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First-time buyers boost market

Tax breaks help move starter homes

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July 21, 2009
SOUTHBRIDGE — To local players in the real estate game, it looks like the market has essentially hit bottom, and they expect things to stay low for a while.

But one group is benefiting from the lower prices and glut of homes — first-time buyers.

"Many people who have rented their whole lives are getting a big toe in," said Tim Dion of Mortgage Masters. "But some of them are questioning right now because they're afraid values could keep going lower. Once it turns and rates go up again, people are going to lose this opportunity."

Debbie Thomo of Aucion-Ryan Realty agreed, predicting "things bouncing back a bit" starting next spring.

Right now, she said, there are 67 single-family and 40 multi-family homes available in Southbridge alone, and they're typically staying on the market a lot longer than before the economy collapsed last year. At an average price of $219,750, single-family houses have been waiting 252.3 days for sale; multi-families averaging $186,315 have been waiting 135.7 days.

Dion noted commercial properties are far worse — they're almost not selling or renting at all, as the vacant spaces on Main Street testify. What is moving, both said, are smaller homes for first-time buyers, largely because the federal government offers up to $8,000 in tax rebates for such purchases.

"There's not much activity for people moving up," Thomo added. "I think people are just really nervous and waiting for things to stabilize more."

That might change. Congress is now considering the Home Buyer Tax Credit Act of 2009 (S. 1230), which would expand a tax rebate of up to $15,000 to anyone buying a "principal residence" (not just a first-timer), provided they live in it for at least two years. It was filed in June by U.S. Sen. Johnny Isakson, R-Ga., and currently awaits action by the Finance Committee.

According to the Congressional Record entry for June 10, Isakson noted he also filed the smaller tax credit bill last year, but it was originally for $15,000 as well. At that time, the Congressional Budget Office calculated it would cost $34.2 billion, and Congress pared it down.

The new version, he argued, is patterned after one passed in 1974.

"In one year's time, a three-year inventory was reduced to one year; values stabilized, the economy came back, home sales became healthy, and America recovered. That is precisely what will happen this time," Isakson said. Referring to the $8,000 credit, he added, " [I]t has made a difference. First-time home buyers used it and the market stabilized, but we don't have a recession in first-time home buyers. We have a recession in the move-up market."

Dion agreed, noting one of his recent first-time clients bought an Everett Street triple-decker for $90,000 under an FHA loan with only 3.5 percent for a downpayment. Her mortgage will be about $600 a month — less than many area rents — and she'll be able to take home at least that much after paying bills by renting two apartments. Beyond that, he noted, her tax rebate is greater than her downpayment, but it's not always that way.

Although some FHA loans don't require a downpayment, even those depend on a verifiable debt-to-income ratio, Dion said. That's distinctly unlike the sub-prime loans that caused the credit collapse last year; "many mortgage lenders got away from verifying income" and allowed speculators to snap up property with almost no money down, he said.

Under such conditions, real estate values shot up an unsustainable 30 to 40 percent a year, when they normally rise about 5 percent a year, Dion added.

Despite the fact big banks aren't lending, smaller places are, so, "If you qualify for a loan, there's ample money out there," Dion said, noting his office has processed about 20 FHA loans in the last month.

According to CityData.com's listing of Home Mortgage Disclosure Act statistics, that's more than Southbridge had in 2007. Then, lenders originated eight federally-backed loans (including, but not limited to, FHA loans) and rejected three; at that time, the average value of the first group was $208,828. Ironically, that value is significantly higher than any other category of purchase loan that year — conventional, refinancings or absentee-owner, all of which averaged between $150,000 and $157,000 — except for loans for buildings housing five or more families ($320,140).

To help people wade through the sometimes mystifying mortgage process, the Southern Worcester County Community Development Corp. is organizing first-time homebuyers classes for sometime this fall, administrator Trish Settles said.

"If we can create informed home buyers, we can avoid some of the foreclosure issues," she said. "A lot of it is lack of information. People are buying houses too big for them because they were led to believe they could afford them."

Settles said she's modeling them after a successful program in Boston's Dudley Street neighborhood, where the local CDC requires such classes of people seeking affordable housing. Trying to organize such housing in the Southbridge area is one of the new CDC's major goals.

Some of those first-timers may benefit from buying foreclosed properties, but it's not clear how many so far have. As of last week, a few dozen foreclosures were available online at various Web sites, ranging in price from $49,900 on Franklin Street to $255,270 on Lebanon Hill Road.

Dion said prices in general are down about 20 percent industry-wide, in part because there are so many extra houses, but it actually varies by location.

"We're near or at bottom now," he said. "I don't think you're going to see them get much lower. [But] what would devastate the value of real estate is if interest rates started to climb."

Gus Steeves can be reached at 508-909-4135 or by e-mail at gsteeves@stonebridgepress.com.

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