Thought you guys would enjoy a little graph of the historical interest rates. Hard to say not to such cheap money!
First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.
Tax Credit Versus Tax Deduction
It’s important to remember that the $8,000 tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing. Better yet, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit… and still receive a check for the remaining $4,000
Homes that Qualify
The tax credit is applicable to any home that will be used as a principal residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principal residence also qualify.
Higher Loan Amounts
More good news – there is an extension on the additional tier of conforming loan amounts which had been first established in 2008. This tier of home loans are those greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750. These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard “jumbo” loan rates.
FHFA News Release -
http://www.mortgagemarketguide.com/download/022309_final.pdf
Thought I would share Forbes article that I was reading this morning — the usual gloom and doom, yet you come to the part about Seattle quoted here:
“There are cities better poised to weather the crisis. Unemployment is on the rise almost everywhere, but in northwest cities like Portland and Seattle, northeast cities like Boston and Baltimore or energy and agriculture cities like Oklahoma City, Tulsa and Austin, it remains low.
Homeowners in these areas are, not surprisingly, also not drowning in debt. In Boston, the median homeowner has $60,000 extra in his home. In Seattle, it’s about $80,000. In Honolulu, it’s $120,000. Foreclosures aren’t flooding markets, meaning homeowners can sell at current prices if they get in trouble. In Seattle, Oklahoma City and Baltimore, fewer than 6% of home sales are foreclosures, some of the lowest rates in the nation.”
You can read the full article here: Forbes Article Lesson to be learned is that our local economy is not completely impervious, but we are likely to fare better than the rest of the nation. In that regard, chew on this thought - If you were in a sagging local economy (perhaps somewhere in Nevada etc) would you be more inclined to move to somewhere like Seattle or Portland? Does increased demand drive prices higher for a commodity like homes (yes). Just a thought….
So with all the turmoil on the national news — and presidential debates with seemingly endless laundry lists of topics to discuss — I decided that is time that I add my two cents. Perhaps it is not the best to be speculatory in nature, or to even try to predict the future, but I think that it is a good thing to at least offer my viewpoint. So in the past couple of days it has been a hard thing to not get wrapped up in a fear-based approach to life and investing. One interesting pattern is that over the past decade we have had a greater degree of variance and growth that has really been unprecedented in the DJIA. We have truly enjoyed a period of wealth accumulation that most could never have predicted in the early 90’s. I think that sometimes the issue that we have with our asset values is that we look at all these gains as a static thing — as opposed to a valuation that does have a fair amount of variance. Historically the DJIA has averaged 10.83% gains on a year over year basis. I would like to believe that markets tend to find equilibrium in the long haul, and that they come in line with long term market trends. Perhaps something like the below graph. Bottom line is that I don’t think we need to view this as the end of the world. Perhaps it is time to look at a long term approach and notice there are some great deals in the real estate market these days. It’s usually in these markets that the prudent investors snap up the great deals, while waiting for the general crowd to overcome their fear and reinvest. When everyone else comes back to the table — it is those few that will be selling once again at a nice profit. Anyone happen to notice the world’s richest man, Warren Buffet, putting 5 Billion Dollars into Goldman Sach’s and GE stock???
Interesting development in the market today with talks of reviving the Resolution Trust Corporation that was part of the 1980’s bailout of the S&L crisis. Esentially it is a government backed entity which will buy these troubled loans from the banks at something like 30 cents on the dollar. It is unsure exactly what these loans are worth given the unpredictable failure rates (not all bad loans are going to go into foreclosure, some pay out) so it will spur investor activity. Look at the stock market today - 500 points in one day! Why is this confidence occuring? They believe the RTC will start buying the bad loans off the books of the troubled banks — freeing capital which can then be used to issue good loans that investors will be willing to buy. The stalling banks will then be resuming the business of creating capital, issuing good loans, and selling them off to investors as bonds that have a higher credit rating and more guaranteed rate of return. Where does that put the homebuyer in Seattle? In a good position as it will inevitably keep rates at or below the current market.
So in Seattle we are all about the “green home”, but what I find intriguing is that there is still very minimal usage of photovoltaic cells to generate power. Often times when we think of photovoltaic cells we think of the massive investment in the whole system — but it can be remarkably simple with the advent of “net metering”. ”Net metering” refers to an interconnected customer generation system with a meter that reads the “net” difference between the customer’s electricity generation and consumption. (as quoted from Seattle City Light) When you need more power than you generate you use your regular utility company for the power that you need. The beauty here is that it eliminates the need for costly and sometimes bulky banks of batteries to store your energy. Essentially by selling the power back to the utility, you are storing later credits for when you need them! The other great thing is that these solar panels have a remarkable life — as quoted from the Northwest Solar Center — “The first commercial solar modules commercially produced in 1955 are still operating. Solar modules come with a 20 to 25 year warrantee that they not drop below 80-90 % of their performance when brand new”. Beyond that the cost to set up net metering is not very expensive with $100 for the application and $47 for the cost of the producing meter install. If you want a picture to see how this works click here. So if we can add a basic solar system for 8k to the home — does it actually increase the value? I would have to say yes — especially when you consider that it is much like buying a stock that continues to bring in dividends without any effort on behalf of the homeowner. Furthermore, it puts your home in the position of being unique — standing apart from the crowd in a positive manner! Would you buy a home in Seattle that cost 10k more than the neighboring house that is exactly the same? I think so.
There is a good article in the Seattle Times about gas prices and how they correspond with house buying behavior. It is a trend that I think is going to have more and more of an impact on the rate of appreciation in the city vs. suburbs. Think about it — two years ago you had a lot of people earning decent money, buying 600k homes in the Mill Creek area and being totally complacent. Let’s say that commuter works in downtown Seattle and travels a minimum of 25 miles each way, for a 50 mile roundtrip x 5 days a week = 250 miles a week. We’ll say he gets two weeks off a year (and won’t total in that vacation mileage) so that would be 50 weeks x 250 miles each week = 12,500 commuter miles a year. And as an arbitrary mileage, let’s say said person drives a SUV that gets 18 miles to the gallon.
In 2005 gas prices ( 12,500 / 18 ) x 2.24 a gallon = $1555 in commuting costs
In 2008 gas prices ( 12,500 / 18) x 4.36 a gallon = $3028 in commuting costs
Perhaps for some people’s budget the doubling of commuting costs will not break the camel’s back, but for commuting costs to roughly double in the past three years is pretty huge. Especially considering that a large percentage of the burbs in the Mill Creek, Issaquah areas were built out in the last five years — and somewhat predicated on commuting costs not going through the roof. Either way I don’t think that the 700k home buyer is going to be hurt that badly in amidst this debacle, but I think the immediate shift in behavior is going to come from the people who live further away from work due to the greater affordability of homes that are not in the city core. Often times they are already maxed out on what they can pay with the mortgage, and that extra 1500 dollars in the budget can make a big difference. Bottom line, in looking at your home as an investment tool — I would look for stability in city to continue to outpace what you see in the newly constructed suburbs. But remember that is strictly from a financial perspective — sometimes you buy homes for the quality of life they offer — and not merely their appreciation rate. Either way I hope this is good food for thought, and that you have a good day!
What is the job of a realtor? I think first and foremost it is to be a good counsel to your clients. To monitor inventories, watch market trends, and to know the neighborhoods so that when a question arises — you have done your due diligence to be able to answer important questions. It is unrealistic for any of us to think that we have all the answers, but there are the base things like explaining the nuances of a contract, giving a buyer/seller a good market price for a subject property, being available / responding quickly, and negotiating contracts that are a must. It is in doing the job proper that we add value to a customers experience, and in their eyes earn our commission. I enjoy doing these things, and also explaining them to my clients. It is a great thing to be able to understand the intricacies of the transaction and know what your realtor is doing – yet be able to enjoy not doing that work on your own! Buying a house really doesn’t have to be all that complicated when you have dedicated professionals working for you.
On the listing side — it is obvious that in Seattle we no longer have houses that ”sell themselves”. I will agree that there was a couple years where it almost seemed to be the case but now we are back where it takes a marketing plan, diligence in follow up with potential buyers, an understanding of the cross section of buyers who will be interested in the subject home. You have to sell it! Not just stick a post in the ground. So what do you pay for? Expertise, follow up, diligence, and ultimately the sale of that house.
Home buyers in today’s real estate market have more choices than buyers of the past few years. In many areas, there is an increase in homes on the market, and less competition for those homes. Buyers can take more time to evaluate options, and negotiate with more power. Many buyers read news reports of a decline in property values, fear of foreclosures, and tightening credit markets. This may lead a consumer to wait on further price declines and delay an actual purchase.
The problem with trying to time the bottom of a market is that you don’t know it’s the bottom until the trend has reversed. I see this often in my business. Borrowers want to wait until interest rates are at the lowest possible point. We never know they’ve bottomed out until they’ve gone back up. It is the same with home prices. What we know today is that the market is balances. Buyers have choice.
There are more pressing factors to consider. The continued volatility in credit markets is making it more difficult to obtain high loan-to-value mortgages. Borrowers who need 100% finance options may have a limited time-frame before these options are no longer available. There are indications from Mortgage Insurance companies that they will change or eliminate their coverage of these loans. This means that a borrower who qualifies today with no down payment will need 3-5% of the purchase price to qualify. This will eliminate the possibility of home ownership in the short term for many buyers.
Interest rate fluctuations are also a major consideration. Increases in interest rates drop the maximum purchase price for loan qualification. Interest rates are very volatile. An increase in rates could negate the benefit of a drop in purchase price for a home.
If a buyer is borrowing 100% of the value of a property, they can afford the house payment, and if they plan to live in the home for the next three to five years, then they may want to get off the fence.
When you invest in real estate, it is important to develop the kind eye for homes where you are able to look past the little things. I can’t tell you how many homes that I have gone into that have either been cluttered – smelly – had bad carpet – or outdated lighting. The great thing is that these factors are really a hidden opportunity! If this house is in a great location, has good bones (roof,structural,siding), and has a great layout what are you waiting for? The minor aesthetic details can takes thousands if not tens of thousands of dollars off the purchase price of a home, and this is a great thing for the potential buyer. Big picture —- spend a few grand fixing the carpet and lighting — save potentially ten grand off the purchase price. This is why staging has become such a big industry. Staging can cost upwards of $2,000 when selling a home. Yet this minor investment (compared to value of home) can yield a return 3-6x times the amount invested in the selling price of that home.
May I use this picture for a project in American Studies? …
