Archive for Finances
Purchaser’s and Sellers Closing Costs Guide
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Closing Costs Guide-Created by Jerry Feeny
Real estate closing costs can be confusing. These PDFs created by Jerry Feeny, a well known and respected New York Metro real estate attorney, cover closing costs (coops, condos, townhouses-and other real property) for buyers and sellers in New York City , The Hamptons and Westchester & Rockland Counties.
We hope you find this guide helpful in ‘demystifying’ the age-old question of buyers, ‘what are my closing costs?’ And from sellers, ‘what costs do I have to pay at closing and what is left over from the sale price?
Real Estate Hurdles Leading to Contract Cancellations
Posted by: | CommentsWith the economy showing signs of recovery in many parts of the country, one would think that Real Estate deals would be smooth sailing. Unfortunately that isn’t the case. In a new national survey Almost one-third of real estate agents reported experiencing deals falling through.
According to the survey by the National Association of Realtors, the reported cancellation rate doesn’t mean that one of every three transactions are falling through, rather more than triple the number of agents are facing deal-jeopardizing problems in 2011.
Some of the issues reported:
- Appraisals below contract price. Appraisers hired by the mortgage company may have a different opinion of the value of the property, sometimes significantly below the price agreed in the contract. Foreclosures being used as ‘comparables’ to value non-distressed properties are part of the problem here. Inexperienced appraisers who are unfamiliar with local trends also contribute to this trend.
- Stringent underwriting and documentation requirements. Restrictive underwriting rules at the Federal Housing Administration, Fannie Mae and Freddie Mac can derail signed contracts or delay them for months.
- Poor service by lender staff. Agents report “lack of customer service” and “generally bad attitudes” as contributing factors to delays and some contract failures. However, agents also need to be on the lookout when loan processing deadlines start to lag or communication breaks down, and facilitate the progress of getting it moving again.
The key to closing on a home is to make sure you choose the right agent, lender and other team members who will help you understand the rules and requirements before hand, and stay on top of the professionals involved in your transaction.
Based on Los Angeles Times article.
Reverse Mortgages at a Younger Age?
Posted by: | CommentsOnce associated with homeowners in their 70s, a new report shows reverse mortgages are now being taken out by people nearing retirement. While this may seem like a good idea to help pay off debts and remain solvent, consumer advocates warn of the consequences of exhausting their assets early.
The reverse mortgage allows homeowners 62 and older to borrow against the equity of their home and continue to live in them without having to make payments, as long as the home remains their primary residence. Interest is added to the loan balance which must be repaid after the borrower moves out or dies. The borrower must keep current with property taxes and insurance.
In a report released last month by Met Life Mature Market Institute and the National Council on Aging showed that:
- Homeowners aged 62 to 64 are far more likely to take out a reverse mortgage than they were in 1999, even though they are borrowing less.
- The average age of borrowers who took the federally required reverse mortgage counseling was 71.5, down from 76 in 2000 and nearly 77 in 1990.
- Two-thirds of homeowners seeking reverse mortgages to lower debt levels.
The majority of reverse mortgages come through the Department of Housing and Urban Development and are guaranteed by the Federal Housing Administration through a program called Home Equity Conversion Mortgages.
Some experts caution retirees against reverse mortgages especially early in their retirement because they run the risk of depleting their equity in their most important asset. Homeowners at or near retirement should work with a financial planner or estate lawyer to make sure their plan is clear for the next 20 years of living expenses.
This article is for information purposes only. It is not intended to be legal, financial or tax advice by the Real Estate Geezer. Always seek the advice of a competent legal, financial and/or tax professional.
Based on New York Times article
How’s the Market?
Posted by: | CommentsWhile Quarterly Sales Reports show closed activity for the previous quarter, monthly Contract Signed reports are the ‘crystal ball’ of closed sales to come. Granted all contracts signed for any given month may not close in the next month, and some may not close at all but most (over 95%) will become closed sales which will become part of the next Quarterly Sales Report.
In the following charts and graphs you can see how the market stacks up against last month and this month last year.
Manhattan Residential Rental Market Report First Quarter 2012
Posted by: | CommentsThis week, we released our First Quarter report for the Manhattan Residenital Rental Market. Manhattan Residential Rentals Market Overview Q1 2012 reported here and summarized below was prepared by Miller Samuel for Prudential Douglas Elliman.
“Landlord concessions continue to be the exception, as rental demand and prices press higher”
- Median net effective rent was $3,064 for the first quarter, 9.1% higher than $2,808 in the prior year quarter.
- Rental price per square foot increased to $52.57, reaching its highest level since the third quarter of 2008, just as the credit crunch began.
- The listing discount, the spread between the original list price and rent, compressed in the first quarter to 2.2% from 2.7% in the prior year quarter. This was consistent with the 14.3% increase in new rental activity over the same period.
- Use of landlord concessions fell to 11.1% within all new rentals from 36.8% over the same period last year.
- New rentals of studios increased 16.1%, 1-bedrooms increased 13.5%, 2-bedrooms increased 14.5% and 3-bedrooms increased 20.7%. The 4-bedroom rental market decreased 21.5% over the same period.
Tax Day is Approaching – IRS Limits Interest Deduction for Non-Married Couples
Posted by: | CommentsThe IRS recently ruled may interest many taxpayers who co-own property with a person who is not their spouse.
Basics of the home mortgage interest deduction
- Taxpayers who itemize deductions on Schedule A can include interest paid on mortgages with certain limitations:
- Only interest paid on a loan secured by a principal residence and second home is deductible
- Only deduct interest on loans for which they are legally liable, so paying someone else’s mortgage doesn’t count.
Once the above conditions are met, the following applies:
- Only interest on the first $1,000,000 of debt for first and second residences combined can be deducted, for Single or Married filing Jointly and married filing separately, the limit is reduced to $500,000 each.
- Only the interest on the first $100,000 of home equity loan debt.
- In this example, an unmarried taxpayer with a mortgage and home equity line of credit could deduct the interest on $1,100,000 in total.
Recently the IRS ruled that, for an unmarried couple who jointly owns the home together the $1,100,000 limit applies to the residence, not the taxpayer.
- One or two homes which are the principal and second homes cannot provide more than a home mortgage interest credit on $1.1 million of debt total regardless of how many people own the homes.
- Once the $1.1 million of interest deduction is used from the first and second home, no further interest deduction can be claimed.
- In this example John and Jane own two homes jointly but are not married. Home one has a mortgage debt of $1.5 million and home two has a mortgage debt of $1 million, with no home equity line of credit on either property. According to the ruling, John and Jane cannot together claim interest on more than $1 million of total mortgage debt. However if John owned home one and Jane owned property two, then each taxpayer could claim the full limit providing they were otherwise eligible.
Tax planning becomes very important in this situation. Seeking the advice of a qualified tax professional can be extremely helpful prior to purchasing a home to be sure the structure permits maximum deductions.
Based on blog article by Jerry M Feeney, Residential Real Estate Attorney. Information in this article is to be used for informational purposes only, and not to be considered legal, tax or financial advice by the Real Estate Geezer.
Manhattan Residential Co-op & Condo Sales Market Report First Quarter 2012
Posted by: | CommentsToday, we released our First Quarter report for the Manhattan Residenital Co-op & Condo Sales Market. Manhattan Residential Co-op & Condo Sales Market Overview Q1 2012 reported here and summarized below was prepared by Miller Samuel for Prudential Douglas Elliman.
“Employment conditions have continued to slowly improve, inventory levels have remained modest, and new development stabilized, but tight mortgage underwriting conditions remain a challenge to the market.”
- Median sales price was $775,000, 0.9% below $782,071 in the prior year quarter. Price per square foot increased 6%, and average sales price increased 0.8% over the same period.
- The S&P’s downgrade of US debt, paired with the European debt crisis, Wall Street bonus concerns, and large swings in the stock market indices all contributed to the market’s slowed pace leading into the first quarter. As a result, the number of sales slipped 3.5% to 2,311 from 2,394 in the prior year quarter.
- Active listing inventory slipped 0.6% to 7,560 in the first quarter from 7,605 in the prior year quarter, but remained consistent with the 7,478 quarterly average over the past ten years.
- Days on market—the number of days between the last price change, if any, and the contract date—saw a 25-day increase to 152 days from 127 days as older inventory was sold off.
- Listing discount—the percent difference between the list price at time of sale to the sales price—increased to 6.3% from 4.5% in the same period last year.
Mortgage Market Trends for Month ending March 31, 2012
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MARKET RECAP
One week’s worth of data does not a trend make. We say that because of renewed concern the housing rally is set to peter out because of a burst of sub-par news.
The news on lower existing and new home sales was disappointing, to be sure, but hardly a foreboding omen. The news on pending home sales, which tracks contract signings for existing homes, wasn’t all that bad either. The index was down 0.5% in February, but the index has been up for the most part over the past six months. Sometimes a little perspective is needed.
Pessimism was further heightened by the S&P/Case-Shiller home price index, which showed another price decline. Month-over-month, the average price declined 0.5 percent in January. Year-over-year, the average price is down 3.8 percent.
The fear properties in various stages of foreclosure and delinquency will continue to roil the market is on the rise. We are not terribly concerned though; the attenuating factor being foreclosed and delinquent properties are a well-vetted, well-understood variable. More important, it’s an improving variable. Data from CoreLogic show that faster REO-clearing rates and improving employment and low mortgage lending rates point to a sustained housing-market recovery.
In our opinion, frustratingly low appraisals and too-stringent lending standards are more pressing issues for many buyers and sellers. Loosening the tethers on both, and particularly the latter, would go a long way toward keeping the recovery on course.
A strong economy would also go a long way toward sustaining the recovery. The good news is the economy continues to grow. The final number on gross domestic product shows that the economy grew 3.0 percent in the fourth quarter of 2011. This latest reported quarter was much stronger than the 1.8 percent growth reported in the third quarter of 2011.
The employment data support the notion the economy is growing. Yes, we are aware that Federal Reserve Chairman Ben Bernanke recently warned that improvements in the labor market may not be sustained, but we think otherwise nonetheless: Job creation has accelerated in recent months. Concurrently, jobless claims have decelerated. In fact, the latest report on weekly jobless claims shows the four-week moving average falling to its lowest level in four years.
Of course, the state of the economy always impacts credit markets. Interest rates dropped this past week when Bernanke stated he thought the economy has yet to reach full-recovery mode. Investors equivocated and money moved from stocks and commodities into U.S. Treasury securities. The mortgage market responded in kind, and we saw lending rates drop five to 10 basis points across most offerings.
We can’t say for sure how long rates will stay down. We’ve seen a marked increase in volatility in lending rates in March. We think volatility will remain high going forward, which is why we feel impelled to say that the risk of waiting for lower lending rates outweighs the benefit of substantially lower lending rates materializing.
The Most Persuasive Sign it’s Time to Lock and Load
Economist Hyman Minsky is the author of a persuasive short monograph titled “The Financial Instability Hypothesis.” Minsky basically states that the longer a market appears stable, the less stable it actually is because of excessive speculation and leveraging of that market.
We’ve been in a 31-year bull market in U.S. Treasury securities. That is, long-term real yields – yields adjusted for inflation – have been trending down since the early 1980s. A recent analysis by Credit Suisse shows that real rates on long-term Treasury securities are down to 50 basis points, or 0.5%.
Such a low rate doesn’t compensate for opportunity cost and time value. In fact, the real interest rate is so low today, even the early 1900s can’t boast of such low rates.
We’ve been in a very long bull market in bonds. Long sustained trends tend to lull participants into complacency. In turn, complacency tends to ratchet up the use of leverage. We don’t know how much leverage there is behind this lending market, but we suspect more than there was 30 years ago Carry trade – borrowing short term to buy long-term credit instruments – has been a very lucrative, easy-money trade over the past decade.
The point is, 31 years is a long time, record lows don’t last forever, and neither does easy money. If Minsky’s hypothesis holds, the odds interest rates could rise in the near future is much higher than many borrowers think.
Graph Courtesy from NY Times in an article by Vickie Elmer April 1, 2012. Data and Commentary provided by Fred Ashe, from DE Capital Mortgage.
New York City Real Property Market Value 2012
Posted by: | CommentsAccording to the New York City Department of Finance, the market value of real property is $845.4 billion, an increase of 3.8 percent compared to last year.
Manhattan rental apartment buildings’ market value increased 15 percent, cooperative apartment buildings increased 9.5 percent and condominium units 7.1 percent compared to a year ago.
In Brooklyn, rental apartment buildings increased 3.9 percent, cooperative apartment buildings 1.6 percent and condominium units 1.2 percent compared to 2011.
Compared to the peak of the market in 2007, the market value of Manhattan rental apartment and cooperative apartment buildings has increased 22.5 percent, and condominium units increased 48.2 percent according to the City of New York.
In Brooklyn, the market value of rental buildings was up 3.5 percent, cooperative apartments 18.4 percent.
These market value increases have resulted in a 40 percent increase in real property taxes since the peak of the market in 2008.
From MIke Slattery, Senior Vice President, REBNY Research Department
Mortgage Market Trends for Month ending February 29, 2012
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MARKET RECAP
Home sales have developed a positive up trend in the past six months, and it appears that trend will be sustained at least into the near future.
The pending home sales index rose 2.0 percent in January to hit 97, the highest reading in nearly two years. New contract signings were particularly strong in the South, which posted an impressive 10.5-percent gain. The good is that the rest of the country isn’t lagging far behind: national year-over-year contracts are up 8.0 percent.
Lower prices are an obvious factor in driving sales volume. While lower prices drive demand, they also reduce supply. Home supply has been dropping nationally for some time now, though concrete numbers are tough to gauge given the uncertainty over the hidden inventory of foreclosed properties. The estimates we’ve seen on these shadow homes range between two million to four million nationally.
Whatever the actual numbers are on distressed properties, it appears many markets have already reached peak saturation, which means levels should begin falling. According to analysts at Clear Capital, Atlanta and Tuscon, Ariz. are two regions likely to see a drop in REO properties during the year. We wouldn’t be surprised to see similar prognostications forthcoming for Las Vegas, Phoenix, and Central California.
The fact markets are reaching an REO saturation point is one sign that housing is reaching a tipping point. Affordability is another. In many parts of the country, affordability is at a multi-decade high.
We’ve been preaching over the past year that residential real estate is the investment for the next decade. We stand by our exhortations. Unfortunately, many potential buyers still feel otherwise. They are weary of catching a falling knife; that is, buying a property that will continue to depreciate.
Falling knives were a very real concern three years ago; that’s not the case today. Yes, home prices nationally could continue to fall, but you always have to look past national numbers to the local market – many of which are rebounding.
Mortgage rates are another reason we like real estate. Rates continue to skim along a 60-year low. But the economy is improving – GDP posted a better-than-expected annual 3.0-percent growth rate for the fourth quarter of 2011. What’s more, job growth has accelerated and unemployment has dropped. In other words, rates are unlikely to go much lower.
Costs associated with mortgages could go higher, though. The buzz on the new HARP 2.0 is growing louder and attracting many underwater borrowers keen to refinance. The buzz will grow even louder over the next month as interest intensifies.
Rising loan demand tilts the table toward lenders, so we think its prudent for potential buyers to not wait and to take advantage of what remains a very low-cost mortgage financing market.
The Foreclosures-to-Rental Solution
We tend to become more cautious when a theme grips the market. Residential rental property is the hottest theme these days. Even the great Warren Buffett is bullish on rentals, declaring that he would buy a couple hundred thousand single-family homes and rent them, if only he had a way to manage them.
Another prominent supporter of rentals, Lewis Ranieri, the co-inventor of the mortgage-backed security, lays out the case in a research paper for using federal entities to support converting foreclosed properties into rentals. According to Ranieri, his foreclosure-to-rental model can be developed in “most every market in the United States,” and thus help clear the distressed-housing overhang.
We see a few unintended consequences, though. When markets don’t develop organically, there tends to be inefficiency – you get too much or too little of something. Just look at housing for the past six years. The market was incentivized for more home ownership, and we got too much of it.
Single-family rental properties are fine, to be sure, but large swaths of single-family rentals might not be. Rents are rising, but they don’t always rise. Rents impacted capitalization rates. If rents drop, so will capitalization rates and property values. In addition, renters don’t care for properties as well as owners. Could a higher percentage of neglected properties translate into more downward price pressure for owners?
All we’re saying is that before we ask for something we need to be sure we really want it; unintended consequences can be very costly in the long run.
Graph Courtesy from NY Times in an article by Vickie Elmer March 1, 2012. Data and Commentary provided by Fred Ashe, from DE Capital Mortgage.
What Co-op Boards look for in your Financials
Posted by: | CommentsMany co-op boards do a cursory examination of your application: review financials, check references, interview and make a decision. But what does it mean ‘review financials’? In the old days, if the bank gave the ok for financing, that was ‘good enough’; but not anymore.
So what do they look at?
- Debt-to-income ratio
- Mortgage lenders generally want no more than 28% of a buyer’s gross monthly income to the mortgage payment (Principal, Interest, Taxes and Insurance), or a maximum of 36% for PITI and recurring debt (loans, credit card payments, child support, etc)
- Co-op Boards usually want to see something closer to 25-30% debt-to-income
- Income – liquid income
- Generally the last 3 years of tax returns are reviewed for gross income and adjusted gross income
- Earning Potential – if your earnings are less than board guidelines, or assets are too weak, but you can show potential for increased income, the board may approve with conditions such as a year’s maintenance held in escrow.
- Debts
- Boards also consider other debts, student loans, car loans, other mortgages.
- Other Factors
- Location – locations such as Brooklyn or Queens may be less likely to look for large assets and permit more financing than a building on Park Avenue in Manhattan
- Building size – larger buildings could be easier to buy into than smaller buildings because one or two arrears owners have less impact in a 200 unit building than a 20 unit building.
Boards want to protect their co-op, choosing people who are the right fit. They also need to stay within the boundaries of discrimination laws. Reviewing the financials allows the board to decide whether to move forward or not without violating the discrimination laws.
Excerpted from Habitat article
Manhattan Co-op & Condo Decade Report
Posted by: | CommentsOur 2002 to 2011 Manhattan Co-op and Condo Decade Report which was released Today and summarized below was prepared by Miller Samuel for Prudential Douglas Elliman
“Manhattan housing prices and sales activity have remained stable for the past three years, despite the general economic turbulence.”
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The number of sales remained above the 10,000 sale threshold for the second consecutive year and for the fourth time in the decade. There were 10,161 sales in 2011, the third highest total of the decade. The total was 1% above the prior year total of 10,060, but 24.3% below the 2007 housing boom peak of 3,430. The weakest period of sales activity for the decade was in 2009, the year after the “Lehman tipping point” in late 2008 when the credit crunch and low consumer confidence stifled sales activity.
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There were 7,221 listings at the end of 2011, nominally less than 7,232 listings at the end of 2010. The 2011 result was 3.8% less than the 7,506 inventory in 2002. Modest inventory levels have been the key to market stability in the past two years.
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The year-over-year price indicators were mixed but have continued to remain relatively stable for the past three years after the sharp price correction at the end of 2008. The 2011 median sales price of a Manhattan apartment was $850,000, 3.4% below $880,000 in 2010. The price indicator was at its fourth highest level in the decade and 88.9% above the 2002 level.
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The number of days to sell a Manhattan apartment was 127 in 2011, 8 days slower than in 2010, but roughly the same as the 126 day average days on market for 2002.
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Listing discount, the percentage difference between the list price at time of sale and the sales price, was 4.3%, down from 7.1% in 2010. Buyers and sellers were more in sync on establishing sales price in 2011 than they were in 2010.
Shopping for the Best Mortgage Rates
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Are you enticed by the mortgage interest lowest rates in decades? If so you’re not alone, but they are often out of borrowers’ reach. Lenders base their rates on perceived risk. Only if you can show you’re low-risk would you qualify for a rate that matches those seen in headlines.
If you’re looking for the lowest available rates consider these basic factors:
- Credit Score: The ideal FICO score is around 740 or higher. This will put you in the best place for pricing.
- Points: 1% of the loan amount is a point, and by paying points you can reduce your mortgage rate. Be sure to ask for a zero point quote as well to compare the two rates.
- Property Types: Such property types as duplexes, condominiums in newer buildings or with lower down payments, commercial properties or non-owner occupied properties come with higher rates.
- Down Payment: Experts say putting down at least 25% could lead to more attractive pricing. Lenders offer different breaks on rates if equity is higher.
- Loan Length: ARM and 15-year loans are often lower than those on the 30-year loan. Consider how long you plan to live in the property and weigh your options.
- Other considerations:
- Lock-in: You may receive a lower rate for a shorter lock period 30-45 days rather than the usual 60 days
- Additional ownership costs, taxes, insurance and maintenance.
Inspired by New York Times Article by Vickie Elmer published January 12, 201
