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tax credit

“Phoenix is once again one of the most affordable areas of the country.”

by Dru Bloomfield on August 1, 2009

Mike Orr from the Cromford Report wrote this concise appraisal of the Phoenix real estate market.  He touches on a lot of important point.  Definitely worth a read, if you are have any interest in real estate at all.

Looking Forward

I was recently sent a list of questions about what changed in the Greater Phoenix residential real estate market during the first and second quarters of 2009 and the outlook for the rest of the year.

Here are the Cromford Report’s responses:

1. What changes are you seeing in real estate trends now compared to first quarter?

The first quarter saw a rapid run up in demand that started to reduce supply levels from March onwards. However prices fell quite sharply across the board. The demand strengthened even further in the second quarter resulting in a large reduction in active listings, especially of lender-owned properties. Overall pricing in Greater Phoenix ceased its long decline in April and rose through the rest of the second quarter. However several important sectors are still seeing price declines – including properties over $350,000, condos, and mobile homes.

2. Are these different in Arizona compared to the rest of the country? What trends are specific to just our area?

Since we don’t track the rest of country, or even Arizona outside the Maricopa/Pinal area, we are not really in a position to answer this question fully.  However the demand level in Greater Phoenix is clearly unusually high due to the dramatic fall in pricing between mid 2006 and 1Q 2009. Phoenix is once again one of the most affordable areas of the country. We are seeing unusually high buying interest from Canadians while Californians are under-represented compared with historical levels

3. Are there any trend differences across major Arizona cities – Phoenix, Scottsdale, Mesa, Tempe?

Scottsdale is seeing only a moderate increase in demand and prices continue to fall unlike most other major cities. This is due to the predominance of luxury homes and condos, both sectors with excess supply that are not yet in the recovery phase. The 2009 recovery has been strongest in the areas which were most dominated by the glut of lender-owned homes in 2008. These also suffered the most severe price declines prior to 2009. They include West Phoenix, South Phoenix, Glendale, Avondale, Queen Creek & Maricopa. In general the trends are defined by price range more than geography right now.

4. What are the biggest challenges for real estate agents right now?

The biggest constraint on sales volumes (and hence realtors’ incomes) that we see is the tight availability of finance which is constraining most buyers ability to get the homes they want. Credit approval guidelines are stricter than at any time in recent history and the lenders’ procedures during escrow are often onerous and slow. The lack of attractive finance above $417,000 is an important reason why the high end of the market continues to suffer. The absence of appropriate lending controls was the single most important cause of the housing bubble. The strict controls we now see are extending the recession’s damaging effects. As a result, buyers paying with cash dominate sales and the situation heavily favors liquid investors when competing for the attractively priced lender-owned homes. Investor loan terms are deeply unattractive at the moment, so would-be investors without capital are largely on the sidelines. If investors were able to get attractive financing or the incentives that first time buyers receive, the market would be even stronger. We also see appraisals coming in too low for the new market conditions with prices increasing in the lower price ranges. Some appraisers are still acting as if we were in a declining market. For agents, short sales are becoming a way of life so learning how to conduct these efficiently and successfully will be a key challenge.

5. What do you predict will change in third and fourth quarter?

We see a period of consolidation. Prices will not go up quickly from the current levels. There will still be a strong supply of foreclosed homes and the current price levels seem to have found a balance between demand and this supply. REOs will continue to sell quickly and their pricing will probably continue to rise though more slowly than in the second quarter. Short sales will become the dominant type of transaction and their pricing will probably stabilize.  Luxury home volume will improve as their prices come down faster.  The November cut-off for the $8,000 tax credit will drive demand from first time buyers trying to beat the deadline. This will probably make the buying frenzy for properties under $200,000 even more frenetic. We expect to see a strong fix-and-flip market turning lender owned properties into attractive starter homes. Landlords buying and renting out  single family detached homes are likely to continue to steal market share away from the multi-family sector.

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Scottsdale Real Estate Slowdown?

by Dru Bloomfield on December 19, 2008

Scottdale Real Estate Market 12-18-08
credit: Dru Bloomfield – At Home in Scottsdale and Altos Research

In looking through the Altos Research charts for Scottsdale real estate today, you can see we have headed into another downturn in the market over the last several weeks.  The Altos Market Action Index shows slowing in all Scottsdale markets, across all zip codes. 

My suspicion is that many people are focused on the holidays.  At the same time, I’m seeing that many buyers are still very focused on searching through the new listings, keeping track of pricing changes, and asking me to refine their home searches.  While there are not a tremendous number of new homes going on the market during the last couple of weeks of the year, sellers are focused on preparing their homes for listing in January.  Our warm winters and huge events (golf, horses, and cars) attract visitors in droves and these sellers want to be ready.

I believe that after the first of the year, real estate will become a bigger focus for first time buyers and winter visitors / part-time residents.  Why?

  1. Home prices continue to drop.  Sellers (those that are motivated) are listing their homes at more realistic prices.  Foreclosures and short sales are driving home prices down, and have an impact on normal, non-bank involved home sale prices. 
  2. Interest rates are excellent.  Rates dropped to 4.5% briefly for one morning this week and are now back up to the 5% range.  Most lenders are writing about the refinancing boom, but these good rates also help home buyers, too. 
  3. First time home buyer tax credits will expire.  The government has created a tax credit program, that’s really interest-free loan.  The program expires in July 2009, so will provide an additional incentive for first time home buyers who believe it’s a good time to purchase a home.

So, while it looks a little slow now, all that could change fairly quickly during January.  Time will tell.

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First Time Home Buyer Tax Credit

by Dru Bloomfield on December 1, 2008

Logo of the Federal Housing Administration.

Image via Wikipedia

The First Time Home Buyer Tax Credit has been around for a couple of months, but I’ve not really written about it:

Paul Wakefield, with Security Mortgage, emailed me his weekly update this morning, with the details and an example, so I decided it was time to share:

A reminder about the HR 3221 First Time Home Buyer Tax Credit.

This is a $7,500 TAX CREDIT, not a deduction. First-time home buyers or someone who has not owned a home for the past three years are eligible.

They must purchase a home between April 9th, 2008 and before July 1st of 2009. So, if the property is purchased prior to December 31st of this year, the buyer could potentially receive their credit in the next couple of months, provided they file their 2008 taxes right away.

The main features are:

  • Income Limits: $75,000 for a single tax payer/ $150,000 for a married couple.
  • Repayment: A home buyer claiming a $7,500 credit would repay the credit $500 per year. The home owner does not have to begin making repayments on the credit until 2 years after the credit is claimed. If the home owner sells the home, then the remaining credit amount would be due from the profit of the home sale. So, it really a 0% interest loan.
  • Tax credit is refundable. For example: If a qualified home buyer expected, notwithstanding the tax credit, a federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit, the taxpayer would owe the IRS $1,000 on April 15th, 2009. Suppose now, that the taxpayer qualified for the $7,500 credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 – the $1,000 owed).

Keep in mind that the FHA does require a 3% down payment. After the first of the year, the minimum down payment increases half a percent to 3.5% of the purchase price. The down payment can be a gift from family, if the buyer does not have the funds.

As a side note, the FHA Maximum Mortgage Limits in Maricopa County will be lowered to $271,050, from the current maximum of $346,250, as of the first of the year.

I have a client who just closed on her first home last month, and one of the incentives for purchasing now, rather than waiting, was this tax credit. She was able to make her down payment, and know that she would be getting a tax credit back in several months, that would replenish the funds she used for her down payment. 

Here are two more resources for buyers interested in using the First Time Home Buyer Tax Credit to buy a home:

First-time homebuyer tax credit chart
Frequently asked questions about the first-time homebuyer tax credit

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