The bursting of the housing bubble plunged the economy into a recession from which it has yet to fully recover. But economists say this could finally be the year that housing lifts us out of the doldrums.

“Homebuilding activity will likely remain the strongest growing component of the economy in 2013,” said Keith Hembre, chief economist of Nuveen Asset Management. “After several years of excess supply, demand and supply conditions are now in much better balance.”

Home sales rebounded to the strongest level in five years in 2012, as home building bounced back to levels not seen since early in the recession. Near record low mortgage rates, rising home pricesand a drop in foreclosures have combined to bring buyers back to the market.

The economists surveyed also forecast that there will be just under 1 million housing starts this year — roughly matching the 28% rise in home building in 2012. Moody’s Analytics is forecasting much stronger growth — a 50% rise both this year and next year, which it estimates will create more than 1 million new jobs.

“There’s a lot of pent-up demand for housing, and very little supply,” said Celia Chen, housing economist for Moody’s Analytics. “As demand continues to improve, home builders have nothing to sell. They’ll have to build.” She said that growth in building will mean adding not just construction jobs, but also manufacturing jobs building the appliances and furniture needed in the new homes, which in turn drives overall consumption higher.

And economists say the tight supply and renewed demand for housing should lead to higher home values — about a 3.7% increase according to the survey.

“One of the most significant indirect effects from the housing recovery is the ‘wealth effect’ on consumers due to the recovery in home prices,” said Joseph LaVorgna, chief U.S. economist of Deutsche Bank, who said better home values can affect both consumer psychology on spending as well as their actual finances.

“Even small moves in home prices can have large effects on consumption, because housing comprises such a significant share of household assets,” he said.

But even with the bullish outlook on housing, economists are still forecasting only a modest rise in the overall economy this year. The consensus estimate is for economic growth of about 2.4% in 2013, only a modest improvement from the 2012 growth rate of about 2% they’re forecasting when the final numbers are in.

By far the biggest concern is a standoff on Capitol Hill. About three-quarters of those surveyed picked Congressional gridlock — which could result in a cutback in federal spending – as the biggest problem facing the U.S. economy. Other choices, such as theEuropean sovereign debt crisis, continued high unemployment and increased government regulation, were much less of a concern.

“Washington is now the primary impediment to stronger economic growth,” said Russell Price, senior economist of Ameriprise Financial.

An index measuring home-builder confidence  failed to post any gain this month, remaining unchanged after eight consecutive months of increases.

The National Assn. of Home Builders/Wells Fargo Housing Market Index held at 47, which was its highest level since April 2006. Any reading over 50 indicates that more builders view conditions as good rather than poor.

“Conditions in the housing market look much better now than at the beginning of 2012, “Barry Rutenberg, chairman of the association, said in a news release. “An increasing number of housing markets are showing signs of recovery, which should bode well for future home sales later this year.”

The components of the index, which is derived from a monthly survey, were mixed. The current sales conditions part of the index was unchanged at 51. The part measuring sales expectations in the coming six months fell 1 point to 49.  The part of the index measuring traffic at model homes from potential buyers gained one point to reach 37.

YouWalkAway.com, a foreclosure agency, conducted a survey of its clients and revealed 78 percent of those who responded said they were walking away from their primary residence. In addition, at least 74 percent of all respondents would be eligible for tax relief through the Mortgage Debt Relief Act of 2007.

Your website can be a great tool for building relationships outside of the sales cycle and driving hyper-local content creation can be the foundation for a successful long-term, long tail search engine optimization strategy.

The short-term downside with both of these approaches is they are time consuming and can take years to fully bear their fruits. Time is money and most agents need to drive real results in the days and months that are right around the corner.

As you’re working to make 2013 the most prosperous and efficient year ever, we invite you to take a look at a few web engagement strategies designed to realize more results faster. Use these to target web visitors that are ready to buy, and push that traffic directly to you.

1. Organic traffic from Google search results

Ranking number one for Springfield Real Estate (or whatever city you market in) sure would be a great way to drive a ton of traffic, right? Unfortunately, all of your competitors all agree, which means ranking for general terms has become very difficult. Some real estate professionals have had success in ranking for “long tail” results instead.

To do this, they write about everything in their community – schools, restaurants, events, etc… While this often works, it takes a long time to write all that content, and the people who find it aren’t necessarily interested in buying or selling a house.

To achieve similar success in a lot less time, don’t go quite so “long.” People who are ready to do a transaction are essentially searching for the answers to at least one of three questions:

1. How much is my house worth?
2. Which houses are for sale?
3. How is the local market? (Or, is now a good time to buy or sell?)

Once a week, create content that addresses one of these three questions. Give these stories a title that matches – for instance: “New houses for sale in Lakewood, Colorado” or “What are houses selling for in Alameda, California?” You may even want to drill down to specific neighborhoods.

It will take a few months of consistent writing on these topics to move meaningfully higher in your local home search market, but this is the shortest path to success in the long tail search results game.

2. Mobile ready, single property listing landing pages

This one is fairly straightforward. If you have a for sale sign planted in a yard, make sure the consumer standing in front of it can access information about it on their phone.

To do this, you need

• a URL that’s easy to type,
• a landing page that renders nicely on a smart phone, and
• capture tools that make it easy for the consumer to give you their contact information.

Long & Foster recently announced a program that provides these tools for their agents.

If you aren’t a Long and Foster agent, you can copy and paste you’re the custom Trulia listing URL into Bit.Ly or Goo.gl and make your own custom short web address to connect prospects to a mobile friendly landing page.

It’s a small tactic that’s becoming more and more important as real estate search becomes more mobile.

3. Target your advertising

If you’ve been in real estate for more than six months, you‘ve asked, “What marketing really works?” Well, the answer depends on what you consider “working.” When you’re shopping for real estate ads, make sure you focus your efforts on the zip codes, areas, and avenues that offer you measurable focused result.

You don’t need every lead that ever graced a web page. You also don’t need to promote yourself in every publication in your city or town.  You do need leads that are serious buyers and sellers.

The key to shopping for advertising these days is setting your goals and targets before you get into a conversation about tactics. Once you’ve decided on your goals, make sure your sales rep or account manager understands them and can show you how to measure the result before you shell out the cash.

4. Trulia and other web portals

In addition to generating your own traffic, make sure you tap into the traffic from the nation’s largest web portals. If you have listings, make sure your profiles are complete and have the proper email address, phone number and URL for consumers to reach out to you.

If you’re a buyer’s agent, make sure your real estate profile lists your expertise and consider answering consumer questions on forums like Trulia Voices.

Finally, take a look at the products we provide to deliver traffic to you. Remember, time is money. Sometimes it’s more profitable to focus on converting leads into clients than it is to spend all your time generating your own leads.

These four strategies are all great sources of traffic for you website. But once the traffic comes your way, you need to have a strategy for converting that traffic into clients. We’ll tackle that in a few future posts and some of our upcoming trainings.

True Confession: I set a handful of New Year’s Resolutions every single year. Why? They work for me – I’ve got probably a 75 percent success rate. Some of this is in the science of setting the Resolution the right way in the first place, including the preparation.

Here’s my secret: I always get started in December. I like to use my holiday down-time to plan things out, gather up the resources or do the research I need, figure out what my challenges are likely to be and make a plan to deactivate them, set appointments with any professional I need to get on board to make my goals happen and even get some momentum built up with my new eating program, workout plan, financial goals or career endeavors.

I aim to be like that old Marines commercial – by January 1, I’ve already done more than most Resolution-setters do all year!

And I’d like to help you do the same.  Let’s boost the chances that your home buying or selling goals for 2013 will be successful by devoting a little time in December to getting things lined up and in motion.  Here is my short list of tasks I would put on my December to-do list if I wanted to buy or sell a home next year:

1.  Handle your credit horrors.  Maybe you don’t have any credit horrors – kudos to you! But let’s get real, this year will be a year in which many post-foreclosure, post-bankruptcy, post-layoff Americans will find themselves sufficiently recovered, post-recession, to get back into the real estate market and buy a home. If you count yourself among the number of 2013 wanna-be buyers who experienced a financial glitch of any degree during the recession, December is the right time to start pulling your credit reports and doing a damage assessement and control campaign.

• Visit AnnualCreditReport.com (the only website through which you can access your government-mandated free reports) and order your own credit reports from all three reporting bureaus.
• Review them all, line-by-line, checking for errors and discrepancies. It is extremely common for paid-off accounts to still be reporting as delinquent, for foreclosed mortgages to still be listed as open and past-due and for bills that were settled in collection to be reported as behind. Follow the instructions to dispute any such errors you see.
• When you talk with your mortgage broker (see #4), go over the reports with them again, getting a read on precisely when your foreclosure, bankruptcy, delinquencies, gaps in employment or other credit woes will be sufficiently “seasoned” (i.e., long ago) to allow you to qualify for another loan, and get their advice on any action items, like paying a particular debt or set of credit cards down to $X amount will be important for you to complete before you try for a legitimate pre-approval next year.

In fact, this last point applies to everyone – whether or not you think you have any dings on your credit report. It’s essential to get clear on any of the work you’ll need to do to optimize your credit standing now, as the payoffs, disputes and other credit work that can move the needle on your score may take some time.

2.  Purge.  It’s time.  Time to get rid of all that things you know qualify as clutter – all of the stuff you know buyers won’t want to see when they tour your home, and all the stuff that you won’t want to move to your next place. If you donate your junk before the end of the year, you might be able to get a receipt and deduction for the taxes you file in 2013.  And tax break or not, getting all that stuff out of your attic, your closets, your shelves and your rooms will clear up loads of mental space and energy, minimize some of the overwhelm latent in the prospect of moving – and might even surface a few things you can sell to boost your down payment savings or your home staging budget.

Clutter clearing gets overwhelming when you simply lack the time, in the face of everyday urgencies, to invest a few hours or days to go deep, pull out all the minutae and memory-laden How better to spend those wintry days between Christmas and New Year’s than to clear out the clutter in your home – and your mind?

3.  Plan your prep. If you’re thinking of selling your home in 2013, now is a great time to start organizing your list (or spreadsheet, or Evernote file) of home preparation tasks that need to get done before you put the place on the market. Things like painting, carpeting, landscaping and other preparation tasks can be less taxing and less disruptive to your life if you have plenty of time to collect bids, sock away the cash to cover the costs and arrange projects at your family’s convenience or during off-seasons, when contractors might be wiling to charge a bit less.

Talk with your agent before you put a plan in place; they can help you make good decisions which projects to do (and which to forego), as well as choosing finish materials and colors that will appeal to the broadest segment of buyers – to boot, they often can refer you to the most cost-effective contractors in your area for these sorts of pre-listing projects.

3.  Save. More. There’s no such thing as saving too much cash up for your down payment. If you have a home to sell, you have no idea how much you’ll take away from that transaction until it closes. And even if you’re currently renting, having maximum savings set aside allows you maximum flexibility in terms of selecting homes, competing with other buyers, covering closing costs (which can run as high as 3-4% on average for an FHA loan) and even handling post-closing repairs, appliances and property personalization.

4.  Collect your gift money.  Buyers who get gift money from a relative to apply toward their down payments are often subject to seemingly strange and definitely invasive documentation requirements – the most onerous of which is to produce copies of the gift GIVER’s bank accounts proving the source of the funds. If you know Mom, Dad, Granny or Aunt Bernie is going to chip in some cash toward your down payment in the Spring, consider asking them to go ahead and give it to you now, so you can put it in your own accounts and begin “seasoning” it as yours, which will help you avoid all those documentation demands.

Your benefactor should check with their financial and tax advisors to be sure the gift is structured so as to avoid any tax implications, before they give it.

5.  Connect with an agent and a mortgage broker – stat.  Don’t wait until the month before you want to buy or sell to ring up your trusty agent and initiate the conversation. Ask around for referrals or find an agent here on Trulia Voices now, get a mortgage broker (or 3) on the phone, and ask them to help brief you long-lead topics like:

• Whether your market is a buyer’s market or seller’s market, and how that translates into what you can and should expect when you plan to buy or sell next year
• Whether there are any area-specific timing issues you should factor in as you map out your timeline
• What – given the specifics of your financials, your savings, any past credit or other issues you have – you should be doing now in terms of paying bills down, settting savings targets, and such
• What changes, if any, you should plan on making to your property before listing it
• What sort of property you can get for your money in the areas you’re targeting as a buyer, and what kind of money you can expect to command for your property in your local market (this, obviously, will change over time – even over the few months or so between now and the time you list your home, but it still helps to have a general ides of the current market values).

6.  Go Open House hunting.  If you’re selling next year, it’s essential to get a real-life read on what the competition’s like, everything from what sorts of houses in your area are listed at various price points to what your target buyers are going to be seeing on their way into or out of your house.  There’s no reality check on your own home’s preparation and staging – its overall readiness for listing – like putting on a buyer’s shoes and taking a tour through similar homes in your area.  And there’s no time for this reality check like right now: when Open Houses are still a-plenty, you have more time to attend them, and you still have plenty of time to process your takeaways and incorporate them into your own property preparations.

Open House hunting is also helpful for those who have home buying on their 2013 to-do lists.  It’s the only way you can start understanding how to decipher the listings you see online into a reality-based set of expectations about a property.  It’s also the best way to get indoctrinated deeply into the realities of what you get on your local market at various price points, and it’s the most impactful strategy for starting the process of negotiating compromises with your co-buyers.

7.  Think hard about your deductions, if you’re self-employed. In the wake of the recession, most mortgage guidelines for self-employed borrowers changed, so that your income for purposes of qualifying is assumed to be the average of your last two years’ Adjusted Gross Income, as reported on your federal income tax returns.  That means lenders calculate your income after all your business-related and other deductions, not before.

So, yes, this does mean that maximizing your deductions may impact your ability to qualify for a home loan in 2013.  But them’s the breaks – better to know this before you file your tax return, in the event it might change something about how you file.  Loop your tax advisor, business bookkeeper and mortgage broker into your decision-making process about your 2012 taxes before filing, if you’re self-employed and plan to buy or refinance your home next year.

After eight consecutive months of improvement, a reading of home builders’ confidence is closing in on a milestone it hasn’t hit in more than six years.

The National Association of Home Builders’ monthly index of the sentiment in the building industry has been below 50 since April 2006, meaning that the majority of builders view industry conditions as negative. If the number goes above 50, the majority of builders view the sales climate as positive. Readings were in the high 60s and low 70s at the height of the housing bubble.

December’s reading, based on a survey of 411 builders and released by the builders’ group on Tuesday, was up two points to 47–tantalizingly close to the threshold of 50.

Industry officials say the gloomy days are ending. “Builders across the country are reporting some of the best sales conditions they’ve seen in more than five years, with more serious buyers coming forward and a shrinking number of vacant and foreclosed properties on the market,” said Barry Rutenberg, the group’s chairman and a home builder from Gainesville, Fla. in a statement.

Two of the survey’s components—current single-family home sales and expected sales over the next six months–were at 51. The component gauging traffic of prospective buyers rose one point to 36.

The housing market helped pull the economy into a severe recession, which ended in June 2009. But housing has been a contributor to growth the past six quarters.

Regionally, builder confidence rose in two of the four regions of the country in December. The biggest gain was in the Northeast, which rose 12 points to a reading of 42. That growth “likely reflects some boost in activity following (superstorm) Sandy’s destruction” and could also be from “catching up” with improvements that had already been evident in other regions, wrote J.P. Morgan Chase JPM +0.90%economist Daniel Silver.

The Midwest also advanced, up two points to 53. The South and the West posted small declines.

Home prices are expected to continue to rise in 2013, especially with investors on the hunt for good buys, but the New Year is expected to bring at least a few drops in home values along the way, according to real estate analysts.

Analysts with DBRS released a report this week, saying home acquisitions by investors are likely to keep pushing home prices higher. But the company’s latest report also says mass real estate consumption by investors could eventually lead to large capital gains, bringing ever increasing competition and then dampening yields at some point.

The end result of this would be a tapering off in investors’ appetites for homes, leading to a dip in home prices in certain regions, DBRS said.

“And while large investors may continue to benefit even if housing prices continue to climb, homeownership will become an even more distant hope for many buyers if underwriting standards remain at their current levels,” the DBRS report said.

John Dolan with Second Order Strategies Inc. reviews the S&P Case-Shiller futures trading on the Chicago Mercantile Exchange to gauge the direction of home prices in the U.S.

In the past six months, he noted that the market benefited from positive seasonal factors and an improving housing market, which led to higher prices. As the market turns into 2013, Dolan sees two conflicting factors in the first part of the year. Those factors include negative seasonal factors such as cold weather in several major markets in early 2013 and improving housing markets in others. Those conflicting factors may create some dips in prices, he suggested.

Still, for the entire year, Dolan said the “CME future prices are consistent with about a 5% increase from now to November 2013.”

WASHINGTON — At 70, Frank White isn’t a typical first-time home buyer. But a key reason he ditched his Altadena apartment and bought a three-bedroom house in nearby Pasadena has been common for decades: He wanted the tax break.

“I pay very high taxes, and I have no deductions,” said White, who owns an apartment rental business with his two brothers. Now, after purchasing the $500,000 home in November, he’s looking forward to writing off the interest on his 30-year mortgage.

But the longtime tax break could face major changes as Washington policymakers search for ways to reduce the deficit as part of the debate on the so-called fiscal cliff. And that’s sending shivers through home buyers such as White and much of the housing industry.

“My deductions are important to me, what few I have,” White said. “We need to go after the corporations that don’t pay a … cent. Let’s go after those guys first. But leave me alone.”

The home mortgage interest deduction is one of the most cherished in the U.S. tax code. It’s also one of the most expensive, estimated to cost the federal government $100 billion this fiscal year.

Primer: Understanding the fiscal cliff

For that reason, the deduction taken on income tax returns is expected to be on the table in Washington’s search for more money to reduce the budget deficit and resolve the fiscal cliff.

But the specter of scaling back the tax break, particularly with the housing market still trying to recover from the collapse of the subprime mortgage bubble, is raising alarms among homeowners, Realtors and home builders.

It’s also sparking a debate about the true effect of the deduction, which critics argue benefits the wealthy much more than the middle class. They contend that the break hurts first-time home buyers by driving up house prices and that other countries that have no such deduction still have high homeownership rates.

“If we really care about homeownership, then the deduction is just the absolute wrong way to go,” said Dennis Ventry, a UC Davis law professor who has studied its effect.

There is agreement that reducing the interest deduction — no one is talking about eliminating it — would cause prices to drop as buyers scale back the amount they could afford to spend.

The concerns are even greater in Southern California and other high-priced regions where homeowners benefit more from the deduction because their mortgages are larger.

“A lot of people buy rather than rent simply because, after the mortgage deduction, it’s more affordable,” said Syd Leibovitch, president of Rodeo Realty in Beverly Hills. “To limit it or take it away, I think you’re going to be surprised at the shocking effect it has on the real estate market.”

President Obama’s deficit commission proposed lowering the limit on mortgage principal eligible for a deduction to $500,000 from the current $1 million, removing any break for interest on a second home and turning the deduction into a tax credit capped at 12% of interest paid.

A tax credit would allow homeowners who don’t itemize deductions to subtract the interest from the taxes they owe. But while more taxpayers could take advantage of the benefit, a cap would mean those with large mortgages on expensive homes couldn’t get a credit for all the interest they pay.

Other proposals have called for similar changes.

Supporters of the tax break worry that proposed changes would not only push down prices but also spook potential buyers.

Lawrence Tang, 38, and his wife own a house in West Covina. But they are renting in San Gabriel and looking for a house there, near where he works as a school technology director. They don’t want to sell the West Covina house because the drop in home values wiped out most of their equity.

So the proposed changes would limit how much interest they could deduct on their first house and prevent them from deducting any interest on what would be their second home, Tang said.

“That would pretty much price us out of that market and push us back to the sideline,” Tang said. Just talk of changes to the mortgage interest deduction is making them hesitant to buy, he said.

The mortgage interest deduction is one of the most popular tax breaks. In a nationwide poll released this week byQuinnipiac University, two-thirds of respondents said they opposed eliminating it.

The deduction has been around since the federal government began collecting income tax in 1913. But contrary to popular belief, the deduction wasn’t put in the tax code to encourage home ownership. All consumer interest was deductible then.

Over the years, however, Congress has pared back interest deductions. The 1986 tax code overhaul eliminated the ability to deduct auto loan and credit card interest.

But lawmakers specifically kept the deduction for home mortgage interest. Then-President Ronald Reagan said he wanted to keep it because it symbolized the American dream.

“For people of my generation, the baby boomers, from the time we were kids we were told by the federal government and its policies to build our nest eggs around housing,” said Gerald M. Howard, chief executive of the National Assn. of Home Builders, one of the strongest supporters of the deduction.

“Now our elected officials are going to tell us in the name of tax simplification they’re going to further reduce the value of our housing by 10% to 15% right as we’re about to retire?” Howard said. “When you make that kind of case to lawmakers, you should see their eyes widen.”

But a lot of that concern is based on the misconception that the deduction is a boon for average Americans, critics said.

“This is a sacred cow to the real estate industry, and it’s almost an entitlement to homeowners,” said Anthony Sanders, a real estate finance professor at George Mason University. “They could cut it in half and it would not harm a lot of middle-income households.”

An analysis by Congress’ Joint Committee on Taxation found that 78% of the $83 billion in mortgage interest deductions in 2010 went to households with income of more than $100,000. Households with incomes of more than $200,000 got 35% of the benefit.

Wealthier people own more expensive houses and have more interest to deduct. And because their income is taxed at a higher rate, the benefit of the deduction is greater.

The average savings from the mortgage interest deduction was $2,454 in 2010. But for households making more than $200,000, it was $6,370.

In addition, people in high-cost areas benefit the most from the deduction. A 2001 study found that three metropolitan areas — Los Angeles, San Francisco and New York — combined to receive more than 75% of the deduction’s benefit.

“When you turn the light on and see what’s really under the bed, I don’t think there’s really much there,” said Glenn Kelman, chief executive of online real estate company Redfin, which is based in Seattle.

FORECLOSURES are taking significantly longer in states where lenders must go through the courts, and the delay may or may not be good for borrowers, depending on their circumstances. But some researchers say that dragging the process out hurts society at large.

About half of the 50 states have judicial foreclosure systems. The housing market crash so bogged down the systems in New York and New Jersey that foreclosures there have routinely dragged on for two or three years; their timelines are among the longest in the country. The national average, which factors in nonjudicial states, is about one year, according to RealtyTrac, which monitors foreclosures nationwide.

The sluggish process has caused a backlog of loans in foreclosure and is slowing the housing market recovery in judicial states, says Michael Fratantoni, the vice president for research and economics at the Mortgage Bankers Association. As of the end of the third quarter, according to the association, 6.6 percent of all loans were in foreclosure in judicial states, compared with 2.4 percent in nonjudicial states.

A study released last summer by researchers at the Federal Reserve Banks in Boston and Atlanta found that the longer properties languish in delinquency or under a bank’s ownership, the greater the negative effect on the value of surrounding properties.

“The best outcome is to prevent the foreclosure,” said Paul S. Willen, an economist and policy adviser at the Boston Fed. “But if it’s clear that can’t be done, it’s in society’s interest to get the foreclosure done as soon as possible.”

In a separate study last year, Mr. Willen and his colleagues question the basis for giving borrowers more time to try to fix mortgage problems. The study found that avoiding foreclosure was no more likely for borrowers subject to either judicial foreclosure, or laws forcing lenders to wait 90 days before beginning foreclosure proceedings, than it was for other borrowers.

Consumer advocates agree that foreclosures are taking too long in some states. High concentrations of vacant properties have taken a heavy toll on certain neighborhoods, said Michael D. Calhoun, the president of the Center for Responsible Lending in Washington. “We agree that borrowers should be considered quickly for loan modifications,” he said. “They’re more successful if they’re done early on.”

But in his estimation, the delays aren’t a result of the protections provided to consumers under the judicial process, because the court process has worked fine in “normal times.” The problem now, he said, lies with the mortgage servicers. “We had a servicing system that was totally overwhelmed by the housing boom and even more so by the housing crash,” Mr. Calhoun said. “The backlog is due to servicer errors and lack of capacity.”

Communication gaps are also a factor, says Mark S. Cherry, a lawyer who represents borrowers in the state-sponsored foreclosure mediation program in New Jersey. His clients must sometimes return to mediation sessions five or six times before finally getting a loan modification. “Persistence breaks resistance,” he said.

Courts, too, have been overwhelmed. In New Jersey, a typical year brings about 24,000 residential foreclosure filings; in 2009 and 2010, annual filings surpassed 60,000.

The courts have since had time to adjust, especially because lenders have halted the processing of thousands of old cases while they work with federal regulators on improving their practices, said Kevin M. Wolfe, the assistant director of the Civil Practice Division of New Jersey’s Administrative Office of the Courts.

New foreclosure cases are moving much more quickly, and there is no backlog, Mr. Wolfe said. The average time for foreclosures filed this year is 6.4 months.

By the time lenders begin processing those old cases, the court should be far better prepared, he said, adding, “We’re not going to be caught up short this time.”

Source

A soon-to-expire tax break for troubled homeowners is helping drive a spurt in “short sales.”

During the three months ended Sept. 30, short sales in which homeowners had fallen behind on mortgage payments soared 22% over last year, according to a report released Thursday by online marketing company RealtyTrac. By comparison, short sales by people current on their payments went up 17%.

In a short sale, homeowners sell at a price that is less than what they owe the bank, and the bank agrees to absorb the loss. The bank unloads the house and the homeowner gets out of a mortgage he can’t afford.

And currently, homeowners don’t have to pay federal tax on the unpaid mortgage debt because of a bailout-era law known as the federal Mortgage Debt Forgiveness Act.

But the act expires on Dec. 31 and, unless it is extended, the IRS in January will start treating unpaid mortgage debt as taxable income for many borrowers. The average amount of forgiven debt in a short sale is about $95,000, according to Blomquist. The tax on that could go as high as $33,250, even more if the Bush tax cuts expire.

So real estate agents are pushing to get short sales done by the end of the year, worried that if they don’t, deals will fall apart with the prospect of big tax bills, according to Daren Blomquist, vice president of RealtyTrac.

“They’re encouraging people to sell before the tax break ends,” he said.

With the year-end deadline approaching, short sales could spike even more in the current quarter.

“If that law expires, homeowners who agree to short sales could see their income tax jump significantly because the portion of the unpaid loan balance not covered by the short sale proceeds will be considered taxable income in many cases,” Blomquist said.

This quarter, more homes in foreclosure were sold as short sales than repossessed by banks and resold.

“Both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure,” said Blomquist.

For banks, the calculation on short sales goes like this: Yes, they take a loss. But they also unload the property — an attractive option given that banks must bear the costs of maintaining homes they repossess.

Foreclosures can be costly for banks. They get stuck with legal costs as well as taxes and maintenance expenses. The longer it takes to repossess a home — and it can take years — the more the expenses mount. Short sales can happen quickly.

In addition, homes in short sales go for higher prices than ones repossessed in foreclosure and resold by banks. The average sales price comparison: $191,025 for short sales vs. $161,954 for homes sold by banks in foreclosure.

Related: 10 most affordable cities for homebuyers

Another factor driving short sales: Since March, the five biggest lenders have been able to claim some of the forgiven debt in short sales as credits against what they owe under themortgage abuse settlement they reached with the government. Already, the banks have approved $13 billion in short sales for 113,000 borrowers under that pact.

One group left out of the benefits of the tax break are homeowners in California, Arizona and 10 other states in which the IRS does not tax forgiven debt because of those states’ laws.