Archive for March, 2009
California Tax Credits Available to New-Home Buyers on a First Come First Serve Basis
March 20th, 2009 categories: Our Market
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 CLTA Bulletin 08/09-91 – February 27, 2009 Governor Schwarzenegger signed a new law on February 20, 2009 to provide for a tax credit of up to $10,000 for the purchase of a newly constructed home. Senate Bill 15 of the Second Extraordinary Session (SBX2 15) benefits taxpayers who purchase a qualified principal residence on or after March 1, 2009, and before March 1, 2010. The total amount of credit available is one hundred million dollars and is available on a first come first serve basis.
The CLTA will be working with the Franchise Tax Board (FTB) and the California Escrow Association on the implementation of the program. The bill was one of several bill passed as the result of last minute budget negotiations. The CLTA will continue to provide information about the program to its members as it becomes available. The CLTA understands that the following FTB action is being contemplated: • The FTB will have a form that allows sellers to certify that eligible homes have never been occupied and buyers to declare their intention to occupy the eligible home as their principal residence for at least two consecutive years immediately following the purchase. The following conditions apply to the tax credit: • The qualified principal residence must be a single family residence, whether detached or attached, that has never been occupied • The credit is for the purchase of one qualified principal residence per taxpayer • The home must be occupied for at least two years immediately after the purchase and must be eligible for the homeowners property tax exemption • The credit is the lesser of 5% of the purchase price of the qualified principal residence or $10,000. The credit must be claimed in equal amounts over three consecutive tax years beginning with the tax year the purchase is made • The seller must provide a certification to the taxpayer and the Franchise Tax Board within one week of the sale that the qualified principal residence has never been occupied. Upon certification, the Franchise Tax Board will allocate the credit to the taxpayer on a first come, first serve basis. • To claim the credit, the taxpayer must submit with each tax return the certification by the seller.
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BofA seeks more jumbo mortgages: Report
March 19th, 2009 categories: Our Market
(Reuters) – Bank of America Corp is seeking to produce more “jumbo” mortgages, which can range from $417,000 in most areas to as much as $729,750, Barbara Desoer, the bank’s head of mortgage, home equity and insurance services told Bloomberg in an interview.
“Bank of America has balance-sheet capacity and we’ve allocated it to jumbos given our presence in some of the states and regions where that’s important,” Desoer was quoted as saying.
The bank sees an opportunity to issue more of the loans with Merrill Lynch’s “mass-affluent” customers, even as it continues to integrate the acquired company, she said.
To keep up with mortgage demand the bank has added roughly 3,000 employees to its origination unit, including about 1,000 new to the company and 500 shifted from its home-equity division, as well temporary workers, she said.
She was also reported as saying that the bank’s purchase of Countrywide Financial Corp was paying off.
“Volume is good, application quality is holding up and the acquisition of Countrywide is really paying off for us with the additional capacity,” she was quoted as saying.
(Reporting by Ajay Kamalakaran in Bangalore; Editing by Greg Mahlich)
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This is great news and very, very important for markets like San Diego where values are considerably higher than in many more rural locales. The lack of Jumbo loan product leaves a very big hole in Real Estate financing. It’s a great thing that conforming rates are at historic lows but we cannot expect first-time buyers to be the only segment of the population spurring on the housing recovery. In San Diego, homes in the mid $500K range are considered fairly affordable and while they are much more abundant than in the recent past, there is a huge segment of coastal and executive housing that eclipses this price range. What about move-up buyers or buyers looking for a ‘destination location’ home in which to retire? Today, this buyer is seriously without financing options and we are losing important impetus in our markets.
The next thing we will have to figure out is who will offer investor loans (non-owner occupied) and stated income programs that are reasonable. Business owners who utilize the tax deductions available to them via our tax laws have no financing options today. Certainly, these loans were abused and have contributed to the current market morass but they are an important segment of the market and need to be available at competitive rates to be used responsibly.
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And Now For Something Completely Different…
March 14th, 2009 categories: Glimpse of the Day
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Home Buyer Tax Credits
March 14th, 2009 categories: Our Market
Home Buyer Tax Credits
A new state tax credit and an expanded federal tax credit provide attractive incentives for qualified buyers to purchase new homes. The United States Congress expanded the federal first-time home buyer tax credit when it adopted the American Recovery and Reinvestment Act of 2009. In addition, the California state legislature has just allocated $100 million in tax credits for purchasers of new homes. The eligibility requirements for the two credits differ, but buyers that qualify for both could receive up to $18,000 in total tax credits.
Additional information regarding the tax credits may be found at the Web sites of:
- The Internal Revenue Service – http://www.irs.gov/newsroom/article/0,,id=204671,00.html and
- The California Franchise Tax Board – http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml
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Uncle Sam’s Stimulus Is Down Payment on Economic Security
March 9th, 2009 categories: Our Market
Gary London
Our economy is about to receive a down payment on our economic future. According to the San Diego Association of Governments, the region’s planning agency, an estimated $7.4 billion of federal infrastructure funds are being sought for our region.
The money is needed, as local unemployment levels stand at 7.4 percent. This translates into 117,100 people who are out of work. The better, and more onerous, indicator is what the federal government calls “U6,” which measures the combination of unemployment plus “underemployment” — a full measurement of people who are working, but not full time or up to their full potential. That number is now 11 percent of the labor force; the highest since the measure was introduced in 1996.
These measures of the “full underutilization” of our work force add up to 292,044 people in distress.
If we receive the federal money, Sandag projects that it has the potential to add a phenomenal 96,000 jobs to the region!
While these prospective additions to local employment appear large, they are unlikely to be the answer to our region’s economic resuscitation.
This is evident from this jobs breakdown:
• 60,000 will be “direct” jobs, many in the construction sector. Caution: Most will be temporary. When the project is finished, the job is over. These are unlikely to jump-start our regional economy.
• An additional 40 percent, or 36,000 jobs (Sandag estimate), represent permanent job creation. Key problem, though: These permanent jobs are anticipated to be in lower-paying sectors.
To put employment in perspective, since 1990 our region has added an average of 25,800 new jobs each year. However, in 2008 we lost 18,400 jobs, a decline of 1.4 percent.
In a regional economy that employs 1.3 million (producing $134 billion), the addition of 36,000 jobs through infrastructure investment would bring the unemployment rate down to 5.1 percent, assuming no more layoffs this year.
Thus, the infusion of federal money would be sort of like jump-starting our economy by a single, better-than-average year of job growth.
Economic Dialogue
Good, but not a panacea. Given the limited impact that fed moneys would have on permanent, and appropriate, new jobs, my fear is that this is about to become a diversion.
It would be better if these moneys jump-started an economic dialogue for the future.
This is a fairly well diversified region. There is good basic employment. One such important sector is the military, which employs 105,000 (in uniform). Approximately 27 percent of all jobs in the county are connected to the large Defense Department, which accounts for nearly $25 billion of annual economic impact to the region. For every two military jobs, an additional person is employed. This military multiplier creates an additional 52,500 jobs throughout the region.
A place to start the dialogue is to prime more military spending in our region, particularly research and development, which hires well-paid scientists and researchers.
Another basic employer is the leisure and hospitality industry, which employs 161,000 people, primarily in the hotel, restaurant, attractions and other dependent sectors. The dialogue subject here is that we need to sustain this sector — including the development of a third phase of the convention center — yet the jobs pay little. This smacks of an opportunity to include Tijuana in our dialogue, since that city houses many of the employees. We need each other.
While the technology sector numbers are smaller, they matter. Biotech employs 22,000. Information technology employs 38,400 and includes
Qualcomm, the largest private sector employer at about 13,000, outside of the quasi-private colleges, energy’s Sempra Energy
and hospitals.
These tech companies matter in our dialogue because one new invention, one new research success, one new discovery can lead to a new industry. Qualcomm, whose predecessors started in an engineering lab at UC San Diego, is the best example of that. Qualcomm got big, other companies in the information technology sector spun off, others came to town, and an economic “cluster” was born.
That’s a very good way to transform a regional economy.
The New Economy
Our regional economy has actually been transforming. Even before the current economic crisis, we were losing manufacturing jobs, a result of the high cost of living and working here. While the region may be on high expense moratorium (at least the cost of purchasing a house is less), the inevitability of manufacturing job loss must be anticipated.
Many of those jobs have moved offshore, or to more business-friendly states.
We have essentially traded “up” in the work force. Since 2000, we have lost 22,600 manufacturing jobs. But these were replaced by 94,700 service producing jobs (and this includes the dire 2008 layoffs).
We are already transforming as a region, and by region I mean the entirety of Southern California because our economy does not stop at the county lines.
Our economic future will continue to be about diversification. The dialogue subject here is to continue to figure out ways to prime for higher end job diversification.
Policy Implications
The strength of our future economy requires certain public policy imperatives well beyond federal cash infusion. We must be forward looking to what industries could lead us into the next cycle of prosperity. Some of these might include:
• Promoting employment diversity: Research in medicine, energy, green and clean practices and information technology will continue to be hot. Our regional think and research tanks need to be accommodated and promoted.
• Shoring up our educational system: The only sure way to fill future employment opportunities with San Diego’s natural born.
• Creating a better relationship with Mexico: The border crossing needs to be streamlined; the ability for Mexicans to legally work here (and live there) needs to be enhanced. It is our great geographic advantage.
The moral of the story is that while we lobby for our regional share of those vast government billions, it’s really an economic drop-in-the-bucket compared with what our region really needs.
It ought not to be a diversion from the real thing: Doing whatever we can to bolster and secure a diversified, flexible and prosperous regional economy.
That is our ultimate job security.
Gary H. London is president of The London Group Realty Advisors, which provides real estate consulting and economic analysis. Check him out on the Web at londongroup.com.
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Measuring Where the Home Market Now Stands-SDBJ Excerpt
March 4th, 2009 categories: Our Market
Real Estate – Gary H. London
Last week a key index reported that home prices in San Diego (and four other cities) have slowed in their declines.
The Standard & Poor’s/Case-Shiller Home Price Index for December reported price declines of 18.5 percent nationally from year-ago levels, the drop in San Diego from November to December was 2.1 percent, compared with a negative 2.3 percent from October to November. December’s year-over-year decline was 24.8 percent, compared with 25.8 percent in November. This is the second straight month in which the decline was slightly less than for the month before, both on a monthly and year-over-year basis.
The S&P/Case-Shiller Home Price Index has become popular because it measures changes in the value of single-family housing markets in 20 metropolitan regions across the United States. The index collects data on single-family home resales, capturing resold sale prices to form sale pairs. The data is calculated monthly and published with a two-month lag.
I am not particularly fond of this index for several reasons, including:
• It tracks monthly. Analysts then get transfixed on monthly movements. But real estate can’t really be tracked monthly — month-to-month changes mean way less in real estate than, say, in the stock market. That’s not Case-Shiller’s fault. It’s the fault of the interpreters. The new report suggests that numbers seem to be stabilizing. I know better than to see it as some sort of a trend until a few more months pass.
• It purports to measure the market, but in reality it only measures the transactions that have actually occurred. The problem here is that in our presently distressed environment, this index mainly tells us about distressed sales, including foreclosures, short sales or price dumps. Because actual transaction levels are roughly half what they are in “normal” times, most people are on the sidelines and not participating in the market. One would assume that the market behaves rationally, and that these consumers know that if they list a home, they will take a big hit on their sales price, and in any event current buyers are conditioned to look for bargains.
Hence, Case-Shiller is measuring a low activity market, which isn’t much of a market.
• Analysts tend to use this measure — because it is national in scope — as a basis to say something about the “market” when, in fact, there is no “the market,” like the stock market. The real estate market is incremental. It is sliced and diced by geography and use types.
• Current pricing is also skewed by the fact that homes being sold right now are certainly drawn from an inventory that is priced lower than the median in our region, in terms of quality, location and size.
• Case-Shiller does not measure new home prices. Normally this would be a big flaw. Right now it doesn’t show because even though new home prices are mostly stable, there are not many new homes being built.
Having said that, I have no doubt that regional real estate values are down. I just do not fundamentally believe they are as “down” as the Case-Shiller index suggests, which is roughly 40 percent off since the peak 3.5 years ago.
This only becomes an issue if we try to do something with this index, other than use it as a basis for which to start a conversation. If you are drawing conclusions about San Diego from national numbers, or applying these numbers to try to explain any single neighborhood, beware! You are bound to be wrong.
Still, with its deficiencies, the trend of this index has to be right. Even if the dip in valuation is certainly not this sharp, the market is more affordable than it has been for a very long time, indeed.
Understanding Affordability
There is, however, a good use of this data and it lies in our effort to index affordability. The accompanying chart measures a housing “price-to-income ratio” based on Case-Shiller. This chart, created by my business partner, Nathan Moeder, shows the Case-Shiller annual home price average in San Diego County from 1987 through 2008. It depicts the pricing peaks experienced in the 2005-2006 period and the drop-off since then.
It then overlays the price-to-income ratio, determined by the median price divided by median household income. This ratio in 2008 has dropped to 5.7, suggesting that we are back to 2002 levels of affordability. This is also in sync with Case-Shiller’s current index of 152 (2002 level of sale prices).
This is a good application of the Case-Shiller index because it doesn’t look exclusively at the housing price, but rather the relationship between price to income. In the end, what really matters is whether consumers can afford homes, regardless of the actual price of homes.
But This Will Not Last
This down market will not last. What I am putting out here is that this is a clear buy signal. Now is the time to purchase a home, if you can qualify, because home values may be nearing the bottom, or perhaps are at the bottom.
The critical “if” is your ability to get a loan. I have explained many times in this column that the “stated income” era has ended. We have entered the “prove your income era.” Loan underwriting standards will be much more strict, as they should be (bad underwriting standards were, after all, what got the housing market in trouble in the first place).
It is important to keep perspective as a buyer. Homes cannot generally be viewed as an investment vehicle other than to responsibly build equity. It’s best to decide to buy a home when the loan terms are affordable based on income. This is more important than attempting to exactly time the bottom in search of an additional $30,000 or $50,000 in savings. This should not be a factor to the buyer with a long-term perspective.
The unknown is when lenders will be putting money out again. In effect, home values or timing do not matter if you cannot participate in the market. The ability of many consumers to pass lending standards and the willingness of lenders to actually make the loans will ultimately determine the shape of the curve that moves us out of this down market.
So, while we may be at the bottom, we could stay there awhile. The measurement of the success of the president’s housing package may be more about the impact it has on overall lending practices, than on the money he is putting out to help those who qualify under his program.
If it all works, prices rise again and the recovery is U-shaped. If they don’t, it could be a long, drawn out slog to price appreciation again.
Gary H. London is president of The London Group Realty Advisors, which provides real estate consulting and economic analysis. Check him out on the Web at londongroup.com.
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