Tick, Tick, Tick

No, it's not another tribute to Don Hewitt who founded "60 Minutes". I'm talking about the end of the first time homebuyer tax credit.

The $8000 one time incentive expires at the end of November. That may seem like a long time away, but for a lot of people it's almost too late to jump on this bandwagon.

Here are some scenarios where you're running out of time on this:

New Construction: Sorry! On this one you probably are way too late. You have to close on the house before the end of November and most builders, in most communities have little or no inventory that can be delivered before then, barring a cancellation. If you're set on buying new construction, you may have to do it without the incentive.

Short Sales:  The typical short sale is still taking 120 days. That's four months! Do the math, that puts settlement at the end of December, a month too late. You could get lucky, some of them are closing closer to 90 days, but you'd better rush out there now if you're buying a short sale!

Foreclosures: Foreclosures are taking 45-60 days to settle. This means you have a little cushion here. But first you have to find a house you want to buy. And, given the shortage of inventory, especially in the lower price ranges, you'll probably need to write several offers on several houses. There went your cushion.

If you're only interested in buying a home that doesn't fall into any of these categories, you can be a little less pressured, theoretically. Of course, if you exclude these three categories of homes, you may have a heck of a time finding a house you want to buy!

Remember, that $8000 is taken directly off of what you owe in taxes! That's a great deal. (Wish I was eligible!)

If you're looking to beat the deadline and get that tax credit, let me know if I can help. And, if you need more details on the tax credit and whether you qualify, give me a call or send me an e-mail.

Tick, tick, tick!

The Appraisal Mess

If you're involved in the real estate business or are a buyer or seller right now you probably are well aware of the appraisal mess. If you haven't gotten a taste of this yet, here's what all the fuss is about.

In an effort to make appraisals more objective and keep lenders from twisting the arms of appraisers to get higher values, new rules were rolled out this year from Fannie Mae and Freddie Mac. Instead of a local lender calling a local appraiser, they must now call a clearinghouse who will then subcontract to an appraiser.

While the idea of keeping arms length relationship sounds good, there have been some big hiccups with this new process. Appraisers are coming from far, far away to appraise in neighborhoods they know nothing about. Just today I met an appraiser at a listing I have in Culpeper. The appraiser drove several hours from Maryland to do the appraisal.

This has resulted in wildly inaccurate appraisals. And it's slowed the process down, because there's now an extra layer there.

The other thing an extra layer does is add extra cost. The new clearinghouses want to make money off of the appraisal too. So they raise the fees they charge, increasing the cost of the appraisal to the buyer. But at the same time they've lowered what they pay the actual appraiser. Guess how many of the best appraisers want to work for these clearinghouses?

There's a movement in Congress right now to suspend these rules temporarily until some kind of fix can be found for the more egregious problems. Meanwhile, if you're waiting on an appraisal, whether you're a seller or a buyer, be prepared for bad news! And, remember that if there are issues with the appraisal, there are also potential remedies.

2009 Predictions Updated

At the end of 2008 I made some predictions about what the real estate market would likely look like for this year.

We've now got enough data from the first half of the year to take a look at how accurate I've been.

First of all, I predicted that the Obama administration would intervene in the housing markets and that this intervention would make a difference in the real estate market locally.

I got this one partially right. They did intervene almost immediately with a moratorium on foreclosures. You could argue about how much it helped, but we did see some let up on the loads of foreclosures coming on the market in the 1st quarter. And I would argue that it gave some mortgage holders time to rethink their strategy. Some of them decided dumping large numbers of foreclosures in the same market at the same time was not all that smart!

But I also anticipated that the adminstration would use that extra time to put in place a real plan to reduce the number of foreclosures. Unfortunately, this administration's plans, like those of the Bush administration before it, have proved inadequate to the challenge at hand.

The one measure that I would say has made a considerable difference in this market is the $8000 first time homebuyer tax credit. There are homebuyers out there buying homes purely because of this incentive. Between that additional demand and the reduction in the dumping of scores of foreclosures, we have indeed, seen some bottoming.

I was partially right and partially wrong on the inventory question as well. I anticipated that while the overall trend would be down, year over year, that we'd see a rise in inventory briefly in early spring, 2009. This is a seasonal pattern and I expected to see what we've normally seen. I was wrong and the decrease in inventory continued, even through the early spring. There was a blip of an increase in Fauquier County. And Rappahannock continued it's tradition of bucking the trend with an inventory that continues on an upward trajectory. But overall, inventories have declined steadily throughout the year.

I suggested prices would stabilize during the summer months. I may still get that right, we'll see. What it looks like right now is price appreciation at the lower price ranges, price stabilization in the mid range and continued price declines in the upper price ranges. The average sold price is down 31% year over year in Culpeper County thus far. The median sold price is down just 11% (close to my prediction of 10%). In Fauquier the average price is actually up an astonishing 45%, with the median sold price down 8.69%. In both of these instances I'd pay a lot more attention to the median number. The average is too easily skewed by large transactions. In Prince William county the average price is down about 5% and the median down 6.67%. But anyone trying to buy a home in Prince William under $400K knows how tough the competition is. Prices are definitely increasing in that market segment.

The number of homes sold for the year looks like it will slightly beat my projections. We're slightly ahead of where I thought we'd be right now. Barring a large drop off, we'll beat my projections, probably by 5-10%.

At this point, nothing I said makes me look like an idiot, always a good feeling! But it's only August!

Want to go out on that limb with me? What are your projections for the rest of the year?

Why Mortgages Aren't Being Modified

It's no secret to most people that the majority of homeowners are unable to get their mortgages modified and eventually lose their homes. And, in fact, even those who do get modifications, end up with a monthly payment that is HIGHER than the original. That's why you hear about so many modifications that still end with the homeowner losing the home.

Now there's new reporting about why those modifications aren't happening. There has been plenty of speculation, but now there are some facts to look at.

Baseline Scenario, in my mind the best blog out there on the economic turmoil we've been experiencing, has a new post talking about what's actually been happening.

Loans are not being modified because there is a financial incentive in many cases, to NOT modify them. Until that changes and the job market improves, it's hard to see how the foreclosures stop.

That said, the picture here looks rosier than the one depicted in the chart shown in the blog post on Baseline Scenario. Remember that all real estate is local!

So, how do we change the financial incentives for the services and mortgage companies?