Why the Mortgage Interest Deduction is So Important Right Now

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.
The mortgage interest deduction always seems to become a hot-button issue around election time. Politicians say it's the perfect program to cut, as it would free up a much-needed $100 billion or so. Homeowners and housing lobbyists – namely the National Association of Realtors – strongly disagree, saying it's a benefit of homeownership that's baked into the decision to buy a home.

The mortgage interest deduction is an important piece of the tax code – especially now as we're in a fragile state of recovery both in housing and the overall economy. Why would anyone cut a tax program that benefits mostly middle-class Americans? It would seem like a swift kick while we're already down.

The mortgage interest deduction allows homeowners to reduce their taxable income by the amount of interest they pay on their mortgage. It's a big deal for many homeowners as it's one of the perks of owning a home and helps reduce the cost of ownership.

The latest threat to cut the mortgage interest deduction came out of the Republican convention in Tampa last month. Presidential nominee Mitt Romney and his advisors once again talked about "limiting" the deduction.

NAR president-elect Gary Thomas responded with a very emphatic "don't do it!" The theory is that reducing or eliminating the mortgage interest deduction would lower home values once again, and drive more Americans underwater.

NAR's position has always been strongly in favor of keeping the mortgage interest deduction in place. This time, there is a solid point in the general argument to leave the deduction alone: Take away this benefit to owning and any homeowner who's already underwater is much more likely to walk away.

Who wouldn't walk away at that point? You're underwater on your mortgage and now one of the benefits to owning that's actually lending you a small financial boost is gone or severely cut. In addition, it seems logical to conclude that removing this benefit would also dampen demand from buyers in the market.

I'm sure buyers aren't buying just because they get a tax break over renting. But it is something that's always factored into the financial decision. And it certainly can help with ball-parking the right price range, since it factors heavily into a family's monthly and yearly budget.

So we beg you politicians: Leave the mortgage interest deduction alone!

Appraisal Problems are Everywhere

We've been involvedin/the victim of some bad appraisal practices since the new laws went into effect. Barbara expresses some of our frustrations. 

 

 

 

Tight Inventory, Rising Prices and Surviving Bidding Wars

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

The housing recovery is well under way, although the peak summer sales season seems to be fading. A report from Realtor.com last week showed an overall drop in inventory at the national level, which has contributed to rising prices in several markets across the country.

Housing inventory fell 19% in July to 1.87 million homes from 1.89 million the previous month, Realtor.com reported. The decline in inventory comes from a sharp drop in bank-owned foreclosures and other distressed properties, as well as many sellers who are likely holding back because they'd have to sell at a loss or owe more on their mortgages than their homes are worth.

While the recovery appears to be going full steam, the impact is actually creating a housing boom-like feel for those buyers at the lower end of the market. This is because the low inventory can't keep up with demand, and therefore is creating multiple-bid situations, which are driving up prices.

Inventories were down in all but two of the markets Realtor.com tracks: Shreveport, La., and Philadelphia. Oakland, Calif., led the nation with the largest decline in inventory, which was down 59.3% from last year. Other cities that had at least a 40% decline in listings from a year ago were Riverside-San Bernardino, Stockton, San Francisco, San Jose, Bakersfield and Fresno – all in California – and Seattle.

What do you do as a buyer who's up against multiple bids for every home you're interested in buying? There are four rules of the road here:

Make your offer as solid as possible. Be sure to research recent nearby sales of homes similar to the one you're making an offer on. Work with an agent who's helped buyers buy homes in the area in recent months. They'll have insight into current buying competition.

Get prequalified for a loan. Sellers will be more interested in talking to buyers they know will pull through with a loan. Show them by visiting a lender or mortgage professional before you start house hunting. Get prequalified for a loan and your offer will be much stronger.

Have as much downpayment and closing cash as you can. This is common sense, but worth noting. A higher downpayment these days will get you a much better loan and also will likely put you at the front of the bidding line above buyers with less cash on hand.

Be patient. You may not get the first house you fight for. It's OK. Inventory may be tight, but there is a whole population of sellers out there who've been waiting to sell. They're watching the market and will come around, creating more homes to choose from.

It seems counterintuitive to discuss the beginnings of what is expected to be a long housing recovery and multiple bids in the same article, but it's reality in some markets across the nation.

The summer created some sparks for sure!

When an adjustable-rate mortgage makes sense

Just read an article from CNNMoney which California Association of Realtors summarized as follows:

 

When the housing market began declining, many people claimed that adjustable-rate mortgages (ARMs) were the cause. However, recently they've been making a comeback, especially mong affluent borrowers.

 

• An ARM offers an introductory period in which the borrower pays a lower interest rate than with a fixed loan; after that, the rate can fluctuate up or down.
• With rates near historic lows, the safety of locking in a fixed-rate appeals to many borrowers.  But these borrowers are paying a premium for that security.  The spread between rates on 30-year fixed-rate mortgages and the most-popular ARMs now stand at about one percentage point, more than double the difference just five years ago.
• That means that homeowners who are planning to either move or pay off their mortgage over the next few years can save big with an ARM.
• Borrowers can determine if an ARM is the right loan option for them by looking at their financial situation and the terms of the ARM. ARMs carry risks in periods of rising interest rates, but can be cheaper over a longer term if interest rates decline. An ARM may be a good option to consider for borrowers who plan to own the home for only a few years, expect an increase in future earnings, or the prevailing interest rate for a fixed-rate mortgage is too high.
• Before deciding to apply for an ARM, borrowers should consider if their income is likely to rise enough to cover higher mortgage payments if interest rates increase; whether they will be taking on other sizable debts such as car loans or school tuition in the near future; how long they plan to own the home; and whether their mortgage payments can increase even if interest rates generally do not increase.

Now read the full story and be sure to scroll down and read the comments. Phew!

Happy Labor Day 2012

What New Home Price Indices Mean for Consumers

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

Some interesting changes are coming about in home price indices. Both the Florida Association of Realtors and the National Association of Realtors have stated they are working on new price indices that will track the sales prices of individual homes over time. Most state associations currently track median prices for their respective markets in a particular month or quarter.

Why are they doing this? The thinking is that median prices are not always a great way to gain insight into pricing trends in any given market because the variety of housing types can alter the median price one way or the other.

For example, say a particular market's sales have mostly been at the lower end of the price spectrum due to distressed sales and a higher number of first-time buyers than move-up buyers. The lack of sales at the luxury end will have the effect of pushing down the median price, when in fact there may be average increases in prices for starter homes.

Because the quality of housing stock continuously changes over time in any given market, the conclusions drawn from tracking median prices may not say a lot about an overall pricing trend. Median prices only reflect values of the properties that sold at that particular time, which raises a lot of questions when examining the data.

For instance, are house prices really increasing in this market or is the median value higher this quarter because so many luxury homes sold?

The tracking of repeat sales or refinancings of the same property is not a new concept. In fact, the S&P Case-Shiller Home Price Indices and the Federal Housing Finance Agency's Home Price Index have always done it this way.

Using repeat sales over median prices to track home prices may end up changing the national story on home prices in coming months. It's important that agents be aware of what's happening in order to explain it to buyers and sellers.

However, I still stick to the school of thought that believes the only price numbers that really matter to individual buyers and sellers are the neighborhood comps. These are the figures that will determine the fair market value of homes going for sale or being purchased. Every conversation about prices should start and end by looking at these closely, not the national numbers, state numbers or even city numbers.

Real estate is local – as in block by block. Those are the true price trends to watch.

Home Buyers Pointers

Changes at Fannie May & Freddie Mac

There were some changes announced today by the Federal Housing Finance Agency (FHFA) that will align guidelines for Fannie Mae and Freddie Mac short sales and allow lenders and servicers to quickly and more easily qualify borrowers for a short sale. 

Here are some specific changes that are effective Nov. 1, 2012:

• Eliminates current Fannie Mae and Freddie Mac short sale programs and creates a single standard short sale process for both entities (Fannie and Freddie HAFA programs will expire at the end of the year).

• Enables servicers to quickly and easily qualify certain borrowers who are current on their mortgages for short sales without waiting for an approval from Fannie Mae or Freddie Mac

• Offers special treatment for military personnel with Permanent Change of Station (PCS) orders.

• Standardizes and clarifies foreclosure suspensions on a property with an approved short sale.

• May pay borrowers up to $3,000 in relocation assistance.

• Fannie Mae and Freddie Mac will offer up to $6,000 to subordinate lien holders to expedite a short sale.

Additionally, FHFA clarified that a borrower experiencing a hardship must wait at least two years before becoming eligible for a new Fannie Mae or Freddie Mac loan.

These changes follow FHFA’s announcement in June that established strict timelines for servicers to respond to short sales within 30 days of receipt of a short sale offer, provide weekly status updates to the borrower, and communicate a final decision to the borrower within 60 days of receipt of the offer.

For details of Fannie Mae’s new short sale guidelines.

For details of Freddie Mac’s new short sale guidelines.

Single Family Home for RENT

Avoid Real Estate Fraud

Contact the Santa Clara County Real Estate Fraud office at 408-808-3754.