California’s home inventory shrinks to 5-year low

California’s Unsold Inventory Index (UII), a closely watched index indicating the number of months needed to deplete the supply of homes on the market at the current sales rate, declined to 3.8 months in December, the lowest level in five years, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). By comparison, the UII for existing, single-family homes stood at 5.6 months in December 2008.

MAKING SENSE OF THE STORY FOR CONSUMERS
Some economists believe that California’s housing inventory is artificially low because many discretionary sellers—homeowners who do not have to sell their homes—are waiting on the sidelines until home prices rise. Others believe there are more foreclosures to come, as unemployment in the state continues to rise. However, C.A.R. predicts that foreclosures will remain flat in 2010 compared with 2009, as lenders are listing properties for sale at a more metered pace.
California’s housing market has shown signs of stabilization since early last year. Sales of existing, single-family homes bottomed out in August 2007, and the median home price reached its trough in February 2009.
In December, the median price of an existing, single-family home rose to $306,820, an 8.4 percent rise year-over-year, the second consecutive year-over-year increase, and the 10th straight month-over-month increase, according to C.A.R.’s December sales and price report.
With affordability near-historic highs, low interest rates, and home buyer tax credits, many properties in California are receiving multiple offers and sparking bidding wars. Home buyers who find themselves in bidding wars should work closely with their REALTOR® to ensure they are crafting realistic offers that are more likely to be accepted by the seller.

Tax Credit Quandaries Answered

The complexity of new home buyer tax credits leaves potential buyers with many questions. Here are answers to some of the most confusing:


How does a current home owner qualify for the $6,500 credit?

Buyers must have lived in their homes for at least five out of the last eight years. The home they buy must become their primary residence, but buyers don’t have to sell their previous home. They can use the previous home as a rental or a second home and still claim the credit.


Does the new home have to be more expensive than the one the buyer currently owns?

No. It is fine to use it to downsize. If the property sells for more than $800,000, the buyers don’t qualify.


Can buyers who are building a new home claim the credit?

Yes, although the contract must be in place by April 30 and the buyer must move in by July 1.


Can buyers claim the credit if they purchase a home from a relative?

No. The legislation prohibits taxpayers from claiming the credit if the sale is between “related parties,” including parent, grandparent, child, or grandchild.

Source: USA Today, Sandra Block (11/24/2009)

Home Buyer Tax Credit: 10 Things to Know

SmartMoney
T he Tax Guy by Bill Bischoff

On Nov. 6, the president signed 1 the new Worker, Homeownership, and Business Assistance Act of 2009 into law. The
centerpiece of this legislation is the extension and liberalization of what is now inaccurately called the first-time home buyer credit.
Here are the 10 most important things to know about the revamped credit.

1. New purchase deadline extends into 2010
The home buyer credit was previously scheduled to expire on Nov. 30, 2009. The new law extends the deal to cover purchases of
U.S. principal residences that close by April 30, 2010. However, if a home is under contract on that date, the deadline for closing is
extended to June 30, 2010.

2. Existing homeowners can now qualify
The new law allows a reduced credit for existing homeowners who buy a replacement U.S. principal residence after Nov. 6, 2009.
The credit equals the lesser of: (1) $6,500, or (2) 10% of the price of the replacement home, or (3) $3,250 for a buyer who uses
married filing separate status. The new existing-homeowner credit is only available for purchases that close after Nov. 6, 2009. To
qualify, the buyer must have owned and used the same home as a principal residence for at least five consecutive years during the
eight-year period ending on the purchase date for the replacement principal residence. If you’re married, your spouse must pass
this test too (whether or not you file jointly).

3. Larger credits still allowed for first-time buyers
Before the new law, the home buyer credit was only available to so-called first-time buyers, which means someone who had not
owned a U.S. principal residence during the three-year period ending on the purchase date for a home that will serve as the
buyer’s new principal residence. If you’re married, both you and your spouse must pass the three-year test (whether or not you file
jointly). These first-time home buyer rules still apply for purposes of claiming a larger credit of up to $8,000. Specifically, the credit
for a first-time buyer still equals the lesser of: (1) $8,000, or (2) 10% of the home purchase price, or (3) $4,000 if you use married
filing separate status.

4. Higher-income folks can now qualify
The home buyer credit is phased out (reduced or completely eliminated) as income goes up. However, the new law significantly
raises the phase-out ranges so that many more higher-income buyers will now qualify.
* For purchases after Nov. 6, 2009, the phase-out range for unmarried individuals and married folks who file separately is between
modified adjusted gross income (MAGI) of $125,000 and $145,000 (way up from the old-law range of $75,000-$95,000).
* The phase-out range for married joint filers is now between MAGI of $225,000 and $245,000 (way up from the previous range of
$150,000-$170,000).

5. New $800,000 purchase price limit
For purchases after Nov. 6, 2009, the credit can only be claimed for a principal residence that costs $800,000 or less. So if your
new home costs $800,001, the credit is completely off limits (but I doubt too many people will feel sorry for you).

6. No more credits for kids or dependents
For purchases after Nov. 6, 2009, the home buyer must be at least 18 years old on the purchase date to qualify for the credit. Also,
no credit is allowed for a buyer who can be claimed as a dependent on someone else’s Form 1040 for the year of the purchase.
These new rules are intended to shut down the practice of claiming the credit for youngish buyers who really don’t even have
incomes of their own (like college students who use money from their parents to buy a pad near campus).

7. New anti-fraud rules
A recent government report said the IRS has already identified over 100,000 returns with potentially fraudulent home buyer credits.
This is hardly surprising when the government is willing to give away up to $8,000 in free money to anyone who files a return, even
when that person reports no income. Believe it or not, absolutely no documentation was required to claim the credit, until now. For
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
Published November 11, 2009
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
the IRS can now simply disallow credits in fishy circumstances (like when it appears the $8,000 credit is being claimed by someone
who already owns a home).

8. Credits can still be claimed on prior-year returns
Under the revamped rules, you can still claim the credit for a 2009 purchase on your 2008 return (although you would now
generally have to file an amended return to do so). You can also claim the credit for a 2010 purchase on your 2009 Form 1040.
This allows you to cash in on the credit sooner rather than later, and it may also allow you to claim a larger credit if your income in
the year of purchase is higher than in the preceding year.

9. Credits must still be repaid in some cases
Under old-law rules for homes purchased between April 9, 2008 and Dec. 31, 2008, buyers are generally required to repay the
credit over 15 years. However, this repayment rule is generally eliminated for purchases after 2008. That said, you might still have
to repay the credit if you sell your home within three years of the purchase date or stop using it as your principal residence during
that period.

10. Special rules for military service members
For military service members on extended duty outside the U.S., the new law lengthens the deadline for closing on home
purchases for an extra year, to April 30, 2011 (or June 30, 2011 for homes under contract on April 30, 2011). The new law also
waives the credit repayment rules for service members who are forced to move due to receiving new orders. The same special
rules apply to members of the foreign service and intelligence communities.


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Transfers of Base Year Value for Homeowners 55 Years and Older or Disabled

(As Always...Consult Your Financial Planner or Tax Attorney First - Steve T.)

Homeowners who are at least 55 years of age may transfer the base year of their existing residence to a new residence within the same county under certain criteria.

Homeowners who are at least 55 years of age may transfer the base year of their existing residence to a new residence to another county if the other county has adopted an an enabling ordinance. The California Board of Equalization issues letters listing the counties that have enabling ordinances. The link to the most recent BOE Letter is:

LTA 2004/65 REVENUE AND TAXATION CODE SECTION 69.5 ORDINANCES

Homeowners who are severely and permanently disabled may transfer an existing Prop. 13 factored base year value to a replacement residence, if certain qualifying conditions are met. Some counties have not adopted local ordinances to implement Prop. 110. Before attempting to transfer your base year value to another county under the provisions of Prop. 110, you should contact the local county Assessor to discuss eligibility.

James Bone, CPA, MBA, CMI
James Bone’s CV

How Appraisers Reach Their Property Value Estimates

Here are some of the factors that appraisers Joni L. Herndon of Real Property Analysts/Gulf Coast in Tampa, Fla., and John A. Hillas of Hulbert & Associates Inc. in Modesto, Calif., say they consider when determining value.

Incentives and concessions. Most of today’s buyers expect to pay the lowest possible price and still get some extras. Sellers and home builders are offering money toward closing costs, remodeling and decorating, upgrades, and association dues. The price set initially may not be the final price once concessions are factored out. Appraisers care about that final number.

Closing date. Forget what comparable neighborhood houses sold for a few months back. Appraisers want prices from the most recently closed transactions. “If a sale was more than 45 days ago, even 35, the price may be irrelevant,” Hillas says.

Condition and curb appeal. Appraisers typically find several properties with similar interior and exterior features to determine value. When markets are healthy, blemishes matter less, but when markets soften, problems—a dated kitchen or barren lawn—can reduce prices and deter buyers. “The difference in value is not just the repair costs but the time and hassle to make them. It’s better for sellers to do work in advance,” Hillas says.

Foreclosures. Appraisers technically shouldn’t consider neighborhood foreclosures when valuing a home, since foreclosures don’t meet the Appraisal Institute’s definition of a property reasonably exposed in a competitive market, says Herndon. “But when several neighborhood homes are abandoned, it’s hard not to caution sellers that this is a troubling trend and may affect home values,” she says.

Changing demographics. If a house is in an up-and-coming area, the value can be expected to rise. A location that’s perceived as safe also may help attract the increasing number of single female buyers.

Economic clouds. If there’s an oversupply of comparable homes for sale, or if the local job market is suffering, buyers may be hesitant to invest. Hillas advises setting prices aggressively from the get-go.

Chemistry. It’s hard to account for those times when buyers fall in love with a house, despite a high price, poor condition, or tough economy. “Emotional attachment is a factor that can’t be predicted,” says Herndon. Hillas agrees, “It’s what makes it harder to appraise homes versus commercial buildings, where buyers care more about the bottom line.”

Barbara Ballinger is a freelance writer for REALTOR® magazine.

BofA Struggles With Loan Modifications

Bank of America could collect about $6 billion if it meets the deadline set by the federal government to help struggling borrowers for the Making Home Affordable program.

But the Treasury Department released a report last week that showed that only 11 percent, about 95,000, of Bank of America’s delinquent borrowers who are potentially eligible for the program have been given a loan modification. That puts Bank of America at the bottom of the list of major banks involved in the program."We're sure working hard," said Ken Scheller, senior vice president for home retention at Bank of America, when asked about his company's low success rate. "We don't want to be down there.

"There appear to be multiple problems, not the least of which is that many of the employees handling the modifications are completely new to the business. Angry investors complicate the issue, with 15 percent of them demanding that the bank get their approval for every single case.

Source: Washington Post, Renae Merle (10/12/2009)

Foreclosures Hitting Pricier Markets Harder

Foreclosures Hitting Pricier Markets Harder Foreclosures have worked their way through modest neighborhoods and are now hitting higher-priced markets.Data from Zillow.com suggests that foreclosure rates are rising for homes in the top-third of housing values, while the bottom-third of housing now accounts for 35 percent of foreclosures, down from 55 percent in 2006.The rising number of foreclosures among more expensive homes mirrors the increase in foreclosures among prime borrowers. More than 58 percent of foreclosure starts in the second quarter were prime loans, up from 44 percent in 2008, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosures, down from half the previous year.Foreclosures are unlikely to level out until late in 2010, says Stan Humphries, chief economist for Zillow.

Source: The Wall Street Journal, Nick Timiraos (10/12/2009)