Wednesday, October 31, 2012

Stakes Are High For Mortgage Deduction

Limiting the homeowner mortgage interest deduction came up in two of the presidential debates, but details about who would be affected and how much they might lose in tax benefits were minimal. To put some rough numbers on the issue, here's a quick primer on the mortgage interest deduction and related housing write-offs.

How big are they? According to estimates from the congressional Joint Committee on Taxation, the mortgage interest deduction alone will "cost" the federal government $484.1 billion between fiscal 2010 and 2014 — $98.5 billion in 2013 and $106.8 billion in 2014. Write-offs by homeowners of local and state property taxes account for an additional $120.9 billion during the same five-year period.

Keep in mind: What "costs" the government also represents significant tax savings for the people who take the deductions, in this case the millions of homeowners who save thousands of dollars a year that they are not paying to the IRS.

According to an analysis by Jed Kolko, chief economist for the real estate information site Trulia.com, among those taxpayers who itemize on their federal returns, 49 percent of total write-offs are housing-related. For homeowners as a group, this is a big deal.

But since only about one-third of all taxpayers itemize on their returns, who's really getting these tax savings? As you might guess, people who have higher incomes are more likely to itemize and claim mortgage interest and other housing deductions.

Citing the latest data on the subject, published by the IRS in 2009, Kolko found that while just 15 percent of households with incomes below $50,000 took itemized deductions, 65 percent of those with incomes between $50,000 and $200,000 did. Just about everyone with income above $200,000 — 96 percent — itemized on their returns.

Kolko said a $25,000 cap on itemized deductions, as proposed by Mitt Romney in the second debate, would hit people in the $50,000 to $200,000 income range, since their average total write-off (for mortgage interest, charitable contributions and all the rest) was $24,000. It would take a much bigger bite out of upper-income households beyond $200,000, of course, where the average total for all itemized deductions came to $81,000 in the IRS data from 2009.

Romney's plan envisions that the losses in deductions for all categories of taxpayers would be offset by the lower payments they would be making based on a one-fifth reduction in marginal rates. President Barack Obama supports a cutback in housing-related and other write-offs for people with incomes above $250,000, capping the marginal rate at which they can take their deductions at 28 percent.

So where do homeowners who claim the biggest mortgage interest deductions live? The Tax Foundation did a study based on the 2009 IRS data and found that there are dramatic differences state by state.

As a general matter, residents of states with high housing and tax costs, large average mortgage balances and high household incomes write off the most; states with low housing costs and incomes the least. Any significant cutbacks on deductions would hit the high-cost states the hardest, absent savings from elsewhere in any forthcoming tax code changes.

California ranked No. 1 in the size of home mortgage deductions, with $18,876 on average. Next came Hawaii ($16,730), the District of Columbia ($16,720), Nevada ($15,502), Washington ($14,262), Maryland ($14,162) and Virginia ($14,094). At the opposite end were homeowners in Oklahoma ($7,992), Iowa ($8,104), Nebraska ($8,233), Mississippi ($8,301) and Kentucky ($8,345). Maryland is tops in the percentage of taxpayers taking mortgage interest write-offs (37.5 percent), followed by Connecticut (34.7 percent), Colorado (33.7 percent) and Virginia (33.6 percent).

What's the outlook on cutting back deductions? The National Association of Realtors and the National Association of Home Builders say they are digging in for battles next year, no matter who wins the election.

"The real debate" on housing deductions, said Jamie Gregory, deputy chief lobbyist for the Realtors, is on Capitol Hill next year, where both groups are planning major defenses.

Written by,
Kenneth Harney

Monday, October 29, 2012

Orange County - A Spooky Market

The number one spooky feature of today’s market is the absurdly low inventory. Everybody has heard that inventories are low, but the depth of those lows is only understood by active buyers and sellers today. There are only 4,043 homes on the market after shedding an additional 4% in the past two weeks. The most recent prior record low inventory was established in March 2005, with 4,912 homes. That is 21% more than today.

The concern is that there will not be a lot of fresh inventory for the remainder of the year. We are continuing to test new lows and buyers that remain in the hunt are going to get no relief from the holiday slowdown. There just are too few homes on the market and buyers have come to the realization that it is finally time to buy. So, many buyers are going to feel like they have the appropriate strategy of pouncing on a property during the holiday lull. Given the number of buyers who have been unsuccessful after writing multiple offers, expect many of them to attempt the same strategy. As a result, they will encounter continued competition to purchase.

Another “spooky” concern are the number of homeowners that are entering the housing market way too overconfident. Not too long ago, buyers were in control of the market. Flash forward to today, just a half of a year into a healing housing market, and sellers are getting ahead of themselves and offering ridiculous asking prices. Given supply and demand, buyers are willing to pay a little bit more than the last closed sale within hot ranges and hot areas, but, if you are a seller, hold your horses. For most homes, a few thousand dollars more than the last comparable sale is agreeable to buyers in the midst of a lot of competition, but they will walk away, or will ignore altogether, a home that is listed at 10% above the last comparable sale.

The median sales price in Orange County was up nearly 6% in a year. That means it took 365 days to go up 6%, not a couple of months. The problem with some sellers is that they price their homes 6% or more than the home that just closed last week or last month. Homes do not appreciate that much in such a short period of time. It takes much longer than that.

For those sellers willing to keep their home ready to show day in and day out for a year, the market just might appreciate to their overzealous price in time, a very, very long time. With so few homes on the market, even overpriced homes will be shown a lot; they simply will not sell. Instead, they will waste everybody’s time, including their own, as tons of willing and able buyers tour their home without writing an offer. Any offers generated will be “lowball” in the minds of sellers, but in the minds of buyers, they are strategizing on ways to get the seller off of their high horse and back down to reality.

Active Inventory: The record low inventory is approaching 4,000 homes. 
In all of Orange County, the active inventory is knocking on an incomprehensible level never seen before. It is knocking loudly on the door of 4,000 homes. Within the past two weeks alone, it shed an additional 156 homes, 4%, and now totals 4,043. The third most populous county in California, home to over 3 million people, has only a few thousand homes on the market. The housing diet started in June of last year, dropping continuously and shedding 64% of the inventory in that time.

Last year at this time there were 9,875 homes on the market, well over double the current inventory. The active inventory stood at 8,114 homes at the beginning of the year, more than double today’s historical low.


Demand: Demand continued to drop along with the anemic inventory.
Understandably, blaming a drop in demand on the low inventory sounds counterintuitive, but it is completely valid in this case. Ask every REALTOR® with pockets filled with willing and able buyers, unable to purchase thus far because there is nothing to show their buyers. When something does pop onto the market, good luck on finding parking to see the home! In the past month, 11% fewer homes were placed on the market compared to last year at this time. This year interest rates are much better and buyers are finally convinced that it is a good time to buy. Even with fewer homes being placed on the market, demand is till 10% stronger than last year. Currently, demand, the number of new pending sales over the prior month, dropped by 3% in the past two weeks, or 110 pending sales, and now totals 3,145. Demand is slowly dropping in conjunction with fewer homes listed for sale.

The Distressed Market: The distressed market has not stopped dropping since one year ago.
  


The distressed market has dropped, unabated since the end of October last year, when it totaled 3, 563. It has plummeted by an astonishing 87%. The distressed inventory has not been this low since May 2007. It currently represents just 13% of the total active inventory and 35% of demand. Last year it represented 36% of the inventory and 54% of demand. This is a definitive sign that the Orange County housing market is recovering. In the past two weeks, the foreclosure inventory decreased by 10 homes, totaling 128, and has an expected market time of 21 days. The short sale inventory decreased by 21 homes in the past two weeks and now totals 404. The expected market time is only 13 days and continues to be the hottest segment of the housing market.

Written by,
Steven Thomas
Quantitative Economics and Decision Sciences

Wednesday, October 24, 2012

KCM Quick Tips: Here Are 5 Reasons To Sell Now

1. Only Serious Buyers Are Out
At this time of year, only those purchasers who are serious about buying a home will be in the marketplace. Your clients will not be bothered and inconvenienced by mere 'lookers'. The lookers are at the mall or online doing their holiday shopping.

2. There is Far Less Competition
Housing supply always shrinks dramatically at this time of year. This year will be a little different as some of the distressed properties being liquidated by the banks (in the form of foreclosures & short sales) will enter the market.

However, for those buyers looking for a non-distressed property, the choices will be limited. Your sellers shouldn't wait until the Spring when all the other potential sellers in the market will put their homes up for sale.

3. The Process Will Be Quicker
One of the biggest challenges of the 2012 housing market has been the length of time it takes from contract to closing. Banks have been inundated with both purchase and refinancing loan requests. Both of these will slow in the winter cutting timelines and the frustration these delays cause both buyers and sellers.

4. There Will Never Be a Better Time to Move-Up
If your client is moving up to a larger, more expensive home, they should consider doing it now. Prices are projected to appreciate by over 15% from now to 2016. If they are moving to a higher priced home, it will wind-up costing them more in raw dollars (both in down payment and mortgage payment) if they wait.

They can also lock-in their 30 year housing expense with historically low interest rates right now. There is no guarantee rates will remain at these levels in years to come.

5. It's Time to Move On with Their Life
Ask them the reason they decided to sell in the first place and have them decide whether it is worth waiting. Is money more important than being with family? Is money more important than their health? Is money more important than having the freedom to go on with their life the way they think they should?

They already know the answers to the questions we just asked. Make sure they know they have the power to take back control of the situation by pricing their home to guarantee it sells. The time has come for their family to move on and start living the life they desire. That is what is truly important.

S.D. Mortgage Defaults Slide to a Six-Year Low


The number of mortgage defaults in San Diego County has fallen to a six-year low, based on a report Wednesday from DataQuick. Foreclosures in the county also are declining.

The rising presence of short sales — which help homeowners who can’t afford their mortgages sell their own for less than what they owe if the lender says yes — continues to be a key force behind falling mortgage defaults and foreclosures. The share of short sales now makes up a larger percentage of the county’s housing market compared with foreclosed homes that have been resold, a milestone reached this year.

“During the past year, we've seen short sales overtake the foreclosure process as the procedure of choice to deal with homeowner distress,” DataQuick President John Walsh said in the company’s foreclosure report.

In September, San Diego County recorded 1,050 notices of default, which signals the start of a foreclosure. That’s the lowest level since the 1,042 filed in November 2006, nearly six years ago. September’s tally is almost 14 percent lower than August’s and nearly 38 percent lower than what was recorded the same month a year ago.

Here’s another way to look at declining default figures: There were 3,727 notice of default filings in the third quarter, from July to September. That’s the lowest level for any quarter since the fourth quarter of 2006.

There were 497 completed foreclosures in September, down 2 percent from August and down 40 percent from a year ago. The number of foreclosures in the county has long been erratic. But it has remained in the 400 to 500 range during the past seven months.

Although the foreclosure count is still higher than the historical average of 326, it is a far cry from the peak of 2,004 reached in July 2008.

Levels of housing distress also appear to be waning throughout Southern California. Mortgage defaults fell to their lowest point since the first quarter of 2007, DataQuick figures show. Southern California foreclosures ticked up almost 7 percent from the second quarter to the third quarter. But it’s important to note that the foreclosures in the second quarter fell to their lowest point since the second quarter of 2007.

The report on declining foreclosures comes after months of encouraging housing news. Prices are on the rise; sales continued to stay hot beyond spring and summer, the typical homebuying seasons; and homebuilder sentiment has reached a six-year high.


Written by
Lily Leung

Monday, October 22, 2012

Housing Surge Looks Solid

Construction gain may buoy U.S. economy.

A recovery in home construction is finally building strength to help the economy for the first time in years.

The home construction market registered "blowout" numbers in September, IHS Global Insight says.

Housing starts were up 15% from August, the Commerce Department reported, with increases in every region of the U.S. except the Northeast.

Housing permits, which are less volatile than starts and indicate future building, rose 11.6% and posted solid gains in all four U.S. regions.

The strong numbers, while they may not be repeated in coming months, are "good solid evidence" that the housing recovery is underway, says David Crowe, chief economist at the National Association of Home Builders (NAHB).

Housing typically leads the U.S. economy out of recession. It hasn't this time, given the depth of the crash that knocked down home prices by 30% and left behind a string of dismal years for new construction.

But in recent quarters, housing has shown improving vital signs, with rising prices and year-over-year increases in existing and new home sales. Since World War II, housing has contributed an average 4.7% annually to the growth in U.S. gross domestic product, the NAHB says. That's rebounded to more than 10% this year, Crowe says.

Home construction is closely watched because it's labor intensive. The industry lost more than 2 million jobs since the housing bubble burst. Few have come back, Crowe says. When people buy new homes, they also unleash spending for goods such as appliances and furniture -- and that generates jobs in other industries.

"Housing is now contributing to the economy," says Michael Lea, director of San Diego State University's Corky McMillin Center for Real Estate.

Last year, home builders began construction on 434,000 single-family homes, the worst year on record. This year, single-family starts will be up 21% from last year, the NAHB forecasts, and then increase 26% and 30% in the next two years.

Despite the upbeat trend of recent housing data, some housing experts warn of headwinds. Falling interest rates this year have probably pulled some demand forward, says Steven Ricchiuto, chief economist for Mizuho Securities.

By Julie Schmit

Wednesday, October 17, 2012

San Diego Home Prices Hold on to a 4-Year High

September offers more evidence that home prices are staying strong after the popular buying seasons of spring and summer, based on Friday's market report from real estate tracker DataQuick.

The median price for all homes sold in the San Diego County market in September was $350,000, up 1.4 percent from August and up 11.1 percent from the same month a year ago. We've been hovering at or around a four-year high for the last three straight months, a result of increasing consumer demand and a lower-than-normal supply. Prices have either stayed flat or gone up during the last six months.

The county recorded a total of 3,214 home sales, including single-family resales, condos and new homes. That's a 19.3 percent drop from August.

However, it's important to note that August was the busiest month for San Diego County homebuying since 2006. The monthly sales average in the county this year to date is 3,348 - up more than 12 percent from the same time period last year. Another reason for the dramatic month-to-month sales drop: there were four fewer business days in August.

DataQuick analysts point to record-low mortgage rates and a boost in consumer confidence as reasons for the increase in prices not only in San Diego County but also throughout Southern California.

Another key factor is that fewer foreclosures are being resold into the market and those tend to be priced lower than traditional homes. Foreclosures made up 13.3 percent of total resales, the lowest percentage for any month since July 2007, when it was 11.6 percent.

"Assuming this year’s modest upward trend in pricing holds," said DataQuick president John Walsh in Friday's report, "we’ll eventually see the market begin to re-balance with more supply, though that could take many months. More and more potential move-up buyers who do have equity will be thinking about timing their next purchase to maximize the advantage of super-low rates and relatively low prices. As more potential sellers get off the fence, or no longer owe more than their homes are worth, we’ll see the inventory of homes for sale rise. That’s going to limit price appreciation.”

Lower-than-normal inventory continues to be a challenge for buyers but is a positive for sellers trying to get the best price for their home.

The number of active listings in the county featured on the Multiple Listing Service has fallen for 15 straight weeks. Right now, there are roughly 5,300 available listings, the lowest number in at least three years and three months, based on data from the San Diego Association of Realtors. The current listing supply is half of what we saw the same time a year ago.

The result of limited supply and increased demand? Bidding wars.

Joseph Toro, a retired manager at IBM, engaged in a few of them during his hunt for a home in San Diego County.

"Bidding wars are becoming unreal," Toro said. "We put in eight to nine bids. We'd get bumped off by investors or pure cash deals."

The share of homebuyers paying with cash is 31.4 percent, down from 32.9 percent in August and up from 27.1 percent a year ago.

Written by
Lily Leung

Tuesday, October 16, 2012

Short Sale Pricing is Maddening

The hottest segment of the Orange County housing market is also plagued
by ridiculous pricing.

Short Sale Pricing: The expected market time for short sales is down to 13 days.

Buyers are still climbing into the cars of REALTORS® for the first time with high hopes of getting a “deal.” As they experience the caravan of cars touring the few homes that pop onto the market in a given week and have to wait at the door of a home to allow the buyer in front of them to finish looking around, buyers are quickly brought up to speed: they are NOT in charge. It is no longer a buyer’s market, quite the opposite. Unbelievable competition, multiple offers, offers at or above the asking price, this is the new Orange County housing market reality, a seller’s market.

Only 6% of all home sales in September were foreclosures, lows not seen since the beginning of the onslaught of foreclosed homes back in 2007. The number of foreclosures coming on the market is dwindling. Currently there are only 138 on the active market today. There just are not enough foreclosures to go around. For September, the average foreclosure sold for 2% above the asking price. Below $500,000, the average sold 3% above the list price. This segment of the housing market is as hot as molten lava.

It is no wonder that buyers looking for a “deal” have veered their attention to short sales. Even though the short sale process still can take months before closing, there is no other segment of the housing market to find a deal, given the anemic inventory level and pent up buyer demand. There are only 425 short sales on the active market today. The short sale inventory has been dropping like a rock, faster than any other segment of the OC housing market. It has dropped 43% since July compared to 23% for the market as a whole and 25% for foreclosures.

For September, short sales, on average, sold 2% below their asking price for all price ranges and at a 1% reduction for homes priced below $500,000. Incredibly, the expected market time for short sales is a mere 13 days. Comparatively, the foreclosure inventory is at 21 days and the entire market is at 39 days. Short sales are the hottest segment of the Orange County housing market.

Given that there are barely 425 on the market and 969 new pending sales within the last month, buyers are tripping over each other in lining up to buy them. When supply is low and demand is high, these homes should be selling for very close to their market value and should not be subject to major discounting. It does not matter that short sales take an unknown lengthy amount of time to close due to lender approval requirements and the complexity in closing them. There simply are not enough short sales to satiate the ferocious appetite of buyers eager to be the winning bidder of a home.

If short sales are the hottest segment, then why are they selling below their asking price? Short sales are selling for less than their asking prices because sellers are not emotionally tied to the price. A seller with equity cares about every dollar that they walk away with; whereas, the short sale seller is attempting to market their home for less than what is owed. They are not going to hold out for an additional $5,000 when they are still going to walk away with nothing. On the other hand, an additional $5,000 to the homeowner with equity is an extra $5,000 in their bank account. The short sale seller is not motivated by the amount of money they will net; they are motivated to get out from under their upside down home.

Memo to all short sale sellers: do the housing market a big favor in helping it heal faster, price your home according to the fair market value. In the end, you will still achieve your objective in selling, but you will also help your neighbors in strengthening the value of their homes as well.

Many REALTORS® used to price a short sale listing below the market value, knowing that the chance of the initial buyer sticking with the long process was slim. It would then require a new buyer to enter the fray several months down the road. When values were dropping, if they submitted too high of a value initially, inserting a new buyer at that higher value months later proved to be impossible. The banks expected a similarly priced offer to be resubmitted, an impossible fete given that values had dropped during the lengthy process. To circumvent not being able to sell down the road, short sales were often sold well below their market value to insure successfully closing even with a replacement buyer.

As values are now rising and demand is scorching hot, it is time to sell short sales very close to their fair market value and be a part of the housing market recovery. Neighborhoods are counting on short sale homes to do the right thing.

Active Inventory – A New Record Established: The record low inventory hit a new record low and shows no sign of stopping its unabated drop.

Even though the impression within the trenches is that showing homes in today’s market is like scraping the bottom of the barrel, amazingly, the active listing inventory dropped another 5% within the past two weeks, shedding an additional 217 homes. There are only 4,199 homes on the active market. Even at a record low, the active inventory has still declined by 10% in the past month. The drought continues and does not look like it will stop dropping anytime soon. 

Last year at this time there were 10,044 homes on the market, well over double the current inventory. The active inventory stood at 8,114 homes at the beginning of the year, 3,915 more than today.

Many have asked if the election has anything to do with the current market, but the unprecedented drop started back in June of last year. The general public was not focused on the election back then, helping illustrate that we are witnessing what appears to be a true recovery.


Demand: Demand dropped as fewer homes are placed on the market.
This is notoriously a time when fewer homes are placed onto the market. The general public intuitively gets it; the Spring and Summer market are the best time of the year to sell. During the past month, 12% fewer homes were placed on the market compared to last year. With fewer homes for sale, buyers simply cannot find a home to purchase and are stuck waiting along with many other buyers for the next home to be placed on the market. With those circumstances in mind, it is no wonder that demand, the number of new pending sales over the prior month, dropped by 3%, shedding 111 pending sales and now totals 3,255. Even with fewer homes placed on the market, demand was still 12% stronger than last year at this time.

The Distressed Market: The distressed market dropped by a pace not seen since May.
Even with the distressed inventory at such anemic levels, it still managed to drop by 11% in the past two weeks and now totals 563. The inventory shed 100 homes in the prior month.

The distressed inventory has not been this low since June 2007. It currently represents just 13% of the total active inventory and 36% of demand. Last year it represented 35% of the inventory and 52% of demand. In the past two weeks, the foreclosure inventory decreased by 11 homes, totaling 138, and has an expected market time of 21 days. The short sale inventory decreased by 59 homes in the past two weeks and now totals 425. The expected market time is only 13 days and continues to be the hottest segment of the housing market.


By Steven Thomas
Quantitative Economics and Decision Sciences, B.A.

Thursday, October 4, 2012

Housing Recovering, But Slowly

Economist says sales and prices expected to keep rising, but market may not be corrected until 2017. 

The housing recovery in California is expected to continue through to 2013, but the market won’t be “corrected” until as late as 2017, said the lead economist of a statewide Realtors group on Tuesday.

Home sales and prices are expected to keep rising, but lower-than-normal inventory levels and underwater mortgages are key hindrances to a faster recovery, says Leslie Appleton-Young, of the California Association of Realtors.

“The market is correcting,” Appleton-Young said during a web conference with reporters. “It will be three to five years before we are corrected.”

She forecast sales will rise 1.3 percent to 530,000 units next year, based on the projected tally of 523,300 units this year. That’s slower than the roughly 5 percent gain from 2011 to 2012.

The momentum in prices also is expected to carry through to 2013, a result of pent-up demand for a limited housing supply. The median price could rise 5.7 percent to $335,000 in 2013. That’s lower than the projected price growth from 2011 to 2012, an estimated 11 percent. The state has 3.2 months’ worth of housing inventory, significantly lower than the 16 months-plus supply seen roughly four years ago.

“Pent-up demand from first-time buyers will compete with investors and all-cash offers on lower-priced properties, while multiple offers and aggressive bidding will continue to be the norm in mid- to upper-price range homes,” said Appleton-Young in this week’s report.

A recent study from housing website Zillow shows that more than one-third of San Diego County borrowers owed more on their homes than their properties are worth in the second quarter. Appleton-Young says what underwater borrowers throughout the state will do — be it selling or holding — will have a big effect on next year’s housing recovery.

Other things to watch next year that will have a bearing on the housing market include policies related to the state, local and federal governments; and housing and monetary policies, Appleton-Young said.

Written by:
Lily Leung