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.
Economic Forecast, Extending the Tax Credit and the Golden Window for Buyers
October 20, 2009
On October 12, I attended a SILVAR sponsored economic update and forecasting presentation by CAR EVP Joel Singer, and I thought you might find the following summary and comments beneficial:
- As we all know financing is the primary key to housing stability, and Singer is 100% confident that both tax credits and the $729,750 conforming limits will be extended into 2010—both of which are keys to continued recovery
- 40% of first-time buyers for 2009 bought because of the tax credit
- The Feds are on track to extend the credit, maybe even improve it, so let’s keep our fingers’ crossed
- The CA State Senate already approved the extension of the state $10,000 tax credit, and it should pass Assembly this week—yeah!
- Food for thought: before the competition increases due to formalizing the tax credits, first-timers should make their move sooner than later
- The move-up market here is the most impacted, but will improve as financing does; as such, he feels as though there will be some level of government involvement to stimulate the secondary market for non-conforming loans
- Right now, inventory levels for $750k-$1mm are at 6.1 months, which is healthy; inventory levels for $1mm+ are at 12.8 months, which signals a clear buyers’ market
- With government support, non-conforming lending will ease, but not necessarily cause rates to be lower—current margins are already at all-time highs primarily due to risk—by stabilizing the system and improving liquidity, risk is reduced, savings rates increase and rates remain about the same
- Futures point to a Fed funds rate rise of .500% to .750% and conforming 30-year fixed mortgages at 5.6% in Q2 2010
- As such, this gives anyone needing a conforming loan about 5 months before both rates and prices are up significantly
- And if you missed the headline on September 24th about the Fed easing their policy of keeping mortgage rates low, you’ll want to know that they are almost cutting in HALF the the effort– $14B versus $25B
- The overall number of homes/units sold next year will be down, but that’s only because we had a record number of units sell already this year—foreclosures will be DOWN relatively significantly
- Activity will still be high and it’s likely the $1mm+ segment that will provide buyers with the best value
- The “second wave” of foreclosures due to rate adjustments is a farce—many people, like myself, are looking forward to loans adjusting at lower rates, which is precisely what the majority of those loans will do
- 2010 will be a growth year with GDP expected at about 1.9%
- Great news for the economy, but growth causes higher prices and higher rates—
- The population of CA will grow another 1.1%, so that’s about $370,000
- We’ve added about 600k people per year since 2000, and about 500k babies are born in CA each year, so I guess that means there will be more demand on housing, which is also good news
- Unemployment may be 12% in CA, but that number is tied mostly to construction-related industries.
- With High Tech, Finance, Exports and Travel all on the rise for the Bay Area, our property values and local economy should benefit significantly
The Latest on Rates and Activity
Even with the incredible rates that continue to drive the refinance market, over 50% of the transactions that we closed in September were purchase transactions. Also of importance is the fact that of those purchase transactions, 35% were financed using “JUMBO” loans! Jumbo 30-year fixed loans are running about 5.75% and that jumbo 5/1’s are around 4.50%. And if you have a $417k conforming loan, 5/1’s are available at 3.75%!!
According to the MBAA, last week’s applications were down, but the four week moving average is up, along with interest rates (albeit slightly). We’re seeing the opposite effect locally, but it’s likely due to the many move-up buyers looking to take advantage of the $1mm+ market through Winter.
Is it just me, or does it genuinely feel like the golden window of opportunity for buyers right now..?
A great success story for us lately included funding a loan for a borrower who had a 63% debt-to-income ratio. We have also bridged three separate transactions that allowed buyers to move up without having to sell their current home first. And finally, we improved a client’s credit score by 100 points and saved them over $8,000 by having an erroneous collection removed from their credit record. So even with all the news headlining the challenges in the mortgage world, at least some great success stories continue to be made.
Fire Engine Red, A Proud Fixer Upper, and More Eichlers: All in a Day’s Palo Alto Real Estate Tour
March 23, 2007
Chomping at the bit to go, I headed straight out of this morning’s broker marketing meeting to see what the new Palo Alto inventory looks like. The outcome? Inventory is definitely on the rise, with both statistical proof (the Altos Research chart on the left) and the general buzz and business of everybody touring around today.
With six homes on my list — scattered throughout town — and only two hours on my calendar, it was all about efficiency.
First up was 1045 Newell, an “original Barrett & Hilp home,” a Leannah Hunt (Coldwell Banker) listing in the Green Gables neighborhood. $1.25M gets you 3 bedrooms, 2 bathrooms, 1500 sq ft, and a quick 5-10 minute drive on Embarcadero over to the 101. A trust sale home and not particularly updated — but well-staged, per Leannah’s custom — this home awaits the next generation of Palo Altan home owners.
Then it was across Embarcadero and Oregon over to South Palo Alto to see another Coldwell Banker listing — this one from Robert Lane — at 2898 Louis Road. “This one has charm,” says the listing, and it would be hard to argue with that. It has 2 bedrooms and 2 baths squeezed into just under 1000 sq ft, so the next owner will most likely want to expand — but since it’s a corner lot, the only way to do so and still keep in line with Palo Alto’s setback laws may be to go into the side yard.
Just south of this Louis Road listing was 770 Allen Ct, a fixer upper and proud of it. The listing agent, Steve Greenbaum from Keller Williams (another technophile like myself!) explained that a contractor actually lived in the property in its current condition — something I’m not sure I could have done even in my Peace Corps days — but simply didn’t finish the project. The bones of the home look good, and the yard is large, though in need of some TLC. An old fashioned pot-bellied stove in one of the rooms awaits the new owner.
Then there’s the fire-engine red Eichler at 3924 Louis. Nancy Goldcamp (Coldwell Banker again — what’s with this? Did Alain Pinel go out of business?) brings us this $1.175M 3/2 1900 sq ft, adorned with a great kitchen, and with all the light you would expect from an Eichler. Great staging, though tragically not done by my friend Ann O’Connell. Oh well, we’ll give her a few more years to completely corner the market.
Rounding out my tour today was another small property begging for a facelift or perhaps even a complete organ transplant. 3176 Emerson is, as the listing agent Richard Cottrell himself describes it in the MLS, a real fixer upper on a terrific lot in a great neighborhood. Folks living outside of this fantasy land we call the Bay Area may be shocked that a fixer-upper — and an 840 sq ft one at that — is not only on the market at $935,000, but will in fact probably sell with multiple offers, well above that price.
Today’s Palo Alto homes review: Bait ‘n Switch, Bad Staging, Unresponsive Contractors, and Other Rants
March 2, 2007
Normally I take care of my daily frustrations through a vigorous workout at 24-hr fitness, but this time I thought I’d let my blog take the brunt of it.
You see, I spent a good part of this morning touring the new crop of properties available in Palo Alto (all of which will likely sell in a flash, with multiple offers, well above list price). You’d think that if I and dozens of my colleagues are going to take the time to go see what’s out there, the listing agents and sellers would give us something good to look at!
Alas, one of the first properties I went to, 797 Mayview in Palo Alto, was a “bait ‘n switch.” Looked good on paper, perhaps was good in reality…but the listing agent and her lockbox were AWOL, and the street sign said, “Don’t disturb.” Ok…you’re gonna put a property on the MLS, you’re gonna post the tour date…and then you’re gonna make the property inaccessible? Grrrr…. It was a shame, too, since this one has some potential: a large lot — big enough for two homes, in fact — and a great location with easy access to highway 101.
At least three properties were clearly competing for the Solstice Staging “Yikes, get these sellers a stager!” award. See for yourself the photos of this property:
For the other two, the listing agent (wisely, I think) chose not to post shots of the interior, and by a stroke of luck for the sellers, I had forgotten my camera.
Thankfully all was not lost, however. 281 Parkside (Charlene Geers of Coldwell Banker) and 1103 Stanford (Judy Levin and Lisa Blair, Alain Pinel Realtors) were both delightful, and well-presented to boot. The first is a bright, upgraded Eichler, adorned with skylights, and richly landscaped. The second is small and cozy, done up to the 9’s, but unfortunately garage-less since it was converted into an additional living space.
281 Parkside…
and 1103 Stanford
And now, back to my rant…
Will somebody please teach these guys how to answer a phone? Palo Alto Concrete is a local, well-respected construction company with a reputation for good work. Alas, neither I nor my clients will have a chance to test that bit of their reputation. You see, we asked them for a quote for some foundation work about, oh, 2 months ago. Took them nearly one month, plus innumerable phone calls to every number I had available for them, before we got the quote. Then it took another month to retrieve the plans they had borrowed — again, only after numerous phone calls. Guys, you might be busy, you might not have really even been interested in getting the gig…but at least GIVE ME A CALL DAMMIT!
There, I feel much better now.
