Few weeks ago I posted a blog talking about many markets in Texas becoming seller’s market because of low home inventory. As per reports, Home sales in 2008, 2009 and 2010 were sluggish all over America despite low interest rates because of job losses and falling home prices in many parts of the country. Job growth started to increase in 2011, but home buyers were still skeptical because of the possibility of falling prices. As we passed through 2012, job growth continued, mortgage rates were low and the fear of falling prices began to fade into the mist of history.
Inventory levels of homes for sale (as reported by the local Multiple Listing Services [MLS]) are extremely low in some Texas markets and at manageable levels elsewhere across the state. When inventory levels are high, prices can fall.
When inventory levels are low, prices start to take off again. Especially Houston housing inventory has gone back to 1999 levels losing almost 20-30% in 2012.
On the right is the stats about the average foreclosure sales in Texas metros. We almost close to the pre-recession level on the foreclosure sells. It is really good for the sellers but not great news for buyers. Wait, it’s not over yet. There is talk about shadow inventory which is in pipeline and expected to hit the market anytime soon. Texas A&M Real Estate center has recently published a report shedding light on shadow inventory.
What is Shadow Inventory?
The shadow inventory could be defined as the number of homes in a local market that have seriously delinquent loans on them, are in the process of foreclosure, or have been foreclosed but not yet sold. These houses create a pipeline of additional inventory that will eventually be put up for sale and compete for buyers.
Statistics about Shadow Inventory
Table 1 above shows how Texas compares with California and Florida in mortgage loan distress. In Florida, nearly 21 percent of all loans reported by LPS(Lender Processing Services) haven’t received a payment in more than 90 days. A sizable portion of these loans will be foreclosed upon in coming months, adding to the current inventory of homes for sale in the marketplace. In California, 7.8 percent of the loans are seriously delinquent. Just 5.3 percent of the loans in Texas are seriously delinquent. Clearly the pipeline of troubled properties likely to come into the market in the next year is much smaller in Texas. Below is the graph about 90 day delinquent loans from 2005 to 2012.
Another table below shows more information about the loans which are current, delinquent and percentiles on each category. This will give you an idea about the shadow inventory which might hit the market soon. It doesn’t look like a lot but we still have few thousand houses which might come to foreclosures to add to the inventory.
Conclusion
As per the report and data, we see the clear indication of housing market improving every day. Delinquency rates are still elevated but no longer increasing. Foreclosure sales are still happening at elevated levels, but the local markets in Texas are digesting the extra inventory that comes from broken mortgage loans. The Texas housing market is not fully recovered, but it is getting there. There is light at the end of the tunnel. It’s not a train. To read full report, go to recenter.tamu.edu
If you are a buyer, you might not find lot many homes with great deal compared to few years ago. Sellers cheer up now, your wait is over. You can expect to sell houses at least for the appraised price and may be come out good at the end.
Riverstone
A Fort Bend area master-planned community where luxurious homes, water features and resort-style amenities define the landscape, Riverstone is one of Fort Bend County’s most desirable addresses. Riverstone residents enjoy an enviable lifestyle with a superb selection of new homes with Sugar Land and Missouri City addresses. Plus, with varied highway access and an array […]
Sienna
Sienna is a comprehensive 7,000-acre master-planned community. Sienna is more than houses inside one of the top Fort Bend County subdivisions. Neatly tucked between the acclaimed cities of Missouri City and the City of Sugar Land, it is a community in the truest sense of the word. Every effort is made to maintain a sense […]
Bridgeland
Imagine a place with vast open spaces and spectacular sunsets. An 11,400 acre master-planned community in northwest Houston where flocks of waterfowl glide across natural lakes. A refuge from the chaos of your workday. A place where you can find true balance. The new home community of Bridgeland is such a place. Bridgeland attracts and […]
Towne Lake – Master Planned Community, Cypress
Towne Lake reflects its Texas-sized appeal in a 300-acre lake, with beautiful views. Lake coves allow neighbors easy access to the water and to the many amenities and destinations throughout, bonding the community together. Towne Lake Charm is all these things and more, reflected in a community steeped in Texas pride. Caldwell Companies has perfected […]
Cypress Creek Lakes
Cypress Creek Lakes is a beautiful master-planned new home community nestled in the charming Northwest Houston suburb of Cypress, Texas. Mischer Development has carefully designed the 1,600-acre community to respect the natural beauty of the land while developing approximately 2,000 new home sites. Its convenient location on Fry Rd. just off of Highway 290 also […]
Know about Texas Foreclosure and Shadow Inventory
10 Things to know about Investment Tax – Effective 2013
As part of Health Care and Education Reconciliation Act of 2010 and Patient Protection and Affordable Care Act in 2010, there will be 3.8 percent investment tax imposed on unearned income above certain levels to help fund Medicare. It will impact some home sellers beginning with the 2013 federal tax year. Here are the 10 things you should know about this new tax,
- When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.
- The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you’ll NEVER pay this tax at the time that you purchase a home or other investment property.
- You’ll NEVER pay this tax at settlement when you sell your home or investment property. Any capital gain you realize at settlement is just one component of that year’s gross income.
- If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home. If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return. Even then, if your total income (including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax. If your total income is more than these amounts, a formula will protect some portion of your investment.
- The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).
- The tax took effect on January 1, 2013. If you have investment income in 2013, you won’t pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.
- In any particular year, if you have NO income from capital gains, rents, interest or dividends, you’ll NEVER pay this tax, even if you have millions of dollars of other types of income.
- The formula that determines the amount of 3.8% tax due will ALWAYS protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax. For example, if you are single and have a total of $201,000 income, the 3.8% tax would NEVER be imposed on more than $1000.
- It’s true that investment income from rents on an investment property could be subject to the 3.8% tax. BUT: The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.
- The tax was enacted along with the health care legislation in 2010. It was added to the package just hours before the final vote and without review. NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect. The tax will no doubt be debated during the upcoming tax reform debates in 2013.
As mentioned above, the tax will be imposed only on certain conditions so you don’t to panic unless your AGI is already crossing the limit proposed. If you are already crossing the AGI limit, it would be wise to discuss with your CPA and try to make proper arrangements on how you can tackle it.You cannot avoid the tax, you can only tackle and pay less by planning wisely.
Disclaimer: Realtors are not tax consultants. Please talk to your CPA or tax consultants to discuss your tax obligations.
Source: NAR
New Mortgage Rules announced by CFPB – Is it good for consumers?
Consumer Financial Protection Bureau(CFPB) which was created by Obama Administration was given an important task. That task was to find out holes in the mortgage industry and propose a solution that will help both consumers and lenders and also should avoid another Sub-prime crisis. On Jan 10, 2013, they came out with new set of rules for the lenders which will go effective from Jan 21, 2013 and lenders have 12 months to implement the changes. Let’s see what’s the rules are all about and find whether these changes really helps consumers or make them harder to achieve the American Dream.
Below are some comments about the proposed rules:
“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” said Richard Cordray, director of the Consumer Financial Protection Bureau. The rules are meant to avoid the kind of mortgage mess that spawned the financial crisis and ultimately led to the Great Recession.
“It’s a set of standards that protects consumers from bad loans but it also protects lenders from lawsuits,” said Davis Stevens, CEO of the Mortgage Bankers Association. “Lenders are not protected if they go outside the guidelines.”
The new rules will eventually change the process homebuyers go through in obtaining mortgages.
“The rules will encompass most of the market as it exists today,” said William Emerson, president of QuickenLoans.
During the housing bubble(2006-2007), many lenders had lax underwriting standards. Banks often didn’t check documentation, didn’t require minimum credit scores and didn’t determine whether borrowers had income enough to keep up payments. Now, when a loan meets new lending criteria outlined by the CFPB, it becomes a “qualified mortgage,” which will give protection for the banks from lawsuits filed by aggrieved borrowers or buyers of mortgage-backed bonds.
How is a “qualified mortgage” defined?
The rules spell out what is called a qualified mortgage. To judge whether a loan is qualified, lenders must consider these factors:
- Income and assets must be sufficient to repay the loan;
- Borrowers must document their jobs;
- Credit scores must meet minimum standards;
- Monthly payments must be affordable;
- Borrowers must be able to afford other debts associated with the property such as home equity loans;
- Borrowers must be able to afford all home-related expenses such as property taxes; and
- Lenders must consider a borrower’s other obligations like student loans, car loans and credit cards.
If an homebuyer is not able to satisfy the above rules, they could still get a mortgage, but only if the mortgage payments don’t exceed 43% of the borrower’s pre-tax income. There are few exceptions to this rule as well. For example, if you are under the water due to Subprime crisis and trying to refinance your home, you don’t have to satisfy these rules.
Which lenders do the rules cover?
All companies that give out mortgages will be governed by the new rules — big national banks, savings and loans, community banks and credit unions.
We already have similar set of rules in place and many lenders are following them already. I feel that its just the reinstated of those old rules with few new ones to make a loan as “Qualified mortgage” to separate out from the bad ones for the benefit of consumer and lender. That’s a good change. But many borrowers knowingly try to buy homes even though they know they cannot afford it. That can only be stopped by lenders strictly following these rules and denying mortgage for them. In order to do that, lender’s had to follow these rules for everyone and many legitimate borrowers end up affecting and asked for more paper and sometimes not able to get credit. If that happens, this might add fuel to the fire.
We can only hope that people start realizing that you cannot buy a home if you cannot pay for it and change their mind set to save for it first. That change will help create good stabilized mortgage industry and good real estate market. But it might take sometime for that to happen. Until that time, we have to wait and watch how these rules are implemented by lenders and how it’s really affecting the consumers and see whether its really making the change many expected.
Source: CNN.com
Real Estate and New year 2013 – What to expect?
Happy Newyear to everyone!!
As this year’s first blog, I want to take a look at the rear view mirror to get some perspective before discussing the 2013 forecast made by NAR Chief Economist. Looking back at the Real Estate Industry a year ago, we should be able to understand the progress made last year which will help us to set proper, realistic expectations for this year.
Every one was looking for the light at the end of the tunnel. 2012 was expected to be shine that light to signal the turn around for Real Estate. But nobody was able to strongly predict whether it will happen due to the unstable economic condition in US and all around the world. Proving the common fact, Real Estate is more local, many local Real Estate markets saw that light and able to progress forward with great confidence. Many markets including Texas finally hit bottom and start to rise again. Home prices, home sales and new home starts all substantially increased which might be propelled by shrinking inventory and record-low mortgage rates.
Lawrence Yun , chief economist of the National Association of Realtors®, said the housing market clearly turned around in 2012. “Existing-home sales, new-home sales and housing starts are all recording notable gains this year in contrast with suppressed activity in the previous four years, and all of the major home price measures are showing sustained increases,” he said.
Zillow estimates that U.S. homes gained $1.3 trillion in value during 2012, the first year of cumulative gains since 2006. The Case/Shiller Housing Index showed that home prices rose about 2 percent in much of the country. Anything in positive territory is a big gain for homeowners.
Ever since the financial crisis began, pent-up supply of unlisted distressed properties has loomed over the housing market. But in 2012, estimates of the size of that inventory continued to shrink, falling to 2.3 million in the second quarter of 2012 from a peak of nearly 3 million in 2010, according to analytics firm CoreLogic.
The Obama administration acted aggressively in 2012 to try to strengthen government relief programs, expanding the Home Affordable Modification Program and the Home Affordable Refinance Program. Loosening eligibility requirements and boosting incentives to banks, the government succeeded to some extent.
Mortgage interest rates fell in 2012 to historic lows. Consumer were able to get a 30-year loan for around 3.35 percent, a 15-year loan at less than 3 percent and a 10-year loan for around 2.85 percent assuming he/she has excellent credit and at least 20 percent equity in the property. And yet, despite ultra-low interest rates, millions of homeowners remain in financial jeopardy, unable to afford their payments, and unable to refinance because of declining or negative equity in their homes.
Investors raced in 2012 to snap up homes selling at bargain-basement prices and convert them into rental properties. Investors purchased 20 percent of homes sold in October 2012, according to the National Association of Realtors.
Lenders are alleged to have illegally foreclosed on thousands of borrowers by forging names on paperwork, a practice dubbed among other offenses. Lenders finally agreed to atone for illegally foreclosing on thousands of borrowers, and politicians and industry stakeholders seriously began talking about mortgage-debt forgiveness.
What’s 2013 Forecast?
At the 2012 NAR Realtor forum, NAR chief economist Lawrence Yun said that he expects the market share of distressed sales to fall from about 25 percent in 2012 to 8 percent in 2014, according to a release on the forum. The housing recovery was expected to continue so long as credit does not further tighten and a fiscal cliff is avoided.
The rise in home prices should also stay. Yun predicted a 6 percent rise in the median existing-home price in 2012, with another 5.1 percent increase next year and comparable gains in 2014. Existing-home sales were projected to move higher year-after-year: a 9 percent increase this year to 4.64 million, 5.05 million in 2013, and 5.3 million in 2014.
New-home sales are expected to increase to 368,000 this year from a record low 301,000 in 2011, and grow strongly to 575,000 in 2013. Housing starts are forecast to rise to 776,000 in 2012 from 612,000 last year, and reach 1.13 million next year. “The growth in new construction sounds very impressive, and it does mark a genuine recovery, but it must be kept in mind that the anticipated volume remains below long-term underlying demand,” Yun said. “Unless building activity returns to normal levels in the next couple years, housing shortages could cause home prices to accelerate, and the movement of home prices will be closely tied to the level of housing starts.”
“Home sales and construction activity depend on steady job growth, which we are seeing, but thus far we’ve only regained half of the jobs lost during the recession,” Yun said.
Mortgage interest rates were expected to eventually increase to an average of 4 percent next year, and inflationary pressure should cause rates to go up to 4.6 percent in 2014, the NAR said in the release. Yun projected a higher Gross Domestic Product (GDP) in the coming years, with GDP expected to be 2.1 percent this year and rise to 2.5 percent in 2013. The unemployment rate should also fall to about 7.6 percent in 2013.
Also speaking was Mark Vitner, managing director and senior economist at Wells Fargo, who said the fiscal cliff is the biggest situation that needs to be addressed. “Beyond concerns about the fiscal cliff, the economic improvement seems to be broadening,” he said. “Housing will strengthen in 2013 even if the economy weakens because there is a demand for more construction, and the demand for apartments is rising at a faster rate than the need for more single-family homes,” Vitner said. “Unfortunately, apartment construction is focused on about 15 submarkets, so additions to supply will be uneven.
“Real estate will be a hedge against inflation, with values rising 15 percent cumulatively over the next three years, also meaning there will be fewer upside-down home owners,” Yun said. “Today is a perfect opportunity for moderate-income renters to become successful home owners, but stringent mortgage credit conditions are holding them back.”
Check out full forecast summary at realtor.org
It’s clear that the residential real estate industry has turned the corner but to continue on this momentum we need employment growth. Without a good paying job that allows homeowners to afford their mortgage, it’ll be tough to generate the kind of strong housing market that Americans have come to rely on. We can only hope that Obama will use his second term in office to make the real change he been wanting to do with the foundation laid from his last term.
At home in Houston, it seems that scene was changed from buyer’s market to sellers market. Foreclosure inventory has gone down in many areas and investors were fighting for properties which was evident from the multiple offer situation quoted by many seller agents. “There were approximately 3,700 less active foreclosures in Texas from July through September when compared to data collected between April to June 2012,” said Foreclosure.com Vice President James Houston. New home prices have gone up every month in many areas like Katy, Woodlands, Cypress and Sugar land. The Reason, improved job market in and around Houston and people moving from out of state for employment.
My prediction, we will continue to see the increase in home prices both resale and new homes due to reduce inventory and more demand from people who stayed out for all these year and people who are moving to Houston. It doesn’t mean that you will not get a good deal. If you work with a Smart Realtor, you will still be able to find right property at right price.
All the best!!!
