Paul Chavez - Blog

Extended and Expanded Tax Credit Expires 4/30/10

Paul Chavez — Mon, 08 Feb 2010 11:15:10 GMT

For prospective homebuyers who are on the fence about making a home purchase, the next few months represent a countdown of sorts as huge tax credits are about to expire. Here are important details for you to know:

Tax Credit for First-Time Homebuyers (FTHBs)
FTHBs (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Tax Credit for Current Homeowners
The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What Are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010. Those in the military do have some special extensions on the timelines available.

What's So Great About a "Tax Credit"?
The benefit of a tax credit is that it's a dollar-for-dollar benefit, rather than a "tax deduction", or reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer who qualified for the entire benefit were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little or no income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!

Higher Income Caps
The amount of income someone can earn and qualify for the full amount of the credit has been increased. Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible. Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.

It's also important to note another upcoming deadline as the Federal Reserve winds down a program that has been keeping home loan rates artificially low. The fact is that the lowest rates of 2009 were driven down to their attractive levels because of the Fed's Mortgage Backed Securities (MBS) purchase program, which the Fed once again emphasized in its January 27, 2010 Rate and Policy Statement will end on March 31, 2010. As the Fed's program winds down and ends, rates could rise over time since MBS will have less support from the Fed.

2009 is over. A Market Update

Paul Chavez — Thu, 21 Jan 2010 17:44:26 GMT

Well, 2009 is over.

What does that mean? For the Albuquerque residential real estate market, there are some very positive signs that we have hit bottom. There are some who are suggesting that there may be a “double bottom” but that remains to be seen.

The last five years.

Here are some numbers that might be encouraging. Let’s go back to the peak, which was 2005. There were a total of 13, 448 closed single family detached resale homes that year. In 2008 there were 8,144 closings. That is a 39.44% decrease over 3 years. There were 7,905 closings this year! While still a decrease, that is only -3.08% from last year.

August 2005 had 1,267 closings, which was the highest number of resale closings in one month ever in Albuquerque! From that month on there was a steady but gradual decrease, month by month, until November of 2007 when the bottom fell out. Every month of the following year starting August 2005 had fewer closings than the past year for 46 straight months! In January of 2009, we had 324 closings in the entire Board. To put that in perspective, it was the lowest number of closings in a single month since 1995. February of 2009 was no better. The severity of that number is compounded when we remember that the population of Albuquerque is around 835,000 now as compared to 1995 when there were about 550,000 people here in town.

It turned in 2009…just a little!

So then what happened? Slowly things started to pick up. Some people say that the first-time home buyer credit artificially moved the market. That may be part of it, but in any event, finally after 46 straight months of decline, in July of 2009, there were more closings than the same month in the past year. Since then, 5 of the last 6 months have been up over 2008! Total single family closings in the metro area in 2007 were 10,961; as I mentioned above, in 2008 there were 8,144 and in 2009 there were 7,905. While slightly below 2008, the monthly trend is on an upswing. While I do not believe we can identify the bottom in terms of months, as I said above, January and February of 2009 were record setting low. The increase in closings over the last 6 months is the first good sign!

The second good sign, is a significant decrease in supply. The listing inventory has decreased from over 5,821 single family homes on the market in December of 2008 to 5,176 single family homes on the market in December 2009. That is an 11.08% decrease in the inventory.

Are we really at the bottom?

One way cycles can be identified is to look at annual rates of appreciation or depreciation. The Board of Realtors has been keeping track of those annual numbers since 1983. In 1988 there was a -2.06% depreciation in average price from the year before. In 2000 there was a -0.16% depreciation which was the first negative year since 1988. In 1993, five years after the negative number in 1988, there was a 9.38% appreciation compared to the prior year. That was the highest rate of annual appreciation between 1988 and 2000, which would indicate the top of the cycle. Bottom to bottom of that cycle was 12 years.

From 2000, the bottom, we had 5 years to the top of the next cycle which was 2005 with a 12.06% appreciation Unlike the prior cycle, we had a sharp drop in 2008 with a -4.08% depreciation, from $243,089 to $232,626 - the highest average price decrease since the Board of Realtors has been keeping track! In 2009, for the first time ever we had a second year with a precipitous decrease in average price. We ended the year with an average price of $216,687 which is a-6.85% decrease from $232,626! First time ever that there have been two years in a row of price decreases. This is the third good sign because lower prices mean increased affordability.

Now, as to demand.

Population growth is everything where demand is concerned. Whether by job expansion, immigration or the creation of “organic buying entities” (young adults get a job, move away from home and buy their first house), these factors drive new construction. In 2006 there were 6,611 new home building permits in greater Albuquerque. In 2007 there were 4,037. Only 1,874 permits were issued in 2008 and in 2009 only 1,669 were issued.

While that is a devastating statistic for the builders, many of whom either left Albuquerque entirely or were forced to shut down their operations, it means that very few new homes were put into supply. Providing there is any growth in the number of buyers for homes, that will help continue to absorb the supply, which is what we are seeing.

What’s all this talk about a “double bottom”?

The final talk of worry on the street is the predicted wave of foreclosures as a result of the Adjustable Rate Mortgages adjusting to higher payments causing additional defaults. Here is one possible scenario, if the prediction even comes to pass.

Anybody who loses a home in foreclosure will have to move somewhere after they lose their house. Their options are a few; leave town, move in with friends or parents, or rent until their credit and cash is restored. The most likely scenario as I see it is the rent option, either into a house or an apartment.

As the demand increases for rentals, investors will likely respond to that demand, purchasing the foreclosures and providing homes to rent. In this scenario, the homes that come on the market will be absorbed and prices will not fall because the purchase demand from investors will sustain.

Here is the prediction…with a grain of salt or two.

To recap, decreasing supply, an increase in pendings and closings, a decrease in prices which improves affordability, very low interest rates and the lowest new home construction rate in years all point to the beginning of a recovery for the Albuquerque residential resale market.

How fast and how soon? The first year after the bottom in the last two cycles has seen about a 1.6% appreciation. Don’t expect a rebound to old prices for a few years, but, hopefully, a steady climb out of the bottom!

www.ColdwellBankerLegacy.com author Peter Parnegg

Springtime house hunters out early thanks to tax credt

Paul Chavez — Wed, 20 Jan 2010 14:04:34 GMT

By Stephanie Armour, USA TODAY

The springtime spurt in home buying may hit before the snow melts this year as buyers scramble to meet an April 30 tax credit deadline.The spring buying season typically takes off in March and runs through May. But buyers who want to claim this year's tax credit — up to $8,000 for first-time buyers and up to $6,500 for repeat buyers — must have signed purchase contracts by April 30. And they have to complete the deal by June 30.

"I expect the buying season will be moved up," says Jim Gillespie, CEO of Coldwell Banker. Sales "are going to take off in February and March and really take off in April. ... My concern is that the move-up buyer hasn't thought what they need to do. Their window is really short. They have to coordinate closing dates."

The average time it takes to get a home loan processed is about eight weeks now — two weeks more than it used to be, according to the National Association of Realtors.

The tax credit's impact on 2010 home sales is uncertain. Some economists expect the credit to pull sales that would have occurred later in the year into the first half.

"The tax credit will absolutely have an effect," says Pete Flint, CEO of Trulia, a residential real estate search engine. "It is going to shift demand from the later part of the year to the first part. January and February will be very strong. The next three months, there will be a surge in demand."

"I'm actually in the middle of house shopping, and I decided to do it now so that I could get the $8,000 tax credit," says Amity Gay, 26, who's looking for a cottage-style house in Tallahassee.

Sellers should be prepared to appeal to first-time home buyers, who still make up the majority of buyers, according to Pat Lashinsky, president and CEO of ZipRealty.

And buyers should expect rising prices in some markets, including San Diego, Dallas, Minneapolis, Chicago and Washington, D.C.

At MetLife Home Loans, buyers are being preapproved now for new housing developments; an increase in demand is being attributed to the expanded tax credit.

"Our spring market got moved up at least two months because of this," says Kent Geschwender, branch manager.

The tax credit was scheduled to expire on Dec. 1, 2009, but was extended and expanded by Congress.

Another Big Gain in Existing-Home Sales as Buyers Respond to Tax Credit

Paul Chavez — Tue, 22 Dec 2009 11:12:01 GMT

Washington, December 22, 2009 from NAR

Existing-home sales rose again in November as first-time buyers rushed to close sales before the original November 30 deadline for the recently extended and expanded tax credit, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.4 percent to a seasonally adjusted annual rate¹ of 6.54 million units in November from 6.09 million in October, and are 44.1 percent higher than the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007 when they hit 6.55 million.

Lawrence Yun, NAR chief economist, said the rise was expected. “This clearly is a rush of first-time buyers not wanting to miss out on the tax credit, but there are many more potential buyers who can enter the market in the months ahead,” he said. “We expect a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit, which hopefully will take us into a self-sustaining market in the second half of 2010. In all, 4.4 million households are expected to claim the tax credit before it expires and balance should be restored to the housing sector with inventories continuing to decline.”

An NAR practitioner survey² shows first-time buyers purchased 51 percent of homes in November, compared with an upwardly revised 50 percent of transactions in October.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.88 percent in November from 4.95 percent in October; the rate was 6.09 percent in November 2008. Last month’s mortgage interest rate was the second lowest on record after bottoming at 4.81 percent in April 2009.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said conditions are optimal for buyers in the current market. “Inventories have steadily declined and are closer to balanced levels, which indicate home prices in many areas are either stabilizing or could soon stabilize and return to normal appreciation patterns,” she said. “This means buyers still have good choices but are purchasing near the bottom of the price cycle with historically low mortgage interest rates. Throw a tax credit on top and it really doesn’t get any better for buyers with secure jobs and long-term ownership plans.”

Total housing inventory at the end of November declined 1.3 percent to 3.52 million existing homes available for sale, which represents a 6.5-month supply³ at the current sales pace, down from an 7.0-month supply in October.

Raw unsold inventory figures are 15.5 percent below a year ago. The last time there was a lower supply of homes on the market was April 2006 when it was at a 6.1-month supply.

“Nearly all markets experienced a solid sales gain from one year ago,” Yun said. “The only markets with measurably lower sales were in San Diego, Riverside, and Sacramento, where inventory shortages for lower priced homes are limiting sales.”

For the second month in a row, sales have risen in all price classes from a year earlier. Prior to October, the only consistent gains were in the lower price ranges.

The national median existing-home price⁴ for all housing types was $172,600 in November, which is 4.3 percent below November 2008. Distressed properties, which accounted for 33 percent of sales in November, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area.

Single-family home sales jumped 8.5 percent to a seasonally adjusted annual rate of 5.77 million in November from a level of 5.32 million in October, and are 42.1 percent above the pace of 4.06 million in November 2008. The median existing single-family home price was $171,900 in November, down 4.4 percent from a year ago.

Existing condominium and co-op sales in November were unchanged from a seasonally adjusted annual rate of 770,000 in October, but are 60.1 percent above the 481,000-unit pace a year ago. The median existing condo price⁵ was $178,000 in November, which is 3.1 percent below November 2008.

Regionally, existing-home sales in the Northeast rose 6.6 percent to an annual level of 1.13 million in November, and are 52.7 percent higher than November 2008. The median price in the Northeast was $223,400, down 13.1 percent from a year ago.

Existing-home sales in the Midwest increased 8.4 percent in November to a pace of 1.55 million and are 53.5 percent above a year ago. The median price in the Midwest was $140,800, a decline of 0.4 percent from November 2008.

In the South, existing-home sales rose 4.8 percent to an annual level of 2.39 million in November and are 44.8 percent higher than a year ago. The median price in the South was $151,400, down 1.4 percent from November 2008.

Existing-home sales in the West increased 10.6 percent to an annual rate of 1.46 million in November and are 28.1 percent above November 2008. The median price in the West was $231,100, which is 4.1 percent below a year ago