Tycoon readers, as you are reading these words, the hours are ticking away until Midnight tonight when the extension of the First Time Home Buyer Tax Credit comes to a successful conclusion.
If any of you still want to take advantage of it, you may need to spend your lunch hour today locking in a real estate contract!
For today is the last day to go to contract and still receive the tax credit (up to $8000). However, you have until June 30, 2010 to actually close on the home and still be eligible.
The one exception is for members of the military, foreign service, and intelligence communities, who have served on official extended duty outside of the U.S. for 90 days or more between January 1, 2009, and April 30, 2010. They have until April 30, 2011, to sign a sales contract, and until June 30, 2011 to close.
And remember, the extension also includes current home owners who have lived in their present home at least five of the past eight years. They can receive up to $6500 for buying their next primary residence, if they go to contract before the end of today.
However, there are some restrictions and income limits that have been put into place with this extension. So please see the following link for further details before you sign on any dotted line!
Any chance of a repeat extension?
Sorry, unlike last November, there will be no 11th hour, six month extension of the program.
This time there was no lobbying effort by the National Association of Realtors (NAR), nor pleas for help from the home builders. The training wheels are coming off, and it’s time to see if the real estate industry can pedal on its own without Uncle Sam giving low end home buyers a credit equal to two or three times their down payment!
Ah, but alas, all over America, Baby Boomer Realtors are singing that old sad song from the 60′s, “What now, my love?“, with the first time home buyer tax credit and the sales it generated being the love that may be going away:
“What now my love
Now that you left me
How can I live through another day
Watching my dreams (of retirement?) turn into ashes
And all my hopes, into bits of clay
Once I could see, once I could feel
Now I am numb I’ve become unreal”
-Gilbert Becaud and Pierre Delanoe
So what is the current state of the real estate market?
About as mixed as it could possibly be.
On the one hand, we have reports of existing home sales having risen almost 7% in March and new construction sales blowing past all estimates with a 27% increase from February.
In addition, the median sales price of those new homes was at $214,000, up more than 4% from one year ago. Prices in many areas of the country are showing signs of stabilization, including some of the regions that were the hardest hit in recent years.
Investors are quickly taking advantage of incredible prices, extended low interest rates, and an increasing number of former homeowners, who after foreclosure, have no choice for the next three years but to rent until their credit improves.
In fact, almost 20% of the homes sold in March were to investors, and inventories of inexpensive homes is drying up in some areas, such as California and Las Vegas, NV.
About 36% of all the sales in the month of March were distress sales (foreclosures + short sales), a slight increase over February numbers.
Total inventory, which a few years ago was at a 13 or 14 month supply of homes in many parts of the country, is now about 8 months. This is certainly an improvement.
So all of this is well and good, but could this just be the calm before the next storm?
You see there’s that pesky old “shadow inventory”, which just doesn’t seem to want to go away. Banks are still holding onto millions of foreclosures, while the number of “walk away” homeowners continues to increase.
Last week, Ivy Zelman, a former Credit Suisse analyst who was one of the early prognosticators of the real estate market crash, had this to say about shadow inventory at a Washington, D.C. real estate trends conference:
“Public policy is delaying the pig in the python. The pig has lipstick.”
Translation: The Obama Administration’s Home Affordable Modification Program (HAMP) is making the shadow inventory problem look better than it really is by simply delaying the inevitable.
Zelman noted that if you take an area like Washington, D.C., which has a below average 5.1 month supply of homes, and add the shadow inventory to that inventory, the actual number balloons up to a 13.2 month supply.
That would be roughly where we were in 2008, which means that most of the administration’s year long efforts to stabilize the real estate market would have done substantially little to improve the numbers.
The best one could say is that perhaps the numbers would have been worse without the various programs enacted since then.
Still another problem is that the high priced homes continue to lag way behind the homes below $150,000. According to Zelman, there is a 45 month supply of homes with asking prices between $400,000-$600,000!
That’s just insane.
Although 30 year jumbo mortgage rates are now down to 5.875% and 15 year jumbos are around 5.375%, lenders continue to demand 20% to 25% down from borrowers. What’s more, there are no modifications for current struggling or unemployed jumbo loan holders.
Say what you will about not feeling sorry for the folks with the high priced homes, but when the value of their homes drop, that depresses the price of all of the homes below them as well.
That means more folks going underwater on the lower priced homes. If they then decide to walk away from their homes, we will have increasing inventory, which will lead to further price deflation.
However, if they remain in their homes, and (being underwater) are forced to remove them from the market, that will reduce inventory numbers and offer a better chance for price stability.
Can’t we have our cake and eat it too? Not likely.
So which way will the market go?
If this was 30 years ago, I would be betting heavily that people will remain in their homes. But today everything is different.
Many people don’t have the same pride of home ownership that their parents or grandparents once did, and they don’t feel it is immoral to hand the keys back to the bank.
Some point to the banks packaging off loans by the thousands in Collateralized Debt Obligations (CDO), and say they have no obligation left to the bank with whom they went to contract.
Others cite the sections of the note they signed where it basically says “you pay, you stay, you don’t, you won’t”, and feel that not paying should allow them to leave without any guilt.
And then there are those who were denied loan modification, and feel they have no other recourse.
My own opinion is that when you borrow money from someone, you have made a commitment, and should honor your obligation, no matter what that value becomes over time.
Who will be foolish enough to lend money on a mortgage tomorrow if there is little chance of being repaid? And what will become of interest rates when the lenders decide that the risks of lending are becoming increasingly greater?
There are no guarantees that any investment will go up, and anyone who enters into an investment, whether it is a stock, bond, or real estate has to know that.
To that extent, I draw a distinction between those who truly can’t pay because they have lost their jobs, and those who can pay but just don’t want to own an asset that has now depreciated.
But there are other options. A few weeks ago, I told you about an ETF that shorts both the residential and commercial real estate markets, called the ProShares Short Real Estate Fund (symbol: REK).
If you believe that the real estate market has further declines ahead, you can buy that ETF, and also make money by shorting the home builder stocks. Choose the ones that have shown the weakest relative strength over the last several months. Those stocks will decline the most if we get the dreaded “double dip” in the housing market.
I also strongly urge investors to take advantage of any further weakness in the housing market by investing in residential properties in areas that hold the most promise for a turn around.
In my Master Real Estate Investor Course, I am continually updating the students on which areas of the country are the strongest, and which are best avoided. In addition, I teach the step-by-step principles necessary to get started, find the most undervalued properties, and generate the highest possible return on income from investment real estate.
In the meantime, if you’ve been stalling on pulling the trigger on that real estate contract, today is the last day to take advantage of Uncle Sam’s generosity with the taxpayers’ funds. Between the low interest rates, low prices, and Uncle’s $8000 check, you could have a very nice cushion to ride out the rest of the storm.
Tick, tick, tick, tick…
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Posted by: Steven Torelli – Heritage Realty of South Jersey, LLC
Licensed New Jersey Real Estate Agent.
Cell: 856-290-5205 Office: 856-817-1220 x103 Toll Free: 888-590-2017
