Why Your Mortgage Interest Deduction May G Off the Cliff

Congress Contemplates Making Changes To Major Homeowner Benefit

Happy Centennial to mortgage interest deduction!

Nearly 100 years ago, in 1913, Congress amended the Constitution to allow for the country’s first income tax — and agreed to make all interest payments deductible from this new obligation. A few decades later as the country began to emerge from the Great Depression and the Second World War, more and more Americans were buying homes and the tax deductibility of mortgage interest payments became a significant element of promoting home ownership.

Mortgage interest deduction costs $100 billion a year

As the “fiscal cliff” and huge budget deficit hang heavy on the minds and desks of policymakers in Washington, the mortgage interest deduction is thought to be close to the top of the list of possible solutions to reducing the deficit. The mortgage deduction is both “one of the most cherished in the U.S. tax code… and on eof the most expensive, estimated to cost the federal government $100 billion this fiscal year.” (Los Angeles Times)

Likely to be “adjusted” but not “eliminated”

Experts agree that it is unlikely that a wholesale elimination of the mortgage interest deduction will be approved. It is more likely that the code will be refined to reduce the benefit for high-income households and borrowers. The president of the National Association of Realtors (NAR), Gary Thomas, commented that it has always been the N.A.R.’s position that the mortgage interest deduction is vital to the stability of the American housing market and economy, and we will remain vigilant in opposing any future plan that modifies or excludes the deductibility of mortgage interest.” (The New York Times)

Changing the deduction has bi-partisan support

In a time when there seems to be little upon which Democrats and Republicans can agree, changing the mortgage interest tax deduction seems to be striking the right bi-partisan note. Both President Obama and the former Republican presidential nominee, Mitt Romney, have come out in support of capping the deduction.

Via The American Prospect, The Los Angeles Times, The New York Times.

House Prices: Where Are They Headed This Winter?

 In a blog post last month, we projected that home values might actually begin to soften on a month-over-month basis throughout the winter. There are other expert analysts that are also notifying their readership of this possibility. Calculated Risk, in a post last week explained:

“The monthly Case-Shiller house price indexes will show month-to-month declines soon, probably starting with the October report to be released in late December. The CoreLogic Index has already started to decline on a month-to-month basis.” 

Fiserv, another company that analyzes home prices, came to the same conclusion:

“We project a small, short-term price decline for many markets that recently experienced double-digit appreciation.”

 This may seem counter to the headlines you have seen claiming home prices are on the rise. However, we must realize that there is seasonality to home price movements. Over the last few years, prices have increased in the spring through the early fall. They then soften throughout the winter. As Calculated Risk reveals:

“This is not a sign of impending doom - or another collapse in house prices – it is just the normal seasonal pattern.”

If you are thinking of selling your home in the next 6-8 months, you should realize that waiting may not ensure a higher price and perhaps may even result in a slightly lower sales price.

Attention Real Estate Professionals:

The webinar we are doing this Wednesday will include a powerful visual presentation on why prices will soften this winter. Reserve a seat by clicking here. 

 House Prices: Where Are They Headed This Winter?

Short Sales are on the rise

According to recent study by the online marketing company, RealtyTrac, short sales have been on the rise.
These homeowners are motivated to sell in a short sale because the closing price is less than what they owe the bank. The bank agrees to absorb the loss, and unloads the property while the homeowner gets out of a mortgage they can't afford.
Currently, homeowners don't have to pay federal tax on the unpaid mortgage debt because of a bailout-era law known as the Federal Mortgage Debt Forgiveness Act.
However, this act expires on December 31 and unless it is extended, in January the IRS will start treating unpaid mortgage debt as taxable income for many borrowers. The average amount of forgiven debt in a short sale is about $95,000, according to Blomquist. The tax on that amount could go as high as $33,250, even more if the Bush tax cuts expire.

Harmful Effects from Changing the Listing Price?

 

With the housing market showing signs of a recovery, sellers may think they can list their homes at a higher price and adjust if necessary. That may not be a good strategy. This is a post we ran last year by Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research. To view other research from FIU, visit http://realestate.fiu.edu/. - The KCM Crew

 The Research
Are there any negative effects from changing the listing price of a property?  This question haunts Brokers/Agents as well as sellers of property every day.  At present, there does not seem to be a consensus answer to this question within the professional real estate community.  Fortunately, this question was scientifically investigated by John R. Knight. Unfortunately, few know the results of Professor Knight’s research.
In Knight, the impact of changing a property’s listing price is investigated.  Additionally, the types of property that are most likely to experience a price change are also estimated.  The findings from this research indicate that, on average, properties which experience a listing price change take longer to sell and suffer a price discount greater than similar properties.  Furthermore, bigger price changes are found to experience even longer marketing times and greater price discounts.  Finally, as for which properties are most likely to experience a price change, Knight finds that the greater the initial markup; the higher the likelihood that any given property will experience a listing price change.

You can finish reading this article at the link posted.  Harmful Effects from Changing the Listing Price.

Young Adults Forming New Households

 Back in August, we identified young adults between 25-34 years old still living at home with their parents as a group that was about to enter the housing market. A recent Wall Street Journal article proves our thinking was correct. We have re-posted our original blog post and an update. – The KCM Crew 

UPDATE  

In a recent Wall Street Journal article, it was revealed that household formations dramatically increased the last 12 months:

• Average Annual Formations during boom years – 1.25 million
• Average Annual Formations 2008-2011 – 650,000
• New Household Formations in last year – 1.15 million

As the article states:

 “Americans are setting up house at the fastest rate in more than six years, an indication that recession anxiety, which prompted adult children to move in with their parents and single people to postpone marriage, is starting to ease… Rising household formation, which is tied to employment growth, means more students are finding jobs when they leave college, more adult children are leaving their parents’ homes and more couples feel confident enough about the future to tie the knot.”

Continue reading this article at the link posted below.
 Young Adults Forming New Households

FHA Upcoming Policy Changes

The FHA plans to accelerate its recovery

In the same report, issued by the Housing Administration last week, that showed a negative economic value for its capital reserve fund for the first time in its history last week, the FHA outlined an “Action Plan” to strengthen the fund and speed its economic recovery in the next few years.

The FHA projects that, if no policy changes or other operating changes were to be made, its fund will be positive in 2014 and reach the mandated ratio of 2.0 percent by 2017. With new policies and programs in place, the FHA is expecting the fund will be positive within the year and reach the mandated capital reserve ration by 2014.

Upcoming policy changes outlined by the FHA

• Strengthen assistance programs for delinquent homeowners — the FHA is aiming for payment reductions of at least 20% for FHA-HAMP modifications
• Streamline FHA short-sale process — and reduce the number of traditional FHA REO foreclosures, which are significantly more costly
• Change the FHA premium cancellation policy — premiums will be required to be paid for the life of the loan, a change from the current policy which allows homeowners to let the policy lapse after the home had achieved 22% equity
• Increase the mortgage insurance premium by 0.1 percent
• Accelerate asset disposal programs to sell up to 10,000 distressed mortgages each quarter
• Revise the HECM (reverse mortgage) program to lessen its negative impact on the fund — projected changes include reducing the initial amount borrowers are allowed to draw at loan orgination and reducing the maximum amount of funds available to the borrower throughout the program

Read the FHA’s full report here.

Why Waiting Until Spring to Sell May NOT Make Sense

  We have been happy to report that house prices have increased over the last several months. However, we have also warned that month-over-month prices since 2009 have softened in the fall and winter. We are beginning to see that situation repeat itself in 2012.

CoreLogic, in their latest House Price Index revealed that prices increased by 5% over last year. Yet, prices actually dropped .3% month-over-month (m-o-m). Analytics firm FNC, in their latest Residential Price Index, reported that prices increased 2.3% over the last year but prices remained unchanged m-o-m.

What Does This Mean for Sellers?

Sellers should be excited about the headlines showing price appreciation across the country for the first time in a long time. However, if you want to sell your home in the next 6-8 months realize that there is a better chance that prices will soften than appreciate during that time span. Waiting until the spring for a better price probably makes little sense. 

FHAs Annual Report Is In

Reserve Fund Is Low — Will the Treasury Need To Help?

Negative capital reserve does NOT indicate operating deficit

The U.S. Department of Housing issued its Annual Report to Congress on the financial status of the Federal Housing Administration’s Mutual Mortgage Insurance (MMI) Fund for the fiscal year 2012 last week. Most notably, the report reveals that the fund currently has a negative economic value of $16.3 billion. 

It is important to note that the fund’s negative value does not mean that the FHA is unable to pay insurance claims or is running a current operating budget.

FHA unlikely to petition Treasury support

Although the FHA could petition for a Treasury draw, the decision as to whether that’s necessary doesn’t rest on the projections outlined in the report, but on the President’s budget proposal, which will be released in February — even then, the final determination won’t be made until September of next year. The report’s estimate of this year’s deficit also does not include $11 billion of expected capital accumulation from the FHA’s current “book of business.” 

The FHA, which was created in 1934 to revive the country’s housing market after the Great Depression, has never had to call upon the Treasury for financial support.

Capital reserve fund down from 2011

The Congress mandates that the FHA’s capital reserve fund be no less than 2 percent of the FHA’s “insurance-in-force” — with $1.13 trillion of insurance-in-force for FY 2012, the current capital reserve fund ratio is about -1.44 percent, down from 0.24 percent in 2011 (when the fund had an economic value of $2.6 billion).

Fund predicted to be in the black within 2 years or less

The FHA predicts that — without any policy changes or other operating changes that might impact the FHA’s recovery — the fund will be positive in 2014 and reach the mandated ratio of 2.2 percent by 2017.

 

Read the FHA’s full report here.

 

Is It Time to Buy A Rental Property?

Yesterday, we discussed rising rents and their impact on the long term housing expense of tenants. Today, we want to look at the opportunities that single-family rental units present for the small investor.
With house prices inching up and rents skyrocketing, this may be the perfect time to invest in single family residential real estate.
If you do, you won’t be alone. According to the National Association of Realtors’ (NAR) 2012 3rd Quarter Metro Area Report:

“Investors…accounted for 17 percent of all transactions in the third quarter.”

More than one out of every six houses sold are purchased by an investor. In the most recent MarketPulse Report by CoreLogic, their Principal Economist, Sam Khater, wrote on the subject in a story titled Roll Tide, or The Rise of the Single Family Rental Market. The major takeaways from the article are:

• The single-family rental market remained very active in the late summer of 2012 with increases in demand, tightening inventory and rising rents.
• Nationally, rental leasing volumes were up every month for two years. In August, they were up 7% over last year.
• Supply was down 11% over the same period.
• This tightness in supply has caused rents to increase.
• Rent growth is expected to increase at a ‘strong clip’ late in 2012 and in 2013.

If a private investor is looking for a great hands-on opportunity, perhaps purchasing a single-family house to rent out makes sense. Check with your local real estate adviser to uncover the opportunities in your region.
Is It Time To Buy A Rental Property?

New Mortgage Applications Up, ReFi’s Down

Mortgage Rates Stay Fairly Steady (And Low)

Refi applications drop 4 weeks in a row

The last week in October saw a 6 percent drop in refi applications from the prior week, marking the fourth straight week of decreases. Interestingly, just a month earlier, in September, refinance applications reached their highest level in three years.

Mortgage rates continue to hover near all-time lows

Mortgage rates have been holding fairly steady at nearly record lows, which may partly explain the drop in applications for refinancing. As a senior economist at Wells Fargo Securities put it, “People who are not underwater have already refinanced. People who want to refinance but couldn’t are already underwater.”  (via Medill Reports)

Refinancing activity drop predicted to continue next year

At the Mortgage Bankers Association’s annual convention earlier this month, consensus seemed to be that mortgage originations would go up next year, but refinancing would drop in the second part of the year.

 

A Conversation on Short Sales vs. Strategic Defaults

 Original Question:

I have heard that a short sale might be better than a strategic default. However, they are painfully slow and I’m really not sure they have any “different” effect on surrounding homeowners: it’s still a massive loss of value in the area.

Whether they short-sell or not, aren’t they going to be penalized by future lenders anyway? I’m not entirely sure there’s much of a different in the “outcome” at the end of the day – short sell or walk away, they are going to suffer in creditworthiness.

And don’t short sales actually harm the bank “more” than the borrower (perhaps) because it drags out the timeframe before the asset can be put on the market, where as a walk-away can put that home on the market right away – at TODAY’s possible sales price – rather than weeks more of declining value.

 Steve:

I can fully understand your overall point. However, as always, the devil is in the details.

1.) There are VERY HEFTY penalties to a strategic defaulter vs. a person who short sales (ex. Fannie Mae has decided that they will “lock out” any strategic defaulter from getting a mortgage for a minimum of seven years and will also charge them with EVERY expense incurred during the foreclosure process).

2.) The average short sale sells for 85.3% of full value. Foreclosures sell for an average of 66% of full value. Every time a house goes to foreclosure vs. a short sale the neighborhood loses that 19.3% equity difference when these homes are used as comps.

Again, I understand your overall point. I am just worried about future ramifications.

Click on the link posted here, A Conversation on Short Sales vs. Strategic Defaults , to continue reading.

New Home Sales Continue to Rise

Highest Sales Level In More Than 2 Years

Month to month improvement nearly 6%

The Census Bureau reports that sales of new single-family homes rose 5.7 percent from August 2012 to September. The seasonally adjusted annual rate in September was 389,000 — up from August’s 368,000. The new home sales rate in July of this year was 374,000 — a two-year high.

Annual increase more than 25%

September 2012 saw a 27.1 percent increase in new home sales over September of last year. The median sales price of a new home in September was $242,000 — up nearly 12 percent over the same time last year.

Housing market recovery seems solid

Bloomberg interviewed an economist with RBS Securities in Connecticut who said that

“All the things that were really holding back housing are finally starting to lift. It really is tough to find any bad signs here. Inventories are very, very lean. Assuming the economy remains on track, housing should continue to improve for the rest of the year and into 2013.”

Gathered from

·       Home Sales Rising to Two-Year High Spur U.S. Growth: Economy (Bloomberg)

·       New-home sales up 27 percent from a year ago (Inman News)

·       New home sales jump to two-year high (NBC Bottomline)

Mortgage Rates Expected To Creep Higher

Record Low Rates May Be Behind Us

Mortgage applications slow as rates rise

Mortgage applications fell in mid-October to their lowest level since August. At the same time, Zillow’s Mortgage Marketplace reported a slight increase in the rate for a 30-year fixed mortgage — up 2 basis points from 3.26 percent to 3.28 percent.

MBA sees Fed policy supporting slow rise in rates

The Mortgage Bankers Association (MBA) is predicting an average rate of 3.8 percent for 30-year fixed mortgages in the fourth quarter, rising to 3.9 percent in the first quarter of 2013 — with a steady, slow rise to land around 4.4 percent by the fourth quarter of 2013.  Jay Brinkmann, the MBA’s chief economist, thinks “continuing purchases of mortgage-backed securities through the Federal Reserve’s QE3 program will likely keep the 30-year fixed-rate mortgage below 4% through the middle of 2013.”

International economy impacted rates more than expected

According to Brinkmann, factors economists normally expect to drive interest rates, such as inflation, were less significant than other factors —

“it was uncertainty in European economies and actions taken by the Federal Reserve that moved rates so low this year.”

Gathered from

• 30-Year Fixed Mortgage Rate Up Slightly; Current Rate is 3.28%, According to Zillow Mortgage Rate Ticker (Nasdaq)
• U.S. mortgage applications slump as borrowing rates rise - MBA (Reuters)
• Mortgage rates will rise next year, but slowly (MarketWatch)

Housing: The Reasons It Is Coming Back

 Monday, we told you that many experts are beginning to call a bottom in house prices. Why? Writing in the Financial Times, Roger Altman, former deputy Treasury secretary, explained why he is so bullish on housing:

“This surge will be driven by a combination of improving house prices, a lower inventory of homes for sale, rising rates of household formation and population growth, and improving access to mortgage credit.”

Altman gave his thoughts on each point:

PRICES

“The S&P/Case-Shiller Composite 20 City Home Price index has risen 8 per cent since March. Indeed, Barclays has projected that, by 2015, nominal home prices will exceed their 2006 peak. Home affordability is also way up, as the ratio of mortgage payments to both income and rents has never been more favourable. Moreover, the relationship of home prices to household income is back to the level of 30 years ago. Rising prices and affordability, of course, lead directly to the buying and building of homes.”

HOUSING INVENTORY

“The levels of relevant supply have fallen sharply. The number of homes for sale has fallen back to its long-term average of 2m. Yes, there is a larger “shadow inventory” of homes that are in foreclosure or carry delinquent or defaulted mortgages. However, many of these are distressed, in that they have not been physically maintained. This means that the supply has become two-tiered – quality homes and distressed homes. For most buyers, only the first of these two markets is relevant and the supply there is approaching its lowest level since 1992.”

POPULATION GROWTH

“Housing demand is going to be strong, driven by demographics. The International Monetary Fund forecasts that the US population will increase by 15m during the 2012-17 period, more than the increase of the past five years. The two groups of the population that are growing fastest are the over-55s and the so-called echo boomers, the grandchildren of the baby-boom generation. The first group has the highest rate of home ownership. The second has been renting disproportionately, and is primed to start buying. JPMorgan estimates that 6m new units of housing are needed by 2017 just to serve the bigger population.

HOUSEHOLD FORMATIONS

“There is the coming recovery in household formation. According to JPMorgan, this rate was steady at about 1.4m annually from 1958 up to 2007. But, it plunged below 500,000 for the three years following the financial crisis, as young people moved in together or lived with parents. Now it has doubled from that level and estimates of pent-up households are at an all-time high. Most expect formation rates to rise much further still, exceeding the 50-year average for a few years.”

IMPROVING ACCESS to MORTGAGE CREDIT

“The availability of mortgage credit is starting to improve. Underwriting standards tightened sharply following 2008 and the proportion of home sales that are financed by new mortgages is now at a 10-year low. However, household finances have improved sharply, with debt service ratios returning to pre-crisis levels. Moreover, banks also need the income from originating mortgages. Mortgage credit availability is therefore opening up, which also boosts home sales.”
It seems apparent that many aspects of the housing market are in the process of turning much more positive.

 Housing: The Reasons It Is Coming Back

Foreclosures Hit a 5-Year Low

Filings Down 16% Year-Over-Year

 

Lowest foreclosure activity level since 2007

RealtyTrac recently reported that September’s foreclosure filings (just over 180,000) were the fewest monthly filings recorded since July 2007.

Month to month

Total foreclosure filings fell 7 percent from August 2012 to September 2012 — the second consecutive month of declining filings.

Foreclosure starts also down

Foreclosure starts (homes entering the foreclosure process) dropped from the prior month by 12 percent and from September of 2011 by 15 percent. August 2012 was also down from the previous month, the first drop in monthly foreclosure starts after three consecutive months of increases.

State by state, the news is either very good or very bad

The national decrease in foreclosure activity was driven mainly by declining activity in the non-judicial states (states where foreclosure proceedings do not go through the courts). Nevada, Oregon and Utah — all non-judicial states — saw foreclosure activity rate drops of more than 60 percent. Of the 24 non-judicial states, 20 saw a decline in foreclosure activity.

Judicial states, however, are not faring as well. In 14 of the 26 judicial states, foreclosure activity increased year-over-year. New Jersey saw a 130 percent increase in activity in the third quarter, New York experienced a 53 percent increase, and activity in Pennsylvania, Connecticut and Illinois jumped 31 to 36 percent.

For more on recent foreclosure activity, read RealtyTrac’s complete report here.

6 Straight Months of Rising Home Prices

Year-Over-Year Home Prices Continue To Improve

 

Prices increasing both year-over-year and month-over-month

CoreLogic — one of the largest real estate data sources in the country — posted its latest Home Price Index Report recently, showing a 4.6 percent rise in national home prices from August 2011 to August 2012. That’s the largest annual increase in home prices in more than six years. From July, August home prices showed a 0.3 percent increase.

Biggest price gains are in Arizona, Idaho and Utah

CoreLogic analyzes the data both including and excluding “distressed sales,” which it defines as “short sales and real estate owned (REO) transactions.” Arizona, Idaho and Utah were all in the top five states in annual home price appreciation, both with and without distressed sales.

·        Arizona tops the list of largest price gain both with and without distressed sales — showing an 18.2% increase in price across all sales and a 13% price increase when distressed sales are excluded.

·        Utah home prices went up 8.9% across the board and 10% when distressed sales are excluded

·        Idaho saw home prices increase 10.4% annually when looking at all sales, and 8.6% when distressed sales were excluded

States with falling prices include Rhode Island, New Jersey and Alabama

When distressed sales were factored out of the analysis, only three states posted a drop in home prices from August 2011 to August 2012 — Rhode Island, New Jersey and Alabama.

·        Rhode Island home prices decreased 1.7% excluding distressed sales — when distressed sales are included, RI home prices showed an annual 2.6% drop

·        New Jersey saw a 1.4% drop in annual prices both with and without including distressed sales

·        Alabama showed home prices falling just 0.2% if distressed sales are factored out — even including distressed sales, at 0.7% Alabama showed almost the smallest drop in home prices in the country

Continued home price gains in September

According to the report, CoreLogic is predicting a seventh month of annual home price increases in September of 5 percent, albeit with a small drop month-to-month from August of 0.3 percent:

The CoreLogic Pending HPI indicates that September 2012 home prices, including distressed sales, are expected to rise by 5 percent on a year-over-year basis from September 2011 and fall by 0.3 percent on a month-over-month basis from August 2012 as the summer buying season closes out. Excluding distressed sales, September 2012 house prices are poised to rise 6.3 percent year-over-year from September 2011 and by 0.6 percent month-over-month from August 2012.

 

 

For the complete CoreLogic Home Price Index Report, click here (PDF).

How You Can Get The Most From Your Homeowners

Part 1: Be Prepared Not Surprised When Disaster (or Damage) Strikes

 

1. Review Your Policy Every Year

Life changes and market changes can impact your home insurance policy — everything from having a baby to declining property values may mean the insurance policy you have in place should be adjusted.

Kiplinger’s 10 Reasons Your Insurance May Need A Checkup goes through items including

1. Have you gotten married or divorced?
2. Have you acquired any new valuables such as jewelry, electronic equipment, fine art, antiques?
3. Did your teenager get a driver’s license?

New or changed circumstances can mean you should make changes to your policy — reviewing your policy at least once a year will help prevent unpleasant surprises.

2. Understand When You’re Covered and When You’re Not

As The Nest puts it “Insurance pays for sudden, accidental events, not for gradual decline and aging.” If a tree falls on your roof, repairing or replacing the roof should be covered by your policy. If, however, your roof starts leaking after 10 years due to age or general wear and tear, standard home insurance policies won’t cover the cost.

Keep in mind, too, that “wear and tear” vs “natural causes/disasters” can be differently addressed by different insurers and in different parts of the country. Policies in hurricane prone areas such as Texas and Florida generally do not cover roof damage that is caused during a storm.

If you live in a flood prone area (either living near the coast or large body of water or in a hurricane zone), be aware that homeowners insurance doesn’t extend to property damage caused by floods. In fact, the Insurance Information Institute estimates that only about 12 percent of homes in flood prone areas have flood coverage. You can obtain flood insurance through the National Flood Insurance Progam. Earthquake damage also requires a separate policy.

3. Make Sure Your Policy Matches Your Needs

Your homeowners insurance policy should be tailored to your life and your home — if you’re not concerned with finding a temporary place to live while repairs are underway, make sure you’re not paying for “displacement coverage,” which provides reimbursement for living costs while you are out of your home.

Confirm whether your policy covers “replacement costs” or “actual cash value.” If you are covered for the “cash value” of an item, its value will be based on the value the item would have had — that is, if your ten year old stereo system is stolen, you will be reimbursed the amount that old stereo would cost. If you’re covered with “replacement cost,” however, your policy should pay to replace that stereo with a comparable brand new one. It’s a good idea to make and maintain a household inventory of the contents of your home (with receipts if you have them), including your clothes and jewelry.

There are online tools that will help you determine replacement costs for your home for less than $10:

• AccuCoverage walks you through a detailed questionnaire to prepare a fairly specific report outlining the costs of replacing your home
• HomeSmartReports offers a quick review and then provides high and low estimates for replacing your home, but doesn’t allow for custom features

Homeowners insurance resources

• Home Insurance Basics (insure.com)
• What does a standard home insurance policy cover? (homeinsurance.com)
• How Do You Get Your Homeowners Insurance to Pay for Your Leaking Roof? and 5 Important Elements in Any Homeowner's Insurance Coverage (TheNest.com)
• Hurricanes and Flood Insurance: What Homeowners Should Know (nolo.com)
• Breaking Down Homeowner’s Insurance Coverage (moneycrashers.com)

Next Week, Part 2: Saving Money While Keeping Your Home Protected

 

 

Completed Foreclosures Down…in Most States

According to the latest foreclosure report from CoreLogic, there were 57,000 completed foreclosures in the U.S. in August 2012, down from 75,000 in August 2011 and 58,000  in July 2012.
Mark Fleming, chief economist for CoreLogic reveals:

“August marks the fourth month in a row there were fewer completed foreclosures, which is more evidence that the housing industry is finding its footing. While we are seeing improvement on a national level, there remain higher concentrations of foreclosures in some areas with five states accounting for nearly half of all completed foreclosures nationwide during the last year.”

The five states with the highest number of completed foreclosures for the 12 months ending in August 2012 account for 48.1 percent of all completed foreclosures nationally. They are:

• California (110,000)
• Florida (92,000)
• Michigan (62,000)
• Texas (58,000)
• Georgia (55,000)

The five states with the lowest number of completed foreclosures for the 12 months ending in August 2012:

• South Dakota (25)
• District of Columbia (113)
• Hawaii (435)
• North Dakota (564)
• Maine (612)

We still must realize that part of the reason completed foreclosures are declining is that banks are finding other ways to  liquidate their distressed properties. According to Anand Nallathambi, president and CEO of CoreLogic:

“The reduction in foreclosure volumes is to some degree being facilitated by the rising popularity of alternative resolution methods, such as short sales and loan modifications.”

Tomorrow we will address what is happening with shadow inventory (houses that will probably enter the market as distressed sales in the future).

Completed Foreclosures Down... in Most States

Short Sale vs Foreclosure – 10 Common Myths Busted

It’s likely you’ve heard the term “short sale” thrown around quite a bit. But what, exactly, is a short sale?

A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property. This is not a new practice; banks have been doing short sales for years. Only recently, due to the current state of the housing market and economy, has this process become a part of the public consciousness.

To be eligible for a short sale you first have to qualify!

To qualify for a short sale:

• Your house must be worth less than you owe on it.
• You must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc… also qualify.

Now that you have a basic understanding of what a short sale is, there are some huge misconceptions when it comes to a short sale vs. a foreclosure. We take the most common myths surrounding both short sales and foreclosures and give a brief explanation. LET’S BUST SOME MYTHS!!

Click on this link, Short Sale vs. Foreclosure - 10 Common Myths busted, and continue reading.

Protect Your Nest Egg

Protecting your home’s value is always a top priority, and the Mortgage Interest Tax Deduction is an important part of making homeownership a good investment. A resolution is pending in the House of Representatives to keep the deduction in its current form. Americans overwhelmingly oppose any action by Congress to scale back or eliminate the deduction. The consequences could be devastating for homeowners, the housing market and the nation’s economy. To learn more about this issue, go to www.protecthomeownership.com.
 

If you need a dedicated expert in Real Estate to help with this or anything related to lowering the cost of homeownership, call today. Let’s talk.

 

Source: National Association of Home Builders

Thinking of a Vacation or Retirement Home? Buy It Now

 

 When the economy was exploding in the early 2000s, many of us began to dream about purchasing that vacation home on the lake or securing a home in a more appropriate location for our retirement years. However, with the booming economy came skyrocketing house prices. Many of the homes we fell in love with quickly became out of reach financially. Perhaps we should take a second look at these same homes today.

With prices dropping by over 30% in some markets and with interest rates at historic lows, this may be the perfect time to do what we and our families have always dreamt of doing – buying that second home. Click on this link, Thinking of a Vacation or Retirement Home? buy It Now and let’s look at the numbers.

Housing Market At A Glance

3 Infographics With Interesting Information

 

1. How to Sink or Swim in the Housing Market

(infographic from Allmand Law)

 

2. Housing Market Year-Over-Year

(Infographic from Keeping Current Matters)

 

3. The Economic Impact of the Housing Market

(infographic from BipartisanPolicy.org)

5 Reasons to Buy a Home Now

Based on prices, mortgage rates and soaring rents, there may have never been a better time in real estate history to purchase a home than right now.

In this article, you will read about the 5 major reasons purchasers should consider buying now!

5 Reasons to Buy a Home Now

Chipping Away At Mortgage Debt

Total National Mortgage Debt Drops

 

According to a news release from the Federal Reserve, the national outstanding mortgage debt has dropped nearly $1 trillion dollars since 2008 — the total debt on one-to-four family residences now stands at $10.178 trillion, down from $11.075 trillion in 2008.

 

Peter Miller, editor of the HSH blog, considers dropping home prices, record low mortgage rates, refinancing and loan modifications to significant contributing factors.

• Lower home prices mean smaller mortgages. As home prices fall, new loans are simply smaller for the same property than they would have been when the housing market was booming — the Fed estimates that from 2005 to the first quarter of this year, the housing market has lost more than $5.5 trillion, or about 25% of its total value.
• Lower mortgage rates mean less debt.Low mortgage rates mean less debt for a loan and smaller monthly payments.
• Refinanced mortgages mean less debt. Refinancing has lowered homeowners’ current debt and monthly payments — Wells Fargo recently announced that between March and June of this year, it had helped more than 8,500 customers refinance their loans, saving the borrowers an average of $4,560 annually in interest payments.
• Modified loans mean less debt. Loan modifications have also lowered the debt for borrowers struggling with their loan — according to the Fed, more than one million borrowers have been helped by the Making Home Affordable Program, reducing their monthly mortgage payments by an average of $536.

 

Miller summed up the positive ramifications of national debt reduction quite simply:

1. Homeowners spending less on their home loan will spend more in the marketplace
2. As debt decreases, so does risk — meaning lenders may ease their credit constraints

How the Serenity Prayer Applies to Real Estate

 You may be wary of either buying or selling a home in today’s market. You may feel powerless to the process. How could YOU possibly know whether the current good news about housing will continue? There is no doubt that today’s real estate market is extremely difficult to navigate. However, we want you to know that thousands of homes sold yesterday, thousands will sell today and thousands will sell each and every day from now until the end of the year.

It is totally within your power to decide whether it is the right time for you and your family to move. Even in the current market. 

“How?” Let’s look at the simplicity of the famous Serenity Prayer and apply it to selling a home in today’s real estate market.

“God, grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.”

 The two main concerns many talk about when discussing the housing market are:

1. the current economy
2. the election later this year

Continue reading at How The Serenity Prayer Applies to Real Estate

Foreclosure Sales Drop, Average Price Rises

 

Distressed Property Inventory Shrinks and Drives Prices Up

22% drop in total foreclosure sales with 7% rise in price

The average price for foreclosures rose year-over-year by 7 percent in Q2 of this year, while the total number of foreclosures sold dropped 22 percent year-over-year in the same period. The average price of a foreclosure property in Q2 was just over $170,000, which reflects a 32% discount on the average price of non-foreclosures, a slight increase compared to the 30% discount foreclosures offered in the first six months of 2012. (via RealtyTrac)

Foreclosures available for purchase are limited

According to Darren Blomquist, vice president of RealtyTrac:

“The second quarter sales numbers provide solid statistical evidence of what we've been hearing anecdotally from real estate agents, buyers and investors over the past few months: there is a limited supply of available foreclosure inventory to choose from in many markets. “Given this shortage of supply and the seasonally strong buyer demand in the second quarter, it's no surprise that the average foreclosure-related sales price increased both on a quarterly and annual basis."

(via RealtyTrac)

Short sales on the rise

At the same time, short sales rose year-over-year (for the period between January and May) 18% from 2011 to 2012. Banks are clearly more and more interested in avoiding foreclosures and foreclosure processing when possible, clearing the way for a steep increase in short sales in the distressed property market. (via CNBC)

Baby Boomers About to Bust Out of Homes

“As the Baby Boom generation has passed through age groups and life stages, they have had profound effects on housing demand and supply.”   

- The Urban Land Institute

There is little doubt that the baby boomer generation has had a major impact on the housing market as they proceed through the different stages of their lives. And they are about to go through the next stage – retirement. The opportunity that this next transition will create will be enormous. Let’s take a look at the link posted. Baby Boomers about to Bust Out of Homes 

Biggest Surge in Home Prices Since 2006

Average home price up nearly 10%

The National Association of Realtors (NAR) announced last week that the national median prices for existing homes rose 9.4 percent from July 2011 to July of this year. The average price for an existing home on the market reached 187,300 in July.

5 consecutive months of gains

In addition to the increase in the average price on an annual basis, July also marked the fifth month in a row that the national median price improved over the prior month — the first time that has happened since May of 2006.

400,000 homes no longer underwater

Zillow reported last week that the increase in the average home price translated into about 400,000 homeowners no longer owing more on their homes than what they are worth — negative equity levels in the country dropped from 31.4 percent last quarter to 30.9 percent in the second quarter.

Via: Zillow, AOL Real Estate and Inman News.

The 5 Biggest Opportunities in Real Estate Going Forward

Many professionals in the real estate industry have been in survival mode for the last few years. The challenges in the economy and their effect on the housing industry have caused many to bunker-down and restrict their business planning to the short term. However, with sales increasing and prices beginning to stabilize, we believe a good business practice would be to again concentrate on mid-range and long term plans as we move forward.   

Click here:The 5 Biggest Opportunities in Real Estate Going Forward To continue reading.

Underwater Becomes An Official Word

Merriam-Webster Has Added The Word To Its Newest Edition

 Earlier this month, Merriam-Webster, publisher of the Collegiate Dictionary, announced the list of new entries it’s adding this year.

Photo via Huffington Post.

 In addition to the new meaning of “underwater” included this year, the new entries (and their definitions as written by Merriam-Webster) include:

• underwater — adj (1672) ... 3: having, relating to, or being a mortgage loan for which more is owed than the property securing the loan is worth
• man cave — n (1992): a room or space (as in a basement) designed according to the taste of the man of the house to be used as his personal area for hobbies and leisure activities
• bucket list — n (2006): a list of things that one has not done before but wants to do before dying
• game changer — n (1993): a newly introduced element or factor that changes an existing situation or activity in a significant way
• toxic — adj (1664) ... 4: relating to or being an asset that has lost so much value that it cannot be sold on the market

 In other words: “Adding a man cave is on my bucket list, but right now my home is so underwater it’s nearly toxic; until there’s a real game changer in the market, I’m stuck watching TV in the den.”

 For a slideshow of more of the new words, such as “aha moment,” “flexitarian,” and “earworm,” check out this post on Huffington Post.

House Prices: An Important Update

Back in February, we posted a blog (seen below) explaining that there would be a ‘window of opportunity’ for sellers to sell at a better price than they could after some distressed properties entered the market this summer. The concept was correct as prices have stabilized and, in some markets, are actually showing mild appreciation.

However, we underestimated the time it would take for the banks to work through the processes that would bring this distressed inventory to market. We are now extending this window of opportunity through the rest of this year as we believe foreclosures and short sales will increase more dramatically as we begin 2013.

To continue reading this article, and be refreshed on the article posted back in February, click on this link House Prices: An Important Update.

Stricter Appraisals on Risky Mortgages

Proposed regulation would apply to “high-risk” mortgages only

Last week, federal regulators proposed rules that would require an actual physical inspection of the property before an appraisal could be submitted. This would prevent appraisals made on the fly purely on a cursory inspection of the home’s exterior and coming in too high.

Regulators ready to crack down on fraudulent home flipping

Although recent consumer consensus seems to be that appraisals are coming in too low and impeding home sales, the new regulation is aimed primarily at preventing fraudulent home flipping. By making higher-rate (“high-risk”) mortgages subject to an additional appraisal, regulators hope to minimize home-flipping cases where the appraisal of the property after improvements is too high and allows the flipper to sell at an unfounded price.

High-risk mortgage defined as 1.5 percentage points or more above average

The proposed regulations would apply only to loans where the interest rate is at least one and half percentage points more than the market average. While the regulations seem restrictive, they in fact apply only to a very small portion of the mortgage market. In 2010, loans meeting this criteria comprised just 3.2% of the mortgages written.

From The Wall Street Journal: Developments and CBS Money Watch.

Once and For All, Which Way Are Home Prices Headed?

One could get dizzy looking at the daily headlines pertaining to home prices. One report says prices are heading up and the next day, another says they are still falling. Here are two recent examples:

National Association of Realtors Chief Economist Lawrence Yun addressed the issue at the National Association of Real Estate Editors conference in Denver:

“This time next year, there could be a 10% price appreciation. I would not be surprised to see that.”

At the same time, Gary Schilling, president of A. Gary Shilling & Co., has been very outspoken about his belief that prices will continue to fall:

“Excess inventories are the mortal enemy of prices…I’m looking for another 20% decline and that is what it would take to bring them back to the long-term averages.”

The vast difference in what two experts believe causes confusion for both buyers and sellers. This uncertainty can create doubt as to whether or not they should act now. It is the real estate professional’s job to create clarity when it comes to future home prices. But how?

Once and For All, Which Way Are Home Prices Headed?

Momentum Slows as Pending Home Sales Drop

Pending home sales down 1.4%

Month over month, contracts to purchase existing homes declined 1.4%, the second month-over-month drop in three months. The year-over-year trend, however, is in its fourteenth month of consecutive gains — demonstrated by the 80 metropolitan areas that made this month’s “Improving Markets Index,” which is compiled by the National Association of Homebuilders and First American.

Limited listings may be behind the decline

The chief economist of the National Association of Realtors (NAR), Lawrence Yun, commented that “buyer interest remains strong but fewer home listings mean fewer contract signing opportunities.” Single-family homes on the market in June went down 3% from their levels in May and a whopping 24% from June of last year, the biggest year-over-year decrease in more than 30 years. Slow processing of distressed properties along with homeowners unwilling to sell their home when the current value is so much less than what they paid are the primary causes.

Supply and demand pressures helping stabilize the market

As inventories go down, the low home prices and record-breaking low mortgage rates continue to drive demand, which means that many listings — those priced appropriately for the current market condition — are receiving multiple offers, allowing sellers more choice picking a buyer and the terms of the sale.

Via Realty Times and Greenwich Post and NAHB.