Waller, TX Real Estate Blog

President Bush just signed into law the Housing and Economic Recovery Act of 2008. This is a major victory for REALTORS®, consumers, and our nation.

Homebuyers will soon have access to more affordable financing, and first-time homebuyers (those who have not owned a home for three years) will receive a tax-credit to help them enter the market. For more details on all of the provisions in the new law, please read below.

National Association of REALTORS®
Summary of Key Provisions of H.R. 3221 - The Housing Stimulus Bill (as of 7/30/08)

H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provisions:

• GSE Reform – including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).

• FHA Reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The downpayment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).

• Homebuyer Tax Credit - a $7500 tax credit that would be would be available for any qualified purchase between April 8, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).

• FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

• Seller-funded downpayment assistance programs – codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.

• VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

• Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.

• GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

• Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

• National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.

• CDBG Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.

• LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.

• Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

Texas’ real estate markets never caught the housing bust bug that spread like the flu across most of the United States. But now the doctors tell me that the Lone Star State is showing some of the symptoms that flattened residential sales nationwide.

Jim Gaines, Ph.D., an economist for the Real Estate Center at Texas A&M University, keeps his finger on the pulse of the state’s major housing markets. If one market misses a beat, he knows it.

First, the bad news. Because Texas housing markets were at a peak in 2007, it should come as no surprise that Gaines’ latest housing market checkup shows widespread weak home sales.

Statewide, existing home sales in May 2008 were down 15.4% from a year ago. Again, that was to be expected as the Texas building and sales bubbles had to subside eventually.

Lubbock and McAllen received the best reports. Home sales in the High Plains market declined only 0.5%, the least of any examined. McAllen’s fell 1.7%.
 
By comparison, sales of existing homes were down 20.6% in Austin, 14% in Dallas, 33% in El Paso, 13.8% in Fort Worth, 15.7% in Houston, and 23% in San Antonio.

Texas home prices holding steady
The good news for Texas homesellers is that prices are holding. That’s in stark contrast to what’s happening in other parts of the country. The national median home price fell by 1.8% in 2007, which was the first time a negative change had been recorded since the 1960s. By May 2008, U.S. home prices were already down another 6.8%.

In contrast, the statewide median price for an existing home in Texas is $151,300, up 1.4% from May 2007.

Lubbock had the state’s highest price increase during the year – up 11.1% – with a median of $113,100. Amarillo’s median of $122,200 was 7.4% higher than a year ago. Austin’s 6.1% increase pushed its median to $194,700. El Paso’s median was $137,800, up 5.8% in 12 months.

Home prices in some areas of Texas did fall in the last year. Beaumont’s median of $127,600 is 7% lower. McAllen is down 5.5% to $100,400.

Statewide inventory higher than normal
One of the vital signs Gaines keeps an eye on is months of inventory on the market. That is, how many months would it take to sell all the existing homes in an area at the current sales pace? About six months is considered normal. In general, the bigger the inventory, the sicker the patient.

Texas has an overall inventory of 6.9 months. Nationally, the existing home inventory is 10.4 months (and the new home inventory is 11 months).

El Paso and McAllen are two Texas cities with bulging inventories. McAllen has the biggest stock of unsold homes – 15.2 months. El Paso is close behind at 12.1 months.

Cities with notably small inventories include Amarillo (5.5 months), Austin (5.7 months), and Lubbock (5.5 months).

 “Getting back to normal” is how many real estate people describe today’s Texas market. The doctors at the Real Estate Center agree with that diagnosis.

Where are the best opportunities to buy houses at below market prices, fix them up and sell them at a substantial profit?

HomeVestors — whose 230 franchisees in 35 states have bought and turned around more than 35,000 houses during the past 12 years — has just come out with its top ten list for the second quarter of 2008.

Four are in Texas (Dallas, Houston, Fort Worth and San Antonio), along with Denver, Colorado, Charlotte, North Carolina, St. Louis, Missouri, Milwaukee, Wisconsin, and Chicago, Illinois and Kansas City, Kansas.

The rankings were based on the number of houses HomeVestor franchisees were able to buy and finance between the beginning of April and the end of June in dozens of markets around the country.

The HomeVestor formula emphasizes buying distressed properties well below market value, meaning houses that need to be sold quickly because of divorce, job loss, illness, death or impending foreclosure, and then renovating them and quickly reselling to rental home investors or first-time buyers.

Mark Hagen, a vice president of HomeVestors, said the top markets share certain common characteristics. They all have:

 
• Moderate home prices relative to the national average, and never participated in the wild inflationary spirals of the boom years….or the rapid deflation after 2006. 
• Solid local economies, producing new jobs, even in the face of a national slowdown. 
• Strong local demand for both single family rental units and “starter” homes for renters looking to buy. 
• Prevailing rent levels strong enough to produce positive cash flows for investors.

“We call them rational markets,” said Hagen. “Real estate fundamentals make sense in these areas.”

Statistical data from the federal agency that monitors local housing markets backs up Hagen’s point on prices in the top investor markets. For example, Dallas, number one on the list, saw average price appreciation between the first quarter of 2007 and the first quarter of this year of 3.8 percent. That compares with double-digit declines in once-booming California, Florida and parts of the Northeast.

Between 2003 and 2008, cumulative appreciation in Dallas was just 16.5 percent. Houston, Dallas, Atlanta, Fort Worth and the others were all slow but steady gainers, and — most importantly — they continue to pump out steady gains in the midst of a national housing downturn.

WASHINGTON - JULY 8, 2008 - The Federal Reserve will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, its most sweeping response to a housing crisis that has propelled foreclosures to record highs.

Fed Chairman Ben Bernanke spoke of the much-awaited rules in a broader speech Tuesday about the challenges confronting policymakers in trying to stabilize a shaky U.S. financial system. To that end, Bernanke said the Fed may give squeezed Wall Street firms more time to tap the central bank’s emergency loan program.

To prevent a repeat of the current mortgage mess, Bernanke said the Fed will adopt rules cracking down on a range of shady lending practices that has burned many of the nation’s riskiest “subprime” borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles.

The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.

Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower’s income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

“These new rules … will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending,” Bernanke said.

Consumer groups have complained that the proposed rules aren’t strong enough, while mortgage lenders worry that they are too tough and could crimp customers’ choices.

In an extraordinary action aimed at averting a financial catastrophe, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.

“We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets,” Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed’s decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed’s lending powers since the 1930s.

Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.

Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.

Bernanke, in appearances on Capitol Hill has said he doesn’t believe taxpayers will suffer any losses.

In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn’t intervene, he said, problems in financial markets would have snowballed, imperiling the country.

“Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy,” Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.

The Fed’s consideration of giving Wall Street firms more time to tap the Fed’s emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.

Policymakers — in the White House, in Congress and other federal agencies — will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.

Although those efforts are already under way and will be the focus of a House Financial Services Committee hearing Thursday, it will fall to the next president and next Congress to settle them. Both Bernanke and Treasury Secretary Henry Paulson are scheduled to testify at Thursday’s hearing.

The Bush administration has proposed revamping the nation’s financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.

The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.

Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.

Bernanke recommended that Congress give a regulator the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC’s oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.

Yes, home prices are falling in virtually all major metropolitan areas. There’s no question about it.

Unfortunately, buyers looking to cash in on those lower prices may have to postpone their dream of home ownership a little longer.

Call it the American Dream Deferred.

And it’s not just because of tight credit.

Higher gas prices, higher food prices and the still high cost of shelter are all taking a toll on the American Dream.

After nearly two years of falling home prices, incomes still just are not a match for the cost of housing.

That’s one of the major findings in the grim “2008 State of the Nation’s Housing” report from the Joint Center for Housing Studies at Harvard University.

From the beginning of the housing boom in 1999, to 2006, when prices peaked, home owner incomes actually declined about 1.5 percent as home prices skyrocketed by 48 percent.

At current interest rates, the national median home price would have to fall 12 percent from the end of 2007 to make housing even as affordable as it was in 2003, according to the report.

That’s not likely. Not only are interest rates up slightly since December 2007, so is the median price of homes — believe it or not — by 1 percent.

Before buyers can really return to market in droves, incomes, home prices and mortgage rates will have to cooperate. And even if they do, tight credit stands in the way of all but the most creditworthy home buyer.

The Harvard report says in 40 metros, prices would have to drop by more than 25 percent to roll back affordability levels to 2003.

During the housing boom, the dramatic run-up in home prices was fueled by buyer access to cheap financing and lax underwriting. That combination allowed borrowers to negotiate more competitively. And that, of course, drove up prices beyond true income-based affordability levels.

Is there a silver lining?

Yes. If you have good credit and can migrate to an already affordable market where home prices haven’t skyrocketed, you’ve got a shot.

Sure it can be frustrating, exhausting and time-consuming to sell a home in some markets, but don’t try to cut corners by failing to make the proper disclosures.

Not only is it illegal for a property seller and real estate agent not to disclose certain material facts that can affect the value, desirability or salability of a home, most savvy buyers will quickly walk away if he or she suspects deceit.

If real estate agents lie by omission and gets caught, not only can they face both local and federal charges, they’ll still have a home to sell in a less-than-hospitable market. The extra time to sell your home and your day in court could stigmatize the property.

Of course, if you honestly don’t know about an issue, or there’s little if any chance you could have known, you obviously can’t report it.

It’s not a bad idea to get a home inspection so you do know. An inspection reveals your attempt at discovery, it will help you determine which items need repair or replacement (not that you are required to make certain repairs), you can use it to price your home and it’s a good negotiating tool.

In any event, a good rule of thumb, when it comes to whether or not something should be disclosed: “If you can’t figure it out, don’t leave it out.”

Otherwise, here’s are some more specific disclosure tips.

 
• Each state has a different set of disclosure rules. Your local or state real estate association, as well as your real estate agent, has the proper forms. Both you and the buyer must sign and date the disclosure report to acknowledge delivery and receipt. This form is called a “Sellers Disclosure” 
• Common items to disclose include, a noisy neighbor, trees uprooting the sidewalk, crime and proximity to busy streets, golf courses, equestrian trails and short term rentals, among a host of others. If you’d want to know, the buyer probably would too. 
• Include any problems with construction or home systems. That includes problems with the foundation, roof, windows, doors, electricity, plumbing and the like. For a home improvement completed without a permit (which could itself stop the deal cold), get a permit and make sure the work is to code — even if that means ripping out the old work and getting it done right.

Rather than reporting “repairs” — which could imply a defect was permanently corrected — explain what work you’ve had done. You called the electrician for faulty wiring at a junction box or you had a plumber fix a leak under the sink, for example

Likewise, you can tell the prospective buyer that you replaced the roof, installed a new water heater, added wind shear protection or installed a sump pump in the basement, etc.

 
• Disaster prone states often require sellers to disclose information about the home’s proximity to fire, flood, earthquake and other hazard zones. It’s not a bad idea to know if your regional climate is the victim of climate change, given today’s earth-conscious buyer. Do disclose zoning, easement or local ordinance issues and the proximity to other natural hazards like mudslides, landslides, even noise, air and ground pollution, among others. 
• Disclose insurance claims. Don’t let the buyer discover insurance claims against the property when he or she applies for coverage. Give them a C.L.U.E (for Claims Loss Underwriting Exchange) report. Only home owners can obtain it, but buyers can make the deal contingent upon seeing a copy.

Available to property owners once a year for free from ChoicePoint, the report is a record of claims and claim inquiries on a given property. Insurers use the information to decide to issue a new policy, renew or raise rates.

 
• A federally mandated lead-based paint disclosure is required for all transactions if the home was built before 1978, but most agents advise making the disclosure for any property. The seller doesn’t have to inspect for lead, but must give the buyer materials that discloses the hazards of lead-based paints and related consumer information. 
• Among some miscellaneous disclosures that are required or should be considered includes the locations of registered sex offenders, housing market conditions, and, if they happened in the home, certain deaths and certain causes.

If the deceased won’t walk into the light and you see dead people, you’ve got to report that too. Even if you haven’t had any bumps in the night, but word’s gotten around the house is haunted house, you’ve got to let the buyer know some ectoplasmic spirit already possesses the home.

More home buyers have a better chance now than at any other time in nearly a half decade to negotiate a home-buying deal that costs less and comes with some concessions thrown in.

In many locations, buyers will find a glut of new homes, more motivated sellers, foreclosures, auctions, short sales and other market conditions that can make it a really good time to buy.

That doesn’t mean throw caution to the wind.

The same conditions that lure buyers to market also lure misfits looking to cash in on your unfettered haste and the waste left from a boom market gone bust.

No matter what the market conditions, it’s also always a buyers beware market, now perhaps more than ever.

Here’s how to begin to navigate today’s housing market, step-by-step, and make a good deal without getting taken.

 
• Begin with making a personal “right-time-to-buy” decision. If you stretch financially beyond your means to go after lower-priced homes, foreclosures or short sales, you could be setting yourself up for failure. Today’s housing market is littered with home owners who borrowed more than they could afford.

On the other hand, if you wait for prices to fall further you could miss out on a good deal. No one knows when the market hits bottom until it begins a sustained upward turn and you can look back and actually see bottom.

Buy now because it’s the right thing to do for you, because you need a roof over your head, because it’s more affordable than renting and because you plan on sticking with the home long enough to make the deal pay off. Buy because homeownership is integral to your budget, your lifestyle and your goals.

 
• Get to know the many facets of home buying.

You’ve got a lot to learn, but obtaining a broad base of knowledge about the home-buying process is a relatively easy task, requiring only your time and attention. A glut of information is available on the Internet, from real estate industry-sponsored seminars and workshops and through a vast library of real estate guide books. You can also sit down with real estate agents (including exclusive buyers’ agents, who never represent sellers), mortgage brokers, loan officers and accredited home ownership counselors. Post-secondary education at colleges and universities is also available.

 
• Next, get to know your local market or the market where you plan to buy, because that’s where your action is.

Accept national news for what it is, a broad brush stroke of current events. You want housing news and information that really hits home. Get your housing market information from credible publications and broadcasts covering your market.

Part of your homework should include learning the boundaries of your buyer’s market. Your market can be designated by a ZIP code, a small neighborhood, a greater community or some larger region.

 
• Whether it’s a new home, resale property, foreclosure or short sale, learn the true value of any property you are considering. Uneducated buyers tend to low-ball sellers and ask for too many concessions. That can alienate the seller, especially those less motivated with top-value homes. Likewise, knowledge helps prevent you from spending too much.

In both cases, use a real estate agent schooled in the history of local market trends and statistics. See comparables, track sale prices in your shopping area, use the local newspaper, online listing and for sale sites and other sources, to keep tabs on asking prices. Also visit open houses.

 
• Check your credit. Your credit report is free from AnnualCreditReport.com, the only federally regulated source. You may have to pay a nominal fee for your credit score (a numerical scoring of your creditworthiness) depending upon your state law and other factors. But see both your score and your report. You may need to request corrections or adjust your credit habits to generate the best report and score — before you start home loan shopping. 
• Get your cash in the pipeline. Get approved — in writing — for a mortgage. Use your newly gained knowledge to shop around — a lot — for a home loan. Shop online and off. Shop mortgage brokers, loan officers, credit unions and other lenders. Shop where you bank, shop where you don’t. The key is exhaustive comparison shipping to get the most money at the cheapest rate.

It’s an issue that’s been festering for years, and last week it blew up again: The Bush administration relaunched its campaign to ban “downpayment gift” programs where home sellers make contributions to nonprofit groups that then funnel most of the money to purchasers.

At a National Press Club luncheon, FHA commissioner Brian Montgomery said such programs - which effectively cut downpayments to zero and may artificially inflate sales prices - rack up three times the number of foreclosures and insurance claim losses compared with loans where buyers come up with their own downpayments.

Montgomery noted that “no private mortgage insurance companies back these loans,” and the FHA insurance funds no longer can tolerate their high foreclosure rates. One of every three FHA loans in recent years has carried some form of downpayment gift, often facilitated by large, politically influential nonprofit corporations.

The heads of the two largest downpayment gift providers — AmeriDream Inc. and Nehemiah Corp. of America — immediately denounced the proposed ban. Ann Ashburn, president of AmeriDream, which has arranged more than 250,000 gift-assisted loans, said “over 100,000” buyers would be kept out of homeownership in the coming months if HUD gets its way.

Scott Syphax, president and CEO of Nehemiah, said “HUD has the temerity” to relaunch its efforts to ban downpayment gifts despite two federal decisions that blocked the agency’s previous regulatory proposal — issued last October. The court decisions primarily faulted HUD on federal administrative procedural grounds, rather than dealing with the substance of the regulation.

The Congressional Black Caucus, the National Urban League, and the Congressional Hispanic Caucus all have opposed the agency’s earlier efforts.

Despite opposition in Congress, however, HUD argues that it has a statutory responsibility to safeguard the integrity of FHA’s reserve funds, which it says are being depleted by insurance claims on seller gift-assisted loans that default and must be foreclosed.

Montgomery has warned Congress that the FHA insurance funds, which currently are solvent, will require direct appropriations next year if the losses from the downpayment assistance programs are not cut off.

With newly-authorized loan limits in high cost areas that go as high as $729,750, giant gift-asissted mortgages with effectively no cash investments up front by purchasers are “an unacceptable risk” for the agency, he said.

Where’s this all headed? Probably to court again to challenge HUD’s proposed regulatory move, and almost certainly back to Congress, which currently is working on an FHA Modernization bill as part of a large housing relief package.

We’ll keep you posted as new developments occur.