After a worse than expected falloff in home sales during the month of July, buzz about a possible revival of the federal homebuyer tax credit has begun to surface.

The National Association of Realtors (NAR) reported last week that sales of previously owned homes plummeted 27 percent in July, hitting their lowest mark in 15 years. New home sales also took a dive, dropping nearly 13 percent from June to July.

Both reports were clear indications of the frailty of the housing market post-stimulus. Although, the steep declines were actually considered a by-product of the tax credits themselves, which expired on April 30 – payback for the incentives that pulled sales forward into the spring months.

HUD Secretary Shaun Donovan said on CNN’s “State of the Union” program this weekend, “The July numbers were worse than we expected, worse than the general market expected, and we are concerned. That’s why we are taking additional steps to move forward.”
Donovan said it was too early to say for sure, after only one month’s numbers, whether the administration would revive its popular homebuyer tax credits to give the housing markets another much-needed boost, but he didn’t wholly rule it out as an option.

“All I can tell you is that we are watching very carefully,” Donovan told CNN. “We’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

Two U.S. Senate candidates from Florida, one of the hardest hit states by the housing downturn, spoke out in favor of bringing back the federal tax credits for homebuyers on the CNN program.

Florida Gov. Charlie Crist, who is running as an independent for a Florida Senate seat, said a reinstatement of the homebuyer tax break “would be a great lift” and “would stimulate the economy…[and] increase home sales in Florida.”

“People are hurting, and they’re looking for answers. And that would be a good one. I would absolutely encourage the president to support [another homebuyer tax credit],” Crist told CNN.

When asked if he was also onboard with renewing the homebuyer tax credit incentive, U.S. Rep. Kendrick Meek, a Democrat running against Crist for the Senate seat, replied “Absolutely.”

“[I]t was essential to helping individuals buy a home again. That tax credit means an awful lot here in Florida. We need more of it,” Meet said.

But even better deals can be found at smaller banks and credit unions.

“I’ve found that my clients can get routinely better rates by heading to a more regional lender and forgoing the bigger lenders,” says Sean Satkus, a real-estate agent in the Washington, D.C., area.

The differences can be stark. On average, the three biggest banks—Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co.—offer rates of 4.66% on 30-year fixed mortgages for home purchases, according to Bankrate.com. By contrast, St. Louis’s Heartland Bank is offering a rate of 4.50%. Acacia Federal Savings Bank comes in at 4.25%. And Rockland Trust Co. in Boston is offering just 4.13%. (None of these offers include “points,” or extra fees to secure lower rates.)

Jason Schneider
.To some extent smaller banks have always been a little more competitive on rates. But “the discrepancy is widening,” says Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, “and I only expect it to get wider in the future.”

Consolidation during and after the financial crisis is the biggest factor. Together, Wells Fargo, BofA and Chase accounted for 56.5% of new mortgage originations in the first half of this year, according to Inside Mortgage Finance—up from just 36.6% in 2007.

Now these banks don’t have to compete on pricing in the same way, Mr. Cecala says: “They have a large share of the market, and aren’t worried about demand.”

Pricing Advantages
Smaller mortgage brokers and regional banks also have some built-in pricing advantages, says Greg McBride, a senior financial analyst at Bankrate.com. They are nimbler than larger competitors, he says, and can cut overhead when they need to—making them lean enough to price loans aggressively.

Compensation structures for loan officers are also a factor. Smaller lenders tend to pay on commission, “and will sometimes operate on thinner margins to get higher volumes of loans out,” Mr. McBride says. “Mortgage brokers tend to live or die on volume.” By contrast, big banks tend to pay loan officers a salary regardless of volume. In fact, it often is cheaper for big banks simply to buy loans originated by smaller banks, or “correspondent lenders,” than to reduce rates to compete with them.

“The bigger banks can save money on origination by buying the loans from correspondent lenders later in the chain,” Mr. McBride says.

Profit margins are falling sharply at smaller firms. According to a July 20 study by the Mortgage Bankers Association, profits per origination at independent mortgage lenders were down to $606 during the first quarter of 2010 from $1,088 in the same quarter last year.

Room to Fall
Yet there still may be room to fall, says Cameron Findlay, chief economist of LendingTree, an online lender. On Aug. 1, he says, the average rate for 30-year fixed-rate mortgages was 4.56%, which was more than one percentage point greater than the average of 3.45% at which lenders could sell these loans to investors in the secondary market. “There’s clearly more wiggle room there,” he says.

Borrowers looking for smaller lenders or brokers can trawl websites like Lendingtree and Bankrate.com, which lists rates in local regions.

Alex Sorokin is taking advantage of small banks’ largess. The 52-year old accountant wanted to buy a two-bedroom condominium in Brooklyn, N.Y., and initially thought he would get the best rate from Chase, Commerce Bank or Wachovia, now part of Wells Fargo.

When he started inquiring in April, he says, he was surprised to find that none would offer a rate for a $279,000 mortgage lower than 4.8%. That is when he decided to contact Luxury Mortgage, a Connecticut-based lender. He ended up with a rate of 4.625%.

“We closed in July,” Mr. Sorokin says, “and I am really happy.”

Write to Jessica Silver-Greenberg at jessica.silver-greenberg@wsj.com

The real estate downturn has sent home prices tumbling, inflated housing inventories, and prompted stimulus programs that have pushed mortgage rates to record lows and given homebuyers tax breaks and cash incentives for their purchases.

Undoubtedly, it’s a buyers’ market. A new study released by J.D. Power and Associates Wednesday confirms that with today’s bargain-basement market conditions, homebuyers are giving their real estate experiences a thumbs-up. Sellers, on the other hand, aren’t nearly as pleased once the deal is done.

Satisfaction with national real estate companies among homebuyers has improved over the past year. Overall satisfaction among homebuyers is now averaging 803 on J.D. Power’s 1,000-point scale – an increase of 12 points from the 2009 reading. The company says this improvement is primarily driven by increased satisfaction with agents and salespersons.

In contrast, overall satisfaction among home sellers has declined by 40 points from 2009 and averages 742 in
2010. Among home sellers, the largest drop-off in satisfaction was observed in marketing of the home and the scope of additional services offered by agents.

“Among both homebuyers and home sellers, the importance of agents and salespersons has increased substantially in 2010, compared with 2009,” said Jim Howland, senior director of the real estate and construction practice at J.D. Power and Associates. “Buyers are increasingly relying upon negotiating skills of agents and seem to be satisfied with the purchase prices they are obtaining.”

Howland continued, “Despite the fact that selling agents appear to be doing a good job of negotiating and marketing on behalf of home sellers, the tough economic conditions are negatively impacting their overall satisfaction with real estate companies.”

In the homebuyer segment, Keller Williams ranks highest in satisfaction for the third consecutive year, with a score of 817 on the 1,000-point scale. Following in the rankings are Prudential (811) and Coldwell Banker (805).

Among home sellers, Prudential ranks highest with a score of 760. Prudential is the only company to improve in home-seller satisfaction in 2010, compared with 2009. Following Prudential in the rankings are Keller Williams (751) and RE/MAX (744).

J.D. Power’s study, now in its third year, measures customer satisfaction of home buyers and sellers with the largest national real estate firms.

Overall satisfaction is determined by examining three factors for the homebuying experience: agent/salesperson; office; and additional services. Four factors are examined for the home-selling experience: agent/salesperson; marketing; office; and additional services.

Recent Articles

Market Update

Housing activity continues to remain above year-ago levels despite some setbacks resulting from the now-expired tax credit. Improved stability in home prices with similar levels of distressed properties seen last year offers a hopeful sign the market is holding its ground. However, the economy still has a considerable way to go to achieve its full recovery. 

Consumers are saving more and being picky about how they spend their money. While a higher savings rate means less spending in the near term, this is a positive sign that households are taking control of their finances to build some cushion that can be used to pay down debt and/or support future spending.

Existing home sales marked the twelfth consecutive month of year-over-year increase in June. On a monthly basis, sales activity eased 5.1% from May. The moderation in home sales reflects “understandable swings as buyers responded to the tax credits,” according to Lawrence Yun, NAR chief economist. He anticipates such impact to show up in the next two months.

June’s median home price increased for the fourth consecutive month. Distressed homes, accounting for 32% of sales last month, continued holding home prices at highly affordable levels for the time being. While distressed sales hovered around the same level as a year ago, the gain in home prices is pointing to a sustained stability in the making.

Interest Rates

Mortgage rates set a new record low in July as consumer confidence softened and unemployment remained elevated. This presents a great opportunity for buyers and investors. Coupled with lowered home prices and a robust rental market, investors are finding their way to cash-flow opportunities. As recovery gains deeper roots, rates will need to rise to keep inflation in check. 

Rates as of August 6.

This Month’s Video

Topics For Home Owners, Buyers & Sellers

Consumers Beware: New Credit Card Tricks

On May 22, 2009, President Obama signed into law the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, marking a turning point for American consumers and ending the days of unfair rate hikes and hidden fees. While the new law offers significant  safeguards, consumers still need to be vigilant against new practices designed to outflank the new rules.

Stay as informed as possible, read your statement , report any irregularities immediately, and watch for these tricks.

• Shortened Billing Cycle: The CARD Act requires companies to allow a window of at least 21 days from when a statement is mailed and when payment is due. Cardholders are reporting being shortchanged on billing cycle time and then being assessed late-payment fees.
  Advice: Watch out for shortened payment dates.
• Sunday Due Dates: The CARD Act stipulates if a creditor does not receive or accept payments on weekends or holidays, then the date is extended and late-payment fees shouldn’t be triggered. However, some banks say they’re open for business even when there’s no mail delivery.
  Advice: Don’t assume you are safe.
• Low-Limit Cards: The CARD Act says a card’s total annual fees can’t exceed 25% of a borrower’s credit line. However, some issuers may be evading the fee restrictions by charging an up-front processing fee that doesn’t fall under the 25% cap.
  Advice: Watch out for processing and other fees.
• False Inactive Fees: Issuers will no longer be able to charge inactivity fees or extra charges for people who don’t spend a certain amount each year, effective August 22. However, some issuers are charging an annual fee that’s waived if cardholders reach a certain spending threshold.
  Advice: Watch out for conditional annual fees.
• Rebate Offers: Some credit cards offer refunds on finance charges when customers pay on time. However, rebate offers aren’t governed by the CARD Act, and such offers can be revoked suddenly and for any reason, leaving cardholders stuck with higher charges.
  Advice: Rebates may translate to real savings in finance charges.

Source: The Wall Street Journal

 Roni Gutierrez

(562) 305-7527

www.ronigutz.com

Newsletter Contents

1. Market Update

2. Interest Rates

2. Video

3. Topics for Owners, Buyers & Sellers

Brought to you by KW Research. For additional graphs and details, please see the This Month in Real Estate PowerPoint Report. 

The opinions expressed in This Month in Real Estate are intended to supplement opinions on real estate expressed by local and national media, local real estate agents and other expert sources.  You should not treat any opinion expressed on This Month in Real Estate as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion.  Keller Williams Realty, Inc., does not guarantee and is not responsible for the accuracy or completeness of information, and provides said information without warranties of any kind.  All information presented herein is intended and should be used for educational purposes only.  Nothing herein should be construed as investment advice.  You should always conduct your own research and due diligence and obtain professional advice before making any investment decision.  All investments involve some degree of risk.  Keller Williams Realty, Inc., will not be liable for any loss or damage caused by your reliance on information contained in This Month in Real Estate.