Questions and Answers on Home Foreclosure and Debt Cancellation
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.
3. I lost my home through foreclosure. Are there tax consequences?
There are two possible consequences you must consider:
Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________2.
Enter the fair market value of the property from Form 1099-C, box 7. ___________3.
Subtract line 2 from line 1.If less than zero, enter zero.___________
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________5.
Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section.
You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.
6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
Related Items:
Publication 523, Selling Your Home
Publication 544, Sales and Other Dispositions of Assets
Publication 908, Bankruptcy Tax Guide
Form 1040, U.S. Individual Income Tax Return
Form 1040, Schedule D, Capital Gains and Losses
Form 1099-C, Cancellation of Debt
Form 9465, Installment Agreement Request
Source:
http://www.irs.gov/newsroom/article/0,,id=174034,00.html
Monday, September 24, 2007
Tuesday, September 18, 2007
Stockton, Foreclosure Capital USA
Welcome to Stockton: Foreclosure Capital USA
STOCKTON, United States (AFP) - A town in central California has become ground zero in the wave of foreclosures plaguing the US housing market in the wake of the sub-prime lending crisis.
With a population of nearly 300,000, Stockton has acquired the unfortunate distinction of having the highest foreclosure rate of any US city, with one in 27 households left counting the cost of the credit crunch, according to Realtytrac, an online marketplace for foreclosure sales.
Stockton's Weston Ranch neighborhood, a 15-year-old subdivision of modest tract homes, has the worst foreclosure rate in the area, according to ACORN, a national advocacy group for low and moderate-income families.
"It's not the CEO of Intel who lives in Weston Ranch, but the guy who details his car," Geri Taylor, broker at Weston Ranch Realty for twelve years told AFP. "They just were not prepared for this."
Adjustable rate mortgages offered to sub-prime borrowers, hopeful homeowners with shaky credit, lured families into houses with inflated prices, said Taylor.
"Many financed one hundred percent of the price, and some even financed the closing costs," she said. "They got in at a teaser rate thinking this neighborhood would be commutable and affordable, and then the rates went up."
Sign-after-sign beckon to potential buyers on the Weston Ranch streets. "American Dream Realty -- Reduced Price!" reads one placard spiked into a brown lawn.
"People are just walking away," said Taylor. "We've seen houses with food still on the table from when the sheriffs have come knocking."
Lupe Dominguez washed his car in his driveway two doors down from a shabby bungalow with a front window covered in a yellow and black poster announcing a public auction with a fifty thousand dollar starting bid.
"That house has been empty for nine months or so and the sign has been there for two," he said.
A friend who lived down the street lost his house to foreclosure and then rented a house that he had to vacate because it too was foreclosed, he said.
Gloria Johnson, another broker in the Weston Ranch area, has increased her volume of "short sales," as a method to help homeowners avoid foreclosure and wrecked credit.
In this arrangement, the borrower provides evidence of financial hardship and the lender agrees to assume a loss and sell the house below the amount owed on the mortgage.
"It is almost like begging, but I am doing everything I can to help these people maintain their dignity," she said.
Taylor too has modified her business practices, shifting her focus from home sales to rental property management, advising clients to wait out the market. She manages fifty rental homes now, properties that she hopes to sell for clients when buyer interest returns.
"There are just are no buyers out there right now," said Taylor.
Houses are sitting on the market three times as long as in 2006 and the average sale price has dropped by 10 percent, she said.
"We've got 350 homes for sale in this neighborhood right now and at this rate, that is five years of inventory," said Taylor.
"Nobody has a crystal ball, but I don't expect to see an improvement until 2010."
Potential homeowners must be better educated about the market, said Lance Hill, a housing counselor with Visionary Homebuilders, a Stockton non-profit whose goal is to extend homeownership to low-income families.
"To be mortgage ready, they need to know what adjustable rates, refinancing, and pre-payment penalties mean, and we must make sure that they have a certain education level," he said.
Stockton has had 8,000 foreclosures so far in 2007.
"Home ownership is a great thing," said Taylor, "But only if you can afford it."
by Zachary Slobig
STOCKTON, United States (AFP) - A town in central California has become ground zero in the wave of foreclosures plaguing the US housing market in the wake of the sub-prime lending crisis.
With a population of nearly 300,000, Stockton has acquired the unfortunate distinction of having the highest foreclosure rate of any US city, with one in 27 households left counting the cost of the credit crunch, according to Realtytrac, an online marketplace for foreclosure sales.
Stockton's Weston Ranch neighborhood, a 15-year-old subdivision of modest tract homes, has the worst foreclosure rate in the area, according to ACORN, a national advocacy group for low and moderate-income families.
"It's not the CEO of Intel who lives in Weston Ranch, but the guy who details his car," Geri Taylor, broker at Weston Ranch Realty for twelve years told AFP. "They just were not prepared for this."
Adjustable rate mortgages offered to sub-prime borrowers, hopeful homeowners with shaky credit, lured families into houses with inflated prices, said Taylor.
"Many financed one hundred percent of the price, and some even financed the closing costs," she said. "They got in at a teaser rate thinking this neighborhood would be commutable and affordable, and then the rates went up."
Sign-after-sign beckon to potential buyers on the Weston Ranch streets. "American Dream Realty -- Reduced Price!" reads one placard spiked into a brown lawn.
"People are just walking away," said Taylor. "We've seen houses with food still on the table from when the sheriffs have come knocking."
Lupe Dominguez washed his car in his driveway two doors down from a shabby bungalow with a front window covered in a yellow and black poster announcing a public auction with a fifty thousand dollar starting bid.
"That house has been empty for nine months or so and the sign has been there for two," he said.
A friend who lived down the street lost his house to foreclosure and then rented a house that he had to vacate because it too was foreclosed, he said.
Gloria Johnson, another broker in the Weston Ranch area, has increased her volume of "short sales," as a method to help homeowners avoid foreclosure and wrecked credit.
In this arrangement, the borrower provides evidence of financial hardship and the lender agrees to assume a loss and sell the house below the amount owed on the mortgage.
"It is almost like begging, but I am doing everything I can to help these people maintain their dignity," she said.
Taylor too has modified her business practices, shifting her focus from home sales to rental property management, advising clients to wait out the market. She manages fifty rental homes now, properties that she hopes to sell for clients when buyer interest returns.
"There are just are no buyers out there right now," said Taylor.
Houses are sitting on the market three times as long as in 2006 and the average sale price has dropped by 10 percent, she said.
"We've got 350 homes for sale in this neighborhood right now and at this rate, that is five years of inventory," said Taylor.
"Nobody has a crystal ball, but I don't expect to see an improvement until 2010."
Potential homeowners must be better educated about the market, said Lance Hill, a housing counselor with Visionary Homebuilders, a Stockton non-profit whose goal is to extend homeownership to low-income families.
"To be mortgage ready, they need to know what adjustable rates, refinancing, and pre-payment penalties mean, and we must make sure that they have a certain education level," he said.
Stockton has had 8,000 foreclosures so far in 2007.
"Home ownership is a great thing," said Taylor, "But only if you can afford it."
by Zachary Slobig
Tuesday, September 11, 2007
MLS Data
MetroList is the primary MLS for El Dorado, Merced (Western), Placer, Sacramento, San Joaquin, Stanislaus and Yolo counties.
Each time an agent logs into the system, the first page has what's called a 24 hour market watch. It's essentially an overview of what's gone on with that particular MLS in the last 24 hours.
This is the 24 hour market watch for Metrolist as of 9/11/2007 at 2:49 pm. These stats are very typical for the last several months. If you notice there are 413 new listings, 76 came back on the market with only 97 solds.
Simple math tells us that in the last 24 hours there were 5 times as many listings put on the market as there were solds. This is what we are saying as we log into the MLS on a daily basis.
MetroList
New Listings 413
Back on Market76
Price Increases 41
Price Reductions 715
Pendings 140
Solds 97
Expireds 148
Inactives 194
East Bay Regional Data, Inc. (EBRDI) is a Multiple Listing Service providing services to Alameda and Contra Costa counties. EBRDI is an organization resulting from the cooperative efforts of Alameda Association of REALTORS®, Berkeley Association of REALTORS®, Delta Association of REALTORS®, Oakland Association of REALTORS® and West Contra Costa Association of REALTORS®.
As you can see from their 24 hour market watch (as of 9/11/2007 @ 3:00 pm), things aren't much better out in the East Bay.
EBRDI
New Listings391
Price Change508
Sold131
Expired137
Marty Hackworth - Agnet, Investor
http://www.MartyHackworth/
http://www.bethesmartinvestor.com/
Marty@Martyhackworth.com
Each time an agent logs into the system, the first page has what's called a 24 hour market watch. It's essentially an overview of what's gone on with that particular MLS in the last 24 hours.
This is the 24 hour market watch for Metrolist as of 9/11/2007 at 2:49 pm. These stats are very typical for the last several months. If you notice there are 413 new listings, 76 came back on the market with only 97 solds.
Simple math tells us that in the last 24 hours there were 5 times as many listings put on the market as there were solds. This is what we are saying as we log into the MLS on a daily basis.
MetroList
New Listings 413
Back on Market76
Price Increases 41
Price Reductions 715
Pendings 140
Solds 97
Expireds 148
Inactives 194
East Bay Regional Data, Inc. (EBRDI) is a Multiple Listing Service providing services to Alameda and Contra Costa counties. EBRDI is an organization resulting from the cooperative efforts of Alameda Association of REALTORS®, Berkeley Association of REALTORS®, Delta Association of REALTORS®, Oakland Association of REALTORS® and West Contra Costa Association of REALTORS®.
As you can see from their 24 hour market watch (as of 9/11/2007 @ 3:00 pm), things aren't much better out in the East Bay.
EBRDI
New Listings391
Price Change508
Sold131
Expired137
Marty Hackworth - Agnet, Investor
http://www.MartyHackworth/
http://www.bethesmartinvestor.com/
Marty@Martyhackworth.com
Wednesday, September 5, 2007
Pending Sales of Existing Homes Fell in July to Lowest Level Since September 2001
http://www.bethesmartinvestor.com/
Pending Sales of Existing Homes Fell in July to Lowest Level Since September 2001
WASHINGTON (AP) -- A near-record low for an index that forecasts near-term home sales suggests borrowers in expensive areas are struggling to finalize home purchases amid mortgage market troubles.
The National Association of Realtors said Wednesday its seasonally adjusted index of pending sales for existing homes fell 16.1 percent in July from a year ago and 12.2 percent from the prior month. July's reading of 89.9 was the second-lowest ever for the index and its lowest since September 2001, when the economy was jolted by the terrorist attacks.
The pending home sales index is designed to predict sales levels over the following two months. A reading of 100 is equal to the average level of pending sales activity in 2001, when the index began.
"Numbers like this should put to rest the belief that we've reached the bottom" in the housing market, said Joel Naroff, chief economist for Commerce Bancorp Inc. "There's still a lot of pain that's ahead of us."
Stock markets slumped after the real estate data were released.
Lawrence Yun, senior economist at the real estate trade group, said the weak pending sales data stem from the fact that government-sponsored mortgage giants Fannie Mae and Freddie Mac cannot package "jumbo" home loans above $417,000 into securities sold to investors.
Some home purchases aren't closing because mortgage loans have been "falling through at the last moment," Yun said in a statement.
A survey of 1,700 mortgage brokers to be released this week and sponsored by trade publication Inside Mortgage Finance found that one-third of the transactions mortgage brokers handled in August were not finished. Mortgage brokers account for about one-third of total mortgage originations.
The pending home sales data show the biggest year-over-year declines in western states, which dropped 21.8 percent. The smallest drop was in the Northeast, which declined 10 percent.
With defaults rising among borrowers with weak credit, lenders have backed off from all but the safest mortgages, and many lenders making jumbo loans have demanded that borrowers pay higher rates.
As of last week, 30-year fixed-rate jumbo loans averaged 7.43 percent, while similar loans that
can be purchased by Fannie and Freddie averaged 6.5 percent, according to publisher HSH Associates. The spread between the two types of loans was 0.2 percentage points back in mid-July.
While the jumbo market may return to normal this fall, that process is likely to take a while, said Keith Gumbinger, vice president of HSH Associates.
"This dislocation was a sudden event," he said. "Rebuilding the trust in what those markets represent will take a bit of time."
The Dow Jones industrial average dropped nearly 150 points Wednesday afternoon as Wall Street reacted to the report on pending home sales. Shares of Fannie Mae fell $2.66, or 4.1 percent, to $63.05, while those of Freddie Mac slid $2.30, or 3.7 percent, to $59.96.
In an effort to provide support to the mortgage market, Democratic lawmakers -- and the Realtors' association -- have called for Fannie Mae and Freddie Mac to be allowed to purchase loans above the current limit in high-cost areas along the East and West coasts.
So far the Bush administration has rejected calls to raise this limit, as well as limits on the amount of mortgages and mortgage-backed securities that Fannie and Freddie can hold on their books.
Bush on Friday announced his administration's first attempt to help borrowers in danger of foreclosure. He detailed plans to help about 80,000 additional borrowers by using the Federal Housing Administration, an agency that backs loans for low-income borrowers, to insure more loans.
Investors around the world have been spooked by the U.S. mortgage market's problems amid uncertainty about how much they will grow. The Federal Deposit Insurance Corp. estimates that 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes dramatically higher monthly payments by the end of next year.
As of June, 17.5 percent of subprime loans given to borrowers with weak credit nationwide were either 60 or more days delinquent or in foreclosure -- more than double the last year's rate, according to FirstAmerican LoanPerformance, a research firm that tracks loans that aren't backed by Fannie Mae and Freddie Mac.
By Alan Zibel, AP Business Writer
Pending Sales of Existing Homes Fell in July to Lowest Level Since September 2001
WASHINGTON (AP) -- A near-record low for an index that forecasts near-term home sales suggests borrowers in expensive areas are struggling to finalize home purchases amid mortgage market troubles.
The National Association of Realtors said Wednesday its seasonally adjusted index of pending sales for existing homes fell 16.1 percent in July from a year ago and 12.2 percent from the prior month. July's reading of 89.9 was the second-lowest ever for the index and its lowest since September 2001, when the economy was jolted by the terrorist attacks.
The pending home sales index is designed to predict sales levels over the following two months. A reading of 100 is equal to the average level of pending sales activity in 2001, when the index began.
"Numbers like this should put to rest the belief that we've reached the bottom" in the housing market, said Joel Naroff, chief economist for Commerce Bancorp Inc. "There's still a lot of pain that's ahead of us."
Stock markets slumped after the real estate data were released.
Lawrence Yun, senior economist at the real estate trade group, said the weak pending sales data stem from the fact that government-sponsored mortgage giants Fannie Mae and Freddie Mac cannot package "jumbo" home loans above $417,000 into securities sold to investors.
Some home purchases aren't closing because mortgage loans have been "falling through at the last moment," Yun said in a statement.
A survey of 1,700 mortgage brokers to be released this week and sponsored by trade publication Inside Mortgage Finance found that one-third of the transactions mortgage brokers handled in August were not finished. Mortgage brokers account for about one-third of total mortgage originations.
The pending home sales data show the biggest year-over-year declines in western states, which dropped 21.8 percent. The smallest drop was in the Northeast, which declined 10 percent.
With defaults rising among borrowers with weak credit, lenders have backed off from all but the safest mortgages, and many lenders making jumbo loans have demanded that borrowers pay higher rates.
As of last week, 30-year fixed-rate jumbo loans averaged 7.43 percent, while similar loans that
can be purchased by Fannie and Freddie averaged 6.5 percent, according to publisher HSH Associates. The spread between the two types of loans was 0.2 percentage points back in mid-July.
While the jumbo market may return to normal this fall, that process is likely to take a while, said Keith Gumbinger, vice president of HSH Associates.
"This dislocation was a sudden event," he said. "Rebuilding the trust in what those markets represent will take a bit of time."
The Dow Jones industrial average dropped nearly 150 points Wednesday afternoon as Wall Street reacted to the report on pending home sales. Shares of Fannie Mae fell $2.66, or 4.1 percent, to $63.05, while those of Freddie Mac slid $2.30, or 3.7 percent, to $59.96.
In an effort to provide support to the mortgage market, Democratic lawmakers -- and the Realtors' association -- have called for Fannie Mae and Freddie Mac to be allowed to purchase loans above the current limit in high-cost areas along the East and West coasts.
So far the Bush administration has rejected calls to raise this limit, as well as limits on the amount of mortgages and mortgage-backed securities that Fannie and Freddie can hold on their books.
Bush on Friday announced his administration's first attempt to help borrowers in danger of foreclosure. He detailed plans to help about 80,000 additional borrowers by using the Federal Housing Administration, an agency that backs loans for low-income borrowers, to insure more loans.
Investors around the world have been spooked by the U.S. mortgage market's problems amid uncertainty about how much they will grow. The Federal Deposit Insurance Corp. estimates that 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes dramatically higher monthly payments by the end of next year.
As of June, 17.5 percent of subprime loans given to borrowers with weak credit nationwide were either 60 or more days delinquent or in foreclosure -- more than double the last year's rate, according to FirstAmerican LoanPerformance, a research firm that tracks loans that aren't backed by Fannie Mae and Freddie Mac.
By Alan Zibel, AP Business Writer
Home Prices To Decline - Count On It
http://www.BeTheSmartinvestor.com
Home Price Decline to Accelerate - Count On It
It won't be pretty folks. If Goldman and Shilling are right, and historically housing bubbles have always deflated back to about where they started, consumer spending will die out and we'll see a recession by early next year.
Gary Shilling, who I chatted with today for this piece for CNBC and who is quoted below, thinks we will see a recession due to the housing crunch by the end of the year. Good luck folks.
If you think the decline in home prices is bad now, just wait.
Two reports out his week show the once high-flying housing market is quickly losing altitude and that prices are likely to head still lower.
According to the S&P/Case-Shiller Home Price Index released Tuesday, prices fell 3.2% in the second quarter, the sharpest decline since the index was created in 1987. The pace of decline accelerated from 1.6% in the first quarter.
On top of that, the National Association of Realtors reported on Monday that the median price of existing homes eased 0.6% in July, to $228,900.
Both reports portray weakening housing prices, but the declines have been in the single-digits or smaller so far. That may be about to change.
"I think we’re yet to get to the main event," said Gary Shilling, president of A Gary Shilling, a money-management firm. "We continue to look for a 25% decline in median single-family house prices. I think this is really just getting started."
Of course, for first-time homebuyers, a decline that big would be good news. But for existing homeowners, a 25% drop could be devastating, Shilling said.
It "would wipe-out the equity of the average homeowner who has a mortgage," he estimated.
Shilling's forecast may sound as if it's on the fringes, but he said, "a number of people are not in our camp, but moving toward it."
Last week, Goldman Sachs chief economist Jan Hatzius said in a note to clients that "our working assumption has been that U.S. home prices are about 15% overvalued."
And On Tuesday, another Goldman economist, Andrew Tilton, expressed concern that prices are falling at a faster-than-expected rate.
"It does look like there's a bit of acceleration in the pace of decline and this comes before the credit crunch," Tilton said.
Posted by Jim Kingsland
Home Price Decline to Accelerate - Count On It
It won't be pretty folks. If Goldman and Shilling are right, and historically housing bubbles have always deflated back to about where they started, consumer spending will die out and we'll see a recession by early next year.
Gary Shilling, who I chatted with today for this piece for CNBC and who is quoted below, thinks we will see a recession due to the housing crunch by the end of the year. Good luck folks.
If you think the decline in home prices is bad now, just wait.
Two reports out his week show the once high-flying housing market is quickly losing altitude and that prices are likely to head still lower.
According to the S&P/Case-Shiller Home Price Index released Tuesday, prices fell 3.2% in the second quarter, the sharpest decline since the index was created in 1987. The pace of decline accelerated from 1.6% in the first quarter.
On top of that, the National Association of Realtors reported on Monday that the median price of existing homes eased 0.6% in July, to $228,900.
Both reports portray weakening housing prices, but the declines have been in the single-digits or smaller so far. That may be about to change.
"I think we’re yet to get to the main event," said Gary Shilling, president of A Gary Shilling, a money-management firm. "We continue to look for a 25% decline in median single-family house prices. I think this is really just getting started."
Of course, for first-time homebuyers, a decline that big would be good news. But for existing homeowners, a 25% drop could be devastating, Shilling said.
It "would wipe-out the equity of the average homeowner who has a mortgage," he estimated.
Shilling's forecast may sound as if it's on the fringes, but he said, "a number of people are not in our camp, but moving toward it."
Last week, Goldman Sachs chief economist Jan Hatzius said in a note to clients that "our working assumption has been that U.S. home prices are about 15% overvalued."
And On Tuesday, another Goldman economist, Andrew Tilton, expressed concern that prices are falling at a faster-than-expected rate.
"It does look like there's a bit of acceleration in the pace of decline and this comes before the credit crunch," Tilton said.
Posted by Jim Kingsland
Real Estate News 8/30/2007
http://BeTheSmartInvestor.com
Daily Real Estate News August 30, 2007
Markets Where a Flipper Can Make a BuckFlipping went out of fashion last year, leaving thousands of flippers in trouble in many areas, but an analysis by Forbes magazine shows that there are markets all over the country where investors can still turn a profit if they pick their properties wisely.
Forbes calculated whether a market is ripe for flipping by using data from Moody's Economy.com to calculate a market's rate of sales against inventory, and to determine supply and demand. Then it looked at current and new-home construction numbers through the end of 2008, based on data from the National Association of Home Builders; the magazine sought out markets where planned new home construction is low.
Then Forbes used price appreciation data from the NATIONAL ASSOCIATION OF REALTORS® to get a sense of short-term market direction. Finally, it examined Moody's figures on investor share. The higher the share of investors, the more sellers outweigh buyers, which is bad news in a bearish market.
The results identified the following markets as the best candidates for flipping. Here are the best markets, along with the price in each market that would make a home a candidate for a quick turnover.
1. Seattle, $385,000
2. San Francisco, $759,000
3. Raleigh, N.C., $225,000
4. Houston, $150,000
5. Austin, Texas, $175,000
6. San Antonio, $150,000
7. Boston, $389,000
8. Los Angeles, $590,000
9. New York, $489,000
10. Portland, Ore., $295,000
Source: Forbes, Matt Woolsey (07/26/2007)
Daily Real Estate News August 30, 2007
Markets Where a Flipper Can Make a BuckFlipping went out of fashion last year, leaving thousands of flippers in trouble in many areas, but an analysis by Forbes magazine shows that there are markets all over the country where investors can still turn a profit if they pick their properties wisely.
Forbes calculated whether a market is ripe for flipping by using data from Moody's Economy.com to calculate a market's rate of sales against inventory, and to determine supply and demand. Then it looked at current and new-home construction numbers through the end of 2008, based on data from the National Association of Home Builders; the magazine sought out markets where planned new home construction is low.
Then Forbes used price appreciation data from the NATIONAL ASSOCIATION OF REALTORS® to get a sense of short-term market direction. Finally, it examined Moody's figures on investor share. The higher the share of investors, the more sellers outweigh buyers, which is bad news in a bearish market.
The results identified the following markets as the best candidates for flipping. Here are the best markets, along with the price in each market that would make a home a candidate for a quick turnover.
1. Seattle, $385,000
2. San Francisco, $759,000
3. Raleigh, N.C., $225,000
4. Houston, $150,000
5. Austin, Texas, $175,000
6. San Antonio, $150,000
7. Boston, $389,000
8. Los Angeles, $590,000
9. New York, $489,000
10. Portland, Ore., $295,000
Source: Forbes, Matt Woolsey (07/26/2007)
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