This Month In Real Estate March 2009


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This Month In Real Estate March 2009

  1. 1. This Month in Real Estate Released: March 11, 2009 Commentary……………………………. 2 The Numbers that Drive Real Estate… 3 Snapshot of the Economy……………… p y 9 Recent Government Action……………. 13 Research for Buyers and Sellers………. 21 Courtesy of Mike Walker P.1
  2. 2. Commentary The government acted boldly in February to stimulate the economy and help stabilize the housing market. Among the measures taken was a tax credit of up to $8,000 for a qualified first-time buyers in 2009. Unlike the previous version, the new credit does not have to be repaid. This tax credit will likely help lift overall homes sales and trigger trade-up purchases as well. Good news for a weakened housing industry. Among the many benefits of the massive stimulus package of 2009 is the reinstatement of the conforming loan limit, which expired at the end of 2008. Higher loan limits could allow h f il li i hi h id h df ih l li i ld ll more buyers and existing homeowners to gain access to low mortgage rates. Combined stimulus measures could raise home sales considerably in 2009. which should lead to home price stabilization. President Obama also unveiled a much needed plan designed to help much-needed approximately 7 to 9 million families avoid foreclosure by refinancing or restructuring their mortgages. In terms of the outlook for the broader economy, stabilization is likely to occur if the economic stimulus plan does what it is intended to do. In many areas around the country, home values are priced under market value. Mortgage rates remain at historical lows and housing affordability is greatly improved. Considering these factors, it is likely that demand is building among buyers who are able and willing but waiting on the sidelines. Many smart buyers are taking action and continuing to find deals sidelines instead of trying to time the market. Courtesy of Mike Walker P.2
  3. 3. The Numbers that Drive Real Estate Courtesy of Mike Walker P.3
  4. 4. Home Sales Pace of Sales in Millions Home sales fell 9% in the first month of the year as some prospective buyers waited for clarity on the housing stimulus package. On February 17, the economic stimulus package included a tax credit for new home buyers and 17 home-buyers anyone who has not owned a home in the last three years. This provision alone could help increase sales by an additional 300,000 homes this year. In turn, this could activate trade-up purchases by existing homeowners, further increasing home sales this year. 5.23 5.10 5.86 6.03 6.23 7.12 6.75 6.46 4.91 4.49 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Courtesy of Mike Walker Note: Pace of sales as of January every year (Data released on February 25, 2009) P.4 Source: National Association of Realtors
  5. 5. Median Home Price In Thousands Home prices decreased 15% from a year ago due to the number of distressed sales in the market. $137 $142 $156 $167 $179 $197 $217 $211 $200 $170 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Courtesy of Mike Walker Median home price as of January every year (Data released on February 25, 2009) P.5 Source: National Association of Realtors
  6. 6. Inventory - Months Supply Number of months it would take to sell all the homes on the market at the current rate of sales Fewer homes went on the market in January, resulting in a 6% decline in months’ supply of homes from a year ago. The overall inventory of homes fell to the lowest level in two years due to significant declines in homebuilding activity and moratorium on foreclosures in several states. 4.2 4.2 4.3 4.6 4.3 3.6 5.1 6.6 10.2 9.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Courtesy of Mike Walker Inventory as of January every year (Data released on February 25, 2009) P.6 Source: NAR
  7. 7. Mortgage Rates 30-Year Fixed Mortgage rates continued to remain at attractive levels for the month of February. For the final week of the month, mortgage rates averaged 5.07%. 5.1% 8.3% 7.1% 6.9% 5.8% 5.6% 5.6% 6.3% 6.3% 5.9% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Courtesy of Mike Walker Mortgage rates as of February every year. (Data released on February 26, 2009) P.7 Source: Freddie Mac
  8. 8. Affordability - % of Income The percentage of a median family’s income required to make mortgage payments on a median priced home Housing affordability is at record levels due to declining home prices and low mortgage rates. As a result, the purchase power of a typical family rose considerably. According to NAR’s housing affordability index, a median-income family earning around $60K could afford a home costing $283K i Jin January with a 20% down payment. ith d t 20% 19% 19% 18% 19% 20% 23% 22% 19% 15% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Courtesy of Mike Walker Affordability as of January every year. Calculations assume a 20% down payment. P.8 Source: National Association of Realtors (NAR)
  9. 9. Snapshot of the Economy Courtesy of Mike Walker P.9
  10. 10. Gross Domestic Product (GDP) According to revised numbers by the Department of Commerce, the economy shrank by 6% in the final quarter of 2008. The pace of decline for the final quarter was considerable as both businesses and consumers continued to aggressively scale back. Consumer spending, which accounts for approximately two-thirds of d i tl t thi d f domestic activity fell by 4% in the final quarter of last year. On an ti ti it f ll b i th fi l t fl t O annual basis, GDP growth for 2008 was actually slightly better than 2001. 3% 4% 1% 5% % 3% % 2% 0.1% 5% 5% -0.2% 1% % % 3% -0.5% % 0.5% 3% 0.2% 1% -6% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 Courtesy of Mike Walker Source: Bureau of Economic Analysis (Data released on January 30, 2009) P.10
  11. 11. Unemployment The unemployment rate increased to 8.1% as the employers shed 651K jobs in February. Almost all sectors posted job losses with the exception of government, education and health sectors. 4.1% 4.2% 5.7% 5.9% 5.6% 5.4% 4.8% 4.5% 4.8% 8.1% 20 20 20 20 20 20 20 20 20 20 000 001 002 003 004 005 006 007 008 009 Courtesy of Mike Walker Unemployment as of February every year (Data released on March 6, 2009) P.11 Source: Bureau of Labor Statistics
  12. 12. Inflation Inflation declined for the sixth consecutive month, falling to 0% for the month of January. This was the slowest rate of increase since the 1950’s. While consumer prices remained flat, it was slightly more robust than market expectations. Areas that actually experienced small price gains gy p yp p g were in the energy sector, transportation costs, education and medical care. 2.7% 3.7% 1.1% 2.6% 1.9% 3.0% 4.0% 2.1% 4.3% 0.0% 20 20 20 20 20 20 20 20 20 20 000 001 002 003 004 005 006 007 008 009 Courtesy of Mike Walker Inflation as of January every year (Data released on February 20, 2009) P.12 Source: Bureau of Labor Statistics – Consumer Price Index
  13. 13. Recent Government Action Courtesy of Mike Walker P.13
  14. 14. Feb 17, 2009 American Recovery and Reinvestment Act of 2009  $780 billion economic stimulus package was signed by President Obama 1. 35% in tax cuts 2. 65% in spending  There were six key housing related provisions 1. First-Time Home Buyer Tax Credit 2. FHA, Fannie Mae, and Freddie Mac Loan Limits 3. Neighborhood Stabilization 4. Commercial Real Estate 4C i lR lE t t 5. Energy Efficient Housing Tax Credits and Grants 6. 6 Rural Housing Service Courtesy of Mike Walker P.14
  15. 15. American Recovery and Reinvestment Act Six Key Housing-Related Provisions 1. First-time Home Buyer Tax Credit Who: • First-time home buyers or anyone who has not owned a principal residence in 3 years previous to purchase i h Amount: • $8,000 Tax Credit • Can be claimed on buyer’s 2008 federal tax return using Form 5405 Purpose: • To encourage first-time home buyers to purchase; to reduce larger-than-normal inventories of homes for sale Provisions: • Must be a primary residence • Does not have to repay unless home is sold within three years of purchase • To earn full tax credit, income (adjusted gross) cannot exceed $75,000 single or $150,000 joint • Eli ibl Homes: Eligible H • All single family residences/condos/co-ops/townhomes Effective Date: • Jan. 1, 2009 – Dec. 1, 2009 Courtesy of Mike Walker P.15
  16. 16. American Recovery and Reinvestment Act Six Key Housing-Related Provisions 2. FHA, Fannie Mae, and Freddie Mac Loan Limits • Loans above the conforming loan limit are considered jumbo loans which carry high interest rates. • Higher loan limit should allow more buyers and homeowners to access loans with lower interest rates as Fannie and Freddie will now be able to guarantee those loans. • Reinstates the conforming loan limit that expired at the end of 2008 to either 125% of local median home price or $271,050 for FHA l f l l di h i $271 050 f loans or $417 000 for $417,000 f loans guaranteed by Fannie Mae or Freddie Mac with an overall cap of $729,750. 3. Neighborhood Stabilization g • $2 billion in grants to address the problems that arise when whole neighborhoods are engulfed by foreclosures. • Funds can be used to purchase, manage, repair, and resell foreclosed and abandoned properties. pp • Homes must be used to assist those with incomes at or less than 120% of median income. • 25% of funds must be used to assist households with incomes of 50% (or less) of area median income. Courtesy of Mike Walker P.16
  17. 17. American Recovery and Reinvestment Act Six Key Housing-Related Provisions 4. Commercial Real Estate • Focus on green building and energy efficiency as well as business tax incentives. • Provides funds for state energy programs, which could be used to support co ov des u ds o e e gy p og a s, w c cou d suppo t commercial eca property owners' investment in energy efficiency upgrades. Commercial property owners seeking to invest in alternative energy systems for onsite power generation would benefit from the Department of Energy Renewable Energy Loan Guarantees Program. • Tax relief in the area of bonus depreciation and capital expenditures, as well as the 5-year expenditures carryback of net operating losses for small businesses. 5. Energy Efficient Housing Tax Credits and Grants • 30% tax credit to increase the energy efficiency of homes gy y • Tax credit can be applied for purchases on new furnaces, windows and insulation 6. Rural Housing Service • $500 million for existing USDA Rural Housing programs through support for direct loans and loan guarantees • Expectations that financing would be available to fund an additional 192,000 homeowners Courtesy of Mike Walker P.17
  18. 18. Feb 18, 2009 Homeowner Affordability and Stability Plan Overview President Obama unveiled his $75 billion Homeowner Affordability and Stability Plan designed to help approximately 7 to 9 million families avoid foreclosure by refinancing or restructuring their mortgages. Some of the measures will require Congressional t t i th i t S f th ill iC il approval prior to implementation. Key Provisions 1. Reduction of monthly payments • After the bank has agreed to lower monthly payments to 38% of income, the Treasury will match additional reductions as low as 31% of income. • In other words, the Treasury will cover half of the costs of lowering monthly payments between 38% and 31% of income. 2. Incentives for lenders • For each modification lenders will receive $1,000 upfront. • For each month that the borrowers stay current on modified mortgages, lenders will receive additional payments up to $1,000 per year for three years if the monthly payments are reduced by at least 6%. 6% • For each loan modification that occurs before a payment is missed, lenders will receive $1,500 and servicers $500. Courtesy of Mike Walker P.18
  19. 19. Feb 18, 2009 Homeowner Affordability and Stability Plan Key Provisions (continued…) 3. Incentives for homeowners • Reductions of principal balance on mortgages for those who stay current on their loans - up to $1,000 a year for up to five years. 4. Eligibility requirements • The mortgage must be originated before Jan 1, 2009. gg g , • The program will accept new borrowers until Dec 31, 2012. • The home must be owner-occupied and a primary residence. • Income will be documented and verified. 5. Refinancing options • The restriction on refinancing loans owned or guaranteed by Fannie Mae or Freddie Mac requiring at least 20% equity in the home will be removed. • The l Th loans must be current and the loan value cannot exceed 105% of current property tb t d th l l t d f t t value. • Loans may be refinanced to as low as 2% and may be extended to 40-year terms. • This p og a w go into e ect March 4. s program will to effect a c . Courtesy of Mike Walker P.19
  20. 20. Feb 18, 2009 Homeowner Affordability and Stability Plan What is missing from the bill?  Investors are not covered by the bill.  The bill does not require lenders to lower principal for borrowers “underwater” whose home values have fallen below the principal of the mortgage.  Does not address loans that were sold into securitized pools, also known as private-label securities.  It is still voluntary. Courtesy of Mike Walker P.20
  21. 21. Research for Buyers and Sellers Courtesy of Mike Walker P.21
  22. 22. Fannie Mae to Loosen Investor Loan Rules To help jump start the housing market, Fannie Mae will begin to g guarantee mortgages for borrowers from the current limit of gg three to as many as nine other properties beginning in March. The number of reserve payments will also rise from two months to six months in June. Effective Current New Date Number of Properties p 3 9 March 2009 Months of Reserve Payments 2 6 June 2009 Courtesy of Mike Walker Source: Realtor Magazine and American Banker P.22
  23. 23. Experian FICO Credit Scores No Longer Available As of February 14, information on Experian credit scores will be more difficult for consumers to obtain. Experian will no longer sell its information through MYFICO com or any other external credit reporting agency. Consumer agency may still receive the free credit report that they are entitled to by law through the Annual Credit Report request service and may purchase a credit report and score directly from Experian. However, these score may vary from the scores used by y p , y y y lenders. According to The New York Times and Tom Quinn, vice president for scoring at Fair Issac ( company that formulated the FICO score), “Experian g (the py ), p cannot distribute its FICO scores to consumers itself or though other outlets. Experian does produce another propriety three-digit credit score and make it available to consumers, but it is not the one that lenders base their decisions on.” Lenders will still have access to the complete FICO scores, including FICO scores from Experian. It will be increasingly important for consumers to check for errors on their credit reports. Courtesy of Mike Walker Source: New York Times P.23
  24. 24. Downsizing Tips for Sellers 1. Begin preparing early. Preparing early will help ease the process once an offer and acceptance have been made. This will be especially helpful if buyers have a short timeline to close. 2. Cleanse the home of unused items. Removing unused items will facilitate better showings of the home by enabling potential buyers to focus on the home rather than the belongings. This will also make moving easier when the time comes. 3. Donations and garage sales are great opportunities to recycle rather than discard unused items. 4. Have grown up children remove their belongings to free the home from items the owners don’t use. don t use 5. Keep digitized documents and pictures to reduce physical file sizes and help keep documents safer for longer. 6. Include furniture in the sale of the home. This can be a win-win situation for both win win the buyer and the seller. Courtesy of Mike Walker Source: Realtor Magazine and Wall Street Journal P.24
  25. 25. Your Local Market Although it is important to stay informed about what is going on in the national economy and housing market, many different factors impact the real estate market in your area. Talk to your Keller Williams Realtor for assistance interpreting the conditions in y p g your local market. Keller Williams agents are equipped with all the knowledge and information to g q pp g help navigate you though the process of buying or selling a home in this challenging market. Courtesy of Mike Walker P.25
  26. 26. About Keller Williams Founded in 1983, Keller Williams Realty Inc. is an international real estate company with more than 74,175 associates and 693 offices located across the United St t U it d States and C d Th company began franchising in 1991, and d Canada. The b f hi i i 1991 d following years of phenomenal growth and success, became the third-largest U.S. residential real estate firm in 2009. The Th company has succeeded by treating its associates as partners and shares its h d d b t ti it it t dh it knowledge, policy control and company profits on a system-wide basis. Focusing on helping associates realize their fullest potential, Keller Williams is known kno n as an ind str leader in its famil culture, unmatched education, profit industry family c lt re nmatched ed cation sharing business model, phenomenal coaching program and technology offerings. Keller Williams provides associates with all the tools needed to thrive and grow in today’s market today s market. Courtesy of Mike Walker 330-571-2020 Courtesy of Mike Walker P.26