Could the News be Any Better??

Hallelujah!!!   The Congress got together for at least a partial deal!!  You would think it was time to celebrate but there is more to do on the debt side.   Call your Congressman and Senator!!!

And the Real Estate News??  It only keeps coming!!!   As reported previously and echoed again in Jim Belote's Mortgage Matters, the Housing Market is coming back!!  More good news.

With the sense of calm that will occur in the market due to the recent compromise in Congress, sellers should feel very confident that the market improvements will continue.  And buyers, you best run!!  The prices will only continue to firm and, as noted in the Mortgage Matters, interest rates are projected to rise over time.  No one can tell you the exact time when the rates could move up.

Yet do you want to wait to get the double whammy of higher prices and higher rates???

Keeping you updated on the market! For the week of  December 31, 2012 MARKET RECAP Last week, we sang hosannas for home builders and new-home sales. This week, existing home-sales get their turn. We praise existing homes because sales have taken a significant turn for the better. Late last week, existing-home sales posted at an annualized rate of 5.04 million units for November – a 5.9% increase over October. The pace of existing-home sales has risen to the point they are on par with the federal-tax-credit days in the spring of 2010. The good news is the market is much healthier today compared to 2010. Back then, we were skeptical that tax credits would sustain existing home sales. Our view was that the credits were simply pulling sales in from future demand, while aggregate demand remained low. This time is different. We expect sales to continue to trend higher. The housing market is more robust today than it was in 2010. For one, distress properties are becoming less of a factor. For November, distressed properties accounted for 22% of existing-home sales, down from 24% in October. What's more, that percentage has been trending down for much of 2012. Supply has been an issue, and a mixed blessing. Current inventory of existing homes is at a multi-year low of 4.8 months. The number of existing homes on the market, 2.03 million, is retarding sales-volume growth. On the other hand, low supply is helping prices. The national medium price of an existing home is up to $180,600, a 10.1% increase over the median price this time last year. All in all, the latest data show that housing – new and existing – is increasingly taking leadership for economic growth. In other words, the world is finely returning to some sense of normalcy. Normalcy might not be the word we'd use to describe mortgage lending. Yes, rates continue to skim along multi-decade lows; that is, when they are not setting new multi-decade lows. But this is an unusual lending market. Rates are low, but risk aversion remains high (particularly among regulators). The Federal Reserve is doing everything within its power – by purchasing mortgage-backed securities and long-term Treasury notes – to hold interest rates low. This is an unprecedented move by the Fed.  To be sure, the Fed's efforts have worked, but it's worth keeping in mind that the events of today are an aberration. A more normal lending environment would consist of higher-rate 30-year mortgages. From an investor's standpoint, the rate today barely compensates for inflation and doesn't compensate for risk and the time value of money. The point we want to emphasis is that the housing market has returned to normal; we think that it's a matter of time (which isn't too far into the future) when mortgage lending returns to normal too.   Economic  Indicator Release  Date and Time Consensus  Estimate Analysis Mortgage Applications Wed., Jan. 2, 7:00 am, ET None Important. Markets expect the rising trend in purchase applications to continue into 2013. Construction Spending (November) Wed., Jan. 2, 10:00 am, ET 0.1% (Increase) Important. The residential sector is fueling gains in overall construction spending. Federal Reserve FOMC Minutes Wed., Jan. 2, 2:00 pm, ET None Moderately Important. The Fed minutes will likely report moderate, but sustained, economic growth. Employment Situation (December) Fri., Jan 4, 8:30 am, ET Unemployment Rate: 7.8% Payrolls: 140,000 (Increase) Very Important. Accelerating job growth will make it more difficult for the Fed to maintain its low-interest-rate policies.   A Look Back and a Look Ahead   It appears we were fairly accurate in our predictions for 2012. This time last year we predicted that home sales volumes would continue to improve. We said the same for pricing. We even expected prices in the sand & shore states to lead the rebound. That's been the case (even Las Vegas is rebounding). One reason we thought 2012 would be a strong year for housing is shadow inventory would be less of an issue than many pundits were ominously projecting. Our rationale was simple: What's known doesn't roil markets; it's the unknown that roils markets. The problems associated with shadow inventory are well-known and well-vetted. Markets are masters at dealing with what's known. Now, we said “fairly” accurate, not completely accurate. Our prediction on mortgage rates was wrong. We expected higher lending rates in December 2012 compared to December 2011. That wasn't the case. In our defense, we didn't expect the Federal Reserve to intervene in the mortgage market to the extent it has. For 2013, we are doubling down: Existing-home and new-home sales will continue to improve, as will overall pricing. Home starts will also pick up pace throughout the year. As for shadow inventory, it will become even less of an issue than it is today. We're also doubling down on mortgage rates. We see higher rates this time next year. We say that because the Federal Reserve's interventionist policies are becoming less effective. After the Fed announced it would double its purchases of longer-term notes and bonds, the yield on the 10-year Treasury actually increased 20 basis points. This suggests to us markets are becoming more concerned with inflation. So that's our call for 2013. Have a safe and happy New Year.

WHERE IS THE MORTGAGE INTEREST DEDUCTION IN FISCAL CLIFF TALKS?

Mortgage Deduction on Fed Taxes   With a desire to keep you in the loop on the impact of the Financial Cliff' s impact on your pocket book and even your ability to afford a home, I have looked for more information to post here. Al Clark's Home Action Newsletter had this poignant article on the impact of eliminating or downsizing the Mortgage Interest Deduction.  You will note that it saves lots of money for many families and probably the discussion will cause even more home buyers to take the deduction(amazingly,some were never told about it...or they would be taking the tax savings! We can't fault, though, the discussions around eliminating the deduction for those making over $500,000.  But that second home, if not tied to income, would hurt the "average" citizen looking to invest in rental properties for a cash income stream.  I am sure a few of you would hate to have that happen. Read and let me know if you believe this must be protected. If not a fan of keeping the deduction, why not? WHERE IS THE MORTGAGE INTEREST DEDUCTION IN ALL OF THIS?

The Fiscal Cliff has one of the most cherished tax breaks for many homeowners "on the table." Since 1933, homeowners have been able to deduct interest paid on their mortgages as well as some other home-related borrowing from their income.  This longstanding tax break encourages and supports home ownership. For families with middle and below-average incomes, the deduction helps too; this includes 65% of families who claim the mortgage interest deduction earn less than $100,000 per year. In addition, American homeowners already pay 80 percent to 90 percent of U.S. federal income tax. Roughly 40% of all homeowners rely on the deduction. The USA TODAY has published very helpful facts on the issue, state by state. On The Table Interest deduction is a very popular issue in every conversation held in Washington concerning the Fiscal Cliff. While no one in authority is calling for outright elimination right now, several options are being offered to deal with the $80-90 billion tax break. If the tax break was eliminated entirely, it would raise over $98 billion in 2013, according to estimates by the congressional Joint Committee on Taxation. Currently being discussed is a type of limit or cap on how much households can deduct based on their income group. There are feasible ways to increase tax revenue by aiming at high-income earners. For example, the interest deduction based on owning a second home could be ended. Also, the maximum mortgage debt eligible for the interest rate deduction ? now at $1 million - could be reduced. The most popular amount discussed for a remedy is $500,000. In its proposed budget, the Obama administration plans to focus on high-income taxpayers,  those earning more than $250,000. The administration wants to cap all deductions at 28 percent for this group. Currently, a high-earning household deducting $20,000 in interest payments (at a 35% tax rate) would receive $7,000 in tax savings. The Obama budget would cap that rate at 28 percent. In the end, that $20,000 of interest payments would result in a smaller tax break of $5,600. The Treasury Department proposes that over the next 10 years, a 28 percent cap would raise $584 billion. The Fears Many housing economists and industry trade groups offer that now is not the time to mess with home ownership incentives. The depressed real estate market is making a steady comeback with home values rising in almost every market. US home prices recorded the biggest jump in 6 years this past October. The National Association of Realtors is mobilizing its membership with a theme of "Do No Harm To Housing." Their rationale for supporting home ownership incentives can be thoroughly examined with the "Home ownership Q and A" on House Logic Next Steps- Get Your Views Across Before The Decisions Are Made....Click Act Now! Right now, there is no legislation specifically dealing with the interest deduction. Legislators want to hear from you on this issue so your feedback as a constituent is invaluable to them. We have set up a unique widget that lets you assert your opinions and (at the same time) view how others feel about the decisions being made, pro or con.  As the talk heats up in Washington the next few days we will keep you updated with alerts.

Whttp://www.usatoday.com/story/news/politics/2012/12/04/fiscal-cliff-mortgage-deduction/1737611/Tell Bryan Cerny What You Think