IRS YouTube Video on $8,000 First Time Home Buyer Tax Credit

IRS posted a video on YouTube about the Federal First Time Home Buyer Credit.
 

   

 
If you can’t see the embedded YouTube video above, click here for direct linking.
  
They posted it on September 16, 2009 but the credit is expiring on November 30, so it is kind of late….
 
 
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Torrance Home Price Trend

Today I’ll be blogging about the home trend in the City of Torrance which is about 10 miles south of Los Angeles International Airport. It is the biggest city in the South Bay area and about the only city large enough to have adequate sample size to do any charting. You can probably say that looking at Torrance’s trend will give you an idea of the surrounding cities of Palos Verdes (RPV/RHE/RH/PVE/PVP) and Beach Cities (Redondo/Hermosa/Manhattan).
 
For those of you who don’t know Torrance, it is a nice neighborhood with good safety and good school systems. The surrounding cities to the south and west tend to have slightly better school system, slightly better safety, and higher priced homes. Torrance is a good middle class neighborhood. There are areas with "Torrance Address" which are actually part of Los Angeles City Strip and thus the children who live there go to the Los Angeles Unified School Systems (and much lower house price) instead of the better Torrance Unified School District (TUSD), but we’ll focus today on Torrance within TUSD system. Single family homes in this TUSD part of Torrance runs from around $500,000 to about a $1,000,000.
 
Let’s first look at Single Family Home price trend (excludes Condominiums and Townhouses):
 
There are a few spikes in the data, but you can see that median home prices seemed to bottom out during December 2008 and April 2009 and start increasing in May 2009. We use "median price" in the real estate industry to talk about the price of the region. Median price means the price of the home that is in the middle–so if nine homes were sold in a particular month, it would be the price of the house that was the fifth one from the bottom and the fifth one from the top.
 
Now, median price doesn’t just get influenced by the general home price change, but also the mix of the prices of the homes that are sold. So, you need to understand that the median home price is just one data point to analyze which way the house price is moving. In any case, the house price of Torrance seems to have bottomed out from around Dec 2008 to May 2009 and may be showing a rising trend.
 
Next we look at the charts of Sold Homes and Homes in Escrow (Under contract):
 
Typically, more real estate change hands over the summer, so the increase during the summer months are typical. However, you can see that the Closed Sale during the summer of 2009 is much more active than summer of 2008 and summer of 2007 (which was the price peak). But wait, what is that dip in the Closed Sale in Aug 09? You need to look at Under Contract (which preceeds the Closed Sale roughly by a month) and you can see that July 09 dip but came right back up in Aug–so you’d expect Closed Sales to make a strong showing in September 2009.
 
Another indicator to look at is inventory:
 
At the inventory peak in Dec 07, there was almost nine months worth of home inventory on the market–houses just weren’t selling back then. But if you look at Aug 09, you can see that there are less than two months of inventories which is 1/4 of the peak. There are many reasons inventory goes down but it generally means more people are buying a house than the number of people trying to sell a house.
 
Looking at houses currently for sale, you can see that the number of houses on sale has shrunk considerably from the previous year (by about -50 to -40%):
And the average days a house is on sale in the market has fallen to the level last seen in Aug 07:
When you take all of this data together, it does look like the housing market–at least in Torrance–has made it’s bottom and has started a gradual price accent.
 
So, how does the Condominiums and Townhouses price look like in Torrance? The data for those is not clear. Compared to Single Family Homes, there are a lot less Condo and Townhouse sales in Torrance so the data is not too reliable. However, looking at data that is available, it looks like Condos and Townhouses sale are still continuing their long creep sideways and haven’t really broken out upwards like Single Family Homes.
 
As the saying goes Single Family Home prices start rising first, then Townhouses and finally Condos (and fall from Condos first, then Townhouse, and Single Family Homes) so it may not be much longer for the Condos and Townhouse price to start rising in Torrance.
 
 
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First Time Home Buyer Credit to be extended?

So, the current $8,000 First Time Home Buyer Credit is coming to an end on November 30, 2009. To quickly review the program, those people who has not lived in a house they own for the last three years and have a combined income of $150,000 (or $75,000 for individuals) or less and will live in the house for a three year period will get a $8,000 gift from the federal government in the form of a tax credit if they buy a house/townhouse/condo. You MUST close escrow on or before November 30, 2009. If you pay less than $8,000 in taxes, it doesn’t matter as the government will give you back the whole $8,000 as a refund. DISCLAIMER: I am not a tax professional and cannot give tax advise, so refer to your tax professional for the details of the program or click here to go to the IRS site.
 
In my last blog, I mentioned that the $8,000 was a "nice to have" and it is nice to have money as your cash flow tend to be tight after you buy a house. You need to buy blinds, curtains, refrigerator, stove, washer/dryer, re-sod the lawn, replace the fence, paint…. There are currently bills pending in both the Senate and the House of Representatives to extend the credit through 2010. There are components of the bill which may increase the tax credit to $15,000 or to apply it to any home buyers (not just First Time Home Buyers). But the current odds are that the bill will simply be extended through 2010 with no expansion in the amount or the buyer–just like it was in 2009. You can read about it here in the Chicago Tribune website.
 
By the way, I am periodically running "First Time Home Buyer Seminar" about once a month now, so come learn about the housing market and how to buy a house–it’s free and there are no obligations! Click the link below to find out more about it.
 
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Los Angeles County June Median Price Spikes Up

It’s been a while since my last blog, but as things have been pretty uneventful, there hasn’t been much to blog about. I didn’t want to blog for the sake of blogging.
 
Looking at June 2009 Los Angeles County median housing price, we saw a spike to $325,000 where the median price has been crawling sideways at around $300,000 from January 2009 to May 2009. The data is a bit confusing as different analysis has different numbers, but my data set is consistent with the data coming from Data Quick courtesy of California Association of Realtors.
 
 
The chart above shows the median housing price from April 2003 which was chosen as a starting point since it matched the recent lows from Jan 09 to May 09 as the median price crawled sideways. You can see the spike in June 2009 which is a 9% increase from the previous month and makes it look like the housing market has bottomed out in price and has maybe started an increasing trend.
 
Working with my customers and submitting offers, this impact of the price spike can be felt. Many houses are being listed below value resulting in a bidding frenzy and houses getting sold above listing price in a matter of days if the house is nice and is in "move-in conditions." On the other hand, I have offers in on short-sale houses that are awaiting bank approval forever…
 
There are some speculation that the price spike is the result of people trying to take advantage of the $8,000 First Time Home Buyer Tax Credit which will be coming to an end on November 30, 2009 and that prices will collapse once again when the tax credit is over. Yes, it is nice to get $8,000 back, but when you are buying a house at a real low price and with 5.5% interest rate, would getting back $8,000 really make a difference in your purchase decision? If you are buying a $400,000 house (which may rise to $500,000 by the end of 2010), I would think that the $8,000 is a "nice to have" but not a real deal breaker…. For my thinking, I would say that the low house price and the low interest rate is the bigger contributor to home purchase and the tax credit going away will have minimal effect on house price…but more on the Tax Credit on my next blog.
 
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Home Price Bottomed Out? and misc.

There’s been quite a bit of news the last few days that affect the housing market.
 
The first bit of information is "Southern California median home sales price surges in June" which is an LA Times article. If you look at the chart "Some counties fare better than others" mid-way down on the LAT article, you see that most counties have seen an uptick in the median home sale price. Looking at LA County, basically the median price has been crawling sideways since January until May with an uptick in June. Now, there’s a lot of things that can affect median price and LA County is a big county spanning from the high desert of Palmdale-Lancaster, to the rich coastal areas of Malibu, Beach Cities, and Palos Verdes so it is quite a diverse area. The median prices may yet go up, but the feeling I get being in the market is that the houses on the low-end favored by First Time Home Buyers have most likely hit bottom. The higher-end of the market is expected to continue it’s struggle in the months to come though.
 
If you are looking to take advantage of the $8,000 First Time Home Buyer Credit, you’ll need to start acting NOW! The credit applies to all First Time Buyer Home (no home ownership in the last 3-years and must be owner occupied) will run out on December 1, 2009. Which means, you need to close escrow and have possession of the property on December 1, 2009. Let’s say closing escrow will take 60 days which means you need to have an offer accepted on or around October 1, 2009. A typical home buyer will look for a house on the average for two months, so you’ll need to start looking for a house to buy around August 1, 2009 to beat the deadline–which is only two weeks away. Am I sure that the home prices have hit bottom? No, but I do know that if you don’t act soon, you won’t benefit from the tax credit.
 
Let’s also look at some economic data to see how we standard. "California june unemployment rate rises to 11.6% From 11.5%" is the headline for this LAT article. The general consensus is that unemployment will continue to get worse, so you’ll see more people losing their jobs and unfortunately, possibly their homes. So, this may lead to further decline in the home prices–but I’m guessing it’s not going to impact the low end of the housing market much as the mid/high-end. This week also kicked-off the quarterly earnings releases from companies. The week started with very strong and positive news from Goldman Sachs and JP Morgan Chase, but fizzled towards the end with negative news from Bank of America, Google, and Mattel that is not showing strong revenue growth. It seems like the worst may be over with this recession, but we’re certainly not out of the woods yet.
 
Finally, here is a Yahoo! News article titled "Why do home foreclosure keep rising? 6 things you need to know" that explain the why’s of foreclosure. This article talks about foreclosures continuing to get worse.
 
 
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FHA Loan

What exactly is an FHA Loan? FHA stands for the Federal Housing Administration and was established in 1934 to make home ownership easier. Back then, you essentially had to have the full purchase price in cash to buy a home, or 50% down and get a 1-5 year loan term. But, establishment of FHA changed all that. Despite the name, FHA does not make loans but rather insures loans made by FHA authorized lenders. There are many requirements and technical aspects about FHA Loans, but let’s cut through the chase and get to the bottom line.
 
The advantages of an FHA Loan are: 1.) you can have a down payment as low as 3.5%, 2.) you can have a lower credit score than conventional loan (FHA does not have a minimum credit score limit, but the lender may require 630, 580, or whatever as the minimum credit score for application, 3.) there are additional ways to address loss mitigation such as "silent second" to help you during a setback, 4.) you should be able to use the $8,000 First Time Buyer Tax credit for your down payment–although you MUST have a minimum of 3.5% down payment before the $8,000 tax credit–as a "bridge loan" from the lender, and 5.) the terms of a Adjustable Mortgage Rate (ARM) FHA Loans are better and allows lower adjustment caps than conventional loans. A bit of a drawback is that with 3.5% down, you’re going to have a fairly large monthly payment and with a low credit score, you will have higher interest rate (probably won’t get the 5% rate available lately).
 
The drawbacks of an FHA Loan are: 1.) you need to buy two insurance–Upfront Mortgage Insurance Premium (UFMIP) which is 1.75% of the loan amount and Monthly Mortgage Insurance Premium (MIP–0.50%-0.55% per annum of loan amount), 2.) lending requirements are more likely to be stringent ("FULL DOCS" only), and 3.) it can take longer to get the loan and the seller may not want to deal with a buyer with an FHA Loan. The MIP is essentially the same as Private Mortgage Insurance (PMI) that you typically need to get a home loan with less than 20% down. But with PMI, you can typically get rid of it if you reach the threshold of 20% equity but with MIP, you will need to keep paying much longer. Oh, also, you can only get an FHA Loan for your primary residence.
 
During the housing boom from 2001-2007, FHA Loans were only about 3% of all loans made. Who needed an FHA Loan when you can get a "Stated Income Loan" with no verification with a conventional lender? Lately, FHA Loans is as high as 30-40% of all loans as 1.) it has gotten quite a bit difficult to get any kind of conventional loan and 2.) houses that are selling are in the lower price range within maximum FHA Loan limits.
 
It is difficult to compare a conventional loan (a non-FHA loan) versus an FHA Loans as two loan products are almost never directly comparable, but because of the UFMIP and MIP requirements of FHA Loans, I believe it is typically more advantageous financially to get a conventional loan if you can. However, if you cannot qualify for a conventional loan, FHA may be the way to go for you.
 
Here are some resources for FHA Loans so you can get the facts yourselves:
 
 
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Signs of life at the lower end of the housing market

Geez, I let two months lapse since my last blog… Sorry about that. Just after I wrote my last blog, I fell and broke my left forearm and severely bruised/sprained both forearms and wrist. My inner lower lip was lacerated by my teeth and my nose was swollen to about twice the normal size (blood everywhere). I first went face down into concrete with nothing breaking my fall, but since both my arms are damaged, they must have broken the fall. Luckily, my teeth are intact and there is no head injury. This is a lesson on home safety (I fell in my garage). There was a loop of rope on the garage floor which I knew somebody was going to trip on. I’ve been trying to remove it for several days, but the car’s tire was always on the loop so I was saying "I’ll remove it next time, I’ll remove it next time, I’ll remove it next time…." And guess who finally tripped on the loop? They say most injury occurs near your home, and here is the case. If you find a safety hazard, take care of it immediately! The bone is healing nicely, but the ligaments/muscles in both forearm/wrist are still damaged, so I’m still a bit physically limited.
 
I’ve also been quite busy with some of the projects I’ve been working on. I’ll be able to talk about one of them pretty soon. One project I was working on was for a Japanese Investors group looking to buy the St. Regis Hotel Monarch Beach near Dana Point, CA at the foreclosure sale on 7/7/09. After all the analysis, it didn’t turn out to be as good a deal as first thought as the foreclosure sale price was probably going to be around $300 million so the group passed on the deal.
 
There really hasn’t been any new information to blog about. The economy seems to have approached a bottom and is pretty much crawling sideways. Stock market’s been going sideways since May. There hasn’t been much change in housing price. Interest rate perked up a bit in early June but seemed to have settled around 5 1/2%–if you were looking to refinance your existing home loan, now may be the time as it looks doubtful that the interest rate will go down significantly lower.
 
As the title of this blog says, there has been signs of increasing activities at the lower-end of the real estate market in the South Bay. Some houses are being listed below market value and sells within a day or two with multiple offers and above the asking price and near it’s real market value. So, when a new listing comes on the market and I start talking with my clients about setting an appointment to view the property a few days later, somebody else’s offer has already been accepted with multiple offers by the time I call the listing agent to get an appointment. These properties are selling within 3 days of being listed! It looks like a lot of the buyers are feeling that the house price is at the bottom of sufficiently near the bottom, the interest rates are at or near the bottom, and they need to hurry to get the $8,000 Federal First Time Buyer Credit (ends 12/1/09).
 
However, the lending criteria seems to be stiffening and Conforming Loans (loans below $417,000 or $729,750 depending on how you look at it) are becoming more difficult to get. Which probably explains the boom in Federal Housing Administration loans (FHA Loans) where the lending criteria is more lenient. I’m not a mortgage broker, but I’ll talk about FHA loans in my next blogs.
 
On the higher-end of the market, there doesn’t seem to be much activity for "step-up buyers" who are looking to move into a larger home and/or better neighborhoods. Yes, the price of the house they’d want to buy is really low and the interest rate is also low (although Jumbo Loans are typically a point of two higher than a Conforming Loan). The problem is that many of these high-end buyers may be upside down on their mortgage (own the bank more than their house is worth) which means they’d have to pay the bank to get out of the loan as their equity may be gone. Which means they don’t have the down payment to move up to a better/bigger house. They’re probably worried about taking on a larger monthly payment with the threat of a loss of job. I also hear that Jumbo Loans are much much more difficult to get than Conforming Loans.
 
As I continue to state, it continues to look like a real good time to for "renters" to buy a house and become "owners."
 
James
 
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Foreclosure Alternatives Program

On May 18, Obama Administration announced a new plan to supplement the Making Homes Affordable (MHA) Program that was announced earlier.
 
Foreclosure Alternatives Program (FAP) adds to the loan modification program offered by the MHA, but adds components to address those that do not qualify for MHA or the are way too underwater to benefit from MHA.
 
FAP basically facilitates and streamlines the Short-sale and Deed-in-lieu process as an alternative to foreclosure. So, instead of a short-sale taking 2-3 months to get a response from the bank, short-sale may be approved more quickly by the bank. There are incentives to the bank to the tune of $1,000-$1,500 for facilitating FAP–which probably means the banks can afford to hire additional staff to move the process along.
 
I don’t know if anybody is sure how this thing is really going to work (nobody’s seen the details yet), but buying and selling short-sale property may become quicker and easier in the next few months. However, I do not think this will affect existing properties that are already being short-sale’d…
 
 
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Foreclosure Activity Remains at Record Levels in April

I let my blog lapse a little bit in the past week, but let’s recap what has happened over the past few days.
 
Unemployment rate for April came in right at the expected 8.9% on Friday May 8. So, no new news there. Well, a news maybe that the economist were able to guess right for a change!
 
 
There’s been a bit of a lackluster report from retailers which sent the stock market down today, and there is a bit of a sense that the stock market is going to contract a bit more when you look at the S&P 500 chart.
 
But the interesting tid bit today is the Foreclosure Rate. RealtyTrac–a company that tracks foreclosures reported that "Foreclosure Activity Remains at Record Levels In April." Yes, there are 342,038 houses in the US at the end of April that is in some sort of default, but that’s less than a 1% increase from March. RealtyTrac counts "default notices, auction sale notices and bank repossessions" from public records, but they sometimes double and triple count as a single house can have all three (and count as three foreclosures) or even more if there is some inaccuracy in title report. As I understand it, they just count the number of records but don’t filter out based on address or APN to make the records unique per a home. You shouldn’t take RealtyTrac number as an absolute, but take it as a measure of the direction of foreclosure (i.e. increasing or decreasing) and given the way they count, I’d say 1% would probably be within their margin of error so a more realistic way to view this is to say "foreclosure rate unchanged from March to April." Yes, yes, there are many foreclosure prevention activity in place and there was a moratorium so the numbers may be skewed.
 
I am a Realtor for the South Bay Area of Los Angeles (where I’ve been saying "strong markets are near price bottom") so let’s focus a little bit closer to home. Nevada, Florida, and California remain the top three states for foreclosure rates. Nevada has 1 in 68 homes in foreclosure proceedings compared to 1 in 138 in California. Nevada’s (#1 state) foreclosure rate is nearly double that of #3 state California! Things must be really really bad in Nevada….
 
Foreclosure activity in California DECREASED 10% from March to April. So, foreclosure rates have actually gone down in California–quite a significant amount at that. But, California has five of the top 10 metro area foreclosure rates with: Modesto at #4, Riverside-San Bernardino #5, Bakersfield #6, Vallejo-Fairfield #7, and Stockton #8. Naturally, none of the high foreclosure rate metro areas are in the South Bay….
 
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Pending Home Sales Up, End of Recession in View?

Pending Home Sales–a leading housing indicator–rose 3.2% in March 2009 compared to the previous month. Pending home sales is the number of contracts executed between the buyer and seller–so think "more buyers’ offer being accepted by sellers." These contracts are expected to close in a month or two, at which time the indicator becomes "existing home sales" which counts closed sales. In the West region where California dominates, the increase was 3.9%. Lawrence Yun–NAR’s Chief Economist–cautiously said "We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around.”
 
Federal Open Market Committee (gathering of Federal Reserve Bank Board Members) said on April 29, 2009 that: "Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower." This is basically saying that there are signs of recovery from recession in sight–of course, we won’t know we are out of a recession until we emerge out of it, but this is showing another sign of economic recovery.
 
Marin Crutsinger–AP’s Economic Writer–wrote: "…the economy might be able to mount a recovery in the second half of 2009." This comment was also echoed by Economic Cycle Research Institute which said: "The end of this recession – the most severe downturn since World War II – is finally in sight."
 
Of course, nobody can accurately predict the future, but signs abound that the end of recession may be close. The GM and Chrysler saga seems to be coming to a close with Chrysler entering a "government backed" bankruptcy (well, sort of) and GM expected to go down the road to separate "Good GM" and "Bad GM" where the "Good GM" will be allowed to live on. The 19 banks passed the "stress test" by the Federal Reserve in "reasonably good shape." In my previous blog, I talked about the recovery of the stock market so I won’t re-hash that.
 
There is still the issue of continued job loss and unemployment which is expected to rise to 8.9% for April 2009 (from 8.5% previous month) when it is announced on Friday May 8. So, we’ll have to see if Obama’s Stimulus Plan will have a positive impact on jobs (which should really take effect several months down the road). Finally, there are talks of the "next wave of foreclosure" but with signs of housing market showing price stabilization, I’d guess that the housing market will weather the next wave of foreclosures in strides.
 
What does all this mean? This indicates that the housing price bottom may be nearing and that price may start rising soon. For those of you seeking to buy a house near the bottom of the market, you need to start moving pretty soon…
 
James
 
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