Home-sales update
Existing-home sales dipped 0.8% in April from the previous month and 12.9% from the previous year, when the homebuyer tax credit was in effect, according to data from the National Association of Realtors. The national median home price declined 5% from last April to $163,700.
Lawrence Yun, the NAR's chief economist, says tight credit and low appraisals are putting the brakes on many home purchases.
"Although sales are clearly up from the cyclical lows of last summer, home sales are being held back 25% to 20% due to the very restrictive loan-underwriting standards," Yun said.
Moreover, distressed homes, which trade at double-digit discounts to traditional listings, are still weighing heavily on the market. Distressed homes made up 37% of sales in April, down from 40% in March, but well above the 33% posted at the same time last year.
Investors are the most excited about the still-floundering market. All-cash deals accounted for 31% of transactions in April, down from a record 35% in March.
Mortgage rates drop
The one bright spot for buyers is that mortgage rates continue to drop, increasing affordability. Fixed-rate mortgages declined for the fifth straight week, as of May 19, Freddie Mac said in its Primary Mortgage Market Survey, with a 30-year fixed averaging 4.61% and the 15-year averaging 3.8%.
Economists versus consumers: The outlook
Just don't look for that investment to appreciate in value immediately. Economists don't predict a return to home-price gains until early to mid 2012.
Fannie Mae, for one, expects the median home price to decline 6% in the second quarter of this year from the same time in 2010, with those losses slowly tapering off this year, until the market hits bottom in the first quarter of 2012.
Analysts at J.P. Morgan expect an additional 6% decline in prices from where the market stands today.
But perhaps most bearish are consumers themselves.
In a joint housing survey conducted by Trulia and RealtyTrac, released in mid-May, 54% of those polled said they don't expect the housing market to recover until 2014 or beyond. Twenty-four percent expect a recovery in 2013.
It's clear, says Fannie's chief economist Doug Duncan, that despite low prices, low interest rates and improving job numbers, consumer attitudes have yet to rebound in a way that will really push the needle up on home sales.
"In spite of the positives surrounding the housing market, we see that consumers are still hesitant to take on a large financial obligation," Duncan says.
Still, he says he expects home sales to rise some this year, as the economy gets on surer footing.
And for many, it might begin to make more sense to buy. According to Trulia's most recent data, it is now more affordable to buy a home than rent a similar home in 78% of major U.S. cities.
Reader question
Here's a question from one of our readers, Doug, about whether he can claim residence in two states:
Q: I have read that a married couple can have two primary homes if one is living out of state due to job conditions. Is this true? I recently purchased a house in Nevada, where I have been working for the past three years, and we were renting a home in Arizona. We want to live in Arizona and are trying to buy a home there now, but were told that we could not have two primary residences.
Here's some advice for Doug from Ilyce R. Glink, publisher of ThinkGlink.com and author of "Buy, Close, Move In!"
A: The IRS has several ways to determine whether the home you're living in is your primary residence. First, you must spend at least six months and one day living in your primary residence. So, if you're in the house in Nevada during the week and in Arizona on the weekends, the Nevada house would be your primary residence.
According to IRS.gov, for taxpayers with multiple homes, the regulations list several factors relevant to determining which home is the principal residence. Among these are amount of time used; place of employment; where other family members live; the address used for tax returns, driver's license, car and voter registration, bills and correspondence; and the location of the taxpayer's banks, religious organizations or recreational clubs.
Unfortunately, the IRS isn't crystal clear about whether married but separated spouses can have two primary residences. I asked Bill Nemeth, president of the Georgia Association of Enrolled Agents, to weigh in.
Nemeth said: "The short answer is that the IRS will allow a main home and a second home to be deducted on Schedule A, assuming the couple files 'married filing jointly.' The main home is the home where they live most often. If the question really involves the states of Nevada and Arizona, it can get very complicated very quickly, since they are both community-property states. If the taxpayers file 'married filing separately,' the discussion takes on a lot of 'it depends.'"
It's possible that the IRS would permit a married-filing-separately couple to claim two primary residences, but when it comes time to sell, you'd only be permitted to take up to $250,000 in profits tax-free on each property.
For more details on what constitutes a primary residence, go to IRS.gov and check out Publication 523, Selling Your Home. But to get an expert opinion, consult with an accountant, enrolled agent or tax attorney who can research the tax records.
Remember: Your questions are welcome. We'd love to answer them in future installments of this column. Please submit them in the comments section below or on MSN Real Estate's Facebook page, or email them to refdback@microsoft.com. Please keep in mind that short questions with the broadest range of interest have the highest chance of being answered.
