Real Estate Investment

Entering the Fourth Phase of the US Housing Recovery by Lennox Scott

June 20, 2012 By EmmanuelFonte Leave a Comment

Five years ago, the U.S. government took unprecedented measures to end the subprime mortgage crisis. Since that time we have seen the rolling aftermath. Underwater home owners, short sales, and foreclosures cast a dark shadow over the market. The federal government and the real estate industry have been focused on three pressing issues since then:

· Helping distressed owners stay in their homes.

· Moving the housing recovery and US economy forward.

· Creating an environment for a sustainable housing market.

Many strategies have been attempted since the financial meltdown to turn real estate around. The creation of the FHFA (Federal Housing Finance Agency) and its conservatorship of government-sponsored enterprises Fannie Mae and Freddie Mac ensured a flow of capital to the housing market. The home buyer tax credit, loan-modification refinancing reforms, and the efforts to streamline the short-sale process have given buyers and sellers the tools they need to navigate their way through the tumultuous market.

We are now on the road to not just a temporary recovery but a sustainable recovery. What follows is an explanation of how we got here and how to continue down a positive, sustainable path.

Phase 1, 2009 to Spring 2010: The Home Buyer Tax Credit

The home buyer tax credit worked. It helped bring buyers into the marketplace at a critical time, in particular first-time home buyers. This phase of the recovery helped slow the steadily declining US economy. By the fall of 2008, the Consumer Confidence Index had dropped from 117 (100 being a healthy number) to a staggering 25. We have since seen the Consumer Confidence Index return towards the 70s.

Phase 2, Fall 2010 to Fall 2011: Residential Investors

Around November 2010, everything began to come together to create an opportunity for investors. The Federal Reserve purchased mortgage-backed securities to lower interest rates. This, combined with the lower adjusted prices, created a positive cash flow possibility for investors. They came out in force, snapping up a great deal of the glut of homes on the market with purchases of foreclosures and short sales. This helped to reduce inventory and stabilize values of homes below the median price-points in many areas.

Phase 3, Fall 2011 to Present: Surge of Local Home Buyers

Moving forward to November 2011, the backlog of local home buyers started coming forward to purchase homes, taking advantage of the historically low interest rates and lower adjusted prices. In particular, the low interest rates pushed the National Housing Affordability Index to the highest level since recording began.

This surge in local home buying caused a chain reaction of sales up through various price points, which also reduced inventory in the mid-price ranges. In certain markets with strong job growth, sales activity also increased in the upper end, supported by the rise of high-balance loan limit financing.

Phase 4, Creating a Sustainable Housing Market

In the coming years years, the residential housing market will be entering the fourth phase of its recovery — sustainability. The fourth phase will feature a return of the first-time home buyers. The group leading the charge in this sustainability phase will be the “echo boom” generation — also known as Millennials — who are now 17-31. A recently released Homebuyer Poll from TD Bank, reveals that the vast majority, 84 percent, of the Millennial generation intend to buy a home.

To help this generation of home buyers achieve the American Dream and create a sustainable housing market, we must create a healthy environment for them. This is a critical year for the future of housing. Several major decisions will be discussed and decided within the next year that will set the foundation for a sustainable housing market. Qualified residential mortgage (QRM) regulators have recommended, among other things, that a 20 percent down payment be required for a home purchase. This could devastate the market by excluding up to 30 percent of potential home buyers.

Reform and replace Fannie and Freddie with a transparent federal government support system necessary for keeping a secondary home finance securities market to attract world investors to purchase U.S. mortgage securities. The FHA’s 3.5 percent core down payment financing, USDA rural home financing, and high-balance loan limits for credit worthy home buyers are solid programs that should be continued and made permanent in order to have a sustainable housing market after the surge of backlogged local home buyers and residential investors pass through the market.

While the housing market continues to gain strength, we must maintain the solid programs and tax incentives we currently have in place in order to build a sustainable foundation for the future of housing.

BY:Lennox

Filed Under: Blog, Economy, Real Estate, real estate financing, Real Estate Investment

Obama’s May Housing Scorecard: Market Stabilizing

June 7, 2012 By EmmanuelFonte Leave a Comment

The latest Housing Scorecard from the Obama administration showed real estate stabilizing in every region of the country, but it still has a long way to go in the road toward full recovery.

Existing-home sales increased 2.4 percent in April, according to the Obama administration’s Housing Scorecard for May. Sales also continued to outpace inventory levels. The inventory of homes for sale decreased to 5.1 month supply in April from 5.2 months in March. Also, according to the report, the inventory of newly constructed homes rose for the first time since April 2007.

HUD Acting Assistant Secretary Erika Poethig also notes that more borrowers are taking advantage of the government’s refinance programs to lower their mortgage payments, and adds foreclosure starts are declining.

“But with so many households still struggling to make ends meet it’s clear that we have more work ahead," Poethig says.

Underwater mortgages continue to threaten the market recovery, the report notes. The number of borrowers who owe more than their home’s current value rose to more than 11 million. Seriously delinquent subprime mortgages also are on the rise.

To read the full report, visit www.hud.gov/scorecard.

Source: U.S. Department of the Treasury

Filed Under: Blog, Economy, Real Estate Investment, Real Estate Updates

What Foreclosure Wave? False Alarm?

May 4, 2012 By EmmanuelFonte Leave a Comment

Since I am involved in the John L. Scott Foreclosure Team, I see what happens every Friday at auction. The amount of homes sold at auction is pitifully small. Those I work with don’t see a flood coming. The banks are starting to realize the folly of some of their choices.

Many housing experts for months have been warning a foreclosure wave would soon flood several markets throughout the country. But was it all a false alarm?

Recent surveys have shown that foreclosure sales have dropped to their lowest point in more than two years. And while according to March data, 8 percent more homes did enter the foreclosure process from the previous month, that number is down more than 30 percent from a year ago, according to Lender Processing Services.

CNBC real estate reporter Diana Olick notes that it could be another delay in the foreclosure system “as banks try to modify more loans to meet some of the terms of the [$25 billion] servicing settlement. The foreclosure sales decline also appears to be exclusively in private and portfolio loans, which again points to the settlement.”

Meanwhile, banks are increasing their number of short-sale transactions, and some surveys have shown that short sales are actually now outpacing foreclosure sales — the first time that’s ever occurred.

“Lenders are increasingly recognizing that short sales may be a better alternative for them than foreclosure,” RealtyTrac’s Daren Blomquist told CNBC. “This trend began in markets with stronger demand and where the distressed inventory tends to be newer homes (Phoenix, Los Angeles, Las Vegas), but the trend appears to be spreading to other markets like Atlanta and Detroit.”

Source: “Flood of Foreclosures Still Fails to Materialize,” CNBC (May 2, 2012)

Filed Under: Blog, Real Estate Investment Tagged With: foreclosure

Single Family Rentals Now Exceed Multifamily

April 24, 2012 By EmmanuelFonte Leave a Comment

While inventories of homes for sale have been shrinking this spring, MLSs are filling the void with rental listings for single family homes that until recently were foreclosures. Some 16.1 percent of all listings on MLSs today are rentals, more than double the number in 2006, according to some reports.

Single family rentals are $3 trillion business today and growing as investors turn to real estate and opt to rent out the bargains they buy until prices improve. Today the single family rental market accounts for 21 million rental units or 52 percent of the entire residential rental market, according to a new study by CoreLogic economist Sam Khater.

Yet the single family rental market is poorly understood and almost invisible to economists and journalists because virtually all rental market data tracks multifamily properties and either ignores the single family segment or lumps it together with multifamily.

“Single family rentals are very distinct from multifamily and they behave very differently,” said Khater in an interview with Real Estate Economy Watch. For example, on a per unit basis, rents for single family rentals run 1.5 to 1.6 times higher than multifamily. Unlike multifamily, millions of single family rentals are listed on MLSs by real estate brokers, many of who represent new owners in acquiring investment properties. As the for-sale inventory has trended down since 2005, the rental share rose 13.3 percent last year alone. As of the end of last year rental closings were up 11.5 percent year-over-year while prices fell 9.8 percent during the year. Demand is strong. The national average months’ supply for single family rentals was 4.5 months in December compared to 6.2 months for homes listed for sale.

Another important difference is the nature of the tenants. Single family rentals, usually stand-alone properties in ownership settings, appeal more to families. In fact, the typical SFR tenant is a family that has just left a foreclosure and can afford to pay the rent on a former foreclosure but could not make the mortgage payment on their old home, perhaps because they bought with alternative financing or purchased at the peak and could not get a modification when their home lost value. Over the past five years, foreclosures have turned more than 3 million homeowners into renters. Typical multifamily tenants, however, are younger, generally single and more mobile, and have never owned a home.

Khater found a strong relationship between distress sales markets and single family rentals. Census data shows a correlation between single family rentals and the hardest hit areas of the so-called “sand states”-Arizona, California, Florida and Nevada.

Investors buying REOs and short sales in foreclosure markets convert them to rental units and homeowners in the same locale who have lost their homes to foreclosure rent homes that until recently were owned by other families who suffered the same ill fortune.

For more information, visit www.realestateeconomywatch.com

Filed Under: Blog, Real Estate, Real Estate Investment

Rents On the Rise

April 23, 2012 By EmmanuelFonte Leave a Comment

It may be time to pull the trigger and buy that investment property you’ve been considering. The greater Seattle area have several opportunities.

Filed Under: Blog, Economy, Real Estate, Real Estate Investment

10 THINGS TO KNOW BEFORE YOU BUY A CONDO

April 9, 2012 By EmmanuelFonte Leave a Comment

Are you considering a condominium purchase? Here are some tips to keep in mind before you sign on the dotted line. You are about to buy into a group, and the rules of the group rule the way you can live. Here are the 10 questions buyers should ask when deciding whether to purchase a condominium unit:

1. What is the monthly condominium fee (dues) and what does it pay for? The monthly condominium fees vary dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation.

2. What are the condominium rules & regulations? Condominium rules can prohibit pets, your ability to rent out the unit and to perform renovations. Make sure you carefully review ALL the rules and regulations before buying. I counsel my clients to have a substantial amount of time to review and approve all condominium documents, including the master deed, declaration of trust/by-laws, covenants.

3. How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more.

4. Are there any contemplated or pending special assessments? Special assessments are one-time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands. You need to be aware if you are buying a special assessment along with your unit. It’s a good idea to ask for the last 2 years of condominium meeting minutes to check what’s been going on with the condominium.

5. Is there a professional management company or is the association self-managed? A professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas.

6. Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers, or with the association can signal trouble and/or a poorly run organization. Legal action equals attorneys’ fees which are payable out of the condominium budget and could result in a special assessment. In most states, you can run a search of the condominium association in the court database to check if they’ve been involved in recent lawsuits.

7. How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues. It can also raise re-sale and financing issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates. This is vital considering your exit strategy and the financing available to the next buyer when you are ready to sell the condo.

8. What is the condominium fee delinquency rate? Again, a signal of financial trouble, and Fannie Mae and FHA want to see the rate at 15% or less.

9. Do unit owners have exclusive easements or the right to use certain common areas such as porches, decks, storage spaces and parking spaces? Condominiums differ as to how they structure the “ownership” of certain amenities such as roof decks, porches, storage spaces and parking spaces.

10. What Does The Complex Insurance Policy Cover? For a buyer’s own protection, they should always buy an individual HO-6 policy covering the interior and contents of the unit.

Your representative is your best asset. I commit myself to cultivating relationships with the other agents in my area. good communication is your best tool in making these important decisions. Let me know how I can help: 206-713-3244 or email me.

Filed Under: Blog, Real Estate, Real Estate Investment Tagged With: buying a condo

Canadian VS. American Homeowners

March 15, 2012 By EmmanuelFonte Leave a Comment

I have lived in both countries. I have owned real estate in both countries. The financial component is what I have found to be the major difference.

What do you think about the comparison?

Filed Under: Blog, Real Estate, Real Estate Investment

As Home Prices Fall Further, Is it Time to Buy?

March 5, 2012 By EmmanuelFonte Leave a Comment

Nobody wants to catch a falling knife. It is as simple as that. If potential buyers see continued home price erosion, they will stay parked on the sidelines. But as with everything else in this unique and historic housing market, perhaps the usual logic doesn’t apply.

“Housing is one of the great investments right now. I tell people all the time when they come up to me, they say, “What should I do, Mr. Trump?” I say go buy a house,” said Donald Trump on CNBC.

“It wouldn’t be an obvious mistake to buy a house now,” hedged Robert Shiller, barely a few hours after Trump made his statement.

Perhaps they were just jumping off Warren Buffett’s declaration yesterday that if he had a way to manage them, he would buy a couple of hundred thousand single family homes and rent them out.

Look past national headlines.

Housing appears to be rated a “buy” these days, especially among investors, who see a ripe and rising rental market and big potential for income. But is it the right time yet for what I call “organic” buyers to get in? By this, I mean people buying a home to actually live in it, raise a family in it, let the dog run around in the back yard. If prices are still falling, couldn’t an even better deal be waiting down the road a bit?

No. House prices will continue to fall on a national basis, at least through 2012, but you have to look past national headlines to your local market, which is likely already recovering nicely. The trouble with the national numbers is that they are heavily weighted toward the lower end of the market and to the distressed end of the market.

The sweet spot.

Around 73 percent of homes sold in January were priced below $250,000, according to the National Association of Realtors. Forty-seven percent of homes sold that same month were considered “distressed,” which is either a foreclosure or a short sale (where the lender allows the borrower to sell for less than the value of the mortgage). With all the activity in these areas, it’s no surprise that prices skew lower.

The $250,000 to $500,000 price range may now be the sweet spot for the market. Sales in January were up in this price range, and if you have good credit, you are within GSE and FHA loan limits in most markets. While FHA just raised its insurance premiums, which may hurt much-needed first-time homebuyer demand, it is still one of the best loan products out there today, especially for those with lower down payments.

You cannot time housing any more than you can time the stock market.

True, housing moves far more slowly, but that works to its benefit, as prices don’t rise and fall on daily news or even on major events. Sales have clearly bottomed in housing, and prices always lag sales. They will lag longer this time around, no question, but they will come back. Supply and demand will eventually win out, even after an historic crash. If you can’t get a good mortgage now, then perhaps it’s not your time, but if you can, waiting may not buy you much.

“As Home Prices Fall Further, Is It Time to Buy?” was provided by CNBC.com.

Filed Under: Blog, Real Estate, Real Estate Investment Tagged With: buy real estate

Your Home Tax Benefits

February 27, 2012 By EmmanuelFonte Leave a Comment

As you file your 2011 taxes, this is a good time to think about how you can make the most of certain tax benefits now or in your future. For example, if you became a homeowner last year, you are now eligible to take advantage of one of the smartest ways to reduce your taxes.

You can deduct your mortgage interest payments: Typically, the biggest tax advantage of home ownership is that you can deduct the interest you pay on your mortgage. That means the mortgage interest you paid during 2011 can be deducted on your 2011 tax return. As long as your mortgage loan amount is lower than the price of your home and is less than $1.1 million, it’s usually deductible unless you’re in a particularly high tax bracket.

In the early years of owning a home your mortgage payment is mostly interest, so the amount you deduct can really add up. But remember: to take advantage of this tax benefit, you must file IRS Form 1040 (Schedule A) and itemize your deductions.

Your property taxes are deductible, too: In addition to deducting your mortgage interest, you can deduct the property taxes you pay for both a first home and a vacation home. If your property taxes are held in an escrow account, be sure to deduct only the amount that has actually been paid out. Also, if you receive a local tax refund (from the state or county, for example), you’ll need to subtract the amount of the refund from your deduction.

When you buy your house, if your closing date is not on the first day of the month, you may have to pay pro-rated property taxes in addition to prepaying your mortgage interest. If you do, the extra taxes and interest are tax-deductible.

Do the math: When it comes to reducing taxes, home ownership is “the gift that keeps on giving.” Year after year, you can deduct your mortgage interest and property taxes, lowering the Federal Income Taxes you have to pay. Here’s how it works:

taxesblog_022412

Essential tax-time documents: Whether you complete your taxes on your own or go to a CPA, make sure you have what you need to maximize your real-estate tax benefits.

IRS Publication 530 (2011)

From the U.S. Government, this is essential tax information for homeowners. This includes 2011 changes and upcoming changes in 2012.

1098 Form

Issued by your lender, this form shows you the mortgage interest and real estate taxes you paid in a given tax year; both are tax-deductible.

IRS Form 1040

If you want to qualify for home-mortgage interest and real-estate tax deductions, you must itemize your deductions on IRS Form 1040 (Schedule A).

HUD1 Settlement Statement

This form indicates the “points” you or your seller paid when you purchased your home; sometimes you can deduct the full amount in the year you bought your house. You can even deduct the points your seller paid, if they don’t deduct them.

A few pointers on “points”

Known by a variety of names, including origination fees, loan discounts and broker discounts, points are the money you pay your lender as part of your closing costs. A point is equal to 1% of your mortgage. You can deduct the points for the year in which you pay them if your mortgage loan is for the house you live in most of the time. In order to qualify as a deduction, the amount you pay in points must be less than the amount of your down payment. So let’s say you make a down payment of $25,000; if you pay $24,999 or less in points to your lender, you can deduct it.

Sometimes the seller pays the points; you can deduct them, too, so long as your seller doesn’t. The points must be clearly shown in your HUD1 Settlement Statement.

Home Affordable Modification Program (HAMP)

If you benefit from Pay-for-Performance Success Payments, the payments are not taxable under HAMP.

Record of home improvements

Be sure to keep accurate records of any home improvements you make. Though not deductible, these costs are added to the value of your house when your capital gains are calculated. If you live in your house for at least two of the last five years and decide to sell, any profit you make up to $500,000 ($250,000 if you’re single) is yours—tax-free.

Moving expense records

If you moved for a new job, or because your employer changed location, you may be able to deduct some of your moving expenses.

Finance your home improvements the tax-deductible way

When you take out a first or second mortgage to buy a home, build one, or improve it, whether that means updating your kitchen, adding a new roof or undertaking an extensive remodel, the IRS calls that mortgage “home acquisition debt”—and it’s a great way to gain tax benefits while upgrading your home.

For most homeowners, the interest you pay on home acquisition debt is tax-deductible on loans up to $1 million for married couples filing jointly and $500,000 each for couples filing singly.

If you’d like to know more about the tax benefits that you, as a homeowner, are eligible for, visit www.irs.gov or consult a certified public accountant.

Filed Under: Blog, Real Estate Investment Tagged With: taxes