Hi Desert Real Estate Forum

As part of the Housing and Economic Recovery Act of 2008, a first time home buyer tax credit is now available. This special tax benefit expires 1 July of 2009. A similar tax credit has been available in Washington DC for some time, but now thanks to the Housing and Economic Recovery Act this benefit is now available to first time home buyers nationwide

To be eligible for this tax credit a home buyer must purchase a primary residence between 9 April 2008 and 1 July 2009. Also you (and your spouse, if married) must not have owned your principle residence during the 3 years preceding the purchase, nor can you have ever participated in the Washington DC program. There is also an income component of qualification; a single person with an adjusted gross income of $75,000 a year or less will qualify for a 10% of purchase price tax credit (up to$7,500). A married couple with a combined adjusted gross income of $150,000 or less per year will qualify for the same tax credit. The amount of the tax credit decreases as income increases and therefore is not available for single adjusted gross incomes over $95,000 per year or married couples with combined adjusted gross incomes of over $170,000 per year.

What does this credit mean to you? Let’s say you purchase a home for $200,000 earning the entire $7,500 credit. Let’s also assume that you would pay (without the credit) $2,000 in income tax for the same year. By utilizing this tax credit you would receive an overall tax return of $5,500.

There is always a catch. This tax credit must be repaid over a 15 year period. 2 years after the credit is claimed you must pay it back at the rate of $500 per year until paid off. Should you sell the house prior to the payoff then the balance must be paid at time of sale, unless the home is sold at a loss, then no repayment is required.

What is the benefit of this tax credit. In theory, money today is worth more than money will be in the future, therefore, taking the money now and paying it back with dollars that are worth less makes economic sense.

This tax credit is available on all single family residences located in the United States. Additionally, this credit is available with the purchase of condo’s, co-op’s and townhouses as well. This credit may not be used if the purchase is between family members or classified as a gift.

• Eliminate countertop clutter. A countertop covered with small appliances and utensils looks crowded, not spacious.
• Pack up the too-personal. Don't leave toiletries on the counter. Stash family photos.
• Be prepared for snoops. Prospective buyers pull open drawers, look in closets and peek behind the shower curtain.
• Make sure things work. Dripping faucets, burned-out light bulbs, and squeaking hinges detract from the home's appeal.
• Think "white-glove clean." Mop, dust, vacuum, clean baseboards, wash windows. Make sure the house looks fresh and smells neutral.
• Make sure the front door is clean and the hardware polished. Power-wash walkways.
• Store furniture that makes rooms feel crowded.
• Show every room for the kind of room it is. Maybe you've turned your formal dining room into a home office. Get rid of the desk and computer, and bring back the dining table and chairs.

Source: The Dallas Morning News (09/05/2008)

With the continued decrease in home prices, more and more potential sellers are resorting to renting their properties in attempt to mitigate their losses while waiting for market to rebound. For homeowners that are currently managing their own rental properties or for those who may be contemplating the move to landlord I have prepared a brief overview of security deposit handling. All information covered here has been taken from California Civil Code Section 1950.5

What is Security deposit? According to the Civil Code “Security” means payment, fee, deposit or charge, including but not limited to, any payment, fee, deposit, or charge that is imposed at the beginning of the tenancy to be used to reimburse the landlord for costs associated with processing a new tenant or that is imposed as an advance payment of rent used to remedy tenant default or to repair damages to premises.

How much security deposit can be required of a tenant? The answer to that depends on the type of unit being rented. If the rental unit is unfurnished then no more than an amount equal to 2 months rent may be retained. If the unit is furnished then the amount is no more than 3 months rent.

What can the security deposit be used for? There are many items that the security deposit can be used for, they include but are not limited to:

-Compensation of landlord for a tenant’s default in payment of rent.

-Repair of damages to premises caused by tenant or tenant’s guests. This DOES NOT include normal wear and tear during the tenancy.

-Cleaning the premises to return it to the same condition it was in the tenant took possession.

There are obviously more items on this list but these are the most common items deducted for the tenants security deposit.

What is the procedure for checking a tenant out, and returning their security deposit? Within a reasonable time after notification of either party’s interest in terminating the lease the landlord must notify the tenant in writing of their option to request an initial inspection of the property and the tenant’s right to be present at said inspection. This inspection is to occur at a mutually agreed upon time no sooner than 14 days prior to termination. The purpose of this inspection is to identify for the tenant discrepancies that will result in security deposit deductions at termination if not repaired/remedied. Once the inspection option has been elected by the tenant the landlord is required to give the tenant 48 hour written notice of the inspection (unless mutually waived at the time of inspection election by tenant).

Following the inspection the landlord must deliver to the tenant an itemized statement outlining cleaning, repairs, etc that are proposed to be the basis of security deposit deduction. This statement must be left with the tenant (if present at the inspection) or left inside the premises. The tenant then has the remaining time of the tenancy to remedy the deficiencies.

Note: items not visible at the time of inspection or damages occurring after the inspection are deductible by the landlord (for instance a stain under a couch would still have to be cleaned by tenant or the landlord could deduct for the damage).

What is the procedure for returning funds to the tenant? Within 21 days of termination the landlord is required to deliver to the tenant an itemized statement indicating the basis for and the amount of, any security received and the disposition of the security and shall return any remaining portion of the security to the tenant. Along with this itemized statement the landlord must also include copies of documents showing the charges incurred and deducted by the landlord for repair and cleaning of the premises. The type of document required differs depending on who does the work.

If all repairs cannot be completed in 21 days, the landlord may deduct the amount of a good faith estimate of the charges that will be incurred and provide that estimate with the itemized statement. Following completion of the repair the landlord must complete the requirements in the above paragraph within 14 days.

Keep in mind that this is a “brief” overview of the civil code which has numerous subsections and refers to at least 10 of codes and ordinances. There are exceptions to everything, so if you are a landlord or tenant and have further questions, you can consult the civil code by accessing http://www.leginfo.ca.gov/calaw.html or by contacting your attorney.

A team of economists who created a variety of forecasting models concludes that predictions of further large housing price declines are greatly overblown.

They point to the house price index of the Office of Federal Housing Enterprise as most reflective of reality. Its data reveals that only four states — Arizona, California, Florida, and Nevada — have had declines of more than 4 percent in home prices over the past year.

These economists, including professors from Columbia University and from the Center for Real Estate at Wichita State University in Kansas, discount more drastic figures from the Standard & Poor's/Case-Shiller housing price index. They say this index is faulty because it doesn’t include data from 13 states and offers only partial coverage of 29 others, making its results an inaccurate reflection of middle-market homeownership.

Using a model constructed from the OFHEO price index, foreclosures, home sales, permits and employment, the economic team concluded that declines in house prices are highly likely to remain small.

“Our analysis reveals, unsurprisingly, that foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of collapsing prices. Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states — but will not collapse.

“One reason for this is that the effect of foreclosure shocks on house prices is small. Furthermore, other fundamental factors (such as employment growth and a slowing of the growth of the housing supply over the past year and a half) will cushion the impact of foreclosures,” the economic team said.

Source: The Washington Post, Charles W. Calomiris, Stanley D. Longhofer and William Miles (08/04/08)

"Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission."

Former Federal Reserve officials and economists believe the central bank will hold short-term interest rates steady at least in August and September and that rates likely will not be raised until early 2009.

Recent reports on inflation have been dismal, but the central bank has also taken a tough stance in its language of late. The financial markets are more of a concern because of the problems at Fannie Mae and Freddie Mac, and the housing slump and tight credit conditions remain key economic issues for the Fed, analysts say.

"They need to see financial markets settled, some good growth numbers, or good employment numbers," says Mike Moran, chief economist at Daiwa Securities International in New York.

Source: MarketWatch, Greg Robb (07/28/08)

"Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission."

The U.S. Senate on Saturday passed a bill that would stem foreclosures by allowing some 400,000 home owners refinance into affordable, government-backed loans.

The bill, strongly supported by the NATIONAL ASSOCIATION OF REALTORS®, passed by a margin of 72-13. The House of Representatives approved the bill on Wednesday in a 272-15 vote.

"This bill must get to the president quickly, and we urge him to act immediately to sign it into law," NAR President Dick Gaylord said in a statement last week.

NAR says the bill will help bring stability to the housing market and put a dent in the rising rate of foreclosures.

The program will be run by the Federal Housing Administration, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can't be for more than 90 percent of a home's newly appraised value.

For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

Experts say the success of the program depends on how receptive banks are to writing down a portion of the loan.

If passed into law, the program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won't be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31 percent as of March 1.

Source: Associated Press, The Wall Street Journal, NAR

"Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission."

Under a California initiative aimed to help prospective homeowners with modest means, lenders including Wells Fargo, HomeEq, CitiMortgage, and Fannie Mae will price their foreclosed properties at 12 percent below market value.

The California Housing Finance Agency will offer 30-year loans at a fixed interest rate of 5.5 percent to first-time home buyers who purchase the foreclosed properties through the Community Stabilization Home Loan Program.

"This is a starting point to try to get some of these foreclosures off the market in some of the hardest-hit communities in the state," says Ken Giebel, marketing director for the California Housing Finance Agency. He expects more lenders to join the program.

Source: San Francisco Chronicle, Carolyn Said (07/22/08)

Copyright Info Inc.

"Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission."

Housing Market Outlook

On 2 July 2008 I was fortunate enough to attend a luncheon with Leslie Appleton-Young the Vice President and Chief Economist for the California Association of Realtors. She is an excellent speaker and the information she provided was timely and inspiring. Although we are by no means out of the woods regarding the current housing slump, she pointed to some key indicators that give us hope that there may be a light at the end of the tunnel.

I have spoken to many people in the last year who have stated that they are looking to buy, but are waiting for the market to bottom out. After listening to Leslie Appleton-Young, I believe that now may be the time for many prospective buyers to move forward. The following demonstrates that even though this may not be the bottom, it may very well be an excellent time to buy.

Inventory is decreasing – In the fall of 2007 there was 17 months of inventory on the California market, that number is currently 8 months inventory. The California average is between 6 and 7 months. If this trend continues we may see a more seller friendly market very soon.

Sales are improving – Through May of 2007 543 homes were sold year to date as opposed to 2008 where 898 homes were sold through May. Many buyers (first time and investors alike) are increasing their activity in the market. In fact, recent “good deals” brought to the market are receiving multiple offers and bidding wars reminiscent of 2005 are beginning to make a come back.

First time home buyer affordability has increased – In San Bernardino County, the housing affordability rate for first time home buyers was 44% (25% statewide) for the third quarter of 2007. In the first quarter of 2008 county wide affordability had reached 59% (45% statewide). With interest rates near historic lows, there may never be a better time to purchase your first home

The median home price in the high desert in May of 2007 was $313,547. By May of 2008 the median home priced had dropped 35% to $200,739. This indicator will begin to creep back up as the foreclosure market slows down in the future.

FHA returns to California – O.K. it really never left, it just wasn’t utilized often as many NINJA (No Income, No Job or Assets) loans were available to almost all buyers. With lenders tightening standards and actually requiring a down payment, the FHA loan with its 3% down payment is far more attractive.

So what do these numbers mean? The inventory decrease is based primarily on three factors. Fewer new homes are being constructed and added to the market. Many sellers (especially those who purchased during the “boom” period) are electing to remove their homes from the market and await better times. The decrease in prices (resulting in increased affordability) means that more homes are being sold and removed from the market. Of course, the increasing numbers of foreclosed properties are contributing significantly to the overall affordability numbers. The affordability increase means that many more people can now afford to buy a home leading to more competition for the “deals”

Bottom of the market???? I don’t know, but now may very well be the time to get into (or back into) the real estate market.

I hear this more and more from property owners, sales agents and property managers alike. It appears as though more and more “troubled” people are seeking illegal occupation of vacant rental and repossessed properties as a solution to their housing needs. What is the property owner or their agent supposed to do?

Calling local law enforcement seems to be the logical response. Unfortunately, more often than not you will be told that the illegal trespass and occupation of your property is a civil matter. What does this mean? The “tenant” has to be provided with the appropriate notice (3 day, 30 day, etc) to terminate the unlawful tenancy. Only after that time period has passed may the property owner/agent bring the unlawful detainer action against the “tenant”. This action allows for a period of response (varies depending on method of notice delivery). If the “tenant” happens to respond, then a court date must be set, of course the “tenant” will not show up and you will be given a writ of possession. This writ is filed with the County Sheriff’s office and a lockout date is set. Currently lockout out dates can be between 10-21 days for the time of filing. Finally you will receive your date and meet with the sheriff (and your locksmith) to take back possession of the property. So, you ask, how long does this process take? The average time from notice to lockout (if the “tenant” responds) is 70-90 days. So there you have it, up to 90 days of free lodging on the property owner’s dime. Manage to find 4 “available residences” and your housing needs are met for an entire year.

We cannot be upset with local law enforcement, because if your “tenant” is smart enough to say that there is an agreement (verbal or written) between them and you or states that they are paying rent, house sitting, guest of the last tenant, or any other number of “viable” excuses it becomes a civil issue.

Set to debut this year, FICO ’08 is the latest model for scoring lending risk from Fair Isaac, the industry‘s leading credit-rating firm. Experts are predicting that FICO ’08 could reduce default rates between 5 percent and 15 percent.

Here’s what to expect:

• The new scoring system will go easier on consumers with one credit misstep and harder on those with multiple credit dings.
   
• Authorized Users (AUs) are people with credit cards who are approved to make purchases but are not responsible for paying the balances. (A student authorized to use a parent’s credit card is an example of an AU.) Under current FICO scoring, the history of the credit card performance is reported on the AU’s credit record, thus influencing the score. But with FICO ’08, credit cards for which people have AU status will no longer influence their credit score. Therefore, AUs might consider changing their status on existing credit accounts from AU to Joint, or opening an account of their own to build their credit score.
   
• High credit balances will deduct more points under the new system. More than ever, it’s important to lower balances on revolving credit accounts.
   
• The new system will look favorably on consumers with various types of debt. For example, people with revolving and installment credit will fare better than those with nothing but revolving credit card debt.
   
• FICO scoring will still range from 300 to 850. Customers can get a free credit report at annualcreditreport.com.

For more information, visit fairisaac.com.