The Gardner Group Blog

Central Texas builders started nearly 31 percent more homes in the first three months of this year compared with a year earlier, the first year-over-year quarterly increase in 3½ years and a sign the local housing market may be turning around.

Residential Strategies Inc., a Texas market research and consulting firm specializing in homebuilding activity, reported that builders started work on 1,601 homes from January through March, up 30.6 percent from the same period last year. The last time there was a quarterly increase over the prior year was in the third quarter of 2006.

First-quarter starts also were up 14 percent from the fourth quarter of 2009 .

Much of the activity was concentrated in price ranges of less than $200,000 as buyers acted to take advantage of a federal tax credit that expires soon. Homes must be under contract by April 30 in order to qualify. Although the uptick in starts has been fueled largely by the tax credit, "the increased start activity is a positive sign and indicates that the anticipated housing recovery is now under way in Austin," said Tommy Tucker, Austin division manager for Residential Strategies.

Other local analysts have said that 2010 could usher in the start of a rebound for the Austin economy and the local housing market. "When the U.S. economy improves, Austin will be one of the first markets that shows stronger growth in its housing market," said Eldon Rude, the Austin director for housing market research firm Metrostudy .

Housing demand is tied to employment growth. If Austin sees the

2 percent job growth the Federal Reserve Bank of Dallas is predicting for 2010, "this would certainly go a long way in extending the increase in housing demand we've seen thus far during the spring, and we would expect to see a more normalized pattern of housing growth through 2010," Tucker said. "However, without job creation, we expect housing activity in Austin to show only slight improvements over the 2009 performance."

Although starts were up, builders closed nearly 25 percent fewer homes in the first quarter, with 1,617 compared with 2,150 a year ago.

Tucker said closings reflect last year's drop-off in starts. However, closings are expected to rebound in the second quarter as builders and buyers rush to close homes before the tax credit expires, Tucker said.

Metrostudy's Rude said that in most of the 33 markets nationwide where his company conducts its surveys, builders reported increased first-quarter sales in the lower price points because of the tax credit.

"While in many parts of the country the end of the tax credit will likely result in slowing activity, in Austin I expect the market will continue to show slow improvement throughout 2010," Rude said. "With many prospective buyers in the Austin area postponing their decisions to purchase a home in recent years, and considering our continued population growth, some level of pent-up demand for housing will eventually translate into increased sales activity for both new homes and resales."

On the supply side, Residential Strategies said there were 1,909 finished but vacant new houses, 9.6 percent fewer than a year ago.

However, the 1,837 homes under construction was up nearly 9 percent from late last year, "to ensure that there would be sufficient inventory to satisfy demand stemming from the tax credit," Tucker said.

Last year, D.R. Horton, Central Texas' largest homebuilder, built several hundred homes in the region to target first-time buyers who would qualify for the tax credit.

Rob Hutton, president of Horton's Central Texas division, said the bet "turned out to be a good one."

"We've sold most that we started late last year - primarily due to low interest rates and the tax credit - and quite frankly, we wish we had more," Hutton said.

Noting that the job market has been gaining momentum in the region, Hutton said: "We continue to be bullish on Austin and believe that Central Texas is one of the best markets in the country in which to be doing business."

 By Shonda Novak, statesman.com

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Number of permits highest since last year's second quarter.

By Shonda Novak
AMERICAN-STATESMAN STAFF
Saturday, October 24, 2009

The Austin new-home market is showing signs of stabilizing, according to Bohlke Consulting Group LLC, a Houston firm that tracks building permit activity for single-family residences.

Builders slowed down in September after a busy summer, with permits last month down 45.3 percent from the year's peak in July.

But a total of 2,185 permits were issued during the third quarter, up 9.2 percent from the 2,001 issued in last year's third quarter.

It was the strongest quarter in more than a year, said Gary Bohlke, the firm's vice president of consulting services.

"The strength is very broad-based," he said, with 17 of the 26 market areas that Bohlke tracks in Central Texas showing increases over the same quarter in 2008.

The firm expects builders to seek 6,700 to 7,000 permits this year, an increase from 2008.

More views on the market:

Rob Hutton is president of D.R. Horton's Central Texas division, the area's largest builder. Horton in recent months has built several hundred homes in Central Texas, aiming primarily at first-time buyers who qualify for a federal tax credit that is set to expire next month.

"Over the past few months, we've seen traffic improve in virtually all of our communities across Central Texas," Hutton said.

"We've seen brisk demand" for the speculative homes, driven mostly by mortgage interest rates that have hovered around 5 percent "and the fact that confidence is slowly returning to the local economy," Hutton said.

"Also, and perhaps most importantly, we continue to see a strong desire for homeownership. Even in the middle of a very challenging recession, the American dream of owning a home appears to be alive and well," he said.

Eldon Rude is Austin director for housing research firm Metrostudy.

Compared with the 16,000 homes built in 2006, this year's projected level means "a lot less business for builders," Rude said. But he noted that conditions remain better in Austin that in most of the other 32 markets nationwide that Metrostudy tracks.

"Builders remain optimistic about the long-term viability of the Austin market," he said. "They know the economy will eventually improveand job growth will return to the region."

snovak@statesman.com; 445-3658

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By Alan Zibel, Alex Veiga
ASSOCIATED PRESS
Tuesday, July 28, 2009

WASHINGTON - New home sales rose last month at the fastest clip in more than eight years as buyers eagerly took advantage of bargain prices - a clear sign, economists said, that the real estate market may finally be bouncing back.

Historically low interest rates and a federal tax credit for first-time homeowners also helped push home sales to their highest level since November, the Commerce Department reported Monday.

While home prices are still falling around the country, sales have now risen for three months in a row. Construction of homes is at the busiest level since last fall. And home resales rose in June for the third straight month.

"The worst of the housing recession is now behind us," said David Resler, chief economist at Nomura Securities.

But as with the overall economy, he said the recovery is likely to be slow and arduous.

Put in perspective, the improvement in sales is modest. The pace of sales for new homes in June was still 72 percent below the peak of four summers ago, and an enormous inventory of homes is still on the market.

"There's been signs of improvement, but we're a long ways off from being back to a normal market," said Corey Barton, president of CBH Homes in Meridian, Idaho. Sales there were up in June, but Barton said, "It wasn't our biggest jump in eight years."

But there were clear signs the housing market is showing more life than at any point since the recession began.

Keystone Custom Homes of Lancaster, Pa., which was founded in 1992, had its best June ever. July looks good, and president Larry Wisdom expects an even stronger August.

"We doubled our sales in May, and then in June it took off," he said.

New home sales for June came in at a seasonally adjusted annual rate of 384,000, blowing past the expectations of economists surveyed by Thomson Reuters, who were looking for 360,000.

The figure is up 11 percent from May, and May's number of 346,000 was higher than previously thought. The increase is the largest since December 2000, when investors scarred by the tech-stock bubble were looking for more stable places to put their money.

Sales were strongest in the Midwest, where they jumped 43 percent from May. Sales climbed 29 percent in the Northeast and 23 percent in the West. They declined slightly in the South.

The median sales price was $206,200, down from $234,300 a year and $219,000 in May. Economists expect home prices to fall until the competition from low-priced foreclosures ebbs sometime next year.

To drum up sales, CBH Homes has slashed prices up to 10 percent from last year's levels. The homes CBH builds have to compete with the glut of foreclosures, which are drawing many first-time homebuyers.

In addition to lower prices, buyers are rushing to take advantage of a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers. The closing must occur by Dec. 1 for buyers to take advantage.

"There's definitely more first-time homebuyers in the market than what we've seen in the last several years," Barton said.

Fallout from the housing crisis played a central role in the U.S. recession, the longest since World War II. Mortgages went bad, homebuilders pulled back and fired thousands of workers, foreclosures spiked, and lenders were shuttered by the dozen.

Although the real estate market appears to be starting a recovery, that doesn't mean it will instantly become an economic engine. Construction is weak because builders have too many unsold homes.

At the current pace, the new homes for sale would last nearly nine months. That's slightly less time than in May but still much longer than the six-month mark that indicates a balanced market.

New-home starts in the second quarter were 53 percent higher than in the first quarter.

Because builders have pulled back in the past year, there is only a three-month supply of new homes on the market.

The shortage of new homes has led to a pickup in the resale market, which had its best month in a year in June.

From http://www.statesman.com/search/content/news/stories/nation/2009/07/28/0728econ.html

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Prospective first-time home buyers who have been sitting on the fence now have a significant financial incentive to explore the opportunities available in today's housing market.

H.R. 3221, the Housing and Economic Recovery Act of 2008 - which has just been passed by the Congress and now is on its way to President Bush for his signature - allows first-time home buyers to take a $7,500 tax credit from the purchase of a single-family home, townhome or condominium apartment.

Any home buyer who has not owned a home during the past three years and is a U.S. citizen who files taxes is eligible to participate in this program. (Some home buyers who are not citizens may also qualify; see #14 in the questions and answers below.)

To qualify, buyers must actually close on the sale of the home on or after April 9, 2008 and before July 1, 2009. The original eligibility period expired in April 2009, but following a major grassroots campaign from NAHB members, the period was extended to enable home builders to include the credit in their sales and marketing next spring and into the early summer - the peak home buying season.

The program does have income limits. Single or head-of-household filers can claim the full $7,500 credit if their adjusted gross income (AGI) is less than $75,000. For married couples filing a joint return, the income limit doubles to $150,000.

Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit. The same applies to married couples who earn between $150,000 and $170,000.

The credit is not available for single taxpayers whose AGI is greater than $95,000 and married couples with an AGI exceeding $170,000.

A refundable credit means that if a taxpayer pays less than $7,500 in federal income taxes, the government will write them a check for the difference. For example, if $5,000 in federal taxes is owed, the taxpayer would pay nothing and a $2,500 payment would be received from the IRS. If a qualifying home buyer were owed a $1,000 tax refund, they would receive $8,750.

Buyers can take the tax credit on their 2008 or 2009 tax return. Those who close in 2008 take the credit on their 2008 return. Buyers in 2009 have the option of taking the credit on their 2008 or 2009 returns.

The tax-credit program also has payback provisions.

The credit essentially serves as an interest-free loan to be repaid over 15 years. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. If the home owner sold the home, then the remaining credit would be due from the profit of the home sale.

If there is insufficient profit, then the remaining credit payback would be forgiven.

Questions and Answers for Consumers

Following are the "Frequently Asked Questions about the First-Time Home Buyer Tax Credit" that will appear on NAHB's consumer Web site (www.federalhousingtaxcredit.com). The site will become active as soon as the housing legislation is signed into law.

1. Who is eligible to claim the $7,500 tax credit?

First time-home buyers purchasing any kind of home - new or resale - are eligible for the tax credit.

2. What is the definition of a first-time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase.

3. What types of homes will qualify for the tax credit?

Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses, and condominiums.

4. Are there income limits to determine who is eligible to take the tax credit?

Yes. Home buyers who file their taxes as single or head-of-household taxpayers can claim the credit if their modified adjusted gross income (MAGI) is less than $75,000. For married taxpayers filing a joint tax return, the MAGI limit is $150,000. The limit is based on the buyer's modified adjusted gross income for the year that the house is purchased, except for certain purchases in 2009. 

5. What is "modified adjusted gross income"?

Modified adjusted gross income, or MAGI, is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income," or AGI, which is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income - including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceeds the phase-out limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

7. Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

Here's another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. Does the credit amount differ based on tax filing status?

No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files its taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

9. Are there any circumstances under which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?

In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

10. I heard that the tax credit is refundable. What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed). 

11. What is the difference between a tax credit and a tax deduction?

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15% tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer's tax liability would be reduced by $1,125 (15% of $7,500), or lowered from $7,500 to $6,375.

12. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

No. The tax credit cannot be combined with the MRB home buyer program.

13. I live in the District of Columbia. Can I claim both the D.C. first-time home buyer credit and this new credit?

No. You can claim only one.

14. I am not a U.S. citizen. Can I claim the tax credit? 

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519 (www.irs.gov/pub/irs-pdf/p519.pdf).

15. Does the credit have to be paid back to the government? If so, what are the payback provisions?

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

16. Why must the money be repaid?

The intent of Congress was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices and will increase home sales. The repayment requirement reduces the impact on the U.S. Treasury and assumes that home buyers will benefit from stabilized and, eventually, rising future housing prices.

17. Because the money must be repaid, isn't the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?

Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers more than $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

18. If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on Dec. 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

19. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?

Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

Copyright NATIONAL ASSOCIATION OF REALTORS®
Headquarters: 430 North Michigan Avenue, Chicago, IL. 60611-4087
DC Office: 500 New Jersey Avenue, NW, Washington, DC 20001-2020
1-800-874-6500

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FROM THE DESK OF STEVE GARDNER

I want you to be informed about a new city-mandated "point of sale" requirement that will financially affect you when you sell or buy a house.  The city is planning to pass an ordinance that will make it mandatory for your house to be energy retrofitted before you can close the sale.  We are all in agreement that we need to keep Austin beautiful and affordable at the same time.  The mayor is proposing this program to conserve energy for our city. The concept is a good one.   We now have a non-mandatory program where the city will come out and do an energy audit, but neither the audit nor the recommended changes are required. You can read a lot of details by going to www.keepaustinaffordable.org, which is published by the Austin Board of Realtors. 

In a nutshell, my take is that we are going too fast with this ordinance and the city is too concerned with getting it passed quickly before considering all the alternatives and the ramifications for the consumer.  I asked the mayor on live radio if he would support removing the June 10, 2008 mandated date for the committee he appointed to have a recommendation for City Council to consider passing, and he said he doubted it would happen that quickly. However, he never said he would NOT SUPPORT the ordinance if the Council wanted to move forward.  This project is widely known to be his special project, and he has been orchestrating it from the beginning.  He has considerable influence over the project's time frame.

There needs to be more input from city residents before a few people decide something of this magnitude for everyone.   There are approximately 26,000 sales in Austin per year that would have to be inspected before closing by a city inspector, and that could easily be 35,000 to 40,000 if you take into account that every house will not pass inspection the first time.  The city currently has about 17 inspectors who do new-home and other types of inspection.  WE ARE MOVING TOO FAST WITHOUT A TRUE PROGRAM IN PLACE.  We need more details and input on this subject.  Call your City Council members after reading the Keep Austin Affordable Web site and checking the city's Web site for details.

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How much would it cost to rebuild your home at today's prices?

Consider this...
You're talking with your insurance agent, who explains the coverage available under your homeowners policy. You're surprised to find out that the estimated replacement cost of your home is different from its purchase value. Why? Here is an explanation.

Purchase price vs. replacement cost

The appraisal industry bases its valuations on the availability of comparables to select the appropriate costs.  Appraisal-based cost data reflect typical labor efficiency, the cost of money, fees and many other items, which are not included in the basic costs of labor and materials.  They are designed to give accurate present-day costs that will form a sound foundation for the cost approach to valuation. Within the appraisal industry, the term "replacement cost" means the replacement cost of a building as the total cost of construction required to replace the subject building with a substitute of like or equal utility using current standards of materials and design. In the insurance industry, replacement cost and reconstruction cost mean the total cost of construction required to replace the building with one of like kind and quality, as quickly as possible, at an existing site.  The replacement cost of your home can be 30 percent to 40 percent higher than the cost of new construction. The difference is due to:

• No economies of scale
• Limited site access due to existing structure
• Increased wages for a labor force skilled in reconstruction
• Lost productivity from working within an existing site
• Replacing the home with the same materials and style that existed prior to loss

Farmers Computerized Dwelling Replacement Cost (CDRC) program

In the past, the most commonly used replacement cost methodology was the square foot method.  This method takes the measurements of the home, garage, and basement area, and then multiplies each by a specific amount (e.g., $50 x first floor square footage plus $35 x Garage Square Footage plus $20 x basement square footage = estimated minimum replacement cost for the dwelling).  It was designed when average home styles and features were more common and consistent.  More recently, companies, including Farmers, began using component-based systems to calculate the replacement costs of dwellings.  Instead of assuming that all homes of the same size and age require the same amount to rebuild, a component based system incorporates the actual features of an insured dwelling in the replacement-cost estimate.  Farmers contracted with Marshall & Swift to provide the core labor and material costs used by our Computerized Dwelling Replacement Cost (CDRC) program to calculate the minimum estimated replacement cost for your home.  Currently, Marshall & Swift monitors 2,621 locations in the United States. The labor and material cost information it provides helps estimate the cost to rebuild a house on its existing lot, as opposed to other systems that calculate the cost to build a new house on a vacant lot.

Determine the adequate amount of insurance for your property

As already mentioned, Farmers agents use the CDRC program to calculate the replacement cost
of your property. You advise your agent about the features/and components of your house, and he or she then inputs this information into the CDRC program. The program determines a replacement cost based on labor/and material costs for the features of your property.  It is very important that you provide accurate information about your property so that our CDRC program can calculate an adequate replacement cost estimate for your property. Once the replacement cost estimate is established, you can use it as a reference to determine the amount of insurance you need. 

I will be glad to speak with you at your convenience to discuss the construction details of your home and share with you the benefits of allowing Farmers to provide you with homeowners insurance.  If this sounds good to you, please give me a call at 1-866-380-9088 ext. 705 and I will give you - without obligation - a free comprehensive replacement estimate on your home.

Alycen Delrie
Agent

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