Duplex Chick

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In my efforts to cover the housing components of the ever-changing stimulus package, I left some important news unreported this week.

Fannie Mae changed positions on the number of mortgages a single investor can have on one to four unit properties. Until last August, both Fannie Mae and Freddie Mac would purchase up to ten mortgages from the same borrower.

That policy was changed last summer in an effort to curtail bad mortgages. Of course, this was laughable. Most  investors with that many properties are experienced professionals. They wouldn’t have purchased the Minneapolis duplex or fourplex in the first place if the numbers didn’t make sense.

Apparently Fannie Mae now understands this too. As Freddie Mac usually copies whatever Fannie does, look for similar news from them in the not too distant future.

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According to the Los Angeles Times, yesterday’s compromise between the House and Senate versions of the stimulus package now features a $8000 first time home buyer tax credit.

While details have yet to emerge, and this has yet to be signed into law, this credit is significantly lower than the proposed $15,000 credit featured in the Senate’s version of the bill. What’s more, only first time home buyers are eligible for the break.

Unlike last year’s $7500 first time home buyer tax credit however, the $8000 does not have to be repaid. Properties purchased between January 1 and August 31, 2009 are eligible for the break.

As always, owner occupied single family homes, duplexes, triplexes and four-plexes are eligible for the credit.

Fair warning first time duplex buyers:  you have to close on the property by August 31.  It sometimes takes as long as 45 days to get a loan through final underwriting, a period which may be longer still if there is a rush of people trying to qualify for the tax break. 

It would be wise to think of your deadline to have a completed purchase agreement as being no later than July 15, preferably July 1.

You have 4.5 months. The longer you wait, the more competition you’re likely to face from other buyers.

I can think of four duplexes right now that could be a terrific buys. Get in touch with me. I’d be happy to show you where they are.

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I don’t usually write two blog posts in a day, today’s events in Washington DC compel me to do so.

The Senate just passed the stimulus bill. Now it’s up to negotiating committees from the House and Senate to settle the differences in their versions of the bill. And when it comes to housing, it’s important to note there are some very big differences.

The House stimulus package moves to make the current $7500 first time home buyer tax credit non repayable. In their version, this credit is refundable; even if you didn’t pay that much in taxes, you can get a check from the government.

The Senate’s version doubles that number, makes the tax credit non repayable and available to everybody who buys a home in the next 12months. Of course, with this version it’s a tax credit; meaning you can only get the $15,000 if you’ve paid that much in income taxes over two years. If you’ve paid less in taxes, that’s how much of a credit you’ll get.

It’s important our government representatives know where we stand. To locate contact information for your House representative, click here. Just enter your zip code, and you’ll be given a link with his or her contact information.

Of course, here in Minnesota, we still only have one senator. You can share your thoughts with Amy here.

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Last week’s good news in MAAR’s Weekly Activity Report continued for single family home sales for the week ending January 31.

Want proof?

New listings are down 15.3 percent from this time last year.

Pending sales are 25 percent above the mark set by the comparable week in 2008. And, the months supply of inventory has dropped from 8.9 to 7.7 months. For those who don’t remember, a 5 month supply is considered a balanced market.

One figure we haven’t spoken of here is the Housing Affordability Index. It jumped to 202. What does that mean? Well, it means the median family income in the Twin Cities is 202 percent of what would be required to qualify for the median-priced home.

There’s continued good news in the small multi-family sector as well. Like single family, pending sales also jumped 25 percent. As 98 percent of these transactions were lender-mediated, the average off market price was a mere $94,820. The 2008 mark for the week was 91 percent lender-mediated, with an average sales price of $138,260.

The number of Minneapolis duplex listings also continues dropping;  16 percent for the week. Of particular interest is the fact that the percentage of properties involving lenders was down for the first time in ages, with 77 percent of the 2009 inventory involving a bank. For the same seven days in 2008, 83 percent of the new listings did.

Pending Congressional decisions regarding the president’s stimulus package, specifically the proposed $15,000 tax credit, should be resolved within days. A real estate market explosion may well follow.

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Even though being a Realtor is, in actuality, having a career in sales, I have to confess to being a terrible sales person. It must be a result of growing up in the Midwest. I just can’t sell something I don’t believe in.

Having said that, I have no reservations saying the window of opportunityis wide open for someone to purchase and owner occupy a Minneapolis duplex right now.

Don’t believe me? Here are eight terrific reasons:

1. While they have been fluctuating in the last week, interest rates remain at or near 40 year lows. Just today, the interest rate for a 30-year fixed FHA loan is just 5 percent, while the interest on a conventional mortgage is 5.125 percent. People with a good credit score and just 3.5 percent to use as a down payment can still get a loan!

 2. Get this. Interest rates for investors on a duplex are terrible. An investor not only has to put a minimum of 20 percent down and have terrific credit, she has to pay 9.375 percent in interest. Oh, sure, if she pays 3.75 points at closing, that figure can be reduced to 5.625 percent. Or, if she makes a 25 percent down payment and pays 1.75 points at closing, she can get that same 5.625 percent interest rate.

The story for investors in triplexes and fourplexes is much the same. Put 25 percent down, pay 1.75 points at closing and get a 5.625 interest rate. Skip the points and pay 7.375 percent interest.

3. On Wednesday, the Senate passed a $15,000 or ten percent of the purchase price home buyer tax credit. If the House agrees to it and President Obama signs the stimulus package, this will be terrific news for anyone thinking of buying a home.

The credit applies to owner-occupied single family homes, duplexes, triplexes and fourplexes. Essentially, buy a property to live in, and get up to $7500 a year of a tax credit, over two years. And, if you’d like, you can use 2008’s taxes as your first opportunity for the credit.

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We kept rubbing, but it looks like we’re not going to get three wishes after all.

The plan submitted to the Senate by Nevada Republican John Ensign that would have encouraged banks to lend at interest rates between 4 and 4.5 percent was defeated yesterday by a resounding margin. I think it would have helped, but most senate Democrats felt it would ultimately prove too expensive to taxpayers.

I called Senator Isakson’s congressional office yesterday in an effort to get a copy of the text of the amendment that provided for the 10 percent or $15,000 home buyer tax credit. They referred me to the Thomas.gov web site, which has to be the most exasperating system for research in the world.

Apparently I wasn’t the only one who called, as the senator now has the amendment posted on his web site.

While yesterday’s information was that the credit could be taken retroactively on purchases made after December 31, 2008, the bill itself says something else. It states eligible properties must be purchased on or after the day the American Recovery and Reinvestment Tax Act of 2009 is enacted and expires exactly one year later.

The credit is non repayable, provided you own the house to two years.

The bill also reads that tax credit may be taken over two taxable years starting with the year the purchase is made, and the year after. Again, however, the amendment goes on to say that the taxpayer may  elect “to treat such purchase as made on December 31, 2008″.

If I’m understanding all of this correctly, think about this. Buy a Minneapolis duplex as soon as the bill is passed. File your 2008 taxes on April 15. Get up to $7500 back from the government in June. Of course, you have to have paid that much in tax in the first place. If you paid less, your tax credit will be reduced accordingly.

No matter. In this market,  that may well be more than the down payment!

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Georgia Senator Johnny Isakson

Well, somebody in government gets it. So much so that I think Republican Senator Johnny Isakson of Georgia should be made oh, I dunno – the winner on American Idol. I don’t even care if he can sing.  The guy’s a rock star.

See, the senator introduced an amendment to the big economic stimulus package being cobbled together in the Senate. And it was such a great idea that they voted unanimously to approve it. What? Bipartisan support?

It’s easy to understand why. The amendment sunsets the current $7500 first time home buyer tax credit and replaces it with a non repayable tax credit of up to $15,000 or 10 percent of the purchase price of a home, whichever is less.

It gets better.

The tax credit is for anyone who buys a single family home, duplex, triplex or fourplex that they intend to occupy. Not just first time home buyers. Anyone.

There’s even more good news.

Taxpayers can claim the credit on their 2008 tax return. So, if the stimulus package passes and is enacted, you can buy a Minneapolis duplex the week after (which I’d be happy to help you do), file your taxes, and get money back; enough for more than a couple of mortgage payments.

The credit expires at the end of the year.

Of course, once the bill gets passed by the Senate, it has to go back to the House for approval; which means we’re not there yet, by any stretch.

So are southern senators just that much smarter? No. Isakson had the idea because for 20 years he worked as a Realtor.

In the mid 1970s, the United States faced a similar housing crisis when after a construction boom, interest rates rose and there was a three-year supply of vacant homes on the market. 

Isakson recalled that to solve it, Congress passed a $2000 tax credit for anyone buying a new principal sresidence.  Home values quickly stabilized, inventory dropped and the market recovered.

Anyone else suddenly have the urge to buy Johnny Isakson t-shirts and posters?

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It’s Tuesday, which means MAAR released its weekly market activity report. And there continues good news in the single family home market.

New listings for the week ending January 24 were not only down 10.3 percent from the mark set in the same week the year before, pending sales were up 8.1 percent. Overall, the number of listings on the market in 2009 is down about 11 percent from the same period in 2008.

Over in the small multi-family sector, listings were up slightly. Fifty-eight new listings came on the market in the third week of January, 2009. Last year, that figure was 53.

The average sales price of properties that received and accepted purchase agreements also continues to lag; with the average off market price in 2009 just $78,923.10 compared to 2008’s $130,790 average for the third week in January.

Of course, many of this year’s transactions continue to involve lenders in the negotiations. In fact, of the  42 properties that received offers, 93 percent involved the bank. This is up from the 86 percent that were bank negotiated last year.

There continues to be news of interesting potential incentives for the housing market coming from the Senate in Washington. This, coupled with today’s report from the National Association of Realtors that nationally, home sales were up 6.3 percent from November’s mark.

We’ll keep our fingers crossed.

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I’m feeling a little giddy this morning.  There’s a reason. See, I read a report on the Realty Times web site about a letter sent to the Senate Finance Committee last week. And it made me want to skip like a little kid.

The story detailed how four trade groups had sent a joint letter to the committee, which is responsible for deciding all tax aspects of the stimulus package before it’s put before the entire Senate for a vote.

In the letter, the National Association of Realtors, National Association of Homebuilders, Mortgage Bankers Association and the Independent Bankers of America expressed their appreciation for the committees decision to follow the lead of the House Ways and Means Committee and make the $7500 first time home buyer tax credit non repayable.

However, the letter also pointed out by the time the bill is signed sometime this month, there will only be four months left in which buyers can use the credit. Therefore, they recommended the committee extend it unti the end of the year.

Here comes the good news. The groups went on to urge the committee to take two additional steps: expand the credit to ALL home buyers and authorize a mechanism where the $7500 credit could be used as downpayment money at closing. How liberating would that be to the real estate market?

In my opinion, those two incentives would do wonders and subsequently, the broader economy. Imagine. The Federal Government will pay you $7500 to buy a house. And you don’t have to wait a year to get the money.

So, what can we do? Well, since President Obama wants us all to help the country out of its tailspin, let’s tell Congress how great we think these ideas are. Believe it or not, when a Senator’s office gets several phone calls supporting an issue, they think it’s a mass movement.

We can make a difference. In Minnesota, this is especially easy. We have one senator to contact; who just happened to be at the White House for the president’s Super Bowl party. Just call or write Senator Amy Klobuchar.  Click on the link, then hit “contact” on her site.  Of course, a communication with the White House might not hurt either.

We can get ourselves out of this mess if Congress just does the right things.