Housing Market Bottom?

Are you a buyer waiting for the “right time to buy” ?  Well, that would be NOW!

Do not become obsessed with trying to time the bottom of the market so you can get the best deal.  In my 38 years as a broker, I have observed that we never really can identify the bottom of a market cycle until we are already on the upswing.

I offer these observances:

There is huge, pent-up demand for housing, we are entering a spring market, interest rates are still very low and sellers “get it” that their asking prices must be very competitive.

Our showing appointments have increased dramatically in the last few weeks and some properties are receiving multiple offers and selling for more than list price.  The overall activity in the market has increased with an upbeat attitude.

Once the mortgage/credit/qualifying standards relax a bit (and they will) and more approved buyers enter the marketplace, home prices will rise.

I strongly believe we are on the road to a real estate recovery, and if you have any thoughts a buying a home this year, NOW IS THE TIME!

On Sunday, March 22, between 1:00-4:00 PM, CENTURY 21 Town & Country is hosting an event to promote the sale of our listings in Northville, Novi and South Lyon.  Prospective buyers are welcome to visit and inspect houses and condos that are available to purchase.

Click here to see our scheduled Open Houses in Northville, Novi and South Lyon

FIRST TIME BUYERS–Additional $8,000.00 tax credit! Contact a CENTURY 21 Town & Country agent for details!

Information on these cities will be available to guests of the event.  Information will also be available on mortgages and financing.

H.R. 1, the “American Recovery and Reinvestment Act of 2009,” passed the House on February 13, 2009, by a vote of 246 – 184. Later that day, the Senate also passed the bill by a vote of 60 – 38. The President signed the bill 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.

The mix of provisions of interest to REALTORS® changed frequently throughout the legislative process, with changes continuing to be made just hours before the measure was released prior to the vote. In the end, the elements of NAR’s housing agenda were included. Congress and the President have announced that a finance and housing package (including tax provisions) will be the next “big” initiative, so Congress has by no means finished its work as it affects the housing industry and REALTORS®.

The bill includes the following provisions:

• Homebuyer Tax Credit
• FHA, Fannie Mae and Freddie Mac Loan Limits
• Neighborhood Stabilization
• Commercial Real Estate
• Rural Housing Service
• Low Income-Housing Grants
• Tax Exempt Housing Bonds
• Energy Efficient Housing Tax Credits & Grants
• Transportation Investments
• Broadband Deployment

Homebuyer Tax Credit – The bill provides for a $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser’s income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.

FHA, Fannie Mae and Freddie Mac Loan Limits -The bill reinstates last year’s 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans. These limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. For the few areas where the 2009 limits were higher, the higher limits will apply. In addition, the bill includes language providing the HUD Secretary with the discretion, if warranted, to increase the loan limit for any “sub-area”, i.e.an area smaller than a county. The Secretary’s discretion is again limited by the $729,750 cap. These 2009 limits will expire December 31, 2009.

The inclusion of these loan limit provisions in the final bill is a victory for homeowners, buyers and Realtors. While these new limits were included in version of the original stimulus bill approved by the House, the bill first approved by the Senate did not. NAR’s Call for Action to both the House and the Senate prior to the final vote advocated strongly for the provisions which were then included in the final bill approved by both Chambers.

Neighborhood Stabilization – Division A, Title XII of the bill provides $2,000,000,000 in additional funding for the Neighborhood Stabilization Program (NSP). The NSP was created by the Housing and Economic Recovery Act of 2009 (Public Law 110-289) to provide grants through the Community Development Block Grant program (CDBG) to states and localities to address the problems that can be created when whole neighborhoods are decimated by foreclosures. The funds can be used to purchase, manage, repair and resell foreclosed and abandoned properties. In addition, the funds can also be used by states and localities to establish financing methods for the purchase and redevelopment of foreclosed properties. After purchase the homes must be used to assist individuals and families with incomes at or below 120% of area median income. Twenty-five percent of funds must be used for households with incomes at or below 50% of area median income. By leveraging their expertise in partnership with others from both the public and private sector, Realtors® in many communities have been making important contributions to their local communities’ neighborhood stabilization programs.

Commercial Real Estate – Commercial real estate is impacted primarily through those provisions of the bill focused on green building and energy efficiency as well as business tax incentives. H.R. 1 provides significant funds for state energy programs, which could be used to support commerical property owners’ investment in energy efficiency upgrades while commercial property owners seeking to invest in alternative energy systems for onsite power generation would benefit from the Department of Energy Renewable Energy Loan Guarantees Program. Of particular benefit to small businesses would be certain provisions of the bill that provide tax relief in the area of bonus depreciation and capital expenditures, as well as the 5-Year carryback of net operating losses for small businesses.Back to top

Rural Housing Service – The bill provides an additional $500 million to existing USDA Rural Housing programs. The RHS provides both a guaranteed loan program and a direct housing loan program for those meeting the program’s eligibility criteria. The direct loan program will receive $270 million while $230 million will be allocated for unsubsidized guaranteed loans. It has been reported that this level of funding would provide for an additional 192,000 homeowners.

Low Income Housing Grants – Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.

Tax-Exempt Housing Bonds – Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds.

Energy Efficient Housing Tax Credits & Grants – To promote green jobs and energy independence, ARRA invests significantly in efforts to make homes and buildings more energy efficient. The bill provides state and local governments with $6 billion in energy efficiency and conservation grants for energy audits, retrofits and financial incentives. Through 2010, homeowners will be able to claim a 30% tax credit (up from 10%) for purchases of new furnaces, windows and insulation. Another $5 billion will be available to modernize the nation’s electricity grid and install smart meters on homes that help to save consumers money. There is also $5 billion for weatherization assistance for low income households and $2 billion for federally assisted housing (section efficiency efforts.

Transportation Investments – The bill provides $46.7 billion to states and localities for capital investment for surface transportation projects including highways, bridges, transit, and rail projects. NAR policy supports increased spending on the types of transportation infrastructure addressed in the bill with the exception of Amtrak and high-speed inter-city rail where NAR has no policy. These investments will tend to moderate traffic congestion and support a variety of transportation alternatives which will improve the quality of life of American communities and bolster the value of real estate.

Broadband Deployment – The bill creates $7.2 billion in grants to promote broadband deployment in unserved and underserved areas and for mapping the availability of broadband service in the U.S. Any entity is eligible to apply for a grant including municipalities, public/private partnerships and private companies as long as they comply with the grant conditions. The grants are subject to “network neutrality” requirements to ensure that broadband networks be free of restrictions on content, sites, or platforms, on the kinds of equipment that may be attached, and on the modes of communication allowed.

The bill also charges the FCC is with developing a national broadband plan that shall seek to ensure that all Americans have access to broadband capability and shall establish benchmarks for meeting that goal.

The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit,” said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit 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. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

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.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

Please contact Cambridge Mortgage for more information.

I know this sounds too good to be true, so you ask what is the fine print and what does it mean to me?

So here it is in a nutshell:

• To qualify as a first time home buyer as defined in the program, the purchaser may not have owned a home in the three years prior to the purchase date of the home. Single family homes qualify for the program and the home must be your primary residence.
• To be eligible for the full tax credit, the home buyer’s adjusted gross income can not be more than $75,000 filing single / $150,000 joint. A home buyer with income level of that and up to $95,000 filing single / $170,000 joint is eligible for a reduced tax credit.
• The amount of the credit is the lesser of 10% of the purchase price or $8,000.00.
• No portion of the $8,000.00 will need to be repaid upon the sale of the home if the is owned for more than 3 years.
• The tax credit can be claimed on one’s individual or joint tax return between January 1, 2009 and December 1, 2009. It can be claimed on an amended 2008 tax return, or a 2009 tax return. You should consult a professional tax advisor for exact tax calculations and advice.

I hope this sheds some light on this First Time Home Buyer Tax Credit. After reading this I think it’s safe to say that in today’s real estate market if you are a first time home buyer and have the means necessary to buy a home you will not find a better time than the present to do so.

As a buyer, the market could not be better today.  There are deals (and steals) out there today, of which we have not seen in nearly ten years.  Realistically, home prices in southeast Michigan are at levels roughly equivalent to those from 1999-2000.  I heard a report on the radio this morning that nationally we are at 2004 pricing. This provides truly an unbelievable opportunity for those who did not invest in real estate in the past to essentially jump back in time and take advantage of the best personal wealth builder available to most of us, a home.

I know what you’re thinking, what about the credit crunch?  It’s true, that credit may not be as readily available for any purchase, including a mortgage, today as it was a few years ago.  While the pendulum may have swung a little too far in the tightening direction recently, it’s because it had come from way too far in the loose direction in the years that proceeded.  Is it really a negative thing to think that we should be putting up a significant initial stake in the largest purchase most of us will ever make?  The bottom line is that there are still many options available for those who are looking to make a purchase.

So far this discussion has focused on the buying side of the equation.  And I know that my initial comment stated that your view point on the market depended on your role.  So I guess the natural assumption would be that if you are selling the market is not pretty.  That’s not necessarily true.  First of all, there is great deal of activity in the marketplace today. Yes, I just mentioned that prices are down from their record highs of the last few years. That said, everyone that is selling a primary residence must be moving somewhere.  For most, that means buying another home.  So the real question comes down to where and what you are buying.  If you are buying in the same general market and buying more home, you stand to do quite well in the “net” of the two transactions.  This will be the topic of my next article.

It is a temporary first-time homebuyer tax credit, which functions like an interest-free loan. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes in income taxes. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009 and the taxpayer must meet the annual income requirements. For the purposes of tax credit, the purchase date is the date when closing occurs.

How much is the new homebuyer tax credit?

The tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For many first-time homebuyers, this means the credit will equal $7,500.

Who is eligible for the tax credit?

A “first-time homebuyer” is defined as a buyer who has not owned a principal residence during the three-year period prior to the purchase. First-time homebuyers purchasing any kind of home—new or resale—may be eligible for the tax credit.

For more information on the details of the bill visit:
http://www.federalhousingtaxcredit.com.

Does the tax credit need to be repaid?
Yes, homebuyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a homebuyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. If the home was sold, the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

Here are a few items to think about:

1.    Compliance/legal issues – out of state sellers (banks) are sometimes not aware of Michigan laws & requirements resulting in lengthy delays and there are usually no seller disclosures or records available.

2.    Long delays in negotiation – your “accepted” offer may go into a pool of other “accepted” offers with the seller ultimately deciding weeks later to take another bid or reject all of them. Unfortunately, much of this negotiation turns out to be verbal – (non-enforceable) – creating lots of frustration and hard feelings.

3.    Not enough help – to overwhelmed and overburdened bank employees working on your transaction, it is just one of thousands they must process. Plan on at least 2 to 3 times longer processing time – be prepared for “lost” documents, additional forms needed and unreasonable requests.

4.    The AS-IS clause – the bank’s purchase agreement is very different from what you may be used to. Unlike buying a “regular” house where the seller is responsible for keeping the property in substantially the same condition until the closing, the foreclosure sale puts all the risk on the buyer. Once you have a confirmed agreement of sale with the bank, if anything happens to the property prior to closing it is your problem. I know of properties in which copper pipes, aluminum siding, A/C unit, kitchen cupboards, hot water tanks and furnaces have been removed and the buyer ended up with a shell. Believe me, it happens.

5.    The Equity Loan – the strategy of using your equity line of credit to fix up the house can be derailed when your bank decides to “freeze” or discontinue your line of credit. You have a house in major disrepair and no money to make the necessary improvements.

6.    Water Intrusion & Mold – some houses have remained vacant for a year or two with no heat/electricity, flooded basements, leaky roofs, missing downspouts & gutters cause water damage and eventual mold. Temperature extremes also cause stress cracks and structural damage; animals & squatters like to seek shelter as well.

7.    Your Ability to Get Approved – don’t get too caught up in your “investment strategy” until you have a firm mortgage approval from your lender stating that they will lend you money on this “distressed” property. Don’t think you’re going in zero down on these deals.

8.    Underestimating – unless you are a savvy builder/tradesman, the average buyer has no idea of the real cost of renovating these distressed homes. There are lots of hidden costs and problems that arise which have devastated some buyers. Here’s a rule of thumb à plan on the project taking twice as long and costing twice as much as your best estimate.

My best advice is to gather enough information to see if you are ready for this type of a challenge. It can be mentally, physically, and psychologically draining, but, if you’re up for it, rehabbing the distressed home can be very rewarding.