December, 2009

It should come as no surprise to anyone that most of the agents believed the first time home buyer tax credit had a lot to do with stabilizing prices by creating a serious incentive for people to buy. But, most of them said they weren’t sure strong sales would hold after the tax credit, which was extended to repeat buyers, expires at the end of June 2010.

The number of homes that went up for sale in many cities fell in November. Real estate brokerage Zip Realty compiled figures from 27 cities that showed inventory slid in November by 2.4% compared with October. In most years, inventory drops a little in November but by smaller increments. It also showed that inventory was down in November by 28% compared with the year earlier period.

So what does all that mean? On the one hand, it is an indication that sellers have been successful at selling their homes. It might also mean there weren’t a whole bunch of people who were forced to put their places up for sale because they fell into financial trouble, but it also means buyers do have less to choose from. And with the generous tax credit for home buyers on the table, there are potentially a lot more buyers out there this winter than last.

Zip Realty said they expect many more for-sale signs to appear in the early part of the new year as the deadline for the tax credit approaches on purchases of homes made before April.

Well, looking at the US as a whole, the sale of single family homes is up over 9% on September and a remarkable 21.4% over last year — low prices and good interest rates are certainly contributing to these meteoric rises, but the first time homebuyer tax credit is also affecting these figures.

The biggest gains in sales have been in the Midwest, which was one of the areas hardest hit by the housing crunch. In October they lead the nation in single family home sales, up over 13% from September and up nearly 28% from the year before. And while prices of single family homes are still down across most of the country, those prices are actually up over last year in this region, by just over 3%

Following closely behind is the South — areas like Florida had seen some real trouble in months past, but in October, single family sales were up exactly 13% from the month before and over 23% from October 2008. Prices still aren’t what they were last year, but they’re well on the road to recovery just about 5% lower than they were last October. It seems that some of the harder hit areas are the ones that are recovering faster, and that’s great news if we want to see the market start to level itself out and self sustain.

Heading Northeast, there’s a gain in this region, also. Sales of single family homes were up 8% over September and a very healthy increase of 24% over October last year. The interesting thing in this region is that prices here are virtually the same as they were last October, only 1.2% lower, which is negligible. But it is a very promising sign of that stabilization going forward.

Out West, we had seen some wild fluctuations as people rushed from all over to snap up bargains – but, it looks as if most of those crazy sales could be over. Only 0.8% more single family homes moved in October compared to September, but that’s still 11% more compared to last year. Prices, however, are still 15% lower than last year.

Start by keeping in mind that everyone’s search is going to be different. Some people will find the perfect spot in a few weeks and others may search for months — you can’t plan it perfectly, but you should at least try to be prepared. You should get the ball rolling four to six months before you would like to be in your new home. One of the most important tasks will be getting a REALTOR® to help you with your hunt. Talk to friends and colleagues and get recommendations because a good REALTOR® can make the process go a lot more smoothly; they can help you understand your local market, and can talk you through some of the financial decisions you are about to face.

The mortgage approval process is also something you should start about four to six months in advance. Having a mortgage approval letter in hand can make the bidding process easier. But there is an added benefit to doing this at the very beginning. Going through your documents, talking to a lender and with your REALTOR® will really help you clarify just how much you can really afford. It will also let you know whether there are any dings on your credit report you need to fix that might prevent you from getting the best possible loan. And, you will also learn about the fees that come up at closing.

It is also a good idea to start with a clear picture of just what it is you want. This is particularly important if you are buying with another person or for your family. Discussing your priorities will help you, and your REALTOR®, hone in the types of homes you should be looking at instead of running to see every home in your price range.

Next, you can start looking at homes. This is the fun part, peering into unfamiliar houses and trying to imagine yourself or your family making a home there. When you start narrowing your choices, and consider making offers, remember when you want to move. About 2 months from the time you want to move is a good time frame for making an offer. Before you make an offer, talk to your REALTOR® about what is involved because it is not as simple as it might seem. You can, for example, ask for contingencies and ask that certain things be included in the sale. Once you make that offer, knowing whether the buyer accepts or makes a counter offer should only take days. But once that offer is accepted, you need to brace yourself for a whirlwind of activity before the closing can take place.

In the weeks leading up to closing, there are several key things that have to be completed. Some of them will be up to you, but others will not be your responsibility.

• The buyer or lender will do a title search to make sure there are no liens on the property.
• You will have to arrange for an inspector to come take a close look at the home. Do this early because if they find problems you want to make sure there is time for the buyer to fix them. Most people hire an inspector based on their realtor’s referral, but you can also hire one yourself if you prefer.
• The seller will arrange for the house to be appraised to ascertain whether it is worth the selling price.
• Generally, if you’re putting down a deposit of less than 20%, you will have to get homeowners insurance before closing. Shop around because policies and prices vary a lot.
• Several weeks before closing, make sure you are ready for the big day. If you don’t already have it, ask your lender for a copy of the HUD publication called “Your Settlement Costs” which will help outline payments you are going to have to make that day. Double check your calculations of closing costs to make sure you have enough to cover yourself on that day and get a cashier’s check to cover them.

By closing day, the hard part should be over. You will sign a lot of forms and take a final walk through of the property. At that point, there will only be one thing left for you to do: Celebrate in your new home.

Diane: We’ve hit a bottom in sales and construction activity at least in the single family side, but I don’t expect to reach the absolute bottom until we get into mid-to-late 2010. Construction is going to be weak for some time to come, as there has been no new projects funded since about August of 2007, although some additional funding should be coming in the pipeline in 2010. We’re still going to see the multi-family market is weak relative to the overall market, but I think we will see a bottom in housing prices as well, and that will be very key to fuel additional demand for the first time buyer tax credit again then fades.

Some markets have become so affordable that there really is nowhere else to go in such steep decline; there’s no one that rings a bell and says “hey it’s the bottom!” so you’re not going be able to time the bottom exactly, but if you are planning on actually living in a house and not speculatively turning it over; you should have a certain flexibility in that price knowing that you will have time to recoup it for the next several years.

When it goes up, I think it’s going to go up rapidly. The most important issue will be affordability, which is a combination of factors — not just price and interest rates.

Q: How about mortgages in 2010?

Diane: I think we’re going to see the rates increase gradually over the course of 2010. I also think the Fed is going to stop buying mortgages, and we might see them getting more aggressive on the commercial mortgages securities which will make it a little easier on the multi-family condo-type construction and rentals. It’s important to know that there is a window of opportunity right now — we have exceedingly low rates and we haven’t quite hit bottom yet, but we’re awfully close in some markets.

Q: Are mortgages going to be easier to get in 2010?

Diane: That’s the real question here; it’s not clear yet. I think if we get some firming in housing prices as a nationwide phenomenon, banks will be more willing to lend. Let’s face it: the mortgage market outside of banking is larger than mortgage market inside of banking and we’ve eliminated the non-bank mortgage market. Getting access to mortgages is going to be difficult for some time to come. There will be much higher hurdles in terms of affordability – perhaps you will need to put much more money down than in the past, and have the equity up front rather than grows from your home. The one fundamental will be the ease at which you get credit is not going to change a whole lot along the course of the coming year — it will get a little easier by the end of the year, but you’ll lose some of the window of opportunity as well as the mortgage rates at that point.

Q: What about people trading up?

Diane: This is a significant issue: the jumbos are down 5% and require more equity; so it is a real hurdle. I hope to see the trading-up market coming back a little by the end of the year but I don’t think it’s going to come back gangbusters. We should also see some firming in prices in that market as well, which is what you need to see a firming in jumbo markets because that is where there is a lot more give.