Tag Archives: Tax Credit

Mid-Year Review: July 2011 Market Stats

Click Here for Mid-Year Review Market Report

The Summer Viewing at Pikes Peak Urban Living is on the cat fight between two market metrics: Average Sales Price and Months of Inventory.

Months of Inventory is a handy-dandy metric to forecast, predict or… guess… what the market will do next. The barometer that has traditionally held sway is a 6 month supply of housing equals a neutral market. Get below six months and stay there and the market should see appreciation and increased seller-control. Go above six months, and that much to choose from sways control to buyers and prices drop. The majority of the last four years have been in excess of 6 months with a few brief months in 2009 under 6 months supply. July 1 showed a reading of 5.5 months. After three previous months from 5.9 to 6.1 months of inventory, that should be a predictor of prices going up.

Yet they haven’t done that.

Average price year to date is off 4% from a year ago. A lot of this was the post-tax-credit malaise that wrecked the market last spring. REALTORS went from running their engines at 110% in April to idling them in May, and never really getting them out of neutral the rest of the year. This year has been somewhat spastic, but overall, prices are steady to down then they’re showing appreciation.

Most everyone has an easier time understanding what has happened as opposed to grasping at what might happen, and correspondingly average price gets a lot of press. But as I spoke about last week, the relationship between units for sale and units sold is pointing to possible to likely improvements. The market has crested in inventory and is in the six to seven month cycle of fewer, not greater listings. There will be new listings each month, but not at the rate that they were before, and many good new listings will be recognized more readily as valuable by active buyers because buyers operating in the second half of summer and early fall generally have to make quick decisions. These are general conditions that don’t always hold, but with fewer than 4800 listings for sale, and two more months under 6 month’s supply likely… it will be interesting to see what happens to pricing over the next six months.

To see the active market numbers, Click Here for the Stat Pack.

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.

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.

Colorado Springs Real Estate Market Data March 2010

The Stat Pack is sizzling hot HERE.

Silver Bullets are good for killing werewolves. Not much else.

Save your silver bullets for John Landis movies...

Ask anyone in the real estate industry and they have a buyer who is sending them scared-stiff links that “prove” the real estate recovery is not happening like everyone says it is. Some gloomy desk-jockey-number-cruncher is usually quoted with a gloom and doom rubric “5 million more foreclosures” and “21% of American’s underwater” and “it’s now moving to prime mortgages.” The agent response to this phone call or email is usually just as incendiary… they sometimes reply with back issues of the Stat Pack as an attachment. Clashing gospels and dueling clanging gongs creates quite a racket.
The reality is that the economy is a giant gumbo of variables. Within 36 hours this week, all of the following were headlines: Colorado Jobs numbers much worse than expected; National Jobs numbers beat predictions; stock market near 18 month high; mortgage rates expected to rise as Treasuries stops buying servicing; mortgage rates at low for the calendar year; auto sales down 2%; retails sales unexpectedly up; nation’s consumer confidence goes down. Broncos have had a good week for free agents and the Rockies bench is looking pretty deep this year, too. All of these are true. None of these mean a thing on their own.
WHAT MATTERS NOW:
1.) Leverage: The most counter-intuitive aspect of the market, interest rates are staying below 5%. No analyst can say exactly why, everyone merely ventures a best guess. Most everyone is scratching their heads as to why they’re not going up. The Federal Government has been the wholesale market for treasury-backed securities, longhand for saying, they’ve bought the servicing rights on Fannie/Freddie mortgages for the better part of the last year. So if you’ve seen complaints about why the underwriting on mortgages got nutty, that’s a prominent clue as to why: the government put a trillion dollars of skin in the game on that one… Go figure they would prefer tighter appraisals. That treasury-backed securities practice has a budget that is probably out of gas around the first-of-April. After that… it’s back to the same private money that previously was buying servicing left-and-right up until mid-2008 when they saw the crisis about to break. The thinking on the street is that private money will be hesitant (to put it mildly) to buy servicing rights. Never mind that today’s mortgage has higher costs of origination, higher appraisal standards, higher consumer intelligence and 20 pages of additional disclosures attached to it making it one of the safest and best documented forms of paper wealth in America; these banks have been burned before and are expected to be either cautious or complete non-participants. The investment angle for banks is that they 1.) could make them a lot of money in the long-term based on the few players likely to play and 2.) make their shareholders jittery over the next 90 days and drive their stock value down in the short-term. Can you see the morass mortgages are? The bottomline: they’re low now! They may be going up, but they’ve rarely, in their American history, been lower (within 0.15% of the all-time bottom at this writing). Seasonal demand usually creeps them up in May and June anyhow, so a lock now is not a bad thing. Buying power right now (a.k.a. leverage) is almost unprecedented.
2.) Location: Where a home is greatly influences the value. Relocating buyers (#3 on this list) tend to prefer newer construction and so do the raised on Hi-Def & Wi-Fi generation of buyers. But values have held up well in the foothills. Year to date sales in some of the older areas have been abysmal. After a strong end to 2009, downtown has started off very weak. That might change as the more traditional downtown buyer begins to appear with the pedestrian-friendly, warmer months ahead. The months on market numbers vary wildly from neighborhood to neighborhood. Sellers, you can’t take chances if you have a year of inventory. No one’s going to pay near your price if that’s the case. Buyers… do you really want to buy where you’ll be surrounded by for-sale signs for another year?
3.) Relocation: the biggest drag on the Colorado Springs market has been the national market. Somewhere Else, USA used to be the friend of the Colorado Springs seller. The Pentagon-based Air Force Lt. Col. usually had made $100,000 in 3 years and sold their house with multiple offers. They could come west and buy pretty much whatever they wanted. With the onset of the market downturn nationwide in 2007, our market correction (which began in early 2006) deepened significantly. Reliant on the infusion of wealth from other markets, our over $350,000 market has suffered. Well strangely, of the 5 price-brackets to seen an increase in sales the last 90 days over the previous 90-day track (Nov. to Jan.), all of them were above $325,000. Some of that is local, but some of that is also the effect of other markets around the country having bottomed out as well, and their buyers are now able to buy here.
In closing, March 2010 dawns with more promise and hope then March, 2009. Hard not to. It remains a market of opportunity. Whenever there is opportunity, that means there is risk somewhere. Make your decisions wisely.

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.

2009 End of Year Market Report

Updated Market Data

The 2009 Sales Year ended dramatically different than it began.

January was the depths of doom and gloom, lots of listings, lots of fear, skyrocketing job losses, Wall Street hemorrhaging.

Now, we’re back to worrying about Simon Cowel leaving Idol and “shocked” at the admission Mark McGwire used steroids. In other words, the economy is no longer a paramount concern.

But housing is. Last year, 62% of first-time buyers purchased a home because they had strong sentiments about home ownership. The good value rationale was sited as the number one reason among only one in ten respondents to the National Association of REALTOR’s Profile of Home Buyer’s and Sellers.

Locally, this bore itself out with a dramatic shift in the marketplace. The under $250,000 market improved throughout the year, while the $250,000 to $325,000 market made headway… and above $400,000, things actually got worse. Right now, 38% of all listings are over $300,000. Yet only 16% of all sales in 2009 were over $300,000.

Read more at Colorado Springs market leader in real estate information you can use, THE STAT PACK!

Move-Up Tax Credit Passes the House: How about 4990 E. Cliff Point Circle?

The Move-Up Tax Credit has passed the House of Representatives today after passing the Senate yesterday. Both passed overwhelmingly, with strong bi-partisan support.

The new move-up tax credit allows individuals that have owned their home for five out of the last eight years to obtain a $6500 tax credit if they contract for a new home (under $800,000) by April 30th. Income restrictions have been raised, so that single individuals can make up to $125,000 and married couples up to $225,000 (the credit is $3200 for those filing individually or separately).

May I suggest… 4990 E. Cliff Point Circle, Colorado Springs, CO 80919.

This 5400 square foot home is the envy of more expensive homes in lesser neighborhoods. Lutron Lighting, Dacor Oven and Microwave, Slab Granite Counters, Hickory Cabinets. Photos’s don’t lie.