As home prices fall further, is it time to buy?

By Diana Olick, CNBC.com

Updated 3/2/2012 6:00 PM

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 recently in an appearance on CNBC.

“It wouldn’t be an obvious mistake to buy a house now,” hedged famed economist Robert Shiller, barely a few hours later.

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

Around 73% of homes that 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, 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.

Copyright 2012 CNBC.com.

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Of Jobs, Loans and Timing

Mortgages

The New York Times

By VICKIE ELMER

Published: March 15, 2012

Mortgage experts generally recommend that homeowners complete their refinancing before making any major career changes, especially if they are planning to start their own business or become an independent contractor, in which case income may fluctuate.

“There’s no real reason to wait unless you don’t qualify” with current income, said Matt Hackett, the underwriting manager for Equity Now, a direct mortgage lender in New York City.

The job market has been steadily improving. The unemployment rate fell to 8.3 percent in February from 9.0 percent in February 2011. And data released this month from the Bureau of Labor Statistics shows that more people quitting their jobs this year are doing so voluntarily.

But depending on work history and mortgage lender, just being in the market for a new job might hinder a person’s ability to refinance or buy a home.

“If you’re actively looking to leave your job, it will impact how the bank views giving you a mortgage,” said Jason Auerbach, a divisional manager of First Choice Loan Services in Manhattan. The search raises “a question mark about their future employment” and income, he added.

In addition to checking employment at the start of the application process, many lenders will verify such information as late as the last 72 hours before mortgage closing. If they learn a borrower is starting a new job in the very near future, the mortgage can be delayed or even derailed. And borrowers who withhold such information could be committing income fraud, Mr. Auerbach said.

Other lenders, however, say they make loans based on a moment-in-time snapshot of a borrower’s finances.

“As long as the time when you’re closing that loan that you’re gainfully employed in the job that you said you were, you’re telling the truth,” said Heidi Yanavich, who trains mortgage loan originators at the McCue Mortgage Company, a direct lender in New Britain, Conn.

Still, Mrs. Yanavich said, the best path is to refinance first and change jobs afterward — especially if a borrower is changing careers. “Your success in a new field is not established,” she said.

An advantage to refinancing first is that “you are freeing up additional cash flow” by reducing your monthly payment, said Jodi Glickman, the founder of Great on the Job, a career-training company based in Chicago. Some job changers may earn less at first. “They are going to be assuming more risk,” she said, pointing out that they therefore need to reduce their financial risks.

All that said, however, there are advantages to refinancing later, especially for those who might have to relocate when they change jobs, Ms. Glickman said.

A person may well get a new job with more income and responsibility, or in an especially robust industry. That may help him or her qualify for a larger mortgage, or even better terms. According to Mr. Auerbach, you could be able to borrow up to four times your annual income.

Taking a new job right in the middle of a mortgage refinancing, though, could mean extra time and paperwork. Mr. Auerbach, for one, says he will very likely want to see an employment contract or a job offer letter.

Other lenders may want you to wait. Mrs. Yanavich says borrowers may need to provide 30 days of pay stubs and have their employer verify their employment and the time frame of any probationary period.

The Federal Housing Administration, along with Fannie Mae and Freddie Mac, requires 30 days’ pay stubs if the loans are going to be insured by or resold to those entities.

If you’re counting on a future bonus, expect to be asked for a letter from your employer verifying that, too.

“Today’s lending is pretty conservative,” Mrs. Yanavich said. “Incomes need to be documented.”

A version of this article appeared in print on March 18, 2012, on page RE9 of the New York edition with the headline: Of Jobs, Loans and Timing.

Homeownership can translate into tax savings

By Eileen AJ Connelly

Associated Press

Posted:   03/09/2012 03:25:22 PM PST

Updated:   03/09/2012 03:37:45 PM PST

 NEW YORK — Mortgage interest is just the beginning.

Owning a home can provide some significant advantages when it’s time to file your federal tax return. From green energy credits to deductions for damage from natural disasters, there are a number of items homeowners may be able to claim that could reduce a tax bill.

Most homeowners know that they can deduct the interest paid on up to $1 million in mortgage debt for their primary home. The interest paid on up to $100,000 of a home equity loan for the same home may also be itemized.

In most cases, it’s possible to deduct all of your mortgage interest, so long as you itemize your deductions. That opens up opportunities for other savings.

For instance, local property taxes may also be itemized. Although property tax rates vary widely across the country, this item alone can be a big win for homeowners in areas with heavy tax burdens.

Here are some other tax benefits homeowners should be aware of:

— Refinancing costs

Homeowners who refinanced their mortgage in 2011, and paid points or a fee based on the loan amount, may qualify for a deduction. However, unlike points paid on a new mortgage, those paid on a refinancing must be written off over the life of the loan.

Each point is generally equal to 1 percent of the loan. Say for instance, you paid 2 points on a $150,000, 30-year loan, or $3,000. You may claim $100 of that fee each year you own the home.

---

— Mortgage workouts and foreclosures

When a lender forgives debt, the amount forgiven is usually considered taxable income.

However, under a law passed in late 2007, taxpayers whose mortgage debt on their main residence was partly forgiven through a mortgage workout are generally able to exclude the forgiven debt from their income. The same goes for those who lost their homes through foreclosure and had some part of their debt written off because they owed more on the home than its market value.

In certain cases, however, some cancelled debt may be considered taxable income. This can be a complex situation and it’s best to get professional advice. Guidelines are available on the Internal Revenue Service website, http://1.usa.gov/pv8sN .

Taxpayers who lost money on a foreclosure generally may not claim a loss on their returns.

— Energy-efficient home improvements

This will be the last year that homeowners may claim credits for installing energy-efficient exterior windows and doors, heat pumps, furnaces and insulation under a law that expired on Dec. 31. Up to 10 percent of the price of the improvements may be claimed, said Jay Safier, a certified public accountant and principal with Rosen Seymour Shapss Martin & Co. in New York. There is a lifetime limit of $500, of which only $200 may be used for windows.

Homeowners who installed alternative energy equipment like solar water heaters, solar panels for electricity generation and certain wind or geothermal projects may receive a credit of up to 30 percent of the cost for the installation. There is no cap on this credit. Safier said you may include labor costs when figuring this credit.

Anyone who replaced an old household appliance like a dishwasher or refrigerator with a new energy-efficient unit may also be able to claim a small credit. The credits range from $25 to $225, and are based on the type of appliance and its energy efficiency.

— Medical-related expenses

A taxpayer or dependent who has a medical condition that requires renovation to a home may be able to claim the cost of that work as a medical expense.

Medical expenses are only deductible to the extent they total more than 7.5 percent of adjusted gross income, which is a high hurdle. But if you installed a ramp, widened doorways or did other work such as, lowering countertops to accommodate a wheelchair, it may be far easier to reach that threshold. That’s because such work generally counts as a medical expense, and may be added to more traditional costs like doctor bills and prescriptions.

One issue to watch out for, noted Jackie Perlman from the H&R Block Tax Institute, is that some improvements may add value to your home. A doctor may advise a disabled person to use a hot tub or swimming pool, for instance. The amount that could be claimed in such a case would be limited to the difference between the cost of the item and the value added to the home, she said. For instance, only $2,000 of a $7,000 hot tub installation that adds $5,000 to market value would qualify.

— Disaster losses

The first major disaster of 2011 was a Groundhog Day blizzard that brought Chicago to a standstill. Then hundreds of tornadoes swept through the Midwest and Southeast over the year, including the killer twister that leveled Joplin, Mo., on May 22. Wildfires in the drought-stricken Great Plains and Southwest; flooding along the Mississippi River and its tributaries; and Hurricane Irene, which left a path of destruction from North Carolina to Vermont, also contributed to the worst year on record. There were 99 separate federal disaster declarations in 2011.

The declarations made federal funding available to individuals and businesses. It also enabled them to claim disaster-related losses on their taxes. Typically the IRS requires that the first $500 in losses be deducted from any claims.

Perlman said homeowners may claim the losses on either the return filed during the year of the disaster — their 2010 return — or the following year. So it’s worth revisiting last year’s return to see if filing an amendment or claiming the disaster losses for 2011 would produce a bigger refund.

Likewise, taxpayers who live in Alabama, Alaska, Massachusetts, Oregon, Utah or Washington –where federal disasters have already been declared in 2012 — may be able to claim losses on their 2011 return when they file this year.

AP-WF-03-09-12 1823GMT

FHA mortgages are poised to get more expensive

The FHA plans to impose limits on the amount of money that home sellers can contribute at closing and to raise mortgage insurance premiums.

By Kenneth R. HarneyMarch 11, 2012

Reporting from Washington—

If you’re considering buying a house with an FHA mortgage and expect the seller to help out with your closing costs, here’s a heads-up: The Federal Housing Administration plans to impose significant restrictions on the amount of money that sellers can contribute at closing in the near future.

On top of that, the FHA also will be raising its mortgage insurance premiums during the coming weeks, increasing charges for new purchasers across the board.

You might ask, why hit us with additional financial burdens right now, just as housing is showing modest signs of recovery in many areas and the spring buying season is getting underway?

One big reason: Over the last six years, the FHA has been the turnaround champ of residential real estate, offering down payments as low as 3.5% despite the recession and housing bust and growing its market share to 25%-plus from 3%. The program is financing 40% or more of all new-home purchases in some metropolitan areas and is a crucial resource for first-time buyers and moderate-income families, especially minorities. With a maximum loan amount of $729,750 in high-cost areas, it is also a force in some of the country’s most expensive markets — California, Washington, D.C., New York and parts of New England.

But during the same span of rapid growth, the FHA’s insurance fund capital reserves have steadily deteriorated — far below congressionally mandated levels. Delinquencies have been increasing. According to the latest quarterly survey by the Mortgage Bankers Assn., FHA delinquencies rose to 12.4%, compared with a 4.1% average for prime (Fannie Mae–Freddie Mac) conventional fixed-rate mortgages and 6.6% for VA loans.

As a result, the FHA is under the gun — with Congress and within the Obama administration — to get its own house in order, cut insurance claims and rebuild its reserves. The upcoming squeezes on seller contributions and bumps in premiums are steps in this direction.

The seller-contribution cutbacks could be painful, particularly in areas of the country where closing costs and home prices are relatively high.

Here’s what’s involved: Traditionally the FHA has been uniquely generous in allowing home sellers — including builders marketing new construction — to sweeten the pot for purchasers by chipping in money to defray closing costs. The FHA now allows sellers to pay up to 6% of the price of the house toward their buyers’ closing expenses. Fannie Mae and Freddie Mac, by comparison, cap contributions at 3%. The VA’s ceiling is 4%.

Under newly proposed rules, the FHA cap would drop to the greater of 3% of the home price or $6,000. In sales involving houses priced at $100,000 or less, this wouldn’t change anything ($6,000 equals 6% of $100,000). But on all sales above this threshold, the squeeze would get progressively tighter.

On a $200,000 home, a buyer could today ask the seller to pay for $12,000 of a long list of settlement charges including all prepaid loan expenses, discount points on the loan, interest rate buy-downs and upfront FHA insurance premiums, among others. Under the proposed cutback, the maximum amount would be slashed in half.

On many home transactions, the reductions would force sellers to lower their prices to enable cash-short buyers to get through the closing. In other cases, sales might simply be too far of a stretch for some purchasers.

The proposed cuts are open to public comment through the end of this month but are highly likely to be adopted in much the same form soon afterward. The FHA also is restricting the types of “closing costs” that sellers can pay. Six months’ or a year’s worth of interest payments or homeowner association dues in advance no longer will be permitted — a serious blow to many builders who use these as financial carrots.

Beyond these changes, FHA also plans significant increases in insurance premiums — upfront premiums will rise to 1.75% from 1%, effective April 1, and annual premiums will increase by 0.1% on all loans under $625,000 and 0.35% on mortgage amounts above that, effective June 1.

William McCue, president of McCue Mortgage Co. in New Britain, Conn., which does a sizable percentage of its business with the FHA, said the cumulative effect of all these increases “will not just crowd first-time buyers out of the FHA market, it will prevent them from owning a home that, absent these new costs, would be affordable.”

Bottom line: Nail down your FHA money and seller-contribution negotiations as soon as you can because later looks a lot more expensive.

kenharney@earthlink.net

Distributed by Washington Post Writers Group.

Copyright © 2012, Los Angeles Times

Points Lose Favor

Mortgages

The New York Times

By VICKIE ELMER

Published: February 23, 2012

WITH interest rates at or near record lows, many borrowers are seeing little reason to pay points when buying or refinancing a home. Some are even opting for what’s known as “negative points,” agreeing to a slightly higher rate to help pay closing costs.

The trend away from points, which buy down the interest rate in exchange for an upfront fee, partly reflects borrower sentiment that rates are already low enough, the industry experts say.

In New York and other areas with a mobile population, many people avoid mortgages with points, because they know they won’t be staying put long enough to break even on the costs, which typically takes five to seven years, according to Norman Calvo, the president of Universal Mortgage, a mortgage broker in Brooklyn.

“If you’re young and buying your first apartment,” Mr. Calvo said, “chances are you’re going to be moving on.”

Only about 5 percent of Universal’s customers pay points, he said. Nationwide, 32 percent of loans for purchases had paid points in December, down from 47 percent in December 2008, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

A point equals 1 percent of the loan amount, so paying one point on a $250,000 refinancing costs an extra $2,500 at closing, atop other mortgage fees, taxes and escrow amounts. Paying a point usually reduces the interest rate by 0.25 points over its term, so for instance instead of 4 percent, the rate is 3.75 percent.

The average number of points paid in 2011, according to a Freddie Mac survey, was 0.7 percentage points, less than half the levels people paid in the 1990s. The average has been 0.7 percent for three years, after it hit a low of 0.4 percent in 2007; in 1995 it averaged 1.8 percent, according to Freddie Mac data.

The chief advantage to paying points is you lower your rate and your monthly payment based on a one-time charge, said Neil Diamond, a mortgage banker with Legacy Real Estate in Commack, N.Y. Your mortgage professional should take time to find out what works for your circumstances, then structure the loan and fees and commission accordingly, he said.

So how do you know if paying points is worthwhile? There are two key considerations: how long you plan to live in a home, and how much you can afford in closing costs.

Many mortgage professionals suggest a rule of thumb on living in a home for at least five years to reap the savings. Others suggest doing an analysis of your financial goals, along with a direct comparison of no-point and point mortgages. Once you’ve filled out a mortgage application, ask for good-faith estimates on both options, said Chanda Gaither, a housing counselor with La Casa de Don Pedro, which works on affordable housing and neighborhood development in Newark.

People should also consider how much cash they have in reserve for emergencies and unexpected housing costs, Ms. Gaither said; that may be more important than a slightly lower rate.

Sometimes a seller will offer to pay a point or two on the mortgage as a concession. But, “with rates as low as they are, people are not coming out of their pockets to pay for points,” especially for refinancings, said Russell Tucker, a senior vice president of Investors Home Mortgage in Short Hills, N.J.

Some borrowers, meanwhile, go for negative points, which is also called a lender rebate or points in reverse. In exchange for accepting a higher rate, the lender agrees to give the borrower a credit, which is usually used for closing costs.

Mr. Calvo says these rebates can be “a really, really great option” to defray costs, especially for larger mortgages. He said he recently closed a $2 million loan on which the borrower agreed to accept a rate of 4.75 percent, instead of 4.5 percent, in exchange for a $20,000 credit in closing costs.

A version of this article appeared in print on February 26, 2012, on page RE5 of the New York edition with the headline: Points Lose Favor.

California home prices down due to distressed properties

Los Angeles Business from bizjournals by Michael Shaw, Staff Writer

Date: Wednesday, February 15, 2012, 1:45pm PSTRelated:

California home prices decreased in January as sales shifted toward “distressed” property and brought the average lower, according to the California Association of Realtors.

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Michael Shaw

Staff Writer – Sacramento Business Journal

Email  | Twitter  | LinkedIn  | Facebook

California home prices decreased in January as sales shifted toward “distressed” property and brought the average lower, the California Association of Realtors    said Wednesday.

The median price of a single-family detached home fell to $268,280 in January, down 6.7 percent from $285,920 in December. The median price also dropped 3.9 percent from $279,220 median price recorded in January 2011, the organization said.

The number of home sales statewide also decreased from December and January 2011.

Closed escrows of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 517,740 in January, according to information collected from more than 90 Realtor associations and multiple listing services. That’s down 0.6 percent from December

“The decline in the January median home is largely a reflection of an increase in the share of distressed home sales,” association chief economist Leslie Appleton-Young said. “Seasonal factors in the non-distressed market also played a role in the softening of the median home price, as prices typically decline in the non-peak home buying season.”

California’s housing inventory rose in January, with approximately 5.5 months of inventory at current sales rates. The median number of days it took to sell a single-family home was 61.9 days in January.

Michael Shaw covers real estate, construction and state government for the Sacramento Business Journal.