There is positive news on the real estate front with new programs helping first-time home buyers, homeowners eager to lower their payments, positive news on housing and wholesale prices and help for those facing foreclosure or buyer foreclosed homes…all indications pointing to a real estate market which may be healing itself, despite government incentives.

The Obama Administration’s efforts to help troubled borrowers has begun to kick in. The foreclosure crisis may be near its peak and home prices are starting to stabilize as the economy begins to grow towards the second half of the year. Sales activity is picking up; some indicators around the country show that some markets have hit bottom, for the most part in the West to Mid-West. Hopefully, like weather patterns, these headwinds will move eastward in the months to come. Interest rates remain at historic lows and the $8000 first time homebuyer tax credit is having a positive effect.

Still of concern are the continued number of delinquent borrowers and foreclosures; one in 12 Americans are behind on their payments and job losses as a result of the 8.9% unemployment rate, along with declines in property values, continue to take their toll in the marketplace. Consumers are less likely to be able to tap their home equity for cash.

Also, condominium purchases are made more difficult as lenders increase fees and tighten regulations to offset, what they say, is the higher risk of lending to buyers of condos, as compared to buyers of single family homes. Paying higher fees to get a loan requires buyers to make down payments of up to 20%. These changes in lending are considered by housing analysts to be too restrictive as the market desperately needs all qualified buyers to be able to close deals for the market to rebound. The National Association of Realtors is lobbying Fannie Mae and Freddie Mac to relax these rules.

On another front, a growing number of homeowners are turning to the Internet to ‘swap’ properties, that is, joining a website that matches people willing to trade their homes according to their needs, likes, and dislikes until they find a match…kind of like finding love on a dating site. Check out www.housetrading.com

Happily, because mortgage rates are at historic lows, the average contract interest rate for a 30-year fixed rate mortgage stands at 4.73%, down from over 6% from last year. Eighty percent of all mortgage applications are for refinancing. The fees for refinancing however can offset the benefits so it’s important to shop around. Owner financing of properties remains very attractive to buyers and is a great selling point as you place your property on the market.

Many Americans have chosen just to stay put over the past year as falling house prices are keeping more people in place. If you are ready, willing and able to purchase a new home, just remember what a fabulous new residence you can purchase at this time if you’re willing to accept a competitive price on your present house. Pricing remains key to both selling and buying at this time…if you’re ready to jump in the water, there’s no better time to purchase a property. In the long run, the value you gain can prove inestimable both personally and financially, and don’t forget about land…they’re not making it anymore. It’s a very interesting time to invest in land.

As the number of short sales increases, many financially troubled borrowers may think that foreclosure or short sale means their mortgage woes will be over…not so. When a homeowner sells their home for less than the outstanding mortgage, their mortgage company is likely to come after the difference to recover the unpaid amounts when the sale is complete. Holders of mortgages and home equity lines are requiring borrowers in short sales to sign a promissory note to pay back a loan or debt. Falling home prices are widening the gap between home values and mortgage balances so mortgage payment defaults are on the rise. Here are a few factors mortgage companies are considering regarding payback time: how big is the unpaid debt, was the property purchased as an investment, what are the borrower’s assets and income, what is the policy of the investor or mortgage insurer?

It’s not so unusual these days to have mortgage debt that exceeds the current value of your principal residence. If you hang on to the property long enough, you have a pretty good chance of riding out the storm with little or no harm done. In short sales, however, which means selling for a net sales price after subtracting commissions and other closing costs that’s less than the outstanding mortgage debt, the tax consequences can be problematic. If the net sales price exceeds the tax basis of the home, ie, what you paid for the property plus the cost of any improvements made over the years, minus any past depreciation write offs if you rented the property out or used part of it for deductible business purposes, you may be facing a hefty and seemingly unfair tax bill. You might be able to exclude the gain for federal income-tax purposes though, thanks to the federal home-sale-gain exclusion break so you won’t have to report the gain on your 1040 form. You may not have the same benefit on the state income-tax return.

In the case of a short sale on your house where the net sales price is less than your tax basis in the property, you’ll have a loss because the sales price is lower than your tax basis. The IRS will not let you claim a write off for that loss but you can claim a federal income tax loss on the investment. You can only claim a federal income tax loss on investment or business property. A loss on a personal residence is considered a nondeductible personal expense in most states. It’s always good advice to consult with a tax attorney or CPA on these issues. Remember, realtors are not accountants nor attorneys.

As a realtor, I wish all the very best in managing your real estate assets and needs during these precarious times, but remember… what goes up, must come down, and we may be seeing the beginning of the alternate cycle. It’s all in the numbers. Have a safe and happy summer.

Ref: National Association of Realtors, Forbes, the Wall Street Journal.

(Melinda Whiteman is an associate broker with Keller Williams Realty and can be reached at 423-664-1600.)