John Beckett's Real Estate Blog

The Social Security program turns 75 this month. Since President Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935, few workers have not been impacted by the program. Almost all working Americans pay into Social Security, and it’s the largest source of income for U.S. citizens age 65 and older. Yet this huge entitlement has many facets, some of which are not widely known.

The system is larger than the economy of most countries. For the past 20 years, the Social Security program has been the biggest single item in the federal government’s budget. The amount of money flowing through the Social Security system each year is larger than the total economies of all but the 16 richest nations in the world. Between the collection of the first Social Security taxes in 1937 and 2007, the retirement system took in $13 trillion and made payments of $10.6 trillion. That’s an amount that Social Security’s first beneficiary, Ida May Fuller of Ludlow, Vt. — who received benefits averaging about $650 a year over 35 years — probably never dreamed of.

It’s not just a retirement program. The original Social Security program paid benefits only to retired workers. Later, disability benefits and payments to a beneficiary’s spouse and children were added to the program. If you graduated from college four years ago, you are already protected against disability,If you are married and have children, your dependents are protected. Annual Social Security Administration mailings to all workers age 25 and older include an estimate of the amount you would be paid if you became disabled, as well as how much your spouse and children would receive should you pass away.

You pay 6.2% of your income into the system. Almost all (94%) American workers pay 6.2% of their taxable income, up to $106,800 annually, into the Social Security trust fund. Employers pay a matching 6.2% for each worker. Self-employed workers must contribute 12.4% of their income annually.

There haven’t always been cost-of-living increases. Annual cost-of-living adjustments didn’t become a part of Social Security until 1975 (as a result of amendments passed in 1972). Prior to 1975, an act of Congress was required to increase benefits to keep up with consumer prices. Before then, benefits were protected from inflation only when Congress chose to notice it. Now increases in payments are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Annual increases have ranged from 1.3% in 1996 and 1998 to 14.3% in 1980. This year, for the first time since 1975, there was no cost-of-living boost, because the index did not increase between the third quarter of 2008 and 2009.

Retirees can increase annual payments by waiting to claim benefits. You can begin receiving Social Security checks as early as age 62. But payouts increase 7% to 8% for each year you delay your start date, up to age 70. Workers who sign up early receive smaller monthly checks, but potentially for more years, than those who delay claiming but receive bigger payouts for the rest of their lives. Baby boomers who know they are going to have a long life are much better off waiting. Epstein, who is spending down her Roth individual retirement account in order to delay claiming Social Security, says her benefits will increase by about $500 a month by waiting until age 70 to sign up.

Couples have additional options. A retiree is entitled to Social Security benefits of up to 50% of a higher-earning spouse’s payout if that amount is greater than benefits based on his or her own working record. Widows and widowers are entitled to the higher earner’s full retirement payout. Dual-earner couples who have reached their full retirement ages can even claim twice if each first signs up for a spousal payment, then claims again later based on his or her own work record (which will then be higher due to delayed claiming). Ex-spouses are also eligible for benefits if the marriage lasted at least 10 years.

Existing beneficiaries can get do-overs — at least for now. If you’ve already signed up for Social Security and are receiving a reduced payout, it’s not too late to boost your check. If you pay back the entire amount you have already received from Social Security (without interest), you can then re-enroll and qualify for higher payments for the rest of your life. That could change, however. This week Kiplinger reported that the payback option may soon be eliminated.

Social Security numbers have significance. The first three digits of your Social Security number are assigned based on geographical region, with the lowest numbers being assigned in the Northeast. The middle two digits, called the group number, are allocated in a precise but nonconsecutive order from 01 to 99. The last four digits are issued in a sequential order. More than 420 million unique numbers have been assigned, and they are not reused after a person’s death. Since 1989, Social Security numbers have been issued to Americans shortly after they’re born, which makes younger people’s Social Security numbers somewhat predictable, if you know a person’s date of birth and hometown. And that’s information people commonly list on social-networking websites, according to research by Alessandro Acquisti, an associate professor of information technology and public policy at Carnegie Mellon University. Do not offer personal information such as date of birth and hometown publicly.

Paper Social Security checks will soon be retired. New recipients will be required to collect payments by direct deposit into a bank account or a government Direct Express Debit MasterCard beginning March 1, 2011. Existing beneficiaries must switch to electronic payments by March 1, 2013. Paperless payments are expected to save $300 million over five years, according to Treasury Department estimates.

The trust fund has a projected deficit. The Social Security trust fund is currently projected to be sufficient to provide payments through 2037. Unless changes are made to the program, after that year, resources will be sufficient to pay out only about 78% of scheduled benefits. Congress is considering a variety of potential changes to address the projected shortfall, including tax increases, benefit cuts and a rise in the retirement age. A Senate Special Committee on Aging report released in May found that relatively minor tweaks could put the trust fund back on sound financial ground for at least 75 more years. It’s a shame that the tone of the 75th celebration is sort of nostalgic. I would hope that the 75th anniversary is not only about how good things used to be but also about how good things could still be in the future.

Read at: http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/10-things-you-should-know-about-social-security.aspx?slide-number=12

1. Is your house in a high-traffic area? While many are advertised in the newspaper, on the Internet and in fliers, it’s still drive-by and foot traffic that brings most open-house visitors. Amanda Staines, a sales director from Atlanta and a former agent, says she plans to hold an open house every weekend until her newly renovated two-bedroom townhome sells. The reason? “Location, location, location. My house is off a major road, so the signage can really pull” people in, she says.

2. Does it have special features or was it recently renovated? An especially beautiful house can make buyers out of the most casual visitors.

3. What’s your home’s sale price? Many real estate agents say they no longer hold open houses for high-end homes, because they consider them a draw for thieves and gawkers. They prefer to schedule private tours.

4. How much time and money am I willing to invest in an open house? In some markets, much of the competition is using stagers and investing in costly upgrades such as painting and landscaping. If you aren’t wiling to spruce things up, an open house might not be worth it.

5. Is my real estate agent behind the idea? If they don’t think it’s a good idea for your home, or are unenthusiastic about it, it might not do much for you.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=13108453

This weeks quotes are from the great Actor, Governor and President Ronald Reagan:

A people free to choose will always choose peace.

Approximately 80% of our air pollution stems from hydrocarbons released by vegetation, so let’s not go overboard in setting and enforcing tough emission standards from man-made sources.

Democracy is worth dying for, because it’s the most deeply honorable form of government ever devised by man.

Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.

Government always finds a need for whatever money it gets.

Read more at: http://www.brainyquote.com/quotes/authors/r/ronald_reagan.html

The nation’s housing inventory is cluttered with foreclosures, short sales and homebuilders willing to make a deal. If you’re in the market to buy a home today, you’re likely weighing the benefits of each type of property available for purchase. Don’t be fooled. Not all bank-owned foreclosures are sold at deep discounts. Not all builders are slashing prices. Short sales can be a crapshoot, with some buyers enduring months of waiting and still not getting the property. All things considered, it’s possible that your best deal is purchasing a traditionally sold existing home, so don’t count those out of the running. To get the most for your money, it’s important to understand the local market’s inventory; market dynamics will have a lot to do with how various types of homes are priced. Also, do some soul-searching to determine how much risk you’re willing to take and the amount of time and money you’re willing to invest in a home.

Bank-owned properties

Foreclosures reclaimed by the bank, often called bank-owned properties, are often sold at a discount. However, the size of the discount depends on the market you’re in. A recent report from Zillow.com found that the typical discount for bank-owned properties, compared with a traditionally sold home, averaged 20% to 30%. According to separate data from RealtyTrac, an online marketplace of foreclosure properties, the average discount on bank-owned properties was 34% in the first quarter. There is more than one reason why the selling price of a foreclosure is lower than a traditional home. The seller is typically a bank, and would like to move (the property) off the books as quickly as possible. A traditional seller is interested in getting a certain price and is willing to stay in the market. Also, the condition of the home can be an issue. A buyer who wasn’t able to make mortgage payments also probably wasn’t able to keep up with needed maintenance. One of the biggest mistakes homebuyers make when buying a foreclosure is underestimating how much it’s going to cost to repair it. It usually costs a lot more than you think, you can add value to a property by rehabbing it, but probably not more than the cost you put into it. For the lower price, buyers also need to accept that they’re most likely purchasing a home that has been sitting vacant, which comes with its own set of issues because small problems — a leak, for example — can become big ones if no one is there to notice them. These homes also may have limited seller disclosures, because the owner — the lender — hasn’t been living in the home and thus has less information to disclose. Home inspections are generally recommended regardless of what type of property you’re buying, and they’re essential in the case of a bank-owned property. Location matters, too, in the pricing of a bank-owned foreclosure. In places with the highest incidence of foreclosure, bank-owned properties garnered the smallest discounts, compared with traditionally sold existing homes. The places that did not have very many foreclosures right now had large discounts. Another way to look at it: A homeowner aiming to sell his home in a market where a large percentage of sales are foreclosures will likely have to price it like a foreclosure just to be competitive.

Short sales

Short sales offer some of the best deals. A short sale is when the seller owes more on the mortgage than the home is worth, and the lender agrees to accept less for the property to make a sale. But even if you save money on a short sale, you could pay in other ways. Although lenders and government programs are trying to speed up the process required to complete a short sale, a buyer could still wait months just to find out he or she failed to get the home. The home is discounted partly because of the uncertainty that the buyer experiences. You need to understand there’s a reason why they’re less money — you have to play the game, you have to be patient. The market generally discounts short sales by 5% to 8%, compared with traditional sales.

New homes

In many markets, the supply of new-home inventory is dwindling. That has caused pricing in the new-home market to stabilize. That is, fewer bargains may be available for new-home buyers. There is less flexibility on the builders’ side to negotiate prices, plus with supply more in control, there’s not as much urgency to drop prices to move the homes that are currently sitting on the market. Buyers typically pay a 20% premium for a new home, compared with a traditional (nondistressed) existing home, but that also varies by location. That isn’t to say builders won’t find other ways to make a deal. They’re still willing to throw in incentives, like finished basements, as a way to sell a home. But if you’re looking to get the lowest price on a home, this might not be the best route. And if there are distressed sales in new communities you’re considering, proceed with caution. A lot of foreclosures in the area will drive down the prices of nonforeclosure homes, and that can extend to new-home inventory. It’s not impossible to find foreclosures and vacant properties in communities that aren’t even finished yet.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24884570

Americans who are brave enough to buy a home despite persistent predictions of a double dip in housing may want to contact the federal government, as the recession and financial crisis have turned Uncle Sam into one of the largest owners of real estate in the United States.

Rising foreclosures

The housing bust has led to an unprecedented number of foreclosures in the U.S. In May, 322,920 foreclosure notices were filed against homeowners, and more than 3 million homes have been seized over the last five years from delinquent borrowers. While most homebuyers may assume that banks are the only source of foreclosures, the U.S. government also owns many residential properties because of its role in buying and guaranteeing mortgages. Many of these properties are held because of the conservatorship established in 2008 over the government-sponsored enterprises popularly known as Freddie Mac and Fannie Mae.

Freddie Mac

The Federal Home Loan Corp., or Freddie Mac, owned approximately 45,000 multifamily and single-family homes at the end of 2009. The company put a gross value on these properties of $5.13 billion. Freddie Mac obtained these properties by being the highest bidder at foreclosure auctions when the properties were used as collateral for loans owned by the company, or when owners just transferred the property to Freddie Mac without going through foreclosure. Freddie Mac is furiously attempting to dispose of these homes, and has been fairly successful; the company’s average holding period for real estate is less than one year. The company markets the homes through HomeSteps, where buyers can search by state and city.

Fannie Mae

The Federal National Mortgage Association, or Fannie Mae, is also a large owner of foreclosed property. The company owned more than 86,000 single-family homes at the end of 2009, with a value of $8.5 billion. These homes are concentrated in states that were ground zero of the housing bust, with 28% of its inventory in California, Nevada, Arizona and Florida. Fannie Mae also markets these homes intensively, and sold 123,000 in 2009. The company’s official website to sell homes is called HomePath, where buyers can look up inventory near their location.

Other agencies

Another source of homes owned by the government is the Department of Housing and Urban Development. HUD obtains its properties through foreclosure auctions on Federal Housing Administration-insured loans. HUD has a website at hud.gov/homes. Next up is the Federal Deposit Insurance Corp., which owns its inventory through its role in seizing failed banks. The FDIC owns single-family homes but also has a large number of other properties, including industrial and commercial properties and raw land. The Veterans Affairs Department and the Agriculture Department also play roles in financing and guaranteeing home loans, so both own single-family home and other properties. Buyers can look for their dream home through these agencies as well.

Buyer beware

Buyers shopping for homes from the government should be aware of the disadvantages of the process.  Many agencies offer properties “as is,” with no warranties on their condition. There is also little flexibility on negotiating the terms of the contract if the government accepts your offer. Fannie Mae, for example, does not accept offers for houses that are contingent on a buyer selling a currently owned home.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24796144