First Time Homebuyer Tax Credit Extended Pending Obama’s Signature.

The First time Home Buyer Credit was extended through 2010. We are just waiting for the President to sign it. I still do not know how I feel about it as a whole but it is very good news for my clients!!!!

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Buyer’s Market? Think Twice and Consider the Facts!

The last few years of the market have caused many buyers to get in the mind frame that it is a buyer’s market. That the market needs them and that they are in control. I have had many buyers that do not want to acknowledge the shifts in the market. Traditionally, we would say it is a buyer’s market if there is greater than a 6 month supply in inventory. This is definitely specific to the area that you live in but here in the Sacramento area we are short of six months inventory. What does this mean? It means that we are in a seller’s market people.

Few Things to Consider:

1. Sale to List Price Ratio – This represents the average list price of a home compared to the final sale price. In a buyer’s market we would generally see the sale price well below or below the list price. This would signify saturation of inventory and sellers that have to adjust the expectation based on interest and demand. Currently in certain price points in Sacramento, especially those under 300K we are seeing the final sale price above list price. Why? Banks are listing the properties at prices that are extremely attractive and many buyers are battling for the home. Some homes have as many as 20 offers on the property. This creates an emotional bidding war and the home goes to the highest bidder (with the best financing or apparent financing). The price is then pushed up and the Sale to list price is effected.
2. Days on the Market – Just like Sale to List Price the average time on the market is a good indicator of who is controlling the market. The majority of the sales are selling with less than 90 days on the market. In a buyer’s market the sale time is extended and we see up to 180+ days on the market. The homes that are coming on the market are selling and there would be no reason they would not. Interest Rates are low and with the Tax Credit one would be foolish not to consider buying.
3. Months of Inventory – Late 2007 and early in 2008 we had as much as 11 months of inventory on the market. This is not the case right now. With less than six months of inventory on the market the seller’s are in control. With their ridiculous per diem charges for extended escrows to their choices of southern California Title and Escrow companies. The seller is setting the terms and the standard and with multiple bids they can sort through and pick the cream of the crop. That being said there are a ton of homes that are owned by the banks that they are not releasing to the market. There is enough inventory in the wings, in my humble opinion, to turn the market right back to months of inventory. The banks are holding it back so that they do not drive prices down by over saturation.

Questions I hear from Buyers:

1. The property is listed for 140K. Do you think that I can offer 135K and ask for 5% seller credit? – No! That property will at least go for 140K and many times more. The things that you must take into consideration are the days on the market, whether or not it is seller owned, bank owned or a short sale. This will make a difference and this will change the strategy. Short Sales tend to have less interest because of the time they take but they also have little flexibility in price and credit. Traditional sellers have a number they want and it comes down to a meeting of the minds and the banks are the game that I described above.
2. Can I write offers on several properties and take the one that gets accepted? – This is where I defer to the Real Estate agent. Agents are effective because they build a reputation with other agents. The better the reputation the better the odds that your offer would be accepted. If you are writing offers on properties that you really do not want you are wasting a lot of people’s time.
3. I am approved for 150K and I really like this property. It is listed at 155K do you think I can qualify? In today’s market climate I suggest that if you are qualified for 150K that you start your search in the 130K – 140K range so that you have room to be consider if you are asked for Highest and best. If you are pushing your approval amount you are putting yourself at risk. With the Volatility of the rates I would ask your Loan Officer to make sure that they have padded the rate on the approval to cover any swings. If your approval is a best case rate and your offer is accepted and rates have gone up you may not qualify or feel comfortable with the new cost.

In conclusion, if you are in the market to buy you must understand the climate that you are in and have reasonable expectations. My most recent closing searched for one year for the right home and my most recent contract wrote 40 offers before one was accepted. That does not sound like a buyer’s market to me. The good news is that you are going to buy at a Low Price with a Low Rate or so we hope!

* Much of the information provided is specific to certain price points and in certain geographic locations. Always consult your Real Estate Professional to determine your market conditions as they may vary.  Traditional Sellers may have a different experience and short sales have their own behaviors which we will examine in posts to come with a very Special guest. A local Short Sale Specialist. If the banks begin to dump the inventory that they are holding back we could see another swing. Stay Tuned.

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Tax Credit for Your Down-Payment!

HUD has released information on the ability for First Time Home-buyers to monetize the tax credit. I encourage all buyers that this is a good thing but also encourage you to read further. Below is a link to the information posted on HUD’s Site.  The News Release published on the Hud site gives insight on how this will be done.

“Housing Finance Agencies and certain non-profits will be able to use the tax credit for their down-payments via secondary financing provided by the HFA or non-profit.”

The way that I read this is that corporations like Nehemiah was in the past for seller funded down payment assistance will provide Bridge Financing via a second lien for the down-payment. Upon the filing of the tax return with the IRS your debt will be paid in full with your Credit. If it is not a Non-profit like Nehemiah it may be the Housing Finance Agencies.

I am left with the following questions:

1. How much will the fee be to set up the secondary financing through the non-profits?
2. Who will pay the fee?
3. How will wholesalers factor this into the underwriting decision?
4. What is the actual process from A-Z to make this as seamless for the borrower as we can?
5. “HFA and certain non-profits” lead me to the question, Which ones?

I have several other questions that I hope will be answered in the coming days. If I have questions I am most certain that you do as well. I will work diligently to get the answers for you so that I may make this very simple and easy to understand. Have a great weekend.

California follows Fed with Tax Credit of their own.

See Information below and follow the link for more Information.

CALIFORNIA

The California budget bill just signed into law includes a $10K California state tax credit for all NEW homebuyers who purchase a home between March 1, 2009 and March 2010 (or until the $100 million credit allocation is used up).  The credit is in addition to the Federal tax credit and can be used $3,333 per year in 2009, 2010 and 2011 for ANY new home buyer who stays in the home at least 2 years.  This is not available to the resale market and was not even introduced in the legislation until the final vote (Senator Ashburn from Bakersfield) agreed to vote for the budget package only if the credit were included.  More information is available here: http://www.cbia.org/go/cbia/newsroom/cbia-in-the-news/homebuyer-tax-credit-passed-by-legislature/

 

Hot off the Press Stimulus Package!

The following information has been provided to me from one of our top Wholesalers Franklin American.

Economic Stimulus Plan Benefits the Housing and Mortgage Industries

Revised February 17, 2009

Just signed and sealed…a $787 Billion Stimulus Plan made up of tax cuts and spending programs aims at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II.

Home owners and potential homebuyers stand to gain from key provisions in this stimulus plan. Here is what we know as of today…

Tax Credit for Homebuyers

First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit.  Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.  Buyers will have to repay the credit if they sell their homes within three years.

Additional Housing-Related Provisions

Tax Incentives to Spur Energy Savings and Green Jobs — This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.

Landmark Energy Savings — This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization.  According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.

Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing—This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section to increase energy efficiency, including new insulation, windows, and frames.

Expanding Housing Assistance—This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

More Help for Homeowners in the Future

Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage.

According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.

While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.

 

Tax Credit? Will it Stimulate the Economy or is it a Temporary Fix?

The new version of the Tax Credit has been released and is expected to be signed into law as soon as today. This tax credit will give first time home-buyers up to $8,000 as  credit when they file their taxes. The newest version does not require the credit to be repaid. The first time home-buyer would have to purchase the home prior to December 1st of 2009.  If the buyer sells the home within the first three years they would be required to repay it.

Here are the  list of my concerns:

1) The goal is too give a credit to those who get off the fence and jump into a hurting housing market.  So, we put a time limit on the consumer forcing them to make the largest financial decision some may make before they are truly ready so that they can get free money?

2) The credit is designed to give the consumer money they will turnaround and spend in the struggling retail industry to help Stimulate the Economy.  Like a well designed gift card consumers rarely spend only the amount they are given. So what account pays the overage. A credit card? 0% interest for a year at Home Depot?

3) Once the time-line is over and the government sees that the overall effect was very little and all they did was help to add debt to a debt driven society what will they do extend the time-line. There are several homeowners who will make it in the time that is allotted for the tax credit but there will be several who won’t. Many of those that make it in time will have rushed just for the free money and may put themselves at financial risk (have it now society). Then we will extend the time-line for those that just did not make it so we can capture the others that felt like they missed their opportunity restarting the cycle.

4) If the debt does not have to be repaid then where is the money coming from and who is going to pay for it? There is no telling on this. The money will come from somewhere and the repayment is spending this money in the retail market and acquiring more debt hoping to stabilize companies that are on the verge of bankruptcy. The question is once the money is spent and we return to reality where many are struggling to make it spending will decrease and the companies will return quickly to where they were.

Overall, I like that there are plans out there to help jump-start our economy. As a Mortgage Broker I am excited that my home-buyers may have funds to reestablish reserves post purchase. If that is where they place the funds and they do not spend them in the retail market then the plan is a failure? If they save the funds then we gave them free money to sit on. This would not accomplish the goal but would be wise for the buyer. The Tax Credit reminds me of a heart being restarted by a defibrillator. The heart is jump-started back into action but only temporarily if the actual problem is not found and treated. The Stimulus Bill is a temporary fix or a delay while we dig for a cure. If the liver is the problem we can jump-start the heart all we want but in the end when the liver fails our body shuts down. In the end we are providing a stimulus package that is leading to impulse purchase, rush decisions and poor fiscal responsibility. Sound Familiar. Isn’t that what got us where we are at?

Solution: Come back for the next blog entry on the solution. Why teaching fiscal responsibility is a bad thing for the economy!