Mike O’Boy
Market Summary
As we approach the end of 2013 we are experiencing record low inventory in Santa Cruz County. Per Santa Cruz Association of Realtors market statistics, single-family home inventory in November 2013 was at 564 units. Compare this to the November 2008 glut of 1067 single-family homes for sale and it is clear the market has undergone a major shift.
The October Unsold Inventory Index in Santa Cruz County was 3.8 months, a trend that continues to put upward pressure on values. The Index has been below 5 months for over a year. This supply and demand ratio is widely thought to be the best barometer of future price movement. History shows an unsold inventory index of 6-8 months reflects stable pricing, below that threshold points to price increases and above depreciation.
The current lack of inventory is expected to linger into the 2014 marketplace with decreased foreclosure and short sale inventory. As more and more homeowners find themselves above water with enough equity to sell and repurchase we will see more homes come to the marketplace and eventually prices stabilizing.
The recent FHA announcement lowering the maximum loan limit in high cost counties to $625,500 results in shrinking the buyer pool and potentially higher interest rates on the horizon could cool the market. The writing on the wall is that sellers may be wise to take advantage of the current low inventory and list their homes sooner rather than later.
FHA Loan Limit Reduced to $625,500
The FHA announced they will be lowering the maximum loan limit from $729,750 down to $625,500 for high cost counties in California, including Santa Cruz, Monterey, San Benito, and Santa Clara & San Mateo. The change takes effect on January 1, 2014.That means there are essentially only a few days left for buyers to enter into contract and preserve the current loan limit of $729,750 and close escrow next year.
Hopefully the Mortgage Associations and Realtor Associations can lobby Congress to change this but in the meantime a buyer with 3 1/2 percent down payment has a limited time to take advantage of being able to borrow up to $729,750 at a low rate that allows a future buyer to assume their loan.
Distressed Home Sellers Not Liable for Federal, State Income Tax on Short Sales
The California Association of Realtors announced last week that it received a letter from the California Franchise Tax Board (FTB), obtained by Board of Equalization (BOE) member George Runner. The letter clarifies that California families who have lost their home in a short sale are not subject to state income tax liability on debt forgiveness, i.e. “phantom income” they never received in a short sale.
In a letter to California Sen. Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law. This does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes.
Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB. Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales. (Courtesy of CAR Newsline) n
As always consult your tax professional for the most up to date information
Yours in real estate, Mike O’Boy – “Making Santa Cruz Home”