The government’s First-Time Home Buyer Tax Credit expires December 1, 2009. 

If you expect to use the program in conjunction with a home purchase, therefore, you may want to consider yourself officially “on the clock”. 

Assuming a 60-day window between contract and closing, there are now 77 days left to find a home and go under contract for it.

The First-Time Home Buyer Tax Credit refunds up to $8,000 at Tax Time for qualified home buyers.  A few of the program’s qualification criteria include:

• Home buyer must not have owned a primary residence in the past 36 months
• The home may not be purchased from a family member
• The household adjusted gross income must be below $95,000 for single tax filers and $170,000 for joint tax filers

The tax credit itself is limited to $8,000 or 10% of the purchase price, whichever is less. 

Remember, though: The refund is a true tax credit — not a deduction.  This means that a taxpayer owing $8,000 to the IRS and claiming the $8,000 First-Time Home Buyer Tax Credit would owe the IRS nothing on April 15, 2010.

The complete list of qualifying criteria is posted on the IRS website.

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A real estate trade group reported Tuesday that Pending Home Sales ticked higher in December 2008.  A “pending home sale” is a home under contract to sell, but not yet closed.

The group positions Pending Home Sales report as a predictor of future activity, suggesting that home sales will spike 60 days hence. 

This is good news for the economy.

However, despite the Pending Home Sales report’s correlation to the actual number of homes sold in the future, that connection may not be the report’s best use. This is because of what Pending Homes Sales doesn’t measure.

Specifically not included in Pending Homes Sales are:

1. Sales of new construction homes
2. Sales of For Sale By Owner properties
3. 80 percent of non-surveyed MLS transactions

And, lastly, it should be noted that Pending Home Sales tracks contracts — not closings — and until a home is sold and closed, nothing has really happened in the economy.  That’s especially relevant in a market like this in which finding financing isn’t always so easy. 

Pending Home Sales still has its place, though, because it’s a terrific look at the current buy-side demand for homes. Clearly, low mortgage rates and falling home prices are making an impact and this is why the December’s Pending Home Sales report is so important.  It’s the third housing report this month that shows the demand for homes rising while the supply of homes falls.

The other two reports:

1. The number of “used” homes sold monthly is rising
2. The number of new homes being built are falling

This is good news for home sellers and for the economy. If housing is expected to lead the U.S. out of recession, the seeds for that recovery may have already been planted.

(Image courtesy: The Wall Street Journal)

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When a homeowner sells his home and decides to buy a new one, there are 3 basic options for the residence — sell it, keep it, or rent it.

Unfortunately, no matter which path they choose, move-up homebuyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past. 

Mortgage guidelines are dramatically tighter for people “carrying two mortgages”.

Among the changes this spring’s buyers face:

Selling the primary residence
If you plan to close on your new home prior to the closing of your existing home — even if it’s only by a day – both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of homebuyers.

Converting your residence to a second home
If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth of mortgage payments + taxes + insurance in reserves for the current home and new home combined.

Converting your residence to an investment property
If your current home has less than 30 percent equity in it, any rental income derived from a tenant is disallowed on your mortgage application for the new home.  You must still count the mortgage payment + taxes + insurance as a monthly debt.

In other words, being a move-up buyer isn’t as simple as it used to be.  New lending rules make buying a new home an exercise in timing and financial planning.  And the rules are expected to get tougher, too.

Therefore, if you expect to be a move-up buyer in the next 12 months, consider moving up your timeframe or — at least — planning ahead for it. 

Understanding the new mortgage landscape and how they can influence your upcoming purchase may be the difference between getting approved for a home loan, and getting turned down.

Home prices are largely based on Supply and Demand.

• If demand outweighs supply, home prices rise
• If supply outweighs demand, home prices fall

It’s good news for home sellers, therefore, that “used” homes for sale fell 6 percent nationally last month.  Less supply often means higher prices.

Of the 29 metropolitan areas tracked in real estate brokerage firm ZipRealty’s survey, only Philadelphia showed an increase.

But the survey isn’t perfect.  For example, it doesn’t track the demand side of the equation — buyer activity. 

Anecdotally, November and December are slower for buyer foot traffic than, say, March and April.  December’s drop in supply, therefore, may reflect the expectation of reduced buyer interest.

In addition, the ZipRealty survey ignores the supply of newly-built homes, and of foreclosed properties.  In some cities, that can amount to a quarter of the market supply or more.

And lastly, the survey addresses the nation and not the nation’s neighborhoods.  This is an important distinction because real estate is not a nationwide market, nor is it even a citywide market.  Real estate is highly local and responsive on a neighborhood-level. 

National surveys rarely capture that point.

(Image courtesy: The Wall Street Journal Online)

Foreclosure is a hot topic among the press lately.  It’s hard to turn on the television or open up a newspaper without seeing a story about it.

But what’s most interesting about foreclosures is that they appear to be concentrated in just a few parts of the country. 

According to the foreclosure-tracking service RealtyTrac, 4 states accounted for more than half of nation’s foreclosures last month.

And those 4 states — California, Florida, Arizona, and Nevada — share some very similar characteristics including:

1. Their respective popularity with retirees and real estate investors
2. Their large home value increases earlier this decade

In looking at the rest of the country’s foreclosure data, the remaining 46 states combined accounted for just 48.8 percent of October’s foreclosures. 

That’s 1.06% per state on average.

Now, this isn’t meant to diminish the impact of foreclosures on the economy — quite the opposite.  Foreclosures harm to the national housing market because most mortgage lenders are national.  But, we highlight statistics like this to show that the foreclosure “problem” isn’t so bad in most parts of the country, relative.

Furthermore, mortgage lenders are intervening to slow the flow of defaults nationwide.  Following the lead of JP Morgan and Bank of America, CitiMortgage announced a sweeping plan this week to help homeowners avoid default and stay in their homes.

In a way, for as good as this news is for homeowners, it’s equally bad news for home buyers.  As the number of foreclosures decrease in any given market, it reduces the inventory of homes for sale.  Lower supply levels often lead to higher sale prices and less room to negotiate. 

And this may be what the banks are trying to accomplish.

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called “jumbo”, or “super jumbo” home loans, depending on their size. 

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are. 

There are exceptions to the loan limits, however.

Left over from the Economic Stimulus Act of 2008, specific, “high-cost” areas around the country have their own conforming loan limits, not to exceed $625,500.  There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on “typical” housing costs around the country.  Since 1980, as home prices have increased, so have conforming loan limits.  As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

On the first Friday of every month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report. 

More commonly, it’s called the “jobs report” and the October’s data is trending with the rest of 2008.

After shedding another 240,000 jobs last month, the economy has now put 1.2 million Americans out of work this year and unemployment rates have climbed to 14-year highs.

As a strange twist, though, today’s weak jobs data may lead to a positive turn for the economy and for housing in 2009. 

In the wake of the jobs report, members of Congress are already calling for both tax cuts and direct stimulus to reverse the course of the economy.  Both of these actions would put money back into U.S. citizens’ household budgets, spurring consumer spending nationwide.

Because consumer spending accounts for 70 percent of the economy, this would be expected to push the economy forward at a time when it natural forces are slowing it down.

In addition, markets are betting that the Federal Reserve will cut the Fed Funds Rate below its current 1.000 percent level.  This, too, would spur spending because the Fed Funds Rate is directly tied to consumer credit card rates and business credit lines.

Expectations for stimulus are one reason why mortgage rates have not risen today as high as they otherwise would have if this were a “normal” market.

Mortgage rates are slightly elevated as we head into the weekend, but don’t be surprised if there’s a late-afternoon push that brings them lower. For active home buyers, this could help home affordability as we cruise towards the holiday season.

(Image courtesy: USA Today)

Foreclosures and short sales (ie. lender-mediated properties) continued to increase their market share in the Twin Cities housing market during the the third quarter of 2008, now accounting for 28.1% of all active listings, 34.1% of Q3 new listings and 34.5% of Q3 closed sales.  Theses statistic are according to a recent report published by Jeff Allen and Aaron Dickinson from the Minneapolis Area Association of Realtors.

Their full report can be read by clicking here: foreclosures-and-short-sales-in-the-twin-cities-housing-market.pdf 

The Top 10 Communities Experiencing the Worst Impact by Foreclosures Are:

1. Minneapolis - NORTH:  67% (% of foreclosure sales YTD)
2. St. Paul - CENTRAL:  67%                                                         
3. Minneapolis - CAMDEN:  66%                                                        
4. Brooklyn Center:  64%                                                      
5. St. Paul - PHALEN:  52.4%                                                    
6. Big Lake Twp:  52%                                                       
7. Brooklyn Park:  49.5%                                                     
8. Coon Rapids:  47.6%                                                     
9. Hilltop/Columbia Hghts:  45.8%                                                         
10. MPLS - POWDERHORN:  45.2%                    

**Note:  There are other smaller towns with fewer sales that had higher percentages.  For the purposes of this list, I used areas with over 100 toal sales year to date.

The property types (ie. Single Family Detached, Town homes, or Condominiums) that the foreclosure phenomenon is having the worst effect on are townhomes.  The number of townhomes that have gone into foreclosure has doubled year over year.  Last year there were 847 town homes sales that were lender mediated through the month of October.  This year the numbers are up 97% with a total of 1671 townhome foreclosures.  Condos are up 78.6% and Single Family Homes are up 56%.

The price ranges of homes in foreclosure is also very interesting.  There is a direct relationship between price range and lender-meidated activity.  The more affordable the market segment, the more common foreclosures and short sales become.  The number of lender-mediated properties for sale continues to grow significantly, while traditional sellers hold back in response to a slower market.  Seasonal changes in our market means that fewer traditional sellers list their homes in Q3 and Q4 every year resulting in a downturn in sales from October through January.   

If I were in the market to buy a home…now would be the time.  Mortgage rates seem to be poised to improve making it the best time in a long time for first time home buyers.  FHA loans are the order of the day.  The $7500 tax credit that first time home buyers can take advantage of is also another carrot that is being dangled to help stimulate the housing market.

Once the first time home buyers start buying, this should provide the push the housing market needs to get going again.  One last observation regarding foreclosures; while the growing market share of lender-mediated propertiesis dragging the overall median price down substantially, the true picture for traditional sellers is very different when looked at closer.  Traditional properties that are not lender-mediated sales are experiencing quieter value declines.

Marketwide, values are in decline as the market remains firmly in the buyer’s favor.  Foreclosures are seeing faster declines as financial institutions are pricing them to move quickly, and property conditions for these homes also decrease their value.  

Bottom line - if you don’t have to sell now - then DON’T!!!!  The faster we can get the foreclosure inventory sold off, the better for traditional sellers.  If you are a buyer taking advantage of the vast opportunites out there, have a five-year plan to stay in the home that you purchase.  You will need to make that commitment if you want to realize any appreciation.  If you think that you will need to move within 5 years, then stay renting. 

For more information on the market click on the report above or visit www.mplsrealtor.com to research your local market.  If you have questions about how to go about buying a foreclosed home, call me at 612-767-3982.  I have gotten quite good at it and I would be happy to help point you in the right direction.         

The Federal Reserve confirmed what most of us already knew — getting qualified for a “prime mortgage” is increasingly more difficult.

In a quartely survey of 84 banks, 75 percent of respondant banks tightened mortgage guidelines over the last 3 months for the most qualified of home loan applicants.

“Prime” is a vague term when it comes to mortgages, but, historically, a prime borrower is one that can document:

• A well-documented credit history
• Very high credit scores
• Very low debt-to-incomes

Historically, banks bent over backwards to lend money to this class of borrower.  Today, they’re thinking twice.

The chart’s steep ascent reinforces that members of all tax brackets face consequences from the current credit market turmoil.  And, although some corners of credit looked poised to recover — interbank lending, for one — the mortgage market is yet unaffected and should be among the last to thaw.

All prospective home buyers should prepare for the likelihood that mortgage guidelines continue to toughen before they start to ease.  Mortgage applicants on the cusp of being approved today will almost certainly be turned down for a mortgage in 2009.

Owning real estate can require a tremendous amount of advance planning and, sometimes, looking at the past is the best way to prepare for what’s coming ahead. 

According to the Federal Reserve’s survey, what’s coming ahead is more mortgage application scrutiny.

Private Mortgage Insurance (PMI) is a mortgage lender’s insurance policy against highly-leveraged homeowners.  It’s typically required when homeowner equity is less than 20 percent at the time of closing.

With PMI defaults up 40 percent over last year, though, private mortgage insurers are taking big losses.

They’re also taking outsized steps to prevent additional claims going forward and that is bad news for low-equity homeowners and home buyers.

The first PMI change new, higher insurance rates.

Like home insurers that adjust premiums after a worse-than-expected storm season, PMI insurers are raising mortgage insurance rates for all homeowners, regardless of credit history.  The higher premiums are meant to offset the higher losses.

And, the second change is that some PMI firms are discontinuing coverage for “high-risk” transaction types.  This includes purchases of non-owner occupied properties, and cash out refinances above 85 percent loan-to-value.

Both changes, however, point to similar conclusion about home loans: Home equity is increasingly important for today’s homeowner. 

PMI rates are higher than they were six months ago and the rising default rates makes it likely that rates will rise again soon.  As PMI rates increase, so does the cost of homeownership for people whose lenders require it.