Boise Real Estate Blog

Quiet Before the Storm.....?

 

Via Jeff Geoghan MBA - Lancaster PA Real Estate Expert (The Jeff Geoghan Realty Group, Coldwell Banker Lancaster PA):

This is one of those posts where I wish I didn't have to write it, but felt it was so important to my readers that I would be remiss not to at least talk about it.

Everyone out there probably knows somebody who is behind on their mortgage payments, looking for alternatives and likely also just finding out that their home's value has dipped below what their loan amount is. I know some within my own personal circles. It's a tough situation for me to advise them as a professional because it's such a personal challenge to their pride and self-worth, not to mention their plans and dreams for the family. The question we're asking is "when is this going to stop and where are we heading?"

I'm going to put up a few graphs that show the trends nationally with regards to mortgage delinquincies:

This chart is by quarter - Single-family mortgages set a new record delinquency rate in the second quarter of 2009, according to a quarterly survey by the Mortgage Bankers Association. Those of us in the real estate business see the foreclosure process (just visit the local Sheriff Sale docket to see the current numbers) but the looming delinqency-to-foreclosure issue is far, far larger.

The Wall Street Journal on 8/3/09 reported the following quote: “While subprime mortgages sparked the first round of housing problems two years ago, now "troubles are lurking further up the food chain," says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. ‘You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,’ he says.”

The first objection someone may have would be to say "yes, but historically those who are delinqent usually get their act together and come current on the mortgage after a while". That WAS true, but not anymore! We call that the "Cure Rate", that is the rate of delinquencies that go back to current. The Wall Street Journal reported on 8/24/09 about a Fitch analysis that found that the Cure Rate from 2000-2006 was 45% (which means about half of people fix their delinquency). However, as of July 2009 the rate had dropped to just 6.6%! That means that over 90% of delinquent customers are going to foreclosure. Take a look again at the above chart...

The next thing someone will say is "well, that's the 'sand states' and not my area". Here's the chart for all 50 states showing the same breakdown of delinquencies and foreclosures. Guess what - most states have a significant problem, especially compared to historical figures.

Now the next thing someone may say is "aren't those loans going to get 'fixed' by a loan modification?" I know several people right now who are applying for a Lancaster County loan modification but are waiting and waiting. I hope it works out for them...

In reality, loan modifications are hardly making a dent. To me, that's a burning question. Why arent banks being more aggressive in giving customers the option to extend their loan and/or reset to a lower rate? Why are they being SO difficult? The people I know don't want to be foreclosed. They CAN make payments. They just need the terms redrawn to allow them to catch & keep up. Loan modifications are not helping us get this crisis under control.

What are the causes of all these delinquencies? Here's a chart that is enlightening:

We hear a lot about adjustable rate mortgages being the culprit, but the reality is that it's the loss of jobs and the tanking real estate market that's the perfect storm. See my previous post on unemployment in the nation, the state and Lancaster County.

Keep in mind, this post is not intended to give us "good news". You may be experiencing good things in your market and that's great. My intent is to get us thinking about the challenges that aren't going away and how we're going to address them as homeowners, agents and professionals. I'd love to hear your ideas!

Act fast! Homebuyer tax credit ends soon!!

There's barely three months left before the $8,000 tax credit for first-time buyers ends -- and it can take that long to close on your new home.

NEW YORK (CNNMoney.com) -- Use any metaphor you want: the ticking clock, sands running through the hourglass or pages falling away from the calendar. The fact is, time is running out to claim the $8,000 first-time homebuyers tax credit.

Passed earlier this year as part of the economic stimulus package, the credit is good for up to $8,000, or 10% of the purchase price, and applies to people who have not owned a home in the previous three years. (There are some income restrictions.) The best part: Unlike a similar program from 2008, the credit does not have to be repaid.

The bad part: It ends on Dec. 1.

Because it usually takes around 90 days to close on a house after a contract is signed, buyers have very little time left to act. As of Thurs., Aug. 27, there were only 96 days left before the credit ends.

"Buyers have to get a home under contract very, very soon," said Tom Kunz, CEO of Century 21. "They probably should get out looking."

Sense of urgency

What they will find may surprise them: Many of the prime properties have already been snapped up. Home sales have been on the upswing, and inventories are so depleted in hot markets that first-time buyers are struggling to find homes in their price range. (Check prices in your city.)

In Whittier, Calif., for example, there are few repossessed homes for sale. Those are easy to buy because there isn't a lot of red tape and the bank wants to get rid of them as quickly as possible. Instead, most of the properties are short sales, where the sellers have to convince their lender to let them sell the house for less than they owe.

"That's why there's such a sense of urgency now," said Irma Tapper, a Century 21 real estate agent in Whittier. "The banks have to approve short sales, and they're taking three to six months to do that."

That means a first timer putting a bid on a short-sale might not get an answer form the bank until well after the Dec. 1 deadline for the tax credit. So when an actual repossession listing hits the markets, it creates a feeding frenzy.

Chuck Whitehead, who runs the Coldwell Banker agency in Temecula, Calif., said one recent listing hit the market on a Friday and by Monday there were 57 bids.

The National Association of Realtors attributes much of this activity to the first-time buyer tax credit. It estimates that 1.8 million buyers will file for the credit, and 350,000 of them wouldn't have been able to buy without it.

"It makes a big difference because most of these clients are in a lower price range," said Michelle Edmunds, an agent with Coldwell Banker in Temecula, Calf., who has closed sales for six first-time buyers. "The houses they buy need work and normally they wouldn't want to move in because of the [less than perfect] conditions the homes are in."

That is true for Wesley Forsythe. This June, the 30-year-old computer consultant and his girlfriend bought a row house in the Fishtown section of Philadelphia. Since he paid just $80,000 for the three-bedroom, two-bath place, the credit acted like a 10% discount.

"It allowed us to expand our price range and plan additional renovations," he said. "My mortgage is several hundred dollars less than what my new rent would have been."

Forsythe applied for the credit immediately after closing, filing an amended 2008 tax return. The IRS cut him a check in less than seven weeks. He's spending it now on new hardwood floors, repainting most of the interior and renovating a bathroom. He's stretching the cash by doing much of the work himself.

The effort has drawn strong industry support.

"We need to stimulate the move-up buyer," said Century 21's Kunz, "so it works its way up the pricing food chain. That's what we need to get inventory moving again." 

By Les Christie, CNNMoney.com staff writer    Last Updated: August 27, 2009: 3:38 PM ET

First Published: August 27, 2009: 2:46 PM ET

 

Click For Full Story

Tips for Parents Buying Homes for Children

With home prices low, now could be a good time for parents to give their children a home or even an investment property.

Here are some suggestions for managing the tax consequences from Mark Luscombe, tax analyst with Wolters Kluwer.

• Give a cash gift. Individuals are allowed to gift up to $13,000 per person in a given year without incurring gift tax. That means a couple could give their offspring and spouse $52,000 in a single year to go toward a down payment.

• Lend money. The government requires that family members meet or exceed minimum loan rates to avoid having the loan be considered a gift. The rates are currently low. One way to handle this is for parent to use the $52,000 gift exclusion to forgive both interest and principal.

• Use a trust. Set up a qualified personal residence trust, or QPRT. You’ll need an attorney to handle this transaction, but in a nutshell, parents put the home they want to give their children into a trust. At the end of a pre-set term, the home passes to the children with no taxes due.

Source: The Wall Street Journal, Shelly Banjo (06/25/2009)

Green Shoots? What's that?

Green Shoots

For those of you who watched the Fed Chairman on 60 minutes you already know about the “Green Shoots.”  Bernanke talked about the signs of the economy reviving in terms of those shoots.  He said that the banks are beginning to loan again and that the Fed is in the process of buying some of the “toxic assets” that the banks own now to free up even more capital to lend money.  Because inflation is low, he is of the opinion that the Stimulus is working.  His warning though, is that when the economy starts to ramp up that the Fed will raise interest rates to control inflation and keep the economy from over heating. 

Now is the time to buy real estate, while rates are still low.  Higher rates are inevitable, and real estate prices will rise when the inventory is in line with demand.  Inventory levels have dropped for the last two month, and mortgage interest rates have been creeping up already.  If you’re thinking of a move, or if you are a first time home buyer, don’t delay any longer.  There has never been a better time to buy a new home and the circumstances of this opportunity may not return in our life time.

 

Dan Frison - 208-472-8600 - dan@IdahoAdvantage.com

Pending Home Sales Rise, Housing Affordability Near Record

Washington, May 04, 2009

Pending home sales rose with many first-time buyers taking advantage of historically good housing affordability conditions, according to the National Association of Realtors^®.

The Pending Home Sales Index,¹ a forward-looking indicator based on contracts signed in March, increased 3.2 percent to 84.6 from a level of 82.0 in February, and is 1.1 percent higher than March 2008 when it was 83.7.

Lawrence Yun, NAR chief economist, said it should take a few months for the market to gain momentum. “This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a downpayment,” he said. “We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around.” (press release text continues below)

NAR’s Housing Affordability Index² remained near record highs. The affordability index was 166.7 in March – down from an upwardly revised record of 174.4 in February due to higher home prices in March. The index remains 30.8 percentage points higher than a year ago. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.

The Pending Home Sales Index in the South rose 8.5 percent to 93.2 in March and is 7.7 percent above a year ago. In the West the index increased 3.9 percent to 93.1 and is 1.7 percent higher than March 2008. The index in the Northeast fell 5.7 percent to 59.5 in March and is 24.1 percent below a year ago. In the Midwest the index slipped 1.0 percent to 82.3 but is 8.2 percent higher than March 2008.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the increase in buying power is quite remarkable. “Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment,” he said. “For buyers who’ve been on the sidelines and have good jobs, the market has never looked more favorable. Homeownership has always offered immediate benefits and long-term value, but the advantages in today’s market are unique.”

A median-income family, earning $61,100, could afford a home costing $291,600 in March with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of that amount. The affordable price was notably higher than the median existing single-family home price in March, which was $174,900.

The National Association of Realtors^®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

Walt Molony 202-383-1177 wmolony@realtors.org - National Association Realtors

KW Commercial has launched!

Keller Williams Commercial

We now can service all of your Commercial Real Estate needs.  Keller Williams International has launched its commercial division nation wide.  Locally we have assembled a team of some of the Treasure Valley’s top agents to serve you in all disciplines of commercial property transactions.  Industrial, Office, Retail Services, Non-Profit and Municipal Services, Design, Construction and Development Management, Land Brokerage and Multi-Family are all areas our office can handle for you.  If you have a need for a commercial broker or have a friend or family member that need assistance with any of these commercial real estate disciplines give us call at 472-8600.

How about those Interest Rates?

Interest Rates

They have been bumping up lately.  We have seen a couple of days where rates made it down to 4.5%, but haven’t been able to get any traction and bump up quickly.  With the volatility of the stock market bonds are not as reliable as a barometer of rates as it has in the past.  Until the market and the general public begins to understand how the Stimulus package will affect the economy in general, rates will continue to bounce around.  Inflation has fallen from a high in July of 2008 at 5.6% to a little over 1.2% at the end of the year and is predicted to stay below 2.2% for 2009.

 

While preparing for a presentation made a short time ago, we discovered that the world money supply, that’s the total money supply, grew from $36 trillion in 2000 to $72 trillion in 2008.  With money being printed at that rate, it is difficult to believe that sustained low inflation rates can continue and that usually drives up interest rates.  We are near the bottom of pricing in the housing market.  With low rates, high inventory levels and prices at an 8 year low, now is the time to make your move, and if you are a first time home buyer you get an extra bonus of an $8,000.00 tax credit.  Call us today to see if you qualify.

Call Dan Frison 208-866-7600 or Email: Dan@IdahoAdvantage.com

 

1st time purchasers get a $8K tax credit windfall - Buy before December 2009!

NEW YORK (CNNMoney.com) -- There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.

A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:

"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"

The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:

Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.

Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.

Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.

To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)

Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.

Lukewarm reception

The housing industry is somewhat pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July and was more of a low-interest loan than an actual credit. But the industry was also disappointed that Congress did not go even further and adopt the Senate's proposal of a $15,000 non-refundable credit for all homebuyers.

"[The Senate version] would have done a lot more to turn around the housing market," said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). "We have a lot of reports of people who would be coming off the fence because of it."

Even so, the $8,000 credit will bring an additional 300,000 new homebuyers into the market, according to estimates by Lawrence Yun, chief economist for the National Association of Realtors.

The credit could also create a domino effect, he said, because each first-time homebuyer sale will lead to two more trade-up transactions down the line. "I think there are many homeowners who would be trading-up but they have had no buyers for their own homes," Yun said.

Who won't benefit, according to Mark Goldman, a real estate lecturer at San Diego State University, are those first-time homebuyers struggling to come up with down payments. The credit does not help get them over that hurdle - they still have to close the sale before claiming the bonus.

One state, Missouri, is trying to get around that problem by creating a short-term loan on the tax credit of up to $6,750. The state would loan borrowers the money so they could use it at closing as part of the downpayment. Then, when the buyers receive their tax credit from the IRS, they pay back the state. Other states may follow with similar programs, according to NAHB's Dietz.

Many may look at the tax credit as a discount on the home price, according to Yun. A $100,000 purchase effectively becomes a $92,000 one. That can reassure buyers apprehensive about purchasing and then watching prices continue falling, he added.

And it provides a nice nest egg for the often-difficult early years of homeownership, when unexpected repairs and expenses often crop up. Recipients could also use the money to buy new stuff for their home - a lawnmower, a rug, a sofa - and, in that way, help stimulate the economy.

By Les Christie, CNNMoney.com staff writer

Last Updated: February 17, 2009: 12:13 PM ET

1st time Home buyers have a WIN!!

$8,000 Home Buyer Tax Credit at a Glance

• The tax credit is for first-time home buyers only.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
• http://www.federalhousingtaxcredit.com/2009/glance.php

Top 10 Predictions of 2008

Every month I receive a newsletter from the Idaho State Department of Finance. The last issue gave their top 10 predictions for 2008. I always find their predictions interesting. They aren’t always correct, but always worth the read.

1. They are predicting that the US economic growth will slow to 1.7% in 2008, which will be its weakest showing for the next few years. The saving grace will be exports because of the weak dollar.

2. Most of the European countries will suffer the same slowdown that the US will feel. Even with a stronger currency, they will also suffer from a credit crunch and the higher cost of oil. The pacific-rim countries will suffer from some of the same housing related problems and their economic growth will be offset by strong oil prices.

3. China will continue on its economic tear though the Olympics. Credit growth is getting a little out of hand however and the prediction is that they will tighten credit once the Olympics are over.

4. Some time during 2008, oil prices should fall to $75-$80 dollars a barrel because of the world wide slow down in economies. However, any disruption in production could send prices back up.

5. US Core inflation will edge down word. With our economy operating a well below its potential, we will see an increase in the unemployment rate, this will put downward pressure on core inflation.

6. Expect the Fed to continue to cut interest rates. The Central Bank lowered the federal funds rate by 25 basis points on Dec. 11th, and they are expected to lower it again by 50 basis points in January followed by another 25 basis points in March. If the housing crunch gets any worse, the Federal Reserve will need to inject more liquidity into the financial system, (Money), and support the subprime mortgage relief.

7. Good news, the housing sector will bottom out in mid-2008. Bad news, nationally prices will continue to fall at least through 2009 by an additional 10 %. (These figures come from the Office of Federal Housing Enterprise Oversight. My personal opinion is we can’t judge local markets by national numbers.)

8. Our economy will be slower than the rest of the rest of the world and with a weak dollar exports will be supercharged. Our balance of trade deficit will drop dramatically and this positive trade contribution will prevent the US economy from slipping into a recession.

9. The Department thinks the dollar will hit bottom against some foreign currencies in 2008. It has been sliding since 2002 and recent weakness is a function of the sub prime crisis and the possibility of a US recession. If recession fears ebb, the dollar should begin to recover by the middle of 2008, however Japanese and Chinese currencies will continue to appreciate because of huge trade deficits.

10. Our economy is still very vulnerable because of housing/subprime crisis and higher oil prices. If oil prices fall to the $75-$80 per barrel range the US should not go into a recession. If prices go up or some other shock to the economy occurs, it could cause the economy to retreat.

All predictions are from Idaho Division of Financial Management’s December Newsletter Volume XXX No. 6