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Has The Real Estate Market Bottomed?

Posted : November 4, 2009 5:55 PM | Posted By: Mark Stuart
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Has The Real Estate Market Bottomed?
Alexandra Zendrian, 10.29.09, 02:10 PM EDT
Some local markets have seen the bottom, while others still have a ways to go. Minneapolis housing prices are up.
 
Some positive housing statistics have come out recently. The Case-Shiller index, which tracks changes in the values of residences in 20 metropolitan areas in the U.S., is up 2.9% in the second quarter. The previous quarter it was down 7.9%. The consumer confidence index was 54.5 in August, up from 47.4 in July. But does this data mean the market is turning around? Housing experts say in certain areas yes, while in others not so much.
According to the index, Charlotte, Cleveland and Las Vegas were the only areas that had higher declines in housing value month to month from July to August with 0.4%, 0.5% and 0.3% declines respectively. Minneapolis had the greatest monthly increase in values; it's up 3.2%, followed closely by San Francisco at 2.8%.
As many real estate market watchers note, real estate markets need to be analyzed locally as each market functions differently. Paul Brigandi, portfolio manager at Direxion Funds, says locales with a lot of foreclosures will snap back faster than the rest of the market because of the demand for low-priced housing. Foreclosures went up 5% in the third quarter to 937,840 properties, according to RealtyTrac. Nevada, Arizona and California had the top foreclosure rates statewide. One in 23 houses got a foreclosure filing last quarter in Nevada, which is six times the national average, according to RealtyTrac.
Nationally speaking, Mickey Cargile, managing partner of Cargile Investments, says that the bottom is in place for housing prices and they will start to go up in a year to 18 months.

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The commercial real estate market will probably continue to see falling property prices for the next year, as the commercial real estate market usually lags the residential one by a year, says Michael Stubben, senior vice president of Cole Real Estate Investments. The office and industrial commercial real estate properties are tough to price now because of a high number of vacancies, he says, which will take two years to flush out of the system.

Martin Weiss, chairman of the Weiss Group, sees many reasons for a positive long-term outlook. "There are a lot of forces that were driving housing prices lower. Those have been mitigated to a great degree," he says. But that positive outlook could be changed by another recession or a surge in interest rates, he adds.
Vahan Janjigian, Forbes chief investment strategist, is concerned the government is propping up the real estate market. "They've artificially driven down the mortgage rates, and they're offering this big incentive to first time buyers," Janjigian says of the first-time home buyer tax credit of $8,000. Because of this potentially lift from the government, it's hard to tell how the market would have done otherwise and will do in the future, he says.
Sherry Chris, chief executive officer of Better Homes and Gardens real estate, saw a busy housing market in the early fall largely because of the home buyer tax credit. She is working to have the credit extended beyond its Dec. 1 deadline. "I see housing sales falling off in the later part of this year and into 2010 if there is no extension," she says. Approximately 1.4 million people have used that tax credit so far, Chris says.
"There is legitimate demand because prices have come down, there are a lot of people who were taking advantage of the tax credit and the low mortgage rates," says Ken Shubin Stein, founder of Spencer Capital Management. He adds that this demand seems like an "alphabet soup" created almost entirely by the government.
Though the government tax cuts have helped firm up housing prices and demand in the short-term, Janjigian is concerned that long-term the real estate market can't recover until unemployment comes down substantially. The unemployment rate is currently 9.8%.
Apart from buying houses themselves, there are other attractive real estate investments. Brigandi says within the next several years home builder stocks, such as D.R. Holton ( DHI - news - people ) and Hovnanian Enterprises ( HOV - news - people ), will be good buys as more risk appetite and demand comes back to the market. His firm also manages two leveraged exchange-traded funds that investors can use depending on their views of the real estate market. These funds are the Direxion Daily Real Estate Bull 3X (DRN), which is three times leveraged to the MSCI real estate investment trust index, and the Direxion Daily Real Estate Bear 3X (DRV), which is tied to the MSCI real estate index.

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Buying A Foreclosed Home

Posted : November 4, 2009 5:51 PM | Posted By: Mark Stuart
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Buying A Foreclosed Home
Asher Hawkins, 10.29.09, 06:00 PM EDT
Year-end deals will abound for smart shoppers.
 
Thinking of buying a home? Act before year's end and you just might be able to make the most of the glut of foreclosed properties currently up for sale. That's because, while banks traditionally have been unwilling to come down on the list prices of foreclosed properties, a year-end push to clear their books of foreclosure backlogs could be a boon for haggle-happy homebuyers.
"With the end of the year coming, the banks are going to dump a lot of stuff," says Richard Zwick, a real estate agent from DeLand, Fla. "The prices will keep coming down and down as the banks are forced to take less and less." In the area of central Florida Zwick covers, price tags on many foreclosed homes are as much as 50% lower than they would have been six months ago.
Before you start focusing your energy on finding a foreclosed home, here are a few ideas to keep in mind.
First off, try to get a sense of how many foreclosures there are in your area. Places like Phoenix, Las Vegas and central Florida are hot spots with massive inventories.
In contrast, foreclosure rates in many rural areas have barely gone up since the recession hit. And even if there are a number of foreclosures in the neighborhood you've got your eye on, factors such as high-quality schools could lead to hefty competition for each one.
Next, become familiar with the different categories of foreclosure sales. "Short sales" usually occur when homeowners are behind on their mortgages and their home is worth less than what is owed to the bank. The homeowner requests that the bank agree to a short sale in order to escape the overly burdensome payments without getting the blot on their credit record that a foreclosure would leave. Banks usually go along with these deals because they figure they will face smaller write-downs and fewer administrative costs than with a foreclosure. The catch with this type of sale is that the current homeowner's mortgage lender, who gets to approve the new buyer, might take as long as two months to sign off on an offer.
That gets very frustrating for those involved," says Timothy Warren, head of a Boston firm that publishes information on foreclosure sales in the New England states.
Once a home is foreclosed on, it's auctioned off at a public event. Most of the time it's the lender of the original mortgage that buys the property. (That was the case 95% of the time in Massachusetts last year, according to Warren.) Why do individual buyers tend to stay away? At this point in the foreclosure process, the financially beleaguered original homeowner is often still living in the foreclosed property, which makes it extremely difficult to arrange a thorough property inspection. And when amateurs do try their luck at an auction, they tend to make rookie mistakes.
"Most people get so excited, they overbid," Zwick says.
After the original mortgage lender purchases a foreclosed property, it typically puts it up for sale as-is. These sales are known as REOs, for "real-estate owned." The thing to watch out for here is that banks are quick to yank a prospective buyer's deposit for failing to strictly abide by deadlines.
"I've heard of people about to buy an REO losing their deposits because they don't follow the inspection deadlines or the mortgage deadlines," Zwick warns.
Another possibility, albeit a relatively remote one: key paperwork concerning your new REO's previous mortgage was mislaid as investors traded it like a baseball card during the mortgage securitization boom. More and more state court judges have been ruling that such slip-ups create a reason to invalidate a foreclosure. That would jeopardize your claim to the foreclosed property you just purchased.
It's tempting to believe you can navigate the foreclosure sale process on your own. Much of the information you need is public. The downside is that it can be difficult to track down, let alone do so fast enough to ensure you're getting the jump on the competition. The petitions for foreclosure that precede a short sale often have to be dug out of courthouse record rooms.
Foreclosure auction information comes from hard-to-read-type in the back of major newspapers, or from subscription services like the one Warren operates. As for REOs, lenders tend to have favored networks of brokers they tip off about the best deals. The result? A DIY approach to buying a foreclosed home "is really not for the faint of heart, and requires a lot of patience," Warren says. There are plenty of real estate agents who specialize in setting up buyers with foreclosed homes. Consider hiring one if you're interested in the foreclosures market.

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Homebuyer Tax Credit Extension Probable

Posted : November 4, 2009 5:47 PM | Posted By: Mark Stuart
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Homebuyer Tax Credit Closer to Extension
November 3rd, 2009
An $8,000 federal tax credit for first-time homebuyers that is set to expire at the end of the month inched another step closer to getting extended until April. The Senate voted 85-2 yesterday to move the bill to a final vote, and senior members of Congress said that they expected the bill to pass next week.
In what officials say is a move to stimulate the economy, the measure might even be expanded to give a $6,500 tax credit to homebuyers who have lived in their previous home for at least 5 years.
Prolonging the tax credit is sure to be welcomed by home builders like Toll Brothers and KB Homes, as well as financial institutions like U.S. Bank, whose mortgage-revenue rose nearly 5% last quarter.
The vote comes only weeks after tax officials testified that they received 90,000 bogus claims for the $8,000 credit. Some 1.4 million legitimate claims have been filed, totaling approximately $18 billion in tax credits.

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Tax Break When Selling Land Adjacent To Your Residence

Posted : November 4, 2009 5:40 PM | Posted By: Mark Stuart
Related Categories: Miscellaneous, Financing techniques & options, News you can use.
   

   
   Plan for Qualified Lot Sales

IRS regulations specifically allow you to use the federal income tax home sale gain exclusion privilege to shelter profit from selling vacant land adjacent to your house - even if the land sale occurs in one or more transactions that are completely separate from the sale of your house. Although this sounds too good to be true, it is true! 
Gain Exclusion Qualification Rules
    If you're unmarried, you can potentially sell your principal residence for a gain of up to $250,000 without owing anything to the U.S. Treasury. If you're married and file jointly, you can potentially exclude up to $500,000 of home sale gain. To qualify, you generally must pass both of the following tests:
    1. You must have owned the property for at least two years during the five-year period ending on the sale date (the ownership test).
    2. You must have used the property as a principal residence for at least two years during the same five-year period (the use test).
    To be eligible for the $500,000 joint-filer exclusion, at least one spouse must pass the ownership test, and both spouses must pass the use test.
    If you excluded a gain from an earlier principal residence sale under these rules, you generally must wait at least two years before taking advantage of the break again. For joint filers, the $500,000 exclusion is only available when both you and your spouse have not claimed an exclusion for an earlier sale within two years of the sale date in question.
    Capital gains in excess of your exclusion are generally taxed at a maximum federal rate of no more than 15 percent. State tax may also apply.
To take advantage of this break, however, there are some restrictions:
  • The land must be adjacent to the parcel that contains your house, and it must be used as part of your principal residence (as opposed to being used for business or rental purposes).
  • The house must also be used as your principal residence.
  • The adjacent land must be sold within two years before or after the sale of the parcel that contains your house, and you must meet certain timing requirements for both the sale of the house and the sale, or sales, of the land. (See right-hand box for timing qualifications.)
Assuming you pass all the tests, you can use whichever gain exclusion amount applies ($250,000 for single filers or $500,000 for joint filers) to shelter from federal (and sometimes state) capital gains tax the combined profit from selling the parcel containing your house and the adjacent land.
How Much Land Can You Sell?
Based on an example in the IRS regulations, you could sell at least 29 acres without being challenged by the government (maybe more because there are no specific guidelines for the amount of land that can be considered part and parcel of your principal residence).
What happens when the adjacent land is sold in a year before or after the year you sell the parcel containing your house? If you sell the parcel with your house after the due date of the return for the earlier year when the land was sold, you must report the land sale gain on your Schedule D (your gain equals the difference between the sale price for the land and your tax basis in that part of the property). Then after you've completed the sale of the parcel that contains your house, you file an amended return on Form 1040X to use part of your gain exclusion (up to $250,000 or $500,000 if you file jointly) to shelter all or part of the profit from the land sale. You will then be due a tax refund for the year of the land sale.
If you sell the parcel with your house before the due date of the return for the preceding year when the land was sold, simply use part of your gain exclusion to shelter all or part of the land sale gain on the earlier year's return. In the later year, you can use your remaining gain exclusion to shelter all or part of the profit from selling the parcel that contains your house.
Your tax adviser can help you take advantage of the home sale gain exclusion for sales of land next to your house. Advance planning may be necessary to maximize your tax savings.

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