Tag Archives: First-Time Buyer Tax Credit

April 2011 Colorado Springs Real Estate Market Report

How about that for an SEO Title?

April continued the trend of “we don’t know anything” from one month to the next. In January, sales were lousy, but price was decent. In February, sales were again lousy, as in really lousy, but price was outstanding. Additionally, listing volume continued to be lower than expected. Then came March. March had pricing go down to where it was in January (sigh) but saw a 7% increase in closings over the tax-credit fueled March 2010 (hurrah!).

In other words, predicting the market is like predicting when it will snow next in Colorado. Good luck.

Here is the info:

 

April 2011 Stat Pack

On a side note… April marks the Five Year Anniversary of the Stat Pack. I was either the first real estate goober to start obsessively tracking the market (be glad my blog wasn’t around for my 13 page July 2007 edition…) or the last one of the first adopters still standing, but I do not think there is a market report with 60 consecutive months and four consecutive annual reports worth of real estate data tracking the local marketplace. Not to say that term of length makes this any more relevant, just saying. I’m happy this project has gone on five years. Thanks for reading it.

 

Will the Tax Credit be revived?

Jay Thompson, Real Estate Blogging Rockstar has a brilliant (as usual) post today. Jay asked the question “Will the Homebuyer tax credit return? Should it?”

It might surprise some that I don’t think it should. I am for select government intervention. I am for select forms of stimulus. I am for bread on my own table. But I don’t think the tax credit is the right route for aiding the recently sorrowful market.

In our market, the first wave of the credit did draw down inventories beautifully. We had active listing inventories down to a number within 1% of January 1, 2006 on January 1, 2010. But since that time we’ve had a 53% increase in listings. The first wave worked; the 2nd wave created a false excitement / illusion of success that undid all the good of the first wave.

The credit here essentially worked too well. It gave sellers the perception that selling was easy again, or at least getting easy. Because the market had returned to balance (we were at just over 6 months of inventory January 1st) sellers voluntarily came rushing back into the market who had sat on the sideline, that “other shadow inventory”. Some of this was logical: the chance of a seller successfully selling was 47% in 2007 and 2008 in our market. Last year ended at 53.6%. That isn’t a 6.6% gain… that’s a 14% gain in probability. Last year’s uptick in probability of sale must be seen as the motivation behind so many sellers electing to return to the market this year. But now… through July of this year, the odds of a home selling were at only 44%. The tax credit can be applauded for the first improvement and ridiculed for the later developments.

Giving people cash doesn’t help them make good decisions. The savings on a $200,000 loan at 4.25% versus 5.25% are $43,000 over the life of a 30 year loan; in other words, the mortgage market today provides a buying opportunity that is significantly better than last year. The value of 30 year interest savings if 5 times that of the tax credit. The monthly payment difference is 8 – 11% lower now than it was one year ago. There is more inventory to choose from. But it is so much easier for a consumer to think short-term and “get $8000 with tax return”.

One of the major costs of market tinkering is the sacrifice of trust and good will. NAR lobbied relentlessly for the tax credits (including requests for the tax credit to be $15,000, not $8000) and real estate agents and mortgage brokers insisted that rates would skyrocket later this year once the Feds stopped buying treasuries. “Better lock in now, because rates will be at 6% by year’s end” stimulated the March/April rush on the market, the premature buying panic that got people in a.) under the tax credit deadline but also b.) ahead of the presumed upward trend on interest rates. Well rates today are six tenths of a percent LOWER, not higher than they were in the Spring. I tremble to think what future goodwill could be traded for more short-term spikes in sales due to renewed lobbying efforts. It is all reminiscent of “buy now or be priced out of the market forever”, another notorious industry statement from 2005.

A concerted effort among brokers to properly educate their clients and consumers on home-ownership and personal finance WILL NOT remedy the market quickly (because that’s all we’re interested in these days, isn’t it, the quick fix?); but it would go great lengths to helping the market make a durable and sustainable recovery. It would help restore some semblance of professionalism. It would increase the individual broker’s permission asset. We can look to the outside for help… or alternately… we in the biz can be the help ourselves.

Each month when I publish the Stat Pack, I start with “The Rules”. The Rules…don’t…change. Here they are:

LOCATION, LOCATION, LOCATION
MONEY IS MADE ON THE BUY
SELLERS SET ASKING PRICES; BUYERS DETERMINE VALUE
BUYERS BUY VALUE
THOSE WITH POWER HAVE FEW NEEDS. THOSE WITH NEEDS HAVE LITTLE POWER
THE HARDEST THING TO GAIN IS TRUST; THE EASIEST THING TO LOSE IS TRUST
REPUTATION AND ETHICS ARE VALUE-ENHANCING ATTRIBUTES
THE BEST NEGOTIATING POSITION: WINS

Mmm...Devil's Food.

A new tax credit doesn’t necessarily violate the rules… but you’re supposed to eat your dinner before your cake, and the tax credit is just the butter-cream icing on top of the cake. Better butter-cream doesn’t make anyone, or anything, any healthier.

Market Report July 2010 (Mid-Year Stat Pack

Click For July 2010 Stat Pack

The First-Time Buyer Tax Credit perhaps worked too well: it fueled a sequel that provided both excess optimism and (later) damaging conditions that reversed much of the good accomplished. The intent and purpose of the tax credit was to activate the most easily activated segment of consumers (people who didn’t own homes, but aspired to own one) and convert them to homeowners. In the process, they would draw down the record inventory of homes, buy up and fix up bank-owned and distress-sale residences and help the market find equilibrium. A stable housing market would trickle to other segments of the economy and eventually stem the tide of the Great Recession. After November 30th, when the first version was to have expired, there were only 4301 listings for sale.  Despite the dreadful beginning to 2009’s sale year, the calendar year ended up 400+ units in sales,  and with 794 sales in November, the market had actually moved past equilibrium to a seller’s market: an equally-beneficial market is considered to be sitting at six months of supply, and November ended with a mere 5.4 months.
Today, during what is supposed to be the peak demand season of mid-summer, inventory is at 6.4 months. Last year at this time it was at 5.9 months. This is not a huge change, but it presents a serious problem looming ahead. This is shown in the first graph on Page 2, Single Family Home Comparison: in May and June of this year, the bottom fell out of the pending sales (ready to close escrow contracts) indexes once the second wave of tax-credit fever expired. In March and April, 1477 sales went to a pending status. In May and June, when the market demand should still be accelerating, only 1067 went to pending. In May and June last year there were 1360 pending sales. Instead of peak demand numbers in July, when they normally occur, it is fair to assume this year that July will be 10 to 25% off the pace it was at last year.
The real problem with a 10 to 25% downturn in volume is that it convinced a fair number of sellers (and agents) that homes were easy to sell again. What followed was the largest six month run-up in inventory in the PPAR MLS history: a 51% increase in only six months, and today 2000 more properties populate the MLS than started the year. With a 15% increase looming and a 10 to 25% decrease running the other direction, the market enters the second half of the year once again out of balance.

How to HUD. Learn from my Pain.

Sigh… I just sent an “Everyone” email that was worth re-printing.

Learn from my pain. This information is saved on the network directory, but you might want to print this out and save it. Since I’ve done a few HUD deals lately, my reputation has leaked out and I have been getting a lot of calls from other agents. This will hopefully prevent you from having to call me, in a panic, while you have your buyer standing there and you’re trying to submit a bid or complete a contract.

·         First, show HUD homes. They’re a pain in the butt contract-wise, but they’re pretty amazing deals. Go through the pain and you shall get referrals from your appreciative clients.

·         Second, advise your clients that they are a royal pain, but you’re willing to give it a go. Tell them before you ever show them one that if they buy it, they will have a much more labor-intensive escrow period filled with lots of uncertainty. For instance, it might be 3 to 5 weeks before you even inspect the thing.

·         Third, get a HUD key. If you don’t want to buy one for $2 from Bruce Betts, go downtown to Henley’s. There is no reason not to spend less than $10 and have a tool that lets you open up some of the best buys in the city. Mine is not available because it is attached to my car keys. Sorry to be blunt, but it you have an RSC key, and in a market like this one, you need to have one eye on opportunity and another eye on doing something remarkable for your clients. This tiny investment lets you do both.

·         Fourth, only work with lenders and inspectors that are top notch. Sorry if they’re expensive and your buyers are poor. The houses are listed cheap and have $100 move in options. Opportunity requires a little cash here and there. I make some comments later about only using experienced lenders, and you might be an inexperienced broker in doing a HUD sale. Trust me when I say: the burden is on the lender. As long as you are proactive with your communication, you can fix almost anything. Plan for the worst (especially on an inspection, over, over, over inspect) and surround yourself with pros.

·         Fifth, remember the purpose of HUD sales is liquidation. Yes, the highest and best net offer wins, but also, these are being liquidated from HUD’s books. If it was easy, everyone would do it.

The essentials

Our Broker EIN

________. This is 8 numbers.

SAMS NAID

__________. This is six letters and 4 numbers.

MCBREO.com is where to find HUD homes in CO

http://www.MCBREO.com is where all HUD homes are listed; all forms are available; all contact information is provided; all offers are submitted; all winning bid history is saved.

Don’t even bother trying to have a correspondence with HUD about buyer names and property addresses. The 10 digit HUD Case number is required on all documents.

Do not submit a bid until you have your buyers’ social security numbers (both), phone numbers, address information and dates of birth. HUD doesn’t like to sell more than one home to a person. They need this at the time of bid.

HUD only cares about net dollars. A likely winning bid is full asking price, 3% in closing costs and a 3% commission. You can get up to a 5% commission, but you’re playing roulette with your buyer: if you ask for a 5% commission and 2% in closing costs, you’ll lose to someone who goes 3 & 3%. Please note: HUD doesn’t pay for title insurance. So when you are getting your GFE, that thing we all complain about on the new 2010 GFE’s where it shows the title insurance as a buyer expense? It is CORRECT AND APPLICABLE for HUD Homes. The buyers pay that expense. Tack on an extra grand in closing costs and have the GFE in hand BEFORE you submit a bid.

You MUST HAVE The Owner/Broker’s ORIGINAL (that means blue ink folks) signature on any offer submitted. In the event of Broker absence, you need a Designee’s signature accompanied with a photocopy of the letter authorizing Designee’s ORIGINAL signature. Maybe they accepted the stamp in the past, they were being nice. They’re not being nice anymore.

You can buy owner-occupied homes via an FHA loan for only $100 down. It must be exactly full price to do this. You can go over asking price, but every dollar you go over is tacked on to the $100 move-in rate. So if you’re in an obvious bidding war and go $3000 over, that’s a $3100 move-in. Not bad, but not $100. If you offer a dollar less than full price it is 3.5% down. The $100 move in does not apply to investor purchases. HUD is in the business of homeownership and apparently good neighbors. They give preferential treatment to primary residents, and then good neighbors get even better treatment (many, many restrictions, but 50% off of appraised value if bought in first week to teachers, first-responders in designated “improvement areas”). All HUD homes are FHA loan eligible. That does not mean FHA-condition compliant. They probably have leaking gutters, bad drainage, blown up furnaces, peeling paint, etc. But they are already pre-appraised so that is not an expense to buyer, and the appraisal takes on market conditions and then applies anything from a 10 to 20% discount to that value.

When you win your bid, you have two business days to get everything personally delivered or Fed Ex’ed to Glendale, CO. Get ready to scramble. You need original signatures on everything and there are a lot of signatures. The contact and the owner occupancy addendum always require original signatures, they will usually accept fax or email scans of correction addenda or supplementary documentation.

When someone sends a correction request, only submit that correction request to the person making the request. Always reference the HUD Case number.

If you don’t know what to do about a repair escrow or 203K financing, call MCBREO.

Earnest Money checks must be good funds (cashier’s check or money order) made payable to HUD. It used to be advisable to have them made out to the buyers so they could then endorse them over to HUD or the title company setting up the escrow. At least at this writing, they won’t even accept an endorsed good funds check, it must say “HUD” on the check. When you submit paperwork on an offer, do not include the earnest money check. Submit a copy. When they accept the offer and you get that joyous fax after one or two correction requests, two Fed Exes, a panicked email and three phone calls trying to track down Louise… only then do you Fed Ex (yep, that’s 3) the check to HUD.

Budget $750 for an inspection. You will have to have the utilities turned on and probably you the agent get to pay for those as a supplement to your home residence utility bill. CSU is great with this, the other utility providers, eh… not so much. It confuses the heck out of them. In addition to that, the property is probably winterized. You will need to do an air pressure test of the plumbing system from a licensed plumber. I’ve been down the bad road on this. Be careful who your plumber is. The one I’m working on needs a new furnace and has a $3850 repair escrow. We need to make sure $3850 will cover a new furnace. So on this one we have a general home inspection; utility turn on and off; plumber inspection; HVAC inspection. We’re getting close to $750. You will also have to have the home inspected by a home inspector. HUD will not correct a thing. I repeat, HUD doesn’t care what you find, that’s why they priced it the way they did. If you don’t want the property, don’t buy it. They’re happy to lower the price and put it back on for someone else.

HUD transactions must close within 45 days of HUD’s contract acceptance.

Today is May 19, 2010. We are in the escrow period between the tax credit deadlines. They are giving priority treatment to all contracts written before April 30th so they can close before June 30th. If you wrote/write an offer after May 1, get in line. It is one to 3 weeks until they will let you know of their recent, any corrections, or sign the contract. Make sure your lender locks are on a 60 day schedule.

Never, ever, ever use a lender that has not done a HUD deal “recently”, at least in the last year. There are so many moving parts to all HUD transactions, that the last thing your buyers need/want is to miss out on a great deal (they are often exceptional, especially on a $100 move-in) due to lender unfamiliarity/incompetency. I meant to use that last word in a very broad sense. If a lender says “we’ll figure it out”, go elsewhere. Starkey has been very good with these as well, but Jim’s gov’t processor has been excellent as well. They need systems out the wazoo… and  a sense of humor.

Lastly, HUD will come to the office to close. They have two different title companies out of Denver that close the deals, both have mobile closers that will come here for the closing. Bruce Betts will probably not be informed of the closing for weeks, so when you close, remove the sign, place against the property in the sideyard and fax or email Bruce something from the closing indicating that it is closed, you sold it, your MLS number, and please remove the sign. Bruce’s office has next to no information on these properties, why they come back on market, what their room sizes are, etc. and that’s not his fault or his office’s. He’s just the lucky guy who gets to put them in the MLS and place a sign on them. His office doesn’t know much, but that doesn’t mean that they try and be unhelpful. The same can be said for MCBREO. They always drive me nuts, but understand, they’re enforcing rules and regs that apply to all 50 states and have a hierarchy of priority that probably leaves your client behind somewhere. They don’t mean to offend or be difficult, they have a rough job. Give ‘em a break and it’s amazing how much smoother things will run.

After the Tax Credit. What now?

The first listing I sold was 1620 N. Nevada in March, 2000. After pricing the house at $325,000, I looked up the public record to see what the seller paid for it back in 1989: $88,000. 370% appreciation in 11 years!

A present downtown listing

Was that lovely 1898 Victorian Grand House shiny and new in 2000? Or was the value of that property something established by something fundamental? Examples: there are photos of it in the Pioneer’s Museum; Old North End dirt has been considered valuable for 125 years. Why is that house now today probably worth $500,000? Hint: it has nothing to do with the kitchen counters!

I predicted that the market would hit 9200 sales this year. That is exactly the pace the market is on. But I no longer think the market will hit that number. Statistically, fewer homes sold the first four months of 2010 then in 2008. Anyone care to remember the real estate bliss of 2008? I had a moderately bullish forecast in January due to supply and demand trends that no longer exist. The market is better now than it was in 2008 or 2009: but those were lousy years. Comparative analysis requires thoughtful honesty. If the market was actually “improved”, the market would have less than 6 months inventory right now which would catalyze summertime appreciation. It is at 6.5 months despite a massive 1500+ under contract properties. With the 31% increase in listings year to date, it might not get below 6 months this year . More at The Stat Pack.

I financially benefited from the tax credit. This has personally been one of my most successful years in the business. Yet it has also been the most puzzling. 1.) A great number of the listings that soared onto the market this spring were trying to capitalize (too late) on the move-up tax credit. Will these people stay on the market without a $6500 government incentive? 2.) Shiny and new is always popular, but it is also always depreciating. Why oh why is there a 15 month supply of housing of pre-1950 housing $200,000 and up downtown, while there is only a 5.5 month supply of housing of 1998 or newer over $200,000 in Powers? Yes, there are more buyers for properties in PWR than CEN, but we’re comparing 77 active listings downtown to 275 in PWR, and still there is 1/3rd the months of inventory out east? Consumers are habituated to buying disposable things, like a flat screen TV, a Starbucks, or a car with a loan. This behavior seems to be alive in real estate purchasing. I am guessing that the “sale” aspect of the tax credit encouraged it.

The real value of buying in 2010 is to leverage REMARKABLE. Prices went down for 3 years. Buying power is  25% better than it was in 2007 when you account for pricing drops and money leverage. This opens up a lot of 1620 N. Nevada scenarios for a lot of people.

Location is the first and greatest real estate fundamental. Prime location areas have not sold well year to date. It’s not just Broadmoor and upper Peregrine, but downtown, Manitou, Old Colorado City and places where the value is in the dirt.

If you are choosing to sell or buy, qualify your “WHY.” Why are you doing this?  If you are selling and can seize other opportunities, then get it over with. If you are buying, what’s the most remarkable area you can afford?

Real estate isn’t fair; never is, never was. Removing the carrot from before the horse helps consumers more honestly assess their wants and needs.

Claim the First Time Buyer Tax Credit with IRS Form 5405

And hope that the estimated four-month wait period is shorter than presently indicated!

www.irs.gov/pub/irs-pdf/f5405.pdf

Right now, the IRS is requiring all who claim the credit to mail in their returns (no e-file) and to expect a 4 month delay.

More people took advantage of the credit than planned and there was also some pretty horrible fraud. There are cases of individuals who were first-time buyers over 100 times in 2009. Talk about “duh factor”… in any event, the IRS is still going ahead with the credits, you can get the credit, you can amend previous year’s returns… you just have to wait awhile since they are demanding:

  1. Prove it
  2. Earn it.