Notes from a financing class

Last week I attended a really interesting continuing education class on financing changes in our area at GCAAR. Once again, I was reminded how fortunate we are to be in Washington. In our market 18% of homeowners have negative equity, meaning that they owe more on their home than they could sell it for. While that statistic may seem grim, it's 70% and 47% in Nevada and Florida respectively. According to this teacher, the government is starting to wonder whether the push for homeownership is a correct economic strategy. Apparently homeownership rates are back at the year 2000 levels, on a graph there is a very high peak and then it goes right back down to where we were in 2000. What is truly sad about the downturn is how the crash has disproportionally hurt minority communities. So what is coming up and what can you expect from the realtors, the lenders and the government? Expect to see a lot of adds from the National Association of Realtors promoting homeownership as part of the "American Dream" to counteract any change in government strategy. There will also be a push to standardize foreclosure proceedings (so many mistakes have been made due to the fact that each state has different laws and procedures) and reduce loan fraud. Websites like www.preventloanscams.org will hopefully hinder those out to make an illegal buck, as will a provision in the Housing and Economic Recovery Act that requires lenders to take continuing ed and pass tests to continue to lend. Apparently DC is #5 in the country for fraud rates which is why I stress to clients that they they should not be shopping around on the web for lenders and title companies and they need to use someone from my list of trusted sources for their transactions.

On a positive note, the teacher did let us know that there will be changes in the lending industry to make a past foreclosure less of a Scarlett Letter on one's financial history. If the foreclosure is "circumstantial" (job loss, illness, etc...) the borrow may be lendable again in 2 years rather than 7. The key here is that they will need lots of documentation, so I would advise anyone in a foreclosure or precarious financial situation to keep all financial records in order to prove that they didn't simply walk away from their house.

Chinese Drywall

What is Chinese Drywall? Why is it in the news? Do I need to be concerned?

Chinese drywall was imported by the US from 2001-2006 due to the large amount of construction taking place and builders needing to import extra materials. The drywall from China emits dangerous levels of chemicals that are making people sick as well as corroding metals such as copper wiring and air conditioning coils. Homes with this Chinese drywall emit strong sulfur odors. Recently Hud and the Dept. of Consumer affairs has instructed homeowners to gut the houses if it was built with drywall. Senator Nelson from Florida (a state with a large construction boom in the early part of the decade and hence many unhappy homeowners) is calling for the Chinese government to step in and pay for the damages. It will be interesting to see how this plays out with the economics of rebuilding thousands of homes. Here is a good article on the drywall and the recent developments.

With Foreclosures- We'll Take Any Good News!

Foreclosure rates up by smallest amount in 4 years
By ALAN ZIBEL (AP) – 2 hours ago

WASHINGTON — The foreclosure crisis isn't over, but the pace of growth may finally be slowing down.

RealtyTrac Inc. said Thursday that the number of U.S. households facing foreclosure in February grew 6 percent from a year ago, the smallest annual increase in four years. On the state level, foreclosures declined on a monthly and yearly basis in the hard-hit states of Nevada, Arizona and California, but still grew rapidly in Florida.

More than 308,000 households, or one in every 418 homes, received a foreclosure-related notice, the Irvine, Calif.-based foreclosure listings company reported. That was down more than 2 percent from January

DC "topples" NYC with commercial leasing rates

DC is set to become the most expensive rental market in the country. New York's vacancy rate has skyrocketed due to the recession and collapse of many financial institutions and DC's market has gotten an influx of tenants due to government expansion. Detailed info from the Wall Street Journal (including a map of where the biggest newcomers are setting up shop).

Change in DC Vacant Property Tax- Now Applicable to "Blighted" Properties Only

"Less than a year after doubling D.C.’s vacant property tax rate, the D.C. Council terminated the vacant rate altogether on Tuesday and created a new rate to target owners of blighted or nuisance property.

Last year, the council doubled the vacant rate from $5 per $100 of assessed value to $10 per $100 of assessed value at the suggestion of Councilman Kwame Brown, D-at large. It was an attempt to nudge owners of vacant homes and nuisance properties into action. The $10 rate was more than 10 times the residential rate of 85 cents and more than five times the commercial rates of $1.65 to $1.85, prompting complaints from some homeowners and real estate investors.

In a preliminary July vote, the council agreed to return the rate to $5. But in passing final budget legislation Tuesday, councilmembers — again at Brown’s suggestion — did away with the vacant rate altogether, saying it had produced unintended consequences, and replaced it with a $10 rate that will apply only to blighted properties. A blighted property is “unsafe, insanitary, or which is otherwise determined to threaten the public health, safety, or general welfare of the community” because of broken walls, roofs, windows, balconies or other poorly kept features. Boarded up properties will also count as blighted.

Owners of well-maintained vacant properties, including vacant lots, will pay the regular commercial and residential rates."

-Washington Business Journal - by Jonathan O'Connell Staff Reporter

Having a vacant property tax at 10 times the regular tax is not fair to owners who have their properties vacant for one reason or another, and I'm very glad to see the DC council has realized that. In my opinion, changing the rules to apply only to blighted properties is a step in the right direction. I agree that "blighted" properties are an eyesore in any neighborhood, however I don't think the DC government should have the power to punish homeowners with greater tax liability.

Interest Rates

Breaking News Alert

The New York Times

Wed, September 23, 2009 -- 2:23 PM ET
Fed Will Keep Key Rate Near Zero for 'Extended Period'
The Federal Reserve acknowledged on Wednesday that an economic recovery was under way, but signaled that it was still much too early to start raising interest rates.

In a statement following a two-day meeting by the Fed's policy makers, the central bank repeated that it would keep its benchmark overnight interest rate at virtually zero for "an extended period." That almost certainly means until at least some time in 2010. Policy makers also announced that they would extend the Fed's program to buy up almost $1.5 trillion worth of mortgage-related securities through the end of March.

WSJ Article Concerning "Buyer Remorse"

This is a great article in the Wall Street Journal about the Manhattan real estate market. New York is obviously a very different animal than DC but I think some of the points he makes are applicable anywhere. When outlining some good things to think about before jumping into homeownership my favorite point the author makes is concerning interest rates. "Think about the connection between interest rates and prices. If prices come down another 10% but interest rates increase by 1 percentage point, that would mean the same monthly payment today versus waiting."

Watergate Hotel up for Auction

The historic Watergate hotel will be going up for auction tomorrow and the sale apparently sparked international interest. The hotel closed a few years ago and was to be converted into high-end condos by Monument Realty. I visited their sales center a few years ago and was impressed by their floorplans, finishes, and of course, those views! Unfortunately the project had trouble on multiple fronts as the Watergate Coop buildings tried to stop the conversion, and the financing fell through when Lehman Brothers went under. The hotel is now in foreclosure. Click here for the Washington Post's recent article on the exciting auction.

Washington Post's "Lowball Appraisals Spark Uproar"

This article ran in the Post on Saturday regarding low appraisals coming in on new loans and re-fi's all over the country. This is a sensitive topic for me right now as I am dealing with an appraisal that came in low and it's insanely frustrating for my buyer, the seller, the loan officer and the agents involved. I remember sitting in Econ 101 years ago and learning that the value of a commodity is the price at which a seller is willing to sell and a buyer is willing to buy. In real estate we have asking prices, offering prices, price reductions, negotiations galore and sometimes even bidding wars that eventually arrive in a number at which the buyer is willing to buy and the seller is willing to sell. I understand that banks feel like there needs to be a check in place to make sure they don't get stuck with a foreclosed property that is worth less than the amount they have lent. That itself is the reason we are seeing more loans require 10, 15 and 20% down payments rather than the no money down and 5% down payment loans we saw just a few years ago. Adding a third party (the appraiser) into the mix who may or may not know the market or be doing competent research on the "comparables" can derail an otherwise smooth transaction. These appraisers have final say on the "value" even though any econ student will tell you that value cannot be determined by one person alone. When I give a seller a suggested price that is my opinion of what someone might be willing to pay, and an appraisal is just that, an opinion. New laws handed down from Fannie and Freddie stipulate that mortgage lenders and real estate agents cannot contact these appraisers to ask for revisions or explanations of an out of whack appraisal, so options are to negotiate the price down, come up with more cash, or start the process over with a new lender. A lesson for the buyers out there: keep those appraisal contingency's in there!

Great Economic Info From Brookings

Click here for Brooking's most recent report on "Tracking Economic Recession and Recovery in America’s 100 Largest Metropolitan Areas." It's fantastic data regarding employment, salaries, home prices, and more factors. The most interesting part for me is how varied the recession is and how different cities are affected in different ways. .

DC Decides to Add Transfer and Recordation Tax to Coop Transactions

Coops have always been exempt from transfer and recordation taxes because buying or selling involves transfering shares of stock in a building, not real property. Due to the budget shortfalls, the DC government has elected to extend the transfer and recordation tax that applies to buyers and sellers of Single Family and Condo properties onto Coops as well. Effective October 1, 2009, buyers and sellers of Coops will be taxed 1.1% on purchases under $400,000 and 1.45% on purchases over $400,000. If you are looking at any Coop buildings I suggest buying NOW to save yourself and the seller this significant expense! If you own a Coop I suggest getting it on the market asap!

NAR Press Release About NEW Option with $8,000 Tax Credit

This is fantastic news for first time buyers without a lot of cash (or first time buyers that need their cash to fix up the foreclosed properties!)...

First-Time Home Buyer Tax Credit for Closing will Move Market
WASHINGTON (May 29, 2009) – Consumers across the country can now take advantage of a Federal Housing Administration program to allow qualified home buyers to apply the $8,000 tax credit when purchasing a home. FHA will now permit its lenders to provide a short-term bridge loan that will let qualified home buyers use the tax credit to either make a larger downpayment above the FHA required 3.5 percent, cover closing costs, or buy down their interest rate.
“A true housing recovery depends on buyers returning to the market and reducing inventory,” said National Association of Realtors® President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Since many of the homes available are lower priced starter homes, the ability for individuals to use the tax credit at closing should have a meaningful impact on home sales and values and will allow thousands of families to achieve the dream of homeownership.”
Shaun Donovan, secretary of the Department of Housing and Urban Development, announced the change today. In an address to several thousand Realtors® gathered two weeks ago at NAR’s Real Estate Summit: Advancing the U.S. Economy, Donovan announced HUD’s plan to offer the tax credit as downpayment assistance. Donovan detailed the modifications to that original proposal and announcement.
“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans,” Donovan said. According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans allowing eligible home buyers to access the funds immediately at the closing table.
NAR has supported monetization of the tax credit, which was part of an Obama administration housing stimulus plan enacted earlier in the year. NAR petitioned HUD to allow home buyers to use the $8,000 tax credit to help them cover downpayment or closing costs to bring new home buyers to the market and stimulate home sales.
“We think this is a good program; our members have been getting many inquiries from potential buyers about it,” McMillan said. “NAR is pleased that this enhancement has been made to the administration’s housing recovery program. As we have heard before, there can be no economic recovery without a housing recovery. With an abundance of inventory, reduced home prices, historically low interest rates and now the availability of the tax credit at closing, we expect to see the housing market further stabilize and improve.”

Washington Biz Journal- VA home sales up 6%!

Monday, May 11, 2009, 2:18pm EDT

N. Virginia home sales up 6%
Washington Business Journal - by Tierney Plumb Staff Reporter

The number of homes sold in Northern Virginia rose 6 percent in April, as buyers continued to take advantage of falling prices.

During the month, 1,544 homes were sold in the area, which includes the cities of Alexandria, Fairfax and Falls Church as well as the counties of Fairfax and Arlington, according to Rockville-based market research firm Metropolitan Regional Information Systems Inc. In the same month in 2008, the number of homes sold was 1,455.

The median sale price of a home in the area fell 14 percent in April to $356,750, according to MRIS.

D.C. home sales fared even better. There were 417 units sold, up 13 percent from 368 homes sold in the same month last year. The median sale price dropped 11 percent, from $438,000 in April 2008 to $389,900 last month. Units spent an average of 92 days, or 15 more days, on the market last month over April 2008.

Units on the Northern Virginia market, however, are being snapped up faster than last year. Homes are spending an average of 85 days on the market, or 15 less days than the same period a year ago.

In Fairfax County, 1,168 homes were sold in April. That is up 9 percent compared with a year ago. The median sale price dipped 15 percent to $340,000 last month.

In Arlington County, the median sale price dropped just 5 percent to $450,000 and 191 homes were sold — down 2 percent from the same month a year ago.

Prince William County experienced a 16 percent boost in sales of 741 homes, compared with 639 homes sold in April 2008. The median sale price was down 33 percent to $175,000. Units spent an average of 87 days, or 45 less days on the market, than in April 2008.

Prince George’s County home sales were up 14 percent, with 424 units sold last month. The median sale price was down 21 percent to $230,000, but homes spent, on average, nine more days on the market than they did in April 2008.

Montgomery County home sales last month were consistent with April 2008, with 708 units sold during both months. The median sale price was down 19 percent to $337,975, and homes spent, on average, six less days on the market than they did in April 2008.

Anonymous Websites for Trashing Properties on the Market

This article appeared in the New York Times today about real estate websites that allow home shoppers to anonymously comment on properties that they may or may not have even seen. Websites that link to the Multiple Listing Service often sync data from many different systems and I have seen serious errors on these websites. I tell clients to take what they read on the internet with a grain of salt. In the past month, the Department of Justice settled a long-standing case with the National Association of Realtors concerning websites that provide data to consumers. As a result, the listing agreement now has a portion where sellers can "opt out" of having their homes displayed on other websites, or websites that provide a formula worth of the property alongside it's listing price. I have advised sellers to allow their properties to be on the websites but not allow the "blogging feature" in order to avoid their property being commented on. There is no such thing as a perfect property, and the negativity and anger coming out on these message boards (as in many anonymous forums) are just an outlet for all the anxiety surrounding the economy and making such a large purchase. I blog about properties that I've seen and yes, I see lots of houses and condos that are overpriced, dumpy, or ill-constructed. I won't be showing these to my clients but I don't feel the need to try to convince anyone else not to see them! One person's "dated" is another's "charming."

10 Things To Buy Before the Recession is Over...Housing is #1

A credible financial news source telling us to go out and buy shoes!? You don't have to tell me twice!
In this recent article, Forbes tells us that we should be out there buying before prices go back up. They list the top ten things consumers are getting great deals on; housing is #1 and cars are #2. They also list women's clothing, diamonds, and vacations among other things.

L&F's Dave Stevens Expected to Run FHA

Dave Stevens, who I have quoted several times on this blog and who also has a blog (see my blogroll) is soon to be the head of Federal Housing Administration. It's a loss for Long and Foster however I'm sure he will be a huge asset to the FHA. With all of his mortgage and real estate experience, it seems like this will be a great opportunity for him to help out our struggling housing market accross the country.

Click here for the Washington Post Article.

DC Development Comes to a Halt

This is a terribly disappointing article in the Washington Post about the state of commercial development in Washington. It's very sad to think about how much work has gone into the planning and negotiating of these deals only to have them fall apart.

Making Sense of Property Taxes

There have been some rumblings about why your property tax bill is actually going up when your assessed value (and actual property value) has gone down. It doesn't seem to make sense...

This article about DC's budget woes explains it saying that while the taxes haven't been raised, we are still playing "catch-up" since property taxes can't rise more than 10% each year. Click here for the article that includes some other interesting info about DC's budget.

Federal Tax Credit in the Stimulus Package

There is a lot of information and probably misinformation floating around about the tax credit in the stimulus package...to get the facts about the $8,000 credit go to http://www.federalhousingtaxcredit.com/2009/faq.php#2

DC Suspends Housing Purchase Assistance Program (HPAP)

In a reaction to the city's budget shortfalls, the DC council voted to suspend the HPAP program and not renew funding for 2009. This has caused a huge upheaval in the lower tier of DC's housing market. If we have learned anything from the recent bank failings and whatnot it's that when one sector fails, it doesn't take long for that to reverberate to the rest of the economy. In my opinion, if DC wants to stop the Housing Purchase Assistance Program, they need to first fund the loans for people who have been approved and have ratified sales contracts. Many contracts will fall through for low-income purchasers who would not qualify for the loan of the purchase price (HPAP kicks in up to 70,000 as a 5 year interest free loan), which will just hurt that sector of the market (usually houses up to 300,000)and lead to more foreclosures and short sales. On the website http://buildingdc.com/petition (click to sign the petition and learn more) they have quotes from people weighing in on this budget cut. I found the following quote particularly informative:

Agent - “I have a client that has given notice to her landlord that she and her daughter will move out to in order to settle next week. They will be homeless if the City does not honor its contractual obligation to keep their word and fund her loan.
These prospective homeowners will add to the City’s revenues not subtract. The City will receive transfer and recordation tax revenue for each settled transaction and will ultimately receive property tax revenue, not to mention sales tax revenue when these homeowners go to Home Depot and other retailers.
This cannot be what the Council intended. The Council needs to understand that HPAP is funded in arrears and not in advance. Whenever it receives funding from DHCD that money goes toward reimbursing expenses from the previous quarter. This is a huge mistake and will ruin Thanksgiving and Christmas for countless families, not to mention pull the bottom out of the real estate market.” -D