7 tips for buying foreclosures
There are a lot of great deals on the market, but buyers beware: Purchasing a foreclosure is rife with pitfalls.
By Les Christie, CNNMoney.com staff writer
November 19, 2009: 04:12 AM
NEW YORK (CNNMoney.com) -- Foreclosures are dominating the housing market. Right now, there are 1.5 million such homes for sale, and more are expected to be available soon. That provides both opportunities and pitfalls for bargain hunters.
Just because prices are low doesn't mean you should make snap decisions or buy something that isn't right. Here are 7 tips for making sure you don't get taken for a ride.
1. Don't get caught up in a feeding frenzy
"Everybody and their grandmas are trying to buy foreclosures," said Glenn Kelman, CEO of Redfin, an online, discount broker. But that doesn't mean you should lose your head.
Banks put repossessed homes back on the market at cut-rate prices because quick sales help avoid the expense of upkeep, such as property taxes, insurance, heat and electricity.
Those lowball prices represent golden opportunities, but they also attract dozens of buyers who may bid until homes are no longer bargains.
Don't get caught up in a bidding war. Instead, carefully calculate what you want to spend and do not exceed that price.
2. Contact lenders directly
Smart buyers establish relations with asset managers at banks. This may reward them with inside information or first crack at new foreclosures hitting the market.
In the case of a short sale, for example, it can give the inside edge. If a buyer is pursuing a short sale -- buying a home for less than what the current owner owes on the mortgage -- she should talk directly to the property's asset manager. That way, if the short sale falls through and the bank repossess the house, the asset manager knows she is still interested. It could lead to a quick sale without other bidders.
3. Get pre-approved from the lender you want to buy from
If you're trying to buy a property from, say Bank of America, it can help to get a pre-approved mortgage from Bank of America. Doing so may cause lenders to look more favorably on your bid if its similar to others.
Plus, you're not locked in if other lenders offer you better terms. You can always change your mind and get your mortgage from another source.
4. Consider fix-ups
Most REOs, the industry term for bank owned properties, are sold as is. "The conventional wisdom is that banks will do nothing to the houses before the sale," said Kelman.
That can be problematic today because so many foreclosed homes are in less-than-mint conditions. Often, the former owners were struggling to pay their bills and may have neglected routine maintenance. Or, they may have trashed the properties before leaving
In 25% of cases, homebuyers persuade lenders to fix some of the problems before the sale closes. Most of the time, banks would rather sell the house to the next available bidder -- one who doesn't ask the bank to pay for repairs.
So be willing to consider a home that needs some work -- but budget accordingly.
5. Hire a real estate attorney
Once banks agree to sales, they often want to move fast and load contracts up with legal mumbo jumbo. As a result, buyers often do not have the time or expertise to figure all the angles.
The solution is to hire a real estate attorney -- even in states where home sales are usually completed without one. Considering you're making a six-figure investment, the legal fees are cheap insurance against the risks.
6. Wait to make an offer
Homebuyers may be well served to wait before making an offer. Let the house sit on the market for a few days, giving others a chance to set the bidding tone. Then jump in.
"Talk to the agent selling the property," said Kelman. "The agent may tip his hand. Call up and ask, 'Should I make an offer? What should I come in at?'"
The agent may tell you he has offers at, say $300,000 and you should bid bit bit higher, giving you an advantage over earlier bidders.
7. Tour properties with contractors
With so many REOs in seriously deficient shape, it's essential to go over every inch with someone who can spot problems and tell you how much it will cost to remedy them.
A foundation crack can be a minor problem or a deal breaker, and most ordinary homebuyers have no way of telling the difference. Like an attorney, a contractor can be very worthwhile insurance.
Sunday, November 22, 2009
Back to Business With F.H.A. Help, Easy Loans in Expensive Areas
Back to Business
With F.H.A. Help, Easy Loans in Expensive Areas
LinkedinDiggFacebookMixxMySpaceYahoo! BuzzPermalinkBy DAVID STREITFELD
Published: November 19, 2009
SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.
Skip to next paragraph
Enlarge This Image
Joe Raedle/Getty Images
Policy changes in insurance, while introduced on a temporary basis, are becoming so popular that they could prove difficult to undo.
Back to Business
Risky Incentives
This series examines the battles taking place to reshape the financial industry.
Previous Articles in the Series »
Related
U.S. Mortgage Delinquencies Reach a Record High (November 20, 2009)
Enlarge This Image
Joe Raedle/Getty Images
From left to right, Jordan Kurland, Mike Rowland and Michael Bedar, in front of the building they bought in San Francisco for nearly a million dollars, with help from the Federal Housing Administration.
A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.
“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”
In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.
In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices and correspondingly hefty down payments on their own.
Now the government is guaranteeing an average of six mortgages a week here. Real estate agents say the insurance is such a good deal that there will soon be many more.
Policy changes like the shift in insurance, while often introduced on a temporary basis, are becoming so popular that they could prove difficult to undo. With government finances already under great strain, the policy expansions are creating new risks for American taxpayers.
The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments.
F.H.A. insurance was created for minority and low-income families who could not come up with the traditional down payment of 20 percent required by private lenders. Buyers receive loans from government-approved lenders and are required to document their income and assets. They must pay a substantial insurance premium of 1.75 percent of the loan. But in return, their down payment can be as low as 3.5 percent.
For decades, most F.H.A. loans were in low-cost states like Texas and Michigan. Under the agency’s loan limits, houses along the coasts were usually too expensive to qualify. In 2007, fewer than 4,400 F.H.A. loans were made in California, according to the research firm MDA DataQuick, and none were in San Francisco.
The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200.
“F.H.A. financing was a lost language in San Francisco, the real estate equivalent of Aramaic,” said Michael Ackerman, the agent who represented Mr. Rowland and his friends. “Once the limits were raised, smart buyers started calling.”
The F.H.A. has insured more than 107,000 loans so far this year in the state, according to DataQuick, about 270 of them in San Francisco.
Condominium buildings approved for F.H.A. financing — a relative handful — trumpet the news on their Web sites. The Soma Grand, a new 246-unit building downtown where one-bedrooms cost in excess of $500,000, received F.H.A. certification early in the summer. A half-dozen buyers since then used F.H.A. insurance.
At Guarantee Mortgage Corporation, which has 150 mortgage brokers in the Bay Area, Seattle and Portland, Ore., F.H.A. loans have grown to about 15 percent of its business, from less than 3 percent a few years ago.
“It sure has helped us put a lot of deals together,” said Guarantee’s chief sales officer, Bob Siefert. He predicts that a quarter of Guarantee’s deals will soon be guaranteed by the F.H.A.
Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling. Others, like Mr. Rowland and his friends, simply do not have the money required by private lenders — which would have been nearly $200,000, in their case.
1 2 Next Page »
Louise Story contributed reporting.
With F.H.A. Help, Easy Loans in Expensive Areas
LinkedinDiggFacebookMixxMySpaceYahoo! BuzzPermalinkBy DAVID STREITFELD
Published: November 19, 2009
SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.
Skip to next paragraph
Enlarge This Image
Joe Raedle/Getty Images
Policy changes in insurance, while introduced on a temporary basis, are becoming so popular that they could prove difficult to undo.
Back to Business
Risky Incentives
This series examines the battles taking place to reshape the financial industry.
Previous Articles in the Series »
Related
U.S. Mortgage Delinquencies Reach a Record High (November 20, 2009)
Enlarge This Image
Joe Raedle/Getty Images
From left to right, Jordan Kurland, Mike Rowland and Michael Bedar, in front of the building they bought in San Francisco for nearly a million dollars, with help from the Federal Housing Administration.
A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.
“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”
In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.
In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices and correspondingly hefty down payments on their own.
Now the government is guaranteeing an average of six mortgages a week here. Real estate agents say the insurance is such a good deal that there will soon be many more.
Policy changes like the shift in insurance, while often introduced on a temporary basis, are becoming so popular that they could prove difficult to undo. With government finances already under great strain, the policy expansions are creating new risks for American taxpayers.
The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments.
F.H.A. insurance was created for minority and low-income families who could not come up with the traditional down payment of 20 percent required by private lenders. Buyers receive loans from government-approved lenders and are required to document their income and assets. They must pay a substantial insurance premium of 1.75 percent of the loan. But in return, their down payment can be as low as 3.5 percent.
For decades, most F.H.A. loans were in low-cost states like Texas and Michigan. Under the agency’s loan limits, houses along the coasts were usually too expensive to qualify. In 2007, fewer than 4,400 F.H.A. loans were made in California, according to the research firm MDA DataQuick, and none were in San Francisco.
The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200.
“F.H.A. financing was a lost language in San Francisco, the real estate equivalent of Aramaic,” said Michael Ackerman, the agent who represented Mr. Rowland and his friends. “Once the limits were raised, smart buyers started calling.”
The F.H.A. has insured more than 107,000 loans so far this year in the state, according to DataQuick, about 270 of them in San Francisco.
Condominium buildings approved for F.H.A. financing — a relative handful — trumpet the news on their Web sites. The Soma Grand, a new 246-unit building downtown where one-bedrooms cost in excess of $500,000, received F.H.A. certification early in the summer. A half-dozen buyers since then used F.H.A. insurance.
At Guarantee Mortgage Corporation, which has 150 mortgage brokers in the Bay Area, Seattle and Portland, Ore., F.H.A. loans have grown to about 15 percent of its business, from less than 3 percent a few years ago.
“It sure has helped us put a lot of deals together,” said Guarantee’s chief sales officer, Bob Siefert. He predicts that a quarter of Guarantee’s deals will soon be guaranteed by the F.H.A.
Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling. Others, like Mr. Rowland and his friends, simply do not have the money required by private lenders — which would have been nearly $200,000, in their case.
1 2 Next Page »
Louise Story contributed reporting.
Sunday, November 15, 2009
Housing Agency’s Cash Reserves Down Sharply
November 13, 2009
Housing Agency’s Cash Reserves Down Sharply
By DAVID STREITFELD
The Federal Housing Administration, the government agency whose loan-insurance programs have become a crucial source of support for the housing market, said on Thursday that its cash reserves had dwindled significantly in the last year as more borrowers defaulted on their mortgages.
The agency released an audit that spelled out the rapid deterioration of its finances. It is tightening loan standards in hopes it will not become another drain on the United States Treasury, but is reluctant to clamp down so much that it snuffs out the tentative recovery in housing.
How successfully the agency walks this tightrope could well determine whether the recovery gathers force, or whether home prices slide again — perhaps creating a fresh economic downturn.
As recently as a few weeks ago, the F.H.A. had said that even under the bleakest economic forecast, its cash cushion would quickly recover. On Thursday, it abandoned that position.
“There is a real risk. Nobody has a crystal ball,” Shaun Donovan, secretary of housing and urban development, said in an interview. “We recognize there is a possibility that the reserves go below zero and stay there.”
Still, Mr. Donovan stressed that the agency, which had a role in one out of five home purchases in the last year, would not need a direct taxpayer bailout.
“There is no extraordinary action that Congress or anyone else needs to take,” he said during a news conference in Washington.
Instead, the agency would borrow from the Treasury, under authority previously granted by Congress. In the worst case, involving a protracted recession, the audit said the F.H.A. would run out of capital in 2011 and have to borrow $1.6 billion from the Treasury to pay insurance claims, a relatively small sum.
That is not a situation the agency considers likely. In line with many analysts, the agency expects the housing market to turn down again over the next nine months and then to recover. Under this projection, foreclosures would be manageable and the reserves would quickly grow.
The F.H.A.’s annual audit was scheduled for release last week, but was mysteriously delayed at the last minute. On Thursday, as it released the document, the agency explained that it wanted its auditors to include more negative forecasts as a way of understanding the worst-case risk.
The audit showed reserves to be 0.53 percent of the total portfolio, far below the 2 percent minimum mandated by Congress and far less than the audit last year had forecast. In 2007, just before housing prices began their worst slump in decades, the reserves were above 6 percent.
Ann Schnare, a consultant who has analyzed the F.H.A. balance sheet, put the situation this way: “They’re running on empty.”
As the fortunes of the F.H.A. have deteriorated over the last few months, the agency has become a focal point for dissatisfaction over federal efforts to prop up the housing market.
It is drawing comparisons to Fannie Mae and Freddie Mac, the giant agencies created by Congress to keep the mortgage market supplied with cash by buying up pools of home loans. With borrowers defaulting in the downturn, Fannie and Freddie have required enormous bailouts.
The F.H.A.’s role differs from that of Fannie and Freddie. Through its insurance, it helps marginal buyers get loans if they do not have the 20 percent down payment a traditional bank loan requires. The agency requires a 3.5 percent down payment. Critics say it went overboard and insured too many loans to unqualified borrowers in 2007 and 2008, a position with which the agency itself now agrees.
Nearly one in five loans it insured in 2007 falls into the category of “seriously delinquent,” it said Thursday. These loanholders are at least three months behind in their payments. For 2008 loans, 12 percent of them were seriously delinquent.
The F.H.A. says it is insuring loans to more financially secure buyers with higher credit scores. The average credit score of new borrowers, it said, is 693, compared with 633 two years ago.
In a sense, the agency is bulking up and giving as many loans as it can to qualified buyers as a way to diminish the relative size of the pool of problem loans. It guaranteed more than $360 billion in mortgages in the last year, four times the amount of 2007.
Critics say this is only increasing the size of the ultimate peril.
“They keep saying they’re going to outrun their problems, but some way, somehow, the taxpayer is going to end up on the hook,” said Edward Pinto, a former executive with Fannie Mae.
During the news conference, Secretary Donovan and the agency’s commissioner, David H. Stevens, said that the cash reserve, the figure that has fallen to 0.53 percent of loans outstanding, was merely a supplement to a much larger fund that the F.H.A. was holding against expected losses. Between the two accounts, the agency has $31 billion to cover losses over the next 30 years.
The F.H.A.’s problems stem from its rapid transition from a wallflower to the most popular student in class.
During the housing boom, buyers flocked to private subprime lenders, who offered deals that required no money down and no documentation. The F.H.A., which required its token down payment and documentation of the borrower’s earning power, lost ground.
But as the market tumbled and the subprime outfits failed, F.H.A. loans became the next best thing. Brian Montgomery, who ran the F.H.A. for the Bush administration, said in a recent interview that the agency felt it had no choice but to open the doors to a broader group of applicants.
Citing pressure from Congress and the White House, Mr. Montgomery said: “We had to let these loans through.”
Mr. Montgomery, now a consultant, says that anyone dismayed by the possibility of yet another bailout should feel a different emotion toward the Department of Housing and Urban Development and, for that matter, himself: gratitude.
“They should be going over to the H.U.D. building and frankly thanking the career staff for saving them from a depression,” Mr. Montgomery said.
Louise Story contributed reporting.
Housing Agency’s Cash Reserves Down Sharply
By DAVID STREITFELD
The Federal Housing Administration, the government agency whose loan-insurance programs have become a crucial source of support for the housing market, said on Thursday that its cash reserves had dwindled significantly in the last year as more borrowers defaulted on their mortgages.
The agency released an audit that spelled out the rapid deterioration of its finances. It is tightening loan standards in hopes it will not become another drain on the United States Treasury, but is reluctant to clamp down so much that it snuffs out the tentative recovery in housing.
How successfully the agency walks this tightrope could well determine whether the recovery gathers force, or whether home prices slide again — perhaps creating a fresh economic downturn.
As recently as a few weeks ago, the F.H.A. had said that even under the bleakest economic forecast, its cash cushion would quickly recover. On Thursday, it abandoned that position.
“There is a real risk. Nobody has a crystal ball,” Shaun Donovan, secretary of housing and urban development, said in an interview. “We recognize there is a possibility that the reserves go below zero and stay there.”
Still, Mr. Donovan stressed that the agency, which had a role in one out of five home purchases in the last year, would not need a direct taxpayer bailout.
“There is no extraordinary action that Congress or anyone else needs to take,” he said during a news conference in Washington.
Instead, the agency would borrow from the Treasury, under authority previously granted by Congress. In the worst case, involving a protracted recession, the audit said the F.H.A. would run out of capital in 2011 and have to borrow $1.6 billion from the Treasury to pay insurance claims, a relatively small sum.
That is not a situation the agency considers likely. In line with many analysts, the agency expects the housing market to turn down again over the next nine months and then to recover. Under this projection, foreclosures would be manageable and the reserves would quickly grow.
The F.H.A.’s annual audit was scheduled for release last week, but was mysteriously delayed at the last minute. On Thursday, as it released the document, the agency explained that it wanted its auditors to include more negative forecasts as a way of understanding the worst-case risk.
The audit showed reserves to be 0.53 percent of the total portfolio, far below the 2 percent minimum mandated by Congress and far less than the audit last year had forecast. In 2007, just before housing prices began their worst slump in decades, the reserves were above 6 percent.
Ann Schnare, a consultant who has analyzed the F.H.A. balance sheet, put the situation this way: “They’re running on empty.”
As the fortunes of the F.H.A. have deteriorated over the last few months, the agency has become a focal point for dissatisfaction over federal efforts to prop up the housing market.
It is drawing comparisons to Fannie Mae and Freddie Mac, the giant agencies created by Congress to keep the mortgage market supplied with cash by buying up pools of home loans. With borrowers defaulting in the downturn, Fannie and Freddie have required enormous bailouts.
The F.H.A.’s role differs from that of Fannie and Freddie. Through its insurance, it helps marginal buyers get loans if they do not have the 20 percent down payment a traditional bank loan requires. The agency requires a 3.5 percent down payment. Critics say it went overboard and insured too many loans to unqualified borrowers in 2007 and 2008, a position with which the agency itself now agrees.
Nearly one in five loans it insured in 2007 falls into the category of “seriously delinquent,” it said Thursday. These loanholders are at least three months behind in their payments. For 2008 loans, 12 percent of them were seriously delinquent.
The F.H.A. says it is insuring loans to more financially secure buyers with higher credit scores. The average credit score of new borrowers, it said, is 693, compared with 633 two years ago.
In a sense, the agency is bulking up and giving as many loans as it can to qualified buyers as a way to diminish the relative size of the pool of problem loans. It guaranteed more than $360 billion in mortgages in the last year, four times the amount of 2007.
Critics say this is only increasing the size of the ultimate peril.
“They keep saying they’re going to outrun their problems, but some way, somehow, the taxpayer is going to end up on the hook,” said Edward Pinto, a former executive with Fannie Mae.
During the news conference, Secretary Donovan and the agency’s commissioner, David H. Stevens, said that the cash reserve, the figure that has fallen to 0.53 percent of loans outstanding, was merely a supplement to a much larger fund that the F.H.A. was holding against expected losses. Between the two accounts, the agency has $31 billion to cover losses over the next 30 years.
The F.H.A.’s problems stem from its rapid transition from a wallflower to the most popular student in class.
During the housing boom, buyers flocked to private subprime lenders, who offered deals that required no money down and no documentation. The F.H.A., which required its token down payment and documentation of the borrower’s earning power, lost ground.
But as the market tumbled and the subprime outfits failed, F.H.A. loans became the next best thing. Brian Montgomery, who ran the F.H.A. for the Bush administration, said in a recent interview that the agency felt it had no choice but to open the doors to a broader group of applicants.
Citing pressure from Congress and the White House, Mr. Montgomery said: “We had to let these loans through.”
Mr. Montgomery, now a consultant, says that anyone dismayed by the possibility of yet another bailout should feel a different emotion toward the Department of Housing and Urban Development and, for that matter, himself: gratitude.
“They should be going over to the H.U.D. building and frankly thanking the career staff for saving them from a depression,” Mr. Montgomery said.
Louise Story contributed reporting.
Monday, November 9, 2009
Tax Credit Update
NEW YORK (CNNMoney.com) -- President Obama signed an extension and expansion of the first-time homebuyers tax credit on Friday.
The $8,000 credit was scheduled to lapse on Dec. 1 but will now be in effect through the end of June. Homebuyers must sign a contract before April 30 and close by June 30. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.
The bill also made more homeowners eligible to claim the credit on their taxes. First-time buyers -- those who have not owned a home in the past three years -- still qualify for an $8,000 rebate. But now people who want to trade up can also qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June.
"The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules," said Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.
Who qualifies?
Nicholas provided four scenarios illustrating how the tax credit rules for existing homebuyers will apply:
• Harry owned a home in 2001 and 2002 but sold it to relocate for a job. He would qualify for the $8,000 first-time-buyer credit because he has not owned a home in the past three years.
• Sue purchased a home in 2004 and has lived there since. If she decides to buy a new home, she would qualify for the $6,500 tax credit because she has lived in the same residence for five consecutive years in the past eight.
• Jane purchased her home in 2002, lived there for five consecutive years before she rented it out in 2007. She would qualify because she was an owner/occupier for at least five consecutive years in the past eight.
• Mark purchased a home in 2006 and lived there for the past three years. He would not qualify because he is neither a first-time homebuyer nor someone who lived in the same primary residence for five consecutive years out of the past eight.
How it helps the economy
Legislators and industry experts expect that the credit will encourage buyers such as Jane and Sue to move up their purchase plans.
"This bill will shift demand from the second half of 2010 into the first half," said Pat Newport, a real estate analyst with IHS Global Research. "As a result, home sales and prices will get a boost in the first half of 2010, with payback in the second."
That's not a bad thing, according to Bill Kilmer, vice president of advocacy for the National Association of Home Builders. It's important to stabilize real estate markets quickly to help bring the economy out of its tailspin.
The original $8,000 tax credit appears to have helped accomplish that goal: Home prices have inched up the past few months, according to the S&P/Case-Shiller Home Price Index.
Would it have happened anyway?
But critics still see the program as being ineffectual because it rewards buyers who would have purchased a home anyway. Newport estimates that fewer than 400,000 of the 2 million who have claimed the original credit made their purchases solely because of the tax advantages.
Furthermore, buyers do not, in reality, receive the entire benefit. "The credit helped prices stabilize," said Newport. "So the credit has been split between seller and buyer. The sellers are getting higher prices and buyers paying more than they would have without it."
The housing industry, however, is pleased with the extension, although the credit has not been quite as effective as they hoped.
The industry thought the credit would provide a ripple effect, with sales to first timers triggering as many three additional "move-up" sales.
That did not happen, according to Lawrence Yun, NAR's chief economist.
"It did not have the chain reaction impact it was supposed to," he said. "Instead, many first-timers turned to vacant, foreclosed or other distressed properties the sellers of which were unlikely to be move-up buyers."
So, the tax credit helped prop up the low end of the market without having much impact on the rest of the spectrum. Expanding the benefit to existing homeowners should boost those segments. That should produce additional benefits, according to Yun.
"Preventing further price decline or even nudging prices up a bit stabilizes housing wealth, which makes homeowners more comfortable in their spending," said Yun. "They're more likely to go out to the stores or buy a new car. That provides a boost to the overall economy."
The $8,000 credit was scheduled to lapse on Dec. 1 but will now be in effect through the end of June. Homebuyers must sign a contract before April 30 and close by June 30. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.
The bill also made more homeowners eligible to claim the credit on their taxes. First-time buyers -- those who have not owned a home in the past three years -- still qualify for an $8,000 rebate. But now people who want to trade up can also qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June.
"The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules," said Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.
Who qualifies?
Nicholas provided four scenarios illustrating how the tax credit rules for existing homebuyers will apply:
• Harry owned a home in 2001 and 2002 but sold it to relocate for a job. He would qualify for the $8,000 first-time-buyer credit because he has not owned a home in the past three years.
• Sue purchased a home in 2004 and has lived there since. If she decides to buy a new home, she would qualify for the $6,500 tax credit because she has lived in the same residence for five consecutive years in the past eight.
• Jane purchased her home in 2002, lived there for five consecutive years before she rented it out in 2007. She would qualify because she was an owner/occupier for at least five consecutive years in the past eight.
• Mark purchased a home in 2006 and lived there for the past three years. He would not qualify because he is neither a first-time homebuyer nor someone who lived in the same primary residence for five consecutive years out of the past eight.
How it helps the economy
Legislators and industry experts expect that the credit will encourage buyers such as Jane and Sue to move up their purchase plans.
"This bill will shift demand from the second half of 2010 into the first half," said Pat Newport, a real estate analyst with IHS Global Research. "As a result, home sales and prices will get a boost in the first half of 2010, with payback in the second."
That's not a bad thing, according to Bill Kilmer, vice president of advocacy for the National Association of Home Builders. It's important to stabilize real estate markets quickly to help bring the economy out of its tailspin.
The original $8,000 tax credit appears to have helped accomplish that goal: Home prices have inched up the past few months, according to the S&P/Case-Shiller Home Price Index.
Would it have happened anyway?
But critics still see the program as being ineffectual because it rewards buyers who would have purchased a home anyway. Newport estimates that fewer than 400,000 of the 2 million who have claimed the original credit made their purchases solely because of the tax advantages.
Furthermore, buyers do not, in reality, receive the entire benefit. "The credit helped prices stabilize," said Newport. "So the credit has been split between seller and buyer. The sellers are getting higher prices and buyers paying more than they would have without it."
The housing industry, however, is pleased with the extension, although the credit has not been quite as effective as they hoped.
The industry thought the credit would provide a ripple effect, with sales to first timers triggering as many three additional "move-up" sales.
That did not happen, according to Lawrence Yun, NAR's chief economist.
"It did not have the chain reaction impact it was supposed to," he said. "Instead, many first-timers turned to vacant, foreclosed or other distressed properties the sellers of which were unlikely to be move-up buyers."
So, the tax credit helped prop up the low end of the market without having much impact on the rest of the spectrum. Expanding the benefit to existing homeowners should boost those segments. That should produce additional benefits, according to Yun.
"Preventing further price decline or even nudging prices up a bit stabilizes housing wealth, which makes homeowners more comfortable in their spending," said Yun. "They're more likely to go out to the stores or buy a new car. That provides a boost to the overall economy."
Sunday, November 8, 2009
Tip of the Week: GA Hot in Foreclosures
From: "Luther Ragsdale II Broker/C.E.O. Platinum Real Estate"
Platinum Real Estate
Tip of the Week:
Atlanta is Hot in Foreclosures
Now is the time to buy and take advantage of the great prices in our area on foreclosure homes. Georgia ranks #5 on the list of states that have the most savings when purchasing foreclosure properties.
Experts say that Georgia's foreclosures are up 7% from last month and 26% from last year at this time. This means it is a great opportunity to purchase properties at abnormally low prices. Buyers on average can save up to 46% when purchasing foreclosure properties, getting more house for less money. Research shows that the states with the largest percentage of savings based on September 09 average sales price verses the average foreclosure sales price, Georgia is 5th on the list at a 46% savings. Now is the time to purchase your dream home or investment property before these low prices start to disappear.
Now is also a great time to have your Platinum agent assist you in finding the property to fit your needs. With 6 locations in Cumberland, Gwinett, Buckhead, Perimeter, Decatur, and Old National Highway there is an agent in your area - north, south, east or west!
IT IS TIME TO TAKE REAL ESTATE TO THE NEXT LEVEL.
" THE ULTIMATE LEVEL"
Call today and one of our skilled agents will be glad to service you. Or call and join us at our next seminar or workshop in your area to learn more.
Platinum Real Estate
3330 Cumberland Blvd.
Suite 500
Atlanta, GA 30339
www.PlatinumRealEstate.com
Office: 404-559-0332
Platinum Real Estate
Tip of the Week:
Atlanta is Hot in Foreclosures
Now is the time to buy and take advantage of the great prices in our area on foreclosure homes. Georgia ranks #5 on the list of states that have the most savings when purchasing foreclosure properties.
Experts say that Georgia's foreclosures are up 7% from last month and 26% from last year at this time. This means it is a great opportunity to purchase properties at abnormally low prices. Buyers on average can save up to 46% when purchasing foreclosure properties, getting more house for less money. Research shows that the states with the largest percentage of savings based on September 09 average sales price verses the average foreclosure sales price, Georgia is 5th on the list at a 46% savings. Now is the time to purchase your dream home or investment property before these low prices start to disappear.
Now is also a great time to have your Platinum agent assist you in finding the property to fit your needs. With 6 locations in Cumberland, Gwinett, Buckhead, Perimeter, Decatur, and Old National Highway there is an agent in your area - north, south, east or west!
IT IS TIME TO TAKE REAL ESTATE TO THE NEXT LEVEL.
" THE ULTIMATE LEVEL"
Call today and one of our skilled agents will be glad to service you. Or call and join us at our next seminar or workshop in your area to learn more.
Platinum Real Estate
3330 Cumberland Blvd.
Suite 500
Atlanta, GA 30339
www.PlatinumRealEstate.com
Office: 404-559-0332
Sunday, November 1, 2009
Home prices continue rebound
Case-Shiller index shows fourth straight month-over-month increase. Year-over-year decline moderates more than expected.
By Ben Rooney, CNNMoney.com staff reporter
October 27, 2009: 12:01 PM
NEW YORK (CNNMoney.com) -- Home prices rose for the fourth month in a row during August and suffered a smaller-than-expected annual drop, according to a report issued Tuesday.
Prices in the S&P Case-Shiller Home Price index of 20 cities rose a non-seasonally adjusted 1.2% in August. It was the fourth consecutive monthly increase and followed a 1.6% gain in July.
Prices were down 11.3% versus August 2008, but that drop was less severe than expected. Analysts surveyed by Briefing.com had forecast an 11.9% year-over-year drop.
"Broadly speaking, the rate of annual decline in home price values continues to improve" said David Blitzer, chairman of Standard & Poor's index committee.
While many U.S. markets remain down versus this time last year, the relative rate of decline "has shown some real improvement," Blitzer added.
Home prices improved on an annual basis in 19 of the 20 major metropolitan markets in the survey.
State by state. In California, home prices have recovered notably from depressed levels in recent months, according to the report.
Home prices rose 2.8% in San Francisco during August, while San Diego prices were up 2.5% and Los Angeles gained 1.8% in the month.
Minneapolis had the biggest increase, with home prices rising 3.2% from July to August.
But prices continued to slide in areas that have been hit hard by foreclosures. Prices dropped 0.5% in Cleveland and 0.3% in Las Vegas during August.
A shaky recovery. Overall, the housing market has been stabilizing as low home prices and attractive mortgage rates, as well as government tax credits, have revived anemic home sales.
However, the market remains hampered by unemployment, which rose to a 26-year high last month. And real estate analysts warn that the expiration of a popular new homebuyer tax credit next month could stifle the rebound in home sales.
The improvement in home prices could also be hindered by a "wall of supply" coming to market this spring from private sellers and foreclosures, warned Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Given the long-term challenges facing the housing market, the outlook for home prices remains grim.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a recent study by financial information and analysis firm Fiserv.
Fiserv expects the national median home price to drop 11.3% by June 30, 2010.
By Ben Rooney, CNNMoney.com staff reporter
October 27, 2009: 12:01 PM
NEW YORK (CNNMoney.com) -- Home prices rose for the fourth month in a row during August and suffered a smaller-than-expected annual drop, according to a report issued Tuesday.
Prices in the S&P Case-Shiller Home Price index of 20 cities rose a non-seasonally adjusted 1.2% in August. It was the fourth consecutive monthly increase and followed a 1.6% gain in July.
Prices were down 11.3% versus August 2008, but that drop was less severe than expected. Analysts surveyed by Briefing.com had forecast an 11.9% year-over-year drop.
"Broadly speaking, the rate of annual decline in home price values continues to improve" said David Blitzer, chairman of Standard & Poor's index committee.
While many U.S. markets remain down versus this time last year, the relative rate of decline "has shown some real improvement," Blitzer added.
Home prices improved on an annual basis in 19 of the 20 major metropolitan markets in the survey.
State by state. In California, home prices have recovered notably from depressed levels in recent months, according to the report.
Home prices rose 2.8% in San Francisco during August, while San Diego prices were up 2.5% and Los Angeles gained 1.8% in the month.
Minneapolis had the biggest increase, with home prices rising 3.2% from July to August.
But prices continued to slide in areas that have been hit hard by foreclosures. Prices dropped 0.5% in Cleveland and 0.3% in Las Vegas during August.
A shaky recovery. Overall, the housing market has been stabilizing as low home prices and attractive mortgage rates, as well as government tax credits, have revived anemic home sales.
However, the market remains hampered by unemployment, which rose to a 26-year high last month. And real estate analysts warn that the expiration of a popular new homebuyer tax credit next month could stifle the rebound in home sales.
The improvement in home prices could also be hindered by a "wall of supply" coming to market this spring from private sellers and foreclosures, warned Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Given the long-term challenges facing the housing market, the outlook for home prices remains grim.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a recent study by financial information and analysis firm Fiserv.
Fiserv expects the national median home price to drop 11.3% by June 30, 2010.
What do investors look for?
John Adams
Published: Yesterday
Last week we saw that some 35 percent of home sales during the past year were bank-owned foreclosures or government-owned resales. That is a huge increase from just a few years ago, when sales of these homes were not a significant part of the Atlanta market. Two factors cause these homes to sell at dramatic discounts:
● Lenders and government agencies are charged with disposal of these properties regardless of price. They do not have the luxury of waiting until the market improves; and
● These sellers have a policy of selling the properties in “as-is” condition, meaning no repairs and no disclosure statements. The buyer takes all the risk. The only potential buyers are investors looking for a bargain.
So, what are the specific characteristics investors look for in today’s market? There are many, but the main three are:
This is the most important part of the equation. The acquisition price needs to be low enough to cover all needed repairs, carrying costs, marketing expenses and still represent a bargain to the end consumer.
The price paid for the acquisition is critical to all later profitability. In the case of Atlanta’s post-foreclosure marketplace, investors have found a “market bottom.” Almost anything will sell very quickly if it is offered in the $30,000 to $40,000 range. Furthermore, the market is getting hotter.
While the uninitiated might think that the level of repairs necessary would be the most important consideration of an investor, such is not the case. Instead, price conquers all. Sometimes the best deals require cash for major systems as well as structural repairs.
That said, every investor hopes to minimize capital outlays for the rehab. Smart investors are experts at estimating overall repair costs.
Investors always look for pride of ownership in the neighborhood. Graffiti, junk cars, “boarded-up” or vacant homes are all indications of problems in the neighborhood. Wise investors try to avoid these signs.
The good news is that Atlanta’s investor community is working hard to absorb this glut of bank-owned homes. The question no one can answer is when the supply of these homes will begin to decline.
John Adams is a broker and investor. He answers real estate questions on radio station WGKA (920 AM) every Saturday at noon. For more real estate information, visit www.money99.com.
AP Mobile. © 2009 The Associated Press. All Rights Reserved.
Published: Yesterday
Last week we saw that some 35 percent of home sales during the past year were bank-owned foreclosures or government-owned resales. That is a huge increase from just a few years ago, when sales of these homes were not a significant part of the Atlanta market. Two factors cause these homes to sell at dramatic discounts:
● Lenders and government agencies are charged with disposal of these properties regardless of price. They do not have the luxury of waiting until the market improves; and
● These sellers have a policy of selling the properties in “as-is” condition, meaning no repairs and no disclosure statements. The buyer takes all the risk. The only potential buyers are investors looking for a bargain.
So, what are the specific characteristics investors look for in today’s market? There are many, but the main three are:
This is the most important part of the equation. The acquisition price needs to be low enough to cover all needed repairs, carrying costs, marketing expenses and still represent a bargain to the end consumer.
The price paid for the acquisition is critical to all later profitability. In the case of Atlanta’s post-foreclosure marketplace, investors have found a “market bottom.” Almost anything will sell very quickly if it is offered in the $30,000 to $40,000 range. Furthermore, the market is getting hotter.
While the uninitiated might think that the level of repairs necessary would be the most important consideration of an investor, such is not the case. Instead, price conquers all. Sometimes the best deals require cash for major systems as well as structural repairs.
That said, every investor hopes to minimize capital outlays for the rehab. Smart investors are experts at estimating overall repair costs.
Investors always look for pride of ownership in the neighborhood. Graffiti, junk cars, “boarded-up” or vacant homes are all indications of problems in the neighborhood. Wise investors try to avoid these signs.
The good news is that Atlanta’s investor community is working hard to absorb this glut of bank-owned homes. The question no one can answer is when the supply of these homes will begin to decline.
John Adams is a broker and investor. He answers real estate questions on radio station WGKA (920 AM) every Saturday at noon. For more real estate information, visit www.money99.com.
AP Mobile. © 2009 The Associated Press. All Rights Reserved.
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