Property Tax Bills

I can't believe that it has been a week since my last post. I was in Long Beach for a four day national dance convention(the local papers down there are full of articles on the increase in foreclosures and bankruptcy filings) and came back to a busy work schedule.
I also found a notice from the Tax Assessor's office in my pile of junk mail , listing the assessed valuation on which they will base my property taxes this year. About one in four county residents will receive a temporary tax break this year, but if your assessed valuation is more than you think is fair, you still have a chance to request a reduction before the tax bills go out in September.
Requests for review must be received by August 15...and don't forget, the assessed value is as of January 1st, so any loss since then won't count.
The fastest way to request a review is through the County Assessor's web site, but you can also call the assessor's office at 408-299-5300.

Fannie Mae Changes Job-Transfer Rules

Just as everyone from the government to the Realtor groups are doing everything they can to improve the housing market, Fannie ZMae has put another cog in the machinery,
changing the rules about how it considers income from a spouse or partner who moves without a job.
Under the old rules, when a company transferred someone or an employee accepted a new position that entailed a move and the spouse or partner quit his or her job to come along, Fannie Mae would count at least part of that person’s income when considering a mortgage application.
But now, Fannie will no longer count the income of what it calls the “trailing spouse” until that person actually finds a new job and has a paycheck in hand.
They blame the current economic and job market instability, and claim that it is in the interest of safer underwriting, since this income would only be anticipated and undocumented.
Worldwide ERC, the international trade association representing the employee relocation industry, said Fannie's decision makes the current challenging relocation environment even more so. Some transferees will have to qualify on the basis of one income, forcing couples to buy less house than they wanted, or to rent for an extended period of time until the spouse or couple is re-employed.

Another Opinion on the Tax Credit

There was a commentary in this morning's Mercury News by Kenneth Rosen of Berkeley.
I found it interesting that this column was in the op-ed page, in the same section as a headline article about the various "band-aid" solutions coming out of Sacramento to solve the state's budget crisis. Most of the fixes involved borrowing future revenues and delaying the inevitable, rather than trying to solve the root problems...spending too much and collecting too little.
Rosen makes a good case for removing the cap on these tax credits for buyers of new homes by stating that these $10,000 credits will: restore consumer confidence, stimulate new home purchases, stimulate new construction, and create new jobs...everything but bring world peace.
The Feds are already offering a tax credit to all first time home buyers.
Maybe I'm not seeing the big picture, but adding another estimated $59 million to our State deficit that is already in excess of $24 billion is a frightening picture.

California is Running Out of $10,000 Tax Credits

We Realtors don't sell many of the newly built homes that are are impacted by this, but for first-time home buyers wanting to take advantage of the state’s $10,000 tax credit, there may be less time than originally expected. California set aside $100 million to help home buyers purchase newly built homes, hoping to jump start the residential-construction market. According to state officials, the tactic has worked well and is helping to entice home buyers into the market. However, there only about 20 percent of the program’s funding is left.
The program started in March, and as of June 3 nearly $24 million in tax credit certificates already had been issued, according to the state’s Franchise Tax Board, leaving nearly $76 million in credit available. Many applications are waiting for approval. If all of the submitted applications are approved, only $17.5 million would remain in the fund.
The California state legislature is considering adding another $200 million to the program...in fact, a bill to extend the program already has won Assembly approval and now is awaiting activity in the state Senate. However, securing approval may be difficult.
And does it make sense, considering the state’s estimated $24 billion budget deficit?

I Won a Contest!

...a real one, not a scam. A while back, I entered a national contest sponsored by Dreyer's Ice Cream. The challenge was to explain why your neighborhood deserved a bock party this summer. I wrote a short essay about the changing demographics of Sunset Oaks, the townhouse development where I live (and sell properties.) Young families attracted by the good schools are replacing seniors who move because the stairs in most of the units become too much for them. We are becoming very International, too, and saris mix with blue jeans.
Anyway, my entry in Dreyer’s Slow Churned Neighborhood Salute contest entry has been selected as a grand-prize winner! In just a few weeks I will receive a delivery of their ice cream and a 'Party in a Box' with all the necessary supplies to host a summer block party for up to 100 friends and neighbors.
What fun!

A Breather for Some Defaulting Homeowners

Starting this past Monday, banks here in California can't foreclose on a mortgage without either renegotiating the loan or giving the homeowner three months notice.
There have been more than 365,000 foreclosures in California since 2007, with many more already scheduled. We've been getting about 80 to 90,000 foreclosure filings every month...one every 30 seconds.
Even supporters acknowledge the California Foreclosure Prevention Bill won't prevent thousands of additional foreclosures, but it's an important step towards a systematic review of delinquent home loans. Lenders would at least have to show they had tried to modify the loans.
If the bank doesn't renegotiate, the homeowner still has 90 days until the bank can take the house. That warning period might give some people having trouble with a mortgage the chance to come up with other options.
The bill is similar to the Obama administration's Making Home Affordable Program that began in March. Both encourage lenders to cut interest rates or rewrite loans to affordable levels.

Foreclosure News

In the first quarter, almost half of the overall increase in the start of foreclosures was due to the increase in prime, fixed-rate loans, according to the Mortgage Bankers Association. The pace of prime borrowers going into foreclosure is accelerating, especially in states with mounting unemployment or property values that saw a big run-up during the housing boom.
California, Florida, Arizona and Nevada represent 56% of the increase in foreclosure starts, including half of the increase in prime fixed-rate foreclosure starts. That coincides with states reporting some of the highest unemployment rates. In California, the unemployment rate in April was 11%, according to the Department of Labor. In Nevada, it was 10.6%.
It's a marked shift from earlier this year, when foreclosures were driven by defaults on subprime loans. And it has major implications — ruining the credit scores of borrowers who once had unblemished records and dragging down property values in more affluent neighborhoods.
Tomorrow, I'll talk about the new three month moratorium on foreclosures that started yesterday in California...good news for some homeowners.

Watch Out for Reverse Mortgages

In earlier posts, I've had some nice things to say about reverse mortgages as a possible solution for cash-strapped seniors. But now some industry analysts, including a U.S. bank regulator, John Dugan, believe that reverse mortgages could be the next subprime mortgage product. He says that while reverse mortgages can be beneficial, they also share some of the characteristics of the riskiest types of subprime mortgages.
Most reverse mortgages are insured by the Federal Housing Administration and pose limited credit risk, but a different class of reverse mortgages is becoming popular--“proprietary” products--which offer less consumer protection.
To protect consumers, regulators are crafting guidelines and Dugan is recommending that regulators be more vigilant about misleading marketing. They are cracking down on lenders who try to bundle a reverse mortgage with other financial products, such as an annuity or life insurance product. Meanwhile....be vigilant.

Real Estate is Alive and Well

...at least it is in Boston!
A real estate agent said a resident of Boston's upscale Back Bay section plunked down $300,000 to own what is believed to be the priciest parking space in the city's history. An agent from their local Coldwell Banker Residential Brokerage agent, Debra Sordillo, said that several residents of a building on Commonwealth Avenue bid for the coveted space, driving up the original asking price of $250,000.
She said prime parking spaces are very difficult to come by in the neighborhood near the Public Garden. The winning bidder was not identified, but the seller of the parking the space is also trying to sell a two-bedroom suite in the building for $2.5million

Are Parcel Taxes a Way to Circumvent Prop 13?

San Francisco property owners could pay hundreds or thousands of dollars more per year under a measure introduced Tuesday at the Board of Supervisors - one of many tax proposals that could be placed before voters this fall to help the struggling city. The parcel tax, also proposed by Avalos, would raise an estimated $35 million annually for city parks, the supervisor said. If placed on the November ballot and approved by voters, it would levy a varying fee on residential, commercial and industrial properties - starting at $175 for a single-family home and up to $5,000 for each downtown commercial property.
Other options on the table for a November ballot include an increase to the sales tax and payroll tax, another business tax and an increase to the vehicle license fee. And the city, which has been hit hard by the economic downturn, will also impose dozens of new fees that do not require voter approval but will make doing business, living in and visiting San Francisco more expensive. Among those proposed fees is a new fee on alcohol.
Most of the tax proposals will never see the light of day, however. Even the board's most liberal members - who have proposed all of the taxes - acknowledge that in the current economic climate, San Francisco voters are unlikely to have a large appetite for tax measures. They expect to narrow the options down to just a few measures - and even then it will be a delicate balancing act.
Meanwhile, in Sacramento, AB 827, would allow counties to impose an additional per page recording “fee” of up to $3 for the first page of a document and $1 each for the remaining pages for the archiving of historical documents. This “fee” is really a tax because the charge doesn’t directly pay for the RECORDING of documents as required by state law. All local taxes must be approved by the voters. AB 827 attempts to bypass the voter's right to approve local taxes.
The state (and the country) may be in a terrible economic situation, but that does not turn a tax into a "fee."

So Do You Lock, or What?

Grab one now, or hope for lower rates?
Sue, our in-house lender, has been locking loans for the past few days.
Anyone who was in the market for a new mortgage, for either a purchase or refinance, and was letting the rate float in hopes of locking in at a lower one, instead got hit with a half point rise in the 30-year fixed rate.
But let’s remind ourselves that loans in the mid 5% range are still good. One year ago the average 30-year fixed rate was 6.1%. And long term, it's all but assured that these rates are going to look pretty nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today’s rate is high relative to a month or two ago, it may look like a bargain in a few years.
But what about now?
Okay, enough of the long-term perspective. What if you’re still on the fence and wondering about the next few weeks and months? The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.) Plenty of market watchers expect the 10-year Treasury to keep moving up, but it's not a sure bet that a continued rise in the Treasury will automatically cause the 30-year fixed to rise.
The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn’t too concerned; in fact it seemed happy with the idea that those slightly rising rates were a sign that the economy was gaining a bit of strength. The Fed is still worried that rates rising too quickly and too far will hurt the credit market recovery, and it’s possible to assume they will increase repurchases in an effort to push yields back down after their recent spike.
According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior, but Sue reminded us that many of these applicants are owners looking to refinance, and that this move may make loans faster to process for our home buyers.

Mortgage Rates Hit 25 Week High

Mortgage rates across the board jumped this week, with conventional mortgages reaching their highest point so far this year.
Freddie Mac reports a jump in the 30-year fixed mortgage rate to a 25-week high of 5.29 percent during the week ended June 4, up from 4.91 percent the prior week. As recently as two months ago, rates had been 4.78 percent.
The 15-year fixed rate also increased, rising to 4.79 percent from 4.53 percent, with Freddie Mac chief economist Frank Nothaft indicating that the gains follow a surge in long-term bond yields.
Meanwhile, the five-year adjustable mortgage rate climbed to 4.85 percent from 4.82 percent, and the one-year ARM surged to 4.81 percent from 4.69 percent.
The underlying cause isn't hard to find. Rising government debts, and increasing hopes of an economic recovery, are pushing up long-term interest rates on government debt. The yield on the 10-Year Treasury, which was barely 2% near the end of last year, surged to 3.67% late last week before settling back slightly. And that, in turn, pushes up rates on other long-term loans.
What does this mean for you?
This surge in mortgage rates, if it continues, is ominous news all around. It's bad for those trying to refinance an existing mortgage, those looking to buy a new home, and those looking to sell their homes.

You Missed the Bottom

We have a graduation in our family next week, and now that school is almost out, we’re seeing many other families beginning to look at homes, hoping to get settled in prior to next school year. Showing activity in our market has increased considerably. Sellers putting their homes on the market generally seem to be receptive to our staging and pricing strategies, and we're seeing multiple offer situations in most of our first time home buyer markets. In the lowest county prices, the $400,000 to $500,000 range, there are many multiple offer situations bringing in 10 to 20 offers. One property listed at $399,000 (in a mid-$400’s neighborhood) received over 50 offers.
Though we've seen sporadic new activity in the upper end market, it's still relatively slow for properties over $2 million.
But there are multiple offers in all parts of our county. From Los Altos to Gilroy, it's not just limited to REO bargains anymore. The only criteria are that they have to be priced for this year’s market—not previous years. One traditional sale in Sunnyvale sold for 2% above list in as many days with back up offers in place, in the high $800,000 price range. Open homes are busy, and time is running out for the first time buyers who are waiting for... prices to drop, interest rates to fall further or more government concessions. The bottom was two months ago.

New Home Buyers Every Day

Last night, I presented one of nine offers on a Sunnyvale house in the $750,000 price range. We are used to seeing multiple offers on bank-owned properties priced under $600,000, but this activity in the mid price range is a relatively new phenomenon.We know that the $8,000 tax credit is a factor, as is the increase in consumer confidence, but the biggest catalyst seems to be the recent increase in interest rates. Fixed-rate mortgage rates followed long-term bond yields higher this week according to Freddie Mac.
Last year at this time, the 30-year fixed rate mortgage averaged 6.08 percent.
It has now moved up from around 4 1/2% to 5% or more, still a relative bargain, but enough of an uptick for borrowers to realize that interest rates have probably bottomed out. First-time buyers are jumping off the fence in droves, and with our local inventory at a two year low, this is a sure recipe for more multiple offers to come.

FHA Allowance of First Time Homebuyer Tax Credit

We recently heard that FHA may allow the first time homebuyer credit amount to be used as part of the down payment.
Here are ten important items to know about these recent changes:

1. The IRS tax credit refund can be made only to the taxpayer and not a third party.
2. Government agencies may offer tax credit advances with second liens.
3. The buyer cannot get cash back through the tax credit advance program.
4. The 2nd lien may not exceed the down payment, closing costs and prepaid expenses.
5. The 2nd lien may be “soft” or require payments
6. The payments on the 2nd liens must be included in the ratios unless deferred for at least 36 months
7. Balloon payments on 2nd liens may not be before 10 years.
8. FHA approved lenders and FHA approved non-profits may purchase the tax credit.
9. Tax credit purchaser may not charge more than 2.5% of the tax credit as a fee.
10. IRS may deduct from the tax credit: unpaid student loans, tax liens and garnishments.
We are still awaiting final guidelines before this program is available for use, so stay tuned!

Refinancing in Today's Market

Homeowners thinking about refinancing their mortgages may be surprised by the amount of paperwork required today. During the “easy credit” years, some lenders did not require proof of income or documentation. Nowadays, most lenders require borrowers to provide pay stubs, banks statements, brokerage statements, and possibly tax returns. Self-employed individuals may be asked for a profit-and-loss statement. Those relying on bonus income should expect that most lenders will assume this year’s bonus will be a lot less than last year’s, which could make securing approval more difficult.
Determining the amount of equity in the home is key to being approved for a new loan. Homeowners who owe less than 80% of the home’s value are more likely to have refinancing options available to them. Other homeowners who are current on their mortgages, owe 80 to 105% of the home’s value, and have a loan owned by Fannie Mae or Freddie Mac may be able to refinance under the government’s “Making Home Affordable” program.
Other factors to take into consideration when refinancing are the property’s appraised value, the homeowners’ credit score(s), whether or not the property has a second mortgage, and the length of the original loan.
For an excellent comprehensive article from the Wall Street Journal on the subject, click here.

The Selling Season

With Memorial Day behind us, the traditionally moderate summer selling season has begun. But we're feeling more like a late Spring season right now. Activity is pretty brisk. I'm writing an offer with clients this afternoon for a Sunnyvale house just under $800,000, and multiple offers are expected.
The entry level is hot...short on listing inventory and high on Buyer demand...but while most of the sales are taking place in lower price ranges, we are seeing increased activity in the mid-priced markets, too. This is a domino effect; a turnaround begins with the lower price range homes and once that sector of the market is stabilized, we begin to see changes in the mid and upper price ranges. The upper end, while most recently seeing increased activity, still is considered a Buyer’s market. This seems to be fairly consistent in major Metros on both coasts.
Historically speaking, the week of Memorial Day quiets things down in the housing market but this year it is different. Thanks to the $8,000 first time home buyer credit, low interest rates and increased affordability, buyers in the first time home buyer market are out in droves and really are snatching up properties. It seems they have been pushing activity into the mid and higher price ranges as well. If it is truly a late Spring flurry this year, we could be in for a very busy Summer.