Written by: Gene Wunderlich, SRCAR GAD
Seems like everywhere you look there’s more bad news on the housing front. Make that everywhere you look but here. I’m chockfull of tidings of good cheer right now and hoping I won’t be proven chockfull o’nuts before mid-year. It could go either way.
Let’s start with good news for homebuyers. The FHA has been very busy lately doing some good things for the market. Since they are currently backing about 30%+ of housing loans in this country (80% of first time buyers), whatever they do has a significant impact. Back in November we had a chance to chat with FHA Commissioner Dave Stevens, a Realtor® himself, and we were much encouraged by his take on the market.
Since then they have made a couple serious moves to further benefit home buyers including increasing the number of properties an investor can hold and, as of February 1, waiving their 90 day anti-flipping rule for one year. Why are these good moves? Well, 18 – 24 months ago many of the REO (bank-owned) properties on the market were in pretty good condition. You could buy one and move right in. Today, many of the homes are pretty thrashed making it impossible for somebody to move in without some degree of re-hab – new appliances, flooring, windows, electrical wiring, plumbing, etc. 1st time homebuyers usually can’t afford to do that nor can they get financing on a house like that anyway.
Enter – the investor. As much as they have been maligned for scooping up a lot of the lower end properties out there, they have served a purpose – getting a lot of these otherwise unsalable homes off the market and making them habitable by buying for cash and investing more cash. But FHA rules worked against that market segment by allowing them to only hold 3 homes at a time and not being able to re-sell these refurbed homes in less than 90 days to an FHA buyer.
Today an investor can hold up to 10 homes and as of 2/1 they will be able to flip them as soon as they can get them re-habbed, often in 30 days or less. So many of these homes will now make it back on the market sooner for FHA buyers. That’s good. There are also guidelines in place to discourage abuses like the ‘flippers’ that helped get us into trouble in 2005 -2007. Remember, flipping is not a bad thing when done correctly and has been a mainstay of the market for years.
Also good is the recent Fannie Mae program called the ‘First Look’ program. Through First Look, any properties listed as a Fannie Mae REO will be available for purchase offers only to owner occupants for the first 15 days – no investors. If it hasn’t sold in two weeks they’ll go ahead and open the bidding to everybody but any home in decent condition should get snatched by actual homeowners within that time.
Your Buyers have through the end of April to take advantage of the extended $8,000 1st time homebuyer tax credit. This program was wildly successful in its first six months enticing an estimated 1.2 million homebuyers into the market, absorbing homes at a near record pace and driving our local inventory to historic lows of just over 1 month of available properties.
Move-up buyers also benefit from the expansion of that tax credit qualifying for up to $6,500 for the purchase of a move-up home.
Look for banks to start releasing more homes for sale in the next few months as well. We all know there’s some level of ‘shadow inventory’ out there – homes that have been foreclosed but not brought to market, homeowners that are seriously delinquent but have not been foreclosed, etc. Federal moratoriums and other market manipulations have been woefully inadequate and have artificially extended the recovery process by delaying what, in many cases, has been the inevitable.
The only good to come from these band-aid fixes has been the unintended stabilizing effect it has had in some markets, like ours, where the torrent of foreclosures has slowed to a trickle while demand has stayed strong and prices have stabilized. However, it has also kept us from plumbing a true bottom of the market leading some to speculate that we may be in for another round of price declines when these new homes hit the market. Given our local demand and inventory, I am confident our region will be able to absorb the additional influx of properties with no deleterious impact to our median price. With 10 or 20 or more offers still being generated for available homes, we will only succeed in helping many more people become homeowners and reducing vacant and blighted homes in our cities.
Unfortunately we still have many homeowners who will experience the pain of foreclosure probably through next year before we see a significant slowdown of that activity. But at the same time we will start to see a notable recovery of our move-up market as prices stabilize and homeowners with equity jump to their next home to beat interest rates and price appreciation. You’ll see more and more ‘regular sales’ in 2010 as we make our slow return to a ‘normal market’.
If banks get back to the business of lending money to qualified buyers, especially jumbo buyers, and the federal government gets out of the business of micromanaging yet another segment of our economy they know nothing about (ours), the market will inevitably correct, as it has always done, and a true and sustainable housing recovery will be under way.
Of course that’s just my opinion. I could be wrong.