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President Bush and House leaders agreed yesterday on a $150 billion economic stimulus plan that could send rebate checks to 117 million American families and plug $50 billion into incentives for American businesses.
Under the proposed economic plan, nearly every person who earned a paycheck in 2007 would receive a rebate check from the IRS. Most would receive rebates of $600 each, or $1,200 per couple. An extra $300 per child (dependent) is included. A family of 4 would receive a total of $1,800 from the IRS.
Rebates would be fully available for taxpayers with an income under $75,000 ($150,000 per couple). The rebate would be a lesser amount for those who earn between $75,000 and $87,000. No rebate would be available for taxpayers with income over $87,000 annually.
The package also includes measures to spark a struggling housing market by raising the cap for conventional loans and for FHA loans. This would make it easier for home buyers to get or refinance a mortgage, especially in higher cost areas like New York, Florida and California.
The plan would raise the conventional loan limit cap to $625,000 for twelve months. Currently, the conventional loan limit is $417,000 (with the exception of Hawaii and Alaska). Any loan over that amount is commonly called a "jumbo loan." A jumbo loan, because of its size, carries more risk and is therefore more costly to a consumer. By raising the conventional loan limit, borrowers wanting up to $625,000 will be able to benefit from the lowest possible mortgage rates now only available to mortgage amounts under $417,000.
The portion of the plan relating to FHA loans would also raise the max loan limits for FHA loans. FHA loan limits are based upon the median sales price of local homes in a given area. Currently, an FHA loan can be written up to 95% of that local median sales price. The provisions in the plan would raise that limit to 125% of the local median sales price, up to a max loan amount of $729,000.
The current maximum FHA loan is $362,790, so this will have a huge impact on the amount of mortgages that may qualify for FHA. And these changes will be permanent (unlike the conventional loan limit changes which only last for 12 months).
The plan will be in the House of Representatives next week and if passed, will move to the Senate and could be back to the White House early in February to be signed by President Bush. The personal tax relief could begin to stimulate consumer spending and economic growth within 60 days of enactment, when the first rebate checks are scheduled to go out and the new loan limits can be adapted by lenders.
This article is reprinted by permission from Quicken Loans © 2008 Quicken Loans Inc. All rights reserved.
The bold, half-point reduction approved by Fed Chairman Ben Bernanke and all but one of his colleagues came as President Bush and Congress raced to enact a separate rescue package -- including tax rebates for individuals and tax breaks for companies -- to help energize an economy in danger of stalling.
Heartened by the Fed's newfound aggressiveness, Wall Street rallied but then pulled back, still wary. The Dow Jones industrials jumped more than 200 points after the announcement but ended up down 37.47.
Commercial banks followed the Fed action by lowering their prime lending rate by the same half percentage point -- to 6 percent, the lowest in nearly three years. That prime rate applies to certain credit cards, home equity lines of credit and other loans.
Hours before the Fed's action, the government reported that the nation's economic growth had stumbled to a virtual halt. The economy grew at just a 0.6 percent pace from October through December, and for all of 2007 it logged its weakest performance in five years.
The collapse of the housing market, sour mortgage investments and much harder-to-get credit are weighing on people and businesses alike. Foreclosures have hit record highs, and banks have racked up multibillion-dollar losses. The fallout has shaken Wall Street, catapulted the economy to Topic A among worried families and galvanized political figures, including those vying to be the next president.
"The economy is hanging by a thread," said Stuart Hoffman, chief economist at PNC Financial Services Group.
While Wednesday's interest rate cut was welcome, the Fed's blunt new assessment of the economy was sobering for everyone from business owners to people worried about debts to anyone without a job -- or fearful of losing one.
"Credit has tightened further for some businesses and households," the Fed said. "Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets."
In its 9-1 decision, the Federal Reserve dropped its key rate to 3 percent at the end of a two-day meeting. Richard Fisher, president of the Federal Reserve Bank of Dallas was the sole dissenter. He preferred no change.
It was the second Fed rate cut in just over a week, and the policymakers signaled they were prepared to keep going lower if needed.
There had been a rare, three-quarter point reduction last Tuesday. Bernanke had convened an emergency session after stocks worldwide plummeted, intensifying recession fears. The cuts have helped to restore some confidence among skittish investors, but financial markets remain fragile.
In the gravest challenge to his leadership since becoming Fed chief nearly two years ago, Bernanke must help stem the fallout from both the housing bust and a credit crunch. Wall Street critics and others have taken Bernanke to task for waiting until September of last year to embark on a rate-cutting campaign, accusing the Fed chief of being behind the curve in dealing with the economy's problems.
Bernanke also must be mindful of not letting inflation get out of hand -- a delicate and tricky maneuver. Oil prices have receded from $100 a barrel but still remain high. The Fed said it expects inflation to ease in coming quarters but added that it is imperative to monitor developments carefully.
Still, more rate cuts are expected at the Fed's next scheduled meeting in March and beyond. Some economists predict the key rate could drop as low as 2 percent this year, which would be the lowest in four years.
"The Fed needs to throw out a life raft to the economy pending the fiscal stimulus measures," said Brian Bethune, economist at Global Insight.
Even further action might not avert a recession but rather limit the damage. The interest rate cuts will take months to affect the economy, as will any stimulus package approved by the government. Neither effort will quickly cure the root cause of the economy's troubles: a severely depressed housing market and bad mortgage investments.
The economy may actually be declining now. Under one rough rule, it would have to contract for six months in a row for the country to be considered in a recession. The likelihood of a recession has risen sharply over the past year, and analysts increasingly believe the U.S. will be in one during the first half of 2008. The worry is that people and businesses -- which turned more cautious at the end of the year -- will hunker down, sending the economy into a tailspin.
Bernanke is not expected to cut rates as deeply as did his predecessor, Alan Greenspan, when Greenspan took on the 2001 recession, the economic fallout of the Sept. 11 attacks, a series of accounting scandals that rocked Wall Street and the uncertainty that gripped the country leading up to the U.S.-led invasion of Iraq in March 2003.
By the summer of 2003, Greenspan had slashed rates to 1 percent, a 45-year low. He held rates there for a year before the Fed began pushing them back up.
Critics contend those low rates helped feed a housing frenzy, in which home values zoomed and investors gobbled up risky loans, known as subprime mortgages, to borrowers with poor credit histories. When the housing market collapsed, the greatest damage was in subprime loans. Banks and other financial institutions have taken big hits on these soured mortgage investments.
The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980.
The government reported that the median price of a new home barely budged last year, edging up a slight 0.2 percent to $246,900, the poorest showing since prices fell by 2.4 percent during the 1991 housing downturn.
The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s.
The housing weakness has dragged down overall growth and sent shockwaves through the rest of the economy including the financial sector, which is dealing with billions of dollars in losses in subprime mortgages. Some analysts are worried that the fallout could become so severe it will drag the entire country into a recession.
The Federal Reserve unexpectedly cut a key interest rate by the largest amount in more than two decades last week following an emergency meeting, and it is expected the Fed will cut rates further at a regular rate-setting meeting this week.
The 26.4 percent drop in sales for 2007 represented weakness in every part of the country except the Northeast, where sales posted a small 1.6 percent advance. Sales recorded declines of 32.2 percent in the West, 26.7 percent in the Midwest and 26.3 percent in the South.
The year ended on a weak note with new home sales in December falling by 4.7 percent after an even sharper 12.6 percent decline in November.
While the median home price for the entire year was up slightly, the median price of homes sold in December was $219,200. That was down 10.4 percent from a year ago, the biggest 12-month price drop in 37 years.
Analysts said that prices will likely keep falling in early 2008 as builders continue to struggle to work down the glut of homes.
It would take 9.6 months to eliminate the backlog of unsold new homes at the December sales pace, the longest stretch of time since the month's supply stood at 10.3 months in October 1981.
The severe credit crunch that hit in August has made the troubles in housing worse because it has prompted banks and other lenders to tighten their standards, making it harder for prospective buyers to qualify for loans. Also adding to the problems facing prospective sellers is the rising tide of mortgage defaults, which are dumping more homes on an already glutted market.
The big fall in new home sales followed earlier reports that sales of existing homes fell by 13 percent in 2007, the biggest drop since 1982, while construction of new homes dropped by 24.8 percent last year, the biggest fall since a record decline in 1980.
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The package agreed upon by Democratic and Republican members of the House would allow government-sponsored Fannie Mae and Freddie Mac to buy mortgages up to 75 percent more expensive than the current $417,000 limit. The Senate and White House still must sign off on the proposed stimulus plan, which also includes tax rebates for Americans.
Raising the limit on so-called conforming loans will allow a larger pool of borrowers to find lower rates when buying a new home or refinancing an existing mortgage.
"It's good for homebuyers who have prime credit, have some money to put down and can meet tougher underwriting standards that are in place now," said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. For homeowners with blemished credit who are struggling to pay their mortgage bills, the change offers little benefit, he added.
House Speaker Nancy Pelosi and Republican Leader John Boehner of Ohio announced the deal in a press conference Thursday.
The higher cap, to be effective until the end of December, would breathe life into housing markets in New York, California and other pricey areas because lenders would feel more comfortable knowing Fannie and Freddie can buy and package the loans into securities that investors consider to be relatively safe.
Fannie and Freddie would be allowed to purchase loans up to $730,000, though that limit would differ based on the median home price in a particular metropolitan area.
The same limits would also apply for loans backed by the Federal Housing Administration, which insures loans made to borrowers with poor credit, though the change would be permanent for FHA-backed loans, which had been capped at $367,000.
The Bush administration has long been critical of how Fannie and Freddie operate, and officials have pointed to the companies' multibillion-dollar accounting scandals in recent years to bolster their case that Fannie's and Freddie's massive mortgage holdings are improperly managed and pose risks to the financial system.
But as the mortgage-market crisis that began last spring has deepened, Democrats have stepped up calls for Fannie and Freddie to back larger loans and hold more of them in their portfolios.
Treasury Secretary Henry Paulson, speaking to reporters after the deal was announced, said he did not support raising Fannie and Freddie's loan limits without strengthening government power over the companies.
"I got run down by a bipartisan steamroller," on the issue, Paulson said, adding that he believes lawmakers would still pursue a broad overhaul of government regulation for the two companies.
James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight -- which oversees the two companies -- said in a statement that raising the limits for Fannie and Freddie without providing stronger government oversight "would be a mistake."
Michael Cosgrove, a spokesman for McLean, Va.-based Freddie Mac, said the change "would be in the best interest of the economy and consumers," but noted that extra capital the company is required to hold on its books "creates a significant challenge for Freddie Mac as we continue to operate under severe capital constraints."
Amy Bonitatibus, a spokeswoman for Washington-based Fannie Mae, said, "If policymakers choose to raise the loan limit, we are supportive and committed to doing what we can to help."
Groups representing Realtors, bankers and home builders, which have been hit hard by the mortgage market downturn, have been lobbying for such changes for months.
The National Association of Realtors has been pushing for a permanent expansion of the Fannie and Freddie limits. The trade group calculates that borrowers could save $3,000 to $5,000 per year in reduced interest costs as a result and projects up to 210,000 foreclosures could be prevented since refinancing into lower-rate loans would be easier.
Dale Stinton, the group's chief executive, said in a statement Thursday that increasing the loan limits "is a truly meaningful economic stimulus and should be enacted quickly."
Shares of Fannie Mae fell 59 cents to close at $34.19, while shares of Freddie Mac fell 52 cents to close at $32.
The National Association of Realtors reported that sales of single-family homes and condominiums dropped by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units.
For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982. The median price for a single-family home dropped 1.8 percent to $217,000.
That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.
The new figures underscored the severity of the slump in housing, which has been battered for the past two years after enjoying a boom in which sales set records for five consecutive years.
The housing bust has sent shock waves through the entire economy as defaults have risen, resulting in multibillion-dollar loses for big financial firms whose investments in subprime mortgages have gone sour.
There is a concern that the housing and credit troubles could be enough to push the country into a full-blown recession. After global stock markets experienced a sharp sell-off earlier this week, the Federal Reserve announced a bold three-quarter point cut in a key interest rate and held out the promise of more rate cuts to follow.
The Bush administration and congressional leaders are trying to quickly wrap up negotiations on a stimulus package in an effort to boost consumer and business confidence.
For December, sales were down in all regions of the country. Sales fell by 4.6 percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and 2.1 percent in the West.
The inventory of unsold homes dropped by 7.4 percent, raising hopes that backlogs that had hit record levels were starting to be reduced, a key factor necessary to prompt a rebound in the market.
While Yun said he expected sales to start to rebound this spring, other analysts said housing is likely to remain in the doldrums throughout most of 2008, reflecting in part the credit crunch, which has caused lenders to tighten their standards, making it harder for prospective buyers to qualify for loans.
In other economic news, the Labor Department said Thursday that the number of laid off workers filing claims for unemployment benefits fell for a fourth straight week, dropping by 1,000 to 301,000.
Many economists cautioned that they still expected layoffs to start rising in coming weeks, reflecting the sharp economic slowdown that has taken place.
The economy, after racing ahead at an annual rate of 4.9 percent in the July-September quarter, probably slowed to a weak 1 percent rate in the final three months of 2007 and may even fall into negative territory in the current January-March quarter.
A recession is often defined as two consecutive quarters of falling economic output. Many economists believe the risks of a full-blown downturn are roughly 50-50.
The growing worries about the economy in an election year have captured the attention of President Bush and congressional leaders who are working to put together a $150 billion economic stimulus package that will include tax relief for households and businesses in an effort to bolster economic activity.
The drop in unemployment applications to 301,000 for the week ending Jan. 19 left total claims at the lowest level since 300,000 were recorded during the week of Sept. 22.
For the week of Jan. 19, 36 states and territories had increases in claims while 17 had declines.
The biggest increase occurred in California, up 27,194, an upsurge blamed on higher layoffs in construction and service industries, and Florida, with an increase in layoffs of 8,496, which was attributed in part to higher layoffs in construction. California and Florida have been particularly hard hit by the housing slump.
Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now.
Today’s rate cut does affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market, maybe not three quarter's point, but definitely a half-point. So if you are facing a reset on your ARM, you’re in much better shape today than you were just six months ago.
For example, if your rate adjusts Feb. 1st, and your ARM is pegged to the 1-year treasury, than your reset is going to be to 5.25 percent as opposed to the 7.5 percent that it would have been in August. That’s going to make the payment much more manageable.
So does this cut stem the foreclosure crisis? Maybe a bit on the margins, but not really, and here’s why: the bulk of the folks facing foreclosure because they can't make their monthly payments have no equity in their homes and no money to put down on a refinance.
While rates might be lower, this is a market where lenders and investors are much more aware of risk and will gravitate toward borrowers that represent less risk. So many folks will still find themselves in trouble. For people who are having trouble paying the initial rate on the loan, forget it. No help there.
As for those looking to buy a home, that is, get a new mortgage, while ARM rates may be lower, the mortgage landscape is still a far far different tundra than it was just a year ago. You can’t do a stated income loan anymore, and you can’t do 100 percent financing. Tighter standards don’t change with a rate cut.
And I want to add my two cents here about a home equity line of credit. Yes, the rates are lower now, but I really don’t think that means we should all start using our homes as ATM’s again, which is what got us all in trouble in the first place. This is a time to pay off debt, not to gather more. The housing market is still in trouble.
The statement from the Federal Reserve this morning: “incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.” We all know the price correction in housing is still underway with home prices across the nation (yes, I know, some markets worse than others) expected to fall further, so this is no time to put your home in more hoc. Just my two cents, which I’m putting in the bank as we speak.
Questions?| Comments?| RealtyCheck@cnbc.com
Today's Interest Rates from Realty Times are based on a 30 year amortization rate, with good credit and no origination fees.
How do we get our rates?
Most mortgage rate surveys contain old data, sometimes a week old, as in Freddie Mac's weekly interest rate survey. Still other mortgage rate services poll different lenders in such a confusing format that it's hard to understand with such polls being nothing more than lenders advertisements.
Our mortgage rates are culled from actual rate sheets from major lenders each and every day as soon as they're released. The rates are fresh and accurate and benefit our readers with no bias towards one lender or another.
KB Home reported a mammoth loss for the fourth quarter and said there are no indications that the housing market is stabilizing. The head of Fannie Mae, a government-sponsored mortgage lender, predicted the housing market would weaken through 2009 and said a turnaround wasn't likely until 2010.
President Bush, meanwhile, conceded, "It's going to take awhile to work through the downturn," and Treasury Secretary Henry Paulson said he is concerned about the potential for additional home defaults.
Paulson said the administration is exploring expanding a deal it brokered with mortgage lenders last fall to include relief to people who borrowed at prime, conventional rates as well as those with subprime, adjustable-rate mortgages that were due to reset.
Countrywide stock fell in morning trading after The New York Times reported about accusations that the company had fabricated letters submitted in a court case involving a foreclosure in Pennsylvania.
By early afternoon, the New York Stock Exchange temporarily halted trading of Countrywide shares before the company issued a statement denying rumors that a bankruptcy filing was imminent.
"There is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company," the statement said.
When trading resumed, the shares rebounded somewhat, but then slid again. They finished with a decline of $2.17, or 28.4 percent, to $5.47 after falling to an all-time low of $5.05 earlier in the day.
A rating analysis issued by Egan-Jones Ratings Co. suggested Countrywide "is severely challenged and might falter if it does not receive an infusion of at last $4 billion within the next couple of weeks."
The agency said the lender will need the funding to weather a steep decline in mortgage originations and its shift to less-profitable, non-subprime lending.
Uneasy investors were hard-pressed to find reassurance elsewhere.
Los Angeles-based KB Home, one of the nation's largest builders, reported a fourth-quarter loss of $772.7 million versus a loss of $49.6 million in the year-ago period.
Its chief executive, Jeffrey Mezger, predicted that 2008 "will be another tough year for the homebuilding industry." He said consumer confidence must be restored before things can improve.
A trade group for real estate agents did strike a more optimistic outlook, predicting that even though pending U.S. home sales dipped in November, it expects sales may pick up significantly in the second half of the year.
The National Association of Realtors said its seasonally adjusted index of pending home sales fell 2.6 percent in November to 87.6 from October's upwardly revised index of 89.9.
"A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008," said Lawrence Yun, the group's chief economist.
Calabasas-based Countrywide reported a $1.2 billion loss for the third quarter of last year, but management forecast a profitable fourth quarter and 2008.
Wall Street analysts are skeptical the company will be able to deliver on its projection amid ongoing home-price declines, an expected new wave of mortgage defaults this year, and lingering problems with credit markets.
In response to the New York Times report, Countrywide said it doesn't have a policy to fabricate documents, and that nobody at the company ever contended the documents in question were copies or recreations of previously sent versions.
KB Home reported a 31 percent drop in revenue, fewer new home orders and deliveries, and an increase in the rate of home order cancellations.
"We believe this points to continued pain and continued significant impairment charges for the industry in the upcoming earnings season, and thus we reiterate our negative sector stance," Michael Rehaut, an analyst with J.P. Morgan Securities Inc., wrote in a research note.
Shares of KB Home fell $1.70, or 9.2 percent, to $16.78.
Speaking Tuesday, Fannie Mae head Daniel Mudd warned the mortgage crisis and housing slump would drag on the U.S. economy and called on lawmakers to help out borrowers facing steep mortgage payment resets in the next few years.
Mudd has suggested home prices have to fall by 10 percent to 12 percent from their 2005 peak before the housing market can rebound.
AP Business Writers Marcy Gordon and Alan Zibel, and Associated Press Writer Jennifer Loven contributed to this report from
By Patrik JonssonWed Jan 9, 3:00 AM ET
After three years showing houses in Atlanta's hilly suburbs, Dee McMahon is finished with real estate.
Yanking up her custom-made "For Sale" signs in her North Lake neighborhood rattled her ego, she admits. But when Ms. McMahon closed her final sale, a house in Snellville, Ga., in late November, the mother of two felt a swell of relief.
"Now I can finally get my own house back together," she says. "I'm nervous about the future, but I feel happy."
McMahon is one of thousands of real estate agents across the US wandering with mixed emotions and uncertain prospects through the debris of a real estate gold rush.
As many train for new careers, return to old ones, or wait tables until prices rebound, the plight of the real estate agent – average age, 51 – reveals the human dimension of how loose lending, raw opportunity, and self-determination produced a housing bust that has stunned the US economy.
"They've tasted success and big money, and now their standard of living has been rocked and reality has set in," says John Baen, a real estate professor at the University of North Texas in Denton. "The whole [economy] has been built on real estate. When the music stops, what is left?"
Americans are still drawn to working in real estate, according to the National Association of Realtors, which says its membership rose this year to 1.35 million. That growth in the ranks may be attributed to unaffiliated agents scrambling for clout in a tough market rather than an indication that the total number of agents is rising, the NAR acknowledges.
Evidence is growing that agents, especially in hard-hit markets like Florida, California, and Georgia, are closing up shop in large numbers, experts say.
Here in Atlanta, the number of agents letting their licenses lapse is growing at a faster pace than the number of overall licenses held. Nationally, an average agent's income dropped from $49,300 to $47,900 between 2004 and 2006. Not helping that trend is the cold fact that, according to Standard & Poor's house price index, home prices dropped precipitously in 2007, breaking the record 6.1 percent annual decline in 1991.
In Cape Coral, Fla., where only 30 percent of agents sold even a single home last year, real estate agents are "dropping out" daily, says local realtor Ginette Young. The Oregon Association of Realtors reports an 11.5 percent decline statewide of licensed agents in the past year.
Many of those who leave quietly shelve their signs. Others go out big: In Gilbert, Ariz., the fastest-growing city in the fastest-growing state, RE/MAX 2000 closed 13 offices throughout the Valley of the Sun, laying off at least 20 employees and scores of contract agents right before Christmas. The company couldn't meet its expenses.
Real estate is a line of work filled with mothers returning to the workforce, older workers squeezed out of lifetime careers, and young opportunists looking to trade sweat equity for potentially big cash-outs. Indeed, the industry norm is that only 4 percent of agents choose real estate sales as a first career.
In Georgia, realty ranks had swelled to 48,000 at the peak of the market. In the end, many say, there were too many inexperienced agents hawking houses.
"There's a lot of money being spent [on real estate classes] teaching agents how to waste a year of their life," says Atlanta agent Sandy Koza. "Then you get a downturn and a bunch of people get bumped. To [experienced agents like] us, it cleans out the business a little bit."
Florida's Cape Coral, a canal-sliced beach community, saw 800 building permits a month fall to 25 to 30 in the past year. The rapid slowdown left real estate agents, investors, and brokers holding the bag on big-money deals.
"It's a gold-rush mentality," says Michael Davis, an economist at Southern Methodist University's Cox School of Business in Dallas. He has been struck by how many agents, brokers, and investors, acting against conventional wisdom of portfolio management, converted large percentages of cash holdings into only a single and somewhat risky investment: property. "I don't know whether they're ignorant or optimistic, perhaps a little of both," says Dr. Davis.
Many others became the foot soldiers in the housing boom, second- or third-careerists drawn to the self-determination, relatively low entrance costs, and perhaps even the allure of the trade as embodied by novelist Richard Ford's legendary character Frank Bascombe, an angst-driven realtor who wanders the Jersey Shore for deals and revelations.
A former computer developer, Thomas Banecke of Sandy Springs, Ga., spent most of the summer baby-sitting a new condo development – usually a plum assignment. But when the Atlanta condo market tanked, foot traffic dwindled to almost zero.
Mr. Banecke is now back in the computer business and is putting his real estate career on hold. In some ways, he says, the cold housing market forced real estate agents, especially rookies, to confront their own abilities, schemes, and dreams. Upfront costs, marketing, association fees, and the crucial contacts are either more costly or harder to procure than an aspiring real estate agent usually expects, Banecke says.
"This kind of thing will wipe up a whole bunch of people who thought they could do this to make a living," he says.
As for McMahon, the Atlanta agent, she still had a nice listing book and plenty of leads when she called it quits. In the end, unreliable buyers, surly sellers, and a lack of office camaraderie contributed to a decision that solidified when home sales and prices dipped. "I was waiting for a time to kind of swing out," she says. She's planning to become a high school science teacher.
One problem for out-of-work agents is that their skills may not transfer easily to other careers. California is waiting to hear on a $9 million federal retraining grant after 6,000 people lost their jobs in the housing industry since September.
But Dr. Baen of the University of North Texas is optimistic about their futures. "These people are hustlers, hard workers. They're used to getting on the phone," he says. "They'll end up in insurance, in mutual funds, in retirement planning, and commodities."
Heading into 2008, the market just isn't turning around as so many predicted. The industry, it seems, has been caught up in a game of "projecting," to use a psycho-speak term. Meanwhile, this pesky subprime headache lingers on as we start to draw a clearer picture of how recklessly this shaky housing-market foundation was laid. It's a hangover that will last well beyond New Year's Day.
In contrast to the billions in risky ARM loans that were advanced to questionable borrowers toward the end of the boom years, many credit-worthy buyers are now getting a different kind of arm -- a straight-arm -- when they seek out mortgages amidst a backdrop of spiraling foreclosures and plummeting prices.
My blanket advice for would-be sellers: Stay put. Ride this out where you're sitting if possible, because values will stabilize again. If current circumstances dictate otherwise, then you'll have to ratchet up your marketing plan a notch to adjust to the times. As for buyers: Well, you're "in your element" and the getting is good.
Here are eight strategies for buyers and sellers who want to make a housing move in '08: 8 strategies for savvy sellers1. Understand what "market value" means. 2. Don't be an as-is seller. 3. Hire a top performer. 4. Know your market's nuances. 5. Use the Internet. 6. Use other people's money. 7. Become a "lender." 8. Simplify and neutralize. 1. Understand what "market value" means. It's not what your friend sold his house for two years ago or even two months ago. It's not the value your latest tax assessment was based on or what an appraiser said the house was worth a year ago. It is exactly what someone is willing to pay for your house today. Hence, price realistically and broaden incentives, such as closing costs and throw-ins like appliances, flat-screen televisions, etc. There is an old saying: "There's nothing wrong with a home that the right price can't fix."
2. Don't be an as-is seller. That is, unless you absolutely have to be one. Potential homebuyers aren't looking for fixer-uppers in the current market unless they are rock-bottom, bargain-basement priced. Large volumes of foreclosed homes are already being sold in poor condition at auction.
3. Hire a top performer. These days, you need an agent who outshines the others and routinely posts better-than-average sales numbers year after year. Agencies may try to steer you toward less-seasoned agents, but if you're paying the commission, then the hire should be your call. The best agents have an innate sense for that right price and right marketing plan. They can suggest the necessary repairs and tweaks while targeting your home to the right buying group. Caveat: In selecting an agent, the percentage of listings sold is generally a better performance barometer than a high volume of sales.
4. Know your market's nuances. No two markets are exactly alike. Yes, most sellers are now swimming upstream. But there are always counter currents to consider. In many areas, modestly priced homes have bigger buying pools because tighter mortgage qualifications are keeping buyers out of more expensive homes. A little research and a savvy agent can give you an edge and an education.
5. Use the Internet. According to compete.com, total time spent online rose 24.3 percent from the fall of 2006 to the fall of 2007. Yes, people are still scoping out newspaper classified ads and real estate listing magazines, but more and more Americans have been wired to at least start their home shopping online.
6. Use other people's money. You don't have to sell for a big loss to get out from under your rising mortgage payments. If you can, rent out your home for a sum that covers your house payments, insurance, taxes and maintenance costs. Do try to roll in a slight buffer to cover unanticipated expenses. And realize you'll need capital to refresh the place when the market stabilizes and you take off your landlord hat to prep the home for sale again. Or consider offering lease-to-own terms to your renter and you may not have to worry about the future sale.
7. Become a "lender." Tough times call for unconventional measures. Consider carrying part of the buyer's note with interest, secured by an asset belonging to the buyer. Do so only after a thorough credit check and only if you can afford to wait for the balance of the purchase price. This, by the way, is not a game for the faint of heart.
8. Simplify and neutralize. In this sales environment, you've probably already been told to focus on curb appeal, add fresh landscaping and de-clutter the house by removing family photos and heirlooms or other items you don't need or use on a daily basis.
But let's take it a step further. Paint your rooms neutral colors. Hire a redesign or home-staging firm to help you present your home in optimal condition and give potential buyers a chance to envision their possibilities there. And while you're at it, get a pre-listing inspection, which will reveal any defects your home has and allow you time to make repairs. Then provide a copy of the report to buyers, attaching a list of the fixes you made.
Buyers are in an enviable position, with plenty of homes on the market, and sellers who are willing to bargain. Here are eight tips for buyers.
8 strategies for buyers in a flooded market1. Negotiate, negotiate. 2. Think local. 3. Don't bank on further market drops. 4. Keep resale potential in mind. 5. Look beyond cosmetics. 6. Consider off-peak sales seasons. 7. Use your buying leverage. 8. Ask for contingencies.
1. Negotiate, negotiate. There's a glut of homes on the market -- more than twice the average inventory in some markets. Yet there are fewer prospective buyers with whom to compete, and considerably more room for after-the-purchase value appreciation than a few years ago. Sellers are fixing up their places like never before in hopes one serious buyer will come along. Your chance to pick up a quality home for a big discount may never be better than the present. Keep those counter-offers coming. And let the seller pay all the commissions! Remember, virtually everything in a real estate transaction is negotiable. 2. Think local. I've said it before: All real estate is local. Employ the standard strategy of examining recent sales prices of local comparable, or "comp" houses. But take it a step further. Ask your agent for the original listing prices of comp houses and compare them to the actual sales prices. Many Internet sites also have this information. This data will give you the clearest picture of what sellers were willing to accept for their homes in your neighborhood and can help you determine just how low you can go on your offer.
3. Don't bank on further market drops. If you have the means, pounce on that oh-so-sweet deal. This cycle appears to be at or near the bottom. You can't confidently count on the market sinking any lower, even though it may.
4. Keep resale potential in mind. Sure, you always seek out properties with that at-home feel. But if you can find homey in or near a growing medical district, growing university or other vibrant employment center, your resale universe down the road will always be larger than the market average.
5. Look beyond cosmetics. A tired-looking house in a great area may be a much better bargain in the overall scheme of things than a sprightly, higher-priced home in the same area. Yet many of these slightly worn homes, lest they be on the foreclosure auction block, are getting roundly ignored. There are some diamonds in the rough out there now!
6. Consider off-peak sales seasons. Yeah, there'll still be bargains aplenty come the prime spring and summer selling season and plenty of inventory to peruse. But fall and winter can be the time of especially acute seller discontent. Sellers may be more motivated to take your lowball offer then -- especially if it's the only one they get!
7. Use your buying leverage. Ask the seller's agent when the seller bought the home, how much he paid for it, and why he's selling. In a seller's market, the seller would likely thumb his nose at you upon such a request. Now, they may give it a thumbs up instead.
8. Ask for contingencies. When you've agreed on a sales price, make your offer contingent on the home appraising at that sum, on passing the buyer's inspection and on you obtaining financing. Work in as much legal wiggle-room as you can so you'll be able to back out without risking your earnest money should things go sour or another opportunity
If you are considering a real estate short sale of your home, you should be aware that you may receive a form 1099-C for the amount of the lender's losses. This is considered loan forgiveness in the eyes of the IRS.If you have other assets such as saving and you are not insolvent, you may end up being responsible to pay ordinary taxes on the amount of the 1099-C.If you settle a debt with a creditor for less than the full amount owed, you may be required to report this forgiven debt as regular income, with certain important exceptions. The forgiven debts include money owed after foreclosure or property repossession or credit accounts that you don't pay. There are exceptions noted below. If a lender forgives or writes off $600 or more of a debt's principal (the amount not including interest or fees) must send you and the IRS a Form 1099-C at the end of the year. When you file your tax return for the tax year in which your debt was written off, the IRS will require that you report the amount on the form as income.While you may not have received this form from the creditor, the creditor may have submitted one to the IRS anyway. If you don’t list the income on your tax return and the IRS has the information of the transaction on file, you could get a tax bill or, worse, an audit notice. This could end up costing you more than just the original tax bill. There are several exceptions stated in the Internal Revenue Code. For example, you do not have to report the income on your tax return if the write off of the debt is intended as a gift, you discharge the debt in bankruptcy, or you were insolvent before the creditor agreed to settle or write off the debt. You should consult a qualified tax and legal counsel to see if these circumstances apply.
