Wednesday, 20 June 2012

Good News for the Housing Market

By on June 14, 2012 

The housing market’s been giving mixed signals, flashes of hope mixed with sudden bad news. There’s no sign yet that a real recovery has taken hold, but some new data are optimistic.

Home prices and sales are on the rise. DataQuick says the average sale price for the past 30 days was $189,500, up $7,000 from a month earlier. Sales are also up 8.2 percent during this time. In Southern California, for example, DataQuick says the market is continuing its “step-by-tiny-step trek back toward normalcy.”

Shadow inventory is shrinking quickly. The so-called shadow inventory refers to distressed properties that aren’t listed for sale but probably will be—homes on which borrowers are grossly delinquent or already in foreclosure, or that banks have already repossessed. CoreLogic says in April, 1.5 million homes were in the shadows, which equates to a four-month supply, down from a six-month supply a year earlier. A smaller shadow inventory can be positive for prices because it means there are fewer distressed homes poised to come on the market.

Foreclosures are up. In the fall of 2010, the robo-signing scandal erupted over how banks were using faulty paperwork to evict borrowers. They cut back on processing foreclosures, building up a backlog of distressed properties. In March, banks agreed to a $25 billion robo-signing settlement, and new data show banks are restarting the foreclosure machinery. In May, banks filed to foreclose on 205,990 properties—a 9 percent increase during April, according to RealtyTrac. The foreclosure pickup hurts the people who are losing their homes but helps the housing market in the long run because it lets banks get through the backlog and eventually move on.

Borrowers are building more equity in their homes. Our colleagues at Bloomberg News report that homeowners have made the biggest jump in home equity in more than 60 years. Half of borrowers who are refinancing are paying down some of their debt and reducing their loans. They’re also refinancing into shorter-term loans that have higher monthly payments but let them pay down principal quicker. Overall, mortgage debt is down 7 percent since 2007—a small consolation for the decline in home values, which are down 23 percent over the same period.

Finally, if you’re looking for more data and a big-picture view, check out Harvard’s annual State of the Nation’s Housing report that’s out today. It also sees signs of recovery in the market and says unless something comes along to dent the broad economy, the housing picture should become even brighter.
Weise is a reporter for Bloomberg Businessweek.

Wednesday, 6 June 2012

Asking Prices Flat in May While Rent Increases: Trulia 06/05/2012 BY: ESTHER CHO

Asking Prices Flat in May While Rent Increases: Trulia

Asking prices fell flat in May after three consecutive monthly increases while also decreasing from the year before, according to reports from Trulia.
Asking prices on homes for sale were unchanged in May on a seasonally adjusted basis and fell by 0.2 percent year-over-year. However, when excluding foreclosures, asking prices actually rose 1 percent on a yearly basis, while foreclosure prices dropped 5.8 percent over the same time period.
According to Trulia, asking prices lead sales prices by approximately two or more months.
“Asking prices and employment both stagnated in May, yet one more reminder that the housing recovery depends on job growth,” said Jed Kolko, Trulia’s chief economist.
Due to the gains in April and March, asking prices rose 1.6 percent on a quarterly basis.
Out of the 100 largest metros, 41 saw yearly price gains, and more than double, 86, had quarterly price increases.
“Metros where prices rose the most have stronger demand from faster job growth and tighter supply from fewer foreclosed homes on the market,” said
Trulia named Seattle as a turnaround metro since prices rose 4.4 percent quarter-over-quarter (February to May) after seeing a dramatic 12.5 percent yearly drop (February 2011-2012). Cleveland, Las Vegas, Milwaukee, Tacoma, and Toledo were also counted as top turnaround metros for their quarterly increases after their yearly falls.
While asking prices did not show upward movement in May, rent was up 1.6 percent on a quarterly basis and up 6 percent from a year ago. In April, the year-over-year increase in rent was 5.4 percent and 4.8 percent in March.
Out of the 25 largest rental markets in the U.S., only Las Vegas saw a yearly decline in rent.
Ten Places with Greatest Yearly Rental Increases
  1. San Francisco (14.4 percent)
  2. Oakland, California (11.4 percent)
  3. Miami, Florida (11.3 percent)
  4. Denver, Colorado (10.5 percent)
  5. Boston, Massachusetts (9.8 percent)
  6. Seattle, Washington (9.6 percent)
  7. Houston, Texas (9.2 percent)
  8. Portland, Oregon (6.8 percent)
  9. Chicago, Illinois (6.4 percent)
  10. New York (5.9 percent)

Monday, 4 June 2012

Real estate as retirement income

By Jill Schlesinger

(MoneyWatch) Is the real estate market a good investment for retirement? I haven't fielded that question in at least five years, but over the past six weeks, I have been pleasantly surprised by the number of people who are reconsidering real estate as a source of steady income.

Let's start with the numbers. After experiencing a massive bubble from 2000-2006 (no, it's not normal for prices to double over the course of seven years), real estate cratered. Prices dropped almost 35 percent from peak levels, and in some areas, like Florida and Las Vegas, the damage was far worse.

Now, a full six years from the peak, recent housing data indicates that a bottoming process is occurring across the country. Existing home sales in April rose 3.4 percent from the previous month to the highest level in almost two years and 10 percent above year-ago levels. Adding to the case that the market is bottoming, inventory is down 20.6 percent from a year ago. In Econ 101, reduced inventory means less downward pressure on prices.

Similar results were seen in new home sales, which rose 3.3 percent from the previous month, almost 10 percent from year-ago levels and 25 percent from the lows. Still, there's still a long way to go before we see a "normal" housing market. The total level of sales is historically weak and 2012 will probably be the third worst year on record after 2011 and 2010. However, historically low mortgage rates are helping the market by making the cost of ownership more affordable, assuming that the buyer can qualify.

Sensing this opportunity, many are wondering whether a jump into the rental market can boost retirement savings and income. The answer is yes, with a few important caveats. Buyers must have realistic expectations, starting with a long-term time horizon and recognition that the days of "flipping" a house to score a big profit are gone. In fact, in the early going, many properties may just break even. The goal is for the owner to be mortgage-free and to collect a steady stream of income.

Additionally, securing a mortgage for rental property has changed dramatically since the bubble years. "No money down" loans are nonexistent; today, lenders generally require a deposit of 30 percent. Even with that chunk of equity, mortgage rates for rental properties are higher than for owner-occupied residences.

One way to defray some of the cost of owning income-producing properties is to use their favorable tax treatment. The Internal Revenue Service allows you to claim depreciation on your property over 27.5 years, which is a way to spread the cost of an asset over a period of time. Here's how it works: You can offset a portion of your rental income by the cost basis of your rental property (what you paid for the property plus improvements, but not the land) divided by 27.5. While this is just one way to defray taxable income, note that depreciation is a way to defer taxation, not escape it.

The IRS imposes taxes on depreciation when you sell the property, which is known as "recapture." You can defer recapture by using proceeds from the property to purchase a new one via a 1031 exchange but you must follow strict rules to comply. Additionally, if you own the property until death, your heirs will not be subject to recapture.

If the ability to create a steady stream of income with favorable tax treatment seems too good to be true, it is. Being a landlord requires hard work. No amount of screening will prevent you from encountering a horrible renter or a midnight call about some problem. If you don't want to be involved at that level, you'll have to hire a management company, which will obviously eat into your cash flow.

Finally, remember that real estate is an illiquid asset. Be sure to have access to sufficient liquid assets before you become a landlord.

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