Give a Home for the Holidays

Tired of the offerings at the mall? Consider giving your children something grander, like the gift of a down payment to buy a home—or even a home itself. Uncle Sam encourages such generosity.
By: JUNE FLETCHER: WSJ.com
'Tis the season of giving. But if you're tired of the offerings at the mall, why not consider giving your children something grander, like the gift of a down payment to buy a home—or even a home itself?

Uncle Sam encourages such generosity, at least within limits (the IRS site has details). You and your spouse are each allowed to give gifts of $13,000 of money or property to as many people as you want, without triggering taxes for you or the recipients. If you give more than this amount to any one person, the excess counts, dollar for dollar, against your $1 million lifetime gift-tax exclusion ($2 million for married couples).

So if you and your spouse wanted to give $50,000 to your son for a down payment on a house, together you could gift him $26,000 this year, and $24,000 next year, tax-free.

This gift could help him qualify to buy a home before the federal government's tax credit stimulus expires early next summer. If the gift allows him to make a down payment of 20% or more of the sales price, he'd also avoid having to pay private mortgage insurance.

Or, if you are interested in selling your home to your child, you could gift some of the equity in the home rather than cash. Lenders usually will accept such a gift, but may require two appraisals to make sure that the home is really worth the sales price, and will ask you to sign an affidavit affirming that you are giving a gift and don't expect repayment.

Alternatively, you could finance your deposit-poor child's second mortgage. Then you and your spouse could each give $13,000 to your child, and an equivalent amount to the child's spouse, until the loan is paid off. Or you could transfer a percentage of interest in the property each year, up to $13,000 per person, until the property belongs to your child.

It may make sense to give more than the tax-free limit each year if you think you'll be subject to the estate tax, which kicks in for those worth more than $3.5 million when you die (or $7 million for married couples), according to San Diego certified public accountant Michael Fitzsimmons. That's because if you live more than three years after the date of the gift, any appreciation on the property, plus the original value of the gift, escapes estate taxes.

What if you want to gift a property that has decreased in value since you purchased it? Not so uncommon in these post-bubble times. If you own a rental property that has dropped in value, Mr. Fitzsimmons says that it's better to sell it and take a tax loss than to gift it, since neither a donor nor a recipient can deduct a tax loss on a decrease in value that happened before the date of the gift. Losses on primary and vacation homes are non-deductible.

And what if the mortgage on the property exceeds the home's current value? It's possible to give such a property away, but according to Jenkintown, Pa., certified public accountant Michael Solomon, most lenders wouldn't allow ownership to be transferred unless the recipient was in as good or better financial shape than the donor—and might also require that the donor remain on the mortgage. Meanwhile, if you're asked to take on a home that's underwater, remember that you can't return it if it doesn't fit your lifestyle. "Declining the gift does make sense," says Mr. Solomon.
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Sales of existing homes surge 10.1% in October

Even as builders pulled back their construction of new homes in October, buyers snapped up previously owned properties at the briskest pace in more than two years, a national organization said this morning.
By: Alejandro Lazo: latimes.com
The National Assn. of Realtors in Washington said sales of previously owned homes increased 10.1% to a seasonally adjusted annual rate of 6.1 million units in October from a downwardly revised pace of 5.54 million in September.
That is up 23.5% from the seasonally adjusted annual rate of 4.94 million units in October 2008. The last time the sales pace was that swift was in February 2007.

The buying - motivated by low interest rates, cheap housing and a credit for first-time buyers - pushed housing inventory at the end of October down 3.7% to 3.57 million existing homes available for sale, which represented a seven-month supply at the current sales pace, according to the Realtors group.

“The supply of homes on the market is now at the lowest level in over 2 1/2 years - we’re getting closer to a general balance between buyers and sellers,” Lawrence Yun, chief economist for the group, said in a statement.

The national median existing-home price for all housing types was $173,100 in October, down 7.1% from October 2008. Distressed properties accounted for 30% of sales in October.

In the West, which includes California, sales of previously owned homes increased 1.6% to an annual rate of 1.31 million in October and are 12% above a year ago. The median price in the West was $220,200, which is 14.7% below October 2008. It was the weakest performance for both sales and housing price improvement among the four national regions.

While a rush of first-time buyers to use the credit ahead of its initial Nov. 30 tax credit helped boost sales in October some economists are predicting a drop-off in sales in the winter months despite the credit’s extension and expansion earlier this month.

In a note to clients this morning Patrick Newport, U.S. economist for IHS Global Insight, predicted that given that the Mortgage Bankers Association's purchase Index - a measure of mortgage loan application volume - dropped to its lowest level in 12 years in its most recent release, a December sales plunge is likely.

“This surge may last one more month,” Newport wrote.
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New Tax Credits Benefit Both First Time Buyers and Current Homeowners

Closing deadline extended to June 30, repeat buyers offered up to $6,500
By: Annalisa Burgos: FrontDoor.com
First time homebuyers aren't the only ones who can claim a tax credit when they purchase a home. Now current homeowners can take advantage of the tax break too, if they qualify.

President Barack Obama signed into law a $24 billion economic stimulus bill on Friday, which includes an extension and expansion of the popular first time homebuyer tax credit. It was set to expire on Nov. 30. Prospective buyers now have until June 30, 2010, to close on their purchase and will need to submit documentation with their tax returns to claim the credit. The new program is estimated to cost $11 billion. Here are the details:

FIRST TIME BUYERS

Credit: Equal to 10 percent of the home's purchase price, up to $8,000

Who Qualifies:

    •Those who haven't owned property in the last three years

    •Those with income up to $225,000 for couples and $125,000 for individuals
     (credit phases out for people who make more than these amounts)

    •Must be at least 18 years of age to claim credit

    •Purchase price must be $800,000 or less

Deadlines:

    •Have until April 30, 2010, to enter into contract for a home purchase

    •Have until June 30, 2010, to close on the purchase

CURRENT HOMEOWNERS

Credit: Equal to 10 percent of the home's purchase price, up to $6,500

Who Qualifies:

    •Those who have owned and lived in their principal residence for at least five
     consecutive years during the past eight years

    •Those with income up to $225,000 for couples and $125,000 for individuals
     (credit phases out for people who make more than these amounts)

    •Must be at least 18 years of age to claim credit

    •Purchase price must be $800,000 or less

Deadlines:

    •Have until April 30, 2010, to enter into contract for a home purchase

    •Have until June 30, 2010, to close on the purchase

In addition, buyers have another year to take advantage of the higher loan limit for mortgages backed by the Federal Housing Administration, Fannie Mae or Freddie Mac - set at 125 percent of local median home sales prices, up to a maximum of $729,750 in high-cost housing markets. The limit in normal markets will remain $271,050 for FHA and $417,000 for Fannie Mae and Freddie Mac.

What this all means is that many more buyers qualify for a tax credit. So what are you waiting for? If you're even remotely considering buying a home, now's the time to do it. Don't let the first time buyers have all the fun.
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First-Time Homebuyers Buoy Real Estate Market

The housing market is getting a much-needed boost as first-time homebuyers rush to take advantage of an $8,000 federal tax credit that is set to expire Nov. 30, 2009.
By: David Bracken: RISMEDIA
The incentive is helping to slow the decline in home sales. In August, sales were down 1% over the comparable period last year, the smallest year-over-year decline in any month since late 2007. As Congress considers extending the credit, real-estate agents and home builders worry sales could slump again if it's allowed to expire.

A full accounting of the program’s popularity won’t be available for several months, but brokers say first-time buyers have been driving much of the activity in the market in recent months, especially for cheaper homes.

Kelly Cobb, a broker with Fonville Morisey Realty in Cary, North Carolina, said four of the six listings her office put under contract in the last month involved first-time buyers. Cobb said that as the deadline gets closer, she’s seeing more lower-end homes with multiple offers on them. “It has really, really fueled our market,” she said. “I think anybody who waited until now is going to pay top dollar.”

In order to qualify for the tax credit, a buyer must close on their property by Nov. 30. Brokers say in most cases that gives potential buyers about five more weeks to begin the closing process. The tax credit has been available since the start of the year, and for many families it has been too good to pass up. Terri Hutter and her husband, Fred Neumann, had been repaying credit-card debt and trying to build up savings in recent years. Hutter said the couple originally planned to continue renting for a year or two longer. “With that deadline I’m like, ‘Oh, let’s do it,’” said Hutter, who runs the culinary job training program for the Inter-Faith Food Shuttle. Hutter and Neumann expect to close Oct. 9 on a 1,360-square-foot home in Durham, N.C. The couple paid the listing price of $145,000 for the house and got a 30-year mortgage at a 4.875% interest rate.

Albert Blackmon and his fiancee, Rachel Blair also expected to wait a few years before buying a home. But Blackmon, who works as a Web developer in Apex, N.C., said the tax credit put buying a home within reach. The couple got a U.S. Department of Agriculture Rural Development loan with a 5% interest rate that required no money down. They paid $134,500 for a 1,250-square-foot home in Clayton, N.C. “We’re basically borrowing some money from some family members interest free, and when the credit comes back, we’re going to pay them right back and we have some instant equity in the house,” Blackmon said.

Those hoping to take advantage of the tax credit will need to have their financial house in order, as skittish lenders are closely scrutinizing a potential borrower’s credit and income history.

Tom Simon and his fiancee Tera Caldwell recently used the tax credit to purchase a home near downtown Raleigh. Simon admitted that getting financing was a long process, but he said that made him more confident that the couple could realistically afford the $193,000 house they ended up buying. Simon said the tax credit was not the deciding factor in the couple’s buying a home, but it did make them start seriously looking for a house sooner than they would have otherwise.

There’s still a chance that Congress could extend the tax credit in its current form or amend it. Some lawmakers worry about the program’s cost, which may hit an estimated $15 billion, more than double the amount projected in February’s economic stimulus bill, according to the Associated Press. Critics of the program also say it is artificially inflating demand at the expense of the taxpayer. “I would argue that it has the same effect of manipulating the real estate market that we’ve had with some other problems,” said Dallas Woodhouse, state director for the conservative group Americans for Prosperity. “There will be a day of reckoning for that.”

If the program is allowed to expire, real estate professionals will be watching closely to see what happens to home sales after it’s gone. George Pittman, CEO of Ammons Pittman GMAC Real Estate in Raleigh, said increased sales of lower-priced homes have not translated into more sales at the higher prices. Pittman said he would normally expect those selling $150,000 homes to then buy more expensive homes. “The thing we’re trying to figure out is why it is not snowballing up,” Pittman said. “It’s had some impact, but the upper end is still a bit soft right now.”

The tax credits have already had an effect on new home construction. As the inventory of modestly priced homes shrinks, builders are able to convince lenders that there is a need to replace them. The average cost of homes built in Wake County, N.C., was $165,000 in July, down from $195,000 during the same month a year ago, according the Home Builders Association of Raleigh-Wake County. There’s also been a spike in the number of building permits issued in Wake County in recent months. Tom Anhut, a division president in Raleigh for Toll Brothers home builders, said he believes the increase is a result of builders rushing to get homes finished by the end of November. “I think that there is a demonstrable increase in construction activity at the lower end right now because of that,” he said.

Tim Minton, executive vice president of the Home Builders Association of Raleigh-Wake County, said there’s no question the credit has helped stabilize a volatile market. “The question is, from a long-term standpoint, at some point that spigot does have to be turned off,” he said.
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Worried Mortgage Rates Will Rise? You Have Options

Prospective home buyers can protect themselves from an interest rate spike by investing in a mutual fund that tracks rates, or buying options on one of those funds, writes Brett Arends.
By: Brett Arends: WSJ.com
Good news for prospective home buyers: You can find 30-year mortgages for less than 5% again. But those rates may not last . And these days it's almost impossible to lock in a rate while you hunt for a home. Banks—for understandable reasons—now want to evaluate a property before pre-approving borrowers.

Mortgage rates have been falling in concert with sinking interest rates on long-term Treasury bonds. The two are closely related, through a complex mechanism involving mortgage-based securities. And if mortgage rates start rocketing again in the next few months, a rebound in long-term Treasury yields will likely be the cause.

People who worry that rates will spike again before they find a home can protect themselves by investing in a mutual fund that tracks long-term interest rates. Or they can buy call options on one of those funds instead. If Treasury rates suddenly skyrocket, you may make back what you would lose on the mortgage rates.

This may sound like some incredibly complex footwork, and most people will shy away from trying these moves. But considering the cost of even a slight rate change over the life of a mortgage, they're worth considering.

After all, if you're looking to buy a typical $200,000 home, a rise in mortgage rates from 5% to 6% will cost you an extra $1,300 a year for the next 30 years.

Several funds track long-term interest rates. Among them are two exchange-traded funds that you buy like shares on the stock market, the ProShares Short 20+ Year Treasury fund (TBF) and the ProShares UltraShort 20+ Year Treasury fund (TBT). There is also the Rydex Inverse Government Long Bond Strategy mutual fund (RYJUX). (Technically, these funds track the inverse of the price of long-term government bonds, which in turn is inversely related to the yield.)

These funds come with risks. The two exchange-traded funds, TBF and TBT, are specifically designed to track daily moves in the long-term bond market rather than long-term moves. The TBT is particularly volatile because it is what is known as an "Ultra" fund—it will give you double the market move, up or down. The drawback: If rates fall further while you are house hunting, you will save extra money on your mortgage —but you'd lose money on these funds.

That's why the options market looks especially interesting.

You can purchase call options on the TBT fund. These calls wager that the $4 billion fund will see a sharp rise in share price in the next few months, and could operate like a form of insurance if mortgage rates suddenly spike during your real-estate search.

Here's how it works: Today, with 30-year Treasury rates at just 4%, the TBT is about $44 a share. But for $1.20 a share you could buy a $50 call option on the fund, good for any time between now and January. That would simply give you the right to buy the TBT at $50 between then and now. So if long-term interest rates were to skyrocket over the next few months, and the TBT soared to, say, $60, you'd pocket a profit of $10 a share (less the $1.20 in costs for the option).

Because the TBT tracks daily performance, there is no absolute way of knowing what long-term Treasury rate would correspond to any given price on the TBT. But the fund was about $59 in June.

Issues like compliance and complexity probably deter most financial intermediaries from offering any such product. That's a shame, because an options hedge could be very useful to a lot of middle-class Americans.

No strategy can offer perfect protection against mortgage rates: it's a work-around, based upon derivatives of derivatives of the Treasury market. But anyone who thinks or fears that long-term interest rates will rise dramatically in the next few months might look at buying call options on the TBT.
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Real Estate Outlook: Recession is Over

Now it's official. The chairman of the Federal Reserve Board himself has said it publicly that it looks like the recession is over.
By: Kenneth R. Harney: RealtyTimes.com
Here comes the recovery.

But there was a big footnote in Bernanke's speech on the economy last week in Washington: Don't look for a dramatic recovery.

It'll be more like a slow moving, plodding sort of improvement where the economy inches toward expansion. But there'll be no sudden, splashy return to economic boomtime anytime soon.

Bernanke's point about the end of the recession was underscored by a 2.7 percent jump in retail sales for the month of August, according to the Commerce Department.

That's an important indicator because the key to pumping up the economy again is to get consumers spending, and that appears to be happening. Not just for auto sales, which got a big boost in August from the government's "cash for clunkers" program, but also for other key categories, like food and clothing purchases, department store retail, entertainment and restaurant spending, sporting goods.

They were all up for the month, after having been mainly down for well over a year.

One reason for the pick-up in consumer spending: People feel more confident about the direction of the economy in the months ahead. They see the stock market up, so their retirement funds and 401 K plans are bouncing back.

They see home values stabilizing or growing in most areas, so their equity is beginning to increase again.

The one big negative - and it's definitely a drag for housing - is the unemployment rate, which Mr. Bernanke said won't be coming down fast, even with the end of the recession.

Nonetheless, the vast majority of Americans who do have jobs have seen their real wages rise this year, up five percent. That's the largest annual gain in fifty years.

All of this is feeding into the housing sector in key markets, such as southern California, where August sales were up 11 percent compared with the year before, according to MDA DataQuick. Even prices are rising slightly.

In the combined markets of Los Angeles, San Diego, Orange County, San Bernadino-Riverside and Ventura, the median price of homes sold gained 2.6 percent in August, which is very encouraging for one of the hardest-hit boom-to-bust areas of the country.

Meanwhile, the mortgage market continues to be exceptionally positive for housing sales and values: 30 year fixed rates averaged just above 5 percent last week, according to the Mortgage Bankers Association, and 15 year loans averaged 4.4 percent.
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Housing Seems Set to Aid Economy a Bit

After facilitating the economy's downfall, the housing sector will soon start helping its recovery, though probably not by much.
By: MARK GONGLOFF: WSJ.com
Census Bureau data on August housing starts are due Thursday morning. Economists think starts rose 3.3% from June to an annualized rate of 600,000 units, the fastest pace since November 2008.

A tentative recovery in home construction might be enough to boost annualized gross-domestic-product growth by as much as 0.5 percentage point, according to some estimates, perhaps as soon as this quarter.

That would be an impressive turn of events. Collapsing residential construction slashed nearly one percentage point, on average, from GDP growth for the past 3½ years in a row.

That starts are gaining ground might seem quizzical, as there is still an oversupply of housing on the market, including a large "shadow" inventory of homes that will eventually enter foreclosure or that are being held off the market while their owners wait for prices to recover.

But many unsold homes might be too large for the first-time buyers that have boosted the market in recent months, spurred by government tax credits, suggests Ian Shepherdson, chief U.S. economist at High Frequency Economics. Home builders can make smaller houses to meet that demand.

Still, there are limits to how much activity is likely to be seen. Builders remain cautious. Though their sentiment has improved, it is still near record lows, according to the latest survey by the National Association of Home Builders.

August's expected gain would still leave starts down 29% from a year ago and down 74% from the 2.27 million-unit record pace set in January 2006, at the height of the bubble.

Goldman Sachs economists, weighing population growth, inventory and still-high home-vacancy rates, estimate there might be just 850,000 housing starts in 2010 - roughly the pace before the Lehman Brothers collapse a year ago.

That suggests there mightn't be much more juice in home-builder stocks. The Dow Jones U.S. Home Construction Total Stock Market Index has more than doubled from its November bottom and is near pre-Lehman levels.

It also suggests housing's contribution to GDP will be minimal.

Still, it's a start.
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Housing Starts in U.S. Climb to Nine-Month High

Builders in the U.S. broke ground in August on the most houses in nine months, led by a jump in multifamily dwellings that overshadowed a decrease in construction of single-family homes.
By: Bob Willis: Bloomberg.com
Housing starts rose 1.5 percent to an annual rate of 598,000, as anticipated, figures from the Commerce Department showed today in Washington.
Single-family projects dropped 3 percent, the first decrease since January, while work began on 25 percent more multifamily units, such as apartments.

Builders may be pulling back as the expiration of the government’s tax credit for first-time buyers nears. The incentive, plus foreclosure-driven declines in prices, helped boost sales in recent months, and companies may not want to be caught with excess supply should the program fail to be extended.

“These tax incentives often borrow from future sales and the pickup does not last,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “This does not throw the recovery idea into a tailspin, but the housing normalization will come at a slow, measured pace.”

Futures on the Standard & Poor’s 500 Stock Index were down 0.1 percent to 1,062.60 at 8:39 a.m. in New York after rising as much as 0.6 percent.

Jobless Claims

A separate report today from the Labor Department showed that the number of Americans filing first-time claims for jobless benefits fell unexpectedly last week, a sign the labor market is deteriorating at a slower pace as the economy pulls out of the recession.

Applications dropped by 12,000 to 545,000 in the week ended Sept. 12, from a revised 557,000 the week before. The total number of people collecting unemployment insurance rose the prior week.

Starts were projected to rise to a 598,000 annual pace from a 581,000 rate initially reported for July, according to the median forecast of 74 economists surveyed by Bloomberg News. Estimates ranged from 570,000 to 640,000.

Permits, a sign of future construction, climbed 2.7 percent to a 579,000 annual rate in August, also led by an increase in multifamily. They were projected to rise to 583,000, economists forecast.

Construction of single-family houses, which account for about 85 percent of the industry, fell 3 percent to a 479,000 rate, the first decline since January. Work on multi-family units, which make up the rest of the market and is often volatile, jumped 25 percent to a 119,000 rate.

Gains in Northeast

The increase in starts was led by a 24 percent increase in the Northeast. They rose 0.9 percent in the Midwest, and fell 2.4 percent in the South. The West was little changed.

Volatility in multifamily projects has obscured the underlying improvement in residential building. Construction of apartments and condominiums surged 56 percent in May only to slump by 21 percent and 15 percent the next two months.

Americans are taking advantage of the Obama administration’s $8,000 tax credits for first-time buyers that expires at the end of November. Those with jobs, cash to make down payments and good credit scores are picking up bargains as record foreclosures have driven down home prices by about 32 percent from their peaks in mid-2006, according to the S&P/Case- Shiller index.

Combined sales of new and existing homes rose in the four months though July.

A report yesterday showed gains in sales and buyer traffic pushed builder confidence this month to its highest level since May 2008.

Toll Brothers

Luxury builder Toll Brothers Inc. is among companies that see demand improving, even as losses mount.

“In the last six months, we see a pretty significant change in some markets,” Chief Executive Officer Robert Toll said in an interview Aug. 27 with Bloomberg Television. “People are now concerned with missing the market.”
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L.A. Buyers Flock to Low-End and Luxury Homes

L.A. homebuyers went to extremes in August, boosting sales in the high- and low-price ranges.
HOUSING: August sales up 45 percent year to year and 5 percent from July.
By: HOWARD FINE: Los Angeles Business Journal.com
People are buying homes again in L.A. County, and not just cheap foreclosed properties: They’re buying at the upper end, too.

Convinced that prices are near the bottom, and drawn by low interest rates and impending deadlines for federal and state tax credits, first-time homebuyers and bargain hunters continued their return to the market, often getting into bidding wars over foreclosed and bargain-rate properties, especially condominiums.

Meanwhile, banks have finally eased the reins a bit for jumbo loans, allowing buyers to step in at the upper end, boosting sales in luxury areas like Calabasas, Manhattan Beach and Palos Verdes Estates.

These trends are evident in the August new and existing residential sales data for Los Angeles County from HomeData Corp. of Hicksville, N.Y. Home sales jumped 45 percent from August 2008 and August 2009, and were even up 5 percent from July levels.

Meanwhile, the median home price held steady at $330,000 between July and August. Also noteworthy: The rate of year-over-year decline is slowing: Between August 2008 and August 2009, the price dropped 18 percent, compared with a 30 percent drop between August 2007 and August 2008.

“We’re either at or near the bottom,” said economist Chris Thornberg, a principal with Beacon Economics in West Los Angeles and a close observer of L.A.’s real estate markets.

The biggest beneficiary has been the condo market, where sales surged 55 percent between August 2008 and August 2009.

What’s more, condo prices posted a 7 percent gain between July and August, hitting $320,000, the highest level since November. The August numbers show a 16 percent decline in year-over-year condo prices.

A federal tax credit of up to $8,000 for first-time homebuyers runs through November, while a state tax credit of up to $10,000 just expired this past week for purchases of new homes and condominiums. These credits – combined with mortgage interest rates in the 4 percent to 5 percent range for 30-year fixed-rate loans less than $417,000 – have spurred many buyers who had been sitting on the sidelines during the housing market meltdown.

This has boosted sales in the county’s urban core, with communities such as El Sereno and Exposition Park recording year-over-year sales jumps of 200 percent or more. Many of the county’s suburban markets, including Mission Hills, Pomona and West Covina, saw sales volumes double between August 2008 and August 2009.

Yet sales are also hopping in many areas at the opposite end of the price spectrum. Several ZIP codes with median home prices exceeding $1 million saw their sales volumes increase by more than 100 percent over the past year, including areas of Calabasas, the Hollywood Hills, Manhattan Beach and Palos Verdes Estates.

“The prices have finally dropped enough to where buyers are stepping in and the banks are doing better at making loans,” said Syd Leibovitch, owner of Rodeo Realty in Beverly Hills.

Leibovitch said few banks were making jumbo loans of more than $730,000 earlier this year, and the few that were required down payments of 50 percent or more and were charging interest rates of 8 percent or 9 percent.

“Now, with the price coming down and the interest rates more like 5.5 percent, a home that was on the market for $3 million six months ago is now being sold for, say, $2.2 million,” he said.

Tightening supply

In Manhattan Beach, tightening supply is also an issue. Six months ago, there were seven months’ worth of unsold homes on the market. Today, that figure has been cut in half, said Steve Goddard, broker-manager for ReMax Marquee Partners in Manhattan Beach and president-elect of the California Association of Realtors.

In Long Beach, the supply of residential units is so tight that one brokerage house has started sending out mailers to see if residents would be willing to sell their homes.

“We’re actually doing mailings into certain areas of Long Beach inquiring if anyone is looking to sell,” said Phil Jones, managing partner of the Coldwell Banker Coastal Alliance, which has three offices in Long Beach. “This has been very surprising; a few months ago, we would never have dreamed of this situation.”

Yet despite all these encouraging signs, few are willing to say the local housing market is in recovery mode.

“The real estate market is now bouncing along the bottom,” Goddard said.

Looming over everything is the huge number of foreclosures, both current and expected. As has been the case for the past year, many of the bargain properties now on the market are foreclosures.

But nearly everyone expects thousands of new foreclosures to be dumped into the L.A. market in coming months now that a federal moratorium on foreclosures has been lifted.

“This halting, temporary recovery we’re seeing right now could be cut short by future foreclosures coming onto the market,” said Joe Breckner, sales associate with Coldwell Banker of Studio City.

Also in question is the impact that the expiration of the federal tax credit for first-time homebuyers in November will have on the market.

“It’s like the Cash for Clunkers program,” said Stephen Cauley, director of research at the Ziman Center for Real Estate at UCLA. “It was very good while it lasted, but what it ended up doing was stealing sales from the future.”
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Yes, the Housing Market Has Rarely Looked Better

Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views.
By: JAMES B. STEWART: WSJ.com
During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver's salary, let alone something that nice.

Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.

In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There's no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you've been sitting on the fence, it's time to act.

Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than now.

In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.

Unless you're really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.

There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.

But there's a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.

James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about.
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U.S. Housing May Be Turning Around, Shiller Says (Update1)

An improvement in home prices suggests the U.S. property market may be recovering, said Robert Shiller, a professor of economics at Yale University in New Haven, Connecticut.
By: Vincent Del Giudice: Bloomberg.com
“We might be seeing a turnaround,” Shiller said today in an interview on Bloomberg Radio and Bloomberg Television. “I say ‘might’ because there’s still a pretty weak economy out there.”

Shiller is co-creator of the S&P/Case-Shiller home-price index, which fell 15.4 percent in June from a year earlier, the smallest decline since April 2008. On a month-over-month basis, the index rose by the most in four years. The report was issued yesterday.

The month-over-month increase in home prices is “quite striking,” Shiller said. “The sense that something is changing is definitely in the air.”

Speaking about the broader economy, “recessions are generally ‘V’ shaped,” Shiller said. “Probably something like that will happen again,” even though a “disappointing recovery” is possible, he said.

The longest economic contraction since the end of World War II has claimed 6.7 million jobs since December 2007. Stocks are “a tad overpriced by historical standards,” Shiller said. The Standard & Poor’s 500 Index has surged about 51 percent from a 12-year low on March 9.
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Positive Signs: Home Prices on an Upswing in Second Quarter 2009

Data through June 2009, released by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index improved in the second quarter of 2009.
RISMEDIA
The S&P/Case-Shiller U.S. National Home Price Index- which covers all nine U.S. census divisions- recorded a 14.9% decline in the 2nd quarter of 2009 versus the 2nd quarter of 2008. While still a substantial negative annual rate of return, this is an improvement over the record decline of 19.1% reported in the 1st quarter of the year. The 10-City and 20-City Composites recorded annual declines of 15.1% and 15.4%, respectively. These are also improvements from their recent respective record losses of -19.4% and -19.1%.

“For the second month in a row, we’re seeing some positive signs,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The U.S. National Composite rose in the 2nd quarter compared to the 1st quarter of 2009. This is the first time we have seen a positive quarter-over-quarter print in three years. Both the 10-City and 20-City Composites posted monthly increases, as did most of the cities. As seen in both seasonally adjusted and unadjusted data, there are hints of an upward turn from a bottom. However, some of the hardest hit cities, especially in the Sun Belt, show continued weakness.”

As of the 2nd quarter of 2009, average home prices across the United States are at similar levels to what they were in early 2003. From the peak in the second quarter of 2006, average home prices are down 30.2%.

The 10-City and 20-City Composites posted their second consecutive monthly increases. Both indices were up 1.4% in June over May, and up 0.5% in May over April. Eighteen of the 20 metro areas saw improvement in their annual returns compared to those of May. Looking at the monthly data, the same 18 metro areas reported positive returns in June.

In spite of the recent positive data, the overall numbers remain weak, with all metro areas and the two composites posting negative annual returns, and 15 out of the 20 metro areas reporting double digit annual declines. While not alone, Las Vegas and Detroit continue to be two markets that are struggling severely. These are the only two markets that fell in June and saw deterioration in their annual rates of return. Since their relative peaks they have fallen 54.3% and 45.3%, respectively.

More upbeat news is seen in the monthly data across other markets; Dallas and Denver have reported four consecutive months of positive returns. In addition to the two composites, 13 of the MSAs reported positive monthly returns for June that were greater than +1.0%.

The table below summarizes the results for June 2009. The S&P/Case-Shiller Home Price Indices are revised for the 24 prior months, based on the receipt of additional source data.

2009 Q2 2009 Q2/2009 Q1 2009 Q1/2008 Q4 1-Year
Level Change (%) Change (%) Change (%)
U.S. National
Index 132.64 2.9% -7.4% -14.9%
June 2009 June/May May/April 1-Year
Metropolitan Level Change (%) Change (%) Change (%)
Area
Atlanta 107.52 1.5% 0.5% -13.7%
Boston 152.71 2.6% 1.6% -5.9%
Charlotte 120.66 0.7% 0.9% -9.6%
Chicago 124.99 1.1% 1.1% -16.7%
Cleveland 106.38 4.2% 4.1% -3.0%
Dallas 119.68 2.7% 1.9% -2.2%
Denver 126.92 2.5% 1.3% -3.6%
Detroit 69.49 -0.8% 0.2% -25.0%
Las Vegas 107.31 -2.0% -2.6% -32.4%
Los Angeles 160.90 1.1% -0.1% -17.8%
Miami 145.37 0.5% -0.8% -23.4%
Minneapolis 113.48 3.1% 1.1% -19.8%
New York 171.49 0.4% 0.2% -11.9%
Phoenix 104.73 1.1% -0.9% -31.6%
Portland 148.47 1.0% 0.1% -15.2%
San Diego 147.31 1.6% 0.4% -16.0%
San Francisco 124.70 3.8% 1.4% -22.0%
Seattle 149.53 0.4% -0.3% -16.1%
Tampa 140.90 0.4% 0.0% -19.5%
Washington 174.32 2.8% 1.3% -11.8%
Composite-10 153.20 1.4% 0.5% -15.1%
Composite-20 141.86 1.4% 0.5% -15.4%
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.California Existing-Home Sales Up 12% in July

Sales of existing single-family homes in California increased 12% in July from the same time a year ago, as the state’s median price rose for the fifth straight month.
By: Jim Carlton: WSJ.com
Sales increased to 553,910 on a seasonally adjusted, annualized basis from a revised sales pace of 494,390 in July 2008, according to a report released Tuesday by the California Association of Realtors. The inventory of unsold houses continued to drop, to 3.9 months supply in July from 6.9 months at the same time a year ago.

Median prices were off 19.6% from July 2008 to $285,480, but were up 3.9% from June—continuing a string of back-to-back sequential price increases that began in March. Officials with the Realtors’ group credited first-time buyers for much of the buying volume, helping the under-$500,000 segment of the market to jump to include 74% of statewide sales from 43% when the California housing market went into a slump two years ago.

Few experts say California’s housing market is out of the woods, though. One threat is the prospect of more foreclosures flooding the market, as the state struggles with an unemployment rate of 11.9% as of July.

And Realtors’ officials say they are concerned sales have become overly tied to first-time buyers and a federal tax credit they have used for their purchases. Indeed, James Liptak, president of the association, said nearly 40% of first-time buyers said they would not have purchased a home without the tax credit, and called for Congress to extend it beyond a Dec. 1 deadline as well as open it up to all buyers, not just first-timers.

Leslie Appleton-Young, chief economist of the association, said the high end of the California market remains soft with weak sales and prices as credit remains tight for jumbo loans.
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Start house-hunting now to qualify for tax credit for first-time home buyers

First-time home buyers had better get a move on if they hope to take advantage of the $8,000 federal tax credit.
By: Lew Sichelman: latimes.com
The window of opportunity is closing rapidly.

To qualify for the credit, any transaction involving a first-time buyer must close before midnight Nov. 30, when the valuable tax benefit expires. And because the buying and lending processes can be slow, you're going to need every bit of that time to close escrow.

Although the end of November might seem a long way off, Diane Dilzell, president of the New Jersey Assn. of Realtors, rightly points out that it takes weeks, if not months, to manage the logistics involved in a real estate transaction. It's also important to realize that any of a number of things can go haywire along the way.

"Unique circumstances can be encountered in any transaction, so it is important to account for those factors," said Dilzell, a broker at Pinnacle Realtors in Bedminster, N.J. "Since numerous third parties are involved, delays can be expected no matter how swiftly you act."

Another complicating factor: closed offices during the Thanksgiving holiday. With Thanksgiving this year falling on Nov. 26, that removes four days right before the deadline.

Undoubtedly, some escrow agents will scrap vacation plans to handle what is expected to be a crush of settlements. But that highlights yet another potential pitfall: There may be so many buyers trying to close at the last minute that there might not be enough room for them all.

Moreover, if you're banking on Congress to extend the tax credit or possibly even expand it, the odds are against you, at least right now.

Even though there's always a chance that lawmakers will do the unexpected, House and Senate leaders have said they will not take up any expiring provisions until they have completed work on healthcare-reform legislation. Moreover, with many signs indicating that the moribund market is starting to awaken, many legislators might decide that housing no longer needs a shot in the arm.

And don't expect to sneak a Dec. 1 closing past the Internal Revenue Service either. That's fraud, and the nation's tax collector has any number of sophisticated screening tools to quickly identify returns that may contain fraudulent claims.

What's more, the IRS has vowed to go after taxpayers who try to pull a fast one. "We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction," says Eileen Mayer, the agency's chief criminal investigator.

Buyers with specific questions about the tax credit should consult with a qualified tax advisor. But here's a brief rundown of the rules.

A first-timer is defined as anyone who has not owned a principal residence during the three years immediately before the purchase. The house doesn't qualify for the credit, though, if the buyer sells it before the end of the year.

Vacation homes and investment properties do not qualify; only main residences, new or resale, which can be a single-family house, town house, condominium, manufactured (or mobile) home or even a houseboat. If you hire a contractor to build the house rather than buy from a builder, the house is still treated as having been purchased.

Purchases must be arm's-length transactions. The seller cannot be a parent, grandparent, child, grandchild or spouse. Legal residents who file U.S. tax returns qualify for the credit, but those who are undocumented immigrants or nonresidents do not.

Married people filing as such cannot claim the credit if either spouse has owned a main residence within the last three years, but unmarried joint purchasers - say, a parent and his son - may allocate the credit in any way they see fit as long as it does not exceed the $8,000 maximum.

Speaking of maximum, the tax credit is equal to 10% of the purchase price up to $8,000. But there are income limits. For single taxpayers, the ceiling is $75,000; for married taxpayers filing jointly, it is $150,000. For those with modified adjusted gross incomes above those limits, the tax credit is reduced on a sliding-scale basis to zero when the income exceeds $95,000 for single payers and $170,000 for married payers.

To assist would-be buyers who need help with down-payment and closing costs, the government will allow those who finance their purchases with a federally insured loan to apply their anticipated credit immediately toward the transaction rather than waiting until they file their 2009 taxes to receive a refund.

Under guidelines announced by the Federal Housing Administration, nonprofits and FHA-approved lenders are permitted to make short-term loans to qualified borrowers in the amount they would otherwise receive as a refund.

The law permits taxpayers to treat purchases that take place this year as though they occurred on Dec. 31, 2008. You can apply the tax credit against your 2008 return if that will bring you the largest credit amount (depending on your modified adjusted gross income). To do so, you must file an amended return for 2008.
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