Finance News!

Courtesy of Vince Kingston, Ridge Mortgage Services (contact info at end of blog)

Last Week in Review

EASY COME, EASY GO...Last week, Stocks surged to cross the 14,000 mark on the Dow for the first time ever. But just as the party hats came out, so did a disappointing earnings report from Wall Street darling Google. Suddenly, the Stock that could do no wrong was showing chinks in the armor, and led to fears that other Stocks might follow suit, which caused an across the board sell-off. But every cloud has a silver lining - the money coming out of Stocks was parked over into Bonds. This helped home loan rates improve from levels hit earlier in the week, and end up about .125% better for the week overall.

And as if that weren't exciting enough, Fed Chairman Ben Bernanke took center stage last week, speaking to Congress about inflation, housing, and the economic outlook. He stated that although the recent inflation numbers have been moderating, the Fed remains very concerned about inflation. He underscored that they are staying very alert to economic changes and indicators, but based on their continuing concerns over inflation, it certainly appears that there will not be a cut to the Fed Funds Rate in the near future.

Very interesting note about the press: one line of Bernanke's prepared speech that the media focused on and headlined was "the ongoing housing correction might prove larger than anticipated". While this was indeed pulled directly from the text, the full text reads very differently, as Bernanke is saying that while one risk to the outlook is that the housing correction might prove larger than anticipated and impact consumer spending, he goes on to say that consumers have been spending at a very healthy pace of late. Be very cautious about believing the scare tactics that the press uses, as they often take words out of context.

AND THE MEDIA AREN'T THE ONLY ONES WHO TAKE THINGS OUT OF CONTEXT - REPRESENTATIONS MADE BY SOME CHARITABLE ORGANIZATIONS COULD REROUTE YOUR WELL-INTENDED DONATIONS. TO ENSURE YOUR GIFT DOESN'T WIND UP GOING TOWARDS SOME ADMINISTRATORS NEW BMW...READ THIS WEEK'S MORTGAGE MARKET VIEW.




Forecast for the Week









So what's coming around the bend for Bonds and home loan rates this week? The economic calendar will be slimmer than last week's, but will include a look at the housing market with Existing and New Home Sales being reported on Wednesday and Thursday. Stocks may also continue to drive the action in Bonds, as investors will again be closely watching Stock earnings reports this week, and making decisions on where their dollars are best invested - in Stocks or in Bonds.

And of great importance is the technical battle being fought at the 25-day Moving Average. The chart below shows how this line has acted as a tough technical ceiling of resistance, preventing Bond prices from moving higher and helping home loan rates improve. But just last Friday, Bonds managed to muscle higher, and close above the tough technical ceiling which has kept a lid on improvement in home loan rates for the past several months. But will the move above the ceiling be convincing...or is this just a head fake, like we experienced a few weeks ago, before Bonds were forced back lower and home loan rates moved higher?

Bottom line: Bonds are trying to make a move and help home loan rates improve, but their success will depend largely on the flow of money between Stocks and Bonds. If Stock earnings come in strong in the coming week, it's likely that money may flow into Stocks and out of Bonds, and home loan rates will worsen. If Stock earnings are weak, investor money may flow back into Bonds, and help home loan rates improve.


The Mortgage Market View...









THEY SAY IT'S BETTER TO GIVE THAN TO RECEIVE...SO MAKE SURE YOU DO IT RIGHT!

Most everyone has received requests from various organizations and charities asking you to donate to their causes. And it sure sounds like a good idea to help disadvantaged children, the local police officers, or help find a cure for cancer. But a call for a donation from the ASPCJ - American Society for the Protection of Cat Juggling - might warrant some further investigation. So how can you tell if the charity that you are considering supporting is legit?

First stop... the web:

Check to see that their website is full of information about their programs, history and goals. Look into the various programs they support, as much of the time you are unable to specify exactly where your contribution will be used. Be extra cautious of organizations with websites that are skimpy or out of date.

Next stop... the IRS:

The IRS maintains a list of all organizations that are classified as charities for purposes of tax deductions. You can search for information on the IRS website by hitting this link: IRS Charitable List.

Avoid a nasty surprise by understanding the type of organization you are contributing to. For example, the Sierra Club is not considered a charity, but rather a lobbying group, and as such, donations to the Sierra Club are not tax deductible. However, donations to the Sierra Club Foundation are tax deductible, as it is the charitable organization arm of the Sierra Club.

Important note - if you plan to make a donation other than money (clothing, household goods, car, etc), you will need to keep careful records of exactly what you donated and its value, as the IRS is cracking down on over-inflated valuations of donated goods. This is especially important if the value exceeds $5000, in which case an actual appraisal is required.

Final Stop... the report card:

The Better Business Bureau operates a website (www.give.org) that tracks many charitable organizations and grades them on twenty standards. These standards range from the makeup and compensation of the board to the percentages of their donations that are used for programs vs. administrative and fundraising costs. A charity that you can feel confident in will hit all twenty of the goals, or if they miss one or two benchmarks, will have provided reasonable explanations for this shortcoming.

Some charities - now using the term loosely - hit very few of the goals, or choose not to respond to the BBB's request for information. Reconsider a donation to an organization whose fundraising and administrative expenses will consume the majority of your contributions. In a random sampling, there were several organizations whose actual pass-through to their programs was under ten percent of the total money contributed. It's important that your donations make their way to help those who need it.

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.

Vince Kingston
Ridge Mortgage Company
10230 SW Hall Blvd.
Portland, OR 97232

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Latest News for June - Real Estate in Portland

The latest real estate Market Action report, courtesy of RMLS, has just come out with stats and figures for Portland Metro's real estate activity in June. Clearly the market has cooled, as has the market in most of the nation, however, there are bright spots, as well. Unlike many parts of the country, Portland is still enjoying rather strong appreciation. Just under 9% for June 2007 vs. June 2006 for the entirety of the Metro area, it's clear that things have slowed, but that we're still holding strong. Afterall, a 9% appreciation rate still gives you a great return on investment, especially when you consider the tax benefits and personal benefits of owning a home. When you look at more localized numbers, we're doing even better. For example:

N Portland - 104% appreciation - 34 average days on market (dom)
NE Portland - 7.7% - 44 dom
SE Portland - 10.6% - 45 dom
Lake Oswego/West Linn - 12.6% - 79 dom

One sector seeming to buck the trend of a slow down is, surprisngly, the condo market. Condos have appreciated an average of 14% vs the same time last year. That's actually up 2% from 2006. It's definitely a mixed bag with the market right now.

The rest of summer should be very interesting, as Portland historically starts slow and picks up steam during the summer months. With the interesting weather cycles we've had, it will be enjoyable to see the changes in market trends.

Probably the biggest factor affecting the market, at the moment, is the glut of inventory. As the rate of sale has decreased, we've actually had an increase of new listings. The extra listings are giving buyers a lot of choice, which is wonderful, but it is driving up the average days on market...which, in turn, slows the turning of the market.

In any case, if you'd like to hear more, just give me a call or email.

As always, I appreciate all your help with referals, as it is what keeps my business going. In addition, my bi-weekly Home Buying 101 workshop is going strong into its second year. Our next class is actually tonight at 7:00 PM at my office, 1505 NW 23rd, Portland. If anyone you know might be interested, send them along. We'll have another one two weeks from today. Same time, same place.

Here's a link to the June Market Action:

http://www.rmlsweb.com/temp%2Fdocuments%2F1500-1699%20Market%20Action%20and%20Statistics%20Menu%2F1506%20Market%20Action%20-%20June%202007.pdf

Creating Wealth via Home Ownership

Vince’s Finance 101-Creating Wealth via Home Ownership (courtesy of Vince Kingston, Ridge Mortgage Services)

At least for homeowners, the reward is less taxes. As mentioned in previous newsletters, Uncle Sam provides generous tax subsidies to homeowners by way of their mortgage interest deduction. But wait, it gets even better. The IRS literally fawns over homeowners by providing the largest single capital gain exemption available on the sale of their primary residence. This is called the Primary Residence Exclusion.

What does this mean to you, the homeowner? The primary residence exclusion allows you to sell your home and receive all of your gain on the home 100% tax free up to certain limits and after a specific time of ownership. For example, if you sell your $400K home after owning it for more than three years and you only owe $300K, then you will have a $100K gain after you pay off your existing mortgage. Per IRS guidelines, as long as the property qualifies, you will receive this $100K tax free! That is you will pay zero capital gains tax, zero income tax, and have no additional tax liability on this gain!

Consider that it could take you ten years or more to save $100K in your typical retirement fund and then you must pay ordinary income taxes when you withdraw those same funds years later.

What are the requirements to qualify for this most significant exclusion? The capital gain exemption on the sale of your home is limited to $250K for individuals and $500K for married couples. There are no rollover or reinvestment requirements, no minimum age requirements, and the exclusion can be used as many times as you like, but not more frequently than once in every two years. For the property to qualify as your primary residence, you must have owned the home for at least two years of the last five years and lived in the home as your primary residence for at least two years of the last five years.

Many ambitious homeowners have used this exclusion as their primary wealth creation strategy, particularly if you live in an appreciating area such as the west coast. If you sell your home every two years and realize a gain, you could continue to do this every two years indefinitely.

Here are some conservative numbers to consider: Your $350K home appreciates at a very reasonable 5% per year meaning after two years it is worth approximately $387K. Subtract out a 5% Realtor commission to sell the property, and you are left with an $18K tax free gain every two years. Do this every year two years for ten years and you have an additional $90K. Looking at this another way, increase your income by $9,000 per year every year for ten years by simply maximizing your primary residence exclusion.

You are always welcome to contact me to determine how to best incorporate your mortgage financing into your most advantageous financial strategy.

*The content of this newsletter is not to be construed as tax advice and will vary based on your unique circumstance, please consult your licensed tax preparer.

You can contact Jesse Knight, Principal Broker of the Realty Network/GMAC Realty at 971-219-4939 or jknight@therealtynetwork.net.