New Housing bill H.R. 3221 Passes...

H.R. 3221 passed

The long awaited housing bill passed and is awaiting a signature from President Bush who is expected to sign the bill Tuesday July 29, 2008. Below I will break down each part of the bill and explain what this actually means. There are a lot of items addressed in the bill and it is important to understand how this will help and hinder in each case.

GSE Reform:

GSE is "Government Sponsored Enterprise" (or entity), otherwise known as Fannie Mae and Freddie Mac. GSE reform will include a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median price, capped at $625,000. The effective date for reforms is immediate upon enactment, except loan limits which go into effect December 31, 2008 after the expiration of the economic stimulus limits.

This permanently increases the conforming loan limit. This will allow more people to get into homes without entering the "Jumbo" category and paying a higher interest rate.

FHA Reform:

FHA reform will include permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price capped at $625,500. FHA reform also includes streamline processing for condos. The effective date for the reform is immediate upon enactment, and the loan limits go into effect at the expiration of the economic stimulus.

This is a big win for all as FHA is quickly becoming the financing type of choice, and this will increase the loan limits for this type of financing.

Home buyer Tax Credit:

As I have recently blogged about, a $7500 tax credit that would be available for any qualified purchase between April 8, 2008 and June 30, 2009. The credit is repayable over 15 years. For more information on this topic please see my blog titled "Home Buying Tax Advantages".

This is an incredible incentive for first time home buyers when used properly and can be a great financial tool.

FHA Foreclosure Rescue:

A refinance program for home buyers with problematic sub prime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. There are some important time limits on this and it is a rather lengthy topic I will be blogging about separate this week.

This will help stop the stream of foreclosures and keep people from walking away from their sub prime mortgages.

Seller-Funded Downpayment Assistance Programs:

This portion codifies existing FHA proposal to prohibit the use of down payment assistance programs funded by those who have a financial interest in the sale. This prohibition does not go into effect until October 1, 2008. If you are looking to buy a home and need the seller to pay your 3% down payment, I would recommend you do so now!

Seller funded down payment works like this; FHA says that your down payment of 3% can come from a non-profit organization. For years the work around has been non-profit organizations set up to assist in this process. The seller would agree to contribute 3% to a non-profit such as Nehemiah and in turn the non-profit would pay your down payment minus a fee for the service. According to the bill a non-profit can still pay your down payment however it can no longer be funded by anyone with a financial interest in the property i.e. the seller.

This means buyers are going to have to have some skin in the game. The seller can still pay your closing costs in many cases but the buyer will be responsible for bringing in the 3% for their down payment.

Believe it or not this is actually a good thing for our market. Studies have shown that the less money someone brings in on a home the more likely they are to default.
VA Loan Limits:

This is a temporary increase of VA loan limits to be the same as the economic stimulus limits through December 31, 2008. If you are going to get a VA loan and you want to be able to go up to a higher loan amount you have until the rest of the year to do so.

GSE Stabilization:

This allows the treasury department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

The last few weeks the stability of both Freddie Mac and Fannie Mae have driven the markets down. This information confirms the continued stability and support for these organizations.

Mortgage Revenue Bond Authority:

Authorizes $10 billion in mortgage revenue bonds for refinancing sub prime mortgages.
National Affordable Housing Trust Fund:

Develops a trust fund funded by a percentage of profits from the GSEs. In it's first years the fund would cover the costs of any defaulted loans in FHA foreclosure program. In out years the trust fund would be used for developments of affordable housing.

CDBG Funding:

Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.

LIHTC:

Modernizes the low income housing tax credit program to make it more efficient.

Loan Originator Requirements:

Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC - insured banks. The purpose is to prevent fraud and require minimum licencing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state.


In Conclusion:

This is simply an outline of the bill and I will be tackling each item individually through out the week to further explain the effect this bill will have on an item by item basis. This was a much needed bill for the nations real estate market and will help to get things back on track.

If you are thinking of buying a home this year and would like to know how this bill will affect you please contact me as soon as possible to discuss your situation.

Correction: 1101 homes sold in June

Last minute numbers came trickling in:

The county recorders office was caught off guard in June and wasn't prepared to record 1101 sales. It took a little longer for everyone to get all the information in and recorded but now near the end of July we have a final number of 1101 homes sold in Salt Lake County in the month of June.

Pulling numbers:

I went back to re pull numbers because of a disturbing article I found in the Real Estate section of CNN money. This article was speculating on the expected drop in median home price in 75 of the 100 largest cities. Obviously I looked down the list to find Salt Lake City as we have been tracking the growth of the sales price. To my surprise I saw Salt Lake City expected to lose 9.8% of it's value on median home price. A 9.8% drop in the median home price in one year is completely unheard of in Salt Lake City and I can't find a year where that has happened. One article prior on the same web site shows a first quarter median home sales price INCREASE of 3.5% listing the median home sales price in Salt Lake City at $225,700. The article that shows the decline between now and may of 2009 shows our median home price at $229,000, published may 8th 2008, which would mean by a little over 1 month into the second quarter we were showing another 1.5% increase. Bringing the total increase in 4 months to 5% by their own reporting. How can someone report a 5% increase in the first part of 2008 to a 9.8% drop by May of 2009, in my opinion based solely on speculation and mere guessing, with a straight face?
Anyone that has done any serious tracking of Salt Lake City's home market can see that there has not been a single month since 1995 that our home sales price has dropped by more than 2 or 3% and furthermore will not find a year with an average home sales price drop.

The reason I investigate these articles is because I track the numbers very close for Salt Lake County and report and source them right here in this blog. When I see this kind of malicious speculation by a well known source it is easy to pick out the manipulation of the article. $229,000 is a healthy median home price for Salt Lake City. The average home sales price in Salt Lake County for June of 2008 was $278,042 as reported by the Wasatch Front Regional Multiple Listing Service. This is higher than reported in 159 of the last 162 months.

This is not an attempt to slander anyone:

I am not trying to put down the credibility of any organization. I am simply calling for a large scale public awareness to common media manipulation. The thought pattern that "if it's on the internet it must be true", has become a reality. The kind of reporting that I have seen over the last 12 months has been malicious and dangerous and this is simply a call to action for all of us to question the corporations that have better ratings when the news is bad. If you would like a copy of the statistics from the Wasatch Front Multiple Listing Service please e-mail me.

Home Sales Up In June

Utah is no longer considered part of the West?

CNN reported today that ALL of the West experienced a drop in home sales. Once again our actual numbers reported by the Wasatch Front Regional Multiple Listing Service paint a very different picture. I think it is safe to say the number of homes sold in June are in and have been reported at 1,074 homes sold in Salt Lake County. This is up from May's 1,064, and Aprils 997. The average list price and reported sold price are both up as well. The average list price for June was $286,887 up from May's $281,180 and April's $278,355. The sold price is up to $279,401 up from May's $274,294 and April's $271,198.

Are you ready for the big number?

Home sales are up 69.13% since the beginning of 2008. The average sales price is up 4.2% in Salt Lake County since January of 2008. We have come a long way this year and are hitting some very positive numbers.
Do you remember the last housing crisis?

If we are in a housing crisis this year with the total number of homes sold for June at 1,074 then by that very definition you must clearly remember the housing crisis of 1996, 1997, 1998, 1999, 2000, 2001, and 2002 right? Well don't feel bad I don't remember those housing crisis years either and we are above or close to June numbers for all of those years.

Homes sold in June Historically:

1996 - 933
1997 - 886
1998 - 1027
1999 - 1146
2000 - 1173
2002 - 1158
2008 - 1074

If those years were not considered "Housing Crisis" years than it must be said that in the best of those years 99 home sales separate a "good year" from a "crisis year". What can be said for 1996 and 1997? We had sold 208 fewer homes in June of 97 and 141 fewer in June of 1996. How did we ever manage to pull out of that one?

Ignore the negativity and do what makes sense to you:

We have not had a crisis year in Utah. In fact historically we have not had a crisis year. We have sold a few less homes this year than last year. Our property values continue to increase and we have better and safer loan choices available to us now. We are not a dramatic state in increase or in decline so don't expect dramatic headlines from me. If it makes sense for you to sell your home or a buy a new one, if you need to down size or your family is growing, you can feel safe that you are in a great place to do so.

Salt Lake County Home Prices Rising

Can it be true?

I hear so many people talking about home prices dropping by incredible numbers each and every month and many times I have found myself questioning where this data comes from. The truth is that home prices in Salt Lake County are increasing, and have been since November of 2007. When a home is bought or sold through the MLS, and most are, that data is recorded. The MLS tracks the total number of homes sold, the total volume, the average list price, the average sold price, the list to sale ratio, as well as days on the market per county. This information is the most accurate and up to date data available. I am constantly blogging this information to the public to help raise awareness about what is really going on, so here is another attempt to try and bring clarity to an otherwise confusing housing market.

The Numbers Through June:



As you can see from the chart above, since the begining of the year both the listed price and the price homes are selling for has continued to climb. The rate of appreciation is lower but homes are still appreciating. When I hear that home prices are falling by as much as 10% I am forced to go to the numbers and see for myself. Home prices are up around 2% from January to June of 2008. Another number that sticks out to me is the DOM field or "Days On Market". The average time it takes to sell a home in Salt Lake County currently is 60 days. Sixty days on the market is not very long especially when I am hearing comments like "Homes are not selling", or "Homes are just sitting". The truth of the matter is that Utah has a strong economy and a very strong housing market and prices are continuing to increase at a healthy rate. All of the numbers for June are not in yet but it is looking like we will break 1100 homes sold in June. This is exactly what I had expected as pointed out in my previous blog post.

How the numbers are reported:

The media typically will report over a time frame which fits their story. For instance if home sales are up from last month but they are down from this time last year they will use a year over year scenario. If we are up from last year but down from last month you will reiceve a month to month blurb about the housing market. Up to this point the news that I have seen has been comparing 2007 - 2008 simply because the last half of 2007 was down and into the first half of 2008. There is an interesting scenario about to happen and I am curious to see the outcome. As we have reached the half way point in 2008 and the market is really stabalizing and improving at a healthy rate, the media will no longer be able to make a year over year comparison to promote bad news. July of 2007 showed the first significant drop in home sales and average home sales price. If the media is consistant and makes their year over year comparison for July they will have to report a huge increase in number of homes sold and will no longer, by their definition, be able to report a troubled market. In July for the first time in a year you will either have: A) Good news from the main stream media about the housing market, or the more likely scenario B) No news at all because good news typically does not sell. Homes, on the other hand, do sell!

It's STILL a great time to buy and you CAN still get a loan. If you would like the actual statistics for any other county in the state of utah feel free to send me an e-mail and I will send you the data so you can compare the numbers for yourself.

Salt Lake County Breaks 1000 Homes Sold In May

What is a normal Market?

You have seen the headlines, "Home sales drop dramatically", "Home sales decline 50%", etc, etc. If you are a regular visitor to this blog, then you already know I like to challenge headlines with "actual" numbers. Often we forget to look at where these numbers are coming from. We had a housing boom, although it was slightly more modest in the great state of Utah, we were affected by artificially inflated home sales. Many would consider the housing boom to have begun early in 2004 and to have tapered off here by the 2nd half of 2007. Taking a look at housing numbers during the boom will give us a clear understanding of what inflated housing sales numbers look like. Lets take the best months and compare straight across. The following numbers reflect homes sold in Salt Lake County.




As you can see here our sales really peaked in 2005 and 2006 with a high of 1953 sales in June of 2005. Since the June numbers are not in for 2008 yet lets look at May across the board. If you were to take May of 2007 and compare it to May of 2008, you could make a really strong case and a very misleading headline that home sales in May were down 65% from last year to this year. However the numbers on this chart are inflated quiet a bit due to the housing boom.

2000-2003 compared to 2008

Comparing 2000-2003 to 2008 will give a better comparison of a normal Real Estate market for Salt Lake County outside of a housing bubble setting.



If we take the same comparison as above you can see that we are getting very close to our 2000, 2001, and 2002 numbers. 2003 inched higher on the verge of the housing boom. While there is no doubt that 2008 has been the worst year on record in the last 8 years, is it really as bad as it looks when compared to more accurate data? In fact if you only take March to April data over the last 8 years we are mirroring 2002 and 2003, some of our healthiest years on record, where Aprils housing numbers increased over March.

The 8 Year Look:

Comparing year over year on the eve of a housing boom and right in the middle of a mortgage crisis can give very entertaining numbers. Remember bad news and wacky news sales. Over the last 2 years I have yet to see one news story that has made these gigantic comparisons with an explanation of what is normal and healthy. It is impossible to determine what a normal market is on such a small scale, specifically year over year. So lets see how we are doing since the start of the century:



Looking at this graph you can clearly see the housing boom. I urge you to print this off, take out a pen, and draw a line from May of 2000 to May of 2008 to get a more accurate feel of where our market currently is. I am sure you will see that our market is making a strong push back to a healthy, "Normal", market.

June is already looking good:

The numbers for June are not in yet but the mortgage and real estate professionals I have spoken with are busy right now working with buyers and new borrowers. My prediction is that June will stun us all pushing numbers well beyond 1100 homes sold in June. May's numbers have already told me that the decline is over and the numbers are beginning to level off. I believe June will only further make make this case. We live in a conservative state, our housing boom was conservative, and our decline in home sales was small compared to the rest of the nation. We have made it through the "housing crisis". Pat yourselves on the back and get ready for another 8 great years of steady economic growth in the state of Utah.

Avoiding Forclosure and What to do if it's close

The Number of Foreclosures have doubled!

Many of you have heard the statistic that the amount of foreclosures have doubled. This is correct we have gone from 1% of all home owners with a mortgage losing their home to foreclosure up to 2%. The good news here is that 98% of all home owners with a mortgage are not losing their homes. 7% of all U.S. mortgages are sub prime mortgages and those mortgages make up 42% of the foreclosures. Almost half. If you take away the sub prime mortgages then foreclosures would be up just over 1%. The bottom line here is that if you have a sub prime mortgage with an arm that is set to reset to a higher interest rate, if you bought more home than you can afford, or if some life altering event has occurred you face a legitimate danger of foreclosure.

Before the Foreclosure:

If you begin to have trouble making your payments the first thing that will arrive in your mailbox will be a a letter from your loan servicing company reminding you that your payment is past due and usually indicating the actions they can and will take to remedy the situation. Ideally if you think you are going to get to a point where you will miss a mortgage payment or your payment is going to adjust above what you can afford, you should look to get help before going 30 days behind on your mortgage. 30 days late is the magic number that will appear on your credit report. A mortgage late can seriously hinder your chances of refinancing out of this bad loan. You still have several options at this point and will want to speak with someone who has your interests in mind and will work with you to find the best possible solution. Please see the next section as it is very important that you recognize and avoid the "Save you from foreclosure" scams.

Once you Receive a Notice of Default:

If it's too late for you and you have fallen several payments behind you will receive a notice of default from the loan servicing company. Sadly this information is public knowledge readily available at most title companies. Your credit will be scarred and you will be in serious jeopardy of losing your home. On top of this many people will begin to contact you about "saving you from foreclosure" and you may even begin to notice the foreclosure help signs on the side of the road or even vehicles. If you are in this boat you NEED to be aware that you have options and steer clear of the foreclosure help scams. Some companies will offer to buy your home and rent it back to you letting the rent go toward the principal and preserving your equity. Others will offer a counseling service and offer a fee. Many will have you sign a "new loan" form and most will require you sign over the title. These programs are bad and clearly designed to prey on your bad situation. The BEST thing to do is to speak with someone you can trust to point you in the right direction.

The Options:

Speaking with someone who understands all the options available in pre-and post foreclosure is the single most important thing you can do to get back on track. In many cases a government secured refinance program called FHASecure can help you refinance to a low fixed rate saving you from getting into the mess in the first place. In other cases aggressively pricing your home and selling it is the best plan of action. If you have fallen severely behind but foreclosure has not started yet one option that may fit your needs is working with a Realtor® on a "Short Sale". This is a process where you and your Realtor® work directly with the bank to allow a sale price of your home that is less than what you actually owe. In any of these cases I would recommend working with someone with experience in the area as it is not a cut and dry solution and what may be the best option for 1 is not the best interest of another.
How To Determine YOUR Best Option:

Determining the right long term solution for you requires an in depth look at your overall situation and your long term goals. If you fear you might not be able to make your payments soon, if you are in an arm that is going to reset, if you have a pre-payment penalty, if you are behind on your payments, or if foreclosure has started, contact me right away and I can get you in contact with the right person for your situation. No I do not charge a consultation fee and no I do not want you to sign over the title. I am a Realtor® and a homeowner just like you and I know how confusing it can be to tell the difference between a helping hand and a shady dealer in times of desperation. It's not too late you DO have options. You may call me directly @ (801) 330-3963 send an e-mail to Dave@ListedInUtah.com or simply use the Messenger box on the sidebar of this page to contact me anonymously.

Home buying tax advantages

The house introduces HR 5720

House bill 5720, or the "housing assistance tax act" in it's simplest form is a tax credit for first time home buyers. This tax credit will allow you to take a $7,500 tax credit in the year of the purchase. This is not a tax deduction but a tax credit. This means you will actually get $7,500 back on your taxes or a credit toward what you owe.

The Qualifications

To qualify for HR 5720 you must meet the following criteria;

• Purchase any single family residence including condos that will be used as your personal residence
• If you are single your adjusted gross income must be $70,000 or less and if you are married filing jointly your income must be $140,000 or less.
• Must have NOT owned a residence in the last 3 years
• Purchase must be made between April 8, 2008 and April 1, 2009

The Catch

First and foremost this bill has only passed the house and has not passed the senate yet so I would advise against "Counting on it". If this bill passes the senate there will be a "Recapture Rate". A Recapture rate means that a % of this money will have to be paid back over time. The Recapture rate for this bill is 6% per year for 15 years and if the home is sold before 15 years then the remainder of the credit is recaptured. The recapture payback period begins 2 years after the credit is taken. $7,500 x 6% = $450 per year at 15 years = $6750. $6750 is the amount you must pay back over a 15 year period of the $7,500. Think of it as a negative interest loan. You have taken out a loan for $7,500 at 0% interest and you only have to pay back 90% of the loan. Just taking the tax credit and using it to pay itself back you make 10% but there are ways to make this tax credit work for you.

Investing

Since you have 2 years before the recapture begins why not invest the money for 2 years in a high yield money market account? If $450 a year to pay back is not a big issue to you why not keep the money in the money market account until you sell your home? Put the money back into your home or consolidate some high interest credit cards. The possibilities of how to make this tax credit work for you are virtually limitless but each situation is different.

Tax deductions

While real estate tax deductions are not anything new it is frightening how many home owners don't know about them, understand them, or take advantage of them. When you purchase a house you can deduct mortgage interest, mortgage insurance, and a portion of you property tax from you income tax. This is a huge year over year savings for most people.

How to Lower Your Monthly Payment

Here is a strategy many savvy home owners use to lower their monthly payments. First work with a Realtor® who understands the tax advantages to buying Real Estate and is current on any new tax changes. Second work with an accountant who is familiar with Real Estate Tax deductions. For references please contact me. Here is an example of how to use the tax savings toward your monthly payments giving you more breathing / fun / saving / investing / whatever room every month.

Lets say you purchase a new home for $225,000 and your household income is $70,000 per year. For this example you have obtained and FHA loan at 6% interest and the property taxes are roughly $1000 / year.

Your total monthly payment with your Principal, Interest, Taxes, Insurance, And Mortgage insurance would be roughly $1563.57 per month. Given the information above your tax savings based on real estate deductions would be an estimated $3,400. Take this number and divide it by 12 and you will have a monthly tax savings of $283.37 against what you would normally pay in taxes just because you own a home. Next take your monthly payment and use the money you save by owning a home toward your payment. $1563.57 - $283.37 = $1280.20 per month is now your "Actual Monthly Payment". You have just effectively reduced your monthly payment by 18%.

Beating the dead horse

Real Estate is the foundation for wealth building in this country but remember there is a right way and a wrong way for everything. Be smart with your money and get the help of a knowledgeable Realtor® to make the most of your home buying dream. Take advantage of the tools put in place to help you succeed and join the millions of home owners nationwide who are NOT in danger of losing their homes.