Charm City Baltimore Real Estate: Baltimore, Maryland Real Estate & Homes

I recently asked Richard Pazornik of SunTrust, one of my recommended loan officers, to sit down and walk through a Question and Answer session with me so that we could fully explain the new 2010 housing credit for homebuyers. As you probably know, the initial tax credit from 2008 was beefed up in mid 2009 when Congress increased the amount of the credit and stopped requiring that it be paid back over time. That program was supposed to expire at the end of November, 2009.  But last Fall, the housing and mortgage industries pushed to have the credit extended.  For a while, Congress seemed to be willing to let the credit expire, which would have had a devastating impact on the housing market which was struggling to stand up again.

Fortunately, Congress and the President were eventually persuaded that extending the credit was in the best interest of the economic recovery.

W: So would you go over how the tax credit works?

R: For first-time homebuyers, which means someone who hasn’t owned a home in the last three years, you’ll get that same $8,000 tax credit if you sign a contract to buy a home before midnight April 30th, 2010 and you have to go to settlement before midnight June 30th, 2010.  Hopefully, we will be very busy those two days!

The new Tax Credit also sets a maximum income at $125,000 for a single person and $225,000 for a married couple.  Above those limits, the credit is phased out.

W: Now, Congress has expanded the credit to “move-up” buyers. What does that mean?

R: A “move up” buyer can now get a tax credit of $6,500, if they’ve lived in their home continuously for 5 of the last 8 years as their primary residence.
The same income limits and phase outs apply to move up buyers as applied to first-time homebuyers.

W: Can someone buy any house on the market?

R: They can buy any house as their primary home so long as it’s priced less than $800,000.  So here in Baltimore, this covers about 96% or more of all the homes listed in the Multiple Listing Service.

The government sweetened the deal by allowing taxpayers to go back and amend their prior year tax returns to claim the tax credit quicker and if your above the income limits in 2010, go back an look at your 2009 income, you might be better off!

W: What’s the difference between a Tax Credit and a Tax Deduction?

R: Well, a tax credit is a lot better than a tax deduction.  A credit is a dollar for dollar reduction of your tax bill and a tax deduction only saves you a portion of the amount based upon your actual tax rate.  Now, I wouldn’t turn either down, but I’d much rather have an $8,000 tax credit than an $8,000 tax deduction.  And here’s why, if you’re in a 20% tax bracket an $8,000 deduction would save you $1,600 in taxes but the $8,000 tax credit actually saves you $8,000 in taxes.   That’s why this credit is so good! But, there’s a warning I need to give.  If you sell the house within three years then you must repay the $8,000.

W: So, let’s say I’m a regular wage-earner who has taxes deducted from my pay. How would this tax credit work?

R: It means your tax bill is actually decreased by $8,000.  So for example, if you had $5,000 deducted from your salary for your Federal Income taxes and your tax bill computed to be $2,000, normally, you would’ve received a refund of $3,000.  But, if you sign a contract to buy a house before April 30, 2010 and it settles before June 30, 2010, when you file your taxes in April of 2011, you’ll not only receive the refund of $3,000, but you’ll also get an additional tax credit of $8,000 making your total refund $11,000.

W: That’s a nice piece of change! So what is your overall impression of this new program?

R: Overall, I’m thrilled that the Homebuyer Tax Credit was extended and expanded and here are the 3 keys to remember;

• Income, $125k single, or  $225k couple
• Home Price, $800000 or less, and
• Contract, signed by April 30, 2010 for settlement by June 30, 2010.

As we begin the last month of the year, I wanted to review where we stand in the real estate world, both nationally and in Maryland. 2010 will be a critical year for many of us, not only for those involved with property, but for the economy in general.

We’re certainly better off in this holiday season than we were a year ago. At the end of 2008 the country felt like a roller coaster car speeding down the tallest slope with no brake and nobody at the switch. Right now, 2009 looks like the turning point, with the economy beginning its long climb up the next hill, real estate stabilizing and just in need of a little push to get back on the track. But there are several issues looming for next year which will really determine how things go for the forseeable future. Here are a few lumps of coal for your stocking:

• A recent Washington Post article quoted a national survey by the Mortgage Bankers Association which found that more than 14 percent of borrowers were in trouble on their mortgage. That translates into 7.4 million households either currently delinquent or in the foreclosure process, the highest level this particular survey has ever recorded. That means we have not seen the peak of foreclosures — and with unemployment continuing to rise the numbers will only get worse.
• The Baltimore Sun, again using information from the Mortgage Bankers Association, reported that in Maryland roughly 10 percent of homeowners deemed good credit risks were in trouble with their mortgage. We’re not talking subprime mortgages here, the widely known source of the financial troubles, but prime borrowers. Again, blame rising unemployment which has destabilized the family budgets of people who have had a history of prudent financial management. In round numbers, this adds 77,000 homeowners to the list of those at least one month behind on their payments.
• Recent widely reported gains in regional home sales and a decrease in the housing inventory seems to be coming from short sales and foreclosures going under contract (and not necessarily going to settlement). From my anecdotal sources, traffic on regular owner-occupied listings — where a bank is not involved — is practically non-existent. This means that unless you’re in distress and buyers smell blood, they aren’t interested in seeing your listing. And, as we saw in the last item, there could be 77,000 more properties on that distressed list that we have to work through next spring.
• Most of our buyers, especially first time homebuyers,  in the last year have used FHA loans because they had the least stringent requirements for credit score and money down, and allowed more generous assistance from Sellers. So while the extension of the tax credits until the end of June, 2010 is a wonderful thing, it seems to be coming with a simultaneous tightening of credit from the FHA. The Washington Post reports that new FHA guidelines currently under development will raise the amount of money required from buyers — from 3.5% of the purchase price to 5% of purchase price — while cutting the allowed Seller contribution in half (from 6% to 3%). Not only will this shrink the pool of qualified buyers considerably, the FHA will also raise the capitalization required from lenders who issue FHA insured loans — a move that will most likely cut the number of loans available, if not the number of lenders who will consider issuing them.

Certainly the situation in residential real estate is worrysome as we head into the new year. But it might not be the most dangerous. Many experts are warning that the biggest problem looming on the horizon is in the commercial real estate market, as last week’s potential meltdown at Dubai World illustrated. While that particular sovereign wealth fund made European markets tremble, and we were told that the US market has little exposure to it, there are enough potential problems here at home to make us weak in the knees. Moody’s Investor Services reported last week that it expects the value of US commercial real estate to continue to fall well into 2011. This is on top of losses in this sector which have already totalled 42.9% since the peak in 2007. The total devaluation from the peak may well reach 55% before things begin to turn around.

The determining factor in these losses? Yep, you guessed it… unemployment. With fewer people working, office spaces and commercial spaces don’t need to be as big. Demand for office buildings drops, and fewer companies are growing and demanding more space from their landlords. Also, with more people encouraged to buy homes and get their tax credit, demand for multifamily rental units has also dropped, hurting landlords’ cash flow and making it more difficult for them to keep up on their mortgages.

Now, with all this coal in your stocking, remember you can’t really burn it anymore to lower your heating bills. Global warming, you know. Ho, ho, ho.

The Senate of the United States has passed legislation that not only extends the $8000 tax credit for first time homebuyers, but that expands the stimulus and offers a $6500 credit for current homeowners (who have been in their homes at least five years) to sell and move up into a new primary residence. Both of these would be available for contracts ratified by the end of April, 2010 and that settle before the end of June.

When I called for the extension and expansion of the credit in this blog a few months ago, not many of my colleagues gave the proposal much chance of actually coming to pass. Thank goodness there was one civic minded Republican and former Realtor, Johnny Isaacson from Georgia, who was able to give a bi-partisan impetus to the measure and who has championed it through. The House of Representatives now must pass the bill and send it to the President, who has indicated he will sign it.

Hopefully this will coax skittish buyers back into the market, and give encouragement to the many families who are sitting tight in their now-too-small homes to jump into the real estate market to move up.

Housing led us down into this mess, and in order for public confidence to stabilize and for people to start feeling better about the economy, housing must lead us out. This bill is good, public-spirited legislation that points out the constructive role that the government can play in economic affairs, if politicians could simply get their own ambitions out of the way. Its too much to hope that this effort will lead to other bi-partisan efforts. But that is what the country needs right now.

A drop in consumer confidence frustrates the market as autumn settles in and buyers disappear.

For a transcript of this podcast, please email me at .

Most real estate and mortgage professionals I’m acquainted with have had a disappointing autumn, at least as far as first-time homebuyers are concerned. When Labor Day had passed, we all felt that the Fall Market would bring a crush of new buyers who would be eagerly cramming our hallways to get a look at homes so that they could settle in time to qualify for the government’s tax credit. And in the first two weeks of September it started out that way.

And then something happened. No one is sure exactly why, but the enthusiasm waned. Interested buyers decided to postpone their search, or just disappeared altogether. Then in October the statistics — which always lag the event — started to shed some light: consumer confidence was starting to drop again. What was the reason?

The economy was continuing to shed jobs in numbers that, although declining, were still worrysome. But that had been the case throughout the summer, when the numbers were much bigger, and the buyers were out in force then.

September was colder and wetter than normal, and put everyone in a wintertime huddled pose on the street. But would chilly days be enough to keep interested people from getting money back from Uncle Sam?

Controversy erupted over whether or not the tax credit would be extended into next year, or even broadened. But would that cause people to postpone, or to hurry up and make sure they got theirs — just in case it went away completely?

Or, was it something even more personal? Was it the fear that began to seep into people’s minds as epidemic reports started to fill the news, and more untimely swine flu deaths caught the attention of the media? Certainly, most first-time homebuyers are going to be in the age group that has been identified as the most susceptible to this particular flu bug.

Its unlikely that we will ever have really clear data. But I’m putting my money on the pigs.

First of three podcasts presenting an overview of the material presented at an in-person buyer seminar. In this episode: evaluating and selecting your real estate agent and loan officer.

For a transcript of this podcast, please email me at .

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Second of three podcasts presenting an overview of the material presented at an in-person buyer seminar. In this episode: searching for the right home and writing the offer to purchase.

For a transcript of this podcast, please email me at .

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Last of three podcasts presenting an overview of the material presented at an in-person buyer seminar. In this episode: the period between contract signing and settlement day.

For a transcript of this podcast, please email me at .

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Second in the Mortgage Financing series of podcasts. In this edition, guest podcaster Tom Latta of Prosperity Mortgage talks about the choice of loan product, downpayment options, and other sources for financial assistance.

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First in an ongoing series of podcasts, containing an overview of market conditions as we enter the Fall 2009 market.

For a transcript of this podcast, please email me at .