SubscribeTax Credit Extended, Markets Further Stabilizing and Real Estate Ideal Hedge
November 11, 2009
Tax Credit and Conforming/FHA Loan Limit Extended
Made official on Friday, the tax credit for home purchases was extended through July 1, 2010 and the important details are exactly as they were in my post on Friday the 30th of October, which was summarized as follows:
· Effective on binding real estate contracts from December 1, 2009 through April 30, 2010, The tax credit would be $8,000 for first time home buyers and $6,500 for move-up buyers who have owned their current home for at least five years
· The tax credit expires on April 30, 2010; however, if a binding contract is reached by April 30, 2010, buyers have an additional 60 days to close the deal and still be eligible for the tax credit
· For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return
· The income limits for both first time home buyers and move-up buyers would be $125,000 for single return and $225,000 joint return.
· Cost of the home may not exceed $800,000 to be eligible.
Remember that a tax credit has about THREE TIMES the impact of a tax deduction, which allows someone earning $125,000 per year to be taxed on about $102,000*. And since other items like interest and property taxes are also deductible*, that same individual may be looking at less than half of their earnings being fully taxable..!*
Add the above news to the fact HUD also extended the conforming loan limit of $729,750 in the Bay Area to December 31, 2010, and you have a “perfect storm” for every qualified first-time buyer in the Bay Area.
S&P Case-Shiller Confirming Further Improvement of Housing Prices
Released last week, the S&P Case-Shiller index confirms that housing prices continue to improve, especially in areas like San Francisco where the index moved another 2.8% in August to 132.47. This marks the seventh straight month of improvement.
Zillow also reported that their index reflected further stabilization for the third quarter, with over 26% of the metropolitan statistical areas showing signs of improvement.
Real Estate as an Ideal Hedge to Both the “W” Concern and Inflation
You may recall from my last post that we are seeing far more application activity for purchases in the $1mm+ range, especially the $1.5mm to $4mm range. These applications have been coming from our more financially-minded clients, as they not only see tremendous opportunity to obtain a more valuable home, but they are very concerned about a “W”-shaped economic recovery and subsequent inflation. As such, obtaining an upgraded home for less, cheap financing and hedging against inflation make buying a larger home an ideal move. All things being relative, the reality is that the S&P 500 currently has a rather high price-to-earnings ratio at about 19.52 versus the historical average of 15.7. As such, if we were in average economic circumstances, it’s arguable that the stock market is overvalued by about 25%. Given the fact that our current economy is FAR from being in average condition, it’s anyone’s guess just how overvalued the stock market is. All I know is that my savviest, financially-minded clients think that the stock market is due a correction and that real estate is a great asset to have as a hedge against both a market correction and inevitable inflation.
Fannie’s New Program: Deed for Lease
Announced on November 5, Fannie Mae is helping those qualified applicants to essentially sell and lease back their current home. This program is also applicable to investment-property owners who are facing foreclosure and wish to deed the property over to the lender and allow the renters to continue renting at market levels.
Rates and Activity
- Rates continue to run as low as 3.75%, depending on a number of different factors, with the conforming 30-year at just under 5% and the jumbo 30-year at about 4.75%
- 71% of our transactions last month were purchases, and the average loan was in the $500k range.
- As mentioned above, we’re seeing a heavy trend in purchase applications for the move-up market, but inventory is turning off a majority of those buyers
- We closed a deal in TWO weeks, but we still recommend a 30-day closing period
- If you or someone you know prefers to pay cash for a purchase, then finance that purchase within 90 days to protect valuable tax advantages, we can help, as we have programs that DO NOT require 6 months seasoning and pricing is based on purchase money, NOT a cash-out refinance
* Does not constitute tax advice. Please seek any qualified tax professional for proper guidance.
McCain’s debate night bombshell
October 8, 2008
Did you see the debate last night?
During one of the questions about the economy and the financial crisis, McCain dropped a bombshell!
When Tom Brokaw asked about what needs to be done to help the housing market, McCain suggested that Government should buy back all these defaulted loans and then give these people new loans at the current market value of the home. Hmmmm. Will this work? I think not. Why?
Well, let’s see how this would work…
- Joe Homeowner has a house that he bought for $500,000 with a loan from Fly-By-Night Subprime Lending, Inc.
- The house is now worth $400,000
- Joe, like everyone else, has lost a lot of equity in his home
- Unlike other Americans who are responsible and ARE paying their mortgage, Joe qualifies for the Government to buy back his subprime mortgage, because he’s NOT paying his mortgage.
- The Feds buy his mortgage for $500,000 and immediately give him a new mortgage at $400,000, which he may or may not be able to afford
- So now Joe is happy, but only until he can’t make his payments again…
- Good ole’ taxpayers absorb a $100,000 loss
- Multiply by millions of upside-down loans.
So let me ask one simple question – Does this make sense to you?? I suspect there will be a lot of responsible homeowners who are diligently paying their mortgage who will be awfully pissed off that they won’t be getting THEIR mortgage bought by Uncle Sam and reset to current market value.
Don’t get me wrong – I am not against McCain, and this isn’t about one presidential candidate or another. I’m simply saying that this plan does not make sense. However, I haven’t heard either candidate or anyone in congress or the treasury or the federal reserve or the private sector suggest something that might actually work to solve this mortgage mess. Although today, Barack Obama rejected McCain’s plan, and his economic adviser said that McCain’s plan would cause the U.S. Government “to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don’t recover. The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.”
Let’s hope that someone is smart enough to figure out how to use that $700,000,000,000 to get the housing market back on track.
In the meantime, I’m proceeding under the assumption that for the forseeable future, people will need to do a short sale and get their lender to take the loss. So if you know of someone who is underwater and stuggling to keep up with their higher payments as their loan resets to a higher interest rate, tell them you know a foreclosure consultant who can help. I’d be delighted to talk to them.
Timing the Market, A Banker’s Viewpoint
September 1, 2008
Credit for this post really goes to 3 Oceans contributor Eric Trailer who sent me this content in a letter this week. My clients got it last week, and the blogoshpere can now benefit. We can assume that Eric has better things to do on Labor Day than blog. I’m guessing something involving his lovely wife and son . . .
To see current market data and price trends over the past year for local communities and confirm or refute Eric’s prognostications on the local market in Palo Alto and the surrounding communities,
CLICK HERE to see real-time market data, courtesy of our friends at Altos Research.
As you have likely been hearing, there continues to be more and more evidence that it will cost prospective home buyers more to purchase a home in select areas of the Bay Area as they allow time to go by.
Why? Let’s look at the basic reasons, then review an example:
1. The median price across the board in Palo Alto and the surrounding communities has risen since the beginning of the year.
2. On a national basis, the trough of the market was reached in April.
3. The conforming loan limit will DECREASE over $100,000 in 2009 to $625,000.
4. Rates have risen about .5% since the beginning of the year, despite the increase in the conforming loan limit to $729,750
5. Loan qualifications are becoming more restrictive with each passing week.
6. More restrictions on loans and a tighter supply of money forces rates to go up
7. Because loans require more work to process them (requirements today are 4x what they were a year ago), rates will go up.
8. Inflation is the number one concern of the Fed, and should be the number one concern for all of us.
Let’s say for a moment that you agree that rates are on the rise, but feel as though prices may come down on a $1mm property today; thus, you want to wait. Let’s further assume that you are right and the future price is $950,000, but rates have increased .5% at that future time. Using 20% down, waiting just cost you an ADDITIONAL $117 per month-over $1,400 per year.
But now let’s be more realistic given the appreciation rates of desirable areas of the Bay Area. If rates increase and the $1mm home appreciates to $1,050,000, you are looking at an ADDITIONAL $550 PER MONTH-OVER $6,000 PER YEAR!
What’s the take-away here? Price matters much less than true cost… My motto has always been that it always pays off to buy sooner than later, provided your holding period is greater than four years. And to prove that I walk the walk, I am happy to share my personal situation written as an article titled, “How to Afford a Home in Palo Alto Without a Trust Fund.”
Kindest regards,
Eric
To call Eric on his walking the walk comment, and get a copy of his article, “How to Afford a Home in Palo Alto Without a Trust Fund.”, click on his pretty picture over there in the contributor column to send him an email.
Today’s Real Estate Gossip: Move.com Does A Microsoft; Foxtons Does A Countrywide
September 27, 2007
Exciting times indeed in real estate! Market woes, mortgage troubles, bankruptcies, lay-offs…
Adding to the bad news is that Foxtons, the UK-based discount real estate brokerage, is laying off 350 employees from its New York and New Jersey operations. Some have predicted that this down market will weed out the non-traditional players [see comments section], Redfin being the company most commonly named. Michael Wurzer, meanwhile, says his long-time prediction of declining agent numbers may finally be coming true.
Inman reports that Move.com, the 800-pound gorilla of the business, is being sued by Active Rain, the utterly addictive 50,000-strong online real estate community. It has been an open secret in the real estate world that Move.com was positively salivating over Active Rain’s strong viral network of real estate professionals, and that negotiations had broken off. Now the full story has come out. Active Rain’s side of the story is, essentially, that Move.com took a page out of Microsoft’s playbook of the 1990’s, before they got smacked down by some unfavorable court rulings: court a smaller company, find out everything you can about its business model, technology, and market…then break off the talks at the end and do it yourself. Move.com, meanwhile, says that nothing Active Rain showed them during negotiations was even remotely earth-shattering.
ActiveRain’s official statement to the ActiveRain community: (login required)
Members of the ActiveRain Real Estate Community,
Recently Inman News reported on a lawsuit brought by ActiveRain against Move, Inc. Of course reports of this nature raise a lot of questions, and it has always been a part of our culture to openly discuss things with our community. We would like to be able to discuss these issues more with you. However, since this is a matter of pending litigation, our counsel advises us not to comment.
Should you be interested in the positions of ActiveRain and Move, Inc. in this lawsuit, attached are ActiveRain’s Complaint and Move, Inc.’s Answer filed with the Court in this proceeding.
We thank you for your continued support and understanding.
ActiveRain members, by and large, appear to be supportive of the company, suspicious of Move.com’s intentions, but perhaps a bit concerned that ActiveRain would have considered consorting with Move.com in the first place. The delightful and ever-opinionated Laurie Manny says: [boldface mine]
Imitation is the most sincere form of flattery.
How did Realtor.com/Move.com expect to become successful without us, the membership? Realtor.com has been repelling Realtors with their high prices and lack of performance for well over a year now. Free blogs – for how long? They do not rank up on the engines now on their own, they need AR to do that. What are they offering the membership that we do not already have? Ok, so maybe in about 6 months we would all acheive similar rankings to what we already have?
I think you guys at AR are fantastic, but I have to ask. Why the hell did you jump into bed with such losers to start with? If they were going to pay it somebody else would have as well.
Live and learn.
Other commentary on the same story:
- Joel Burslem at FOREM speculates that some Active Rainers may not be happy to find out they`were about to consumed by the borg, and he goes on to remind readers that the content you contribute to online communities like Active Rain doesn’t necessarily belong to you.
- Douglas Heddings suggests that full-service agents will be partying late into the night at this news.
- Stefan Swanepoel weighs in.
- Brian Brady thinks they’ll settle for $8M to keep this thing from going to court and having a California jury hear stories about cigar-chomping good ol’ boys fleecing a trio of hard-working American entrepreneurs.
- The Libertarian Jesuit Bloodhound says Active Rain doesn’t have a case. Move.com, a big, slow, and stoopid Realtor-teat-sucking monster if ever there was one, actually made a wise decision for once, and decided they’d be overpaying for what was essentially a commodity product.
Pictures courtesy of thisfabtrek.com, foxtons.com, gorillahub.com, move.com, and activerain.com
