George Belleville & The Head for Home Team

What will the Expanded Tax Credits Do for the Market?

Many people, by now, have heard that the government has extended and expanded the First Time Homebuyer Credit, and added a provision for Move-up Seller/Buyers.  Information about the First Time Homebuyer Credit is available on my website.  

But How Does This Effect the Market?
Take a moment to consider what this means to first-time buyers, as well as those who have a home to sell, and are considering moving up.  The benefits to the first-timers is obvious.  Paying $8000 less in taxes to the Federal Government keeps $8,000 in their pocket.  This provides a great contingency fund for the first year of home ownership, can help defray some update and repair costs if necessary... or whatever else you would like to do with the funds. 

With an FHA loan, which most first-timers use, they would be able to purchase a home for approximately $230,000 and get as much back from the government as their down payment!  With so many strong buyer markets, and sellers covering closing costs, that would mean, almost literally, no money down.  The beauty of this system is that the buyer must have saved up the money to buy first, then get the credit back.  This will help to ensure that they are capable of saving, monitoring expenses, etc.- important precursors to successful home ownership.

More importantly, it does two things.  First, it provides a great psychological boost to nervous first-timers who are on the fence about buying.  For most, $8000 is a large enough sum to make them feel comfortable taking the big step of home ownership.  What that will do is create more demand for homes that are favored by first-time buyers.... town homes, condos, etc.  

The secondary effect will be to allow sellers of those homes to move up, and thus get the market moving again. Think about it.  Due to the cost of new construction homes, few first-time buyers can afford new construction. So, for almost every home purchased by a first-timer, there is a seller who can move on.  It is easy to see how this program may provide a boost to home sales.

I know that the tax incentive has motivated my first-time buyers, and the extension has motivated more of them.  With prices low, interest rates low, and incentive money from the government, it is truly an outstanding time to buy a home!

Should You Buy Investment Property?

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Buying and selling real estate, whether in the short term or long term, has been a consistent form of wealth building for decades.  Everyone knows this, almost everyone considers it, but most people do not seize the opportunity, for a variety of reasons.  In my opinion, the current market presents an excellent opportunity.  The path to success, however, requires that you think of it like starting a business.

 

One concern that I constantly hear is, “how do I know the property will go up in value?”  The reality of real estate investing is that you make your money when you buy.  Experienced buyers purchase property at a price that assures them increased value.  If you are buying and hoping it will go up (like in 2005-2007) you are speculating.   It is always a good time to buy the right piece of property.  The questions to ask are, what determines the right property, and am I in a position to buy financially?

 

First, let’s look at a couple “types” of buyer who find themselves considering an investment property purchase.  My experience has been that those who ponder this the most are:  mobile singles who can buy, fix and flip, those planning for retirement who would like to buy an investment property then convert it to their primary residence, professional investors, and everyone else. 

 

There are specific advantages and disadvantages to real estate investing for each of these groups; mobile singles can move to take advantage of opportunities, but they can also find financing difficult, and sometimes their mobility-mindset will cause them to take advantage of an employment opportunity that conflicts with their real estate investment time line.  Those planning for retirement can find themselves the perfect retirement location, only to have their plans uprooted by relocated children and grandchildren, medical issues and more.  Professional investors make fewer mistakes, but also have more difficulty finding financing at times. 

 

There are many advantages to investing in real estate, primarily the accumulation of wealth.  While you must consider the housing market, the financial market and taxes, with the help of experienced professionals, you can make educated decisions and take advantage of this market.  Like starting any other business, you must perform your due diligence up front, with the help of experienced professionals.

 

If you have thought about investing in real estate, please call me to discuss how you can take advantage of this unprecedented market.

 

Could New HUD Rule Crush Condo Prices?

HUD recently released Mortgagee Letter 2009-19, regarding  FHA financing for Condominium purchases.  I think this move could have a serious negative impact on Condo owners and future Condo values.

A Quick History
Most people understand that when you own a condo, you own your unit (to varying degrees) and a share of the common areas and other community assets. Unfortunately, when times are tough, as they are now, owners will stop paying their condo fees long before they stop paying their mortgage.  Thus, you can have a condo regime in serious financial straights, which may not be visible without a review of their books.  It is understandable that if the condo association is struggling, HUD would want to limit their exposure to that risk, by limiting the number of homes in that community with FHA financing.

HUD Responds
In order to limit their exposure to defaults in a condo community, HUD has decided to limit the Maximum FHA Concentration  to 30% for any project. Thus, if you are a buyer looking to purchase in a condo where 30% of the properties currently have FHA financing, you will be required to use conventional financing.  The problem is that almost all first-time buyers are using FHA financing now because of the lower down payment requirements, less stringent underwriting guidelines and the expense of using private mortgage insurance if they can get a mortgage with less than 20% down.

The Result?
If you own a condo, and the community is already at 30% FHA financing concentration, you will only be able to sell to those who can get conventional financing.  Real estate is all about supply and demand, and this financing restriction will limit the demand for condos among those who must use FHA financing.  One can only imagine what that reduction in demand will do to an owner’s ability to sell, and their future home value.  If you are a buyer, even if you can get in before the community reaches 30% FHA financing concentration, you run the risk of the community staying at that percentage for some time, making future sales more challenging, and lowering demand for that type of property.

Reduced demand with stagnant supply = lower values.  As an economics major in college, I am sometimes accused of a “geekish” belief that everyone understands supply and demand.  If you don’t visit here!

It's Not About the Money, It's About You and Your Dreams!

As you can imagine, I spend a great deal of my working time speaking to people about their real estate needs.  Given the current state of the market, the conversation is consistently focused on money, and more specifically, on rates, fees, and dollars.  But it is important to step back sometimes, and think about why someone is contemplating a real estate purchase or sale to begin with.  No one ever says, "I have X dollars to spend, and I have decided to spend them on a house."  No one ever says, "Now that rates are at X, I have decided to purchase a house."  What they say is, "I want to move to a better school district," or, "I want to move closer to my grandchildren," or, "We have outgrown this house."  It is critically important that you work with an experienced agent, who is able to help you clarify your goal, keep you focused on it and then achieve it.

That's why it is never about the money.  It is very easy to become focused on fees, expenses, deadlines, closing costs, inspection repairs, and thereby lose sight of your goal.  All those things are just the means to an end.  It may be a great time to buy if you are a first-time home buyer, because of the $8,000 tax credit.  But it might not be.  It might be a great time to refinance or move up at 4.75%, but it might not be.  It's not just about the money!  Please keep that in mind when you think about your next real estate move.  Do you trust your agent enough to share your hopes and dreams, and make them part of the process?