Pook's Message - 7/25/12

Several folks have recently asked me about the "House Seller Tax" that is supposedly going into effect in 2013 as part of the new Health Care Bill.  It's a topic that I posted about in July 2011, but, folks are still wondering if and how this will affect home sellers.  It seems the folks at Keeping Current Matters have been asked about this issue, too, as they've reposted their previous post about the tax.  To help explain this tax (which will only affect certain people), I've included KCM's newest posting about it in Today's Topics.

Today's second article, Yea! Home Prices Hitting Bottom. Now, the Bad News, may be a little scary for sellers, but it contains some very good rational for selling now.  For sellers in the Phoenix area, things are brighter than for sellers in many parts of the country.  While our market took a huge hit, our turnaround has been much stronger, with an increase in the number of closed sales and increasing prices.  Sales price increases vary greatly by area and price range, but the upward trend is there, with inventory down and short sales and foreclosures fading from the market.  Is this the right time for you to sell?  See how you feel after reading this article... 

June stats are now posted at my website.  July stats will be posted as soon as available.
Paradise Valley Stats
Scottsdale Stats   

Is There a 3.8% House Seller Tax in the Health Care Bill?

Courtesy of Keeping Current Matters/The KCM Blog
Posted: 17 Jul 2012 04:00 AM PDT

The political rhetoric surrounding the presidential election has renewed the debate about the Administration’s Health Care Bill. We are again getting many questions about a possible 3.8% tax on home sales that some claim is in the bill. To answer these questions, we have decided to re-run a blog we posted earlier this year. – The KCM Crew
We have received many questions about a possible 3.8% tax which will be put on home sales beginning in 2013. We want to do our best to clarify this situation for everyone. We are not accountants and give you this information just as a simple answer to the misconception. Understand that, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information. 


A little history on the confusion
Fact Check.org explains it this way:
The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.

We can understand how this misconception got started. The law itself is couched in highly technical language that only a qualified tax expert can fully grasp. (This provision begins on page 33 of the reconciliation bill that was passed and signed into law.) And it does say the tax falls on “net gain … attributable to the disposition of property.” That would include the sale of a home. But the bill also says the tax falls only on that portion of any gain that is “taken into account in computing taxable income” under the existing tax code. And the fact is, the first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already. (That exclusion doesn’t apply to vacation homes or rental properties.)

The Joint Committee on Taxation, the group of nonpartisan tax experts that Congress relies on to analyze tax proposals, underscores this in a footnote on page 135 of its report on the bill. The note states: “Gross income does not include … excluded gain from the sale of a principal residence.”

And just to be sure, we checked with William Ahern, director of policy and communications for the nonprofit, pro-business Tax Foundation. “Some home sales would see a tax increase under this bill,” Ahern told us, “but it would have to be a second home or a principal residence generating [a gain of] more than $250,000 ($500,000 for a couple).”

Simple Explanation:
The following simple explanation comes from midiShaw:
The tax will affect those sellers of real property who will be otherwise taxed on capital gains under current tax laws. Under current laws, if you sell your primary residence and meet the ‘time ‘ criteria, you are exempt up to $250,000 or $500,000 (filing individually or jointly). Any amount realized OVER that amount is taxable under current tax schedules based on income. As such, this new tax will apparently be added to the current capital gains tax burden IF your income is over $200,000/$250,000 (filing individually or jointly). For those selling second homes and investment properties, the tax, once again, will be applied to the amount of gain realized.

Detailed Explanation:
The following also comes from midiShaw in a comment to the above answer.
Beginning in 2013, the national health care reform legislation that became law in March, 2010, imposes a new 3.8 percent tax on certain investment income. The new tax will apply to single filers with incomes over $200,000 and married taxpayers with incomes over $250,000. Under the law, the investment tax provisions in Chapter 2A of the Internal Revenue Code are placed under the heading “Unearned Income Medicare Contribution.” In general, this new Medicare tax will apply to investment income that is subject to income tax, which includes capital gains. Pursuant to IRC Section 1402 (C)(1)(A)(iii), the investment income to which this new tax applies includes “net gain” (to the extent taken into account in computing taxable income) attributed to the disposition of property that qualifies as a capital asset under Section 1221 (capital gains), as well as gains on other property that are considered part of ordinary income.

We offer this just as an explanation. Remember, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information.

Yea! Home Prices Hitting Bottom. Now, the Bad News.

Source:

 

Article By Brett Arends

Sat, Jul 14, 2012 9:16 PM EDT

This is a great time to buy a home in many parts of the country. There are signs that the downward price spiral is bottoming out. Mortgage rates are at historic lows.

The next few years could well be remembered as the best opportunity for Americans to buy homes since the postwar baby boom.


But one group's opportunity is another group's problem. Tens of millions of baby boomers and other home owners have seen their equity shrunken or wiped out completely. Many were counting on their homes to help finance their retirements. Often they have been waiting for years for the market to turn. Now they find themselves on the short end of the deal, sellers into the buyer's market of the century.

"It's a really challenging environment to be a seller," says Lawrence Glazer, wealth adviser at Mayflower Advisors in Boston. "Unfortunately, many people planning to retire may have no choice."

So what if you are on the wrong side of the trade? As ever, there isn't a single, simple answer, but if you're in this situation, here's a checklist to help you out.


1. Don't hold your breath.
Yes, house prices nationwide have stabilized. Of the 20 cities tracked by the Standard & Poor's/Case-Shiller Home Price index, 16 are in the black for this year. But the housing market isn't like the stock market. Bouncebacks are typically slow.


The last crash took more than a decade to work through—and this market could take an especially long time because the huge accumulation of empty, foreclosed houses will hold down prices for all properties.


When adjusted for inflation, the Case-Shiller index didn't return to its 1989 peak until 2000. Some markets, such as New York and Los Angeles, didn't hit new highs until 2002. This time may be even worse because the bubble was much, much bigger. Some locations may not recover their inflation-adjusted peak in our lifetimes.


Harvard's Joint Center for Housing Studies calculates that there is a backlog of around two million home loans in foreclosure, waiting to come onto the market. Some estimates put the number much higher, especially when you include "shadow inventory" held back by banks. 

Unless you are willing to wait for a long time, you may not want to get too hung up waiting for a big rebound.


2. Look at your local market.
As the housing market recovers, expect to welcome back the old Realtor's adage: Location, location, location.


Don't expect all markets to rise at the same rate. According to Case-Shiller, Phoenix home prices are up 9% in a year. Meanwhile, Atlanta is down 17% and New York is down 4%.


Where will prices go from here? That's likely to depend on two factors: rents and valuations. If it's cheaper to own than to rent, and rents in your neighborhood are rising, you can expect prices to rise in due course. If it's cheaper to rent, or if rents are stagnant, it's another matter.


3. Be realistic.
The true value of your home isn't what you paid or refinanced for in 2006, but what it's worth now. And the true value of your equity isn't what you put into the home, it's what you would get if you sold it.


Money spent on that new kitchen? Irrelevant. The pool? Ditto. Too many investors get hung up on past or "sunk" costs. Don't hang around until you "get your money back." That money is gone.


4. Know your 'negative equity.'
Harvard's Joint Center estimates that 11 million American home owners are underwater on their mortgages—in other words, the loan is worth more than the home. Housing-data company Zillow puts the figure closer to 16 million—nearly one mortgage in three.

If you're in this position, you need to understand your legal status. Home owners who are underwater typically feel they can't sell until they are level again. But that isn't true. Your bank may be willing to accept a "short sale," where you sell for what you can get and they eat the loss. 

In about half of the states, banks can't come after a mortgage borrower for a shortfall. Even in the rest, they can't take what you don't have.


If you are hoping to "get back to even" before selling, you will need to do some basic math. If your home is worth 20% less than the mortgage, you will need a 25% price rise from current levels to break even.


If your home is worth half the mortgage, as is the case in some of the worst-hit areas, you will need prices to double from here. So if you owe $400,000 on your Tampa home but it's only worth $200,000 today, prices would have to rise by 7% a year for 10 years just to get you back to even. How likely is that? 

So, ask yourself: How long are you willing to wait? And how much will it cost you—in time and money—while you do?


5. Look at your cash flow.
Forget prices and the market for a moment, and look at your own cash flow.

Too many investors overcomplicate things. How much is it costing you per month or year to stay in your own home—in terms of mortgage, property taxes, fees, maintenance and other expenses?
Mortgage rates have collapsed to historic levels. Those with good credit can lock in a 30-year loan for less than 4%. As you can take a tax deduction for interest and property taxes, it may be costing you even less than it first appears. 

On the other hand, how much would it cost to rent a home instead? If it is cheaper to own, which is true in many places now, it may make sense to hang on and wait for the market to recover. But if it is much cheaper to rent, you may be better off selling at a loss and renting instead.


6. Put your own finances first.
Smart financial management, like charity, begins at home. Investors need to put more weight on their own financial and personal needs than on national economic or other data. 

Many home owners have put their lives on hold—such as delaying a move to a retirement community or taking a job in another city—as they have waited for a rebound in home prices.
This is time lost. It rarely makes sense. Economists would point out that these home owners are ignoring hefty, but invisible, "opportunity costs." 

They are missing out on salaries, investments or life experiences that they otherwise would have enjoyed if they had sold earlier and moved.


7. Sell today, buy tomorrow.
You live in, say, Chicago. You want to retire to, say, San Diego, to be near your children and grandchildren. You've been on hold. Why?

Yes, prices in Chicago are down 36% over the past six years. But San Diego is down 39%. What you lose with one hand, you gain with another. In your new home you may be able to lock in a low fixed-rate mortgage.


The bottom line? The national housing market may take many years to recover. It's a buyer's market, but home owners hoping to sell need to do their math first.

Write to Brett Arends at brett.arends@wsj.com

Mortgage rates drop again, Freddie Mac says; 30-year at 3.53%

Source:  LA TIMES | Business

Article by E. Scott Reckard

July 19, 2012, 7:50 a.m.

The average rate on a 30-year fixed mortgage hit another new low this week, dropping to 3.53% from 3.56% last week, according to Freddie Mac's survey of what lenders are offering to well-qualified borrowers.

With the Federal Reserve aggressively pushing rates down and few signs of inflation on the horizon, it was 12th time in 13 weeks that a new record was set, Freddie Mac economist Frank Nothaft said in the report Thursday morning.

Freddie Mac said the 15-year fixed loan, which has been a popular part of the recent boom in refinancings, averaged 2.83%, down from 2.86% and also a new record.

The typical start rate on a five-year hybrid loan, which has a fixed rate until it turns adjustable in the sixth year, was at a record low level as well: 2.69%, down from 2.74%.

Borrowers would have paid 0.7% of the loan amount in upfront lender fees to obtain the 30-year fixed loan and 0.6% for the 15-year fixed and five-year hybrid, Freddie Mac said.

Freddie Mac asks lenders each week about the terms they are offering to solid borrowers for loans of up to $417,000. Industry pros say well-qualified borrowers can often do slightly better by shopping around, and it’s possible to "buy down" rates by paying additional discount points to lenders.

The survey excludes additional third-party closing costs such as appraisals and title insurance.

Carpet or Hardwood?

Source:  houselogic
Courtesy of the National Association of REALTORS®

Your heart (and feet) say carpet, but your head says hardwood. Here are 5 good reasons to go with your heart.
Read more: http://www.houselogic.com/home-advice/home-improvement/carpet-or-hardwood/#ixzz1we8BbJCe

SAFETY TIPS FOR WHEN THE TEMPS ARE HIGH

Perhaps it's the educator in me, or maybe it's the former first aid instructor and rescue squad volunteer, but today this REALTOR® is changing gears to share some important information with all who are facing extremely high temps right now.
   
During these days of extremely high temperatures, stay inside as much as you can, stay hydrated, dress in light colored and lightweight clothing, and don't overexert yourself or your pet.  Walk your pet in the cooler morning hours and be sure to check the ground temperature by touch to see if it's too hot for Fido's feet.  Remember to take water for both of you.

Those of us who live in the desert are used to 3-digit temperatures, but we, too, need a reminder about how to recognize the symptoms of heat-related health emergencies - heat cramps (heat stress), heat exhaustion, and heatstroke.

Heatstroke is a life-threatening condition for both humans and pets and recognizing the signs can mean the difference between life and death.   Please read the following articles to learn how to recognize heat-related health emergencies and know what to do when they happen.

Be safe and be cool!  

HEATSTROKE

Information Source:  Mayo Clinic

Heatstroke is caused by prolonged exposure to high temperatures or by doing physical activity in hot weather. You are considered to have heatstroke when your body temperature reaches 104 F (40 C) or higher. High humidity, certain health problems and some medications increase your risk of heatstroke. So does being a young child or older adult.

Heatstroke is the progression of two worsening heat-related conditions. When your body overheats, you first may develop heat cramps. If you don't cool down, you may progress to symptoms of heat exhaustion, such as heavy sweating, nausea, lightheadedness and feeling faint. 

Heatstroke occurs if your body temperature continues to rise. At this point, emergency treatment is needed. In a period of hours, untreated heatstroke can cause damage to your brain, heart, kidneys and muscles. These injuries get worse the longer treatment is delayed, increasing your risk of serious complications or death. 

Heatstroke symptoms include:

• High body temperature. A body temperature of 104 F (40 C) or higher is the main sign of heatstroke.
• A lack of sweating. In heatstroke brought on by hot weather, your skin will feel hot and dry to the touch. However, in heatstroke brought on by strenuous exercise, your skin may feel moist.
• Nausea and vomiting. You may feel sick to your stomach or vomit.
• Flushed skin. Your skin may turn red as your body temperature increases.
• Rapid breathing. Your breathing may become rapid and shallow.
• Racing heart rate. Your pulse may significantly increase because heat stress places a tremendous burden on your heart to help cool your body.
• Headache. You may experience a throbbing headache.
• Confusion. You may have seizures, hallucinate, or have difficulty speaking or understanding what others are saying.
• Unconsciousness. You may pass out or fall into a state of deep unconsciousness (coma).
• Muscle cramps or weakness. Your muscles may feel tender or cramped in the early stages of heatstroke, but may later go rigid or limp.

Heatstroke follows two less serious heat-related conditions:

• Heat cramps. Heat cramps are caused by initial exposure to high temperatures or physical exertion. Signs and symptoms of heat cramps usually include excess sweating, fatigue, thirst and cramps, usually in the stomach, arms or legs. This condition is common in very hot weather or with moderate to heavy physical activity. You can usually treat heat cramps by drinking water or fluids containing electrolytes (Gatorade or other sports drinks), resting and getting to a cool spot, like a shaded or air-conditioned area.

• Heat exhaustion. Heat exhaustion occurs when you don't act on the signs and symptoms of heat cramps and your condition worsens. Signs and symptoms of heat exhaustion include a headache, dizziness or lightheadedness, nausea, skin that feels cool and moist, and muscle cramps. Often with heat exhaustion, you can treat the condition yourself by following the same measures used to treat heat cramps, such as drinking cool, nonalcoholic beverages, getting into an air-conditioned area or taking a cool shower. If your symptoms persist, seek medical attention immediately.

When to see a doctor
If you think a person may be experiencing heatstroke, seek immediate medical help. 

Call 911 or your local emergency services number.

Take immediate action to cool the overheated person while waiting for emergency treatment.

• Help the person move to a shaded location and remove excess clothing.
• Place ice packs or cold, wet towels on the person's head, neck, armpits and groin.
• Mist the person with water while a fan is blowing on him or her.

Heatstroke can occur in these ways:

• Exposure to a hot environment. In a type of heatstroke called nonexertional heatstroke, your condition is caused by a hot environment that leads to a rise in body temperature, without strenuous physical activity. This type of heatstroke typically occurs in hot, humid weather, especially for prolonged periods. It occurs most often in older adults and in people with chronic illness.

• Strenuous activity. In a type of heatstroke called exertional heatstroke, your condition is caused by an increase in body temperature brought on by physical activity in hot weather. Anyone exercising or working in hot weather can get exertional heatstroke, but it's most likely to occur if you're not accustomed to high temperatures.

In either type of heatstroke, your condition can be brought on by:

• Wearing excess clothing that prevents your sweat from evaporating easily and cooling your body
• Drinking alcohol, which can affect your body's ability to regulate your temperature
• Becoming dehydrated, because you're not drinking enough water to replenish fluids you lose through perspiration

For additional information, follow these links:
Risk Factors
Complications

HEATSTROKE IN DOGS

Source: Doctors Foster and Smith
PetEducation.com

Heatstroke occurs when normal body mechanisms cannot keep the body's temperature in a safe range. Animals do not have efficient cooling systems (like humans who sweat) and get overheated easily. A dog with moderate heatstroke (body temperature from 104º to 106ºF) can recover within an hour if given prompt first aid and veterinary care (normal body temperature is 100-102.5°F). Severe heatstroke (body temperature over 106ºF) can be deadly and immediate veterinary assistance is needed. 

Signs
A dog suffering from heatstroke will display several signs:

• Rapid panting
• Bright red tongue
• Red or pale gums
• Thick, sticky saliva
• Depression
• Weakness
• Dizziness
• Vomiting - sometimes with blood
• Diarrhea
• Shock
• Coma

What You Should Do
Remove the dog from the hot area immediately. Prior to taking him to your veterinarian, lower his temperature by wetting him thoroughly with cool water (for very small dogs, use lukewarm water), then increase air movement around him with a fan. 

CAUTION: Using very cold water can actually be counterproductive. Cooling too quickly and especially allowing his body temperature to become too low can cause other life-threatening medical conditions. The rectal temperature should be checked every 5 minutes. Once the body temperature is 103ºF, the cooling measures should be stopped and the dog should be dried thoroughly and covered so he does not continue to lose heat. Even if the dog appears to be recovering, take him to your veterinarian as soon as possible. He should still be examined since he may be dehydrated or have other complications.
Allow free access to water or a children's rehydrating solution if the dog can drink on his own. Do not try to force-feed cold water; the dog may inhale it or choke.

What Your Veterinarian Will Do
Your veterinarian will lower your dog's body temperature to a safe range (if you have not already) and continually monitor his temperature. Your dog will be given fluids, and possibly oxygen. He will be monitored for shock, respiratory distress, kidney failure, heart abnormalities, and other complications, and treated accordingly. Blood samples may be taken before and during the treatment. The clotting time of the blood will be monitored, since clotting problems are a common complication.

Aftercare
Dogs with moderate heatstroke often recover without complicating health problems. Severe heatstroke can cause organ damage that might need ongoing care such as a special diet prescribed by your veterinarian. Dogs who suffer from heatstroke once increase their risk for getting it again and steps must be taken to prevent it on hot, humid days.

Prevention
Any pet that cannot cool himself off is at risk for heatstroke. Following these guidelines can help prevent serious problems.

• Keep pets with predisposing conditions like heart disease, obesity, older age, or breathing problems cool and in the shade. Even normal activity for these pets can be harmful.
• Provide access to water at all times.
• Do not leave your pet in a hot parked car even if you're in the shade or will only be gone a short time. The temperature inside a parked car can quickly reach up to140 degrees.
• Make sure outside dogs have access to shade.
• On a hot day, restrict exercise and don't take your dog jogging with you. Too much exercise when the weather is very hot can be dangerous.
• Do not muzzle your dog.
• Avoid places like the beach and especially concrete or asphalt areas where heat is reflected and there is no access to shade.
• Wetting down your dog with cool water or allowing him to swim can help maintain a normal body temperature.
• Move your dog to a cool area of the house. Air conditioning is one of the best ways to keep a dog cool, but is not always dependable. To provide a cooler environment, freeze water in soda bottles, or place ice and a small amount of water in several resealable food storage bags, then wrap them in a towel or tube sock. Place them on the floor for the dog to lay on.

  

Happy 4th of July!

Short Sale Assistance for Military Families

Courtesy of Keeping Current Matters/the KCM Blog  
Posted: 02 Jul 2012 04:00 AM PDT

Military families have just been given help to sell their homes when forced to move because of their service. Permanent Change of Station (PCS) orders often require quick moves and can create hardship for military homeowners who are underwater on their mortgages and therefore cannot sell their home without taking a loss. Homeowners who receive (PCS) orders now will be eligible to sell their homes in a short sale even if they are current on their mortgage. Previously, many service members felt their only option was either to maintain financial obligations on two residences or to default on their mortgage.

Under the new policy, Fannie Mae and Freddie Mac will not pursue a deficiency judgment or any cash contribution or promissory note from members of the military with a change in duty station for any property purchased on or before June 30, 2012.

Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA) explained:

“It is in everyone’s interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction.”

The full news release with eligibility requirements can be found here.

Scottsdale Home Prices Climb in May

Source:  The Arizona Republic | azcentral.com
Jun. 30, 2012 08:22 AM

Scottsdale's median home price in May of $411,654 jumped 19 percent, the largest year-over-year increase since the market collapsed five years ago.

The latest monthly report from the Arizona State University Center for Real Estate Theory and Practice showed price increases for four of six Northeast Valley communities, from 10 percent in Fountain Hills to 15.6 percent in Carefree and 36.7 percent in Cave Creek.

Paradise Valley's median home price of $965,000 declined 12 percent, while Rio Verde's dropped 11.6 percent to $274,000.

Scottsdale's average price per square foot of $194.22 for single-family home was up 13 percent from May 2011.

Scottsdale's median condominium price of $170,000 increased 29 percent over a year ago.