Friday, December 20, 2013
3 Big Reasons Why Home Sales Are Falling
DAILY REAL ESTATE NEWS | FRIDAY, DECEMBER 20, 2013
Existing-home sales dropped in November, falling 4.3 percent from October sales, and marking the first time in more than two years that home sales are below year ago levels, the National Association of REALTORS® reports.
What’s behind the drop in sales? NAR’s chief economist Lawrence Yun pinpoints three main factors: Higher mortgage rates, constrained inventories, and continuing tight credit.
1. Higher mortgage rates: The 30-year fixed-rate mortgage is up nearly a full percentage point in the past year, causing home buyers to face an increase in borrowing costs. The 30-year fixed-rate mortgage increased to 4.26 percent in November compared to a 3.35 percent average in November 2012, Freddie Mac reports.
The Federal Reserve announced this week that it would begin winding down its bond-buying stimulus program next month, which is expected to result in higher mortgage rates. The average 30-year fixed-rate mortgage could likely rise to 5 percent or 5.5 percent next year, Yun notes.
2. Tight credit: New rules defining Qualified Mortgage will take effect soon, and could leave more borrowers on the sidelines. “New underwriting rules to protect borrowers, effective in January, will prohibit many loan features, set tighter limits on the amount of debt a borrower can have and still get a mortgage, and require that lenders accurately measure a borrower’s ability to repay,” says Steve Brown, NAR’s president. “This means that qualified borrowers are getting a loan that they are very likely to be able to repay, but some borrowers may wind up paying much more for their mortgage, or not get a loan at all due to the tougher standards. The new rules may tighten credit too much, but we’re hopeful regulators will make adjustments if this proves to be true.”
3. Constrained inventories: Housing inventory in November fell 0.9 percent to 2.09 million existing homes available for sale. The total housing inventory represents a 5.1-month supply at the current sales pace, NAR notes. One factor is a shrinking number of distressed homes – foreclosures and short sales. Distressed homes accounted for 14 percent of November sales compared to 22 percent in November 2012, NAR notes.
“There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction,” Yun notes. “As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”
The national median home price for existing-homes was up 9.4 percent year-over-year in November, averaging $196,300 nationwide.
Wednesday, December 18, 2013
Real Estate Matters | Don’t rush home upgrades just to get a tax credit
Robert F. Bukaty/ASSOCIATED PRESS)
I have a furnace and a roof that will need replacing in the next year or two. Do you recommend I rush to do this before the end of the year for the tax credit?
One roofer told me the amount of tax credit was not worth it. One HVAC installer told me it only applies to a total system replacement (heat and air). I’d appreciate whatever guidance you can provide.
Every year, for at least the past seven years, Ilyce has had three tax experts come on her show before the end of the year to discuss what’s new with regard to taxes and what consumers should look out for. The experts are Bill Nemeth, Chet Burgess and Merry Brodie. They are all enrolled agents (EAs), which are tax preparers who are licensed to represent taxpayers before the IRS.
To answer your question, we went directly to the source, Bill Nemeth. He wrote that the “maximum tax credit is $300 on the purchase of a qualifying HVAC system (assuming you did not get credit for other energy-saving expenditures since 2006). For reference, the credit was formerly $1,500 for energy-saving devices.”
Further, the roof replacement you are considering “only qualifies for the energy credit if it is made up of white shingles (usually a bad thing since the white shingles will quickly turn green from the normal weathering of the roof) or if it is metal,” he wrote.
Bill said that he and Merry replaced their roof several years ago and found the contractor by consulting Angie’s List. “We were delighted with the price and the quality of work of the contractor, which took just one day to start and finish. Our neighbor replaced his roof in the same month with some ‘guys.’ They were at it for several weeks and the workmanship was not on a par with our roof.”
The problem with rushing to take advantage of a tax credit (which is a dollar for dollar reduction in your taxes, compared with a tax deduction, where you get a percentage savings), is that the maximum amount of the tax credit is limited. You won’t be able to take advantage of the entire amount if you rush to get it done before the end of the year, and you might actually lose money by replacing mechanical systems that still have some life left in them.
Rather than rush into an HVAC install/upgrade, Nemeth recommends that you take some time to study the available alternatives to reduce your costs. Some utility companies will rebate you 10 percent of the purchase price of energy-efficient HVAC, for example.
“The hard lesson we learned first-hand is to check out the various companies offering you the HVAC system. We thought that all companies are pretty much the same — not so. The young kids that installed our new HVAC heat pumps had never installed one before — it took four visits by a senior technician after they left to get it working. When they installed the units, they set it up to use the strangest size filter,” Nemeth recounted.
His advice, which is has nothing to do with taxes but everything to do with being a satisfied consumer, is a good one: Consult with a number of companies and be sure to check references before you decide which company to use for the purchase and installation of your HVAC system.
“We went with a brand name (system) but the install was terrible, and we continue to live with this terrible install, probably until we sell the house,” he added.
And we’ll say this: It’s never a good idea to rush on a big purchase just to get a tax credit. Because the price of living with a bad system or a terrible install over the years is just too high, even if you get a small tax credit as an offset.
Tuesday, December 10, 2013
Monday, December 9, 2013
Rental Demand Slowing, Except in These Areas
DAILY REAL ESTATE NEWS | MONDAY, DECEMBER 09, 2013
Harvard’s Joint Center for Housing Studies released its biennial housing report today, offering predictions for the U.S. rental market in the next two years. While the study finds that growth in demand for multifamily housing will slow its pace within the next few years, demographic forces alone will mean an increase of between 4 million and 4.7 million renters over the next decade.
The report gives voice to some anxiety about possible overbuilding, noting that long development periods in multifamily housing make it harder to determine the actual volume of new multifamily housing coming onto the market. The study also finds that “vacancy rates do appear to be bottoming out and rent increases are slowing in many markets, suggesting that supply and demand are moving into balance.” Still, there are two areas where rental availability is far lower than demand: Low-income rentals and affordable senior housing.
The report notes that the “growing number of seniors on fixed incomes is likely to outstrip the limited supply of affordable rentals. With the number of families with children also on the rise, demand for larger rental units will increase as well, particularly in communities with access to good schools and employment centers.”
Yet while demand is growing, so too are rents, putting further pressure on these groups. For the first time, more than half of all U.S. renters spend more than 30 percent of their income on rent. Between the year 2000 and 2012, real median rents (adjusted for inflation) increased by 6 percent across the country. During the same period, the real median income of renters dropped by 13 percent. The report also says that the private market is struggling to keep up with the growth in demand in this demographic.
The study’s authors note that the deficiency in low-income rental options is growing faster than it has in previous years.
“The shortfall in the number of units affordable to extremely low-income renters in the U.S. more than doubled from 1.9 million in 2001 to 4.9 million in 2011. The situation just keeps getting worse,” says Chris Herbert, Research Director at the Harvard Joint Center for Housing Studies. “For many low-income families, the rental housing affordability crisis is like a game of musical chairs in which there is never a chair left for them.”
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