Is now the time to buy a home? It depends on...
A simple question -- Is now the time to buy a home? -- generated heated debate at a recent dinner party, an argument that made attacks by political candidates appear tame.
"You'd be a ... fool to buy now!" one woman said, noting that resale prices are soft and falling, foreclosures and short sales are still emerging, and the national economy is on less than stable ground.
"You'd be a ... fool NOT to buy now!" another speaker growled, stating that prices are already at their lowest in decades, the selection of homes for sale is stunning, it's best to act while others are still waiting, and, despite popular belief, home loans, especially for first-time buyers, are available at low interest rates, albeit for individuals with a modest down payment and a solid credit history.
Eventually, a consensus emerged: Both positions were correct, because the answer boiled down to two words: "It depends."
It depends on: Where you want to buy? How long will you stay in the house? What is your annual income? Is your job stable? Is a work-related move likely anytime soon? Do you have a decent FICO credit score and a good credit history? How big a loan can you obtain? What is the interest rate? What is the list price of the house? Is the sale the result of a foreclosure? How much of a down payment do you have? What are you currently paying per month in rent? Do you believe home prices will rise or fall over the coming years and by what percentage rate up or down? What's happening in the local market? Are there many foreclosed properties on the market, like in areas of the Inland Empire, or relatively few by comparison, such as here in the San Fernando and Santa Clarita Valleys?
And, perhaps most importantly, what are your genuine housing needs -- are you a single renter with no imperative to move, does your family of five require room to grow, or is the nest empty and you’d like to downsize to a smaller house?
The list of questions went on and on with each raising valid points on both sides of the debate. Eventually, there was agreement on several additional points:
For example, all markets recover; Southern California will continue to lure new residents; and, there are not enough existing houses to satisfy burgeoning demand. That weighed the argument more in favor of buying, but then the debate shifted to timing, and prices, and home loans, and interest rates.
Renters currently paying a low monthly rent and of the belief that home resale prices will fall farther for months to come saw little advantage in buying now. But other renters who pay a high monthly rent and were optimistic about the market, argued in favor of capturing today's low prices, decent interest rates, and wide selection of homes listed for sale.
They wanted to get into the market before the herd returned and prices started marching up again. Plus, efforts to revive the national economy and stabilize the housing market already are yielding programs and once-in-a-lifetime opportunities that may vanish once recovery is underway.
If a renter today captured a home at a favorable price of say $300,000 with appreciation of a modest 3 percent annually, within three to four years the benefits of buying would totally outweigh any perceived benefit of renting. The sooner that houses start appreciating and the higher the rate of appreciation, the sooner that buying would make sense.
Unlike other investments, any return on a home purchase requires a relatively small initial investment. Few buyers plop down cash to pay the full cost of a $200,000 house, while most make a down payment of as little as 3.5 percent on up to 20%, again depending on individual circumstances. A 3.5% down payment of $7,100 on a $200,000 condominium would require a 5% loan of $192,900 with good credit. Principal and interest payments would equal $1,031.00 taxes (and home owners dues if a condo) would average about $400.00 per month. After tax benefits ownership is less than rent and you can upgrade and improve your own home.
If the home increased in value by 5 percent during the first year -- either due to true appreciation or simply because the purchase price was significantly below market -- that means the buyer earned $10,000 on an investment of $7,100. In that instance, the annual "return on investment" would be a whopping 141 percent.
Of course, owners must make mortgage payments and must pay property taxes, along with other costs of home ownership. However, since the interest on a mortgage and property taxes are both tax deductible, the government is essentially subsidizing a portion of the home purchase.
Is it likely that renters could find a safer, better investment elsewhere? It depends, although real estate has always fared well over the years. And in the long haul real estate has out performed nearly all other investment vehicles.
If a renter today captured a home at an extremely favorable price of say $300,000 with only 3.5% or $10,500 down, and appreciation of a modest 3 percent annually, within three to four years the benefits of buying would totally outweigh any perceived benefit of renting. The sooner that houses start appreciating and the higher the rate of appreciation, the sooner that buying would make sense.
But it always came back to the particulars of each prospective buyer's situation. It always came back to "It depends" and for the real answer each individual needs to seek expert advice from me your local Realtor and your accountant.
[Thanks, David!]
Tuesday, January 27, 2009
Buyer's Market: Dive In!
A great opportunity awaits buyers in 2009. The perfect combination of lower prices, lower interest rates, and substantial inventory has come together to create values that we may never see again. Prices are down 25 to 40% from their high in the summer of 2005. Fixed interest rates have fallen below 5% on conforming-rate loans. Additionally, the moratorium that Congress imposed on lender foreclosures over the holidays will gradually be adding to the already ample inventory in 2009. These changes can create a dramatic benefit for a buyer.
Let’s compare buying the same home in 2005 versus 2009 with a similar loan program. Assume the purchase price of a home in 2005 was $800,000, with a 20% down payment. The interest rate for a 30-year, fixed, jumbo loan would have been 6.5%. The monthly payment for principal and interest would have been $3,467 per month. The same home today, down 33% in value, would be $536,000 . The interest rate, with a 20% down payment, would be 4.75% for a conforming, 30-year, fixed-rate loan. The monthly principal and interest payment would be $1,698. The 2009 monthly payment is less than half of the 2005 payment. If you were to stay in the home for 30 years and pay off the loan, you would actually pay $636,840 less in principal and interest, compared to a 2005 purchase. Oh, by the way, the down payment in 2005 would be $160,000, while in 2009, it would only be $108,000...and yes, the property taxes would be 33% less, too.
Let’s compare buying the same home in 2005 versus 2009 with a similar loan program. Assume the purchase price of a home in 2005 was $800,000, with a 20% down payment. The interest rate for a 30-year, fixed, jumbo loan would have been 6.5%. The monthly payment for principal and interest would have been $3,467 per month. The same home today, down 33% in value, would be $536,000 . The interest rate, with a 20% down payment, would be 4.75% for a conforming, 30-year, fixed-rate loan. The monthly principal and interest payment would be $1,698. The 2009 monthly payment is less than half of the 2005 payment. If you were to stay in the home for 30 years and pay off the loan, you would actually pay $636,840 less in principal and interest, compared to a 2005 purchase. Oh, by the way, the down payment in 2005 would be $160,000, while in 2009, it would only be $108,000...and yes, the property taxes would be 33% less, too.
Friday, January 16, 2009
10 Cities Boasting Mini Sales Booms
10 Cities Boasting Mini Sales Booms
Some cities that were hardest hit by the real downturn are experiencing mini sales booms.
Las Vegas real estate properties are down 28 percent in price, but sales of homes are up 15 percent.
Motivated buyers accounted for 64 percent of Las Vegas sales in October, says Radar Logic, a derivatives firm. That’s the highest rate in the country.
"There's a pretty active housing market, it's simply at a lower-priced inventory," says Michael Feder, chief executive of Radar Logic. "And there are now bidding wars taking place over homes in foreclosure."
Phoenix and San Diego are reporting similar experiences.
"We're clearing out the bad news," says Kiva Patten, a director at Merrill Lynch specializing in housing derivatives.
"By the end of 2010 – that's where we're calling the bottom in the forward market. You're going to get a small price appreciation in 2011," says Patten. "It's not like the turn is 10 percent per year, it'll be something like 3 percent or 4 percent."
Here are the cities where experts say it makes the most sense to buy now.
1. Las Vegas
2. Sacramento, Calif.
3. San Diego, Calif.
4. Los Angeles
5. Detroit
6. Phoenix
7. San Francisco
8. Washington, D.C.
9. San Jose
10. Atlanta
Source: Forbes, Matt Woolsey (01/12/09)
Some cities that were hardest hit by the real downturn are experiencing mini sales booms.
Las Vegas real estate properties are down 28 percent in price, but sales of homes are up 15 percent.
Motivated buyers accounted for 64 percent of Las Vegas sales in October, says Radar Logic, a derivatives firm. That’s the highest rate in the country.
"There's a pretty active housing market, it's simply at a lower-priced inventory," says Michael Feder, chief executive of Radar Logic. "And there are now bidding wars taking place over homes in foreclosure."
Phoenix and San Diego are reporting similar experiences.
"We're clearing out the bad news," says Kiva Patten, a director at Merrill Lynch specializing in housing derivatives.
"By the end of 2010 – that's where we're calling the bottom in the forward market. You're going to get a small price appreciation in 2011," says Patten. "It's not like the turn is 10 percent per year, it'll be something like 3 percent or 4 percent."
Here are the cities where experts say it makes the most sense to buy now.
1. Las Vegas
2. Sacramento, Calif.
3. San Diego, Calif.
4. Los Angeles
5. Detroit
6. Phoenix
7. San Francisco
8. Washington, D.C.
9. San Jose
10. Atlanta
Source: Forbes, Matt Woolsey (01/12/09)
Tuesday, January 13, 2009
Foreclosure Evictions in the City of LA
The HCED committee of Los Angeles city council met December 10, to approve the ordinance provided by the City Attorney's office as a result of discussion in the November 2008's meeting (November 21,2008). The plight of renters of foreclosed properties being evicted has concerned the city council. The city council has extended the RSO regulating evictions to cover foreclosed residential rental property of all types.
Details of the Ordinance:
A bank will NOT be able to evict a tenant from a foreclosed rental property in the city of Los Angeles including, single family dwellings, guest rooms, suites, mobile homes, RVs, new construction, condominiums or multifamily. It does not include hospitals, convents and educational institutions.
Once the property has been sold to non-bank entity the tenant can be given a 60 day notice of eviction but will not receive relocation if the unit was not originally under rent control. Residents of rent controlled units receive existing relocation fees.
This ordinance will sunset in one year. Review in 6 months.
Tenancy must be in existence on the date that a property is foreclosed and does not cover a tenancy created after the foreclosure date. This item is at the discretion of the council.
A posting of renters' rights in foreclosure is required to be posted at rental units in the entry or a communal area, if not a fine of $250.00 will result.
A buyer closing escrow on any multifamily building in the city of Los Angeles must notify the city of the transaction, a penalty of $250.00 will result for those that do not comply.
Items added at the meeting by the LAHD 12/10/08
Position of the Association of Realtors:
In an attempt to protect innocent residents from the foreclosure crisis the city has suggested a temporary measure to alleviate the impact on renters in the city.
The Association recognizes the city's motives, but would like to bring the following implications of the ordinance to the notice of the city council:
1) The payment of utilities (multi-family) and maintenance of the units may create a problem and result in blight and/or termination of the services for the tenants.
2) Occupation of a unit, preventing the refurbishment and showing of the unit, may result in a delayed sale. A longer time period on the market and the resulting reduced sales price may exacerbate the housing problems in the area contributing to blight.
3) Lenders may create restrictions on future mortgage products in the city of Los Angeles making renting a home more difficult or expensive for a borrower thus decreasing the rental housing stock in the city or making loans less affordable and decreasing the private property rights of the owner.
Details of the Ordinance:
A bank will NOT be able to evict a tenant from a foreclosed rental property in the city of Los Angeles including, single family dwellings, guest rooms, suites, mobile homes, RVs, new construction, condominiums or multifamily. It does not include hospitals, convents and educational institutions.
Once the property has been sold to non-bank entity the tenant can be given a 60 day notice of eviction but will not receive relocation if the unit was not originally under rent control. Residents of rent controlled units receive existing relocation fees.
This ordinance will sunset in one year. Review in 6 months.
Tenancy must be in existence on the date that a property is foreclosed and does not cover a tenancy created after the foreclosure date. This item is at the discretion of the council.
A posting of renters' rights in foreclosure is required to be posted at rental units in the entry or a communal area, if not a fine of $250.00 will result.
A buyer closing escrow on any multifamily building in the city of Los Angeles must notify the city of the transaction, a penalty of $250.00 will result for those that do not comply.
Items added at the meeting by the LAHD 12/10/08
Position of the Association of Realtors:
In an attempt to protect innocent residents from the foreclosure crisis the city has suggested a temporary measure to alleviate the impact on renters in the city.
The Association recognizes the city's motives, but would like to bring the following implications of the ordinance to the notice of the city council:
1) The payment of utilities (multi-family) and maintenance of the units may create a problem and result in blight and/or termination of the services for the tenants.
2) Occupation of a unit, preventing the refurbishment and showing of the unit, may result in a delayed sale. A longer time period on the market and the resulting reduced sales price may exacerbate the housing problems in the area contributing to blight.
3) Lenders may create restrictions on future mortgage products in the city of Los Angeles making renting a home more difficult or expensive for a borrower thus decreasing the rental housing stock in the city or making loans less affordable and decreasing the private property rights of the owner.
How Do You Determine A Home's Value?
Determining a home's value is not an exact science and it's never a fixed number. Very few people outside of the real estate business can accurately come up with a value. Why? Homeowner's think their house is always "the best". Appraisers look at a home based primarily on statistical data. Buyers and Realtors have their own views. Depending on who you are, you may give more weight to different factors. So, will you have a wide variety of opinions? You bet. These are some of the factors to consider:
1 The home's square footage
2 Quality of construction
3 Home design, general appeal, amenities
4 The home's floor plan
5 Proximity to transportation, schools and shopping
6 Lot size, topography, landscaping, view
7 In the case of a purchase transaction, what a seller and buyer negotiate also contributes to the value
8 And of course, the most recent sales of similar properties nearby
Thanks to Adam Ford of Mortgage Advisors Group for the above article.
Adam can be reached at 661-254-3744, adam@adamford.net
1 The home's square footage
2 Quality of construction
3 Home design, general appeal, amenities
4 The home's floor plan
5 Proximity to transportation, schools and shopping
6 Lot size, topography, landscaping, view
7 In the case of a purchase transaction, what a seller and buyer negotiate also contributes to the value
8 And of course, the most recent sales of similar properties nearby
Thanks to Adam Ford of Mortgage Advisors Group for the above article.
Adam can be reached at 661-254-3744, adam@adamford.net
Monday, January 05, 2009
New Laws affecting real estate for 2009
With the housing market taking center stage among the nation's concerns, both Congress and California's State Legislature have enacted significant new laws affecting REALTORS® and their clients and customers. Highlights of some of the new laws are summarized below.
To view the full text of a California legislative bill, go to www.leginfo.ca.gov
Emergency Economic Stabilization Act May Help Homeowners: Enacted on October 3, 2008, this historic federal legislation earmarks $700 billion for the Treasury Secretary to purchase troubled assets from financial institutions. The Secretary and other federal agencies are also charged with the task of mitigating foreclosures for mortgages and mortgage-back securities and encouraging loan modifications. Furthermore, this law strengthens the FHA-insured refinance loans for troubled mortgages under the HOPE for Homeowners program, including authority for the program's board of directors to increase the maximum loan amount above 90% of the appraised value. This bill also extends the tax exemption for debt forgiveness on home loans under the Mortgage Forgiveness Debt Relief Act of 2007 from December 31, 2009 to December 31, 2012. Source: H.R. 1424.
Debt Relief Income Exempt from State Income Tax: Starting September 25, 2008, the federal income tax exemption for debt forgiven on a home loan now applies to state income taxes to a limited extent. Federal law provides a tax exemption for debt forgiveness on a loan incurred for acquiring, constructing, or substantially improving a principal residence up to $2 million if the debt is discharged from 2007 through 2012. Under the new California law, the maximum qualifying debt is only $800,000, not $2 million, and the maximum exclusion is $250,000. Moreover, the California law only applies to a debt discharged in 2007 or 2008. Senate Bill 1055.
Pool Drains Must Be Properly Covered: As a red alert for apartment and condo managers, all U.S. "public pools and spas" as defined must be equipped with anti-entrapment drain covers by December 19, 2008. The suction from pool and spa drains can be so strong as to entrap children, and cause injuries or drowning deaths. Under the new federal Virginia Graeme Baker Pool and Spa Safety Act, a "public pool or spa" includes pools and spas open to the public, as well as those open exclusively to residents of multi-unit apartment buildings or multi-family residential areas (such as condominiums). The new law requires, among other things, that drain covers for pools and spas conform to the performance standard of ASME/ANSI A112.19.8-2007 and that single main drains be equipped with anti-entrapment devices as specified. For more information, visit the Web site of the U.S. Consumer Product Safety Commission (CPSC), which includes a list of manufacturers, given the uncertainty as to whether the supply of compliant drain covers is adequate. Source: S. 1771.
Tenant Victimized by Domestic Violence Can Terminate Tenancy: Beginning on September 27, 2008, a tenant can terminate a tenancy upon giving a 30-day written notice to terminate, if the notice also informs the landlord that the tenant or a household member has been a victim of domestic violence, sexual assault, or stalking as defined. The tenant must attach to the notice a copy of a temporary restraining order, emergency protective order, or police report issued within the last 60 days. The tenant is also entitled to a proration of the last month's rent if, within those last 30 days, the tenant vacates and the landlord re-rents the premises to a new tenant. This law will sunset on January 1, 2012. Assembly Bill 2052.
Landlords and REO Lenders Must Take Charge of Abandoned Animals: Effective January 1, 2009, any person or private entity with whom a live animal has been "involuntarily deposited" must take charge of it, if able to do so, and immediately notify animal control officials to retrieve the animal. An "involuntary deposit" includes the abandonment of a live animal on a property that has been vacated upon, or immediately preceding, the termination of a lease or foreclosure of the property. The animal control officers who respond can secure a lien to recover the rescue cost, but this law imposes no other liability upon a depositary who complies with these rules. Assembly Bill 2949.
Smoke Detector and Water Heater Bracing for Manufactured Homes: Starting January 1, 2009, all used mobile homes and manufactured homes that are sold must have an operable smoke alarm in each sleeping room (whereas prior law only required one smoke detector per manufactured home). If the manufactured home was manufactured on or after September 16, 2002, the smoke alarm must comply with the federal Manufactured Housing Construction and Safety Standards Act. If the manufactured home was manufactured before September 16, 2002, the smoke alarm (which can be battery-powered) must be installed in terms of its listing and installation requirements. A seller satisfies the above requirements by signing a declaration, within 45 days before transfer of title, that the smoke alarms are properly installed and operable. For a manufactured home manufactured before September 16, 2002, the seller must provide the buyer with the manufacturer's information on the operation, testing, and proper maintenance of the smoke alarms. An agent is not liable for any error, inaccuracy, or omission in any required disclosures that the agent did not know was false. The California Department of Housing and Community Development (HCD) may establish new rules as needed to clarify or implement the smoke alarm requirements. This law also requires all replacement fuel-gas-burning water heaters in existing mobile homes and manufactured homes that are offered for sale or lease to be seismically braced, anchored or strapped in accordance with rules and standards to be established by the HCD by July 1, 2009. Assembly Bill 2050.
No Text Messaging While Driving: Commencing January 1, 2009, a person driving a motor vehicle is prohibited from writing, sending, or reading a text message, instant message, or e-mail from an electronic wireless communication device. However, a person may read, select, or enter a name or phone number in a wireless device to make or receive a phone call. A violation of this law is an infraction punishable by a base fine of $20 for the first offense and $50 for each subsequent offense. Senate Bill 1613.
Other Significant Laws: Some of the other new laws of interest: an increase in the fine for acting as a licensee without a license from $10,000 to $20,000 (Senate Bill 1448).
Realegal® is published by the CALIFORNIA ASSOCIATION OF REALTORS®, a trade association representing nearly 200,000 REALTORS® statewide.
To view the full text of a California legislative bill, go to www.leginfo.ca.gov
Emergency Economic Stabilization Act May Help Homeowners: Enacted on October 3, 2008, this historic federal legislation earmarks $700 billion for the Treasury Secretary to purchase troubled assets from financial institutions. The Secretary and other federal agencies are also charged with the task of mitigating foreclosures for mortgages and mortgage-back securities and encouraging loan modifications. Furthermore, this law strengthens the FHA-insured refinance loans for troubled mortgages under the HOPE for Homeowners program, including authority for the program's board of directors to increase the maximum loan amount above 90% of the appraised value. This bill also extends the tax exemption for debt forgiveness on home loans under the Mortgage Forgiveness Debt Relief Act of 2007 from December 31, 2009 to December 31, 2012. Source: H.R. 1424.
Debt Relief Income Exempt from State Income Tax: Starting September 25, 2008, the federal income tax exemption for debt forgiven on a home loan now applies to state income taxes to a limited extent. Federal law provides a tax exemption for debt forgiveness on a loan incurred for acquiring, constructing, or substantially improving a principal residence up to $2 million if the debt is discharged from 2007 through 2012. Under the new California law, the maximum qualifying debt is only $800,000, not $2 million, and the maximum exclusion is $250,000. Moreover, the California law only applies to a debt discharged in 2007 or 2008. Senate Bill 1055.
Pool Drains Must Be Properly Covered: As a red alert for apartment and condo managers, all U.S. "public pools and spas" as defined must be equipped with anti-entrapment drain covers by December 19, 2008. The suction from pool and spa drains can be so strong as to entrap children, and cause injuries or drowning deaths. Under the new federal Virginia Graeme Baker Pool and Spa Safety Act, a "public pool or spa" includes pools and spas open to the public, as well as those open exclusively to residents of multi-unit apartment buildings or multi-family residential areas (such as condominiums). The new law requires, among other things, that drain covers for pools and spas conform to the performance standard of ASME/ANSI A112.19.8-2007 and that single main drains be equipped with anti-entrapment devices as specified. For more information, visit the Web site of the U.S. Consumer Product Safety Commission (CPSC), which includes a list of manufacturers, given the uncertainty as to whether the supply of compliant drain covers is adequate. Source: S. 1771.
Tenant Victimized by Domestic Violence Can Terminate Tenancy: Beginning on September 27, 2008, a tenant can terminate a tenancy upon giving a 30-day written notice to terminate, if the notice also informs the landlord that the tenant or a household member has been a victim of domestic violence, sexual assault, or stalking as defined. The tenant must attach to the notice a copy of a temporary restraining order, emergency protective order, or police report issued within the last 60 days. The tenant is also entitled to a proration of the last month's rent if, within those last 30 days, the tenant vacates and the landlord re-rents the premises to a new tenant. This law will sunset on January 1, 2012. Assembly Bill 2052.
Landlords and REO Lenders Must Take Charge of Abandoned Animals: Effective January 1, 2009, any person or private entity with whom a live animal has been "involuntarily deposited" must take charge of it, if able to do so, and immediately notify animal control officials to retrieve the animal. An "involuntary deposit" includes the abandonment of a live animal on a property that has been vacated upon, or immediately preceding, the termination of a lease or foreclosure of the property. The animal control officers who respond can secure a lien to recover the rescue cost, but this law imposes no other liability upon a depositary who complies with these rules. Assembly Bill 2949.
Smoke Detector and Water Heater Bracing for Manufactured Homes: Starting January 1, 2009, all used mobile homes and manufactured homes that are sold must have an operable smoke alarm in each sleeping room (whereas prior law only required one smoke detector per manufactured home). If the manufactured home was manufactured on or after September 16, 2002, the smoke alarm must comply with the federal Manufactured Housing Construction and Safety Standards Act. If the manufactured home was manufactured before September 16, 2002, the smoke alarm (which can be battery-powered) must be installed in terms of its listing and installation requirements. A seller satisfies the above requirements by signing a declaration, within 45 days before transfer of title, that the smoke alarms are properly installed and operable. For a manufactured home manufactured before September 16, 2002, the seller must provide the buyer with the manufacturer's information on the operation, testing, and proper maintenance of the smoke alarms. An agent is not liable for any error, inaccuracy, or omission in any required disclosures that the agent did not know was false. The California Department of Housing and Community Development (HCD) may establish new rules as needed to clarify or implement the smoke alarm requirements. This law also requires all replacement fuel-gas-burning water heaters in existing mobile homes and manufactured homes that are offered for sale or lease to be seismically braced, anchored or strapped in accordance with rules and standards to be established by the HCD by July 1, 2009. Assembly Bill 2050.
No Text Messaging While Driving: Commencing January 1, 2009, a person driving a motor vehicle is prohibited from writing, sending, or reading a text message, instant message, or e-mail from an electronic wireless communication device. However, a person may read, select, or enter a name or phone number in a wireless device to make or receive a phone call. A violation of this law is an infraction punishable by a base fine of $20 for the first offense and $50 for each subsequent offense. Senate Bill 1613.
Other Significant Laws: Some of the other new laws of interest: an increase in the fine for acting as a licensee without a license from $10,000 to $20,000 (Senate Bill 1448).
Realegal® is published by the CALIFORNIA ASSOCIATION OF REALTORS®, a trade association representing nearly 200,000 REALTORS® statewide.
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