More Buyers are Purchasing with Cash

Real Estate 411:

Multiple Offers Increased as the Market Became More Competitive By Oscar Wei, Senior Research Analyst

To be competitive in a housing market with tight inventory and a restrictive lending environment, many buyers who wanted to have an edge over other buyers opted to make an “All Cash” offer for their home purchase.   Since an “All Cash” transaction does not have to go through lengthy lending approval process, the escrow process is faster and is less likely to fall through, making the offer more attractive and more assured.

According to results based on C.A.R.’s 2012 Annual Housing Market Survey, “All Cash” buyers has been on the rise since the mid of 2000’s, increasing from 11 percent in 2005 to 30 percent in 2012.  Almost one-third of all home buyers paid with all cash in 2012, which is more than 3 times what it was in 2001 when “All Cash” buyers were merely 8.8 percent. The share of all cash buyers in 2012 was also nearly double the long-run average of 15.1 percent since 1998.

 

For more information about the 2012 Annual Housing Market Survey,

Patrick E. Rosenthal 
Aloha Bay Realty
(510) 932-9134 - Direct
(800) 749-9134 - Toll free
(510) 559-9249 - Fax
DRE  #01315655

www.YourHOMEinvestment.com

"Your Trusted Advisor, I'm not just Your Agent."

If you know someone who is considering buying or selling a home, please give me a call. I will provide professional & courteous service along with knowledgeable guidance through the process.

Housing sentiment continues to rise

Fannie Mae’s January 2013 National Housing Survey found that increasing confidence in home sales and an improved sense of job security provide further evidence of a strengthening housing market. Underlying the growing sense of optimism, the percentage of survey respondents who think it is a good time to sell a home continued to climb to 23 percent last month from 11 percent the same time last year. While expectations regarding personal finances stayed relatively flat last month, other housing indicators remained at or near survey highs, indicating consumers remain confident in the stability of the housing market. 


Highlights from the survey include:

• The average 12-month home price change expectation fell slightly from last month’s survey high to 2.4 percent.
• At 41 percent, the share of those surveyed who believe home prices will go up in the next 12 months decreased by 2 percentage points from December’s survey high, while the share who believe home prices will go down returned to the survey low of 10 percent.
• The percentage of those surveyed who think mortgage rates will go up decreased by 3 percentage points to 41 percent, while those who think they will go down dipped slightly to 7 percent.
• Twenty-three percent of respondents say it is a good time to sell a house, up by 12 percentage points year-over-year.
• At 3.7 percent, the average 12-month rental price change expectation fell 0.9 percent from last month’s survey high.
• Half of those surveyed say home rental prices will go up in the next 12 months, a slight increase over December, and the highest level since the survey’s inception.
• The share of respondents who said they would buy if they were going to move held steady at 65 percent.

Appraisals in rising price markets

• Home appraisals are based on recent sales prices of comparable properties.  And in rising price markets, those sales prices might not be high enough to support new home sale prices.  Here are some ways sellers can improve their home appraisal.

• Make sure the appraiser knows the neighborhood.  Sellers can request that the lender send a local appraiser; if that still doesn’t happen, owners should supply as much information as possible about the quality of the neighborhood.

• Provide your own comparables. Sellers should provide the appraiser with at least three solid and well-priced comparable properties.  This will save the appraiser some work, and ensure that he or she is getting price information from homes that really are similar to the one being appraised.

• Document home improvement projects. Sellers should provide before and after photos, along with a well-defined spreadsheet of what was spent on each renovation, which should persuade an appraiser to turn in a number that far exceeds what he or she first called out. It’s important to highlight all-important structural improvements to electrical systems, heating and cooling systems – which are harder to see, but can dramatically boost an appraisal.  Showing receipts also may be helpful.

Home values rise 6% nationwide in 2012

U.S. home values ended 2012 up 5.9 percent compared with 2011, marking four consecutive quarters of national home value appreciation, according to Zillow’s Home Value Index. The Index rose to $157,400 in the fourth quarter, up 2.5 percent over the third quarter, according to the fourth quarter Zillow Real Estate Market Reports. 

The 5.9 percent annual appreciation rate far exceeded yearly rates of appreciation typically associated with healthy markets and represents the largest annual gain since August, 2006 – near the peak of the housing bubble. Historically, housing markets can expect annual home value appreciation of roughly 3 percent on average, according to Zillow research. Looking ahead, the Zillow Home Value Forecast shows home values increasing by 3.3 percent in 2013, a yearly appreciation rate more in line with historic norms.

As home values rose in the fourth quarter, foreclosure activity abated, with 5.22 of every 10,000 homes nationwide facing foreclosure during December 2012. That was down 2.2 homes per 10,000 year-over-year and down 1.2 homes from the previous quarter. Foreclosure re-sales stood at 12 percent of the market, down 4 percent from the end of 2011 and down 0.3 percent from the third quarter.

In the rental market, national rents fell 0.6 percent in the fourth quarter compared with the third quarter, but ended 2012 up 4.2 percent year-over-year. The Zillow Rent Index stood at $1,274 at the end of December.

More info

Higher Taxes in 2013

A 92 Year-Old Solution for Real Estate Investors Facing Higher Taxes in 2013:

1031 Exchanges Offer Full Deferral of the New 3.8% Medicare Surtax Tax and 20% Capital Gain Tax

 

 

 

 

The familiar adage, “It’s not how much you make, but how much you keep” rings truer than ever for real estate investors in 2013. Not only have capital gain taxes increased significantly for high earners, but many investors below the top tax bracket face an additional 3.8% surtax on passive investment income like capital gains. Fortunately, IRC Section 1031, a provision which has been in the tax code since 1921, provides critically needed tax relief.

Under the American Taxpayer Relief Act of 2012, the top capital gain tax rate has been permanently increased to 20% (up from 15%) for single filers with incomes above $400,000 and married couples filing jointly with incomes exceeding $450,000. In addition, the new IRC Section 1411 3.8% Medicare surtax on net investment income, which includes capital gains, results in an overall rate for higher-income taxpayers of 23.8% -- a staggering 58% increase from 2012 tax rates!

 

Four Steps Involved in Determining Capital Gain Taxation

 

Absent the tax deferral benefits of a 1031 exchange, below is a summary of the four ways investors will be taxed on the sale of an investment property:

 

1)      Depreciation Recapture: Taxpayers will be taxed at a rate of 25% on all depreciation recapture.

 

2)      Federal Capital Gain Taxes: Investors owe Federal capital gain taxes on the remaining economic gain depending upon their taxable income. Since a new higher capital gain tax rate of 20% has been added to the tax code, investors exceeding the $400,000 taxable income threshold for single filers and married couples filing jointly with over $450,000 in taxable income will be subject to the new higher tax rate. The previous Federal capital gain tax rate of 15% remains for investors below these threshold income amounts.

 

3)      New Medicare Surtax Pursuant to IRC Section 1411: The Health Care and Education Reconciliation Act of 2010 added a new 3.8% Medicare Surtax on “net investment income.” This 3.8% Medicare surtax applies to taxpayers with “net investment income” who exceed threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly. Pursuant to IRC Section 1411, “net investment income” includes interest, dividends, capital gains, retirement income and income from partnerships (as well as other forms of “unearned income”).

 

4)      State Taxes: Taxpayers must also take into account the applicable state tax, if any, to determine their total tax owed. Some states have no state taxes at all, while other states, like California, have a 13.3% top tax rate.

 

Acquire, renovate and resell in 90 days

FHA says flip away -- within limits

Temporary waiver of 90-day 'anti-flipping' rule extended through 2014

By Ken Harney, Monday, December 3, 2012.

Inman News®

Foreclosure sale image via Shutterstock.

Good news for single-family home investors, rehabbers and buyers seeking to use low down payment FHA financing: The temporary waiver of FHA's 90-day "anti-flipping" rule was extended last week through 2014.
The waiver, which facilitates purchases of homes from sellers who have held title to their properties for less than 90 days, continues a policy first adopted by the Obama administration in 2010.
Starting in 2003, FHA had imposed the 90-day standard as part of an effort to rein in rampant quick-flips of houses where investors made minimal or no improvements to rundown, foreclosed or abandoned houses, then sold them days or weeks later at high price markups with the help of inflated appraisals to purchasers using FHA loans.
Those flips frequently involved collusion and fraud by teams of mortgage loan officers, realty agents and appraisers -- even straw buyers who defaulted and disappeared without making a single payment -- and racked up significant losses to FHA's insurance fund. Neighborhoods suffered because the properties remained empty and in bad physical condition, depressing values of houses in the immediate vicinity.

Since 2011, FHA has made annual extensions of its waiver. This year, an FHA official told me Friday, the agency opted for a two-year term in order "to provide greater levels of certainty" for lenders and buyers, removing questions about whether, and for how long, the waiver would be continued. Since the first waiver in 2010, according to the official, FHA has successfully insured $11 billion worth of mortgages on 65,250 homes where the seller had held title for less than 90 days.
In a Federal Register notice Nov. 29 announcing the extension, Acting FHA Commissioner Carol J. Galante said the objective is to increase "the availability of affordable homes for first-time and other purchasers, helping stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high."
Among the key requirements that will continue during the latest waiver:

• All transactions must be arm's-length, with no identity of interest between the buyer and seller or other participants. Lenders are required to ensure that the seller actually holds title to the property. (In earlier flipping schemes, buy-sell transactions sometimes moved so fast that the seller never acquired legal title.) There should be no "pattern" of previous flips of the property during the 12 months preceding the transaction.
• In cases where the sales price of the resold property is more than 20 percent more than what the seller paid for it, there must be documentation showing the renovations and repairs that justify the markedly higher resale price. A second appraisal may be used to substantiate the increase in value, but the second appraiser must be selected from FHA's roster. When no significant renovations occur and the price is 20 percent higher than acquisition, the appraiser must provide "appropriate explanation" for the sudden increase.
• Inspections are required of all the key components of the building structure and systems when price jumps exceed 20 percent. The inspection report must be provided to the purchaser before closing. If the inspection reveals structural or "health and safety" defects, repairs must be completed before the closing and a final inspection performed to ensure that the repairs have been made.

Real estate professionals and others involved in single-family investment activities welcomed the latest extension and its two-year time span. Kevin Kim, an agent with Windermere Preferred Living in Brea, Calif., said "this definitely benefits my investors, but it's also good for communities" where high rates of foreclosure have left properties sitting around in deteriorating conditions.
Kim said most of his investor clients do not exceed the 20 percent price-increase threshold -- "typically it's more like 10 to 12 percent" -- but they virtually all try to acquire, renovate and resell in less than 90 days.
Cathy Bureau, broker-owner of Green Home Realty in San Antonio, Texas, who specializes in the central areas of the city, says FHA's two-year extension assures investors that there will be takeout financing for buyers, thereby cutting costs on the "hard money" line of credit financing they use to acquire their houses. At interest rates of 14 to 16 percent, "every day costs money," she said, so for investors the ability to sell quickly after completing repairs is crucial.

Do No Harm to Housing

Call for Action: Do No Harm to Housing

The REALTOR® Party needs your urgent help to protect the stability of the American housing market and the American economy. By now you have seen numerous news reports concerning the “Fiscal Cliff.”

Many of these reports speculate that a change to the long-standing policy that allows homeowners to deduct mortgage interest payments from their income taxes could be part of a “Fiscal Cliff” deal. 

REALTORS® need to “remind” Congress about our position on any proposed changes to the mortgage interest deduction.

NAR's position is that the mortgage interest deduction is vital to the stability of the American housing market and economy and we will remain vigilant in opposing any future plan that modifies or excludes the deductibility of mortgage interest.

Please send this short message to your Senators and Member of Congress to remind them where we stand and that we will be watching to see who stands with us.

---

Message Subject: Do No Harm to Housing

Dear [Decision Maker],

I am writing to you, as a constituent and as a member of the National Association of REALTORS®, concerning an issue of critical importance to the United States housing market and the economy.
As my elected official, it is imperative you remain vigilant in opposing any plan that modifies or excludes the deductibility of mortgage interest.The mortgage interest deduction is vital to the stability of the American housing market and economy.

I am sending this message to ask you to stand with 70 million American homeowners. I will be watching to see who stands with us.

Sincerely,
Patrick E. Rosenthal