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Banking problems continue. What impact will it have on the Boston real estate market?

First the good news: The larger U.S. banks are coming back, and the banking system as a whole is slowly getting healthier.

According to  FDIC’s latest report.  81% of banks were profitable in the third quarter — the highest percentage since the middle of 2008, before Lehman went bust and everything fell apart.

Now the bad news: The number of banks on the FDIC’s “problem bank” list continued to rise — to 860, the highest number since the early 1990s. Most on the list are small to medium size banks.

Click on real estate banking chart to enlarge.

The big question: What impact will the rise in “problem small banks” have on Boston real estate buyers obtaining a mortgage?

Boston real estate agents in my office, are telling me that several of their buyers are jumping through hoops to obtain their mortgage approval. What do you see out there?

Forbes: Boston renters should now buy

If you are a Boston apartment renter you may find this week’s Forbes magazine of interest. Forbes on 10 cities to go from renting to buying:

Whether to rent or buy is a complex decision, but timing is important. In many U.S. cities, the premium to buy–the difference between what you’d pay monthly to own a home, rather than rent–has dropped dramatically. If that’s the case in your metro, the next thing to consider is whether your home will appreciate. In these 10 cities the step up from renting to buying is a much smaller one than usual, according to data from Dallas-based Witten Advisors, an apartment market consulting firm, and the five-year S&P/Case Shiller home price outlook is particularly good. If you’ve been considering trading in your lease for a deed, click ahead for some cities where it might be a good idea to take the plunge.

Yes, Boston made the list. Any Boston renters looking to buy!

File Under: Good nabes.

Home Buyer Tax Credit – Can We Afford It?

One of the more interesting numbers to come out yesterday was the cost per marginal homeowner of the $8000 first time homebuyer tax credit. It’s a rather astounding $43,000 per new homeowner. That’s what it costs to lure those that wouldn’t have bought into the housing market.

A couple sites in the blogosphere talked about this, one example is Calculated Risk. From that blog here is how the numbers shake out:

With regards to the tax credit, what really matters is the cost per additional home sold. And as I pointed out earlier today, even using the NAR numbers, the cost per additional home sold is $43.4 thousand.

Here is the math: 1.9 million buyers qualify for the credit (the NAR estimates between 1.8 and 2.0 million) = $15.2 billion.

The NAR estimates the tax credit resulted in 350 thousand additional purchases. So divide $15.2 billion by 350 thousand = $43,000 per additional home. And the numbers will get worse if the program is extended.

Source: Calculated Risk

Mortgage Apps Down, Again

mortgage-real-estate
Click here for a larger version

The Mortgage Bankers Association just released its weekly index of applications to buy a home or refinance a loan, and the numbers aren’t good: it fell last week by 19 percent — the biggest plummet since February. As you can see from the above chart, applications have fallen by over 50 percent since April. The data suggests that the Obama administration’s plans to help out the housing market aren’t entirely working yet.

If your one of the few still buying a Boston condo visit our Boston real estate web site for today’s new listings.

Source: NPR

It’s a bad time to be an honest mortgage broker

After all the mortgage fraud, foreclosures and Countrywide did you know that if you go to a mortgage broker he is not bound to work in the best interests of the Borrower? It’s is hard to believe but there you have it. Senator Schuemer of New York has for several years tried make fiduciary part of the mortgage brokers role – but so far it is not.

Just to distinguish Real Estate Agents/Salespeople and Brokers are required to take a fiduciary role with their clients and work in their clients best interests, but Mortgage Brokers do not.

“Chase won’t lend to brokers’ clients anymore. The PMI Group, one of the biggest companies in the mortgage insurance business, flat out refuses to underwrite any policies on loans that started with a broker.

Mortgage brokers work for themselves, not for you. They do not provide a personal shopping service and may compare only a handful of lenders on your behalf. If you want to be sure you’re getting the best rate and the lowest costs, the only way to come close to succeeding is to hunt extensively on your own.”

Some of the best advice about regarding mortgage brokers and bankers is in this article from the New York Times yesterday,
to read more, here.

Over dinner last night…..

Having dinner with a close friend who works for one of the bigger national banks, I asked him the question,

“What does the smart person do who is looking to buy a house or a condo in this market….I mean, from a banking point of view, what should they be doing now while the market is waiting to adjust itself, how can they be sure that they will be able to get a mortgage when the time is right?”

His candid response took me by surprise because aforemementioned he works for one of the bigger banks, he said, “They need to nurture their relationships with their neighborhood banks. It’s the neighborhood banks who will start the rebound in available mortgages because they are more in tune with the actual markets where their branches are located. And more importantly, they already have been doing business with buyer and will likely feel more confident investing in getting a buyer bought.”

This seemed real interesting considering the source. It made me ponder if all the bailout money was for not – maybe the recovery will spring up from the grassroots.

Are buyers waiting for lower interest rates?

It’s funny how the press works. Someone comes up with a new story arc, suddenly you read about in every newspaper, suddenly everyone’s talking about it, then it disappears.

This week, it was, “Are buyers holding off buying because they think interest rates will drop, further?”

From the Globe:

… [E]ven though rates on home loans are approaching historic lows, many prospective borrowers are apparently holding off, on the assumption that in just a few weeks they will be able to get even better deals.

Borrowers are tempted by a proposal floated by the US Treasury to move rates to 4.5 percent for 30-year, fixed-rate mortgages.

And other efforts are afoot that could further drop rates. The Federal Reserve Bank recently initiated a mortgage-buying program to lower rates. Upping the ante, the nation’s top mortgage regulator, James Lockhart, told a business group earlier this week that the government’s ongoing efforts could result in rates dropping “well below 4 percent.”

I’m skeptical that there are a lot of people waiting for lower rates. I think what people want mostly is stability, which means three or more months of no more “bad news”. Only when there is confidence on the part of potential homebuyers will they return to the market.

If I was a buyer, would I wait to buy based on potential drops in the interest rates? I don’t think so. Rates are at “historic” lows, already. Most people would be happy with a sub-6% interest rate on their 30-year mortgage loan.

Most people buy based on what their monthly payment is going to be. Yes, it could be “cheaper”, but if a homeowner can afford $2,000 a month in mortgage loan payments, then would they really wait if the payments might (might) go down to $1,800?

What potential buyers can’t stomach is a potential 10% drop in home value, within one year.

How to save 10-20% off the price of a brand-new condo

When’s the best time to make an offer on a home?

How about 11 AM on December 23?

I’ve done that, and my client ended up being the only buyer at the InterContinental to pay less than full-asking by the time they completed construction.

If you’re going to ask for 10-20% off full-asking, you’re asking for a lot. You need to have a lot of things in your favor, and you need to convince the sales team that they need to work with you, and you alone, if they want to sell a condo during the next twenty days.

They will listen to you if you:

* Are pre-approved
* Can promise a fast, easy close by Dec 31 (still doable)
* Are putting down 20% at closing
* Don’t have to sell an existing home (no home-sale contingency)
* Remind them of the status of the real estate market and the time of year make this perfect time to make a deal and help lower # of available units from the developer

Of course, one final way to make your offer more appealing is to go to the sale office, directly, without the aid of a real estate agent.

We don’t want you to do that.

We can help you in more ways than just giving you comps or writing up the offers.

But, if you’ve already found the property you like, and don’t feel the need for a full-service real estate agency, then you can use this in your favor. When you make your offer, remind the sales team that they don’t have to pay any buyers’ broker fees, effectively saving them 2.5% off the purchase price. All you’re asking is that the 2.5% be given to you, in the form of a lower purchase price.

If you do plan on making an offer without the assistance of an agent, either because you’ve already found the place you like, or because you went to the development without an agent at first and now the sales team says they won’t pay, you might still want to have a real estate agent by your side. If so, contact us to discuss ways we can help you, otherwise.

The Brookline Real Estate Market

The following is from the Brookline TAB regarding the Brookline real estate market.

According to the real estate tracking firm The Warren Group, the median price for single-family homes in Brookline in August was $915,000, down from nearly $1.5 million just last year. Median condo prices in August fell to $397,000 from $422,500 last year.

Fewer homes are being sold in Brookline as well. The number of single-family homes and condos sold in August dropped from 165 last year to 121 this year — the lowest sales number for the month of August since 1997.

Real estate agents, however, say the downturn in home sales is a result of hesitance among sellers, not a lack of interest among buyers. David Friedberg, sales manager at Coldwell Banker Residential’s Brookline branch, said he’s struggling with a shortage of inventory because some sellers are hesitant to put their homes on the market, hoping they can get a better price if they wait.

“There’s a certain psychology right now, with people thinking it’s not a good time to buy or there’s no mortgage money available or prices are going down,” he said. “I understand that thought, but unfortunately, it doesn’t seem to be the case.”

Despite the data, Friedberg said some of his clients have recently received multiple offers and ended up walking away with more than they asked for. But he added that he’s also seen fewer first-time homebuyers enter the market.

Brookline has also seen its share of home foreclosures, though not nearly as much as other Massachusetts communities. According to The Warren Group, eight Brookline homes went into foreclosure in the first eight months of the year, compared to just three homes in the same period last year.

Foreclosures have skyrocketed across the state this year. In the first seven months of the year, Massachusetts saw 7,804 foreclosure deeds, double the number from the same period last year.

Boston and Brookline real estate

Should you take the $7,500 homebuyer credit?

Here’s the way the $7,500 new homebuyers’ credit works (I am not a tax accountant or tax attorney, so do not rely on this information in any way shape or form.)

If you haven’t bought a home before, you will be able to take a $7,500 tax credit when you file your 1040 next year. This will mean if you had more than $7,500 in income withheld for taxes, you’ll get up to $7,500 back. It is subject to limitations, restrictions, etc.

That’s exciting. You’ll get a lot of money in your pocket you wouldn’t have, otherwise. You buy a home for less money than it would have, a couple years ago, and increase home sales volume while reducing the housing inventory, which helps the US in these uncertain times. As an added bonus, you’re probably going to go out and spend that $7,500, saving the US economy from a recession / depression. Thanks for that.

As you’ve probably read elsewhere, though, this isn’t so much a “credit” as a “loan”. As in, the US government is gonna want that $7,500 back.

They’re going to put you on an installment plan, though. So, just as you are paying back the purchase price of your home over 30 years, you’re paying back the $7,500 credit. The good part is, it’s tax and interest free.

This is all a long-winded way of saying, here’s a column written by Michelle Singletary, discussing one borrower’s thought process before deciding whether or not to take the credit.

From the Washington Post:

“I’d like to see you write a follow-up on who should take advantage of this credit,” wrote Liz Kiser, who lives in Oklahoma. “Being that it’s a loan, it obviously isn’t going to be economical for everyone.”

“I am not in any way struggling to pay my mortgage and I don’t have credit card debt,” she wrote.

So should she take advantage of this loan anyway, she wanted to know.

“Sure, I need a lawn mower and I wouldn’t mind the boost in my savings since my down payment wiped me out, but is this tax credit really economical if I don’t really need the money for anything except immediate gratification?”

I didn’t find her final decision to be surprising.

I’m all for getting money for “free”. But spending money now that needs to be paid back in the future is always a step worth not taking, whenever possible.

Source: Think of Tax Credit as 15-Year Loan, And Rethink Whether You Need It – By Michelle Singletary, The Washington Post

Also: Before You Take That New Housing Credit – By Michelle Singletary, The Washington Post

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