$8,000 fast cash for first-time homebuyers
HUD plans to tweak $8,000 tax credit rules so first-time homebuyers can get instant down-payment assistance.
NEW YORK (CNNMoney.com) — Home prices are cheap. Affordability is at a record high. And the market is littered with distressed properties looking for a buyer.
But there is one big obstacle for many first-time house hunters looking to take advantage of the market: cash for down payments. The typical first-time buyer has only saved enough to cover 4% of the purchase price, according to the National Association of Realtors.
As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping on-the-fence buyers to take the home-purchase plunge. But buyers couldn’t collect the $8,000 credit until tax time, rather than at closing time – when it’s needed.
Now the U.S. Department of Housing and Urban Development is planning to change that. The agency is working on a plan that will allow Federal Housing Authority-approved lenders to provide buyers with the tax credit cash up front.
“We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment,” said Shaun Donovan, HUD secretary, in a speech last Tuesday before the National Association of Realtors.
States first
Donovan did not reveal many details, but the plan could be modeled after programs in Colorado, Missouri, New Jersey, Pennsylvania, Tennessee and Washington. To quickly infuse cash into their housing markets, these states created “bridge loans” that allow buyers to borrow against the $8,000 credit and then repay it with their tax refunds.
The first state to launch such a plan was Missouri, which rolled out its Missouri Housing Development Commission Tax Credit Advance Loan program on January 14 – a month before Congress approved the stimulus package. Since then, Missouri has approved applications by more than 300 borrowers and closed on 128 of them.
Lamar Cherry and his wife, Chrishanna, used the program to augment their down payment when they bought their home in Kansas City.
The couple purchased a four-bedroom, three-bath split-level home for $150,000, putting about 6% down. Much of that $9,000 came from the loan program, which they tapped so they wouldn’t have to drain their reserves.
“We had money saved up that we were going to use for the down payment,” said Cherry. “Now we can use some of that to buy some things we need for the house.”
At closing, the Cherrys, like all buyers in the program, signed for their first mortgage, plus a second mortgage issued by the state. The second note is good for 6% of the price of the home, up to $6,750; there is a $350 set-up fee, but no interest is charged if the debt is repaid by June 2010.
In Missouri, borrowers can only access $6,750 of the $8,000 credit for down payments. “We wanted them to have a cushion below that $8,000 in case other tax liabilities show up,” said Greg Spurgeon, the single-family homeownership administrator for the Missouri Housing Development Commission.
If borrowers don’t pay off the note, it becomes a 10-year fixed-rate mortgage with an interest rate one-half percentage point above that of their first mortgages. For example, borrowers paying 6% on their first mortgages would be charged 6.5% on the second.
So far, Spurgeon said, a significant proportion of participating homebuyers have repaid their loans. He expects most of the others to do the same before the deadline.
Cherry has claimed the federal tax credit on his 2008 taxes, but he hasn’t gotten his refund yet. He definitely intends to repay the loan before the 2010 deadline because, he said, not doing so would add about $75 a month to his house payments.
A not-so-awful bad housing report
Government report shows surprising sharp drop in housing starts and building permits, but single-home data show signs of stabilization.
NEW YORK (CNNMoney.com) — Initial construction of U.S. homes and building permits both sank to record lows in April, according to a government report released Tuesday, but the same report also showed signs of stabilization in the single-family core of the housing market.
“Markets trade on headlines but the details of this report are less bad,” said Ian Shepherdson, Chief U.S. Economist at High Frequency Economics, in a research note.
While the housing sector overall remains weak, the headline numbers of this report were dragged to record lows by the staggering multifamily sector.
“The devil is in the details here,” said Mike Larson, real estate and interest rate analyst at Weiss Research, in a research note.
“The weakness in April was concentrated in the multifamily sector of the market – condos, apartments, and so on,” said Larson. “That likely stems from the ongoing condo glut and the tighter financing conditions we’ve seen in the commercial real estate arena.”
Record lows: Housing starts fell 12.8% to a seasonally adjusted annual rate of 458,000, down 12.8% from a revised 525,000 in March, according to the Commerce Department. The reading is the lowest level since the government began keeping records in 1959. The second lowest reading came in January, when the rate of housing starts was 488,000.
Economists were expecting housing starts to come in at 520,000, according to a consensus estimate compiled by Briefing.com. Compared to the same month last year, privately owned housing starts were 54.2% below the revised April 2008 rate of 1,001,000.
Applications for building permits, an indicator of future construction activity, fell 3.3% to a seasonally adjusted annual rate of 494,000 in April. The measure for building permits was also a record low, going back to January 1960, the furthest back the government has records. Economists were expecting permits to come in at 530,000 in April, according to the Briefing.com consensus.
Silver lining: The silver lining in an otherwise grim report was that new construction of single-family homes, considered the core of the housing market, rose 2.8% in April over the prior month, to an annual rate of 368,000. New construction of multi-family homes with 5 units or more sank to an annual rate of 78,000, down 42% from a revised 135,000 in March.
Similar to housing starts, the majority of the drop off in building permits was centered in multi-family homes. Building permits for single family homes rose 3.6% in April to a seasonally adjusted rate of 373,000. Building permits for multi-family units with five or more units fell 21% to an annualized rate of 103,000.
“All the drop in both starts and permits is in the hyper-volatile and hyper-depressed multi-family sector,” said Shepherdson. Despite month-to-month volatility, the single family housing market has showed signs of a revival.
Going forward: Stability in the single-family sector combined with a recent uptick in builder confidence, according to a report from the National Association of Home Builders/Wells Fargo released Monday, indicate the rate of deceleration in the construction market could begin to slow.
“Homebuilders are more optimistic, according to the NAHB survey, so it seems reasonable to expect the rate of decline of new construction to slow,” said Shepherdson.
Larson said that the single-family market would still have to contend with a glut of inventory, “but these figures add to the evidence of potential stabilization in that part of the industry.”
Another economist echoed the sentiment that the report could point to a bottoming out in the sector.
“Single-family activity managed a second straight gain, giving some credence to a bottoming process,” said Adam York, economist at Wachovia, in a research note. Even as the single-family sector shows signs of life, York expects the multifamily sector to “likely remain under pressure.”
Sussex County, Delaware Home Sales – as of May 18, 2009
Condo / Town Home – 143
Mobile – 57
Multi-Family – 3
Lots / Land – 102
Farms – 2
Commercial – 15
May 4, 2009
Housing Numbers: Green Shoots or Red Flags?
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Two new pieces of data out today suggest, at face value at least, an improvement in the housing market.
First, construction spending rose 0.3 percent in March. Now granted, that’s not an awful lot, but it’s the first time that number has been positive in six months. The trouble is, single family construction dropped 8.6 percent after falling a record 11 percent in February. Nonresidential construction, however, came in strong and actually unexpectedly strong.
Okay, great then about nonresidential, except that the gains came in commercial buildings, educational buildings and manufacturing, which are all overbuilt already for today’s real estate climate. “March’s gains were likely from ongoing projects that were started when the outlook was brighter than it is today,” writes economist Patrick Newport of IHS Global Insight.
Of course on the bright side, you could argue that continued drops in residential construction spending is a good thing for the market, given how high new home inventories are right now. The less we build, the faster we get back to normal levels of supply and demand. That’s the bright side, if you are not actually a home builder.
The second piece of data, Pending Home Sales from the National Association of Realtors, also came in higher than expected. An increase of 3.2 percent month to month in contracts signed for existing homes could signal a coming boost in existing home sales. Of course, “while pending home sales have historically been a one-month leading indicator to existing home sales, with a 71% correlation using a one-month lag,” writes JP Morgan analyst Michael Rehaut, “we note that since October, the relationship has been more volatile. Specifically, Feb.’s Pending Home Sales rose 2.0%, but March Existing Home Sales fell 3.0%.” Rehaut adds that rising unemployment and weak consumer confidence will keep these levels depressed through the year.
Most agree that the increase in demand is driven by continued demand for foreclosures, a huge increase in affordability, low mortgage rates and the $8000 first time home buyer tax credit. Credit-Suisse analyst Dan Oppenheim in looking for a correlating rise in existing home sales in April, based on these pending numbers, a 3.9 percent increase to be precise. Since the largest gains appear to be in the South and West (homes to your biggest boom and bust states), we can probably expect to see even a bigger percentage of sales coming from foreclosures or short sales. And that’s not bad.
The faster we get rid of the distressed inventory, the faster we can get regular, higher-priced homes some action.
Pending Home Sales Up 3.2% In March
Beach to Bay Real Estate Center is a full service real estate brokerage servicing buyers, sellers and renters at the Delaware beach areas. We handle all forms of real estate, including residential, commercial, and lots and land, in addition to bank owned, short sales and auctioned properties and representation; mortgage needs including refinances, new home purchases, second homes, first time homebuyer programs and reverse mortgages; maintain professional relationships with local settlement attorneys, insurance companies, contractors, and inspection companies; and are affiliated with a preservation and restoration company. Beach to Bay services all of Sussex County, and southern Kent County, with a strong focus on the beach resort areas of Rehoboth Beach (19971), Lewes (19958), Bethany Beach (19930), Dewey Beach (19971), Milton (19968), Millsboro (19966) and more.