Month: December 2013

Real estate: Look for value in 2014

By Carla Fried  @Money December 9, 2013

Real estate outlook
NEW YORK (Money Magazine)

In Money magazine’s Make More in 2014, you’ll find next year’s economic outlook, where to find opportunities in stocks and bonds, the best moves for homebuyers, sellers and owners, and strategies for boosting your career. This installment: How to play the housing market.

The good news for housing is that price gains next year are expected to be only about half as strong as in 2013, when sellers stayed on the sidelines. Yes, that’s good news. “For a sustainable recovery you want to see more balance between buyers and sellers,” says David Stiff, chief economist at CoreLogic Case-Shiller, which is forecasting a 6.8% rise in the median home value for 2014.

Inventory is already improving. Nationwide, the number of homes for sale in September rose 1.8% vs. a year earlier, according to the National Association of Realtors. That’s the first increase since late 2011. In Los Angeles, Atlanta, and Orlando, inventory was 10% or higher than a year earlier.

“It will still be a sellers’ market in 2014, given how far we have before inventory is back to normal,” says Jed Kolko, chief economist at Trulia, noting the supply of homes in September was still about 15% below historical norms. “But it will not be as extreme as 2013,” he says.

Buyers will also enjoy an advantage next year as real estate investors are expected to be less of a factor. Why? In an improving market, there are fewer distressed homes, which they covet. According to the Campbell/Inside Mortgage Finance HousingPulse Tracking survey, the investor share of residential home purchases fell from 23% earlier this year to 17% in September. In a more balanced market like this, here’s what you can do to get an edge:

BUYERS

Waiting for more inventory can make sense if you have a dream home in mind. But in 2014 there will be a price for delay — 30-year fixed-rate mortgages are forecast to climb from today’s 4.5% to more than 5%.

Work with a fast closer. Qualifying for loans is easier now, but speed is another issue. Franklin, Tenn., agent Patty Latham says she will not work with buyers using a particular lender that has missed several deadlines. For speed, Virginia agent Rob Wittman suggests sticking with local lenders with ties to nearby appraisers.

What’s fast? John Wheaton at Guaranteed Rate says, “Where 45 days was the norm, you can get an express closing in 20 days and even faster.”

Lead with a credible offer. At a time of multiple bids, low-balling isn’t the way to go. “The reality is, sellers don’t have to come back to you with a counter if they’ve got better bids,” Wittman says. Of course, you don’t want to overpay either. Even in markets that are starting to experience bidding wars, such as L.A. and Boston, final sales prices are still typically about 1% below asking. Use that and your agent’s local knowledge and go in with a respectable bid.

OWNERS

If you like your home and are not in a rush to sell, you have great flexibility. For instance, your rising home equity will make it easier to borrow against the property. That can help pay for deferred maintenance or home renovations you’ve been eyeing for years — which will only add value when you eventually put your home on the market.

Remodel within reason. Home-improvement spending is expected to grow by double digits through mid-2014, according to Harvard’s Joint Center for Housing Studies. Atop the wish list: bathroom and kitchen jobs.

Keep resale in mind. While the focus was on value at the market lows, today “homes with all the fixings are the ones attracting multiple buyers,” says McLean, Va., real estate broker Jon Wolford. So, yes, you can splurge a bit, but don’t go crazy. Remodeling Magazine’s cost-vs.-value survey found that moderate kitchen remodels ($57,500) recouped 69% of their cost, close to what minor jobs paid back. Over-the-top projects ($111,000), though, recouped less than 60%.

Take advantage of low home-equity rates. While 30-year mortgages rose nearly a point this year, rates on home-equity lines of credit have fallen a bit to 5.1%. That’s because HELOCs are tied to short-term rates that the Fed isn’t likely to hike until 2015.

If you’ll need to repay your loan over many years, though, go with a fixed-rate home-equity loan. Today’s 6.25% average is about 0.25 points lower than a year ago, as lenders are now more interested in doing deals, says Keith Gumbinger at HSH.com. Credit unions can be the best place to shop for home-equity loans. The average credit union rate is 5.75%.

SELLERS

List too early and you’ll leave gains on the table. Wait too long and rising borrowing costs might put an end to bidding wars. You can’t time the market perfectly, but you can keep an eye on inventory trends. Ask your agent to give you a monthly report on the number of listings compared with closings. Housing trends play out gradually.

Once you see a big uptick in listings relative to closings, you’ll know price gains are getting ready to slow — and that it’s time to act.

Price it right the first time. Don’t waste your time by listing too high only to have to wait and lower the price. “Buyers are smart these days — they know where the market is, and now that rates are higher, they aren’t going to bite on a list price above recent comparables,” says Sara Fischer, an agent with Redfin based in San Diego. The real estate site Zillow reports that about one-third of listed homes in August had a price drop, up from 26% earlier this year.

Play tour guide for the appraiser. If your buyer’s lender gets an appraisal that comes in lower than the agreed-upon price, you’re in for plenty of headaches — even in an improving market. You’ll have to lower the price, the buyer will have to cough up a bigger down payment, or worst case, the deal might collapse, sending you back to square one.

Fischer recommends that sellers be present when appraisers come by. “They don’t want to listen to the agent,” she says. “But if you’re the owner and can walk them through all the improvements, that can help the appraiser better understand what has gone into the home.” She recommends handing the appraiser a spreadsheet of all upgrades, listing when they were done and the scope of each project.

Stalling of tax overhaul bill is both good and bad for homeowners

By Kenneth R. HarneyDecember 15, 2013, LA Times

WASHINGTON — For one of the least productive congressional sessions in modern history, the final word about tax overhaul was entirely in character: Nothing’s happening.

But is that good or bad news for homeowners, buyers and small-scale real estate investors? A bit of both.

When House Ways and Means Committee Chairman Dave Camp (R-Mich.) recently announced that not only will he not reveal the details of his long-awaited comprehensive tax overhaul bill this year but he also will not seek passage of a so-called extenders bill for expiring tax code benefits, it was a sweet and sour mix for real estate interests.

Camp’s big bill, which would attempt to lower individual and corporate income tax rates to a maximum of 25%, is expected to call for significant cutbacks in or elimination of prized real estate deductions for home mortgage interest, local property taxes and other write-offs to pay for lower marginal rates. With debate on major changes like these now pushed back well into 2014 — in the middle of a reelection year for Congress — homeownership advocates are at least moderately relieved.

But there’s a key negative here as well: The failure of tax writers to put together an extenders bill means that important expiring Internal Revenue Code provisions affecting large numbers of homeowners will lapse Dec. 31. Of special concern are relief from taxation on mortgage debt forgiveness by lenders in most states, plus current deductions for mortgage insurance premiums and energy-saving home improvements.

California owners are not affected by the debt forgiveness expiration because state law exempts them from taxation when lenders cancel mortgage principal debt as part of short sales. The IRS has announced that it will not levy taxes on such transactions in California even if the federal exemption for owners elsewhere expires.

Complicating matters even more: Though they were tucked away in eye-glazing discussion drafts and attracted little attention before Thanksgiving, Senate tax writers’ proposals for real estate should be unsettling for anyone owning residential investment property, such as rental houses.

Senate Finance Committee Chairman Max Baucus (D-Mont.) would terminate one of the oldest financial planning techniques used by real estate investors — tax-deferred exchanges under Section 1031 of the code. In a 1031 exchange, property owners can defer taxes indefinitely when they swap “like kind” investment real estate within specified time periods following IRS regulations.

Under current law, investors can exchange rental real estate without incurring immediate tax liability, even if they’ve racked up huge paper gains on their properties. Taxes generally are not due until the investors actually sell their real estate for money.

Baucus also would sharply increase the depreciation period for residential investment real estate from the current 27.5 years to 43 years. Stretching out the depreciation schedule means investors would be able write off less per year on their properties than at present.

On top of that, the Senate proposal would also tax “recapture” of depreciation — in which the IRS requires payback of a portion of an investor’s earlier write-offs — at property owners’ ordinary income tax rates, rather than at lower capital gains rates, as at present.

Under Baucus’ plan, mom-and-pop real estate investors who’ve bought a small portfolio of rental houses or condos could be hit hard. Besides the depreciation deduction stretch-out, the inability to exchange properties tax-free for others of similar or greater value would put a severe crimp on their ability to grow and manage their investments over time.

William Horan, president of Realty Exchange Corp. of Gainesville, Va., says that “if Section 1031 of the code is repealed, then small investor owners would be facing massive taxes and most likely would not sell their properties. [Real estate] values for everyone would be lowered by removing vital investors from the market.”

A more immediate concern for homeowners, however, is Congress’ inability — or unwillingness — this year to extend key tax laws. Tops on the list is the mortgage debt forgiveness law. Unless Congress agrees to a retroactive extension, large numbers of owners could face big tax bills following short sales, foreclosures or loan modifications next year when lenders cancel a portion of the balances owed them. To bring that home: A $100,000 debt cancellation could lead to $28,000 in additional taxes for a short seller — all because Congress could not get its act together to extend a popular, pro-consumer law.

 

Home buyer demand drops in November amid holiday season

Follows seasonal trends

December 6, 2013 housingwire.com

Home buyer demand witnessed a steep decline in November, with the number of Redfin customers requesting tours and signing offers dropping 1.2% and 10.6%, respectively, following seasonal trends.

However, the drop was not as drastic as the same month in 2012, which saw tours and offers falling 11% and 13.6%, respectively.

Few buyers tend to shop for homes as the holidays start to loom closer. However, “with October’s budget and debt-ceiling mess in the rear-view mirror and the prospect for higher mortgage rates in 2014, many buyers felt like November was a window of opportunity,” Redfin agent Paul Reid said.

Additionally, Thanksgiving fell on the fourth week of November instead of the third week, giving buyers extra time to shop for houses and offset reduced demand during the holiday week.

Looking ahead, Redfin said, “In December, house hunting generally takes a back seat to retail shopping and holiday preparations for most buyers. We expect demand to drop off dramatically as Christmas nears.”

HUD: New FHA loan limit takes effect Jan. 1

Ceiling for loans in high-cost areas falls to $625,500

December 6, 2013 housingwire.com
ceiling
Beginning next year, homeowners with Federal Housing Administration loans will no longer be able to qualify for the $729,750 high-cost area loan limit.
Instead, the Department of Housing and Urban Development is implementing a rule passed a few years back that moves the agency’s standard loan limit for high-cost areas down to $625,500 for all FHA loans.

The standard loan limit for areas where housing costs are low is expected to remain at $271,050, while the ceiling for FHA-insured reverse mortgages will stay at $625,500, HUD added.

The Housing and Economic Recovery Act of 2008technically changed the ceiling for high-cost areas, but the financial crisis and slow-moving recovery prompted Congress to delay the standard’s implementation.

“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”

The rule does come with some special exceptions, which HUD outlined in a public letter. These variations allow exempt counties to obtain loan limits above the national standard when applicable.

The rule impacts all mortgage assignments issued on or after Jan. 1, 2014.

Approximately 650 counties will face lower loan limits when the standard takes effect, according to HUD.

Many buyers find the mortgage process unpleasant

 Mortgage processA survey from Chicago lender Guaranteed Rate finds that many buyers would rather do almost anything else than go through the mortgage process again. (Chuck Burton, AP / November 14, 2013)
By Lew SichelmanDecember 1, 2013,

LA Times

The shortage of houses for sale has changed the real estate landscape in numerous ways.

One is that finding just the right place has supplanted obtaining financing and wading through the necessary paperwork as the most difficult aspect of the buying process, according to the latest Profile of Home Buyers and Sellers from the National Assn. of Realtors.

But a survey from Chicago lender Guaranteed Rate finds that many buyers would rather do almost anything else than go through the mortgage process again.

To be fair, a little more than half the 1,000 people polled this fall found the buying-lending experience rather simple and easy to navigate. But nearly 1 in 4 said they would rather gain 10 pounds, and almost 1 in 8 would rather spend 24 hours with the person they dislike the most.

If you think that’s bad, 7% would rather have a root canal, and almost that many would choose a night in prison over going through the mortgage process again.

Asked another way — “Which of the following makes you extremely uneasy or anxious” — obtaining financing again scored very low in the Guaranteed Rate study. In fact, more people were more comfortable with public speaking, being in high places, flying in an airplane, being around snakes and being in a confined space than they were going through the mortgage process.

This flies in the face of the latest J.D. Power mortgage origination satisfaction study, which found that more borrowers were pleased with their lenders now than at any time in the last seven years.

Overall customer satisfaction improved for the third consecutive year. But as you might expect, first-time buyers who have never had to navigate the system weren’t as tickled as repeat buyers and refinancers. Which prompts this bit of advice from Craig Martin, director of the financial services practice at J.D. Power:

“First-time buyers often have questions and should not be afraid to ask prospective lenders about the specifics of the mortgage process and how they will be kept informed. Much of the stress with borrowing comes from a lack of information and knowledge during the process. Asking when you will be updated and how that information will be provided are two key questions that may help improve the borrowing experience.”

Commuting costs

More than 3 in 4 home buyers polled in the National Assn. of Realtors’ latest Profile of Home Buyers and Sellers said commuting costs are either “very” or “somewhat” important to their ultimate purchase decisions. After all, the combined cost of housing and transportation consumes close to half of the typical working family’s monthly budget.

This makes a new tool from Uncle Sam that much more meaningful.

The Location Affordability Portal from the Housing and Urban Development Department and Transportation Department enables users to estimate the combined housing and transportation costs for a specific region, neighborhood and even street.

LAP is actually two tools: one, a map-based Location Affordability Index, is a database that predicts annual housing and transportation costs for a particular area. The other, My Transportation Cost Calculator, enables users to customize data for their own household and potential residential locations.

LAP includes diverse household profiles — which vary by income, size and number of commuters — and shows the affordability landscape for each one across an entire region. It was designed to help renters and homeowners — plus planners, policymakers, developers and researchers — get a more complete understanding of the costs of living in a location given the differences between households, neighborhoods and regions, all of which affect affordability. The data covers 94% of the U.S. population.

The cost calculator enables users to enter basic information about income, housing, cars and travel patterns. The customized estimates give a better understanding of transportation costs, how much they differ in other locations, and how much they are affected by individual choices, so users can make more informed decisions about where to live and work.

“Many consumers make the mistake of thinking they can afford to live in a certain neighborhood or region just because they can afford the rent or mortgage payment,” HUD Secretary Shaun Donovan said. “Housing affordability encompasses much more than that.”

You can find the location affordability tool at http://www.locationaffordability.info.

Now, if the powers that be could just come up with an accurate way to estimate a home’s utility costs, the problem of over-extending beyond one’s means could be solved.

http://www.latimes.com/business/realestate/la-fi-lew-20131201,0,7465341.story#ixzz2mMTkHv5B

Housing markets rebound faster when foreclosures proceed quickly

Home prices are rising faster in ‘nonjudicial’ states such as California, where foreclosures can be carried out without being tied up in court procedures for years.

Foreclosure Real estate markets rebound much faster in areas where state law permits foreclosures to proceed quickly, moving homes with defaulted loans into new owners’ hands expeditiously, rather than allowing them to sit and deteriorate, tied up in court procedures for years. (Justin Sullivan / Getty Images)
By Kenneth R. HarneyDecember 1, 2013, 5:00 a.m.

 LA Times

WASHINGTON — Why have many of the local housing markets that were hit hardest during the bust — especially in California — bounced back so vigorously and quickly, with prices close to or exceeding where they were in 2005 and 2006?

And why have many others along the East Coast and in the Midwest had a slower move toward recovery, with sluggish sales and gradual increases in values?

Though multiple economic factors are at work, appraisal industry experts believe that they have isolated a crucial and perhaps surprising answer: Real estate markets rebound much faster in areas where state law permits foreclosures to proceed quickly, moving homes with defaulted loans into new owners’ hands expeditiously, rather than allowing them to sit and deteriorate, tied up in court procedures for years. Prices of foreclosed homes in such areas typically are depressed and negatively affect values of neighboring properties, but they don’t remain so for lengthy periods because investors and other buyers swoop in and return them to residential use rapidly.

By contrast, in states where laws allow large numbers of homes in the process of foreclosure to remain in legal limbo, often empty and unsold, home-price recoveries are hindered because lenders are prevented from recovering and reselling the units to buyers who will fix them up and add value.

Pro Teck Valuation Services, a national appraisal firm in Waltham, Mass., recently completed research in 30 major metropolitan areas that dramatically illustrates the point. All the fastest-rebounding markets in October — those with strong sales, price increases and low inventories of unsold houses — were located in so-called nonjudicial states, where foreclosures can proceed without the intervention of courts.

All the worst-performing markets — where prices and sales have been less robust and there are excessive numbers of houses available but unsold — were located in judicial states, where post-default proceedings can stall foreclosure completions for two to three years or even more in some cases.

Among the best-performing areas were California markets such as Los Angeles and San Diego. California is a nonjudicial state. Among the worst performers were Florida markets such as Tampa and Fort Myers, as well as parts of Illinois and Wisconsin. All of these are judicial states.

Currently 22 states are classified as judicial foreclosure jurisdictions, including Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin. All other states handle foreclosures without court participation.

Tom O’Grady, chief executive of Pro Teck, says the differing rebound patterns of judicial and nonjudicial foreclosure states jumped out of the study data dramatically.

“When we looked closer” at rebound performances state by state, “we observed that nonjudicial states bottomed out sooner” — typically between 2009 and 2011 — “versus 2011 to 2012 for judicial states, and have seen greater appreciation since the bottom,” typically 50% to 80% compared with just 10% to 45% for judicial states, O’Grady said.

“Our hypothesis,” he added, “is that nonjudicial states have been able to work through the foreclosure [glut] faster, allowing them to get back into a non-distressed housing market sooner, and are therefore seeing greater appreciation.”

California, for example, experienced severe price declines immediately after the bust hit in 2007 and 2008 — thousands of foreclosed homes flooded the market, depressing values of other real estate in the area. O’Grady calls this a “concentrated foreclosure effect” that is painful while it’s happening but relatively quickly purges the marketplace by turning over distressed units to new ownership.

Judicial states, on the other hand, tend to be still struggling with homes flowing out of the foreclosure pipeline, prolonging the negative price effects on other houses for sale.

O’Grady noted that in nonjudicial states such as California, foreclosures now account for just 10% of all sales, and home listings amount to a four-month supply — well below the national average. In slow-moving judicial states, by contrast, 25% to 50% of sales are foreclosures, and unsold inventory represents a five-month to 10-month supply.

The take-away here? Though real estate prices are popularly thought of as reflecting the “location, location, location” mantra, inherent in that concept is something less well-known: State laws governing foreclosure affect market values and govern how well they bounce back after a shock. Prices take much longer to recover when foreclosures drag out for years.

http://www.latimes.com/business/realestate/la-fi-harney-20131201,0,7128552.story#ixzz2mMT2YEcp