If you’ve missed this spot it’s not too late. Making a price reduction quickly can thwart the dreaded doomed house syndrome tip the scales your way and bring a fresh batch of buyers to the bargaining table.
Continue readingDo You Plan on Spending More This Year Than Last?
You all were so accurate at predicting the school bond poll results we thought we’d send out another one to see if this year retailers will get in the black.
We’ve been out shopping for Thanksgiving and are seeing a lot of activity in the stores. That caused us to wonder if people feel confident enough about the economy, and have the wherewithal, to spend more than last year on entertaining or gifts.
Let us know what you think and maybe you’ll even get an indication if that special gift you’re after will be on sale the day after Christmas, or fly off the shelves weeks before.
New 3.8% “Real Estate Sales Tax” gets a lot of play
You may have already heard through an errant email or co-worker that hidden in the health care bill was a provision for adding a 3.8% sales tax on the sale of your home.
We’ve even been forwarded emails with the story contained in a newspaper article. So is there any truth to it? Well, sort of.
The much ballyhooed 3.8% tax in the health care bill which takes effect in 2013 is actually a Medicare tax on investment income—not a real estate tax per se. That alone might not make you feel any better but read on.
According to factcheck.org , which did extensive research, there are very limited circumstances in which this tax would be levied.
As it would apply to real estate, first your income would need to be over $200,000 a year ($250,000 for married couples filing jointly).
Now if you’re selling your principle residence, the first $250,000 of gain for single tax filers and $500,000 for those who file jointly would be exempt from taxation—as it currently stands for capital gain taxation.
The 3.8% tax would, as we understand it, apply only to the portion which might exceed this threshold. It’s also important to note that this tax is on the gain, not the sale price. So if you were to sell a home you and your spouse bought for $500,000 several years later (you need to have lived in the home two of the past five years) for $800,000, you would have a gain of $300,000. This is of course is further diminished by any capital improvements you made to the property and selling costs but to keep it simple we’ll use the higher figure of $300,000. Based on this you would still owe no capital gain tax nor would you owe the new Medicare Tax even if your income was over the $250,000 threshold because your gain was only $300,000—less than the allowable first $500,000 which is forgiven.
So several things need to happen before you would be subject to the tax:
- Your income must exceed the thresholds mentioned above.
- Your gain on the sale of your home must exceed the allowable forgiven limits.
Note that this capital gain exclusion is for your principle residence only so high wage earners who sell their investment properties would be subject to this new tax on that gain—assuming they had gain to tax.
As far as we can tell the viral nature of this email succeeded in part because it resonates with what many readers feared about the health care bill—that it would be caulk full of special interest groups’ and hidden agendas. Further exacerbating this was that many email authors added their own spin by including miscalculated and outrageous examples of how the tax would be applied. Their agenda was then further picked up by those who wish to freighted people into voting the way they would want by saying, as the email I received said, “People have the right to know the truth because an election is coming in November!â€
I couldn’t agree more and we hope this explanation is closer to that truth.
Now for the inevitable disclaimer: The information contained in this newsletter is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.
Why Are Interest Rates So Low and What Does it Mean to Me?
Whether you are thinking of buying or already own a home the current historically low interest rates may help you save thousands of dollars.
Rates in the last week have averaged the lowest point since records were first kept over 30 years ago. Refinancing today may help you save hundreds of dollars in monthly interest payments but even more important are the long term savings.
Rates are low right now because the financial crisis in Europe is driving the appetite for U.S. bonds which in turn raises the price and lowers the yield (interest) payment. And since mortgage rates roughly track the 10 Year Treasury Bond you can see where rates are headed and why. Rates are the lowest they’ve been–period.
If you think about the past 30 year trend of interest rates, which have averaged around 9%, it’s easy to guesstimate that the odds are good rates will be higher in the future rather than lower. What does that mean to you? If you are considering a purchase it means that there are two ways to look at it: if you buy a home at today’s rates either your monthly payment will be substantially lower or you can buy a considerably larger home for the same amount of money. In fact a payment on a $1,000,000 home ($800,000 loan) would be around $4,234 per month as opposed to $6,437 at the average historic 9% rate. But that doesn’t even begin to tell the whole story.
Not everyone stays in their home for 30 years but this offers up a substantial savings in interest payments. Most people aren’t aware of the long term costs of home ownership so you’ll be interested to note that at today’s rate your total interest payments over 30 years would total $725,000 and at the historical 9% rate it would be as high as $1,517,000–over double the interest payment for the same home. What could you do with an extra $793,000?
Perhaps rates will never be as high as they were back in the late 70’s and early 80’s but rates have still averaged 6.7% over the last 15 years during a time of historically low rates.
Now combine this with the recent decrease in home values and it’s hard to argue that waiting to buy a home will significantly benefit you.
Case-Shiller study finds Bay Area Home Prices up 11.9% in February 2010
Case-Shiller released their report on repeat sales pairs for the 20 major MSA’s (Metropolitan Statistical Areas) across the country. San Francisco faired rather well, climbing 11.9% over last year in February. Phoenix lost another 1.64% but faired far better than Tampa Bay, which sank another 6% over last year.
No doubt many of these areas saw sales figures buoyed by the Federal Tax stimulus plan that rebates first time home buyers up to $8,000 and resale buyers up to $6,500. Additionally, the shifting of the majority of sales from lower priced homes to a more even mix has helped raise the median price point substantially.
Mid Peninsula Housing Trends–2009
What happened in 2009 and what might be in store for 2010?
THE PAST
The median price in San Mateo County ended the year at $678,750 which is a dramatic drop from 2008’s year-end median price of $795,000. It continued to drop precipitously throughout the beginning of 2009, though it appears that January of 2009 was its lowest level when the median price reached $553,750—the median price has not been that low since 2000.
It wasn’t until April of 2009 that the median price reached the $600,000’s and the last four month have seen small but steady increases culminating in December’s median price of $750,000. But don’t read too much into these increases. Much of the median price increase is a result of larger homes selling do to the low interest rates and higher conforming limits.
Belmont and much of the mid-peninsula were less affected by the declines. The median price in Belmont dropped from $920,000 in 2008 to $833,725 in 2009 (9.4%). There are several factors which contributed to mid-peninsula cities faring better in declining markets.
THE BACK STORY
Beginning around 2001, many first time buyers entered the market with very little cash and qualified for adjustable teaser rate loans at an artificially low interest rate. Zero down financing meant that that if prices were to drop, they’d be in a negative equity position, making it impossible to refinance out of their adjustable loan. When the banks allowed people to qualify for a loan based at the artificially low teaser rate, when rates adjusted many could no longer make the minimum payment. Without the ability to refinance into a new loan, they were forced into foreclosure.
There are far fewer entry level homes in many of the mid-peninsula communities (Redwood City excepted). Therefore, these cities were spared the bulk of the foreclosures and resulting price declines. Furthermore, many people in these communities have ample equity from previous home sales and were able to refinance, or sit on the sidelines and avoid a distress sale.
THE FUTURE
We won’t pretend to have a crystal ball, so we’re not going out on a limb to try and predict the future. The real estate landscape has changed dramatically in the last several years and how it will shake out is anyone’s guess. But what we imagine could be a probability is that in 2010 will see much more of the same. We expect the record number of foreclosures which have been temporarily withheld from the market to be released and continue to put downward pressure on prices—especially in areas which have yet to be affected. Interest rates are sure to climb above their historical low levels making the cost of home ownership rise. This could easily offset any momentum which could otherwise spur normal home sales. Investors will continue to snap up good deals on distressed properties causing the number of sales to increase, but the median price to decrease, or stay flat. In fact, we wouldn’t be surprised to see a period of flat home prices for many years before any appreciable increase. People will first have to return to the job market before they will consider buying a home. Frustratingly, home sales have a huge effect on creating jobs so it’s easy to see why the government wants so desperately to have people buy a home (and extended the $8,000 tax credit). Once more people are being hired than fired consumer confidence will begin to slowly return. Folks will invariably reenter the housing market but at a less frenetic pace. Lasting memories of the “Great Recession†will haunt many homebuyers; and with higher interest rates and the days of easy money gone, it will be harder for prices to climb at rates seen in the first decade of the new millennium.
Don’t forget you can always check out the stats for a city near you on our web page.
HOUSING REFORM-2009 Panacea or Panic?
The news is full of housing reform stores but the shelf life for reform legislation seems shorter than that of freshly baked bread—what made the news just yesterday is often obsolete by today.
We expect 2009 to be a turbulent time in real estate. Knowing how to weather the storm is paramount to the survival of homeownership.
Key Elements
President Obama signed a $787 billion stimulus bill which includes many features to protect homeownership.
These are a few of the incentives targeted to help 4-5 million responsible homeowners stay in their homes:
\\· Provide access to low cost refinancing where borrowers who have less than the required 80% loan-to-value could refinance to lower their monthly payment.
· Seventy-five billion will be spent on homeowner stability initiatives to help struggling homeowners who, because of the recession, are hard pressed to make their mortgage payments and cannot afford to sell or refinance their home due to a drop in value.
· No aide to speculators. The initiative has no provision for assisting investors or speculators.
· Provide support for homeowners who are at imminent risk of default before they miss a payment.
· Provide loan modifications to bring monthly payments to sustainable levels.
· â€Pay For Successâ€â€”Initiative for loan servicers to receive $1,000 per month each month a borrow stays current on their loan.
· “Help Borrowers Stay Currentâ€â€”Provides a $1,000 per month reduction in a home owners’ principle loan balance for five years if the borrower keeps their payments current.
· “Reaching Borrowers Earlyâ€â€”An incentive of $500 to loan servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrow falls behind.
· “Home Price Decline Reserve Paymentsâ€â€”Holders of mortgages modified under the program would be eligible for an additional insurance payment (from a newly formed entity under the Treasury Department) on each modified loan to offset declines in the home price index.
There are quite a few more initiatives to help homeowners. Though many do not apply to the majority of the loans on the Peninsula since they are not held by Fannie Mae or Freddie Mac.
Lenders Are Worried.
Recently, many lenders have been modifying loans without incentives just to keep their head above water. However in contrast to the President's incentive plans, many banks require the homeowner to be months behind in payments before any relief is possible.
►If your mortgage is scheduled for an interest rate increase which you feel you may not be able to afford, we encourage you to contact your mortgage holder immediately and see if they will modify your existing loan. It’s in everybody's best interest if homeowners can continue to make their monthly payments, even if it takes a loan modification to make it happen.
Belmont’s Beautiful Mountain Blog Revisited
In 2008 we began several new series on our blog site. Most of our content centered around the turbulent real estate market on the Peninsula, but we also endeavored to comment about the market in general and small town happenings in Belmont.
Some of our posts simply required too much time away from the business of selling homes, and we’ve decided to eliminate a few of those.
What we will be discontinuing is the weekly update of new listings and sales. Rather, we encourage you now to subscribe to our automated system for getting listing alerts in real time—including new listings and recent sales; we just felt that we were being a little redundant and this trade-off will allow us more time to concentrate on our business.
You can still count on getting a monthly wrap-up of homes that have sold. We feature Belmont home sales in detail on this blog site and you can always get surrounding cities and the entire San Mateo county stats at our MorganHomes.com web site under “How’s the Marketâ€; we also implemented the Fusion style graphs that are more interactive and interesting.
We’ll continue to add occasional posts in our series “Frequently Unasked Questions†whenever we stumble across an issue we think you should know about, and probably don’t.
The Podcasts we began in 2008 will still be around when we want to discuss the market in general and we hope that you continue to stay tuned to those.
We think this more focused and succinct blog format will help our readers get the real estate information they want, and know that they can rely on our regular posts whicht have attracted the most readership.
Thanks for being patient as we enjoy an exciting 2009.
Real Estate re-cap–2008
Before we wrote this year’s forecast, we went back and re-read our assessment of where the market might be headed in 2008.
Of course very few people could have predicted that the dire real estate woes would drag the entire economy to the brink of collapse and we were no better than most.
However, for your enjoyment we’ve clipped a segment out of our 2008 market forecast made on January 4th 2008—and highlighted some of our more interesting comments:
“This is precisely why the Peninsula should fare better than other areas [in 2008]â€.
“However, it’s entirely possible we are on a precipice which could collapse at any time. What is [currently] impacting the Peninsula is the rising cost of energy—especially gasoline.â€
“What could have an incalculable impact would be a prolonged recession and loss of local jobs; either of these would undoubtedly bring a decrease in home values to the Peninsulaâ€.
In 2008, Investors eventually began to snap up undervalued properties in the central valley and a few of the nine bay area counties which were hard hit by foreclosures. This had the desired effect of liquidating the tidal wave of inventory but the undesirable effect of sinking the reported median price by skewing the sales mix to smaller homes (since smaller homes and distressed properties sell for less). The media meanwhile continued its relentless reporting of the falling median home price without appreciable application of responsible journalism. Bombarded by the media’s lack of analysis, invariably many buyers were frightened by the reports of falling home values and quite reasonably and expectedly took a “wait and see†attitude. That’s not to say the media’s information was wrong, but they do choose what to report and what to leave out and in many cases they reported numbers without the necessary perspective leading many to believe the housing situation to be far worse than it was in some areas, and far better than it was in others.
Although clearly there were several other factors which inhibited the ability of people to purchase homes—not the least of which was tighter lending standards and higher interest rates—our intrinsic evidence suggests that most credit worthy buyers on the Peninsula withheld from purchasing a home based on the fear of values spiraling down, not because they wanted to wait and “time the absolute market bottom†or couldn't get a loan.
Market Update-11.24.2008
Drew & Christine Morgan
Housing Update–November 2008 | (650) 508-1441 | |||||||
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