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Obama administration ramps up mortgage refinancing effort

From McClatchy News Service

WASHINGTON — The Obama administration, worried that the housing crisis is strangling the economic recovery, is stepping up efforts to aid the battered market as another wave of home foreclosures threatens to drive values down further and rattle consumer confidence again.

But the administration’s piecemeal approach — giving temporary reprieves to the jobless, converting empty homes into rental properties, allowing more people to refinance mortgages — isn’t going to help much, said industry leaders and even some lawmakers in the president’s own party. Continue reading “Obama administration ramps up mortgage refinancing effort”

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How Do We Love Real Estate Benefits?

Let us count the ways…

By Mike Cotter | Email the author | April 8, 2011

 

Owning real estate has benefits unlike any other investment.  Sure, there is no guarantee that real property will automatically begin to appreciate the minute we close escrow, but no investment has such guarantee. Even so called risk-less U.S. Treasury obligations are subject to market value fluctuations before maturity and are usually subject to risks of inflation. So we invest our money as we choose.

But the advantages of a real estate investment are unique and sizable.

First of all, we all have to live somewhere, and shelter is not cheap.  Investing in a home allows us to live in our investment.  Over a long period of time, this usually results not only in a positive return on our capital, but also is “free rent” while we live there.  That’s huge.

Of course, if we have to borrow money to buy a home, the monthly interest payments on the debt can be substantial.  But we get an incredibly low interest rate compared to other sources of credit. Where else can we borrow money for 30 years at an annual fixed rate of less than 5 percent?

Also, taxpayers can deduct from their income home mortgage interest up to $1 million annually.  This benefit alone often makes the monthly cost of owning a home with a mortgage less expensive than the nondeductible monthly rent of a similar home.

As for annual California property taxes, they can be substantial for new homeowners—at about 1 percent of the market price paid for the property.  But over time,  Proposition 13 allows the tax bill to grow at no more than 2 percent per year.  So, as property values rise and inflation erodes the dollar, the property tax bill becomes a relatively minor consideration.

Owners of historic properties can apply for a Mills Act agreement with their city that can cut their property tax by 60 percent in some cases—if they agree to preserve the properties.  San Clemente has such a program with 65 of the city’s 206 historic properties participating.

Adding frosting to the cake:  If we sell a home and trade down to a less expensive home after reaching age 55, Propositions 60 and 90 often allow us a one-time opportunity to transfer our relatively low existing tax bill to our new home.  That’s huge.

When we sell most investments at a gain, we usually have to pay capital gains tax.  Not so with real estate used as our primary residence.  A federal law passed a few years ago allows up to $250,000 in capital gains tax forgiveness for each property owner. So a married couple can get a $500,000 capital gain on their home without paying any capital gains tax. That’s huge.

But, let’s say our property investment doesn’t turn out very well.  For one reason or another we end up defaulting on the loan we obtained to purchase our home.  Unlike with other investments, lenders generally have no recourse other than repossessing the real estate in collecting the bad debt.  California home lenders usually have to forgive any deficiency they suffer in collecting the original “purchase money” loan.  That’s huge.

Further, while a forgiven loan has always been considered taxable income in the past by the IRS, current law in most cases prevents federal and state taxation of a forgiven home loan, at least through 2012.  That’s really huge.

Disclaimer:  I’m not an attorney.  This is a very general and incomplete review of some of the benefits of owning real estate.  Always consult with your tax attorney and CPA when making decisions with respect to real estate.

For more of the latest market news and statistics on San Clemente real estate, visit my blog atSanClementeRealEstateBlog.com or MCotter.com.

Original article at http://sanclemente.patch.com/articles/how-do-we-love-real-estate-benefits

 

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U.S. Mortgage Demand Rose From Two-Year Low on Falling Rates

By Bob Willis - Feb 23, 2011 4:00 AM PT

The number of applications for U.S. mortgages rose last week, led by more refinancing as mortgage rates fell to the lowest level since the end of January.

The Mortgage Bankers Association’s index of loan applications increased 13 percent in the week ended Feb. 18 after dropping the prior week to the lowest point since November 2008. The group’s refinancing measure jumped 18 percent and the purchase gauge rose 5.1 percent.

“Refinancing is more sensitive to fluctuations in rates” than are purchases, Paul Dales, a senior economist at Capital Economics Ltd. in Toronto, said before the report. Still, he said he expected refinancing to “remain soft” with sales at “historically depressed levels for perhaps two or three years.”

The average rate on 30-year fixed mortgages dropped to 5 percent as turmoil in the Middle East and North Africa led investors to seek the safety of U.S. Treasury securities, which are benchmarks for some consumer loans, pulling down their yield. Still, mounting foreclosures, falling prices and 9 percent unemployment mean it will take time for demand to pick up.

The 30-year rate fell from 5.12 percent the prior week. It reached 4.21 percent in October, the lowest since the group’s records began in 1990.

At the current 30-year rate, monthly payments for each $100,000 of a loan would be $536.82, in line with the same week the prior year, when the rate was 5.04 percent.

Rates Fall

The average rate on a 15-year fixed mortgage fell to 4.28 percent from 4.34 percent.

The share of applicants seeking to refinance a loan rose to 65.7 percent from 64 percent the prior week.

The housing market is struggling to gain traction after a homebuyers’ tax credit expired last year and as more properties fall into the foreclosure pipeline. Combined sales of existing and new homes in December were at a 5.61 million annual unit pace, down from a July 2005 record of 8.53 million.

A report from the National Association of Realtors today may show existing home sales fell 1.1 percent to a 5.22 million annualized rate in January, according to economists’ estimates. Sales of previously owned homes last year totaled 4.91 million, the lowest level since 1997.

Builder Losses

Homebuilders are still posting losses. D.R. Horton Inc., the second-largest U.S. homebuilder by stock-market value, on Jan. 27 reported a fiscal first-quarter loss that was wider than analysts projected.

“I think 2011 will be a marginal, weak year in the homebuilding industry,” D.R. Horton Chief Executive Officer Donald Tomnitz said during a conference call the same day. “Given the weak macroeconomic conditions, high levels of existing homes for sale and tight mortgage availability, we remain cautious and realistic in our expectations.”

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Original article published at http://www.bloomberg.com/news/2011-02-23/u-s-mortgage-demand-rose-from-two-year-low-on-falling-rates.html