Fiscal Cliff Impacts on Housing

With 3 weeks left in the year 2012, the government has yet to reach an agreement to avoid the negative effects of the so-called "fiscal cliff". Without a fiscal cliff barrier, households might have to pay thousands of dollars extra taxes.

According to Investopedia, "fiscal cliff" means a combination of expiring tax cuts and across-the board government spending cuts scheduled to become effective by December 31, 2012. 

In 2010, the government has extended the George W Bush era tax cuts for 2 years. It means that tax breaks on income, capital gains, dividends and estates will come to an end by 31st of December this year. If you remember, in 2011, the government has set up $1.2 trillion in spending cuts to occur within a span of 9 years, starting January 2013.  Last year, they extended a two percentage point reduction in the payroll tax until December 31.

If the fiscal cliff proceeds as planned, there will be a MAJOR impact on our rather already shaky economy which might include going back to official recession; cut in household incomes; increased in unemployment rates and decreased in consumer and investor confidence. 

Lawrence Yun, chief economist of the National Association of Realtors (NAR) says, "If the cliff was to be realized come January 1st and we do go into a recession, job losses could hamper the housing recovery."  "The stability of people's jobs does impact their confidence to spend moving forward," adds Mark Cole, executive vice president of CredAbility, an Atlanta, Ga.-based non-profit that offers credit and housing counseling services. Cole says American families are hesitant about taking on a new debt. They would rather choose home rentals over home purchases. There will be a continuous growth on the booming rental market if the government will fail to find a resolution on the "fiscal cliff". According to NAR, rents are expected to increase an average of 4% in 2013.

Barry Hersh, a professor at New York University's Schack Institute of Real Estate notes that the commercial real estate will also suffer, since retail and office space are directly impacted by the consumer's spending.

Republicans want to cut spending to avoid raising taxes, while Democrats want a combination of tax cuts and tax increases.  Both have agreed that any resolution will include increased revenue but they disagree on where the revenue will come from.

In a Bloomberg article dated December 4, 2012, President Obama wants $1.6 trillion in tax increases over the next decade. He has proposed $600 billion in spending cuts, about $350 billion of which would come from health-care programs. He also counts the $1 trillion in spending cuts Congress passed in 2011, $800 billion in savings from winding down the wars in Iraq and Afghanistan and $600 billion in interest savings, according to senior administration officials. Leaving aside the administration’s call for measures to boost short-term economic growth, which could take the form of tax cuts or spending increases, this would result in $2.4 trillion in spending cuts and $1.6 trillion in higher taxes.

Without the resolution, short-term fiscal cliff impact on the economy will be avoided. The policies from 2012 will be continued. The extension of Bush-era tax cuts will still take effect; the automatic spending cuts will be revoked; the Medicare reimbursement rates will be kept at the current rate.  However, the public debt rises from 69% in 2011 to 100% by year 2021. 

Waiver for "90-day Anti-Flipping" Rule Extended Until 2014

FHA has extended the temporary waiver for "90-day anti-flipping" rule until 2014.

In 2003, FHA had imposed the 90-day standard holding rule for properties to avoid fraud by teams of mortgage loan officers, realtors, and appraisers. The flips (or selling the properties in less than 90 days for a profit) resulted to significant losses to FHA's insurance fund. 

Starting 2010, FHA has waived the "90-day anti-flipping" rule and has been extending it annually since 2011. For this year, the agency has opted for 2-years extension. FHA says that they have made the 2-year term extension in order "to provide greater levels of certainty" for the lenders and buyers.  The waiver will allow the sellers to resell their properties quicker.  FHA firmly believes that the waiver will result to stability in real estate prices. According to FHA records, the agency has successfully insured mortgages on 62,250 homes worth $11 billion, where the seller had held the property for less than 90 days.

Among the key requirements that will continue during the latest waiver: (Source: fha.gov)

All transactions must be arm's-length, with no identity interest between the buyer and seller or other participants. Lenders are required to ensure that the seller actually holds title to the property. (In earlier flipping schemes, buy-sell transactions sometimes moved so fast that the seller never acquired legal title.) There should be no "pattern" of previous flips of the property during the 12 months preceding the transaction.

In cases where the sales price of the resold property is more than 20 percent more than what the seller paid for it, there must be documentation showing the renovations and repairs that justify the markedly higher resale price. A second appraisal may be used to substantiate the increase in value, but the second appraiser must be selected from FHA's roster. When no significant renovations occur and the price is 20 percent higher than acquisition, the appraiser must provide "appropriate explanation" for the sudden increase.

Inspections are required of all the key components of the building structure and systems when price jumps exceed 20 percent. The inspection report must be provided to the purchaser before closing. If the inspection reveals structural or "health and safety" defects, repairs must be completed before the closing and a final inspection performed to ensure that the repairs have been made.

The new extension of the "90-day anti-flipping" rule will definitely benefit the single-family investors! This is because the longer a home is held, the more expensive it is to the investor, so investors aim to sell the properties at the shortest possible time.  If you are interested in investing in real estate, please visit www.anchoragehomedeals.com.

Selling Your Home During the Holidays

 The holiday season is definitely the busiest time of the year! There are gatherings left and right. Families are travelling together to visit loved ones. Children are back from school for the holidays. 

Many sellers take their homes off the market during Christmas and New Year to enjoy the holiday season. Taking the home off the market will allow the owners to use the house as a venue for parties and family gatherings.

Selling a home during the holidays can be challenging. There must be a balance between family time, showings and open houses.  Many sellers do not realize that Realtors and buyers are happy to schedule a showing around parties and family gatherings at this time of the year.

If your home is for sale, consider allowing other family members to host your family gatherings, so your house will be available for showings. You can also plan a family activity while your home is being shown. Maybe watch a holiday movie or get an ice cream or a yogurt. 

Homes can be more attractive during the holidays. It doesn't have to be over the top decoration, maybe a basket of candy canes near the door, holiday background music or just a simple light displays to window areas can make a simple house look very beautiful. Christmas trees, wrapped presents, candles can add a nice touch but it should be kept minimal and elegant.  If you are unsure on how to decorate your home, you may refer to home decor magazines for pictures and examples.

Great photos are the key to catch the eye of the potential buyer.  Take some photos with your holiday decorations but also make sure to include photos without the decorations. This will allow the buyer to imagine how their future home would look like after the holiday season.

The best part about selling during the holiday season is that there is less competition. While other sellers took their homes off the market during the holidays, your home will be the most attractive home on the block.  The holiday season can be a wonderful time for families, but with few compromises, you can make a sale during the busiest time of the year.

President Obama on 2nd Term

President Obama has been re-elected president. What does this mean for the housing market?

When Obama stepped in as the US President in 2008, home prices were crashing, foreclosures were on record high. Former President Bush had just initiated the bailout of Fannie Mae and Freddie Mac, the government-backed entities that agree to repay mortgages in the event that the original borrower fails to pay their obligations.

With the housing market suffering, the Obama administration placed several housing policies to help homeowners from going under.  After four years in office, the US housing economy has yet to recover. 

One of the things that is standing in the way of full housing recovery is tight credit.  Mortgage rates are at historic lows, but there are too many potential home buyers that are not able to take advantage of these low rates because of damaged credit.

President Obama didn't tackle the issue of housing during his campaign. With that being said, Fannie Mae and Freddie Mac are expected to remain through the mid-term elections in 2015. 

David Stevens, President and CEO of the Mortgage Bankers Association said that the MBA is asking President Obama to appoint a federal housing policy coordinator who can make sure that there will be a better communication between federal and regulatory agencies to effectively implement different housing policies beneficial to home owners. (Source: www.cnbc.com)

As for millions of underwater borrowers, the Obama administration has consistently said it wants to extend mortgage refinancing to take advantage of today’s record low rates. (Source: www.cnbc.com)

Real Estate As An Alternative Investment

The term "alternative investments" has been popular the last few years. This trend began when investors started looking for others ways to invest their dollars without using the traditional route of equity market.  Equities are too volatile in the current setting that investors try to avoid playing in that market.

What does an investor do when the equity market becomes too risky? The answer could be to invest in alternatives. Alternatives come in many forms. They can be commodities or real estate.  Real estate is the area where most people are familiar with, so most people are likely to invest in real estate. 

Investing in real estate holds certain benefits such as additional income (in the form of rental income), tax benefit and some stability. 

The question is when do you invest in real estate? Like anything else, hit it when it's cheap. Real estate is cheap when demand is down, and demand is down when economy is weak. While the economy is weak, real estate is less expensive and interest rates are low. If you decide to buy now, you can lock in low rate mortgage loan. Real estate generally goes up in value. In my opinion, now is a good time to invest in real estate.

Making a real estate investment is pretty straightforward. You look for a piece of property in a prime location, and if possible, with minimum to no remodeling required, get a mortgage from the bank, pay the closing fees and you're done! You are a Real Estate Investor! But no investments are successful unless you put in time and effort. Make sure to do your homework and calculations before investing in Real Estate. 

Rentals are great options for investing, it provides you with a secondary income without too much effort on your end. (Well, except for the regular maintenance of your rental) Or you can invest on a vacation home. You can use it for your own personal use or you can rent it out during the summer where tourists are visiting our great State, Alaska. Just advertise it on Craigslist and I'm sure someone will rent it.

In a whole, Real Estate as an alternative investment could be a good addition to your portfolio. However, make sure that you pay attention to the details, if you cannot take the time to learn the details, consult with an expert Realtor who knows the real estate market.  There is a lot of things you need to know, but the benefits could be worth your time and effort.  If you need some advice in real estate investing, please don't hesitate to contact me.

Prepare for Higher Capital Gains Tax Part 2/2

PART 2: EXAMPLES (Source: Wall Street Journal)

EXAMPLE 1 

A married couple filing jointly has $400,000 of adjusted gross income — $240,000 of wages plus $160,000 of investment income composed of interest, dividends and net gains from the sale of raw land. Because they have $150,000 of investment income above the $250,000 threshold, they would owe an extra 3.8% of that amount, or $5,700, in tax. 

EXAMPLE 2 

A retired couple filing jointly has no wages but does have taxable IRA payouts of $100,000, plus pension and Social Security payments totaling $60,000. They also have dividends and taxable interest of $40,000, plus $40,000 from the sale of two investments. They owe nothing, because their income is below the $250,000 threshold.

EXAMPLE 3

A single taxpayer earns $60,000 of wages but nets a windfall of $180,000 from the sale of a long-held investment. Because she has $40,000 of investment income above $200,000, she owes $1,520 of extra tax. 

EXAMPLE 4

A single taxpayer has income of $220,000, but all of it comes from Social Security benefits and pension and regular IRA payouts. None of the income is subject to the 3.8% tax. 

EXAMPLE 5

A couple bought a residence long ago for $100,000. In 2013, when they have wages of $100,000, they sell the home for $1.5 million.  After subtracting the $100,000 cost of the home and the $500,000 exclusion they have investment income of $900,000. That plus their wages puts them $750,000 over the $250,000 AGI limit, and they would owe $28,500 in extra tax. 

EXAMPLE 6 

A single person bought a house many years ago for $50,000 and sells it for $350,000 next year, after subtracting the $50,000 cost and the $250,000 exclusion, the investment income is $50,000. If this taxpayer has $150,000 or less of other income, no extra tax will be owed. But if he earns $150,000 of wages and has $20,000 of dividends and interest, then he would owe extra tax on $20,000, or $760. 

The new tax imposition will greatly affect your final income.  Experts are advising all home owners to make a move this year to avoid the new 3.8% surtax. If you are planning to sell in the future, it's better to do it this year!!!

Prepare for Higher Capital Gains Tax Part 1

Starting January 1, 2013, the government will impose a new 3.8% surtax on some investment income. The new investment tax will help generate an estimated $210 Billion that will help fund President Obama's health care and Medicare overhaul plans. 

The new tax levy applies to married couples with adjusted gross income of more than $250,000 and single filers with adjusted gross income above $200,000.

Adjusted Gross Income or AGI includes interest, dividends, capital gains, wages and retirement income plus results from partnerships and small businesses.

Investment Income applies to dividends, rents (less expenses), royalties, interest, except municipal-bond interest, short-and long term capital gains (less capital losses); the taxable portion of annuity payments; income from the sale of a principal above the $250,000/$500,000

exclusion; a net gain from the sale of a second home; and passive income from a real estate and investments - if a taxpayer does not participate, such as a partnership.  (Source: www.smartmoney.com)

Watch out for Part 2 for sample computations of the new 3.8% surtax on some investment income on different scenarios.