Wednesday, May 13, 2009

Happy Days Are Here Again: Buy a Home With No Money Down

May 15: Monetizing the $8K FTHB Tax Credit is now being "reconsidered." The FHA Blog of The Mortgage Lender Implode-O-Meter has the details about why HUD and the FHA can't agree on whether this practice violates FHA guidelines.

Got no cash? Who cares. If you qualify for an FHA loan and you have an income (as a couple) of no more than $150K, the $8K Federal income tax credit for First Time Homebuyers can now serve as your downpayment.

HUD Secretary Shaun Donovan announced the plan to "monetize" the tax credit, by converting it to a "bridge loan," at the National Association of Realtors summit, entitled "Advancing the US Economy." And according to Housing Wire, the program will begin as early as next week. FHA's market share was just 1.9% in the fourth quarter of 2006 and reached 23.7% by the fourth quarter of 2008.

According to the Wall Street Journal's math, using the $8K tax credit means a buyer needs little to nothing down for a home that costs up to $230K. FHA loans require only a 3.5% downpayment.

During the first four months of 2009, 77% of all contracts in Charlottesville were written for properties priced below $300K; in Albemarle, it was 62%.

So the "magic number" is $230K. Wonder if some of those unsold upper 200's, lower 300's are going to suddenly find a way to get closer to the magic number? The basic problems remain with this market: there's too much inventory and not enough buyers, plus asking prices are far out of line with incomes...and as the Spring selling season continues, more inventory is added. Something's gotta give. Or not. The Cville MSA is its own little universe, and there are many sellers who can't, or won't, come to terms with the idea that it's not 2006.

But back to tax credits. Why stop with the first time homebuyer? NAR wants the $8K tax credit expanded to all homebuyers at all income levels.

In related news, NAR released price info yesterday: there was a YOY 2008-9 Q1 decline in price of 14% nationwide for a single family (detached) home. The national median price is now $169K. In Cville, the Q1 median was $247K; in Albemarle, $373.5K. Nationwide, nearly 50% of all Q1 sales were foreclosures, bought by First Time Homebuyers. Locally, sales of detached homes are down significantly (again, due to lack of buyers and bubble pricing) but when there are foreclosures and short sales available, in addition to "starter homes," they're moving quickly.

Related Reading:
Prepared Remarks - HUD Sec'ty Shaun Donovan
FHA Plans to Offer $8K Upfront to Buyers - WSJ
Cville/Albemarle Contracts Jan. 1 - May 3 2009
First Quarter 2009 Market Report


downtownenvy said...

Friendly, neighborhood housing snob here wondering if anyone else has looked at the available properties in the Venable school district for $230,000?

I don't need/want a large home, however I am planning on buying and staying for at least 15 years, so again, I am not interested in the typical starter that I need to sell in 5 years. I am also not expecting those homes in the $400-600,000 range to come down to this price, but I am excited at the prospect of prices moving downwards even more, tax credit or not. Is it too early to start getting slightly optimistic?:)

umber said...

yeah, you can find something in the 10th and Page nabe for about $169K. That's not a "starter home." That's a major fixer upper which comes with lots of problems besides floor rot. It's Venable...and overpriced by about $100K. This year.

Talk about your depreciating asset!

Anonymous said...

mls 465552 $229K 1219 Belleview described as a charming older home

900 sq ft = $254 per sq ft in a working class neighborhood

that's right, a quarter of a million dollars for a cottage that's in a poor neighborhood close to UVA and Downtown as every listing in the City says and let's not forget convenient meaning earshot of the 250 bypass

Welcome to Charlottesville

Anonymous said...

How does this FHA arrangement help first-time homeowners exactly?
1. Overpriced inventory in C'ville still abounds so the probability of paying too much is high.
2. No money down housing doesn't bode well for future homeowner stability with high unemployment, possible inflation, and lack of home appreciation. A familiar refrain.
3. Is the Federal government now the predatory lender?

Real C'ville - The Bubble Blog said...

Anon #1, good example of what's available at this price point. Small cottages. A cottage as "Starter homes"? Only for a single person; it's a squeeze for a family, which is Downtownenvy's issue--Not enough house for too much money. Umber, that's right, 10th and Page wasn't a destination for ownership until the Bubble.

Anonymous #2, Agreed.

What monetizing the tax credit does is try to encourage more buyers...get credit flowing, get rid of the gigantic backlog, nationwide, of existing homes...10 months, 3.5 million units.

You know that there are many more months of inventory in this area. But unlike many other parts of the country, prices haven't adjusted.

When a homeowner doesn't have any $ in the house, whether the mortgage is sub-prime or prime--you're right. History has shown us that default and foreclosure are far more likely.

Minority homeownership is eroding faster than that of whites (that's the NYT description, btw)

Ownership at lower income levels is, as well. "Lower income" level housing, however, is priced a lot higher in Cville/Albemarle than the rest of the country. For now.

downtownenvy said...

Thanks for the update to the post above, and keeping us in the loop. I'm all for trying to facilitate first time buyers, but not at the cost of more irrational lending.