Homes with Casey

New Stimulus Housing Credit

2009-02-18T14:06:00.001-05:00

First-Time Home Buyer Tax Credit: 6 Things to Know

February 17, 2009 06:19 PM ET | Luke Mullins | Permanent Link | Print

While the proposed $15,000 home-buyer tax credit died in negotiations between the House and the Senate, the $787 billion stimulus bill that President Barack Obama signed into law Tuesday includes a similar--albeit smaller--measure designed to help revive the real estate market. Here are six things you need to know about the freshly-enacted $8,000 first-time home buyer tax credit.

1. Eight grand, new buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal. This credit is equivalent to 10 percent of the purchase price of the home--although it's capped at $8,000--and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.

2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.

3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.

4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.

6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)

The housing and foreclosure crisis

2008-10-01T15:15:00.002-04:00

A friend recently asked me who this foreclosure crisis affects the most in our area. Angry about the bailout going towards large companies and reading things about relatively wealthy speculators who've already spent much of the sub-prime cash-out REFINANCES now being foreclosed on, he was wondering if this bail-out was really directed towards a crisis in the real middle class of our country or towards investors and the more well to do. This was my discussion:

From what I have seen, the vast, vast majority of the problem in our area seems to be with the more moderate and lower priced properties (read: lower income buyers), particularly in the minority set, even more so in the Hispanic set. I cannot tell you how many houses I see where the last name of the defaulting owner is a Hispanic last name - it's tragic. It is SO overwhelming in this area that it's hard to comprehend. Even sadder are the conditions of the home (sometimes heartbreaking conditions with multiple families living in them with tons of kids, sometimes just not kept up, sometimes purposely ransacked by the angry owners before foreclosure (missing appliances, feces etc.). (See the Washington Post article by Nick Miroff, March 23rd, 2008, "N.Va. Foreclosures Form 'Ring of Fire'; Chain of Housing Crisis Hot Spots Indicates Disparity in Market Downturn" for some interesting demographics.)

As far as high value properties go? Generally not so many, though they do exist. When that's the case, it is often either investors or second home owners.

Now, what I care even more about....who to blame?

I personally think that they whole run-up of easy financing was a bigger factor than out and out fraud by the buyer. There are some people who knew very well what they were doing (like those who overstated their income so they could qualify for a loan). These tend to be the savvier buyers....people who have done it before and people who tend to have higher incomes (and often higher purchase prices). These people know what they have to do and say to get the money they want, and they went for it with gusto. I have a colleague who was helping a couple buy a 1.8 million dollar home who called her 2 DAYS before settlement to say they didn't think they'd be able to close.... And why? Their 1.6 million dollar home was being foreclosed on, and they couldn't afford it. This man LIED, LIED, LIED and was in such denial. But I digress, this is not the norm....

From what I've seen in the last 5 year, I tend to think that the majority of fraud and outright chicanery came by way of the lenders.....banks who wanted to make money with little regard for the people to whom they lent money. Their detachment from the process after the loan closes only exacerbates this (see also: slicing and dicing of loans). In many cases, the worst hit are lower income buyers and those with lower financial acumen. Many of these don't even understand our language well. You add that to completely different lending/mortgage process in their home countries, and you have easy prey.

I cannot believe how easy it was to get a mortgage for those who could barely afford it, for those who would have no cash reserves left after their purchase etc....I mean really, some things are just common sense. But even my better-educated clients who were going to be in homes for longer periods of time seemed to think that ARMs and interest-only adjustable loans and the like (don't even get me into negative amortization loans) were good ideas because they didn't understand what would or COULD happen if the real estate market turned away from the rosy side. And nobody seemed to be trying to explain any of it to them. There certainly weren't (and aren't) any regulations on disclosure of payment hikes after teaser or temporarily fixed periods ended, and I find that incredibly unethical.

I would also go to settlements and see people looking over their 'applications' - ones they were asked to sign again at settlement, and they would have totally different and made up information on them, filled in by the lender. And then, if they didn't sign it or if they corrected the information, they wouldn't get the loan and would set themselves up for litigation from the sellers for non-performance. Part of the problem is that it was in a bank's interest not to provide Good Faith Estimates from the get go, as they are required to do by the RESPA laws. The GFE provides buyers with very basic information regarding what their loans will cost, what their rate and payments are etc. I think most lenders never did this (leading to the VERY hilarious standard form in every loan package now requiring you to WAIVE your right to get the GFE within 3 days of your application - can you say CYA?). The bigger problem is that even this very basic piece of information didn't have the next most important piece of information.....in the cases of interest only loans and negative amortization loans (which no one ever understands), what will the payments be when the loan adjusts? What are the minimums and max amounts? No bank ever provided this information because they wouldn't want to scare the loan applicants with really, really big numbers. It is crazy. This is where Ralph Nader and his consumer protector laws come to play.......we DO need some really basic regulation with our banks - somehow regulating the whole process of application, disclosure and education, and this needs to be provided in an easily understandable format, in an applicant's native language if possible (some of the WORST fraud happened with immigrants who had NO IDEA what they were signing), and this needs to be done way before closing. Of course, we do have some of the RESPA laws now, but the problem is, it isn't enforced.

Now, going back to demographics: I doubt the rest of the country's foreclosures differ than much from our area is because, first, interest rates haven't changed that much - they really haven't. Even those with adjusting mortgages haven't been hit as hard as they could be. That said, who will small changes affect the most? Those with no reserves, those on the lower end of the income scale. As our economy worsens, this is particularly true for those that depend on work in the construction industry and those who don't have permanent jobs - again, back to the immigrants. When they lose their jobs, they can't pay their mortgages (and let's face it, they weren't in stable positions to begin with). It's not that much the rise of the interest rates....it's the worsening/instability of the economy for this sector of workers.

Second, in the past, borderline less well-to-do folks just wouldn't get a loan, certainly not a loan for a house, and now instead of simply having to move to a smaller apartment or in with family when bad times hit, they get foreclosed because they actually have their own house.

Second, people with more money often tend to understand what they're getting into better (generally, if you assume higher income = higher education) and thus tend not get themselves more easily into things that they can't handle. But even there, some smart people get caught on hard times. We've recently just seen this happen to a friend of ours (who has a couple kids and a not-so-fancy primary house). Part of this person's problem was not a lack of smarts but a lack of financial savvy. It is just too complicated. If you aren't in the industry, it can be a very confusing scenario for a lot of people.

Don't get me wrong, I am a huge believer in personal responsibility - there was definitely fraud out there, and there were definitely people overextending themselves. I just happen to have seen the most egregious misbehavior and fraud out there with the lenders. Don't even get me started on the whole appraisal industry (a subset of the lending industry). That's another part of the process that needs serious overhaul. And let's face it.....an owner is responsible only for their own home and well-being, not the financial well-being of massive companies, thousands of jobs, the general health of our economy.....

In the end, I don't think that we will ever recover and prevent this from occurring again without real regulations and oversight with teeth.

Is now a good time to buy?

2008-07-05T17:47:00.003-04:00

Is now a good time to buy? This is a question that many buyers, particularly first-time homebuyers, are contemplating. As a decent rule of thumb, if you are planning on owning a property for less than 3 or 4 years, I would not buy right now. In the end, no one has a crystal ball and no one (no matter how many articles you read) will be able to predict what will happen in the next few years. There are too many moving targets (general economy, interest rates, etc.). On the positive side, we are still at a 30 year historical low of interest rates. That makes borrowing money relatively cheap. This, combined with the great tax break from writing off interest, real estate taxes and depreciation, can save you hundreds of dollars a month (or more) in real terms vs. throwing money away on a rental. But, as it costs nearly 3% in closing costs to purchase a property and about 7-7.5% to sell a property (closing costs + agent fees), you will need to recoup about 10% to break even when you sell. Don't buy property for short term gain right now. It probably won't be worth it. Four+ years? You'll probably be ok. Just remember, location, location, location!

Bargian hunting season

2008-06-03T14:29:00.002-04:00

It is bargain hunting season. In this market, sellers really need to prepare themselves for what will come when they put their home on the market. The general feeling from buyers right now is "Why should I pay full list price? I want a deal!". Even when properties are fairly priced to begin with, many buyers just want to see how low a seller will go. It doesn't help that foreclosures (where banks price the properties low to get out of them as quickly as possible) are dragging down prices of seller-owned properties. The fact that many of these short-sale or foreclosure properties are in terrible condition often doesn't factor into a buyer's mentality about what better-looking homes are worth. The bottom line in this market is that an offer is reasonable if it is within 10% of the asking price. Just be prepared to negotiate. It's all a give and take. This may also mean pricing the home reasonably to begin with, but not rock bottom, or offering a closing cost credit to the buyer to generate interest. Sellers should also be prepared for up to 1% of the sales price to be spent on repairs after an inspection is done on a property (less for a condo).

Are you a seller in today's market?

2008-05-02T10:27:00.003-04:00

Are you a seller in today's market? If so, one of the most important things that you can do to sell a property is to stage it well. There is so much inventory out there that sellers really need to make their homes shine....this means decluttering, putting things in storage, covering old, worn furniture with slipcovers, painting, making minor repairs around the house and more. Your real estate agent can help to make suggestions for what to do, but consulting a qualified stager will be well worth the investment!

What does the Fed Rate drop mean?

2008-05-02T09:58:00.001-04:00

Why Fed Rate Cuts Do Not Equal Lower Mortgage Rates
By Barry Habib, CEO

Last Updated: April 23, 2008

The Federal Reserve has been on a rate cutting spree once more. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during the recent six Fed rate cuts. This is difficult to explain to consumers who have watched a 3.0% reduction by the Fed with very little benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another.

It is often said history repeats itself. And if history is any teacher, we can learn from what happened to mortgage rates the last time the Federal Reserve was in a rate-cutting cycle.

The last time the Fed was in a lengthy rate cutting cycle was back in 2001 from January 3, 2001 to December 11, 2001. In the span of 11 months, they cut the Fed Funds rate 11 times with eight of those cuts by 50bp. This resulted in a total of 475bp or 4.75% in short-term interest rate cuts taking the Fed Funds Rate from 6.00% down to 1.75%. Now most uninformed people would naturally think because the Fed cut rates by so much during this time that mortgage rates would follow suit and trend lower as well. Not so. Mortgage rates actually moved higher during this time of significant rate cuts because inflation, the arch enemy of bonds, gradually rose.

Now let’s take a look at what happened with the Fed’s most recent cutting cycle, the first since 2001. On September 18, 2007 the Fed cut the Fed Funds Rate by 50bp. The mortgage bond market briefly enjoyed a “knee-jerk” reaction to the Fed move by closing higher that day, but lost 140bp over the following two sessions. Then on October 31, 2007 the Fed lowered the Fed Funds rate by 25bp. The mortgage bond market responded by losing 78bp over the following five trading days. On December 11, 2007 the Fed once again lowered rates by 25bp and the mortgage bond market lost 88bp in the next three days. So far this year, the Fed delivered a surprise 75bp rate cut on January 22, 2008 and mortgage bonds lost a whopping 144bp in just 2 days. Eight days later and as widely expected, the Fed cut rates by 50bp. Within 13 days from that 50bp cut, mortgage bonds lost 269bp. On March 18, 2008 the Fed cut by 75bp and mortgage bonds lost 113bp in 6 days and 214bp in 22 days.

Rate hike ending?

2005-11-29T14:04:00.000-05:00

Who knows what the Fed has in mind, but average interest rates actually DECLINED last week!

A Hint That Fed's Rate Increases May End Soon(November 23, 2005) -- Newly released minutes from the Federal Reserve's Nov. 1 meeting indicate that central bank officials soon may strike certain language from advance guidance about future rate increases. Though they do not indicate when they will cease short-term rate hikes, the minutes do hint that Fed policymakers may no longer suggest that rates will be increased at a "measured" pace. Nevertheless, concerns about inflation lead investors and analysts to believe that another two or three rate hikes are on the horizon. Ben Bernanke, who is slated to take over for Alan Greenspan as Fed chairman at the end of January, is expected to increase rates at least once after assuming the post, mainly to show that he is as committed as Greenspan to combating inflation. Source: New York Times (11/23/05); Andrews, Edmund L.

An opportunity for future investors?

2005-11-29T14:02:00.000-05:00

Interest only loans might mean that as rates rise, there will be more people looking or needing to sell. See the below report on interest only loans in DC!

D.C. Has Most Interest-Only Home Loans(November 23, 2005) -- LoanPerformance reports that Washington, D.C., ranks first in the nation for interest-only mortgages, which accounted for 52.3 percent of home loans written in the District during the first six months of the year. Interest-only products made up 43.8 percent of all loans in Virginia, 43.7 percent in Colorado, 43.1 percent in Arizona, and 41.8 percent in California over the same period. Also placing in the top 20 were Maryland, Nevada, Florida, Hawaii, the Carolinas, and Massachusetts. Nationwide, 28.5 percent of home loans made between January and June included interest-only terms. The metropolitan areas with the largest percentages of interest-only loans were Santa Cruz-Watsonville, Calif.; San Francisco; and Washington, D.C. Though some experts are worried that the popularity of interest-only financing puts the nation's housing markets at risk, Freddie Mac COO Eugene McQuade says interest-only and negative amortization products presently boast higher credit quality than 15- and 30-year fixed-rate mortgages. According to Wells Fargo's Second Annual Survey of American Homeowners, 73 percent of respondents with interest-only mortgages make principal and interest payments part of the time. Nearly one-quarter of those polled, meanwhile, said they pay both the principal and the interest all of the time. Source: Inman News Features (11/22/05)

Do you need help boosting your credit score?

2005-10-04T15:55:00.000-04:00

There are ways to get around credit problems that you might not be aware of. If you have dings on your credit, or if you need someone to 're-score' you because of an erroneous report on your credit, loan officers can often help you with this (see my website for suggested lenders, including those who work with hard-to-lend to people)

But for those with real problems, or for those who have no or little credit history, there are ways to use nontraditional credit records to boost your credit ratings. If you regularly pay your utility or cell phone bills or your rent on time, this can help your credit score. However, these payees usually do not report your payment history to the credit bureaus unless they have a problem. Well,the PRBC (Pay Rent, Build Credit Inc) could help you. The PRBC turns a nontraditional credit record into a bill-paying score that lenders can use to supplement your FICO score. Link to www.prbc.com for more information!

Why is your credit score so important? It will determine how much you can afford, and what type of loan and rate you qualify for. The worse the credit, the fewer and less attractive choices you have. In the long run, this can cost you money or even prevent you from getting a loan at all.

Investors

2005-09-26T17:32:00.000-04:00

Just getting going on the investment front? There are still many opportunities out there, but you have to be careful. I thought that the article in Saturday's Washington Post (September 24, 2005) was a pretty good primer. Take a look! "The Magic Touch:
With a Little Paint and a Lot of Sweat, the Right Fixer-Upper Can Yield a Profit for an Investor". Also, see this one in the Wall Street Journal on September 14th, "Real-Estate Flip Deals Have a CatchMisunderstood Tax Rule Could Pose a Headache For Amateur Investors."

Beware of real estate agents who say that 'exclusive agency' is the way to list your home!!

2005-07-24T15:27:00.000-04:00

A troubling trend in selling homes in the DC area has emerged (especially in the Georgetown area)....Some real estate agencies have convinced their sellers to list their property with their agency under what is called an exclusive agency listing. This means that only the agency that lists the home can bring buyers and sell it. So if Agency X signed you up under this type of agency, they would only allow agents from Agency X to show the home. No agent from the multitude of other companies would be able to get into the house. [Don't confuse this with exclusive right to sell, which only means that your agent will get the commission available for selling your house no matter who shows it (and generally share the commission with the buyer's agent). The showings and potential buyers in this case are not restricted by agency at all.]

What is exclusive agency such a bad deal? Listing your home under exclusive agency means that a very small percentage of people will see your home. Your agent will turn away people at an open house if they have a buyer's agent from another company and will not permit any other showings. The fewer showings you get, the less chance you have at selling your home in the least time for the most money possible.

"Are you crazy?? Why would I ever agree to such a thing??" Some agents can be quite convincing! This also happens more often with more expensive listings. An agent will tell you that you don't want a bunche of people traipsing through your house, that you have such a special house with expensive things in it that you want them to screen everyone that comes through the door and that they are sure that they can sell the house by using only the other agents in their office. They will say that their agency has cornered the market on the "right buyers". When they say all of these things, they will omit telling you that it will severely hurt the market exposure of your house, which only hurts you in the long run. Even in my office, where we know this has happened, there are documented cases of buyers who would have paid more for a property but weren't allowed to because they didn't have an agent from the same agency (and buyers are bound to use their agent by a legal agreement just as sellers are). The reason that an agent would try to convince you of this is because they want buyers to come directly to them so that they (or their office) can collect both sides of the commission.

The bottom line is that you want your house to be seen by as many people as possible. If you are concerned about people coming through your house, you can make arrangements with your agent to be present at every showing, to not hold an open house or to have extra agents around the house if they do hold an open house. If an agent is really working in your best interests, they would NEVER suggest limiting the scope of the houses marketing or potential viewers. And NO agency has cornered the market on a certain price range of buyer, so there is no way they could have the house shown to the most people under exclusive agency.

Why wouldn't I get an interest-only loan?

2005-06-24T16:02:00.000-04:00

Ah...interest only loans...the new thing in financing your real estate purchases. With such low, low payments, how on earth could it go wrong?

When it is a good thing:
1. You are an investor and plan to sell your property within a year. You want to keep your payments as low as possible and you aren't worrying about the market changing much before you sell it. You should be fine then. If you are improving your property or betting on high appreciation before you sell short-term, this should work for you (but if you sell before a year is out, you will be taxed on short-term capital gains - very high compared to selling after a year where long-term capital gains is capped at 15%).

When it is NOT a good thing:
1. You are planning on keeping the property for less than 5 years: In this case, interest only loans carry a moderate amount of risk. You are betting that the house will appreciate enough in the time before you sell it. Don't forget the other costs that you will have to cover to just break even...about 3% in closing costs to buy it and about 7.5% to sell it. You will have paid no principal by the time you sell it, so unless your property has appreciated, you could end up owing more money than the amount of the loan just to get it off your hands. And are you SURE you know where the market will be in a few years?
2. You are planning on living there more than 5 years and want this loan because otherwise you could not afford this property: This is definitely NOT an optimal choice for you. Besides the same comments as in #1, you could be even more hurt because, all of a sudden, your interest-only loan will start to adjust to the market rate. Not the market rate NOW, the market rate in the FUTURE. The difference between a 6% and an 8% loan on $400,000 is $537/month. If you were stretching now, how are you going to make it then?? Well, you think...just refinance. But what if the rates finally go up and all you can refinance to is a much higher rate (we have had the lowest rates in history recently, so it's probably only a matter of time). Ouch! Just buy within your means.

So, do your homework. Don't just roll with the trends or with what a mortgage lender tells you is the popular thing to do. This is YOUR money and your life. Do your due diligence, and don't be afraid to ask questions.

Think things are slowing down? Think again.

2005-05-13T09:28:00.000-04:00

Things in the DC metro area (including VA and MD) are still full steam ahead! Interest rates are still low, as is inventory, the two biggest drivers of this fast-paceed market. This area posted a 22.7% gain over last year with a median home price of $369,000. We ranked 13th in the nation for the percent gain. See this Money magazine article with the rankings.

Baseball stadium creates new opportunities

2005-04-05T15:36:00.000-04:00

Don't know if you saw the recent article in the Washington Post Metro section, but the new Washington Nationals baseball stadium to be built near the Navy Yard is creating quite a stir in the SW DC property market. Nevertheless, as of this time, it's still undervalued! Two of my buyers just bought studio coops at River Park for about $100k! They are nice - all wood parquet floors, balconies, 24 hour security, pool, fitness center, and only 2 blocks from the metro, the waterfront and Safeway!! Contact me if the booming SW waterfront is an area that might interest you! (703) 624-4657

Baltimore prices moving up

2005-03-20T15:32:00.000-05:00

Saw an article in the Baltimore Sun (free registration required) today talking about the increase in prices up there as buyers flee the DC market:

It's a trickle that has become a flood, homebuyers with Washington-style paychecks fleeing the staggering cost of living in the nation's capital. In suburbs around Baltimore and in the city itself, the resulting ripple has fueled rapid acceleration in home values.

I can refer you to a Baltimore agent if looking at home up there is something that interests you.