something is stirring out there in the market April 3, 2008

Affordable mortgage money is the fuel that is going to pull the real estate market out of the woods. And there are some encouraging signs that may be happening right now.

Take a look at interest rates: They plunged last week by nearly a quarter of a point on 30-year fixed-rate money — down to 5.74 percent from 5.98 percent, according to the Mortgage Bankers Association of America.

Then there was the big jump in new loan applications from people looking to buy houses. They were up by almost 11 percent for conventional conforming loans — those are the types funded by Fannie Mae and Freddie Mac — but up by an amazing 21.1 percent for government-backed mortgages, primarily FHA.

You can be the world’s grouchiest, grimmest housing market bear … . But you can’t deny that something is stirring out there in the market.

It may not be the end of the down cycle as a whole, but it’s certainly pointing to a more active spring season than the naysayers on Wall Street have projected.

There were some other positive signs that popped up last week as well: The total inventory of unsold houses dropped by 3 percent. New homes for sale dropped 2.1 percent. Those inventory numbers are critically important because they tend to be heavy drags on local markets — pushing prices down and making buyers pickier.

Even new home sales did better than most analysts had predicted: They dropped by 1.8 percent last month, which may not sound good, but that decline was measured off upward revisions of the two prior months’ sales.

In other words, there were more home sales going on than reported earlier in January and December, and overall sales are stabilizing.

Now, in fairness, not everything is cheery out there. Consumers are still rattled by the economy and the upheavals they see on Wall Street. The latest consumer confidence index from the Conference Board nosedived to levels usually associated with recessions.

People are worried. They’re spending less, and that is rippling throughout the economy. Continuing price declines in the once-booming housing bubble markets are also keeping consumers on the sidelines. Many of them don’t want to commit to a purchase until they are sure prices won’t go much lower.

So all in all: There are unmistakable glimpses of light out there. You can’t — and shouldn’t — ignore them.

But we’ve still got a way to go before we can officially pronounce the correction cycle done, down and out.

learning for dummies April 2, 2008

thanks, I needed that

Mortgage Forgiveness? « did you know? February 6, 2008

The news isn’t good as we start the year: It isn’t just the big financial companies that are suffering from their debt colds.

More than 2 million homeowners are in trouble with their debt payments. And a new study shows that more than half of homeowners who become delinquent on their loan payments ultimately go into foreclosure.

The new Mortgage Forgiveness Debt Relief Act of 2007, signed into law at the tail end of December, is supposed to provide some relief to those who sell their homes short — that is, sell for less than the mortgage amount. It is valid only for 2007, 2008 and 2009, according to Eric Smith, a spokesperson for the IRS.

Prior to the new law being signed, if your lender agreed to a short sale, the IRS considered the difference between what you sold for and what you owed taxable income.

So, just as you were starting to move on with your life, having lost just about everything, the following April 15 you’d have owed the IRS income tax on what amounted to phantom income.

While the new law helps with this not-so-small point, it doesn’t apply to everyone, including those homeowners who are facing foreclosure on a second home, vacation home, timeshare, fractionally owned property, or those who took out second mortgages to pay for anything other than the purchase of the property or an improvement to the property, such as a new car or college tuition, according to Bob D. Scharin, RIA senior tax analyst from Thomson Tax & Accounting.

The Mortgage Forgiveness Debt Relief Act applies only to debt used to purchase or improve a primary residence, Scharin explained.

There is another provision in the IRS code that has perhaps wider application for today’s real estate marketplace: insolvency.

According to Chet Burgess, an enrolled agent who owns Brookwood Tax Service in Atlanta, “the law provides if the taxpayer is insolvent to the extent of the amount of debt, a short sale would not be taxable income.”

Insolvency could help someone facing foreclosure, Burgess said, whereas the new Mortgage Forgiveness Debt Relief Act would not.

To figure out whether you’re insolvent (for IRS purposes) Burgess suggests using form 433F, which is the “Collection Information Statement.” (Download IRS forms for free at www.IRS.gov.) One side of the form lists all of the assets and debts. The other side lists monthly income and expenses. You can fill out the form online and then print it, or print first and work on it by hand.

At the top, you’ll be asked for your bank information and lines of credit. This includes any savings accounts, IRAs, 401(k)s, Keoghs, SEP-IRAs, lines of credit, mutual funds and stock brokerage accounts. For each of these accounts, you’ll list the institution, the type of account, and the balance owed or value.

Next, you’ll list your real estate, including house, second home, investment property, timeshare, or other real estate. Box C asks you to list any other assets, including cars, boats, recreational vehicles, and whole life policies.

On the next page, in Box D, you’ll list your credit cards and any debt you carry on them. (Although the IRS doesn’t ask for it, it’s a good idea to list the interest rate you’re paying on these cards.)

Although you don’t need it for the insolvency calculation, the rest of the page (Boxes E, F and G) ask you to put down how much you earn and how much it costs you to live (for your necessary expenses, not including high-definition cable).

Add up all of your assets and then all of your debts. If your debts exceed your assets, you are insolvent by that amount. In other words, you’ve calculated your net worth, and come up with a negative number.

Although retirement assets can’t be tapped in bankruptcy, they count when the IRS is considering whether you’re insolvent, Burgess explains.

“Even in collection cases, where you’re dealing with the IRS, if a taxpayer has a large sum in his or her 401(k), which the IRS cannot reach, by law, it is still included. The IRS revenue officer will suggest that the taxpayer borrow against their 401(k) or withdraw from an IRA, to pay that debt,” he explains. “But if a homeowner were in foreclosure and a bank were looking for assets, the bank would have no power to reach a 401(k) or an IRA in most states.”

If you’re facing foreclosure, you may want call your tax preparer or attorney for help.

Mortgage Insurance Premium deduction

There were a few other last-minute changes to the tax code. The Mortgage Insurance Premium deduction, which was set to expire at the end of 2007, was extended.

The measure allows private mortgage insurance (PMI) payments to be treated the same as interest for the purposes of itemizing on your federal income tax return.

The key thing here is “acquisition indebtedness.” In other words, if you get a loan to buy your property, and you earn less than $100,000, and you itemize, you can deduct your PMI payment. But if you do a cash-out refinance and use the cash to pay off credit-card debt, you can write off only the portion of the PMI payment that represents the amount you spent to buy the house.

Thanksgiving November 13, 2007

Aloha,

Please take the time this year to Thank those you love, and who have helped you along your path. I have alot to be thankful for as My wife and I are expecting Twins. Life is so short and full of busy schedules. This year I will promise to great each day with joy and heartfelt Thanksgiving. I encourange everyone else to take the challenge.

Daniel

Maintaining Your Home to Retain Value November 4, 2007

You’ve got the kitchen of your dreams and a master bedroom suite that would look right at home in a 5-star hotel. And your gorgeous new exterior paint job is the envy of the neighborhood. Your place looks so great that real estate agents are dropping off their cards telling you how much they could sell your place for, if you felt like putting it on the market.

Sell it now! Good grief no! Not after all the remodeling work. But… who knows? In five or six years when the kids are off to college and you and your mate get tired of mowing that big lawn and knocking around in a house built for five but inhabited by two, a downtown condo may look pretty inviting. Face it. At some point in the future, whether it’s next year or in 20 years, you’re going to want to sell your house. And with all the improvements you’ve made over the years, you should get a nice return on the sale, assuming you don’t let your house fall apart.

Remodeling can be frustrating but it’s also fun — filled with anticipation and visible rewards at the end of the project. Maintenance is dull and routine, but you have to do it if you want to retain the value you’ve added to your home. For example: Hardwood floors need to be refinished every 5-10 years depending on wear and tear. If they get too worn down you can do permanent damage to the wood. Exteriors need to be repainted every 5-10 years too, depending on such factors as the weather where you live, or you can damage the exterior wood. Your roof and gutters need annual inspections. A clogged or damaged gutter and drain spout can flood your basement and cause serious damage.

And the list goes on. Like taxes and dental checkups, regular home maintenance isn’t fun. But you must do it if you want to take care of what is likely your biggest single asset — your home.

Annual checklist home maintenance checklist:

• Kitchen: Check for leaks under and around the sink. Plumbing leaks can damage cabinetry and floors. Check and repair grout and caulking on tile countertops and around the sink. Also check wear and tear on wood floors, which periodically need to be refinished.
• Bathrooms: Check for plumbing leaks and check grout on tiles. If the grout gets worn away water will start getting into the walls behind the bathroom, causing damage.
• Basement: Check for cracks in the foundation and leaks. Buildings settle over time and even after decades of having a dry basement leaks may suddenly occur.
• Attic: Check for signs of water leakage from the roof. Also look for any sign of termites or rodents. Squirrels or rats that nest in your attic can chew electrical wiring, which can lead to fires.
• Smoke alarms: Batteries need to be changed annually.
• Heating system: If yours has a filter, change it annually.
• Air conditioning system: Change all filters monthly or as recommended by the filter manufacturer.
• Roof: Note if any shingles have fallen off or if gutters or downspouts appear clogged or damaged. You can always hire a reliable roofing company to get on the roof and take a look. Reputable roofing companies won’t try to sell you a new one unless you really need it. You can simply pay them for an inspection.
• House exterior: If your house is wood, check that the paint hasn’t worn away so much that the primer paint is showing. If the primer also wears down, you can do damage to the wood. Brick houses should be inspected for damaged bricks or masonry. Check stucco houses and repair any cracks large enough to slide a nickel into.
• Asphalt and concrete driveways: Repair any cracks or buckling.