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For those who’ve waited long enough for the housing market to bottom out and pull the trigger to buy, be prepared: Going from contract to closing is taking longer and, in the process, sometimes threatening to kill the deal.
The complete article can be viewed at: http://www.newsday.com/classified/realestate/ny-lsmain2912792887may27,0,1325750.story
“I had the experience as a buyer’s agent, with a seller who was more than willing to disclose that she and her husband were getting a divorce but did not want to disclose that the house was in pre-foreclosure,” says Teplin. Although this information would have been disclosed eventually, by uncovering it early, Teplin’s client had more leverage to negotiate before going to contract. “The house was listed high to compensate for the fact that the seller wanted to satisfy a loan that was out of whack with the home’s market value,” says Teplin. “The information helped my client at the bargaining table.”
* Weaker than expected report. Sales appear to be holding reasonably steady but we had been looking for a modest gain based on the
recent improvement that has been evident in the homebuilder sentiment survey.
* The regional breakdown for April showed no change in either the Northeast or the Midwest, with a slight rise in the South and a
modest dip in the West.
* The most encouraging aspect of the report was the indication of a further decline in the backlog of homes available for sale — down
4.2% from March and 35% below that of a year ago (to 297,000 units). The improved inventory situation largely reflects the plunge in
new construction.
* The months’ supply of homes available for sale stands at 10.1 — down from the recent peak of 12.5 seen in January, but still well
above the more normal range of 6 to 6.5 months. Given current trends in home sales and starts, we expect the volume of unsold
inventory to drop to a multi-decade low by this summer. And, if sales post a modest pick-up over the balance of the year then months’
supply should fall back within the normal range by the spring of 2010.
* Still, even with some normalization of unsold inventory of newly constructed homes, it’s unlikely that the real estate market can
support any significant pick-up in homebuilding activity in the foreseeable future. That’s because foreclosure activity is still increasing
and these properties are flooding the market.
* The median new home sales price rose 3.7% from March but is still down 15% yr/yr. While we don’t consider this gauge to be a very
good indicator of home price trends (because it is influenced by shifts in the mix of homes sold), it is tracking near the mid-point of
better price measures, such as Case-Shiller (-19% yr/yr) and FHFA (-7% yr/yr). We look for home prices to continue to decline for
another year or so due to rising unemployment and increased supply tied to foreclosure activity. However, we expect to see the pace of
decline begin to moderate over the next few months as a result of extremely elevated levels of affordability.
HUD plans to tweak $8,000 tax credit rules so first-time homebuyers can get instant down-payment assistance.
Home prices are cheap. Affordability is at a record high. And the market is littered with distressed properties looking for a buyer.
But there is one big obstacle for many first-time house hunters looking to take advantage of the market: cash for down payments. The typical first-time buyer has only saved enough to cover 4% of the purchase price, according to the National Association of Realtors.
As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping on-the-fence buyers to take the home-purchase plunge. But buyers couldn’t collect the $8,000 credit until tax time, rather than at closing time – when it’s needed.
Now the U.S. Department of Housing and Urban Development is planning to change that. The agency is working on a plan that will allow Federal Housing Authority-approved lenders to provide buyers with the tax credit cash up front.
“We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment,” said Shaun Donovan, HUD secretary, in a speech last Tuesday before the National Association of Realtors.
States first
Donovan did not reveal many details, but the plan could be modeled after programs in Colorado, Missouri, New Jersey, Pennsylvania, Tennessee and Washington. To quickly infuse cash into their housing markets, these states created “bridge loans” that allow buyers to borrow against the $8,000 credit and then repay it with their tax refunds.
The first state to launch such a plan was Missouri, which rolled out its Missouri Housing Development Commission Tax Credit Advance Loan program on January 14 – a month before Congress approved the stimulus package. Since then, Missouri has approved applications by more than 300 borrowers and closed on 128 of them.
Lamar Cherry and his wife, Chrishanna, used the program to augment their down payment when they bought their home in Kansas City.
The couple purchased a four-bedroom, three-bath split-level home for $150,000, putting about 6% down. Much of that $9,000 came from the loan program, which they tapped so they wouldn’t have to drain their reserves.
“We had money saved up that we were going to use for the down payment,” said Cherry. “Now we can use some of that to buy some things we need for the house.”
At closing, the Cherrys, like all buyers in the program, signed for their first mortgage, plus a second mortgage issued by the state. The second note is good for 6% of the price of the home, up to $6,750; there is a $350 set-up fee, but no interest is charged if the debt is repaid by June 2010.
In Missouri, borrowers can only access $6,750 of the $8,000 credit for down payments. “We wanted them to have a cushion below that $8,000 in case other tax liabilities show up,” said Greg Spurgeon, the single-family homeownership administrator for the Missouri Housing Development Commission.
If borrowers don’t pay off the note, it becomes a 10-year fixed-rate mortgage with an interest rate one-half percentage point above that of their first mortgages. For example, borrowers paying 6% on their first mortgages would be charged 6.5% on the second.
So far, Spurgeon said, a significant proportion of participating homebuyers have repaid their loans. He expects most of the others to do the same before the deadline.
Cherry has claimed the federal tax credit on his 2008 taxes, but he hasn’t gotten his refund yet. He definitely intends to repay the loan before the 2010 deadline because, he said, not doing so would add about $75 a month to his house payments.
By Les Christie CNNMoney.com staff writer Last Updated: May 19, 2009: 12:45 PM ET
