Home Buyer Tax Credit Deadline Looms – It’s Already Close for Short Sales

The Home Buyer Tax Credit that went into place at the end of last year will expire on April 30 in its present form. Homes and condos must be under contract by that date and close by June 30 to be eligible for the credit. See Home Buyers Tax Credit for more details. The tax credit can be up to $8,000.

The important point for buyers looking to take advantage of short sale opportunities is that time is running out. I’ve had many short sales that were not processed by lenders in the time left between now and the April 3oth deadline. For buyers of Daytona foreclosures and properties that are not in distress you will have a little more time, but with inspections and the length of the closing process, it’s wise not to delay too long.

Short Sale Buyers Strategy

Our recommendation for short sale buyers who want to take advantage of the tax credit in their purchase of Daytona Beach Homes is pretty simple – submit offers on multiple properties and schedule the closing well before June 30th.

This recommendation protects you both from losing the tax credit by not being under contract and insuring the closing against “surprises” from lenders and closing agents.

Submitting multiple offers will give you the best chance of taking advantage of the credit and getting a property you want. How many? Well, it’s a tough call, but you have a good chance with five to six. There’s no guarantee that any of them would be approved in time, but with five or six, you will probably be successful. Note that you must have a binding contract where both parties have signed before April 30th. Just making an offer is not enough. Make sure your real estate agent is an expert in short sales to protect yourself further (I’m certified and have closed dozens of short sales.)

Scheduling the closing a couple of weeks before the June 30th deadline will prevent requests for additional information from lenders and closing agents derailing the deal. I’ve had a lot of closings delayed, so please take this precaution to prevent losing the tax credit.

Will The Home Buyers Tax Credit Be Extended?

We don’t know whether the homes buyers tax credit will be extended for a second time. The Obama administration has been declaring that we are on the way to economic recovery. The Federal Reserve will stop buying Mortgage Backed Securities in March. Many are seeing that as a sign the administration is backing off big support for the real estate markets. If the same thinking applies to the tax credit, then it won’t be extended. However, the budget submitted by President Obama does contain additional tax credits for home buyers. Congress could remove it from the budget or it could be less; we don’t know.

There are tremendous opportunities available for buyers in the Daytona real estate market. For more information or to receive a list of properties that meet your criteria, please contact me at 386-566-7503. I’m a certified short sale specialist and have many short sale transactions successfully completed. Put me to work for you.

Sales of Daytona Beach Homes – Down Against Last Month – Up Over January Last Year

Daytona Beach homes and condos sold at a 33.2% slower pace than last month, but were up 29.9% over last January. What’s next? These numbers are preliminary, but will not change significantly over the next few days.  The fall in sales is not unexpected. Here’s why:

• January sales have been the lowest sales months for both 2008 and 2009
• The 1st quarter has been the lowest sales quarter historically in the area
• December sales of 416 properties through the Daytona Beach MLS were the highest in over three years

Our inquires and website traffic were down during the fourth quarter, even though our sales were strong. In January, our website traffic was up 61.1% over December, back to the numbers we see during the summer high selling season. We are showing a lot of properties and my listings are being shown.

Seeing this level of website traffic and inquiries shows a lot of interest in the Daytona Beach real estate market. Our web traffic is about 50% higher than it was for last January. We believe sales will improve in February and are looking for a strong first quarter. Beyond that, we need to see what happens with the economy and whether the home buyers tax credit is extended.

Here’s a quick breakdown of January sales by price range.

Daytona Beach Homes Sales by Price January 2010

The distribution of sales by price is consistent with what we have seen over the past two years. Homes and condos sold under $200,000 made up 75.5% of January sales and under $300,000 made up 88.1%. The under $200,000 market is consistently strong and over $300,000 sales have been weak. This will change, but not until there is more certainty of price stability.

We will publish a full breakdown of home and condos sales for January later this week; after all the numbers are in the system.

2009 Big Recovery Year for Daytona Beach Real Estate Sales

Sales of Daytona Beach Condos and Homes were way up in 2009. More homes and condos were sold in the 12 months of 2009 than in the previous 16+ months in 2007 and 2008. 3993 properties were sold in 2009 against 2890 in 2008 or 1103 more in 2009.

The total numbers tell the story, but looking at the graph of 2008 versus 2009 home sales through the Daytona Beach MLS shows it more dramatically.

2008 - 2009 Daytona Beach Real Estate Sales

The Last Four Months of 2009 Huge For Daytona Beach Home Sales

We can see that the increase in sales was even more dramatic over the last four months of the year. Sales from September to December were up 74.1% in 2009 over 2008. December sales were up 79.6%

Why Are Daytona Beach Property Sales Up?

There is a lot of speculation to attempt to tell us why sales are up. My contention is that we are closer to normal sales levels based on historical sales before the big speculative run-up. In other words, we are pretty close to normal levels before the boom. When sales went bust, they swung very much too low and have now come back to normal.

There is little doubt that the home buyer tax credits are helping, but we don’t know the extent of the impact. We also know that Fannie Mae, Freddie Mac, FHA and other government agencies are backing 90% of mortgages currently written. So we see that the risk of  any mortgages being written is being assumed by the US government. See more on this at Daytona Beach Real Estate Market Boosted by US Treasury.

And then there is the bargain factor. People are taking advantage of what they see as low prices. Whether they are at the low point is impossible to say. We won’t know that until well after we hit bottom. What these buyers are saying, with their money, is I am willing to buy at this price. I’m getting a bargain.

Where Do Sales Go From Here?

I will go out on a limb as say that sales will be about level for 2010. I’m basing this forecast on several factors, but the overriding factor is that sales were up most dramatically at the end of the year. Meaning that the first eight months were not nearly dramatic in their increase. That will buffer variations in sales month to month. Simply, sales for the year averaged 333 properties per month, but the final four months of the year saw the following sales:

• September 371
• October 355
• November 404
• December 413

The average for the final four months was 386 or 53 properties higher than the average for the entire year. That gives a cushion for things like the tax credit not being renewed or delays in the economy recovering.

On the positive side; if the economy comes back strong and more mortgage money is made available, sales could be much higher. So, at this point, my best forecast is for level sales with a good upside potential.

I’m still concerned about inflation and a rise in inflation would have at least a short term impact on sales. I’m not an economist, so this forecast is unscientific. The best advice for people in the market is to closely monitor economic, price and sales news. Of course, you can do that here. We post articles nearly every day to keep you updated.

US Treasury Removes Limits on Public Money for Freddie Mac and Fannie Mae

There is little doubt that the Daytona Beach homes market has been boosted by US government actions. The home buyers tax credit,  FHA,  Freddie Mac and Fannie Mae backing mortgages supports the market. I seen estimates of FHA, Fannie Mae and Freddie Mac involved in 90% of all current mortgages.

CBS Money Watch reports:

More than 90 percent of all loans are bought by either Fannie Mae, Freddie Mac, FHA, Ginnie Mae, or USDA (rural development loans). That means Uncle Sam is taking on virtually the entire risk of the housing market. (Fannie Mae and Freddie Mac: Happy Anniversary)

The following blurb was published in the January 2nd edition of the Economist:

The share prices of Fannie Mae and Freddie Mac soared in response to the Treasury’s recent decision to remove limits on the amount of federal aid to the companies. America’s biggest “government sponsored enterprises”, were bailed out in 2008 amid huge public mortgages losses. The amount of public money each could obtain was capped at $200 billion (neither has received that amount), but the Treasury now wants to “leave no uncertainty” about its commitment to the firms.

What Does Uncapping Fannie Mae and Freddie Mac Public Money Mean?

In a word, the Treasury action means one thing – unlimited support with public money. These government agencies, and others, will continue to purchase and guarantee mortgages for the banks. The support was limited. Those limits have been removed freeing mortgage lending expansion now and in the years to come.

I’m not going to argue the wisdom of the action by the Treasury. I’m pointing out that real estate prices will gain some measure of support. Coupled with the current home buyers tax credit, they are stimulating home buying. We don’t know whether the tax credit will be extended. I’m doubting it at this time, but if the federal government continues to guarantee mortgages, that will allow more mortgage money into the market.

On the other side of the pricing equation, foreclosures and short sales continue to dictate pricing. We don’t see this ending until 2011 to 2012. That doesn’t mean that price will keep falling until then. We have seen more buyers move into the market at different price drop points. If there are more buyers than foreclosure and short sale properties, then prices will stabilize or rise.

Keep your eye on the market if you’re planning to buy anytime soon. If you are, talk to me to see if you qualify for the tax credit. It could mean $6,500 to $8,000 in your pocket that may not be there after April 30th.

Mortgage Rates Jump to 5.37%

Yes, mortgage rates are up. Rates have jumped from 4.93% at the beginning of the month to 5.37% today. The question is will they go up further, or stop and reverse like they did over the summer when rates approached 5.6%?

Looking at the chart below from bankrate.com, we see mortgage rates varying over the course of the past 12 months. We can see several periods of ups and downs. Have the underlying conditions in the mortgage markets changed?

2009 Mortgage Rates Chart

The Mortgage Rate Factor

The easiest way to understand mortgage rates is to understand that if it cost lenders more, it will cost you more. Mortgage lenders compete with US Treasury Bonds which are fully guaranteed by the US government. Mortgage lenders will pay more to borrow than the government to compensate for risk.

Look at the chart below that combines mortgage rates and 30 year bond prices. It’s not exact, but the darker line is mortgage rates and the lighter line the 30 year bond rates. It appears to correlate very closely. As bond rates go up and down, so do mortgage rates.

2009 30 Year Bond Rates Against Mortgage Rates

Look across at the horizontal lines and you will see that the lines correlate. Ignore the vertical scale because I didn’t match up the scales. The point is that recent mortgage rates correlate with US Treasury 30 year bonds.

We see continued pressure on Mortgage rates because of continued pressure on 30 year Treasury Bonds. The deficit is at $12 billion and growing. We believe that results in inflation at some point. Inflation means that bond buyers will expect higher rates to compensate; bringing mortgage rates up with them.

What to Do Now

If you are in the market to purchase Daytona Beach or Ormond Beach real estate, and you will be financing your purchase, it will be important for you to track mortgage rates. To fully understand the impact of changes in mortgage rates refer to our article Basic Math for Home Buyers Who Finance.

Make it a point to track 30 year US Treasury bond rates too. You can track these at CNN, Bloomberg, or Yahoo Finance.

If you qualify for the current home buyers tax credit you should take advantage of it before it expires with contracts written after April 30th. We don’t know if the credit will be extended, so why not take advantage of as much as $8,000.

We’ve seen prices stabilize in the past quarter, but that’s no guarantee that they won’t fall again, but whether they fall or not, it is to your advantage to secure the lowest possible mortgage rate and get the tax credit. We can help you find properties that are priced right, but we still advise that you don’t buy in this market unless you are going to hold the property for 5-7 years.

We are available to discuss your options. Give us a call at 386-566-7503 with your questions.

FHA 203k Loan Lets You Put Home Repair and Remodeling Money in Your FHA Loan

What if you could buy a home with 3.5% down and include the necessary repairs and remodeling in the mortgage – even if your credit is not the best?

One of the problems with many Daytona Beach homes in foreclosure or available for short sale is that need work to make them livable. With conventional financing, you will probably need to 20% down and then mortgage 80%. Then you still need to pay for the repairs.

The FHA has a loan program call the SF Rehabilitation Loan Program (203k) that they call Funds for Handyman-Specials and Fixer Uppers. On the FHA website they state the purpose of the program:

The purchase of a house that needs repair is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased.

HUD’s 203(k) program can help you overcome this obstacle by enabling you to purchase or refinance a property plus the cost of making the repairs and improvements in one mortgage. The FHA-insured 203(k) loan is provided through approved
lenders nationwide and is available to persons wanting to occupy the home.

The beauty of the FHA program is that, as long as the appraisal, after the repairs, does not exceed the loan value, all other FHA loans features, like low down payments (about 3.5%) and availability to less than prime credit buyers is available.

The FHA outlines the program on their website:

• A potential home buyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with his/her real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
• The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
• The appraisal is performed to determine the value of the property after renovation.
• If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
• At losing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
• The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
• Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of thejob, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

Yes, you can still get the Home Buyers Tax Credit with FHA loans. So you can buy a home that needs work, include that work in the mortgage, your contractor does the work, and then you move in. Plus you can get a tax credit for up to $8,000 if you go to contract before April 30, 2001. Plus, you may be able to apply the credit to the purchase costs of the home. Wow!

The $8,000 Home Buyers Credit Extended into 2010

First time home buyers and Homeowners who have lived in a current home five of the last eight years are eligible for $8,000 and $6,500 respectively in income tax credits. To take advantage of the credit, you must have a binding contract by April 30, 2010 and must close by June 30, 2010.

The $8,000 credit is available for first time home buyers ($4,000 for married couples filing separately) and $6,500 ($3,250 for married couples filing separately). First time home buyer means that you have not had an interest in a principal residence for three years prior to the purchase.

Income limits have been increased to $125,000 for singles and $225,000 for married couples. There is an additional phase for the next $20,000 in income with a reduced credit.

Homes up to $800,000 are eligible for the credit and yes this is a credit, not a deduction to you income. You will receive money back from the government if you owe less taxes than the value of the credit. So, if you owe $2,000 in income tax and you take the full $8,000 credit, you will get a check back for the difference – $6,000.

If you are planning to buy real estate in Daytona Beach, or anywhere else in the country in the next year, it makes sense to take advantage of this credit. There is no guarantee that it will be extended, especially if the economy is show signs of recovery in the early part of 2010.

Couple the tax credit with low interest rates, great affordability of homes and prices stabilizing and it may be your best time to buy. The National Association of Realtors (NAR) is estimating about 2.6 million homes will be purchased using the credit. Will you be one of them?