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.

More Evidence Housing Market Is Improving: 

Fewer homeowners were underwater on their mortgages in the second quarter, helped by an improvement in home prices, data analysis firm CoreLogic said. 

An "underwater mortgage" is where a home owner owes more on their home than what they could sell it for.  The majority of these home owners pay their mortgage on time (The share of home owners that were underwater and up to date on their payments was 84.9 percent, up slightly from 84.8 percent in the first quarter) but are trapped in their current location.  The fewer homes that are underwater, the more well-qualified buyers hit the market.

About 600,000 home owners returned to positive equity in the second quarter, adding to the 700,000 that were above water in the first quarter.  That is a large number of newly eligible buyers that are ready to take advantage of fantastic rates and are willing to move forward with a purchase because they know first-hand that home values are increasing.

Sens. Boxer and Menendez revive bill to help more homeowners refinance:

California Senator Barbara Boxer and New Jersey Senator Robert Menendez this week reintroduced a measure that would allow millions of homeowners to more easily refinance their mortgages at lower rates. 

First introduced in May, “The Responsible Homeowner Refinancing Act of 2012" would streamline and align the refinance processes of Fannie Mae and Freddie Mac and make it easier for homeowners who are current on their mortgage payments but who have been previously unable to refinance to finally take advantage of record low interest rates.

The proposed legislation would extend streamlined refinancings; waive loan-to-value ratios for existing, well-performing loans to participate in the streamline program; make refinancings more affordable by eliminating up-front fees and appraisal costs; and improve competition for lenders looking to compete with the existing mortgage servicer.

C.A.R. applauds Boxer (D-CA) and Menendez (D-NJ) for reintroducing this bill and recognizing that it benefits all parties involved.  “Responsible homeowners who can refinance will avoid foreclosure and have more money in their pockets.  Fannie Mae and Freddie Mac will see fewer foreclosures, and the housing market can continue its recovery,” C.A.R. President LeFrancis Arnold said in a statement.

When an adjustable-rate mortgage makes sense:

When the housing market began declining, many people claimed that adjustable-rate mortgages (ARMs) were the cause.  However, recently they’ve been making a comeback, especially among affluent borrowers.

Making sense of the story

• An ARM offers an introductory period in which the borrower pays a lower interest rate than with a fixed loan; after that, the rate can fluctuate up or down.

• With rates near historic lows, the safety of locking in a fixed-rate appeals to many borrowers.  But these borrowers are paying a premium for that security.  The spread between rates on 30-year fixed-rate mortgages and the most-popular ARMs now stand at about one percentage point, more than double the difference just five years ago.
• That means that homeowners who are planning to either move or pay off their mortgage over the next few years can save big with an ARM.
• Borrowers can determine if an ARM is the right loan option for them by looking at their financial situation and the terms of the ARM. ARMs carry risks in periods of rising interest rates, but can be cheaper over a longer term if interest rates decline. An ARM may be a good option to consider for borrowers who plan to own the home for only a few years, expect an increase in future earnings, or the prevailing interest rate for a fixed-rate mortgage is too high.

Before deciding to apply for an ARM, borrowers should consider if their income is likely to rise enough to cover higher mortgage payments if interest rates increase; whether they will be taking on other sizable debts such as car loans or school tuition in the near future; how long they plan to own the home; and whether their mortgage payments can increase even if interest rates generally do not increase.

Completed foreclosures decline in July:

CoreLogic’s National Foreclosure Report for July shows there were 58,000 completed foreclosures in the U.S. in July 2012, down from 69,000 in July 2011 and 62,000 in June 2012. Since the financial crisis began in September 2008, there have been approximately 3.8 million completed foreclosures across the country. Completed foreclosures are an indication of the total number of homes actually lost to foreclosure.

 

Approximately 1.3 million homes, or 3.2 percent of all homes with a mortgage, were in the national foreclosure inventory as of July 2012 compared with 1.5 million, or 3.5 percent, in July 2011. Month-over-month, the national foreclosure inventory was unchanged from June 2012 to July 2012. The foreclosure inventory is the share of all mortgaged homes in any stage of the foreclosure process.

 

“Completed foreclosures were down again in July, this time by 16 percent versus a year ago, as servicers increasingly rely on alternatives to the foreclosure process, such as short sales and modifications,” said Mark Fleming, chief economist for CoreLogic. “Completed foreclosures remain concentrated in five states, California, Florida, Michigan, Texas and Georgia, accounting for 48 percent of all completed foreclosures nationwide in July.”

 

Highlights as of July 2012:

• The five states with the highest number of completed foreclosures for the 12 months ending in July 2012 were: California, 118,000; Florida, 92,000; Michigan, 61,000; Texas, 57,000; and Georgia, 54,000. These five states account for 48.1 percent of all completed foreclosures nationally.
• The five states with the lowest number of completed foreclosures for the 12 months ending in July 2012 were: South Dakota, 32; District of Columbia, 120; Hawaii, 445; North Dakota, 575; and Maine, 608.

New home sales rise in July

Sales of new single-family houses rose 3.6 percent in July to a seasonally adjusted annual rate of 372,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 25.3 percent above the July 2011 estimate of 297,000.The median sales price of new houses sold in July 2012 was $224,200; the average sales price was $263,200. The seasonally adjusted estimate of the number of new houses for sale at the end of July was 142,000. This represents a supply of 4.6 months at the current sales rate.

Home prices rose in second quarter:

 

The S&P/Case-Shiller Home Price Indices shows that all three headline composites ended the second quarter of 2012 with positive annual growth rates for the first time since the summer of 2010. The national composite rose 1.2 percent in the second quarter of 2012 compared with the second quarter of 2011 and was up 6.9 percent compared with the first quarter of 2012. The 10- and 20-City Composites posted respective annual returns of 0.1 percent and 0.5 percent in June 2012.

Month-over-month, average home prices in the 10-City Composite were up 2.2 percent and in the 20-City Composite were up 2.3 percent compared with May. For the second consecutive month, all 20 cities and both Composites recorded positive monthly gains. Eighteen of the 20 MSAs and both Composites posted better annual returns in June as compared with May 2012 – only Charlotte and Dallas saw a deceleration in their annual rates.

Pending Home Sales Touch Two Year High: 

Contracts to buy previously owned homes rose to their highest level in more than two years in July, an industry group said on Wednesday, suggesting the housing market recovery was gaining traction.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, increased 2.4 percent to 101.7 - the highest level since April 2010 and shortly before the deadline for the home buyer tax credit.

The report was the latest to show momentum in housing market recovery, with gains in home construction and sales and prices.
Pending home sales were up 12.4 percent in the 12 months to July.

"All regions saw monthly increases in home-buying activity except for the West, which is now experiencing an acute inventory shortage," said NAR chief economist Lawrence Yun.

Contracts in the Northeast gained 0.5 percent last month and increased 3.4 percent in the Midwest. In the South, contracts rose 5.2 percent. The West saw a 1.7 percent drop in contracts last month.