"Fiscal Cliff" Cliff Notes for Real Estate

Real Estate Provisions in “Fiscal Cliff” Bill

On Jan. 1 both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed into law by President Barack Obama on Jan. 2.
Below is a summary of real estate related provisions in the bill:

Real Estate Tax Extenders

• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014
• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
• 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012
• 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012

Permanent Repeal of Pease Limitations for 99% of Taxpayers

Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  These thresholds have been increased and are indexed for inflation and will rise over time.  Under the formula, the amount of adjusted gross income above the threshold is multiplied by three percent.  That amount is then used to reduce the total value of the filer’s itemized deductions.  The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.
These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years.  They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012.  Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.

Capital Gains

Capital Gains rate stays at 15 percent for those in the top rate of $400,000 (individual) and $450,000 (joint) return.  After that, any gains above those amounts will be taxed at 20 percent.  The $250,000/$500,000 exclusion for sale of principal residence remains in place.

Estate Tax

The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax.  After that the rate will be 40 percent, up from 35 percent.  The exemption amounts are indexed for inflation.

http://www.realtor.org/articles/real-estate-provisions-in-fiscal-cliff-bill?om_rid=AAKj0R&om_mid=_BQ5jQiB8v$B8GF&om_ntype=NARWeekly

If you've been looking to invest, now is the time before the inventory continues to decrease!

The residential shadow inventory of distressed homes continues to shrink according CoreLogic's monthly report for October.   The improvement is across all metrics; number of units, months supply, dollar volume and transition rates.
The inventory as of October was 2.29 million units or a 7.2 month supply at the current absorption rate.  The number of units in the inventory represented a 12.3 percent decrease from October 2011 when the inventory consisted of 2.62 million units, an 8.6 month supply.  The volume of the inventory in October was $376 billion, down from $3.99 billion a year earlier.  In September the inventory stood at 2.31 million units or a 7.7 month supply.

The shadow inventory represents the number of properties that are seriously delinquent, in foreclosure, or in bank inventories (REO) but not listed on Multiple Listing Services. CoreLogic uses the rates of transition of properties from delinquency to foreclosure and foreclosure to REO to identify the currently distressed unlisted properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in the estimate of the current shadow inventory.
Of the 2.3 million properties currently in the shadow inventory 1.04 million units are seriously delinquent (3.3 months' supply), 903,000 are in some stage of foreclosure (2.8 months' supply) and 354,000 are already in REO (1.1 months' supply).

Roll rates from current to 90 days delinquent have decreased from 0.50 percent in October 2011 to 0.46 percent in October 2012.  Rates from 90+ days to foreclosure are down from 6.74 percent to 6.17 percent but rates for transitions from foreclosure to current increased slightly from 0.81 percent to 0.83 percent.

"The size of the shadow inventory continues to shrink from peak levels in terms of numbers of units and the dollars they represent," said Anand Nallathambi, president and CEO of CoreLogic. "We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold."
"Almost half of the properties in the shadow are delinquent and not yet foreclosed," said Mark Fleming, chief economist for CoreLogic. "Given the long foreclosure timelines in many states, the current shadow inventory stock represents little immediate threat to a significant swing in housing market supply. Investor demand will help to absorb the already foreclosed and REO properties in the shadow inventory in 2013."
Forty-five percent of the inventory in held in five states, Florida, California, Illinois, New York and New Jersey down from 51.3 percent one year earlier.  Over the three months ending in October 2012, serious delinquencies, which are the main driver of the shadow inventory, declined the most in Arizona (13.3 percent), California (9.7 percent), Michigan (6.8 percent), Colorado (6.8 percent) and Wyoming (5.9 percent).

http://www.mortgagenewsdaily.com/01022013_foreclosures_shadow_inventory.asp

Mortgage Relief Act Gets Extended for One More Year!!

                                                                                 

You can all exhale! Congress just passed a bill, The American Taxpayer Relief Act of 2012 (Sec. 202) which extends the Mortgage Forgiveness Debt Relief Act through December 31, 2013. This legislation extends dozens of other tax cuts that have expired or are set to expire at the end of the year, including one that extends homeowners’ ability to deduct the cost of mortgage insurance on a qualified personal residence.

Under the federal tax code, all types of forgiven debt are treated as income, subject to regular taxes.  Because of the Mortgage Forgiveness Debt Relief Act, homeowners who get their mortgage debt forgiven through either a short sale or loan modification won’t be taxed on the amount forgiven up to $2 million. This law was set to expire December 31, 2012. If it hadn’t been extended, any forgiven amount of debt would be considered taxable income, which would be devastating for homeowners who are already experiencing financial hardship.

There was an awful lot of concern among borrowers either in or considering a short sale that the tax ramifications of a short sale would change with the expiration of the 2007 law. The extension saw to it that anyone who has purchase mortgage debt forgiven in, for example, a short sale would not have the forgiven debt treated as taxable income. 

There is always small print as to what qualifies, so all are encouraged to consult with their CPA, attorney or financial professional for specific advice, but the current law will continue unchanged, and that is good news. 

Are Stainless Steel Appliances a Thing of the Past?

The kitchen in a Phoenix home for sale.

Not so long ago, a repairman could tell the age of an appliance by the color of its finish. If it was avocado or harvest gold, it had to be from the 1970s or early ’80s. Poppy red meant the appliance was made in the 1970s, and harvest wheat, coffee or almond meant your oven or fridge was new in the early 1980s.

Stainless appliances first burst onto the scene in the late 1980s, and they’ve had a remarkable run. But there are those in the industry who sense “stainless fatigue” among homeowners.
It should come as no surprise, then, that major manufacturers have their own ideas about the next hot appliance finishes:

Slate could be great  

In September, GE introduced a new finish called “Slate” across its line of appliances.
The company’s news release about the launch details how its industrial designers spent countless hours conducting consumer research and reviewing design trends in the kitchen, home furnishings, home entertainment products, and automotive interiors and exteriors.
The result was Slate, a warm, gray metallic with a low-gloss finish that is a natural complement to the wide spectrum of wall colors, countertop materials and floor/cabinetry finishes found in today’s homes.
“As people transition their kitchen appliances over time, it was important to us to find a finish from a palette that is timeless and harmonious, yet distinctive,” said Lou Lenzi, whose team of designers created the new finish. “Slate is a universal, neutral finish that will suit consumers who want a premium finish that can complement or even replace stainless steel.”

Ice may be nice

Whirlpool Corp. introduced its “Ice Collection” of appliances in July, including a glossy white finish for dishwashers, microwave ovens, ranges and refrigerators.
“White is the new stainless,” the company’s news release said. The collection also includes a sleek Black Ice finish.
Patrick Schiavone, Whirlpool’s vice president of global consumer design, has said he “is over” stainless steel and set out to update the style and appearance of black and white appliances. The collection is defined by silver accents, elegant lines, sleek handles and streamlined controls.

Is black back?  

When high-end cooking appliances manufacturer Wolf introduced its newest model in early 2012, its news release boldly proclaimed: “Black is the New Stainless Steel.”
The company’s Black Glass model comes adorned with a black glass tubular handle and cobalt blue interior. In addition to the oven, Wolf is also offering black glass trim kits for its warming drawers and convection and standard microwaves.
“Our commitment to design has always been on par with Wolf’s dedication to innovation and quality,” Michele Bedard, vice president of marketing for Sub-Zero and Wolf, said in a news release. “Introducing a new finish elevates the line and opens a whole new realm of design possibilities for designers and consumers alike.”

Can color triumph?  

Viking Range Corp. offers 23 color alternatives to stainless steel in its high-end open-burner range; the company most recently expanded its palette of finishes to include Cinnamon, Dijon, Kettle Black and Wasabi.
All those choices, yet stainless steel reigns supreme.
“I’d say 80 percent of our sales are still stainless steel,” says Brent Bailey, design director at Viking Range. “I could add another 100 colors, and the percentage wouldn’t change much.”

http://homes.yahoo.com/news/stainless-dethroned-king-kitchen-221839187.html

What to Expect When You're Inspecting

If you’re a first-time buyer who just nabbed your first place, you’re likely in one of the scarier places in the real estate transaction. After weeks or months of looking, your new home is becoming a reality.
But before you can pick out the paint colors and decide how you’ll redo the basement, the property needs to be inspected.
A property inspection is one of the most important parts of the purchasing process, yet many buyers don’t know what to expect from the various players involved. Here’s a guide to the roles and responsibilities each of the players has during a typical property inspection.
You, the buyer
You’re there to learn as much about the property as possible. But you should have already done your homework before the big day.
Prior to the inspection, review the seller’s property disclosures and know up front what questions you have for the inspector. Things may have come up during the marketing or during a walk-through that concerned you. Or maybe the seller disclosed that some unpermitted work was done in the basement years ago. Before you release your inspection contingency, know exactly what you’re getting into and that there aren’t any surprises down the road.
Block out a few hours on the day of the inspection, depending on the size of the home. Nearly everyone from the transaction will be present, and these few hours can be critical. Most inspections go smoothly, but some can be the beginning of tough negotiations.
The buyer’s agent
Your agent should be standing by your side to walk you through the inspection. Good agents have been through dozens of inspections and know how they work. They should have basic knowledge of what to look for. Most importantly, they know what’s important and what matters in the big picture. If you’re getting a really good price on the home, your agent would likely advise you not to bother the seller for small fixes. If you’re paying top dollar and discover serious flaws, your agent can guide you on how to best proceed after the inspection.
The listing agent
For many reasons, the seller won’t be present during the inspection. But the seller’s listing agent will be front and center as the eyes and ears of the property inspection.
By this point, the listing agent should be familiar with the property and is there to address anything that comes up. For the seller and the listing agent, the inspection is one of the last hurdles to get through and a big unknown. Issues, questions or concerns could arise during the inspection, which could kill the sale or affect the property’s value.
That’s why many agents advise sellers to get a property inspection before going on the market, to prevent any last-minute unknowns or red flags.
Sometimes, it seems as though the listing agent is there to “defend” the property against the buyer, her agent and their chosen inspector. Some feel the inspection is a “three against one” situation. It shouldn’t be.
Though the listing agent is there to be an advocate for the seller, everyone should come with the same goal in mind: to facilitate a clean sales transaction.
The inspector
As the buyer, you hire the property inspector, who should be licensed by the state. You sign an agreement with and pay the inspector. Most buyers get a referral for an inspector from their real estate agent.
The inspector is not a contractor, though some inspectors were contractors in their previous careers. While they may be able to shed light on what you can or can’t do to a property and its potential costs, their main purpose is to inspect the property, its systems and the overall state of the home.
A good inspector will remain impartial and not be an alarmist, though they will point out things to be addressed. The inspector isn’t a part of the transaction and shouldn’t get into the nitty-gritty of your deal, nor would they want to.
The inspector should look around, make notes and provide you with a detailed report as well as some feedback on future maintenance. Be sure to walk through the property with the inspector. Whenever possible, go where the inspector goes. Get on the roof, go into the basement, venture into the crawlspace. It will be helpful for the inspector to point things out to you in real-time and demonstrate where the systems are and how they work. Also, some things are better understood in person than read about in a report later.
Your Uncle Bob
Finally, it’s important to understand why having Uncle Bob on hand during the inspection isn’t necessarily a good idea. While it may seem logical to bring a relative or close friend who is a contractor, be mindful that these people aren’t licensed property inspectors. Sometimes, the most well-intended people can end up causing harmful consequences. Uncle Bob may feel it’s important to point out as many negative things as possible, just to seem helpful. He’s far from impartial, however, and you run the risk of raising red flags when they don’t need to be.
Time for a huddle
After the inspection, you and your agent will likely huddle to talk about what went on and to strategize next steps. Hopefully, the inspection was flawless and you are one step closer to picking out your new paint colors.
Or some additional negotiations may be needed after the inspection.
Either way, it helps to know what to expect going in and to be prepared for anything.

Read more: http://www.foxnews.com/leisure/2012/10/09/what-to-expect-when-youre-inspecting/?goback=.gde_2627059_member_198908099#ixzz2GHfAfI9m

What the "Fiscal Cliff" Means for Real Estate

The “fiscal cliff” has quickly become a commonly used term, but exactly what it means isn’t all that clear, especially for real estate. At it’s most basic level, it refers to sweeping tax cuts enacted a decade ago that will expire at year’s end, so tax rates will automatically rise to where they were before, while at the same time automatic spending cuts—the sequestration enacted when the government’s borrowing limit was raised a year ago–will take effect. Thus, the economy faces a two-pronged hit: taxes going up while federal fiscal spending goes down.
If Congress does nothing, that double hit would mean a negative economic impact of about $650 billion, enough to shrink the economy by 4 percent and push the country back into recession, says NAR Chief Economist Lawrence Yun.
For real estate, that has the potential to derail the recovery that’s been slowly taking hold. Foreclosures would rise, home values would drop, hurting households but also hurting FHA, which could get hit with another wave of bad loans. That could put FHA into financial trouble.
Against this background, the federal government will be looking at a lot of options for averting the cliff while also lowering the federal budget deficit for the long-term. That puts the mortgage interest deduction in the spotlight. But is it a good idea to make changes to that tax provision?
Without a doubt, changing the rules of the game on MID now would mean a tremendous hit on real estate markets and household finances, and it could deal a blow to the broader economy, says Yun.
He and NAR economist Danielle Hale look at the different pieces in play under the fiscal cliff debate and also the economic impact of changing MID in the 9-minute video above. The information is intended to be helpful as you try to put the fiscal cliff conversation into perspective.

http://speakingofrealestate.blogs.realtor.org/2012/12/11/fiscal-cliff-whats-at-stake-for-real-estate/

2013: Home Prices Set to Skyrocket!

Don’t be surprised if home prices begin to appreciate rapidly. Why? The ratio of homeownership costs to income is at an all-time low, and people are not going to continue renting homes at a monthly cost that exceeds a mortgage payment.
In fact, home prices need to rise 38%, or mortgage rates need to rise to 7.9%, for us to get back to the normal ratio of homeownership costs to income. It doesn’t matter how you define homeownership costs. As long as you use a consistent definition, homeownership is cheap!











Assuming our leaders in DC come to some sort of agreement that keeps the economy growing and interest rates low, which seems like the most reasonable assumption, here is what will happen:

• Investors: Investors and, yes, even flippers will continue to grow in numbers as they realize housing is the best risk-adjusted return on their money.
• Boomerang buyers: Foreclosed homeowners, who are currently renting homes, will come back in droves. In Phoenix, they are paying $1,300 in rent for a home whose mortgage payment would be $1,000. That situation is not sustainable. The Federal Housing Administration and Department of Veterans Affairs have low down payment programs with insurance premiums that push rates near 5.0%. Those payments are still very affordable.
• Entry-level buyers: First-time homeowners, who have been sitting on the sidelines waiting for a sign of the bottom, will hear about price increases in their desired neighborhood and rush to become homeowners.
• Move-down buyers: Empty nesters and retirees, who have plenty of equity in their existing home, will buy a home that is more suitable to their current lifestyle, which may or may not include adult children as well as their aging parents.
• Moveup buyers: The price appreciation that occurred in the last year has already lifted 1 million underwater homeowners above water, and future price appreciation will lift even more.

Don’t listen to the naysayers. They frequently make one or two negative points, many of which are valid, but they don’t understand the big picture.
The Big Picture is:

• Housing is cheap
• People prefer to own
• Get ready for a surge in home prices!

http://www.linkedin.com/today/post/article/20121211094719-3073844-big-idea-2013-home-prices-set-to-skyrocket