Bette Deller’s Blog

Buying during a slow market is a good idea for several reasons.    The current slow market presents opportunities for buyers that allow them to take advantage of some good deals.  

1.   Sellers are more willing to negotiate.   In a slow market sellers are aware of market conditions and often set their asking price at or lower than the price of similar homes that sold months before.   They are often more willing to offer other concessions such as help with closing costs, providing a home warranty, and having repairs done.    

2.  Mortgage interest rates are still near historic lows.

3.  Prices have moderated.

4.  Homes are on the market longer giving buyers more time to look at homes and make careful decisions. 

5.   There is a larger inventory of homes on the market from which to choose.   The selection of homes is huge!

6.  Historically, the value of your yome will increase over time.   

7.  There are currently tax advantages to owning a home.

8.  A home is a proven long-term investment.  The equity you build in your home is the main source of wealth for most families.

8.  Finally, your purchase will stimulate the economy by providing  jobs and income for many related service providers  and bringing tax revenues into your state.

This is a great time to buy a home so don’t wait!   If you have a stable job, some savings, and good credit…go out there and do it while the market is still working in your favor.  It will benefit both you and your country.

Mortgage Interest Deduction – An Endangered Species? New Threats EmergeFrom the Wall Street Journal to CNBC’s talking heads, the thought of reducing or even eliminating the Mortgage Interest Deduction is on the front burner again. The President’s Commission came up with a series of suggestions last December 1st which may be the first steps to a scaling back of the hugely popular deduction.    

The Wall Street Journal ( Article HERE) uncovered the rumors coming from the President’s Commission in early November.   Even if the Commission does recommend a reduction or elimination, any curbs on current tax breaks would likely face fighting in Congress. The banking and real-estate lobbying organizations are keenly aware of the potential outcome.  

If you do not use the interest deductions there is still an impact. Economists claim that if the deduction is eliminated, a 15% drop in the value of homes may occur over time as the supply and demand aspects of home ownership will be tilted.   In addition, the loss of this deduction may reduce the incentive for buyers to buy.

Since the early rumors surfaced, the Deficit Reduction panel  came out with a Draft Proposal (found here) (page 26 has specifics) and they are suggesting eliminating it for taxpayers with incomes above $500,000, for Home Equity loans, and for 2nd homes (vacation etc.) You need to keep an eye on this issue since  it could have a very negative effect on the housing market.

I read an article by Randy Eagar on BrokerAgentSocial.com at the end of January that really put things into perspective for me about the constant media hype concerning the plunging housing markets, the huge number of foreclosures, and the high unemployment rates.

We need to remember that the media is prone to distortion and sensationalism.   It often exaggerates the negative and  ignores or glosses over the positive.   Let’s face it!   Bad news sells!   But it  also creates panic and fear  which serve to only make things worse and create a self-fulfilling prophecy.    The  media  needs to be  more  fair and balanced in their reporting about the economy…just as it does about other issues.

Mr. Eagar presented a few interesting statistics that I would like to share with you.   I think we should all keep these things in mind.   They help to  put today’s economic problems in perspective.  

Bank Failures:

1. In 1989, there were 1,004 bank closures.
2. In 2008, there were 30
3. On average there are 94 bank closures per year.

Here are some additional “Bank Failure Facts” from U.S. News and World Report:

• According to the FDIC, from 1934 through 2007, there were only two years with no bank failures, 2005 and 2006.

• The year during that period with the most bank failures was 1989, when 534 banks closed their doors.

• During the savings-and-loan crisis (1986-95), 2,377 banks failed, representing 67 percent of the 3,559 bank failures from 1934 through May 2008. At the peak of the crisis (1988-1989), 1,004 banks failed, a rate of one failure every 1.38 days.

Bank Closures by Decade:

• 2000-2007: 32
• 1990-1999: 925
• 1980-1989: 2,036
• 1970-1979: 79
• 1960-1969: 44
• 1950-1959: 28
• 1940-1949: 99
• 1934-1939: 312

Bank failures happen in a free market economy.   They are a business.   Bankers take risks and sometimes make bad decisions just as other businesses do.   Banks that  make wise decisions about loans and investments succeed.   Those who do not, fail.   When you compare today’s bank closures to  the number of bank closures in the past… and factor into it  the fact that the  government is taking steps to correct  today’s situation… things don’t look so bad.  

Let’s keep everything in perspective.    There are lots of successful banks and credit unions in this country that  are still making loans,  issuing credit and making wise decisions about lending and investment policy.  

Unemployment Rates –  Mr. Eagar states:  

1. During the Great Depression, unemployment was at 25%
2. Today, our national unemployment rate is 7.2%.  

There is quite a difference here.   Yet we keep hearing from the media that unemployment rates are  the worst they have been since the Depression.   The Washington area is faring even better than some areas.   The unemployment rate here is about 4-5%, and job growth here is 2-3 times the national average.   It  has averaged 46,500 jobs per year since 1991.   Recent year figures were:

• 2003 – 56,000
• 2004 – 71,000
• 2005 – 63,000
• 2007 – 29,000
• 2008 – 25,000

It is not easy to have continual job growth.  Things do slow down from time to time.   The Washington economy is better off in terms of job growth and in other economic respects than many other areas.   We are  projected to have a 1.5% growth in GDP in this area due to the presence of the Federal Government versus the negative national projection. Federal spending here will total some $135 million in 2009.   Federal procurement dollars have tripled over the last 10 years.

Foreclosure Rates –  Mr. Eagar reports the following:

1. During the Great Depression, foreclosure rates were at 50%
2. Nationally today, foreclosure rates are at 3%.

This is quite a wide span!   Yet the media is full of  gloom and doom about foreclosures, scaring those who might want to buy a home right out of their skins.   Foreclosures are unquestionably a big problem, and they continue to happen. However, most home owners are not in trouble with their mortgages.    Prospective home buyers should not be afraid to  buy a  home because of the negative media hype about foreclosures.  

Just two years ago, The Wall Street Journal reported that foreclosures across the U.S. had been hovering around historically low levels.    Things have definitely changed since 2006, and there is no doubt that they need to  get better.   However, even  with the high rate of foreclosures and mortgage delinquencies we are experiencing today, they are still low in historic terms.

Foreclosures are preventable.   Banks need to return to safe lending practices and make sure they are selling homes to people who can afford them.   Prospective buyers need to use common sense, seek wise counsel, think for themselves, and make informed decisions. They should not believe everything they hear and should  buy within their means.

People who have  some savings, good credit scores, and  reasonably stable jobs should not allow fear and negative media hype about the market  keep them from taking advantage of the lowest mortage interest rates in history and an abundance of homes on the market from which to choose.  

This is a great   buyer’s market, and  buyers need to have a little faith in themselves and in America.    It’s  time to get off the fence!   Stop listening to all the negativity and go out there and stimulate the economy.   Your purchase will be good for both you and your country.  

This is a great time for buyers…especially if you do not have to sell a house first in order to get cash out for their  home purchase.  It is still a slow market for sellers because there are so many homes on the market for sale, but it is a great time for buyers!

There are a lot of incentives available for buyers right now.   Some of these incentives are due to expire soon so it behooves you to act quickly.

One of these incentives  is the new tax credit of up to $7500…basically an interest-free loan repayable in 15 years in $500 increments to begin 2 years after your purchase.   This one goes away on June 30, 2009 so plan to buy before then to take advantage of this newly legislated incentive.

Another incentive  is the seller-paid down payment assistance programs through organizations like Genesis, Ameridream, etc.   These  which will go away on October 1, 2008 so if you have little cash and need help with down payment funds, you need to plan to buy right away…and definitely before the end of September.

Some lenders are offering incentives for buyers, too.   My in-house lender at Long & Foster, Prosperity Mortgage, (a Wells Fargo affiliate)  is offering a free one-year buy-down on your interest rate if you get your mortgage loan through them.   They are a direct lender with lots of programs to offer.

Recently passed  laws also make it easier for buyers to get loans now.    One law recently enacted increased FHA loan limits  to 115% of the local area median home price with  a cap of  $625,500 after December 31, 2008 and VA loan limits were also increased through December 31, 2008.   This makes it possible to borrow more money thereby enabling buyers to get FHA and VA loans on more expensive properties.

Still another incentive for buyers is the fact that there are currently lots of homes on the market from which to choose.   This makes for  less competition from other buyers  and a greater liklihood that your offer will be accepted.  

Because  of the large inventory of homes for sale right now, sellers are also more motivated to negotiate with buyers in order to get their home sold .   This another reason to buy now rather than waiting.   The market is cyclical and will eventually turn from a buyers’ market to a sellers’ again.

Still another incentive is the fact that home prices have declined  making buying a ome  more affordable now  than it has been in recent years.  

In addition, interest rates are still   low, hovering around 6-6.5%.   Many experts seem to indicate that rates are likely to rise soon to curb inflation.   If this is the case,  it is better to buy sooner rather than later if you want to take advantage of today’s low rates.

Last but not least…owning a home offers  you a tax  break.   Your mortgage interest is deductible on your income taxes.   For the first several years of home ownership your monthly payment is largely interest  so you will have a large tax deduction in the early years of your mortgage loan.      

If you are thinking about buying a home but  are just holding off to see what happens with the market, DON’T.   I  recommend that you  get off the fence and make  your purchase before these incentives disappear.   The new tax credit expires on  June 30, 2009.. Many down payment assistance programs  expire on October 1, 2008.    By waiting you will lose these buyer  incentives and  risk the possibility of rising interest rates to come.   Your purchase will be easier now, and  your monthly mortgage payment will be lower at today’s lower interest rates.  

If you like the idea of the free one-year buydown  offered by Prosperity Mortgage, give me a call.   I can put you in touch with Kim Price, my in-house loan officer who is utstanding, and I can you guide you through the home buying as your realtor as well.   This is a great time to buy so do it now!  

The Housing and Economic Recovery Act of 2008 (HR3221) was passed by the House and the Senate and signed by President Bush.   The National Association of Realtors was a    strong supporter of this bill and fought hard for its passage including  urging realtors   to contact members of Congress in support of the legislation.  

The NAR believes this bi-partisan legislation will calm and strengthen the mortgage markets and help stabilize our economy.   It provides new regulations   and reforms, new loan limits, a tax credit for first time homebuyers until June 30, 2009, funds to develop affordable housing, and a program to help homeowners at risk for foreclosure.   The bill provides help for some homeowners in trouble,  creates a stimulus for the real estate market and an incentive for reluctant buyers to buy now in order to take advantage of the new tax credit and FHA loan limits.   The specific provisions include:

• a strong independent regulator
• permanent conforming  loan limits of 115% of the local area median home price up to a cap of  $625,500 after December 31, 2008
• streamlined processing for FHA condos
• a $7500 tax credit for qualified purchases until June 30,209 repayable over 15 years
• a refinance program for problematic subprime loans effective October 1, 2008
• prohibition of down payment assistance programs for profit after October 1, 2008
• allowance of down payment assistance programs from nonprofit sources
• increased VA loan limits through December 31, 2008
• a moratorium on FHA risk-based pricing for one year beginning October 1, 2008
• development of a National Affordable Housing Trust Fund
• authorization for $10 billion in mortgage revenue bonds for refinancing subprime mortgages
• funds for neighborhood revitalization  allowing communities to purchase foreclosures
• modernization of the low income housing tax credit program
• authorization for the Treasury Department to buy stock to ensure that Feddie Mac and Fannie Mae do not fail
• a strengthened licensing and registration system for loan originators

Hopefully this bill will prove to be a step in the right direction and alleviate  some of the problems we see  in the real estate sector and prevent other problems from occurring  in the future.  

However,  buyers still need to be responsible for  their own financial decisions and should be informed and careful about them.   Many of those in trouble today knew the risks they were taking, but chose to take them  anyway.   Often they bought  homes they could not afford using loans with interest rates that were programmed to  increase.  Many of them thought home would continue to increase in value at the rates they had been and planned to refinance  to a lower fixed rate later on.    Neither option was possible.  

No one can predict for sure how what the real estate market will do  or whether interest rates will increase or decrease year by year.   Many risk takers got caught up in the booming real estate market of the past few years and got caught this time.   It’s a hard lesson learned, but hopefully buyers  will be  more wary of taking big risks  in the future.

Having good credit is important for several reasons. It can determine whether or not you can get a credit card, a job, a lease, a car loan, a mortgage loan or an insurance policy.   It can also determine what interest rate a lender will give you.   The lower the credit risk, the better the rate you will be able to obtain.

There are many companies nationwide that appeal to consumers with poor credit histories promising, for a fee, to clean up your credit report.   While there are some legitimate credit repair companies, many of them are not. The claims you hear from some of them are false and the truth is, they can’t deliver.  Some companies  are scams.   After you pay hundreds or thousands of dollars, they do nothing to improve your credit report and  simply disappear with your money.  

 Anything a credit repair company can do for you legally, you can do for yourself at little or no cost. Only time, a conscious, persistent  effort on your part and a personal debt repayment plan will improve your credit report.

According to the Fair Credit Reporting Act you are entitled to a free copy of your credit report if you have been denied credit, insurance, or employment within the last 60 days.   You are also entitled to one free credit report a year if you can prove that:

• you’re unemployed and plan to look for a job within 60 days
• you’re on welfare, or
• your credit report is inaccurate because of fraud.

You  can dispute mistakes or outdated items on your credit report for free. Just ask the credit reporting agency for a dispute form or submit your dispute in writing…along with copies of supporting documentation.

Otherwise, a credit bureau may charge a nominal fee for providing you with a copy of your credit report. Credit bureaus are listed in the yellow pages of your telephone book under credit reporting agencies. You should contact each of the three credit bureaus (Equifax, Experian, and Trans Union) directly.

You cannot legally remove accurate or timely negative information from your credit report, but the law does permit you to request a reinvestigation of information in your file that you dispute as inaccurate or incomplete at no cost.   If your credit report is correct, only the passage of time will reduce or remove its negative impact, and  this information can stay in your file from 7 to 10 years.   However, the impact is less as the years go by.

Beware of companies that…

1. Require an upfront fee before services are performed
2. Do not inform you of your legal rights or what you can do for yourself
3. Recommend that you do not contact a credit bureau directly
4. Suggest that you get a new credit identity or invent a new credit report
5. Advise that  you dispute all information on your credit report…even that which you know to be true

If you have credit issues, obtain the free booklet entitled Credit Repair: Self Help May Be Best from the Frederal  Trade Commission. You can request this booklet by calling toll free 877-382-4357 or by going to www.ftc.gov.   With patience,  perseverance and a debt repayment plan you can repair your credit by yourself.

The Fed announced a decrease in interests rates today, cutting another 0.25% from the Fed Funds Rate.   This is good news for millions of borrowers.   If you are one of them, now is the time to investigate your options.

ARM’s

If you have an ARM due to reset in the next 14 months, this might be a good time for you to get out of the ARM and into a mortgage you can afford, including FHA or the new FHA Secure program recently introduced.   Talk to your lender or call me to talk to one of mine.

Refinancing

This may not be the best choice if there is little equity in your home and home values are declining. Check with your lender or call me for a referral to one of mine.

Buying at the Bottom of the Market

If you are thinking of buying in the next 6-12 months now that rates are down some more, make sure your credit score is in good shape.   Lenders are scrutinizing credit more closely now that qualifying guidelines have tightened up.   Pay down your debt and pay bills on time.   Contact all three credit bureaus to get blemishes taken off of your credit report. To check your credit call or use their web site.  

• Equifax 800-685-1111 or www.equifax.com
• Experian 888-397-3742 or www.experian.com
• Trans Union 800-888-4213 or www.transunion.com

To remove incorrect information from your credit report, there is a process that begins with writing to the credit bureau telling it which items are incorrect and why.   Call me to learn about the rest of the process.

Market Trends

Posted by Bette Deller under For Buyers, For Sellers

The National Association of Realtors reported recently that sales of existing single-family homes, townhouses, condos, and co-ops declined 8 percent from August 2007 to September 2007 to a seasonally adjusted rate of 5.04 million units.    According to their figures, sales are down 19.1 percent compared to September of 2006.   They also reported that the housing inventory has increased and that median prices have declined.   The decline is expected to bleed into October.  

This is discouraging to sellers, but one should not have expected the appreciation rates of recent years, the feverish pace of sales,  and the prices of the past 3-4 years to continue indefinitely.   That was an aberration set off by the shortage of homes on the market, the easy availability of loans and loan programs, the lowest interest rates in history, and the bidding wars created by buyers.   Such a phenomenon is not the norm and should not have been expected to  continue.  

The media is full of gloom and doom, but the public needs to keep things in perspective. The real estate market is  simply correcting itself after an aberration that occurred between 2003 and 2006.   Home sales and home prices shot up way above normal during  those 3 years.   Their values became inflated, and we all got spoiled expecting fast sales and huge profits to last forever. This could not be sustained indefinitely.   What we see now is a more  normal market.  

Even with the current slow down, the predicted number of sales for 2007 is more than twice what the number of home sales were in 1990 and is still higher than any year since 1990 except for those boom years.   This is not terrible.   Yes, prices have declined, but they are still above the increases in income and above what many buyers can afford.   In 1990 income and home prices were at about at the same level.   The gap between the two became wider and wider between 1990 and 2007.

The NAR estimates that the number of existing home sales for 2007 shows a 16% retreat from its peak in 2005.   However, the number of home sales  estimated for 2007  is more than twice the number of homes sold in 1990 and just a little under the figures for 2002, the year  just before the big boom!       According to the NAR, existing home sales in Maryland and Virginia are close to or at what they were in 2000.   Is that so terrible?

Admittedly, new home sales have taken a bigger hit.   NAR reports a 38% retreat in estimated new home sales  for 2007 compared to the peak for them reached  in 2005.   However,  a cut-back in new home construction should thin out the inventory and strengthen home prices for re-sale homes. This is a good thing.

There are a lot of good things about todays market.   One of them is that mortgage rates are still at near 45-year lows.  There is a shift to more traditional loan products.   Reckless lenders are going belly up. There is a revival of FHA loans which require the borrower to have some of their own money in the transaction  and more stringent guidelines for qualifying for a home loan. There is a higher  prevalence of fixed rate mortgages which should reduce the foreclosure rate.    With the tightening up of mortgage lending guidelines, those buyers who are able to get loans will be better qualified for the home purchases they are trying to make,  and their mortgage obligation will be more manageable for them.  

It is a great time for first time home buyers and those with good credit scores and some savings!   There are a lot of homes on the market from which to choose. There are stable lenders with good loan programs available for qualified buyers.  Mortgage rates are still at historically low rates, and there are lots of lenders out there who are eager for your business. If you are considering buying a home, do it now.   Who knows how long it will be before those mortgage interest rates begin to rise again?

If you need to sell a home, be realistic about its value.   Do not judge its worth by the inflated values of the past 3 years.   Take a look at what you paid for it and how long you have owned it and then compute a reasonable  appreciation rate of about 5-8% per year¦not the 12-24% or more as we hae seen in the past 3-4 years.   If you list it at a reasonable  price, it will sell. If you do not get an offer, reduce the price every 20-30 days.

On a national level, the number of home sales is down by about 1.5 million since the peak in 2005 according to NAR.   These are  tough times for sellers and realtors who list homes, but  2005 was not a normal year, and this too shall pass.    The national housing outlook for 2008 according to NAR predictions  estimates that  the number of home sales  will improve and be almost up to the level seen  in 2006.    Home prices are expected to  grow  by 2.2%. This is not as terrible as the doom and gloomers have made it out to be.   Hang in there!   Markets are always in flux, and the real estate market is no different.   It will rebound.

The PG Gazette recently ran an article stating that there were 2800 forecosures in Prince George’s county in the first seven months of this year…more than in any other county in Maryland, according to the data comopany RealtyTrac.   Efforts are being made by the county and other non profit organizations  to host foreclosure workshops to try and educate homeowners about steps to take to prevent foreclosure and  keep their homes.

 A newly formed county group, Coalition for Homeowner Preservation, held the first in a series of planned weekly workshops in Hyattsville on September 13th attracting a crowd of about 20.   Another nonprofit group hosted a workshop in Riverdale on September 20th and plans to hold them weekly through November 15th.   The county housing department also held a foreclosure seminar at the Oxon Hill Library recently with more than 300 people attending.  

There is help out there.   Look for announcements in your local papers for workshops and seminars and/or contact the county housing department for news about this issue. Probably the first step is to contact your lender and try to negotiate a payment plan or a change in interest rate. Lenders don’t want the hassle of a foreclosure any more than a homeowner does  so if this is a worry for you, talk to your lender first.