My Marin Blog

Searching for a bottom in the housing market

Sales look like they could rebound soon, but you can't say the same for prices.

NEW YORK (Fortune) -- Sales in the decimated housing market may finally be bottoming, but don't expect home prices to stop dropping before mid-2010 at the earliest, analysts and economists say.

Indeed, prices in the battered housing market could get a lot worse before they get better as an avalanche of specialized adjustable rate mortgages, known as option ARMs and Alt-A mortgages, are slated to reset over the next 18 to 24 months, and rising unemployment causes a surge in the number of prime mortgages going into default. All of this is expected to trigger another round of foreclosures and cause home prices to tumble at least another 20% before the market rebounds, according to market analysts and economists.

Market bulls believe home prices could bottom in the second half of 2010, but the bears warn it could be 2013 before they finally trough. And once prices do reach a low, it could be years before they significantly rebound.

"This is clearly the worst housing crisis since the Depression," says John Burns, president of John Burns Real Estate Consulting. Losses from the housing meltdown totaled $3.6 trillion at the end of 2008, and will likely approach $5 trillion by the time the crisis ends, predicts Lawrence Yun, chief economist with the National Association of Realtors.

Nevertheless, there have been signs in recent months that the industry may be stabilizing -- at least when it comes to sales. Consumer confidence in May shot up to its highest level in eight months, housing starts jumped more than 17% in May from the previous month, and most importantly, a recent report by the National Association of Realtors showssales of existing homes climbed 2.9% in April. We are at or near bottom in terms of sales," says Yun. "We are seeing strong buying activity, particularly in those boom and bust markets, where prices have declined significantly. Buyers are coming in and fighting over properties -- there is multiple bidding in California and Florida."

"Sales are the first indicator" of a bottom, concurs Elliot Eisenberg, a senior economist with the National Association of Home Builders. "Even though there's more pain to come in certain markets and the prices may go down further and there's more defaults ahead," sales are going up, he says.

Bob Curran, managing director at Fitch Ratings, is a lot more cautious, noting that one month of gains doesn't make a trend -- existing home sales are still off 3.5% from a year ago. "You'd want to see a string of months -- ideally three months -- to say with confidence that a bottom has been reached," he says.

Buying off the bottom

Much of the recent sales increase is related to distressed homes, as a stampede of homebuyers snap up properties in foreclosure or through short sales on the cheap. "Foreclosure sales have picked up pretty dramatically in the past four months," says Alex Barron, a senior research analyst at Agency Trading Group Inc. Yun estimates about 50% of current sales involve distressed properties, and he expects this trend o continue as foreclosures soar in the months ahead. About 2 million properties were in foreclosure in 2008, and he expects this number to climb to 2.5 million this year.

The foreclosure floodgates are expected to swing wider in the second half of the year as rates reset on option ARMs, and high unemployment triggers defaults on prime mortgages. Many of the option ARMS issued over the past few years were in markets that saw the biggest run-up in home prices and are now seeing the biggest corrections.

At the end of the first quarter, one out of eight U.S. households with a mortgage was either late on its monthly loan payment or in the foreclosure process, according to the Mortgage Bankers Association. Jay Brinkmann, chief economist with the MBA, says defaults among prime mortgages accounted for 50% of the increase in foreclosures in the last quarter. The pending flood of foreclosures could mean buying opportunities for bargain hunters -- as long as they're prepared to hang onto the house for a number of years. "If you're a renter who just missed this cycle and didn't get in, right now is a great time to buy if your issue is the monthly mortgage payment," says Burns.

Although prices may fall further, low mortgage rates and President Obama's $8,000 first-time homebuyer tax credit make current prices attractive, especially in heavily-beaten down areas, such as California, Arizona, Nevada and California. "I think there are great deals out there," says UBS analyst David Goldberg. "But you have to have a long-term time horizon." Some speculate that the pending surge in foreclosure and recent uptick in mortgage rates could push fence-sitting homebuyers, worried about rising rates, to jump into the market. Also, some home seekers may rush to score a bargain before the Obama Administration's $8,000 credit for first-time homebuyers expires at year end. The tax credit has already helped to boost sales, especially in states, such as California, which are offering their own tax credit in addition to the federal one, says Curran.

Sales vs. prices

While sales may be increasing, home prices are a different story, in part because of rising interest rates and surging unemployment. The average rate on a 30-year fixed rate mortgage climbed to 5.59% last week -- its highest since Dec. 11 -- but retreated slightly to 5.38% this week, according to Freddie Mac. The nation's unemployment rate spiked to its loftiest level in more than a quarter of a century in May at 9.4%. Burns is predicting the jobless rate will hit 12% by 2011.

National home prices plunged 19.1% in the first quarter, according to the Standard & Poor's/Case-Shiller National Home Price index -- the biggest quarterly decline in the index's21-year history. Home prices are off 32% on average from their peak in mid-2006. Average prices have not been this low since the fourth quarter of 2002, the Case-Shiller report says.

"We're about two-thirds of the way through the pricing correction on a percentage basis," says Joshua Shapiro, chief U.S. economist with MFR Inc., an economic consulting and analysis firm. He expects prices to slide at least another 20% over the next 18 months.

"There's still pain to come in parts of Florida, California and Michigan, where there's still a tremendous amount of oversupply," says Eisenberg. "Prices will have to come down further and it will take a while to burn off the excess inventory that's floating around there."

Brinkmann expects to see prices start to rebound in 2011. While a bottom may be reached within the next year, it will be many months, and possibly years, before prices significantly come back. "I think that once prices bottom out, they're going to stay flat for several years," says Burns.

By Janet Morrissey, contributor

June 19, 2009: 4:23 AM ET

Fortune magazine

A boon for new homebuyers, scheduled to last through next March, will be out of money long before that.

First-time home buyers wanting to take advantage of the state’s $10,000 tax credit may have less time than originally expected. California set aside $100 million to help home buyers purchase newly built homes, hoping to jump start the residential-construction market. According to state officials, the tactic has worked well and is helping to entice home buyers into the market. However, there only is approximately 20 percent of the program’s funding remaining.

The program launched in March and as of June 3 nearly $24 million in tax credit certificates already had been issued, according to the state’s Franchise Tax Board, leaving nearly $76 million in credit available. Many applications still are in the pipeline awaiting approval. If all of the submitted applications are approved, only $17.5 million would remain in the fund.

The California state legislature is considering adding another $200 million to the program. However, securing approval may be difficult due to the state’s estimated $24 billion budget deficit. A bill to extend the program already has won Assembly approval and now is awaiting activity in the state Senate.

The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it's an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home -- even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer's income.

The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.

For example, if the buyer's tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn't claim the extra $1,333 back from the state.

First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by $11,333 for the first year of ownership.

More money coming?

Because the money has gone so quickly, the state legislature is considering adding another $200 million to the program. That may be difficult to accomplish right now, however: The state is worse than flat-broke; it's running a $24 billion budget deficit and has the lowest bond rating of any state.

But Coyle argues that the credit is a net win for state coffers and it puts people to work. "Every time you build a home in California, you're generating $16,000 in taxes," he said.

During the boom years, developers were building about 200,000 housing units annually and supported about a half million jobs. Now, only about 50,000 new homes will go up this year and industry employment has shrunk to a fraction of its peak. From 2006 to 2007 alone, industry employment dropped by about 220,000 jobs, according to the CBIA.

Passage of an extension of the program has a good chance, according to Assemblywoman Anna Caballero (D-Salinas), who supports a new bill that already won Assembly approval and has gone to the state Senate.

There has been little opposition, she said, but the program has to be "revenue neutral,” which could limit how much is made available as funds would have to be cut from other areas to pay for it.

There is also one big change from the original offering: People buying homes under construction - not just those already finished - will qualify, which should help put projects back on track.

"It creates a reservation system that was absent in the first bill," said Caballero. "Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract."

"Contractors in Southern California were reporting no housing starts last January," she added. "Now, they have new crews out on the job. That's significant for California."

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed legislation that grants a tax credit of up to $8,000 to first-time home buyers.  Here is more information about how the 2009 First-Time Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

The 2009 First-Time Home Buyer Tax CCredit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

The maximum allowable credit for home buyers is $8,000. Each home buyer’s tax credit is determined by two factors: he price of the home—the credit is equal to 10% of the purchase price of the home, up to $8,000.

The buyer's income—single buyers with incomes up to $75,000 and married couples with incomes up to $150,000—may receive the maximum tax credit.

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.

Replace your furnace filter.

Clean kitchen exhaust hood and air filter.

Always have a multi-purpose fire extinguisher accessible.

Make sure the light bulbs in all your fixtures are the correct wattage.

Review fire escape plan with your family.

Have a professional air conditioning contractor inspect and maintain your system as recommended by the manufacturer.

Check for damage to your roof.

Repair all cracked, broken or uneven driveways and walks to help provide a level  walking surface.

Check all the fascia and trim for deterioration.

Check your water heater for sediment build-up and temperature.

Check the shutoff valve at each plumbing fixture to make sure they function.

Clean clothes dryer exhaust duct, damper and space under the dryer.

Replace all extension cords that have become brittle, worn or damaged.

Inspect and clean dust from the covers of your smoke and carbon monoxide alarms.

Have refrigerant levels and condenser coils professionally checked.

Check and clean filters regularly.

Check the filter door for fit and replace any damaged gaskets.

Clean and lubricate the indoor blower unit regularly. (Always shut off the electrical power to the unit before lubricating the blower and motor bearings.)

On belt-driven units, check the belts for cracks and other damage. If the belt is badly damaged or worn, replace it.

Check the housing of the unit outside your home. Keep all grass and shrubs at least 12 inches clear of the unit.

Having your air conditioner inspected and routine maintenance performed by a professional at least once a year is the best way to keep your air conditioner running in the proper order, and here is why. Not only will you extend the life of your air conditioner, but the small cost of this work can actually save you money in the long run. Caution: Before doing any work on an air conditioning system, make sure the power to the system, both to the condenser and to the evaporator assembly, is turned off. Always consult the unit’s maintenance and operation manual before making any check or repairs.

Bradley Real Estate Victoria Wells Realtor®Broker Associate www.marinbesthomes.com 851 Irwin St. suite 104 San Rafael, CA 94901  Phone: 415-710-4090 vawells@comcast.net

Repair, Replace, Relax with Fidelity National Home Warranty (FNHW). A home warranty from FNHW provides both the

out these ideas! Just sit in your garden and quietly observe the activities of wildlife and

insects for half an hour.  Take a class in botanical illustration. Learn about the seed-saving movement and save some seeds from your garden to share and replant. Learn about houseplants that clean the air, and introduce them to your home or workplace. Start a garden journal.

 Delve into a gardening style or technique you’ve always wanted to try, such as topiary, bonsai, or water gardening.  Learn how to take stunning photos of your plants and gardens.Take an armchair garden tour: Spend a few hours in the bookstore poring overgardening books. For more information visit nationalgardenmonth.org

Bradley Real Estate Victoria Wells - Realtor®Broker Associate

Why Buy a Home Now?

If you're renting and wondering if you should buy a home, consider what bestselling author, David Bach, says, "The average homeowner is worth 35 times more than the average renter."

He advises renters to take action immediately and start saving part of their paycheck every month to help accumulate a down payment. He also encourages renters to borrow 10-20 percent less than what the bank is willing to lend; that way they're only buying as much home as they can afford.

The longer you rent, the longer it may take you to eventually get into homeownership. If the market conditions have scared you, perhaps you're not looking at the other side of the coin. Owning a home becomes part of your investment portfolio, provides tax benefits, allows you to build equity (it still exists), and, if you buy now, you may get an excellent deal.

According to a MarketWatch news article, buying a home now can provide some real negotiating power to request improvements, price reductions, help with closing costs, and more. "People can get a lot of what they need and almost all of what they want today," said Jay Papasan, one of the authors of "Your First Home".

While poor market conditions have created a troubling situation for some homeowners, the downturn has made the buying market ripe for others. The affordability of homes is better than ever. The National Association of Realtors' housing affordability index concluded that homes in December of 2008 were more affordable than at any other point since 1970 (the start of the index). And with numerous foreclosures on the market and prices dropping in many areas, now is a good time to buy. But in order to make your purchase profitable, here are some things you should consider.

How long will you be in the home? Some experts advise that if you are planning to move within a year, buying may not be the best option because of the expenses associated with moving. However, if you're searching for a place to live for, at least, several years, buying now could be a good choice for you.

How much you can afford. Don't let tighter lending regulations scare you off from making a purchase. Instead, understand what you truly can afford. Don't get caught up in buying too much home. In fact, these days, the trend is moving toward smaller homes -- simpler living.

Mortgage rates drop to historical low. How much home you can afford is affected by mortgage interest rates that, right now, are highly appealing. Good credit, documenting your income and a substantial down payment will make you a better candidate for the better mortgage rates.

Freedom to choose. Now, unlike several years ago, the market has a large inventory in many areas. The market time to sell a home has increased which creates a large inventory of homes, everything including new, existing, and foreclosures. Buyers can peruse the market and have the freedom to select the home they really want. If you're interest is in a new home, know that many developers are getting more competitive with their pricing because they also have taken a hit by the ailing economy.

Quality of life. Buying a home can create a higher quality of life, giving you pride of homeownership, and something to enjoy improving and developing over the years.

Tax credit benefit. The American Recovery and Reinvestment Act of 2009 provides for a $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser's income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.


VICTORIA WELLS/ Broker Associate/SRES, e-Pro, Eco-Broker, Bradley Real Estate, 851 Irwin St., Suite 104, San Rafael, CA 94901, 415-209-9020, vawells@comcast.net

Http://www.GoinGreenMarin.com

The Incentive for Greening American Homes

Green is good, and the Obama Administration and Congress believe it should be an integral part of pulling America out of its economic doldrums. According to the National Association of Home Builders, expanded tax credits for energy-efficient home improvements in the new economic stimulus package puts more money in consumers' pockets by providing financial incentive for home owners to go green on their renovation projects in 2009 and 2010. While more efficient homes save on water and energy bills, these tax credits will make such home upgrades even more affordable.

The Internal Revenue Code section 25C tax credit for existing homes, which had expired at the end of 2007, was reinstated as part of the economic rescue package passed by the Bush Administration last fall. Homeowners could be rewarded for installing energy-efficient windows, doors, roofing and insulation as well as furnaces, air conditioners and heat pumps. But remodelers found that the terms of the 25C credit -- equal to only 10 percent of the cost of each product and with a lifetime cap of $500 -- weren't strong enough to push enough homeowners off the fence and into action.

Now, the credit rate and lifetime cap have been tripled – to 30 percent and $1,500, respectively – the list of eligible improvements expanded, and the deadline for applying has been extended through the end of 2010. Congressional estimates indicate that the new rules for the tax incentive will increase aggregate remodeling activity by more than $6 billion.

"The new tax credit also aligns with industry research indicating that even the most aggressive efficiency goals for new homes won't make a dent in overall energy consumption. Instead, remodeling and retrofitting the nation's older homes is by far the more efficient solution," said NAHB Remodelers Chairman Greg Miedema, CGR, CGB, CAPS, a remodeler from Tucson (AZ).

"These new tax credits are another way that home building industry can combat the potential effects of global climate change by encouraging home owners to make energy-efficient improvements to their homes," said Miedema.

A 2008 California study revealed that 70 percent of the greenhouse gas emissions related to single-family envelope energy consumption can be attributed to homes built before 1983.

The bottom line: Retrofitting existing homes with energy-efficient features is four to eight times more carbon, and cost-efficient than adding further energy-efficiency requirements to new housing, the study showed.

Details on qualifying improvements are available at the IRS Web site at www.irs.gov. It is expected that homeowners will need to complete Form 5695 (Residential Energy Credits) and submit as part of their 2009 income tax returns to claim the credit. Further, homeowners should retain for their own records information that includes:

· Name and address of the manufacturer

· Identification of the component

· Make, model or other appropriate identifiers

· Statement that the component meets the 25C standards

· Climate zones for which the criteria are satisfied

· Additional information for storm windows, if applicable

· A declaration that the certification statement is true.

Due to the efforts of nonprofits like NAHB, the National Association of REALTORS and its affiliate organizations like the CCIM Institute, more and more businesses and individuals alike understand that 'green' is good for our economy, for our health and for the sustainability of our nation's communities.


VICTORIA WELLS/ Broker Associate, SRES, e-Pro, eco-Broker, Bradley Real Estate, 851 Irwin St. Suite 104, San Rafael, CA 94901. 415-209-9020. e-mail: vawells@comcast.net

Http://www.GoinGreenMarin.com

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******************************

When

Tuesday, March 24, 2009 from 11:30 AM - 1:30 PM (PT)

Where

The Club at McInnis Park
350 Smith Ranch Road
San Rafael, CA 94901

Hope to see you there!