Still Tumbling Down …

Everywhere I turn, I hear analysts talk about how the economy is on the upturn, and the housing market is on the mend.  I don’t know about the economy, but I’m not buying that stuff about the rosy housing market.

Zillow’s chief economist Stan Humphries is now predicting the housing market won’t hit bottom until sometime in 2012.  Home values have fallen for 57 consecutive months.  Doesn’t sound very rosy to me . . . The full article containing this info appeared in the WSJ on May 9th.  Here’s the link:

We saw the surge in home purchases last year, spurred by the $8000 tax credit, but when that expired in late summer, so did the breath of fresh air that had been pumped into home sales. 

There’s just sooo much inventory out there, prices aren’t going anywhere soon.  The glut of foreclosures on the market make it nearly impossible for someone to sell their home at anything near its true value.

Remember the cute three-bedroom ranch I bought a few months ago for $35,000?  It’s on a cul-de-sac with other homes valued at $80-85,000.  With that kind of (foreclosure) competition, those people can’t sell their homes right now. 

So yes, the housing market is still tumbling down, but we investors are taking advantage.  Really, anyone who has decent credit and wants to be a homeowner should be seriously looking to buy right now.  However, the banks have tightened their purse strings — many are demanding a credit score in the 700s — — which makes it challenging for many to obtain a mortgage.  How do we clear the huge inventory of homes on the market when very few are able to get loans?  Cash is king, of course, but aside from the investor segment, there aren’t many potential buyers who can pay cash for their home.  Definitely a “catch 22” situation!

What I know is this:  there’s a huge inventory of wonderful homes out there — single- and multi-family — a lot of value for a little money.  These prices are going to bump along the bottom for at least nine more months.  And I plan to take full advantage.

How ’bout you?

Tax Credit Extended and Expanded

The government was hoping to clear the shelves of lower-priced homes and foreclosures by offering the tax credit to first-time home buyers.  This tax credit of up to $8000 helped somewhat, and now lawmakers have extended the time frame.  The offer was due to expire on December 31st, but has been extended into 2010.  In order to qualify, buyers have to sign purchase agreements before May 1, and close the sale before July 1.  Lawmakers were under pressure from realtors, mortgage bankers and builders throughout the country, who had seen modest improvement in their businesses due to the tax credits offered to first time buyers.  As of last August, about 1.4 million first-time buyers had taken advantage of the tax credit.

To sweeten the pot even more, the tax credit has been expanded to include buyers who  have owned their current homes at least five years.  These home owners will be eligible (subject to income limits) for tax credits of up to $6500.  Of course, these credits are available only for primary residences (not vacation homes), and the home must cost less than $800,000. 

Many argue that expanding the tax credit to include current homeowners will do little to improve the state of the economy.  After all, when you purchase a new home and take advantage of the $6500 tax credit, even though you’re buying a home, you’re also putting your existing home on the market to sell.  You’re merely replacing one with the other.  This isn’t helping the over-supply in the least.

Fannie Mae is in on the assist, however.  It’s offering borrowers who are on  the verge of foreclosure an option to stay in their home and rent for a year.  Rental rates are established by current market rates in the area.  The family transfers title to Fannie Mae for a year, avoiding foreclosure.  This helps the family avoid damaged credit from foreclosure, saves Fannie Mae the costly process, and many people are able to get back on their feet within the year.  One-month extensions are also possible beyond the year point. 

Hopefully, the number of foreclosures will start to decline in the near future.  Coupled with that, there has been a modest surge in home sales due to the tax credit to first-time home buyers; the extension should help the housing market and related businesses in the long run.