First-time buyer credit may be extended, increased

Bills to extend the maximum $8,000 tax credit for first-time home buyers, which expires Nov. 30, are pending in both the U.S. House and the Senate.

Sen. Christopher J. Dodd, a Connecticut Democrat and chairman of the Senate Banking, Housing, and Urban Affairs Committee, is co-sponsor of a bill with Georgia Republican Sen. Johnny Isakson that would raise the credit amount to a maximum of $15,000.

Senate Majority Leader Harry M. Reid of Nevada favors an extension of the current credit. He was quoted by the Las Vegas Sun saying, "It's something we can get done."

Odds are that the credit will be extended and broadened to cover all buyers next year, but the chances of the amount increasing aren’t as good, observers say.

SOURCE: REALTOR MAGAZINE

Who's buying in this market?

While working in managment of new construction sales offices, my mantra for buying demographics was always "first-timers" and "empty-nesters". Well, buried in an article on shrinking house sizes (and the impending death of McMansions) was a quote from Toll Brothers:

It's also hard to know whether the trend is a the result of a change in attitudes or a change in buyers, according to Kira McCarron, the chief marketing officer for Toll Brothers, an upscale homebuilder...

"The active adult product is taking a bigger share of the market right now," said McCarron, leading to more small homes and dragging the average new home-size data down.

Which is part of the reason I left Toll Brothers in 2005, selling McMansions in San Ramon, to work for condo developers. I knew the coming economic downturn would be weathered better by young professionals who rent, and empty nesters who have 30 years worth of equity built up. They can more easily survive a 25% equity drop, selling their homes which in many cases are already paid off, and moving to urban centers. Looking at sales around the city, a majority of new home buyers are empty nesters and first timers. Add in move-up buyers leaving high-rises for single family homes, and we have a good mix of supply and demand in San Francisco. Our market should continue to be strong as long as this keeps up.

SOURCE: CNN MONEY

New lending guidelines hampering non-default related sales

Anecdotal story from the NY Times that relates to problem #2 on our list of 5 factors holding down the current real estate market, credit availability

Despite a good credit score, a six-figure income and an ample down payment, Dr. Komarovskaya, a recent dental school graduate, could not get a loan. Her mortgage broker told her she ran afoul of new rules requiring two years of sufficient tax returns from some home buyers, instead of only one.

“Everyone says this is a buyer’s market, but they wouldn’t let me buy,” said Dr. Komarovskaya, 30. “It’s not fair.”

Not fair, perhaps, but far from unique, brokers and agents say. The readiness of banks to sell foreclosed properties has led to rising home sales in some areas. But the traditional housing market, the one that involves willing buyers and sellers, is still dead, with transactions lower than they have been for decades.

The recession is the major reason sales are dragging, of course, but it is not the only one. As Dr. Komarovskaya found, buyers once viewed as perfectly qualified are being denied mortgages.

Brokers and bankers say that in past decades, the credit markets would almost certainly have accommodated many of these people.

The unwillingness of lenders to loan money to qualified buyers will keep the brakes on the current market. And this is only problem #2 of 5 which needs to be resolved.

We still have a long way to go...

SOURCE: NY TIMES

Great news re: $8,000 tax credit and FHA loans

The Department of Housing and Urban Development announced plans that allow qualified first-time home buyers using a Federal Housing Administration-insured mortgage to "monetize" an $8,000 tax credit, meaning they can apply the funds to their down payment.
The recently unveiled credit, part of the Obama administration's effort to ease the housing crisis, was to be claimed on tax returns. "Families will now be able to apply their anticipated tax credit toward their home purchase right away," HUD Secretary Shaun Donovan said Friday.

Monetizing the credit effectively means FHA buyers are getting a short-term advance from lenders of up to $8,000 at closing. The money is paid back when the buyer files an amended tax return, receiving the credit.

First-time buyers using FHA-insured mortgages will have to make at least a 3.5 percent down payment on a home purchase. Friday's announcement means FHA-approved lenders may consider the funds as an additional down payment or for other closing costs, which can help lower a borrower's interest rate.

SOURCE: CHICAGO TRIBUNE

Insiders Guide to New Developments

Utilizing my 7+ years of new construction and development experience in consulting, sales and management of sales offices, I've prepared a four part guide to new developments for your benefit. Here's Part I, with subsequent parts coming in the following week:

Part I - Visiting the office

Many people that visit a sales office think they're heading into enemy territory, like a car dealership. In actuality, it's not a scary place where you're going to get bamboozled into the Pinto of condos. There's no way the sales office is going to convince you to buy a half million dollar plus home you don't want, regardless of how good they are as agents. Instead, go in looking at the sales team as the agent for the developer, knowing that they work exclusively for the developer, just like an existing, resale property. Take what they say with a grain of salt, and dig beneath what they say to find the information you need to make an informed decision.

What to expect:

When you first enter the office, they will ask you to fill out a registration form. They will ask for your contact information, some demographic questions, and how you heard about the development (for marketing purposes). Don't feel nervous about filling it out; most agents don't do anything with the information, especially if you say you're not interested at the end of the visit. If you are interested, a good agent will usually follow up and help you when you're ready to buy, and not be pushy about it.

If the building is complete (or nearly), you will probably be taken on a guided tour. If not, they will show you pictures, renderings, floor plans, and potentially a mockup of a model unit in the office.

A good agent will ask questions...lots of them. Don't get offended if the agent asks you what you do for a living, how much you make, or what you like to do in your spare time. The truth is that agents see upwards of 20 groups of people per week; we have a general idea of who is the right buyer for the project based on reoccurring demographics (and yes, income) of A and B prospects. The agent is just cutting to the chase, saving you time, and getting to know you in the process. If you can't get financing, it's best to find out up front before you get excited about a place you can't afford or qualify for a loan. During my years in management at sales offices, I've had my fair share of people say "that's none if your business", or "why does that matter". But I've become good friends with prospects who didn't buy at my buildings because I got to know them pretty well (and quickly).

If you have specific questions in mind, bring them and ask them throughout the tour. If not, don't worry. You'll think of them as you walk. The main thing to focus on is getting to know the vibe of the building and neighborhood.

Do I need an agent?

The short answer is no. If you don't, the sellers agent will act as your agent as well. But the long answer is more complicated.

We'll pick up on that in Part II - Ready to buy.

If you have any specific questions that haven’t been answered here, please feel free to email me at HighRiseSF@gmail.com. Answers to the most relevant questions will be posted in Part IV – Your Questions.

Details on the $8,000 tax credit

The National Association of Realtors estimates that the tax credit will bring an additional 200,000 to 300,000 first-time buyers into the market this year.

The tax credit is equivalent to 10 percent of the purchase price of the home, for a maximum of $8,000. It applies to first-time buyers of principal residences. Unlike an earlier $7,500 tax credit program that was approved last year, the newer tax credit doesn't have to be repaid. The program applies only to homes that are purchased between Jan. 1 and Dec. 31, 2009. Anybody who purchased a home during 2008 doesn't qualify.

The regulations define a first-time buyer as somebody who hasn't owned a principal residence within the last three years. That provision could appeal to thousands of former homeowners who sold because they moved or because of life-changing experiences such as divorce or a death in the family, lenders say.

ARTICLE: BUILDER MAGAZINE

Should renters jump into real estate market now?

WSJ weighs the options available to renters

Reasons to buy:

-Prices will eventually recover. Although no one can predict with certainty when the housing market will reach bottom, over the long run pressures from immigration and the formation of new households (currently around 800,000 a year) will push home prices up. The longer you stay in your home, the more likely you will see equity build up. And most owners do stick around long enough to outlast economic downturns. Government data show that 50.2% of single-family owners stay put for at least a decade.

-Your investment is leveraged. Even though lenders are requiring much greater down payments than they did during the boom, if you are borrowing money to buy your house, your investment is leveraged. In other words, if you put $10,000 in stocks, and it increases 10%, you've made $1,000. But if you put $10,000 down on a $100,000 home, and its value increases 10%, you've made $10,000.

Reasons not to buy:

-It's expensive and hard to move. If you're suddenly out of a job, being able to pack up and move quickly increases your employment prospects. But if you live in a city that's experienced massive layoffs, like Detroit, it may be extremely difficult to find a buyer for your home.

-Your money is tied up. Lenders are now requiring substantial down payments, which cuts back on the amount of money available for alternative investments, as well as the amount of money you have available for emergencies. Not long ago, you could access this money easily through a home equity line of credit, but nervous lenders have been severely restricting these as home prices have plunged.

Read the article for more points on both sides of the debate. ARTICLE: WSJ

Related: HighRiseSF posting - March 26, 2009

78% of first time homebuyers say now is a good time to buy

According to a survey commissioned by Century 21:

The survey found that more than three-quarters (78%) of potential first-time home buyers say that now is a good time to buy a home, despite widespread concern about the economy. Out of the 1,000 prospective U.S. first-time home buyers ... 68% think now is a better time to buy than six months ago.

Prices are the driving motivation for potential first-time home buyers with more than eight out of ten first-time home buyers (85%) saying they consider current home prices affordable and 73% citing that taking advantage of current prices is a major factor in their decision to buy.

Interestingly, potential first-time buyers are still split between “being willing to consider an offer now” (42%) and “waiting for prices to go down before they seriously consider making a purchase” (48%).

ARTICLE: RISMEDIA.COM