The latest Gary Watts Real Estate Outlook for Orange County California

Titled "a little bit of heaven in 2007!", Gary Watts has released an updated forecast for Orange County Real Estate in 2007. From the title, you can tell that his outlook is optimistic. As most of us in the industry know, the media has been taking the numbers and blowing them way out of proportion. According to Gary, they have been creating sensational headlines to try to boost their readership. I tend to agree as this is a trend repeated with news from all over the world.

Setting the stage, Alan Greenspan has stated "most of the negatives in housing are behind us." Furthermore, the national association of Realtors is reporting existing home sales rising and new unsold home inventory falling for the 4th straight month. The median home price is still rising, up 1.4%. The California association of Realtors is calling for an appreciation rate of 6.5% to 7%.

Gary thinks we will not see appreciation in the first quarter of 2007 stating that it will take time for the new numbers to come out and start to affect buyer psychology (although we are very quickly running out of bargain basement deals). In the second quarter he thinks that interest rates may fall a little further fueling the housing come back. In the third quarter all of these factors may come together with lower interest rates and a positive media. Finally, the market may pausing once again in the 4th quarter in preparation for the new year.

Based on anecdotal activity that I have been experiencing in the Orange County real estate market, I would say that this new forecast is probably on the money. I am calling for a 5% increase in prices but not in all markets. That will depend on inventory levels and affordability factors. Overall, I would call this a normal market.

California Foreclosures decrease in December

Further proof that we are building a base. Today, Realtytrac.com reported a -34.42% change over last months California foreclosure rate. Even though the rate is down from last month, it is still 64.49% higher than December 2005. With interest rates holding fairly low, we'll have to see if things continue to settle down.

I certainly have noticed an increase in Orange County's buyer activity this month. With conditions ripe, we'll just have to see if this springs buying activity is going to be as strong as some of the experts are predicting.

How to Save Money on Title Insurance when you are Flipping a House

If you are an investors or homeowners and plan to hold a home a relatively short time, consider binding a title insurance policy. By doing so, you will pay an extra 10% of the title policy cost based on the value when purchased. When you sell, you will only pay title insurance on the increased value.

This technique could save you hundreds of dollars when you sell. For more title information see our web page at: http://www.jdanielrealty.com/title-methods.php

Borrower Paid Mortgage Insurance is now Tax Deductible

More good news for buyers. Congress recently passed a new law that makes borrower paid mortgage insurance a tax deductible item for people that earn $110,000 or less annually. For most people this will equate to an additional savings of over $400 per year. Previously mortgage insurance was not a deductible item. The borrowers only choice to make it deductible was to choose a loan program where the mortgage insurance was built into the rate(usually a higher interest rate was the end result). Thank you congress for the tax breaks and please keep them coming.

Homeowners Capital Gain Tax Exemption for the Sale of your Primary Residence

One of the biggest gifts that the government has ever given ordinary tax payers is the homeowners capital gains tax exemption for the sale of your primary residence. According to this law, you are entitled to exclude up to $250,000 of capital gain if you are single and up to $500,000 of capital gain if you are married. In order to qualify for this exclusion, there are 2 tests that you must pass. 1. the use test 2. the ownership test.
With these tests, you must own and use the property as your primary residence for no less than 2 of the last 5 years. If you qualify for this exemption, unlike the old rules where you had to reinvest the money, with the new rules no reinvestment is necessary. You can put the money in your pocket tax free! In recent years this law has allowed people to make more money buying, living in and selling real estate than on their primary job. It has encouraged more frequent moving and in some cases owners have moved into second homes and investment properties, converted them to primary residences and sell after 2 years and pay no tax on the gain.

This rule sounds really straight forward and simple but it can be complicated. As you know, life usually doesn't read the book and there are many different situations that can arise. I did some research on this rule and found IRS publication 523 at http://www.irs.gov/publications/p523/index.html
It details the many different scenarios and will help you navigate this law.
For more information on selling your home visit my site at http://www.jdanielrealty.com/sellers.php

Energy Tax Credits

There are several ways to reduce your out of pocket expenses on energy and at the same time save tax money. The US government is offering a 10% credit for items that qualify including insulation systems, exterior windows, exterior doors, and metal roofs. In addition, there is a $50 credit for advanced main air circulating fan, $150 for each qualified natural gas, propane, or oil furnace or hot water boiler, and $300 for each item of qualified energy efficient property. The maximum credit for all taxable years is $500 with no more than $200 from window expenses.
This is a great opportunity for all of those fence sitters thinking of upgrading those old systems but short on cash. Uncle Sam will be kicking in for you to lower your energy bill and at the same time enhance the value of your property.

The part that I get excited about is the following. There is a solar panel, solar water heating and fuel cell credit. If these items have a generation efficiency of more than 30 percent and generate at least .5 kilowatts of electricity, taxpayers can be credited up to 30 percent of the investment up to a maximum of $2000. For the fuel cell system, the credit may not exceed $500 for each .5 kilowatt of capacity. Please note that the credit is not good for systems used to heat a pool or spa. This law is in effect from December 31, 2005 and before January 1, 2008.

I have not priced out the cost of these systems for the average household, but I am really interested to see what the cost savings will be. That will be step 2 of this project. If anybody has any experience with this topic, please feel free to comment. I will keep you informed as more information is obtained.

Long term Capital Gains Rates for Real Estate

Good news for real estate investors. The 15% capital gains tax rate has been extended through 2010. According to a tax advisor writing for the Orange County association of Realtors, there is a lower 5% rate for people in the 15% tax bracket. She said that will drop to 0% in 2008 and has been extended to 2010. I didn't find any other references to this, but on Smartmoney.com, I did find further information on the current tax structure. Smartmoney confirmed the general rule of 15% on the long term capital gains rate, but also reminded investors of the 25% rate that applies to unrecaptured Section 1250 gains (that is the depreciation taken). The bottom line is that it is still a great time to sell real estate and pocket the gains since we have an historically low long term capital gains rate. Now that we are going to have a large Democratic majority in both the house and senate, any bets that that rate will increase? I'll take that bet.

Faxed Copies or Originals?

I had an interesting situation last week where an escrow was demanding signed originals before they would disperse funds. In 9 years in the business, I have never come across a situation where escrow would not accept a faxed copy of an amendment as if it was an original. You may not see this as a problem, but let me assure you that when snail mail gets lost and or is slow over the holidays, and escrow is in some remote location 2 hours away, this can make a difference. Especially when tens of thousands of dollars are being held up. After much wrangling, I was able to effect a reasonable outcome. But it still irked me that the process was so difficult. So I set out to do some research and here is what I found.

Searching the Internet, I found several references by the department of corporations that escrow was in fact allowed to keep electronic records. If this was the case, It seemed to me that they should have been able to accept a fax. Furthermore, the department of real estate and many court documents are allowed to be faxed and are deemed as originals. Yet I couldn't find the exact regulation that this unnamed escrow agent was referring to. And as usual, second best just won't do. So I got on the phone to the department of corporations escrow desk to get my questions answered. Here is what they said.

They said that if escrow drafts their supplemental instructions for both parties to accept fax as originals, then it will be allowed. However, If they put in their escrow instructions that only originals will be accepted, then that is required. So the bottom line according to the State of California is that there is no official regulation or law pertaining to how escrow will handle facsimiled documents. The escrow itself is to determine that along with the participating parties. So after all of that drama, it comes back to escrow having the power to get agreement to make life easy.

The moral of the story is: When you pick an escrow company, make sure that they have reasonably accomodative instructions. And in my experience, if they don't utilize email then dump them. This is 2007. Its time to get with it! Electronic communication is way too important to do without. For a referral to the best escrow companies in your area contact me at: http://www.jdanielrealty.com/contact.php