Mortgage applications increased 9.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 3, 2016. Results include an adjustment to account for the Memorial Day holiday.
The Market Composite Index, a measure of mortgage loan application volume, increased 9.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 13 percent compared with the previous week. The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 12 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 6 percent lower than the same week one year ago.
The refinance share of mortgage activity decreased to 53.8 percent of total applications from 54.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 5.0 percent of total applications.
The FHA share of total applications increased to 13.0 percent from 12.5 percent the week prior. The VA share of total applications decreased to 11.5 percent from 12.0 percent the week prior. The USDA share of total applications remained unchanged from 0.7 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.83 percent from 3.85 percent, with points decreasing to 0.33 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from the last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) remained unchanged at 3.81 percent, with points decreasing to 0.25 from 0.35 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from the last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.71 percent from 3.65 percent, with points decreasing to 0.23 from 0.26 (including the origination fee) for 80 percent LTV loans. The effective rate increased from the last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.11 percent from 3.12 percent, with points decreasing to 0.35 from 0.40 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from the week prior.
The average contract interest rate for 5/1 ARMs decreased to 2.96 percent from 3.00 percent, with points decreasing to 0.29 from 0.44 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from the last week.
Real Estate Reginal News:
Home buyer dreams deferred: Aspiring owners put the brakes (mildly, at least) on the torrid pace of buying in January, according to the latest report on pending home sales. But one area in the U.S. still seems to be going stronger than ever: the South.
The number of houses across the nation under contract for sale (which hadn’t closed yet) dipped 2.5%, in January from December, but was still up 1.4% year over year, according to Monday’s report by the National Association of Realtors®. The report counted only existing homes, and not newly constructed residences.
“There’s several factors that have caused the slowdown, including the stock market decline and even the weather,” says Jonathan Smoke, chief economist of realtor.com®, alluding to Winter Storm Jonas. But “the biggest issue is the limited [number of] homes for sale. [Buyers] haven’t been able to find homes that meet their needs or their budgets.”
But he’s optimistic that the pace of homes going into contract will soon pick up again.
NAR predicts that about 5.38 million existing homes will be sold in 2016, up 2.5% from last year. Meanwhile, the median price of those homes is expected to jump 4% to 5%. (Not such good news for home buyers, although it’s smaller than the 6.8% median price hike of 2015.)
And then there’s the Southeast—the only area in the country to actually see monthlygains, with pending home sales rising 0.3% from December to January. Why did it outperform the rest of the U.S.?
Jonas may be one factor, says Smoke. The blizzard brought much of the East Coast to a standstill (pending home sales in the Northeast dropped 3.2% from December), and had little or no impact south of Virginia.
In addition, “the South is still relatively affordable and has new job growth,” says Susan Wachter, a real estate and finance professor at the Wharton School of the University of Pennsylvania. “Both are positives for greater home sales.”
However, looking back to a year ago—which also saw epic storms—the Northeast recorded the largest gains of any region this January. The percentage of homes going into contract jumped 10.9% compared with January 2015, NAR reported.
The year-over-year jump proves that the Northeast is finally beginning to catch up to the rest of the country in terms of its housing recovery, Smoke says.
In the Midwest, pending sales were down 4.9% from December, but were up 1.4% year over year, according to the report. In the West, they dropped 4.5% from December, but rose 0.4% from the previous January.
Despite the monthly drops, real estate experts believe 2016 will be a strong year for home buyers entering into contracts.
“Wages are going up, employment is going up, which should position households better for buying,” predicts Wharton’s Wachter.
Look out, mortgage rates are going up!
That's the fear mongering that some are telling homeowners and homebuyers after the Federal Reserve raised interest rates -- a tad -- off their historic lows Wednesday.
But when a realtor or well-meaning relative tells you to buy a house ASAP, remind them that the Fed rate isn't the mortgage rate.
The current rate on a 30-year mortgage is 3.97%. That's incredibly low by historical standards. Most experts don't think mortgages will go much higher than 4% anytime soon.
The early indications are that rates barely budged after the big Fed announcement (and they may even go down).
"I don't think [mortgage rates] are going up," says Ed Yardeni, president and chief investment strategist at Yardeni Research. "Mortgage rates are really tied more to the bond market than the Fed funds rate."
Translation: There probably won't be much difference between buying a home now or next year.
Even if mortgage rates go up to 4.5% this summer, that would only add about $700 a year to the mortgage payments for a $200,000 home.
Bad news renters: Don't expect much relief in 2016.
Next year, experts predict rents will rise faster than inflation, increasing around 3%-5% on a national level.
"We are already in a rental affordability crisis, and 2016 won't let up," said Svenja Gudell, chief economist at Zillow.
In the years following the financial crisis, vacancy rates have plummeted as demand for renting rose, sending rents soaring.
Related: Half of all renters can't afford the rent
But here's the good news: While rents are expected to continue to climb next year, the pace will start to slow in some areas.
Prices in the country's hottest rental markets, like San Francisco, Boston and New York City, are expected to plateau, according to Devin O'Brien, head of strategic marketing at rental platform Zumper.
Spillover from those hot markets, however, will push prices higher in surrounding areas as renters get priced out. For instance, O'Brien expects price gains in Oakland to outpace those in San Francisco in 2016. And rents in Cambridge will see a major rise as renters seek a cheaper alternative to Boston. He's also expecting strong rental growth in Austin, Dallas, Houston and Miami.
Related: Not buying a home was my smartest financial move
While new construction will bring new rental units on the market, it isn't likely to keep up with growing demand. Vacancy rates are so low in many places that it'll take at least a year for supply to catch up to demand, according to research from Yardi Matrix. Plus, new inventory tends to be high-end, which won't be much help with rental affordability.
Rising mortgage rates could also push rents higher. The Federal Reserve is expected to start raising interest rates for the first time in nine years, which could keep people in the rental market longer. Higher interest rates increase borrowing costs, boxing out potential buyers and sending rents even higher.
Paying more toward monthly rent makes it harder to save for a down payment and eventually become a homeowner, which could force people to stay in the rental market longer.
NAR: Home Prices Continued To Rise In Q3, But In Fewer Markets
U.S. home prices continued to rise in the third quarter, but not at the same pace as the previous two quarters, according to recent home price data from the National Association of Realtors (NAR).
The average price for an existing single-family home in the third quarter was $229,000, up 5.5% from $217,100 in the third quarter of 2014.
Home prices increased on a year-over-year basis in 154 of 178 (87%) markets that NAR tracks. This was a decrease compared with the second quarter, when price gains were recorded in 93% of markets tracked.
Meanwhile, 24 markets (13%) saw their median home prices decrease from a year earlier.
There were slightly fewer rising markets in the third quarter. Twenty-one metro areas (12%) experienced double-digit increases, a decrease from the 34 metro areas in the second quarter.
Lawrence Yun, chief economist for NAR, says increased demand for housing as the economy improves combined with tight inventory are boosting home prices in a majority of markets.
"There's no question the housing market had its best quarter in nearly a decade," Yun says in a statement. "The demand for buying picked up speed in many metro areas during the summer as more households entered the market, encouraged by favorable mortgage rates and improving local economies. While price growth still teetered near or above unhealthy levels in some markets, the good news is that there was some moderation despite the stronger pace of sales."
Total existing-home sales, including single-family homes and condos, increased 3.4% in the third quarter to reach a seasonally adjusted annual rate of 5.48 million. That's up from 5.30 million in the second quarter and up from 5.06 million in the third quarter of 2014.
Yun says sales had the potential to be even higher last quarter given the decline in mortgage rates and favorable economic conditions.
"Unfortunately, the lack of any meaningful gains in housing supply pushed prices in some areas above what some potential buyers - especially first–time buyers - are able to afford," he says.
The five most expensive housing markets in the third quarter were the San Jose, Calif., metro area, where the median existing single-family home price was $965,000; San Francisco ($809,400); Anaheim-Santa Ana, Calif., ($715,300); Honolulu ($714,000); and San Diego, Calif. ($554,400).
The five lowest-cost metro areas in the third quarter were Cumberland, Md., where the median single-family home price was $82,400; Youngstown-Warren-Boardman, Ohio, ($90,700); Decatur, Ill. ($101,400); Rockford, Ill. ($102,800); and Elmira, N.Y., ($108,800).
"Many of the metro areas with the fastest price appreciation over the past year were in the South - particularly in Florida," says Yun. "A combination of solid job gains, above average shares of vacation and foreign buyers and little new construction being added was behind these areas' faster price growth."
At the end of the third quarter, there were 2.21 million existing homes available for sale, a decreased compared with the 2.28 million homes for sale at the end of the third quarter in 2014. The average supply during the third quarter was 4.9 months - down from 5.5 months a year earlier.
Amount client will actually get may be significantly less than what was quoted online
It seems like the buyers who call me every day understand more and more that they need to get prequalified for a mortgage prior to getting started with the homebuying process. Most also understand that shopping for the most competitive rates and fees among different lenders is essential — but there is at least one other reason a good buyer’s agent should encourage clients to get prequalified with at least one additional lender (if not two).
Last month, I spent some time working with a first-time homebuyer who went online to a major national bank’s website to get prequalified for a mortgage. Within minutes, the online system spat out a prequalification letter saying he was preapproved for a $130,000 loan for a home purchase. Ready to go jump in the car and look at houses, right?
I talked to him further about what he does for a living and asked questions about how he is paid and whether his income is salaried (versus commission or overtime earnings). My buyer then went to another lender and spoke to an actual person this time. He called me with news that the prequalification letter “might get chopped down to the $110,000 range.”
After he officially heard back from the lender, he left me a voice mail that they had thrown out his overtime compensation and could not count his commission pay, and he was therefore maxed out at $90,000 for his new loan prequalification.
I have seen this story many times before, so I finally got him to call a trusted lender of mine. She emailed me to say, “He is maxed out at $80,000 due to student loans that are keeping his ratios too high.”
So in between the online prequalification by an important and well-known bank and two additional lenders, our showing schedule took a dramatic turn. I had to cancel everything we had lined up to see and change gears quickly, and what a difference 24 hours can make! We are talking about a 40 percent reduction in the maximum home loan he was initially (and incorrectly) prequalified for online to the amount that he know he is really qualified to receive!
Encourage buyers to take the time to shop around more when it comes to a mortgage — this isn’t just about rates and fees; your buyers need to know what loans they qualify for prior to house hunting. You can keep your buyer from experiencing massive disappointment and wasting a lot of time and money down the road by making sure you are helping them understand what homes they’re qualified to purchase!
Hank Bailey is an associate broker with Re/Max Legends and a Realtor for more than a decade who provides buyer’s agent representation and seller listing services related to residential real estate.
Fifteen years into the new millennium, we are finally seeing real potential that the market can support full buyer momentum, according to the recently released Home Data Index™ (HDI) Market Report from Clear Capital, with data through January 2015.
According to the data, 2015 has the promise of a transitional year where full buyer momentum in the low and mid tiers reinforces a strong housing recovery. Sustained national price growth in the low-tier segment, once driven by investor activity, is good news for first-time homebuyers. Also encouraging, the number of potential move-up buyers, once locked into underwater mortgages, has been steadily decreasing. The recent rise in home prices continues to bring more homeowners out of negative equity. With more equity to play with, mid-tier homeowners could move-up, creating more opportunity and driving healthy demand in the low and mid tiers of the market.
"We continue to observe the growing price performance gap between the top and bottom segments of the market," says Dr. Alex Villacorta, vice president of research and analytics at Clear Capital. "The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand. While this is a concerning development, there is a silver lining. The moderating upper tier may give traditional buyers a moment to catch their breath, and entice move-up buyers to enter this segment of the market. The ripple effect of opening up inventory all the way down the price spectrum could provide opportunity and motivation across all segments, including first-time buyers, to enter the marketplace. The hope is that strength in the low and mid tiers help restore confidence in a stable housing market, and traditional homebuyers re-engage. The next phase of the housing recovery is dependent on healthy demand from this segment."
The top tier gives way, extending more opportunity to traditional buyers. While we are expecting price growth to moderate across all tiers in 2015, the top tier’s quarterly growth rate fell to 0.3 percent in the fourth quarter, where it had been holding steady at around 1 percent through the first three quarters of 2014. Year-over-year, this tier experienced the lowest price growth rate of 3.6 percent among the three national tiers.
At its current pace, continued moderation in the top tier could push quarterly price growth into negative territory in 2015. January data also reveals the low tier holding on to double digit gains year-over-year at 10.2 percent and healthy quarter-over-quarter gains of 1.5 percent. This divide between a healthy low tier and stalling top tier could kick-off a domino effect. Stalling prices in the top-tier of the market could create the perception of a good deal. This instills confidence in mid-tier homeowners, motivating them to move-up to the top tier.
In turn, this opens up more opportunity for low tier homeowners to move-up to the mid-tier. Creating new opportunity in the low tier could entice potential first-time homebuyers to enter the market. This domino effect could be the catalyst for balanced demand across all sectors of the market.
Regionally, the Midwest continues to lead the pack. Year-over-year the Midwest held on to double digit gains in the low tier segment at 13.6 percent, while the top tier fell to 3.3 percent. We also observe this gap between growth in the low and top tiers on a quarterly basis, with the low tier growing at 1.7 percent and relatively flat growth in the top tier at 0.5 percent. The Midwest led the nation in the all tier segment, with quarter-over-quarter growth at 0.9 percent, narrowly edging the West at 0.7 percent. The Midwest is the only region currently seeing price appreciation in the low and mid tiers, growing concurrently above 1 percent. A moderating top tier could incentivize mid-tier homeowners in2015 to move-up, setting up the Midwest to be the first region to realize full buyer momentum across all segments.
How to: Choose a Real Estate Agency
Posted: Wednesday, April 2, 2014 12:39 pm
A reputable Realtor and real estate agency can make a big difference when you buy or sell a home.
There are thousands of dollars at stake.
You could get the asking price or maybe you will have to settle for the best offer on the table.
A real estate agency will act in your best interests. That’s why it’s essential to find a high-quality real estate agency.
Reputation says a lot about a company. What do people say about their services.
Ask your family, friends and neighbors for recommendations. Their experiences will guide you toward a reputable agency.
Once you have a list of possibilities, do some research. Find out how long the agency has been in business. Ideally, you want people who know your community.
If the real estate agency is merely a side business, it might not give you the best results. Buying and selling homes is a full time job.
Look on the Internet and read customer service reviews. They should also have an impact on your overall impression of an agency.
Once you have narrowed your list, contact some businesses and ask them questions. You should know about their listings, fees and commissions. If an agency is focusing on their own best interests rather than marketing your home, you should drop them from you list. You need someone who will help you.
Choose an agency that has connections with the community, a sharp understanding of neighborhoods that interest you and solid contacts with other realty companies.
This assumes major importance when you’re selling your current house, because the agency usually handles the sale while the Realtor helps you find your new one.
The marketing strategy and advertising is what makes each agency unique. It will greatly influence the sale of your home.
Although most companies might look the same, real estate agencies have a preference for the kind of properties they show or sell. These concentrations might include commercial properties or high-end homes. Try to find a business with a focus that concentrates on selling homes similar to yours.
Look at an agency’s listings to see if your home would fit in nicely with their existing clients. If you were purchasing a home, would you find their listings easy to read and informative?
The size of the agency will have an impact on your experience. Small agencies can provide more personalized service, but they may not have the networking advantages of a large company. Big agencies have more opportunities to network and sell your home, but they may have to divide their time among many clients.
Be prepared to ask an agency the following questions if you are selling your home:
-- How will you advertise my home? Will you use the Internet and newspapers?
-- How many pictures of my house will appear online?
-- On which sites will my home be featured?
-- Do you have other homes that have recently been sold in this price range?
-- How long has the agency been selling homes in my neighborhood?
-- What makes your agency unique?
The two biggest financial decisions you will make in your lifetime is buying and selling a home. Protect your investment and peace of mind by choosing the best and most trustworthy real estate agency you can find.
U.S. Negative Equity Rate Dips Below 20 Percent in Q4
Today, Zillow released the fourth quarter Negative Equity Report. Nationally, the share of homeowners with a mortgage that are underwater, owing more on their home than their home is worth, has dropped below 20 percent for the first time in years.
As home values have continued to rise over the past year, millions of underwater homeowners have come up for air and are finally able to put their home on the market. This increase in inventory should, in turn, help create a more balanced home shopping season than we’ve seen in the past few years, with buyers having more choice and perhaps less competition.
According to the most recent numbers, nearly 10 million people were underwater on their mortgage in the fourth quarter 2013, collectively owing $657 billion more than their homes are worth. But the number of underwater homeowners is slowly but surely receding. Almost 3.9 million U.S. homeowners were freed in 2013, and the negative equity rate fell to 19.4 percent at the end of the fourth quarter, from 27.5 percent at the same time in 2012.
Nationwide, the negative equity rate is expected to fall to 17.2 percent by the end of 2014, signaling further stabilization of the market and likely freeing up even more inventory.
Stein: Fed intervention aided housing
Federal Reserve Chairman Ben Bernanke keeps them guessing. It's entirely unknown when the Fed will end its monthly mortgage-backed securities purchases, but one Fed governor is defending the initiative, saying the initiative lifted housing out of the doldrums.
Aggressive Federal Reserve policies paid off, boosting segments of the eocnomy now experiencing marked improvement – namely housing and auto lending, says Federal Reserve Governor Jeremy Stein.
While speaking  at the C. Peter McColough Series on International Economics in New York, Stein tried to provide some clarity around the Federal Reserve's hinting at a pullback in mortgage-bond purchases, despite Federal Reserve Chairman Ben Bernanke still managing to be vague enough to keep the markets guessing.
Stein walked the same fine line, suggesting Bernanke is on one hand hinting to an eventual MBS-purchase cutoff date, while remaining vague as to when that may occur.
Nine months after beginning aggressive asset purchases, Stein says he’s witnessing improvements in areas of the economy where the Fed directly influenced growth through the federal funds rate and mortgage-bond purchases.
"With respect to the economic fundamentals, both the current state of the labor market, as well as the outlook, have improved since September 2012," he said. "Back then, the unemployment rate was 8.1% and nonfarm payrolls were reported to have increased at a monthly rate of 97,000 over the prior six months; today, those figures are 7.6 percent and 194,000, respectively."
While Stein admits it’s impossible to determine the effect of the Fed’s purchases, he believes the brighter spots in today’s economy – housing and autos – are a direct result of monetary accommodation. The risk-to-reward ratio that generally comes with so much monetary intervention has passed 'the cost-benefit test' thus far, Stein added.
Yet, his speech shows how careful members of the Federal Reserve tread when trying to describe Bernanke’s various hints about the potential end of QE3 and the eventual raising of the federal funds rate, which has hovered near zero for several years now.
"In particular, I view Chairman Bernanke's remarks at his press conference--in which he suggested that if the economy progresses generally as we anticipate then the asset purchase program might be expected to wrap up when unemployment falls to the 7 percent range--as an effort to put more specificity around the heretofore less well-defined notion of substantial progress," said Stein.
And while unemployment is a barometer for determining when the Fed will end its mortgage-backed securities purchases, it’s not the only factor. If inflation remains soft, Stein believes the Fed may have the room necessary to keep the funds rate at a lower level even beyond the 6.5% unemployment cut-off point if the market still needs it and inflationary pressures remain subdued.
Fixed Rates Skyrocket in Response to Fed Remarks
By: Tory Barringer 06/27/2013
Mortgage rates shot up in the last week following remarks from the Federal Reserve that it may be tapering its bond purchases later this year.
According to Freddie Mac’s Primary Mortgage Market Survey, the average 30-year fixed-rate mortgage (FRM) rose to 4.46 percent (0.8 point) for the week ending June 27, an increase from only 3.93 percent last week and the highest figure since the week of July 28, 2011. The weekly increase is the largest since April 1987.
Last year at this time, the 30-year fixed averaged 3.66 percent.
The 15-year FRM this week averaged 3.50 percent (0.8 point), up from 3.04 percent the previous week.
Adjustable rates also saw sizable increases, though they weren’t as dramatic. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.08 percent (0.7 point), up from 2.79 percent. The 1-year ARM averaged 2.66 percent (0.5 point) compared to last week’s 2.57 percent.
“Following Fed chief Bernanke’s remarks on June 19th about the possible timing of reduced bond purchases, Treasury bond yields jumped over the week and mortgage rates followed. He indicated that the Fed may moderate the pace of its buying later this year and end the purchases around the middle of 2014,” said Frank Nothaft, VP and chief economist at Freddie Mac.
While the massive rate hike will certainly dampen some housing activity, Nothaft noted the effect “will be muted by the high level of buyer affordability, and home sales should remain strong.”
Meanwhile, Bankrate.com’s weekly national survey showed the 30-year fixed rate rising to an average 4.61 percent. The 15-year fixed soared to 3.73 percent.
The 5/1 ARM climbed up to 3.45 percent, the highest in more than two years.
“Mortgage rates posted the biggest one week increase since the 2008 failure of Lehman Brothers that pushed the global financial system to the brink. This week, the catalyst was something far more benign,” Bankrate said, referring to Bernanke’s announcement.
Experts See Risk of a Housing Bubble Resulting from Fed Policies
By: Krista Franks Brock 05/07/2013
A majority of real estate experts responding to a recent Zillow survey expressed some concern that the Federal Reserve’s current policies could lead to another housing bubble.
Only 4 percent of respondents are not at all worried about a bubble resulting from the Fed’s monetary policy that is keeping mortgage rates down. However, 48 percent see the Fed’s policies as “a little risky,” and the remaining 48 percent categorized the risk as “moderate to high risk.”
“How the Federal Reserve handles the eventual winding down of its policy of quantitative easing will be critical in determining if the current period of rapid appreciation is a benign bounce off the bottom or a more dangerous bubble being re-inflated,” said Stan Humphries, chief economist at Zillow.
The more than 100 survey respondents expect home prices to continue their upward trajectory this year and over the next few years. However, the general consensus is that price increases will slow after the next year or so.
Experts expect prices to end this year 5.4 percent higher than their level at the start of the year. After ending 2012 at $156,800, the median price would end this year at $165,280, according to this forecast.
From 2015 through 2017, experts suggest a more modest rise per year of 3.5 to 3.7 percent.
A cumulative rise of 22.3 percent is forecasted through 2017, according to Zillow’s survey.
The accelerated appreciation over the next year is “consistent with a market struggling to satisfy strong demand from buyers attracted by rock-bottom interest rates and improving economic conditions,” Humphries said.
However, as interest rates eventually move up from their current lows, price appreciation must slow or homes will “look very expensive relative to people’s incomes as it gets more costly to finance a home,” Humphries said.
The Zillow survey, conducted by Pulsenomics, also inquired about whether the definition of a qualified residential mortgage (QRM) should include a minimum down payment.
“Contrary to concerns expressed by certain policymakers, only a small minority of our expert panelists believe that including a minimum down payment requirement in QRM would pose a threat to the housing recovery,” said Terry Loebs, founder of Pulsenomics.
About 81 percent support the idea of a minimum down payment requirement, although a minority—about one-third—support a down payment requirement of 20 percent or more.
Forgive and forget: Short sales saved from fiscal cliff
Much to the relief of the mortgage industry and real estate professionals throughout the U.S., Congress threw a ‘hail Mary’ pass on Jan. 1 and extended the Mortgage Debt Forgiveness Act for another year.
Many would call 2012 a turnaround year for housing. Even moreso, 2012 also appeared to be the year of the short sale. In fact, short sales rose 22%  in 2012, according to a report released by RealtyTrac.
One of the largest appeals behind the short sale is the Mortgage Debt Forgiveness Act, signed by President Bush, protects homeowners from paying tax on the unpaid portion of their debt. This act was set to expire on Dec. 31 as a part of the fiscal cliff and had everyone in the housing industry holding his or her breath.
Letting the tax relief act expire would inevitably knock the market back onto unstable grounds. If not extended, unpaid mortgage debt would be considered taxable income. RealtyTrac reported that the average amount of forgiven debt in a short sale is, on average, $95,000. The tax on that could hit $33,250 or higher, depending on the outcome of the fiscal cliff.
Back at the beginning of December, RealtyTrac Vice President Daren Blomquist voiced his concern over a potential expiration. “The potential expiration of the Mortgage Forgiveness Debt Relief Act would likely stifle many short sales when homeowners understand that the debt being forgiven through the short sale is taxable as income,” Blomquist said.
However, much to the relief of the mortgage industry and real estate professionals throughout the U.S., Congress threw a ‘hail Mary’ pass on Jan. 1 and extended the deal for another year.
Mortgage Bankers Association CEO David Stevens views the Mortgage Debt Forgiveness Act extension as a definite benefit for the housing market, but mostly because it allows distressed borrowers to avoid tax hits on alternative dispositions.
“That to me was the greatest concern,” Stevens said. "We are dealing with the most severely distressed segment of the housing market and potentially surprising families (who get debt relief) with a tax bill."
When it comes to the deal's effect on short sales, he added, "I for one think we need to clear out these problems and allow families to resettle and move on." The reinstatement of the tax relief ensures borrowers who want to move via a short sale or some other measure can do so without tax liabilities, Stevens suggested.
Extending the tax break will ensure short sales continue to thrive in 2013, ultimately cushioning the housing recovery even further.
Pending home sales reach highest level in 2.5 years
Home contract signings in the month of November, shot up, suggesting the tepid housing recovery carried through to the end of the year. NAR's Pending Home Sales Index rose to a 106.4
Pending home sales, a measure of home contract signings, shot up in the month of November, reaching its highest level on record in two-and-a-half years, the National Association of Realtors said. It's also the third consecutive month of sales increases.
The NAR Pending Home Sales Index doesn't measure home closings, but it does function as a forward-looking indicator by studying real estate contracts signed in order to gauge future closing levels.
The index rose 1.7% to 106.4 in November, up from 104.6 in October and is 9.8% above an index score of 96.9 last year.
The index is at its highest level since reaching a score of 111.3 in April 2010, according to NAR. At the time, the nation's housing market was still experiencing a sales rush from the homebuyer-tax credit.
The last time the housing market was healthy without stimulus was February 2007, NAR added.
"Even with market frictions related to the mortgage process, home contract activity continues to improve," said Lawrence Yun, NAR's chief economist. "Home sales are recovering now based solely on fundamental demand and favorable affordability conditions."