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

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®

REALTORS® Confidence Index

The REALTORS® Confidence Index is a key indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices and market conditions. In addition, the "Questions of the Month," feature results of a timely aspect of the housing market.
Note: the REALTOR® Confidence Index is provided by NAR solely for use as a reference. Resale of any part of this data is prohibited without NAR's prior written consent.

Highlights

• Properties were typically on the market for 26 days (29 days in April 2017).

• First-time buyers accounted for 33 percent of sales (34 percent in April 2017).

• Cash sales made up 21 percent of sales (21 percent in April 2017).

• REALTORS® report “low inventory”, “interest rates”, and “multiple offers” as the major issues affecting transactions in April 2018.

Where in the U.S. are properties selling fastest?

In Which States Did Properties Sell Most Quickly in October 2017?

Posted: 30 Nov 2017 06:23 AM PST

Amid strong demand and tight supply, REALTORS® reported that properties that sold in October 2017 were typically on the market for 34 days in October 2017, down from 41 days compared to October 2016, according to the October 2017 REALTORS® Confidence Index Survey.[1]
During the August–October 2017, properties sold in less than 31 days in 18 states and in the District of Columbia, with properties selling most quickly in these areas: Washington (22 days); Nevada (23 days); Colorado (25 days); Massachusetts, the District of Columbia, California, Minnesota, and Utah (25 days), Kansas, Nebraska, Tennessee, and Oregon (26 days); Texas, Georgia (28 days), Indiana, Kentucky, Iowa (29 days), and South Dakota, Wyoming (30 days).

According to Realtor.com data, properties sold most quickly in the metro areas of San-Francisco-Oakland-Hayward (31 days), San Jose-Sunnyvale-Sta. Clara (31 days), and Seattle-Tacoma-Bellevue (37 days). Properties sold quickly within 45 days in other metro areas in California, Washington, Utah, Tennessee, Colorado, Arizona, Idaho, Minnesota, Wisconsin, and Massachusetts.
Amid tight supply, the median days on market have been broadly on a downtrend since 2011 when the properties typically were on the market for three months from May 2011, when this question was first asked in the RCI Survey, through March 2012.

Exchanges can have a lot to “like”

Like-kind exchanges, or in IRS talk “IRC Section 1031” is an investors dream come true. 

Whenever you have an investment that has gone up in value from the time you bought it to the time you sell it you pay a capital gain tax on the profit. Unless you choose to defer that gain by using the “1031 like-kind exchange rule” IRC Section 1031 allows you to defer the gain on an investment by using the money gained to buy another similar property. This is not a tax free exchange – but it does put off paying that tax until a later date.

Both personal and real property can qualify for an exchange. However, the rules for personal exchanges are far more strict.  To accomplish a Section 1031 exchange, there must be an exchange of properties.  The simplest type of Section 1031 exchange is a simultaneous swap of one property for another. This is usually done with the help of an intermediary who knows all the rules required by the IRS. Most importantly the timelines; From the time you sell the one property you have 45 days to identify an exchange property and 180 days to complete the purchase. Meanwhile, you cannot take any of the gain or it becomes a taxable event. It is possible to take some cash and invest the rest – just know that you will pay tax on whatever you take out of the exchange and don’t take that cash before the exchange is complete or the whole deal can be blown!

It may sound somewhat complicated but believe me, this has been one of the best investor vehicles for deferring the dreaded capital gains tax. I am not a tax consultant – thank goodness, but if this sounds interesting to you, I can put you in touch with a very experienced intermediary and/or tax consultant that together we can walk you through the whole process from beginning to end.

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 New Lending Process

A new set of lending rules have been put into place by the Consumer Financial Protection Bureau as of October 2015. The feds are trying to make it as clear as possible for the general public to read and understand what they are getting, and getting into, when taking out a loan to buy a house or other real estate.

There are now two main things for consumers to read and understand; 1) what the loan conditions are and 2) what it's going to cost you to borrow the money. These are called the Loan Estimate and the Closing Disclosure. These two documents replace the four documents consumers used to have to read and decipher - often having repetitive information that made you wonder if you had read it correctly or if you might be misunderstanding the whole thing. The "loan estimate" gives the consumer a better tool for comparison shopping - and that is an important thing to do before signing on the dotted line. This has to be given to the borrow within three days of receiving their application.

Other tools available are online here. Like the "Know Before You Owe" toolkit as well as the loan estimator and closing disclosure tools.

I always advise buyers to be prequalified for their loan before they step one foot in a potential house to buy. There is nothing worse than thinking you can afford "X" and finding out you really can only afford "X-$50,000."

The new mortgage rules should make things easier - though maybe not at first for lenders getting used to the new rules. Just as consumers are well informed on real estate, so too they should be well informed on lending.

The Santa Cruz County Housing Market Update

Not too much has changed in the last few months regarding our housing market. We have been experiencing a low inventory of single family homes for sale for over three years now. A small change is that fewer homes are selling from year to year. Over 2,000 in 2012 and fewer than 1,900 in 2014.

The median price has climbed, but that is relative to which price range homes are selling in. If you take a look at the graph below you can see that homes in the $200k- $600k price range dominated in 2012, while by 2014 the $600k- $800k homes are the major players. The over $1Mil homes sales has almost doubled in the last 2 years. Either there are no more homes to sell in the lower price ranges, OR those lower priced homes have experienced a push in their prices due to the lack of inventory.  I strongly believe it is the later of these two scenarios.

Santa Cruz County SFR sales

We have been experiencing multiple offer situations for a long time now. It’s almost common place, especially if a home is priced right and prepared well for the market. The buyer pool has been strengthened by the lowering of interest rates and the building economic confidence. Being so close to Silicon Valley does affect our market. The prices and demand “over the hill” has increased to cause an overflow into the Santa Cruz area; this is for buyers looking for their primary residences as well as a second or vacation home.

The “seller’s market” has remained healthy. The most popular homes are those that are prepared well for sale. The single level homes are well loved especially by the aging group of baby boomers. Properties with a second unit are also attracting a lot of attention due to the versatility it offers; extra rental income or living space for family or friends.

All in all, I expect 2015 to be a busy year. It’s a good time to buy a home (lower interest rates and stronger salaries) – but it is also a good time to sell a home (see above.)  That being said we will see what I have to report come mid-summer.

Are You Better Off Renting… Or Not?

There is a time to rent and a time to buy. Figuring out which is best for you and your situation means getting out the calculator and doing some math.

When you first make the move out of your parent’s home and into your own place, the logical decision is to rent a place. A few years later and probably things have changed. Life gets busy and you might forget to re-evaluate that monthly rental payment. It just might not be the best use of your money. 

Realty Trac reports that one-third of Americans currently reside in a housing market where leasing a three bedroom home costs more than 30 percent of the monthly median income, which is normally considered the benchmark for affordability of owning a home.

Half of American renters give up more than 30% of their income on leasing. That’s up from 19 percent a decade ago.  The number of Americans renting has increased in the last 10 years and the median national rent has also increased. 

Here’s where you have to do your homework. Compare your place to other places that are similar and first determine if you are paying market rent. If so, is your rent more than 30% of your income? If you are under the 30% benchmark, but are still feeling squeezed every month (and let’s be honest here), then could it be worth compromising on location or quality in order to own your own home? If you are on the fence it might be worth it for you to run some numbers. 

1. Find two similar homes, one for rent and one for sale. 
2.  Divide the sale price of the one by the annual rent of the other;
3.  Sale Price/ Annual Rent = Price per Rent Ratio
4.   A PRR of 1-15 is a sign that it might be better to buy than rent.
5.    A PRR of 16-20 suggest it might be better to rent than buy
6.    21 or more means renting might be best.

Reasons to buy include:

•     Stable Income
•    Available cash for a down payment and extra for emergencies.
•    Plan to stay in the house for a minimum of three years.
•     Enjoy tax deductions available to homeowners.
•   Expected home value increase.

In addition to the financial reasons outlined above, owning a home gives you security in knowing that you can move when you want to move, and not when your landlord determines it. The ability to remodel or re-decorate on your own terms. Pride of ownership that renting just can’t satisfy.