Casey Margenau

The much-anticipated extension to the home buyer tax credit has finally been approved. The Senate's vote yesterday resulted in a 98-0 win and today it was passed in the house. The bill now moves to the President's desk for a final signature. There is no way it will not be signed. First-time home buyers have been eligible for a tax credit of up to $8,000 since last January as part of this year's economic stimulus package. The newly backed program will expand the credit to include existing home owners. This will help people sell their smaller home that is in high demand and move up to the next higher price range. Great news! Under the revised program, those who have owned a home for at least five years will be able to apply for tax credits of up to $6,500 when they purchase their next home. To qualify, buyers will have to sign a purchase agreement by April 30, 2010 and close by June 30. The maximum purchase price on a home will be $800,000 with vacation homes not eligible. Income limitations are $125,000 for single tax payers and $225,000 for joint filers. The National Association of Realtors (NAR) and the National Association of Home Builders (NAHB) have been lobbying hard for the extension and expansion of the tax credit. NAR claims that so far, about 1.4 million first-time home buyers have qualified for the program and they estimated that 350,000 of these buyers would not have otherwise purchased. I say hogwash. The buyers in this area have bought because homes are now affordable. The tax credit does give them a push to do it now. The tax credit is also set to be extended for another year for military personnel serving outside of the United States until June 30, 2011. Senator Johnny Isakson, who heavily pushed for the extension, along with his own version that would have increased the credit to $15,000 stated, "This is probably the last extension." I think this is also good news since if people understand that the tax credit is over at the end of this extension, Buyers will get out there and find a home. This will help rock this spring’s market!

Mortgage bond prices initially opened positive this morning following relatively bond friendly employment data only to fall back off to near neutral on the day. We still are slightly positive since pricing yesterday morning. Additionally, unemployment came in @ 10.2%, higher than the expected 9.9% mark...a bond friendly figure. This is great news for the market and better news for Home Buyers. This bad news for the unemployed is going to help you get a better deal on a home purchase. Non-farm payrolls fell -190k, weaker than the expected -175k...another bond friendly piece of data. However, the average hourly earnings component rose 0.3%, higher than the expected 0.1% increase and inflationary in nature....not bond friendly. Usually the two headline figures generally outweigh the third component of the report but as we saw this morning volatility still remains. This we do not care that much about, but it looks like rates will stay low and that is what matters. But with this bad unemployment and earnings news, many Buyers will stall and some Sellers will get worried. This is where the savvy Buyers will use the seasonal slow down coupled with the bad news and BUY NOW. Take advantage of this temporary bad news (granted you have job security) and make your move. There are so many factors that say in just 3 years this market will be gangbusters with $79 million: Gen Y coming into 1st time home buying age and the Federal Government blowing up and the Northern Virginia area is still growing. With continued no new housing being built plus we are already in short supply in many price ranges. The market looks great for Home Buyers. Let me make one thing very clear. I am talking about moving up within the market and/or buying home for long term gains, not flipping. I have never believed in flipping homes. I think that if the opportunity presents itself, its fine, but to buy with flipping as the end result is too risky. So if you want to own a home. If you want to create long term wealth. Do not miss the opportunities this market is presenting you.

Senate has reached a compromise on extending and expanding the $8,000 tax credit

The Senate has reached a compromise on extending and expanding the $8,000 tax credit for first-time home buyers, a boost the housing industry believes will help it pull out of its two-year-old downturn.

While its passage remains uncertain, the agreement would extend the existing credit for first-time homebuyers, worth up to $8,000, while offering a new credit of up to $6,500 for some existing homeowners, Senate aides said. The reduced credit would be available to all homebuyers who have been in their current residence for a consecutive five-year period in the past eight years. Lawmakers in Washington also raised the qualifying income limits to $125,000 for single taxpayers and $250,000 for joint taxpayers, from the current $75,000 and $150,000, housing-industry sources said. Under the Senate compromise, buyers must have sales agreements in hand by April 30, but they will have until June 30 to go to settlement, said the sources. The measure still faces votes in the full Senate and the House.

Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan are in full support of the Senate’s proposal to both extend and expand the first-time homebuyer tax credit and called on Congress to approve key housing measures that include the tax credit. "We welcome efforts taken by Congress to extend the First-Time Homebuyer Tax Credit for a limited period. This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide," said Secretaries Geithner and Donovan. "In extending the credit, we urge Congress to include strict measures to combat tax fraud and protect responsible homeowners.”

The current tax credit did little for the new-home market in September, the Commerce Department recently reported—news that took many industry analysts by surprise. Sales fell 3.6% from August and 7.8% from September 2008. Industry observers had expected a fifth consecutive monthly increase in new-home sales, believing that the tax incentive for qualified first-time buyers—credited with 357,000 sales of previously owned homes so far this year—would do the trick. Instead, sales of typically more expensive newly built houses slipped. "The decline in new-home sales seems to us to be more a function of the attractive pricing available on resales in the current environment than a reflection of weakening demand," said Michael Feder, president of Radar Logic in New York, which tracks the market.

"Since hitting rock bottom in March, demand is up 20 percent," said Joel L. Naroff of Naroff Economic Advisers in Holland, Pa. For Naroff, the robust rise in existing-home purchases—9.2% year over year in September—indicated that the housing market was not faltering. "Maybe the issue is supply, which fell to its lowest level in 27 years," he said. "Builders, at least those left standing, have been making sure they don't have any houses sitting around, and they have been very successful in controlling inventories."

IHS Global Insight economist Patrick Newport echoed that, noting new-home inventories "sank for the 29th straight month to their lowest level since November 1982." Naroff maintained housing has recovered enough to stand without the tax credit, but Newport said that if the credit were not extended and expanded, housing demand would take a hit, and home sales would drop.

The new provisions are aimed at broadening availability of the credit beyond first-time buyers and giving the weakened real estate market a bigger boost while preventing real estate investors from benefitting. While Senate lawmakers appear to have reached a deal on the substance of the tax credit, they are still at odds over how it would be brought to the Senate floor.

Courtesy: RIS Media, www.rismedia.com

TIMING THE REAL ESTATE MARKET

THOUGHTS FROM CASEY MARGENAU

For buyers and sellers the last year or two have been difficult. You don't need an economist to tell you that your home is worth less than it was just a year ago. The question is, what does that mean for you as a potential seller and buyer? The answer is: nothing. Unless you bought during the inflated price period of 2004-2007, you still have equity in your home. Yes, it may not be as much as you did 2 years ago, but the prices to buy your next home have also come down. If you play it smart, you will be able to sell you home and buy your next home at a great value.

We have experienced an unusual, even generational, low in mortgage rates. This has been the result of the severe recession we are going through and the policy of the Federal Reserve to stimulate growth with low interest rates. However, the Fed can affect long-term rates only briefly. Long-term rates are more a function of inflationary expectations and prospects of economic growth. And given that both the latter are in play right now, it is not too surprising that mortgage rates are inching upward. Whether they will continue upward from here is another story. But at some point in the future-the future being a year of so-- they undoubtedly will be higher.

Mortgage rates fluctuate. They are always in flux. Back in 1990, the 30-year rate averaged 9.9 percent, a far cry from levels we are enjoying today, even with the recent up-tick in rates. Five years earlier, rates were above 13 percent and peaked at roughly 17.5 percent in 1982. Since the year 2000, rates have moved between five and eight percent, reaching a record low of 4.85 percent recently. Which is exactly why is makes sense to buy a home now that makes sense for you for the long run and lock-in on a low interest rate.

However, your decision to purchase a home should not be too dependent on the current level of mortgage rates. If the current one-half or so up-tick in rates makes your purchase debatable, you are probably looking at too much house to purchase in the first place. In my opinion, you should always give yourself enough room between your income and your expenses to feel mentally comfortable and financially safe. Buy for the future. Make sure you make wise decisions. Remember these mantras. Those that purchased homes during the turn down of the 1990's understood the long-term investment they were making and have seen their wealth grow from their purchase decisions while many were sitting on the sidelines. I believe we have reached the bottom for home prices and in some areas prices have begun to recover. But, if they have not completely bottomed out, they are certainly near their lows. There are many indications that the Northern Virginia area will emerge from the recession sooner than other areas of the country. Home prices will then also firm up sooner. Here is the good news in housing from the Fulton Research Report that was just released. The Northern Virginia Association of Realtor's (NVAR) May numbers reported monthly housing supply down 16% from April 2009 and 28% lower than May 2008. Additionally, inventory is down 25% over a year ago and sales are up 17% since April this year and 5% since May 2008. With sales activity continuing to improve over last year's levels and monthly supply now to down a 5 month inventory level, which is about equilibrium, some appreciation is expected as inventories tighten, according to the Fulton Report. [1] The report goes on to say that in the NVAR markets that "sales of marketing rate housing, specifically move-up homes, are starting to push prices up." [2] They expect the price pressure indicators to turn positive next month for not Fairfax, Arlington and Alexandria but also for Loudoun and Washington D.C. As a seller, remember that buyers have a lot of selection. This means they can and will be a lot choosier. If you want to sell your home, it has to be well-priced and look good. For those who want to buy, my best advice is put your credit in order, get with a knowledgeable real estate agent and shop for a mortgage in order to get pre-approved. Instead of worrying about market timing, buy for the long run and you will always make wise decisions.

Casey Margenau is a Realtor with Re/Max Distinctive in McLean. He may be contacted at casey@margenau.com or at (703) 827-5777.

[1] http://www.fultonresearch.com/MarketTrends/FRMarketTrends2009_05.pdf

[2] http://www.fultonresearch.com/MarketTrends/FRMarketTrends2009_05.pdf

More Signs of a Spring Thaw

Recently I blogged about the spring thaw in the Northern Virginia real estate market. I have reprinted the article below because it reinforces my assessment that the market is beginning to gain momentum. Now, as I've stated many times all real estate markets are local and the pending sales jump of 3.2% is a national average. This is very good news for Northern Virginia. Our area tends to have a lower than average unemployment rate and higher income levels to support home purchases. As I noted in my earlier blog, the Northern Virginia Association data for the month of March showed that home sales increased nearly 11 percent in Fairfax and Arlington counties compared to March of last year. Other Northern Virginia cities and counties showed similar increases. Now, might just be the right time to start looking for your new home.

Pending home sales jump 3.2%

Buyers defy expectations with an increase in sales contracts signed during March.

By Les Christie, CNNMoney.com staff writer

Is the housing meltdown ending? Pending home sales rose in March for the second consecutive month and are up year over year. The Pending Home Sales Index from the National Association of Realtors showed a 3.2% gain to 84.6 from February, when it was 82. The index stands 1.6% higher than a year ago. The consensus forecast of industry experts polled by Briefing.com had predicted no increase in the index.

It may still take a while before the market gains enough momentum to firmly state that the downturn has been reversed, according to Lawrence Yun, NAR's chief economist. And, the upturn may have been boosted by the first-time homebuyers tax credit, a temporary measure that will lapse in December.

"We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around," said Yun. "This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down payment."

The index is understood to be a forward indicator of home sales trends since it measures contracts signed, not completed sales. The up-tick may indicate that home prices have fallen low enough for buyers to get off the fence.

Feeling for the bottom

Yun is not calling a bottom yet, however, because the index is still at a relatively low level. Instead, he's looking toward the summer selling season to determine what direction the market will take. Plus, he would like the number of homes on the market to drop to a more normal level of six to seven months of supply.

"If inventory goes down - it's at just under 10 months now - to below eight months, that would mean we're on the way to a sustainable recovery," Yun said.

Anecdotal evidence indicates that trend may be happening. Realtors and other industry insiders are seeing rising open house attendance and multiple bids on some particularly desirable properties. Plus, pricing has become sharper, according to Sherry Chris, the CEO of Better Homes and Gardens Real Estate.

"Overpricing seems to be ending," she said. "Properties are coming onto the market and selling quickly."

And buyers are feeling a little more urgency, she added. In many markets, buyers have not felt any pressure to make an offer. "They said to themselves, 'I don't have to act immediately. It will still be on the market two weeks from now,'" she said.

Today, buyers are more likely to bid because they perceive the market as at or near its bottom. An April Gallup Poll reported that 71% of Americans thought it was a good time to buy a house.

They don't, however, believe there will be price increases soon; three of four buyers think prices will stabilize or even decline in their areas over the next 12 months, according to Gallup.

Pat Newport, a real estate analyst for IHS Global Insight, is putting less emphasis on pending home sales than he once did for his housing market analyses. There has been a disconnect lately, he said, between the number of properties going into contract (pending home sales) and the number that actually close (existing home sales).

He speculates that this is because buyers are making offers and signing contracts but, because of financing problems, many deals are falling through.

Regional differences

The South saw the largest gain of any region, with pending home sales jumping 8.5%. Pending sales are 7.7% higher there compared with a year ago.

The Midwest gained 3.9% from February and 1.7% year-over-year. Northeast sales fell 5.7% and are off 24.1% compared with March 2008. The West dropped 1% for the month but are up 8.2% year-over-year.

Low home prices continued to help to drive sales, although NAR's affordability index actually fell 2.3% from February, when it hit a historic high. This index is based on family income, home prices and mortgage rates.

"Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment," said NAR President Charles McMillan, in a prepared statement. "For buyers who've been on the sidelines and have good jobs, the market has never looked more favorable.

Casey Margenau is a Realtor with Re/Max Distinctive in McLean. He may be contacted at casey@margenau.com or at (703) 827-5777.