It Can’t Hurt to Wait, Can It?

Wait signIt’s been said that more money has been lost due to indecision than was ever lost because of a bad decision. Regardless of whether you agree with the statement, delaying the decision to buy in today’s market is going to cost the buyer more. 

Home prices have gone up considerably in almost every market in the country in the past year and while inventories are beginning to grow, prices are expected to continue to rise. Mortgage rates jumped 1% from the beginning of May to now. They could easily reach 5% by the end of the year and continue to rise in 2014.

Many of the financial experts in the country believe that the economy will not be strong until rates are in the 7% area.

The two components that move the cost of housing are price and mortgage rates. Escalation of either one will have an affect but when both are going up simultaneously, it is dramatic. It can literally eliminate buyers who could have purchased earlier.

The following example shows what would happen to the payments on a $200,000 home if the price were to go up 3% at the same time that the mortgage rates went up 1%. Not only would the payments go up by $150.81 per month, the price of the home would be $6,000 more. Even though the down payment may not change much, the new owner would have to borrow more money. By not acting, it is costing them more in price and payment. The loss of the appreciation would have been equity had they purchased prior to the rise in price. With the median price of a detached home in San Diego County coming in at $429,750 as of last month, a 3% price increase would cost the buyer even more.

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Check out the Cost of Waiting to Buy to see what the effect will be using your own projections.

Housing Statistics Report for San Diego County and North San Diego County July 2013

Prices continue to increase, and inventory is still tight in North County and San Diego County as a whole. Here is a snapshot of the June housing reports with links to both the full statistics for San Diego County and North San Diego County.

  • The median price for all North County home sales – attached and detached – increased to  $495,000 in June 2013 compared to $485,000 in May 2013.
  • Detached homes in North County rose 1.71 percent in June 2013 to $565,000 compared to $555,500 in May 2013. June 2013 was the highest reported SFD median prices in North County since January 2008.
  • Year-over median SFD price in North San Diego County jumped 20.21 percent, compared to $470,000 reported in June 2012.
  • The countywide median SFD price increased 2.32 percent to $429,750 in June 2013 compared to $420,000 in May 2013.
  • Year-over non-North County median price jumped 23.49 percent compared to $348,000 in June 2012, a 15-month trend of year-over median price increases.
  • The number of North San Diego SFD listings (active and contingent) rose 5.97 percent in June 2013 compared to May 2013.
  • The number of sold North San Diego County SFD units decreased 5.76 percent in June 2013 compared to May 2013. Year-over sold SFD units decreased 0.88 percent compared to June 2012.
  • Median days-on-market for single-family detached homes sold in North County increased to 19 days in June 2013 compared to 18 days in May 2013.
  • The HomeDex affordability percentage for all homes in North San Diego County remained at 34 percent in June 2013.

JULY 2013 FULL County HomeDex Report

JULY 2013 NORTH COUNTY HomeDex Report

Information taken from HomeDex™ Copyright © 2012 by the North San Diego County Association of Realtors (NSDCAR). Used by permission.

When Rates Go Up

FreddieMac PMMS 2013.pngRising interest rates are great if you are renewing a certificate of deposit but not so much when you’re borrowing money. With interest rates on the rise as well as home prices, housing affordability is a concern for would-be homeowners.

A rough rule of thumb is that a person’s or family’s housing should not exceed 28% of their monthly gross income. While rental rates and home prices have been consistently increasing, mortgage rates have been soaring in the past month. In one week, according to the Freddie Mac Primary Mortgage Market Survey, they jumped by .5%.

This means that people have to pay a larger percentage of their income for housing unless their incomes have been increasing at an equal pace.  A $200,000 mortgage would be over $100 more per month if closed in July compared to closing at the interest rates available in January of 2013.

If rates increase by .5% by the time you close on the same size mortgage, payments would increase by almost $60 per month. In order to keep the payments the same, a borrower would have to put an additional $11,000 down to lower the mortgage amount. 

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Check out how your payment would be affected if interest rates continue to rise.

Although The National Association of REALTORS® suggests that housing is more affordable now than one year ago, according to the California Association of Realtors® that is not the case in California. Their May 2013 statistics show the largest year-over-year price gain in at least the last 33 years. Also, with all of the variables in play including inflation that were not addressed in this piece, it is unclear how long conditions will remain “affordable.” 

Housing Statistics Report for San Diego County and North San Diego County June 2013

Prices are moving up, and inventory is still tight in North County and San Diego County as a whole. Here is the North County snapshot of the May housing report with a link to both the full statistics for San Diego County and North County.

• The median price for all North County home sales – attached and detached – increased to $485,000 in May 2013 compared to $470,000 in April 2013.

• Detached homes in North County rose 3.83 percent in May 2013 to $555,500 compared to $535,000 in April 2013.

• Year-over median SFD (single family detached) price in North San Diego County jumped 23.72 percent, compared to $449,000 reported in May 2012.

• Spring 2013 has reported the highest median prices in North County since mid-2008.

• The countywide median SFD price increased five percent to $420,000 in May 2013 compared to $400,000 in April 2013.

• Year-over non-North County median price jumped 21.74 percent compared to $345,000 in May 2012, a 14-month trend of year-over median price increases.

• The number of North San Diego SFD listings (active and contingent) rose 5.35 percent in May 2013 compared to April 2013.

• The number of sold North San Diego County SFD units increased 11.49 percent in May 2013 compared to April 2013. Year-over sold SFD units increased 12.54 percent compared to May 2012.

• Median days-on-market for single-family detached homes sold in North County decreased to 18 days in May 2013 compared to 19 days in April 2013.

• The HomeDex affordability percentage for all homes in North San Diego County decreased to 34 percent in May 2013, compared to 36 percent in April 2013.

JUNE 2013 FULL County HomeDex Report

JUNE 2013 NORTH COUNTY HomeDex Report

Information taken from HomeDex™ Copyright © 2012 by the North San Diego County Association of Realtors (NSDCAR). Used by permission.

Renters Want to Buy

FNMA NHS.pngFannie Mae, in a recently released study, states that consumer attitudes continue to be favorable about homeownership, particularly with the younger generations, ages 18 to 34. Slightly over half of them think that owning makes more sense than renting when comparing the financial and lifestyle benefits.

90% of aspiring owners expect to purchase a home someday and slightly over half think they’ll do it within five years. The primary challenges are having sufficient savings and the difficulty of getting a mortgage today. Younger renters see renting as a temporary stepping stone toward homeownership.

Homeowners are far more likely than renters to be “very positive” about their housing experience. Some of the benefits identified are:

• Having control over what you do with your living space
• Having a sense of privacy and security
• Having a good place for your family or to raise your children
• Having the best investment plan
• Living in a nicer home
• Building up wealth
• Saving for retirement
• Living in a place where you and your family feel safe
• Feeling engaged in your community

To satisfy a buyer’s doubts about qualifying for a mortgage, make an appointment with a trusted mortgage professional. If you’d like a recommendation at no cost or obligation, please contact me at SanDiegoRealtor@cox.net.  Check out this Rent vs. Own to see the real cost of owning a home.

For more information about the Fannie Mae survey in presentation form, Click Here.

 

Last-Minute Amendment Holds SB 30 Hostage to Passage of SB 391

This article came to me a few days ago from the CALIFORNIA ASSOCIATION OF REALTORS.

LOS ANGELES (May 23) – This morning the Senate Appropriations Committee approved Senate Bill 30 (R. Calderon), which would extend existing provisions of state law protecting homeowners from having to pay income tax on a “short sale.” SB 30 is sponsored by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

However, in a surprise amendment, SB 30 was linked by the committee to another bill that REALTORS®, as well the county recorders, assessors and title industry, oppose. That measure, Senate Bill 391 (DeSaulnier), would establish a $75 per document recording tax to fund an affordable housing trust fund. C.A.R. is opposing SB 391 because it unfairly adds to the cost of recording real estate documents. The amendment holds SB 30 hostage to the passage of SB 391.

“Families that are forced to make the difficult decision to sell their home as a short sale are already in financial trouble. And, that financial trouble may be due to a serious illness and/or loss of employment. They simply can’t afford to pay an additional tax on money they’ve never actually received,” stated C.A.R. President Don Faught. “I’m outraged — as should the voters of California — that the Senate leadership would approve linking the fate of SB 30 to that of SB 391, effectively holding California property owners hostage.”

Short sales have become an increasingly important alternative to foreclosure for homeowners “underwater” on their mortgage. Without special protection, federal and state law would view the debt forgiven by a lender in a short sale as income and, as a result, that “income” would be taxed. In recent years, state and federal law has been amended to keep this “phantom” income from being taxed, but California protections have not been extended. Consequently, C.A.R. is sponsoring SB 30.

While SB 391 does not apply to sale transactions, the measure applies anytime a home/property owner records a document (e.g., refinancing, transferring into or out of a trust, liens, quit claim deeds, etc.). C.A.R. is an aggressive advocate for affordable housing, but believes it is bad policy to fund affordable housing at the expense of home/property owners who need to record real estate documents. The amendment to SB 30 attempts to extort support for the new tax on homeowners in SB 391.

Housing Statistics Report for San Diego County and North San Diego County May 2013

I can’t speak for the rest of the country, but here in San Diego County we are experiencing low inventory, short market times and rising prices. Here is a snapshot of the April housing report along with two links to the full reports for both San Diego County as a whole and the North County area.

• The median price for all North County home sales – attached and detached – increased to $470,000 in April 2013 compared to $448,000 in March 2013.

• Detached homes in North County increased 1.9 percent in April 2013 to $535,000 compared to $525,000 in March 2013.

• Year-over median price in North San Diego County jumped 27.38 percent, compared to $420,000 reported in April 2012.

• April 2013 marked the highest price increase in North County since mid-2008.

• The countywide median SFD price increased 1.27 percent to $400,000 in April 2013 compared to $395,000 in March 2013.

• Year-over non-North County median price jumped 17.73 percent compared to $339,750 in April 2012.

• The number of North San Diego SFD listings (active and contingent) rose 0.76 percent in April 2013 compared to March 2013.

• The number of sold North San Diego County SFD units increased 9.03 percent in April 2013 compared to March 2013. Year-over sold SFD units increased 8.91 percent compared to April 2012.

• Median days-on-market for single-family detached homes sold in North County fell to 19 days in April 2013 compared to 26 days in March 2013.

• The HomeDex affordability percentage for all homes in North San Diego County decreased to 36 percent in April 2013, compared to 39 percent in March 2013.

May 2013 NORTH COUNTY HomeDex Report
May 2013 FULL COUNTY HomeDex Report

Information taken from HomeDex™ Copyright © 2012 by the North San Diego County Association of Realtors (NSDCAR). Used by permission.

Shifting Debt to Tax Deductible

shift debt.pngThe Mortgage Interest Deduction is available to homeowners for up to $1,000,000 of acquisition debt on the combination of their first and second home.  They can also deduct interest on up to an additional $100,000 of Home Equity debt.

While Acquisition Debt is used to buy, build or improve a principal residence, the Home Equity Debt can be used for any purpose.  It can be used for educational or medical expenses, to purchase a personal car or boat, consolidate debts or pay off credit cards.

A homeowner with $15,000 of credit card debt at 19% and sufficient equity in their home could replace it with a home equity loan at much lower interest rate. Not only would the interest rate on the home equity loan be about 1/3 of the rate paid on the credit card, it’s would now be tax deductible.

If the taxpayer was in the 28% bracket, the net interest on a 6.5% loan would be 4.68% after tax benefits are considered.

Shifting personal debt to Home Equity debt can result in an interest deduction and probably, a lower interest rate. For more information see IRS Publication 936 page 10 and consult your tax professional.

When to Sell the Temporary Rental

Temporary Rental2.pngSome homeowners, who were not able to sell during the recession, chose to rent their homes instead.  In some cases, they didn’t need to sell their home at the depressed prices and opted to rent it until the market recovered.

It’s a valid strategy but there are time restrictions that could have serious tax implications for some homeowners.

The section 121 exclusion for gain in a principal residence requires that the home is owned and used as a main home for at least two years during the five year period ending on the date of the sale.  This allows a homeowner to rent their home for up to three years and still have some part of the exclusion available.

The sale of a home with a $200,000 gain that qualifies as a principal residence would result in no tax being paid by the owner.  Comparably, a rental property with the same gain could have a $30,000 or higher tax liability depending on the length of ownership and tax brackets of the investor.

The housing market has dramatically improved in the last year.  If you have a gain in a home that has been your principal residence and it has been rented less than three years, you might want to consider selling it while you qualify for the exclusion.

If you are considering a sale on your principal residence that has been rented, consult with your tax professional for advice on your specific situation.  For additional information, see IRS Publication 523.

Boomerang Buyers

Waiting periods.pngIt’s estimated that 10% of the homes sold in 2013 will be to buyers who lost a home in the past five years.  Approximately 500,000 buyers who may have thought they wouldn’t own a home anytime in the near future will be homeowners again.

It’s estimated that several million of these previous homeowners will purchase again in the next eight years.  This kind of activity will contribute significantly to the housing recovery.

Some people thought that the housing crisis would cause a shift in values placed on owning a home but the boomerang buyers definitely don’t support that theory.  Having a home of your own, where you can raise your family, share with your friends and feel safe and secure is still part of the American Dream.

The rising rents, increasing prices and low, low mortgage rates are also influencing buyers into the market.  In many cases, it is cheaper to own that to rent.

All new buyers, including those who have experienced foreclosures or bankruptcies, must have good credit history and the ability to repay the loan.  It just may not take as long to reestablish the credit as some would-be buyers might have thought.

Read more about Bidding Wars This Spring, Spring’s Wild Card and Boomerang Buyers.