MONEY Housing Market

Housing Market Recovery Moving Forward, Except for This One Thing

For the first time during the housing recovery, four out of five of Trulia's Housing Barometer measures are at least halfway back to normal. But young adults are still struggling to get jobs.

How We Track This Uneven Recovery
Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is moving back to “normal” based on multiple indicators. Because the recovery is uneven, with some housing activities improving faster than others, our Barometer highlights five measures:

  1. Home-price levels relative to fundamentals (Trulia Bubble Watch)
  2. Delinquency + foreclosure rate (Black Knight, formerly LPS)
  3. Existing home sales, excluding distressed sales (National Association of Realtors, NAR)
  4. New construction starts (Census)
  5. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS)

The first measure, home prices from our Bubble Watch, is a quarterly report. The other four measures are reported monthly; to reduce volatility, however, we use three-month moving averages for these measures. For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level.

4 Out of 5 Measures Improve and Are At Least Halfway Home
All but one of the Housing Barometer’s five indicators have improved since last quarter, and all five have improved or remained steady since last year. Prices and the delinquency + foreclosure rate made the biggest strides:

Housing Indicators: How Far Back to Normal?
Now One quarter ago One year ago
Home price level 79% 68% 44%
Delinquency + foreclosure rate 74% 63% 53%
Existing home sales, excl. distressed 64% 61% 64%
New construction starts 50% 45% 41%
Employment rate, 25-34 year-olds 35% 39% 30%
For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level.
  • Home prices continue to climb, though at a slower rate. Trulia’s Bubble Watch shows prices were 3% undervalued in 2014 Q2, compared with 15% at the worst of the housing bust; that means prices are nearly four-fifths (79%) of the way back to their “normal” level of being neither over- nor under-valued. Even better, as prices approach normal, price gains are slowing down and becoming more sustainable: for the first time in almost two years, no local market has had price gains of more than 20% year-over-year.
  • The delinquency + foreclosure rate was 74% back to normal in May, up from 63% one quarter ago. While fewer foreclosures means fewer discounted homes for sale, delinquencies and foreclosures have caused great pain for millions of households and the financial system. For the foreclosure crisis, the light at the end of the tunnel is getting brighter.
  • Existing home sales (excluding distressed) were 64% back to normal in May, up from 61% one quarter earlier. Distressed sales have plummeted as the foreclosure inventory has dried up. Non-distressed sales also stumbled from their peak last summer as higher home prices and mortgage rates reduced affordability, but in the past quarter non-distressed sales have resumed their climb.
  • New construction starts are 50% back to normal, up from 45% one quarter ago and 41% one year ago. Multi-unit starts — mostly apartment buildings — are leading the recovery: in 2014 so far, multi-unit starts accounted for 35% of all new home starts, the highest annual level in 40 years. This apartment boom started last year, and last year’s starts are now being completed, which is increasing the supply of apartments for rent.
  • Employment for young adults, however, took a step back. May’s three-month moving average shows that 75.6% of adults age 25-34 are employed, which is just 35% of the way back to normal. That’s down from 39% one quarter ago, though still an improvement from one year ago. Because young adults need jobs in order to move out of their parents’ homes, form their own households, and eventually become homeowners, the housing recovery depends on Millennials getting jobs.

What’s Missing from the Housing Recovery

First-time homebuyers are still missing from the housing recovery, making up just 27% of existing-home buyers according to NAR’s May report. That’s down a bit both from last month and from last year.

How has the recovery gotten this far without first-time buyers? Investors and other bargain-hunters bought homes near the bottom of the market, in late 2011, which boosted sales and home prices. Now that prices are near long-term norms – just 3% undervalued – the bargain-hunting engine is sputtering. Repeat buyers, who are trading in one home for another, are taking more of the market.

Would-be first-time homebuyers are stuck: rising prices and mortgage rates have reduced affordability before young adults have been able to recover from the jobs recession. A full recovery that includes first-time homebuyers is still years away; many young adults still need to find jobs and keep them long enough to save for a down payment and qualify for a mortgage. Until that happens, the clearest signs of recovery will be apartment construction and renter household formation, not first-time home buying, as young adults move from their parents’ homes into their own rental units.

NOTE: Trulia’s Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (Black Knight), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the “normal” share of sales that are distressed is 5%; Black Knight reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest published data are May data for the employment rate, existing home sales, new construction starts, and the delinquency + foreclosure rate; and Q2 for home prices.

See the original article, with more charts, here.

Jed Kolko is the chief economist of Trulia.

MONEY Housing Market

The Cities Where Zombies (Foreclosures, That Is) Are Still Lurking

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Everett Collection

They’re the housing market menace that won’t seem to go away – homes abandoned by their owners, not yet taken over by the banks. Even now, well into a two-year recovery in home prices, there remain 141,406 “zombie foreclosures,” according to data firm RealtyTrac.

That’s down 16% from a year ago nationwide, which sounds pretty good. Still, zombie foreclosures increased this quarter in 10 states plus D.C. The problem is particularly persistent in some regions—Florida accounts for more than one-third of all zombies—where upwards of 30% and even 40% of foreclosures are vacant.

Metropolitan areas (keep in mind, these are generally much larger regions than cities themselves) with the highest percentage of vacant foreclosures, reports RealtyTrac:

Metro Area %Vacant
Homosassa Springs, Fla. 43%
Portland 37%
Birmingham 37%
Ocala, Fla. 36%
Destin, Fla. 35%
St. Louis 34%
Worcester, Mass. 33%
Port St. Lucie, Fla. 33%
Punta Gorda, Fla. 33%
Binghamton, N.Y. 33%
Las Vegas 32%
Melbourne, Fla. 32%
Daytona Beach, Fla. 32%
Gainesville, Fla. 31%
Fort Wayne, Ind. 31%

 

Vacant foreclosures were a downright plague during the worst of the housing crisis—homes overgrown with weeds, windows boarded up dragged down property values and in some cases deteriorated into hotbeds of crimes. From a 2008 U.S. Conference of Mayors report: “These properties are a drain on city budgets. They detract from the quality of life, as well as the economic opportunities, of those living around them. They are an impediment to individual neighborhood redevelopment and, ultimately, to achievement of city-wide economic development goals.”

Five years later, a swarm of local and national initiatives and streamlined foreclosure procedures have helped; so has a flood of investor buying. Rising home prices and an improving economy have kept fewer homes out of foreclosure in the first place.

Still, real estate analysts and community advocates fear that the last batch of zombies are going to be the hardest to kill—they may be in the worst shape and in the least desirable neighborhoods. Investors don’t want them, and the properties require way too much work for traditional buyers.

And, community redevelopment types fear, banks are taking their sweet time foreclosing on them at all, putting off the moment when they have to pay all the back taxes, code enforcement fees and other liens that have amassed over the years.

“The banks are hoping the market will keep turning around, or they’re looking for alternatives that lessen the red ink on their portfolio,” says John Taylor, CEO of the National Community Reinvestment Coalition. “There was a time the banks were just giving away these properties trying to get them off the books. Now, they don’t want to add to that.”

Not surprisingly, the longer the foreclosure process lasts, the more likely the owners are to abandon the homes. And where are foreclosures taking the longest? New York and Florida, a 418 and 411 days on average, respectively, followed by New Jersey (378 days), Illinois (272) and Hawaii (249).

Zombie Foreclosures in the Largest 20 Cities

Metro Area %Vacant
New York City 13%
Los Angeles 8%
Chicago 19%
Dallas 25%
Philadelphia 22%
Houston 12%
Washington D.C. 18%
Miami 18%
Atlanta 30%
Boston 20%
San Francisco 8%
Detroit 28%
Riverside, Calif. 6%
Phoenix 25%
Seattle 29%
Minneapolis 22%
San Diego 4%
St. Louis 34%
Tampa 30%
Baltimore 28%
MONEY The Economy

Wealth Inequality Doubled Over Last 10 Years, Study Finds

An analysis by researchers at the University of Michigan shows a drastic increase in wealth inequality since 2003.

A new study finds wealth inequality among U.S. households has nearly doubled over the past decade.

The analysis, performed by researchers at the University of Michigan, shows households in the 95th percentile of net worth had 13 times the wealth of the median household in 2003. By 2013, this disparity had increased almost twofold, with the wealthiest 5% of Americans holding 24 times that of the median.

In dollars terms, the median wealth of a US household was $87,992 in 2003, and by 2013 had decreased 36% to $56,335. In contrast, the richest 10% actually saw their net worth increase from 2003 to 2013, with the highest gains going to the top 5%. The median wealth of the households in the top five percent grew over 12% during the same time period, from $1,192,639 to $1,364,834.

The study also shows similar wealth inequality growth between median and poor households. In 2013, the 50th percentile held 17.6 times the wealth of the least wealthy 25%—over twice the disparity found in 2003.

A principal reason for the rapid increase in wealth disparity over the last 10 years is the different ways various economic groups invest their money. According to the study’s lead author, Fabian T. Pfeffer, more than half of the median household’s wealth in 2007 was in home equity. By comparison, the median household in the richest 5th percentile held only 16% of their wealth in home equity, with the lion’s share being kept in real assets, including business assets (49%) and financial instruments like stocks and bonds (25%).

Pfeffer explains that because stocks have recovered more quickly than the real estate market—the S&P reached its pre-recession high in March of 2013, while home prices are still far from their 2006 peak—average households were hurt far more than richer Americans when the housing bubble popped. When home equity is excluded from household wealth, the impact of the housing crash on average Americans is especially clear. A median household’s total net worth declined by $42,000 between 2007 and 2013, but their wealth held in non-real estate assets declined by only $6,900. The Great Recession’s disproportionate impact on real estate allowed the richest households, who could afford to diversify their investments, to grow wealth even during a deflating housing market.

Source: YCharts

Another concern for middle class households is that many sold off investments during the recession in order meet expenses, and are now less able to enjoy the benefits of a recovering economy. “Part of the lack of recovery is that they [median American households] had to divest,” says Pfeffer. “The troubles will stay with them for the next couple of decades as they try to reclaim these assets.”

Will wealth inequality continue to increase at its current pace? Pfeffer believes it would take another deep recession for inequality to double again in the next 10 years, but says his research confirms what economists like best-selling author Thomas Piketty have been saying for years: that returns to capital have been increasing at a rapid pace over the last century, creating a persistently swelling gap between the wealth of the haves and the have-nots. “I don’t see many hopefully signs that we’re going to get back to where we were 10 years ago,” Pfeffer says.

Some have claimed inequality is less important as long as all Americans see wealth gains over time. The rich may get richer faster, but that might not matter if the poor and middle class are also seeing their wealth increase. Pfeffer disagrees. A rising tide may lift all boats, but the Michigan professor points out that wealth not only tends to determine political influence, but also that wealth inequality greatly affects the opportunities available to the children of the middle class, especially in terms of education. “The further families pull apart [in net worth], the more disparate the opportunities become for their offspring,” he says.

MONEY home improvement

Which Areas Will Spend the Most on Home Improvements This Year?

The homebuilders association estimated home improvement spending for this year. Porch adjusted the numbers to take cost of living into account. So who will spend the most?

We talk a lot at Porch about how much money is spent on home improvements, but the National Association of Home Builders’ estimates of 2014 spending on improvements by zip code is a good breakdown of just how much money is being spent, even all the way down to your local neighborhood.

According to the NAHB, the average zip code in America will see over $5 million spent on home improvement this year. That’s a lot of new roofs, landscaping, and remodels.

On average, total spending on improvements in a zip code is projected to be about $5.1 million in 2014. The top 5 total-spending zip codes are all in Maryland, Texas, or Illinois. Each of these top 5 zips contains at least 15,000 owner-occupied homes and home owners who average at least $145,000 in income and are 60 percent or more college educated. Most of these top 5 zips don’t have an unusually large share of homes in the key vintage for remodeling (homes built from 1960 to 1979), except for the zip at the very top of the list—#20854 in Maryland, a close-in suburb of Washington DC. 20854 is the only zip where over $60 million in spending on improvements is projected for 2014, and over half the owner-occupied homes in that zip were built 1960-1979.

See NAHB’s heat map of average remodeling spend per home by zip code. Lots of heavy activity in the northeast, Colorado, SoCal, and San Francisco Bay Area.

Here’s the NAHB’s list for all 50 states plus the District of Columbia. Read on to see how I adjusted these figures for cost-of-living.

NAHB 2014 Spending Projections by State

RANK STATE HOMES SPENDING (M) PER HOME
1 District of Columbia 110,668 $299.6 $2,707
2 Connecticut 913,482 $1,961.7 $2,147
3 New Jersey 2,099,380 $4,471.1 $2,130
4 Maryland 1,459,393 $3,106.4 $2,129
5 Massachusetts 1,583,170 $3,351.2 $2,117
6 California 6,863,765 $14,053.1 $2,047
7 Hawaii 260,435 $529.5 $2,033
8 Colorado 1,320,302 $2,659.0 $2,014
9 Virginia 2,059,305 $4,136.8 $2,009
10 Alaska 161,691 $315.9 $1,954
11 New Hampshire 372,053 $723.4 $1,944
12 New York 3,894,151 $7,569.7 $1,944
13 Washington 1,690,642 $3,203.4 $1,895
14 Rhode Island 248,947 $470.3 $1,889
15 Minnesota 1,536,021 $2,840.5 $1,849
16 Vermont 185,244 $340.5 $1,838
17 Illinois 3,195,820 $5,866.9 $1,836
18 Utah 653,230 $1,189.1 $1,820
19 Oregon 953,810 $1,735.2 $1,819
20 North Dakota 199,492 $362.5 $1,817
21 Texas 5,825,370 $10,288.5 $1,766
22 Delaware 249,624 $436.2 $1,747
23 Nebraska 498,327 $861.8 $1,729
24 Kansas 750,703 $1,295.5 $1,726
25 Montana 278,602 $478.7 $1,718
26 Arizona 1,555,284 $2,669.8 $1,717
27 Georgia 2,310,104 $3,953.1 $1,711
28 Wisconsin 1,558,251 $2,628.8 $1,687
29 Pennsylvania 3,444,645 $5,805.0 $1,685
30 Florida 4,867,931 $8,165.4 $1,677
31 Wyoming 158,372 $265.6 $1,677
32 New Mexico 526,208 $864.4 $1,643
33 Oklahoma 986,719 $1,619.6 $1,641
34 Missouri 1,614,450 $2,636.4 $1,633
35 Ohio 3,045,022 $4,969.2 $1,632
36 North Carolina 2,534,475 $4,132.5 $1,631
37 Nevada 580,080 $942.8 $1,625
38 South Dakota 224,676 $363.2 $1,617
39 Idaho 415,126 $670.6 $1,615
40 Iowa 898,866 $1,451.5 $1,615
41 Michigan 2,739,690 $4,420.4 $1,613
42 Louisiana 1,161,174 $1,873.1 $1,613
43 Maine 402,697 $646.4 $1,605
44 Tennessee 1,694,955 $2,684.2 $1,584
45 South Carolina 1,264,229 $1,997.5 $1,580
46 Alabama 1,292,936 $2,017.3 $1,560
47 Indiana 1,747,919 $2,697.0 $1,543
48 Kentucky 1,159,697 $1,787.3 $1,541
49 Arkansas 771,194 $1,178.6 $1,528
50 Mississippi 755,676 $1,131.7 $1,498
51 West Virginia 538,188 $782.4 $1,454

In general, the states at the top of the list are mostly high-cost areas, and those at the bottom are lower-cost areas. So I adjusted the list based on first quarter 2014 cost of living data to get a better sense of which states are going to be doing more home improvement in 2014.

NAHB 2014 Spending Projections Adjusted for Cost of Living

RANK STATE COST OF LIVING ADJ. PER HOME
1 Virginia 97.0 $2,071
2 Colorado 100.4 $2,006
3 Utah 93.0 $1,957
4 District of Columbia 139.6 $1,939
5 Illinois 95.5 $1,922
6 Texas 92.8 $1,903
7 Kansas 91.3 $1,890
8 Nebraska 91.7 $1,886
9 Washington 102.6 $1,847
10 Georgia 92.7 $1,846
11 Minnesota 101.8 $1,817
12 Oklahoma 90.4 $1,816
13 North Dakota 100.4 $1,810
14 Maryland 117.7 $1,808
15 Wyoming 93.2 $1,799
16 Tennessee 89.7 $1,765
17 New Mexico 93.4 $1,759
18 Iowa 92.5 $1,746
19 Massachusetts 121.3 $1,745
20 Missouri 93.7 $1,743
21 Montana 98.6 $1,743
22 Ohio 94.1 $1,734
23 Michigan 93.9 $1,718
24 Connecticut 125.2 $1,715
25 Idaho 94.2 $1,715
26 Kentucky 90.0 $1,712
27 Wisconsin 98.8 $1,708
28 Mississippi 87.8 $1,706
29 Indiana 90.7 $1,701
30 Louisiana 95.3 $1,693
31 Alabama 92.4 $1,689
32 Arizona 101.8 $1,686
33 Florida 99.7 $1,682
34 New Hampshire 116.1 $1,675
35 New Jersey 127.6 $1,669
36 North Carolina 97.8 $1,667
37 Pennsylvania 101.6 $1,659
38 Delaware 105.7 $1,653
39 Arkansas 92.5 $1,652
40 South Dakota 98.3 $1,645
41 South Carolina 96.1 $1,644
42 Nevada 100.2 $1,622
43 California 127.1 $1,611
44 Vermont 117.2 $1,568
45 Rhode Island 120.9 $1,563
46 Oregon 121.7 $1,495
47 Alaska 131.8 $1,482
48 West Virginia 98.6 $1,474
49 New York 132.2 $1,470
50 Maine 109.7 $1,463
51 Hawaii 162.9 $1,248

After adjusting for by how expensive each state is, the top five for home improvement activity in 2014 are Virginia, Colorado, Utah, the District of Columbia, and Illinois. The bottom five are Alaska, West Virginia, New York, Maine, and Hawaii.

Bottom line: If you live in a state near the top of the list, don’t expect that you’ll have a lot of flexibility on schedule or price when working with a pro for your home improvement project since lots of your neighbors are probably planning similar projects, too. If you’re in a state near the bottom of the list, you might have a little more leeway.

More from Porch:
Tips to Conserve Water in Your Home
Should You DIY Your Bedroom Remodel?
These 5 States Love Pianos Almost as Much as TVs

Tim Ellis is a data journalist for home improvement website Porch.

MONEY Housing Market

The Housing Market Won’t Be Undervalued Much Longer

Trulia's latest analysis shows homes in three-fourths of major U.S. cities are still undervalued, while seven are more than 10% overvalued (most in California). Even there, prices are no where near boom frothiness.

Trulia’s Bubble Watch reveals whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. The more prices are overvalued relative to fundamentals, the closer we are to a housing bubble – and the bigger the risk of a future price crash.

Sharply rising prices aren’t necessarily a sign of a bubble; a bubble is when prices look high relative to fundamentals. Bubble watching is as much an art as it is a science because there’s no definitive measure of fundamental value. To try to put numbers on it, we look at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends using multiple data sources, including the Trulia Price Monitor as a leading indicator of where home prices are heading. We then combine these various measures of fundamental value rather than relying on a single factor, because no one measure is perfect. Trulia’s first Bubble Watch report, from May 2013, explains our methodology in detail. Here’s what we found.

Home Prices are 3% Undervalued Nationally We estimate that home prices nationally are 3% undervalued in the second quarter of 2014 (2014 Q2), which is far from bubble territory. During last decade’s housing bubble, home prices soared to a level that was 39% overvalued in 2006 Q1, then dropped to being 15% undervalued in 2011 Q4. One quarter ago (2014 Q1), prices looked 5% undervalued, and one year ago (2013 Q2) prices looked 8% undervalued. This chart shows how far current prices are from a bubble:

At this pace, home prices nationally should be in line with long-term fundamentals – i.e., neither over- or undervalued – by the last quarter of 2014 or the first quarter of 2015. The good news for bubblephobes is that price gains are now slowing down while prices still look (slightly) undervalued. We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not.

Even in the Bubbliest Markets, It’s Not 2006 All Over Again Eight of the 10 most overvalued housing markets are in California, with Orange County, Los Angeles, and Riverside-San Bernardino in the top four. However, they are not seeing the return of last decade’s bubble. These California markets are much less overvalued than they were at the height of the bubble. Orange County, today’s frothiest market, is just 17% overvalued now versus being 71% overvalued in 2006 Q1. Among the most overvalued markets today, only Austin looks more overvalued now (13%) than in 2006 Q1 (8%) – and that’s because Austin (and Texas generally) avoided the worst of last decade’s bubble and bust.

Top 10 Metros Where Home Prices Are Most Overvalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q2 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, May 2014
1 Orange County, CA +17% +71% 9.6%
2 Honolulu, HI +15% +41% 5.3%
3 Los Angeles, CA +15% +79% 12.7%
4 Riverside-San Bernardino, CA +13% +92% 18.8%
5 Austin, TX +13% +8% 9.7%
6 San Jose, CA +11% +58% 10.4%
7 Oakland, CA +10% +72% 14.8%
8 Ventura County, CA +9% +73% 12.6%
9 San Diego, CA +7% +69% 11.2%
10 San Francisco, CA +6% +51% 11.6%
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

 

Only in Akron and Cleveland are prices undervalued by more than 20%. Furthermore, in those two markets, home prices are rising below the national average of 8.0%. But in several of the most undervalued markets, including Detroit and Chicago, prices are now rising year-over-year in the double digits. But those markets are unlikely to stay on the most-undervalued list for many more quarters.

Top 10 Metros Where Home Prices Are Most Undervalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q2 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, May 2014
1 Akron, OH -21% +18% 4.7%
2 Cleveland, OH -21% +18% 6.3%
3 Detroit, MI -19% +38% 15.2%
4 Dayton, OH -16% +13% 12.1%
5 Worcester, MA -15% +43% 4.4%
6 Memphis, TN-MS-AR -14% +11% 3.2%
7 Toledo, OH -14% +22% 10.0%
8 Chicago, IL -14% +36% 13.5%
9 Lakeland-Winter Haven, FL -14% +54% 3.8%
10 Providence, RI-MA -14% +52% 2.9%
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

 

Three-Fourths of Markets Still Undervalued Of the 100 largest metros, home prices in 76 of them look undervalued. But the number of overvalued markets – 24 – has climbed up from 19 last quarter (2014 Q1) and just 5 last year (2013 Q2). Most of the 24 overvalued markets are overvalued just a bit, with 17 overvalued by less than 10% and 7 overvalued by more than 10%. While the number of overvalued markets is rising, there remains little reason to worry about a new, widespread bubble forming. The last two years of strong price gains have been from a relatively low level and still haven’t pushed home prices nationally above our best guess of their long-term fundamental value.

See the original article with complete charts here.

Jed Kolko is the chief economist of Trulia.

MONEY Ask the Expert

How does a quitclaim deed work?

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Robert A. Di Ieso, Jr.

Q: What are the tax implications of using a quitclaim deed to transfer my home? – Danny Chang, Los Angeles

A: A quitclaim deed reflects a transfer of property, and is often used when transferring property between family members (when parents give property to a child, or when homeowners divorce).

About those taxes: Let’s say parents use a quitclaim to give the home they bought for $200,000 to a child. The transfer is a gift, not a taxable sale. So it does not trigger a tax-deductible loss (even if the child paid $1 for the property) because losses on transfers to “related parties” are not tax-deductible, says accountant and attorney G. Scott Haislet of Lafayette, Calif.

Mom and Dad don’t report the gift on their income tax return; neither does the child (gifts from parents are income tax-free).

The parents would have to file a gift tax return (IRS form 709), including an appraisal documenting the value of the home at the time of the gift. The transfer will likely not trigger a gift tax, Haislet says, but may affect the parents’ estate tax at death. Caveat: If the home is mortgaged, and the recipient of the property takes over the mortgage, that may be considered income to you. In that case, the transaction would be considered “part sale, part gift,” Haislet says. Consult your own CPA.

Money 101: Will I pay income taxes on the sale of my home?

MONEY Housing Market

Why Median Home Prices Are Rising: It’s More Than Just the Values

Home prices keep rising, but not just because they're worth more. Sales of higher-end homes are skewing that median home price figure upward.

The median home price rose 5.1% to $213,400 from a year ago, the National Association of Realtors announced yesterday.

RealtyTrac’s numbers out today, which include foreclosures sales not covered by the NAR report, have median prices up 13% year-over-year.

So does that mean your home value rose 13%?

Of course not, and not just because those figures cover the entire United States. Clearly home values vary widely based on the characteristics of your local market – employment growth, the pace of new construction, incomes, type of home, all sorts of things.

The median home price is shaped by other factors having nothing to do with any particular home or market but, rather, the specific mix of homes sold in that month.

One of the trends we’ve been seeing for a while now is that more higher-priced homes are selling than lower-priced homes. That’s for two reasons:

First, the volume of bargain-priced foreclosures continues to shrink. RealtyTrac’s report says foreclosures and short sales accounted for 14.3% of home sales in May, down from 15.9% a year ago. Consider that the median price of distressed homes was $120,000 versus $190,000 for non-distressed and you can see how simply having fewer troubled properties in the mix would be a powerful pricing boost.

Second, move-up buyers, the ones buying the $500,000-plus homes, are in better financial shape. They have the credit scores to qualify for a mortgage. They also have, more than likely, equity in their current home they can use for a new down payment as well as investments.

See what’s happening at RealtyTrac’s chart of home sales by price tier:

Price Range Share of Sales YoY Change
$50k-$100k 13% -22%
$100k-$200k 33% -5%
$200k-$300k 20% 6%
$300k-$400k 12% 11%
$400k-$500k 7% 17%
$500k-$750k 7% 15%
$750k-$1M 2% 23%
$1M-$2M 2% 24%

Other highlights from RealtyTrac’s report:

Metropolitan areas with sales declines from a year ago include Boston (-23%), Fresno (-22%), Orlando (-18%), Los Angeles (-16%) and Phoenix (-13%).

Areas with the highest share of foreclosures and short sales were Las Vegas (27%), Lakeland, Fla. (33%), Modesto, Calif. (32%), Jacksonville, Fla. (32%) and the Riverside region of southern California (29%).

MONEY buying a home

Single and Thinking of Buying a Home? Here’s Some Advice

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Fewer singles are buying, thanks to crimped finances and tougher lending standards. Before you take the plunge, consider whether you'll be able to handle the costs on your own.

The transition from renter to homeowner proved more complicated than expected for 26-year-old Kimberly Watson. As a single buyer with imperfect credit and without a long job history, she faced several hurdles throughout the lending process before eventually finding and closing on a condo in Hollywood, Fla.

Buying a home is hardly simple for anyone, but navigating the process can be particularly challenging for single buyers, who have only their own income to rely on to pay the bills. Tightened lending standards help explain why the percentage of single buyers declined slightly between 2010 and 2013: 16% of homebuyers were single females and 9% were single males in 2013, according to the National Association of Realtors, compared to 20% and 12% respectively in 2010. A weak job market and debt burdens also explain why singles have stayed away from the housing market, says NAR economist Ken Fears.

Banks are not allowed to discriminate based on marital status, but tighter lending standards can potentially pose a challenge to single buyers because they only have their own income to qualify for a loan.

Some of the tips below can make the process more manageable:

Ask, can you really afford to buy?
Scrutinize your finances carefully and evaluate whether buying a home is even feasible. You won’t have help from a partner to pay the bills, and you don’t want to be “house poor.” Review your credit record, clean up any mistakes, and pay down debt.

Money 101: Get Your Finances In Order Before Buying a Home

Be sure to consider all the recurring expenses associated with homeownership beyond the purchase price and mortgage closing costs. From association fees and property taxes to utilities and lawn care, the bills add up. Take into account maintenance and insurance when setting a budget.

“You’ve got a nice house, but now you’re eaten alive in expenses,” says Doug Lebda, CEO of LendingTree. “Factor in the total cost of homeownership.”

Think long term, says Emma Johnson, creator of WealthySingleMommy.com. You want to be able to afford and keep your home — so it’s wise to have a bigger savings account than you would if you were buying as a couple.

Watson found that to be true after moving in to her condo. She discovered a bad case of mold in her bathroom, and had to spend $10,000 on a gut remodel.

“I thought I would move in, and everything would be as is, and it would be fine,” she says. “Definitely have some extra money on hand.” Our advice: Total the estimated monthly household costs and set aside the difference between that amount and your current rent, or payment. If you’re struggling to make budget, you probably need to wait longer before buying.

Money 101: Should I Rent or Buy a Home?

Save on mortgage costs with special programs
Singles getting a mortgage with only one income should look at FHA loans, which offer lower interest rates and require lower credit scores to qualify. First-time buyers, which includes those who haven’t owned a home for three years, can make a down payment as low as 3.5% of the purchase price. FHA loans require more underwriting and more documentation, Lebda says, so lenders may not offer the program at first; be sure to ask.

If you do go the FHA route, the Homeowners Armed with Knowledge (HAWK) program will cut you a break on mortgage insurance costs if you go through housing counseling.

Not a first-time buyer? You may still be able to save even with conventional loans. TD Bank’s Right Step program, for example, offers a 3% down-payment option without private mortgage insurance (PMI), which is usually required for loans with less than 20% down, says Malcolm Hollensteiner, the bank’s director of retail lending products & services. The program also requires a housing education class.

On any loan, compare costs carefully, and not just rates. A lower rate may mean a higher lender’s fee, said Dean Vlamis, vice president of mortgage lending at Guaranteed Rate.

Money 101: How Much Will Closing Costs Be?

Don’t house hunt alone
Buying a home is an exciting milestone. It’s also a major investment, so don’t let emotions cloud your decisions.

Keep one or two trustworthy people involved in the process as a sounding board. “It’s important to have some sort of voice of reason,” says Jessica Edwards, a Coldwell Banker agent based in North Carolina.

Plan for the future
As you search for homes, consider what happens if you find a partner, or have to relocate for a job. Edwards says she’s seen many singles have to move sooner than they expected because their life circumstances changed. Think about that possibility as you’re searching: “There are a lot more single buyers that are looking at it as a primary residence that they can later turn into an investment,” she said.

Homeownership is a big investment and a lifestyle change — so it’s crucial to make sure you’re financially prepared and have done your homework. It’s better to wait than to find yourself over-stretched after committing to the major purchase. “We’re so inundated with the message that we need to own a house,” says Johnson. “It’s a wonderful thing, but it’s not right for everyone at every point in their life.”

MONEY Housing Market

The Housing Number That Really Matters: 2.28 Million

140623_REA_LatestinHomeSales_1
Wiskerke / Alamy

The number of homes on the market increased enough to slow down surging price gains and make it a little bit easier for buyers. Bidding wars aren't going away, though.

Home buyers worried they will be stuck in bidding wars for a scarce number of homes can relax a little bit. The number of homes for sale in May is up 6% over last year, to 2.28 million, reported the National Association of Realtors.

At the current pace, it would take 5.6 months to sell all the homes on the market. Six months is considered a healthy balance between buyers and sellers. The 5.6 number means it’s still, on average, more of a sellers’ market, but far better than late 2012 and early 2013, when there was less than a five-month supply of homes.

For May, sales continued to strengthen after a “lackluster” first quarter, said NAR economist Lawrence Yun. The median price of existing homes for the country, which includes condos, was $213,400, up 5.1% over a year ago.

But let’s get back to inventory, which has been driving much of what’s been happening in housing.

Around late 2011, buyers began tiptoeing back into the market, eating into the oversupply of distressed properties that had swelled post-bust. A year later, more confident buyers and an investor boom pushed the pendulum toward housing shortage. This chart shows that trend and how it’s been easing so far this year.

 

Source: National Association of Realtors

This is great news, because in some cities buyers have become so frustrated by the scarce choices that they’ve given up. Especially in hot cities (Denver, all the big cities in Texas, southern California) and in the best neighborhoods in most cities, buying a home has become about how to win a bidding war.

Even now, homes are still selling relatively quickly—the median number of days a home spent on the market in May was 47. But at least that’s six days more than a year ago, giving buyers some room to breathe.

That in turn means a slowdown in the hefty price gains that have marked the last 18 months or so of the housing recovery, but the market needs more, Yun says. “Rising inventory bodes well for slower price growth and greater affordability,” he said in a statement. But “new home construction is still needed to keep prices and housing supply healthy in the long run.”

New construction is a bit wobbly, however. Yes, builders are building more homes, but they are mostly apartments (the rental market is still going gangbusters). Builders have been slow to commit, worried about the financial health of buyers. Economist Brad Hunter of MetroStudy, which analyzes the new home industry, says consumers are still skittish, but traffic through builders’ showrooms continues to improve. So sales should rise soon, he says.

As with everything real estate, it’s all local. Construction is healthy in southern California, Texas and Florida, while Arizona and Nevada are down, Hunter notes.

And, it matters where you fall on the income spectrum. That’s another key aspect of the current housing market: Pricier homes are selling better, while the market for first-time home buyers is depressed. The percentage of first-time home buyers in the existing-home space fell again in May, to 27%, according to NAR.

In new construction, builders have begun targeting young buyers with lower-priced homes, but Hunter sees too many obstacles: high student loan debt and low employment among millennials.

Another obstacle: lending standards. The credit score needed to get a mortgage has been trending down, but very slowly. Real Estate Economy Watch, writing about an Ellie Mae report, said 32% of closed loans had an average credit score of under 700 in May, compared with 27% a year ago. The median credit score for purchases (not refinances): 755.

The median scores for FHA loans fell to 684 from 695 last year–FHA loans are favored by first-time buyers because of low down payment requirements.

The trend should draw more potential buyers off the fence, says Cameron Findlay, chief economist for Discover Home Loans. “When everyone’s talking about how difficult it is, if you’re a borrower on the cusp, you don’t bother going through the hoops and trying to apply, you just stay back,” he says. “Now they’re saying, ‘Let me see.’”

MONEY Investing

The Top 5 Ways to Make More Money on Your Rental Properties

If you own rental property, be sure to maximize your profits on your current investments before rushing out to buy new ones.

Rather than just acquiring as many properties as possible, let’s take a step back and think about whether the best way to make more money is to focus on your current portfolio.

1. Decrease Vacancy

The best way to minimize vacancies is to find a long-term tenant so that you don’t have to deal with turnover. This is covered separately by my next point because it is not the only way to keep your property occupied.

In the event that your tenant must move, vacancy can also be minimized by keeping turnaround time to a minimum. A friend of mine owns a condo in the D.C. area that is rented to 3 individual roommates. Although multiple tenants have moved on, he has kept occupancy at essentially 100% by posting ads the minute he learns of the move. Demand in the area is so high that he will have immediate interest and line up a new tenant to move in on the coattails of the old one.

You might think, “how does that apply to my property in an area with lower demand?” The thing is, nearly every property in every neighborhood has solid demand at a price. If your vacancies are consistently high, you may be doing it to yourself and need to think about your price point.

Every month of vacancy costs you 8.3% of your potential yearly revenue, so you would be better off renting every property one month faster for 5% less rent, two months faster for 10% less rent, and so on.

Another way to think about vacancy is this. If a property does not have some characteristic that sets it apart from the rest and sells itself such as a prime location or a to-die-for kitchen, you can give it one by providing the best value in town.

Related: The Biggest Threats To Your Real Estate Investment Property And What You Can Do To Stop Them

2. Minimize Turnover

Turnover costs money in multiple ways. There are advertising costs, the cost of patching and painting walls and replacing flooring that your previous tenant would have lived with, and, of course, vacancy. It’s a little counterintuitive, but this is another area where relatively lower rent may have the tendency to increase revenue.

One of your goals should be to find quality tenants that take care of your property and pay consistently. When you find these people, do what you can to keep them!

Some people will inevitably leave because they are moving across the country or buying a home, but the last thing that you want is to lose your best tenants to the landlord down the street, dealing with the expense of acquiring a new tenant and lost revenue in the vacancy.

The price of rent is not the only factor involved in tenant retention. The other key is customer service. Whether you personally manage your properties or have a property manager, make sure your tenants are treated with respect and professionalism, their concerns are valued, and matters are dealt with urgently and to their satisfaction. A good tenant/landlord relationship keeps tenants from thinking about moving.

To assess whether your property manager is performing in a way that fosters good tenant/landlord relationships, send a postcard soliciting feedback from your tenants, letting them know their opinion is valued and they can contact you directly if they are dissatisfied with their manager.

3. Increase Rent Strategically

Now, after telling you that lower rents can lead to higher revenue, I will proceed to advise increasing your rents on your longer-term tenants. This is really not a contradiction at all. Rather, it is a delicate balance that requires knowledge of your property’s value relative to your competition.

As I mentioned, tenants may be more loyal if they can’t find lower rent elsewhere. But this doesn’t mean that you should never raise rents when you have good reason to do so. Moving costs tenants money too. If the value of their current rental is significantly better than the value of a new rental plus the cost of moving, you still have the upper hand.

Make sure you know the rents in the area, researching sites such as Zillow, Rentometer, Craigslist, and the MLS if you have access. You may find there is plenty of room to increase your revenue a small amount each year (1%-3%) while remaining competitive.

Two tactics I use to increase rents: Communicate an offset to new costs such as increased HOA fees, which cover utilities and amenities that they enjoy, and have them coincide with an upgrade to the rental. For instance, I may plan to paint the exterior of the home or upgrade old windows from single to dual pane anyway, but I will schedule the work to coincide with a lease renewal and the tenant feels they are getting something out of the deal.

I may even ask them if there is anything that would make them more comfortable and select items from this list that will justify rent increases while increasing the market value of the home. In other words, make improvements that are necessary for maintenance or have immediate return on investment.

4. Be Diligent on Late Fees

Showing kindness and respect to your tenants does not mean being a pushover when it comes to rent collection and late fees. Collections are not the most enjoyable part of being a landlord, but are essential to running a profitable business. Make sure your tenants understand that this is a business, they have signed a contract, and it is your job to complete this transaction, following the contract and all applicable laws (including eviction proceedings if necessary).

Related: 6 Sure Ways To Never Be The Bearer Of That “Worst Tenant” Story

If you allow tenants to get away with paying late without the appropriate fees, you are leaving money on the table. And, your tenants may try to get away with late payments several more times, causing you extra work and stress.

If your tenant sends you a late check without including the late fees, politely explain that rent is not considered paid until all fees are collected, and that unfortunately you cannot accept this payment until all fees are paid. If you hold firm, they will quickly learn that you cannot be taken advantage of and will most likely comply.

More from BiggerPockets:
Wicked Cool Ways to Finance Your Next House Flip
10 Renovation Tips That Will Save You Time and Money
Video: Protect Yourself When Purchasing a Property As-Is

5. Add Revenue Streams

In multi-family properties, look for the opportunity to add services like coin-operated laundry and vending machines, which will not only provide revenue but will add resale value by raising the property’s return on asset value, or capitalization rate.

In single-family homes, offer extra house cleaning and landscaping services to tenants when they sign the lease. They may be happy to pay extra to avoid responsibilities they’d otherwise take on. You can negotiate the rates of independent landscaping and cleaning services, contract them out, and collect a fee as the contractor. For instance, if a cleaner agrees on a $75/month fee, you may offer the service to your tenant for $85/month, increasing your annual revenue by $120.

Overall, you may find that you can reach your business goals not only through acquiring a large number of properties but by operating a smaller number of properties more intelligently.

This article originally appeared on BiggerPockets, the real estate investing social network. © 2014 BiggerPockets Inc.

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