Allman-Ac Vol VIII, January 2008

Texas: Getting Better
Texans have such a high level of productivity and enterprise that, if ranked on a global scale, our state would have the eighth-largest gross domestic product in the world, according to the governor’s office. We are second only to California in total production of goods and services, edging close to $1.1 trillion last year.
Half of America’s 10 fastest-growing cities are right here in Texas. We exported more goods last year than any other state in the nation. With a median household income of $77,038, Plano ranked as the richest city in America with 250,000-plus population, according to the 2006 census.
We have the most shopping malls of any state, reflecting our significant discretionary income. A Gallup poll last year ranked us 12th in church or synagogue attendance, suggesting we have a compassionate and moral bent. The Dallas Morning News, December 2007
California, Florida Top Declines: Dallas Up
Home prices fell in 21 states from October 2006 through October 2007 and dropped in 21 of 31 major metro areas reported First American Corp.’s Loan Performance.
And six of the eight local market areas tracked in the report that experienced double-digit price declines from October 2006 to October 2007 are in Florida or California, based on singe-family detached housing sales data. Las Vegas and Phoenix also saw a double-digit drop in home prices during the study period.
Honolulu topped the list of 31 local market areas included in the index report, with a 17.9 percent gain from October 2006 to October 2007, followed by Salt Lake City, up 11.6 percent; San Antonio, Texas up 7.9 percent; Raleigh-Cary, NC., up 4.6 percent; Houston-Sugar Land-Baytown, Texas up 4.5 percent; Charlotte, N.C., up 4.5 percent; Dallas, up 3.9 percent; Seattle, up 2.2 percent; and Portland, Ore., up 1.7 percent. Inman News, December 2007
Housing Demand: Dallas better than most
Inventories declined in 15 of 19 major U.S. markets during the fourth quarter as sellers dropped their listing prices in most areas, but time on the market continued to increase, indicating that demand fell faster than inventories were reduced.
That’s according to the Real-Time Housing Market Report published by Altos Research and Real IQ, which claims to be the most timely source of housing market data.
Markets with the slowest rate of inventory turnover included Miami (143 days), and Minneapolis and Detroit (136 days). Denver had the fastest rate of inventory turnover at 77 days, followed closely by Dallas at 80 days. The only markets where days on market decreased during the fourth quarter were Dallas and Atlanta. Inman News, January 2008
Frisco: Frisky in 2007
Headquartered in Little Rock, AR, Gadberry Group provides location intelligence services and data for the world’s top retail brands.
The firm employed a statistical ranking system in their evaluation of the 17,000 Census Places, using current demographic consumer data and a proprietary household geo-demographic technology. The selection criteria and statistical methodology accounted for high-change household and population change variables.
“Our analysis revealed that Frisco’s population growth was the most significant among all Census Places in the nation,” said Martin. “In fact, Collin County and the entire North Dallas Corridor saw dramatic growth in 2007.”
Since Census 2000, Frisco’s population grew 156% and there were 17 emerging blocks. Gadberry ethnic data revealed that Asian households in Frisco increased from 248 in 2000 to 1,695 in 2007 (583%). Indian households made up 31% of all Asian households and Chinese households represented 27%. Hispanic households increased from 911 in 2000 to 2,611 in 2007 (187%). RIS Media, January 2008
Affordable Markets: Texas
If you are a value investor – and you’re looking for affordable markets where property values are defying the national downtrend – then check out a new report from the federal government.
What it shows is that the top markets for residential real estate investment, at least in terms of price appreciation gains for the past 12 months, have been concentrated in just four states: North Carolina, Utah, Texas and Washington. 4 of 31 metro areas are in Texas, including Dallas.
Keep in mind that every one of these areas is counter-cyclical-prospering while many other parts of the country are having problems.
Every one of them also has solid local employment growth, and moderate housing prices that never ballooned out of sight during the boom years.
The government’s survey, compiled quarterly by the Office of Federal Housing Enterprise Oversight, also identified markets in the three states where property values are falling fastest: Florida has eight of the worst 20-performing housing markets, California has six, and Michigan has three. Realty Times, December 2007
Federal Reserve Bank of Dallas
The Texas economy moved ahead at a moderate pace in November. The Dallas Fed’s Texas Business-Cycle Index, an aggregate measure of the region’s current economic activity, rose at an annualized rate of 2.7 percent, following revised growth of 2.9 percent in October. As of November, the index has increased at a rate of 4 percent, slightly below last year’s 4.5 percent pace.
Texas employment activity remained positive in November, with job gains of 12,800, a 1.5 percent pace, according to data released by the Texas Workforce Commission, with seasonal and other adjustments made by the Dallas Fed. Year-to-date, Texas has added 278,200 net jobs – a 3 percent rate of growth.
The Dallas economy continued to expand at a temperate pace in November. The metro’s business-cycle index rose 1.6 percent and employment increased 1.4 percent, or by 2,400 jobs. The bulk of job gains took place in the service sector. Trade, transportation and utilities performed best, adding 1,900 jobs. Construction expanded moderately, adding 200 jobs as relatively slow residential construction was counterbalanced by strong commercial building.
FRB Dallas, January 2008
North Central Texas Development
The Research and Information Services Department of the North Central Texas Council of Governments (NCTCOG) tracks major developments for the 16-county region as part of the Development Monitoring Program. The fourth quarter summary is an overview of office, retail, and industrial projects over 80,000 square feet and hotels over 80 rooms that were announced, began construction, or were completed between October 1 and December 31, 2007.
• Total Retail completed: 567,000 Sq. Ft.
• Total Retail that began construction: 627,000 Sq. Ft.
• Total Retail announced: 661,000 Sq. Ft.
• Total Office completed: 919,492 Sq. Ft.
• Total Office that began construction: 86,300 Sq. Ft.
• Total Office announced: 2,054,741 Sq. Ft.
• Total Industrial construction completed: 1,316,000 Sq. Ft.
• Total Industrial that began construction: 2,730,828 Sq. Ft.
• Total Industrial announced: 2,178,520 Sq. Ft.
• Total Hotel completed: 1007 Rooms
• Total Hotel that began construction: 136 Rooms
• Total Hotel announced: 300 Rooms
Total Mixed-Use completed: Mixed-Use: 40,000 Sq. Ft., Condos: 325
Total Mixed-Use that began construction: Retail: 800,000 Sq. Ft., Office: 200,000 Sq. Ft., Apartments: 1,755; Singe Family Units: 300
Total Mixed-Use Announced: Retail: 3,360,000 Sq. Ft. , Office: 2,300,000 Sq. Ft., Mixed Use: 127,698 Sq. Ft., Multi-Family Units: 5,899 Units, Hotel Rooms: 440
North Texas Council of Government, January 2008
The United Metros of America
Eighty-three percent of Americans live in metropolitan areas, which contain 86 percent of American jobs. The vast majority – 94 percent – of people in the nation’s 100 largest metros live and work in the same metro.
Brookings Metropolitan Program, December 2007
Majority-Minority Counties Growing
Eight more counties joined the list last year of those with more than a 50 percent minority population, pushing the national total to 303, according to the latest figures from the Census Bureau. The country has more than 3,000 counties.
The two largest counties passing the majority-minority threshold between July 1, 2005 and July 1, 2006 were Denver County, Colo., and East Baton Rouge Parish, La., with total populations of 566,974 and 429,073, respectively.
Texas laid claim to three of the others – Winkler, Waller and Wharton.
As of July 1 last year, Los Angeles County, Calif., had the largest minority population in the country in 2006. At 7 million, or 71 percent of its total, Los Angeles County is home to one in every 14 of the nation’s minority residents, the government reported.
LA county’s minority population is higher than the total population of 38 states. It holds the largest population of Hispanics, Asians, and American Indians and Alaska Natives in the country. It also has the second largest population of blacks and Native Hawaiians and Other Pacific Islanders.
Leading the nation in terms of minority population growth during the 12-month period was Harris County, Tex., which gained 121,400 minority residents. Harris, which includes Houston, now has a minority population of 2.5 million, which is 63 percent of its total. Its minority population ranks third nationally, not far behind second place Cook County, Ill., which includes Chicago.
Based on total population, Starr County on the Texas border with Mexico had the highest proportion of minority residents of all counties – 98 percent.
U.S. Census Bureau, November 2007
Real Estate Outlook: The Turnaround
Chief economist of the National Association of Home Builders, had this to say: Our “housing forecast shows systematic improvements in home sales by the second quarter of 2008, improvement in home starts by the third quarter, maintenance of low levels of manufactured housing shipments throughout 2008, and modest declines in the real value of residential remodeling next year.”
Chief economist of the National Association of Realtors: “The broad trend over the coming year will be a gradual rise in existing home sales, but because sales are exceptionally low for the final months of 2007, total sales for 2008 will only be modestly higher than for 2007.”
The reality is that housing has always been a solid long-term investment. According to NAR statistics, median home prices have had a 6.4% compound annual growth rate from 1972 to 2006, and existing home sales units have grown an average of 3.2% during the same time period. The number of U.S. households is expected to increase 15% during the next decade at a rate of 1.46 million new households each year, which should continue to fuel an ongoing demand for housing.
Yun’s outlook for 2008 sees a shift from greedy speculators to serious homeowners. 2008 will be a year of opportunity where there will be serious, healthy business. Furthermore, Yun predicted that the market returns to normal by 2009.
According to Yun, one of the biggest mistakes that reporters make is talking about national trends. Nationally, 2007 was the fifth best year ever on record. Home prices declined about 1.5 percent after a 50 percent run up in prices. The challenge is that national numbers are pretty much irrelevant. Yun argues that talking about national averages is about as effective as having a national weather forecast. Like the weather, all real estate markets are local.
New housing starts: Even though these are dropping, there was too much building in recent years. The market is simply adjusting to normal supply-and-demand pressures.
Foreclosures: According to Yun, the 41 percent increase in foreclosures has resulted primarily from investor-heavy real estate purchases in Arizona, California, Florida and Nevada.
The recovery has started: Other than the three states hit heavily by job losses in the automotive industry (Indiana, Michigan and Ohio), the states that first experienced a downturn in the Northeast, are now in recovery. Specifically, Connecticut, Massachusetts, New York, and Rhode Island. Furthermore, there appears to be a pent-up demand for first-time buyer properties due to a large number of Gen Ys (born 1977 to 1994) that are now buying their first homes. Falling interest rates will motivate many of these buyers to step into the market now.
A weak dollar may harbinger more foreign investment in U.S. real estate: Just a few years ago, the Canadian dollar was only worth 70 cents in U.S. currency. Today, the Canadian dollar has been hovering at about $1.05 to $1.10 U.S. What this means is that we can expect more Canadians and Europeans to be purchasing U.S. property, because our prices are approximately 50 percent cheaper than they were just three years ago.
Real Estate: Still the best shelter: For those agents who represent reluctant first-time buyers, Yun points to some interesting research from the Federal Reserve. Between 1995 and 2004, the average renter accumulated $4,000 in wealth. In contrast, the average homeowner accumulated $184,400. Furthermore, the typical homeowner holds their property for six years. Within this period of time, NAR’s research shows that approximately 97 percent of the
homeowners will have a positive equity position after that period of time.
RIS Media, January 2008
Upgrade in the Downturn – For Less
If today’s home buyers decide to make some upgrades and improvements to their next home they can usually do it for substantially less than it would have cost several years ago. The rate of new home construction has dropped precipitously, and prices of many building materials have dropped substantially as a result. Prices for oriented strand board, which is used for exterior wall sheathing, roof sheathing and subfloors, is down 40% from late 2005, according
to the National Association of Home Builders. Lumber used for framing floor and roof joints retreated 24% in cost according to NAHB. Drywall prices are down 35% from late last year, according to United States Gypsum Company.
Construction labor costs are down as well, as many home builders have decided to become remodeling contractors until the market for new homes improves. The remodeling market has also slowed down somewhat.With many home builders recently reinventing themselves as remodeling contractors, price competition in that market is very intense today.
American Homeowners Foundation, December 2007
Grad Goal: Own a House
A new survey has pinpointed the number-one goal of today’s college students. It’s owning a house. The top-ranking given to housing was almost equally true for both men and women-though more so for females – in the recent back-to-school survey conducted by Anderson Analytics in Stamford, Connecticut. For the telephone survey, conducted August 8 to August 31, this year, interviewers reached 1,000 college students – 539 female and 461 male. The subjects came from Brandport.com, which, according to its Web site, “facilities
interactions with young consumers across the country.”
The average time of the interviews, involving 34 questions, was 12 minutes. Respondents represented more than 375 colleges and universities. Their student status was confirmed by “dot.edu” e-mail addresses.Anderson refers to those born just before 1980 to 2000 as “Gen Y,” which includes current college students.
Much of the survey focused on their favorite social networking sites, with Facebook ranking first for both genders. But at least one of the questions elicited the surprising good news for brokers.
Students were asked to complete this sentence: “If I could buy anything, it would be…” Housing was the top choice for 41% of the men and 49% of the women. Owning a home scored higher than other, seemingly flashier possessions, such as a car, which came in second, or clothes, which ranked third with women and at the bottom with men.
Perhaps even more significant in Anderson’s third annual back-to-college survey, the percentage choosing a house was higher than in the past. In 2005, only 22.6% ranked a house as their top choice. “It’s always been a big one, especially for young Gen Y females,” Anderson says. “It’s increased in the last few years.”
Today’s students, the survey found, are “very materially focused.” The desire to become homeowners may be nurtured by their current living arrangements. Fifty-seven percent lived in an apartment during college, with or without roommates, white only 11% lived in a school dormitory room.
While both sexes chose Facebook as their top Web sites, they differed on the second choice, women choosing MySpace.com and men ESPN.com.
RIS Media, December 2007
What’s In, What’s Out with Home Buyers in 2008
Destination bathrooms. The master bath has evolved into the home getaway with multiple task areas. Freestanding or “throne” bathtubs (bath thrones) in the center of a soaking room, multiple flat screens TV’s and wireless Internet so you don’t miss anything as you move from bathing to grooming to lounging. Outfitted with serving bars featuring wine coolers, espresso machines, and grazing snacks. And, a burgeoning need for in-home hair salons.
Pet showers. The kitchen or work sink is out for the dog bath. Dedicated dog showers are an emerging trend. Be it in a mud or utility room, garage corner or basement, dog lovers want a place to clean their favored pooch after a visit to the neighborhood dog park. Common dog showers feature a 3’ x 3’ shower base, surrounded by ceramic tile 4’ up the wall. Pet showers are all about the convenience for Fido to step in, and eliminate the master’s need to lift.
Home elevators. The boomers want their vertical palaces with elegant mini-elevators. No more unsightly and very 1970’s chair-on-the-rail-system for these financially flush, forward-thinking home buyers.
Outdoor living spaces that looks interior. Massive, soaring “statement” fireplaces of cut stone, heated (think bathroom floors) flooring and walkways, entertaining sized custom kitchens, and indoor-looking artwork, fabrics, and finishes, but ones that can stand up to the elements.
A homes carbon footprint. Manufactured homes, reused construction materials, and energy-friendly mechanical systems and appliances all reduce the need for fossil fuels. Home buyers are asking about how their potential new home can save the planet.
Monitoring and controlling with hand-held devices. Forgot to turn off the coffee maker, close/open the blinds, and turn the heat down or the air conditioning up? The latest in technology that utilize hand-held devices to open or close the blinds, turn on or off the lights, or let Fido out the electronic pet door, around the corner or across the country.
Off-grid homes. Solar panels, windmills and inverters are here to stay, in a big way. With brown-outs and power line-damaging storms on the increase, buyers in 2008 will ask for hybrid home-energy options.
Living Rooms. The great room has replaced the living room in American residential culture. Informal lifestyles with eating, cooking and living spaces combined so family members and visiting friends can congregate together through various activities.
McMansions. Size doesn’t matter if it’s not well finished. A large voluminous home whose best attribute is the square-footage is waning. Home buyers are looking for quality not quantity in 2008.
Obese ceiling heights. It’s cheaper to go up than out. That’s been the thinking anyway as of late in residential design. Buyers have finally said enough, the prefer ceilings between nine and eleven feet. Anything more, especially in a smallish (under 10’ x 12’) room is waste.
Pioneering locations. Buyers have moved away from take-a-chance-hoods. Pioneering or off the beaten path areas were once the hot bed of potential appreciation. However, buyers in 2008 have returned to the tried-and-true address, keeping resale desirability firmly in mind when making a purchase.
Balconies as a marketing gimmick. Functional outdoor space, not the anorexic appendage hanging off the building, is what buyers crave in outdoor space for 2008. Real balconies have room for a grill and a comfortable table and chairs. People love the outdoors and want to use it, but not only as a solo experience.
Mosaic tile. Once deemed the ultimate in tile, now considered a very personal design commitment to the previous owner. The cost and waste to remove intricate mosaic is over-whelming to buyers.
Realty Times, January 2008
Luxury Home Buyer Profile
• 31% are cash buyers
• 68% are considered “new money”
• The number one profession among these home buyers is classified as “Large Executive”
• 67% are from the “baby boom” generation (between the ages of 35 and 55)
• 88% of luxury home buyers are married
• Designer kitchens are the top priority with regard to luxury-home amenities
• 89% of luxury homebuyers request a four or five bedroom home
• Approximately half (49%) of luxury homes sold are between 4,000 and 6,000 square feet
Financial clout was characteristic among luxury house hunters. Not as dependent on lower interest rates to make the move, nearly one-third (31.5%) used cash to purchase their one million dollar plus home. Of those who choose to take on debt 17% placed a down payment that was 50% or more than the price of their new home.
Realty Times, December 2007
North Texas Lot Supply
The U.S. housing market has been in decline for two years, with conditions varying sharply by region. In North Texas, home-building has dropped about 40% from a year ago, building permits show.
As a result of the slump, many home-builders, including Fort Worth-based D.R. Horton (NYSE:DHI) and Dallas-based Centex Corp., (NYSE:CTX) are sitting on too much land they bought in anticipation of a continued housing boom. With a market that’s not projected to improve this year, many builders are looking for ways to cut costs, including getting rid of land they don’t need.
That leaves openings for smaller, privately held lot developers with a longer outlook, said Ted Wilson, a housing analyst with Addison-based Residential Strategies, Inc.
The number of lots ready for new-home construction in North Texas stands at about 96,000 units – a 33-month supply, according to statistics from RSI. The ideal is a 24-month supply, Wilson said.
North Texas market demand has dropped to about 35,000 new homes a year, down 30% from the more than 50,000 housing starts at the market’s peak in 2006, Wilson said. The lot supply has held relatively steady for the last few years but the backlog has jumped because housing starts have declined, Wilson said. With fewer housing starts, the ideal lot supply works out to about 70,000, he said.
Dallas Business Journal, January 2008
Dallas Ft. Worth Condominium Market
The Dallas/Ft.Worth condo market has avoided an oversupply of units in large parts because the metroplex is in the infancy stages of demand for mid and high rise residential developments.
The currently active condo developments have accounted for 1,436 total sales. The earliest pre-sale date for any of the active projects was November of 2004. It has taken 3 years for this market to absorb 1,436 units, for an average annual absorption of approximately 480 units.
The undeniable trend in the Dallas condo market has been the abundance of high-end product. Clearly the vast majority of the high-rise market in Dallas is targeted towards an affluent empty nester or young professional.
In reviewing the resale market in intown Dallas, focus was on the most relevant price points of $200,000 and above. Within this sub-category, there were a total of 539 condo resales over the last year (Dec. 2006 through Nov. 2007). When comparing activity to the same period a year ago, most price points posted a gain in the annual sales rate. Sales between $400,000 and $499,000 were down as well as sales in the $2-3 million category. While sales activity is up,
it is clear that no shortage of inventory exists in the resale market today.
Much of the resale condo product on the market today is slightly older and the buildings that these units are located in do not offer the same level of amenities available at the new projects according to RSI. However, with over 600 units on the market today, this resale inventory still presents a valid and sizeable source of secondary competition for new condo projects.
Residential Strategies Inc., December 2007
Texas Among Best in Home Inspection Rules
In the last 10 years, 28 states have enacted some form of home inspection regulation. State regulations governing the home inspection industry. ASHI’s (American Society of Home Inspection) state ratings are based on a multi-criteria system. Because laws vary significantly from state to state, a detailed set of criteria is used to review each state’s regulation to determine the positive elements of legislation as well as areas that may need improvement. States receive points according to the weight or importanceASHI places on different regulation standards and are evaluated against 13 criteria, including experience, education, testing requirements, standards of practice and codes of ethics.
ASHI encourages legislators who are interested in adopting home inspection laws to look to Louisiana, New Jersey, Texas, Arizona, or Massachusetts as models for legislation. States without home inspection regulation are: Colorado, Delaware, Hawaii, Iowa, Kansas, Maine, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Mexico, Ohio, Utah, Vermont, Washington and Wyoming.
RIS Media, January 2008
Big D Big Decorator
According to data provided by Superpages.com, Dallas outdoes New York in this year’s Holly-Jolliest City –Houston takes third, and San Antonio is seventh.
Superpages.com, December 2007
Nationwide Licensing for Mortgage Brokers
A nationwide licensing system that’s intended to help states track mortgage brokers and lenders under their jurisdiction has begun with seven states participating and 31 more expected to join.
The Nationwide Mortgage Licensing System (NMLS) creates a single file for each state-regulated mortgage lender, broker, branch and loan originator, simplifying the process of licensing and monitoring companies and individuals who do business in more than one state.
First proposed in 2004, the NMLS launched today with New York, Massachusetts, Rhode Island, Idaho, Iowa, Kentucky and Nebraska on board. All told, 38 states, plus Washington, D.C., and Puerto Rico, have committed to participate in the system by the end of 2009.
Developed by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators, the system has drawn fire from the National Association of Mortgage Brokers, whose members have complained that it excludes originators at banks and other federally regulated financial institutions.
But lawmakers in the House of Representatives endorsed the idea by incorporating it into HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007.
Four of the states that haven’t signed on yet – California, Nevada, Florida and Ohio –have some of the highest rates of defaults and foreclosures in the country. Other states that have yet to commit to the system are Texas, Alaska, Minnesota, Wisconsin, Missouri, Virginia, South Carolina and Maine.
Inman News, January 2008
Fed Proposes Restrictions on Subprime, alt-A Loans
The Federal Reserve proposes imposing some restrictions that currently apply only to very costly loans – including a ban on most prepayment penalties – to subprime and some Alt-A loans.
The proposed amendments to Regulation Z, which spells out the Fed’s implementation of TILA, would require lenders making “higher-priced” mortgage loans to: Verify a borrower’s ability to repay a loan with an adjustable-rate mortgage after a payment reset, including
property taxes, homeowners insurance and other expenses; document income and assets, using a borrower’s Internal Revenue Service Form W-2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer’s income and assets; and establish escrow accounts for taxes and insurance, which borrowers could opt out of after one year.
The new regulations would also ban prepayment penalties on higher-priced loans unless the consumer’s debt-to-income ratio does not exceed 50 percent of verified monthly gross income, and the source of the prepayment funds is not a refinancing by the same lender or its affiliate.
Only higher-priced mortgage loans on a primary residence – including home-purchase loans, refinancings and homeequity loans – would be subject to those provisions in the new regulations. Mortgages on vacation properties, open end home-equity plans, reverse mortgages, or construction-only loans would be exempt, and loans to investors are, for the most part, not covered by TILA.
Higher-priced loans would be defined as first-lien mortgages with an annual percentage rate (APR) of 3 percent or more above the yield on comparable Treasury notes, or 5 percent for second mortgages.
In addition to extending some provisions of the Home Ownership and Equity Protection Act (HOEPA) to subprime loans, the proposed regulations would also create some additional new requirements for all loans, including: Written agreements between borrowers and mortgage brokers collecting yield spread premiums, before the consumer applies for the loan or pays any fees; prohibitions on coercing appraisers to inflate property valuations; new requirements for loan servicers, including crediting consumers’ loan payments to the date of receipt and providing a schedule of fees to consumers upon request.
Federal Reserve System, December 2007
Tax Relief: Forgiven Debt, Private Mortgage Insurance
President Bush has signed into law a bill creating a temporary tax break for homeowners who are able to persuade lenders to forgive part of their debt, and extends a tax deduction for some families with private mortgage insurance.
For the next three years, the IRS won’t count as income debt forgiven by lenders when troubled borrowers negotiate short sales or workouts on their primary residence that involve forgiveness of part of their debt.
HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, also extends for three years a tax deduction allowing families earning $109,000 or less to deduct all or part of their private mortgage insurance premiums from their taxable income – which could save them an average of $350 a year.
Beginning January 1, 2008 and lasting until January 1, 2010, certain discharges of mortgage indebtedness on a principal residence will be excluded from a taxpayer’s gross income. As always, though, certain restrictions apply.
For one thing, the amount of indebtedness is limited to $2 million. Of greater relevance is the fact that, to be excluded, the debt discharged must be acquisition debt. That is, the
mortgage must have been used to purchase the home.
H.R. 3648 will also have relevance in situations where there is not a sale, but where the borrower and lender have restructured the loan and, along with other possibilities such as interest rate and/or payment reductions, the loan balance has been reduced. In such cases the debt forgiveness will not be taxed as ordinary income, but the amount of debt forgiveness will be applied to a reduction in the borrower’s cost basis in the property. This way, it may subsequently be at least partially recaptured by the IRS in the form of capital gain tax.
Realty Times, January 2008
More Reform Pending
The Senate has passed the FHA Modernization Act. A little less generous than the House’s – FHA’s new maximum mortgage amounts would be capped at $417,000, whereas the House’s version allows loan amounts to rise according to local median price levels. The final dollar limit will need to be hammered out in negotiations between the House and Senate early next year. The House version also allows zero downpayments, while the Senate sets a 1 and a half
percent minimum. Both would be improvements over the current 3 percent minimum.
Washington Report: Senate Banking Committee Unveils
After months of delay, Chris Dodd, chairman of the Senate banking committee has unveiled his major reform plans for the home mortgage industry. Among other provisions, Dodd’s bill would ban all prepayment penalties imposed by lenders in connection with subprime and nontraditional loans, require escrows for taxes and insurance for all subprime borrowers, and prohibit loan officers from steering home buyers to higher-rate, higher-fee mortgages than
they deserve or can afford. Violators would get hit with mandatory cancellations of the loan – full paybacks of downpayments, principal, interest and closing costs fees – and $5,000 cash penalties on top of that. Inflated appraisals would also be targeted: Borrowers could sue their bank or loan broker any time the appraisal of a house came in 10 percent or more below the actual market value, as established by independent valuations. The bill would impose much stricter requirements for documentation .,.. and would give the Federal Reserve Board the authority to write regulations enforcing the tougher standards. Dodd is expected to push his reform bill for Senate floor action as quickly as possible, and then go to conference with the House, which has already passed a comprehensive mortgage market reform bill with roughly similar objects.
Washington Report: RESPA Encourages Lenders?
RESPA is short for the Real Estate Settlement Procedures Act. Five years ago, the federal government proposed sweeping changes to the way Americans shop for – and understand – their home mortgages. The proposals were intended to encourage lenders to help home buyers understand the true costs and inner workings of loans – not just the interest rate but all the settlement and title and other closing fees. Now a reborn version of RESPA reform is just
a couple of weeks away from formal unveiling. Like the earlier version, the new rule would require lenders’ up front “good faith estimates” to bear a close resemblance to the final fees that appear on consumers’ settlement sheets. Unlike the earlier version, however, the new one will force all loan officers to deliver a four page, step-by-step disclosure to applicants that is designed to explain all the working parts – the potential problems – of a particular loan. It will also require loan officers to use a standard script in presenting loan options and features to applicants. Federal housing officials are expected to begin briefing Congressional committees on the proposal soon, and then release the plans for up to 90 days of public comment.
DOJ Launches Real Estate Competition Website
The U.S. Justice Department’s Antitrust Division has created a website focusing on competition in the real estate industry that features a chart detailing commission trends and adopted policies that can restrict consumer rebates and some forms of brokerage services. The site is intended “to educate consumers and policymakers about the potential benefits that competition can bring to consumers of real estate brokerage services and the barriers that inhibit that competition,” according to a Department of Justice announcement.Another federal antitrust enforcement agency, the U.S. Federal Trade Commission, last year launched a website focusing on competition in the real estate industry. The Justice Department is no stranger to research about real estate competition – two years ago the agency filed a lawsuit against the National Association of Realtors trade group, charging that association-adopted policies for the online display and sharing of property information were overly restrictive. That litigation is ongoing. Both the DOJ and FTC have engaged in actions targeting Realtor-backed state measures that restrict rebates or mandate minimum levels of service for real estate licensees, for example, and the FTC last year took action against a group of MLSs that placed restrictions on the online dissemination of property information based on the type of listing contracts chosen by the sellers.
“Over the past decade the average commission rate has remained relatively steady between 5 and 5.5 percent,” the website states. “As a result, the actual median commission paid by consumers rose sharply along with the run-up in home prices.” According to the preliminary results of an annual profile of home buyers and sellers prepared by the National Association of Realtors, 70 percent of sellers say they negotiated their real estate commissions. The list of
states with anti-rebate measures includes: Alaska, Oregon, Montana, North Dakota, Kansas, Oklahoma, Iowa, Missouri, Louisiana, Tennessee, Mississippi, Alabama and New Jersey. The list of states with so-called minimum service measures includes: Idaho, Utah, Texas, Iowa, Missouri, Illinois, Indiana and Alabama –Iowa, Missouri and Alabama appear on both lists. A chart at the site compares the cost of full-service real estate companies that charge about a 6 percent commission to alternative business models that offer a buyer’s rebate and/or offer a fee-for-service model. “Consumers who live in states permitting them the option to choose innovative brokerage options, such as rebates or fee-for-service MLS-only packages, can potentially save thousands of dollars on commission payments,” the website says.
The NAR charges in its online commentary that there are “few facts” and “much fiction” at the Justice Department’s real estate competition website. “The DOJ arguments at the website display a flagrant disregard for the free competition the agency is supposed to champion. It uses the website as a promotion for unbundled and discount services,” according to the Realtor group’s commentary. “It doesn’t present persuasive argument to show that one model has certain advantages over another. Instead, it dictates what it believes is the ultimate wisdom about real estate brokerage.” Justice Department and Federal Trade Commission officials have sent letters to state officials and advocated against the passage of Realtor-backed statewide real estate measures that they deem to be anti-competitive, though the federal agencies have limited authority to engage in antitrust enforcement actions against states.
According to a recent study conducted by the trade group, about two-thirds of consumers participating in the study said they “were very satisfied with the services they received” in a real estate transaction.
What the site does not do is help buyers and sellers understand risk. The site does not help consumers understand the service issues underlying the real estate industry, that can neither be quantified or necessarily identified.
First, the DOJ isn’t considering the increased costs of competition, largely driven by the companies that have gone whining and crying to the DOJ over competitive issues.
What’s wrong with the DOJ’s logic is that profiles should be linked to costs, a constraint the DOJ doesn’t impose on any other industry. Otherwise, the DOJ would be investigating every company with rising prices and examining market costs. In fact, the DOJ is going to unprecedented lengths to provide what amounts to free advertising to “new real estate
brokerage models” with the “potential to reduce the amount by thousands of dollars.” The DOJ goes on to say, “For example, in states that allow open competition, some buyer’s brokers rebate up to two-thirds of their commission to the customer, and some seller’s brokers offer limited-service packages that let sellers list their homes on the local multiple listing service (MLS) for as little as a few hundred dollars.”
Instead of uniting the industry, the DOJ could well pull it apart with its interference. There’s no other industry that shares inventory between competitors like the real estate industry. The site says that consumers should be able to buy and sell homes with the same ease as buying an airline ticket or stocks, but that’s laughable. Those are commodities that are the same. Each issue of stock is the same share as another, while homes are wildly individual.What’s missing
most from the DOJ site is a fair and balanced view of full-service brokers who have every right to charge full-service fees for their work, just like anyone else in this capitalist nation.
This is about bringing down the biggest homeowner lobbyist on Capital Hill and a thorn in the Fed’s side. With NAR out of the way, real estate can be wrested out of the states’ hands and federal lawmakers would be free to install a federal real estate transfer tax, eliminate the mortgage interest rate deduction, and modify other homeowners benefits.
NAR, October 2007
New Website Touts Benefits of Realtors, Home Ownership
The National Association of Realtors trade group has launched a new website, HousingMarketFacts.com, as a part of a public awareness campaign to promote the possible benefits of home ownership and to counter news about the housing market slowdown.
The new website promotes the use of Realtors in real estate transactions, includes statistics on housing as a longterm investment, offers links to interest-rate information, and features an “equity estimator calculator” that allows site users to enter down-payment information to estimate equity in that home over time, among other features.
Advertising for this campaign will be broadcast nationwide from January through November and will air about 10,000 times on national television and radio stations, the trade group reported. The advertising campaign features two new television ads that are focused on buyers and the potential long-term value of home ownership.
In an announcement promoting the campaign, the association noted that the median price of resale homes has increased about 6 percent per year, on average, with home values nearly doubling every decade.
National Association of Realtors officials in November also approved a new rule that requires all local, regional and state Realtor groups to adopt RETS (Real Estate Transaction Standards) by June 2009.
NAR, January 2008
NAR’s ‘Secondary Century’ Tech Incubator Accepts Proposals
Second Century Ventures, a new company launched by the National Association of Realtors to consider investments in the development real estate technology applications, will formally begin operations in January.
The new company will “pursue the evaluation, investment and monitoring of technological opportunities focused on the real estate industry” and “offer and provide financing and funding for the development of technology applications focused on the real estate industry,” according to information presented to NAR’s board in May.
NAR, December 2007
Consumers’ Choice Award 2007
Park Cities • Preston Hollow • North Dallas • Lakewood • Uptown • Turtle Creek
See your next home at http://www.alliebethallman.com/ or http://www.bobedmonson.com/.
‘08 is OK
(i) interest rates are approaching the lows of 2003. The decline in stock market also results in a decline in interest rates for residential mortgages, (ii) there are plenty of buyers who have good credit and down payments, especially in the markets ABA & Associates sells in; (iii) large amounts of capital are moving toward the purchase of these large loan portfolios at discounts, cleaning out the bank’s and the other investors who want to get rid of these loans and freeing up their new lending activities; (iv) employment in the DFW area will continue to rise, but at a slower pace; however, it will rise and there will still be a demand to buy houses; (v) sellers will get more realistic, lowering home prices in certain markets (but not Park Cities, Lakewood or Preston Hollow) which helps with sales; (vi) Republic Title is planning an expansion of its Park Cities office this year. We are out of space and feel we need to make room for more closings and closers; (vii) the market will be slow until the end of the first quarter, which is March 31.
Watch to see at that time if the major money center banks continue to write down their real estate loan portfolios. If they do, then the recovery will take a little longer. If they do not, then a lot of folks think the stock market will really take off and this “crisis” will be over; (viii) finally, this is nothing compared to 1985-1990—not even close.
Bill Kramer, CEO Republic Title, January 2008
Allie Beth Allman and Associates is poised to maintain its premier position as the leading single-office firm in Dallas for both listings and sales. Our professional team now comprises 180 proven producers, at your service.
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