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2009-10-13 23:36:05

Six Reasons Time’s Running Out For First-time Home Buyers


The deadline for closing a home using the first-time home buyer tax credit is November 30, 2009. You may think you have plenty of time left, but you’re wrong.
If you want to buy a home in a depressed market, a government subsidy certainly helps, but so does buying smart - at the bottom of the market with the lowest prices in a decade, historically low interest rates, and with the best inventory selection since before World War II.
Here are six reasons why first-timers are running out of time:
The economy is improving
The worst recession since the Great Depression may be winding down, said The Conference Board on August 20, 2009. The analysts found that leading economic indicators rose 0.6% in July, following a 0.8% rise in June. That’s two consecutive months of improvement halting 8 months of declines.
While the indicators can certainly slide backward new data, serious first-time home buyers should realize the days of wholesale bargains may be numbered.
Banking issues
Since May, 2009, Federal Housing Finance Agency appraisal regulations have slowed home sales transactions to the point that major lenders, including Homeservices of America, are telling loan originators that closings could be delayed by as much as an extra 15 days. The National Association of REALTORS® has found that 76% of its members reported delays in closing.  
As the first-time home buyer tax credit comes to a close, banks will be inundated with loan applications for an already narrow production pipeline. Home buyers should allow at least 45 days to close, and a few days extra in order to have time to correct errors or delays during the closing process. 
That means if you applied for a loan as late as September 30, 2009, your loan could be in danger of not closing before the tax credit deadline of November 30, 2009. 
Federal bailout fatigue
If the government concludes that additional stimulus is needed for the economy, it’s likely that the first-time home buyer tax credit will be extended, but you’re taking a chance to count on it.
From Cash for Clunkers to Making Home Affordable programs, and many more, the federal budget is at its limits. In total, the economic stimulus bill has added $787 billion to a federal budget already careening out of control.
The largest federal deficit ever reached $1.3 trillion in August 2009, says the Congressional Budget Office’s monthly budget review. The deficit grew largely because of the Troubled Asset Relief Program (TARP) $169 billion, in which $83 billion went to support Fannie Mae and Freddie Mac. Expenditures from the American Recovery and Reinvestment Act of 2009 (ARRA) have totaled more than $125 billion. See:
Inventory is being absorbed
Existing, or pre-owned home inventories are slowly being absorbed, and are at a 9.4-month supply in July, while standing builder inventories were at 8.8-months-on-hand in June 2009.
At their highest during the recession, new and existing home inventories hovered at 11 months on hand. A balanced market is approximately six months of inventory on hand. New home housing sales have improved three months in a row in June. 
If the current rate of improvement in existing homes remains at a steady pace, (from 9.8 months on hand in June to 9.4 months on hand in July,) the existing housing market could be balanced (on a national basis) in approximately 8 months.  
Seller’s market for affordable homes
Existing home sales in July 2009 increased four months in a row, says the National Association of REALTORS®. The national median existing home price was $178,400, 15.1% lower than a year ago.
Pressuring prices and inventories are foreclosures, which contributed to a 7.3% rise in inventory, which the sales pace absorbed, keeping inventory on hand at 9.4 months on hand for two consecutive months. Lawrence Yun, chief economist for the NAR says that improved affordability has driven sales with first-time home buyers taking advantage of the tax credit. “The demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint,” he said in a statement to the media.
One-third of homes sold in July were to first-time home buyers.
Interest rates are going down
The percentage of foreclosures in the second quarter 2009 were the highest ever recorded by the Mortgage Bankers Association, and the trade organization says that foreclosures will grow and peak at the end of 2010.  
One-third of homes sold in July were short sales or in some stage of foreclosure.
What’s disturbing is that one out of three homes in some stage of foreclosures are prime fixed rate mortgages, suggesting that joblessness is impacting borrowers ability to pay their mortgages. 
First-time unemployment filings rose mid-August, which indicates that the recession isn’t over yet, and that housing inventories will continue to rise.
If that’s the case, the Fed will strive to keep mortgage interest rates as low as possible to continue the momentum in housing sales.
Your competition is other home buyers
The accumulative effect of all these market conditions - rising foreclosures, low interest rates, jobless claims, government incentives and more are that home buying is going to be at its most attractive level through the end of summer and into the fall and early winter.
In July, housing sales transactions jumped 7.2 % - the largest monthly sales gain since 1999. Price-to-income ratios have fallen below historical trends, says Yun.
That means that home buyers at all price levels may jump into the market, crowding lender pipelines even more.
If you want a smooth transaction, and to take advantage of the $8000 tax credit, the time to act is now.
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."  


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