So, Which is It? Down 2.2%? Or Down 26%?

Confusing Housing Statistics

"U.S. Home Sales Fell 26% in October."

--The New York Times (11/23/2010)

"Home Sales Fell 2.2% in October."

--The Wall Street Journal (11/23/2010)

So which is it?

Both, actually.

Home sales fell 26% in October, 2010 compared with October, 2009.

And they dropped 2.2% compared with the preceding month (September, 2010).

However, the real statistic of note for the Twin Cities market is the year-over-year number: down 41%.

That's not much of a surprise to local Realtors.

The only thing dulling the sting a bit is that the October, 2009 numbers were juiced by the (then-looming) tax credit expiration, one month away (November 30, 2009).

"Pulled Forward Demand" -- Take II

Best Time to Buy New Windows?

When is the best time to buy new windows in the next 12 months?

Very possibly, this Jan. - Feb.

Isn't that after the 30% tax credit (for energy-efficient home improvements) expires?

Well, yes.

To counteract an anticipated slump in demand after Dec. 31, window contractors are gearing up big sales then (or so, my contact in the industry says).

Realtors experienced much the same phenomenon last Spring, when federal tax incentives to buy a home expired April 30.

In many cases, the subsequent drop in home prices outweighed the tax incentives for buying earlier.

P.S.: any procrastinators still trying to order and install windows before Dec. 31 are too late; the effective deadline for getting an order turned around in time was about a month ago.

Missed the Tax Credit? Lucky You

Did the Late Bird Get the Worm??

Although I take issue with some of the math underlying the analysis, there's no denying that the drop in interest rates since April 30 -- thanks to the Eurozone crisis -- has at least partially offset the benefit(s) associated with now-expired home buyer tax credits.

Missing the tax credit deadline might have seemed like a big mistake to some home buyers, but waiting could have been the smartest thing to do. Interest rates have fallen so dramatically since April 30th that the typical purchaser of a $350,000 home, financed with a $280,000 mortgage, would have saved a bundle by waiting until May.

At April’s average rate of 5.34 percent, a home buyer would have locked in a 30-year fixed rate loan with a monthly payment of $1,561.82. The same borrower could have snagged a 30-year fixed rate loan at a rate of 4.625 percent in May and paid $1,439.59 per month. That’s a $1,467 annual savings. Over 30 years, it’s a $44,003 savings, dwarfing the tax credit.

--"Post-Tax Credit Buyers May Save Money"; Daily Real Estate News (5/27/2010)

So what's wrong/incomplete about the above analysis (at least if you live in the Twin Cities)?

Three things.

One. The average home sale in the Twin Cities currently is about half the $350,000 cited in the foregoing excerpt (no doubt written by a journalist in New York or LA).

So, cut the monthly mortgage savings from $95 to $47.50 -- making the tax credit that much more valuable.

Two. The average home buyer doesn't stay in their home for 30 years.

In fact, seven years is more typical.

Three. The calculations don't discount for the time value of money (why people prefer "a bird in the hand to two in the bush").

In plain English, most first-time home Buyers would rather have an immediate $8,000 (or $6,500, for move-up Buyers) than an extra $95 every month for 30 years.

However, the whole episode does serve to underscore that the decision to buy a home depends on many variables, including interest rates, prevailing home prices, financial incentives, etc.

Vicissitudes of Timing

The post-tax credit drop in interest rates also shows how (fickle) market conditions can trump . . . everything else.

Case in point: I worked with a client last year whose plan was to buy a newer, bigger home, then sell their existing home. That strategy made sense because their current home needed quite a bit of updating -- work that, realistically, could only happen once it was vacant.

Part one went off without a hitch: my client got a great deal on a very nice Plymouth home, and proceeded to move in.

However, part two suffered delay after delay.

So, instead of having their home ready for sale in February, at the beginning of the "Spring" selling season, my client's home wasn't on the market until May.

Did the delay hurt them?

On the contrary, several homes that were competing with my client's home all got snatched up in the interim.

As a result, my clients were able to raise their asking price -- and got it, in the first two weeks!

Official Time of "Birth": 10:17 p.m. on 4/30/2010

Under the Tax Credit Deadline (Just!)

Communities large and small traditionally attach a lot of fanfare to the first birth of the new year.

So, the proud parents of little Susie or Tommy, who arrived at 12:03 a.m. on New Year's Day, typically rate a mention in the paper or news (and often a free year's supply of diapers from an obliging sponsor!).

Is it too late for Realtors to do that?

My client and I (and his Seller and Realtor) were no doubt beat by at least a couple other deals that cut it closer to the wire.

However, the official "Final Acceptance" on my client's Minnetonka townhome purchase -- marking when all the necessary signatures have been obtained, and the executed documents delivered to the Buyer's agent (me) -- was officially 10:17 p.m on Friday night.

Just in case the IRS comes calling, I subsequently faxed the executed Purchase Agreement to my client, generated a time stamp, and scanned and emailed that to him as well.

FRIDAY(!) Open House

Tax Credit Countdown

When: 4-6 p.m. today
Where: 4121 W. 28th St (28th & Inglewood Ave. So.), in St. Louis Park's Fern Hill neighborhood
What: 4 Bedrooms (all up), 3 Bath 1937 Colonial with 3,000 square feet
How much: $549,900
Who: listed by Ross Kaplan, Edina Realty City Lakes

Will there be a burst of last minute home purchases ahead of today's tax credit expiration?

We'll find out.

Just to give procrastinators one last opportunity, I'll be at my listing at 4121 W. 28th St. (28th & Inglewood) in St. Louis Park's Fern Hill neighborhood from 4 - 6 p.m. today.

Highlights -- besides the value, location, and curb appeal -- include a beautiful, wood-paneled Family Room; four Bedrooms up; formal Living and Dining Rooms; and a ton of charm and character throughout.

Oh, yes: and an attached, 3-car garage with tons of extra storage space, plus a Gazebo in back.

P.S.: For more on whether today's deadline is a big deal or not, see "It's a mad dash for home tax credits," in today's Pioneer Press. Reporter Chris Snowbeck surveys several local agents -- including yours truly -- about whether the tax credits are going to expire with a bang or a whimper.

Buy By Friday?

Tax Credit Count-Down

As anyone actively looking for a home is no doubt acutely aware, the deadline for qualifying for various Buyer tax credits is this Friday (Buyers actually have another two months, until June 30, to close).

So, is it time to pull the trigger?

If you've already got something in your sights (sorry, can't seem to drop the gun/ammo/bullet metaphor), by all means, go for it.

However, as your price range goes north of $300k or so (and your income trips $100k), the odds of qualifying for the credit -- or having it be material to the price of the home -- go down considerably.

So no, I wouldn't make a rash decision just to lock in the tax credit.

Counting Down to "The Deadline"

Mortgage Rates: Moving Up

Everyone in the housing business seems to be counting down to the approaching deadline with baited breath.

No, not April 30, when the home buyer tax credits expire.

March 31, when the Federal Reserve stops buying mortgages and mortgage-backed securities -- reportedly, anywhere from $10 to $25 billion, per week, since at least last Fall.

Those purchases act like a huge subsidy, keeping rates down and the mortgage securities market liquid.

The Fed Exits

How big a subsidy?

We're about to find out.

No doubt anticipating the Fed's exit, interest rates have been rising this week; just this Wednesday, according to Edina Mortgage's Lala Brosz, rates on jumbo mortgage re-set four times, from around 5.25% at the beginning of the day, to 5.5% at the end.

The potential updraft in mortgage rates makes it more imperative that prospective Buyers lock in good rates while they're still low (vs. float, in the hopes that they'll drift down).

It may also be a good time to inquire about whether your lender offers a re-lock option, which can be cheap insurance in an environment of rising rates.

Home Buyer Tax Credit: What's Next?

Post-Nov. 30 Tax Credit: More Targeted

The following is from Edina Mortgage's Steve Mohabir, City Lakes' excellent, in-house loan officer:

Good morning Lakers,

http://www.bloomberg.com/apps/news?pid=email_en&sid=ayS36Cg5hu5w

There has been some encouraging news on the extension of the $8000 tax credit. However, it is NOT a done deal, as it still must be reconciled between the House and Senate and then voted on for final approval.

It is not only looking good for the extension, but there are some additional enhancements to the credit in the works as well. Yesterday, the Senate reached an agreement to extend the $8000 tax credit for first-time home buyers. They also added a $6,500 tax credit for other primary home purchasers, meaning that it is not just limited to first time home buyers.

They also raised the qualifying income limits in a very meaningful way – singles were increased from $75,000 to $125,000, and joint taxpayers from $150,000 to $250,000. Buyers must have executed purchase agreements in hand by April 30th, and then will have until June 30th to close.

More details are likely to come, and changes could be made as reconciliation and voting takes place.

Please feel free to call Steve (612-925-7755) directly for more info . . . .