Real Estate Information Archive

DONOVAN ANNOUNCES RECOVERY ACT'S HOMEBUYER TAX CREDIT CAN IMMEDIATELY HELP THOUSANDS OF FIRST-TIME HOMEBUYERS TO BUY A HOME
FHA plan will stimulate new home sales and help stabilize housing market

WASHINGTON - Speaking to the National Association of Home Builders Spring Board of Directors Meeting, U.S. Housing and Urban Development Secretary Shaun Donovan today announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration's new $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said that today's action will help stabilize the nation's housing market by stimulating home sales across the country.

The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Today's announcement details FHA's rules allowing state Housing Finance Agencies and certain non-profits to "monetize" up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate. To read the FHA's new mortgagee letter, visit HUD's website.

"We believe this is a real win for everyone," said Donovan. "Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation's housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."

Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today's announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower's own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today's action permits the first-time homebuyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away. Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.

According to estimates by the National Association of Home Builders, the Administration's homebuyer tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first-time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home. Given FHA's current market share, it's estimated that thousands of families will be able to purchase a home by allowing the anticipated tax credit to be applied toward their purchase together with an FHA-insured mortgage.

Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option.

For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary.

MARKET UP DATE AT GLANCE COMMENTARY THRU MARCH 2009

IN LIKE A LION OUT LIKE A LAMB, THAT SAYING ABOUT THE WEATHER OF MARCH, I WOULD ALSO USE TO DESCRIBE THE WAY THE REAL ESTATE MARKET BEHAVED IN MARCH.  AS MENTIONED IN THE FEBRUARY REVIEW AN INCREASE IN buyers coming into the market (first time buyers) were responding to their best self INTEREST WITH historically low RATES AND THE first time buyer tax credit.

the most active SEGMENT of the market was between 120k to 180k(PRIME FIRST TIME BUYER PRICE RANGE), that price range saw it’s share of the market place jump from 22% by unit volume in 2008 to 27% by unit VOLUME in 2009. thE SECOND MOST ACTIVE SEGMENT WAS TH2 200K TO 250K INDICATING A MOVE UP MARKET TREND BEGINNING.

the question that will unfold over the next couple of months is, did buyers that would have been in the market later in the year purchase earlier, due to the tax credit. IF that proves to be the case we will see a SOFTENING of the pending sales compared to 2008 as we come into LATE spring EARLY SUMMER.

THE inventory levels have moderated TO AN INCREASE OF 9% FROM a year ago, FROM 25%COMPMARED TO FEBRUARY A YEAR AGO, THE decrease from a month ago is AFFECTED by the increase in pending SALES.

CONSTRUCTION numbers in MARCH, single family permits, still show a very SIGNIFICANT decline FROM LAST year. to put it in PERSPECTIVE the first 3 months of the year are as follows 1. 2009 30 single family permits, 2. 2008 71 single family permits, 3. 2007 98 single family permits. the new CONSTRUCTION market will struggle this year BECAUSE OF constrained funding and the DIFFICULTY of COMPETING against EXISTING homes that are priced SIGNIFICANTLY lesS THAN CONSTRUCTION cost would be to build a SIMILAR home. as i have stated previously the slowing in home construction is a POSITIVE in the overall market place because it reduces inventory, yet THAT DECREASE in new CONSTRUCTION sales also has an impact on sales price and size of homes that go iNTO the mix of sales.

the home sales prices below SHOW a slight price decline year to year YELLOWSTONE county has seen about a 2% DECLINE in closed price. the actual sales price number is affected by the slow down in THE above 250k range and the SIGNIFICANT INCREASE in sales in the 120K to 180k range mentioned above.

the THREE POSITIVE forces in the MARKET are the STRENGTH of the below $200,000 (STARTING TO ALLOW SOME MOVE UP MARKET), no SIGNIFICANT FORECLOSURES of HOMES AND HISTORICALLY LOW INTEREST RATES 4.75% FOR A 30YEAR LOAN...

THE $200,000 and below STRENGTH is CAUSED, I BELIEVE, FOR two primary reasons #1 unemployment in YELLOWSTONE IS SUB 4.7% COMPARED to the state average of 6% and the NATIONAL of 8.5% giving people who want to own their home a job and A BELIEF that they will be employed, along with HISTORICALLY low INTEREST, approximately 4.75% on a 30 year fixed rate, and you have a good case for buying a home if your intention is staying put three plus years. 

THE #2 POSITIVE IS NO SIGNIFICANT FORECLOSURE activity. the importance of this fact can not be UNDERSTATED. when you look at other market places AND THE case /shiller index declines, the driving force is FORECLOSED properties sold by lenders.

the #3 positive is the $8,000 refundable tax credit for first time home buyers

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