Buying a Home before You're Married or After - What's the diff?

Investor face New Lending Limits

In its last act as a semi-independent company, Fannie Mae altered mortgage guidelines for real estate investors last Friday. It was Fannie's 22nd update this year.

The first part of the guideline change limits the number of properties owned by any one person. 

Fannie Mae will now decline any mortgage application for a second home or investment property if the mortgage applicant already finances, or will finance, more than 4 properties in total.

The former guidelines allowed for 10.

There is a loophole, however.  Fannie Mae will not count properties against the 4-property limit if they are held in the name of a corporation.  This holds even if the real estate investor is the sole owner of said corporation. 

Investors, therefore, should consider moving their properties into a corporate structure to avoid triggering Fannie Mae's 4-property limit.  Many take this step for liability and taxation reasons, but it's now a good idea for mortgage approval reasons, too.

The second part of the guideline change cannot be so easily avoided.  Fannie Mae is assessing new, loan-to-value based loan fees on all investment property mortgages.

• Loan-to-value less than 75 percent : 1.75% loan fee
  
• Loan-to-value 75.01-80.00 percent : 3.00% loan fee
  
• Loan-to-value 80.01-90.00 percent : 3.75% loan fee

These fees are mandatory and are in addition to any whatever other risk-based loan fees Fannie Mae may assess.  Currently, those fees amount to a half-percent at minimum for real estate investors.

Since its Fannie/Freddie takeover, government officials have not addressed whether mortgage guidelines will be rolled back to "a looser time".   If they are, it would be a big deal for real estate investors because, as many are finding out, low rates don't matter much if you can't qualify for them.

If you're currently in the market for an investment property (or two), consider that it may be cheaper and simpler to purchase over the near-term versus the long-term.  And consider moving your existing properties into a corporate structure first.

When I don't Disagree with Case-Schiller's Price Index

I don't usually like the Case-Shiller Home Price Index because it doesn't include our Metropolitan Statistical Area, and without data from Philadelphia (which is usually better than most parts of the nation) I don't think the study can have validity to us, But even with their poorly weighted (IMHO) information, it seems that we may have hit the bottom of the real estate market in many parts of the country.

According to the June 2008 Case-Shiller Home Price Index, home prices in 15 of the 20 largest U.S. real estate markets either improved, or showed growth from the month prior.

This is the fourth straight month in which that happened which means that a national housing recovery may already be underway.

Now, it's worth stating that all real estate is local and that there's no such thing as a "national real estate market", but for home buyers looking to to maximize their negotiation power to get the best possible "deal", spotting trends like this before the media does is a good thing.

So far, only Bloomberg and a few others have chosen to highlight the positives from the otherwise-negative Case-Shiller report. By contrast, most publishers are focusing on annual home price figures which show a hefty drop of 15.9 percent.

We shouldn't dismiss annual trends because they're helpful in the theoretical sense, but for real, live home buyers trying to identify trends and market bottoms, it's the month-to-month data that matters most.

After looking at 4 consecutive months of Case-Shiller data, the month-to-month data appears to show that home prices have stabilized in most major markets. And, in some, they've already started to recover from their lows.

Source
U.S. House-Price Slide Eases, S&P/Case-Shiller Shows
Courtney Schlisserman
Bloomberg.com, August 26, 2008

How Labor Day can Effect Housing Affordability!

As we get closer to Labor Day, volume on Wall Street is dwindling as market players get a head start on their long weekend.

Today could be a difficult day to shop for mortgage rates and that can impact home affordabilility. 

Expect volatility.

This is because mortgage rates are based on the price of mortgage bonds and, on Wall Street, bonds trade a lot like stocks.

There has to be a buyer and a seller at a specific price to make a deal.

With so many traders on vacation today, though, there are fewer opportunities to match buyers and sellers.  This can cause mortgage prices rise or fall faster than on a "normal" day, directly leading to mortgage rate volatility.

Each 0.125% mortgage rate increase is an extra $96 cost per $100,000 borrowed on a principal + interest home loan.

For a light-volume trading day, there is a lot of information for markets to digest:

• The weather reports on Tropical Storm/Hurricane Gustav
  
• Reports that inflation is rising
  
• Reports that Consumer Spending is slowing
  
• Ongoing political tension between the U.S. and Russia

By themselves, each of these points can move markets. Together, however -- and aided by Labor Day -- they can move markets a lot.

Mortgage bond pricing is fluid, changing every minute of every day.  Today, those changes will be exaggerated and, as an example, in the first 30 minutes of trading, mortgage rate pricing swung from rate improvement to rate deterioration in a flash.

More Proof Real Estate is Local!

Stories on TV about the national real estate market are misleading to Americans.

This is because there is no such thing as a "national real estate market".

Consider the latest American Housing Survey. It found that there are 124,377,000 homes in America spread across:

• 50 states, with
• More than 30,000 incorporated cities, and with
• An innumerable number of neighborhoods

And yet, the media repeatedly groups all 124 million homes into one giant lump and then gives an analysis. No matter how you slice and dice the data, a home in Oregon can't be compared to a home in Mississippi.

This is why national real estate statistics are somewhat useless.

To get real estate analysis that matters, look local instead. And I don't mean stats from your state -- I mean stats from your neighborhood. It's the only way to know what's driving home prices on your street.

Unfortunately, finding local data like this isn't easy; it's far too narrow to be covered by the press. So, the best place to get local real estate data is from a local real estate agent or from somebody else with access to raw real estate data in and around your neighborhood.

By talking to "in the market" professionals that know your backyard, you'll get a much clearer picture of your local market -- good or bad -- than the national media could ever provide.

Real estate is a local market so your real estate data should be local, too.

Homeowners Benefit from Lower Housing Starts!

Housing Starts measure the number of new housing "units" on which construction has started and in July, Housing Starts fell to its lowest levels since March 1991.

For homeowners, this is a welcome bit of good news because as fewer homes are built, there is less inventory from which home buyers can choose, making their homes a more important part of the existing home inventory.

With fewer homes for sale, the supply-and-demand curve shifts in favor of home sellers and this adds a support floor for home prices. In addition, with less new construction , those homes built in the past few years become more attractive to potential home buyers who are looking for the newest home possible.

For home buyers, though -- and for the opposite reason -- the low number of Housing Starts may not be as welcome.

With fewer new homes on the market, owners of "used" homes may feel less pressure to lower their asking prices or to make other concessions to interested buyers. This means that home buyers may pay more for a home, or get fewer "throw-ins" on the contract.

For all of the hocus-pocus that surrounds real estate data, in the end, home prices are based on the supply of homes versus the demand for homes. When supply outpaces demand, home prices fall.

Homebuilders learned this lesson and July's Housing Starts data supports that.

(Image Courtesy: Wall Street Journal Online)

How Your Purchasing Power Just increased!

The Producer Price Index is a business inflation meter and it's now up 9.8 percent annually.

This is a huge number for PPI and represents the highest year-over-year rate of inflation since 1981.

Normally, blowout inflation like this would be terrible for mortgage rates but mortgage markets are actually improved since last Tuesday's data release.

Usually, a rocketing PPI would create an inflation expectation on Wall Street which would, in turn, cause mortgage rates to rise, impacting home affordability.

Yesterday, however, that's not what happened.

Upon the PPI release, Wall Street looked at the 9.8 percent number and simply shrugged it off. "Of course PPI is high," traders thought. "Did you see how high energy costs were last month?"

Traders know that in July, oil prices reached an all-time high of $147.27 per barrel and, since then, crude is down more than 20 percent. Because of this, Wall Street has now turned its attention to the August PPI data, thinking it will much more calm than July's.

In other words, instead of fearing inflation, traders believe the worst of it is over, providing an unexpected boost to home buyers in need of mortgages. As inflation expectations fall, mortgage rates are following suit.

"Getting" the Pending Home Sales

When home sellers accepts a contract on MLS-listed property, the property's official status changes from "Active" to "Pending".

By measuring the number of "Pending" homes nationwide, the National Association of Realtors^® publishes its once-monthly Pending Homes Sales Index.

The real estate industry group positions the report as a predictor of future home sales activity, stating that 80 percent of homes under contract will "close" within 60 days, and most others will close within 120 days.

But, although using the Pending Home Sales report as a crystal ball may be its intended use, it may not its best use. 

This is because of the index's methodology:

1. It doesn't measure new construction homes
   
2. It doesn't track For Sale By Owner properties
   
3. Its sample set covers just 20 percent of MLS transactions

In addition, in a tough mortgage climate such as the one we're in now, a greater percentage of pending sales will fail to close at all because of lack of financing.

The Pending Home Sales Index still has its place, however -- it's a terrific look at the buy-side demand for homes. 

When the Pending Home Sales Index is rising, we can infer that more buyers in the market for homes and this is a signal of market strength.  After all, pending sales can't happen unless there are buyers out there.  And with more buyers competing for homes, home prices tend to rise.

This is why the June's Pending Home Sales report is so intriguing. 

In June -- for the second time in three months -- the Pending Home Sales Index posted a large gain even as economists were calling for a loss.  The inference here is that buyers are not only finding good value in all four regions of the country, but are willing to make bids on homes listed for sale.

Now, again, the uptick doesn't mean that the pending sales will necessarily close, but it does tell us that more home buyers are finding "now" to be a good time to buy real estate.

That sort of insight is what make the Pending Home Sales Index worth tracking.  When buyer demand is rising, the real estate market isn't usually far behind.

Leaky Toilets Cost Fortunes!

Any plumber will tell you -- toilets are among the least efficient appliances in a person's home.  20 percent of them leak up to 200 gallons of water per day -- the equivalent of an 80-minute shower.

At an average cost of $2 per 1,000 gallons, the EPA estimates that homeowners literally flush $146 of water down the drains each year.

But toilets also waste money by overfilling with water; even low-flush varieties waste 32 ounces per flush.  Because of overfills, an average household of 4 people with 2 toilets squanders an additional 6,575 gallons of water in a calendar year, or $13.15.

Enter the $15 HydroClean toilet valve.

Built by a plumber, the HydroClean product prevents toilet overfills, detects leaks, and cleans the toilet tank for you.  It installs in 5 minutes and the Web site says no special skills are needed.

Within the next 5 years, 36 states expect to suffer water shortage.  Using HydroClean, you can help conserve water and conserve dollars.

HydroClean is available at retail stores and online.

Source
Drinking Water Costs and Federal Funding
EPA.gov, June 2004

Capital Gains Tax Change

Monday, President Bush signed the Housing and Economic Recovery Act of 2008 into law and the press jumped on the obvious storylines:

• First-time home buyers get a $7,500 purchase "credit"


• Conforming loan limits move to $625,000


• Delinquent homeowners get a lifeline from the FHA


• Local governments get federal money for buying and restoring foreclosed homes

However, tucked away on the last few pages of the text, in a section called "Revenue Offsets", there's an important tax implication. The new housing law changes the way in which capital gains exclusions are calculated on the sale of a residence.

Under the old system, a taxpayer was entitled up to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided he lived in the residence for at least 2 of the preceding 5 calendar years.

Savvy homeowners exploited this verbiage, moving from home-to-home every 2 years to avoid paying capital gains, especially in states where the prices were rising so rapidly that they could make tens or hundreds of thousands of dollars in that short 2 year window.

The new law thwarts this tactic.

Capital gains exclusions are now calculated by taking the capital gains on the sale of the home and multiplying it by a ratio of how long a person has lived in a home, by how long that person owned the home.

In the example above, a person living in a home for 2 of 5 years would be entitled to 40 percent of tax-free gains on a home sale instead of all of it. Therefore the impact on home buyers who are not planning on relatively short term moves (under 5 years) will be minimal. Like many other of the bill's provisions, the lawmakers attempted to direct this bill to relief for the home buyer who is trying to find a place for their family, and not the real estate investor or "flipper". As always, however, it's best to talk with a qualified accountant about how tax code changes may impact you personally.

The new capital gains rules go into effect starting January 1, 2009.

Freddie Mac's SEC Filing : Makes Buying a House In Philly Today's Concern

Sometimes, the hardest part about news is knowing where to find it.

In its filing with the SEC last week, Freddie Mac stated that it will "pursue increases" to its middleman fee. This would likely make buying a home more expensive for every conforming borrower in the country.

The exact verbiage from the filing is extremely opaque and unless a person knew what things like "delivery fees" were, or "bulk and flow transactions", he'd be inclined to skip right over the offending passage, tucked away on Page 72 in a paragraph labeled Business Outlook.

But, if we paraphrase the passage and simplify it for laypersons, it reads something like the following:

We didn't charge enough fees in 2007 to account for the massive number of defaults. We don't plan to make that mistake again in 2008.

Strangely, in the entire 1,394-page filing, this passage is the only mention of "future default costs" leading to more loan charges. In other words, it's easy to see why this story didn't get picked up by the major news outlets.

To the media, the major angle in Freddie Mac's filing was that it registered to sell $10 billion worth of securities. For everyday Americans, though, the major story was a different one -- mortgage fees may never be as low as they are today.

Therefore, if you know that you'll need a new, conforming home loan soon -- for either a home purchase or a refinance -- consider moving up your timeframe. Whether rates rise or fall, it's likely you'll pay a more money to borrow money only because you waited. And combined with Philadelphia's rating by Forbes Magazine as one of the 10 Best Places to Buy in the US, going out and finding the right home today is the smart move.

The implied fee increase would be the third this fiscal year, following increases in December 2007 and in April 2008.

First Time Buyers to Receive Tax Credits up to $7,500

Photo Courtesy of Creativecommons.org

The President signed into law the Landmark housing legislation yesterday. The law is designed to help the housing industry and the credit industry recover from the mortgage melt-down of the past year, and provide stability in the financial markets. Those portions of the bill are important, but some sections of the law impact first time home buyers in a manner they will immediately feel.

One part of the bill does impact "the average buyer" immediately in an important manner. This portion provides a tax credit of up to $7,500 for first time home buyers, whose individual incomes are less then $75,000 or married couples who earn less than $150,000 jointly. The tax credit can be used for homes purchased between April 9, 2008 and July 1, 2009, and should stimulate home buying, reduce excess supply in housing markets and shore up home prices.

The Tax Credit is based the purchase price of the property, being 10% of the purchase price, up to $7,500 (meaning that for most first time home buyers , the credit will be $7,500).

A comprehensive lists of questions and answers about the tax credit program can be found at the National Association of Home Builder's web site www.federalhousingtaxcredit.com.

Why Buyers are Back to the Market in Pennsylvania & New Jersey

Statistics won't always tell the whole story, but they often provide good perspective.

The graph at right shows Existing Home Sales data going back three years. An "existing home" is one that can't be called new construction; a "used home", so to speak.

Note the steep decline from 2005 through late-2007.

Since November, however, Existing Home Sales have remained within a very tight range and appear to have reached a flattening point.

The Existing Home Sales data supports the word-on-the-street from real estate agents nationwide that buyers are returning to the housing market in search of good values.

But let's not forget -- demand is only half of the story. There is the supply factor, too, and the supply side of the housing market is showing the same leveling signs as the demand part.

Looking at the national inventory at left, the number of existing homes for sale has hovered near 4.5 million for the last several months. No change suggests strength.

Now again, statistics won't tell the whole story but there are plenty of positive signals from the real estate market right now, just like there are negative ones, too.

This is one reason why real estate data causes so much debate -- people want to take an either/or proposition about the state of the real estate and it doesn't work like that. Real estate can be simultaneously strong and weak and when it is, buyers look for value.

On a local level,rates have been good, and our local inventory is smaller then the national inventory. Combined with Philadelphia being walkable (and therefore energy friendly) and affordable, people have started acting on their real estate needs and making purchases.

Perhaps this is why the national housing data is beginning to level off after a 3-year slide. There's good values to be had, and today's home buyers know it.

(Images courtesy: Wall Street Journal Online)

Philadelphia Walks to the Top!

Photo Courtesy of creativecommons.org Ric E Ette

In a world where each gallon of gas costs over $4, people are interested in buying properties in convenient locations. They want to be able to take trains or buses or other forms of public transportation, and wonder of wonders, they want to be able to walk places.

Technology being what it is, someone created a website called WalkScorewhere they can actually find out how an area ranks in its "walkability". Their argument is unassailable.

Picture a walkable neighborhood. You lose weight each time you walk to the grocery store. You stumble home from last call without waiting for a cab. You spend less money on your car—or you don't own a car. When you shop, you support your local economy. You talk to your neighbors.

Recently, WalkScore decided to rank 2,508 neighborhoods in the top 40 cities in the United States. And there, at #5 was Philadelphia ! Philadelphia ranks at 74 for walkability, which is defined as "Very Walkable: It's possible to get by without owning a car. " Imagine a place where you can go to the store, the library, school, or recreation without owning a car!

Of course there are some areas where a car just makes sense, but many of the areas of the city are so easily walkable that a family can certainly get by with one car. Imagine what that savings would mean. Having that car payment available to use for your mortgage payment, or saving a tank of gas a week , perhaps as much as $300 per month to help with your housing expense,

Its sure nice to be at the top of this list. Makes me want to go out and walk over to buy a newspaper

How Your Payment is Tied to the Fed Rate Announcements

The Federal Open Market Committee adjourned from its 2-day meeting aton June 28th. It' announced that the group will leave the Fed Funds Rate unchanged at 2.000 percent.

However, it's not what the Fed does that has markets so interested. It's what the Fed will say.

One of the Federal Reserve's roles is to promote stability in the U.S. economy by protecting it from two major threats:

1. Inflation
2. Recession

The Federal Reserve's primary weapon against both of these hazards, though, is the same -- the Fed Funds Rate. To combat inflation, the Fed raises the Fed Funds rate. To fight recession, it lowers the Fed Funds Rate.

But in today's economy, there is evidence of both inflation and recession meaning that the Federal Reserve is likely to leave the Fed Funds Rate unchanged for fear of setting the economy too far towards either threat.

Therefore, markets will be left looking for clues in the carefully-worded press release signed by Federal Reserve Chairman Ben Bernanke and the other voting members of the FOMC.

If the Fed admits added vigilance against inflation, it's expected that mortgage rates will fall because inflation causes rates to rise. By contrast, if the Fed harps on the downside risks in the economy, it's expected that mortgage rates will increase.

Either way, today's press release should be a market-mover.

If you're currently floating your mortgage rate or are deciding between different lenders, be aware that mortgage rates will enter a period of extreme volatility this afternoon.

It may be prudent to complete your rate shopping before 2:00 P.M. ET.

Using a Gift For Your Down Payment

When a home buyer is gifted cash for a downpayment, there is a right way and a wrong way to receive the funds.

The right way includes:

• Completing an acceptable gift letter
  
• Documenting the withdrawal of funds with receipts
  
• Documenting the deposit of funds with receipts

The wrong way is to ignore the rules that mortgage lenders clearly spell out for you.

Mortgage lenders watch gifts closely because they want to make sure that the "gift" is not really a loan-in-disguise. If it's a loan, the total dollar amount must be counted against the home's total loan-to-value and higher loan-to-values typically increase lender risk.

If it's a gift, a signed and dated gift letter should accompany the home loan application. An example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift -- not a loan -- and there is no expectation of repayment.

Signed,
[Signature of donor]

For additional evidence that the gift is legitimate, the recipient should make sure that deposited funds are not commingled at the bank. If the gift is for $12,000, for example, then the recipient's bank deposit receipt should indicate that a $12,000 deposit was made.

There may be legal and tax liabilities when gifting funds between family members so if you're unsure about how donating or receiving a gift may impact you, call or email me. If I can't answer your question, I can certainly refer you to somebody that can.

Exclusive Marketing from CENTURY 21 Advantage Gold

In our current real estate market, the job of the Agent to create traffic through their listing inventory becomes more crucial. If a property is not viewed by potential buyers, then it obviously has a harder time getting sold, so the job of the agent or their company is to someohow make the the listing stand out of the crowd, much like a shiny penny does in a pile of duller ones.

With that thought in mind, our company, Century 21 Advantage Gold created a unique program called the 21K Gold Advantage Program. This program is based on two concepts -

1. No one buys a home that they don't see




2. No one Sees a home their agent doesn't show them.

In a market where there are many properties with bonuses from$500 to $5,000 we wanted a way to make well priced listings stand out, like the shiny penny in a pocketful of change. At the same time we were sensitive to the expenses incurred by the seller in this market

We decided that we would try this marketing program to see how the property marketing was impacted. What we found out, during the first 50 sales of properties in the program was that 21K properties sold faster then competiting properties.

After completing the first round of 21K properties and having our breakfast veent, where a selling agent was awarded a $21,000 check for participating, and reviewing the feedback from agents with other companies who do not have such an innovative program, we've decided to continue the program.

For information on whether your property might be elgiible to participate in the 21K program, and more details on the program go to http://www.c21ag.com/ and contact one of our agents.

Announcing Philadelphia Real Estate's Newest Blog

MovePhilly and ReReflections have become places for me to personally provide consumer information and real estate industry views respectively.

Now the time has come for our company to join the Social Media revolution by creating a Multi-Author Blog called C21AGVoices. The Blog is exactly what it says it is. A platform for the agents and management team of CENTURY 21 Advantage Gold to provide their views on the real estate industry and our company while providing consumers with information, and a chance to meet some of the best REALTORS in our marketplace (if not the entire planet)

We hope that you'll join us at C21AgVoices as we learn together how best to communicate about our market, our careers, and our lives.

It s A GREAT Time to Buy Real Estate in Philadelphia

Consumers that are bombarded by negative media coverage of the real estate nationally may be missing the boat by not moving forward to buy real estate in the Philadelphia market.

Philadelphia's neighborhoods have perhaps the most efficient housing stock in the nation. The Philadelphia Row house. Though older housing stock, the Philadelphia row house has 2 to 4 bedrooms (mostly three) either one or two full baths, and if the house is less then 60 years old, probably a powder room. If the property is less then 65 years old, there is probably a built in garage.

With low interest rates, and a 9 month supply of real estate on the market prices are good, mortgage rates are affordable, and the opportunities are ripe for buyers, because the basic reasons for buying property are unchanged in our marketplace.

Buyers who purchase a home for their family, will satisfy a need, pay less then it would cost to rent the same property, and will build equity and security, both emotional and financial over the long term (5 to 7 years). This is a hearkening back to the "old" real estate market (pre-2001) where generation after generation of Philadelphians bought a row home, which they later traded for a Semi-detached home, and perhaps, eventually for a single home in the suburbs. We're not even talking about appreciation here, and we don't need to for an individual or a family to receive the benefits of home ownership.

For investors, the row House offers a positive cash flow with as little as 10% down. And even if the property were only to break even each month, over a period of years, your tenant will pay down your loan, and leave you with an asset that can be used to pay for a child's college education, or to help with a wedding, or retirement. In any case, real estate as a long term investment still beats the pants off of everything else , and that with a minimum of risk.

Check out the details for yourself. Everyone has different needs, but there's a lot of opportunity out there, and the time to take advantage of it is now!

Happy Birthday Philadelphia REALTORS

This week , on May 7 at the Union League in Philadelphia, the Greater Philadelphia Association of REALTORS celebrated their 100th Birthday. As a Past President of the Association, I had the pleasure of attending and seeing the current President Bill Festa, preside over the awarding of the Willard Rouse Award to Govenor Ed Rendell (who received the Mayor of the Century Award at the Association's 90th Birthday- Do you see a pattern here?) Also in attendance was former City Controller johnathan Saidel, and the Current Mayor of Philadelphia, Michael Nutter.

The Philadelphia Real Estate Association was one of the founding members of the National Association of Real Estate Exchanges, Which became the National Association of Real Estate Boards, and in 1970, The National Association of REALTORS.

Amazing the strides the Association has made during those years. during the 35 years I have been a member, we have had our first woman President, our First African American President, defended the Consumers of Philadelphia and the Real Estate Professionals.

Happy Birthday to All of us, and may the next 100 years see as many changes as the last!