Is It Time To Buy Your New Home in the 2013?

February 25, 2013 By Leave a Comment
  • by Tom Royce
  • February 22, 2013

aseriousstill1The past 5 years have not been fun for real estate agents and builders. Being constantly on the defensive while trying to motivate buyers and sellers to move, lending standards that the Pope would be intimidated by, and an appraisal system that is suffering from post traumatic stress disorder has not helped ones digestive system.

Let’s face it, TUMS could have made a fortune sponsoring the National Association of Realtors.

But are the hard times in our rear view mirror? Take a look at this excerpt from the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI):

In all, 74.9 percent of homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $65,000. This was up nearly a percentage point from the 74.1 percent of homes sold that were affordable to median-income earners in last year’s third quarter.

“The most recent housing affordability data should be encouraging to many prospective home buyers, because it shows that homeownership remains within reach of median-income consumers even as most local markets appear to be on a recovery path,” said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.  He noted that the most recent reading of the NAHB/First American Improving Markets Index found that 259 out of 361 metros currently qualify as improving, including representatives from all 50 states and the District of Columbia.via the NAHB

Now we all know real estate is about the local market, but these numbers will help the national confidence and psyche when it comes to taking that next step. 259 out of 361 markets improving? That is fantastic news.

Then add the low interest rates so affordability is improved, sellers that are more realistic in their pricing, and we may have something going on here…

Nothing is worse than blowing smoke about something you are selling, and real estate agents (not to mention the National Association of Realtors) do not have the best reputation when it comes to being as upfront with their clients. But when you have a great product at a great price combined with a market that is enthused, selling homes becomes much more pleasant.

I have been pretty pessimistic watching the real estate world the past few years, but even I am thinking that we may sell our house this year and buy in our new town.

And if I am happy, you know things are looking up.

 

Courtesy of your Arcadia Real Estate Agent

Filed Under: Uncategorized Tagged With: , , , , , , , ,

Short sales: taxes, 1099s, and relocation assistance

February 19, 2013 By Leave a Comment

by Melissa Zavala in Housing News -   

taxes money Short sales: taxes, 1099s, and relocation assistance

It’s Tax Season

I always know when tax season is just around the corner because I see Lady Liberty or Uncle Sam spinning signs that invite me into a local tax preparer’s office. Now is also a time when lots of questions arise about short sales and income taxes. If you or any of your clients participated in a short sale in 2012, then there are a number of things you will want to know about short sales and tax return preparation.

Mortgage Forgiveness Debt Relief Act of 2007

I received a 1099-MISC from the short sale lender. Is the income noted on the 1099-MISC taxable?

The Mortgage Forgiveness Debt Relief Act of 2007 provides tax forgiveness for certain short sale sellers, and such forgiveness depends on the taxpayer’s specific situation. Taxpayers who sold their home in a short sale during 2012 should seek the advice of an accountant in order to learn whether this Relief Act applies to their unique tax position.

What if the Mortgage Forgiveness Debt Relief Act doesn’t apply to my short sale?

Because the Mortgage Forgiveness Debt Relief Act of 2007 does not apply to everyone (e.g. if the home sold is not a qualified principal residence or due to bankruptcy), it is vital that taxpayers seek the advice of an accountant in order to learn about any other tax laws that may come into play in order to provide tax relief.

Is Relocation Assistance Money Taxable?

I received an incentive from the short sale lender? Do I have to pay taxes on the incentive?

According to the Internal Revenue Service, “Cash for Keys Program income, which is taxable, is income from a financial institution, offered to taxpayers to expedite the foreclosure process. Report this as ‘other income’ on Form 1040, line 21. The taxpayer should receive Form 1099-MISC with the income in box 3.”

I received an incentive from the short sale lender, but I did not receive a 1099-MISC. How should I proceed?

I’d bet dollars to doughnuts that short sale sellers often don’t receive the 1099-MISC because the short sale lender doesn’t have a record of the taxpayer’s new address. Speak with an accountant about how to proceed in this situation.

Common Problems with Relocation Assistance

My real estate agent told me that I was supposed to get relocation assistance money. We closed, and I received a 1099-MISC. However, I never got any relocation assistance money. What should I do?

All relocation assistance money is documented on the final settlement statement (also called a HUD-1) and payable to short sale sellers through the settlement agent at closing. If there is no line item for relocation assistance on the settlement statement and no notation on the short sale approval letter from the lender, then the bank did not approve the short sale assistance.

If there is a line item for relocation assistance and the seller did not receive the funds, contact the settlement agent for more information. In many cases, with prior written authorization of the short sale seller and the short sale lender, relocation assistance money is used in order to pay off non-institutional liens and clear the title for closing.

On the settlement statement, it shows that the buyer is paying the relocation assistance and not the short sale lender. Why would I receive a 1099-MISC from the short sale lender if the buyer paid the money?

Since any real estate sale requires that buyer funds be used to pay seller costs, the relocation assistance shows as a debit to the buyer and a credit to the seller. Of course, this is a credit to the seller from the short sale lender who retains all of the remaining funds at closing.

Short Sale Documentation

No matter when the short sale closes, all short sale sellers should retain copies of the short sale approval letters from the lenders and a final settlement statement from the closing agent. In this way, any questions that come up (no matter how far in the future) can be addressed quickly and efficiently.

Courtesy of your Arcadia Real Estate Agent

Filed Under: Brian Peralez, For Sale, Lending, Market, Mortgage Tagged With: , , , , , , , , , ,

U.S. Homeowners Are Repeating Their Mistakes

February 18, 2013 By 2 Comments
U.S. Homeowners Are Repeating Their MistakesPhoto illustration by 731: Hand: Getty Images

Global Economics

By Brendan Greeley on February 14, 2013

If there’s one thing Americans should have learned from the recession, it’s the importance of diversifying risk. Middle-class households had too much of their net worth tied up in their homes and were too exposed to stocks through 401(k)s and other investments.

Despite the hit many Americans took, there’s little sign they’ve changed their dependence on homes as the mainstay of their wealth. Last year, Christian Weller, a professor at the University of Massachusetts, looked at Federal Reserve data for households run by those over 50. The number of families with what Weller calls “very high risk exposure”—a low wealth-to-income ratio, more than three-quarters of their assets in housing or stocks, and debt greater than a quarter of their assets—had almost doubled between 1989 and 2010, to 18 percent. That number didn’t decline during the deleveraging years from 2007 to 2010; its growth just slowed to a crawl.

The Fed will conduct a new wealth survey in 2013, but don’t look for a rational rebalancing. The same pressures that drove families to save less before the recession are still in place: low income growth, low interest rates, and high costs for health care, energy, and education. Families have been borrowing less since 2007, but the rate of the decline has slowed. As soon as banks start lending again, Weller says, people will put their money back into housing. “The trends look like they’re on autopilot,” he says. “They don’t suggest that people properly manage their risk.”

In a 2012 paper for the National Bureau of Economic Research, economist Edward Wolff concluded that from 2007 to 2010, the median American household lost 47 percent of its wealth. Average wealth—a number that includes the richest Americans—declined only 18 percent. Houses make up a smaller share of the wealth of a rich family. The wealthy also benefit from better financial advice, Weller says.

A home is what economists call a consumption good; you have to live somewhere. It’s also a store of wealth. Unlike other assets, you can’t buy a portion of a house. “You want to consume a big home,” says Sebastien Betermier, an assistant professor of finance at Desautels Faculty of Management at McGill University. “But if you want to buy that home, it’s a huge investment—probably more than you really want.” Betermier, who studies consumers’ financial decisions, says homeownership makes it harder to diversify risk. Since 1983, for the richest 20 percent of U.S. households, the principal residence as a share of net worth has been around 30 percent. For the next 60 percent—most of us—housing has risen from 62 percent to 67 percent of total wealth.

To compound the problem, home equity dropped for this middle group even as home values rose. Rising house values, low interest rates, and easy refinancing encouraged property owners to take out home equity loans. And Wolff’s analysis shows the middle class reducing their cash cushion from 21 percent of assets, starting in the early 1980s, to 8 percent just before the recession. Cash is bad luck insurance; you pay a premium because you don’t earn a return on it, but it’s available in case of an emergency. Americans borrowed against their homes, spent the cash, and were left only with risk.

How can the middle class manage risk better? Financial education would help. Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania, is alarmed at how few people understand basic principles. “What we do know is that people who are more financially literate … do accumulate more wealth,” she says.

The other option is for banks to devise ways to reduce housing risk. When Weller worked as a banker in Germany in the 1980s, the bank would set up a savings account with automatic deposit for every mortgage customer. That way, the client would build up a cash reserve to pay the mortgage in a bad month. This remains a common practice in Germany, where banks hold on to their mortgages rather than securitize and sell them.

Weller, Betermier, and Mitchell agree that the mortgage interest deduction contributes to the problem, as it encourages families to move their assets into housing. “When people think about renting vs. buying, the tax subsidy looms large,” says Wharton’s Mitchell. Weller endorses an approach suggested by Senator Barack Obama in 2008: Turn the deduction, which lowers taxable income, into a flat credit, which cuts your tax bill by a fixed amount. That would lead to slower growth in house prices, says Weller, since the credit wouldn’t rise even if people took on a bigger mortgage to buy a more expensive house. As the price of housing climbs more slowly, the shift of a family’s savings into housing would.

In 1999, Robert Shiller of Yale University proposed a way to hedge house values. New owners would buy an option with their mortgage, tied to an index of house prices (such as the one developed by Shiller and Karl Case). The option would function as home value insurance. But “when you buy insurance and you don’t die,” says Shiller, “you think how I spent all this money and got nothing. It takes sophistication.” The problem with his idea, he says, as with similar approaches by the Bank of Scotland and Bear Stearns, was that house prices were rising. People don’t buy insurance for a risk they don’t see.

This leaves Shiller, like Wharton’s Mitchell, pushing for education. At the Obama Treasury several years ago, he suggested the White House hold conferences on housing risk. “They would invite top financial organizations,” he says, “and ask them ‘What are you doing about this?’ ” At the time, Treasury and the banks had more pressing things to do. The federal government could also resort to regulation. Shiller points to the example of Franklin D. Roosevelt, who mandated that homeowners buy fire insurance with their mortgages. “I think it could be expanded to home value insurance,” he says.

The best remedy of all would be a higher savings rate. Mitchell tells her daughters, who are in their twenties, to hold off buying a house and save 25 percent of what they earn. But, she says, “They don’t find this very helpful.”

 

The bottom line: Americans still have too much of their net worth tied up in their homes. There are limited options to encourage diversification.

 

Courtesy of your Arcadia Real Estate Agent

Filed Under: Arcadia Real Estate Agent, Brettany Harrison, Bussiness, Market, Trending Topics Tagged With: , , , , , , , , ,
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