November 2007 Archives

 

30-year fixed rate at 5.79%; 10-year Treasury yield at 4.03%

Thursday, November 29, 2007

Inman News

Long-term mortgage interest rates dropped further Wednesday, and the benchmark 10-year Treasury bond yield rose to 4.03 percent.

The 30-year fixed-rate average sank to 5.79 percent, and the 15-year fixed rate fell to 5.35 percent. The 1-year adjustable stayed at 5.52 percent.

The 30-year Treasury bond yield was up at 4.43 percent.

Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average jumped 331.01 points, or 2.55 percent, finishing at 13,289.45. The Nasdaq climbed 82.11 points, or 3.18 percent, closing at 2,662.91.

Stock figures are current as of 7:30 p.m. Eastern Standard Time.

from The Wall Street Journal

Nov. 30, 2007

The White House and the mortgage industry are near a pact that would temporarily freeze interest rates on certain troubled subprime home loans. With over two million adjustable mortgages scheduled to jump over the next two years, an accord could reassure investors and strapped homeowners.

Most Metro Areas See Modest Price Gains

The vast majority of U.S. metropolitan areas showed rising or stable home prices in the third quarter, with most experiencing modest gains compared with a year earlier, says the latest quarterly survey by the NATIONAL ASSOCIATION OF REALTORS®.

In the third quarter, 93 out of 150 metropolitan statistical areas show increases in median existing single-family home prices from a year earlier, including six areas with double-digit annual gains and another 21 metros showing increases of 6 percent or more. Fifty-four areas had price declines, and three were unchanged. Regionally, prices rose in both the Northeast and Midwest, as did the national condo price.

Lawrence Yun, NAR chief economist, says the data underscores the fact that all real estate is local. "Some metro areas are hot while others are experiencing localized problems," he said. "The report also shows that home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.

Yun says the quarterly metro home price report is the most meaningful long-term series available on price performance because it looks at all of the available transactions in a given area.

Unlike other home price series that are based on county records and mortgage securities, which are collected well after the actual transaction date, NAR's information comes directly from multiple listing services. The report includes actual market prices rather than just the percentage changes so people can compare housing values around the country, Yun says.

Even with most areas showing improvement, a disruption in higher-priced sales impacted the national median existing single-family home price, which was $220,800 in the third quarter, down 2 percent from the third quarter of 2006 when the median price was $225,300.

The median is a typical market price where half of the homes sold for more and half sold for less.

Gaylord: Know Your Market

NAR President Richard Gaylord says consumers need to understand what's going on in their own area. "There is no such thing as a national housing market - it doesn't perform like the equities markets," he says. "What's really important for consumers is to make informed decisions based on individual needs, desires, and timelines in a given area. Most people plan to stay in a home for 10 years, and for buyers with a long-term view, housing is an excellent investment."

Economy in Focus

BY ROBERT FREEDMAN

Beneath Market Punditry, Underlying Strength

With some 5 percent of subprime mortgage borrowers facing trouble and global investors wondering if prime mortgages remain a smart investment, these are indeed challenging times for real estate.

In one of the most unsettling headlines of all, Robert Shiller of Yale University and one of the developers of the widely tracked S&P Case-Shiller Home Price Indices, has said mortgage troubles are only beginning and that some home prices could fall 50 percent in the next few years.

Dire predictions like that do more than grab the attention of the media; they can shake consumer confidence and help make such predictions self-fulfilling as home buyers stay on the sidelines, pressuring sellers to lower prices--in effect fueling a downward spiral.

But the prognosis is considerably different than the scare scenario forecasters would have us believe, says Lawrence Yun, NAR vice president of research. In this interview with REALTOR® Magazine, Yun puts the state of the economy into perspective, explaining just how contained the subprime problem is and why the trend lines are already contradicting many of the predictions of woe.

REALTOR® Magazine: No doubt the general media tend to play up negative market news like continuing soft home sales. Is there truth in these market concerns?

Yun: It's all a matter of perspective. Home sales do continue to be soft. We're predicting existing-home sales to be down 7 percent year-over-year at the end of 2007, but that's coming off a five-year boom. We're forecasting a sales level near what we had in 2002, a very good year, and a level that's far closer to normal than what we've been seeing over the past four years.

At the same time, price appreciation is holding up better than media reports would have us believe. In data we collected this fall, two-thirds of markets reported positive price growth in the third quarter, up from half of all markets in the second quarter. In markets where prices continue to be down, the declines are minimal, 1 percent to 2 percent. Only a very few markets are seeing declines higher than 5 percent.

RM: Why the dramatically different picture than what some analysts are seeing?

Yun: In some ways we're tracking different things. We use MLS data, so our figures are as timely as possible and are more representative of markets. Shiller uses county records and mortgage data from the secondary market. These sources lag further than ours and they capture a disproportionate percentage of higher-priced homes.

RM: Aren't we facing a wave of defaults on option ARMs and other mortgages made in 2005 and 2006 with teaser rates about to reset to levels borrowers can't afford? These defaults will lead to more build-up in home-sale inventories, putting more downward pressure on prices.

Yun: Even with the Fed's rate cut in mid-September, foreclosures will rise in 2008. But these reset problems remain largely confined to subprime borrowers, who comprise only 9 percent of the market. Subprime borrowers with a mortgage in foreclosure account for only 5 percent of that. So the problem is confined to less than 1 percent of borrowers. We're expecting foreclosures to add some 200,000 homes to inventories. But when you add that to the 4 million homes already available for sale, you're talking about a relatively modest percentage increase.

RM: Yet it's an increase that comes during very challenging market conditions.

Yun: What's challenging isn't so much market conditions but the psychology behind those conditions. There continues to be huge pent-up demand, and that demand will grow. Our economy added 4.3 million net new jobs in the past two years.

For every two new jobs that are created we historically see one new home buyer. Right now we're not seeing those new home buyers because they're sitting on the fence. Once they look past the headlines, they'll see that this is actually a very good time to buy: Inventories are flush, so there are lots of homes to choose from; prices are moderating; and interest rates remain historically low. Once the psychology catches up to our real market conditions, that pent-up demand will be released.

RM: You're talking about consumer psychology, but what about investor psychology? We experienced a very real liquidity crunch in mortgage markets this summer because investors were skittish about holding any kind of mortgage-backed security. That crunch affected prime mortgages as much as subprime mortgages.

Yun: We did see a liquidity squeeze, and some home buyers lost their loans before they could close. But the Fed stepped in with a timely cut to its discount rate and there's plenty of funding today. If you're a good risk, credit will be there. Spreads between conforming and jumbo loans remain a little wide -- up from about 20 basis points last year to about 1 percentage point today -- but I expect the spread between conforming loans and jumbo loans to narrow in a few months.

RM: So the subprime conflagration isn't showing signs of spreading?

Yun: Lenders are quickly educating themselves about where the risks are. Not all borrowers pose the same risk, and lenders are starting to price accordingly.

RM: But what about all those subprime borrowers? Many of these are the first-time borrowers who helped fuel the growth we saw in home sales over the last few years. What are the options for them?

Yun: We certainly won't see the number of subprime borrowers that we saw during the boom. But borrowers who can't qualify for prime loans will still have options, particularly if we see enactment of reforms to the FHA that NAR has been championing. The FHA has historically been the safe and affordable financing option for these borrowers. Largely because it comes with a lot of red tape and lacks a big choice in products, lenders rushed to fill the void with their much-riskier subprime loans. So a reformed FHA can go a long way to returning moderate-income and first-time borrowers to the market.

Some additional flexibility to secondary mortgage market companies Fannie Mae and Freddie Mac, which NAR supports, will help too, because they'll be able to reach more moderate-income buyers. Mortgages with private mortgage insurance will also make a comeback for buyers with inadequate down payments.

RM: So, where will the home-sale market be in 2008?

Yun: Nationally, we're forecasting existing-home sales to make a comeback and rise to 6.1 million or 6.2 million units, up from about 6 million in 2006, and prices will also rise about 2 percent. Some local markets like Austin and Denver will do far better. On prices, we'll be helped by a significant drop in new-home starts. Media reports tend to portray that as a negative--further evidence of troubles. But it's actually very good for real estate, because it keeps inventories down and price pressure up--and that's what consumers really care about. The important economic trend lines for consumers are pointing in the right direction.

If you listen to media reports, you might think foreclosures are on the rise in every corner of the country. But despite turmoil in the subprime market, foreclosures are actually down or unchanged in 16 percent of the states.

State	Foreclosure rates*
Utah	-26%
New Mexico	-9%
South Carolina	-4%
Tennessee	-3%
Arkansas	-3%
North Carolina	-3%
Kansas	-1%
Pennsylvania	0%
Fencing	9
*Percentage change in 2006 Q2 vs. 2007 Q2
Source: National Delinquency Survey, Mortgage Bankers Association

 

 

Friday, November 16, 2007

By Bernice Ross
Inman News

(This is Part 1 of a two-part series.)

I am sick and tired of the negative media constantly ranting about how horrible everything is in our business. It's time for our industry to fight back against these psychic vampires who seek to suck every bit of hope and optimism out of us just to build their circulation.

Newspaper headlines and buzzwords abound, such as: "Two million people will lose their homes in foreclosure in the next two years!" "Subprime Fiasco!" and "Mortgage Meltdown."

These are the headlines we hear every day, yet where is the positive news about the real estate market? The answer is, buried in statistics on page 15 of section 3 of your newspaper, provided you can find them at all.

Here's a typical example from USA Today, Oct. 26, 2007, page 1B:

New Home Sales Unexpectedly Rise

New homes sales posted an unexpected increase in September. But analysts were highly skeptical given the credit crunch and predicted further sales declines. The Commerce Department said sales of new homes rose 4.8 percent last month..."

By the way, here's what they didn't report. Sales in the West were up 36.6 percent. The media totally discounted these statistics. What about a different headline: "Great News! Real Estate Sales Surge Despite Biggest Credit Crunch in Decades"?

Here's another example. In Sept. 6, 2007, article entitled, "New Mortgage Foreclosures Set Record," Martin Crutsinger provided the following summary of a speech given by Doug Duncan, the chief economist for the National Mortgage Bankers Association. Here's how it was reported:

"The number of homeowners receiving foreclosure notices hit a record high in the spring, driven up by problems with subprime mortgages. The Mortgage Bankers Association reported Thursday that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high.

"The delinquency rate has risen to 5.12 percent ... The worsening performance was driven by two factors -- heavy losses in the Midwest states of Ohio, Michigan and Indiana, and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona ... Analysts said the problems in the formerly red-hot housing markets of California, Florida, Nevada and Arizona reflected in part speculators walking away from mortgages they can no longer afford."

This article ends with the negative media's favorite theme for scaring their readers and/or listeners: "Two million people will face foreclosure in the next two years."

Here are the numbers that the negative media did NOT report from Duncan's speech:

1. Thirty-five percent of the homes in the U.S. do NOT have a mortgage.

2. Some 94.88 percent of the loans ARE performing.

3. The foreclosure problem in this country is really a story about seven states.

4. The biggest foreclosure problems are in Michigan, Ohio and Indiana. These are manufacturing states that had horrible job losses. Since 2001, Michigan has lost 300,000 jobs. These states would probably have had problems no matter what the market was doing.

5. The other four states -- California, Florida, Nevada and Arizona -- experienced significant overbuilding. Twenty-five percent of the foreclosures in these states are on properties that are held by investors who were speculating.

6. Only 25 percent of all mortgages are subprime, and of these, 75 percent are performing.

7. In the other 43 states, foreclosures have fallen in 2007 from 2006 (data from Michael Clawson, vice president, Central Texas Mortgage).

Furthermore, buyers who are waiting to purchase when the so-called bubble pops in California's major metropolitan areas are going to be sitting on the sidelines, according to the latest data from a state Realtor group.

According to Leslie Appleton Young, chief economist for the California Association of Realtors, the areas being hardest hit in California are the outlying areas where there has been overbuilding. The resale market in California's major markets continues to be strong. In fact, the closer you are to a metropolitan area, the better the sales are. In the million-dollar-plus price range, there has been essentially no change from 2006 to 2007.

There's no question about the fact that there is bad news in some markets. What irks me is that there is also a lot of good news that is either being buried or is not being reported at all.

The question is, "What can NAR, the 50 state associations, and those of us who blog or write for the industry do to combat this trend?" The answer is "plenty."

Greetings From Lake Arrowhead!

As you all know, we experienced some recent fire exposure here in the mountain communities. The reality is that the true "lake" areas were not affected and are still as beautiful as ever. We are encouraging you to visit us again soon and see for yourself.  In the meanwhile, there are some fabulous buys in the real estate market. Personally, I wish we wish we could purchase a lot of them ourselves. That's how good the deals are. Please go to our website LakeArrowheadToday.com 

By Arden Dale

Natural disasters like the California wildfires alter the laws of the tax universe for those who lose property in them. Knowing the rules can save money and heartache.

Changes to the tax code in recent years give people far more time to rebuild a home and deal with tax issues. That can be a big help. And homeowners can now use insurance money more freely to rebuild without triggering taxes.

For many, the big questions after a disaster are: How can I use my insurance proceeds, when do I have to report this to the Internal Revenue Service, and what do I have to pay tax on? A law that enacted IRS Section 1033(h) in 1993 changed the rules on some of this following a devastating firestorm in Oakland, Calif., giving disaster victims a boost.

"It starts with insurance," said Anna Maria Galdieri, a certified public accountant in Oakland who worked closely with federal and state officials to change tax laws after the fires there in 1991. "It's really understanding what the policy covers and then what the tax law will allow you to do with the dollars you receive."

Taxes may be owed if the insurance company pays out even one dollar more than the cost basis of the house, or if the money isn't used to rebuild and replace property appropriately.

Tax-speak for the treatment an insured person can get in a natural disaster is an "involuntary conversion"; it is used when you have a gain from insurance that you don't expect to report as income because you're going to use the cash you received to replace the property.

An involuntary conversion gives even more leeway if the disaster is declared federally. In that case, the homeowner gets four years to reinvest certain insurance proceeds to replace the home and its contents if he has realized a gain. For example, if the cost basis of the house is $200,000 and the homeowner gets a partial insurance payment of $200,001 in June 2008, he has until Dec. 31, 2012, to reinvest and report the gain. If it is too hard to meet the four-year deadline, one can apply for a year-by-year extension to reinvest.

President Bush last week declared seven California counties -- Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura -- federal disaster areas.

Eventually, the taxpayer figures a gain or loss based on the cost basis in the home and the insurance settlement. No loss can be taken until the taxpayer knows the final settlement, and the financial equation should include the proceeds of a lawsuit if the taxpayer files one against the insurance company.

In insurance lingo, household contents -- furniture, artwork, and the like -- are either "scheduled" or "unscheduled" items.

Scheduled items are covered by an insurance rider that lists and values them separately. Otherwise, items are seen as unscheduled personal property; insurance money recovered for them is tax-exempt when received as the result of a presidentially declared disaster.

Funds received for the house, other structures and scheduled personal property are seen as a common pool; they can be used to rebuild the home and replace its contents, according to Ms. Galdieri.

It is worth noting, too, that a disaster victim has more freedom now to reinvest insurance money recovered for lost business property. A person who ran a coffee stand before the new law was passed would have to use insurance to replace it with another coffee stand. Now, one could use the money to buy, say, computer equipment to set up a word-processing business.

Meanwhile, nothing needs to go on the tax form until one receives insurance payments that exceed the basis of the house. Nonetheless, says Ms. Galdieri, it can't hurt to write a note on the back of Form 1040 explaining that your house was destroyed and that you haven't yet received insurance payments.

If a taxpayer realizes a gain under the involuntary conversion and doesn't include it on the tax return, the IRS assumes the person has elected to defer the gain. The agency requires one to attach a statement to the tax return or write a letter to the district director of the IRS notifying it that the replacement has been completed and calculating the basis in the new home.

Deducting mortgage interest tricky on three homes
What home is used for makes big difference

By Tom Kelly
Inman News

Why is mortgage interest deductible without limit on two homes and not just the primary residence?

Some accountants have jokingly referred to the concept as the "Congressman's Rule" because some of our lawmakers have a residence in the nation's capital and another in their home state.

But what if you happen to own more than two homes? Granted, many people have a difficult time finding the funds for a primary residence let alone a getaway in the mountains or a condo on a desert golf course. But more and more parents are leaving homes to their children, giving the kids a huge asset, sometimes without much notice.

Before 1987, mortgage interest on all residences could be deducted without limit. Since then, consumers with more than two residences are required to choose two "qualified" residences where mortgage interest could be deducted, but the selected residences are allowed to be juggled into the "qualified" category from year to year.

For example, let's call my personal residence "Seattle" and my vacation home "Palm Springs." Suppose I'm transferred to Phoenix and decide to buy a home there. Depending upon the purchase prices and considering when "Phoenix" was purchased, I may decide to claim Seattle and Palm Springs as my two residences for this tax year. If Seattle is sold next year, I likely would pick Palm Springs and Phoenix as my residences for next year, depending on when in the calendar Seattle was sold.

A home does not actually have to be used to qualify as a selected residence. If there is no rental or personal use of a residence for an entire year, it can be designated as a selected residence and interest can be deducted. If it is rented or used only occasionally by the owner, no interest can be deducted under the personal-residence rule unless there are at least 15 days of personal use.

The personal-residence rule requires that personal days must exceed the greater of 14 days or 10 percent of rental days. The personal-usage requirement must be met before a property can be designated as a selected residence. If the home is rented more than 140 days, there will have to be 15 days of personal usage before the interest can be fully deducted under the residence rule.

Longer rental seasons are a bonus under the 10 percent rule. For example, a mountain resort home near the ski slopes (for winter sports) and a lake (summer water sports) might be rented for 250 days a year, allowing the owner to use it for 25 days.

Personal use does come at a cost. Depreciation is limited only to the percentage of time that a house is rented. If you rented for 90 days and used it yourself for 10 days, you can take only 90 percent of the total expenses and depreciation.

Another way to catch a few hours at the beach without eating into or exceeding your 14-day or 10 percent limit is to clean the house yourself between renters. Days spent maintaining the house do not count toward the personal-use limit. You can even deduct travel costs to get to the house and expenses such as paint and cleaning supplies.

But if the Internal Revenue Service determines that you were at the house more to sit in the sun than to clean the kitchen and refinish the deck, those days may be added to your personal use and could jeopardize your tax savings.

The house also is supposed to be rented at fair-market value to qualify as a legitimate investment property. If you rent to relatives at discount rates, the IRS may rule that the house is not a business and disallow many of your deductions.

One of the more effective uses of a vacation home as a tax shelter is for future retirement. For example, if you are 50 years old, you can buy a vacation home, furnish it and have renters pay for it while you capture the depreciation for 15 years. When you have taken most of the tax advantages out of it, you can move in and/or convert it to a private residence.

And because most mortgages "front load" interest, you will have used up most of your tax deductions from the mortgage in the 15 years you were working and renting the home before you reached the traditional retirement age of 65. In the later years of the mortgage, when interest deductions are relatively low, you probably will be less concerned about deductions because your income will have fallen off after retirement.

So, if you have home loans, it's always a good idea to look down the road to see how long mortgage interest will really be a benefit -- on one or more homes.

Welcome home read the signs as we were able to return to Lake Arrowhead mid-afternoon last Sunday. The loss may be up to 165 homes on the west and northwest side of the golf course. Firefighters were successful in keeping the fire from spreading to the south and to the east. Our firefighters were impressive as well as the local community pulling together in helping those who have been misplaced.

There will certainly be speculation as to the investment aspect in Lake Arrowhead due to these fires however the reality is less than 2.5% of the homes within Lake Arrowhead Woods and zero percent of the homes in what one could call "Lake Arrowhead proper," have been impacted. Lake Arrowhead's natural qualities have not changed. The sky will remain blue, the seasons will continue to change, the crime rate will stay low, the real estate values will continue to grow, and the small town ambiance and camaraderie will remain.

From a safety stand point - It appears that we have almost achieved a firebreak surrounding Lake Arrowhead creating even more of an oasis. It also appears that a more serious position on forest management could be the topic of the day.

Which brings us to this week's business. If you have given serious thought to a second home investment or a full time move to Lake Arrowhead and want to accomplish this by year's end, we are inviting you to inspect our special listing inventory. This exclusive group of hand picked Lake Arrowhead homes total 37 properties representing the very best values today in most every price range. All having lake rights, some are lakefronts and all have motivated sellers. There could not be a better time to buy!

Cindy Stahl and I have partnered for this year-end sales event offering the very best in Lake Arrowhead real estate. Contact us today! omeh