Happy 10-31 Day!!

Important information for investors beginning a 1031 exchange from October 18 – December 31, 2013

The time frame an exchanger has to complete the acquisition of a replacement property in a 1031 exchange ends at midnight on the earlier of the 180th day after the date the relinquished property was transferred – or – the due date (including extensions) for the income tax return for the taxable year in which the transfer of the relinquished property occurs. Section 1031(a)(3)(B).

Even though an exchanger may be entitled to a filing extension, to extend the 180-day period the exchanger must actually obtain the filing extension. Consequently, some exchangers closing on the sale of relinquished property late in 2013 may need to file for an extension to utilize the entire 180 -day exchange period. As a general rule, exchangers should not file a tax return until the 1031 exchange is complete.


More specifically, if the 180th day following the closing of the sale of the first relinquished property falls after the due date for filing the 2013 tax return (generally April 15, 2014 for individuals), an exchanger must file IRS Form 4868 with the IRS to actually extend the filing date. If an exchanger does not file for such an extension, they will not be able to acquire any replacement property in an exchange after the tax return due date.

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Median home price hits 8-year high

Coming in at the strongest gain in seven and a half years, the national year-over-year median home prices continued to increase in the majority of metropolitan areas in the second quarter, according to the latest quarterly report by the National Association of Realtors. Buyers remain well positioned to afford a home in their area, despite rising prices and higher mortgage interest rates, the report revealed.

The median existing single-family home priced rose in 87% of measured markets, as 142 out of 163 metropolitan statistical areas posted gains based on closings in the second quarter versus the second quarter of 2012. Of the 163 MSAs, 31% — 50 areas — had double-digit gains, one remained unchanged and 20 saw prices drop.

In the latest quarter, eight markets were added to the report. In the second quarter of 2012, 75% of all available areas reported price gains year-over-year, and only 14% of markets increased by double-digit amounts. Tight inventory is continuing to drive home prices, said Lawrence Yun, NAR chief economist. 

 “There continue to be more buyers than sellers, and that is placing pressure on home prices, with multiple bids common in some areas of the country,” he said.  “Higher interest rates are now causing sales to level out, but the tight supply conditions look to be with us for the balance of the year in most of the country.  Areas with tighter supplies generally are seeing the strongest price growth, including markets such as Sacramento, Atlanta, Las Vegas, Naples, San Francisco and Los Angeles.”

Nationwide, the median existing single-family home price was $203,500 in the second quarter, a 12.2% increase from $181,300 in the second quarter 2012. This marks the strongest year-over-year increase since back in the fourth quarter of 2005, when it skyrocketed 13.6%. The median price rose 11.3% year-over-year in the first quarter.

According to NAR, a shrinking market share of lower priced homes accounts for some of the price growth. Accounting for 17% of second-quarter sales, distressed homes dropped from 26% of total sales a year ago. Yun added that areas impacted by judicial foreclosure are seeing more modest price increases.  “In areas where foreclosed inventory still looms because distressed properties are mired in a slow process, lender and market uncertainty are holding back price growth.  This includes areas such as New York City; Hartford; Conn.; and some markets in New Jersey.”

There were 2.19 million existing homes available for sale at the end of the second quarter, a 7.6% decline year-over-year. In the second quarter of 2012, there were 2.37 million homes on the market. During this year’s second quarter, there was a 5.1-month supply, compared with 6.4 months in the second quarter of 2012. “Supplies in the low 5-month range can be expected for the foreseeable future,” Yun said.  “Steady increases in new home construction will help to relieve shortage conditions going into 2014, which would moderate price growth.”

Total existing-home sales — including single-family and condo — increased 2.4% to a seasonally adjusted annual rate of 5.06 million in the second quarter from 4.94 million in the first quarter. The second-quarter rates were 12.3% higher than the 4.51 level during the second quarter of 2012.
Total existing-home sales were at the highest pace since the second quarter of 2007, when they hit 5.23 million.

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USDA Extends OLD Maps + 3% Down Program Going Away

USDA Extends OLD Eligible Area Maps to January 15th, 2014 Barring further Congressional action, current eligible areas for the USDA Rural Housing Programs will remain unchanged through January 15, 2014. Your client will be subject to the new eligible areas if they do not receive a Conditional Commitment by USDA prior to January 15, 2014. The Contingent Conditional Commitment indicates the loan will be insured “subject to the availability of commitment authority.” The Contingent Conditional Commitment may also include other conditions. The availability of “commitment authority” is based processing funding allocations to the states within USDA and is expected to take two to three weeks.

NO MORE 3% Down Payment Programs through FannieMae FNMA will be tightening their guidelines in less than a month increasing their minimum down payment requirement to 5%, from 3%. What program(s) does this effect?  Mainly, the FannieMae HomePath Program and their Conventional HFA Program* What about FHA?  FHA's 3.5% down payment will remain [for now] but is not as attractive due to the new "life of loan" mortgage insurance requirement for most loan transactions. *The HFA Program is popular w/ clients using down payment assistance programs such as Maryland's CDA & DSELP.  It is a great option for those with high credit scores to obtain discounted mortgage insurance and avoid FHA financing.

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Existing-home sales declined in September, but prices rise.

After hitting the highest level in nearly four years, existing-home sales declined in September, but limited inventory conditions continued to pressure home prices in much of the country, according to the National Association of REALTORS®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.9 percent to a seasonally adjusted annual rate of 5.29 million in September from a downwardly revised 5.39 million in August, but are 10.7 percent above the 4.78 million-unit pace in September 2012. Sales have remained above year-ago levels for the past 27 months.

Lawrence Yun, NAR chief economist, said a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.49 percent in September from 4.46 percent in August, and is the highest since July 2011 when it was 4.55 percent; the rate was 3.47 percent in September 2012.
The national median existing-home price for all housing types was $199,200 in September, up 11.7 percent from September 2012. This is the 10th consecutive month of double-digit year-over-year increases.

Distressed homes – foreclosures and short sales – accounted for 14 percent of September sales, up from 12 percent in August, which was the lowest share since monthly tracking began in October 2008; they were 24 percent in September 2012. Lower levels in the share of distressed sales account for some of the growth in median price.

Nine percent of September sales were foreclosures, and 5 percent were short sales. Foreclosures sold for an average discount of 16 percent below market value in September, while short sales were discounted 12 percent.

Data from realtor.com®, NAR’s listing site, show some of the strongest increases in listing price from a year ago are in the Detroit area, up 44.6 percent; Las Vegas, up 30.7 percent; and Sacramento, up 28.9 percent.

Total housing inventory at the end of September was unchanged at 2.21 million existing homes available for sale, which represents a 5.0-month supply at the current sales pace, compared with a 4.9-month supply in August. Unsold inventory is 1.8 percent above a year ago, when there was a 5.4-month supply.

NAR President Gary Thomas said there are far-ranging consequences from the repeating stalemates in Washington. “Just one impact of the recent government shutdown – delays in tax transcripts needed for approval of mortgage loans – put a monkey wrench in the transaction process and could negatively impact sales closings in next month’s report,” he said.

Thomas said flood insurance also is a concern. “Realtors® report that approximately 10 percent of transactions in September were located in flood zones, and that nearly one out of 10 of those transactions were delayed or canceled due to concerns over rising insurance rates.” Notably higher flood insurance rates went into effect on October 1, and could impact future sales in flood zones.
The median time on market for all homes was 50 days in September, up from 43 days in August, but much faster than the 70 days on market in September 2012. Short sales were on the market for a median of 93 days, while foreclosures typically sold in 43 days, and non-distressed homes took 49 days. Thirty-nine percent of homes sold in September were on the market for less than a month.
First-time buyers accounted for 28 percent of purchases in September, unchanged from August, but down from 32 percent in September 2012.

All-cash sales comprised 33 percent of transactions in September, up from 32 percent in August, and 28 percent in September 2012. Individual investors, who account for many cash sales, purchased 19 percent of homes in September, up from 17 percent in August, and 18 percent in September 2012. Last month, 74 percent of investors paid cash.

Single-family home sales slipped 1.5 percent to a seasonally adjusted annual rate of 4.68 million in September from 4.75 million in August, but are 10.9 percent above the 4.22 million-unit pace in September 2012. The median existing single-family home price was $199,300 in September, which is 11.4 percent higher than a year ago.

Existing condominium and co-op sales fell 4.7 percent to an annual rate of 610,000 units in September from 640,000 in August, but are 8.9 percent above the 560,000-unit level a year ago. The median existing condo price was $198,600 in September, up 14.2 percent from September 2012.
Regionally, existing-home sales in the Northeast declined 2.8 percent to an annual rate of 690,000 in September, but are 15.0 percent above September 2012. The median price in the Northeast was $240,900, up 2.3 percent from a year ago.

Existing-home sales in the Midwest fell 5.3 percent in September to a pace of 1.25 million, but are 12.6 percent higher than a year ago. The median price in the Midwest was $158,400, which is 9.0 percent above September 2012.

In the South, existing-home sales declined 1.4 percent to an annual level of 2.10 million in September, but are 9.9 percent above September 2012. The median price in the South was $171,600, up 13.9 percent from a year ago.

Existing-home sales in the West rose 1.6 percent to a pace of 1.25 million in September, and are 7.8 percent higher than a year ago. With ongoing inventory restrictions, the median price in the West rose to $286,300, which is 16.8 percent above September 2012.

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How long does it take to build a house?

Thinking about building a new home, weighing the pros and cons of building versus buying, or simply curious about the building process? The 2012 Survey of Construction (SOC) from the Census Bureau shows that on average it takes about 7 months from obtaining a building permit to completing a new single-family home. Looking at the houses completed in 2012, houses built for sale, on average, register the shortest time from permits to completion – between 5 and 6 months. Houses built on owner’s land take longer – about 8 months if built by a contractor and more than 11 months if they are owner-built (i.e., where the owner of the land serves as a general contractor). Single-family homes built for rent take, on average, between 8 and 9 months from permits to completion.

In most cases, no time is wasted from the moment a permit is obtained and construction is started. Most homes built for sale and on owners’ land are started prior or within the same month as authorization. Houses built for rent, on average, register a slight delay of one month before construction is started.

The time from permits to completion varies across the nine Census divisions. New England and Middle Atlantic register longer times of between 9 and 10 months. Pacific and East North Central division also show above average time of 8 months to completion. Builders in the East South Central Division manage to complete a home in 7 months, on average. The rest of the country registers times between 5 and 6 months.

For houses built for sale, the SOC also gathers information on sales, registered at the time when a buyer signs a sale agreement or makes a deposit on the home, not the final closing. For new single-family homes sold in 2012, the average time from completion to sale is under one month. However, this average is highly skewed by a relatively small number of homes that are not sold prior or while under construction.

Looking at new single-family homes completed in 2012, more than three quarters of these properties were sold before or during the completion month, including 30 percent that were pre-sold (i.e., sold before being started). Only 6 percent of homes completed in 2012 remain unsold as of the first quarter of 2013. So, for most new single family homes there is no additional lag from completion to sale.

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5 Things Every Home Buyer Should Know

A house is the biggest asset that the majority of Americans will ever own. But while most of us delude ourselves into thinking that we actually know something about real estate, the truth is that few of us have any idea what we're talking about.
It's for this reason that I solicited the advice of several highly respected real estate professionals to help our readers navigate the process of both buying and selling their homes. What follows, in turn, are five things that most homebuyers should know, but don't.

1. When you buy a home, you're making two purchases
Of all the advice that I came across, this was probably the most insightful: "When you buy a home, you actually are making two purchases," Dave Ness of Denver's Thrive Real Estate Group told me. "You are buying the home, and you are buying the money to buy the home."

It's tempting for homeowners to think of a mortgage as an incidental expense. But the reality is that the loan itself may be the most significant piece of the transaction. "For every 1% rise in interest rates, home prices must fall by 10% in order for you to maintain the same monthly mortgage payment," Ness says. "And at the end of the day, that's what matters, the monthly payment. So take advantage of low rates; they add much more buying power to your purchase than low prices."

2. Homes are like people -- they all have problems
This was a point multiple real estate professionals that I spoke with made. "All houses have issues," Hilary Bourassa of Portland's Oregon First Real Estate told me. "Some just have more than others."
The shock generally comes when prospective buyers get their inspection reports back. "Inspectors are professional pessimists, which is why we love them," Bourassa said. "But many issues only require simple and/or inexpensive fixes."

Along the same lines, Ness analogized the experience to "when someone knocks over the DJ table at a wedding and the music stops." All of a sudden, the bliss from going under contract goes away.
"Most inspection reports will be 40 to 50 pages long, and most inspectors will take close-up, HD photos of problems," Ness went on to note. "So while the actual listing shows gorgeous pictures of granite countertops, the inspection report will show awful pictures of a cracked driveway. By the end of the report you'll be thinking, 'This house is a total and complete lemon.'"

3. Your real estate agent is a partner, not a salesman
My industry sources were obviously biased on this point, but there's a lot of truth to what they said.
"Your Realtor should be focused on helping you find a great property, not selling you something," Bourassa advises. Before settling on one, she urges homebuyers to "interview at least a few in order to find the fight match." The flipside of the coin is that you, too, are a partner in the relationship. And that means knowing and respecting the boundaries.

"Sometimes clients forget (particularly first-time buyers) that Realtors have other clients and lives outside of work," Ness says. The key is to make sure that both parties have a clear understanding of communication expectations. "What is their normal response time? How much lead time do they need to arrange showings? What medium of communication is best -- text, call, email, or something else?" These are the types of questions that Ness encourages homebuyers and real estate agents to settle at the outset.

4. HGTV does not resemble reality
My wife and I love to watch cooking shows. We've watched so many, in fact, that we've deceived ourselves into believing that we could actually compete on them. Of course, given the opportunity, we would most certainly -- and I do mean "most certainly" -- crash and burn in the most humiliating fashion. And the same can be said about the proliferation of "realty" television shows on real estate -- think HouseHunters, Flip That House, Holmes on Homes, Property Virgins, and Property Brothers, among others.

"The reality is, hundreds of hours or footage is shot and edited down to a 16-minute show (when you take out the Lowe's commercials)," Ness pointed out. "Yes, they're real buyers, but you don't see the half of it. So don't think you're going to waltz into your market and find the perfect house right away, beat out all the other offers, and then walk into the sunset with your significant other. Finding a home can be tough, and take time." Ness' advice? "Gear up for the homebuying process. It's worth it, but it ain't Hollywood!"

5. Always think about resale
This final piece is something that all people buying assets should always keep in mind: At some point you're going to resell it and will want to maximize what you eventually get.
"When you're buying your home, you're probably not thinking of the day that you will have to sell it," Bourassa said, "but you will be thanking yourself one day if you remember three little things ... location, location, location!"

The bottom line
Most if not all of us will buy at least one house in our lives. With that in mind, you should save yourself the trouble of making the same mistakes that most of your peers will. Take these five pieces of information into consideration. You'll be doing yourself a favor if you do.

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U.S. Default Seen Pushing Housing to the Brink

Housing largely dodged a bullet on the government shut down that went into effect October 1. The pending default, however, is an entirely different matter. As the October 17 default deadline nears, knuckles in the housing industry are turning white.

All the progress that the housing recovery has achieved since the crashed could be erased overnight if the U.S. defaults on its debts, according to the president of the National Association of REALTORS®. But Gary Thomas is not the only housing leader raising alarms and the debt default clock ticks down.

In testimony before the Senate Committee on Banking, Housing and Urban Affairs, NAR president Gary Thomas said that unless the debt ceiling is raised in “a timely manner,” the country would face a recession that would wipe out the recent progress made in home prices, home sales and new residential construction.

Robert Dietz, Vice President for Tax and Market Analysis for the National Association of Homebuilders, says the primary effect of a default or downgrade would be increased uncertainty. “Home buyers are making purchase of a capital asset that they will own, on average, for ten years. Given other sources of uncertainty, particularly from the labor market, the largest impact from a failure to reach a deal that increases the debt ceiling would be to further increase concern and anxiety of families attempting to make long-term economic decisions.

“What the housing market needs now is more, not less, certainty, with respect to housing policy and access to capital via the mortgage markets. This will help stabilize housing prices, thereby helping households repair balance sheets and set the stage for more robust economic growth.”

Writing in Friday’s New York Times, economist Paul Krugman argues that a default would create a shock to the economy on a scale of the Great Recession or the Housing Crash of 2007. The default would put the burden of paying interest on Treasury bonds. Currently the cash-flow deficit is a bit more than 4 percent of GDP, which would have to be closed immediately and the government would then fall even further behind on its bills, he says.

“So, when did we last see a spending shock this big? As it happens, we’re looking at something just about the size of the post-bubble housing bust, which was also about 4 percent of GDP:
NAR’s Lawrence Yun describes a similar scenario. “Should the government decide to pay bills other than interest obligations, we can expect interest rates on Treasury bonds to rise as investors look for more return to compensate for the increased risk of their not getting paid. And if that happens, mortgage rates will rise, because mortgage rates follow Treasury rates.” Yun says home sales can be expected to drop by 350,000 to 450,000 units for each 100 basis-point rise in mortgage rates.

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Taming the Debt Monster

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Think you cant get low interest with bad credit?

Think you can't get low interest with bad credit? Think Again!

One very frequent question has to do with bad credit and VA loan qualifying. There’s good news! VA guidelines state no credit score minimum for qualifying for a VA loan.

VA-approved lenders consider debt-to-income ratios, residual incomes and loan histories, as well as complete credit histories and FICO scores, to determine whether an applicant is a satisfactory credit risk.

Bad credit may require some repair before a VA loan can be approved. Sometimes this is a matter of paying off a few credit cards.  Other times it can mean waiting the two years required for the black cloud of bankruptcy to blow over.

Applicants from VA borrowers with bad credit or bankruptcy histories are considered for VA-backed loans on a case-by-case basis.

The Karen Davis Real Estate Team can help!! Contact us TODAY! 757-535-4884

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