REAL ESTATE TOPICS...What you should know about taxes on rental income you earn on a home you own

By Ilyce Glink and Samuel J. Tamkin

I am an “accidental real estate investor” in that I lived in my condo more than 15 years, at which time my job relocated and I decided to rent out the condo until such time as I could retire (about four to eight years, depending on how long I can keep my job, given my age).

I am claiming depreciation against rental income, per my CPA. If upon retiring I resume living in my condo, does that avoid having to pay the 25 percent tax on depreciation taken, because essentially it is “restated” as it were to a personal home rather than a rental? If so, is there some minimum number of years I’d have to live there before selling?

Your question is a good one, but a complicated one for the space we have available each week, so we’ll have to simplify the answer: Your condominium is effectively both a residential property and an investment property. Let’s discuss both aspects of your ownership and future sale as it stands today.

As a residential property, if you live in the property as your primary residence for two out of the last five years, when you sell the property you would get to exclude from federal income taxes all profits up to $250,000 (or, $500,000 if you are married).

That’s in simple terms. So most homeowners will not have to deal with paying taxes to the federal government as most sellers don’t have a profit on their sale that would exceed $250,000 for single sellers and $500,000 for married couples.

On the other side, if the property is an investment property, you generally have to pay taxes on the profits at the time you sell that property along with repaying the IRS for the recapture of the depreciation you’ve already taken.

Say you have a profit of $50,000 on the sale of an investment property and you took $10,000 in depreciation over the years on that property. The first thing that would happen is that you would have to pay taxes on the $50,000. Since you owned the property for more than one year, the IRS would bill you at your capital gains tax rates of up to 20 percent. You will also have some other taxes to pay, but those are substantially less.

[More Matters: How to make sure your mortgage is cleared once you pay it off]

Now on the recapture of depreciation side, we said you received $10,000 in depreciation over the years. The IRS would expect that depreciation to be repaid. The repayment would be at a rate of up to 25 percent. Depending on your tax situation, you’d see that you’d have to pay $10,000 or so in capital gains taxes and up to $2,500 in recapture of the depreciation.

Here’s where it gets even more complicated. Since your property is now both residential and investment at the time of the sale, your accountant will have to do some computations. In the most simple of terms, you might have to take the total years you owned the property as a residence and the total years you owned the property as an investment property. Based on that information, the accountant will be able to determine the amount that you’ll pay in taxes on the “investment” side of your ownership and what, if any, taxes you’ll own on the residential side of the sale.

The computation can get pretty complicated and as we said earlier, a bit too involved for our column, suffice to say that you may have some taxes to pay on the investment side, but the amount you will owe will go down the longer you own and live in the property.

REAL ESTATE NEWS...U.S. home sales near 10-year high as mortgage rates rise

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. home resales unexpectedly rose in November, reaching their highest level in nearly 10 years, likely as buyers rushed into the market to lock in mortgage rates in anticipation of further increases in borrowing costs.

The third straight monthly increase in existing home sales, reported by the National Association of Realtors on Wednesday, suggested housing would contribute to economic growth in the fourth quarter after being a drag in the previous two quarters.

"The strength in home sales, if it holds, will provide a big boost for consumer spending in 2017 and makes us more confident about our outlook for stronger growth next year," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

Existing home sales increased 0.7 percent to an annual rate of 5.61 million units last month, the highest sales pace since February 2007. October's sales pace was revised down to 5.57 million units from the previously reported 5.60 million units.

Economists had forecast sales slipping 1.0 percent toa 5.50 million-unit pace in November. Sales were up 15.4 percent from a year ago. They rose in the Northeast and South, but fell in the Midwest and West last month. Mortgage rates have surged in the wake of Donald Trump's victory in the Nov. 8 presidential election. Trump's proposal to increase infrastructure spending and slash taxes is seen as inflationary.

Since the election, the interest rate on a fixed 30-year mortgage has increased about 60 basis points to an average 4.16 percent, the highest level since October 2014, according to data from mortgage finance firm Freddie Mac.

Mortgage rates are expected to rise further after the Federal Reserve raised its benchmark overnight interest rate last week by 25 basis points to a range of 0.50 percent to 0.75 percent. The U.S. central bank forecast three rate hikes next year.

The prospect of higher mortgage rates could be pushing undecided buyers into the market. But the combination of higher borrowing costs and rising house prices, which are outstripping wage growth, could hurt home sales.

House prices have been marching ahead amid a chronic shortage of properties for sale. The median house price was $234,900 last month, a 6.8 percent increase from a year ago.

Economists, however, expect higher mortgage rates to have a minimal impact on home sales as the labor market nears full employment and the economy strengthens.

'AT A CROSSROADS'

"This is a housing market at a crossroads," said Stephen Phillips, president of Berkshire Hathaway Home Services in California.

"The higher mortgage rates we've seen since the election will likely slow activity and price increases, but faster income growth might more than offset that trend as we look toward next year's spring market."

A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans to buy a home increased 3 percent last week from the previous week.

The dollar <.DXY> was trading lower against a basket of currencies after the data, while prices for U.S. government bonds rose. U.S. stocks were slightly weaker, with the Dow Jones industrial average <.DJI> still hovering near the 20,000 mark.

The PHLX housing index <.HGX> rose 0.30 percent as shares in the nation's largest homebuilder, D.R. Horton Inc <DHI.N>, gained 0.32 percent.

Last month's increase in home resales means more brokers' commissions, which are included in the residential component of the gross domestic product report.

The Atlanta Fed is forecasting GDP rising at a 2.6 percent annual rate in the fourth quarter. The economy grew at a 3.2 percent pace in the July-September period.

Existing home sales remain constrained by a persistent shortage of properties available for sale. Last month, the number of unsold homes on the market fell 8.0 percent from October to 1.85 million units.

Supply was down 9.3 percent from a year ago and has now declined for 18 straight months on a year-on-year basis. At November's sales pace, it would take 4.0 months to clear the stock of houses on the market, down from 4.3 months inOctober. A six-month supply is viewed as a healthy balance between supply and demand.

Housing inventory could remain an obstacle, with a report last week showing a plunge in home construction in November. With supply tightening, house prices notched their 57th consecutive month of year-on-year gains in November.

Rising house prices are increasing equity for homeowners and encouraging some to put their homes on the market, but making it more difficult for first-time buyers to purchase homes.

First-time buyers accounted for 32 percent of transactions last month, well below the 40 percent share that economists and realtors say is needed for a robust housing market.

REAL ESTATE NEWS...US existing home sales hit fastest pace since 2007

Washington (AFP) - Existing homes in the United States sold at the fastest pace in nearly 10 years in November, pointing to the sector's sustained strength, according to the monthly report released Wednesday.

Sales of condos, co-ops and single-family homes gained 0.7 percent to hit a seasonally adjusted annual rate of 5.61 million for the month, the highest since February 2007 and 15.4 percent above a year ago, according to the National Association of Realtors (NAR).

NAR chief economist Lawrence Yun said the current healthy jobs market, and the fact home buyers anticipated an increase in interest rates, caused growth in sales for the third consecutive month.

And "it's no coincidence that home shoppers in the Northeast -- where price growth has been tame all year – had the most success last month," Yun said in a statement.

The November result beat an analyst forecasts, which expected sales to cool from the big October increase, and predicted a rate of only 5.5 million.

The median home price rose 6.8 percent over the same month last year to $234,900, marking 57 consecutive months of year-on-year gains.

The inventory of unsold homes is down to a four month supply, from 4.3 months in October. Year-over-year, inventory has fallen for 18 straight months, and declined eight percent in November to 1.85 million existing homes on the market.

Inventory is now 9.3 percent below where it was a year ago, according to NAR, a continuing source of concern as new construction is not keeping pace with demand.

REAL ESTATE NEWS...Existing US Home Sales Reach Highest Since February 2007

By PAUL WISEMAN

Americans bought homes in November in the fastest pace in nearly a decade. But rising mortgage rates, a deepening shortage of houses and higher prices are likely to weigh on the market next year.

The National Association of Realtors said Wednesday that sales of existing homes rose 0.7 percent last month to a seasonally adjusted annual rate of 5.61 million. That was up from a downwardly revised 5.57 million in October and the highest since sales hit a 5.79 million pace in February 2007. Sales were up 15 percent from a year earlier.

Sales rose 8 percent in the Northeast and 1.4 percent in the South, but fell in the West and Midwest.

Fewer than 1.9 million homes were on the market, down 9 percent from a year earlier. The tight supply pushed the median price to $234,900 last month, up 6.8 percent from a year ago.

The Commerce Department reported Friday that housing starts fell 18.7 percent last month to a seasonally adjusted 1.09 million.

"We have a housing shortage," said Lawrence Yun, the Realtors' chief economist. "We are not building enough housing."

At the same time, the rate on the benchmark 30-year fixed rate mortgage last week rose to a 52-week high of 4.16 percent. U.S. interest rates have climbed since the Nov. 8 election of Donald Trump. Investors have bid rates higher because they expect Trump's program of tax cuts and higher spending on defense and infrastructure will boost economic growth and inflation.

The Realtors predict that higher rates and declining affordability in many parts of the country likely will lead to only a small gain in sales of existing homes next year — a 2 percent increase to about 5.52 million.

"Some prospective buyers are going to be straining to get to an affordable monthly payment with mortgage rates higher and may take a harder line on prices (or settle for less home) to make the numbers work," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a research note.

Still, a healthy job market has given more Americans the confidence to shop for homes. Unemployment is at a nine-year low 4.6 percent.

REAL ESTATE TOPICS...7 housing predictions for 2017

By Nela Richardson

Heading into 2017, Redfin data scientists and thought leaders put their heads together to predict what the housing market has in store for the new year, under a new president.  The Trump administration ushers in three major policies that could significantly affect the long-term trajectory of the U.S. real estate market: infrastructure spending, tax cuts and changes to immigration policy. Next year, as these policies begin to take shape, their effect will mainly play out in new construction and mortgage rates.

Strong buyer interest, better access to credit and a modest increase in the number of homes for sale will allow home sales to grow, but not as much as in 2016.  Home price growth will hold steady. Homes will sell even faster next year, breaking this year’s record as the fastest real estate market. Although growth in new construction may be hindered by new immigration policies, we still expect to see more homes built in second-tier cities and more millennial homebuyers moving from the coasts to smaller and inland markets where they can find affordable starter homes that meet their aesthetic requirements.

1. The housing market will continue to grow, but at a slower pace due to affordability pressures

Redfin

Next year the new administration will lead a shifting U.S. economy. Baby boomers will become less economically relevant as millennials–the largest generation of Americans— continue to come of home-buying age. Superstar cities will create much of the job growth, pushing wages in those cities up.

Yet, the percentage of homes in America’s largest cities that are affordable on the median income has declined the past two years and will continue to fall in 2017. Making things harder for people looking for  affordable homes, a lot of homeowners who have lived in their homes for several years and might be thinking about moving won’t list their homes for sale this year. That’s because they are among the millions of homeowners locked into a mortgage rate below 4 percent. Rising mortgage rates will likely work as an incentive for these people to stay in their homes to hold onto that low mortgage payment, or rent them out instead of selling them to make an increasing profit. We think this will lead to a permanent shortage of starter homes for sale, even as the inventory for expensive homes improves next year.  

Even with rising affordability pressures, Redfin expects median home sale prices to increase 5.3 percent year over year, similar to the estimated 5.5 percent this year. Existing homes sales are forecasted to increase 2.8 percent in 2017, compared to the estimated 3.4 percent increase in 2016.

We believe price increases will hold steady despite slowing sales growth, because homebuyer demand is stronger now than it was at the same time last year, and because we foresee a small uptick in homes for sale.  

The Redfin Housing Demand Index, based on thousands of Redfin customers requesting home tours and writing offers, increased 7.7 percent in November year-over-year. In addition, homebuyer demand for lower-priced homes is stronger now than a year ago. Note that this measure removes Redfin’s market share growth to reflect general buyer demand, not company growth.

We predict that inventory will recover slightly, up 1.7 percent year over year, after falling an estimated 3.4 percent in 2016. However, because we haven’t seen any increase in supply in the most affordable third of the housing market in more than eight months, we expect most of next year’s increase to be in the most expensive third of the market. Sales would be stronger if there were more starter homes on the market to meet demand from millennial homebuyers. The lack of starter homes will keep sales growth weak next year.

“An attribute that seems to define the Denver housing market going into 2017 is the high price of a typical starter home here,” said Stephanie Collins, a Redfin real estate agent in Denver. “Our entry-level homes are now significantly more expensive than they were a handful of years ago. There are far fewer of them available and a lot more buyers in the market searching for them. That, of course, is great news for people thinking of selling and moving up this year. We’re working closely with our first-time buyer clients to make sure they’re educated on the strategies they can use to win bidding wars and protect themselves in this uber-competitive market.”

2. 2017 will be the fastest real estate market on record

Redfin

We expect 2017 to break the 2016 record as the fastest market on record, measured by the average number of days homes spend on the market before going under contract. This year, the typical home stayed on the market just 52 days, the shortest time recorded since Redfin began keeping track in 2009. Though buying a home generally takes longer than selling one, the trend is getting faster. Redfin buyers spent an average of 83 days searching for a home, seven days fewer than the same time last year.

Demand for short-notice tours has only increased. Five years ago, one in three requests were for same-day tours; today it is two in three. Same-day tours grew 27 percent so far in 2016 compared to the same period last year, while the number of home tours completed by Redfin agents grew 19 percent, accounting for market share growth.

Technology and customer behavior will continue to play a role in speeding up the homebuying and selling processes. The next generation of real estate technology will see innovation shift from online listings to hardware and real-world services that increase the efficiency of real estate transactions.

“Instead of merely being informed about homes for sale, homebuyers and sellers are looking for a competitive edge in the market. They want technology that will let them be the first to tour it and first to make an offer. We’re continuing to invest in technology that helps our customers move fast when they want to,” said Redfin chief technology officer Bridget Frey.

“More and more there are buyers who are comfortable with an online offer process that makes it easier and faster to close a deal,” said Karen Krupsaw, senior vice president of real estate operations at Redfin. “There’s a new mindset that the home purchase isn’t the once or twice in a lifetime move it once was and the wide acceptance of technology makes online offer writing a reasonable and often preferred approach for buyers. People see it as more of a transaction. They want to get it done efficiently and move on.”

3. New-construction growth will slow

Redfin

Single-family new construction increased by 9 percent in 2016, but it’s still much lower than historical averages due largely to labor shortages. Given that nearly one in four construction workers are foreign-born, stricter immigration policies from the Trump administration are likely to make the problem worse. We think growth will slow to 6 percent in 2017 if these policy changes go into effect next year. Unfortunately, this affects the availability of affordable starter homes the most, which means higher prices for first-time buyers.

At present, the number of construction workers employed in residential housing is 40 percent lower than its 2006 peak.

4. Mortgage rates will increase, but not too much

Redfin

We expect mortgage interest rates to increase, but to no higher than 4.3 percent on the 30-year fixed rate. Already, the 30-year fixed mortgage rate has increased from 3.5 percent at the end of October to just above 4 percent following the election. The recent rise in rates is largely attributed to Wall Street optimism regarding Trump’s proposals for increased infrastructure spending and tax cuts. In short, Wall Street is now anticipating higher economic growth and inflation in 2017, and reshuffling to stocks from bonds. In general, when investors buy fewer bonds, bond prices fall (yield rises) which pushes up mortgage rates.

Rates are still very low relative to historical averages and expected to remain lower than in 2015 when the 30-year fixed rate was 4.5 percent.

5. More people will have access to home loans

Starting in 2017, the government-sponsored mortgage giants Fannie and Freddie will back bigger mortgages for the first time since 2006. The loan limits insured by these companies will increase to $424,100 from $417,000 in most regions of the U.S. In expensive housing markets, the allowable loan size increases from $636,150 from $625,500. This change makes it easier for more homebuyers to qualify for a mortgage in high-priced markets.

The Trump Administration recently suggested that they plan to privatize Fannie and Freddie.  We expect that proposed changes to the companies would not affect the mortgage market until 2018, due to the lengthy political process of repealing their charter.

Additionally, as the Federal Housing Administration (FHA) has achieved sounder financial footing, there is an increased likelihood that the White House will further lower FHA fees. These fees make it more costly for first-time buyers to purchase homes. In addition to a mortgage rate, FHA borrowers pay a one-time upfront fee of 1.75 percent of the mortgage balance and annual premiums of 0.85 percent. In 2015, the Obama administration lowered annual premiums from 1.35 percent, but these fees are still higher than the 0.60 percent rate in 2011. The upfront FHA fee hasn’t budged in five years, and is much higher than the 1 percent rate it was in 2011.

Finally, in 2016 large financial institutions such as Bank of America, JPMorgan, Wells Fargo and Quicken all introduced mortgages requiring as little as 1 percent to 3 percent down. We expect increases in the availability of low downpayment mortgages to draw more millennial buyers into the housing market.

6. Millennials will move to second-tier cities

Redfin

In the final stretch of the 2016 housing market there have been more first-time buyers entering the market, particularly millennials aged 28-31. However, they’re not into fixer-uppers. Forty-one percent of first-time buyers surveyed by Redfin chose design quality, floor plan and finishing touches as the top features they look for in a home, surpassing other factors like green space (34 percent), length of commute (32 percent) and property taxes (15 percent). In order to get the high-end finishes and design styles they want, they’ll have to buy in more affordable cities like Raleigh, North Carolina, Austin, Texas, and North Port, Florida, which lead the country in the number of new residential building permits per 1,000 people.

“First-timers are looking for high-end features and amenities in their starter homes,” said Scott Nagel, president of real estate operations at Redfin. “Millennials especially are looking for high-quality appliances and other finishes in exchange for giving up the flexibility that comes with renting.”

7. Real estate commissions will continue to fall

As alternative real estate brokerages become more common, people will pay less in commissions. A 2016 Redfin survey of 2,000 people who bought or sold a home in the last year showed that most sellers got a discount on the commission they paid to their broker, and so did almost half of buyers. This was a big increase from 2015 when just 37 percent of buyers got a refund of at least $500.

As a growing number of disruptive companies offer new, money-saving ways to buy and sell homes, we expect more consumers to adopt these approaches. Additionally, we expect that among people who use traditional brokerage services to buy or sell their homes, more will negotiate the commission paid to their agents. Either way, the result is more people saving more money on real estate fees.

Politics will play a larger role in next year’s housing market than in years past. The Trump administration proposals on new infrastructure spending, mortgage market reforms and changes to immigration will shape the 2017 housing market amidst strong buyer demand and mounting affordability pressures from higher prices and mortgage rates.

REAL ESTATE NEWS...Mortgage rates move higher for the seventh week in a row

By Kathy Orton

Mortgage rates carried on their steady ascent this week, moving higher for the seventh consecutive week.

Home loan rates are loosely tied to long-term bond yields, which have been on an upward march. The yield on a 10-year Treasury note climbed to 2.54 percent Wednesday, the first time it has been above 2.5 percent since September 2014. The day before the election, it was 1.83 percent.

The Federal Reserve’s decision to raise its benchmark rate had no effect on rates this week because it came too late in the week to be factored into the Federal Home Loan Mortgage Corp.’s survey. The government-supported mortgage-backer aggregates current rates weekly from 125 lenders from across the country to come up with a national average mortgage rate.

Historically, the central bank’s moves have little effect on mortgage rates. Last year, when the Fed raised the federal funds rate, mortgage rates rose initially before falling for six straight weeks.

“The good news is that lenders have been anticipating the Fed’s move and have baked the likelihood of a rate hike into their loan pricing, meaning that mortgage rates are unlikely to change dramatically from where they are today,” said Doug Lebda, founder and chief executive of LendingTree.

Still, many experts are predicting mortgage rates will continue to rise. Bankrate.com, which puts out a weekly mortgage-rate-trend index, found that almost two-thirds of the experts it surveyed think rates will move higher in the coming week.

“Historically, when the Fed has announced a rate hike, it has been beneficial for mortgage rates,” said Katy Parsons, a mortgage originator at Finance of America Mortgage. “But since the election, almost nothing has reacted the way we would expect.”

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average rose to 4.16 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.13 percent a week ago and 3.97 percent a year ago.

The 15-year fixed-rate average rose to 3.37 percent with an average 0.5 point. It was 3.36 percent a week ago and 3.22 percent a year ago. The five-year adjustable-rate average rose to 3.19 percent with an average 0.4 point. It was 3.17 percent a week ago and 3.03 percent a year ago.

“As was almost universally expected, the FOMC” — the Federal Open Market Committee — “closed the year with its one-and-only rate hike of 2016. The consensus of the committee points to more rate hikes in 2017,” Sean Becketti, Freddie Mac chief economist, said in a statement. “However, the experience of this year combined with the policy uncertainty that accompanies a new Administration suggests a wait-and-see outlook. … If rates continue their upward trend, expect mortgage activity to be significantly subdued in 2017.”

Meanwhile, mortgage applications decreased this week, according to the latest data from the Mortgage Bankers Association.

The market-composite index — a measure of total loan-application volume — slipped 4 percent from the previous week. The refinance index dipped 4 percent, and the purchase index dropped 3 percent.

The refinance share of mortgage activity accounted for 57.2 percent of all applications.

REAL ESTATE TIPS...What to disclose and not to disclose when selling your condo

By Ilyce Glink and Samuel J. Tamkin

The woman in the condo unit directly beneath me committed suicide a few months ago. I am planning to sell my unit, and her husband still lives in the condo below mine. Do I have to disclose her suicide to prospective buyers when I sell my unit?

While seller disclosure laws vary somewhat from state to state, the purpose of most of these seller disclosure laws is to inform potential buyers of residential real estate of known problems or defects that affect a home. We believe that legislators intended seller disclosure laws to pertain to physical characteristics of a home: the windows, roof, foundation, heating and cooling systems, plumbing systems, flooring and the like.

If you know your home has termites, you should tell the buyer. If the foundation has cracked and the home is shifting, you should tell the buyer. If your home has high levels of radon, you should tell the buyer. If your roof is shot and leaking, you should tell the buyer.

However, when it comes to matters that don’t affect the structure of the home, you might not have to disclose some of those items. For example, if you live in a homeowners association and the association has levied a special assessment, you might have to disclose that, but if you feel your home is haunted, you might not have to disclose that.

Homeowners die in their homes all the time. Some die from natural causes and others don’t. We don’t tend to believe that you need to disclose those matters to prospective buyers. And at least we don’t think seller disclosure laws were intended to cover those matters.

Still, when it comes to “stigmatized properties,” buyers might ask a seller whether a death occurred by suicide, AIDS or murder. While you may not be required to disclose that sort of information upfront, you are required to answer that question honestly. And in some states you may be required to disclose the information, although there is generally a time limit that applies to the disclosure. California law requires that sellers disclose deaths that occurred on the property three years before the sale. But for deaths that occurred before that time, there is no requirement to disclose.

Your situation doesn’t even affect your unit, the death occurred in a unit below yours. We don’t see how that situation affects your condominium value. While it’s unpleasant to know that it happened, and it’s quite regrettable, we don’t think it rises to the level that would require disclosure to the buyer.

Your real estate broker can give you further information on marketing your property; if you want further clarification, you should talk to a real estate attorney who practices law in the state in which the condominium is located.

REAL ESTATE TOPICS...Improved Affordability in Housing

REAL ESTATE TOPICS...How to find and finance bank-owned properties

By Hal Bundrick, NerdWallet

Home prices are still rising — they’re currently averaging just below all-time highs set in 2006, according to the Case-Shiller Home Price Indices. Combine that with slim housing inventory in many markets, and you may believe you’ve missed the opportunity to buy your first, or your next, home.

But bank-owned properties, also known as real-estate owned houses, could be an affordable option for first-time or move-up homebuyers. Lenders are anxious to unload repossessed properties, and without emotional ties, they’re often more inclined to sell a property below market value.

A ‘great investment’

"I was kind of homeless!" Sheila Asseline of South Lake Tahoe, California, says, laughing as she recounts her housing situation of five years ago. "I was living with my daughter and her husband because I had sold a house and hadn't found a replacement property."

But then she got a call from her real estate agent, telling her about a bank-owned house that had just been listed on the market.

"I just jumped on it because I thought it was going to be a good investment. And it turned out to be a great investment." With cash in hand from the sale of her previous home, Asseline acknowledges she was at an advantage. In fact, her offer on the house was accepted over a higher offer from another would-be buyer because that bid was contingent on obtaining financing.

"I found the process extremely simple," she adds. "I put in an offer, and [the bank] countered back, and I accepted it. It turned out to be really easy." Two weeks later, the sale closed.

After a few years, and kitchen and master bath updates, she sold the house and "did very well."

Where to find bank-owned properties

Real-estate owned houses aren’t found only in the most depressed real estate markets. In October 2016, the five markets that saw the highest REO sales on Hubzu, a home-auction website that sells lender-foreclosed homes, were:

1. Chicago

2. Baltimore

3. Washington, D.C.

4. New York City

5. Tampa-St. Petersburg

But with the housing crisis fading, are the best deals gone?

After declaring the foreclosure crisis over in September, real estate research firm Attom Data Solutions  noted a 27% increase in foreclosure activity the very next month. In addition, at the end of the third quarter, vacant bank-owned propertieswere up 67% from one year ago.

"Even in the best of times, there is some percentage of homes that get foreclosed," says Steve Udelson, president of Altisource Online Real Estate, which operates Hubzu.com. For buyers who aren't finding affordable homes in their target neighborhoods, it's well worth their time to investigate foreclosed homes, he adds.

REO properties are often found on multiple listing services. Websites like Hubzu.com, RealtyTrac and Auction.com list REO homes for sale and are good sources for hopeful homebuyers to tap.

It’s also worth asking your real estate agent about REO homes in your area.

A note about timing

While buying “distressed” properties can seem complicated, it’s really a matter of getting into the foreclosure process at the right time. There are basically three stages:

● Pre-foreclosure is when the owner of a property who has become late on mortgage payments receives a notice of default from the lender.

● A public auction is held if the loan defaults. This is when professional investors battle it out, making lowball offers. Many times, because the bids are too far below market value, the bank will simply repossess the property.

● A bank-owned sale or auction. This is where Udelson says potential homebuyers have the greatest opportunity. At this point, you have a seller who is motivated to sell. Banks want to get these properties off their books as soon as possible, he says.

One loan to buy and rehab

In recent years, financing has become more flexible. One federal loan program now allows you to buy a qualifying house and finance improvements and repairs as a part of the loan package to purchase the property; the Federal Housing Administration-backed 203(k) loan allows the mortgage to be based on the home’s value after the rehab, or the home’s purchase price and cost of repairs, whichever is less. Mortgage loan limits vary by location.

Many banks also offer conventional purchase-and-renovate loan packages.

REAL ESTATE NEWS...Case-Shiller: Home prices finally surpass record highs set a decade ago

By Brena Swanson

“Crossing this threshold is largely symbolic”

Home prices finally surpassed all-time highs set in July 2006 as the housing boom topped out. But despite the steady build up to this the past few months, the new high isn’t necessarily a win.

According to the latest data released Tuesday by S&P Dow Jones Indices and CoreLogic, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. census divisions, recorded a 5.5% annual gain in September, up from 5.1% last month.

The 10-City Composite posted a 4.3% annual increase, up from 4.2% the previous month, while the 20-City Composite reported a year- over-year gain of 5.1%, unchanged from August.

On a monthly basis and after seasonal adjustment, the National Index recorded a 0.8% month-over-month increase, the 10-City Composite posted a 0.2% month-over-month increase, and the 20-City Composite reported a 0.4% month-over-month increase.

The chart below show the annual returns of the U.S. National, the 10 -City Composite, and the 20- City Composite Home Price Indices.

Click to enlarge

(Source: S&P Dow Jones Indices and CoreLogic)

David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, highlighted, “The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance.”

However, there’s a significant divide when looking at each city individually.

“While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms -- Miami, Tampa, Phoenix and Las Vegas -- remain well below their all-time highs,” Blitzer said.

The report stated that Seattle, Portland, and Denver recorded the highest year-over-year gains among the 20 cities over each of the last eight months.

In September, Seattle led the way with an 11% year-over-year price increase, followed by Portland with 10.9%, and Denver with an 8.7% increase.

In addition, 12 cities reported greater price increases in the year ending September 2016 versus the year ending August 2016.

“Crossing this threshold is largely symbolic,” Trulia Chief Economist Ralph McLaughlin explained. “After controlling for inflation, home prices in the U.S. are still about 20% below the peak.”

Similar to Blitzer, McLaughlin stated that the recovery is not even across the board.

 “The housing market recovery has been very uneven across the U.S. When controlling for inflation, markets that have reached their pre-recession peaks are few and almost exclusively in the West and South. And within those markets, it’s mostly high-end homes that have surpassed the peak,” McLaughlin said.

He added that while this is not so great news for homebuyers who have seen prices outpace incomes for most of the housing market recovery, it’s good news for homeowners who are no longer underwater.

REAL ESTATE TOPICS...Who's buying homes?

 

REAL ESTATE TOPICS...Yale's Robert Shiller: Now Is Good Time to Invest in Real Estate

Nobel laureate economist Robert Shiller of Yale University, who helped develop the S&P/Case-Shiller housing price survey, believes now could actually be the time to buy into the real estate sector.

He told FOX Business Network’s “Cavuto: Coast to Coast” that he wasn’t too worried about record-setting stocks and rising housing prices right now.

“Mortgage rates are still low and there could be an upswing—a continuation of the upswing we’ve seen since 2012,” Shiller said regarding the housing market.

“It seems like if you look at the bond market it’s not exactly the bubble story. But there are big turning points in the bond market,” said the 2013 Nobel laureate in economics, professor of economics at Yale University and the co-creator of the Case-Shiller Index of U.S. house prices.

“One of them was around 1979-1980 when Paul Volcker took over the Fed. And interest rates were way in the double digit range. And they’ve been just coming down ever since. It’s not just the financial crisis—it has been a long trend down. And now they kind of hit zero. They can’t go much lower recently,” he said.

Shiller added that with Donald Trump and his “very strong personality” about to move into the White House, there could be a reversal of the trend.

“We could be in for higher interest rates, both at long and short end,” he said, adding that since inflation is still “under control” the Fed won’t do any “reckless raise” of interest rates.

Meanwhile, the stock market’s rise to record highs after Trump’s presidential victory shows that investors are optimistic that the economy will improve as President Barack Obama leaves office, says Charles Gasparino, author and Fox Business Network senior correspondent

“His promise to cut both corporate taxes and red tape will translate into higher corporate profits so businesses can expand and create jobs,”Gasparino writes in the New York Post. “Real unemployment can finally decline not because people are dropping out of the workforce but because they’re actually working again.”

Trump will come into office with Republicans controlling the Senate and House of Representatives, making economic reforms a realistic possibility instead of prolonged gridlock. Under President Obama, the U.S. economy never exceeded 3 percent yearly growth for the first time since World War II.

“With the GOP controlling the House as well as the Senate, traders see real economic growth on the horizon, not just a Fed-induced stock-market bubble where interest rates are so low there’s no other place to put your money,” Gasparino says.

REAL ESTATE TOPICS...Can a real estate contract be binding if you don't put money down?

By Benny L. Kass

Q: Please resolve a dispute I have with my real estate agent. He says I need to post a money deposit in order to have a binding real estate contract, and I don't agree. He also said the oral promise of my seller to leave the piano in the house is not binding. Is that correct?

A: There is a very ancient legal concept called the statute of frauds. In simplified terms, and as it applies to real estate, this means that in order to have a binding contract to purchase (or sell) real estate, there must be a written document. Oral contracts will usually not be enforced by the courts.

In most jurisdictions in the United States, when a potential buyer makes a written offer to purchase a house, the seller has three options:

1. The offer can be accepted, in which case there is a contract.

2. The offer can be rejected.

3. The offer can be met with a counteroffer. This means that while the seller is interested in pursuing negotiations with the potential purchaser, the seller does not find all the terms of the original offer acceptable. .

If a seller makes a counteroffer, the buyer then has the same three options.

Most real estate transactions are smooth, and work out successfully. However, once in a while, a major dispute arises between the parties, and litigation starts. The first thing any court will want to determine is whether there is a valid contract.

In order to have a binding, legal contract, three basic elements are required:

1. An offer. Typically, the buyer makes an offer. It has been determined by many courts that an advertisement in the local newspaper offering a house for sale at a particular price is not an offer, merely an invitation for the public at large to make a bid (an offer) on the property.

2. Acceptance. The second element needed to make a contract binding is acceptance. Ultimately, there will either be no deal, or someone will accept an offer (or counteroffer) and there will be a contract. Acceptance must be in writing. In recent years, with modern technology, real estate forms can be accepted via fax or by email. However, to be on the safe side, follow any fax or email with a written document containing an original signature.

3. Consideration. This is an elusive concept. Generally, it refers to money. The buyers have put down a good faith money deposit with the broker (or with their attorney), and this constitutes good consideration.

However, what happens if no money is put down with the offer? Does this mean there is no binding contract even if the seller signs the offer? Not really, since consideration also has been interpreted to be "something of value." In this case, the buyer has stopped looking for another house, in the belief there is a binding real estate contract, and the seller has taken the house off the market, based on that same belief. Thus, there would still be a valid contract, although it is always wise to put down some money when you present an offer to purchase real estate.

The lesson to be learned: Put everything in writing. If you, as buyer, want certain items to be conveyed along with the house — such as the washing machine, curtains or even the piano — make sure these items are specifically listed in the sales contract. And conversely, if you, as seller, want to take certain fixtures with you, put that in writing as well.

Don't leave anything to faith — or to oral promises. I cannot guarantee you will get the piano.

REAL ESTATE NEWS...Blackstone's plan to cash in on a $10 billion housing bet

By JONATHAN BERR

Blackstone Group’s (BX) Invitation Homes, the country’s largest owner of single-family residences, is planning to go public next year. The goal is to monetize Blackstone’s nearly $10 billion investment in residential properties that began when the real estate market collapsed during the housing bust, sparking the worst U.S. economic downturn since the Great Depression.

Dallas-based Invitation announced its IPO plans in a confidential filing Tuesday with the Securities and Exchange Commission, according to a person familiar with the deal. Blackstone, whose real estate holdings top $100 billion, probably will sell very little of its stake in Invitation during the IPO. Invitation and Blackstone declined to comment for this story. Details of the IPO were reported earlier by The Wall Street Journal.

According to a recent report by financial services firm KBW, Blackstone rapidly vaulted to the top of the home rental market, acquiring 48,000 properties at bargain prices since April 2012, 70 percent of which are on the West Coast and Florida. Blackstone also was the first firm to issue bonds backed, or securitized, by thousands of rental payments. These are similar to the mortgage-backed securities that many blame for exacerbating the financial crisis. Invitation’s rivals in the home-rental business have also issued the securities.

“Many times, the kinds of homes that these firms are renting out may be larger, may have more high-end finishes than a comparable single-family rental home,” said Sarah Edelman, a housing market expert at the left-leaning Center for American Progress. “Traditionally, single-family rental has been among our more affordable sources of rental housing. There’s a risk here if you move more toward the luxury end, possibly at the expense of our more affordable [homes].”

KBW estimates that Invitation invests about $200,000 per home, which is above the $170,000 industry average, because it focuses on upscale real estate markets with good school systems that can command higher rents. The U.S. has approximately 16 million single-family rental homes, 45 percent of which are owned by investors with just one property, while 1 percent are in the hands of mega-owners with 1,000 or more houses, like Invitation. Larger players have been buying out smaller institutional investors in recent years. 

The timing of Invitation’s IPO also is curious. Several of its rivals, including American Homes 4 Rent (AMH), Starwood Waypoint Residential Trust (SWAY) Silver Bay Realty Trust (SBY), have been public for several years. Moreover, data from CoreLogic shows that home prices have surged 30 percent since 2010, making bargains harder to find. CoreLogic expects prices to rise another 5.4 percent over the next 12 months.

“It will be interesting to see how their profit model fares now that it’s not easy to scoop up affordable stocks,” Edelman said. “I do have concerns that when companies are locked into generating a certain return or in their effort to attract broad investment capital, they’ll need to push up rents.”   

Some media accounts have said some Invitation renters have faced substandard living conditions, but it’s hard to get a clear view of how Invitation operates. That’s because its holdings -- unlike multifamily dwellings such as apartment buildings -- are spread out, and tenants aren’t usually organized. Also, owners of single-family homes don’t have to meet standards as stringent as those their multifamily counterparts do, according to Edelman.

Another thing owners have going for them are the high prices for so-called starter homes in markets such as Miami and Atlanta that would normally attract first-time homebuyers. Said Edelman: “There will still be potential homeowners on the sidelines for some time.”