Melissa Savenko's Richmond Real Estate Review

FHA Cash Reserves Down Sharply

This is not good news.  The Federal Housing Administration ("FHA") has lending programs for higher risk borrowers, which provide minimum 3.5% down payments and allow extremely low credit scores.  FHA guaranteed loans to extremely marginal buyers in 2007 and 2008 (average credit scores of 633).  10% of 2007 FHA loans and 12% of 2008 FHA loans are seriously delinquent, meaning borrowers are more than three (3) months late on their payments.  The FHA now has only 0.53% cash reserves, well below the 2% minimum required by Congress.

As a result:  FHA is tightening lending standards.  While this is a prudent fiscal move, as a public policy move it runs the risk of stopping the tentative housing recovery dead in its tracks.  Right now first time buyers, who typically have less cash to put down and often lower credit scores, are the drivers of this housing recovery.  They are just about the only folks buying right now.

Move up buyers aren't buying, they are sticking tight in hopes that they will recover some of the home value they have lost over the last two years.  Investors' hands are tied, but for the few who have cash, because banks aren't lending money for acquisitions or development, which is unfortunate.  Getting the undervalued distressed property - short sales and foreclosures - out of the housing inventory would allow for a stabilization of prices and a more robust, rapid and sustained housing recovery.

It's been a weird "glass half full or glass half empty?" kind of year, hasn't it?  Good news followed by bad news.  I'm going with a "glass half full" prediction.  I predict that the next 6 weeks will be slow, until after the holidays and the New Year.  I predict that January-March 2010 will be very busy, as first time home buyers rush to take advantage of the $8,000 tax credit.

Here's hoping I'm right!

First Time Home Buyers - The ACTUAL Dollar Cost of Waiting to Buy

I suck at math, which is why I went to law school rather than business school, a decision I still periodically regret.  So I am eternally grateful to Charles Dailey for posting this link to HIS post on one of my comment pages.  It QUANTIFIES the cost of waiting to purchase a $125,000-$250,000 home, assuming that the buyer (i) misses the tax credit window; and (ii) the interest rate on the mortgage increases 1/2 point, such as to 5.5% from 5.0%. 

Ouch.  I knew it wasn't a small number, but $13,928.74 to $19,857.47 is a lot of money.  Like, buying-a-car-kinda money.  And this just assumes a 1/2 point interest rate increase.  If the interest rate increased more than that, we'd be getting into high-performance-German-car-kinda money.

So don't miss the chance because you think you have plenty of time.  No time like the present, folks.

Building a Real Estate Business and "Social Media" - A Yes or a No?

This is an interesting article on the value of social networking sites like Facebook, Twitter, etc. in developing and building a stronger real estate business.  Here's the author's, Mike Parker's, opinion:

Social media is a sinkhole that absorbs time, effort,  and money that could be better spent on finding listings and selling houses.  Social media is the new blogging.  It too will peak, then decline, with one very large exception: affinity group business communication.

Mr. Parker says a strong Internet presence is necessary to attract buyers and sellers.   I absolutely agree.  According to the National Association of Realtors' ("NAR") Profile of Home Buyers and Sellers (2008), 87% of ALL home buyers, and 94% of home buyers between 25-44, used the Internet to search for their home. 

But why don't Facebook, Twitter, blogging, or any of these other social media tools that Mr. Parker seems to disdain count towards developing and maintaining that "strong Internet presence?"  Social networking is great for keeping up with family, friends, clients, and colleagues.  Again according to NAR, 43% of home buyers, and 38% of home sellers, found their real estate agent through a referral from a friend or family member.  In the case of home sellers, another 26% used an agent they had previously worked with to buy or sell their home.  Facebook and Twitter are great ways to stay in touch with your family, friends, and past clients - your best referral sources.  And in my personal opinion, blogging is a tool to (hopefully) demonstrate the depth of your knowledge and expertise as a real estate agent.

So, I'm not sure why Mr. Parker is so down on social media and blogging.  Aren't these platforms additional tools to establish the strong Internet presence he advocates?

New FHA Financing Rules for Condominiums - Thank Goodness!

On November 6, 2009, the Department of Housing and Urban Development issued new guidance relaxing the financing requirements for condominiums.  For condominium developers, listing agents for condominium projects, and condominium buyers, this is GREAT news.  Basically, an individual buyer may now get FHA financing in a project that qualifies.  What's so great about FHA financing?  It allows the least amount of money down (3.5%), has lower credit score requirements, and allows a "non-owner occupant co-borrower," which is fancy HUD-speak for a cosigner on the loan.

So what does this mean practically?  Someone starting out could buy a $200,000 property with $7,000 down (3.5% of the purchase price), a 620 credit score, and mom and dad co-signing on the loan.  This someone would need to come up with another $7,000 or so dollars in closing costs, but most sellers in this market are willing to contribute at least some of the closing costs to get a deal done.  So let's assume the closing costs were covered.  Then, the buyer could amend his or her 2008 taxes to claim the 2009 First Time Home Buyer Tax Credit of $8,000, and could essentially end up getting PAID $1,000 to buy a condominium.  If your monthly payment is the same or similar to your rent, why wouldn't you do this? 

Sounds like a pretty good deal to me.  And I've got some GREAT condos to sell, the Windsor Court Condominiums, in the heart of the Historic Fan District, located at 1608-1614 Grove Avenue.  You can't buy a house in the Fan for $200,000 - an entry-level house is going to cost you about $300,000 minimum and will require work.  I've got units priced from $194,900-$239,900 that have all new kitchens, granite, stainless steel appliances, refinished hardwood floors, the works.  AND there is dedicated parking.  There is even the option of a garage at no additional charge, available on a "first come, first served" basis. 

Here's the website - www.windsorcourtcondominiums.com - check it out.  There is a virtual tour on the website, for even more eye candy.  If you see anything you like, give me a call at 804-986-3993, or drop me a line at melissasavenko@gmail.com.  I'd be happy to show you around.

***** DISCLAIMER:  Because I am an uptight, although non-practicing, lawyer, I feel the need to state the obvious, which is (i) I am not a mortgage broker; (ii) I am not a mortgage lender; (iii) this post is not intended to be any type of professional advice. *****

Top Five Reasons Buyers Should Buy NOW

Well, the first time home buyer tax credit has been extended until April 30, 2010.  And a NEW credit for purchases of primary residences has been created, also with an April 30, 2010 deadline.  If you buy a new home, after selling your old home, you were in your old house at least five years, and you meet some income and timing restrictions, then you get $6,500 free dollars from the feds.

BUT....traffic through listings seems to have slowed considerably.  We're going into the traditionally slowest selling season for real estate, from November through February.  Are all those buyers who might benefit from these two credits just going to sit on the sidelines until Spring?  Will there then be a rush to buy and close from February through April?

Well, for self-evident and selfish reasons, I sure as heck hope not.  I'd rather have a steady push from now through April.  So, I am going to try to give you some convincing, compelling, and ultimately indisputable reasons why ANY buyer out there, not just beneficiaries of these credits, should BUY NOW, before Spring 2010.  Let's see if I am successful.

1. Buyer Leverage: Buyers have more leverage than they will have for the rest of the year between now and February.  Any seller with property on the market is aware of the traditional sales downturn from November through February.  If their house isn't under contract SOON, as in the next few weeks, it's quite possible that house is going ot be on the market for at least four more months.  If they NEED to sell, that's a lot more mortgage payments to carry.
2. LOW Interest Rates:  Interest rates continue to stay at historic lows.  However, at some point, those rates are going to have to go up.  Why risk missing a 5% fixed rate mortgage?  A half point difference could cost you literally hundreds of thousands of dollars over the life of the loan.
3. 2009 Tax Deductions:  If you close before the end of 2009, you can get not only a $8,000 or $6,500 tax credit, if you are eligible, but also the tax deductions for any interest, points, and closing costs you incur in the transaction.  First time buyers, that could mean BIG dollars back from Uncle Sam.
4. Excess - but Decreasing - Inventory:  Inventory is high, but dropping.  Dropping inventory means - sooner or later - rising prices.  Buy now while there are still great deals to be had.  If you have enough cash to put down 10%-20%, and you've ever considered owning a rental property, now is a great time to start investing in real estate.
5. Long Term Investment Value:  Buying versus renting makes sense if you have a stable job and some money to put down.  Real estate is a smart investment.  And unlike your 401(k) portfolio, it's got practical value - you can live in it!

So, hopefully I have made compelling arguments and the fence-sitting buyers are going to come banging down my door NOW.  You know where to find me. [;)]

Open House at Windsor Court Condominiums in the Fan District TODAY from 1-4

I'll be holding the Windsor Court Condominiums open today from 1:00-4:00 p.m, 1608-1614 Grove Avenue.  These are beautiful, newly renovated units, centrally located in the Fan, within walking distance of numerous restaurants, shops, art galleries, etc.  They're also only six blocks from Harrison Street, the start - or maybe the heart? - of the VCU campus.  Even if you're not a student, that puts you super-close to the VCU Theater and other cultural resources, which is really quite cool.  My daughter and I live around the corner from Windsor Court, and we like to walk down to VCU to catch plays on occasion.

Here are some of my favorite restaurants or shops, all within a six block walk of Windsor Court:

• Lombardy Market, right around the corner on Lombardy Street (duh!) - great sandwiches, all the staples + great wine and beer selection, AND they give my dog dog biscuits;
• Kuba Kuba, Lombardy and Park - awesome Cuban food in ridiculously sized portions.  Think dinner for two days;
• Sidewalk Cafe, Main and Rowland - my favorite brunch in town, with the Cajun Hash and pitchers of mimosas.  And Edwina, a server at Sidewalk, is a complete character and always makes it fun.  She's even got a toast for newly engaged folks, which I shall not reveal.  You've got to hear her do it yourself;
• Rowlands, Main and Shields - one of my favorite Fan "fancy" dinner place, although it is still Fan casual;
• Joe's Inn, Shields between Grove and Hanover - a neighborhood institution, also with insanely large portions at very reasonable prices.  Super-kid friendly and you can get breakfast all day!;
• Strawberry Street Vineyard, Strawberry Street - it makes me feel good to be buying local and supporting small businesses, esp. when they are this helpful and not at all wine-snobby; and
• Edo Squid, Harrison between Grace and Franklin - the Fan version of the original Mamma Zu's.  'Nuff said.

Prices at Windsor Court start at $194,900 and each unit comes with one dedicated parking space.  So if you're a first-time buyer who wants to live in the actual Fan, but can't afford a $300,000 house, which is about where fixer-upper single-family homes start these days, this could be the option for you!  Stop by and take a look.  I bet you'll like what you see.

Breaking News - Here Are the Details of the New and Improved Home Buyer Tax Credit

Here's a chart from the National Association of Realtors explaining all the changes.  Now let's sell some houses, people!

Some Skeptical Tax Credit Extension Will Help Housing Market

According to RISMedia's article titled "What Impact Will Homebuyer Tax Credit Extension Have on Housing Industry?", not everyone believes the tax credit extension will be much help to a VERY fragile housing market recovery. 

In case you hadn't heard, a Senate Committee passed legislation extending the $8,000 first time home buyer tax credit through April 30, 2010, and offering a new $6,500 tax credit to certain home buyers who are buying a replacement primary residence.  Of course, the $6,500 tax credit comes with all kinds of strings - income limitations, have to have been in the existing home a minimum of five years, blah, blah, blah. 

Skeptics think the timing of the tax credit extension means it will have less impact than some hope.  There is no doubt that we are going into the traditionally slowest selling time of the year in real estate, the dreaded Thanksgiving - New Year's black hole.  And first time buyers may feel they can just stop paying attention and wait until February or so to get back into the market.  That's what I am afraid will happen.  And if those first time buyers stop buying for the next several months, and the Area 10 numbers from yesterday are representative of the broader Richmond market....OUCH.   

But what about this new $6,500 tax credit for buyers of a "new" primary residence?  These are the elusive "move up buyers" that have been missing in this housing market "recovery."  Sure, the lower price ranges - $200,000 and below - have shown robust sales growth, but the sales rate in price ranges above $200,000 have been either flat or even down substantially.  What is supposed to happen in a healthy housing market is that first time home buyer buys a $200,000 house, and then THAT seller buys a $300,000 house, and then THAT seller buys a $450,000 house, and....  You get the drill.  But the super weird thing about this market - those sellers in the first time home buyer price range, the guy or gal selling the $200,000 house, are quite often not buying ANYTHING.

But where are these sellers going?  Anecdotally, they're renting.  Or moving home.  Or moving in with roommates, girlfriends, boyfriends.  If they were lucky enough to have made some money on the sale of their home, they seem to be socking it away for a rainy day.

Why?  I'm no economist, nor should I play one on TV, but I think it's the job market.  I don't think there are too many people out there who feel secure in their jobs.  Possible exceptions include medical professionals, educators, police/fire/EMTs, government workers.  But I can't think of a lot of other fields that are employment-stable or growing right now. 

I don't mean to be all doom-and-gloom.  I'm hoping to be wrong, trust me.  And maybe Congress will get smart and front-load BOTH tax credits, so each month they decrease by some set amount.  That would encourage legitimate buyers, people who are going to buy anyway, to do it sooner rather than later.  Unfortunately, my crystal ball is in the shop this week.  But I'm all for cautious optimism. 

Analysis of Pending Properties in Urban Richmond - A Sobering Look

Well, I just ran the pending properties in Area 10 of the City of Richmond.  Area 10 is realtor-speak for Fulton Hill, Church Hill, Downtown, Oregon Hill, Jackson Ward, Carver, the Maymont/Byrd Park area, the Fan District, Carytown, and the Museum District.  "Pending" properties are under contract, but haven't yet closed.

Here are the results as of today, November 3, 2009:

• Priced $200,000 or under: 65
• Priced $200,001-$300,000:    17
• Priced $300,001-$400,000:    5
• Priced over $400,000:    3
• TOTAL PENDINGS: 90

Ouch.  If you do most of your business in the Fan District and the Museum District, where you can't get into a single family home for less than $250,000, in the case of the Museum District, and less than $300,000 in the case of the Fan District, them's not good numbers.  AND, what you get for those entry level prices are typically going to be fixer-uppers.  My clients that want fixer-uppers are few and far between, these days.

Clearly, as we keep hearing, the first time home buyers are driving the real estate market.  But with the current tax credit expiring November 30, 2009 and talk of an extension of that credit to April 2010, activity even in that market has slowed to a glacial pace.

People have missed the window on the existing tax credit.  Buyers without a house under contract are rolling the dice that the credit gets extended until April 30, 2010, the current proposal on the table.  If that happens, I'm worried those first time home buyers will sit on the fence until late Winter, early Spring 2010.  That could make for a long, hard winter.  What might change that?  If interest rates go up.  I'm staying optimistic, but this market has been completely squirrely.  Stay tuned.....

MORE Mixed News on Housing and the Economy

Well, Saturday's Richmond Times-Dispatch has three different articles - in it's tiny, tiny four page Business section - that address some of the difficulties the housing recovery faces.

First, there is an article addressing yesterday's disappointing news about consumer spending, which drives 70% of the total economic activity for the U.S. economy.  Incomes were flat in September, while wages and salaries dropped 0.2%.  All this resulted in a consumer pull-back in spending by 0.5%.  This creates BIG concerns about consumer spending in the upcoming holiday season.  The stock market reacted with big sell-offs, with the Dow Jones dropping just under 250 points.

Second, Genworth announced that it would be relaxing it's standards and would now start issuing primary mortgage insurance, or PMI, to individuals putting down 5% for the purchase of a home.  Genworth had been offering PMI only in instances where the buyer put down 10% or more of the purchase price of a home.  PMI is the tool banks use to ensure that they have adequate coverage to recover their full loan amount in case the home owner defaults on his or her mortgage.  PMI is required in transactions where the buyer puts down less than 20% of the purchase price of the home.  When one puts down 20% of the purchase price or more to purchase a home, this is considered a "conventional" mortgage and no PMI is required.  In those instances, the 20% down payment, or buyer's equity, in the home is considered sufficient "cushion" to allow the bank to recover it's full loan amount and cover any costs, should the buyer go into default on his or her mortgage.

This news about Genworth is really good for the housing market.  One of the results of the housing crisis was the bankruptcy or restructuring of many, many mortgage insurance providers.  This meant PMI was available from fewer insurers, it became more expensive, and the terms upon which it was available became more restrictive.  Genworth appears to have done an amazing job of managing itself out of the financial crisis and putting itself back on strong financial footing.  Good for them.

Third, Kenneth Harney of the Washington Post reports that the Home Valuation Code of Conduct ("HVCC") could be abandoned or replaced with a more thoughtful regulatory response.  The HVCC was a product of supposed appraisal abuse, where lenders would push appraisers to "hit the number" of a property's purchase price, so the loan could be issued.  The allegation was this contributed to inflated home prices, as appraisers over-valued properties under pressure from lenders.  The HVCC is intended to ensure "appraiser independence," by setting up firewalls between the loan officer and the appraiser. 

However, the law of unintended consequences rears its ugly head.  The HVCC has killed many deals, with below-market appraisals, at a time when the housing market recovery is still fragile.  Here's how:

• Because of the appraiser independence requirements, many large banks have turned to appraisal management companies ("AMCs") which act as the intermediary between the lender and the appraiser;
• Often these AMCs are wholly or partially owned by the lender;
• The AMCs often charge a fee, say $400, to the purchaser for the appraisal, but pay the appraiser only a portion of that, say $200.  The AMC pockets the difference;
• To get appraisers willing to take a significantly reduced fee, the AMCs often have to use the least experienced or least respected appraisers;
• This results in appraisals from appraisers who are from far outside the geographic area and are unfamiliar with the local market; and
• AMCs and their appraisers often use distressed sales or bank owned properties as comparables, which unfairly lower the valuation of properties that are "regular" sales.

All in all, a pretty mixed bag for the housing market specifically, and the overall broader market generally.  Here's hoping we start to see some more stability.