Los Angeles Metro Home Prices Increase for 7th Straight Month

Extended tax credit generates renewed interest. Buyer traffic fell slightly in January, but remained in-line with agents’ expectations, as our buyer traffic index came in at 52 (from 57 in December), with a reading of 50 indicating traffic consistent with expectations.

Agents said the primary drivers of buyer interest have been the tax credit and historically low mortgage rates, as buyers anticipate an end to both of these in 2010 (nearly all comments focused on these issues). The former effectively ends on April 30th, and rates will likely rise as the year progresses, so buyers are looking to get in early. One agent noted a “renewed sense of urgency for the tax credit and low interest rates,” while another commented that, “The homebuyer credit seems to be a big motivator and opportunity to pick up a good deal.” Several agents also cited buyers’ “belief that we are at a bottom.”
Tighter inventory levels continue to lead to improvement in low-end pricing.

Home prices increased again in January, as our home price index fell to 63 from 68 in December but remained above a neutral reading (any reading above 50 indicates higher prices over the past 30 days). This was the seventh consecutive month of stable or higher prices, as tightening inventory levels, particularly at the low end and on foreclosures, are supporting pricing.

Inventories declined further in January, as our home listings came in at 65 (down from 77 in December), with readings above 50 pointing to lower inventory levels. The solid demand trends and improving inventory point to further price stability/increases in the coming months, although the potential shadow inventory of foreclosures currently being held off the market could jeopardize this as 2010 progresses.

Comments from real estate agents:

■ “Entry level homes are still very hot in Valley area. Multiple offers are very common. Full price offer is not enough. Only 5-10% over the listing price will have chance to outbid other buyers.”

■ “The lack of inventory is frustrating buyers.”

These results are in line with what we are seeing here locally. Multiple offers are the rule, very tight inventory under $500K and first-time FHA buyers still averaging 17 offers written before they get accepted.

Here is the important note for first-time and step-up buyers. You HAVE to be in escrow by April 30th and you HAVE to close your deal by June 30 or else you will NOT qualify for the tax credit. time is running out, you need to be acting NOW in order to get everything done in time, especially if you are utilizing FHA financing. Call us with any questions.

Richard and Kirsten

December 2009 Pending Home Sales Increase 1%

Pending home sales have leveled from a market swing driven by response to the home buyer tax credit, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in December 2009, increased 1.0% to 96.6 from 95.6 in November, and remains 10.9% above December 2008 when it was 87.1. In November, the monthly index had fallen by 16.4% from surging activity in preceding months.

Lawrence Yun, NAR chief economist, said it’s important to recognize how the tax credit is skewing market data. “There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” he said. “These swings are masking the underlying trend, which is a broad improvement over year-ago levels. December activity was the fifth highest monthly tally in two years.”

Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for a tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

The PHSI in the Northeast rose 2.3% to 76.1 in December and is 14.9% higher than December 2008. In the Midwest, the index increased 5.2% to 86.9 and is 8.7% above a year ago. Pending home sales in the South rose 2.2% to an index of 98.4, and are 5.5% higher than December 2008. In the West, the index fell 3.8% to 119.9 but is 18.6% above a year ago.

Yun projects the extended and expanded tax credit will encourage 2.4 million households to take the credit in 2010. “While new-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010,” Yun said. Last year there were 5.16 million existing-home sales.

He added that one of the greatest benefits of rising sales will be firming home prices. “For several months now we’ve been seeing stabilization in all of the home price measures as inventory is pulled down,” Yun said. “As a result, the housing wealth for many middle class families has begun to stabilize.”

They Aren’t Talking About Us!

When you see that the Case-Schiller Home Price Index reflects that Home Prices declined in November, they are talking about the nation as a whole. The Los Angeles market had is sixth straight month of stable or higher prices (we were higher in November) and we have already hit bottom.

Just wanted to clear that up.

What’s Up With The December Sales Numbers?

Existing Home Sales data for December ‘09 is encouraging but is sending mixed signals.

Existing Home Sales fell by a record 16.7% in December to 5.45M, compared with market expectations for a much smaller decrease to 6.00M. The decline was largely due to the expiration of the first time homebuyer’s tax credit, which as subsequently been extended and expanded. The average of November and December was 6.00M, in line with its October level. Still, home re-sales are 15.0% above their year ago levels but also still 9.8% below their September 2005 high record. There should be a substantial recovery next month.

Inventory of Homes Available for Sale fell by 6.6% to 3,289k, its lowest level since March 2006 and 11.1% below its year ago level. Because of the plunge in home sales, the months supply rose to 7.2 months. The months supply is significantly lower for low-priced homes and substantially higher for high-priced homes. Without factoring in what appears to be a large “shadow” inventory of homes available for sale, the measured inventory of unsold homes is only moderately above “normal” levels.

Home Prices rose compared to their year ago levels. Over the past year, average prices have increased by 3.6% while median prices have risen by 1.5%. These are the only second year-on-year prices increases in the last 41 months and may indicate a turning point is at hand.

What is the “shadow” inventory? This is the term given to homes that are in serious delinquency or in the foreclosure process. First American’s Core Logic recently estimated that this inventory total at 1.7M homes that are ready to flood the market as of September ‘09.

It is estimated that the injection of this inventory into the market could impact the housing market, just as the months inventory of existing homes for sale begins to normalize. The true impact depends on how controlled and measured the lending institutions place their inventory on the market.

On The Lighter Side Of Real Estate

Part of rebuilding New Orleans (after Katrina) often caused residents to
be challenged with the task of tracing titles to their homes… back
potentially hundreds of years. With a community rich with history stretching back
over two centuries, houses have been passed along through generations of
family, sometimes making it quite difficult to establish ownership. Here’s a
great letter an attorney wrote to the FHA on behalf of a client:

You have to love this lawyer ……..

A New Orleans lawyer sought an FHA loan for a client. He was told the loan
would be granted if he could prove satisfactory title to a parcel of
property being offered as collateral. It took the lawyer three months to track
down the full title to the property which dated back to 1803. After sending
the information to the FHA, he received the following reply.

(Actual reply from FHA):

“Upon review of your letter adjoining your client’s loan application, we
note that the request is supported by an Abstract of Title. While we
compliment the able manner in which you have prepared and presented the
application, we must point out that you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin.”

Annoyed, the lawyer responded as follows:

(Actual response):

“Your letter regarding title in Case No.189156 has been received. I note
that you wish to have title extended further than the 206 years covered by
the present application. I was unaware that any educated person in this
country, particularly those working in the property area, would not know that Louisiana was purchased by the United States from France , in 1803 the year of origin identified in our application. For the edification of
uninformed FHA bureaucrats, the title to the land prior to U.S. ownership was obtained from France , which had acquired it by Right of Conquest from Spain. The land came into the possession of Spain by Right of Discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India by the Spanish monarch, Queen Isabella. The good Queen Isabella, being a pious woman and almost as careful about titles as the FHA, took the precaution of securing the blessing of the Pope before she sold her jewels to finance Columbus ’s
expedition….Now the Pope, as I’m sure you may know, is the emissary of Jesus Christ, the Son of God, and God, it is commonly accepted, created this world.

Therefore, I believe it is safe to presume that God also made that part of the world called Louisiana . God, therefore, would be the owner of origin and His origins date back to before the beginning of time, the world as we know it, and the FHA. I hope you find God’s original claim to be satisfactory.

Now, may we have our damn loan?”

The loan was immediately approved.

The FHA 90-Day Anti-flipping rule waived for 1 year beginning February 1, 2010

On Feb. 1, the Federal Housing Administration will place a one-year moratorium on its anti-flipping rule, which will allow buyers with FHA-backed loans to purchase homes that have been held for less than 90 days, officials said Friday.

The move will open a new pool of homes to first-time homebuyers who have been losing bids to cash buyers, but shouldn’t have much effect on home prices, analysts said.

We have experienced that many of our first time home buyers have been outbid on homes that were FHA approved and it has been very upsetting experiences. These buyers just wanted to purchase a home and now with the 90-day anti flipping rule being waived, it gives them a chance to finally get the home since more homes will be available to them.

FHA buyers made up 38.1 percent of all purchase loans in the Southland for the month of November 2009 according to real estate data firm DataQuick. Analysts said cash buyers take up much of the rest of the market, and many of them are speculators and investors. The new rule will connect the two groups.

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

~ All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
~ In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
~ The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

With this waiver, we anticipate more investors will be entering the market, purchasing homes in desperate need of repair, making them available to buyers who now will feel that they are getting a deal since the homes have been renovated, leaving them with little to do upon move-in.

We see this as a win-win situation for investors and homebuyers alike. Not only will the investors and homebuyers win, but all of the contractors along the way will be caught up in this increased activity!

Remember, if you are a first time homebuyer, you have to be in escrow by April 30th, 2010 in order for you to get the tax credit. On average, it is taking about 90 days to get into escrow for FHA buyers so the time to act is now.

Please contact Richard and Kirsten at 805-404-1167 if we can assist you in purchasing or selling your home.

Homebuyer tax credit: No e-file and four-month delays

This article was on CNNMoney.com this morning informing us that homebuyers could not file for the Tax Credit. You can’t file for your $8,000 homebuyer tax credit

A subsequent update article was posted about an hour later.

Homebuyer tax credit: No e-file and four-month delays

The IRS form to file for the credit is now available as of today 1/15/2010. There is a link inside the article to the IRS form for the Tax Credit filing.

Credit Suisse December Real Estate Survey

Kirsten and I are among the Brokers that Credit Suisse surveys each month across the nation in order to come up with the analysis and guidance they give to Institutional Investors and other clients.

We just received the December Survey and for the Los Angeles Major Metro market they see the following:

1. Buyer traffic execeeded agent’s expectations; low interest rates, low salable inventory (not short sales) and high levels of affordability seemed to be the major drivers.

2. Most buyers expect mortgage rates to increase in 2010; this is the consensus with agents and mortgage brokers as well.

3. Buyers also felt the market in the Los Angeles area had hit bottom price-wise.

4. Home Prices increased again in December; this marks the sixth straight month or stable or increasing prices.

5. Inventories declined due to 1st time buyers who were trying to beat the November deadline for the 1st time Home Buyer credit entered into escrow in October and November in addition to cash investors coming back into the market in force.

6. The overall forecast is for prices and inventories to continue to improve, time needed to sell a home to shorten further and the threat of rising interest rates and expiration of the Home Buyer credit to drive strong interest in the 1st quarter.

As always, call or email with further questions. If you know of a first time buyer looking to get into a home before the tax credit expires in April, please get us in touch with them ASAP. It is taking about 90 days to find the home and get into escrow for FHA buyers; they need to get on it NOW!

Tax Credits Provide Outstanding Opportunities for Home Buyers

January 10, 2010—Again, Happy New Year to you and your families! We hope that 2010 is great year for you!

As we begin 2010,  home buyers have something to look forward to and more importantly, take advantage of—the extended and expanded home buyer tax credit.

Originally created in 2008, the home-buyer tax credit has evolved from a $7,500 credit, which had to be repaid by the home buyer over the course of 15 years, to an $8,000 tax credit with no repayment required in 2009. Now, for a limited time in 2010, the $8,000 home buyer tax credit will still be available to first-time home buyers and certain current homeowners will also be eligible for a $6,500 credit.

To help everyone better understand the extended and expanded home buyer tax credit, here are some highlights of the changes.

Who are eligible for the credit?

“First-time home buyers” who purchase homes between November 7, 2009 and April 30, 2010 are eligible for the credit. To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

For current homeowners, purchasing a home during the same time frame, they are also eligible for a tax credit, so long as the home being sold or vacated was their principal residence for five consecutive years within the last eight. To elaborate, it must be the same home; it is not enough that they have been homeowners for five consecutive years; they must have been in the same home for five consecutive years.

Another key point is that the existing home does not need to be sold. One must, however, occupy the new home as a principal residence and do so for three years or risk recapture of the credit. Also, the new home does not need to cost more than the old home despite the concept that it is directed at “move up” buyers.

How much is the credit and what are the income limits?

The maximum allowable credit for first-time home buyers is $8,000 or 10% of the sales price, whichever is less. For current homeowners, it is $6,500 or 10% of the sale price, whichever is less. Under the extended home buyer tax credit, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 may receive the maximum credit.

The credit decreases for single buyers who earn between $125,000 and $145,000 and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income – over $145,000 for singles and over $245,000 for couples – are not eligible for the credit.

What are the deadlines for qualifying for the credit?

Under the extended home buyer tax credit, as long as the buyer is in escrow to purchase a home by April 30, 2010, and the deal is closed by July 1, 2010, one can claim the credit.

Will the tax credit need to be repaid?

No, the buyer does not need to repay the tax credit if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale. Another provision of the law waives the recapture provisions for service members who receive orders that require them to move.

Are there any other critical provisions?

-There are three provisions people should be aware of:
-There is an $800,000 limitation on the cost of the home
-The purchaser must be at least 18 years old on the date of purchase
-For a married couple, only one spouse must meet this age requirement and dependents are not eligible to claim the credit

Finally, as an anti-fraud measure, purchasers must attach documentation of purchase to his/her tax return claiming the credit. Normally this would be a copy of the HUD-1, but could include other documents memorializing the settlement.

We recommend that you consult your tax professionals to ensure eligibility for the credit and the proper way to claim the credit. For more information including the required IRS forms please contact the Internal Revenue Service at 800-829-1040.

Merry Christmas!

And a Happy new Year….