Posts Tagged ‘Tax Credit’

Intero Insider: What We Need Are Jobs

By Gino Blefari | July 14th, 2010 0 Comments

We are now halfway through the year – a good time to reflect and to look ahead at what the rest of the year may bring.

For me, I’ve been focusing on market fundamentals and how they may guide real estate buyers over the summer and fall.

While many in our industry this past week focused on Congress’ decision to pass an extension for the Home Buyer Tax Credit – giving buyers under contract another 90 days to close and still qualify for the credit – I feel we should’ve been talking more about jobs.

Jobs should be the focus when looking at ways to fuel long-term housing demand. Jobs create incomes, which are essential to support mortgages on home sales. Without a positive job outlook, the other strong demand fundamentals already in place – rock-bottom interest rates, softened prices – can’t sustain the market alone.

Unfortunately, the news on that front has not been that great:

  • Private payroll gains weren’t as high as expected in June – meaning more small businesses cut jobs or refrained from hiring.
  • Unemployment rates eased in some cities, but increased in others. At the national level, unemployment inched up .2 percentage points to 9.3 percent from last year’s level.

I know it’s not easy to fill the employment gap as quickly as we’d like to see. But until we get positive news on jobs, the reality is that we’re looking at a long haul for housing. Sure, a new tax credit would help. And the historic low interest rates are definitely working in our favor. But those jobs really are key.

Jobs are what we need for a sustainable, healthy housing demand. Match this with record low interest rates – 4.67 percent last week on 30-year fixed-rate mortgages – and then we might have ourselves a good housing cocktail.

It’s not going to happen overnight. As with everything, we need to practice patience in this recovery and understand which market forces will really make a difference.

It may sound strange to anyone who is without a job or on shaky employment ground, but it really is a great time to be a home buyer – IF your situation is right. If you’re lucky enough to have job security and you also have the means, you are in the middle of some of the cheapest borrowing in history. And you have a lot of inventory to choose from in most markets.

So as we make our way through the second half of the year, let’s focus on the fundamentals that will not only give housing a quick lift, but more importantly sustain upward movement.

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Intero Insider: Life After the Home Buyer Tax Credit

By Gino Blefari | June 29th, 2010 0 Comments

It’s safe to say now that the action brought to the nation’s housing markets by the Homebuyer Tax Credit is over. Any buyers who wished to take advantage of this credit had to have been in contract by April 30 and now must close by June 30.

But please remain seated before exiting this ride and declaring the housing market D-O-O-M-E-D (as several headlines have cried this week). See, there is still a very key factor in place that is working in homebuyers’ favor:

Historically Low Interest Rates

This often-overlooked little fact is actually a really important point to ponder. That’s because when you look at today’s rates, which average around 4.75 percent on a 30-year fixed rate mortgage, according to the Mortgage Bankers Association’s latest survey, you realize what a win this is for borrowers – even for those who missed the tax credit deadline.

These low rates are far more significant than any tax credit in terms of savings and incentive to stoke demand. How is that? Well, let’s look at the math:

Let’s say today’s buyer is looking at a 5 percent interest rate on a 30-year fixed loan of $285,000. He’s disappointed at missing out on the tax credit, but since he’s able to lock in at a lower rate than he would’ve gotten two months ago at 5.25 percent, he’s actually saving $15,782 in interest over the life of the loan, which according to my math is significantly higher savings than what that tax credit would’ve gotten him ($8,000).

So today’s buyer nearly doubles his savings in interest compared with the April tax-credit buyers? Doesn’t spell D-O-O-M to me.

Let’s look at another scenario:

This buyer would be able to lock in a 5.25 percent rate on a 30-year fixed loan of $400,000 in July. There’s no tax credit to light a fire under his decision, but say the economic news circles expect a slight uptick in rates by the end of August. If he waits, he’ll risk increasing his rate to 5.35 percent, thereby adding $8,943 in interest to the life of his loan.

I’m not saying that rates will save the day. Remember: There are no quick fixes. But we also have to be sure we understand the forces that are working in the market’s favor.

Tax credits may come and go, but at the end of the day it’s things like historic low interest rates that will keep buyers interested.

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Intero Insider: Housing Starts Are Down? I’m Shocked. Or Not.

By Gino Blefari | June 22nd, 2010 0 Comments

Last week, the financial sector was up in arms about some seemingly surprising news. It seems that, in May, housing starts — the number of building permits that were pulled in order to start construction on new homes — were down.

With all of the homes that were purchased this spring, surely the troubles in the housing market were over. Right? In April, sales were positively booming! What on Earth could have happened to put a slowdown on things?

<Psst! Hey! The tax credit expired!>

Wait. What? What’s that you say? The tax credit expired? You mean that didn’t amp up the market and then keep it up? It wasn’t the answer to our economic recovery dreams?

No. It wasn’t.

In fact, I’ve been saying this for some time. For those who were able to take advantage, the Homebuyer Tax Credit was great. But while it gave the spring real estate market a much-needed boost, I have long theorized that the sales it produced were simply being borrowed from the future. People who had already planned to buy a home simply did so earlier.

Now that the credit is gone, the buyers have little incentive to make their decisions now.

There are far too many variables in play for buyers right now. Mortgage rates are in a constant state of flux, underwriting standards are tougher than ever, and a great many sellers are still living in Fantasy Land when it comes to their proposed list prices, so many buyers are simply choosing to sit tight and see what happens. There’s very little pressure on them.

“OK, then … so now what?”

First off, sellers need to get a handle on reality. If you need to sell your house, then understand the rules of the game. Pie-in-the-sky dreams of top-dollar prices and bidding wars will likely get you very little except mountains of frustration. Find a REALTOR in whom you have confidence. Listen to him (or her), for he/she understands the market as it is today.

Second, and most importantly, we must all exercise some patience. It took us some time to get ourselves into this morass of economic detritus, and it’s going to take some time to get out. There are no quick fixes.

The real estate market will come back. It always does. It’s one of the few constants in our economy. In the meantime, let’s learn from our mistakes. Borrowing from Peter to pay Paul isn’t going to work. Let’s use our heads and work toward real recovery, real improvement.

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The Intero Insider: Missing Out On The Tax Credit Is OK. Really.

By Gino Blefari | April 27th, 2010 0 Comments

Ah, yes. The Homebuyer Tax Credit. It ranks right up there with health care reform and Eyjafjallajökull as the most-discussed news item of 2010. The proverbial dead horse has been beaten to a fare-thee-well, yet still keeps coming back for more.

The tax credit has, I think, driven many buyers who were on the fence about whether or not to purchase a home into the marketplace. It’s been something of a boon to those who have been able to take advantage of it. If you were able to qualify, that’s a great thing. $8000 (or $6500, if you were already a homeowner) is nothing at which to stick up one’s nose.

But is it, on its own, a reason to purchase a home? Absolutely not.

Everywhere I turn, I see advertisements, blog posts, and the like reminding people that the deadline for being able to claim the tax credit is rapidly approaching. To claim it, you must, in fact, be under contract by Friday, April 30, and you must be able to settle on that contract no later than June 30, 2010. At this point, however, any potential homebuyer who hasn’t been in the trenches and actively looking for a house — and looking seriously — should bide their time. They should not, under any circumstances, rush to sign a contract on a home by Friday, simply so they can claim an $8000 credit.

Why?

Because that $8000 isn’t worth the heartache and sleepless nights that will come with making a $300,000 mistake. Because of the pressure associated with meeting this deadline, lots of people are going to dive headlong into a decision that they’re not actually ready to make.

Any REALTOR worth his or her salt will stand up and say so. A good REALTOR — one who’s really looking out for his clients’ best interests — will not urge that decisions be made on a factor that, in the long run, won’t matter all that much.

And if you miss the credit? Don’t worry. The real estate market will, most likely, adjust once the credit expires. The bustling spring sales market will start to ebb. Sellers of real estate will have to consider absorbing some of the letdown, either by conceding some closing costs or, perhaps, agreeing to helping buyers buy points on their mortgages, or agreeing to other credits that will entice buyers to sign when the time is right.

A good REALTOR will understand these things and a good REALTOR will advise his clients of those options of which they might not have been aware.

So, yes. The Homebuyer Tax Credit was nice while it lasted. But don’t fret about having missed it. It’s OK. Really.

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Intero Insider: A Delicate Balance

By Gino Blefari | February 10th, 2010 0 Comments

For the past two years or so, our nation’s economy has been floundering, doing all it could to get its head above water. The real estate industry has played — and continues to play — rather a large role in how the story pans out. But contributing to successes and failures in our own industry are untold numbers of mitigating factors, from fraudulent lending and sub-prime mortgages, to over-inflated sales prices, foreclosures, tax credits, and the some of the best sales prices in recent memory. When working together properly, these things can spur wonderful upward movement.

When something is knocked even slightly askew, however, that delicate balance can be thrown into a tailspin.

There has been great news of late, of course. Many neighborhoods across the nation have seen upticks in sales prices, many listings are, once again, seeing multiple offers, and interest rates are at astonishingly low levels.

Now, though, we are holding our collective breath, as several things that have helped spur the market along are poised to come to a halt.

First, the homebuyer tax credit. It’s been credited (no pun intended) with getting a lot of buyers into the market that wouldn’t have been otherwise. It was expanded in the Fall, but will expire this Spring.

Strike one.

Second, foreclosures. As we’ve reported already, the incidence of foreclosure continues to rise. Many homeowners in financial distress are simply making the decision to walk away from their homes, and their debts right along with them.

Strike two.

Third, we have another wrinkle. Those low interest rates that we just mentioned? They’re due in large part to Federal Reserve purchases of mortgage-backed securities. Thus far, the Fed’s purchases total almost $1.25 trillion dollars, but those purchases are due to stop near the end of March. This move will likely cause interest rates to turn upward. How much will they rise? That remains to be seen, but initial estimates have them climbing by more than a percentage point by year’s end.

Strike three.

These three factors coming together at roughly the same time could, potentially, throw the tenuous balance and modest signs of recovery we’ve seen thus far completely off kilter. The ever-changing conditions make the handling of a real estate transaction, whether for a buyer or a seller, all the more difficult. Intero’s real estate professionals stay up-to-date with the latest trends and will know which will affect you, and which won’t.

Negotiating the most important financial decisions of your life requires all of the information.  Your Intero real estate professional has that information and will help you keep things in balance.

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