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By Rob Morel on April 5, 2009
The big news in real estate still seems to be the $8,000 first-time homebuyer tax credit. Existing home sales rose 5.1% in February from the previous month and about half of these sales are attributed to buyers who are capitalizing on this temporary benefit. Remember that this credit only runs from January 1st, 2009 to December 1st, 2009 and does not have to be paid back (unless you move or sell within 3 years). To read more about this credit and also to download the form you need to apply for it, read my last months blog here:
Monthly Update - March
Beside the tax credit, there is another big reason people are stepping into the market: Mortgage rates have dropped to the lowest level on record in Freddie Mac’s survey, which dates back to 1971. The average rates on a 30-year fixed-rate mortgage dropped to 4.78% last week from 4.85 the previous week. Rates are down a full percentage point from just a year ago. It seems the Federal Reserve’s announcement to buy troubled mortgages from banks really helped bring the interest rate down to improve affordability. You can read about the “Public Private Partnership Investment Program” here:
Treasury Department Releases Details on Public Private Partnership Investment Program
Finally, if you already bought a home between July 2003 and June of 2008, the Los Angeles County Assessors office will be proactively reviewing the homes bought to see if they suffered a “decline-in-value”, which will temporarily reduce your property taxes. After April 1st, 2009, you will be able to check the assessor’s website at http://www.assessor.lacounty.gov to see if your home is part of the review. The review will be completed by June, 2009 and the assessor’s office will notify all those property owners who’s property was included in the review.
By Rob Morel on February 28, 2009
During February there was a lot of activity by the government to finally do something to turn the housing crisis around. The American Recovery and Reinvestment Act of 2009 was signed by the President and made law on February 17, 2009. The bill is a $780 billion package, with roughly 35% of the package devoted to tax cuts (mostly for 2009) and the rest to spending intended to occur in 2009 and 2010.
There are many provisions in this bill that will have an impact on the financial markets and the housing markets so if you are a homeowner looking to refinance, or are facing foreclosure, or are looking to buy a home, it would be important to read about the provisions of the bill as it will most likely affect you and you could take advantage of its benefits.
The part of the Recovery and Reinvestment Act that deals with the housing and financial markets is known as the Homeowner Affordability and Stability Plan, which will offer assistance to as many as 9 million homeowners, while attempting to prevent the destructive impact of foreclosures on families and communities. Here is a nice concise fact sheet released by the Department of Treasury that gives an outline of the plan and highlights the main points:
Homeowner Affordability and Stability Plan Fact Sheet
Perhaps the most important feature for first-time home buyers is the new tax credit that the government is now offering. This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim 10 percent of the purchase price up to $8,000, on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers. Here is the article on the IRS website:
Expanded Tax Break Available for 2009 First-Time Homebuyers
And here is the form you need to apply for the tax credit:
Form 5405
Finally, aside from all the government incentives, property prices have fallen to 2002 levels which in many cases is a 40% drop. Here is the LA Times article that discusses this and also shows some graphs to illustrate:
Southern California home prices fall, affordability returns to normal
I would really appreciate any feedback you may have about any of these articles and if you want more specific information about how these will affect you or how you can take advantage of the new incentives, please don’t hesitate to contact me.
By Rob Morel on February 4, 2009
There is a lot of uncertainty right now about the real estate market, the lending market, and the general state of our economy. Everywhere I go people have the same questions: Is it a good time to buy? Should I refinance? Can I qualify for a loan? Are interest rates going to increase or decrease? I have selected some articles that hopefully can answer some of your questions but because everyone is different and has a unique situation, please feel free to call or email me with your questions.
Most recently the House of Representatives passed President Obamas economic stimulus package of $819 billion dollars. This bill also needs to be approved by the senate and then needs presidential approval but there are some good features for the housing market in the bill, namely a $7,500 tax credit for first time home buyers. Originally this was a loan that had to be paid back but as the bill now stands, it would be a free credit to homebuyers. This article explains more about it: http://money.cnn.com/2009/01/29/real_estate/tax_credit_near/index.htm?postversion=2009012907
Also if you want to read more about the stimulus bill and its provisions I found this article helpful: http://online.wsj.com/article/SB123315486943524321.html
Finally, this is a good short article about mortgages if you’re planning on assuming a new loan or thinking about refinancing: http://www.businessweek.com/lifestyle/content/dec2008/bw20081230_361031.htm
I’d be happy to hear what you think about any of these articles.
By Rob Morel on November 1, 2008
Even though much of the news about the national and global economic markets has been negative, the truth is that there are some amazing opportunities right now for people interested in buying real estate. One of the wealthiest men in the country Warren Buffet said recently “Bad news is an investor’s best friend; it lets you buy a slice of America’s future at a marked-down price.” Right now there are many incentives to buy real estate including tax credits, low interest rates, special loan programs, large selection of for sale inventory and low home prices. I would strongly encourage people to take advantage of the downturn market and make it work in their favor.
Here are my top reasons for buying real estate right now:
1. Prices – most areas in Los Angeles County have dropped anywhere from 20% to 45% from the peak in 2006. What was once considered unaffordable all of a sudden looks viable for most buyers, especially entry-level first time home buyers.
2. Deals - I’m seeing single family homes in Redondo Beach a mile from the ocean going for under $500K now. These homes were going for more than $700K just a couple years ago. There are some unbelievable deals on condos too. True, most of these are fixer upper homes, and are probably bank-owned, but if you qualify there are mortgages where you can finance some of the repairs with upfront money that can be amortized over time in your loan. Or you can always just buy the location you always wanted to live in and make improvements over time.
3. Interest rates – Still at a historical low:
•1983, the 30-year fixed loan rate was 13.95 percent
•In 1987, the rate was 11.36 percent
•In 1992, rates dipped below double digits to 9 percent
•In 1997, the rate was 8.27 percent
•In 2002, the rate was 7.16 percent
•As of October 31st, the average 30 year fixed mortgage was 6.46 percent
Why is the interest rate important? For people who are going to get a loan, it’s almost more important to watch than the declining prices on properties because for every percentage increase, buying power goes down 9%. That means if the interest rate goes up just 2%, the same property has to now go down in price another 18% just to be even.
4. FHA loans – With the Housing and Economic Recovery bill that passed in July, FHA requirements changed for the better. Credit requirements are more lenient than conventional financing and credit scores are not important. Only 3.5% is required for a down payment and the loan can be up to $729,750 until Dec 31st, 2008 and then $625,000 as of Jan 1st, 2009. Furthermore, there is something called an Energy Efficient Mortgage (EEM) that will give you upfront money to make energy efficient improvements that will lower your monthly utility bills and add value to your property. This type of loan hardly even existed a year ago!
5. $7,500 tax break – This was made available to first time home buyers in the Housing and Economic Recovery bill and will only last until July 1, 2009. True, this money has to eventually be paid back, but it is yet another incentive for people who would like to buy a home now and are planning on living there for at least a few years.
6. Still better than renting! – While rent is going up in most places, you could be investing in capital now that will become profitable in the future. Real estate is still considered the best long term investment one can make, not to mention that you could be saving money now by deducting from your tax payments the interest from your mortgage and property taxes.
By Rob Morel on August 4, 2008
On July 30th new legislation was passed by the US government mainly to protect homeowners from foreclosure, stop declining home prices, and stabilize the mortgage industry. Since many people have been asking me about what this new legislation will actually do, I decided to write about three of the major provisions:
1. NEW CONFORMING LOAN LIMITS - Previously, the conforming loan limit for FHA and government-backed enterprises (Fannie Mae and Freddie Mac) was $417,000. Now it is permanently raised up to the greater of $417,000 or 115% local area median home price, capped at $625,500 (beginning Jan 1st, 2009). This means better interest rates for loans that previously would’ve been considered jumbo loans so buyers will be able to afford a higher priced home. However, the minimum down payment required on an FHA loan has now been increased from 3% to 3.5% and effective October 1st, sellers can no longer assist buyers in down payments on FHA loans. Assistance provided by nonprofits, such as family members, churches, or employers, are still OK.
2. HOMEBUYER TAX CREDIT - A first-time homebuyer can receive a tax credit of 10% of the purchase price up to $7,500 maximum, for any qualified purchase between April 9, 2008 and June 30, 2009. The credit is repayable in equal installments over the next 15 years (making it essentially an interest free loan) unless the homebuyer sells the property for a gain and then the loan needs to be paid back immediately in full. A buyer qualifies as a “first-time” homebuyer as long as the buyer or their spouse has not owned a principal residence in the U.S. for the last three years. So this provision will at least provide temporary relief for those who are really tight on money right now, but it’s no bailout.
3. FHA FORECLOSURE RESCUE - For about 400,000 homeowners who have unaffordable mortgages and subprime loans, assistance is available to refinance and get new FHA-insured loans. The original loans must have been originated before 2008 and the borrower’s monthly payment must be over 31% of their income as of March 1, 2008. Lenders can write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. However, borrowers will have to share 50% of any equity realized through a subsequent sale or refinance with the FHA. The loan limit for this program is $550,440 nationwide and is set to go into effect on October 1, 2008 till September 30, 2011. Even though the government is essentially bailing out these people, I’m for this assistance for two reasons. First of all, the borrowers were probably victims of predatory lenders who did not explain fully how these loans work and are now stuck with a payment that they can not afford. Granted, people should be more careful before they sign their names to binding contracts, there are a lot of stories I’ve heard of unscrupulous people who intentionally lied and withheld information in order to just make quick money off unknowing victims. Secondly, even if the borrowers are at fault, they are right now faced with losing their homes to the bank and whatever we can do to stop more foreclosures coming on the market should be done. Bank owned properties are usually not in the best condition and therefore require more repairs and updating, which now the buyer has to pay for. The purchaser also has to sign the bank’s addendums waiving most of their rights and the property comes “as-is” with no warranties expressed or implied. There is a misconception in the public that foreclosures are these great deals but in reality, to me, the trade off is not as valuable as a normal transaction.
There are many other provisions of this bill that creates new organizations, changes old rules, and shifts money around to various government authorities all in the name of “stabilizing” and “efficiency”, but I won’t bore you with those. If you want to read the full bill you can do so here: http://www.thomas.gov/cgi-bin/bdquery/z?d110:HR03221:@@@D&summ2=m&
