Gary Giffin

First-Time Homebuyers Buoy Real Estate Market

RISMEDIA, October 2, 2009By David Bracken—(MCT)—The housing market is getting a much-needed boost as first-time homebuyers rush to take advantage of an $8,000 federal tax credit that is set to expire Nov. 30, 2009.

The incentive is helping to slow the decline in home sales. In August, sales were down 1% over the comparable period last year, the smallest year-over-year decline in any month since late 2007. As Congress considers extending the credit, real-estate agents and home builders worry sales could slump again if it’s allowed to expire.

A full accounting of the program’s popularity won’t be available for several months, but brokers say first-time buyers have been driving much of the activity in the market in recent months, especially for cheaper homes.

Kelly Cobb, a broker with Fonville Morisey Realty in Cary, North Carolina, said four of the six listings her office put under contract in the last month involved first-time buyers. Cobb said that as the deadline gets closer, she’s seeing more lower-end homes with multiple offers on them. “It has really, really fueled our market,” she said. “I think anybody who waited until now is going to pay top dollar.”

In order to qualify for the tax credit, a buyer must close on their property by Nov. 30. Brokers say in most cases that gives potential buyers about five more weeks to begin the closing process. The tax credit has been available since the start of the year, and for many families it has been too good to pass up. Terri Hutter and her husband, Fred Neumann, had been repaying credit-card debt and trying to build up savings in recent years. Hutter said the couple originally planned to continue renting for a year or two longer. “With that deadline I’m like, ‘Oh, let’s do it,’” said Hutter, who runs the culinary job training program for the Inter-Faith Food Shuttle. Hutter and Neumann expect to close Oct. 9 on a 1,360-square-foot home in Durham, N.C. The couple paid the listing price of $145,000 for the house and got a 30-year mortgage at a 4.875% interest rate.

Albert Blackmon and his fiancee, Rachel Blair also expected to wait a few years before buying a home. But Blackmon, who works as a Web developer in Apex, N.C., said the tax credit put buying a home within reach. The couple got a U.S. Department of Agriculture Rural Development loan with a 5% interest rate that required no money down. They paid $134,500 for a 1,250-square-foot home in Clayton, N.C. “We’re basically borrowing some money from some family members interest free, and when the credit comes back, we’re going to pay them right back and we have some instant equity in the house,” Blackmon said.

Those hoping to take advantage of the tax credit will need to have their financial house in order, as skittish lenders are closely scrutinizing a potential borrower’s credit and income history.

Tom Simon and his fiancee Tera Caldwell recently used the tax credit to purchase a home near downtown Raleigh. Simon admitted that getting financing was a long process, but he said that made him more confident that the couple could realistically afford the $193,000 house they ended up buying. Simon said the tax credit was not the deciding factor in the couple’s buying a home, but it did make them start seriously looking for a house sooner than they would have otherwise.

There’s still a chance that Congress could extend the tax credit in its current form or amend it. Some lawmakers worry about the program’s cost, which may hit an estimated $15 billion, more than double the amount projected in February’s economic stimulus bill, according to the Associated Press. Critics of the program also say it is artificially inflating demand at the expense of the taxpayer. “I would argue that it has the same effect of manipulating the real estate market that we’ve had with some other problems,” said Dallas Woodhouse, state director for the conservative group Americans for Prosperity. “There will be a day of reckoning for that.”

If the program is allowed to expire, real estate professionals will be watching closely to see what happens to home sales after it’s gone. George Pittman, CEO of Ammons Pittman GMAC Real Estate in Raleigh, said increased sales of lower-priced homes have not translated into more sales at the higher prices. Pittman said he would normally expect those selling $150,000 homes to then buy more expensive homes. “The thing we’re trying to figure out is why it is not snowballing up,” Pittman said. “It’s had some impact, but the upper end is still a bit soft right now.”

The tax credits have already had an effect on new home construction. As the inventory of modestly priced homes shrinks, builders are able to convince lenders that there is a need to replace them. The average cost of homes built in Wake County, N.C., was $165,000 in July, down from $195,000 during the same month a year ago, according the Home Builders Association of Raleigh-Wake County. There’s also been a spike in the number of building permits issued in Wake County in recent months. Tom Anhut, a division president in Raleigh for Toll Brothers home builders, said he believes the increase is a result of builders rushing to get homes finished by the end of November. “I think that there is a demonstrable increase in construction activity at the lower end right now because of that,” he said.

Tim Minton, executive vice president of the Home Builders Association of Raleigh-Wake County, said there’s no question the credit has helped stabilize a volatile market. “The question is, from a long-term standpoint, at some point that spigot does have to be turned off,” he said.

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After slumping, home prices in these 10 cities are expected to rise over the next three to five years

Luke Mullins, USNews.comOct 1st, 2009As the historic housing crash continues to hammer real estate prices from coast to coast, many homeowners probably can't remember the last time their property's value actually increased. But even with home prices still falling at the national level, a number of hard-hit housing markets are gearing up for a rebound. (Get free instant home values and see comparable home valuations in the Home Values Center.)

To pinpoint the cities most likely to go from slump to bump, we turned to Moody's Economy.com. Using S&P/Case-Shiller home price data, Moody's identified a handful of cities that took it on the chin during the crash-with property values dropping by more than 25 percent from peak to projected trough--but are expected to see strong home price appreciation in the relatively near future.

Celia Chen, the senior director of housing economics at Moody's Economy.com, says home prices in many of these slump-to-bump cities became overvalued during the first half of the decade but have since fallen, or are in the process of falling, to extremely affordable levels. "That will encourage buyers back into the market and lift prices up," she says. Here is a look at 10 hard-hit housing markets that are ready for a rebound:

1. Tacoma, Wash.: With about 200,000 residents, Tacoma is the second-largest city in Washington's lovely Puget Sound region. The city's abundance of government jobs, bountiful outdoor activities, and proximity to Seattle--just 32 miles away--helped drive home prices higher during the first half of the decade. But as the national housing crash picked up steam, Tacoma saw its real estate market decline sharply. Home prices in Tacoma dropped 24 percent from their peaks through the first quarter of 2009. Still, Moody's Economy.com expects the market to bounce back strongly, with home prices increasing 22 percent by the first quarter of 2012 and 41 percent by the first quarter of 2014. David Graybill, president and chief executive of the Tacoma-Pierce County Chamber of Commerce, says the area's large military presence and diversified economy will help to support rising home prices going forward. "We also have one of the nation's busiest ports, the Port of Tacoma, which is an international deep-water port," Graybill says. "And although most international trade is down currently, the long-term outlook is good."

2. San Diego: Sunny San Diego was on the leading edge of the housing market's dramatic boom and bust. Residential real estate "prices started running up in San Diego faster than many other places in the nation," Chen says. But the market has since crashed, with home prices plummeting nearly 42 percent from their peaks through the first quarter of 2009. Still, San Diego's high-tech and hospitality industries will spark economic strength and rekindle home price appreciation in the coming years, Chen says. Moody's Economy.com projects home prices in San Diego will rise about 13 percent by the first quarter of 2012, and 25 percent by the first quarter of 2014. "Technology is really what will drive the economy once the recession is over," Chen says. "There are a lot of high value-added jobs that are in the metro area."

3. San Francisco: Home prices in this city are expected to bounce back solidly as well. Real estate values in San Francisco had fallen 29 percent from their peaks through the first quarter of 2009. Chen says that San Francisco will pull out of the recession sooner than most other parts of the nation, and she expects future job and population growth to support rising home values. "The types of jobs [in San Francisco] generally tend to be higher paid, and personal income growth is going to accelerate [there] quicker," Chen says. "Personal income growth really does drive home prices." Moody's Economy.com projects that home prices in San Francisco will rise about 12 percent by the first quarter of 2012 and 26 percent by the first quarter of 2014.

4. Memphis: Home prices in Memphis fell 23 percent from their peaks through the first quarter of 2009. John Moore, the president and chief executive of the Greater Memphis Chamber, says that the area's exposure to subprime loans--although limited to several specific areas--played a key role in this decline. More recently, however, foreclosures linked to subprime mortgages have dropped, and investors have scooped up distressed properties at steep discounts, he says. In addition to its pleasant quality of life, Memphis's position as an important transportation hub will keep its economy humming and housing demand strong, Moore says. "We have the largest cargo airport in the world," he says. "We are the third-largest trucking corridor, fourth-largest inland port, and on top of that we are one of only three cities in the [United States] that is served by the five class-one railroads." In addition, Moore says that Memphis's low cost of living and strong healthcare system have made it a popular destination for retirees. Moody's Economy.com projects that home prices in Memphis will rise about 9 percent by the first quarter of 2012 and 24 percent by the first quarter of 2014.

5. Worcester, Mass.: Worcester, which has about 180,000 residents, saw its home prices fall by roughly 23 percent from their peaks through the first quarter of 2009. But Timothy Warren, CEO of the Warren Group, a New England real estate information and data provider, points to two key industries that can help drive home price appreciation. With a number of colleges and universities located there--such as the College of the Holy Cross and Clark University--higher education is an important component of Worcester's local economy. And its university-linked healthcare sector is another key provider of jobs. "Because of the medical schools, there are teaching hospitals out there as well and a lot of research that gets done," Warren says. Moody's Economy.com projects that home prices in Worcester will rise about 6 percent by the first quarter of 2012 and 21 percent by the first quarter of 2014.

6. Warren, Mich.: Like nearby Detroit, Warren's economy has been hammered by the auto industry's woes, Chen says. Home prices in Warren fell 37 percent from their peaks through the first quarter of 2009. But going forward, Moody's Economy.com projects that home prices in Warren will rise about 5 percent by the first quarter of 2012 and 21 percent by the first quarter of 2014. These rates of appreciation may look encouraging, but they aren't exactly what they seem, says Chen. Warren, like the rest of the country, will indeed see some job growth as the economy pulls out of the recession, she says. And home prices will eventually fall far enough to attract buyers. But Moody's projection for healthy home price appreciation says more about the depth of Warren's real estate decline than anything else, Chen says. "Because prices are going to pick up off of such a low base, even a small increase in the actual dollar value of homes will look like a very strong growth rate," Chen says. Warren's long-term economic outlook remains unfavorable, she adds.

7. Boston: Home prices in Boston fell 18 percent from their peaks through the first quarter of 2009. But Timothy Warren says the city's robust higher education and healthcare sectors should help support higher home prices in the future. In addition, "the financial services sector has been hit hard recently, but it is still a strength of the Boston area," he says. "They have been hit [harder] than other industries, but I think they will probably come back." Moody's Economy.com projects home prices in Boston will rise about 3 percent by the first quarter of 2012 and 18 percent by the first quarter of 2014.

8. Lansing, Mich.: Like Warren's, Lansing's economy is struggling. Home prices there fell 28 percent from their peaks through the first quarter of 2009. Moody's Economy.com projects that home prices in Lansing will rise about 2 percent by the first quarter of 2012 and 15 percent by the first quarter of 2014. However, these increases are largely attributable to the extremely low base that real estate prices will come off of, Chen says.

9. Chicago: Home prices in Chicago fell 28 percent from their peaks through the first quarter of 2009. But David Hanna, president of the Chicago Association of Realtors, says the city's diverse economy and pleasant quality of life can help drive property values higher in the future. "The city is clean [and] it's functional," Hanna says. "The last two decades of revitalization here has spread out not only through the city but into many of the other surrounding communities." Moody's Economy.com projects that home prices in Chicago will rise about 2 percent by the first quarter of 2012 and 16 percent by the first quarter of 2014.

10. Minneapolis: Home prices in Minneapolis fell 35 percent from their peaks through the first quarter of 2009. Moody's Economy.com projects home prices there will rise about 2 percent by the first quarter of 2012 and 16 percent by the first quarter of 2014.

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RISMEDIA, October 1, 2009—(MCT)—Realtors are bracing- make that hoping- for a flurry of activity in the next few weeks as a tax credit for first-time home buyers edges toward its expiration.

The incentive offers a tax credit of 10% of the purchase price, up to $8,000, for first-time buyers with certain income limitations. The tax credit was created as part of the $787 billion federal stimulus package in February to help stimulate the property market. It is set to expire Nov. 30, though some lawmakers are pushing to extend the deadline.

“Starting back in the summer, we started seeing a real uptick in people asking about it,” said Larry Strother, chairman and owner of ERA Strother Real Estate.

Nationwide, more than 1.4 million first-time buyers have filed the credit on amended 2008 tax returns, according to the Internal Revenue Service. North Carolina ranks 10th among states, with almost 45,000 filers. Local home sales dipped in August 2009 but had been climbing steadily in the months before that. The local market has been one of the strongest nationwide, with the military presence cited as one of its pillars. Fort Bragg also is why first-time buyers account for anywhere between 40% and 60% of the local market, according to Realtor estimates.

Real estate agent Joyce Register has helped six first-time buyers this year. She said all of them asked about the tax credit. “They certainly had it in mind,” she said.

Realtors say falling home prices and interest rates hovering around 5% have done more than the tax credit alone to lure first-time buyers. But it does appear to have nudged some into buying. “There were a lot of buyers who were on the fence, who were renting and maybe weren’t sure if they were ready, and this first-time home buyer tax credit got them off the fence,” said Kelli Bennett, a mortgage loan specialist with Key Mortgage in Southern Pines. Bennett has been holding seminars to tell potential buyers about the credit. The question she said she hears most is whether the credit has to be paid back, which it doesn’t if the buyer lives in the home for at least three years.

Buying bigger
If the tax credit is edging some families closer to purchasing, it’s not enticing them to buy something a little bigger when they take the plunge, Strother said.

“The interest rate does that,” he said. “When the interest rate goes lower, we start seeing people buy more house than they would have, because they’re able to afford more. People in our marketplace, they’re buying payments.”

Anyone who wants to take advantage of the tax credit needs to hustle. The purchase must be complete by Nov. 30 to qualify. The processing time of about 45 days for a home sale leaves less than a month to get the ball rolling. “We’re getting close,” said Jimmy Townsend of Townsend Real Estate. “It needs to be done in the next couple of weeks. And in my opinion, that’s pushing it.”

There are a cluster of bills in Congress to extend the tax credit for at least another six months. The White House has said it’s reviewing them but must weigh the risks to the market if the credit expires versus the cost of extending it.

The program would cost an estimated $15 billion if it were to be extended. That’s more than twice what was projected in the stimulus bill. But Strother says the government is getting value for its money. “The housing industry has always led this country into recessions and has always been the one single thing that has led us out of recessions,” he said. “If we want the economy to improve faster, we need more houses to sell.”

The local Realtors support the extension efforts; the credit has been an eye-catching advertising tool. But they say military buyers would insulate the market against a dip if the credit does expire, which has been the case during the worst of this recession. “I want to promote it, but I don’t want to make like it’s the end of the world if it does expire,” Townsend said. “People who are not going to buy a home are not going to buy a home just because of the tax credit. A home is not something you buy like a stock. It’s a place to live. It’s the American dream.”

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RISMEDIA, October 1, 2009—The Federal Housing Administration (FHA) has delayed the implementation of rules that could make life more difficult for condo buyers in the metro Chicago real estate market and across the country. The delay should be especially helpful for those hoping to qualify for the first-time buyer tax credit that expires after Nov. 30.

According to Jim Merrion, regional director of the RE/MAX northern Illinois real estate network, the new FHA rules, which were to take effect Oct. 1, 2009 will now be effective on Nov. 2. They are designed to improve the lending process, but they could cause some short-term delays in completing loans and closing purchases. “The FHA was wise to delay the implementation of these changes. Now, buyers trying to close a transaction by Nov. 30 should be able to file their FHA loan applications early enough to qualify under the old regulations,” said Merrion.

The importance of FHA financing has grown substantially in the last few years because conventional mortgage financing has become harder to obtain due to more stringent underwriting requirements. According to some estimates, 25% of homes purchased this year in the United States will use an FHA insured mortgage, up from 2% just three years ago. The number in the metro Chicago condo market could be even higher. Through the first eight months of 2009, approximately 15,000 attached homes, primarily condominiums of various types, were sold in Chicagoland, according to Midwest Real Estate Data, LLC, the regional multiple listing service.

“About half the transactions I’ve closed this year involved FHA backed mortgages, and most of those folks were first-time buyers purchasing a condo,” reported Lisa Campobasso, an agent at RE/MAX Vision 212 in Chicago. She explained that many first-time buyers are short on cash and turn to FHA financing because it allows them to put down as little as 3.5%, in contrast to the 10% down payment required for most conventional loans.

The new FHA regulations now will apply to all mortgage applications received on Nov. 2 or later. Files that were initiated prior to Nov. 2 will be processed under the old regulations, even if the loan does not close until after Nov. 2.

The prime reason the new regulations may slow down the purchasing process when they become effective is that they eliminate what are known as spot approvals of individual condominium units. Instead, the entire condominium property will need to be approved before an FHA-insured loan can be used.

Many condominium properties have never received FHA approval, according to Jane McClelland of RE/MAX in the Village, Realtors®, of Oak Park, Ill., who has extensive experience in marketing condominium projects, both new construction and conversions. “In our area, developers of condo conversions rarely got FHA approval because for the first year of the project, FHA financing was limited to the property’s former rental tenants, and the project usually sold out in less than a year. Also, very few buyers in years past wanted FHA financing,” said McClelland. “Now, of course, FHA financing is highly desirable, and we urge every developer and association to get their condominium property FHA approved.”

However, even those condo complexes that now have FHA approval will need to be recertified after Nov. 2 if their approval was completed more than two years ago. It may be possible to expedite that certification process by seeking a loan from an institution that is also an FHA Direct Endorsement Lender. That status allows a lender to directly carry out the certification process needed to grant FHA approval to a condominium complex.

The new FHA regulations taking effect Nov. 2 also contain other restrictions that could make life more complicated for condo buyers. Here is a partial list:

-At least 50% of units in the project must be owner occupied or under contract to owners who intend to occupy them. For new construction, the 50% owner-occupied rule applies to those units closed or under contract.

-For new construction condominiums, at least 50% of the total number of units planned must be sold or under contract before an FHA insured mortgage can be closed.

-No more than 25% of the total floor area of a condo property can be used for commercial purposes.

-No more than 15% of the units can be more than 30 days past due on their assessment payments to the condominium association.

There is, however, some good news for borrowers in the new FHA regulations. For example, they eliminate the long-time prohibition against the FHA financing units in condominiums where the homeowners association retains a right of first refusal, Merrion reported.

Another change allows the FHA to insure loans in new condo conversions for any qualified buyer. Previously, only former rental tenants could get FHA financing for the first 12 months.

“The changes in FHA regulations are just one example of the current environment,” said Mark Zipperer of RE/MAX Edge in Chicago. “It has seemed as if lending requirements have been changing on a daily basis this year.” He emphasizes that those looking for a condominium will benefit greatly by working with a Realtor who knows the local condominium market. “An agent with in-depth knowledge of the local market offers two important advantages to buyers right now,” said Zipperer. “First, they are going to know which condo buildings offer the best opportunity to secure good financing, whether it’s conventional or FHA. If you have a building where the association has financial problems or one with a high percentage of renters, it can be almost impossible to get a mortgage right now. “Second, the agent will help buyers avoid the potential potholes that can come with condominium ownership. For example, before I even show a condo building now, I will study the minutes of the condo board meeting to learn what plans and problems might be on the horizon. An agent who doesn’t normally work in an area just can’t develop that kind of knowledge.”

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RISMEDIA, September 30, 2009—Nearly two-thirds of single-family home builders are reporting a severe lack of credit for housing production, threatening the fragile housing recovery before it has time to take hold, according to a new builder survey of acquisition, development and construction (AD&C) financing conducted by the National Association of Home Builders (NAHB).

“Across the country, home builders and developers are reporting a deterioration in credit availability and intensifying pressure on borrowers with outstanding loans,” said NAHB Chairman Joe Robson, a home builder from Tulsa, OK. “Lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on AD&C loans. With the pending expiration of the $8,000 first-time home buyer tax credit, these challenges threaten to halt any positive developments we have seen in the housing market in recent months.”

In the latest NAHB survey of AD&C financing conditions, 63% of builders stated that the availability of credit for single-family construction loans worsened in the second quarter of 2009.

Builders reporting deteriorating credit conditions cited the following reasons: 80% said that lenders are lowering the allowable loan-to-value ratio, 76% reported that lenders are not making new loans, 75% stated that lenders are reducing the amount they are willing to lend and 62% said that lenders are requiring personal guarantees or collateral not related to the project. Two-thirds of respondents reported putting single-family construction projects on hold until the financing climate gets better.

While federal banking regulators continue to maintain that they are not instructing institutions to stop making loans or to indiscriminately liquidate outstanding loans, builders responding to the survey cited the top reason that lenders have given them for restricting the availability of new loans or for tightening the terms of outstanding loans is that “regulators are forcing lenders to do it.”

NAHB believes that regulators and lenders should provide leeway to residential construction borrowers who have loans in good standing by providing flexibility on re-appraisals, loan modifications and perhaps forbearance on loans to give builders time to complete and sell their inventory.

“There can be no meaningful economic recovery until the flow of credit is restored to housing,” said Robson

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