The Joys of Homeownership
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Today's experts spout off the latest statistics about long-term wealth, home values, and interest rates, yet there's a much more sentimental side to homeownership. In fact, many home buyers are drawn to homeownership for these warm and fuzzy reasons.
Thursday, October 20, 2011
The Joys of Homeownership
It's Time to Buy That House
It's Time to Buy That House
Two key measures now suggest it's an excellent time to buy a house, either to live in for the long term or for investment income (but not for a quick flip). First, the nation's ratio of house prices to yearly rents is nearly restored to its pre-bubble average. Second, when mortgage rates are taken into consideration, houses are the most affordable they have been in decades.
For most home buyers, mortgage rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains. As a result, house payments are more affordable than they have been in decades. The National Association of Realtors Housing Affordability Index hit 183.7 in August, near its record high in data going back to 1970. The index's historic average is roughly 120. A reading of 100 would mean that a median-income family with a 20% down payment can afford a mortgage on a median-price home. So today's buyers can afford handsome houses—but prudent ones might opt for moderate houses with skimpy payments.
For example, the median home in the greater Phoenix market, including houses, condos and co-ops, costs $121,700, according to Zillow.com. With a 20% down payment and a 4.12% mortgage rate, a buyer's monthly payment would be about $470. Rent for a comparable house would be more than $1,100 a month, according to data provided by Zillow.com.
Houses aren't the magic wealth creators they were made out to be during the bubble. But when prices are low, loans are cheap and plump investment yields are scarce, buyers should jump in.
—Jack Hough is a columnist at SmartMoney.com.
Wednesday, October 19, 2011
What's the Best Day to List a Home?
What's the Best Day to List a Home?
List a home on Friday and you’ll have a greater chance of success when selling it, according to Redfin, which analyzed 1.2 million listings in 16 markets over 21 months to determine the best day of the week for selling a home.
In every market analyzed, Redfin found that homes listed on Friday were 12 percent more likely to sell within 90 days. What’s more, the company found that homes listed on a Thursday or Friday sold for slightly closer to the list price: 94.4 percent compared with 93.9 percent for homes listed on a Sunday or Monday.
Homes listed on Friday were viewed 19 percent more by buyers than homes listed on any other day of the week, according to Redfin’s study.
"Our theory is that since home buyers tend to tour homes on the weekends (Saturday and Sunday have 2.5 times more tours per day than weekdays), homes listed on Fridays are the freshest in buyers' minds when they're making their weekend plans,” the brokerage said about the findings. “It also seems likely that many home buyers sort their weekend 'must see' lists by date listed, going to see the freshest homes first so they have the best chance of getting in on a potential good deal before other buyers. These factors put homes listed on Friday in front of more touring buyers on the weekend. More tours leads to more offers, and more offers leads to a better price and a better chance of selling.”
Source: “Best Day to List Real Estate for Sale: Friday,” Inman News (Oct. 18, 2011)
Friday, October 14, 2011
Tax Benefits of Home Ownership Are Almost Too Good to Be True
Tax Benefits of Home Ownership Are Almost Too Good to Be True
Uncle Sam helps you in three ways when you own your home.
They say there are only two things you can count on in this world: death and taxes. But when it comes to owning a home, it appears there may be a third. And that is the favorable treatment of home ownership by the Internal Revenue Service.
1. The purchase
When buying your own home, most of the expenses are not tax deductible. But there is one exception that is worth finding. The IRS says you can deduct interest in the year that it is paid, and that is usually part of each monthly loan payment. In addition, if the day you purchase is on any day other than the first of the month, you will likely pay a charge for "daily interest" between the day of closing and the end of the month. Look on line 901 of your HUD settlement statement.
Much more importantly, the IRS says that, in most cases, loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. Look at lines 801 and 802 of your settlement statement and see if you hit the jackpot. This is a particularly unusual deduction because you get the benefit even if the seller paid your closing costs. And because origination fees of 1% and more are common, this can amount to a lot of cash.
2. Mortgage interest
In general, you can deduct interest charged on a loan used to acquire or improve your principal residence in the year that it is paid. In the early years of a loan, most of your monthly payment is interest, so this can really add up. If you are in a 28% federal tax bracket, this can have the effect of lowering your borrowing costs by almost a third, depending on which state you live in. This is truly nothing more than a subsidy to home owners, and it's a very popular deduction. In addition, you can always deduct interest on an additional $100,000 of mortgage debt, which can be used for any purpose. This is called the "Home Equity Loan" exception, and it allows you to tap into your home equity for any purpose. This gives home owners the ability to do what is called "debt-shifting." For example, if you live in an apartment and have a credit card balance of $10,000 at 18% interest, none of that interest would be deductible. But if you bought a house, obtained a home equity loan for $10,000 and paid off the credit card, then ALL of the interest expense becomes automatically deductible. Furthermore, the rate on the home equity loan is likely to be around prime plus one or two, usually much lower than credit card rates. This same technique works with any and all personal debt, from car loans to consolidation loans - with only one hitch. In every home equity loan, you have pledged your house as collateral for the loan. If you fail to pay the payments as agreed, you could lose your house to foreclosure. So be careful in using this technique.
3. The sale
This is the best. In fact, I can hardly believe this myself. Here's how it works:
If you have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 on the sale of that house and pay no federal income tax whatsoever. That's assuming you are married - singles get up to $250,000 tax free. And here comes the kicker:
You can do this as often as every two years for the rest of your life. This is as good an excuse for getting married as I have ever heard. Buy a fixer-upper in an up and coming neighborhood, work on it nights and weekends for two years, then sell it at a nice profit and pocket the cash, totally free of federal taxes. And most states recognize the federal exclusion, so you put the cash away totally tax free. You don't have to re-invest, you don't have to be age 55, and you can do this every two years forever. No, I'm not kidding.
The one restriction is that you MUST own and occupy the house as your principal residence, so don't try this on a rental property by pretending you live there when you don't. And there are some unclear rules about how you can take a partial exclusion if you live there less than two years, but we don't really know what they mean yet, so I recommend you stay there two years.
Many of these benefits came into being with the 1997 tax law, but lots of folks are just finding out about them now, so buy and sell to your heart's content. Just don't plan on staying forever!
By John Adams
Thursday, October 13, 2011
Forget my Single Digit Commission - Take a 28% Hit Instead!
Forget my Single Digit Commission - Take a 28% Hit Instead!
Recently a REALTOR® emailed NAR Research, asking about the advertising site ForSaleByOwner.com. “ForSaleByOwner” states that with a FSBO, “Sellers save big by not paying a hefty 6% commission. They go on to state: “According to the National Association of Realtors (NAR), for sale by owner sellers not only sell faster, but they usually get closer to their asking price.”
We thanked the REALTOR® for alerting us to the website’s statements. This advertisement is an example of the old phrase, “We gave them the facts, just not all the facts.” Here are more facts to take into consideration:
- In 2010 for an arms-length sale (this means you didn’t sell it to your sister or business partner), the median sale price through a Realtor® was $200,000 for new and existing homes combined, according to NAR’s Profile of Home Buyers and Sellers 2010. The comparable FSBO price was $ 155,700. Avoiding the commission results in a sales price that is 28 percent lower—not a very smart idea.
- “ForSaleByOwner” is correct that FSBO’s sell faster—but they neglect to mention that the faster sale is caused by significant under-pricing of the property, something a Realtor® knows to avoid. Of course it sold faster…it was priced 28% less. Every buyer is looking for deal.
- And of course FSBO’s do actually sell closer to asking price—because the asking price is set significantly below market. If it’s a deal, jump on it!
The information on the website is extremely misleading – and wrong! Their final comment may be their worst: “Despite what an agent might tell you, selling your home isn’t difficult with ForSaleByOwner.com there to help you along the way.” Remember the recent article where the founder of ForSaleByOwner.com used a REALTOR to sell his home?!
In fact, many FSBO properties are eventually listed with REALTORS® (about 90% of all FSBO properties are listed with a REALTOR within 90 days) in order to get them sold. Unfortunately, by that time, the properties are “shopworn” and stale. Typically a REALTOR® can get a better price than a FSBO, but the price is generally less than what could have been obtained if the seller had initially listed with a REALTOR®.
On October 7, 2011, in Economist Commentaries, by Jed Smith, Managing Director, Quantitative Research
Fall Lawn Care: 4 Ways to Say G'Night For The Winter
Fall Lawn Care: 4 Ways to Say G’Night For The Winter
Labor Day through Halloween is your window for preparing lawns for a lush spring.
“I’m already thinking about next year,” says John Dillon, who takes care of New York City’s Central Park, which features 200 acres of lawn in the middle of Manhattan. “The grass I grow this fall is what will be there next spring.” Fall lawn care is no walk in the park. It’s hard work, and Dillon guides you through the four basic steps.
1. Aeration
Aeration gives your lawn a breather in autumn and provides room for new grass to spread without competition from spring weeds. Aeration tools pull up plugs of grass and soil, breaking up compacted turf. That allows water, oxygen, and nutrients to reach roots, and gives seeds room to sprout. If kids frequently play on your lawn, plan to aerate twice a year — fall and spring. If your lawn is just for show, then aerate once a year — and maybe even once every other year.A hand-aerating tool ($20), which looks like a pitchfork with hollow tines, is labor-intensive and meant for unplugging small sections of grass. Gas-powered aerating machines (rental, $20/hour) are about the size of a big lawn mower, and are good for working entire lawns. Bring some muscle when you pick up your rental: Aerating machines are heavy and can be hard to lift into your truck or SUV.Depending on the size of your property, professional aeration costs about $150.
2. Seeding
Fall, when the soil temperature is about 55 degrees, is the best time to seed your lawn because turf roots grow vigorously in fall and winter. If you want a lush lawn, don’t cheap out on the seed.Bags of inexpensive seed ($35 for 15 pounds) often contain hollow husks, weed seed, and annual rye grass seed, which grows until the first frost then drops dead. Splurge on the good stuff ($55 for 15 pounds of Kentucky Bluegrass seed), which resists drought, disease, and insects.Water your new seed every day for 10 to 20 days until it germinates.
3. Fertilizing
A late fall fertilization — before the first frost — helps your grass survive a harsh winter and encourages it to grow green and lush in spring. Make your last fertilization of the year count by choosing a product high (10% to 15%) in phosphorous, which is critical for root growth, Dillon says.Note: Some states are banning phosphorous-rich fertilizers, which are harmful to the watershed. In those places, look for nitrogen-rich fertilizers, which promote shoot and root growth. Check with your local extension service to see what regulations apply in your area.
4. Mulching
Instead of raking leaves, run over them a couple of times with your mower to grind them into mulch. The shredded leaves protect grass from winter wind and desiccation. An added bonus — shredded leaves decompose into yummy organic matter to feed grass roots.A mulching blade ($10) that attaches to your mower will grind the leaves even finer.
Published: September 16, 2011
Wednesday, October 12, 2011
Beauty Contest and Price War
Buyers want a ‘Beauty Contest’ and a ‘Price War’
Buyers are still looking for homes, but they won’t settle for anything less than a great deal, and it must be in move in ready condition, and look spectacular. This means sellers are in a beauty contest and price war at the same time. A few years ago, buyers were willing to take a great deal, even if it wasn’t in perfect condition. Not anymore.
"All the buyers across the board want everything in a house,” says Karin Batterton, a Coldwell Banker real estate agent in Baltimore. "They want it completely done. They want all the newest, trendy materials, and they want it for 2005 prices."
Regardless of buyers’ high desires these days, the homes that are selling tend to be the ones where sellers price their homes the most competitively. "When you have realistic sellers, then we have competitive bidding on houses and you might even see that price go up," Batterton told WBAL-TV. "When you have an unrealistic seller, then you have a house on the market for a long time, and it just depends."
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