As foreclosed for sale prices pushed down the prices of all types of homes, the rent or buy decision is again becoming the focus of discussions among individuals, couples and families.

A study conducted by the National Low Income Housing Coalition and the Center for Economic and Policy Research focused on the relationship between home price and rent in several housing markets and on the possibility of gaining home equity in the next 5 years.

The study found that 14 of 27 housing markets that had inflated home prices in April 2008 are now experiencing a decrease of price-to-rent ratios to 18-to-1.

Historically, the price-to-rent ratio averaged 15 to one, which means that it would take a total of $150,000 to purchase a home that would rent for a total of $10,000 a year. During the housing boom, the ratio rose to 25-to-1 in over-inflated markets.

In markets most battered by foreclosures and which now have the highest affordability levels, the price-to-rent ratio dropped significantly, such as in Las Vegas, where the home price-rent ratio dropped in April to 12.5-to-1, compared to the 19-to-one ratio in April 2008.

In the California Inland Empire area, the price-rent ratio has fallen to 13.7-to-1, compared to the 20-to-1 in April 2008.

In markets where the house price-to-rent ratios are still high, decreases in the ratio are also being experienced. In Los Angeles, the house price-to-rent ratio dropped in April to 21.5-to-1 compared to 28-to-1 in April 2008. In San Jose, the price-rent ratio dropped to 29.4-to-1, compared to 35-to-1 in April 2008.

The study also looked at the possible home equity levels of homeowners in the next years until 2013. The researchers said that most houses purchased this year in 21 housing markets would not have positive equity by 2013 because typically first-time home buyers would begin accruing home equity only after the purchase and sale costs are already paid.

According to the study, the cities with strong possibilities of future losses in house values are Seattle, San Francisco and Bridgeport in Connecticut. The three cities expected to have bigger home equity declines this year than in 2008 are Washington, D.C., Providence in Rhode Island and Worcester, Massachusetts.

On the whole, the study by the two organizations concluded that home buying continues to be more affordable than renting in most markets. It also concluded that it would take more than 5 years before buyers in 21 housing markets can begin to accumulate positive home equity.

Because of the sharp declines in home prices across the country, many underwater borrowers are thinking of letting their homes go into foreclosure and just buy another one.

With many nearby houses being sold below $50,000 and with home values declining steeply by as much as 40 percent, more and more borrowers are being tempted to just walk away from their homes.

Las Vegas homeowner Robert Bitterman said he has done a lot of improvements on the home he purchased five years ago. But today, his house is only worth $75,000, a drop of $100,000 from the amount he paid in 2004.

Bitterman said he has considered buying a cheaper home and then walking away from his current mortgage loan. He added that there are a lot of much cheaper homes near his house.

He also recognized that a foreclosure will hurt his credit score, but he reasoned out that his credit score will not matter if he will not buy anything major within six to eight years.

The thought of buying a much cheaper home and then walking away from a house that has lost its value has been in the minds of many homeowners struggling to make their monthly loan payments.

Executives in the mortgage sector however are warning underwater homeowners about their plans of buying and then bailing out.

According to Jeremy Moskowitz of Lakeside Mortgage, borrowers should think about the consequences of such actions because it might cause great regret later on.

Moskowitz said the lender could pursue legal actions to collect what it loses from foreclosure. The possibility of being hit with a lawsuit would stay in one’s mind, causing stress and anxiety. Borrowers pursued with lawsuits can be forced to go into bankruptcy.

Analysts also said that if more homeowners decide to buy and bail out, more foreclosures will enter the housing market, pushing down the market further down and reversing the little recovery that the market has so far achieved.

Nonetheless, Bitterman said he is not yet decided on ditching his house, but if home values fall further and make his home worthless, he has no other option than to ditch. He even reasoned out that he did not do anything wrong except buy a house during the housing boom.

Lastly, Moskowitz also said that banks know there are a lot of homeowners thinking of buying and bailing out, so they are screening tightly applications for second or third mortgages.

The nation’s economy will start to recover from the effects of foreclosed home list inventories in the next several months of 2009, according to a survey of 45 economists who are members of the National Association for Business Economics.

The economists described the recovery as moderate, which is typical after a severe economic downturn and overwhelming volumes of foreclosed home list inventories. They expect the recession to go away in the next several months.

Chris Varvares, president of NABE, said many economists are expecting economic growth in the next several months because of a slowdown in job cuts. They also see a growth in employment in 2010.

Nearly 3 out of 4 economists interviewed said they expect the recession to end by September. But 19 percent contended that a turnaround will only start by the last months of the year and 7 percent said recovery will start in the early months of next year.

None of the economists interviewed believed that the recession will continue beyond March next year.

The NABE report also predicted a 1.8-percent decrease in GDP in this year’s second quarter, a decline of 3.7 percent from last year’s second quarter, the biggest decline since the 1957-1958 drop.
The economists have predicted a real GDP growth of 1.2 percent in this year’s second half.

In terms of jobs, the economists predicted a 4.5-million total job loss in 2009, pushing up the jobless rate to 9.8 percent. They said that the jobless rate will drop to 9.3 percent by the end of 2009.

About 72 percent of NABE panelists expect sales of new homes, existing homes and foreclosed home list properties to bottom out in the next few months. Over 60 percent said home starts would also reach their bottom levels in the same period.

The economists are split concerning the bottoming out of home prices. Thirty percent said it would occur by September, another 30 percent said by December and the remaining 40 percent said price declines would continue into next year. The median forecast is that housing prices would increase by 1 percent in 2010.

Consumer spending declined due to job losses and reduced income. The economists said many consumers became thrifty because of fears of unemployment and the continued rise in foreclosed home list inventories.

Additionally, over 70 percent of the economists interviewed said that the frugal behavior of consumers will last during the next 5 years because of the pain they suffered from the effects of foreclosed home list inventories.

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In an effort to reduce the number of foreclosure filings in the state, North Carolina Governor Mike Easley signed into law three bills that will give homeowners a chance to win their struggles with foreclosure.

The first bill established the North Carolina Foreclosure Prevention Project, a program under which homeowners as well as the bank commissioner of the state will enjoy a 45-day notice before the foreclosure filing. In addition, the bank commissioner can extend the said notice by another 30 days if the case warrants.

During such time, the state will assist in the negotiations between the lender and the homeowner until a new payment arrangement and mortgage interest rate have been established. The said legislation will be able to provide help to over 25,000 homeowners.

The other bill tackled the issue of yield spread premiums, which it permanently eliminates after critics considered it as an incentive for mortgage brokers to charge borrowers with higher fees. The last bill requires all loan servicers in the state to register and submit reports to the bank commissioner.

All these new legislation will certainly help fight the spreading problems brought about by the foreclosure crisis. Considering that one of the reasons for the present mortgage mess in predatory lending practices, it will help that loan servicers are being monitored and regulated. Aside from this, many homeowners will benefit from the assistance since majority of them are not aware of the foreclosure process and can not make informed decisions because of this.

With the North Carolina state government extending its hand to these struggling homeowners, many families will be able to stay in their homes.

Across the nation, similar bills are being proposed and signed into law even after the federal government has passed legislation last month that will provide mortgage relief to as many as 500,000 homeowners.

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Following up on potential buyers, contrary to what many people believe, should not only be done when a potential buyer says “Goodbye” after checking out the foreclosure property you are selling. You should know that the follow up process actually starts as soon as potential buyers walk thru the front door.

If you are serious about selling your foreclosed property, you must understand the importance of following up on your potential buyers especially with the tough market. You should consider participating in the entire sale process and not merely act as a sales person.

In order to accomplish this kind of following up, you should first make sure that you have connected with the buyer and trust between you is established. You can do this by probing what the buyer needs, prefers and likes. Understanding these things will give you a better idea of what is important for the buyer and give you some maneuvering room.

Potential buyers will certainly remember you when it comes to decision making time especially if the visit was a pleasant one. You should try very hard to be straightforward and honest with your answers and elaborate as much as you can, without being long-winded and repetitive. If you want, you can prepare for these visits beforehand so you will not aimlessly ramble on about the property.

After the initial meeting, you will be surprised with how these potential buyers will treat you when you do the “regular” follow up. On the other hand, if you fail to establish a bond between you and the buyers, you should not be surprised if your letters, emails and calls are ignored.

As a seller, you must try to understand that buyers have the upper hand right now and the only way one can close a sale is by being involved.

Market conditions dictate who will have the upper hand. Right now, buyers have all the advantage. With the large inventory of homes for sale, declining home prices and sluggish home sales, you can expect buyers to have the leverage.

Homeowners, especially those who are hoping to sell their homes during the pre-foreclosure stage, should come up with creative ways to attract the attention of potential buyers. But attracting them is not enough. They must be able to agree to pay your asking price, or an amount that is closer to it. In order to accomplish this feat, you should consider the following:

• Offer to Re-decorate: you can always volunteer to have that rec room finished by the time the buyers move in. Or you can save them the trouble by offering to renovate the kitchen, paint the property and install new carpet. All these will certainly make the buyer consider paying your asking price without any hesitations since upgrade and remodeling expenses can be quite costly for them.
• Free Vacation: just like many home builders, offering incentives such as a Caribbean cruise will certainly do the trick. Of course, it does not have this expensive. You can offer airline tickets, amazing spa weekends and some other irresistible freebies.
• One Year HOA Fees: for buyers who are a bit practical, you can choose to offer to pay the association fees for a year.
• Shoulder Closing Costs: this is usually preferred by most sellers. although it is not as creative as the other incentives, you can bet that it will still entice buyers to take the plunge without asking further discounts.

Naturally, you must consider the cost of these incentives before making the offer. But since most buyers are cash-poor, they might find it hard to resist these great offers.

Any consumer advocate will tell you that haggling is something usually encouraged. Some consumers feel like they are forcing the seller to negotiate, but this is not the case. Keep in mind that sellers usually have a wiggle room whenever they put a price tag on their products.

In the same way, buyers of foreclosure properties should understand that there is still room for negotiation even if the asking price has been set. Luckily for you, current market conditions are favoring buyers and sellers are usually more open to negotiations.

When negotiating the sale price, do remember the following:

• Time is On Your Side – since homeowners of properties facing foreclosure, you should realize that time of the essence. Make an offer that the seller can not refuse and make sure that you do so at the right time. In most instances, the seller will likely accept your offer in order to avoid foreclosure.
• Go Straight to the Seller – if you are negotiating with a foreclosure broker, you can always try to ask to speak directly to the seller in order to speed up the sales transaction.
• Determine the Seller’s Needs – if the seller is selling the property in order to enjoy whatever equity is left on the property, you should consider this when making an offer. You will probably understand why the seller would not want to accept your bid. On the other hand, sellers in pre-foreclosure would probably accept the first offer to come their way in an effort to stop foreclosure.
• Get Pre-Approved – sine there are also buyers on the lookout for foreclosure bargains, you must make sure that you have the advantage by getting pre-approved for a mortgage loan. At the same time, you will also be ready to make a real offer, knowing how much money you will be working with.