Denver Real Estate Blog

10 Cities Where It’s Smarter to Buy - According to Forbes Magazine

For people who want to own a home, the premium to buy-the spread between what they’d spend to rent and what they’d pay for a mortgage-is much lower than the 15-year average in many cities.

To determine what cities are smart buys, Forbes magazine computed the premium and also identified locales where economists predict home prices will go up the most over the next five years.

Here are the top 10 cities the magazine chose as the best places to buy right now.

1. Boston-Cambridge-Quincy, Mass.
2. Charlotte-Gastonia-Concord, N.C.-S.C.
3. Chicago-Naperville-Joliet, Ill.-Ind.-Wis.
4. Cincinnati-Middletown, Ohio-Ky.-Ind.
5. Denver-Aurora-Broomfield, Colo
6. Minneapolis-St. Paul-Bloomington, Minn.-Wis.
7. Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.
8. Portland-Vancouver-Beaverton, Ore.-Wash.
9. San Francisco-Oakland-Fremont, Calif.
10. Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.V.

Not sure if you will qualify for the Repeat Purchase (or Move-up Buyer Credit) if you buy another house this year?  The IRS has released the official guidelines for the $6,500 federal tax credit for repeat home purchases, which answer the questions that homeowners have  been asking.

Owners of existing homes — specifically, taxpayers who have occupied the same property as a principal residence for five consecutive years during the previous eight years — may now be able to claim a tax credit on a purchase of another house they intend to use as a principal residence.

The credit is for up to 10 percent of the price of the replacement home, capped at $6,500. The purchase contract must be dated from Nov. 7, 2009, to April 30, 2010 and the closing must occur no later than June 30.

Members of the armed forces and federal diplomatic and intelligence personnel stationed overseas get an extra year to claim the credit.

The maximum purchase price on houses eligible for the credit is $800,000.

Your modified adjusted gross income must be $125,000 or less if you are single, $225,000 or less if you are married and filing jointly. Above these limits, the allowable credit amount begins to phase down in increments and is eliminated once incomes hit $145,000 for singles and $245,000 for married joint filers.

Purchasers are not required to sell their previous home, but they must be able to demonstrate that the replacement house is or will be their principal residence.

On 2009 and 2010 tax returns, buyers should attach the following:  

– Form 5405, which can be found on the IRS website at  http://irs.gov

– A copy of the signed HUD-1 settlement sheet, including the contract sale price and the date of closing. This is to document that the timing of the transaction meets the program’s requirements.

– Evidence of long-term ownership and occupancy of the previous house to meet the five-consecutive-years requirement. This can be property tax records, homeowner’s insurance records or IRS Form 1098 mortgage interest statements for the five-year period.

– For buyers claiming a credit on a newly constructed home, for which a HUD-1 settlement sheet is not available, the IRS will accept a copy of the certificate of occupancy showing the purchasers’ names, the property address and the date.

– For buyers of mobile homes who are not able to get a settlement statement, the IRS will accept a copy of the executed retail sales contract showing the property’s address, purchase price and date of purchase.

Congress mandated all this extra documentation after audits uncovered widespread abuses by applicants for the $8,000 credit. Among these were fictitious home purchases in which taxpayers or tax preparers sought — or obtained — credits on properties that never were sold or bought. This time around, the IRS says it will rigorously investigate all claims filed, starting with a review of the documentation submitted. 

Consult with a tax professional if you are still unsure whether you will qualify for the credit!

An advisory posted by the IRS this month spelled out situations in which recipients of tax credits may have to repay them to the government. These include taxpayers who sell their houses within 36 months after purchase. Recipients must also repay the credit if they convert their principal residence to a rental or business property, or if their lender forecloses on the house.

With all the rules now available, here’s the action message to potential tax-credit seekers: Speed up your search for the house you want to buy. Get moving. There are only 14 weeks to sign a contract and just five months to go to closing. 

There seems to be quite a bit of misinformation floating around regarding the First Time Homebuyer and Move Up/Repeat Homebuyer Tax Credits that are being offered right now.    I have even heard both local and national news outlets misrepresenting the guidelines regarding these two incentives, so I thought it would be worth while to take a minute to answer a few Frequently Asked Questions.

First off, in order to qualify for the tax credit you MUST have a property Under Contract by April 30, 2010 and close by June 30, 2010.  Someone told me that she is planning to list her home later this Summer - I asked her why she was waiting, since she would qualify for the Move Up/Repeat Homebuyer Credit, basically meaning $6,500 for selling the home she has lived in for more than five years, and purchasing a new one.  “Well, I’m sure they are going to extend it again,” she said, “I think that they might even make it permanent.”  UMMMMM….NO.

Most industry specialists think that this is the last hurrah as far as Homebuyer Tax Incentives are concerned - it was difficult to push the extension through the last time, and there is absolutely no buzz that the credits will be extended any further.

SO, if you are considering a purchase, start looking NOW - inventory is LOW, and prices and interest rates are going up slowly but surely.  Most deals are taking 60-90 days to close right now, instead of the traditional 30 - and if you don’t close by that June 30 deadline, you are not going to get a tax credit.  I don’t know how to say it more clearly.

And, if you are thinking of selling your current home in order to take advantage of the offer for Move Up buyers - get your house on the market NOW.  For the same reasons as above - inventory is low, and your house will not have much to compete against.  Contact me if you have questions about what your house might be worth, what needs to be done in order to get top dollar, or if you are considering a move. 

If you would like more information about the Tax Credits, check out the official website at http://www.federalhousingtaxcredit.com/home.html - it’s a great resource and has loads of information about both the First Time Homebuyer and Move Up/Repeat Buyer Tax Credits.

John Rebchook of InsideRealEstateNews.com has a great write-up on his blog, posted a few hours ago, detailing Denver’s latest top spot - Denver is on a lot of Top 10, Top 50, Top 100 Lists this time of year, as everyone wraps up 2009 in a big round ball and chucks it toward the recycling bin, but this is a FANTASTIC way to welcome the new Real Estate Decade.

Here’s a highlight…

Denver performed the best of the 20 major metropolitan housing market tracked in the closely watched S&P/Case-Shiller Home Price Indices report released today.

Denver’s housing market showed only a only a 0.1 percent dip in housing prices in the year ending in October, compared with an overall drop of 7.3 percent for the 20 areas in the report. The 10-city index in the report fell overall by -6.4 percent.

Tom Clark, executive vice president of the Metro Denver Economic Development Corp., said that Denver’s No. 1 ranking is the latest sign that Denver’s economy is out-performing the nation’s.

“Job growth does matter,” Clark said. “What a concept.”

Gary Bauer, an independent residential broker in Denver couldn’t agree more.

“Once again, this shows the strength of the Denver market,” Bauer said. “We continue to lead the nation as far as recovering from the recession - the recession is not over yet - but we will be one of the first to emerge.”

Bauer said that “two-thirds” of the Denver-area housing market “still moving,” if not showing spectacular performance. Only the high-end market continues to be soft.

“The market has moved from the only activity being in the first-time buyer to what I call the “move” buyer,” Bauer said.

Bauer has said that the move buyer will benefit from the expansion of the federal tax-credit for qualified people who own their owns. Some of those buyers who qualify for the $6,500 tax credit will downsize to smaller, less expensive units, while others will move-up, according to Bauer and other Realtors.

Read the rest here, then get off the fence already and join the party!

Tax Credit for Homebuyers

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Tax Credit Versus Tax Deduction

It’s important to remember that the tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!

Higher Income Caps

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to  $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price

Qualifying buyers may purchase a property with a maximum sale price of $800,000.

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Remember, the new tax credit program includes a number of details and qualifications. For more information or answers to specific questions, please call or email me today.

In addition, you may be able to benefit from additional housing related provisions, including the following:

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Tax Incentives to Spur Energy Savings and Green Jobs

This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.

Landmark Energy Savings

This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.

Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing

This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs. Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8 ) to increase energy efficiency, including new insulation, windows, and frames.

Expanding Housing Assistance

This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

If you have questions about these credits, or if you would like to talk about how you might get started on listing or finding your home, please contact me, I would love to help!

I should be on my way to a closing right now.  Instead, I am blogging because the closing isn’t going to happen - not today, anyway.

Why?  Because my client, a first-time homebuyer,  is purchasing a recently renovated home in a transitional neighborhood - and, according to the underwriter on his loan, the home is worth too much for them to loan on.

The whole story?  Although the property easily appraised for purchase price, the underwriter is saying that the home can only be valued at the seller’s original purchase price plus the sum total of any receipts for material improvements that the seller can provide.  So much for sweat equity. 

So, what does this mean for investors, or any seller for that matter?  Keep Your Receipts.  Be able to prove, in writing, how much time and money you invested in the property.  And take tons of Before and After photos - the underwriter requested those this morning, but unfortunately the seller only had the After photos that had been taken for the listing. 

Hopefully this underwriter is an exception to the general rule, and this sort or requirement will not become commonplace, but, with the crazy way things are going right now, who knows what will happen.  Any documentation that you can provide will help your case - and hopefully help you keep your profits on the property.

Have you found the house of your dreams, but are sitting back waiting for the price to drop?  In Metro Denver, where price deductions are small and listings are selling relatively fast, you might be out of luck.  According to today’s Inman News, some cities, Denver included, are showing not only average price increases, but also less price cuts, and less than 4% average between list price and sale price.  So, if you are in the market, don’t go house hunting way above your price range only to be disappointed when you can’t low-ball your way into a deal.  Ask your realtor for a solid net sheet and look at homes that are priced in your comfort zone! 

The whole story…

The percentage of listings with price reductions declined slightly from July to August, and when sellers did slash their asking price they made smaller reductions, according to an analysis of 27 markets by real estate brokerage ZipRealty.

While nearly half of homes on the market in August — 44.2 percent — had seen at least one price reduction, that’s down from 45.7 percent in July. The raw number of homes with price reductions, 281,765, was down 4.3 percent, as inventory in markets tracked by ZipRealty fell 10.5 percent to 637,313.

The average price reduction was 9.6 percent of list price, down from 11.3 percent in July, while the the median reduction amount ($24,494) was down 2 percent.

There was considerable variation by market, with the highest percentage of homes with price reductions in Orlando (51 percent), Jacksonville (50 percent) and Chicago (49 percent).

The markets with the lowest percentage of listings with reduced asking prices were Denver (31 percent), Los Angeles (35 percent) and San Francisco (37 percent).

Sellers slashing asking prices in Las Vegas made the biggest reductions (21.7 percent), followed by several markets in Florida: Miami-Ft. Lauderdale-Palm Beach (19.5 percent), Orlando (17.3 percent), Naples (14.9 percent), and Tampa (14.1 percent).

Sellers reducing their asking price in Raleigh-Durham, N.C., made the smallest adjustment (5 percent), followed by Richmond, Va. (5.15 percent), Denver (5.3 percent) and Houston (5.3 percent).

In another comparison of listing price and selling price during July, listing and valuation site Zillow.com found U.S. homebuyers paid 3.3 percent less than list price on average, down from 3.5 percent in June and 4.6 percent in January.

We’re working with several people right now who have their homes listed for not much more than they owe.  We’re OK with that.  Why?  THE MATH!  They’re movin’ on up…to a house in Highland they can actually afford…to a big suburban ranch where the kids will have room to roam…to a loft in the city…and they are all letting go of the home they aren’t all that happy in so that they can do it.  So, even though they might not get as much for their current digs as they would have 2 years ago, or 5 years from now, they are still making the move on up at the right time, because they are getting such good deals on their new properties.

Here’s an article from MSNBC that lays it all out:

After two years of married life in a 680-square-foot, one-bedroom Seattle condo, Lori and Chris Kirsten were ready to spread out in a real house with room for a home theater and a yard where the Labrador retriever they had always wanted could roam.

The Kirstens prepared to list their condo for sale and go house-hunting, banking on equity in the unit, which Lori had brought in 2003 for $130,000, to help with the transition to a larger place. Seattle’s hot real estate market had pushed the condo’s value to $215,000 or more at its peak in 2007.

But their home search lost some steam when their agent told them Western Washington real estate prices, although not in the freefall experienced elsewhere, had still declined to the point that their unit might now fetch $25,000 or $30,000 less than two years ago. When they saw condos comparable to theirs selling for as little as $170,000, “I thought, ‘I just can’t do it,’” Lori recalled.

Their mood brightened when they began shopping in the spacious neighborhoods of this suburb northeast of Seattle and found a 3,000-square-foot, four-bedroom split-level on a half-acre of towering fir trees that they wound up buying for $425,000. That’s $86,000 less than the $511,000 peak value placed on the home by real estate Web site Zillow.com, $64,000 below the original asking price of $489,000 and even well below the final asking price of $438,000.

Read the rest.

We’re feeling the recovery every day around here - downtown, in NW Denver, and even in Golden, Arvada, and Wheatridge, among other Metro areas.  Low inventory, low prices, low rates and rising demand are all helping to jump-start movement in D-town, and it’s even starting to feel like FLIPPING will pay off big time if done right!

Check out this article from BUILDER magazine:

John Burns always seems to be step ahead of the pack when it comes to forecasting the housing market, especially local demand. Among the first analysts to write that a major price correction was necessary before the market would rebound, Burns has since developed a local market forecasting tool.

Dubbed Housing Cycle GPA, the analytical model considers 29 years of history to determine a local market’s health. The primary drivers are local demand, supply, and affordability, along with what’s happening in the national economy. When two of the three local fundamentals rise, that usually means price appreciation is likely to occur, sometimes immediately, in other cases, over several years.

We asked the analysts at John Burns Associates to use the model to determine which five major home building markets might recover first. They produced a list that includes some metro areas with strong job formation, others where home builder competition is almost nil, and still others where price declines have made homes quite affordable.

1.

Washington, DC. Burns’ bullishness on this market boils down to a single word—jobs. “If a sector will be hiring, it will be the Federal government,” he says. D.C. was also among the first markets to have a price correction. “Within a reasonable commute of the Capitol, homes have become very affordable and supply is constrained.”

2.San Diego, Calif. “Most of the home builders and speculators have left town, and left a very supply-constrained market behind. The biotechnology sector is likely to lead an economic recovery that will be characterized by great affordability (by San Diego standards) and a lack of supply.”

3.Sacramento, Calif. “Although we expect housing demand in Sacramento to remain low due to state fiscal issues, much of the excess supply in both new and resale homes has been cleared out, and affordability is fantastic.”

4. Dallas, Texas. “Assuming mortgage rates remain low and GSE lending doesn’t change, Dallas’ housing market should stabilize due to increased demand from people relocating from the west to one of the most affordable markets in the country. North Dallas should recover long before South Dallas.”

5. Denver, Colo. “One of the best places to live in the country, Denver was just recovering from the telecom bust when it got hit by the national economic downturn as well. Housing is extremely affordable and foreclosure activity, which used to lead the country, is now much lower than most other areas of the country.”

Read the rest of the article.