For many Arizonans with an underwater mortgage,completing a short sale or foreclosure before the start of next year is essential to take advantage of a large tax benefit set to expire at the beginning of 2013.
Ordinarily any debt forgiveness received is treated by the IRS as income to the debtor – you. This means you are viewed by the government to have received the same amount of money to your income as was canceled in your debt.
Example: If you owe $200,000 on your home and the bank recovers $100,000 through short sale, foreclosure or Trustee’s Sale you may still owe the difference unless the bank cancels the remaining $100,000 debt. If the lender forgives your balance (by either agreement or state law), the Tax Code says you also received $100,000 of income on which you must pay taxes. (Note there are exceptions to this law so contact us to review your individual scenario).
For most, if not all, people having to pay an added tax bill of between $20,000-$30,000 in taxes as a result of that income is staggering. Fortunately the Mortgage Forgiveness Debt Relief Act of 2007 makes it possible for many homeowners to avoid paying income tax on the canceled debt they may have received after being foreclosed on or completing a short sale. Now there are a few qualifications:
1. Homeowner must have completed the short sale or foreclosure BEFORE 2013
2. The property must qualify as the tax payer’s “principle residence.” A “principle residence” is different than a “primary residence.” Whereas a primary residence is the property where the homeowner currently lives, a principle residence is one the homeowner lived in during 2 out of the last 5 years.
3. Homeowners may only claim up to $2 million of this debt cancellation, meaning most struggling homeowners will no need to worry about the cap.
Our Team of Short Sale Specialists are here to help and we offer a free analysis of your current home or investment property. With $0 out of pocket we relieve the stress of working with your lender, as we do all the negotiations on your part and make sure that you are fully represented as our client. Call today or visit our website at www.Jennifurshomes.com for more information.
Jennifur Newell-Realtor-Broker-NAR-BBA
623-826-7968 or info@jennifurshomes.com
U.S. house prices have plunged by nearly a third since 2006, and homeownership rates are falling at the fastest pace since the Great Depression.
The good news? Two key measures now suggest it's an excellent time to buy a house, either to live in for the long term or for investment income (but not for a quick flip). First, the nation's ratio of house prices to yearly rents is nearly restored to its prebubble average. Second, when mortgage rates are taken into consideration, houses are the most affordable they have been in decades.
Two of the silliest mantras during the real-estate bubble were that a house is the best investment you will ever make and that a renter "throws money down the drain." Whether buying is a better deal than renting isn't a stagnant fact but a changing condition that depends on the relationship between prices and rents, the cost of financing and other factors.
But the math is turning in buyers' favor. Stock-oriented folks can think of a house's price/rent ratio as akin to a stock's price/earnings ratio, in that it compares the cost of an asset with the money the asset is capable of generating. For investors, a lower ratio suggests more income for the price. For prospective homeowners, a lower ratio makes owning more attractive than renting, all else equal.
Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody's Analytics. The average from 1989 to 2003 was about 10, so valuations aren't quite back to normal.
But for most home buyers, mortgage rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains, even if price/rent ratios aren't hitting new lows. The 30-year mortgage rate rose to 4.12% this week from a record low of 3.94% last week, Freddie Mac said Thursday. (The rates assume 0.8% in prepaid interest, or "points.") The latest rate is still less than half the average since 1971.
As a result, house payments are more affordable than they have been in decades. The National Association of Realtors Housing Affordability Index hit 183.7 in August, near its record high in data going back to 1970. The index's historic average is roughly 120. A reading of 100 would mean that a median-income family with a 20% down payment can afford a mortgage on a median-price home. So today's buyers can afford handsome houses—but prudent ones might opt for moderate houses with skimpy payments.
For example, the median home in the greater Phoenix market, including houses, condos and co-ops, costs $121,700, according to Zillow.com. With a 20% down payment and a 4.12% mortgage rate, a buyer's monthly payment would be about $470. Rent for a comparable house would be more than $1,100 a month, according to data provided by Zillow.com.
Of course, all of this assumes mortgages are available—no given now that lending standards have tightened. But long-term data on down payments and credit scores suggest conditions are more normal than many buyers think, according to Stan Humphries, chief economist at Zillow. "If you have good credit, a job and a down payment, you can get a mortgage," Mr. Humphries says. "There's more paperwork and scrutiny than five years ago, but things are pretty much like they were in the '80s and '90s."
Not all housing markets are bargains. Mr. Humphries says Zillow has developed a new price/rent ratio that uses estimates for each individual property rather than city medians, to better reflect the choices facing typical buyers. A fresh look at the numbers suggests Detroit and Miami are plenty cheap for buyers, with price/rent ratios of 5.6 and 7.7, respectively. New York and San Francisco are more expensive, with ratios of 17.6 and 17.2, respectively. The median ratio for 169 markets is 10.7.
For investors seeking income, one back-of-the-envelope way of seeing how these numbers stack up against yields for other assets is to divide 1 by the price/rent ratio, resulting in a rent "yield." The median market's rent yield is 9.3% and Detroit's is 17.9%.
Investors would then subtract for taxes, insurance, upkeep and other expenses—costs that vary widely. But suppose total costs were 4% of the purchase price. That would still leave a 5.3% rent yield in the typical market. With the 10-year Treasury yield at 2.2% and the Standard & Poor's 500-stock index carrying a dividend yield of 2.1%, rents for residential housing in many markets look attractive.
A few caveats are in order. First, not all transactions are average ones. Even in low-priced markets, buyers should shop carefully. Second, prices could fall further. Celia Chen, a senior director at Moody's Analytics, expects prices to drop 3% before bottoming early next year and rising slowly thereafter. "If the economy slips back into recession, however, we could easily see a 10% drop," Ms. Chen says.
And property "flipping" can be dangerous even when prices are rising. That is because, absent a real-estate boom, house price gains simply aren't that exciting. Research by Yale economist Robert Shiller suggests houses more or less track the rate of inflation over long time periods.
Houses aren't the magic wealth creators they were made out to be during the bubble. But when prices are low, loans are cheap and plump investment yields are scarce, buyers should jump.
—Jack Hough is a columnist at SmartMoney.com. Email: jack.hough@dowjones.com
Phoenix, AZ October 1, 2011 -
Phoenix, AZ Market Snapshots *
| All Homes | Single Fam. Homes | Condos |
| | Today | 1 Month Ago | 6 Months Ago | 1 Year Ago | 2 Years Ago |
| Total Inventory | 5516 | 5645 2% | 7811 42% | 10664 93% | 8294 50% |
| Median List Price | $115,000 | $114,500 | $100,000 -13% | $103,000 -10% | $144,900 26% |
% Distressed | 22% | 21% | 21% | 22% | 25% |
Median Days
on Market | 62 | 62 | 70 13% | 69 11% | 70 13% |
| Median House Size | 1618 | 1602 -1% | 1586 -2% | 1524 -6% | 1563 -3% |
Median Price
Per Sq. Ft. | $75 | $74 -1% | $67 -11% | $70 -7% | $93 24% |
Phoenix, AZ Market Data Chart *
| All Homes | Single Fam. Homes | Condos |
| | 11/10 | 12/10 | 1/11 | 2/11 | 3/11 | 4/11 | 5/11 | 6/11 | 7/11 | 8/11 | 9/11 | 10/11 |
| Price Reductions | 3494 | 3275 | 3492 | 2865 | 2890 | 2239 | 1902 | 1746 | 1514 | 1510 | 1267 | 730 |
Number of
New Listings | 2762 | 2420 | 3103 | 2649 | 2976 | 2771 | 2593 | 2593 | 2346 | 2483 | 2182 | 1100 |
Listings
Sold/Expired | 3325 | 3411 | 3951 | 3844 | 4618 | 3957 | 3924 | 3961 | 3486 | 3225 | 2635 | 1283 |
* Historical data may be incomplete in some areas.
Phoenix, AZ Market Data Graphs
Palm Valley, Goodyear
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Announcing a price reduction
on 4482 N 153rd, a 3,546 sq. ft., 3 bath, 5 bdrm single story. Now
$259,000
- Move in Ready! No Waiting.
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The question of whether to short sale or allow the home to foreclose is based on your personal financial scenario. However, those that short sale are able to stay in the home during the whole short sale process without making a payment, thus allowing them to save thousands of dollars. Short-sales can take anywhere from 2 months up to a year or longer, this is dependent on if the buyer is willing to wait for the short sale process, many times buyers will cancel, this would start the process over again. However, some banks are starting to get the hang of the short sale and have began swapping out the old buyer with a new buyer offer. This would allow a much shorter turnover, and producing an approval from the sellers lender much quicker. Normal process takes 30-45 days for a negotiator to be assigned once an offer and a full short sale package(sellers financial documents) are received. Then an appraiser or a real estate agent from a third party will come our and appraise or do a price opinion of the home, once this is done, the sellers lender will take 1-2 weeks reviewing the file and assuring the purchase price will meet the net and the value that the investor(money backer behind the bank) will approve. Not only does the bank have to find a value that the investor will accept, but also many loans have Mortgage Insurance, and the Insurer will also need to sign off on the offer. This is one of the biggest reasons that short sales take so long, many parties are involved and the banks negotiators are handling hundreds of files at one time.
Well, I've actually started seeing some movement from the banks in working with their clients to give them better payments and even reducing principles. I even have a great example, that just happens to be my own personal situation:
Like many homeowners my value in my home has dropped substancially in the past few years and it didn't help that we purchased our home in 2006, at the peak of the market. We purchased our home for over $500,000 and today, it's only worth about $300,000....Ughhh So I decided to see if I could get my current mortgage holder to try to work with me..... At first they agreed to do a loan modification, the reduced my interest rate down to 1% for 2 years, which brought our payment down from $3300 to $2,000, after the two years my interest rate would be 5% locked for a 40 year period, but my payment would still be about $2400, which is still way better than $3,300. Though I was greatful for this, it pained me to think how much value our home had dropped.... I decided to get a hold of my bank again and write a letter of how I would love to stay in my home and if we could meet in the middle somewhere, basically I said if they could bring my principle down to $380,000 which is more than market value on my home, that I would not give them anymore grief. The first response I got was, "I really don't see this happening, but I will submit it and we'll see. Honestly we've never done a principle reduction for anyone..." So, needless to say I thought that would be the end of it, but guess what!! After a couple of days I received a call from the underwriter who had done my loan modification, which believe it or not was just a great understanding guy.... He said, "You will never believe this, but the bank has accepted your offer and is going to reduce your principle balance." Needless to say, I was extactic!!!!! So, the moral of the story, keep trying until you get an answer or at least something that can help you....
Honestly, I know that I was lucky, but if we all work together and share our stories, we can learn and help eachother, so if you have a story, please let us know....
I get many questions about what is going on in our market and where our market is headed. I thought I would try to answer a few of the most common questions asked. Keep in mind that not everyone's scenario is the same and certain conditions may apply, but these are the general answers. You are more than welcome to contact me with more in depth information.
1. What is a short-sale?
A short-sale is when a seller of a home asks the bank/mortgage holder to take less for the home than what is owned on a home. Basically the seller is unable to sell the home for what is owed on the home due to a hardship, loss of income, or other non-controlling circumstances. Banks won't normally just agree to take a home at a loss without proper due-diligence of the home owner, this includes having the home on the market for usually at least 3 months before asking for a short-sale. There is several items the bank will need from the seller in order to get the process started; proof of marketing the home on the mls(usually a realtor listing agreement will suffice), a hardship letter, proof of current financial status, last 2 months bank statements, and last two paystubs. Most banks take 30-90 days to ok a short-sale after recieving an offer on the property. So, unfortunatley this can take quite a bit of time, but if an agreement can be made between the bank/seller and the new buyers, this can be a great way for sellers to escape the foreclosure process. The banks may issue a 1099 showing that they took a loss and that the seller will need to account for the loss as income earned. This is a grey area and it's best if you speak with your accountant, as I've spoken to several accountants who have said that a seller may not have to count the 1099 as income.
2. How can I buy foreclosed properties?
Many homes taken back by banks are immediately put back on the market, as the banks prefer to not have to keep and maintain the homes. Many foreclosed homes may need TLC, so it's best to inspect the home as the banks will not make any repairs and will only sell the homes as-is. You are more than welcome to search for homes on my website www.jennifurshomes.com
3. Is it safe to buy in today's market?
It's important to look at your own financial needs in the present and future. Many buyers tend to try to buy more house and therefore more of a payment than what is reasonable for their certain economic position. It's best to have a home that will let you live your life and not be stressed about were your next mortgage payment will come from. You will find that many lenders are becoming very strict, requiring money down, good credit scores, and proof of income. I believe that the buyers that are buying homes now are the ones that are fully quallified, thus our market is starting to build strength again. Honestly, interest rates are still good, home prices are low, have they reached the bottom... Only time will tell. There's so many good deals that honestly as long as you plan on living in the home for a few years, I really don't think you will have any issues, as trends show that what goes down will eventually go back up, it will just take a few more years.
Mountainside, Surprise - Announcing a rent/lease reduction on 17519 W Columbine, a 1,840 sq. ft., 2 bath, 3 bdrm single story. Now $950 USD Monthly - Short Term Rental.
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Verrado, Buckeye - Announcing a price reduction on 20806 W Prospector Way, a 3,100 sq. ft., 3 bath, 4 bdrm single story. Now 
MLS® $289,000 - 3100 SF Luxury Home!!.
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Sundance, Buckeye - Announcing a price reduction on 22230 W Solano, a 2,400 sq. ft., 3 bath, 4 bdrm single story. Now MLS® $189,000 - Move In Ready!!.
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4 Bed 4.5 Bath Custom Single Story!!
• 4,627 sq. ft., 5 bath, 4 bdrm single story - $489,000 - 4600 SF!! WOW!!
Russell Ranch, Litchfield Park - THIS A GREAT HOME IN A GATED COMMUNITY WITH TRAVERTINE TILE THRU-OUT, GRANITE COUNTERTOPS WITH CHERRY CABINETS, GAS STOVE. THIS PROPERTY IS PRICED TO SELL!!
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Russell Ranch, Litchfield Park - Announcing a price reduction on CItrus and Camelback, a 4,627 sq. ft., 5 bath, 4 bdrm single story. Now $489,000 - 4600 SF!! WOW!!.
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• single story
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Coldwater Springs, Avondale
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This like new 1700 sf 3 bed plus a den home is available for purchase or as a lease to purchase. Home includes corian counters, hardwood in kitchen/dining room, gas range, kitchen island, upgraded cabinets, black upgraded appliances included, upgraded carpet/padding, bay window in master, blinds, low-e windows, fully landscaped front and back yard. Located in a golf course community and within walking distance to the K-8 school.
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Copper Canyon Ranch, Surprise
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The 1 1/2 story at 14365 W Shaw Butte Dr has been sold.
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2700 Loaded 4 bed 3 car w/Pool!!!
• 2,700 sq. ft., 3 bath, 4 bdrm 2 story
-
$275,000
- Brand New!!
Canyon Trails, Goodyear
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Just Came back from sold and will not last long!! THIS HOME HAS A LEVEL 5 CHERRY CABINET UPGRADE. GRANITE WITH A 4' BACKSPLASH IN KITCHEN. 18' TILE THROUGHOUT THE FIRST FLOOR. IRON STAIR RAILING. ENERGY STAR PACKAGE. REVERSE OSMOSIS SYSTEM, SOFT WATER SYSTEM, SPEAKER AND THEATER PREWIRES. TWO-TONE INTERIOR PAINT AND A PARK VIEW OUT THE BACKYARD. This brand new home is a steal with $30,000 in upgrades included!! Stainless steel upgraded appliances, front end loading w/d, soft water system, iron railing, upgraded slate colored tile in kitchen/dining/laundry/entry/family room/baths, upgraded lighting, granite kitchen counters and island, cherry spice cabinets, surround sound, full covered patio, view fencing, extra large lot, rv gate, 4 bed, 3 car garage with garage opener/service door, tons of energy efficient features, 2 year warranty, and more!!
**If you have any other real estate needs - please contact me and I can help you find your perfect home for nothing out of your pocket!! That's right, free buyers representation and exclusive leads to the best deals in the west valley. I hear about the best deals and have them sold before they even reach the MLS or general public. You can count on me to help you find your dream home at dream prices!!
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