I bet many of you heard about this 3.8% tax and not sure what it has to do with you and your money. Here below are 10 things Arizona Association of Realtors has prepared for you. We are not tax expert and we do not intend to give you tax advises, just some highlights to help you prepare for it.

1. If you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will not be subject to this tax.

2. The 3.8 percent tax will never be collected as a transfer tax on real estate of any type, so you’ll never pay this tax at the time that you purchase a home or other investment property.

3. You’ll never pay this tax at settlement when you sell your home or investment property. Any capital gain you realize at settlement is just one component of that year’s gross income.

4. If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home. If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return. Even then, if your total income (including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will not pay this tax. If your total income is more than these amounts, a formula will protect some portion of your investment.

5. The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents.

6. The tax goes into effect in 2013. If you have investment income in 2013, you won’t pay the 3.8 percent tax until you file your 2013 Form 1040 tax return in 2014. The 3.8 percent tax for any later year will be paid in the following calendar year when the tax returns are filed.

7. In any particular year, if you have no income from capital gains, rents, interest or dividends, you’ll never pay this tax, even if you have millions of dollars of other types of income.

8. The formula that determines the amount of 3.8 percent tax due will always protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8 percent tax. For example, if you are single and have a total of $201,000 income, the 3.8 percent tax would never be imposed on more than $1,000.

9. It’s true that investment income from rents on an investment property could be subject to the 3.8 percent tax. But, the only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.

10. The tax was enacted along with the health care legislation in 2010. It was added to the package just hours before the final vote and without review. NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect. The tax will no doubt be debated during the upcoming tax reform debates in 2013.

Another reliable indicator identifies housing market strengthness and trending – the IMI from National Association of Home Builders and First American Title Insurance, is showing positive sign that the US housing market is at steady speed on its recovery.

The number of housing markets considered “improving”  surged by 76 to a total of 201 metros in December. The index also shows that the number of states represented on the list by at least one metro increased from 38 in November to 44 (plus the District of Columbia) in December.

The index identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. A total of 84 new metros were added to the list and eight were dropped from it this month.

The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, housing price appreciation from Freddie Mac and single-family housing permit growth from the U.S. Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metropolitan area must see improvement in all three measures for at least six consecutive months following those measures’ respective troughs before being included on the improving markets list.

Credit Suisse November 2012 Industry Realtor Survey report just released today (12/7/2012). Below is extracted from its report for Phoenix, AZ housing market.

Phoenix, AZ has 7,389 single-family permits in 2011, 4th largest market in the country.

Traffic backing to meeting expectations as buyers are comfortable with rising prices. Traffic came in to meet expectations in November, as our traffic index improved to 48 from 43 in October, the only month in which traffic did not meet or exceed expectations since November 2011. Agents’ commentary in November shifted away from frustrated buyers fed up with competition from investors (though there was still some in November) to more opportunistic buyers, who were still excited about the improvement in the Phoenix market. One agent mentioned, “Higher prices and positive news from the media have driven buyers to keep going on with their search.” Another agent mentioned, “Low interest rates and increasing prices have given rise to urgency, with buyers not wanting to wait on the sidelines.” Another agent mentioned that snowbird season has started off well, while another highlighted that Canadian buyers were continuing to drive demand. However, agents did note that some buyers were facing difficulties securing mortgages for homes under $150,000, while others were not drawn to the quality of current inventories.

Prices higher while inventories remain flat. Prices were higher once again in November, as our home price index came in at 82 from 86 in October, with readings above 50 pointing to sequentially higher prices over the past month (12th consecutive month).   Meanwhile, agents indicated that inventory levels were unchanged in November, following the first increase in levels in over a year in October. Our home listings index came in at 48 from 33 in October, in-line with a neutral reading, which points to flat inventories. In addition, our time to sell index came in at 58 (from 61 in October), just above a neutral reading of 50, which indicates a slightly lower time to sell in November. We view this as a positive for pricing.

Source: Credit Suisse

There has been quite a lot of talk recently about what is going to happen with the Mortgage Forgiveness Debt Relief Act which is due to expire on December 31, 2012. Even though we have not seen anything concrete, there appears to be some positive news on this front. eCreditDaily.com reported that the House Minority Leader Nancy Pelosi believes that the extension of this act will be included as part of a bigger deal. Minority Leader Pelosi’s spokesperson, Nadeam Elshami, told the Huffington Post the following: “Extension of this tax provision has passed by a bipartisan vote in the Senate Finance Committee, and we anticipate that it will be part of the Congress’ year-end negotiations. Democrats hope to work with the House Republican leadership to support bipartisan measure which benefit the middle-class homeowner.”

If this continues to be true, we should see an extension of the Mortgage Forgiveness Debt Relief Act this year. Leave it to Congress to wait until the last possible second, but there is still hope. We will send out a notice when the final word comes down on this.

Great news for rehabbers and home buyers utilizing low down payment FHA financing.  In a Federal Register notice Nov. 29 announcing the extension of waiving the FHA 90-anti-flip rule. Acting FHA Commissioner Carol J. Galante said the objective is to increase “the availability of affordable homes for first-time and other purchasers, helping stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high.”

Among the key requirements that will continue during the latest waiver:

• All transactions must be arm’s-length, with no identity of interest between the buyer and seller or other participants. Lenders are required to ensure that the seller actually holds title to the property. (In earlier flipping schemes, buy-sell transactions sometimes moved so fast that the seller never acquired legal title.) There should be no “pattern” of previous flips of the property during the 12 months preceding the transaction.
• In cases where the sales price of the resold property is more than 20 percent more than what the seller paid for it, there must be documentation showing the renovations and repairs that justify the markedly higher resale price. A second appraisal may be used to substantiate the increase in value, but the second appraiser must be selected from FHA’s roster. When no significant renovations occur and the price is 20 percent higher than acquisition, the appraiser must provide “appropriate explanation” for the sudden increase.
• Inspections are required of all the key components of the building structure and systems when price jumps exceed 20 percent. The inspection report must be provided to the purchaser before closing. If the inspection reveals structural or “health and safety” defects, repairs must be completed before the closing and a final inspection performed to ensure that the repairs have been made.

So, expect to see rehabbers actively in the market shaping up those distressed and/or abandoned properties for reasonable profit. Or if you want to be one of those rehabbers, you have 24 months to try it out and Good Luck to you!

The continued surge in existing home prices and a tight supply of properties on the market throughout metro Phoenix has been causing a ripple effect on the new home market, which saw a 65 percent year-over-year increase in new-home permits in October, according to the latest housing report from RL Brown in Phoenix.

Nearly 900 permits for new home construction were issued in Maricopa and Pinal counties in October, up from nearly 550 issued permits during the same month last year, the report said.

The October permit figure was also the first upswing in the past three months, when permitting steadily declined from about 1,300 in July to just under 800 in September.

Through October, there were more than 10,100 new home permits issued Valleywide this year. That’s up nearly 75 percent from the same time period last year, when only about 5,800 were issued, the report said.

While that’s a significant increase, it’s important to keep context in mind. Residential (and commercial) construction had come almost to a complete halt during the Great Recession, so the industry is still in the early stages of emerging from its rut.

The RL Brown report also stated that new home sales — 1,101 — were up by a whopping 88.5 percent in October year-over-year. That’s right in line with Arizona State University’s report that came out Monday, which declared an 85 percent surge in new home sales in October over a year earlier.

Median prices for newly-built homes, however, have been more stable than those of existing homes.

For example, the median new-home price in the Phoenix area was $235,964 in October — up by only 7.5 percent year-over-year, the report said.

On the other hand, the median price for existing homes in October — $148,000 — surged 34 percent from the same time last year.

Metro Phoenix has seen more than 78,600 sales of existing homes year-to-date in October, which is about a 5 percent decline from last year. RL Brown derives this number from both broker and for-sale-by-owner transactions, so its data may differ from other reports that generate information only from the Arizona Regional Multiple Listing Service, which calculates only broker-assisted sales.

Kristena Hansen covers residential and commercial real estate.

After a seasonal slowdown during the scorching summer months, the metro Phoenix housing market was back on the upswing again in October with existing home prices up more than 34 percent year-over-year and new-home sales up a whopping 85 percent, according to a housing report released Monday by Arizona State University’s W. P. Carey School of Business.

The median single-family home price climbed to $157,000 in October, compared with $116,800 in October of last year, the report said.

The October price gains were also notable given the fact that area’s dramatic surge in home prices earlier this year had leveled off in the four months prior, hovering around $149,000 and $150,000. It was also better than September when the median single-family home price, $150,000, was up by 27 percent year-over-year.

“The summer lull ended, and we had an influx of snowbirds and other buyers,” Michael Orr, the report’s author and real estate expert at W.P. Carey, said in the report. “We’re seeing about 5 percent more sales activity this October than last October.”

The overall supply of existing homes for sale — which had been at historical lows over the summer — has also risen by 31 percent during the past three months. This increase in supply and activity can be largely attributed to the price appreciations because it encourages more homeowners to sell, Orr said.

Supply, however, is still pretty tight, especially for homes priced in the lower end, Orr said. He also suspects supply peaked last month and will start on a downward trend again as we enter the winter season.

“The overall number of active single-family home listings without an existing contract as of Nov. 1 was fewer than 12,500 in the greater Phoenix area,” says Orr. “Also, 76 percent of that supply is priced above $150,000, so ordinary buyers in the lower range still face rough competition from multiple bidders, including investors and others making preferred all-cash offers.”

The shortage of lower-priced homes is largely due to the decline in distressed properties. In October, completed foreclosures were down 15 percent year-over-year and foreclosure starts — meaning the number of homeowners who received notices that their lenders may foreclose in 90 days — were down by an impressive 41 percent, Orr said.

But despite the drop in distressed properties, surge in home prices and still-low inventory, investors are still causing headaches for traditional home buyers. In fact, nearly half of homes purchased for under $150,000 in October were cash deals and almost 30 percent of all transactions in the Phoenix market were conducted by investors.

All these factors have had a domino affect on the new-home market. The Valley topped 1,000 new single-family home sales in October for the first time since 2010, Orr said. That was also an 85 percent spike from the same time last year.

“As a result, developers are clamoring for new vacant lots on which to build,” Orr said. “Because of competition, developers are being forced to pay higher prices than in the recent past, so we conclude new-home prices will rise substantially over the next year. That will also likely pull normal resale prices higher as long as there’s a shortage of housing inventory.”

http://www.bizjournals.com/phoenix/news/2012/12/03/phoenix-area-home-prices-up-34-in-a.html

While almost one-quarter of homeowners remain underwater, rising home prices over the past year have some economists hopeful negative equity could begin to diminish in coming months.

“The negative equity problem is still crippling many homeowners and the wider economy,” Capital Economics stated in a report.

In addition to the almost one-fourth of homeowners who owe more on their mortgage loans than their homes are worth, almost half of homeowners do not meet the 80 percent loan-to-value ratio required for a standard refinancing.

While “[a]dmittedly, the recovery is still in its infancy,” Capital Economics sees the potential for 3.5 million homeowners to move out of negative equity positions over the next 12 months.

CoreLogic reports prices have risen 5 percent over the past 12 months, and Capital Economics reports the greatest movement is occurring in the same locations that experienced the greatest price declines and highest instances of foreclosures and negative equity during the housing crisis.

For example, about 40 percent of homeowners in Arizona and Florida are underwater. However, home prices have risen 18.7 percent and 6.3 percent, respectively, in these two states over the past year.

While Capital Economics is sticking to its prediction that house prices will rise about 5 percent next year, the economists admit “the upside risks to that forecast are clearly rising.”

So far this year, rising home prices have helped 1.3 million households rise out of negative equity, according to CoreLogic.

If home prices were to rise by 10 percent next year, about 3.5 million borrowers would be lifted out of negative equity and 6 million would become eligible for standard refinancing after seeing their loan-to-value ratios fall back to or below 80 percent.

“The faster prices rebound, the quicker the negative equity problem will be resolved,” Capital Economics stated.

With home prices still about 27 percent below their 2006 peak, 10 percent under-valued compared to current rental rates, and 20 percent under-valued compared to per capita incomes, Capital Economics sees no need for concern over another bubble as prices continue to rise.

By Krista Franks Brock @ DSNEWS.com — http://www.dsnews.com/articles/rising-prices-could-lift-35m-homeowners-out-of-negative-equity-2012-11-29

The Wall Street Journal recently cited five significant factors behind the rise in home prices, as numerous markets see significant year-over-year gains. The big price drives are:

1. The rise in housing affordability – which is drawing more buyers out into the market who are looking to cash in on low mortgage rates and fallen home prices compared to a few years ago.

2. The rise in household formation – which is expected to hit 1 million new households this year. That is up from an average of 570,000 over the last five years, according to data by Bank of America Merrill Lynch.

3. The rise in rents – which has prompted more investors to purchase properties to rent out and more renters to second-guess why they are paying so much in rent when they could buy.

4. The decline in distressed sales and foreclosures – which has fallen significantly this past year. While distressed sales are still high by historical standards, they have fallen from their peaks in most markets, helping to alleviate the downward pressure on home prices in many areas.

5. Inventories of homes for-sale are at their lowest levels in nearly 50 years – and builders have cut back on construction and many home owners are waiting to sell until they can recover some equity on their properties.

Source: “Five Reasons Home Prices Have Been Rising,” The Wall Street Journal (Nov. 27, 2012)