It will not come as a shock when I tell you that I am typically not a fan of the San Diego Union Tribune or for that matter, the media in general. This is so because of the manner in which they portray the news and real estate specifically by continually spinning the negative and not looking deeper in order to report more accurately what is happening at the neighborhood level. For real estate, I know for certain the general public is mislead when they hear and read very general info and statistics which typically represent what may be true only a very broad, County-wide basis. Problem is... sales price averages, medians, etc., which are measured across the entire San Diego metro area or County do not take into consideration that real estate varies very significantly from one zip code to another and even from one small neighborhood to another. Thus, if the reader does not dig deeper to determine what is occurring in his or her own backyard, it becomes very easy to assume that region-wide averages pertain to all County homeowners. Nothing could be further from actuality.
So, you ask "what is the purpose of today's message?" Well, given the media's proclivity to report the negative, when the UT reports for consecutive weeks, some good things about our local real estate, I have to conclude that they have gone out of their way to completely and thoroughly vet the sources and maybe even feel that change is in the wind! If you did not happen to catch the two articles I am referring to, please take 30 seconds to read the direct quote summary below which does a pretty decent job of providing accurate perspective as to what is now occurring:
There's a gap between sale prices and the true value of homes.
Values have fallen 17.9% in the past year in San Diego County while the median price was off 27.2% over the same period.
The reason for such a gap: More than a third of homes sold over the past year previously went through foreclosure and fetched below-market prices.
Non-distressed properties were not for sale and high-end homes represented only 5 percent of listings but they usually represent 20 percent.
Higher-end homes are maintaining their values better and declining less than lower-end homes. This makes sense because at the lower end, you have more distressed homeowners facing interest rate resets, they can´t handle the higher payments and foreclosure follows. Higher end owners can wait a year until someone is willing to pay their price.
The decline has not been uniform across neighborhoods or among housing types. Certain areas have fallen less than others. La Jolla is down 12.3 percent over the past year while parts of Chula Vista are down more than 30 percent.
Upper-end homes have dropped in value by 10 percent; middle-tier homes by 18 percent; and starter, lower-cost properties, by 27 percent.
Single-family homes are off 17.9 percent and condos have dropped 18.3 percent.
Home prices have declined to the point where there is a lot of value now and entrepreneurs and bargain hunters are investing millions of dollars into distressed properties. They snapped up more properties last month (October) than at any time in nearly a year.
Lower prices have resulted in the best affordability rates in nine years.
There were 3,598 sales last month, the best October in three years and foreclosures made up nearly half of all resales.
October was the third month in a row that sales increased, the only time that has happened this time of year since 1992. October was also the fourth month in a row to have a year-over-year increase in sales.
The number of active listings for sale is down 17.7% from the same period last year and down for the fourth straight month. This means that the inventory is dropping faster than the addition of new homes for sale.
OK, I suspect that the above info may tell a very different story in comparison to what you have been reading or expecting to read about our local real estate3;especially when it comes straight from the media! Reading that sales are up, active listings down, homes coming on the market down, investors snapping up homes, and that some areas of the County doing quite a bit better than others, may even be a bit surprising.
Folks, if you´d like to see a report which shows sales, appreciation, & market trends broken down by individual communities within the County, there´s no need to wait for the UT! I provide one each month3; my "Market Trends Report".
Also, readers of my monthly newsletter, "Tom's Realty Times", know that I provide in-depth real estate stats for Pacific and Mission Beach.
If you or someone you know is behind on their mortgage payments, I have several resources which may be of some help. I would urge you to pass this message along to anyone who may benefit from the contents.
Essentially, there are two general approaches which one may pursue in attempting to get a loan modification, sometimes known as a "workout", with their lender or lenders. The individual can either choose to explore one at a time or execute both concurrently.
One method is to contact a housing counselor who may be able to intervene with lender(s) on the individual´s behalf. These folks are experts in loan modification and foreclosure prevention and are trained to help set-up a plan between the homeowner and the lender. Solutions could take several forms including: repayment plans, forbearance, loan modifications, or refinance3;all of which may allow the individual to keep their home. I have a list of local HUD approved counseling agencies and it is included at the first attachment.
Another method is for the individual to contact their lender or lenders directly in an attempt to achieve the same solutions. At the second attachment, I have included one easy-to-use chart which outlines programs offered by the larger lenders and government entities, including a snapshot on eligibility requirements and contact information. If a lender or loan servicer is not on the chart, the homeowner should contact their lender or loan servicer to determine if a workout program is available. Note: You may have to adjust the view of your screen to "landscape" when viewing the chart.
It´s important to note that mortgage loan modifications typically are handled on a case-by-case basis so there is no "one shoe fits all" program. Prior to calling a lender or loan servicer, the homeowner should have the following information available:
Loan number
Income information and documentation
Most recent mortgage statement
Bank statements
You will very likely be asked to submit a letter demonstrating financial hardship so give some thought to how you are going to express this to the lender prior to the call
I have also included several links below which will take you to consumer information sheets which contain detailed information on specific programs that you can print for your use.
Federal Government Loan Modification (Participants include: Fannie Mae, Freddie Mac, Federal Home Loan Banks, Hope Now participants, U.S. Dept. of the Treasury, Federal Housing Administration and the Federal Housing Finance Agency, and Wells Fargo.)
Last note. Homeowners who are behind in their mortgage payments may be contacted by individuals or companies that will offer to help work out a loan modification with the lender or provide other services in order to help prevent a foreclosure. A word of caution. One must be very careful if the homeowner is asked to pay for any of these services in advance, whether in cash, check or by charging a credit card. First, California Civil Code Section 2945, regulates "foreclosure consultants" and forbids anyone who falls under the definition of a "foreclosure consultant", as well as a real estate licensee, from collecting any advance fees for these types of services if a Notice of Default has been recorded against the property. If a lender has recorded a notice of default, do not pay an advance fee to anyone. There are non-profit agencies that can assist you without charging you a fee and real estate brokers who can represent you for a fee to be paid after they have completed their work. For information on non-profit housing counseling services, use the following links:
If a Notice of Default has not been recorded against your property, it may be permissible for a real estate broker to assist you in working out a loan modification or otherwise negotiate a possible resolution to your problem with your lender or loan servicer and ask you for payment in advance for their services. However, the broker must have you sign an agreement that tells you what services will be performed, when they will be performed and how much you must pay. The broker cannot have you sign an agreement until it has been submitted to the Department of Real Estate for review and the broker has received permission to use it and collect the advance fee. Before you pay an advance fee to anyone, first call the Department of Real Estate at (916) 227-0770 to find out if an advance fee agreement is on file.
Well, so much for a subject that is quite frankly, very painful to write about. Unfortunately, there are a lot of folks who are experiencing great difficulty making their mortgage payments. That is a tragedy of no small proportion. If the information provided herein helps just one family, my time will have been very well spent.
I have received a lot of calls about the IRS $7,500 First-Time Buyer Tax Credit which was included in the Housing and Recovery Act of 2008. I am sending this message in order to both clarify and alert you to a piece of legislation which could well save you thousands of dollars. I am excited for buyers who are eligible for this credit and first-time buyers should be excited too!
The credit applies to first-time buyer home purchases of a principle residence between April 9, 2008 and July 1, 2009. It is a tax credit and not a tax deduction. A tax credit is a reduction in income taxes owed! In other words, when a buyer files their income taxes for the year the home was purchased (2008 or 2009), they may be able to subtract $7,500 from the amount of federal income tax liability which will either increase their tax refund or reduce the amount of tax still owed.
Of note though is that this tax credit is not free. It has to be paid back. Repayment begins two years after the credit is claimed and must be repaid within 15 years. That´s $500 per year. Yes, it would have been much better if there was no repayment provision, but an interest-free loan for 15 years is not such a bad thing. That´s right -- there is no interest on the tax credit received.
While you might question the benefit of this type of tax credit, which requires repayment, let's take a look at a couple of examples wherein the benefits a $7,500 income tax credit could provide some very substantial financial help:
-- More first-time buyers than not have little left in savings after the purchase of the home. As new homeowners, they are now confronted with a mortgage payment that exceeds what they were accustomed to paying in rent. Plus, they may have a home to furnish, spend money on painting, some redecorating, carpeting and window coverings, & possibly the expense of making repairs or improvements. Many times these purchases are made with a charge card with interest rates upwards of 17%. Having the benefit of the $7,500 tax credit and repaying it over 15 years without interest could be a partial answer.
-- Now, instead of being short of cash after closing, let´s look at a situation where a buyer does have cash reserves after closing and is financially prepared for the purchase of the various items mentioned above. Why would a $7,500 tax credit be beneficial to them? Let´s assume a $300,000 mortgage was needed in the home purchase at 6.5% interest for 30 years. What if the $7,500 tax credit refund was used to pre-pay the mortgage? Using simple math that would be an annual interest savings of $487.50 which is just about equal to the $500 per year repayment obligation. Here, the savings is much greater than the simple math calculation. Pre-paying the mortgage by $7,500 will not reduce the monthly mortgage payment of a fixed rate mortgage because the payment remains the same, however, the real benefit is this: The outstanding mortgage balance is reduced by $7,500 and each future mortgage payment results in savings in mortgage interest and increased principal mortgage reduction. With each monthly mortgage payment more money goes to reducing the mortgage balance and less is applied to interest. Together these savings will exceed the $500 cost of repayment of the tax credit. The benefit over the term of the mortgage in interest savings and mortgage reduction will be quite surprising.
OK, so much for the examples. What if the home is sold prior to repayment of the tax credit? Another provision requires repayment of the balance of the tax credit owed in the event of a sale of the home prior to full repayment. However, special provisions do provide for circumstances where the balance owed is greater than the gain in value or when there is a loss in value. If the gain on the sale is less than the amount owed, part of the balance owed will be forgiven. If there was no gain, or even a loss, then the remaining balance would not need to be repaid.
Here are a couple of FAQs FYI:
Am I eligible? First time homebuyers who purchase a principle residence between April 9, 2008 and July 1, 2009 are eligible. If you (and your spouse, if married) have not owned your principle residence for a 3-year period before your purchase and you have never taken advantage of first-time homebuyer credit previously, you qualify as a first-time homebuyer.
How does it work? Like all tax credits, it will directly reduce the total amount of taxes you owe. When you file your taxes for the year you purchased your home (2008 or 2009), you will be able to subtract the amount of the credit from your federal income tax liability, increasing the size of your refund or reducing the amount you owe. For example, you file your ?normal´ tax return and find that you owe $2,000 in taxes. With this credit, your tax liability could be lowered by $7,500, which means, you instead get a $5,500 tax REFUND check from IRS.
How big is the tax credit? The tax credit is equal to 10% of the purchase price of your home up to $7,500. The full credit is available for single individuals whose adjusted gross income is less than $75,000. If your adjusted gross income is greater than $75,000 and your home purchase qualifies you for the full credit, the credit phases out according to the dollar amount (or percentage if less than $7,500). For married couples filing jointly, the credit begins to phase out at an adjusted gross income of $150,000.
What about repayment? The tax credit is not completely free money for you to keep. It has a payback provision that makes it similar to an interest free loan. Two years after the credit is claimed, you must begin repayment so that you will have paid the credit back in full over the course of 15 years. For those qualifying for the full credit, the payback amount is $500 per year. For those getting less than the full credit, you pay equally over the 15 years (which is a rate of 6.67% per year). If a qualifying home is resold before the credit is repaid, the seller will have to immediately pay the outstanding balance of the credit. If the home is sold at a loss, then you owe nothing back.
Note: Just recently, I have heard of a "push" amongst House and Senate leaders to restructure the credit and possibly delete the requirement for repayment. Keep tuned to the news as if this provision becomes law, it would make the credit much more valuable.Is there a way to get any cash flow benefits before I file my tax return?Any first time buyer who believes they would be eligible for all or part of the credit may wish to modify their income tax withholding thru their employer(s) by completing an IRS form W-4. In many cases, payroll withholding will decrease and take home pay will increase.
Bottom Line. Combined with favorable interest rates, a wide selection of homes for sale and more affordable home prices, this tax credit may be just the financial assistance many first time buyers need to move forward to purchase a home now.
