Monday, September 19, 2011
Saturday, July 9, 2011
Wednesday, June 22, 2011
Why it's time to buy
Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered region.
Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.
Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.
As rates hover near historic lows, experts expect banks to ease borrowing standards over time.
Is home ownership a good investment? The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.
The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.
But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.
So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.
Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.
Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.
Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.
As rates hover near historic lows, experts expect banks to ease borrowing standards over time.
Is home ownership a good investment? The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.
The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.
But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.
So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.
Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.
Tuesday, April 26, 2011
Buyers' Market? Stressed Sellers Say Not So Fast!
Falling home prices should give aspiring homeowners the upper hand this spring, but in a growing number of locations, it doesn't feel like a buyer's market.
Blame the nearly five-year slide of home prices. Those declines, which accelerated over the past two quarters, have left many sellers unable or unwilling to lower their prices. Meanwhile, buyers remain gun shy about agreeing to any purchase without getting a deep discount.
That dynamic has fueled buyers' appetites for bank-owned foreclosures. Those homes often hit the market at bargain prices, but they are being snapped up by investors who are paying in cash.
At a focus group earlier this month, the mood among buyers was "nasty," says Glenn Kelman, chief executive of Redfin Corp., a Seattle-based brokerage that operates in nine states. "There's a shortage of attractive inventory," he says. "Customers just keep getting outbid on the houses that they want."
It took Susan Hunter just one month to unload her home in Redondo Beach, Calif., last fall. But she has been outbid on four homes at a lower price point in Eagle Rock, an emerging neighborhood in northeast Los Angeles. Some sold to investors who paid cash. Other listings, she says, are being resold by investors at prices that she says are too high.
"It's the Wild West out here. It's a daily, tireless search," says Ms. Hunter, who works in television production and marketing. Demand is up because "we haven't been able to find homes here below $500,000 since the 1990s."
Last year, software engineer Young Hammack gave up looking to buy after being outbid on three properties. This year, he has his eye on a four-bedroom foreclosed house with a pool in Citrus Heights, Calif., that hasn't yet hit the market. He hopes to pay about half the $492,000 it fetched six years ago.
But the 32-year-old, who is relying on a 3.5% down-payment mortgage backed by the
government, is at a disadvantage against buyers who can pay cash. "It's a false buyer's market," he says. "If you think prices are cheap, wait until you start putting offers in."
Many buyers are looking for discounts because they lack confidence that prices have reached a bottom, and sellers won't have much pricing power as long as buyers such as Mr. Hammack and Ms. Hunter are in no hurry. "It may take some time, but I'm willing to wait," Ms. Hunter says.
The Wall Street Journal's quarterly survey of housing-market conditions in 28 major metro areas shows inventories of unsold homes remain high but fell during the first quarter. Listings were down by nearly 25% from one year ago in Miami and Orlando, and by 12% in Phoenix and Portland, Ore., according to figures compiled by John Burns Real Estate Consulting.
Other markets, including New York's Long Island and Charlotte, N.C., still face imbalances. At the current sales pace, it would take more than 16 months to sell all homes listed for sale in each market. A balanced market typically has a six-month supply.
Meanwhile, home values fell in every metro area for the second straight quarter, according to data from Zillow Inc. Prices were down by more than 5% in Chicago and Detroit, the largest quarterly drops, to levels not seen in more than a decade.
Values have fallen so far that many sellers with equity aren't willing to drop their prices. Those without equity can't cut the prices unless the bank agrees to take a loss in what is known as a short sale. Such sales can take months to complete and fall through at the last minute, deterring some buyers. Still, short sales hit a new high, accounting for 9% of all transactions in January, according to CoreLogic Inc.
"Frankly, until we start building some equity, the market is just going to sit here and do pretty much nothing for the next few years," says Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles.
Homes that don't need much repair work and that are located in choice neighborhoods near transit hubs or with good schools are in demand. "What's selling is the cream of the crop, and they sell fast," says Steve Capen, a real-estate agent with Keller Williams Realty in St. Petersburg, Fla. "If it's not cream of the crop, it's getting hammered."
Mike Morea and his family have outgrown the 800-square-foot, two-bedroom home he bought eight years ago in Seminole, Fla. He hopes the bank will approve a short sale for about $85,000 for a $50,000 loss. In December, Mr. Morea saw first-hand why buyers are more attracted to foreclosures: he bought one for himself, a $200,000 three-bedroom home in a nicer neighborhood 10 minutes away.
"That's what every seller is running into," says the 31-year-old police officer. "Nobody is going to buy your home at retail price if there are 30 foreclosures available."
While foreclosures are in demand, mortgage companies' processing problems have sharply curtailed the flow of bank-owned properties onto the market in states such as Florida, New Jersey and New York, where courts must process foreclosures.
To be sure, some of the challenges facing the housing market are easing as the economy adds jobs, boosting demand and easing mortgage delinquencies.Depressed prices coupled with low interest rates have made housing more affordable than at any time since 1975, according to Zillow.
But the legacy of the housing market's collapse has left two big structural problems. First, the huge erosion in homeowners' equity has deprived housing markets of the all-important "trade up" buyer. Even those with equity often aren't willing to sell at current market prices, exacerbating what housing analyst Ivy Zelman calls the "stuck factor."
Second, foreclosures are still weighing on housing markets. While mortgage delinquencies are down from their 2009 peak, an all-time high of 2.2 million loans were in foreclosure at the end of March, according to LPS Applied Analytics.
Economists say the "shadow inventory" of another 4 million potential foreclosures will keep a lid on prices for years. Even in markets with rising demand and falling inventory, prices won't go up because "there's too much on the horizon, so nobody's in a hurry," says Ron Leis, a broker in Sacramento, Calif.
Tighter credit standards have also left markets with fewer buyers at a time when more would help. When he needed to move into a bigger home four years ago, Todd Loewenstein sold his Redondo Beach home and began renting. "Now, we want to get back in, but it hasn't happened," says the 44-year-old technology entrepreneur.
He fell out of escrow one week before closing on an $850,000, three-bedroom home in October after the lender turned down his loan. Mr. Loewenstein, who was prepared to make a 20% down payment, says he has never missed a payment in his life and has enough savings to last several years.
But he wasn't able to meet the bank's tight income-documentation requirements. The home, which sold for $1.25 million in 2005, is still on the market. Mr. Loewenstein says he scans listings every day and is still looking to buy.
This article has a lot to do with what is happening presently in the Hollywood Hills, Bel Air, Westwood, Beverly Hills and generally the better neighborhoods of the Westside of Los Angeles.
Blame the nearly five-year slide of home prices. Those declines, which accelerated over the past two quarters, have left many sellers unable or unwilling to lower their prices. Meanwhile, buyers remain gun shy about agreeing to any purchase without getting a deep discount.
That dynamic has fueled buyers' appetites for bank-owned foreclosures. Those homes often hit the market at bargain prices, but they are being snapped up by investors who are paying in cash.
At a focus group earlier this month, the mood among buyers was "nasty," says Glenn Kelman, chief executive of Redfin Corp., a Seattle-based brokerage that operates in nine states. "There's a shortage of attractive inventory," he says. "Customers just keep getting outbid on the houses that they want."
It took Susan Hunter just one month to unload her home in Redondo Beach, Calif., last fall. But she has been outbid on four homes at a lower price point in Eagle Rock, an emerging neighborhood in northeast Los Angeles. Some sold to investors who paid cash. Other listings, she says, are being resold by investors at prices that she says are too high.
"It's the Wild West out here. It's a daily, tireless search," says Ms. Hunter, who works in television production and marketing. Demand is up because "we haven't been able to find homes here below $500,000 since the 1990s."
Last year, software engineer Young Hammack gave up looking to buy after being outbid on three properties. This year, he has his eye on a four-bedroom foreclosed house with a pool in Citrus Heights, Calif., that hasn't yet hit the market. He hopes to pay about half the $492,000 it fetched six years ago.
But the 32-year-old, who is relying on a 3.5% down-payment mortgage backed by the
government, is at a disadvantage against buyers who can pay cash. "It's a false buyer's market," he says. "If you think prices are cheap, wait until you start putting offers in."
Many buyers are looking for discounts because they lack confidence that prices have reached a bottom, and sellers won't have much pricing power as long as buyers such as Mr. Hammack and Ms. Hunter are in no hurry. "It may take some time, but I'm willing to wait," Ms. Hunter says.
The Wall Street Journal's quarterly survey of housing-market conditions in 28 major metro areas shows inventories of unsold homes remain high but fell during the first quarter. Listings were down by nearly 25% from one year ago in Miami and Orlando, and by 12% in Phoenix and Portland, Ore., according to figures compiled by John Burns Real Estate Consulting.
Other markets, including New York's Long Island and Charlotte, N.C., still face imbalances. At the current sales pace, it would take more than 16 months to sell all homes listed for sale in each market. A balanced market typically has a six-month supply.
Meanwhile, home values fell in every metro area for the second straight quarter, according to data from Zillow Inc. Prices were down by more than 5% in Chicago and Detroit, the largest quarterly drops, to levels not seen in more than a decade.
Values have fallen so far that many sellers with equity aren't willing to drop their prices. Those without equity can't cut the prices unless the bank agrees to take a loss in what is known as a short sale. Such sales can take months to complete and fall through at the last minute, deterring some buyers. Still, short sales hit a new high, accounting for 9% of all transactions in January, according to CoreLogic Inc.
"Frankly, until we start building some equity, the market is just going to sit here and do pretty much nothing for the next few years," says Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles.
Homes that don't need much repair work and that are located in choice neighborhoods near transit hubs or with good schools are in demand. "What's selling is the cream of the crop, and they sell fast," says Steve Capen, a real-estate agent with Keller Williams Realty in St. Petersburg, Fla. "If it's not cream of the crop, it's getting hammered."
Mike Morea and his family have outgrown the 800-square-foot, two-bedroom home he bought eight years ago in Seminole, Fla. He hopes the bank will approve a short sale for about $85,000 for a $50,000 loss. In December, Mr. Morea saw first-hand why buyers are more attracted to foreclosures: he bought one for himself, a $200,000 three-bedroom home in a nicer neighborhood 10 minutes away.
"That's what every seller is running into," says the 31-year-old police officer. "Nobody is going to buy your home at retail price if there are 30 foreclosures available."
While foreclosures are in demand, mortgage companies' processing problems have sharply curtailed the flow of bank-owned properties onto the market in states such as Florida, New Jersey and New York, where courts must process foreclosures.
To be sure, some of the challenges facing the housing market are easing as the economy adds jobs, boosting demand and easing mortgage delinquencies.Depressed prices coupled with low interest rates have made housing more affordable than at any time since 1975, according to Zillow.
But the legacy of the housing market's collapse has left two big structural problems. First, the huge erosion in homeowners' equity has deprived housing markets of the all-important "trade up" buyer. Even those with equity often aren't willing to sell at current market prices, exacerbating what housing analyst Ivy Zelman calls the "stuck factor."
Second, foreclosures are still weighing on housing markets. While mortgage delinquencies are down from their 2009 peak, an all-time high of 2.2 million loans were in foreclosure at the end of March, according to LPS Applied Analytics.
Economists say the "shadow inventory" of another 4 million potential foreclosures will keep a lid on prices for years. Even in markets with rising demand and falling inventory, prices won't go up because "there's too much on the horizon, so nobody's in a hurry," says Ron Leis, a broker in Sacramento, Calif.
Tighter credit standards have also left markets with fewer buyers at a time when more would help. When he needed to move into a bigger home four years ago, Todd Loewenstein sold his Redondo Beach home and began renting. "Now, we want to get back in, but it hasn't happened," says the 44-year-old technology entrepreneur.
He fell out of escrow one week before closing on an $850,000, three-bedroom home in October after the lender turned down his loan. Mr. Loewenstein, who was prepared to make a 20% down payment, says he has never missed a payment in his life and has enough savings to last several years.
But he wasn't able to meet the bank's tight income-documentation requirements. The home, which sold for $1.25 million in 2005, is still on the market. Mr. Loewenstein says he scans listings every day and is still looking to buy.
This article has a lot to do with what is happening presently in the Hollywood Hills, Bel Air, Westwood, Beverly Hills and generally the better neighborhoods of the Westside of Los Angeles.
Saturday, April 9, 2011
Mortgage aid offered to those who cashed out equity
California has decided that people who stripped equity out of their homes deserve taxpayer help after all.
The California Housing Finance Agency said Tuesday that people will no longer be excluded from three of the four Keep Your Home California programs just because they took out a home equity line of credit or did a cash-out refinance.
Keep Your Home California is a state-run program getting $2 billion from the U.S. Treasury's Hardest Hit Fund. It is designed to help low- and moderate-income people who are unemployed or owe more than their home is worth pay their mortgage.
There are four individual programs under the umbrella program. Eligible homeowners can get up to $50,000 in assistance from one or more of the four programs combined.
When Keep Your Home started taking applications in early February, it barred people from all four programs if they had tapped the equity in their homes.
"We knew we didn't have enough money to serve everyone," says Diane Richardson, CalHFA's director of legislation. "We wanted to help people who were in some kind of trouble through no fault of their own, who weren't upside down because they had taken out equity."
Of the roughly 28,000 people who have called the program seeking assistance, about
10,000 were found ineligible. Of those, about 40 percent or 4,000 were turned down because they had taken equity out of their homes.
CalHFA has now decided that people who can't pay their mortgage because they are unemployed or suffered a financial hardship shouldn't be penalized just because they robbed their homes of equity.
Under the new rules, people who took equity out of their homes will be eligible for the unemployment mortgage assistance, mortgage reinstatement assistance and transition assistance programs if they meet all the other program requirements.
These same programs have also been expanded to include mortgages that were originated after Jan. 1, 2009.
The program originally excluded mortgages originated after that date because they also are excluded under the federal Home Affordable Modification Program. "We wanted to be consistent with HAMP," Richardson says.
But CalHFA found that a lot of homeowners in trouble had refinanced after that date and it did not want to exclude them.
Homeowners who took cash out of their homes or whose mortgage was originated after Jan. 1, 2009, remain ineligible for the fourth program, which offers principal reduction.
To qualify for any of the four programs, homeowners must fall below certain income limits ($119,300 in San Francisco, San Mateo and Marin counties; $108,350 in Contra Costa and Alameda counties).
They also must be living in the home and cannot own a second home, but there are no other asset limits. Applicants will not be asked how they spent any cash they took out of their homes or how much they have in bank or investment accounts.
For other requirements, see www.keepyourhomecalifornia.org/eligibility.htm.
Richardson says that "a couple hundred" people have received help from the program and that about 2,000 more are in the final stage of confirming their eligibility.
CalHFA is contacting people who were previously disqualified but would qualify under the new rules. These homeowners can also contact the program at (888) 954-5337.
Some people have been turned down because their loan servicer is not participating in one or more of the programs.
All of the major private-sector servicers - Bank of America, Wells Fargo, Chase, CitiMortgage and GMAC - are participating in the unemployment mortgage assistance plan, which makes mortgage payments on behalf of unemployed homeowners in imminent danger of foreclosure. The plan will pay 100 percent of the borrower's payment, up to $3,000 a month, for six months.
None of those servicers are participating in the principal reduction program, but BofA has agreed to join a pilot program that will start in a few weeks, Richardson says.
This program will provide capital to reduce the principal balances of qualifying borrowers who are underwater, or owe more than their homes are worth. For every dollar the program contributes, BofA will also reduce the borrower's principal by a dollar, Richardson says.
For borrowers who have received no other assistance from Keep Your Home California, this program could reduce their balance by up to $100,000 - $50,000 from the program and $50,000 from BofA.
However, the program cannot reduce loan balances to less than 115 percent of the home's market value and it won't reduce the borrower's debt-to-income ratio to less than 31 percent, Richardson says.
California is one of 18 states receiving money from the Hardest Hit Fund. Each state could set up its own program, within limits. Many never prevented homeowners from receiving assistance because they had withdrawn equity from their homes. However, many also have much less generous payouts than California.
To learn more, go to www.keepyourhomecalifornia.org, then click on Programs.
The California Housing Finance Agency said Tuesday that people will no longer be excluded from three of the four Keep Your Home California programs just because they took out a home equity line of credit or did a cash-out refinance.
Keep Your Home California is a state-run program getting $2 billion from the U.S. Treasury's Hardest Hit Fund. It is designed to help low- and moderate-income people who are unemployed or owe more than their home is worth pay their mortgage.
There are four individual programs under the umbrella program. Eligible homeowners can get up to $50,000 in assistance from one or more of the four programs combined.
When Keep Your Home started taking applications in early February, it barred people from all four programs if they had tapped the equity in their homes.
"We knew we didn't have enough money to serve everyone," says Diane Richardson, CalHFA's director of legislation. "We wanted to help people who were in some kind of trouble through no fault of their own, who weren't upside down because they had taken out equity."
Of the roughly 28,000 people who have called the program seeking assistance, about
10,000 were found ineligible. Of those, about 40 percent or 4,000 were turned down because they had taken equity out of their homes.
CalHFA has now decided that people who can't pay their mortgage because they are unemployed or suffered a financial hardship shouldn't be penalized just because they robbed their homes of equity.
Under the new rules, people who took equity out of their homes will be eligible for the unemployment mortgage assistance, mortgage reinstatement assistance and transition assistance programs if they meet all the other program requirements.
These same programs have also been expanded to include mortgages that were originated after Jan. 1, 2009.
The program originally excluded mortgages originated after that date because they also are excluded under the federal Home Affordable Modification Program. "We wanted to be consistent with HAMP," Richardson says.
But CalHFA found that a lot of homeowners in trouble had refinanced after that date and it did not want to exclude them.
Homeowners who took cash out of their homes or whose mortgage was originated after Jan. 1, 2009, remain ineligible for the fourth program, which offers principal reduction.
To qualify for any of the four programs, homeowners must fall below certain income limits ($119,300 in San Francisco, San Mateo and Marin counties; $108,350 in Contra Costa and Alameda counties).
They also must be living in the home and cannot own a second home, but there are no other asset limits. Applicants will not be asked how they spent any cash they took out of their homes or how much they have in bank or investment accounts.
For other requirements, see www.keepyourhomecalifornia.org/eligibility.htm.
Richardson says that "a couple hundred" people have received help from the program and that about 2,000 more are in the final stage of confirming their eligibility.
CalHFA is contacting people who were previously disqualified but would qualify under the new rules. These homeowners can also contact the program at (888) 954-5337.
Some people have been turned down because their loan servicer is not participating in one or more of the programs.
All of the major private-sector servicers - Bank of America, Wells Fargo, Chase, CitiMortgage and GMAC - are participating in the unemployment mortgage assistance plan, which makes mortgage payments on behalf of unemployed homeowners in imminent danger of foreclosure. The plan will pay 100 percent of the borrower's payment, up to $3,000 a month, for six months.
None of those servicers are participating in the principal reduction program, but BofA has agreed to join a pilot program that will start in a few weeks, Richardson says.
This program will provide capital to reduce the principal balances of qualifying borrowers who are underwater, or owe more than their homes are worth. For every dollar the program contributes, BofA will also reduce the borrower's principal by a dollar, Richardson says.
For borrowers who have received no other assistance from Keep Your Home California, this program could reduce their balance by up to $100,000 - $50,000 from the program and $50,000 from BofA.
However, the program cannot reduce loan balances to less than 115 percent of the home's market value and it won't reduce the borrower's debt-to-income ratio to less than 31 percent, Richardson says.
California is one of 18 states receiving money from the Hardest Hit Fund. Each state could set up its own program, within limits. Many never prevented homeowners from receiving assistance because they had withdrawn equity from their homes. However, many also have much less generous payouts than California.
To learn more, go to www.keepyourhomecalifornia.org, then click on Programs.
Saturday, April 2, 2011
Million Dollar Homes Face More Audits
Some people who owe more than $1 million on their homes are coming under the microscope at the Internal Revenue Service over how much of their mortgage interest they can deduct on their tax returns.
The number of taxpayers involved could be in the tens of thousands because in some parts of the country, many homes sell for more than $1 million and even a buyer who puts down 20% or 30% may need to borrow. The amount of interest at stake is substantial, in some cases as much as $50,000 to $60,000 on a $1.1 million mortgage.
The IRS didn’t comment, but the scrutiny follows a period of confusion by taxpayers, advisers and even some IRS agents about how much interest can be deducted, based on what kind of debt the homeowner holds. Tax rules distinguish between two kinds of home debt. There is home acquisition debt, which is a loan used to acquire, construct or substantially improve a qualified home, and is secured by the home. Then there is home equity debt, which is any other kind of loan that is also secured by the home.
Some tax advisers were telling clients it was acceptable to deduct all interest on a single mortgage of up to $1.1 million. Others contended that the limit for mortgages was $1 million, but they could also deduct interest on another $100,000 in a home equity loan, according to Melissa Labant, tax technical manager at the American Institute of Certified Public Accountants.
IRS guidance last June helped set the rules straight. The agency said acquisition loans over $1 million may also qualify as home equity indebtedness. Now, says Labant, it is clear the taxpayer can deduct interest on the full $1.1 million, even if he has only one loan. The development, she adds, is “good news for taxpayers.”
The rules can get “particularly complex for a mere mortal” when various refinancings get thrown into the mix, and the taxpayer owns several homes, say a house in upstate New York and a condominium in New York, according to David A. Lifson, a certified public accountant at Crowe Horwath LLP in New York, who has clients caught up in these mini-audits. In past six months, he says, the Internal Revenue Service has notified many people that it is looking at their mortgage interest write-offs.
Tax rules generally allow deductions on a first and second home, but not a third or more.
Readers, have you been confused by how much of a deduction you can take?
The number of taxpayers involved could be in the tens of thousands because in some parts of the country, many homes sell for more than $1 million and even a buyer who puts down 20% or 30% may need to borrow. The amount of interest at stake is substantial, in some cases as much as $50,000 to $60,000 on a $1.1 million mortgage.
The IRS didn’t comment, but the scrutiny follows a period of confusion by taxpayers, advisers and even some IRS agents about how much interest can be deducted, based on what kind of debt the homeowner holds. Tax rules distinguish between two kinds of home debt. There is home acquisition debt, which is a loan used to acquire, construct or substantially improve a qualified home, and is secured by the home. Then there is home equity debt, which is any other kind of loan that is also secured by the home.
Some tax advisers were telling clients it was acceptable to deduct all interest on a single mortgage of up to $1.1 million. Others contended that the limit for mortgages was $1 million, but they could also deduct interest on another $100,000 in a home equity loan, according to Melissa Labant, tax technical manager at the American Institute of Certified Public Accountants.
IRS guidance last June helped set the rules straight. The agency said acquisition loans over $1 million may also qualify as home equity indebtedness. Now, says Labant, it is clear the taxpayer can deduct interest on the full $1.1 million, even if he has only one loan. The development, she adds, is “good news for taxpayers.”
The rules can get “particularly complex for a mere mortal” when various refinancings get thrown into the mix, and the taxpayer owns several homes, say a house in upstate New York and a condominium in New York, according to David A. Lifson, a certified public accountant at Crowe Horwath LLP in New York, who has clients caught up in these mini-audits. In past six months, he says, the Internal Revenue Service has notified many people that it is looking at their mortgage interest write-offs.
Tax rules generally allow deductions on a first and second home, but not a third or more.
Readers, have you been confused by how much of a deduction you can take?
Friday, March 25, 2011
Wednesday, March 16, 2011
Thursday, January 13, 2011
Homes Sales Gains Seen
Housing economists expect the troubled residential market to begin picking up in 2011, with low mortgage rates and bargain home prices boosting sales in the spring selling season.
The economists, who delivered their forecasts on a panel at the National Association of Home Builders' annual meeting here, noted the market remains extremely weak, prices are still falling, and they don't expect any recovery to be robust. But they said a number of recent economic indicators have convinced them that housing sales, which have stalled lately, could soon begin to recover.
The economy is creating new jobs, holiday sales came in better than expected, and sales of cars and furniture have improved, noted David Crowe, chief economist for the NAHB. Those trends, he said, are "signifying growing consumer confidence."
After years of abysmal construction and sales activity, Mr. Crowe expects builders to start construction on 575,000 single-family homes this year, up 21% from last year. That would still be far below the 2005 peak of 1.7 million housing starts.
The NAHB also expects new home sales to hit 405,000, up 26% from 2010, as buyers who delayed purchases ink deals.
To be sure, the outlook for 2010 at last year's conference proved much too optimistic. At that time, the NAHB economist saw 610,000 single-family starts for 2010. The actual count, which isn't yet final, is expected to come in at 475,000.
But Mr. Crowe says this year will be better as more jobs are filled and more buyers leave the sidelines. "Consumers are finally willing to go forward," he said.
The outlook for home prices is less upbeat. Freddie Mac Chief Economist Frank Nothaft expects home prices to bottom in the first half of this year, and mortgage rates to edge up slightly, ending 2011 closer to 5.25%.
David Berson, chief economist of mortgage insurer PMI Group, believes prices will weaken further in the next few months, but end the year flat. Next year, he said in an interview, pricing will increase slightly.
It won't be until 2013 that there will be long-term sustainable gains at the historical average rate of 3.5%-4%, he said. Mr. Berson missed the panel as a result of weather-related travel problems, but provided his outlook in a phone interview.
Many of the 50,000 attendees at this year's builders conference are also cautiously optimistic, hoping that prices have come down far enough to pull buyers off the fence.
"People now have waited long enough and are tired of waiting," said Don Eyler, owner of E+R Construction in Indiana. "Right now, you can build a house for the same price as an existing one in some places."
While you may be wondering what this has to do with us here in Los Angeles, the answer is yes, it does and it applies to Real Estate on the Westside, Westwood, Sherman Oaks, Studio City and surrounding areas.
The economists, who delivered their forecasts on a panel at the National Association of Home Builders' annual meeting here, noted the market remains extremely weak, prices are still falling, and they don't expect any recovery to be robust. But they said a number of recent economic indicators have convinced them that housing sales, which have stalled lately, could soon begin to recover.
The economy is creating new jobs, holiday sales came in better than expected, and sales of cars and furniture have improved, noted David Crowe, chief economist for the NAHB. Those trends, he said, are "signifying growing consumer confidence."
After years of abysmal construction and sales activity, Mr. Crowe expects builders to start construction on 575,000 single-family homes this year, up 21% from last year. That would still be far below the 2005 peak of 1.7 million housing starts.
The NAHB also expects new home sales to hit 405,000, up 26% from 2010, as buyers who delayed purchases ink deals.
To be sure, the outlook for 2010 at last year's conference proved much too optimistic. At that time, the NAHB economist saw 610,000 single-family starts for 2010. The actual count, which isn't yet final, is expected to come in at 475,000.
But Mr. Crowe says this year will be better as more jobs are filled and more buyers leave the sidelines. "Consumers are finally willing to go forward," he said.
The outlook for home prices is less upbeat. Freddie Mac Chief Economist Frank Nothaft expects home prices to bottom in the first half of this year, and mortgage rates to edge up slightly, ending 2011 closer to 5.25%.
David Berson, chief economist of mortgage insurer PMI Group, believes prices will weaken further in the next few months, but end the year flat. Next year, he said in an interview, pricing will increase slightly.
It won't be until 2013 that there will be long-term sustainable gains at the historical average rate of 3.5%-4%, he said. Mr. Berson missed the panel as a result of weather-related travel problems, but provided his outlook in a phone interview.
Many of the 50,000 attendees at this year's builders conference are also cautiously optimistic, hoping that prices have come down far enough to pull buyers off the fence.
"People now have waited long enough and are tired of waiting," said Don Eyler, owner of E+R Construction in Indiana. "Right now, you can build a house for the same price as an existing one in some places."
While you may be wondering what this has to do with us here in Los Angeles, the answer is yes, it does and it applies to Real Estate on the Westside, Westwood, Sherman Oaks, Studio City and surrounding areas.
Monday, January 10, 2011
Getting more help with your downpayment for 2011
Home prices have dropped , and mortgage rates are low. For anyone with the tens of thousands of dollars now required for a down payment, it's a pretty good time to buy a house. Now, it's even getting easier without that hefty down payment, as governments step in to help out.
A growing number of state and local governments are now offering what are called "down payment assistance programs," grants or low- and no-interest loans to first-time buyers or those who haven't owned a house in a few years. The number of programs, now somewhere around 1,000 nationally, has increased 3% to 5% in the last six months alone, estimates Marc Savitt, president of the National Association of Independent Housing Professionals, an advocacy group.
And, in a stark reversal, some banks are now far more willing to work with borrowers who need down payment assistance, buyers who were considered too risky 18 months ago. State housing agencies say they're seeing the biggest spike in lender interest since before the housing downturn. Florida's down payment assistance agency now works with 65 lenders, up 12% from a year ago, says a spokeswoman; in North Carolina, the number of participating lenders has grown 22%.
For would-be buyers who qualify, this is a boon. Even with prices depressed, in and around expensive cities like New York and San Francisco, a 20% down payment is out of reach, yet that's what many banks require. In San Francisco where the median sales price for a single-family home is $589,000, buyers would fall short with anything less than $117,800. In desirable New York suburbs, like Montclair, N.J., saving $135,000 for a down payment on the average-priced single-family home isn't just a matter of padding that decent-sized savings account by, say, skipping lattes and brown-bagging lunches for a year.
Of course, not everyone is eligible for help. These programs are targeted at low- and middle-income buyers who have either never owned a home, or haven't owned one in a few years. And then the benefits are substantial: Typically, the programs offer up to $80,000 in loans with interest rates from 0% to 2% to people with little or no money to put down. And then, because participants often have to get their mortgage through the programs' preferred lenders, the primary mortgage rates are also low, often 0.75% to 1% lower than average rates. That can be a better deal than Federal Housing Administration-insured mortgages, which require annual mortgage insurance and an upfront fee, and may have higher interest rates.
Even for cash-strapped states like California, these programs are apparently worth the cost. This is a way to boost homeownership, something they say leads to more jobs and higher home prices. "It promotes affordability, gets people into homes and improves the economy," says a spokesman at the California Housing Finance Agency. To fund the programs, many states and municipalities are using money raised by selling municipal bonds. Also helping: A program funded by the Department of Housing and Urban Development increased its support to local down payment assistance programs by 16% in its last fiscal year to $44 million.
Not everyone is convinced of the wisdom of these programs, particularly for the lenders. "Borrowers who don't put any of their skin in the game – or very little of it – are more risky," says Keith Gumbinger, a vice president at HSH.com, which tracks mortgage data. Such borrowers tend to have higher incidents of default—even if they have prime credit. Not so, says Scott Stern, CEO of Lenders One, a mortgage banker cooperative. Assisted buyers are a lower-risk proposition these days, mostly because banks are still lending to borrowers with high credit scores and detailed income documentation.
There is no official database of all the programs in the country, but asking mortgage lenders and realtors, and checking state housing agency and local government web sites are good starting points. Look for programs that offer grants – they're rarer and tend to offer less in actual assistance than a loan program, but buyers don't have to pay the money back. Also consider programs tailored to a professional group. One of the largest is from the California State Teachers' Retirement System, which offers a deferred low-interest second-mortgage program for current and retired teachers buying homes for up to about $670,000 (see table for more details on this and several other down payment assistance programs).
A growing number of state and local governments are now offering what are called "down payment assistance programs," grants or low- and no-interest loans to first-time buyers or those who haven't owned a house in a few years. The number of programs, now somewhere around 1,000 nationally, has increased 3% to 5% in the last six months alone, estimates Marc Savitt, president of the National Association of Independent Housing Professionals, an advocacy group.
And, in a stark reversal, some banks are now far more willing to work with borrowers who need down payment assistance, buyers who were considered too risky 18 months ago. State housing agencies say they're seeing the biggest spike in lender interest since before the housing downturn. Florida's down payment assistance agency now works with 65 lenders, up 12% from a year ago, says a spokeswoman; in North Carolina, the number of participating lenders has grown 22%.
For would-be buyers who qualify, this is a boon. Even with prices depressed, in and around expensive cities like New York and San Francisco, a 20% down payment is out of reach, yet that's what many banks require. In San Francisco where the median sales price for a single-family home is $589,000, buyers would fall short with anything less than $117,800. In desirable New York suburbs, like Montclair, N.J., saving $135,000 for a down payment on the average-priced single-family home isn't just a matter of padding that decent-sized savings account by, say, skipping lattes and brown-bagging lunches for a year.
Of course, not everyone is eligible for help. These programs are targeted at low- and middle-income buyers who have either never owned a home, or haven't owned one in a few years. And then the benefits are substantial: Typically, the programs offer up to $80,000 in loans with interest rates from 0% to 2% to people with little or no money to put down. And then, because participants often have to get their mortgage through the programs' preferred lenders, the primary mortgage rates are also low, often 0.75% to 1% lower than average rates. That can be a better deal than Federal Housing Administration-insured mortgages, which require annual mortgage insurance and an upfront fee, and may have higher interest rates.
Even for cash-strapped states like California, these programs are apparently worth the cost. This is a way to boost homeownership, something they say leads to more jobs and higher home prices. "It promotes affordability, gets people into homes and improves the economy," says a spokesman at the California Housing Finance Agency. To fund the programs, many states and municipalities are using money raised by selling municipal bonds. Also helping: A program funded by the Department of Housing and Urban Development increased its support to local down payment assistance programs by 16% in its last fiscal year to $44 million.
Not everyone is convinced of the wisdom of these programs, particularly for the lenders. "Borrowers who don't put any of their skin in the game – or very little of it – are more risky," says Keith Gumbinger, a vice president at HSH.com, which tracks mortgage data. Such borrowers tend to have higher incidents of default—even if they have prime credit. Not so, says Scott Stern, CEO of Lenders One, a mortgage banker cooperative. Assisted buyers are a lower-risk proposition these days, mostly because banks are still lending to borrowers with high credit scores and detailed income documentation.
There is no official database of all the programs in the country, but asking mortgage lenders and realtors, and checking state housing agency and local government web sites are good starting points. Look for programs that offer grants – they're rarer and tend to offer less in actual assistance than a loan program, but buyers don't have to pay the money back. Also consider programs tailored to a professional group. One of the largest is from the California State Teachers' Retirement System, which offers a deferred low-interest second-mortgage program for current and retired teachers buying homes for up to about $670,000 (see table for more details on this and several other down payment assistance programs).
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