Howdee all,

A friend of mine has a cute little bungalow in the historic Coronado neighborhood that she wants to rent.

The place is only a couple blocks from the best restaurants that have opened up on 7th St. in recent months: La Picolla Cucina, America’s Taco Shop, The Main Ingredient, The Tuck Shop.

Can you tell I think about food a lot?

Well, outside of that, this little gem has two bedrooms and two baths for only $900 per month. This is perfect for a couple or friends who want the quiet of Coronado, but the convenience of downtown. The kitchen has a dishwasher, which is unheard of in many older houses. The master bedroom is huge.

Check out the photos!

Contact Liv Nam Kaur at 602-595-5656 or email at irish4lou@me.com.

After fears in late January that interest rates for FHA loans were going to start going up, they seem to have leveled off again.

There are still concerns that rates will start heading upward in March. See my earlier post.

Lesson: lock in now while rates are down!

Have a look at the charts, below for rates –at least those that my friend Dan Hlavac over at Met Life is getting.

This is what you can expect for FHA loan: a 30-yr fixed loan at 5.187% APR.

MetLife Rate Update FHA

See this link for what you can expect for a conventional loan: a 30-year fixed for 5.136% APR

MetLife Rate Update Conventional

I think people have been taking this recent tax credit for granted. They think that they have plenty of time to grab a house before the tax credit goes away in June.

Nothing could be further from the truth.

Here is what you need to know:

1) You must have an accepted offer by April 30th and a house closed by June 30th.

It is now a two-step dance, my friends!

2) Expect people to start panic buying in late March. This will mean fewer houses available and that you will need to act very quickly when you see a house that you like.

3) You should work backward from April 30th. If you need to have an accepted offer then:

a. Short sales may be tricky. You may get an accepted offer in time, but you may not close by June 30th.

b. Leave time for the bank to get back to you on your offer –that can take a week or two –if you are offering on a foreclosed property.

c. Start looking in early March. Expect 2-3 weeks of “shopping time.” Get those offers in no later than April 15th.

Here is another good post from my friend Tazmine Loomans, who is an architect and green renovator of older homes explaining how you can save big bucks by just upgrading our water heater.

First of all, get rid of the electric water heater if you can. If you have natural gas running to the home, get a gas heater. It is worth the up-front money.

I was told once when I was the Energy Office Director by folks from Southwest Gas that it takes 1,200 gallons of water to heat a 60 gallon electric hot water heater. This is because it takes two units of electricity to move one unit of electricity from the big power plant to your home. Further, that big power plant is cooled by ground water at the rate of 100’s of thousands of gallons per day.

I installed a tankless hot water heater in my historic home in the Garfield Neighborhood. While it saved money, even over the tank natural gas water heater that was there before, I found that it used more water. Basically, it was because the tankless water heater needs to run water through itself at a certain rate, otherwise it will shut off. That’s fine if you have a number of people in the house all using water at the same time. Not so good if you are just little ol’ me.

I always liked the way the Europeans and Asians do this. They put small hot water tanks or tankless heaters at the point they use them. So, they only use that which they need and they are not heating up water just to flow 40 feet from the tank to your shower or kitchen. Much of that water and heat energy goes to waste.

So, what is the solution? First, go gas or get a heat pump. Second, go tankless if you have the demand for it.

It’s been a while since I’ve just laid it all out there for you. The market data, that is.

I did this several times last year. Back then I was predicting that prices were going up during 2009…and I was right! (Just had to say it.)

Here are some of the most telling stats.

1) Prices

Prices are dropping in the first months of the year. I believe that some of that price drop has to do with the fact that you can’t get FHA financing on most condominiums, due to a change in policy last October. I believe that prices will level off and start going up by April, when people will begin to scramble for the $8,000 tax credit again.

In the chart below, look for the green line that is right on top of the orange line. That is 2010, right on top of 2009.

If you did not see it, review my article on the impact that interest rates have on price reductions.

2) Number of Sales

Now this is interesting. The number of sales is going down while the prices are going down, too. Does that mean that nobody is buying houses, despite the lower prices? Actually, it means two things. First, the number of sales always goes down for the first two months of the year. People came back from the holidays, rubbed their eyes, blinked and got down to the business of buying/selling. Those folks that got started in January/February closed in March. Happens every year. See below. Watch for sales numbers to go up in March and April.

Second, it means that people in March are going to start reacting to the lower prices and will start rushing in the market.

3) Market Distress

This is a really great way to see what is actually selling. Everybody has been talking about an impending wave of foreclosures. I have not seen it yet and we probably won’t. The banks want to sell homes at a regular pace. They don’t want to flood the market so that prices go down further!

Notice in the charts below that short sales (“pre-foreclosed homes”) are a smaller percentage of the market of “active listings”, but they make up a minority of homes that actually close. So, while I am happy to help my clients find short sale listings, I am careful to interview the listing agent to see if they have the knowledge and gumption to get through the bank’s process.

4) Interesting Note

Have a look at this chart of annual sales for just 85003. Interesting how much that can fluctuate from just one sale, there in the middle. Fewer sales to average out the numbers. However, also note that  the average sold prices have been much higher than other parts of town. Lesson: historic neighborhoods have kept their value!

Interesting stuff. It’s good to grab these snapshots.  If you want more information in more specific areas, please let me know.

….in other words, even if prices are going down, interest rates are likely go up later this year and undermine any price drops.

How does that work? (Thanks for asking.) Here’s how.

Prices are going down for now, but interest rates are going up.

This is totally different from last year when prices were still dropping AND interest rates were also dropping.

If you look at this chart you can see that prices were climbing last year, but they are dropping thus far this month. Let’s hope it stays that way before people start scrambling for the $8,000 tax credit! However, don’t expect it to. Prices went up last fall when people were buying in time for the tax credit.

Look very closely for the emerald green 2010 line at the lower left. It is almost hidden because it is laying right on top of the orange 2009 line.

While it looks like prices are going down, just know that prices usually go down the first couple months of the year until folks start really gearing up their searches.

Further, interest rates are expected to go up by March and interest rates make a huge difference in your monthly payments.

For instance, if you buy a $100,000 house at 5.5% interest, your monthly payment (before taxes and insurance) would be $568. The same house at 6% interest would cost $600 per month.

That extra $32 per month is $384 per year or $11,520 over the life of the loan!

Another way to look at it is that in order to have the same payment every month that you had at 5.5% interest, you could only afford a house that costs $95,000 at 6% interest.

So, what does this mean? It means that you want to consider getting in to the market before interest rates go up.

It also means that you probably want to act before both prices and interest rates go up. That is the worst case scenario!

Give me a call. I’m more than happy to help you navigate the market: 602-456-9388.

For all you folks who have bought your dream property to rent to the world, don’t forget that you need to register with Maricopa county when you start renting!

Check out this news release.

My friend Tazmine who owns Blooming Rock Development has a post that I like listing the tax credits you can get for energy efficient improvements to your home.

The tax credits are for things like new energy efficient windows, upgraded air conditioning, new roofs, etc.

When I was the director of the state Energy Office, we were always careful to point out that some of these things have a quicker payback than others. The quickest payback comes from new insulation in your attic, water heaters and heat pumps, higher efficiency A/C and just making certain your windows and doors are not leaking badly.

New windows are great, but unless they are really bad, you are not likely to make back what you put in to them for years, as they are so expensive.

However, much of this depends on the situation. I would talk to Tazmine, as she does home renovation planning for sustainability and she can make give you advice based on your entire energy profile.

Y’all may see me quote the Cromford Report a lot to talk about trends in the real estate market, or when I make the case that prices are actually going up.

Well, you can get a free subscription to the Cromford Report by following this link. It will take you to a page of charts for Phoenix, which show current market status.

But before you go there, I want to point out couple things:

1) Notice how the number of Active Listings has dropped? That means the supply is dropping and pushing prices upward.

2) That is why you see the number of sales per month drop. That, and the fact that there are so many short sales on the market now, which take forever to close!

3) Notice also the difference between the square foot price that homes are listed at and where they are actually selling. I’m still seeing huge drops in price after the appraisers come look at the house. The sellers are being forced to lower their prices. This is great for you if you are a buyer.

Anyway, if you want to geek out on data like I do, and more, you can get that free subscription.

SB1166 Fact Sheet

Courtesy of Arizona Preservation Foundation ~ http://www.azpreservation.org

WHEN & WHERE THE SB1166 HEARING WILL BE HELD

IN PERSON: The issue is scheduled to be heard by the Senate Finance Committee on Wednesday, January 27, 2010, starting at 1:30 p.m., Senate Hearing Room 3, 1700 W. Washington St., Phoenix.

BY E-MAIL/PHONE: If you cannot attend, you can still contact a member of the Senate Finance Committee before the hearing:

The Honorable Ken Cheuvront, 602-926-5325, kcheuvront@azleg.gov
The Honorable Ron Gould, 602-926-4138, rgould@azleg.gov
The Honorable Barbara Leff, Vice Chair, 602-926-4486, bleff@azleg.gov
The Honorable Debbie McCune Davis, 602-926-4485, dmccunedavis@azleg.gov
The Honorable Richard Miranda, 602-926-5911, rmiranda@azleg.gov
The Honorable Russell Pearce, 602-926-5760, rpearce@azleg.gov
The Honorable Jim Waring, Chair, 602-926-4916, jwaring@azleg.gov

If you would like to express your views to your own State Senator or State Representative (if they are not listed above), visit http://www.azleg.gov/alisStaticPages/HowToContactMember.asp

BY REQUEST TO SPEAK IN COMMITTEE SYSTEM: The online Request to Speak in Committee System replaces sign-in slips used by those wishing to testify in Senate and/or House committees.  Committee chairs will have electronic access to listings of everyone signed up to speak and will know in advance who is for or against a particular bill.  To use this application, you must have registered for a user name and password at any one of the kiosks positioned outside the committee rooms on the first floor of the Arizona Senate and House of Representatives, 1700 W. Washington, Phoenix.  Source: http://alistrack.azleg.gov/rts/login.asp

INTERESTING TURN OF EVENTS

One of the likely “yes” votes for SB1166 State Senator Pamela Gorman resigned, effective immediately, on Monday, January 24 to run for the U.S. House of Representatives.

A City of Phoenix P.L.A.N. Legislative E-Mail Alert on Historic Preservation was disseminated on Monday, January 24, 2010.  The City’s Historic Preservation Office is recommending that the Mayor and Council oppose this bill.

PROGRAM HISTORY

Arizona State Senator Juanita Harrelson (R-Tempe) proposed the legislation in the year of our nation’s Bicentennial.  According to Senator Harrelson, “I introduced the bill because I think Arizona lacks the historical background that the Eastern states have.  A lot of our buildings haven’t held up, but what remains represents a time and a way that we should preserve.  This bill would give owners an incentive to restore their home’s authenticity.”  (Source: Arizona Republic, March 3, 1976)

Arizona’s preservation-focused tax incentive has successfully countered private and public land-use policies favoring demolition and new construction, while providing financial benefits to building owners who might otherwise feel burdened by preservation projects.  The first properties joined in 1979: two in Tucson’s Armory Park and one in Prescott.  Today there are approximately 6,000 homes in Arizona that qualify for this tax treatment; approximately 2,900 of them are in Phoenix and approximately 2,000 in Tucson.

BILL SUMMARY

SB1166 would repeal the reduced property tax classification for historic residential property.  Under current law, qualifying historic residences are assessed at 5% rather than the 10% assessment ratio that applies to other homes — the effect of this bill would be to increase property taxes on those historic homes, approximately 6,000 throughout the state.  The full bill is available online: http://www.azleg.gov/FormatDocument.asp?inDoc=/legtext/49leg/2r/bills/sb1166p.htm

ARIZONA SENATE FACT SHEET FOR SB1166 (property tax classification; historic residences)
Prepared by Senate Research Staff, January 22, 2010: http://www.azleg.gov/FormatDocument.asp?inDoc=/legtext/49leg/2r/summary/s.1166fin.doc.htm

Purpose: Removes noncommercial historic property from the class 6 property tax classification.  Contains requirements for enactment and becomes effective on signature of the Governor (Proposition 108).

Background: The assessment ratio of a property establishes the percentage of the property’s value that is subject to taxation.  An owner-occupied home has a 10 percent assessment ratio since it is a class 3 property.  The result from applying the appropriate assessment ratio to the property value is referred to as assessed valuation.  Therefore, an owner-occupied home valued by the assessor at $200,000 has an assessed valuation of $20,000.  However, a noncommercial historic property, usually a historic home (class 6), has an assessment ratio of five percent.  Therefore, a historic home with a value of $200,000 would have an assessed value of $10,000.  The tax rate is then applied to the assessed valuation of properties.

Current statute (A.R.S § 42-12101) defines noncommercial historic property as real property in which no business or enterprise is conducted with the intent of earning a profit.  In addition, the property must be listed in the National Register of Historic Places (NRHP) and meet the minimum standards of maintenance established by the Arizona State Parks Board.

According to the Arizona State Parks Board, a property must generally be fifty years old or older to be placed on the NRHP.   The property must also have significance by having an association with historical events or activities, an association with an important person in history, a distinctive design or physical character, or the potential to provide important information about prehistory or history.  Finally, the property must keep integrity through the maintenance of its original qualities.

S.B. 1166 removes noncommercial historic property from the class 6 property tax classification and places it into class 3.  According to the Department of Revenue, in 2009 there were 5,194 non-commercial historic properties in Arizona with a net assessed valuation of $68.5 million.

The local revenue generated from the change in the assessment ratio could result in a positive impact to the state General Fund due to reduced appropriations for education equalization assistance.  However, any positive impact could be mitigated by increased expenditures for the Homeowner’s Rebate Program.

Provisions:
Moves noncommercial historic property from the class 6 property tax classification to class 3.
Makes conforming and technical changes.
Requires for enactment the affirmative vote of at least two-thirds of the members of each house of the Legislature (Proposition 108).
Becomes effective on signature of the Governor.

SUGGESTIONS FOR TALKING POINTS

SB1166, in essence, is a tax increase on middle-class residential homeowners.

SB1166 ignores the substantial contribution that historic property designation has made to revitalizing and stabilizing older, blighted neighborhoods throughout our state.

Historically designated homes appreciate at a greater rate of value and sell for more than similar-sized homes in other parts of the community, according to every national and local economic impact study.  But the upfront costs to restore historic residences are greater than similar-sized residences in newer neighborhoods.

Many of Phoenix and Tucson’s historically designated neighborhoods were once blighted with many abandoned properties.  Through the pioneering efforts of individuals and families who appreciate their community’s history and the economic development toolbox that includes the tax credit, these neighborhoods now offer affordable, stable, and owner-occupied housing.  What was once blight is now an asset.

SB1166 represents a “quick to judge” public policy decision that could lead to broader, negative economic development ramifications in the future.  Removing the tax break could put whole areas at risk.  We need to continue to incentivize behavior for the good of the whole.  The tax break protects neighborhoods and keeps property values higher than they would be without historic designation (assisted by the tax incentive).  That promotes protection and stability.

By moving forward with the repeal of this tax credit, the Legislature will take away one of the few economic development tools available to middle class Arizonans to improve the character and safety of their neighborhoods.

If the Legislature has serious reservations about the equity of this tax credit, it should defer action on SB1166 and review it alongside a fuller spectrum of tax reform alternatives and recommendations.

ECONOMIC STUDIES

Various national studies ~ http://www.achp.gov/economicstudies.html
“Benefits of Residential Historic District Designation for Property Owners,” Jonathan Mabry, 2007 ~ http://www.box.net/shared/uldz6xb6rv
“A Cost/Benefit Analysis of Historic Districting in Tucson, Arizona,” Andy Krause, 2004 ~ http://www.box.net/shared/ypdpa63lex