We see Fair Skies on the Horizon

Some buyers I have talked to have expressed concern about how the new tax laws will affect home ownership. However, looking at the 2017 Tax Cut and Jobs Act passed by Congress and signed by the President; we see that it continues to treat real estate as a favored investment.

Tax laws are in place whether you are considering a home to either live in as your primary residence or to use as a rental property.  There are other dynamics to be concerned about that are not, like rising mortgage rates and home prices.

Reasons to consider buying now…

Mortgage interest deductions remain intact for most taxpayers.  Capital gain exclusion for principal residences up to $500K for married couples, $250k for singles also remains in place.  Taxpayers can elect annually to take a newly increased standard deduction or itemize deductions depending on which will benefit them the most.  Therefore you can see what fits your financial situation best.

Most studies in the Phoenix area show that a house payment, including taxes and insurance, will likely be cheaper than paying rent.  Rental rates have continued to skyrocket, so in the future that difference will be even greater.

If you’re thinking about renting vs. purchasing, keep in mind that with a 30 year fixed rate mortgage (which most borrowers are eligible for) the interest rate will lock in your principal and interest payment for the term of the mortgage.  That means that your monthly payment will not increase for the term of the mortgage versus renting with a lease that will potentially increase every year. It’s better to lock in a fixed payment sooner rather than later.  I have seen our home prices go up following a decrease in housing inventory levels over the last four years. Coupled with interest rates continually rising over the last six weeks, this will drastically change how much home you can afford in the near future.

Under the new tax law, there were no changes towards rental properties.  You can still take depreciation and write off expenses, or do a Section 1031 exchange to defer capital gains. I’ve used a 1031-exchange in the sale of one rental property to purchase two rental properties instead of just one.  It’s still a great way to build wealth and increase passive income.

Let us know if you are considering buying or selling and if you have any questions on the new tax laws.  We have tax consultants we would be happy to refer you to.  Contact us today! 480-355-8645 or Info@LocateArizonaHomes.com


A Historical Perspective

Mortgage interest rate history is interesting and rates have the biggest impact on housing affordability. In 1968 (when I was just a little kid) interest rates were 8.5%, but dropped to 7% a year later.  In October 1981, they hit a high of 18.63%.  A $250,000, 30 year fixed mortgage with that interest rate had a monthly principal and interest payment of $3,896.46.  As crazy as that sounds, people were still buying homes and considered them good investments.

I’ve personally had experience with the fluctuation in interest rates: we missed the high in 1981, but the second home that Dan and I purchased during our relocation across the country was in Dallas in 1985.  Our interest rate was 14.25% on an adjustable rate mortgage!  Less than two years later, interest rates were still over 12%.  Using the same example above, the monthly payment would be $2,571.53.  We paid about that when we relocated to California in 1987; our mortgage payment was $2,575 for a house that we bought for $187,500.  Believe it or not, we were excited to be paying only 2/3 of what we had to pay a few years earlier.

We never found anyone whose mortgage we could assume, but if we had we would have been excited about it too.  VA and FHA mortgages were very popular in certain price ranges and allowed anyone to assume the mortgage regardless of their credit.  The person assuming the mortgage was happy getting a 15-20% bigger house for the same payment, while the person selling was free to qualify for another mortgage.

We didn’t see interest rates change too much during the 90’s between when we bought our house in Ohio, and our first home in AZ. They were hovering between 8-9%, which doesn’t seem like a big change.  On a mortgage payment though, it could range from $1,860-2,015 a month.

During the housing bubble, interest rates had dropped to only 6.04% (a steal if you knew what they were before!) and for that $250,000 house your payment was only $1,505.31. By 2009 interest rates had fallen below 5%, and if you were lucky enough to nail the bottom November 2012 with 3.31%, your payment would have been $1,096.27/month.

Rates have fluctuated slightly for the last few years now, but have increased each week for the last six weeks to 4.38%, which would be a payment of $1,240.12. Most of the experts are expecting them to be above 5% by the end of 2018. As one contemplates the interest rates and their history, a half point shift may seem huge today when in reality it’s pretty small.  Young buyers probably have a different perspective though, most are payment-conscious and they’ve only been around long enough to see the $200/month increase.

Still, the average interest rate over the past 47 years is a little over 8%.  Like real estate, the mortgage markets are cyclical.  Rates have been historically low for a long period but will probably continue to rise.  Based on the history, even 8% would be an excellent rate – until it reaches that point again, everything lower is a bargain.  Having a mortgage and owning a home now is still better than trying to save $250,000 to pay cash while spending the same amount of money each month on rent (if not more!).

If you’ve been thinking about buying a home in the near future, contact me today at 480-355-8645 or by email at Info@LocateArizonaHomes.  I’d love to put you in touch with one of our great lender partners and share some of the things we did to make buying a home at a higher interest rate a great option!

 

The “Right” Agent and the “Right” Home

Most of my  years in the real estate business  we have represented almost as many buyers as we do sellers each year. This experience allows us to give buyers insights into the neighborhoods they are considering as well as what Sellers are thinking and how they are responding to offers so the buyer can make their offer stand out. To say the neighborhoods in Phoenix Metropolitan area are diverse is a bit of an understatement. The buyer can find this kind of intel extremely useful (never about a specific house or seller they are considering). Also we can share with the sellers what the buyers are typically thinking as they walk through homes they are considering as well as what is being offered in the competing neighborhoods. The home seller is counting on us to be candid and straight forward in our assessment of their home. But on to the topic…

Some buyers think that finding the right home is the critical part of the buying process and that is how they determine which agent to use. While it is important, there may be a broader skill set to consider when selecting your real estate professional.

The most recent NAR Profile of Home Buyers and Sellers indicate that 52% of buyers do want help in finding the right home to purchase. There was a time when the public did not have access to all the homes on the market, but the Internet has changed that.

Helping to negotiate the price and terms of sale were identified by almost 25% of the buyers. No one wants to pay more than is necessary and the terms of the sale can be as important as the price.

The next largest area of assistance that buyers value has to do with financing and the paperwork. Even if a buyer has been through the process before, it very likely could have been several years and things have probably changed.

Since the cost of housing is dependent on the price paid for the home and the financing, a real estate professional skilled in these specialized areas can be very valuable in finding the “right” home. An agent’s experience and connections to allied professionals and service providers is equally important.

Ask the agent representing you to specifically list the tools and talent they have available to address these areas.

Contact us TODAY, and we will share with you our tools and talents!  480-355-8645 OR Info@LocateArizonaHomes.com

Convincing Advantages with Standard Deduction

Lots of folks  are asking what are the new tax laws going to do to my taxes?

Read on. Then contact me if you need more.

The new tax law doubles the standard deduction and it is estimated that over 90% of taxpayers will elect to use it. However, even without considering tax benefits, homeownership has convincing advantages.

Besides the personal and social reasons for owning a home, one of the most compelling is that it is cheaper. Principal reduction and appreciation are powerful dynamics that reduce the effective cost of housing.

Amortized loans apply a specific amount of each payment to the principal amount owed to retire the loan over the term. Some people consider it a forced savings account; when the payment is made, the unpaid balance is reduced.

The price of homes going up over time is appreciation. While there are lots of variables and it is not guaranteed, it is easy to research the history of an area and make predictions based on supply and demand.

Interest rates are still low and can be locked-in for 30 years. Without considering the tax benefits at all, the appreciation and the amortization dramatically affect the “real” cost of owning a home.

Consider a $250,000 home that appreciates at 2% a year for the next seven years instead of paying $2,000 a month in rent. In the example, the payment is less than the rent being paid even including the property tax and insurance.

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When you factor in the monthly principal reduction and appreciation and consider additional owner expenses like maintenance and possible homeowners association, the net cost of housing is considerably lower than the rent. In this example, reduced cost in the first year alone is more than the down payment required on a FHA loan.

Based on the assumptions stated, the down payment of $8,750 could grow to $73,546 in equity in seven years. Can you name another investment with this kind of potential that also provides you a place to live, enjoy, raise your family and share with your friends?

Use this Rent vs. Own to make projections using your own numbers and price range. We’re available to answer any questions you have and to find out what it will take to own your own home.

We would love the opportunity to help you with any questions you may have about the new tax laws! 

Please call (480-355-8645) OR email Info@LocateArizonaHomes.com.

We look forward to hearing from you!