Home Sales Rise to Fastest Pace in Three Years: 

Home resales rose sharply in November to their fastest pace in three years, which is yet another sign the housing market is gaining steam.

The National Association of Realtors said on Thursday that existing home sales climbed 5.9 percent last month to a seasonally adjusted annual rate of 5.04 million units. That was the fastest increase since November 2009, when a federal tax credit for home buyers was due to expire. Sales were well above the median forecast of a 4.87 million-unit rate.

Nationwide, the median price for a home resale was $180,600 in November, up 10.1 percent from a year earlier as fewer people sold their homes under distressed conditions compared to the same period in 2011. Distressed sales include foreclosures.

The nation's inventory of existing homes for sale fell 3.8 percent during the month to 2.03 million, the lowest level since December 2001. At the current pace of sales, inventories would be exhausted in 4.8 months, the lowest rate since September 2005. Distressed sales fell to 22 percent of total sales from 29 percent a year ago.

So, to recap: More people are buying homes and are paying higher prices than they did a year ago.  Plus, there are fewer distressed sales and the inventory of homes available for sale is at the lowest level in 10 years.  This all adds up to a great housing market. 

New Foreclosures Plummet: 

New Foreclosure filings drop 22%.

The housing market is improving, no question. Home prices are rising, interest rates are low, inventory levels have fallen and fewer borrowers are falling behind on their mortgage payments. All of this helped to temporarily put a curb on new foreclosure filings by banks in October (the most recent data published).

Lender Processing Services reported that the decline also has to do with changes in mortgage servicing that went into effect in September under the $25 billion mortgage settlement. Servicers are now required to give borrowers a 14-day notice in writing before referring a loan for foreclosures. Those letters began going out in September.

Another reason for the drop in new foreclosures may be a surge in loan modifications involving principal reduction. These are also mandated by the mortgage servicing settlement. Principal reduction modifications jumped 62 percent from October to November.

Regardless of the reason, the fewer homes on the market at depressed prices, the better it is for the housing market. 

  The New York Times

Factoring in commuting costs

A recent study by the Center for Housing Policy and the Center for Neighborhood Technology suggests that borrowers of moderate means would be smart to calculate the costs of commuting before buying. 
Making sense of the story

• The study, which looked at transportation and housing costs in the 25 largest metropolitan areas, found that transportation costs rose faster than incomes in every area over the last decade.
• That has added to the financial burden shouldered by moderate-income homeowners, defined as households earning 50 to 100 percent of a metropolitan area’s median income.  Transportation consumes 30 percent of their income, on average.  Add housing costs to that and the combined cost burden rises to 72 percent.
• The study also found that some metropolitan areas generally considered more affordable become less so after transportation is figured in.
• Mortgage underwriters sometimes look at a home’s location relative to where the buyer works, but in most cases a long distance between the two is an issue only if it suggests that the buyer isn’t actually going to live in the house.

Pending Home Sales Increase 5.2%:  More good news for housing as an index measuring the number of Americans who signed contracts to buy homes in October jumped to nearly its highest level in almost six years. Steady job gains and record-low mortgage rates have made home buying more attractive. The National Association of Realtors said Thursday that its seasonally adjusted pending home sales index rose 5.2 percentage points to 104.8 in October. Excluding a few months when the index spiked because of a homebuyer tax credit, that is the highest level since March 2007. Signed contracts jumped 15.6% in the Midwest and rose 5.5% in the South. But they fell 1.1% in the West and dipped 0.1% in the Northeast. In a separate report, the Case-Shiller Home Price Index moved upward again as national home prices increased 3%.

The Federal Housing Administration announced that its reserves might not be able to cover projected losses, raising the prospect that the agency could ask for a taxpayer injection for the first time in its 78-year history. Here’s a look at the issue:

The FHA reported on Friday that its annual audit shows that the agency doesn’t have enough in reserve to cover expected losses, leading to a $16.3 billion net worth deficit. Is the FHA broke?

The FHA had reserves of $30.4 billion as of Sept. 30, according to estimates by its independent actuary. The report looks at what would happen if the FHA didn’t write any new business and then it makes assumptions about home prices and interest rates, projecting how much money the FHA would have to pay to cover any losses over the 30-year life of those loans. The report says that the current loans, under a base case economic scenario, will lose around $46.7 billion. That means the FHA isn’t out of money today, but they won’t have enough money to pay those claims.

“What it’s saying is that if you ended the FHA program today, they would need a Treasury draw. They do not have enough capital,” said Thomas Lawler, an independent housing economist in Leesburg, Va.

There’s a lot of talk about an FHA “bailout”? How does the government bail out its own agency?

The government doesn’t actually have to go to Congress and ask for money. The FHA has what’s known as “permanent and indefinite” budget authority, meaning that it can simply receive a direct appropriation from Treasury to cover any losses. The bailout term arises from the fact that this particular agency has never had to rely on taxpayer money to cover losses.

When could that happen?

The White House’s Office of Management and Budget will produce its own forecast of the FHA’s finances when it releases the president’s annual budget next February. At some point later in the year, and no later than September, the FHA could submit a request to the Treasury to move money into its reserve accounts.

The FHA is required to have enough cash in its reserves to pay for anticipated losses, so even though the FHA has some $30 billion in reserves, it would have to take money from the Treasury if the OMB found that the FHA were expected to lose more money than whatever it had on hand.

Obama administration officials say that the agency will take steps to prevent any Treasury infusions. How is that possible?

The FHA could make a series of changes to charge more money for loans that it guarantees in a bid to boost revenues and increase the projected value of new business. It could also announce new legal settlements with banks, new changes in how it will handle a growing inventory of more than 730,000 defaulted mortgages, and other steps.

Will FHA loans become more expensive for borrowers?

Yes. The FHA will raise annual insurance premiums by 0.1 percentage point, following a series of earlier fee hikes. The FHA will also revamp its program so that borrowers will have to pay mortgage insurance over the life of their loan. Currently, borrowers no longer have to pay insurance after certain thresholds are met. For a 30-year fixed-rate loan, for example, annual fees aren’t collected after five years and after borrowers owe no more than 78% of their property’s value.

The FHA is also planning to revamp its reverse mortgage program, which could reduce the amount of money that seniors can borrow.

How did the FHA become such a big player in the market?

The agency didn’t relax its standards during the go-go days of the subprime bubble, and it lost market share to the private sector. But once the subprime market disintegrated in late 2007 and then when Fannie Mae and Freddie Mac tightened up their standards in 2008, the FHA faced a glut of new business—largely from borrowers and communities that had been served by the subprime mortgage market. It is likely to sustain huge losses on those mortgages.

The FHA was also shut out of many of the most overheated housing markets in 2006 and 2007 because of loan ceilings that varied by county. In Los Angeles County, for example, the FHA couldn’t guarantee loans that exceeded $362,790, at a time when many houses were selling for far more than that. In March 2008, Congress and the Bush administration raised those loan limits, allowing the FHA to reach a much larger share of the market.

The FHA has played a major role in the market since then because there is little private capital willing to make loans with down payments of just 3.5%. Officials in recent years have struggled with calibrating the balance between protecting taxpayers and keeping housing credit flowing, and that struggle is only going to become more acute amid rising calls now for the FHA to retrench.

Existing Home Sales "Pop", Prices Jump 11%: 

U.S. home resales rose in October and a gauge of homebuilder sentiment climbed to a six-year high in November, a sign the housing sector is continuing to gain traction.

The National Association of Realtors said on Monday that existing home sales climbed 2.1 percent last month to a seasonally adjusted annual rate of 4.79 million units, beating forecasts by Wall Street economists.

The data suggests America's recovery from the 2007-09 recession is becoming increasingly self-sustaining, with job creation helping drive home sales, which in turn are supporting economic growth.

In October, the median price for a home resale was $178,600, up 11.1 percent from a year earlier as fewer people sold their homes under distressed conditions compared to the same period in 2011. Distressed sales include foreclosures.

The nation's inventory of existing homes for sale fell 1.4 percent during the month to 2.14 million, the lowest level since December 2002. At the current pace of sales, inventories would be exhausted in 5.4 months, the lowest rate since February 2006.

In a separate report, U.S. housing starts rose to their highest rate in more than four years in October, the Commerce Department said housing starts increased 3.6 percent to a seasonally adjusted annual rate of 894,000 units -- the highest since July 2008. 

   Los Angeles Times

New short-sale program offers relief for underwater homeowners
One of the federal government’s most-important financial relief efforts for underwater homeowners started operating Nov. 1.

Making sense of the story

• Traditionally short sales, where the lender agrees to accept less than the full amount owed and the house is sold to a new purchaser at a discounted price, are associated with extended periods of delinquency by the original owner.  The new Fannie-Freddie program breaks with tradition by allowing short sales for owners who are current on their payments but are encountering a hardship that could force them into default.

• Eligible hardships under the new program run the gamut: Job loss or reduction in income; divorce or separation; death of a borrower or another wage earner who helps pay the mortgage; serious illness or disability; employment transfer of 50 miles or greater; natural or man-made disaster; a sudden increase in housing expenses beyond the borrower’s control; a business failure; and “other,” meaning a serious financial issue that isn’t one of the above.

• Homeowners who participate in this new program should be aware that although officials at the Federal Housing Finance Agency – the agency that oversees the program – are working on possible solutions with the credit industry at the moment, it appears that borrowers who use the new program may be hit with significant penalties on their FICO credit scores – 150 points or more.

• Other factors to consider are promissory notes and other “contributions.”  In the majority of states where lenders can pursue deficiencies, Fannie and Freddie expect borrowers who have assets to either make upfront cash contributions covering some of the loan balance owed or sign a promissory note.  This would be in exchange for an official waiver of the debt for credit reporting purposes, potentially producing a more favorable credit score for the sellers.

Finally, participants should be aware of second-lien hurdles.  The program sets a $6,000 limit on what second lien holders – banks that have extended equity lines of credit or second mortgages on underwater properties – can collect out of the new short sales.  Some banks, however, don’t consider this a sufficient amount and may threaten to thwart sales if they cannot somehow extract more.

Consumer Sentiment Hits Five Year High: 

U.S. consumer sentiment rose to its highest level in more than five years in November as consumers felt more optimistic about employment prospects and the outlook for the overall economy, a survey released on Friday showed.

The Thomson Reuters/University of Michigan preliminary reading on the overall index on consumer sentiment came in at 84.9, up from 82.6 the month before.

"More consumers expected good rather than bad times financially in the economy in early November, not only for the year ahead but over the next five years as well," survey director Richard Curtin said in a statement.

"This was the most positive outlook for the overall economy in more than five years," he said.

What is the number one factor for housing demand?  Is it a low interest rate?  Is it location, location, location?  Is it low home prices?  No, the number one factor that drives housing is how a consumer feels about their current and future financial situation.  So, it is great news for the housing market that Consumer Sentiment has hit a five year high. 

   Los Angeles Times

Potential borrowers eager to find lenders with superior service
A poll by Carlisle & Gallagher Consulting Group found that more than a third of potential borrowers would be willing to pay a higher rate if the mortgage came with superior service. The survey didn’t say how much more the 34 percent were willing to pay, but it did find that this group is a frustrated bunch.

Making sense of the story

• More than half think the process is too slow.  A third find it impossible to track the status of their loan application, an equal percentage say it is too difficult to talk with their lenders, and a quarter don’t believe the advice they’re given.
  
   
• A starting point for borrowers is to ask their real estate agent which lenders offer the best service.  Agents know which lenders keep their promises and close quickly without incident. Another option is to ask friends, co-workers, and relatives about their experiences.
  
   
• Beyond that, prospective borrowers should look for several attributes that will help them find a responsible company or accessible loan officer.
  
   
• Borrowers should look for a consistent point of contact.  Federal regulators have already settled on this as a requirement for loan servicers – the companies that collect payments, disburse funds to cover property taxes, and homowners insurance and otherwise administer loans.
  
   
• Dealing with a company that provides up-to-date status information also is beneficial.  There’s nothing worse than chasing down an unresponsive loan officer to make sure this document or that report has been received, or to find out whether underwriting has looked at the application.

   San Francisco Chronicle

Principal relief for stressed homeowners:

A limited number of underwater homeowners in California will soon be able to get principal reductions of up to $100,000 apiece on Fannie Mae and Freddie Mac loans through the federally funded Keep Your Home California program.

Making sense of the story

• Although the federal agency that oversees Fannie and Freddie had previously refused to allow permanent principal reduction on loans they own or guarantee, in mid-September, the Federal Housing Finance Agency told servicers they could immediately begin accepting money for principal reductions from programs financed by the U.S. Treasury’s Hardest Hit Fund, including Keep Your Home California.
  
   
• The California Housing Finance Agency set up four programs under the Keep Your Home name to distribute California’s Share of the funds -- $1.9 billion.  It allocated $772 million to principal reduction – enough to help an estimated 9,000 borrowers.
  
   
• To qualify for the principal reduction in California, homeowners must live in the home, owe more than it is worth, be of low-to-moderate income, and be delinquent or have some hardship that puts them in imminent risk of default.
  
   
• The balance on the first mortgage cannot exceed $729,750.  Other rules apply, but there is no asset limitation.  The maximum reduction is $100,000 per homeowner.
  
   
• For more information on the Keep Your Home programs, visit http://keepyourhomecalifornia.org/.

Seven Straight Months Of Price Increases: 

The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.5 percent on a seasonally adjusted basis, in line with economists' forecasts. On a non-seasonally adjusted basis, prices fared better, gaining 0.9 percent.  Prices in the 20 cities climbed 2 percent year-over-year, topping expectations for a 1.9 percent increase.

It was the seventh straight month of increases, extending the longest continuous string of gains since prices were boosted by the homebuyer tax credit in 2009 and 2010.

The sustained good news in home prices "makes us optimistic for continued recovery in the housing market," David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.

"Even as we end the seasonally strong home buying period, the statistics are positive," said Blitzer.

   The New York Times

End is nigh for certain tax exemptions:

Currently, any debt forgiven by a lender in a short sale, loan modification, or foreclosure is exempt from federal taxation.  However, that exemption is scheduled to expire Jan. 1, 2013.

Making sense of the story

• Borrowers will have to count mortgage relief from lenders as income on their federal tax returns, if the exemption is allowed to expire.  That means, for example, a borrower would have to pay taxes on a $100,000 reduction in principal owed on a loan, or a $20,000 write-off in the amount owed after a short sale.
  
   
• An extension of the tax exemption – established under the Mortgage Forgiveness Debt Relief Act of 2007 – is a strong possibility.  But given that Congress will have to grapple with serious fiscal issues after the November elections, there is no guarantee the exemption will emerge from those negotiations intact.
  
   
• The Debt Relief Act exemption applies only to canceled mortgage debt used to buy, build, or improve a primary residence, not a second home.  The maximum exemption is $2 million.
  
   
• Reinstating the tax would undercut the the effect of the National Mortgage Settlement reached earlier this year in the federal government’s investigation into banks’ mishandling of foreclosure documents. 
  
   

Under the terms of the settlement, five of the biggest mortgage lenders must put some $17 billion toward debt relief that enables borrowers to stay in their homes. Smaller portions are reserved for short sales and refinancing.

New Home Sales Best In Over Two Years: 

New U.S. single-family home sales surged in September to the highest level in nearly 2-1/2 years, further evidence the housing market recovery is gaining steam.

The Commerce Department said on Wednesday that new home sales increased 5.7 percent to a seasonally adjusted 389,000-unit annual rate -- the fastest pace since April 2010, when sales were boosted by a tax credit for first-time home buyers.

The median price of a new home jumped  11.7 percent from a year ago.

In a separate report, the National Association of Realtors said that Pending Home Sales increased by 0.3% on a month-over-month basis and jumped 14.5 percent from a year ago.

   Mercury News

California home prices rise in September; sales fall:

A continued shortage of available homes for sale lowered California home sales in September, while the median price reached the highest level in more than four years, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported this week.

Making sense of the story

• “Sales in the inland and coastal markets continue to move in different directions.  Low inventory – especially in distressed areas – is dampening sales activity,” said C.A.R. President LeFrancis Arnold.  “In many of these areas, there is a one- to two-month supply of REO homes on the market. "The Inland Empire and the Central Valley have experienced double-digit sales declines compared with last year.  Meanwhile, sales were higher in San Diego and most Bay Area counties, where the economies appear to be growing faster than the rest of the state.”
  
   
• Sales in September were down 5.2 percent compared with August and down 1.2 percent from September 2011.
  
   
• The statewide median price of an existing, single-family detached home inched up 0.3 percent from August’s $343,820 median price to $345,000 in September.
  
   
• California’s housing inventory eased slightly in September, with the Unsold Inventory Index for existing, single-family detached homes edging up to 3.7 months, up from a revised 3.2 months in August and 5.3 months in September 2011.  The index indicates the number of months needed to sell the supply of homes on the market at the current sales rate.  A six- to seven-month supply is considered normal.
  
   
• Homes sold faster in September, with the median number of days it took to sell a single-family home falling to 39.3 days in September 2012 from 41.1 days in August and down from a revised 54.2 days for the same period a year ago.

Average Home Price Jumps 11.3% from Last Year: 

More good news about the housing market: Inventories are lower, prices are higher and the number of days a home is on the market has decreased.

According to the  Existing Home Sales report that was just released, the median price paid for a previously occupied home rose 11.3 percent from a year earlier to $183,900.

Tight inventories have helped support home prices in recent months, which could help economic growth by making consumers more comfortable about their finances. The nation's stock of existing homes for sale fell 3.3 percent last month to 2.32 million units. At the current pace of sales, inventories would be exhausted in 5.9 months, the lowest rate since March 2006, the National Association of Realtors said.

The median time previously owned homes spent on market was 70 days in September, down 30.7 percent from a year ago. Also helping prices - the share of distressed sales fell to 24 percent in September, down from 30 percent in the same month of 2011.

The low-hanging fruit has already been picked over the past year and now there are concerns that there may be a shortage of  housing in some areas which has fueled buyer interest in acting sooner rather than later.

Short sale fraud “heating up,” expert says:

A panel of short sale experts presenting at CALIFORNIA REALTOR® EXPO 2012 in Anaheim last week said that “fraud is heating up like a wildfire right now ...” and “we’ve got to be aware that this fraud is changing directions, jumping containment lines.”

Making sense of the story

• Short sales involve the selling of a home for less than is owed on its mortgage.
  
   
• Among the most common forms of fraud are: Flopping, non-arm’s length transaction, side agreements, and false information.
  
   
• Flopping: Scammers arrange to buy a home at an artificially deflated price intending to flip it immediately at its actual value.
  
   
• Non-arm’s length transactions: The buyer in a short sale is related to the seller by blood, marriage, or some type of business or personal affiliation.  This istypically arranged by an underwater borrower to regain ownership of the property free from the mortgage debt.
  
   
• Side agreements: In addition to payments included in a lender’s “approval letter,” the buyer and seller have side agreements to pay off junior liens, short sale negotiators’ fees, or other third-party fees.
  
   
• False information: The transaction includes phony details in the closing settlement statement, or HUD-1, to hide buried costs and fees.

  Orange County Register

Short sale fraud “heating up,” expert says:

A panel of short sale experts presenting at CALIFORNIA REALTOR® EXPO 2012 in Anaheim last week said that “fraud is heating up like a wildfire right now ...” and “we’ve got to be aware that this fraud is changing directions, jumping containment lines.”

Making sense of the story

• Short sales involve the selling of a home for less than is owed on its mortgage.
  
   
• Among the most common forms of fraud are: Flopping, non-arm’s length transaction, side agreements, and false information.
  
   
• Flopping: Scammers arrange to buy a home at an artificially deflated price intending to flip it immediately at its actual value.
  
   
• Non-arm’s length transactions: The buyer in a short sale is related to the seller by blood, marriage, or some type of business or personal affiliation.  This istypically arranged by an underwater borrower to regain ownership of the property free from the mortgage debt.
  
   
• Side agreements: In addition to payments included in a lender’s “approval letter,” the buyer and seller have side agreements to pay off junior liens, short sale negotiators’ fees, or other third-party fees.
  
   

False information: The transaction includes phony details in the closing settlement statement, or HUD-1, to hide buried costs and fees.

Obama administration releases September housing scorecard:

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury recently released the September edition of the Obama Administration's Housing Scorecard, which continues to show signs that the housing market is strengthening.  Home equity has increased by $860 billion since the end of 2011, and August had the highest level of existing home sales in more than two years – although officials caution that the overall recovery remains fragile. 

  
The September Housing Scorecard features key data on the health of the housing market and the impact of the Administration’s foreclosure prevention programs, including:

• Rising home values have brought homeowner equity to its highest level since the third quarter of 2008 and helped lift 1.3 million families above water. Homeowner equity jumped $406 billion, or 5.9 percent, to $7,275 billion in the second quarter of 2012.  After a sharp first quarter rise, total equity has grown to $863 billion, or 13.5 percent, since the end of 2011. The number of underwater borrowers has declined by 11 percent since the end of last year, from 12.1 million in the 4th quarter of 2011 to 10.8 million in the second quarter of 2012.
• Nearly 1.3 million homeowner assistance actions have taken place through the Making Home Affordable Program, while the Federal Housing Administration (FHA) has offered more than 1.4 million loss mitigation and early delinquency interventions.

As of August, more than one million homeowners have received a permanent HAMP modification, saving approximately $539 on their mortgage payments each month and an estimated $15 billion to date.

  San Diego Union Tribune

When will the housing market be "corrected?"

The housing recovery in California is expected to continue through to 2013, but the market won't be "corrected" until as far off as 2017, according to the California Housing Market Forecast released by the CALIFORNIA ASSOCIATION OF REALTORS.

 

Making sense of the story

 

• Homes sales and prices are expected to keep rising, but lower-than-normal inventory levels and underwater mortgages are key hindrances to a faster recovery, according to Leslie Appleton-Young, chief economist with the CALIFORNIA ASSOCIATION OF REALTORS®.
  
    
• Home sales are forecasted to rise 1.3 percent to 530,000 units next year, based on the projected tally of 523,300 units this year. That's a slower growth than that of 2011 to 2012, which is roughly 5 percent.

• The momentum in prices also is expected to carry through to 2013, a result of pent-up demand for a limited housing supply. The median price could rise 5.7 percent to $335,000 in 2013. That's lower than the projected price growth from 2011 to 2012, an estimated 11 percent. The state has a 3.2 months' worth of housing inventory, significantly lower than the 16 months'-plus supply of saw roughly four years ago.

• “Pent-up demand from first-time buyers will compete with investors and all-cash offers on lower-priced properties, while multiple offers and aggressive bidding will continue to be the norm in mid- to upper-price range homes,” said Appleton-Young in the report.

• Appleton-Young says what underwater borrowers throughout the state will do -- be it selling or holding -- will have a big effect on next year's housing recovery.

Other things to watch next year that will have a bearing on the housing market include: policies related to the state,local and federal governments; and housing and monetary policies, Appleton-Young said.

  San Francisco Chronicle

Shortage of California homes up for sale:

After years of having too many homes and not enough buyers, real estate agents in California now have the opposite problem – too many buyers and not enough homes for sale.

Making sense of the story

• The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported Monday that its statewide inventory of unsold homes index for existing, single-family detached homes fell to 3.2 months in August from 3.5 months in July and 5.2 months in August 2011.
  
   
• The index reflects the number of months needed to sell the supply of homes on the market at the current sales rate.  A six- to seven-month supply is considered normal.  When the number goes higher, inventory is plentiful and it’s considered a buyer’s market.  When the number goes lower, the advantage goes to the seller.
  
   
• Declining inventory helps explain why the statewide median price of an existing, single-family detached home rose to $343,820 in August, up 3 percent from July and up 15.5 percent from August 2011, according to C.A.R.
  
   
• Nationwide, the inventory of homes for sale also has declined.  In July, there was a 6.4-month supply of homes compared with 9.3 months in July 2011.  The current number is in line with the long-term average, according to the NATIONAL ASSOCIATION OF REALTORS®.  However, NAR also acknowledges there are “acute shortages” in places such as California, Arizona, Nevada, and parts of Florida.
  
   
• Also constraining supply is the fact that so many homeowners are underwater – or owe more than their homes are worth – and unable to sell without taking a loss.  As prices rise, more homes will increase in value, but it’s going to take time.  Meanwhile, there are still a lot of homes that are not likely to come onto the market.
  
   

At some point, the balance will tip, but it’s hard to predict when.  When banks decide prices are high enough, they will start unloading houses they have been sitting on, according to the chief economist for Trulia.

California consumer confidence at a 5-year high:

 

The California Composite Index of Consumer Confidence increased to 94.2 in the third quarter of 2012 compared with the second quarter revised reading of 89, according to Chapman University. Consumer confidence has been increasing steadily since hitting a low of 57.6 in the second quarter of 2008 and has been hovering between readings of 80 and 90 since the first quarter of 2010. The current reading of 94.2 is the highest overall consumer confidence since the beginning of the recession in the fourth quarter of 2007. An index level below 100, however, reflects a higher percentage of pessimistic consumers versus those who are optimistic.

The California Composite Index is generated based on three indices: Consumers’ outlook on current and future economic conditions, and an index measuring consumers’ spending plan.

 The current economic conditions index increased from a revised May reading of 80.9 to 86.8 in August 2012. The index measuring future economic conditions increased significantly to a reading of 105.6 in August 2012 from a revised reading of 93.6 in May. Recent improvement in the job market positively affected consumers’ assessment of the current economic conditions and the outlook about future economic activity.

 The index measuring consumers’ planned spending on big-ticket items, however, decreased substantially from the revised May reading of 96.0. The decline in this index in August 2012 to a reading of 86.1 may be due to high and volatile gasoline prices. Higher gas prices are reducing consumers’ disposable income and negatively affecting consumers’ planned spending.

Housing Market Jumps Again Could Hit 5 Year High: 

August Existing Home Sales jumped 7.8% from July - that was the fastest annual rate since May 2010 and well above analysts' expectations of a 4.55 million-unit rate. Homes rose 9.3% from the same period a year ago.

Nationwide, the median price for a home resale rose to $187,400 in August, up 9.5 percent from a year earlier as fewer people sold their homes under distressed conditions.

Keep in mind that this added demand for housing which is pushing up home prices started months before the Federal Reserve announced their massive $40 billion per month in Agency ( Fannie Mae, Ginnie Mae and Freddie Mac) mortgage backed securities purchases which have lowered rates even further since July.

“The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is testament to the sizable stored-up housing demand that accumulated in the past five years,” said the National Association of Realtors’ chief economist Lawrence Yun.

The gains in housing would certainly be much higher if it weren't for strict mortgage guidelines.  But there is so much pent up demand for housing that 1/3 of all existing home purchases were made with good old cash as investors realize that time is shortening for them to pick up houses at good bargains now that they see the home prices increasing. 

With the August jump of 7.8 percent from July, Realtors now say they are confident that home sales for all of 2012 will hit their highest level in five years.

Is a mortgage refinance right for you?

With rates for 30-year mortgages hovering below 4 percent since last October, all kinds of homeowners are trying to get their monthly mortgages reduced, say lenders and mortgage experts.

Along with months of record-breaking low interest rates, other factors are driving the refinancing boom: a competitive lending market and changes in some federal refinancing programs for struggling homeowners.  It's prompted many established homeowners with old-school, high-interest mortgages to decide it's time to refi.

Making sense of the story

• To determine whether you should refinance, look at how long you plan to be in your current home and whether the upfront costs outweigh the monthly savings.  Generally the primary reasons for refinancing a mortgage are to:
• Lower monthly mortgage payments.
   
• Eliminate the unpredictability of an adjustable-rate mortgage by switching to a fixed rate.
   
• Free up home equity cash for home improvements, college costs or other expenses.
   
• Shorten the loan term, say from a 30- to a 15-year mortgage, which can save thousands in interest payments.
• It pays to compare quotes from several lenders because they offer different rates and fees. Start with your current lender or sit down with a local loan originator. You can also do refinance comparisons online, using mortgage calculators at sites like Bankrate.com or those of individual banks and lenders.
   

If you're a struggling homeowner, ask your lender about changes in the federal Home Affordable Refinance Program and FHA refinance programs that have made refinancing options more plentiful.

Tax relief on forgiven debt set to expire Dec. 31, 2012

 

Unless Congress and the California State legislature take action, a break for mortgage principal forgiven in loan modifications or short sales will expire at year’s end.

The mortgage debt forgiveness issue is only one of approximately 60 expiring tax provisions that Congress appears unable to extend prior to its recess for the November elections.  Congress is pushing the extension of any expiring tax provision to the lame duck session, along with any increase in the debt ceiling, and any serious attempts to prevent the mandatory budget cuts agreed to during last year’s debt ceiling deal.

California's tax treatment of mortgage debt relief income generally aligns with federal law, and both the California and federal laws are set to expire at the end of 2012. For debt forgiven on a loan secured by a "qualified principal residence," borrowers are exempt from both federal and state income tax consequences, but only until Dec. 31, 2012.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to pay off a previous loan that would have qualified.

However, these tax breaks apply only to debts discharged from 2009 through 2012. It may be that Congress will take action to extend the federal exemption before year-end, but we will have to wait and see. If the federal law is extended, it is likely that California would follow in due course, as in the past, but it is not guaranteed.  The last time the federal tax exemption was extended, California did not conform its tax law until well into the next year.

Sellers who have transactions closing after Dec. 31, 2012, need to speak to their own legal counsel or tax advisors about the impact of the expiration of these laws and their potential tax liabilities, including the applicability of other exemptions from debt relief income tax.

More info:  California Franchise Tax Board or Internal Revenue Service

New Law Revamps Workers' Compensation

This morning, Governor Brown signed into California law extensive changes to the workers’ compensation system which protects employees injured while at work. The new law aims to reduce costs to employers, increase benefits to disabled workers, and eliminate inefficiencies and waste in the system. The Governor’s office estimates that the law will reduce the costs of workers’ compensation losses by close to $1 billion. The full text of this new law, Senate Bill 863, is available at http://www.leginfo.ca.gov/.

As a reminder, real estate brokers are highly encouraged to provide workers’ compensation coverage for their real estate salespersons without charging the salespersons for the premium costs. The California Labor and Workforce Development Agency has taken the position that a real estate salesperson is generally an “employee” for workers’ compensation insurance purposes. For more information, C.A.R. offers members a legal article on Workers’ Compensation. Also, for information on worker’s compensation coverage from our endorsed insurance broker, RealCare Insurance, click here.

Major highlights of the new workers’ compensation law, which will generally take effect on January 1, 2013, include, but are not limited to, the following:

• Increases total permanent disability benefits by about $740 million per year, as well as revises the procedures for determining an employee’s eligibility for permanent disability  indemnity;
• Provides that no permanent disability indemnity payment is required if the employer has offered the employee a position that pays at least 85% of the compensation paid to the employee at the time of injury or if the employee works in a position that pays 100% of the compensation paid to the employee at the time of injury as specified;
• Provides funding for a $120 million return-to-work program appropriated from the Workers’ Compensation Administration Revolving Fund;
• Provides a permanent partial disability employee with a voucher up to $6,000 as a supplemental job displacement benefit to cover education-related retraining and skill enhancement expenses as specified. Vouchers are not required if an employer offers employment;
• Makes certain changes for private self-insured employers and the Self-Insurers’ Security Fund;
• Limits an employer’s requirement to provide home health care services as medical treatment for an injured worker under certain circumstances;
• Implements independent medical and bill review processes, which will also be used to resolve disputes over a utilization review decision for injuries as specified. The cost of the independent medical review and the administration of the independent medical review system will be borne by employers;
• Establishes official fee schedules as follows: (1) an official medical fee schedule for reasonable maximum fees for certain medical goods and services; (2) an official medical fee schedule based on Medicare’s Resource-Based Relative Value Scale for physicians and nonphysician practitioners, which will become maximum reasonable fees commencing 2014; and (3) a payment schedule, by July 1, 2013, for home health care services not otherwise covered;
• Requires that a chiropractic doctor is certified in California workers’ compensation to be a qualified medical evaluator (i.e., eliminates eligibility based on postgraduate study);
• Requires, starting 2014, changes to medical provider networks, such as requiring a treating physician to give a written acknowledgement that the physician is a member of a medical provider network, and requiring every medical provider network to have at least one medical access assistant to help injured employees find an available physician;
• Prohibits an interested party for certain workers’ compensation services from providing referrals as specified, which will be a misdemeanor and subject to civil penalty up to $15,000 per offense;
• Prohibits a qualified medical evaluator from conducting evaluations at more than 10 locations;
• Revises dispute resolution procedures, such as when an employee is represented by an attorney;
• Establishes a secondary review process for billing disputes related to medical or legal expenses;
• Revises procedures for allowing specified expenses as liens, such as requiring payment of a lien to be made only to the person entitled to payment (not assignee) except as specified, requiring certain declarations to be made under penalty of perjury, requiring a $150 filing fee for liens filed on or after January 1, 2013, and a $100 activation fee for certain liens filed before January 1, 2013; and

Amends legal proceeding procedures, such as by allowing an appeals board to receive reports of vocational experts as evidence, and requiring employers to pay for a language interpreter if the injured employee or deponent is not proficient in English.