Real Estate: Find Opportunity Next Year

By Carla Fried @Money December 3, 2012: 6:09 PM ET

Opportunity has returned to the real estate market.

In Money magazine’s Make More in 2013, you’ll learn what’s contributing to a rosier outlook for economic growth, how to get more investment income at a time of super-low rates, and how you can start exploring and how you can start exploring job opportunities again. This installment: Why, as a prospective home seller or buyer, you need to stop sitting on your hands.

After five years of tumult, order and opportunity are finally being restored to the housing market.

Home prices are expected to rise a modest 1% from the fourth quarter of this year to the end of 2013, according to the real estate research firm Fiserv. David Stiff, Fiserv’s chief economist, notes that after some choppiness early on, prices should increase 3.4% from the second quarter of 2013 to the second quarter of 2014. In hotter regions out West, you can expect bigger gains.

“Housing is finally turning the corner,” Stiff says. “There is no reason to be fearful of further large price declines.”

This creates a new playing field for homeowners, who are finally able to sell, as well as would-be buyers who’ve been delaying a purchase in anticipation that prices would keep falling.

The Mortgage Bankers Association forecasts that more and more house hunters will start coming off the sidelines, with new-home loans for purchases expected to jump 55%, based in dollars, in 2013.

With that increased competition, “the days of buyers sticking it to sellers are over,” says Salt Lake City real estate agent Tracie Peay.

Sellers: Don’t get too excited just yet. You don’t have a viselike grip on this market either. Indeed, for many, it still makes sense to wait to get better prices. This is especially true if you know that you won’t be able to break even on your investment by unloading your house now, once you factor in the sales commission and other costs.

That said, don’t assume that prices will be off to the races again in a year or two.

Fiserv forecasts that between now and 2017, homes will gain 3.3% a year in value. That’s hardly red-hot. But at least the market isn’t frozen anymore.



The price still has to be right

Homes in many markets are selling in a matter of weeks, often attracting multiple bids — but only the ones that are properly priced. Take San Francisco. Although the city is one of the strongest sellers’ markets right now, the average home there goes for 103% of list price, not 120%.

“Buyers aren’t going down the road that got so many people in trouble during the bubble,” says Dallas real estate agent Mary Beth Harrison.

Focus on the appraisal

Whoever bids on your home will probably finance the purchase. That means any deal is still beholden to a third party.

“You can take the highest offer, but at the end of the day the appraiser has the final say on the value of the home,” says David Howell, chief information officer at McEnearney Associates, a real estate agency in the D.C. metro area.

With so much riding on the appraisal — it can kill an agreement or require renegotiation — your agent should be present. Harrison has a tip for making sure this happens: “The minute we have an offer, we take the keys off the door to make sure the appraiser has to meet us to get in.”

Your agent should also prep a package of pertinent information for the appraiser, says Chicago real estate agent Fran Bailey. That includes the latest comparable sales data and documents detailing any upgrades or renovations to help the seller’s cause. “It’s part of my job to make sure the appraiser has the correct information,” she says.


Be ready to deal

With competition heating up, casual house shopping isn’t going to cut it anymore. If you are serious about making a move, be prepared:

Three months out. Despite housing’s green shoots, getting a mortgage remains incredibly tough. The average FICO credit score for recently denied applications on conventional purchase loans was 729. The score on approved mortgages was 762, with a 21% down payment, monthly payments equal to 21% of household income, and total debt that did not exceed 33% of income.

On the bubble with any of those requirements? Now’s the time to burnish your finances. And if you plan to house hunt in the spring, watch your holiday spending.

Deal time. “If you want to buy, you have to be ready to make an offer,” says Howell. Plus, your first offer should be very close to your best. “If the house has been on the market for three months or longer, you can be more aggressive,” says Bailey. “But if it’s a new listing, a low-ball bid will get you ignored.”

The Money tracker: What can upset the forecast in the year ahead…

Ben runs out of ammo. Fed chairman Ben Bernanke is lifting housing by buying bonds to keep mortgage rates low. How much longer can he keep that going?

The loss of mortgage deductions. Should the tax break on mortgage interest get cut, that would throw cold water on the real estate recovery.

Sellers sit on the fence. Homeowners could remain on the sidelines as the ranks of buyers grow. In that case, the inventory of homes would shrink even more, lifting prices faster than expected.

Homeowners get bullish. A spate of home construction is already taking place in several major markets. In those regions, the housing stock is likely to stabilize, keeping price gains modest.

Banks loosen their grip.If tight lending standards return to historical norms, realtors argue, the market could see an additional 500,000 to 700,000 home sales next year.

Employer confidence rises. Since jobs are the engine of the housing market, a pickup in hiring later in the year, which economists are predicting, could accelerate a real estate rebound in the second half of 2013.


Analyst: Denver Has Impressive Real-Estate Year

KUSA – Year to date, Metrolist is reporting more than 53,000 homes are under contract, more than 42,000 homes have closed and the closing dollar volume is $11.96 billion in Denver.

Since Denver has always been considered a bellwether city, Gary Bauer, chairman of Metrolist, spoke to 9NEWS about the impressive year Denver had in the real-estate market.

“Consistently, all through this year, we have ranked in the Denver market in the No. 5 position and that has been extremely positive for us,” Bauer said.

He thinks Colorado was the first to enter the recession, which contributed to why the state recovered so quickly.

“There was a pent-up buyer demand that started at the beginning of this year and has continued every month since,” Bauer said.

He thinks the Denver market will continue to see improvement in real estate.


November 2012 Greater Metropolitan Denver Home Market Statistics

AS OF November 30,2012

Snapshot Nov, ’12 Prior Month Year Ago   Prior Month Year Ago
Single Family (Residential +   Condo)
Active 8,847 9,719 12,634 -8.97% -29.97%
Pending 1,589 1,728 1,641 -8.04% -3.17%
Under Contract 3,893 4,624 3,365 -15.81% 15.69%
Sold 3,692 4,095 3,068 -9.84% 20.34%
Avg DOM 70 66 100 6.06% -30.00%
Avg Sold Price $285,664 $278,438 $252,009 2.60% 13.35%
Active 7,336 8,108 10,213 -9.52% -28.17%
Pending 1,269 1,380 1,300 -8.04% -2.38%
Under Contract 3,119 3,664 2,736 -14.87% 14.00%
Sold 2,975 3,246 2,468 -8.35% 20.54%
Avg DOM 72 67 99 7.46% -27.27%
Median Sold Price $250,000 $255,000 $230,300 -1.96% 8.55%
Avg Sold Price $306,773 $304,237 $275,951 0.83% 11.17%
Active 1,511 1,611 2,421 -6.21% -37.59%
Pending 320 348 341 -8.05% -6.16%
Under Contract 774 960 629 -19.38% 23.05%
Sold 717 849 600 -15.55% 19.50%
Avg DOM 64 61 105 4.92% -39.05%
Median Sold Price $153,750 $145,500 $125,000 5.67% 23.00%
Avg Sold Price $198,080 $179,803 $153,526 10.17% 29.02%


AS OF November 30,2012

Snapshot – YTD YTD 2012 YTD 2011 YTD 2010 % Change ’12 vs ’11 % Change ’12 vs ’10
Single Family (Residential +   Condo)
Active 8,847 12,634 19,881 -29.97% -55.50%
Under Contract 53,322 44,541 46,621 19.71% 14.37%
Sold 42,899 36,231 35,794 18.40% 19.85%
Avg DOM 77 108 90 -28.70% -14.44%
Avg Sold Price $278,783 $255,623 $257,324 9.06% 8.34%
Active 7,336 10,213 15,232 -28.17% -51.84%
Under Contract 42,968 35,735 37,068 20.24% 15.92%
Sold 34,439 28,906 28,355 19.14% 21.46%
Avg DOM 77 105 89 -26.67% -13.48%
Median Sold Price $250,000 $229,900 $230,250 8.74% 8.58%
Avg Sold Price $303,286 $280,230 $282,717 8.23% 7.28%
Active 1,511 2,421 4,649 -37.59% -67.50%
Under Contract 10,354 8,806 9,553 17.58% 8.38%
Sold 8,460 7,325 7,439 15.49% 13.72%
Avg DOM 78 117 95 -33.33% -17.89%
Median Sold Price $142,000 $125,000 $133,000 13.60% 6.77%
Avg Sold Price $179,036 $158,520 $160,533 12.94% 11.53%

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

Short Sales Jump Ahead Of Tax Hike

A soon-to-expire tax break for troubled homeowners is helping drive a spurt in “short sales.”

During the three months ended Sept. 30, short sales in which homeowners had fallen behind on mortgage payments soared 22% over last year, according to a report released Thursday by online marketing company RealtyTrac. By comparison, short sales by people current on their payments went up 17%.

In a short sale, homeowners sell at a price that is less than what they owe the bank, and the bank agrees to absorb the loss. The bank unloads the house and the homeowner gets out of a mortgage he can’t afford.

And currently, homeowners don’t have to pay federal tax on the unpaid mortgage debt because of a bailout-era law known as the federal Mortgage Debt Forgiveness Act.

But the act expires on Dec. 31 and, unless it is extended, the IRS in January will start treating unpaid mortgage debt as taxable income for many borrowers. The average amount of forgiven debt in a short sale is about $95,000, according to Blomquist. The tax on that could go as high as $33,250, even more if the Bush tax cuts expire.

So real estate agents are pushing to get short sales done by the end of the year, worried that if they don’t, deals will fall apart with the prospect of big tax bills, according to Daren Blomquist, vice president of RealtyTrac.

“They’re encouraging people to sell before the tax break ends,” he said.

With the year-end deadline approaching, short sales could spike even more in the current quarter.

“If that law expires, homeowners who agree to short sales could see their income tax jump significantly because the portion of the unpaid loan balance not covered by the short sale proceeds will be considered taxable income in many cases,” Blomquist said.

This quarter, more homes in foreclosure were sold as short sales than repossessed by banks and resold.

“Both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure,” said Blomquist.

For banks, the calculation on short sales goes like this: Yes, they take a loss. But they also unload the property — an attractive option given that banks must bear the costs of maintaining homes they repossess.

Foreclosures can be costly for banks. They get stuck with legal costs as well as taxes and maintenance expenses. The longer it takes to repossess a home — and it can take years — the more the expenses mount. Short sales can happen quickly.

In addition, homes in short sales go for higher prices than ones repossessed in foreclosure and resold by banks. The average sales price comparison: $191,025 for short sales vs. $161,954 for homes sold by banks in foreclosure.

Another factor driving short sales: Since March, the five biggest lenders have been able to claim some of the forgiven debt in short sales as credits against what they owe under the mortgage abuse settlement they reached with the government. Already, the banks have approved $13 billion in short sales for 113,000 borrowers under that pact.

One group left out of the benefits of the tax break are homeowners in California, Arizona and 10 other states in which the IRS does not tax forgiven debt because of those states’ laws.


MERV Scores Help Consumers Evaluate Air Quality

When you hear about MERV, do your thoughts turn to day-time talk shows or night-time air quality? MERV (minimum efficiency reporting value) is actually an acronym for numeric values applied to air filters, based on their ability to remove particles from the atmosphere. Using this rating system, consumers can select a particle-removal air filter by viewing the efficiency with which it removes airborne particles from the air stream. This scale was developed by the American Society of Heating, Refrigeration and Air-Conditioning Engineers, and rates filters ona a scale of one to twenty.

One of the best ways to address residential indoor air pollution is to control or eliminate the source of the pollutants and to ventilate the home with clean outdoor air. But ventilation can be limited by weather conditions or the levels of filtration devices. Additional air filtration can be achieved with filters installed in the HVAC ductwork that can clean the air in the entire house.

Flat or panel air filters with a MERV score of one to four are most commonly used in residential furnaces and air conditioners. These filters are designed to protect HVAC equipment from the build-up of unwanted materials on surfaces including fan motors and heating or cooling coils, not for direct indoor air quality reasons. They have low efficiency ratings on smaller airborne particles and medium efficiency on larger particles. (Smaller particles commonly found within a house that are not affected by these filters include viruses, bacteria, some mold spores, a significant fraction of cat and dog allergens, and a portion of dust mite allergens).

Medium efficiency filters with a MERV of five to thirteen are considered reasonably efficient at removing small to large airborne particles. Filters with a higher MERV score (between seven and thirteen) are considered almost as effective as true HEPA (high efficiency particulate air) filters at controlling most airborne indoor particles and are generally quieter and less expensive than a HEPA filter. (HEPA filters are composed of a mat of randomly arranged fibers. The fibers are typically composed of fiberglass, with diameters between 0.5 and 2.0 micrometers.)

Most MERV air filters are good at capturing larger airborne particles, such as dust, pollen, dust mite allergens, some molds, and animal dander. However, because these particles settle quickly, air filters are not completely effective at removing them from indoor areas. (Although activities such as walking and vacuuming can stir up particles, most of the larger particles will resettle before an air filter can remove them).

In addition, some residential HVAC systems may not have enough fan or motor capacity to accommodate higher efficiency MERV filters. Therefore, the HVAC manufacturer’s information should be checked prior to upgrading filters to determine whether it is feasible to use more efficient filters.

Source: Huffman Inspections