Ups and downs of the current housing market

Erik Nicolaysen with Ted Holmes, right
July 24, 2009
by Christine Yeres

At its weekly luncheon at Crabtree’s Kittle House on Monday, July 20, the Chappaqua Rotary Club welcomed Ted Holmes, associate broker and chief operating officer of the Katonah office of Prudential Holmes & Kennedy to speak about the current state of the real estate market.

  New chances for New Castle newcomers
Though prices and transactions are down, Holmes frankly acknowledged, there are still opportunities. “People out looking for the last five or six years haven’t been able to buy. Now they can, and a lot of them are first-time home buyers. There’s affordability out there now that hasn’t existed for a long time in Chappaqua.”

At the height of the real estate market, Holmes told the Rotarians, many buyers were homeowners who had built up equity in their homes and wanted to trade up to a larger house. But now, Holmes said, we’re seeing many more first-time buyers. He mentioned a house his agency had sold two years ago on Ridgewood Terrace for $912,000. “Today, a very similar house is in contract for $674, 000,” he reported. “That might seem bad if you’re the seller, but even that depends,” explained Holmes, “because if the house you’re selling is down in value, so is the house you’re buying. And most people buy a house to live in, not to make money.”

The Federal Housing Administration, or FHA, the government agency that insures residential mortgages, is currently offering loans that require as little as 3% down, Holmes told his audience. There are three sizes of loans. The “conforming loan” limit goes up to $417,000; the “high balance conforming loan” limit goes up to $729,750; and “jumbo” loans are over $729,750. Holmes described the “jumbo” loans as “more challenging to secure.” 

But, loans below jumbo, Holmes explained, for example, for a house that costs $680,000, the FHA might approve a loan with a 5% down payment. In addition, he continued, until December 1, 2009, first-time buyers within certain income boundaries are eligible to receive a “First-Time Homebuyer Tax Credit” equal to 10% of the purchase price of the home, up to $8,000, that helps with closing costs. He added, and if you remain in the house for three years or more, you don’t need to repay it. 

When asked whether he finds that prospective buyers are aware of such benefits, he replied, “If they don’t know about them I make sure we tell them. But it won’t apply to as many people around here because of the $75,000 income cap for single buyers and a $150,000 combined income limit for married couples. Farther north it applies more.”

A member of the audience asked whether such liberal lending policies by the FHA might rekindle the same kind of problem that landed the country in its current economic downturn. Holmes responded that recent regulations now require banks to obtain third-party appraisals of properties rather than conduct their own appraisals, which means that banks that are motivated to lend will no longer be in the position of also deciding the value of the property. Another Rotarian added that he had heard that lenders were being unusually tough, even requiring an additional appraisal just before closing on a purchase. Holmes responded, “Yes, we’re seeing everything.”

City dwellers making same calculation about moving to the suburbs

Holmes explained that in considering whether to move to the Westchester suburbs, New York City buyers are now making the same calculation about costs that buyers have traditionally made when heading to the suburbs. They look at the cost of their rental, for example, $4000 per month, and add in private school tuition for one or two children. 

“They trade [that]  for five percent down on a $680,000 house in a community where any number of children can attend public schools,” he explained, “and have it all end up costing about $5,200 a month, around $4,000 of which might be tax deductible.” More people who worked in finance and got big bonuses stayed in the city in recent years, Holmes believes, thinking little of a $50,000 tab for private school for two children. “But now they’re nervous,” he said, “and more will come out here and pay $14,000 [in town and school taxes] instead.” 

Sellers, don’t despair

Selling a house successfully and happily right now, Holmes said, depends on your outlook. If you’ve been in the house for 20 years and your motivation is to move to the next phase of your life, then you have built up value over time that you can take now and move on. You’re not getting as much as you would have gotten a few years ago, but you have a lot more value than you had 20 years ago. However, if you need to sell because your job changed and you only moved here recently, you must be realistic about the downturn in the market and price it to sell. “If priced correctly,” said Holmes, “the buyer will perceive the value and make the purchase.”