Even the Naysayers Are Saying To Buy Now!

Business School professors Eli Beracha of East Carolina University and Ken H. Johnson of Florida International University have done extensive research on which makes more sense financially: to rent or own a home. They published, Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? In their paper, the professors do not dispute the social benefits of homeownership: "Home ownership is touted as the "American Dream". It is credited with enhancing wealth, increasing civic pride, improving self-esteem, crime prevention, child development, and better educational outcomes, among other benefits. This paper does not dispute any of these claims." What the professors were proposing is that homeownership is not a better investment strategy than renting. The first of the two major findings was: "After setting the holding period to the average American's tenure in a residence, renting (not buying) proves to be the superior investment strategy over most of the study period. Individuals, on average, were better off in economic terms to have rented for most of the years in the study period. This first result is strongly dependent upon fiscally disciplined individuals that, without fail, reinvest any residual savings from renting." Historically, people do not actually reinvest savings "without fail".  Check here for the findings of a recent study from The Joint Center for Housing Studies at Harvard. The second major finding says it all. According to both professors Beracha and Johnson, NOW IS THE TIME TO BUY! "(F)undamental drivers now appear to be in place that favor homeownership over renting in the near term future. The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting." They conclude their research paper with this sentence: "Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases." Bottom Line Two researchers set out to prove that homeownership is not a good financial decision. After completing that research, they have determined that now is the time to buy. What more needs to be said?

The 4 Stages Of Wealth Building As A Homeowner

Below is an excellent article on the steps to building wealth as posted by Steve Harney on the KCM Blog. One of the primary objectives of owning a home is to let the home appreciate over time and become a pillar of a family's financial strength. But before we can discuss "wealth", we need to identify the stages to get there. Stage 1 Having "Emergency Cash" is the first stage. It's having $5-7,000 liquid for life's inconveniences (the boiler breaking down, the car needing work, etc). When faced with the inevitable challenges that arise, many people are forced to run to their credit cards to make it through. They become stuck with high interest rate, non-tax deductible borrowing. Stage 2 The second stage is the elimination of "Bad Debt". We define "Bad Debt" as any debt whose interest is not tax deductible. Obviously, those high interest rate credit cards must be the first to go. But we also want to divest ourselves of the borrowing associated with car loans, boat loans, student loans, and personal loans because it typically can be done cheaper. Stage 3 Shockingly, when you arrive at stage three, you will be considered in the Top 5% of Americans in terms of financial security. Stage three is accomplished when you have 3-6 months of your total expenses in reserves. The average homeowner (who is logically financially better off than the non-homeowner) has less than one month's expenses in reserve! When life shows them more than a minor inconvenience (like a job loss, an illness/disability, or worse), most people are in a panic situation. With 3-6 month's reserves, you will have time to weigh options and make better choices. Stage 4 True financial security is attained when you become "Debt Free". But not without debt. We consider our clients "Debt Free" when they have enough liquid assets to pay off whatever mortgage they have outstanding. Wealth building almost requires utilizing the tax benefits of having a mortgage in combination with strategies that utilize The 3 Miracles of Money. The 3 Miracles of Money 1. Compound Interest - The impact of money left to grow upon itself can be dramatic. If you had $1 on Monday and you could double it every day ($2 on Tuesday, $4 on Wednesday, etc.), by the end of 20 days, you would have $1,048,576.00!!! Now, you can't double your cash every day, not even every year, but the concept holds true...compounding interest is a good thing! 2. Tax Free Growth - The ability to accumulate assets without giving Uncle Sam a third of it (in the form of Federal and State Income Taxes) is how the $1 became $1 million. If the growth was taxed at 33% ($1 on Monday gave you $1.67 on Tuesday - instead of $2- and so on), your $1 would only grow to $28,466.20 after 20 days!!! THAT IS NOT A TYPO! You would have "lost" over $1 million. 3. Leverage and Arbitrage - If you can put up minimum of cash and take title to a significant asset (like a down payment on a home..the smaller the down payment the better), you can leverage that cash investment to large returns. At the same time, if you can take the cash that you don't bury in home equity and effectuate a spread between your "after tax cost of money" (mortgage payment) and your investment options (hopefully, in a tax free environment), you can gain the exponential growth that creates wealth. Bottom Line Please take the time to investigate all that is possible, by harnessing the POWER of a mortgage to help you move your family towards wealth. Work with a loan officer who can educate you on the power behind properly leveraged real estate via tax savings and reallocation of equity.

Will I Get More Money If I Wait?

Sellers in any real estate market are looking to get the best possible price. If you are looking to sell in the next year, today's price may well be the best price. Home values stabilized somewhat in 2010. Many hoped that was a sign that values had bottomed out and we would see price appreciation in 2011. Studies released this week have painted a different picture. If we look at CoreLogic's January Home Price Index (HPI), we see that prices are again beginning to decline: National home prices, including distressed sales, declined by 5.7 percent in January 2011 compared to January 2010. Mark Fleming, chief economist with CoreLogic, said, "A number of factors continue to dampen any recovery in the housing market. Negative equity, which limits the mobility of homeowners, weak demand and the overhang of shadow inventory all continue to exert downward pressure on housing prices. We are looking out for renewed demand in the coming months as the spring buying season gets underway to hopefully reduce the downward pressure." They are not talking about the spring market increasing or even stabilizing prices. They hope it will "reduce" the pressure to drive prices lower. Radar Logic's RPX Composite Price comes to virtually the same conclusion: Radar Logic believes the RPX Composite price will continue to exhibit year-on-year declines throughout 2011 due to a growing supply of homes for sale and in the inventories of financial institutions, and weakening demand due to the reduction of government incentives for home buyers. Moreover, banks are facing uncertainty over whether they will be forced by regulators to expand mortgage modifications, and may reduce lending and tighten standards as a result. "No matter what you call it, a 'double dip' or the continuation of a long process of deterioration, the current trend in home prices is evidence that housing markets are continuing to languish," said Quinn Eddins, Director of Research at Radar Logic. "We expect the negative trend to continue under a severe supply overhang that includes a large and growing 'shadow inventory' of homes in default or foreclosure." Bottom Line It seems that prices have again begun to fall nationally. With the overhang of existing and shadow inventory, prices will probably continue to decline throughout most of 2011. If you're thinking of selling, now might be the best time. Check with a local real estate professional to see how this might impact your area.

Loans Are Going To Get More Expensive

The administration recently announced increases to the insurance premiums that the Federal Housing Administration (FHA) charges. FHA is the dominant loan program in the marketplace today.  The FHA has two types of Mortgage Insurance Premiums - Up Front Mortgage Insurance Premium (UFMIP)  and the  Monthly Mortgage Insurance Premium (MMIP). Let's see how these impact a borrower's ability to purchase. UFMIP is typically added to the loan amount and financed over the term of the loan. MMIP is part of the monthly mortgage payment for a minimum of five years and a maximum of fourteen, depending on the loan-to-value. For the majority of FHA Insured loans, the MMIP will be increasing .25% effective April 18th which is, in effect, equivalent to a .25% increase in interest rates. The income ratios that lenders use in qualifying borrowers look at the total payment. Therefore, the MMIP hike has the same impact on affordability as a rate hike. Higher monthly costs mean lower loan amounts and lower loan amounts mean lower offers that borrowers can make on houses. This will translate into lower sales prices. Nothing is good in this news. The increase in Annual Mortgage Insurance Premiums for forward mortgage amortization terms is effective for case numbers assigned on or after April 18, 2011. Now, in my market, the average sales price is double this example. A $66 increase in monthly cost is like a $12,000 reduction in borrowing power.which will eventually result in another 3% drop in home values. Cross your fingers that rates don't surge up because it could perpetuate a slide in prices with no real value for buyers. Sellers get less (hurts the recovery) and buyers' mortgage payments stay the same. AAAARRRGGGHHH!

Selling Your House? 5 Reasons To Do It NOW!

The conventional wisdom when selling a home has always been to wait until the 'Spring Buying Season'. Over the years, that has seemed to make sense and is now accepted as a good strategy for those who want to sell their house and receive the best possible price. This real estate market has shattered many previously held beliefs. The wisdom of waiting for a spring market is another belief that is about to fall. Here are five reasons why? 1.) Interest Rates Are On the Rise Interest rates have spiked up rather dramatically over the last ninety days and are now over 5%. Initially, an increase in rates has a positive effect on the market as it forces buyers off the fence. However, it also eats into a buyer's purchasing power. As rates increase, the mortgage amount a buyer qualifies for decreases. This will eventually have a negative impact on prices. 2.) Your Dream Home Will Never Be Cheaper If your family goal is to sell your current house and take advantage of the fabulous selection of properties currently available to buy the home of your dreams, DO IT NOW! Prices will continue to soften in most markets. However, if you are buying, COST should be more important than PRICE. Cost can be dramatically impacted by rising mortgage interest rates. Do the math and decide if now is the time. 3.) Buyers Are Out Early There is mounting evidence that buyers are coming out earlier this year. A belief that now is a good time to buy coupled with the increase in interest rates has started the buying season early. Pete Flint, CEO of Trulia: "We're seeing a national resurgence of buyer and seller activity on Trulia.com. In January alone, we experienced an unprecedented level of site traffic including 11 million unique visitors - which is more than 70 percent year-over-year growth. We've are now experiencing 100,000 property views per minute." The National Association of Realtors just reported that the number of house  sales increased 12.9% over last month. 4.) Inventory Increases Every Spring Every year there is an increase of inventory which comes to market as we approach the spring. Here is the number of listings available for sale in 2010. � February - 3,531,000 � March - 3,626,000 � April - 4,029,000 We believe there will be an increase in these numbers in 2011 as there is a pent-up selling demand created by the weak market of the last few years. You won't have to worry about this increasing competition if you sell now. 5.) We Are in the Eye of the Foreclosure Storm While banks are trying to rectify their foreclosure procedures, there is a large supply of discounted properties which has been delayed coming to market. This inventory will be released sometime in the next few months. Foreclosures sell on average at a 41% discount. When released they will be competing with your house for the buyers in the marketplace. If you are looking to sell in 2011, you want to sell before this inventory becomes your competition. CNN Money quoted the leadership Of RealtyTrac on this issue: "We've now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000," said James Saccacio, CEO of RealtyTrac. "Unfortunately," he added, "This is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing." "We expect a spike in the first quarter," said Rick Sharga, a RealtyTrac spokesman. Bottom Line These are five strong reasons to sell now instead of waiting until later in the year. Sit down with a local real estate professional today and decide the best options for you and your family.

10 Common Errors Home Owners Make When Filing Taxes

Since we are in the tax season, I thought I would share an article from National Association of Realtors about tax tips. Below are 10 common mistakes homeowners make when filing their taxes.

By: G. M. Filisko

Published: January 25, 2011

Don't rouse the IRS or pay more taxes than necessary-know the score on each home tax deduction and credit.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind-that is, you're not billed for 2010 property taxes until 2011. But that's irrelevant to the feds.
Enter on your federal forms whatever amount you actually paid in 2010, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don't just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.
For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don't just add up 12 months of escrow property tax payments.

Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year.

Sin #4: Failing to deduct private mortgage insurance

Lenders require home buyers with a downpayment of less than 20% to purchase private mortgage insurance (PMI). Avoid the common mistake of forgetting to deduct your PMI payments. However, note the deduction begins to phase out once your adjusted gross income reaches $100,000 and disappears entirely when your AGI surpasses $109,000.

Sin #5: Misjudging the home office tax deduction

This deduction may not be as good as it seems. It often doesn't amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS's interest in your return. Hampton's advice: Claim it only if it's worth those drawbacks.

Sin #6: Missing the first-time home buyer tax credit

If you met the midyear 2010 deadlines, don't forget to take this tax credit into account when filing.
Even if you missed the 2010 deadlines, you still might be in luck: Congress extended the first-time home buyer credit for military families and other government workers on assignment outside the United States. If you meet the criteria, you have until June 30, 2011, to close on your first home and qualify for the tax credit of up to $8,000.

Sin #7: Failing to track home-related expenses

If the IRS comes a-knockin', don't be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer's certification statement for energy tax credits, insurance company statements for PMI, and lender or government statements to confirm property taxes paid.

Sin #8: Forgetting to keep track of capital gains

If you sold your main home last year, don't forget to pay capital gains taxes on any profit. However, you can exclude $250,000 (or $500,000 if you're a married couple) of any profits from taxes. So if you bought a home for $100,000 and sold it for $400,000, your capital gains are $300,000. If you're single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523. 

Sin #9: Filing incorrectly for energy tax credits

If you made any eligible improvement, fill out Form 5695. Part I, which covers the 30%/$1,500 credit for such items as insulation and windows, is fairly straightforward. But Part II, which covers the 30%/no-limit items such as geothermal heat pumps, can be incredibly complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.

Sin #10: Claiming too much for the mortgage interest tax deduction

You can deduct mortgage interest only up to $1 million of mortgage debt, says Meighan. If you have $1.2 million in mortgage debt, for example, deduct only the mortgage interest attributable to the first $1 million.
This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.
G.M. Filisko is an attorney and award-winning writer who was once mortified to receive a letter from the IRS-but relieved to learn the IRS had simply found a math error in her favor. A frequent contributor to many national publications including AARP.org, Bankrate.com, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

When will the "shadow inventory" come to light?

We keep hearing about  shadow inventory and what will happen when it comes to light. After a while it's like predicting earthquakes. We all know that one will happen, we're just not sure when it's going to come and if we prepared for it.

The latest report form CNNMoney, says.

There were 1.7 million homes either owned by the bank or in some stage of foreclosure at the end of the third quarter of 2010, according to a recent report by Standard & Poor's. It would take 44 months, at the current rate of sales, to sell them off -- a 25% increase from the beginning of 2010. (S&P does not count home loans backed by Fannie Mae and Freddie Mac.)

If this is the case, it's only a matter of time before the banks have to start unloading this inventory. The question then arises, what does this mean if I'm considering selling my home? Since the housing market is based on the simple, supply/demand theory, it can only mean that housing prices will have to drop to compensate for the uptake in supply. This will be compounded if interest rates continue to go up because this again will drive the demand down. If you think about it, every time the interest rate goes up .25%, at least one potential buyer has dropped to a lower price point. Could this be the buyer for your home? If there is almost 4 years of inventory that hasn't even hit the market yet, it can only drive prices down once that happens. Unless of course, more buyers come to the table.

My suggestion. If you need to sell your home for whatever reason, sell now rather than wait. This also holds true for the buyer out there. If you're thinking of buying, do it now. You don't know when the inventory is going to change but you also don't know when interest rates are going to spike up. Unless your crystal ball is working better than mine, it may not be worth the money you potentially lose by waiting.