Re/Max Performance Team

Today we heard some very encouraging news from Dave Ramsey, host of the national money talk show on the radio. Dave said among other things, “Today is the best time to buy a home in the last 50 years.” He then stated that inventories are high, prices are down and interest rates are at historic lows around 4.5%. He also stated that it was the housing market that took us largely into this economic downturn and it is the housing market that will bring us out of it!

The discussion ensued about whether the market has bottomed out at this point. Dave Ramsey said that he thought it may have bottomed last month on the heels of an upturn in previously owned home sales for the month of February. He said that March looks better as well. He thought that it would take a year or more to absorb the existing excess inventory before prices should begin to really rise.

In recent news articles, it has been reported that many investors are entering the market purchasing foreclosure properties which is to be expected. These kinds of investors don’t usually enter this market until they feel that it is at or close to the bottom as they don’t want to get caught buying and having the market continue down and leave them “upside down” in the home.

We have been saying for some time that this is a “perfect storm” in the real estate market for all the reasons stated by Dave Ramsey. It is significant to hear a national financial personality now making this claim. I should also note that Dave Ramsey is big on 15 year amortized loans instead of 30 year due to the great deal more interest that will be paid for the longer loan. In some cases, the 15 year financing can also come at an even lower interest rate.

We in the real estate industry are delighted to begin hearing some positive, optimistic predictions and now some actual reports in increasing home sales. If you have been waiting to enter the market until it reaches at or near the bottom, this may be the best time to get involved. There are many opportunities out there and the first in will get the best deals. Many will wait until they see many others purchasing and by the time they get qualified and ready to make a purchase, the prices will have already begun to climb and they will have missed the opportunity for which they were holding out. Please call us any time to review market conditions and what your real estate goals may be.

[1]RISMEDIA, March 13, 2009-Ask homeowners about their DTI (debt-to-income) ratios, and they’re likely to respond with something like, “My what ratios?!” However, when distressed homeowners are sizing up their foreclosure options, they need to brush up on DTI ratios. Lenders will be scrutinizing these ratios to determine homeowner eligibility for loan modification and other debt relief.

Homeowners need to know that their DTI ratios are crucial to determining an affordable house payment. The current government plan defines an affordable house payment as one that is no higher than 31% of the homeowner’s front-end DTI. In other words, the house payment or PITIA (principal, interest, taxes, insurance, and any association fees) on the first mortgage cannot exceed 31% of the household’s gross monthly income.

Encourage homeowners to examine both their front-end and back-end DTI ratios:

Front-end DTI ratio is based solely on the house payment. (Under the current government plan, the front-end DTI target of 31% accounts only for the first mortgage. If the home has other liens against it, such as a second mortgage or home equity line of credit, those are accounted for separately as part of the back-end DTI.)

Back-end DTI ratio is based on all monthly debt payments combined, including the house payment, credit card payments, payments on auto loans, and other loan payments.

Calculating the Front-End DTI Ratio

Although the formulas for calculating DTI ratios are simple, homeowners are unlikely to have encountered them in the past. To calculate their front-end DTI, instruct homeowners to divide their house payment by their monthly household income (gross income):

House Payment / Gross Monthly Household Income = Front-End DTI Ratio

This is easy, assuming the monthly house payment includes an amount held in escrow to pay the property taxes, homeowner’s insurance, and any association fees. Such a payment is often referred to as PITIA (principal, interest, taxes, insurance, and association fees).

If they pay property taxes, insurance, and association fees separately, then they have to perform an extra step. Instruct them to total these additional annual expenses, divide by 12 months, and add the result to their monthly house payment (principal and interest). They can then divide the resulting house payment by their monthly household income to determine their front-end DTI ratio.

Private mortgage insurance (PMI) payments fall outside this calculation under the current government plan.

Calculating the Back-End DTI Ratio

To calculate the back-end DTI ratio, instruct homeowners to total their monthly debt payments, including: House payment or PITIA, as discussed in the previous section; Any payments on second mortgages, home-equity loans, or home-equity lines of credit; credit card payments; auto loan or lease payments; alimony and other payments on credit accounts or loans.

Now, they should divide their total monthly debt payments by their total gross monthly household income:

Monthly Debt Payments / Gross Monthly Household Income = Back-End DTI Ratio

Exploring DTI Ratios under Obama’s Foreclosure Prevention Plan

The Home Affordable Modification Program accounts for both front-end and back-end DTI ratios. When attempting to reach the 31% target for the front-end DTI, the focus is only on the first mortgage:

For qualifying homeowners, the lender will have to first reduce payments on the first mortgage to no greater than a 38% front-end DTI ratio. Treasury will match further reductions in monthly payments dollar-for-dollar with the lender/investor, down to a 31% front-end DTI ratio.

Borrowers who qualify for a modification but would have a post-modification back-end DTI ratio greater than or equal to 55%, will be provided with a letter stating that they are required to work with a HUD-approved counselor. The modification will not take effect until they provide a signed statement indicating that they will obtain counseling.

Keep in mind that only lenders, investors, and servicers who choose to participate in this program are bound by its guidelines and that the guidelines may change over time. Different lenders may have their own DTI ratio targets and limitations.

When homeowners in your market are in default or in danger of default, encourage them to explore their options. Now that they can calculate their DTI ratios, they have one more tool that will empower them to assess their options, keep their house, and preserve their American Dream of homeownership.

This is Alan Barnard and this weeks “blogucation” entry is a key feature of President Obama’s recent Economic Stimulus Plan. Just signed on February 17, 2009, a major feature is the Homebuyer Tax Credit. For clarity, don’t confuse a Tax Credit with a Tax Deduction. A Tax Credit is an item that reduces your actual tax. It differs from a Tax Deduction that reduces only your taxable income.

Here is how it works: The bill provides for an $8,000 tax credit that would be available to first-time home buyers (those who haven’t owned a home in at least three years) for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment for buyers who hold onto their property for at least three years. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser’s income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser. It also extends eligibility to borrowers who buy their home with the help of state or local financial assistance that comes from the proceeds of tax-exempt mortgage revenue bonds.

I am sure you have been hearing that in the midst of this economic downturn, that it is an excellent time to purchase real estate. This Homebuyer Tax Credit is just one of the many reasons why this is true. In addition, consider that interest rates are at or near historic lows, inventory of homes is at an all time high and prices have substantially fallen over the last couple of years. This provides you an even better choice and opportunity for your particular needs. Seller’s are in many cases very motivated and looking at all offers. Affordability is at a level that just was not possible over the last several years. If you are waiting to “time the market” so you can be sure you are buying at the lowest point, usually by the time the market awakes to realize that the lowest point has been reached, it has passed and the prices are on the way up. Even at that, the chief economist for the National Association of Realtors has recently said that he expects the housing market to improve this summer and if the President signs the stimulus bill, which he has already done, he expects it to be sooner. Our crystal ball is a little hazy as is everyone’s, but by any measure, many indicators point to activity increasing shortly.

This is Alan Barnard and today’s real estate question follows on to a previous question dealing with the different methods of valuing property. We discussed the basic differences between assessed value, appraised value and market value. This program will deal with the first…which is assessed value.

From the 2009 Annual Report from the Assessor’s office plus review and editing of this article by Pam Rushton, the Clallam County Assessor, here’s the scoop.

Washington State law requires assessors to value property at 100 percent of its true and fair market value in money, according to the highest and best use. The property tax is then imposed on the assessed value of the property.

This valuation analysis is done based on information accumulated prior to the lien date. The lien date is the 1st of January of the assessment year. This causes some confusion because the change of value notices are not received by the taxpayer until later in the assessment year. To follow that up the taxes are being paid in the following year. Example: sales data used for assessment analysis could be up to 5 years prior to the lien date, ‘2003, 2004, 2005, 2006, 2007’ sales information for the value in the 2008 assessment year for taxes paid in 2009. The sales data closest to the lien date will carry the most weight in the valuation process.

Each year the Assessor receives a budget from all of the taxing districts in the County such as fire districts, hospital districts, port district, cities, county, ect. When these budgets are received and all the values in the County have been certified, the calculations are then done to arrive at a levy rate (an amount per thousand dollars of value). This levy will collect the amount of money needed to run these districts so they will be able to supply the taxpayers with the services needed. In this process there are also statutory laws and limitation we have to make sure all districts abide by. When you receive your tax statement in February you will see a break down on how much goes to each taxing district.

When property values change it is not necessarily a direct increase or decrease of the taxes paid. Many things affect the amount paid to taxes. When voters approve increases to the district this will usually affect the amount paid, more than the 1% increase limit in the budget process. The 1% increase limit applies to the tax budget levee, not the assessed value of the property and does not include new construction funded within the voter approved budget levee. The increase could exceed 1% if there is new construction being funded. It is important to have community involvement in the budget process to monitor district spending. Taxing district will have open public meetings to approve their budgets every year.

Clallam County does a physical inspection on 1/6th of the county every year while the remaining 5/6th of the county is monitored yearly by a computer assisted market analysis. Values are adjusted upwards or downwards based upon this analysis. So…a physical inspection every 6 years and a computer analysis based upon closed sales…each year in between. Just to confuse things more than they are. I should mention that the appraiser from the Assessor’s office will use one or more appraisal methods which include Sales Comparison Approach, Cost Approach and Income capitalization Approach, or any combination determined appropriate by the appraiser. These are the same approaches used by fee appraisers…which I will save for another program.

So…as market value changes, so does assessed value. Market value is different however, from assessed value… as I will discuss in other programs along with some tax exemption programs you may have heard about such as agricultural use and some others.

Coming up then on other programs… how appraised value and market value are determined, and how fee appraisals are done.

This is Alan Barnard, owner of RE/MAX Performance Team and Associate Broker. In an effort to add valuable information to our blog, I have decided to start entering periodic educational pieces that I have previously developed as part of a Radio Program that I did on our local KONP radio station around 2001. I am dubbing them “Real Estate Blogucation.” Pretty bad I know, but at least you will remember them!

I earlier began with the first of its kind radio program in 1997 called “Real Estate Issues with Alan Barnard.” It was a one hour program that aired at 10:00 am every Saturday morning. The goal was to educate consumers about the many issues involved in a real estate transaction. My motivation was to highlight real issues with real examples involved in our business. The end result would be to educate consumers on the issues so they would know the questions to ask any time they were involved in a real estate transaction of any kind.

The program was very successful, so I later developed a 2 minute segment on issues that aired on KONP everyday. It was a vignette of these issues for quick consumption. The problems were highlighted briefly along with solutions. These programs were well received and it is these that I am going to be adding to the blog on a regular basis. Where needed, I will be upgrading the information when necessary to keep it current and relevant.

I sincerely hope you will take a moment to review these segments in hopes that they will help you to be a more knowledgeable consumer and thus able to complete successful real estate transactions. Please keep in mind that the format for them is a radio format, so they will all be similar and written as they were recorded for radio. I suspect you will find them interesting. This is Alan Barnard signing off for now, but look for the first segment dealing with the timely topic of how property is assessed for tax purposes.

Since May 2008 the percentage of homes under contract compared with the inventory has hovered around 9%, but in the middle of September, that percentage has risen to a whopping 13%. Does that mean that the inventory is going down or does it mean that the number of buyers is going up? Actually both are true. August has traditionally been the month with the most inventory and this year was no exception. The difference is that for this year we currently have more homes under contract than at any time this year. So is this a sign that the market is starting to turn around? We’ll have to wait and see.

Michaelle

by Eric Bramlett
Broker Agent News

When you decide to buy a piece of real estate in order to pursue a business as a landlord, you are making an exciting and potentially financially-freeing decision. After all, simply owning real estate is an excellent investment. In addition, taking this real estate and turning it into an apartment or other form of rental property can provide for a steady flow of income. Nonetheless, there are several things you should know before you buy that first piece of real estate and enter into the world of renting. Read the rest of this entry »

Posted By admin On August 8, 2007 @ 4:06 pm In Consumer Services | Comments Disabled

RISMEDIA, August 9, 2007–Many of us wrestle with the desire to have a brand new home, one that has exactly the features we want, the colors and finishes we prefer. We love the idea that every component will work flawlessly and won’t require repair or updating for many years.

Still, for the vast majority of us, the next home we buy will be one that is previously owned and lived in, with the all the flaws and compromises, big and small, that implies. In 2006, 6.47 million existing homes changed hands in the United States, while only 1.06 million new homes were sold. Read the rest of this entry »

Moving can be a daunting task – especially if you don’t plan ahead. Just looking around your current home, eyeing the day-to-day clutter, you may already dread the thought. Hopefully the following chart to help you plan a less stressful move to your new home. Read the rest of this entry »

Children’s Miracle Network and RE/MAX are paired as closely as their exuberant hot air balloon logos, tied by their desire to provide independence to local communities. Since RE/MAX became the exclusive real estate sponsor of Children’s Miracle Network in 1992, RE/MAX Associates have raised more than $60 million for the charity. Read the rest of this entry »