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Housing Inventory Shortage Causing Problems
The National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI) fell 0.4 percent to 104.8 in January, the third month-over-month decline in the last four months.
NAR chief economist Lawrence Yun attributed the drop in the PHSI to weak inventory of existing homes for sale.
If more sellers don’t start listing homes for sale soon, the real estate comeback could be in trouble due to a lack of homes to be sold to prospects looking to buy. A lack of inventory has led to bidding wars in many markets as foreclosures have waned and cheap financing has lured a host of new buyers into the market. The competitiveness has resulted in rising prices.
Yun expects the inventory shortage will be relieved by an uptick in construction of new single-family homes, though single-family home completions regularly exceed new home sales. Government reports indicate builders have shifted from construction of single-family homes to multifamily, suggesting reluctance among younger, first-time homebuyers who witnessed the impact of the housing meltdown.
The month-over-month trend in sales correlates inversely with the movement in the median price; that is, when the median price falls, sales improve, as happened four times in the last 12 months.
According to the latest existing home sales report—which tracks closings—there were 1.94 million homes for sale at the end of February, a 4.7-month supply. The number of homes for sale has averaged 2.19 million for the last 12 months, down from an average of 2.8 million in the previous 12 months.
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Buying A Home: Should You Take The Plunge?
Spring is typically the busiest time of the year for homebuying, and this year the housing market is already showing signs of a strong comeback. Even though home prices are starting to rise, affordability continues to improve. The National Association of Realtors (NAR) first-time homebuyer affordability index reached a record high of 127.7 in 2012 (the higher the number, the better). In 2006, at the real estate market’s peak, the index stood at 71.3.
Low mortgage rates and an improving economy are helping make buying a home more attractive today. Should you take the plunge? Consider the following:
Rent vs. Own
In many areas it is now cheaper to own a home than it is to rent. But much of that advantage still depends on the size of your down payment, the interest rate you’ll pay on a mortgage and the amount of time you plan to stay put. If you’re a renter, it may pay you to sit down with a professional to see if your situation makes it more affordable for you to buy versus continuing to pay your landlord’s mortgage.
Finding the Right Home
Even if it’s more affordable to own rather than rent, whether you can find the right home for you could be a big question to answer. The number of homes for sale has dwindled in recent years. Inventory (excluding new construction) is back to 2005 levels, according to the NAR, and it may be another year before supply improves, as homeowners hold out to sell at higher prices.
Getting the Best Mortgage
Rates on home loans are still attractive. Currently, the average rate for a 30-year fixed-rate mortgage is around 3.6 percent, compared with an average rate of 5.4 percent for the last ten years.
But to qualify you’ll need a sizable down payment (generally 10 percent to 20 percent of the home’s value), a solid FICO credit score (720 or higher) and plenty of documentation to prove your income, among other things.
If you don’t clear those hurdles, you may be a good candidate for an FHA loan, which is a mortgage backed by the Federal Housing Administration.
The rates for these loans are 3.45 percent and require a down payment of only 3.5 percent. Also, you don’t need sterling credit. You may be approved with a FICO score as low as 580, though many lenders want a minimum of 620 today.
The catch is, you may owe more in fees.
FHA borrowers who put down less than 20 percent have to pay mortgage insurance. Starting today, April 1, the premium for new loans of up to $625,500, rises by 10 percentage points (for bigger loans, the fee goes up by 0.05 percentage points).
And beginning June 3, most new borrowers will have to pay the premiums for the life of the loan. Previously, mortgage insurance was dropped once the loan balance fell to 78 percent of the home’s original value.
Conventional loans also require mortgage insurance for small down payments, but lenders may be willing to waive the charge once you’ve paid down a chunk of the loan.
To decide whether you should “take the plunge” into the waters of home ownership, talk to us today for a free, no-obligation consultation on your particular financial situation for homebuying.
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5 Hidden Dangers In Your Home And How To Foil Them
Here are what we consider to be the top five hidden home dangers, along with our solutions for staying safe.
DANGER #1: Carbon monoxide
You can’t see it, and you can’t smell it, but carbon monoxide (CO) is the leading cause of accidental poisoning in the U.S. It’s produced by improperly working appliances, fireplaces, and it can even seep into the house from a running car in the garage. (See our article recently on ventless fireplaces)
SOLUTION #1: Carbon monoxide alarms
The only way to detect carbon monoxide? With an alarm. These should be installed on every level of the home, including the basement, and outside each sleeping area. Check with your fire department to see what local and state laws require in terms of placement. And be sure to have your appliances checked regularly.
DANGER #2: Kitchen gadgets and equipment
Cooking equipment is, and has long been, the leading cause of home fires, according to the National Fire Protection Association. The most common sources: stovetops, ovens, rotisseries, microwaves, portable cooking units, and barbecue or hibachi grills.
SOLUTION #2: Fire extinguishers
Unattended cooking is the main reason behind home fires, so start by staying in the kitchen when you’re using the stovetop, checking food frequently when it’s in the oven, and keeping the range clear of anything that can catch fire. But even for those who consider themselves Top Chef contenders, we recommend keeping a fire extinguisher or extinguishing spray on hand to prevent a small kitchen fire from growing out of control.
DANGER #3: Foundation cracks
If you’re like many homeowners, you’re probably unfamiliar with radon: the second leading cause of lung cancer (behind smoking). This odorless, radioactive gas can move up from the soil and enter the home through cracks in the foundation. Even if you don’t have a basement, radon can still enter your home through cracks around service pipes and construction joints.
SOLUTION #3: Radon test kits
You can’t see or smell radon, but you can easily test for it with an at-home kit. Rest assured, though, even if you come up with an elevated result, radon is fixable: the EPA says some radon reduction systems can reduce radon levels by up to 99 percent.
DANGER #4: Rapid fires
It’s little known how fast home fires can spread. From the time a smoke alarm sounds, your family can have as little as two minutes to escape safely before the fire spreads throughout your home, according to the National Fire Protection Association.
SOLUTION #4: Home escape plan
Your ability to escape from a home fire depends on advance warning from a smoke alarm but, also, from advance planning with an escape plan. Shockingly, though, only 29 percent of families have ever practiced their fire escape plan. It is recommended that you practice your plan regularly—at least twice a year—so everyone knows what to do in the event of a fire. You might even consider holding a drill at night.
DANGER #5: Home theft
While not exactly a “hidden” danger, home theft is something that’s frequently overlooked. You might think it’ll never happen to you, but the reality is that a home is broken into every 14 seconds in the United States, according to the FBI.
SOLUTION #5: Residential safes
There are basic ways to deter burglars from getting inside your home: install solid core entry doors with sturdy deadbolt locks; properly light entries; install metal grates over basement windows; and trim bushes so there are fewer places to hide. But you’ll enjoy extra piece of mind by storing your most valuable possessions in a safe (consider one that’s both waterproof and fireproof to keep items safe from the elements too).
The U.S. Department of Commercer reports construction on new U.S. homes jumped in December to the highest rate in more than four years, with gains across the country, as well as in single-family homes and buildings.
In the fresh data signaling a strengthening housing market, starts rose 12.1% in December to a seasonally adjusted annual rate of 954,000 — the highest level since June 2008.
Economists had expected U.S. housing starts to increase to a rate of 883,000 from an original estimate of 861,000 for November, on factors such as rising building permits and confidence among home builders, as well as relatively mild weather for the season.
The DOC report released recently revised November’s rate to 851,000. Data for U.S. housing starts can be volatile and is sometimes subject to large revisions.
An improving trend for housing starts echoes other recent housing data. Confidence among home builders is holding at a more-than-six-year peak, with more markets showing signs of recovery.
Housing is poised to provide a meaningful (and critical) lift to overall economic activity at a time when other growth drivers, like exports, are slowing.
The housing market has regained some footing after a historic collapse that helped push the economy into its worst recession since the Great Depression.
Last month, groundbreaking for single-family homes, the largest segment of the market, climbed 8.1 percent last month to a 616,000-unit pace.
Although mortgage rates have continually hovered near record lows in recent months, analysts remain concerned about overly stringent lending standards, as well as fallout from the ongoing fiscal uncertainty as a possible cause for rates to rise. In recent weeks, we’ve already seen a slight jump in rates.
For other news as it pertains to housing and the economy, check out Columbia SC Real Estate News under the Columbia SC Real Estate Categories.
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Year End Tax Tips to Trim Your 2013 Taxes
Unless Congress intervenes, the Bush-era tax cuts expire when 2013 arrives. Also at risk if lawmakers don’t act before Dec. 31st are many popular tax breaks that expired at the end of 2011 that have long been considered sure-shots for revival. Those breaks include the authority to make direct contributions from traditional IRAs to charity.
Many believe Congress will extend current tax rates, at least temporarily, and probably for all taxpayers.
There are some year-end things you can do to trim your 2012 tax liability. Let’s review them briefly:
Prepare For a New Surtax – One of the biggest changes on the books for 2013 is a 3.8% surtax on investment income for married couples with modified AGI of more than $250,000 (singles, $200,000). As part of the new health care law, the tax applies to the smaller of net investment income or the amount by which taxable income exceeds the thresholds. Investment income includes dividends, interest, capital gains, annuities, royalties and rents. Investment income does not include distributions from IRAs or other retirement accounts.
To lower the potential tax bite, you could give away income-producing assets, such as stocks or investment property, to adult children whose income is far below the threshold. They would not be affected by that extra tax. This is a particularly good year to make large gifts because of a change in the federal gift tax law.
You could also consider accelerating plans to convert part of your traditional IRA to a Roth. Although IRA distributions are not investment income under the surtax law, they could boost your taxable income above the threshold to make otherwise protected investment income vulnerable. Plus, because tax-free Roth distributions are not included in AGI, they would not count toward the surtax threshold in future years.
Unless Congress intervenes, this will be the last year that taxpayers who are in the 10% and 15% tax brackets — joint filers with taxable incomes up to $70,700 and individuals with incomes up to $35,350 — can enjoy a 0% tax rate on long-term capital gains. However, the 0% rate only applies until your income breaks through the 15% ceiling. If you’re a married couple with income of $60,000 and sell a stock for a profit of $20,700, you’ll pay 15% capital-gains tax on $10,000.
Congress has yet to extend a tax break that enables IRA owners who are 70 and a half or older to send a tax-free distribution of up to $100,000 directly to charity. Don’t wait past mid December to direct your IRA custodian to withdraw your minimum distribution.
Give, and You’ll Receive a Break – No matter what happens with the federal estate tax next year, you can still give an unlimited number of individuals up to $13,000 each this year without worrying about federal gift tax. Your spouse can give another $13,000 each to the same people. Higher-income parents could consider giving appreciated stock to adult children in the 0% capital-gains bracket. An adult child in a lower bracket would pay a lot less in capital gains on a sale than if you sold the stock.
If you are considering giving away a vacation home, business interests or appreciating stock, this may be the time to do it either directly or through a trust. See an estate-planning lawyer for advice. The lifetime gift-tax exemption may never be this high again.
Boost Medical Expenses – Under the health care law, there’s a higher hurdle between you and medical expense deductions starting in 2013. Currently, write-offs are permitted only to the extent your qualifying bills exceed 7.5% of your adjusted gross income. Next year, the threshold rises to 10%. However, for the 2013 to 2016 tax years, the 7.5% threshold applies if either spouse turns 65 before the end of the year.
Consider accelerating the timing of planned elective surgery, dental work or other medical procedures. If you have the option to get some procedures done now, you may want to take care of those things before the year ends. Other expenses that could push you above the threshold: the cost of transportation to a medical facility and certain medically related home improvements.
As always, tax laws seem to be ever-changing, so it is advisable to consult a tax attorney or CPA before making any major changes in your tax filing status, or taking action that could affect your withholding.
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Housing in Midst of Recovery
Forecasting increases in home prices and completed transactions for the year, the National Association of Realtors is starting to report slow, but positive improvement for housing.
According to NAR, pending home sales jumped 14.5%, compared to September 2011. In comparison, August pending home sales grew 10.7%, suggesting overall improvement in 2012.
NAR chief economist, Lawrence Yun, stated it is the pending home sales that continue to hold a higher ground. “This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”
While housing has a long road ahead before anyone can call it a full recovery, small, yet positive economic indicators in housing are slowly emerging, with the PHSI being one of them, given that it has risen for 17 consecutive months on a year-over-year basis. This September revealed a significant increase in contract activity versus the previous year in every region except the West, which struggles with a limited inventory.
It is predicted that over the next year, the conditions of housing will remain affordable, with the 30-year-fixed-rate mortgage remaining remarkably low until it’s gradual 4% rise toward the second half of 2013.
Additionally, NAR says that completed existing-home sales in 2012 will total close to 4.6 million (an increase of 9.0 percent), and are projected to rise about 9.0 percent next year to nearly 5.1 million. With notably lower housing inventory, the national median existing-home price is expected to increase 6.0 percent this year and 5.0 percent in 2013.
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Home Prices at June 2004 Levels
The Federal Housing Finance Agency (FHFA) has released its House Price Index (HPI) for August which shows a 0.7 percent increase in prices compared to July. For the 12 months ending in August, U.S. prices rose 4.7 percent. July figures were revised downward in the report from a 0.2 percent increase to 0.1.
Home prices nationally are now at approximately the same level as in June 2004 and are 15.9 percent below the peak in prices reached in April 2007. FHFA’s bases its index on the purchase price of houses with mortgages owned or guaranteed by Fannie Mae or Freddie Mac.
For the nine census divisions, seasonally adjusted monthly price changes from July to August ranged from -0.5 percent in the East South Central division to +3.0 percent in the Pacific division, while the 12-month changes ranged from 0.4 percent in the Middle Atlantic division to +11.4 percent in the Mountain division.
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Pending Home Sales Up 13.3 Percent
Home contract signings rose for the 13th straight month, according to the National Association of Realtors, which reported pending home sales rising 13.3% over May 2011 and up nearly 6% over April 2012.
“The housing market is clearly superior this year compared with the past four years,” said Lawrence Yun, NAR chief economist. “Actual closings for existing-home sales have been notably higher since the beginning of the year and we’re on track to see a 9 to 10% improvement in total sales for 2012.”
On a seasonally adjusted basis, the Standard & Poor’s Case-Shiller 20-city index increased by 0.7% in both March and April. The CoreLogic national house price index rose by 1.1% and 1.2% in March and April, respectively. Additionally, Zillow’s home value index posted a 0.5% increase in May.
Housing analysts at Goldman Sachs said there are some suspicions as to whether all of this good housing news may be misleading. After all, they point out there are 2 million vacant housing units, with another 4 million in shadow inventory.
“These two seemingly contradictory aspects of the housing market lead many to ask: Can house prices increase in the presence of excess housing supply?” they ask.
Yun commented that desirable housing inventory is actually low, indicating a push on prices. This low inventory, he said, could actually hold back some contract activity. “If credit conditions returned to normal and if we had more inventory, especially in the lower price ranges, more people would become successful buyers. In an environment of historically favorable housing affordability conditions, it’s frustrating to see some consumers thwarted in the process,” Yun said.
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Reverse Mortgage = Foreclosure Risk
The Consumer Financial Protection Bureau (CFPB) released a report recently showing that although reverse mortgages are meant to help borrowers in retirement, they are in fact causing problems for many who don’t fully understand them.
A reverse mortgage is a type of home loan that lets older homeowners access the equity they have built up in their homes and defer loan payment until they sell the home, move out, or pass away. The original intent of reverse mortgages was to allow these homeowners to convert home equity into an income stream or line or credit to use in retirement. Borrowers were largely expected to age in place with their loans, living in their current homes until they passed or needed skilled care.
Reverse mortgages require no monthly mortgage payments, but borrowers must still pay property taxes and homeowner’s insurance. The report showed that nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they failed to pay those costs.
The report found that many reverse mortgage borrowers do not understand how their loan balance will rise and their home equity will fall over time. In addition, the influx of new choices brought on by innovations and policy changes have made the matter too complex for many homeowners.
Many consumers are getting reverse mortgages before the age of 70 (with the most common age for a new borrower being 62, the first age at which reverse mortgages are available), and some are even getting them before retiring.
These borrowers will have fewer resources to pay for everyday and major expenses later in life and may find themselves without the financial resources to finance a future move-whether due to health or other reasons.
Another problem is that 70 percent of borrowers are taking out the full amount of proceeds as a single lump sum instead of treating the payment as an income stream. As a result, these borrowers have fewer available financial resources later in life. They may not be able to continue paying taxes and insurance on their homes, leading to potential foreclosure.
Then there is the issue of deceptive or misleading marketing materials about reverse mortgages. The report cited examples of mailers that depict reverse mortgages as a government benefit or entitlement program in the vein of Medicare and use images resembling government seals to entice consumers. It can be difficult for consumers to tell that a reverse mortgage is a financial product, not a government benefit.
If you’d like a copy of the 231 page report (PDF) click here.
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A Turn in Housing: Are These Signs Real?
After several years of false hopes and news that things were turning around in the housing market, evidence is accumulating that the optimists may finally be right this time.
The housing market is starting to recover. Prices are rising. Sales are increasing. Home builders are clearing lots and raising frames.
Like the economic recovery that began three years ago, what happens next is likely to prove a little disappointing. The pace of recovery will probably be slow, and the price of homes in some areas will continue to decline.
Millions of people remain underwater, owing more on their homes than the homes are worth, and unable to sell. Millions of families still face foreclosure. And a setback in the still-fragile economic recovery could easily reverse the uptick in housing prices, too.
But roughly six years after the housing market began its longest and deepest slide since the Great Depression, a growing number of experts and people who actually put money into housing believe the end has come.
The trend is clear in the data. The widely respected S&P/Case-Shiller index reported recently that sales prices for existing homes rose in April for the first time this year. Several other measures, including a seasonally adjusted version of the index, show that price increases began in February. The pace of housing construction has increased. And the National Association of Realtors says that pending home sales climbed to the highest level since the end of a federal tax credit for first-time buyers in September 2010.
The rise in prices is happening despite the vast number of vacant houses awaiting buyers, up to two million more than the normal level, with several million more houses still at risk of being foreclosed.
Shadow inventory is not distributed uniformly, according to a new analysis by Goldman Sachs. Even within some metropolitan areas, vacant houses are clustered in less desirable neighborhoods, while buyers are seeking homes in areas where there are few vacancies.
Under these circumstances, researchers conclude, “It is possible for us to see both house price increases and excess housing supply at the same time.” Indeed, in a growing number of areas demand for homes is outstripping supply.
If you’ve been sitting on the sidelines waiting for the bottom of the real estate market, you may have sat there a little too long.