Lennox's Real Estate Blog

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Archive for the ‘Tax Credit’ Category

Puget Sound Housing Report 2010/2011

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Let’s start by reviewing what took place in the 2010 Puget Sound residential real estate market. Last year experienced a “surge/unsurge” with sales surging in first quarter thanks to historically low-interest rates and the Federal Home Buyer Tax Credit. But when the tax credit expired on April 30th, 2010, home sales took a dramatic drop.

Sales remained sluggish, but as the year progressed, inventory levels began to lower. By the end of 2010 the three-county area of King, Snohomish, and Pierce reported Read the rest of this entry »

Written by Lennox

February 22, 2011 at 1:16 pm

First Time Buyers Are Key To Housing Market Recovery

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*This is a reposting to correct a graph within the blog.

The mid-term elections are finally over so it’s time to re-focus on the economy and housing market. In my travels around the country everyone wants to know what I think it will take to get the housing market moving again. The answer is simple: first time homebuyers. Read the rest of this entry »

Written by Lennox

November 19, 2010 at 11:52 am

Talking Real Estate With Seattle Rotary

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On October 13, I had the immense honor of addressing the Seattle Rotary Club as a part of their weekly luncheon program.  This club is the largest in the world with 675 members, as well as the fourth oldest, founded in 1909. The last time I spoke to this esteemed audience I discussed technology and its impact on the real estate business. This time, I was asked to address the state of the residential real estate market – past, present, and future. The club was kind enough to record my presentation – which I will post below (entire presentation is broken out into 3 parts). A special thanks to Phil Smart for his witty commentary at the end of the Q & A – leave it to Phil to end it all on a high (and humorous) note.

As always, thanks for reading,

Lennox

 

Written by Lennox

October 17, 2010 at 10:39 pm

The Road To A Sustainable Housing Market

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The highly anticipated restoration of the USDA’s single-family rural housing program that guarantees home loans for rural buyers was passed by the Senate on July 28 and is on its way to President Obama’s desk for signature. With the support of its members, the National Association of REALTORS® has vigorously lobbied to restore funding for the rural program since last March, and hailed this development as a great victory for rural home buyers.

I couldn’t agree more.

But before I go into why I support this legislation, I’d like to provide a little background on the USDA’s Single-Family Housing Guaranteed Loan Program and why I believe it can serve as a successful model for a much needed urban down-payment assistance program.

According to Wikipedia, the United States Department of Agriculture was established by President Abraham Lincoln on May 15, 1862 in order to help out the United States economy. Through Federal funding, its purpose was the collection of agricultural statistics and other agricultural purposes; President Lincoln called it the “people’s department.” For many years, the Department of Agriculture was crucial to providing concerned persons with the assistance they needed to make it through difficult periods, such as the Great Depression; this included loans for rural landowners.

Fast forward 148 years and what we have now is a robust program that in 2009 provided over 140,000 loans and $16.6 billion in grants to achieve homeownership and improve housing in rural areas. They also funded $11.2 billion for direct and guaranteed single-family housing loans to provide additional credit for affordable home loans. USDA loans used to be considered “farmers’ loans” but that is no longer the case. Rural America is home to about 50 million people, but only 6.5 percent of the rural work-force is directly employed in farm production. This means that USDA must support not only the farms, but also the communities that surround and support them.

In 2009, the USDA enacted changes that provided assistance to millions of homebuyers who did not have the down-payment funds required by conventional loan programs. USDA loans currently stand alone as the only zero-money-down program available to borrowers who have not served in the military. And like their conventional counterparts, the USDA program adheres to strict underwriting standards, assessing each borrower’s credit, income, and cash flow. As a result, the agency’s portfolio of loans has a low default and delinquency rate of 1.72% (compared to a 2%- 5% default rate for conventional loans and 15% for subprime).

Earlier this year, the USDA exhausted its $13.1 billion funding, leaving many qualified homebuyers with few-to-no financing options and putting a squeeze on our nation’s economy. Thankfully, the Federal Government recognized this fact and responded by passing legislation that increases the Rural Housing Service (RHS) commitment authority allowing guaranteed loans. The RHS is expected to announce new guidelines shortly after the president signs the bill; one anticipated change is a higher “guarantee fee” of 3.5% that can be folded into the mortgage and will enable the program to be self-sufficient.  

Homeownership is historically an instrumental part of the U.S. economic engine, so it’s critical that we take measures to ensure that the housing market has a strong foundation for sustainability. I would argue that by creating a program similar to the USDA’s for city dwellers, there is the potential to bring in hundreds of thousands of homebuyers annually and billions of dollars in state and local taxes every year, as well as higher Federal Income Tax revenue (click here to read a detailed analysis).

The success of the USDA’s Single-Family Housing Guaranteed Loan Program proves that alternatives to conventional loan products can be successful and result in responsible, long-term homeownership with low delinquency rates.  Now is the time to expand the market and create a down payment assistance program for urban homebuyers who face similar challenges to their rural counterparts. Perhaps it could be called the United States Down Payment Assistance program—or USDPA. Has a certain ring to it, doesn’t it?

As always, thanks for reading.

Lennox

Written by Lennox

August 3, 2010 at 3:03 pm

The Key To Housing Sustainability

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With the expiration of the Federal Housing Tax Credit we must ensure a continual stabilization of the housing and building industries, the engine that has pulled the U.S. economy out of every recession over the last 60 years. The benefits of a strong housing market are many, but unless we ensure that responsible first time homebuyers have access to the American Dream, we will continue to see a slowdown in this sector. In order to avoid a downturn, and the subsequent economic fallout, we must establish a responsible Federal Down Payment Assistance program.

Click here to read a White Paper that outlines the benefits of an effective DPA Program.

Thanks for reading,

Lennox

Written by Lennox

June 30, 2010 at 10:57 am

Goodbye tax credit, hello purchase power

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Well, it was fun while it lasted. The -now expired- Federal Tax Credit provided people all over the U.S. with an extra compelling incentive to buy a home. This sales activity helped stimulate the housing market and the U.S. economy. So, the end result is that the tax credit did what it was designed to do. But all good things must come to an end, right? Well, kind of. The tax credit is no longer available, but interest rates have dropped, including on FHA loans which are down nearly half a point since May 1. That means buyers using an FHA loan to buy a $200,000 home will have nearly $9,000 more purchasing power.

The following illustrates this point:

5/1/2010 5/26/2010 Change
Interest Rate: 4.875% 4.500% -0.375%
Purchase Price: $200,000 $208,890 $8,890
Loan Amount: $193,000 $201,579 $8,579
Monthly Payment: $1,021 $1,021

Using this same scenario, buyers purchasing a $400,000 home using an FHA loan have close to $18,000 more purchasing power. In other words, for the same monthly payment, today’s buyer could purchase a home worth $18,000 more than they could have on May 1, 2010.

Who knows how long interest rates will remain this low, but for those looking to buy a home in the near future, this increase in purchase power could be their golden ticket. For specific guidelines and FHA loan limit amounts by state, please visit: http://www.fha.com/lending_limits.cfm

Lastly, here is a good article that recently ran in the Wall Street Journal about the dip in interest rates and what it means for homebuyers and the U.S. economy: Home Buyers Get Surprise Boost From Europe Crisis as Loans Drop to Below 5%

As always, thanks for reading,

Lennox

Written by Lennox

May 26, 2010 at 2:35 pm

Beyond The Tax Credit – What Now?

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With the Federal Home Buyer Tax Credit behind us, now it’s time to focus on the next phase of the housing market. I’ve had numerous people ask me, “what now”? So, here are my thoughts in a nutshell. The tax credit was a compelling call for action for those who took advantage of it. It also played a critical role in stimulating economic recovery. But the tax credit didn’t define the entire housing market. Even without the tax credit, the home buyer purchase power advantage remains high thanks to historically low interest rates and lower adjusted home prices.

Now it’s time to turn our attention to interest rates. Rates are currently hovering around 5% for a 30-year fixed-rate mortgage. But many economists are predicting that they will steadily rise to 6.5% by the end of 2011. As a buyer, it’s important to understand the impact that this can have on housing affordability. 

To simplify the math, I will defer to the National Association of REALTORS®, who state that for every 1 percentage point rise in interest rates, 300,000 to 400,000 less home sales take place. The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent. Here’s an example the Associated Press put together that demonstrates this concept:

“Taking out a 30-year mortgage for $300,000 at a rate of 5 percent will cost you about $1,600 a month, not including taxes and insurance. But the same monthly payment at a rate of 6 percent will only get you a loan of $270,000.”

Using this same example, you can also deduce that with a 1 point rise in interest rates, a buyer’s purchasing power reduces by $30,000 on a $300,000 loan.

What we’re seeing now is a bifurcated market in which the more affordable housing markets are experiencing relatively low inventory levels and strong sales in areas close to the job centers and large-scale businesses. In the upper end markets there are higher levels of inventory due to fewer sales. In the coming year, the more affordable markets will continue gaining strength, the mid price ranges should remain fairly stable, and the upper end will likely experience some minor downward price adjustments.

Evidence that economic growth is heading in the right direction came out in a recent report by the Commerce Department which stated that the GDP increased by 3.2% in the first quarter, fueled mostly by growth in consumer spending. Furthermore, in early April, the Labor Department reported that nonfarm payrolls increased by 162,000, which is the largest gain in three years.

The home buyer tax credit brought many buyers forward that would’ve normally bought in the months ahead, so we can expect to see a temporary dip in sales along with increased inventory levels in all price ranges for the next few months. But barring any unforeseeable events, the health of the housing market can be expected to steadily improve as consumers continue to regain confidence in the U.S. economy and the American Dream.  

*More affordable refers to homes priced at – or below – the median home price in a given market.

Written by Lennox

May 3, 2010 at 4:04 pm

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