Federal Housing Tax Credit

* The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
* The tax credit does not have to be repaid.
* The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000. * The tax credit applies only to homes priced at $800,000 or less.
* The tax credit now applies to sales occurring on or after January 1, 2009 and or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
* For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
* For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.


The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

* To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
* The tax credit does not have to be repaid.
* The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. * The tax credit applies only to homes priced at $800,000 or less.
* The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by May 1, 2010, the home purchase qualifies provided it is completed prior to July 1, 2010.
* Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

One in Four Borrowers Under Water (25%)

ovember 24, 2009, WSJ
By RUTH SIMON and JAMES R. HAGERTY

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.

Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don't have any mortgage, according to the Census Bureau.

But negative equity "is an outstanding risk hanging over the mortgage market," said Mark Fleming, chief economist of First American Core Logic. "It lowers homeowners' mobility because they can't sell, even if they want to move to get a new job." Borrowers who owe more than 120% of their home's value, he said, were more likely to default.

Even home buyers who thought they were getting a bargain are now finding themselves underwater. The News Hub panel discusses a mortgage crisis that has left millions owing more than their homes are worth.

Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," the study said.

Just months after showing signs of leveling off, the housing market has thrown off conflicting signals in recent weeks. Jittery home builders and bad weather led to a 10.6% drop in new home starts in October, and applications for home-purchase mortgages have dropped sharply in recent weeks.

These same falling prices have boosted home sales from the depressed levels of last year. The National Association of Realtors reported Monday that sales of previously occupied homes in October jumped 10.1% from September to a seasonally adjusted annual rate of 6.1 million, the highest since February 2007.

The bump in sales was ahead of forecasts, spurred by falling prices, low mortgage rates and a federal tax credits for buyers. Congress recently expanded and extended the tax credits.

The latest First American data aren't comparable to previous estimates because the company revised its methodology. First American now accounts for payments made by homeowners that reduce principal, and it no longer assumes that home-equity lines of credit have been completely drawn down.

The changes reduced the total number of borrowers under water -- although both old and new methodology show increases from the previous quarter. Using the old methodology, the portion of underwater borrowers would have increased to 33.8% in the third quarter.

Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.

More than 40% of borrowers who took out a mortgage in 2006 -- when home prices peaked -- are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home's value.

Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home's value.

Andrew Lunsford put 20% down when he bought his home in Las Vegas for $530,000 in 2004. Now, he said, his home was worth less than $300,000.

"I'm to the point where I feel I will never get my head above water," said Mr. Lunsford, a retired state trooper who works for an insurance company. He said his bank won't modify his loan because he can afford his payments, and he's unwilling to walk away, he said: "We're too honest."

Borrowers with negative equity are more likely to default if they live in a state where the bank can't pursue their assets in court, according to a study by the Federal Reserve Bank of Richmond.

But borrowers who are less than 20% under water are likely to maintain their mortgage if their loan is modified and the payments reduced, said Sanjiv Das, head of Citigroup's mortgage unit. "Beyond 120%, the most effective modification is a complete loan restructuring, including a principal reduction."

Mortgage companies have been reluctant to reduce mortgage principal over worries about "moral contagion, with people not paying their mortgage or redefaulting because they believed the bank would reduce their principal," Mr. Das said.

Many borrowers are so deeply under water that they can't take advantage of lower rates and refinance their mortgage. "We're declining hundreds of loans each month," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant."

Realtors reported that home sales in October were up 24% from a year earlier. The number of homes listed for sale nationwide was 3.57 million at the end of October, down 3.7% from a month earlier, the trade group said. But that inventory could rebound next year as banks acquire more homes through foreclosure.

About 7.5 million households were 30 days or more behind on their mortgage payments or in foreclosure at the end of September, according to the Mortgage Bankers Association. Many of those homes will be lost to foreclosure, adding to the supply of homes for sale.

A recovery could pay off for the roughly 30% of underwater borrowers who owe 110% or less of their home's value and are able to endure the slump. "Most people prefer to stay in their home" even if the value of their property has declined, said John Burns, a real-estate consultant based in Irvine, Calif.

California home sales and prices inch up

October 16, 2009|Peter Y. Hong

The state's housing market showed more signs of recovery in September, as the median sales price rose nearly 1% from August, to $251,000, a real estate research firm reported Thursday.

The number of homes sold in California also was up last month 1% from August. A total of 40,216 homes were bought in California in September, roughly the same number as the same month last year, according to San Diego-based MDA DataQuick.

The pricey San Francisco Bay Area accounted for a higher percentage of homes sold statewide, bolstering prices. The median Bay Area home sales price in September was up 1%, to $365,000. The number of Bay Area homes sold was up 5% from August; the total of 7,879 homes sold was also 9% greater than the number of homes sold the same month last year.

DataQuick said the relatively brisk activity was driven by sales of discounted homes that had been foreclosed as well as by a federal $8,000 tax credit for home buyers set to expire at the end of November.

"This market may be closer to normal than it was a half-year ago, but it's still out of kilter," said John Walsh, DataQuick's president. "The sales mix is still lopsided, tilting toward the low end, and lending institutions are only making really safe mortgage loans."

The percentage of foreclosed homes sold has been declining. Statewide, 42% of homes sold in September had been foreclosed within the previous 12 months, DataQuick said. In February, such homes hit a peak of 59% of sales.

In the Bay Area, 33% of homes sold in September had been foreclosed in the previous year, down from a high of 52% in February.

Those trends track with Southern California's September sales, which DataQuick reported Tuesday. The median sales price in Southern California last month was $275,000, unchanged from August, and the total of homes sold, 21,539, was roughly even with August and up 5% from a year ago.

Foreclosures as a percentage of sales also declined: 40% of Southern California homes sold in September were foreclosed in the previous 12 months, down from a high of 57% in February.

Even if foreclosures no longer constitute most sales, they continue to define the market because all sellers need to compete with those low-priced properties, said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. "They're in the same marketplace, in the same communities," she said of foreclosed homes sold alongside those offered for sale by individuals or home builders.

Appleton-Young said higher-priced homes also have more room to decline in price than the lowest-priced homes.

"Certainly at the upper end, prices could continue to soften a bit as we go forward. Foreclosures at the high end are starting to accelerate with white-collar job losses," she said.

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peter.hong@latimes.com

Renting A Home A Better Deal Than Buying In Much Of U.S.

Those glamorous people you see in the upscale boutiques of Beverly Hills and Santa Monica may have a secret beyond their romantic lives and surgical histories.

Many of these fashionable glitterati — squeezed out of palatial homes they'd bought on debt — may have just put their rent checks in the mail.

Renting now makes sense in many markets — even for the very prosperous.

Kami Merabi, president of L.A.- based realtor Merabi & Sons, says he personally has 160 to 165 clients who've moved out of pricey homes to rent apartments. "They have $3 million in debt and the house is worth $2 million. They walk away from the mortgage," said Merabi. Actors, actresses, music producers and business owners star in that cast of 160 walk-aways.

It's not just in upscale enclaves like Beverly Hills that renting has become an attractive option. The Washington-based Center for Economic and Policy Research periodically computes the ratio of home prices to annual rental costs. A typical historical ratio is 13 to 14, notes Dean Baker, co-director of CEPR. But in 13 areas of the U.S., home prices are 18 times or more rental costs. These are still "bubble markets."

Among the markets where rentals appear to be a bargain: San Jose; the Bridgeport-Stamford-Norwalk, Conn., area; San Francisco-Oakland; Seattle; and the New York metro area. Using a different ownership-to-rental methodology, Moody's Economy.com cites Oakland, Miami, Boston and Orlando as markets where housing remains overvalued.

Of course, the choice to buy or rent is often dictated by personal factors beyond cost. And every market has unique features that can tilt the equation. In Los Angeles, for example, the costs of property upkeep alone must be weighed, says Merabi. On a high-end property, gardening costs can run to $100 a week. Pool upkeep and maintenance can add another $100 to $125 a week, he says. That's nearly $1,000 a month beyond mortgage and property taxes.

Ownership Has Benefits

Home ownership does offer two major financial benefits: mortgage payments are tax-deductible and homeowners build up equity over time. And, temporarily, the home-buyer tax credit provides a big upfront inducement to buy a home.

But if prices drop after a home is purchased, it will take longer for owners to build equity. Current buyers in 21 markets — including San Jose, L.A., San Francisco and New York — cannot expect to have any positive equity by 2013, according to CEPR.