Hello to all of my colleagues in Real Estate
In my last update, I told you that as Wall Street began to lose its volatility and fundamentals began to dictate market direction, money would begin to flow into mortgage backed securities which would result in lower mortgage rates. Since then, the Fed has announced that they would provide short term financing for larger companies that need it to survive. Bill Gross of PIMCO, a major purchaser of bonds, announced on Monday that his company has increased holdings of mortgage-backed securities in September to the highest level this year. Later that day, mortgage backed securities had their biggest rally in months resulting in mortgage rates dropping to levels not seen in quite some time. It is the intention of the Fed and the treasury department to do whatever is necessary to not only stop this economy's downward spiral but more specifically move mortgage rates down as part of their plan to revive Real Estate. With mortgage rates dropping for the time being and home prices at levels that present once in a lifetime opportunities for the right buyer, it is clear that we must educate and market to the prospective buyer that does not have a home to sell before they can buy one. Those soon to graduate from college are renting now and are outstanding candidates to buy a home at an amazing price. Renters that have stayed on the sideline are in the same position.
Most of us have heard about the new tax credit now available to first time home buyers but it's crucial that we all are aware of how it can benefit potential future clients. I have researched the program and below you will see a summary of the credit and explanation of how it works.
Basic Facts of the US Treasury First Time Home Buyers Tax Credit:
•1) You must close on the home purchase between April 9,2008 and July 1st, 2009
•2) The tax credit is equal to 10% of the purchase price but no more than $7,500
•3) The buyer must earn less than $75,000 filing single and $150,000 filing joint to receive the full credit
•4) The Credit disappears with $95,000 filing single and $170,000 filing joint
•5) Each buyer must not have owned a home within the last 3 years of closing
•6) This is an interest free loan payable $500 per year. The first payment is due the 2nd year after closing. If the closing is in 2008, the first payment will be 2010.
•7) You claim the credit on your 2008 or 2009 federal tax return. It is a dollar for dollar reduction of tax due!
•8) If income is over the levels in #3, the partial credit is figured with this formula: (Amount over limit/$20,000) Subtract the result from 1 and multiply by $7,500 Example: Income is $90,000 minus the limit of $75,000 = $15,000 divided by $20,000 = .75 Subtract .75 from 1 and the result is .25. Multiply that by $7,500 and the Tax Credit is $1,875
•9) The way to receive the credit in time for closing is to have the employer withhold $7,500 (or the amount of the credit) less in payroll leading up to closing. Otherwise the credit is a net of taxes due.
While we clearly welcome the business from our clients that have homes to sell, a key element of our marketing strategy should include direct marketing to those that are currently renting and financeable. In my opinion, the Realtor and Mortgage Banking organizations should join forces to educate and market to this select group. It sure wouldn't be a bad idea for the government to join us in producing radio, television, and print ads directly, with the cost shared by all three groups. There will never be a better time for eligible buyers to invest in Real Estate that should result in appreciating values as we inevitably recover from this housing nightmare. If existing home owners are unable or unwilling to buy new Real Estate before they sell their existing properties, let us focus on the segment of potential buyers that don't have properties to sell.
I would like to know what you think. How would we implement this massive joint marketing venture? This is the real issue. I have no doubt that would go a long way to turning things around. Do you think so too? Let me know.
Today, the DOW fell 514 points, fueled by worries of a global slowdown. The Euro fell to $1.28 against the US dollar after hitting a high of $1.59390 on July 16th! Oil trading finished around $67 per barrel which was the lowest level since June of 2007! That is a decline of $80/ barrel since July 11th...that is 54%! Gasoline has also tumbled as weakening fuel consumption outweighed prospects of a production cut by OPEC at a meeting this week. The lower inflation that has resulted lays the groundwork for an additional ½ point reduction in the Fed Funds Rate which will likely be announced on Wednesday, October 29th. This will match the Fed Funds Rate that prevailed from June 25th of 2003 to June 30th of 2004. (Remember the housing boom that occurred during that time?) The Prime Rate will likely match a record low 4%. On Monday, Treasury Secretary Hank Paulson implored the banks that are benefiting from the liquidity provide by the Federal Government to lend and not to hoard the money until the economy works itself out. At this point, there is no authority to require any bank to comply, but look for Congress to change that if Paulson's plea goes unheeded.
I am encouraged that the Fed is seemingly making the right moves to pull us out of this Real Estate market decline. I believe that the economy will begin to react to the World coordinated moves to add liquidity and open up lending that is so necessary to bring this economy back. Continue to work as hard has you ever have in staying in contact with everyone that you have worked with in the past. Call your clients to ask them how they are handling this economy. That will be a subject that they will welcome your point of view.
Until my next update, be well and above all...stay calm! Hard work always pays off! Rick
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