Rents in Southern California, at least, as measured by the local version of the Consumer Price Index, were rising in February at a 1.3% annual rate, according to the Bureau of Labor Statistics.

That rise compares to an increase at a 1.1% annual rate in the previous month. It was the sixth consecutive month of year-over-year increases and the biggest jump since July 2009 when rents were rising at a 1.7% annual rate.

In other slice of the local housing CPI…

• Homeowners’ expense moved up at 0.1% annual rate last month vs. -0.7% for all of last year.
• Household energy expense moved up at 4.9% annual rate last month vs. 7.4% for all of last year.
• Electricity expense moved up at 9.5% annual rate last month vs. 5.2% for all of last year.
• Natural gas expense moved down at 7.6% annual rate last month vs. 13.4% for all of last year.
• Household furnishings and operations expenses moved down at 2.3% annual rate last month vs. -3.5% for all of last year.

Overall housing expense rose at 0.6% annual rate last month vs. -0.5% for all of last year.

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(Information provided by www.ocregister.com)

There were major changes on November 6, 2009 to the homebuyer tax credit after passage of the federal Worker, Homeownership, and Business Assistance Act of 2009. This new law extended the homebuyer tax credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit. In particular, the first-time home buyer tax credit for $8,000 (or $4,000 if married and filing separately) maximum was extended to April 30, 2010. In addition, the law provides a homebuyer tax credit of $6,500 ($3,250 if married and filing separately) maximum for current homeowners who had used the home sold or being sold as a principal residence consecutively for five of the previous eight years. For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of IRS Form 5405 , First-Time Homebuyer Credit, is available (revised December 2009). A taxpayer who purchases a home after Nov. 6, 2009 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return. A taxpayer who purchased a home on or before Nov. 6, 2009 and chooses to claim the credit on an original or amended 2008 return may use the old version of Form 5405.

The new law also provides a “binding contract” provision which, in essence, states that so long as a written binding contract to purchase is in effect on April 30, 2010, the buyer has until July 1, 2010 to close escrow.

In addition, the law increased the income limits in order for the buyer to be eligible for the tax credit. The increased modified adjusted gross income (MAGI) limits are effective as of November 7, 2009: $145,000 for a single person, $245,000 for a married couple. For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $95,000 ($170,000 for joint filers). Those with MAGI between $75,000 and $95,000 (or $150,000 and $170,000 for joint filers) are eligible for a reduced credit. Those with higher incomes do not qualify.

The law includes anti-fraud provisions that require the purchaser to attach certain documentation to the tax return. The new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns.

Finally, several new restrictions on purchases that occur after Nov. 6, 2009 go into effect with the new law:

• Dependents are not eligible to claim the credit.
• No credit is available if the purchase price of a home is more than $800,000.
• A purchaser must be at least 18 years of age on the date of purchase.

(Information provided by the California Association of Realtors)

…home values falling. A recent report shows that one in five U.S. homeowners owed more on their mortgage than their home was worth in the fourth quarter; however, California’s housing market is bucking the national trend and is telling a different story.

KEEP THIS IN MIND

• Although the report by Zillow.com claims that the percentage of American single-family homes with mortgages in negative equity rose in the fourth quarter, the report does not account for seasonal changes. The traditional home-buying season is April through August. Historically, this time period also is when median home prices rise. In September, median home prices generally show a declining trend, and remain steady from November through February. The change in the median home price noted by Zillow.com is a typical year-end seasonality adjustment in price.
• Unlike the national median home price, the month-over-month changes in California’s median home price for 2009 were stronger than the long-run average. Low interest rates and tax incentives led to a rise in the demand for housing. As a result, housing inventory was constrained and created upward pressure on home prices.
• California’s housing market has shown signs of stabilization since early last year. Sales of existing, single-family homes bottomed out in August 2007, and the median home price reached its trough in February 2009. In December, California’s median home price was 25.1 percent above the low for the current cycle.
• In December, the median price of an existing, single-family home rose to $306,820, an 8.4 percent rise year-over-year, the second consecutive year-over-year increase, and the 10th consecutive month over month increase, according to C.A.R.’s December sales and price report.
• Although home buyers should not focus solely on future home price appreciation, homeowners who purchase a median-priced house, live in their home for at least five years, and sell it at the then current median price, have averaged an annual rate of return of more than 11 percent, according to data collected by C.A.R. over the last 40 years.

To read the full story, please click the Beyond the Headlines image above. (Information provided by the California Association of Realtors)

FED CUTS KEY INTEREST RATE TO 1 PERCENT

The Federal Reserve continued to shave points off the federal funds rate, reducing it by 50 basis points to 1 percent today, the lowest rate in half a century. Analysts characterized the move as another effort to stave off a prolonged downturn in the nation’s economy.

“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the Fed said in a prepared statement. “Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

“In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

“Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth,” the Fed said. “Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.”

To read the full story, please click the Percent (%) image above. (Information provided by the California Association of Realtors)

FED STIFFENS RESTRICTIONS ON MORTGAGE LENDERS

The Federal Reserve is clamping down on what it called “deceptive acts and practices” by some mortgage lenders that it says helped lead to the sub-prime mortgage crisis. The new rules, which apply to all banks and other lenders and specifically target sub-prime loans and borrowers, will take effect Oct. 1.

KEEP THIS IN MIND…

• The new rules “are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable home ownership,” said Federal Reserve Chairman Ben Bernanke.
• The new rules will prohibit loans to borrowers who can’t repay the loan from income and assets other than the home’s value and will require lenders to verify the borrower’s income and assets. Prepayment penalties are banned for the first four years of any adjustable rate sub-prime loan and for the first two years on other sub-prime loans. Lenders also must establish escrow accounts for property taxes and insurance for all first lien loans.
• Also banned are seven misleading advertising practices, including use of the word “fixed” to describe a rate or payment that changes at any time during the loan term. Other prohibited practices include loan comparison advertising (unless all payments and rates are disclosed), foreign-language ads where disclosures are presented in English, and encouraging appraisers to misrepresent a home’s value. The rules also will require lenders to credit payments on the date of receipt, prohibit pyramiding of loans, and require a good faith estimate of costs and payments on any loan application for a home secured by its value (including home equity loans and refinancing) within three days. Further, borrowers cannot be charged any fees other than to obtain a credit report before receiving that estimate.

To read the full story, please click the Mortgage Picture above. (Information provided by the California Association of Realtors)

HOW HOUSING RESCUE BILL CAN HELP

A bill passed by the House on Wednesday will assist up to 2 million borrowers in danger of foreclosure by allowing them to refinance their current mortgages with a Federal Housing Administration (FHA)-backed loan. The bill also allocates funding to assist Fannie Mae and Freddie Mac. Most borrowers will receive substantial savings on FHA backed loans, which carry reasonable interest rates that are fixed for the life of the loan. It also would give the FHA new authority to guarantee repayment of up to $300 billion in mortgages if a lender agrees to write down the loan principal below a home’s current appraised value. First-time home buyers would receive a tax credit.

Additionally, states would be authorized to issue an additional $11 billion of tax-exempt bonds to refinance sub-prime loans, provide loans to first-time home buyers and fund the construction of low-income rental housing. Finally, it would permanently raise the limit to $625,000 for mortgages that Fannie Mae and Freddie Mac could purchase. The bill now goes to the Senate for approval and then to President Bush, who is expected to sign the bill into law.

KEEP THIS IN MIND…

• To qualify for the housing assistance program, homeowners must live in their home and have loans that were issued between January 2005 and June 2007. They also must be spending at least 40 percent of their gross monthly income on all household debt. Borrowers do not have to be in default, but they must show proof that they will not be able to continue making their existing mortgage payments.
• Prior to receiving an FHA-backed mortgage, homeowners must first pay off any other debt on the home, such as a home equity loan or line of credit. Borrowers also are not permitted to take out another home equity loan for at least five years, unless it’s used to pay for the necessary upkeep of a home and is approved by the FHA. Total debt cannot exceed 95 percent of the home’s appraised value at the time of appraisal.
• The program is voluntary, so the original lender(s) must agree to rework the loan before a homeowner starts the application process. Each loan must be underwritten by an FHA-approved lender and will be evaluated on a case-by-case basis. Homes will be re-appraised and banks will verify income statements, bank accounts, job histories and credit scores.
• Although there are little up-front costs for borrowers, consumers receiving a refinanced loan must agree to certain terms, including paying an insurance premium of 1.5 percent of the principal annually to the FHA.

To read the full story, please click the Beyond the Headlines image above. (Information provided by the California Association of Realtors)