The Clock Is Ticking as First-Time Buyers Intensify Their House Hunting

By Amy Hoak

RISMEDIA, September 18, 2009—(MCT)—Tired of paying rent and enticed by a first-time home buyer tax credit, 25-year-old Garrett Rebel began his search for a home in August, scouring the suburbs of Dallas for a house to meet his current and future needs. And he’s already running out of time. 

The federal tax credit for first-time buyers is “a huge motivator” for Rebel, and he may end his search if the Nov. 30 deadline arrives and he still hasn’t closed on a deal. He unsuccessfully submitted an offer on one house; after going back and forth with the seller couldn’t come to a price agreeable to both parties. “I haven’t found anything that I’ve fallen in love with,” Rebel said. 

Timing is everything for many first-time buyers today. For those who purchase a home this year, the tax credit is for 10% of the purchase price, up to $8,000. Those who have owned a home in the past three years aren’t eligible. Buyers also have to meet eligibility requirements regarding income; the current credit begins to phase out for singles who make more than $75,000 and couples who make more than $150,000. 

Unless it is extended, this credit will expire on Nov. 30. “We are seeing an increase in buyers wanting to get closed prior to the tax credit closing deadline,” said real-estate agent Amy Downs, who represents Rebel. “We are seeing an increase in sellers wanting to get their homes on the market and closed by this deadline. I feel that if we can get the homes priced accordingly and a strong offer by mid-October, we can beat this deadline with a reputable lender working the buy side.” 

Some real-estate agents and mortgage brokers are recommending that first-time buyers close no later than the week before Thanksgiving to ensure that no holiday-related office closings or abbreviated schedules interfere with the process. That means finalizing a purchase on or before Nov. 20. In fact, to make sure you can take advantage of the credit, it’s probably best to go under contract no later than the first or second week of October, said Jim Sahnger, mortgage planner with Palm Beach Financial Network in Florida. 

The National Association of Realtors reports that it’s taking about two months to complete a home sale in the current market, as lenders scrutinize borrower paperwork and issues with appraisals pop up. In short, first-time buyers probably need to select a property and make an offer by the end of this month. But rushing to meet the deadline is a double-edged sword. The purchase of a home—let alone your first one—isn’t a decision that should be taken lightly.

“For anyone, the decision to buy a house has to be a right one,” Sahnger said. “While the $8,000 can be great to have, I wouldn’t let that force you into a decision. But there is something that works and you want to take advantage of the credit, you can’t afford to delay the decision.”

For buyers who don’t make the deadline, there is a chance the credit will be extended. There are at least 20 bills drafted regarding the credit; one-third of them have been introduced recently, said Lucien Salvant, managing director of public affairs for NAR. Some proposals would not only extend the first-time buyer credit into next year, but would also expand it to include all home buyers, remove income restrictions and raise the maximum amount of the credit, up to $15,000.

By including all buyers, there could be more of a ripple effect as more Americans spend money on moving vans, lawn equipment — any items or services associated with making a move, said Jerry Howard, president and CEO of the National Association of Home Builders. NAHB and NAR have been lobbying heavily for the extension. “The first priority is going to be to renew the $8,000 credit, but we have some good arguments for expanding it,” said Jerry Giovaniello, senior vice president and chief lobbyist for NAR. He argues that the credit doesn’t cost much but has a huge impact.

If you’re a first-time buyer, however, waiting is a gamble. “What you have in front of you now is a tax credit. After that, you don’t know what you have,” Salvant said. “This thing can go all different kinds of ways.”

NAR estimates that about 1.8 million to 2 million first-time buyers will take advantage of the tax credit this year, and says that roughly 350,000 sales wouldn’t have taken place without the credit.

But the effectiveness of the credit will eventually peter out because there are only so many potential first-time buyers, said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California. He said that the credit is likely getting many first-time buyers to make their purchases six months to a year earlier than they would have anyway. “In terms of how effective it is, I don’t think it does any harm at this point. It’s pushing sales forward that would have happened anyway,” he said. “You’re giving money to people who were going to buy anyway.” Increasing the credit amount to $15,000 and expanding it to everyone, however, could end up translating to higher home prices, he added.

Still, there is growing Capitol Hill support for the extension of the credit. Senate Majority Leader Harry Reid, D-Nev., said it needs to be extended by the end of the year, according to a spokesman from his office. And Washington Research Group, a unit of securities firm Concept Capital, recently put the chance of extension at 60 percent.

Yet with Congress currently focusing on other issues, and concerns about the country’s rising deficit, some wonder how difficult it will be for housing to garner attention anytime soon. “All eyes are on health care,” said Bruce Hahn, president of the American Homeowners Grassroots Alliance.

According to Realtor.com, first-time buyers on average search 12 weeks to find a home. But there are ways for buyers to expedite their journey to closing: Sign up for automatic alerts for properties that fit your criteria. Many buyers start their search online, and it’s possible to sign up for e-mail alerts when properties that meet your criteria are added, Realtor.com points out. If you’re working with a real estate agent, he or she also may be able to register you for automatic alerts when homes are listed. But make sure the information you receive is fresh — you don’t have time to look at unavailable homes.

Do all you can to ensure a smooth mortgage process. Collect pay stubs, bank statements and tax returns to prove income. Get prequalified. And while your loan is in process, don’t make major purchases on credit cards — that could delay closing, said Julie Reynolds, a spokeswoman for Realtor.com.

Prepare for closing costs early. Get your insurance company and, if applicable, your homeowner association, to forward a cost estimate to the escrow company early, Realtor.com recommended in a news release. In many states, closing costs must be paid — in cash — at closing.

(c) 2009, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.

Positive Signs – House Price Declines Continue to Moderate

RISMEDIA, September 8, 2009—House prices in the U.S. continued to depreciate in the second quarter 2009 but at a much more moderate rate compared to the fourth quarter 2008, the peak of the collapse in home prices, according to a quarterly housing valuation analysis by IHS Global Insight. Prices fell at a 2.7% annualized rate in the second quarter 2009, compared to 2.1% in the first quarter and a 12.5% rate of decline in the fourth quarter 2008, according to the new House Prices in America, the quarterly U.S. housing valuation analysis from IHS Global Insight, one of the world’s leading companies for economic and financial analysis and forecasting. Nationally, house prices have fallen 11.0%, on average, below their peak in the spring of 2007; when weighted by market value, the nation is now 11.1% undervalued, and 12.6% undervalued when weighted by housing units.

Prices declined in slightly more than one-third– 113 metros– of the 330 metropolitan areas in the study, down from 191 areas in decline in the first quarter, and down sharply from 317 areas registering declines in the fourth quarter of 2008.

The second quarter data from the Federal Housing Finance Agency (FHFA) may represent the bottom of the cycle, said James Diffley, group managing director of IHS Global Insight’s Regional Services Group, “though it is too early to tell for certain, and the waves of foreclosures and short sales may be obscuring the underlying trend.”

“Economic conditions remain dire and the federal tax credit for first-time homebuyers expires at the end of the year,” said Jeannine Cataldi, senior economist and manager of IHS Global Insight’s Regional Real Estate Service. “But available monthly data since May 2009 suggest that the broad decline has ceased.”

Metro areas in California, Florida, and Nevada, states that experienced the highest levels of overvaluation as the housing bubble expanded, and Michigan, which has been hit hard by the recession and cutbacks in the auto industry, have experienced the greatest declines. More than one-third of the nation’s metro areas– 127– have seen prices decline by more than 10%, and nine have seen prices drop by more than 50%, with Merced, Calif., experiencing price declines of 65% off their peak. The largest second quarter home price decline was 6.1%, in St. George, Utah.

Only 16 metro areas, most in the middle of the country and six in Texas, have escaped net home declines during this cycle. Extreme home price overvaluation is essentially nonexistent. Only Atlantic City, N.J., remained extremely overvalued, in stark contrast to 2005 when 52 metro areas, fully one-sixth of the nation’s metropolitan areas, were extremely overvalued.

For more information, visit www.ihsglobalinsight.com.

2nd Quarter Existing-Home Sales Rise in Most States, Helped by Affordable Metro Prices

RISMEDIA, August 18, 2009-Existing-home sales in the second quarter showed healthy gains from the first quarter in the vast majority of states, and price declines have increased affordability in most metro areas, according to the latest survey by the National Association of Realtors®.

Total state existing-home sales, including single-family and condo, rose 3.8% to a seasonally adjusted annual rate of 4.76 million units in the second quarter from 4.58 million units in the first quarter, but remain 2.9% below the 4.90 million-unit pace in the second quarter of 2008.

Thirty-nine states experienced sales increases from the first quarter, and nine states were higher than a year ago; the District of Columbia showed both quarterly and annual rises.

Lawrence Yun, NAR chief economist, said the sales gain appears to be sustainable. “With low interest rates, lower home prices and a first-time buyer tax credit, we’ve been seeing healthy increases in home sales, which are a hopeful sign for the economy,” he said. “There have been sustained sales gains in Arizona, Nevada and Florida, as well as diverse areas such as Maryland, the District of Columbia and Nebraska. More recently, we’ve seen strong double-digit gains in Idaho, Utah, New Mexico, Washington, Hawaii, New York, New Jersey, Maine, Vermont, Wisconsin, Indiana, South Dakota and Montana.”

Yun explained housing’s impact on the overall economy. “Given the need for related goods and services, each home sale pumps an additional $63,000 into the economy- that’s how the housing engine traditionally pulls us out of recession. In addition, sales are drawing down inventory and that will help stabilize home values, which in turn will lessen foreclosure pressure and boost credit availability for other sectors of the economy.”

During the second quarter, 129 out of 155 metropolitan statistical areas reported lower median existing single-family home prices in comparison with the second quarter of 2008, while 26 areas had price gains. Distressed sales – foreclosures and short sales – accounted for 36% of transactions in the second quarter, which continued to weigh down median home prices because they typically are sold at a 15% to 20% discount; first-time buyers accounted for one-third of transactions. The national median existing single-family price was $174,100, which is 15.6% below the second quarter of 2008. The median is where half sold for more and half sold for less.

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage declined to a record low 5.03% in the second quarter from 5.06% in the first quarter; the rate was 6.09% in the second quarter of 2008.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said there are unique opportunities in the current market. “Housing affordability is hovering near record highs and there’s a wide selection of homes, but first-time buyers need to move quickly to take advantage of the $8,000 tax credit because they have to finalize the transaction by November 30,” he said. “Various state, local and nonprofit programs target first-time buyers, and a Realtor can help you identify the programs and financing options that are currently available in your area.” The largest sales gain between the first and second quarters was in Idaho, up 67.5%; followed by Hawaii which rose 24.2%; New York, up 22.3%, Wisconsin; with a 21.7% gain; and Nebraska with a 20.3% increase. Twelve other states experienced double-digit sales increases from the first quarter. Year over year, California, Minnesota and Michigan are showing double-digit gains from the second quarter of 2008 but are off from the first quarter of this year.

The largest single-family home price increase in the second quarter was in the Davenport-Moline-Rock Island area of Iowa and Illinois, where the median price of $113,200 rose 30.6% from a year ago. Next was the Cumberland area of Maryland and West Virginia at $123,500, up 21.7% from the second quarter of 2008, followed by Elmira, N.Y., where the median price increased 11.3% to $85,000.

“The sharpest price declines continue to be concentrated in metros with high levels of foreclosures, including areas in California, Florida, Arizona and Nevada, where distressed homes comprise many of the transactions,” Yun said.

Median second-quarter metro area single-family home prices ranged from a very affordable $55,700 in the Saginaw-Saginaw Township North area of Michigan to $569,500 in Honolulu. The second most expensive area in the second quarter was the San Jose-Sunnyvale-Santa Clara area of California, at $500,000, followed by San Francisco-Oakland-Fremont at $472,900.

Other affordable markets include the Youngstown-Warren-Boardman area of Ohio and Pennsylvania at $71,500, and Lansing-East Lansing, Mich., at $81,200.

“Recently sold homes are concentrated in lower price ranges. The median price may not be representative of overall values in a given area because many middle priced homes are not on the market,” Yun clarified.

In the condo sector, metro area condominium and cooperative prices- covering changes in 57 metro areas- showed the national median existing-condo price was $176,900 in the second quarter, down 19.8% from the second quarter of 2008. Four metros showed annual increases in the median condo price and 53 areas had declines. The metros with condo price rises were the Virginia Beach-Norfolk-Newport News area of Virginia and North Carolina at $195,000, up 2.6%, followed by the Wichita, Kan., area, where the median price of $109,500 rose 2.0% from the second quarter of 2008, Dallas-Fort Worth-Arlington, at $137,800, up 0.7%, and the Colorado Springs, Colo., area, which rose 0.2% to $145,200.

Metro area median existing-condo prices in the second quarter ranged from $66,400 in Las Vegas-Paradise, Nev., to $405,700 in San Francisco-Oakland-Fremont. The second most expensive reported condo market was Honolulu at $318,400, followed by Boston-Cambridge-Quincy at $277,400. Other affordable condo markets include the Sacramento-Arden-Arcade-Roseville area of California at $101,200 in the second quarter, and Tucson, Ariz., at $102,500.

Regionally, existing-home sales in the Northeast jumped 15.0% in the second quarter to a pace of 797,000 units but are 8.4% below a year ago. The median existing single-family home price in the Northeast declined 9.7% to $246,000 in the second quarter from the same quarter in 2008. After Elmira, the best gain in the region was in Buffalo-Niagara Falls, N.Y., where the median price of $115,400 rose 6.7% from the second quarter of 2008, followed by Syracuse, N.Y., at $124,600, up 0.8%.

In the Midwest, existing-home sales rose 3.2% in the second quarter to a pace of 1.06 million but are 5.3% below a year ago. The median existing single-family home price in the Midwest was down 8.6% to $146,800 in the second quarter from the same period in 2008. After Davenport-Moline-Rock Island, the next strongest metro price increase in the region was in Bismarck, N.D., where the median price of $157,800 was 3.5% higher than a year ago, followed by Springfield, Ill., at $116,200, also up 3.5%, and Topeka, Kan., at $113,300, up 2.7%.

In the South, existing-home sales increased 3.9% in the second quarter to an annual rate of 1.76 million but are 7.2% lower than the second quarter of 2008.

The median existing single-family home price in the South was $158,600 in the second quarter, down 10.3% from a year earlier. After Cumberland, the strongest price increase in the region was in Beaumont-Port Arthur, Texas, with an 11.0% gain to $138,600, followed by, Jackson, Miss., at $140,100, up 8.2%, and Shreveport-Bossier City, La., at $146,800, up 3.0%.

Existing-home sales in the West declined 2.3% in the second quarter to an annual rate of 1.13 million but are 11.8% above a year ago.

The median existing single-family home price in the West was $212,600 in the second quarter, which is 26.6% below the second quarter of 2008. The best metro price performances in the West were in Kennewick-Richland-Pasco area of Washington, where the median price of $163,900 rose 0.3% from a year earlier, and Yakima, Wash., at $162,800, also up 0.3%. No other areas covered in the region reported increases.

For more information, visit www.realtor.org.

New Credit Scoring Model May Boost Some Borrowers’ Scores

By Amy Hoak

RISMEDIA, September 1, 2009—(MCT)-Even the most responsible borrowers slip up sometimes. Maybe a utility bill went unpaid after you moved and the missed payment went into collections. Or, perhaps there are unpaid library fines or parking tickets in collections that are hanging onto your credit history and affecting your FICO credit score, which is widely used by lenders to evaluate your ability to repay a debt. With the newest version of the FICO credit-scoring system, however, minor delinquencies are now overlooked in calculating creditworthiness. Under the updated scoring model, called FICO 08, small, missed payments lingering in collections with original amounts of $100 or less will no longer do damage to your credit score. Consumers also are less likely to be penalized for any single delinquency if it occurred two or more years ago—and if their credit history is otherwise unblemished, says FICO, formerly Fair Isaac Corp., which developed the FICO scoring system.

“There’s more flexibility with missing a payment,” said Careen Foster, director of global scoring product management for FICO. “If you have a more habitual pattern of paying accounts late, you’re more likely to get penalized for that.” If a consumer’s credit usage is high, that will be more likely to hurt his or her score with FICO 08. But getting close to your credit-card limits—even if you always pay on time—is penalized in some way in every FICO score, not only the recent edition, Foster said.

The new system has been available at all three credit bureaus—Experian, TransUnion and Equifax—since last month. The changes were made to provide lenders with a better risk assessment of borrowers, said John Ulzheimer, president of consumer education for Credit.com, a consumer education and advocacy site. FICO decided that one small library fine didn’t really predict whether a consumer was likely to default, for example.

With the changes, individuals who pose a low credit risk will probably see their scores rise a bit, and those who are high risk could see their scores drop, he adds.

FICO 08 also addresses “piggybacking,” a practice used by credit-repair companies to help people improve their scores, Ulzheimer said. In piggybacking, an individual pays to become an authorized user on a stranger’s account. The account holder gets paid for allowing the person to be associated with the account, and the new authorized user is able to improve his or her credit score.

“It was a practice to misrepresent what your credit looks like to your bank,” Foster said. FICO 08 aims to single out individuals who are named as authorized sources through deceptive means, Ulzheimer said. Those people won’t see their credit scores rise as a result. But the scores of legitimate authorized users will be treated as they always have been.

Borrowers shouldn’t expect their credit to be graded by this new scale on every loan they now apply for. Not all lenders have adopted the new model, though more than 400 lenders are using or testing FICO 08, the company said. In a statement, Equifax said, “Currently, many lenders and businesses are validating the new score within their systems, and adoption will vary by financial institution based on business requirements and market need.”

Many credit-card companies, auto lenders, regional banks and credit unions may have already adopted FICO 08, Ulzheimer said. But for mortgages, lenders doing traditional conforming loans backed by Freddie Mac and Fannie Mae likely haven’t made the move yet, he said. That’s because they’re waiting for Freddie and Fannie to approve its use. Freddie Mac and Fannie Mae “are essentially the lender, they’re the ones that set the underwriting criteria,” he said. Ulzheimer said he expects Freddie and Fannie to adopt FICO 08 by the end of the year. Fannie declined to comment on FICO 08; Freddie wasn’t able to provide a comment prior to publication.

While FICO 08 will help consumers’ credit scores in some cases, people still should take steps to improve their credit. Granted, it’s impossible for consumers to calculate their FICO scores themselves, said Rodney Anderson, of Rodney Anderson Lending Services in Plano, Texas. “It’s almost like the Coca-Cola formula. No one has access to the Coca-Cola formula, no one has access to the FICO formula,” he said. But by being proactive, you can start to work toward a higher score, something that will serve you well every time you apply for a loan.

Some suggestions for improving your credit score:

-Monitor your credit reports and correct errors. Look not only for negative events on your record, but also examine the credit limits to make sure they’re accurate. If the credit limits appear lower on the report than they actually are, that has the potential to hurt your score.

-Pay bills on time and keep card balances low. Your payment history, and the amount you owe on your accounts as a ratio of the amount of credit you have access to, are important components of your score. FICO 08 is more sensitive to high credit usage, and consumers may see a lower score if their reported balance on one or more cards is near the account’s limit.

-Take on new credit only when you need it. Some credit cards come with great offers, including a percentage off your bill if you sign up for one at the cash register. If you accept, make sure you’re getting a big enough benefit to make it worthwhile—taking on additional credit could end up dinging your score.

(c) 2009, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.