{Note: Ray Kutylo and the SCV Home Team do not necessarily believe that the following has specific value to our local real estate market. The National Association of Realtors works with national averages and macro-trends, which may or may not be applicable to Southern California and the Santa Clarita area.]
Existing-home sales are expected to drop 5.7 percent this year, with the median existing-home price falling 1.4 percent to $218,800, the National Association of Realtors reported today in its latest forecast.
And new single-family sales are expected to drop 17.7 percent this year after an 18.1 percent drop in 2006, with the median price of new homes dropping 2.6 percent this year to $240,100.
The forecast anticipates six consecutive quarters of year-over-year existing-home median-price declines to end in the first quarter of 2008, with median existing-home prices growing 1.8 percent for the full year in 2008 compared to 2007. New-home prices are expected to rise 2.2 percent in 2008.
The numbers represent a slight adjustment from the association's last forecast in June, which projected a 4.6 percent decline in existing-home sales and an 18.2 percent decline in new single-family home sales this year compared to last year, and for existing-home prices to fall 1.3 percent and new-home prices to fall 2.3 percent compared to last year.
The association's forecast released today calls for 6.11 million existing-home sales this year, compared with 6.48 million last year. There are 865,000 new-home sales projected this year, compared with 1.05 million in 2006.
Housing starts are projected to drop 20.6 percent this year to 1.43 million compared with 1.8 million in 2006, with single-family starts dropping 23.3 percent and multifamily starts dropping 8.8 percent. Housing starts are expected to rise 0.6 percent in 2008 compared to 2007, with single-family starts declining 1.3 percent and multifamily starts rising 7.6 percent.
The rate for a 30-year fixed mortgage is expected to be 6.5 percent for 2007, up from 6.4 in 2006, and to climb to 6.6 percent in 2008. The association expects the federal funds rate to average 5.3 percent in 2007, up from 5 percent in 2006, and to fall to 4.9 percent in 2008.
Growth in the U.S. gross domestic product is projected at 2 percent in 2007, compared with a 3.3 percent growth rate last year, and GDP is forecast to grow 2.8 percent in 2008.
The unemployment rate is expected to average 4.6 percent in 2007, unchanged from last year, according to the NAR forecast, and to rise slightly to 4.7 percent in 2008.
Inflation, as measured by the Consumer Price Index, is projected at 2.6 percent in 2007, down from 3.2 percent last year, and is expected to lower to 2.4 percent in 2008. Inflation-adjusted disposable personal income is projected to rise 3 percent this year, up from a 2.6 percent gain in 2006, according to the report.
Wednesday, July 11, 2007
Tuesday, July 10, 2007
Mortgage Market Woes Continue: Commentary About Stability Amid Chaos
Mortgage market commentary
Monday, July 09, 2007
By Lou Barnes
Inman News
Mortgages have been remarkably stable in the 6.75 percent-6.875 percent area while the all-powerful 10-year T-note has run in a much wider range: 10 days ago touching 5.32 percent, on Tuesday trading briefly at 4.99 percent, and today an early burst to 5.22 percent.
Two lessons here. First, inject volatility into a system, as did the 10-year's rocket in June from 4.6 percent to the levels above and you'll have high volatility for quite a while. By "volatility" I mean true up-and-down action, not the Wall Street standard explanation to a client who has lost his shirt in a straight-line move.
Second, Treasury volatility versus stable mortgages is the signature of market uncertainty about the inflation/growth outlook, and grave concern about credit quality. In this week alone we've gone from strong buying of Treasurys in response to revelations of the magnitude of the mortgage-derivative mess to sell-everything-you've-got on news of a healthy economy.
The economic health is a bit of a puzzle. We've got the worst housing recession in at least 15 years (pending sales in May fell to the lowest level since September '01, a tough month), but its effects are still confined. Mortgage rates jumped a half percent in June, yet applications for mortgages are rock steady. The twin surveys by the purchasing managers' association appeared to be tailing, but both rebounded well in June, manufacturing to 56 from 55, services from 58 to a strong 60.7.
How are we pulling this off with oil at $70? Personal incomes are stagnant, in May a net loser after inflation. One big propellant in the early '00s was home-equity extraction: the Fed's newest numbers show home-equity-line-of-credit balances shrinking in the 1st quarter this year for the first time in modern memory. In Friday's news, June payrolls gained an as-expected and healthy 135,000 jobs, but April and May were revised way up, driving credit-frightened money back out of bonds just bought.
I do not have an answer to the "why" in our still-good economy, except that the globe overall is in the best economic health ever and helping to float our boat.
In the housing-mortgage furball, one of the deep fears for this stage was/is that a rapid retrenchment in credit standards would make a bad situation worse. When the credit pendulum swings all the way to one side, the return move rarely stops on sensible center. However, this time may be a first-ever. Mortgage terms and pricing are tougher than six months ago, and underwriters are running scared (especially in appraisal review), but pretty much everything available then still is today.
If you want a subprime horror, you can still have it: the FICO bar has gone from the 500s to 620-ish, roughly the minimum range that experienced landlords will consider acceptable for a tenant. The off-the-shelf piggybacks are as they were, except the 1st-to-2nd rate spread is about 1 percent wider (2 percent for sub-680 FICOs), causing little damage because the 2nds are so much smaller than the 1sts. "No-Docs" are still out there, spreads to "A" paper about a half-percent wider.
Stated-income, interest-only, "option" ARMs with negative amortization feature -- all unchanged except for FICO-rate relationship at the outer edge of applicant/deal strength. One hundred percent financing in general is harder to find, and pricey, but it should be.
Supply is still good for three reasons. First, most mortgages are good and safe investments. Second, the global credit markets are still desperate for yield and still don't grasp the extent of risk in edgy mortgage product; FICO-rate re-pricing will continue as that risk comes clear.
Third, the regulators, bless them, have failed altogether to tighten standards. Whether wise inaction during pendulum-swing, or near-total ineptitude, the mortgage underwriting "guidances" promulgated in the last year by the Fed (at the head of a puzzled mob: OFHEO, the FDIC, the Comptroller, the Office of Thrift Supervision, the National Credit Union Administration) have been completely ignored by the mortgage industry. A reasonable response, given equally complete lack of enforcement.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Monday, July 09, 2007
By Lou Barnes
Inman News
Mortgages have been remarkably stable in the 6.75 percent-6.875 percent area while the all-powerful 10-year T-note has run in a much wider range: 10 days ago touching 5.32 percent, on Tuesday trading briefly at 4.99 percent, and today an early burst to 5.22 percent.
Two lessons here. First, inject volatility into a system, as did the 10-year's rocket in June from 4.6 percent to the levels above and you'll have high volatility for quite a while. By "volatility" I mean true up-and-down action, not the Wall Street standard explanation to a client who has lost his shirt in a straight-line move.
Second, Treasury volatility versus stable mortgages is the signature of market uncertainty about the inflation/growth outlook, and grave concern about credit quality. In this week alone we've gone from strong buying of Treasurys in response to revelations of the magnitude of the mortgage-derivative mess to sell-everything-you've-got on news of a healthy economy.
The economic health is a bit of a puzzle. We've got the worst housing recession in at least 15 years (pending sales in May fell to the lowest level since September '01, a tough month), but its effects are still confined. Mortgage rates jumped a half percent in June, yet applications for mortgages are rock steady. The twin surveys by the purchasing managers' association appeared to be tailing, but both rebounded well in June, manufacturing to 56 from 55, services from 58 to a strong 60.7.
How are we pulling this off with oil at $70? Personal incomes are stagnant, in May a net loser after inflation. One big propellant in the early '00s was home-equity extraction: the Fed's newest numbers show home-equity-line-of-credit balances shrinking in the 1st quarter this year for the first time in modern memory. In Friday's news, June payrolls gained an as-expected and healthy 135,000 jobs, but April and May were revised way up, driving credit-frightened money back out of bonds just bought.
I do not have an answer to the "why" in our still-good economy, except that the globe overall is in the best economic health ever and helping to float our boat.
In the housing-mortgage furball, one of the deep fears for this stage was/is that a rapid retrenchment in credit standards would make a bad situation worse. When the credit pendulum swings all the way to one side, the return move rarely stops on sensible center. However, this time may be a first-ever. Mortgage terms and pricing are tougher than six months ago, and underwriters are running scared (especially in appraisal review), but pretty much everything available then still is today.
If you want a subprime horror, you can still have it: the FICO bar has gone from the 500s to 620-ish, roughly the minimum range that experienced landlords will consider acceptable for a tenant. The off-the-shelf piggybacks are as they were, except the 1st-to-2nd rate spread is about 1 percent wider (2 percent for sub-680 FICOs), causing little damage because the 2nds are so much smaller than the 1sts. "No-Docs" are still out there, spreads to "A" paper about a half-percent wider.
Stated-income, interest-only, "option" ARMs with negative amortization feature -- all unchanged except for FICO-rate relationship at the outer edge of applicant/deal strength. One hundred percent financing in general is harder to find, and pricey, but it should be.
Supply is still good for three reasons. First, most mortgages are good and safe investments. Second, the global credit markets are still desperate for yield and still don't grasp the extent of risk in edgy mortgage product; FICO-rate re-pricing will continue as that risk comes clear.
Third, the regulators, bless them, have failed altogether to tighten standards. Whether wise inaction during pendulum-swing, or near-total ineptitude, the mortgage underwriting "guidances" promulgated in the last year by the Fed (at the head of a puzzled mob: OFHEO, the FDIC, the Comptroller, the Office of Thrift Supervision, the National Credit Union Administration) have been completely ignored by the mortgage industry. A reasonable response, given equally complete lack of enforcement.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Monday, July 09, 2007
Pros and Cons of Owning Rental Property
A closer look at investment purchases
Friday, July 06, 2007
By Robert J. Bruss
Inman News
What is the best investment you ever made? Common stocks? Bonds? A small business? Your house? Other real estate?
Chances are your most profitable investment has been your personal residence. If you have yet to purchase your own home, today's "buyer's market" is an excellent time to do so.
However, if you already own your house, why not take advantage of current market conditions to buy one or more houses as rental investments? Let your tenants buy those houses for you by using their rent payments to pay the mortgage and other expenses.
WHY BUY RENTAL HOUSES?
Realizing that profitable rental houses (and most other real estate investments) are long-term investments for at least five years, consider the advantages of such investments.
Your list of benefits will likely include probable appreciation in market value (although the home sale market is "flat" in many cities today), income tax shelter, maximum leverage to control the property with little cash, tax-free and tax-deferred sales benefits, and pride of ownership.
Yes, there are possible rental-house disadvantages unless you carefully qualify tenants before they move in to ensure they pay the rent on time and won't "trash" your property. But sound property management techniques minimize this risk and hold repair costs down by providing tenant incentives to avoid damaging your rental houses.
HOW TO GET STARTED BUYING RENTAL HOUSES.
The easiest way to acquire a sound, well-located rental house is to buy one as your personal residence.
That might sound unusual. However, the key reason is buying your own home for owner-occupancy is the simplest way to purchase for little or no cash on the most affordable mortgage finance terms.
After owning and living in your home for a few years, perhaps fixing it up to add market value, then you can convert it to a rental house and move on to another house purchased the same way, eventually establishing a portfolio of rental houses.
Or, thanks to the tax magic of Internal Revenue Code 121, after living in the house at least 24 months and then moving out to rent it to tenants, you will have up to 36 months to decide if you want to keep the house as a rental or sell it and claim up to $250,000 (up to $500,000 for a qualified married couple) tax-free principal-residence-sale profits.
THE FORGOTTEN RENTAL-HOUSE TAX-SHELTER BENEFITS.
Most prospective rental-house investors realize these properties can provide income tax benefits, but they are often hazy as to the details.
Thanks to the unusual benefits of the depreciation tax deduction for estimated wear, tear and obsolescence, most rental houses show a paper tax loss. The reason is that depreciation is a noncash-expense tax deduction, which requires no actual payment, as is necessary for mortgage payments, property taxes, insurance and repairs.
Current tax law allows depreciation deductions for rental properties over 27.5 years. Commercial properties require a 39-year depreciable useful life.
For example, suppose you buy a $250,000 rental house, allocating $50,000 to the nondepreciable land value. Dividing the $200,000 cost of the structure, each year for 27.5 years you can deduct on Schedule E of your income tax returns about $7,300 without having to pay in cash even $1 for any actual depreciation expense.
The likely resulting tax loss from the rental house, after paying the operating expenses from the rental income, is deductible up to $25,000 annually if your adjusted gross income (AGI) from other sources is less than $100,000. Between $100,000 and $150,000 AGI, the amount of deductible rental-property loss gradually declines.
But any unused rental-property tax loss can be "suspended" and saved for use in future tax years or when the property is eventually sold.
UNLIMITED DEDUCTIONS FOR REALTY PROS.
However, "real estate professionals" can claim unlimited property-loss deductions from their other ordinary taxable income. If you spend at least 750 hours per year (about 14 hours per week) on your real estate activities, you may qualify for unlimited Schedule E deductions from your rental houses and other realty investments.
A real estate sales license is not required. Full-time real estate investors, property managers, builders, contractors and leasing agents can qualify. Either spouse is eligible.
For example, suppose a married physician earns $500,000 AGI. Normally, he would not be entitled to any Schedule E tax loss deduction from his rental houses because his AGI exceeds $150,000. However, if his wife manages their properties and she spends more than 750 hours annually supervising those investments, making management decisions, inspecting properties for possible purchase, and supervising sales and exchanges of their properties, they can qualify for unlimited "real estate professional" deductions on their joint income tax returns.
AVOID TAX WHEN SELLING YOUR RENTAL HOUSES.
If you quickly buy and sell rental houses or other real estate after fewer than 12 months of ownership (called "flippers"), your capital gains will be taxed at ordinary income tax rates up to 35 percent plus state taxes.
However, if you own the property more than 12 months, then the maximum federal capital gain tax rate is currently only 15 percent, plus state taxes.
But various tax-avoidance methods are available to cut or eliminate these taxes. In addition to the principal-residence-sale tax exemption of Internal Revenue Code 121 (if the house was owner-occupied to meet the statute's requirements), tax-avoidance consideration should be given to tax-deferred exchanges and installment sales.
Also, remember that any unused annual property-tax losses from rental properties are "suspended" for use in future tax years or when a property is sold. Your tax adviser can provide full details.
Personally, I have sold several rental houses at considerable profits with no tax due because my suspended tax losses sheltered my capital gains from taxation. More information is available in my brand-new special report, "Pros and Cons of Investing in Rental Houses and Condominiums," available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com.
Friday, July 06, 2007
By Robert J. Bruss
Inman News
What is the best investment you ever made? Common stocks? Bonds? A small business? Your house? Other real estate?
Chances are your most profitable investment has been your personal residence. If you have yet to purchase your own home, today's "buyer's market" is an excellent time to do so.
However, if you already own your house, why not take advantage of current market conditions to buy one or more houses as rental investments? Let your tenants buy those houses for you by using their rent payments to pay the mortgage and other expenses.
WHY BUY RENTAL HOUSES?
Realizing that profitable rental houses (and most other real estate investments) are long-term investments for at least five years, consider the advantages of such investments.
Your list of benefits will likely include probable appreciation in market value (although the home sale market is "flat" in many cities today), income tax shelter, maximum leverage to control the property with little cash, tax-free and tax-deferred sales benefits, and pride of ownership.
Yes, there are possible rental-house disadvantages unless you carefully qualify tenants before they move in to ensure they pay the rent on time and won't "trash" your property. But sound property management techniques minimize this risk and hold repair costs down by providing tenant incentives to avoid damaging your rental houses.
HOW TO GET STARTED BUYING RENTAL HOUSES.
The easiest way to acquire a sound, well-located rental house is to buy one as your personal residence.
That might sound unusual. However, the key reason is buying your own home for owner-occupancy is the simplest way to purchase for little or no cash on the most affordable mortgage finance terms.
After owning and living in your home for a few years, perhaps fixing it up to add market value, then you can convert it to a rental house and move on to another house purchased the same way, eventually establishing a portfolio of rental houses.
Or, thanks to the tax magic of Internal Revenue Code 121, after living in the house at least 24 months and then moving out to rent it to tenants, you will have up to 36 months to decide if you want to keep the house as a rental or sell it and claim up to $250,000 (up to $500,000 for a qualified married couple) tax-free principal-residence-sale profits.
THE FORGOTTEN RENTAL-HOUSE TAX-SHELTER BENEFITS.
Most prospective rental-house investors realize these properties can provide income tax benefits, but they are often hazy as to the details.
Thanks to the unusual benefits of the depreciation tax deduction for estimated wear, tear and obsolescence, most rental houses show a paper tax loss. The reason is that depreciation is a noncash-expense tax deduction, which requires no actual payment, as is necessary for mortgage payments, property taxes, insurance and repairs.
Current tax law allows depreciation deductions for rental properties over 27.5 years. Commercial properties require a 39-year depreciable useful life.
For example, suppose you buy a $250,000 rental house, allocating $50,000 to the nondepreciable land value. Dividing the $200,000 cost of the structure, each year for 27.5 years you can deduct on Schedule E of your income tax returns about $7,300 without having to pay in cash even $1 for any actual depreciation expense.
The likely resulting tax loss from the rental house, after paying the operating expenses from the rental income, is deductible up to $25,000 annually if your adjusted gross income (AGI) from other sources is less than $100,000. Between $100,000 and $150,000 AGI, the amount of deductible rental-property loss gradually declines.
But any unused rental-property tax loss can be "suspended" and saved for use in future tax years or when the property is eventually sold.
UNLIMITED DEDUCTIONS FOR REALTY PROS.
However, "real estate professionals" can claim unlimited property-loss deductions from their other ordinary taxable income. If you spend at least 750 hours per year (about 14 hours per week) on your real estate activities, you may qualify for unlimited Schedule E deductions from your rental houses and other realty investments.
A real estate sales license is not required. Full-time real estate investors, property managers, builders, contractors and leasing agents can qualify. Either spouse is eligible.
For example, suppose a married physician earns $500,000 AGI. Normally, he would not be entitled to any Schedule E tax loss deduction from his rental houses because his AGI exceeds $150,000. However, if his wife manages their properties and she spends more than 750 hours annually supervising those investments, making management decisions, inspecting properties for possible purchase, and supervising sales and exchanges of their properties, they can qualify for unlimited "real estate professional" deductions on their joint income tax returns.
AVOID TAX WHEN SELLING YOUR RENTAL HOUSES.
If you quickly buy and sell rental houses or other real estate after fewer than 12 months of ownership (called "flippers"), your capital gains will be taxed at ordinary income tax rates up to 35 percent plus state taxes.
However, if you own the property more than 12 months, then the maximum federal capital gain tax rate is currently only 15 percent, plus state taxes.
But various tax-avoidance methods are available to cut or eliminate these taxes. In addition to the principal-residence-sale tax exemption of Internal Revenue Code 121 (if the house was owner-occupied to meet the statute's requirements), tax-avoidance consideration should be given to tax-deferred exchanges and installment sales.
Also, remember that any unused annual property-tax losses from rental properties are "suspended" for use in future tax years or when a property is sold. Your tax adviser can provide full details.
Personally, I have sold several rental houses at considerable profits with no tax due because my suspended tax losses sheltered my capital gains from taxation. More information is available in my brand-new special report, "Pros and Cons of Investing in Rental Houses and Condominiums," available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com.
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