Monthly Archives: February 2017

Video: Now is a good time to buy a home

In the latest quarterly Housing Opportunities and Market Experience (HOME) respondents were asked about their confidence in the U.S. economy and their housing expectations in 2017.

Iowa REALTORS® Fight For Home Savings Accounts

For some time, parents have been able to save money for their children’s education through tax-favorable 529 accounts. Now, the Iowa Association of REALTORS® is fighting to give similar benefits to first time home buyers.

“With home prices slowly rising and increasing student debt, young Iowans are having a hard time buying their first home. According to a recent housing study, 80% of Iowans support the First Time Home Buyer Program, ” said Gavin Blair, CEO of the Iowa Association of REALTORS®.

Proposed legislation would allow a first-time buyer to save $2,000 per year or $4,000 per year for two first time buyers filing taxes jointly. Parents and grandparents can also contribute to the fund. The funds could then be used for a down payment and closing costs for a home purchased in Iowa.

As part of their effort to get the legislation passed, 300 Iowa REALTORS® recently spent a day talking with state legislators. Iowa Realtors have been working the past few years to get this legislation passed. With renewed support and new leadership in the Iowa Senate and House, Iowa Realtors® are optimistic that the bill will pass this year.

Home savings accounts are an innovative way to make home ownership a reality for more people. Three states — Virginia, Montana, and Colorado — have now passed legislation that authorizes the accounts. The Iowa Association of REALTORS® is working hard to add Iowa to that list. Learn more at iowafirsthome.com.

Rent vs. Buy

Rent vs. Buy

Christopher Proctor has been renting a home for his family for the past eight years.

It’s a nice home, albeit on the smaller side, but it’s practical. Three bedrooms, which is sufficient for him, his wife and two teenage sons.

But after all this time, the rent is starting to become a headache.

Proctor, originally from Lincoln, Nebraska, moved to Chicago where he met his wife Dawn and his sons were born.

But, when Proctor’s company moved his job to Philadelphia, he had to find a place for his family to live.

“Coming to the East Coast was a real challenge on many levels, but especially financially,” he said. “I was making a decent salary, one that would have been able to buy a nice house back home in Nebraska, but the cost of living in Philly is crazy.”

Wanting to set up in a suburban community with a reputable school district for his sons, Proctor decided to rent a home at the time, since it seemed to make more sense.

The thought process was to rent until he can save enough to buy a home in a couple years.

Well, a couple years has become eight. The rent has increased at a faster pace than his salary. His wife has had to take on a second part-time job to help cover expenses. It’s gotten to the point where the Proctors are spending more than half of their income on rent.

So, why not stop renting and buy?

“I don’t think we can afford it,” Proctor said.

Then again, maybe he can.

Confusion About Down Payment Requirements

“Many renters can, in fact, qualify to purchase a home,” Danielle Hale, managing director of housing research for the National Association of REALTORS® (NAR), said. “They may not realize it, but given the low down payment options that are out there, they can take a more serious look at home ownership than they probably expect.”


“Many renters can, in fact, qualify to purchase a home. They may not realize it, but given the low down payment options that are out there, they can take a more serious look at home ownership than they probably expect.”


In fact, even with housing costs on the rise and steep closing costs and other taxes on buying a home, in most areas of the country it is more affordable to own a home than it is to rent one.

For the past two years, NAR has been measuring home-owner and non-owner sentiment in housing as part of the Housing Opportunities and Market Experience (HOME) survey.

Updated quarterly, NAR tracks data regarding things like home ownership intent or desire. To see if people think now is a good time to buy a home or if it makes sense to stop renting and buy or to continue renting.

The people polled in this survey are the same average Americans who drive the housing trends and markets today. Therefore, the HOME survey can be very beneficial when deciding what to expect next and help shape important decisions.

The survey shows that half of all renters in America, much like Proctor, feel like they can’t afford to buy a home.

“Some of that we found is attributable to student loan debt and they don’t feel comfortable taking on additional debt,” said Jessica Lautz, managing director of Survey Research and Communication for NAR’s research division. “The other aspect of it is the misperception of down payment options.

Thirty-nine percent think they need more than 20 percent down to purchase a home. Eighty-seven percent think they need more than 10 percent. There’s a gap in knowledge between low down payment options and what they believe they need.”

Hale added that the biggest problem is a lack of education on how the process works.

“We know that in the long run homeowners accumulate wealth as they pay down their mortgage, and home ownership remains part of the American Dream. Our data shows that right now it’s probably more affordable for renters to buy a home than they realize.”


“You can put as little as 3.5 percent down using a Federal Housing Administration loan. A lot of these people could afford a monthly mortgage given the prevailing home prices…”


“You can put as little as 3.5 percent down using a Federal Housing Administration loan. A lot of these people could afford a monthly mortgage given the prevailing home prices, especially in markets in the Midwest and South. These are the areas where the greatest share of renters could stop renting and potentially become a homeowner.”

When he was told he could buy a home with as little as 3.5 percent down, Proctor was apoplectic.

“That’s crazy,” he said. “Seriously? And here I’ve thought forever that you need 20 percent down or 15 percent at least with maybe some help from the seller. Three-and-a-half percent? That’s like only three months rent, that’s definitely doable.”

Is it more affordable to own than rent?

And it’s something that many REALTORS® want to see more people understand and be a resource to help them learn the ins and outs of the home buying process.

“Homeowners are more rooted,” said Lawrence Yun, Chief economist for NAR. “They stay in the community for a much longer period – on average about 10 years. Whereas renters move every two or three years, so homeowners have a more vested interest in community development.”

NAR has looked at this data in the top 100 metropolitan markets in the country and in more than half of them, it is still more affordable to own than rent.

Hale said that nationally, rent is increasing about 4% annually, but that if you isolate that to specific metropolitan areas, the rise in rent can be 25% or even higher – which really can put renters in a financial bind.

“Non-owners typically are younger (59% are under 35) and they typically have a household income under $50,000 annually,” said Hale.

“Imagine that in a big city?” said Lautz. “The rent can be overbearing. It’s likely better to try and buy a home in that case.”

And while more than half of non-owners think now is a good time to buy a home, that sentiment has dropped from 63% to 55% in the past 12 months, meaning the rising cost of living is adversely affecting the dream of owning a home on millennials.

Which is why they should seek out help in the form of real estate experts who can help them to understand their options, show them listings available within their budget and put them in touch with mortgage experts who can help them understand what their budget is.

It’s a step Christopher Proctor is going to take now that he knows, as he more vigorously looks to become a homeowner in a major metro market.

“I hope my story helps others to recognize the same thing, and to be proactive and go buy a home for themselves,” he said.

Watch the video on the “rent vs. buy” question

Home Prices Hit New Highs in 2016

Sold!
Existing home sales increased by 3.3 percent from the third to the fourth quarter in 2016.

In an interesting dichotomy, the sale of homes increased in 2016 while simultaneously becoming even less affordable for potential buyers.

According to a quarterly report by the National Association of REALTORS® (NAR) for the final three months of 2016, not only were these trends identified, but also the sales prices in more than half of the markets tracked since 2005 have equaled or surpassed previous peak levels.

The real estate market continued to flourish in 2016 in the majority of the country, but with prices and mortgage rates spiking, the future remains cloudy for affordable housing options if these trends continue.

“Buyer interest stayed elevated in most areas thanks to mortgage rates under four percent for most of the year and the creation of 1.7 million new jobs edging the job market closer to full employment,” said Lawrence Yun, chief economist for NAR. “At the same time, the inability for supply to catch up with this demand drove prices higher and continued to put a tight affordability squeeze on those trying to reach the market.”


Of the 178 metropolitan areas measured in the ongoing study, 89 percent saw an increase in the price of the median existing single-family home compared with the fourth quarter of 2015.


Of the 178 metropolitan areas measured in the ongoing study, 89 percent saw an increase in the price of the median existing single-family home compared with the fourth quarter of 2015.

Additionally, more markets saw increases in the fourth quarter of 2016 than in the third quarter (87 percent increase).

“Depressed new and existing inventory conditions led to several of the largest metro areas seeing near or above double-digit appreciation, which has pushed home values to record highs in a slight majority of markets,” Yun said. “The exception for the most part is in the Northeast, where price growth is flatter because of healthier supply conditions.”

The national median existing single-family home price in the fourth quarter of 2016 was $235,000, an increase of 5.7 percent from the fourth quarter of 2015 ($222,300). Similarly, the median price during the third quarter of 2016 increased 5.4 percent from the third quarter of 2015.

At the end of 2016, there were 1.65 million existing homes available for sale, a drop of 6.3 percent from the end of 2015 and the lowest level since NAR began tracking the supply of all housing types in 1999.

“The prospect of higher mortgage rates and more home shoppers in coming months should be enough of an incentive for those serious about buying to start their search now,” said NAR President William E. Brown, who is also a REALTOR© from Alamo, Calif. “There are fewer listings on the market, but also a little less competition than what’s expected this spring. Buyers may find just the home they’re looking for at a good price and without the possibility of having to outbid others.”

Existing home sales, which include both single family homes and condominiums, increased by 3.3 percent from the third to the fourth quarter in 2016 and are 7.1 percent greater than where they were a year earlier.

Tax reform must protect homeownership

U.S. Capitol

The 115th Congress is gearing up for an intense legislative session, and tax reform is set to play a starring role.

That’s good.

America’s tax system deserves an overhaul, with an eye toward ensuring individual tax rates are as low as possible while still providing for balanced fiscal policy.

Congressional leaders on both sides of the aisle have done tremendous work to get us there, and we’re hopeful this conversation continues.

For the roughly 75 million home-owning families across the country, the stakes couldn’t be higher.

Important tax incentives for home ownership and real estate investment like the mortgage interest deduction, state and local property tax deduction, and 1031 like-kind exchange are critical. They’re key to protecting home values, supporting investment and helping new buyers enter the market.


“American homeowners already pay between 80 and 90 percent of all federal income taxes. Without the MID, that figure could rise to 95 percent.”


Here’s why:

First, American homeowners already pay between 80 and 90 percent of all federal income taxes. Without the MID, that figure could rise to 95 percent. It’s particularly troubling considering the fact that more than half of families who claim the MID earn less than $100,000 per year.

The state and local property tax deduction is essential to homeowners as well. Current homeowners know that paying property taxes is a part of owning a home, but they also know those payments to state and local governments can be deducted from their federal income tax.

Without that deduction, homeowners would get taxed on the income used to pay their property taxes. This is a form of “double taxation” that hits home for lower and middle-income households.

The value of these tax incentives is already baked into home prices, meaning there’s a very real likelihood that eliminating those benefits could cause home values to plummet.

Many metro areas have experienced a significant rise in equity since the Great Recession, but others struggle to regain their pre-housing crash value. A steep drop in home prices, even temporarily, could put millions of homeowners underwater again on their mortgages. That pulls the rug out from under homeowners who built budgets or long-term retirement plans around the current rules.

But outright elimination of these incentives isn’t the only threat to home ownership. Proposals to double the standard deduction, as the House of Representatives has put forward, would effectively negate the importance of these tax provisions for all but the most affluent taxpayers.

That’s a huge step in the wrong direction.

For over a century, America has incentivized home ownership through the tax code, and for good reason. Purchasing a home is a way for families to put down roots and invest in their communities. It’s also an important part of economic growth, with housing accounting for 16 percent — or $2.9 trillion — of the Gross Domestic Product.

Homeownership is a key driver of wealth accumulation for millions of families, with the median net worth for homeowners standing at $200,000 versus just over $5,000 for renters.

For most homeowners, their home is their single largest asset. Home ownership is also a way to protect families against inflation and rising costs for housing, because while rents may rise, a fixed-rate mortgage remains the same month after month.


“Most homebuyers put up a significant down payment just to get in the door, with the first few years of mortgage payments comprised primarily of interest on the loan.”


Like any investment, purchasing a home comes with some level of risk. Most homebuyers put up a significant down payment just to get in the door, with the first few years of mortgage payments comprised primarily of interest on the loan.

The MID and other tax incentives help alleviate that burden, making home ownership a viable option for those of modest means.

That’s how younger homeowners are able to grow their net wealth protect their income, “roll up” to a larger home when they have a family or grow a nest egg for retirement.

We know there’s a lot on the line for real estate investors as well. The 1031 exchange is a critical tax provision that allows investors to trade a business or investment asset for a similar property, deferring any tax until the investment is “cashed out.”

The result is that rather than simply selling a property and taking gains, investors have an incentive to reinvest those funds back into the business and the neighborhood. That’s good for the recipient as well as the community, but the tax incentive is on the chopping block as Congress considers reform.

Those incentives must be preserved.

Of course, tax reform ought to be proactive. Congress should look to reinstate tax relief for mortgage debt cancellation, so homeowners going through a short sale aren’t taxed on the “phantom income” their forgiven debt represents. And, as home prices rise, Congress should also index the capital gains exclusion for home sales to account for inflation and preserve the benefit for future homeowners.

The reality is that whether you rent, buy or invest, everyone is counting on a tax proposal that moves the economy forward. Protecting tax incentives for home ownership and real estate investment is key to that success.

Originally Published in The Hill.

Brown is president of the National Association of Realtors.