By Laura Geggel
Short sales rise as home prices drop and sales slow
The Cascade Team Real Estate agent Diego Vitelli (left) stands next to client Mike Singer at Singer’s old Snoqualmie Ridge home. With Vitelli’s help, Singer sold the house and is now renting another house on the Ridge. (Photo by Laura Geggel)
Mike Singer and his family moved from Ohio to Snoqualmie Ridge in October 2008 and found themselves moving merely a year later in November 2009.
“We had to sell our house because I lost my job,” said Singer, who had worked in insurance sales. “Having to move after just one year — it was very stressful.”
Like many homeowners on the Ridge, Singer bought his house during the national housing bubble between 2003 and 2006, but the falling economy forced him to downgrade when he could no longer meet his monthly mortgage payments.
“We realized pretty quick that we were going to have to go the short sale route,” Singer said.
A short sale is when homeowners sell a home for less than they paid for it. In return, the bank agrees to accept less than what than what it is owed, said Cary Porter, manager broker and owner of Cascade Team Real Estate.
Short sales can affect credit scores for at least one year, but a foreclosure can affect credit for at least seven years.
People who do short sales are often late in making their mortgage payments, Porter said. The homeowner must submit a short sale package to the bank, which includes a letter of hardship explaining their situation and financial statements. If the bank approves it, the homeowner must wait for a buyer, whom the bank must also approve.
About 21 percent of the time, the bank will forgive and not file judgment after a short sale, Porter said. Instead, the bank can use it as a tax write-off.
The other 79 percent of the time, the bank can wait up to seven years before filing a deficiency judgment, asking that the homeowner repay the difference.
In the bubble’s heyday, Snoqualmie Ridge’s real estate market was booming. Houses on the Ridge were less expensive than in Bellevue or Issaquah. But, as more people chose to live on the Ridge, prices increased, catching up with those other areas.
In 2007, almost no one had heard of a short sale. “It was almost nonexistent,” Porter said.
The Cascade Team Real Estate agents saw 35 short sells in 2008 and 112 in 2009 in their Eastside coverage areas.
When Singer realized he could no longer afford his house, he called The Cascade Team Real Estate and, in a coincidental twist, learned his neighbor Diego Vitelli would be his real estate agent.
“The 2005 to 2007 period was really just gangbusters,” Vitelli said. “You could sell a house in hours if not days.”
On the Eastside, 13,845 houses were sold in 2005, while only 5,880 were sold in 2009, according to data RE/MAX Integrity Associate Broker George Isaacs collected. Inversely, in King County, 88,135 houses were listed for sale in 2005 and 151,306 houses were listed for sale in 2009, meaning there was a glut of houses on the market.
Working together, Vitelli and Singer got an offer in four months and closed after three months.
Vitelli also helped Singer find a rental house on the Ridge so his children could stay at the same school.
“The house is so close by,” Singer said. “(The Cascade Team) brought the stress down dramatically because the kids can still see their friends.”
Singer was lucky. Sometimes, banks can take months to approve a short sale transaction, causing potential buyers to walk if the deal does not close fast enough, Isaacs said. New federal guidelines could shorten that wait to 10 days, but some real estate agents are skeptical as to whether that guidelines will be enforced, Isaacs said.
Houses stay on market longer
Buyers find a more favorable market when prices drop and houses stay on the market for longer periods of time. From 2003 to 2006, an average Ridge house for sale stayed on the market for 46 days, Porter said. In 2007, the average increased to 100 days.
“As 2008 hit, our average days almost every time was over 100 days,” Porter said.
In 2009, the average was about 150 days on the market, he said.
Now that prices are down again, the Ridge may be one of the first places to recover from the housing crisis by attracting more buyers, he said.
A buyer’s market
With lower house prices, the federal tax credit and low interest rates, the stars have aligned for many a homebuyer.
For those who can afford it, “Things are selling like crazy,” Porter said. “Prices are down dramatically. People are realizing, ‘wow, if we’re not at the bottom, we’re really close.’”
Median sales prices on Snoqualmie Ridge are back to average 2006 levels, Isaacs said.
To help spur the housing market, the federal government is offering a tax credit of up to $8,000 for first-time homebuyers and a tax-credit of up to $6,500 for some repeat homebuyers, as long as they buy before Apr. 30.
Quadrant Homes, which built about 50 percent of the houses on the Ridge, is matching the government’s tax credit for the same time period, according to its Web site.
In another boost for homebuyers, interest rates for mortgages have fallen to around 5percent. The rate had been between 6 percent and 7 percent since 2001.
Cascade Valley Mortgage Branch Manager and Loan Originator Jeff Rafuse did some quick math to show the difference a low interest rate could make.
A homeowner who applies for a $300,000 loan at 5 percent will pay $1,610 per month, while a homeowner who has a loan at 6 percent will pay $1,798 per month.
“That $188.18 monthly difference is $67,744.80 over 30 years,” Rafuse said. “Also, that 6 percent rate, instead of 5 percent, could reduce a homebuyers buying power by over $31,000.”
Many analysts predict the buyers’ market may soon fade into the sunset as the tax credits expire and if rates rise in 2010.
Meanwhile, many people like Singer are renting until their credit recovers and they can afford another house. “We’ll stay there until we get back on our feet and soon will be looking to purchase a house in the next 3 to 4 years,” Singer said.
Laura Geggel: 392-6434 ext. 221 or lgeggel@snovalleystar.com.
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