Intracoastal Is Again #1

It's official, Intracoastal Realty is the number 1 real estate company in New Hanover County with a total volume of over $288 million.  This is $36 million ahead of #2 and almost $100,000 per sale higher.

Home Sales Increase Across the Country

The National Association of Realtors recently released their 2011 3rd Quarter Housing Report. In the report, they showed that combined sales of single family homes, condos and co-ops increased in EVERY state as compared to the 3rd quarter of last year. Here are the state-by-state

  

The next time someone says houses aren’t selling, ask them which state they live in and show them the chart.

Why You Need an Expert - Part II

Yesterday, I explained that having someone who truly knows the market was crucial if you were planning to buy or sell a home today. This expert should know what is happening in real estate, understand why it is happening and be able to simply and effectively explain each point to you and your family.  Today, I want to discuss the consequences if you don’t have a true industry professional on your side.

When families enter into a contract to buy or sell a house, two things are true:

1.The buyer wants to own the home.

2.       The seller wants to sell the home.

In order for both these things to take place, the transaction must be completed. That is not an easy task in the current market.  The National Association of Realtors (NAR) released their Existing Homes Sales Report yesterday. In the report, NAR announced that one out of every three contracts to purchase a home in October never made it to a closing table.  How does that ratio stack up against previous numbers? Here is a graph showing previous rates of cancellations:

Cancellations have more than quadrupled in the last 14 months!  According to NAR, cancellations are caused by:

“… declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.”

Bottom Line

No one can guarantee you won’t face challenges. However, the best agents and mortgage professionals know how to manage the expectations of all the parties involved thus dramatically increasing the chances your deal will close and you and your family will be able to move on with your lives. Hire that true professional!!



Reprinted by Permission from KCM

You Need an Industry Expert in This Market

In today’s real estate market, it is easy to get confused. There seems to be an overabundance of information and much of it seems to be conflicting. As an example, we offer you two headlines that appeared within 24 hours of each other last week.

National Delinquency Rate Falls to Lowest Level in Three Years

- Mortgage Bankers Assoc. 11/17/2011

Second Consecutive Increase in First Mortgage Default Rates

- Standard & Poors 11/18/2011

(Remember, foreclosures impact home values and the cost of mortgage money. This makes current delinquency rates an extremely important data point.)

Though these headlines seem to be saying opposite things, both are actually correct. Each report was looking at different data points over different periods of time.

In their article regarding the MBA report, DSNews explains:

“Industry data released Thursday indicates the number of borrowers in the United States behind on their mortgage payments is showing signs of improving. The Mortgage Bankers Association (MBA) reported that the national delinquency rate for residential home loans fell to 7.99 percent in the third quarter.”

In their post, S&P claims:

“First mortgage default rates rose from 1.99% in September to 2.08% in October.”

Bottom Line

Make sure you are dealing with local real estate and mortgage professionals. They will help you and your family decipher the hordes of information available so you can truly understand your best options.

How Much Should You Put Down

Like most questions, the answer is “it depends”. Today, I thought I’d give you some things to consider.

Let’s begin the discussion with loans that don’t require Mortgage Insurance. The suggestion is to borrow as much as you can afford. As an example, borrowing $310,000, as opposed to $300,000, will increase your mortgage payment by about $51 at 4.5%. Recognize that by doing so, you will have $10,000 in the bank. It is my experience that it is easier to find $50 more every month than it is to save $10,000. Even if you had the discipline to set aside the $50 monthly, it would take you 200 months to re-accumulate the $10,000 in principal (longer with lost interest).

Understand too, that the interest paid on the extra money borrowed is tax-deductible. In a 25% tax bracket the $51 additional has a real cost of about $38!

Having the $10,000 liquid has other potential advantages as well:

1.If rates go up in the future, you could potentially make more interest than you are spending.

2.       If you can avoid using credit cards for furniture, home improvements, etc., you can save a bundle on those non-tax deductible interest rate costs.

3.       In a world where home values have declined, the more you borrow, the less you have at risk. You transfer the risk of the future value of the home to the lender.

Now, many borrowers today will need some sort of Mortgage Insurance, whether it’s a Conventional Loan with less than 20% down or an FHA Mortgage. These borrowers should sit with their loan officer and run the numbers because the cost of the Mortgage Insurance can vary based on loan-to-value and other factors. Examine the costs and the relative benefits.

The PRICE Is the Same, But the COST Is Less

There is more and more research coming out showing that it makes great financial sense to purchase a home today . Whether it be rent vs. buy ratios, income-to-price ratios or income-to-mortgage payment ratios, purchasing a home right now is a bargain compared to historic norms. Now we want to look at the COST of a home today compared to pre-peak prices.

According to the most recent S&P Case Shiller price index, residential real estate values have returned to 2003 1Q PRICEs. That, in itself, says something. However, when you factor in mortgage rates, the case for buying a home today becomes even more compelling.

In 2003, 30 year mortgage rates stood at 5.88%. Today, they are 4%. How does that impact the actual COST of a home? On a home purchased for $250,000, here is the difference in monthly cost:

That means you save $285.30 a month, $3,423.60 a year and $102,708 over the life of a 30 year mortgage! You buy the home for the same PRICE but the COST is over $100,000 less.

Bottom Line

This is why so many financial advisors are saying that this may be one of the greatest times in history to purchase a home.

One Thing That Still Concerns Me

There is no doubt that the housing market is stumbling to a recovery.  This past week Lawrence Yun, NAR’s chief economist, predicted a 4% increase in sales next year. Last month, Celia Chen of Moody’s Analytics projected sales to increase over 20% in 2012.  Any increase in transactions will be welcomed.

However, we believe there is one headwind that could jeopardize a recovery: fragile consumer confidence. Consumer sentiment, as measured by the University of Michigan, has seen modest improvement in the last few months after nose diving over the previous several months. Moving forward, any hit to consumer confidence will impact a real estate rebound.

Prices are predicted to soften through the first two quarters of 2012 before reaching modest levels of appreciation by year’s end. Falling prices will force more homeowners into a position of negative equity. Being underwater is one of the triggers that cause people to strategically default on their mortgage obligations. If this happens, there will be an increase in the number of foreclosures. This, in turn, could cause a relapse in consumer sentiment.

Bottom Line

We believe that there will be a dramatic increase in residential real estate transactions (both existing sales and new construction sales). The only thing that may stand in the way is a loss of confidence in a housing recovery. The next six months will tell us a lot regarding this possibility.

Is There a 3.8% Tax on Homes in the Health Bill?

We have received many questions about a possible 3.8% tax which will be put on home sales beginning in 2013. We want to do our best to clarify this situation for everyone. We are not accountants and give you this information just as a simple answer to the misconception. Understand that, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information.

A little history on the confusion

Fact Check.org explains it this way:

The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.

We can understand how this misconception got started. The law itself is couched in highly technical language that only a qualified tax expert can fully grasp. (This provision begins on page 33 of the reconciliation bill that was passed and signed into law.) And it does say the tax falls on “net gain … attributable to the disposition of property.” That would include the sale of a home. But the bill also says the tax falls only on that portion of any gain that is “taken into account in computing taxable income” under the existing tax code. And the fact is, the first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already. (That exclusion doesn’t apply to vacation homes or rental properties.)

The Joint Committee on Taxation, the group of nonpartisan tax experts that Congress relies on to analyze tax proposals, underscores this in a footnote on page 135 of its report on the bill. The note states: “Gross income does not include … excluded gain from the sale of a principal residence.”

And just to be sure, we checked with William Ahern, director of policy and communications for the nonprofit, pro-business Tax Foundation. “Some home sales would see a tax increase under this bill,” Ahern told us, “but it would have to be a second home or a principal residence generating [a gain of] more than $250,000 ($500,000 for a couple).”

Simple Explanation: 

The following simple explanation comes from midiShaw:

The tax will affect those sellers of real property who will be otherwise taxed on capital gains under current tax laws. Under current laws, if you sell your primary residence and meet the ‘time ‘ criteria, you are exempt up to $250,000 or $500,000 (filing individually or jointly).  Any amount realized OVER that amount is taxable under current tax schedules based on income.  As such, this new tax will apparently be added to the current capital gains tax burden IF your income is over $200,000/$250,000 (filing individually or jointly). For those selling second homes and investment properties, the tax, once again, will be applied to the amount of gain realized.

Detailed Explanation:

The following also comes from midiShaw in a comment to the above answer.

Beginning in 2013, the national health care reform legislation that became law in March, 2010, imposes a new 3.8 percent tax on certain investment income. The new tax will apply to single filers with incomes over $200,000 and married taxpayers with incomes over $250,000. Under the law, the investment tax provisions in Chapter 2A of the Internal Revenue Code are placed under the heading “Unearned Income Medicare Contribution.” In general, this new Medicare tax will apply to investment income that is subject to income tax, which includes capital gains. Pursuant to IRC Section 1402 (C)(1)(A)(iii), the investment income to which this new tax applies includes “net gain” (to the extent taken into account in computing taxable income) attributed to the disposition of property that qualifies as a capital asset under Section 1221 (capital gains), as well as gains on other property that are considered part of ordinary income.

We offer this just as an explanation. Remember, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information.



Reprinted from KCM Blogsite

Homeownership: Reports of Its Death are Exaggerated

There have been a growing number of reports announcing the death of American homeownership over the last two years. Some have said we are evolving into a rental society and even challenge the long standing belief that homeownership should be a part of the American Dream. They look at the falling rate of homeownership as proof of their point. Others say that the younger generations no longer see the value in owning over renting.

However, this past week, two news items might refute these points. First, DSNews reported the homeownership rate actually increased in the last quarter; the first quarterly increase in two years.
“After falling to a 13-year low during the second quarter, the homeownership rate posted a highly unexpected rise in the third quarter, according to a Census Bureau report.”

Then, Fannie Mae released their 2011 3rd Quarter National Housing Survey. We will cover this report in more detail on Wednesday. But we do want to mention a few findings the report highlighted. Both Generation Y (birth date mid-1970s to mid 1990s) and Generation X (birth date mid 1960s to mid 1970s) have stronger beliefs in the importance of homeownership than those of the general population.
Here are the numbers for the three major reasons to buy (as per the survey) with the percentage who believe in each reason:

1. It is a good place to raise children and provide them with a good education:
 Generation Y: 84%
 Generation X: 81%
 General Population: 80%

2. You have a physical structure where you and your family feel safe:
 Generation Y: 77%
 Generation X: 79%
 General Population: 76%

It allows you to have more space for your family:
 Generation Y: 76%
 Generation X: 77%
 General Population: 73%

Both generations also believe in homeownership as an investment. 70% of Generation Y and 66% of Generation X see homeownership as a safe investment while 64% of the general population believes so.

Bottom Line

This country’s belief in homeownership is anything but dead. The younger generations have the same if not a higher level of belief than earlier generations. As the economy improves, more people will make the move into a home of their own.