PruCalVoices » Real Estate Finance

Don’t Expect Too Much From Tax Credits

Dean Rizzi — Wed, 10 Mar 2010 02:01:28 +0000

We are speaking of the federal homebuyer tax credits, in particular, which seem to be invoked as the blanket explanation for anything that does or doesn’t happen in the housing market. We were more circumspect than most of their ability to sustain any market rally after being extended and embellished in November. That appears the case today. Credits are good at pushing demand forward, but not so good at sustaining demand over time.
We’ve also been circumspect over the ability of low interest rates to keep things moving forward in perpetuity. To be sure, low rates matter and low mortgage rates make more homes more affordable to more people, but it’s still a matter of taking on new debt with a home purchase or lower-cost debt with a refinance. The only way debt can be serviced is with income, usually a job.
It’s really all about employment at this point. Fortunately, the news is improving on that front based on the past three months of employment data. Things might be moving slower than we’d like, but for potential borrowers, that’s actually good news. When employment shifts into gear, interest rates are likely to follow.
So, we’ve said it before, but we’ll say it again: improving employment, low mortgage rates, and stabilizing home prices (which, by the way, we think will remain stable, even with the REO and foreclosure overhang) coupled with soon-to-expire tax credits suggest to us that now is not the time to procrastinate

From the weekly newsletter of Dean Rizzi

Visit my website at www.deanrizzi.com

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Is Housing Still the Leader?

Dean Rizzi — Tue, 02 Mar 2010 00:24:19 +0000

That appears to be the case, at least according to data released from the Census Bureau. Going back to 1968, the trend in housing starts has portended the trend in the overall economy. Should we be optimistic or pessimistic? That’s difficult to say. Monthly figures on starts are volatile, and housing starts fluctuate more than many indicators. It takes several months for total housing starts to establish a trend. The good news is that going back to October, the trend in starts has been mostly stable and up. The bad news is that January’s free-fall in new-home sales could pressure the trend to change direction. Or maybe not. The problem in vetting the data is that no two periods are exactly alike and history never repeats itself perfectly. For example, Census Bureau data show that housing completions generally lag housing starts, as would be expected, except in the latter half of 2009, where starts have fallen off a cliff compared to completions, creating a wide, unprecedented divergence. So what does it all mean? Economists who believe that housing is the leading economic indicator aren’t very bullish on the economic outlook. We tend to be a little more bullish, because it can be misleading to read too much into historical correlations of two variables – in this case, housing and the economy. What’s more, the more correlations are vetted and become known, the more their predictive value tends to break down.

DeanRizzi
http://www.drlending.com/

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What Does Zillow Tell You About Your Home?

Annie Chang — Wed, 27 Jan 2010 19:05:32 +0000

Ever since the launch of its website in 2006, Zillowhas increasingly gained its popularity as a convenient tool to look up home values. When I work with prospective buyers or sellers to explain the market value of their homes, I often hear the famous line “but Zillow says…!” followed by “so how accurate is the Zestimate?”

Thanks to Zillow for providing a detailed video of “A Guide to the Zestimate” to explain how the home values are generated. I hope you will find this video helpful!

Posted by Annie W. Chang | www.TalkofRealEstate.com

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The Farther They Fall, The Higher They Could Rise

Dean Rizzi — Tue, 26 Jan 2010 18:21:14 +0000

Richard Carson and Samuel Dastrup, two university professors, recently published an interesting academic paper (a synopsis is posted at Econbrowser.com). Carson and Dastrup examined how the magnitude of housing-price declines correlated with various factors, such as overbuilding, extent of sub-prime lending, and median income. Not surprisingly, these factors were related to price declines. However, the most important factor was the magnitude of the previous price run-up, which accounted for more than half of the observed variance in the size of the price decline.

The takeaway from Carson and Dastrup’s research is that the farther prices ran up in a hot market, the farther they tend to run down in the subsequent cooling. Not surprisingly, the hottest markets – Las Vegas , Riverside , Miami and Sacramento – have fallen the farthest and cooled the fastest. Many of these markets are now as cold as an Arctic winter, particularly Las Vegas , where home prices have dropped 50% and more.

However, cold markets often provide the best buying opportunity. Consider Las Vegas : a home that cost $200,000 in 2007 and lost 50% of its value costs $100,000 today. A 50% gain pushes its value up to $150,000. In other words, prices do not have to appreciate back to their peaks for people to book considerable equity or an investment gain. This simple math is worth repeating to homebuyers and residential real estate investors, especially to those residing in or near frigid markets.

www.deanrizzi.com

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A Look at the Past and a Look at the Future

Dean Rizzi — Wed, 30 Dec 2009 20:49:22 +0000

This time last year we predicted that 2009 would end a lot better than it began. We were right, though it wasn’t a great accomplishment to be right considering how low the housing market, stock market, and overall economy had sunk during the latter half of 2008. As we’ve stated repeatedly over the past year, a low base and a dour outlook provide an excellent buying opportunity, so we weren’t surprised when buyers stepped forward to exploit the opportunities.

Looking ahead to 2010, we see continued improvement in home sales and home prices. In fact, we wouldn’t be surprised if the market turns to a sellers’ market from a buyers’ market by year’s end. We are almost certain that will be the case if we see a two to three percentage point drop in the unemployment rate. Low mortgage rates and income tax credits are contributing factors in stabilizing the market, to be sure, but no factor is more important than employment in not only maintaining stability but stimulating activity.

We also think 2009 will mark the end of the sub-five-percent 30-year fixed-rate mortgage for the foreseeable future. Many economists predict rates quoted in the low sixes will be the norm for 2010. We agree. But that’s not bad news. The higher rates will likely be accompanied by a more robust economy, with more jobs and greater consumer demand. We also think that higher rates will be accompanied with more relaxed underwriting standards, as banks and other lenders become less risk adverse.

In the meantime, mortgage rates are still very good, as are housing prices, which is why we continue to urge borrowers to refinance and buyers to qualify for a loan and buy. It’s worth remembering that today’s deals in both the mortgage and housing markets are the anomaly not the norm, and that the norm can return faster than many of us expect.

Visit my website at www.deanrizzi.com

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It’s Working and Working Well!!!

Lee Ginsburg — Sun, 27 Dec 2009 18:49:47 +0000

You might ask, what is working and working well. I am speaking about the $8000 Home Buying Credit. A recent home buyer brought up the $8000 credit and told me that was the motivating factor for him and his wife purchasing a home. The termination date creates urgency and action. Low prices are motivating but not the cause of action. Many think they can time the market. Good Luck to them. People in the business think the lowest interest rates in 40 years should be creating urgency. It certainly makes people think but low rates is all many of these young first time buyers know. I purchased a home in 1982 at 14% interest and that was considered good. Today’s 5% and below interest rates are like the “After Christmas Sale”. But still does not create the urgency since many believe it will last forever.

The $8000 federal tax credit was extended and now sounds like it will really terminate April 30, 2010. Now that creates urgency! OK; the credit created a home sale and that helps stabilize pricing. Let’s not forget all the mouths a home sale feeds: the realtor, mortgage broker, title people, escrow company, termite inspector, home inspector, city tax coffers, and more. Now let me show you all the mouths my client fed by spending his credit on: landscaping, painting, double pane windows, window coverings, furniture and more. Others may remodel a kitchen or bath, carpet, appliances, roof, etc. My client purchased the home from a flipper who must have put $50,000 into the home. Add that up, and the $8000 quickly turns into over $100,000 of added income to local people. That feeds lots of mouths. Being employed in Real Estate and related fields, as Americans and Smart business people we should be ecstatic. I know I am. I am a believer.

One might think that I support the credit going on forever. No, I am a realist and understand the affect will diminish over time and a firm termination date is what makes the credit successful. I think April is a good time to terminate the credit as the Real estate Market historically picks up in late spring and summer. I am hoping that will help smooth the transition and continue the market stabilization and slight appreciation.

A quick mention of the Current Home Owner Credit of $6500. Although in the Bay Area the $800,000 home purchase limit puts a damper on things it is a great opportunity for Condo Owners to step up and for others to scale down. Many people may not realize that they do not have to sell their current home to receive the $6500 credit. They can keep it and rent it out. The new purchase must be a primary residence and it must be below $800,000.

Enjoy Spending your credit!

www.leesellsmore.com

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Are We There Yet?

Dean Rizzi — Tue, 15 Dec 2009 19:16:38 +0000

We cannot say for sure, but we think we are darn close. Of course, we are speaking of the bottom in mortgage rates. Last week we explained how the Federal Reserve has influenced the market with its massive purchases of mortgage-backed securities. This week we offer statistical support for our contention that rates are at least close to bottoming, if not likely to reverse soon.
Calculated Risk, an insightful Web site that tracks the comings and goings of the housing and mortgage markets, supplied the evidence. Calculated Risk has noted (as have we) the close relationship between the 30-year conventional fixed-rate mortgage and the yield on the 10-year Treasury note. Based on statistical analysis reprinted on Calculated Risk’s Web site, the 30-year conventional fixed-rate mortgage is expected to rise to 5.4% based on the current 10-year Treasury yield of 3.45%.

www.deanrizzi.com

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To Mod or Not to Mod?

Shokoofeh Nowbakht — Wed, 11 Nov 2009 03:15:32 +0000

I just found out that a friend of mine tried to modify her loan early this year. She contacted a law firm in Southern California, paid few thousand dollars and nothing has happened yet. She was told to stop making mortgage payments on her first and second loans. after 10 months in default, she has received a NOD or Notice of Default. She is now scared and worried that she’ll loose her house. She is now very confused and doesn’t know if she should continue with the loan modification process. She is also thinking about borrowing some money from family and paying all her unpaid mortgages, late fees as well as her property tax so that she can reinstate her loans and save her house.

What should she do? Her only experience with loan mod has been a nightmare. Who has had a positive experience with a loan modification firm? Should one stop making payments in order to be considered for loan mod? How would you advise her?
Thank you.

Shokoofeh Nowbakht, Realtor
www.shokoo.com

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