Homebuying Continues to Pick Up in March 2019

With economic conditions working in favor of homebuyers, REALTORS® reported an uptick in homebuying traffic in March 2019 compared to one year ago, according to National Association of Realtor’s March  2019 REALTORS® Confidence Index Survey.[1] Low mortgage rate, a record low unemployment rate since 1953,  sustained job creation of more than 2 million per year since 2012, and an increase in real wage growth are all working in favor of homebuyers.

 
The REALTORS® Buyer Traffic Index increased to 63 in March 2019 (55 in February 2019), the fourth month of sustained recovery after it dipped to a low of 44 in November 2018 when mortgage rates hit almost five percent. But buyers started house-hunting again as mortgage rates started falling in December 2018 when the Federal Reserve put a hold on interest rate hikes for the year and adopted a patient policy stance. As of the week of May 9, the 30-year fixed rate has climbed down to near four percent, to 4.11 percent.[2] The REALTORS® Buyer Traffic Index leads existing and pending home sales by one to two months so the uptick in the March index indicates a stronger market in May, along with the seasonal uptick in homebuying activity.

Buyer traffic conditions were stable or stronger during the 3-month period of January—March 2019 compared to the same period one year ago in 47 states and in the District of Columbia. However, REALTORS® reported weaker buyer traffic in California, Connecticut, and West Virginia.  Respondents from California have reported the lingering negative impact of the California wildfires on the supply of and demand for homes in affected areas. However, the lower mortgage rates and decline in prices in CA metros such as San Francisco should make homes more affordable and cause a pickup in homebuying activity in the coming months. Respondents from California and Connecticut also reported that high property taxes and the $10,000 limit on the combined itemized deduction for property taxes, state and local income tax (SALT)—  are negatively affecting homebuying.

 

With mortgage rates falling, the mortgage payment arising on a median-priced home at 10 percent down payment has fallen from $1,259 in June 2018 to $1,151 as of March 2019, a savings of $108 per month, which amounts to $38,991 over a 30-year period.

The decline in mortgage rates is not the only positive factor underpinning the pickup in homebuying. Perhaps more important is the strong job and wage growth. The unemployment rate fell to a low of 3.6 percent in April 2019, the lowest since 1953; 2.6 million net new jobs were created as of April 2019 from one year ago; and the number of unemployed fell to 5.8 million from 6.3 million one year ago.  Wages continue to increase at a faster pace than inflation, with average weekly wages rising at nearly three percent in April 2019 from one year ago, ahead of inflation of two percent. Economic conditions are pointing to an increase in homebuying activity, which REALTORS® are seeing on the ground!

 

 Information courtesy of National Association of Realtors

Gen Xers: Purchased Multigenerational & the Biggest Homes

The following article is taken from a post by the National Association of Realtors. It is produced by using data from across the U.S. - not specific to California. I do find the generational information interesting. 

Gen Xers, buyers aged 39 to 53 years, made up the second largest share of home buyers by generation at 24 percent of all home buyers in 2018, (down from 26 percent last year). The median age for this group was 45 years old and they were born between 1965 and 1979. They tended to have the largest families in the past, but were surpassed by Older Millennials this year. Fifty-six percent of these buyers had one or more children under the age of 18 years living at home—23 percent had two children under 18 years at home—and they made up the second largest share of buyers that were married couples at 65 percent. The primary reasons that Gen Xers purchased homes was the desire to own a home of their own, job-related relocation, and the desire for a larger home.

Gen Xers surpassed Younger Boomers this year and purchased the greatest share of multi-generational homes at 16 percent. They also made up the largest share that purchased detached single-family homes at 88 percent and had the highest median household income at $111,100, boosted by double income couples. They purchased homes in accordance with their incomes and bought the most expensive homes of all generations—a median home price of $277,800. This generation of buyers also purchased the largest homes in size at a median square feet of 2,100.
Buyers 39 to 53 years were also the most racially and ethnically diverse group of home buyers, with 25 percent identifying as a race other than White/Caucasian. This group also had the highest percentage of home buyers that speak another language besides English. Twelve percent of buyers 39 to 53 years were not born in the United States.
Gen Xers purchased new homes to avoid renovations and problems with plumbing and electricity and previously owned homes for a better overall value. These buyers purchased a short median distance from their previous home at a median of 11 miles. Gen Xers were the second most likely to purchase in neighborhoods that were convenient to schools. They also searched for a median of 10 weeks viewing a median of 10 homes.
Gen Xers primarily used savings and proceeds from a previous sale for the downpayment of their home purchased. However, these buyers were delayed five years from purchasing a home due to debt. Twenty-four percent of buyers 39 to 53 were delayed five years and 30 percent were delayed more than five years from buying a home. Of the buyers that said saving for the downpayment was the most difficult step in the buying process, 46 percent had credit card debt and 21 percent had childcare expenses, more than other generations. This group of buyers also had the highest median amount of student loan debt at $30,000, equal to Older Millennials. This group of buyers canceled vacations more than other age groups in order to save for a home. Gen Xers also had the highest share that sold a distressed property at 13 percent, primarily in 2011. Buyers 39 to 53 used a fixed-rate mortgage at 92 percent.
Gen Xers was the largest share of home sellers at 25 percent. They also had the highest median household income among sellers at $123,600 and sold homes at $250,000. Among Gen Xers sellers, 15 percent wanted to sell earlier but could not because their home was worse less than their mortgage. Gen X sellers’ tenure in the previous home was a median of nine years. Gen X sellers were the most racially and ethnically diverse of the generations. Their primary reasons for selling were that the home was too small, a job relocation, a change in family situation, and the neighborhood was less desirable.

Content from National Association of Realtors, Posted: 08 Apr 2019 09:53 AM PDT

Are Closing Costs Tax Deductible Under the New Tax Law?

Are closing costs tax deductible? What about mortgage interest? Or property taxes? The answer is "It depends."

Basically, you’ll want to itemize if you have deductions totaling more than the standard deduction, which is $12,000 for single people and $24,000 for married couples filing jointly. Every taxpayer gets this deduction, homeowner or not. And most people take it because their actual itemized deductions are less than the standard amount.

But should you take it?

To decide, you need to know what’s tax deductible when buying or owning a house. Here’s the list of possible deductions:

Closing Costs:  

The one-time home purchase costs that are tax deductible as closing costs are real estate taxes charged to you when you closed, mortgage interest paid when you settled, and some loan origination fees (a.k.a. points) applicable to a mortgage of $750,000 or less.

But you’ll only want to itemize them if all your deductions total more than the standard deduction. 

Costs of closing on a home that aren’t tax deductible include:

• Real estate commissions
• Appraisals
• Home inspections
• Attorney fees
• Title fees
• Transfer taxes
• Mortgage refi fees

Mortgage interest and property taxes are annual expenses of owning a home that may or may not be deductible. Continue reading to learn more about those. 

Mortgage Interest

Yearly, you can write off the interest you pay on up to $750,000 of mortgage debt. Most homeowners don’t have mortgages large enough to hit the cap, says Evan Liddiard, CPA, director of federal tax policy for the NATIONAL ASSOCIATION OF REALTORS®. But people who live in pricey places like San Francisco and Manhattan, or homeowners anywhere with hefty mortgages, will likely maximize the mortgage interest deduction.

Note: The $750,000 cap affects loans taken out after Dec. 17, 2017. If you have a loan older than that and you itemize, you can keep deducting your mortgage interest debt up to $1 million. But if you re-fi that loan, you can only deduct the interest on the amount up to the balance on the day you refinanced – you can’t take extra cash and deduct the interest on the excess.

Home Equity Loan Interest

You can deduct the interest on a home equity loan or a second mortgage. But — and this is a big but — only if you use the proceeds to substantially improve your house, and only if the loan, combined with your first mortgage, doesn’t add up to more than the magic number of $750,000 (or $1 million if the loans were existing as of Dec. 15, 2017).

If you use a home equity loan to pay medical bills, go to Paris, or for anything but home improvement, you can’t write off the interest on your taxes.

State and Local Taxes

You can deduct state and local taxes you paid, including property, sales, and income taxes, up to $10,000. That’s a low cap for people who live in places where state and local taxes are high, says Liddiard.

Loss From a Disaster

You can write off the cost of damage to your home if it’s caused by an event in a federally declared disaster zone, like areas in Florida after Hurricane Michael or Shasta County, Calif., after a rash of wildfires.

This means standard-variety disasters like a busted water pipe while you’re on vacation or a fire caused because you left the toaster on aren’t deductible.

Moving Expenses

This deduction is also only for some. You can deduct moving expenses if you’re an active member of the armed forces moving to a new station.

And by the way, no matter who you are, if your employer pays your moving expenses, you’ll have to pay taxes on the reimbursement. “This will be a real hardship to many because it’s non-cash income,” says Liddiard. Some employers may up the gross to provide cash to pay the tax, but many likely will not.

Home Office

This is a deduction you don’t have to itemize. You can take it on top of the standard deduction, but only if you’re self-employed. If you are an employee and your boss lets you telecommute a day or two a week, you can’t write off home office expenses. You claim it on Schedule C.

Student Loans

Anyone paying a mortgage and a student loan payment will be happy to hear that the interest on your education loan is tax-deductible on top of the standard deduction (no need to itemize). And you can deduct as much as $2,500 in interest per year, depending on your modified adjusted gross income.

Ways to Increase Your Eligible Deductions

There are some other itemize-able costs not related to being a homeowner that could bump you up over the standard deduction. This might allow you to write off your mortgage interest. Charitable contributions and some medical expenses are itemize-able, although medical expenses must exceed 7.5% of your adjusted gross income.

So if you’ve have had a hospital stay or are generous, you could be in itemized-deduction land.

Also, if you’re a single homeowner, it could be easier for you to exceed the standard deduction, Liddiard says. The itemized deductions on your house will probably more quickly break the $12,000 standard deduction threshold than a couple’s similar house will break their $24,000 threshold.

Tax-Savvy Home-Buying Ideas

If you’re a prospective homeowner with an eye to making the most efficient use of your tax benefits, here are a few ways to buy smart:

• Especially in expensive areas, buy a less expensive home so you don’t hit the cap on mortgage debt and local and property taxes, says Lisa Greene-Lewis, a CPA and tax expert for TurboTax.
• If you’re buying a higher price home, make a bigger down payment so your original mortgage doesn’t exceed the $750,000 cap.

How to Decide If You Should Itemize

Though every homeowner’s tax benefits will be a little different, in the end, you’re building equity, you’ll likely make money when you sell, and you have the freedom to paint your walls any color you want and get a dog.

COPYRIGHT©  2019 CALIFORNIA ASSOCIATION OF REALTORS®

As the Weather Cools - the Market Slows Down

A good time to start hitting the real estate ads and searches on line is just as November nears. With the holidays on the minds of most people, those who have to still sell their house leave it on the market and carry on. The dedicated ones looking for a house to buy may just be able to find an opportunity in the cooler months ahead.

It's obvious from the graph that fewer sales occur in the winter months. There are fewer homes on the market and less to choose from, but it is precisely the time to keep looking and make a move if you are a  bargain hunter.

You may find yourself looking at houses over the Thanksgiving week-end, but you could still have that new house by Christmas!

The LIst Price vs. The Sale Price

This is a graph of the sales to list price ratio for houses over the last three years and to date for 2015. I thought it was interesting that the last time the majority of "over list price" sales was in 2013 and this year, 2015, is starting out with the almost identical trend.