Rate on 30-year mortgage falls to 4.29%
Home price gains bring sellers off the sidelines
SAN DIEGO (AP) - July 8, 2013 - Robert and Emerald Oravec were itching to sell their condominium late last year to move closer to a favorite surfing spot, but they were stuck. They owed the bank $194,000 and figured the most they could get was $180,000.
When they put their San Diego home up for sale a few months later, they fielded five offers within two weeks. It sold for $260,000 in May, allowing them to invest profits in a new home that's more than twice the size on a large lot and 40 minutes closer to the surfing beach.
"We're stoked," said Robert, 50, a facilities engineer at Solar Turbines Inc., a maker of gas turbines that has employed him for the last 22 years. "It was better to be patient and wait it out."
Soaring prices are leaving fewer homeowners owing more money than their properties are worth, bringing them off the sidelines of the nation's surging housing market and offering relief to buyers who are frustrated by bidding wars. As more homes are put up for sale, price increases are expected to moderate.
Mark Fleming, chief economist at real estate data provider CoreLogic Inc., calls it "a virtuous circle."
"The fact that house prices have increased so dramatically . has unlocked a lot of that pent-up supply," said Fleming, whose firm found that markets with the largest percentage of "underwater" or "upside down" mortgages often have the lowest supply of homes for sale.
At the end of March, 19.8 percent of the nation's mortgaged homes were underwater, down from 23.7 percent a year earlier and 25 percent during the same period of 2011, according to CoreLogic. Gains spread across the country, though regions that rose high and crashed hard remained saddled with homeowners who bought near the peak.
Nevada had a nation-high 45.4 percent of mortgages underwater, followed by Florida at 38.1 percent, Michigan at 32 percent and Arizona at 31.4 percent. Montana had a nation-low 5.6 percent.
Among major metropolitan areas, Tampa Bay had a nation-high 41.1 percent of mortgaged homes underwater, followed by Miami at 40.7 percent. Dallas had a nation-low 8.3 percent.
San Diego, at 19.5 percent, was slightly better than the national rate and California's 21.3 percent. The region's median home sale price hit $406,500 in May, up 21.3 percent from a year earlier amid brisk sales, according to DataQuick.
Housing inventories remain unusually low. There was a 5.2-month supply of existing, single-family homes for sale in May, compared to 6.4 months a year earlier, according to the National Association of Realtors. California had only a 2.6-month supply, compared to 3.6 months a year earlier and well below the six months that is considered a balanced market.
San Diego broker Colleen Cotter began knocking on doors this year after scouring property records to find homeowners who didn't owe money. If someone answers, she makes an all-cash bid on behalf of investors who don't even visit.
Nearly one of three homes sold in Southern California is paid for in cash, putting borrowers at a disadvantage. Some buyers write sellers about how they would cherish a home, hoping to spark a personal connection.
Josh Martin, 26, discovered homes he and wife considered buying had changed hands less than a year earlier at much lower prices. The first-time homebuyers lost nine bids since August - many to cash buyers - until finally landing a home in May for $250,000 in the San Diego suburb of Chula Vista.
"It was very stressful because the prices just kept going up," said Martin, who recently left the Marine Corps. "Our lease was about to end and we didn't want to sign another year."
Economists expect many homeowners will continue to resist selling because they think they can profit more by waiting.
Nancy Randazzo, a 38-year-old public school teacher who owes about $240,000 on an Anaheim condominium that she bought for $335,000 in 2005, figures she might be able to sell for what she owes but wants to rent to Disneyland tourists. One potential snag is that she and her fiancée would need to find a place to buy.
"Prices are going up so fast that I don't know if I can," she said.
The huge price increases produced an unexpected retirement gift for Larry and Diane Plaster, who were resigned in January to selling their San Diego home for less than they owed the bank, known as a short sale. They owed $352,000 but accepted an offer for $290,000.
Their bank rejected the deal four months later, leading the couple to put the home up for sale again. On the second attempt, they took an all-cash offer of $380,000, yielding a windfall of $6,500 after broker fees and closing costs. The Plasters, who live on Social Security income, fulfilled a dream of moving to a geodesic dome they built in Janesville, 130 miles north of Lake Tahoe.
The former Catholic social service workers were so angry when Chase rejected the short sale that they closed their account after more than 40 years.
"Now I guess I should send them a thank-you note," said Diane, 66.
Copyright © 2013 The Associated Press, Elliot Spagat.
May sees big drop in mortgage delinquencies
JACKSONVILLE, Fla. - July 8, 2013 - The May Mortgage Monitor report released by Lender Processing Services, which is based in Jacksonville, found that the national delinquency rate marked its largest year-to-date drop since 2002. Delinquencies are down more than 15 percent since December 2012, coming in at 6.08 percent for the month.
"Though they are still approximately 1.4 times what they were, on average, during the 1995 to 2005 period, delinquencies have come down significantly from their January 2010 peak," says LPS Applied Analytics Senior Vice President Herb Blecher. "In large part, this is due to the continuing decline in new problem loans - as fewer problem loans are coming into the system, the existing inventories are working their way through the pipeline.
New problem loan rates are now at just 0.73 percent, which is right about on par with the annual averages during 2005 and 2006, and extremely close to the 0.55 percent average for the 2000-2004 period preceding.
"As we've noted before," Blecher continued, "negative equity appears to still be one of the strongest drivers of new problem loans, and - primarily buoyed by home price increases nationwide - that situation also continues to improve." The number of 'underwater' loans declined to just 7.3 million loans as of the end of the first quarter of 2013 - less than 15 percent of all currently active loans and a nearly 50 percent year-over-year decline."
However, recent volatility in mortgage loan interest rates is not yet reflected in the data.
Other key results from LPS' latest Mortgage Monitor report:
. Total U.S. loan delinquency rate: 6.08 percent
. Month-over-month change in delinquency rate: -2.11 percent
. Total U.S. foreclosure presale inventory rate: 3.05 percent
. Month-over-month change in foreclosure pre-sale inventory rate: -3.91 percent
. States with highest percentage of non-current* loans: Florida, New Jersey, Mississippi, Nevada and New York.
. States with the lowest percentage of non-current loans: Montana, Arkansas, Wyoming, South Dakota and North Dakota.
© 2013 Florida Realtors®
10 tips for buying real estate with IRAs
NEW YORK - July 8, 2013 - Want to invest in real estate through a retirement account? It's possible, but it's also far more difficult than simply buying and selling investment property.
"Given the combination of bottomed-out home prices and a still-tight lending environment, utilizing funds from a retirement account to purchase investment homes with cash, or at least with a large downpayment, can give individual buyers a better chance of competing in this tight housing market," says Daren Blomquist, vice president at RealtyTrac.
Blomquist says investing with retirement money "gives consumers a path to more quickly build their nest egg since all proceeds from the real estate investment - whether that be from rental cash flow or from selling the property - go directly back into the retirement account."
However, he also says retirement investors should conduct thorough research first.
Look before you leap
Retirement funds can be a good fit for some investors but it's not for everyone. "It depends on the person's age and the type of property," says Sheldon Detrick, CEO of Prudential Alliance Realty in Oklahoma City, Okla. "Rental property, especially on the lower end, can be a good investment at any age. It's usually profitable and easy to sell. On the other hand, buying land in outlying areas in anticipation of population growth is something only those under 50 should consider."
Know the ground rules
Lorraine and Richard Walls, a couple in Midlothian, Va., decided to use their retirement accounts to buy investment properties in Southwest Florida. But before making the plunge, the Walls spent a full year researching how self-directed real estate IRAs work, learning the basic ground rules every investor should know before they get started. Those ground rules include:
. Title: Any property purchased by an IRA is owned by the IRA - not an individual.
. Purchase money: any money used to purchase a property with an IRA has to come directly from your IRA, not you individually, and you can't be reimbursed by your IRA. This includes earnest money and closing.
. Rehab and carrying costs: similar to purchase money, any costs associated with rehabbing or carrying the property must be paid directly by the IRA. An IRA custodian can help with this.
. Income: any income generated from the property has to flow back into the IRA.
. Prohibited transactions: purchases made with an IRA need to be for investment, not personal use. Also an IRA cannot do business with family members of "lineal descent," which includes you, a spouse, parents, children, grandparents, grandchildren and great-grandchildren. In addition, you cannot borrow money from a self-directed IRA or use it as security for a loan.
Use a Roth IRA to "pay taxes on the seed, not the crop"
According to Jeff Desich, chief executive of Equity Trust Company, choosing a Roth IRA over a traditional IRA is a "no brainer" for most real estate investors because although a traditional IRA allows for tax-free contributions, the earnings are taxed when pulled out for retirement down the road. "My dad would always say would you rather pay tax on the seed or on the crop," Desich says.
Buy in your comfort zone
"We stuck to Lehigh (Acres, Fla.), which everyone said don't do it," says Lorraine Walls, adding that the couple now owns a total of nine properties in Lehigh Acres, one of the nation's hardest-hit real estate markets. "I went with what I was comfortable with. We don't need to make millions straight away."
Plan your exit strategy but be flexible
Although she purchased the Lehigh Acres homes primarily for the long-term cash flow, Walls said steady gains in home price appreciation have her rethinking that strategy. "Actually, I'm thinking about selling because the prices have almost doubled in the last two years," she said, noting that her real estate agent is urging her to list one home in particular. "I paid $58,000 for this property, and he wants to list it for about $105,000."
Consider creative investing strategies
Early in his career, veteran real estate investor Stan Brady said he focused mostly on fix-and-flip properties that he sold to owner-occupant buyers. But his strategies have evolved over time to focus on optioning investment deals that he finds and negotiates for other investors who don't have the time to find and negotiate those deals.
"A typical transaction for me would be taking an option contract . and then turn around and resell the property to a group of investors," says the Atlanta-based investor. "Now they have a portfolio rental and I get back the profit in my IRA."
Set up a 401(k) under real estate investing business
While a normal employer 401(k) plan won't allow you to invest in real estate, everyone who invests in real estate is in business for themselves, Desich says, which gives him or her the right to have a retirement plan for that business. If someone is investing in real estate and finding success, then that person can set up a 401(k) that permits real estate investments and allows contributions up to $50,000 per year plus $50,000 for a spouse.
Make it a family affair and multiply your purchasing power
Investors have the option of partnering their IRA with others, according to Desich. For example, a husband and wife might each have a Roth IRA, and both may have a 401(k). Add in two kids who each might have a Roth IRA and the family can use all six accounts to purchase a deal and share the percentage.
Pay all cash or make a large downpayment to compete with institutional buyers
Besides the tax breaks that allow investors to build their retirement nest egg, self-directed IRAs give buyers the option of paying all cash or making a sizable downpayment - helping to compete in a market where multiple bids are the norm.
"Offer a high deposit and close within two weeks," Walls says is her rule of thumb. "Offer them 50 percent, and bingo you'll get it."
Build a strong team around you
"You want to choose your partners wisely," says Desich. "Biggest point outside the IRA, we help to connect the dots. Whoever you use, you need to have an attorney or accountant you work with who can help you; or find a custodian who can help you answer questions. We're not all created the same."
© 2013 Florida Realtors®
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