Public Policies to Solve the Housing Crisis

As real estate professionals, being knowledgeable about the market is a necessity. Below is information I found to be interesting and useful in understanding what needs to happen to get our market back to where it used to be.

Limited Government Intervention Needed Immediately

Here are our 5 suggested public policy solutions to solve the housing crisis:

1. Immediately Create Tax Incentives to Encourage Home Buying Activity: Allow for a tax deduction equal to 3% of the purchase price for anyone buying a home for their primary residence. This will bring buyers back to the market, which is what is needed to stabilize prices. Our data shows that home buying activity has corrected far more than the NAR data shows, which is one reason why policy makers have been so surprised by the unprecedented national price corrections that are going to continue unless something is done. This significant expense is likely to be less than the eventual expense of taking over the many regional banks that will not survive if prices continue to plummet.

2. Immediately Increase FDIC Insurance from $100,000 to $500,000: The $100,000 insurance amount was set in 1980. The Fed needs to let consumers (especially retirees) and the world know that deposits at federally insured institutions are safe, and that all federally insured deposits can be accessed within 2 business days. This will prevent a depositor run on local banks. The increased insurance expense should be charged to banks after this banking crisis is over.

3. Continue Encouraging Fannie, Freddie and FHA to Grow: Without these three agencies, the mortgage market would be virtually non-existent in many markets, especially California, Florida, Arizona, Nevada and Virginia. While this is a significant risk to their shareholders and probably taxpayers, we believe the risk is much greater if these institutions stop providing insurance or a second market for quality loans. Underwriting will need to be prudent.

4. Require the Mortgage Bankers Association to Adopt a Licensing Program for Mortgage Brokers and Underwriters: Similar to the CPA license, there should be individual and company civil and criminal liability that will allow regulators to fine and imprison brokers on loans that were later proven to be fraudulent, or pools of loans that exceed an acceptable default rate. Restrictions such as this should be phased in after the housing market has stabilized because mortgage lending needs to be made easier today – not more difficult.

5. Mandate Rating Agency Risk: Rating agencies should be required to absorb a small percentage of bond losses on future rated bond offerings. This will help ensure that risky debt is priced accordingly.

Have We Saved Our Homes? Deciphering Florida’s New Property Legislation.

You might have heard some of the buzz surrounding Florida’s new legislation.  We have broken it down in regards to what this means for you and what you need to start saving! 

Last month, the people of Florida voted in overwhelming numbers to save nearly $10 billion in property taxes with the approval of Amendment

1.  This tax relief is in addition to the $15 billion tax cut passed by the Florida Legislature in 2007.  Together, they add up to almost $25 billion in property-tax cuts over five years for Florida homeowners and businesses.   Citizens will gain the freedom to purchase a new home without huge tax penalties. Rental home owners, second home owners and businesses will benefit from limits on future tax increases.  The amendment contains two provisions that we have long advocated: doubling the homestead exemption and the ability for Florida families to take with them their Save Our Homes tax savings. Specifically, the constitutional amendment: 1.   Doubles the homestead exemption for almost all homeowners, providing an average savings of about $240 annually.  The new exemption applies fully to homesteads valued over $75,000, and partially for homesteads valued between $50,000 and $75,000.  This new exemption does not apply to school taxes.                                       

2.   Allows portability:  The Governor has heard from many Floridians that they feel trapped in their homes.  Portability allows homeowners to transfer their Save Our Homes tax benefits from their current home to a newly purchased home within any Florida county.  Portability applies to homes purchased in 2007 and later, and the benefit is capped at $500,000. 

3.   Provides an assessment cap of 10 percent for all properties not previously capped:  While homestead properties are already capped at three percent, now all other properties, including rental properties, second homes, and business properties, will be protected from huge tax increases.  This new exemption does not apply to school taxes. 

4.   Creates a new $25,000 exemption for business property, including office furniture, computers, machinery and equipment. 

What you should do to receive benefits of Amendment 1 On January 29, 2008, an overwhelming 64 percent of Florida voters helped change Florida’s property tax system.  To receive some of the benefits of the changes enacted on January 29, certain homeowners must take action by March 1, 2008.  

The Constitutional amendment created four new opportunities for taxpayers to obtain taxrelief:

1.      Increased homestead exemption

2.      Portability of “Save our Homes” benefit

3.      $25,000 exemption for tangible personal property

4.      10 percent annual assessment cap for non-homestead property 

What taxpayers must do to receive these new benefits:

1.   Increased homestead exemption – Homeowners that are currently receiving the homestead exemption will automatically receive the increased homestead exemption. No action is necessary.

2.   Portability of “Save our Homes” benefits – If you received the homestead exemption in 2007 on a home that you sold or otherwise abandoned during 2007 and have purchased a new home by January 1, 2008, you are eligible to take some or all of the benefit of “Save our Homes” to your new home. In order to receive this benefit, you must apply by March 1, 2008 to your property appraiser for your new homestead exemption and for the transfer of the “Save Our Homes”     benefit to your new homestead for 2008.

3.   $25,000 exemption for tangible personal property – Tangible personal property taxes apply only to certain taxpayers in Florida – typically businesses and certain owners of mobile homes. The tax does not apply to homesteaded property. In order to receive the $25,000 exemption for tangible personal property, taxpayers subject to the tax must file a tangible personal property return with their property appraiser by April 1, 2008.

4.   10 percent limit on annual assessment increases for non-homestead property – The   10 percent limitation does not apply until 2009. No application is necessary for 2008. Apply by March 1, 2008, to transfer your “Save Our Homes” benefit to your new home. The Florida homestead exemption “Save Our Homes” benefit is now “portable” because of the passage of the constitutional amendment on January 29, 2008. The “Save Our Homes” benefit is the difference between the assessed value and market value of a homestead property due to the annual limit on increases in assessed value. Portability means that, from now on, you can transfer some or all of your old home’s “Save Our Homes” benefit to your new home. You must apply to your property appraiser to transfer your “Save Our Homes” benefit. For contact information on Florida’s property appraisers, go to http://dor.myflorida.com/dor/property/appraisers.html.
 

Portability for 2008:

 Portability first becomes available for homeowners who had a 2007 homestead exemption on their Former home and established a new homestead by January 1 ,2008. If you moved into a new home by January 1, 2008, you have through March 1, 2008, to apply to your property appraiser for your new homestead exemption and for the transfer of the “Save Our Homes” benefit to your new homestead for 2008. If you have already applied for a homestead exemption on your new home, you must complete a separate application by March 1, 2008, to transfer the “Save Our Homes” benefit to your new homestead. 

Portability for 2009 and after:

 If you move into a new home after January 1, 2008, and prior to January 1, 2009, and had a previous homestead exemption in either 2007 or 2008, you must apply for your 2009 homestead exemption and the transfer of your “Save Our Homes” benefit by March 1, 2009. 

In future years, you will be able to transfer your “Save Our Homes” benefit to a new home if you had the homestead exemption on your old home in either of the two preceding years.

For information about how to receive these new benefits, please read below or visit the Department of Revenue’s Web site online at www.myflorida.com/dor.  You may also wish to contact your local property appraiser’s office.

Also feel free to contact eThree Realty directly at 877-50-eThree to discuss how this may affect you with a real estate professional. 

Lenders Are Willing to Accept as Much as 20% Losses on Short Sales, Sellers Willing to Sell for Even More of a Loss

Short sales are becoming more and more common in South Florida’s real estate market. Lenders are beginning to accept low ball offers that are as much as 20% below the original loan amount, according to an article in the Miami Herald.

In years past, the normally accepted discount for short sales was 10%.

This shows what we all know: banks are increasingly willing to dump properties short of the loan amount to avoid the costly foreclosure process and the ultimate outcome of having overpriced real estate in their portfolio.

For example, a property that was bought at the high point of the market for $500,000 with a 10% deposit of $50,000 is now theoretically available to a buyer for $360,000 – which is $90,000 less than the previous loan amount.

The foreclosure process can cost as much as $40,000 to litigate, according to the article in the Herald.

For buyers in today’s market, this presents an opportunity to capitalize during the downturn. The one drawback is the amount of patience necessary to complete a transaction. Dealing with a bank often takes months. For instance, I submitted an offer of 85% of the loan on a short sale listing for one of my clients, and I was told that we would not have an answer for as many as 90 days. That is 3 months! My client does not have the patience necessary and has since moved on. Lenders will market a property and collect offers for as many as 60 days before they determine their strategy. Patience is a huge requirement in today’s market.

The interesting thing is that sometimes sellers are willing to accept even less than a lender. These sellers do not necessarily have a loan on their property, and their strategy is to get what they can and get out fast. These people are in desperate times. Buyers who can move quickly are in luck. DDevelopers, builders, and home owners alike are selling property for as much as a 30%, or even a 40% discount. The trick is finding a knowledgeable firm that has experience in negotiating those types of discounts – to make sure you are getting a true discount and to facilitate the transaction. The good news for you is that if you are reading this article, you have found that firm, eThree Realty.

The iFuture of Real Estate

Some analysts say that 500,000 iPhones sold around the world this weekend. Goldman Sachs says its closer to 700,000.
Either way, before we know it, the whole world will be accessing the web via a browser on their phone. Real estate investors needs to understand the value of this sort of product. It means that hundreds of thousands, eventually millions, will be able to search real estate listings online, effectively making the global world of real estate that much smaller.
As you may recall, when the iPod first came out in 2001, it revolutionized hand-held music devices. Within months, it become a phenomenon and trend, so that if you didn’t have white earphones peaking out of your jacket, you weren’t as cool as the guy next to you, who did. The iPhone stands to take after its predecessor and change the way we view our connection to the rest of the world – including of course, the real estate market. As an active real estate investor, these kinds of trends not only interest me – they excite me for the breadth of what the future offers.

Finally, after so much effort, Florida tax-payers are actually getting somewhere. This will greatly assist homeowners in the expenses of owning a home. Read below for details:

Property tax relief approved as Florida Legislature adjourns

TALLAHASSEE, Fla. – June 15, 2007 – The end came quickly for the 2007 Florida Legislature’s special session on property taxes with an agreement that would give current homesteaders a choice between their Save Our Homes benefits or a new super-homestead exemption. The Legislature adjourned at 6:28 p.m. yesterday, with the House and Senate passing three bills – an immediate statutory rollback and cap of property tax rates, a proposed constitutional amendment creating a super-homestead exemption that, under the third bill, will be considered by voters on Jan. 29, 2008, in conjunction with the state’s presidential preference primary.