Existing-home Prices Up for Third Straight Month
Median sales prices for existing California homes climbed another 4.2 percent in May, marking a third straight month of rising prices, according to new statistics released by the California Association of Realtors.
The association called May's rise the largest for the month since it began keeping records in 1979.
In Sacramento County, median sales prices rose 8.1 percent from April. Only Orange and Napa counties were higher, CAR said.
The association reported a $180,940 median price in Sacramento County, up from $167,340 in April. Statewide, the median sales price climbed to $267,570 in May from $256,700 in April. The median is the point where half sell for more and half for less.
CAR officials attributed rising prices to a dwindling number of the cheapest bank repos and improved sales in the higher-end market.
House passes American Clean Energy and Security Act climate bill
On June 26, the U.S. House of Representatives passed the American Clean Energy and Security Act by a vote of 219 to 212. The 1,300-page bill addresses many issues, ranging from industry emissions, alternative energy sources, and ending U.S. dependence on foreign oil, as well as real-estate related provisions.
The House of Representatives removed a costly energy-efficiency labeling program for existing properties and will limit energy labeling to new construction only. The legislation also includes financial incentives for property owners who choose to retrofit and modify their properties to make them more energy efficient. These may include financial incentives, such as loans and grants, to be handled by the states. The legislation also will prohibit the Environmental Protection Agency from regulating carbon emissions from residential and commercial buildings under the Clean Air Act. Lastly, the bill would create energy targets for building codes. States would be able to set their codes above what is required by the legislation; California’s building codes appear to be in compliance with the bill’s targets.
The issue of climate change now moves to the Senate, though it is unclear if the Senate will be able to address the issue prior to its August recess.
California running out of $10,000 tax credits
First-time home buyers wanting to take advantage of the state’s $10,000 tax credit may have less time than originally expected. California set aside $100 million to help home buyers purchase newly built homes, hoping to jump start the residential-construction market. According to state officials, the tactic has worked well and is helping to entice home buyers into the market. However, there only is approximately 20 percent of the program’s funding remaining.
The program launched in March, 2009. As of June 3 nearly $24 million in tax credit certificates already had been issued, according to the state’s Franchise Tax Board, leaving nearly $76 million in credit available. Many applications still are in the pipeline awaiting approval. If all of the submitted applications are approved, only $17.5 million would remain in the fund. The California state legislature is considering adding another $200 million to the program. However, securing approval may be difficult due to the state’s estimated $24 billion budget deficit. A bill to extend the program already has won Assembly approval and now is awaiting activity in the state Senate.
Self-employed are frozen out of mortgages
Although the credit freeze has thawed for many well-qualified borrowers, those who are self-employed and cannot fully document their income still are facing a credit squeeze despite having pristine FICO scores and sizable down payments. Most financial institutions are reluctant to approve loans for borrowers who cannot provide W-2 forms from an employer to fully document their wages.
Modifying the mortgage giants
Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac have altered their focus from maximizing returns to investors to concentrating on servicing the secondary market. Tactics being employed including modifying the terms of a large number of mortgages to make them more affordable; and a plan by the Treasury Dept. to purchase 30-year, fixed-rate mortgages, which could drive down interest rates to 4.5 percent.
Homeowners who modified loans are in trouble again (Yahoo! News)
Approximately 53 percent of homeowners who modified their mortgages during the first quarter of the year redefaulted within 6 months of the modification, leading some to question whether government money may be better spent on creating jobs rather than averting foreclosures.
MAKING SENSE OF THE STORY FOR CONSUMERS
· Some analysts speculate that many borrowers with modified mortgages are in default because lenders did not modify the mortgages with terms or payments that were affordable for the borrower; however, data provided by the government does not provide enough detail about the types or quality of loan modifications made.
· If foreclosures maintain their current pace, the
· Some consumer advocates, lawmakers, and think tanks are advocating a dramatic government response, similar to the Home Owners’ Loan Corp. created in 1933 to help borrowers refinance troubled home loans. The Home Owners’ Loan Corp. was used to extend loans from shorter terms to fully amortized, longer term loans. Through its efforts, more than one million people facing foreclosure were granted long-term mortgages and were able to keep their homes. The Home Owners’ Loan Corp. turned a small profit in 1951 when it liquidated its assets.
Most local markets show net growth in home values (Los Angeles Times)
Although news stories report nationwide declines in home values, a recent survey by the Federal Housing Finance Agency (FHFA) shows the majority of homes in metropolitan markets gain in net value over the course of five years, demonstrating the long-term value of homeownership.
MAKING SENSE OF THE STORY FOR CONSUMERS
· According to the Federal Housing Finance Agency’s (FHFA) third quarter survey, 273 metropolitan markets, out of 292, showed positive net home values over a five-year period, with only 19 markets showing home value depreciation during the same time. Unlike stocks, which can change dramatically from one day to the next, house values tend to appreciate and depreciate at a slower rate and prove to be more durable over extended periods of time. Most owner-occupied homes increase in value over a five-year period, excep for those areas with a severely depressed local economy. Homes owned and occupied for at least five years have an average annual rate of return of nearly 12 percent, according to statistics gathered by C.A.R. over the last 40 years.
· Although homes have declined in value over the past year, many homes purchased five years ago or earlier are net positive overall. In
It may be time to think about buying a house (The New York Times)
Lower mortgage rates and increased affordability is presenting an opportune time for home buyers, especially first-time home buyers, who continue to have the advantage and ability to move quickly on a home purchase without having to first sell their current home.
MAKING SENSE OF THE STORY FOR CONSUMERS
· Some housing experts believe the recovery of the housing market is dependent upon first-time home buyers. When houses are affordable for first-time buyers, the supply of available homes dwindles, bringing the supply and demand into alignment, which generally leads to an increase in median home prices. First-time buyers also have the benefit of not relying on their current home to sell prior to purchasing a new one. As first-time buyers purchase homes, the sellers of those homes also are able to move up, further shrinking the supply of available homes.
· Some home buyers may be reluctant to purchase a home while prices continue to decline. One study, “The Changing Prospects for Building Home Equity,” predicts that buyers in 33 of the 100 largest metropolitan areas may see a decline in their home value by 2012. It is important to note though that over the long term, most homes increase in net value. The study also was conducted before the government’s most-recent efforts to lower borrowing costs for home buyers.
· Credit scores continue to be an important factor in determining not only a borrower’s eligibility, but also the interest rate offered by the bank. Most financial institutions offer the best mortgage rates to borrowers with FICO scores above 720. John Ulzheimer, president of consumer education for credit.com, recommends borrowers stop using credit cards and pay down debt balances several months before applying for a loan. Ulzheimer also states that the credit scoring system may penalize borrowers using their lines of credit frequently, even if balances always are paid in full. Consumers can check their three credit reports for free at annualcreditreport.com.
· Borrowers without a 20 percent down payment for a median-priced home still may qualify for a home loan if they purchase a less-expensive property, which often require smaller down payments. By conducting research on various neighborhoods and working closely with a REALTOR® some buyers still may qualify for a home in a desired community.
Fast Facts
Source: CAR - California Association of REALTORS®
Calif. median home price - May 09: $267,570
Calif. highest median home price by C.A.R. region Oct. 08: Santa Barbara So. Coast $875,000
Calif. lowest median home price by C.A.R. region Oct.08: High Desert $106,210
Calif. First-time Buyer Affordability Index - First Quarter 2008: 69 percent
Source: Freddie Mac
Mortgage rates - week ending 06/25/09
30-yr. fixed: 5.42% Fees/points: 0.7%
15-yr. fixed: 4.87% Fees/points: 0.7%
1-yr. adjustable: 4.93% Fees/points: 0.7%
Short Sales
A Summary by Mary McMenamin of Julia Escobar's interview with Floyd Wickman and Short Sale Specialist Will Weaver
What is a Short Sale?
The "short" in the title of Short Sale refers to the fact that the payoff amount agreed to in the transaction is "shorter" than the mortgage balances on the property. In other words, there is more owed on the home than what the home will sell for.
Why would a seller do a Short Sale?
A distressed seller would consider a short sale because they are faced with a huge decision yet only have a few real options:
Clearly, if a homeowner is truly in tough financial turmoil, a Short Sale can be a viable option to get themselves out from under a bad situation and back to rebuilding their lives and credit.
How would a seller win by chosing a Short Sale?
It's a win for them because it is a "negotiated settlement" with the lender versus a "court settlement" with the lender. It "bruises" their credit as opposed to "ruining" it. There are also no attorney fees in a short sale situation to the seller, versus big attorney fees normally in a foreclosure situation. Then, of course there is the peace of mind that comes from knowing that their situation is being handled by a professional who has their best interests at heart. The family can stay together, find a place to rent easier, and begin to rebuild. Often consumers with a foreclosure on record have a tough time finding a home to rent which can lead to split families, strain on relatives and friends, and just too few options.
Why would a Short Sale be attractive to a lender?
The lender can get the same, or more, net as they would in a Sheriffs Sale, Auction, or Clerk Sale, but in much less time. The key words here are more and less time. Short sales reduce the non-performing asset inventory carried by the banks. According to CNN Money, Reuter's, CNBC, and the Washington Post on August 17, 2007, Countrywide Home Loans used $11.5 million of their line of credit because of their non-performing asset inventory. That, in turn, caused their stock to plummet in just one day. So, as you can see, Lenders need this option as well to stay solvent.
Why should Real Estate Professionals work with Short Sales?
First and foremost, agents should put working with Short Sales in their repertoire because it allows them to really help people out of an emotionally stressed situation. They are providing a much-needed service while at the same time helping their own economy and the economy at large. The more properties sell, the more people work—it's that simple. Revenue and business is generated. When the real estate agents work, so do the mortgage lenders, title reps, processing agents, administrators, home improvement retailers, contractors, landscapers, inspection professionals, notary publics and so on. Secondly, it is a good way to pick up a few extra salable listings each year, build an investor pipeline, and avoid R.E.O. baby-sitting hassles. Mostly, there is nothing quite like helping a client who feels overwhelmed and distraught find their way out of a bad position. After all, most agents are "people people," and helping people is what most real estate agents enjoy most.
There is much talk in the industry about how to handle Short Sales from a tax perspective in regards to working with the IRS and the Form 1099C. What's that all about?
The truth is, there may be a lender who writes off a loss and may send a 1099C to the seller for forgiveness of the debt. However, the key here is that according to the IRS, if you are insolvent (meaning you have no assets) then a 1099C is going to be a wash. But do your homework. Take the time to research www.IRS.gov and pull the documentation which supports this position. Search key words: short sale, 1099C, and insolvency. Also, know that the IRS recently put a Bill in the house that states anyone going through a Short Sale will not be penalized. The Bill has passed the house and now awaits Senate and Presidential approval. Consult with an IRS tax advisor, rather rely on the opinions of others.
Why are Short Sales are so important in today's market?
Our current economy and the real estate market is going through a tough time right now; and this is one of the only ways most distressed homeowners can rebuild their lives and move beyond their mortgage troubles without the devastation of foreclosure.
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