Supplemental Property Taxes

If you haven’t paid the first half of your yearly property taxes you have a little over a week left to do so without incurring a stiff penalty. The due date on the first half was November 1st but property owners have until December 12th. to pay their first installment. If homeowners have an impound account set up with their lender they can relax. The lender will pay the tax but not the Supplemental Tax.

Property taxes can be confusing for many homeowners. For instance, county property taxes are for the fiscal year beginning July 1st of the current year and ending June 30th of the next. So naturally it makes perfect sense to mail one invoice for two installments for property taxes in November, doesn’t it?

Another confusing and irritating aspect of the property tax bill is all the taxes that are added onto the tax. There is a General Tax and then an extended list of other taxes for services including: Bond and Interest, Community Facilities District, County Service Area, Community Service District, General Obligation, Lighting and Landscaping, Public District, Unified School District, Water Assessment District, Water Improvement District, Solid and Hazard Waste, Ambulance West Slope, Fire District and more. I think measure L (additional tax for Libraries) failed not because property owners didn’t think the cause was worthy but they are frustrated with all the additional taxes on top of taxes.

In addition to yearly General and Special Taxes there is also a one time Supplemental Tax. New home owners are often welcomed to their new community by the neighbors and the Welcome Wagon. They are also guaranteed a welcome letter from the county Tax Collector with a “Notice of Supplemental Taxes.” There has been so much confusion about this tax to new home owners that the Legislature recently passed legislation requiring a Supplemental Tax Disclosure Form to be provided to all new home buyers.

The confusion has resulted when property changes ownership and the assessor reassesses its value as of the date of closing. The difference between the old assessed value and the new value (what is paid for the property) results in a separate supplemental tax bill arriving several months after the purchase. Often the new home owners incorrectly assumed that the bill was the responsibility of the seller, that it was paid through escrow or that the lender will pay the tax since the new homeowner has an established impound account. They won’t, so what’s up with that?

Assume the following scenario: You purchase a house for $600,000 and close escrow on January 1st .The tax rate is 1.1 percent of the assessed value, and the old assessed value at the time of your purchase was $300,000 so the tax bill is $3,300. Proposition 13 limits your new assessed value to the purchase price and so your new tax bill will be based upon the $600,000 or $6,600, subject to limited inflationary adjustments. Since your purchase was in the middle of the tax year, the first half, for the period of July 1 through December 31 has already been paid on the old tax basis of $3,300. But what about the second half period between January and July? Do you think that the Tax Collector is going to let you slide based upon the old tax assessed value? Not likely. So he mails you a Supplemental Tax Bill for difference between the current tax bill based upon the old assessment and the new assessment.

To add to the confusion, however, you established an impound account with your lender based on the new assessed value. The lender is then obligated to pay the second half of the taxes in April. The tax bill they receive is based upon the old assessed value. The lender pays the bill and then realizes that they have an overage in your impound account. They refund you the overage and drop your monthly payment to reflect a lower impound based upon the old inaccurate tax bill. The next year when the lender receives the new tax bill based upon the new increased value, they realize they have a shortage in your impound amount and send you an invoice for the difference. They increase your payment to reflect the increased tax and you call your lender to find out what’s happening.

The confusion surrounding a Supplemental Tax bill could be eliminated if the new increased valuation of a property was immediately filed with the tax assessor. Why is it that within a week of your new purchase every credit card company, lender and merchant knows you purchased a new home but it takes months for the tax assessor to change their records?

The new legislated disclosure doesn’t explain how to calculate the amount of the Supplemental Tax or when to expect it. Only that the tax will be due, the bill will not be sent to the lender and it is the home buyer’s responsibility to pay the supplemental bill directly to the Tax Collector. Now isn’t that all very clear?

Ken Calhoon, Broker

Outlook for 2006 Real Estate Market

Even with housing at the mercy of rising interest rates, higher energy costs and weak wage increases, the economic sector should remain vital to the economy in 2006 as baby boomers boost the second home industry and multi-family housing enjoys spillover demand from high home prices.
The joint Urban Land Institute (ULI) and PricewaterhouseCoopers "Emerging Trends in Real Estate 2006" balances hope with caution in its report on what's to come for real estate in the New Year.
Easy mortgage money and investment capital has helped fuel the real estate boom for the past few years, but moderation is the next chapter's title as housing feels the pressure of a variety of sources from consumer spending to inflation, the report said.
The increasing inflation threat, got top billing after Gulf Coast hurricanes initially pushed up costs for both construction materials and energy at an inopportune time.
Housing construction in the far suburbs and rural areas could get hit hardest. An extended period of higher energy prices could curtail fringe suburban growth and dampen demand for big houses with outsized heating/cooling bills. Building materials can only become more expensive as the massive clean-up and reconstruction (of Gulf Coast regions) gear up. In most of the country, home builders may be forced to slow down too," the report added.
The report looked at all segments of the real estate sector -- both commercial and residential.
Here's the residential outlook:
If interest rates and home prices don't rise too quickly and if lenders continue to make mortgages with relaxed underwriting standards home buyers should continue to snatch up homes in record or near-record numbers.
Baby boomers, less impacted by rising costs and interest rates, are at their peak earning and cash cache years and shouldn't be thwarted by higher interest rates or prices.
The combined demand from first and second home buyers will boost home building especially in Florida, Texas, North Carolina, Georgia, Arizona, California and nearby regions.
Infill and urban townhouse, condominium, and coop projects should be in with the move-back-in (to the city) crowd and gain increasing favor as the year progresses.
The "ifs" are at the mercy of "too frothy" and "unsustainable" home prices if wage increases can't keep up.
"If home prices increase by 20 percent a year and incomes rise by less than 5 percent, then a disconnect eventually occurs in affordability," the report said.
"In some product-constrained areas like southern California and certain Northeast metropolitan areas, 20 percent or less of the local population can afford median home prices. Something has to give. Markets have been almost totally finance driven."
The report specifically warns speculators, flippers and first-time investors that "schemes to make fortunes will fall out of favor like Internet stock picks circa 2000." On the flip side, lost fortunes could leave some bargain-priced rejects for the vultures to pick over.
A leveling off in appreciation is inevitable. Prices will flatten in most areas during 2006­2007, with outright declines in certain overheated markets where speculators have been active. Property values could stagnate for several years. Over time, home ownership will endure as a solid investment for users, but late-in-game investor-only buyers will fare poorly," the report warns.

Sunset after the storm

Ken Calhoon, Broker

Lower rates for some borrowers

As many as perhaps a million home buyers will catch a slight interest rate break next year, thanks to one of the largest increases on record in the so-called conforming loan limit.
Beginning Jan. 1, the ceiling on loans that can be purchased or securitized by Fannie Mae and Freddie Mac will jump nearly 16 percent, to $417,000. The current maximum is $359,650. The ceilings of government-based FHA and VA loans also will rise next year.
The change in the Fannie-Freddie maximum means that buyers and refinancers who would have exceeded the old limit in 2005 will see their loans costs decline by from 0.25 to 0.5 percent, as long as they remain under the new ceiling.
The huge $57,350 increase comes at an opportune time for the housing market. Interest rates have been creeping up of late, and are expected to rise further in the coming months. Ironically, though, the rate of house price appreciation has began slowing in many markets. And in some places, according to the latest figures, prices actually are beginning to recede from record levels.
According to the California Association of Realtors, the median price of existing houses statewide in October was $538,770. But the median is much higher in some regions. It is $601,850 in San Diego, $557,730 in Los Angeles and $719,660, the highest in the state, in San Francisco.
Borrowers get a break in rates that are at or below the conforming loan limit because investors worldwide believe the mortgage-backed securities created by Fannie and Freddie are backed by the full faith and credit of the federal government.
The higher limit isn't likely to create many new buyers because those who can afford houses in the $360,000-$417,000 price range probably would have proceeded whether their loans are any less expensive or not, according to economists at the Mortgage Bankers Association.
Nevertheless, Fannie Mae estimates that more than 466,000 borrowers will benefit from lower cost financing next year. Freddie Mac says as many as a half-million borrowers will benefit. Those estimates do not include thousands more households who use government financing to buy a new house or refinance the ones they already are in.
The ceiling on loans insured by the Federal Housing Administration also will rise next years, to about $362,790 (87 percent of the Freddie Mac limit) in about three dozen high cost markets. The current FHA maximum is $312,895.
In addition, the maximum no-downpayment loan that will be guaranteed by the Veterans Administration also will be $417,000 in 2006.
Eligible veterans can still purchase higher-priced houses, but because the VA "guaranty" is accepted by some lenders as a substitute for a 25 percent downpayment, buyers will have to put up $1 of their own money for every $4 they want to borrower above the limit.

Neither Fannie Mae, Freddie Mac, the FHA or VA make loans directly to consumers. Fannie and Freddie, which are quasi-government agencies that guarantee the timely payment of principal and interest to investors, keep the money flowing to housing by purchasing loans from local lenders and packing them into investment-grade securities for sale worldwide.
The FHA insures loans made by private lenders and is considered a last resort for borrowers who don't measure up to Fannie and Freddie's stricter underwriting guidelines. And the VA guarantees to make lenders whole should borrowers default on their loans.

Falling October Sales

The leaves were not the only thing falling during the month of October in El Dorado County. The average sales price of a typical county home fell 7 percent to $506,500 from the $545,500 average in September. October’s monthly average price was the lowest since last March when the county’s average recorded home price was $493,000 but still 13 percent higher than a year ago.

The number of monthly home sales (178) was down 26 percent from the previous month and 22 percent off October of 2004. It was the slowest October since 1997 when the County’s Board of Realtors reported 172 residential sales.

The number of new residential listings (386) was 91 percent higher than October of 2004. In fact, October was the third highest month for the number of new listings in over two years, preceded only by this last September’s of 421 new listings and August’s at 408. During the last 3 months there have been a total of 1,215 new residential listings and only 690 sales.

Based upon the number of county home sales in relationship to the number of listings and comparing their average selling price, the real estate market peaked on Friday July 15th. The rate of appreciation has been gently falling since. Prior to August every monthly report that I was forwarded by the El Dorado County Association of Realtors (thank you Mary) reflected a 20 percent plus (year-over-year) housing appreciation rate for most communities. Although all areas in the county continue to show yearly appreciation rates well above last, the rate of appreciation is declining.

The county’s highest average selling priced homes remain in El Dorado Hills. The $703,500 average home sale last month was 15 percent higher than October of 2004 when it stood at $609,000. Cameron Park reported a 16 percent increase in their average priced home at $477,000 but the area had only half the sales it did last year during same month.

The Placerville area had a 40 percent drop in sales and only a 10 percent increase in their average price of $441,500. Diamond Springs/El Dorado had the same number of sales as last October (11) and a 16 percent bump in the average price at $402,500. Pollock Pines/Sly Park finished the month with the same number of monthly sales as last October and an 8 percent increase in price to $359,000. The average selling price in Cool/Pilot Hill was $426,000, a 6 percent increase over last year and Georgetown/Garden Valley reported 11 sales with an average of $355,000.


The number of monthly vacant land sales dropped significantly. The increased county fees for building a new home is having the desired affect that the “Citizens for Preventing Any Growth Anywhere” had hoped. Typically, there are 75 to 100 land sales each month. In October of 2004 there were 89. Last month there were 37, demonstrating that recessive economic measures (increased taxes, fees and assessments) can repress growth as well as legislative mandated measures.

Total yearly sales are down 13 percent from this time last year while the total MLS listing inventory is up 50 percent. The average time that a home stays listed for sale is 52 days. The least expensive home that sold in the county last month was for $ 99,000 and the most expensive was $1,745,000.

A good sign for October was the decrease in the number of new listings coming onto the market. In August, 408 new “For Sale” signs went up in the county. September’s new listings were 421 but in October new listings declined to 386. A seasonal adjustment? Maybe, but I would like to think that “less than serious” sellers are removing their homes from the Multiple, waiting for a more favorable time to sell.

Watch for this lackluster market to continue until spring. With interest rates headed north and an over supply of homes for sale, buyers have little incentive to act quickly. Spring won’t come soon enough for many county home sellers and the 1,200 members of the El Dorado County Board of Realtors.

Good News For Home Buyers

Home buyers and refinancers who take out low-downpayment loans using any form of mortgage insurance -- FHA, VA guaranty or private coverage -- may get a surprise benefit next month: For the first time ever, they may get the right to deduct their monthly mortgage insurance payments just as they currently get to write off mortgage interest payments.
It's not a done deal yet, but Capitol Hill sources say the prospects are good that pending federal tax legislation will allow mortgage insurance tax deductions when it goes to the President's desk before the end of the year. The write-off provision is tucked away inside a massive $60 billion bill passed last week by the Senate 63-44. The House is expected to pass its own tax bill after the Thanksgiving recess, but without a mortgage insurance deduction sanction. Senate and mortgage industry sources say it is highly likely that a House-Senate on the two bills will approve the Senate's concept.
The Senate-passed provision would essentially nullify a long-standing ban by the IRS against mortgage insurance deductions on federal income tax filings. It would permit full write-offs of FHA, VA and private mortgage insurance (PMI) premium payments for households with annual incomes up to $100,000. Households with incomes above that threshold would be limited to partial write-offs under a phase-out formula.
Deductibility of mortgage insurance is an issue with significant social as well as financial implications. That's because mortgage insurance premiums are paid for primarily by home buyers with modest incomes and insufficient savings to make a conventional downpayment.
Proponents of deductibility argue that mortgage insurance premiums are the functional equivalent of mortgage interest payments, which are deductible for homeowners on up to $1.1 million in mortgage debt. Why not allow less-wealthy buyers to write off premiums that get tacked onto their monthly principal and interest payments solely because they couldn't make a 20 percent downpayment? Even the IRS acknowledges this: When a lender incorporates a borrower's mortgage insurance into the note rate -- bumping it up by a quarter of a percentage point or more -- the IRS permits the rolled-in premiums to be fully deducted, just like interest.