First-Time Home Buyers Take Advantage of Favorable Market
Friday, August 14, 2009
SAN DIEGO There was nothing short about the “short-sale” Paul Ordonez and his wife went through to buy their first home. Fourteen months after first seeing a 1,600-square-foot townhouse in East Lake, he and his wife of three years were finally handed the keys by their agent.
“It wasn’t difficult to buy a house, but it was a lengthy process. We waited eight months for (the short sale) to be approved, but we just liked the property and we weren’t in a rush,” Ordonez said. “It just sat empty and I think it was empty before that for maybe a year and a half. The last guy who bought it paid a fortune for it.”
Initially offered at $271,000, the three-bedroom, three-bath townhouse was eventually sold for $258,000. The previous owner, Ordonez said he paid $530,000.
“It’s a nice place for a couple that just got married. It’s in a gated community, right next to a Wal-Mart, Home Depot, pharmacies. Everything you could want is there,” he said.
“There were two main reasons why we bought in East Lake. Number one, we had family there. Three of my wife’s sisters all live there, so that’s good. And number two, the price. In comparison to other homes we were looking at, it was more accessible to people in our stages of careers.”
At a time when interest rates are near historic lows, home prices are coming down from historic highs. With a number of motivated home sellers eager to make a deal, now — if you can afford it — seems like a good time for first-time homebuyers. Especially before Dec. 1.
As part of the American Recovery and Reinvestment Act of 2009, qualified first-timers may receive a tax credit of up to $8,000 on homes they purchase before Dec. 1. The credit is available on pre-existing or newly constructed single-family detached homes, town homes and condominiums.
According to the National Association of Realtors, the housing market has responded. Based on contracts signed in June, pending home sales are up for the fifth consecutive month as reported by the Pending Home Sales Index.
The pending home sales rate rose 3.6 percent in May, and is 6.7 percent above June 2008. The last time there were five consecutive monthly gains was July 2003.
Lawrence Yun, chief economist with the National Association of Realtors, said a combination of factors are fueling the gains.
“Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines,” he said. “Activity has been consistently much stronger for lower priced homes, and because it may take as long as two months to close on a home after signing a contract, first-time buyers must act fairly soon to take advantage of the tax credit because they must close on the sale by November 30.”
While waiting for their place to become available, Ordonez said, they looked at homes in other areas but nothing seemed as appealing. Other parts of San Diego were too expensive, and the East Lake home was too big, had too many upgrades, and was too cheap to not wait. Plus, watching the housing market implode helped them to realize that sometimes it was better to hold off.
“Luckily, we’ve been allowed to see what happened. There were a lot of tempting homes at $350,000 but when we started doing the numbers and saw it was not going to happen, we said to ourselves, ‘Let’s not fall into that trap.'”
Eventually -- after putting 7 percent down and taking the $8,000 tax credit -- they were approved by Wells Fargo for a 30-year fixed rate loan of $230,000 at 5.25 percent interest. Their monthly note is around $1,700, not including $300 a month in HOA fees.
Ordonez said they’ve settled into their new digs, met the neighbors and are at peace with the fact that their home may lose even more value. Ordonez said he expects the market to take another downturn and that his home may drop to anywhere between $207,000 to $220,000. But, he said, they’re in it for the long haul. He and his wife have been married since January 2006 and eventually want to have children. While they don’t plan on being buried in the backyard, he said, they also don’t foresee moving out for the next 10 years. The neighbors say there’s almost a completely new group of people living in the area. People knew it was bad when it was too easy to find parking.
“We understand that a house is just a house; it’s nothing more than a roof and four walls. We don’t look at it as an investment, at least not the first house. If you’re living on a piece of paper, you’re not going to enjoy it,” he said.
The average cost for a home in San Diego goes for $314,250 and many cities in San Diego County offer loans, grants and mortgage credit certificates to help first-time homebuyers with down payments and closing costs. Some cities -- like San Diego -- have programs that encourage low- to moderate-income families to buy foreclosed or distressed homes in specific areas. Other cites, like Escondido, provide funds up to $25,000 for any qualified family for property within city limits.
“All the foreclosures we’ve had recently is a double-edged sword,” said Judy Weichers, program coordinator with Escondido’s housing division. “It’s been extremely bad for a lot of people, but on the other hand, it’s opened up the market for the first-time homebuyers. There’s a lot of stuff out there.”
The San Diego Housing Commission has more than $7 million available in 2010’s fiscal year for homeownership lending.
“The First Time Homebuyer Program was created in 1992, and since that time 3,791 households were able to purchase their first home using our assistance. In 2009, 110 households were assisted and 61 households year to date,” said Vicki Monce, loan management supervisor with San Diego Housing Commission.
The Housing Commission offers a 30-year, deferred loan for 17 percent of the purchase price for homes in areas with a ZIP code beginning “921.” Applicants typically earn less than 80 percent of San Diego’s Area Median Income — or AMI. For a family of four, 80 percent AMI in San Diego would be $66,100.
“The Housing Commission has a total loan portfolio in excess of $236.3 million, our default rate is extremely low at less than 1 percent at 0.51 percent,” Monce said. “Homeownership loans total $32,623,630 (as of June 30, 2009) with a default ratio of 0.59 percent.”
Most of the people coming though Weichers’ door in Escondido are families, 30 to 40 years in age, with a few children. Both parents usually work, she said, with a combined household income between $50,000 and $80,000. While many of the homes being bought are 20 to 40 years old, Weichers said many condominiums are also being purchased in the $100,000 range.
Since the program began in 1996, Escondido has helped 1,500 home buyers become home owners. Weichers said the average loan is around $10,000 and goes toward purchases between $200,000-$300,00.
“For the past two or three years, I didn’t do many loans. The only thing available were condos and condo conversions and even then there wasn’t anything available for less than $225,000 or $250,000,” Weichers said. “I just did other things around (the office), which there is plenty of.”
But as the market has picked up, so has the amount of paperwork being done at the Housing Division. In fiscal year 2009, the city of Escondido issued 187 loans. Since July 1 this year, 13 loans have been arranged.
“There’s a lot of pent-up demand out and the property is out there,” Weichers said. “All the talk about the prices keeps coming back to how you’ll never see them this low again.”
Monce said the demand and interest in the San Diego Housing Commission first-time homebuyer program was very high, but so was the frustration level of many families looking for a suitable place to purchase.
“It is very tough for them to purchase homes right now due to the lack of inventory, multiple offers on properties that are for sale and investor purchases,” Monce said. “(I would tell them) to be patient; I believe there will be a lot more homes available near the end of this year.”