A two pronged stopgap for real estate

by Dan Krell © 2009

Last week was indeed historic for events in Washington, DC. However, two important developments that directly affect real estate should be highlighted. You may have already heard that the home buyer tax credit was extended and expanded. However, you may not have heard that Fannie Mae announced another program to assist home owners facing foreclosure.

On Friday November 6th, the President signed HR 3548 into law which extends the home buyer tax credit through next year; home buyers must have a ratified contract for a principle residence (up to a purchase price of $800,000) by April 30th 2010 and close by June 30th 2010. A tax credit up to $8,000 will continue for first time home buyers who purchase their home before the sunset date; other home buyers who purchase their home before the deadline may be eligible to receive a tax credit up to $6,500. Home buyer income limits have also been increased to $125,000 for individuals and $225,000 for those filing joint returns (prorated amounts may be available for those who earn more than the stated limits). For additional qualifying information, please refer to the guidelines posted by the IRS (www.irs.gov/newsroom/article/0,,id=206293,00.html).

Additional good news came last week from the mortgage giant Fannie Mae, which issued a press release announcing the “Deed for lease” program. The “Deed for Lease” program is designed to assist struggling home owners to stay in their homes by allowing them to pay “market” rent. The program requires home owners facing foreclosure to give the home to their lender via a “deed in lieu of foreclosure” (also known as a friendly foreclosure).

The rental period for the “Deed for lease” program may be up to twelve months. The program may also be available for investment properties that are currently occupied by tenants. A rental application fee of $75 per unit is required. If the home is occupied by tenants who want to stay in the home, those tenants must cooperate with the property manager through the process. Any disruption of the process may result in disqualification from the program. Once initiated, the home owner may not be eligible for the ”Cash for Keys” program (a relocation assistance program for those who are forced to leave their homes). Eligibility requirements and further assistance can be obtained from your Fannie Mae servicer (www.efanniemae.com/sf/servicing/d4l/).

This two prong approach may stem further eroding residential real estate values, which may be due to foreclosures, by increasing demand while reducing inventory. Providing incentives to all home buyers will add additional home buying activity, while allowing home owners facing foreclosure stay in their homes may decrease the negative events associated with foreclosure, such as: lowering the number of displaced home owners who are forced to move, reducing the number of vacant homes; and decreasing the inventory of distressed properties that have the potential to lower neighborhood values.

Alone, programs such as these have drawn criticism pointing out statistics indicating that the money is wasted. However, increasing demand through incentives, while decreasing distressed property inventory may be the combination needed to hold off further eroding home values while strengthening the overall economy. Time will tell if the one-two punch is successful and if there is a need for further expansion of one or both of sides of the equation.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 9, 2009. Copyright © 2009 Dan Krell

Senate passes home buyer tax credit legislation


Yesterday (November 4th), the Senate passed legislation to extend and expand the home buyer tax credit. The $8,000 first time home buyer tax credit continues; AND adding a “move up” buyer tax credit of $6,500 (both to sunset April 30, 2010). The new legislation is certainly going to continue helping first time home buyers, as well as helping many move up home buyers who are struggling with their own liquidity.

Surely, many home buyers will take advantage of the tax credit to assist them in their purchases. Although there is a direct and immediate effect of the home buyer credit, many continue to debate its affects. Many have voiced their opinion about the pros and cons.

By Dan Krell
Copyright © 2009

Market stabilization or evidence of a two tier market?

two tier market
by Dan Krell &copy 2009

A tale of two markets

As signs of economic stabilization are being reported throughout the world, markets begin to show signs of activity. Global housing markets have also reported increased activity and signs of a stabilizing real estate market.

Julia Werdigier recently reported in a recent New York Times article (British Real Estate Market Seems to Be Thawing a Bit, August 4, 2009) that British home prices have increased 1.3% since the beginning of the year. Although this is still quite a difference from the almost 15% slide in UK home prices since 2007, it is sure a welcome statistic as the British expect home prices to end positively.

In China, ShaignhighDaily.com (August 11, 2009) reported that home prices across seventy Chinese cities increased one percent from the same time last year. Additionally, Chinese home prices have increased for five consecutive months after a six month slide.

Here in the United States, the National Association of Realtors (NAR) recently reported that the number of pending home sales continue to increase (a five month increase). This successive increase is the first since 2003. Signed real estate contracts increased 3.6% in June from May’s Pending Home Sales Index (PHSI) of 91.3 and 6.7% from June 2008’s PHSI of 88.7 (August 4, 2009).

Additionally, the S&P/Case-Shiller Home Price Index (StandardandPoors.com) showed signs of relief of downward pressure; however, home prices are reported to be at 2003 levels. Freddie Mac reported that its Conventional Mortgage Home Price Index (CMHPI) fell 5.3% in the first quarter of 2009 compared to the 18.4% decline in the fourth quarter of 2008.

NAR Chief Economist, Lawrence Yun, was quoted in the NAR press release as attributing increased activity to “historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines. Activity has been consistently much stronger for lower priced homes…” Dr. Yun also stated that many first time home buyers are acting to meet the November 30th deadline to qualify for an $8,000 tax credit.

Although the data may seem encouraging, the numbers may be telling the story of an emerging “two tier “market. A two tier market is a description used when prices vary significantly for seemingly similar homes; a closer look reveals that well kept and updated home owner resales fetch a higher price than the poorer condition distressed properties.

Because home owner resales typically peek in spring and summer months, we can expect the number of home owner resale listing to decrease as winter approaches. Combined with another expected wave of home foreclosures (from resetting adjustable rate mortgages and option arms), recent real estate market gains may be temporary.

Even the venerated Alan Greenspan recently warned on the August 2nd airing of “This Week With George Stephanopoulos” (ABC.com) that there may be a “second wave down” in home prices; stating that the real estate market has stabilized temporarily, and real estate data is very difficult to measure because the data is regional.

Much like last summer’s real estate market blip (where the NAR reported a five month high in home sales for July 2008), we may be headed into another downward winter market. However, any downturn will be temporary and further indication of a two tier market as home owner resales increase next spring and summer.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 10, 2009. Copyright © 2009 Dan Krell.

Market outlook: Banking on Bernanke

by Dan Krell (c) 2009.

Confused about where the real estate market is headed? So are the pros. Realistically, the outlook for the housing market depends upon your perspective.

If you are a home owner, the almost 30% reduction in home inventory since last spring is certainly welcome news; the idea of less competition makes home sellers more optimistic about their homes actually selling. However, because they would be upside down (owe more than the sale price) if they were to sell today, many homeowners continue to wait for a more favorable market. Believe it or not, some home buyers have been turned off by bidding wars sparked by the reduced inventories of many low priced distressed homes for sale.

If you are a home buyer, reports of reduced home prices as reported by the increasing Home Affordability Index (HAI) is also good news. The HAI was 166.8 in January- an all time high (the higher the index, the greater the affordability)! Lower home prices combined with low mortgage interest rates make the current housing market the most affordable since the National Association of Realtors began tracking housing affordability in 1970 (Realtor.org).

Although optimists look forward to increased sales in the third and fourth quarter of 2009 due to pent up demand, the future may depend on other mitigating factors as well. Concerns of further sliding home prices and the state of the overall economy have had many potential home buyers keep their wait and see attitude. This sentiment was expressed during the January meeting of the Federal Open Market Committee (FederalReserve.gov), where reports of further concerns of devaluation in the housing market were discussed.

Additionally, many real estate industry insiders are concerned with the new Administration’s budget reducing mortgage interest tax deductions and increased home sale capital gains taxes (which some call an attack on homeownership). Even the ever optimistic Lawrence Yun, NAR Chief Economist, expressed concerns about the Obama’s administration’s move to restrict and lower some of the tax benefits of homeownership

Peter Hong of the Los Angeles Times (March 14, 2009: Plan to cut mortgage interest deduction stirs opposition) reported Yun to say that although the reduced mortgage interest deduction is aimed at two percent of all households, all home owners will be affected. Critics of the Administration’s new tax policies point to lower home prices in the “upper tier” sector, which will affect surrounding market areas and subsequently drive down home prices further in all sectors of the housing market.

Some are concerned about increasing mortgage interest rates due to impending inflation as a consequence of increased government spending. However, some economists point out that inflation fears are overstated because low consumer demand will keep inflation at bay.

Finally, it must be stated that Federal Reserve Chairman Ben Bernanke discussed optimism for the American economy during a recent interview with “60 Minutes” (as reported by Fox News on March 15th). He stated that a recovery could begin as early as next year if banks are stabilized. If what Dr. Bernanke stated comes to fruition, and if the HAI and interest rates remain low, then it is possible that we could see home sales modestly increase by the fourth quarter of this year and rise significantly by spring of 2010.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 16, 2009. Copyright © 2009 Dan Krell