I think now that elections are for the most part over (except where the last of the provisional ballots are still being counted here in Maricopa County), most folks have some expectation of what comes next. The mortgage interest deduction is likely to stick around, unless it also gets lumped into the cost cutting still being negotiated to avoid the highly dreaded, end of year "Fiscal Cliff". The Fed has committed to keeping the Fed Funds rate near zero and to buying mortgage-backed securities through 2014-2015, which will keep rates very low.
BTW- Purchases on conventional loans (20% down, under $417K) are hovering around 3.25%, with refi's edging closer to 3.5% is pretty remarkable, considering a year ago, the same rate was somewhere around 4-4.25%. If you haven't refinanced in the last year, it might be time to consider it again if the numbers make sense**. For buyers this means that purchasing power is greater now, than it was a year ago, although prices have increased roughly 30% since the start of 2012 in the Phoenix Metro Area. This will vary by city, locale & price point of the individual home.
If you are planning to buy, sell or invest in real estate, here's what you need to know now to plan accordingly for the new year. Take some notes, ask questions and put your plan into motion, but whatever you do, don't just sit there...
Starting this month (December), Fannie Mae & Freddie Mac will debut higher fee structures for financing, which will take away some affordability for buyers. See more here from Inman News: http://www.inman.com/news/2012/08/31/fannie-and-freddie-ordered-raise-fees Given the fact that rates are already low and pledged to stay low, this will have very little impact on overall buyer sentiment.
The Mortgage Debt Forgiveness Relief Act is set to expire on 12/31/12. In Arizona, this means... pretty much nothing. AZ is an anti-deficiency (or non-recourse) states (with Alaska, California, Connecticut, Idaho, Minnesota, N. Carolina, N. Dakota, Oregon, Texas, Utah & Washington), which means that if a home is a primary residence, 1-2 units, under 2.5 AC and was acquired with purchase money (financing exclusively used for the purchase as opposed to a cash-out refi used to pay for a dream vacation), a 1st lien deficiency would be wiped out under ARS 33-729.
Already we are a "Deed of Trust" state, which means that instead of enduring a lengthy court battle to foreclose judiciously (i.e. Florida, New York, New Jersey), it only takes 91 days from notice of trustee's sale to trustee's sale date to legally foreclose. Ultimately, all the sellers waiting with baited breath on whether their short sale will close on time have much less to worry about (UNLESS they have one or more of those pesky HELOCs or other subordinate liens on their homes- that's a whole different story).
The Senate Finance Committee has approved a bipartisan bill that would extend this act again, but has to be passed through the lame-duck session that is hung up on the Fiscal Cliff talks (see my previous blog entry about this). While the anti-deficiency states may have little to fear, all of the other recourse states are sweating bullets because a lot of people will feel the squeeze if this law is not extended. Status: to be continued...
Foreclosures actually spiked this year after dropping from a post bust low in 2011, even though the delinquency rate is down this year to the lowest levels since 2009. I'm not sure completely what this means, but it is ironic that recently Fannie Mae (and to a lesser extent, Freddie Mac) are opting to counter short sale contract prices and in some cases, just refusing to complete the short sale, in favor of sending the home through foreclosure to reap a larger price on the foreclosure sale (via Homepath Loans without fear of appraisal values).
This could mean more inventory on the market in the spring at lower price points that are ripe for first time buyers and buyers coming out of the proverbial "penalty box" from previous short sales or foreclosures. This could also lure some investors back into the market after a mass exodus from rising values and falling ROIs. That would counter the first-time buyer's ability to afford entry level homes...
Sellers are optimistically sitting on the sidelines waiting for the "right time" to list their homes after a long wait to sell. This is the real "shadow inventory" that drives speculation from the media & everyone else. Those would be sellers who bought in the years from 2003-2004 or at prices that were just above "the bottom" in the Phoenix Metro Area and have been putting off selling for fear of having to take a larger than desired loss to exit their home. Many of these sellers opted in the meantime to lease out their homes or just stay put if refinancing wasn't an option due to the non-conforming loans that were not eligible for HARP or HAMP. This leads me to the next factor...
The rental market is getting softer- particularly at higher price points. Those would be tenants who were forced out of the buying market due to a short sale, foreclosure or other hardship who now have come out of the "penalty box" after being deemed eligible again by lenders no longer desire paying premiums for homes when they can buy in many parts of town for 45% less than it costs to lease. Case in point, I listed an executive home in N. Scottsdale for $3000/mo last December that took me 7 days to obtain a full-price offer. That same home is on the market today for $2750/mo and after 65 days on the market, it's a vastly different story. The "tire kickers" who call are looking for a bargain don't even want to consider coming close to asking price. The same home gets more action for sale and enjoys bustling traffic at weekend open houses.
If you're looking for homes sub-$1500, it's still very tight, particularly for single-family homes in good school districts or near major commerce areas. Also, as AZ & Phoenix/Scottsdale become magnets for out-of-towners relocating for jobs or other reasons, inexpensive housing is getting snapped up with lots of competition vying for these homes.
The media- as crazy as it sounds, people pay more attention to the details when they are blasted on the morning/midday/evening news, online, in their newspapers, etc. The fact is that things started picking up long before this past spring. Inventory levels started to drop roughly in mid-2011, however the media didn't pick up onto it until it became glaringly obvious. Interestingly enough, many people go to sources that are so outdated that by the time the data gets out they aren't that accurate anymore.
Take for example the Case-Schiller Index. Many people aren't aware of the fact that 1) these are national statistics when, in real estate, the local market is what really matters to any seller or buyer; 2) the data lags by 3-months (or more)... today is 12/4/12. The most recent Case-Schiller report actually refers to data from as recent at Q2- we're well into the last 3rd of... Q4- that's about 5 months behind. In five months time in Phoenix/Scottsdale, interest rates have dropped a half point, demand spiked, peaked and fell back, inventory increased, dropped substantially and increased again, etc.
It's not just Case-Schiller either. Typically when a reporter goes out to cover a story, he or she has to do their research, talk to a few experts and publish the work, but that may not happen immediately. Frequently in articles I come across, the data referenced lags by at least a few months and that alone can erode the validity of the facts. They may be true, but if they aren't timely the info is almost irrelevant. Your best source for data is local info, preferably tied to the multiple listing service (ARMLS), in our area and is watched monthly, if not weekly because trends can change on a dime. So, as you gather your information, be sure to check the dates- like a gallon of milk, there is an expiration on this data- after which time it's stale and just no good to anyone.
The Bottom Line:
Prepare now, whether you're a buyer or seller. If you're selling, think about what you can do to make your home stand out from the crowd (also see my video 8 Tips to Get Your Home Sold Now). Though competition will still exist from other would-be sellers, if the demand is there, think about whether you want to endure months of showings and keeping your home pristine during that time, or whether you want one good offer at the start of the listing.
Believe me, after seeing some of the listings in ARMLS, setting a listing up for success is an art and amateurs need not attempt the work of a professional. Work with a seasoned list agent to identify a sound marketing strategy for what you can do to yield the highest return on your home- and it's not necessarily how much money you spend- just trust me!
If you're a buyer, talk to a loan officer immediately. Not knowing how much home you can qualify for or not having the proper documentation or down payment ready can be the difference between that dream home on the cul-de-sac in Carefree and a dump in some other part of town. If you're pining over perfection in Paradise Valley, chances are a lot of other buyers will be too. Then, get in your car, get on your computer, talk to people and do your homework. Remember, your Realtor is your best source for info, but without having all the details about your personal life- your plans to get married, have a baby, relocate in the next 3 years, etc, it's hard to advise you on all points of your purchase if you have only part of the puzzle.
Again, even choosing the right loan officer can be critical. If your loan officer can't get you the loan he or she promises, it could mean that you will lose out on a home that you really want and potentially put some of your own money at risk. Be very careful and ask for referrals if need be. I have a list of lenders who I trust (who I know can deliver what they promise) and would be happy to share their contact info with you.
Regardless of who you are, choosing the right professional for the job is key- I've successfully represented sellers and buyers alike through over 150 transactions since 2005 and can work with you to create a customized approach to reach your goals. Remember, I'm only a phone call away.
**Ask me if you need help figuring out how to make sense of "the numbers".