Majority Say Housing Prices Will Hit New Records

Despite all the negative news in real estate triggered by the nation's financial crisis, a large majority believe housing prices will rebound and hit record highs again. Nearly 2 out of 3 surveyed say they expect home prices to recoup their losses and reach the record highs attained during the real estate boom.

The Housing Predictor survey indicates that homeowners and would-be homeowners are clearly demonstrating more confidence in the economy regarding real estate than they had been. Some 62% of all those surveyed said they expect home prices to rebound and reach the highs attained during the boom. The survey asked respondents only if they expected home prices to someday reach the record high prices in housing experienced during the height of the real estate boom.

Housing price rebounds are typical of the cyclical nature of real estate patterns. However, traders on Wall Street developed new products to artificially inflate markets with mortgage lenders, resulting in the delivery of an explosive mix for the world's financial markets. Housing analysts contend it will take at least a decade or more for markets to attain the record high housing values, if they ever do again.

Some especially hard hit areas of the country have suffered from average housing deflation of 70% or more as foreclosures rise. More than 4.2-million foreclosures have occurred as a result of the foreclosure epidemic, which is at the center of the nation's economic crisis.

Housing Predictor forecasted the national real estate depression, the foreclosure epidemic and regularly conducts Predictor Polls to gauge consumer sentiment on issues related to real estate. Get the forecast for the housing markets bottom and check on the latest real estate news at housingpredictor.com.

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Real Estate News - July 2009

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Bogus Home Appraisals May Derail Real Estate Recovery

A huge number of home value appraisals may be wrong, with most of them being much too high. That is causing banks to back away from mortgages. A house that has been appraised for $400,000 might support a $350,000 home loan. If the bank looks a the property and says it is only worth $300,000 the mortgage application gets put into the waste basket.

The over-valuing of homes could kill a turnaround in real estate and make the persistent and hard drop in property values continue longer than many economists predicted that it would.

National Association of Realtors chief economist Lawrence Yun said the appraisal problem is serious.

One of the by-products of the appraisal problem is that sellers often have to take less money for their homes than they had planned. This further depresses the value of real estate and often makes sellers take on debt to pay the difference between their mortgages and the amount they get for their homes. People who take on new, large debt burdens are not likely to be consumers. Real estate values are directly linked to consumer spending.

The problem is hard to solve. Banks almost always rely on outside firms to handle appraisals. If lenders believe the information they are getting is routinely inaccurate, they may sharply curtail their overall mortgage operations. Risk and leverage are not words bankers want to hear right now. The financial debacle of the last two years has cut lending to unprecedented lows. Bogus home valuations will only make that worse.

Should You Buy Your Kid a House?

Low interest rates and a depressed real estate market have some affluent parents asking financial advisers if buying their children a house could accomplish a one-two punch of moving assets out of their estate while grabbing a good deal on property.

The answer is, not exactly.

While parents may get a bargain on real estate, purchasing a home for children may not get them the best bang for their estate-planning buck, particularly if that estate is sizable and includes income-producing assets like securities or a private business interest.

As the federal tax law currently stands, a married couple can give, during their lifetimes or leave to their heirs at death, $2 million before any tax is owed. "A home isn't an income-producing asset, so it makes more sense to save the $2 million lifetime gift exclusion for other estate-planning techniques which can generate a lot more upside in the future," said Mark Luscombe, principal tax analyst with Wolters Kluwer, a business that provides tax and legal information.

Instead, advisers say parents intent on helping their children become homeowners consider a cash gift instead.

Individuals are allowed to gift up to $13,000 per person in a given year without dipping into their lifetime gift tax exclusion. That means a couple could give their daughter and her husband $52,000 a year to go toward mortgage payments or the down payment, while removing some assets out of their estate each year. In this situation, the kids would have to buy the home, but would get another break this year: Qualified first-time home buyers who purchase a home before Dec. 1st are eligible for an $8,000 tax credit. This may apply for parents and children who buy the house jointly, although the credit begins phasing out at a modified adjusted gross income of $150,000 when married and filing jointly.

There are other options, like making the kids a loan.

The government sets minimum rates for loans, among family members and others, to not be considered gifts. Those rates now are historically low, ranging from less than 1% to about 4 1/2% depending on the loan term. This method doesn't actually move money out of the estate, thus freeing up the $2 million exclusion to pass on other assets that are more likely to appreciate over time. Children can use income generated from the appreciated assets to pay off the loan. Parents could use the $52,000 annual gift exclusion for their daughter and husband to forgive both the interest and principal of the debt if they choose.