Moody's economy: "right time to buy"

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Moody's Economy: "Right time to buy"

By Jim Woodard




An increasing number of noted economists are focusing on positive aspects in the current real estate market. "Despite the darkening national economic outlook and weak condition in the housing market, some positive signs give hope that housing is about to hit bottom," it was stated in a recent report from Moody's Economy. "Lower home prices along with tax credits for eligible homebuyers, and further mortgage rate declines, could mean now is the right time to buy."


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Other Mortgage Stories:



Some states reporting robust sales

Potential of federal tax credit

Importance of curb appeal in marketing homes

Lower home values are reality in most markets

Green condos are hot

Log homes still popular

Taxes on short-sale and foreclosure transactions

Home auctions a growing marketing technique

Who will handle new appraisals?












Moody's Economy: "Right time to buy"

An increasing number of noted economists are focusing on positive aspects in the current real estate market. "Despite the darkening national economic outlook and weak condition in the housing market, some positive signs give hope that housing is about to hit bottom," it was stated in a recent report from Moody's Economy. "Lower home prices along with tax credits for eligible homebuyers, and further mortgage rate declines, could mean now is the right time to buy."



Moody's recently released results of a special study, "Housing in Crisis: When Will Metro Markets Recover?" It projected that home prices will stabilize by the end of this year. By the end of the current downturn, house prices will have declined by double digits peak-to-trough in nearly 62 percent of the nation's 381 metro areas. In about 10 percent of metro areas, price declines will exceed 30 percent. Moody's, along with other credible economic forecasters, are pointing to the advantages of purchasing a home or other property at this strategic point in the marketing cycle.



Another optimistic note: Federal Reserve chairman Ben Bernanke recently told Congress "there is a reasonable prospect that next year will be a recovery year, provided credit flows normally and financial market work."


Even though sales of existing homes dropped by about 5 percent and new home sales by 10 percent in January, prospects for growth look good for coming months, as elements of the stimulus plan kick in. Lawrence Yun, chief economist for the National Association of Realtors, said there was understandable hesitation by some home buyers. "Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of housing stimulus," he said. "The housing market will soon get a lift from very favorable buying conditions - not only from improved affordability, but also from the stimulus of an $8,000 first-time home buyer tax credit, and higher conforming loan limits that will allow more people to tap into 50-year low mortgage rates."

Despite generally sluggish sales reports in January, some states report dramatic increases. Most notably, California experienced a 100.8 increase in sales compared with the same time last year, according to a report from the California Association of Realtors. The statewide median price of existing single-family homes in January decreased by 40.5 percent. The state's unsold inventory index was 6.7 months in January, compared with 16.6 months during the same month last year.



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Prospective home buyers and real estate professionals are optimistic about the positive potential of the federal tax credit of up to $8,000 for first-time home buyers. The credit is 10 percent of the home's purchase price, up to $8,000. It applies to all new and existing homes purchase before December 1.



First-time buyers are defined as those who have not owned a home within the past three years. To qualify, individuals cannot earn more than $75,000 per year - couples may earn up to $150,000. The credit does not need to be repaid if the home is owned and occupied by the tax payer for at least three years.

In today's market, curb appeal is particularly important in the selling of a home. Without it, properties may remain on the market for a very long time. That fact of real estate life was revealed in a recent study by Michigan State University. Good landscaping adds 6 percent to 11 percent to the eventual sales price of a home, the study noted. The appearance of the front yard and porch are key elements in effective marketing. Keep the grass looking neat and green, and the front porch clean and uncluttered, it was suggested.



Do whatever is needed to make the flowers and shrubs look healthy and well maintained. Paint whatever areas need it, particularly those parts of the house seen from the street. The front door is most important. A fresh coat of paint is a very effective marketing-enhancer.



Of course, the appearance of the interior of the home is also very important. The kitchen, bathrooms, and living room are critical. Keep them clean and uncluttered. You want prospective buyers to envision themselves as owner-residents of this very warm and attractive home.

Apparently, homeowners are now more inclined to accept the hard fact of life that their home has lost some of its previous value. They are facing the reality that home values have declined in recent months. At least, that was revealed in a Homeowner Confidence Survey, conducted by Zillow.com. More than half (57 percent) of homeowners now believe their homes lost value during the past year, according to the survey. That's considerably more than the 38 percent who believed their home's value was declining in mid-2008.



Most homeowners were optimistic, however, about the future value appreciation potential of their property. They believe the worst may be over. More than two-thirds (70 percent) believe their home's value will either increase or stay the same in the first half of this year. Only 30 percent think it will decrease.



Being realistic about the current value of their home is vitally important in establishing an asking price that will attract prospective buyers. If a price is considerably above the current market value of the property, the property may be on the market for some time, and will carry the stigma of an "overpriced" home.

"Green" condos are becoming a hot product in the housing industry - particularly pricey condos in metro areas, keyed primarily to young professionals. These condos, sometimes called eco-friendly lofts, include a wide variety of features utilizing alternative and recycled materials. It's a good marketing ploy in today's market, developers say.



At one condo development, rugs made of recycled bicycle inner tubes are advertised. Bathrooms with wall paper from recycled magazines and throw pillows created from second-hand suits are touted. These may be extreme examples of unconventional materials being used in today's construction of condo developments, but generally the use of "green" materials is on the increase.



Condos and townhomes have long been popular with young married couples and retirees - often the first or last residence owned. Now, luxury "cool" condos in metro areas are surfacing as a major niche in the real estate market. They offer working people a minimal maintenance residence in a convenient, close-in location near their point of employment, thus cutting down commuting time and costs.

Log homes, firmly engrained in our nation's history, is still very popular with today's buyers - particularly with those seeking a second or vacation home. The most famous of all log cabins is the birthplace of Abraham Lincoln. The spotlight is on that tiny cabin more than ever this year, as we observe the bicentennial of Lincoln's birth. That cabin had only one room, one door, one window with no glass in it, and a dirt floor.



The image of that humble cabin is now featured on the back of the new penny being produced by the U.S. Mint. The coin was released in mid-February. It depicts Lincoln's birthplace and his early childhood in Kentucky.



Building log homes has become much more intricate and efficient over the years, one log home builder pointed out. "It's amazing to step back and see how far the log home industry has come in the past several decades, let alone two centuries. With techniques like log grading and specialized fastening systems, today's log homes are able to offer consumers structurally sound, energy-efficient homes that still manage to capture the rustic charm that log homes have had for generations."



Never before has the humble and historic log home been the focus of such attention. It will probably stimulate more interest in buying or building log homes in future months and years.

Home sales are increasing in many markets, primarily due to the rising number of bargain-priced foreclosure homes and those where the lender is agreeable to a "short-sale" - meaning the lender will forgive some of the mortgage debt to facilitate a sale.




Home sellers may think a short sale results in a welcome gift from the lender. However, they later learn that the amount forgiven is taxable. For example, a home that was purchased for $300,000 and now has a mortgage balance of $250,000, may have a current market value of only $225,000. The lender may forgive $25,000 of the debt to allow a sale for the market value -- a short-sale transaction.




However, many sellers don't realize that forgiven amount ($25,000 in the example case) is considered taxable income by the Internal Revenue Service, even though it's a phantom income source - no cash has changed hands. The same results would apply in a foreclosure where some debt amount remains outstanding at the conclusion of the transaction.




Any lender who forgives debt is required to provide a Form 1099 report to the borrower and to the IRS stating the amount of the forgiven debt. That form is always required when there is a short-sale, foreclosure, deed in lieu of foreclosure or other similar arrangements.

Some home sellers are not in a position to wait the long time period often required to sell a home the conventional way. They turn to auctioning their property as a rapid marketing technique. The auctioning of residential properties is the most rapidly growing niche in the auctioning industry. About $17 billion in auctioned home sales were finalized in 2007 - the last year figures have been tabulated. That reflects an increase of 46.6 percent over the volume of homes auctioned in 2003, according to the National Auctioneers Association.



There are, of course, pros and cons to using the auctioning process. It's certainly not the best option for all home sellers. But for sellers who need immediate cash because they have purchased another home, or need to expedite a divorce settlement or other special circumstances, auctioning can be a viable option. Properties that particularly lend themselves to the auctioning route are unique homes that are difficult to appraise due to very unusual features and characteristics. A well promoted auction can effectively determine its market value. Vacant homes and those with a lot of equity are also good auctioning candidates.



Realtors are often key players in real estate auctions. They introduce their home buying prospects to the auction, generating a referral fee for themselves if their registered client is the successful bidder. In fact, Realtors have played an important role in the growth of home auctioning.



It may be a fast way to market a home, but it's not inexpensive. Costs could include an advance fee of up to $1,500 if the auctioneer prepares and implements a custom marketing plan. Commissions charged by auctioneers generally range from 4 to 10 percent of the final selling price.



A new wrinkle in the auctioning industry is to offer multiple residential units in a single development, with potential buyers making their bids online. One of these auctions was held recently for 79 units in The Rowan Lofts in downtown Los Angeles. "Participants were able to set their own price and see what others were bidding on The Rowan units shown on large screens at the auction site, or at home on their own computers," said a spokesman for the auctioning firm. The auction, held February 8, resulted in 62 lofts sold for a total of $21.8 million.

Methods and procedures used in appraising the current value of homes have taken on new importance since the Homeowners Stability Program was implemented. One key and very controversial question: Who will handle appraisals of properties being considered for a modified mortgage or a refinance loan?



In the interests of economy, automated valuation models (computer-generated values) might be used, or national housing indices. But these methods are unreliable, according to appraiser groups. Real estate brokers and their associates often come up with "value opinions," that are valuable in determining an asking price, but they should not be considered as appraisals, the appraiser groups insist. The nation's four largest organizations of professional real estate appraisers recently sent a letter to Treasury Secretary Timothy Geithner urging the Administration to protect homeowners and taxpayers by requiring that the market values of homes be determined by professional appraisers who are state certified and licensed.



The letter affirms that reliable valuation and appraisal products are available from appraisers in every community in the country. There are now more than 100,000 certified or licensed real estate appraisers nationwide, it was noted. "Real estate appraisers can provide a range of services in a loan modification or refinance situations, including streamlined appraisals," said Bill Garber, with the Appraisal Institute. "For a stable economy and secure mortgage finance system, valuations must be reliable and those performing the appraisals must be accountable and professional."