FHA: Get It While It's Hot!

A home seller is not allowed to give the buyer money for anything other than closing costs. The seller can not pay the buyer's down payment. This is called "inducement to sell" and it's illegal.

The Ameridream program was created to enable a seller make a "donation" to Ameridream. As a non-profit, Ameridream is then able to make a "grant" to the buyer that happens to equal the seller's donation to Ameridream, minus an administrative fee.

This money laundering scheme, which is one of the many causes of home price inflation, was supposed to die last winter, but it was given a temporary stay of execution. Ameridream can only be used in conjunction with an FHA loan.

The maximum FHA loan amount in Pima county was $239,850 until it was temporarily increased to $316,250 in March this year. This temporary increase is scheduled to expire at the end of this year.

The extension of the Ameridream program, and the temporary increase in the maximum FHA amount have the same purpose: to make home financing possible for buyers with little to no savings, which constitutes the majority of the home buyers.

Conventional loans (those that are not government insured as FHA and VA loans are) now require a 10% down payment. This can not be borrowed. If the buyer is getting a money from a relative for his down payment, the relative must be willing to sign a letter saying the money is a gift that does not have to be repaid.

The average sale price of a single family house in Tucson was $287,133 in March 2008. If the average buyer, who has little to no savings, is going to buy the average house, he will need to use an FHA loan plus Ameridream. If the Ameridream program is discontinued and the temporary increase in the maximum FHA loan is not extended, a buyer will need to use a conventional loan, which means he will need about 10% of the purchase price for down payment, plus another 2% for closing costs.

Sellers who have houses priced in the $240,000 to $316,000 range need to realize that the pool of eligible buyers will get a lot smaller if Ameridream dies and the FHA loan amount is once again indexed to the median sale price, which is currently $200,000 in Tucson.

Buyers AND sellers need to take advantage of the opportunities presented by FHA loans NOW.

Is the Sky Really Falling?

For some reason, the media love to try to make the state of the housing market sound a lot worse than it is. For example, on Tuesday, the S & P/Case-Shiller Home Price Index reported a 12.7% decline in home prices from February 2007 to February 2008. This was the largest drop in the index since its creation in 2001. So what? That's only seven years of data, during what was mostly a boom market. And this index only follows 20 major cities, many of which--Los Angeles, San Francisco, San Diego, Las Vegas, Phoenix and Miami--saw the biggest run up in prices and now are experiencing the biggest declines. Despite that index's limited seven-year history and limited geographic coverage, the Associated Press reported that home prices "plunged by a record" percentage and "at their fastest rate ever."

The S & P/Shiller-Case Home Price Index only looks at single family house prices (not condos, townhouses, new construction or mobile homes), and it only considers houses that have sold more than once. I can't figure out from their methodology if they are looking at average or median price, and I don't know how far back they look for a previous sale.

Let's suppose they are looking at the average sale price. In Tucson, the average sale price of single family residences increased from $275,563 in February 2007 to $289,991 in Febuary 2008. This is a 5.2% increase in the period evaluated by S & P/Shiller Case Home Price Index. In Tucson, the average price of all properties, including townhouses, condos, etc., increased 1% during that 12 month period.

It should be clear to anyone that the average temperature across the country, or in 20 major cities, tells us nothing about the actual temperature in Tucson. Even within Tucson, the climate varies from one neighborhood to the next. Just as climate is local, so is real estate.

For an explanation of how the S & P/Shiller-Case Home Price Index distorts reality, see MarketWatch.

Real Estate Transfer Tax

A real estate transfer tax (RETT) is charged at the time a property is sold. While our city, county and state governments are not currently considering a RETT, it has been the topic of revenue enhancement proposals in the past. With our governments running deficit budgets these days, the RETT is likely to rear it ugly head again.

What's wrong with a RETT? Plenty. We already pay property tax, twice a year. This would be double taxation. It is only charged to property owners who sell, so it is discriminatory. It reduces a seller's equity, and is a further impediment to selling. As if sellers need any more challenges in this market!

The Arizona Assocation of Realtors is currently collecting signatures so a state wide ban on RETTs can be put on the November ballot. We need 230,000 signatures by early July. We won't know the proposition number until the signatures are validated.

Once we know the proposition number, we will be spreading the word to vote YES. A yes vote will prohibit state, county and city governments from ever imposing a real estate transfer tax.

Fro more information, go to No New Tax on Our Homes.

1422 N Painted Hills Road

When you decided to move to Tucson, this is how you imagined your home. Hacienda style on 0.66 acre with pool. Saguaro rib porch. Beehive fireplace. Saltillo and Talavera tile everywhere. Lots of mesquites and flowering cactus. Fabulous mountains views. The city lights twinkling only four miles away.










3 bedrooms, 2 baths, 2 car garage, workshop, living room plus family room.




For more photos and a floor plan, go to http://www.donnamoulton.com/

Sold June 10, 2008 for $270,000.

March Residential Sales Statistics

Overall, things seem slightly better in March than they did in February.

From February 2008 to March 2008, median sale price was up 0.05%, average sale price was down 1.2%, number of sales was up 27% and number of listings was down 1.59%. Let's hope the gradual progress continues.

For more detail, go to
March Residential Sales Statistics.

2753 W Begonia Place

This home's location on the wonderful west side of Tucson can't be beat. Near Greasewood and Speedway, it's close to shopping, downtown and U of A, but worlds away. An enormous tree-filled wash behind this lovely home will make every day a wildlife viewing delight.

The home has been beautifully remodeled by a devotee of the home remodeling television shows, and she has created a happy haven that you can now call your own.

High ceilings make this 3 bedroom 2 bath home feel airy and light. Tasteful colors and lots of upgrades.



Double pane windows. A sliding door to your private patio.

The upstairs master bedroom has a walk in closet and a luxurious bath room.


Sold April 25, 2008 for $172,000. We had three offers.

Interest Rates Going Up

Buyers usually assume that when the Federal Reserve cuts the short term interest rate, the mortgage interest rate will also drop. It's a lot more complicated than that. The Fed's most recent cut will probably cause fixed mortgage rates to go up. Adjustable rates may go down, which is a relief for people who currently have adjustable rate mortages (ARMs), but I think most people have heard enough horror stories about ARMs that few home buyers will choose that option anymore.

Suppose you can buy a $200,000 house with 20% down at 6% interest today. Your principal and interest payment would be $959.28 per month. Suddenly interest goes up to 7%. Your P&I payment will be $1,064.48. This might be enough that you now longer qualify for a loan.

Some buyers are waiting for the market to hit bottom before they buy. Experienced investors know that it is impossible to time their purchases perfectly. If, in the hypothetical situation I described, the interest rate went to 7%, the price of the house would have to drop to $180,233 in order for the P&I to be $959.28. This would be a 10% drop in price. I think the chances of interest rates going up more than 1% are greater than the chances of property values dropping more than 10% in the next few months, especially in the under $250,000 price range where most of the sales activity is occuring.

So it's a gamble. While waiting for prices to drop, buyers may see interest rates increase to the point where their buying power is severely reduced.