Falling Foreclosures Pushing Up Home Prices
October 18, 2012 By Leave a Comment
As foreclosure backlogs have decreased, so have many of the big discounts on home prices. The slowdown in foreclosures is partially behind the recent rise in home prices, some economists say.
“Deeply discounted existing homes have been subject to strong demand from cash buyers and investors looking to lock into housing’s attractive income returns,” says Paul Diggle, a housing economist at Capital Economics. “The supply of such homes, meanwhile, has been dwindling. That has bid up existing house prices, particularly at the lower end of the price spectrum."
The median price of existing homes nationwide was 9.5 higher in August compared to a year ago, and new home prices were up 17 percent in that same time period.
Distressed properties typically sell for big discounts. For example, in 2007 during a nationwide foreclosure surge, foreclosures tended to sell for about a third of the median price of the home. The housing markets with some of the largest price falls tended to have the highest number of distressed home sales.
Lately, foreclosures have been posting big drops. Last month, new foreclosure filings reached a five-year low, according to RealtyTrac, a real estate research firm that tracks foreclosure housing data.
“There is a shortage of inventory — as crazy as it sounds to say that,” says Daren Blomquist, a RealtyTrac spokesman. “In a lot of market there’s less inventory of foreclosed properties than there is demand. You’re hearing about multiple bids for these properties.”
Source: “Foreclosure Slowdown Pushing Home Prices Higher,” NBC News
House Flipping Returns Due To Demand, Inventory Shortage
October 12, 2012 By Leave a Comment
The housing market is picking up steam like a freight train, but we’ve unfortunately run into a major roadblock: lack of inventory. Tons of homebuyers are actively searching for their dream home, however their search has turned into more of a journey.
The problem is that a vast majority of homebuyers, especially first-time buyers, prefer move-in ready properties. They’re simply looking for a roof over their head, not an enormous home improvement project. Renters feel exactly the same way and either run from outdated properties or squeeze landlords for a rock bottom price.
Due to high demand, house flipping is making a major comeback with real estate investors scooping up properties left and right. In fact, according to the National Association of REALTORS®, investors purchased 18 percent of houses in the U.S. in August 2012. The properties will either be remodeled and rented, or flipped for profit within a short amount of time.
Lawrence Yun, NAR chief economist, stated: “The West and Florida markets are experiencing inventory shortages, which are placing pressure on prices.” To capitalize on such shortages, house flippers are flocking to Florida and the West Coast.
When flipping houses, investors tackle two things first: kitchens and bathrooms. “People buying a house look first at kitchens and baths,” says Kermit Baker, director of the remodeling futures program at the Joint Center for Housing Studies at Harvard University. Plus, statistics show that bathroom and kitchen upgrades are one of the best ways to boost interest as well as value.
As house flippers continue to purchase and remodel properties, we can expect the quality of homes for sale to improve. Hopefully higher quality listings will spur more home sales.
source: Fix&FlipNet
A Home’s Worth: Value, Price and Cost: How They Work Together
October 12, 2012 By Leave a Comment
For homebuyers, determining what a home is worth requires systematic analysis, careful thought, and some guts.
Value
The value of a property is established by the prospective buyer. Market value is an opinion of what a buyer thinks the home is worth, based on how it will be used. Value is calculated based on one’s lifestyle, so it is different for each perspective buyer. For example, a home near public transportation could be more valuable for someone who does not drive than it would be for someone who does. Buyers with children, may consider a home in a particular school district more valuable than another.
Price
Price is what the home should be worth in today’s market. Occasionally, a seller doesn’t price the home right, so what a buyer must do is an analysis to determine the fair market value of the property. This is what the seller should reasonably be asking for. Similar, recently sold properties (six months or less), should be used to establish fair market value. They should be similar in size and upkeep to the property you are considering. Of course, the current condition, location and surroundings, as well as the view from the property, can all affect the price of a house.
Cost
Typically, sellers believe a house is worth what they paid for it, in addition to how much was spent on improvements. In reality, when a seller improves a home, the value of the property is increased, not the cost. Since value is based on the buyer’s preferences, improvements and other extras are all subjective. A seller could receive dissimilar offers from potential buyers because they have made personal decisions about the home’s value. When a homeowner makes improvements, they receive benefits from those choices and if they remain in the property, derive pleasure from that investment. When those improvements are very specific, or personalized, they may not received the monetary benefits they expected.
If you or someone you know is considering buying or selling a home, contact me so that we can analyze the situation together.
Cost of a Home: Impact of Interest Rates
October 12, 2012 By Leave a Comment
The buyer should always look at the COST of a home, not just the PRICE. The cost is determined by the price and the mortgage interest rate which is available at the time. Below is a list of the interest rates over the last ten years and the impact they have on a $100,000 mortgage payment.
CoreLogic: falling shadow inventories foreshadow rise in prices
October 10, 2012 By Leave a Comment
Reporting for July (the most recent month available), CoreLogic notes that shadow inventory levels are falling across the board, but notes that this is an indicator that housing prices will continue rising.
Shadow inventories on the decline
According to information provider, CoreLogic, the current residential shadow inventory as of July 2012 fell to 2.3 million units, representing a supply of six months, and a 10.2 percent drop from July 2011, when shadow inventory stood at 2.6 million units (approximately the same level the country was experiencing in March 2009).
CoreLogic notes that as of July, the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been roughly offset by the equal volume of distressed (short and real estate owned) sales.
“Yet another hopeful sign”
“Broadly speaking, the shadow inventory continued to shrink in July,” said Anand Nallathambi, president and CEO of CoreLogic. “The reduction is being driven by a variety of resolution approaches. This is yet another hopeful sign that the housing market is slowly healing.”
“The decline in shadow inventory has recently moderated reflecting the lower outflow of distressed sales over the past year,” said Dr. Mark Fleming, Chief Economist for CoreLogic. “While a lower outflow of distressed sales helps alleviate downward home price pressure, long foreclosure timelines in some parts of the country causes these pools of shadow inventory to remain in limbo for an extended period of time.”
Digging deeper in to the six months’ supply
As of July 2012, CoreLogic reports that the shadow inventory fell to 2.3 million units, or six-months’ supply, and represented just over three-fourths of the 2.7 million properties currently seriously delinquent, in foreclosure, or in REO.
Of those 2.3 million units, 1.0 million units are seriously delinquent (2.9 months’ supply), fully 900,000 are in some stage of foreclosure (2.5-months’ supply) and 345,000 are already in REO (1.0-months’ supply).
The dollar volume of shadow inventory was $382 billion as of July 2012, down from $397 billion a year ago and $385 billion last month.
Regional performances varied
Serious delinquencies, which CoreLogic calls “the main driver of the shadow inventory,” declined the most from April 2012 to July 2012 in Arizona (3.2 percent), Pennsylvania (2.8 percent), New Jersey (2.3 percent), Delaware (2.2 percent), and Maine (2.2 percent).
As of July 2012, Florida, California, Illinois, New York and New Jersey make up 45 percent of all distressed properties in the country.
Note: as of this month, CoreLogic has adjusted the methodology for this report, which they say will improve accuracy. Full details here.
Source: Tara Steele in Economy, News – October 9, 2012
Morgan Stanley Makes Bold Prediction on Housing
October 4, 2012 By Leave a Comment
Investment firm Morgan Stanley has high hopes for the housing market’s recovery this year and next.
"We expect to see 2012 end with an increase of 7 to 9 percent for the year in aggregate home prices after considering seasonality effects for the remainder of the year, with the possibility of a 10 to 12 percent increase on the bullish side and a 4 to 6 percent increase as the bear case," according to Morgan Stanley analysts in its latest Housing Markets Insight report. "We view the bear case outcome to be relatively less likely."
Morgan Stanley analysts say that home shoppers need to have more access to credit in order to finance their home purchases to keep the housing recovery strong. A tight lending environment has kept many would-be buyers out.
"Recent actions by the Federal Reserve, the commitment to keep interest rates lower for longer as well as the launch of an open-ended QE3, convince us that this low mortgage rate environment and the demand response for housing are likely to prevail for an extended period — well into the future," the Morgan Stanley analysts conclude.
Source: “Morgan Stanley Declares Housing Out of the Woods,” HousingWire
Will The Mortgage Forgiveness Act Be Extended?
October 4, 2012 By Leave a Comment
As the year winds down, we are getting more and more inquiries about the Mortgage Forgiveness Debt Relief Act of 2007 and whether or not it will be extended past its original expiration date of December 31, 2012. This is important as people who are selling their home through a short sale may be faced with a tax liability if they don’t close by the aforementioned date.
Here is the way the IRS explains the tax liability:
“If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.”
What does the Act accomplish?
Let’s go back to the IRS for the explanation:
“Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”
(For more information on the ACT from the IRS, click here)
This relief also applies to most short sales. Therefore, the question of whether or not the Act will be extended is crucial for anyone considering selling their house through the short sale process.
Will the Act be extended past the end of the year?
No one knows for certain. Diana Olick of CNBC recently reported on the issue:
“So what is the possibility of congress extending the tax relief? One Hill-watcher puts it at 60-40. The Senate Finance Committee passed a package of tax extenders right before the recess, including a one year mortgage relief extension, but leadership in the House of Representatives has not figured out how it wants to handle these extenders. With the looming ‘fiscal cliff,’ tax cuts are an increasingly tough sell. This particular extension does have bipartisan support, but that doesn’t always mean passage in Congress, especially around a presidential election.”
Without knowing whether the Act will be extended, we suggest anyone considering selling via the short sale process do it now.
Source: KCM