Wednesday, March 19, 2014

Southern California is a real estate seller's market this spring

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Los Angeles ranked the fourth strongest market in the nation for sellers right now. Other counties which also topped the list were San Jose, San Francisco and Riverside counties. California real estate is hot with demand still outpacing supply.

Southern California is a real estate seller's market this spring 

Open house in Venice


As the busy spring real estate season gets into gear, sellers appear to have the upper hand across much of Southern California.

That's the word from Zillow, the real estate data website that tracks housing markets nationwide. It released a report on the top 10 buyer's and seller's markets in the U.S. Wednesday morning, and Los Angeles made the list as the fourth-strongest market for sellers right now. Riverside ranked sixth.

A strong seller's market, says Zillow, doesn’t necessarily mean its prices are soaring — and indeed median prices have been flat here in recent months — but rather quick sales, few price cuts, and homes selling at or above asking price. In buyer's markets, sales are taking longer and price cuts are more common.

Right now, Zillow said, there are big differences in different parts of the country.
Of the top 10 seller's markets, seven are in the West and two are in Texas. San Jose, San Francisco and San Antonio topped the list. For buyers, nine of the top 10 markets are in the Midwest or Northeast, with Cleveland, Philadelphia and Tampa, the only Florida market on either list, the most buyer-friendly.

“The real estate data in markets on both coasts are telling markedly different stories,” said Zillow chief economist Stan Humphries. “Real estate has always been local, and as the spring market gains momentum, this old adage will only become more pronounced.”

Zillow also crunched data at the local level to see what neighborhoods are good for sellers, and for buyers, around Los Angeles. Red-hot Eagle Rock took the top spot for seller's market, followed by Canyon Country in Santa Clarita, Tujunga, Mar Vista and Valencia. The top buyer's markets included the Hollywood Hills, Beverly Glen, Northwood in Irvine, San Pedro and Venice.

Thursday, March 13, 2014

Report: Despite Price Gains, Homes Still Undervalued

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Statistics show no need to fear a housing bubble at least for a few years. There is a link between home price growth and income growth which at today's levels homes are still undervalued relative to incomes. 

"Because most homeowners use their income to pay their mortgage it follows that an established relationship exists between income and home prices.  This relationship means that home price growth cannot be sustained at higher levels than income growth because housing would become unaffordable, demand would decline, bringing price growth back into alignment with income growth." A correction has already taken place and with rising interest rates will continue to slow the pace of home price appreciation to a sustainable level.

Report: Despite Price Gains, Homes Still Undervalued

Despite double-digit percentage increases in home prices, homes are still undervalued relative to incomes, according to CoreLogic.

“Much of the recent house-price appreciation is a result of market correction for the significant undervaluation caused by the price declines in the late aughts,” CoreLogic chief economist Mark Fleming writes in a blog post. He adds that “there is no need to fear a bubble for at least a few years to come, if at all.”

Fleming says that home prices did get way ahead of income levels in the early 2000s, but a significant over-correction has taken place. He argues that incomes are key to forecasting home prices, saying that home-price growth cannot be sustained at higher levels than income growth because housing would become unaffordable and demand would decline.

“Rising interest rates and the ‘unlocking’ of pent-up supply as home prices continue to increase are expected to slow the pace of home price appreciation,” Fleming notes. “At the same time, continued improvement in the economy will modestly increase income growth. The net effect is that home prices are expected to remain slightly undervalued relative to income levels through the end of 2015.”

Source: “Home Prices Actually Undervalued Based on Incomes: CoreLogic,” Mortgage News Daily (March 12, 2014)


Monday, March 10, 2014

Tax reform proposal would cut many real estate deductions

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Something to keep in mind... tax reforms for 2015 proposed may bring many changes to real estate deductions. For most, there would be enticingly lower marginal rates on income, a higher standard deduction, but may be a cap on mortgage interest deductions for those home loans over $500,000 if not grandfathered in already plus no property tax deduction allowed.

Tax reform proposal would cut many real estate deductions 

Many long-standing home real estate tax benefits would be eliminated or sharply reduced under Rep. Dave Camp's tax overhaul plan.

WASHINGTON — You may have seen reports about a major tax reform proposal floated recently by Rep. Dave Camp of Michigan, the chairman of the House Ways and Means Committee.
But you probably didn't see the grisly list of long-standing home real estate tax benefits that would be eliminated or sharply reduced under Camp's plan.

Here's a quick overview. But first, some basics:

•This is no back-of-the-napkin set of proposals. Camp and his committee — the primary tax-writing panel in Congress — have been working on this for two years. They've held extensive public hearings and done significant research.

•Though Camp's reform package has zero chance of enactment in an election year, many of its core concepts are likely to reappear on Capitol Hill as early as 2015, when new chairmen at both Ways and Means and the Senate Finance Committee take up fundamental tax reform.

•Even the most die-hard proponents of real estate tax benefits concede that with the right combination of lower federal income tax brackets and higher standard-deduction levels, housing's special carve-outs in the tax code would be less compelling to many homeowners. Why itemize when you can just take the standard deduction and save more? Once this sinks in, the political support for retention of owners' unique tax privileges in the code will begin to crumble.

So what did Camp propose? For the vast majority of individuals and corporations, enticingly lower marginal rates of 10% and 25%, plus a substantially increased personal standard deduction — $22,000 for married joint filers, $11,000 for singles. Individuals with annual incomes above $400,000 and joint filers above $450,000 would pay taxes at a marginal rate of 35%.

In exchange, say bye-bye to the mortgage interest deduction in its current form. The $1-million limit on mortgage amounts that qualify for interest deductions would phase down to $500,000 in four annual steps, with no indexing to inflation. This would effectively diminish its value year after year as inflation takes its bites.

The good news on interest deductions: Anyone with an existing mortgage of $500,000 or higher on the date the tax bill takes effect would be grandfathered for the life of the loan. The bad news: Interest write-offs on home equity borrowings, currently limited to $100,000, would be prohibited unless the money was being used to improve your property.

Another set of changes Camp would make: He'd revise the present $500,000 and $250,000 capital gains exclusions for profits on sales of homes by joint filers and single filers, respectively. Under today's rules, you can claim a tax-free exclusion once you've owned and lived in a home for two years out of the preceding five years and you can do so once every two years.

Under Camp's proposal, you'd need to own your house for five out of the preceding eight years to claim a tax-free exclusion and you could exercise this privilege only once every five years. Capital gains exclusions for home sellers with high incomes — $250,000 a year for singles and $500,000 a year for joint filers — would be phased out altogether over a period of years.

Besides these, Camp's tax bill would:

•End all deductions for local property taxes, which he considers subsidies for excessive spending at the local government level.

•Eliminate credits for owners who make energy-saving improvements to their homes.

•End penalty-free withdrawals from IRAs to help fund first-time home purchases.

•Leave in limbo popular mortgage debt forgiveness tax benefits used by large numbers of short-sellers and foreclosed owners in the last several years. Camp's plan is silent on extending the benefits — which are currently expired, awaiting extension — but in this case silence would be fatal.

•Kill federal tax exemptions for state and municipal bond programs used to fund mortgages for moderate-income families.

Bottom line: Though preliminary action on tax reform is at least a year away, homeowners need to grasp a sobering, emerging reality: To pay for a streamlining of the ballooning federal tax code and provide lower rates on income, there's a chance that Congress will demand that you give up long-entrenched tax subsidies that have put homeownership on a pedestal, supported prices and sweetened the household finances of millions of Americans for decades.

Whoa. Didn't we all assume that homeownership is politically sacrosanct? Right, but when the chief Republican tax writer in Congress proposes throwing out most of those perks, you've got to reexamine that assumption.