Repeat Buyers Must Act Fast For Tax Credit

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By now it is well documented that today’s affordable housing prices, historically low interest rates and federal home buyer tax credit have combined to create one of the most attractive first-time buyer markets in recent memory. What many Americans might not realize is that a recent expansion of the buyer tax credit has created an equally desirable opportunity for existing homeowners.

This past November, Congress elected to expand the home buyer tax credit to repeat buyers after seeing the success the temporary financial incentive had on the housing market and overall economy. As a result, current homeowners who will have lived in their home for 5 consecutive years out of the last 8 may now be eligible to receive a $6,500 tax credit.

“The expanded tax credit offers a great financial opportunity for existing homeowners, particularly those looking to trade up,” said James M. Weichert, president and founder of Weichert, Realtors, one of the nation’s largest independent real estate companies. “Not only can you receive a large sum of money from the government, you’ll also likely purchase your next home for less money and at a lower interest rate than you could have in years past or years to come.”

To qualify for the tax credit, the repeat buyer must have signed a binding contract by April 30, 2010 and close on the home by June 30, 2010. Tax credit eligibility is subject to income limits, $125,000 for single buyers and $225,000 for couples. In addition, the sale price of the home being purchased can not exceed $800,000.

There is no requirement that existing homeowners must have sold their home to be eligible for the $6,500 tax credit. However, Weichert encourages existing homeowners who want to benefit from this incentive to move quickly, particularly those who prefer to first sell their current home before purchasing a new one.

“Typically, it takes three months or longer to sell a home. That’s why it is critical repeat buyers put their home on the market right away. Otherwise they might not leave themselves enough time to both secure a buyer for their current house and find a new home by the April 30 deadline,” added Weichert.

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The Home Buyers Tax Credit Made Simple

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Why a Tax Credit???

Finding the “Right” Agent

I would encourage you to talk to friends, family, and/or coworkers in your area who have recently bought or sold a property to get 3 or 4 references. Interview those agents- asking questions like:

1. How would you market my house? (Online must be PART of their answer).
2. How would you come to a listing price for the house? (A comprehensive market analysis of your comps. Be sure to share any unique features your house has).
3. What is their online experience? (My company in CA pushes listings to over 30 search engines and real estate sites).
4. How many houses do they currently have listed? (The less listed the more likely they are to show yours).
5. Commissions? Is there a reduced commission if the agent handles both sides of the sale? Is there a reduced commission if someone in their office handles the buyer side of the sale?
6. Is there anything you can do to make your house more inviting to buyers? (Like de-cluttering, painting, getting a home inspection and termite report, etc).
7. The last thing you should ask is if they have any questions for you.

I think that a great agent would ask to see and take pictures of your house before your formal interview. They should then bring a sample flier that they would post outside your house, a virtual tour, and hopefully the market analysis. All else being equal- go with who you feel the most comfortable talking with. Remember this is a business relationship.

Thinking of That Remodel??

Remodeled Kids Room
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Good News From Hanley Wood Market Review Dec. 11th

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Holiday Consumer Cheer
Consumers became more optimistic and loosened up their wallets in November which helped boost retail sales figures and consumer sentiment data released on Friday.  U.S. retail sales jumped 1.3% in November driven by a strong start to the holiday shopping season.  Retail sales in November posted its strongest monthly gain since August when retail sales surged 2.4% due to the government’s Cash for Clunkers program.  It will be important to watch December retail sales figures when they are released next month to see if there was sustained consumer activity throughout the holiday shopping season or if November retail sales were just boosted by bargain-hunters capitalizing on early holiday deals.  The University of Michigan/Reuters Index showed consumer sentiment increasing to its highest level since September which enforces the notion that consumer strength has reemerged.
Generally positive economic data provided support for stocks over the past week.  Although initial weekly unemployment claims reported a surprise increase on Thursday, most of the economic data released in a relatively quiet week have been good.  The Commerce Department reported on Thursday that the trade gap was narrowed to $32.9 billion in October due to a rise in exports which benefitted from a weaker dollar.  The broader S&P 500 index is on pace to close higher for the week, up a marginal 0.4% to 1,106 in early afternoon trading on Friday.

The Economy
The Commerce Department reported on Friday that November retail sales increased 1.3% which is the strongest increase in sales since August.  Retail sales also posted a 1.9% increase from November of last year which is its first year-over-year gain since August 2008.  Auto sales increased 1.6% while retail sales excluding automobile sales rose 1.2% which is its largest gain since January.
The University of Michigan/Reuters Index for consumer sentiment jumped 8.9% in December to a reading of 73.4 from 67.4 in November.  This is the highest reading for the index since September.  Consumer sentiment regarding the current economy increased to a reading of 79.1from 68.8, which is the highest it has been since April 2008.
Initial unemployment claims posted an unexpected rise this past week by 17,000 to a seasonally-adjusted figure of 474,000.  Initial weekly unemployment claims have fallen in the past five consecutive weeks before this week’s increase.

Housing Market
National average mortgage rates increased from the previous week to 4.81% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on December 10th.  This was the first weekly increase in average fixed-rates since the beginning of November.  Rates last week were at their lowest levels since Freddie Mac started the survey in 1971.  This is also the sixth straight week that fixed-rates have averaged lower than 5.0%.  In the week ending December 4th, the MBA’s seasonally-adjusted purchase index increased 4.0% from the previous week but was still down 16.3% compared to the same time last year.  This was the third consecutive weekly gain for purchase applications which have been unseasonably high due to the extended homebuyer tax credit and record-low mortgage rates.
New home sales rebounded in October after posting its first monthly decline since March in September.  Seasonally-adjusted new home sales increased 6.2% from the previous month to an annual rate of 430,000 units.  New home sales for the previous three months were also revised higher by 7,000 units.  The seasonally-adjusted annual rate of new home sales is at its highest levels since September 2008.
In October, the median new home price increased to $212,200 from an upwardly revised figure of $210,700 in September.  Median new home prices are up 0.7% from the previous month but still 0.5% lower than they were this time last year.  The median new home price has now recorded ten straight months of year-over-year declines.  Competition from lower priced existing homes along with foreclosures and short sales have dragged on new home prices.
In October, new home inventories declined to 240,000 from a September figure of 252,000 on a non-seasonally adjusted basis.  Seasonally-adjusted inventory of unsold new homes have declined for 30 straight months to 239,000 units.  Seasonally-adjusted months of new home inventory dropped to 6.7% in October which is the lowest it has been since December 2006.
Existing home sales in October jumped due to the anticipated expiration of the original homebuyer tax credit.  The seasonally-adjusted annual rate of total existing homes sold surged 10.1% in October to 6.1 million units.  Existing single-family home sales increased 9.7% from last month to 5,330,000 units while condo and co-op sales were up 13.2% from last month to 770,000 units.  Existing home sales are at their highest annual rate since March 2007.
The median existing home price in October declined to $173,100 from $176,000 in September.  This is the fourth straight month that existing home prices have declined and the lowest they have been since April.

Existing home inventory declined for the third straight month in October, falling 3.67% to a preliminary 3,574,000 units from an upwardly revised 3,710,000 units in September.  This is the lowest level of existing home inventory on the market since January 2007.  Months of existing home inventory dropped significantly due to a jump in sales activity along with the drawdown in units for sale. At the current sales pace, there are 7.0 months of supply of existing homes on the market compared to 8.0 months in September.  The market is approaching the 5-6 months supply of inventory level that is considered typical in a healthy housing environment.
Pending home sales rose for the ninth straight month in October, according to the National Association of Realtors.  The trade group’s Pending Home Sales Index, which is a forward-looking indicator based on sales contracts in October, increased 3.7% to a reading of 114.1.  The index is at its highest levels since March 2006.

For market-level data and analysis please visit our website at http://www.hwmarketintelligence.com.

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New Rules for Appraisals

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Real estate appraisals aren’t new. Indeed, lenders have long required an appraiser’s opinion of a home’s value before they will approve a loan for a buyer to purchase that home. What is new, however, is that the rules that dictate how lenders order home appraisals have changed significantly this year.

The new rules, known as the Home Valuation Code of Conduct, or “HVCC,” became effective May 1, 2009, and apply to most, though not all, mortgages. The rules are in flux, and at press time, it appears HVCC will apply to most FHA loans, effective Jan. 1, 2010. At press time, HVCC did not apply to VA loans. The rules were intended to reduce appraisal fraud and help ensure that appraisers aren’t subjected to improper pressures to inflate the home’s value.

Accurate and credible appraisals are certainly a laudable goal, yet the new rules also have resulted in some unintended consequences.

Here’s what you need to know:

Slow and Low Appraisals

One such consequence has been that appraisals now may take up to a week longer to be ordered and completed. Consequently, if your home purchase contract includes an appraisal contingency, you may want to allow more time for the buyer to approve the appraisal and check off that contingency. Buyers should expect to pay as much as $100 more for an appraisal than may have been customary before the new rules became effective.

Another consequence has been that appraisers have become more conservative in their home valuations. In some cases, the appraiser may even believe the home is worth less than the agreed-upon sales price.

If that happens, you should understand that the appraised value of a property isn’t necessarily the same as the market value since the appraisal is done for the purposes of the buyer’s loan, not the home sale. You also should be aware that if the appraised value is lower than the sales price, the buyer may choose to exit the transaction through the appraisal contingency or the buyer and seller may want to renegotiate the sales price.

A so-called “low appraisal” technically can be appealed; however, such appeals rarely result in a higher valuation.

The rules that established HVCC required that an Independent Valuation Protection Institute be established to maintain the integrity of HVCC. Appraisers can contact the Independent Valuation Protection Institute if they feel pressured, threatened, or bribed into situations that compromise their independent valuation(s) and compliance with HVCC. Consumers also can contact this institute; however, at press time, this institution was not established and an interim process for handling complaints has not been established. (www.independentvaluation-protection-institute.org/).

Buyers and sellers are both well advised to discuss the implications of these new rules with their REALTOR ® .

Learn More

Home Valuation Code of Conduct: www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf

• Freddie Mac HVCC Fact Sheet: www.freddiemac.com/singlefamily/home_valuation.html

• Federal Housing Finance Agency HVCC Notice: www.fhfa.gov/webfiles/14611/ hvcc_NOTICE_7_22_09F.pdf

• NATIONAL ASSOCIATION OF REALTORS® HVCC Resources: www.realtor. org/government_affairs/gapublic/gses_hvcc_announced

• California Office of Real Estate Appraisers: www.orea.ca.gov/

Marcie Geffner is a freelance real estate writer.

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