February 2013 Homes Prices Up 22.6% in One Year

Due to the low inventory of homes available, home buyers are willing to spend more on a home, that is if they can find one to buy.   The  Sacramento area’s resale home inventory is still very low.  This time last year there were 1,766 homes sold in February 2012 compared to 1,566 sold in February, 2013.  This is an 11.3% drop in sold homes.   This has caused the rapid increase in home prices.  Sacramento’s median price for February 2013 is $192,500, Placer County $298,500, El Dorado County $283,250 and Yolo County $250,000.  New home sales are also on the increase with 104 closings in Sacramento, 86 in Placer and 14 in Yolo County in the month of February.

 

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Fiscal Cliff and Real Estate

Late in the evening of Tuesday, January 1st Congress reached a settlement in the “fiscal cliff” negotiations, and President Obama signed the legislation January 2nd.  As a result, the Mortgage Forgiveness Debt Relief Act was extended another year.  The measure will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including principal reduction), or foreclosure.
The same provision also expired in California, but Senator Ron Calderon (D-Montebello) introduced SB 30, which would waive the potential tax bill for Californians for all of 2013.  C.A.R. already signed on as the bill’s sponsor, and the two hope to fast track the bill through the Legislature.

Also under the fiscal cliff agreement, the so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  The thresholds have been increased and are indexed for inflation so will rise over time.  Under the formula, filers gradually lose the value of their total itemized deductions up to a total of a 20 percent deduction.  The reinstitution of these limits has far less impact on the mortgage interest deduction (MID) than a hard dollar deduction cap, percentage deduction cap, or reduction of the amount of MID that can be claimed.

Capital gains rates on the sale of principal residences will remain unchanged and continues to exclude the first $250,000 for single taxpayers and $500,000 for married couples.

REALTORS® should encourage their clients to consult with their own tax advisers about their own individual tax situation.

Information provided by Sacramento Association of Realtors.

 

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Six Mistakes Investors Make

Investing in real estate right now can be surprisingly profitable as rents are on the increase in many areas due to the number of people losing their homes to foreclosures or doing a Short Sale of their homes. 

Remember that owning rental property is time consuming, expensive, challenging, and many investors lose money. 

Mistake 1:  Confusing a cheap deal for a good deal – You can buy homes at a low price but that doesn’t mean you can rent them out.  They usually aren’t any more appealing to rents than they are to buyers.  Also less-desirable school districts may hamper renting your property. 

Mistake 2:  Overlooking key costs – Knowing potential rent is not enough.  You should also factor in closing costs 3-6%, costs to fix up the place and maintain it, and your holding costs.

 Mistake 3:  Forgetting that time is money – You lose money when your home is empty, whether you are trying to rent it, in between tenants or painting.  You may be better off accepting a lower rent than waiting for a higher-paying tenant. 

Mistake 4:  Assuming you will sit back and watch the rent roll in – You are a rent collector and sometimes tenants lose their jobs and stop paying rent.  Evicting them can take several weeks without rental income coming in. 

Mistake 5:  Underestimating repair costs – Carpet in rentals typically must be replaced every five years and you may have to repaint after every tenant.  The National Association of Residential Property Managers suggests setting aside six months of expenses so that you will have funds if a major repair is needed. 

Mistake 6:  Assuming that owning a rental is the same as owning a home – You might put up with flaws in a home that a renter won’t tolerate.  A property manager can handle most headaches, but you should expect to pay up to a month of rent for finding and screening tenants and up to 10% of the monthly rent for management fees.

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Credit Scoring to Change!

CoreLogic and Fair Isaac Corp known as FICO, recently announced a collaboration that will result in a separate score that will be available to mortgage lenders and incorporates information that will include payday loans, evictions and child support payments.  In the future, information on the status of utility, rent and cell phone payments may also be included. 

Separately, last month, the Experian, Equifax and TransUnion, began providing estimates of consumer income as a credit report option.  And, earlier this year, Experian began including data on on-time rental payments in its reporting. 

This new information could either help some potential homeowner’s to obtain a loan or could be detrimental to those who are on the board of qualifying for a loan. 

The CoreLogic – FICO partnership won’t result in a credit score that will rule out a borrower for a mortgage backed by Fannie Mae, Freddie Mac or the FHA, which together own or guarantee at least 90 percent of the mortgages being written.    That’s because the Experian, Equifax and TransUnion “tri-merge” report required for such a loan does not rely on CoreLogic data.  But it could mean either more or fewer mortgage fees or a higher or lower interest rate charged by lenders that in today’s cautionary lending environment have heartily adopted risk-based pricing.

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Fannie Mae and Freddie Mac Short Sales and Deeds-in-Lieu up 27% in 2nd Quarter

Nearly 31,000 borrowers with Fannie Mae (FNMA) and Freddie Mac (FMCC) loans forfeited their homes through a short sale or deed-in-lieu of foreclosure during the 2nd quarter of 2010.  This is a 27% increase over the 24,000 transactions completed during the 1st quarter of 2010.

During the same period last year there were 11,700 transactions up from 3,000 the year before.

 Federal Housing Finance Agency (FHFA) also reported that loan modification and refinancing by FNMA and FMCC were up in the second quarter.  The Home Affordable Modification Program (HAMP) increased 65% while refinancing under the Home Affordable Refinance Program (HARP) increased by 30%.  Loan servicers completed 171,200 permanent loan modifications on these types of loans thru HAMP and nearly 88,600 borrowers in HAMP trials transitioned to permanent modifications bringing the two companies HAMP numbers to nearly 225,000.  FHFA’s report also stated that approximately 202,000 of the borrowers were in a HAMP trial period at the end of the 2nd quarter, compared to nearly 448,100 at the end of the first quarter.  That means minus the 88,600 permanent modifications 157,500 homeowners’ HAMP trials were cancelled as a result of missed payments or inadequate documentation. 

FHFA also noted that more than ½ of the modifications completed in the 2nd quarter lowered borrowers’ monthly payments by more then 30%.  During this same period the two companies initiated 275,100 new foreclosures, an increase of 12%.  Completed foreclosure sales and 3rd party sales totaled 112,400, up 15% from the previous quarter.

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