Real estate did begin to recover in 2009.  It was widely denied by all the “gurus” as the recovery began, but those of us on the ground, who actually do the real estate business, found ourselves chasing inventory that was being sold faster than we could write offers on it.  Many of us lost clients, lost transactions, almost lost our minds, all the while writing multiple offers on properties that were being bid ever-higher with cash from investors.  Clients and agents suffered together at the hands of banks, of agents who “work for the bank,” of lenders who won’t lend to perfectly good clients, of confusing requirements from the government entities, and discovered that most of our problems came from the entities who originally caused the downturn.  The clients suffered multiple losses of properties they were trying to buy, because they didn’t have the “highest and best offer;” many would-be homeowners were unable to buy because an investor had cash for the property they wanted, and they either became disillusioned and left the market empty-handed, or succeeded only after Herculean efforts.  Agents, who would have had their best year ever with buyers flooding into the market, barely broke even, or lost money.  This is typical for a real estate downturn and recovery.  I have seen it happen now 4 times in my career, and more in my lifetime.  Every real estate agent who has been “at” his business for any length of time finds that real estate is vexing in its ups and downs.  Most of us just get used to it, and expect it.  It is good, in a sense.  It weeds out the inept, uncommitted agents who came to the business only because it was perceived as “easy.” It’s also unfortunate, in the sense that many agents who would be successful don’t have the time or opportunity to do so because of the downturn. However, “the downturn” is now “the recovery,” and many folks will look to buy or sell in 2010.

New rules make short sales very attractive to the homeowner:

You still lose your house, but you have no tax liability on the forgiven debt (till 2012, and on your main home), and you can repurchase relatively soon.  A short sale (unless you live in one of those areas of the country that didn’t go down in value) will free you from immense amounts of debt.  Unfortunately, the lenders have not yet “come to the party” on the loan modifications they OUGHT to do, and STILL will not properly reduce principal so that you can keep your home, start making payments at the reduced rate, and get on with your life.  So the next best thing is the short sale. The Feds (through their HAFA program) now provide incentives to both to you and the lenders if they will allow short sales.

It’s pretty scary, really. According to recent reports, delinquencies are now over the 7-million level. In December, the various tracking firms announced that delinquencies were at about the 5.28 million level; now they are saying the actual number is much higher. By the same token, the lenders and the government are proudly announcing that they have “modified” about 150,000 loans. Do the math.  They have modified 2.14% of the delinquent loans. This has taken over a year (the program was announced in about March of 2009). I have not spoken to ANY person who got a modification that really meant anything–some are happy to get a temporary reduction in interest rate (often coupled with a promise to pay the accrued interest back over time), others believe they got a good deal because they got a “fixed” rate loan–of course, the rate is much higher than the rate they would be paying today if  they simply refinanced. Which the lender will not let them do, of course. The most recent information indicates that some lenders may be wavering in their commitment to take every property back that they can…B of A is even considering a principal reduction program (which they’ve structured so it doesn’t help the borrower much), and the Obama administration has indicated that it wants to “incentivize” servicers to do principal reductions…which makes about as much sense as giving them implied guarantees and free money and then insurance and support for the “poor suffering lenders…”  and a giant bailout and then gold everywhere for all the Wall Street execs (not that they should not have it if they deserve it, but if they get it from the taxpayers, that’s different) it’s amazing.  ”Too big to fail?” Not so much that as protection for the “politicians’ friends.” The real problem is that the only people who lose in this are the “little’s”–the people who have homes they can’t keep.  True, they bought them at inflated prices–but those were prices artificially inflated by easy credit, provided by the support of lenders who now want the money back twice–once from the taxpayer, and once from the govt.

It is a huge problem when your primary home is more expensive than you can afford. Here in San Diego, many rentals are less expensive than mortgages.  This has  been true for decades–the rental market has trailed the mortgage market by about $500-$1,000 per month since the late 1980′s, when you take taxes and insurance into account. If you are an investor, you find (the moment you consider a purchase) that leverage only works for you up to about 75% of the property’s value, and if you get a piece of property to “break-even,” it’s going to cost you 25% of the price to make that happen.  At today’s rates, you can borrow the rest, and still have a break-even.  Of course, this is only part of the story, because the mortgage interest deduction generally gives you back the extra you spend keeping your house.  However, some people just cannot make it, and have to sell. If you are among those, here is some advice (Please note: the decision to accept a foreclosure, short sale, or modification may have serious tax consequences; please consult an appropriate professional regarding your choices):