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New $10,000 Tax Credit to Home buyers

by Southern Californias Top Producing Mother & Son Te

From by Brittany Dunn

On Thursday, California Gov. Arnold Schwarzenegger signed AB 183, which will provide a tax credit of up to $10,000 to Californians who are buying their first home or purchasing a newly-built home.


“I have been up and down the state pushing this important housing bill that will get people off the fence and into homes while creating jobs and stimulating our economy – and today I am proud to take action and put it into law,” Gov. Schwarzenegger said.

The bill, authored by assembly member Anna Caballero (D-Salinas) and Sen. Roy Ashbum (R-Bakersfield), gives the Franchise Tax Board authority to extend a total of $200 million in tax credits to California homebuyers—$100 million for first-time buyers of existing homes and another $100 million for buyers of new, unoccupied homes.

Available for homes purchased between May 1, 2010 and December 31, 2010, the tax credit will be equal to 5 percent of the purchase price, up to $10,000. It will be given on a first-come, first-served basis and will be applied in equal amounts over a period of three taxable years. To qualify, the buyer must not be a dependent and must purchase a home that does not belong to a relative.

“The tax credit will help push prospective buyers off the fence, clear out inventory, and jump-start the homebuilding industry, which will help create jobs and reinvigorate the state’s economy,” said Liz Snow, president and CEO of the California Building Industry Association.

Gov. Schwarzenegger fought hard to extend and expand the homebuyer tax credit after its successful run in 2009. That $100 million tax credit was approved in February 2009 and ran out in just four months after 10,659 Californians claimed the credit.

This legislation is part of the larger California jobs initiative that Gov. Schwarzenegger proposed in his State of the State address in January to create jobs and stimulate the economy. The newly-extended homebuyer tax credit is the second piece of this initiative to be approved by the legislature.

“Creating jobs is my number one priority, and I am glad that I have been able to sign two job-creating bills in two days,” Gov. Schwarzenegger said. “I applaud the legislature for their great work and encourage them to keep it up and pass the remaining job-creating elements of my California jobs initiative.”

Rates Going Up & Tax Credits Coming To An End. What this means for Buyers and Sellers

by Southern Californias Top Producing Mother & Son Te

Rates Going Up & Tax Credits Coming To An End.  What this means for Buyers and Sellers

In the second quarter of 2010, we will have 3 major factors working against the housing market at the same time.  They are; climbing interest rates, expiring tax credits and worsening lending guidelines.  What I’m going to outline for you now is how this will impact us and why it is so urgent for your sellers and prospective seller to act NOW.

1.)    Rates: Interest rates have been at their historic low point (5%-5.5%) for so long now, most people have forgotten that the average 30 year rate is somewhere between 7% and 7.5%.  On March 30th the Federal Reserve will cease buying all the low rate mortgage bonds.  This means buyer will qualify for less house since interest rates will likely be around 6%-6.5% by June and probably in the 6.5%-7% range by the end of the year.  This is the optimistic forecast.  If inflation shows up we’ll see rates spike sooner.

2.)    Tax credits expire: Buyers will no longer be provided incentives by the government to purchase houses.  You probably have some decent statistics about what % of sales over 100K are 1st time or move up homebuyers.  This will put a significant dent in demand

3.)    Worsening lending guidelines: Buyers will qualify for less house because lending guidelines continue to become more restrictive.  The pendulum is not done swinging.  We can currently qualify buyers at 50% of their gross income.  This will fall to 41%-45% by mid year and we are unlikely to see any improvement until we’ve had a few years where loans stop defaulting.  Also, the minimum credit score required to purchase FHA is about to move from 620 to 640.

Looking at those three factors we can see less demand, tougher qualifying through higher rates, and tougher qualifying through lower debt standards.  These three combined will put another layer of significant pricing pressure on housing over and above some of the REO pressure that exists already.

Here is a tangible example of what we’re talking about:

Today Sally Seller sells her 200K home to Billy Buyer.  Billy gets a 200K loan at 5.5% and qualifies for the $1135 payment…everyone is happy.  Months from now Sally Seller tries to sell her home to Billy Buyer for 200K but the market is at 6.5%.  Billy can't qualify for the extra $130 per month.  For Billy to qualify for that $1135 payment when rates are 6.5%, Sally has to sell her 200K house for 180K.

This is JUST due to interest rate pressure, we’re not even considering Billy’s debt ratio or the fact that because the tax incentives are long gone, there will be fewer of Billy.

Sellers must understand the consequences of waiting in this market.  Many sellers believe waiting means give it a year and the REO market will be out of the way and we'll be fine.  The reality is as interest rates climb on a 200K house they will lose 20K in sales price for every 1% increase to rates.  We're at 5%-5.25% now and we're headed into the 7%-7.5% range.  You can do the math quickly.

Sellers must take advantage of this opportunity to sell NOW.  Some people will feel they don’t want to "give away" their house but the reality is they can cash out for significantly more value in the first half of this year, especially in the first quarter, than they will in the next 2-3 years.  

As always, if there is anything you need we are here to serve you. 

A little History on St. Patrick's Day

by Southern Californias Top Producing Mother & Son Te

Here are a few interesting notes about St. Patrick's Day!

The person who was to become St. Patrick, the patron saint of Ireland, was born in Wales about AD 385. His given name was Maewyn, and he almost didn't get the job of bishop of Ireland because he lacked the required scholarship.

Far from being a saint, until he was 16, he considered himself a pagan. At that age, he was sold into slavery by a group of Irish marauders that raided his village. During his captivity, he became closer to God.

He escaped from slavery after six years and went to Gaul where he studied in the monastery under St. Germain, bishop of Auxerre for a period of twelve years. During his training he became aware that his calling was to convert the pagans to Christianity.

His wishes were to return to Ireland, to convert the native pagans to Christianity. But his superiors instead appointed St. Palladius. But two years later, Palladius transferred to Scotland. Patrick, having adopted that Christian name earlier, was then appointed as second bishop to Ireland.

Patrick was quite successful at winning converts. And this fact upset the Celtic Druids. Patrick was arrested several times, but escaped each time. He traveled throughout Ireland, establishing monasteries across the country. He also set up schools and churches which would aid him in his conversion of the Irish country to Christianity.

His mission in Ireland lasted for thirty years. After that time, Patrick retired to County Down. He died on March 17 in AD 461. That day has been commemorated as St. Patrick's Day ever since.

Much Irish folklore surrounds St. Patrick's Day. Not much of it is actually substantiated.

Some of this lore includes the belief that Patrick raised people from the dead. He also is said to have given a sermon from a hilltop that drove all the snakes from Ireland. Of course, no snakes were ever native to Ireland, and some people think this is a metaphor for the conversion of the pagans. Though originally a Catholic holy day, St. Patrick's Day has evolved into more of a secular holiday.

One traditional icon of the day is the shamrock. And this stems from a more bona fide Irish tale that tells how Patrick used the three-leafed shamrock to explain the Trinity. He used it in his sermons to represent how the Father, the Son, and the Holy Spirit could all exist as separate elements of the same entity. His followers adopted the custom of wearing a shamrock on his feast day.

The St. Patrick's Day custom came to America in 1737. That was the first year St. Patrick's Day was publicly celebrated in this country, in Boston.

Today, people celebrate the day with parades, wearing of the green, and drinking beer. One reason St. Patrick's Day might have become so popular is that it takes place just a few days before the first day of spring. One might say it has become the first green of spring.

Buyer's need to be prepared for the unexpected in this market

by Southern Californias Top Producing Mother & Son Te

Buyers need money to buy in this market

The days are long gone for the short, smooth real estate transaction that we used to so often have 5 years ago.  We are in a much different market today.  We thought that we'd talk a little about some of the challenges we are facing being that there are so many changes currently taking place with lending institutions. 

As you have probably heard all over the media, it is much more difficult to qualify to buy a home than it was a few years back.  Banks have made their guidelines much tighter not only when it comes to the financials of a potential buyer, but also when it comes to property condition.  In the past whenever there were issues with property condition, the obvious party to take care of it was the seller.  Why you ask?  Well, the seller had an abundance of equity.  Sellers would take home anywhere from $50,000 to $200,000 when they sold their homes.  Handling repairs on their home to satisfy the buyer was no problem and made every one’s life a lot easier.   The times have changed…

You may ask, ‘who is paying for all the repairs that are required by the borrower’s lender now that the seller has no equity and is having to short sale their home?’  For all you buyers out there reading this, I hate to tell you but unfortunately it is you that will need to be prepared to make repairs on the property should your lending bank require it, and should you want to move forward with the purchase. 

In our market area which includes the cities of Downey, Norwalk, Pico Rivera, Lakewood, Bellflower, and surrounding areas, most homes are at least 40 years old.  There is no question that certain things on the property need to be repaired or replaced.  We are finding that issues can always come up, and lending banks are not willing to move forward in lending money unless certain repairs are made.   For the most part the typical repairs needed in order for banks to lend money are cosmetic things such as exterior paint.  But everything in the home, especially the 50 year old floor heater that hasn’t been used in at least 20 years need to be in working condition before a bank will release money. 

Now the question is, where is the money going to come from to pay for that?  The seller, the majority of the time obviously cannot pay for it because they are financially unstable; hence they are “short selling” the property.  The real estate agent cannot afford to pay it because the commission they will be earning isn’t anywhere near what it once was.  Real estate agents are earning approximately 50% less in commissions then they were over 4 years ago and they still have to deal with the same expenses they had 4 years ago.  In addition, banks are not willing to pay the standard 6% commission that a real estate agent is used to earning.  That leaves only the buyer to pay for the repairs required.

Regardless of the fact that a buyer will be spending money to repair certain things the lender is requiring, homes are selling for 50% less (in some areas) than they were 3 years ago.  So all in all, it is still a HUGE benefit to buy in this market. 

Inventory is still low in the South East Los Angeles area.  Ninety percent of the homes that you see on real estate search engines available to the public have multiple offers on them already.  We will talk more about this is a future blog post but for now, if you know of anyone that needs help selling their home, or is interested in buying a home  please don’t wait to contact us. 

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Photo of The Mother & Son Team - Maria Palacios & Chris Gon Real Estate
The Mother & Son Team - Maria Palacios & Chris Gon
Berkshire Hathaway HomeServices, California Properties
16911 Bellflower Blvd
Bellflower CA 90706
(877) 883-1003
Fax: 562-381-9113