HUD-Owned Homes Expected to Increase

The following article appeared in REALTOR Magazine on April 30, 2013:

HUD-Owned Homes Expected to Surge

Daily Real Estate News | Tuesday, April 30, 2013

The U.S. Department of Housing and Urban Development is reportedly going to be releasing more of its homes to the market, which could be welcome news to buyers who have faced slim pickings in for-sale inventories.

Over the next two years, experts predict that HUD homes on the market will increase significantly as lenders work through the backlogs of foreclosures and foreclosure reviews.

“The inventory is there, [it’s] just not being released during the banks/servicers review of the loan/mortgage documents,” says Nat Genis, a HUD listing broker in Riverside County, Calif., which is already seeing an increase in HUD-owned homes.

“HUD homes are back,” Genis told HousingWire. “FHA financing went away with the ‘creative’ financing of the 80/20 loans, and now with the increase of FHA financing, these government-backed loans guarantee that if the borrower defaults, HUD will pay off the mortgage, obtain the deed, and re-sell the home.”

HUD-owned homes can be appealing because of the discounted sales price, even though they can be in poor condition often times, HousingWire reports.

HUD had 39,442 homes in its REO inventory nationwide as of Feb. 28, 2013—with 20,536 of those having pending contracts on them, according to HUD.

SOURCE: Housingwire (04/29/13)

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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fiscal cliff agreement, the so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.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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More Cash Sales, Shrinking Time on Market Show Changing Buyer Dynamics

Media Contact: Sara Wiskerchen / 202-383-1013 / Email

ORLANDO (November 10, 2012) – All-cash buyers have surged since the housing downturn while the typical amount of time it takes to sell a home is shrinking, revealing the changing dynamics of today’s home buyers and sellers.

Academic experts took a closer look at cash buyers and how time-on-market impacts home sales during the “Changing Dynamics of Recent Home Buyers and Sellers” session today at the 2012 Realtors® Conference and Expo. Funding for the research was provided by the REALTOR® University Center for Real Estate Studies.

“We’ve seen a tremendous increase in cash buyers since the housing downturn that we haven’t seen before in history,” said Lawrence Yun, chief economist of the National Association of Realtors®. Yun said a decade ago all-cash home purchases were less than 10 percent of the market but have increased steadily since 2008, to as much as 30 percent of sales.

Yun said the increase in more buyers paying cash for real estate reflected tight lending conditions and an increase in investor sales, which account for the bulk of cash sales. Increases in the number of international buyers, who often have financing difficulties when purchasing a home in the U.S., are also adding to the rise in cash sales. NAR research shows that 62 percent of international purchases were all cash; the percentage has continually increased since 2007.

Recent NAR research on down payment sources may offer insights into how cash buyers are receiving funds for home purchases. According the 2012 NAR Home Buyers and Sellers Profile, 40 percent of repeat buyers use the proceeds from the sale of their primary residence as a source of down payment, but downsizing boomers may have enough equity left from their home sale to pay all cash for their next purchase. Yun also noted that one in 10 buyers rely on proceeds from the sale of stocks or 401K disbursements for down payments; those with stable jobs and who saw investment gains in recent years may be using those cash funds to buy a home outright rather than financing the purchase.

Dr. Grant Ian Thrall, president of the American Real Estate Society, agreed that cash sales have increased dramatically in recent years. Thrall spoke at the session and conducted an in-depth market analysis to gain greater insights into cash buyers.

“Research shows a bias toward cash sales for newer and lower priced homes,” Thrall said. “Many of those sales are occurring within the first 60 days that the home is on the market, and more than half sold within the first 120 days.”

Thomas Springer, professor of Finance and Real Estate at Clemson University, discussed how time-on-market responds to employment changes and varies with shifting market and economic conditions. Springer analyzed market data from more than two dozen metro areas.  His findings indicate that, at the property level, time-on-market is a function of property characteristics, price and market factors; however, at market level, time-on-market is a function of local, national and global economic and market factors.

Springer determined that time-on-market is a possible indicator of market conditions or risk and that in a vibrant market, time-on-market is shorter, whereas distressed markets often have a longer average time-on-market.

Yun said that tightened inventory conditions are also impacting time-on-market, which has steadily decreased nationally since the start of the year, as are home buyers’ search processes.

“Tightened inventories in some places mean homes are selling more quickly and reducing time-on-market,” Yun said. “Our research shows that last year, home buyers saw 10 homes before buying, down from 12 the year before, and more than half of buyers reported that finding the right home was the hardest part of the home search process.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Who said Real Estate isn’t a good investment?

Sacramento‘s Real Estate Market has been one of the Nation’s worst hit areas with Foreclosures and Short Sales.   It appears that the bottom of the market came and went overnight and home prices are on the increase again.   In the event you missed this article in the Sacramento Bee check it out on who’s buying up a lot of the local Real Estate.

Article:

BIG INVESTMENT FIRM BUYS HUNDREDS OF HOUSES IN SACRAMENTO AREA

 

 

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Changes in the Market

If you haven’t seen this article that was written by Lawrence Yun who is chief economist of the National Association of Realtors, please read:

Seeds of a Housing Shortage

Sliding inventories and price increases could lead to overheated markets
October 2012 | By Lawrence Yun

The market is looking much improved today, with home sales and prices heading up. But within this improvement are the seeds of a long-term challenge: falling inventories.

The inventory of existing homes is at its lowest level in seven years, while newly constructed home inventory has hit a 50-year low mark. Falling inventory is causing home prices to shoot up higher and faster than most analysts anticipated. The national median price of transacted homes was up 9.5 percent in August. Other price measures, like Case-Shiller and the Federal Housing Finance Agency price index, which look at price changes in sales of the same properties over time, have been rising as well, at double-digit annualized rates in recent months. Of course, not all markets are this robust. Phoenix is looking to notch a 25 percent gain for the year, while Chicago is just emerging from negative territory.

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As winter approaches, inventory will slide further. Few homes are newly listed after Thanksgiving. Historically, inventory tends to be 15 percent lower in winter than summer. Last year’s seasonal decline was even more dramatic, at 25 percent. We hope we won’t see an inventory decline of that magnitude this winter. Home values rising much faster than income growth will markedly cut into housing affordability.

But that may well be what’s in store. Distressed home listings will continue to fall because fewer borrowers are now seriously delinquent. Home construction is up, but only reaching half of the historic average of housing starts. Even the many pent-up sellers—those normal, non distressed home owners who’ve been holding back for better market conditions—will not help the net inventory situation, because most of them will be selling to buy a trade-up property.

Slight seasonal relief should come in March, just as the spring buying season gets underway. But a deeper and longer-term issue to watch out for is the increasing possibility of a housing shortage across many parts of the country.

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The Truth about Sales Tax on Homes

There is a viral email circulating claiming the new health care bill contains a 4% “transfer tax” on home sales.  This came out of an inaccurate opinion piece from the Spokane Washington Spokesman-Review newspaper.

The health care bill included a provision that imposes a new 3.8% Medicare tax for some high-income households that have “net investment income”.  Any revenue collected by the tax is dedicated to the Medicare hospital insurance program.

This new tax applies only to households with Adjusted Gross Income (AGI) of more than $200,000 for individuals or $250,000 for married couples.  Since capital gains are included in the definition of net investment income, an additional tax obligation might result from the sale of real property.

Even if the AGI limits are met, the new tax would not be automatically applied to capital gains that result from the sale of a principal residence, since the existing exclusion rule still applies to $250,000 for an individual and $500,000 for a couple.  If the gain from the sale of the principal residence is below that amount then no gain would be realized and NO Medicare tax will have to be paid on the gain.  The new Medicare tax would apply only to a realized gain that pushes the filers AGI over the $200/$250k income limits.

            The new Medicare tax will take effect for tax years ending on or after January 1, 2013.  And this new legislation makes no changes to the mortgage interest deduction. A more detailed discussion is contained in a brochure that can be downloaded at http://www.ksefocus.com/billdatabase/clientfiles/172/8/1437.pdf

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When will home prices begin to increase?

Nationwide, the US housing market remains deep in the doldrums and economists expect prices to fall another 5% to 10% in many places. 

When the rebound arrives, desirable zip codes will see price jumps first.  Real estate is always local.  

Here are a few things to start watching in your neighborhood: 

How fast are homes selling?  It is a good sign when price drops slowly down, inventory levels are actually a better gauge of where your market is headed.  Ask a Realtor to tell you the number of listings now on the market in your area and the number of homes sold over the past year.  An example would be that there are 100 listings and there were 240 sales last year, or an average of 20 per month.  That equals a five-month supply, which is considered stable.  More than six months and it’s a buyer’s market; less than three and sellers probably have the upper hand. 

Compare your neighborhood’s price-to-rent ratio with what it was before the housing boom.  Calculate the price-to-rent ratio, or the price of a home divided by one year’s rent on a comparable one.  In general, it’s cheaper to buy when the price-to-rent ratio is below 15. 

A decrease in foreclosure filing is often an encouraging sign but not always the case depending on the processing delays in foreclosures.   Distressed owners tend to fall behind on lawn cutting and house painting long before a foreclosure.  If you see several places in disrepair, don’t expect your home value to rise soon. 

If you area is a prime location.  As buyers return, they naturally grab places with short commutes and better schools and amenities which will help increase the sales price.

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Home Buyers Changing:

With married couples comprising less than 50% of all US households, home buyers are changing.  A growing number of non-family households, according to a report from John Burns Real Estate Consulting are on the increase.  Non-family households where no one is related to the house holder have increased nearly five times in the last 50 years from 7.9 to 39.2 million.

 A lot of non-family households are looking at SMALL HOMES: preferring a home under 2500 sf with three or fewer bedrooms.  LOCATION:  the proximity to work and entertainment over home size and they are less interested in media rooms and pools.

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Homeownership Purchasing Hurdles

Harris Interactive, a market research firm’s bi-annual survey on purchasing a home found the following from a recent online survey: 

Among renters, 59% said they aspired to own a home, but of those, 51% said saving enough for a down payment was their biggest obstacle. 

Those in the 18-34 age group cited the following concerns:   62% saving down payment, 36% qualifying for a mortgage, 34% having poor credit, 31% in ability to pay off existing debt, 29% not having a stable job and 13% declining home values.  

Both the 18-34 and over 55+ age groups expressed preferences that indicate they prefer to live in urban centers:  The younger group preferred short commutes to work and the older group preferred the proximity to restaurants and shops. 

The majority, 70% of respondents said owing a home is part of their American dream.  This attitude toward homeownership rose with age, from 65% of 18-34 year olds to 76% of those 55 +. 

Among current homeowners, 80% said they plan to buy another home in the future and 57% said owning a home is among the best long term investments.

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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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