Barry Wolfert

H.B. 261 has been introduced by several Georgia representatives in an effort to create a tax credit to stimulate the Georgia housing market. While I applaud our representatives' initiative to pass a stimulus that makes an impact on our local housing market, I am concerned that as it is currently proposed, this bill may create a negative effect on the market.

Please note that this bill has not been passed or voted on as of this posting. I am also attempting to get clarification on some of the terms so some of my assumptions may turn out to be inaccurate. If course, you can read the bill for yourself and see if I am missing something. In any case, I will outline the key facts of the bill as I understand them and note my concerns.

1) Applies only to single family residences, owner occupied or foreclosed upon, that were for sale prior to the passing of the bill and still for sale as of the date the bill passes.

Concerns: If you were thinking about selling your home and knew you had to be on the market before this bill passes, you would be highly motivated to put your house on the market. Currently, we have an over supply of homes. My concern is that this requirement will result in many more homes coming on the market quickly resulting in more competition and driving prices down.

This bill should apply to any home sold in a designated period regardless of when it was listed. How many homes not ready for the market will get listed? Homes not in good condition will sit on the market longer and give buyers more leverage to push for a lower price.

2) Applies only to homes with a purchase price between $40,000 and $300,000.

Concerns: I have a lot of concern here. First some stats: there are approximately 45,000 single family, detached homes listed in FMLS. Of those, 28,000 (62%) are priced in this price range. Of those 28,000, only 3,000 are priced in the $40,000 to $90,000 range; the remaining 25,000 homes are priced $90,000 to $300,000. What this means is that the lower priced homes are only a very small percentage (12%) of the homes in this range. In other words, we need to focus on where the real inventory exists, above $100,000 for sure. By capping the price, this bill effectively shuts out almost 40% of the houses on the market. Why cap the sales price of the home? If needed, cap the tax credit at a certain amount or create a sliding scale.

If the tax credit is capped at the $300,000 sales price, my concern is also that every home priced in the low to mid $300,000 range will be forced to sell at $300,000. What buyer is going to accept a $310,000 sales price and miss the credit by $10,000? Every seller remotely close to this cap will be forced to meet it in order to sell. So, instead of balancing supply and demand with more buyers, we are basically giving buyers more leverage to get a lower price. This will have a very negative effect on home prices in this range.

3) Provides for a one time tax credit to the purchaser as follows:

a) tax credit shall be equal to 1.2% of the purchase price if purchase occurs during the 6 month period starting the date the bill is passed.
b) tax credit shall be equal to 0.6% of the purchase price if purchase occurs during the second 6 month period.

Concerns: These time frames will also have negative effects on the market similar to my concerns in item #1. By defining these time periods, buyers may be motivated to buy within the first 6 month period. However, with the current average days on market near 100 plus a 30 day typical period from contract to close, the current transaction is averaging 120 days. Houses listed within 75-90 days of the end of the first 6 month period will be much less likely to sell and close before the tax credit drops. But, these homes will remain on the market keeping inventory high. Some buyers may continue to be motivated by the lower tax credit but I am sure that many buyers will see this as a missed opportunity and may wind up not buying. We are seeing this type of behavior with the recent low interest rates. Even with great rates and a strong buyers market, buyers' attitudes have been to wait in case something better will come along.

4) Tax credit shall not exceed the tax liability for the current year. Tax credit may be carried forward to subsequent years.

5) Home must be listed with a licensed broker.

Concerns: I do not have concerns with items 4 and 5. I think it is good to be able to carry the credit forward so the buyer can get the full benefit of the credit. I also think the requirement to be listed with a broker will allow the effect of this bill on the market to be accurately measured as all listings are tracked by the MLS.

I will update this post as I am able to gather more information. I encourage you to contact your state representative and tell them a good tax credit bill could make a real difference but that they need to make sure that the negative effects don't outweigh the intended outcome.

Related posts:

Silver Lining - First Time Home Buyers To Get $8000 Tax Credit On 2009 Home Purchase

$15,000 Housing Tax Credit Cut From Stimulus Bill

Georgia House Passes Bill To Freeze Property Tax Increases For Two Years

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(reprinted from Atlanta Business Chronicle)

Georgia had the second-lowest 30-year fixed mortgage rates last week, according to real estate Web site Zillow.com

For the week ended Jan. 4, rates on 30-year fixed mortgages were lowest in Arizona (4.97 percent) and Georgia (4.99 percent), according to the Zillow Mortgage Rate Monitor.

For the second week in a row, Georgia was the state with the second-lowest average mortgage rate last week, according to real estate Web site Zillow.com. Georgia's average 30-year fixed-rate mortgage was at 4.81 percent for the week ending Jan. 11, compared with 4.99 percent for the week ending Jan. 4.

North Carolina saw the biggest increase in the average rate last week, increasing from 4.99 percent to 5.09 percent. Arizona had the lowest average rate at 4.97 percent, and Maryland had the highest, at 5.26 percent

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According to Equity Depot, an Alpharetta based mortgage loan tracking firm, foreclosures for the 13 county metro-Atlanta area hit record high in January. 8,425 properties were scheduled to be auctioned compared to 6,992 in January 2008. That represents a 21% increase.

This is the worst month on record for all but five of the 13 metro counties surveyed. Only DeKalb, Douglas, Fayette, Fulton and Henry counties had worse months on record - all in 2008. While these numbers are not encouraging, not every foreclosure represents a lost home. In fact, many foreclosures are on vacant lots, new homes and condsos that were under construction but never sold.

Also, while many properties are scheduled to go to auction, some are paid up before the auction date and never go into foreclosure. Another factr is that the same property can show up several times over the course of the year if the owner falls behind, catches up and then falls behind again.

FORECLOSURES BY COUNTY - source: Equity Depot

County Jan 2009 Jan 2008 Total 2008
COBB 890 670 8,187
DEKALB 1,299 1,233 13,677
FULTON 1,838 1,798 18,465
GWINNETT 1,639 1,086 13,332

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This is a topic I find that many homeowners are confused about. The law changed in 1997 but many people remember the old law that had a lot of limitations on when you could be exempt from capital gains. The "new" law, The Taxpayer Relief Act of 1997, allows for an exclusion of up to $250,000 in profit if you are single and $500,000 if married. In order to be eligible you must have lived in your home for two of the last five years. Again it must be your personal residence and can not be an investment property.

I recently came across a very good post on this topic on another blog. Click here to read the full article. Feel free to call me with any questions.

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We don't typically use vacancy as a measure in the residential real estate market. That term is more common in commercial real estate or the hotel industry. Having been a hotelier for 15 years, I get flashbacks when I start to hear about vacancy rate and unoccupied rooms (or homes).

According to an article at Forbes.com, Atlanta ranks third behind Las Vegas and Detroit. Not exactly the company we are striving to be associated with. According to the article, the national rental vacancy rate is 10.1% up from 9.6% a year ago; while homeowner vacancy is up from 2.8% to 2.9%. Still, these trends are not good as empty houses can have an impact on the surrounding homes and areas.

Vacant houses usually suffer from lack of care. Tell-tale signs include unmowed lawns, newspapers laying in driveways, overstuffed mailboxes, peeling paint, etc. In the case of a rental property, it is less likely to happen if the owner is trying to rent it. Unless the owner has abandoned the house, they will maintain it so it shows well and can be rented. However, in the case of a home vacated by the owner, it is less likely to be maintained if they have no intention of coming back. In that case, once it goes into foreclosure, the bank should assign someone to manage and market the property. However, that doesn't maintenance will happen but at least you have a person to contact and deal with.

As the property deteriorates, needless to say, it will make the homes around it less attractive to perspective buyers which may eventually cause home values to drop. It's important that neighbors keep a careful watch on vacant homes and even help out in keeping up appearances if needed. If the house is abandoned, no one will complain if you cut the lawn or pick up the newspapers. If it's listed with a broker, call them to make sure they have a plan in place to keep the exterior looking good and consistent with the neighborhood. In the end, we are all in the same boat.

15 Most Vacant Cities (per Census Bureau)

Rental Vacancy % Home Vacancy %

1. Las Vegas 16.0 4.7

2. Detroit 19.9 4.0

3. Atlanta 16.1 4.3

4. Greensboro, NC 15.0 5.9

5. Dayton 21.7 3.6

6. Phoenix 19.0 3.6

7. Orlando 12.3 7.3

8. Kansas City 15.2 3.6

9. Indianapolis (tied with #10) 17.1 3.2

10. Jacksonville 14.7 3.6

11. Miami/Ft. Lauderdale 13.1 3.6

12. Chicago 11.8 3.7

13. Tampa 15.6 3.0

14. Bakersfield, CA 14.7 3.1

15. Charlotte (tied with #16) 14.7 3.0

16. Cincinnati 9.8 4.3

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