Santa Cruz Real Estate Experts Team Sedenquist

Here is a spot of good news from early October.  No more ‘adding insult to injury’ for those caught in the foreclosure mess. . .

House Votes to Eliminate 'Phantom Tax'
The U.S. House of Representatives voted to get rid of a tax burden for home owners who have had a loan forgiven or foreclosed on their home because they were unable to make their mortgage payments. The Mortgage Cancellation Tax Relief Act, H.R. 3648, passed by a vote of 386 to 27. Similar legislation is making its way through the Senate.

Since the early 1990s, NAR has supported such measures to eliminate the "phantom tax" on financially-strapped home owners.

“Congress made a good decision that will affect many Americans who find themselves in a truly bad situation,” says NAR President Pat V. Combs. “Changing the IRS code is an issue of fundamental fairness. It would relieve a tax burden at a time when an individual or family has experienced a true economic loss arising from the sale or loss of their home. These families are already in financial distress and are most likely unable to pay additional taxes.”

The current tax code requires a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. This disclosure applies whether it is a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt. If the property is sold at foreclosure or is sold for less than was borrowed, that difference is considered income and is subject to the tax.

H.R. 3648 would ensure that any amount forgiven on mortgage debt secured by a principal residence will not be taxed. The legislation has a provision to safeguard against abuses. That provision is similar to one that already exists for commercial real estate owners and would treat commercial and residential property equally.

"This is not only about the subprime turmoil we are currently experiencing," Combs says. "This is also about families who have lost their home or a need to sell that home for less than the amount owed on their home mortgage because of job loss, divorce, health issues, a decrease in the value of the home or other unfortunate circumstances. Clearly it is unfair to tax people on phantom income when they most likely have no cash with which to pay the tax."

In other news, another bill has been sent to the House Judiciary Committee that would revise the bankruptcy code to allow judges to order mortgage lenders to ease terms for home owners in bankruptcy proceedings. Currently, mortgage lenders can foreclose against a home owner in default 90 days after the filing of bankruptcy.

Statistically speaking, we’re starting to see the long-awaited downturn in home prices reflected in the median and average prices for sold properties here along the Monterey Bay. Listed inventory is starting to decrease, as well, which probably reflects the normal seasonal slowdown more than anything else. The pace of the market is slower this year than last year; roughly one third of the single family homes that were listed during September of 2006 were sold. This year it is closer to one quarter of the listed homes sold. It still is an active market, however. So far, the Santa Cruz area is not seeing the flood of foreclosures that are driving prices down in other markets around the state. Remember, pay your bills on time and you’ll have no trouble qualifying for a new mortgage loan.

If you’re considering selling your home, please give us a call and we’ll sit down and develop a winning strategy with you. If you’re considering buying a property, your timing is excellent.

We’d love to hear from you or your friends anytime.

Dan & Lyn
November 2007

How much have people actually lost in the current market downturn?  Here are some surprising comments from Lawrence Yun, Chief Economist for the NAR. . .

The Long View
by Lawrence Yun, Vice President, NAR Research

“How much have real estate investors lost due to the housing market bust?”

That was the (highly loaded) question posed to me recently by a producer of one of the major evening news programs. The show wanted to run a story about the "pains" being felt in the market.

Hmm. Well, exactly how much real pain are we talking about? Let's look at a couple of examples. An investor who bought a property in Las Vegas five years ago would be ahead by $150,000; up $200,000 in Miami. The average investor nationwide – up $54,000. Only the recent buyers (flippers) who bought last year in few specific markets would have encountered a loss.

Not All Losses Are Created Equal
I’m not discounting the discomfort of those who lost big, especially lenders and hedge funds who had large exposures to subprime loans. Investors in homebuilder stocks have certainly experienced pains. But nearly all real estate investors who have a reasonable holding period are doing quite fine. Some of these fortunate buyers who got into the market several years ago will still consider a modest give back as a loss without considering the large gains reaped during the housing boom. That’s the nature of the human mind. A gain of $190,000 in Miami feels like a $10,000 loss considering that the gain had been $200,000.

A Home is Not a Stock Certificate -- Thank God!
Foreclosures are rising and construction workers are being laid off. REALTORS® are feeling the pinch as well.  However, consumers and homeowners who are in it for the long-term are once again coming out well ahead.

Because of the power of leveraging, $10,000 used for a down payment on a typically priced home in the United States at a typical appreciation rate of 5 percent will return $110,000 after 10 years. The same $10,000 invested in the stock market appreciating 10 percent annually will result in $23,600. No wonder the data from the Federal Reserve show consistent results year-after-year of the staggering difference in net worth between homeowners and renters. A typical homeowner had $184,400 in net worth versus only $4,000 for a typical renter.

The Spooky Thing
The lack of buyer confidence to enter the market has been the one principal reason in holding back home sales. Many would-be buyers are spooked of a possible home price decline. And the media is fueling that fear. Some of the most popular market gurus who offer their advice on television and other media say so. Caution is in order, however. As a recent Barron’s article pointed out, stock picks made by one such expert actually underperformed the market.

Opportunities to Seize
It’s also important to point out that times of crisis often turn out to have been times of opportunity in hindsight. With over four million net new job additions in the past two years– the time frame during which home sales have steadily fallen – a significant pent-up demand has developed. Home sales and home prices will be higher in 2008 compared to 2007. And, as with any investment, look longer term. Those investing in a home and keeping it for a typical holding period of six to ten years will likely see their investment pay off; those homes will have been a good investment.

Here are some glimmers of hope in the national housing market forecast for 2008.  For a link to the complete article go to http://www.realtor.org/reinsights.nsf/pages/forecast

One in Every 16 Americans is Buying a home this year. . .
Conditions in the mortgage market are improving for consumers, which should help release pent-up demand in early 2008, according to the NAR's latest forecast. Conforming loans are abundantly available at historically favorable mortgage rates. Pricing has steadily improved on jumbo mortgages since the August credit crunch, and FHA loans are replacing subprime mortgages. NAR Vice President of Research, Dr. Lawrence Yun noted that 2007 will be the fifth highest year on record for existing-home sales. One out of 16 American households is buying a home this year. Yun said markets like Austin, Salt Lake City and Raleigh are performing well. Look for Denver and Wichita to join the pack of strong performers.

Several clients we’ve spoken to recently have become Chicken Littles convinced that the sky, and home prices, are falling.  Our most recent market statistics would argue otherwise.

The median home price in Santa Cruz County hasn't plummeted, even though the number of sales — 129 — represents a 12-year low and the number of homes on the market — 1,321 — is the highest in 11 years.

The August median sits at $770,000, compared to $775,000 in July. That's less than 1 percent difference.

In August, there were 27 buyers for million-dollar homes, about 21 percent, and 22 sales were for homes less than $600,000, about 17 percent. In July, 36 of the 143 sales were for more than $1 million, about 25 percent, and 26 sales were under $600,000, about 18 percent.

The most expensive home sold in August: 8 Potbelly Beach, Aptos. Price $4,295,000.  Next on the list: 950 Via Malibu, Aptos, $2.3 million and 4040 Empire Grade Road, $2.245 million.

So, where is this market headed?  Who knows!  What we do know, our sky isn’t falling.

If you’re considering selling your home, please give us a call and we’ll sit down and develop a winning strategy with you.  If you’re considering buying a property, your timing is excellent.

We’d love to hear from you or your friends anytime.

Dan & Lyn
October 2007

It is always interesting to see how other vacation home markets are holding up.  Check out these prices. . .

Best Vacation-Home Spots for Price Growth
Buying a vacation home in a blue-chip locale is a safe bet if you're looking for solid price growth, according to Forbes.com, which compiled a list of the five fastest-appreciating regional vacation areas in the West, Midwest, East Coast, and South.

The magazine selected the areas with help from NeighborhoodScout.com, a Rhode Island-based real estate research site. NeighborhoodScout pinpointed neighborhoods with desirable locations, near beaches, lakes, or mountains, and with amenities and services that cater to a vacationing crowd. Then it identified which locales had the fastest median home price appreciation over the past five years.

The village of Water Mill, N.Y., in Bridgehampton, appreciated the fastest. The median home price there is $1.38 million; it increased in value at an average of 21 percent a year over the last five years. In the Midwest, Victoria, Minn., which is surrounded by lakes, grew an average of 18 percent a year.

The north end of Key Largo, Fla., has appreciated at 27 percent a year, on average, making it the fastest-growing vacation spot in the South. Moran, Wyo., situated between Grand Teton and Yellowstone National Parks, has seen 35 percent average increases in annual value since 2002, putting it at the top of appreciation in the West.

Here are the top five destinations in the key regions and the median price of property there.

Northeast

1. Water Mill, Bridgehampton, N.Y., $1.38 million
2. Avalon, N.J., $1.25 million
3. Napeague/Amagansett, East Hampton, N.Y., $862,129
4. Borough Center, New Hope, Pa., $647,041
5. Orange Street/Union Street, Nantucket, Mass., $1.57 million

West

1. Moran, Wyo., $1.13 million
2. Emerald Bay, Laguna Beach, Calif., $2.8 million
3. Sunnyside-Tahoe City, Calif., $2.8 million
4. Stateline, Carson City, Nev., $1.3 million
5. Wailea-Makena, Hawaii, $1.75 million

Midwest

1. Victoria, Minn., $435,000
2. Martell/Olivet, River Falls, Wis., $271,063
3. City Center, Orr, Minn., $281,998
4. Blue Mounds, Wis., $280,000
5. Jenkins, Pine River, Minn., $380,000

South

1. North Key Largo, Key Largo, Fla., $2.8 million
2. Pine Ridge/Pelican Bay, Naples, Fla., $1.6 million
   
3. Captiva, Fla., $2.1 million
   
4. Unison/Philomont, Bluemont, Va., $804,298
   
5. Williamsburg, Va., $949,900

Source: Forbes.com, Matt Woolsey (08/09/07)

I knew all these tiny little Santa Cruz beach cottages had advantages over larger, more spacious homes.  Finally found some proof. . .

Zillow: Small Homes Hold Their Value Better
The value of midsize and large homes declined more in the last year than the value of small single-family residences, according to a second-quarter analysis by real estate Web site Zillow.com.

The value of single-family homes smaller than 1,200 square feet fell by just 1 percent, according to Zillow's report. Meanwhile, values of midsize homes between 1,200 and 1,900 square feet fell an average of 3.1 percent, and homes larger than 1,900 square feet declined 2.8 percent.

Zillow.com also offers a comparison of 66 metropolitan statistical areas.  The following findings are culled from that analysis:

The highest-appreciating metropolitan areas (year-over-year):

• Grand Junction, Colo. (18.6 percent)
• Corvallis, Ore. (11.2 percent)
• Charlotte-Gastonia-Rock Hill, N.C.-S.C. (9.0 percent)
• Eugene-Springfield, Ore. (6.9 percent)
• Spokane, Wash. (6.1 percent)
• Seattle-Tacoma-Bremerton, Wash. (5.3 percent)

Most-depreciating metropolitan areas (year-over-year):

• Sarasota-Bradenton, Fla. (-16.4 percent)
• Melbourne-Titusville-Palm Bay, Fla. (-14.3 percent)
• Stockton-Lodi, Calif. (-13.5 percent)
• Charleston-North Charleston, S.C. (-12.8 percent)
• Daytona Beach, Fla. (-12.5 percent)
• Modesto, Calif. (-12.4 percent)

Most expensive metropolitan areas:

• San Francisco-Oakland-San Jose, Calif. ($685,653)
• Honolulu, Hawaii ($632,270)
• San Luis Obispo-Atascadero-Paso Robles, Calif. ($537,722)
• Los Angeles-Riverside-Orange County, Calif. ($525,175)
• San Diego, Calif. ($505,334)
• New York-Northern New Jersey-Long Island ($445,435)

Least expensive metropolitan areas:

• Jackson, Tenn. ($91,563)
• Greenville-Spartanburg-Anderson, S.C. ($101,178)
• Tulsa, Okla. ($102,876)
• Dayton-Springfield, Ohio ($108,121)
• Rockford, Ill. ($116,475)
• Columbia, S.C. ($116,865)

Source: Zillow, REALTOR® Magazine Online

So how many of you faithful blog readers remember the character Wimpy on the old Popeye cartoon?

It is never too early to plan for your retirement.  Here is a quick article with good advice about buying your retirement home now, well in advance of actually retiring. . .

Buy Retirement Home Now, Move in Later
With prices in many areas at a low ebb, it might make good financial sense for Baby Boomers to buy their retirement homes now, even if they're still years away from actually moving. They can find renters who will pay the bills until they're ready to live there.

Here’s some advice for people who are considering this strategy:

• Shop carefully. It's best to buy a home that can be rented for a rate that, after tax considerations, will cover the mortgage, real estate taxes, and insurance.

• Study up on housing trends. Ask the local or state planning department for demographic and economic data. The information can reveal facts that will influence whether or not to buy. For example, big companies going out of business or military base closings can be bad news.

• Don’t forget maintenance. Consider who’ll take care of the house in the owner’s absence. Property managers charge 6 percent to 15 percent of the monthly rent. Family members may be willing to do the job for free, but they could be ill equipped to do the job if the don't have any experience.

• Consider financing. Boomers with sufficient equity in their current homes can tap it to either buy their retirement home outright or secure a much lower mortgage rate compared with a loan at the rate often offered to buyers of investment property.

We’re all being buffeted by the market’s over-reaction to the loan crisis. Wall Street investors that buy and sell large loan packages have decided that loans are no longer a good investment. They foolishly aren’t making a distinction between good loans and non-performing loans and have caused a liquidity crisis for lenders that make home loans. What does this mean to you? The long awaited ‘market correction’ is underway. The jumbo loans we’ve all become accustomed to (less documentation, more liberal underwriting guidelines) are disappearing. So lenders and banks are looking to the government to help out. We’re all hopeful that the conforming loan limits, now stuck at $417,000, will be raised to $600,000 or higher for high cost areas of the country. This will have a huge effect on our local real estate market. We’ll see if our leaders in Washington do a better job managing this crisis than they’ve done in the past.

It is important to remember that loans are still available to borrowers with good credit scores and well-documented income. Those buyers and borrowers that haven’t been good about making their payments will have to sit on the sidelines for a while longer.

The Federal Reserve Chairman, Ben Bernanke, suggested at the end of August that Congress and the private sector should create new, affordable mortgage products that would help some homeowners refinance their mortgages and keep their homes. Sounds good to me! Something has to be done to stop this growing flood of foreclosures. Nobody wins when banks take homes back in foreclosure.

If you’re considering selling your home, please give us a call and we’ll sit down and develop a winning strategy with you. If you’re considering buying a property, your timing is excellent.

We’d love to hear from you or your friends anytime.

Dan & Lyn
September 2007