I came across this article about what could happen to the housing market if we fall off the fiscal cliff…(Huffington Post 12/19/12) While I cannot say I agree with everything this article says, it does make for an interesting read.
Everyone agrees the economy will falter if we go off the fiscal cliff, but how will the tax increases and spending cuts it will trigger impact the housing market?
- Reduced housing demand and construction: Most experts predict the combination of tax increases and spending cuts will push the economy back into recession. This means both new construction and demand for existing housing will wane, quickly reversing the six-month old housing recovery.
- Dramatic reduction in short sales: Failure to reach a budget deal could mean the elimination of the Mortgage Debt Relief Act of 2007, which allows borrowers to avoid paying taxes on the amount of forgiven debt. If eliminated, homeowners who complete a short sale would have to pay income tax on the amount of debt relief. This would deter banks from approving short sales and could weaken home price gains and slow the housing recovery.
- Less capital flows to real estate: If lawmakers don’t act, the capital gains tax will increase from its current 15% to 20% at the start of the year. This increased tax would affect profits made from property sales, a possible deterrent to investing in real estate. The sale of primary residences is exempt from this–up to $250,000 for individuals or $500,000 for a married couple filing jointly.
- Increase in mortgage insurance costs: On January 1, this mortgage insurance tax deduction is set to expire, which will slightly raise costs for those who put less than 20% down and are required to purchase mortgage insurance.
Even if Congress and the President can make a deal on how to reduce spending and raise revenue before the end of the year, it doesn’t mean the real estate market is off the hot seat. Much will come down to the specifics of the agreement, and the challenge for lawmakers will be finding a way to reduce the federal deficit without stunting the housing and economic recovery.
The primary concern most homeowners have is how lawmakers will deal with current tax deductions for interest on home mortgages. Once considered untouchable, elected officials appear to be considering reducing it or eliminating it. Getting rid of it entirely would provide the federal government with an additional $100 billion in revenue a year, which is still a fraction of the 2012 deficit of $1.1 trillion. By comparison, the president’s proposal to raise taxes on the wealthiest two percent of Americans would raise about $160 billion per year for the next decade.
A home owner with a $100,000 mortgage would receive about $520 in tax savings the first year and $15 in the final year of a 30-year mortgage with interest at 3.5%. For someone with a $1 million mortgage, the savings would be around $9,714 the first year and $282 in the final year. For an estimate of how much you’d save, check out the handy calculator at Yahoo Homes.
The mortgage deduction unquestionably supports the housing market by making home ownership significantly cheaper, especially in the first few years of a mortgage. However, critics argue the bulk of the money saved is by wealthier homeowners and little of it ends up in the pockets of the middle class. Consider it a microcosm for all the disagreements in Congress right now, which is exactly why no one is quite sure how an agreement will be reached or what the future holds for the housing recovery.
From the Prudential Real Estate Outlook Survey:
The new quarterly Prudential Real Estate Outlook Survey revealed that nearly two-thirds (64%) of respondents had a favorable perception of the U.S. housing market, a 4-point jump from the first-quarter 2012 survey and a 12-point increase from first quarter 2011. As a matter of fact, nearly seven out of 10 Americans surveyed (69%) also indicated that real estate is a good investment – that’s up 6% from first-quarter 2012 survey results and 17% from first quarter 2011.
Homeownership remains at the core of the American dream, with a solid 78% of respondents believing that owning a home is still very important. A full 98% said homeownership was at least somewhat important. In addition to historically low interest rates, one of the factors dominating the desire to own a home is centered on the family. More than financial security, tax benefits and a good investment, respondents prioritized owning a home as a place to raise a family and have control over their space.
Americans are dreaming with both feet on the ground.
Given the challenges and complexity of today’s real estate market, Americans remain cautious about the home-buying process, with 30% strongly agreeing that the housing crisis taught them to assert careful planning when buying or selling a home.
Cautiousness has also brought with it the willingness and openness to seek professional help in the process. A notable 74% of survey respondents think it’s more important than ever to work with a good agent for the best success in buying or selling a home, up from 72% in the first quarter 2012 survey.
Ten Benefits of Having a Buyer’s Agent
Many unwary home buyers stumble upon a new neighborhood under construction, walk into the on-site sales office, and contractually commit to buying a home through the seller’s or builder’s real estate agent without being represented by their own agent. This is a bad idea for most home buyers. On the surface, it might not seem necessary to involve your own real estate professional in a transaction where the desired property has been identified and viewed, and where you can easily deal directly with a builder or the builder’s agent, but believe it or not, using your own real estate agent is the smart thing to do, not only because doing so provides you with an experienced professional who is looking out to advance and protect your interest (and not that of the seller or builder), but also because it doesn’t cost you a penny since the seller typically pays the real estate commission. Any home buyer who is thinking about new construction should consider the following advantages to using a Buyer’s Agent.
Here are ten advantages to using your own real estate agent when buying new construction.
1. Just as a real estate professional calls on experience and knowledge of an area to help buyers locate pre-owned homes in a community, he or she can also direct buyers interested in newly-built homes to developments and communities that match client specifications.
2. A Buyer’s Agent can recognize and suggest builders with a reputation for delivering a high-quality product, responding quickly to issues, and being financially sound. Not all builders are created equally, and neither are the houses they build.
3. A Buyer’s Agent may be familiar with how a builder prices his or her products and where there may be room to negotiate price or upgrades. Typically builders are not very flexible on price but many have been known to add anything from “free” granite counter tops all they way to “free” bonus rooms to close the deal and some will offer substantial closing cost assistance if you can close by a certain date.
4. Without representation, you are one buyer purchasing only one home, whereas a buyer’s agent can bring more weight to the negotiating table since a buyer’s agent may significantly impact a builder’s bottom line by providing a steady supply of customers. [Note: The builder may require your Buyer’s Agent to accompany you on your first visit to the site. Check with the builder or better yet, play it safe and have your agent accompany you on the first visit.]
5. The lender approval process may go smoother if a Buyer’s Agent is involved scheduling visits, accompanying you to lender meetings, and helping expedite required documents.
6. What might seem like a simple transaction can grow legally complex and risky – you need adequate projections to ensure you don’t forfeit your deposit otherwise have to buy a house that it not what you were promised. A Buyer’s Agent is familiar with those complexities and the risks inherent in the home buying process. When such questions arise, Buyer’s Agents can steer buyers to the right advisors and services.
7. When relocating to a new area, Buyer’s Agents can be particularly valuable resources. In addition to providing local area information regarding schools, day care or elder care services, public transportation, proposed development, and so on, once construction is under way, they can periodically stop by the work site, supply you with progress reports, and photograph or videotape phases of the construction.
8. A Buyer’s Agent can assist you as you face hundreds of design choices and consider which upgrades could potentially add value to the home when it comes time to sell.
9. A Buyer’s Agent can accompany you at the site while you okay the plumbing and electrical locations prior to dry walling, as well as on the walk-through or builder orientation. Recognizing a missing or oddly placed plumbing or electrical outlet is a skill that comes with experience and can save you lots of headaches and money later.
10. Lastly, and as stated above, most often the builder pays the Buyer’s Agent’s commission, thereby allowing you to enjoy the individual attention, support, and protection afforded by your own agent at no cost to you. You enjoy individual attention and support at no cost to you.
This is a little article I had published in the Alexandria Times a while back… the information is still as relevant today as it was when the paper featured the story.
If you are considering purchasing your own home, your timing is great. Interest rates are still at historic lows and the market has shifted to favor the buyer. Now is a great time to buy a home! While purchasing a home and making one of the largest investments of your life can easily be a daunting and overwhelming undertaking, if you go into the process well prepared and with the right support, your first home purchase can be a great experience. Here are some tips from a seasoned professional that should get you off one the right footing.
Get Educated – Before starting out, educate yourself a little bit on the process. Believe me, it is a whole lot less daunting when you at least have an idea of what to expect. Check your local bookstore, or go online, to find one or more many good “how to” instruction guides on buying a home. For example, the U.S. Department of Housing and Urban Development has an entire section on its website (www.hud.gov) devoted to homebuyers. It has a list of common questions from first-time homebuyers, information on mortgage and home-buying programs, access to housing counselors, downloadable tools such as a wish list and home-shopping checklist, tips on selecting a real estate professional, etc. Other informative sites to check out are http://www.Realtor.com and one of my personal favorites, iAlexandriaHomes.com. In addition to printed resources, you should also consider some face-to-face education, which you could find by checking your local newspaper for homebuyer seminars that you can attend. And, of course, you should expect to receive no end of information and education from your real estate agent.
Your real estate professional is also a great resource. Your agent’s job is not only to help you find the right house but to educate you on the home buying process. Do not hesitate to let him or her know that you are new to the process. Your agent will walk you through the steps of the home buying process and help you navigate what would otherwise be a very confusing maze. Your agent expects you to have questions at each step-from house hunting, to making an offer to the closing.
Money Matters – The finances involved in the purchase of a home can be overwhelming to first-time homebuyers and seasoned purchasers alike. Buying a home is often the largest purchase someone will ever make… until he or she goes through the whole process again and buys his or her second, or third, or even forth home. There are questions of affordability, mortgage costs, down payment, closing costs, and making offers to think about.
Affordability – There are mortgage costs, the down payment, and closing costs to think about. By looking at your income and debt ratio, your sales professional can help you calculate how much you can afford each month in mortgage payments. But before determining your price range, you should also take into consideration other factors that will affect your monthly budget once you are a homeowner, such as property taxes, insurance, utilities, and maintenance.
Pre-Approval – Fear of being rejected for a home loan is one of the main concerns for first-time homebuyers and not something you want to be worrying about when looking at homes. To lessen the stress and to make you a more effective negotiator, you will want to get pre-approved for your loan before looking at prospective homes. This pre-approval process is quick and painless and usually only takes a few minutes of your time. Being pre-approved by a lender will not only help you feel more confident, it will also give you an advantage during negotiations. In addition, the fact that your loan has already been approved is of great value to the seller because it shortens the purchase process, and there is less of a chance that the buyer will back out of the sale. If you don’t have a specific mortgage lender in mind, ask your sales professional for a recommendation or two.
Down payment – The down payment amount varies depending on the value of the home you choose and your mortgage lender. The traditional 20% down payment rule is not so much the norm anymore for homebuyers. Often times it is closer to 10% down, and in some a home can be purchased with no money down. Your real estate agent and mortgage lender will be able to explain the different options available to you and help you figure out what makes the most sense for your situation.
Take Your Time – Do not feel pressured into making an offer on the first home you see but do not pressure yourself into looking at every single house for sale. These two extremes are common mistakes of many first-time homebuyers. You want to make sure you view enough homes that you are able to get a feel for the marketplace but you do not want to view so many that you skip over the perfect home. Your agent knows and appreciates the fact the process takes time and should encourage you to move at a pace with which you are comfortable. With the right support and professional resources, and a little invested time and energy on your part, the American dream will come true for you too.
Above all, remember there are no silly questions. Make sure you understand and are comfortable with every aspect of the transaction. Your real estate professional can be an invaluable asset in helping you make educated decisions so that your first home purchase is a rewarding experience.
Questions? Please feel free to ask.
I love real estate… ask anyone and they will tell you. Once I start talking about it, I cannot seem to stop.
Over time it seems I have answered some questions so many times that it only seemed logical to write it all down some place in case someone out there on the Internet stumbled across my little blog.
Is now a good time to buy?
Should I sell now or rent my house out until the market bounces back?
What is an escalation addendum?
Do you know where I can find a short-term rental?
Give me some time and you will find the answer to these questions and more on this little blog.
Have a question? Feel free to ask, I will give an unbiased answer!