Randall & Leighsa Francis\’s Blog

Oregon

Biggest home price increase projected in 2014:  Bend metroForecast 4-year price increase:  33.6 percentCurrent median price:  $144,533*Prices to reach trough in:  2011 Q1Median family income:  $58,200Population:  158,630The area around Bend area, in central Oregon’s high desert by the Cascade Mountains, has the second-highest four-year growth forecast, 33.6 percent, after Bremerton-Silverdale, Wash. Bend draws home buyers and visitors with its wealth of outdoor recreational opportunities, but its prices have dropped about 40 percent since hitting a peak in late 2006. Fiserv and Moody’s Economy.com now expect a rapid recovery starting next year. Greg Broderick, a real estate broker in Bend, says prices have overcorrected and buyers are seeing good value in the market. Homes priced the low hundred-thousand-dollar range “are being snapped up at a furious pace,” he says. Still, the area must deal with a higher-than-average unemployment rate, which the BLS says was 13.4 percent in June.Index used to calculate historical home price changes: FHFA * Source: John Burns Real Estate Consulting, April 2010

Fannie Mae will make it easier for some struggling homeowners
to buy houses in the future if they avoid foreclosure in the pre-
sent.

Under rules released this month that will take effect in July,
some troubled borrowers who give up their homes by voluntarily
transferring ownership through a “deed in lieu of foreclosure” or
by completing a short sale, where a home is sold for less than
the amount owed, will be eligible in two years to apply for a
new mortgage backed by Fannie.

Currently, borrowers who complete a deed-in-lieu of foreclosure
must wait four years before they can take out a loan that Fannie
is willing to purchase.

The new policies from Fannie, a government-backed mortgage-
finance company that together with Freddie Mac backs about
half of the U.S. mortgage market, don’t relax waiting periods for
borrowers who go through foreclosure.

In 2008, Fannie lengthened that waiting period to five years
from four.

To qualify for the reduced waiting period, most borrowers will
need to make a down payment of at least 20%,
although borrowers with extenuating circumstances, such as a
job loss, will be required to put down just 10%.

Even if waiting periods are shortened, many borrowers may be
unlikely to repair their credit that quickly in order to get a loan
in the first place. Foreclosures and short sales generally have
the same effect on a borrower’s credit score and can stay on a
credit report for up to seven years.

The new rules are designed to make foreclosure alternatives
more attractive to borrowers at a time when the Obama admini-
stration is ramping up its effort to encourage banks to consider
alternatives such as short sales. That program sets pre-approved
terms for short sales and offers financial incentives to borrowers
and lenders to complete such sales.

In some areas, sellers are racing to put their homes on the market before the temporary homebuyer tax credits expire. Currently, homebuyers who qualify need to be in contract to buy a home by April 30, 2010. The transaction must close by June 30, 2010. The word on the street is that the credits won’t be extended again.

The first-time homebuyer tax credit of up to $8,000 on the purchase of a primary residence is available to first-timers who qualify, including previous homeowners who haven’t owned in the last three years. For single taxpayers, income limits for purchases made after Nov. 6, 2009, were increased to $125,000 for single taxpayers and $150,000 for married taxpayers filing jointly.

In November, the credit was opened up to long-term homeowners. Those who qualify can receive a tax credit of up to $6,500. They must have lived in their principal residence for five of the last eight years. The income limit for single taxpayers is $125,000; for married couples who file jointly the limit is $225,000.

A tax credit is a bonus, particularly for buyers who are cash-strapped and are buying at the low end of the market. The credit is applied against the income tax you owe the Internal Revenue Service. Even if you don’t owe income tax, the IRS will send you a check for the credit you’re due.

With both homebuyer tax credits, the purchase price cannot exceed $800,000, which makes it unavailable to many buyers in higher-income areas.

Unfortunately, the time frame for obtaining a tax credit coincided with the time of year that the housing market is usually lowest on inventory. Most sellers don’t bring their homes on the market in December, January and February. Typically, sellers bring their homes on the market in April and May, when the weather is better.

As a result, buyers in low-inventory, high-demand areas who are trying to beat the April 30 deadline are running into competition from like-minded buyers. In some cases, there are numerous buyers and the price is bid up. It doesn’t make sense to pay over market value for a home just to get a tax credit.

HOUSE HUNTING TIP: Buyers who are motivated to buy only if they can take advantage of a tax credit need to find out first if they qualify and how the program works. For instance, if you are a first-time buyer but your wife was a homeowner who sold a year ago, neither of you qualifies for a credit.

If you take a credit but don’t own the home for three years after you purchase it, you’ll have to pay the amount of credit you received back to the IRS. Visit IRS.gov for more specific information.

There is a lot of speculation about what will happen to the home-sale market when the credits expire. A survey conducted by the California Association of Realtors found that 40 percent of California homebuyers in 2009 would not have bought a home if the tax credit had not been available.

However, an informal survey of mortgage brokers and real estate agents indicated that today’s buyers will buy whether or not they are in contract by April 30. They’d like to take advantage of the credit if they find the right house in time. Buying a home that will suit your long-term needs should be a primary factor in your homebuying decision. Improved affordability due to low interest rates and home prices is motivating most buyers.

THE CLOSING: The IRS is auditing homebuyer tax credit files for fraud. It would not be wise to backdate your purchase agreement if you go into contract after April 30.

1. Prices to buy are incredible.   Quite potentially there hasn™t ever been a better market to buy a home. Its doubtful that if in my real estate career, we will see a better buyers market this good again.   As an example, in a period of 6 weeks I sold 4 houses that were foreclosures, each of them was purchased for $100k less than the sellers had paid 3 years ago.   To put that in perspective, my people bought them for about 50% of the price from 3years prior.   50%!     Of course every situation is different, but there are truly some great deals out there!

1. Prices may get worse.   So what is your plan?   Stay for a couple more years and sell when the market œturns around?   Not to be Debbie Downer, but things are going to be this way if not worse for 3-5 years according to most predictions.   As long as people are still out of work, and still getting laid off, we are going to see more foreclosures and more short sales.   (for more information on what is a short sale, check out this link: http://hairlessrealtor.com/short-sales.asp).   Buyers pay what the neighborhood homes are selling for.   Meaning if that foreclosure down the street sold for much less than what they paid 2 years ago, that sale affects the value of your home as well.

Statistics are showing that notices of mortgage defaults are on the rise.   Translation is the people who are 3months or more late on there mortgage.   Here is a quote from a housing economist that makes sense to me.

œCelia Chen housing economist for Moody™s Economy.com, said the Case-Shiller numbers lined up with her forecast. But she expects home prices in the Twin Cities and the nation to fall another 7 to 8 percent this year, citing foreclosures that will rise in the next six to nine months as temporary loan modifications fail to be made permanent, and home buyer tax credits that œwon™t have as big of an impact this year as they did in 2009. œ

Pasted from <http://www.builderonline.com/home-prices/twin-cities-home-prices-dip-again.aspx>

1. Historically Low Rates!   Rates are historically low floating around 5% for a 30 year FHA fixed rate loan, and they wont last forever.   Many of the œold timers in the real estate business will tell horror stories of the day that they started, rates were double digits“Ps, it wasn™t that long ago!   Can you imagine?   Once the demand in the market begins to pick up, guess what will happen to the rates?   Banks make money on interest rates.   There is already much talk that rates are to low now, and should be raised. Here is a link to some national averages for interest rates: http://realestate.yahoo.com/loans

1. Tax credit buyers are running low on time, so demand is rising for œGOOD inventory.   Recently, I was just having a conversation with a guy that had finally found a house.   He talked about being so frustrated with dragging his girlfriend and 2 year old around to 6 houses every Saturday to find that they were all junk.   Demand for competitive priced homes that are œturn key is turning up.   Many of the foreclosure homes are in need of repairs.   It can be costly, time consuming, and stressful.       Many buyers don™t want or cant afford to get into these projects.   I don™t blame them.   I don™t like to paint, and really don™t like remodeling projects inside my house.   When we moved into our house and had our hardwood floors redone, we had to stay with my in-laws for 4 days.   Not fun.   That was just the floors!

1. You may be eligible for $6500 federal government money.   The government is throwing around money, you may as well get some of it.   That money may be enough to make up for a year or so worth of depreciation or most of the costs to sell, but it is going away soon!   By April 30,2010 you must be locked into a purchase agreement for a new primary residence, closing by the end of June.   Here is a link with more details.
   1. http://federalhousingtaxcredit.com/faq2.php

1. More foreclosures and short sales are to come.   There are many reports out that would suggest that we are going to see more foreclosures before its all said and done.   Short sales and foreclosures are on the rise, and supposedly so are home modification loans.   What we know about those loan mod programs is that generally they are not working.   About 70% of people default anyways.   When these foreclosures hit the market at rock bottom prices, this will affect your house value.
   1. http://www.ritholtz.com/blog/2010/02/coming-soon-more-foreclosures/

1. Fix up costs are lower than normal“contractors, appliances, mechanicals and labor is much cheaper than it has been over the years.   Hard to put a hard number on the exact effect of the economy on prices of these goods or services, but seems like we all know a good contractor or laborer that is looking for work.   Now is the time that they are fighting for your business to stay alive, and are much more willing to negotiate prices to earn your business!

1. Lastly, you cant have it both ways“ translation you cant sell at the very top of the market and expect to turn around and buy at the very bottom of the market.   Your choices are that you can sell higher when the market shifts again, and pay more for the home that you buy, or you can sell now and buy at the very bottom of the market and take advantage of some of things that I have come up with for you to move now vs. waiting.

In some parts of the country, borrowers with good credit are more likely to be able to borrow 95 percent of the purchase price than they were just a few months ago.

In Florida and other troubled markets credit remains tight and mortgage companies continue to scrutinize property appraisals, which makes it difficult for some borrowers to get financing. But in most areas of the country where prices are stabilizing or falling only slightly, standards are relaxing.

œWe are starting to see…moderation,” said Neil Librock, head of credit risk for Wells Fargo & Co.

Source: The Wall Street Journal, Ruth Simon (12/19/2009)

The average interest rate for 30-year mortgages has fallen to the lowest level since Freddie Mac began compiling its weekly survey in 1971, declining to 4.71 percent this week from 4.78 percent a week ago.

Rates also were more attractive for 15-year fixed loans, which fell from 4.29 percent to 4.27 percent, but many consumers may not have qualified for them because they now face higher credit standards from lenders.

Still, the Mortgage Bankers Association’s index of application demand, which rose 2.1 percent on a seasonally adjusted basis during Thanksgiving week from the previous week, shows that consumers were looking to take advantage of mortgage rates at a historic low.

President Obama signed legislation extending the $8,000 first-time homebuyer tax credit and giving additional tax breaks to certain homeowners trading up.

2)  A new $6,500 tax credit to homeowners who are buying a new primary residence beginning Dec. 1, 2009.  The language mandates that to get this credit the homeowner must have owned their previous home for five consecutive years of the previous eight.

3) Higher income caps of $125,000 for individuals and $250,000 for couples.

4) Anti-flipping provision: Any homeowner who collects the credit and sells within three years must return the money.

A good website for further information (once they get a chance to update it) is:    www.federalhousingtaxcredit.com <http://www.federalhousingtaxcredit.com/>

1) Tax Credit Extension & Expansion:

There will be an important vote in the Senate this week on the housing tax credit provision.  The “Dodd-Lieberman-Isakson” amendment would extend the tax credit to June 30, 2010.  It would expand the credit to any homebuyer and raise the income limits to $150,000 ($300,000 for joint returns).  The amount of the tax credit would remain at $8,000.    While the industry trade associations are making a major push for the expansion of the tax credit to all homeowners, it appears unlikely that  if the tax credit is expanded that it will be expanded beyond first-time homebuyers.  However, there is a real problem with the program¦.

Fraud and the $8,000 Tax Credit

According J. Russell George (Treasury Inspector General for Tax Administration) the IRS has frozen more than 110,000 first-time home buyer tax credit refunds <http://www.google.com/hostednews/ap/article/ALeqM5hJJraNRE6DjWj2orF7SYJ12PADEAD9BG83O00>  pending civil or criminal examinations due to allegations of fraud.  The level of fraud surrounding the $8,000 tax credit is at least a HALF A BILLION DOLLARS! The fraud is coming from:

1)        People receiving the $8,000 without ever having bought a home.
2)        People receiving the $8,000 who did not qualify as 1st time homebuyers.
3)        Investors receiving the credit.
4)        Illegal™s receiving the $8,000.
5)        Children under the age of 18 (even as young as 4 years old) receiving the credit.
6)        Homebuyers filing for the credit before they buy a home and using the funds for the down payment.

Obviously, there has been NO verification of a homebuyer™s eligibility to receive this credit.  A MAJOR blunder.

The hottest buyers housing markets are places you may find comfort in the worst housing crash since at least the Great Depression. The top 10 buyers markets listed by Housing Predictor at mid-year are markets that aren’t necessarily big arts and entertainment centers, mostly found in smaller communities.

Amarillo, Texas takes the first position as the nation’s top buyers market in 2009 with the highest likelihood of housing inflation over the next few years. Austin, Texas and Tucson, Arizona are the largest metro areas to be named to the list possessing the highest probability of growing through the recessionary economy over the next few years. As a high-tech hub, Austin will have what it takes to not only sustain the downturn but see home values inflate.

All 10 markets hold the promise of prosperity in the near future. In the current economic environment there are few areas of the country that will see appreciation this year. The markets named here represent cities that are the most likely to experience housing inflation over the next few years, despite the downward economy and are the best places forecast to buy real estate to make a profit.

The financial crisis dealt a severe blow to the national economy that will take many years to overcome. Unlike any other downturn in real estate since the Great Depression, markets have seen home values decline at record levels. Times have changed as a result, and real estate inflation will take years to return in most areas. Investing for the long term, considered to be 10 years or longer is the best protection for those who choose to take the risk.

For all the government™s work, the climate for buying a new home remains much better than the climate for paying one off. But the gap is narrowing.

Mortgage rates touched historic lows earlier this year and still average an attractive 5.5% for a 30-year fixed-rate loan.   But that™s been of little use to hundreds of thousands of homeowners with œunderwater loans.

At the end of the first quarter, 14 million homeowners with mortgages, or about 27%, had negative equity, according to a recent Deutsche Bank report. Few homeowners have been able to refinance, despite the government™s efforts to help.

œI have a fair amount of clients that are stuck at rates above 6%, says Frank Ruzicka, a mortgage banker with Cornerstone Mortgage in St. Louis, Mo. Most of them bought their first homes several years ago with mortgages for 100% of the home™s value and now owe more than their homes are worth, he says.

The Obama administration™s Making Home Affordable   program, announced earlier this year, was designed to help homeowners in this predicament. In addition to offering loan modifications to homeowners facing foreclosure, participating lenders and servicers agreed to allow homeowners who are current on their mortgages to refinance their loans, even if they owe more than their homes are worth.

Initially, loans for amounts up to 105% of a home™s value qualified for the government-backed refinancing.   On July 1, the program was expanded to cover loans for amounts up to 125% of a home™s worth.

So far, most affected homeowners haven™t been able to take advantage of the program, mortgage brokers say. Mortgage Insurance companies, which get involved if the loan has   private mortgage insurance, also report a slow start to the   program, though they say they are hopeful that refinancing will pick up in the coming months.

Political attention has been focused largely on loan modifica- tions “ not refinancing. The government, which collects information on completed loan modifications from servicers, recently released its first progress report on the program. œThe issue for the [Home Affordable Refinancing Program] is it will help people a great deal, but those are not people who are at risk of losing their houses, Kelly says. œIt would help them drop their payments and that would help the U.S. economy, but there isn™t the urgency as there is with people who are near foreclosure.

Despite the program™s initiation in March, many lenders have been slow to adjust their systems to allow refinancing for underwater homes. œInitially, it was just the midtier servicers who were prepared with systems to accept this, says Joel Luebkeman, a spokesman for San Francisco-based mortgage insurer PMI. œYou are now seeing the larger servicers catch up. This is a situation where smaller is better, Luebkeman says. Small and midsize loan servicers may be able to process loans manually, while large servicers have complex automated processing systems that need to be adjusted. Many servicers just started processing underwater loans in the last month, Luebkeman says.

On July 1, the government expanded refinancing eligibility to mortgages with a loan-to-value ratio up to 125%, recognizing that most homeowners in hard-hit areas would not qualify for the program™s 105% LTV requirement. But Fannie Mae and Freddie Mac will not start buying these loans until Sept. 1 and Oct. 1, respectively. As a result, many lenders aren™t willing to refinance these loans just yet.

The government encouraged mortgage insurance companies to get involved in HARP by transferring policies without new underwriting. This means that if a homeowner had private mortgage insurance, the underwriter would transfer the existing policy to the new loan, even if that loan would not otherwise qualify because of a high LTV ratio.  

The problem is that most borrowers who wanted to switch lenders when refinancing could not transfer their mortgage   insurance.   The good news: Most servicers modified those   policies about a month ago.

By Aleksandra Todorova, SmartMoney