Richard's Real Estate Thoughts

FHA has just announced that the implementation date for the new condo guidelines has been pushed back again, until December 7.

Good news for condo buyers and owners.

Originally, the new rules were to take effect at the end of October, but FHA granted a reprieve until November.

Now the new implementation date is December 7. Lender spot approvals will be accepted until then.

Possibly even more important with the announcement today, FHA will issue new guidance with "additional leniencies to address the difficult market conditions."

A new mortgagee letter is expected out in a couple weeks with updated guidance. Mortgagee letter 2009-19 initially announced the new condo guidelines.

The excitement is building for the First Annual Chattanooga's Renaissance Oktoberfest, this weekend, October 24, from 11am to 7pm.

The event is growing and gaining much momentum, with announcements seemingly daily about new offerings and activities for the one day celebration of Chattanooga as the "South's Renaissance City."

The Renaissance Oktoberfest is being directed by the City of Chattanooga's Department of Education,Arts & Culture and will benefit the EAC afterschool initiative. 

Activites include:

Chattanooga Market: "Market on the Bridge". The Market will continue its celebration of Chattanooga's Renaissance on Sunday, back at the First Tennessee Pavilion. With Big River Grille and Brewing Works, the Chattanooga Market will host the Oktoberfest Beer Gardens on Walnut Street Bridge and in Coolidge Park.

The Choo Choo Musical Parade will end the day, featuring performances by students from the Center for Creative Arts singing Chattanooga Choo Choo. Other local artists include Emily Grace, Tim Jester, B Wordstar, Dennis Massengale and No Big Deal band, Neshaw Callaway, Frank Taylor and Dalton Roberts as the Choo Choo's engineer.

Across the River at the Bluff View Art District, celebrations will include glass blowing, local farmer ware, face painting, food and drink from all of the Bluff View restaurants.

The Hunter Museum will have discounted Oktoberfest admission to the last weekend of its New York Cool exhibit, including work by American artist Adolph Gottlieb. Enjoy German music on the outside plaza.

On the Coolidge Park Stage there will be local performers, including No Big Deal as the feature band, along with Elijah James, Jerry Rogers, John Latham, and T-Ran Gilbert& 22Visions.

Chattanooga Parent Magazine will present the Renaissance Oktoberfest Children's Village in Coolidge, with arts and activies for children and families.

This is a business and government partnership event taking place on both side's of the River. Just another example of how great Chattanooga works and celebrates together.

It is going to be a fun time. Can't wait til Saturday.

Fiber optics has been coming to Chattanooga for a long while. There have been law suits and regulatory attempts to stop it, but fiber is now available in many locations in Chattanooga.

The promise is "virtually unlimited bandwidth," along with consistency and increased reliability.

Check availability for your area here.

This technology is a must to maintain Chattanooga's momentum as a growing and forward looking community.

I expect there will be direct benefit even for those who do not switch to fiber, as Comcast and the other Internet access options compete for customers.

Several important reports support the economic consensus that the recession is ending. Despite many encouraging numbers the fact remains that people are struggling.

Chart from Bureau of Labor and Statistics

Unemployment continues to grow. As recent Bureau of Labor report show, even for many who are working, real income is down.

The Bureau of Labor reported today, "Since reaching a high point in December 2008, real average weekly earnings have fallen by 1.9 percent."

Loss of jobs and loss of income will make it difficult for consumer spending to drive the recovery.

Federal Reserve Chief Bernanke today shifted focus towards the budget deficit, but also for the world economies, especially China, to push for greater trade balance. If the US consumer is not in a strong position to increase personal spending, then Bernanke suggested it is necessary for other nations to "boost consumption."

He is looking for the world economies to develop more of a balanced trade as one of the requirements to avoid future world financial crises.

Congratulations to the Red Bank Lions football team for clinching their district football championship. This year is beginning to develop into a special year, like the last state championship team of 2000,

Red Bank is ranked #1 in the state for their division 4A and 14th overall in the state.

Last night they clinched with a 42-8 win over rival Brainerd. The win was especially significant as Brainerd has the second best offense in the district, behind Red Bank.

The win pushed their record to 8-0. Congratulation to the players, to Coach Tim Daniels, and to the Red Bank High School.

Go Lions.

The First Time Home Buyer tax credit has spurred recent home sales. Several options are being considered to extend the credit, in some form.

While the credit has at present increased sales, there are questions about whether the credit has stimulated new sales or just encouraged already decided buyers to purchase sooner rather than later. In other words, no real boost to the overall housing sales that would have occurred anyway over the next several months.

If this is the case, then the sales in the coming months may be adversely impacted by the present tax credit incentive.

Other objections are the cost to the treasury, and the apparent fact that the buyers and the areas benefiting from the tax incentive may not be those most needing the help.

The good news for the economy is that in a few months there will be billions of dollars in tax credits being spent by the lucky recipients. Of course it is billions of dollars that will be provided by us good old tax payers.

In a recent post, I tried to review the considerations for extending the credit - its effectiveness, its cost, its target. One comment suggested that I had mentioned the problems, but had not offered an alternative solution. I felt that was a fair criticism of the post.

How else might the government stabilize the housing market, if the tax credit idea is not effective and is too costly?

An alternative to the First Time Home Buyer tax credit.

Here is my alternative solution, using the same $11 billion that is the reported cost of the credit to date. (Of course, with still another several weeks before the deadline, I suspect the final cost will be close to double.)

Use the $11 billion, in increments of up to $8,000, to encourage new home buyers - those who want to purchase but have found that in the new lending realities, they are no longer qualified to purchase.

A year they could have purchased with lower scores or with a lower down payment. Today they are locked out.

One of the problems with the housing market is that prices have dropped because of surplus homes and the impact of foreclosure sales.

Another reason for depressed prices is that the pool of qualified buyers has dropped significantly. Credit score requirements have increased. Unemployment has increased. Down payment requirements have increased.

Fewer buyers. More inventory. Lower prices.Less sales.

If we use the tax credit money to offer a guarantee, matching dollar for dollar, to private and government mortgage insurance then it might enable the qualifying requirements to be lowered. Providing more qualified buyers.

More buyers. Less inventory. Higher prices. More sales.

For those who would participate in the subsidized MI program, they could receive a higher rate that could offset some of the cost and risk. But these new borrowers would be able to qualify with less down or with lower credit scores.

These borrowers would still meet underwriting guidelines, just relaxed guidelines.

If we used the $11 billion so far spent in the credit, largely by people who would have bought anyway (no net increase in home sales over time), then there might have been over 1,300,000 home sales that were actually new buyers.

(A real net increase in home sales over time.)

Most home buyers who would qualify unter tighter guidelines would not take the higher rate or higher MI required for the subsidized MI program. Those buyers would still purchase, without the incentive.

We would have the funding for over 1,000,000 new purchasers who would not have qualified without the subsidized MI.

The MI companies could charge the full premium and cover only half the risk. This would help restore the MI industry. (Damage to the MI industry has not received much discussion, but it is a critical issue.)

It might be possible to subsidize MI even for qualified buyers who purchase in targeted, depressed areas. This would give a reduced MI premium, and be market driven solution.

If we consider that the MI subsidy would not really be all be spent, but only for those homes lost to foreclosure, most of the buyers receiving subsidized MI would keep their homes, then the $11 billion could be used to subsidize even more purchases.

Using a 30% default rate, the $11 billion might be stretched to cover 4.5 million new home sales.

Now that would stabilize the housing market.

The popular First Time Home Buyer $8000 tax credit is due to expire November 30, 2009. There are some efforts to extend the tax credit, but there are many who question whether the incentive has been effective.

No doubt the tax incentive, as with Cash for Clunkers, brought buyers out to take advantage of the incentive, but the question is whether the incentive produced the desired result of stabilizing the housing market.

"If you pay people to buy something, they will."

The question is if we are getting new home buyers or just encouraging home buyers to purchase earlier. In other words, are we taking away from next quarter's home sales by having them purchase this quarter instead.

The question is if we, the US tax payers, can afford $8000 or $15,000 each to pay people to buy a home. Would it not be better to find real solutions to foreclosures, to unemployment, to provide for easier home loan qualifications, to enhance financing options.

Is the tax incentive program building a sustainable housing market?

For those interested in qualifying for the incentive, it would be wise to finalize your property search and purchase contract, and to get your financing approved quickly. Most lenders are anticipating a mad rush to close these purchase transactions, and many will likely miss the deadline.

Lenders are already taking longer in underwriting, and lender delays will only get worse. Some home buyers who try to squeeze in will be disappointed.

That is unless the deadline for the tax incentive is extended.

There is interest in trying to improve the incentive: to extend through this year or even through 2010, to offer to more buyers, to increase the amount, to be more targeted to specific needs.

An NPR Planet Money story quotes Andrew Jakabovics, associate director of housing at the Center for American Progress, "Four out of 5 of the buyers were given $8,000 for doing something they were going to do anyway."

From an article posted by David Abromowitz, a fellow with the Center, "We overspend because the credit is insufficiently targeted to provide purchase assistance primarily to those in need of the help. This credit effectively costs roughly $40,000 for every truly new purchase that would not have happened otherwise."

The Center has close ties with the Obama administration, and, if the thinking is that the $8,000 tax incentive is not effective in stimulating new home sales or to addressing targeted needs, only encouraging many to purchase sooner and helping those not needing help, then the tax credit might not seen as worth the cost.

The reported cost to date for the incentive is $11 billion. Of course when the credits are received they should give the Spring economy a spending boost. $11 billion plus is a lot of pocket change.

Today the administration announced the new record deficit of $1.42 trillion, with more to come as we struggle with increased spending demands, reduced income, and still growing unemployment. Such numbers will be factored into the decision whether to extend or not to extend the First Time Home Buyer tax credit.

In response to one of the comments, I posted my alternative solution to the tax credit here.

The film, Main Street: More than a Home, documents the story about the first LEED certified Habitat home in Tennessee.

Several months ago Habitat for Humanity in Chattanooga announced the first LEED certified home in Tennessee. The home was completed in April.

 Today Habitat announced the film documenting the effort and the client's story -  a remarkable story - will be featured at the Brownfields Film Festival on Tuesday, November 17th. 

The LEED certified project was a joint effort with local entrepreneur - architect, Thomas Palmer; green builder Ethan Collier; and local nonprofit, green|spaces - and Habitat. The client is Baja Dalla, a Sudanese refugee, who Sudan's civil war in which his parents and siblings were killed to come to Chattanooga.

The Chattanoogan has a story about Baja and his family. This is the 4^th refugee family helped by Chattanooga Habitat.

The story was so inspiring that David Porfiri and Linda Duvoison, with Mindflow Media, decided to produce a documentary film: Main Street: More than a Home.

Collier Construction has provided a resource sheet to describe some of the design features that makes the new home a green home. It includes planned features such as advanced framing, insulated crawl space and attic

You can donate to the green Habitat construction projects here.

Last month another successful Race for the Cure was held in Chattanooga.

This year a record crowd came out for the annual 1k Fun Run and the 5K Competitive Race.

As a follow up to the Susan G Komen Race for the Cure two more events are scheduled in October.

Tomorrow at 4pm, organizers with the Chattanooga Affiliate of Susam G Komen for the Cure® are going for the Guinness Book of Records for the largest human awareness ribbon.

Anyone over the age of 15 can participate. Participants will meet at Chamberlain Field, UTC.

The next event is October 29 at the Chattanooga Spa, from 6 to 9pm. $15 admission for hors d'oevres and mini spa treatments, with proceeds going to the Chattanooga Affiliate of Susam G Komen for the Cure®.

 

The Chattanooga economy has received some very positive signs in the last several days.

Even with employment in Chattanooga currently close to the very high national average, signs of new growth are encouraging

Reviewing the recent story lines in the Times Free Press reveals postive stories that bear out a trend of economic recovery in the Chattanooga area.

Chattam, a local consumer products manufacturer, has seen its stock price jump as investors take note of its rising sales and profits. The article reports that the company's top 4 brands, Gold Bond, ACT, Icy Hot, and Cortizone-10, are having strong sales. The article reports that the company is planning an $18 million expansion that will employ over 60 additional people.

The Volkswagen plant of course is big news in Chattanooga.Plant construction is moving along well. This week VW representatives held a gathering for potential suppliers. Plans now are to have a high percentage of supplier plants on site and locally in Chattanooga. About 100 VW suppliers gathered to hear VW expectations for its new plant in Chattanooga.

Southern Fabrication Contractors, another local company, announced it received the contract for installing equipment support steel for the VW plant. Contract terms were not announced but it is very good for the Chattanooga employer and community.

Another local company, CBL, a locally based commercial property developer and management company, announced the grand opening of The Promenade, a 700,000 square foot shopping center in D'Iberville, Mississippi. The first phase is opening with 96% of the commercial space leased or committed. The shopping center is the largest project in the Mississippi Gulf Coast since Hurricane Katrina.

Another local company, eSpin, a leader in nanofiber technology, announced it has received the license to provide dry wipes for use at Department of Energy nuclear energy facilities. These wipes replace wet wipes and are more effective and require no other chemicals to clean. The company hopes to offer similar products for general consumer use.

These headlines are strong, tangible evidence of new economic growth in Chattanooga.

The headlines tell me, Good things are happening.