Gail n Greg - Your Agents @ The Beach

HOME BUYER TAX CREDIT

In case your not following, Senate Democrats are indicating that the first time home-buyers tax credit will be renewed.  The one set to expire on December 1, 2009 calls for a $8,000 or 10% tax credit for new home buyers.  The property has to close by November 30th in order to qualify for this tax credit.  There are also income as well as other restrictions in order to qualify.  Bloomberg news is reporting today that "Senate Banking Committee Chairman Chris Dodd says Senate Democrats have agreed to extend the first-time home buyer tax credit.  The latest version extends the program to home sales signed - not closed - by April 30.  Purchasers would have another 60 days to close the sale.  The credit will also be expanded to include so-called step-up buyers who have lived in their current home for at least five years.

The credit would be cut slightly to a $7,290 cap.  Income eligibility for first-time home buyers would stay the same, but it would rise for step-up buyers to $125,000 for individuals and $250,000 for couples."  Source:  Bloomberg News, Dawn Kopecki and Ryan Donmoyer (10/27/09)

I'm also in possession of a letter written by our Congressman Mike Castle to a local Lewes builder which states that "Currently, discussions are taking place in Congress to extend and increase the first time home-buyer tax credit, and the Home-buyer Tax Credit Act of 2009 (S. 1230) was introduced in the Senate on June 10 to do so.  S. 1230, sponsored by Senator Johnny Isakson  (R-GA), would extend the housing tax credit for one year after passage and increase the maximum amount to $15,000.  It would also remove the income restriction on who may qualify to receive the credit."

While I do believe that the tax credit has been stimulative to the housing market, I remain a free market capitalist.  I think many of these purchases would have taken place any way and there are always those out there trying to milk the system.  I think legitimate first time home buyers have benefited from this legislation but I personally think we have had enough government intervention.  For the short term, those that want to take advantage of low prices, high inventory and low interest rates may wait to see how this bill is going to come our instead of moving now.  It's like the "cash for clunkers" where 80% of the people who took advantage of the program would have bought any way and we the tax payers get stuck with the bill and as soon as the stimulus is removed, activity drops way down while everyone waits for the next "fix".  I think the incentives I mentioned above, ie low prices, interest rates and high inventory are enough of a stimulus to put this housing market back on track in an orderly fashion.  Just my .02 worth.  Any comments out there? 
 

EXISTING HOME SALES RISE 9.4% IN SEPTEMBER!!!

This is no trick as we settle in for another Sea Witch Festival here in Rehoboth.  The National Association of Realtors reported today that September existing home sales were up 9.4% in September, the largest monthly increase in 26 years.  Now many are attributing this to the first time home buyer tax credit incentive that expires at the end of November.  For those of you that are not paying attention, that's a tax credit for 10% of the purchase price or $8,000 whichever is less for anyone buying a home that has not owned one in at least 3 years.  I don't think that is the case in our market however.  Of the 20 properties we have sold since March, only two have been to first time home buyers.  I think it has more to do with low interest rates and cheap prices.  Builders have been discounting inventory homes at unprecedented rates and offering incredible incentives to buy.  One near here in town is offering to pay your first years mortgage payments and offering to buy the mortgage interest rate down to 3.99%.  9 of our 20 sales have been new construction.  The bottom line is that we have hit bottom and now is the time to jump in if you haven't already.  Interest rates are projected to go up as our national debt goes up, and inventory is going to start coming down.  Enjoy the festivities in Rehoboth this weekend. 

INTERESTING NEWS ON "REVERSE MORTGAGES"

Found this in my in box this morning, thought some of you might be interested......

Bob Andress Senior Financial Specialist  August, 3rd, 2009  In This Issue Purchasing a home with a reverse mortgage? Find out how..... Purchasing a home with no mortgage payments Email Bob for a quick response     Helping Seniors...Make wise financial decisions based on knowldge, integrity and educatiion.   Bob Andress Senior Financial Advisor 302-345-8795     QUICK LINKS:   Reevsre Mortgage Calculator   National Council on Aging Booklet: Use your home to stay at home   Reverse Mortgage Basic's Dear Greg , Did you know that a Senior can now buy a home with a reverse mortgage and not have to make any mortgage payments? I know it sounds to good to be true, but this is a new option that your Senior clients should be aware of. Let me show you  (in a few minutes) how you can positively impact your Senior clients lives in a very positive way with a Government Insured reverse Mortgage.   Bob Andress Delaware's Reverse Mortgage Specialist 302-345-8795 bobandress@hotmail.com www.wfhm.com/bob-andress Seniors can now use Reverse Mortgages for Purchasing Homes   The new Home Equity Conversion Mortgage (HECM) lets seniors use a reverse mortgage to pay for the purchase of a home or condo. Many are taking advantage of this to get a purchase mortgage and then downsize into affordable homes. Thanks to new provisions that were added as part of the 2008 Housing and Economic Recovery Act, it's now possible to take advantage of a reverse mortgage program and use it as a purchase mortgage. The introduction of the HECM was part of several financial incentives and stimulus ideas passed by Congress late last year in response to the collapse of the economy and paralysis in the credit markets. HECM for purchase mortgage The HECM program is administered by the Federal Housing Administration (FHA). It will make it easy for most people who already qualify for a reverse mortgage to use it to create a purchase mortgage arrangement. HECM allows those who qualify to make a large cash down payment on a home or condo, and use the reverse mortgage as permanent financing for the rest of the home's price. The loans are called reverse mortgages because, rather than the homeowner paying the lender, the lender pays the homeowner. With typical reverse mortgages, the equity is paid out in cash; but with the HECM, the lender makes the mortgage payments instead.    There are certain requirements to qualify: Buyers need to be at least 62 years of age; the property being purchased must be a principal residence and owner-occupied; the program only covers homes appraised up to $625,500; and the down payment must be substantial-usually 40 to 50 percent of the sales price. The size of the down payment depends upon the age of the buyer and the interest rate of the loan. The older the borrower or the lower the interest rate, the less the down payment needs to be. Making the reverse mortgage work for you Here's how it works: A senior buys a home by making a hefty down payment, but no actual monthly mortgage payments are necessary. As a non-recourse loan, the borrowing senior will never owe more  than the value of the property. He will owe the amount borrowed plus accrued interest and insurance. But if the house loses value, the lender has to incur the loss-not the owner or his heirs. If the house appreciates in value beyond the cost of repayment, then the homeowner or his heirs receive the leftover profits. A buyer between the age of 62 and 65, for example, can use a HECM for more than half of the purchase price at today's mortgage rates. He could buy a $250,000 home and have to pay only about $120,000 as a down payment, plus closing costs. Never again would he need to make a house payment. Many seniors are downsizing with a HECM by selling a home, using some of the proceeds as their reverse mortgage down payment, and then pocketing the rest to fund retirement or spend on whatever they like.

FOR MORE INFO.... Call me anytime or visit my website @  www.wfhm.com/bob-andress or WWW.wellsrm.com bobandress@hotmail.com   302-345-8795

BUYERS - GET OFF THE SIDELINES

  It's time for you Buyers out there to wake up!!  If you've been waiting for a bottom, you may have missed it.  In an Urgent Message from Dave Liniger(co founder of RE/MAX) he states that "Last night, the Lieberman/Isakson Amendment was included in the senate version of the Economic Stimulus Bill by a unanimous voice vote.  This amendment would provide a Tax Credit to all home buyers at the rate of 10% of the sales price up to a limit of $15,000.  The credit would be available for a one year period to all purchasers of primary residences.  Today, the senate expects to debate Amendment 353, a proposal by Senator John Ensign (R-NV) that would provide 30 year fixed financing at a rate of about 4%, for anyone purchasing a primary residence.  If these two provisions survive in the final passage of a stimulus bill they could have a tremendous impact on our industry.  If they are coupled together with provisions to ease the flow of credit and reduce foreclosures, we could see an immediate and dramatic turn-around in real estate."  Don't think that Sellers aren't going to take this into account when they start reviewing offers coming in.  Just like the Stock Market, no one can call a bottom until we're on the way back up.  I have been telling my Buyers this for the past two months.  It's a lot easier to get concessions from Sellers when they don't see any hope of recovery.  Guess what, they now can see some light at the end of the tunnel.

BUYERS WAKE UP !!

Talk about asleep at the switch.  Many buyers today are really about to miss the boat.  I just don't understand when one takes all of the time to research property, select a competent agent and look at um teen properties why they want to get greedy and make such ridiculous offers.  It seems that a lot of buyers simply look at the national news and are being told prices are dropping at record rates blah, blah, blah.  Listen to your agent!!  That's what we're here for.  A good agent will know if a property has the current market conditions built in to their asking price.  If they do, and you really want the property, why low ball and insult the Seller and loose out.  You shouldn't just make a low ball offer for the sake of beating the Sellers brains out, it needs to have some basis in reality.  I recently had a buyer who after careful research wanted to put an offer in on a condominium in a very desirable neighborhood.  There were two condos that were identical listed for $40K to $50K below what the Sellers paid a few years ago.  The prices on both units had just been reduced by $30K as both Sellers wanted to get out from under these investments.  Keep in mind, the listing prices were $240K and $230K.  One of these was my listing.  The phone suddenly started to ring as savvy agents had their eyes open for bargains like these.  After explaining all of this to my Buyer, he insisted on putting an offer on the table for $40K under the asking price on the one listed for $239K.  I told him that he would not be taken seriously and guess what happened?  The seller got 2 or 3 offers the next day at slightly below list and the unit went under contract.  So did my listing that had just been reduced $30K to $249K.  Make sure you know a good deal when you see one and don't waste everyone's time "low balling", not if the Seller has taken the bullet already in his listing price.

PMI IS NOW TAX DEDUCTIBLE !!

First of all, what is PMI?  Private Mortgage Insurance is required for loans exceeding 80% of the property's value or sales price.  On January 1st, the federal government enacted a law making PMI tax deductible for new borrowers whose personal adjusted gross income is $100,000 or less.  This is great news in that it affords millions the opportunity to finance a more expensive home or potentially obtain a lower payment for the same-priced home, while reducing annual income taxes by hundreds of dollars.  Most borrowers take a dim view of PMI as it adds considerable cost to a mortgage.  Now it is tax deductible for many borrowers and is certainly a better alternative to the "piggyback" loan scenario which has been popular recently.  That program allows a borrower to take a first loan for 80% of the purchase price and a second loan (often a HELOC) at a higher interest rate in order to avoid the PMI and to finance 100% of the purchase price of the home.  This was a risky program for both the lender and the borrower and has been eliminated by many lenders now in this tighter credit environment.  Important to remember is that PMI also goes away eventually when your equity position in the home reaches prescribed levels.  Check it out, it may work well for you now.

REVERSE MORTGAGES

I have a 78 year old mother who recently lost my dad.  Her house is paid off and she lives on a fixed income from the Federal Government which is adequate but not exorbitant.  She saw an ad for "reverse mortgages" and asked me to explain the concept to her so I thought I might as well put it here in case anyone else is curious about it.  I found a good article in the March issue of The T.Rowe Price investor magazine.  They go on to explain that a reverse mortgage is one option for those generally age 62 or older who want to tap into the equity of their homes without having to sell.  With a reverse mortgage, a bank or mortgage lender makes a payment or payments to you as a loan against the equity in your residence while you retain the title to your home.  Reverse mortgage proceeds are paid to you by the lender as a lump sum, monthly advance, or credit line, or a combination of all three.  Reverse mortgages can be expensive, so the decision to acquire one must be weighed carefully against other options.  This program is ideal for seniors whose homes are their greatest asset and for those who have limited investments in employer retirement plans, individual retirement accounts (IRAs), pensions, or other investment vehicles. 
     They go on to say that if you are considering a reverse mortgage, you should be expecting to live in your home for many more years.  Should you need to relocate sooner than anticipated, you will incur the reverse mortgage fees and interest without enjoying much benefit from the loan as that reverse mortgage is payable when your home is no longer your principal residence --- upon the last surviving homeowners death, when you sell the home, or if you have not occupied the home for 12 months.  At that time, the loan balance or market value of the property, whichever is less, will be due.  Usually, the loan (including fees and interest charges) is repaid through the sale of the property, although selling the property is not required.  If there are sales proceeds after loan repayment, the amount belongs to you or your estate. 
     The total cost of a reverse mortgage can be significant.  Interest rates are typically adjustable and are often higher than those on conventional mortgages.  Also, the amount owed on a reverse mortgage generally grows over time - interest is charged on the outstanding balance and added to the amount you owe each month.  Additionally, you are still responsible for paying real estate taxes and homeowners insurance while you live in the house.  There is a great deal of information available on the Federal Trade Commission's web site at www.ftc.gov .  Good luck Mom!

SHORT SALES...WHAT ARE THEY AND WHAT'S IN IT FOR YOU?

WHAT IS A "SHORT SALE"?  Short sales occur when sellers are "short" the amount they owe their lender (banks in most cases) and the home is sold for less than the unpaid mortgage balance, with the debt forgiven or negotiated.  The lender ultimately determines how much they will accept for the property and this process can take a long time.  These sales are not always great bargains.  A Buyer usually takes possession in an "as is" condition with few if any inspection contingencies.  It can take weeks and weeks for a bank to sift through any and all offers submitted on a short sale property.  Sellers who wish to offer their property up for a short sale must follow a very specific path with their Lender in order for a short sale to take place.  They must write a detailed letter to their Lender proving that they are under financial duress and cannot make their payments long term.  This involves disclosing your entire financial situation and showing documented proof that you are unable to make any other financial concessions in order to get out from under this duress.  There are other ways to handle this type of situation such as re-negotiating your loan with your current lender, liquidate other assets etc.  The short sale is fraught with twists and turns and can be a very tedious process but may be the only way out for some. 

MONTHLY HOUSING DATA IS IN - I HAVE GOOD NEWS AND BAD NEWS

OK, first the BAD NEWS.  Sales of new homes fell in February for the fourth straight month to a 13-year low according to the Commerce Dept.!!!  New home sales dropped 1.8% last month to a seasonally adjusted annual rate of 590,000 units, the slowest sales pace since February 1995.  Sales dropped the most in the Northeast, falling by 40.6%, WOW!!  The median home price (half sold for more and half sold for less) sold last month dropped to $244,100, down 2.7% from a year ago.  This of course is a National statistic and is not necessarily reflective of what's going on in our market.  The Case-Shiller index of home prices fell nearly 11% in January from a year ago, the biggest year-over-year decline in the history of the index.  Rehoboth Beach, Dewey Beach, Bethany Beach and Lewes Beach activity accounts for a large percentage of Sussex County sales and typically is somewhat insulated from huge swings in real estate prices.  The national number of unsold homes on the market at the end of the month represented a 9.8 months' supply at the February sales pace.  That is the highest inventory level in more than 26 years and reflects the fact that increased numbers of mortgage foreclosures are being dumped on the market.  Again, we are feeling this phenomenon in the Western part of Sussex County, but not too much near the beaches.  Sussex County is actually carrying a 29 month inventory using YTD 2008 sales rates.

Now for the GOOD NEWS....existing home sales rose in February after falling for 6 straight months.  Home sales were up in February 2.9% over January but still down 23.8% from a year ago.  I believe this is due to the fact that Sellers are finally realizing that they have to reduce prices in order to compete with the glut of new construction properties.  I have handled 5 transaction sides since the beginning of the year, and all have been new construction purchases.  Heck, why not get a brand new home for the same price (or less) than an existing home.  Many Seller have been reticent to lower their price because they don't want to loose money (or in a lot of cases, make less).  But guess what, if you have to sell, your first loss is usually your best loss.  I know people that wish they had taken what appeared to be a ridiculous price a year ago because now it looks comparatively good.  Hopefully this good news won't spur a new wave of new construction price cuts (although if you're a buyer this is a good thing) but since the sales of existing homes fell by 12.7% in 2007 (the biggest decline in 25 years), this is hope that things have bottomed out for existing home sales. 

FED RATE CUTS & YOUR MORTGAGE INTEREST RATE

I've had several clients tell me lately "I'll apply for my loan later, the Fed is going to cut interest rates again and I'll get a lower mortgage rate"  WRONG!!  When the Fed cuts rates, they are cutting what's referred to as "The Fed Funds Rate" which is the rate banks charge one another for overnight loans which keep their balance sheets in line with institutional requirements.  These rates affect primarily auto loans, credit cards and home equity loans.  Mortgage rates are directly affected by what's called Mortgage Backed Securities (MBS) which are bonds issued by Government Sponsored Entities (GSE) like Fannie Mae and Freddie Mac.  How these bonds are traded is what determines mortgage interest rates.  I found the best explanation of this process on the First Atlantic Mortgage Services web site called "The Truth About Fed Rate Cuts".  Here's how it works:  GSEs securitize large pools of mortgages from lenders and then sell those securities to investors.  The purchase of these mortgage backed securities provides the funds that the lenders will use to make loans to their  future mortgage borrowers.

They continue by saying that inflation will always be a negative for any long-term bond because it eats away at the future returns.  They give an example of a pension fund that decides to purchase a bond with a 6% fixed rate of return.  With the cost of everything going up, theoretically inflation could be at 4%.  Now that 6% bond is only going to return a net 2% after inflation.  As the Fed pumps more money into the economy by lowering rates, the inflation fires are fanned.  At this point, investors start pulling their money out of bonds and into the stock market in order to get a better inflation adjusted return.  This forces bond traders to reduce the selling price of a bond and raise the interest rate, or "yield", a bond will pay in an effort to get those investors to come back.  The money to pay those higher yields has to come from somewhere so guess what, you pay a higher mortgage rate.  Conversely, when the Fed raises rates, bond investors know this will help reduce inflation so they bail out of stocks and put those dollars back into bonds.  So you can see why mortgage rates have been so fluctuated so much lately due to the extreme volatility in the stock and bond markets.  So remember, usually what's good for stocks is bad for bonds and mortgage rates.  Timing is everything so plan accordingly.  Go to their website to find out more....click here