Rates on 30-year loans rise to 5.03 percent
Mortgage Rate Trend Index
If the experts polled by Bankrate.com are correct this week, it’s time to lock in a rate. Only 8 percent predict a decrease over the next 30 to 45 days; 25 percent foresee a holding pattern, and a full two-thirds (67 percent) expect further rate increases.
WASHINGTON – Oct. 30, 2009 – Rates for 30-year home loans climbed to 5.03 percent this week, the third consecutive weekly increase.
The average rate inched up from 5 percent a week earlier, mortgage company Freddie Mac said Thursday. The last time the average was higher was the week of September 24, when rates averaged 5.04 percent.
Rates had hovered below 5 percent for nearly a month until last week. They hit a record low of 4.78 percent in the spring, but are still attractive for people looking to buy a home or refinance.
The rates have advanced despite action by the government to prop up the housing market and stimulate the economy. The Federal Reserve has pumped $1.25 trillion on mortgage-backed securities in an effort to lower rates on mortgages and loosen credit.
Rates on 30-year mortgages traditionally track yields on long-term government debt.
Still, lenders have tightened their standards dramatically, so the best rates are available only to borrowers with solid credit and a 20 percent down payment.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day, frequently in line with long-term Treasury bonds.
The average rate on a 15-year fixed-rate mortgage rose to 4.46 percent from 4.43 percent recorded last week, according to Freddie Mac.
Rates on five-year, adjustable-rate mortgages averaged 4.42 percent, up from last week’s 4.4 percent. Rates on one-year, adjustable-rate mortgages rose to 4.57 percent from 4.54 percent.
The rates do not include add-on fees known as points. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 points for 30-year loans. The fee averaged 0.6 points for 15-year, five-year and one-year loans.
Copyright 2009 The Associated Press
Friday, October 30, 2009
Thursday, October 29, 2009
Senate panel OKs extension for home buyers’ credit
WASHINGTON – Oct. 29, 2009 – Senators reached a compromise to extend the $8,000 tax credit for first-time home buyers, a boost the housing industry expects will help it pull out of its two-year-old downturn.
Lawmakers in Washington also added a $6,500 tax credit for other primary-home purchasers and raised the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, 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, the sources said. The measure still faces votes in the full Senate and the House.
The current tax credit did little for the new-home market in September, the Commerce Department reported – news that took many industry analysts by surprise. Sales fell 3.6 percent from August and 7.8 percent 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 Inc., of New York, which tracks the market.
“Big deal,” said Joel L. Naroff, of Naroff Economic Advisors, of Holland, Bucks County. “Since hitting rock bottom in March, demand is up 20 percent.”
For Naroff, the robust rise in existing-home purchases – 9.2 percent 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 Inc. 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 had recovered enough to stand without the tax credit. But Newport said he believed that if the credit were not extended and expanded, housing demand would take a hit, and home sales would drop.
Until the Senate compromise today, the extension of the credit seemed mired in what National Association of Home Builders vice president Jerry Howard called “a game of partisan chicken.”
Howard’s take on the lower September numbers: It was too late to sign a contract on a house that would be completed by the current Nov. 30 deadline, and many buyers were concerned the credit would not be extended.
The credit has helped, acknowledged Marshal Granor, a principal in Granor Price Homes, of Horsham. But he added, “I’d love for it to go away, for a month.”
“People who believe there is no rush aren’t buying, they are waiting for more bargains from more squeezed sellers,” Granor said.
Still, said Feder of Radar Logic, lower home prices have carried “buyers further into the autumn than we would expect, based on historic patterns.”
Declining inventory means builders will have to ramp up production, Newport said.
As the Senate worked on the compromise, third-quarter data were released showing that the burden of foreclosure filings in the post-bubble market continued to shift from the subprime-ridden “sand” states (California, Nevada, Florida and Arizona) to areas with rising levels of unemployment and adjusting rates on the “exotic” mortgages prevalent in high-cost metropolitan markets.
Yet Las Vegas remained the toxic-loan capital, according to the third-quarter survey by RealtyTrac Inc., of Irvine, Calif. – its rate of foreclosure filings was seven times higher than the national average.
Copyright © 2009 The Philadelphia Inquirer
WASHINGTON – Oct. 29, 2009 – Senators reached a compromise to extend the $8,000 tax credit for first-time home buyers, a boost the housing industry expects will help it pull out of its two-year-old downturn.
Lawmakers in Washington also added a $6,500 tax credit for other primary-home purchasers and raised the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, 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, the sources said. The measure still faces votes in the full Senate and the House.
The current tax credit did little for the new-home market in September, the Commerce Department reported – news that took many industry analysts by surprise. Sales fell 3.6 percent from August and 7.8 percent 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 Inc., of New York, which tracks the market.
“Big deal,” said Joel L. Naroff, of Naroff Economic Advisors, of Holland, Bucks County. “Since hitting rock bottom in March, demand is up 20 percent.”
For Naroff, the robust rise in existing-home purchases – 9.2 percent 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 Inc. 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 had recovered enough to stand without the tax credit. But Newport said he believed that if the credit were not extended and expanded, housing demand would take a hit, and home sales would drop.
Until the Senate compromise today, the extension of the credit seemed mired in what National Association of Home Builders vice president Jerry Howard called “a game of partisan chicken.”
Howard’s take on the lower September numbers: It was too late to sign a contract on a house that would be completed by the current Nov. 30 deadline, and many buyers were concerned the credit would not be extended.
The credit has helped, acknowledged Marshal Granor, a principal in Granor Price Homes, of Horsham. But he added, “I’d love for it to go away, for a month.”
“People who believe there is no rush aren’t buying, they are waiting for more bargains from more squeezed sellers,” Granor said.
Still, said Feder of Radar Logic, lower home prices have carried “buyers further into the autumn than we would expect, based on historic patterns.”
Declining inventory means builders will have to ramp up production, Newport said.
As the Senate worked on the compromise, third-quarter data were released showing that the burden of foreclosure filings in the post-bubble market continued to shift from the subprime-ridden “sand” states (California, Nevada, Florida and Arizona) to areas with rising levels of unemployment and adjusting rates on the “exotic” mortgages prevalent in high-cost metropolitan markets.
Yet Las Vegas remained the toxic-loan capital, according to the third-quarter survey by RealtyTrac Inc., of Irvine, Calif. – its rate of foreclosure filings was seven times higher than the national average.
Copyright © 2009 The Philadelphia Inquirer
Wednesday, October 28, 2009
Florida’s consumer confidence remains flat amid mixed economic news
GAINESVILLE, Fla. – Oct. 28, 2009 – Florida’s consumer confidence remained flat at 72 in October, according to a new University of Florida (UF) survey.
“Consumers are more optimistic this month about their current personal finances and less optimistic about the U.S. economy in both the short and long term,” says Chris McCarty, survey director of UF’s Bureau of Economic and Business Research. “They remain bullish on buying opportunities and are likely to be even more optimistic when they see the drastically lower prices in the coming months from retailers trying to boost holiday sales among the most cautious U.S. consumers since the Great Depression.”
However, as the holidays approach, most forecasts predict no growth in retail sales over what turned out to be an extremely disappointing 2008 season, McCarty said.
With decreasing revenues and increasing costs, the state could see a $2.6 billion budget deficit, McCarty predicts. “That will mean increased taxes and fees and certainly more cost-cutting by the Florida Legislature as the spring session unfolds.”
September’s final consumer confidence index dropped two points from the initial reported reading of 74 after an additional week of interviews were included in survey results at the end of the month, McCarty says. Florida’s consumer confidence index had slowly inched up from 67 in July to 71 in August and 72 in September before stalling in October.
“The revision downward and the flat reading this month is more in line with what we had been expecting,” McCarty says. “Given the economic environment in Florida and the U.S., the preliminary reading of 74 last month seemed high.”
Two of this month’s five components increased while three declined. Perceptions as to whether it’s a good time to buy big-ticket items rose three points to 83 and perceptions of personal finances now compared with a year ago rose three points to 45. Expectations about U.S. economic conditions over the next year fell three points to 71, while expectations about U.S. economic conditions over the next five years fell three points to 81. Perceptions of personal finances a year from now fell one point to 80.
Florida’s economic picture remains mixed, when housing, the stock market and retailing are all taken into consideration, McCarty says. “Home prices in most Florida markets have held steady over the past few months, although they are down an average of 43 percent from the peak values reached in June 2006,” he says. “It is unclear how much of this stability is due to activity from first-time homebuyers who took advantage of the $8,000 tax credit due to expire Dec. 1.”
The most recent mortgage applications survey from the Mortgage Bankers Association showed a large decline in applications for both new mortgages and refinancing, suggesting that sales may fall in the coming months without the tax rebate. Potentially, this could decrease home prices even more, even though prices are already down to 2002-2003 levels, McCarty says.
The research center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for October was conducted from 408 responses. The index is benchmarked to 1966, so a value of 100 represents the same level of confidence for that year, he said.
© 2009 Florida Realtors®
Related Topics: Economic indicators
GAINESVILLE, Fla. – Oct. 28, 2009 – Florida’s consumer confidence remained flat at 72 in October, according to a new University of Florida (UF) survey.
“Consumers are more optimistic this month about their current personal finances and less optimistic about the U.S. economy in both the short and long term,” says Chris McCarty, survey director of UF’s Bureau of Economic and Business Research. “They remain bullish on buying opportunities and are likely to be even more optimistic when they see the drastically lower prices in the coming months from retailers trying to boost holiday sales among the most cautious U.S. consumers since the Great Depression.”
However, as the holidays approach, most forecasts predict no growth in retail sales over what turned out to be an extremely disappointing 2008 season, McCarty said.
With decreasing revenues and increasing costs, the state could see a $2.6 billion budget deficit, McCarty predicts. “That will mean increased taxes and fees and certainly more cost-cutting by the Florida Legislature as the spring session unfolds.”
September’s final consumer confidence index dropped two points from the initial reported reading of 74 after an additional week of interviews were included in survey results at the end of the month, McCarty says. Florida’s consumer confidence index had slowly inched up from 67 in July to 71 in August and 72 in September before stalling in October.
“The revision downward and the flat reading this month is more in line with what we had been expecting,” McCarty says. “Given the economic environment in Florida and the U.S., the preliminary reading of 74 last month seemed high.”
Two of this month’s five components increased while three declined. Perceptions as to whether it’s a good time to buy big-ticket items rose three points to 83 and perceptions of personal finances now compared with a year ago rose three points to 45. Expectations about U.S. economic conditions over the next year fell three points to 71, while expectations about U.S. economic conditions over the next five years fell three points to 81. Perceptions of personal finances a year from now fell one point to 80.
Florida’s economic picture remains mixed, when housing, the stock market and retailing are all taken into consideration, McCarty says. “Home prices in most Florida markets have held steady over the past few months, although they are down an average of 43 percent from the peak values reached in June 2006,” he says. “It is unclear how much of this stability is due to activity from first-time homebuyers who took advantage of the $8,000 tax credit due to expire Dec. 1.”
The most recent mortgage applications survey from the Mortgage Bankers Association showed a large decline in applications for both new mortgages and refinancing, suggesting that sales may fall in the coming months without the tax rebate. Potentially, this could decrease home prices even more, even though prices are already down to 2002-2003 levels, McCarty says.
The research center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for October was conducted from 408 responses. The index is benchmarked to 1966, so a value of 100 represents the same level of confidence for that year, he said.
© 2009 Florida Realtors®
Related Topics: Economic indicators
Tuesday, October 27, 2009
Senators differ on extending homebuyer tax credit
WASHINGTON (AP) – Oct. 27, 2009 – Top Democrats in the Senate are pressing a plan that would extend a popular tax credit for first-time homebuyers but gradually phase it out over the course of next year.
The proposal, by Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., would extend the $8,000 tax credit – which expires Nov. 30 – through March 31. Its value would drop by $2,000 for each of the subsequent three quarters of 2010.
The plan, which could face a vote in the Senate this week, appears aimed at countering a far more generous $17 billion bipartisan plan that would extend the $8,000 credit through June 30, 2010, boost the income cap for eligibility and open the credit to all buyers, rather than first-timers.
Senators are maneuvering to add the homebuyer tax credit extension to legislation to extend unemployment benefits by up to 20 weeks. That bill faces a key test vote on Tuesday.
Supporters say the tax credit has helped revive the housing market and say that if it’s cut off as scheduled at the end of next month, home sales could drop off.
Reid sought to schedule a vote on the competing measures on Monday but was blocked by top Senate Republican Mitch McConnell of Kentucky, who is demanding votes on unrelated GOP proposals.
One such proposal would require people receiving unemployment insurance to be processed through the E-Verify program to prove legal immigration status and would require all federal contractors to use E-Verify. E-Verify is an Internet-based system that employers use to check on the immigration status of new hires.
The Democratic plan also would extend the ability of money-losing businesses to claim refunds on taxes paid during profitable times up to four years ago. All businesses could take advantage of the credit; when passed in February it was limited to smaller companies with annual revenues of $15 million or less.
The provision is especially popular with homebuilders who made huge profits in the housing boom but are struggling today. Critics say it’s a giveaway to some of the very companies that helped build up the housing bubble years ago.
Copyright © 2009 The Associated Press
The proposal, by Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., would extend the $8,000 tax credit – which expires Nov. 30 – through March 31. Its value would drop by $2,000 for each of the subsequent three quarters of 2010.
The plan, which could face a vote in the Senate this week, appears aimed at countering a far more generous $17 billion bipartisan plan that would extend the $8,000 credit through June 30, 2010, boost the income cap for eligibility and open the credit to all buyers, rather than first-timers.
Senators are maneuvering to add the homebuyer tax credit extension to legislation to extend unemployment benefits by up to 20 weeks. That bill faces a key test vote on Tuesday.
Supporters say the tax credit has helped revive the housing market and say that if it’s cut off as scheduled at the end of next month, home sales could drop off.
Reid sought to schedule a vote on the competing measures on Monday but was blocked by top Senate Republican Mitch McConnell of Kentucky, who is demanding votes on unrelated GOP proposals.
One such proposal would require people receiving unemployment insurance to be processed through the E-Verify program to prove legal immigration status and would require all federal contractors to use E-Verify. E-Verify is an Internet-based system that employers use to check on the immigration status of new hires.
The Democratic plan also would extend the ability of money-losing businesses to claim refunds on taxes paid during profitable times up to four years ago. All businesses could take advantage of the credit; when passed in February it was limited to smaller companies with annual revenues of $15 million or less.
The provision is especially popular with homebuilders who made huge profits in the housing boom but are struggling today. Critics say it’s a giveaway to some of the very companies that helped build up the housing bubble years ago.
Copyright © 2009 The Associated Press
Monday, October 26, 2009
Florida homeowners walking away from underwater mortgages
MIAMI – Oct. 26, 2009 – Andres Duque thought he got a real steal when he paid $125,000 for his Little Haiti condo. But four years later, similar units are selling for $35,000 and even less.
And so, faced with the prospect of being underwater on his mortgage – owing more than the unit is worth – for the next 20 years, Duque, 33, made what seemed to him like a rational choice: to cut and run.
He stopped paying the mortgage, basically forcing the lender to take the condo off his hands through foreclosure.
“I was able to pay off all my credit cards,” said Duque, who is biding his time in the condo, waiting until they come and evict him. “In a way, it was the best thing that happened to me because all my income is not being consumed by this freaking monster of a debt.”
Duque’s game plan is known as a strategic default – when borrowers walk away from loans, even if they can afford the payments. Here is a look at the benefits, the risks and the ethics of such a move.
As property values have plummeted by an average of 50 percent, such strategic defaults now make up a sizable chunk of South Florida’s foreclosures. In the fourth quarter of last year, they accounted for an estimated 28 percent of all defaults in Miami-Dade and Broward counties, according to recent research from the credit bureau Experian and Oliver Wyman, a New York-based international consulting firm.
That’s up from 8 percent in the same quarter two years ago. With property values down even further now, researchers are certain the numbers have risen even more.
With the social stigma of foreclosure eroding, experts say it is becoming easier for discouraged borrowers to justify throwing in the towel.
“People are saying, ‘Everyone is doing this, and I do not feel any compunction in fashioning my own bailout,’” said Roy Oppenheim, a Weston real-estate and foreclosure defense attorney who conducts weekly seminars that discuss strategic defaults and other financial options for distressed borrowers.
South Florida is already a veritable Atlantis of underwater borrowers. In September, homeowners here collectively owed $62.7 billion more than their homes were worth, according to an analysis by First American CoreLogic. The analysis found that about half of all outstanding mortgages in Miami-Dade and Broward are underwater.
Among those who bought in Broward in 2006, the median negative equity was $75,000 as of March. In Miami-Dade, the figure was $63,000, the Web-based real-estate service firm Zillow.com reports. Negative equity refers to the difference between a loan balance and the market value of a home.
“I wouldn’t blame borrowers who knew they were facing significant losses even if they could afford to stay,” said Andrea Heuson, a finance professor at the University of Miami. “Every day you wake up, you are reminded how much you paid for something, and then you read every day in the newspaper how much prices have fallen.”
The many consequences
Walking away, however, is fraught with financial, legal and ethical dilemmas. Lenders, government and the credit industry are starting to pay more attention to how strategic defaulters think and behave – in an effort to convince them to tough it out.
“It’s a huge problem, and it doesn’t get addressed in the process right now,” said Ron Kaniuk, a Boca Raton foreclosure and bankruptcy attorney. He said lenders are encouraging the trend by primarily offering loan modifications only to those who have fallen behind or are seriously at risk of foreclosure.
Duque, in fact, said he shunned a modification because it didn’t reduce his balance.
“It’s really a social change in the way debtors think, and it’s taking creditors some time to absorb that,” said Mark King, an attorney with the Miami office of Jones Walker who represents banks in commercial foreclosures. Commercial property owners also have started walking away.
William Hardin, a real-estate professor at Florida International University, said people have a moral obligation to honor their mortgages when they can.
“The vast majority knew what they were doing and were taking a risk, and the fact of the matter is [the mortgage] is a contract. We live in a world where contracts have to be honored. It’s the way our economy works.”
High default rates have already meant higher loan costs and tougher underwriting standards for all borrowers.
Tracking strategic defaults is an inexact science. Experian researchers identified possible strategic defaulters as homeowners who have gone straight from current on their payments to not paying at all, but remained in good standing on other credit obligations. Nationally, Experian estimated 588,000 borrowers defaulted on purpose in 2008.
Also fueling the phenomenon has been a shift from viewing a home as a place to live to an investment, valued insofar as its potential resale price goes up.
Frustration with the tax-funded bailout of banks and Wall Street may have also emboldened depressed borrowers to default out of anger and a desire to stick it to the banks. Duque’s resolve, for example, hardened after watching Michael Moore’s movie Capitalism: A Love Story. In the movie, Moore makes a case that corporations preying on consumers led to the housing crisis and recession.
“In the movie, there were Congress people telling the American public to stay in their homes, to squat and do what you have to do to fight. A lot of it struck home in many, many, many ways, and I am going to stay here until [my bank] comes to get me out,” Duque said.
Aside from the new philosophical justification for stopping his payments, Duque said his decision was fundamentally an economic one. “My mortgage was killing me, even before things went to hell. I was being choked by the property,” said Duque, who works at the Mondrian Hotel in Miami Beach.
Most strategic defaulters find themselves weighing whether the hit to their credit scores is easier to bear than paying underwater mortgages for years to come.
The most optimistic analysts say it could be three years before prices begin to appreciate. Others say prices have another 30 percent-plus to fall before flat-lining.
Prepared for the worst, Duque has been surprised by the seemingly minimal consequences so far. His credit limits on two cards were slashed by a few thousand dollars, but they were not canceled.
“I went to BrandsMart and applied for a card, and they denied me, so my credit score must be pretty low,” he said. “That’s fine with me, as long as I have a couple of credit cards.”
Surprisingly, strategic defaulters with good credit scores who remain current on their other credit lines can quickly rehabilitate their credit scores after foreclosure – faster than many realize, according to Sarah Davies, a senior vice president at VantageScore, a credit scoring and consumer analytics firm owned jointly by the nation’s three major credit reporting agencies. “You can pull yourself out of any major impact from foreclosure in 24 months,” she said.
And five years down the road?
“A foreclosure is going to be very easy to explain, seeing there are thousands of others who have also defaulted. So, there is a safety-in-numbers issue there,” Heuson said, referring to a possible borrower rationale.
Consumers are essentially putting a price on their credit score, said Piyush Tantia, a partner in the retail and business banking practice of Oliver Wyman.
But there are other risks.
Foreclosure defense attorneys warn of the growing threat that lenders will obtain deficiency judgments against borrowers. Such judgments allow them to collect the difference between the loan balance and the market value of the properties. They also allow lenders to garnish wages and seize assets.
While the risk is not great now statistically, Marc Ben Ezra, a Fort Lauderdale attorney who files foreclosures for banks, said it’s possible that lenders may begin pursuing legal rights to collect.
Jim Angleton, senior vice president of Miami-based Republic Federal Bank, estimated lenders are going after borrowers 15 percent of the time. “You know they are not being forthright with you about their assets when they are keeping their credit cards, their very fine cars and other assets current.”
Oppenheim recommends homeowners bulletproof themselves by hiring a lawyer and perhaps an accountant to explore the possible consequences.
Other real-estate experts say walking away may not be worth it in the short term, when you factor in the cost of finding new shelter and the increased consumer interest rates that stem from any foreclosure.
Tactic not for everyone
Defaulting, though, is not for everybody whose mortgage is underwater, and plenty of people stick with their homes out of a sense of financial responsibility, integrity and faith that prices will recover eventually. There are also people who forked over tens of thousands of dollars in down payments and face a real financial loss by walking away.
Analia Vence, who is renting her underwater town house in Homestead to a tenant for less than the monthly mortgage payment, said she has no intention of walking away. She paid $170,000 in 2006, and now nearby foreclosed homes are selling for $80,000.
“We bought the property as an investment, and we never thought to sell it immediately. We’re only paying $200 or $300 for the mortgage, so it doesn’t make sense to hurt our credit for that much,” Vence said.
Copyright © 2009 The Miami Herald
And so, faced with the prospect of being underwater on his mortgage – owing more than the unit is worth – for the next 20 years, Duque, 33, made what seemed to him like a rational choice: to cut and run.
He stopped paying the mortgage, basically forcing the lender to take the condo off his hands through foreclosure.
“I was able to pay off all my credit cards,” said Duque, who is biding his time in the condo, waiting until they come and evict him. “In a way, it was the best thing that happened to me because all my income is not being consumed by this freaking monster of a debt.”
Duque’s game plan is known as a strategic default – when borrowers walk away from loans, even if they can afford the payments. Here is a look at the benefits, the risks and the ethics of such a move.
As property values have plummeted by an average of 50 percent, such strategic defaults now make up a sizable chunk of South Florida’s foreclosures. In the fourth quarter of last year, they accounted for an estimated 28 percent of all defaults in Miami-Dade and Broward counties, according to recent research from the credit bureau Experian and Oliver Wyman, a New York-based international consulting firm.
That’s up from 8 percent in the same quarter two years ago. With property values down even further now, researchers are certain the numbers have risen even more.
With the social stigma of foreclosure eroding, experts say it is becoming easier for discouraged borrowers to justify throwing in the towel.
“People are saying, ‘Everyone is doing this, and I do not feel any compunction in fashioning my own bailout,’” said Roy Oppenheim, a Weston real-estate and foreclosure defense attorney who conducts weekly seminars that discuss strategic defaults and other financial options for distressed borrowers.
South Florida is already a veritable Atlantis of underwater borrowers. In September, homeowners here collectively owed $62.7 billion more than their homes were worth, according to an analysis by First American CoreLogic. The analysis found that about half of all outstanding mortgages in Miami-Dade and Broward are underwater.
Among those who bought in Broward in 2006, the median negative equity was $75,000 as of March. In Miami-Dade, the figure was $63,000, the Web-based real-estate service firm Zillow.com reports. Negative equity refers to the difference between a loan balance and the market value of a home.
“I wouldn’t blame borrowers who knew they were facing significant losses even if they could afford to stay,” said Andrea Heuson, a finance professor at the University of Miami. “Every day you wake up, you are reminded how much you paid for something, and then you read every day in the newspaper how much prices have fallen.”
The many consequences
Walking away, however, is fraught with financial, legal and ethical dilemmas. Lenders, government and the credit industry are starting to pay more attention to how strategic defaulters think and behave – in an effort to convince them to tough it out.
“It’s a huge problem, and it doesn’t get addressed in the process right now,” said Ron Kaniuk, a Boca Raton foreclosure and bankruptcy attorney. He said lenders are encouraging the trend by primarily offering loan modifications only to those who have fallen behind or are seriously at risk of foreclosure.
Duque, in fact, said he shunned a modification because it didn’t reduce his balance.
“It’s really a social change in the way debtors think, and it’s taking creditors some time to absorb that,” said Mark King, an attorney with the Miami office of Jones Walker who represents banks in commercial foreclosures. Commercial property owners also have started walking away.
William Hardin, a real-estate professor at Florida International University, said people have a moral obligation to honor their mortgages when they can.
“The vast majority knew what they were doing and were taking a risk, and the fact of the matter is [the mortgage] is a contract. We live in a world where contracts have to be honored. It’s the way our economy works.”
High default rates have already meant higher loan costs and tougher underwriting standards for all borrowers.
Tracking strategic defaults is an inexact science. Experian researchers identified possible strategic defaulters as homeowners who have gone straight from current on their payments to not paying at all, but remained in good standing on other credit obligations. Nationally, Experian estimated 588,000 borrowers defaulted on purpose in 2008.
Also fueling the phenomenon has been a shift from viewing a home as a place to live to an investment, valued insofar as its potential resale price goes up.
Frustration with the tax-funded bailout of banks and Wall Street may have also emboldened depressed borrowers to default out of anger and a desire to stick it to the banks. Duque’s resolve, for example, hardened after watching Michael Moore’s movie Capitalism: A Love Story. In the movie, Moore makes a case that corporations preying on consumers led to the housing crisis and recession.
“In the movie, there were Congress people telling the American public to stay in their homes, to squat and do what you have to do to fight. A lot of it struck home in many, many, many ways, and I am going to stay here until [my bank] comes to get me out,” Duque said.
Aside from the new philosophical justification for stopping his payments, Duque said his decision was fundamentally an economic one. “My mortgage was killing me, even before things went to hell. I was being choked by the property,” said Duque, who works at the Mondrian Hotel in Miami Beach.
Most strategic defaulters find themselves weighing whether the hit to their credit scores is easier to bear than paying underwater mortgages for years to come.
The most optimistic analysts say it could be three years before prices begin to appreciate. Others say prices have another 30 percent-plus to fall before flat-lining.
Prepared for the worst, Duque has been surprised by the seemingly minimal consequences so far. His credit limits on two cards were slashed by a few thousand dollars, but they were not canceled.
“I went to BrandsMart and applied for a card, and they denied me, so my credit score must be pretty low,” he said. “That’s fine with me, as long as I have a couple of credit cards.”
Surprisingly, strategic defaulters with good credit scores who remain current on their other credit lines can quickly rehabilitate their credit scores after foreclosure – faster than many realize, according to Sarah Davies, a senior vice president at VantageScore, a credit scoring and consumer analytics firm owned jointly by the nation’s three major credit reporting agencies. “You can pull yourself out of any major impact from foreclosure in 24 months,” she said.
And five years down the road?
“A foreclosure is going to be very easy to explain, seeing there are thousands of others who have also defaulted. So, there is a safety-in-numbers issue there,” Heuson said, referring to a possible borrower rationale.
Consumers are essentially putting a price on their credit score, said Piyush Tantia, a partner in the retail and business banking practice of Oliver Wyman.
But there are other risks.
Foreclosure defense attorneys warn of the growing threat that lenders will obtain deficiency judgments against borrowers. Such judgments allow them to collect the difference between the loan balance and the market value of the properties. They also allow lenders to garnish wages and seize assets.
While the risk is not great now statistically, Marc Ben Ezra, a Fort Lauderdale attorney who files foreclosures for banks, said it’s possible that lenders may begin pursuing legal rights to collect.
Jim Angleton, senior vice president of Miami-based Republic Federal Bank, estimated lenders are going after borrowers 15 percent of the time. “You know they are not being forthright with you about their assets when they are keeping their credit cards, their very fine cars and other assets current.”
Oppenheim recommends homeowners bulletproof themselves by hiring a lawyer and perhaps an accountant to explore the possible consequences.
Other real-estate experts say walking away may not be worth it in the short term, when you factor in the cost of finding new shelter and the increased consumer interest rates that stem from any foreclosure.
Tactic not for everyone
Defaulting, though, is not for everybody whose mortgage is underwater, and plenty of people stick with their homes out of a sense of financial responsibility, integrity and faith that prices will recover eventually. There are also people who forked over tens of thousands of dollars in down payments and face a real financial loss by walking away.
Analia Vence, who is renting her underwater town house in Homestead to a tenant for less than the monthly mortgage payment, said she has no intention of walking away. She paid $170,000 in 2006, and now nearby foreclosed homes are selling for $80,000.
“We bought the property as an investment, and we never thought to sell it immediately. We’re only paying $200 or $300 for the mortgage, so it doesn’t make sense to hurt our credit for that much,” Vence said.
Copyright © 2009 The Miami Herald
Friday, October 23, 2009
Congress scrutinizes problems in home buyer credit
WASHINGTON (AP) – Oct. 23, 2009 – The rush to implement a tax credit for first-time home buyers opened the program up to potential fraud by people who hadn’t bought a home or already owned one, Congress was told Thursday.
J. Russell George, Treasury Inspector General for Tax Administration, questioned the eligibility of some 100,000 claims out of the 1.5 million who have sought to take advantage of the $8,000 tax credit incorporated in the economic stimulus package enacted last February.
He said claimants include those who could possibly be illegal immigrants and that 580 people seeking $4 million from the first-time home buyer credit were under the age of 18. The youngest taxpayers receiving the credit were 4 years old, his office said.
George and an Internal Revenue Service official testifying before a House Ways and Means Committee subcommittee stressed that many of the questioned claims may eventually be found to be legitimate after further examination.
But the hearing raised a yellow flag as Congress considers whether to extend, or even expand, the popular program that is set to expire at the end of November.
The top Republican on the panel, Rep. Charles Boustany, Jr., of Louisiana, said that while the issue of extending the credit was not the purpose of the hearing, “every time Congress creates a new refundable credit ... the incentive for fraud is magnified.”
Linda Stiff, IRS’ deputy commissioner for services and enforcement, agreed that “any time that there is an opportunity to receive cash back, it tends to attract people that might have an intent to defraud the government.” She said the agency “will vigorously pursue those who filed fraudulent claims.”
Rep. John Lewis, D-Ga., chairman of the oversight subcommittee, said he had introduced legislation to improve the IRS’ administration of the program, including giving it the authority to look at prior returns to determine eligibility and requiring that taxpayers provide documented proof of a home purchase.
Currently, applicants must fill out a separate IRS form, but do not have to supply documentation.
The tax credit is “a vital part of our economic recovery efforts. We must ensure that we are administering the credit accurately,” Lewis said.
George said more than 19,000 people filed 2008 tax returns or amended returns claiming the credit for homes they had not yet purchased. Those claims amounted to $139 million and it was not clear that the IRS planned to go back to verify that those purchases actually took place, he said.
He said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.
The home buyer credit was a key element of the $787 billion stimulus package enacted last February. Under the measure, low- and middle-income first-time home buyers purchasing a home between Jan. 1 and Nov. 30 of this year could claim a credit of up to $8,000 on their 2008 or 2009 income tax return.
George said the IRS has implemented computer programming to reject claims from people who have not yet purchased a new home. He also acknowledged that the agency has installed filters to catch claimants who had entered information on tax returns indicating they may have owned a home in the three previous years. Those could include deductions for home mortgage interest or real estate taxes.
While the program has widespread support in Congress, there are growing concerns about the costs. The cause, said Sen. Jack Reed, D-R.I., “is a worthy one.” But “I hope we can find ways to pay for it.”
Critics have also characterized the program as a subsidy for people who would have bought a new home regardless of the tax credit. The National Association of Realtors has estimated that one-fourth of those who have claimed the credit, about 350,000, would not have purchased their homes without the credit.
Copyright 2009 The Associated Press
J. Russell George, Treasury Inspector General for Tax Administration, questioned the eligibility of some 100,000 claims out of the 1.5 million who have sought to take advantage of the $8,000 tax credit incorporated in the economic stimulus package enacted last February.
He said claimants include those who could possibly be illegal immigrants and that 580 people seeking $4 million from the first-time home buyer credit were under the age of 18. The youngest taxpayers receiving the credit were 4 years old, his office said.
George and an Internal Revenue Service official testifying before a House Ways and Means Committee subcommittee stressed that many of the questioned claims may eventually be found to be legitimate after further examination.
But the hearing raised a yellow flag as Congress considers whether to extend, or even expand, the popular program that is set to expire at the end of November.
The top Republican on the panel, Rep. Charles Boustany, Jr., of Louisiana, said that while the issue of extending the credit was not the purpose of the hearing, “every time Congress creates a new refundable credit ... the incentive for fraud is magnified.”
Linda Stiff, IRS’ deputy commissioner for services and enforcement, agreed that “any time that there is an opportunity to receive cash back, it tends to attract people that might have an intent to defraud the government.” She said the agency “will vigorously pursue those who filed fraudulent claims.”
Rep. John Lewis, D-Ga., chairman of the oversight subcommittee, said he had introduced legislation to improve the IRS’ administration of the program, including giving it the authority to look at prior returns to determine eligibility and requiring that taxpayers provide documented proof of a home purchase.
Currently, applicants must fill out a separate IRS form, but do not have to supply documentation.
The tax credit is “a vital part of our economic recovery efforts. We must ensure that we are administering the credit accurately,” Lewis said.
George said more than 19,000 people filed 2008 tax returns or amended returns claiming the credit for homes they had not yet purchased. Those claims amounted to $139 million and it was not clear that the IRS planned to go back to verify that those purchases actually took place, he said.
He said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.
The home buyer credit was a key element of the $787 billion stimulus package enacted last February. Under the measure, low- and middle-income first-time home buyers purchasing a home between Jan. 1 and Nov. 30 of this year could claim a credit of up to $8,000 on their 2008 or 2009 income tax return.
George said the IRS has implemented computer programming to reject claims from people who have not yet purchased a new home. He also acknowledged that the agency has installed filters to catch claimants who had entered information on tax returns indicating they may have owned a home in the three previous years. Those could include deductions for home mortgage interest or real estate taxes.
While the program has widespread support in Congress, there are growing concerns about the costs. The cause, said Sen. Jack Reed, D-R.I., “is a worthy one.” But “I hope we can find ways to pay for it.”
Critics have also characterized the program as a subsidy for people who would have bought a new home regardless of the tax credit. The National Association of Realtors has estimated that one-fourth of those who have claimed the credit, about 350,000, would not have purchased their homes without the credit.
Copyright 2009 The Associated Press
Thursday, October 22, 2009
Property tax appeal fee could triple
TALLAHASSEE, Fla. – Oct. 22, 2009 – Fighting property taxes would cost more under a push to more than triple filing fees imposed on taxpayers appealing their tax bills.
Property owners statewide can now pay $15 to appeal their tax assessments. Palm Beach County officials are calling for the Legislature to increase that statewide fee to $50.
This comes as more South Florida property owners are filing appeals to try to reduce what they owe in property taxes amid an economic recession.
The $15 fee isn’t enough to cover processing costs to consider appeals, according to Palm Beach County’s Value Adjustment Board.
Palm Beach County contends it costs about $43 per application to cover appeal costs that include holding a hearing with an independent magistrate who serves as a mediator.
Linda Phillips, supervisor of the Broward County Value Adjustment Board, said that her agency hasn’t calculated actual cost of processing tax appeals, but she knows it’s more than $15.
With the number of appeals increasing, the Legislature should boost the fee to $50, said Palm Beach County Commissioner Karen Marcus, who heads the county’s value adjustment aboard.
“People should be willing to pay what it costs to process,” Marcus said. “The rest of the taxpayers are going to have to subsidize them.”
The fee has been around for at least 20 years, Phillips said.
“We found a 1989 resolution that it was $15,” Phillips said. “It’s been $15 for a long time. It has not gone up.”
Meanwhile appeals have steadily increased over the last 15 years or so.
Appeals of property values used for tax assessments are increasing as more people grow frustrated that their property tax payments are staying the same or rising, even though their property values are dropping.
South Florida county property appraisers say their estimated property values are going down, but that property tax bills may remain the same or go up because of rising tax rates set by local governments as well as the differing effects of the state’s homestead exemption.
Appeals hit record numbers this year in Palm Beach County, which saw a 40 percent increase with 18,325 taxpayers filing to challenge their 2009 assessments.
In Broward County, the appeals increased 9 percent, to 32,411.
Miami-Dade County has yet to finish counting the appeals filed as of the September deadline. As of last week, about 69,000 petitions have been entered into Miami-Dade’s appeals system and the total is projected to far exceed the 70,000 filed last year.
Before raising the cost to file appeals, state legislators and local officials should look for ways to cut costs, said Robert Weissert, spokesman for Florida Tax Watch – a nonpartisan Tallahassee-based research group.
Too many times, state and local governments increase fees to help cover other expenses, Weissert said.
“We are seeing these fees raised more than necessary,” Weissert said. “It is absolutely vital that the citizens have an opportunity to challenge their property taxes.”
State legislators last spring resisted calls to boost property tax appeal filing fees, even as they changed state law to make the appeals process more taxpayer friendly.
In the past, county property appraisers benefited from a “presumption of correctness” that put the burden on taxpayers to prove that an assessment was wrong. Now county property appraisers have to go further to defend how they arrived at their numbers.
Changes to state law also now allow more leeway for property owners to file appeals late, if they can prove that an extraordinary circumstance, such as illness, delayed their application.
Copyright © 2009 Sun Sentinel,
Property owners statewide can now pay $15 to appeal their tax assessments. Palm Beach County officials are calling for the Legislature to increase that statewide fee to $50.
This comes as more South Florida property owners are filing appeals to try to reduce what they owe in property taxes amid an economic recession.
The $15 fee isn’t enough to cover processing costs to consider appeals, according to Palm Beach County’s Value Adjustment Board.
Palm Beach County contends it costs about $43 per application to cover appeal costs that include holding a hearing with an independent magistrate who serves as a mediator.
Linda Phillips, supervisor of the Broward County Value Adjustment Board, said that her agency hasn’t calculated actual cost of processing tax appeals, but she knows it’s more than $15.
With the number of appeals increasing, the Legislature should boost the fee to $50, said Palm Beach County Commissioner Karen Marcus, who heads the county’s value adjustment aboard.
“People should be willing to pay what it costs to process,” Marcus said. “The rest of the taxpayers are going to have to subsidize them.”
The fee has been around for at least 20 years, Phillips said.
“We found a 1989 resolution that it was $15,” Phillips said. “It’s been $15 for a long time. It has not gone up.”
Meanwhile appeals have steadily increased over the last 15 years or so.
Appeals of property values used for tax assessments are increasing as more people grow frustrated that their property tax payments are staying the same or rising, even though their property values are dropping.
South Florida county property appraisers say their estimated property values are going down, but that property tax bills may remain the same or go up because of rising tax rates set by local governments as well as the differing effects of the state’s homestead exemption.
Appeals hit record numbers this year in Palm Beach County, which saw a 40 percent increase with 18,325 taxpayers filing to challenge their 2009 assessments.
In Broward County, the appeals increased 9 percent, to 32,411.
Miami-Dade County has yet to finish counting the appeals filed as of the September deadline. As of last week, about 69,000 petitions have been entered into Miami-Dade’s appeals system and the total is projected to far exceed the 70,000 filed last year.
Before raising the cost to file appeals, state legislators and local officials should look for ways to cut costs, said Robert Weissert, spokesman for Florida Tax Watch – a nonpartisan Tallahassee-based research group.
Too many times, state and local governments increase fees to help cover other expenses, Weissert said.
“We are seeing these fees raised more than necessary,” Weissert said. “It is absolutely vital that the citizens have an opportunity to challenge their property taxes.”
State legislators last spring resisted calls to boost property tax appeal filing fees, even as they changed state law to make the appeals process more taxpayer friendly.
In the past, county property appraisers benefited from a “presumption of correctness” that put the burden on taxpayers to prove that an assessment was wrong. Now county property appraisers have to go further to defend how they arrived at their numbers.
Changes to state law also now allow more leeway for property owners to file appeals late, if they can prove that an extraordinary circumstance, such as illness, delayed their application.
Copyright © 2009 Sun Sentinel,
Wednesday, October 21, 2009
IRS investigates home tax credit claims
NAR Call to Action
NAR continues to urge Realtors to support efforts to extend the successful homebuyer tax credit into next year. To view a video about the $8,000 tax credit extension and contact lawmakers who represent your district in Congress, go to NAR’s “Call for Action” website.
WASHINGTON (AP) – Oct. 21, 2009 – Key congressional leaders want to extend the tax credit for first-time homebuyers beyond its scheduled end-of-November expiration despite complaints of fraud and Obama administration concerns about the costs.
Housing and Urban Development Secretary Shaun Donovan says the administration is not sold on the idea. For the past several weeks, Obama administration officials have been talking about possibly extending the credit to help spur the economy and create jobs. But at a congressional hearing Tuesday, Donovan said the administration needs better cost estimates.
“To truly understand the costs, we will not know that until Americans have filed their tax returns,” Donovan told the Senate Banking Committee. “We believe it’s critical to have the information necessary to make a fully informed decision about the costs.”
Tax filing season doesn’t start until next year. But Donovan said he expects to get cost data in the next few weeks. “We understand the urgency of this situation,” Donovan said.
The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.
But lawmakers understand the program is popular and has helped the struggling housing industry recover.
Lawmakers said they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program.
House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to “find out about how ethically and how honestly this policy is being pursued.”
Senate Banking Committee Chairman Chris Dodd said, “We still need to use every tool at our disposal” to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.
It would cost about $1 billion a month to extend the existing credit, according to congressional estimates. The bill sponsored by Dodd and Isakson is estimated to cost $16.7 billion.
The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.
About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
“The housing market would not have moved without this tax credit,” said Lucien Salvant, spokesman for the National Association of Realtors. “It’s a fragile recovery, which is why we think it should be extended.”
The IRS began special screening procedures for tax returns claiming the credit after it was enacted, said IRS spokesman Frank Keith. For example, taxpayers who previously claimed the mortgage interest deduction would warrant a second look if they claimed the first-time homebuyers credit, he said.
Processing claims presented special challenges for the IRS during the spring tax filing season because homebuyers were eligible for different credits, depending on when they purchased their homes.
First-time homebuyers who purchased homes in 2008 were eligible for only $7,500 in tax credits, and the credits had to be repaid over the following 15 years. Those who bought homes in 2009 were eligible for up to $8,000, and there was no requirement to repay the money. Also, people who bought homes in 2009 were allowed to claim the credit on their 2008 tax returns.
An audit by the agency’s inspector general found that 93 percent of the returns claiming credits for homes bought in 2009 were coded incorrectly, meaning those taxpayers could be incorrectly identified as liable for repaying the credit. The audit was released in September by the Treasury Inspector General for Tax Administration. It reviewed 47,276 electronically filed returns.
The IRS, in a response to the audit, said it plans to track the returns and confirm that taxpayers are liable to repay the credit before pursuing them.
Copyright 2009 The Associated Press
NAR continues to urge Realtors to support efforts to extend the successful homebuyer tax credit into next year. To view a video about the $8,000 tax credit extension and contact lawmakers who represent your district in Congress, go to NAR’s “Call for Action” website.
WASHINGTON (AP) – Oct. 21, 2009 – Key congressional leaders want to extend the tax credit for first-time homebuyers beyond its scheduled end-of-November expiration despite complaints of fraud and Obama administration concerns about the costs.
Housing and Urban Development Secretary Shaun Donovan says the administration is not sold on the idea. For the past several weeks, Obama administration officials have been talking about possibly extending the credit to help spur the economy and create jobs. But at a congressional hearing Tuesday, Donovan said the administration needs better cost estimates.
“To truly understand the costs, we will not know that until Americans have filed their tax returns,” Donovan told the Senate Banking Committee. “We believe it’s critical to have the information necessary to make a fully informed decision about the costs.”
Tax filing season doesn’t start until next year. But Donovan said he expects to get cost data in the next few weeks. “We understand the urgency of this situation,” Donovan said.
The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.
But lawmakers understand the program is popular and has helped the struggling housing industry recover.
Lawmakers said they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program.
House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to “find out about how ethically and how honestly this policy is being pursued.”
Senate Banking Committee Chairman Chris Dodd said, “We still need to use every tool at our disposal” to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.
It would cost about $1 billion a month to extend the existing credit, according to congressional estimates. The bill sponsored by Dodd and Isakson is estimated to cost $16.7 billion.
The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.
About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
“The housing market would not have moved without this tax credit,” said Lucien Salvant, spokesman for the National Association of Realtors. “It’s a fragile recovery, which is why we think it should be extended.”
The IRS began special screening procedures for tax returns claiming the credit after it was enacted, said IRS spokesman Frank Keith. For example, taxpayers who previously claimed the mortgage interest deduction would warrant a second look if they claimed the first-time homebuyers credit, he said.
Processing claims presented special challenges for the IRS during the spring tax filing season because homebuyers were eligible for different credits, depending on when they purchased their homes.
First-time homebuyers who purchased homes in 2008 were eligible for only $7,500 in tax credits, and the credits had to be repaid over the following 15 years. Those who bought homes in 2009 were eligible for up to $8,000, and there was no requirement to repay the money. Also, people who bought homes in 2009 were allowed to claim the credit on their 2008 tax returns.
An audit by the agency’s inspector general found that 93 percent of the returns claiming credits for homes bought in 2009 were coded incorrectly, meaning those taxpayers could be incorrectly identified as liable for repaying the credit. The audit was released in September by the Treasury Inspector General for Tax Administration. It reviewed 47,276 electronically filed returns.
The IRS, in a response to the audit, said it plans to track the returns and confirm that taxpayers are liable to repay the credit before pursuing them.
Copyright 2009 The Associated Press
Tuesday, October 20, 2009
September housing construction rises 0.5 percent
WASHINGTON (AP) – Oct. 20, 2009 – Construction of new homes edged up slightly in September, helped by a rebound in single-family construction. However, in a worrisome sign for future housing work, applications for building permits fell by the largest amount in five months.
The Commerce Department says construction of new homes and apartments rose 0.5 percent in September to a seasonally adjusted annual rate of 590,000 units. That was a weaker showing than the 610,000-building rate that economists had been forecasting.
New applications for building permits, considered a good sign of future activity, fell by 1.2 percent in September, the biggest decline since a 2.5 percent drop last April.
That underscored worries that the fledgling housing revival could be derailed by continued soaring unemployment and the expiration on Nov. 30 of the government’s $8,000 tax credit for first time homebuyers.
Housing has been struggling to mount a recovery this year following a steep collapse that helped pull the overall economy into the worst recession since the 1930s.
But the industry still faces severe headwinds in the form of high unemployment, tighter bank lending standards and worries that home sales could falter once the government removes the first-time homebuyers tax credit. The housing industry is lobbying Congress to extend the program.
The 0.5 percent rise in overall construction in September followed a 1 percent drop in August that was revised down from an initial estimate that housing construction had risen by 1.5 percent.
Construction of single-family homes rose by 3.9 percent to an annual rate of 501,000 units, reversing a 4.7 percent drop in August. Multifamily construction, a much smaller and more volatile segment, posted a 15.2 percent drop following a 20.7 percent rise in August.
An index from the National Association Home Builders that measures builder confidence slipped slightly in October to a reading of 18, down from 19 in September. Builders blamed the slippage on the approaching expiration of the homebuyer tax credit.
The industry contends that extending and expanding the tax credit for one year would generate nearly 350,000 jobs and $11.6 billion in additional tax revenues.
Copyright © 2009 The Associated Press
The Commerce Department says construction of new homes and apartments rose 0.5 percent in September to a seasonally adjusted annual rate of 590,000 units. That was a weaker showing than the 610,000-building rate that economists had been forecasting.
New applications for building permits, considered a good sign of future activity, fell by 1.2 percent in September, the biggest decline since a 2.5 percent drop last April.
That underscored worries that the fledgling housing revival could be derailed by continued soaring unemployment and the expiration on Nov. 30 of the government’s $8,000 tax credit for first time homebuyers.
Housing has been struggling to mount a recovery this year following a steep collapse that helped pull the overall economy into the worst recession since the 1930s.
But the industry still faces severe headwinds in the form of high unemployment, tighter bank lending standards and worries that home sales could falter once the government removes the first-time homebuyers tax credit. The housing industry is lobbying Congress to extend the program.
The 0.5 percent rise in overall construction in September followed a 1 percent drop in August that was revised down from an initial estimate that housing construction had risen by 1.5 percent.
Construction of single-family homes rose by 3.9 percent to an annual rate of 501,000 units, reversing a 4.7 percent drop in August. Multifamily construction, a much smaller and more volatile segment, posted a 15.2 percent drop following a 20.7 percent rise in August.
An index from the National Association Home Builders that measures builder confidence slipped slightly in October to a reading of 18, down from 19 in September. Builders blamed the slippage on the approaching expiration of the homebuyer tax credit.
The industry contends that extending and expanding the tax credit for one year would generate nearly 350,000 jobs and $11.6 billion in additional tax revenues.
Copyright © 2009 The Associated Press
Monday, October 19, 2009
Small home fixes with big impact: Palm Beach County experts offer tips
WEST PALM BEACH, Fla. – Oct. 19, 2009 – When Randy Bianchi couldn’t find a tenant for one of his rental homes, he realized the house needed an edge to lure a renter in an overcrowded market. He made some interior repairs, then hit on the idea that finally attracted a tenant.
For $1,100, Bianchi built a patio with enough room for a small dining table, then framed it with palm trees.
The new tropical oasis reinforced a lesson the West Palm Beach real estate agent has learned from a market saturated with short sales and foreclosures.
“You have to offer something better than the competition,” said Bianchi, who owns Paradise Properties.
Often, a few inexpensive fixes such as a pretty patio or a freshly painted interior are all that’s needed to make a house stand out in the crowd.
We asked Bianchi and two other professionals – a contractor and an interior designer – for simple ways to upgrade our homes for less than $2,000.
Each said the most important upgrade is also the least expensive: a thorough cleaning and de-cluttering. Busy people with jobs and kids may find the hardest task is keeping the house clean and tidy for weeks or months while it’s for sale, but it is essential, say our experts.
“Leave your home every morning thinking it might be shown that day,” Bianchi says.
Here are some more expert tips.
Randy Bianchi, Paradise Properties, West Palm Beach
The basics: Your home always should be spotless, and that includes the windows and carpet. If floors are worn, cover them with a new area rug. Have tile grout professionally cleaned. Do whatever it takes to make your house look fresh.
If you can’t paint the entire interior, paint an accent wall in a main room. Outside, enhance curb appeal with neatly trimmed grass and shrubs. Add some fresh mulch.
“You want to give the appearance of a house that’s been well-maintained, even if it’s dated,” Bianchi says.
Kitchens and baths sell houses, Bianchi says, so spend your money there, particularly on new counters. He recommends Silestone as a less expensive alternative to granite, but even new laminate counters will help.
“If you’ve got 20-year-old Formica, refinish it with a new color or pattern, but keep it neutral,” Bianchi advises.
Standout move: Give prospective buyers an outdoor spot to enjoy our subtropical climate. An al fresco entertainment area also yields one of the best returns on investments of all home improvement projects.
Don Cameron, contractor and HomeVestors owner, West Palm Beach
The basics: “We visit a tremendous amount of homes in a week, and most homes are so cluttered you can’t get a good view of the house,” says Cameron, who says he buys 75 to 100 houses a year and sells them within three or four weeks, after a quick rehab.
After removing the clutter, invest in a few quick upgrades that Cameron says always attract buyers. Install new faucets in the kitchen and bathrooms, then change interior doorknobs to new lever-style door openers to give a home “a little pizzazz.”
Keep walkways swept and the front door clean and freshly painted. When Cameron and his partners are ready to market a house, they always install two things: plug-in deodorizers and a new welcome mat.
Standout move: Offer a one-year home warranty to give buyers peace of mind, particularly first-time home buyers. According to Cameron, a warranty that insures a home’s major appliances as well as electrical and plumbing systems against failure costs $300 to $400 for an average-size house.
Gil Walsh, Gil Walsh Interiors, Riviera Beach
The basics: “Warm up your house with color,” instructs veteran interior designer Walsh. “Paint rooms soft neutrals such as celadon greens, taupes and creamy whites to outline the shape of windows and make everything look fresh and clean.”
Get rid of dingy old carpet. Replace it with creamy white or beige cut-pile commercial carpet, available from big box stores, then layer it with colorful area rugs from discounters or consignment stores. Rugs also will hide damaged wood or tile floors.
“Layering elements adds richness and depth,” Walsh says.
Give your kitchen cabinets a face-lift with new or re-faced doors, but don’t get too elaborate, Walsh warns. Opt for a simple raised or recessed paneled door, or, if your house is contemporary, a flat door style.
Nothing says “out of date” like old light fixtures. Update chandeliers and wall fixtures with newer styles.
Standout move: Hire a consulting interior designer to give you professional advice, which Walsh says should cost about $100 to $150 an hour.
“In one to two hours, the designer can give you a list of what needs to be done, then you can take care of it yourself,” Walsh says.
Copyright © 2009 The Palm Beach Post,
For $1,100, Bianchi built a patio with enough room for a small dining table, then framed it with palm trees.
The new tropical oasis reinforced a lesson the West Palm Beach real estate agent has learned from a market saturated with short sales and foreclosures.
“You have to offer something better than the competition,” said Bianchi, who owns Paradise Properties.
Often, a few inexpensive fixes such as a pretty patio or a freshly painted interior are all that’s needed to make a house stand out in the crowd.
We asked Bianchi and two other professionals – a contractor and an interior designer – for simple ways to upgrade our homes for less than $2,000.
Each said the most important upgrade is also the least expensive: a thorough cleaning and de-cluttering. Busy people with jobs and kids may find the hardest task is keeping the house clean and tidy for weeks or months while it’s for sale, but it is essential, say our experts.
“Leave your home every morning thinking it might be shown that day,” Bianchi says.
Here are some more expert tips.
Randy Bianchi, Paradise Properties, West Palm Beach
The basics: Your home always should be spotless, and that includes the windows and carpet. If floors are worn, cover them with a new area rug. Have tile grout professionally cleaned. Do whatever it takes to make your house look fresh.
If you can’t paint the entire interior, paint an accent wall in a main room. Outside, enhance curb appeal with neatly trimmed grass and shrubs. Add some fresh mulch.
“You want to give the appearance of a house that’s been well-maintained, even if it’s dated,” Bianchi says.
Kitchens and baths sell houses, Bianchi says, so spend your money there, particularly on new counters. He recommends Silestone as a less expensive alternative to granite, but even new laminate counters will help.
“If you’ve got 20-year-old Formica, refinish it with a new color or pattern, but keep it neutral,” Bianchi advises.
Standout move: Give prospective buyers an outdoor spot to enjoy our subtropical climate. An al fresco entertainment area also yields one of the best returns on investments of all home improvement projects.
Don Cameron, contractor and HomeVestors owner, West Palm Beach
The basics: “We visit a tremendous amount of homes in a week, and most homes are so cluttered you can’t get a good view of the house,” says Cameron, who says he buys 75 to 100 houses a year and sells them within three or four weeks, after a quick rehab.
After removing the clutter, invest in a few quick upgrades that Cameron says always attract buyers. Install new faucets in the kitchen and bathrooms, then change interior doorknobs to new lever-style door openers to give a home “a little pizzazz.”
Keep walkways swept and the front door clean and freshly painted. When Cameron and his partners are ready to market a house, they always install two things: plug-in deodorizers and a new welcome mat.
Standout move: Offer a one-year home warranty to give buyers peace of mind, particularly first-time home buyers. According to Cameron, a warranty that insures a home’s major appliances as well as electrical and plumbing systems against failure costs $300 to $400 for an average-size house.
Gil Walsh, Gil Walsh Interiors, Riviera Beach
The basics: “Warm up your house with color,” instructs veteran interior designer Walsh. “Paint rooms soft neutrals such as celadon greens, taupes and creamy whites to outline the shape of windows and make everything look fresh and clean.”
Get rid of dingy old carpet. Replace it with creamy white or beige cut-pile commercial carpet, available from big box stores, then layer it with colorful area rugs from discounters or consignment stores. Rugs also will hide damaged wood or tile floors.
“Layering elements adds richness and depth,” Walsh says.
Give your kitchen cabinets a face-lift with new or re-faced doors, but don’t get too elaborate, Walsh warns. Opt for a simple raised or recessed paneled door, or, if your house is contemporary, a flat door style.
Nothing says “out of date” like old light fixtures. Update chandeliers and wall fixtures with newer styles.
Standout move: Hire a consulting interior designer to give you professional advice, which Walsh says should cost about $100 to $150 an hour.
“In one to two hours, the designer can give you a list of what needs to be done, then you can take care of it yourself,” Walsh says.
Copyright © 2009 The Palm Beach Post,
Wednesday, October 14, 2009
Fla. shuts down home warranty service
TALLAHASSEE, Fla. – Oct. 14, 2009 – Florida Insurance Commissioner Kevin McCarty issued an Order (http://www.floir.com/pdf/DOC101209.pdf) to National Home Protection Inc. (National Home) to cease and desist transacting the unauthorized marketing and selling of home service warranty products.
Earlier this year, the Office of Insurance Regulation began investigating the company’s marketing and claims handling practices, and determined that it has sold, and continues to sell, home service warranty products in Florida without a license. The investigation also revealed that many of the claims made for household repairs or service were denied.
Florida is not alone in finding fault with National Home Protection Inc., and a number of other states have also investigated and taken action against the company.
“This company has been selling (home warranties) without a license all across the country,” says Commissioner McCarty. “Florida law clearly authorizes me to take action to stop the practices of unlicensed entities to protect consumers in this state.”
Last April, New York Attorney General Andrew Cuomo announced that his office had received 340 complaints against National Home Protection from consumers in at least 32 states. His office filed suit against National Home, a New York City-based company, alleging fraudulent business practices. Cuomo froze the company’s assets to ensure restitution for defrauded consumers.
While the Office of Insurance Regulation Order stops the unauthorized marketing and selling of home service warranty products, it also requires National Home to honor all policies in effect for the duration stated in the individual contracts. The company has 21 days to file a challenge to this action.
The Office of Insurance Regulation keeps a list of all Florida-licensed companies in a database. Consumers may check an insurer’s license status online at: http://www.floir.com.
© 2009 Florida Realtors®
Earlier this year, the Office of Insurance Regulation began investigating the company’s marketing and claims handling practices, and determined that it has sold, and continues to sell, home service warranty products in Florida without a license. The investigation also revealed that many of the claims made for household repairs or service were denied.
Florida is not alone in finding fault with National Home Protection Inc., and a number of other states have also investigated and taken action against the company.
“This company has been selling (home warranties) without a license all across the country,” says Commissioner McCarty. “Florida law clearly authorizes me to take action to stop the practices of unlicensed entities to protect consumers in this state.”
Last April, New York Attorney General Andrew Cuomo announced that his office had received 340 complaints against National Home Protection from consumers in at least 32 states. His office filed suit against National Home, a New York City-based company, alleging fraudulent business practices. Cuomo froze the company’s assets to ensure restitution for defrauded consumers.
While the Office of Insurance Regulation Order stops the unauthorized marketing and selling of home service warranty products, it also requires National Home to honor all policies in effect for the duration stated in the individual contracts. The company has 21 days to file a challenge to this action.
The Office of Insurance Regulation keeps a list of all Florida-licensed companies in a database. Consumers may check an insurer’s license status online at: http://www.floir.com.
© 2009 Florida Realtors®
$8,000 tax credit’s hoops frustrate house hunters
NAR Call to Action
To view a video about the $8,000 tax credit extension and contact the men and women who represent your district in Congress, visit NAR’s “Call for Action” website.
MAITLAND, Fla. – Oct. 13, 2009 – This summer, Brian Smith decided he should buy a house.
The 35-year-old was in the break room at his Maitland office talking to a friend about the idea, and the timing seemed perfect.
Prices were at record lows; “for sale” signs were common, and, most importantly, he could get a tax credit of as much as $8,000 for first-time buyers if he bought before December. But four months later, after looking at more than 40 houses and condominiums, Smith quit his search in frustration.
“Honestly, my heart was so broken,” said Smith, an associate at a financial-investment company. “I hate it I am going to miss the tax credit. But it’s better to wait and get the place you need and want than to get a place and not be happy with it.”
As the Nov. 30 deadline nears for the first-time-buyer tax credit, no hard numbers suggest how many buyers are in Smith’s position. But interviews with real-estate agents, lenders and buyers suggest that the number of first-time buyers who are encountering challenges is rising.
At least some are learning they must play by a whole new set of rules from just a few years ago. Stung by a real-estate meltdown fueled with free-flowing mortgages and runaway prices, regulators have reacted to the downturn by forcing lenders to be stingier with loans.
Buyers in Orlando, one of the hardest-hit markets in the country, must compete with multiple offers on bargain properties. Short sales can take months to finalize. Foreclosed houses often need repairs that disqualify them from federally backed mortgages. And, amid the free-falling prices, deal-killing appraisals often fall short of sales prices.
Smith found monthly fees on the condos would have cost more than mortgage payments. He endured a trail of “junk” houses that needed new roofs and other repairs. Some of the foreclosed properties had no power, and he had to view them by flashlight or cell-phone light. And finally, the four-bedroom pool home he wanted the most failed to meet federal lending rules.
“In a nutshell, it’s a whole different world out there,” said Judi Northrop, the Equilliance LLC loan officer who worked with Smith. She said he was a great candidate for a mortgage, but the days of someone with a pretty credit score skating through the process are over. Now lenders want documents to address every note in a mortgage application.
The real-estate industry continues to hope that the tax incentive will revive the sagging market. A study released earlier this month by the Fisher Center for Real Estate and Urban Economics at the University of California showed the credit has spurred sales.
The supply of homes priced at less than $300,000 decreased by 26percent compared with a year ago; and the amount of homes priced within the $300,000 to $500,000 range dropped by only 18percent. Study author Kenneth T. Rosen, lead researcher on the study and Chairman of Rosen Consulting Group, credited the federal tax break.
Sales up 45 percent vs. ‘08
In the Orlando area, it’s not clear how many first-time buyers are hitting snags while investors and others scoop up bargains.
Though sales overall for the year are up 45 percent from last year, the percentage of home sales with prices from $300,000 to $500,000 grew more during the last year than home sales under $300,000, according to a review of data from the Orlando Regional Realtor Association.
Investors are definitely making their mark, said Les Simmonds, president of the association.
“Multiple offers are there because investors are getting back in the market,” Simmonds said. “Traditional buyers coming in are going to find they’re in that mix with those bids ... the frustration is understandable.”
Until the tax credit emerged, buying a home had not been on Smith’s to-do list for a long time. In 2002, he considered purchasing a house but “chickened out” after declines in the stock market. For years, he rented from a roommate.
Smith, who was earning $39,000 at his job in Maitland when he started his search, targeted homes priced at $100,000 – about $28,000 less than the area’s median price. His loan officer said he could have afforded more, but he wanted to play it safe. Working with Olde Town Brokers agent Robert Gaudreau, Smith focused on neighborhoods along Interstate 4 from Altamonte Springs south to the Mall at Millenia area.
Early in his hunt, he found a real-estate landscape defined by foreclosures and distress sales, which constitute about half of the sales in the Orlando market. Of the 20 houses or condos he had seen by June, only two had people still living in them.
Northrop recalled that one of the houses Smith zeroed in on was in such rough shape that the drywall was missing in some places and only the studs showed after owners did not complete a renovation. Smith was getting a Federal Housing Administration-backed loan because those mortgages require down payments of only about 3 percent, compared with 10 percent or 20 percent for conventional loans. Those loans also require solid houses instead of makeover candidates.
“His problem has been finding the right property,” Northrop said. “Quite honestly, one of the last ones I saw, I wouldn’t live there.”
‘Very inconvenient’
Troubled house hunts aren’t unique to Smith. Orlando resident Darby Miller, 29, said he has found the market so competitive that one house had 12 offers by the time he looked at it. The biggest problem, he said, was that he did not qualify for a state program that would have given him the $8,000 tax-credit money upfront to use as a down payment.
“At this point, it’s very inconvenient,” Miller said. “I’m going to have to draw from funds I didn’t really want to use.”
For Smith, any condos and houses that were in his price range and in good condition quickly disappeared from the bargaining table. Two months into his search, Smith had made no offers.
“By the time I’ve said I’m interested, they’re gone,” he said in August. “Someone got to them before me.”
Finally, at the end of August, Smith found something. The four-bedroom pool home south of downtown Orlando threw him off at first because it was the color of mustard. But with a large, fenced backyard, it had everything he needed.
When he went to put together an offer, he learned that the house had sold for $54,000 the month before – half the price it had fetched seven years earlier. The most recent buyers painted it and put it back on the market for $99,900. Smith quickly learned that FHA would not OK a mortgage on a house that had just been flipped.
“I should have figured as much that it wouldn’t happen,” he said. “I didn’t even get a chance to put in an offer.”
Even if he had put in an offer, it wouldn’t have mattered. The house quickly sold for $7,000 over the asking price.
He said he’s going to spend the next few months saving more for a down payment. Then maybe he’ll try again.
Copyright © 2009 The Orlando Sentinel
To view a video about the $8,000 tax credit extension and contact the men and women who represent your district in Congress, visit NAR’s “Call for Action” website.
MAITLAND, Fla. – Oct. 13, 2009 – This summer, Brian Smith decided he should buy a house.
The 35-year-old was in the break room at his Maitland office talking to a friend about the idea, and the timing seemed perfect.
Prices were at record lows; “for sale” signs were common, and, most importantly, he could get a tax credit of as much as $8,000 for first-time buyers if he bought before December. But four months later, after looking at more than 40 houses and condominiums, Smith quit his search in frustration.
“Honestly, my heart was so broken,” said Smith, an associate at a financial-investment company. “I hate it I am going to miss the tax credit. But it’s better to wait and get the place you need and want than to get a place and not be happy with it.”
As the Nov. 30 deadline nears for the first-time-buyer tax credit, no hard numbers suggest how many buyers are in Smith’s position. But interviews with real-estate agents, lenders and buyers suggest that the number of first-time buyers who are encountering challenges is rising.
At least some are learning they must play by a whole new set of rules from just a few years ago. Stung by a real-estate meltdown fueled with free-flowing mortgages and runaway prices, regulators have reacted to the downturn by forcing lenders to be stingier with loans.
Buyers in Orlando, one of the hardest-hit markets in the country, must compete with multiple offers on bargain properties. Short sales can take months to finalize. Foreclosed houses often need repairs that disqualify them from federally backed mortgages. And, amid the free-falling prices, deal-killing appraisals often fall short of sales prices.
Smith found monthly fees on the condos would have cost more than mortgage payments. He endured a trail of “junk” houses that needed new roofs and other repairs. Some of the foreclosed properties had no power, and he had to view them by flashlight or cell-phone light. And finally, the four-bedroom pool home he wanted the most failed to meet federal lending rules.
“In a nutshell, it’s a whole different world out there,” said Judi Northrop, the Equilliance LLC loan officer who worked with Smith. She said he was a great candidate for a mortgage, but the days of someone with a pretty credit score skating through the process are over. Now lenders want documents to address every note in a mortgage application.
The real-estate industry continues to hope that the tax incentive will revive the sagging market. A study released earlier this month by the Fisher Center for Real Estate and Urban Economics at the University of California showed the credit has spurred sales.
The supply of homes priced at less than $300,000 decreased by 26percent compared with a year ago; and the amount of homes priced within the $300,000 to $500,000 range dropped by only 18percent. Study author Kenneth T. Rosen, lead researcher on the study and Chairman of Rosen Consulting Group, credited the federal tax break.
Sales up 45 percent vs. ‘08
In the Orlando area, it’s not clear how many first-time buyers are hitting snags while investors and others scoop up bargains.
Though sales overall for the year are up 45 percent from last year, the percentage of home sales with prices from $300,000 to $500,000 grew more during the last year than home sales under $300,000, according to a review of data from the Orlando Regional Realtor Association.
Investors are definitely making their mark, said Les Simmonds, president of the association.
“Multiple offers are there because investors are getting back in the market,” Simmonds said. “Traditional buyers coming in are going to find they’re in that mix with those bids ... the frustration is understandable.”
Until the tax credit emerged, buying a home had not been on Smith’s to-do list for a long time. In 2002, he considered purchasing a house but “chickened out” after declines in the stock market. For years, he rented from a roommate.
Smith, who was earning $39,000 at his job in Maitland when he started his search, targeted homes priced at $100,000 – about $28,000 less than the area’s median price. His loan officer said he could have afforded more, but he wanted to play it safe. Working with Olde Town Brokers agent Robert Gaudreau, Smith focused on neighborhoods along Interstate 4 from Altamonte Springs south to the Mall at Millenia area.
Early in his hunt, he found a real-estate landscape defined by foreclosures and distress sales, which constitute about half of the sales in the Orlando market. Of the 20 houses or condos he had seen by June, only two had people still living in them.
Northrop recalled that one of the houses Smith zeroed in on was in such rough shape that the drywall was missing in some places and only the studs showed after owners did not complete a renovation. Smith was getting a Federal Housing Administration-backed loan because those mortgages require down payments of only about 3 percent, compared with 10 percent or 20 percent for conventional loans. Those loans also require solid houses instead of makeover candidates.
“His problem has been finding the right property,” Northrop said. “Quite honestly, one of the last ones I saw, I wouldn’t live there.”
‘Very inconvenient’
Troubled house hunts aren’t unique to Smith. Orlando resident Darby Miller, 29, said he has found the market so competitive that one house had 12 offers by the time he looked at it. The biggest problem, he said, was that he did not qualify for a state program that would have given him the $8,000 tax-credit money upfront to use as a down payment.
“At this point, it’s very inconvenient,” Miller said. “I’m going to have to draw from funds I didn’t really want to use.”
For Smith, any condos and houses that were in his price range and in good condition quickly disappeared from the bargaining table. Two months into his search, Smith had made no offers.
“By the time I’ve said I’m interested, they’re gone,” he said in August. “Someone got to them before me.”
Finally, at the end of August, Smith found something. The four-bedroom pool home south of downtown Orlando threw him off at first because it was the color of mustard. But with a large, fenced backyard, it had everything he needed.
When he went to put together an offer, he learned that the house had sold for $54,000 the month before – half the price it had fetched seven years earlier. The most recent buyers painted it and put it back on the market for $99,900. Smith quickly learned that FHA would not OK a mortgage on a house that had just been flipped.
“I should have figured as much that it wouldn’t happen,” he said. “I didn’t even get a chance to put in an offer.”
Even if he had put in an offer, it wouldn’t have mattered. The house quickly sold for $7,000 over the asking price.
He said he’s going to spend the next few months saving more for a down payment. Then maybe he’ll try again.
Copyright © 2009 The Orlando Sentinel
Monday, October 12, 2009
Home sweet home investment? Sure – in the long run
CHICAGO (AP) – Oct. 12, 2009 – For all the doom and gloom about the housing market, it still generally pays to own a home.
That might be a tough case to make right now to the 16 million homeowners who owe more on their mortgage than their house is worth. But history suggests the American Dream is a pretty safe bet.
Homes have appreciated by an average of 4 percent a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent downpayment produces a 1,000 percent return if the price of a home merely doubles.
Plus there are intangibles: Owning a home provides a sense of independence, security and community. And you get to live in your investment. You can’t do that with a stock.
Of course, historical trends don’t pay the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or price and need to sell quickly, can get burned.
But if you own for a decade or more, price appreciation usually overcomes even bad slumps.
Tony and Liz Iacobelli, who are far under water on the home they bought in the Phoenix suburb of Buckeye three years ago, aren’t panicking. They owe about $177,000 on their mortgage on a house worth only $132,000, which is about 40 percent of what they paid.
“Houses generally go up in price, and this one will again, too,” says Tony, 51, a retired New York City policeman.
Several booms and busts have occurred in the modern era of housing, which began when 30-year loans became widely available after World War II. This bust has been severe: Nationally, home prices are down an average 30 percent from their peak in 2006.
The collapse of the housing market may have put an end to the notion of using a home as a speculative investment akin to a hot stock. And that may not be a bad thing, economists say.
“People should recognize that value comes from a lot of other things besides a possible return on the investment,” says Joel Naroff, chief economist at Naroff Economic Advisors.
Economists say home prices have risen by about half a percent a year above inflation, or roughly 4 percent, since the 1940s. That number, which is based on the median price of homes sold each year, was inflated a little by baby boomers starting families and building bigger houses. Since the National Association of Realtors began compiling statistics in 1968, the median sales price has climbed 6 percent annually, from $20,100 that year to $195,200 this past August.
In the late 1990s, home values started growing like stocks. For the next five years, they appreciated at 8 to 9 percent a year, or about 5 percentage points ahead of inflation.
You won’t find many skeptics among people who bought homes in the ‘90s and still live in them. Their homes may be worth tens of thousands of dollars less than at the peak, but they’re still frequently worth twice what the buyers paid. For example, a house in Ewing, N.J., that sold for $160,000 in 1996 was worth about $410,000 three years ago. It’s still worth $375,000 today.
Home buyer beware, however: Price declines do occur with some regularity. Besides the 30 percent price meltdown of the last three years, the Standard & Poor’s/Case-Shiller index of home prices in 10 cities shows four declines lasting six months or more since 1990. The declines averaged 3 percent.
And whether large or small, a drop can be followed by several years of flat prices. After the 1990-1991 recession ended a housing boom, prices didn’t start increasing nationally until 1997. So homeowners who buy at the wrong time can go years without gains.
The hefty costs of homeownership also can work against people who aren’t committed to settling in for a while. Transaction costs – home inspections, sales commission, fees, transfer taxes – run thousands of dollars every time you buy or sell.
And most people overestimate the tax benefits. They don’t realize the standard deduction they would get if they didn’t itemize might be nearly as great as their housing deduction, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
For example, a homeowner with a $200,000 mortgage might pay $11,000 a year in interest and $2,000 in property taxes. That’s $13,000 - a healthy deduction, but just $2,100 more than the standard deduction of $10,900 for those married filing jointly.
And as a homeowner pays less each month toward interest and more toward principal, the deduction will shrink – until it falls below the standard deduction, which rises to keep up with inflation, Baker says.
Of course, paying principal builds equity and is the equivalent of a forced savings plan, which can finance big expenses such as college tuition. In the long run, many people fund their retirement partly by selling a home they’ve owned for many years and moving into smaller, cheaper housing.
Another reason to buy a house is it’s a leveraged investment; you pay only a fraction of the price with your own money, which can produce an enormous return. If you make a downpayment of 10 percent on a $200,000 house and it doubles in value to $400,000, your $20,000 investment has grown to $220,000, a return of 1,000 percent. That’s like buying a $40 stock and watching it soar to $440.
But how can you tell in the short run whether it’s better to buy or rent? There’s a way to gauge how expensive homes are – the price-to-rent ratio.
The ratio is determined by dividing the price of a home by the annual rent that could be earned from it. Since 1986, the ratio has averaged 9. Anything above that suggests it may be better to rent, depending on your area.
After soaring to 15 at the end of 2005 – above 20 in some areas – the nationwide ratio has dropped back to 10, according to Economy.com data, making ownership far more attractive.
Prospective buyers can do the price-to-rent calculation themselves. For example, if you can purchase a home for $180,000 but can rent a similar one for $18,000 a year ($1,500 a month), your price-to-rent ratio would be 10, making the buying price reasonable and close to average. And you would have the tax benefits and equity that you don’t get with renting.
It would be nice to say home prices rise reliably and steadily – and a few years ago they seemed to. But that “sure thing” is no longer.
Short-term prospects are cloudy. Many economists expect home prices to keep falling through 2010 as mounting unemployment, foreclosures and a glut of unsold homes all weigh on the housing market.
Robert Shiller, a Yale University economist and co-inventor of the Case-Shiller index, says he expects home prices to be roughly flat for five years.
Yet housing has proved a good investment if you stick with it. And with prices already having fallen so far, buying now could make it an even better one.
Copyright © 2009 The Associated Press
That might be a tough case to make right now to the 16 million homeowners who owe more on their mortgage than their house is worth. But history suggests the American Dream is a pretty safe bet.
Homes have appreciated by an average of 4 percent a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent downpayment produces a 1,000 percent return if the price of a home merely doubles.
Plus there are intangibles: Owning a home provides a sense of independence, security and community. And you get to live in your investment. You can’t do that with a stock.
Of course, historical trends don’t pay the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or price and need to sell quickly, can get burned.
But if you own for a decade or more, price appreciation usually overcomes even bad slumps.
Tony and Liz Iacobelli, who are far under water on the home they bought in the Phoenix suburb of Buckeye three years ago, aren’t panicking. They owe about $177,000 on their mortgage on a house worth only $132,000, which is about 40 percent of what they paid.
“Houses generally go up in price, and this one will again, too,” says Tony, 51, a retired New York City policeman.
Several booms and busts have occurred in the modern era of housing, which began when 30-year loans became widely available after World War II. This bust has been severe: Nationally, home prices are down an average 30 percent from their peak in 2006.
The collapse of the housing market may have put an end to the notion of using a home as a speculative investment akin to a hot stock. And that may not be a bad thing, economists say.
“People should recognize that value comes from a lot of other things besides a possible return on the investment,” says Joel Naroff, chief economist at Naroff Economic Advisors.
Economists say home prices have risen by about half a percent a year above inflation, or roughly 4 percent, since the 1940s. That number, which is based on the median price of homes sold each year, was inflated a little by baby boomers starting families and building bigger houses. Since the National Association of Realtors began compiling statistics in 1968, the median sales price has climbed 6 percent annually, from $20,100 that year to $195,200 this past August.
In the late 1990s, home values started growing like stocks. For the next five years, they appreciated at 8 to 9 percent a year, or about 5 percentage points ahead of inflation.
You won’t find many skeptics among people who bought homes in the ‘90s and still live in them. Their homes may be worth tens of thousands of dollars less than at the peak, but they’re still frequently worth twice what the buyers paid. For example, a house in Ewing, N.J., that sold for $160,000 in 1996 was worth about $410,000 three years ago. It’s still worth $375,000 today.
Home buyer beware, however: Price declines do occur with some regularity. Besides the 30 percent price meltdown of the last three years, the Standard & Poor’s/Case-Shiller index of home prices in 10 cities shows four declines lasting six months or more since 1990. The declines averaged 3 percent.
And whether large or small, a drop can be followed by several years of flat prices. After the 1990-1991 recession ended a housing boom, prices didn’t start increasing nationally until 1997. So homeowners who buy at the wrong time can go years without gains.
The hefty costs of homeownership also can work against people who aren’t committed to settling in for a while. Transaction costs – home inspections, sales commission, fees, transfer taxes – run thousands of dollars every time you buy or sell.
And most people overestimate the tax benefits. They don’t realize the standard deduction they would get if they didn’t itemize might be nearly as great as their housing deduction, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
For example, a homeowner with a $200,000 mortgage might pay $11,000 a year in interest and $2,000 in property taxes. That’s $13,000 - a healthy deduction, but just $2,100 more than the standard deduction of $10,900 for those married filing jointly.
And as a homeowner pays less each month toward interest and more toward principal, the deduction will shrink – until it falls below the standard deduction, which rises to keep up with inflation, Baker says.
Of course, paying principal builds equity and is the equivalent of a forced savings plan, which can finance big expenses such as college tuition. In the long run, many people fund their retirement partly by selling a home they’ve owned for many years and moving into smaller, cheaper housing.
Another reason to buy a house is it’s a leveraged investment; you pay only a fraction of the price with your own money, which can produce an enormous return. If you make a downpayment of 10 percent on a $200,000 house and it doubles in value to $400,000, your $20,000 investment has grown to $220,000, a return of 1,000 percent. That’s like buying a $40 stock and watching it soar to $440.
But how can you tell in the short run whether it’s better to buy or rent? There’s a way to gauge how expensive homes are – the price-to-rent ratio.
The ratio is determined by dividing the price of a home by the annual rent that could be earned from it. Since 1986, the ratio has averaged 9. Anything above that suggests it may be better to rent, depending on your area.
After soaring to 15 at the end of 2005 – above 20 in some areas – the nationwide ratio has dropped back to 10, according to Economy.com data, making ownership far more attractive.
Prospective buyers can do the price-to-rent calculation themselves. For example, if you can purchase a home for $180,000 but can rent a similar one for $18,000 a year ($1,500 a month), your price-to-rent ratio would be 10, making the buying price reasonable and close to average. And you would have the tax benefits and equity that you don’t get with renting.
It would be nice to say home prices rise reliably and steadily – and a few years ago they seemed to. But that “sure thing” is no longer.
Short-term prospects are cloudy. Many economists expect home prices to keep falling through 2010 as mounting unemployment, foreclosures and a glut of unsold homes all weigh on the housing market.
Robert Shiller, a Yale University economist and co-inventor of the Case-Shiller index, says he expects home prices to be roughly flat for five years.
Yet housing has proved a good investment if you stick with it. And with prices already having fallen so far, buying now could make it an even better one.
Copyright © 2009 The Associated Press
Friday, October 9, 2009
Mortgage plan gaining steam
WASHINGTON – Oct. 9, 2009 – The Obama administration touted progress on its foreclosure-prevention program Thursday after hitting an interim target of signing up 500,000 borrowers three weeks ahead of schedule. But in a report to be released Friday, a congressionally appointed oversight panel questioned whether reaching that goal would be enough to slow down the foreclosure crisis.
The program, known as Making Home Affordable, got off to a bumpy start when it was launched in March with homeowners and consumer advocates complaining about the difficulty of reaching lenders, long telephone wait times and documents that were repeatedly lost. But senior administration officials said Thursday that the program is now gaining momentum.
Under the $75 billion government program, lenders are paid to lower borrowers’ mortgage payments; the administration has said the program was aimed at helping up to 4 million borrowers before expiring in 2012. It is part of a larger government effort to revive the housing market that senior administration officials said has also kept mortgage rates low and prompted millions of borrowers to refinance their loans.
“The broad signs that you see in the housing market … are encouraging,” said Treasury Secretary Timothy F. Geithner. It is still early, and “we’re still living with some risks that housing is going to be a source of weakness for the broader economy and that you still face a … large number of families across the country still at risk of losing a home they can afford to stay in.”
The industry trumpeted its progress so far. Wells Fargo nearly doubled the number of modifications it started last month to 62,989, or about 20 percent of its delinquent borrowers eligible for the program, according to government data released Thursday. Bank of America helped about 95,000, or 11 percent of its eligible borrowers, and company officials said the bank is on track to help 125,000 by November.
“We feel really good about the momentum,” said Steve Bailey, Bank of America’s home retention strategies and policy executive.
Despite the recent progress, economists expect millions of borrowers to lose their homes over the next few years. The government program has likely reduced the number of foreclosures by about 7 percent to 8 percent during the past six months, said Paul Dales, U.S. economist for Capital Economics. But some of the borrowers helped by the program may have been able to avoid foreclosure on their own while others may still default on their loans later, said Dales.
“What it won’t do is stop foreclosures from rising,” Dales said. “It will just rise by less.”
A draft report by the Congressional Oversight Panel, which is monitoring the government’s Troubled Assets Relief Program, noted that the foreclosure effort is not set up to tackle two of the most pressing causes of mortgage delinquencies: rising unemployment and risky home loans known as option adjustable-rate mortgages, which reset to significantly higher payments. Over the next few years, millions of those loans are scheduled to shift to potentially higher interest rates, creating the prospect of a new wave of foreclosures.
“It increasingly appears that [the government program] is targeted at the housing crisis as it existed six months ago, rather than as it exists now,” the report said. Acknowledging the Treasury’s near-term goal of reaching 500,000 borrowers, the report said, “The achievement is relatively small in relation to the magnitude of the foreclosure crisis.”
The modifications started so far have lowered borrowers’ median interest rates to about 2 percent from 6.85 percent, according to the report, and reduced their payments by $500, to $849.31.
In a statement, Treasury spokeswoman Meg Reilly said “constructive feedback” from the panel is welcome and noted that the administration is already studying more ways to help unemployed homeowners. “The housing crisis was never going to be fixed overnight. Instead, it requires a comprehensive strategy focused on providing sustained support for American homeowners,” she said. “We believe that the Making Home Affordable program is an important part of that strategy.”
Not all parts of the government program are operational. After announcing in April that borrowers with a second mortgage could see payments on those loans reduced significantly as part of the program, the administration has yet to sign contracts with lenders to implement it. Homeowners and consumer groups continue to complain that qualified borrowers are being rejected by lenders and that there isn’t a clear appeals process.
The government program “had many obstacles, problems, and operational and technological challenges getting started and . . . is just now gaining momentum,” Richard H. Neiman, superintendent of banks for the New York State Banking Department, said in a statement included in the report.
It is also unclear how many borrowers will make enough payments to survive the trial period of a modification, the first three months, or might redefault on their loans later. The conversion rate to permanent modifications has been low so far, according to the report, and the Treasury has not released data on how many redefaults it expects.
“Redefaults mean that foreclosures have been delayed, rather than prevented,” the report said.
Copyright washingtonpost.com
The program, known as Making Home Affordable, got off to a bumpy start when it was launched in March with homeowners and consumer advocates complaining about the difficulty of reaching lenders, long telephone wait times and documents that were repeatedly lost. But senior administration officials said Thursday that the program is now gaining momentum.
Under the $75 billion government program, lenders are paid to lower borrowers’ mortgage payments; the administration has said the program was aimed at helping up to 4 million borrowers before expiring in 2012. It is part of a larger government effort to revive the housing market that senior administration officials said has also kept mortgage rates low and prompted millions of borrowers to refinance their loans.
“The broad signs that you see in the housing market … are encouraging,” said Treasury Secretary Timothy F. Geithner. It is still early, and “we’re still living with some risks that housing is going to be a source of weakness for the broader economy and that you still face a … large number of families across the country still at risk of losing a home they can afford to stay in.”
The industry trumpeted its progress so far. Wells Fargo nearly doubled the number of modifications it started last month to 62,989, or about 20 percent of its delinquent borrowers eligible for the program, according to government data released Thursday. Bank of America helped about 95,000, or 11 percent of its eligible borrowers, and company officials said the bank is on track to help 125,000 by November.
“We feel really good about the momentum,” said Steve Bailey, Bank of America’s home retention strategies and policy executive.
Despite the recent progress, economists expect millions of borrowers to lose their homes over the next few years. The government program has likely reduced the number of foreclosures by about 7 percent to 8 percent during the past six months, said Paul Dales, U.S. economist for Capital Economics. But some of the borrowers helped by the program may have been able to avoid foreclosure on their own while others may still default on their loans later, said Dales.
“What it won’t do is stop foreclosures from rising,” Dales said. “It will just rise by less.”
A draft report by the Congressional Oversight Panel, which is monitoring the government’s Troubled Assets Relief Program, noted that the foreclosure effort is not set up to tackle two of the most pressing causes of mortgage delinquencies: rising unemployment and risky home loans known as option adjustable-rate mortgages, which reset to significantly higher payments. Over the next few years, millions of those loans are scheduled to shift to potentially higher interest rates, creating the prospect of a new wave of foreclosures.
“It increasingly appears that [the government program] is targeted at the housing crisis as it existed six months ago, rather than as it exists now,” the report said. Acknowledging the Treasury’s near-term goal of reaching 500,000 borrowers, the report said, “The achievement is relatively small in relation to the magnitude of the foreclosure crisis.”
The modifications started so far have lowered borrowers’ median interest rates to about 2 percent from 6.85 percent, according to the report, and reduced their payments by $500, to $849.31.
In a statement, Treasury spokeswoman Meg Reilly said “constructive feedback” from the panel is welcome and noted that the administration is already studying more ways to help unemployed homeowners. “The housing crisis was never going to be fixed overnight. Instead, it requires a comprehensive strategy focused on providing sustained support for American homeowners,” she said. “We believe that the Making Home Affordable program is an important part of that strategy.”
Not all parts of the government program are operational. After announcing in April that borrowers with a second mortgage could see payments on those loans reduced significantly as part of the program, the administration has yet to sign contracts with lenders to implement it. Homeowners and consumer groups continue to complain that qualified borrowers are being rejected by lenders and that there isn’t a clear appeals process.
The government program “had many obstacles, problems, and operational and technological challenges getting started and . . . is just now gaining momentum,” Richard H. Neiman, superintendent of banks for the New York State Banking Department, said in a statement included in the report.
It is also unclear how many borrowers will make enough payments to survive the trial period of a modification, the first three months, or might redefault on their loans later. The conversion rate to permanent modifications has been low so far, according to the report, and the Treasury has not released data on how many redefaults it expects.
“Redefaults mean that foreclosures have been delayed, rather than prevented,” the report said.
Copyright washingtonpost.com
Thursday, October 8, 2009
NAR: Homebuyer tax credit best tool for sustaining housing recovery
WASHINGTON – Oct. 8, 2009 – The best tool for sustaining the still-fragile housing market is the $8,000 homebuyer tax credit, and it’s essential that Congress extend the credit into 2010, the National Association of Realtors® (NAR) testified at a hearing of the U.S. House Small Business Committee yesterday. The tax credit currently expires Nov. 30, 2009.
NAR Regional Vice President Joseph L. Canfora also told the panel that a major stumbling block for consumers has been the implementation of appraisal processes spurred by the Home Valuation Code of Conduct (HVCC), which is causing delays in closings. That delay, Canfora said, led to artificially low existing-home sales numbers for August because consumers cancelled sales.
“The credit is working,” Canfora said, pointing out that 355,000 to 400,000 transactions directly attributable to the credit made a significant dent in the housing inventory and will help to stabilize home prices. In addition, the credit has provided a huge indirect benefit to local governments, shoring up property tax bases in particularly hard-hit areas.
Further, NAR has estimated that every home purchase pumps into the recovering economy about $63,000 – the equivalent of one new job added to the employment figures.
But, Canfora said, the threat of more foreclosures coming to the market caused by mortgage rate resets, job losses, and by lenders’ unburdening themselves of additional properties to take advantage of today’s more stabilized prices could disrupt the fragile recovery.
In a “normal” market, optimal housing inventory is about six to seven months, he said. When the tax credit was enacted in February, inventory was 9.1 months. Because of the spurt in homes sales since then due to the tax credit, inventory declined to 8.2 months in August, closer to “normal” than at any time since 2007.
“The more robust the credit and the greater its duration, the greater the chance that the housing market can perform its traditional role of helping the economy move out of a recession,” Canfora said.
“But problems arising from the implementation of the HVCC may reverse the market’s positive momentum at a time when the real estate industry is just starting to show signs of a rebound in many markets,” Canfora added. According to an NAR survey of its members, approximately 40 percent of Realtors report losing at least one sale since May 1 because of appraisal problems due to the HVCC rules. Twenty percent say they have lost more than one sale.
The culprit, Canfora said, was that appraisal management companies, which have gained prominence because of the HVCC, have assigned appraisers to areas where they lack geographic competence. That has resulted in unreliable appraisals. It’s not uncommon that second and third appraisals have to be done to ascertain fair market value. Appraisal fees have also risen and are being passed on to consumers.
Both Fannie Mae and Freddie Mac have issued guidance on appraisals, but NAR is calling upon the mortgage giants and the Federal Housing Administration (FHA) to issue consolidated guidance codified and incorporated into existing policy so that information on appraisals is available to the real estate industry.
FHA Commissioner David H. Stevens has asked FHA staff to explore that recommendation with Fannie and Freddie. Last month, Stevens reaffirmed FHA appraisal policy, taking into consideration the unintended consequences that have burdened Fannie and Freddie, and issued two Mortgagee Letters focusing on appraisal changes. The policy reaffirms appraiser independence and geographic competence.
The FHA announcement also included timely steps to protect taxpayers: implementing credit policy changes to enhance risk management; hiring a chief risk officer for the first time in the agency’s history; and shifting responsibility for mortgage brokers away from taxpayers to the lenders who use mortgage brokers.
Canfora told the committee that FHA has performed remarkably well through the housing crisis compared to Fannie and Freddie. “That’s because FHA has never strayed from the sound underwriting and appropriate appraisals that have traditionally backed up their loans. The reason the FHA capital reserve ratio fell below 2 percent had nothing to do with FHA’s current business activities. It is simply a reflection of falling housing values in their portfolio.”
Canfora cited an FHA announcement that a 2009 audit will show that even if FHA does nothing, the cap reserves are expected to rise back to that required level within a few years.
© 2009 Florida Realtors
NAR Regional Vice President Joseph L. Canfora also told the panel that a major stumbling block for consumers has been the implementation of appraisal processes spurred by the Home Valuation Code of Conduct (HVCC), which is causing delays in closings. That delay, Canfora said, led to artificially low existing-home sales numbers for August because consumers cancelled sales.
“The credit is working,” Canfora said, pointing out that 355,000 to 400,000 transactions directly attributable to the credit made a significant dent in the housing inventory and will help to stabilize home prices. In addition, the credit has provided a huge indirect benefit to local governments, shoring up property tax bases in particularly hard-hit areas.
Further, NAR has estimated that every home purchase pumps into the recovering economy about $63,000 – the equivalent of one new job added to the employment figures.
But, Canfora said, the threat of more foreclosures coming to the market caused by mortgage rate resets, job losses, and by lenders’ unburdening themselves of additional properties to take advantage of today’s more stabilized prices could disrupt the fragile recovery.
In a “normal” market, optimal housing inventory is about six to seven months, he said. When the tax credit was enacted in February, inventory was 9.1 months. Because of the spurt in homes sales since then due to the tax credit, inventory declined to 8.2 months in August, closer to “normal” than at any time since 2007.
“The more robust the credit and the greater its duration, the greater the chance that the housing market can perform its traditional role of helping the economy move out of a recession,” Canfora said.
“But problems arising from the implementation of the HVCC may reverse the market’s positive momentum at a time when the real estate industry is just starting to show signs of a rebound in many markets,” Canfora added. According to an NAR survey of its members, approximately 40 percent of Realtors report losing at least one sale since May 1 because of appraisal problems due to the HVCC rules. Twenty percent say they have lost more than one sale.
The culprit, Canfora said, was that appraisal management companies, which have gained prominence because of the HVCC, have assigned appraisers to areas where they lack geographic competence. That has resulted in unreliable appraisals. It’s not uncommon that second and third appraisals have to be done to ascertain fair market value. Appraisal fees have also risen and are being passed on to consumers.
Both Fannie Mae and Freddie Mac have issued guidance on appraisals, but NAR is calling upon the mortgage giants and the Federal Housing Administration (FHA) to issue consolidated guidance codified and incorporated into existing policy so that information on appraisals is available to the real estate industry.
FHA Commissioner David H. Stevens has asked FHA staff to explore that recommendation with Fannie and Freddie. Last month, Stevens reaffirmed FHA appraisal policy, taking into consideration the unintended consequences that have burdened Fannie and Freddie, and issued two Mortgagee Letters focusing on appraisal changes. The policy reaffirms appraiser independence and geographic competence.
The FHA announcement also included timely steps to protect taxpayers: implementing credit policy changes to enhance risk management; hiring a chief risk officer for the first time in the agency’s history; and shifting responsibility for mortgage brokers away from taxpayers to the lenders who use mortgage brokers.
Canfora told the committee that FHA has performed remarkably well through the housing crisis compared to Fannie and Freddie. “That’s because FHA has never strayed from the sound underwriting and appropriate appraisals that have traditionally backed up their loans. The reason the FHA capital reserve ratio fell below 2 percent had nothing to do with FHA’s current business activities. It is simply a reflection of falling housing values in their portfolio.”
Canfora cited an FHA announcement that a 2009 audit will show that even if FHA does nothing, the cap reserves are expected to rise back to that required level within a few years.
© 2009 Florida Realtors
Wednesday, October 7, 2009
Private investors dominate foreclosure market
WASHINGTON – Oct. 7, 2009 – Cities and municipalities are having trouble spending money allotted by the federal government’s controversial Neighborhood Stabilization Program, which Congress passed last year to acquire houses in blighted neighborhoods.
The goal was to buy vacant properties at 1 percent less than appraised value, rehab them, and either sell or rent the homes to low-income residents. The stumbling block is that private investors and affluent homebuyers purchase the homes first at cheap prices.
Some people don’t see that as a problem. “If the private market is coming back and buying houses and crowding the government out, that’s not a bad thing,” says Joseph Pigg, senior counsel at the American Bankers Association.
In some areas, the nonprofit National Community Stabilization Trust is working with banks to give government access to foreclosed homes before they are put on the market. But that may be too little, too late.
“It’s very unclear when the dust settles how much real change in neighborhood stability and quality of life we’ll see,” says housing expert Alan Malachi of the Brookings Institution.
Source: CNNMoney.com
The goal was to buy vacant properties at 1 percent less than appraised value, rehab them, and either sell or rent the homes to low-income residents. The stumbling block is that private investors and affluent homebuyers purchase the homes first at cheap prices.
Some people don’t see that as a problem. “If the private market is coming back and buying houses and crowding the government out, that’s not a bad thing,” says Joseph Pigg, senior counsel at the American Bankers Association.
In some areas, the nonprofit National Community Stabilization Trust is working with banks to give government access to foreclosed homes before they are put on the market. But that may be too little, too late.
“It’s very unclear when the dust settles how much real change in neighborhood stability and quality of life we’ll see,” says housing expert Alan Malachi of the Brookings Institution.
Source: CNNMoney.com
Tuesday, October 6, 2009
Bathroom upgrades pay off
WASHINGTON – Oct. 6, 2009 – More than 80 percent of new single-family homes have at least two bathrooms, which occupy an average of 300 square feet of floor space, or 12 percent of the total area, according to a study by the National Association of Home Builders.
The home builders’ study reports a major return on value for extra bathrooms: “When the number of bathrooms is approximately equal to the number of bedrooms, an additional half-bath adds about 10 percent to the home’s value, and one additional bath adds about 19 percent.”
A mid-range bathroom remodel, which costs $10,500 on average nationwide, repays a homebuyer at least 100 percent of the outlay when the property is sold, the homebuyer study concludes.
Source: Chicago Tribune
The home builders’ study reports a major return on value for extra bathrooms: “When the number of bathrooms is approximately equal to the number of bedrooms, an additional half-bath adds about 10 percent to the home’s value, and one additional bath adds about 19 percent.”
A mid-range bathroom remodel, which costs $10,500 on average nationwide, repays a homebuyer at least 100 percent of the outlay when the property is sold, the homebuyer study concludes.
Source: Chicago Tribune
Monday, October 5, 2009
Age and makeup of your neighborhood can determine home value loss
TAMPA – Oct. 5, 2009 – It’s the million dollar question in real estate: what makes one home’s value plummet even when a similar home in another neighborhood remains stable?
Data show that home values can vary widely, depending on the neighborhood, the age of the home and the economic stability of neighbors. No Tampa Bay area neighborhood is immune to this housing downturn, but some neighborhoods are suffering more, housing professionals say.
“In general, areas that had minimal decreases have been around for some time and were not as susceptible to investors,” said David Teacher, a property appraiser with Superior Residential Appraisal Services Inc.
Even in those neighborhoods, however, there are exceptions.
Teacher, who has experience throughout the Bay area, looked at neighborhoods in Hillsborough and Pinellas counties that have been particularly hard-hit by depreciation. His research, which tracked home sales prices across the region since 2005, shows that some have fared better.
New developments in south Hillsborough County saw prices go up quickly during the housing boom and some have seen them drop fast during the bust.
For example, Symmes Grove in Riverview saw its average sales price fall from $188,621 in 2005 to $119,787 so far in 2009. That’s a drop of 36 percent.
Another neighborhood with newer homes, FishHawk Ranch, saw the average sales price of $332,027 fall 15 percent to $282,407 this year. Teacher said many homes in FishHawk have lost significant value, but since the neighborhood is diverse with homes that sold for less than $200,000 and homes that sold for half a million or more,” the average for the neighborhood was among the best ones he studied.
In many neighborhoods, he said, the less expensive homes are hit hardest.
Consider a home on Bridgewalk Drive in FishHawk: It sold for $380,500 in 2006 and $200,000 earlier this year. That’s a 47 percent drop, far more than the neighborhood’s average.
In general, homes in established neighborhoods have held value better. Part of the reason, Teacher said, is that fewer investors purchased during the housing boom, and the foreclosure rate is typically lower than in newer subdivisions.
One neighborhood that has remained fairly stable, Teacher said, is the area of South Tampa, west of Westshore Boulevard. The average sales prices of $662,634 in 2005 dropped 4 percent to $634,764 in 2009. Part of the reason may be that the neighborhood is established and hasn’t seen as much sales activity as some other areas.
Another South Tampa neighborhood, Beach Park, known for luxury homes, saw the average sales price of $646,891 drop 22 percent to $505,952 this year.
It’s not just the age of the neighborhoods that contributes to value changes. It is also relatively low prices in certain neighborhoods that attracted investors.
Pinecrest Villa in Tampa attracted investors during the housing boom who bought homes a handful at a time, Teacher said. Many of them have defaulted on loans and lost homes in foreclosure. The average sales price of $168,728 in 2005 has dropped to $73,500. The 56 percent drop is the highest neighborhood decrease Teacher observed.
One established neighborhood in Tampa, Westchase, had homes lose very little value, while others have seen prices drop.
The neighborhood’s average sales price of $361,140 in 2005 dropped 20 percent to $287,417 in 2009.
Maria Kletchka, a Coldwell Banker real estate agent who works in Westchase, said the neighborhood’s diverse mix of home prices has helped keep the neighborhood stable. It also hasn’t seen as many investors or foreclosures as some other neighborhoods, she said.
That said, it has still seen trouble.
“A bank-owned home sold for $211,000 just today,” he said. “During the boom, it would have sold for $350,000.”
Like every neighborhood, though, it all boils down to when you purchased.
“If you bought during the housing boom in 2005 or 2006, you’re likely upside down and owe more than your home is worth,” she said. “If you bought before then, you may still have some equity.”
Copyright © 2009 Tampa Tribune
Data show that home values can vary widely, depending on the neighborhood, the age of the home and the economic stability of neighbors. No Tampa Bay area neighborhood is immune to this housing downturn, but some neighborhoods are suffering more, housing professionals say.
“In general, areas that had minimal decreases have been around for some time and were not as susceptible to investors,” said David Teacher, a property appraiser with Superior Residential Appraisal Services Inc.
Even in those neighborhoods, however, there are exceptions.
Teacher, who has experience throughout the Bay area, looked at neighborhoods in Hillsborough and Pinellas counties that have been particularly hard-hit by depreciation. His research, which tracked home sales prices across the region since 2005, shows that some have fared better.
New developments in south Hillsborough County saw prices go up quickly during the housing boom and some have seen them drop fast during the bust.
For example, Symmes Grove in Riverview saw its average sales price fall from $188,621 in 2005 to $119,787 so far in 2009. That’s a drop of 36 percent.
Another neighborhood with newer homes, FishHawk Ranch, saw the average sales price of $332,027 fall 15 percent to $282,407 this year. Teacher said many homes in FishHawk have lost significant value, but since the neighborhood is diverse with homes that sold for less than $200,000 and homes that sold for half a million or more,” the average for the neighborhood was among the best ones he studied.
In many neighborhoods, he said, the less expensive homes are hit hardest.
Consider a home on Bridgewalk Drive in FishHawk: It sold for $380,500 in 2006 and $200,000 earlier this year. That’s a 47 percent drop, far more than the neighborhood’s average.
In general, homes in established neighborhoods have held value better. Part of the reason, Teacher said, is that fewer investors purchased during the housing boom, and the foreclosure rate is typically lower than in newer subdivisions.
One neighborhood that has remained fairly stable, Teacher said, is the area of South Tampa, west of Westshore Boulevard. The average sales prices of $662,634 in 2005 dropped 4 percent to $634,764 in 2009. Part of the reason may be that the neighborhood is established and hasn’t seen as much sales activity as some other areas.
Another South Tampa neighborhood, Beach Park, known for luxury homes, saw the average sales price of $646,891 drop 22 percent to $505,952 this year.
It’s not just the age of the neighborhoods that contributes to value changes. It is also relatively low prices in certain neighborhoods that attracted investors.
Pinecrest Villa in Tampa attracted investors during the housing boom who bought homes a handful at a time, Teacher said. Many of them have defaulted on loans and lost homes in foreclosure. The average sales price of $168,728 in 2005 has dropped to $73,500. The 56 percent drop is the highest neighborhood decrease Teacher observed.
One established neighborhood in Tampa, Westchase, had homes lose very little value, while others have seen prices drop.
The neighborhood’s average sales price of $361,140 in 2005 dropped 20 percent to $287,417 in 2009.
Maria Kletchka, a Coldwell Banker real estate agent who works in Westchase, said the neighborhood’s diverse mix of home prices has helped keep the neighborhood stable. It also hasn’t seen as many investors or foreclosures as some other neighborhoods, she said.
That said, it has still seen trouble.
“A bank-owned home sold for $211,000 just today,” he said. “During the boom, it would have sold for $350,000.”
Like every neighborhood, though, it all boils down to when you purchased.
“If you bought during the housing boom in 2005 or 2006, you’re likely upside down and owe more than your home is worth,” she said. “If you bought before then, you may still have some equity.”
Copyright © 2009 Tampa Tribune
Friday, October 2, 2009
Mortgages rates dip below 5 percent
Mortgage Rate Trend Index
Half (50 percent) of the mortgage experts polled by Bankrate.com expect no change in rates over the next 30 to 45 days. While 21 percent foresee an increase, the remaining 29 percent expect further reductions.
McLEAN, Va. – Oct. 2, 2009 – Rates on 30-year home loans dropped below 5 percent for the first time in four months, but still remained above this year’s record low, Freddie Mac said Thursday.
The average rate on a 30-year fixed mortgage was 4.94 percent, down from 5.04 percent last week, Freddie Mac said. The last time the 30-year home loan averaged less than 5 percent was the week ending May 28, when it was 4.91 percent.
Rates hit a record low of 4.78 percent hit in the spring, and remain appealing for people interested in buying a home or refinancing.
On Thursday, the National Association of Realtors said the number of signed sales contracts rose for the seventh straight month in August, as homebuyers rushed to take advantage of a tax credit for first-time owners that expires in November.
“Low mortgage rates are helping to stabilize home sales,” said Frank Nothaft, Freddie Mac’s chief economist.
But borrowers may want to consider the Federal Reserve’s announcement last week that it is slowing down a program intended to lower mortgage rates and boost the housing market. Analysts say mortgage rates should remain low for now but could eventually move higher, and homeowners who want to refinance mortgages shouldn’t delay.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
The average rate on a 15-year fixed mortgage fell to 4.36 percent from 4.46 percent last week, according to Freddie Mac. This week’s rate on 15-year mortgages was the lowest since Freddie Mac started tracking it in 1991.
Rates on five-year, adjustable-rate mortgages averaged 4.42 percent, down from 4.51 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.49 percent from 4.52 percent last week.
The rates do not include add-on fees known as points. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 point for 30-year mortgages, and 0.6 point for 15-year and five-year loans. The fee averaged 0.5 point for one-year mortgages.
Copyright 2009 The Associated Press
Half (50 percent) of the mortgage experts polled by Bankrate.com expect no change in rates over the next 30 to 45 days. While 21 percent foresee an increase, the remaining 29 percent expect further reductions.
McLEAN, Va. – Oct. 2, 2009 – Rates on 30-year home loans dropped below 5 percent for the first time in four months, but still remained above this year’s record low, Freddie Mac said Thursday.
The average rate on a 30-year fixed mortgage was 4.94 percent, down from 5.04 percent last week, Freddie Mac said. The last time the 30-year home loan averaged less than 5 percent was the week ending May 28, when it was 4.91 percent.
Rates hit a record low of 4.78 percent hit in the spring, and remain appealing for people interested in buying a home or refinancing.
On Thursday, the National Association of Realtors said the number of signed sales contracts rose for the seventh straight month in August, as homebuyers rushed to take advantage of a tax credit for first-time owners that expires in November.
“Low mortgage rates are helping to stabilize home sales,” said Frank Nothaft, Freddie Mac’s chief economist.
But borrowers may want to consider the Federal Reserve’s announcement last week that it is slowing down a program intended to lower mortgage rates and boost the housing market. Analysts say mortgage rates should remain low for now but could eventually move higher, and homeowners who want to refinance mortgages shouldn’t delay.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
The average rate on a 15-year fixed mortgage fell to 4.36 percent from 4.46 percent last week, according to Freddie Mac. This week’s rate on 15-year mortgages was the lowest since Freddie Mac started tracking it in 1991.
Rates on five-year, adjustable-rate mortgages averaged 4.42 percent, down from 4.51 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.49 percent from 4.52 percent last week.
The rates do not include add-on fees known as points. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 point for 30-year mortgages, and 0.6 point for 15-year and five-year loans. The fee averaged 0.5 point for one-year mortgages.
Copyright 2009 The Associated Press
Thursday, October 1, 2009
Florida home insurance rates on rise again
MIAMI – Oct. 1, 2009 – The respite from rapidly rising insurance rates is ending for Florida homeowners.
State regulators approved an average 19 percent statewide increase for Federated National Insurance. The insurer, a subsidiary of 21st Century Holdings in Lauderdale Lakes, has 30,889 policies in Florida.
Northern Capital Group was approved for a 10 percent hike on the policies it has taken out of Citizens Property Insurance, the state-run insurer.
Both companies said the rate increases will cover higher reinsurance costs and make up some of the revenue they’ve lost due to higher wind mitigation credits they must provide.
Nearly half a dozen companies have applied for rate increases or are working on filings.
United Property & Casualty has asked for a 12 percent average statewide increase. Southern Fidelity and its sister company, Capitol Preferred, have requested a 7.2 percent average statewide increase.
In July, Citizens began to submit its filing for its first rate increase in three years. Its rates have been frozen since 2007.
Citizens is limited to a 10 percent increase, due to a new law passed in May.
But its initial staff analysis found that some areas of the state could be due rate decreases.
“Insurance Commissioner [Kevin] McCarty told the governor and Cabinet last week that insurance companies now need to shore up their claims-paying abilities through modest rate increases,” said Lisa Miller, former deputy commissioner and consultant to many Florida-based insurance companies.
Copyright © 2009 The Miami Herald
State regulators approved an average 19 percent statewide increase for Federated National Insurance. The insurer, a subsidiary of 21st Century Holdings in Lauderdale Lakes, has 30,889 policies in Florida.
Northern Capital Group was approved for a 10 percent hike on the policies it has taken out of Citizens Property Insurance, the state-run insurer.
Both companies said the rate increases will cover higher reinsurance costs and make up some of the revenue they’ve lost due to higher wind mitigation credits they must provide.
Nearly half a dozen companies have applied for rate increases or are working on filings.
United Property & Casualty has asked for a 12 percent average statewide increase. Southern Fidelity and its sister company, Capitol Preferred, have requested a 7.2 percent average statewide increase.
In July, Citizens began to submit its filing for its first rate increase in three years. Its rates have been frozen since 2007.
Citizens is limited to a 10 percent increase, due to a new law passed in May.
But its initial staff analysis found that some areas of the state could be due rate decreases.
“Insurance Commissioner [Kevin] McCarty told the governor and Cabinet last week that insurance companies now need to shore up their claims-paying abilities through modest rate increases,” said Lisa Miller, former deputy commissioner and consultant to many Florida-based insurance companies.
Copyright © 2009 The Miami Herald
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