Is Now A Good Time to Buy Real Estate?

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I wish I had crystal ball to know for sure whether now is a good time to buy real estate in Central Oregon; that would be like winning the lottery.

Even though I can’t make that prediction, there are a few objective indicators that 2013 may see more buying opportunities than previous years – specifically, the increase in judicial foreclosures and the extension of the federal tax relief measure related to some short sales.

On the first indicator, there are many theories as to why judicial foreclosures have spiked while non‐judicial or trustee’s foreclosures have come to a virtual standstill, theories such as new mediation requirements and continued legal challenges to “MERS.” Each theory has some validity but is not really relevant to why there may be more real estate opportunities. The simple reason is that the judicial foreclosure process takes longer than the non‐judicial process. The longer the clock ticks in a foreclosure process, the more time people will have to complete a transaction, even in short sale.

Further, anyone watching foreclosures will tell you that the shift to judicial foreclosures will probably not be short‐lived. The second signal is the one‐year extension of federal tax relief related to certain short sales. To generally summarize, a short sale will usually result in “debt forgiveness,” which is reported to the IRS as “income” to the seller. The Mortgage Debt Relief Act of 2007 gave certain short sale sellers “relief” from the potential income tax if the property sold was a qualified principal residence.

This “tax relief” expired at the end of 2012, potentially causing sellers to no longer be interested in a short sale. However, Congress recently extended the tax relief measure so that it now expires at the end of 2013, thus providing another year for certain underwater borrowers to sell their homes without incurring an income tax liability. Additional time creates additional opportunities.

The above is a very general summary, and both buyers and sellers are encouraged to seek professional legal and tax advice before closing. Now where is my lottery ticket?

tem@karnopp.com.

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