RX For Real Estate - Cartus · eLearning Rx for Real Estate2008 series 2008 Real Estate Industry Update-S&P/Case-Shiller Index – Like OFHEO, S&P/Case-Shiller is a repeat sales index

eLearning 2008 series

Upcoming eLearning series

Year-End Planning

September 42:00 p.m. ET

Rx for Real Estate

Renee Carnes-RookVice President,

Real Estate, Cartus

Kevin RussellSenior Vice President, Sales

& Account Management Cartus Home Loans

eLearning Rx for Real Estate2008 series

Agenda

• What’s changed since March? A look at forces impacting the market

• How are we doing?

• “Point in Time” policies

• Selling Homes Faster: Strategies that are working

• What to Expect

• Preparing for the future: the Short Sale Train


What’s Changed Since March 2008?Economic Conditions Continue to Decline

• Leading the way…further deterioration of residential real estate and mortgage markets

• Softer job market• Increase in gas prices… up 30% Feb to May ‘08• Higher energy, food and consumer goods prices• Consumer confidence fell sharply since Fall ’07• Decrease in housing prices• Oversupply of new construction• Economic stimulus checks• Temporary mortgage solutions• Changes in business climate:

– Escalation in raw material costs– Weaker domestic demand– Weaker dollar overseas

MSNBC reports:

Support needed for mortgage giants (Fannie Mae and

Freddie Mac)

Government says the number of

single family homes starts has fallen to a

17-year low.

http://www.msnbc.msn.com/

http://www.msnbc.msn.com/


2008 Mortgage Industry Update

Annual Average Interest Rate (Percent)

0

2

4

6

8

10

12

14

16

18

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

0

2

4

6

8

10

12

14

16

1830-Year Fixed

Mortgage Rate

10-Year Treasury

7.38%

17.00%

8.32%

5.83%

Source: American Council of Life Insurers (ACLI), Freddie Mac (PMMSSM), Federal Reserve


Home Sales & Price Activity

June 2008 versus June 2007

Current Rates

Closed Sales Units Avg. Sales Price

National -16.4% -7.9%

Regional:Northeast

-19.9% -3.0%

South -18.2% -4.5%

Midwest -18.2% -4.8%

West -10.1% -17.2%

Source: RealTrends


2008 Real Estate Industry Update-S&P/Case-Shiller Index

– Like OFHEO, S&P/Case-Shiller is a repeat sales index.– Data is from 20 MSA’s, Phoenix, Los Angeles, San Diego, San Francisco,

Denver, Washington, Miami, Tampa, Atlanta, Chicago, Boston, Detroit, Minneapolis, Charlotte, Las Vegas, New York, Cleveland, Portland, Dallas, and Seattle.

– More property and loan types than OFHEO, but less geographical variety.

0

50

100

150

200

250

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

10 City Index

20 City Index


OFHEO Home Price Index - 2007

MT 6.9%

ID4.6%

WY8.3%

NV-5.9%

UT9.3%

CO1.4%

AZ-2.4%

NM 5.4%

WI1.9%

IN1.5%

OH-0.4%

NY0.7%

KY3.5%

TN 4.1%

AL4.5%

NC 4.9%

AK6.0%

WA5.4%

OR3.9%

HI2.0%

AR3.6%

VT2.4%

RI -2.6%CT

0.8%

MA-2.2%

ME1.9%

ND7.9%

SD4.8%

NE2.5%

KS2.5%

MN-1.2%

IA2.7%

MO2.5%

TX5.2% LA

4.1%

OK 5.1%

CA-6.7%

NJ-0.3%

PA2.8%

WV 3.0%

SC3.8%

GA2.6%

MD0.8%

DC1.9%VA

0.8%

MI-4.3%

IL2.0%

MS4.1%

DE1.9%

FL-4.7%

NH-0.6%

Source: Office of Federal Housing Enterprise Oversight

2007 National Appreciation = 0.8%

Price Appreciation

>15%

10% - 15%

5% - 10%

0% - 5%

Negative


MT 4.9%

ID2.6%

WY6.3%

NV-10.3%

UT5.6%

CO2.3%

AZ-5.5%

NM 3.4%

WI1.8%

IN2.2%

OH0.6%

NY0.2%

KY2.8%

TN 3.9%

AL4.5%

NC 4.0%

AK1.3%

WA2.9%

OR2.2%

HI-0.3%

AR2.1%

VT1.8%

RI -3.0%CT

-0.5%

MA-1.8%

ME2.3%

ND4.2%

SD4.2%

NE2.0%

KS2.7%

MN-1.0%

IA2.8%

MO1.7%

TX4.7% LA

3.3%

OK 4.0%

CA-10.06%

NJ-1.2%

PA2.4%

WV 2.5%

SC3.8%

GA2.2%

MD-1.3%

DC-1.5%VA

-0.1%

MI-3.1%

IL0.7%

MS3.1%

DE1.0%

FL-8.2%

NH-0.9%

OFHEO Home Price Index - 1st Q 20082008 1st Quarter National Appreciation = -0.03%

Price Appreciation

>15%

10% - 15%

5% - 10%

0% - 5%

Negative Source: Office of Federal Housing Enterprise Oversight


2008 Real Estate Industry Update - Defaults

0%

5%

10%

15%

20%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

VA

FHAFHA

Prime

Subprime

FHA Swap

Sources: Dept. Housing and Urban Development, MBAA.org


2008 Real Estate Industry Update-Negative Equity

-Projected

0%

5%

10%

15%

20%

25%

30%

Q12006

Q22006

Q32006

Q42006

Q12007

Q22007

Q32007

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

West

U.S.Midwest

Northeast

South

Current Projected

Sources: Bureau of Census, Fiserv Case-Shiller, Moody’s


Short Sale

• When the lender will accept less than the full amount due on a mortgage when a property is sold • Usually the lender will accept to avoid the time and

expense of a foreclosure• Lender can still demand some kind of payment or share

the loss• Items a lender will consider before allowing a short sale

• Income documentation• Hardship letter• Asset statements

• Tax implications & credit history• If the lender absorbs the loss, the IRS might treat that

as taxable income• Reported “Paid in Full-Less than full amount” – Not as

bad as a foreclosure (Loss of 80-100 Points)• Mortgage Forgiveness Debt Relief Act of 2007


MA

ForeclosuresForeclosures up 53% from June 07 National forecast: 1 in every 501 households

States with foreclosure rates among the nations highest

MT

ID

WY

NV+85%

UT +140 %

CO-14.5%

AZ+127% NM

WI

IN18%

OH+11%

NY

KY

TN

AL

NC

AK

WA

OR

HI

AR

VT

RICT

MA

ME

ND

SD

NE

KS

MN

IA

MO

TX LA

OK

CA+77%

NJPA

WV

SCGA

+21%

MD

DCVA

MI+19%

IL

MS

DE

FL+92%

NH


Foreclosure Data

Source: RealtyTrac.com, June 2008


US Foreclosure Data Activity


2008 Economic Stimulus Developments

• IRS stimulus checks issued to more than 130 million households

• Conforming loan limits temporarily increased to 125% of HUD Median House price based on MSA

• Mortgage Forgiveness Debt Relief Act of 2007

• Congress considering extension of stimulus tool


Current Developments

• Credit losses for investors…Fannie Mae, Freddie Mac, Subprime lenders and MI insurance companies are continuing to increase.

• Mortgage investor appetite remains low although some recent signs of improvement.


Current Developments…

• Private Mortgage Insurance

– Discontinuation of >97% LTV’s

– Most providers will no longer insure above 90% in declining markets

– We anticipate further tightening by all MI companies.


Current Developments…

• Jumbo Prime Products

– Reduction in availability of Jumbo investors due to financial risk

– Decrease in ability for lenders to offer competitive Jumbo products

– 96% of the first quarter’s mortgage backed security production for the industry was conforming – Fannie, Freddie, FHA/VA vs. 49% last year


Current Solutions….. FHA

• FHA the most viable financing option for:– Credit limitations– Limited income– Minimum assets

• Increase in FHA mortgage applications: – 7.5% in 2007– 30% and growing in 2008

• Next steps:– Education and training– Expectation setting


Current Situation• Housing pricing back to levels before subprime mortgage

boom

• Housing price drops have decreased household wealth by $2 trillion

• Consumer spending to decline due to real estate and mortgage losses

• Stimulus checks used more to pay down consumer debt than to increase consumer spending

• Depreciation expected to continue in many markets in 2009

• Bad news has dampened home sales, but housing demand still exists and will continue to exist

• Homeownership still remains the American Dream!


Breaking NewsJuly 23, 2008: House passes “Housing and Economic Recovery Act of 2008”- Senate vote expected August 1

GSE Reform:• Grants temporary authority for Treasury to invest in and

extend credit to Fannie Mae and Freddie Mac (GSE’s)• Creation of FHFA (Federal Housing Finance Agency)• Adjust conforming loan limits according to annual housing

price index

Mortgage Foreclosure prevention:• “HOPE for Homeowners Act of 2008” – discounted FHA

loans to assist at-risk borrowers in refinancing their homes• Foreclosure protection for service members• Assistance for the purchase of foreclosed properties


How are we doing?

• Amended rates• 2007 69.1% YTD 2008: 66.4% June 73.3%

• Inventory • Avg Days 2007 138 days YTD 2008: 139 days• TDE 2007 19.3% YTD 2008: 21.5%

• Inventory visits• 872 homes inspected in 36 states:

579 sold (66%)• City promotions

– Atlanta 4/5: 49% sold– Detroit 4/27: 76% sold– Phoenix 4/27: 31% sold– Houston 5/18: 36% sold– Baltimore 6/22: 24% sold– Omaha 6/22: 66% sold– St. Louis 6/29: 16% sold– Chicago 6/29: 45 % sold


What are “Point in Time” Policy Enhancements?

Short term policy changes as a result of economic factors– Critical to managing expenses– Beneficial to the employee and the company

Considerations– Corporate culture– Employee impact– Financial impact


“Point in time” Policy Enhancements

Use Relocation Specialists• Cartus Broker Network

– Average savings of $3,963/home (inventory homes)– Average 22 fewer days in inventory

• “On-list” appraisers: variance is on avg. 5% more accurate= $15,000

Institute Marketing Guidelines• Mandatory minimum marketing times- 60 days• Institute list price parameters - bring closer to BMA

• Now recommend: 103% - 105%• Encourage listing below guaranteed offer• Mandatory reductions after 30 days• Offer incentive early

• Buyer • Seller• Fix up allowances

• BVO only• Determine expiration of benefits- recommend 150 days

Shifting markets require specialized expertise



Appraisals

• “On-list” appraisers: variance is 5% more accurate= $15,000• ERC’s standard guidelines / Top 3 appraisers• Appraisals –”Reasonable” vs. “Normal” -“120 days” maximum• Allow for forecasting and market change adjustments

• Foreclosures are valid comparables• Review “out of variance” guidelines

Guaranteed offer

• Manage appeals• Manage offer extensions

Want to be more aggressive?• Make guaranteed offer 95% of AV• 30-day offer period• Link benefits to selling the home i.e. loss on sale



Third-Party Sales

• Negotiate all offers • Accept offers below AV

Other considerations

• Review your loss on sale policy• Ask about short sales early on in the hiring/relocation process


Selling homes faster: Strategies that are working

Controlling Controllable Factors

1. Location 2. Price 3. Condition

Clients that address Price and Condition…get more activity, sell more quickly, and see lower costs.

The days of pricing and waiting to get your price are gone.• Price competitively• Accurate pricing drives sales• Be prepared to reprice every 30 days• Obtain updated BMA• Know local market conditions


Inventory Approval Levels

DOM Cartus Client Contact 1 Client Contact 2

0-60 85% or $40,000

80% or $50,000 75% or $65,000

61-120 80% or $60,000

75% or $70,000 70% or $85,000

121-180 75% or $90,000

70% or $100,000 65% or $115,000

181-365 65% or $115,000

60% or $125,000 55% or $140,000

SampleSelling homes faster: Strategies that are working


Selling homes faster: Strategies that are working

Results YTD 2008

Client 1 Client 2 Client 3 Client 4

102 104

20.55%

20

20.35%

85

Client 5

AvgDOM

104 92 117

AvgTDE

18.32% 19.96% 18.67%

# of homes

13 74 46

Company Averages

Dom 139

TDE 21.5%


Selling homes faster: Strategies we strongly discourageUnsold Performance

Target: 80 DOM and 10% TDE

Client 1 Client 2 Client 3 Client 4

179 393

16.89%

# of homes 3 10 15 25 53

Failing in all categories. Waiting to get a price will result in high TDE and extended DOM.

8.41%

Need to reduce more timely. DOM will drive up costs.

Client 5

Unsold Avg DOM

290 221 136

Unsold Avg TDE

11.35 7.77% 12.10%

Comments Chasing themarket.Extended DOM.

Not reducing timely. Very low TDE with extended DOM.

Need quicker reaction to market conditions. DOM will drive up costs.


A Cost Comparison: Three ScenariosScenario One Scenario Two$500,000 $500,000

$470,000

325

($30,000)

$86,624.66

Acquisition Costs

$2,300 $2,300 $2,300

$118,924.66

$450,000

79

($50,000)

$44,986.30

$97,286.30

Scenario ThreeAppraised Value $500,000

Sale Price $460,000

Days in Inventory

202

Resale Gain/Loss

($40,000)

Estimated Total Direct Costs

$65,805.48

Net Loss $108,105.48


What to Expect ...Prepare for the worst, expect the best• NO indication things are getting better.

• More foreclosure notices• Necessity – set your house apart from the competition• Buyer’s incentives• Agent bonuses coming more into play• 1% mortgage buydown

• Do not underestimate the impact of short sales. • We are just seeing the beginning of this

• Increased competition• Need for a sense of urgency• Could mean…

• Increased spending• More challenging to sell• More creative marketing• More homes in inventory, longer-term• Prepare for higher Total Direct Expenses (TDE)


andand

eLearning 2008 series

Upcoming eLearning series

Year-End Planning

September 42:00 p.m. ET

Thank you!

An archived link of this eLearning and a CRP form will be sent to all participants via E-mail on July 30.

For questions, comments or to request a PDF version of the presentation, please contact: [email protected]

mailto:[email protected]

Documents

RX For Real Estate - Cartus · eLearning Rx for Real Estate2008 series 2008 Real Estate Industry Update-S&P/Case-Shiller Index – Like OFHEO, S&P/Case-Shiller is a repeat sales index