10 Cities Where It’s a Great Time to Buy
The real estate business may be facing a softening in sales, but there are parts of the country where it makes sense to buy now. Forbes magazine examined current home sales patterns and sales projects in the country’s 40 largest real estate markets to identify these attractive markets.
Based on models that estimated 2008 housing inventory, sales rates, and turnover, the magazine compiled a list of markets that are experiencing price declines, but where buying looks attractive because there is likely to be an increase in sales in the near future.
Here are Forbes’ and Moody’s 10 most attractive markets, along with the median homes sales price and their price change from 2006.
Fort Worth, Texas: $156,500, 1.7 percent
Kansas City, Mo.: $157,700, -0.7 percent
Houston: $154,900, 1.4 percent
Cleveland: $128,700, -7.1 percent
Denver: $255,200, none
Long Island, N.Y.: $482,300, 1.7 percent
Washington, D.C.: $445,300, 0.3 percent
Orlando, Fla.: $265,100, -2.4 percent
Phoenix: $264,800, -2.7 percent
Las Vegas: $307,900, -3.6 percent
Source: Forbes, Matt Woolsey (10/08/07)
House Votes to Eliminate ‘Phantom Tax’
The U.S. House of Representatives voted on Thursday to get rid of a tax burden for home owners who have had a loan forgiven or foreclosed on their home because they were unable to make their mortgage payments. The Mortgage Cancellation Tax Relief Act, H.R. 3648, passed by a vote of 386 to 27. Similar legislation is making its way through the Senate.
Since the early 1990s, NAR has supported such measures to eliminate the “phantom tax” on financially-strapped home owners.
“Congress made a good decision that will affect many Americans who find themselves in a truly bad situation,” says NAR President Pat V. Combs. “Changing the IRS code is an issue of fundamental fairness. It would relieve a tax burden at a time when an individual or family has experienced a true economic loss arising from the sale or loss of their home. These families are already in financial distress and are most likely unable to pay additional taxes.”
The current tax code requires a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. This disclosure applies whether it is a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt. If the property is sold at foreclosure or is sold for less than was borrowed, that difference is considered income and is subject to the tax.
H.R. 3648 would ensure that any amount forgiven on mortgage debt secured by a principal residence will not be taxed. The legislation has a provision to safeguard against abuses. That provision is similar to one that already exists for commercial real estate owners and would treat commercial and residential property equally.
“This is not only about the subprime turmoil we are currently experiencing,” Combs says. “This is also about families who have lost their home or a need to sell that home for less than the amount owed on their home mortgage because of job loss, divorce, health issues, a decrease in the value of the home or other unfortunate circumstances. Clearly it is unfair to tax people on phantom income when they most likely have no cash with which to pay the tax.”
In other news, another bill has been sent to the House Judiciary Committee that would revise the bankruptcy code to allow judges to order mortgage lenders to ease terms for home owners in bankruptcy proceedings. Currently, mortgage lenders can foreclose against a home owner in default 90 days after the filing of bankruptcy.
— REALTOR® Magazine Online
Phoenix Area Inventory
Inventory from October 2007:
Mortgage Rates Move Lower
Fixed mortgage rates declined over the last week, with the average conforming 30-year fixed mortgage rate falling to 6.42 percent.
According to Bankrate.com’s weekly national survey of large lenders, the average 30-year fixed mortgage has an average of 0.36 discount and origination points.
The average 15-year fixed rate mortgage popular for refinancing fell by a similar amount to 6.10 percent. The average jumbo 30-year fixed rate pulled back to 7.28 percent. Adjustable mortgage rates were lower as well, with the average one-year ARM slipping to 6.13 percent, and the average 5/1 ARM sliding to 6.26 percent.
“Another drop in pending home sales added to mounting housing concerns and helped pull mortgage rates lower,” Bankrate.com said in its report. “Worries about the economic fallout from housing enticed investors into the safety and security of long-term government bonds.”
Fixed mortgage rates are closely related to yields on ten-year Treasury notes. The path of mortgage rates in the next week is very likely to hinge on the outcome of the employment report to be released Oct. 5.
If job growth does not appear as bad as initially thought, this could give the Federal Open Market Committee latitude to pause at the next meeting. But more troubling signs from the job market might compel the Fed to cut interest rates again. The Fed remains coy about plans for the Oct. 30-31 meeting.
Fixed mortgage rates remain the most attractive option for borrowers. Just three months ago, the average 30-year fixed mortgage rate was 6.74 percent, meaning that a $200,000 loan would have carried a monthly payment of $1,295.87. Now that the average conforming 30-year fixed rate is 6.42 percent, the same $200,000 loan carries a monthly payment of $1,253.63.
Bankrate.com’s national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.
Source: Bankrate.com
Legislation Takes Aim at Mortgage Brokers
Several pieces of legislation that address problems in the mortgage industry are expected to be introduced soon in the U.S. House and Senate, and many of the proposals will target mortgage brokers.
Bills being drafted by House Financial Services Committee Chairman Barney Frank (D-Mass.), and Senate Banking Committee Chairman Christopher Dodd (D-Conn.), could ban yield spread premiums, which brokers earn for getting borrowers to accept higher interest rates.
Other proposals call for the creation of a registry of licensed brokers and the appointment of a czar by President Bush to oversee foreclosure-prevention efforts, as well as the easing of Fannie Mae and Freddie Mac’s mortgage portfolio limits.
Brokers worry that banning yield spread premiums will boost closing costs, as some borrowers opt to lower upfront costs by accepting higher interest rates, and insist that licensing and registry requirements also should be imposed on banks and mortgage lenders.
It remains to be seen whether the bills will include provisions making the investment firms that securitize mortgages accountable for problem loans.
Source: Los Angeles Times, Jonathan Peterson (10/04/07)
New California Law Bans Appraisal Commissions
New California Law Bans Appraisal Commissions
California last week passed three laws affecting real estate transactions, and Gov. Arnold Schwarzenegger signed them.
It is now against the law for licensed appraisers to engage in any appraisal activity that is connected to the purchase, sale, transfer, financing or development of property if their compensation is impacted by the final price generated by the appraisal.
A second law applies federal lending guidelines to state-chartered lenders requiring them to clearly disclose the risks and evaluate borrowers’ ability to pay based on the long-term cost of the mortgage, not just the introductory rate. In California state-regulated lenders provide the majority of subprime mortgages.
A third bill increases the amount of affordable housing in California by raising the total debt that the California Housing Finance Agency can carry by $2 billion. CalHFA issues bonds to finance housing for low and moderate-income families.
Source: The Associated Press, Don Thompson (10/05/07) and San Jose Business Journal (10/03/07)
Phoenix Area Inventory
Inventory from October 2007:
Self-Employed Workers Struggle to Get a Mortgage
It is growing increasingly difficult for the self-employed to get a mortgage.
Some lenders that specialized in home loans to self-employed workers and small-business owners have gone out of business. And many lenders that still offer such loans have tightened their standards, making it harder for self-employed borrowers to qualify.
Here’s what self-employed borrowers need in order to qualify for a mortgage in this new environment, according to Marc Savitt, president of the National Association of Mortgage Brokers.
More documentation. Along with two years of tax returns, self-employed borrowers might be asked to provide a profit-and-loss statement, bank statements, and proof that they’ve been in business for at least two years. A letter from their accountant probably won’t be good enough.
Fewer tax deductions. Savitt says self-employed workers who plan to buy a home in the next year or two might want to forgo some deductions. “Make sure you can show as much income as possible,” he says.
Larger down payments. An old-fashioned 20 percent down is very persuasive.
Excellent credit. A credit score of 720 or higher will give self-employed borrowers some choices.
Patience. Even for well-off business owners, qualifying for a mortgage is “not that smooth, easy no-brainer like it used to be,” Savitt says. “If you want it to be quick, you’re paying a higher price.”
Source: USA Today, Sandra Block (10/02/07)
