Real Estate Information

Posted by Tim Burrell - The amount of Venture Capital raised in the Triangle soared in the fourth quarter of 2007 to almost $325 Million according to the National Venture Capital Association.   For the year, companies in North Carolina received $720.3 million in investment funds.   To give you an idea of how strong the Triangle is, Triangle companies were over $500 million of that figure, raising the most they had since the year 2000.

Is that high?  The previous record was $259 Million in 1999, at the height of the dot-com boom.  This is more than 25% over the old record.  This infusion of cash will help many companies grow, creating new products, improved products and more high paying jobs.  Venture Capital is usually used by young companies to develop and market new products, as well as hire new employees.  The Venture Capitalists usually get an ownership share in the company in return for their investment.

This confidence in the brilliance of Triangle companies will increase the demand for quality homes as the companies produce more jobs and make the investors wealthy.  Since these companies need people that cannot be outsourced to India and the Philippines, they will have a long term effect on the prosperity of Raleigh and the rest of the Triangle.  In short, the jobs they create are stable in addition to being well paying.

Motricity lead the field by raising $185 million on venture capital, which was the biggest single amount ever raised by a privately owned Triangle company.   Motricity's software helps entertainment companies sell content for mobile devices.

The Triangle is now competing with Silicon Valley around San Jose and the Boston Area in terms of the amount of Venture Capital that is poured into the area.  The Raleigh Chamber of Commerce indicates that the Triangle is also the competition for Boston and Silicon Valley for technology, bio-tech, medical device and advanced fabric companies when they decide where to locate or relocate.  It used to be that Raleigh competed with Atlanta and other southern hubs for new firms.  Times have changed, so that Raleigh is in the big leagues, particularly for companies that need an abundance of highly educated members.

The Chamber has been particularly effective in recruiting such firms, as we have many top quality universities, producing large quantities of "smart people" necessary for these firms.  These firms are have a tremendous long term effect on the Triangle, as they cannot outsource what they need to develop and improve the products they create.  In other words, the jobs that they create here will stay here for as long as the companies stay here.  With good infrastructure, reasonable housing prices (cheap by Silicon Valley standards), good weather and a government that supports enterprise, the Triangle attracts not only record amounts of Venture Capital, but a steady increase in businesses that need "smart people."

For more information, you can visit the Raleigh Chamber of Commerce's website at http://www.RaleighChamber.org

Let me know what you think about this trend, as our Blog enjoys comments.

Posted by Tim Burrell - The pain may have been lessened for some "short" sales.  One of the problems with a "short" sale used to be that a seller had to pay income tax on the amount the payment was "short".  A "short" sale is where a home is sold and the seller does not repay the full amount of the mortgage, i.e. the payment is "short".  So, if you owed the bank $300,000 and you paid $250,000 when the sale closed, the $50,000 that you are short is taxed as ordinary income.  That could cost you $14,000 to the IRS and more to the state taxing authorities.

The Mortgage Forgiveness Debt Relief Act of 2007 was just signed into law eliminating the income tax for some sellers whose sales close between January 1, 2007 and January 1, 2010.   There are several requirements:

1. The property sold must be your principal residence, as defined in section 121 of the Internal Revenue Code.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

2.  The debt that is forgiven must be  "Qualified Principal Residence Indebtedness", i.e. the money used to acquire a principal residence.

3. There is a limit of Two Million Dollars for the amount of non-taxable Debt Forgiveness, a limit that will not affect anyone in the Triangle.

These rules raise some questions. The biggest one is what is Qualified Principal Residence Indebtness.   The law says "For purposes of this section, the term `qualified principal residence indebtedness' means acquisition indebtedness . . . with respect to the principal residence of the taxpayer."  So, if you refinanced the house for more than what you owed and took money out to spend on other things, that additional amount is not covered by this law.  For example, you had a loan of $200,000 when you bought the house.  You refinanced it with a loan of $400,000, and used the additional money to pay off your other debts.  If you sell the home and pay $350,000 instead of the $400,000 debt,  this new law does not protect you from paying income tax on the $50,000 that was "short".  If you take out a mortgage to buy the house, refinance it for the amount owed on that mortgage (and no more), then your payment to pay off the mortgage is $50,000 short, you will not pay tax on that amount.

Another question is do you need to have lived there for 2 years out of the five years before your home is sold, as that requirement exists to establish a home as your principal residence in order to avoid paying tax on the gain when you sell your primary residence.   It does not make sense to impose that requirement based on the purpose and intent of the legislation, but there is a lot of the Internal Revenue Code that does not make sense.

One more question is what happens if you refinance the home and use the additional funds to remodel the home.  Normally, that would increase your basis in the home, so it would decrease your tax liability if you sold the house.  So, it would be logical to allow this type of refinancing to be subject to the protection of the new law.  Again, it is hard to rely on logic when dealing with the IRS, so I hope there are some regulations developed to interpret this situation.

The amount of forgiven debt that is not taxed is subtracted from the basis of your next house, so that when you sell it, you have to recognize more gain on that sale.  For example, you go short by $75,000 when you sell a home, you buy another one later for $400,000.  Your basis is not $400,000, but $325,000 as the $75,000 is subtracted from your basis.  So, when you sell it, you will have $75,000 more gain.  Remember, there is an exemption from tax for $500,000 of gain for a married couple filing jointly, so this amount of additional gain could be covered by this exemption.  Even if it is not, if you make more than $500,000 in gain and have to pay some tax, you should not cry.

One other good thing this law did was to extend the deduction for the payments for Mortgage Insurance to 2010.  We used to avoid Mortgage Insurance in sales that did not have 20% down payment, as it was not deductible.  Now it is.

It is hard to find the text of the law, but here is a link to how it looked when it passed, so you can read it for yourself. http://tinyurl.com/2qdnwj .   This law is so new, and in need of interpretation, that if you find yourself in this situation, you need to consult a tax professional before you sell.

So, for people who bought a home, did not refinance it for more, and sold it for less than they owed, there is no income tax due on the short sale, so long as the sale is less than two million dollars short.  This legislation eliminates one of the most miserable parts of a short sale, as it was obnoxious for a homeowner to loose all their equity, have to sell their house, and then get a tax bill.

If you have any thoughts on this, I enjoy comments.

Posted by Tim Burrell - When I was younger, the spin of the Media made me angry.  Now, it makes me smile. There is an advantage to getting older, as you realize that sometimes journalists get an assignment to write a story on "How Bad is Real Estate" or "The Mortgage Meltdown".  If the reporter is told to write a story on the Mortgage Mess, the reporter has to find the facts that support that story.

I do not question that the housing and finance market statistics that are reported can be defended as accurate.  However, you have to understand that the choice of the statistics to use creates the spin that supports a particular conclusion.   Are there serious problems in the mortgage industry today?  Yes.  Are the supply and demand of the real estate market different from two years ago?  Definitely, in many areas it has shifted in favor of the buyers, in some others it has shifted in favor of the sellers.  Does the bad news about financing and real estate overwhelmingly outweigh the good news?  That depends on who is spinning the figures.  If you look at the media, it is doom and gloom.  If you look at the facts and figures, there is a lot of good news. 

The following information was researched by Tom and Louise Hranicka of the Outer Banks in North Carolina to try to give a sense of balance and perspective to the news reports.

The Mortgage Market

The primary topic in the mortgage industry reports is “sub-prime” loans.  Those loans have severe problems in a relatively few states.  Sub-prime Adjustable Rate Mortgages (ARMs) are at the core of the problem, as the payment can adjust to push a marginal borrower into a financial abyss.  Not all sub-prime loans were made to borrowers with poor credit.  In many resort areas, a substantial number of well-qualified applicants voluntarily chose sub-prime loans over traditional loans for a variety of reasons, primarily the ease and speed of getting the loan.  Here are the facts: 

• Just over 13 percent of all mortgages are classified as sub-prime by the Mortgage Bankers Association.  About 11 percent of the sub-prime loans are more than 90 days delinquent or in the process of foreclosure.  Do a quick calculation and you will discover that nearly 89 percent of the sub-prime loans are paid on time or they are less than 90 days delinquent.  With some more calculations, you can report that the delinquent sub-prime loans are 1.43 percent of all loans.  Could you sell a newspaper with that figure?

• In reviewing the mortgage market, the Mortgage Bankers Association just reported that the delinquency rate for all loans during the 3^rd Quarter of this year was 5.59 percent. Loans that are in the process of foreclosure added another 1.69 percent for a total of 7.28 percent.  Phrased another way, 92.7 percent of all mortgage loans were not delinquent or in the process of foreclosure.  Is the glass 8% empty or 92% full?

• Delinquency and foreclosure problems seem to be at their worst in states that had the highest levels of speculation during the boom years along with the states in the Midwest with significant unemployment. Florida, California, Michigan, Ohio, and Indiana are leading this trend.  North Carolina is a stong housing market, and the number of HUD foreclosures has decreased so dramatically in the Triangle Area that it is hard to find a HUD foreclosure property on the market in the Triangle.  Once again, all Real Estate is local, so the Triangle can be the opposite of a national trend.

• The relative magnitude of the mortgage market issues also needs to be appreciated.  According to the Mortgage Bankers Association, “While subprime ARM delinquencies and foreclosures are climbing in all states, in most states the actual number of loans involved is fairly modest.  For example, the number of subprime ARM foreclosure starts in California during the third quarter equaled the starts in 35 other states combined.”  Even in California, the number of foreclosures in property along the coast is small. 

• According to the U.S. Census Bureau’s 2005 housing survey, there were 74,931,000 occupied residential units in the country. One-third of these properties (24,776,000) were owned free and clear with no mortgage debt, so they have no chance of foreclosure and are not included in the statistics on loans in default.

• For the second home market, a survey done this year by the National Association of Realtors estimated that 25 to 30 percent of vacation and investment properties were free and clear of any loan.  Again, these homes are worry free and not included in the statistics concerning foreclosures.

Financing Availability & Interest Rates

Lenders are making conventional loans to qualified buyers in the same manner that they always have, just with a little more review.  These loans, which are underwritten using traditional standards, are being made largely without any interruption.   In fact, the number of loan applications jumped in the last three weeks, as interest rates are so low.  The mortgage market has changed, and for conventional loans, it has only changed slightly.  Since nearly all of the homes in the Triangle are purchased using "conforming" loans that are under $417,000, the effect is slight.  So, our mortgage market has not shut down, and the changes that are occurring are generally positive in nature.

• Even for conventional loans the underwriting process has become more detailed.

• Borrowers with limited or no equity in their properties who are trying to refinance their adjustable rate mortgages are having difficulty finding new financing, but special programs for FHA are available to rescue some of these borrowers. 

• Interest rates are some of the lowest in history, making monthly payments less so properties are more affordable if the buyers are smart enough to catch them before the rates go up. 

• During the second week in January, the interest rate offered through a major lender for 30-year fixed rate conforming loans (loan amounts of $417,000 or less) was 5.75 percent with no points. A point equals one percent of the loan amount, and "no points" means this is one of the least expensive loans to originate.  If you give the lender some "points", the interest rate goes down.  The interest rate for jumbo loans (loan amounts in excess of $417,000) was 6.5 percent with the payment of one point.

I do not mean to imply that there are no problems in the mortgage and real estate industries.  Quite the opposite is true, yet the facts show that, for the most part, the situation is much more positive than what you see in the news.

As you watch T.V. or read the paper, keep a few things in mind.  First, real estate goes through cycles, and a house is a long-term investment.  The news reports focus on the latest short-term crisis.   Second, every real estate market is local.  While there can be no denying that events in the outside world have some effect on the Triangle market, our market is so different from the national real estate market that the majority of the homes for sale are actually experiencing a Sellers Market (where there is not enough supply to satisfy the demand).  Third, as today's proposed economic stimulus package illustrates, our government is not going to sit by and let a recession occur, particularly when elections are less than a year away.

By now, I think you can hear the story I am trying to tell.  As the old saying goes, no matter how thin you slice it, there are always two sides.   Particularly with "write the story with the conclusion in mind" journalism, it is difficult to see all sides of an issue.  But, if you do the research and look at the facts for your area, consult with an experienced Realtor who knows the local market, and don't blank out the positive aspects in what is otherwise being presented as a story written to come to a pessimistic conclusion, you will discover some amazing opportunities. 

You decide – is the glass 8% empty or 92% full?

I would love to hear your opinion, as I enjoy comments on my posts. 

Posted by Tim Burrell

If you are relocating to Raleigh, you might want to know its original history.  Even if you have lived here for years, you might not know the story of its creation.  It is fun to see how the original idea of the City lives on.

Issac Hunter had a Tavern, with a special drink called a Cherry Bounce, with plenty of alcohol.  New Bern was the Capital of North Carolina, but its coastal location made it subject to raids by pirates and others from the sea, and there had been assassination attempts on the Governor.  So, delegates from all over North Carolina met at Issac's tavern to decide where to relocate the Capital.   The tavern was easy to reach from all parts of North Carolina, and after drinking many Cherry Bounces, the delegates decided that the new capital would be within 10 miles of Issac Hunter's Tavern.  On a personal note, the delegates were starting to focus on acquiring some land owned by a man named Hinton before they got into the Cherry Bounce drinks.  They decided to table that idea, and Mr. Hinton did not get to sell his property.  Chuck Hinton, a wonderful friend of mine, says his family's luck is still running the same way.   The foundation of the tavern can be found behind the North Raleigh Hilton at 3415 Wake Forest Road, with a historical marker on the street near the hotel.

In the late 1760's, Joel Lane built a story and a half home called Wakefield (the house was named in honor of Margaret Wake, the wife of then Governor William Tryon).  He was a planter who owned thousands of acres in what was then Johnston County.  In 1770, he  lobbied the legislature to create Wake County out of that portion of the state, an area that at the time was wilderness, and a large amount of revolutionary war period history happened at his house.  The home is now a museum that you can read about at http://www.nps.gov/nr/travel/raleigh/lan.htm .  Instead of wilderness, Wake County is one of the fastest growing areas in the East.

In 1792, Lane again lobbied the legislature to buy 1,000 acres of his land to create the City of Raleigh.  The western boundary of the City was just east of his house.  The city was surveyed by William Christmas, the state surveyor, and laid out as one square mile, with North Street, South Street, East Street and West Street as the outer boundaries of the City.  You can get more background on this period from the National Park Service at  http://www.nps.gov/nr/travel/raleigh/lan.htm . 

Inspired by Philadelphia, the Capital Building was located prominently north of the center of the City, with major streets going in every direction, with Fayetteville Street the "high" street heading south.  At the other end of Fayetteville Street was the Governors Mansion, so the Governor would walk up this prominent street to the Capital Building.   Three of the four streets still lead to the Capital, with the street heading north full of office buildings.

Copying Savannah Georgia and in the tradition of English cities four public squares were located within the City.  One of them was lost to the current governor's mansion, as a result of the Union Troops during the Civil War.  The Union troops occupied the City and were preparing to burn it when Union General Logan turned his cannons on his own troops to prevent the destruction of the City.   The troops were allowed to occupy the Governor's Mansion, which later Southern Governors regarded as the desecration of the property, particularly since it was occupied by General Sherman as his headquarters.   Subsequent Governors refused to live in the Mansion, so the State acquired Burke Square, one of the public squares and built the current Governor's Mansion.  A more practical reason was that the old Mansion had endured decades of neglect and was in poor condition.  For more on the Governor's Mansion, go to  http://www.ah.dcr.state.nc.us/sections/hs/capitol/EXEC/Exectour.htm . Memorial Auditorium is currently located where the original Governor's Mansion stood.

For decades, Fayetteville Street was the ceremonial street for parades and other public celebrations in Raleigh. That is why it was historically significant when Fayetteville Street was re-opened as the main street of downtown Raleigh.  The community properly recognized this event as about 75,000 people participated in that celebration, which is about 20% of the population of the City of Raleigh.  Try to get 20% of the entire population of any other City to turn out for a celebration.

Raleigh is unusual in that it was originally designed and laid out just to be the Captial of North Carolina.  Now, it is growing dramatically with nearly 2.5 billion dollars being invested in new developments in the downtown area, with the history of the City and its original purpose shaping the development. 

Posted by Judy Burrell

If you’re traveling to the Triangle area of North Carolina and you’re upset that your spouse forgot to pack your toothbrush or favorite shirt, listen to my story and you’ll feel better.

Tim and I decided to go to Williamsburg, Virginia for the Thanksgiving holiday.  We had never been to nearby Jamestown and 2007 was the 400^th anniversary of the founding of Jamestown, so we thought it would be a good time to visit.  Four Hundred Years!  That’s certainly a long time.

We decided to leave Raleigh on Tuesday before Thanksgiving to try to avoid the madhouse of travel on the roads on “Black Wednesday” 

Williamsburg is a little over 3 hours from Raleigh,   We were lucky and had no trouble with traffic on I-85 and arrived without any hitches around check in time of 3 pm.  The Triangle has an abundance of major roads that make it easy to travel up the east coast, and the Fall Colors looked great, as you drive through a forest most of the way.Our hotel was great, greeting us with a humongous platter of big warm cookies on the way to the elevator.  We tipped the check-in lady and she upgraded us to a nice suite.  The room also had a refrigerator, microwave, coffee maker, free Internet and warm cookies every afternoon.  “Wow, we could live here indefinitely,” I said to myself!  I started to unpack the suitcases while Tim tried to figure out how to get his email on the hotel’s Internet system.  He asked me if I had packed the Ethernet cable that we usually take on trips with hotel Internet hookups.  I said, “I sure did, it’s in the big suitcase.”  Then Tim says, “WHAT big suitcase?” 

Oh no.  Tim had forgotten to put the biggest suitcase in the car.  It was still back home and had almost all of our stuff we needed for our weekend, including medications.  I will always remember the sinking feeling of sitting in the living room of our suite and not having most our “stuff”.  Should we try to have someone ship it to us?  The FedEx bill of a big suitcase would be tremendous and it was almost Thanksgiving.  Should we go try to buy all new clothes?  But, I am hard to fit and only 4’11” tall and EVERYTHING needs to be shortened.  And we also had the prescription medication problem. 

So, after only about 20 minutes at the hotel in our great upgraded room, we got back into the car and drove back to Raleigh to get the missing suit

Posted by Tim Burrell:  Laura Riddick, the Register of Deeds, is important to Real Estate because North Carolina law provides that a sale is not complete until the Deed is recorded.  When she took over the office in 1996, there was frequently a six week delay between the Attorney taking the Deed to the Recorder's office and getting confirmation that it was recorded.  Now, that time is down to one day, and in the case of electronic filing, it can be minutes to hours.

The other improvement that is appreciated by the Real Estate community is that nearly every legal document you need is available on line.  You can look up the Deed (and see when it was purchased and for how much), you can find the Conditions, Covenants and Restrictions for the neighborhood (so you can tell your client that they cannot park that RV in the front yard), you can find the subdivision map  (so you can see the shape and dimensions of the lot) and you can find the loan documents (so you can figure out how much the owner probably owes on the property).  Closing Attorneys used to have to go downtown to the office of the Register of Deeds and look through micro film readers to do a title search.  Now, that can be done online 24 hours a day.  Ms. Riddick says it surprises her how many attorneys do title searches at 2 in the morning, so her staff has to keep the system running every minute of the day.

One of the newest ideas is electronic filing.  Instead of driving an original document through traffic and finding a parking space downtown to personally deliver the Deed to the recorder's office, it can be scanned and emailed.  The staff at the recorder's office recieved the document, indexes it, and records it.  The rush to get to the registrar's office before they stop recording at 4:45 in the afternoon can be eliminated with a scanner in the Attorney's office.  Once it is indexed and recorded, there is an electronic response confirming the recording and giving the Attorney the recording information to show the book and page number where it is recorded.   Depending on the amount of electronic filings, this can take minutes to hours.

How does this compare to other Recording Systems?  In Los Angeles, the title companies record the Deeds, and they start lining up at the Recorder's office at 8 a.m., and the order they get in line rotates among the title companies.  So, you send in your documents to the title company the day before the recording, the line is enormous all the time, and if you hear that the document has been recorded by 5 p.m., you are lucky.   You will not get the index information for where the document is recorded until much later.   So, in Raleigh the government services use technology to record a Deed in minutes without leaving your office.  In Los Angeles, if you get it done in a day and a half you are lucky, after battling the legendary Los Angeles traffic. 

Do you wonder why so many people and businesses like the way they are treated in Raleigh?  This is only part of why Raleigh has tremendous job growth, as the government behaves like a service industry would if they were a private enterprise, working to provide better service to the consumer.   In many other parts of the U.S., the consumer has to adapt to the way the government wants to provide service, with no regard for the inconvenience to the consumer.  

* College of Agriculture and Life Sciences

* College of Design

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* College of Management

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NC State puts knowledge to work. Its Centennial Campus is a unique community where more than 130 industry and government partners collaborate with faculty, staff, and students to conduct cutting-edge research. With expenditures approaching more than $315 million annually, NC State is ranked third among public universities in industry-sponsored research expenditures.

Located in Raleigh, it’s no wonder that many who graduate from NC State move on to careers at the adjacent Research Triangle Park, home to many of the country’s leading Fortune 500 companies specializing in technology, research, and pharmaceuticals.

Anthony Williams

This summer, President Bush announced the FHASecure plan designed to bring stability to the real estate market by helping break today’s cycle of foreclosures and price depreciation by creating greater liquidity in the mortgage market. A key component of this strategy is to allow families with otherwise strong credit histories to qualify for refinancing based on a risk-based pricing structure.

FHASecure is a Federal Housing Administration (FHA) product, thus will operate under the same safe guidelines as the existing mortgage insurance program. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium to help offset risk at no cost to the taxpayer. To qualify for FHASecure, an eligible homeowner must meet the following five criteria:

1. A history of timely mortgage payments.

2. A teaser interest rate that has or will reset between June 2005 and December 2009.

3. A minimum of three percent equity in the home.

4. A sustained history of employment.

5. Sufficient income to make the mortgage payment.

So if your mortgage has reset and you’re struggling to make ends meet, maybe this program will enable you get back on your feet. For more information about FHASecure and other FHA products, call 1-800-CALL-FHA or visit www.fha.gov or www.hud.gov.

Anthony Williams