Update: Housing Bill Credits for First Time Buyers

Congress continues to work on resolving conflicting versions of the housing bill first discussed back in April. Word is that they're close to a deal. Here's the latest scuttlebutt as to what is planned (remember, though, that this is NOT YET FINAL):

- The credit (yes, that's a CREDIT, which is much more valuable than a simple deduction) will be $7500 .

- Eligible properties will include condos, co-ops, and single family residences.

- The credit is available to those with an AGI of less than $70K ($140 for joint returns), and is phased out above that limit.

- Credit is available only to first time buyers, defined as those who have now owned in the previous 3 years and who purchase between April 8, 2008 and June 30, 2009.

- A portion is to be repaid each year for 15 years, so it's not exactly free money, but rather will operate more like a 'loan.' However, it is a 'refundable credit', which means that even if you owe absolutely nothing in taxes, you can get this money refunded to you when you file. If you sell the property before the 15 years are up, then you will be required to repay the balance of the credit. Clearly Congress is trying to gear this opportunity towards those who intend to stay in their residences for the long term.

Though this isn't as generous as first planned, this nonetheless is a great way for first time buyers to get an up-front $7,500 to help with down payments and closing costs, enabling them to take advantage of this buyer's market sooner.

As I've commented in this blog many times, I find it takes first time buyers a minimum of 3 months to find a home they want at a price they're comfortable with, so this deadline of June 2009 gives buyers about 9 months to get started, in my estimation. However, real estate prices often fall sharply in the Fall and Winter, so you may want to get started sooner than later, so you can maximize how far that $7,500 goes!

Stay tuned as this bill makes its way through committee.

Co-ops: The Surprising Numbers

I've posted here before that I am not a big fan of co-ops, and that's still true. HOWEVER, I do want to share some data that surprised me, and after I have a chance to do a little more digging, I may reverse my position after all.

I have a client who is very interested in co-ops, so I wanted to try to get some facts to support the potential resale issues; broadly speaking, my impression of co-ops was that they were cheap to get into, but very tough to get out of when it's time to sell.

I was surprised to find that for the most recent six month period, MLS data showed that in zip code 20009..
Statistic: Condos / Co-ops
Units sold: 156 / 33
Days on Market: 60 / 53
Avg Sold Price: $366,574 / $304,321
Source: Metropolitan Regional Information System

Now, I already knew that the average price of co-ops was much less, and the number of units sold would be much lower, after all, there are many more condos than co-ops in Washington, DC. But, I was certainly surprised by the Days on Market total--turns out co-ops sell just as quickly, if not more quickly, than condos. My guess is that this is because of the low price point--an entry level buyer, and $52K is quite a difference for someone trying to get into their first place. Not to mention that co-ops, often in older buildings, are frequently much larger units than today's condos.

My point? Perhaps just that I may have been too hasty to condemn co-ops--though I am still adamant about the land lease co-ops. And there are still major pitfalls for a buyer to be aware of: Board Approval, possibly higher required downpayments, limited options for financing, the potential inability to rent the unit. But for the right purchaser, co-ops could be a great opportunity, and the topic deserves more study and I'll post again soon.


And now for my legal disclaimer: Information deemed reliable but not guaranteed. Do not rely on this information without verification.

Condos versus Co-ops

For my first discussion, I want to talk a little bit about co-ops vs. condos. Co-ops are a very ,misunderstood piece of the real estate market. The basic difference is this: Co-ops are corporations in which you buy shares, in exchange for which you are given the right to occupy a unit. Condos are units that you buy, along with an undivided interest interest in the common elements (like hallways, courtyards, pools, and other amenities.) Though it may seem like a small difference, the implications are actually huge. You can see a further discussion of the differences on my web site here.

First, a disclaimer: I am just not a fan of co-ops. Something about having to get approval of a Board before you can buy property just rubs me the wrong way. And the captive financing--by which I mean you can only use the one or, if you're lucky, two approved lenders, who certainly know that if you want the unit you have to go through them (guess what that does to your rates?), well, it's just not in keeping with the capitalist spirit. The MBA in me bristles at it. Co-ops are almost always cheaper than comparable condos, and for good reason.

The financing is one disadvantage, but the biggest drawback I've learned of is the "land lease" co-ops. Here's how it works: when the co-op is formed, they only have a lease on the land that the buiding is on. It's usually very long term, say 99 years. River Place in Rosslyn is like this. Guess what happens when the lease is up? Everyone gets kicked out, and the building and all its improvements (that means your unit too!) revert to the LAND owner. You get nothing! It's just like having an apartment that you pay to remodel, but when the lease is up, your landlord gets it all at no cost. River Place's lease is up in about 50 years. That 's why the units there are so darn cheap compared to condos...they decline over time as the lease end approaches. I wonder whether people within the 30 year window at the end will even be able to get a loan? It will sure stink to be an owner in that window. Good luck trying to sell!