The Market is Competitive for Home Buyers

More home buyers are finding they’re losing their power position in the real estate market and that when they submit an offer for a home, they are not alone in the bidding. In fact, buyers who submit low offers may not even get a courtesy of a callback nowadays. Money Magazine recently offered potential buyers the following tips if they want to get the winning bid on a home: Get pre-approved, not prequalified: Pre-approval for a loan based on a buyer's credit, income, and assets is viewed as better than getting pre-qualified, which is just an estimate of how much that buyer may be able to borrow. Find an experienced REALTOR®: Money Magazine advised home buyers to find a real estate professional who knows how to handle multiple-offer situations and can advise how much to offer and help buyers determine if they’re getting a home at a fair price. Watch the contingencies: “The best offer isn't always the one with the best price," says George Miller, a Sarasota, Fla., real estate agent. Buyers who put in too many contingencies with their offer may lose out. Source: “Winning in a Seller's Housing Market,” Money Magazine (Sept. 12, 2012)

BELIEVE

If there’s one thing I’ve seen over and over again, it’s the cycle where housing soars, corrects, and then soars again.


In its low periods, like today, many, many people think real estate values will never come back. And certainly they’ll never go up again like they did in the past.


I don’t know about other parts of the country, but this is California where the American Dream thrives. I am eternally optimistic about California housing values, and most optimistic about values in the Bay Area.


So, I’ve collected some quotes from the past where people say real estate is dead. Reading them might allay some peoples’ concerns and put things into perspective. Enjoy:


“The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline.” (Time, Dec. 1, 1947)

“Houses cost too much for the mass market. Today’s average price is around $8,000—out of reach for two-thirds of all buyers.” (Science Digest, April, 1948)

“If you bought your house since the War…you have made your deal at the top of the market… The days when you couldn’t lose on a home purchase are no longer with us.” (House Beautiful, Nov. 2, 1948)

“The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs $28,000.” (Business Week, Sept. 4, 1969)

“Be suspicious of the ‘common wisdom’ that tells you to ‘Buy now…because continuing inflation will force home prices and rents higher and higher.’” (NEA Journal, Dec. 1970)

“The median price of a home today is approaching $50,000….Housing experts predict that in the future price rises won’t be that great.” (Nations Business, June, 1977)

“The era of easy profits in real estate may be drawing to a close.” (Money, Jan. 1981)

“In California… for example, it is not unusual to find families of average means buying $100,000 houses…. I’m confident prices have passed their peak.” (John Wesley English, The Coming Real Estate Crash, 1980)

“The golden-age of risk-free run-ups in home prices is gone.” (Money, March 1985)

“If you’re looking to buy, be careful. Rising home values are not a sure thing anymore.” (Miami Herald, Oct. 25, 1985)

“Most economists agree… [a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s.” (Money, 1986)

“We’re starting to go back to the time when you bought a home not for its potential money-making abilities, but rather as a nesting spot.” (Los Angeles Times, Jan. 31, 1993)

“A home is where the bad investment is.” (San Francisco Examiner, November 17, 1996)

Things look grim right now, but go back and look at the dates on all these quotes? Anyone who followed the advice of these people would have missed out on one of the great real estate booms of all time.

What if you paid attention to the advice in quote #7? You’d have missed out on all that growth in the 1980’s.

What about quote #12? If you followed that advice, you’d have missed out on all the great years up until last year.

I could go on and on. If you’re a patient person, it’s been almost impossible not to get rich on California housing.

It happened before and it will happen again.

Don’t bet against California housing.

In the long run, it’s always been a great investment.

BY: Rick Soukoulis

Chairman and CEO

The Loan Source

408.578.8700

rsoukoulis@Interomortgage.com

CONGRESS PASSES HOMEBUYER TAX CREDIT

Here's the latest intelligence from Real Estate Economy Watch.

Special Report

CONGRESS PASSES HOMEBUYER TAX CREDIT


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The House of Representatives voted overwhelmingly this afternoon to pass legislation containing an extension and expansion of the homebuyer tax credit, completing Congressional action and sending the tax credit to President Obama for his signature, possibly as early as tomorrow.
The $8,000 homebuyer tax credit for first-time buyers, due to expire in 25 days, will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close. First-time buyers who are in process of making a purchase will no longer need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline. The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.

For the first time, the new legislation makes buyers who already own a home eligible for a credit. A $6,500 maximum credit will be available to existing homeowners who have lived in their current residence for five of the prior eight years. The legislation limits eligibility for the existing homeowner credit to homes worth $800,000 or less.


Read the full story at http://www.realestateeconomywatch.com/

Mortgage Market Commentary

Rates were GREAT yesterday and yet have IMPROVED today!!

If you’re an honest, law-biding citizen, should you care if the IRS starts comparing mortgage payments and income? What about if you’re a roofer who makes half his income in cash? If Jane Doe claims she makes $2,000 per month on her taxes, yet her mortgage payment is $3,500, should that be a reason for Ms. Doe to be investigated? In yet another story yesterday, it appears that the IRS “will study whether it should make greater use of data on mortgage-interest payments provided to it by banks.” The IRS currently uses such data to send notices to non-filers who it believes should have filed a return. The data could also be used to target for audits individuals who don't file tax returns, or who report less income than they paid in mortgage interest. Of course, if you’re a struggling borrower that is using money out of your savings account, or from Mom & Dad, to make the mortgage payment, you don’t need two guys with badges showing up at your office….

Wells Fargo was in the rumor mill yesterday, not for anything mortgage-related but rather on if and when it is going to pay back the government TARP money. The rumors prompted its CEO to make a statement that Wells will not be selling more stock to pay back its TARP monies but rather use its earnings. Wells, in addition to Citi and Bank of America, have not paid back any TARP money yet. Although $25 or $26 billion is a big chunk of change, Wells has been having its best results in its history and has had made money by cutting its dividend. Let’s hope that they keep buying mortgages!

Yesterday was one of those days when it was better to own fixed-income securities than to own stocks. As it turned out, there were rumors swirling about Wells Fargo (see above), and this caused the herd to shuffle into the proverbial “flight to quality”. Besides, many think that the stock market has gotten a little ahead of itself in recent weeks, and took some profits by selling. Regardless, bonds did well, and rates came down. But as I have said, few are complaining about rates – they are too busy wondering if guidelines will ever loosen up.

What moved rates yesterday? Construction Spending was -0.2% in July, and year-over-year spending is down 10.5%. The Institute for Supply Management’s Factory Index increased to 52.9 in August, better than expected. We also had the National Association of Realtors report that Pending Home Sales were up 3.2%, more than forecast, and once again attributed to lower rates, less expensive houses, and the tax credit (which expires around Thanksgiving). So go figure: better news across the board should have moved the stock market higher and bonds lower, but the reverse happened.

Today we have Factory Orders and the FOMC Minutes, although we have already seen mortgage applications. U.S. mortgage applications were down last week a little over 2%, with purchase apps declining for the first time since early July. Purchase loan applications dipped 1%, and applications to refinance fell about 3%. We also had the ADP employment numbers, which don’t include government jobs, which showed that job losses in the U.S. private sector fell to their lowest monthly level in nearly a year. “Only” 298,000 jobs were cut in August. After this tidbit we find the 10-yr at 3.36% and mortgage securities about unchanged.

Make it a great day!!!

Cost Segregation – Save Taxes and Increase Your Cash Flow

Cost Segregation – Save Taxes and Increase Your Cash Flow

What is Cost Segregation?
Cost segregation is the IRS sanctioned process by which real property components are re-classified as personal property. Re-classifying real property to personal property creates larger depreciation deductions because personal property is depreciated over much shorter periods (5, 7 or 15 years) than real property (27.5 years for residential or 39 years for commercial). And, creating larger tax deductions reduces current taxable income and allows the taxpayer increased cash flow.

Does the IRS approve of Cost Segregation?
Cost segregation studies are accepted and approved by the IRS. There are various IRS rulings, regulations and court cases which provide the basis for cost segregation studies.

For more detailed information, see the below link to the IRS Cost Segregation Audit Techniques Guide revised in March of 2008.

http://www.irs.gov/businesses/article/0,,id=134180,00.html

Who Can Utilize Cost Segregation and When Can It be Implemented?
Any taxpayer can use cost segregation for buildings acquired in prior tax years; when constructing a building; buying an existing one; or, in certain circumstances, years after disposing of one.

A taxpayer that uses cost segregation for a previously acquired structure must file IRS Form 3115, Change in Accounting Method.

How is a cost segregation study prepared?
Typically, the taxpayer engages an accountant and an engineer to analyze the components of the building structure to determine which components can be re-classified as personal property and re-allocated shorter depreciation periods. These professionals analyze architectural drawings, mechanical and electrical plans, and other blueprints to identify and segregate the structural and general building elements including electrical and mechanical components from those linked to personal property.

The following is an estimate of the range of building costs eligible for re-classification through a cost segregation study to personal property resulting in accelerated depreciation.

Apartment Buildings 21-36%
Auto Dealerships 26-39%
Banks 26-38%
Hotel 26-41%
Manufacturing Facilities 26-39%
Medical/Dental Facilities 25-40%
Office Buildings 22-37%
Restaurants 30-45%
Shopping Centers 21-37%
Warehouses 18-31%

What are the benefits of Cost Segregation?
The primary benefit is greater depreciation deductions and increased cash flow.

For example, if a taxpayer acquires a small residential apartment complex for $1.5 million and thereafter obtains a cost segregation study, which re-classifies 35% of the property as 5 year personal property, the taxpayer’s depreciation deductions increase from $54,545 each year to $140,454 each year – an increase of 157%.1

There are, however, other significant benefits:

If a building component needs replacement at some point after the cost segregation, the taxpayer may take, as a deductible loss, the value of the component at the time of replacement.
If real property is reclassified as 5-, 7- or 15-year personal property, it may qualify for bonus depreciation. Bonus depreciation allows an owner to depreciate 50% of the asset immediately.
Cost Segregation and tax deferred exchanges
If a taxpayer obtains a cost segregation study and thereafter exchanges the property, he must remember to be cognizant of the new real and personal property allocation to ensure that any replacement property acquired has the same proportion of real and personal property.

What is the cost to prepare a Cost Segregation Study?
Fees for a cost segregation study are based on the size and type of building and the anticipated time required to complete the study and thus can vary substantially from project to project.

I use OREXCO and refer all my investors to check with them and their tax adviser before making a purchase or exchange. OREXCO’s choice of vendor for cost segregation studies, Tax Strategies Group, LLC, will provide clients with a free analysis to determine whether the taxpayer will benefit from a study. Tax Strategies’ estimate includes the projected increase in depreciation, showing the net present value to the client. Clients should expect to receive benefits between five and ten times the cost of the Study. Tax Strategies’ free estimate allows taxpayers to examine and weigh the benefits of its services without risk or expense. Likewise, Tax Strategies’ studies are backed by a policy of insurance issued through Lloyd’s syndicates providing for payment of taxes or fines imposed as a result of a finding that the study is defective or unsupported.

Tax Strategies Group, LLC may be contacted at (877) 394-3300 and info@tax4cash.com. Further information about Tax Strategies Group, LLC can be obtained at their website, www.tax4cash.com.

OREXCO gratefully acknowledges the participation of Jim Davis, Esq. of Tax Strategies Group, LLC in the preparation of this article.

Home Maintenance Tip -

Conserve Water and Reduce Pocketbook Pressure!

You may love the forceful flow of water at your faucets, showerheads and toilets, but did you know that installing low-flow aerators could cut your annual water consumption by more than half? You can also conserve water and save money on your water bill just by adopting a few new habits:

-While waiting for water to warm up, catch excess water in a bowl or bucket and use for houseplants or pets
-Only run the dishwasher when it is fully loaded
-Instead of using the in-sink garbage disposal, compost your food scraps
-Simply cutting your shower by 2 minutes will save 1,000 gallons a year!
-Turn off the water while you brush your teeth, shave, and while you lather up when washing your hands.

Housing Statistics Show Strong Demand in Santa Clara County Market

Housing Statistics Show Strong Demand in Santa Clara County Market
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Mortgage news

Bonds have not been able to hold on to their gain this morning. There are two big events coming up this afternoon. At 1 o'clock Eastern Time, the results of the $23 Billion auction of 10-year Notes will be released. Then at 2:15, the Fed will issue its Policy Statement after its two-day Fed Meeting.

The news from the Fed will be both multi-faceted and potentially market moving. Any hints of inflation and hikes could cause the market to swing in one direction. However, news of Bond purchases could cause an opposite reaction.

Finding – or imagining – a market bottom

The Intero Insider: Finding – or imagining – a market bottom

By Gino Blefari
President and CEO, Intero Real Estate Services

There’s an increasing amount of talk – both locally and in the national media – that we may have reached the bottom of the real estate market’s downturn.

Stories about properties selling quickly are becoming more common, as are instances of bank-owned properties selling with dozens of offers.

Moreover, in the past week, the National Association of Realtors reported that existing home sales saw an increase of 3.6% in June. Also, the Commerce Department reported that sales rose 11% in June to a seasonally adjusted annual rate of 384,000, from an upwardly revised May rate of 346,000. The last time sales rose so significantly was in December 2000.

The average person may take all of this to mean that we have indeed reached the bottom – or even that it has already passed.

But if you follow the market as closely as we do here at Intero, you come to a different, and less clear-cut, conclusion.

As I reported a few weeks ago, there are promising signs at the market’s lower end. But to get a better sense for whether or not the market as a whole will see an upward trend soon, one needs to look at the foreclosure pipeline - the number of properties making their way through the lengthy foreclosure process.

According to ForeclosureRadar, a company that tracks California foreclosure data, Notices of Default – the first step in the foreclosure process – increased 11.8% in June to 45,691, the second highest monthly total on record and a 10% year-over-year increase from June 2008. Perhaps because of recent government restrictions on foreclosures, these properties are clogged in the pipeline. Yet it seems like there are more to come – to put NAR’s optimistic existing home sales report for June (as mentioned earlier) into perspective, last month we saw an increase in home sales nationwide, yet in California in June alone the total number of new home sales was less than 80% of the total Notices of Default issued. So this tells us to expect a flood of new foreclosures hitting the market as bank-owned for sale listings several months from now and ongoing.

To compound matters, Notices of Trustee Sale – the second step in the foreclosure process, when the property owner is notified that the lender, or trustee, will attempt to sell the property at auction – decreased by a surprising 28.9% in June. Which tells us that this drop in the available supply of homes has created what seems to be a false sense of market recovery.

A third factor, from an article in the Wall Street Journal in May of 2009 - Mortgage Modifying Fails to Halt Defaults cited the Fitch Ratings Report which stated, that although thousands of home owners have been saved from foreclosure through loan modifications, anywhere from 25%-60% of these homeowners, have or will re-default and re-enter the foreclosure process in the coming months.

These three statistics tell a deeper market story: Yes, things may be improving, but it is also clear that there is a way to go before foreclosures stop flooding the market and placing downward pressure on prices.

So, like me, keep an eye on what’s happening now in the market – but also on what’s to come.

Market Monday

The financial markets are back in full swing today after the long holiday weekend. Bonds continue to remain just beneath a tough resistance level, while Stocks are getting off to a sluggish start due to concerns for the overall global economic recovery.
In other news, the ISM Services Index, which gauges the health of the non-manufacturing or service industry, came in better than expectations. Overall, the report indicates continued contraction, but at a slower pace.
Many traders and investors may be taking the next few days off as an extension of the holiday weekend, which can increase volatility. There is no urgency to lock in rates. We will watch how Bonds and Stocks continue to react to important technical factors and the news of the day. The direction could change quickly. ~ as usual~
Enjoy your day!

Econimic news

From the WSJ By Frederic Miskin

When the Federal Open Market Committee meets this Tuesday and Wednesday, the Federal Reserve will face a serious dilemma. Since the last committee meeting six weeks ago, the 10-year U.S. Treasury yield has risen by around 70 basis points (0.70%), with the result that the interest rate on 30-year mortgages has risen by a similar amount. The rise in long-term interest rates is particularly worrisome, because it has the potential to choke off economic recovery and lead to further deterioration in the housing market. That would put an already weakened financial system under stress.
Does the situation call for the Fed to expand its purchases of Treasury bonds to lower long-term interest rates? To answer this question, we need to look at why long-term interest rates have risen. Here, there is good news and bad news. One cause of the rise in long-term rates is the more positive economic news of the past couple of months, particularly in financial markets. The bad news is that long-term interest rates are higher because of concerns about the deteriorating fiscal situation, with massive budget deficits expected for the indefinite future. To fund these budget deficits, the Treasury has to sell large quantities of bonds both now and in the future, causing bond prices to fall and interest rates to rise.
The increased supply of Treasury debt puts pressure on the Fed to buy it up. Although an expansion of Treasury bond purchases by the Fed would have the benefit of lowering long-term interest rates temporarily to stimulate the economy, in the current environment it could be dangerous for two reasons. First, it might suggest that the Fed is willing to monetize Treasury debt. The Fed does not, and should not, want to make it easy for the Treasury to sell its debt and thereby be an enabler of fiscal irresponsibility. Second, if the Fed loses its credibility to resist pressures to monetize the debt it could cause inflation expectations to shift upward, thereby leading to a serious problem down the road. The Fed is boxed in. The slack in the economy that is likely to persist for a very long time suggests the need for stimulative monetary policy to lower long-term interest rates through the purchase of Treasuries. The fiscal situation argues against this policy action, because it would weaken the Fed's inflation-fighting credibility. How can the Fed get out of the box and pursue the expansionary monetary policy that is needed right now? The answer is that the Obama administration and Congress have to get serious about long-run fiscal sustainability. Large budget deficits naturally occur during severe recessions when tax revenue undergoes a substantial decline. In addition, fiscal stimulus to promote economic recovery when the economy is in a severe recession is a sensible prescription. However, the failure to take steps to get future budgets under control is a recipe for disaster. Not only does it make it difficult for the Fed to take the actions needed to promote economic recovery, but it may even make the fiscal stimulus package less effective. After all, if you know that the government is issuing a lot of debt that has to be paid back someday you can expect to pay much higher taxes in the future. With the prospect of higher taxes, you will be less likely to spend today. How can the Obama administration and Congress help the Fed do its job and help the fiscal stimulus package work? It needs to address exploding spending on entitlements -- Social Security and particularly Medicare -- which are causing future deficit projections to be so bleak. One possibility is to establish a nonpartisan commission on entitlement reform, along the lines of the National Commission on Social Security in the early 1980s. It produced recommendations that for a time helped put Social Security on a more solid footing. Another is taxing health-care benefits as part of any package to reform health care. Taxing health-care benefits would not only generate large amounts of revenue. It would also increase the incentive for people to lower the costs of their health care. There are surely many other ways to promote more fiscal responsibility. The Fed can assist this process. It could indicate that implementing measures that would promote fiscal sustainability will be rewarded with Federal Reserve actions to bring long-term Treasury rates down. Deals like this have been successfully made in the past. In the current extremely difficult economic environment, we surely need such a deal now.
Wall Street is concerned that the Federal Reserve's plan to jump-start growth by buying assets and keeping interest rates low could lead to an inflationary bubble. Treasury bond yields are increasing, which has fostered a rise in long-term interest rates; and the jump could make borrowing costs more expensive for both homeowners and buyers and hurt the economic recovery. When central bank officials convene this week for their policy making session, they may use their post-meeting statement to squash speculation that they're gearing up to raise interest rates this year. In light of that, investors and analysts say it is critical for the Fed to spell out how it will cut its balance sheet and keep inflation from ballooning.