the $8,000 federal housing tax credit into spring 2010, first-time buyers will

now have an additional few months to purchase their dream homes. Expansion of the income

restrictions now gives possibilities for higher earners to participate too. And the $6,500 tax credit

now available to established homeowners with five consecutive years or more in their homes

broadens the opportunity landscape. This in turn will allow the housing market more time to find a

more solid footing on a sustainable recovery.

Although economists continue to debate the overall shape of the recovery, it is widely agreed that

the U.S. economy will take a long time to rebound. Unemployment is expected to remain high for

several quarters and the number of underemployed is expected by some economists

to remain a drag on growth prospects. On the brighter side, according to some economists,

a slow and steady growth will likely fair better for the long-term well-being of the

economy. Slower, sustained growth can help prevent dangerous asset bubbles, like the

recent housing and technology bubbles, from growing and bursting.

KW Research 3

The Numbers That Drive Real Estate

KW Research 4

Home SalesIn Millions

4.54

6.10

5.54

5.09

4.72

4.66

4.55

4.71

4.49

4.74

4.94

5.24

4.89

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Seasonally Adjusted Home Sales

Latest data release: November 23, 2009

Source: National Association of Realtors

Existing home sales recorded another strong gain in October with many buyers rushing to beat the deadline for the first-time buyer tax credit scheduled to expire at the end of November. Sales surged 10.1 percent to 6.1 million units over September sales of 5.54 million and are 23.5 percent above the 4.94 million-unit level seen last year. Sales activity is at the highest level since February 2007 when it reached 6.55 million.

KW Research 5

Median Home PriceIn Thousands

$186 $180 $176 $165 $168 $170 $167 $175 $177 $176 $173$182$182




Low home prices are contributing to extremely favorable affordability conditions. Existing-home price was $173,100 in October, 5 percent higher from its low in January but still 7.1 percent below October 2008. Distressed properties, which accounted for 30 percent of all transactions in October, continue to hold down the median home price, as they typically sell for 15 to 20 percent less than traditional homes.

KW Research 6

Inventory - Number of homes available for sale

In Millions

“We are getting closer to a general balance between buyers and sellers,”according to Lawrence Yun, NAR chief economist. The supply of homes is now at the lowest level in more than two and a half years. Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, representing a seven-month supply at the current sales pace, down from September’s eight-month supply. Compared to a year ago, there are now 15 percent fewer homes on the market.

4.2

3.6

3.73.9

3.93.9

3.6

3.8

3.6

3.7

4.2

4.1

3.8




Number of Homes Available for Sale

KW Research 7

Mortgage Rates 30-Year Fixed

Source: Freddie Mac

Remaining at attractive levels for people looking to buy a home or refinance, historically low interest rates are boosting the market. Rates for 30-year fixed loans fell to 4.95 percent in October from 5.06 percent the month before. During the week ended November 25, rates again dropped to the low 4.78 percent reached in the spring. As the economy enters its recovery phase and concerns over inflation come back, mortgage rates are expected to go up.

5.59%

5.29%

4.78%

4.83%

4.91%

4.98%

4.92%4.87%

5.00%

5.03%

4.94%

5.07%5.04%5.12%

5.14%

5.08%

5.22%

4.80%

4.78%

4.82%

4.87%

5.15%

5.03%

5.01%

5.12%

5.10%

5.25%

5.16%

5.04%

5.07%

4.98%

4.85%

4.78%

4.96%

4.84%

4.86%

4.82%

4.91%

5.29%5.38%

5.42%

5.32%

5.20%

5.25%

5.14%

5.20%

1/8

2/8

3/8

4/8

5/8

6/8

7/8

8/8

9/8

10

/8

11

/8

Average Weekly Mortgage Rates

KW Research 8

20.1% 18.5% 19.0% 19.4% 20.0% 23.5% 23.2% 20.9% 17.8% 15.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Affordability as of October every year. Calculations assume a 20% down payment.


Affordability -% of Income

Unprecedented interest rates, low home prices, as well as the first-time buyer tax credit are lifting the housing market. All these factors combined are “adding to the buying power of the typical family, with affordability conditions this year at the highest on record dating back to 1970,” according to Lawrence Yun, NAR chief economist. So far this year, the home price-to-income ratio has fallen well below the historical average of 25 percent. The ratio now stands at 15 percent.

Percent of Income Required for Mortgage Payments on a Median-Priced Home

Well below the

historical

standard of

25%

The percentage of a median family’s income required

to make mortgage payments on a median-priced home

KW Research 9

Recent Government Action

KW Research 10

Government Pressures Lenders Foreclosure Prevention Program

December 2009

The federal government is cranking up the pressure on lenders to increase the number of borrowers who receive completed mortgage modifications as well as releasing guidelines for short sales.

Although 650,000 borrowers have received trial modifications, only a small, undisclosed percentage of those have qualified for final modifications. Mortgage executives estimate 25-35 percent of those in trial will qualify for the final ones.

Reasons for a trial modifications to fail:

The Treasury Department will appoint officials to monitor actions of the largest servicing companies daily. It will also require mortgage companies to report to the administration plans to increase the number of completed modifications.

1. Reduced payment isn’t low enough

2. Borrower suffered additional financial setback

3. Borrower didn’t provide a hardship affidavit or other documents

4. Loan did not pass a “net present value” test (The test asks - is modification or foreclosure more costly to the investor?)

Sources: The Wall Street Journal, The Washington Post

KW Research 11

Short Sale Guidelines Foreclosure Prevention Program

December 2009

Short sales are when the lender accepts less than the borrower owes on a loan. They can provide a higher sales price and are less harmful to communities than foreclosures but can be difficult to complete. Second liens, such as a second mortgage on the home, add extra layer of complication which this program addresses. The borrower will be fully released of obligations and future debt liability after participating in this program.

The guidelines are aimed at those who are eligible for the loan modification program but:

The program will offer the following incentives for successfully completed short sale or deed-in-lieu of foreclosure:

The stakes of a successful foreclosure prevention program are high. Experts on the housing market and the economy are troubled by the high levels of foreclosures that disrupt neighborhoods and put downward pressure on home prices, causing trouble for both the

stability of the housing market and financial institutions.

1. Do not end up qualifying

2. Become delinquent on modification

3. Request a short sale or deed-in-lieu

Sources: The Wall Street Journal, The Washington Post

Borrower…...………….$1,500

Lender…..………….….$1,000

Second Lien-holder..…$3,000** From proceeds of the sale in exchange for releasing liens

KW Research 12

REO & Neighborhood Support New Fannie Mae Policies

November 2009

In many markets dominated by distressed properties, buyers jumped off the fence in droves and as a result the number of homes for sale in the first tier of the market decreased significantly. When a new foreclosure becomes available for sale, it often is snapped up by investors with cash on hand, leaving the average home buyer looking for a place to live out of luck.

Fannie Mae introduced a new “First Look” initiative to address this and aid in the stabilization of neighborhoods.

This will hopefully give the average home buyer a greater chance of purchasing foreclosures and provide support to hard-hit neighborhoods, because owner-occupants are more invested in the long-term vitality of a community whereas investors typically are more invested in their monetary return from the property.

Another Fannie Mae initiative, “Deed-for-Lease,” further supports neighborhoods by allowing foreclosed-on owners or their tenants to lease the property for twelve months. Depending on state laws, once a bank has seized a foreclosed property there can be a lengthy time before they are legally allowed to sell it. This will likely prevent vacant homes from vandalism and promote upkeep of the home, neighboring home prices, and the community.

1. During the first 15 days a Fannie Mae REO is on the market, only buyers who will live in the home and public entities committed to the best interests of the community may purchase it.

2. Buyers will have 45 days to close, up from 30 days.

3. Earnest money requirement may be reduced.


KW Research 13

Increased Credit Scores New Fannie Mae Policy

November 2009

Fannie Mae is raising its minimum credit score from 580 to 620. This risk management measure will help protect Fannie Mae from future defaults and foreclosure by raising their standard and accepting less risky loans.

While risk management is a sound and healthy approach for an entity that the economy depends on, this underscores the importance that potential home buyers check their credit report early in the process, allowing more time to clear up any errors.

Earlier this year, Experian, one of three major credit-reporting bureaus, began exclusively providing complete credit report information when purchased directly from Experian or obtained from the government annual credit report.


KW Research 14

FHA Signals Efforts to Manage Risk December 2009

In an effort to secure its financial health, the Federal Housing Administration plans to require borrowers to have more “skin in the game” soon. Over the past three years, FHA’s market share has boomed from about 2 percent of all new loans to about 30 percent of all new loans this year and 20 percent of refinances. The escalading volume that the administration is currently handling calls for stricter requirements as evidenced by FHA’s capital ratios falling to nearly 0.5 percent well below the minimum of 2 percent.

The agency is still analyzing the levels and time frames it wishes to tighten its standards but they expect to:

As one of the major players in the mortgage market, the health of FHA is imperative to the housing market and flow of credit to home buyers, as well as to the health of the overall economy. Taking measures to safeguard the agency from needing a government tax payer-funded bailout is a notable risk management measure.

According to a Keller Williams research study, the typical first-time buyer put down 3.5 percent this year. Those who want to take advantage of the tax credit before the April 30 contract, June 30 closing deadline may want to beef up their savings and check their credit report now in anticipation of any changes.

1. Increased minimum down payments

2. Increase minimum credit scores

3. Increase insurance premiums

4. Lower the amount of seller concessions

Sources: National Association of Realtors, KW Research First Time Home Buyer Survey

KW Research 15

Topics for Buyers and Sellers

KW Research 16

First-Time Home Buyer Survey

What are other first-time home buyers doing?

1. The median age is 28, significantly down from where

it was four years ago at 32.

2. Location or Neighborhood was the No. 1 “must-have”

for 36% of buyers.

3. 2 out of 3 sellers paid at least part of the

buyer’s closing costs.

4. 76% used their own savings for the down payment.

5. 1 in 4 had help from their family for the down payment.

Source: KW Research – First-Time Home Buyer Survey

The tax credit extension and expansion in November has fueled new discussion about home buyers and the housing market in 2010. Here’s a look at first-time buyers in 2009.

For details on the tax credit, check out www.kw.com/kw/2009taxcredit.html

KW Research 17

Distressed Property Buyers

As elevated levels of distressed properties are expected to continue for the next few years, here is a glimpse of buying a distressed property.

1. 27% of foreclosures* were purchased by investors.

2. 47% of distressed* properties were

purchased by first-time buyers.

3. 89% of those first time buyers that

purchased a distressed property were motivated by the $8,000 tax credit.

4. 7 in 10 agents have seen an increase

in multiple offers.

5. Approximately 3 out of 5 agents discuss the

differences between buying distressed and traditional properties at the buyer consultation.

* Distressed – Short Sale and REO, Foreclosure – REO Only

Source: KW Research Buying Distressed Property Survey

KW Research 18

Your Local Market

Although it is important to stay informed about what is going on in the national economy and housing market, many different factors impact the real estate market in your area.

Talk to your Keller Williams agent for assistance

interpreting the conditions in your local market.

Keller Williams associates are equipped with all the knowledge and information to help navigate you through the process of buying or selling a home in this challenging market.

KW Research 19

About Keller Williams Realty

Founded in 1983, Keller Williams Realty, Inc., is an international real estate company with more than 74,175 associates and 693 offices located across the United States and Canada. The company began franchising in 1991, and followingyears of phenomenal growth and success, became the third-largest U.S. residential real estate firm in 2009.

The company has succeeded by treating its associates as partners and shares its knowledge, policy control, and company profits on a system-wide basis.

Focusing on helping associates realize their fullest potential, Keller Williams Realty is known as an industry leader in its family culture, unmatched education, profit sharing business model, phenomenal coaching program, and technology offerings. The company provides associates with all the tools needed to grow and

thrive in today’s market.

www.kw.com

KW Research 20

About Paul W. Drury

� Originally licensed as an agent in Ohio in 1986, Paul began with Lehman Johnson Real Estate in Elyria. He acquired his Real Estate Brokerage License in 1992 and became an Associate broker with West Shore Realty. In 1995 he moved his brokerage license to Continental Realty Investment where he began to focus on additional work with commercial and investment real estate. During these years he also performed professional appraisals with The Appraisal House.

� In 2001 he began Drury Realty Consulting and worked as an independent Real Estate Consultant and worked on his own until 2009 when he joined Keller Williams Realty, Greater Cleveland West. “Being a part of the Keller family provides me with tools and serves unachievable strictly on my own, provides me with the tools and networking of a huge national network, while still enabling me to work, act, and function as the manager of my own business. It’s the best of both worlds.” – Paul

� Paul's Home Page

KW Research 21

What we have to offer sellers

� Sellers of Real Estate now have access to tools unimaginable just a few years before. Keller Williams doesn’t spend its money promoting its own name. It doesn’t have to. It puts its resources into providing the best tools and resources to its systems, education, and training, thus providing the most professional real estate team members back into the communities.

� Properties put up for sale by Paul are also; listed on KWLS, a national MLS, implemented by the third largest company in the US; local MLS, the NEOHREX, Northern Ohio Real Estate Exchange; and on many other national sites such as Trulia, Zillow, CyberHomes, and others.

� Other tools brought to bear by Paul include branding using the properties own web address with a virtual tour that can be emailed by link or have the link posted anywhere it can be, to even include Craig’s List and Back Page. Examples of properties sold recently using this method include:

- 947 Gulf Road in Elyria (sold in 28 days)

- 359 Gayle Drive in Sheffield Lake (sold in 57 days)

- 327 Gayle Drive in Sheffield Lake (sold in 18 days)

KW Research 22

Properties currently for sale

� Properties currently for sale:

- 37101 Hunters Trail in Avon

- 4435 Porter Road in North Olmsted

- 810 Sandalwood Drive in Elyria

� Want your home or property promoted like these?

- Contact Paul for a free, no obligation, consultation

today at 440-385-5650.

KW Research 23

What we have to offer buyers

� Buyers of Real Estate also have access to tools unimaginable just a few years before.

Since Keller Williams doesn’t spend its money promoting its own name, it puts its

resources into providing the best tools and resources to its systems, education, and

training, thus providing the most professional real estate team members back into the

communities.

� Paul is available directly most hours of the day without having to battle assistants and

voice mails (most of the time) and he checks his email constantly.

� Buyers can access Paul’s website at www.druryrealty.com and conduct their own

searches through wolfnet IDX and create their own search profiles for searching for

properties anywhere in Ohio. If relocating out of Ohio, Keller Williams offers one of

the finest relocation referral networks in the nation. While we may not be the biggest

firm in Northern Ohio yet, we are in many areas of the national already.

� Paul’s website is easy to manage and he can set up search profiles for you so you get

notified at about 8:30 am of any new properties that come available. He also has

profiles set up on national websites such as Trulia providing for greater access to

search tools.

KW Research 24

Investors & Shoppers – Foreclosure Watch

�Are you shopping for the deal of a century for your new home?

�Are you in the market to buy a home at a steep discount and try

and fix it up and “flip it”?

�Are you looking for a home for someone else?

�Want to know what is happening in your marketplace?

�Send Paul an email today and request free market updates at

[email protected]

�No cost. No commitments. No obligations. No fuss. No kidding.

KW Research 25

Follow Paul on line…

Home Web Page

� www.druryrealty.com

On Zillow

� www.zillow.com/profile/PaulWDrury

On Trulia

� www.trulia.com/profile/paulwdrury

On Twitter

� - www.twitter.com/PaulWDrury

On FaceBook

� - www.facebook.com/paul.w.drury

On LinkedIn

� www.linkedin.com/in/paulwdrury

t mi re december09 us

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