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March saw another increase in pending home sales, with contract activity rising unevenly in six of the past nine months, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 5.1 percent to 94.1 in March from a downwardly revised 89.5 in February. The index is 11.4 percent below 106.2 in March 2010; however, activity was at elevated levels in March and April of 2010 to meet the contract deadline for the home buyer tax credit.
The data reflects contracts but not closings, which normally occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, said home sales activity has shown an uneven but notable improvement. “Since reaching a cyclical bottom last June, pending home sales have posted an overall gain of 24 percent and demonstrate the market is recovering on its own,” he said. “The index means modest near-term gains in existing-home sales are likely, which would be even stronger if tight mortgage lending criteria returned to normal, safe standards
The PHSI in the Northeast fell 3.2 percent to 63.4 in March and is 18.4 percent below March 2010. In the Midwest the index rose 3.0 percent in March to 83.5 but is 16.6 percent below a year ago. Pending home sales in the South jumped 10.3 percent to an index of 110.2 but are 10.5 percent below March 2010. In the West the index increased 3.1 percent to 103.7 but is 4.1 percent below a year ago.
“Based on the current uptrend with very favorable affordability conditions, rising apartment rents and ongoing job creation, existing-home sales should rise around 5 to 10 percent this year with sales growth of lower priced homes likely to outperform high-end homes. That means the price trend will reflect more homes sold in the lower price ranges,” Yun said.
“The good news is that recent home buyers are staying well within budget, leading to exceptionally low loan default rates among home buyers over the past two years,” Yun added.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
Wednesday, May 4, 2011
Thursday, April 21, 2011
Existing Home Sales Rise in March
Washington, DC, April 20, 2011
Sales of existing-home sales rose in March, continuing an uneven recovery that began after sales bottomed last July, according to the National Association of Realtors®.
Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 3.7 percent to a seasonally adjusted annual rate of 5.10 million in March from an upwardly revised 4.92 million in February, but are 6.3 percent below the 5.44 million pace in March 2010. Sales were at elevated levels from March through June of 2010 in response to the home buyer tax credit.
Lawrence Yun, NAR chief economist, expects the improving sales pattern to continue. “Existing-home sales have risen in six of the past eight months, so we’re clearly on a recovery path,” he said. “With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain – primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments as a percent of income have been at record lows.”
NAR’s housing affordability index shows the typical monthly mortgage principal and interest payment for the purchase of a median-priced existing home is only 13 percent of gross household income, the lowest since records began in 1970.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84 percent in March, down from 4.95 percent in February; the rate was 4.97 percent in March 2010.
Data from Freddie Mac and Fannie Mae show requirements to obtain conventional mortgages have been tightened, with the average credit score rising to about 760 in the current market from nearly 720 in 2007; for FHA loans the average credit score is around 700, up from just over 630 in 2007.
“Although home sales are coming back without a federal stimulus, sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago – before the loose lending practices that created the unprecedented boom and bust cycle,” Yun explained.
“Given that FHA and VA government-backed loan programs turned a modest profit over to the U.S. Treasury last year, and have never required a taxpayer bailout, we believe low-downpayment loans should continue to be available for those consumers who have demonstrated financial responsibility and are willing to stay well within their budget. Raising the downpayment requirement would unnecessarily deny credit to many worthy middle-class families and veterans,” Yun said.
A parallel NAR practitioner survey2 shows first-time buyers purchased 33 percent of homes in March, compared with 34 percent of homes in February; they were 44 percent in March 2010.
All-cash sales were at a record market share of 35 percent in March, up from 33 percent in February; they were 27 percent in March 2010. Investors accounted for 22 percent of sales activity in March, up from 19 percent in February; they were 19 percent in March 2010. The balance of sales were to repeat buyers.
The national median existing-home price3 for all housing types was $159,600 in March, down 5.9 percent from March 2010. Distressed homes – typically sold at discounts in the vicinity of 20 percent – accounted for a 40 percent market share in March, up from 39 percent in February and 35 percent in March 2010.
NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said some renters are looking to home ownership as a hedge against inflation. “The typical buyer today plans to stay in a home for 10 years, while rents are projected to rise at faster rates over the next few years,” he said. “As buyers gain more financial security, the advantages of home ownership become more obvious. Rents will continue to trend up, especially in comparison with a fixed-rate loan which provides financial stability and gradual accumulation of equity over time.”
Total housing inventory at the end of March rose 1.5 percent to 3.55 million existing homes available for sale, which represents an 8.4-month supply4 at the current sales pace, compared with a 8.5-month supply in February.
Single-family home sales rose 4.0 percent to a seasonally adjusted annual rate of 4.45 million in March from 4.28 million in February, but are 6.5 percent below the 4.76 million level in March 2010. The median existing single-family home price was $160,500 in March, down 5.3 percent from a year ago.
Existing condominium and co-op sales increased 1.6 percent to a seasonally adjusted annual rate of 650,000 in March from 640,000 in February, but are 4.1 percent below the 678,000-unit pace one year ago. The median existing condo price5 was $153,100 in March, which is 10.1 percent below March 2010.
Regionally, existing-home sales in the Northeast rose 3.9 percent to an annual level of 800,000 in March but are 12.1 percent below March 2010. The median price in the Northeast was $232,900, down 3.0 percent from a year ago.
Existing-home sales in the Midwest increased 1.0 percent in March to a pace of 1.06 million but are 13.1 percent lower than a year ago. The median price in the Midwest was $126,100, which is 7.1 percent below March 2010.
In the South, existing-home sales rose 8.2 percent to an annual level of 1.99 million in March but are 1.0 percent below March 2010. The median price in the South was $138,200, down 6.6 percent from a year ago.
Existing-home sales in the West slipped 0.8 percent to an annual pace of 1.25 million in March and are 3.1 percent below a year ago. The median price in the West was $192,100, which is 11.2 percent lower than March 2010.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
Sales of existing-home sales rose in March, continuing an uneven recovery that began after sales bottomed last July, according to the National Association of Realtors®.
Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 3.7 percent to a seasonally adjusted annual rate of 5.10 million in March from an upwardly revised 4.92 million in February, but are 6.3 percent below the 5.44 million pace in March 2010. Sales were at elevated levels from March through June of 2010 in response to the home buyer tax credit.
Lawrence Yun, NAR chief economist, expects the improving sales pattern to continue. “Existing-home sales have risen in six of the past eight months, so we’re clearly on a recovery path,” he said. “With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain – primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments as a percent of income have been at record lows.”
NAR’s housing affordability index shows the typical monthly mortgage principal and interest payment for the purchase of a median-priced existing home is only 13 percent of gross household income, the lowest since records began in 1970.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84 percent in March, down from 4.95 percent in February; the rate was 4.97 percent in March 2010.
Data from Freddie Mac and Fannie Mae show requirements to obtain conventional mortgages have been tightened, with the average credit score rising to about 760 in the current market from nearly 720 in 2007; for FHA loans the average credit score is around 700, up from just over 630 in 2007.
“Although home sales are coming back without a federal stimulus, sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago – before the loose lending practices that created the unprecedented boom and bust cycle,” Yun explained.
“Given that FHA and VA government-backed loan programs turned a modest profit over to the U.S. Treasury last year, and have never required a taxpayer bailout, we believe low-downpayment loans should continue to be available for those consumers who have demonstrated financial responsibility and are willing to stay well within their budget. Raising the downpayment requirement would unnecessarily deny credit to many worthy middle-class families and veterans,” Yun said.
A parallel NAR practitioner survey2 shows first-time buyers purchased 33 percent of homes in March, compared with 34 percent of homes in February; they were 44 percent in March 2010.
All-cash sales were at a record market share of 35 percent in March, up from 33 percent in February; they were 27 percent in March 2010. Investors accounted for 22 percent of sales activity in March, up from 19 percent in February; they were 19 percent in March 2010. The balance of sales were to repeat buyers.
The national median existing-home price3 for all housing types was $159,600 in March, down 5.9 percent from March 2010. Distressed homes – typically sold at discounts in the vicinity of 20 percent – accounted for a 40 percent market share in March, up from 39 percent in February and 35 percent in March 2010.
NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said some renters are looking to home ownership as a hedge against inflation. “The typical buyer today plans to stay in a home for 10 years, while rents are projected to rise at faster rates over the next few years,” he said. “As buyers gain more financial security, the advantages of home ownership become more obvious. Rents will continue to trend up, especially in comparison with a fixed-rate loan which provides financial stability and gradual accumulation of equity over time.”
Total housing inventory at the end of March rose 1.5 percent to 3.55 million existing homes available for sale, which represents an 8.4-month supply4 at the current sales pace, compared with a 8.5-month supply in February.
Single-family home sales rose 4.0 percent to a seasonally adjusted annual rate of 4.45 million in March from 4.28 million in February, but are 6.5 percent below the 4.76 million level in March 2010. The median existing single-family home price was $160,500 in March, down 5.3 percent from a year ago.
Existing condominium and co-op sales increased 1.6 percent to a seasonally adjusted annual rate of 650,000 in March from 640,000 in February, but are 4.1 percent below the 678,000-unit pace one year ago. The median existing condo price5 was $153,100 in March, which is 10.1 percent below March 2010.
Regionally, existing-home sales in the Northeast rose 3.9 percent to an annual level of 800,000 in March but are 12.1 percent below March 2010. The median price in the Northeast was $232,900, down 3.0 percent from a year ago.
Existing-home sales in the Midwest increased 1.0 percent in March to a pace of 1.06 million but are 13.1 percent lower than a year ago. The median price in the Midwest was $126,100, which is 7.1 percent below March 2010.
In the South, existing-home sales rose 8.2 percent to an annual level of 1.99 million in March but are 1.0 percent below March 2010. The median price in the South was $138,200, down 6.6 percent from a year ago.
Existing-home sales in the West slipped 0.8 percent to an annual pace of 1.25 million in March and are 3.1 percent below a year ago. The median price in the West was $192,100, which is 11.2 percent lower than March 2010.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
Wednesday, April 20, 2011
March Housing STATS
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Contact IAR Communications:
• Home sales in Illinois rose for the second consecutive month in March showing some
momentum heading into the spring market, while sales remain lower than last year’s
heightened totals from the tax credit. (IAR)
• March 2011 home sales are up 40.0 percent from the previous month’s totals in February;
sales are down 17.9 percent year-over-year compared to March 2010. (IAR)
• More than one-third of Illinois homes sold in March closed under $100,000 and 69 percent
under $200,000; this combined with the continued impact from distressed property sales
contribute to the lower median price. (IAR)
• It’s worth repeating that market conditions today are optimal for buyers. Interest rates remain
below five percent and home prices are lower making affordability at an all-time high for
investors and buyers with strong credit and the financial wherewithal. (IAR)
• Sellers have an opportunity now to use the spring market when buyer interest is higher and
the weather more cooperative to set the right price to sell. (IAR)
• “In March the Illinois and Chicago housing markets were warming up as expected and as the
sales forecast reveals, the housing sales volume is expected to increase for the next three
months with a monthly growth in the 10-15 percent range for Illinois and 7-23 percent range
for the Chicagoland region. (Regional Economics Applications Laboratory, University of
Illinois, April 2011)
• Comparing the housing market in 2011 with 2010 and 2009, the sales volume is recovering;
however, the housing prices remain well below prior year levels although the trend suggests
some modest price recovery. The removal of foreclosed properties from the inventory will
have long-term positive benefits to the housing market. However, in the near-term the
presence of these properties serves as a significant break on any upward trend in prices.”
(Regional Economics Applications Laboratory, University of Illinois, April 2011)
• The five-year swoon in home prices has done little to shake the confidence of the American
public in the investment value of homeownership. Fully eight-in-ten (81%) adults agree that
buying a home is the best long-term investment a person can make. (Pew Study, 4/12/11)
• Most experts expect rates to continue to increase through the year. Interest rates along with
price determine the overall cost of a home. Even with prices softening, if interest rates rise, it
may be less expensive to buy now rather than wait. (KCM blog, 4/12/11)
IAR Economic Talking Points
Illinois Statewide – March 2011
Home sales up +40.0% from February; -17.9% from March 2010
7,833 sales in March compared to 5,596 in Feb 2011, 9,538 in March 2010
Median price +1.6% from February, down -12.2% from March 2010
$130,000 March 2011; $128,000 February 2011; $148,000 March 2010
SF/Condo median price trending back to 1999-2000 levels
42/98 counties reported median home sale price increases or no change
37/98 counties reported sales increases or no change compared to last year
Chicago PMSA (Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will)
Home sales +41.3% from February; -15.6% from March 2010
5,324 sales in March compared to 3,769 in Feb 2011; 6,309 sales in March 2010
Median price +3.6% from February, down -14.1%
Will County – median price increase +.6.3% to $170,000 year-over-year
Kendall County – sales increase +14.7% year-over-year
SF/Condo median price trending back to 2000
• Forecasts for the next three months (April, May and June 2011) for Illinois and Chicago
suggest that while annual sales are expected to be negative (still because of the effect of
the tax credit), the month-to-month sales are expected to be positive for all three months.
• The housing price forecasts for both Illinois and Chicago show month-to-month increases
for the next three months. However, the forecasted prices are still 13-16% lower than last
year during the same period.
• Illinois added 17,600 jobs at a rate of 0.31% in February 2011, compared to a revised
24,200 job gain in January 2011. The three-month moving average of jobs, a more stable
measure of the labor market, was up by 12,200 jobs.
• The February shadow unemployment rates for the Illinois, The Rest of the Midwest and
the Nation were 11.2%, 13.6% and 12.3%, compared to the official unemployment rates
of 8.9%, 9.0% and 8.9%
• Four great financial reasons why you should not wait before taking the plunge into
homeownership. 1) Interest Rates Are Increasing. 2) The 30-Year Mortgage May Disappear
(There are several experts who believe If Fannie Mae and Freddie Mac’s roles are
eliminated, or even limited, it may be the end to the 30-year mortgage. 3) QRM
Requirements Could Be Much More Stringent (Certain mortgage types would be eliminated,
You would need to put a minimum of 20% down, You would need a minimum 690 FICO
score, The ratios of income to both the mortgage payment and overall debt would become
much more conservative (28% and 36%). And 4) Rents Are Expected to Increase. (KCM
blog, 4/12/11)
• "Mortgage rates edged up following a light week of economic data releases. Although rates
on 30-year fixed mortgages have risen four weeks in a row, they have remained below 5
percent for eight straight weeks now, helping to maintain affordability in the housing market.
(Freddie Mac, 4/14/11)
• “We may not see notable gains in existing-home sales in the near term, but they’re expected
to rise 5 to 10 percent this year with the economic recovery, job creation and excellent
affordability conditions providing confidence to buyers who’ve been on the sidelines.”
(Pending Index, 3/28/11)
• The faster pace of incoming distressed inventory into the marketplace does not necessarily
mean a further slump in the housing market. The key is demand. If these distressed
inventories are quickly picked up by buyers, then no worries. But if distressed inventories
linger in the marketplace then we can expect a notable further decline in home values. All
indications point to plenty of ready buyers for foreclosed homes, not uncommonly with
multiple offerings. So housing demand appears to be present at the moment and could grow
as the economy turns for the better. (NAR Real Estate Insights, 4/11)
• Last year the demand arose from the home buyer tax credit. This year the demand will come
from improving job market conditions. (NAR Real Estate Insights, 4/11)
• The job market continues to provide some positive signs. In March, the national
unemployment rate declined for the fourth month in a row to 8.8%, and the national nonfarm
payroll expanded by 216,000 jobs, according to the Bureau of Labor Statistics. The
state of Illinois added 17,600 jobs at a rate of 0.31% in February 2011, compared to a revised
24,200 job gain in January 2011. (U of I REAL Forecast, 4/11)
• The three-month moving average of jobs, a more stable measure of the labor market, was up
by 12,200 jobs. The February unemployment rate in Illinois fell to 8.9 percent; this rate fell
for the 13th consecutive month, and the last time the state rate was below 9.0 percent was
two years ago in February 2009. (U of I REAL Forecast, 4/11)
• “Housing affordability conditions have been at record levels and the economy has been
improving, but home sales are being constrained by the twin problems of unnecessarily tight
credit, and a measurable level of contract cancellations from some appraisals not supporting
prices negotiated between buyers and sellers,” he said. “This tug and pull is causing a
gradual but uneven recovery. (NAR release, 3/21/11)
GSE Reform Talking Points (NAR)
• Owning a home contributes to the strength of the nation’s economy and is still one of the best
ways for individuals to build long-term wealth; therefore, we need public policies that
support home ownership. Making it harder for families to afford safe mortgages does not
further the goal of a housing or economic recovery.”
• Housing creates jobs. Housing accounts for more than 15 percent of the national Gross
Domestic Product, or $2 trillion, a key driver in our national economy. For every additional
1,000 home sales this year over last, about 500 new jobs are added to the economy.
• Without the government’s role in housing finance, mortgage rates would rise unnecessarily
and become unaffordable for many Americans. In addition, an inadequate secondary market
would impede housing and economic recovery and prevent many young middle-class
families from owning a home.
• NAR is actively engaged on behalf of Realtors® and the nation’s home owners to protect the
flow of affordable mortgages to home buyers.
• For a vast number of consumers, access to affordable, simple 30-year fixed rate mortgages
requires government backing.
• Foreclosures: Despite record affordability and buyer incentives, rising foreclosure rates and
concerns about proper foreclosure procedures led some to question whether owning a home
was a good personal decision. Home ownership didn’t create the foreclosure crisis – Wall
Street greed and irresponsible lending practices did. The decision to own a home is a very
personal one, but over the long term, owning a home is one of the best ways to build longterm
wealth, in addition to providing numerous social benefits that include reduced crime
rates, improved childhood education, and increased stability. After all, a fixed-rate mortgage
might last 15 to 30 years; renting is forever. (NAR)
• NAR practitioner survey: First-time buyers purchased 34 percent of homes in February, up
from 29 percent in January; they were 42 percent in February 2010. All-cash sales were a
record 33 percent in February, up from 32 percent in January; they were 27 percent in
February 2010. Investors accounted for 19 percent of sales activity in February, down from
23 percent in January; they were 19 percent in February 2010. The balance of sales were to
repeat buyers. (NAR, 3/28/11)
• Foreclosure impact: Distressed homes – sold at discount – accounted for a 39 percent
market share in February, up from 37 percent in January and 35 percent in February 2010.
“The decline in price corresponds to the record level of all-cash purchases where buyers –
largely investors – are snapping up homes at bargain prices,” Yun explained. “We’d be
seeing greater numbers of traditional home buyers if mortgage credit conditions return to
normal.” (NAR 3/28/11)
• Shadow inventory: The continuing concerns center on the size and impact of the “shadow
inventory;” estimates of the impact range from minor to very profound. In large part, the
magnitude of the impact centers on the way in which homeowners react to continuing price
declines and the realization that they may owe more their home than the property’s is current
value. Negative equity becomes a problem when a homeowner attempts to sell the
property—but it can also have an impact on consumption, potentially depressing
consumption or at least delaying purchases of major items (such as automobiles, appliances
and so forth). A further concern centers on the degree to which negative equity in a home
influences the operation of the labor market by limiting job mobility; this concern will
become more important as the job market rebounds and opportunities for advancement in the
labor market present themselves. (U of I REAL, 3/2011)
• MID: Government support of programs and initiatives that encourage home ownership have
also been called into question. The deductibility of mortgage interest is one example, with
critics suggesting that the mortgage interest deduction primarily benefits the wealthy, while
in fact, the MID benefits primarily middle- and lower income families – almost two-thirds of
those who claim the MID are middle-income earners. (NAR)
• MID: Sixty-five percent of families who claim the MID earn less than $100,000 per year,
and 91 percent who claim the benefit earn less than $200,000 annually. The ability to deduct
the interest paid on a mortgage can mean significant savings at tax time. For example, a
family who bought a home this year with a $200,000, 30-year, fixed-rate mortgage, assuming
an interest rate of 4.5 percent, could save nearly $3,500 in federal taxes when they file next
year. That’s money they could use to pay down other debts, supplement their children’s
college savings account, or put into savings themselves. (NAR)
• The typical homeowner’s net worth ($205,200) was 49 times that of a typical renter ($4,200)
in 2008. (NAR calculations using stats from the Federal Reserve Board).
NAR Homeownership Matters Campaign
http://www.realtor.org/topics/homeownership
• The economic benefits of the housing market and homeownership are immense and well
documented. The housing sector directly accounted for approximately 14 percent of total
economic activity in 2009. Less than half of Americans owned their homes at the beginning
of the 20th century. By 2004, 69 percent of Americans owned their homes – a record high.
The homeownership rate has since declined to 66.9 percent as of the second quarter 2010.
Still, that figure indicates that two thirds of U.S. households own their own home.
-Add 5-
IAR Economic Talking Points
NAR Surround Sound Talking Points
www.realtor.org/press_room/surroundsound
The basics
• Home ownership is an investment in your well-being and future.
• Today’s market offers great opportunities for buyers and sellers.
• The supply and choice of homes for sale is plentiful in most markets.
• Mortgage interest rates are low.
• Home prices are affordable.
• Homeownership offers immediate benefits and long-term value.
• REALTORS® add value to the real estate transaction.
• REALTORS® are the most trusted resource for real estate information.
ECONOMIC DATA
Homeownership Rates (U.S. Census)
4Q10 3Q10 3Q09 2008 2007 2006 2005 2004 1985
U.S. 66.5 66.9 67.6 67.8 68.1 68.8 68.9 69.0 63.8*
Midwest 70.5 71.1 71.6 71.7 71.9 72.7 73.1 73.8 *1986, 1988
Illinois 68.3 68.7 69.3 68.9 69.4 70.4 70.9 72.7 60.1
Interest Rates at a Glance – Average North Central Region (which includes Illinois)
4.86 – March 2011 5.0 – Feb 2011 5.03 – March 2010
16.63 – 1981 (high)
National Unemployment Rate – www.bls.gov
8.8% March 2011
Illinois Unemployment Rate – www.ILWorkingInfo.com
8.9% March 2011
Consumer Confidence - www.conference-board.org
63.4 March
70.4 Feb
60.6 Jan
(1985=100)
“The sharp decline in confidence was prompted by a sharp decline in expectations. Consumers’
inflation expectations rose significantly in March and their income expectations soured, a
combination that will likely impact spending decisions. On the other hand, consumers’
assessment of current conditions improved, indicating that while the short-term future may be
uncertain, the economy continues to expand.” (3/29/11)
Contact IAR Communications:
• Home sales in Illinois rose for the second consecutive month in March showing some
momentum heading into the spring market, while sales remain lower than last year’s
heightened totals from the tax credit. (IAR)
• March 2011 home sales are up 40.0 percent from the previous month’s totals in February;
sales are down 17.9 percent year-over-year compared to March 2010. (IAR)
• More than one-third of Illinois homes sold in March closed under $100,000 and 69 percent
under $200,000; this combined with the continued impact from distressed property sales
contribute to the lower median price. (IAR)
• It’s worth repeating that market conditions today are optimal for buyers. Interest rates remain
below five percent and home prices are lower making affordability at an all-time high for
investors and buyers with strong credit and the financial wherewithal. (IAR)
• Sellers have an opportunity now to use the spring market when buyer interest is higher and
the weather more cooperative to set the right price to sell. (IAR)
• “In March the Illinois and Chicago housing markets were warming up as expected and as the
sales forecast reveals, the housing sales volume is expected to increase for the next three
months with a monthly growth in the 10-15 percent range for Illinois and 7-23 percent range
for the Chicagoland region. (Regional Economics Applications Laboratory, University of
Illinois, April 2011)
• Comparing the housing market in 2011 with 2010 and 2009, the sales volume is recovering;
however, the housing prices remain well below prior year levels although the trend suggests
some modest price recovery. The removal of foreclosed properties from the inventory will
have long-term positive benefits to the housing market. However, in the near-term the
presence of these properties serves as a significant break on any upward trend in prices.”
(Regional Economics Applications Laboratory, University of Illinois, April 2011)
• The five-year swoon in home prices has done little to shake the confidence of the American
public in the investment value of homeownership. Fully eight-in-ten (81%) adults agree that
buying a home is the best long-term investment a person can make. (Pew Study, 4/12/11)
• Most experts expect rates to continue to increase through the year. Interest rates along with
price determine the overall cost of a home. Even with prices softening, if interest rates rise, it
may be less expensive to buy now rather than wait. (KCM blog, 4/12/11)
IAR Economic Talking Points
Illinois Statewide – March 2011
Home sales up +40.0% from February; -17.9% from March 2010
7,833 sales in March compared to 5,596 in Feb 2011, 9,538 in March 2010
Median price +1.6% from February, down -12.2% from March 2010
$130,000 March 2011; $128,000 February 2011; $148,000 March 2010
SF/Condo median price trending back to 1999-2000 levels
42/98 counties reported median home sale price increases or no change
37/98 counties reported sales increases or no change compared to last year
Chicago PMSA (Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will)
Home sales +41.3% from February; -15.6% from March 2010
5,324 sales in March compared to 3,769 in Feb 2011; 6,309 sales in March 2010
Median price +3.6% from February, down -14.1%
Will County – median price increase +.6.3% to $170,000 year-over-year
Kendall County – sales increase +14.7% year-over-year
SF/Condo median price trending back to 2000
• Forecasts for the next three months (April, May and June 2011) for Illinois and Chicago
suggest that while annual sales are expected to be negative (still because of the effect of
the tax credit), the month-to-month sales are expected to be positive for all three months.
• The housing price forecasts for both Illinois and Chicago show month-to-month increases
for the next three months. However, the forecasted prices are still 13-16% lower than last
year during the same period.
• Illinois added 17,600 jobs at a rate of 0.31% in February 2011, compared to a revised
24,200 job gain in January 2011. The three-month moving average of jobs, a more stable
measure of the labor market, was up by 12,200 jobs.
• The February shadow unemployment rates for the Illinois, The Rest of the Midwest and
the Nation were 11.2%, 13.6% and 12.3%, compared to the official unemployment rates
of 8.9%, 9.0% and 8.9%
• Four great financial reasons why you should not wait before taking the plunge into
homeownership. 1) Interest Rates Are Increasing. 2) The 30-Year Mortgage May Disappear
(There are several experts who believe If Fannie Mae and Freddie Mac’s roles are
eliminated, or even limited, it may be the end to the 30-year mortgage. 3) QRM
Requirements Could Be Much More Stringent (Certain mortgage types would be eliminated,
You would need to put a minimum of 20% down, You would need a minimum 690 FICO
score, The ratios of income to both the mortgage payment and overall debt would become
much more conservative (28% and 36%). And 4) Rents Are Expected to Increase. (KCM
blog, 4/12/11)
• "Mortgage rates edged up following a light week of economic data releases. Although rates
on 30-year fixed mortgages have risen four weeks in a row, they have remained below 5
percent for eight straight weeks now, helping to maintain affordability in the housing market.
(Freddie Mac, 4/14/11)
• “We may not see notable gains in existing-home sales in the near term, but they’re expected
to rise 5 to 10 percent this year with the economic recovery, job creation and excellent
affordability conditions providing confidence to buyers who’ve been on the sidelines.”
(Pending Index, 3/28/11)
• The faster pace of incoming distressed inventory into the marketplace does not necessarily
mean a further slump in the housing market. The key is demand. If these distressed
inventories are quickly picked up by buyers, then no worries. But if distressed inventories
linger in the marketplace then we can expect a notable further decline in home values. All
indications point to plenty of ready buyers for foreclosed homes, not uncommonly with
multiple offerings. So housing demand appears to be present at the moment and could grow
as the economy turns for the better. (NAR Real Estate Insights, 4/11)
• Last year the demand arose from the home buyer tax credit. This year the demand will come
from improving job market conditions. (NAR Real Estate Insights, 4/11)
• The job market continues to provide some positive signs. In March, the national
unemployment rate declined for the fourth month in a row to 8.8%, and the national nonfarm
payroll expanded by 216,000 jobs, according to the Bureau of Labor Statistics. The
state of Illinois added 17,600 jobs at a rate of 0.31% in February 2011, compared to a revised
24,200 job gain in January 2011. (U of I REAL Forecast, 4/11)
• The three-month moving average of jobs, a more stable measure of the labor market, was up
by 12,200 jobs. The February unemployment rate in Illinois fell to 8.9 percent; this rate fell
for the 13th consecutive month, and the last time the state rate was below 9.0 percent was
two years ago in February 2009. (U of I REAL Forecast, 4/11)
• “Housing affordability conditions have been at record levels and the economy has been
improving, but home sales are being constrained by the twin problems of unnecessarily tight
credit, and a measurable level of contract cancellations from some appraisals not supporting
prices negotiated between buyers and sellers,” he said. “This tug and pull is causing a
gradual but uneven recovery. (NAR release, 3/21/11)
GSE Reform Talking Points (NAR)
• Owning a home contributes to the strength of the nation’s economy and is still one of the best
ways for individuals to build long-term wealth; therefore, we need public policies that
support home ownership. Making it harder for families to afford safe mortgages does not
further the goal of a housing or economic recovery.”
• Housing creates jobs. Housing accounts for more than 15 percent of the national Gross
Domestic Product, or $2 trillion, a key driver in our national economy. For every additional
1,000 home sales this year over last, about 500 new jobs are added to the economy.
• Without the government’s role in housing finance, mortgage rates would rise unnecessarily
and become unaffordable for many Americans. In addition, an inadequate secondary market
would impede housing and economic recovery and prevent many young middle-class
families from owning a home.
• NAR is actively engaged on behalf of Realtors® and the nation’s home owners to protect the
flow of affordable mortgages to home buyers.
• For a vast number of consumers, access to affordable, simple 30-year fixed rate mortgages
requires government backing.
• Foreclosures: Despite record affordability and buyer incentives, rising foreclosure rates and
concerns about proper foreclosure procedures led some to question whether owning a home
was a good personal decision. Home ownership didn’t create the foreclosure crisis – Wall
Street greed and irresponsible lending practices did. The decision to own a home is a very
personal one, but over the long term, owning a home is one of the best ways to build longterm
wealth, in addition to providing numerous social benefits that include reduced crime
rates, improved childhood education, and increased stability. After all, a fixed-rate mortgage
might last 15 to 30 years; renting is forever. (NAR)
• NAR practitioner survey: First-time buyers purchased 34 percent of homes in February, up
from 29 percent in January; they were 42 percent in February 2010. All-cash sales were a
record 33 percent in February, up from 32 percent in January; they were 27 percent in
February 2010. Investors accounted for 19 percent of sales activity in February, down from
23 percent in January; they were 19 percent in February 2010. The balance of sales were to
repeat buyers. (NAR, 3/28/11)
• Foreclosure impact: Distressed homes – sold at discount – accounted for a 39 percent
market share in February, up from 37 percent in January and 35 percent in February 2010.
“The decline in price corresponds to the record level of all-cash purchases where buyers –
largely investors – are snapping up homes at bargain prices,” Yun explained. “We’d be
seeing greater numbers of traditional home buyers if mortgage credit conditions return to
normal.” (NAR 3/28/11)
• Shadow inventory: The continuing concerns center on the size and impact of the “shadow
inventory;” estimates of the impact range from minor to very profound. In large part, the
magnitude of the impact centers on the way in which homeowners react to continuing price
declines and the realization that they may owe more their home than the property’s is current
value. Negative equity becomes a problem when a homeowner attempts to sell the
property—but it can also have an impact on consumption, potentially depressing
consumption or at least delaying purchases of major items (such as automobiles, appliances
and so forth). A further concern centers on the degree to which negative equity in a home
influences the operation of the labor market by limiting job mobility; this concern will
become more important as the job market rebounds and opportunities for advancement in the
labor market present themselves. (U of I REAL, 3/2011)
• MID: Government support of programs and initiatives that encourage home ownership have
also been called into question. The deductibility of mortgage interest is one example, with
critics suggesting that the mortgage interest deduction primarily benefits the wealthy, while
in fact, the MID benefits primarily middle- and lower income families – almost two-thirds of
those who claim the MID are middle-income earners. (NAR)
• MID: Sixty-five percent of families who claim the MID earn less than $100,000 per year,
and 91 percent who claim the benefit earn less than $200,000 annually. The ability to deduct
the interest paid on a mortgage can mean significant savings at tax time. For example, a
family who bought a home this year with a $200,000, 30-year, fixed-rate mortgage, assuming
an interest rate of 4.5 percent, could save nearly $3,500 in federal taxes when they file next
year. That’s money they could use to pay down other debts, supplement their children’s
college savings account, or put into savings themselves. (NAR)
• The typical homeowner’s net worth ($205,200) was 49 times that of a typical renter ($4,200)
in 2008. (NAR calculations using stats from the Federal Reserve Board).
NAR Homeownership Matters Campaign
http://www.realtor.org/topics/homeownership
• The economic benefits of the housing market and homeownership are immense and well
documented. The housing sector directly accounted for approximately 14 percent of total
economic activity in 2009. Less than half of Americans owned their homes at the beginning
of the 20th century. By 2004, 69 percent of Americans owned their homes – a record high.
The homeownership rate has since declined to 66.9 percent as of the second quarter 2010.
Still, that figure indicates that two thirds of U.S. households own their own home.
-Add 5-
IAR Economic Talking Points
NAR Surround Sound Talking Points
www.realtor.org/press_room/surroundsound
The basics
• Home ownership is an investment in your well-being and future.
• Today’s market offers great opportunities for buyers and sellers.
• The supply and choice of homes for sale is plentiful in most markets.
• Mortgage interest rates are low.
• Home prices are affordable.
• Homeownership offers immediate benefits and long-term value.
• REALTORS® add value to the real estate transaction.
• REALTORS® are the most trusted resource for real estate information.
ECONOMIC DATA
Homeownership Rates (U.S. Census)
4Q10 3Q10 3Q09 2008 2007 2006 2005 2004 1985
U.S. 66.5 66.9 67.6 67.8 68.1 68.8 68.9 69.0 63.8*
Midwest 70.5 71.1 71.6 71.7 71.9 72.7 73.1 73.8 *1986, 1988
Illinois 68.3 68.7 69.3 68.9 69.4 70.4 70.9 72.7 60.1
Interest Rates at a Glance – Average North Central Region (which includes Illinois)
4.86 – March 2011 5.0 – Feb 2011 5.03 – March 2010
16.63 – 1981 (high)
National Unemployment Rate – www.bls.gov
8.8% March 2011
Illinois Unemployment Rate – www.ILWorkingInfo.com
8.9% March 2011
Consumer Confidence - www.conference-board.org
63.4 March
70.4 Feb
60.6 Jan
(1985=100)
“The sharp decline in confidence was prompted by a sharp decline in expectations. Consumers’
inflation expectations rose significantly in March and their income expectations soured, a
combination that will likely impact spending decisions. On the other hand, consumers’
assessment of current conditions improved, indicating that while the short-term future may be
uncertain, the economy continues to expand.” (3/29/11)
Wednesday, April 6, 2011
IAR Spring Captiol Conference
As a Realtor we do many things to protect private property rights. On April 5, myself as president of the Illinois members of the Quad City Area Realtor Association and Realtor's from all over the state of Illinois went to Springfield to make sure our legislature knows where we stand on certain bills that are on the floor right now. I just wanted to inform my readers of what Realtors are doing to protect your private property rights. Below is a synopsis of the issues and where the Illinois Associationof Realtors stand.
FORECLOSURE ISSUES-Vacant/Abandoned Property-Unlimited Municipal Powers-OPPOSE
Illinois already has an extensive body of law to give municipalities extraordinary powers to clean up and secure abandoned property, and they have a superior lien to recover their costs. If necessary, they can even take over the property, and pass i to n to a non-profit or other entity to redevelop. The IAR has helped craft these laws over the years , with a balanced approach that allows local governments to address the blight of abandoned property, but provides a uniform scope and process for these local powers so that property rights are preserved and parties are offered due process.
OPPOSE House Bill 1109 (Yarbrough), as amended by House Amendment #3, which provides an unlimited, blanket grant of authority to all municipalities to pass whatever rules, regulations,and fees they see fit regarding vacant property. This legislation has none of the protections or limitations provided in existing laws on vacant property, and would throw out the uniformity of current laws in lieu of a patchwork of whatever municipalities decide to put in there ordinances.
House Bill 1109 would also make lenders, certain prior owners,trustees, and other beneficiaries responsible for whatever rules the municipality enacts, and grants all of the entities and their agents complete immunity from civil and criminal liability while entering premises to enforce or comply with the actual or potential violations of the rules and regulations of the municipality. We think this is a dangerous precedent fraught with potential abuses, particularly when there is not limitation or guidance as to what will be in these local rules and regulations.
WORK WITH the sponsor, lending groups, and other interested parties on another concept included in HOUSE BILL 1109,which would shorten the redemption period on foreclosed properties hen property is deemed to be abandoned. The idea here is to find ways to enable action to be taken on abandoned properties sooner.
Allow municipalities to Create Separate LAND BANKS-OPPOSE
OPPOSE House Bill 760 (Yarbrough), as proposed in House Amendment #3, creates a new law to allow ALL municipalities to establish a new entity called a Land Bank Authority (LBA). These LBA's are essentially a separate real estate corp. that may acquire, buy, sell, rent, hold, manage, and develop any real estate within its jurisdiction (municipalities could create their own LBA, or partner with others to create a regional LBA. The IAR does not believe that this is a necessary or wise tool to deal with foreclosure issues.
This LBA concept differs from other redevelopment tools (TIFS, etc...) in that the government becomes the owner, developer, and speculator. The IAR does not believe this is a proper role for local governments, nor one they can afford to b particularly successful in.
Work with the sponsor and proponents to identify and correct any problems or inefficiencies in existing abandoned property laws to make them more usable and effective for municipalities.
LOCAL GOVERNMENT AND TAXATION ISSUES
OPPOSE HB1384 (GORDON)/HB 3407 (COlVIN),which would enable local governments to collect on liens for property maintenance and nuisance clean-up by putting the charges on the owner's property tax bill. We oppose this ongoing effort by local unites to collect debts on the tax bill.
OPPOSE HB 1323 (RILEY), which would allow ALL municipalities to license and regulate ALL businesses. This flies in the face of state license laws, like the Real Estate License Act, that preempt home rule units and reserves such licensing to the state to ensure a statewide standard. This bill would also allow municipalities to enact landlord and rental property licensing without any limitations.
SUPPORT SB 1230(LAUZEN) which expands to Cook county the new provision in the Property Tax COde (also advocated by IAR) that require boards of review to consider (compulsory sales) of comparable properties for the purpose of revising and correcting assessments.
RENTAL PROPERTY ISSUES
OPPOSE HB 1607 (DAVIS) WHICH WOULD ENACT UNCLEAR AND UNNECESSARY REGULATIONS ON THE CHARGING OF "APPLICATION FEES' BY LANDLORDS. Subjects the landlord to monetary penalties, court costs, and attorney's fees if the new rules aren't followed. There has been no case made that this is a problem, and this is unnecessary regulation that exposes good landlords to lawsuits.
SUPPORT HB 1309 (DELUCA)/SB 1766 (WILHELMI), which are works in progress, and seek to amend the eviction provisions for criminal activity in the Code of Civil Procedure to provide both local governments and landlords a more clear and effective tool to deal with tenants that are engaging in criminal activity and other disruptive behavior on the premises. This is an alternative approach to the 'landlord licensing' approach we have seen in the past.
OPPOSE HB 1008 (YARBROUGH), amended by House Amendment #1, which would require any person or business that obtains personal information to check the credit of a consumer to carry a bond of at least $250,0000. This bond would indemnify the consumer for any theft , loss, or unauthorized sharing of the personal information of the personal information used in the credit check. The bill makes violation of the requirement a violation of the Consumer Fraud Act.
limitation on developers Contracting for 'Retainage'
OPPOSE HOUSE BILL 1292 (LANG) which prohibits a developer of a non-residential property from contracting for more than 5% "retainage". A retainage provision enables a developer to withhold a certain portion of the contracted amount until completion to ensure that work is completed satisfactorily, passes inspections, and liens are released. The IAR opposes the state inserting itself into this private contractual matter between two business entities. (I do believe this bill was shut down today (April 6).
These are just some of the issues that Realtor's and there lobbyists deal with on a annual basis.Feel free to call, e-mail or text me if you have any questions regarding real estate.
FORECLOSURE ISSUES-Vacant/Abandoned Property-Unlimited Municipal Powers-OPPOSE
Illinois already has an extensive body of law to give municipalities extraordinary powers to clean up and secure abandoned property, and they have a superior lien to recover their costs. If necessary, they can even take over the property, and pass i to n to a non-profit or other entity to redevelop. The IAR has helped craft these laws over the years , with a balanced approach that allows local governments to address the blight of abandoned property, but provides a uniform scope and process for these local powers so that property rights are preserved and parties are offered due process.
OPPOSE House Bill 1109 (Yarbrough), as amended by House Amendment #3, which provides an unlimited, blanket grant of authority to all municipalities to pass whatever rules, regulations,and fees they see fit regarding vacant property. This legislation has none of the protections or limitations provided in existing laws on vacant property, and would throw out the uniformity of current laws in lieu of a patchwork of whatever municipalities decide to put in there ordinances.
House Bill 1109 would also make lenders, certain prior owners,trustees, and other beneficiaries responsible for whatever rules the municipality enacts, and grants all of the entities and their agents complete immunity from civil and criminal liability while entering premises to enforce or comply with the actual or potential violations of the rules and regulations of the municipality. We think this is a dangerous precedent fraught with potential abuses, particularly when there is not limitation or guidance as to what will be in these local rules and regulations.
WORK WITH the sponsor, lending groups, and other interested parties on another concept included in HOUSE BILL 1109,which would shorten the redemption period on foreclosed properties hen property is deemed to be abandoned. The idea here is to find ways to enable action to be taken on abandoned properties sooner.
Allow municipalities to Create Separate LAND BANKS-OPPOSE
OPPOSE House Bill 760 (Yarbrough), as proposed in House Amendment #3, creates a new law to allow ALL municipalities to establish a new entity called a Land Bank Authority (LBA). These LBA's are essentially a separate real estate corp. that may acquire, buy, sell, rent, hold, manage, and develop any real estate within its jurisdiction (municipalities could create their own LBA, or partner with others to create a regional LBA. The IAR does not believe that this is a necessary or wise tool to deal with foreclosure issues.
This LBA concept differs from other redevelopment tools (TIFS, etc...) in that the government becomes the owner, developer, and speculator. The IAR does not believe this is a proper role for local governments, nor one they can afford to b particularly successful in.
Work with the sponsor and proponents to identify and correct any problems or inefficiencies in existing abandoned property laws to make them more usable and effective for municipalities.
LOCAL GOVERNMENT AND TAXATION ISSUES
OPPOSE HB1384 (GORDON)/HB 3407 (COlVIN),which would enable local governments to collect on liens for property maintenance and nuisance clean-up by putting the charges on the owner's property tax bill. We oppose this ongoing effort by local unites to collect debts on the tax bill.
OPPOSE HB 1323 (RILEY), which would allow ALL municipalities to license and regulate ALL businesses. This flies in the face of state license laws, like the Real Estate License Act, that preempt home rule units and reserves such licensing to the state to ensure a statewide standard. This bill would also allow municipalities to enact landlord and rental property licensing without any limitations.
SUPPORT SB 1230(LAUZEN) which expands to Cook county the new provision in the Property Tax COde (also advocated by IAR) that require boards of review to consider (compulsory sales) of comparable properties for the purpose of revising and correcting assessments.
RENTAL PROPERTY ISSUES
OPPOSE HB 1607 (DAVIS) WHICH WOULD ENACT UNCLEAR AND UNNECESSARY REGULATIONS ON THE CHARGING OF "APPLICATION FEES' BY LANDLORDS. Subjects the landlord to monetary penalties, court costs, and attorney's fees if the new rules aren't followed. There has been no case made that this is a problem, and this is unnecessary regulation that exposes good landlords to lawsuits.
SUPPORT HB 1309 (DELUCA)/SB 1766 (WILHELMI), which are works in progress, and seek to amend the eviction provisions for criminal activity in the Code of Civil Procedure to provide both local governments and landlords a more clear and effective tool to deal with tenants that are engaging in criminal activity and other disruptive behavior on the premises. This is an alternative approach to the 'landlord licensing' approach we have seen in the past.
OPPOSE HB 1008 (YARBROUGH), amended by House Amendment #1, which would require any person or business that obtains personal information to check the credit of a consumer to carry a bond of at least $250,0000. This bond would indemnify the consumer for any theft , loss, or unauthorized sharing of the personal information of the personal information used in the credit check. The bill makes violation of the requirement a violation of the Consumer Fraud Act.
limitation on developers Contracting for 'Retainage'
OPPOSE HOUSE BILL 1292 (LANG) which prohibits a developer of a non-residential property from contracting for more than 5% "retainage". A retainage provision enables a developer to withhold a certain portion of the contracted amount until completion to ensure that work is completed satisfactorily, passes inspections, and liens are released. The IAR opposes the state inserting itself into this private contractual matter between two business entities. (I do believe this bill was shut down today (April 6).
These are just some of the issues that Realtor's and there lobbyists deal with on a annual basis.Feel free to call, e-mail or text me if you have any questions regarding real estate.
Thursday, March 31, 2011
Pending home sales increased in February but with notable regional variations, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator, rose 2.1 percent to 90.8, based on contracts signed in February, from 88.9 in January. The index is 8.2 percent below 98.9 recorded in February 2010. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, says it’s important to look at the broader trend. “Month-to-month movements can be instructive, but in this uneven recovery it’s important to look at the longer term performance,” he said. “Pending home sales have trended up very nicely since bottoming out last June, even with periodic monthly declines. Contract activity is now 20 percent above the low point immediately following expiration of the home buyer tax credit.”
Yun notes there could have been some weather impact in the February data. “All of the regions saw gains except for the Northeast, where unusually bad winter weather may have curtailed some shopping and contract activity.”
The PHSI in the Northeast fell 10.9 percent to 65.5 in February and is 18.4 percent below a year ago. In the Midwest the index rose 4.0 percent in February to 81.1 but is 15.9 percent below February 2010. Pending home sales in the South increased 2.7 percent to an index of 100.3 but are 5.3 percent below a year ago. In the West the index rose 7.0 percent to 105.6 and is 0.6 percent higher than February 2010.
“We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery, job creation and excellent affordability conditions providing confidence to buyers who’ve been on the sidelines,” Yun said.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.
Each February, NAR Research conducts a normal review of PHSI seasonal adjustment factors and fine-tunes monthly data for the past three years; revisions are posted in the Research area of Realtor.org.
NOTE: Existing-home sales for March will be reported April 20 and the next Pending Home Sales Index will be released April 28; release times are 10:00 a.m. EDT
Lawrence Yun, NAR chief economist, says it’s important to look at the broader trend. “Month-to-month movements can be instructive, but in this uneven recovery it’s important to look at the longer term performance,” he said. “Pending home sales have trended up very nicely since bottoming out last June, even with periodic monthly declines. Contract activity is now 20 percent above the low point immediately following expiration of the home buyer tax credit.”
Yun notes there could have been some weather impact in the February data. “All of the regions saw gains except for the Northeast, where unusually bad winter weather may have curtailed some shopping and contract activity.”
The PHSI in the Northeast fell 10.9 percent to 65.5 in February and is 18.4 percent below a year ago. In the Midwest the index rose 4.0 percent in February to 81.1 but is 15.9 percent below February 2010. Pending home sales in the South increased 2.7 percent to an index of 100.3 but are 5.3 percent below a year ago. In the West the index rose 7.0 percent to 105.6 and is 0.6 percent higher than February 2010.
“We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery, job creation and excellent affordability conditions providing confidence to buyers who’ve been on the sidelines,” Yun said.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.
Each February, NAR Research conducts a normal review of PHSI seasonal adjustment factors and fine-tunes monthly data for the past three years; revisions are posted in the Research area of Realtor.org.
NOTE: Existing-home sales for March will be reported April 20 and the next Pending Home Sales Index will be released April 28; release times are 10:00 a.m. EDT
Monday, March 21, 2011
Competing with Distressed properties can be challenging.
Foreclosures and short sales, collectively known as distressed properties, have accounted for anywhere from 35 to 48 percent of home sales in the metropolitan Chicago real estate market over the last year, according to RE/MAX. As a result, distressed homes now represent a huge source of potential competition for those who want to sell their home for more traditional reasons.
“The sheer number of distressed properties and the low list prices that many of those homes carry can be a bit intimidating for other sellers,” said Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network, “but the fact is that non-distressed homes still outsell their distressed competition. Sellers must be flexible in today’s market, but with the help of a good agent, they still can be successful.”
How large a role distressed properties play in the local home market can vary substantially
Tim Winfrey of RE/MAX Associates West in Bartlett, Ill., reports that while distressed homes can constitute as much as 70 to 80 percent of the inventory in some communities that percentage drops to 40 percent or less in others he serves.
Though most common in the entry-level segment of the market, distressed properties can be found in all price ranges, even homes priced at $1 million or more, according to Julie Brown of RE/MAX Experts in Buffalo Grove, Ill.
Whatever the price of the properties they are considering, buyers tend to be either extremely interested in distressed properties or avoid them almost entirely, according to Brown.
“Some buyers, especially first time buyers, focus exclusively on distressed properties. They feel those homes will give them the best possible value, but the reality is that many non-distressed homes are priced quite aggressively and are in excellent condition as well,” she said.
While many distressed properties do offer good value, they may no longer be the bargains they once were, according to Connie Scott of RE/MAX At Home in Rolling Meadows, Ill., who says that a year ago it was not uncommon to find foreclosures selling for 20 or 30 percent less than other comparable homes in the same area.
“That spread has tightened up considerably in the last year,” she said, estimating that it is down to 10 percent or even less in at least some cases.
Winfrey said that he may recommend pricing a home in very good condition 15 to 20 percent higher than nearby distressed properties, but that can change as properties come on and off the market.
“You have to be willing to constantly readjust your pricing strategy in this market because while there may have been limited competition when a property is first listed, that can change rapidly,” he said, especially when a bank decides put a group of foreclosed homes on the market.
Understanding which distressed homes constitute actual competition and which do not is vital for sellers and their agents, in part because not all sellers have the flexibility to drop the price of their home to compete with distressed homes.
Winfrey said he usually doesn’t view short sales as major competition for his non-distressed listings because many buyers are put off by the fact that it can take six months or more to complete a short sale.
“Short sales are primarily of interest to investors because they have flexibility. On the other hand, the typical family that needs to move in three or four months doesn’t want to deal with the uncertainty that is part and parcel of purchasing a short sale,” he said.
Broadly speaking, any similar home within a mile radius of a listing should be viewed as potential competition, according to Erica McClain of RE/MAX Vision 212 in Chicago. “But at the same time, you have to evaluate each competitive property based on its condition and specific location,” she said. Plus, “bank-owned homes often sell so quickly that they aren’t much competition.”
McClain noted that many sellers are reluctant to compare their home to distressed properties, but doing so is essential in the current market.
“As recently as six months ago, most foreclosed homes were not in good condition, but that is changing as the institutions that own those homes realize how fixing them up will get them sold faster and at a better price,” she reported. “I recently saw three or four foreclosures with new appliances, new carpeting and fresh paint, which makes them very competitive with comparable non-distressed homes.”
Should that become a broad trend, it could put more pressure on sellers to make the home they are selling look and function at its best.
Julie Brown said that in and around Buffalo Grove, a non-distressed home that is freshly painted with new carpeting, minor updating and staging will sell more quickly and possibly at a better price.
Still, Brown stresses that to sell successfully, you need to have both the best house and the best price.
“There’s no doubt that many buyers, especially first-time buyers, can get mesmerized by the prettiest home,” said Connie Scott. But beyond appearance, the other strategy she uses in competing with distressed homes is to make sure buyers know why her listing is a good value.
“I find as many examples as I can of comparable properties that have sold recently so that buyers understand why our listing is priced where it is. I also want to make sure buyers know how well our listing has been maintained because foreclosures can’t offer that kind of assurance,” she said.
The bottom line for sellers, according to Winfrey is that the more competition you face, particularly from distressed properties, the more aggressive the approach you have to take.
“What I find is that in the current market, those who would like to sell but don’t have to do so, end up not selling, while those who are willing to price their home competitively will sell,” he observed. “When sellers feel they have to get a certain price for their home, it makes selling more difficult.”
“The sheer number of distressed properties and the low list prices that many of those homes carry can be a bit intimidating for other sellers,” said Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network, “but the fact is that non-distressed homes still outsell their distressed competition. Sellers must be flexible in today’s market, but with the help of a good agent, they still can be successful.”
How large a role distressed properties play in the local home market can vary substantially
Tim Winfrey of RE/MAX Associates West in Bartlett, Ill., reports that while distressed homes can constitute as much as 70 to 80 percent of the inventory in some communities that percentage drops to 40 percent or less in others he serves.
Though most common in the entry-level segment of the market, distressed properties can be found in all price ranges, even homes priced at $1 million or more, according to Julie Brown of RE/MAX Experts in Buffalo Grove, Ill.
Whatever the price of the properties they are considering, buyers tend to be either extremely interested in distressed properties or avoid them almost entirely, according to Brown.
“Some buyers, especially first time buyers, focus exclusively on distressed properties. They feel those homes will give them the best possible value, but the reality is that many non-distressed homes are priced quite aggressively and are in excellent condition as well,” she said.
While many distressed properties do offer good value, they may no longer be the bargains they once were, according to Connie Scott of RE/MAX At Home in Rolling Meadows, Ill., who says that a year ago it was not uncommon to find foreclosures selling for 20 or 30 percent less than other comparable homes in the same area.
“That spread has tightened up considerably in the last year,” she said, estimating that it is down to 10 percent or even less in at least some cases.
Winfrey said that he may recommend pricing a home in very good condition 15 to 20 percent higher than nearby distressed properties, but that can change as properties come on and off the market.
“You have to be willing to constantly readjust your pricing strategy in this market because while there may have been limited competition when a property is first listed, that can change rapidly,” he said, especially when a bank decides put a group of foreclosed homes on the market.
Understanding which distressed homes constitute actual competition and which do not is vital for sellers and their agents, in part because not all sellers have the flexibility to drop the price of their home to compete with distressed homes.
Winfrey said he usually doesn’t view short sales as major competition for his non-distressed listings because many buyers are put off by the fact that it can take six months or more to complete a short sale.
“Short sales are primarily of interest to investors because they have flexibility. On the other hand, the typical family that needs to move in three or four months doesn’t want to deal with the uncertainty that is part and parcel of purchasing a short sale,” he said.
Broadly speaking, any similar home within a mile radius of a listing should be viewed as potential competition, according to Erica McClain of RE/MAX Vision 212 in Chicago. “But at the same time, you have to evaluate each competitive property based on its condition and specific location,” she said. Plus, “bank-owned homes often sell so quickly that they aren’t much competition.”
McClain noted that many sellers are reluctant to compare their home to distressed properties, but doing so is essential in the current market.
“As recently as six months ago, most foreclosed homes were not in good condition, but that is changing as the institutions that own those homes realize how fixing them up will get them sold faster and at a better price,” she reported. “I recently saw three or four foreclosures with new appliances, new carpeting and fresh paint, which makes them very competitive with comparable non-distressed homes.”
Should that become a broad trend, it could put more pressure on sellers to make the home they are selling look and function at its best.
Julie Brown said that in and around Buffalo Grove, a non-distressed home that is freshly painted with new carpeting, minor updating and staging will sell more quickly and possibly at a better price.
Still, Brown stresses that to sell successfully, you need to have both the best house and the best price.
“There’s no doubt that many buyers, especially first-time buyers, can get mesmerized by the prettiest home,” said Connie Scott. But beyond appearance, the other strategy she uses in competing with distressed homes is to make sure buyers know why her listing is a good value.
“I find as many examples as I can of comparable properties that have sold recently so that buyers understand why our listing is priced where it is. I also want to make sure buyers know how well our listing has been maintained because foreclosures can’t offer that kind of assurance,” she said.
The bottom line for sellers, according to Winfrey is that the more competition you face, particularly from distressed properties, the more aggressive the approach you have to take.
“What I find is that in the current market, those who would like to sell but don’t have to do so, end up not selling, while those who are willing to price their home competitively will sell,” he observed. “When sellers feel they have to get a certain price for their home, it makes selling more difficult.”
Friday, March 18, 2011
February Home Sales up 1.3 percent from January in Illinois
February home sales in Illinois rose from January while year-over-year comparisons still reflect an impact from the homebuyer tax credit incentive. The single family market shows signs of stabilization with steady median price gains statewide in the first two months of the year compared to 2009 and 2010 levels.
The median price in February was $128,800, down 4.6 percent from $135,000 for the same month last year. The statewide single family median price reached $129,000, up 1.6 percent from $127,000 in February 2010 and up 2.8 percent from $125,500 in February 2009. The median is a typical market price where half the homes sold for more, half sold for less.
“We are seeing some improvements in the single family market in particular in terms of median prices trending higher and back to more sustainable pre-boom levels,” said REALTOR® Sheryl Grider Whitehurst, ABR, CRB, GRI, president of the Illinois Association of REALTORS® and the Development and Operations Coordinator for Traders Realty in Peoria. “More encouraging jobs signals and warmer weather should bring qualified buyers out from hibernation to grab hold of the low interest rates and high affordability factors in place for the spring market.”
Adds Whitehurst: “Another positive sign is more than half of Illinois counties reported median price increases or no change in February although markets permeated by distressed properties continue to be affected. The predominance of sales in lower priced tiers of the market also is reflected in the median price.”
The median price in February was $128,800, down 4.6 percent from $135,000 for the same month last year. The statewide single family median price reached $129,000, up 1.6 percent from $127,000 in February 2010 and up 2.8 percent from $125,500 in February 2009. The median is a typical market price where half the homes sold for more, half sold for less.
“We are seeing some improvements in the single family market in particular in terms of median prices trending higher and back to more sustainable pre-boom levels,” said REALTOR® Sheryl Grider Whitehurst, ABR, CRB, GRI, president of the Illinois Association of REALTORS® and the Development and Operations Coordinator for Traders Realty in Peoria. “More encouraging jobs signals and warmer weather should bring qualified buyers out from hibernation to grab hold of the low interest rates and high affordability factors in place for the spring market.”
Adds Whitehurst: “Another positive sign is more than half of Illinois counties reported median price increases or no change in February although markets permeated by distressed properties continue to be affected. The predominance of sales in lower priced tiers of the market also is reflected in the median price.”
Wednesday, March 16, 2011
Incorrect Rumors about %3.8 Transfer Tax persist
For the third time in the past six months, NAR is being inundated with questions about a real estate transfer tax enacted as part of the Health Care reforms in 2010. THERE IS NO SUCH TAX. A viral Internet posting is riddled with errors.
The Health Care legislation did create a new tax that would apply to a portion of the gain on the sale of any capital asset (including real estate). That tax will apply ONLY to individuals with more than $200,000 Adjusted Gross Income (AGI) (or $250,000 AGI on a joint return). The tax does not apply to any amount excluded from taxation under the $250,000/$500,000 principal residence rules. The tax is never imposed directly on the full amount of any capital gain.
The tax is computed under a multi-step formula that captures only a portion of any gain and will only affect those with total AGI above the amounts noted above. Links are provided for a Q&A on the tax and to a brochure with examples of the tax.
Here is a Q & A from the National Association of Realtors.
Q-1: Who will be subject to the new taxes imposed in the health legislation?
A: A new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers. Another 0.9% tax will apply to the “earned” income of many of these same individuals. Both levies are referred to as “Medicare” taxes. (For a description of the new 0.9% tax, see separate Q&A entitled “New Tax on EARNED INCOME: Wages, Salaries and Commissions.”)
Q-2: Who is a “High Income” Taxpayer?
A: Those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.)
Q-3: Are the $200,000 and $250,000 thresholds indexed for inflation?
No. Thus, over time, more individuals may become subject to this tax.
Q-4: When does the new 3.8% Medicare tax take effect?
A: The new Medicare tax on unearned income will take effect January 1, 2013.
Q-5: What is “unearned” net investment income?
A. Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses ifthe investor is not an active participant in the business.
The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.) Thus, in the case of rents, the taxable amount would be gross rents minus all expenses (including depreciation) incurred in operating the rental property. So if gross rents were $100,000 with associated expenses of $40,000, net rents of $60,000 ($100,000 minus $40,000) would be included in Adjusted Gross Income (AGI).
Q-6: So the new tax will apply to rents from investment properties that I own?
A: Maybe. Remember that net investment income includes only net rental income. Thus, gross rents would not be subject to the tax. Rather, gross rents would be reduced (as they are under the income tax) by all allowable expenses, including depreciation, cost of repairs, property taxes and all other expenses related to the property. AGI includes net income from rent, so if your AGI is above the $200,000/$250,000 thresholds, then the rental income might be subject to the tax. For many investment real estate owners, the net rents will be the same as or similar to the amounts reported on their Schedule E, filed with their Form 1040 Income Tax Return. (For calculations, see Q-8, below. See also Q-9 through Q-12 related to capital gain from sale of principal residence, losses on sale and to vacation homes, below.)
Q-7: Does the tax apply to the yearly appreciation of an asset?
No. Capital gains are subject to this new tax only in the year when the asset is sold. The amount of the gain will be measured in the same way that it is for income tax purposes. This rule applies to real estate and all other appreciating capital assets. Net capital gains are taxable only in the year of sale.
Q-8: How is the new 3.8% Medicare tax calculated?
A: The new 3.8% Medicare tax is assessed only when Adjusted Gross Income (AGI) is more than $200,000/$250,000. (See Q-2 above.) AGI includes net income from interest, dividends, rents and capital gains, as well as earned compensation and several additional forms of income presented on a Form 1040 Income Tax Return.
The tax is NOT imposed on the total AGI, nor is it imposed solely on the investment income. Rather, the taxable amount will depend on the operation of a formula. The taxpayer will determine the LESSER of (1) net investment income OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds. Thus, if net investment income is the smaller amount, then the 3.8% tax is applied only to the net investment income amount. If the excess over the thresholds is the smaller amount, then the 3.8% tax would apply only to the excess amount.
For example, if AGI for a single individual is $275,000, then the excess over $200,000 would be $75,000 ($275,000 minus $200,000). Assume that this individual’s net investment income is $60,000. The new 3.8% tax applies to the smaller amount. In this example, $60,000 of net investment income is less than the $75,000 excess over the threshold. Thus, in this example, the 3.8% tax is applied to the $60,000.
If this single individual had AGI if $275,000 and net investment income of $90,000, then the new tax would be imposed on the smaller amount: the $75,000 of excess over $200,000.
Rules of thumb for predicting the application of this tax year to year are not readily determinable, largely because the proportion of net investment income compared to AGI will vary from year to year and from individual to individual.
Q-9: Will the $250,000/$500,000 exclusion on the sale of a principal residence continue to apply?
A: Yes. Any gain from the sale of a principal residence that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from the income tax. The new 3.8% tax will NOT apply to this excluded amount of the gain.
Q-10: Will the 3.8% tax apply to any part of the gain on the sale of a principal residence?
A: The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI above the $200K/$250K AGI thresholds.
So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000taxable gain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.
Q-11: Is rent from a vacation home subject to the 3.8% tax? And what about the gain on sale of a vacation or rental property?
A: The application of the tax will depend on whether the vacation home has been rented out, the period for which it has been rented and whether the property is solely for the enjoyment of the owner. If the owner has rented the home out to others, then the 14-day rent exclusion will continue to apply. Thus, if the owner rents the property to others (including family members) for 14 or fewer days, there would be no net investment tax. (Note that no deductions for expenses would be available, as under current law.) If the home has been rented to others (including family members) for more than 14 days, then the rents (minus related expenses) would be considered as part of net investment income and could, depending on AGI and the calculations described above, be subject to the new tax.
If the vacation home has been used solely for personal enjoyment (i.e., there is no rental income and no associated expenses), then a gain on sale would be treated as net investment income and could be subject to the tax, depending on AGI. Similarly, if the property had generated rents, any net gain on sale could also be included in net investment income. The amount of the tax (if any) would depend on the calculation formula, above in Q-8.
Q-12: My rental property generates a net loss each year. How will those losses be factored into the new tax? And what if I have net capital losses when I sell?
A: Net losses from rents and net capital losses reduce AGI. Thus, the losses themselves would not be subject to the tax. If, after losses, AGI still exceeds the High Income thresholds, the 3.8% tax would still apply if there were any interest or dividends income. (Capital losses reduce capital gains. If losses exceed gains, no more than $3000 of capital losses may reduce other income in any year.)
Note that passive loss limitations will continue to apply to rental income and loss.
Q-13: All of my income is derived from real estate investments that I own and operate myself. Will my rents and gains be subject to the new tax?
A: No. If the ownership and operation of real estate you own is your sole occupation, then those activities are what’s called your “trade or business.” Income derived from a trade or business is not subject to the new 3.8% tax, but could be subject to the 0.9% tax on earned income.
f the owner of rental properties has a “day job,” however, real estate investments are not considered as a trade or business, but are rather considered as investments, even if they are a major source of income. Note that many Realtors engage in business activities are that are the “typical” selling, leasing and brokerage endeavors usually associated with the term “Realtor.” If they also own real estate assets as part of their own personal investment portfolio, the rents from that portfolio could become subject to the new 3.8% tax on net investment income, depending on AGI.
Q-14: Is there a real estate “sales tax” or a transfer tax in the new health care bill?
A: No. There is neither a real estate “sales tax” nor a real estate transfer tax in the bill.
Q-15: Will “High Income Filers” lose any portion of the Mortgage Interest they are allowed to deduct? A: No. The mortgage interest deduction is unchanged. No cap was imposed on any itemized deductions.
Q-16: Why is this new tax called a “Medicare tax?”
A: The revenues generated from this tax will be allocated to the Medicare Trust Fund that is part of the Social Security System. That fund is currently on shaky financial footing. The additional revenues generated from the new earned income and unearned income taxes are intended to shore up the Medicare Trust Fund.
Q-17: How will this new tax affect marginal (the highest) tax rates when it is combined with existing law and with the possible expiration of the Bush tax cuts enacted in 2001?
A: Marginal tax rates are the tax rates assessed on the “last” dollars included in taxable income. If the Bush tax cuts are allowed to expire, then the marginal rates for upper income individuals will increase, particularly for capital gains income. The chart below reflects the impact of those changes, presented based on implementation of current law effective dates.
The Health Care legislation did create a new tax that would apply to a portion of the gain on the sale of any capital asset (including real estate). That tax will apply ONLY to individuals with more than $200,000 Adjusted Gross Income (AGI) (or $250,000 AGI on a joint return). The tax does not apply to any amount excluded from taxation under the $250,000/$500,000 principal residence rules. The tax is never imposed directly on the full amount of any capital gain.
The tax is computed under a multi-step formula that captures only a portion of any gain and will only affect those with total AGI above the amounts noted above. Links are provided for a Q&A on the tax and to a brochure with examples of the tax.
Here is a Q & A from the National Association of Realtors.
Q-1: Who will be subject to the new taxes imposed in the health legislation?
A: A new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers. Another 0.9% tax will apply to the “earned” income of many of these same individuals. Both levies are referred to as “Medicare” taxes. (For a description of the new 0.9% tax, see separate Q&A entitled “New Tax on EARNED INCOME: Wages, Salaries and Commissions.”)
Q-2: Who is a “High Income” Taxpayer?
A: Those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.)
Q-3: Are the $200,000 and $250,000 thresholds indexed for inflation?
No. Thus, over time, more individuals may become subject to this tax.
Q-4: When does the new 3.8% Medicare tax take effect?
A: The new Medicare tax on unearned income will take effect January 1, 2013.
Q-5: What is “unearned” net investment income?
A. Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses ifthe investor is not an active participant in the business.
The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.) Thus, in the case of rents, the taxable amount would be gross rents minus all expenses (including depreciation) incurred in operating the rental property. So if gross rents were $100,000 with associated expenses of $40,000, net rents of $60,000 ($100,000 minus $40,000) would be included in Adjusted Gross Income (AGI).
Q-6: So the new tax will apply to rents from investment properties that I own?
A: Maybe. Remember that net investment income includes only net rental income. Thus, gross rents would not be subject to the tax. Rather, gross rents would be reduced (as they are under the income tax) by all allowable expenses, including depreciation, cost of repairs, property taxes and all other expenses related to the property. AGI includes net income from rent, so if your AGI is above the $200,000/$250,000 thresholds, then the rental income might be subject to the tax. For many investment real estate owners, the net rents will be the same as or similar to the amounts reported on their Schedule E, filed with their Form 1040 Income Tax Return. (For calculations, see Q-8, below. See also Q-9 through Q-12 related to capital gain from sale of principal residence, losses on sale and to vacation homes, below.)
Q-7: Does the tax apply to the yearly appreciation of an asset?
No. Capital gains are subject to this new tax only in the year when the asset is sold. The amount of the gain will be measured in the same way that it is for income tax purposes. This rule applies to real estate and all other appreciating capital assets. Net capital gains are taxable only in the year of sale.
Q-8: How is the new 3.8% Medicare tax calculated?
A: The new 3.8% Medicare tax is assessed only when Adjusted Gross Income (AGI) is more than $200,000/$250,000. (See Q-2 above.) AGI includes net income from interest, dividends, rents and capital gains, as well as earned compensation and several additional forms of income presented on a Form 1040 Income Tax Return.
The tax is NOT imposed on the total AGI, nor is it imposed solely on the investment income. Rather, the taxable amount will depend on the operation of a formula. The taxpayer will determine the LESSER of (1) net investment income OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds. Thus, if net investment income is the smaller amount, then the 3.8% tax is applied only to the net investment income amount. If the excess over the thresholds is the smaller amount, then the 3.8% tax would apply only to the excess amount.
For example, if AGI for a single individual is $275,000, then the excess over $200,000 would be $75,000 ($275,000 minus $200,000). Assume that this individual’s net investment income is $60,000. The new 3.8% tax applies to the smaller amount. In this example, $60,000 of net investment income is less than the $75,000 excess over the threshold. Thus, in this example, the 3.8% tax is applied to the $60,000.
If this single individual had AGI if $275,000 and net investment income of $90,000, then the new tax would be imposed on the smaller amount: the $75,000 of excess over $200,000.
Rules of thumb for predicting the application of this tax year to year are not readily determinable, largely because the proportion of net investment income compared to AGI will vary from year to year and from individual to individual.
Q-9: Will the $250,000/$500,000 exclusion on the sale of a principal residence continue to apply?
A: Yes. Any gain from the sale of a principal residence that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from the income tax. The new 3.8% tax will NOT apply to this excluded amount of the gain.
Q-10: Will the 3.8% tax apply to any part of the gain on the sale of a principal residence?
A: The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI above the $200K/$250K AGI thresholds.
So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000taxable gain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.
Q-11: Is rent from a vacation home subject to the 3.8% tax? And what about the gain on sale of a vacation or rental property?
A: The application of the tax will depend on whether the vacation home has been rented out, the period for which it has been rented and whether the property is solely for the enjoyment of the owner. If the owner has rented the home out to others, then the 14-day rent exclusion will continue to apply. Thus, if the owner rents the property to others (including family members) for 14 or fewer days, there would be no net investment tax. (Note that no deductions for expenses would be available, as under current law.) If the home has been rented to others (including family members) for more than 14 days, then the rents (minus related expenses) would be considered as part of net investment income and could, depending on AGI and the calculations described above, be subject to the new tax.
If the vacation home has been used solely for personal enjoyment (i.e., there is no rental income and no associated expenses), then a gain on sale would be treated as net investment income and could be subject to the tax, depending on AGI. Similarly, if the property had generated rents, any net gain on sale could also be included in net investment income. The amount of the tax (if any) would depend on the calculation formula, above in Q-8.
Q-12: My rental property generates a net loss each year. How will those losses be factored into the new tax? And what if I have net capital losses when I sell?
A: Net losses from rents and net capital losses reduce AGI. Thus, the losses themselves would not be subject to the tax. If, after losses, AGI still exceeds the High Income thresholds, the 3.8% tax would still apply if there were any interest or dividends income. (Capital losses reduce capital gains. If losses exceed gains, no more than $3000 of capital losses may reduce other income in any year.)
Note that passive loss limitations will continue to apply to rental income and loss.
Q-13: All of my income is derived from real estate investments that I own and operate myself. Will my rents and gains be subject to the new tax?
A: No. If the ownership and operation of real estate you own is your sole occupation, then those activities are what’s called your “trade or business.” Income derived from a trade or business is not subject to the new 3.8% tax, but could be subject to the 0.9% tax on earned income.
f the owner of rental properties has a “day job,” however, real estate investments are not considered as a trade or business, but are rather considered as investments, even if they are a major source of income. Note that many Realtors engage in business activities are that are the “typical” selling, leasing and brokerage endeavors usually associated with the term “Realtor.” If they also own real estate assets as part of their own personal investment portfolio, the rents from that portfolio could become subject to the new 3.8% tax on net investment income, depending on AGI.
Q-14: Is there a real estate “sales tax” or a transfer tax in the new health care bill?
A: No. There is neither a real estate “sales tax” nor a real estate transfer tax in the bill.
Q-15: Will “High Income Filers” lose any portion of the Mortgage Interest they are allowed to deduct? A: No. The mortgage interest deduction is unchanged. No cap was imposed on any itemized deductions.
Q-16: Why is this new tax called a “Medicare tax?”
A: The revenues generated from this tax will be allocated to the Medicare Trust Fund that is part of the Social Security System. That fund is currently on shaky financial footing. The additional revenues generated from the new earned income and unearned income taxes are intended to shore up the Medicare Trust Fund.
Q-17: How will this new tax affect marginal (the highest) tax rates when it is combined with existing law and with the possible expiration of the Bush tax cuts enacted in 2001?
A: Marginal tax rates are the tax rates assessed on the “last” dollars included in taxable income. If the Bush tax cuts are allowed to expire, then the marginal rates for upper income individuals will increase, particularly for capital gains income. The chart below reflects the impact of those changes, presented based on implementation of current law effective dates.
Thursday, March 10, 2011
Quad City Real Estate Sales stats 2/8/2011-3/10/2011
Active Pending Avg./LP Avg./SP #Sold
Rock Island 163 31 $122,963 $64, 814 14
Moline 179 32 $143,880 $110,140 20
East Moline 124 33 $129,394 $77,154 10
Bettendorf 173 42 $312,457 $229,435 20
Davenport 393 131 $146,394 $102,278 59
SW RI 68 19 $182,177 $156,064 4
Upper RI 47 8 $299,490 $15,750 2
Source: Quad City Area Realtor Association
Here are updated stats from 2/8/2011 -3/10/2011. One very important thing I want everybody to pay attention to is the average list price (LP) versus average sale price (SP). There is a huge gap in what is actually listed and what is actually selling. This is data you must understand if you are going to try to sell your house in this market. It must be priced better than its competition. Even then, the pool of buyers is small. On the positive side, especially if you are a move up buyer, then you can afford to take a hit on your current house because you will be getting a great deal on your move up home. Not only do we have these historically low prices but interest rates are phenomenal. This market represents one of the best opportunities in real estate ever. Please contact me if you have any questions. I can be reached via e-mail tylerfuhr@remax.net , cell 309-314-4305 or by text. Have a great day!
Rock Island 163 31 $122,963 $64, 814 14
Moline 179 32 $143,880 $110,140 20
East Moline 124 33 $129,394 $77,154 10
Bettendorf 173 42 $312,457 $229,435 20
Davenport 393 131 $146,394 $102,278 59
SW RI 68 19 $182,177 $156,064 4
Upper RI 47 8 $299,490 $15,750 2
Source: Quad City Area Realtor Association
Here are updated stats from 2/8/2011 -3/10/2011. One very important thing I want everybody to pay attention to is the average list price (LP) versus average sale price (SP). There is a huge gap in what is actually listed and what is actually selling. This is data you must understand if you are going to try to sell your house in this market. It must be priced better than its competition. Even then, the pool of buyers is small. On the positive side, especially if you are a move up buyer, then you can afford to take a hit on your current house because you will be getting a great deal on your move up home. Not only do we have these historically low prices but interest rates are phenomenal. This market represents one of the best opportunities in real estate ever. Please contact me if you have any questions. I can be reached via e-mail tylerfuhr@remax.net , cell 309-314-4305 or by text. Have a great day!
Home Ownership Essential to Job Growth and Economy, Say Realtors®
Testifying before a Senate panel today, National Association of REALTORS® President Ron Phipps told members of Congress that sustainable home ownership must be the goal when considering future federal housing policies.
“As the leading advocate for home ownership, NAR wants to ensure public policies that promote responsible, sustainable home ownership and that any changes to current programs and incentives don’t jeopardize a housing and economic recovery,” Phipps told the Senate Banking, Housing and Urban Affairs Committee.
Phipps said the housing market is starting to see signs of recovery; however, the real issue facing the nation right now is that many Americans can’t find meaningful work to support their families, and housing is essential to creating jobs.
“Home ownership is a pillar of our economy; our research suggests that home sales in this country generate more than 2.5 million private-sector jobs in an average year. For every two homes sold, a job is created,” Phipps said.
He added that, while housing alone may not pull America out of this stalled economy, hampering its recovery will severely and negatively impact the nation’s recovery.
“Owning a home contributes to the strength of the nation’s economy and is still one of the best ways for individuals to build long-term wealth; therefore, we need public policies that support home ownership. Making it harder for families to afford safe mortgages does not further the goal of a housing or economic recovery,” he said.
Phipps agreed that reforms are required to prevent a recurrence of the housing market meltdown, but raising fees and increasing down payment requirements for well-qualified, creditworthy borrowers places an unnecessary burden on many families, especially those in high-cost urban markets.
“Home buyers need a wide variety of traditionally safe, well-underwritten products with flexible down payment requirements, said Phipps. “Overly stringent requirements will turn away 10 to 15 percent of otherwise qualified buyers who have a demonstrable ability to repay – that’s approximately 500,000 home sales that won’t happen, further delaying the housing and economic recovery.”
“We need to keep housing first on the nation’s public policy agenda to ensure that housing and national economic recoveries are sustained, and that anyone in this country who aspires to own a home and can afford to do so is not denied the opportunity to build their future through home ownership,” Phipps said.
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
“As the leading advocate for home ownership, NAR wants to ensure public policies that promote responsible, sustainable home ownership and that any changes to current programs and incentives don’t jeopardize a housing and economic recovery,” Phipps told the Senate Banking, Housing and Urban Affairs Committee.
Phipps said the housing market is starting to see signs of recovery; however, the real issue facing the nation right now is that many Americans can’t find meaningful work to support their families, and housing is essential to creating jobs.
“Home ownership is a pillar of our economy; our research suggests that home sales in this country generate more than 2.5 million private-sector jobs in an average year. For every two homes sold, a job is created,” Phipps said.
He added that, while housing alone may not pull America out of this stalled economy, hampering its recovery will severely and negatively impact the nation’s recovery.
“Owning a home contributes to the strength of the nation’s economy and is still one of the best ways for individuals to build long-term wealth; therefore, we need public policies that support home ownership. Making it harder for families to afford safe mortgages does not further the goal of a housing or economic recovery,” he said.
Phipps agreed that reforms are required to prevent a recurrence of the housing market meltdown, but raising fees and increasing down payment requirements for well-qualified, creditworthy borrowers places an unnecessary burden on many families, especially those in high-cost urban markets.
“Home buyers need a wide variety of traditionally safe, well-underwritten products with flexible down payment requirements, said Phipps. “Overly stringent requirements will turn away 10 to 15 percent of otherwise qualified buyers who have a demonstrable ability to repay – that’s approximately 500,000 home sales that won’t happen, further delaying the housing and economic recovery.”
“We need to keep housing first on the nation’s public policy agenda to ensure that housing and national economic recoveries are sustained, and that anyone in this country who aspires to own a home and can afford to do so is not denied the opportunity to build their future through home ownership,” Phipps said.
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
NAR Econimists PODCAST, MARCH 8,2011
NAR Chief Economist Lawrence Yun discusses existing home sales, which have risen in 5 of the last 6 months. Bargain-basement home prices and job creation, among other factors, have begun to lift consumer confidence. However, concerns, such as oil prices, still exist. He also discusses why government backing of mortgages is important for the middle class.
http://www.realtor.org/research/economists_outlook/economists_podcasts/economists_podcast030811?cid=WR03092011:11233&ed_rid=1886409
http://www.realtor.org/research/economists_outlook/economists_podcasts/economists_podcast030811?cid=WR03092011:11233&ed_rid=1886409
Monday, March 7, 2011
Pending Home Sales in January Decline
Washington, DC, February 28, 2011
Pending home sales eased moderately in January for the second straight month, but remain 20.6 percent above the cyclical low last June, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator, declined 2.8 percent to 88.9 based on contracts signed in January from a downwardly revised 91.5 in December. The index is 1.5 percent below the 90.3 level in January 2010 when a tax credit stimulus was in place. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, points to the broader trend. “The housing market is healing with sales fluctuating at times, depending on the flow of distressed properties coming on the market,” he said.
Pending home sales eased moderately in January for the second straight month, but remain 20.6 percent above the cyclical low last June, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator, declined 2.8 percent to 88.9 based on contracts signed in January from a downwardly revised 91.5 in December. The index is 1.5 percent below the 90.3 level in January 2010 when a tax credit stimulus was in place. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, points to the broader trend. “The housing market is healing with sales fluctuating at times, depending on the flow of distressed properties coming on the market,” he said.
Tuesday, February 8, 2011
30 Month Low in Foreclosure Filings for December!
Alas, some positive news in the housing market. Albiet, not great news but news pointing in the right direction. This is according to Realty Trac.
Foreclosure filings were reported on 257,747 U.S. properties in December, a decrease of nearly 2 percent from the previous month and down 26 percent from December 2009 — the biggest annual drop in foreclosure activity since RealtyTrac began publishing its foreclosure report in January 2005 and giving December the lowest monthly total since June 2008.
Illinois posted the fourth biggest state total, with 151,304 properties receiving a foreclosure filing in 2010.
As you can see Illinois was and is one of the worst when it comes to total foreclosures. However, unemployment is steadily going down and economic activity seems to be picking up. I think we are headed for a slow and steady recovery in housing. If you are on the fence about purchasing a home then please give me a call to talk. House values are crawling a long the bottom and interest rates are still low (although creeping up). Take advantage while the time is good because once prices and interest rates start going up you will regret it! Contact me at tylerfuhr@remax.net.
Foreclosure filings were reported on 257,747 U.S. properties in December, a decrease of nearly 2 percent from the previous month and down 26 percent from December 2009 — the biggest annual drop in foreclosure activity since RealtyTrac began publishing its foreclosure report in January 2005 and giving December the lowest monthly total since June 2008.
Illinois posted the fourth biggest state total, with 151,304 properties receiving a foreclosure filing in 2010.
As you can see Illinois was and is one of the worst when it comes to total foreclosures. However, unemployment is steadily going down and economic activity seems to be picking up. I think we are headed for a slow and steady recovery in housing. If you are on the fence about purchasing a home then please give me a call to talk. House values are crawling a long the bottom and interest rates are still low (although creeping up). Take advantage while the time is good because once prices and interest rates start going up you will regret it! Contact me at tylerfuhr@remax.net.
Monday, February 7, 2011
Quad Cities Housing Stats as of 2/7/2011
Active Pending Avg. Price
Rock Island 162 19 $69,628
Moline 168 34 $95,681
Davenport 404 101 $105,441
Bettendorf 155 36 $233.994
East Moline 119 22 $76,505
SW. Rock Island 72 12 $104,821
Coal Valley 39 4 $193,675
Andalusia 6 3 $191,385
Source: Quad City Area Realtor Association
Please contact tylerfuhr@remax.net or 309-314-4305 if you woud like more information.
Rock Island 162 19 $69,628
Moline 168 34 $95,681
Davenport 404 101 $105,441
Bettendorf 155 36 $233.994
East Moline 119 22 $76,505
SW. Rock Island 72 12 $104,821
Coal Valley 39 4 $193,675
Andalusia 6 3 $191,385
Source: Quad City Area Realtor Association
Please contact tylerfuhr@remax.net or 309-314-4305 if you woud like more information.
Sunday, January 30, 2011
Increase your Net Worth with Home Ownership
Home ownership is a great way to build wealth over time. In 2007, the median net worth of home owning families was $234,200 compared with $5,100 for renting families, according to a Federal reserve Board report on household finances.
With low interest rates and prices NOW is the time to buy. Contact me at tylerfuhr@remax.net to learn more.
With low interest rates and prices NOW is the time to buy. Contact me at tylerfuhr@remax.net to learn more.
Thursday, January 27, 2011
December Home Sales Climb 11.1 percent from November
Illinois ended 2010 with a December boost in home sales compared to the prior two months and declines in prices and sales also appeared to be moderating, according to IAR's report. Statewide home sales in December totaled 7,682 up 11.1 percent from 6,915 sales in November; year-over-year sales were down 7.3 percent from 8,288 sales in December 2009. The statewide median price was $140,000 down 7.9 percent from $152,000 in December 2009. Nationally, existing-home sales also jumped in December.
Owners and renters agree: owning a home just makes sense. In a new NAR survey, "American Attitudes about Homeownership," 95 percent of homeowners and 72 percent of renters say that over a period of several years, it makes more sense to own. Another positive statistic: 93 percent of owners are happy with their decision to buy and would do so again.
Owners and renters agree: owning a home just makes sense. In a new NAR survey, "American Attitudes about Homeownership," 95 percent of homeowners and 72 percent of renters say that over a period of several years, it makes more sense to own. Another positive statistic: 93 percent of owners are happy with their decision to buy and would do so again.
Saturday, January 22, 2011
Davenport among top 25 real estate markets in U.S.!
Davenport was identified as one of the 25 best real estate markets in the U.S., according to Housing Predictor. Davenport is expected to have a 2.5 percent appreciation rate for 2011.
Right now is one of the best times to buy in the history of real estate. Low interest rates and VERY motivated sellers make this a great time to buy! A low interest rate allows you to buy much more home than you could just 3 years ago! For example,I was just going through some numbers for a client. With today's rates she can buy a $110,000 home where as 3 years ago the rates would have only allowed her to buy about a $90,000 house. This is a huge difference! Please send me a note if you have any questions about the current market or are interested in buying or selling real estate.
Right now is one of the best times to buy in the history of real estate. Low interest rates and VERY motivated sellers make this a great time to buy! A low interest rate allows you to buy much more home than you could just 3 years ago! For example,I was just going through some numbers for a client. With today's rates she can buy a $110,000 home where as 3 years ago the rates would have only allowed her to buy about a $90,000 house. This is a huge difference! Please send me a note if you have any questions about the current market or are interested in buying or selling real estate.
Monday, January 17, 2011
Certified Distressed Property Expert
I have recently received a new designation CDPE or Certified Distressed Property Expert. I have been trained in assisting distressed homeowners learn what there options are. If you are behind on your payments or are going to be behind on your payments due to a real hardship such as job loss, death, divorce etc... then you have options other than foreclosure.Foreclosure is the worst thing that can happen in this situation. You may be eligible to sell your house with out any out of pocket expense to you.
There are federal home modification programs that you may be eligible for to help you stay in your home or you may be able to qualify for a short sale. A short sale is where you get your lenders approval to sell your home for less than what you owe on the property. This option is far superior to a foreclosure for many reasons.
Foreclosure will be on your credit for EVER! Anytime you interview for a job and they do a credit check this will show up. Also, the bank can sue you for the difference for what they can sell it for and what you owed. In a short sale, you will be able to sell the home for more than it would in foreclosure and there is a chance the bank will forgive you the difference! Also, you can purchase a home as soon as three years after going through a short sale. I recently had a client buy a home after I sold his home via short sale just three years ago! He was able to get low interest rates and buy a great home. Please call me if you or somebody you know is in a tough situation and needs help or e-mail me at tylerfuhr@remax.net.
GO BEARS!
There are federal home modification programs that you may be eligible for to help you stay in your home or you may be able to qualify for a short sale. A short sale is where you get your lenders approval to sell your home for less than what you owe on the property. This option is far superior to a foreclosure for many reasons.
Foreclosure will be on your credit for EVER! Anytime you interview for a job and they do a credit check this will show up. Also, the bank can sue you for the difference for what they can sell it for and what you owed. In a short sale, you will be able to sell the home for more than it would in foreclosure and there is a chance the bank will forgive you the difference! Also, you can purchase a home as soon as three years after going through a short sale. I recently had a client buy a home after I sold his home via short sale just three years ago! He was able to get low interest rates and buy a great home. Please call me if you or somebody you know is in a tough situation and needs help or e-mail me at tylerfuhr@remax.net.
GO BEARS!
Thursday, January 13, 2011
Illinois Income Tax Increase
Due to Illinois massive $15 billion dollar deficit the state legislature (waiting Govs. signature) has decided to increase the state income tax from 3 to 5 percent. This may impact the Illinois Quad Cities real estate market. Illinois property owners typically pay higher property taxes than Iowa homeowners but this was some what offset by the higher income taxes in Iowa. That gap will shrink with the new tax law. Here is a table taken from http://www.tax-rates.org/. showing what IL residents currently pay, what they will pay and what Iowa pays. Go to the above website to look at your states income tax rate.
Income IL Taxes now IL Taxes increased Iowa Taxes now
$15,000 $450 $750 $900
$45,000 $1,350 $2,250 $3,600
$100,000 $3,000 $5,000 $9,000
$200,000 $6,000 $10,000 $18,000.
You can see that as far as income taxes go it would still be more favorable to live in Illinois. Yes, property taxes are higher in IL but at least they are tax deductible on your income tax return. If you are thinking about moving and are concerned about the potential tax consequences than I recommend you speak with an accountant as there are other factors to consider such as how your retirement might be taxed.
Income IL Taxes now IL Taxes increased Iowa Taxes now
$15,000 $450 $750 $900
$45,000 $1,350 $2,250 $3,600
$100,000 $3,000 $5,000 $9,000
$200,000 $6,000 $10,000 $18,000.
You can see that as far as income taxes go it would still be more favorable to live in Illinois. Yes, property taxes are higher in IL but at least they are tax deductible on your income tax return. If you are thinking about moving and are concerned about the potential tax consequences than I recommend you speak with an accountant as there are other factors to consider such as how your retirement might be taxed.
Monday, January 10, 2011
New Blog
This is my new blog that will provide useful articles, advice, updates and story's on real estate. I am a licensed real estate agent in Illinois and Iowa but this will not be limited to those states. Please save tylerfuhr.blogspot.com as a favorite and visit it often as I will attempt to update on a regular basis. Feel free to send me an e-mail if you have any questions! I have posted some great articles covering a wide range of topics to get started!
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