Daily Archives: October 21, 2012

The fiscal cliff would cut the deficit by $720 billion in 2013, but even deficit hawks hate it | Katonah Realtor

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If all you wanted to do was to reduce the deficit as quickly as possible, here’s one very simple way to get it done: Go off the fiscal cliff.

Do so would result in about $720 billion in total austerity in 2013, and it would bring down the deficit that year in some of major ways, including $180 billion from income tax hikes, $120 billion in revenue from the payroll tax, $110 billion from the sequester’s automatic spending cuts, and $160 billion from expiring tax breaks and other programs, according to Bank of America’s estimates.

So when businesses and politicians fret about the economic fallout from the fiscal cliff, they’re reacting to the consequences of dramatic deficit-reduction in the short-term. It would save the government hundreds of billions of dollars next year, but would also take away the equivalent 4.6 percent of GDP through tax hikes and spending cuts—a sharp fiscal contraction that economists say would be a drag on growth in a still-tepid economy.

Why, then, do so many in Washington believe that the only way to avoid to the dreadful consequences of deficit reduction is…deficit reduction?

It’s partly because there are some aspects of the fiscal cliff that Democrats and Republicans want to hang onto, albeit in a different form. Nobody wants the big, dumb cuts in the sequester to take effect. But, in theory at least, Republicans do want the $1.2 trillion in deficit reduction contained in the sequester: That’s what they demanded last year, at least, in exchange for raising the debt ceiling in August. And the expectation is that they’ll be pushing for an alternative to the across-the-board sequester that tries to avert the defense cuts while hanging onto the others.

Democrats prefer an alternative that would try to preserve other aspects of the fiscal cliff—namely, the Bush tax cuts expiring on high-income Americans. And leaders like Sen. Chuck Schumer are already trying to frame the looming fight in terms of a trade-off on the deficit: Why not not pay down the deficit instead of giving big tax cuts to wealthy Americans?

Finally, centrist deficit hawks want to use the fiscal cliff as an opportunity to push through their own plan for tax, spending and entitlement overhaul. It would entail much bigger overall deficit reduction, but phased in gradually instead of all at once. Even a “grand bargain” would have about $400 billion in 2013 austerity, as opposed to the $720 billion in the entire fiscal cliff, according to the Bank of America’s estimates. And they’re anticipating that the only way for either side to get what it wants is to sit down and agree to their kind of bargain.

So all of these schools of thought would take Congress in the direction of doing less immediate deficit-reduction, not more.

via washingtonpost.com

Woman Killed By Car In Bedford Is Identified | Bedford NY Realtor

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BEDFORD, N.Y. – The victim of Friday’s fatal pedestrian accident in Bedford has been identified, according to the Office of the Westchester Medical Examiner.

Deborah Seidlitz, 49, was struck and killed by a car shortly before 8 p.m. in front of Truck restaurant at 391 Old Post Road in Bedford.

The Westchester Medical Examiner’s office is conducting the autopsy Saturday.

The incident is still being investigated by the Bedford police.

Check back with The Daily Voice for more on this story.

via mtkisco.dailyvoice.com

Wealthy Home Buyers Return to Risky ARMs | Waccabuc NY Real Estate

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Luxury-home buyers are returning to adjustable-rate mortgages, despite pitfalls that pushed many homeowners into foreclosure during the housing bust.

The pitch? A lower interest rate — at least for a period — than a fixed-rate mortgage means savings could be huge.

Ryan Sullivan for The Wall Street Journal

ARMs have a fixed rate for a certain number of years before they become variable, rising or dropping depending on prevailing interest rates. A five-year fixed rate is typical, though the time period can vary and be as long as seven or 10 years. As the loan’s rate changes, so does the monthly payment, possibly increasing or shrinking by thousands of dollars.

ARMs account for 30% to 40% of private jumbo loans at Bank of America (BAC: 9.44, -0.03, -0.32%) and roughly half of the private jumbos distributed by NASB Financial (NASB: 22.09, -0.81, -3.54%), the holding company of North American Savings Bank. Private mortgages aren’t backed by the government.

Lenders say high-net-worth buyers face relatively little risk because they can tap liquid assets to pay off a loan should a sudden spike in rates occur.

“They’re typically looking to the future and saying, ‘Here’s how I’m going to strategize based on my assets,’ ” says Tony Caruso, mortgage loan officer for PNC Wealth Management, where more clients have been choosing ARMs over the past two years.

ARMs accounted for just 4.2% of all mortgage applications in July, according to the Mortgage Bankers Association. But they had a 34.9% market share of the number of private home loans originated that month, according to data compiled for The Wall Street Journal by LPS Applied Analytics, a division of mortgage-data firm Lender Processing Services.

Rates on a jumbo 5/1 ARM — where the rate remains the same for the first five years and then adjusts annually — average 2.82%, compared with 4.06% on a 30-year fixed-rate jumbo, according to mortgage-info website HSH.com. Over the first five years, borrowers with the 5/1 ARM would save nearly $90,900 in interest on a $1.5 million mortgage compared with a fixed-rate jumbo.

Lenders also prefer ARMs, though for different reasons. When the Federal Reserve raises rates, banks have to increase the rates they pay out on deposit accounts, but they receive bigger interest payments from ARM borrowers whose rates rise. “From a bank’s perspective, it’s a much safer asset to hold if it’s an ARM,” says Mike Fratantoni, vice president of research at the Mortgage Bankers Association.

For that reason, not every lender will offer a home buyer both mortgage options. Here are possible risks associated with ARMs.

Rate spikes: After the fixed-rate period ends, rates could adjust higher. On a 5/1 ARM today, rates could increase by up to five percentage points during the sixth year — surging as high as 7.82%. The rate can move by two percentage points each year after that as long as it doesn’t surpass this cap.

Nowhere to turn: ARM borrowers could refinance into a fixed-rate mortgage when rates rise, but rates on the fixed-rate loans could be just as pricey as ARMs at that point.

Home equity could derail a refinance: Borrowers who decide to refinance out of an ARM will need enough home equity to do that, and so should consider making a down payment of at least 30% when they buy the home, says Kevin Miller, chief executive of Aspire Financial Inc., a mortgage lender that mostly provides fixed-rate mortgages. Otherwise, if home values drop, they may have to pay down some of the loan amount to refinance, or be forced to stay with their current mortgage.

via smartmoney.com

Is Land a Good Investment? | Cross River NY Real Estate

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If you bought land in California in the 1970s, you’d probably opine that land is a good investment. If you bought it in 2006, and now it’s worth a fraction of what you paid, your opinion would probably differ. Most knowledgeable real estate investors will agree that buying land is not a good idea, and this includes buying small parcels of land and/or potentially investing in a large land deal. There’s just way too much risk.

Land is speculative

Here is the issue with land: It’s a 100 percent speculative investment. You are 100 percent hoping that the value will go up to provide you a fair rate of return. And it might. But will it go up enough to provide you a fair rate of return for the extreme risk that you are taking holding that land?

Here’s the risk

Let’s say you buy $100,000 worth of land, and you pay cash. It’s still going to cost you money each month to cover property taxes and insurance. And, here’s the kicker: It’s also costing you the opportunity cost of capital.

You probably took $100,000 out of your mutual fund account, or other financial asset, to buy the land. And when that money was in the financial account, it was probably earning interest — let’s say 5 percent — but now it’s not earning anything because you took it out of your account to buy some dirt. So you’re really effectively losing 5 percent in wealth each year because you’re not earning that return. Unless, of course, the land goes up that much in value plus compensating for property taxes, insurance and other annual costs.

As an example, if you have $100,000 and put it into a mutual fund, you’d earn 5 percent, or $5,000, per year. That’s cash in the bank that you can reinvest to earn even more money. After 10 years you’d have your original $100,000, plus $50,000 to $70,000 additional cash/financial asset earnings.

On the other hand, if you bought land, you’d earn no interest or dividends, and after 10 years you’d have a piece of dirt that you’ve been paying taxes on. Will your land have gone up enough in value to match the returns you would have earned on a financial asset?

In addition to those significant financial issues, land also can be contaminated, undevelopable or have significant development restrictions, among other issues.

Who might consider land?

Land may be a good investment for home building companies and long-term corporate land investors with extensive development and entitlement skills and experience, and significantly diversified portfolios of land to reduce their overall risk. But for small investors, it’s a high-risk gamble with little chance of earning a fair rate of return. There are much better investment opportunities, such as stocks, bonds, mutual funds, rental properties or, quite frankly, heading to Las Vegas for the weekend (where, by the way, many an investor has learned some tough land investment lessons in the past decade!).

via zillow.com

NY housing market posts strong third quarter | Katonah NY Real Estate

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The New York state housing market posted its fifth consecutive quarter of year-over-year home sales gains in the third quarter. The 3Q statewide median sales price increased by 4.4% and the number of pending sales grew for its fifth consecutive quarter, according to the New York State Association of Realtors.

NYSAR CEO Duncan Mackenzie said year-to-date home sales are up 6.2% and pending sales are up 15% compared to the year-ago period. The year-to-date median sales price of $215,000 is unchanged from a year ago.

“As we enter the final quarter of the year, New York state’s housing market continues to move in a positive direction as closed and pending sales continue to increase compared to a year ago,” he said. “While we have a seasonal market in our state, which tends to slow down in the fall and winter months, we are positioned to exceed the 2011 closed sales total and project that we will do so.”

Click the image below to see the full report.

The state reported 27,203 closed sales in 3Q, up 4.6% from the year-ago period.  The year-to-date closed sales reached 69,144, an increase of 6.2% from the same period last year.

“There are many positives in the 2012 housing market for buyers who are seeking to move into their new home before the end of the year including all-time low mortgage rates, which were driven even lower by the Fed’s recent mortgage purchases,” said MacKenzie. “Sellers also continue to see improvements as they received nearly 95% of their list price in the third quarter, aided by shrinking inventory levels.”

via housingwire.com

Fannie Mae, Freddie Mac take finger off automatic repurchase trigger | Bedford NY Real Estate

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Fannie Mae and Freddie Mac said the government-sponsored enterprises won’t require lenders to automatically repurchase loans with early payment defaults, reversing course on a key provision in the government-sponsored enterprise’s new representation and warranty framework.

Early payment defaults occur when a borrower misses a payment during the first three months of the loan.

The GSEs had previously said that under their new guidelines, early payment defaults would automatically trigger a repurchase request from the agencies — no matter how well documented the loan was. In letters released to lenders Friday, both Fannie Mae and Freddie Mac said that “upon further review, it has determined that the automatic repurchase trigger will not be implemented.”

The new representation and warranty guidelines, announced by the Federal Housing Finance Agency in September, are scheduled to go into effect for loans originated on or after Jan. 1, 2013.

Under the reps and warrants clause of the mortgage contract, GSEs have the option to force a lender to buy back a loan that breaches certain representations made about the loan upfront. The changes being pushed through for 2013 are positioned as an effort to relieve at least some of that pressure for lenders, although some have questioned whether the changes will help or hurt the mortgage market.

So-called buyback risk has been routinely cited by lenders as a key reason certain loans aren’t being made, at numerous industry conferences during 2012. This risk has already materialized in the form of reducing bank earnings, with Fifth Third Bancorp ($15.02 -0.1001%) reporting earlier this week that the bank’s third-quarter earnings were affected by a reserve holding against future rep and warranty claims.

Both letters issued by the GSEs also spelled out for the first time key repurchase alternatives either Fannie or Freddie may choose to offer lenders, incuding indemnification and loss sharing, among other alternatives.

The GSEs also warned lenders to expect more loan reviews, saying its sampling of performing loans for rep and warranty review “will likely increase in aggregate across all loans and lenders,” as both mortgage giants expand their discretionary review process on loans they guarantee.

via housingwire.com

Pound Ridge NY Real Estate | Pending single-family sales shoot up 40% in Florida

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Florida earned its reputation as a recovered Sand State in September with pending home sales soaring 40.1% above year-ago levels.

While pending sales are contracts yet to be closed, Florida Realtors found that statistic compelling enough to declare Florida no longer in recovery mode, but stabilized and on solid footing.

Closed single-family sales also increased, rising 2% from last September to 15,643 sales last month, the Florida Realtors industry data and analysis department said.

The statewide median price for single-family homes also grew 7.4% from last year, with the actual median hitting $145,000. Half of the homes in the state sold above that price-point, while the remainder sold somewhere below it.

Inventory levels also lessened, making the market more competitive and situated for a stronger home-price recovery.

“[I]ncreased buyer demand in many local markets is creating inventory shortages — and that’s putting pressure on prices,” Florida Realtors said. “For sellers who may have been reluctant to enter the market, it’s now time to reconsider. Conditions are turning to a seller’s market.”

Single-family inventory alone reached a 5.2-month supply, the association said. Generally, a level of six months is symbolic of a balanced market for both buyers and sellers.

The state is now leaning in favor of sellers, suggesting now may be the time to move property, the association pointed out.

Townhome and condo properties saw total sales fall 2.9% from last year with only 7,329 units sold. Pending sales, on the other hand, increased 30.6% when compared to 2011 figures.

The statewide median for townhome-condo properties hit $105,736, up 18.8% from a year ago.

via housingwire.com

Bedford Hills NY Real Estate | A tough week for the Dow, housing stocks

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The Dow Jones Industrial average plunged 205 points, or 1.52%, closing at 13,343 on Friday, adding a dose of pessimism to mildly optimistic housing data from the week.

The Dow’s drop, which analysts compared to the 1987 stock plunge, didn’t necessarily kill the momentum homebuilders found earlier in the week when home starts were reported to be on the rise. But bank and builder stocks finished the week with mostly unimpressive results.

Bank of America’s ($9.44 -0.03%) stock barely moved the needle when comparing Friday’s close to the company’s price at opening. Wells Fargo’s ($34.34 -0.23%) stock edged down slightly, along with JPMorgan Chase ($42.32 -0.69%).

Citigroup ($37.16 -1.26%) took the biggest hit with its stock down 3% at market close before rising somewhat in after-hours trading. The banking giant made headlines earlier in the week when its CEO Vikram Pandit stepped down.

Homebuilders, on the other hand, are still feeling some momentum from rising home starts, which suggested a mildly positive turn on the home construction side of the housing market.

KB Home ($34.64 -0.9%) finished the week up 1.02%, while Pulte Group Inc. ($17.89 0.24%) and luxury builder Toll Brothers ($35.10 0.4%) rose just over 1%. D.R. Horton’s ($21.48 -0.07%) edged down slightly, while Lennar ($38.73 0.05%) inched up.

Still, the housing sector is facing some uncertainty.

September existing-home sales fell slightly from the previous month in September, but remain well above year-ago levels, according to the National Association of Realtors.

via housingwire.com