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.