The housing market is on firmer ground today, as two major tax provisions survived the “fiscal cliff.” Congress did not touch the mortgage interest deduction, and it ex-tended tax relief for one year on mortgage debt forgiveness. “An extension of the tax break is positive for home values by reducing the number of foreclosures and helping more troubled borrowers stay in their homes,” wrote Jaret Seiberg of Guggenheim Partners. “That means less supply on the market.”
Under a law signed in 2007, debt relief on loan modifications, short sales, and foreclosures were no longer taxable; that break expired at the end of 2012. The fear was that if the tax break was not extended, home owners would not agree to short sales (when the home is sold for less than the value of the mortgage) because they would then face a tax bill. They would also not agree to principal reduction loan modifications, which have proven to be far more successful than other modifications that leave the principal balance as is. Under the $25 billion mortgage servicing settlement, borrowers have received $6.3 billion in mortgage principal relief through September, according to the settlement’s monitor, Joseph A. Smith, Jr.
The average loan balance reduction, $150,000. Banks completed 13,351 principal reduction loan modifications in November alone, according to Amherst Securities Group, a 62 percent jump from September.
Short sales also surged toward the end of the year, thanks to streamlined procedures and a more aggressive stance by the big banks, again in part due to the mortgage servicing settlement. More than 98 thou-sand short sales were completed in the third quarter of 2012, according to RealtyTrac. The “fiscal cliff” deal also allows borrowers to deduct the amount they pay for private mortgage insurance, which has become increasingly prevalent in today’s tighter mortgage market.
All of the above will help to lower the number of fore-closures and support the slow rise in home prices. The number of homes in the so-called “shadow inventory” (properties that have seriously delinquent mortgages, are in foreclosure, or are owned by banks but not yet listed for sale) fell to 2.3 million in October, according to a new report from CoreLogic. That represents a seven month supply at the current sales pace, and is a 12 percent drop from a year ago.
“We expect a gradual and progressive contraction in the shadow inventory in 2013 as investors continue to snap up foreclosed and REO properties and the broader recovery in housing market fundamentals takes hold,” said Anand Nallathambi, president and CEO of CoreLogic in a release. What would not have been the case, had tax relief on debt forgiveness in short sales and principal reduction modifications come to an end.
Sources: cnbc.com
Ask STOVALL TEAM
Q: We are looking to sell our home and move to another within the next 18 months. Based on your real estate experience, can you please answer a couple of questions for us?
A: Start by determining an approximate value for your home.
Call Micah at 714.343.9294 or Steve at 714.393.5377 for your free pre-market evaluation. Contact the Stovall Team for a comparative market analysis, an informal but accurate estimate of value based on the recent selling prices of similar neighborhood properties. The Stovall Team will visit your home to determine how your property compares with other similar sales in your area over the past 90-120 days.
Next, we will perform a pre-sale evaluation. This will help you maximize your net proceeds by pointing out items that will insure the highest possible return when you sell. We want to make sure your home is in the best condition possible before showing it to prospective buyers, this will insure that you’ll obtain top dollar. These items will include general repairs, painting, flooring upgrades or carpet cleaning and updating of outdated fixtures, etc. Dollars spent on pre-sale upgrades will return a much higher net at sale, if attended to prior to going on the market. We will also suggest a termite inspection be performed as to save you from unsuspected expenses.
The “curb appeal” of your home is also extremely important. It is the first impression that buyers form of your property as they drive or walk up. So make sure the lawn is pristine– the grass cut, debris removed, garden beds free of weeds and freshly planted or pruned, and hedges trimmed. We will help with a gardener referral if needed.
There is a balance when making pre-sale repairs and upgrades, especially if there are few homes on the market but many buyers competing for them. The better your home presents itself the more you’ll receive at escrow’s close. In any and all market types, the better your home presents itself the higher your return on investment, we will help you balance your costs to maximize your return.
Finally we will help you with the final staging just prior to going on the market. ll Team offers professional design services to each of our clients. This service has proven most valuable for our past clients. This service is always complimentary and part of our marketing package.
Call Micah at 714.343.9294 or Steve at 714.393.5377 for your free pre-market evaluation.