Daybreak Down Payment Option: First-Time Home Buyer Tax Credit

While Utah has so far enjoyed a relatively small decline in the residential real estate market, many other states have not fared so well. With the strict standards in place for mortgage qualification and the lack of plentiful buyers home values have dropped quite rapidly. In light of this crises, the US government has made efforts to intervene and boost the economy. One of the facets of their efforts is the First-Time Home Buyer Tax Credit. For those who would like to purchase a home in Daybreak any time soon: listen up.

The First-Time Home Buyer Tax Credit is not an actual tax credit. A tax credit is when the government either reduces your tax liability or increases your tax return dollar for dollar. The name sounds like it is free money. It is not free money. However, this does not mean that you should not consider using this program. The First-Time Home Buyer Tax Credit is actually an interest-free loan. You pay the loan back via your taxes for the next fifteen years. At this point you may be asking - is it worth it? My answer is definitely yes.

If you understand the time value of money you will know that a dollar in 1993 was worth more than a dollar now in 2008. Why? Because it had more buying power. It could buy you more bread, electricity, even gas. (Actually then it could buy you about one gallon) That was 15 years ago. In short, while you will have to pay every cent back to the government in the next 15 years you will gain a lot of value with this deal.

The maximum amount that you can qualify for is 10% of the value of the home you intend to buy with a cap of $7500. So if you buy a home in Daybreak you will qualify for the full amount. You can even use the tax credit as a down payment for your new home if you work it right. You get the benefit of the tax credit after you file right? Yes, however, right now FHA financing requires a minimum down payment of 3.5%. On a $250k purchase that is $8,750. The FHA allows a buyer to borrow money from family for down payment. This means that a first time buyer could borrow the down payment from relatives, make a home purchase, then use the tax credit to pay back all or a portion of the borrowed funds.

If your still not sure, consider this: assuming an interest rate of 7%, the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. If you are still a little worried about the housing market in Utah consider this: if it goes down further and you are forced to sell, then you will not have to pay back the government for the tax credit "loan." So if you are on the edge, it would probably be a good idea to jump off before the July 1st, 2009 deadline.

The Future of New Urbanism in Utah

I received an e-mail from a reader not too long ago about my stance on New Urbanism. He insisted that New Urbanism did not have any place in the Utah suburbs. He further suggested that the movement was just a planning fad that would end with only a couple developments in the Salt Lake Valley carrying the banner of New Urbanism. In response, I have decided to post a picture of New Urban developments in the Salt Lake Valley. They are located throughout the valley in all four quadrants branching out from the city center of Salt Lake. While a couple already exist, the majority of these developments are either in the planning or construction phases. As you can see, New Urbanism is not a trend that will go away any time soon and considering the movement has been gaining momentum since the 80s, I do not think it is short term.

In looking at where development is occurring in Utah, the fringes of the community are still popular, but there is a growing trend that is the result of the energy crises. This trend uses transit as a lifeline to the surrounding communities. Numerous TODs (Transportation Oriented Developments) have started already and many more are planned. Any empty space near a proposed TRAX station has become prime real estate for these communities.

Many more New Urban projects are starting all over the state. Ogden, Layton, Farmington, Woods Cross, Park City, Heber, Lehi, Orem, Mapleton, Richfield, Cedar City, and St. George all have projects on the drawing board or being constructed. Of course, none of these projects match the scale of Daybreak or the West Bench which has many more communities planned, but this is clearly the new direction in development. This is by no means an exhaustive list. In fact, if anyone would like to inform me of other communities planned or being built in Utah, then please share. This list is merely what I could gather via the internet.

As for whether or not it belongs in Utah, I would like to refer to another comment that I received: "..let the free market reign." In Utah our demand is being pushed by our demographics. People want to start a family and own a place instead of rent. With housing and land prices going through the roof people need affordable choices. These choices need to save the owners money and time. With the option to ride mass transit, lower utility bills, and maintenance-free options, you can stretch your budget much further. New Urbanism will continue in Utah by choice. This choice has already been seen in the marketplace for housing and will continue well into the future.

Daybreak Village 3: North Shore

The Daybreak community is about to grow yet again. North Shore is the newest edition to the Daybreak master plan making three villages total. With two new builders, Ivory Homes and Garbett Homes, a large push is being made to finish the 22 homes that will serve as models for the "grand opening" slated for June 28th. I usually do not need to drive on the South Jordan Parkway so when I did take that route a few weeks ago I was surprised with the sheer amount of building going on. Buildings seemed to have popped out of nowhere in only a couple of weeks. Of course, with the slowdown in the housing market I'm sure that contractors were not hard to find.

The new homes of North Shore seem to be an eclectic mix of traditional and urban contemporary designs. I was fairly shocked when I saw pictures of the new row homes that Garbett Homes intends to build. These modern boxy buildings seem to belong more in the marmalade district of Salt Lake City than in Daybreak. While I respect the modern style, I do not have a strong taste for it to say the least. However, these town homes will be integrated into the denser sections of North Shore. It seems Kennecott Land has decided that as density increases traditional style will decrease. I do see some advantages in the cost of building such homes. Perhaps this advantage is the reason why some homes will be offered at a price that will be difficult for other communities to match. Many of these condos or town homes will be offered from the "low 100s" to "mid 100s."

With these prices the old adage of "you get what you pay for" keeps ringing in my mind. This ringing stops abruptly however when I see the actual square footage of these units. With sizes ranging from 650 square feet to 1180 square feet I think Kennecott Land has decided to make housing more affordable by making it smaller. This is the right way to go in my opinion. Skimp on the space, but do not skimp on the quality. The prices in North Shore are fairly reasonable compared to Eastlake and even Founders Village. The effects of this new village are many and will need to be discussed in a later post.

In the grand scheme that is Daybreak, North Shore will bring a large amount of units at a density that has not yet been seen in this new urbanist community. In fact, Kennecott recently changed their projections for the total number of homes to be located within Daybreak. The number initially started at 13,600. This number has since increased to 20,000, almost a 50 percent increase. The recent planning maps for Daybreak show an increase in density in those properties East of Oquirrh Lake. Why did this change come about? I can only speculate, but I will be researching this issue in the future. One thing is for certain, North Shore has signaled a change in direction for future development at Daybreak.

Are Houses in Utah Getting Smaller?

Are Utah Homes Shrinking? Since the beginning of suburbia after WWII homes across the country have been getting larger. The average home back then was about 1100 square feet. In the 1970s this size grew to 1600 square feet. Presently the average American home is 2300 square feet. This may still sound fairly small, but the calculations for this figure do not include basements, bonus rooms, or garages. Now this trend is reversing itself. According to recent reports the average size of the American home is beginning to shrink. This downsizing is attributed to rising fuel costs, the “green” movement, and an aging population.

The leading edge of the baby boomer population just turned 62. This demographic is getting ready for retirement and the majority are becoming empty nesters. Since they do not have kids and want to stretch their retirement dollar, buying a smaller home in a nice community is becoming a priority. One of the new features in the new North Shore Village will be residential construction targeted specifically at the aging baby boomer population. While Kennecott had this in mind earlier it did not make it off of the drawing board into Eastlake Village. Now that lending standards have been tightened and less people can qualify for a loan, homes are not selling very well and there is a large inventory on the market. However, these baby boomers usually do not have trouble qualifying for financing and half of them buy their retirement homes with cash. This is a great market to target given the circumstances.

Another target market is the green movement. The whole philosophy behind Daybreak promotes sustainable communities. This “green” philosophy is not necessarily embodied in a 5000 square foot house. (Although some homes in Daybreak exceed this size) Even with the energy saving appliances and energy star certified home, a house that big is an energy waster if you have a small family. More than likely you don’t use half of the rooms of that house daily. Rising utility and maintenance costs of a home that large is becoming more of a disincentive to potential buyers as well. Another disincentive is the rising cost of transportation. If you live in South Jordan , chances are that you work somewhere else in the valley and commute. This will be a problem for Daybreak residents in the near future, but in 2010 TRAX will alleviate that burden for some residents and the Mountain View Corridor (Later) will be the choice of others.

Preferences are changing along with demographics as a survey from the National Association of Home Builders has found that 60% of home buyers now prefer an amenity-rich smaller home. Studies also suggest that buyer preferences toward huge suburban lots are also waning. Caring for a full acre of property can be time-consuming and expensive. With both of these resources becoming more scarce, it is no wonder buyers are looking for small lots or maintenance free communities. If the trend toward smaller homes continues, then it could make a big difference in home values. A recent study by the online appraisal service Zillow.com found that less expensive homes appreciate more than expensive and presumably larger homes. If this trend continues, we will probably find that Mcmansions will represent the weakest portion of the market.

Many will say that with a low-interest mortgage you will get more house for your money. However, you will also get higher insurance premiums, utility bills, maintenance costs, and higher property taxes. With these costs and trends, homes in Utah will definitely get smaller. Those homes that are smaller, energy efficient, and convenient will also see the most appreciation in the future.

Renting In Daybreak

In an earlier post I talked about how apartments are an integral part of new urban communities. In my opinion if they are integrated properly into a community they can bring diversity and allow people that could not otherwise afford to buy a home a chance to live in Daybreak. How do Daybreak residents feel about apartments being built? According to a Daybreak Daily website poll most Daybreak residents do not like the idea. In fact, 62.5% of the 115 respondents indicated that they were not happy with the decision to build apartments in Daybreak. (May 13) They are not alone. Most owners of single-family homes or condos in the United States do not want to live near rental housing. They see them as high-crime areas that put extraordinary burdens on local schools and civil services. However this has been proven completely false. Numerous studies conducted by Harvard, NYU, and numerous government entities prove that these claims are false. Per unit crime in apartments is almost equal to that of single family homes. As for property values, "Between 1987 and 1995, single-family houses located within 300 feet of apartment communities appreciated at roughly the same rate as those not near an apartment property, 3.12 percent compared to 3.19 percent."

On the other hand I feel that there is something to be said about the habits that tend to be exhibited by renters. People frequently moving in and out result in noise and create an environment of impermanence and of a transitory lifestyle. Property managers report a higher incidence of rule violations by tenants. Examples include noise disturbances, illegal parking and overburdening of the Association recreational facilities. These rules are broken because many tenants are ignorant of these community restrictions. Rental occupancies tend to be shorter than owner occupancies and do not facilitate long-term relationships among neighbors. Resident owners are more likely to carefully maintain exclusive use common areas than are tenants. However, most of these negative attributes apply to homes and condos that are rented out. These are properties that are integrated into the community with the purpose of being owner occupied. The condos and homes in Daybreak that are being leased are more likely to exhibit these problems. With the proper planning the negative impacts can be minimized.

From what I understand Kennecott intends to build many apartments in or within close proximity to the village center. This is good planning, but the devil is in the details. How exactly will they integrate it with the predominant architecture in Daybreak? Exactly how close will these apartments be to single family homes? I would not want to walk out of my front door and stare at a massive facade of a 5 story concrete apartment building. Kennecott Land seems to have a penchant for surprising stake holders by withholding details until the last minute. I would urge them to be a little more forthcoming with residents. Especially those on Topcrest.

Many aspects of the community hinge on the successful integration of higher density housing. Take TRAX for example. You cannot justify having a line run into daybreak without a certain amount of residents in the immediate area of the stations. This calls for density. To truly be a walkable community a development must have a higher density for all essentials to be in close proximity to all homes in a community. From a business standpoint, it makes sense to build these apartments now. It is good timing that they are ready to build the village center and apartments right when the market for rental properties has become much more attractive and commercial entities are still expanding. In all practicality I feel that these apartments can be a great addition to the community if they are done properly. I just hope the planners use the successful attributes of other new urban communities.

Buy Now in Daybreak?

Many potential Daybreak home buyers are sitting out on the sidelines waiting to see what happens to the housing market. Will prices fall? Probably. If the home you are looking to buy is over 300,000, then you might consider waiting a little longer. The market for homes in that range is definitely trending downward. However, if the home you are looking to buy is under 260,000, then I suggest that you move forward and purchase your Daybreak abode soon. Now is the time to buy for three main reasons. First, many of the home builders are offering incentives that will definitely give you a boost in your purchase. Some home builders give 10,000 to put toward closing costs, upgrades, or to cut down the selling price of the home. An agent I know from one home builder said they would finish the basement of the home for free in addition to incentives already put in place. Another reason is that the market for homes around the 260,000 range and below will stay strong because people can afford these homes, especially the condos. That is the one area of the market that is not suffering right now. The third and final reason is the most compelling.

An article in TIME magazine aptly titled "Ignore the Headlines" illustrated this reason well. Essentially you could buy now at a possibly higher price, but get a lower interest rate. The alternative is to buy later when the price is down, but the interest rates have gone back up. More than likely you will be paying the same monthly payment.

"The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher," says Jim Svinth, chief economist at mortgage firm Lending Tree. So anything you gain by a further drop in prices might be offset by rising financing costs."

Another trend that suggest interests rates will go up is inflation. Oil prices are at record levels which drives up the cost of just about anything that has to be transported (food, goods, building materials). Food prices in particular are rising at a rate which has prompted several news stations to monitor a "basket of goods" to report rates of local inflation. When inflation goes up interest rates go up. Click on the graphic on the left for a graphic comparison of buying now or buying later. With inflation rising and a possible economic recovery home loans will definitely get more expensive.

Daybreak Apartments?

On March 25th, a notice from the City of South Jordan was distributed to Daybreak residents in close proximity to the proposed Daybreak Apartment Venture #1. This has created some controversy as many residents do not remember hearing anything about apartments in any of the literature or meetings that Kennecott Land or the HOA has sponsored. When many people envisioned Daybreak they saw some high-density housing like condos, but not apartments. However, I am sure that Peter Calthorpe, the man behind the design of Daybreak, envisioned apartments being integrated into the town and urban centers of Daybreak. The reason? New urbanism provides housing such that younger and older, singles and families, the poorer and the wealthier can find places to live. As I have mentioned before, affordability has been a problem in almost all new urban communities. One way to solve this problem is to provide small affordable apartments.

While apartments should be a part of any new urban community, they can have a detrimental effect if applied incorrectly. First, the apartments need to be located in town centers close to shops (possibly above them). Secondly, the apartments must be aesthetically pleasing. Numerous new urban communities have accomplished this by successfully integrating the design into the town center without stand-alone complexes that have big parking lots. Finally, dedicated apartments should not be located outside of town centers in large numbers. The occasional rental house or studio above the garage is ok, but if a large amount of rental properties or apartments are located outside of the town center the community suffers as transient families dominate the community. I would be extremely interested to see the plans of these new apartments to see how Kennecott Land wants to incorporate them.

New Urbanism and Affordability

In a previous post I stated the 10 main principles of new urbanism. One of the most important of those principles is mixed use neighborhoods. This includes having affordable housing mixed in with the higher-end housing. This goal of new urbanism is a difficult one to realize as most of the affluent population of the United States have a biased fear of living in close proximity of lower-income households. It is a tough sale. I can just imagine the thoughts of many of the developers to whom Kennecott first pitched the idea of Daybreak when they heard about this goal. How well was this goal accomplished in Founders Village? I think that this goal was not accomplished that well in the first phase. I think Kennecott decided that this aspect of new urbanist communities had to grow on people. So Kennecott (and Calthorpe) decided to locate the majority of affordable housing on the outskirts of the community. The various shades of white town homes, the terrace condos, the row homes, and finally Garbett Homes' new complex are not located anywhere near the heart of the village. To give the planners credit, most of the housing was affordable when Daybreak was first introduced. However, Eastlake has definitely improved upon Founders in the integration aspect with most of the lower-end housing being integrated into the center of the neighborhood. In fact, Eastlake seems to be the opposite of Founders in that the expensive custom home lots and higher-end housing is located on the fringes of the village.

The difficulty of providing affordable housing in Daybreak has become evident. Only a select few condos remain below the median home value of Salt Lake County and demand for these units is starting to drive up price. This is not unique to Daybreak. The rapid appreciation of all real estate in Utah has rendered prices that the average income cannot afford. Nationally, new urbanist communities have had a difficult time remaining affordable. Seaside in Florida and Kentlands in Maryland have appreciated well beyond the range of middle-class affordability. Many even see these communities as elitist. Rich well to do people living in their own yuppy community fantasy. The Congress of New Urbanism, the main force behind the new urbanist movement, has admitted that affordability is a problem. In one of its conferences a speaker suggested that the only sure-fire way of keeping certain units affordable is bad design. They have been working on this issue for years, but have not really come up with a proper solution. Many proponents have suggested design attributes that may help affordability.

One of the solutions suggested by proponents is to have deed-restricted properties. Doug Cornish of Cornish Associates, a developer of a new urbanist community in the East, stresses,

Owners of the deed-restricted units still get the benefits of homeownership, including a share of appreciation. The rest goes back into a land trust, to help maintain a stock of affordable units in the community. Still, Storrs points out, for these first-time home-buyers, “the return is immense,” given that they may have put down less than $5,000,

Another way is to make sure that the exterior of affordable housing matches that of the higher-end housing. Make the dwelling as small as you like, skimp on indoor amenities, but do not make the outside of the house from inferior materials.

Bottom line: unless we can integrate affordable housing options into Daybreak, we will soon be known as a elitist society by many of our peers in other neighborhoods and diversity will not be truly achieved in Daybreak. Of course, many of the designs that I have seen in Daybreak might just keep it affordable. Many of you might ask the question: why should we try and keep housing affordable in Daybreak? One of the trademarks of a decent community is that property values go up right? Obviously this rings true, but the reason for the diversity is to eliminate the segregation that is a typical element of sub-urban sprawl. This in turn makes a community walkable and eliminates the poor or rich from having to commute out of their segregated neighborhoods.