January, 2010

How important is this to the average American? Well, the FHA currently backs about 30% of all loans for home purchases and 20% of refinanced loans, so of the millions of aspiring home buyers out there, this could have serious ramifications. Under the plan, the agency would increase the up-front insurance premium that borrowers pay at the closing table from 1.75% to 2.25% of the loan’s value starting this spring. The really big change is that while most FHA borrowers can continue to make down payments of as little as 3.5% when they take out a loan, those with a credit score of less than 580 will have to make a down payment of at least 10%, possibly starting in the early summer.

In other news, there’s a little more good news on the homebuilder front as KB Home said this week it made money in the fourth quarter. Like Lennar last week, KB’s fourth quarter profit came about not because it was selling and building at an unexpected pace, according to an article in the Los Angeles Times. Rather, they received a huge tax credit that pushed them into the black for the first time in more than two years. KB’s chief executive, Jeffrey Mezger, called the company’s performance in the last quarter of 2009 “heartening.“ But he did also warn that the outlook in the short term might be rocky for a while. Mezger pointed out the housing market is stabilizing in some regions. But how things shake out depends on a lot of factors such as unemployment, the foreclosure rate and federal policies that have created incentives for homebuyers.

Still, there are good signs out there. Builders broke ground on new residences at a faster clip in November than in October, up by 8.9%. And both KB Home and Lennar are buying land again.

The federal government issued a report on its program designed to help stave off more foreclosures by getting borrowers into loan modification. Since the Home Affordable Modification Program started last spring, more than 900,000 borrowers have entered into trial modifications. So far, though, only 66,465, or about 7%, have successfully transferred into a permanent modification, according to the Wall Street Journal. In addition, 46,000 trial mortgage modifications were approved and awaiting only the homeowner signatures before they were made permanent as well. Borrowers must make three months of payments on the trial modifications to be eligible to get a permanent fix. According to the Treasury Department, as many as 545,000 borrowers have been in trial modifications for at least three months, but have not been converted.

Mortgage servicers have been slow to turn the trial modifications into permanent ones. The pace did pick up in December after the administration increased scrutiny and threatened banks with fines. The federal government has stressed that the paced needs to speed up because modifying loans may help the foreclosure rate, which will have a huge impact on the housing market in the year to come.

But before that, let’s take a look at the other NAR forward looking indicator, the Pending Home Sales index, and see what that might tell us and also what we might expect in the year ahead. The Pending Home Sales index is an indicator that counts contracts signed. in November, while it did fall off 16% from October, that was still 15.5% higher than November 2008. This tells us that there is a lot more consumer confidence in the housing market towards the end of last year than there was at the end of the year before.

These drops are not unexpected. The winter market will always see a downturn; so we have a few months yet before we see any really notable gains again. But the fact that pending home sales are comfortably above year-ago levels shows the market has gained good momentum on its own. We might expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the two tax credits expire. Remember, that as well as the first time buyer credit, there’s also now a $6,500 repeat buyers credit and that could open the door to another 1.5 million buyers, as well as keeping the door open for another 900,000 first timers.

But many trade-up buyers, who have historically timed their purchase based on school year considerations, will have to accelerate their buying plans if they want the tax credit. There’s also been some confusion over this, so let’s make it clear: Repeat buyers do not have to sell their existing home to qualify for the credit, but they must occupy the home they buy as their primary residence.

And, there’s another item to get you acting early in this real estate year — mortgage interest rates cannot remain at rock-bottom levels for a sustained period and will likely inch higher in 2010.

The tax credit impact in the first half of the year and expected job growth impact in the second half, should support home buying activity and absorb inventory, and in many parts of the country we’re already seeing a very rough balance between buyers and sellers. But, home prices are expected to stabilize throughout the country and even modestly rise as a result in 2010, and it may be sooner than we think.

1. The IRS saw a lot of fraud with the first round of the first time homebuyer credit, and I believe they wanted to take that opportunity to really zone in and make sure that what they put out there will help eliminate and reduce the fraud that they are seeing.
2. There were so many changes that were passed with the November 7th bill, that the IRS had to go back and look at their systems, and their technology, to make sure the form was very comprehensive, and that takes time.

The IRS wants to ensure people are claiming these credits for the right reasons. The rules have changed from the first time homebuyers credit — there are 3 key points with the new form that people should know.

1. You’ll need to attach a settlement statement, as you need to show proof that you bought the home. So, when you go to the title company to sign the settlement statements, make sure you make a copy because you’ll need to send that into the IRS.
2. If you are a repeat buyer, you need to have records that prove you’ve owned your previous home for 5 consecutive years out of the last 8 years. These can be property tax records; homeowner insurance records; or even electricity or water company statements. You don’t have to file these, but the IRS will do some compliance checking so just be prepared and have those things in order.
3. Mail in your return. Many people file online to get their return fast; however, since we have to send in the settlement statement, you need to actually send the paper return.

This week, the NATIONAL ASSOCIATION OF REALTORS®, which is the biggest trade association in the country, has teamed up with Lowes, one of the nation’s biggest home improvement companies, to get help to the people in Haiti. Both will each contribute $100,000 to the REALTORS® Relief Foundation, which will then get the money to charities helping the earthquake victims.

And that’s not all — beyond the initial $100,000 amount matched by Lowes, NAR announced it would contribute an additional $350,000 to the Clinton-Bush Haiti fund, bringing NAR’s total Haiti contribution to $450,00 and with Lowes, that total is $550,000.

And, $50,000 of that money will go to Harvest for Haiti, founded by REALTOR® Pat Moore from Fort Gratiot, Michigan. He’s no stranger to Haiti. He’s been traveling there for the last decade, bring the impoverished citizens there food, medicine and clean water. He also built an orphanage, in one of the poorest rural areas of Haiti. In 2007 Moore received the NAR’s ‘Good Neighbor Award,’ for his efforts to make life better for the people of Haiti. And now he’ll be going back, with that brand new $50,000 contribution from Lowes and the NAR.

Moore’s immediate goal? To provide at least six months worth of food to the orphanage he founded in Anse Rouge, and also focus on helping residents in and around Port-au-Prince.

Here at Real Estate Today, which as you know is a presentation of the NAR and its REALTOR® members, we’re proud of the efforts being made by Pat Moore, as well as the hundreds of thousands of REALTORS® who have contributed to the REALTORS® Relief Foundation over the years.

If you’d like to learn more about Harvest for Haiti, and the REALTORS® Relief Foundation, we invite you to donate by clicking here.
And from all of here at Real Estate Today, good luck, Pat. And good job!