Home Sales And Job Creation Would Rise With Sensible Lending Standards

WASHINGTON (September 17, 2012) – New survey findings, combined with an analysis of historic credit scores and loan performance, show home sales could be notably higher by returning to reasonably safe and sound lending standards, which also would create new jobs, according to the National Association of Realtors®.

Lawrence Yun, NAR chief economist, said there would be enormous benefits to the U.S. economy if mortgage lending conditions return to normal.  “Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” he said.  “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.”

A monthly survey* of Realtors® shows widespread concern over unreasonably tight credit conditions for residential mortgages.  Respondents indicate that tight conditions are continuing, lenders are taking too long in approving applications, and that the information lenders require from borrowers is excessive.  Some respondents expressed frustration that lenders appear to be focusing only on loans to individuals with the highest credit scores.

Even though profits in the financial industry have climbed back strongly to pre-recession levels, lending standards still remain unreasonably tight.

Yun said all it takes is a willingness to recognize that market conditions have turned in the wake of an over-correction in home prices, with all of the price measures now showing sustained gains.  “There is an unnecessarily high level of risk aversion among mortgage lenders and regulators, although many are sitting on large volumes of cash which could go a long way toward speeding our economic recovery.  A loosening of the overly restrictive lending standards is very much in order,” he said.

Respondents to the NAR survey report that 53 percent of loans in August went to borrowers with credit scores above 740.  In comparison, only 41 percent of loans backed by Fannie Mae had FICO scores above 740 during the 2001 to 2004 time period, while 43 percent of Freddie Mac-backed loans were above 740.

In 2011, about 75 percent of total loans purchased by Fannie Mae and Freddie Mac, which are now a smaller market share, had credit scores of 740 or above.

There is a similar pattern for FHA loans.  The Office of the Comptroller of the Currency has defined a prime loan as having a FICO score of 660 and above.  However, the average FICO score for denied applications on FHA loans was 669 in May of this year, well above the 656 average for loans actually originated in 2001.

Loan performance over the past decade shows the 12-month default rate averaged just under 0.4 percent of mortgages in 2002 and 2003, which is considered normal.  Twelve-month default rates peaked in 2007 at 3.0 percent for Fannie Mae loans and 2.5 percent for Freddie Mac loans, clearly showing the devastating impact of risky mortgages.

Yun said home buyers in recent years have been highly successful.  Since 2009, the 12-month default rates have been abnormally low.  Fannie Mae default rates have averaged 0.2 percent while Freddie Mac’s averaged 0.1 percent, which are notable given higher unemployment in the timeframe.

Under normal conditions, existing-home sales should be in the range of 5.0 to 5.5 million.  “Sales this year are projected to rise 8 to 10 percent.  Although welcoming, this still represents a sub-par performance of about 4.6 million sales,” Yun said.  “These findings show we need to return to the sound underwriting standards that existed before the aberrations of the housing boom and bust cycle, and thoroughly re-examine current and impending regulatory rules that may cause excessively tight standards.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.


*Data derived from a monthly survey for the Realtors® Confidence Index based, on over 3,000 member responses, posted at www.Realtor.org.

Source: http://www.realtor.org/news-releases/2012/09/home-sales-and-job-creation-would-rise-with-sensible-lending-standards?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+RealtororgResearchHeadlines+%28REALTOR.org+Research+Headlines%29

Real Estate Tax Planing For 2013 Tax Hikes

Hang On Real Estate Investor!  The 2013 Tax Hikes are just around the corner!

A large number of tax provisions expire at the end of 2012 and new 2013 tax increases will affect everyone. Our first article describes what tax provisions are expiring. The second article provides an overview of the Medicare tax increase for 2013 which could affect your real estate sale.

Understanding these tax changes is paramount to your real estate investment strategy for the balance of 2012 and to be mindful of during 2013.

Major Effects of the Expiring 2012 Tax Rates and Provisions

Without Congressional action, a large number of tax provisions will expire on December 31, 2012. Every taxpayer will be affected with higher tax rates from payroll taxes to income tax rates.   Referred to as the “Bush Tax Cuts”, many of these 2012 expiring provisions were enacted in tax legislation in 2001 and 2003 included lower capital gains tax, marginal income tax rates, no marriage penalty tax and lower estate tax rates.  The expiration of these “Bush Tax Cuts” will greatly affect the real estate investors and small business owners whose businesses are organized as “pass-through” entities, where their business gains or losses are reflected on their individual returns.

Some of the major taxation effects of the expiring tax provisions are:

  • Capital Gains will be taxed at 20% rate, increased from the current 15% rate.
  • Dividends received by individuals will be treated as ordinary income rather than taxed at a capital gain tax rate of 15%.
  • Ordinary income tax rates will increase by 3.0% to 4.6% for those individuals in the 25% to 36% tax brackets.  The top tax bracket will be 39.6%.
  • Small businesses with undistributed taxable income will be taxed at the highest individual rate of 39.6% rather than the current 15% tax rate.
  • Estate and gift tax exemption will be reduced from $5 million to $1 million with the estate tax rate increasing from 35% to 55%.

For real estate investors entering into a 1031 Exchange transaction would still defer your taxes.  Strict guidelines and timing for your 1031 exchange would need to be followed.

2013 New Medicare Earned Income 3.8% Tax

A Medicare 3.8% tax will be imposed on income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an adjusted gross income above $200,000 and couples filing a joint return with adjusted gross income more than $250,000.

This new Medicare tax applies to the lesser of the investment income amount or the excess of the adjusted gross income over the $200,000 or $250,000 amount.  For taxpayers selling their principal residence, they will pay the 3.8% Medicare tax only on the amount of gain that excludes the thresholds in Sec. 121 which is $250,000 for singles taxpayers; $500,000 for joint returns.

The current statutes provides no guidance if the 3.8% Medicare tax can be deferred by entering into a 1031 like kind exchange when an investment property is sold.  Most tax practitioners feel that a 1031 exchange should defer this 3.8% Medicare tax but are waiting for final clarification.

Robert Shiller Explains When He’ll Call A Bottom In Home Prices

Calculated Risk’s Bill McBride points us to a new interview with Robert Shiller, the legendary Yale economist who famously predicted the dotcom and housing bubbles.

Speaking to NPR’s  Neal Conan earlier this week about housing prices, Shiller continues to  be reluctant about calling a bottom in U.S. home prices.  However, he  suggests when it may be appropriate to say that the housing bottom really is in  place.

Here’s part of the transcript of the interview:

CONAN: And in the spring you were on the fence as  those first reports came in giving three months of generally positive data. Do you think we’re  coming off the bottom?

SHILLER: Well, we definitely have positive data.  The question is how strong is it, and will this fizzle – this rally fizzle or not? And I don’t know the answer to that. But I point out that this is the fourth time we’ve had a rally since the crisis ended. It’s coming in the  summertime, right? Well, that’s the normal time of strength in the market.

So if you look at the data, it doesn’t jump out  at you that we’ve reached the turning point. Now, we may have, but I think that  seasonality seems to be getting stronger, and that’s another contender.

CONAN: So how long do you think you would want to  wait before you saw enough numbers to make a decision?

SHILLER: Well, I used to forecast home  prices, and I thought a year – once you have a year – this is what I used to  think, and whether it’s still true, but…


SHILLER: But once you have a year of  solid price increases, you are probably off to the races for some years. So  yeah, but we’re not into it that long yet.

Read more at NPR.org.

Source: http://www.businessinsider.com/robert-shiller-bottom-home-prices-2012-9#ixzz26q5yyBwg

August 2012 Greater Metropolitan Denver Home Market Statistics

The prime home selling/home buying season is over and the fall season is upon us.
August statistics show continuing buyer demand.
By the numbers, active inventory is 10,826 homes, 5,196 homes were placed under contract, and 4,685 homes closed during the month of August.
Year to date activity is up, Up, UP.
Appraisers are continuing to have a tough time in keeping up with current market valuations.
Buyer demand is cooling slightly.
Days on market is down, 50plus% of listings went under contract in 30 days or less.
Most frequently used forms of financing is conventional, FHA, and cash.
Sold homes amounted to a closed volume of $1.3B.
Great month and the future looks promising.

AS OF AUGUST 31,2012

Snapshot Aug, ’12 Prior Month Year Ago   Prior Month Year Ago
Single Family (Residential +   Condo)
Active 10,826 10,827 16,631 -0.01% -34.90%
Pending 1,894 1,930 1,533 -1.87% 23.55%
Under Contract 5,196 5,236 4,537 -0.76% 14.53%
Sold 4,685 4,618 3,973 1.45% 17.92%
Avg DOM 64 65 99 -1.54% -35.35%
Avg Sold Price $285,692 $288,884 $260,821 -1.10% 9.54%
Active 9,060 9,087 13,436 -0.30% -32.57%
Pending 1,483 1,494 1,226 -0.74% 20.96%
Under Contract 4,191 4,181 3,552 0.24% 17.99%
Sold 3,730 3,713 3,177 0.46% 17.41%
Avg DOM 63 64 96 -1.56% -34.38%
Median Sold Price $262,000 $259,000 $235,000 1.16% 11.49%
Avg Sold Price $311,893 $312,920 $284,065 -0.33% 9.80%
Active 1,766 1,740 3,195 1.49% -44.73%
Pending 411 436 307 -5.73% 33.88%
Under Contract 1,005 1,055 985 -4.74% 2.03%
Sold 955 905 796 5.52% 19.97%
Avg DOM 69 69 111 0.00% -37.84%
Median Sold Price $148,950 $154,000 $130,000 -3.28% 14.58%
Avg Sold Price $183,359 $190,269 $168,050 -3.63% 9.11%


Footnotes: Active, Pending Under Contract, and Sold presented as # of units.
Pending are those listings that are awaiting contract approval from a financial institution.
Avg DOM = Average Days on Market
This representation mayor may not reflect all real estate activity in the market.
Source: Metrolist, Inc. © 2012 Garold D Bauer, All Rights Reserved, Information Deemed Reliable But Not Guaranteed