Yesterday’s Herald Sun had an article discussing ways to balance the upcoming year’s City budget — Council Open to Raising Taxes. The article discussed the projected gap in next year’s budget, estimated by some to be about $13Million, and the need to deal with some deferred road maintenance to the tune of at least $1.5Million [dealing with all the deferred maintenance would be $19Million] . The Council is apparently looking to cover the shortfall with a combination of spending cuts and a property tax increase of as much as 5.8 cents per $100 — an 11% increase over current rates. The Council is also considering a bond issue to deal with the backlog of maintenance projects.

Some semi-random thoughts;

1. There will be a property tax increase this year. The Council wouldn’t be talking about it in February unless they were laying the groundwork for passing an increase later this year.
2. While they say they will use a mix of spending cuts and a tax increase, expect much fewer spending cuts and a larger tax increase. After all, when has any government really been successful at cutting spending? I’d be surprised if the rate increase wasn’t at least 4 cents per $100.
3. As a citizen, I’d be really concerned with the level of deferred road maintenance, and even moreso with the idea of taking on additional debt to take care of it. It’s just like your personal budget — if you have to add debt to cover your regular monthly expenses, you are living beyond your means.

It will be interesting to see how this develops over the next couple of months, There are two ideas here. First of all, we all know that raising taxes in a recession is bad. We also know, however, that the City must keep a certain level of funding to keep it’s AAA bond rating. When idea wins out will be come clearer when the official budget is unveiled later this year.

In my blog reading this morning, I came across a post from Weichert Relocation Resources — Canadian Relocation Trends To Watch. While much of the article focused on issues closely related to the relocation industry, I was drawn to the first few paragraphs;

Although neighbors by geography, the United States and Canada are following vastly divergent paths to real estate market recovery.

In the US, it’s been a steady but slow crawl out from the housing slump. But in Canada, the rebound has been much more dramatic, with average home prices hitting record peaks in 2009 and the national average home sale price up to $328,537 in January 2010 from $274,711 a year ago, according to the Canadian Real Estate Association. That’s good news for sellers, but some Canadian economists fear this expeditious bounce-back will lead to a real estate bubble similar to that felt in the States.

To stave off such concerns, according to a recent Wall Street Journal article, the Canadian government is considering making it tougher for people to get loans, and most recently tightened terms for government-issued mortgages.

So my question is: what did Canada do differently than the US during this economic debacle? Is it possible that American actions taken to “spur recovery” [in other words - spending like drunken sailors] served only to prolong the misery and delay an eventual recovery? If you know more about the “Canadian secret,” let us know in the comments

Our monthly housing stats for January reported a huge drop in the number of closings. At the time, I theorized that the drop was due to a combination of bad weather and the projected end of the $8,000 Federal tax credit. Turns out those trends were not just local, but national. here’s a quote from today’s Atlanta Journal Constitution

The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who had expected sales would rise about 5 percent over December’s pace.

While winter storms were partly to blame, home sales have fallen for three straight months despite sweeping government support. Economists were already worried that an improvement in sales in the second half of last year could falter as various government support programs are withdrawn.

The article also quotes some industry experts as saying February will be a rough month for housing for many of the same reasons. While I have not looked at the figures, that may be true. I will say that I have been much busier talking to clients in February, which leads me to believe March and April might be much improved.

Here’s the full article — New home sales hit record low in January

View Larger Map

The Herald-Sun reported today that a stretch of NC-54 near Research Triangle Park has moved to the top of the priority list at the Department of Transportation. The two miles of NC-54 starting at the intersection with NC-55 and running west to the Interstate-40 overpass would improve traffic flow through RTP so much that it is, in the opinion of DoT staff, the most important state highway project in North Carolina.

Also noted in the staff report is the stretch of NC-54 in Chapel Hill from Barbee Chapel Road west to the Durham/Chapel Hill border.

Here’s the catch – the staff report only feeds into the next multi-year plan for the DoT. Plus, DoT Secretary Gene Conti can move the rankings around some. Oh, and nobody has decided how much money will go to state roads as opposed to interstates and the like. Still, it’s a sign that NC-54 is an important artery to  and through RTP, and that it will continue to be developed.

Much has been made of the many Federal programs to stop home foreclosures. The ugly truth, however, is, thanks to the Federal government, banks make more money by forcing you out of your home [through foreclosure or short sale] than they would be letting you pay your loan [modified or not]. The following video explains how it’s done.

OneWest’s Sweetheart Deal

The frustrating thing is that you know this isn’t the only one. I’d bet lunch that a similar deal was made for just about every major Federally supported bank takeover.

[In fairness, the FDIC has put out a rebuttal press release. It's to the right of the video in the link above]

For those of you who won’t take my word for it, the Triangle Multiple Listing Service released their Local Market Update for the Triangle.

The Cliff’s Notes version? January was a tough month for all the reasons I mention in my earlier post. Some of those are seasonal and will go away are the temperature warms up. Some are more fundamental, and we will have to see what happens with those.

[Incidentally, the final totals differ from my original report by about 10%. My guess is several sales that closed on 1/29 were not entered into the MLS until 2/1 -- or even later. It is something I will keep an eye on in future months]

The News and Observer reported this week that the heads of Realtor Associations in Charlotte, Raleigh and Greensboro were asking the Real Estate Commission to change a rule requiring a firm to disclose its compensation when its agents work for both the buyer and seller in a home sale.

First some background. The first piece of paperwork a buyer is usually asked to sign is the “Exclusive Right to Represent Buyer” form [which is only slightly longer than its title]. It’s basically a form that employs an agent to help a home buyer find and purchase a home. Part of that form details how much the real estate firm is going to be paid — an amount negotiated between the buyer and the agent. That amount is a minimum, so if the seller of a property was offering extra commission or a bonus for bringing the buyer, the firm got to keep the money, and the buyer didn’t have to know about it.

In an ideal world agents would try to find the perfect home for their sellers and that’s it. But we’re human, and bonuses were getting quite high [higher than the commissions in some cases], so sometimes agents would push a home because it make the agent more money. In response, the Real Estate Commission made a requirement that agents tell their clients if a seller was paying an agent bonus or increased commission.

The problem comes in when the same firm represents the buyer and the seller. By the letter of the rules, the buyer would see everything the firm would receive for both sides of the transaction. The Associations feel that buyers don’t need information from the other side of the transaction.

This all screams for an example — Let’s start with Big Time Realty [BTR], a real estate company with several offices in the Triangle. BTR has a deal with New Home Builders where BTR gets 3% and a $2,500 bonus for each home BTR sells. They also offer a $1,000 bonus to any agent who brings a buyer.  Amy Agent is an agent with BTR. She takes on a relocation client sent to her by the relocation company, who is affiliated with BTR. She signs an agency agreement with the client and they negotiate a 2.5% commission. The buyers love a home in New Home Builders and want to make an offer. Here’s how the conversation goes.

“I’m happy you like this home, and want to make an offer, but I should let you know some things first. Starting off, the builder is offering me a $1,000 bonus if you buy this house. Oh, and since BTR is helping the builder market his properties, the firm gets a 3% commission and a $2,500 bonus, none of which I’ll ever see. Oh, and don’t forget the relocation company pays the firm when we find you a home.”

Now, was all that really necessary? Sure, the buyers need to know that Amy Agent was going to get that bonus, but the rest of the conversation covered things that did not change Amy’s decision making at all. That’s what the Associations are trying to deal with.

What do you think? Do buyers really need to know all of this information?

Like every other lender, Fannie Mae has its share of bank-owned property [called REO, or Real Estate Owned]. Unlike most other lenders, however, Fannie Mae is taking some aggressive steps to move that inventory. most recently, Fannie Mae has stepped up to offer a 3.5% incentive to buyers who buy one of the homes listed on their HomePath website. The 3.5% incentive can be used for the following

• Closing costs
• The purchase of new Whirlpool appliances by Fannie Mae
• Any combination of closing costs and appliances up to the 3.5% limit

Like anything, this offer has some limitations;

• Offers must be accepted on or after January 28, 2010
• Property sales must close before May 1, 2010
• Buyers must be owner-occupants, investors are excluded

This is a great incentive to get people looking at HomePath, especially since the $8,000 tax credit can’t be used towards a downpayment. The incentive gets you past the closing and into the home, while the $8,000 tax credit can take care of the first six months of payments.

If you’re interested in making an offer on a HomePath home, please send me an email. To take advantage of the $8,000 tax credit, you must have a home under contract by April 30, which is less time that most people think.

Last month I predicted the market would sag in January due to both the normal market decline and the lack of people making offers during the Holiday season [offers made in December usually close in January]. Was my crystal ball accurate? Let’s find out.

For all of Durham County there were 1,896 homes listed for sale at the end of January – an increase of almost 10%. 116 sales closed in January [a drop of just over a third] meaning that it would take 16.3 months of Januarys to work through the current housing inventory. This is a another big step backward from last month’s 9.9 months of inventory and the highest total I’ve seen since I started tracking these numbers.

For the 27713 zip code there were 335 homes listed at the end of January – a 17% increase. Only 24 homes sold during January leaving the
adsorption rate at just under 14 months — almost double the December number and again the highest I’ve seen.

Here’s a look at the communities we’re tracking. If you would like to see data from your community, please let us know in the comments.

I left the column for adsorption rate, but with sales numbers so small, it isn’t useful to calculate it. Like I mentioned above, I believe the staggering drop in sales is due to two main factors;

1. There were very few days in December for buyers to be looking at property. The Holidays ate up a lot of the month, and much of what was left was bitterly cold, so no one was out looking at property.
2. The first iteration of the $8,000 First Time Homebuyer’s Credit made a lot of December closings into November closings.

I am, however, surprised by the number of people who listed their home for the first time in January. Whether it is people trying to trade up before the new tax credit expires, or people trying to move down as their job situation changed, or something entirely different, I don’t know. I do know that those new listings really affected the numbers for January.

What does the crystal ball say for February? I still expect sales to start showing an improvement in February [they can't go much lower, right?] as the weather improves and people again start getting into that new home frame of mind. I also believe people will start thinking about the new, improved tax credit, and that will stir up some movement. We’ll have to wait another four weeks, however, it see if I’m right