Happy New Year to All

 I hope that 2011 is a healthy and prosperous one. I can honestly say that 2010 proved to be a very educational year for me and many of my colleagues involved in real estate. It never fails to amaze me that just when you think you have the banks, financing, short sales, foreclosures or the market figured out,  something changes. We all  have persevered through the largest financial crisis in history. We are left wiser and  with a sense of responsibility to stay informed and not let others make decisions for us without a clear understanding of what effects these decisions will have on our lives. At least that is what I am taking from it and those of you that know me well,  know that I am trying to make lemonade out of lemons. But really, what choice do we have. Far too many of us complain without offering reasonable solutions.  The one thing that all of us can agree on and maybe even be thankful for, is that we have all learned more about finance, politics and the inner workings of Wall Street than ever before. We have realized that it is now a global economy with the effects of our economic crisis reaching far off lands and their debt crisis effecting our pension plans. Very interesting times we live in.

Recent analysis and stats say that real estate has not yet stabilized. That said, it is important to remember that real estate is all about location, location, location. NW real estate fluctuations usually follow that of the SW, in particular, California. It did as values increased , and it is doing so as values decline. What sets our area apart from others is that we are very fortunate to have had the amount of new infrastructure built in Gig Harbor, even after devaluation in real estate began. The new Narrows Bridge was a catalyst for large box stores, the hospital, largest movie theater in the state, YMCA, Boys and Girls Club etc. I mean really, where else in the NW do you find such development. The timing was incredible. Would this type of development occur now? Absolutely not. Because developers were already in permit process, walking away from approvals and entitlements would have been very costly. Therefore, most commercial development continued to fruition. We now enjoy the many amenities that our area has to offer and a very desirable place to live. Think about what real estate prices might look like without the new bridge, hospital, shopping etc. It would be very difficult to convince a professional to move into our area knowing he/she would have to wait 30 minutes to cross the bridge. I remember those days well. Just another thing to be thankful for.

To put real estate values in perspective for you , real estate values in the Pacific Northwest declined a total of 3.17% in the first 3 Quarters of 2010. It declined 24.03% in the last 5 years but rose 79% since 1991. What does this all mean? It means that the average appreciation should only be approx 3% per year. This keeps nasty real estate bubbles at bay and big banks and Wall Street minding their manners. A 79% appreciation in real estate in the last 19 years or a whopping 4.2% appreciation yearly is a good market…better than average. This includes our 24.03% depreciation since late 2007.

The anomaly that became routine was that in 2005 and 2006, our real estate values rose by 2% per month. That’s right per month. No wonder our bubble burst. We could not sustain such growth. It is important to understand this and remember it as the latest Banking Reform Bill does nothing to prevent it from happening again, therefore, it is up to everyone to keep their eye on the ball and not the dog and pony show going on in Washington D.C.

Tax Credit  Information

By Val Savino

First time homebuyers who purchased their home between April 9, 2008 and December 31, 2008 and took advantage of the $7500 credit, must start repaying the credit this year.  Beginning with the 2010 tax return, you will repay $500 per year for 15 years, assuming that you keep your home as your principal residence.  If you sell your home before the credit is repaid, the unpaid balance of the credit will be due in the year of the sale.

You can pay more than $500 each year if you so desire, but that does not lessen your obligation in subsequent years.  Even if you paid extra in one year, you will still need to pay at least $500 in each year that you have a balance due.

It may sound tempting in this economic climate to rent out your home instead of selling it, but be careful if you have this credit.  The house must be used as your principal residence or the entire credit becomes due in the year of the conversion.  If you choose to rent out your home, be aware that you will have to repay the entire credit at one time when you file your tax return for the year of the conversion.  This rule also applies if your home is converted to business or vacation property as well.

There are some exceptions or allowances to the repayment rule.  If the taxpayer dies, any remaining installment payments are not due.  If the taxpayer filed a joint return and dies, the surviving spouse is required to pay their half of the remaining credit amount.

For taxpayers with the 2008 credit who sell their home, the repayment is limited to the amount of gain on the sale, provided the home is sold to an unrelated taxpayer.  If there is no gain, or if there is a loss on the sale, the remaining credit due may be reduced or even eliminated.

If the home is transferred to the spouse, or as part of a divorce settlement to a former spouse, the spouse who receives the home in the settlement is responsible for repaying any remaining credit due.

An exception applies if the home was destroyed, condemned, or disposed of under threat of condemnation.  You have three years to replace the home with a new principal residence, or you must repay the credit with the tax return in which the three-year period ended.

Banks, States Near Deal on Foreclosure Fund

In my last newsletter I discussed the improper, if not fraudulent, processing of foreclosures by several of our largest lenders/banks or as the industry calls it “robo-signing”. The attorney general of many states contacted trustees and lenders to inform them that they would be investigated and would appreciate cooperation.

Since then, it appears that the state attorneys general and many of our nations largest lenders are working out details on setting up a fund that would compensate homeowners who can prove they lost their home in an improper foreclosure. The lenders will be setting up this fund to help inoculate themselves from thousands of individual lawsuits stemming from the improperly processed foreclosures identified in late 2010. Among the details to be finalized are whether banks would take a new stab at modifying the mortgages of home owners whose foreclosure was processed improperly and whether the modifications would include write-downs of the principal. Isn’t this what we have been saying all along? If you modify, their will be less default, less short sale, less foreclosure and, ultimately, less devaluation in the market.

Year End Statistics

                                                              2009                              2010

Gig Harbor and Key Peninsula

Closed Transactions                                657                                  661

Average Sales Price                            $388,000                         $398,000

Days on Market                                       122                                  183

South Kitsap County

Closed Transactions                                 221                                 223

Average Sales Price                             $281,000                        $291,000

Days on Market                                         67                                  141

Home Sales 

Existing home sales resumed on an upward trend since bottoming in July. Sales activity rose to a seasonally adjusted annual rate of 4.68 million in November. This was up 22% from July and 5.6% above the 4.43 million level in October, but remained 27.9% below the 6.49 million tax credit rush a year ago. As steady job creation is expected to continue, industry experts are hopeful for 2011.

Home Sales

Existing home sales resumed on an upward trend since bottoming in July. Sales activity rose to a seasonally adjusted annual rate of 4.68 million in November. This was up 22% from July and 5.6% above the 4.43 million level in October, but remained 27.9% below the 6.49 million tax credit rush a year ago. As steady job creation is expected to continue, industry experts are hopeful for 2011.

Home Price

Home prices continued to stabilize. Median home prices edged up slightly to $170,600, 0.4% above year-ago levels. Distressed homes have accounted for a fairly stable market share, representing 33% of sales in November. This is on par with the 34% in October  and 33% in November 2009. Historically favorable interest rates, coupled with attractive home prices, continue to offer advantageous buying opportunities .

 

 Inventory

The number of homes on the market continued to decline. Total inventory fell to 3.71 million in November  from 3.86 million in October. This reflects the increasing response from buyers to improved affordability conditions. As lending standards return to historical norms and consumers become more confident about their financial situation, more people will be able to buy their first home, move up, or invest.

 Affordability

Housing affordability set a new record in November. The relationship between mortgage rates, home prices, and family income is the most favorable on record for buying. The home price-to-income ratio, currently at 13.5%, continues to remain well below the historical standard. Stabilizing home prices and rising interest rates are expected to begin drawing affordability back up toward more normal levels.

CMBS Delinquencies Hit Record High Despite Market Optimism

The delinquency rate for loans held in commercial mortgage-backed securities (CMBS) rose again in December with the percentage of loans 30 or more days delinquent, in foreclosure, or REO climbing 27 basis points to 9.20 percent. It is the highest delinquency rate in history for U.S. commercial real estate loans in CMBS. The value of delinquent loans now exceeds $61.5 billion.  In November, there was a reported rise of 35 basis points. December’s 27 basis point jump comes despite the fact that new issues continued to make their way into the calculation and servicers continued to resolve troubled loans. The December delinquency rate underscored that there still may be some nasty surprises in store even as the market shows some signs of healing. Multifamily remains the worst-performing property type with a delinquency rate of 16.48 percent even though vacancy rates have declined to 5.6% from 7.4% in 2009. The delinquency rate for loans on industrial properties hit 8.97 percent in December, up 233 basis points from 6.64 percent the month before.The hotel sector registered a delinquency rate of 14.31 percent in December, retail space carried a rate of 7.86 percent, and delinquencies on CMBS loans for office space were 6.93 percent.