$8,000 1st-time homebuyer tax credit can be applied to down payment on FHA loans

Yup, you heard that right. The FHA announced yesterday that it will allow qualifying home-buyers to monetize their tax credit by applying it directly to their down payment.

While the primary recent attraction of FHA loans has been the low minimum down payment of 3.5%, this new monetization option should help out those who qualify, even if the $8,000 cap doesn’t come close to 10% of the average purchase price in the Bay Area (see point #3, below).  Heck, it may not even cover the 3.5% minimum down payment for FHA loans.  Regardless, I don’t know a single qualifying buyer who would turn down this option.

Who can qualify for the tax credit? Glad you asked. Here are the general criteria:

1. The tax credit is for first-time home buyers only.  For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
2. The tax credit does not have to be repaid unless it is sold within three years of purchase.
3. The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
4. The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
5. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.  A reduced credit is available for those who make up to $95,000 (singles) and $170,000 (couples).  Over those incomes, buyers will not qualify.

Bay Area home sales see first monthly gain in half a year

Bay Area home sales climbed nearly 30 percent from March to April, the first monthly gain in half a year as financing became easier to secure and shoppers took advantage of bargains, according to a research firm.

From a year ago, however, sales were still down 15.3 percent, according to DataQuick Information Systems of La Jolla (San Diego County).

There were month-over-month sales increases in February, March, May and October of last year, none of which presaged an overall strengthening of the market.

Across the nine county area, 6,310 new and resale houses and condos traded hands last month, up 28.8 percent from March. The median prices fell to $518,000, down 3.4 percent from March and 21.4 percent from April 2007.

In San Francisco, sales of all housing types increased 6.5 percent from a year ago to 605. The median fell 5.1 percent to $750,000, the smallest percentage decline in the region. The largest annual price decline was in Contra Costa County, where the median fell 34.2 percent to $395,000, even as sales inched up 1.5 percent to 1,265.

The median indicates that half the homes sold for more than that amount, half for less.

…and you thought Bay Area homes were expensive!

Recently reported on Forbes.com: the world’s first billion-dollar home.

Yes, “billion.” With a “B.”

While that figure may sound impossibly high, consider this: the new 27-story tower home of Indian petrochemical tycoon Mukesh Ambani and his family will not simply break the billion-dollar barrier — it will shatter it by an order of two.

That’s right — he’s building a $2,000,000,000 home. What does two billion buy you these days?

• 400,000 square feet of interior space
• 6 stories of parking lots
• 9 elevators
• 4-story outdoor garden
• 2-story ballroom

…and much, much more. Read the full story and see pictures of unbelievable opulence here. I can almost hear Robin Leach knocking now…

As ARMs reset, little of the expected chaos is coming to fruition

Worries that subprime mortgages originated during the peak real estate market would sideswipe borrowers with giant monthly payment increases have been reduced by Federal Reserve rate cuts and other steps to stimulate the nation’s credit markets.  In fact, some borrowers with resets occurring today are finding their monthly payments staying much the same.

Many Adjustable Rate Mortgages (ARMs) start with a lower introductory rate that adjusts periodically (typically once a year for prime loans, twice a year for subprime loans) after an initial period of two, three, five or 10 years.  ARMs generally are tied to a Treasury or London Interbank (LIBOR) index, with the mortgage rate typically set at 2 to 6 percentage points above that index rate.

The good news is that LIBOR rates have been stable, thanks in part to the actions of the Federal Reserve to lower interest rates.   For example:  Let’s say a borrower in Spring 2006 obtained a mortgage indexed at five points above LIBOR (then at around 5 percent).  That would have meant an indexed rate at that time of 10 percent.  However, a two-year introductory rate capped the payment at 8 percent.  As of last week, LIBOR was at 3.08 percent, which means this fictional mortgage would reset at 8.08 today – only a slight change for the borrower.

Without the Fed’s rate cuts, more than $100 billion in subprime ARMs would have jumped at least two percentage points.  Now, only about $60 billion in these mortgages will adjust up by more than two points.

To learn more about this, check out this excellent article on SFGate.com.

Congress Sends President Stimulus Package — Final Bill Includes Increased Loan Limits

Thanks in part to lobbying by C.A.R. and NAR members, the Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008.  The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package.  The House just passed the Senate version of the bill  and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15th.   The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform,  making these increases permanent.

The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas.  By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales.  Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.

Increasing the FHA loan limits is critical to bolstering California’s housing market.  Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan.  The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.

Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets.  For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.

The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today.  The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets.  Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.

East Bay Tops State Average for Affordability

According to a recent report released by the California Association of Realtors (“CAR”), the percentage of households who could afford to buy an entry-level home in California stood at 25% in the fourth quarter of 2006, compared with 27% for the same period a year ago. For condominiums, the percentage was unchanged, at 37%.

CAR’s First-Time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.

The minimum household income needed to purchase an entry-level home at $477,400 in California in the fourth quarter of 2006 was $96,760, based on an adjustable interest rate of 6.36% and assuming a 10% down payment. To give a sense of perspective, first-time buyers typically purchase a home equal to 85% of the prevailing median price, which would work out to a monthly payment (including taxes and insurance) of $3,230.

Bay Area affordability ranked as follows:

Entire Bay Area: 25%
San Francisco County: 19%
Alameda County: 26%
Contra Costa County: 26%

 

San Francisco = cheap!?

Okay, so in my last post I went on record saying that the local real estate market functions fairly independently of the national market, etc., etc. Real estate market aside, it turns out that San Francisco just isn’t that expensive.

According to the Economist Intelligence Unit’s annual cost-of-living ranking, which totals prices for a market basket of goods to determine the world’s most-expensive places, San Francisco is the 41st most expensive city in the world, well behind American cities like New York (28), Chicago (36) and Los Angeles (39). The relatively weak U.S. dollar seems to be the reason for U.S. cities’ relatively low global rankings.

Topping the list? Oslo, Paris and Copenhagen. Tokyo, which has topped the list for years, came in fifth this year due to a weak yen.

…and now for the “gotcha” part: The report’s target audience is corporations relocating their executives that need a way to calculate what kind of cost-of-living allowance they should offer. As housing costs are generally handled separately, they are not included in the survey. Go figure.

Housing Bubble, Toil & Trouble

While it may not be completely applicable to the BAREM (Bay Area Real Estate Market), there is a pretty interesting article in Slate’s Moneybox column comparing the 2007 real estate industry to the tech market of 2000-01.

While following national trends can be interesting, they can be poor barometers of the local market.  Any parallels to be drawn between the NASDAQ and the BAREM (heh) need to take into account the inherently local nature of real estate.  Not to say that the BAREM has no ties to national trends. The major impact on existing home values comes from Fed-regulated interest rates, which affect all buyers who borrow money. It is well known that the real estate boom over the past few years has been fueled by interest rates at or near historic lows. Converseley, in the early 1980s, interest rates hovering in the mid-teens made home prices stagnant for years.

Now, to the focus of the article — that we haven’t hit the bottom of the real estate market, despite repeated assurances from industry leaders that we have. The reality is that timing the market is pretty close to impossible. The only way to know when the market has changed is, unfortunately, to look at it with the benefit of hindsight.

That said, we have definitely moved from a seller’s market to a buyer’s market. Buyers have more leverage than ever, and the market is flooded with available properties. For those people who have been waiting for the market to slow down before making their next purchase… call me.

Behind on your mortgage?

A recent article by Kathleen Pender in the SF Chronicle offers some valuable insights for homeowners who are finding themselves unable to keep up with their mortgage payments.

Among those insights:

* Talk to your lender.

While this may seem to some to be a no-brainer, it is surprising to note that roughly half of the people who lose their homes to foreclosure never spoke with their lender about their problems making their mortgage payments.

* Stretch out your partial repayment plan.

It may be possible to make partial payments for 12 to 18 months now, as compared with 3 to 6 months in the 1990s. This can help those suffering from unexpected, though temporary, changes in financial, job or family status get back on track within a realistic timeframe. In addition, it may be possible to add those missed or underpaid amounts to the principal of the loan, to be repaid upon sale or refinancing.

* Loan modifications

It may be possible to stretch out the term of the loan and therefore lower the monthly payments to within the borrower’s budget.

* Don’t be afraid to ask for help!

Later this year, a consortium of mortgage companies, nonprofit agencies and the Ad Council will start a nationwide ad campaign designed to get borrowers who are behind on their payments to call a toll-free number — (888) 995-4673 — that will lead them to foreclosure-prevention counseling.

However, as Pender says, “All this is not to suggest that lenders have suddenly become sheep. Lenders will still try to extract as much money as they can out of borrowers, whether or not they ultimately default on a loan.”

Welcome to the Bay Area Property Blog

Following some rather frustrating technical difficulties, we are back up and running. I have scrapped the entire history of this blog and an starting fresh. After all, the market has changed so much from the heady days of 2005-06. We’re just keeping pace. Plus, it’s Valentine’s Day — share the love.

My goal for this blog is to share unbiased, reliable, very useful information about the San Francicso Bay Area real estate market, with a nod to national trends as well as their particular (peculiar?) effect on this market.